Document of The World Bank Public Disclosure Authorized
ReportNo. 13468-CHA
STAFF APPRAISAL REPORT Public Disclosure Authorized
CHINA
SICHUAN POWER TRANSMISSION PROJECT Public Disclosure Authorized JANUARY 20, 1995
Public Disclosure Authorized Industry and Energy Operations Division China and Mongolia Department East Asia and Pacific Regional Office CURRENCY EQUIVALENTS (As of December 1, 1994)
Currency = Yuan (Y)
Y 1.00 = 100fen $1.00 = Y 8.5 Y 1.00 = $0.11 WEIGIITS AND MEASURES km Kilometer (= 0.62 miles) kWh Kilowatt hour (= 860.42 kcals) GWh = Gigawatt hour (1,000,000 kilowatt hours) TWh = Terawatt hour (1,000,000,000 kilowatt hours) kW = Kilowatt (1,000 watts) MW = Megawatt (1,000 kilowatts) GW = Gigawatt (I million kilowatts) kV = Kilovolt (1,000 volts) kVA = Kilovolt-ampere (1,000 volt-amperes) MVA = Megavolt-ampere (1,000 kilovolt-amperes) mf = Milligram m = Cubic meter tce tons of standard coal equivalent ABBREVIATIONS AND ACRONYMS USED BERIWREP - Beijing Economic Research Institute for Water Resources and Electric Power CNPC - China National Petroleum Corporation CRISPP - China Reform, Institutional Support and Preinvestment Project EAR - Environmental Assessment Report EHDC - Ertan Hydroelectric Development Corporation GEF - Global Environment Facility GNP - Gross National Product HIPDC - Huaneng International Power Development Corporation MOEP - Ministry of Electric Power MOF - Ministry of Finance SAA - State Audit Administration SDB - State Development Bank SEDC - Sunblast Energy Development Company SEPA - Sichuan Electric Power Administration SEPC - Sichuan Electric Power Company SIC - Sichuan Investment Company SOEs - State-Owned Enterprises SEIC - State Energy Investment Corporation SPC - State Planning Commission SPG - Sichuan Power Grid SWEPDI - South West Electric Power Design Institute
FISCAL YEAR January 1 to December 31 CHINA SICHUANPOWER TRANSMISSIONPROJECT
LoAN AND PRoJEcr SUMMARY
Borrower: People's Republic of China
Beneficiary: Sichuan Electric Power Company (SEPC)
Amount: $270.0 million equivalent
Terms: Twenty years, including a five-year grace period, at the Bank's standardvariable interest rate.
Onlending Terms: The proceeds of the loan would be onlent from the Borrower through SichuanProvince to the Beneficiaryunder a subsidiaryloan agreementon the same terms and conditionsas the Bank loan, with the Beneficiarybearing the foreign exchangerisk.
Project Objectives and Description: The main objectivesof the proposed project are to: (a) alleviatean acute shortage of electricity by the construction of a 500-kV transmissionnetwork for connectingthe ongoingErtan hydroelectric project to the Sichuan power grid, as well as reinforcing the existing power transmission system; (b) assist in designing and implementinga time-boundprogram to implementpower subsector reforms in Sichuan Province; (c) support the implementationof further power tariff rationalization; (d) promote transfer of contemporary technologies for extra-high voltage transmission networks; (e) strengtheninstitutional capabilities for environmental management and resettlement planning; and (f) upgrade managementand operation capabilities through well-focusedstaff training programs. The proposed project would include: (a) constructionof a new 500-kV transmission network consisting of about 2,260 km of 500-kV transmissionlines, five transformer substations (5,250 MVA) and one 500-kV switching station, and reinforcement of the existing transmission network; (b) carrying out of environmental management and resettlement programs; (c) extension of technical assistance for implementationof SEPC's reform plan, organization improvements, and development of accountingand financialmanagement systems; and (d) provisionof engineering and construction management services and training. - ii -
The feasibility study and design report for the project was completedby consultantsin 1993.
Benefits and Risks: The project will greatly increase the critically needed power transmission capability of Sichuan Province and the Southwest China power grid as a whole. The project is clearly part of the least-cost developmentprogram for meeting future power supply needs. The internal economic rate of return of the full Ertan hydroelectric generation and transmission project is estimated at about 17 percent; the rate of return for the transmissioninvestment alone is considerably higher. Other intangible benefits are also important, such as enterprisereform and institutionaldevelopment, improved power grid operation, and the favorable influence on society at large by helping relieve hardships caused by the acute power supply shortages. Also, through the project, the Bank will be able to support the Governmentspower subsector policy and further pursue its sectoral objectives in China. The technical and economic feasibility of the project has been well established. In view of the advanced preparatory works, risks associated with project construction,cost overruns, and implementationdelays are withinreasonable limits and manageablewith the agreed supervision arrangements and involvement of competent engineering consultants. Particular attention will be given to the safety aspects of the project, and to capabilities and performance of major contractors. Failure to implementthe power subsectorinstitutional and pricing reforms in an efficient and timely manner is another risk that would be addressed through active and continuous sector work and supervisionof the project. The economicrisks would be minimal. Both the borrower and the beneficiary have given assurance that tariff increases required for SEPC to achieve its financial targets will be forthcoming, and China's record in this regard has been good. The project has been designed to comply with applicableBank and Chinese standards in order to minimize the environmentalimpact. An environmentalmanagement program will be included under the project to prevent and reduce the possibilityof developingany adverse environmentalproblems. Estimated Costs: Local Forein Total ($ million)
A. TransmissionNetwork Expansion Preparatoryworks 68.2 0.0 68.2 Civil works and installations 123.7 0.0 123.7 220-kV transmissionsystem 128.4 0.0 128.4 500-kV transmissionlines 130.0 60.2 190.2 500-kV substationsequipment 40.1 175.4 215.5
B. Resettlementand Rehabilitation Land acquisitionand relocation 12.2 0.0 12.2
C. TechnicalAssistance Preparation/lImplementation Engineeringand administration 12.0 4.2 16.2
Institutional Development Environmentalprotection 0.3 0.5 0.8 Reform plan and managementinformation systems 1.0 1.7 2.7 Training 1.0 3.3 4.3
Base Cost 516.9 245.3 7622
Contingencies: Physical 46.6 15.1 61.7 Price 37.9 12.6 50.5
Total Proiect Cost 601.4 273.0 874.4
Interest during construction/a 151.2 53.1 204.3
Total FinancingReuired 752.6 326.1 1.078.7
FInancing Plan:
State DevelopmentBank 526.8 37.2 564.0 SichuanInvestment Company 150.5 10.6 161.1 SichuanElectric Power Company 75.3 5.3 80.6 IBRD 0.0 270.0 270.0 IDA (CRISPP)/b 0.0 3.0 3.0
Total 752.6 326.1 1.078.7
/a Interest during construction(IDC) is based on onlendingrates for projected disbursementsof loan proceeds. The foreign currencyportion of IDC is based on the Bank's variable loan rate. /b CRISPP (Credit 2447-CHA). - 1v -
Estimated Disbursements:
Bank FY 1995 1996 1997 1998 1999 20 ------($ million) ------
Annual 22.5 64.2 75.1 62.8 36.1 9.3 Cumulative 22.5 86.7 161.8 224.6 260.7 270.0
Poverty Category: Not applicable.
Economic Rate of Return: 17 percent
Map: IBRD 25932R v
CONTENTS
1 The Energy Sector ...... 1
A. Overview ...... 1 B. Energy Sector Issues ...... 2 C. Energy Sector Strategy ...... 5 D. Bank Role in the Energy Sector ...... 6
2 The Power Subsector ...... 8
A. Background ...... 8 B. Power Sector Reform ...... 9 C. Power Pricing ...... 12 D. Electricity Conservation and Environmental Protection ...... 13 E. Power System Planning and Technology Transfer ...... 14 F. Role of the Bank in the Power Sector ...... 15
3 The Beneficiary ...... 18
A. Legal Status and Organization of SEPC ...... 18 B. Action Plan to Commercialize SEPC ...... 19 C. Management ...... 22 D. Staffing and Training ...... 22 E. Planning, Budgeting and Control ...... 23 F. Accounting ...... 23 G. Audit ...... 25 H. Billing and Collections ...... 25 I. Electricity Tarifs ...... 26
This report is based on the findings of an appraisal mission that visited China in June/July 1994. The report was prepared by V. Mastilovic (Task Manager), S. Kataoka (Senior Power Engineer), H.E. Sun (Financial Analyst), R. Taylor (Senior Economist), N. Berrah (Senior Economist), J. Fritz (Environmental Engineer), Y. Zhu (Resettlement Specialist), and K.C. Ling (Consultant). Peer reviewers comprised: W. Cao (technical), M. Layec (economic), and S. Shum (institutional and financial). The Division Chief is Richard S. Newfarmer, and the Department Director is Nicholas C. Hope. - vi -
4 The Power Market and Progmm ...... 28
A. The Sichuan Power Grid ...... 28 B. Load Forecast ...... 29 C. Power Development Program ...... 29 D. Electricity Conservation ...... 30
5 The Project ...... 32
A. Project Objectives ...... 32 B. Project Description ...... 32 C. Cost Estimate ...... 35 D. Financing Plan ...... 35 E. Procurement ...... 37 F. Project Implementation ...... 38 G. Disbursement ...... 38 H. Environmental Considerations ...... 41 T. Relocation Aspects ...... 42 J. Project Risks ...... 42 K. Monitoring and Reporting ...... 43
6 Fiancial Aspects ...... 44
A. Introduction ...... 44 B. SEPC's Past and Present Financial Performance ...... 46 C. Financial Performance Targets ...... 47 D. Future Finances ...... 48
7 Economic Justification ...... 50
A. Project Benefits ...... 50 B. Least-Cost Analysis ...... 50 C. Economic Rate of Return ...... 51
8 Agreements and Recommendation ...... 52
ANNEXES
1.1 Primary Energy Output in China (1949-93) .57 1.2 Total Production and Consumption of Energy vs. GNP Growth 58
2.1 Installed Capacity, Electricity Generation, and Consumption in the Power Subsector .59 2.2 Electricity Consumption by Sectors ...... 60 2.3 Major Ongoing Power Projects with External Financing ...... 61 2.4 Future Thermal Power Projects under BOT and BOO Arrangements . 62 - vii -
3.1 Action Plan for Commercializationof SEPC ...... 63 3.2 PerformanceIndicators for Sichuan Power System ...... 68 3.3 Staffing of SEPC ...... 69 3.4 Schools and Training Centers Under SEPC ...... 70 3.5 Power Pricing in Sichuan Province ...... 71
4.1 Installed Generating Capacityof Sichuan Power Grid ...... 78 4.2 TransmissionNetwork of Sichuan Power Grid ...... 79 4.3 Energy Generation of Sichuan Power Grid ...... 80 4.4 Energy Consumptionby Category of Consumersin Sichuan Province . 81 4.5 Energy Forecast for Sichuan Power Grid ...... 82 4.6 SEPC's Power DevelopmentProgram (1994-2003)...... 83
5.1 Project Description ...... 85 5.2 ConsultingServices (Terms of Reference) ...... 96 5.3 Accountingand Financial ManagementSystems ...... 102 5.4 ManagementDevelopment and Training ...... 106 5.5 Project Cost Estimate ...... 111 5.6 Procurement Schedule ...... 114 5.7 Key Dates of Project Implementation ...... 115 5.8 Schedule of Disbursements ...... 117 5.9 EnvironmentalManagement Program ...... 118 5.10 Land Acquisition and Relocation .126 5.11 Bank SupervisionInput into Key Activities .136 5.12 Framework for Project Monitoringand Reporting ...... 137
6.1 Actual Financial Statementsof SEPC (1989-93) ...... 139 6.2 Forecast Financial Statementsof SEPC (1994-2003) ...... 142 6.3 Major assumptionsto FinancialProjections ...... 146
7.1 Economic Justificationof the Project ...... 148
8.1 SelectedDocuments and Data Availablein the Project File ...... 150
CHARTS
1. OrganizationChart of the Ministry of Electric Power ...... 153 2. OrganizationChart of the Sichuan Electric Power Company ...... 154 3. Project ConstructionOffice ...... 155 4. ImplementationSchedule ...... 156 - viii -
MAP
EBRD25932R ...... 159
TABLS iN TEXT
3.1 ElectricityConsumption in Sichuan Province ...... 25
4.1 Load Growth of Sichuan Power Grid ...... 29 4.2 Load Forecast for Sichuan Power Grid ...... 30
5.1 Summary of Project Costs ...... 36 5.2 FinancingPlan for the Project ...... 37 5.3 Summary of Proposed ProcurementArrangements .39 5.4 ImplementationSchedule: Estimated Annual Contractual and Other Payments .40
6.1 SEPC's Key FinancialIndicators, 1990-93.46 6.2 Key Financial Indicators, 1994-2003 ...... 48 1. THE ENERGY SECTOR
A. OvERvIEw
1.1 China has become the third largest producer of energy in the world. In 1993, the country's primary commercialenergy supply and consumptionamounted to 1,117 and 1,122 million tons of standard coal equivalent (tce), respectively. Coal is the most important source of energy, accountingfor about 74 percent, and oil for 19 percent of the total production. Hydroelectric power (5 percent), natural gas (2 percent), and small quantitiesof oil shale and geothermalpower make up the balance. The largest consumer of energy is the industrial sector (70 percent), followed by households (14 percent), services (10 percent), and agriculture (5 percent). Details of the primary energy outputs are given in Annex 1.1.
Energy Resources
1.2 The main primary energy resourcesin China are coal, hydroelectricpotential, crude oil and natural gas. In 1993, the country produced 1.14 billion tons of raw coal. By the year 2000, China aims to produce 1.4 billion tons of coal a year. However, insufficienttransport capacitymakes it extremely difficultto move enoughcoal to the large consumingcenters in Central and East China. China is rich in water resources and has a long tradition of harnessing them for energy and other uses, but only about 9 percent of it has been developed. Most of the potential is located in the Southwest (70 percent), about 1,500 km away from the main demand centers. The long gestation period for hydroelectric projects has also inhibited the rapid development and utilization of hydroelectricresources. The country produced 144 million tons of crude oil in 1993, and the target output for the year 2000 is 200 million tons. In 1993, China produced 16.5 billion m3 of naturalgas. About 44 percent of the current productionis nonassociated gas, mostly from Sichuan Province. The remaining gas production is associated with onshore crude oil production.
1.3 Noncommercialbiomass energy use currently amounts to about one quarter of total energy consumptionin China. Fuelwood and agricultural residues are the chief biomass fuels, and they are consumed almost entirely by rural households. China is promotinga varietyof measuresto achieve environmentallysustainable biomass supplyand consumptionlevels, includingmore efficientuse of biomass, tree planting, and substitution of other fuels for traditionalbiomass fuels.
1.4 Known uranium reserves in China are sufficient to sustain 15,000 MW of nuclear power capacity for 30 years. China commissionedits first commercialnuclear power plant (300 MW) in 1992. In 1994, Daya Bay nuclearpower plant (2x900 MW) was -2- commissioned; 70 percent of its output is intended for nearby Hong Kong. The constructionof a few additionalplants is planned to start before the year 2000, primarily in regions that lack coal and hydroelectricresources.
1.5 Other energy resourcesplay a smallrole in energy supply and are used mostly in remote areas. Geothermalenergy has been foundin many locations covering nearly all the country. Although wind and solar energy have promising prospects, they are not expectedto affect the overall supply of energy significantlyin the near future. Oil shale deposits are large, but little is exploited because of lack of viable technology.
Institutionsof the Energy Sector
1.6 The Ministry of Energy (MOE) that had maintained primary responsibility within the Central Governmentfor policy, planning and regulations for the energy sector was disbandedin 1993 during a broad govemment reorganization,and a new Ministry of Electric Power (MOEP) was established, along with a Ministry of Coal and the existing China National Petroleum Corporation (CNPC). Chart 1 shows the organization of MOEP. The State DevelopmentBank (SDB), establishedin 1994, took over the previous responsibilitiesof the State Energy Investment Corporation (SEIC) for project financing in the coal and electricity subsectors. SDB is responsiblefor onlendingfunds for projects of national importanceand representingthe Governmentin the joint financingof projects with other parties. The State PlanningCommission (SPC), on behalf of the State Council, has the responsibilityfor review and approval of the strategicplans, investmentprograms and general pricing policy of the energy sector.
Energy Investments
1.7 Energy investmentsin the 1980swere plannedbased on an expectedeconomic growth rate of 7.5 percent a year. Actual economic growth rates exceededthis target by a significantmargin, which has exacerbatedenergy shortagesalready existing at the outset. Under the SeventhFive-Year Plan (1985-90),the Governmentgave high priority to energy and also to the transport sector, a bottleneckin economic development. In 1993, China dedicated3.3 percent and 1.9 percent of its Gross National Product (GNP), respectively, to develop infrastructurefor energy production and transportation. It invested a total of Y 80.4 billion ($14 billion) in the energy sector, representing 27 percent of state capital construction,as against 21 percent in the early 1980s. The power subsectoraccounted for 61 percent of the total. About 20 percent of the investmentrequirements of the Chinese energy sector are met by foreign loans and direct investments.
B. ENERGYSECTOR ISSUES
1.8 In addition to the already noted shortages, the main energy sector issues in China are: (a) the efficiency of energy supply and use; (b) the dominance of coal and associated environmental problems; (c) scale and technology in energy industries; (d) rationalizationof energypricing policies; and (e) institutional,regulatory and enterprise reform. -3-
Efficiency of Energy Use
1.9 China's energy consumptionper capita is low, but consumptionper unit of GNP is high compared with other countries. The high share in GNP of industrialoutput, the structure of industry, the use of inefficient technology, and inadequate energy managementpractices are major factors that contribute to this. Efforts to improve the efficiency of energy use have been a cornerstone of China's energy policy. Particular progress has been made in building a strong institutional framework for energy conservation. During 1980-92, China's energy intensityper unit of GNP fell by about 30 percent in real terms (Annex 1.2). Nevertheless, further improvements in energy efficiency are crucial. Energy supply targets for the 1990simply that only about one half of the increased energy services required will come from new energy supplies, while the other half should come from energy efficiency improvements. This will require major progress in addressing structuraland systemicissues as well as still stronger programs to upgrade inefficienttechnology and strengthenenergy management.
Dominance of Coal and Associated Enviromnental Problems
1.10 Many of China's air pollution problems are related to the heavy use of coal and its dispersed, small-scale application in industry and households. Environmental problems occur at every stage of the coal chain; mining and disposal of mine waste, coal washing, transport and handling, processing and combustion,and ash ultimatelydisposal. The ambient concentrationof particulatesis the most serious problem; it is largely related to the dominantsmall-scale use of coal, its high-ash content (20-30 percent), and the often incomplete combustion. The average sulfur content of the coal is relatively low (about 1.1 percent), but because coal is used so extensively sulfur dioxide emissions are increasing.
1.11 The environmentalimplications of continuedincreases in coal use highlightthe need for the strict enforcement of environmentalregulations and more investment to conserve energy to mitigate the environmentaleffects of unnecessary coal consumption. Incorporation of modern technology, achievement of suitable scale economies, and eliminationof backward small-scalecapacity units is a key to improving coal utilization in many subsectorssuch as thermal power generation. The scope for substitutingcleaner fuels remains limited. The country has insufficient proven natural gas resources; its production of oil is increasingly absorbed by transport and petrochemicals; and large hydropowerresources are located far away from major consumingcenters.
Scale and Technology in Energy Industries
1.12 Coal Subsector. Over half of the coal produced in China comes from small- scale mining operations. Exploitationof large coal reserves through uncoordinatedsmall- scale mining has often led to inefficienciesin production and a waste of coal resources. In the larger mines, productivityand safety could be increasedby making greater use of mechanizedsystems and applying more efficient mining methods. - 4 -
1.13 PowerSubsector. Large-scalepower developmentin Chinais beneficialfrom the standpointof both energy conservationand environmentalprotection. Modem thermal power plants, with unit capacities of 600 MW, are far more efficient than smaller units (para. 2.28). The boilers of the modem utilitiesalso support better pollution control, thus raising the efficiency of particulate removal.
1.14 PetroleumSubsector. In the petroleum subsector, there is a need to employ more modem equipment and technology at all stages of exploration and development; seismic survey and related data processing, exploratorydrilling, and enhancedoil recovery in order to increase production from aging fields. Improvements in operating and maintenancepractices are also needed to increase the efficiencyof the subsector.
Energy Pricing
1.15 Energy price reform has proceeded steadilyduring recent years, resulting in substantialincreases in real energy prices. In the mid-1980s, dual-track energy pricing was developed, whereby energy supplies allocated under the national plan were priced at "oin-plan"prices, at levels well below incrementalproduction costs or border prices, while higher, market-basedprices were charged for energy suppliedthrough the market ("outside of the plan"). Over the years, in-plan prices increasedin real terms, and the portion of energy allocated at in-plan prices greatly declined.
1.16 The Govemmenthas declared its commitmentto abolish low, in-plan prices for all the chief forms of energy by the end of 1995, with the exceptionof a few consumer categories (e.g., ammonia-basedfertilizer producers). The country is now in the process of completingthis transitionto market-drivenprices. In general, average consumerenergy prices are now close to the economic costs of supply in the principal demand centers. Distortions remain, however, in both the structure of prices and inequitable treatment of different producers and consumers, requiring further concerted action to complete the transitionto a truly efficientpricing system suitable for the emerging market economy.
1.17 In 1994, the Governmentis completingimplementation of full deregulationof coal prices, so that all coal will be supplied at market-drivenprices which are generally in line with the economiccosts of domestic productionand distributionand are close to or above internationalexport price parity levels.
1.18 The averageretail price levels of major lightpetroleum products now are equal to or exceedborder prices. Averageprices of crude oil and heavy fuel oil, however, have been kept substantiallylower. In 1992, the Governmentindicated that crude oil prices would be increased to intemational levels by the end of 1995. In July 1994, crude oil prices were sharply increased, closing the gap with intemational prices in the case of second class crude. Natural gas well head prices were increased by 40 to 50 percent in 1992, and as part of a gas pricing reform action plan under the SichuanGas Development and ConservationProject (Loan 3716-CHA)by a further 80 percent in 1994. Producer prices for natural gas remain distorted and the Sichuan Project provides for continuing price reform to provide better incentives to find and develop more resources. - 5 -
1.19 Major progress has been made in increasing electricity prices; in East China, for example, average consumer prices now approximate the long-run marginal costs (LRMC)of supply. Substantialimprovements also have been made in producer prices in 1993 and 1994. Although average levels still need to be increased to better reflect economiccosts in some areas, such as SichuanProvince, many of the remaining problems in the electricity pricing system lie with its structure, unnecessary complexity, lack of transparency, and continued inequitable treatment of different types of producers and consumers (para. 2.21).
Economic System and EnterpriseReform
1.20 The process of transformationfrom a command economy to a market-based economic system was initiated in China in the late 1970s. It has gained momentumin recent years, fueled by past successes and the strong economic performanceof the more liberalized sectors of the economy. Considerableprogress has been made in putting in place the appropriate macroeconomicpolicy framework for the transition to a market economy, from trade to price liberalization,to encouragementof foreign investmentand nonstate enterprisedevelopment, to decreasedinvolvement of Governmentagencies in the managementand operationsof state enterprises. Since mid-1992, efforts to reform China's state-owned enterprises (SOEs) have stepped up sharply, with the promulgation of new regulationsgranting greater autonomyto enterprises,and reorganizationof the Government to reduce its role in enterprise operations. A wave of initiativesalso has been launched to untie the social obligations which constrict SOEs and provide a more market-oriented operating environment, through reforms in the financial sector, fiscal system, pricing, housing and the social security system. These reform efforts are indicative of the Govemment's resolve to transform gradually the state-owned enterprise system into a structure of truly independent corporations. However, given the complexity and multi- dimensionalnature of the enterprise reform, it will take time to complete the process.
1.21 System reform in the energy sector has been followingthe trends in the other parts of the economy. In the power subsector, the pace and depth of the reform program has increasedespecially since mid-1992;the Governmentis proceedingwith a far-reaching program to commercializethe country's power companies, to revamp the regulatory and legal frameworkwithin which these companiesoperate, and to develop more diversified sources of financing,including private participation (para. 2.18). In the oil and gas sector, recent achievements include the further opening of concessions to international oil companies, major price reforms, and the introductionof competitionamong the various newly created subsidiaries of CNPC. Emphasis is now being given to the commercializationand corporatization of CNPC, as part of the drive towards greater market orientation(see China: SichuanGas Developmentand ConservationProject, SAR). In the coal sector, progress in reform has been slower.
C. ENERGYSECrOR STRATEGY
1.22 Sectorreform now plays a central role in China's energy developmentstrategy. To reduce the prevailing energy shortages in today's environment of rapid economic - 6 - growth will require further major improvementsin the efficiency of the supply system, in domestic and foreign capital mobilization, and in energy use. The Government is committed to the reforms needed to make these improvements, including the commercializationof enterprises, the achievementof greater autonomy with respect to the government, regulatory and legal reforms to provide the framework for more market- oriented enterprises, promotionof competition,completion of price reforms, and adoption of a variety of new means to mobilizefinancing.
1.23 Efforts to improve the efficiency of energy use remain a comerstone of China's energy policy; it is well recognized that China's economic developmentgoals cannot be attained without further major efficiencygains. Focus on environmentalissues in China's energy policy also has increasedsharply in recent years. While heavy reliance on coal is an unescapablenecessity in China for the foreseeablefuture, improvementsin the efficiency of coal use and reduction of pollution from coal are recognized as critical. The Govemment's strategy focuses on (a) strengthening environmental policy and regulation of emissions, (b) restructuringand renovationof inefficient,polluting industrial capacity, (c) achievement of greater efficiency and enhanced pollution control through development of large-scale power and industrial plants that properly capture scale economies, and (d) transfer and developmentof more efficient and cleaner industrialand coal utilizationtechnology.
D. BANK ROLE IN THE ENERGYSECTOR
1.24 The Bank has supported 14 projects in electric power development, 5 in hydrocarbons (including one natural gas project), and one in coal. In these projects, particular progress has been achieved in the Bank's support for transfer of modern technology,development of efficientlarge-scale energy productionfacilities, promotion of modem managementpractices, improvementsin power systemplanning, rationalizationof energy pricing, and greater attentionto environmentalissues. With the Bank's assistance, the Chinese have developedcapabilities to assess properly the economiccosts of electric power and coal projects, and formulatetheir price reform strategies. In the case of electric power, a joint effort to establish LRMC and pricing principles for East China has been followedup through the developmentof provincial tariff reform action plans under recent power loans. A strengtheningin environmentaland resettlementpolicies and programs has been achieved through Bank assistance to develop and apply new methodologiesand approachesfor environmentalimpact assessmentsand resettlementplanning, and adoption of environmentaland resettlementprocedures in strict conformity with Bank and national standards.
1.25 The Bank's assistance program for energy in China places special emphasis on energy conservation, improved coal utilization and sector reform. Through sector work, technical assistance and lending operations, the Bank is pursuing a program of assistance to increase energy efficiency, improve coal utilizationand reduce air pollution stemmingfrom coal use. A dialogue with the Governmenthas been established through three joint studies, Efficiency and EnvironmentalImpact of Coal Use (Report No. 8915- CHA, 1991), Environmental Strategy Paper (Report No. 9669-CHA, 1992), and the -7 -
Energy ConservationStudy (Report No. 10813-CHA,1993). Further technical assistance and pre-investmentwork is under way with support from the Global EnvironmentFacility (GEF), including a joint study by Chinese agencies, the Bank and UNDP, to examine optionsfor greenhousegas emissioncontrol (China: Issues and Optionsin GreenhouseGas Emissions Control, 1994). A program of new GEF investment projects is being developed,including projects to promotethe developmentand productionof high efficiency industrialboilers, encourage energy conservationinvestment in industrialenterprises, and others. Becausethe issues involvedconcern energy use across the economy, investment and policy support also will continue to be provided through industry and urban/environmentBank lending operations, as well as those in the energy sector.
1.26 The Bank is actively involved in providing assistance for China's reform efforts in the oil, gas sector and power subsectors. Following completionof a successful joint workshopin China on petroleum sector reform in 1992, a major technicalassistance effort has been launched with Japan Grant Facility assistance to review (a) establishment of an appropriatelegal and regulatoryframework for the oil and gas sector, (b) competition policy and petroleum market development, and (c) institutionalrestructuring of CNPC. The Bank's power sector assistanceprogram includessector work, technicalassistance and lending operations,at central, regional and provinciallevels. At the central level, a 1993 study, "StrategicOptions in Power SectorReform in China," supportedby the Institutional DevelopmentFacility (IDF), provided a vehicle for dialogue between the Bank and key national and provincial representatives. Follow-up sector work culminated in the recent sector report "China Power Sector Reform: Towards Competition and Improved Performance," Report 12929-CHA,1994. The dialogue at regional and provincial levels is being developedprimarily through lending operations, which focus on implementation of key aspectsof power sector reform and extensionof the reform program from advanced coastal provinces to less-developedinterior provinces. -8 -
2. THE POWER SUBSECTOR
A. BACKGROUND
2.1 China is the fourth largest producer of electricityin the world. By the end of 1993, China's total installed capacity reached 182.9 GW, with 75.6 percent based on thermal power and 24.4 percent based on hydropower (Annex 2.1). China has 13 power networks with capacitiesof 1 GW or more. They include five regional power grids (East China, North China, Northeast China, Central China and Northwest China), which coordinate the systemsof several provinces together, and eight major separate provincial grids. The total length of the extrahighvoltage transmissionlines reached 8,660 km and the capacity of substations amounted to 30.9 GVA. Including all aspects of the power supply, regardless of ownership, transmission and distribution losses in China's power system amount to about 16 percent of generation.
2.2 Total power generationin China reached 836 TWh in 1993, of which thermal power accounted for 82 percent. The share of hydroelectricpower has remained fairly stable over the last decade and the Governmenthas maintained a strong commitmentto hydropower development,but the distance of major resources from load centers inhibits more rapid development. In thermal power, coal-firedplants provide about 90 percent of generation. The share of oil-fired generation, accountingfor most of the balance, has declinedsharply since the early 1980s. Natural-gasbased generationis virtually negligible and is expected to remain so barring unforeseenmajor natural gas discoveries.
2.3 AlthoughChina's current power developmentprogram emphasizesaddition of 200-600MW units, over one half of China's thermal power capacityis still in units below 200 MW. Only about 15 percent is in units of 300 MW or more, compared to 60-80 percent in industrializedcountries. The average gross conversion efficiency of thermal units over 6 MW has improved steadily over the 1980s, reaching 31.8 percent in 1992. This efficiencylevel is not unreasonablegiven the low average unit sizes in operation, but is substantiallylower than the 36-37 percent typical of systems with larger units.
2.4 Industry continues to dominate electricity consumptionin China, accounting for 76.6 percent of electricity use in 1993; 6.3 percent was consumed by agriculture, 8.9 percent by residentialusers, 6.3 percent by municipaland commercialconsumers, and 1.9 percent in transportation/communications(Annex 2.2). Althoughservice is of uneven quality, rural access to electricity is high; 96 percent of the nation's villages and about 80 percent of rural families now have access to electricity.
2.5 Between 1980 and 1993, total power generationin China grew at an average rate of 8.0 percent per year. Growth was particularly robust during 1985-88. It tapered - 9 -
off during 1989-90, when economic growth slowed, but picked up once again, with increases in generation of 9 percent in 1991, and 11 percent in 1992 and 1993. Industrial demandhas continuedto drive overallpower demand; 74 percent of incrementalelectricity use between 1985 and 1993 was in the industrial sector.
2.6 Despite the strong growth in electricity output, most areas of China continue to suffer from severe power shortages. Since GNP grew by 9.3 percent per year during the 1980-93period, the elasticityof electricityconsumption growth relative to GNP growth was only 0.86, an exceptionallylow elasticityfor any country over a sustainedperiod, and particularly for an industrializingcountry such as China. Chinese officials estimate that there is a shortfall betweenpeak power demand and supply of 10-20 percent. Daily load curves are relatively flat, as industrieshave had to respond to power shortagesduring the peak daytime periods through reschedulingof work shifts. The minimumload factor in the Sichuan power grid in 1993, for example, was 82 percent.
2.7 China's GNP is expected to grow by at least 8.0-9.0 percent per year during 1994-2000. This rapid economicgrowth will put tremendouspressure on China's electric power industry to avoid yet worse shortages. Building further upon the gains achieved over the last 10 years, the country's programs to increase the efficiency of electricity use must be greatly intensified. Even so, China's electric power constructionprogram for the 1990s will almost certainly be the world's largest. Assuming that an aggressive conservation effort can enable an electricity demand/GNP growth elasticity of 1.0 to be sustained, electricity demand could be expected to continue to grow at average rates of 8-9 percent per year during 1994-2000. This implies an increase in production from 621 TWh in 1990 to 1380-1480TWh in 2000, and a growth in installed capacity from 138 GW in 1990 to 300-330GW in 2000. To keep pace with this demand growth, China would need to add some 17-20 GW of capacityper year, compared to the 14 GW added in 1991 and 13 GW added in 1992.
2.8 The principal issues which must be addressed in order to successfully meet China's developmentchallenge in the power sector are discussed in the sections below.
B. POWERSECTR REFORM
Achievements
2.9 General. Reforms in China's power sectorduring the 1980sinvolved a series of incremental adjustments, largely responding to the need to mobilize additional investmentcapital to finance rapid growth. Taken together, however, these adjustments have resulted in a sector structure that is largely unrecognizablefrom that of the previous three decades. In 1980, the power sector was fully controlled, managed and funded by Central Government departments, led by the Ministry of Water Resources and Electric Power. By the early 1990s,however, the sector had become much more decentalized and less verticallyintegrated. Particular progresshas been madein diversificationof financing sources, institutionalrestructuring, and electricity pricing reform. - 10 -
2.10 Diversification of Financing Sources. Following change in investment fundingfrom Governmentgrants to loans in the early 1980s, the Governmentencouraged the developmentof financingfor new projects from additionalsources includingprovincial and local governments, independent corporations, and, in some cases, private foreign partners. Since the mid-1980s, the Governmenthas allowed power produced from power plants financed through these nontraditionalsources to be sold at prices that provide for adequatedebt servicingand reasonableprofit. The share of Central Governmentfinancing in power sector investmenthas fallen sharply, from 91 percent in 1980 to 30 percent in 1992. Empowered with rights to impose surcharges to accumulatefunds for investment in power construction, provincial and local governmentshave become a key source of financing,providing about 40 percent of the investmentfunding for the sector in 1992.
2.11 Newly formedcorporations also havebecome importantplayers. The Huaneng InternationalPower DevelopmentCorporation (HIPDC) was formed in 1985 with the aim of attracting foreign capital and technology for power plants located mainly in coastal areas. HIPDC had a mandate to raise funds from the intemational financial market, and it has tappedbilateral and suppliers' credits, and commercialbank loans. It is now seeking foreign equity participation. The recently established Sunburst Energy Development Corporation (SEDC) is another window for the Government's investmentin cofmancing with the local govemmentsand foreign sources in energy projects, with three large thermal power projects now under implementation.
2.12 As an independentpower producer, HIPDC operates its 15 plants (5,800 MW total) under a build, own, and operate (BOO)framework. Build, own and transfer (BOT) schemesalso have been introduced in China, most notably the privately financed Shajiao B thermal power plant in GuangdongProvince. Current Govemmentpolicy encourages greater foreign direct investmentin the sector (para. 2.18, and Annexes 2.3 and 2.4!.
2.13 InstitutionalRestructuring. Provincial power companies have become the utilitiesin charge of managementand operationof the bulk of the nation's power system. The newly created MOEP is charged with overall sector coordinationand policy guidance, and is no longer involved in enterprise management. Regional power entities are charged with responsibilitiesfor regional grid coordinationand dispatching.
2.14 The nature of the provincial power companies varies substantially, but few remain as monopoliesof the power supply systems in their respective provinces. At the distribution level, about one third of the country's urban distribution companiesand five sixths of the country's rural distribution utilities are separate economic entities. At the generation level, semi-independentjoint-investment plants and fully independentpower plants have been developed in many areas, selling power to the provincial power companies.
The CurrentReform Agenda
2.15 In line with stepped-upnational reforms towards a market economy begun in mid-1992, the Government recently initiated a broad program of sector reforms in the - 11 - electric power industry. The reform agenda includes: (a) further commercializationof power companies, including provision of greater autonomy; (b) rationalizationof power tariffs; (c) realignmentof the regulatoryand legal frameworkfor the sector, includingthe promulgationof a National Electricity Law, and (d) strong encouragementfor further diversificationin financingfor power development,including private sector participation.
2.16 Commercializationand Corporatization.The goal is to developthe nation's power companies into efficient, commercial, autonomous entities, fully responsive to market forces. The most important steps towards this goal, which also will be supported in Sichuan through this project, are:
(a) Separation of government functions from power companies. To transform companiesinto commercialentities, governmentregulatory functionsmust be entrusted to agencies separate from the power companies, and the power companies should be given the mandate to operate as business-oriented enterprises.
(b) Strengtheningof power companyautonomy. In particular, provincial power companiesneed to be granted greater financialautonomy, including expanded rights to undertakeinvestments and to raise funds.
(c) Adoptionof modem, commercialaccounting and financialreporting practices. In line with the introductionof internationalaccounting practices, efficientcost accounting and financial reporting systems are necessary to enable power company managers to control costs and accept financial accountability.
(d) Clarificationof asset ownershiprights.
(e) A narrowing in power company operations to core activities, and gradual eliminationof social welfare responsibilities,initiated through current efforts to "spin off" peripheral operations, and deepenedas reforms proceed in the social security system, unemploymentinsurance, etc.
(f) Corporatization in the form of limited liability or limited shareholding companies.
2.17 Legal and RegulatoryReform. China is in the process of developing an overalllegal and regulatoryframework for operationsin the power industry. The existing legal frameworkconsists of a multitude of inconsistentregulations and rulings, developed over many years. There is a need to establish both the principlesand model contracts for establishing more transparent and efficient economic relationships between the various entities now involved in the sector, including different grids, semi-autonomousjoint- investmentpower plants and independentpower producers. To meet the needs of the new market-orientedenvironment, the Central Governmentis preparing a new ElectricityLaw, which will provide the umbrella principles for the legal and regulatory system for the sector, for possible promulgationin 1995. The Central Governmentalso is preparing a - 12 - series of more specific regulations, consistentwith the principles of the proposed Law. The emerging new regulatory system for the sector will include different government regulatory functions at central and provincial levels, and will include the separation of governmentoversight functions from power company management.
2.18 Further Diversificationof Fnancing Sources and Private Participation. Financing of China's major power expansionprogram during the 1990s (para. 2.7) will require aggressive efforts to mobilizeincreased resources through all potential financing channels. The Governmentrecognizes that domestic sources of financingand borrowings from international multilateraland bilateral institutions will not be sufficientto meet the sector's financing needs. Accordingly, the Government is encouraging direct foreign investment in the power industry. Independentpower production schemes that have already been developed or are slated for future expansion include privately owned BOT schemesand Chinese/foreignjoint venture BOO schemes. Many other such schemesare in the negotiation stages, but progress is slow because the Government has no clear regulatory frameworkand policies to encouragecompetition at entry. Rapid expansionof this form of foreign investmentmay also require Government acceptanceof higher rates of return to investors and acceptanceof a greater share of risks especiallyforeign exchange convertibilityand other policy-relatedrisks. Competitivebidding for power projects would be the best means of establishingthe market rate of return to international investors.
C. POWER PRICG
2.19 Electricityprice reform in China has involveda series of incrementalchanges taken over the last 10 years. In the mid-1980s, multiple-trackpricing was introducedfor both producersand for consumers, in line with the shift away from full vertical integration in the industry (para. 2.13). This strategy was successfulin increasingoverall tariff levels in most regions but, by the end of the decade, the power pricing system had become too complex and difficult to manage. Recentreforms have therefore focusedon simplification and rationalizationof the system.
2.20 ProducerPrices. A full overhaul was completedduring the summer of 1993 of the state catalog prices charged for power produced by plants financed by the Central Government. Prices for the electricity produced from all new power plants are now set by contract to cover financingand operating costs, on a plant-by-plantbasis, and rolled into the power tariff. Cost recovery through the tariff system for new investmentsis thus ensured. The electricity tariff applied for plants built with grant financingbefore 1985 has been revised and rationalized, and now includes an improved mechanism for automatic adjustmentin prices to reflect annual changes in fuel costs. Revision of producer prices for old power plants to provide for an appropriate rate of return on revalued assets is expectedshortly.
2.21 ConsumerPrices. Consumerelectricity prices includesummations of the state catalogprices; the costs of the growingother sources of power supply not financed through the Central Government; and a series of local fees and surcharges. While the situation varies somewhatbetween regions, the nature of the existing pricing system is such that - 13 - average consumerprices can now be expectedto approximateLRMC levels in areas with rapid load growth, such as the coastal provinces. Prices in less-developedareas relying heavily on hydroelectricpower, such as Sichuan Province, may still be somewhatbelow LRMC levels, but should graduallybe brought into line with growth in new capacity.
2.22 While tariff levels are approaching satisfactory levels in most regions, the structure of consumer prices, however, remains too complex, lacks transparency, and is inequitable. In most areas, unfair "old" administeredrates and "new" guidance rates continue to be applied to different consumers. Some consumers are protected from high cost electricitysupply charges and certain local surchargesbecause they still hold "in-plan" quota allocations,but other new or smallconsumers must pay high prices well aboveactual supply costs.
2.23 Directions for Further Reform. While the 1993 reforms brought major improvements, further reforms are still necessary to increase tariff levels in the regions where they still remain somewhatunder the cost of economicsupply, and to simplifyand rationalize the power tariff system. Reforms to both increase the price level and to simplify and rationalize the consumer tariff in Sichuan will be supported under the proposed project (paras. 3.28-3.31).
D. ELECTCIY CONSERVATIONAND ENVIRONMENTALPRoTECTIoN
ElectricityConservation
2.24 The industrialsector is the key to more efficient use of electricity (para. 2.4). At a macro level, the most importantfactors determiningChina's ability to produce more economicoutput with less electricity are the share of industryin future growth and changes in industrialstructure. Other especiallyimportant issuesinclude the rate of modernization in industrial process technology and China's ability to produce and disseminate high efficiency electricity-usingequipment, such as transformers, motors, fans, pumps, and cooling equipment.
2.25 China has over 10 years of experience in the active promotion of electricity conservation,with a solid record of achievement. The strength of its program lies in the well-developedinstitutional framework. Electricityconservation is handledby the network of Three Electricity Offices, with offices at central, provincial, prefectural and county levels throughoutthe country. These offices are under the leadership of local Economic Commissions,and coordinate their work with provincialpower companies. They monitor electricity intensity and use pattems in all major enterprises, promote adoption of conservationtechnologies and electricity managementimprovements, and assist, at times, in organizingfunding for efficiency improvements.
2.26 Further improvementsin the efficiency of electricity use are imperative if China is to realize its economic growth goals. Three areas that are receiving increased attention include: (a) improvementsin coordination between industrial planning and electricitydemand and supplyplanning at local levels; (b) expansionof programs to reduce - 14 -
losses in power distribution systems; and (c) development,production and dissemination of high efficiencyequipment, includingvariable-speed motors and modem appliances.
EnvironmentalProtection
2.27 Thermalpower productioncurrently accountsfor about one quarter of China's coal consumption,and this share is expected to increase gradually. Improvementsin the efficiencyof coal use in this sector not only alleviatepressure on the coal productionand transportationsystem, but also have a major impact on particulate, and sulfur and carbon dioxide emissions.
2.28 The achievementof economiesof scale in thermal power production, through expanded developmentof large generating units, is an issue of overriding importance. Particularly disturbingis the recent rapid growth of small coal-fired power plants, in unit sizes of 50 MW or less. While national policy emphasizes the addition of 300 MW and 600 MW units, new projects have lagged behind demand, largely due to difficulties in mobilizingthe necessarylarge investmentresources. As a consequence,local governments are continuingto invest in large numbers of new small plants. Comparedwith a state-of- the-art plant, these plants consume over 60 percent more coal per unit of electricity produced. This results in at least 60 percent higher sulfur dioxide emissions(depending upon the coal used), and roughly 60 percent greater emissions of carbon dioxide. Particulate emissionsfrom the small plants are proportionallyeven higher, due to use of inefficientparticulate control technology. If a sufficientpipeline of large-scale projects cannot be brought on stream in a timely fashion, there is little doubt that this problem will worsen.
2.29 Jn terms of emission control in large- and medium-scaleplants, China has made substantial progress in particulate control, through deployment of high-efficiency electrostaticprecipitators. As the country has large reserves of low sulfur coal, China is just beginning to employ sulfur dioxide control devices in the power sector. Top priority should be given to areas that must rely on local high sulfur coal, such as in Southwest China. In these regions, thermal power plants often bum coal of over 4 percent sulfur content (e.g., 5-10 times the level typical through most of North and East China), and developmentof sulfur dioxide control strategiesand correspondinginvestments are now urgent in these areas.
E. POWERSYSTEm PLANNING AND TECHNOLOGYTRANSFER
2.30 Power System Planning. Support for strengtheningChina's capabilitiesin least-costgeneration planning in both East China and Sichuan was providedunder previous Bank loans. As provincialsystems become more complex,increased emphasis is required on transmissionand distributionplanning.
2.31 Modern TechnologyTransfer. For China to achieve its ambitiousgoals for the power sector, the transfer of appropriatemodem technologieswill be crucial. This is particularly important for thermal power plants, where increases in the steam parameters
-- ~~------_- - - 15 -
and unit sizes can improve efficiency and reduce atmospheric emissions. Technology transfer is also needed for large hydroelectric projects, particularly in connection with project management to reduce construction times, generating equipment quality and environmentalassessments.
F. ROLE OF THE BANK IN TEI POWER SECTOR
2.32 The Bank has supported the Government's efforts to foster efficient and sustainable developmentof the power sector through sector work, policy dialog, and a series of lending operations. In previous years, the Bank's participation in the power sectorin Chinahas particularlyfocused on institutionbuilding, price reform, improvements in system planning, and the transfer of appropriate modern technologies.
2.33 The Bank has helped to finance 14 large power generation, load management and transmissionprojects (six thermal, seven hydro, and one transmission). Through these operations, the Bank has helped to introduce: (a) latest techniques in generation, transmission and distribution planning, and system operations and control; (b) modern equipment for generation, pollution abatement and system control; (c) new methods of projectplanning, design, constructionmanagement, and environmentalimpact assessment; and (d) improved financialplanning and utility management.
2.34 All of the power projects financed by the Bank are being implementedin a satisfactorymanner, generally on schedule, and within budget. The first two operations, Lubuge Hydroelectric Project (Loan 2382-CHA) and the 500-kV Xuzhou-Shanghai TransmissionProject (Loan 2493-CHA)have been successfullycompleted. The Yantan Hydroelectric Project (Loan 2707-CHA) is also nearing completion. Several initial problemsin the implementationof the ShuikouHydroelectric Project (Loan2775-CHA and Loan 3515-CHA) were resolved and commissioning was almost on schedule. The construction of the Ertan Hydroelectric Project (Loan 3387-CHA), Daguangba Multipurpose Project (Loan 3412-CHA and Credit 2305-CHA) and Tianhuangping Pumped-StorageHydroelectric Project (Loan 3606-CHA)is now progressing well. The six thermalpower projectswere Beilungang(Loan 2706-CHA), Wujing (Loan2852-CHA), BeilungangExtension (Loan 2955-CHA), Yanshi (Loan3433-CHA), Zouxian (Loan3462- CHA) and Yangzhou(Loan 3718-CHA). Wujingwas completedon schedule. Beilungang encountered some delays due to poor coordination of suppliers during erection and commissioning. Unit No. 1 was put into commercialoperation in 1992 and Unit No. 2 was commissionedin 1994, about one year behind schedule. Yanshi and Zouxian are proceedingon schedule.
2.35 The lessons learned from lending operations for the power projects in China have been taken into account in preparing the proposed project. These lessons basically include: (a) improvingprocurement and contractualarrangements; and (b) enhancingthe role of project managementand the use of engineeringconsultants. Particular attentionhas been given to the environmentalaspects of the projects. Supportedby the use of CRISPP and other technical assistance funds, implementingagencies have shown improvementsin carrying out managementdevelopment, staff training and studies. Commitmentsrelated - 16 - to meetingfinancial performance targets and enterprisereform are also being fulfilled more consistently.
The CurrentBank Power Sector AssistanceProgram
2.36 To support the Government's ambitious program in power sector reform (paras. 2.9-2.23), and in keepingwith the Bank's assistance policies in the power sector, the Bank has developeda new power sector assistanceprogram in China that places central focus on reform. This program is discussed in detail, together with complete analysis of the related issues in the recently issued report "China Power Sector Reform: Towards Competitionand Improved Performance (Report 12929-CHA, 1994)."
2.37 In line with the Bank-wide power policy (The World Bank's Role in the Electric Power Sector, 1993), the Bank's power sector assistance program includes an integrated package of sector work, technical assistance and lending operations, at central, regional and provincial levels. At the central level, a strong dialog on reform has been developed through completion in 1993 of a study entitled "Strategic Options in Power SectorReform in China," involvingthe Bank and key nationalagencies, with support from IDF. Arising from this study was the recently completedPower Sector Strategy Paper. Specific follow-up also was provided with a study aimed at identifying options for mobilizingdomestic and foreign savings in the power sector. In the area of regulatory policy, a new initiative has been launched with central authorities, with IDF support, to provide technical assistance for the development of an improved legal and regulatory frameworkfor the power industry.
2.38 The dialog at the regional/provinciallevel is being developedprimarily through lending operations. While the concentrationof each operationvaries, all new power sector lending operationsin China are being designed to focus on implementationof key aspects of the overall reform program. Some operations, such as the Yangzhou and Zhejiang Projects, concentrate on deepening the reform program in relatively advancedprovinces, and the implementationof reform initiatives that can serve as models for other areas. Other operations, such as this proposed project, concentrate on extending the reform program to less-advanced inland regions, in part through disseminationof experiences gained elsewhere.
2.39 The Power SectorReform report identifiedsix main points to provide the focus for Bank assistance:
(a) Clarification of ownership and movement towards corporatization of power enterprises. Key goals are to delineateownership and regulatory functionsand clearly separate them from enterprise management. Corporatizationalso will protect the autonomy and commercializedoperation of power enterprises.
(b) Promotion of competition in generation and contractual arrangements to promotemarket mechanisms, with proper regulationof monopolisticsegments. - 17 -
(c) Further rationalizationof electricity pricing, focusing in the short term on unificationof industrial tariffs, to provide equal treatment to consumers and gradually to reduce cross-subsidies.
(d) Promotion of new sources of financingand further involvementof domestic and foreign equity investment in wholly foreign-ownedprojects and joint ventures.
(e) Improved investment planning and technical efficiency, taking further advantage of potential economies of scale and means to reduce losses in the power system.
(f) Reduction of the environmental impacts through energy conservation and promotion of modem technologiesand effective pollution control techniques.
2.40 Achievementof these objectiveswill require establishinga stronger legal and regulatory framework for the power subsector. The Bank will therefore continue assistance efforts in several areas, but will especially strengthen the ongoing, more integrateddialog on legal and regulatoryreform issues withcentral authorities, and support the Government's efforts to introduce the Electricity Law and design and implement detailed regulatory procedures.
2.41 As explainedin Chapter 3, the proposedproject supportsthe Bank strategy in the power sector in a number of areas. Through this project, the Bank will support the implementationof an ambitiousprogram of tariff reform, and the process of transforming SEPC-one of the largest provincial power companies in the country-from its current status as a companyjust beginning to emerge as a commercial entity distinct from the government to a commercially managed, self-sufficient, and autonomous power corporation. - 18 -
3. THIEBENEFICIARY
3.1 China is in the process of reforming its state enterprise system through progressive developmentof a suitablecorporate legal system. It has thus come a long way from carrying out its economicagenda through state enterprises whollyowned, controlled and operated by line departments and agencies of the Government. The Law of the People's Republic of China on Industrial EnterprisesOwned by the Whole People enacted by the National People's Congressin 1988 has introducedthe concept of semi-independent managementand allowed more operationalautonomy. Following the promulgationof the CompanyLaw in late 1993 that became effectiveJuly 1, 1994, the Governmentis actively promoting the transformation of state enterprises into shareholding or limited liability companies.
A. LEGALSTATUS AND ORGANIZATION OF SEPC
3.2 The Beneficiaryof the proposed loan is the Sichuan Electric Power Company (SEPC), an independenteconomic entity that possesses the legal status of a wholly owned state company under its Charter (registered with the Industrial and Commerce Administrationon December 25, 1992), formulated pursuant to the Law on Industrial Enterprises (para. 3.1), and the Scheme of Structural Reformationof Power Network in China, approved by the State Council. SEPC's Charter is a self-implementinglegal instrument.
3.3 The registered capital of the SEPC is Y 3.3 billion. The Charter empowers SEPC to obtain funds from various sources such as: (a) investmentsfrom the state, the province, and local governments; (b) loans from financial sources such as banks and financial organizationsboth domestic and foreign; (c) electricity sales and charges for specific power use; (d) stocks and bonds; and (e) joint ventures with foreign companies. SEPC is also authorized to use its retained profits for investment purposes. Although SEPC has the corporatepowers to investand issue bonds, these activities are regulatedand governmentapprovals are required therefor at various levels.
3.4 SEPC has been entrusted by central and provincial governments with the managementand administrationof generation, transmission, distribution and electricity supply in Sichuan Province. The scope of SEPC's business includes undertaking construction of power projects funded either by the state or by local finance. The functions and powers of SEPC have been outlined in the Charter. Pursuant to this document, SEPC has the power to obtain loans from and to enter into contracts with various organizationsincluding foreign institutions (with the permission of the concerned govemmentauthorities). - 19 -
3.5 The Charter does not provide for the establishmentof a Board of Directors ostensiblyto manage the company, and SEPC plans to develop a managementsystem led by a Board of Directors as part of its overall reform program. Currently, however, the overall management and administration of SEPC is entrusted to a General Manager (assisted by four deputy General Managers) appointed by MOEP in consultation and agreement with the Sichuan Provincial Government. The General Manager is the legal representative of the company and responsible for its operations. The exercise of managerial and administrative powers (e.g., hiring and firing of staff and labor) is, however, controlled by "relevant state rules and regulations." SEPC has pursuant to the Charter established various administrativerules and regulations including regulations on power grid management. SEPC has adequately carried out its mandate and effectively coordinated power system development and operations in Sichuan Province. SEPC exercises control over the electric power enterprisesoperating in Sichuan Province on the basis of contractualarrangements. These arrangementsinclude only a general nonstandard formulafor pricing that is based on the government'spricing policy. The actual prices are establishedby the State Pricing Bureau. SEPC also has the requisite authority to receive the proceedsof the proposed Bank loan through the Central Government,to carry out the proposed project, and to enter into a project agreement in respect thereof with the Bank subject, of course, to necessary governmentapprovals.
B. ACTIONPLAN TO COMMECILIZE SEPC
3.6 The 1980s and early 1990s brought major changes in the structure of the power industry in Sichuan. Although SEPC is at the core of the system, controlling 54 percent of the total generatingcapacity in the province, much of its functiontoday is to act as a purchaser and seller of power to other entities. The industry now includes a variety of domestically financed independent power producers (IPPs), joint-investment plants, small hydroelectric and thermal plants controlled by local governments or individual enterprises, and independentrural power networks. The 3,300 MW Ertan Hydroelectric Power Plant, which will become the largest generating facility in the province, is being developedwith Banksupport by an IPP-the Ertan HydroelectricDevelopment Corporation (EHDC).
3.7 As institutions, however, SEPC and its sister agency, the Sichuan Electric Power Administration(SEPA), had remained largely untouched until early 1994 by the power reform process takingplace in many other parts of China. SEPA, a provincial-level government agency under the supervision of MOEP, remained responsible for both governmentfunctions and the commercialoperation of the provincial utility until 1993. SEPC was formed from SEPA in 1993, with responsibilities for the commercial managementof the provincial utility. In early 1994, however, SEPC was just beginning to develop as an entity, and in many ways its functions and operations remained indistinguishablefrom those of SEPA.
3.8 In contrast with a number of the coastal provinces such as Jiangsu and Zhejiang, where power sector reforms are more advanced, the process of transforming - 20 -
SEPC into a commerciallyoriented power corporation is just beginning. The following issues must be addressed in the process:
(a) although SEPC has been establishedas a separate legal entity, its operations and managementare fully intertwined with those of SEPA, the government departmentresponsible for overseeing Sichuan's power industry;
(b) during the last few years, SEPC's net income, rate of return on fixed assets in service, and debt service converge have all shown a declining trend, and without new tariff reform, SEPC will have no surplus to finance new capital investments;
(c) the company's original charter does not conformwith the new CompanyLaw, and the ownership of the company's various assets are not defined; and
(d) although SEPC is implementing accounting reforms in accordance with national regulations, the financialmanagement system of the company and its many subsidiariesremains founded upon previous governmentadministration principles.
3.9 A key objectiveof the proposed project is to implementan integrated package of reforms to address these issues and transform SEPC into a commercializedprovincial electric power corporation. In consultationwith the Bank, SEPC and SEPA have prepared an Action Plan for the Commercializationand Corporatizationof SEPC, which includes an integrated, time-boundpackage of reform measures(Annex 3.1). The Action Plan was approved by MOEP on September 19, 1994. The objective of the reform package is to develop SEPC into a limited liability companyin full conformity with the Company Law, separated from the government, financially autonomousand self-sufficient,with clearly defined ownership structures and rights, and operated according to modern commercial managementprinciples and procedures. SEPC's Action Plan includes an integrated, step- by-step program of measures to achieve this objective by 1998. The principle features of the package include:
(a) SEPC will reform its internal accountingand financial managementsystem, beginning at the outset of 1995. The authority and responsibilities of subsidiary power plants and power supply bureaus will be clarified, and improved, commerciallyoriented managementmechanisms, such as internal- transfer tariffs, will be introduced. Diagnostic analysis and the design of a new financial management system will be completed by June 1997, and implementedin 1998.
(b) SEPC and SEPA will complete a study assessing the structure of the power industryin Sichuan,identifying needs for further structuralreform, and clearly demarcating an optimal role for SEPC as the province's core utility and manager of the unified power grid. Recommendationswill be submitted to relevant authorities for approval in 1996. - 21 -
(c) A package of tariff reforms will be implemented,including (i) adjustmentsin the level of tariffs applied to SEPC's own generating facilities, in order to conform with the financial covenants of this project (para. 6.12); (ii) implementationof time-of-dayand seasonaltariffs for all customers supplied at the 100 kVA level or above by the end of 1995, accounting for about 60 percent of power sales; (iii) applicationof time-of-dayand seasonaltariffs to the sales of all power stations above 10 MW, between 1995 and 1997; (iv) gradual implementation of reforms to unify the two-track system of administered and guidance consumer prices into one consumer tariff, with completionin all prefecture in the province in 1997, and (v) developmentand implementationof improved power purchase agreements between IPPs and SEPC, beginningin 1995.
(d) During 1995-97,the varietyof service-sector,manufacturing, construction and research and design enterprises affiliated with SEPC will be separated from SEPC and put under independentoperation, some as subsidiaries. The cost of noncommercial social services currently performed by SEPC will be assessed, and more transparent compensation mechanisms reviewed with relevant governmentauthorities.
(e) SEPC and SEPA will implementa plan to incorporateSEPC and fully separate government functions from the company by 1998. The plan includes: (a) preparation of a detailed corporatizationprogram, and its approval by mid- 1995; (b) reorganization of existing or new joint-investment plants into independent legal entities, including domestic shareholding companies or international-domesticjoint ventures; (c) completionof a revaluation of state- owned assets and clear definition and demarcation of ownership rights of existing assets by mid-1997; (d) separation of government functions from SEPC by 1998, beginning with the assignment of sole responsibility for governmentfunctions to one SEPA managerfrom amongthe leadingmanagers of SEPA/SEPC, and assignment of separate staff to implement SEPA's responsibilities,by January 1995;and (e) completionand approvalof a revised SEPC charter by the end of 1994, to better conform with the spirit of the CompanyLaw, followedby registrationof a fully reformed charter for SEPC as a limited liability company, in 1998.
3.10 Technicalassistance is providedunder this project to assist SEPCto implement the approvedAction Plan (para. 3.9). Assuranceswere obtainedfromthe Governmentthat it would take necessary measures to enable SEPC to implement the Action Plan in a manner satisfactoryto the Bank. Furthermore,assurances were obtainedfrom SEPC that it wouldprepare by September30, 1995, in consultationwith the Bank, a detailedprogram for implementation of the Action Plan and, thereafter, implement the Action Plan, undertakeorganizational improvements, and develop and implementimproved accounting and financial managementsystems in a manner satisfactoryto the Bank. - 22 -
C. MANAGEMENT
3.11 Recent performance indicators for the Sichuan Power Grid reveal high plant capacity factors and rather low transmissionand distribution losses (Annex 3.2). SEPC prepares accountinginformation in a timely fashion and operates an effective billing and collectionsystem (para. 3.26). However, the successfulupgrading of managementsystems and procedures, and the strengtheningof financialplanning, deserve special attention as a critical aspect of SEPC's commercializationreform program (para. 3.18). The proposed project includes specific training in utility managementand financial planning for this purpose (para. 5.9).
3.12 SEPC is capableof formulatingits own expansionprogram and implementing power projects by itself. However, for a large project such as the one proposed, outside assistance will be required for the preparation of bid documents, bid evaluation, contract negotiations,and constructionmanagement (para. 5.6).
D. STAFFING AND TRAINNG
3.13 As of December 31, 1993, SEPC had a total staff of 73,131, of which about 19 percent were engineers and technical staff, 10 percent administrativestaff, 68 percent workers, and the rest others. Except for the core group of key technical and managerial personnel who are assigned by the State, almost all of SEPC's employees are recruited locally. Most of the employees are hired on a permanent basis, except for laborers contracted for construction. The company is currently reforming is personnel policies to provide for improved performance-basedreview and accountability, and to reduce total staff levels. Total personnel is being reduced by 17 to 20 percent during 1993-94, followedby further planned reductions in 1995. SEPC has 22 functional divisions and offices, and its organizationstructure is presented in Chart 2. Details of SEPC's staffing are shown in Annex 3.3.
3.14 SEPC is understaffedin engineeringand technical areas, financialcontrol and planning and management, especially in dispatching operations of large power grids. SEPC runs one technical school/trainingcenter for skilled workers, two electric power institutes for technicians, and two staff colleges. There are 1,503 teaching and administrative staff in all these training and educational centers, which have a total enrolment of 6742 students (details in Annex 3.4 . This training capacity is basically sufficient to meet SEPC's long-term needs. However, the skills of teaching staff and quality of teaching facilities need to be upgraded and modernized. Training needs to be designedto help senior managerial,financial and technical staff adapt to the new situations brought about by a larger and more complexpower grid. The trainingcomponent included in the proposed project is designed to meet these needs. It also covers upgrading and equipping of SEPC's training institutions and project-related training for technical staff (paras. 5.11-5.12). - 23 -
E. PLANNIG, BUDGEiaNG AND CONTROL
3.15 Power bureaus and companiesare responsiblefor developingannual and five- year production and investmentplans that are integrated into the national plans and are approved, throughMOEP's auspices,by SPC. In the past, financialplanning was confined to attaching monetary values, predeterminedby MOE, to the quantities being planned. Althougha power bureau's plan might be revised to reflect changes, it would ordinarily not be revised to reflect differencesbetween estimatedprices and actual prices.
3.16 However, with the economicchanges in the 1980s,prices have begun to move toward market levels and the Governmenthas begun to finance more investmentsthrough loans rather than grants. Centralized control is being relaxed and replaced by greater financial autonomyand responsibilitiesfor the power entities. To address these changes, SEPC will need to adjust its planning system to include modem financial planning.
3.17 MOEP recognizes the importance of financial management in the power subsectorin China and are organizinga comprehensivetraining program for all the power institutionsunder its control. Many of the power bureaus/companieshave been equipped with computers and software for planning, budgeting, and accounting functions. Informationfrom the bureaus/companiescan be transferredto MOEP and consolidatedinto regional and national data.
3.18 The new systemsrepresent a good first generation of automatedmanagement information; however, they still are not sufficientlyflexible to take into account price changes at the local level or those associated with large-scale debt service obligations. Currently MOEP, with assistance from the Bank, manage a number of seminarsin China and overseas covering computer-basedmanagement information systems as well as tariffs, cost control, project financing, comparativeaccounting systems, and the organizationand structure of financial management. After SEPC installs the new financing management informationsystem to be financed under the proposed project (para. 5.8), it will be able to significantlyupgrade the existing financial planning, budgeting and control system.
F. AccouNTING
EnterpriseAccounting
3.19 All the state-ownedenterprises in China, including SEPC, follow a uniform enterprise accountingsystem accordingto detailedregulations established by the Ministry of Finance (MOF). The old accountingframework in effect before July 1, 1993 was developed in the context of a highly centralized planned economy. With a view to complementing China's move toward a market-oriented economy and strengthening enterprises' financialmanagement, MOF introducednew regulationscovering accounting rules and financialaffairs on July 1, 1993. The revised accountingprinciples are generally consistentwith internationalaccounting standards. Within this broad framework, specific accounting standards are being developed with the assistance of the Bank under the Financial Sector Technical AssistanceProject (Credit 2423-CHA). - 24 -
3.20 The main differences between traditional Chinese accounting practices and internationalpractices relate to: (a) the approachfor determiningand accountingfor equity and for separating those items now accounted for through special funds that relate to liabilities, such as provision for payments to employees; (b) the need to including constructionin progress and related liabilitiesin the accounts, which are now only included after constructionhave been completed; (c) the introductionof the concept for provision against probable losses, such as provision for doubtful debts and for stating inventories at the lower of cost and net realizable assets; (d) the need to deduct general administrative expenses allocatedto products not sold from operatingincome during the year the expanse items incurred; (e) the need to treat overall costs as capital expenditures;and (f) the need for recording sales on an accrual basis. These differenceshave been generally addressed in the new regulations. Given the conceptualand practical gaps betweenthe old and new regulations, implementation of the new accounting system is a challenge to SEPC. Particularly, it is essential for SEPC to implement a new accounting and financial management systems that will recognize commercial practices in a market-oriented economy and provide transparent information for investors, govemment lenders, and the public in general. Under the proposed project, training in modern financial management, includinginternational accounting practices, would be provided to financial staff of SEPC.
3.21 The proposed project would include a technical assistance component to support SEPC in making a speedy and smooth transition to the new accountingsystem, based on the principles promulgated by MOF in 1993 and upgrading its financial managementsystem, including provision of softwareand hardware, as well as enhancement of its staff skills, would be included (para. 5.8 and Annex 5.3). Training in modern financialmanagement, including international accounting practices, would also be provided to senior managers and financial staff of SEPC (para. 5.10).
Revaluationof Fixed Assets
3.22 The Chinesetraditional accounting system has not required revaluationof fixed assets. In the past, the revaluationof assets probably would not have had a major impact on enterprises' financialstatus because of low inflationand low foreign contentin existing assets. However, with recent inflation and the depreciationof the renminbi, the need to revalue assets is more compelling. Under the revised accountingprinciples, enterprises in certain categories such as joint ventureswith foreign partners or merged enterprise will have to undertake asset revaluation. Regular revaluation of fixed assets is recognizedin China as being essential for the future corporatizationof power entities and for a better foundationfor managingstate assets. Followingthe guidelinesfor how to undertakeasset revaluationissued by the State Council in 1993, all power entities in China are revaluing their fixed assets. A proforma revaluation of SEPC's assets (using projected domestic inflation rates as indexes to revalue SEPC's assets with a steep increase of about 50 percent in 1993)was performed during appraisal of the proposed project. The resulting estimated average rate of return on assets for the period 1994 through 2003 fell to 13.5 percent, comparedto 18.2 percent on a historicallyvalued basis. - 25 -
G. AuDrT
External Audit
3.23 Under the proposed project, SEPC's accounts will be audited by Sichuan Provincial Audit Bureau under the supervision of the State Audit Administration. This arrangementis satisfactory. Assurances were obtainedfrom SEPC that it wouldfurnish the Bank with the audited project accounts, statements of expenditures, and financial statements of SEPC within six months after the end of each fiscal year. In addition, SichuanProvincial Audit Bureau would be required to: (a) includein the audited financial statementsa summaryof any differencesin the basis of accounts due to the conversionto new accountingpolicies; (b) provide a managementletter summarizing any significant errors that may have been discovered during the audit, and any major weaknesses in internal control; and (c) provide on request a copy of its audit plan.
Internal Audit
3.24 SEPC has developed an internal auditing section (staffed with qualified accountants)that periodicallyexamine the accounts of each operating unit. The objective of these examinations is primarily to test for accuracy and compliance with MOF regulations. The internal auditing section is not expectedto review the appropriatenessof accountingregulations or procedures; such reviews are considered to be the responsibility of MOF and MOEP. However, the section will serve as liaison betweenexternal auditors and the project entity. The Bank will review the internal auditing functionduring project implementationwith a view toward increasingits efficiency and usefulnessto SEPC.
H. BLING AND COLLECrIONS
3.25 As of December 31, 1993, electricity consumption in Sichuan Province, distributedaccording to the consumer categories, is shown in Table 3.1.
Table 3.1: ELEwCrrY CONSUMPTION IN SIcHuANPRoVJNcE (1993)
Customer category Consumption (GWh) %
Heavy industry 24,810 70 Light industry 4,714 13 Agriculture 919 3 Residential 2,721 8 Conmercial 264 1 Others 1,917 5
TotW 35.345 100 - 26 -
3.26 SEPC conducts its billing and collection activities through 15 power supply units. All major industrial consumers receiving supply over 320 kVA are charged in advance three times per month at approximate 10-dayintervals. The last two bills, rendered on about the sixteenthand twenty-fifthdays of the month, are based on estimated usage derived from the consumer's contractual power consumption. The first bill, renderedon about the sixth day of the month, is also based on estimatedusage but includes an adjustment to reflect the previous month's actual usage as computed from a meter reading. All other customers are billed once a month based on actual usage.
3.27 Industrial,commercial and bulk consumerspay their bills through direct debit from their bank accounts. Urban residential and low voltage agricultural consumers receiving power directly from SEPC render payments to local branches of the National Bank. Payment is due within five days of receipt of the bill. Regulationsstipulate that consumerswho do not pay within this period are to be charged a fine of 0.03 percent per day of delay, and that after several notices those who still refuse to pay their bills are to be disconnectedfrom the power supply. These billing and collectionarrangements have establisheda reliable cash flow from sales. There were no arrears from consumersin 1993 for SEPC.
I. ELEcRIcrryTARIFFS
3.28 Electricpower pricing in SichuanProvince is describedin detail in Annex 3.5. As in other parts of China, the pricing system includesthree components:(a) state catalog prices, which are applied to the generation of capacitydirectly controlled by SEPC, and form the basis of SEPC's own revenue; (b) prices for purchased power, which are negotiatedon a plant-by-plantbasis at levels enabling loan and interest repayment plus a reasonableprofit margin, and (c) additionalfees and surcharges, which are levied on the various consumer categories, primarily to raise additionalfunds for capital investmentin the sector. There are two types of consumer tariffs: administeredprices, which include the state catalog prices plus the additional fees, and guidance prices, which include state catalog prices, mark-ups for the higher cost of purchased power, plus the additionalfees.
3.29 Electricityprices in Sichuan Province are among the lowest in China. Both the average unit revenue level accruing to SEPC from the state catalog prices and the average consumer price levels in Sichuan are some 65-75 percent of the levels in the coastalprovinces of Jiangsu and Zhejiang. Average consumer prices in Sichuan in 1994, represented by the cases of Chengdu and Deyang Prefectures, were about 70-80 percent of the estimated long run average incremental cost (LRAIC) of supply, calculated in economic shadow prices. This gap between average consumer prices and the estimated economiccost of supply contrastswith the situationin the coastalprovinces, where average consumerprices approximateor exceed the LRAIC of supply.
3.30 Sichuan's existing multiple-tierconsumer tariffs are relatively complex, and provide different rates for similar types of consumers without clear economic rationale. The province is relativelyadvanced, however, in the developmentand implementationof time-of-dayand seasonaltariffs. - 27 -
3.31 The Action Plan for Commercialization and Corporatization of SEPC supportedunder this project includes a program of tariff reform (para. 3.9). Under the financial covenants of the project (para. 6.12), tariff levels will be steadily increased to enable SEPC to make a reasonable contributionto its future investment program (para. 6.12). These increases also will bring average tariff levels up to the economic cost of supply. In addition, the Action Plan includes a major program to eliminate the complex multiple-tier consumer pricing system by 1997, in favor of a unified consumer tariff applied to all consumersin a given consumer category and service area. - 28 -
4. THE POWER MARKET AND PROGRAM
A. THE SICHUANPOWER GRID
4.1 The proposed project would be located in Sichuan Province, which is experiencing remarkable economic growth; its industrial output increased in 1993 about 21 percent in spite of acute power shortages. Many problems with power supply in the area have so far been averted by improved power subsector performance, especially energy conservation and load management measures. Also, increased capacity will be needed in view of the Government's open-door policy and the consequent foreign investments and private sector developments, which require an adequate supply of high quality power. Sichuan is expected to match the degree of market orientation that other provinces already display.
4.2 In 1993, the Sichuan Province had a total installed generating capacity of 10,527 MW; 5,968 MW thermal, and 4,559 MW of hydropower (Annex 4.1). The major generating facilities include eight hydro and 12 thermal power plants owned by SEPC, two thermal power plants owned by Huaneng, and a number of captive and other local plants. The captive power plants total about 1,015 MW in installed capacity. Electricity generated in the province in 1993 amounted to 47,087 GWh. SEPC's operated power plants produced 27,145 GWh, about 58 percent of the total.
4.3 The transmission system in Sichuan Province in 1993 consisted of 5,064 km of 220 kV lines, and 9,257 km of 110 kV lines. SEPC owns and operates nearly all 220 kV, and 110 kV networks. The system also includes transformer substations, with a total capacity of 6,356 MVA in 220 kV and 8,117 MVA in 110 kV (Annex 4.2). Information related to the status of the Sichuan Power Grid, such as issues of the existing power system, scope of the network reinforcement, and the least-cost solution for further improvements in the system reliability and reducing losses is available in the Project File (Annex 8.1).
4.4 The growth of energy generation and requirements in Sichuan Power Grid (SPG) between 1987 and 1993 is shown in Annex 4.3 and summarized in Table 4.1. SPG's peak demand has increased more rapidly than energy requirements. The system has a maximum daily load factor of about 93 percent and an annual load factor of 82 percent. The peak load usually occurs in September/October.
4.5 In 1993, electricity consumption of SPG amounted to 35,345 GWh; of which industry, 84 percent; agriculture, 2.6 percent; residential, 8 percent, commercial and other municipal customers in the cities, 3.4 percent; and the transport/telecommunication sector, 2 percent (Annex 4.4. - 29 -
Table 4.1: LoAD GRowTu OF SICHUANPowER GRID (SPG)
Year Energy requirement(GWh) /a Peak demand (MW)
1986 21,035 2,894 1987 22,449 3,088 1988 24,418 3,188 1989 26,848 3,488 1990 28,229 3,666 1991 30,518 3,926 1992 33,051 4,290 1993 35,345 4,874
Average annual growth 7.6% 7.7%
/a Including generationand purchasedenergy.
B. LOADFORECASr
4.6 Load forecasts for the years 1994 through 2005 have been developed as part of the economic planning process carried out by SEPC. The forecasts were obtained by applying a combination of statistical methods and planning targets to every major consumer category. In particular, industrial loads were estimated on the basis of a market survey and the projected industrial output growth and electricity intensities for different categories of industry. Rural loads were estimated based on past trends for drainage and irrigation, rural industries loads, and lighting. Municipal loads were estimated based on market surveys of hotels, buildings, and government projects. Specific demand management and energy conservation measures have been fully incorporated in the load forecasts. Details of the energy forecasts for SPG are given in Annex 4.5 and summarizedin Table 4.2.
4.7 The load growth forecasts appear to be reasonableconsidering that (a) power shortages have been occurring for a long time, and there is considerable suppressed demand for electricity; and (b) Sichuan Province has been one of the fastest growth areas in China. This load growth is expected to sustain a GNP growth of about 8-9 percent in real terms up to the end of the century. Without further implementationof the province's electricity conservationprograms (para. 4.10), growth in demand would be yet higher.
C. POWER DEVEOPMENT PROGRAM
4.8 A study of the least-cost investment program was made by the Beijing Economic Research Institute for Water Resources and Electric Power (BERIWREP)in 1993 and revised in 1994. The study is based on an optimizationof the SPG's expansion program for the period 1994-2010. The analysis shows that the developmentprogram for SPG shouldbe based primarily on the constructionof the Ertan HydroelectricProject with other base-load thermal power plants. The study also confirms that there are no other - 30 -
Table 4.2: LOAD FORECAST FOR SICHUAN POwER GRID (SPG)
Year Energy requirement (GWh) Peak demand (MW)
1993 (actual) 35,345 4,874 1994 39,000 6,180 1995 42,300 6,730 1996 45,900 7,330 1997 49,800 8,000 1998 54,000 8,700 1999 58,000 9,400 2000 62,000 10,000 2005 87,000 14,100
Average annual growth:
1994-2000 8.3% 10.8% 1994-2005 7.2% 8.5% alternativesbetter than the proposed project (paras. 7.4 and 7.5) to meet the future power supply requirements.
4.9 A summary of the power developmentprogram (1994-2005) for the SPG system is given in Annex 4.6. They demonstrate that the power system will be short of energy supply and capacity up to the year 1998. Only after completion of the Ertan project would the power system have an adequate reserve margin in energy and peaking capacity.
D. ELEc crrY CONSERVATION
4.10 Similar to most other provinces in China, Sichuan operates a well-organized program for electricity conservation(demand-side management). The program is jointly implementedby the Provincial Economic Commission and SEPC, and their respective subunits at prefecture and county levels. The program focuses primarily on (a) close monitoringof unit electricityconsumption levels in individualindustrial enterprises, as part of the power consumptionquota system; (b) assistingenterprise managers to identifyareas for electricity savings; (c) implementationof electricity conservation measures in power stations and the transmission and distribution network; and (d) promotion of new electricity-savingtechnologies. Electricityconservation plans are prepared each year, and results evaluatedthe followingyear, for overallimprovement in the efficiencyof electricity use per unit of industrialoutput, electricity conservationwithin the electric power system, reduction in unit electricity consumptionlevels in specific enterprises, and adoption of electricity-savingequipment and specific technical renovation measures by consumers. - 31 -
4.11 During 1990-93,unit electricityconsumption per unit of gross industrialoutput in SichuanProvince fell by about 14 percent. Withinthe electricpower system, electricity conservationmeasures focusedparticularly on replacementof inefficient fans and pumps in older power plants, distributionline upgradingand renovation, replacementof high-loss transformers, and addition of capacitancefor power factor correction. Electricity-saving technologiesfor consumers specially promoted during the last few years have included computerizedenergy managementsystems, more efficientfans and pumps, more efficient lightingequipment, and a wide variety of specializedindustrial process equipment. End- use technicalelectricity conservationinitiatives monitored by SEPC yielded a total savings of about 550 GWh during 1990-93. - 32 -
5. THE PROJECT
A. PRoJEcr OWEcnvEs
5.1 The proposed project is consistent with the Government strategy of modernizingthe power subsectorand improvingits efficiency. The main objectivesof the project are to: (a) alleviatean acute shortageof electricityby the constructionof a 500-kV transmissionnetwork for connectingthe ongoingErtan hydroelectricproject to the Sichuan power grid, as well as reinforcing the existing power transmission system; (b) assist in designingand implementinga time-boundprogram to implementpower subsectorreforms in SichuanProvince; (c) support the implementationof further power tariff rationalization; (d) promote the transfer of contemporary technologies for extrahigh voltage power transmission networks; (e) strengthen institutional capabilities for environmental management and resettlement planning: and (f) upgrade management and operation capabilitiesthrough well focused staff training programs.
B. PROJECT DEsCRWUON
5.2 The proposed project would comprise the erection of a new 500-kV transmission network for connectingthe Ertan hydroelectricplant to the Sichuan power grid and also for forming a 500-kV backbone transmissionnetwork in Sichuan Province. The Ertan project, appraised in 1991 and supportedby Bank loan 3387-CHA,includes the construction of a 240m high dam and an underground powerhouse complex with an installed capacity of 3,300 MW, resettlement of about 30,000 people, an environmental managementprogram, consultingservices, studies and training. There are no changes in its originaldescription as describedin the Staff AppraisalReport of June 11, 1991 (Report No. 8470).
5.3 The Sichuan power transmissionproject consists of:
(a) Transmission Network Expansion
(i) design and erection of about 2,260 km of 500-kV transmissionlines;
(ii) design and construction of five 500/220 kV transformer substations (5,250 MVA) and one 500-kV switchingsubstation;
(iii) reinforcementof the existing transmissionnetwork;
(iv) carrying out of environmentalmanagement and monitoringprograms; - 33 -
(b) Resettlement and Rehabilitation. Relocation of persons affected by transmissionnetwork expansion;
(c) TechnicalAssistance
(i) Strengthening of SEPC's capability to implement the Action Plan, undertake organizational improvements (including management and operationalcapabilities), and developimproved accounting and financial managementinformation systems;
(ii) strengthening of enviornmental management and monitoring and resettlementcapabilities of SEPC; and
(iii) provision of engineering and construction management services and training.
A detailed descriptionof the project componentsis given in Annex 5.1.
Project Origin and Design
5.4 The proposed project was first brought to the attentionof the Bank in 1988 by the Govemment. An identificationmission for the transmission network of the project visited the project in October 1993. The project feasibilitystudy and design report were preparedby the SouthWest China ElectricPower Design Institute (SWEPDI)in 1993,and revised and updated in 1994. The project was approved by the SPC in 1993. An EnvironmentalAssessment Report (EAR)for the power transmissionnetwork was prepared in 1993 by SWEPDI in accordance with the Chinese and Bank environmental review procedures and guidelines for power projects. The EAR has been approved by all Govemmentauthorities, and its summarywas submittedto the Bank. The design of the project is at an advancedstage, and appears to be satisfactoryin its overall concept.
ConsultingServices
5.5 SWEPDI has been retained by SEPC to assist in detailed design and project implementation. It is one of the most experienced design institutes in China, and has completed the design of several large power projects. SWEPDI has over 1,200 professional staff and is equipped with modem facilities and laboratories. International engineeringconsultants have also been selectedin accordancewith the Bank Guidelinesfor the Use of Consultants. SEPC's engineering staff have visited a number of large hydropower power plants and high voltage transmissionnetworks and shared experience in building large and complex power projects.
5.6 The consulting services for the project comprise two stages: Stage I for project preparation and Stage II for project implementation. Stage I services include reviewing and updating of feasibility study, special studies and verifying of designs for 500-kV transmissionlines and substations,reviewing of bidding documents prepared by - 34 -
SEPC and SWEPDI, assistance in bid evaluation, construction planning and training of staff. Stage II services include project management,contract administration,scheduling and reporting, constructionsupervision and quality control, cost control, etc. Terms of Reference for the consultingservices are given in Annex 5.2.
5.7 The total cost of engineering services is estimated at about $4.3 million for about 160 staff-months. The Government has approved $3 million out of the CRISPP (Credit 2447-CHA)funds for financingStage I services. The balance would be financed under the proposed project.
Reform Plan, OrganizationImprovements, and ManagementInformation Systems
5.8 SEPC will implementthe reformplan and developmore modem computerized financialsystems, which would take accountof the new accountingregulations introduced in China (para.3.10). These would be eventually established on a computer network serving SEPC's activities. SEPC also plans to send its representatives to visit other countries to obtain a better idea of accountingand financial systemsbeing used elsewhere. The scope of the assistance to develop the modern accounting and financial systems, together with the terms of reference, is given in Annex 5.3.
ManagementDevelopment and Training
5.9 To meet the long-term needs of SEPC's staffing requirements and to further develop SEPC's managementcapability, a comprehensive training program is included under the proposed project. It consists of the following: (a) training in institutional developmentand enterprisereform matters; (b) trainingin utilitymanagement and financial planning; (c) project-relatedtraining for technical staff; and (d) upgrading and equipping of SEPC's training facilities.
5.10 High level management,planning and financial staff will receive training in modem managementand decision-makingtechniques, particularly in utility reform and management,planning of investments,environmental and resettlementmatters, engineering economics, power pricing, financial operations and management information systems. Engineeringpersonnel will also receive training in their specific fields, especially related to constructionof transmission lines in rugged mountainousareas at high altitude, line maintenance,etc. Part of the training will be carried out in Chinain the form of seminars, conductedby Chinese and foreign experts. This will then be followedby study tours and overseas training through visits to a few selected utilities and modem power transmission networks.
5.11 Project-relatedtraining will include: (a) on-the-jobtraining for the engineering and constructionmanagement staff to be implementedby workingtogether with the foreign consultants; (b) training of engineering staff under the contract for major project equipment; and (c) training of operation and maintenance staff at other similar power transmissionnetworks in China and abroad. The cost of such training will be included in the equipment contracts.
_~ ~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~------35 -
5.12 About 150 staff members, with total staff-months of 247, will be trained abroad, of which 117 staff-monthsare for senior management, 16 staff-monthsfor legal staff, 74 staff-monthsfor technical staff, 30 staff-monthsfor financial staff, and 10 staff- monthsfor environmentaland resettlementstaff (see Annex 5.4 for details). In addition, 176 people will receive training with a total staff-monthof 146 by foreign suppliers of goods and services. Training in China will involve 520 staff, totaling 605 staff-months. Assuranceswere obtainedfrom SEPCthat it would carry out the managementdevelopment and trainingprogran in a manner satisfactoryto the Bank.
C. COST ESTMATE
5.13 The total cost of the project is estimatedat $874.4 millionequivalent excluding interest during construction (IDC), of which $273 million (31 percent) represents the foreign exchange component. Annex 5.5 contains, in detail, the estimated cost of the project, which is summarizedin Table 5.1. The cost estimatesreflect late 1994 prices and are based on the recent tendering information available for similar projects, including prices of bids for major equipment and control systems. Physical contingencies are calculated at 10 percent for preparatory, land acquisitionand relocation, civil works, and transmissionline materials; and 5 percent for imported substationequipment, and studies and services. Price-contingencyallowances for foreign costs estimated in US dollars are calculated according to anticipatedinternational price increases of 2.2 percent a year on average for the period 1994-2001. The price escalation for costs expressed in local currency is calculated according to projected domestic inflation rates of 9.0 percent for 1995, 8.0 percent for 1996, 7.2 percent for 1997 and 6.5 percent thereafter.
D. FINANCINGPLAN
5.14 The total financingrequirements (including IDC of $204.3 millionequivalent), are estimated at $1,078.7 million equivalent. SDB, SIC, and SEPC would share the financingof the local costs, IDC, and principal repayments of the Bank loan during the project implementationperiod. Their contributionto the local project financinghas been confirmed to be as follows: SDB-70 percent of the total; SIC-20 percent; and SEPC-10 percent. It has also been agreed that part of the total domestic financingwould be in the form of self-financing,and the balance in the form of loans. The loans will have a variable interest rate (currentlyabout 11 percent a year) and 15 years maturity, including five years' grace. The local financial arrangementsare acceptable to the Bank.
5.15 The proposed Bank loan of $270.0 million will cover direct foreign exchange costs, excluding IDC. Details of the financingplan are summarizedin Table 5.2. The Bank loan will be used to finance the following project items:
(a) major power transmissionnetwork equipment,including power transformers, shunt reactors, switchgear,protection and control, etc;
(b) goods and materials for transmissionlines; - 36 -
Table 5.1: SUMMARYOF PROJECTCOSM
Foreign Decription Local Foreign Total Local Foreign Total as % of (Y million) (S million) Total
A. Tranmssion Network Preparatory works 592.9 0.0 592.9 68.2 0.0 68.2 0.0 Civil Works & instatlations 1,076.1 0.0 1,076.1 123.7 0.0 123.7 0.0 220kVtranmiaionsystem 1,117.2 0.0 1,117.2 128.4 0.0 128.4 0.0 500 kV tranumnision lines 1,131.6 523.4 1,655.0 130.0 60.2 190.2 31.6 500 kV substations 348.5 1,526.2 1,874.7 40.1 175.4 215.5 81.4
B. Resettlement and Rehabilitation Land acquisition & relocation 106.2 0.0 106.2 12.2 0.0 12.2 0.0
C. Technical Assistance Preparation/fnnlImentation Engineering & administation 104.4 36.5 140.9 12.0 4.2 16.2 25.9
InstitUtiOnil Dcvclooment Environmental protection 2.7 4.4 7.0 0.3 0.5 0.8 61.7 Reformplan & fincial MLS 8.7 14.4 23.1 1.0 1.7 2.7 62.3 Training 8.3 29.2 37.5 1.0 3.3 4.3 78.0
Total Bae Cost 4.496.7 2.134.1 6.630.8 516.9 245.3 2. 32.2
Contingencies: Physical 405.4 131.6 537.0 46.6 15.1 61.7 24.5 Price 1,266.9 426.4 1,693.3 37.9 12.6 50.5 24.9
Total Proiect Cost 6.169.2 2.692.0 8861.3 601.4 273.0 874.4 31.2
Interest During Construction 1,315.6 461.7 1,777.3 151.2 53.1 204.3 26.0
Total FinancingReauired 7,484.8 3.153.7 10.638.6 752.6 326.1 1.078.7 30.3
Notes: 1. Baw cots are at late 1994 prices and prevailing exchnge rate of Sl = Y 8.7. 2. Interest during construction([DC) is bawedon onlending rates for projected disbursementsof loan proceeds. The foreign currency portion of IDC is based on tde Bank's variable loan rate.
(c) construction and maintenance equipment;
(d) consultingservices for engineeringand constructionmanagement;
(e) environmentalmanagement program;
(f) assistance for reform plan, organizationimprovements, and developmentof accountingand financial managementsystems; and
(g) managementdevelopment and staff training.
5.16 The proposed Bank loan will be made to the People's Republicof China at the Bank's standard variable interest rate for a 20-year term, including 5 years' grace. Proceeds of the loan would be onlent from the Government to SEPC with terms and - 37 -
Table 5.2: FINANCING PLAN FOR THE PRoJECr ($ million equivalent)
Local cost Foreign cost Total cost
State Development Bank (SDB) 526.8 37.2 564.0 Sichuan Investment Company (SIC) 150.5 10.6 161.1 Sichuan Electric Power Company (SEPC) 75.3 5.3 80.6 IBRD 0.0 270.0 270.0 IDA (CRISPP) 0.0 3.0 3.0
Total 752.6 326.1 1.078.7
conditionssatisfactory to the Bank. Assuranceswere obtainedfrom the Governmentthat it would onlendthrough Sichuan Provincethe proceeds of the proposedBank loan to SEPC under a subsidiary loan agreement with a term of 20 years, including a 5-year grace period, at the Bank's standardvariable interest rate. SEPC will bear the foreign exchange risk. Execution of the subsidiary loan agreements between the Government, Sichuan Province and SEPC, and approval of the Loan Agreement by the State Council will be conditionsof effectivenessfor the loan.
E. PRocuREmET
5.17 In the past, the main issues in connection with procurement of works and goods in the power subsector in China included reluctance to use consulting services, delays in the procurementprocess and in domestic contract approval, lack of coordination and clarity of responsibilityamong agenciesinvolved in the procurementprocess, and very often inappropriatecontract packaging. However, significant improvementshave been made more recently in the sphere of procurement and these are expected to be continued under the proposed project. Expatriate engineeringconsultants will assist SEPC in the procurement process, and the Model Bidding Documents following the Bank's Standard BiddingDocuments, would contribute to efficientprocurement. Necessaryefforts are also being made to improve coordinationand avoid undue delays in the procurement process. The project's civil constructionworks and some local goods (not financed by the Bank) will be procured through local competitivebidding (LCB). Project circumstancesjustify the use of LCB for these works and goods, since foreign bidders are not expected to be interestedin civil works that are labor-intensive,contract values are not large enough, and local prices are well below the internationalmarket. Furthermore, Chinesecontractors are well-experiencedand competentin carrying out such constructionworks. If foreign firms wish to participatein LCB for these works, they would be allowedto do so in accordance with local procedures, which are acceptableto the Bank and consideredappropriate for the efficient executionof the project. - 38 -
5.18 Major equipment for the transmissionnetwork componentof the project will be procured through ICB. Goods manufacturedin China will be eligible for a preference in bid evaluationof 15 percent of the c.i.f. price or the actual import duty, whichever is lower. Some specializedequipment estimated to cost less than $300,000 per contract up to an aggregateamount of $4 millionwill be procuredthrough limited internationalbidding (LIB) in accordance with the Bank's Procurement Guidelines. Goods, instruments and accessories needed for construction and operation of the power transmission network, includingequipment for environmentalmonitoring and training, estimatedto cost less than $300,000 per contract up to an aggregate amount of $2 million will be procured by shoppingor through direct negotiationswith suppliers. Consulting services and training will be obtained following the Bank's Guidelines for the Use of Consultants. All consultants' contractcosting $100,000 or more for firms and $50,000 for individualswould be subject to the Bank's prior review. The Model Bidding Documentsfor Procurement under ICB and LCB in The People's Republic of China would be used to the maximum extent possible. All procurement documentspertaining to bidding packages for goods financed by the Bank and estimated to cost more than $5.0 million equivalent will be subjectto the Bank's prior reviewprocedures (about 95 percent of Bank-fundedpurchases). Althoughthe Bank will not finance the civil works (para. 5.17), they have to be carried out efficiently, on time, and within a budget that will satisfy the economic and financial parameters of the operation. The proposed procurementarrangements are summarizedin Table 5.3, and the related procurementschedules for various packagesare given in Anne 56.
F. PRoJEcr IMPLEMENTATION
5.19 Constructionof the 500-kV transmissionnetwork is on the critical path of the major undertakingrelated to the Ertan HydroelectricProject (para. 5.2). SEPC will be responsible for project implementationand operation. A specializedconstruction unit has been establishedto managesite constructionactivities; its organizationalstructure is shown in Chart 3. Preparatory works includingaccess roads and constructionpower supply have been started. The bidding documents for the procurement of the main equipment and systemsare expectedto be issued in December 1994 and to be opened in April 1995. The first line is expectedto be completedby October 1998. The operationof the entire project is expectedin early 2001. Thus, the project completiondate would be June 30, 2001 and the closing date of the Bank loan would be December 31, 2001. Chart 4 presents the implementationschedule for the various componentsof the project. Key dates of project implementationare given in Annex 5.7, and estimated annual payments are summarized Table 5.4.
G. DIssu6EmEwr
5.20 The Bank loan will be disbursed against: (a) 100 percent of the foreign expendituresfor directly importedequipment and materialsquoted on a c.i.f. basis; (b) 100 percent of local expendituresex-factory for locally manufactureditems, and 75 percent of local expendituresfor other items procured locally; and (c) 100 percent of the expenditure for consulting services and training. For expenditures pertaining to (a) training; and - 39 -
Table 5.3: SUMMARYOF PROPOSED PROCUREMENT ARRANGEMEN ($ million)
Total Proposed Method project Project item ICB Other /a NBF /b costs
Works
Preparatory works - - 78.9 78.9
Land acquisition & relocation - - 13.9 13.9
Civil works & installations - - 143.8 143.8
Goods
Transmission line materials & 72.7 - 300.1 372.9 systems (69.3) (69.3)
Substation equipment & 197.0 6.0 35.3 238.3 systems (187.3) (6.0) (193.3)
Services
Engineering and administration - 17.9 - 17.9/c (1.3) (1.3) Environmental protection - 0.9 - 0.9 (0.5) (0.5) Accounting and financial MIS - 2.9 - 2.9 (1.8) (1.8) Training - 4.7 - 4.7 (3.7) (3.7)
Total 269.7 32.5 572.2 874.4/c (256.6) (13.4) (0.0) (270.0)
/a LIB and shopping for minor equipment and instruments, direct negotiations with suppliers for training and environmental monitoring equipment and hiring of consultancy services. /b NBF = Not Bank Financed. /c The CRISPP-related financing included.
Note: Figures in parentheses are the respective amounts financed by the Bank loan.
(b) contracts for goods valued at less than $5 million equivalent, reimbursementwill be made on the basis of Statements of Expenditures. Documentation supporting such expenditureswould be retained in the SEPC offices and made available for review by the Bank's supervision mission. To facilitate disbursements under this project, a Special Account will be established with an authorized allocation of $15 million, representing approximately four months of average project disbursements. Applications for replenishmentwill be submittedmonthly or when the amountswithdrawn equal 50 percent of the initial deposit, whichever comes sooner. Annex 5.8 presents the disbursement schedulefor the proposed Bank loan as well as a standardprofile of disbursementsfor all Table 5.4: IMPLEMENTATIONSCHEDuLE: ESrimATED ANNUAL CONTRACIUAL AND OTHE PAYMENTS ($ million equivalent)
Proiect Year /a Total Project element 1994 1995 1996 1997 1998 1999 2000 2001 paymets Remarks & before
Works Preparaory works 2.7 10.3 18.3 12.7 14.1 10.0 10.8 0.0 78.9 LCB Land acquisition and 0.0 3.4 1.7 3.3 2.6 1.4 1.1 0.5 13.9 NBF relocation Civil works and installations 0.0 9.5 30.9 35.9 30.1 16.1 13.4 8.0 143.8 LCB Goods Transmission line 0.0 33.8 89.5 99.3 65.3 42.1 27.3 15.6 372.9 ICB materials and systems (14.3) (19.5) (18.6) (11.4) (5.4) (69.3) Substation equipment 0.0 35.6 69.9 54.2 52.9 13.8 10.1 1.9 238.3 ICB and systems (29.2) (61.7) (46.6) (45.3) (7.9) (2.6) (193.3) Services Engineenng services & administration 1.0 3.9 2.3 2.2 2.2 2.3 2.0 2.0 17.9/b Other (0.0) (0.3) (0.3) (0.3) (0.3) (1.3) Environmental protection 0.0 0.4 0.5 - - - - - 0.9 Other (0.3) (0.3) - - - - - (0.5) Reform plan and financial MIS 0.0 0.7 0.7 0.7 0.8 - - - 2.9 Other (0.4) (0.4) (0.5) (0.5) - - - Training (1.8) - 1.1 1.2 1.2 1.2 - - - 4.7 Other (0.9) (0.9) (0.9) (1.0) (3.7) T-ot-al 3.7 98.8 214.9 209.4 169.3 85.7 64.7 28.0 874.4 (0.0) (45.1) (83.2) (67.0) (58.5) (13.7) (2.5) (0.0) (270.0)
/a Based on calendar year. /b Includes the CRISPP-related financing. Note: Figures in parentheses are the respective amounts financed by the Bank loan. - 41 -
sectorsin China. The disbursementsare expectedto be completedin six years, very close to the standarddisbursement profile for China. The last year is for payment of retention money.
H. ENVIRONMENTALCONSIDERATIONS
5.21 In accordancewith OD 4.01 (EnvironmentalAssessment), the Sichuan power transmissioncomponent of the project is designatedas Category B. The EAR (para. 5.4) for both componentshave been approvedby the SichuanEnvironmental Protection Bureau, MOEP and the National EnvironmentalProtection Agency. They have been reviewed by the Bank; it is considered that all environmentalaspects of the project are satisfactorily addressedand in compliancewith all environmentalpolicies and procedures. The project has been designed and will be carried out in accordance with current technological practices and it is expectedto cause minimum disturbanceto the environment.
5.22 The Sichuan power transmissionproject is a greenfield operation, located in a mountainous and semirural agricultural area. Alternative routes for the power transmission lines and transformer substation sites had been considered. The selected routes requires the least amount of land, affects the least number of people, and offers the smallest impact on the natural and human environment. Also, appropriate technologies will be applied in the power facilities design. Annex 5.9 presents the environmental managementprogram, includinga summary of key environmentalissues associated with the project and their anticipatedimpacts, the mitigatingplan to assure these impacts are minimized, and the monitoring program with which environmental impacts will be measured and compared with the predictions in the EAR. Strengthening of SEPC's institutionalcapabilities for environmentalmanagement will be carried out under the SEPC managementdevelopment and staff trainingprogram (para. 5.12). Monitoringequipment in an amount of $0.8 million will also be provided under the proposed project.
5.23 Key environmentalissues investigated in the EAR include: worker health and safety, transmission line impacts (electric field, noise, and bird flight), and the influence of the constructionlabor force on the local infrastructure. All mitigatingmeasures for air, water, and land impacts are designed to meet appropriate Chinese requirements and/or World Bank environmentalguidelines whichever is stricter. In the absence of either, international standards or codes of practice will be utilized. Environmental issues associated with the project and addressed in the EAR have been discussed at public meetings that were held by Sichuan Province. The local public and authorities supported the project and the recommendedmitigating measures offered in the EAR. The mitigation plan recommendedin the EAR will be fully implemented.
5.24 All environmentallyrelated issues consideredwere deemed manageable,and, with the mitigationplan offered in the EAR, should result in a minimum environmental impact by the project. Assurances were obtainedfrom SEPC that it would carry out the environmentalmanagement program in a manner satisfactory to the Bank. - 42 -
I. RELOCATION AsPEcrs
5.25 According to the resettlement action plan prepared by SEPC the proposed project will require acquisitionof 163 hectares (ha) of farmland, demolition of 290,557 square meters of floor space, and relocation of 1,991 households or 8,126 people. In addition, about 80 ha of land will be used temporarily during the project construction. Almost all relocationsare due to the transmissionlines. The affected people will need to move only a short distance from their existing houses (100-200 meters). They will be given adequate compensationto rebuild their houses within the same villages, often with better quality. During the construction, some standing crops of trees will be damaged, which will be compensatedafter consultationwith affected villagers. For those who will be displacedeconomically, they will be given high priority to be employed by SEPC as regular maintenanceworkers. Accordingto the resettlementaction plan, a well organized resettlement unit has been set up by SEPC to handle the resettlement planning and implementation. Arrangements for relocation, which have been made through a participatoryprocess with land users and local authorities, appear to be satisfactory. The Chinese have had extensive experience with World Bank policies and requirements for resettlement, and have, in the past, achieved good results in their implementation. A summary of the resettlement action plan, including details on the affected people, their losses, and how those losses would be compensatedto ensure no adverse impact on their standard of living, is presented in Annex 5.10.
5.26 Institutionalstrengthening of the resettlement unit is included in the project. In addition, an experienced resettlement team from SWEPDI has been actively involved in the preparationof the resettlementprogram and related action plan. The monitoringof progress in the resettlementand rehabilitationprogram will be subcontractedby SEPC to SWEPDI. Assurances were obtained that SEPC would carry out land acquisition, relocation and rehabilitationof persons affected by the project in accordance with a resettlementplan acceptableto the Bank.
J. PRoJEcr RiSKS
5.27 In view of the advanced preparatory works, risks associated with project construction, cost overruns, and implementationdelays in both the Ertan hydroelectric plant and the proposedproject are withinreasonable limits and would be manageablegiven the continuoussupervision arrangements, involving foreign and Chinese consultants, that have been put in place. Particular attention will be given to safety aspects of the project, and to capabilitiesand performanceof major contractors. The economicrisks are minimal (para. 7.8).
5.28 Financial risks may result from delays in the availabilityof local funds. This is a generic problem to all new investmentprojects in China at this time. However, this risk has been mitigatedthrough SDB's reconfirmationof assurancesto provide 70 percent of the total local financingrequirement in a timely manner. In addition, SEPC's ability to achieve the financial target covenants under this project will require approval of substantialtariff increasesby the central and provincialgovernments, and there is risk that - 43 -
delays in approvals will compromiseSEPC's ability to achieve adequate financial self- sufficiency. Assurances would be obtained from the beneficiary and borrower that sufficienttariff increases will be implementedwithout delays (paras. 6.11-6.12). China's record in meeting similar financialassurances provided in connectionwith previous power projects has been good. Implementationof the power sector reforms in an efficient and timely manner is another risk that would be addressedthrough the provision of technical assistanceand close project supervision. The project's nonquantitativerisks are considered to be minimal. The borrower and beneficiary will ensure the proper coordination of all project participants and delineationof authorities. Other potential risks could include the continuity of goods supply, funding shortages, contract management difficulties, and effectiveimplementation of the environmentalprogram. No major environmentalproblems are expected under this project, and the implementationof the proposed environmental managementprogram (includinga monitoringprocess) would assure the adequatequality of the environmentat the project routes and in the nearby areas.
K. MoNIRING ANDREPORTING
5.29 Satisfactoryprocedures for monitoring,evaluating, and reportingon the project have been agreed by SEPC. The Bank would be furnished with semiannualand annual project progress reports. The timelyimplementation of the project is critical and depends on adequatefinancial resources being made available when needed. For this reason, the annual project progress reports would include, inter alia, SEPC's proposals regarding project costs and financingplan for the following year. The scope and content of the project progress reports have also been agreed. In view of the experience with similar power projectsin China, regular project supervisionwould be required. Bank supervision input into key activities is presented in Annex 5.11, and a framework for project monitoringand reporting in Annex 5.12. - 44 -
6. FINANCLALASPECTS
A. INIRODUCTION
6.1 SEPC follows MOF financialregulations applying to state-ownedenterprises. These regulationshave graduallyevolved over the last decade from a system in which all investmentfunds were provided by the Governmentand all surplusesremitted to it, to one that provides some autonomy and incentives for efficiency.
6.2 Prior to 1987, surpluses of a power entity were remitted to the Government through sales (25 percent), income (55 percent after debt service), and adjustment (28.5 percent) taxes as well as other levies. This system left power entities with almost no internally generated funds to finance new investments other than small renovations. Consequently, a conservative and passive approach was taken by many power entities. Actual capital expendituresfell far short of requirementsand severe shortagesof electricity have been experienced.
6.3 Beginning from 1987, the contract responsibility system was introduced to increase autonomy and accountabilityof enterprises. Under this system, power entities were required to submit a fixed amount of income and adjustmenttax to the Government each year and agreed to carry out all technologyrenovation projects at given costs to meet some specific parameters, in particular, the unit coal consumptiontarget. Employees compensationwas also linked to electricitysales and productioncosts. Startingfrom 1992, power entities are allowed to accelerate depreciation of fixed assets by 20 percent to increase their self-financingcapability and, by 1993, they are exempt from submitting 25 percent of the depreciation funds to the Government. However, power entities still have to rely on tax exemptions and lax debt repayment schedule to maintain their operations and only retain about 5-15 percent of their net income for future expansion program. Mobilization of investment funds from provincial and local governments, independent enterprises, such as Huaneng, and foreign sources has helped finance expansion, but financinggaps still remain.
6.4 The authorities are aware of the above systemic issues. In the absence of deepened enterprise reforms, the gap in financingthe required sector investmentwould continue to increase in the 1990s. As a first step, the Governmentis now committed to the implementationof the July 1992 regulations of the State Council ("Regulationson Transforming the Operating Mechanisms of State-ownedIndustrial Enterprises") in the power sector, givingpower entities expandedfinancing, investment and asset management rights. Second, MOEP and SPC have provided built-in mechanismsfor improving the financialstatus of provincialpower companiesthrough the 1993 reform of the state catalog electricityprices. The state catalog prices are the rates charged for generation of power - 45 -
capacity financedby the central government,and form the basis for the revenue accruing to provincial power companiessuch as SEPC (see Annex 3.5). In addition to increases in catalog price levels, the 1993 reform established the principle that power from all new plants (retroactiveto April 1, 1993), includingthose financed by the central government as well as those financed throughother means, wouldbe priced at levels enablingprinciple and interest payment of debt. There will be a phase-inperiod to have the full debt service requirements reflected in the prices. The new policy guarantees at least a break-even position for power entities and leaves them with all depreciation funds for new investments. It will encourage power company managers to take a more aggressive approach in investment.
6.5 The new accountingprinciples and financial rules effective on July 1, 1993 will also have far-reaching impacts on the sector. First, they require power entities to clarify and separate debt from equity. This is an important step for power entities moving toward limited liabilitycompanies and eventuallyshareholding companies. Diversification of ownership is critical to mobilizingmore resources to the sector. Secondly, under the new profit allocation system specified in the new financial rules issued by MOF, the adjustment tax and special fund allocations have been abolished. The managementof power entities are given greater autonomy in making decisions on profit distribution. Thirdly, enterprises are permitted to design their own internal accountingand financial managementsystem based on the businessneeds. Overall, the new financialrules together with other reforms, such as state assets management,fiscal and financial sector reforms, will lead the state to graduallyplay a more indirect ownershiprole in the managementof power entities. With new autonomy and increasedaccountability power entities will also have to improve their budgetary and cost controls as well as cash managementin order to stay competitivein a market-orientedenvironment.
6.6 The Govemmentpromulgated a series of important new tax laws at the end of 1993. From 1994, the contract responsibilitysystem is replaced with a transparent and simplifiedtax system. A corporate income tax rate of 33 percent is being applied to all domestic enterprises. The Govemmentwill then only collect income tax from enterprises based on a unified rate. Dividend distribution for Government equity contribution in enterprises will be decided by the managementin consultation with various owners or Board of Directors. The old sales taxes (about 25 percent of sales) levied for power generation and distribution were also consolidatedinto a new value-addedtax (VAT) of 17 percent. The new tax policy does not necessarilyreduce the tax and remittanceburden for power entities. However, it eliminates the lengthy and complicated negotiations between enterprises and the Govemment. More importantly, it is really conducive to strengtheningthe planning and financial managementfunctions of the power companies.
6.7 SEPC's financialperformance in the past was poor compared with most other power companiesin China. It had to rely on the lax repayment schedule to maintain its operations. However, as many criticalreforms, such as property rights, investment,fiscal, financial, trade, are graduallylaid out by the Govemment, SEPC's future finances will be subject to greater uncertainties. Therefore, strengtheningthe financial management is critical for SEPC to stay financiallyviable in a market-orientedeconomy. Toward this - 46 - end, the proposed project would continue the process of institutional building already initiated under previous Bank-financedprojects, including(a) a componentto improve and upgrade SEPC's accountingand financialmanagement system (para. 5.8); (b) training in financialmanagement for SEPC (para. 5.12); and (c) agreementswith SEPC on financial performance targets that would provide a frameworkfor financialdiscipline (para. 6. 11).
B. SEPC'SPAsr AND PREsENT FINANCIALPERFORMANCE
6.8 SEPC's income statements, fund flow statements and balance sheets for the period 1990-93are set out in Annex 6.1. Salientpoints and features highlightingits past and present finances are summarizedin Table 6.1.
Table 6.1: SEPC's KEYFINANCIAL INDICATIORS, 199093 (Million Yuan)
Growth Rate % p.a. Year ended December 31 1990 1991 1992 1993 (1990-93)
Electricity Sales (GWh) 23,152 24,808 26,635 29,905 8.9 Average Revenues (fenlkWh) 10.62 13.21 15.49 20.55 24.6 Operating Revenues 2458 3,277 4,126 6,146 35.8 Operating Income /a 367 577 536 396 2.7 Net Income 116 300 248 161 11.8 Net Fixed Assets in Operation 4,032 4,166 4,684 7,869 9.3 Capital Expenditure 880 2,827 1,596 1,954 30.5 Operating Ratio (%) 85.0 82.4 87.0 93.6 Rate of Return (%) /b 2.9 7.3 5.3 4.0 Debt Service Coverage (times) 1.7 1.9 2.1 1.3 Current Ratio 1.2 1.2 1.2 1.2 Debt as % of Debt and Equity 53.4 62.8 64.5 57.9
/a Operating revenues less the aggregate of fuel, power purchases, administration, operation and maintenance, and depreciation. /b Based on historically valued average net fixed assets in operation.
6.9 During the period 1990-93, SEPC reported modest profits in its financial statementsas it deferred or capitalizeda substantialamount of interest payment each year. Moreover, SEPC's positive cash positions were maintainedby lax debt service schedule. Despite the impressive sales growth of 29 percent and more than doubled operating revenue over the period, SEPC's finances had been weakened. Its net income, rate of return on fixed assets in service, and debt service coverage have all been on a declining trend. The operating ratio deteriorated to about 94 percent in 1993 from 85 percent in 1990. The most serious problem faced by SEPC is that it has no surplus to finance any new capital investments. With a significantportion of interest and principal payments - 47 - being deferred, SEPC's self-financingratios were 0 percent and 2 percent in 1992 and 1993, respectively.
6.10 SEPC's total average revenue increasedby 94 percent during the past three years, but this was primarily due to a tripling of the unit cost of purchased power. Althoughincluded in SEPC's total revenue, the funds collected from the sale of purchased power are largely offset by the costs. Purchased power costs increased from less than 8 fen/kWh in 1990 to 25.8 fen/kWh in 1993. The average revenue that SEPC received for its own generation, based on the catalog prices, increased by less than 50 percent between 1990and 1993, rising to 16.5 fen/kWh in 1993.
C. FINANCIALPERFORMANCE TARGETS
6.11 As the Government is taking steps to reform rules governing enterprise accountingand financialaffairs and to increase the financialautonomy of enterprises, the self-financingratio is becoming a more meaningfulindicator. In addition, the indicator serves as an effective tool to ensure adequate tariff levels. It is particularly relevant in SEPC's case. SEPC needs to graduallybuild up its own financing capabilityin order to realize its planned investmentprogram, as 100 percent debt financingis neither feasible nor financiallysound in today's environment. Given SEPC's present financialposition in comparisonwith other power companiesin China, a gradual approach is appropriate.
6.12 Even by taking this approach, the magnitude of required tariff increases is large. With the large investmentprogram anticipatedand the low current state catalog tariff, major adjustmentsneed to be initiated, beginningwith the 1995 state catalogprices. In order to just break even in 1995, projections show that SEPC's average state catalog price must be increasedby a minimumof about 28 percent from the 1994level. As shown in Table 6.2, substantialfurther increases in real tariff levels also will be needed during the remainder of the 1990s for SEPC to make a reasonable contribution to its future investment program. With a view to promoting this reform and prudent financial management,assurances were obtainedfrom SEPC that it would:
(a) take all necessarymeasures, includingbut not limitedto tariff adjustments,to ensure that its internalcash generationis sufficient to meet (i) cash operating expenses; (ii) interest charged to operations; (iii) income taxes; (iv) gross increases in working capital; (v) loan repaymentsin 1995, and to maintain self-financingratios of no less than 1Opercent in 1996, 15 percent in 1997, 20 percent in 1998, 25 percent in 1999, and 30 percent thereafter;
(b) not incur additionaldebt unless a reasonableforecast shows its internal cash generation would provide a debt service coverage ratio of no less than 1.2 times during 1996-97and 1.5 times thereafter;and
(c) by April 30 of each year, commencingin 1996,furnish to the Bank a rolling eight-yearfinancial plan containingprojected income statements, statements of sources and uses offunds, and balance sheets. - 48 -
D. FUTInREFINANCES
6.13 The projectionsof SEPC's financesfor 1994-2003are presentedin Annex 6.2, and the salient features of these finances are highlighted below in Table 6.2. The projections are based on the assumptionscontained in Annex 6.3. The average prices shown depict the minimumtariff adjustmentsneeded to allow SEPC to achieve the above financialperformance targets.
Table 6.2: KEY FNANCIAL INDICATORS, 1994-2003 (Million Yuan)
Year Ended December31 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Energy Sales (GWh) 33,000 36,500 39,800 43,500 47,400 50,900 54,500 58,300 62,400 66,800 Average Price (fen/kWh) 24.50 28.99 32.93 37.17 41.23 47.90 55.76 58.52 58.79 64.94 SEPC'a Own Avg. Price 20.10 25.71 29.94 34.47 38.65 45.17 53.00 54.48 53.26 60.84 Purchased Power's Avg Price 32.54 35.66 39.45 43.17 47.25 54.31 62.70 68.25 72.29 77.48 Operating Revenue 8,082 10,590 13,118 16,151 19,549 24,394 30,384 34,090 36,671 43,378
Tariff in Real Terms of 1994 Prices Average Price (fen/kWh) 24.50 27.74 29.05 30.48 31.64 34.52 37.73 37.18 35.08 36.38 SEPC's Own Avg. Price 20.10 24.61 26.42 28.27 29.66 32.55 35.86 34.61 31.78 34.08 Purchased Power's Avg. Price 32.54 34.13 34.80 35.40 36.26 39.14 42.43 43.36 43.12 43.40
Operating Income 1,222 2,233 3,049 3,927 4,902 5,863 7,970 7,768 7,479 10,416 Annual Capital Expenditure 3,243 3,940 5,026 6,119 6,920 6,431 7,535 9,176 10,249 9,650 Rate Base 8,345 10,069 12,048 13,999 18,411 23,568 27,589 31,076 34,740 39,984 Long-term Debt 11,147 13,027 15,408 18,281 20,958 22,266 24,481 27,689 30,431 32,152 Debt Service 1,265 2,023 2,336 2,634 2,909 3,885 5,116 5,145 5,096 6,597 Cash in Banks 1,228 792 537 317 193 595 1,259 1,854 2,381 3,194
Rate of Return Historically Valued Asets (%) 11.8 17.3 19.3 20.9 19.6 18.5 21.3 18.7 15.9 18.9 Revalued Asseta(%) 10.0 13.1 14.9 15.5 13.7 13.8 15.8 13.8 11.3 13.1 Self Financing Ratio (%) 7.1 0.0 10.0 15.0 20.0 25.0 30.0 30.0 30.0 30.0 Operating Ratio (%) 85.0 78.9 76.8 75.7 74.9 76.0 73.8 77.2 79.6 76.0 Debt/Total Capital (%) 59.4 59.6 59.4 59.0 57.5 54.3 51.5 50.4 49.2 46.3 Debt Service Coverage 1.1 1.1 1.3 1.4 1.6 1.5 1.5 1.5 1.6 1.6
6.14 Table 6.2 shows the projected levels of increases in purchased power prices, prices for SEPC's own generation, and the weighted average of these two that will be required to meet the financial covenants. The prices for purchased power will be determined on a plant-by-plantbasis, at "debt repayment price" levels, allowing for full debt service based on 10-yearpayback period after commissioningof new power plants. For plants invested by independent investors, such as Huaneng, in addition to the debt repayment requirement based on even shorter payback period, seven years in Huaneng's case, the pricing formula further incorporates a reasonable level of profitability. The pricing formula for the electricity supplied by Ertan Hydroelectric Development Corporation will be decided by the ongoing tariff study.
6.15 SEPC's financialposition, however, depends on the revenue that it collects from its own generation. In order to meet the expansionplan and projected cost increases in the future and comply with the financialperformance targets set forth above, SEPC's - 49 - average tariff will need to increase by an estimated 12.2 percent in current terms or 4.7 percent in real terms a year from 1994 to 2003. Given the current low tariff level on SEPC's own generation, SEPC needs to have a step increase of 28 percent in 1995 to break even and a total increase of 81 percent in three years to achieve a very modest self- financing ratio of 10 percent in 1996. Moreover, in order to reach the final target of 30 percent self-financingratio by 2000, SEPC's own tariff will have to be more than tripled, an annual increase of 18 percent in current terms and of about 10 percent in real terms over the next seven years.
6.16 Althoughthe rate of increases in the state catalog prices needed to achieve a reasonable self financingratio for SEPC are large, much of the increase should stem from the entry of new generating plant into the rate base. Based on the principles established by the Governmentin the 1993 state catalog price reform, prices for new plant controlled by provincial power companies such as SEPC will be set at "debt repayment' levels. Because of the rapid load growth, the bulk of the tariff increase required will be met through implementationof the new pricing principles. Even by 1996, about one third of SEPC's own generation is expectedto come from plants built since 1993. By 2002, the share rises to over one half.
6.17 During the period 1994-2003,SEPC is projected to maintain relatively high rates of growth necessitated by the prospective strong economic growth in Sichuan Province. Based on the latest demand forecast and expansionplan assumptions, energy sales are expected to increase by about 123 percent over 1993 levels, representing a compoundannual growth rate of about 8.4 percent. SEPC's annual investmentprogram is expectedto expandby almost fourfoldover the period, an annual increaseof 17 percent. Net fixed assets in operationare projected to grow by about 446 percent, an annualized growth rate of about 18.5 percent during the period. Moreover, to meet forecast power shortages, rapid increases in both the quantity, from 12,900 GWh to 24,250 GWh, and costs of purchasedpower, an augmentationby almost five times, over the projectionperiod are expected. The electricity suppliedby Ertan HydroelectricPower Plant after reaching full generatingcapacity in 2001 is projectedto accountfor two thirds of SEPC's purchased power. Based on the assumptionof 35 fen/kWh in 1994 prices for Ertan's power, the projected cost for purchased power will grow by more than 19.5 percent per annum and constitute over 44 percent of SEPC's operatingcost in 2003.
6.18 From 1993 on, SEPC's performanceis anticipatedto improve gradually and steadilyas the tariff level of SEPC's own generationbe raised to meet the financialtargets, from 16.5 fen/kWh in 1993 to 60.8 fen/kWh in 2003, tariff structure is further rationalized, and self-financingas well as debt service requirements emerge as dominant factors in pricing formulation. Based on the projected minimum tariff level, about 13.9 percent increase per annum for its own generation and 11.6 percent for purchased power from 1993 to 2003, both revenues and net income are expected to grow considerably over the period. Operational ratios are projected to revert from over 93 percent in 1993 to 76 percent by 2003. Moreover, the rate of return on historically valued assets and on revalued assets will also improvefrom singledigits in the early 1990s to the high teens, averaging 18.2 and 13.5 percent, respectively,over the period of 1994- 2003. - 50 -
7. ECONOMIC JUSTIFICATION
A. PRoJECT BENEFI
7.1 The proposed Sichuan TransmissionProject is an essential componentof the electric power developmentprogram in Sichuan Province because it is required for the output of the 3,300 Ertan HydroelectricProject to be used. The Ertan plant is expected to provide over one quarter of the electricalenergy needs of the provincial grid in the year 2000, and to play a backbone role in system regulation. Without construction of the 500-kV transmissionline to connect the Ertan plant to the main grid in the East Sichuan Basin, and associatedinvestments to reinforce the transmissionsystem of the grid so that it can proper receive Ertan's power, over 80 percent of Ertan's output cannot be utilized. The Ertan plant has been under constructionfor over three years. By the beginning of 1994, 51 percent of the total investment cost of Ertan already was sunk. Without completionof the transmissionproject, this investmentwould essentially be wasted. An economicallyattractive investment package from the beginning,the economicbenefits that can be derived from the incremental costs of completing the Ertan plant and associated transmissionfacilities are now exceptionallyhigh. Conversely, failure to complete the transmissionproject in time to properly use Ertan's generation would be very costly, as it would most likely result in prolonged high levels of unserved load.
7.2 Completionof the Ertan plant and transmission line also is environmentally attractive, compared to the principal alternative. In Sichuan, the least-costalternative to Ertan to meet the projected load forecast is developmentof coal-fired thermal power plants. This alternative would result in the combustionof more than 8 million tons of additional raw coal per year. In addition to the negative global environmentalimpact, increaseduse of the low-quality,high-sulfur coal of this region could be expectedto result in yet more severe local air pollution impacts than commonin other parts of China.
B. LEAST-COSTANALYSIS
7.3 The proposed project is unquestionably part of the least-cost expansion program for the Sichuan Power Grid. A variety of expansion sequencesfrom 1994-2010 were prepared and analyzedin detail by SEPC and the BeijingEconomic Research Institute of Water Resourcesand ElectricPower (BERIWREP). Stagedcommissioning of the Ertan project in 1998, 1999 and 2000, the earliest dates now feasible, remains part of the least- cost sequence under a wide variety of assumptions. Using updated economic shadow prices, and discountingat 12 percent into 1994 terms, the present value cost of a 'second best" expansionsequence-without the Ertan project or transmissioninvestments-exceeds that of the with-projectexpansion program by Y 10.8 billion ($1.2 billion) (Annex 7. 1). More than any other single indicator, this large cost savings compared to the next best alternative shows the economic attractiveness of completion of the Ertan plant and transmissionfacilities. - 51 -
7.4 Confirming the earlier decision to proceed with the Ertan project, commissioningof the Ertan plant and transmissionfacilities as planned also remainedpart of the provincial grid's least-costexpansion plan in the recent study even when the sunk investmentcosts in Ertan were included.
7.5 The economicstudies of the project also considereddifferent transmissionline routes, configurationsand timing. Two alternativeroutes for the 500-kV transmissionline were rejected as higher cost options. Completionof three lines of 500-kV connectionof Ertan with the main grid by 2000, when the last unit of Ertan goes into operation, is clearly urgent. The studies concluded, however, that completionof a fourth line is best delayed until 2003, when additional generating capacity near to Ertan also would be brought on line.
C. ECONOMIC RATE OF REnrRN
7.6 The internal economicrate of return (IERR) for the full Ertan Hydroelectric Project (including sunk costs) and the investmentsin the 500-kV transmission line and system reinforcements project is conservativelyestimated at 17 percent. An economic price of 33 fen/kWh, in 1994 prices, was used as a minimumproxy for the economicvalue of electricitybenefits, based on the existingpower sales price of the independentLuohuang Thermal Power Plant to the Sichuan Power Grid. Assumingan economicprice of 37 fen/ kWh in 1994 prices, in line with the estimated average producers' tariff level required to meet the project's financial covenants, the IERR would be 18 percent. Actual consumer willingness to pay for power from Ertan is likely to be substantiallyhigher than these prices, especially for power during the dry season.
7.7 In a more accurate reflection of the returns of the economic decision that is now being made, the IERR for the incrementalcosts to completethe Ertan Project and its associatedtransmission is estimatedat 29 percent. Finally, considerationof only the costs and benefits of the proposed transmissionproject yields an IERR of 37 percent.
Sensitivity Analysis
7.8 The proposed transmissionproject carries very little internal economic risk. If the transmissionproject were completedas plannedbut the generationstream from Ertan were delayed by two years, leaving the line initially idle, the IERR of the transmission investmentwould fall from 37 percent to 26 percent. With a cost overrun of 30 percent, the transmissionproject IERR would still be 30 percent.
7.9 The chief economic risk associated with the project is the risk of negative impact on the Ertan project and Sichuan's economyif there is a delay in the commissioning of the transmission line. Under current plans, the Sichuan Power Grid will have inadequatereserve marginsin energy and peaking capacityprior to completionof the Ertan plant and transmissionline (para. 4.9), and delay will only exacerbate this shortage and cause high costs to the economy through increasedunserved load. - 52 -
8. AGREEMENTS AND RECOMMENDATION
8.1 The followingassurances were obtained at negotiations:
(a) From the Borrower that it would:
(i) take necessary measuresto enable SEPC to implementthe Action Plan in a manner satisfactory to the Bank (para. 3.10); and
(ii) onlend the proceeds of the proposed Bank loan through Sichuan Province to SEPC on terms and conditions satisfactory to the Bank (para. 5.16).
(b) From SEPC that it would:
(i) prepare by September 30, 1995, in consultation with the Bank, a detailedprogram for implementationof the Action Plan and, thereafter, implementthe Action Plan in a manner satisfactory to the Bank (para. 3.10);
(ii) furnish the Bank with audited project accounts, statements of expenditures, and financial statements within six months of the end of each fiscal year (para. 3.23);
(iii) carry out the managementdevelopment and training program as agreed with the Bank (para. 5.12);
(iv) carry out the environmental management program in a manner satisfactory to the Bank (para. 5.24);
(v) carry out relocation of persons affected by the project in accordance with a resettlementplan acceptable to the Bank (para. 5.26);
(vi) take all necessarymeasures to ensure that its internal cash generationis sufficient to meet (a) cash operating expenses, (b) interest charged to operations,(c) income taxes, (d) gross increasesin workingcapital, and (e) loan repaymentsin 1995; and to maintaina self-financingratio of no less than 10 percent in 1996, 15 percent in 1997, 20 percent in 1998, 25 percent in 1999, and 30 percent thereafter [para. 6.12(a)]; - 53 -
(vii) not incur additional debt unless a reasonable forecast shows its intemal cash generation would provide a debt service coverage ratio of no less than 1.2 times during 1996-97and 1.5 times thereafter [para. 6.12(b)]; and
(viii) fumish to the Bank, by April 30 of each year a rolling eight-year financial plan containing projected income statements, statements of sources and uses of funds, and balance sheets [para. 6.12(c)].
8.2 Execution of the subsidiaryloan agreementsbetween the Borrower, Sichuan Provinceand SEPC, and approval of the Loan Agreementby the State Council would be conditionsof effectivenessof the loan (para. 5.16).
8.3 Subject to the above agreements, the proposed project is suitable for a Bank loan of $270 million to the People's Republic of China. The loan would be for a term of 20 years, includinga 5-year grace period, at the Bank's standardvariable interest rate. - 54 - - 55 -
ANNEXES - 56 - - 57 - ANNEX 1.1
PRIMARY ENERGY OUTPUT IN CBINA (1949-93)
Year Raw Crude Natural Electricity coal oil gas Total of which: (in6t) (106t) (108m3) output Hydropower (TWh) (TWh)
1949 32.0 0.12 0.07 4.3 0.7 1955 98.0 0.97 0.17 12.3 2.4 1960 397.0 5.20 10.40 59.4 7.4 1965 232.0 11.31 11.00 67.6 10.4 1970 354.0 30.65 28.70 115.9 20.5 1975 482.0 77.06 88.50 195.8 47.6 1980 620.0 105.95 142.70 300.6 58.2 1981 622.0 101.22 127.40 309.3 65.5 1982 666.3 102.12 119.30 327.7 74.4 1983 714.5 106.07 122.10 351.4 86.4 1984 789.2 114.61 124.20 377.0 86.8 1985 872.3 124.89 129.30 410.7 92.4 1986 894.0 130.69 137.60 449.5 94.5 1987 928.1 134.14 138.94 497.3 100.2 1988 979.9 137.05 142.64 545.2 109.1 1989 1,054.2 137.65 150.49 584.7 118.4 1990 1,079.9 138.31 152.98 621.3 126.4 1991 1,087.4 140.99 153.96 677.5 124.7 1992 1,115.0 142.10 157.90 754.2 131.5 1993 1,141.0 144.00 165.60 836.4 150.7
Source: MOEP. TOTAL PRODUCTION AND CONSUMPTION OF ENERGY VS. GNP GROWTH
1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
Production (million tons of standard coal equivalent) 628 646 637 632 668 713 779 855 881 913 958 1,016 1,039 1,048 1,073 1,117 Proportion (%)
Coal 70.3 70.2 69.4 70.2 71.3 71.6 72.4 72.8 72.4 72.6 73.1 74.1 74.2 74.1 74.3 74.2 Crude oil 23.7 23.5 23.8 22.9 21.8 21.3 21.0 20.9 21.2 21.0 20.4 19.3 19.0 19.2 18.9 18.5 Natural gas 2.9 3.0 3.0 2.7 2.4 2.3 2.1 2.0 2.1 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Hydropower 3.1 3.3 3.8 4.2 4.5 4.8 4.5 4.3 4.3 4.4 4.5 4.6 4.8 4.7 4.8 5.3 Consumption (million tons of standard coal equivalent) 571 586 603 594 621 660 709 767 809 866 930 969 980 1,038 1,087 1,122 Proportion (M%) 00 Coal 70.7 71.3 72.2 72.7 73.7 74.2 75.3 75.8 75.8 76.2 76.2 76.0 75.6 76.1 76.1 73.2 Crude oil 22.7 21.8 20.7 20.0 18.9 18.1 17.4 17.1 17.2 17.0 17.0 17.1 17.0 17.1 17.1 19.4 Natural gas 3.2 3.3 3.1 2.8 2.5 2.4 2.4 2.2 2.3 2.1 2.1 2.0 2.1 2.0 1.9 2.0 Hydropower 3.4 3.6 4.0 4.5 4.9 5.3 4.9 4.9 4.7 4.7 4.7 4.9 5.3 4.8 4.9 5.4 GDP Index (constant prices) 100.0 107.6 116.0 121.2 131.8 145.4 166.9 188.2 203.5 225.7 251.2 262.1 272.7 295.0 333.4 379.0 Energy Intensity Index (consumption/GNP) 100.0 95.4 91.0 85.8 82.5 75.9 74.5 71.5 69.7 67.2 65.0 65.1 62.6 61.6 57.3 51.9
Notes: (1) Excluding bio-energy, solar, geothermal and nuclear energy. (2) All fuels are converted into standard coal with thermal equivalent of 7,000 kilocalorie per kilogram. The conversion factors are: 1 kg of coal (5,000 kcal) =0.714 kg of standard coal I kg of crude oil (10,000 kcal) = 1.43 kg of standard coal > 1 cubic meter of natural gas (9,310 kcal) = 1.33 kg of standard coal
(3) The conversion of hydropower is based on the specific consumption of standard coal for thermal power generation of the year. Source: China Statistical Yearbook 1991.1. - 59 - ANNEX2.1
INSTALLED CAPACITY, ELECTRICITY GENERATION AND CONSUMPIION IN THE POWER SUBSECTOR
Installed Electricity Electricity Capacity (MW) /a Generation (GWh) /a Consumption lb Year Hydro Thermal Total Hydro Thermal Total (GWh)
1949 163 1,686 1,849 710 3,600 4,310 3,460 1952 188 1,776 1,964 1,260 6,001 7,261 6,277 1957 1,019 3,616 4,635 4,820 14,515 19,335 16,407 1962 2,379 10,686 13,065 9,042 36,753 45,795 n.a. 1965 3,020 12,056 15,076 10,414 57,190 67,604 56,802 1970 6,235 17,535 23,770 20,450 95,420 115,870 n.a. 1971 7,804 18,478 26,282 25,060 113,300 138,360 101,274 1972 8,700 20,801 29,501 28,820 123,630 152,450 123,600 1973 10,299 23,626 33,925 38,900 127,860 166,760 135,106 1974 11,817 26,291 38,108 41,440 127,410 168,850 135,708 1975 13,428 29,978 43,406 47,630 148,210 195,840 156,969 1976 14,655 32,492 47,147 45,640 157,490 203,130 164,698 1977 15,765 35,686 51,451 47,670 175,740 223,410 181,691 1978 17,277 39,845 57,122 44,630 211,920 256,550 210,239 1979 19,110 43,906 63,016 50,120 231,827 281,947 233,577 1980 20,318 45,551 65,869 58,211 242,416 300,627 251,639 1981 21,933 47,069 69,002 65,546 243,723 309,269 258,976 1982 22,959 49,401 72,360 74,399 253,279 327,678 275,299 1983 24,160 52,280 76,440 86,450 264,990 351,440 297,126 1984 25,547 54,373 79,920 86,780 290,207 376,987 319,600 1985 26,120 60,373 86,493 92,374 318,315 410,689 348,353 1986 27,542 66,276 93,818 94,480 355,091 449,571 357,057 1987 30,193 72,704 102,897 100,229 397,092 497,321 420,019 1988 32,698 82,799 115,497 109,177 435,888 545,065 464,013 1989 34,570 92,060 126,637 118,475 466,200 584,675 495,135 1990 36,050 101,844 137,894 126,350 494,986 621,318 527,154 1991 37,884 113,589 151,473 124,845 552,649 677,494 575,219 1992 40,681 125,852 166,533 131,466 622,723 754,189 644,696 1993 44,593 138,318 182,911 150,743 685,686 836,429 698,255
/a On a countrywide basis. Lk Energy consumption not including uses by stations and line losses.
Source: MOEP. - 60 - ANNEX 2.2
ELECTRICITY CONSUMPTION BY SECTORS La
Total Industry Agri- Resi- Trans- Municipal consumption Sub- cul- den- porta- and Year (TWh) Heavy Light total tural tial tion commercial
1985 411.7 63.8 15.9 79.7 7.7 5.4 1.5 5.7
1986 456.7 64.9 15.8 80.7 7.1 5.5 1.5 5.2
1987 498.5 64.0 16.4 80.4 7.2 5.7 1.5 5.2
1988 546.7 62.8 17.0 79.8 6.9 6.3 1.6 5.4
1989 586.5 63.0 16.2 79.2 7.0 6.7 1.7 5.4
1990 623.0 62.2 16.0 78.2 6.9 7.7 1.7 5.5
1991 680.4 61.2 16.2 77.4 7.1 8.0 1.7 5.8
1992 745.5 61.2 15.9 77.1 6.8 8.5 1.8 5.8
1993 820.1 61.2 15.4 76.6 6.3 8.9 1.9 6.3
La On a countrywidebasis, including station uses and line losses for power industry.
Source: MOEP. - 61- ANNEX2.3
MAJOR ONGOING POWER PROJECTS WITH EXTERNAL FINANCING OTHER THAN IBRD
Inlled Coognac- Loan apacity tion amount (Unit x MW) Location period Source of finance (S mln)
A. HYDRO POWER East China Mianhuatan 4 x 150 Fujian 1995-2002 ADB 200.0
North China Shianling pumped storge 4 x 200 Hebei 1990-96 OECF 100.0 Zhangjiawan 4 x 250 Hebei 1996-2001 ADB 250.0
Central China Wuqiangqi hydro 5 x 240 Hunan 1988-95 OECF 200.0 lingintan 8 x 300 Hunan 1994-99 ADB 100.0 Geheyan 6 x 200 Hubei 1988-95 Canada
Southwest China Trienshengqiao(11) hydro 4 x 220 Guizhou 1988-96 OECF 478.5 Tnenshengqiao(I) hydro 4 x 300 Guizhou 1991-2002 OECF 160.0 Hongjiaduhydro 3 x 180 Guizhou 1995-2001 ADB 200.0
SouthChina Guangzh- Pumped Stoage (1) 4 x 300 Guangdong 1988-94 France 200.0 uarngzhouPumped Storage (11) 4 x 300 Guangdong 1994-98 ADB 290.0 Joint financing 71.1 Other Part Huanggou 4 x 300 Heilongliang 1999-2004 OECF Gongbuoxia 5 x 300 Qinghai 1997-2005 OECF Jitintai 4 x 415 Xinjiang 1997-2002 OECF
Subtotal 15 82020496
B. THERMAL POWER North China Sanhe 2 x 300/350 Hebei 1994-98 OECF 250.0 Hejin 2 x 3001350 Shanxi 1994-98 OECF 250.0
Central China Ezhou 2 x 300 Hubei 1992-97 OECF 250.0 liujiang 2 x 300/350 Jiangxi 1994-98 OECF 250.0
Subtotal 2.700 L
C. TRANSMISSION & SUBSTATION Tienahengqiao(1)-Guangdong 1,200km - 1994-98 OECF 140.0 axC) Subtotal 140.0
Total 14.620 MW in gnerating capacity 1.200km for 500-kV transmisaion line 3,189.6
Source: MOEP. -62 - ANNEX 2.4
FUTURE THERMAL POWER PROJECTS UNDER BOT OR BOO ARRANGEMENTS ta
Installed capacity Construction Projects (No. x MW) period Location
Waigaoqiao (phase 2) 2x800 or 1997-2002 Shanghai 2xl,000 Jiaxing (phase 2) 4x600 1996-2002 Zhejiang Ligang (phase 3) 2x600 1995-98 Jiangsu Yangcheng 6x350 1995-2001 Shanxi Tuoketuo No. 2 4x600 1999-2005 Inner Mongolia Daihai 4x600 1997-2001 Inner Mongolia Datong No. 2 2x600 1998-2002 Shanxi Shalingzi (phase 2) 2x600 1996-2000 Hebei Shuangyashan 2x600 1997-2001 Heilongjiang Zhuhai 2x660 1995-2000 Guangdong Beihai 2x350 1996-2000 Guangxi Shenzhen East 4x660 1997-2003 Guangaong Rizhao 2x350 1995-98 Shandong Shiliquan 2x300 1997-2000 Shandong Laicheng 2x600 1995-98 Shandong Shiheng (phase 2) 2x300 1996-99 Shandong Hanfeng 2x600 1996-2000 Hebei Meizhouwan 2x600 1993-97 Fujian Songyu 2x350 1993-97 Fujian Hanchuan (phase 2) 2x300 1998-2003 Hubei Gaobeidian 2x145 1995-99 Beijing 2x180 Dalian (phase 2) 2x350 1995-98 Liaoning Dandong 2x350 1995-98 Jilin Nantong (phase 2) 2x350 1996-98 Jiangsu Fuzhou (phase 2) 4x660 1995-98 Fujian Yueyang (phase 2) 2x350 1996-99 Hunan Luohuang (phase 2) 2x350 1996-2000 Sichuan Shantou (phase 2) 2x350 1997-2000 Guangdong Yingkou (phase 2) 2x600 1997-2000 Liaoning Shajiao C 3x660 1994-96 Guangdong Yahekou 2x350 Huanggang 2x600
LA BOT: Build-Own (Operate)-Transfer BOO: Build-Own-Operate Source: MOEP. - 63 - ANNEX 3.1
ACTION PLAN FOR TILECOMMERCIALIZATION AND CORPORATIZATION OF THE SICHUAN ELECTRIC POWER COMPANY (translationfrom Chinese language)
1. The Chinese Governmentrecently has undertaken,or is about to undertake, a variety of measures, including promulgation of a series of new economic laws and regulations, to further promote the reform to a market economy and establish a modern enterprise system. These measuresprovide a solid basis for the completionof a socialist market economic system in China, and unprecedented favorable conditions for the developmentof the country's power industry. To develop the power industry efficiently, it is now necessary to make a transitionin the managementstructure of the electric power industry to better suit the market system.
2. Accordingly, the Sichuan Electric Power Company (SEPC) and Sichuan Electric Power Administration(SEPA) have worked out the following action plan for the corporatizationof SEPC and commercializationof its operations. This plan takes account of the CCCCP's "Decision on Several Problems in Establishing the Socialist Market Economy," the "CompanyLaw of the People's Republic of China," and the "Regulations for Transfer of the Operating Mechanismsof Enterprises Owned by the Whole People." It also takes account of the opinionsof the World Bank expressed during preappraisaland appraisal of the Sichuan Transmission Project, combined with the actual conditions prevailing in Sichuan Province.
3. The Action Plan will be submittedto the relevant authorities for approval, and will be implementedaccording to the approved version of the Plan. I/
A. OBJEC'nvEs OF THE REFORM
4. SEPC, by law a self-operatedlegal entity with independentaccounting and responsibilityfor its own losses and profits, is the most influential and largest enterprise in Sichuan Province today. Based on the needs of the modern enterprise system, SEPC will be restructured into a corporation, with its operations commercialized. Under the planned economy, enterprise and governmentfunctions were combinedin this company, with sole ownership of all assets. Following the requirements of the 'Company Law," SEPC will be transformed into a corporation in which property rights are clearly demarcated,mandates and responsibilitiesare clearly defined, governmentand enterprise functionsare separated, and managementsystems are scientific. It will be a 100 percent
1/ The Action Plan was approved as is by the Ministry of Electric Power on September 19, 1994. - 64 - ANNEX 3.1 state-owned, limited-liability company. As the reform deepens, this will be further transformed into a limited-liability or shareholding company floating shares on the domestic and international financial markets, in order to mobilize capital from home and abroad, and thus strengthen the company's investment capability and accelerate development of the Sichuan power industry.
B. ACTION PLAN FOR THE REFORM
5. Reform of SEPC's Accounting and Fmancial Management System. Starting from July 1, 1993, SEPC has already begun to adopt an internationallyaccepted accountingand financialsystem. SEPC will complete, in a timely manner, corresponding reform and adjustmentsin operations and management. In order to commercialize the company's operations, and with financialassistance under the World Bank SichuanPower Transmission Project, SEPC will begin to implement a new financial management informationsystem and structuralreforms to the financialmanagement system in 1995, for the purpose of operational commercialization. Using international technical assistance, diagnostic analysis and the design of a new system will be completed by June 1997. Implementationwill then be completedin 1998.
6. Ownershipin the Sichuan electric power industry is being diversified with a number of different electric power businessentities involved. Given this reality, and the fact that SEPC is the core electric power enterprisein Sichuan and the central manager of the transmissionnetwork, SEPC and SEPA will actively review the nature of structural reform in the Sichuan power industry, in order to foster an environment conducive for commercializedoperations. Accordingly, it is necessary to complete a comprehensive study and evaluation of the structure of the electric power industry in Sichuan and associatedreforms, and to submitrecommended options for further reform in 1996 for the approval of relevant departments.
7. The study will focus on the improvementof the efficiency of the power industry, and pay specialattention to the establishmentof an fair power purchaseand sales arrangementsand the introductionof competition. Consideringthe abundant international experience in this area, SEPC will undertake this study with international technical assistance,as suggestedby the World Bank, and discuss with the provincialauthorities the possible involvementof the provincial governmentas an active participant.
Power Pricing Reform Action Plan
8. SeasonallTime-of-DayTariffs. Based on existing pilot cases, time-of-day and seasonal tariffs will be applied to all the customers supplied at 100 kVA level and aboveby 1995,which will cover 60 percent of total power sales. Between1995 and 1997, all power stations above 10 MW will adopt time-of-dayand seasonaltariffs.
9. Unificationof ConsumerPrices. Between 1995and 1996, guidancetariffs will be unified at city and prefecture levels. Consumerprices will then be unified into one tariff by the end of 1997. The difference in tariffs between old power plants and new - 65 - ANNEX 3.1 joint-investmentpower plants will be gradually narrowed, and eventually eliminated in three to five years.
10. Tariff Levels. To ensure that SEPC can operate with a profit and make a reasonable contribution to its future investment program, and to fulfill the necessary financial assurances in connectionwith the Sichuan Power TransmissionProject, SEPC will propose new tariff levels to the governmentand implement them upon approval.
11. PowerPurchase Agreements. Startingfrom 1995,SEPC will, step by step, develop and implement improved power purchasing agreements, particularly with independent power producers. SEPC will ensure equitable treatment of all producers, ensuring reasonableprofits and leading to economicdispatch.
Service and NoncommercialFunctions/Relationship with Subsidiaries
12. During 1994-97, in order to achieve commercializedoperations under the modern enterprise system, service and social-benefit operations and enterprises will graduallybe separatedfrom SEPC, and operated independently. The relationshipof these enterprisesto the parent companyor its brancheswill follow a parent-subsidiarycompany model and other models.
13. During 1995 and 1996, the separation of social-sectorand other service- related operations from SEPC will continue. By the end of 1995, all manufacturing, construction and installation enterprises directly owned by SEPC will be put under independentoperation. The various research and design institutes owned by the company also will be graduallyput under independentoperation during 1995-97.
14. During 1995-98, SEPC will initiate and improve the managementreforms in its subsidiary power plants and power supply bureaus, which will enjoy relative independence. As experienceis gained, authority and responsibilitywill be clarified, and commercial mechanismswill be further introduced into internal operations through the introductionof internal-transfertariffs and adoptionof subordinateunit businessaccounting practices. In the meantime,SEPC will explore internal managementstructural reform to improve its own productivityand profitability. These internal organizationalreforms will be implementedbased on the results of the technical assistancecomponent provided under the Bank loan (para. 6).
15. With relevant government approval, and following the progress in power tariff reform, SEPC will define the nature and scope of noncommercial social services currentlyperformed by the company, and completean assessmentof expendituresincurred or losses sustaineddue to provisionof these services. Compensationmechanisms or other means to resolve these issues will then be discussedwith relevant governmentauthorities during 1995-97. - 66 - ANNEX 3.1
CorporatizationAction Plan
16. At this stage, SEPC will reorganize newly built power plants and newly expandedpower plants with the proper conditionsinto shareholdingenterprises or mobilize international funds by setting up joint ventures and cooperative enterprises. These enterpriseswill be organizedas independentlegal entities responsiblefor their own profits and losses.
17. SEPCand SEPA will prepare an implementationplan for the reorganization of SEPC into a proper limited liability company, in full conformity with the Company Law, and for the final separation of govemment functions from the company. This implementationplan will be submitted for the approval of relevant authorities, including the Ministry of Electric Power (MOEP), by the end of 1994 or the beginning of 1995.
18. Separationof govemmentfunctions from enterprise functions should be an important principle for Sichuan Electric Power Limited Liability Company and it will be reflected in the implementationplan.
19. Establishment of the Sichuan Electric Power Limited Liability Company (SEPLLC). Following completion of revaluation of existing assets, and issuance of regulations concerning the supervision and management of state-owned assets in this industry, work to clearly demarcateand define the ownershiprights to existing assets will be completed by mid-1997. Various business enterprises, supplementaryand service- related operations, research and educationalinstitutions will either be separatedor put into independent operations by 1997. The independent enterprises will be organized as subsidiaries.
20. Enterprises that are owned by multiple investors will be reorganized into independentlyoperated limited-liabilityor shareholdingcompanies. Companiesin which SEPC is the largest shareholderwill be reorganizedas subsidiariesof SEPC.
21. Power distribution companies, transmission assets and generation assets solely owned by SEPC, or certain enterprises or social-serviceoperations that cannot be independently operated may remain as Sichuan Electric Power Limited Liability Company's subsidiariesunder the company's direct control.
22. By 1998, SEPC will be registered as the Sichuan Electric Power Limited Liability Company.
23. Separation of Government and Enterprise Functions. SEPA and SEPC will prepare a brief analytical report clearly defining the government functions and enterprisefunctions currently carriedout by these two organizations;following the issuance of the Electricity Law, SEPA and SEPC will propose a plan for the separation of the governmentand enterprise functions according to the Electricity Law. The plan, upon approval by the government, will be gradually implemented in collaboration with the establishmentand operationof Sichuan Electric Power Limited Liability Company. - 67 - ANNEX 3.1
24. The objective is to separate functions of SEPA from those of Sichuan Electric Power Limited Liability Company (SEPLLC). The company will be operated fully as a business entity according to the Electric Law and other laws and regulations. A transitional period is needed for the separation of the dual functions since the combination of the two functions has a history of several decades. The completion of separationis expected by 1998.
25. As a transitional measure to full separationof governmentfunctions from SEPC, beginning in January 1995, a SEPA manager will be designated from among the leading managersof SEPA/SEPCand given sole responsibilityfor carrying out provincial- level government functions in power industry regulation. At the same time, staff and subunitswill be assigned sole responsibilityfor governmentfunctions in the power sector, under the leadershipof the designatedmanager.
26. Revision of Company Charter. To better conform with the spirit of the Company Law, SEPC will revise its existing company charter, and obtain approval of the revised charter by the end of 1994.
27. By 1998, SEPC will, based on the development of the reform, prepare a revised "Sichuan Electric Power Limited Liability Company Charter" in conformity with the Company Law for final approval and registration of SEPLLC in place of SEPC.
Organization Measure for Reform
28. SEPA and SEPC will set up a joint reform executive team by the end of 1994 in charge of planningand implementingthe above-mentionedreforms.
Sichuan Electric Power Administration Sichuan Electric Power Company September 1994 - 68 - ANNEX 3.2
PERFORMANCE INDICATORS FOR SICHUAN POWER SYSTEM
1987 1988 1989 1990 1991 1992 1993
Installed Capacity (MW) Whole province 5,605.9 6,048.1 6,575.6 7,489.7 8,690.9 9,565.3 10,527.1 SEPC 3,733.0 3,933.0 4,114.5 4,644.9 5,024.0 4,982.0 5,646.7
Energy Generation (GWh) Whole province 26,287 29,402 32,695 34,565 37,958 41,940 47,087 SEPC 19,696 21,751 23,284 24,017 25,208 24,708 27,145
Energy Generation (GWh) Thermal 11,604 13,152 14,684 14,854 15,505 16,830 19,586 Hydro 14,683 16,250 18,011 19,711 22,453 25,110 27,501
Net energy purchased (GWh) 1,856 1,648 2,305 2,867 3,652 6,138 8,200
Capacity Factor (%) SEPC 64.8 64.7 65.8 65.2 61.1 57.0 59.1
Peak Demand (MW) SPG 3,088 3,188 3,488 3,666 3,926 4,290 4,874
Energy Sales (GWh) SEPC 18,475 20,111 21,985 23,154 24,823 26,656 29,920
Station Use (%) Whole province 6.06 6.16 6.41 6.60 - - - SEPC 6.40 6.37 6.64 6.82 7.13 7.10 6.95
Line Losses (%) Whole province 10.81 10.91 10.84 9.86 9.71 9.66 9.46 SEPC 8.84 8.54 8.46 8.19 8.19 8.29 8.30
Average Coal Consumption (g/kWh) SEPC 428 422 412 406 401 387 382
Number of Employees 66,943 68,892 69,771 72,065 73,511 73,504 73,131
Sales per Employee (kWh) SEPC 27S,985 291,925 315,102 321,291 337,680 362,643 409,126
Source: SEPC. - 69 - ANNEX 3.3
STAFFING OF SEPC (As of December 31, 1993)
Number of units Number of staff Percentage
By Functional Units Headquarters 1 285 0.4 Generation 18 26,531 36.3 Supply and services 15 26,918 36.8 Constructionand installation 5 11,920 16.3 Education 5 1,284 1.8 Design 1 288 0.4 Manufactureand repair 3 3,251 4.4 Miscellaneous 9 2,654 3.6
TltI 57 73.131 10.0O
By SMially Staff Administration 7,194 9.9 Technical 10,333 14.1 Engineers and technicians 3,390 4.6
Subtotal 20.917 28
Workers Junior 4,475 6.1 Average skilled 9,414 12.9 Highly skilled 34,395 47.0 Apprentices 1,724 2.4
Subtotal 50.008 6.4
Others 2,206 3.0
Total 73,131 100Q By SchoolingReceived Postgraduates 353 College graduates 3,160 Graduates of polytechnicalinstitutes 5,391 Graduatesof secondary technical school 8,371 Others 55,856
Source: SEPC. -70 - A*NNEX3.4
SCHOOLS AND TRAINIG CENTERS UNDER SEPC (1993)
Name of school Enrollment Staff Graduates
Chungqing Staff College La 604 134 113
Chengdu Staff Colege lb 485 115 114
Chungqing Technical Institute 1,876 454 477
Chengdu Hydro Power Institute 2,102 457 450
Chungqing Technical School for SkiUed Workers 1,675 343 593
iDta1 6.742 L50 1;747
La Chungqing Staff College is operating a TV University. l2 Chengdu Staff College is using as a training center for short-term courses and a correspondent school for SEPC's staff on different subjects.
Source: SEPC. - 71 - ANNEX 3.5
POWER PRICING IN SICHUAN PROVINCE
Overview of the Power Pricing System
1. As in other provinces, the power pricing system for electricity supplied through the Sichuan Power Grid includes three components:
(a) State CatalogPrices. Theseare the prices chargedfor electricitygenerated by capacityfinanced by the Central Governmentand managed by provincial power companies such as SEPC. This capacity includes (i) virtually all power plants constructedbefore 1985,primarily with grant funding, and (ii) plants, or shares of plants, constructed with loan funds allocated by the Central Governmentsince 1985. The state catalog prices provide the basis for the revenue of SEPC and other provincial power companies. Since the 1993 reform in state catalog prices, prices built into the state catalog price tables for electricity from capacityconstructed since 1985 should allow for full repayment of loans and interest, plus a small profit margin. State catalog price tables are reviewed, revised and reissued every year by MOEP, in consultationwith provincial governments.
(b) Prices for Purchased Power. Prices for power purchased by provincial power companiessuch as SEPC from capacity not financed by the Central Governmentare determinedon a plant-by-plantbasis, at levels allowingfull repayment of loans and interest, usually over a period of 10 years, plus a reasonable profit margin. These types of plants include joint-investment plants (financed through a combination of central, provincial and local government funding sources), plants of independentpower producers such as the Huaneng Corporation, and plants owned by local governmentsor industries that sell surplus power to the grid.
(c) AdditionalFees and Surcharges. A varietyof surchargesare levied on the various consumer categories, primarily for different types of investment funds for the power sector. The most common and important include provincial and local governmentpower investmentsurcharges, surcharges to raise funds for specialprojects (e.g., the Three Gorges Project), and local fees to raise funds for distribution system investment.
2. In most parts of Chinatwo types of consumer tariffs remain. Administered prices, or "in-plan prices," include the state catalog prices plus the additional fees and surcharges. These prices are charged for electricity supplied to enterprises under in-plan quotas, generally set at 1985 consumptionlevels. Guidanceprices include state catalog - 72 - ANNEX 3.5 prices, markups for the higher cost of purchased power, plus the additional fees and surcharges.
Power Pricing in Sichuan Comparedto Other Provinces
3. Complexity. While the power pricing system in China is complicated in general, the current system in Sichuan is particularly complex. One factor is the interactionbetween the Sichuan Power Grid and the province's numeroussemiautonomous or autonomouslocal plants and systems. SEPC's power purchasingarrangements number in the hundreds. Especially in the countryside, there are ever-changingcombinations of different categories of grid and local supply, priced in different ways for different consumers.
4. During the 1980s, Prefecturaland County Power Supply Bureaus allocated new sources of supply, under the guidance price system, separately to individual consumers, with different prices for each supply source. By the early 1990s, this system had become unmanageable. The province is reforming the system, to pool all of the sources of supply subject to guidance prices together, and charge consumers a weighted average price, as is now common in most other parts of China. Because the reform will result in some enterprises paying more, and some paying less, than before, the reform is being pursued over several years, prefecture-by-prefecture. The unreformed guidance price system remained in force in 5 of the province's 14 prefectures in July 1994. In Deyang Prefecture, where the reform has not yet been implemented,there are 14 separate sources of "out-of-plan"supply, each priced and allocated to consumers separately.
5. Low Price Levels. Electricity prices in Sichuan are among the lowest in China. Both the average unit revenuelevel accruing to SEPC from the state catalog prices and the averageconsumer price levels in Sichuanare only some 65-75 percent of the levels in the coastal provincesof Jiangsu and Zhejiang. Consumerprices are significantlybelow the long-run average incrementalcosts of supply (see below). Recently, however, prices levels in Sichuan have been increasing more sharply, so that the gap compared to other provinces is narrowing somewhat. Based on increases in the state catalog price, SEPC's unit revenue levels are projected to rise by 21 percent in 1994, compared to 1993. In Zhejiang, by comparison,the average state catalog price was increasedby about 8 percent between 1993 and 1994.
6. One reason for the relatively low state catalog prices in Sichuan is the relativelyhigh share of hydroelectricgeneration. During the late 1980sand early 1990s, the driving factor behind the increases in catalog prices throughout China was the increasingcosts of coal supply and delivery, which directly resulted in increasedoperating costs. There has been greater resistance to increases in prices for power from existing hydroelectricfacilities, which were financed on a grant basis prior to the mid-1980s, to levels approaching the incremental costs of new capacity. State catalog prices also are relatively low in other provinces with a concentrationof hydropower, such as Fujian. - 73 - ANNEX 3.5
7. Another factor is that the certain types of industries which are eligible for subsidized electricity prices according to national policy, such as the chemical fertilizer industry, accountfor a larger share of the overall load than in most other provinces. Sales based on the special subsidizedprices accountedfor about 9 percent of SEPC's total sales in 1993.
8. Factors contributingto the low levels of consumerprices comparedwith the coastal provinces, in addition to the low state catalog prices, include the facts that (a) power supplied at the at the catalog prices (as opposed to power purchased from independentor quasi-independentproducers) accountsfor a higher share of total sales, and (b) price levels for power purchased from other sources by SEPC are somewhat lower. In Sichuan, sales at administeredprices account for about 60 percent of SEPC's sales, while sales at guidance prices based on power purchased from outside of SEPC account for about 40 percent. In the fast-growingcoastal provinces, sales at administeredprices account for one half or less of total sales. In Sichuan, average guidance price levels also are lower than on the coast, in part due to a highportion of power from small hydro plants in the total amount of purchased power. Prices for power from small hydro plants tend to be relativelylow, as much of the power is suppliedduring the wet season when its value to the overall system is less.
9. Tine-of-Day and SeasonalTariffs. Comparedwith other areas, Sichuan Province is particularly advanced in implementationof time-of-dayand seasonal tariffs. Beginningin 1993,the provincehas been implementinga program to apply both daily peak and off-peakrates, and wet, dry and shoulder seasonrates for major consumers. By 1995, these tariff scheduleswill apply to about 60 percent of SEPC's total sales. (See also Table 2 and para. 16 below.)
The Electricity Price Buildup in Sichuan
10. State CatalogPrices. The state catalogprices for SichuanProvince in 1994 are shown in Table 1. Prices are highest for commercialsector use, followedby industry. Large industrialconsumers face both an energy charge and a demand charge; the demand charge amounts to an average of 2-4 f/kWh for most consumers. Consumer categories provided with special subsidized rates include certain metals and chemicals, chemical fertilizers, and irrigation in poor counties. The 1994 prices for regular and large industry increasedby 11 percent and 14 percent, respectively,compared to 1993. With projected shiftsin the compositionof the load and other adjustments,SEPC's averagerevenue, based on these prices, is expected to reach about 20 f/kWh (US¢2.3/kWh) in 1994, up from 16.54 f/kWh in 1993.
11. PurchasedPower. Key sources of purchased power include several large joint-investmentor independentplants, includingtwo ownedby Huaneng Corporation,and a large number of small hydro and captive thermalplants. Supply sources and their prices vary in different parts of the province. In the case of Chengdu Prefecture, power from three large plants supply accounts for about one half of the purchasedpower, with selling prices to the grid of 21.7 f/kWh (Chengdu Power Plant), 25.2 f/kWh (Jiangyou Power - 74 - ANNEX 3.5
Plant), and 27.8 f/kWh (LuohuangPower Plant), and retail prices set 3-5 f/kWh higher, plus the additionalsurcharges and fees. The other one half of purchased supply comes from small hydro plants, with selling prices to the grid of 13.0-18.5 f/kWh, and small thermal plants, with selling prices onto the grid of 27.5 f/kWh.
12. ConsumerPrices. As in other parts of China, surchargesadded to the state catalogprices in Sichuan to form the retail administeredprice schedule include (a) a local surcharge for urban grid construction-levied, in this case, at 10 percent of the catalog price for residential and commercial consumers, and 8 percent of the catalog price for industrial consumers; (b) the national 0.4 f/kWh levy for mobilizationof funds for the Three Gorges Project; and (c) a surcharge to mobilize funds for provincial government investmentin power, amountingto 2.5 f/kWh in the case of Sichuan. Additionallevies in this case also include (a) a 5.5 f/kWh surcharge to pay for the higher cost of power suppliedby two particular large plants, (b) a 0.13 f/kWh fee to support small hydro plant development, and (c) a 1.0 f/kWh surcharge to raise funds for Sichuan's Ertan HydroelectricProject.
13. In Chengdu City, "out-of-plan" sources of purchased power are pooled together and charged to consumers at one weighted average price of 28 f/kWh. Adding in a 2 f/kWh fee for the Ertan project, guidance prices in 1994 were 30 f/kWh. In Chengdu, the guidance prices were applied to 32 percent of total sales, and administered prices were applied to the remaining 68 percent.
14. Considering current load characteristics, the average consumer price in Chengdu in mid-1994 is estimated at about 30 f/kWh (USC3.4/kWh). Consumer prices in the neighboringDeyang Prefecture also were reviewed in detail, yieldingabout the same average price.
15. The administeredand guidanceprice levels are now relativelyclose (adding in the demand charge, typically amounting to 2-4 f/kWh, in the administeredprice for large industry). In the case of Sichuan, a number of the surcharges that other provinces often apply only in guidance prices are levied in the administered prices, whereas the surchargeson guidanceprices are relatively small.
16. Table 2 showsthe tariff for industrialconsumers in use in DeyangPrefecture in 1994. Rates are sharplydifferentiated according to season and time-of-day. During the wet season, average prices are 10 percent below the catalog price, and during the dry season, they are 20 percent higher. During each season, then, peak and off-peak time-of- day rates apply. Added together, therefore, the price of peak load energy during the dry season is four times the price of off-peak energy during the wet season. This tariff is relativelyadvanced compared with those used in other parts of China. It provides a much improvedsignal to consumersas to the actual costs of supply at different times-costs that vary dramatically in Sichuan's system-and provides a good incentives framework for proper load management. -75- ANNEX 3.
Comparisonof ConsumerPrices and the EconomicCost of Supply
17. Average consumer prices in Sichuan in 1994, represented by the cases of Chengdu and Deyang, were about 70-80 percent of the estimated long-run average incrementalcost (LRAIC) of supply, calculated in economic shadow prices. This gap betweenaverage consumerprices and the estimatedeconomic cost of supplycontrasts with the situationin the coastalprovinces, where average consumerprices are very close to, or exceed the LRAIC of supply.
18. As part of the economicanalysis for this project, BERIWREPestimated the LRAIC of the least-costexpansion program for the Sichuan Provincial Grid during 1994- 2010 at 40.5 f/kWh (USC4.7/kWh). Incrementalsupply costs in Sichuanare low because of (a) the availability of inexpensive hydropower (the investment costs for most of the projects in Sichuan's hydropower expansion program are less than $1,000/kW); (b) the availability of low-cost coal (shadow-priced at about $31/ton of 6,000 kcal/kg coal delivered), and; (c) relatively low costs for developmentof new thermal power capacity, as in other parts of China. Incrementaldistribution system investmentand operatingcosts in BERIWREP's calculations include only those costs incurred by SEPC or its subdivisions, amounting to only about 10 percent of total incremental costs. Actual distribution system costs are substantiallyhigher, but much of the cost is paid for by consumers, through their own investment,connection fees and other means not included in the average consumer price. Hence, BERIWREP's estimate may be the most appropriate calculationto compare with the estimated consumer price levels.
19. Compared with the weighted average price levels for different consumer categories in Chengdu City, commercialsector prices are close to the economic cost of supply, while industrialprices are on the order of 75-80percent of supply cost. Prices for residential, agriculturaland industries with special subsidiesare the furthest from the cost of supply. - 76 - ANNEX 3.5
Table 1: STATE CATALOG PRICES IN SICHUAN PROVINCE, 1994
Demand charge Enerev charge (f/kWh) Maximum Substation Low 35 kVA load capacity Consumer categories voltage 1-10 kVA & above (Y/kW/mo) (Y/kVA/mo)
Residences 22.0 21.0
Commercial sector 30.6 29.8
Regular industry 21.1 20.6 19.8
Large industry 14.2 13.5 13.5 9.0 Special subsidies Certain metals & chemicals 13.2 12.5 13.5 9.0 Calcium carbide 12.2 11.5 13.5 9.0 Chemical fertilizer /a 6.1 5.8 13.5 9.0
Agricultural production 16.6 16.1 15.3
Irrigation in poor counties 7.6 7.4 7.1
/a Small- and medium-scale chemical fertilizer plants are charged 12.2 f/kWh for 1-10 kVA supply and 11.7 f/kWh for supply at 35 kVA and above.
Source: SEPC. - 77 - ANNEX 3.5
Table 2: ELzeImcrrY PACES FOR INwSRL CONSUMERS, DEYANG PREFEcIURE, SIcHUAN PROVINCE, 1994 (f/kWh)
Regular industry Large industry /a LV 1-10kV 235 kV 1-10kV 235 kV
Catalog price 21.10 20.60 19.80 14.20 13.50
Wet-seasonaverage price (decreased 10%) 18.99 18.54 17.82 12.78 12.15
Dry-season average price (increased20%) 25.32 24.72 23.76 17.04 16.20
ase Taiff Wet season Peak 28.49 27.81 26.73 19.17 18.23 Off-peak 9.50 9.27 8.91 6.39 6.08 Shoulder season Peak 31.65 30.90 29.70 21.13 20.25 Off-peak 10.55 10.30 9.90 7.10 6.75 Dry season Peak 37.98 37.08 35.64 25.50 24.30 Off-peak 12.66 12.36 11.88 8.52 8.10
Surcharges Small hydro fee 0.13 0.13 0.13 0.13 0.13 Three Gorges fee 0.40 0.40 0.40 0.40 0.40 Two-plant fee 5.50 5.50 5.50 5.50 5.50 Ertan fee 1.00 1.00 1.00 1.00 1.00
La Energy charge only.
Source: Deyang Prefecture Power Supply Bureau. - 78 - ANNEX 4.
INSTALLEDGENERATING CAPACITY OF SICHUANPOWER GRII) (as of end-1993)
No. of Installed units Commissioning Dependable Annual Name of plant capacity & sizes date capacity output (MW) (MW) (MW) (GWh)
A. SEPC
1. Changshou 132 13 (1-15) 1954/64 120 625 2. Gongzui 700 7 x 100 1971/77 700 3,690 3. Yinxiuwan 135 3 x 45 1971/72 59 713 4. Mofanggou 37.5 3 x 12.5 1971/73 10 210 5. Yuzixi 320 8 x 40 1972/87 320 1,760 6. Nanyahe 120 3 x 40 1983/84 31 650 7. Tongjezhi 450 3 x 150 1992/93 450 3,210 8. Longchi 10.5 5 (1.85 - 2.5) 1957/59 0 45 9. Others 48.7
Subtotal 1.953.7 Th"rmai 1. Chongqing 600 4 x 50 1960/69 600 2 x 200 1986/87 2. Huayingsham 300 2 x 50 1978/79 300 2 x 100 1980/82 3. Wanyuan 24 2 x 12 1971/74 24 4. Chengdu 325 5 x 25 1958/65 325 1 x 200 1990 5. Jiangyou 860 4 x 50 1966/71 860 2 x330 1991 6. Wutonqiao 112 1 x 12 1977 112 2 x 50 1979/87 7. Yibin 500 2 x 50 1970 500 2 x 100 1974 1 x 200 1993 8. Baima (Neijiang) 400 2 x 200 1988/89 400 9. Panzhihua 36 3 x 12 1966/67 36 10. Hemenkou 200 4 x 25 1966/70 200 2 x 50 1972/85 11. Xinzhuang 100 2 x 50 1975/77 100 12. Baihe (Kaixian) 100 2 x 50 1991/92 100 13. Others 136
Subtotal 3.693.0
Total 5.646.7
B. Huaneng Plants 828.3 C. Local Plants 3,037.4 D. Captive Plants 1,014.8
GRAND TOTAL (MW) 10.527.2
Source: SEPC. - 79 - ANNEX 4.2
TRANSMISSION NETWORK OF SICHUAN POWER GRID (As of end 1993)
Province as a whole Owned by SEPC Number of Circuit Number of Circuit lines length lines length (km) (km)
A. TransmissionLines
220 kV 114 5,064.1 106 4,795.0 110 kV 397 9,257.4 324 7,379.2 35 kV 1,425 20,410.5 408 4,862.3
TQWotal 1^9334,736.0 16.996.5
Province as a whole Owned by SEPC Number of Capacity Number of Capacity substations (MVA) substations (MVA) & transformers & transformers
B. Substations
220 kV 33/55 6,356.0 33/55 6,356.0 110 kV 186/307 8,116.7 162/273 7,361.4 35 kV 613/967 3,967.7 208/332 1,881.2
Toal 832/1,329 18,440.4 403/660 15.598.
Source: SEPC. - 80 - ANNEX 4.3
ENERGY GENERATION OF SICHUAN POWER GRID (Above 0.5 MW Only - Unit: GWh)
Name of plant 1987 1988 1989 1990 1991 1992 1993
GRANDTOTAL 26.287 29.02 3695 43.565 37.957 41.940 47.087 Hydro 116i4 13.152 14.684 14.854 15.505 16.830 19.586 Thermal 14.683 16.25 18.011 19.711 22.452 25.110 27.501
A. SEPC Plants 1.9696.0 21.751.0 23,284.0 24.017.0 25.208.0 24.708.0 27145.0 1. Changshou Hydro 518.8 500.5 692.7 580.4 514.7 542.3 597.8 2. Gongzui Hydro 3,268.2 3,404.0 3,448.8 3,298.1 3,215.8 3,172.6 2,997.5 3. Yinxiuwan Hydro 1,999.3 2,357.3 2,356.7 2,343.1 2,387.1 2,326.3 2,220.1 4. Mofanggou Hydro 190.2 179.8 190.7 214.4 196.1 154.2 148.1 5. Nanyahe Hydro 522.9 568.3 614.7 644.8 560.4 630.0 583.8 6. Tongiezhi Hydro ------1,211.4 7. Chungqing Thermal 3,171.7 4,178.6 4,203.6 4,290.9 4,210.9 3,200.1 3,721.8 8. Huayingshan Thermal 2,158.3 2,204.9 2,208.6 2,118.5 2,208.8 1,959.5 1,923.6 9. Wanyuan Thermal 181.7 159.0 169.8 168.8 170.6 164.0 165.2 10. Chengdu Cogenerationl,092.9 1,027.6 1,032.2 1,463.4 2,137.1 2,050.5 2,086.6 11. Jianyou Thermal 1,492.2 1,346.2 1,303.8 1,285.1 1,759.3 3,157.2 3,834.2 12. Wutongqiao Thermal 34.8 7.5 4.0 78.0 79.4 83.1 89.4 13. Douba Thermal 2,012.4 2,202.1 2,076.3 1,915.9 2,009.1 1,855.7 1,812.6 14. Baima Thermal 725.8 1,049.2 2,444.1 3,071.7 3,240.9 2,834.4 2,083.4 15. Panzhihua Thermal 191.5 232.9 208.5 223.9 226.6 233.5 225.2 16. Hemenkou Thermal 1,242.8 1,416.1 1,463.1 1,402.4 1,438.9 1,447.6 1,378.9 17. Xinzhuang 630.6 656.5 661.5 709.8 657.3 624.0 681.2 18. Baihe - - - - 52.3 199.1 420.2
B. Huanen2 Plants - - 27.0 119.0 770.0 2.301.0 3.151.3
C. Local Plants 5003. 6138. 7.471.0 8363. 7.206.0 8859. 13.255.7
D. Captive Plants 1.550.0 1.493.0 1.883.0 1.959.0 2.479.0 3.470.0 3.534.2
E. Others 38.0 20.0 30.0 35.6 2.294.0 2.602.0 -
Source: SEPC. - 81- ANNEX 4.4
ENERGY CONSUMPTION BY CATEGORY OF CONSUMERS IN SICHUAN PROVINCE_ (Unit: GWh)
Category of users 1987 1988 1989 1990 1991 1992 1993
A. Agriculture 436 370 364 394 579 626 919 1. Irrigation 174 102 90 120 137 110 155 2. Forestry 5 2 2 2 3 2 3 3. Cattling 6 8 8 10 13 15 19 4. Others 251 258 264 262 426 499 742
B. Industry 19.506 21.106 23.292 24.177 25.833 27.750 29.524 1. Heavy 16,058 17,520 19,611 20,257 21,912 23,736 24,810 2. Light 3,448 3,586 3,681 3,920 3,921 4,014 4,714
C. TrEprtalion 554 593 593 591 619 659 732
D. Commercial 70 90 100 107 165 201 264
E. Residential 1.232 1.528 1.736 2.117 2.162 2.610 2.721 1. Municipal 936 1,175 1,317 1,632 1,635 2,010 2,061 2. Rural 296 353 419 485 527 600 660
F. Others 651 731 763 843 1.60 1.205 1.185
Total 22.449 24.418 26.848 28.229 30.518 33,051 35.345
/a Including generation and purchased energy.
Source: SEPC. - 82 - ANNEX 4.5
ENERGY FORECASTFOR SICHUAN POWER GRID
1994 1995 1996 1997 1998 1999 2000 2005
A. Energv Requirement (GWh)
Agriculture 546.6 571.6 593.3 615.7 638.5 655.8 670.3 855.5 Industry 27,593.2 29,653.2 32,050.8 34,633.3 37,432.9 39,994.0 42,562.0 56,877.4 Transport 1,043.7 1,154.6 1,267.8 1,391.9 1,526.9 1,659.0 1,793.7 2,888.8 Building 282.0 314.6 348.5 386.0 427.1 468.2 510.7 829.0 Tertiary 1,613.4 1,849.6 2,086.4 2,352.9 2,651.6 2,959.5 3,287.0 5,792.8 Residential 2,515.6 2,834.4 3,125.5 3,445.5 3,796.1 4,141.3 4,496.3 7,576.5 Line loss & station use 5,405.3 5,922.0 6,427.7 6,974.7 7,526.9 8,122.2 8,680.0 12,180.0
Total 39.000 42.300 45900 49.800 558000 62.000 87.000
B. Peak Load (MW) 6.180 6.730 7.330 8.000 8.700 9.400 10.000 14.100
Utilization hours of maximum load6,311 6,285 6,262 6,225 6,207 6,170 6,200 6,170
Source: SEPC. - 83 - ANNEX 4.6
SEPC'S POWER DEVELOPMENT PROGRAM (1994-2003)
A. GENERATIONPROJEcTs
Construction Scheduled Installed No. of Unit starting commissioning Name of plant capacity units size date date (MW) (MW)
A. Hydro
Tongjiezi 150 1 150 1991 1994 Baozhushi 700 4 175 1994 1994/96 Zhilanba 102 3 68 1994 1994/95 Taipingyi 260 2 130 1994 1995/96 Yaoheba 120 1 120 1994 1996 Ertan 3,300 6 550 1991 1998-2000 Yele 220 2 110 1995 1999/2001 Lizipin 120 3 40 1998 2000/02 Pubugou 3,300 6 550 1997 2003/05 Tongzilin 400 4 100 1995 2000/02 Jinping 3,000 6 500 2000 2010/12 Pengshui 1,080 6 180 1998 2007/10
B. Thermal
Jiangyou 1,200 2 600 1998 2002/03 Baima 200 1 200 1993 1995 Chungqing 200 1 200 1993 1995 Luohuang Extension 700 2 350 1994 1997 Huangjiachuang II 600 2 300 1997 2000/01 Guangan 600 2 300 1994 1997/98 - 84 - ANNEX 4.6
B. 500-KVTRANSMISSION NErWORK
Transmission lines Length (km Commissioningd
Ertan - Zigong 3 x 470 1998, 1999, 2000 Zigong - Chongqing 2 x 162 1994, 1998 Zigong - Chengdu 2 x 190 1999, 2000 Chongqing - Changshou 100 2000 Ertan - Panzhihua 46 1999
Pubugou - Xingjin 2 x 200 2003, 2005 Xingjin - Longwang 1 x 65 2003 Longwang - Deyang 1 x 65 2004 Pubugou - Ziyang 2 x 235 2004 Hongxian - Zigong 1 x 90 2004 Luohuang - Changshou 1 x 95 1999 Hongxian - Luzhou I x 95 2004 Luzhou - Qijiang 1 x 129 2005 Qijiang - Luohuang 1 x 60 2001 Qijiang - Chengjiaqiao 1 x 70 2001
Substafions Capacity (MVA) Commissioning date
Zhaojue Switching Station 1993 Honggou (Zigong) 1 x 750 1998 Chengjiaqiao (Chongqing) 2 x 750 1998 Longwang (Chengdu) 2 x 750 1999 Changshou 1 x 750 2000 Panzhihua 1 x 750 1999 Xingjin 2 x 750 2003, 2005 Deyang I x 750 2004 Gucheng I x 750 2003 Ziyang 1 x 500 2004 Hongxian 1 x 500 2004 Luzhou 1 x 500 2004 Qijiang 1 x 500 2001
Source: SEPC. - 85 - ANNEX 5.1
PROJECT DESCRIPTION
General
1. The Ertan Hydroelectric Project is located in the southwest corner of Sichuan Province. The proposed 500-kV transmissionlines from Ertan will go northeast to the Honggou substation near Zigong. From there, the lines will head north to the Longwang substation, near Chengdu and northeast to the Chongqing, Chengjiaqiaoand Changshousubstations.
2. The alignment for the Ertan 500-kV transmission system covers two geographic areas. The first is the area between the Ertan Dam and substation, and Honggou substation near Zigong. The line passes through the Liang Mountains, and crosses the Ming River into the low hill country of the western portion of the Sichuan Basin in the center of the Province. Of the total length of transmissionline from Ertan to Honggou, 80 percent is in the mountainousarea, and 20 percent is in the hilly land within the Basin. The highest elevation is over 3,200 meters where the line goes over Daliangshan mountain chain and Luogi mountain. The area is generally sparsely populated, mountainous and presents significant icing problems. In this area, the environmentpotentially may have a greater impact on the project and project design, than the project will have on the environment.
3. In the hilly areas of the Sichuan Basin, the line goes through agricultural areas with rural populationsand farmlanduntil it reaches the Honggou(Zigong) substation.
4. The secondarea includesthe lines connectingthe Honggou substationto the Longwang substation to the north near Chengdu and the Chengjiaqiaoand Changshou substationsto the northeast. This area is generally hilly farmland of the Sichuan Basin with moderatelyhigh population density.
The Scope of the Project
5. The 500-kV Ertan TransmissionSystem includes the following:
(a) Design, material procurementand constructionof approximately2,260 km of 500-kV transmissionlines.
(b) Design, material procurement and construction of one 500-kV switching station and five 500-kV/220-kVsubstations. - 86 - ANNEX 5.1
(c) Design, material procurement and construction of a communication, protection and control system.
(d) Extension and improvementof the 220-kV grid system.
Detailed Description
6. TransmissionLines. The 500-kV transmissiongrid will be designed and constructed to connect the Ertan hydroelectric station with the 220-kV grid system of the Sichuan Electric Power Company (SEPC). The 500-kV transmission grid will consist initially of three 500-kVlines out of the Ertan hydroelectricstation, with a possible fourth 500-kVline in the future. The selectionof the corridors was based on the assumptionthat the fourth line would be constructed. Each circuit will be designed to carry 1,500 MW under emergencyor maintenanceconditions. The lines will be arranged in a single circuit configurationon two separate corridors. The separationbetween the corridors varies from 1 km to as much as 50 km. Each corridor will accommodatetwo single circuits with a minimum separation between circuits of 100 m. The line segments that comprise the proposed 500-kV grid are shown in Table 1.
Table 1: TRANSMISSIONLINE SEGMENrs
Line name Length (km) Remarks
Ertan - Zigong Line #1 470 Single circuit Ertan - Zigong Line #2 470 Single circuit Ertan - Zigong Line #3 470 Single circuit Zigong - Chongqing#1 162 Under constructionLA Zigong - Chongqing #2 162 Single circuit Chongqing - Changshou 100 Single circuit Zigong-Chengdu#1 190 Single circuit Zigong-Chengdu#2 190 Single circuit Ertan - Panzhihua 46 Single circuit
Total Length 2.260 la The Zigong-Chongqing#1 line is currently under constructionfor 220-kV operation in the initial stage and will be converted to 500 kV in 1999.
(a) Conductors
7. Conductorswere selected on the basis of two operatingconditions of Ertan transmissionlines. Under normal conditions,with three lines in service, transmissionload - 87 - ANNEX 5.1 from Ertan is 3,300 MW. Under emergency conditions, with two lines in service, transmissionload from Ertan is 3,000 MW.
Table 2: CONDUCORAND BUNDLE CoNHGURATIoNs
No. of conductors Loading zone Conductor type per bundle Bundle spacing (mm)
Light ACSR 400/50 (54/7) 4 450
Medium ACSR 400/50 (54/7) 4 450
Heavy AACSR465/60 (54/7) 4 450
Extra heavy AACSR957/121 (54/19) 2 600
8. For the extra heavy zone becauseof the severeicing conditions,extra strong conductorswill be utilized in a two-conductorbundle configuration. The two conductor bundle configurationwas selected becausethe ice build-up on a two-bundleconfiguration is less than the ice build-upon a four-bundleconfiguration. In addition, the subconductor bundle spacing was increased to 600 mm to prevent ice bridging between the subconductorsduring icing and prevent the subspan oscillation.
(b) Overhead GroundWires
9. The ground wires were selected to sustain without breaking, the ice loads of the line, and the phase to ground fault current of the line for a duration equal to the breaker operationtime withoutexceeding the thermal limit of 400 C. A summaryof the design characteristicsfor each loading zone is given in Table 3.
(c) Insulators
10. The elevation of the line routes from Ertan to Zigong varies from 500 to 3,200 meters. It is estimated that 20 percent of the total length of the line is located in high mountainareas, 62 percent in mountainareas and 18 percent in hilly areas. The difference in relative air density between the low and high elevations is significant and sectionsof the line located in higher elevationswill require more insulators and more gap clearances. The proposed line insulationsare given in Table 4. - 88 - ANNEX 5.1
Table 3: GRoUNDWIRE DESIGNCHARACTERISrlCS
Description Light Medium Heavy Extra heavy
Line length, km of single circuit 1,714 68 200 60 Design ice thickness, mm 10 20 30 50 Check ice thickness, mm - - 45 70 Maximumwind speed, m/s 35/30 30 30 50 Ground wire type GSW-70 GSW-100 GSW-120 GSW-230
Table 4: IUNEINSULATION
Number of Insulators per Elevation Range
Insulator Insulator 1,000 - 1,800 - 2,500 - assembly strenith < 1,000 m 1.800 m 2500m 3.200 m
Xp - 16 160 kN 30 31 32 33 Xp - 21 210 kN 26 27 28 29 Xp - 30 300 kN 24 25 26 27
Gap Clearances (m) per Elevation Range
1,000- 1,800- 2,500- < 1,000 m 1,800 m 2.500 m 3.200 m
Power frequency 1.25 m 1.4 m 1.6 m 1.75 m Switchingsurge 2.70 m 3.0 m 3.3 m 3.60 m Lightning 3.70 m 3.8 m 3.9 m 4.00 m
(d) Steel Towers
11. Structures of the line will be of galvanizedsteel lattice type towers. They will be designedto sustain the structuralloads at the differentloading zones and withstand the electrical stresses at the different elevation ranges. The following structures are proposed for the transmissionlines: - 89 - ANNEX 5.1
DESIGNSPANS
Attachment Line height of Loading Structure Horizontal Vertical angle towers zone designation Tower type (m) (m) (degree) (m)
Light 93LM-111 Suspension, delta, guyed 450 700 0 24 - 36 93ZM-111 Suspension, delta, self 450 700 0 24 - 39 93ZM-1 12 Suspension, delta, self 550 850 0 24 - 48 93ZM-113 Suspension, delta, self 650 100 0 24 - 48 93MJ-1 11 Suspension, delta, guyed 450 850 0-10 27 - 33 93ZM-211 Suspension, delta, self 450 700 0 24 - 36 93ZB-211 Suspension, horiz., self 450 700 0 24 - 39 93ZB-212 Suspension, horiz., self 550 850 0 24 - 48 93ZB-213 Suspension, horiz., self 650 100 0 24 - 48 93ZB-214 Suspension, horiz., self 850 1,250 0 24 - 48 93BJ-211 Suspension, horiz., self 450 850 0-10 27 - 33 93ZM-212 Suspension, delta, self 550 850 0 24 - 48 93MK-211 Suspension, delta, self 1,200 1,500 0 24 - 48
93JT-211 Tension, delta, self 550 800 0-30 24 - 30 93JT-212 Tension, delta, self 550 850 30-60 24 - 30 93HT-211 Tension, delta, self 550 850 0-30 21 - 27 93JK-211 Tension, delta, self 100 1,400 0-30 21 - 30
Medium 93ZB-121 Suspension, horiz., self 400 650 0 24 - 39 93ZB-122 Suspension, horiz., self 500 750 0 24 - 39 93JT-121 Tension, delta, self 450 850 0-30 24 - 30 93JT-122 Tension, delta, self 450 850 30-60 24 - 30
Heavy 93ZB-131 Suspension, horiz., self 400 600 0 24 - 39 93ZB-132 Suspension, horiz., self 500 750 0 24 - 39 93JT-131 Tension, delta, self 450 850 0-30 24 - 30
Extra 93ZB-151 Suspension, horiz., self 450 700 0 24 - 39 heavy 93JT-151 Tension, delta, self 450 850 0-30 24 - 30
Substations
(a) General
12. The expansionplans for the 500-kVErtan TransmissionProject include the followingfive substationsand one switching station: - 90 - ANNEX 5.1
* Zhaojue SwitchingStation * Honggou (Zigong) Substation * Chongqing ChengjiaqiaoSubstation * Chengdu LongwangSubstation * PanzhihuaSubstation * ChangshouSubstation
(b) Zhaojue Switching Station
(i) Configuration - 500 kV
Insulation: The switching station will be designed for a 1,550-kVBIL Bus Arrangement: Breaker and one half No. of Bays: Eight Shunt Reactors: Each of four incominglines will be connected with a high voltage shunt reactors with a total capacity of four (150-180) MVAR
(ii) Main Equipment
13. The Zhaojue switching station will be the backbone of interconnectingand transferring power generated at the Ertan hydroelectric station. The switchingstation is located at relatively high altitude (2,100 meters) and heavy icing zone. To provide high reliability and minimizethe operation and maintenancecost of the station, the equipment selected for the switching station shall be of the GIS type.
(c) Honggou (Zigong)Substation
14. The substation will have three voltage levels 500 kV, 220 kV and 35 kV. One set of main 500/220/35-kVtransformer with a total capacity of 750 MVA will be installed in this substation.
15. The 500-kV substation will be designed for eight bays in a breaker and a half configuration. Three bays will be used for the 500-kV lines to Zhaojue, two bays for the 500-kV lines to Longwang, two bays for the 500 kV to Chenjiaqiaoand one bay for the 500/220-kV transformation.
16. The 220 kV will be designed for six outgoing lines in a double busbar configurationwith tie breaker connectionsbetween the busbars.
17. To meet power system requirements(150-180), MVAR high voltage shunt reactors will be connected to the three incoming lines from Zhaojue Substation. In addition, low voltage capacitors and reactors with a capacity of 200 MVAR and 240 MVAR, respectively,will be installedat the 35-kV side of the main transformer. -91- ANNEX5.1
(i) Configuration
Voltage Levels: 500 kV, 220 kV and 35 kV Insulation: 1,550-kV BIL for the 500 kV, 900-kV BIL for the 220 kV and 200-kV BIL for the 35 kV Bus Arrangement: Breaker and half for the 500 kV, double busbar for the 220 kV No. of Bays: Eight for the 500 kV, six outgoing lines for the 220 kV Shunt Reactors: Three (150-180) MVAR 500-kV shunt reactors connected to the lines from Zhaojue substation, one 240-MVAR 35-kV shunt reactor connected to the 35-kV side of the transformer Capacitors: 200-MVAR 35-kV capacitors connected to the 35-kV side of the transformer
(ii) Main Equipment
18. The Honggou (Zigong) 500-kV/220-kV substation will be the main interconnection terminal for transferring power generated at the Ertan hydroelectrical station to the major load centers of Chengdu and Chongqing. Its reliability is essential for normal operation of the Ertan 500-kV transmission system. The substation is located in an acid rain zone, and also in an area that is in relative proximity to salt and chemical heavy industry. Heavy pollution and high humidity prevalent in the area will impose serious operational problems for an open air substation at 500-kV level. To provide high reliability and minimize the operation and maintenance cost of the substation the equipment selected for the substation shall be of the GIS type. The 220-kV substation will be of the conventional open air type (AIS) with SF6 breakers, live tank design.
(d) Chengjiaqiao (Chongqing) Substation
19. The substation will have three voltage levels 500 kV, 220 kV and 35 kV.
20. The 220-kV substation side is already constructed and connected to the 220- kV grid system. The 220-kV substation is designed for a maximum of 14 outgoing lines out of which 13 have been constructed and connected to the existing 220 kV grid. Modifications will be made to the existing substation to connect the two circuits from the two main transformers.
21. Two sets of main 500/220/35-kV transforrner with a total capacity of 1,500 MVA will be installed in this substation.
22. The 500-kV substation will be designed for five bays in a breaker and a half configuration. Two bays will be used for the 500-kV lines to Honggou, one bay for the 500-kV lines to Changshou and two bays for the 500/220-kV transformation. - 92 - ANNEX 5.1
23. The 220-kV has been designed for 14 outgoing lines in a double busbar configurationwith tie breaker connectionsbetween the busbars.
24. To meet power system requirements, low voltage capacitors and reactors with a capacityof 150MVAR and 150 MVAR, respectively,will be installedat the 35-kV side of each of the main transformer.
(i) Configuration
Voltage Levels: 500 kV, 220 kV and 35 kV Insulation: 1,550 kV BIL for the 500 kV, 900 kV BELfor the 220 kV and 200 kV BIL for the 35 kV Bus Arrangement: Breaker and half for the 500 kV, double busbar for the 220 kV No. of Bays: Five for the 500 kV, 14 outgoinglines for the 220 kV Shunt Reactors: 300 MVAR 35-kV shunt reactors connectedto the 35-kV side of the transformers. Capacitors: 300 MVAR 35-kVcapacitors connectedto the 35-kV side of the transformers.
(ii) Main Equipment
25. The 500-kV substationwill be of the conventionalopen air insulationdesign with three line-ups of SF6 breakers.
26. The 220-kV substationwill be of the conventionalopen air type (AIS) with SF6 breakers, live tank design.
(e) Longwang(Chengdu) Substation
27. The substationwill have three voltage levels 500 kV, 220 kV and 35 kV.
28. The 220-kV substationside is already constructedand connectedto the 220- kV grid system. The 220-kV substationis designedfor a maximumof 10 outgoinglines, and out of which seven have been constructedand connected to the existing 220-kV grid. Modificationswill be made to the existing substationto connect the two circuits from the two main transformers.
29. Two sets of main 500/220/35-kVtransformers with a total capacityof 1,500 MVA will be installed in this substation.
30. The 500-kVsubstation will be designedfor four bays in a breaker and a half configuration. Two bays will be used for the 500-kV lines to Honggou and two bays for the two main 500/220-kV transformers. - 93 - ANNEX 5.1
31. The 200-kV substationhas been designedfor 10 outgoing lines in a double busbar configurationwith tie breaker connectionsbetween the busbars.
32. To meet power system requirements, low voltage capacitors and reactors with a total capacity of 150 MVAR and 360 MVAR, respectively,will be installedat the 35-kV side of the main transformers.
(i) Configuration
Voltage Levels: 500 kV, 220 kV and 35 kV Insulation: 1,550 kV BIL for the 500 kV, 900 kV BIL for the 220 kV and 200 kV BIL for the 35 kV Bus Arrangement: Breaker and half for the 500 kV, double busbar for the 220 kV No. of Bays: Four for the 500-kV, 10 outgoinglines for the 220 kV. Shunt Reactors: 360 MVAR 35-kV shunt reactors connectedto the 35-kV side of the transformers Capacitors: 150 MVAR 35-kVcapacitors connected to the 35-kV side of the transformers
(ii) Main Equipment
33. The 500-kV substationwill be of the conventionalopen air insulationdesign (AIS) with two line-ups of SF6 breakers.
34. The 220-kV substationwill be of the conventionalopen air type (AIS) with SF6 breakers, live tank design.
(f) PanzhihuaSubstation
35. The substationwill have three voltage levels: 500 kV, 220 kV, and 35 kV.
36. The 220 kV substationwill be designed for a maximum of six outgoing lines.
37. One main 500/220/35kV transformerwith a total capacityof 750 MVA will be installedin this substation.
38. The 500 kV substationwill be designedfor two bays in a breaker and a half configuration. One bay will be used for the 500 kV line to Ertan, and the other bay for the main 500/220 kV transformer.
39. The 220 kV substation will be designed for six outgoing lines in a double busbar configurationwith tie breaker connectionsbetween the busbars. - 94 - ANNEX 5.1
40. To meet power system requirements, low volage reactors with a total capacityof 240 MVAR will be installedat the 35 kV side of the main transformer.
(i) Configuration
VoltageLevels: 500 kV, 220 kV, and 35 kV Insulation: 1,550 kV BIL for the 500 kV, 900 kV BIL for the 220 kV, and 200 kV BIL for the 35 kV Bus Arrangement: Breaker and half for the 500 kV, double busbar for the 220 kV No. of Bays: One (1) for the 500 kV, six (6) outgoinglines for the 220 kV Shunt Reactors: 240 MVAR 35 kV shunt reactors connected to the 35 kV side of the transformers
(ii) Main Equipment
41. The 500 kV substationwill be of the conventionalopen air insulationdesign (AIS) with one line-up of SF6 breakers.
42. The 220 kV substationwill be of the conventionalopen air type (AIS) with SF6 breakers, live tank design.
(g) ChangshouSubstation
43. The substationwill have three voltagelevels: 500 kV, 220 kV, and 35 kV.
44. The 220 kV substationwill be designed for a maximumof eight outgoing lines.
45. One main 500/220/35kV transformerwith a total capacityof 750 MVA will be installed in this substation. The 500 kV substationwill be designed for two bays in a breaker and a half configuration. One bay will be used for the 500 kV line to Chenjiaqiao, and the other bay for the main 500/220 kV transformer.
46. The 220 kV substationwill be designedfor eight outgoinglines in a double busbar configurationwith tie breaker connectionsbetween the busbars.
47. To meet power system requirements, low voltage capacitors and reactors with a total capacityof 150 MVAR and 150 MVAR, respectively,will be installedat the 35 kV side of the main power transformer. - 95 - ANNEX 5.1
(i) Configuration
Voltage Levels: 500 kV, 220 kV, and 35 kV Insulation: 1,550 kV BIL for the 500 kV, 900 kV BELfor the 220 kV, and 200 kV BIL for the 35 kV Bus Arrangement: Breaker and half for the 500 kV, double busbar for the 220 kV No. of Bays: One (1) for the 500 kV, eight (8) outgoing lines for the 220 kV Shunt Reactors: 150 MVAR 35 kV shunt reactors connectedto the 35 kV side of the transformer Capacitors: 150 MVAR 35 kV capacitorsconnected to the 35 kV side of the transformer
(ii) Main Equipment
48. The 500 kV substationwill be of the conventionalopen air insulationdesign (AIS) with one line-up of SF6 breakers.
49. The 220 kV substationwill be of the conventionalopen air type (AIS) with SF6 breakers, live tank design. - 96 - ANN 5X.s.2
CONSULTING SERVICES
(Terms of Reference)
Scope of the Consulting Services
1. Consulting Engineer (hereinafter the Engineer) shall provide consulting services for the 500-kV Sichuan Power Transmission Project to the Owner (SEPC) and the Design Institute (SWEPDI), comprising the following tasks:
A. STAGE I SERVICES FOR PROJECT PREPARATION
Task 1: Review of feasibility study and design report.
Task 2: Special studies and review of design of the 500-kV transmission lines in high mountainous and heavy icing areas.
Task 3: Review of design of the 500-kV substations and switching station.
Task 4: Review of the bidding documents for ICB procurement and assistance for bid evaluations.
Task 5: Consulting services for construction planning.
Task 6: Training service.
Task 7: Other services.
2. Task 1 includes the review and updating of the feasibility study and design report prepared by the Southwest China Electric Power Design Institute.
3. Task 2 includes:
(a) Review of design codes, criteria, and standards for foreign EHV transmission lines in heavy icing areas. Optimization of basic technical requirements of design for the projects. Development and optimization of design criteria, taking into consideration variation in altitude, icing and wind conditions and contamination levels; -97 - ANNEX 5.2
(b) Studiesof icing or frost characteristics,verification of design icing thickness and preparation of an ice thickness map for corridors of the 500-kV lines;
(c) Optimizationfor selection conductorsand earth wires in high altitude and heavy icing areas, especially regarding mechanicscharacteristics of phase conductor structure, corona features and measures for prevention of galloping. Assessmentof wind conditionsalong the 500-kV line routes;
(d) Review of electrical features of insulators, insulation compensation of transmission lines in high altitude and heavy icing areas. Insulation coordinationincluding power frequency overvoltage, switching surges and lighting, establishmentof gap clearancesand optimizationof shieldingand grounding requirements;
(e) Review of design of metal fittings (hardware), spacers and insulators for heavy icing and high altitude;
(f) Optimizationof steel tower, number of structure types and tower spotting for 500-kV lines, loading combinationand overload safety factors for the design of tower;
(g) Optimization of steel tower foundation, treatment of geological defects, measure for stabilizationof side slope;
(h) Measures for prevention of impacts on telecommunicationlines and radio facilities resulted from EHV transmissionlines; and
(i) Environmental impacts of EHV transmission lines, related regulations, environmentalprotection and assessmentof width of corridor. Assessment and evaluationof interference to communications.
4. Task 3 includes:
(a) Review of design for power sources requirement for the switching station;
(b) Review of insulation coordination and electrical rating and corona characteristicsof electrical equipmentlocated in high altitude area;
(c) Optimization of conductor structure, mechanical characteristics of large sectional heat resistant aluminum alloy conductors. Assessment of protection schemes, bus configurationand grounding layouts; and
(d) Environmentimpact studies, such as evaluationof contamination,corrosion, electromagneticinterference, noise, etc. - 98 - ANNEX 5.2
5. Task 4 includes:
Review of the bidding documents for the following items which will be procured under ICB, comprising:
(i) transmissionline materials (conductors, ground wires, insulators) (ii) 500-kV/220-kVpower transformers (iii) 500-kV GIS switchgear (iv) 500-kV SF6 circuit breakers (v) 500-kV/220-kVsubstation equipment (vi) PLC (vii) SCADA (viii) protection relays (ix) UPS (x) communications (microwave, fiber optic and mobile communications) (xi) dispatching automationand stability control
Assistancefor the bid evaluationfor the items procured under ICB.
6. Task 5 includes:
(a) Constructionmethodology for specific items faced by the project such as applicationof balloon or helicopter in constructionof transmissionlines in rigorous mountainareas;
(b) constructionschedule.
7. Task 6 includes:
Training of Owner's engineers for design and methodologies for EHV transmission and substation technologies with particular attention to high mountainousand heavily icing area.
8. Task 7 includes:
(a) Advice for operation and maintenanceof the 500-kV power grid; and
(b) Any other services as required by the Owner.
B. STAGEH SERVICESFOR PROJECTIMPLEMENTATION
Task 1: Project management.
Task 2: Contract administration for transmission line materials and substation equipment. - 99 - ANNEX 5.2
Task 3: Schedulingand reporting.
Task 4: Constructionsupervision and quality control.
Task 5: Cost control.
9. Task 1 includes:
(a) Establishmentof methodologiesof various phases of the projectconstruction management, implementation schedules, erection procedures and commissioningprocedures;
(b) Review of the contractor's plan for equipment delivery schedule and dispatchingschedules of site supervisingengineers;
(c) Providing the Owner's construction personnel the field training for site construction management and establish and expedite the equipment installation training schedule;
(d) Assisting the Owner in solving the problems encountered during project implementationand in managingdeficiencies of products found during site construction;
(e) Assisting the Owner in reviewing the qualificationsof various contractor's representativesfor qualified site services.
(f) Assistingthe Owner in coordinatingthe interfacesand interferencesbetween contractors during constructionand commissioningstages; and
(g) Assisting the Owner in setting up programmable computer system for information/documentcontrol which includes:
(i) all communications, letters, telexes, faxes, relating to site construction, among the Owner, contractors, consultants, and other selected organizations;
(ii) daily records of quantities of work performed under the Contract;
(iii) daily diary of all events occurring at the job site connected with the progress of the work;
(iv) as-built records and marked drawings on a weekly basis at project site;
(v) quality control and quality assurance records includingtest data; - 100 - ANNEX5.2
(vi) documents recording authorized changes in the work on a weekly basis; and
(vii) records of all Contractor's claims and their disposal on a weekly basis.
10. Task 2 includes:
(a) Assistingthe owner in setting up programmablecomputer-aided system for equipmentand materialmanagement including site storage system for parts, equipment and materials, outdoor and indoor installation;
(b) Assisting in cooperation with Task 1 team, the Owner in controlling delivery of the parts/equipment/materialfrom various contractors in order to meet with project schedule;and
(c) Assisting the Owner in managing construction machinery to meet the requirement of constructionschedule.
11. Task 3 includes:
(a) Assisting the Owner to establish a master and submaster implementation schedulesincluding monthlyand weekly schedules;
(b) Assisting the Owner to monitor and expedite the master and submaster schedules. The schedule control shall include review of progress of interfacing and coordination among contractors, so that interfaces coordination should be carried out in a timely manner;
(c) Assisting the Owner to managemonthly progress reports provided by each island contractor and establish and expedite schedules of design and site constructioninformation exchange; and
(d) Assistingthe Owner to prepare semiannualprogress reports to be submitted to the Bank.
12. Task 4 includes:
(a) Assisting the Owner in setting up and implementingquality control system and quality assurance system during site construction and commissioning stages, including:
(i) monitoringof performanceof constructionand technical supervision thereof to ensure compliancewith contracts;
(ii) documentingthe progress and quality of all stages of construction including daily records of progress, events and oral instructions, - 101 - ANNEX 5.2
weekly updating of as built records and marked-up drawing, recording of quality control and quality assurancerecords including test data;
(iii) monitoring of contractor's quality control activities, review of test results, and recommendationof remedialactions; and
(iv) review and approval of contractor's submissions with respect to sequence and timing of work, equipment, materials, temporary works, detailed working or construction drawings and other documents submittedin accordancewith the contracts.
13. Task 5 includes:
(a) Assisting the Owner in establishingand implementingmethodologies for project cost control and accountingsystem;
(b) Establishingand assistingto maintaina cost control systemthat continuously monitorsin foreign and local currency, incurred costs, committedcosts and cost estimatevariations due to actual geologicalconditions, design changes, additional work, escalation and currency fluctuations;and
(c) Assisting in the six-monthly updates of cost estimate to completion and projected disbursementschedules for each financier. - 102 - ANNEX 5.3
ACCOUNTING AND FINANCIAL MANAGEMENT SYSTEMS
(Terms of Reference)
Objectivesand Background
1. The Sichuan Electric Power Company (SEPC) is seeking a loan from the World Bank to finance the SichuanPower TransmissionProject. It is proposed to include in the proposed loan funds for financingthe cost of consultingservices for implementing the SEPC's reform plan, and upgrading SEPC's accounting, budgeting, and financial managementsystems. The objective of these services is to assist SEPC making a smooth and speedy transition to the new accounting framework that follows international accountingprinciples and standardsand strengtheningSEPC's financialmanagement. This also includesintroduction of computerizedfinancial managementinformation systems that will enable managers to obtain timely information on the costs of all aspects of the company's activities. The new systems would facilitate better budgetary control and reporting on costs and financesto managersresponsible for incurringexpenditures and also for external reporting to the Government,shareholders, lenders and the public.
A. ACCOUNTINGAND FINANCIALMANAGEMENT SYSTEMS
2. SEPC, like all state-owned enterprises has maintained its accounts in accordance with China's uniform accounting system, which has been applied for many years under China's centrally planned economy. The Ministry of Finance has been responsible for issue of regulations relating to accountingby state enterprises in China. However, from July 1, 1993 new regulations covering accounting rules and financial affairs are being introduced to strengthenthe financialmanagement of enterprises. These new regulationslargely reflect InternationalAccounting Standards.
3. The new regulations will lead gradually to replacement of state control by accountability mechanisms which will allow greater financial autonomy to enterprise managers. This will require enterprises to develop better budgetary and cost control systems. Financial statementswill need to be adjusted to provide full disclosure of their financialposition; e.g., the ownershipand value of fixed assets will need to be updatedto establish the amount of equity or value of share capital and the value of construction works-in-progressand related sources of funds will need to be brought to account. Enterpriseswill be permitted to retain profits after taxes and depreciationfunds to finance expansion needs. This will mean that managers will then have to establish better cash managementand reporting for government,lenders, shareholders and the public. Public accountabilitywill replace state control as enterprisesbegin to obtain funds for expansion from financial markets through borrowing and issues of shares. - 103 - ANNEX 5.3
Scope of Services
Phase 1-Diagnostic Phase to Determine System Requirements
4. Review in depth all existing accounting systems, including (a) policies, procedures, documentation, and reporting formats; (b) transactions and activities at all levels, such as power plants, supplybureaus, substations,etc; both those that are presently on manual systems or computerized.
5. Identify (a) differences between SEPC accountingpractices under the new regulations issued by MOF and international accounting standards; (b) issues/problems existing within SEPC to record its transactions and activities in accordance with internationallyaccepted accountingstandards.
6. Conducta survey of the requirementsof managers for financialinformation and identify the functionsand activities for which costs will be needed to be reported and controlled.
7. Assess SEPC's (a) existing organizational structure, including the relationships and linkages between SEPC and the external units under it; (b) present policies and procedures for planning and financial management, including pricing, investmentfinancing, cost controls and financial reporting.
8. Review existingcomputer hardware and software.
Phase 2-Detailed Design of New Systems
9. Using information collected under phase 1, prepare a detailed plan for upgrading and improving existing systems, including a new chart of accounts, reporting formats, disclosures,accounting policies and procedures, required documentationto cover each segment of electricity supply, e.g., generation, transmission, and distribution, most suitable for SEPC's business need. This will also require identificationof priorities and selectionof suitable hardware and software especially a new general ledger package and mainframehardware that would be linked to computer terminals or PCs.
10. A new chart of accounts should be prepared incorporating appropriate budgetary control techniquesfor planning, measurementand control of costs.
11. The level and frequency of reports should be determined and detailed formats and contentsagreed for each level of management. These would be submittedfor managementreview and approval. Reporting formats and contents as well as their flows should be designed and step-by-stepflow charts should be prepared.
12. Internal and external auditors would have to be consultedand their needs for adequatecontrols and checks taken into considerationin developing the new systems. - 104 - ANNEX 5.3
13. The staffing and skills required to implement the new systems would need to be identified. An appropriate training program would also need to be prepared. In connection with the new accounting and financial management information system, a recommendednew organizationchart for SEPC's financialdepartment should be prepared.
14. Work sessions need to be organizedto assist SEPC managers and financial staff to fully understandthe proposed changes.
15. A detailed work plan and timetable for implementationof the new systems would be prepared. This would show how the new and improved systems would be progressivelyinterfaced with existing systems to ensure a smooth transition.
Phase 3-Implementation
16. Implementationof system improvements,including the organizationaland staffing changes, according to the scope and pace in the implementationplan.
17. Procurementand installationof new hardware and software.
18. The new and/or modified systems should be tested and installedpreferably at the start of the fiscal year and run in parallel with old systems until the new ones are fully operational.
19. New accountingprocedures and manuals would be prepared to assist staff responsiblefor operating the new systems.
20. Full documentationof the new systems should be prepared including user procedures.
21. Training should be given to financial and other user staff (both formal and on-the-job)who will operate and maintainthe new systemsand prepare reports. Training should also be given to managerswho will make decisions based on informationprovided by the new systems.
B. APPROACH AND OUTPUT
Approachto the Work
22. The consultantswould be expectedto work under the directionof a Steering Committeeset up by the SEPC. A proposed method of approachand a detailedwork plan should be prepared showing the tasks to be undertaken by each member of the team and the time period in consultant weeks which each would provide. A Chinese counterpart team of accountantsshould be subcontractedby the consultant. The work plan for the study would show how this support would contribute to each phase of the services. The foreign consulting team should represent appropriate capabilities and experience in accounting system design and implementation, training, and public utility industry accountingpractices. - 105 - ANNEX 5.3
Outputs
23. The main output of the work would be reports at the end of Phases 1 and 2 and subsequentlyunder Phase 3, the accountingprocedures manuals and documentationof the systems,including all accountingpolicies, procedures, and reporting formats. Progress reports should be provided quarterly to the Steering Committee. - 106 - ANNEX 5.4
MANAGEMENT DEVELOPMENT AND TRAINING
A. OnJEcTvEs
1. The managementdevelopment and staff training program is designed to enhance SEPC's managerial,technical and financialcapabilities. The main objectives of the program are:
(a) to enable SEPC to function as an autonomousentity for the efficient and accelerated developmentof its long-rangeinvestment program; and
(b) to staff SEPC with professionally skilled personnel capable of handling power development and financial planning, modem construction, managementand business operations.
B. SCOPE
2. The training program will consist of the following four main categories:
(a) Training in institutionaldevelopment and enterprise reform matters;
(b) Training in utility managementand financialplanning;
(c) Project-related training for technical staff by working together with consultantsand those financed under vendors' contracts; and
(d) Upgradingand equipping of SEPC's training facilities.
C. ORGANIZATIONOF TRAINiNG
3. SEPC will be responsiblefor planningand organizing the training program with the approval and support of MOEP. The training program will be conducted both abroad and in China. Initial trainingactivities would aim at providing a general overview of the selected topics by a series of training seminars in China. Both local and foreign experts will be invited to give lectures on these specific topics. Study tours and overseas training will then be followed for senior managementand financial and technical staff. Particular attention will be paid to the selection of candidates to be trained and their adequatepreparation before sending them abroad for training. - 107 - ANNEX 5.4
D. IIPLEMENTATION
4. Implementationplan for the managementdevelopment and staff training program is presented below:
(a) Domestic Training. About 420 staff of various fields, totaling 305 staff- months will be trained in China (Table 1); plus 11 staff-monthsof foreign experts will be required for training in China.
Table 1: DoMEsTIc TRAINNG
Foreign experts Estimated No. of Duration Staff- (staff- Training cost Categories trainees (months) month months) period ($'000)
Senior mgmt. staff 60 0.5 30 2 1994-96 40
Businessmgmt. staff 110 0.5 55 2 1995-97 40
Legal staff 30 1 30 1 1994-96 20
Financial mgmt. staff 110 1 110 2 1994-96 40
Technical staff 80 1 80 3 1995-97 60
Environment& resettlement 30 1 30 1 1994-96 20
Total 420 X 11 220
(b) Overeas Training. Studytours and overseas training will be conductedin 1994-97for 144 staff, totaling 247 staff-months. The number of trainees, duration of training, staff-months and timing of different specialties of personnel are shown in Table 2. - 108 - ANNEX 5.4
Table 2: OVERSEASTRAINNG
Estimated No. of Duration Staff- Training cost Categories trainees (months) month period ($'000)
Senior mgmt. staff 41 1 41 1994-96 328
Businessmgmt. staff 38 2 76 1994-96 608
Legal staff 8 2 16 1994-96 128
Financial mgmt. staff 15 2 30 1994-96 240
Technical staff 37 2 74 1995-97 592
Environment& resettlement 5 2 10 1994-96 80
Ibtal 144 247 1,976
(c) Project-RelatedTraining for TechnicalStaff. A total of 176 traineeswith a total staff-monthsof 146 will be trained in manufacturers' offices and factories. Another 100 staff totaling 300 staff-months will be trained in China for line constructionand substationequipment erection. Details are shown in Table 3.
(d) TrainingEquipment. Total training equipmentto be procured is estimated at about $1,104 million as detailed in Table 4.
(e) Estimated Training Cost. The total training cost will be Y 1.0 million equivalentin local currency and $3.3 million in foreign currency (Table 5). - 109 - ANNEX 5.4
Table 3: PRoJer-RELATED TRAING PROGRAMFOR TECHNcALSTAF
Training Estimated No. of period Staff- cost Category of staff trainees (months) months Timing ($'000)
A. Training for Design and Engineering Staff
Design staff 20 1 20 1994/95 100 Engineering staff 34 1 34 1994/95 170
12 54Q 2S
B. Training for Electrical and Mechanical Staff
Project management 32 1 32 1994/96 160 Constructionand erection 30 1 30 1994/96 150 Operation and maintenance 60 0.5 30 1995/97 150
IQal 122 92 460
C. Domestic Training for ConstructionPersonnel
Operations 50 3 150 1996/97 Maintenance 50 3 150 1996/97
Tota 100 30Q -110- ANNEX54
Table 4: PROCuEMENT OF TRANG EQUIPMENTAND SOFTWARE
Unit Estimated Categories Quantity price cost (set) ($'000) ($'000)
Digital real-time simulating system for power system (RTDS) (hardware and software) 1 350 350
Power system transient simulating program (PSCAD/EMTDC) 1 34 34
Substation simulatingsystem (hardware and software) 1 150 150
Informationmanagement system (MIS), including subsystem(FMIS) (hardware and software) 1 450 450
Other software 110 120
Total ,104
Table 5: SUMMARYOF TRAINNG COST
Estimated No. of cost Categories trainees Staff-months ($'000)
Domestic training 420 305 220 Overseas training 144 247 1,976 Training equipmentand facil- ities procurement - - 1,104
Tota 5 6 552 3,300/a
La This cost does not include the cost of project-related training, which will be financed out of contracts of consultingservices and equipment. -111- ANNEX 5.5
PROJECT COST ESTIMATE
Description Local Foreign Total ------($ million) ------
1. Prepartor Work Base cost 68.2 0.0 68.2 Physical contingencies 6.2 0.0 6.2 Price contingencies 4.6 0.0 4.6 Taxes and duties 0.0 0.0 0.0
Total 78.9 008
2. Land Acquisition & Relocation Base cost 12.2 0.0 12.2 Physical contingencies 1.0 0.0 1.0 Price contingencies 0.8 0.0 0.8 Taxes and duties 0.0 0.0 0.0
Toal 139 13.9
3. Civil Works & Installation Base cost 123.7 0.0 123.7 Physical contingencies 10.9 0.0 10.9 Price contingencies 9.3 0.0 9.3 Taxes and duties 0.0 0.0 0.0
Total 143.8 Q0 143.8
4. 220-kV Transmission System Base cost 128.4 0.0 128.4 Physical contingencies 12.8 0.0 12.8 Price contingencies 8.6 0.0 8.6 Taxes and duties 0.0 0.0 0.0
Total 149.9 Q± 149.9 - 112 - ANNEX 5.5
Description Local Foreign Total ------($ milion) ------
5. 500-kV Transmission Lines Base cost 130.0 60.2 190.2 Physical contingencies 13.0 6.0 19.0 Price contingencies 10.7 3.1 13.8 Taxes and duties 0.0 0.0 0.0
IQTl 5l3: 6 2230
6. 500-kV Substation Equipment Base cost 40.1 175.4 215.5 Physical contingencies 2.0 8.8 10.8 Price contingencies 2.9 9.1 12.1 Taxes and duties 0.0 0.0 0.0
lotal 4iAID 193.3 2Z38.2
7. Engineering & Administration Base cost 12.0 4.2 16.2 Physical contingencies 0.6 0.1 0.7 Price contingencies 1.0 0.1 0.1 Taxes and duties 0.0 0.0 0.0
IT 136 41 17.9
8. Environmental Program Base cost 0.3 0.5 0.8 Physical contingencies 0.0 0.0 0.0 Price contingencies 0.0 0.0 0.0 Taxes and duties 0.0 0.0 0.0
IQIAl QA 50
9. Technical Assistance Base cost 1.0 1.7 2.7 Physical contingencies 0.1 0.1 0.1 Price contingencies 0.0 0.1 0.1 Taxes and duties 0.0 0.0 0.0
Tota IA 2L82 -113 - ANNEX 5.5
Description Local Foreign Total ($ million)------
10. Training Base cost 1.0 3.3 4.3 Physical contingencies 0.0 0.2 0.2 Price contingencies 0.0 0.2 0.2 Taxes and duties 0.0 0.0 0.0
IQta 116Q. 4.7 11. Total Proect Costs Base cost 516.9 245.3 762.2 Physical contingencies 46.6 15.1 61.7 Price contingencies 37.9 12.6 50.5 Taxes and duties 0.0 0.0 0.0
GRA TOTAL, OLA 273 874.4 PROCUREMENT SCHEDULE
(1) (2) (3) (4) (5) (6) Conductor Microwave insulator OH Substation Substation dispatching Construction groundwire & equipment equipment automatic maintenance Steel accessories no. 1 /a no. 2 Lb equipment equipment
Begin preparation of bidding documents 05/01/94 05/10/94 05/01/94 08/01/94 01/01/94 07/20/94
Approval by Chinese government 09/24/94 10/14/94 10/25/94 01/25/94 05/25/95 10/30/94
Review by the World Bank 10/15/94 11/15/94 11/25/94 02/25/95 06/25/95 11/25/94
Issue bidding documents 10/20/94 11/20/94 12/01/94 03/01/95 07/01/95 12/01/94
Bid opening 01/10/95 02/05/95 03/01/95 06/01/95 10/01/95 03/01/95
Bid evaluation 02/20/95 03/20/95 04/30/95 07/31/95 11/30/95 04/30/95
Approval by Chinese government 03/15/95 04/25/95 05/30/95 08/30/95 12/30/95 05/30/95
Confirmation by the World Bank 03/30/95 05/30/95 06/30/95 09/30/95 01/30/96 06/25/95
Contract discussion and signing 05/05/95 07/30/95 08/01/95 11/01/95 03/15/96 08/10/95
/a Power transformer, GIS, reactor. /b Disconnecting switch, SF6 switch, arrester, UPS, protection, PLC and automation complex in substation. KEY DATES OF PROJECT IMPLEMENTATION
(a) TRANSMISSION LINES
Key dates Ertan- Ertan- Ertan- Ertan- Zigong- Zigong- Zigong- Zigong- Chongqing- Zigong Zigong Zigong Panzhihua Chongqing Chongqing Chengdu Chengdu Changshou No. 1 No. 2 No. 3 No. 1 No. 2 No. 1 No. 2
Construction contracting 02/15/95 10/01/95 06/01/96 08/01/97 03/01/98 11/01/95 08/01/96 02/01/97 08/01/97
Enter construction site 04/01/95 01/01/96 10/01/96 10/01/96 05/01/98 01/01/96 10/01/96 04/01/97 10/01/97
Start foundation works 07/01/95 04/01/96 01/01/97 01/01/98 07/01/98 04/01/96 01/01/97 07/01/97 01/01/98
Start tower erection 02/01/96 11/01/96 08/01/97 07/01/98 09/01/98 09/01/96 08/01/97 01/01/98 07/01/98
Start stringing 07/01/96 05/01/97 02/01/98 11/01/98 10/01/98 01/01/97 02/01/98 06/01/98 01/01/99
Testing and acceptance 07/01/97 04/01/98 01/01/99 05/01/99 11/01/98 07/01/97 08/01/98 01/01/99 07/01/99
Normal operation 07/01/98 03/01/99 02/01/00 04/01/00 12/01/98 07/01/98 07/01/99 01/01/00 06/01/00
Project completion 12/31/00 KEY DATES OF PROJECT IMPLEMENTATION
(b) SUBSrATIONS
Zhaojue Switching Station Honggou Substation Longwang Panzhihua Changshou Chengjiaqiao Substation Substation Substation Substation
Equipment procurement contract signing 08/01/95 08/01/95 08/01/95 08/01/95 11/01/95 11/01/95 11/01/95 11/01/95
Construction contract signing 09/01/95 06/01/96 02/01/97 06/01/97
Enter construction site 10/01/95 07/01/96 03/01/97 07/01/97
Start excavation 02/01/96 11/01/96 07/01/97 11/01/97
Start erection 02/01/97 11/01/97 07/01/98 11/01/98
Testing and acceptance 09/01/97 06/01/98 02/01/99 06/01/99 02/28/98 11/30/98 07/31/99 11/30/99
Start operation 06/30/98 2/28/99 10/30/99 2/28/2000 -117- ANNEX5.8
SCHEDULEOF DISBURSEMENTS ($million)
Bank FY and Semester Cumulative Project Bank profileLa semester ------($ million) ------
1995 First - - - 0 Second 22.5 22.5 8.3 6 i199 First 22.6 45.1 16.7 18 Second 41.6 86.7 32.1 26
1997 First 41.6 128.3 47.5 38 Second 33.5 161.8 59.9 50 i998 First 33.5 195.3 72.3 58 Second 29.3 224.6 83.1 66
999 First 29.2 253.8 94.0 74 Second 6.9 260.7 96.5 78
200 First 6.8 267.5 99.0 82 Second 2.5 270.0 100.0 86
La Bank-widestandard disbursement profile for the power sector in China (August 1993). - 118- ANNEX5.9
ENVIRONMENTAL MANAGEMENT PROGRAM
A. BACKGROUND
1. Environmentalfactors were incorporatedinto the selectionprocess for the route alignmentsand preliminary design for the 500-kV Ertan transmission system from the Ertan HydroelectricProject to Zigong, Chengdu, and Chongqing. Considerableefforts were made to avoid populatedareas, productive farmland,industrial facilities,and natural conservancy areas, as well as forests, historic landmarks, and scenic areas. The main residual adverse environmentalimpact effects of this project include: steel transmission towers and substations taking farmland and other lands with resultant displacement of 1,983 families [an average of 96.3 families or household, 393.7 individuals, per 100 kilometers (km) of transmission line], the felling of trees during construction, the interferenceof electromagneticfields with communications,and potential health risks to people and animals. All applicable national and local environmentalprotection policies have been incorporated into project planning and design.
2. With the adoption of preventive measures, the project complies with applicable environmental protection requirements. Expenditures for mitigation and monitoringmeasures are relativelylow and technologicalskills are locally available. The effects of high elevation and heavy ice loading of the line are important environmental characteristicsthat affect project planning. Ice prevention measures and electromagnetic considerationswill be comprehensivelystudied as the project design stage continues.
Environment and its Relationship to the Project
3. The 500-kV Ertan Transmissionsystem will be a very important segment of the Sichuan electric network, transferring up to 3,300-MWof electric power from the Ertan Hydroelectric Project to the load centers of the heavily populated Sichuan Basin. The selected route consists of two parallel transmission corridors with, initially, three singlephase 500-kV lines from Ertan to the Zigong substation. From there, two lines will go towards Chongqingand two towards Chengdu.
4. The alignment,and the environmentalstudies, can be consideredas covering two distinct geographicalareas, the Sichuan Basin, and the mountainousarea to the southwest,where the Ertan Project is located. In the western mountainarea, the geologic texture is complex, and the forest resources are rich, with considerable climatic change with increasing elevation. The population is sparsely distributed, and industry and agricultureare underdeveloped. However, in the eastern hilly land region of the Sichuan Basin, the climate is warm, with concentratedpopulations and relativelydeveloped industry and agriculture. - 119 - ANNEX 5.2
5. The highest elevationsalong the route are over 3,200 meters, and heavy ice accumulationsand geologicproblems includingmudflow, landslides, and potentiallyhigh earthquake magnitudes are environmental factors that had to be considered in project design.
6. In the thickly forested mountains, wildlife, including the giant and lesser pandas, monkeys, and other rare animals and Chinese medicinal plants are found. A critical high area between Ba-Pu and Wahou has been designated as the Da Feng Ding Natural ProtectedZone. This area containsimportant panda habitat and virgin forest land, however, the transmissionlines will be at some distance from this zone.
Incorporationof EnvironmentalConsiderations into Project Design
7. During the design of the project, effective measures have been adopted to eliminateor minimizeadverse impacts. For example, the need for clearing of forests for transmissionlines was kept to a minimumduring the developmentof the alignment. Also, based on the national environmental protection policies, the selected transmission alignmentswere designedto avoid the natural conservationzone for the protectionof panda and other rare species by a minimumof 5 km from boundaryof the zone, and are located near roads at a lower elevation than the significanthabitat for endangered species. The minimumdistance from the transmissionline alignmentsto the bamboo forest home of the panda is 16 km. Elsewhere, the alignmentis designed to minimizeeffects on forest and agricultural land, and other natural and socioculturalresources.
8. In China, only the foundationsof the towers and newly built or extended roads will require land acquisition. The land under the transmission lines will not be acquired, but houses may have to be relocated. Land requirements for each tower will be approximately225 square meters. The land under the lines betweenthe towers will remain the property of the original owner. Assumingan average distance between the towers of 395 meters, and a total line distance of 470 km, approximately27 ha of land will have to be acquired for construction of towers for each circuit between the Ertan and Zigong HonggouSubstations. In addition, approximately23 ha will be required for the towers for the lines to Chengdu and Chongqing,and approximately10.5 ha will be required for new or extended roads. Likewise, 45 ha will be required for constructionof the substations, for a total land acquisition of approximately 159 ha. The compensation paid for agriculturalland is about 10 to 20 times that of the annual value of the crops. Payments are also made to the local government or other land owners for the expropriated nonagriculturalland.
Relocationand Resettlement
9. After planning the transmissionalignments so as to avoid the necessity of displacinghouses to the extent practical, it will still be necessary to displace some housing for project construction. Approximately2,000 families (houses), 8,100 individuals, will be displaced to accommodatethe transmission alignments for more than 2,000 km of transmissionline, one switchingstation, and the four located substations. Approximately 265 families will be displacedfor the constructionof each of the three circuits from Ertan - 120 - ANNEX 5.9 to Honggou. Within the more densely populatedbasin area, 1,183 families would have to be relocated for the constructionof the four proposed lines. The houses to be removed for the construction of the transmissionlines are relatively scattered, particularly in the mountainousareas between Ertan and Zigong. Approximately56 houses per 100 km for each of the Ertan to Zigong lines, and approximately186 houses per 100 km of line for he lines within the densely populated basin will have to be relocated. Normally, the location of the new houses will be between 100 and 1,000 meters away for the original position.
10. Compensationand relocation assistance will be provided by SEPA and the local governments. Compensationwill be based on the number of square meters of housing a family has, the value of crops, etc. This compensationwill be provided both in terms of money, and assistance in finding alternative locations to rebuild in the general area. In addition, SEPA will provide assistance in terms of building materials and other requirementsfor rebuilding.
Monitoringand Mitigation Plans
11. An environmental protection facility will be established to conduct environmentalmonitoring programs and supervisethe implementationof the preventive or mitigation measures. The estimated annual expenditures for environmentalprotection monitoring are 790,000 Yuan. Until the Ertan Project goes on line, these costs will be included as part of the overall project construction cost. After that, the program will continue and will be paid for from operating revenues.
B. ENvRoNMENTAL CONSTRUCTIONIACS
12. Project construction will require land acquisition, cutting forests, damage to crops, and excavation of earth. In addition, blasting will create high level explosive noise. Constructionwill also have adverse impacts on the wildlife, native vegetation, and nearby residents. The following measures have been identified for consideration, and adoption if justified, during construction in order to minimize the impact on the environment:
(a) Adopt the stringing of lines under tension.
(b) Adopt small piece erection techniques.
(c) Arrange the stringing of line after the fall harvest in agricultural areas.
(d) Forbid using the explosive method to connect wires, and use noise control measure during excavation.
(e) Adopt aerial ropeways to transport the parts. - 121 - ANNEX 5.9
(f) Rent existing houses for construction offices rather than building new facilities.
(g) Assess the possibilityof using helicoptersfor construction.
13. The weight of the bulky equipment for the substations and the switching stationcan reach up to 180 tons, and their dimensionsmay be up to 8 m by 4 m. In order to ensure the safety of people and of shipments of the large components, it will be necessary to investigatethe conditionof the transportationroutes to be utilized in moving the equipmentto the site where it is needed. This will include the status of the roads and railways, the bearing capacity and dimensionsof the bridges and tunnels, as well as the loading and unloadingcapacity of the train yards. Where necessary, these facilities will be rebuilt, reinforced, or avoided to prevent accidents during the shipment of equipment.
14. Detailed planning will be conducted to minimize and control runoff and erosion at the constructionsites. The soil erosion preventionmeasures include revegetation of the disturbed surfaces, or their conversion into agricultural land. In addition, the contractors will be required to utilize suitable prevention measure to limit construction noise, dust, and smoke so as to minimizetheir impacts on the surrounding residents and the environment.
15. Project design will be such that intemationalstandards of worker safety will be included in all bidding documentsof project equipment. Dangerous equipmentwill be designed to meet ASME standards of safety and will be so specified. Polychlorinated biphenyls (PCBs) are illegal in China and their use is therefore prohibited in the project.
16. The constructionlabor force will consistof a fixed of 1,000 to 2,000 skilled workers and a variable number of unskilledworkers numberingabout 3,000 at the period of maximum activity. It is estimated that the plant will take two to three years to build. Most of the skilled workers will move to the area without their families, and unskilled workers will consist mostlyof local farmers with about half of them living on-site and the other half commuting. Therefore, housingand infrastructurewill be needed for the skilled workers and some unskilledlabor (about 3,000 units in total). For workers living on-site, Sichuan Electric ConstructionCompany will build temporary housing on-site as well as medicalfacilities, shopping, sewageand fire protection. Water supply and electricity will be suppliedfrom Yang City.
17. About 650 workers are needed to operate and maintain the network, of which roughly 60 percent will be married. SEPC will construct apartments for married workers in Yang City, and apartments for single workers at the plant site. Since Yang City has a population of over 400,000, the addition of transmission network personnel should not present a significantburden on the city infrastructure. At the plant site, SEPC will construct sewage facilities, a clinic, shops, dining facilities, clubhouse and library. It will also supplyelectricity. Operatingplant personnelliving at the plant site should not present a significantimpact on the local communitylevel. - 122 - ANNEX 5.2
18. Noiseestimates indicate that the projectwill conformwith Chinese standards and World Band guidelines.
OperationalImpacts
(a) Substations
19. Five substations will be constructed in conjunction with the above transmissionlines. They are Panzhihua, Honggou, Chengjaqiao,Changshou, Longwang, and the Zhaojue 550-kV Switch Station. The initial total capacity is 5,250 MVA, but the final capacity will be 7,500 MVA.
20. It is anticipatedthat each 500-kV substationand switching station will have approximately 100 employees. SEPA will provide housing for the employees and their families. Dormitories will be provided near the station for single employees and housing near town will be provided for families. An average of 24 m2 of living area will be provided per person. The total living area for each station will be approximately0.5 ha.
21. The project constructionarea will a approximately2.9 ha, 1.2 ha for living areas, and 1.7 ha for working areas. A total of approximately590 employees will be required for project construction. 350 people wouldcome from the civil work construction company, and 240 people would come from the equipment installationcompany.
(b) Forests and EconomicallyImportant Trees
22. In China, the regulations stipulate that, when a transmission line passes through forest land, a cleared right-of-waymust be established with a width that must be at least two times the width of the line plus the height of the trees. However, the felling of trees destroys the ecological balance and may cause soil erosion. The protection of forest resources is an important policy of China, and therefore, the need for clearing of forests for transmission lines was kept to a minimum during the development of the alignment. Where possible, selectivecutting techniquesor other avoidance measureswill be utilized.
23. In China, transmissionlines are not permitted to pass through designated scenic locations or natural conservationzones unless there is no other alternative. The selection of transmission alignmentsshould also avoid passing through areas of virgin forest and economicallyimportant trees. Triangularly arranged steel towers can reduce the width of the transmissioncorridor by 13 to 15 m compared with that of parallel arranged steel towers. Thus, it is planned that triangularly arranged towers be utilized in forested and densely populated areas because they can decrease by 20 to 30 percent the required removal of trees and buildings. In mountainareas, if the net height of the lines above the valley trees is over 30 m, the trees may not need to be cut. - 123 - ANNEX 5.2
(c) Wildlife and Vegetation
24. As mentionedabove, there are some rare animals and plants in the mountain areas through which the line has to pass. For their protection, China has defined the area of critical habitat for several endangered species in the project area as the Da Feng Ding Natural ConservationZone. This zone containselevations in excess of 4,000 meters, and giant panda and other endangered species are found there in the bamboo forest at high elevations. There are also reports of a few tigers still present. Based on the national environmentalprotection policies, the selected transmissionalignments were designed to avoid the natural conservationzone for the protection of panda and other rare species by a minimumof 5 km from the boundary of the zone, and are located near roads at a lower elevation than the significant habitat for panda and other endangered species. The minimumdistance from the transmissionline alignmentsto the bamboo forest home of the panda is 16 km.
(d) Farmland
25. Accordingto national land laws, the land occupied by the tower foundation shall be expropriated. Becauseof the nationalpopulation explosion and the importanceof maintainingfarmland in production, it is important to minimizethe use of farmland for the project. The 500-kVpower systemof Sichuan is still weak. Therefore, to ensure greater reliability, double circuit towers are not allowed. The selected transmission alignments avoid impacting farmland to the maximumpractical extent. Some 80 percent of the Ertan to Zigong transmissionline is through mountainousareas where uncultivatedland is about 60 percent of the area, and only 5 percent is cultivated land. The remaining 35 percent is forest land where cutting will be minimizedto the extent practical.
(e) IndustrialFacilities and Mineral Resources
26. Chinese design criteria stipulate the required safe distances between a transmission line and potentially dangerous facilities, as well as from factory buildings, storehouses, etc. The minimumsafe fire protection distancebetween the transmissionline and any first class dangerousworkshop, storehouse, and combustiblematerial stockyards, as well as combustible gas storage tanks cannot be less than 1.5 times the height of the tower. The fire protection distance between the transmission line and workshops that discharge combustiblegas cannot be less than 30 meters.
27. Furthermore,there are basic requirementsfor transmissionlines approaching or crossing highways, railways, river, telecommunicationlines, power lines, etc. These requirementshave been followedin the design of the transmissionline. The route should also avoid passing over mineral deposits that potentiallycould be exploited.
28. The transmissionlines will be designedin such a fashion that the maximum electric field strength at ground level will be 9 kV/m and the maximumnoise level (rainy days) will be 62 db(A). There are no Chinese or World Bank standardsfor electric field strengths, but the maximum value is considered safe (within the limits experienced by using an electric heatingblanket) and is expectedto cause only minor damage to plant life. - 124 - ANNEX 5.9
Additionally,the populationalong the transmissionline will be relocated, so no one in the area should be permanentlyexposed to the maximum field. The electric field intensity diminished rapidly with distance and should not present a problem to local residents. Noise levels on the average comply with World Bank and Chinese standards. The rainy day extreme, evaluated at the point of maximumintensity (underneaththe power line) is 62 db(A), slightlyhigher than the Chinese nor [60 db(A)]. Where most of the people live, noise levels have been determinedto be 45-50 db(A), which is within the Chinese norm and World Bank guidelines. Both electric field and noise monitoring along the transmissionroute are part of he overall monitoringprogram.
C. MrITGATIONMANAGEMENT AND MON1TORING PLAN
29. The main characteristicsof the project area are high elevation and heavy ice and snow. The correspondingpreventive measuresare considered in this report and will be comprehensivelyaddressed at the preliminary design stage of the project. As for the interferenceproblems of electromagneticfield on the overhead communicationlines along the same route, they can be solved by changing the communicationline to optic fiber cable. An environmental protection facility will be established to conduct the environmentalmonitoring programs and supervisethe implementationof the preventive or mitigation measures.
General Considerations
30. BesidesSEPA, the organizationsresponsible for the environmentalprotection of the project include: Panzhihua Electric Engineering Bureau, Xichang Electric Engineering Bureau, Loshan Electric Engineering Bureau, Yibid Electric Engineering Bureau, and Zigong Electric EngineeringBureau. They are charged with the monitoring of both the project and the environment in order to identify, and correct, potential problems. The main monitoringitems include:
Meteorological Observation Station
31. The ice observation station was established in 1982; the monitored items include: air temperature, humidity, precipitation, ice cover, inductive current of ice and water, wind velocity and direction, etc. The main purpose is to forecast the ice covering on the line. The observationswill continue.
Earthquake Forecasting
32. The earthquakeobservation stations along the transmissionline will forecast the possibilityof an earthquake.
ESDD Observations
33. Twenty ESDD observation stations have been established along the alignmentto determine air qualityand level of significantpollution and identify the likely effects on the insulators of the transmissionline. - 125 - ANNEX 5.9
Monitoringof Health of Humans and Domestic Animals
34. The environmental protection facility will monitor the condition of the vegetation,wildlife, and fish along the transmissionalignment in order to identify potential problems, thus protect the environmentfrom unnecessarydamage.
Monitoringthe Electromagnetic-EnvironmentalCompatibility
35. The ground electric field, radio interference,radio signal field intensity,and corona audible noise, will be monitored.
EstimatedExpenditures for EnvironmentalProtection Mitigation and Monitoring
36. Estimated annual expendituresfor environmentalprotection mitigationand monitoringare given in Table 1. Until the Ertan Project goes on line, these costs will be includedas part of the overall constructioncost. After that, the program will continue and will be paid for from operatingrevenues.
Table 1: EsrMATED ANNUAL EXPENDrTURES FOR ENVIRONMENTAL PROTECTION MIGATION AND MONITORING
Item Estimated Expenditure (10,000 Yuan)
MeteorologicalObservation 15 Earthquake Observation 5 ESDD Observationof Insulators 23 Organismand Human Health Monitor 10 Vegetation,Wild Animal, & Fish Monitor 5 ElectromagneticEnvironmental CompatibilityMonitoring 20
Toita - 126 - ANNEX 5.10
LAND ACQUISITION AND RELOCATION
Scope of Relocation
1. The Sichuan Power TransmissionProject includes construction of a new 500-kV network consisting of about 2,300 kilometers (km) of transmission lines, five transformersubstations (5,250 MWA)and one switchingstation, and reinforcementof the existing 220-kV transmissionnetwork. The componentsinvolve a certain amount of land acquisitionand relocation of existing residents. According to the relocation action plan prepared by SEPC, the project will acquire a total of 163 hectares (ha) of land, demolish 290,557 square meters (m2 ) of floor space, and relocate 1,991 householdsor 8,126 people (Table 1). In addition, as many as 81.4 ha of land will be required temporarilyduring the project construction.
Table 1: SCOPE OF RELOCATIONOF SICHUANPOWER TRANSMISSIONPROJECT
Number of Amount of Amount of Number of relocated removed land people Item households floor space acquisition affected (m2) (ha)
500-kV transmission lines (2,052 km) 1,982 289,117 106.0 8,094
Shaojue switch station 0 0 4.9 0
Five transformer stations 9 1,440 52.0 32
Total 1.991 290,557 162.9 8,126
Source: SEPC.
(a) TransmissionLine
2. The project includes four sectionsof 500-kV transmissionline located in the southwestpart of the project. The first section of the transmissionline is from the Ertan HydroelectricPower Plant to the City of Zigong, with three separate circuits at 470 km - 127 - ANNEX 5.1 each. The second section is from Ertan to the City of Panzhihua. The third and fourth sections are from Zigong to two major power consumptioncenters in Sichuan: Chengdu and Chongqing,with a total length of 704 km. The project will involve 6 cities and 13 counties. According to the design requirement,all houses within40 meters (m) wide zone under the transmissionline will be removed. Generally, the relocated householdswill be allowedto rebuild their housesnear the original locationswithin the same villages. During the construction,some standingcrops will be damaged. But farmlandunder the power line does not need to be permanently acquired; only a small amount of land area will be acquired for the foundationof the towers, which average 1.3 mu or 0.08 ha per 1 km of transmissionline. According to the preliminary estimate, as many as 1,991 households will be relocated, and a total of 289,117 m2 of houses will be removed (Table 2). The affected people will be given replacement compensation at Y 80-150/n9 along with residentialplots providedby the same villages. The cost for providing the new residential plots will also be paid by the project. The transmissionlines componentwill be gradually implementedin the next seven years. At present, only those circuits between Ertan and Zigong have completed engineeringdesigns, while the alignments for the other sections of the transmissionlines have not yet been finalized. As a result, in terms of the scope of land acquisition and demolition for those sections, only a preliminary estimate is provided. But compensationpolicies and standards adopted will be applied in all these sections.
Table 2: DEMOLMTION AND RELOCATION ALONG 500-KV TRANSMIsION LINE
Length Households of the to be Land Demolished Affected Line component line removed acquired floor space population (km) (ha) (m2)
Ertan-Zigong 1,410 795 80.3 98,626 3,390
Panzhihua-Ertan 45 5 2.6 551 21
Zigong-Chengdu 380 686 13.1 112,480 2,744
Zigong-ChongqingLa 262 496 10.0 77,460 1,939
Total 2097 1.982 106.0 289,117 8.094
La It also includesa section from Chongqing to Changshou: the same situation as in Zigong-Chengduline.
Source: SEPC. - 128 - ANNEX 5.10
(b) Substations
3. The Sichuan Power TransmissionProject also includes constructionof six substations (one switch station and five transformer stations), which are in six different cities or counties. Accordingto a preliminary survey, the constructionof these substations and access roads will acquirea total of 56.9 ha of land area, which will demolish 1,440 n2 of floor space and displace nine householdsand 32 persons (Table 3). Most of acquired land is low-yield farmland, with 80 percent being dryland and the rest of them as paddy field. The requisition of farmland will also lead to job relocation for certain farmers. Based on experienceof similar projects at these locations, the number of labor relocations caused by farmland acquisitionis estimatedat 741. The local county or city labor bureaus will be responsibleto assign nonfarmjobs for them. Most of them will be able to work in local township and village enterprises.
Table 3: LAND ACQULSMON AND RELOCATION AMONGSix SUBSTATIONS
Households Land Demolished Estimated to be acquired floor space labor Items relocated (ha) (i 2) relocation
Shaojue Switch Station 0 4.94 0 37
500-kV transformer stations at: PanzhihuaCity 2 (6) 9.97 252 75 Honggou 2 (7) 8.22 325 123 Longwang 1 (4) 10.61 126 150 Chenjiaqiao 1 (5) 11.14 205 167 Changshou 3 (10) 12.00 532 189
Total 2 2 5-6-8 1440 741
Source: SEPC.
Purpose and Strategy of Resettlement
4. For the project office, one main objective of resettlement efforts is to minimizethe scope of resettlementthroughout the project design and planning. In order to achieve such an objective, four basic principleshave been followedin determining the final alignment, which include (a) avoiding industrialenterprises and major infrastructure facilities; (b) avoiding village settlements,urban area and individualhouses; (c) avoiding good-qualitycultivated land; and (d) forbidding relocation of any ethnic minorities in the region and protecting their cultural identity and local tradition. For example, for the transmission line component, during the survey and design stage, the engineers worked - 129 - ANNEX 5.10
closely with resettlement experts. They walked through the alignment and made many routing changes to avoid significantrelocation. For the substation components, similar efforts have also been made in the process of site selectionin order to avoid demolishing houses or acquiring good-qualityfarmland.
5. For those demolitionsor land acquisitionsthat could not be avoided, proper compensationand resettlementwill be carried out so that the living standardof the affected population could be restored or even improved. For the 1,982 households whose houses are to be removeddue to the constructionof transmissionlines, they will be able to rebuild their houses within the same villages not far from the existing site, averaging 100 to 200 m. Since the scale of demolition and relocation is within a short distance and relativelysmall in each county or township, and since local govemmentwill be responsible to coordinate relocation and resettlementprocesses, no major impacts on social, cultural or productionactivities will be expectedon the local communities,except for short-term inconvenience. During the line installation,a certain amount of damage on standingcrops may occur, which will be compensatedaccording to local regulations. Based on past experience, because the process always results in significant improvement of housing conditionsfor the affected populationand economicbenefits for the local economy, local communitiesgenerally welcome the project passing through their territories.
6. In order to ensure smoothimplementation of the resettlementprogram, one important step is to develop a detailed resettlement action plan based on extensive consultationwith local governmentregarding compensation standards and baseline surveys. For the transmissionline component,because of relativelysmall-scale land acquisitionand relocation within each county or township, there is no surplus labor problem after land acquisition. Since most farmland within the right-of-waywill still be owned by the local villages, no major disruption of local economy is expected. In the case of substations, since land acquisition is more concentratedin one location, labor compensationmay be required. One typical approach is to provide nonfarmjobs in local township and village enterprises. In addition, as part of the resettlementpolicy, SEPC will give the affected population high priority to be employed as transmission line maintenanceworkers and temporary constructionworkers.
Legal Framework
7. Forming the legal basis for land acquisitionand resettlementof the Sichuan Power Transmission Project are both laws or regulations from the state, and implementation measures from provincial and local municipalities. The state laws or regulations include: "Land AdministrationLaw" (1986) and "AdministrativeRegulation of Urban BuildingDemolition and Relocation"(1991). The local implementationmeasures include: "SichuanProvincial Implementation Regulation of the Land AdministrationLaw" (1987), which specifies that during land acquisition, "construction unit has to pay land compensation, young crop compensation, labor compensation, and attached property compensation," and various related regulations or decrees adopted by local municipal or county governments. - 130 - ANNEX 5.1
8. Under this project, since most land acquisitionand relocation will take place in rural areas, most such activities will be govemed by both the "Land Administration Law" and its local implementationmeasures. According to the "Land Administration Law," section 1, article 2: "for the public interest, the state could expropriatecollectively owned farmland." The essence of the policy is that when the state acquires farmland, the land-using units will pay not only a basic compensation for land, crop and attached properties, but also a job resettlementsubsidy (articles 23 and 24 of "Sichuan Provincial ImplementationRegulation of the Land AdministrationLaw"). The other type of land acquisitionis to acquire land use rights within the urban built-uparea, such all urban lands are owned by the state. In this case, according to "AdministrativeRegulation of Urban Building Demolition and Relocation," the construction unit has to provide adequate compensationor resettlementhousing for the displacedfamilies and affected enterprises.
9. The job resettlement compensationfor cultivated land acquisition will be determinedaccording to the existingratio of amount of cultivatedland per person. If the existing villages with per capita of cultivated land above 1 mu, the resettlement compensationwill be set at three times the average annual output value per mu in the three years before land acquisition. If the per capita land area is below 1 mu, the resettlement compensationwill be paid at four times the average annual output value. With a reducing per capita cultivated land ratio, the resettlement compensationcould increase up to 10 times the average annual output. If the land compensationand resettlement subsidy still cannot guarantee the farmer's original living standard according to regulation, the total land compensationand resettlementsubsidy may be increased to a level no more than 20 times the average annual output value per mu in the three years before acquisition. A detailed breakdownof the land acquisitioncompensation is presented in the next section.
10. The compensation earmarked for resettlement will be used to generate employmentfor displaced laborers or to provide pensions for the elderly. The country governmentthrough its land administrationbureau will be responsiblefor creating nonfarm jobs for the affected farmers, or assisting local township and village enterprises to hire displacedvillage laborers.
11. Among various items in land compensation,only young crop compensation and attachedproperties will be paid directly to individuals. The rest of land compensation and resettlement subsidywill all be paid to townshipsand villages, which can be used for a wide range of purposes that serve the communityor can be distributed as stipends for those who are too old to work. By law, accounts must be kept of all village/town funds, includingresettlement compensation. Financialreports have to be provided annuallyto the next higher level of government. - 131 - ANNEXS. 10
Compensation Determination and Payment 2/
12. The site selection and land acquisition for both the transmission line and substationscomponents were approved by relevant city and county departments in 1993. In 1994, the concerned cities and countieshave also adopteddetailed decrees that specify detailedcompensation policies and standardsfor land acquisition,building demolition, and lost crops, and trees, etc. A list of such decrees for all affected counties is attachedin the resettlement action plan.
13. For example, land compensationfor the tower bases along the transmission line will be Y 5,000-21,000 per mu (noncultivatedland will be 50 percent of cultivated land).
14. In terms of cash crop compensation:
- young crop: Y 300-900 per mu; - forest trees: Y 8-12 each; - bamboo: Y 0.2-0.4 per kg.
15. For building compensation:
- wood and brick structure: Y 60-130 per n2; - wood and mud structure: Y 40-80 per in2.
16. For the purpose of estimatingtotal land acquisitionand resettlement cost, a comprehensivecompensation cost is used based on current practices in the affected counties. Here, comprehensivecost for land includes cost for land compensation,labor compensation and young crop compensation. The comprehensive cost for building compensationincludes house constructioncost, transfer assistance, land adjustmentcost, as well as basic infrastructurecost. The comprehensivecost for land is Y 7,000-20,000 per mu; and the comprehensivecompensation for building is Y 80-150 for a brick and wood structure;and Y 60-100for mud and wood structure. For some substationsites, due to the relatively large number of nonfarm jobs to be provided, the resulting land compensationcould be as high as Y 53,000 per mu.
17. The compensationfor land will be given to affected villages, which could be used to develop the village economy, social facilities, or distributed directly to all members within the villages. (All cultivated land within the affected villages will be redistributedafter land acquisition.)
2/ Thesecompensation standards may varyamong different cities or counties. They are at least serving as referencefor negotiatingfinal compensationamounts. In general,the negotiatedcompensation amountsare muchhigher than these standards. - 132 - ANNEXS. 10
ResettlementInstitutional Responsibility
18. In order to effectively implement the land acquisition and resettlement program, a land acquisitionand resettlementleading group has been set up, which is made up of 4 to 5 staff from SEPC as well as the Southwest Electric Power Design Institute (SWEPDI). The mainresponsibilities of the leading group is to provide overall leadership and coordination during the process of resettlementplanning and implementation,which include:
(a) participating in the process of preliminary design and alignment selection, including surveys of land acquisitionand affected households, consultation with local communities;and estimationof compensationcosts;
(b) participating in the finalization of alignment design in the field with SWEPDI, includingverifying area of land acquisition, number of affected households, and other lost properties; and formulating "Project Land Acquisitionand BuildingDemolition Table," which will be the basis for the resettlement implementationplan;
(c) discussingwith relevant local governmentagencies on various compensation policiesand resettlementprograms, which will then be formulatedinto local decrees issues by the local governments;
(d) negotiating compensation and rehabilitation contracts with affected communities,particularly for all substations;and processingland acquisition applicationswith provincial and affected county land bureaus; and
(e) supervising and coordinating individual contractors in implementing the resettlementaction plan. While SEPC and contractors will be responsible to provide adequate compensationand coordinate rehabilitation, certain aspects of resettlement, such as land readjustment, housing plot allocation and approval, and reclamation of cultivated land, will be carried out by local governments.
19. For land acquisitionand demolitionunder the transmissionline component, due to the small size of impacts and nature of the project implementation,negotiation and implementationof compensationcontracts will be carried out by individual construction contractors. Because of this practice, in China, the construction contractors for transmission lines are always equipped with an experienced land acquisition and resettlementteam. In addition, each constructionteam within a contractor also has one or two people with resettlementexperience. The Bank missionvisited someresettlement sites along the Zigong to Chongqing Line, and found that resettlement implementationwas handled satisfactorilyby the contractors. Under the leadership of SEPC and the land acquisitionand resettlementleading group, the responsibilitiesof these contractorsinclude: - 133 - ANNEX 5.1
(a) participating in the formulationof "Project Land Acquisitionand Building Demolition Table" with design institution, and based on such document, developingrelevant resettlementimplementation plans;
(b) holding meetings with officials from affected counties, townships and villages to exchange views on the scope of resettlement, compensation policies, and implementationarrangements;
(c) negotiatingcompensation contracts of rehabilitationmeasures with affected townships, villages and individual households. A number of samples of such contracts are included in the resettlementaction plan; and
(d) implementing the resettlement programs, and dealing with issues and complaintsraised by affected farmers.
20. During the resettlementimplementation, in additionto SEPC and individual contractors, the relevant local governmentagencies will also be involved, which include allocation and approval of new residential plots, readjustment of farmland within the village and assigningnonfarm jobs for the surplus farm laborers.
Consultationand GrievanceProcedure
21. The resettlement planning and implementationprocess involves constant consultationwith local communitiesand individuals,from investigatingthe land acquisition and buildingdemolition, to negotiatingthe compensationand rehabilitationpackages. The agreed contracts are alwaysthe product of mutualagreement. If an affected person is not satisfied with the compensationpackage or if, for any reason, the compensationdoes not materialize according to the agreed schedule, he or she could go through a grievance procedure specified in the resettlementaction plan. In general, there are three different ways for anyone to resolve his grievance. The first approach is to voice his or her complaintsto the responsibleresettlement offices at townshipor county levels. Since these resettlementoffices are made of representativesfrom all relevant departments, they are in much better position to resolve issues brought by affected individuals. If the person found that such discussiondoes not yield any results, then he could bring his case to the relevant construction contractors or the "Public Complaint Office" of SEPC. The "Public Complaint Office" has been widely used in China to address issues raised from local governmentdecisions or policies. The staff from that office, after hearing the complaint from the affected individual, will arrange meetings with responsibleagencies and resolve the dispute. If such meetings do not bring any result, they could directly call attention from the governor. Finally, if the affected persons are still not satisfiedwith the rulings from the above two channels, he could, within 15 days, request an administrativereview of the case by the same or higher level of government,or to appeal directly in court. This will follow the procedure of administrative appeal, since most land acquisition and compensationdecisions are determinedby local governmentregulations or policies. - 134 - ANNEX 5.10
Budget and Timetable
22. Based on preliminary budget projections, resettlement costs will total approximatelyY 140.41 million (see Table 4). This includes a 10 percent reserve fund and a 24 percent inflation contingency. In addition, a detailed cost breakdown for all project components, including both unit cost and total amount is included in the resettlementaction plan. Table 5 presents an implementationschedule of land acquisition and resettlement for each project component. As the table shows, the overall land acquisitionand resettlementwill be completedwithin five years (1995-99). A much more detailed schedule for Ertan to Zigong (a), indicating the different steps involved for implementingthe relocation and resettlementprogram was included in the resettlement action plan.
Table 4: RELOCATIONCoSw EsgIMATEFOR SICHUANPOWER TRANSMISSION PojEer (Y million)
Transmission Substation Items line component component Total
Building demolition 33.07 0.17 33.24 Land acquisition 19.61 36.35 55.96 Temporary land leasing 1.66 0.67 2.33 Labor compensation 0.00 8.16 8.16 Young crop compensation 2.58 0.00 2.58 Standing tree compensation 3.87 0.00 3.87
Subtotal 60 80 45L3 106.16
Reserve fund 6.08 3.27 8.35 Inflation contingency 18.90 7.00 25.50
Total 878 546 140.11
Source: SEPC.
Monitoringand Evaluation
23. By signing the contract with the China Electric Power Construction ConsultancyGroup-Southwest Company, a consultancyarm of SWEPDI, the project has establisheda resettlementmonitoring and evaluationteam. The SouthwestCompany has extensiveexperience in designingtransmission line projects, includingboth engineering and resettlementcomponents, and was involved in the early survey of land acquisition and resettlement for this project. The main responsibilities of the monitoring team is to - 135 - ANNEX5.10
Table 5: IMLEMENTATIONSCHEDULE FOR 500-KV TRANSMISSON IJNE AND SUBSTATIONS
Land acquisition Building relocation
Ertan-Zigong I Sep 95 - Mar 96 Apr 96 - Jun 97 Ertan-Zigong II Apr 96 - Dec 96 Jan 97 - Mar 98 Ertan-Zigong III Jan 97 - Sep 97 Oct 97 - Dec 98 Zigong-Chengdu I Oct 96 - Jun 97 Jul 97 - Mar 98 Zigong-Chengdu II Oct 97 - Jun 98 Jul 98 - Jan 99 Zigong-Chongqing Jan 96 - Sep 96 Oct 96 - Jun 97 Chongqing-Changshou Jan 98 - Sep 98 Oct 98 - Jun 99 Ertan-Panzhihua Oct 97 - Jun 98 Jul 98 - Mar 99
Shaojue Switch Station Oct 95 - Mar 96 Panzhihua Transformer Station Jan 97 - Aug 97 Honggou Transformer Station Jul 95 - Mar 96 Longwang Transformer Station Jul 96 - Mar 97 ChenjiaqiaoTransformer Station Apr 95 - Dec 95 ChangshouTransformer Station Oct 97 - Jun 98
Source: SEPC. monitor the implementationof land acquisitionand resettlement for the Sichuan Power Transmission Project, and to provide evaluation reports to SEPC. The objective of monitoring and evaluation is to ensure that the resettlement program is implemented smoothlyand to see whether resettledpeople restore their living conditionand incomelevel after relocation. A detailedwork plan for carrying out the monitoringand evaluationhas been developed,which included CVs for key staff, the objective, main contents, and basic approach. In addition, it also specified the reporting format and schedules during the project implementation. - 136 - ANNEX 5.
BANK SUPERVISION INPUT INTO KEY ACTIVITIES
Approximate Expected skill Staff inputs dates Activity requirements (staff-weeks)
09/95 SUPERVISION MISSION Engineering 5.0 Project Implementation Financial analysis Start-up Procurement Environment Compensation/social experts
06/96 SUPERVISION MISSION Engineering 4.0 Status of the Project Financial analysis
06/97 SUPERVISION MISSION Engineering 5.0 Status of the Project Economic/financial analysis Environment
06/98 SUPERVISION MISSION Engineering 4.0 Status of the Project Financial analysis Execution of the Studies
06/99 SUPERVISION MISSION Engineering 4.0 Status of the Project Financial analysis Environment Compensation/social experts
06/2000 SUPERVISION MISSION Engineering 4.0 Status of the Project Financial analysis
06/2001 SUPERVISION MISSION Engineering 4.0 Status of Project Completion Financial analysis and compliance with covenants
02/2002 SUPERVISION MISSION Engineering 5.0 Preparation of PCR Economic/financial analysis
Note: Supervision missions will be coordinated with other Bank-financed power projects in China. - 137 - ANNEX 5.12
FRAMEWORK FOR PROJECT MONITORING AND REPORTING
1. Framework for project monitoring would be discussed and agreed with SEPC. Monitoring will take a series of target dates for major events in the project implementation program (Annex 5 7.
2. Key indicators for development impact monitoring, inter alia, include:
(a) implementation of the Action Plan to commercialize SEPC;
(b) reform of SEPC's accounting and financial management systems;
(c) adjustments in the level of power tariffs;
(d) separation of government functions from SEPC; and
(e) provision of technical assistance to help implementation of the Action Plan.
3. Records of selected performance indicators would be maintained by comparing the forecast against actual results for:
(a) activities of engineering consultants;
(b) procurement, i.e., preparation of bid documents, bid opening, contract awards;
(c) environmental management program implementation;
(d) construction progress;
(e) progress in staff training;
(f) progress of studies;
(g) energy production and purchases;
(h) maximum demand;
(i) electricity consumption;
() power losses; - 138 - ANNEX 5. 12
(k) quality of power supply;
(1) number of outages and their duration;
(m) number of customers by category;
(n) staff statistics;
(o) tariff levels and movements;
(p) changes in project cost estimates and related financing;
(q) rates of return on revalued net fixed assets;
(r) self-financingratio;
(s) operating ratios;
(t) debt/equity ratios;
(u) debt service coverage; and
(v) current ratio. - 139 - ANX 6.1
ACTUAL FINANCIAL STATEMENTS OF SEPC (199093)
Table 1: INcOME STATEMENT (Y million)
Yr Ended December 31 1990 1991 1992 1993
Oeratina Revenues Sales Increase (%) 5.4 7.2 7.4 12.3 nerwgySales (GWh) 23,152 24,809 26,635 29,906 Average Price (fenAlWh) 10.62 13.21 15.49 20.55
Total Onerai2 Revenues 2.458 3.277 4,127 6.146
92M&tin Costs Fuel 764 816 795 1,034 Purchased Power 197 506 1,204 2,462 Operation & Maintenance 317 415 515 943 Administration 110 133 177 297 Sales Tax 496 561 603 693 Deprociation 207 270 297 323
Total OReratine Costs 2.091 2.700 3.590 5.751
ODREAmrtinQIcme 368 577 536 395
Other Income (Losses) (2) (16) (37) 3 Interest Chrged to Opertion 0 0 0 92
Not Income Before Income Tax 366 561 499 307
Income Tax 249 261 251 146
Not Income 117 300 248 161
Rate of Retum on Average Net Fixed Assets in Sevice 2.9 7.3 5.3 4.0 - 140 - ANNEX 6.1
Table 2: BALANCE SHEa= (Y million)
Year Ended Decmber 31 1990 1991 1992 1993
ASSETS Curreat Aseb Cash 484 710 1,216 1,178 Inventories 335 285 384 404 Accounts Receivable 982 1,264 1,207 1,055
Total Current Assets 1.801 2.260 2.807 2.637
Fixed A- st Plant in Service 6,134 6,542 7,139 12,021 Les: Accumulated Deprociation (2,103) (2,376) (2,456) (4,152)
Net Plant in Service 4.032 4.166 4.684 7.869
Construction WIP 2,623 5,284 6,234 7,734
Total Fixed Assets 6.655 9.450 10.918 15.603
Deferred and Intangible Assets 30 42 101 214
Total Ases8.485 11.751 13.82 18.454
LIABILMTES &EOUITWY Curfent Liabilities Accounts Payable 1,273 1,484 1,931 1,813 Short-term Liabilities 43 31 51 134 Other Payable 239 360 392 174
Total Current Liabilities 1.55 1.75 2.21
Long-term Liabilities 3,700 6,202 7,382 9,454
Equity 3,230 3,675 4,071 6,880
Total Liabilities & Eauity 8v485 11.751 13.826 18.454
Long-term Debt % as of LT Debt and Equity 53.4 62.8 64.5 57.9 Current Ratio 1.16 1.21 1.18 1.24 - 141 - ANNEX 6. 1
Table 3: FUNDs FLOW STATEMENT (Y million)
Year Ended December 31 1990 1991 1992 1993
SOURCES OF FUNDS Internal Cash Generation Net Income 117 300 248 161 Depreciation 207 270 297 323 Connection Charge 53 67 120 257
Total Internal Sources 377 638 666 741
Other Bank Borrowings 734 2,804 1,386 1,759
Total Sources of Funds 1.110 3.442 2.051 2.500
APPLICATIONS OF FUNDS Capital Expenditure 880 2,827 1,596 1,954
Operational Reauirements Changes in Worling Capital (147) (86) (457) 121 Changes in Connection Charge Funds 10 6 12 26 Loan Repayment 193 306 252 357
Total Operational Reauirements 56 226 f12i9
Total Applications of Funds 936 3.053 1.402 2.458
In(de)creases in Cash 174 389 649 42
Annual Debt Service Coverage (times) 1.7 1.9 2.2 1.3 FORECAST FINANCIAL STATEMENTS OF SEPC (1994-2003)
Table 1: PROJEcTED INCoME STATEMENT (Yuan Million)
Year Ended December 31 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Sales Increase (%) 10.3 10.7 9.0 9.1 9.1 7.4 7.0 6.9 7.1 7.1 Energy Sales (100 GWh) 330 365 398 435 474 509 545 583 624 668 Average Price (fen/kWh) 24.50 28.99 32.93 37.17 41.23 47.90 55.76 58.52 58.79 64.94 SEPC's Own Avg. Price (fen/kWh) 20.10 25.71 29.94 34.47 38.65 45.17 53.00 54.48 53.26 60.84 Purchased Power's Avg. Price(fenlkWh) 32.54 35.66 39.45 43.17 47.25 54.31 62.70 68.25 72.29 77.48
Sales Revenue 8.082 10.590 13.118 16.151 19.549 24.394 30.384 34.090 36,671 43,378 OmeatingCCosts Fuel 1,404 1,809 2,194 2,420 2,741 2,993 3,264 3,664 4,334 5,188 Purchased Power 3,031 3,517 4,235 5,261 6,449 8,679 11,320 13,002 13,926 14,622 Operation & Maintenance 1,153 1,379 1,535 1,978 2,343 2,861 2,933 4,052 4,764 5,634 Administration 352 407 466 529 597 674 776 892 1,026 1,180 Sales Tax 530 774 989 1,260 1,548 1,914 2,390 2,631 2,763 3,550 Depreciation 391 471 649 776 969 1,410 1,731 2,081 2,378 2,788
Total Operating Costs 6,860 8.358 10.068 12.224 14.647 18.531 22.414 26.323 29.191 32.963 Operatine Income 1.222 2.233 3.049 3.927 4.902 5,863 7.970 7.768 7.479 10.416
Nonoperation Income 3 4 4 4 4 5 5 5 6 6 Interest Charged to Operations 491 731 836 889 966 1,266 1,656 1,799 1,556 1,710
Net Income Before Income Tax 734 1505 2.217 3.042 3.940 4,602 6.319 5 974 5,930 87
Income Tax 242 497 732 1,004 1,300 1,519 2,085 1,972 1,957 2,875
Net Income 492 1.008 1.485 2.038 2.640 3.083 4 234 4.003 3.973 5,837 Table 2: PRojECD BALANCE SHEET (Yuan Million)
Year Ended December 31 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
ASSETS Current Assets Cash 1,228 792 537 317 193 595 1,259 1,854 2,381 3,194 Inventories 492 626 739 889 1,167 1,403 1,670 1,926 2,257 2,668 Receivables 1,437 1,765 2,077 2,243 2,444 2,710 3,038 3,125 3,056 3,615 Total Current Assets 3.157 3.182 3.353 3.449 3.804 4.709 5.967 6.905 7.694 9.477 Fixed Assets Plant in Service 13,363 16,332 18,442 21,659 29,012 34,352 40,195 45,137 51,980 60,793 (less) Accum. Depreciation 4,543 5,014 5,664 6,440 7,409 8,819 10,549 12,631 15,008 17,797 Net Plant in Service 8.820 11.318 12.778 15.219 21.604 25.533 29.646 32.507 36,972 42.997 Construction WIP 9,636 10,611 13,531 16,438 16,009 17,106 18,804 23,044 26,457 27,302 Total Fixed Assets 18.456 21.929 26.310 31.657 37,613 42.639 48,450 55.551 63.429 70.299 Intangible and Deferred Assets 214 214 214 214 214 214 214 214 214 214 TOTAL ASSETS 21.827 25.325 29.876 35.319 41.630 47.562 54.630 62.670 71.337 79.989 LIABILITIES Current Liabilities L-T loans due in 12 months 1,292 1,500 1,744 1,942 2,619 3,461 3,346 3,541 4,887 5,376 Accounts Payable 1,435 1,593 1,807 1,936 2,071 2,589 3,208 3,657 4,017 4,491 Short-term Loans 150 163 176 189 201 214 228 243 259 276 Due to Government 195 213 230 246 263 280 298 317 338 360 Total Current Liabilities 3 072 3 469 3 957 4.313 5.154 6 544 7 079 7 758 9.500 10.501 Long-term Debt 11,147 13,027 15,408 18,281 20,958 22,266 24,481 27,689 30,431 32,152 Equity 7,607 8,829 10,511 12,724 15,518 18,751 23,070 27,223 31,405 37,335 TOTAL LIABILITIES & EOUITY 21.827 25.325 29.876 35.319 41.630 47.562 54,630 62.670 71.337 79.989 Debt as % of Debt & Equity 59.4 59.6 59.4 59.0 57.5 54.3 51.5 50.4 49.2 46.3 Current Ratio 1.3 1.2 1.1 1.0 1.0 1.0 1.1 1.2 1.1 1.2 Table 3: PROJECE FUD6 FLow STATEMENT (Yuan MiLion)
Year Endd Decmber 31 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
SOURCESOF FUNDS nqt_eaSOucS Of fud Net Income 492 1,008 1,485 2,038 2,640 3,083 4,234 4,003 3,973 5,837 Depreciation 391 471 649 776 969 1,410 1,731 2,081 2,378 2,788 Distribution Imprv. Funds 283 311 343 377 415 456 502 552 607 668 Total Internal Sources 1.166 1.791 2.477 3.191 4.023 4.950 6.466 6.636 6.957 9.293
n IBRD Loans 0 392 724 583 509 118 23 0 0 0 Ertan line PCBC Loans 21 459 1,257 1,470 1,276 815 657 300 0 0 Other Loans 2,558 2,102 1,650 2,082 2,599 2,903 3,975 5,263 5,946 5,271 IDC Borrowed 407 426 496 680 912 933 906 1,186 1,683 1,825 TotalBofings 2.986 3.379 4.126 41 5.296 4.769 5.561 6.749 7.629 7.097 TOTAL SOURCES OF FUNDS 4.152 5.169 6.603 8.006 9.319 9.719 12.027 13.384 14.587 16.390 APPLICATION OF FUNDS CaD1ta1E3"ditre ProposedErtan-line Project 21 851 1,981 2,053 1,785 933 680 300 0 0 Other ConsbwtiOn 2,815 2,663 2,549 3,386 4,222 4,565 5,949 7,690 8,566 7,824 Interest During Cmstruction 407 426 496 680 912 933 906 1,186 1,683 1,825 Total Caital ExuenditUre 3 243 3.940 5.026 6.19 6.920 6.431 7L. 9.176 10.249 9.650 *OOna1 Re uirements Inc/dec in Working Capital 37 272 182 158 315 (46) (56) (140) (135) 458 Inc/dec in Distribution Imprv. 0 4 4 5 5 6 6 7 7 8 Loan Repayment 774 1,292 1,500 1,744 1,942 2,619 3,461 3,346 3,541 4,887 Benefit FundsExpenditU 47 98 146 201 261 306 418 401 397 574 TotalOupctiot Requirements 858 1.666 1.832 2.108 2.524 2 885 3 828 3.614 3.811 5.927 TOTAL APPLICATIONSOF FUNDS 4.101 5 606 6.858 X26 MU44 9.316 11.363 12J790 14.059 15.577 Increase/Decreasein Cash 50 (436) (254) (221) (124) 402 663 Annual 595 528 813 Debt ServiceCoverage 1.1 1.1 1.3 1.4 1.6 1.5 1.5 1.5 1.6 1.6 Table 4: KEY FINANCIAL INDICAToRS (Yuan Million)
Year Ended December 31 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Energy Sales (100 GWh) 330 365 398 435 474 509 545 583 624 668 Average Price (fen/kWh) 24.50 28.99 32.93 37.17 41.23 47.90 55.76 58.52 58.79 64.94 SEPC's Own Avg. Price (fen/kWh) 20.10 25.71 29.94 34.47 38.65 45.17 53.00 54.48 53.26 60.84 Purchased Power's Avg. Price (fen/kWh) 32.54 35.66 39.45 43.17 47.25 54.31 62.70 68.25 72.29 77.48 Opeating Revenue 8,082 10,590 13,118 16,151 19,549 24,394 30,384 34,090 36,671 43,378
Opeating Income 1,222 2,233 3,049 3,927 4,902 5,863 7,970 7,768 7,479 10,416 Annual Capital Expenditure 3,243 3,940 5,026 6,119 6,920 6,431 7,535 9,176 10,249 9,650 Rate Base 8,345 10,069 12,048 13,999 18,411 23,568 27,589 31,076 34,740 39,984 Long-term Debt 11,147 13,027 15,408 18,281 20,958 22,266 24,481 27,689 30,431 32,152 Debt Service 1,265 2,023 2,336 2,634 2,909 3,885 5,116 5,145 5,096 6,597 Cash in Banks 1,228 792 537 317 193 595 1,259 1,854 2,381 3,194 LA
Rate of Return Historically Valued Assets (X) 11.8 17.3 19.3 20.9 19.6 18.5 21.3 18.7 15.9 18.9 Revalued Assets (%) 10.0 13.1 14.9 15.5 13.7 13.8 15.8 13.8 11.3 13.1 Self Financing Ratio (%) 7.1 0.0 10.0 15.0 20.0 25.0 30.0 30.0 30.0 30.0 Operating Ratio (%) 85.0 78.9 76.8 75.7 74.9 76.0 73.8 77.2 79.6 76.0 Debt/Total Capital (%) 59.4 59.6 59.4 59.0 57.5 54.3 51.5 50.4 49.2 46.3 Debt Service Coverage 1.1 1.1 1.3 1.4 1.6 1.5 1.5 1.5 1.6 1.6 - 146 - ANNEX 6.3
MAJOR ASSUMPTIONSFOR SEPC's FIANANCL PROJECTIONS
A. INcoMiE STATEMENT
1. Energy sales reflect SEPC's projected expansionprogram.
2. Tariffs are assumed to be adjusted so that the average revenues would be adequate for achieving the minimum financial performance targets.
3. General local inflation rates are assumed at 12 percent in 1994, 9 percent in 1995, 8 percent in 1996, 7.2 percent in 1997, 6.5 percent in 1998-99, and at 6 percent thereafter.
4. Fuel costs are based on 1993 actual price paid for coal and are assumed to increase by 5 percent per year in real terms and also to escalate with the projected local inflationrates.
5. Purchased power is based on 1994 actual purchased price and is assumed to increase with the projected local inflations for electricity from Huanen, small hydro plants, local power plants, and both intergrid and local transfers. Purchase price for electricity from power plants under Huaneng Corporation is based on "new plant, new price policy" and derived by full recovery of operating cost and debt service requirement. Purchase price for electricity from Lrtan Corporationwill be decided by the ongoing tariff study. 35 fen/kWh of 1994 price and increased with projected local inflation rates are assumed for projection purpose.
6. Operationand maintenancecosts based on 1993 actual expenses include payroll and materialsare assumedto increase by 10 percent in real terms and escalate with projected local inflationrates. Maintenancecost is assumed to increase per year by 2.5% of annual increase in the gross fixed assets.
7. Administrationcost is based on SEPC's 1993 actual expenditure and is assumedto increase by 6 percent per year in real terms with projectedlocal inflationrates.
8. Sales tax is assumed at the followingpercentage of each year's operating revenues: - 147 - ANNEX 6.3
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
6.6 7.3 7.5 7.8 7.9 7.8 7.9 7.7 7.5 8.2
9. Depreciationis assumed to be 6 percent of gross fixed assets in operation at the beginningof the year.
10. Incometax is expected to be assessed at 33 percent of taxable income.
B. BALANCESHEET
1. Inventoriesare assumed to increase per year by 3 percent of annual fixed assets additions.
2. Accounts receivable is assumed to decrease gradually from 64 days of average collectionperiod in 1994 to 30 days by 2002 onwards.
3. Accountspayable are assumed to decrease gradually from 88 days of costs for fuel, purchased power, and sales tax in 1994 to 60 days in 1998.
4. Constructionwork-in-progress reflects the aggregateconstruction work-in- progressof SEPC's own constructionunits and other constructionunits work as contractors for SEPC.
5. Due to Government is expectedto increase with the projectedlocal inflation rates each year.
C. FUNDSFLOw STATEMENT
1. Distribution Improvement Special Fund represents the receipts of consumer connectionsand is assumed to increase by 10 percent per year based on 1993 actual collection.
2. DistributionImprovements represent 90 percent of the year's receipts of the DistributionImprovement Special Fund. - 148 - ANNEX 7.1
PROJECT ECONOMIC ANALYSIS
1. Economic analysis fcr the project included preparation and comparison of a variety of scenariosfor the expansionof the SichuanPower Grid, calculationof a project internal rate of return, and relevant sensitivityanalysis. The analysis was based on studies and updates prepared by BERIWREP, in conjunction with SEPC, using BERIWREP's GESP model for least-cost generation system planning. These studies are in the Project File. Additionalinformation also is available in the Staff Appraisal Report and relating documentsfor the initial Ertan HydroelectricProject (1991).
Shadow Pricing
2. All economic analysis was based on shadowprices. A discount rate of 12 percent in real terms was used. For the least-costanalysis, the shadow foreign exchange rate (Y 9.0/$1.0) and official foreign exchangerate (Y 8.7/$1.0) at the time of appraisal were used. Costs of imported goods and services were priced at their estimated financial cost (e.g., a conversionfactor of 1.0 was used). Domestic costs were shadow priced at a standardconversion factor (SCF) of 0.97, except for certain key items for which specific conversion factors were used, most notably domestically produced power generating equipment and coal. The shadow price for coal was established at Y 318/ton of coal equivalent or Y 273/ton of 6,000-kcal/kg raw coal. This is an export parity price, assuming an FOB price for 6,000-kcal/kg coal at Qinhuangdaoof $35/ton and a shadow price for railway transportationof 7.5 f/tkm.
Last-Cost Analysis
3. Least-cost analysis was based on the stochastic reliability criterion of loss of load probability (LOLP). AcceptableLOLP was set at no more than four days. Due to the highproportion of hydropowerin the Sichuan system, LOLP calculationswere based on typical dry hydrological conditions. Although a variety of other scenarios were completedinitially, the principal least-cost system expansion scenarios in BERIWREP's final report included:
(a) Program I. This was the least-cost expansion program, as outlined in Annex 4.6. The transmissionproject included completionof three lines by 2000, with a fourth line in 2003. Including only the incrementalcost of the Ertan project, the present value of the investmentand operatingcost of this program, in 1994 prices, was Y 145.9 billion.
(b) Program II. This program was identical to Program I, except that all of the costs of the Ertan project, including sunk costs, were included. The present value cost totaled Y 153.4 billion. - 149 - ANNEX 7.1
(c) Program M. The Ertan project and the associated transmission project were excluded from this scenario, to assess the next best option. Without Ertan, new thermal power plants in both the East Basin region and the Dukou region near Ertan would be part of the least-cost expansion plan. The present value cost totaled Y 156.7 billion.
(d) Program IV. This program was identical to Program I, except that the fourth line in the transmissionproject would be completed in 2000. The present value cost was slightly higher than for Program I, at Y 146.2 billion. - 150 - ANNEX8.1
SELECTED DOCUMENTS AND DATA AVAILABLE IN THE PROJECT FILE
Selected Reports and Studies Related to the Project
1. Project Report for The 500-kVErtan TransmissionSystem, SichuanElectric Power Administration,March 1994.
2. The EnvironmentalImpact Assessment Report for Sichuan Power Transmission Project (Final Report), Sichuan Electric Power Company, September 1994.
3. RelocationAction Plan for Sichuan Power TransmissionProject, Sichuan Electric Power Company, August 1994.
4. Ertan HydroelectricProject, Project Report for the World Bank, The SecondStage Loan, Ertan HydroelectricDevelopment Corporation, Chendgu, April 1994.
5. Procurement Schedule and Construction Organization, Sichuan Electric Power Administration,June 1994.
6. Economic Evaluation of Ertan TransmissionProject, Beijing Economic Research Institute of Water Resources and Electric Power (BERIWREP),November 1993.
7. The EvaluationReport on Consultants' Proposals, SEPC, April 1993.
8. Financial Analysis of Ertan TransmissionProject, BERIWREP, April 1994.
Selected Worksheets
1. SEPC Financial Forecast
2. Cost Tables
3. ImplementationSchedules and Charts - 151 -
CHARTS - 152 - - 153 - CHART 1
CHINA SICHUANPOWER TRANSMISSION PROJECT Organization Chart of MOEP
Ministrv of Electnc Power
|Minster Shi Dazhen
Vice Ministers: Zhao Xizheng Zha Keming Lu Yanchang Wang Shucfeng
Ch nis Electnc:tyCouncii- -- -
MOEP's Intemal Organzat7ion] |Groups & Provincial Companies Provincial Companies M:OEP s Intemal Organization | JUnderAuspices of MOEP under Groups
-Generai Office Jilin Power Company - OeptofPlanning Electnc PowerGroup Heilongliang Power Company Dept. ot Planning - Dept. of Policies & Legislation Dept. of Economical Regulation Shanxi Power Company & Control of State Property - Hebei Power Company - Dept.of Personnel& Education 4Electnc PowerGroup ] -inner MongoliaPower Company DOept. ot IntemationalCooperation - a Dept.ot Science& Technology Dept.of Safery& Production Coordination ShanghaiPower Company -DepLof CapitalConstrucbon East China -Jiangsu PowerCompany Coorcination ElectncPower Gioup -JAnhui PowerCompany Dept. of HydropowerDevelopment AZhua PowerCompany & Rural Elecctsnficabon ZhejiangPower Company
MOEP'sAffiliated Enterpnses & Institutions ueHubi PerPwerCompany| Central China - Henan Power Company | - NabonalPower Dispatching& Electnc PowerGroup - Hunan PowerCompany I CommunicationCenter -Jiangxi PowerCompany - Infom,ationCenter - LogisticsBureau PlanningDesign & Engineennglnstitutses Gansu PowerCompany - ResearcnInstitutes -GinghaiQNorthwest Power Company - Uniersities & College ElectncPower Group -Ningxia PowerCompany - SpecializedCorps. - ScholarlySocieties & Associabons i P -Huaneng Group, ElectncPower Enterpnses
-South China ElectncPower Joint Venture Corporation |
-Shandong PowerCo. | -Fujian Power Co. | -Sichuan PowerCo. ProvincialCompanies GuangxiPower Co. non-directlyunder MOEP _ YunnanPower Co. EGuizhou Power Co. GuangdongPower Co. Hainan PowerCo. Xizang Industry& PowerAdmin.
EKNV56702F CIINA SICHIlAN POwVERTRANSMISSION PROJECT Sichuan Electric Power CompanyISEPCI Organization Chart
General Manager
GtnLManager Deputy Depuly Deputy Cbhid Enginecr CCcf Accounlan Gn. Manager PowerProdlct_o Ccn. Manager GCenManager Finance Planning& Int'l -apitsl Construclio
20
2. l. W -~~~~~~~~~~1 -4 *1 *2 ~~~~~~ 1U~YC -. a
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a9itii1il 00 - 155 - CHART 3
m Ficid Orniceof Design .- i'lalllllllgDep:lrlmenl | |Institute
LI - Constrtiction Dcpa3rt ent Contracting
_ 4 ~~~~~~~~ComprehensiveMfTairs|
_ H Loc~~~~~~~~~~alProcurement | Procurcnicnt Dcpartmnctic ntriational Procurement
LocalFinance
Fesgn Finance
z eJ ConstructionMnnagemcrpt O s _ ~~~~~~~~~Conlsultanltomce
Z Z egucatinagem7entRI'e
_ _ ~~~~~~~~~~~~Genlerntl0mce W Forcign fars
v: ;t ~~~~~~~~~~~~~~~~~~~~~~LegalAffrairs
_<~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ i ~~~~~~~~~~~~~~~~~~~~~Fileshlanagement
Quality Assuiraiice . , m ~~~Departmlent
Cd ~~ ~ ~ ~ ~ - Operation
| Prrep roduclon rllion LTraining
_manuals di ReguLations CHART 4 CHINA SICHUANPOWER TRANSMISSION PROJECT ImplementationSchedule (a) TransmissionLines (Table 1)
Description 1994 1995 1996 1997 1998 1999 2000
Procurement(ICB) ConstructionPreparation
. z jo Land Acquisition & Relocation ______00 Z Civil Works and Installation ______wi Testand Acceptance
Procurement(ICB) S ConstructionPreparation o E Land Acquisition & Relocation ______. Civil Works and Installation I I I- IIL Testand Acceptance
Procufement([CB) C0 ConstructionPfeparation *60 LandAcquisition & Relocation------211 Civil Works and Installation------Test andAcceptance
rConstruction Preparation E LandAcquisition &Relocationmi - m Civil Works and Installation m - - LTTest and Acceptance>
EKIW56702c CHINA CHART 4 SICHUANPOWER TRANSMISSION PROJECT ImplementationSchedule (a) TransmissionLines (Table 2)
Description 1994 1995 1996 1997 1998 1999 2000
I- ConstructionPreparalion c LandAcquisition & Relocalion c,Z lo Civil Works and Installation C) o Testand Acceptance ______r C:
C: is ~~C-onstruction P re paratlion__ 0," Land Acquisition& Relocation ______Z and Installation ______o0 Civil Works 0 c ~~~ConstructionPreparation__ CY) Testand Acceptance oZO ConstructionPreparation
- b LandAcquisition & Relocation _ _ _- + + C-)60 0)z Civil Works and Installation------. C *- Tcestand Acceptance
VConstruction Preparation
0 CYJ LandAcquisition & Relocalion------aZ 0) Civil Worksand Installation- --- 0c Testand Acceptance
cm:) ~ConstructionPreparation LandAcquisition & Relocation------o CS Civil Works and installation------Test andAcceptance EKJW567O2B - 8SI - MAP SECTION IBRD 25932R
99: 'r,9' . < 104' C H I N A "° C SICHUANPOWER TRANSMISSION PROJECT
CONSTRUCTION EXISTING FUTURE PROJECT . ESI - HYDRO POWERPLANTS S* _ ! hf THERmALPOWER PLANTS A 500kV SUBSTATONS 0 ~ Jiongyou * -' ~~~~~~~To;pihyi .,50 00 , A-' The boonoo "'i- fl \~- | Ceoogshouti cŽtnevErormotoioe"'"o o- snorer/ or V-s mop do rot /\ // , ,zj __ ^, reply on fhe port of The W., d Bo-k G-op vttqo, - a3*f Chongqiop-- o-y endcrsemot roe eoptli butos of ony rosy, ,-r *BOro -1 .:t -2 f ; / = ! >-Z t.7gy X ,- ~~~~~~~~~~~O .0 - , o -f-t//o S- - Zroe 1 i< RIVERS H- ,- . t PROVINCE/ Heenko.iCAPITAL XezfhtoogS -- c PREFECTUREBOUNDARIES PROVINCEBOUNDAR ES INTERNATIONAL BOUNDARIES OCCOBER 994 I