INTEGRATED SAFEGUARDS DATASHEET APPRAISAL STAGE I. Basic Information Date prepared/updated: 05/25/2007 Report No.: AC2552 Public Disclosure Authorized 1. Basic Project Data Country: China Project ID: P093882 Project Name: Shandong Flue Gas Desulfurization Task Team Leader: Jianping Zhao Estimated Appraisal Date: March 30, 2007 Estimated Board Date: August 16, 2007 Managing Unit: EASTE Lending Instrument: Specific Investment Loan Sector: Power (100%) Theme: Pollution management and environmental health (P) IBRD Amount (US$m.): 70.00 IDA Amount (US$m.): 0.00 GEF Amount (US$m.): 0.00 Public Disclosure Authorized PCF Amount (US$m.): 0.00 Other financing amounts by source: Borrower 23.46 Local Sources of Borrowing Country 16.50 Sub-borrower(s) 0.00 39.96 Environmental Category: B - Partial Assessment Simplified Processing Simple [] Repeater [] Is this project processed under OP 8.50 (Emergency Recovery) Yes [ ] No [X] or OP 8.00 (Rapid Response to Crises and Emergencies) Public Disclosure Authorized 2. Project Objectives The development objective of the proposed project is to reduce SO2 emissions in the heat and power sector and enhance the capacity of regulatory authorities to monitor and enforce compliance with their SO2 emissions reduction program. 3. Project Description Investment Component The investment component is to finance the installation of FGD facilities in six coal- fired heat and power plants that are currently operating or are under/planned for construction. A description of each heat and power plant is given below. Huangtai Heat and Power Plant, located in Jinan City, currently has seven boilers and Public Disclosure Authorized eight generators with a total capacity of 1,005 MW. It supplies electric power to the Shandong power grid and heat to local district heating grid of the Jinan city. Of these plants, 660 MW are already retrofitted with FGD. Two new 300 MW units are under preparation for construction so as to shut down the remaining 345 MW of capacity as well as more than 80 small heat-only boilers spreaded across Jinan city. The proposed sub-project will finance the installation of wet lime/limestone scrubbers to the two new 300MW units. The FGD system consists of mainly the absorbent fabrication and supply system, the SO2 absorb system, flue gas system, the gypsum processing system, the water supply system, electric system and control system. The FGD system will be located behind the boiler house of the power plant. Each boiler will be equipped with a separate pressurizing fan, an absorber tower and a heat exchanger. The two boilers will share the lime making, gypsum dewatering and oxygen supply facilities. The SO2 absorb system is the core of the FGD facility. It consists of an absorber, defog, circulating pump, oxidizing fan etc. The SO2 in the flue gas reacts with CaCO3 in the lime and form gypsum crystal after forced oxidization at the bottom of the absorber tower. The control system continuously monitors the gas flue, SO2 and O2 at the entrance and exit of FGD. Laiwu Heat and Power Plant, located 9 km from the Laiwu Municipality, currently consists of 3 X 125 MW coal-fired units. is currently under preparation for construction. The power plant is owned by Shandong Luneng Group. The three existing units are being retrofitted with FGD facility. Two new 300 MW coal-fired units are under preparation for construction. It is planned to supply heat to meet the growing needs in Laiwu Municipality and power to the Shandong power grid. The proposed sub-project will finance the installation of wet lime/limestone scrubbers to the two new 300MW units. Yantai Baijao Heat and Power Plant, located in the economic development zone of the Yantai Municipality, consists of two new 300 MW coal-fired units under preparation for construction. The power plant is owned by Shandong Luneng Group. The plant is planned to supply heat to the residential, commercial and industrial consumers in the economic zone and power to the Shandong grid. The proposed sub-project will finance the installation of wet lime/limestone scrubbers to the two 300MW units. The configuration of the FGD system is similar to the FGD system proposed for Huangtai as described above. Lubei Heat and Power Plant, located in Wudi County of Binzhou Municipality, consists of 2 x 300 MW heat and power units. The power plant is owned by Shandong Lubei Enterprise Group. The power plant is currently under construction. The first 300 MW unit is scheduled to be commissioned in November 2007 and the second unit in May 2008. The proposed sub-project will finance the retrofitting of wet lime/limestone scrubbers to the two 300MW units. The configuration of the FGD system is similar to the FGD system proposed for Huangtai described above. Zhenghe Subproject, sponsored by Zhenghe Group Company that currently owns two heat and power plants to supply heat and steam to the county economic development zone and urban area. The two plants currently operate five boilers (3 units @ 35 TPH and 2 units @ 75 TPH). Two new boilers each at 130 TPH are currently planned at a new location within the plant complex to substitute 113 existing small boilers in the county and meet the growing heating needs. The proposed project will include retrofitting the five existing boilers with wet limestone scrubbers and installing wet limestone scrubbers on the two new boilers. Xintai Subproject, sponsored by Xinwen Mine Group that currently owns and operates two heat and power plants to burn coal sludge from coal washery. The two plants currently operate four boilers (3 units @ 75 TPH and one unit @ 130 TPH). Two new boilers at 480 THP are currently planned at a new location. The proposed new project will burn low grade coal and will supply power and heat to the mining complex. The proposed subproject will finance the retrofitting of one 130 t/h boiler, 3x75 t/h boilers with semi-dry FGD, and the installation of wet lime/limestone scrubber for the 2x480 TPH CFB boilers heat and power plant (2x150 MW) under preparation for construction. Technical Assistance Component (a) The technical assistance component is intended to strengthen the technical and institutional capacity related to SO2 emission control and reduction, particularly in the following areas: emission control planning, emission monitoring and regulation enforcement, technical and managerial training, the installation of on-line monitoring equipment. It includes both studies and capacity building activities. Capacity Building for SO2 Control: This subcomponent comprises the following two activities: (a) develop rules, procedures and standards on installation, operation & maintenance of, and data transmission from continuous emission monitors (CEMs); (b) review the needs and make recommendations to upgrade the data information and transmission system, speed up and enforce the installation of CEMs and the associated facilities in each power plant (to link with and transfer data to SPEPB?s data system and information centers). Policy and Regulation Development: While it is recognized that SO2 emission control in the power sector by installing FGDs in each power plant would be effective, it is equally important that Shandong Provincial Government take parallel actions to enhance and optimize its long-term policy effectiveness and sophistication in planning and implementing compliance program, designing and implementing market-based policies and instruments (e.g., emission trading) as well as enhancing environmental regulation compliance over power and non-power sectors. With regard to strategy and policy, SPEPB should optimize the design of SO2 control program to reflect the cost- effectiveness (RMB/ton of pollutant removed) for each possible environmental control project. Such optimization would achieve the same environmental benefit at a reduced compliance cost or higher environmental benefit (lower pollution) at the same cost. Also, market-based instruments would be used to optimize the compliance costs. Staff and Managerial Training: Extensive training programs will be implemented to enhance the knowledge and capacity of government officials as well as key coal consumers on SO2 control policy and implementation. Areas of training would include: emission monitoring, data collection and analysis, CEM calibration and maintenance, and regulation enforcement, as well as operation & maintenance of SO2 emission equipment. Technical training activity will be targeted to SPEPB and local EPBs staff as well as power plant FGD operators. 4. Project Location and salient physical characteristics relevant to the safeguard analysis The proposed six sub-projects are located in different parts of Shandong Province. The specific locations are stated above in the Project Description section. Social Impact: Out of the six subprojects, three will involve land acquisition and resettlement. A total of 112.9 ha of land area (including 71% farmland) will be acquired for the three sub-projects. Along with land acquisition, a total of 274 households and 743 persons will be physically relocated. Following national laws and regulations, appropriate compensations will be provided for acquired lands and lost properties, based on replacement values. The related subproject companies have developed their own Resettlement Action Plan (RAP), which have been reviewed by the Bank. In terms of economic rehabilitation, different approaches will be adopted for different subprojects. For Xintai, all land loss farmers will be provided replacement farmland. In Yantai, following local