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 ......................