Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No: RES22208
RESTRUCTURING PAPER
ON A
PROPOSED PROJECT RESTRUCTURING
OF
SHANXI COAL BED METHANE DEVELOPMENT AND UTILIZATION PROJECT
LN 7705-CN
APPROVED ON MAY 19, 2009
TO THE
PEOPLE’S REPUBLIC OF CHINA
February 19, 2016
ENERGY AND EXTRACTIVES GLOBAL PRACTICE
EAST ASIA AND PACIFIC REGION
This document has a restricted distribution and may be used by recipients only in
the performance of their official duties. Its contents may not otherwise be
disclosed without World Bank authorization.
Page 1 of 14
ABBREVIATIONS AND ACRONYMS
CBM Coal Bed Methane
CMM Coal Mine Methane
EAPDE East Asia Pacific Development Effectiveness
GHGs Greenhouse Gases
LNG Liquefied Natural Gas
PAD Project Appraisal Document
PDO Project Development Objective
SCBMC Shanxi Coal Bed Methane Company
SECBMIH Shanxi Energy Coal Bed Methane Investment Holding Co., Ltd
TA Technical Assistance
Regional Vice President: Axel van Trotsenburg, EAPVP
Country Director: Bert Hofman, EACCF
Senior Global Practice Director: Anita Marangoly George, GEEDR
Global Practice Director: Charles M. Feinstein, GEEDR
Practice Manager/Manager: Julia M. Fraser, GEEDR
Task Team Leader: Ximing Peng, GEEDR
Page 2 of 14
China
Shanxi Coal Bed Methane Development and Utilization Project
CONTENTS
A. SUMMARY 5
B. PROJECT STATUS 6
C. PROPOSED CHANGES 7
ANNEX 1: RESULTS FRAMEWORK AND MONITORING 11
Page 3 of 14
DATA SHEET
China
Shanxi Coal Bed Methane Development and Utilization Project (P100968)
EAST ASIA AND PACIFIC REGION
Energy & Extractives Global Practice
.
Report No: RES22208
.
Basic Information
Project ID: P100968 Lending Instrument: Specific Investment Loan
Regional Vice President: Axel van Trotsenburg Original EA Category: Full Assessment (A)
Country Director: Bert Hofman Current EA Category: Full Assessment (A)
Senior Global Practice Anita Marangoly
Original Approval Date: 19-May-2009
Director: George
Practice
Julia M. Fraser Current Closing Date: 30-Jun-2016
Manager/Manager:
Team Leader(s): Ximing Peng
.
Borrower: People’s Republic of China
Responsible
Shanxi Coal Bed Methane Company Ltd.
Agency:
.
Restructuring Type
Form Type: Full Restructuring Paper Decision Authority: Board Approval
Restructuring Level 1
Level:
.
Financing ( as of 21-Dec-2015 )
Key Dates
Approval Effectiveness Original Revised
Project Ln/Cr/TF Status Signing Date
Date Date Closing Date Closing Date
P100968 IBRD-77050 Effective 19-May-2009 02-Jul-2009 18-Sep-2009 31-Dec-2014 30-Jun-2016
Disbursements (in Millions)
%
Origi Cancelle Disburse Undisbur
Project Ln/Cr/TF Status Currency Revised Disburse
nal d d sed
d
P100968 IBRD-77050 Effective USD 80.00 80.00 0.00 41.00 39.00 51
.
Page 4 of 14
Policy Waivers
Does the project depart from the CAS/CPF in content or in other significant
Yes [ ] No [ X ]
respects?
Does the project require any policy waiver(s)? Yes [ ] No [ X ]
.
A. Summary of Proposed Changes
The proposed restructuring includes the following changes: (a) revision of the PDO to align it to the
project activities, (b) removal of the provincial level TA activities from the project, (c) modification of the
results framework to align it with the changes to the PDO and project activities, (d) reallocation of loan
between disbursement categories to make efficient use of the Bank loan, and (e) extension of the project
closing date from June 30, 2016 to June 30, 2017. A request for above changes was received from the
Ministry of Finance on December 31, 2015.
Yes
Change in Implementing Agency No [ X ]
[ ]
Change in Project's Development Objectives Yes [ X ] No [ ]
Change in Results Framework Yes [ X ] No [ ]
Yes
Change in Safeguard Policies Triggered No [ X ]
[ ]
Yes
Change of EA category No [ X ]
[ ]
Yes
Other Changes to Safeguards No [ X ]
[ ]
Yes
Change in Legal Covenants No [ X ]
[ ]
Change in Loan Closing Date(s) Yes [ X ] No [ ]
Yes
Cancellations Proposed No [ X ]
[ ]
Yes
Change to Financing Plan No [ X ]
[ ]
Yes
Change in Disbursement Arrangements No [ X ]
[ ]
Reallocation between Disbursement Categories Yes [ X ] No [ ]
Change in Disbursement Estimates Yes [ X ] No [ ]
Change to Components and Cost Yes [ X ] No [ ]
Yes
Change in Institutional Arrangements No [ X ]
[ ]
Yes
Change in Financial Management No [ X ]
[ ]
Yes
Change in Procurement No [ X ]
[ ]
Change in Implementation Schedule Yes [ X ] No [ ]
Page 5 of 14
Yes
Other Change(s) No [ X ]
[ ]
Yes
Appraisal Summary Change in Economic and Financial Analysis No [ X ]
[ ]
Appraisal Summary Change in Technical Analysis Yes [ ] No [ X ]
Yes
Appraisal Summary Change in Social Analysis No [ X ]
[ ]
Yes
Appraisal Summary Change in Environmental Analysis No [ X ]
[ ]
Yes
Appraisal Summary Change in Risk Assessment No [ X ]
[ ]
.
B. Project Status
The project comprises two components: (a) Coal Bed Methane (CBM) and Liquefied Natural Gas (LNG)
Development; and (b) Institutional Strengthening and Capacity Building. The IBRD loan of US$80 million
for this project was approved May 19, 2009, became effective on September 18, 2009, and is scheduled to
close on June 30, 2016. The achievement of the Project Development Objective (PDO) and
implementation progress are currently rated as moderately satisfactory given the steady progress that has
been made since late 2013, following the successful resolution of earlier implementation bottlenecks
related to the change of project sites, co-financing, and gas supply agreements.
The project has made moderate implementation progress: about 90 percent of the LNG plant has been
completed (one LNG production line is in operation and the other LNG production line will be
commissioned by June 2016); Coal bed methane (CBM) test wells have been drilled and are operating
satisfactorily; based on the test results and the evaluation of new drilling technologies, technical schemes
for remaining wells have been finalized and construction is expected to start in early 2016; and capacity
building activities for Shanxi Coal Bed Methane Company (SCBMC, Implementing Agency of the
Project) have been carried out as planned. The original plans for capacity building activities at the
provincial level (Shanxi Province TA activities) have not been realized.
The first restructuring was approved in November 2013, extending the project closing date by 1.5 years to
June 30, 2016, to allow time for SCBMC to recover from the delays caused by changes in CBM drilling
sites and to modify the technology of the liquefaction plant. This proposed second restructuring is
necessary to: (i) allow the completion of the upstream gas drilling component using new gas drilling
techniques that have become mainstream in the global gas industry since the project was approved, and (ii)
revise the PDO and Results Framework to align them with project activities. The satisfactory completion
and operation of the gas drilling component is essential to demonstrate the operation of integrated gas
production and liquefaction technology in the Chinese market, for the project to meet its PDO, and to
make effective use of the loan. During the latest implementation support mission in November 2015, a
time-bound action plan was developed with the borrower that includes a realistic implementation schedule
and detailed disbursement projections. The performance of the SCBMC is also rated as moderately
satisfactory. With the 2nd extension of the closing date, the PDO remains achievable.
The proposed restructuring will not change the safeguard policies triggered by the project, i.e.,
Environmental Assessment OP/BP4.01, and Involuntary Resettlement OP/BP4.12. The Project EMP and
RAPs remain valid. There is no overdue or outstanding audit issues. Bank’s procurement policies and
procedures have been properly followed throughout the project by the borrower.
.
Page 6 of 14
C. Proposed Changes
.
Development Objectives/Results
Project Development Objectives
Original PDO
The development objective of the project is to assist Shanxi Province in increasing the production and
utilization of CBM/CMM to replace coal as a fuel for thermal use and to reduce GHGs and local air
pollutants associated with coal combustion.
Change in Project's Development Objectives
Explanation
During a project review by the Bank, an attribution issue was identified between the original PDO, the
PDO level indicators, and the project activities. According to the original project design, the project
included (a) investment in a specific gas drilling component and a gas liquefaction plant, and (b) technical
assistance for capacity building for CBM/CMM development in Shanxi Province as a whole. In addition,
the PDO level indicators refer to increasing gas production in all of Shanxi Province, whereas the
investment activities are more discreet.
Furthermore, the project implementing company (SECBMIH, later renamed as SCBMC) was to be
responsible for both the investment component and the TA component. However, this was not a workable
design as coordination of provincial level TA should be the responsibility of the provincial government,
not a corporate entity such as SCBMC. Accordingly, SCBMC was not able to motivate the relevant
provincial agencies and institutions to implement the provincial-level TA components such as policy
studies and the development of data and information systems. As a result, these provincial-level TA
activities have not materialized, and project implementation has focused only on the investment
component and on capacity building for SCBMC.
Clean energy development, including the important role of gas as a transition fuel, remains a high priority
in China. This project, by demonstrating advanced gas production and the integration of production and
liquefaction by a Chinese company, will help advance clean energy supply in China and Shanxi Province.
The proposed restructuring, which includes modification to both the PDO and the Results Framework, is
critical for the successful implementation of the project.
Proposed New PDO
The revised PDO of the project is to increase production of coal bed methane to reduce GHGs associated
with coal combustion in the project area.
Change in Results Framework
Explanation:
Page 7 of 14
In line with the change of PDO, both the volumes of annual production of CBM and LNG under the
project are proposed to be PDO level indicators. In addition, avoided GHG emissions annually associated
with the gas supply from the project is proposed to be added as a PDO level indicator. The original PDO
level indicators (Total amount of CBM/CMM produced and captured in Shanxi annually; and Total
amount of CBM/CMM utilized in Shanxi annually) are proposed to be removed. The volume of CBM
produced and volume of LNG produced were considered to be the actual production from facilities
supposed by the project, not the production in the whole Shanxi province, as defined in the original
indicators.
In line with the change of project activities, the three intermediate outcome indicators linked to the
provincial level TA activities (the studies completed and reports produced; new policy and regulations
formulated and implemented; and CBM/CMM data and information inventory system developed) are
proposed to be removed. A new intermediate outcome indicator would be added to measure the
implementation progress of the upstream gas drilling component.
The revised PDO level indicators are: (i) Volume of CBM Produced Annually; (ii) Volume of LNG
Produced Annually; and (iii) Avoided GHGs Emission Annually. The revised intermediate outcome
indicators are: (i) The number of wells drilled; (ii) The number of staff weeks trained for SCBMC; and (iii)
SCBMC’s financial sustainability (debt service coverage ratio, rate of return on equity, ratio of current
assets to current liabilities).
The first restructuring, approved in November 2013, gives SCBMC flexibility to identify more appropriate
gas drilling and liquefaction technologies as the limitation to use only vertical wells technology, described
exclusively in the legal agreement, was removed. The 2nd restructuring will enable SCBMC to complete
the construction of all gas drilling wells after comparison of the performance of different gas drilling
technologies based on on-site tests. Total productions of the project (both volumes of gas production and
liquefied natural gas) will be kept the same or higher after both restructuring, while the overall life-cycle
cost would be reduced.
It should be clarified that annual productions of the project after the restructuring are kept the same: (i) the
annual gas production capacity was 200 million m3 before the restructuring, this equivalent to an annual
actual production of about 100 million m3; after the restructuring the annual production (not production
capacity) is used as the indicator instead, and the targeted annual gas production is still about 100 million
m3, achievable in early 2018 (the targets in 2016 and 2017 show less as the wells drilled in 2017 can only
reach its full production capacity after about 9-month commissioning period); and (ii) the annual gas
liquefaction capacity (200,000 tons) is still the same after the restructuring, but the actual annual
production (not production capacity) is used as the indicator instead, and an estimate capacity utilization
ratio of 80% is considered, so the target annual production of liquefied gas is 160,000 tons.
To monitor the schedule of the implementation, a new indicator is introduced to record the number of gas
wells drilled. The technical design, based on comparison of the performance of both vertical and horizontal
test wells, has been approved by the provincial authority and reviewed by the Bank team. The construction
of all 126 wells (including both vertical and horizontal wells, replacing the original 350 vertical wells in
the PAD) will be completed by the new closing date. The staff training indicator has included only a new
name of the entity, but the actual achievement and target remained unchanged.
.
Financing
Change in Loan Closing Date(s)
Page 8 of 14
Explanation:
The project closing date is proposed to be extended by one year, from June 30, 2016 to June 30, 2017.
This will be the second extension of the closing date, for an accumulated total of 30 months. The primary
purpose of the second extension is to allow the completion of the upstream gas drilling component that
was delayed as the company tested and acquired new advanced drilling techniques that have become
mainstream in the global gas industry.
Ln/Cr/T Original Closing Current Closing Proposed Closing Previous Closing
Status
F Date Date Date Date(s)
IBRD-
Effective 31-Dec-2014 30-Jun-2016 30-Jun-2017 31-Dec-2014
77050
Reallocations
Explanation:
As the provincial level TA activities are proposed to be removed, that part of the IBRD loan will be
reallocated to Goods and Civil Works as indicated in the table below.
Current Category of Disbursement % (Type
Ln/Cr/TF Currency Allocation
Expenditure Total)
Current Proposed Current Proposed
GOODS and CIVIL
IBRD-77050 USD 78,600,000.00 79,000,000.00 100.00 100.00
WORKS
CSERVICES,
TRAINING AND 1,200,000.00 800,000.00 100.00 100.00
WORKSHOPS
Designated Account 0.00 0.00 100.00 100.00
FRONT END FEE 200,000.00 200,000.00 100.00 100.00
Total: 80,000,000.00 80,000,000.00
Disbursement Estimates
Change in Disbursement Estimates
Explanation:
Disbursement of the IBRD loan is extended to the newly proposed closing date. The disbursement
estimates will be revised as per the table below:
Fiscal Year Current (USD) Proposed (USD)
2009 0.00 0.00
2010 200,000.00 200,000.00
2011 8,000,000.00 8,000,000.00
2012 0.00 0.00
2013 6,200,000.00 13,096,609.96
2014 10,600,000.00 1,906,454.88
2015 15,000,000.00 13,455,107.33
2016 40,000,000.00 30,341,827.83
Page 9 of 14
2017 0.00 13,000,000.00
Total 80,000,000.00 80,000,000.00
.
Components
Change to Components and Cost
Explanation:
The provincial level TA activities are removed.
Current Component Proposed Current Cost Proposed
Action
Name Component Name (US$M) Cost (US$M)
CBM and LNG
178.60 179.10 Revised
Development
Institutional
Strengthening and 1.70 1.20 Revised
Capacity Building
Total: 180.30 180.30
.
Other Change(s)
Change in Implementation Schedule
Explanation:
The implementation of the project is to be extended to June 30, 2017, to ensure completion of the
construction of the whole project. According to the updated project implementation plan, the 2nd LNG
production line will be commissioned by June 2016; the remaining gas drilling wells will be developed in
three batches, and their construction will be completed in June 2016, December 2016 and June 2017
respectively.
.
Page 10 of 14
Annex 1. RESULTS FRAMEWORK AND MONITORING
.
Project Development Objective Indicators
Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target
Marked for Total amount of CBM/CMM Cubic Meter(m3) Value 300000000.00 8100000000.00 2000000000.00
Deletion produced and captured in
Date 31-Dec-2008 31-Dec-2015 30-Jun-2016
Shanxi annually
Comment
New Volume of CBM Produced Cubic Meter(m3) Value 0.00 10000000.00 60000000.00
Annually
Date 01-Dec-2009 31-Dec-2015 31-Dec-2017
Comment According to the
updated
implementation
plan,
construction of
the last batch of
wells will be
completed by
June 2017 and
achieve their
full production
by March 2018.
The annual
production of all
wells will
achieve about
100 million
cubic meters.
New Volume of LNG Produced Metric ton Value 0.00 40000.00 160000.00
Annually
Date 01-Dec-2009 31-Dec-2015 31-Dec-2017
Comment 80% capacity
utilization ratio
Page 11 of 14
is assumed.
New Avoided GHGs Emission Metric ton Value 0.00 130000.00 520000.00
Annually
Date 01-Dec-2009 31-Dec-2015 31-Dec-2017
Comment Avoided GHG
Emission will be
calculated by
applying a
conversion
factor of 3.25
tons CO2e / ton
of LNG sold, as
estimated in the
PAD.
Marked for Total amount of CBM/CMM Cubic Meter(m3) Value 200000000.00 4500000000.00 1500000000.00
Deletion utilized in Shanxi annually
Date 31-Dec-2008 31-Dec-2015 30-Jun-2016
Comment
Intermediate Results Indicators
Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target
Marked for The volume of CBM produced Cubic Meter(m3) Value 0.00 8350000.00 250000000.00
Deletion annually
Date 31-Dec-2008 31-Dec-2015 30-Jun-2016
Comment
New Numbers of wells drilled in Number Value 0.00 53.00 126.00
total
Date 01-Dec-2009 31-Dec-2015 31-Dec-2017
Comment
New The number of staff-week Number Value 0.00 1538.00 800.00
trained for SCBMC
Date 31-Dec-2008 31-Dec-2015 31-Dec-2017
Comment
Page 12 of 14
Marked for The volume of LNG produced Metric ton Value 0.00 45000.00 200000.00
Deletion annually
Date 31-Dec-2008 31-Dec-2015 30-Jun-2016
Comment
Marked for The number of staff-week Number Value 0.00 1538.00 300.00
Deletion trained for both SCBMC and
Date 31-Dec-2008 31-Dec-2015 30-Jun-2016
Shanxi Province
Comment
Revised SCBMC's Financial Number Value 0.00 4.86 1.40
Sustainability - DSC Ratio
Date 31-Dec-2008 31-Dec-2015 31-Dec-2017
Comment
SCBMC’s Financial Number Value 0.00 4.86 1.40
Sustainability - DSC Ratio
Date 31-Dec-2008 09-Dec-2015 30-Jun-2016
Comment
Revised SCBMC's Financial Percentage Value 0.00 27.00 9.00
Sustainability - Rate of Return
Date 31-Dec-2008 31-Dec-2015 31-Dec-2017
on equity
Comment
SCBMC’s Financial Percentage Value 0.00 27.00 9.00
Sustainability - Rate of Return
Date 31-Dec-2008 09-Dec-2015 30-Jun-2016
on equity
Comment
Revised SCBMC's Financial Number Value 0.00 0.69 1.10
Sustainability - Ratio of current
Date 31-Dec-2008 31-Dec-2015 31-Dec-2017
assets to current liabilities
Comment
SCBMC’s Financial Number Value 0.00 0.69 1.10
Sustainability - Ratio of current
Date 31-Dec-2008 09-Dec-2015 30-Jun-2016
assets to current liabilities
Comment
Page 13 of 14
Page 14 of 14