Document of The World Bank Report No: 17367-CHA PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$300 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A HUNAN POWER DEVELOPMENT PROJECT May 21, 1998 Energy and Mining Development Sector Unit East Asia and Pacific Region CURRENCY EQUIVALENTS Currency Unit = Yuan Yuan 1.00 = US$0.12 US$1 = Yuan 8.3 FISCAL YEAR January 1, December 31 WEIGHTS AND MEASURES gms/kWh = Grams per Kilowatt-hour GWh = Gigawatt hour (= 1,000,000 kilowatt hours) kcal = Kilocalories km = Kilometer (= 0.62 miles) kV = Kilovolt (1,000 volts) kW = Kilowatt (=1,000 watts) kWh = Kilowatt hour (= 860.42 kcal) m = Meter m3/s = Cubic meters per second MVA = Megavolt-ampere (1,000 kilovolt-amperes) MW = Megawatt (1,000,000 watts) MWh = Megawatt hour (= 1,000 kWh) s = Second TWh = Terawatt hour (= 1,000,000,000 kilowatt hours) Vice President: Jean-Michel Severino, EAP Country Director: Yukon Huang, EACCF Sector Manager: Yoshihiko Sumi, EASEG Task Manager: Elaine Sun, EASEG ABBREVIATIONS AND ACRONYMS BOT - Build-Operate-Transfer CAS - Country Assistance Strategy CCEPGC - Central China Electric Power Group Corporation CCPG - Central China Power Grid CEPPDI - Central Electric Power Planning & Design Institute CIF - Cost, Insurance, Freight CRISPP - China Reform Institutional Support and Preinvestment Project EIA(R) - Environmnental Impact Assessment (Report) EMP - Environmental Management Plan FGD - Flue Gas Desulfurization GDP - Gross Domestic Product GEF - Global Environment Facility HEPC - Hunan Electric Power Company HPEPDI - Hunan Provincial Electric Power Design Institute HPG - Hunan Provincial Government ICB - International Competitive Bidding LIB - Limited International Bidding MOEP - Ministry of Electric Power MOF - Ministry of Finance NPC - National People's Congress NEPA - National Environmental Protection Administration NEPRI - Nanjing Environmental Protection Research Institute NO, - Nitrogen Oxide RAP - Resettlement Action Plan SDB - State Development Bank SDPC - State Development Planning Commsision SETC - State Economic and Trade Commission SO2 ^ Sulfur Dioxide SOEs - State-Owned Enterprises SP - State Power Corporation SPC - State Planning Commission T&D - Transmission and Distribution TOR - Terms of Reference CHINA HUNAN POWER DEVELOPMENT PROJECT CONTENTS A: Project Development Objective ..............................................................2 1. Project development objective and key performance indicators ..........................................................2 B: Strategic Context ..............................................................2 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project ...............................2 2. Main sector issues and Government strategy ..............................................................2 3. Sector issues to be addressed by the project and strategic choices .......................................................5 C: Project Description Summary ..............................................................6 1. Project components ..............................................................6 2. Key policy and institutional reforms supported by the project .............................................................6 3. Benefits and target population ..............................................................7 4. Institutional and implementation arrangements ..............................................................7 D: Project Rationale ..............................................................8 1. Project alternatives considered and reasons for rejection .............................................................. 8 2. Major related projects financed by the Bank and/or other development agencies ...............................9 3. Lessons learned and reflected in the project design ..............................................................9 4. Indications of borrower commitment and ownership ............................................................. 10 5. Value added of Bank support in this project ............................................................. 11 E: Summary Project Analysis ............................................................. 11 1. Economic ............................................................. 11 3. Technical ............................................................. 13 4. Institutional ............................................................. 14 5. Social ............................................................. 14 6. Environmental assessment ............................................................. 15 7. Participatory approach ............................................................. 16 F: Sustainability and Risks ............................................................. 16 1. Sustainability ............................................................. 16 2. Critical Risks ............................................................. 17 3. Possible Controversial Aspects ............................................................. 18 G: Main Loan Conditions ............................................................. 18 1. Effectiveness Conditions ............................................................. 18 2. Agreements to be reached with the Government ............................................................. 18 H. Readiness for Implementation ............................................................. 19 I. Compliance with Bank Policies ............................................................. 20 - jj - ANNEXES Annex 1: Project Design Summary ........................................................................ 21 Annex 2: Project Description ........................................................................ 22 Annex 3: Estimated Project Costs ........................................................................ 28 Annex 4: Background on China's Power Sector Reforms ...................................................................... 31 Annex 5: Hunan Electric Power System-Reform Implementation Plan . . 33 Annex 6: Organizational Charts .............................. Error! Bookmark not defined. Chart Al: Organization Chart of the Institutional Arrangement During Project Implementation ......... 40 Chart A2: Organization Chart of Construction Management of Leiyang Power Plant II Project .......... 41 Chart A3: Organization Chart of Construction Management of Power Transmission Project ............... 42 Annex 7: Cost Benefit Analysis Summary ........................................................................ 43 Annex 8: Financial Summary ........................................................................ 51 Annex 9: Procurement and Disbursement Arrangements ...................................................................... 57 Table A: Project Costs by Procurement Arrangements ........................................................................ 59 Table Al: Consultant Selection Arrangements ........................................................................ 60 Table A2: Procurement Plan and Implementation Schedule .................................................................. 61 Chart 1: ICB Procurement Schedule ........................................................................ 62 Chart IA: Consulting Services Schedule ............................ 74 Table A3: Estimated Annual Contractual and Other Payments ............................................... 77 Table A4: Key Construction Dates ............................................... 78 Table B: Thresholds for Procurement Methods and Prior Review ............................................... 79 Table C: Allocation of Loan Proceeds ............................................... 79 Annex 10: Land Acquisition and Resettlement .................................................. 80 Annex 11: Environmental Management Program .................................................. 84 Annex 12: Project Processing Budget and Schedule ................................................. 96 Annex 13: Documents in the Project File ................................................. 97 Annex 14: Statement of Loans and Credits ................................................. 98 Annex 15: Country at a Glance ................................................. 101 MAP IBRD 29405 Hunan Power Grid in 2002 China Hunan Power Development Project Appraisal Document East Asia and Pacific Regional Office Energy and Mining Development Sector Unit Date: May 21, 1998 Task Manager: Elaine Sun Country Director: Yukon Huang Sector Manager: Yoshihiko Sumi Project ID: CN-PE-35698 Sector: Energy Program Objective Category: Lending Instrument: Specific Investment Loan Program of Targeted Intervention: [] Yes [x] No Project Financing Data [x] Loan [] Credit [] Guarantee [] Other [Specify] For Loans/Credits/Others: Amount (US$M/SDR M): US$300.0 Proposed terms: [] Multicurrency [x] Single currency, US Dollar Grace period (years): 5 [] Standard Variable [] Fixed [x] LIBOR-based Years to maturity: 20 Commitment fee: 0.75% Service charge: n/a Financing plan (US$M): 747.2 Source Local Foreign Total Government - - - HEPC 138.8 10.9 149.7 IBRD - 300.0 300.0 IDA Construction Bank of China/State Development Bank 275.8 21.7 297.5 Total 414.6 332.6 747.2 Borrower: People's Republic of China Guarantor: Responsible agency(ies): Hunan Electric Power Company Estimated disbursements (Bank FY/US$M): 1999 2000 2001 2002 2003 2004 Annual 18.0 57.0 105.0 75.0 36.0 9.0 Cumulative 18.0 75.0 180.0 255.0 291.0 300.0 For Guarantees: [] Partial credit [] Partial risk Proposed coverage: Project sponsor: Nature of underlying financing: Termns of financing: Principal amount (US$) Final maturity Amortization profile Financing available without guarantee?: [] Yes [] No If yes, estimated cost or maturity: Estimated financing cost or maturity with guarantee: Project implementation period: Expected effectiveness date: 12-31-1998 Expected closing date: 12-31-2004 OSD PAD Form: July 30, 1997 Page 2 A: Project Development Objective 1. Project development objective and key performance indicators (see Annex 1): The main objective of the project is to alleviate power shortages in Hunan by providing efficient, reliable and environmentally sound power supply. Progress toward the project development objective would be monitored according to quantifiable performance indicators developed during project preparation with the assistance of the Beneficiary. These mainly include the high availability of Leiyang II generating units, improved reliability of transmission network, reduction in load shedding, improved fuel efficiency, and reduction in overall specific emission rates (gms/kWh) of air pollutants (SO2, NO,, TSP) (see Project Design Summary in Annex 1). B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1): The project supports the CAS objectives to alleviate the infrastructure bottlenecks in interior provinces to foster integrated economic development, as noted in the CAS (Document No. 16321-CHA, February 25, 1997) discussed with the Board on March 18, 1997, and reaffirmed in the CAS Progress Report to be discussed with the Board on May 28, 1998. Hunan, where the proposed project is located, remains one of the poorest provinces in China. In 1996, its per capita GDP was 4,118 yuan, 27 percent lower than the national average. Electricity consumption per capita was 530 kWh, about one third less than the national average. Hunan's economic development has been constrained by acute power shortages, estimated at about 3 TWhb in 1995. The project linkage to the CAS objectives would be achieved directly by the physical and institutional components of the project. The physical components of the project will strengthen/reinforce the power supply infrastructure and improve the environment by (a) developing two 300 MW anthracite-fired thermal units; (b) reinforcing critical transmission infrastructure to improve overall system reliability and ensure delivery of generated power to end-users; and (c) retiring a number of small, inefficient, aging, and polluting generating units, and avoiding further proliferation of inefficient and more polluting small plants. The institutional component of the project will increase the commercial orientation and the efficient operation of the provincial system by (a) unbundling the system (generation separate from transmission) and increasing competitive procurement of long-term power supply; and (b) developing and implementing efficient wholesale generation tariffs. 2. Main sector issues and Government strategy: Despite the progress achieved during the last decade, China's power sector still faces the following technical, financial, and institutional constraints: 1. Inadequate Financing of Power Infrastructure. Adequate electricity supply in China requires annual additions of more than 15,000 MW of generation capacity, an investment of about $15-20 billion per year. Despite the government's efforts to develop innovative financing schemes through joint venture, BOT and multiple domestic joint investment projects, the sector is still facing severe capital constraints and difficulties in channeling domestic savings to meet the investment needs of the sector. Further efforts are required to broaden and mainstream power sector financing. Moreover, development of private and nonutility projects is constrained by the lack of a commercial framework for power trade and the weakness of transmission networks. Page 3 2. Transmission Bottlenecks. Transmission infrastructure in China has not been adequately developed to allow for efficient system operation and minimization of supply cost: (a) plants are not optimally located to minimize supply cost and ensure environmental sustainability. For example, some of the large plants constructed in areas close to load centers requiring the transport of large quantities of coal on an overextended transport system were not economically and/or environmentally justified; and (b) about half of the added capacity is in small inefficient units (100 MW and less) built close to the load centers to minimize upfront capital costs and minimize transmission investments. The transmission bottlenecks continue to contribute to investment inefficiencies (untapped economies of scale), location inefficiencies (overburdening of the railway system), environmental inefficiencies (heavy pollution burden on densely populated areas with limited local absorption capacity), and operational inefficiencies (uneconomic dispatch, higher losses). 3. Inadequate Wholesale Electricity and Transmission Pricing Systems. There are two significant shortcomings of the pricing system in the power sector in China. The first relates to the pricing of wholesale/bulk capacity and energy sales/purchases from generating plants. The second relates to the inadequate recognition of power transmission as a separate service that needs to be accounted for in electricity tariffs. The inadequacies of wholesale electricity entail operation of old and/or small and high operation cost coal-fired plants in lieu of modern, more efficient plants. The nonrecognition of the importance of transmission service hampers utilities' ability to recover costs and invest in transmission. Both problems are slowing the implementation of the purchasing agency model, and progress toward competition at the generation level. 4. Unclear Corporate Relationships between Power Sector Entities. Currently, power companies in China operate at three main levels: provincial/municipal, regional, and national: (a) the provincial/ municipal power companies are responsible for generation and transmission within a province or municipality; (b) the regional power entities hold the central Government's ownership stakes in provincial power companies in their territory and are responsible for interprovincial power transfers; and (c) the national power entity holds the central government's ownership stakes in the regional entities. However, unclear ownership rights and not fully commercial relationships between different power entities still impede: (a) full corporatization of power entities to meet the requirements of the new Company Law; (b) financial independence, and profit orientation of the sector entities; and (c) sector and especially transmission financing. 5. Heavy Reliance on Coal. China's heavy reliance on coal (especially for power generation) is expected to continue over the next two to three decades. There is, however, a growing recognition of health impacts and air quality deterioration due to extensive coal use. Recently, the Chinese Government initiated serious efforts to curb air pollution related to utilization of coal in the power sector. In June 1994, the Government announced that it would spend about $2 billion over seven years to keep SO2 emissions at 15 million metric tons per year. An SO2 emissions tax (from Yuan 0.15 to 0.2/kg of SO2) is being experimented with in several provinces and municipalities and a penalty of Yuan 0.04/kg of SO2 is being applied to all emissions exceeding the 1982 standards in all provinces. More stringent air quality and emission standards have been issued at the national level in January and March 1996. Several provinces and municipalities, followed up with local environmental regulations. A recently issued regulation in Shanghai requires the use of flue gas desulfurization on all new coal-fired power plants. However, enforcement and adequate implementation of these standards require greater attention and continued efforts. 6. Low Efficiency of Electricity Supply and Use. 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 developed institutional framework. The success is clearly indicated by the sustained low ratio of elasticity demand to GDP growth of 0.86 during 1980-95. However, energy/ electricity conservation programs have always been based on centrally designed policies and heavily subsidized administrative programs. Faced with constrained fiscal revenues, the government is now Page 4 promotinig programs to reduce losses on the supply side and market-based initiatives to improve electricity use. The Chinese approach to reform encourages experimentation with different reform options and institutional forms. This gradual approach permits the Chinese to examine the relevance and applicability of specific reforms and also to fine-tune reform implementation for broader dissemination or replication in other parts of the country. (During the last few years, the Bank's technical assistance program for the sector has focused on helping the Chinese in assessing reform options, defining implementation strategies, exploring options for mobilizing domestic and foreign private funds to meet the capital needs of sector development and developing a regulatory framework. The study entitled "Strategic Options in Power Sector Reform in China," 1993, sector report entitled "China Power Sector Reform: Towards Competition and Improved Performance," Report 12929-CHA, 1994, and discussion paper entitled "China: Power Sector Regulation in a Socialist Market Economy", 1997, which summarized the latest reform emphasis, provide vehicles for dialogue between the Bank and Chinese institutions. Another discussion paper, No. 377 entitled "Mobilizing Domestic Capital Markets for Infrastructure Financing: International Experience and Lessons for China," was prepared based on a seminar held in November 1996 in Beijing on the subject. The Bank is now assisting the Government to examine institutional structures to develop power markets in China. The intention is to facilitate increased power exchange between regional and provincial power systems to economize resource utilization. This assistance is being provided through an IDF grant.) The Government's future reform agenda includes: * At the institutional level: - Dissolution of the Minister of Electric Power (MOEP) and transfer of its regulatory functions to the State Economic and Trade Commission (SETC) and the State Development Planning Commission (SDPC) and its commercial functions to the State Power Corporation (SP). This decision made by the State Council was recently confirmed by the National People's Congress. In parallel, the Government is gradually developing rules to more efficiently regulate the sector; * Corporatization and commercialization of the SP which has been established to hold the State's ownership interest in the subordinate regional and provincial power companies. It is expected that the SP will access long-term international and domestic bond markets for sector financing; * Gradual implementation of regional power markets to facilitate economic power exchange, trade between provincial systems, and competition at the generation level; * Rationalization of power tariffs particularly at the wholesale generation and transmission levels; and * Continued focus on increasing the domestic and foreign equity participation in newly formed generation enterprises. (By end-1997, there were at least 25 power generation companies in China that had been publicly listed in domestic and international markets.) * At the technical/operational level: * Achievement of economies of scale in thermal power production, through expanded development of large and efficient generating units; Page 5 * Promotion of conservation technologies and introduction of market-based incentives for electricity conservation; * Development of renewable energy technologies, especially wind power; and * More adequate enforcement of environmental protection standards. 3. Sector issues to be addressed by the project and strategic choices: * Infrastructure bottlenecks (investment components for power plant and transmission network) * Inadequate wholesale electricity pricing systems (wholesale contractual arrangements under TA component) * Unclear ownership rights and lack of commercial orientation of power entities (HEPC's restructuring plan under TA component) * Inadequate financing of transmission projects. (pricing principles agreed between HEPC and the Hunan Provinical Government for the transmission component) The project will indirectly address the following sector issues: * Development of private power projects (transmission component to support Changsha BOT project) * Improving local air quality by replacing about 10 small polluting generating units operating in the provincial power network (300 MW total) with a large efficient plant utilizing local anthracite fuel (alleviating pressure on coal supply and transportation and reducing transportation cost) and modem environmental control systems There are several reasons why the decision to undertake this project as a Bank-financed public project has been made: * The project will through separation of generation from transmission and distribution help in: (a) setting a more predictable and transparent commercial framework; (b) establishing a sector structure that will allow for the competitive bidding for power purchases; and (c) encouraging investment in transmission and distribution. This will ultimately lead to the development of fully competitive markets. - Leiyang II will be the first thermal power project in Hunan with a double-arch downshot designed boiler using 100 percent local anthracite and avoiding transfer of coal over long distance. Technically, it is more risky and less attractive to private investors. For example, the BOT Changsha power plant has been designed to use a mix of bituminous coal imported from Shanxi (60 percent) and local anthracite (40 percent) and to use conventional subcritical boilers. * Without the involvement of the World Bank the above technical and institutional improvements are likely to be delayed by three to five years. Page 6 C: Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): Component Category Cost Incl. % of Bank % of Bank Contingencies Total financing financing (US$M) (US$M) 1. Leiyang Power Plant Component: Physical 463.37 68.3 255.31 55.0 The supply and installation of two additional 300 MW anthracite-fired generating units at the Leiyang Power Plant to alleviate power shortage, improve the generation mix in a system dominated by seasonal hydropower, and facilitate the retirement of 10 small, aging, inefficient, and polluting generating units in the provincial power grid. 2. Transmission Component: Physical 204.90 30.2 39.19 19.1 Reinforcement of the existing 220 kV transmission systems-supply and installation of about 794 km of 220 kV lines and 1,920 MVA of transformer substations capacity. The component will connect Leiyang Power Plant Phase II and competitively bid BOT Changsha Power Plant (2x300 MW) to the Hunan Provincial Grid and reinforce the transmission system in order to supply the increasing demand in a reliable, economic and efficient manner. 3. Technical Assistance for engineering services for Project 9.56 (for the 1.4 4.50 (for the 47.1 construction management Management whole TA whole TA component) component) 4. Technical assistance for implementation of HEPC's Policy (Sector restructuring plan: (a) incorporation of generation and Reform) transmission/distribution companies; (b) incorporation of the future Leiyang power plant; (c) preparation of contractual agreements and other commercial documentation 5. Technical assistance for improvement of the financial Institutional management system. Building (Sector Reform) 6. Training Institutional 1.00 0.1 1.00 100.0 Building Total 678.83 100.0 300.00 52.0 2. Key policy and institutional reforms supported by the project: * Unbundling of generation from transmission and distribution: This will lead to the implementation of a purchasing agent structure (a) allowing limited competitive bidding by generator to minimize cost Page 7 of supply; (b) encouraging investments in transmission and distribution; and (c) easing the transition to a fully competitive market in the longer term (see Annex 5). * Development of efficient wholesale generation tariffs: A revised system of wholesale power pricing will be introduced to facilitate systemwide economic dispatch and ensure optimal utilization of resources. * Corporatization and Commercialization of power companies: HEPC would be restructured and incorporated into one transmission/distribution company, one thermal generation company, one hydro development company, and Leiyang Power Generation Company in accordance with the Company Law. In addition, the accounting and financial management systems of HEPC would be upgraded to facilitate the commercialization process. 3. Benefits and target population: The project would have a marked impact on the economic development of Hunan Province. The direct benefits attributable to the project are: (a) reduction in the value of lost production due to power rationing and load shedding; (b) improvements in quality of supply in terms of reduced interruptions and recognized but difficult to quantify service parameters, such as, more stable frequency and voltage, and (c) improvements in local air quality with retirement of older polluting generating units (generally located in urban and populated areas). The other major benefit of the project is the implementation of the sector reform plan and increased commercial orientation of HEPC. The development of a competitive commercial framework for purchase of power from all generating units on the system will be conducive to economic dispatch and overall generation efficiency. The clear separation of the generation from transmission and distribution will provide a framework to promote competition at generation level and private investments in power generation. The proposed project would therefore benefit all power consumers in Hunan Province. 4. Institutional and implementation arrangements: Implementation Period. Five years, from December 1998 to December 2003 Executing Agency. HEPC is the beneficiary of the proposed loan and the executing agency of the project. The overall management of the project would be carried out by HEPC, which would be responsible for project preparation, implementation and operation, including procurement, construction supervision, and disbursement of funds. HEPC has been operating the Hunan provincial grid for more than 20 years and has had operating experience of anthracite fired units (200 MW and below) for more than 10 years. It has the organization and key staff required for project and construction management. The detailed arrangements are presented in Chart A1-A3 of Annex 6. To facilitate effective project implementation according to the planned timetable, HEPC has established a Project Implementation Unit (PIU) with full-time staff, headed by the Deputy Chief Engineer (reporting to HEPC Management), to carry out the project preparation and construction management. Hunan Provincial Electric Power Design Institute has been appointed to assist HEPC in carrying out engineering, procurement, and project implementation. HEPC and its PIU will also be assisted by an international consulting firm and a local expert group. Page 8 Project Oversight and Policy Guidance. The institutional reform elements of the proposed project will be supervised by SP, SETC, and SDPC (SP in particular). SP will be responsible for obtaining the State Council approvals on major reform issues. The concerned provincial government agencies will oversee the planning and implementation of resettlement. Onlending and Auditing Arrangements. The proposed Bank loan of $300 million will be made to the People's Republic of China represented by the Ministry of finance (MOF) at the Bank's standard interest rate for LIBOR-based US dollar single currency loans, with a maturity of 20 years, including a five-year grace period. Proceeds of the loan will be onlent from the Borrower (MOF) to HEPC on the same terms and conditions as the Bank loan with SP as the guarantor. HEPC agreed to maintain and provide the Bank with semiannual progress report, with unaudited project accounts to reflect project expenditures for the period under report compared with the original project cost estimates. Moreover, HEPC will furnish the Bank with the audited accounts for the project, statement of expenditures, and financial statements within six months of the end of each fiscal year. In this regard, HEPC will also implement any changes to its accounting practices as recommended by the financial management consultants, require the auditors to comply with international auditing practices and provide an audit plan prior to each audit. The proposed project will be audited by the representative office in Hunan of the State Audit Administration (SAA). This office has prepared audit reports in connection with other Bank financed projects in the province in accordance with Chinese audit principles and standards, which are generally consistent with international practices. Finally, HEPC will furnish to the Bank by June 1 of each year, a rolling eight-year financial plan including projected income statements, fund flow statements, and balance sheets. D: Project Rationale 1. Project alternatives considered and reasons for rejection: A least-cost study was carried out by HEPC, with the assistance of local consultants, covering the period 1998-2025 and focusing on 1998-2010. The study was carried out using an optimization model that determines the optimal capacity and generation mix to meet the demand with the minimum cost (net present value of investment and operating costs), given a predetermined reliability criteria. It considered all potential (technically feasible) candidates including: extension of existing hydropower plants, new hydropower plants, thermal power units using local anthracite, thermal power units using bituminous coal from other provinces, combined cycle units using distillate and imports of power from neighboring provinces. The proposed project remains the first investment of the optimal (least cost) power development program under various scenarios. In the without project case, the new development program remains based on greenfield 300 MW units using local anthracite. System reliability in terms of loss-of-load probability will also benefit from the addition of thermal capacity. The present power generation system has substantial hydro capacity (about 55 percent of total capacity) with relatively little storage capacity and generation is thus highly dependent upon hydrological conditions. Page 9 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing andplanned): Latest Supervision (Form 590) Ratings (Bank-financed projects only) Sector issue Project Implementation Development c-completed; o-ongoing; p-planned Progress (IP) Objective (DO) Bank-financed Issues: 1, 3 Tianhuangping Hydroelectric Project-o HS HS Issues: 1, 3, 4, 5 Waigaoqiao Thermal Power Project-o Issues: 1, 3, 4, 5, 6 Tuoketuo Thermal Power Project-o Issues: 1 Wujing Thermal Power Project-c HS HS Issues: 1, 5, Yangzhou Thermal Power Project-o S S Issues: 1, 4, 5 Zhejiang Power Development Project-o HS HS Issues: 6 Energy Conservation Project-o Issues: 2, 3, 4, 6 East China/Jiangsu Transmission Project-o Issues: 5 Renewable Energy Promotion Project-p Other development agencies Issues: 3, 4 ADB (TA No. 2169-PRC) Hunan Electric Power Company Institutional Strengthening Study Issues: 1, 5 ADB (Loan No. 1318-PRC) Hunan Lingjintan Hydropower Project Issues: 1, 5 ADB (TA No. 2739-PRC) BOT Changsha Power Project IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: * Limited and Achievable Objectives of Power Sector Reform. Setting specific and achievable reform goals in the two latest projects (Waigaoqiao and East China/ Jiangsu Power Transmission) proved to be more effective and better understood approach by the beneficiaries. International experience shows that even in countries with strong legal systems and open economies, the time needed to build consensus on the reform decisions, establish a new regulatory framework, and implement structural changes can be very long. In the UK, the pioneer country in implementing power sector reforms, it took about 10 years for consensus building and laying out the reform options, and two more years for drafting the law and the licenses, and another two for designing the mechanisms to introduce competition. It is clear that the power sector reform agenda in China is far reaching and can be achieved only gradually. It is important to avoid the broad brush reform approach and define clear priorities and focus on specific and limited areas of reform for each project. * Better Preparation of Procurement Packages. Procurement of transmission component features numerous small packages in comparison with generation projects. Each package requires very specialized technical knowledge. Inadequate project management caused significant delays of Page 10 procurement and hence delays of project implementation; noncompliance with the Bank Procurement Guideline due to a lack of awareness, and poor quality of evaluation report have required excessive amount of time for clarification and resulted in delays. Learning from recent experience, the Beneficiary has: (a) established a procurement management group within the organization of the implementing agency from the inception of the project. This group will be part of the project management team and will be responsible of management and coordination of all procurement activities; (b) organized a one-week training course on Bank Procurement Guidelines and a study tour to other Bank financed projects in China to learn from their experience. Experienced procurement specialists from the leading tendering companies in China and staff of the Resident Mission assisted in designing and carrying out the training sessions; and (c) involved independent international consultants to improve the quality of the bidding documents and bids evaluation. * Need for Early Government Approval of Project. In the recent Tuoketuo and Waigaoqiao thermal power projects there were delays in project processing stemming from delayed internal Government approvals. These delays were due to the fact that while the Bank has shortened the project processing period significantly (about six months) under the streamlined operations procedures the government internal approval procedures remain unchanged. The approval process for the proposed project has been closely monitored and special efforts were made by the Beneficiary, MOEP, and MOF to have secured all necessary government approvals before project negotiations. Moreover, the CMU in Beijing has started discussions with the relevant government agencies on how to synchronize both sides' procedures. * Phased Approach to Resettlement. Following the identification mission and in coordination with LEGEA and ASTHR, it is clear that most of the detailed engineering, the routing of the transmission line and siting of transmission towers and substations will not be finalized until early 1999 (which is after the implementation has already begun), two years before the power plants scheduled for trial operations. The agreement with the Borrower, therefore, is that the project will be implemented in two phases. As a result, the Beneficiary should prepare RAP in two phases. The Phase I RAP, submitted to the Bank in February 1998, included: (i) the relevant resettlement policies and regulations, the institutional arrangements and implementation procedures governing all resettlement actions to be carried out under the proposed project; (ii) detailed resettlement action plans for the power plant component, and three substations and two transmission lines under the transmission component; and (iii) a preliminary sample census survey for the second phase. A second-phase RAP, to be submitted to the Bank for approval by March 1999, would include the same policy framework and detailed action plan for the remaining six substations and 18 sections of transmission lines. * Supply of coal with consistent quality. Following a serious boiler accident at Beilungang due to uneven coal quality and start up problem in the Yanshi project, particular attention was given to the boiler design and specifications, coal specifications, and "check coal" specifications, and intensified coal monitoring. A complementary coal study has been prepared by HEPC on coal sampling and analyses. 4. Indications of borrower commitment and ownership: The Beneficiary's commitment and sense of ownership for the proposed project is very high. HEPC has been actively consulting with the relevant government agencies at central and local levels on the required approvals. The approval by MOEP for HEPC's restructuring plan required for the Bank to issue invitation for negotiation of the proposed project was received in March 1998. Contract for consulting service for preparation of detailed reform implementation plan was signied with an international reputable firm on May 1, 1998. Feasibility studies have been submitted to SPC by MOEP. Bid documents for boiler and turbine generator are being prepared with assistance provided by HEPC's Page 1 1 international engineering consultants and expected to be submitted to the Bank kor review and clearence in June 1998. Final report for the least cost study was received by the Bank in November 1997. The EIA report has been finalized with the assistance of HEPC's international consultants and submitted to the Bank. 5. Value added of Bank support in this project. World Bank Involvement in this project, the first power project in Hunan, is designed to address the technical, financial, and institutional issues by taking into account successful international experiences. The Bank's participation in the project will add value by: * Contributing to the economic development in Hunan to help address the issue of uneven development and widening gap between the coastal and inland areas in the country. * Facilitating implementation of a single buyer market structure in Hunan. The restructuring of HEPC will avoid excessive fragmentation of the sector while setting a framnework for competition at the generation level through: (a) creation of two major generation companies; (b) consolidation of Leiyang Phases I and II into a single generation corporation; and (c) incorporation of HEPC into a transmission and distribution company. * Deepening ongoing policy dialogue to address the institutional aspects of wholesale electricity pricing which are critical to the implementation of the power purchasing agency model. Power sales to the transmission and distribution company will be based on adequate contractual arrangements. * Developing a modern environmental management program for the Leiyang power plant, which will serve as a model for other new thermal power plants in Hunan. * Strengthening HEPC's corporate governance, and management capacity through (a) upgrading the financial management system; (b) incorporating the to-be-created companies according to the Company Law; and (c) implementing an intensive training program. * Supporting technology transfer in the construction and operation of 300 MW units using local anthracite resources. Since the project is the first with the design of double arch downshot boiler in Hunan, Bank's participation will help ensure the quality of implementation. E: Summary Project Analysis (Detailed assessments are in the project file, see Annex 13) 1. Economic (supported by Annex 7): [xl Cost-Benefit Analysis: Leiyang Power Plant: NPV = US$191.2 million; IERR = 19.4 percent HEPC's overall Investment program: NPV = US$246.8 million; IERR = 13.6 percent Generation A least-cost study was carried out by the Beijing Research Institute for Water Resources and Electric Power (BERI), in conjunction with the Hunan Electric Power Company (HEPC), using a planning model that determines the optimal capacity and generation mix to meet the demand in the most cost effective way (minimum net present value of investment and operation costs). The study covered the development of the system during 1997-2025, study period, with special focus on the investment required during 1997-2010, planning period. The detailed report, "Economic Analysis for Leiyang Coal Fired Thermal Power Plant" (November 1997), prepared by BERI and HEPC is in the project files. A cost benefit analysis was carried out to confirm the economic viability of the project. The analysis was carried out based on the economic cost of the project and the revenues generated by power sales valued Page 12 at the bulk price of 29.1 fen/kWh (1997 prices), based on existing policies for pricing of power output from new power plants and fully passed on to the consumers. The calculation yielded an IERR of 19.4 percent. A risk analysis was also carried out to confirm the robustness of the project. It yielded an expected IERR of 14.8 percent (with a standard deviation of 4.2 percent). The possibility of the expected IERR to be lower than 12 percent is 26 percent. Transmission The strengthening of the transmission system is imperative. The load flow and stability analyses carried out by HEPC show that the need and timing of the proposed lines and substations are justified. The design parameters of the proposed lines and substations has been optimized to ensure that transmission services would be provided in the most cost effective way. To complement the cost-effectiveness approach, a cost-benefit analysis was carried out on HEPC's entire investment program. It yielded an IERR of 13.6 percent. A risk analysis was carried out and yielded an expected IERR of 12.4 percent (with a standard deviation of 4.2 percent). The possibility for the expected IERR to be less than 12 percent is 40 percent. 2. Financial (see Annex 8): Leiyang Power plant: NPV = US$ 2.4 million; FRR = 12.11 percent Transmission investment: NPV = US$27 million; FRR = 14.86 percent Leiyang Power Plant The financial rate of return for the proposed power plant investment is estimated at 12.11 percent based on pricing principles agreed by the Pricing Department of Hunan Provincial and determined as follows: * Prior to the retirement of domestic debts (from 2002 to 2012): full debt service requirements; O&M cost (including depreciation not used for debt repayments); taxes related to the proposed project; and an annual return of not less than 15 percent on the funds invested by HEPC for the proposed component. * After retirement of domestic debts (from 2013 to the end of the life of the project): full debt service requirements for the Bank loans; O&M cost (including depreciation not used for debt repayments); taxes related to the project; and an annual return of not less than 18 percent on the funds invested by HEPC for the proposed component. The estimated average tariff for the proposed power plant component over the life of the project would be 59.71 fen/kWh in current terms and 29.05 fen/kWh in 1997 prices. Fiscal Impact. The proposed power plant investment is expected to generate tax revenues in a total amount of about $694.2 million equivalent during the project life, of which $89.9 million duties, $286.1 million VAT, $28.7 million surcharges, and $289.5 million income taxes. Based on a discount rate of 12 percent, the net present value of the tax revenues generated by the proposed investment is estimated to be $123.9 million, of which $7.8 million duties, $51.3 million VAT, and $9 million surcharges, and $55.8 million income taxes. Transmission Component The financial rate of return for the proposed transmission investment is estimated at 14.86 percent based on the pricing principles agreed by the Pricing Department of the Hunan Provincial Government and determined as follows: Page 13 * Full debt service requirements; O&M cost (including depreciation not used for debt repayments); taxes related to the proposed component; and an annual return of not less than 15 percent on the funds invested by HEPC for the proposed component. The estimated average tariff increases for the proposed transmission component over the life of the project would be 0.55 fen/kWh in current terms and 0.32 fen/kWh in 1997 prices. Fiscal Impact. The proposed transmission investment is expected to generate tax revenues in a total amount of about $409.7 million equivalent during the project life, of which $16.5 million duties, $182.7 million VAT, $18.3 million surcharges, and 192.2 million income taxes. Based on a discount rate of 12 percent, the net president value of the tax revenues generated by the proposed investment is estimated to be $143.8 million, of which $1.4 million duties, $62.4 million VAT, and $6.2 million surcharges, and $73.8 million income taxes. Assessment of HEPC's Financial Management System. The project team reviewed HEPC's financial management system, including accounting standards and internal control and audit policies/practices, and the accounting arrangements for the proposed project and found them satisfactory. Technical assistance and training provided under the proposed project will upgrade HEPC's financial management capabilities, introduce modem financial management practices, and strengthen the financial and accounting staff skills. 3. Technical: The Feasibility Study for the Leiyang Thermal Power Plant, prepared by the Hunan Provincial Electric Power Design Institute (HPEPDI), has been reviewed by the Central Electric Power Planning and Design Institute (CEPPDI) and approved by the MOEP. A follow-up review of the Leiyang Plant boiler island conceptual design, especially on the coal analysis and boiler selection, has been carried out by Black and Veatch of USA (Engineering Consultants for HEPC). The review confirmed successful burning of the local very low volatile anthracite requires a furnace design that provides adequate residence time for the char particle in a high temperature combustion zone. The recommended arch-firing combustion system (downshot furnace) is the proper technology for the Leiyang power plant. Studies for strengthening Hunan transmission system were also reviewed by CEPPDI and MOEP. The studies concluded that reinforcement of the existing 220 kV transmission system is essential to the supply of increasing energy demand in a reliable, economic and efficient manner. The reinforced 220 kV system would integrate planned and under construction large size power stations especially the proposed Leiyang thermal power and the Changsha BOT plants. Load flow, fault level and transient stability analyses were performed for the Hunan Provincial Grid at the voltage level of 220 kV and above including the 500 kV AC tie line linking the Hunan Provincial Grid to the Central China Power Grid. Both steady state and transient stability criteria can be satisfied. The above studies, including environmental impacts and mitigation measures, were reviewed by the Bank and found adequate. The project's technical design is appropriate to the needs of Hunan Provincial Power Grid and conforms to required standards. HEPC has been operating the Hunan Provincial Grid for more than 20 years and has had operating experience of anthracite coal fired units for more than 10 years. It has the capability to successfully carry out the implementation of the proposed project. Post-engineering works, including the balance of the engineering, design, preparation of equipment specifications and tender documents, and interface with the contractors will be performed by HEPC and HPEPDI, assisted by the Consultants Black and Veatch, International. Cost estimates for components of generation and transmission facilities were defined based on studies and engineering designs carried out by HEPC and HPEPDI. The cost estimates reflect end-1997 prices Page 14 and are based on the latest international tendering information available for similar equipment and works, which are realistic. Physical contingencies are calculated at 5 percent for foreign costs and 10 percent for local costs. The price escalation for costs expressed in terms of foreign exchange is calculated according to anticipated international price movements of the price escalation for costs expressed in terms of foreign exchange is calculated according to anticipated international price movements of 2.5 percent per year for 1998, 3.1 percent for 1999, 2.9 percent for 2000, 2.8 percent for 2001, and 2.7 percent for 2002, and 2.6 percent for 2003. The price escalation for costs expressed in local currency is calculated according to projected inflation rate for China of 2 percent for 1998, 4.8 percent for 1999, 5 percent for 2000 and 5.5 percent for 1999-2003. The allowances for physical contingencies and price increases during implementation are deemed to be adequate. 4. Institutional: As a new beneficiary of a Bank project, HEPC is not familiar with the Bank procedures, particularly the procurement procedures. Therefore, a project management unit was established based on the Bank mission's recommendation with full-time staff. Furthermore, a procurement group was organized and trained by the Bank procurement specialists. International consultants experienced with power project procurement has been engaged to assist HEPC in procurement of major equipment. To strengthen the institutional and managerial capabilities of HEPC, a comprehensive technical assistance and training program is included under the proposed project and described in details in the PIP. The program, initiated during project preparation, includes technical assistance and training in: (a) preparation of detailed reform implementation plan; (b) development and implementation of modern accounting and financial management system, and (c) development of wholesale power purchase pricing methodology and contractual arrangements between the restructured HEPC and generation entities. 5. Social: The resettlement for the proposed project will be carried out in two phases. The first phase includes: (a) policies and regulations, institutional arrangements, implementation procedures that would be applied to all components of the proposed project; and (b) detailed resettlement plans for (i) Leiyang Power Plant; (ii) four 220 kV substations (Furong, Dongfenghu, Hengbei, and Wangcheng); and (iii) two sections of 220 kV transmission lines (Huaneng Power Plant to Dongfenghu, and Macha to Hengbei). The second phase includes resettlement activities related to five 220 kV substations and 18 sections of 220 kV transmission lines. A Resettlement Action Plan (RAP) has been prepared for the first phase. The RAP for the second phase will be prepared by March 1999 following the completion of the design of routing and siting of these subcomponents. The Bank carried out full review of the RAP and the assessment found that the resettlement needs and PAPs are well analyzed and mitigating measures of adverse social impacts are thoroughly formulated and adequate. The second phase RAP and any unforeseen resettlement associated with the project will be carried out according to the policy and procedures established in the Phase I. Minimization of the scope of resettlement was, and will continue to be a high priority throughout the planning, design and implementation of the proposed project. Where land acquisition and demolition are unavoidable, the resettlement plans provide for replacement of housing, alternative employment opportunities, infrastructure, services and other resources to improve, or at least restore, the living conditions and income of the project affected persons (PAPs). Special attention was given to the most vulnerable groups (household headed by women, senior people, and poorest households). Page 15 The project (including two phases) would (a) require acquisition of 1,097.5 mu (about 73 ha) of land; (b) affect 396 persons due to land loss; (c) demolish 100,145 square meters of floor spaces in rural and urban areas; and (d) relocate 266 households or 1,418 persons. The first phase components require acquisition of a total of 438.5 mu land area, affecting 108 people; demolishing 15,941 square meters of floor spaces, and relocating 175 households or 993 individuals. Based on a preliminary estimate, the remaining project components will require acquisition of 659.0 mu land area, affecting 289 farmers, removing 84,204 square meters structures, and relocating 91 households or 425 individuals. In order to effectively implement the resettlement program, resettlement offices were established at the provincial, city, county, and power supply bureaus levels. To strengthen the resettlement offices' implementation capabilities, a resettlement policy and implementation workshop was conducted for staff involved in the resettlement activities in May 1998. 6. Environmental assessment: Environmental Category [x] A []B []C In accordance with OD 4.01 (Environmental Assessment), the project has been assigned Category A. The Environmental Assessment (EA), was prepared as two separate reports: Part A the Leiyang Power Plant, and Part B the Transmission System. Both Parts were prepared by a team consisting of international consultants specializing in environmental issues related to thermal power plants and transmission lines and the Nanjing Electric Power Research Institute (NEPRI). For the power plant, the international consultant took the lead role in EA preparation and for the transmission line, NEPRI assumed the lead role. The EA document has been approved by the National Environmental Protection Administration (NEPA) and has been reviewed and approved by the World Bank; it is considered that all environmental aspects of the project are satisfactorily addressed and in compliance with all Chinese and World Bank environmental policies and procedures. Because of the unusual characteristics of the fuel to be used, some exceedance to existing World Bank nitrogen oxides (NOx) emission guidelines will occur. Additionally, a variance to Chinese NOx emission standards was established by NEPA. Thermal discharges from once through cooling water also exceed World Bank Guidelines, but comply with Chinese standards. However, the EA analysis determined that the environmental consequences of these exceedances were insignificant. A monitoring program will be incorporated into the project to ascertain and verify these conclusions on a sustained basis. Should additional mitigation be required, the Borrower has agreed to take the appropriate measures. The power plant is located in the southeastern part of Hunan Province in Xinhe and Luqi villages on the right bank of a meandering section of the Leishui River. The plant is the second phase adjacent to an existing (2x200 MW) power station. Alternative locations were not considered practical, since the existing site could take advantage of the available infrastructure (cooling system, ash disposal system, etc.) and would not involve any resettlement. Modern pollution control technologies will be incorporated into the design of the power plant, such as high efficiency electrostatic precipitators. The plant site has sufficient space to accommodate additional pollution control systems if required as a result of future changes to Chinese standards and/or technological developments. Annex 11 provides a summary of key environmental issues associated with the project and their anticipated impacts, the mitigating plan to assure that these impacts are minimized to acceptable levels, and the monitoring program with which environmental impacts will be measured to compare to EA predictions. Further strengthening of HEPC is included in the project design. It will include both training and acquisition of appropriate environmental monitoring equipment (see Annex I1). Mitigation measures identified in the EA and included in the project design for the transmission component include: appropriate routing to minimize exposure to sensitive receptors, a 50 m corridor and Page 16 sufficient height of the line span to avoid interference with traffic (highway, navigational, and air) and communications and sufficient height to maintain Chinese public health and safety standards for ground level electric field intensities. Environmental issues associated with the project (power station and transmission line) and addressed in the EA included all concerns expressed by affected parties in a series of public meetings. Local public and local authorities support the project and the recommended mitigating measures presented in the EA reports. the mitigating and monitoring plans presented in the EAs (see Annex 11) will be fully implemented. Key issues addressed in the EAs included: air pollution (dust, sulfur dioxide, nitrogen oxides), water pollution (primarily thermal pollution impacts to aquatic ecology in the Leishui River), ash management, worker health and safety (including the mine supplying the coal), electric field, noise, losses in land productivity, interference with communications and bird flight patterns, and influences of construction and operational labor forces on the local infrastructure. Furthermore, the proposed project (2 units of 300 MW each) is the second phase of what might be a three phase program at the Leiyang site. To avoid future adverse environmental consequences, the EA examined both the immediate impacts of the subject project (600 MW) as well as cumulative impacts including a possible third phase (2x600 MW). Mitigating measures for air, water, and solids management (coal, ash) are designed to meet appropriate Chinese requirements and/or World Bank guidelines whichever is stricter. In the absence of either, international codes of practice will be used (as is the case for nitrogen oxides emissions). For the cooling water discharge the exceedance of World Bank temperature guidelines was determined to have insignificant environmental impact, and was within Chinese environmental standards. 7. Participatory approach [key stakeholders, how involved, and what they have influenced; if participatory approach not used, describe why not applicable]: a. Primary beneficiaries and other affected groups: - SP and the Central China Electric Power Group Corporation (CCEPGC) as HEPC's parent/holding company, they have been involved in some key decision making process, such as the restructuring plan of HEPC and investment strategy of HEPC, for the proposed project. * Hunan provincial government has also been involved in policy issues, including tariffs, resettlement, environment, and coal supply. * Leiyang community has been consulted on the resettlement plan through interviews and public meetings. b. Other key stakeholders: F: Sustainability and Risks 1. Sustainability: The financial sustainability will be achieved through suitable financial covenants to ensure full cost recovery and modest profitability. The existing pricing policy in China warrants that project costs will be passed on to the consumers. Given HEPC's operating experience with the first phase of anthracite fired units in Leiyang, the operational sustainability should not be a problem. Page 17 2. Critical Risks (reflecting assumptions in thefourth column of Annex 1): Risk Risk Rating Risk Minimization Measure Annex 1, cell "from Outputs to Objective" Completion of Leiyang plant delayed Modest International consultants will be engaged to assist HEPC in construction management and procurement. Equipment deficiency for the plant Modest Major equipment will be procured through ICB and bid documents, bid evaluation, and interface will be assisted by international consultants. Leiyang plant and transmission systems poorly Low Technical training will be provided. maintained Coal quality different from designed coal Substantial Coal supply contracts with penalties will be signed between coal mines and HEPC one year before trial operation of the first unit. Delays in the construction of BOT Changsha plant Modest First pilot BOT Laibin B project has included severe penalties for delays in the concession agreement. Financial closure for Laibin B was only three months behind the planned schedule. With the experience in Laibin, further improvement in Changsha is expected. Change in government commitment to market- Modest Effective policy dialogue will be continued with both oriented sector reform. central and local government levels. Annex 1, cell "from Components to Outputs" Inadequate procurement resources, slow Modest * A procurement group within the organization has been procurement decisions established * Training on Bank procurement guidelines has been provided * International consultants has been recruited to assist in bid document preparation and bid evaluation. Delays in retirement of aging and polluting plants Substantial * Retirement plan for about 10 units with 300 MW (total) installed capacity has been agreed with HEPC and included in the Project Agreement. * Intensified monitoring and supervision will be planned. Delays in resettlement implementation due to (a) Modest * An executable resettlement plan was prepared with delays in approval of resettlement budgets; (b) cost assistance of experienced resettlement specialists who overrun, and (c) poor coordination have worked in a number of similar Bank financed power projects. * Adequate contingencies for resettlement costs have been budgeted. * The resettlement implementation agency at the provincial level will be strengthened. Delays in implementation of restructuring plan due Modest * Policy dialogue will be continued with HEPC's parent to (a) delays in approval of detailed steps by State companies and local governments. Power Corporation and Central China Group, and * Basic framework of measures has been agreed. (b) lack of qualified staff * Relevant training will be provided. Overall Risk Rating Modest Risk Rating-H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk) Page 18 3. Possible Controversial Aspects: None. G: Main Loan Conditions 1. Effectiveness Conditions: Execution of the subsidiary loan agreement between the Government and HEPC, satisfactory to the Bank, and approval of the Loan Agreement by the State Council would be conditions for loan effectiveness. 2. Agreement has been reached with the Government: The Borrower will ensure that the proceeds of the Loan are onlent to the Beneficiary under a subsidiary loan agreement on the same terms and conditions as the Bank loan, and that the Beneficiary bears the foreign exchange risk. 3. Agreements have been reached with the Beneficiary: Financial Performance * HEPC shall not incur any debt unless a reasonable forecast of the revenue and expenditure shows that the estimated internal cash generation would provide a debt service coverage of no less than 1.5 times at all times; and * HEPC shall take all necessary measures, including but not limited to tariff adjustments, to earn a return of not less than 8 percent of the equity (paid-in capital plus retained earnings) in 1999-2000, 10 percent in 2001-2002, and 12 percent in 2003 and thereafter. Financial Reporting, Monitoring and Auditing * maintain and provide the Bank with semiannual progress reports, with unaudited project accounts to reflect project expenditures and original project cost estimates for the implementation period; * furnish to the Bank audited accounts for the project, statements of expenditures, and financial statements within six months of the end of each fiscal year; implementing any changes to its accounting practices as recommended by the financial management consultants to meet international accounting standards; and require auditors to comply with international auditing practices and provide audit plans for each audit; and * by June 1 of each year, furnish to the Bank a rolling eight-year financial plan containing projected income statements, fund flow statements, and balance sheets. Power Sector Reform * carry out the reform implementation plan according to the timetable agreed with the Bank and detailed in Annex 5. * carry out and complete technical assistance programs for assets restructuring, incorporation of restructured HEPC and other power generation entities, and development of wholesale power purchase agreement by December 2000. Page 19 Institutional Building * carry out the organizational restructuring and financial management systems studies according to the schedule agreed with the Bank; and implement the recommended organizational improvements, and accounting and financial management systems, taking into account Bank comments; and * carry out the management development and training programs as agreed with the Bank. Environment * carry out the Environmental Management Program in a manner satisfactory to the Bank. Resettlement * carry out the resettlement program in accordance with the agreed Phase I RAP; prepare a satisfactory the Phase II RAP following completion of the detailed engineering studies for remaining components of the project no later than March 31, 1999. Prior to commencing the second phase activities, carry out the compensation, resettlement, and rehabilitation of PAPs in accordance with the Phase II RAP as shall have been approved by the Bank. H. Readiness for Implementation [x] The engineering design documents for the first year's activities are complete and ready for the start of project implementation. [ ] Not applicable. [ ] The procurement documents for the first year's activities are complete and ready for the start of project implementation. [x] The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. [xj The following items are lacking and are discussed under loan conditions (Section G): Phase II RAP Page 20 I. Compliance with Bank Policies [ ] This project complies with all applicable Bank policies. [x] [The following exceptions to Bank policies are recommended for approval: The project complies with all other applicable Bank policies.] NO,, emissions will not meet current World Bank Guidelines because these guidelines were not formulated for anthracite coals. Task Manager: Elaine Sun Sector Manager: YoshhikoSu Page 21 ANNEX I ANNEX 1: PROJECT DESIGN SUMMARY Narrative Summary Key Performance Indicators Monitoring and Critical Assumptions Evaluation Sector-related CAS Goal: I. Reduction in value of lost production due to Hunan Provincial Govern- (Goal to Bank Mission) Economic development by power rationing in Hunan Province (billion ment statistics. reducing infrastructure yuan) bottlenecks 1996 2000 2002 2004 2.3 5.7 1.5 1.5 2. Increased value of production attributed to increased power supply (Leiyang power plant) 2002 2003 2004 2005 3.6 12.4 18.0 19.5 Project Development Objective: I. Availability of Leiyang Units Monitoring and Supervi- * Other barriers to growth Remedy of power shortages by 2002 2003 2004 2005 sion removed providing efficient, reliable and Unit 1 78% 83% 85% 88% * Lower voltage level are environmentally sound power Unit 2 78% 83% 86% optimally developed to ensure supply 2. Improved reliability of transmission network reliable supply to end users (faults/100 km/year on 220 kV system) * Units on the system expansion 1996 2000 2001 2002 2004 plan put into operation on 0.99 0.8 0.76 0.73 0.7 schedule 3. Reduction in load shedding 1996 2000 2001 2002 2004 19,239 25,000 650 580 520 4. Improved fuel efficiency (coal consumption: g/kWh) 1996 2000 2001 2002 2004 434 388 386 383 380 5. Reduction in overall specific emission rates for air pollutants (coal-fired plants: gms/kWh) 1996 2000 2001 2002 2004 SO2 5.27 4.74 4.27 4.00 3.64 NO, 5.37 5.21 5.16 5.06 4.95 TSP 9.18 9.16 8.50 7.06 5.32 Outputs: (Outputs to Objective) * 2x300 MW thermal genera- two 300 MW thermal generation units Site inspection and com- * Construction of Leiyang tion units constructed and constructed by December 2002, missioning documentation power plant on schedule operational * Good quality of equipment for Leiyang plant * Reinforcement of transmis- * 794 km of 220 kV transmission lines con- * Both Leiyang plant and trans- sion system completed and structed to reinforce the network, including mission system maintained operational connection of Leiyang and Changsha units to and operated in accordance the grid, by December 2002 with good industry practice * 9 new 220 kV substations constructed with a . Coal quality maintained as total transformer capacity of 1,680 MVA by designed 2002 and extension of 2 existing substations * BOT Changsha plant put in completed with added capacity of 240 MVA operation on schedule by 2002 * Timely retirement of the aging, inefficient, and pollut- . Retirement of small, aging, . Retirement of about 10 (300 MW) old units Monitoring and supervi- ing units inefficient, and polluting by 2003 sion * Continued commitment to power plants 1998 2000 2002 2003 power sector reform of rele- 4x25 4x25 Ix50 IxS0 vant government agencies and power entities * HEPC's reform plan * Separation of all generation units from Monitoring and supervi- implemented transmission and distribution by December sion of TA and policy 2000 dialogue * HEPC converted into a limited liability company engaged in transmission, distribution and dispatching by December 2000 * Formal incorporation of Leiyang Power Generation Plant by December 1999 * Formal signing of PPA between Leiyang and restructured HEPC by December 2000 * Implementation of efficient wholesale generation tariffs by March 2001 * Financial management system * Financial management systems designed, upgraded and operational automated, implemented and staff trained in use by 2001 * Training program * 407 staff trained and skill upgraded uimplemented Page 22 ANNEX 2 ANNEX 2: PROJECT DESCRIPTION PROJECT COMPONENT 1 Leiyang Thermal Power Plant-US$463.37 million (excluding IDC) The component is the expansion of the existing Leiyang thermal power plant, located on the bank of Leishui River and at the Baisha coal mines area, about 3 km south of Leiyang city. The plant is being developed in two phases. When completed it will have a total installed capacity of 1,000 MW. The layout provides possibility for further expansion in the future. The Phase I , consisting of two generating units of 200 MW each, became operational in 1988-89. The Phase II development of 2x300 MW is proposed to be financed by the Bank loan under the proposed project. The target dates for the commercial operation will be June 30, 2002 for the first unit and December 31, 2002 for the second unit. The feasibility study and the conceptual design for the project component have been completed by the Hunan Provincial Electric Power Design Institute (HPEPDI), in April 1997 and September 1997 respectively, and reviewed by the Central Electric Power Planning and Design Institute of the Ministry of Electric Power. The plant is located near the major load centers of Hengyang, Zhuzhou and Changsha, which have experienced acute power shortages. It is also situated close to the coal mine areas, reducing both transmission and fuel transportation costs. The infrastructure such as site development, access roads, housing complex, construction facilities, has already been completed in Phase I. Coal transportation facilities, coal handling equipment and circulation water pump house have all been constructed in Phase I. The adjacent mines already supply coal to the First Phase development. The greenfield site for the Second Phase Development has been leveled and the geological condition is favorable. The plant will supply a major part of the power requirements for south Hunan. Coal Supply. The second phase development is designed to bum entirely local anthracites containing of about 24.9 percent ash, 8.1 percent of moisture, 6.2 percent of volatile matter and 0.3 percent of sulfur, and with a heating value of 5,070 kcal/kg and a grindability index of 68 (HGI scale). It is estimated that about 1.53 million tons of anthracite will be consumed annually by the two units of the Phase II development. The anthracite coal will be sourced from the Baisha, Jiahe and Xifengdu three mines, which are adjacent to the plant. A total of 1.67 million tons of coal is available from these three coal mines per year for the project. The coal will be transported from the mines by train to the plant. The existing railway system is capable of delivering about 2.7 million tons of coal per year to the plant for both first and second phase development. Boiler. The local anthracites are dense and homogeneous coals with a relatively higher heating value. However, these coals are difficult to ignite since they consist almost entirely of fixed carbon with the very low volatile matter. The options for burning this kind of coal are limited to circulating fluid bed (CFB) combustion technology furnaces and pulverized coal combustion using a special furnace design known as arch-fired combustion system (downshot furnace). A key parameter to successfully burning anthracite is a furnace design that provides 3 to 4 seconds of residence time for the char particle in a high-temperature combustion zone. Both CFB and arch-firing designs provide the residence time required. Because of the limited operating experience with large capacity CFB steam generating units, CFB combustion technology is not recommended for this project. The selected boiler design is an arch- firing furnace, subcritical, single reheat, balanced draft, and outdoor. The boilers are rated at 284.7 kg/s continuous output at a superheater outlet pressure of 183 Bars and 540°C temperature. The boiler is designed to function at full rating with anthracite coal with heating values as low as 4,550 kcal/kg without using supplemental fuel(oil). The minimum net caloric (lower) heating value boiler efficiency is Page 23 ANNEX 2 90 percent. Four-ball tube mills will be specified for each unit. Three mills should be capable of carrying full load with the design coal. High efficiency electrostatic precipitator (ESP) will be used for the project with a minimum guaranteed efficiency not lower than 99.7 percent. The flue gas volume passing ESP is 1,800,000 m3/h. Steel structure would be provided for the boiler building. One common concrete stack will be constructed for the 2x300 MW units. The stack will be 210 m high with an outlet diameter of 7m. Turbine/Generator. The generating unit size would be 300 MW. The 300 MW turbines are to be subcritical, once intermediate reheat, steam condensing, single shaft, combined high and intermediate pressure turbine with double steam outlets, double steam outlets for low pressure turbine, and water- hydrogen cooling for generator. Regarding the thermodynamic system, each unit is designed as an independent system except for the auxiliary steam system. The steam turbine has eight uncontrolled steam extractions. The first three steam extractions supply steam for three high pressure feedwater heaters; the fourth steam extraction supplies steam for the deaerating heater, auxiliary steam system and boiler feed pump turbine; the remaining four steam extractions supply steam for four low-pressure feedwater heaters, the last two low pressure heaters will be located at the neck section of the condenser. The high pressure extraction steam from high-pressure turbine will also be used as the backup steam source for the auxiliary steam system and feedwater turbines. For each unit, two 50 percent feedwater pumps driven by steam turbines will be used in normal service and one 50 percent motor-driven feedwater pump with a variable speed coupling will be used as the startup and backup pump. The condensate from the condenser will feed the condensate polishing system, gland steam condenser, four low-pressure heaters to the deaerating heater through two 100 percent condensate pumps, one in operation and one as standby. For each unit, the closed cycle cooling water (CCCW) system includes two CCCW pumps, two CCCW heat exchangers, and a CCCW head tank. The steam turbines are designed for a 255 kg/s steam flow at a 167 (175) Bar pressure at 537°C steam temperature. The reheat section is designed for 209 kg/s flow at 32 Bar pressure and 537°C. The generator is rated at 353,000 kVA with 0.85 power factor. The unit will generate 300 MW at rated output. The generated electricity will be connected to the network at 220 kV level. There will be three groups of power transmission cables. The wiring style for the main cables shall be of double-bus, double-section with bypass. Steel structure would be provided for the turbine /generator building. Circulating Water System. The water source for plant use will be from the Leishui River. For 97 percent of the time during a year, the minimum daily water flow in the river section where Leiyang power plant can take water from is 46.3 m3/s, 46.7 m3/s from July to September and 48.5 m3/s from December to February. The pump house at the river bank constructed for Phase I, with new filtering equipment, three additional circulation pumps and associated pipelines to be added, will be used as the water supply system for phase II project. One-through circulating water system will be used with the projected water consumption to be 21.4 m3/s in the summer and 16 m3/s in the winter during dry season. Other common facilities such as water pretreatment, wastewater treatment, and demineralized water facilities are designed to incorporate the needs of the Phase II development. Minor expansion is required. Fuel Handling. Minor expansion is required for coal and oil reception, railcar unloading, and coal handling and storage facilities. A new coal yard will be constructed in parallel with the existing first phase coal yard. The outdoor coal yard will have a storage capacity of 86,000 tons and the dry coal shed 43,000 tons. The railway station within the plant area will be renovated and expended so that the effective length of rail lines will reach 700 m to meet the requirement of coal unloading. Ash disposal. Fly ash and bottom ash (slag), will be hydraulically conveyed to an existing outdoor ash disposal site located in the Yenpenchong Valley about 3.5 km away from the power plant. The site is Page 24 ANNEX 2 currently being used for disposal of ash from the Phase I operating units. It consists of a valley in which an earth dam has been constructed. Ash slurry is deposited behind the dam. For Phase II development the height of the earth dam will be raised for 10 m to increase its ash handling capacity and slurry waters will be recovered and recycled. Instrumentation and Control.. The instrumentation and control would be Distributed Digital Control System (DDCS). Display of plant-specific equipment status and operating parameters on CRT installed in the main control room will provide real-time interface between operators and plant systems. CRT will also provide facilities for retrieval of plant operating data, as desired. Data loggers and sequence of events recorders will automatically record plant performance on a periodic basis, and display operating problems as they occur on a first-out basis. A replica simulator will be provided for operators training. PROJECT COMPONENT 2 Transmission Reinforcement-US$204.9 million (excluding IDC) With the additions of new generation capacity and increase in demand for power, especially in major load centers and city center, the Hunan provincial power system needs to be strengthened. As part of the proposed project this component would include the reinforcement of the existing 220 kV network and entail the construction of about 794 km of 220 kV transmission lines and a number of substations with 1,920 MVA of load transfer capability. It has three discreet subcomponents: (a) reinforcement of the transmission network associated with the Leiyang Power Plant Phase II development; (b) reinforcement of the transmission network associated with the construction of the Changsha BOT Power Plant; and (c) construction of the Furong substation in the heart of Changsha city to serve the heavily concentrated load center in that area. The transmission reinforcement component was based on feasibility studies carried out by HPEPDI. Load flow, fault level and transient stability analyses were performed for the entire Hunan provincial grid at the voltage level of 220 kV and above including the 500 kV AC tie line linking the Hunan provincial grid to the Central China Power Grid (CCPG). System planning and design is based on the "N-i" reliability criterion. Both steady state and transient stability criteria can be satisfied. The transmission reinforcement is being financed by HEPC from its own resources. The only segment that is to be financed under the Bank loan is the Furong substation, along with the underground cable connection. Leiyang Power Plant associated transmission would comprise about 411 km of 220 kV transmission lines, four new 220 kV substations and the extension of one existing substation, having a load transfer capability of 720 MVA (Table I A and Table 1 B) TABLE IA: TRANSMISSION LINE SEGMENTS Line Name Length (km) No. of Circuits Scheduled Completion Remarks Leiyang-Songbai 40 2 07/01 New Leiyang-Anren 60 1 07/01 New Songbai-Yongzhou 120 1 06/02 New Quhe-Yongzhou 25 1 06/02 New Chengqianling-Jiahe 75 1 06/02 New Liyujiang-Chengqianling 10 2 06/02 Interconnect Macha-Hengbei 15.5 2 02/01 Interconnect Page 25 ANNEX 2 TABLE IB: SUBSTATIONS Name Capacity, MVA MVAR Scheduled Completion Remarks Jiahe I x 120 24 07/02 New Chenbei I x 120 24 03/02 New Yongzhou I x 180 28.8 07/02 New Hengbei I x 180 28.8 06/01 New Lounan I x 120 24 06/01 Extension Changsha BOT power plant associated transmission would comprise about 225 km of 220 kV, new transmission lines and the improvement of another 153 km of existing lines, five new 220 kV substations, and the extension of an existing substation, with a total load transfer capability of 660 MVA (Table 2A and Table 2B). TABLE 2A: TRANSMISSION LINE SEGMENTS Line Name Length (ki) No. of Circuits Scheduled Completion Remarks Changsha-Wangcheng 8 2 12/00 Interconnect Tianding-Gaofeng Wangcheng 72 1 12/00 Rehabilitation Yigao-Xintiang 1 2 08/01 Interconnect Yuntian-Zhunan-Dishujing 90 1 08/01 New Huayue PP-Dongfenghu 11 1 12/00 New Yuexin-Dongfenghu 5 2 12/00 Interconnect Gangshi-Yiyang-Hangshou 7 2 12/01 Interconnect Matang-Quhe-Qiyang 5 2 08/01 Interconnect Furong-Changsha (550 kV) 20 2 12/01 New Loudi-Lounan 20 1 12/01 New Fengtang-Luxi 64 1 08/01 New Baling-Shumuling-Langli 1.5 2 12/00 Interconnect Tianlang-Furong 13 2 12/00 Interconnect TABLE 2B: SUBSTATIONS Name Capacity, MVA MVAR Scheduled Completion Remarks Wangcheng 1 x 120 24 08/00 New Dongfenghu 1 x 180 28.8 08/00 New Hanshou I x 120 24 08/01 New Qiyang 1 x 120 24 12/02 New Xinhua I x 120 24 12/01 Extension Conductors for transmission lines will be of the ACSR type, with one or two conductors per bundle, in accordance with the load transfer capability desired for each segment. The design ice thickness is Page 26 ANNEX 2 15-20 mm for all transmission lines. Bundle spacing is 400 mm. The overhead ground wires will be 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 operation time without exceeding a thermal limit of 400°C. The elevation of the line routes for the various segments varies from 100 m to 200 m. Steel towers will be of galvanized steel, lattice type. However, about 70 percent of the 220 kV transmission lines will be run over reinforced concrete poles. Construction of the New Furong Indoor Substation (220 kV, 3x180 MVA). The substation is located at the center of Changsha city (Capital of Hunan Province). This substation is urgently needed due to rapid load growth at the city center of Changsha where load shedding has to take place on a daily basis caused by overloaded 110 kV substations and lines. With a 2.8 km long, 220 kV underground cable the Furong substation will be interconnected with the nearest overhead 220 kV transmission line. 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 switching station will be designed for a 1,050 kV BIL surge protection and 950 kV BIL frequency withstand. The underground cable will originate at Chezhang Road East and will run for a distance of about 2.8 km through a tunnel about 10 m deep and will not interfere with any existing overground structures. The alignment of the tunnel is mostly parallel to Rennin Road. The tunnel itself will be of a rectangular cross-section, approximately 2,390 mm x 1,970 mm, with an arch at the top. The 220 kV cables will run through three cable trenches placed inside the tunnel. The 220 kV underground cables, of 5.6 km total length, will be of the XLPE type, 1,400- 1,600 mm cross-sectional area. PROJECT COMPONENT 3 Technical Assistance for Construction Management-US$2.0 million (excluding EDC) Engineering consultant services will be provided to assist HEPC on construction management. The services will focus on: * assist in setting up the construction management system, including establishing methodologies, schedules and procedures for project management of various phases of the construction; * assist to coordinate the construction interfaces during the critical stages of main equipment erection, including setting up programmable computerized system for equipment and material management, and assist in controlling delivery of the parts/equipment/material supplied by various contractors in order to meet the project schedule; * assist in cost control and in project financial accounting; and * assist in setting up and implementing quality control system and quality assurance system during site construction and commissioning stage. Technical Assistance for Implementation of HEPC's Restructuring Plan-US$1.0 million (excluding IDC) Advisory services will be provided to help HEPC complete the following: * corporate and asset restructuring of HEPC to create four separate corporate entities: HPNOC, LPGC, thermal generation company and hydro generation company. Corporate charters, incorporation documents, and financial statements will need to be prepared for all these entities. * operational and financial modeling of the Hunan power system to establish baseline capacity and energy tariffs from each generation plant. Page 27 ANNEX 2 * preparation of contractual agreements between generation plants and the HPNOC. These agreements will include: power purchase agreements; operations and maintenance agreements; dispatch agreements; etc. Technical Assistance for Organization Restructuring and Improvement of Financial Management System-US$1.5 million (excluding IDC) Consulting services will be provided to assist HEPC in: * redefining the internal organizational structure, functional boundaries, job descriptions, communication and reporting channels between different units; * upgrading the accounting and financial management practices and systems; and * developing modern, computerized financial management information systems. PROJECT COMPONENT 4 Institutional Development and Training-US$1.0 million (excluding IDC) The management development and training program is designed to enhance HEPC's managerial, legal, technical and financial capabilities to meet the needs of the new structure of the power sector in China. The main objectives of the program are to enable HEPC to function as a transmission and distribution company in order to more efficiently manage its business, finances, assets, and production and develop its electricity market and human resources. Under this program, a total of 407 staff members will be trained either in China or abroad, totaling 498 staff-months. HEPC will be responsible for planning and organizing the training program with the approval and support of concerned Chinese authorities. Page 28 ANNEX 3 ANNEX 3: ESTIMATED PROJECT COSTS Table A: Summary of Project Costs Description Y million $ million Foreign as Local Foreign Total Local Foreign Total % of Total Leiyang Power Plant Site Preparation 20.34 - 20.34 2.45 - 2.45 Civil Works 296.47 - 296.47 35.72 - 35.72 Traffic Works 42.70 - 42.70 5.14 - 5.14 Erection 285.32 - 285.32 34.38 - 34.38 Construction Management 87.63 - 87.63 10.56 - 10.56 Plant Equipment and material 83.24 1,835.75 1,918.99 10.03 221.18 231.20 96 Transmission Furong Substation 72.54 291.00 363.54 8.74 35.06 43.80 80 Leiyang Power Plant Associated 418.98 - 418.98 50.48 - 50.48 Changsha Power Plant (BOT) Associated 551.14 - 551.14 66.40 - 66.40 Services Engineering and Consultant Services 42.02 16.60 58.62 5.06 2.00 7.06 28 Technical Assistance - 20.75 20.75 - 2.50 2.50 100 Training - 8.30 8.30 - 1.00 1.00 100 Total Base Cost 1,900.38 2,172.40 4,072.78 228.96 261.74 490.70 53 Contingencies Physical 190.04 106.34 296.38 22.53 12.81 35.35 36 Price 251.38 315.90 567.28 20.95 25.45 46.40 55 Taxes and Duties 920.27 - 920.27 106.38 - 106.38 Total Project Cost 3,262.07 2,594.64 5,856.71 378.83 300.00 678.83 44 Interest During Construction 296.61 270.86 567.47 35.74 32.63 68.37 48 Total Financing Required 3,558.76 2,865.50 6,424.46 414.56 332.63 747.19 45 Page 29 ANNEX 3 TABLE Al: SUMMARY OF PROJECT COSTS BY COMPONENT Y million $ million Foreign as Description Local Foreign Total Local Foreign Total % of Total I. Leiyang Power Plant Site Preparation 20.34 - 20.34 2.45 - 2.45 Civil Works 296.47 - 296.47 35.72 - 35.72 Traffic Works 42.70 - 42.70 5.14 - 5.14 Erection 285.32 - 285.32 34.38 - 34.38 Construction Management 87.63 - 87.63 10.56 - 10.56 Plant Equipment and Material 83.24 1,835.75 1,918.99 10.03 221.18 231.20 96 Services Engineering and Consultant Services 42.02 16.60 58.62 5.06 2.00 7.06 28 Technical Assistance - 20.75 20.75 - 2.50 2.50 100 Training - 8.30 8.30 - 1.00 1.00 100 Total Base Cost 857.72 1,881.40 2,739.12 103.34 226.68 330.01 69 Contingencies Physical 85.77 91.79 177.56 9.97 11.06 21.03 55 Price 120.39 289.90 410.29 9.92 23.07 32.99 70 Taxes and Duties 780.76 - 780.76 89.89 - 89.89 Total Project Cost 1,844.64 2,263.09 4,107.73 213.12 260.81 473.93 55 Interest During Construction 122.11 249.74 371.85 14.71 30.09 44.8 67 Total I 1,966.75 2,512.83 4,479.58 227.83 290.90 518.73 56 Page 30 ANNEX 3 TABLE Al: SUMMARY OF PROJECT COSTS BY COMPONENT (cont'd) Y million $ million Foreign as Description Local Foreign Total Local Foreign Total % of Total II. System Transmission Improvement Furong Substation Civil works 55.78 55.78 6.72 6.72 Erection 16.77 16.77 2.02 2.02 Equipment 224.93 224.93 27.10 27.10 100 Cable 66.07 66.07 7.96 7.96 100 Leiyang Power Plant Associates Transmission Lines 214.86 214.86 25.89 25.89 Substations 204.12 204.12 24.59 24.59 Changsha Power Plant (BOT) Associates Transmission Lines 221.04 221.04 26.63 26.63 Substations 330.10 330.10 39.77 39.77 Total Base Cost 1,042.66 291.00 1,333.66 125.62 35.06 160.68 22 Contingencies Physical 104.27 14.55 118.82 12.56 1.75 14.32 12 Price 130.99 26.00 157.00 11.03 2.38 13.41 18 Taxes and Duties 139.51 139.51 16.49 16.49 Total Project Cost 1,417.43 331.55 1,748.98 165.70 39.19 204.90 40 Interest During Construction 174.58 21.12 195.70 21.03 2.54 23.57 11 Total 11 1,592.01 352.67 1,944.68 186.83 41.73 228.47 18 Totals (I and II) Base Cost 1,900.38 2,172.40 4,072.78 228.96 261.74 490.70 69 Physical contingencies 190.04 106.34 296.38 22.53 12.81 35.35 36 Price contingencies 251.38 315.90 567.28 20.95 25.45 46.40 55 Taxes and Duties 920.27 920.27 106.38 106.38 Interest During Construction 296.61 270.86 567.47 35.74 32.63 68.37 48 Total Financing Required 3,558.76 2,865.50 6,424.26 414.56 332.63 747.19 45 Page 31 ANNEX 4 ANNEX 4: BACKGROUND ON CHINA'S POWER SECTOR REFORMS Power sector reform in China is based on the staged implementation of a series of structural, pricing, regulatory and financial reforms. There is broad consensus amongst policy makers on the objectives and direction of these reforms. Coordination of these reforms is critical to ensure that the expected efficiency gains are built on strong foundations of administrative capacity to manage the new market structure and institutions created through this process. In general, reforms have been progressing at a remarkable pace when viewed in the context of command-and-control administrative structure that China is gradually emerging from. Structural Reform Although the power sector structure and ownership arrangements in the Chinese power sector vary greatly, the purchasing agency or single buyer model has been widely accepted as a useful intermediate structural model for most parts of China. Under this structure, the purchasing agent or single buyer owns the transmission facilities within a specific geographic area and is the only buyer of power from independent and affiliated generators inside and/or outside this area. The single buyer is also the only seller of power in the specified geographic area to affiliated and/or independent power supply entities at the county, prefectural or municipal level. There are four main advantages of this transitional structure: (a) it is not a totally new structure, first steps have been taken towards this structure in many parts of China; (b) it can easily accommodate competitive bidding for the purchase of power with or without joint ventures; (c) it will encourage more investment in transmission and distribution which have traditionally been underinvested in; (d) it can serve as a transition step toward a more fully competitive market. A number of provinces/municipalities have begun to implement the single buyer structure formally, including, Shanghai, Zhejiang, Hunan and Henan. Diversification of Financing Evolution to the single buyer structure with the increasing separation of generation from transmission and distribution has created unique pressures for diversifying financing sources. Based on the legal affirmation of the Electric Power Law (December 1995) to allow private sector financing of generation, generation enterprises separated from transmission are now increasingly seeking private portfolio capital. There have been at least four public equity offerings of formerly state-owned generation enterprises. Even public-sector generation projects financed by the Bank are being included in generation enterprises that are being publicly listed (e.g. Zouxian Thermal Power Project, Touketuo Thermal Power Project, and Waigaogiao Thermal Power Project). Diversified ownership in generation is expected to significantly accelerate the reform effort particularly in the development of economic regulation of the power sector. Pricing Reforms At the level of producer prices (i.e. generation tariffs), China introduced in 1985 the now famous "new plant new price" policy that while extremely successful in attracting large volumes of capital in generation has also distorted incentives for efficient capacity utilization. Under this policy prices for power purchased from plants not financed by the central government from 1986 to 1992 and all power Page 32 ANNEX 4 plants built after 1992 are set at levels sufficient to cover debt repayment, depreciation, and operating costs. Lower producer prices from old state financed plants are used to mitigate the impact on final consumer tariffs during the transition to market based tariffs. There are two significant shortcomings of the pricing system in the power sector in China. The first relates to the pricing of the wholesale/bulk capacity and energy sales/purchases from generating plants. The second relates to the inadequate recognition of transmission as a separate service that needs to be separately accounted for in electricity tariffs. These inadequacies of wholesale electricity pricing are reflected in the inefficient utilization and dispatch of generating capacity. Inefficient resource use stems from operation of old and/or small inefficient and therefore higher energy cost coal-fired plants in lieu of modern, more efficient plants. The non recognition of the importance of transmission service is reflected in the inability of utilities to include costs related to transmission in sale tariffs and to secure adequate investments for the transmission infrastructure. This is also impeding the implementation of the purchasing agency model, and progress towards competition at the generation level. At the retail level, prices have generally been able to recover the cost of generated energy and adequate margins for distribution. Pricing reforms envisage the gradual elimination of the "new plant new price" policy with a price set at levels established through contracts with the purchasing agency. The main thrust here is to establish a two-part tariff structure which maximizes the incentives for efficient plant operation and dispatch. The prices for transmission services based on reasonable cost plus basis are being developed on a pilot basis in the Eastern coastal provinces. The transmission pricing experience gained in East China will be considered for wider application in other regions. Regulatory Reforms China enacted the a new Electric Power Law in April 1996. The Law provides a broad framework and advances key principles to be followed in the power sector. The significant features include: (a) affirmation of the principle that the power sector should be run on a commercial basis, involving negotiated transactions between enterprises driven by market signal and competitive pressures; (b) commercial autonomy of power enterprises and the right of investors to recover invested capital and earn a reasonable return; (c) general guidelines for the determination of power tariffs based on cost recovery; (d) definition of certain rights and responsibilities of the central and provincial governments; (e) recognition of private sector involvement in generation, while maintaining transmission and distribution in the public sector. The Electric Power Law provides a sound foundation for economic regulation of the power sector. This regulatory transformation will be gradual in order to ensure consistency with the process of administrative reform in the Central and Provincial governments. The implementation process will require the following four phases of implementation: (a) elimination of MOEP and consolidation of regulatory responsibilities in one higher government institution; (b) appropriate division of regulatory responsibility between one central and one provincial-level government institution; (c) formation of distinct single-purpose regulatory department within central and provincial government institutions; (d) power sector regulatory authorities at the central and provincial level to be established as regulatory commissions under the State Council, but separate from other government institutions. It is expected that a transition period of about 10 years would be required to achieve the ultimate objective of consolidating all economic regulatory functions in an independent agency. The first phase of eliminating MOEP and transferring regulatory responsibilities to higher level government institutions is now being undertaken. Page 33 ANNEX 5 ANNEX 5: HUNAN ELECTRIC POWER SYSTEM-REFORM IMPLEMENTATION PLAN A. INTRODUCTION Hunan Electric Power Corporation (HEPC) intends to carry out a reform plan aimed at developing a power purchasing agency (or single buyer) market structure in Hunan. The target is to separate generation from HEPC's operations of transmission and distribution by December 2000. HEPC's transmission and distribution operations will be transferred to a restructured company, the Hunan Power Network Operations Company (HPNOC). HPNOC will be incorporated in accordance with the Company Law of China by December 2000. HPNOC's transmission department and the power supply bureaus will be established as pro-fit centers. Another element of the restructuring program is to consolidate Leiyang Phases I and II (i.e. 2x200 MW in operation and 2x300 MW to be constructed under the proposed project) into a single generation corporation, the Leiyang Power Generation Company, selling power to HPNOC on the basis of adequate contractual arrangements. The Leiyang Power Generation Company (LPGC) will be established by December 2000. B. REFORM OBJECTIVES AND PRINCIPLES The objectives and principles for power sector reform in Hunan are: * Unbundling of Generation from Transmission and Distribution. The objective of this unbundling is to create a purchasing agency structure which will encourage competitive procurement of future generation and encourage additional investment in generation. The purchasing agency (i.e. HPNOC) will focus on the efficient operation of the transmission and distribution network. * Efficient Wholesale Generation Tariffs: A revised system of wholesale electricity tariffs would be developed and applied to all power purchases from generating plants on the system. These tariffs should be conducive to economic dispatch and overall generation efficiency. All power will be purchased by HPNOC on the basis of wholesale contractual arrangements. All generators on the system will be treated equally and dispatched on a nondiscriminatory basis. (The principles for pricing are described in more detail in section E below) C. REFORM STRATEGY AND IMPLEMENTATION STEPS Existing Power Sector Structure The existing structure of the power sector in Hunan is described below and diagrammatically represented in Figure 1. * Generation. The generation capacity in Hunan is evenly split between thermal and hydroelectric plants. Ownership of generation plant is very diverse with entities such as HEPC, Huaneng International Power Development Company, local investment companies, local industries, the Hunan Water Conservancy, and local municipal and county governments owning substantial stakes in generation facilities. * Therrnal plants wholly owned by HEPC: * Jingzhushan (600 MW) * Zhuzhou (100 MW) Page 34 ANNEX 5 * Liyujiang (180 MW) * Leiyang Phase I (400 MW) * Xiangtan Phase l(100 MW) * Hydro Plants wholly owned by HEPC: * Dongjiang (609 MW) * Zhexi (447.5 MW) * Fengtang (400 MW) * Majitang (54.15 MW) * Generation partially owned by HEPC: * Huayin Electric Power Shareholding Company-Listed on Shanghai Stock Exchange. (250 MW)-33.2 percent stake * Shimen Co. (600 MW)-47 percent stake * Wuling LLC (1200 MW)-56.25 percent stake * Baiyutang LLC. (17.5 MW)-62.6 percent stake * Generation not affiliated to HEPC (i.e. Independent and locally owned Power Plants) * Huaneng (775 MW) * Hydro plants owned by Water Conservancy (210 MW) * Local and captive plants (1,070 MW) * Nongrid Connected plants (509 MW) e Transmission and Distribution. HEPC owns and operates the Hunan Power Grid transmission and most of the distribution networks. The transmission network is a major component of the Central China Electric Power Network. All major plants in this network listed above are dispatched by HEPC. HEPC has direct ownership and control of 14 power supply bureaus (PSB) which covers 97 percent of the electricity sales in Hunan province. These PSBs include: Changsha; Zhangjiajie; Zhuzhou; Yiyang; Xiangtan; Chengzhou; Hengyang; Loudi; Shaoyang; Yongzhou; Yueyang; Huaihua; Chandge; and Xiangxi. * Noncore Businesses. HEPC has responsibility and ownership for 13 noncore units for manufacturing, construction, design, research, health, education, etc. Future Structure and Restructuring Plans HEPC plans, with MOEP's approval, to complete the sector restructuring by March 2001. The sector structure in March 2001 is diagrammatically represented in Figure 2. The key power sector reform steps are described below. * Formation of separate Companies for thermal and hydropower plants fully owned by Hunan Power Network Operations Company (i.e. HPNOC). The Thermal Power Generating Company will comprise all thermal plants currently wholly owned by HEPC, with the exception of Leiyang Phase I and II, and Xiangtan Phase I. The Hydro Power Generating Company will comprise all hydro plants currently wholly owned by HEPC. These entities will sell electricity to HPNOC on the basis of economically efficient tariffs. * A separate Leiyang Power Generation Company (LPGC) will be formed comprising Phase I (2x200 MW) and the proposed Phase II (2x300 MW) plants. (See section D. below for details). Page 35 ANNEX 5 * All other generating entities on the Hunan power system which are either partly owned by HPNOC, or independent, vvill remain separate legal entities. They will all sell electricity to the HPNOC on the basis of contracts that treat all plant on the Hunan power system on an equal basis. (The principles on which these contracts are to be based are defined in E. below). * Restructuring of HEPC as a limited liability company engaged in transmission and distribution: * A wholly state-owned company, HPNOC, will be established to own and operate the transmission and distribution networks and provide transmission ancillary services. This company will be registered in conformance with the Company Law of China. * HPNOC will operate as a purchasing agent (or single buyer) at the provincial level. It will remain responsible for the planning, development and operation of the transmission and distribution system, and continue to have the obligation to serve all customers in its service area. * Noncore businesses currently owned and run by HEPC will be formed as subsidiary companies, or profit centers of HPNOC. D. LEIYANG POWER GENERATION COMPANY The Leiyang Power Generation Company (LPGC) will be a generating company incorporated in accordance with the Company Law of China. This company will comprise the existing 2x200 MW units and the proposed 2x300 units to be financed under the proposed project. LPGC will sell electricity in bulk to HPNOC. The following steps will be followed to establish LPGC: - Preparation of draft corporate charter, clearly specifying the capital structure of the LPGC, board of directors, etc. This document will be submitted for World Bank review by July 1999. • Preparation of draft power purchase agreement between the purchasing agent to be formed in Hunan (i.e. HPNOC) and LPGC. The power purchase agreement would be based on principles outlined in section E. below. The draft PPA would be submitted for World Bank review by July 1999. - Formal incorporation of LPGC by December 1999. * Formal signing of PPA between LPGC and HPNOC by December 2000. E. PRINCIPLES FOR ESTABLISHING GENERATION TARIFFS IN HUNAN Based on the proposed direction for reform, it is expected that in the medium term the bulk energy pricing system will be based on long-term contracts. Well-structured contracts would play a key role in providing stability and ensuring economic least cost operation of the power system. The following principles will be reflected in the bulk generation pricing contracts: * A tariff for capacity based on the cost of the plant i.e. service of debt, depreciation, fixed maintenance and operating costs and fair return on investment. * A tariff for energy based on the fuel and variable cost of the unit without any guaranteed amount of energy purchase. * Incentives for capacity and energy. For capacity, incentive targets such as availability should be defined. For energy, marginal costs should include incentives to encourage the generator to reduce energy cost. F. TARGET IMPLEMENTATION DATES The target dates for the reform process are: Page 36 ANNEX 5 * [January 1998] Submission of reform plan to the Ministry of Electric Power for approval. * [March 1998-prior to proposed project negotiations] Expected approval of plan by Ministry of Electric Power. * [April 1998] Begin technical assistance work on: * Training of senior management and operating level staff of HEPC on the concepts of power sector restructuring and implementation of a power purchasing agency market structure * Diagnostic review of existing power system structure operations * Financial and operation evaluation of the purchasing agency structure * [November 1998] Finalize the detailed reform implementation plan. * [January 1999] Begin technical assistance work on: * asset restructuring of HEPC and incorporation of: * Hunan Power Network Operations Company (HPNOC) * Leiyang Power Generation Company * Thermal Generating Company * Hydro Generating Company * Begin work on the preparation of wholesale power purchase contracts for HPNOC's bulk power purchases from all power plants. * [July 1999] Submit following documents for World Bank review: * draft Charter and incorporation documents of Leiyang Power Generation Company. 2 draft PPA between Leiyang Power Generation Company and HPNOC. * [December 1999] Incorporation of Leiyang Power Generation Company. * [December 1999 to December 2000] Trial operation for 12 months based on preliminary purchasing agency operating rules and power purchase contracts between the network company and the generators. This trial period is intended to test the proposed operating rules and contracts in practice and make revisions before finalizing them. * [December 2000] Incorporation of: * HPNOC; * Thermal Generating Company; * Hydro Generating Company. * [March 2001] Full implementation of formally signed and executed power purchase contracts between HPNOC and all generation entities on the Hunan power system. G. IMPLEMENTATION TECHNICAL ASSISTANCE HEPC and other power sector enterprises/investors in Hunan will require specialized technical, financial and restructuring advice in two phases. Phase I, comprising, the training of HEPC staff and advisory services for the finalization of the implementation plan will be financed through CRISPP. Phase II, comprising work to assist in actual implementation of the purchasing agency structure will be financed through the proposed loan. Phase I-Scope of Work: * Training of staff and managers from HEPC and other power sector entities on: * concepts and terminology in power sector restructuring; Page 37 ANNEX S * basics of power sector economics and economics of developing efficient generation structures; * technical, commercial and contractual issues in operating a power purchasing agency structure; * Review HEPC's organizational structure and identify changes and tasks required for developing a power purchasing agency structure; and review operational practices and existing contractual arrangements for wholesale power purchase. * Defining a detailed restructuring program based on the decision to establish a power purchasing agency structure. Phase II-Scope of Work: * Corporate and asset restructuring of HEPC to create four separate corporate entities: HPNOC, LPGC, thermal generation company and hydro generation company. Corporate Charters, incorporation documents, and financial statements will need to be prepared for all these entities. * Operational and financial modeling of the Hunan power system to establish baseline capacity and energy tariffs from each generation plant. * Preparation of contractual agreements between generation plants and the HPNOC. These agreements will include: power purchase agreements; operations and maintenance agreements; dispatch agreements; etc. Figure 1. Power Sector Structure - July 1997 Independent Power Plants Power Plants under Hunan HEPC Affiliated Generation (775 MW) Water Conservancy (2067.5 MW) - Huaneng (700 MW) (210 MW) - Huayin Shareholding Co. Ltd 1(250 MW) - Huaneng (75 MW) - Shimen Co. (600 MW) - Wuling LLC (1,200 MW) - Baiyutang Co. Ltd (17.5 MW) Local Small & Captive Power Plants (1070.85 MW) HEPC Generation - Dongjiang (609 MW) - Jinzhushan (600 MW) - Zhexi (447.5 MW) - Leiyang 1(400 MW) Hunan Electric g - Fengtang (400 MW) - Zhuzhou (100 MW) - Majitang (54.15 MW) - Xiangtan (100 MW) Power Company - Liyujiang (180 MW) (HEPC) HEPC Transmission HEPC Distribution | Independent - Changsha - Zhangjiajie - Zhuzhou - Yiyang - Xiangtan - Chenzhou Distribution - Hengyang - Loudi - Shaoyang - Yongzhou - Yueyang - Huaihua - Changde - Xiangxi z z m x a' Figure 2. Power Sector Structure - March 2001 Hydro Power Thermal Power HEPC Affiliated Generation Generating Co. Generating Co. (2067.5 MW) - Dongjiang (69 MW) - Jingzushan(600 MW)- Huayin Shareholding Co. Ltd I (250 MVW) - Zhegi (609 MW) - Zhuzhou (1600 MW) - Shimen Co. (600 MW) - ZFengan (447. MW) - Liyujiang (100 MW) - Wuling LLC (1,200 MW) - Mangtang (5400M)-1iuiag(8 MW) - Baiyutang Co. Ltd (17.5 MW) - Majitang (54.15 MW) ~~~~~~~- Xiangtan LLC (650 MW) Leiyang Power Generation \ /Independent Power Plants Company \/- Huaneng (700 MW) -Phase I (2x200 MW\)> - Huaneng (75 MW\) - Phase 11 (2x300MV\0 \ ~All power sales to HPNOC -Ohr based on efficient power purchase contracts.\ Power Plants under Hunan Power Plants Water Conservanc Hunan Power III_ Network Operations llTransmission Company (HPNOC) Distribution Independent | | 11 ~- Changsha - Zhangjiajie - Zhuzhou_ l l ~- Yiyang - Xiangtan - Chenzhou _ | Distribution - Hengyang - Loudi - Shaoyang_ s - Yongzhou - Yueyang - Huaihua_ l | ~- Changde - Xiangxi_ z z m X 'I_ ANNEX 6: ORGANIZATIONAL CHARTS CHART Al: ORGANIZATION CHART OF THE INSTITUTIONAL ARRANGEMENT DURING PROJECT IMPLEMENTATION Vice President of HEPC Deputy Chief Engineer of HEPC Vice Director of Planning Department of HEPC Diretor ofEPDI ofHEPC | Directors of Enterprise Management| Directors of Financc | Directors of Resettlement Officel l I l l ~~~~~~Departmnent of HlEPC Department of IHEPC of HEPCl Engineering Grop |Finance & Economic Resettlement & Environment Engineering Group F Reform Group Group [ Group | m E Foreign Consultants on ReformBERI Power Gen Heai Implementation _________j University YMAEPB Page 41 ANNEX 6 z Administration Office 0 Engineering Management z f Planning and program Management o Procurement and Contract Management r I Cl Cost and Financial 0 ' management O j Quality and Safety Z A management 0 Construction Management and Supervision Agency CHART A3: ORGANIZATION CHART OF CONSTRUCTION MANAGEMENT OF POWER TRANSMISSION PROJECT 5,-. ~ ~ ~ ~ ~ ~ HP L l _ l l _ l _ I~~rL Power Transmission and Transformation of Subprojects Leiyang Power Plant Phase 11 Power Transmission and Transformation of Leiyang Power Plant Phase H Furong Station m Page 43 ANNEX 7 ANNEX 7: COST BENEFIT ANALYSIS SUMMARY GENERATION COMPONENT Cost Effectiveness A least cost study was carried out by the Beijing Research Institute for Water Resources and Electric Power (BERI), in conjunction with the Hunan Electric Power Company (HEPC), using a planning model that determines the optimal capacity and generation mix to meet the demand in the most cost effective way (minimum net present value of investment and operation costs). The study covered the development of the system during 1997-2025, study period, with special focus on the investment required during 1997-2010, planning period. The detailed report, "Economic Analysis for Leiyang Coal Fired Thermal Power Plant" (November 1997), prepared by BERI and HEPC is in the project files. Shadow Pricing The least cost study and all economic analyses were based on adjusted costs of inputs to reflect their economic value. Imported goods and services were valued at their estimated CIF (e.g., a conversion factor of 1.0 was used). Domestically produced goods and .materials, most notably power generating and transmission equipment and coal, were valued at their shadow prices using specific conversion factors (see appendices A, B and C of the above referred to report). All costs and prices were expressed in 1997 Yuan using the official exchange rate at the time of preappraisal (Y 8.3/US$ 1.0), assuming that trade distortions are negligible. The discount rate was assumed at 12 percent. Least Cost Analysis All potential candidates were considered including: (a) 300 MW units using local anthracite; (b) 300 and 600 MW units using coal imported from other provinces; (c) potential hydropower projects in Hunan; (d) power imports from neighboring provinces; (e) 300 MW combined cycle units using distillate; and (f) gas turbines using distillate. A detailed description of the technical and economic characteristics of the thermal and hydroelectric candidates considered in Hunan's power generation development study are presented in the above referred report prepared by BERI and HEPC . The optimization was based on Chinese reliability criteria equivalent to the following LOLP criteria: no constraints up to year 2000 because of the severe power shortages in Hunan and less than 1 percent (about 3.5 days per year) in 2001 and after. Based on the above assumptions and using a discount rate of 12 percent, the study showed that the power expansion program should mainly be based on 300 MW anthracite-fired units during 1997-2005 and 600 MW coal-fired unit thereafter, development of six out of the nine identified hydropower projects, and 100 MW gas turbine units. The proposed project is the first investment of the least cost power development program. In the without project case, the expansion program would still be based on 300 MW anthracite-fired units installed in greenfield sites. The optimum solution with Leiyang is presented in Table 1 and the optimum solution without Leiyang is presented in Table 2. The proposed project remains the first investment of the expansion program under a wide range of assumptions and mainly: Page 44 ANNEX 7 * The project will still be required by year 2001-2002, even if the demand would grow at 6 percent during the whole study period compared to 10.1 percent during 1996-2000 and 7.2 percent after in the base case; * The project would be less economical than the Shanbanxi hydropower project only if the investment cost of the latter were 16.5 percent lower than in the base case (Y 60221kW compared to Y 721 1/kW in the base case). Economic Rate of Return 1997 Yuan million Present Value of Flows Fiscal Impact Generation Economic Financial Analysis Analysis La Taxes Subsidies Benefits 5,952.0 6,831.8 64.98 (duties) 425.99 (VAT) Costs 4,366.2 6,811.8 463.32 (income tax) 75.07 (surcharges) Net Benefits: 1,586.6 20.03 1,029.36 (Total in present value) IRR: 19.4 12.11 /a Based on 5,000 hours/year. The economic rate of return (IERR) of the proposed project was calculated based on an estimated plant gate price of 29.1 fen/kWh and 6850 hours/year, price currently paid by HEPC to recently commissioned coal-fired base load power plants (the implicit assumption is that consumers will be willing to pay the estimated price and the plant is optimally dispatched). The estimated plant gate is based on existing pricing policies for power sales from new power plants and is fully passed on to consumers. The calculation yielded an IERR of 19.8 percent. The IERR has also been calculated based on an plant gate price equivalent to the current average generation price (which the consumers are actually paying) of 24.3 fen/kWh. This method yielded an IERR of 15 percent. The base case IERR would decrease to the test discount rate of 12 percent in the case of one of the following occurrences: * the price paid at the plant gate for electricity were 27 percent lower than the estimated base case price, i.e., about 21.2 fen/kWh instead of 29.1 fen/kWh in 1996 prices; it should be noted that the break-even price of 13 percent lower than the current average generation price in Hunan; * the project were to experience a cost overrun of about 66 percent; * the power plant operation were reduced to about 4442 hours per year instead of about 6850 hours; * the economic fuel cost were 110 percent higher than the base case; * the project were to experience a delay in commissioning of about 4.5 years. However, these occurrences are very unlikely because HEPC has a good experience in implementation and operation of similar projects, the economic evaluation is based on realistic assumptions, and the Page 45 ANNEX 7 power purchase agreement and the financial covenants of the project would ensure that the capacity factor and price are high enough to meet the economic viability requirements. To complement the above deterministic approach a risk analysis was carried out using Risk Master computer software which takes into account uncertainties related to selected risk variables (using the Monte Carlo Simulation).' The assumed value ranges of the selected six risk variables (including foreign exchange risk), the probability of distribution attached to them and the results, based on 1,000 simulations, are presented in figure 1. The IERR based on the weighted average of all simulated combination is 14.8 percent (with a standard deviation of 4.2 percent). The minimum and maximum IERR, under the considered uncertainties, are respectively 2.0 and 27.5. The probability of a negative outcome (negative net present value) is 26 percent. This indicates that the risk (margin of error due to future uncertainties) associated with the project is acceptable. BERI also conducted an economic evaluation of the environmental impacts of the project and their effect on the economic viability of the project. The analysis takes into account the: (a) adjusted estimates of the monetary damages caused by air pollution during the study period, based on the New York State Externality Model (Rowe et al., 1994); and (b) estimates of average climate change for carbon dioxide emissions to evaluate the monetary damages caused by greenhouse gas emissions. The adjustment (transfer) factor takes into account the differences in population density and standard of living. Two estimates are considered: a low estimate based on a transfer factor using GDP and a high estimate based on power purchase parity in Hunan. The results of the evaluation show that if the monetary value of the environmental impacts is added to the project operation costs, the IERR of the project would be reduced to 17.2/14.5 (low/high) percent. TRANSMISSION COMPONENT The strengthening of the transmission system is imperative. The load flow and stability analyses carried out by HEPC show that the need and timing of the proposed lines and substations are justified. The design parameters of the proposed lines and substations has been optimized to ensure that transmission services would be provided in the most cost effective way. In Monte Carlo simulation series of random numbers are generated following the distribution of each risk variable. For each simulation which represents a combination of different state of five variables, IERR is calculated and recorded. The results of 1000 simulations are averaged. Page 46 ANNEX 7 1997 Yuan million Present Value of Flows Fiscal Impact HEPC's Investment Program Economic Financial Analysis Analysis La Taxes Subsidies Benefits 25,830.0 2,174.93 112 (duties) 518.05 (VAT) Costs 23,782.0 1,949.44 611.76 (Income Tax) 51.72 (Surcharge) Net Benefits: 2,048.0 224.49 1,193.53 (Total in Present Value) IRR: 13.6 14.86 /a The incremental benefits and costs for financial analysis relate only to the transmission investment under the proposal project. To complement this cost effectiveness approach, BERI calculated an IERR on HEPC's entire investment program using: (a) incremental sales revenues (incremental sales per category of consumers multiplied by the 1997 average sales price per category of consumers) as a measure of the minimum benefit of the investment program, and (b) adjusted costs of inputs according to the same assumptions used in the least cost study. The method yielded an IERR of 13.6 percent and confirmed the economic viability of the whole, and particularly the proposed transmission, investment program. The base case IERR would decrease to the test discount rate of 12 percent in the case of one of the following occurrences: * case 1 energy sales decrease 11.0 percent 11.99 percent * case 2 average price is 3.0 fen/kWh less than assumed price 12.05 percent * case 3 generation of investment increase by 16.0 percent 11.99 percent * case 4 transmission investment increase by 60 percent 11.99 percent A risk analysis was carried out using Risk Master computer software which uses Monte Carlo simulation technique. The assumed value ranges of the selected five risk variables (including foreign exchange risk), the probability of distribution attached to them and the results, based on 1,000 simulations, are presented in figure 2. The IERR based on the weighted average of all simulated combination is 12.4 percent (with a standard deviation of 4.2 percent). The minimum and maximum IERR, under the considered uncertainties, are respectively 5.2 and 22.5. The probability of a negative outcome (negative net present value) is 40 percent. This indicates that the risk (margin of error due to future uncertainties) associated with the overall investment program is high but acceptable. TABLE 1: POWER DEVELOPMENT PROGRAM AND SYSTEM DEMAND AND SUPPLY BALANCE Item 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total Peak Demand 6,470 7,420 8,170 9,000 9,650 10,300 11,100 11,900 12,700 13,600 14,600 15,700 16,800 18,000 Installed Capacity/a 8,801 9,001 9,361 10,451 13,081 14,091 15,047 15,981 16,969 18,022 19,169 20,591 22,013 23,535 - Thermal 4,094 4,394 4,694 5,644 7,744 8,394 9,094 9,394 9,994 9,994 10,794 11,994 13,194 14,494 Hydro 4,707 4,707 4,767 4,957 5,487 5,897 6,203 6,837 7,480 8,533 9,005 9,227 9,449 9,671 Retirement (Thermal only) 0 100 0 50 0 50 50 0 255 0 125 0 0 0 System Reserve Margin 36.0% 21.3% 14.6% 16.1% 35.6% 36.8% 35.6% 34.3% 33.6% 32.5% 31.3% 31.2% 31.0% 30.8% Expansion 540 300 360 1,140 2,630 1,060 1,006 934 1,243 1,053 1,272 1,422 1,422 1,522 15,904 (1) Thermal 300 300 300 950 2,100 650 700 300 600 800 1200 1200 1300 10,700 Leiyang Project 300 300 600 Changsha BOT 350 350 700 300 MW anthracite 300 600 300 600 1,800 300 MW bituminous coal 300 300 300 650 650 2,200 600 MW bituminous coal 600 1,200 1,200 1,200 4,200 Gas Turbine 300 500 100 200 100 1,200 (2) Hydro 240 60 190 530 410 306 634 643 1053 472 222 222 222 5,204 Feng Tan 160 160 320 Zha Xi 150 150 300 Dong Jiang 126 126 252 Wan Mi Po 180 90 270 Jiang Ya 100 100 100 300 Three Gorges 463 463 463 222 222 222 222 2,277 Hong Jiang 180 45 225 Wu Qiang Xi 240 240 Ling Jin Tan 60 90 120 270 San Ban Xi 500 250 750 /a All at the beginning of the year z z m x -J TABLE 2: SYSTEM DEMAND AND SUPPLY BALANCE (WITHOUT LEIYANG) Item 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total PeakDemand 6470 7420 8170 9000 9650 10300 11100 11900 12700 13600 14600 15700 16800 18000 InstalledCapacityLa 8801 9001 9361 10451 13081 14091 15047 15981 16969 18022 19169 20591 22013 23535 --- Thermal 4094 4394 4694 5644 7744 8394 9094 9394 9994 9994 10794 11994 13194 14494 --- Hydro 4707 4707 4767 4957 5487 5897 6203 6837 7480 8533 9005 9227 9449 9671 Retirement (Thermal only) 0 100 0 50 0 50 50 0 255 0 125 0 0 0 SystemReserveMargin 30.6% 21.3% 14.6% 16.1% 35.6% 36.8% 35.6% 34.3% 33.6% 32.5% 31.3% 31.2% 31.0% 30.8% Expansion 540 300 360 1140 2630 1060 1006 934 1243 1053 1272 1422 1422 1522 15904 (1) Thermal 300 300 300 950 2100 650 700 300 600 0 800 1200 1200 1300 10700 Changsha BOT 0 0 0 0 350 350 0 0 0 0 0 0 0 0 700 300 MW anthracite 0 0 0 0 600 300 600 300 600 0 0 0 0 0 2400 300 MW bituminous coal 300 300 300 650 650 0 0 0 0 0 0 0 0 0 2200 600 MW bituminous coal 0 0 0 0 0 0 0 0 0 0 600 1200 1200 1200 4200 Gas Turbine 0 0 0 300 500 0 100 0 0 0 200 0 0 100 1200 (2) Hydro 240 0 60 190 530 410 306 634 643 1053 472 222 222 222 5204 Feng Tan 0 0 0 0 160 160 0 0 0 0 0 0 0 0 320 < Zha Xi 0 0 0 0 150 150 0 0 0 0 0 0 0 0 300 ° Dong Jiang 0 0 0 0 0 0 126 126 0 0 0 0 0 252 X Wan Mi Po 0 0 0 0 0 0 0 0 180 90 0 0 0 0 270 Jiang Ya 0 0 0 100 100 100 0 0 0 0 0 0 0 0 300 Three Gorges 0 0 0 0 0 0 0 463 463 463 222 222 222 222 2277 Hong Jiang 0 0 0 0 0 0 180 45 0 0 0 0 0 0 225 Wu Qiang Xi 240 0 0 0 0 0 0 0 0 0 0 0 0 0 240 Ling Jin Tan 0 0 60 90 120 0 0 0 0 0 0 0 0 0 270 San Ban Xi 0 0 0 0 0 0 0 0 0 500 250 0 0 0 750 L/ At the beginning of the year. z -4 Page 49 ANNEX? FIGURE 1. RISK ANALYSIS SUMMARY FOR ECONOMIC JUSTIFICATION Risk Variables Report Risk Variable No. 1 Risk Variable No. 6 50% Capital Cost: Foreign excharg rate (RMB/$): 40% -l Probability distnbution: ro distnbution: 30% 10%150%125%110%1 5%° lj%. 20%1 25! % 5 20% I0.901 1°°1 1.10| 1.201 1.30 0.601 0.701 0.801 1.001 1.05 10% 0% ]++ O O [ ~~~~~~~~~~40%- 30%- _20% Risk Variable No. 2 10% 50% Fuel Pnice:, 40% . - |Probabilitv distnbution: 0% - ++ L 30% .- 110%|150%1D25%1 10%| 5%1 CC o o ° 120% - .1L0-901 1.00| 1.101 1.201 1.301 C- DC 20% - 0 Results Report Cumulative Distribution of EIRR Risk Variable No. 3 60% - Generat;onn 100% - _ __I __ Probability distrib-ution:Y 40% II 1% 20%1 10% 80% \ 20%-1- 1 j ~~~1 10.801 0m901,.001 101 -60% 20% *60% 0% 40% 6 -oOX 20% .===_ _ _ _ _ I 0%- - Risk Variable No.4 4 0.00% 6.00% 12.00% 18.00% 24.00% 30.00% 50% Sales Puice 40% - - | Probability distribution: 30% -5 i10%|15%j50%j15%110% 20% - - | 0.o801 0901 1.001 1.101 1.202 Frequency Dlstribution of EIRR 10% 1- ,I I1I 0% - 0.16 I o o - 0 0 - - -o O0.12 - Risk Varlable No. 5 0.1 60% - Commissionin date: 0.08 I Probability distribution:. 0.06 40% -I510T2-/.-O-. 5/ 20% -0.02 20% L|-1| 0 +1| +21 +31 0.04 __7 0 - o TO + T.+07 mChC 0 -- Page 50 ANNEX 7 FIGURE 2: RISK ANALYSIS SUMMARY FOR ECONOMIC JUSTIFICATION Risk Variables Report Risk Variable No. I Risk Variable No. 6 50% energy sales: exchange rate ($IRMB) 40% IProbability distribution: DISCRETE Probability distribution: DISCRETE 30%- 5% 10% 15% 50% 15% 5% 10% 20% 25%1 40% 5% 20% 4 11-0.7 0.8 0.9 1 1.1 1.2 0.6 0.7 0.81 1 1.05 10% 0% l 0 0 -40% 30% Risk Variable No. 2 20% 50% WTP:10 40% .- |Probability distribution: DISCRETE| 10% L 30% 10% 50%1 25%1 10%0 5%o 0% - c 20% 0.9| 1| 1.1| 1.15| 1.25 0 O 0 o 10% 1. 0% L Results Report of Risk Analysis Frequency Distribution Of IERR Risk Variable No. 3 50% | investment of generation 0.16 40% I Probability distribution: DISCRETE I 0.14 30| I I 10% 50% 25%1 10% 5% 0.12 1 0.9 1 1.11 1.21 1.3 0.1 20% tIl 0.0 10% +IiI0.06 0.02 I0I S - v- - -- 1 Risk Variable No. 4 50% | investment of T&D _ _N CS CN4 40% | - Probability distribution: DISCRETE I 30% I I 10%1 50%1 25% 10%1 5% 120% 1 0.91 11 1.1 1.21 1.3 10% Cumulative Distribution of IERR 0% 1 100% - - - 90% - - 80% - - -- Risk Variable No. 5 70% 50% - coal price 60% - 40% |Probability distribution: DISCRETE | 50% - - - - 1 30%t 1 1 1 110% 50%1 25%1 10%° 5% 40% -t 0.91 11 1.11 1.21 1.3 30%. ... 10% 10% __ 0% 0% - 0. _ ^ | o0.00% 5.00% 10.00% 15.00% 20.00% 25.00% o _ - Page 51 ANNEX B ANNEX 8: FINANCIAL SUMMARY FINANCIAL VIABILITY AT PROJECT LEVEL Leiyang Power Plant The incremental financial benefits for the proposed component are calculated based on the prices entailed by the "new power new price" policy which warrants cost recovery and a return on the investments agreed between HEPC and the Pricing Department of the Hunan Provincial Government. The required annual tariff increase will be proposed by HEPC and confirmed by the Provincial Pricing Bureau on an annual basis taking into account the following principles: * Prior to the retirement of domestic debts (from 2002 to 2012): full debt service requirements; O&M cost (including depreciation not used for debt repayments); taxes related to the proposed project; and an annual return of not less than 15 percent on the funds invested by HEPC for the proposed component. * After retirement of domestic debts (from 2013 to the end of the life of the project): full debt service requirements for the Bank loans; O&M cost (including depreciation not used for debt repayments); taxes related to the project; and an annual return of not less than 18 percent on the funds invested by HEPC for the proposed component. The financial rate of return for the proposed power plant investment is estimated at 12.11 percent. Based on the latest investment cost estimates, operating costs arrived from historical records to increase with projected domestic inflation rates, prevailing interest rates and exchange rate, and 5,000 operating hours per year, the estimated average tariff for the proposed power plant component would be as follows: * Average tariff prior to retirement of domestic debts (from 2002 to 2012): 54.73 fen/kWh (in current terms) 34.25 fen/kWh (in 1997 prices) * Average tariff during the life of the project life (from 2002 to 2022) 59.71 fen/kWh (in current terms) 29.05 fen/kWh (in 1997 prices) Transmission Component The incremental financial benefits for the proposed component are calculated based on the prices accounting for full cost recovery and a return on the investments agreed between HEPC and the Pricing Department of the Hunan Provincial Government. The required annual tariff increase will be proposed by HEPC and confirmed by the Provincial Pricing Bureau on an annual basis taking into account the following principles: * Full debt service requirements; O&M cost (including depreciation not used for debt repayments); taxes related to the proposed component; and an annual return of not less than 15 percent on the funds invested by HEPC for the proposed component. The financial rate of return for the proposed transmission investment is estimated at 14.86 percent. Based on the latest investment cost estimates, operating costs arrived from historical records (1 percent of fixed assets value) to increase with projected domestic inflation rates, prevailing interest rates and Page 52 ANNEX 8 exchange rate, and assuming that the electricity sales would grow by 6 percent per year during 1997- 2010, 5 percent during 2011-2015, 4 percent during 2016-2020, and 3 percent during 2021-2025, and 2 percent thereafter, the estimated average tariff increases for the proposed transmission component would be as follows: Average tariff increases during the life to the project: 0.55 fen/kWh (in current terms) 0.32 fen/kWh (in 1997 prices) The sensitivity analyses would not be very meaningful in either case due to the fact that the prices are set based on regulated cost plus approach. As a result, the rates of return are not sensitive to either the changes in costs or the fluctuations in electricity sales. FINANCING PLAN The total financing requirements (including IDC of $68.4 million equivalent) are estimated at $747.2 million equivalent. The foreign exchange required for the project cost estimated at $300 million will be financed by the proposed Bank loan. 20 percent of the total financing requirement, about $149.7 million equivalent, will be financed by HEPC's self-generated funds. The remaining local costs and IDC for both foreign and local loans estimated at $297.5 million equivalent will be covered by loans from the State Development Bank (45 percent) and the China Construction Bank (55 percent). Written commitments from the two local banks have been issued to HEPC. The risk of availability of counterpart funds is extremely low because (i) Chinese banks are competing for financing good power projects like this one for which the debt service of the proposed project is secured by the pricing formula committed by the Hunan Provincial Government; and (ii) HEPC has had strong earning and solid repayment records. VIABILITY OF THE PROJECT ENTITY-HEPC Based on HEPC's financial statements for 1994-96 prepared in accordance with Chinese accounting standards, HEPC is prudently capitalized (debt accounts for about 50 percent of the total capitalization), maintained adequate liquidity (current ratios have been above 1.0 times) and strong debt service positions (debt service coverage have been close to 1.8 times), and made satisfactory profits (net profits represent about 5 percent of return on net fixed assets). The projection of HEPC's finances in accordance with Chinese GAAP for 1997-2005 and the assumptions used are presented at the end of the same annex. HEPC is expected to maintain prudent and strong financial positions throughout the projection period. The debt/equity ratios are projected to stay below 60/40 percent and debt service coverages are averaged above 1.5 times. The net profitability is expected to improve gradually and stabilize at the level of 7-8 percent of the net fixed assets. FINANCIAL MANAGEMENT SYSTEM HEPC has strengthened its financial management system in the past five years. At HEPC's headquarters, a deputy general manager and a chief accountant were appointed to be in charge of operations and company's finance. Under the chief accountant, the financial department is staffed with 21 professional financial staff and accountants. HEPC's subordinate units (including power plants and power supply bureaus) and wholly owned subsidiaries have set up financial departments and each is staffed with 10 to 15 qualified financial and accounting personnel. As of 1997, the total number of full-time financial and accounting staff working in HEPC system and its subsidiary companies is 1206, of which 12 are senior accountants, 208 chartered accountants, and 294 assistant accountants. Page 53 ANNEX 8 HEPC's financial management system, including the accounting and auditing policies, standards, and internal control, as well as the accounting arrangements for management of the proposed project have been reviewed and their summary descriptions are given in the Project Implementation Plan (PIP), available in the project file. The Chinese GAAP are generally consistent with IAS. The major differences include: the approach and accounting treatment for bad debt provisioning, for short-term investments' valuation, for permanent devaluation of long term investments, and for public welfare funds. However, HEPC is still confined to other rules or set formats stipulated by MOF and MOEP and could not prepare its financial statements that fully conform to the Chinese GAAP. HEPC's existing systems for accounting and financial management are satisfactory. Improvements has been made to its cash management system through a technical assistance provided by Asia Development Bank. Centralized cash management functions and policies covering credit control, bank account control, collection, payment and inventory have been established. However, there are areas, including ineffective budgetary control, fragmented financial information flows, and lack of modern financial management practice, where improvements could be made to meet modem financial management standards: * On the issue of budgetary control, the current practice is that annual operating budget proposals are mostly based on administrative instructions and are seen as formalities. As a result, the comparison between actual and budget allocation is not very meaningful and there is a lack of discipline and effective budget control. * On the issue of information flows, currently, most of the information flows take a vertical hierarchical path. Financial, planning, and construction departments/units each prepare and maintain its own financial data, such as information related to investment, sales, costs, and tariffs, and do not share information on a routine and timely basis. Therefore, discrepancies exist and may cause mistakes on important decisions; and * On the issue of modem financial management, as HEPC was incorporated just few years ago, the financial staff are strong in financial accounting but still at early stage of modern financial management. HEPC could improve its financial management in financial planning, assets and liabilities management, performance evaluation, and cost and management accounting, etc. Under the proposed project, a TA will be provided to upgrade HEPC's financial management systems, including intensive training for its financial staff, to address the above issues (see training program in PIP, available in the project file). FINANCIAL PERFORMANCE TARGETS To promote prudent and sound financial management and adequate tariffs, HEPC agreed that the following financial covenants will be included for the proposed project: * HEPC shall not incur any debt unless a reasonable forecast of the revenue and expenditure shows that the estimated internal cash generation would provide a debt service coverage of no less than 1.5 times at all times; * HEPC shall take all necessary measures, including but not limited to tariff adjustments, to eam a return of not less than 8 percent of the equity (paid-in capital plus retained earnings) in 1999-2000, 10 percent in 2001-2002, and 12 percent in 2003 and thereafter; and * By June 1 of each year, HEPC shall furnish to the Bank a rolling eight-year financial plan containing projected income statements, funds flow statements, and balance sheets. A written commitment on the principles of cost recovery through tariff increase for the proposed project was issued by the Pricing Department of the Hunan Provincial Government and provided to the Bank. Page 54 ANNEX 8 FINANCIAL SUMMARY FOR REVENUE-EARNING PROJECT ENTITIES YEARS ENDING: 1994 THROUGH 2005 (Yuan million) Actual Forecast Year Ended December31 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Income Statement Items Sales (GWh) 211 230 239 244 258 274 294 314 337 365 392 416 Revenues 4,697 5,823 7,066 7,859 9,031 10,400 11,914 13,842 16,879 20,226 23,383 26,203 Operating Income 660 912 1,004 1,223 1,494 1,930 2,150 2,596 3,377 4,483 5,277 5,702 Net Income 367 450 392 382 467 668 796 1,039 1,549 2,082 2,634 2,449 Funds Statement Items Internal Sources 899 1,349 2,276 2,734 3,113 3,669 4,015 4,628 5,550 6,767 7,651 8,532 Borrowings 2,760 1,908 2,644 1,918 2,465 2,761 3,822 4,748 5,785 5,921 6,372 7,369 Equity Investments 274 1,172 134 279. 100 36 50 183 382 424 399 375 Total Sources 4,087 4,429 5,053 4,931 5,679 6,465 7,887 9,559 11,716 13,112 14,422 16,276 Capital Expenditure 3,753 4,031 3,715 1,744 3,546 4,157 5,414 6,142 7,638 7,933 8,323 9,327 Working Capital Increase -719 -1,014 -425 800 22 270 187 163 366 199 205 144 (Decrease) Debt Service 581 697 1,301 1,845 1,884 2,108 2,488 2,776 3,516 4,318 4,905 5,245 Total Applications 3,639 4,087 4,846 4,788 5,479 6,562 8,113 9,103 11,576 12,586 13,677 15,040 Balance Sheet Items Current Assets 4,341 3,946 4,507 4,839 5,252 5,385 5,361 6,057 6,662 7,680 8,921 10,649 Less Current Liabilities 4,110 4,388 4,977 4,266 4,538 4,830 5,044 5,834 6,415 6,984 7,579 8,261 Net Fixed Assets 6,493 7,748 14,844 14,874 16,037 17,742 18,630 20,979 24,648 27,645 30,094 32,247 Total Assets 17,330 20,734 24,227 24,624 27,153 29,803 33,366 38,096 43,847 50,022 56,538 64,271 Debt 7,654 8,241 10,177 10,080 11,510 12,902 15,158 17,626 20,649 23,532 26,231 30,264 Equity 5,566 8,104 9,074 10,278 11,105 12,071 13,164 14,636 16,782 19,505 22,729 25,747 Total Liabilities and Equity 17,330 20,734 24,227 24,624 27,153 29,803 33,366 38,096 43,847 50,022 56,538 64,271 Financial Ratios Operating Incomeasa %of Revenue 14.1 15.7 14.2 15.6 16.5 18.6 18.0 18.8 20.0 22.2 22.6 21.8 Net Income as a % of Revenue 7.8 7.7 5.6 4.9 5.2 6.4 6.7 7.5 9.2 10.3 11.3 9.3 Retum on Equity (%) 6.6 5.5 4.5 5.4 6.1 8.0 8.7 10.0 12.6 14.1 14.9 12.0 Return on Net Fixed Assets (%/o) 5.7 5.8 3.5 2.6 3.0 4.0 4.4 5.2 6.8 8.0 9.1 7.9 Debt Service Coverage (times) 1.81 1.94 1.54 1.34 1.51 1.61 1.51 1.57 1.50 1.50 1.50 1.57 Percent of Total Capital (%) 32.12 39.1 37.5 41.7 40.9 40.5 39.5 38.4 38.3 39.0 40.2 40.1 Expenditures financed by Intemal 63.5 39.5 -6.2 29.3 22.7 19.4 21.1 17.4 23.3 25.2 30.1 Sources (%) Current Ratio (times) 1.15 1.04 1.10 1.40 1.43 1.46 1.43 1.54 1.62 1.73 1.86 2.05 Debt as % of Total Capitalization 57.9 50.4 52.9 49.5 50.9 51.7 53.5 54.6 55.2 54.7 53.6 54.0 Major Assumptions: The major assumptions used for HEPC's Financial Projections are as follows: * General * The general inflation rates are assumed as follows: Local: 2.0 for 1998, 4.8 for 1999, 5.0 for 2000, 5.5 for 2001 and thereafter. Foreign: 2.5 for 1998, 3.1 for 1999, 2.9 for 2000, 2.8 for 2001, 2.7 for 2002, 2.6 for 2003 * The foreign exchange rate used is $1=Y 8.3. Page 55 ANNEX B * The interest rates are assumed to be 10.53 percent per year for local loans and repayable in 12 and 10 years; 6.09 percent for IBRD loan with commitment charge of 0.75 percent and repayable in 20 years including a 5-year grace period. * The capital investment program is based on the least cost power development planning for HEPC. * Income Statements * Energy sales projection is calculated based on load forecast of HEPC. Energy sales is assumed to grow by 6.10 percent per year during the period 1997-2005. * The tariffs are assumed to be adjusted so that the average revenues would be adequate for achieving the minimum financial performance targets. * The actual average consumption rate of standard coal in 1997 for generation was 398.8 g/kWh. The rate is assumed to decline to about 369 g/kWh by 2005. * The cost of purchased power is assumed to increase by 1.5 percent per year in real terms based on estimated prices in 1997. The tariffs for each IPP is estimated in accordance with the "new plant new price" policy. * The average line loss rate of HEPC is assumed to be 9.19 percent and to decline to 8.79 in 2000. * The annual depreciation rate is assumed to be 6.2 percent. * All interest during construction (IDC) are capitalized. * The average wages are assumed to increase by two percent per year in real terms based on 1997's actual plus half of the growth rate of energy sales. * The total number of employee is assumed to decrease by 5 percent in 1998 due to HEPC's restructuring and stay unchanged till 2000 and to increase by I percent per year thereafter. * Fuel costs are assumed to increase by 3 percent per year in real terms based on 1997's actual, 287.2 Yuan/ton (7,000 kcal/kg), till 2000 and to escalate with the projected inflation rates afterwards. * Under the operation & maintenance costs, material cost is assumed to increase by the rate of growth of original fixed assets per year in real terms; water cost is assumed to increase by 1 percent plus the rate of growth of electricity generated per year in real terms; and maintenance cost is assumed to be 2.5 percent of fixed assets. * Income tax is expected to be assessed at 33 percent of taxable income. * Value-added tax (VAT) is 17 percent. * Urban and education tax rates are 7 and 3 percent of VAT, respectively. * Balance Sheets * Inventories are assumed to be one month's fuel supply plus two percent of the gross fixed assets. * Accounts receivable is assumed to be reduced from 30 days' gross sales revenue (including VAT) in 1997 and to be reduced gradually to 15 days by 2005. * Other accounts receivable is assumed to increase by 3 percent per year. * Fixed assets cost includes estimated total project costs, capitalized interest during construction, and commitment fees. No annual revaluation of fixed assets is assumed. * Accounts payable is assumed to decrease gradually from 60 days of costs fro fuel, purchase power, and materials in 1997 to 16 days by 2005. * Tax payable is assumed to reduce from 180 days of effective VAT in 1997 to 40 days by 2001 and thereafter. * Short-term loans are assumed to be 3 month's total amount assets (excluding cash) * Earned surplus includes accumulated consumer's contribution, and development and welfare funds that are appropriated from net income each year. Page 56 ANNEX 8 * Retained earnings will increase by each year's net income and decrease by the above two appropriations and declared dividends. * Funds Flow Statement The consumer contributions represents the receipts of consumer connections and is assumed to increase by I percent per year based on 1996 actual collection Page 57 ANNEX9 ANNEX 9: PROCUREMENT AND DISBURSEMENT ARRANGEMENTS PROCUREMENT All goods and consultant services to be financed under Bank loan will be procured by HEPC in accordance with the Bank Guidelines ("Guidelines-Procurement under IBRD Loans and IDA Credits," January 1995, revised in January and August 1996 and September 1997, and "Guidelines for Selection and Employment of consultants by World Bank Borrowers," January 1997 and revised in September 1997). Project costs by procurement arrangements are summarized in Table A and Al. Procurement activities will be processed according to the schedule in Table A2 and Charts 1 and IA. Estimated contractual and other payments are shown in Table A.3. In International Competitive Bidding (ICB) and Limited International Bidding (LIB) procurement, model bidding documents (May 1997) developed by MOF in collaboration with the Bank would be used. In evaluation of the bids following ICB procedures, qualified domestic manufacturers would be eligible for a margin of preference of 15 percent of the Cost, Insurance, Freight (CIF) price or the actual custom duty, whichever is lower. The invitation to bid for each contract estimated to cost US$10 million equivalent or more shall be advertised in accordance with the procedures applicable to large contracts under paragraph 2.8 of the Bank's Procurement Guidelines. Goods. The Bank loan will be mainly used for procurement of major equipment and materials for Leiyang thermal power plant and Furong substation. About 96 percent of the equipment and materials will be procured through International Competitive Bidding (ICB). The procurement under ICB procedures will include 13 packages for plant and transmission equipment and materials, ranging from about US$1 million to US$126 million with a total value of US$288 million. Some specialized equipment estimated to cost less than $300,000 per contract up to an aggregate amount of US$4 million, and equipment which can only be purchased from a limited number of suppliers, notwithstanding the cost per contract thereof, will be procured through limited international bidding (LIB). Goods, instruments and accessories needed for construction and operation of power plant and transmission facilities, including equipment for environmental monitoring, which are readily available off-the-shelf goods or standard specification commodities, will be procured through contracts awarded on the basis of: (a) International Shopping procedures (IS) for contracts estimated to cost less than US$300,000 per contract and up to an aggregate amount not to exceed $1.5 million, by soliciting quotations from at least three suppliers in two different countries; or (b) National Shopping procedures (NS) for contracts estimated to cost less than US$300,000 up to an aggregate amount not to exceed $500,000, with the prior agreement of the Bank. Goods of a proprietary nature may be procured through direct contracting with the bank's prior agreement. It is expected that the aggregate amount would not exceed $500,000. Works. The site preparation, civil works construction and installation of plant electromechanical equipment and transmission facilities are well within the capability of the local contractors. Because of foreign exchange limitations, these works will be financed by HEPC and procured following local competitive bidding procedures. Installation of major equipment will be supervised by the manufacturers. Services. Contracts amounting to about $5.5 million in total for consulting services, including training, will be awarded in accordance with Bank Guidelines. These include technical assistance for preparation Page 58 ANNEX 9 of commercial power purchase agreements and implementation of HEPC's restructuring plan (1 contract), technical assistance for improvement of the financial management system (I contract), and construction management (1 contract). Selection of consultants will be carried out through Quality and cost based Selection (QCBS). These contracts shall be based on the applicable standard form of contract for consultants' services issued by the bank, with such modifications thereto as shall have been agreed by the bank. Other consulting services and training may be procured under Consultant's Qualification (CQ) procedures (appropriate qualifications and reference from an established short list) for contracts expected not to exceed US$100,000 for firms, or under procedures for the hiring of individual consultants. These may include training, and advisory services to HEPC on restructuring and technical matters. Prior Review Thresholds (Table B). Prior review of draft bidding documents, bid evaluation reports and contract award recommendations and contracts will be carried out for all ICB contracts and LIB contracts exceeding $300,000. This will cover over 99 percent of the Bank loans. Selective post-review will apply to other contracts during the supervision missions. Prior review of the terms-of-reference, cost estimates, selection criteria, consultant shortlists, request for proposals, bid evaluation reports and contract award recommendations and contracts will be required for all consultants with an estimated cost exceeding $100,000 per contract for firms, or $50,000 for individuals. DISBURSEMENT Allocation of Loan Proceeds (Table C). The bank loan will be disbursed against: (a) 100 percent of the foreign expenditures for directly imported equipment and materials quoted on a CIF basis; (b) 100 percent of local expenditures ex-factory for locally manufactured items; (c) 75 percent of local expenditure for other items procured locally; and (d) 100 percent of the expenditure for consulting services and training. The estimated annual disbursement schedule is shown in the Project Financing data in page 1 and detailed in the PIP (available in the project file). It reflects the bank experience with previous power projects in China. The loan is expected to be disbursed over a period of about 5.5 years. The project completion date would be December 31, 2003, and the loan closing date would be December 31, 2004. Retroactive financing in an aggregated amount of $10 million, or 3.3 percent of the loan, would be provided for the anticipated expenditures (consulting services for technical assistance and equipment on the critical path of the project construction) incurred after the March 31, 1998 and before signing of the loan. Use of Statements of Expenses (SOEs). For expenditures pertaining to goods contracts valued at less than US$300,000, consultancy contracts valued at less than US$100,000 for firms and US$50,000 for individuals and all training, reimbursement will be made on the basis of Statements of Expenses. Supporting documentation need not be submitted to the Bank but will be retained in HEPC's office for review by Bank supervision missions. Special Account To facilitate disbursements under this project, a Special Account will be established for HEPC with an authorized allocation of US$20 million, representing approximately four months of average project disbursements. Applications for replenishment will be submitted monthly or when the amounts withdrawn equal 50 percent of the initial deposit, whichever comes sooner. Separate and auditable accounts would be established by HEPC. These accounts would include: (i) a record of withdrawals on the Bank loan with copies of all disbursement requests and underlying documentation; and (ii) a record of transactions on the Special Accounts and the copies of the Bank statements on this account. Page 59 ANNEX 9 TABLE A: PROJECT COSTS BY PROCUREMENT ARRANGEMENTS (in US$ million equivalent) Procurement Method Expenditure Category ICB Other /a NBF Lb Total Cost 1. Works Site preparation - - 2.81 2.81 Civil works - - 42.84 42.84 Traffic works - - 5.86 5.86 Erection works - - 41.23 41.23 Construction management - - 12.66 12.66 2. Goods Plant equipment & materials 245.47 4.60 12.04 262.11 (245.47) (4.60) (250.07) Transmission equipment. & materials 37.58 1.61 149.21 188.40 (37.58) (1.61) (39.19) Environmental protection & monitoring eqpt. 4.95 0.29 - 5.24 (4.95) (0.29) (5.24) 3. Services Engineering services 2.00 5.79 7.79 (2.00) (2.00) Technical assistance 2.50 - 2.50 (2.50) (2.50) Training - 1.00 - 1.00 (1.00) (1.00) Total 288.00 12.00 272.44 572.44 (288.00) (12.00) (0.00) (300.00) /c /a Includes: * Limited International Competitive Bidding (aggregate amount US$4 million). * International Shopping (aggregate amount US$1.5 million). * National shopping (aggregate amount US$0.5 million). * Direct Contract (aggregate amount US$0.5 million). * Consultant Services under engineering, technical assistance and training components (US$5.5 million) /b NBF = Not Bank-financed k Figures in parenthesis are the amounts to be financed by the Bank loan (in US$ million equivalent). Page 60 ANNEX 9 TABLE Al: CONSULTANT SELECTION ARRANGEMENTS (in US$ million equivalent) Consultant Services Selection Method Total Cost Expenditure Category QCBS QBS SFB LCS CQ Other NBF (including contingencies) A. Firms 4.50 - - - 0.40 - 5.79 10.69 (4.50) (0.40) (4.90) B. Individuals - - - - 0.30 0.30 - 0.60 (0.30) (0.30) (0.60) Total 4.50 0.70 0.30 5.79 11.29 (4.50) (0.70) (0.30) (5.50) Notes: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. NBF = Not Bank-financed. Figures in parenthesis are the amounts to be financed by the Bank loan. TABLE A.2: PROJECT PROCUREMENT PLAN AND IMPLEMENTATION SCHEDULE Major Procurement Activities Date of Installation/Rehabilitation Financed Procurement Submission Award/Signing Completion Commencement Completion Remarks Project by method of bids of contract of deliveries (1#/2#) (1#/2#) /a Leiyang Power Plant HEPC F-01 Boiler Island IBRD ICB 11/98 04/99 08/1999-04/2001 0112000-07/2000 0812001-05/2002 HEPC F-02 Turbine/Generator Island IBRD ICB 11/98 04/99 08/1999-04/2001 01/2000-07/2000 08/2001-05/2002 HEPC F-03 I & C (including Simulator) IBRD ICB 07/99 10/99 07/2000-02/2001 08/2000-08/2000 08/2001-05/2002 HEPC F-04 Electric Equipment IBRD ICB 07/99 10/99 07/2000-08/2001 08/2000-08/2000 08/2001-05/2002 HEPC F-05 Ash Handling IBRD ICB 09/99 12/99 11/2000-06/2001 12/2000-03/2001 08/2001-05/2002 HEPC F-06 Mechanical Equipment IBRD ICB 09/99 12/99 11/2000-06/2001 12/2000-12/2000 08/2001-05/2002 HEPC F-07 Circulating Water Pump (with motor) IBRD LIB 10/99 01/2000 11/2000-06/2001 12/2000-12/2000 08/2001-05/2002 1 HEPC F-08 Tripper IBRD LIB 10/99 01/2000 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 1 HEPC F-09 Hydraulic control check butterfly valve IBRD LIB 10/99 01/2000 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 1 HEPC F-10 Rotating screen IBRD NS 11/99 03/2000 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 2 HEPC F-il Movable trash rack IBRD NS 11/99 03/2000 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 2 HEPC F-12 Transmitters IBRD DC 11/99 03/2000 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 5 HEPC F-13 Programmable control system for coal IBRD DC 11/99 03/2000 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 5 hauling HEPC F-14 a. Programmable telephone exchanger IBRD LIB 10/99 02/2000 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 3 b. Digital programmable telephone exchanger with dispatch desk c. Digital programmable telephone exchanger HEPC F-15 Power line carrier IBRD LIB 10/99 02/2000 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 3 w HEPC F-16 Electric blet-scale IBRD LIB 09/99 12/99 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 3 HEPC F-17 Flue gas continuous monitoring device IBRD IS 04/2000 08/2000 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 4 Furong Substation HEPC B-01 220 kV GIS IBRD ICB 07/98 12/98 12/99 12/99 08/2000 HEPC B-02 110 kV GIS IBRD ICB 07/98 12/98 12/99 12/99 08/2000 HEPC B-03 Substation Protection & Control IBRD ICB 10/98 04/99 04/2000 12/99 08/2000 HEPC B-04 1O kV Distribution Equipment IBRD ICB 10/98 04/99 04/2000 12/99 08/2000 HEPC B-05 220 kV Cable IBRD ICB 07/98 12/98 12/99 12/99 08/2000 HEPC B-06 110 kV Cable IBRD ICB 07/98 12/98 12/99 12/99 08/2000 HEPC B-07 Energy Metering & Billing System IBRD ICB 08/98 01/99 12/99 06/99 12/1999 HEPC B-08 Conductor Stringing Equipment IBRD IS 11/98 06/99 12/99 4 HEPC B-09 Vacuum Filter IBRD IS 11/98 06/99 12/99 4 HEPC B-10 Mobile Crane 20T IBRD IS 11/98 06/99 12/99 4 HEPC B-il Mobile Lifting Work Platform IBRD IS 11/98 06/99 12/99 4 HEPC B-12 Heavy Track for Flat-bed Trailer IBRD IS 11/98 06/99 12/99 4 /a I = Equipment requiring to meet dimensional clearance restriction. 2 = Related to expansion of existing facilities (for reasons of compatibility and standardization). 3 = Equipment requiring compatibility with existing units. 4 = Specialized equipment. 5 = Retrofitting (proprietary nature). z z m x to CHART 1: ICB PROCUREMENT SCHEDULE 7 ] 1998 1999 1 2000 ID Task Name Duration Start Finish Q3 Q4 Ql I Q2 Q3 Q4 Ql Q2 Q3 Q4 Ql Q2 Q3 Q4 1 Leiyang Thermal Power Plant 131.8w 10/15/97 4/18/00 (Phase 11) . 2 Boiler 80.4w 10/15/97 4/26/99 Issue bidding document Preparation of docs X Contract award 3 Preparation of docs 25w 10/15/97 4/6/98 0/15 4 Approval by Chinese 8w 4/7/98 6/1/98 government . 5 Review by World Bank 4w 6/9/98 7/6/98 6 Issue SPN 0.2w 7/7/98 7/7/98 7 Issue bidding document 13.4w 8/7/98 11/5/98 . < j~~ ~~~/7 . a> 8 Bid opening 0.2w 11/6/98 11/6/98 1/6 9 Bid evaluation lOw 11/9/98 1/15/99 Progress Rolled Up Milestone Baseline Baseline Summary Kj Project: CN-PE-3 Milestone Rolled Up Baseline Date: 4/24/98 Baseline Milestone Rolled Up Baseline Milestone X Summary Rolled Up Progress Rolled Up Task > z z m CHART 1: ICB PROCUREMENT SCHEDULE 7 l 1998 1999 ] 2000 ID Task Name Duration Start Finish Q3 Q4 l|Q3 Ql Q2 Q3 Q4 Q TQ2 Q3 Q4 10 Approval by Chinese 5w 1/18/99 2/19/99 government [..) 11 Review by World Bank 4w 2/22/99 3/19/99 12 Contract negotiation 5w 3/22/99 4/23/99 13 Contract award 0.2w 4/26/99 4/26/99 4/26 14 Turbine/Generator 80.4w 10/15/97 4/26/99 Issue bidding document Preparation of docs . Contract award 15 Preparation of docs 25w 10/15/97 4/6/98 0/15 16 Approval by Chinese 8w 4/8/98 6/2/98 government .) 17 Review by World Bank 4w 6/9/98 7/6/98 18 Issue SPN 0.2w 7/7/98 7/7/98 Progress Rolled Up Milestone Baseline Baseline Summary Project: CN-PE-3 Milestone Rolled Up Baseline Date: 4/24198 Baseline Milestone Rolled Up Baseline Milestone Summary Rolled Up Progress Rolled Up Task >_ z m x to CHART 1: ICB PROCUREMENT SCHEDULE 7~~ ~ 1998 11999 12000 ID Task Name Duration Start Finish Q3 Q4 Ql Q2 Q Q2 Q3 Q4Q2 Q3 Q4 19 Issue bidding document 13.4w 8/7/98 11/5/98 20 Bid opening 0.2w 11/6/98 11/6/98 _ * 9~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1/6 21 Bid evaluation lOw 11/9/98 1/15/99 22 Approval by Chinese 5w 1/18/99 2/19/99 government 23 Review by World Bank 4w 2/22/99 3/19/99 24 Contract negotiation 5w 3/22/99 4/23/99 25 Contract award 0.2w 4/26/99 4/26/99 . 4/i6 26 27 I & C, Electric equipment 51.2w 10/28/98 10/18/99 Issue bidding document Prepatation of docs _ Contract award Progress Rolled Up Milestone Baseline Baseline Summary Project: CN-PE-3 Milestone Rolled Up Baseline Date: 4/24/98 Baseline Milestone Rolled Up Baseline Milestone Summary Rolled Up Progress Rolled Up Task _ z ID CHART 1: ICB PROCUREMENT SCHEDULE 7 | 1998 J 1999 J 2000 ID Task Name Duration Start Finish Q3 Q4 Q Q2 Q3 |Q4 | Q I Q2 I Q3 Q4 Ql Q2 Q3 Q4 28 Preparation of docs 16w 10/28/98 2/15/99 0/28 29 Approval by Chinese 4.4w 2/16/99 3/17/99 government 30 Review by World Bank 4.2w 3/18/99 4/15/99 31 Issue SPN 0.2w 3/18/99 3/18/99 32 Issue bidding document 13.2w 4/19/99 7/16/99 /19 33 Bid opening 0.2w 7/19/99 7/19/99 /19 34 Bid evaluation 4w 7/20/99 8/16/99 . I 35 Approval by Chinese 2w 8/17/99 8/30/99 government 36 Review by World Bank 2w 9/6/99 9/17/99 Progress Rolled Up Milestone Baseline Baseline Summary Project: CN-PE-3 Milestone Rolled Up Baseline Date: 4/24/98 Baseline Milestone K Rolled Up Baseline Milestone 0 Summary Rolled Up Progress Rolled Up Task _ z z m x (a CHART 1: ICB PROCUREMENT SCHEDULE 7 1998 1999 1 2000 ID Task Name Duration Start Finish Q3 Q4 Ql QQ Q2 Q3 Q4 Q Q2 Q3 Q4 37 Contract negotiation 4w 9/20/99 10/15/99 38 Contract award 0.2w 10/18/99 10/18/99 10/18 40 Ash handling, Mechanical 68.6w 12/28/98 4/18/00 Issue bidding document _ equipment lreparation of docs ontnr ctawa 41 Preparation of docs 15.8w 12/28/98 4/15/99 42 Approval by Chinese 4.4w 4/16/99 5/17/99 government .. 43 Review by World Bank 4w 5/24/99 6/18/99 o. 44 Issue SPN 48.4w 5/18/99 4/18/00 45 Issue bidding document 13.2w 6/21/99 9/17/99 Progress Rolled Up Milestone Baseline Baseline Summary Project: CN-PE-3 Milestone Rolled Up Baseline Date: 4/24/98 Baseline Milestone Rolled Up Baseline Milestone 0 Summary Rolled Up Progress Rolled Up Task z z m x to CHART 1: ICB PROCUREMENT SCHEDULE 7 J1998 ]1999 J2000 ID Task Name Duration Start Finish Q3 Q4 Ql Q2 Q3 Q4JQ1I Q2 Q3 Q4 Q1I Q2I Q3 Q4 46 Bid opening 0.2w 9/20/99 9/20/99 /0 47 Bid evaluation 4w 9/21/99 10/18/99 48 Approval by Chinese 2w 10/19/99 11/1/99 govemnment 49 Review by World Bank 2w 11/2/99 11/15/99 50 Contract negotiation 4w 11116/99 12/13/99 51 Contract award 0.2w 12/14/99 12/14/99 12/14 53 Transmission 70.6w 12/2/97 4/5/99 54 220kv GIS & 110kv GIS 55.4w 12/2/97 12/18/98 Issue bidding document Preparation of does ..,.Contract award Progress Rolled Up Milestone Baseline Baseline Summary Project: CN-PE-3 Milestone Rolled Up Baseline Date: 4/24/98Baseline Milestone Rolled Up Baseline Milestone K) Summary Rolled Up Progress Rolled Up Task z z m x (D CHART 1: ICB PROCUREMENT SCHEDULE 7 ] 1998 1 1999 2000 ID Task Name Duration Start Finish Q3 Q4 Ql |Q2 Q3 Q4 Q I Q2 Q3 Q4 Ql Q2 Q3 Q4 55 Preparation of docs 15.2w 12/2/97 3/16/98 . > ~~2/2 56 Approval by Chinese 7.6w 3/17/98 5/7/98 government 57 Review by World Bank 4w 5/8/98 6/4/98 58 Issue SPN 0.2w 5/8/98 5/8/98 59 Issue bidding document 7.7w 6/8/98 7/30/98 60 Bid opening 0.2w 7/31/98 7/31/98 61 Bid evaluation 5.2w 8/3/98 9/7/998 CD 62 Approval by Chinese 4.2w 9/8/98 10/5/98 government 63 Review by World Bank 2w 10/12/98 10/23/98 Progress Rolled Up Milestone Baseline Baseline Summary Project: CN-PE-3 Milestone Rolled Up Baseline Date: 4124/98 Baseline Milestone Rolled Up Baseline Milestone X Summary Rolled Up Progress Rolled Up Task > z m x (0 CHART 1: ICB PROCUREMENT SCHEDULE 7 1998 1999 2000 ID Task Name Duration Start Finish Q3 Q4 Ql I Q2 | Q3 Q4j Ql Q2 Q3 Q4 QI__ Q2_ Q3 Q4 64 Contract negotiation 8w 10/26/98 12/17/98 65 Contract award 0.2w 12/18/98 12/18/98 ./. . ., . +C~~~~~~~12/18 66 220kv & 110kv Cables 55.4w 12/2/97 12/18/98 Issue bidding document Preparation of docs \\ < Contract award 67 Preparation of docs 15.2w 12/2/97 3/16/98 2/2 68 Approval by Chinese 7.6w 3/17/98 5/7/98 government 69 Review by World Bank 4w 5/8/98 6/4/98 70 Issue SPN 0.2w 5/8/98 5/8/98 co 71 Issue bidding document 7.8w 6/8/98 7/30/98 . <51~~~~~~8 72 Bid opening 0.2w 7/31/98 7/31/98 L/31 Progress Rolled Up Milestone Baseline Baseline Summary Project: CN-PE-3 Milestone Rolled Up Baseline Date: 4/24/98 Baseline Milestone X Rolled Up Baseline Milestone C Summary Rolled Up Progress Rolled Up Task __> z ._ CHART 1: ICB PROCUREMENT SCHEDULE 7 f1998 1999 2000 ID Task Name Duration Start Finish Q3 4 Qi 1Q21 Q3 Q4 IQ1 IQ2 Q3 Q I Q2 Q3 Q4 73 Bid evaluation 5.2w 8/3/98 9/7/98 74 ApoabyCiee4.2w 9/8/98 10/5/98 government 75 Review by World Bank 2w 10/12/98 10/23/98 76 Contract negotiation 8w 10/26/98 12/17/98 77 Contract award 0.2w 12/18/98 12/18/98 12/18 78~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- 79 220/110/10kv protection & 58.8w 12/2/97 1/12/99 Issue bidding document ( control, Energy metering & ~~~~~Preparation of docs __________________Contract award billing system 80 ~~~Preparation of does 18w 12/2/97 4/3/98 7Q2/2 81 ~~~Approval by Chinese 7.6w 4/6/98 5/27/98 govemnment Progress Rolled Up Milestone Baseline Baseline Summary Project: CN-PE-3 Milestone Rolled Up Baseline Date: 4/24/98 Baseline Milestone Rolled Up Baseline Milestone K> Summary Rolled Up Progress Rolled Up Task> z z m x CHART 1: ICB PROCUREMENT SCHEDULE 7 ::T 1998 1 1999 1 2000 ID Task Name Duration Start Finish Q3 Q4 | Ql Q2 Q3 Q4 Q I Q2 Q3 Q4 J Ql Q2 Q3 Q4 82 Review by World Bank 4w 6/2/98 6/29/98 83 Issue SPN 0.2w 5/25/98 5/25/98 84 Issue bidding document 8.8w 6/30/98 8/28/98 85 Bid opening 0.2w 8/31/98 8/31/98 86 Bid evaluation 5.2w 9/1/98 10/5/98 87 Approval by Chinese 4.2w 10/6/98 11/2/98 govemment 88 Review by World Bank 2w 11/3/98 11/16/98 89 Contract negotiation 8w 11/17/98 1/11/99 90 Contract award 0.2w 1/12/99 1/12/99 /12 Progress Rolled Up Milestone Baseline Baseline Summary Project: CN-PE-3 Milestone Rolled Up Baseline Date: 4/24/98 Baseline Milestone K Rolled Up Baseline Milestone 0 Summary Rolled Up Progress Rolled Up Task _>z z z m CHART 1: ICB PROCUREMENT SCHEDULE 7 1 1998 1 1999 1 2000 ID Task Name Duration Start Finish Q3 Q4 Ql Q2 IQ3 Q4 Q | Q2 Q3 Q4 | Ql Q2 Q3 Q4 91 92 Substation protection & 56.2w 3/11/98 4/5/99 . sue bidding document control, 10kv distribution Preparation of docs . . Contract award equipment 93 Preparation of docs 14W 3/11/98 6/16/98 . > i~~~~~11, 94 Approval by Chinese 4w 6/17/98 7/14/98 government 95 Review by World Bank 4w 7/21/98 8/17/98 96 Issue SPN 0.2w 7/30/98 7/30/98 -u 97 Issue bidding document 4.6w 8/31/98 9/29/98 Co . . 9~~~~~~~~~~~/31 M% 98 Bid opening 0.2w 10130/98 1O/30/98 L o0/30 99 Bid evaluation 5.2w 11/2/98 12/7/98 Progress Rolled Up Milestone Baseline Baseline Summary ,J Project: CN-PE-3 Milestone Rolled Up Baseline Date: 4/24/98 Baseline Milestone Rolled Up Baseline Milestone X Summary Rolled Up Progress Rolled Up Task > z to CHART 1: ICB PROCUREMENT SCHEDULE 7 1998 1999 200 ID Task Name Duration Start Finish Q3 Q4 Ql Q2 Q3 Q4 Q I Q2 Q3 Q4 QL Q2 Q3 Q4 100 Aproval by Chinese 4w 12/8/98 1/4/99 . . . 9 govemment 101 Review by World Bank 3w 1/11/99 1/29/99 102 Contract negotiation 9w 2/1/99 4/2/99 103 Contract award 0.2w 4/5/99 4/5/99 -4 C.. Progress Rolled Up Milestone Baseline Baseline Summary Project: CN-PE-3 Milestone Rolled Up Baseline Date: 4/24/98 Baseline Milestone Rolled Up Baseline Milestone O Summary Rolled Up Progress Rolled Up Task > z z m x CD CHART 1A: CONSULTING SERVICE SCHEDULE 1999 ID Task Name Duration Jul I Aug I Sep Oct Nov Dec Jan Feb Mar Apr I May I Jun Jul Aug Sep 1 Reform Implementation 32.4w Prep. of LOI . Contract Signing 2 Preparation of LOI 5.2w Prep. of LOI 3 Issue of SPN Id 4 Issue of LOI Id 5 Bid Opening (Technical) Id 6 Bid Evaluation (Technical) 3w 7 Review by World Bank Sd 8 Notification to Bidders Id 29 9 Bid Opening (Financial) Id 10 Bid Evaluation (Financial) 1.2w Progress Rolled Up Milestone Baseline Baseline Summary CN-PE-35698 Milestone X Rolled Up Baseline Date: 4/24/98 Baseline Milestone Rolled Up Baseline Milestone X Summary Rolled Up Progress > Rolled Up Task _ _ CHART IA: CONSULTING SERVICE SCHEDULE 1999 1 ID Task Name Duration Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun | Jul Aug Sep 11 Review by World Bank Sd 12 Contract Negotiation 2.4w 13 Contract Signing Id Contract Signin *0 4/12 14 Accounting and Financial 44w Management Prep. of LOI Contract Signing 15 Preparation of LOI 8.8w Prep. of LOI 16 Issue of SPN I d -1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-u 17 Issue of LOI Id . 18 Bid Opening (Technical) Id 19 Bid Evaluation (Technical) 6.2w 20 Review by World Bank Sd Progress Rolled Up Milestone Baseline Baseline Summary CN-PE-35698 Milestone Rolled Up Baseline Date: 4/24/98 Baseline Milestone Rolled Up Baseline Milestone Summary Rolled Up Progress > z z Rolled Up Task ______ _mx CHART IA: CONSULTING SERVICE SCHEDULE 1999 ID Task Name Duration Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr -May Jun | Jul Aug Sep 21 Notification to Bidders I d 22 Bid Opening (Financial) I d 23 Bid Evaluation (Financial) 2w 24 Review by World Bank 5d 25 Contract Negotiation 6w 26 Contract Signing 0.2w Contract Signino * 7/1 -v CD -4 Progress Rolled Up Milestone Baseline Baseline Summary CN-PE-35698 Milestone Rolled Up Baseline Date: 4/24/98 Baseline Milestone Rolled Up Baseline Milestone X Summary Rolled Up Progress > z z Rolled Up Task _ ______m x £0 Page 77 ANNEX 9 TABLE A3: ESTIMATED ANNUAL CONTRACTUAL AND OTHER PAYMENTS ($ million equivalent) Total 1998 1999 2000 2001 2002 2003 Payments Remarks Works Site Preparation 2.81 - - - - 2.81 NBF Erection 5.9 14.19 12.51 6.43 2.2 41.23 NBF Civil Works 6.13 14.74 13.00 6.68 2.28 41.84 NBF Machine Hall 2.42 5.82 5.13 2.64 0.90 16.91 Stack 0.28 0.68 0.60 0.31 0.11 1.97 Auxiliary System 3.43 8.25 7.27 3.73 1.28 23.96 Traffic Works 4.36 1.00 0.43 0.06 0.02 5.86 NBF Construction Management 1.81 4.36 3.84 1.97 0.68 12.66 NBF Goods Power plant equipment, 33.81 90.80 134.74 65.40 32.49 357.24 ICB & materials and systems (24.15) (63.96) (96.28) (47.36) (23.56) (255.31) others Transmission 11.25 39.71 83.37 53.01 12.63 4.93 204.9 ICB & (2.50) (7.92) (24.71) (4.06) - - (39.19) others Services Engineering & Consulting Service 0.73 2.69 2.75 0.80 0.82 7.79 Others (0.20) (0.70) (0.70) (0.20) (0.20) (2.00) Technical Assistance 0.25 0.75 1.00 0.25 0.25 2.50 Others (0.25) (0.75) (1.00) (0.25) (0.25) (2.50) Training 0.50 0.50 - - - - 1.00 Others (0.50) (0.50) - - - - (1.00) Total 11.75 96.01 211.9 221.27 94.21 43.67 678.83 (3.0) (33.02) (90.12) (102.04) (47.81) (24.01) (300.00) Page 78 ANNEX 9 TABLE A4: KEY CONSTRUCTION DATES Power Plant Unit 1 Unit 2 Start excavation 07/1999 07/1999 Complete foundation works 12/1999 12/1999 Start boiler steel structure erection 01/2000 07/2000 Start turbine-generator steel structure erection 01/2000 07/2000 Lifting of boiler drum 06/2000 12/2000 Start turbine-generator erection 06/2000 12/2000 Hydraulic test of boiler 12/2000 06/2001 Complete erection of TG and auxiliaries 03/2001 09/2001 Testing 09/2001 03/2002 Trial operation 12/2001 06/2002 Commercial operation 06/2002 12/2002 Transmission Furong Substation Start Civil Works 12/1998 Equipment installation 08/2000 Testing 1012000 Commissioning 12/2000 Leiyang Power Plant Associated Transmission Lines and Substation Start project 10/1998 Project completion 06/2002 Changsha Power Plant Associated Transmission Lines and Substations Start project 10/1998 Project completion 06/2002 Page 79 ANNEX 9 TABLE B: THRESHOLDS FOR PROCUREMENT METHODS AND PRIOR REVIEW Contracts Subject to Prior Expenditure Contract Value Procurement Review/Estimated Total Value Category (Threshold) Method Subject to Prior Review (US$'000) (US$ million) 1. Goods >$300,000 ICB 13 contracts subject to prior review/US$288 million >$300,000 LIB 4 contracts subject to prior review/US$3.79 million <$300,000 LIB, international and national 11 contracts subject to selective shopping and direct contracting postreview/US$2.71 million 2. Services >$100,000 for firm QCBS, CQ and Other 3 TA contracts/$4.5 million >$50,000 for individual and training/$0.7 million subject to prior review Total value of contracts subject to prior review: $296.99 million (99% of the Loan) TABLE C: ALLOCATION OF LOAN PROCEEDS Expenditure Amount in Financing Percentage Category lUS$ million Goods 256.2 (a) 100% of the foreign expenditures for directly imported equipment and materials quoted on a c.i.f. basis; (b) 100% of local expenditures ex-factory for locally manufactured items; and (c) 75% of local expenditures for other items procured locally. Services 5.5 100% of the expenditures for consulting services and training. Unallocated 38.3 Total 300.0 Page 80 ANNEX 10 ANNEX 10: LAND ACQUISITION AND RESETTLEMENT General The Hunan Power Development Project consists of three components: (a) installation of 2X300 MW anthracite fired units at Leiyang Thermal Power Plant (Phase II); (b) construction and expansion of five 220 kV substations and seven sections of 220 kV lines totaling 410 km associated with Leiyang Power Plant; and (c) construction and expansion of 6 substations and 13 sections of 220 kV transmission lines totaling 378 km associated with Changsha BOT power plant. All three components involve land acquisition and reallocation of population. Minimization of the scope of resettlement was, and will continue to be a high priority throughout the planning, design and implementation of the proposed project. Where land acquisition and demolition are unavoidable, the resettlement plans provide for replacement of housing, alternative employment opportunities, infrastructure, services and other resources to improve, or at least restore, the living conditions and income of the project affected persons (PAPs). The resettlement for the proposed project will be carried out in two phases. The first phase includes: (a) policies and regulations, institutional arrangements, implementation procedures that would be applied to all components of the proposed project; and (b) detailed resettlement plans for (i) Leiyang Power Plant; (ii) four 220 kV substations (Furong, Dongfenghu, Hengbei, and Wangcheng); and (iii) two sections of 220 kV transmission lines (Huaneng Power Plant to Dongfenghu, and Macha to Hengbei). The second phase includes resettlement activities related to five 220 kV substations and 18 sections of 220 kV transmission lines. A Resettlement Action Plan (RAP) has been prepared for the first phase. The RAP for the second phase will be prepared by March 1999 following the completion of the design of routing and siting of these subcomponents. The Bank carried out full review of the RAP and the assessment found that the resettlement needs and PAPs are well analyzed and mitigating measures of adverse social impacts are thoroughly formulated and adequate. The second phase RAP and any unforeseen resettlement associated with the project will be carried out according to the policy and procedures established in the first phase RAP. Scope of Resettlement According to the first-stage resettlement estimates, the project (including two phases) would (a) require acquisition of 1,097.5 mu (about 73 ha) of land; (b) affect 397 persons due to land loss; (c) require demolition of 100,145 square meters of floor spaces in rural and urban areas; and (d) require relocation of 266 households or 1,418 persons (see Table 1). The first phase components require acquisition of a total of 438.5 mu land area, affecting 108 people; demolishing 15,941 square meters of floor spaces, and relocating 175 households or 993 individuals (see Table 2). Based on preliminary estimate, the remaining project components will require acquisition of 659 mu land area, affecting 289 farmers; removing 84,204 square meters structures, and relocating 91 households or 425 individualsg. For the Leiyang Thermal Power Plant (Phase II) component, although no land acquisition is required for the power plant, additional site for the ash pond is needed, which will require acquisition of about 277 mu of land, including 20 mu of cultivated land. For some substations and transmission lines, no land requisition and relocation are required. Page 81 ANNEX 10 TABLE 1: ESTIMATE SCOPE OF RESETTLEMENT FOR HUNAN POWER DEVELOPMENT PROJECT (PHASES I AND II) Items Number of Relocated Amount of Removed Amount of Land Number of People Households (persons) Floor Space (m2) Acquisition (mu) Affected by Land Loss Leiyang Power Plant 2 510 276.6 33 (1 1) 220kV Substations 172 11,632 468.5 212 (981) 220 kV Transmission lines 92 88,003 352.7 152 (426) Total 266 100,145 1,097.8 397 (1,418) TABLE 2: ESTIMATED SCOPE OF RESETTLEMENT FOR HUNAN POWER DEVELOPMENT PROJECT (PHASE I) Items Number of Relocated Amount of Removed Amount of Land Number of People Households (persons) Floor Space (mi) Acquisition (mu) affected by land loss Leiyang Power Plant 2 510 276.6 33 (I I) 220 kV Substations 157 9,051 143.5 67 (908) 220 kV Transmission lines 16 6,380 418.4 8 (174) Total 175 15,941 438.5 108 (1,093) Legal Framework The land acquisition and resettlement of Hunan Power Development Project are based on State laws and/or regulations, and provincial implementation measures. The State laws and regulations include: "Land Administration Law" (1988), "City Planning Act" (1990), and "Administrative Regulation of Urban Building Demolition and Relocation" (1991). The provincial implementation measures include: "Hunan Provincial Implementation Measure of Land Administration Law" (1987), "Changsha City Methods of Land Requisition and Compensation for State Construction Projects" (1991), and "Changsha City Administration Method of Urban Building Demolition and Relocation" (1992). The detailed compensation for lost young crops, land and property, detailed in the first phase RAP, will apply to all resettlement actions carried out under the proposed project. Page 82 ANNEX 10 Resettlement Institutional Arrangement In order to effectively implement the land acquisition and resettlement program for the proposed project, resettlement groups from provincial government to affected village level have bee established. A leading group, including officials from Hunan Provincial Government and managers from HEPC, representatives from Hunan Power Construction and Development Company (HPCDC), and other concerned agencies, will supervise all resettlement activities to ensure successful implementation of the RAP. Under the leading group, a project resettlement office has been established within HEPC. The office consists of key resettlement staff from HEPC and concerned departments and bureaus responsible for Leiyang Power Plant, and transmission components associated with both Leiyang and Changsha BOT power plants. It will: (a) supervise the local consultants' work related to the scope of resettlement based on project engineering studies, detailed census and social economic surveys, and evaluation of resettlement impacts; (b) arrange resettlement training for the main resettlement staff; (c) develop the resettlement action plan; (d) carry out extensive consultation on resettlement policies; (e) manage allocate, and supervise the disbursement of resettlement budget; (f) monitor and coordinate the resettlement implementation among different city resettlement offices; (g) carry out internal resettlement monitoring and develop internal monitoring report; (h) coordinate the independent resettlement monitoring efforts; and (i) prepare progress report for the proposed project. The resettlement offices at city and county levels comprising resettlement staff from respective power bureaus are mainly responsible of implementation of the RAP. They will work closely with city and county land administration bureaus to implement the resettlement programs. Their responsibilities include: (a) completion of social economic and census surveys; (b) participation in the development of RAP; (c) organization of public participation; (d) acquisition of land use permit and land requisition permit; (e) supervision of the resettlement budget allocation and use; (f) provision of assistance in both internal monitoring and external monitoring works; (g) preparation of progress reports; and (h) coordination and conflict resolution during the resettlement implementation. In affected townships and villages, resettlement working teams will be set up to facilitate the resettlement implementation. Public Consultation and Grievance Procedure In the process of formulating resettlement policies, developing resettlement action plans, and carrying out resettlement implementation, special attention was given to consultation with affected people and affected communities. In the project feasibility phase, the project office consulted extensively with local governments, local people's congress, nongovernment organizations, and individuals with regard to the site selection of substation and transmission line corridors. All affected villages and individuals were consulted during the resettlement planning phase and the census and economic social surveys. Numerous meetings were held with affected people and local officials on compensation policies and rehabilitation measures. All relocated households (urban and rural) were interviewed by the project team. Their concerns and opinions have been incorporated in the first phase RAP. In addition, serious efforts will be made to inform the resettlers about resettlement policies and entitlements. A resettlement information booklet, including main contents of the RAP: compensation rates, entitlement policies, and grievance procedures, will be distributed to each resettler prior to resettlement implementation. Further consultation with affected people will be ensured by resettlement institutions during implementation. To ensure that the resettlement program is implemented successfully, and complaints are dealt with in a timely fashion, a grievance procedure for the project has been established and will be publicized to all Page 83 ANNEX 10 resettlers. Unsatisfied PAPs could: (a) complain to the village committee or resettlement working team in the township and expect to be responded in 2 weeks; (b) appeal on any unsatisfactory decision to the county or city land administration bureaus and expect to be responded in 15 days; and (c) report directly to the project resettlement office (provincial level) or the resettlement leading group and expect to be responded in two vveeks. In the case of persistent disagreement, the unsatisfied PAPs could request an administrative review of the case following the administrative appeal law, or go directly to court. Budget and Timetable Based on preliminary budget projection, resettlement costs will amount to 129.6 million yuan, with the first phase being 64.33 million, second phase of 43.65 million yuan, and 21.62 million yuan of other expenses plus contingencies (see Table 3). The cost estimates for phase one costs include 45.4 million yuan for Furong and Dongfenghu substations, which have already completed land acquisition and resettlement. The cost includes a 10 percent of contingency provision of 10.8 million yuan and 5 percent of management fee. TABLE 3. RESETTLEMENT BUDGET FOR HUNAN POWER DEVELOPMENT PROJECT (million yuan) Items Phase I Phase II Total Cost Land Compensation 14.23 23.32 37.56 Housing Compensation 2.15 20.33 22.48 Infrastructure Compensation 2.55 2.55 Dongfenghu substation 19.62 19.62 Furong substation 25.78 25.78 Design/Survey 3.24 Monitoring & Evaluation 2.16 Implementation Management 5.40 Contingency 10.80 Grand Total 64.33 43.65 129.60 Source: Hunan Electric Power Company. Page 84 ANNEX 11 ANNEX 11: ENVIRONMENTAL MANAGEMENT PROGRAM A. SUMMARY OF KEY ENVIRONMENTAL ISSUES Power Station Air Pollution. Table 1 presents air pollution characteristics for the existing project (400 MW), proposed project (600 MW), and a possible additional phase (1200 MW). As can be seen, emission standards for dust and sulfur dioxide are all in compliance with Chinese standards and World Bank Guidelines. Nitrogen oxide emissions, however, will not meet current World Bank Guidelines, because these guidelines were not formulated for the anthracite coal which will be used as the fuel. Basically, the extremely low volatility of anthracite coals requires unusually high combustion temperatures. As a result nitrogen oxide emissions tend to be higher than levels observed with more traditional coals. Currently, international practice recommends an emission level of 1500 mg/Nm3 for boilers fired with anthracite. World Bank Guidelines are currently in the process of being revised. The updated guidelines have proposed 1,500 mg/Nm3 for nitrogen oxides emission levels when using anthracite coals. Thus, the proposed project will be consistent with both international practice and proposed revisions to World Bank Guidelines. In addition to the emissions to be realized from the construction of the Phase II power station at Leiyang, HEPC has agreed to a phaseout of 10 boilers (300 MW total) at 5 other locations in Hunan Province. Therefore, Table 1 also provides an indication of the emission reductions which will be realized from this phaseout. Air quality information are also provided in Table 1. This information must be considered both preliminary and extremely conservative. It is preliminary, because it is based upon only three months of continuous monitoring. The complete data set will be available in May 1998, at which time the estimates would be revised. It is extremely conservative because estimates of background and Phase I/Phase II/Phase III were made by adding the measured maximums of the background to the calculated maximum increments of the contributions from Phase I/Phase II/Phase III. The likelihood of the background maximum occurring simultaneously with a maximum contribution from the power station is extremely small. Since no information is available concerning the joint probability of occurrence for the two maxima, an overly conservative approach of adding the two maximums was taken. On this basis, the only exceedance appears to be with the daily and hourly maxima for nitrogen oxides. The EA report indicated that these exceedances were not frequent, and concluded that the contribution of the Leiyang plant to ambient nitrogen oxide levels to be acceptable. It is also worthwhile to note that both World Bank Guidelines and USA standards only consider an annual average for NO,, and that the Leiyang contribution to the annual average is comfortably within that limit. Water Pollution. Wastewaters will be treated by technologies standard to power station operations. This includes settling of suspended solids (coal transport drainage, boiler acid cleaning waste water, air preheater wastewater), neutralization tanks for pH control (boiler makeup water treatment plant, laboratory wastewater, air preheater wash water etc.), oil separators for oily wastes (drainage from oil storage sites), and oxidation ponds for municipal sewage. After treatment, all of these waters will be used for ash slurry and recycled to the ash yard. Drainage from the ash yard will be sent back to the plant mixed with fly ash and treated wastewater discharges and recirculated back to the ash yard. This recirculation system will include all wastewaters from both the existing plant as well as the proposed project. Currently, wastewaters from the existing plant are discharged into the Leishui River. Thus, the proposed project will result in less wastewater discharges to the Leishui River than currently exists. Page 85 ANNEX 11 Effluent from the ash yard consists primarily of a small amount of seepage through the toe of the ash yard dam which will also be recycled. There is minuscule leakage through the base of the ash yard because of the geologic substrata. Measurements of groundwater quality indicate compliance with Chinese standards for groundwater quality (GB/T14848-93). The Leiyang power station currently uses a once through cooling system which will also be adopted with the proposed project. Both mathematical and physical modeling were used to develop a discharge configuration that would provide a minimal impact of the plume on the receiving waters, and an adequate cross-sectional area for fish passage. However, Dongjiang Dam that has been constructed on the Leishui River upstream of Leiyang, discharges cooler water than would be experienced without the dam presence. As a result, the thermal discharge will exceed Chinese standards for temperature rise relative to the cooler waters. However, the existing Leiyang thermal power station and the proposed project tend to increase water temperatures to the natural level which previously existed, and in accordance with Chinese interpretation of their regulations the proposed project is in compliance with Chinese standards. Fuel Supply. The existing power station and the proposed project will utilize anthracite coal obtained from three local State owned underground mines: Baisha (largest supplier), Jiahe, and Xifangdu. Some coal is currently transported by truck but most is transported by rail. For the proposed project, only rail transport will be used., Existing mining operations were a matter of concern even though no investments are involved. A mining expert visited the mines and found them to be well managed, and in compliance with all Chinese Coal Mine regulations. Also, the exceptionally low volatility of the coal gives some comfort that methane gas is not likely to be present. Ash Management. Ash (fly ash and bottom ash) is currently slurried and pumped through an enclosed pipeline to an ash yard about 6 km from the plant site. The ash disposal site is a steep valley, dammed at one end to form the enclosure. There are no residents living or using the site for any productive purpose. For the proposed project the same ash disposal yard will be utilized by elevating the height of the existing dam. However, fly ash and bottom ash will be separated to allow greater utilization of the bottom ash by the construction industry. As mentioned above, no groundwater contamination is anticipated and the small amount of seepage through the toe of the dam will be recirculated with the slurry water. A groundwater monitoring will be maintained to insure no contamination occurs (see Part C: Environmental Monitoring Program). Noise. Major noise sources include generators, ball mills, fans (forced and induced draft) and pumps. Sound levels at the plant boundary were determined to be within Chinese Standards (GB 12348-90 and GB3096-93) and World Bank Guidelines. Aquatic and Terrestrial Ecology. Impacts to terrestrial ecology would result from both the increased emissions from the power station and land surface smothered by the increased levels of ash disposal. Based upon comparisons of ground level air quality estimates with Chinese requirements for crop protection (GB9137-88) no impacts to plant species are anticipated. As mentioned before, the ash disposal site is in a steep valley which is not cultivated. There will be some vegetative loss as the ash level rise, but it is of minimum extent and insignificant value. The elimination of all wastewater effluents to the Leishui River should actually improve the water quality and induce improvements to the aquatic ecology. This would be further enhanced by the addition Page 86 ANNEX 11 of increased thermal discharges which would restore the thermal regime existing before construction and operation of the upstream dam. Occupational Health and Safety. Project design will be such that international standards of worker health and safety will be included in the bidding documents of project equipment. Boilers and other dangerous equipment will be designed to meet ASME standards of safety and will be so specified in the bidding documents. Polychlorinated biphenyls (PCBs) are illegal in China, their use is prohibited in the project. Prohibition of asbestos use will be specified in the bid documents. Public Consultation. A public consultation was conducted on 21 March 1997 at the Leiyang Power Plant. The projects benefits were recognized by all participants, and a wish was expressed by the participants that the project be started and completed as soon as possible so that the benefits could be realized in the shortest possible time. Transmission System Noise. Support towers will be designed to assure that noise at ground level will be within Chinese standards (60dB[A] daytime and 50dB[A] nighttime-GB3096/93) and World Bank guidelines (55 dB[A]). Noise measurements made at existing power lines with a design similar to the proposed project indicated values of 36.3-47.1 dB[A]. Affirming the view that the lines will meet standards. Substation noises arise primarily from the transformers. Estimated noise levels at the plant boundaries of the eleven substations to be included in the project varied from 40-47.5 dB[A] at night to 37-48dB[A] during the day. These values are well within Chinese standards (5OdB[A] night and 6OdB[A] day- GB 12348-90). Electric Field. Allowable ground level electric field intensities for transmission lines in China are as follows: Situation Field Intensity Limit Value (kV/m) Crossing Farm Field 9.5 Crossing Highway 7.0 Crossing or Close to Residence 4.0 Measurements made at existing transmission lines utilizing the same design as the proposed project yielded values less than 3 kV/m. Therefore, design of the transmission lines are expected to comfortably meet Chinese standards. There are no World Bank guidelines for electric field intensity. Allowable ground level electric field intensities for substations in China are as follows: Situation Field Intensity Limit Value (kV/m) Power Distribution Installation Area 10-15 Working Area 8 Power Distribution Installations Enclosure Wall 5 Page 87 ANNEX 11 Measurements made at existing substations utilizing the same design as the proposed project yielded values less than 3 kV/m. Therefore, design of the substations are expected to comfortably meet Chinese standards. There are no World Bank guidelines for electric field intensity. Agricultural Production. Pylon foundations will occupy 12.28 ha of which 3.0 ha is agriculturally productive and substations will occupy 33.36 ha of which 2.5 ha is agriculturally productive. Thus it is estimated that the proposed project will reduce the annual grain harvest by about 83 tons. This is considered negligible for the total extent of the project area. Ecology. The project does not cross or influence any protected areas, nor does it interfere with any migratory bird routes. There are no wild or protected species whose habitat is located at or near the project site or right-of-way. Public Consultation. A series of public consultations/surveys were conducted at 23 sites during the period of October to November 1997. These meetings broadly concluded that: people should be compensated for any land occupied by the tower foundations, relocated people should be adequately compensated, engineering construction should minimize crop destruction (compensation should be provided) , and transmission towers should be self standing rather than guyed. Page 88 ANNEX 11 TABLE 1: AIR POLLUTION CHARACTERISTICS OF THE LEIYANG THERMAL POWER STATION A. Atmospheric Emissions Phase II (proposed project) Phase III /a Phase I Leiyang Phaseout (future (current) (Increase) (Decrease) expansion) Chinese World Bank Pollutant 400 MW +600 MW -300 MW 1,200 MW Standard Guideline Sulfur Dioxide tons/hour 1.45 1.66 3.136 3.0 10.88/b 20.8 mg/Nm3 801 778 879-2,427 770 2,100/c Nitrogen Oxides tons/hour 1.36 3.2 1.95 4.52 mg/Nm3 750 1,300 2,950 1,300 650/c 300 ng/joule/e Dust tons/hour 0.57 0.213 4.584 0.66 mg/Nm3 259 100 658-3,815 100 600/d/200/c 100 La No design details available for hypothetical Phase III plant. NOx and dust emissions will depend on Chinese and (any) lender standards. Lk Entire Leiyang site. LQ New plant standard. ad Existing plant standard. Le It was developed for conventional coal. 1,500 mg/Nm is considered good international practice, and specified in draft revised World Bank Environmental Guidelines. B. Air Quality (Jgm/Nm3) World Bank Guidelines Chinese Standards Background Levels TSP SO2 NO, TSP PM1o SO2 NO, PM10 SO2 Nox GLmax SR GLna1x SR GLma SR Annual Average 100 100 100 200 100 60 50 38 8-44 20-40 40 20-30 22 Daily Maximum 500 500 - 300 150 150 100 131 44 76 57 25 35 Hourly Maximum - - - 500 150 - - 87 81 40 54 Background + Phase I Background + Phases I+II Background + Phases I+II+III (Existing+Proposed Project + (Existing Situation) (Existing+Proposed Project) Possible Future Expansion) PM,, S02 NO,, PM1o S02 NO° PM10 S02 NO,, GL.. SR GLma, SR GLm. SR GLm.a SR GLm.x SR GLmax SR GL.ax SR GLmax SR GLmax SR CD Annual 38.3 8.1 22 40.4 26 23 38.7 8.2 26 41.7 32 25 39.3 8.4 31 43.1 41 28 C Average to to to to to to to to to 44.1 36 44.2 46 42 44.4 51 51 Daily 88 88 105 72 52 62 92 140 143 91 110 91 98 143 183 110 192 131 Maximum Hourly - - 184 146 153 154 - - 257 205 263 241 - - 335 269 421 373 Maximum z m x B. Mitigating Plan-Summary of Mitigating Issues/Measures Issue/Pollutant Mitigation Responsible Institution Sulfur Dioxide Emissions Burning low sulfur coal (average 0.36%S, max 046%S). 210m high stack to disperse pollution Dust Emissions Use of high efficiency (99.68%/o) electrostatic precipitators (ESP) to satisfy exit concentration of 100 mg Nm~' 2 1Om stack. Nitrogen Oxides Use of NOx burner technology with design specification in bid document of NOx discharge concentration to be less than 1300 mg Nm-3. 210m stack. Cooling Water Use existing cool water intake structure. Grill and moving screen to prevent fish entrainment. New outfall structure to be angled at 47 to bank and an arc shaped flow-guiding dike installed to avoid impacts to navigation and maintain cool water channel. No biocide treatment is required. Waste Water (domestic All waste waters treated to sufficient standard to permit use in ash sluicing system. Treatment to include separation and sewage, water treatment recovery of oil, oxidation of organic matter and neutralization where appropriate. Existing Phase I plant waste water plant, oil contaminated also to be used in ash sluicing system - eliminating discharge of waste water effluent. drainage, etc.) Ash and Slag Disposal Ash and slag to be disposed of to existing ash yard by hydraulic sluicing system. After completion of the Phase II project, all of the ash transport water, including that from Phase I will be recycled for re-use, removing the requirement Leiyang Power Plant for a discharge from the ash yard. This will be facilitated by construction of a drainage channel around the periphery of (Environmental Management the ash yard to intercept surface water run-off before it reaches the ash yard. Existing ash yard is on clay with low Department) permeability (average 2.39 x 10-7cm s~ . Markets for ash and slag utilization are to be developed. Provision is to be made for recovery of dry ash from the ESPs if required to promote utilization. Fugitive Dust The ash yard is to remain flooded to ensure the surface of the ash is covered. The ash yard is in a valley with densely 0 wooded sides which will act as a wind break and minimize spread of any wind blown dust. On ultimate completion of the ash yard, it should be covered with soil and re-vegetated. Coal delivered by rail rather than road. The coal stock yard area is to be provided a wind shield bank at the west and north sides and tree screens planted. The coal stock should be sprayed with water if dust nuisance occurs in dry weather. Coal handling equipment to be designed with tightly sealed baffles to conveyors, efficient dust brushing at transfer posts, vacuum dust precipitators at coal bunker. Site to be >15% vegetated to minimize dust blow, enhance visual appearance and reduce noise. During construction, wheel wash facilities should be provided and roads kept clean to minimize dust from dirt being tracked onto roads. Noise Maximum noise levels at the plant boundary are to specified as 60db(A) by day and 50 dB(A) by night. Construction noise should be specified in accordance with GB12523-90. Where necessary silencers or sound insulation should be provided on noisy equipment. Noise levels specified to be less than 90dB(A) at I m from equipment except for coal mills at 95-105dB(A) and feed pumps at 101 dB(a). Silencers to be fitted to boiler steam release and safety valves and forced draft fan outlet. Contingency Measures All bulk oil and chemical stores should have bunds of sufficient capacity to contain any spillage. Where practicable, pumps, valves, couplings, delivery nozzles and overspill pipes should be contained within the bunded area. Materials (absorbent granules, oil boom, etc.) should be maintained on site to deal with minor spills. > z m IDuring construction: use water sprays when required to suppress dust. During operation: Substations to be >10% IConstruction Unit Issue/Pollutant Mitigation Responsible Institution Fugitive dust vegetated to reduce noise and dust and improve visual appearance. Waste Water Bund equipment containing oil in substations, oil contaminated drainage to be discharged via oil/water separators. HEPC & Construction Unit Sewage from substations to be collected in septic tanks. Noise Maximum noise levels at the plant boundary are to specified as 60db(A) by day and 50 dB(A) by night. Construction noise should be specified in accordance with GB12523-90. Control rooms in substations should be sound insulated. Avoid working at night where possible. Routing of Transmission The transmission system is designed to minimize impact on residential areas, nature reserves, historic sites and other Lines sensitive locations. A minimum clearance of 5m to residential properties should be maintained. When the electric field intensity at Im from ground >3 kV/m houses should be removed. Adequate clearance over roads, navigable rivers, and other transmission or communication lines to be provided according to relevant technical standards (SDJ3). Provide public notification of any interruption of transport routes. Interference with road traffic to be avoided by use of overhead gantries during construction & maintenance. Interference of river navigation to be restricted to <6h for each HEPC crossing. Relocation/Compensation Full compensation for economic losses (relocation, loss of crops, etc.) to guarantee no loss of living standards. Minimize duration of temporary occupation of land. (10 days for each pylon). Restore vegetation within 2 weeks after construction. Safety Education programs to warn local population of potential dangers of overhead transmission lines. Provide secure perimeter fencing to substations and other transmission installations. Ground railings and other metal structures. Thermal Pollution from HEPC has an agreement with authorities that the Dongjiang reservoir will be open in the future to maintain a minimum HEPC/Agency responsible cooling water discharge flow of 116m3/sec. of dam operation Hazardous materials PCBs are outlawed in China. However if either PCBs or asbestos are identified during project implementation HEPC PCB/Asbestos (especially retirement of small power plants) they will be managed (removed, transported, and disposal) in strict accordance with regulations/procedures of China. z z m x C. Environmental Monitoring Program TABLE C-1: AIR POLLUTION MONITORING Location of Monitoring Parameters to be Monitored Instruments to be Used Monitoring Sites Monitoring Frequency Responsible Institution Chimney Dust, SO2, NOx, CO, 02 Flue gas monitoring system Sampling point 1/3 height Automatic continuous of chimney ESP Outlet Dust (Calibration check of con- Dust sampler Downstream of ESP After ESP overhaul or any tinuous optical density monitors change in fuel spec. Leiyang Environmental against gravimetric analysis) Management Department Ambient Air Quality Total Suspended Particulates Continuous ambient air 2 Sites at 3 km SSE & Automatic continuous (TSP), PM, NO2, NO, SO2 quality monitors 2.7 km NNW of stack. Coal Sampling (Total SO2 S, Ash, Heat, Value, Volatile Calorimeter, Coal conveyor Each delivery Leiyang PP emissions) Matter, Moisture Spectrophotometer Chemistry Lab Within plant boundary Fugitive Dust (TSP) Portable monitoring Perimeter of coal and Ash 5-7 Days Each Season (Min. Leiyang Environmental and Ash Yard equipment Yards 12h sample collection) Management I______________________ I__________________________ I______________________ I_______________________ _____D epartm ent Methods of Analysis for Air Quality - Manufacturers Instruction for Continuous Monitors. TSP see GB/T 15432-95 PMIO see GB 6921-86 SO2 see GB/T15262-94 & GB 8970-88 NO, see GB/T 15436-95 NO2 see GB/T 15435095 CO see GB 9801-86 z z m x TABLE C-2: WATER POLLUTION MONITORING Location of Monitoring Parameters to be Monitored Instruments to be Used Monitoring Sites Monitoring Frequency Responsible Institution Cooling Water Temperature Thermocouples Intake & Outfall Continuous Leishu River Flow rate Gauge height Plant site Continuous Chemical Wastewater pH pH Meter Effluent outlet 10 days Plant Area Drainage pH, SS, COD pH, COD analyzer & Effluent outlet 10 days (pH, SS, COD) Oil Spectrophotometer 14 days (Oil) Leiyang Environmental F, As, Sulfide Monthly (F, As, H2,S Management Department Sewage pH SS, COD, pH, COD & BOD analyzers Outlet of sanitary Monthly BOD wastewater Each Season treatment plant Coal Yard Drainage pH SS, COD, pH, COD, BOD Drainage channel from Coal 10 days when draining Volatile Matter Stock Underground Water pH, Cry', Pb, Cd, As, pH, Titration, AA Municipal Each Season (4 x per Ash Yard F, Alkalinity, Spectrophotometer, Ion Horticulture Farm & Year) Dissolved Solids, Selective Electrodes Liangjiacong Hardness. N02-N, NO3-N, S04 X Method of Analysis: pH GB6920-86 SS GB10911-89 S04 GB5750-85 COD PS-7-85 BID GB7488-87 Pb,Cd GB7475-87 As GB7485-87 F GB7484-87 NO2 -N GB7480-87 NO3-N GB7493-87 Crvi GB7467-87 Volatile Phenol GB7490-87 Alkalinity, Hardness Dissolved Solids - Methods from SEPA. z z m TABLE C-3: SUMMARY OF NOISE AND ELECTROMAGNETIC RADIATION MONITORING Location of Monitoring Parameters (Noise or Electric Field) Instruments to be Used Monitoring Sites Monitoring Responsible Institution Frequency Equipment in Main Noise from rotary machinery, turbines, Noise meter according to I m from large equipment. for Annual Power Building and coal crusher, forced draft fan, induced BG 7441-87 'Power Plant small devices, measurement at Auxiliary Buildings draft fan, coal pulverizer Noise Testing and distance of half equipment Measuring Method' length. Leiyang Environmental Outside Power Plant and Noise at plant boundary and in Noise meter according to Im outside power plant fence Annual Management Department Substation Fences and residential areas GB12349-90 & GB3090-93 and grid at 100 m intervals in Residential Quarters residential area Transmission Lines Electromagnetic radiation and noise Noise meter and electric Selected locations adjacent to Annual field strength meter residential areas along transmission lines (approx. 20 locations) TABLE C-4: LABOR SAFETY AND HEALTH MONITORING PLAN Items Factors to be monitored Instruments to be Used Monitoring Sites Monitoring Frequency Responsible Institution Fire and explosion Fume Fume alarm Dangerous goods storage Automatic and continuous prevention and oil tank areas Hydrogen Hydrogen leak detector Hydrogen generation system Automatic and continuous Boiler temperature FSS meter Inside Boiler Automatic and continuous Leiyang Environmental Dust control Coal dust Coal dust sampler Coal crushing building Monthly Management Department SO2, NOR, CO Portable air monitoring Boiler house Monthly equipment Noise control Noise Sound meter All working areas Monthly z 2 m x D. Institutional Strengthening/Technical Assistance TABLE D-1: TRAINING Training Number of Staff Departments Location Duration Cost US$ Time Local Foreign Ambient & stack gas 2 Managers Environmental Management Foreign Country 2 person-months 0 14,000 1998-2001 continuous monitoring Department Ambient & stack gas 4 Technical staff Environmental Management China 2 person-months 0 14,000 1998-2001 continuous monitoring Department TABLE D-2: PRINCIPAL INSTRUMENTS & EQUIPMENT FOR ENVIRONMENTAL MONITORING PURCHASED LOCALLY Name of Equipment Quantity Cost (Yuan) Usage Spectrophotometer 2 2x8,000 Analyzing composition in gas, liquid (ultraviolet, routine) Atom absorption spectrophotometer 1 73,000 Analyzing heavy metal composition Atmosphere sampler 4 4x5,000 Sampling SO2, NOx gases Sound level meter 2 2x6,000 Measuring noise Ten thousand balance 2 2x7,000 Weighing Total suspension particles sampler 4 4x4,000 Sampling TSP Electric contact wind direction Anemometer 1 5,000 Recording 24 hours wind direction wind speed Refrigerator 1 2,000 Storing medicine, sampling Microcomputer 1 8,000 Data processing, statistics Environment monitoring van 1 195,000 Plant area surroundings, distant monitoring pH meter 1 7,860 Measuring pH Conductivity meter 1 8,540 Measuring conductivity in wastewater COD analyzer I 4,000 Measuring COD contents Biochemistry culture box/BOD5 analyzer 1 7,000 Measuring BOD5 contents Oil analyzer 1 10,000 Measuring oil contents Flow-meter 1 1,600 Measuring drainage flow capacity Total 400,000 z z m Page 96 ANNEX 12 ANNEX 12: PROJECT PROCESSING BUDGET AND SCHEDULE Planned Actual A. Project Budget (US$'000) $436 $313.5La B. Project Schedule Time taken to prepare the project (months) 10 months First Bank mission (identification) 06/29/97 06/29/97 Appraisal mission departure 03/23/98 03/23/98 Negotiations 05/04/98 05/11/98 Planned Date of Effectiveness 12/31/98 Prepared by: Hunan Provincial Electric Power Company. Preparation assistance: Borrower: CRISPP Bank Budget Bank staff who worked on the project included: Name Specialty Bernard Baratz Environmental Specialist Noureddine Berrah Economist Weigong Cao Power Engineer Clifford Garstang Lawyer Daniel Gibson Resettlement Specialist Ranj it Lamech Power Sector Restructuring Specialist Norma Leon Task Assistant Rui Ma Operations Assistant Mihir Mitra Power Engineer Heinz Pape Economist Elaine Sun Financial Analyst Junhui Wu Power Engineer Jianping Zhao Energy Specialist Youxuan Zhu Resettlement Specialist /a As of April 30, 1998. Total cost is estimated at US$348,000. Page 97 ANNEX 13 ANNEX 13: DOCUMENTS IN THE PROJECT FILE A. Project Implementation Plan, February 1998 B. Bank Staff Assessments * HEPC Financial Forecasts in electronic files * Financial Analyses for Leiyang Power Plant Component and Transmission Component in electronic files * Cost/Benefit Analysis in electronic files * Risk Analysis in electronic files C. Other * Phase I Resettlement Action Plan (February 1998) * Environmental Impact Assessment Report (February 1998) * Economic Analysis for Leiyang Coal Fired Thermal Power Plant (II) (Novermber 1997) * Economic Time Slice Analysis on Hunan Power Development Program January 1998) Page 98 ANNEX 14 ANNEX 14: STATEMENT OF LOANS AND CREDITS A. IBRD Loans and IDA Credits in the Operations Portfolio, as of April 30, 1998 Difference between expected Original Amount in USS Millions and actual Loan or Fiscal Cancel- Undis- disbursements /a Project ID Credit No. Year Borrower Purpose IBRD IDA lations bursed Orig. Frm Rev'd Number of Closed Loans/credits: 207 Active Loans CN-PE-3591 0IBRD43090 1998 PRC State Farms Commerci 150.00 0.00 0.00 150.00 0.00 0.00 CN-PE-3606 IBRD43040 1998 GOC Energy Conservation 63.00 0.00 0.00 63.00 0.00 0.00 CN-PE- IBRD42370 1998 PRC Shandong Environment 95.00 0.00 0.00 95.00 7.00 0.00 40185 CN-PE- IBRD43030 1998 GOC E. China/Jiarngsu Pwr 250.00 0.00 0.00 250.00 0.00 0.00 51736 CN-PE- IBRD42000 1997 PRC Xiaolangdi Multi. Ii 230.00 0.00 0.00 230.00 66.67 0.00 34081 CN-PE- IBRD42001 1997 PRC Xiaolangdi Multi. Ii 200.00 0.00 0.00 193.58 66.67 0.00 34081 CN-PE-3590 IBRD41870 1997 PRC Qinba mts. Povty red 30.00 0.00 0.00 30.00 17.20 0.00 CN-PE-3590 IDAN0280 1997 PRC Qinba Mts. Povty Red 0.00 150.00 0.00 141.32 17.20 0.00 CN-PE-3635 IBRD4063A 1997 PRC Voc. Ed. Reform Proj 10.00 0.00 0.00 10.00 5.67 0.00 CN-PE-3635 IDA28980 1997 PRC Voc. Ed. Reform Proj 0.00 20.00 0.00 16.62 5.67 0.00 CN-PE-3637 IDAN0270 1997 PRC Natl Rur Water III 0.00 70.00 0.00 66.30 4.44 0.00 CN-PE- IBERD41790 1997 PRC Wanjiazhai Water Tra 400.00 0.00 0.00 358.66 85.33 0.00 36405 CN-PE-3643 IBRD40990 1997 PRC Xinjiang Highways II 300.00 0.00 0.00 268.81 34.15 0.00 CN-PE-3650 IBRD41720 1997 GOC Tuoketuo Power/inner 400.00 0.00 0.00 400.00 45.44 0.00 CN-PE-3654 IBRD41240 1997 PRC Hunan/Guang Hwy2-NH2 400.00 0.00 0.00 400.00 66.67 0.00 CN-PE- IDA29540 1997 PRC Basic Ed. IV 0.00 85.00 0.00 74.96 -4.61 0.00 36952 CN-PE- IBRD41610 1997 PRC Heilongjiang ADP 120.00 0.00 0.00 113.02 7.82 0.00 38988 CN-PE- IBRD41970 1997 Shanghai Waigaoqiao 400.00 0.00 0.00 400.00 17.47 0.00 44485 CN-PE- IBRD3967A 1996 PRC Labor Market Dev. 10.00 0.00 0.00 10.00 17.74 0.00 34618 CN-PE- IDA28000 1996 PRC Labor Market Dev. 0.00 20.00 0.00 15.61 17.74 0.00 34618 CN-PE-3507 IBRD3933A 1996 GOC Ertan Hydro II 177.68 0.00 0.00 49.80 -46.78 0.00 CN-PE-3507 IBRD3933B 1996 GOC Ertan Hydro II 88.84 0.00 0.00 2.45 -46.78 0.00 CN-PE-3563 IBRD40010 1996 PRC Animal Feed 150.00 0.00 0.00 150.00 66.18 1.67 CN-PE-3569 IBRD39290 1996 PRC. Shanghai-Zhejiang Hi 260.00 0.00 7.75 141.26 12.71 -.30 CN-PE-3589 IDA27940 1996 PRC Disease Prevention 0.00 100.00 0.00 79.05 43.00 0.00 ON-PE-3594 IBRD40280 1996 PRC Gansu Rexi Corridor 60.00 0.00 0.00 60.00 12.31 0.00 CN-PE-3594 IDA28700 1996 PRC Gansu Hexi Corridor 0.00 90.00 0.00 70.04 12.31 0.00 CN-PE-3599 IBRD40550 1996 Yunnan Prov. Gov. Yunnan Environment 125.00 0.00 0.00 125.00 2.14 0.00 CN-PE-3599 IDA28920 1996 Yunnan Prov. Gov. Yunnan Environment 0.00 25.00 0.00 16.28 2.14 0.00 CN-PE-3602 IBRD39660 1996 PRC Hubei Urban Env. Pro 125.00 0.00 0.00 125.00 57.35 0.00 CN-PE-3602 IDA27990 1996 PRC Hubei Urban Env. Pro 0.00 25.00 0.00 12.34 57.35 0.00 CN-PE-3638 IBRD40440 1996 PRC Seeds Sector Conuner. 80.00 0.00 0.00 80.00 19.46 0.00 CN-PE-3638 IDA28860 1996 PRC Seeds Sector Commer. 0.00 20.00 0.00 10.05 19.46 0.00 CN-PE-3646 IBRD40450 1996 PRC Chongqing Ind Pol Ct 170.00 0.00 0.00 170.00 60.68 0.00 CN-PE-3648 IBRD39870 1996 Shangai Mun. Govt Second Shanghai Sewe 250.00 0.00 0.00 204.73 60.73 0.00 CN-PE-3649 IDA28340 1996 China Shanxi Poverty Allev 0.00 100.00 0.00 49.24 -16.53 0.00 CN-PE-3652 IBRD39860 1996 PRC 2nd Shaanxi Prov Hwy 210.00 0.00 0.00 178.56 49.55 0.00 CN-PE- IDA28310 1996 PRC Basic Ed. Poor III 0.00 100.00 0.00 35.88 -23.06 0.00 36950 CN-PE- IBRD40270 1996 PRC 2nd Henan Prov Hwy 210.00 0.00 0.00 198.00 36.33 0.00 40513 CN-PE-3493 IBRD39106 1995 PRC Inland Waterways 210.00 0.00 0.00 133.16 16.95 0.00 CN-PE-3571 IBRD38976 1995 PRC Railways VII 400.00 0.00 0.00 392.00 107.34 0.00 CN-PE-3585 IBRD37880 1995 GOC Shenyang Ind. Reform 175.00 0.00 0.00 122.24 34.58 0.00 CN-PE-3596 IBRD9874A 1995 PRC Yangtze Basin Water 97.26 0.00 0.00 59.14 -22.37 0.00 CN-PE-3596 IDA27100 1995 PRC Yangtze Basin Water 0.00 110.00 0.00 9.21 -22.37 0.00 CN-PE-3598 IBRD37810 1995 Liaoning Environment 110.00 0.00 0.00 75.09 44.92 0.00 CN-PE-3600 IBRD3847A 1995 PRC Technology Developme 194.99 0.00 0.00 171.75 37.65 0.00 CN-PE-3603 IBRD3773A 1995 PRC Ent. Housing Soc. Se 262.51 0.00 0.00 240.11 137.63 0.00 CN-PE-3603 IDA26420 1995 PRC Ent. Housing Soc. Se 0.00 75.00 0.00 6.20 137.63 0.00 CN-PE- IBRD38736 1995 MOF Fiscal & Tax Ref. 25.00 0.00 0.00 25.00 36.48 0.00 36041 CN-PE- IDA27090 1995 MOF Fiscal & Tax Ref. 0.00 25.00 0.00 16.88 36.48 0.00 36041 CN-PE-3612 IBRD37870 1995 PRC Xinjiang Highway I 150.00 0.00 0.00 86.27 47.62 0.00 CN-PE-3634 IDA26550 1995 PRC Maternal Child Healt 0.00 90.00 0.00 30.80 9.69 0.00 CN-PE-3636 IDA26510 1995 PRC Basic Educ In Poor & 0.00 100.00 0.00 17.66 1.37 0.00 CN-PE-3639 IBRD39066 1995 PRC Southwest Pov. Reduc 47.50 0.00 0.00 35.59 21.59 0.00 CN-PE-3639 IDA27440 1995 PRC Southwest Pov. Reduc 0.00 200.00 0.00 94.36 21.59 0.00 CN-PE-3642 IBRD3846A 1995 Zhejiang Power Devt 154.15 0.00 0.00 87.25 8.16 0.00 CN-PS-3642 IBRD3846B 1995 Zhejiang Power Devt 215.67 0.00 0.00 173.57 8.16 0.00 CN-PE-3647 IDA26540 1995 PRC Economic Law Reform 0.00 10.00 0.00 6.02 4.66 0.00 Page 99 ANNEX 14 Difference between expected Original Amount in US$ Millions and actual Loan or Fiscal Cancel- Undis- disbursements /a Project ID Credit No. Year Borrower Purpose IBRD IDA lations bursed Orig. Fm Rev'd CN-PE- IBRD3848A 1995 GOC Sichuan Transmission 270.00 0.00 0.00 190.59 135.47 53.96 36947 CN-PE- IBRD3914A 1995 PRC Iodine Def. Disorder 7.00 0.00 0.00 7.00 17.57 0.00 37156 CN-PE- IDA27560 1995 PRC Iodine Def. Disorder 0.00 20.00 0.00 8.77 17.57 0.00 37156 CN-PE-3502 IDA25390 1994 MOH Rur Health Manpower 0.00 110.00 0.00 40.33 25.02 0.00 CM-PE-3504 IBPD37480 1994 PRC Hebei/Henan National 380.00 0.00 0.00 105.86 10.83 0.00 H'ways CN-PE-3540 IDA26160 1994 PRC Loess Plateau 0.00 150.00 0.00 41.93 -30.68 0.00 CN-PE-3557 IDA26230 1994 PRC Forest Resource Dev 0.00 200.00 0.00 89.53 38.90 0.00 CN-PE-3562 IBRD37270 1994 PRC Xiaolangdi 460.00 0.00 0.00 14.76 11.45 0.00 Multipurpose CN-PE-3586 IBRD3711S 1994 PRC Shanghai Environment 160.00 0.00 0.00 79.76 63.49 0.00 CN-PE-3593 IDA25710 1994 PRC Songliao Plain ADP 0.00 205.00 0.00 57.49 -6.40 0.00 CM-PE-359s IDA25630 1994 PRC Red Soils II Develop 0.00 150.00 0.00 46.78 9.34 0.00 CN-PE-3609 IBRD3716A 1994 GOC Sichuan Gas Dev & 175.45 0.00 0.00 145.04 63.39 0.00 Conservation CN-PE-3622 IBRD36525 1994 Shanghai Municipal Shanghai MTP II 150.00 0.00 0.00 10.39 10.40 0.00 Govt CN-PE-3626 IBRD3681A 1994 GOC Fujian Prov Highway 80.33 0.00 0.00 60.53 6.85 5.00 CN-PE-3633 IBRD3687A 2994 Govt of PRC Telecommsunications 132.76 0.00 0.00 79.19 77.85 0.00 CN-PE-3641 IBRD3718A 1994 PRC Yangzhou Thermal 248.16 0.00 0.00 89.75 30.04 0.00 Power CN-PE-3644 IDA26050 1994 PRC Xiaolangdi 0.00 110.00 0.00 37.68 5.11 0.00 Resettlement CN-PE-3473 IDA24750 1993 PRC Zhejiang Multicities 0.00 110.00 0.00 43.85 43.48 0.00 CM-PE-3509 IDA24570 1993 PRC Changchun Wat Supp & 0.00 120.00 27.55 24.17 44.88 0.00 CN-PE-3512 IBRD35525 1993 Govt of PRC Shanghai Port Rest. 224.26 0.00 0.00 5.11 13.67 2.09 CN-PE-3518 IBRD3530S 1993 PRC Guangdong prov. 240.00 0.00 0.00 21.43 2.74 0.00 Transport CN-PE-3526 IBRD3515A 1993 COC Shuikou II 43.86 0.00 0.00 17.02 17.01 17.01 CN-PE-3533 IBRD3572A 1993 Tianjin Ind. II 82.68 0.00 0.00 56.09 49.76 6.26 CN-PE-3559 IDA24620 1993 PRC Agric. Support Servi 0.00 115.00 0.00 10.44 -11.08 0.00 CN-PE-3561 IDA24110 1993 PRC Sichuan ADP 0.00 147.00 0.00 15.86 4.95 0.00 CN-PE-3567 IDA24710 1993 PRC Effective Teaching 0.00 100.00 0.00 46.53 44.81 0.00 CN-PE-3570 IBRD35810 1993 PRC Railway VI 420.00 0.00 0.00 125.14 106.48 0.00 CN-PE-3580 IBRD35820 1993 PRC So.Jiangsu Environ. 250.00 0.00 0.00 29.05 14.68 0.00 Protect. CN-PE-3581 IBRD35310 1993 PRC Henan prov. Transport 120.00 0.00 0.00 16.15 15.50 0.00 CN-PE-3592 IDA24470 1993 PRC Ref. Inst'l.& 0.00 50.00 0.00 21.58 21.43 0.00 Preinvest (Crisp) CN-PE-3597 IBRD3560A 1993 PRC Taihu Basin Flood 88.65 0.00 0.00 64.71 63.76 0.00 Control CN-PE-3597 IDA24630 1993 PRC Taihu Basin Flood 0.00 100.00 0.00 4.92 63.76 0.00 Control CN-PE-3616 IBRD3606A 1993 PRC Tianhuangping Hydro 196.60 0.00 0.00 87.40 55.32 0.00 CN-PE-3623 IDA24230 1993 PRC Financial Sector T.A 0.00 60.00 0.00 33.48 21.04 0.00 CN-PE-3627 IBRD3624A 1993 PRC Grain Distribution P 325.00 0.00 0.00 325.00 344.93 -110.07 CN-PE-3627 IDA25180 1993 PRC Grain Distribution P 0.00 165.00 0.00 53.54 344.93 -110.07 CN-PE-3632 IDA25220 1993 PRC Environment Tech Ass 0.00 50.00 0.00 14.92 15.04 0.00 CN-PE-3486 IBRD3406A 1992 Railways V 33.73 0.00 0.00 29.05 27.94 0.00 CN-PE-3492 IRD3412S 1992 GOC Daguangba-Hainan 28.88 0.00 0.00 2.83 .97 0.00 CN-PE-3492 IDA23050 1992 GOC Daguangba-Hainan 0.00 37.00 0.00 .42 .97 0.00 CN-PE-3503 IBRD3462A 1992 Zouxian Thernal Powe 26.78 0.00 0.00 14.02 6.76 0.00 CN-PE-3534 IBRD3471A 1992 PRC Zhejiang prov transp 70.13 0.00 0.00 26.40 24.40 0.00 CN-PE-3544 IDA23390 1992 PRC Educ Dev in Poor Pro 0.00 130.00 0.00 4.06 -2.50 0.00 CN-PE-3555 IDA23070 1992 PRC Guangdong Ag. Devt. 0.00 162.00 0.00 7.37 -5.76 0.00 CN-PE-3564 IBRD3415A 1992 Beijing Munici. Beijing Environment 32.90 0.00 0.00 28.41 26.87 0.00 CN-PE-3564 IDA23120 1992 Beijing Munici. Beijing Environment 0.00 80.00 0.00 3.69 26.87 0.00 CN-PE-3565 IDA22960 1992 Shanghai Metro Trans 0.00 60.00 0.00 3.75 .69 0.00 CN-PE-3568 IDA23870 1992 PRC Tianjin Urb Dev h En 0.00 100.00 0.00 28.80 24.34 0.00 CN-PE-3587 IDA23360 1992 PRC Rural Wat Supp & San 0.00 110.00 0.00 1.80 -.71 -9.10 CN-PE-3624 IDA23170 1992 Min. of Publ.Health Infectious Diseases 0.00 129.60 0.00 51.45 41.77 34.60 CN-PE-3478 IDA22100 1991 PRC Key Studies Developm 0.00 131.20 0.00 .83 -.79 0.00 CN-PE-3560 IDA22420 1991 PRC Henan Agric. Devt. 0.00 110.00 0.00 3.22 -3.51 0.00 CN-PE-3582 IBRD3337T 1991 PRC Irrig. Agric. Intens 45.05 0.00 0.00 2.37 -5.15 0.00 CN-PE-3472 IBPD29680 1985 PRC Railway IV 171.30 0.00 0.00 2.04 2.05 0.00 Total 11,370.12 4,426.80 35.30 9,159.14 3,453.08 -114.95 Active Loans Closed Loans Total Total Disbursed (IBRD and IDA): 6,655.59 12,600.56 19,256.15 of which has been repaid: 17.76 2,145.17 2,162.93 Total now held by IBRD and IDA: 15,956.27 10,097.94 26,054.21 Amount sold : 0.00 0.00 0.00 Of which repaid : 0.00 0.00 0.00 Total Jndisbursed : 9,159.14 3.96 9,163.10 /a Intended disbursements to date minus actual disbursements to date as projected at appraisal. Page 100 ANNEX 14 B. STATEMENT OF IFC's COMMITTED AND DISBURSED PORTFOLIO (As of March 31, 1998, in US$ million) IFC Committed IFC Disbursed FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1987/92/94 China Bicycles 8.50 3.39 0.00 0.00 8.50 3.39 0.00 0.00 1993 Shenzhen PCCP 3.76 .99 0.00 0.00 3.76 .99 0.00 0.00 1993 Yantai Cement 15.60 1.95 0.00 8.33 15.60 1.95 0.00 8.33 1994 China Walden JV 0.00 6.00 0.00 0.00 0.00 3.53 0.00 0.00 1994 China Walden Mgt 0.00 .01 0.00 0.00 0.00 .01 0.00 0.00 1994 Dalian Glass 20.50 2.40 0.00 40.50 20.50 2.40 0.00 40.50 1994 Dynamic Fund 0.00 12.35 0.00 0.00 0.00 9.46 0.00 0.00 1994/97 Plant. Timber 13.20 1.00 0.00 18.00 13.20 1.00 0.00 18.00 1995 Dupont Suzhou 24.92 4.15 0.00 52.00 22.01 4.15 0.00 45.93 1995 Newbridge Inv. 0.00 10.00 0.00 0.00 0.00 6.70 0.00 0.00 1995 Suzhou PVC 22.00 2.48 0.00 22.20 0.00 2.48 0.00 0.00 1996 Beijing Hormel 5.00 .50 0.00 5.50 4.64 .50 0.00 5.11 1996 Faihyoung Ports 0.00 4.98 0.00 0.00 0.00 4.98 0.00 0.00 1996 Jingyang 40.00 0.00 0.00 100.00 34.29 0.00 0.00 85.71 1996 Nanjing Kumho 16.00 3.81 0.00 45.50 13.63 3.81 0.00 38.75 1996 Tianjin Kumho 11.17 0.00 0.00 33.00 0.00 0.00 0.00 0.00 1996 Weihai Weidongri 4.19 0.00 0.00 0.00 4.19 0.00 0.00 0.00 1997 Orient Finance 10.00 0.00 0.00 20.00 3.33 0.00 0.00 6.67 1997 Rabobank PTPC 2.40 0.00 0.00 2.40 0.00 0.00 0.00 0.00 1998 Rabobank SHFC 2.75 0.00 0.00 2.75 0.00 0.00 0.00 0.00 Total Portfolio: 199.99 54.01 0.00 350.18 143.65 45.35 0.00 249.00 Approvals Pending Commitment Loan Equity Quasi Partic 1996 CALTEX Ocean 31.33 0.00 0.00 66.00 1998 Chengxin-IBCA 0.00 .36 0.00 0.00 1997 Chinefarge 12.80 0.00 0.00 20.00 1998 Eureaca 0.00 3.00 0.00 0.00 1997 Liaocheng Jiamim 18.00 0.00 0.00 18.00 1996 Nanjing Huining 4.00 0.00 0.00 0.00 1997 Ningbo 0.00 2.00 0.00 0.00 1997 Nissan/Dongfeng 20.20 0.00 0.00 27.00 1998 Orient FIN A Inc 3.33 0.00 0.00 0.00 1997 PTP Holdings 0.00 1.50 0.00 0.00 1997 PTP Hubei 13.00 0.00 0.00 25.00 1998 PTP Hubei Blinc 0.00 0.00 0.00 1.50 1998 ScanaLeshan 6.10 1.35 0.00 0.00 1998 Shanghai Coline 13.00 0.00 0.00 0.00 1997 SMC 14.00 0.00 0.00 14.00 1997 Suzhou PVC Add. 7.90 0.00 0.00 6.40 1996 Tianjin 9.10 0.00 0.00 9.10 1996 Xiamen Xian 10.00 0.00 0.00 0.00 1998 XIB 50.00 20.00 0.00 0.00 1998 Zhen Jing 4.50 2.00 0.00 0.00 Total Pending Commitment: 217.26 30.21 0.00 187.00 Page 101 ANNEX 15 ANNEX 15: COUNTRY AT A GLANCE POVERTY and SOCIAL East Low- China Asia income Development diamond' Population mid-1996 (millions) 1215 1,726 3,229 GNP per capita 1996 (US$) 750 890 500 Life expectancy GNP 1996 (billions USS) 906.1 1,542 1,601 Average annual growth, 1990-96 Population (%°4) 1.1 1.3 1.7 GNP Gross Labor force (%) 1.1 1.3 1.7 per primar Most recent estimate (latest year available since 1989) capita enrollmen Poverty: headcount index (% of population) 9 - Urban population (% of total population) 31 31 29 Life expectancy at birth (years) 70 68 63 Infant mortality (per 1,000 live births) 33 40 69 Access to safe water Child malnutrition (% of children under 5) 16 Access to safe water (% of population) 90 49 53 Illiteracy (% of population age:15+) 19 17 34 Gross primary enrollment (% of school-age population) 118 117 105 China Male 119 120 112 Low-income group Female 117 116 98 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1975 1985 1995 1996 Economic ratlos' GDP (billions US$) 160.3 378.1 755.9 916.4 Gross domestic investmentGDP 30.3 37.8 40.8 39.2 Openness of economy Exports of goods and services/GDP 5.2 9.9 21.0 19.3 Gross domestic savings/GDP . 30.6 33.7 42.5 41.3 Gross national savings/GDP 30.6 34.0 41.0 40.0 Current account balance/GDP -0.2 -3.9 0.1 0.5 Interest payments/GDP .. 0.2 0.7 0.6 Savings I Investment Total debt/GDP .. 5.5 16.9 15.6 Total debt service/exports 8.4 9.9 9.8 Present value of debt/GDP ., .. 14.1 Present value of debt/exports .. 72.3 Indebtedness 1975-85 1986-96 1995 1996 1997-05 (average annual growth) China GDP 8.3 9.9 10.5 9.6 8.5 GNP per capita 7.5 8.3 7.9 8.6 7.7 Low-income group Exports of goods and services 17.2 13.6 13.2 8.3 8.9 STRUCTURE of the ECONOMY 1975 1985 1995 1996 1 (% of GDP) Grovth rates of output and investment (%) Agriculture 32.0 28.4 20.5 20.2 30 Industry 42.8 43.1 48.8 49.0 20 Manufircturing 31.6 35.4 38.1 38.1 Services 25.2 28.5 30.7 30.8 1 Private consumption 61.9 53.1 46.0 47.6 91 92 93 94 95 96 General government consumption 7.6 13.2 11.4 11.1 Imports of goods and services 5.0 14.0 19.3 17.1 GDI -G P 1975-85 1986-96 1995 1996 (average annual growth) Growth rates of exports and Imports (%) Agriculture 5.4 4.3 5.0 5.1 40 Industry 10.4 13.5 13.9 12.1 Manufacturing 13.0 13.0 133 11.7 20 Services 9.8 9.0 8.3 7.9 Private consumption 8. 2 8.8 9.7 11.9 o General government consumption 9.0 9.2 . 8.3 93 94 95 96 Gross domestic investment 9.8 10.8 16.2 7.6 -20 Imports of goods and services 22.1 11.7 10.8 8.8 - xports -8--imports Gross national product 9.0 9.8 9.0 9.7 Note: 1996 data are preliminary estimates. - The diamonds show four- key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. Page 102 ANNEX 15 China PRICES and GOVERNMENT FINANCE 1976 1985 1995 1996 Domestic prices Inflation (%> (% change) 301 Consumer prices .. 9.2 17.1 8.3 20! Implicit GDP deflator -0.9 10.1 13.2 7.0 20 10 Government finance (% of GDP) 0 Current revenue .. 25.5 11.4 11.5 91 92 93 94 ss 96 Current budget balance .. 6.7 -1.4 0.5 - GDPdef. -5--CPI Overall surplusideficit .. -0.5 -1.7 -1.6 TRADE 1976 19S5 1995 1996 (millions USS) Export and Import levels (mill. USS) Total exports (fob) .. 27,350 148,770 151,073 200,000 Food .. 3,803 9,954 10,232 T Fuel .. 7,132 5,335 5,929 150,000 Manufactures .. 13,522 127,283 129,141 Total imports (cif) .. 42,252 132,078 138,828 100,001 Food er 1,881 9,126 7,866 Capital goods .. 18,694 57,481 63,901 o Export pnce index (1987=100) .. 92 133 129 90 91 92 93 94 9s 56 Import price index (1987=100) 78 132 129 o Exports niports Terms of trade (1987=100) 118 101 100 BALANCE of PAYMENTS 1975 1985 1995 1996 (millions US$) Current account balance to GDP ratio (%) Exports of goods and services 7,828 28,163 147,240 153,740 4 Imports of goods and services 8,097 41,149 135,284 141,340 Resource balance -269 -12,986 11,956 12,400 2. Net income 0 932 -11,774 -10,370 Netcurrenttransfers 0 171 810 1,580 0 _ _ - llz' i Current account balance, 90 9 92 before official capital transfers -269 -11,883 992 3,610 -2 Financing items (net) .. 9,443 21,477 28,030 Changes in net reserves .. 2,440 -22,469 -31,640 .4 Memo: Reserves including gold (mill. USS) 16,853 80,312 111,690 Conversion rate (local/US$) 1.9 2.9 8.4 8.3 EXTERNAL DEBT and RESOURCE FLOWS 1975 1985 1995 1996 (millions UJSS) S Composition of total debt, 1996 (mill. USS) Total debt outstanding and disbursed .. 16,696 118,090 128,817 A IBRD 498 7,209 7,616 i 7616 B IDA 431 7,038 7,579 240779 25407~~~~ Total debt service .. 2,478 15,066 15,756 2501 IBRD 26 810 840 IDA .. 4 63 73 E Composition of net resource flows 21737 Official grants .. 117 328 248 Official creditors .. 1,117 7,902 4,359 Private creditors .. 2,867 5,013 6,454 Foreign direct investment . 1,659 35,849 40,180 Portfolio equity .. 0 2,807 3,486 F 63977 World Bank program Commitments .. 1,092 2,850 1,900 A - IBRD E - Bitateral Disbursements 565 2,269 2,097 B - IDA D - Other multilateral F - Pnvate Principal repayments 0 364 364 C - IMF G- Short-term Net flows 565 1,905 1,734 E I Interest payments 29 509 549 Net transfers 536 1,396 1,185 Development Economics 4/23/98 Note: The dollar estimates for China's GNP per capita, GNP and GDP are preliminary figures based on an on-going World Bank study of Chna's GOP. They were calculated to facilitate inter-country comparisons. Official statistics are used as the basis for all other economic analysis contained in this document. MAP SECTION CHINA HUNAN POWER DEVELOPMENT PROJECT HUNAN POWER GRID IN 2002 H U B E I - .^'- ' ' H ,'\to'n '_O. CHONGQING.Z I , - H D YI. .N 'iy~ng o1ongbi J, JAso = uo9. ! i V~~i2DWT. ~ ~ J,.,k.. h 1 JIanlu112OMVA P1MV I,p Tpgp N SA \_/y~, LVnssh2io t 9 D Xo >D X Dlsul JIANGXI e,1) Y=gu, \ |h,dn A'SVwn1Vn ff | _,b L ngxuMng ) ~~1.1 80 MVA/ ,:a , - I ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ A GUIZHOU ..' h .,~g b Y A . . Mbb k C t.- *:l r G U A N G X I ,:, ,e y-gV RUSSIAN __ IxI20MVA , FEDERATION ' , MONGOLIA G U t '.. ! ''-, GLUANGDONG ' . /_! SA6V JA,PANJ ~~~\ r / -4 'p. ,* t- 4 t5NG ,2 K-yroR p,,,* PAR . et'l R EPF P JIfV- EPDE - 5vo. , g3Yalb_C<< ''9' '' _ _ - - 220V TRANbIRSSION LlJFS E.ppp VU~~~~~~~~~~~ 0 ~~~ 0 0 0 220W1575R TVP ,k5 S- ~ ~ ~ ~ ~ ~ ~ ~ * * * * POWVER ~T - 500 IV S TSM,SSSN LF 2 1 ®~~~~~~~~~~~~~~~~~~~~~~~~~~~~j 500 kV SU6STATCO4S 0 25 9C 75 IGO * PIV^e,,, Vappl r-1 ; 9 /tti i I KILOMETERS MALN R VE2S bonilcs VG~VPP ~ OS/ tl COUNTY BOUNDARIES E9 -. R undoPie T p LAO, AVI , V , AP P P P - * b PROVINCE BOUNDARIES P2 PA,,., _A - -" .-V,,PINE9V.,W&PVI,pnceolPu-hb:r,h V,es V