Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00005827 IMPLEMENTATION COMPLETION AND RESULTS REPORT ON THE LOAN (NUMBER 8566-CN) IN THE AMOUNT OF US$100 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE HEBEI CLEAN HEATING PROJECT June 23, 2022 This ICR replaces the version publised in the Board Operations System on February 16, 2022. Ratings in datasheet have been changed to the correct ones. Energy and Extractives Global Practice East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective June 30, 2021) Currency Unit = Chinese Yuan (CNY) CNY = 0.1412 US$1 FISCAL YEAR July 1 - June 30 Regional Vice President: Manuela V. Ferro Country Director: Martin Raiser Regional Director: Ranjit J. Lamech Practice Manager: Jie Tang Task Team Leader(s): Yanqin Song, Christophe de Gouvello ICR Main Contributor: Hua Du ABBREVIATIONS AND ACRONYMS AM Aide Memoire ARAP Abbreviated Resettlement Action Plan BLS Building-Level Substation(s) CBB Consumption-Based Billing CHP Combined Heat and Power CPF Country Partnership Framework DH District Heating EA Environmental Assessment EIRR Economic Internal Rate of Return EMP Environmental Management Plan FIRR Financial Internal Rate of Return FM Financial Management FNPV Financial Net Present Value FYP Five-Year Plan GHG Greenhouse Gas ICR Implementation Completion and Results Report IFI International Financial Intermediary ISR Implementation Status and Results Report M&E Monitoring and Evaluation HOB Heat-Only Boiler HPMO Hebei Provincial Management Office MTR Midterm Review NBF Nonbank Financing O&M Operation and Maintenance PAD Project Appraisal Document PDO Project Development Objective PIU Project Implementation Unit PM Particulate Matter PMO Project Management Office SCADA Supervisory Control and Data Acquisition TSP Total Suspended Particulate WACC Weighted Average Cost of Capital TABLE OF CONTENTS DATA SHEET ................................................................................................................................1 I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES .........................................................5 A. CONTEXT AT APPRAISAL ............................................................................................................. 5 B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) ....................................... 10 II. OUTCOME .........................................................................................................................11 A. RELEVANCE OF PDOs ................................................................................................................ 11 B. ACHIEVEMENT OF PDOs (EFFICACY) .......................................................................................... 12 C. EFFICIENCY ................................................................................................................................ 14 D. JUSTIFICATION OF OVERALL OUTCOME RATING....................................................................... 17 E. OTHER OUTCOMES AND IMPACTS (IF ANY)............................................................................... 17 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ..................................19 A. KEY FACTORS DURING PREPARATION....................................................................................... 19 B. KEY FACTORS DURING IMPLEMENTATION ................................................................................ 20 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME ...22 A. QUALITY OF MONITORING AND EVALUATION (M&E) .............................................................. 22 B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ....................................................... 24 C. BANK PERFORMANCE ............................................................................................................... 26 D. RISK TO DEVELOPMENT OUTCOME .......................................................................................... 28 V. LESSONS AND RECOMMENDATIONS .................................................................................29 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ..............................................................31 ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION...........................42 ANNEX 3. PROJECT COST BY COMPONENT ...............................................................................44 ANNEX 4. EFFICIENCY ANALYSIS ...............................................................................................45 ANNEX 5. METHODOLOGY OF ESTIMATING KEY PROJECT INDICATORS. ..................................49 ANNEX 6. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ....51 ANNEX 7. SUPPORTING DOCUMENTS (IF ANY).........................................................................53 The World Bank Hebei Clean Heating Project (P148599) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name P148599 Hebei Clean Heating Project Country Financing Instrument China Investment Project Financing Original EA Category Revised EA Category Full Assessment (A) Full Assessment (A) Organizations Borrower Implementing Agency Foreign Debt Management Center, Hebei Provincial Department of Finance, Project Management Center, People's Republic of China Foreign Debts Management Center, Hebei Provincial Finance Bureau Project Development Objective (PDO) Original PDO

The project development objective (PDO) is to improve the efficiency and environmental performance of heating systems in selected areas within participating municipalities/counties of Hebei Province.

Page 1 of 53 The World Bank Hebei Clean Heating Project (P148599) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 100,000,000 94,589,268 94,589,268 IBRD-85660 Total 100,000,000 94,589,268 94,589,268 Non-World Bank Financing 0 0 0 Borrower/Recipient 148,330,000 106,070,732 106,070,732 Total 148,330,000 106,070,732 106,070,732 Total Project Cost 248,330,000 200,660,000 200,660,000 KEY DATES Approval Effectiveness MTR Review Original Closing Actual Closing 19-Jan-2016 22-Jun-2016 31-May-2019 30-Jun-2021 30-Jun-2021 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions KEY RATINGS Outcome Bank Performance M&E Quality Highly Satisfactory Highly Satisfactory Substantial RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 27-Apr-2016 Satisfactory Satisfactory 0 02 06-Nov-2016 Satisfactory Satisfactory 0 03 04-Dec-2016 Satisfactory Satisfactory 0 Page 2 of 53 The World Bank Hebei Clean Heating Project (P148599) 04 12-Jun-2017 Satisfactory Satisfactory 15.78 05 28-Dec-2017 Satisfactory Highly Satisfactory 40.20 06 22-Jun-2018 Satisfactory Highly Satisfactory 42.30 07 21-Dec-2018 Satisfactory Highly Satisfactory 53.58 08 26-Jun-2019 Satisfactory Highly Satisfactory 53.58 09 24-Dec-2019 Satisfactory Highly Satisfactory 63.30 10 28-Jun-2020 Satisfactory Highly Satisfactory 71.52 11 07-Jan-2021 Highly Satisfactory Highly Satisfactory 75.00 SECTORS AND THEMES Sectors Major Sector/Sector (%) Energy and Extractives 100 Other Energy and Extractives 100 Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Urban and Rural Development 34 Urban Development 34 Urban Infrastructure and Service Delivery 34 Environment and Natural Resource Management 66 Climate change 33 Mitigation 33 Environmental Health and Pollution Management 33 Air quality management 11 Water Pollution 11 Soil Pollution 11 Page 3 of 53 The World Bank Hebei Clean Heating Project (P148599) ADM STAFF Role At Approval At ICR Regional Vice President: Axel van Trotsenburg Manuela V. Ferro Country Director: Bert Hofman Martin Raiser Director: Anita Marangoly George Ranjit J. Lamech Practice Manager: Julia M. Fraser Jie Tang Yuriy Myroshnychenko, Emmanuel Yanqin Song, Christophe de Task Team Leader(s): Py Gouvello ICR Contributing Author: Hua Du Page 4 of 53 The World Bank Hebei Clean Heating Project (P148599) I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A. CONTEXT AT APPRAISAL Context 1. At the time of project appraisal in 2015, China faced major challenges to address negative environmental impacts and regional income disparities associated with its rapid economic growth. This was typified by Hebei Province as a center for energy-intensive industry located in the cool climate of northern China in a major airshed surrounding Beijing and Tianjin municipalities, together known as the Jing-Jin-Ji region. Hebei was the sixth most populous province (population 73 million) but only eighteenth in average per captia GDP (¥39,984). Chronic, severe air pollution, including greenhouse gas emissions, came predominantly from coal combustion for energy. Air pollution was particularly severe during winter where heating sources included inefficient coal- fired boilers. Rapid urbanization accompanied sustained economic growth added demand for new heating sources as real estate developed. 2. Coal in China is high in ash and sulfur contents, and its combustion was the major source of SO 2, NOx, and CO2 emissions, as well as primary and secondary PM2.5 emissions in China. In the Jing-Jin-Ji region, coal consumption reached nearly 1.8 billion tons in 2014, accounting for 40 percent of total coal consumption in China1. To tackle the increasingly severe air pollution, the government’s Air Pollution Prevention and Control Action Plan in the Jing-Jin-Ji region called for, among other measures, phaseout of coal-fired boilers for heating through use of district heating (DH) and/or clean heating sources and modernization of DH networks. 3. Within the Jing-Jin-Ji region, Hebei Province contributed as the single largest source of the primary PM2.5. Seven out of the top ten most polluted cities in China are in Hebei Province. In 2015, the Jing-Jin-Ji region emitted a total of 1.72 million tons of primary PM2.5 with 1.57 million tons from Hebei Province alone, accounting 91 percent of the total of Jing-Jin-Ji, as Hebei relies on coal to meet more than 90 percent of its energy needs. In Hebei’s cold climate, as DH is a vital urban service, the heating sector offers some of the most rewarding opportunities for improving air quality in the province. Like many northern provinces, in the early stages of urbanization, cities in Hebei Province invested in small, coal-fired boilers to provide DH service during the winter season. As urban areas continued to expand, coal-fired boilers surrounded the cities. In contrast with modern technologies, the initial coal-fired DH systems were often highly inefficient with outmoded operations and lacking proper pollution control mechanisms. These inefficient DH systems would continue to cause severe local air pollution and contribute to heightened carbon intensity of energy use in the northern regions as Hebei Province is undergoing rapid urbanization2. Therefore, timely rehabilitation of existing DH systems to modernized new DH systems in Hebei Province would help improve efficiency of its DH systems and reduce the provincial level of coal combustion, potentially improving air quality in the Jing-Jin-Ji region and lowering overall carbon intensity of its energy use in the northern region. 1 Coal used for heating is 10 percent of the total coal consumption nationwide. 2 At appraisal, its urbanization rate was 48.1 percent and was expected to reach 58 percent by 2020. Page 5 of 53 The World Bank Hebei Clean Heating Project (P148599) 4. At both national and provincial level, district heating reforms have been facing many challenges during implementation. This is particularly the case for i) metering of the heat supply chain; ii) consumption-based billing (CBB) and iii) pricing reforms on two-part tariff structure. The introduction of payment according to the CBB is important to create incentives for more efficient supply and use of heating energy. However, consumers and heat suppliers have been slow in responding to market-based energy costs because heating, unlike water and electricity, is largely billed according to the floor area rather than the metered consumption. It should be noted that at appraisal, promotion of CBB and BLS across China had been around over 10 years, but limited progress was achieved. 5. At the provincial level, to improve its air quality, Hebei banned the construction of coal-fired heat only boilers (HOBs) for DH, as part of efforts in implementation of a provincial-level Air Pollution Control and Prevention Plan in 2013. Alternatives, such as combined heat and power (CHP)-based DH systems, conversion of coal-fired boilers to gas-fired ones, utilization of industrial waste heat, and water-cooling systems, were largely left up to cities to explore and develop. However, many new and densifying urban areas in county towns lacked experience in developing DH networks. At appraisal, without guidance, cities, especially county towns, were facing major challenges in identifying feasible alternatives of advanced DH technologies. Building upon its experience in the heating sector in China, the World Bank was well positioned to support the adoption and scale-up of DH best practices in Hebei Province. Theory of Change (Results Chain) 6. Under the context stated above, the Hebei Clean Heating Project was prepared. It was designed to improve the efficiency and environmental performance of heating systems in four localities of Hebei Province selected to cover a range of circumstances. Investments in alternative heating sources to coal-fired HOBs would include use of energy from CHP plants and waste heat from industry, energy efficiency improvements in DH including building-level substation (BLS)3, and demand-side management through metering and CBB4. Through implementation of the project, construction of new coal-fired HOBs would be avoided, and existing small boilers would be phased out. Key assumptions of the project design, implementation and achievement of outcomes were (a) sustained national and provincial commitments to air pollution prevention and control and the phaseout of coal-fired HOBs for DH throughout the project lifetime and (b) promotion of the system efficiency by adopting new technology, such as BLS and advanced billing system of CBB based on municipal development plans and the projected urbanization rate at appraisal. 7. A direct causal link can be drawn between the project’s activities and the expected outcomes (see figure 1). The activities consisted of extension and/or renovation of DH primary and secondary networks, construction of group substations and BLS, conversion of coal-fired boilers to gas-fired boilers, installation and optimization of heat meters and a supervisory control and data acquisition (SCADA) system, and installation of automatic control systems for existing substations. Three municipalities (Chengde, Zhangjiakou, and Xingtai) 3 BLS technology is beneficial – smaller size, less pipes, more consumer responsive, and prefabricated rather than assembled. The project planned to install 150 BLS, the largest deployment in China at appraisal. The BLS is technically capable of achieving higher efficiency than conventional network designs using group substations and can improve the cost- effectiveness of DH systems. 4 Combination of metering and CBB allows for measurement and adjustment of heating consumption as household level, with assistance of financial incentive for efficient use of heating through consumption-based billing mechanism. Page 6 of 53 The World Bank Hebei Clean Heating Project (P148599) and one county (Pingshan) were selected5 in Hebei Province, and activities were tailored to specifics of each municipality/county. Expected outputs included urban spaces newly connected to DH, renovated and/or new DH primary and secondary networks, new group substations and BLS constructed, converted gas-fired boilers, heat meters installed, SCADA systems installed 6 or optimized, and automatic control systems installed for existing substations. These were expected to lead to the higher-level outcomes of improved efficiency and enhanced environmental performance of heating systems in four selected municipalities/county of Hebei Province. Longer-term outcomes in the form of scaled-up deployment of modernized DH systems in other parts of Hebei Province, sustained improvement of air quality in Hebei Province and potentially in Jing-Jin-Ji region, and a contribution to reducing GHG emission were expected, if the pilot demonstration in four selected areas through implementation of the project was replicated in other parts of Hebei Province. Figure 1. Theory of Change for the Hebei Clean Heating Project Project Development Objectives (PDOs) 8. The PDO7 was to improve the efficiency and environmental performance of heating systems in selected areas within participating municipalities/counties of Hebei Province. 5 This project focused on secondary cities where local DH companies did not yet reach the level of experience and understanding with some of the enabling technologies and their benefits (variable flow systems, metering) that make way for the system and consumer to benefit from the pricing/CBB reform. In addition, during project preparation, criteria for selecting Subcomponents were established by the provincial government in consultation with the World Bank team. They include but not limited to demand of DH service (new or replacing old ones), availability of clean heating sources, and more importantly, the timing of the project implementation and readiness of subproject applicants. 6 New installation is for Xingtai and Pingshan DH companies during implementation. Chengde and Zhangjiakou DH companies already installed the SCADA systems at appraisal and plan to have their systems optimized through project implementation. 7 PDO formulation in legal agreement and in the PAD are identical. Page 7 of 53 The World Bank Hebei Clean Heating Project (P148599) Key Expected Outcomes and Outcome Indicators 9. The key expected outcomes and outcome indicators were as follows 8: • Expected Outcome 1: Improved efficiency of heating systems in four selected municipalities/counties of Hebei Province. The outcome indicator to be used to assess the outcome is i) Projected lifetime energy savings (MWh)9. • Expected Outcome 2: Improved environmental performance of heating systems in four selected municipalities/counties of Hebei Province. The outcome indicators to be used to assess the outcome are iii) Project-level aggregated avoided CO2 emissions (tons) and iv) Project-level aggregated avoided total suspended particles (TSP) emissions (tons). Components 10. At appraisal, the project had two components as follows. 11. Component 1: District Heating Subcomponents (estimated cost at appraisal: US$217.06 million, of which US$89.67 million IBRD financing; actual cost: US$191.07 million, of which US$92.48 million IBRD financing). This component was intended to finance the construction and rehabilitation of DH facilities in the four project cities/counties (four Subcomponents) with a total heating area of 38.7 million m 2, including 13.5 million m2 of new buildings. Although tailored to the needs of the participating city/county, the four Subcomponents share common ground, which is to modernize operations of DH systems and make them more energy efficient. Technical design of the four Subcomponents built upon experiences and lessons learned from the World Bank’s previous engagement in the DH sector in China and supports the adoption and scale-up of DH best practices that might otherwise not be implemented by project sponsors without World Bank support. 12. Subcomponent 1.1: Chengde District Heating and Energy Efficiency Subcomponent (estimated cost at appraisal: US$30.57 million, of which US$18.09 million IBRD financing; actual cost: US$35.28 million, of which US$17.54 million IBRD financing). The Subcomponent was designed to (a) rehabilitate DH facilities that serve the existing DH area of about 12.3 million m2 in Shuangqiao (old town) District of Chengde and (b) expand DH10 to an additional 2.5 million m2. The specific investments comprised (a) extension of a DH primary network by about 5 km, (b) renovation of about 3 km of the primary network and 57 km of the secondary network, and (c) construction of 20 group substations and 114 BLS. The implementing entity was the Chengde Heating Group Company Ltd. (Chengde DH company), a state- owned enterprise and the largest DH company in Chengde. 13. Subcomponent 1.2: Zhangjiakou District Heating Subcomponent (estimated cost at appraisal: US$64.28 million, of which US$29.89 million IBRD financing; actual cost: US$41.34 million, of which US$29.66 million IBRD 8 The indicator -People provided with improved urban living conditions (number) is removed from expected outcome and from efficacy section and instead treat as a footnote, because the PDO is not about improving access nor about providing people with improved urban living conditions. The result of this indicator is discussed in “Beneficiaries” section. 9 The baseline case is without the project, how much energy (mainly coal) would need to be used to achieve the same level of heating service for the same amount of floor area in the same region. The baseline energy consumption is a function of a number of factors including population and economic development. 10 Replacement of six small coal-fired boilers that serve about 87,000 m2 of existing buildings and approximately 2.4 million m2 of new buildings. Page 8 of 53 The World Bank Hebei Clean Heating Project (P148599) financing). The Subcomponent aimed to (a) rehabilitate DH facilities that serve the existing DH area of about 3.5 million m2 in Qiaodong District of Zhangjiakou and (b) expand DH11 to an additional 5 million m2. The specific investments included (a) extension of a DH primary network by about 20 km, (b) construction of 58 group substations and 17 BLS, (c) conversion of two coal-fired boilers (2 × 64 MW) to natural gas (2 × 70 MW) for peak load supply and backup capacity, (d) construction of a pressure isolation stations, and (e) installation of heat meters and a SCADA system. The implementing entity was the Zhangjiakou Dongyuan Heating Company 12 (Zhangjiakou DH company), a state-owned enterprise and a subsidiary of the Qiaodong Urban Construction and Investment Company. 14. Subcomponent 1.3: Pingshan (County) District Heating and Energy Efficiency Subcomponents (estimated cost at appraisal: US$22.13 million, of which US$11.81 million IBRD financing; actual cost: US$22.79 million, of which US$1.91 million IBRD financing). The Subcomponent was designed to (a) rehabilitate DH facilities that serve the existing DH area of about 4.5 million m2 in the urban area of Pingshan County and (b) expand DH to an additional 3 million m 2 of new buildings. The specific investments comprised (a) extension of a DH primary network by about 6 km, (b) renovation of about 4 km of the primary network, (c) installation of 27 group substations and 9 BLS and rehabilitation/expansion of 5 group substations to 8 group substations, (d) installation of heat meters for 1.9 million m2 of the residential heating area and about 0.27 million m2 of public buildings, (e) automatic control systems for 46 existing substations, (f) rehabilitation of two water treatment stations, and (g) installation of a SCADA and central monitoring and control system for the DH system. The implementing entity is the Pingshan County Urban and Township Heating Co. Ltd. (Pingshan DH company), a state-owned enterprise under the Pingshan County Heating Supply Office. 15. Subcomponent 1.4: Xingtai Industrial Waste Heat District Heating Subcomponents (estimated cost at appraisal: US$100.08 million, of which US$29.88 million IBRD financing; actual cost: US$91.65 million, of which US$28.65 million IBRD financing). The Subcomponent was designed to construct DH facilities in the northwest urban area of Xingtai Municipality (one of the most polluted cities in the province) to serve about 8 million m2, including about 2.3 million m2 of existing and approximately 5.7 million m2 of new buildings. Industrial waste heat from nearby industrial (coking) facilities will be used as heating source. The project investments were split in two phases. Phase I (2015–2016), funded by counterpart funds, was already under implementation and comprised construction of a waste heat water network of about 12 km within the coking plant area, approximately 24 km of the primary DH network outside the plan, a primary station, and 27 group substations to provide DH to an existing heating area. Phase II (2016–2019), to be financed under this Subcomponent, included construction of additional 5 km of network within the plant, 28 km of the primary DH network outside the plan, 103 group substations, 14 BLS, and installation of a SCADA system. The implementing entity is the RISUN Anneng Heating Company Ltd. (Xingtai DH company), a new joint venture established for this Subcomponent. 16. Component 2: Institutional Capacity Building and Project Management Support (estimated cost at appraisal: US$2.5 million, of which US$2.5 million IBRD financing; actual cost: US$2.11 million, of which US$2.11 million IBRD financing). This component was designed to hire a management consulting company to provide (a) 11 Connection to DH of about 2.6 million m2 of existing buildings which are currently served by 99 small coal-fired boilers and 2.4 million m2 of new buildings. 12 Owns the 4 × 64 MW coal-fired HOB plant which will be partially converted to gas. Page 9 of 53 The World Bank Hebei Clean Heating Project (P148599) project management support to the Hebei Provincial Management Office (HPMO) and the four heating companies; (b) capacity-building support to the heating companies in DH management, operation and maintenance (O&M), and World Bank project implementation procedures; (c) training, workshops, and study tours to exchange and learn good practices in the DH sector; and (d) technical assistance tailored to the needs of project companies. B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) Revised PDOs and Outcome Targets Not applicable. Revised PDO Indicators Not applicable. Revised Components Not applicable. Other Changes 17. At the midterm review (MTR) stage, only minor changes were made, primarily due to slowdown of real estate development in Hebei Province. However, all key outcome indicators were expected to be exceeded even after accounting for the agreed minor adjustment in activities and including the slower than-expected pace of real estate development. In view of this, following a detailed review of the Results Framework, the World Bank team concluded that project restructuring is not required13 . The minor changes14 include the following: (a) Component 1: The following adjustment of activities included: (i) accommodating new DH related activities using funds from loan savings in various cities and (ii) Zhangjiakou dropping the activity to replace a coal-fired peak heat boiler with a gas-fired boiler. The dropping of the coal-fired peak heat boiler results from the fact that the improved boiler was made redundant with the upgrading of a DH pipeline to the site, which was financed outside the project. (b) Results Framework: For intermediate results indicator 1 (area connected) and intermediate results indicator 4 (BLS), the forecast values have been lowered in ISR compared to the target values at appraisal 15 due to the lower real estate development forecast nationwide for indicator 1 and difficulties to change the design and site reservation for group substation for indicator 4 respectively 13 For further details, refer to the two Aide Memoires (AMs) at the MTR in February and November 2019. 14 Refer to the Hebei Clean Heating Project Implementation Missions Aide Memoire and MTR report dated June 2019. 15 For intermediate results indicator 1 (area connected), the original target value at closing was 18.52 million m2 while that target was revised down to 16.52 million m2 at MTR; for intermediate results indicator 4 (building-level substation installed, the original target value at closing was 154 while that target was revised down to 99 at MTR. Page 10 of 53 The World Bank Hebei Clean Heating Project (P148599) (see table in Annex 1B-1). Based on updated plans, Component 1 would have financed the construction and rehabilitation of DH facilities in the four project areas with a total of 16.52 million m2 floor area to be newly connected to DH (including both existing and newly constructed buildings). This is slightly lower than the end target value of 18.52 million m2 as defined in the Project Appraisal Document (PAD)16 . 18. The above-mentioned revisions do not make any impact on the Original Theory of Change. Rationale for Changes and Their Implication on the Original Theory of Change Not applicable. II. OUTCOME A. RELEVANCE OF PDOs Assessment of Relevance of PDOs and Rating 19. The relevance of the PDOs is rated as High. At appraisal, the PDOs were consistent with China’s priorities identified in the Country Partnership Strategy for FY2013–2016. The project supported the CPS pillar: “Supporting greener growth by helping China shift to a more sustainable energy path; enhanc ing urban environmental services and demonstrating pollution management.” The project also supported the World Bank’s corporate objective of ending extreme poverty and boosting shared prosperity with sustainability. The project was also well aligned with China’s 12th Five-Year Plan (FYP) (2011–2015) which called for alleviating environmental pollution and promoting efficient use of resources through investments in smart infrastructures. In this regard, the project mobilized an IBRD loan to improve efficiency and environmental efficiency of heating systems in selected areas within the municipalities/counties of Hebei Province. 20. The PDOs at completion remain highly relevant and consistent with the World Bank Group Country Partnership Framework (CPF) for China (Report 117875-CN) (FY2020–2025) 17 engagement area 2: Promoting greener growth by facilitating the transition to a lower-carbon energy path and by reducing air pollution. The project is also in line with a key pillar in the 2018 China Systematic Country Diagnostic (Report 113092-CN), making fuller use of market mechanisms to promote green growth and more efficient, sustainable use of natural resources. 21. The PDOs at completion align with Hebei’s 13th FYP (2016–2020), which set a target to reduce ambient PM2.5 concentrations by 40 percent relative to the 2013 level and called for scale-up of clean DH. In 2020, the Jing-Jin-Ji region emitted a total of 1.6 million tons of primary PM2.5 with 1.3 million tons from Hebei Province alone, as Hebei relied on coal to meet more than 90 percent of its energy needs. Finally, the PDOs at completion are in line with China’s 14th FYP outline (2021–2025) which sets an 18 percent reduction target for ‘CO2 intensity 16 At project completion, the actual value of this indicator reached 18.18 million m2. It is 110 percent of revised target at the MTR and 98 percent of the target at the PAD. 17 The CPF was discussed by the Board of Executive Directors on December 6, 2019, before the project closed on December 31, 2019. Page 11 of 53 The World Bank Hebei Clean Heating Project (P148599) of GDP growth’ and a 13.5 percent reduction target for ‘energy intensity of GDP growth’ from 2021 to 2025 and aspires to achieve ‘emission peak’ by 2030 and ‘carbon neutrality’ by 2060. The project design was consistent with the project stated objectives and client capacity (please refer to “key factors that af fected implementation and outcome” section for details). B. ACHIEVEMENT OF PDOs (EFFICACY) Assessment of Achievement of Each Objective/Outcome 22. Achievement of both outcomes at completion was High as measured and substantiated by exceeded target values of PDO indicators (see Table 1). PDO indicators (i), (ii), (iii) measure cumulative impacts within the five-year project implementation period. The PDO-level indicators were highly relevant to the PDO and sufficiently capture its scope of improving efficiency and environmental performance of heating systems in project areas. Since during the same period of the project implementation, no other investment projects have been implemented, the achievements in both aspects of the PDO outcomes can all be attributed to the World Bank-financed project. Table 1. Key PDO Results Indicators Values: Targets and Actual Values as of June 2021 Year 5 Year 5 Year 5 PDO Outcomes PDO/Outcome Indicators Baseline Actual (Actual/Target) Target (%) Improve the efficiency of 4,974,014 5,227,039 114 heating systems in selected areas with participating (i) Projected lifetime energy savings 0 municipalities/counties of (MWh) Hebei Province Improve environmental (ii) Project-level aggregated avoided 0 1,722,632 1,913,986 111 performance of heating CO2 emissions (tons) systems in selected areas (iii) Project-level aggregated avoided 0 11,243 12,805 114 with participating total suspended particles (TSP) municipalities/counties of emissions (tons) Hebei Province Note: In the ISR and ICR template, there is one CRI PDO outcome indicator “Projected energy or fuel savings” which has linear connection with and converted from “Projected lifetime energy savings”. Therefore, only “Projected lifetime energy savings was discussed and evaluated in this ICR. 23. Achievement of the first objective (improve the efficiency of heating systems in selected areas with participating municipalities/counties of Hebei Province ). Efficiency18 improvement of DH systems comes from two sources: (a) switching to more energy-efficient heating sources and (b) reducing heat loss in DH networks. The net result of efficiency gain is less energy consumption per floor area heated. This is measured by projected 18Definition of efficiency: comparison of energy usage for DH with and without the project. Baseline: consumption of coal for DH without the project. This is estimated based on areas connected to DH, which is proportionate to the population with access to DH and population and economic growth. For further details, see annex 5. 19 The target here in this para are the target adjusted during the Mid Term Review. Page 12 of 53 The World Bank Hebei Clean Heating Project (P148599) lifetime energy savings (MWh). At closing, the cumulative lifetime energy savings due to improved efficiency of DH systems aggregated across four Subcomponents reached 5,665,401 MWh, exceeding the target of 4,974,014 MWh at appraisal by 14 percent. The attribution of outcomes (both first and second outcomes in para. 24 in this section) to project results is demonstrated by several output indicators and other efficiency metrics. Achievement on key intermediate results indicators as of June 30 2021 can be found in Annex 1B-1. As these indicators show, the achievement of outcome indicators can be attributed to the area connected, all of which benefited from efficiency gains. As a result, DH efficiency has been improved from 2018 to 2021 in the four selected municipalities/county, as shown in table 2 19 . It is interesting to note that Xingtai municipality has by far the lowest unit area energy consumption compared to other three cities at end of the Project (during 2020-2021 heating season20) and the fastest improvement. This is in part because in Xingtai, the heating access area are all newly connected area, mainly new commercial housing communities, and the thermal insulation coefficient of buildings is much better than that of the other three cities. Other contributing factors include i) SCADA system was operationalized in later stage of the Project; and ii) the operation and management capacity of Xingtai DH company has been significant improved through capacity-building provided by the Project. Table 2. Weather-adjusted energy intensity of heating(kJ/(m2/DD) by locality and year22 Annual Energy Saving in 2017–2018 2018–2019 2019–2020 2020–2021 Locality 2020-2021 Heating Season Heating Season Heating Season Heating Season Heating Season (MWh) Xingtai 166.69 119.80 108.72 97.49 1,083,914 Pingshana 228.54 255.1623 247.28 227.75 145,058 Zhangjiakoua 140.50 143.77 142.07 138.08 372,054 Chengde 112.51 111.64 107.30 106.94 185,942 Source: Project Management Office (PMO) Implementation Completion and Results Report (ICR). Note: a. SCADA systems commissioned during the 2019–2020 heating seasons. The SCADA systems, already equipped in DH networks of Xingtai and Chengde Municipalities, were optimized through this project. 24. Achievement of the second objective (improve environmental performance of heating systems in selected areas with participating municipalities/counties of Hebei Province). The environmental performance of DH systems is evaluated from their contributions to local air pollution and greenhouse gas emissions. This is measured by (a) avoided CO2 emissions (tons) and (b) avoided TSP emissions (tons). The PDO indicator measured these aggregated for the project as a whole (in addition to being calculable for each sub-project locality). The project contributed to the phaseout of coal-fired HOBs through investment in DH. At project completion, total avoided CO2 emissions aggregated across the four Subcomponents amounted to 1,913,986 tons, surpassing the target of 1,722,632 tons at appraisal by 11 percent. The four Subcomponents also resulted in approximately 12,805 tons of avoided TSP emissions, exceeding the target of 11,243 tons at appraisal by 14 percent. 19 The metric in Table did not form part of the results framework but their actual values were monitored throughout implementation as a supplementary indicator that validates the efficiency gains captured in the PDO indicator. 20 It should be noted that in 2017-2018, Xingtai has relative high unit heat consumption. This is primarily because that during early stage of project, the access of heating is uneven, which is controlled and adjusted manually in absence of SCADA system. When the SCADA system was put into operation, the remote transmission and control was gradually realized during the project implementation period, which greatly improves the heating efficiency. Page 13 of 53 The World Bank Hebei Clean Heating Project (P148599) 25. The Project achieved impacts that extend beyond the immediate project objectives which are discussed in detail in Section E of ICR. First, with the SCADA system put into operation, the remote transmission and control was gradually realized in project implementation period, which greatly improved the heating efficiency. Second, achievement of institutional capacity building for public utilities also enhanced their operational and financial performance of local authorities, and their ability to sustain project investments and results. Third, the successfully piloted CBB approach in project cities incentivized the cities for further cost reduction and energy efficiency in project areas. Experiences and lessons learned from those CBB pilots may be used to inform the future national heating price and billing reform in China. Fourth, the project successfully served as a knowledge- sharing platform for other cities to learn the experiences and the advanced technologies related to DH. Finally, the project brought about social benefits through formulation of service subsidy policies that assisted the low- income households under the project24. Justification of Overall Efficacy Rating 26. Based on the evidence presented, both objectives of the project have been fully achieved and are highly attributable to the project, thus overall efficacy of the project is rated High. C. EFFICIENCY 27. Economic analysis at appraisal. Cost-benefit analysis was used at appraisal to evaluate the economic viability of the project (please refer to Annex 4 for details on methodology and assumptions). The analysis concluded that the project was economically viable, with a consolidated economic internal rate of return (EIRR) of 29.3 percent in real term (with environmental externalities21), which is higher than the 10 percent benchmark discount rate used in Chinese feasibility study guidelines for public infrastructure projects. The Subcomponent EIRR ranges from 26.5 percent for Zhangjiakou, 27.2 percent for Pingshan, and 29.6 percent for Xingtai to 35.4 percent for Chengde. Without carbon benefits, the consolidated EIRR was reduced to 11.3 percent. Sensitivity analysis demonstrated that the expected returns remain robust and economically justified over a range of assumptions (+20 percent investment costs, −20 percent economic benefits, without a carbon price). 28. Financial analysis at appraisal. The financial analysis for the project was carried out at the project and entity levels. The financial viability indicators used at appraisal were the financial internal rate of return (FIRR) and financial net present value (FNPV). The weighted average cost of capital (WACC) was estimated to be 2.5 percent (project level) at appraisal. The FIRR was estimated to be 13.2 percent, exceeding the benchmark value of 2.5 percent, demonstrating the financial viability of the entire project. The FNPV was calculated to be CNY 391 million. 29. Economic analysis at completion. The EIRR calculated at the ICR stage is 29.5 percent, valuing environmental externalities using the same social values of CO2 emission at appraisal22. This value is higher than 21 They take into account externalities associated with SO2, NOx, TSP and CO2. 22 A degree day is a measurement designed to quantify the demand for energy needed to heat a building. 23 The 10 percent increase in energy consumption in Pingshan during the 2018 –2019 heating season relative to the 2017–2018 heating season was mainly due to a leaking accident in the primary DH network, which was fixed later. 24 This paragraph is intended to emphasize broader relevance of the project and its outcomes. 22 US$31.4 per tCO e as a baseline. 2 Page 14 of 53 The World Bank Hebei Clean Heating Project (P148599) 10 percent of benchmark value and 29.3 percent of the estimated EIRR at appraisal, demonstrating the economic viability of the Project. When using the updated values for social values of CO 2 emissions based on the latest World Bank guidelines23, with other factors remaining the same, the EIRR at the ICR stage is estimated to reach 30.9 percent in the low social value scenario and further up to 44.1 percent in the high social value scenario (see table 3). Table 3. Summary of Economic Analysis at ICR and Appraisal Stages Project EIRR at EIRR at ICR Reasons for EIRR at ICR EIRR at ICR (with Appraisal (with Differences between (with environmental (base case with environmental Project environmental benefits, high environmental benefits, using Closing and Appraisal benefits, low scenario of social benefits) (%) social values of scenario of values of CO2 CO2 social values of emission, as per emission at CO2 emission, as guidelines at appraisal) (%) per guidelines at closing) (%) closing) (%) Chengde 35.4 37.1 The actual heating area 43.2 162 Zhangjiakou 26.5 39.5 served is larger than 41.4 62.6 envisaged at project Pingshan 27.25 34.7 40.3 108.2 appraisal. Xingtai 29.6 25.1 The actual heating area 26.2 35.6 served is not yet as large as envisaged at project appraisal.24 Overall 29.3 29.5 The Xingtai project accounts 30.9 44.1 for a large portion of total benefit and capital costs. 30. Financial analysis at completion. The FIRR calculated at completion is 13.5 percent (see table 4). It exceeds both the original benchmark value of 2.5 percent and the value of 13.2 expected at appraisal, demonstrating the financially viability of the project. Table 4. Summary of Financial Analysis at ICR and Appraisal Stages FIRR at FIRR at Appraisal ICR Project (%) (%) Reasons for Differences between Project Closing and Appraisal Chengde 12.1 13.1 The actual heating area served and sold is larger than envisaged at project Zhangjiakou 17.5 22.0 appraisal. 23US$71 per tCO2e at low end and US$143 per tCO2e at high end. 24The building was preexisting, but the building occupancy rate at completion was lower than expected: empty floors, while connected, were not yet heated and therefore produced no revenue. Page 15 of 53 The World Bank Hebei Clean Heating Project (P148599) Pingshan 14.2 15.4 The actual heating area served is larger than envisaged at project appraisal. Xingtai 11.5 11.6 (1) The actual heating area connected at ICR stage (year 2021) is smaller than the envisaged at project appraisal due to the delayed development of real estate in new districts affected by the government’s policies. According to the current community development plan, the area to be connected to the networks of Xingtai subproject is estimated to arrive at 8.09 million m2 in 2022, which is higher than the estimation of 8.016 million m2 at appraisal stage. (2) The percentage of actual heating area served is only about 55% of the heating area connected due to low occupation rate of new communities in the first 2-3 years, but this figure is forecasted to rise to 85% after the transitional period. Overall 13.2 13.5 Implementation Efficiency 31. The project was highly efficient in terms of implementation. This benefitted from abundant experience of the centralized HPMO managing World Bank projects and supervision efforts by the World Bank team building on the momentum of experience gained in earlier DH projects across China. As a result, over 50 percent (measured in number) of total contracts were signed with contract prices secured and fixed during the first year of implementation. This is an extraordinarily high level of implementation efficiency for the first year of a Bank infrastructure project of this size. This up-front progress also helped shield overall project implementation from factors of the domestic price spike and COVID-19 during the later stage of project implementation. 32. During the later stage of the project cycle, a commodity price hike and COVID-19 occurred. The price hike could have had a significant impact on the project for contracts yet to be signed. However, in practice it had negligible impact on the project as all contracts were already signed, and associated prices were secured and fixed before its occurrence, thanks to timely procurement by the HPMO earlier in the implementation period. To mitigate the impact of COVID-19, the HPMO, working closely with the project management consulting firm, communicated with each implementing DH company (that is, Project Implementation Unit [PIU]) to assess the impact of the pandemic on all aspects of the project implementation and identified associated risks. The HPMO incorporated the updated environmental management plan (EMP) into the procurement documents and the contract, and all PIUs resumed construction following the requirement of the local government and strictly complied with the World Bank’s requirements. As a result, all the employers, contractors, and supervision engineers have no COVID infections throughout the project implementation. This greatly facilitated timely delivery of the project. Assessment of Efficiency and Rating 33. The efficiency is rated as High. This is based on the economic analysis of all four Subcomponents, with the aggregated EIRR of 30.9 percent (with local and global environmental benefits), which is much higher than its hurdle rate of 10.0 percent. The FIRR of all Subcomponents is 13.5 percent, well exceeding the benchmark value of 2.73 percent. Page 16 of 53 The World Bank Hebei Clean Heating Project (P148599) D. JUSTIFICATION OF OVERALL OUTCOME RATING 34. Based on High rating of all three elements of outcome rating - relevance of PDO, efficacy of both PDO outcomes and efficiency, the overall outcome is rated as Highly Satisfactory. E. OTHER OUTCOMES AND IMPACTS (IF ANY) Gender 35. The project benefited all household members due to better living conditions, including women and girls. At project completion, survey indicates that 49.1 percent of members from households that are served by the project are women. Through the project, women and men enjoyed better heating comfort and a healthier indoor living environment. More importantly, children and senior household members benefit more from improved health conditions since they are more vulnerable to cold indoor temperature and poor air quality typically associated with small boiler heating. In addition, according to the annual questionnaire survey conducted under the project, households that are served by the project are satisfied with provisions of improved DH services and the satisfactory rate is about 98 percent. The last round of survey was conducted in Spring of 2021 after the heating season. 36. The task team, during implementation, introduced consideration of gender issues within the DH companies, leading to data collection as a basis for discussion of opportunities to promote gender equality and women's empowerment in the workforce. Based on information provided by the four DH Companies. There were 32 female employees involved in the Project in 2016 when the implementation started. It accounted for about 26 percent of total female employees in four project implementing DH companies. Their roles on the Project included project development, financial manager, accounting, information statistics and archivists. During implementation, the two DH companies continued to hire more female employee where necessary. At project completion, the number of women working on the Project in Zhangjiakou and Chengde DH Companies reached 50. Its share in total female employee rose from 26 percent in 2016 to nearly 35 percent in 2021 without considering the possible changes in Xingtai and Pingshan DH Companies. Their roles on the Project also expanded to cover new ones, including project liaison, construction management and bidding management. The increase in female staff members in DH companies indicates a general trend that more women participate in traditionally male occupied professions. Institutional Strengthening 37. Through the implementation of the project, all four implementing entities have improved their institutional capacity in an all-round way. 38. First, the project provided technical assistance to the implementing entities through international training, two domestic study tours (one in Xinjiang and the other in Liaoning Province), and six seminars/workshops. Benefiting from these learning opportunities, all implementing entities exchanged best Page 17 of 53 The World Bank Hebei Clean Heating Project (P148599) practices in DH networks and strengthened their capacity in DH network management, operation, and maintenance. 39. Second, the consulting firm (technical advisers) hired by the project regularly visited project sites and provided on-site technical assistance to the four implementing companies. Issues encountered during project implementation were proactively identified, and practical solutions were proposed by and implemented with help of technical advisers. The on-site technical assistance significantly enhanced capacity of all implementing entities in managing and operating the DH networks25. 40. Last but not the least, the project supported and facilitated the gradual transition of the three participating heating companies (in Xingtai, Zhangjiakou, and Pingshan) to CBB (except for Chengde where CBB has already been implemented for new residential heating areas exceeding 3 million m 2). As one of the most successful heating companies in piloting CBB in China, Chengde Heating Group Company Ltd shared its insights and operational experience on CBB with other three implementing entities at the project-sponsored workshops and seminars. As a result, in Pingshan County, Pingshan DH company carried out a CBB pilot in 50 communities comprising 11,394 households in a total of 1.44 million m 2 of space during 2020–2021 heating season. In Zhangjiakou Municipality, Zhangjiakou DH Company selected two public buildings as a pilot for CBB over two heating seasons. The billing mechanism incentivized the building owners for rational use of space heating, and as a result, they managed to reduce their heating bills without sacrificing living comfort. In Xingtai Municipality, Xingtai DH company also piloted CBB in several commercial, public, and residential buildings. Through the pilot, Xingtai DH company kicked off efforts to explore billing mechanisms associated with CBB. This important institutional change provided incentive for further cost reduction and energy efficiency in project areas. The experience and lessons learned from those CBB pilots could be used to inform the future national heating price and billing reform in China. Mobilizing Private Sector Financing 41. Xingtai DH company is a private enterprise. It mobilized about US$63 million of private funding, accounting for 69 percent of the total funding earmarked for Subcomponent 1.4, to support the implementation of activities under this subcomponent. Poverty Reduction and Shared Prosperity 42. In Hebei’s cold climate, DH is a vital urban service but its dependence on coal -fired HOBs and outmoded operations makes it inefficient and polluting. The rapid urbanization was driving up the need for urban services, including heating. By helping rein in heating-related air pollution, the project supported the Government’s efforts to improve air quality in the project cities. This brought about beneficial impact on the urban poor, who usually are the most vulnerable in coping with impacts associated with exposure to air pollution. By supporting investments that help avoid construction of new coal-fired HOBs and phaseout of small boilers, the project contributes to raising the effectiveness of Hebei’s air quality policies and saves energy resources that help underpin sustainable economic development. The project not only supports the Hebei Air Pollution Control and 25 Based on communication with PMO and implementing DH entities. Among them, the Xingtai DH company benefitted the most as it is a newly established entity. Details can be found in the project implementation progress report. Page 18 of 53 The World Bank Hebei Clean Heating Project (P148599) Prevention Plan but also contributes to the World Bank’s corporate objective of ending extreme poverty and boosting shared prosperity with sustainability. Other Unintended Outcomes and Impacts 43. Other unintended outcomes and impacts. Households that are served by the project benefit from improved quality of space heating due to implementation of the project. Before the project, those households were served by heating from small coal-fired boilers and thus suffered from cold indoor temperature, uneven space heating, and poor air quality. After the project, those households enjoy higher indoor temperature, more homogenous spatial distribution of heating that runs 24 hours continuously, and lower heating expense. The questionnaire survey by monitoring agencies showed that the proportion of heating expenditure was around 3 percent of the average annual household income during heating periods, which was lower than what residents paid before the project26. In addition, heating connection and service subsidy policies were formulated to assist low-income households. According to the survey conducted by the consulting firm hired by the PMO, about 781,876 of residents in Hebei Province benefit from improved urban living conditions at project completion, outnumbering the target of 714,896 at appraisal. The percentage of female benefitted from the project at completion also reached the target set at appraisal III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A. KEY FACTORS DURING PREPARATION 44. Project objectives. The project had clear PDOs and a strong link was established between the PDOs and project activities. The activities financed by the loan—rehabilitation and expansion of clean DH in Hebei Province and development of local capacity for developing and operating clean DH systems — directly contributed to improved efficiency and environmental performance of heating systems in selected municipalities/counties of Hebei Province. 45. Project design. The project design incorporated international best practices in DH and took into account lessons learned from World Bank DH27 and other lending operations in China as well as World Bank-supported DH projects in the Europe and Central Asia region: • Sector investments should seek to limit environmentally harmful resource use as much as possible and clean up what cannot be avoided. Investments in this project supported alternative clean heating sources to coal-fired HOBs, energy efficiency improvements in DH, and demand management through metering and CBB. • Large countries often adopt a decentralized approach for managing municipal infrastructure, including DH. To assist management of multiple subprojects in different locations, during preparation, the HPMO 26 In case of Pingshan, the percentage of heat expenses in total household incomes declined from 2.74 percent during the 2016–2017 heating season to 2.23 percent from the 2020–2021 heating season. 27 For example, lessons from Bank financed DH projects in Liaoning and Ü rümqi have been incorporated in the design and implementation of the project. Page 19 of 53 The World Bank Hebei Clean Heating Project (P148599) agreed to enhance its technical and management capacity by hiring an experienced consulting firm to help review feasibility studies and other project preparatory documents. • In projects with multiple Subcomponents in different locations, a central PMO along with local PIUs is critical for project success. This institutional arrangement made the World Bank’s implementation support more efficient and helped Subcomponents benefit from each other’s experiences and lessons learned. • Institutional capacity building for public utilities helps enhance their operational and financial performance and the ability to sustain project investments and results. It was recognized that deficiencies in expertise and experience at the utility level cannot be offset by investments in physical infrastructure alone. Therefore, the project included a technical assistance component to enhance capacity of the implementing heating companies on management and operation. • CBB and public outreach are important for improving the performance of utilities and customer satisfaction. Traditional method of billing, with fixed payment per square meter, does not provide incentives for consumers to conserve energy. Thus, the project supported the pilot of CBB in project areas with a view to improving efficiency of heating services. • Project experience gained by participating cities and heating companies is valuable and worth disseminating within project implementing entities and to other cities. The project served as a knowledge-sharing platform28 for project cities to learn from each other through periodic meetings and to share their experience with other cities in Hebei through project workshops. 46. Adequacy of Government commitment. The project was structured to be fully consistent with the Government of China’s national priority of improving air quality and with Hebei Province’s goal of mitigating air pollution and phasing out coal-fired HOBs. At appraisal, in its 13th FYP (2016–2020), Hebei Province set a target to reduce ambient PM2.5 concentrations by 40 percent relative to the 2013 level. 47. During implementation, the government of Hebei Province has continually expressed its commitment to implement the Hebei Air Pollution Control and Prevention Plan. As a result, its PM2.5 concentration declined from 77 µg/m3 in 2015 to 44.8 µg/m3 in 2020. The province has demonstrated a firm stance on enforcing no construction of new coal-fired HOBs, the time-bound phaseout of small coalfired HOBs, and promoting the optimization of the energy mix including the use of CHP plants for DH supply. Besides supports at the provincial level, Municipal governments in the project areas were also highly committed to switching to clean heating sources, rehabilitating existing aging DH infrastructures, and developing energy-efficient DH networks. Finally, government also contributed to about 50 percent of total financing for the Project, another indicator of their commitment and interest to the clean district heating. B. KEY FACTORS DURING IMPLEMENTATION 28 For example, Chengde is one of the first pilot cities for heating metering and CBB in China. The municipal heating company already integrated its billing and accounting functions and piloted BLS. In China, such practical and local experience has proven to yield positive demonstration effects. Page 20 of 53 The World Bank Hebei Clean Heating Project (P148599) 48. Domestic adjustments on bidding policies and procedures that apply to IFI projects temporarily stalled project implementation twice. It first took place in September 2016 29 and later in 2018 30 . Such adjustments conflicted with World Bank procurement policies in a number of areas. Without reconciling the conflicts, the implementation of activities would be severely affected. In this case, the HPMO took proactive actions to identify all conflicting areas and have all these conflicts successfully addressed as described in the section on Implementation Efficiency. 49. Weak capacity of some implementing DH companies31 could have negatively affected the project, but it was offset by capacity building benefited from triple layers of institutional arrangement. The top dimension was spearheaded by the HPMO, while the middle one was led by the consulting firm, with support from the Chengde DH company at the bottom layer. Each layer covered distinct aspects, which, when combined, significantly contributed to the capacity building of other implementing DH companies that guaranteed successful implementation of the project. The key contribution from each dimension is summarized as follows: • The HPMO has abundant management experience with World Bank projects and is familiar with its policies and procedures. At the early stage of project implementation, the HPMO established several standard operating procedures on procurement, disbursement, financial management (FM), and consulting services which guided implementation and management of Subcomponents. It also provided capacity building, with assistance of the consulting firm, to the implementing DH companies on World Bank policies on procurement, FM, environmental, and social safeguards. Furthermore, the HPMO closely worked with the consulting firm to draft and/or revise 33 and 9 management regulations for Pingshan and Xingtai DH companies, respectively. The regulations covered a wide range of topics, including corporate governance, human resources, performance tracking, and FM. Both DH companies benefited considerably from the technical assistance. • The consulting firm is an internationally renowned in the heating sector and served as a technical adviser to the HPMO and implementing DH companies. Under the leadership of the HPMO, the consulting firm provided trainings, workshops, and technical assistance to the implementing DH companies on a wide range of topics to strengthen their capacity. In addition, it periodically visited project sites in all four project cities, proactively identified implementation bottlenecks, offered practical solutions, and undertaken on-site training to ensure smooth project implementation. • The Chengde DH company is one of the leading utilities in DH. As a pioneer in CBB and BLS in China, before the Project, the Chengde DH company already accumulated abundant project experience with application of CBB, BLS, and SCADA systems. This is a key reason it was included as one of the project implementing entities. During implementation, the Chengde DH company offered capacity building on 29 In September 2016, Hebei Province issued an order which required procurement of all IFI projects to be launched on a domestic resource trading platform. Procurement procedures for IFI projects shall follow procedures stipulated by that domestic platform. However, it conflicted with World Bank procurement policies in many areas. The adjustment also included a change to authority that regulates associated bidding and procurement. 30 Adjustments in 2018 included, but were not limited to, online launch of bidding solicitation, online submission of bids, cancellation of pre-bid meetings, and unavailability of direct answering to bids inquiry. 31 Xingtai DH company was a joint venture newly established for the Subcomponent, and Pingshan DH company is a countylevel DH company with no World Bank project experience and weak technical capacity. Page 21 of 53 The World Bank Hebei Clean Heating Project (P148599) DH operation and management, piloting of CBB and BLS, and commissioning and operation of the SCADA system to the other three DH companies in the form of seminars and workshops. This project successfully leveraged the experience of the Chengde DH company to enhance the capacity of the other three implementing entities. The peer-learning activities achieved the intended objective (see discussions on ‘Project Design in PAD’). 50. Multiple external factors played a role in affecting project progress. First, during the early stage of implementation, promoting BLS and piloting CBB encountered initial resistance from some implementing DH companies as they were technologically conservative. The World Bank team made significant efforts, through the help of the HPMO and project management consulting firm, in helping those implementing DH companies and relevant key stakeholders better understand BLS and CBB from the technological, economic, and financial perspectives. Second, before the MTR, slowdown in real estate development as well as the implementation 32 of local air pollution control policy adversely delayed construction of buildings in the project municipalities/county. As a result, there were few new buildings available for the installation of BLS before the project closing. At the MTR, targets of several indicators, including area connected to DH (million m 2)33 and number of BLS installed, had to be revised downward to reflect such external impacts. It should be noted, however, that the negative impact on BLS was partially offset by dedicated efforts from the Chengde DH company. The company made several redesigns which turned several group substations in the original design into BLS during the second half of the project. As a result, the number of BLS heat exchanger loops installed reached 116 at the project closing, up by 17 percent compared to the revised target at the MTR. 51. Third, during the later stage of the project cycle, commodity price hike and COVID-19 took place. The price hike had negligible impact on the project as all contracts were signed, and associated prices were secured and fixed before its occurrence. This is attributable to timely resolution of conflicting procurement policies by the HPMO as discussed earlier. To mitigate the impact of COVID-19, the HPMO closely worked with the consulting firm and four implementing DH companies to design and incorporate COVID-related policies and measures into their daily management and operation. Overall, the impact from COVID-19 on the project is limited as all contracts started being implemented during the early stage of the project cycle. IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design 52. The Results Framework indicators were sufficient for assessing the achievement of the PDOs and attribution to the project at appraisal. The PDO-level indicators were highly relevant to the PDO and sufficiently 32 Major sources of air pollution, including construction of real estate projects and operations of heavy industry, have to come to a temporary halt, when concentration of local air pollutants reached above the threshold, as part of the implementation of local air pollution control and prevention policy. 33 At closing, area connected to DH reached 18.18 million m2, which is 110 percent of the revised target (MTR) and reached 98 percent of the original target at appraisal. Page 22 of 53 The World Bank Hebei Clean Heating Project (P148599) capture its scope of improving efficiency and environmental performance of heating systems in project areas. Data collection for project indicators has some overlap with data collection activity of regular DH company’s operation, however, additional M&E efforts and arrangements were made to ensure all results indicators designed by the Project were collected during implementation. M&E Implementation 53. Twelve implementation support missions were held along with regular monthly meetings during the project lifetime to monitor detailed progress and provide extensive support to the HPMO and four implementing agencies. The project implementing DH companies prepared and submitted periodic monitoring reports to the HPMO, including inputs to the semiannual project progress reports and annual reports, to monitor the achievement of the PDO and intermediate results indicators. They also reported annually on their work plans and financial viability plans. The HPMO checked the inputs from the project-implementing companies for quality and consistency. The HPMO ensures that corrective actions are taken as necessary and consolidates and submits them to the World Bank. The task team regularly reviewed detailed progress data, updated current progress against the baseline, and highlighted issues for the World Bank ma nagement’s attention. Other information provided by the HPMO, implementing agencies, and the consulting firm includes quarterly progress and FM reports, and annual audits of project accounts. In addition, during the MTR, opportunities were identified to refine the Results Framework. Intermediate results indicators “Number of BLS installed” 34 was improved to count the number of heat exchanger loops, which is a more refined measure of project achievements. In addition, definition of intermediate results indicator 5 (beneficiaries who feel project investments reflected their needs) was clarified at the MTR. The intermediate results indicators under Component 2 were adequate and easily measurable. M&E Utilization 54. The Results indicators were utilized to monitor project progress, alignment with the PDO, and identify implementation issues. For instance, the HPMO and consulting firm collected data on energy consumption per heated floor area to track efficiency performance of the Subcomponents. Energy consumption per heating floor area in Pingshan County showed a 10 percent increase in the 2018– 2019 heating season relative to that in the 2017–2018 heating season, a sign of deteriorating performance in sharp contrast to the project design. The HPMO and consulting firm investigated the issue, and a third party was also hired to undertake diagnostic of energy use. Based on recommendations from the investigations and diagnostic, Pingshan DH company implemented investments to reduce energy consumption by rehabilitating its primary network and associated equipment. As a result, its energy consumption per heating floor area continued to decrease 35 in 2019–2020 and 2020–2021 heating seasons. 34 Besides the revision of measurement of indicator, the target was also reduced from 154 (in PAD) to 99 (MTR) to reflect slowdown in real estate development in the Hebei province. However, the final value at closing is 116, up by 117% relative to the target set at MTR. 35 The decrease in energy consumption per heated floor area was also attributable to other project activities, which include operationalization of a SCADA system. Page 23 of 53 The World Bank Hebei Clean Heating Project (P148599) Justification of Overall Rating of Quality of M&E 55. The overall quality of M&E is rated as Substantial. The PDO-level indicators are adequate to capture essence of the PDOs, and the intermediate results indicators were also instrumental in monitoring the progress of the Subcomponents. The M&E reports were prepared timely to keep track of the status of all Subcomponents at any given time. The utilization of the M&E helps ensure successful and timely completion of the project. B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE 56. Although this project involves construction/rehabilitation of small-scale facilities, for example, pipelines and substations, it has been classified as a Category A as per OP 4.01 taking into account potentially linked facilities (heating sources), the scope of the project, the displacement of workers, and the potential operating safety risks during the operation phase. OP/BP 4.01 was triggered from the start since the project directly supported the new construction and rehabilitation of heating facilities. The environmental safeguards performance rating was Satisfactory consistently throughout all Implementation Status and Results Reports (ISRs). 57. Environmental Assessment (OP/BP 4.01). A sound and comprehensive environmental assessment documentation including the Environmental Assessment (EA) summary, Environmental Impact Assessment, and EMP was prepared by the borrower during project preparation to ensure that potential impacts of the project on environmental and human health issues were fully understood and appropriate mitigation measures were developed and agreed on. Mitigation measures to be adopted by the client were detailed in an EMP. During the project implementation, the borrower kept strong commitment on implementing the EMP and provided the monitoring results report on time, which showed satisfactory environmental performance of the project, especially of the heating sources in Xingtai where chemical plants provided heating from its process surplus heat for the subproject. 58. During the ICR stage, some works cannot be completed by the project closing date on 31 June, 2021, according to the implementation schedule provide by the PMO. These remaining works are in small quantity and scale limited to a few substations and pipelines. Given the satisfactory environmental performance of the project, the pending environmental issues related to the remaining works are expected to be minor and will be managed satisfactorily by the borrower36. Social 59. Social benefit and beneficiaries. The project includes the construction of DH systems in four cities in Hebei Province. A total of 831,927 persons had benefitted from increased heating areas or improved heating quality in four cities, which accounts for 106 percent of total projected beneficiaries. In terms of connected areas, it reached 18.18 million m2 at project completion or 110 percent of target. Citizen engagement was conducted 36 These include one group substation in Pingshan, delayed because real estate developer bankrupt and the local government is working on an alternative solution, and a short pipeline in Chengde, four hundred meter, due to the route alignment with the government’s city development plan, which was already addressed and construction will be completed in the Spring of 2022. Page 24 of 53 The World Bank Hebei Clean Heating Project (P148599) throughout project preparation and implementation. The interviews with the residents also found that the residents are satisfied with the heating quality and service. The satisfaction rate is 99 percent. 60. Involuntary resettlement. Land acquisition was limited since all heat exchange stations were built within existing housing estates and all pipeline construction mainly required temporary land occupation along urban roads. An abbreviated resettlement action plan (ARAP) was prepared by each Subcomponent to address potential land acquisition impacts, such as heating sources, primary heating stations, and related road construction. In December 2019, the land acquisition and resettlement activities were completed. A total of permanent state-owned land use for the project was 100.88 mu, temporary land occupation along urban roads was about 914.66 mu, and there was no impact of house demolition, which is consistent with the plan. In addition, a total of 418 small boiler workers were affected by the closure of 133 small boiler houses and they were all properly arranged either working in the substation or retired with compensation. 61. Two external independent M&E agencies (Shanxi Economic Association and Hohai University) were hired to monitor the ARAP implementation and other social mitigation measures. The monitoring reports concluded that the project social risks management/safeguards were well implemented, the proper rehabilitation measures such as job opportunity creation and free skill training were provided to the affected small boiler workers, their income has increased compared with the period before the period. Heating connection and service subsidies or assistance was given to vulnerable groups, a grievance redress mechanism was established, and complaint channels were operational, and gender mainstreaming efforts among four DH companies were considered. Procurement 62. Procurement of works, goods, and consultant services was carried out highly satisfactorily in accordance with the legal covenants and the World Bank procurement policy and procedural requirements. The World Bank task team closely oversaw procurement and was available to assist and clarify procurement-related issues to the implementing agencies. Post reviews were carried out on a random basis. These oversight functions were carried out efficiently and satisfactorily. The respective risks were adequately identified and efficiently addressed. 63. The HPMO was responsible for project procurement, supervising and monitoring the daily project implementation of all the PIUs. The HPMO and the Director of the HPMO as well as the staff responsible for procurement have solid experiences of procurement and implementation of World Bank-financed projects, and they played the leading role in the project implementation. Under their transparent and fair guidance, procurement activities could be carried out smoothly and successfully in compliance with the World Bank’s procurement guidelines and procedures. The World Bank did not receive any complaint during the entire project implementation period. 64. All contracts were procured and signed following the World Bank’s Guidelines for Procurement and Consultant Guidelines. Totally 37 contracts (12 works, 24 goods, and 1 consulting service contracts) under World Bank financing were procured and successfully completed; the total contract amount is CNY 650.10 million (US$100.02 million equivalent, at the exchange rate of 1:6.50), and the actual completed contract amount is CNY 605.88 million (US$93.21 million equivalent). Under nonbank financing (NBF), totally 24 contracts were procured and signed (15 works and 9 goods contracts), all of the NBF contracts were also successfully completed, the total contract amount of NBF is CNY 287.57 million, and the actual completed contract amount is CNY 256.32 million. Page 25 of 53 The World Bank Hebei Clean Heating Project (P148599) 65. All PIUs agreed that the World Bank procurement policies and procedures are instrumental to achieve transparency and fairness in the bidding process by providing high standard guidance. It is widely recognized that by carefully preparing the bidding documents, especially the technical specifications and bill of quantities, the World Bank procurement principles have brought in many benefits to the project owners by ensuring smooth implementation and higher construction quality. 66. The project also provided training to project management officials for utilization of international funding in project preparation, design, project management, procurement, construction, supervision, FM, and disbursement. Several project entities, including relevant government departments, the HPMO, Pingshan, Xingtai, Zhangjiakou, and Chengde PIUs, design institutes, contractors, and construction supervision teams, have been improved with valuable knowledge on procurement, contract management, and project management methodology. The experience gained from the project management will be a great benefit to their future work. Financial Management 67. Financial management of the project was carried out satisfactorily in accordance with Bank’s financial management requirements. The project had an adequate FM system that provided, with reasonable assurance, accurate and timely information that the loan was being used for the intended purposes. The project accounting and financial reporting were in line with the regulations issued by the Ministry of Finance (MOF) and the requirements specified in the Loan Agreement. No significant FM issues were noted throughout the project implementation, and the FM-related issues or weaknesses raised during FM implementation could be resolved on time. The project audit reports were all with unqualified audit opinions. In addition, the withdrawal procedure and funds flow arrangement were appropriate. The loan proceeds could be disbursed to the project on time. The respective risks were adequately identified and efficiently addressed. C. BANK PERFORMANCE 68. The overall quality of World Bank performance is considered as ‘Highly Satisfactory’. Quality at Entry 69. The development of the project concept benefited from the World Bank’s understanding of the country context and priorities as well as the World Bank’s project experience in the heating sector of China. It also incorporated the lessons learned from heating projects in a number of countries in the Europe and Central Asia region. Lessons incorporated in design included activities aimed at familiarizing the implementing DH companies with application of BLS, CBB, and SCADA systems in DH networks and technical assistance activities aimed at institutional development of the DH companies. 70. Technical, financial, and economic analyses for the project appraisal were well developed and detailed. Implementation arrangements were designed based on similar heating projects, which consisted of a centralized and experienced PMO, an experienced technical consulting firm, and a small number of participating municipalities/counties, supported by the World Bank in China. An appropriate number of Subcomponents were selected, scope of activities was kept the same across all Subcomponents, and Subcomponents were diligently appraised during project preparation. This arrangement made the project easy for management by the HPMO and implementation by implementing DH companies. This arrangement on Subcomponents, along with the Page 26 of 53 The World Bank Hebei Clean Heating Project (P148599) implementation arrangement, may at least partially contribute to the fact that none of the Subcomponents were cancelled through the project lifetime, which is rare for heating projects in China. 71. Risks identified at appraisal included substantial risks associated with lack of technical and institutional capacity to implement the project, substantial risks associated with Subcomponents dropping out the World Bank project should alternative financing sources be available, and moderate risks associated with changes in sector policies and technical design. Mitigation measures incorporated in the design, including technical assistance for project management support and hiring of the consulting firm for technical supervision, provisions of technical and institutional capacity building for participating DH companies, and reduction of the scope of planned new heat demand from the new construction in the project, were proven effective in mitigating these risks. The M&E framework and arrangements to implement it were adequate at appraisal (discussed in section IV.A). Appropriate arrangements were also made at appraisal for fiduciary and safeguards compliance. Quality of Supervision 72. Twelve supervision missions were carried out over the five-year project implementation period, implying supervision mission on average twice a year. The supervision missions included all the specialists required to assess project progress and resolve issues faced during the project implementation. Regular field trips were made to all project sites. The progress and guidance were detailed in the ISRs and AMs. Continuity of leadership was maintained as four Task Team Leaders supervised the project throughout the project lifetime. The World Bank team established a close working relationship with the clients, the project management consulting firm, and HPMO leadership which positioned the World Bank to understand and help resolve issues that emerged. The World Bank team helped ensure integrity of results data through in-depth reviews of the underlying calculations and methodology including identifying and accounting for an error in the data from appraisal and activity adjustments during implementation. The World Bank team also expanded consideration of gender to the DH companies. The quality of supervision also benefited from having a dedicated country office staff to oversee project implementation. 73. The World Bank provided a number of trainings to project implementing DH companies on fiduciary and safeguards during implementation as well as guidance and advice on specific project issues during implementation support missions. This is particularly important during the early stage of implementation for promoting BLS and piloting CBB, given the initial resistance from implementing DH companies. The World Bank promptly reacted to all procurement inquires and closely followed up with the concerned implementing DH companies to address and solve them. 74. The World Bank team made significant supervision efforts during the early stage of the project, and as a result, over 50 percent (measured in number) of total contracts were signed with contract prices secured and fixed during the first year of implementation. This considerably boosted advancement of project activities, which is critical for overall project implementation given the domestic price spike and COVID-19 during the later stage of the project cycle. With all these efforts, the project successfully completed and achieved all PDO-level targets. Justification of Overall Rating of Bank Performance 75. Rating: The overall quality of World Bank performance in ensuring quality at entry and quality of Page 27 of 53 The World Bank Hebei Clean Heating Project (P148599) supervision is considered as ‘Highly Satisfactory’. The World Bank team’s active engagement with the client in resolution of any rising issues and a good understanding of local policies are critical to implementation of the project and eventually to the successful delivery of the project on time. D. RISK TO DEVELOPMENT OUTCOME 76. The overall risk to development outcome is Low to Moderate. The project faces the following main risks to development outcome. (a) Sustainability of project investments. The assets constructed under the project are an integral part of the DH systems in the project municipalities/county. The project DH companies are mandated to provide heat to their customers and therefore have an intrinsic interest to maintain and operate the assets to extend their economic lifetime. Thus, the risk to sustainability of project investments is low. (b) Risk of scale-up of BLS in the heating sector. The project showcased the use of about 116 BLS— still the largest deployment to date in China—that are technically capable of achieving higher efficiency than conventional network designs using group substations and can improve the cost- effectiveness of DH systems. Despite its higher energy efficiency, further and wide deployment of BLS is contingent upon better defining proper obligations of real estate developers and providing adequate incentive through revising existing tariff structure. This Project revealed that BLS adoption faces challenges from developers in the residential sector (for details, see section V), however, owners of commercial and public buildings participating in the BLS pilot benefited from sizable energy savings due to use of BLS and are more likely to embrace this technology. Therefore, the risk to scale up of BLS is medium in commercial and public buildings. Without targeted reform on existing regulation framework with respect to lack of standards to define proper obligations of residential real estate developer as well as provision of adequate incentive through reform in associated tariff structure, the risk to scale up of BLS remains to be high in residential buildings. (c) Risk of scale-up of CBB application in the heating sector. The project piloted CBB in 1.443 million m2 of floor areas in residential buildings, and 0.383 million m2 of floor areas in commercial and public buildings in project areas. The project experience showed that promotion of CBB in the residential sector would face challenges due to regulated and low heating tariff for residential buildings. However, tariffs for CBB in commercial and public sectors were negotiated between the DH company and the building owners. Such a tariff arrangement facilitates the adoption of CBB in commercial and public buildings sectors, as revealed by CBB pilots in this project. The risk to scale-up of CBB application is medium in the commercial and public sectors. However, the risk would remain to be high in the residential sector without reform in existing tariff structure (for details, see section V). (d) Sustainability of use of SCADA system in the participating DH companies. The project optimized the SCADA systems in Chengde and Zhangjiakou Municipalities and installed and operationalized the SCADA systems in Pingshan and Xingtai areas. Through the project, the implementing DH companies benefitted from the use of SCADA systems in achieving automatic and optimized Page 28 of 53 The World Bank Hebei Clean Heating Project (P148599) operation of the DH network. Thus, the risk to sustainability of the SCADA system in participating DH companies is low. (e) Sustainability of a clean air policy environment in Hebei Province. The project was conceived from the growing concerns on air pollution and the rollout of national and provincial policies on air pollution control and prevention. The government of Hebei Province has continually expressed its commitment to implement the Hebei Air Pollution Control and Prevention Plan. The province has demonstrated a firm stance on enforcing the ban on construction of new coal-fired HOBs, the time-bound phaseout of small coal-fired HOBs, and promoting the optimization of the energy mix including the use of CHP plants for DH supply. The policy environment, therefore, is likely to support the project’s investments beyond its implementation period. Therefore, the risk to the change in policy environment in Hebei Province is low. V. LESSONS AND RECOMMENDATIONS 77. Avoiding cancellation of subcomponents which is typical for a DH project requires three layers of safeguards. First, including an appropriate and manageable number of subprojects across several participating cities is more practical and instrumental to avoid the cancellation of subprojects. This is particularly so when investments involve multiple subprojects, borrowers, and implementing agencies across disparate geographic locations. Concentration on subprojects at a manageable level could help in providing better implementation support. Second, a careful evaluation of Subcomponents is required before deciding whether to include it in a DH project. Subcomponents to be selected should have similar implementation timelines to ensure timely completion of all Subcomponents by the project closing. Third, detailed designs of Subcomponents require thorough technical due diligence for optimal performance. Even with similar activities and a limited number of well-appraised Subcomponents, this DH project was still complex. However, sufficient appraisal of the appropriate number of Subcomponents made it easier for project management and implementation. 78. For a DH project that is geographically dispersed, technologically diverse and multiple stakeholders involved, the three-layer institutional arrangement is necessary to ensure timely completion of the DH project. The institutional arrangement of this project is led by an experienced central HPMO, assisted by a technically competent consulting firm, with support from an experienced DH company as an implementing entity. In multiple- city projects typical for a DH project, it is essential to establish a central HPMO with abundant experience in managing World Bank projects and a solid understanding of World Bank and domestic procurement guideline and policies. The HPMO also needs to establish good relations and communication with local counterparts for a smooth and well-coordinated operation. In addition, projects which aim to modernize DH systems across multiple cities should engage a technically strong consulting firm to strengthen management tools and sectoral/technical knowledge through helping prepare feasibility studies, technical designs, and bidding documents. It acts as a bridge between the World Bank team, the central HPMO, and the implementing DH companies. Finally, an experienced DH company, as one of the implementing entities, serves as a champion that would convince other implementing DH companies to embrace new technological designs (for example, BLS) and more efficient operation methods (for example, SCADA system and CBB). Peer learning in the form of study tours, seminars, and workshops can be a catalyst to facilitate such transition, particularly for those DH companies that are technologically conservative. Page 29 of 53 The World Bank Hebei Clean Heating Project (P148599) 79. Wider deployment of BLS is more likely to be realized in commercial and public buildings than in residential buildings. BLS face challenges from residential real estate developers for three primary reasons: (a) BLS incur higher up-front investment costs than group substations, although the price difference is narrowing due to technological advancement in BLS over the past few years; (b) BLS occupy parking spaces in the basement which was viewed as loss of revenue for residential developers; and (c) residential developers transfer the responsibility of heating bill payment following the transfer of the property ownership, and thus there is no incentive for them to save on heating bills. Such classical “principal agent” problem can be solved by enforcing stand ards at project preparation stage. However, in new commercial and public buildings that are not constrained by this problem, there exists more potential for scale-up of BLS. The pilots in the project revealed that owners of commercial buildings in the BLS pilot benefited from sizable energy savings due to use of BLS, and space occupied by BLS in commercial buildings seems trivial to the building owners. Thus, cost-effectiveness of BLS significantly increases from the perspective of owners of commercial and public buildings and they are more likely to embrace this technology. 80. Given current tariff structures, promotion of CBB has a better chance in commercial and public buildings than in residential buildings. Promoting CBB in the residential sector would face challenge as the heating tariff in residential buildings was regulated by the government authority. The tariff is usually set at a low level, which makes it difficult for the DH companies to recoup their investment. It disincentivizes the DH companies to scale up CBB in the residential sector. Reform on the tariff regulation in residential sector is a pre-requisite for success for ensuring wide adoption of CBB. On the other hand, tariffs for CBB in commercial and public sectors were negotiated between the DH company and the building owners. Such arrangement makes it much easier to reach an agreement on tariff acceptable by both parties, as revealed by CBB pilots in this project. Thus, CBB application is more likely to be scaled up in commercial and public sectors in China. . Page 30 of 53 The World Bank Hebei Clean Heating Project (P148599) ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS A. RESULTS INDICATORS A.1 PDO Indicators Objective/Outcome: Objective/Outcome: Objective/Outcome: Objective/Outcome: Improve Efficiency of Heating Systems in Selected Areas Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Projected energy or fuel Mega Joules 0.00 17,906,450,000.00 20,395,443,000.00 savings (MJ) 31-Dec-2015 30-Jun-2021 30-Jun-2021 Projected lifetime energy Mega Joules 0.00 17,906,450,000.00 20,395,443,000.00 savings (MJ) 31-Dec-2015 30-Jun-2021 30-Jun-2021 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Projected lifetime energy Megawatt 0.00 4,974,014.00 5,665,401.00 savings hour(MWh) Page 31 of 53 The World Bank Hebei Clean Heating Project (P148599) 31-Dec-2015 30-Jun-2021 30-Jun-2021 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion People provided with Number 0.00 714,896.00 781,876.00 improved urban living conditions 31-Dec-2015 30-Jun-2021 30-Jun-2021 People provided with Number 0.00 714,896.00 781,876.00 improved urban living conditions - Female (RMS requirement) Comments (achievements against targets): Objective/Outcome: Objective/Outcome: Objective/Outcome: Objective/Outcome: Improve Environmental Performance of Heating Systems in Selected Areas Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Project-level aggregated Metric ton 0.00 1,772,632.00 1,913,986.00 avoided CO2 emissions 31-Dec-2015 30-Jun-2021 30-Jun-2021 Page 32 of 53 The World Bank Hebei Clean Heating Project (P148599) Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Project-level aggregated Metric ton 0.00 11,243.00 12,805.00 avoided Total Suspended Particles (TSP) emissions 31-Dec-2015 30-Jun-2021 30-Jun-2021 Comments (achievements against targets): A.2 Intermediate Results Indicators Component: Component: Component: Component: District Heating Subprojects Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Area connected to district Text 0.00 18.51 18.18 heating 31-Dec-2015 30-Jun-2021 30-Jun-2021 Area newly connected to Square 0.00 18.51 18.18 and district heating and kilometer(km2) supplied Comments (achievements against targets): Page 33 of 53 The World Bank Hebei Clean Heating Project (P148599) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Length of pipelines installed Kilometers 0.00 164.01 198.47 31-Dec-2015 30-Jun-2021 30-Jun-2021 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Substations loops Number 0.00 337.00 330.00 constructed or rehabilitated (non-Building Level 31-Dec-2015 30-Jun-2021 30-Jun-2021 Substations) Comments (achievements against targets): Original target number stands for number of station. Since one substation may have different number of loops, therefore the unit of this indicator in this ICR was changed to loops (at appraisal, MTR, and ICR stage) for accuracy and fair comparison. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of building level Number 0.00 191.00 116.00 Page 34 of 53 The World Bank Hebei Clean Heating Project (P148599) substation loops (BLS) 31-Dec-2015 30-Jun-2021 30-Jun-2021 installed Comments (achievements against targets): Original target number stands for number of station. Since one substation may have different number of loops, therefore the unit of this indicator in this ICR was changed to loops (at appraisal, MTR, and ICR stage) for accuracy and fair comparison. Component: Component: Component: Component: Institutional Capacity Building and Project Management Support Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Beneficiaries that feel project Percentage 0.00 100.00 100.00 investments reflected their needs (percentage) 31-Dec-2015 30-Jun-2021 30-Jun-2021 Beneficiaries that feel Number 0.00 357,975.00 379,288.00 project inv. reflected their needs - female (number) Total beneficiaries - female Number 0.00 361,591.00 383,119.00 (number) Total beneficiaries - male Number 0.00 376,349.00 398,756.00 (number) Page 35 of 53 The World Bank Hebei Clean Heating Project (P148599) Beneficiaries that feel Number 0.00 372,586.00 394,769.00 project inv. reflected their needs - male (number) Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Grievances registered related Percentage 0.00 100.00 100.00 to delivery of project benefits addressed (%) 31-Dec-2015 30-Jun-2021 30-Jun-2021 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Project Management Text PMC TOR available PMC in place and PMC in place and Capacity Enhanced through provides effective provides effective PMC services support to the PMO & support to the PMO & PIUs. PIUs. 31-Dec-2015 30-Jun-2021 30-Jun-2021 Comments (achievements against targets): Page 36 of 53 The World Bank Hebei Clean Heating Project (P148599) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of study tours Number 0.00 3.00 2.00 implemented 31-Dec-2015 30-Jun-2021 30-Jun-2021 Comments (achievements against targets): Due to the impact of COVID-19, one planned study tour was canceled. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of workshops and Number 0.00 5.00 6.00 training sessions 31-Dec-2015 30-Jun-2021 30-Jun-2021 Comments (achievements against targets): Page 37 of 53 The World Bank Hebei Clean Heating Project (P148599) B. KEY OUTPUTS BY COMPONENT Table Annex 1B-1: Achievement on key intermediate results indicators as of June 30, 2021 by subprojects 37 Indicators Progress Zhangjiakou Chengde Pingshan Xingtai Totol actual 6.12 2.03 2.84 7.19 18.18 target at appraisal 5 2.46 3.03 8.02 18.51 target updated in MTR 5 2.38 3.05 6.03 16.45 Area connected to DH (million m2) Real estate development slow Real estate development Reasons of changes down slow down target against MTR achieved (%) 122% 85% 93% 119% 110% target against appraisal achieved 122% 83% 94% 90% 98% (%) actual 22.5 88.71 18 69.24 198.47 target at appraisal 20.5 64.25 10.22 69.04 164.01 target updated in MTR 22.7 81.69 19.61 69.7 193.7 Length of pipelines installed (km) Reasons of changes Replaced old pipeline with loan savings target against MTR achieved (%) 99% 109% 92% 99% 102% target against appraisal achieved 110% 138% 176% 100% 121% (%) actual 95 39 57 139 330 Group substations (non-BLS) constructed target at appraisal 118 33 56 130 337 or rehabilitated (#) 38 target updated in MTR 118 45 61 138 362 37Manually inserted to show the comparison between the baseline and targets and actual achievements and justification of the changes of the intermediate target value. 38The original data in the PAD is 243, which is the number of the substation. Since one substation can have different number of loops, here the unit for the indicators at appraisal, MTR, and at ICR are all converted to loops for accuracy and comparison. Page 38 of 53 The World Bank Hebei Clean Heating Project (P148599) Group substation increased due Group substation increased Reasons of changes to difficulties to change to BLS due to difficulties to change to BLS target against MTR achieved (%) 81% 87% 93% 101% 91% target against appraisal achieved 81% 118% 102% 107% 98% (%) actual 46 49 17 4 116 target at appraisal 46 114 17 14 191 target updated in MTR 46 32 17 4 99 Real estate development slow Real estate development slow down. down. The design and site The design and site Building-level substation reservation of the buildings reservation of the buildings (BLS) installed (#) 39 Reasons of changes are mostly for conventional are mostly for conventional regular group station but not regular group station but not for BLS. Difficult to convince for BLS. Difficult to convince the real estate developer to the real estate developer to make the change. make the change target against MTR achieved (%) 100% 153% 100% 100% 117% target against appraisal achieved 100% 43% 100% 29% 61% (%) 39The original data in the PAD is 154, which is the number of the substation. Since one substation can have different number of loops, here the unit for the indicators at appraisal, MTR, and at ICR are all converted to loops for accuracy and comparison. Page 39 of 53 The World Bank Hebei Clean Heating Project (P148599) Objective/Outcome 1: Improve the efficiency of heating systems in selected areas within participating municipalities/counties of Hebei Province 1. Projected lifetime energy savings (MWh) Outcome Indicators 2. People provided with improved urban living conditions (number) and % of beneficiaries are female 1. Area newly connected to DH (million m2) 2. Length of pipelines installed (km) Intermediate Results Indicators 3. Group substations heat exchanger loops constructed (number) 4. BLS heat exchanger loops constructed (number) 1. 5,665,401 MWh of projected lifetime energy savings 2. 18.18 million m2 of areas connected to DH Key Outputs by Component 3. 198.47 km of pipelines installed (linked to the achievement of the Objective/Outcome 1) 4. 330 group substations constructed or rehabilitated 5. 116 BLS installed Objective/Outcome 2: Improve the environmental performance of heating systems in selected areas within participating municipalities/counties of Hebei Province 1. Project-level aggregated avoided CO2 emissions (tons) 2. Project-level aggregated avoided total suspended particles Outcome Indicators (TSP) emissions (tons) 1. Beneficiaries who feel project investments reflected their needs (%) Intermediate Results Indicators 2. Grievances registered related to delivery of project benefits that are actually addressed (%) Page 40 of 53 The World Bank Hebei Clean Heating Project (P148599) 1. 1,913,986 tons of project-level avoided CO2 emissions Key Outputs by Component 2. 12,805 tons of project-level aggregated avoided total (linked to the achievement of the Objective/Outcome 2) suspended particles emissions 3. 781,876 people provide with improved urban living conditions 4. 99 percent of beneficiaries who feel project investments reflected their needs 5. 100% grievances registered related to delivery of project benefits that are actually addressed Page 41 of 53 The World Bank Hebei Clean Heating Project (P148599) ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A. TASK TEAM MEMBERS Name Role Preparation Yuriy Myroshnychenko, Emmanuel Py Task Team Leader(s) Yuan Wang Procurement Specialist(s) Fang Zhang Financial Management Specialist Shanshan Ye Team Member Dianjun Zhang Team Member Yiren Feng Social Specialist Zhuo Yu Team Member Tianxiu Kang Team Member Cristina Hernandez Team Member Gailius J. Draugelis Team Member Shunong Hu Social Specialist Supervision/ICR Yanqin Song, Christophe de Gouvello Task Team Leader(s) Yuan Wang Procurement Specialist(s) Fang Zhang Financial Management Specialist Shunong Hu Team Member Yan Zhang Procurement Team Zhuo Yu Team Member Yongli Wang Environmental Specialist Shanshan Ye Team Member Alan David Lee Task Team Leader Shuang Zhou Social Specialist Na Han Team Member Hua Du ICR author Page 42 of 53 The World Bank Hebei Clean Heating Project (P148599) A. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No. of staff weeks US$ (including travel and consultant costs) Preparation FY14 9.300 55,801.09 FY15 29.925 203,200.09 FY16 28.489 193,619.31 FY17 .200 640.82 Total 67.91 453,261.31 Supervision/ICR FY14 0 2,393.96 FY15 0 0.00 FY16 .650 8,965.59 FY17 6.126 65,747.02 FY18 10.367 98,606.26 FY19 12.900 101,144.40 FY20 12.885 113,106.71 Total 42.93 389,963.94 Page 43 of 53 The World Bank Hebei Clean Heating Project (P148599) ANNEX 3. PROJECT COST BY COMPONENT Amount at Actual at Project Percentage of Components Approval (US$, Closing (US$, millions) Approval millions) District Heating Subcomponents 217.06 191.07 88 Institutional Capacity Building and 2.5 2.11 84 Project Management Support Contingency 17.57 Front-end fee and other cost 11.15 7.48 67 Total 248.28 200.66 81 Page 44 of 53 The World Bank Hebei Clean Heating Project (P148599) ANNEX 4. EFFICIENCY ANALYSIS 1. The project-level economic and financial analyses for the ICR were carried out based on data provided by the HPMO, the consulting firm, and the HPMO’s ICR as well as some of the assumptions from the analyses undertaken at appraisal. The same methodology adopted in the PAD has been followed at the ICR stage to calculate internal rates of return based on cash flows associated with the project-level economic and financial analyses. 2. Key parameters considered in the cost-benefit analysis at the appraisal and ICR stages are detailed in table 4.1. Table 4.1. Summary of Key Parameters for Economic Analysis at Appraisal and ICR Stages At ICR in Actual Price in At Key Parameters Economic Financial Projection Appraisal Analysis Project duration (years) 20 20 20 Coal price in Chengde (CNY per ton) 573 573 866 Coal price in Zhangjiakou (CNY per ton) 470 470 No coal used Gas price in Zhangjiakou (CNY per m3) 3.22 3.22 No gas used, gas boiler was not used in recent years Heat price in Xingtai (65°C for circulating water (CNY 5 5 5 per GJ) Steam price in Xingtai (CNY per GJ) 90 95 98 Electricity price (CNY per kWh) 0.68 0.55 0.55 for Xingtai −0.59 for Chengde 0.68 for Zhangjiakou −0.6 for Pingshan Lower heating value of coal (kJ per kg) 21,000 21,000 21,000 Lower heating value of standard coal (kJ per kg) 29,300 29,300 29,300 Boiler efficiency of existing small coal-fired boilers in 65 65 65 Zhangjiakou (%) Boiler efficiency of existing large coal-fired boilers in 80 80 80 Zhangjiakou (%) Boiler efficiency of existing gas-fired boilers in Xingtai 85 85 85 (%) Theoretical efficiency of new large coal-fired boilers (%) 80 80 80 CHP heating efficiency (%) 90 90 90 Transmission heat loss improvement (%) 2.3 2.3 2.3 Distribution heat loss improvement (%) 3.4 3.4 3.4 Page 45 of 53 The World Bank Hebei Clean Heating Project (P148599) Energy efficiency gains through SCADA (%) 1 1 1 Value of SO2 emission reduction (CNY per ton) 1,301 1,381 1,381 Value of dust (TSP) emission reduction (CNY per ton) 5,609 1,688 1,688 Value of NOx emission reduction (CNY per ton) 5,478 5,851 5,851 New boiler and network investment cost per MW 840,000 840,000 840,000 capacity (CNY per MW) 3. The cost-benefit analysis estimated the EIRR of the project compared to the without project/business-as-usual alternative. 4. Benefits include those associated with the project cities and global environmental benefits. 5. The major benefits from rehabilitation and expansion of DH systems consist of the following: (a) actual and projected fuel efficiency improvements generated by connecting existing and new building areas to more efficient and cleaner heating sources: CHPs (in Chengde, Zhangjiakou, and Pingshan) and industrial waste heat (in Xingtai) - alternative 1; (b) reduced heat losses stemming from improving existing networks and substations and installed BLS (this benefit takes into account the reduced heat and water losses because of modernization and automation of the substations) - alterative 2; (c) cost savings in operation, maintenance, and repair for both alternatives; and (d) environmental benefits of reduced TSP, SO2, CO2, and NOx emissions through avoided local and global emissions as a result of the project. The assumptions for the baseline emissions include the use of current boilers for the existing buildings and new boilers with emission reduction equipment for the new (planned) heating areas. 6. Global environmental externality. The carbon value used at appraisal was US$30 per tCO2 in 2015 which increases to US$80 per tCO2 in real terms by 2050. The values used in the economic evaluation at the ICR stage are as follows: US$30 per tCO2 in 2016 and US$37 per tCO2 in 2017, which increases to US$40 per tCO2 in 2020, US$50 per tCO2 in 2030, and US$58 per tCO2 in 2037 and onward, following the latest World Bank guidelines on the benefit of carbon emissions reduction. 7. The economic costs include the total investment costs of both alternatives, exclusive of taxes and subsidies. 8. The social discount rate is 10 percent, the same as that used in the PAD. The EIRRs are presented in table 4.2. Table 4.2. Summary of Economic Analysis at ICR and Appraisal Stages Page 46 of 53 The World Bank Hebei Clean Heating Project (P148599) Project EIRR at ICR EIRR at Reasons for EIRR at ICR EIRR at ICR (with Appraisal Differences (with (with environmental (base case between Project environmental environmental benefits, using with Closing and benefits, low benefits, high scenario of social values environmental Appraisal scenario of social values of of CO2 benefits) (%) social values CO2 emission, emission at of CO2 as per appraisal) (%) emission, as guidelines at per guidelines closing) (%) at closing) (%) Chengde 37.1 35.4 The actual heating 43.2 162 Zhangjiakou 39.5 26.5 area served is 41.4 62.6 larger than Pingshan 34.7 27.25 40.3 108.2 envisaged at project appraisal. Xingtai 25.1 29.6 The actual heating 26.2 35.6 area served is smaller than envisaged at project appraisal. Overall 29.5 29.3 The Xingtai project 30.9 44.1 accounts for a large portion of total benefit and capital costs. 9. Conclusion. The economic analyses were carried out for the project at the ICR stage. The economic analysis concludes that the EIRR calculated at the ICR stage is 29.5 percent, valuing environmental externalities using the same social values of CO2 emission at appraisal.40 This value is higher than 10 percent of benchmark value and 29.3 percent of the estimated EIRR at appraisal, demonstrating the economic viability of the Project. When using the updated values for social values of CO2 emissions based on the latest World Bank guidelines,41 with other factors remaining the same, the EIRR at the ICR stage is estimated to reach 30.9 percent in the low social value scenario and further up to 44.1 percent in the high social value scenario. Financial Analysis at the ICR stage Project-Level Analysis 10. Revenues consist of incremental revenues from heat sales, including connection fees. The costs include the investment costs and the incremental O&M costs. 40 US$31.4 per tCO2e as a baseline. 41 US$ 71 per tCO2e at low end and US$143 per tCO2e at high end. Page 47 of 53 The World Bank Hebei Clean Heating Project (P148599) 11. The FIRR is compared with the estimated corporate-level and project-level WACC for the company carrying out the Subcomponent. The WACC for each company is estimated on the basis of the cost of borrowed funds (currently assumed at 2 percent for the World Bank loan and 5 percent for local bank loans) and expected minimum return on equity (estimated at 8 percent based on a risk-free rate of 6 percent and a risk premium of 2 percent). The consolidated WACC for the project was estimated to be 2.5 percent at appraisal and 2.73 percent at ICR. 12. The FIRR is presented in table 4.3. Table 4.3. Summary of Financial Analysis at ICR and Appraisal Stages FIRR FIRR at Project at ICR Appraisal Reasons for Differences between Project Closing and Appraisal (%) (%) Chengde 13.1 12.1 The actual heating area served and sold is larger than envisaged at Zhangjiakou 22.0 17.5 project appraisal. Pingshan 15.4 14.2 The actual heating area served is larger than envisaged at project appraisal. Xingtai 11.61 11.5 (1) The actual heating area connected at ICR stage (year 2021) is smaller than the envisaged at project appraisal due to the delayed development of real estate in new district affected by the government’s policies. According to the current community development plan, the area to be connected to the networks of Xingtai subproject is estimated to arrive at 8.09 million m 2 in 2022, which is higher than the area of 8.016 million m2 at appraisal stage. (2) The percentage of actual heating area served is only about 55% of the heating area connected due to low occupation rate of new communities in the first 2-3 years, but this figure is forecasted to rise to 85% after the transitional period. Overall 13.54 13.2 13. Conclusion. With respect to the financial analysis, the FIRR calculated at the ICR state is 13.54 percent. It exceeds the benchmark value of 2.73 percent, demonstrating the financial viability of the project. The FIRR at the ICR stage is also higher than 13.2 percent at the appraisal stage. The primary reason is that the heating area served and sold is larger than the estimate at appraisal with exception of Xingtai subproject. The actual heating area connected and served of Xingtai subproject at ICR (year 2021) is smaller than the envisaged at appraisal. The main reasons are (1) the delayed development of real estate in new district due to the government’s policies. However, according to the current community development plan, the area to be connected to the networks of Xingtai subproject is estimated to rise to 8.09 million m2 in 2022, which is higher than the area of 8.016 million m2 at appraisal stage; and (2) The percentage of actual heating area served is only about 55% of the heating area connected due to low occupation rate of new communities in the first 2-3 years but is forecasted to rise to 85% after the transitional period. Page 48 of 53 The World Bank Hebei Clean Heating Project (P148599) ANNEX 5. METHODOLOGY OF ESTIMATING KEY PROJECT INDICATORS. At appraisal, an economic model was developed to forecast energy savings (PDO Indicator 1), measured in tons of coal equivalent, based on heating area as shown in Table A5.1. This analysis accounted for floor area already connected to district companies at appraisal with an assumed annual growth rate of 25% of area during project implementation for Chengde, Zhangjiakou and Pingshan. For these subproject areas, the energy comes from combined heat and power (CHP) plants. For Xingtai, the area to be connected was estimated based on local demand, and energy would be supplied by waste heat. All area connected to the district heating companies is considered as the project includes management capacity building, operational capacity improvement, and SCADA systems, which contribute to emissions reductions. Reductions of CO2 and TSP (PDO Indicators 4 and 5) were estimated by multiplying energy savings using emissions factors as shown in Table A5.2. Table A5.1. Heating area model used to calculate energy savings using the methodology from appraisal applied to reflect plans updated in 2018 Heating area of participating DH companies Average Time period during Expected annual Already To be Total to be annual which total target average energy connected connected energy floor area is saving per unit of connected before the under the savings for expected to be floor area at closing project(2015) Project total floor connected including connected including to area beyond project reflect plans closing updated in2018 million m2 TCE/year Years Wh/year/m2 A B C=A+B D E F=C X E x 8.14 Chengde 12.25 2.38 14.63 23,305 19.5 12,967 Zhangjiakou 3.49 5.06 8.55 42,471 19.5 40,434 Pingshan 4.47 3.05 7.52 17,093 18.5 18,502 Xingtai 0 6.03 6.03 105,302 18.5 142,149 Total 20.21 16.52 36.73 188,171 n.a. 41,702 Source: Input of the Project Companies and Economic Simulation Modelling Table A5.2: Factors for calculating PDO indicators 4 and 5 Parameter Value Unit Convertor from TCE to MWh 814 MWh/TCE Convertor from TCE to CO2* 2.75 Ton CO2/TCE Convertor from TCE to TSP* 0.0184 Ton dust/TCE Project-financed infrastructure economic lifetime 20 years Source: PAD. *Note: At appraisal, these estimates were also reduced by 10% to be more conservative. Page 49 of 53 The World Bank Hebei Clean Heating Project (P148599) After the project became effect, all project locations compared actual energy consumption with the annual baseline data in the appraisal analysis and multiplied the difference to determine the annual energy savings. This amount was then multiplied by location-specific emissions factors to derive emissions reductions. During the first years of project implementation, the PMO and expert consultants spent significant time and effort to collect basic data and calculate the achievement of PDO. However, it proved very difficult for project companies to provide accurate emission factors and as a result their estimates varied significantly from annual target values set at appraisal. During the mid-term review mission, it was agreed to adopt a method that more closely matched the approach adopted at appraisal, based on energy saving per million m2 as shown in Table A5.2. This calculation does not consider the 0.9 conservative factor. Similarly, CO2 and TSP reduction per unit of energy saved are calculated with the emissions factors shown in Table A5.2. Page 50 of 53 The World Bank Hebei Clean Heating Project (P148599) ANNEX 6. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS (PMO provided on December 17, 2021-verbatim) 1. After more than two years of preparation and five years of implementation, especially through overcoming the difficulties caused by COVID-19, this project has successfully completed its construction components, overfulfilled all the performance indicators and closed its account on June 30, 2021 as scheduled. The project implementation was ranked “highly satisfactory” by the Bank Mission consecutively throughout implementation period. Such accomplishments would not be achieved without the firm and constant support as well as efficient work of the World Bank’s project team. 2. We have benefited a lot from value-added assistance and guidance of the senior management of the World Bank throughout the stages of project preparation, project implementation, mid-term review and project completion, and we would like to thank the World Bank sincerely for that. 3. The impressively high level of project management of the World Bank project team is mainly reflected in the following aspects. a. During the project preparation, the project team led by Mr. Gailius J. Draugelis has conducted many thorough site visits and provided timely technical assistance to make the project appraisal completed and the loan became effective as planned. For example, some proposed subprojects that were irrelevant to the objectives or incompatible with the implementation period of the project were removed through project screening to reduce the complexity of the project so that the appraisal can be accelerated; the design of subprojects was optimized to achieve more practicalities and cost effective; Building Level Substation and Heat Metering Billing and Accounting mechanism were introduced, and pilot promotion was carried out in the four subprojects. b. During project appraisal and the early stage of project implementation, the project team led by Mr. Yuriy actively promoted project implementation, and gave full support in the aspects of project procurement, disbursement, financial management, social safeguards, technology, etc. Particularly in the aspect of procurement, many training workshops were conducted, and a lot of technical suggestions were put forward in the preparation of bidding documents. Importantly, the problems in the project procurement were actively solved, and more than half of the contracts financed by the Bank were signed in the first year of project implementation, laying solid foundation for the smooth implementation of the project in the later stage. c. In the middle of the project implementation, due to the influence of real estate development and urban planning adjustment etc., the project construction components need to be adjusted. The project team led by Mr. Lee and Mr. Christophe offered a lot of insightful suggestions on the project adjustment to assist the successful submission of the mid-term review report. d. In the later and final stage of the project, the current project leader Mr. Song Yanqin and his team members showed an extremely high level of professional expertise in all aspects of project implementation and are always ready to offer timely and valuable opinions and Page 51 of 53 The World Bank Hebei Clean Heating Project (P148599) guidance to questions whenever or whatever raised through either site visits, online meetings, or phone communications to ensure that the project can be closed on schedule. 4. To sum up, the World Bank has provided us with value-added support and assistance throughout the project, which has played an important role in the success of the project. The success of this project proves once again that the World Bank is not only a financial institution but also a true knowledge bank. As the borrower, we are highly satisfied with the World Bank's performance in this project, and we would like to thank the expert team of the World Bank for their help and support sincerely. Page 52 of 53 The World Bank Hebei Clean Heating Project (P148599) ANNEX 7. SUPPORTING DOCUMENTS (IF ANY) 1. Project Information Document, Report No.: PIDC17608 2. Project Appraisal Document, Report No.: PAD1277 3. Loan Agreement, dated March 24, 2016, Report No.: Loan 8566-CN 4. Project Agreement, dated March 24, 2016, Report No.: Loan 8566-CN 5. Implementation Status and Results Reports: Sequences 1 through 11—from April 2016 through December 2020 6. Aide Memoires: (a) March–April, 2016 (b) May 2018 (c) June 2019 (Midterm review mission) (d) December 2019 (e) June 2020 (f) May 2021 7. Capacity Building and Technical Assistance Report (2020–2021) 8. Implementation Progress Report, June–December 2020 9. Project Implementation and Operations Manual and Project Management Manual, 2016 10. Borrower’s ICR. Page 53 of 53