Document of The World Bank FOR OFFICIAL USE ONLY Report No. 14773 IMPLEMENTATION COMPLETION REPORT CHINA YANTAN HYDROELECTRIC PROJECT (LOAN 2707-CHA) JUNE 30, 1995 Industry and Energy Operations Division China and Mongolia Department East Asia and Pacific Regional Office 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 Currency Unit: Yuan (Y) At Appraisal (November 1985) $1 = Y 3.0 Exchange Rates During Project Years Year Ave. 1986 3.46 1987 3.73 1988 3.73 1989 3.73 1990 4.86 1991 5.36 1992 5.49 1993 5.75 1994 8.60 VWEIGHTS AND MEASURES Metric System FISCAL YEAR January 1 to December 31 ABBREVIATIONS AND ACRONYMS AGN - Advisory Group of Norway EMMP - Environmental Monitoring and Management Program GEPB - Guangxi Electric Power Bureau GEPIDI - Guangxi Electric Power Investigation and Design Institute GHCB - Guangxi Hydroelectric Construction Bureau GIS - (Gas Insulated Switchgear GRO - Guangxi Resettlement Office GYHPCC - Guangxi Yantan Hydroelectric Project Construction Corporation ICB - International Competitive Bidding ICR - Implementation Completion Report IERR - Internal Economic Rate of Return Longtan - The (proposed) Longtan Hydroelectric Project LRAIC - Long-Run Average Incremental Cost SBC - Special Board of Consultants SCEPA - South China Electric Power Administration SCEP - South China Electric Power Joint Venture Corporation TSQ - Tienshengqiao Hydroelectric Development FOR OFFICIAL USE ONLY CONTENTS Preface ........................................... i Evaluation Summary ..................................... ii PART I: PROJECT IMPLEMENTATION ASSESSMENT A. Project Objectives .................................. 1 B. Achievement of Project Objectives. 3 C. Implementation Record and Major Factors Affecting the Project ... ... 3 D. Project Sustainability ................................. 8 E. Bank Performance .................................. 9 F. Borrower Performance ................. ..... 9 G. Assessment of Outcome ............................... 10 H. Future Operation ................................... 10 I. Key Lessons Learned ................................ 10 PART II: STATISTICAL TABLES Table 1: Summary of Assessment ........................ 12 Table 2: Related Bank Loans ........................... 14 Table 3: Project Timetable ............................ 17 Table 4: Loan Disbursements: Cumulative Estimated and Actual ... .. 17 Table 5: Key Indicators for Project Implementation ............. 18 Table 6: Key Indicators for Project Operation ................. 19 Table 7: Studies Included in Project ....................... 19 Table 8a: Project Costs ............................... 20 Table 8b: Project Financing ............................ 21 Table 8c: Actual and Projected Project Costs .................. 22 Table 9: Economic Costs and Benefits ..................... 23 Table 10: Status of Legal Covenants ....................... 25 Table 11: Compliance with Operational Manual Statements ... ...... 27 Table 12: Bank Resources: Staff Inputs ..................... 27 Table 13: Bank Resources: Missions ....................... 28 ANNEX 1: Projected and Actual Financial Statements of GEPB ... ........ 29 ANNEX 2: Project Review from the Borrower's Perspective ............. 33 ANNEX 3: Aide-Memoire for Completion Mission .................. 37 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 wiLhout World Bank authorization. IMPLEMENTATION COMPLETION REPORT CHINA YANTAN HYDROELECTRIC PROJECT (LOAN 2707-CHA) PREFACE This is the Implementation Completion Report (ICR) for the Yantan Hydroelectric Project in China for which Loan 2707-CHA in the amount of $52 million was approved on May 29, 1986 and made effective on August 27, 1986. The loan was closed on June 30, 1994, one year beyond the date originally envisaged. Final disbursement was made on October 28, 1994 when the balance of the loan, $60,894.11, was canceled. Cofinancing for the project in the amount of NK 18 million was provided by the Government of Norway. The ICR was prepared by Barry Trembath, Industry and Energy Operations Division, China and Mongolia Department of East Asia and Pacific Region, with contributions from Robert Crooks, Alice Huang and Martin ter Woort (consultants). It was reviewed by Mr. Richard Newfarmer, Division Chief, and Mr. Yo Kimura, Project Advisor. The borrower/beneficiary provided comments, which are included as an annex to the ICR. Preparation of this ICR was begun during the Bank's completion mission in April 1995. It is based on the Staff Appraisal Report, the Loan and Project Agreements, Supervision Reports, correspondence between the Bank and the Borrower/Beneficiary, internal Bank memoranda and interviews with Bank and Borrower/Beneficiary staff involved in project implementation. The Borrower/Beneficiary contributed to the preparation of the ICR by preparing their own evaluation report of the project's execution and implementation, and by providing comments on the draft Bank ICR, which were incorporated in the final version. - 11 - IMPLEMENTATION COMPLETION REPORT CHINA YANTAN HYDROELECTRIC PROJECT (LOAN 2707-CHA) EVALUATION SUMMARY Project Objectives 1. The objectives of the project were to: (a) help address the acute energy shortage in Guangxi autonomous region and Guangdong province through the cascade development of the Hongshui River; (b) promote interconnection within the South China grid; (c) help build relations with GEPB and the regional authority, South China Electric Power Administration (SCEPA), with whom the Bank expected to collaborate on future projects; (d) provide transfer of technology in dam design and construction; and (e) upgrade financial planning and management practices in the electricity subsector. Additional implied objectives were those of financial, environmental and social sustainability. 2. The project comprised: (a) construction of the Yantan hydroelectric development consisting of a 110 m high concrete gravity dam with associated spillway, shiplift and powerhouse with an installed capacity of 1,100 MW; (b) 500 kV transmission lines and associated substations; (c) consulting services for construction management; training of GEPB staff and government officials in financial practices; and (d) resettlement of the reservoir population, involving relocation and reestablishment of living standard of an estimated 36,435 persons, in 423 villages. 3. The loan amount of $52 million represented 5 percent of overall project cost, and was small compared to other China power loans ($225 million for a thermal power plant approved on the same day). Nevertheless, the project objectives supported both Government objectives and Bank strategy for the power sector (paras. 5-7). They were important, and remain important today, given the juxtaposition in South China of energy resource-rich inland provinces and fast-growing coastal provinces and the concomitant opportunities for synergistic development. The financial and institutional development objectives helped to lay the groundwork for the more ambitious commercialization objectives of present day power projects in China. Implementation Experience and Results 4. The project achieved its primary objective of supporting economic growth through development of an important indigenous resource. Despite modest implementation delays, the original conclusion that Yantan was part of the least-cost expansion plan is confirmed. The Internal Economic Rate of Return (IERR) is also greater than originally - 111 - estimated because "willingness to pay" for power is demonstrably higher than original estimates. Both transfer of technology and institutional development objectives were achieved, and the good relations established with the power entities in South China are likely to assist the Bank to continue to positively influence the structure and commercial orientation of the power sector in South China. 5. The first generating unit was commissioned in September 1992, three months behind the appraisal schedule. The next three units were commissioned five to nine months behind schedule. The main reason for the delays was the late delivery of the main components of the turbines, due to the heavy commitments of the supplier, the technical difficulties associated with large units (among the world's largest) and the lack of experience in manufacturing such large machines. 6. With regard to final costs in comparison to those estimated at appraisal, there was a cost underrun of about 22 percent when expressed in US dollars and a cost overrun of about 38 percent when expressed in local currency. These variations are due to the higher than expected inflation in China and the devaluation of local currency from an exchange rate of Y 3.0 to $1 at the time of appraisal to Y 8.5 to $1 by the end of 1994. If actual expenditures are deescalated to the appraisal date, then overall costs are 9 percent higher than estimated at appraisal (base costs plus physical contingencies). This represents relatively good agreement, considering the large local inflation during the period, which may be imperfectly estimated by the Consumer Price Index at the national level. 7-. The resettlement task proved to be more extensive than originally foreseen. It has taken 10 years and still is not completed since two out of three relocatees have not fully reestablished economically. However, aggressive interim measures are being taken to support living standard until incomes are fully restored. The situation should improve significantly in the next few years as newly planted orchards reach production and experience with fish cages results in sustainable production. Ultimately, 43,176 persons were physically relocated and new production arrangements found for 62,430 persons (compared to the 36,435 originally estimated). 8. All elements are present to ensure sustainability of the project. The power plant is of good quality, and efficient and economic operations are expected to continue, based on the established operation and maintenance arrangements and operating experience to date. The pricing arrangements for the plant output will ensure satisfactory financial and economic returns. On the institutional side, the tide of economic reform in China is creating expectations far beyond those at appraisal. With regard to resettlement, while income targets have not yet been met, it is expected to become fully sustainable within a few years, as the economic base is fully reestablished. The Environmental Monitoring and Management Program (EMMP) is sustainable given that it was designed and implemented without requiring any influence from the Bank, together with the fact that such programs are standard operational procedure on large dams in China. 9. Bank performance overall was satisfactory. There were some particularly positive aspects during project preparation and appraisal and, with hindsight, a few - iv - negative aspects. Supervision was satisfactory. GEPB successfully completed the project with only modest cost and time overruns. It overcame problems as they arose, introduced and absorbed modem technologies, and took full advantage of the training opportunities. Yantan was one of the first projects implemented under the Government's construction industry reform measures, which provided for separation of owner, designer and construction manager, and competitive bidding. The various parties adapted well to their new roles and responsibilities. Summary of Findings, Future Operations and Key Lessons Learned 10. The objectives of the project were consistent with those of the Chinese Government and the Bank and the project achieved its major objectives. Commissioning delays up to nine months and the fact that income has not yet been fully reestablished are the only areas where objectives have not been fully achieved. The project is rated as satisfactory and is considered to be sustainable in all areas. 11. The Project Operation Plan provides for future power plant operation and maintenance and environmental monitoring. With regard to resettlement, production development is continuing, grain subsidies are being provided until income targets are met and reservoir development financed from power plant revenue will continue in perpetuity. The Bank expects to continue its involvement in South China in connection with the proposed Longtan Hydroelectric Project (Longtan), which is located upstream of the Yantan project and will include more ambitious goals for institutional development and sector commercialization. It will also continue to monitor Yantan operations particularly in regard to resettlement in connection with the preparation of Longtan. 12. The key lessons to be learned from this project are: In a project such as Yantan, which relies heavily on local capabilities, it is important to guard against overoptimism with respect to these capabilities in areas where traditional Chinese hydroelectric implementation has not provided exposure to modem techniques and technology. In the context of China's rapid economic growth, it is also important to assess the manufacturing capacity and workload of local suppliers and thus their capability to deliver on time. * In the area of resettlement, the key lesson learned is that for a large resettlement project such as Yantan, it is important that project preparation in relation to resettlement be at least as detailed as that of the construction component. - 1 - IMPLEMENTATION COMPLETION REPORT CHINA YANTAN HYDROELECTRIC PROJECT (LOAN 27076-CHA) PROJECT IMPLEMENTATION ASSESSMENT A. PROJECT OBJECTIVES 1. The objectives of the project were to: (a) help address the acute energy shortage in Guangxi autonomous region and Guangdong province through the cascade development of the Hongshui River; (b) promote interconnection within the South China grid; (c) help build relations with the Guangxi Electric Power Bureau (GEPB) and the regional authority, SCEPA, with whom the Bank expected to collaborate on future projects; (d) provide transfer of technology in dam design and construction; and (e) upgrade financial planning and management practices in the electricity subsector. Additional implied objectives were those of financial, environmental and social sustainability. The Government invited the Bank to participate in the project although preparatory works had started, in the belief that the Bank could provide technical inputs in dam design and construction, which were considered to be critical to upgrade the technical capabilities of GEPB. 2. The project comprised: (a) construction of a 110 m high concrete gravity dam, a spillway, a powerhouse and shiplift; (b) provision and installation of four generating units, each of 275 MW;I/ (c) construction of two single circuits of 500 kV transmission lines and three associated substations; (d) provision of about 160 person-months of consulting services for construction management; and I/ In August 1986, a decision was made to increase the capacity of each unit to 302.5 MW, bring total installed capacity to 1,210 MW. - 2 - (e) training of GEPB staff and upgrading of GEPB training facilities, and training for government officials in financial practices. 3. The resettlement of the reservoir population was not singled out as a development objective or project component. However, the detailed resettlement plan provided for the relocation and reestablishment of living standard of 36,435 persons, in 6,500 households and 423 villages. Due to the lack of replacement land for traditional agriculture, the plan provided for alternatives such as forestry and orchards developed on hillslopes. Assurances were obtained from the Government that a satisfactory resettlement plan would be carried out. 4. The objectives, as cited in the various project documents, are reasonably clear. They are also realistic. The loan amount of $52 million represented five percent of overall project cost, and was small compared to other China power loans (e.g., $225 million for a thermal power plant approved on the same day). Nevertheless, the project objectives supported both Government objectives and Bank strategy for the power sector at the time of project appraisal. Government objectives were to modernize the sector, increase its efficiency and expand it at a rate sufficient to meet the requirements of economic development. The Government strategy for achieving these objectives included the following elements which are directly supported by the project: (a) phased increase in financial autonomy of enterprises; (b) gradual introduction of a more rational pricing system; (c) introduction of modem techniques in project design; and (d) acceleration of hydro development and interconnection of remote hydro sites to regions of high economic growth. 5. The Bank strategy was to support economic growth through improved efficiency and economic reform. In the energy sector, technology transfer would be achieved by bringing the Bank's experience to bear on project design and implementation with foreign technical assistance where appropriate. Economic reform would be supported by assisting utilities to rationalize investment decisions through modernization of system planning, project preparation, construction, operation and utility management. The project design generally conformed to this strategy. 6. The objectives of supporting growth, establishing relations with the power entities and promoting interconnection in South China were important in view of the juxtaposition in South China of energy resource-rich inland provinces and fast-growing coastal provinces, which presents obvious opportunities for synergistic development. The financial and institutional development objectives were in keeping with the status of reform in the power sector at the time. They were important in that they laid the groundwork for the more ambitious commercialization objectives of present-day power projects in China. 7. The project was not complex. While the main component shared the complexity of all hydropower projects, it was evidently within the capabilities of GEPB given their previous hydropower experience, although such projects were constructed to less demanding schedules and standards than envisaged for Yantan. In retrospect, the appraisal assessment of risk as being normal for hydropower projects was understated - 3 - given the limited technology transfer and technical assistance envisaged and the heavy reliance on local resources and technology. B. ACHIEVEMENT OF PROJECT OBJECTIVES 8. The project achieved its primary objective of supporting economic growth through development of an important indigenous resource. Economic and power demand growth in Guangxi were in line with expectations. Despite implementation delays, the original conclusion that Yantan was part of the least-cost expansion plan is confirmed. The Internal Economic Rate of Return (IERR) is also greater than originally estimated because "willingness to pay" for power is demonstrably higher than original estimates. 9. Good relations have been established with GEPB, and the South China Electric Power Joint Venture Corporation (SCEP), the successor to SCEPA, thus achieving this objective. The Bank has been cooperating with both entities in the preparation of Longtan, a major development immediately upstream of Yantan. The Bank is also discussing with the Government the establishment of a South China power market, involving Guangxi, Guizhou and Yunnan, which have relatively large energy resources, and the fast-growing coastal areas of Guangdong, Shenzhen, Fujian, Hainan and, from 1997, Hong Kong. 10. The transfer of technology objective was also achieved. The imported material, equipment and services financed by the Bank loan were vital to the construction of the project in accordance with the appraisal schedule, which was one year faster than originally envisaged by the Government. Goods financed included specialized steel products, large construction equipment and sophisticated electrical and electronic equipment. The consulting services were particularly useful in construction planning and quality control. The Special Board of Consultants (SBC) positively contributed to the execution of the project in terms of cost, quality and completion time. 11. The institutional development objective was achieved in that the envisaged training programs were all successfully implemented, and the organizations created to manage and construct the project grew into substantial entities in their own right. C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT Inplementation Arrangements 12. Yantan was one of the first projects implemented under the Government's construction industry reform measures, which provided for separation of owner, designer and construction manager, and competitive bidding for most works and goods. Construction management was entrusted to the Guangxi Yantan Hydropower Construction Company (GYHPCC). Design was entrusted to the Guangxi Electric Power Investigation and Design Institute (GEPIDI). While many locally bid contracts were awarded to suppliers and contractors from outside the province, the contract for dam construction was awarded to the Guangxi Hydroelectric Construction Bureau (GHCB). Resettlement was - 4 - carried out by the Guangxi Resettlement Office (GRO). Consultants were retained to advise GYHPCC and GEPIDI and a Special Board of Consultants (SBC) was also set up. Performance of the various parties is discussed in paras. 24 and 25. Implementation Schedule 13. The first generating unit was commissioned in September 1992, three months behind the appraisal schedule. The next two units were commissioned five to six months behind schedule, and the last unit, to be commissioned in June 1995, will be nine months behind schedule. Despite early delays, the combined efforts of all parties led to the generally on-time completion of the dam and powerhouse civil works, except for the noncritical shiplift, which is designed to handle future rather than current traffic. The main reason for the delays was the late delivery of the main components (runner and top cover) of the turbines, due to the heavy commitments of the supplier, the technical difficulties associated with large units (among the world's largest) and the lack of experience in such large machines. Because of the overcommitment of the Government owned supplier, the Government established priorities which caused some delays in Yantan deliveries. 14. Delays also occurred in transmission line construction. While transmission lines were included in the project description, they were not Bank-financed and GEPB separated them from the project and assigned their implementation to other units. Despite general transmission delays, temporary arrangements prevented restriction of Yantan output until the third generating unit was commissioned, when a locally manufactured 500 kV transformer failed acceptance testing. Corrective measures are underway and a backup foreign transformer has been ordered, but some loss of output has occurred. 15. Procurement difficulties (paras. 22 and 23) also caused late delivery of gas insulated switchgear (GIS). Temporary arrangements were able to prevent delays in generator commissioning, but it is likely that if the overall commissioning schedule had not already been affected by turbine deliveries, it would have been delayed by switchgear deliveries. Resettlement 16. The resettlement task proved to be more extensive than originally foreseen: in the end 43,176 persons were physically relocated and new production arrangements had to be made for 62,430 persons (compared with 36,435 quoted in the SAR). The task has taken 10 years and still is not completed as two out of three relocatees are not yet considered fully rehabilitated economically by the end of 1994. However, this situation should improve significantly in the next few years as newly planted orchards reach production and experience with fish cages results in sustainable production. Work is continuing on production development and, as anticipated in the original plan, grain subsidies are being provided until income is reestablished. After the resettlement construction budget has been expended, two special funds are provided: one that extends for 10 years for completion work, and another one, which provides for Y 0.001 per kWh - 5 - from power plant revenue towards development in the reservoir area, for the life of the project. On the physical side, more than 1 million square meters of new housing was constructed and inundated infrastructure was replaced. Housing and infrastructure quantity and quality are considerably better than the original. Overall, Y 426 million (Y 6,800 per capita) was spent. 17. The main factor that affected resettlement implementation was the early emphasis on physical relocation at the expense of household and village production systems. Since production systems such as orchards, forestry and fish cages required a lead time of several years before producing revenue, a time lag developed between the loss of income and produce from reservoir lands and the production and associated income from new systems. Furthermore, during implementation a shift in selected orchards was made, from citrus to "longan, " resulting in further delay. The underestimation of the time to bring new systems into production stems largely from inexperience, and the lack of early detailed planning. Environment 18. Although the SAR did not elaborate extensively on the proposed environmental management and monitoring, a considerable amount of environmental work was carried out, commencing with an Environmental Impact Assessment Report prepared over the period 1983-85 (i.e., before start of construction), followed by an environmental monitoring and management program (EMMP) extending from the start of construction into the operational stage. In this regard, GEPB, acting in accordance with Government regulations, may have been ahead of the Bank on environmental issues at the time of appraisal. 19. The specific undertaking mentioned in the SAR (the public health program) actually covered a wide variety of issues including the incidence of schistosomiasis vectors at several villages near the reservoir thought to be at risk in this regard. Other aspects of the EMMP included monitoring of: potential leakage in karst areas; sediment accumulation in the reservoir; water quality in the reservoir and downstream; climate; terrestrial and aquatic organisms; impacts of the resettlement program (soil and water conservation, socioeconomics); and bank stability in the reservoir drawdown area. 20. Monitoring results indicate that adverse impacts are limited and consistent with expectations. The most significant negative impact was unanticipated reservoir induced waterlogging in some areas, as a result of which affected households were relocated. The reservoir is presently subject to significant algal blooms, due to nutrient enrichment from decaying submerged vegetation, but this is to be expected and is likely to be only a short-term phenomenon. It appears not to be adversely affecting fishing nor does the water quality monitoring indicate any adverse effects (such as depleted dissolved oxygen levels). 21. Procurement. The project included 51 procurement contracts, of which 38 were awarded after International Competitive Bidding (ICB) in accordance with Bank - 6 - guidelines. For most ICB contracts, there were no major procurement problems, but the process was protracted largely due to the numerous steps required (according to GYHPCC 18 domestic and 9 external). This resulted in an average period of one year between completion of a bid document and award of contract. The situation was aggravated through the inexperience of GHPCC in international tendering and the limited input of experienced procurement consultants. 22. There were two cases where procurement delays substantially affected project implementation, one relating to a high-speed cable crane for construction and the other relating to gas insulated switchgear (GIS). In the case of the cable crane, initial problems arose due to unclear interface specifications such that the grounding system was not supplied with the crane, and later delays arose as differences in interpretation of the contract continued. These delays could probably have been reduced with improved documentation, and assistance of consultants experienced in contract administration. 23. The second instance of delay was in relation to GIS. This was not originally included in the Bank-financed scope of supply since it was thought that equipment of adequate quality could be procured locally. When this was found not to be the case, a protracted process ensued, extending over one year, involving a search for non-Bank financing, followed by a request and eventual agreement to reallocate a part of the Bank loan. The procurement process itself took a further two years, involving extensive Bank comments on documents, bids being received 50 percent above estimates, unsuccessful negotiations with the lowest bidder, rebidding with reduced scope and eventual award. In this case, additional delays can be attributed to: overoptimism in assessment of local supply capabilities; inadequate allowance in loan amount for contingencies; overoptimistic estimate of equipment cost; and failure to immediately rebid with reduced scope of supply. 24. Consulting Services and Training. The main consulting services were financed by an NK 18 million grant from Norway. Members of SBC were financed from the same source, by an IDA Technical Cooperation Credit (TCC) and from the Bank loan. The consultants were employed in an advisory capacity, and the main areas where they made positive contributions were in design for dam safety, computerized scheduling, construction equipment maintenance and quality control of concrete. In the design area their main influence was to counterbalance the traditional conservatism of Chinese designers. In the other areas, their contribution was particularly important because of lack of experience in China of highly mechanized construction. Areas where additional consultant input would have been beneficial are international procurement and cost monitoring. While costs were evidently kept within reasonable bounds, supervision missions were unable to adequately determine the expected cost to completion, nor to identify the causes of variations from original estimates. 25. The SBC consisting of four consultants, from Norway, Canada and China, met six times during project execution. Their contribution might have been even greater if their numbers and composition were adjusted in keeping with the construction status. For example, while a geologist member is very useful in the early stages of construction, other specialties might be more appropriate during later stages. A more flexible - 7 - arrangement should be considered in future projects. With hindsight, the SBC would also have benefited from a resettlement expert, who could have provided continuity to resettlement review. 26. GEPB took full advantage of the Bank loan to finance technical consultation and training. Visits abroad totaled 47 person-times to United States, Norway, Australia, France, Thailand, Hong Kong and Japan. Topics covered were high-strength steel penstocks, ICB documents, roller-compacted concrete, international loan management, project budgeting and claim analysis and utility financial management. 27. Project Costs. The estimated cost of the project at appraisal (excluding interest during construction) was $139.4 million in foreign costs and Y 1,878.9 million in local costs, equivalent to a total of $542.0 million (Y 2,941.6 million)2/. The final cost was $51.9 million in foreign costs and Y 2,941.6 million in local costs, equivalent to a total of $593.9 million (Y 3,176.7 million) (see Tables 8a-1 and 8a-2 for details).3/ Considering overall costs (foreign plus local), there is a cost underrun of about 22 percent when expressed in US dollars and a cost overrun of about 38 percent when expressed in local currency. These variations are due to the higher-than-expected inflation in China and the devaluation of local currency from an exchange rate of Y 3.0 to $1 at the time of appraisal to Y 8.6 to $1 by the end of 1994. To obtain a more exact comparison foreign costs, expressed in US dollars, and local costs, expressed in yuan, were separately deescalated to the appraisal date and compared to base costs plus physical contingencies. This analysis shows that foreign costs are 64 percent lower, local costs are 17 percent higher, and overall costs are 9 percent higher than estimated at appraisal. This represents relatively good agreement, considering the large local inflation during the period, which may be imperfectly estimated by the Consumer Price Index at the national level. The reason for the large reduction in foreign costs is that the appraisal estimate includes indirect foreign costs, while GYHPCC's final tabulation does not. 28. Economic Performance. For the appraisal, generation planning studies were undertaken to demonstrate that Yantan was part of the least-cost expansion plan for South China, which was independently verified by comparing Yantan with a coal-fired thermal alternative. The latter analysis, which indicated an equalizing discount rate of 13 percent, was repeated ex-ante as shown in Table 9, yielding an equalizing discount rate of 19 percent. The long-run average incremental cost (LRAIC) of Yantan is calculated at 25 fen/kWh (1994 price levels) in comparison with 36 fen for the thermal alternative, demonstrating that, despite delays in project completion, the original conclusion that Yantan is part of the least-cost expansion program remains valid. Moreover, the analysis takes no account of future benefits of reduced spill and firming up of Yantan energy by the upstream reservoirs of Tienshengqiao (TSQ) (under construction) and Longtan. 2/ Transmission lines have been excluded in both cases since they were constructed by another entity, and insufficient detail in regard to final cost is available for analysis. 3/ Final costs represent costs to date plus estimate to complete since the project works are not yet complete. In particular, the shiplift is not scheduled to be complete until 1997. - 8 - 29. At appraisal, the IERR was calculated on a programmatic basis with costs of Yantan and TSQ related to estimated 1993 system tariffs at end-1985 price levels, yielding an IERR of 12 percent. Yantan without TSQ yielded 11 percent. Since TSQ is being implemented by another agency and costs are not available, the IERR of Yantan alone was repeated ex-ante. With 1994 economic costs and average system tariff, IERR decreases from 11 to 8 percent, which is a reflection of low GEPB average tariffs (17.47 fen/kWh), which considerably underestimate current "willingness to pay". Due to tariff reforms since the original appraisal, Yantan power is now sold to the grid at a price (25.04 fen/kWh) which provides a more direct measure of "willingness to pay." At this price the IERR increases to 12.5 percent. A less conservative estimate based on the price paid for energy from joint investment thermal power plants, 38 fen/kWh, increases the IERR to 16 percent. It can be concluded that the economic justification of the project remains valid. 30. Financial Performance. GEPB's projected and actual financial statements for 1986-1994 are presented in Annex 1. Over that period, increases in annual energy sales and average tariffs were generally higher than projected. Energy sales in 1994 were double those in 1986, and the average tariff increased from 7.2 fen/kWh in 1986 to 17.47 fen/kWh in 1994. While GEPB's operating revenue increased almost fivefold, net operating revenue growth was slower than projected due to higher-than-expected inflation, and higher power purchase costs. The latter have increased dramatically, since nonutility generation has increased considerably in recent years. This has adversely affected GEPB's net income; the profit ratio in 1993 was around 8 percent, as opposed to the projected 18 percent. Despite the unfavorable cost structure and lower net income, GEPB has maintained its profitability to a satisfactory degree. For the past nine years, it has complied with the break-even financial covenant, which requires annual operating revenues to exceed the sum of annual cash operating costs and financial obligations. The Funds Flow Statement shows that from 1989 to 1991 borrowing and capital expenditures were less than projected by approximately Y 800 million, again reflecting its reduced share of new generation. This led to lower fixed assets on the balance sheet than projected until 1993 when fixed assets were revalued pursuant to a nationwide policy. The lower-than- expected borrowing enabled GEPB to maintain low debt:equity ratios (40 to 60 percent) and a high debt service coverage, the lowest being 2.9 times in 1993, in comparison with the covenanted value of 1.3.4/ In summary, GEPB has achieved a satisfactory operating performance and maintained reasonable capital structure, and complied with financial performance covenants. D. PROJECT SUSTAINABLrry 31. All elements are present to ensure sustainability of the project. Technically, the finished hydroelectric develVpment is of good quality and the units have operated at a high availability over the initial operating period of up to three years. Efficient and economic operation is expected based on GEPB's past record of hydroelectric plant 4/ Unaudited 1994 accounts show a debt service ratio of 1.4. However, this is apparently due to anomalous loan repayment numbers. - 9 - operation and the arrangements for the current project, as set out in the Operation Plan. Financially, the pricing arrangements for the plant output will ensure satisfactory financial and economic returns. On the institutional side, the tide of economic reform in China is creating expectations far beyond those at appraisal. Various institutional restructuring arrangements are being considered including the vesting of the hydro assets on the Hongshui into a new company, where they will be used to generate funds and raise capital for future hydro developments on the Hongshui, in particular the Longtan project. 32. With regard to resettlement, although income targets have not yet been met, the resettlement is expected to become fully sustainable within a few years, as the economic base becomes fully established. The replacement of much rice and corn agriculture with orchards has the potential to significantly improve standards of living in the medium term. The EMMP is sustainable as evidenced by the fact that it was designed and implemented in the absence of any apparent influence from the Bank (there were no conditionalities beyond the public health program), together with the fact that such programs are standard operational procedure on large dams in China and have been for many years. E. BANK PERFORMANCE 33. Bank performance in project preparation and appraisal was satisfactory. Positive aspects were its agreement to participate based on the Borrower's perception of the advantages of Bank involvement, early concentration on procure. nent of key items, and technical assistance to a beneficiary who had no international experience. The appraisal of the environment and resettlement plan were in keeping with practice at the time. In retrospect, negative aspects were overoptimism in assessment ot local capabilities and inadequate allowance in the loan amount for contingencies. An increase in the loan amount from 5 to 10 percent of project costs would still have entailed minimum use of foreign exchange, while implementation delays could probably have been avoided. 34. In the supervision phase, the Bank's performance was generally satisfactory, although project visits were less frequent in the later phases. 3 Aore importantly, the supervision of resettlement did not fully reflect the increased emphasis given to this aspect in China over the implementation period. Each Bank mission covered resettlement, but the emphasis was on relocation of population rather than reestablishment of income. There were two specific resettlement missions in 1991 and 1992, the latter in conjunction with an overall resettlement review in Bank projects in China. While both missions provided many useful suggestions, neither emphasized that production measures were running behind relocation measures. F. BORROWER PERFORMANCE 35. GEPB successfully completed the project with only modest cost and time overruns. It overcame problems as they arose, introduced and absorbed modern technologies and construction management techniques, and took full advantage of the training opportunities. It is also worth noting that Yantan was one of the first projects - 10- implemented under the Government's construction industry reform measures, which provided for separation of owner, designer and construction manager, and competitive bidding for most works and goods. During implementation, the various parties adapted well to their new roles and responsibilities. In particular, the construction manager, GYHPCC, has emerged as a strong, competent company which is expected to manage construction of Longtan. The main contractor, GHCB, reportedly "went through a tortuous and arduous course" in adapting from force account unit to contractor, but eventually achieved production rates similar to international contractors. It has now been successful in winning contracts internationally, and intends to bid in joint venture for Longtan. G. ASSESSMENT OF OUTCOME 36. The project outcome is rated as satisfactory. It would have been rated as highly satisfactory except for commissioning delays, which extended to one year for later generating units and delays in full income restoration of resettlers. H. FUFURE OPERATION 37. GEPB's Operation Plan summarizes the arrangements made for future operations of the power plant in terms of organization and staffing of the operating unit, operating and maintenance procedures, dam safety inspections, spillway operations, and environmental monitoring. With regard to resettlement, Y 51 million of the budget of Y 426 million has yet to be spent on production development in 1995. Thereafter, the reservoir development fund will generate income based on energy production; this should sustain the workplan of the GRO. It is clear that the GRO should remain fully active until it has been demonstrated that resettlers have reached income targets and are engaged in sustainable activities. This may take several years. The EMMP provides for continuation of monitoring as required (not all aspects need to be continued indefinitely) and, based on performance to date, there is every expectation that this will happen. 38. The Bank expects to continue its involvement in South China in connection with the Longtan project, which will include more ambitious goals for institutional development and sector commercialization. It will also be important in justifying the Longtan project to demonstrate that the Yantan project eventually met its resettlement objectives, and to incorporate lessons learned at Yantan in the Longtan resettlement planning and implementation. In this context, the Bank will continue to observe and comment as appropriate on continuing operations at Yantan. I. KEY LESSONS LEARNED 39. In a project such as Yantan, which relies heavily on local capabilities, it is important to guard against overoptimism with respect to these capabilities, particularly in areas where traditional Chinese hydroelectric implementation has not provided exposure to modem techniques and technology. In the context of China's rapid economic growth, it is also important to assess the manufacturing capacity and workload of local suppliers - 11 - and thus their capability to deliver on time. The three areas where local capabilities were evidently overestimated are the following: (a) Turbine and generator manufacturing capacity was overestimated given the advanced technology and the supplier's heavy commitments on other projects, also with high national priority; an arrangement where a high proportion of local content is maintained but a fully experienced foreign manufacturer takes full responsibility and provides enforceable guarantees would probably have provided on-time commissioning. (b) High technology equipment quality was overestimated in two cases: the 500 kV gas insulated switchgear (GIS), and transformers. The lack of domestic capability to produce the GIS was recognized early, but with foreign exchange limitations, the decision to use a foreign manufacturer led to delays. The transformer deficiencies were not recognized until the equipment failed acceptance tests. While the objective of upgrading local manufacturing capabilities is laudable, it is important to build safeguards into the process, such as guarantees by fully experienced manufacturers; backup of unproven equipment with fully tested designs; and allowance in schedules for possible delays. (c) Local organizations performed admirably, particularly considering that this was their first exposure to Western contract management methods. However, the project would probably have benefited from increased technical assistance in a few areas, including international procurement, cost control and resettlement. 40. In the area of resettlement, while the Chinese authorities have been diligent in the execution of their duties and the resettlement program is expected to eventually achieve its objectives, the reestablishment of living standard is not yet complete. The key lesson learned is that, in common with most resettlement projects, the resettlement was more extensive, more costly, more complex and more time-consuming than originally contemplated. For a large resettlement project such as Yantan, it is important that project preparation in relation to resettlement be at least as advanced as that of the construction component, and preferably further advanced. This would help to solve the underestimation of numbers and costs, and allow early concentration on the true critical-path activity: the reestablishment of income. On the Bank side, increased resettlement supervision and, in particular, an extensive mid-term review of resettlement implementation would probably have resulted in a more favorable outcome. - 12 - PART II: STATISTICAL TABLES Table 1: SUMMARY OF ASSESSMENTS Achievement of Objectives Not Substantial Partial Negligible applicable Macroeconomic policies X Sector policies X Financial objectives X Institutional development X Physical objectives X Poverty reduction X Gender concerns X Other social objectives X Environmental objectives X Public sector management X Private sector development X Project Sustainability Likely Unlikely Uncertain x Bank Performance Highly satisfactory Satisfactory Deficient Identification X Preparation assistance X Appraisal X Supervision X - 13 - Borrower Performance Highly satisfactory Satisfactory Deficient Preparation X Implementation X Covenant compliance X Assessment of Outcome Highly satisfactory Satisfactory Unsatisfactory Highly unsatisfactory x - 14 - Table 2: RELATED BANK LoANs Year of Loan title Purpose approval Status Ln 2382-CHA To construct a rockfill dam, a spillway, 02/21/84 Loan was closed on Lubuge an underground powerhouse, to install 06/30/92. Hydroelectric four generating units of 150 MW each, Project three single circuits of 220 kV transmission lines; to provide consultant services and a training program. Ln 2493-CHA To construct a 500 kV transmission line 02/19/85 Loan was closed on Second Power from Xuzhou to Shanghai and 5 06/30/92. Project associated substations totaling 3,500 MVA in capacity, to install tele-control and telecommunications equipment for load dispatching, and to provide training for 500 kV transmission lines and substations. Ln 2706-CHA To construct a coal-fired thermal power 06/14/88 First loan closed & project with two units of 600 MW and 06/30/94. Closing Ln 2955-CHA two single circuit of 500 kV transmission date for second Beilungang lines, and to carry out a tariff study, a 06/30/95. Thermal Power study on ZPEPB's reorganization and Projects I & II management improvement and a study for improvement of distribution networks for the cities of Hangzhou and Ningbo. Ln 2707-CHA To construct a 110 m high concrete 05/29/86 Loan was closed on Yantan Hydro- gravity dam, a spillway, a powerhouse, 06/30/94. electric Project and a shiplift; to install 4 generating units of 275 MW each, 2 single circuits of 500 kV transmission lines and 3 associated substations; and to carry out a training program. Ln 2775-CHA To construct a 101 m high, concrete 01/06/87 & Implementation under & gravity dam, a spillway, a powerhouse 09/01!92 way. Closing dates Ln 3515-CHA and a navigation lock; to install 7 06/30/93 & 12/31/96. Shuikou generating units of 200 MW each; to Hydroelectric carry out a resettlement program in the Projects I & 11 reservoir, an action plan for tariff reform, and a training program for plan- ning and financial management. - 15 - Table 2: (CONT'D) Year of Loan title Purpose approval Status Ln 2852-CHA To install 2 additional coal-fired units of 06/23/87 Two units Wujing Thermal 300 MW each and associated 220 kV commissioned in Power Project transmission lines and substations; to 1992. Closing date provide on-line computer control and 06/30/95. automatic load dispatching center; to carry out a masterplan study for the distribution network in Shanghai and a training program. Ln 3387-CHA To construct a 240 m high arch dam 07/02/91 Implementation under Ertan Hydro- with an underground powerhouse, to way. Closing date electric Project install 6 550-MW generating units and 12/31/96. associated equipment; to carry out an environmental management program, studies of power pricing and reservoir operation, and a training program. Cr 2305 & To construct a 56 m high gravity dam 10/31/91 Implementation under LIn 3412-CHA and an underground powerhouse with 4 x way. Closing date Daguangba 60 MW generating units; to erect a 36 12/31/97. Multipurpose km long double-circuit 220 kV Project transmission line and to build canals to irrigate 12,700 ha of land. Ln 3433-CHA To install 2 300-MW generating units 01/14/92 Implementation under Yanshi Thermal and 5 220-kV transmission lines and way. Closing date Power Project associated substations; to carry out a 12/31/97. tariff study, a tariff action plan, and a training program for upgrading the technical, financial and management skills for HPEPB staff. Ln 3462-CHA To install 2 additional 600 MW 04/12/92 Implementation under Zouxian Ther- generating units; to construct 500 kV and way. Closing date mal Power 220 kV transmission lines and 06/30/99. Project substations; and to carry out an air quality control study, a power tariff study, an action plan for tariff adjust- ment, and a training program for the technical, financial, and management staff of SPEPB. - 16 - Table 2: (CONT'D) Year of Loan title Purpose approval Status Ln 3606-CHA To construct a pumped-storage 05/18/93 Implementation under Tianhuangping hydroelectric power plant with six way. Closing date Hydroelectric 300 MW reversible pump-turbine units, 12/31/2001. Project together with upper and lower reservoirs, a water conveyance system, an underground powerhouse; to erect 250 km long 500 kV transmission lines; to carry out studies of optimal power plant operation and its output pricing; and to strengthen the beneficiary's organization through technical assistance and training. Ln 3718-CHA To construct a coal-fired thermal power 03/22/94 Implementation under Yangzhou plant with two 600 MW generating units; way. Closing date Thermal Power to erect two 500 kV transmission lines 12/31/2000. Project (30 km long); to extend technical assistance for the development and implementation of improved accounting and financial management information systems; and undertake management development and staff training. Ln 3848-CHA To construct a new 500 kV transmission 02/28/95 Implementation Sichuan network consisting of 2,260 km of commenced. Closing Transmission transmission lines and 5,250 MVA of date 12/31/2001 Project substations, provide technical assistance for implementation of sector reform plan, organizational improvements and financial management systems. Ln 3846-CHA To construct Beilungang Phase II power 02/28/95 Implementation Zhejiang Power plant consisting of three 600 MW coal commenced. Closing Development fired units; to construct 400 circuit km of date 12/31/2002 Project 500 kV transmission lines, 2250 MVA of 500 kV substations and reinforce distribution networks in Hangzhou and Ningbo; to extend technical assistance to assist the power company in commercialization and corporatization, establish computerized financial management information system, improve transmission and distribution planning and upgrade environmental monitoring. - 17 - Table 3: PROJECT TIMETABLE Steps in project cycle Date planned Date actual/latest estimate Identification 06/85 Preparation 09/85 09/85 Appraisal 02/86 11/85 Negotiations 09/86 04/86 Board presentation 12/86 05/29/86 Signing 07/01/86 Effectiveness 08/27/86 Project Completion 12/30/92/a 05/94 Loan closing 06/30/93 06/30/94 /a Bank-financed components. Table 4: LoAN DISBURSEMENTS: CUMULATIVE ESTIMATED AND AcTuAL FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 Appraisal estimate 2.0 22.0 34.0 41.0 46.0 50.0 52.0 52.0 52.0 Actual /a 8.6 20.2 26.8 31.5 35.6 38.5 49.9 51.8 51.9 Actual as % of estimate 430.0 91.8 78.8 76.8 77.4 77.0 96.0 99.6 99.8 Final disbursement: October 1994. /a Total disbursement amount is $51,939,106. - 18 - Table 5: KEY INDICATORS FOR PROJECT IMPLEMENTATION Indicators Appraisal Estimate Actual 1. Preparatory 1/86-12/87 1/86-12/88 2. Resettlement 1/88-12/92 1/88-12/93 3. Civil Works a. River Closure 12/88 12/87 b. Impoundment 3/92 3/92 c. Excavation (1) dam 1/86-12/88 1/86-12/88 (2) power house 1/87-12/88 1/87-6/89 (3) shiplift 1/91-3/92 12/92-2/93 d. Concreting (1) dam 4/88-9/91 4/88-3/92 (2) power house 1/89-12/91 4/88-3/92 (3) shiplift 1/89-12/91 2/93-12/95 4. Equipment Installationla Unit 1 6/92 9/92 Unit 2 3/93 8/93 Unit 3 12/93 6/94 Unit 4 9/94 6/95 5. Project Completion 12/94/b /a Commissioning of generating units. /b Except for shiplift which will be completed 12/97. - 19 - Table 6: KEY INDICATORS FOR PROJECT OPERATION (Not Applicable) Table 7: STUDIES INCLUDED IN PROJECT (Not applicable) - 20 - Table 8a-1: PROJECT COSTS Item Appraisal estimate (Y M) Actual/latest (Y M) Local Foreign Total Local Foreign Total Preparatory work 35.9 - 35.9 81.7 - 81.7 Land, compensation and resettlement 75.8 - 75.8 88.2 - 88.2 Construction equipment and plants 78.3 19.4 97.7 20.4 21.9 42.3 Civil works 124.1 72.0 196.1 203.0 12.9 215.9 Electrical, mechanical equipment and computers 100.5 2.8 103.3 101.4 16.5 117.9 Engineering and consulting services 5.3 2.5 7.8 1.9 0.2 2.1 Supervision and administration 1.8 - 1.8 4.7 - 4.7 Training 1.6 1.0 2.6 0.7 0.4 1.1 Base Cost 423.3 97.7 521.0 502.0 51.9 553.9 Contingencies Physical 39.5 8.5 48.0 21.8/a - 21.8 Price 163.5 33.2 196.7 18.2 - 18.2 Total Project Cost 626.3 139.4 765.7 542.0 51.9 593.9 Interest during construction Bank loan - 17.5 17.5 - 14.0 14.0 Local loans 133.0 - 133.0 47.0 - 47.0 Total Financing Required 759.3 156.9 916.2 589.0 65.9 654.9 /a Physical and price contingencies until completion of shiplift. These represent balance of contingency remaining after last reestimate and probably overestimate actual cost at completion. - 21 - Table 8a-2: PROJECT COSTS Item Appraisal estimate (Y M) Actual/latest (Y M) Local Foreign Total Local Foreign Total Preparatory work 107.6 - 107.6 336.5 - 336.5 Land, compensation and resettlement 227.5 - 227.5 439.3 - 439.3 Construction equipment and plants 234.9 58.2 293.1 80.3 82.7 163.0 Civil works 372.3 216.0 588.3 1,088.4 57.2 1,145.6 Electrical, mechanical equipment and computers 301.4 8.4 309.8 685.3 74.9 760.2 Engineering and consulting services 15.9 7.5 23.4 10.4 0.8 11.2 Supervision and administration 5.4 - 5.4 23.4 - 23.4 Training 4.8 3.0 7.8 3.5 1.6 5.1 Base Cost 1,269.8 293.1 1,562.9 2,667.1 217.2 2,884.3 Contingencies Physical 118.4 25.7 144.1 139.0 5.9 144.9 Price 490.7 99.7 590.4 135.5 12.0 147.6 Total Proiect Cost 1,878.9 418.5 2,297.4 2.941.6 235.1 3.176.7 Interest during construction Bank loan - 52.4 52.4 - 80.0 80.0 Local loans 398.9 - 398.9 346.1 - 346.1 Total Financinn Required 2,277.83 470.9 2,748.7 3.287.7 315.1 3,602.8 Table 8b: PROJECT FINANCING /a Source Appraisal estimate ($ M) Actual ($ M) Local Foreign Total Local Foreign Total IBRD 0 52.0 52.0 0.0 51.9 51.9 Local bank 759.3 104.9 864.2 590.0 13.0 603.0 Total 759.3 156.9 916.2 590.0 64.9 654.9 /a Does not include NK 18 million financing from Norway, which was anticipated at appraisal (but not included in tables) and actually occurred. Table 8c: ACTUAL AND PROJECTED PROJECT COSTS (in Y or $ million) 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Total Foreign I. construction equipment 0.00 0.00 0.00 0.00 14.06 5.47 1.30 0.29 0.05 0.00 0.01 0.03 0.00 0.00 0.00 21.22 2. steel 0.00 0.00 0.00 0.00 0 00 4 42 0 64 7.54 0.37 0.00 0.00 0.00 0.00 0.00 0.00 12.97 3. station automation 0.00 0.00 0.00 0.00 0 00 0 00 0 00 0.00 0.80 0.99 0.20 0.00 0.00 0.00 0.00 2.00 4. penstock processing equipment 0.00 0.00 0.00 0.00 0.00 0.47 0.07 0.00 0.00 0.00 0.00 0.10 0.00 0.00 0.00 0.64 5. computers for design 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.20 0.47 0.00 0.00 0.00 0.67 6. GIS equipment 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.25 11.20 1.41 0.00 0.00 0.00 0.00 13.85 7. technical consultation 0.00 0.00 0.00 0.00 0.06 0.06 0.10 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.23 8. technical training 0.00 0.00 0.00 0.00 0.00 0.00 0.11 0.21 0.04 0.00 0.00 0.00 0.00 0.00 0.00 0.36 Total LBRD Loan 0.00 0.00 0.00 0.00 14.12 10.43 2.22 8.05 2.51 12.19 1.82 0.60 0.00 0.00 0.00 51.94 1}3RD Loan in Yuan 0.00 0.00 0.00 0.00 52.69 38.90 8.48 38.80 13.44 67.42 10.51 5.22 0.00 0.00 0.00 235.47 Domestic 1. capital training in yuan 8.76 57.03 100.42 145.00 135.47 131.51 131.02 201.20 303.46 298.81 317.19 604.85 160.00 194.49 152.34 2,941.56 2. interest during construction Foreign - accrued ($) 0.00 0.00 0.00 0.00 0.72 0.18 2.11 2.78 1.47 0.00 0.00 0.00 0.00 0.00 0.00 " (Y) 0.00 0.00 0.00 0.00 2.68 6.74 8.96 13.94 7.86 0.00 0.00 0.00 0.00 0.00 0.00 40.17 Foreign -paid ($) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.67 3.76 1.94 0.00 0.00 0.00 0.00 " (YM 0000 0.00 0.00 0.00 0.00 0.00 0.00 0.00 8.43 21.20 10.33 0.00 0.00 0.00 0.00 39.97 Domestic IDC 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4.16 27.56 88.97 89.86 100.00 35.51 0.00 346.06 Total local investment 8.76 57.03 100.42 145.00 135.47 131.51 131.02 201.20 316.06 347.58 416.49 694.71 260.00 230.00 152.34 3,327.59 Total Project Costs in Yuan 8.76 57.03 100.42 145.00 188.16 170.42 139.50 240.00 329.50 415.00 427.00 699.93 260.00 230.00 152.34 3,563.06 Total Project Costs (excl. IDC) 8.76 57.03 100.42 145.00 188.16 170.42 139.50 240.00 316.91 366.24 327.70 610.07 160.00 194.49 152.34 3,177.03 Official exchange rate 1.9859 2.7032 3.62 3.7314 3.7314 3.7314 3.8149 4.8174 5.3643 5.5305 5.7737 8.72 8.72 8.43 8.43 Shadow exchange rate 1.9859 2.7032 3.62 3.2 4 5.5 5.5 5.5 5.5 6.3 7.5 9 8.43 8.43 8.43 SCF (standard conversion factor) 1.00 1.00 1.00 0.86 1.07 1.47 1.44 1.14 1.03 1.14 1.30 1.03 0.97 1.00 1.00 CF used for Yantan project 1.20 1.20 1.20 1.03 1.29 1.77 1.73 1.37 1.23 1.37 1.56 1.24 1.16 1.20 1.20 Inflation (actual rates before 1994) foreign (MUV) -2.3 -2.1 0.8 17.9 9.8 7.3 -0.7 5.7 2.1 4.3 -0.4 3.1 2.6 2.6 2.6 domestic 1.5 2.8 8.8 6 7.3 18.5 17.8 2.1 2.9 5.4 13 20 14 10.5 8.5 Deescalation factor (1985 price level) foreign 1 1.09 1.24 1.34 1.38 1.42 1.47 1.52 1.55 1.57 1.62 1.66 1.70 domestic 1 1.03 1.10 1.24 1.47 1.60 1.64 1.71 1.87 2.19 2.55 2.86 3.13 Deescalated costs (1985 price level) foreign 0.00 0.00 0.00 0.00 11.42 7.77 1.61 5.68 1.70 8.02 1.17 0.38 0.00 0.00 0.00 37.74 local (excl. IDC) 8.76 57.03 100.42 140.78 123.30 105.84 89.27 125.41 184.53 174.43 169.40 276.78 62.72 67.99 48.66 1,735.31 Total deescal. costs (1985 price level) 1,871.95 Table 9: EcoNoMIc ANALYSIS OF POWER PLANT Year 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Yantan Power absorption bv grid (MW) 81 31 688 Energy absorption by grid (GWh) 0 0 0 0 0 0 0 0 0 442 2,274 3,099 Economic capital cost NYxl0', 1994 constant) /a 72.64 354.80 462.76 471.56 696.62 808.51 637.63 650.84 678.84 810.57 795.40 755.59 Operating cost (Yx106) 10.74 32.22 53.70 Total cost (YxlO6I 72.64 354.80 462.76 471.56 696.62 808.51 637.63 650.84 678.84 821.31 827.62 809.29 AIC of Yantan (Yuan) 0.2516 Coal Alternative Equivalent coal capacity 100.15 473.70 854.25 Equivalent coal energy 0 0 0 0 0 0 0 0 0 468.52 2,410.44 3,284.94 Installation schedule 300 300 300 Cumulative capacity 300 600 900 Coal unit 1 183.18 549.54 732.72 366.36 Coal unit 2 183.18 549.54 732.72 366.36 Coal unit 3 183.18 549.54 732.72 366.36 Coal unit 4 183.18 549.54 732.72 Coal unit 5 183.18 549.54 Capital cost (YxlO6) 183.18 732.72 1,465.44 1,831.80 1,831.80 1,648.62 Fuel cost (YxI06) 58.75 302.27 411.93 Operating and maint. (YxlO6) 54.95 109.91 164.86 Total cost (Yx106) 0 0 0 0 0 0 183.18 732.72 1,465.44 1,945.51 2,243.98 2,225.41 AIC of coal alternative (Yuan) 0.3579 Cost difference (coal-hydro) (72.64) (354.80) (462.76) (471.56) (696.62) (808.51) (454.45) 81.88 786.60 1,134.94 1,448.58 1,469.82 Equalizing discount rate ' 9 . U V of Yantan project costs 3,387.82 NPV of thermal alternative 5,420.52 NPV of thermal/NPV of hydro 1.60 IRR calculations Benefit (GEPB 1994 average tariff) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 61.37 315.73 430.27 Benefit - cost (72.64) (354.80) (462.76) (471.56) (696.62) (808.51) (637.63) (650.84) (678.84) (749.20) (479.67) (325.32) IRR based on GEPB 1994 tariff 8.12% Benefit (tariff to the grid) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 110.68 569.41 775.99 Benefit - cost (72.64) (354.80) (462.76) (471.56) (696.62) (808.51) (637.63) (650.84) (678.84) (699.89) (225.99) 20.40 IRR based on Yantan tariff to grid 12.45% Benefit (willingness to pay) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 167.96 864.12 1,177.62 Benefit - cost (72.64) (354.80) (462.76) (471.56) (696.62) (808.51) (637.63) (650.84) (678.84) (642.61) 68.72 422.03 IRR based on willingness to pav 16.16% Assumptions Coal plant (economic costs) Yantan Capacity cost (Y/kW een.) 6,i06 Operating and maint. Hydro (Y/kW) 78.11 Fuel consumptnon (g/kWh gen) 330 Design life hydro (years) 50 Coal cost (Ylton std.) 380 Auxiliary power use (%) 0.3 Fuel cost per kWh gen 0.1254 Forced outage (%) 0.5 Disbursement rate coal plants 0.1 0.3 0.4 0.2 Annual overhaul (days) 7 Operating and maintenance (Y/kW) 183.18 Economuc life (years) 30 Auxiliary power use % 6 GEPB 1994 average tariff 0.1747 Forced outage % 8 Yantan tariff to gnd 0.2504 Annual overhaul (days) 42 Willingness to pay 0.3800 Table 9: (CoNT'D) Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Yantan Power absorption by grid (MW) 963 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Energy absorption by grid (GWh) 4,300 5.100 5,500 6.000 6,420 6.420 6,420 6,420 6,420 6,420 6,420 Economic capital cost (YxlO6, 1994 constant) 185.61 241.41 189.09 Operating cost (Yx106) 75.18 85.92 85.92 85.92 85.92 85.92 85.92 85.92 85.92 85.92 85.92 Total cost (YxI16) 260.80 327.33 275.02 85.92 85.92 85.92 85.92 85.92 85.92 85.92 85.092 AIC of Yantan (Yuan) Coal Alternative Equivalent coal capacity 1,195.95 1,242.55 Equivalent coal energy 4,558.00 5,406.00 5,830.00 6,360.00 6,805.20 6,805.20 6,805.20 6,805.20 6,805.20 6,805.20 6,805.20 Installation schedule 300 300 Cumulative capacity 1,200 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 Coal unit I Coal unit 2 Coal unit 3 Coal unit 4 366.36 Coal unit 5 732.72 366.36 Capital cost (Yx106) 1,099.08 366.36 Fuel cost (YxlO6) 571.57 677.91 731.08 797.54 853.37 853.37 853.37 853.37 853.37 853.37 853.37 Operating and maint. (Yx106) 219.82 274.77 274.77 274.77 274.77 274.77 274.77 274.77 274.77 274.77 274.77 Total cost (Yx106) 1,890.47 1,319.04 1,005.85 1,072.31 1,128.14 1,128.14 1,128.14 1,128.14 1,128.14 1,128.14 1,128.14 AIC of coal alternative (Yuan) Cost difference (coal-hydro) 1,704.85 1,077.63 816.76 1,072.31 1,128.14 1,128.14 1,128.14 1,128.14 l,I1282X14 1,128.14 Equalizing discount rate NPV of Yantan project costs NPV of thermal alternative NPV of thermal/NPV of hvdro 3RR cakulations Benefit (GEPB 1994 average tariff) 597.02 708.10 763.64 833.06 891.37 891.37 891.37 891.37 891.37 891.37 891.37 Benefit- cost 411.41 466.69 574.54 833.06 891.37 891.37 891.37 891.37 891.37 891.37 891.37 IRR based on GEPB 1994 tariff Benefit (tariff to the grid) 1,076.72 1,277.04 1,377.20 1,502.40 1,607.57 1,607.57 1,607.57 1,607.57 1,607.57 1,607.57 1,607.57 Benefit - cost 891.11 1,035.63 1,188.11 1,502.40 1,607.57 1,607.57 1,607.57 1,607.57 1,607.57 1,607.57 1,607.57 IRR based on Yantan tariff to grid Benef'it (willingness to pay) 1,634 00 1,938.00 2,090.00 2,280.00 2,439.60 2,439.60 2,439.60 2,439.60 2,439.60 2,439.60 2,439.60 Benefit - cost 1,448.39 1,696.59 1,900.91 2,280.00 2,439.60 2,439.60 2,439.60 2,439.60 2,439.60 2,439.60 2,439.60 IRR based on willingness to pay /a Economic costs in tUS dollars calculated annually by (i) multiplying local costs by conversion factor (2.0 for mechanical and electrical equipment, and standard conversion factor for other items); (ii) converting at the official exchange rate; and (iii) adding to foreign costs. These were escalated to 1994 using MUV index, and reconverted to Yuan using the 1994 exchange rate. Table 10: STATUS OF LEGAL COVENANTS Agreement Section Covenant Present Original Revised Description of covenant Comments type status fulfillment fulfillment date date Loan 3.01 10 C Government to carry out training program to strengthen capability of MWREP and other related institution in financial planning. 3.04 7 C Government to carry out resettlement program satisfactory to the Bank. 4.01(b) 1 C Government to furnish to the Bank, & (c) not later than June 30, annual audit reports by independent auditors. Project 2.05(b) 10 C GEPB to carry out training program to strengthen capability of GEPB in operation and maintenance, financial management and planning. 3.04 10 C GEPB to carry out a program acceptable to the Bank to improve public health in the reservoir area 3.05 10 C GEPB to provide for periodic independent inspection of dams during construction and after completion 4.01(b) 1,2 C GEPB to furnish to the Bank, not later than June 30, (a) annual financial statements audited by independent auditors acceptable to the Bank, and (b) audit reports. Table 10: (CONT'D) Agreement Section Covenant Present Original Revised Description of covenant Comments type status fulfillment fulfillment date date 4.02 2 C GEPB will take, or cause to be taken, measures as shall be required to produce for each of its fiscal years after December 31, 1985, operating revenues equivalent to not less than the sum of its total operating expenses and the amount by which its financial obligations exceed the provision for depreciation and any other noncash operating expenses. 4.03 2 C GEPB will not incur any long-term debt if the debt service coverage is projected to be less than 1.3 times. 4.04 2 C GEPB will furnish to the Bank by December 31 of each year, for its comment, a five-year rolling financial plan containing income statements, sources and uses of funds, and balance sheets. - 27 - Table 11: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS (Not Applicable) Table 12: BANK REsouRcEs: STAFF INPUTS Stage of Actual project cycle Weeks $'000 Preparation to appraisal 17.4 n.a. Appraisal 25.8 n.a. Negotiations through Board approval 3.8 n.a. Supervision 53.5 n.a. Completion 9.0 n.a. Total 109.6 n.a. Table 13: BANK RESOURCES: MISSIONS Performance ratinz Stage of Month/ No. of Days in Specialized staff Implem. Dev. project cycle year persons field skills represented/a status objectives Types of problems Through appraisal 06/85 2 2 E,FA 11/85 4 15 E,FA,FA,R Appraisal through Board approval Board approval through effectiveness Supervision (1) 10/86 1 5 E NRib Flood damage. (2) 11/87 2 8 E,FA I Training delays, progress reports. oo (3) 08/88 2 6 E,FA 1 Procurement, foreign fund shortage, cableway, progress reports. (4) 10/89 2 4 E,FA 1 Cableway, delay, spare part shortages, procurement, resettlement financing. (5) 10/90 3 5 E,E,FA 1 Cableway delays, procurement, foreign fund, cost control. (6) 12/91/c 1 6 R NR Economic rehabilitation planning. (7) 09/92/c 1 R NR (8) 05/93 1 3 E 1 Concrete quality, cost overrun, progress reports, equipment delivery delays. (9) 10/93 1 7 E 1 Equipment delivery delays /a E: Engineer, FA: Financial Analvst, EC: Economist, R: Resettlement Specialist. /b NR: Not Rated. /c Supervision of resettlement component. No Form 590 prepared. - 29 - ANNEX 1 ANNEX 1: PROJECTED AND ACTUAL FINANCIAL STATEMENTS OF GEPB (1986-94) Table 1: INCOME STATEMENT (Y million) 1986 1987 1988 1989 1990 1991 1992 1993 1994 Year Ended December 31 Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Operating Revenues Sales Increase (%) 7.1 15.3 10.0 13.1 10.5 (4.1) 10.3 8.9 15.0 15.0 9.3 9.1 9.0 9.5 9.2 23.1 9.3 12.7 Energy Sales (GWh) 5,280 5,908 5,810 6,683 6,420 6,410 7,080 6,984 8,142 8,033 8,900 8,760 9,700 9,596 10,590 11,812 11.570 13,316 Average Price (fenlkWh) 7.1 7.2 7.1 7.4 7.1 7.7 7.1 9.1 7.7 8.7 7.7 10.9 8.6 11.1 11.3 11.8 11.3 17.5 Total Operating Revenues 375 424 413 491 456 491 503 634 630 699 689 953 838 1,063 1,201 1.397 1,312 2.326 Operating Costs Fuel 83 104 113 145 140 149 184 158 222 148 251 297 303 328 296 307 Purchased Power 22 24 22 23 22 23 25 120 67 124 50 177 70 214 77 47 Operation & Maintenance 36 42 45 51 48 56 57 63 65 86 73 100 77 115 104 130 Administration 10 12 11 13 13 16 14 18 15 30 17 30 19 43 20 22 Sales Tax 56 104 62 117 69 85 75 99 95 105 103 122 126 135 180 152 197 356 Depreciation 38 45 45 54 50 61 57 64 67 71 77 86 84 95 III 158 Other Expenses 0 0 0 1 0 1 0 6 0 7 0 8 0 15 0 0 Total Operatinx Costs 245 331 298 403 342 390 412 528 531 571 571 820 679 945 788 1,240 861 1.967 ° Operating Income 130 93 115 88 114 101 91 105 99 128 118 133 159 118 413 158 451 359 Other Income (Losses) 0 (3) 0 (2) 0 (3) 0 8 0 (3) 0 (9) 0 (8) 0 (4) 0 67 Interest Charged to Operation 0 0 4 0 9 0 12 0 10 0 i0 0 40 0 41 13 38 185 NetIncomeBeforeIncomeTax 130 90 111 86 105 98 79 113 89 125 108 123 119 110 372 141 413 241 Income Tax 72 38 51 36 51 27 30 35 40 38 50 36 19 30 156 26 198 65 Net Income 58 52 60 50 54 70 49 78 49 86 58 87 100 80 216 115 215 176 Distribution of Net Income RemittancetoGovemment 49 18 32 11 32 15 11 17 11 17 6 13 4 18 19 0 47 0 Transferred to Govemment Fund 0 18 18 19 12 46 25 48 17 53 19 57 84 54 87 0 54 0 Retained Earnings 9 16 10 20 10 9 13 14 21 16 33 17 12 7 109 115 115 176 Rate of Retum on Average Net Fixed Assets in Service 13.6 4.4 10.1 3.8 8.9 5.3 6.3 5.2 5.7 5.2 6.0 4.8 7.5 4.3 14.1 3.6 10.3 8.1 ._ ~~~~~~~~~~z z Table 2: BALANCE SHEET (Y million) 1986 1987 1988 1989 1990 1991 1992 1993 1994 Year Ended December 31 Proj. Actual Proj. Actual Proj. Actual PFroj.Act`ua Proj, Actual Proj. Actuaif Proj. Actual Proj. Actual Pro-Actu ASSETS Current Assets C'asF 72 78 86 67 101 75 118 171 136 267 157 245 184 271 195 650 227 1,084 Inventories 25 39 29 42 33 48 38 61 43 77 47 65 52 70 56 92 61 128 Accounts Receivable 42 44 44 34 46 44 48 54 50 118 52 234 54 232 55 560 58 529 Other Current Assets 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 1 0 9 Total Current Assets 139 161 159 143 180 166 204 287 229 462 256 543 290 575 306 1,303 346 1,749 Long-term Investment 0 0 0 0 0 0 0 0 0 0 0 0 0 18 0 77 0 1,000 Fixed Assets Plant -m Service 1,317 1,689 1,662 1,757 1,702 1,820 2,086 1,938 2,397 2,033 2,708 2,173 2,893 2,219 4,495 4,535 6,032 5,098 Less: Accum. Depreciation (330) (332) (374) (383) (425) (438) (482) (498) (549) (555) (625) (640) (709) (721) (820) (1,195) (978) (1,260) Net Plant in Service 987 1,358 1,288 1,374 1,277 1,382 1,604 1,441 1,848 1,478 2,083 1,533 2,184 1,498 3,675 3,340 5,054 3,837 Construction WIP 704 506 768 772 1,225 1,004 1,448 1,099 1,990 1,363 2,746 1,814 3,471 2,522 2,867 3,215 2,278 2,662 Total Fixed Assets 1691 1,863 2.056 2,147 2,502 2,385 3,052 2,540 3.838 2.84 4,829 3,347 5.655 4,020 6,542 6.556 7.332 6,499 Special Fund Assets 50 89 54 145 54 144 65 85 67 118 76 116 82 0 106 0 116 0 Deferred and Intangible Assets 0 0 0 0 0 0 0 0 0 0 0 0 0 30 0 67 0 194 Total Assets 1,880 2113 2,269 2435 2,736 2,696 3,321 2,912 4,134 3421 5161 4.006 6,027 4,642 6,954 8.003 7,794 9,442 LIABILrES & EQUITY (u-rrentELiabilinies Accounts Payable 33 38 32 42 33 68 30 87 31 199 28 271 30 135 35 413 27 471 Due to Government 40 41 42 17 43 21 45 22 47 31 49 27 51 56 24 134 25 157 Short-term Loan 0 0 0 0 0 0 0 34 0 49 0 49 0 54 0 9 0 28 Other Current Liabilities 0 0 0 0 0 0 0 0 0 0 0 0 0 261 0 515 0 784 Total Current Liabilities 73 78 74 59 76 89 75 142 78 279 77 346 81 505 59 1,071 52 1,440 Consumer Deposits 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 Working Cpital Funds 20 33 20 35 20 39 22 24 22 27 22 27 24 0 24 0 24 0 Long-term Debt 753 848 1,107 1,129 1,545 1,321 2,084 1,391 2,838 1,653 3,796 2,050 4,549 2,663 5,279 4,203 5,947 4,598 Government Funds 938 1,016 951 941 960 990 972 1,058 1,005 1,108 1,039 1,211 1,112 0 1,268 0 1,391 0 Special Funds 94 139 115 194 133 183 165 206 189 273 225 285 259 0 322 0 378 0 Capital Construction Alloc. 0 0 0 77 0 74 0 91 0 80 0 86 0 0 0 0 0 0 Capital 0 0 0 0 0 0 0 0 0 0 0 0 0 1,435 0 1,619 0 2,549 Capital Surplus 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,036 0 609 Retained Earnings 0 0 0 0 0 0 0 0 0 0 0 0 0 39 0 74 0 245 Total Liab. & Equitv 1,880 2.113 2.269 2,435 2,736 2,696 3_320 912 4.134 ,3421 5, 61 4.006 6.027 4,642 6,954 8.003 7,794 9,442 Long-term Debt % as of LT Z Debt and Equity 42.2 42.3 50.9 49.9 58.6 53.0 64.7 52.4 70.4 54.5 75.0 57.8 76.8 64.4 76.9 60.6 77.1 57.5 Z Current Ratio 1.9 2.1 2.1 2.4 2.4 1.9 2.7 2.0 2.9 1.7 3.3 1.6 3.6 1.1 5.2 1.2 6.7 1.2 Table 3: FUNDS FLow STATEMENT (Y million) 1986 1987 1988 1989 1990 1991 1992 1993 1994 Year Ended December 31 Proj. ActuuaI VjT-EctaI PF zaI Pj. Actual Prj-Ac-tial Proj. Actual Prj.ojc.uaI Prj. Actua Aetual SOURCES OF FUNDS Internal Cash Generation Net Income 59 52 60 50 54 70 49 78 49 86 59 87 100 80 215 115 215 176 Depreciation & Amortizaton 38 46 45 55 50 62 57 65 67 72 77 88 84 97 111 132 158 308 Maintenance 18 21 23 23 24 24 29 25 34 37 38 50 41 52 63 0 84 0 Connection Charge 9 19 9 19 10 20 10 18 10 13 11 13 11 25 11 0 12 0 Other Resources 0 36 0 46 0 10 0 29 0 53 0 35 0 62 0 0 0 0 Total Intemal Sources 124 173 137 194 138 187 145 216 160 261 185 273 236 316 400 247 469 484 Borrow,pgs PIrpoe EBRD Loan 0 0 36 53 48 39 29 10 18 42 14 15 12 70 0 0 Other Yantan Project Loan 199 0 213 173 262 143 285 247 421 268 496 359 457 377 239 203 Other Loans 114 298 122 142 141 182 238 66 319 46 439 81 369 259 499 476 Total Borrowings 313 298 371 368 451 364 552 323 758 356 949 455 838 707 738 1.607 679 396 Government Funds - Grants 7 9 8 8 7 5 6 12 19 17 16 16 10 19 18 1,255 2 0 Total Sources of Funds 444 480 516 570 596 556 703 551 937 635 1150 743 1,084 1.041 1.156 3.109 1.150 880 APPLICATIONS OF FUNDS Cavital Exnenditure Prposed Yantin Project 183 148 227 203 281 194 275 264 384 324 435 382 367 490 200 139 Other Construction 121 159 126 137 145 175 242 71 336 50 454 89 379 235 517 478 Interest During Construction 16 0 23 0 30 0 43 0 66 0 98 0 102 0 135 166 Renovations 28 0 31 0 35 0 34 0 45 0 47 0 56 0 62 86 Total Capital Expenditures 348 307 407 339 491 369 594 335 831 374 1 034 470 904 725 914 2.656 869 (57) g[rational eauirements Changes in Working Capital 5 (11) 7 47 5 (18) 8 (14) 7 (61) 8 34 3 (67) 1 217 15 357 Changes in Special Funds Assets 2 25 4 56 0 (1) 11 (59) 2 33 9 (2) 6 92 24 0 11 0 Loan Repayment 0 25 19 30 19 56 25 56 25 60 25 65 90 62 90 67 90 310 Remittances to Government 48 18 31 11 30 15 9 17 9 17 4 13 2 18 46 76 46 0 Special Fund Expenditures 29 96 34 97 35 127 40 120 44 117 48 185 51 185 69 0 87 0 Increase in LT Investmnent 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 59 0 923 Total Oper. ReQuirements 84 153 95 242 89 179 93 120 87 166 94 295 152 290 230 419 249 1.590 Total Applications of Funds 432 460 502 581 580 548 687 454 918 539 1128 765 1.056 1.015 1,144 3.075 1.118 .L533 ln(de)creases in Cash 12 20 14 (11) 16 7 16 96 19 96 22 (22) 28 26 12 34 32 (653) > Annual Debt Service Coverage (times) 6.8 6.1 6.4 5.3 3.3 4.2 3.9 4.9 4.3 5.6 4.2 2.1 5.1 3.4 3.3 4.0 1.4 - 33 - ANNEX 2 ANNEX 2: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE Part One: Dam and Power House Works Dam and power house works of Yantan Hydroelectric Project were wholly completed in 1994. Units 1, 2, 3 have been duly put into operation. Unit 4 shall be put into operation in June 1995. The last item of the Project is ship lift works with 250t, which is under construction and scheduled for navigation in 1997. We are satisfied with the enforcement results and benefits of this Project. From the construction duration point of view, the construction time has certain ahead of schedule; from the project quality point of view, based on the requirements of design and specification, the percentage of qualification is 100%, the percentage of good quality 70%, the percentage of good quality of concrete 87.5%, the overall construction quality is good. From finance point of view, it is controlled very well and about 5 % of the investment be saved; from procurement contracts point of view, they are implemented quite smoothly, which play an active role in speeding up the construction schedule of Yantan Project; from power grid systems point of view, three units put into operation up to 1994 was accumulated to 907.5 MW, which occupied 33% of capacity of the whole Guangxi power grid and 50% of hydro power capacity. The power generation capacity of Yantan in 1994 was 3.099 TW.h, which occupied 25% of total power amount of Guangxi power grid and 42.8% of hydropower capacity. This Project can more develop regulating benefits and improve economic characteristics of power grid operation. More power energy can be transmitted to Guangzhou before flood, which has realized power transmission from west to east. The cooperation between international consultancy companies and the units concerned at home is good, which is an important guarantee to realize project target. Part Two: Environment The systematic environmental monitoring activities have been carried out during the construction of Yantan Hydroelectric Project. After impounding, the environmental monitoring in the initial operation are being made one after another. Based on the present monitoring results, they are basically consistent with the prediction results in the "Environmental Impact Report." - 34 - ANNEX 2 According to the environmental problems revealed by the impounding of Yantan Project, the monitoring work for karst water logging areas, slopeslipes and induced earthquake should be strengthened. In order to meet the requirements of the relocatees' production, solution oxygen, nutrient level should be monitored for cage fisheries, besides monitoring aquatic organisms in the reservoir area. Due to reservoir impounding, variations of climate in some areas are advantageous to growth of vegetation and no big changes happen in plant area. So, planting industry in reservoir area should be emphatically studied and developed. Environmental problems must be paid attention to in the capital construction. The environmental protection activities must be carried out with design, construction and management of the main works in parallel. Part Three: Resettlement On the basis of carrying out conscientiously the resettlement plan of Yantan reservoir, the relocation and construction of resettled people were started in 1985 and ended in 1995. At present, 20,980 resettled people have been well relocated for production and development. The rest people 41,550 have got preliminary arrangement, but their income is below the standard of Guangxi income target. They still belong to unsteadily relocation. In order to have a good relocation and catch up the local average living standard, efforts must be made from this year and several years in the future. In 1991, the total investment of submergence approved was added from 195.30 million yuan to 426.30 million yuan. In 1994, all the fund had been obtained, of which there are still 51 million yuan for 1995, which will be mainly used for production and development. As for 1995, there is still 12 million yuan for reservoir maintenance. In the future, there will be about 20 million yuan for reservoir maintenance year by year. All these funds will be used for development and construction in the reservoir area and improving the living standard of the resettled people. Part Four: Financial Management Guangxi Electric Power Bureau (GEPB) is a large electric power enterprise of State under the jurisdiction of the Ministry of Electric Power of China, which implements independent accounting. In regard to finance and accounting, GEPB implements "General Provisions of Enterprise Finance," "Guidelines of Enterprise Accounting" and "System of Finance and Accounting of Industrial Enterprise" issued by the Ministry of Finance. - 35 - ANNEX 2 Part Five: Operation Plan of Yantan Power Plant 1. Dam and Power House Works From September 16, 1992 to April 30, 1995, power generating capacity of three units of Yantan Power Plant accumulated to 6.876 billion kWh, with unit cost of 17.5 yuan/MWh. The utilization for three units were 90.5% for Unit 1, 72.31% for Unit 2 and 46.12% for Unit 3 respectively. The preparatory works for Yantan Power Plant was started early in 1986 and preparation for production was ready in August 1992. Through the actual operation and inspection for more than three years, the preparation for production is in a better and solider condition. Today, the organization for the Plant is simplified and its personnel have a high level of competence through professional tr ining. Procedures for Equipment Operation and Msintenance of the Power Plant: Work in the power house is carried out according to the relative regulations of the Ministry of Electric Power. Every operator has one copy of Operation Manual in hand and implements regular maintenance schedule. Once some problems appear, they must be solved in time. The regular maintenance schedule for units and main equipments shall be made (one overhaul in every 5 years and one routine maintenance in every year). Reservoir dispatching shall be carried out correctly and effectively, which is the dispatching rules to minimize water loss and maximize operating efficiency. Safety procedures shall be done according to the safety standard procedures and plan for power house operation, including regular observation and maintenance for dam and power house structures and safety inspection for dam, spillway operation and gate operating procedures. 2. Environment Environmental work shall be implemented according to Environmental Monitoring Plan of Yantan Hydroelectric Project approved by the Ministry of Electric Power and State Energy Investment Corp., including submergence monitoring, sand and mud accretion in the reservoir monitoring, water quality monitoring, climate monitoring, earthquake monitoring, ecological impact monitoring, bank caving and depression monitoring, schistosomiasis and snail vectors monitoring in Hase of Dahua county, etc. The total fund for monitoring is estimated about 2.10 million yuan. 3. Resettlement Based on the total investment for submergence approved in 1991, it is 426.30 million yuan, all the fund was obtained in 1994. There is still 51.00 million yuan in 1995, which shall be mainly used for production and development. As for 1995, there - 36 - ANNEX 2 is still 12 million yuan for reservoir maintenance. In the future, there will be 20 million yuan for reservoir maintenance year by year, which will be used for production and development and improving living standard of the resettled people. - 37 - ANNEX 3 ANNEX 3: AIDE-MEMOIRE FOR COMPLETION MISSION Yantan, China April 8, 1995 1. A World Bank mission consisting of Barry Trembath, Robert Crooks, Martin ter Woort, Scott Ferguson and Youxuan Zhu visited Guangxi Electric Power Bureau (GXEPB) and the Yantan project from March 29 to 31, 1995 and the Yantan Reservoir over the period April 4 to April 7, 1995 to discuss requirements for the completion report for the Yantan project. Officials from the Bureau and from the Guangxi Yantan Hydroelectric Project Construction Corporation (YHPCC) were joined by representatives of the Guangxi Resettlement Office (GRO)in the discussions. The mission would like to express its appreciation for the excellent arrangements for the visit, the courtesy and co- operation of the participants to the various discussions, and for the gracious hospitality extended to the mission. This aide-memoire outlines the mission's fmdings and suggestions for finalization of the completion report. Borrower's Completion Report 2. The mission was provided with a draft completion report for the main project, and detailed reports on environmental and resettlement aspects. These are close to meeting the requirements for the Borrower's completion report, required by the new Bank guidelines. Comments on the reports were provided by the mission. A report should also be provided by GXEPB on the rmancial and utility management component of the project. Since these four reports in total are longer than eight pages, the mission requested that a summary report of less than eight single spaced pages also be prepared for attachment (unedited) to the Bank's own completion report. Operation Plan 3. The new guidelines also require that an Operation Plan be prepared setting out the plans for future operations to ensure efficient, economical operations of the project. The mission suggested that this plan be prepared for the Yantan dam and power station (prepared by the Yantan Power Plant), the reservoir (prepared by the GRO) and the environment (prepared by the Environmental Monitoring Center). Suggested outlines were provided by the mission. - 38 - ANNEX 3 Reevaluation of Economics 4. The mission was advised that Yantan power is being sold to the grid at 25.04 fen/kWh. This value will be used for re-evaluating the economics of the project. The mission also requested disbursements to be prepared in the form set out in Annex A in the comments on Section 1-2 of the dam and power station completion report, to facilitate the economic analysis. The mission also requested that the current tariff schedule of GXEPB be provided. Financial Data 5. The mission received financial tables from GXEPB. These will be reviewed by financial analysts in Washington and any further requirements will be advised from there. Timing 6. The mission requested that the revised and additional reports and data be forwarded to Washington by courier by May 20, 1995. I MAG i >qN; Report No: 1477:; Type : D12-R