L N -3t433-CH)4 Document of The World Bank FOR OFFICIAL USE ONLY Report No. 10201-CHA STAFF APPRAISAL REPORT CHINA YiANSHI THERMAL POWER PROJECT December 17, 1991 Industry and Energy Operations Country Department II East Asia & Pacific Regional Office This document has a restticted distribution and may be used by recipients only in the performance of their officilI duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (As of October 31, 1991) Currency = Yuan (Y) Y 1.00 = 100 fen $1.00 - Y 5.38 Y I - $0.19 FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES km - Kilometer (= 0.62 miles) kWh - Kilowatt hour (= 860.42 kcals) GWh - Gigawatt hour (1,000,000 kilowatt hours) TWh = Terawatt hour (1,000,000,000 kilowatt hours) kW = Kilowatt (1,000 watts) MW = Megawatt (1,000 kilowatts) GW = Gigawatt (1 million kW) Kcal = Kilocalorie (= 3.97 British thermal units) kV = Kilovolt (1,000 volts) kVA Kilovolt-ampere (1,000 volt-amperes) MVA = Megavolt-ampere (1,000 kilovolt-amperes) GVA = Gigawatt-ampere (1 million kVA) mg = Milligram m3 Cubic meter toe = Tons of oil equivalent ABBREVIATIONS AND ACRONYMS USED CcEPA - Central China Electric Power Administration CCPG - Central China Power Grid EPPEI - Electric Power Planning and Engineering Institute GOC - Government of China GNP - Gross National Product HIPDC - Huaneng International Power Development Corporation HAB - Henan Audit Bureau HPEPB - Henan Provincial Electric Power Bureau HPG - Henan Power Grid IAEA - International Atomic Energy Agency LRMC - Long Run Marginal Cost MOE - Ministry of Energy MOF - Ministry of Finance MWREP - Ministry of Water Resources and Electric Power PCBC - People's Construction Bank of China SAM - State Audit Administration SEIC - State Energy Investment Corporation SPC - State Planning Commission SWCEPDI - Southwest China Electric Power Design Institute WREPERI - Water Resources and Electric Power Economic Research Institute FOR OFFICIAL USE ONLY CHINA YANSHI THERMAL POWER PROJECT Loan and Proistt Summary Borrowers People's Republic of China Beneficiary: Henan Provincial Electric Power Bureau (HPEPB) Amount: $180 million equivalent Tormes 20 years, including five years grage, at the standard variable interest rate. Onlendina Termat The proceeds of the loan will be onlent from the Government to HPEPB under a subsidiary loan agreement, with a 20-year term, including five years grace and at the Bank's variable interest rate. HPEPB will bear the foreign exchange risk and the commitment charges. Proiect Objectives and Descritiont Principal project objectives are tot (i) alleviate the acuto power shortage of a major load center in Central China by providing additional generating capacity in an onvironmentally and economically sound manner; (ii) support the national policy of locating thermal power plants at mine-mouths or close to coal mines; (iii) introduce up-to- date methods for investment planning, tariff study, and system operation; (iv) assist in transferring modern technologies and construction/management practices for large thermal power plants; (v) enhance institutional development of HPEPB ay strengthening its organization through staff training and introducing principles of economic efficiency and pricing; (vi) provide technical assistance in: project design and implementation; prudent financial management; and efficient operation and maintenance of the power system; and (vii) contribute to further improvement of the environmental aspects of HPEPB's thermal power stations, including a monitoring program. The proposed project is located about 90 km west of Zhangzhou in Henan province. The project would includet (i) extension of the existing Yanshi Thermal power plant by installing two 300 MW generating units; (ii) construction of five 220 kV transmission lines (about 350 km long) with associated substations; (iii) provision of technical assiotance for project engineoring, a tariff study and a tariff action plan for the Henan Power Grid (HPG) (iv) a monitoring program for environmental protection, and (v) a training program for upgrading the technical, financial and management skills of HPEPB staff. This document has a retricted 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. Benefit. and Risks: The project will help to relieve the power shortages in Henan in the 1990s, thereby supporting planned industrial growth and improved living standards for the population. An economic analysis of the project, based on optimizing the Henan power system has confirmed that there are no better alternatives than the proposed project in meeting future power demand. The extension of the existing Yanshi power plant provides the most efficient and effective method of augmenting base load capacity. Also, the project will contribute to institutional development by strengthening the managerial and technical capabilities of HPEPB. The technical and economic feasibility of the project has been well established. No major risks, including environmental problems, are foreseen. Construction risks are within reasonable limits and should be manageable with the continuous supervision arrangements. The economic risks, if any, should be minimal. The project has been designed taking into account the requirement that the environmental impact from operating the station not exceed the internationally accepted norms. An environmental monitoring program will be included in the project. HPEPB will also replace the precipitators for the existing 2x200 MW units with high efficiency electrostatic precipitators. Estimated Costs: Local Foreign Total -- ($ million) ------- Civil works 44.1 6.4 50.5 Plant equipment and materials 57.4 159.9 217.3 Transmission system 26.1 - 26.1 Environmental protection 0.2 0.1 0.3 Training 1.3 1.0 2.3 Tariff study 0.5 - 0.5 Engineering and construction management 17.0 1.2 18.2 Base Cost 146.6 168.6 315.2 Contingencies Physical 14.6 8.4 23.0 Price 13.8 3.0 16.8 Total Pro1ect Cost la 175.0 180.0 355.0 Interest during construction IBRD loan - 48.1 48.1 Local loan 56.5 - 56.5 Total Financin Reguired 231.5 228.1 459.6 Proiect Financina Plan: IBRD loan - 180.0 180.0 SEIC loan 115.8 32.1 147.9 Provincial government loan 115.7 16.0 131.7 Total 231.5 228.1 459.6 Estimated Disbursements: Bank FY 1993 1994 1995 1996 1997 1998 - _______-------- ($ million) -------------- Annual 44.2 79.9 40.6 6.6 5.3 3.4 Cumulative 44.2 124.1 164.7 171.3 176.6 180.0 Economic Rate of Return: 16 percent /a The project is exempt from taxes and duties. - 1 - CHINA YANSHI THERMAL POWER PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. THE ENERGY SECTOR . . . . . . . . . . . . ......... . 1 A. Overview . . . . . . . . . . . . . . . . 1 B. Energy Sector Issuas . ....... *....... 4 C. Energy Sector Strategy .. ...... 7 D. Bank Role in the Energy Sector . 7 II THE POWER SUBSECTOR . . . . . . . . . . . . . . . . . . . . . 9 A. Background . . . . . . . . . . . . . . . . . . . . . . . 9 B. Institutions, Planning and Technology Transfer . . . 10 C. Power Pricing . . . . . . . . . . . . . 12 D. Subsector 8ssues and Strategy .. .. .13 E. Role of the Bank in the Power Subsector 13 III. THE BENEFICIARY . . o . . . . . . . . . . . . . . . . . . . . 15 A. Legal Status and Organization ... .. ...15 B. Management . . . . . . . . . . is 15 C. Staffing and Training & . a . . . . . . . 16 D. Planning, Budgeting and Control . . . . . . . . . . . 16 E. Accounting .. .. * . & 17 F. Auditnn . . . . . . . . . . . . is 17 G. Electricity Tariffs . . . 19 H. Billing and Collections . . . . 19 I* Insurance a . . . . . . . . . 21 J. Distribution System . . . . ... .. . .. .. . . 21 IV. THE POWER MARKET AND THE PROGRAM 9999. 9999.9999 22 A. The Central China Power Grid .9999999999999 22 B. The Henan Power Grid .................. 22 C. Load Forecast . . . . . . . .............. . 23 D. The Power Development Program (1991-2000) . . . 25 This report is based on the findings of an appraisal mission which visited China in September 1988 and a post-appraisal mission in September 1991. The report was prepared by V. Mastilovic (Task Manager), W. Cao (Senior Power Engineer), B. Baratz (Principal Environmental Specialist), S. Kataoka (Senior Power Engineer), n.E. Sun (Finanial Analyst), 0. Koenig (Economist), and K.C. Ling (Consultant). Peer reviewers comprised: C.K. Chandran (Principal Engineer), S. Shum (Senior Financial Analyst), and N. Anderson (Senior Project Officer). The Acting Division Chief is B. Kafka and the Department Director is S.J. Burki. - ii - Paxe No. V. TE PROJECT . . . . . . . . . . . . . . . . . 26 A. Project Objectives . . . . . . . . . . . . 26 B. Project Description . . . . . . . . . . . . 26 C. Cost Estimate . . . . . . . . . . . . . . . . . . . 29 D. Financing Plan . . . . . . . . . . . .... . . . 30 E. Procurement . . . . . . . . . . . . . . . . . . . . 31 F. Project Implementation . . . . . . . . . . . . . . 33 G. Disbursement ... . . . . . . . . . . . . . . . . . . 34 H. Monitoring and Reporting . .# .. . .. . . . . . . . . . 34 1. Environmental Considerations . . . ... . . . . 34 VI. FINANCIAL ASPECTS.. . . . . . . . . . . . . . . 36 A. Introduction.. . . . .36 B. Financial System . ............. ... .. .. 36 C. Past and Present Financial Performance. . . . . . 36 D. Financing Plan . . . . . . . . . . . . . . . . . . 38 E. Future Finances 4..4...4......... 39 VII. JUSTIFICATION . . . . . . . . . . . . . . . . . . . . . . . 42 A. Need for the Project 42 B. Least Cost Studies 43 C. Economic Rate of Return ..... .43 D. Risks . * . . . . . . . . . . . . . . . . . . . .. 44 VIII. AGREEMENTS REACHED AND RECONMENDATION . . . . . . . . . . . . 45 ANNEXES 1. Installed Capacity, Electricity Generation, and Sales in the Power Subsector .... . ..... . . . .. 444...... 46 2. Growth Index for Electricity Generation and Primary Energy Demand . . . . . . . . . . . . . . . . . . . . . . . 47 3. Electricity Consumption by Sectors . . . . . . . . . . . . 48 4. Major Ongoing Hydzo and Thermal Power Projects . . . . . . 49 5. Performance Indicators for Henan Power System . . . . . . 51 6. PPEPB Staffing . . . . . . . . . . . . . . . . . . . . . . 52 7. Planning, Budget and Control of Chinese Power Bureaus . . 53 8. HPEPB Electricity Tariffs . .... 56 9. Major Generating Facilities in Henan Province 57 10. Energy Consumption by Category of Consumer . . . . 60 11. Power Development Program of HPG (1991-2000) . . . . . . . 61 12. System Demand and Energy Balance of HPG . . . . . . . . . . 62 13. Training Program ...................... 63 14. Action Plan for Power Tariff Structure Improvements 70 15. Terms of Reference for the Tariff Study . . . . . 72 16. Terms of Reference for Consulting Services . o . 74 17. Project Cost Estimates . . * . . * . . . . . . . . . . .. 76 18. Procurement Schedule . . . . . . . . . . . . . . ... . . 77 - lli - ANNXES (cont'd) 19. Key Dateo of Project Implementation . . . . . . . . . . . . . 78 20. Disbursement Schedule . . . . . . . . . . . . . . . . . . . . 79 21. Air Quality Analysis . . . . . . . . . . . . . . . . . . . . 80 22. Summary of Environmental Mitigating Measures . . . . . , . . 81 23. Environmental Monitoring Program . . . . . . . . . . . . . . 83 24. Financial System Followed by Chinese Power Bureaus . . . . . 89 25. Annual Financial Statementso ... . . . . . . 92 26. Calculation of Economic Rate of Return . . . . . . . . . . . 115 27. Selected Documents and Data Available in the Project File . . 119 1RARTS 1. Organization Chart of MSE 2. Organization Chart of SEIC 3. Organization Chart of HPEPB 4. Project Implementation Schedule IiP IBED 21114R Yanshi Thermal Power Project CHINA YANSHI THERMAL POWER PROJECT I. THE ENERGY SECTOR A. Overview 1.1 China has made remarkable progress in developing its energy resources over the last four decades and became the third largest producer of commercial energy in the world. In that period, the output of coal has increased at an average annual rate of 9.1 percent, crude oil production at 19.3 percent, and electricity generation at 13.1 percent. In 1990, the coun- try's primary commercial energy supply amounted to 727 million tons of oil equivalent (toe) Coal is the most important source of commercial energy, accounting for about 74 percent of the total. Oil accounts for 19 percent of the total and provides about 7 percent of the country's export earnings. Hydroelectric power (4.6 percent), natural gas (2 percent), and small quanti- ties of shale oil and geothermal power make up the balance. Noncommercial energy, equivalent to about one-third of commercial energy production, is very important in rural China. 1.2 In 1990, China's final consumption of commercial energy was esti- mated to be about 686 million toe. The largest consumer of commercial energy is the industrial sector (62 percent), followed by households (24 percent), services (9 percent), and agriculture (5 percent). About 20 percent of oil and 2 percent of coal production currently are exported. Coal and its by- products meet 70 percent of the fuel requirements for industry and power gen- eration, provide 60 percent of the raw materials for chemicals, and satisfy 80 percent of the commercial energy needs of househol's. The country also ie the third largest consumer of commercial energy in the world. Still, energy consumption per capita is low--about 0.6 toe, or one-third of the world aver- age. Energy Resources 1.3 Coal. China has large coal deposits with recoverable reesarves of about 900 billion tons, of which 30 percent are proven. There are now twelve provinces and autonomous regions with more than 10 billion tons of coal reservesl Shanxi and Inner Mongolia each have reserves of over 200 billion tons. In 1990, the country produced 1.1 billion tons of raw coal, of which it exported only 16 million tons. By the year 2000, China aims to produce 1.4 billion tons of coal a year. Coal is produced in many provinces, and the amount and quality may vary. The best quality coals are found in North China, which is also the region with the largest coal surplus. However, insufficient transport capacity makes it extremely difficult to move coal from mines in North China to the large consuming centers in Southeast, Central, and East China. The safety and environmental problems associated with coal minirg and utilization also are serious (paras. 1.17 and 1.19). - 2 - 1.4 Hydroelectric Potential. China is rich in water resources and has a long tradition of harnessing them for energy and other uses. The country's hydroelectric potential is estimated at 1,900 TWh a year, but only about 9 percent of it has been developed. Most of the potential is located in four major river basins in the Southwest (70 percent) and Northwest (12 percent), about 1,500 km away from the main demand centers. The long gestation period for hydroelectric projects also has inhibited the more rapid development and utilization of hydroelectric resources. 1.5 Crude Oil. China's ultimately recoverable reserves of crude oil have been estimated at some 80 billion tons, of which 16 percent are proven. The country produced 138 million tons of crude oil in 1990, and the target output for the year 2000 is 200 million tons. In view of the natural decline in production from existing aging fields, it seems unlikely that this produc- tion target can be met. China'e: refining capacity is the sixth largest in the world and allows it to produce a relatively high share of high and medium distillates. 1.6 Natural Gas. China's rnatural gas resources are estimated at 33 tri- llion cubic meters (m3), of which 2.6 percent are proven. About 50 percent of the gas produced is nonassociated gas. In 1990, China produced 15 billion m3 of natural gas. The target output for the year 2000 is 25 billion m3. Most of the gas is used as feedstock for fertilizers and petrochemicals. 1.7 Biomass. Firewood and crop stalks account for 57 percent of the 224 million toe of rural energy supplies. About 70 percent oE all fuelwood is used for cooking. Some areas of the country have been suffering from serious deforestation, stemming primarily from fuelwood collection and land clearing for various purposes. The estimated offtake of fuelwood is 230 million tons (91 million toe), or 2.6 times the sustainable amount. The Government is taking various measures to address this problem, such as encouraging more efficient use of wood, planting trees, improving management of natural forests and wood lands, making greater use of charcoal, and subatituting coal for wood. China also produces many agricultural residues which are used as fuel. 1.8 Nuclear Energy. Known uranium reserves in China are sufficient to sustain 15,000 MW of nuclear power capacity for 30 years. In 1991/92, China plans to commission Qinshan nuclear power plant (300 MW), located near Shanghai. In 1992/93, Daya Bay nuclear power plant (2x900 MW) shoul.0 'e com- missioned; 70 percent of its output is intended for nearby Hong Kong. The construction of a few additional plants is planned before the year 2000, pri- marily in regions which lack coal and hydroelectric resources. 1.9 Other Energv Resources. Other energy resources play a small role in energy supply and are used mostly in remote areas. Geothermal energy has been found in more than 3,000 locations covering nearly all provinces and autono- mous regions. The Yangbajing geothermal power plant, located in Tibet, sup- plies about 50 GWh a year, or about 20 percent of the electricity consumption in Lhasa's power system. Although wind and solar energy have promising pros- pects (e.g., wind in Inner Mongolia), they are not expected to affect the overall supply of energy significantly during the next two decades. Unoffi- cial estimates of oil shale suggest that deposits are large, but little is exploited because of lack of technology. -3- Insetitutio of the Energy Sector 1.10 In 1988, the Ministry 's :gy (MOE) was established to manage and develop the energy sector. Its foramation was intended to reduce the duplica- tion and overlapping responsibilitei .f the former ministries in charge of coal, petroleum, and nuclear power. MOE also was given responsibility for electric power, formerly held by the Ministry of Water Resources and Electric Power (MWREP). The new ministry has primary responsibility for planning and establishing policieo and regulations to promote the rational development and use of energy resources. Under MOE are various companies and administrations responsible for operations in individual energy industries. Chart 1 shows the organization of MOE. 1.11 The State Energy Investment Corporation (SEIC) was established dur- ing the same period to handle project financing in the coal and electricity nidustrios. SEIC is responsible for onlending funds for projects of national importance and representing the Government in the joint financing of projects with other parties; it is expected to operate as a revenue earning entity. Petroleum and nuclear power investments are covered under separate corpora- tions. Both MOE and SEIC operate under the purview of the State Planning Commission (SPC), which has ultimate authority for project approval, budget allocations, and financing arrangements. Enerty investments 1.12 Most investments in enetgy supply go to support projects with long gestation periods. Energy investments for the 1980s were planned based on an expected economic growth rate of 7.5 percent a year. Actual economic growth rates exceeded this target by an average of 2.5 percent a year, (4.5 percent in peak years). Also, industrial growth far exceeded what had been planned. The discrepancy between projected and actual growth rates has exacerbated the energy shortages that already existed at the start of the decade. China faces an additional difficulty in developing its relatively abundant energy resources, as many of the resources are located far from consumption areas and must be tr& sported over long distances at high cost. In recent years, the Government I7,J thus given priority to shifting resources into bottleneck sec- tors such as energy and transport. 1.13 In 1989, China dedicated 3.4 perc..nt and 1.3 percent of its Gross National Product (GNP), respectively, to develop infrastructure for energy production and transportation. It invested a total of Y 44.6 billion ($12 billion) in energy supply, representing 29 percent of state capital construc- tion. In the early 1980s, energy supply investments accounted for 21 percent of state capital construction. The shares of power and petroleum investments have increased s4nce 1988 to 62 percent and 22 percent, respectively. State coal investment has declined (to 16 percent) but this decline has been offset by an increase in investment by coal collectives. About 20 percent of the investment requirements of the Chinese energy sector are met by foreign loans and direct investments. Direct foreign investment has financed most offshore petroleum exploration to date, although recent trends indicate a decline in direct investment for this purpose. On the other hand, there has been an increase in suppliers credit and bilateral lending for the petrochemical and power industries. B. EnerRg Sector Issues 1.14 In addition to the already noted energy shortages, the main energy sector ivouea are: (i) the high energy intensity of the Chinese economy; (ii) the dominance of coal use and associated environmental problems; (JAI) the nneed to improve scale and technology in energy industries; (iv) the :I.nadequA.y of eniergy pricing policies; and (v) the weak investment funding oystem. Intensity of Ener y_Use i.1l In 1983, China's consumption of commercial energy was estimated at 1.5 toe per $1,OOu of GNP. That high a level of energy intensity was due to the emphasis placed on heavy industry, the small scale of industrial units, and the raw materials and technologies employed. In the late 1970s, the Gov- ernment began to address the inefficiencies in the economy by insLituting regulations on energy use, establishing conservation centers to provide tech- nical assistance, and allocating a larger share of investment funds for indus- trial modernization, particularly for projects which contributed to energy conservation. The elasticity of energy consumption with respect to GNP growth, whtich averaged 1.74 from 1952 to 1977, was reduced to 0.5 in the '980s. In 1989, the country's energy intensity was 1.1 toe, a 27 percent reduction from the 1980 level. It is estimated that technical and operational improvements and the closure of some inefficient small-scale plants are responsible for about 70 percent of the energy savings. and the shift in the output mix of the economy for the other 30 pere;--t. The efficiency gains have been evenly spread over heavy and light industry. Despite these 4.mprovements, China's energy intensity is still high. A target of the Eighth Five-Year Plan (1991-95) is to reduce it further by 10 percent. More energy could be saved by increasing the scale of operations, employing more efficient operatirng practices, and using more modern technologies in energy intensive industries. The Dominance of Coal and Related Environmental Problems 1.16 Unlike the situation in most countries, the electric power subsector is not the largest consumer of coal in China. Industrial use of coal is much greater. The growth of coal consumption in the household sector also has been strong, due to urban population growth and the increasing use of coal in rural areas. Moreover, there is considerable latent energy demand in the residen- tial sector, primarily for space heating, as present heating arrangements meet only minimal needs. 1.17 Many of the environmental problems in China are related to the coun- try's heavy use of coal and the dispersed, small scale application of coal in industry and households. Environmental problems occur at every stage of the coal chain: mining and disposal of mine waste, coal washing, transport and handling, processing and combustion, and ultimately ash disposal. Water pol- lution occurs both in mining regions and in dense urban areas, caused by prob- lems in disposing of coal mining and processing wastes and the coal ash remaining after combustion. In many large cities, ambient concentrations of particulates and sulfur dioxide are very high. The concentration of particul- ates is the most serious problem; it is largely related to the extensive use of coals, their high ash content (20-30 percent), and the often incomplete -5- combustion due to poor matching of coal qualities to boilers u(id. The aver- age sulfur content of the coal is relatively low (in the rai,ge of 1.2- .7 per- cent), but because coal is used so extensively sulfur emissions aref -Incrcas- ing. Moreover, some provinces use coal which has a very high sulVtll contont. 1.18 The environmental implications of continued increases iu croal uss are sobering. They highlight the need for stronger regulatory enforvtciao.nt and more resources devoted to investments to conserve coal and mitigatcf : t£ envi- ronmental effects. In addition, mora resources should go to the exrax::on and development of cleaner fuels. In many industrialized countrie&, oil and natural gas have replaced coal in households. At the present tinm, hlo\wcVr9 China has limited scope for substituting cleaner and often more cost: effective fuels in industrial and residential applications. The country has ilsuffi- cient confirmed natural gas resources; its production of oil is increaslagly absorbed by transport and petrochemicals; and its large hydropower resources are located far away from major consuming centers. Scale and Technology in Energy Industries 1.19 Coal Subsector. Over half of the coal produced in Chills eo;wes rcom small-scale mining operations which use traditional technologies stuch as hand hewing or drilling and blasting. A major problem common to coal minec Ji worker safety. China has considerable potential for developing mediums-size mines capable of supporting investments in semimechanized or mechanized sys- tems, safety equipment, storage and handling systems, and washery plants, reducing safety and environmental problems while improving the quantity and quality of output. In the larger centrally-controlled mines, productivity and safety could be increased by making greater use of mechanized long wall .ys- tems and employing more economic designs for mines and washeries. 1.20 Electric Power Subsector. Large-scale power development in China is beneficial from the standpoint of both energy conservation and enviromiental protection. Modern power plants, with unit capacities of 300 lW and 600 MW,9 are about 10 percent more efficient than smaller plants and consume about 150 grams of coal less per kWh. This means that the faster the pace of electric power development in China, the sooner the country will be able to reduce its consumption of coal to meet energy demand. The boilers of the modern utili- ties also support better pollution control equipment, raising the efficiency of particulate removal. 1.21 Petroleum Subsector. In the petroleum subsector, there is a need to employ more modern equipment and technology at all stages of exploration and development; seismic survey and related data processing, exploratory drilling, and enhanced oil recovery in order to increase production from aging fields. Improvements in operating and maintenance practices also are needed to increase the efficiency of the subsector. Moreover, better management of the oil and gas reservoirs would help to maximize ultimate recovery rates. Enerav Pricing 1.22 Average energy prices have been rising in recent years because of the broadening of the free market. Coal prices have increased rapidly during the last five years, largely because the market has expanded to as much as 50 percent of sales, depending on location. Indeed, free market prices for coal in East China are at or above the level of international prices. The administered price of coal, although it has been raised in recent years, is still below domestic supply costs; just as importantly, the price structure does not fully reflect differences in quality, such as calorific value and ash content. The dual pricing system (para. 1.25) creates various distortions; some high calorific value coals are still underpriced and may not be directed to their most economic uses. 1.23 While the average price levels of some light petroleum products are close to international prices, average prices of crude oil and heavy fuel oil are substantially lower. The pace of domestic oil price adjustments have remained slow, while extraction costs have risen sharply. Producer prices for natural gas are also distorted and should be adjusted to provide an incentive to find and develop more resources. 1.24 Electricity prices are largely based on tariffs which do not reflect the differential cost of service arising from consumption during peak load periods and power distribution at various voltage levels. In 1987/88, revenue enhancements were introduced in order to improve funding of power development. In particular, a "new plant, new price" policy guarantees that power prices will be sufficient to allow the power entities to fully service the debt on newly commissioned projects. As a result of this policy, electricity prices are expected to rise substantially. Already a multitiered price system is emerging in some provinces; while most consumers are charged just a fraction of the long-run marginal cost (LRMC) of supply, some industrial users are charged prices, at the margin, that are well above the LRMC (para. 2.14). 1.25 The recent increases in the price of coal and electricity and the initiation of energy rationing are helping to promote conservation and should positively influence investment and operating decisions in the sector. How- ever, the full benefits of these actions will not be realized as long as a dual pricing system for energy is not abandoned. Under this system, one set of prices applies to goods allocated under the plan and another set of prices applies to goods distributed by the market. Because allocated prices tend to be significantly lower than free market prices, the system encourages consum- ers to use fuels covered by allocated prices regardless of their suitability. Similarly, the system encourages energy suppliers to focus on markets offering free market prices and to neglect the economically legitimate requirements of other markets which offer allocated prices. For example, the low prices for town gas inhibit investments for supplying gas in forms suitable for household energy (natural gas, coal-based gas, and process gas) in an environmentally sound manner. The existing price structure still does not provide all neces- sary incentives for investment to improve coal quality and for electricity consumers to shift their demand to off-peak hours or to be connected to higher voltage. 1.26 China needs strong price incentives and rigorous enforcement stan- dards to encourage consumers to conserve energy. It must continue its program to raise energy prices, close the gap between administered and free market prices for coal, and begin to correct the most serious distortions in the pricing structures for coal, gas, and electricity. Energy price reform based on full recovery of supply costs also will help to remove anomalies in the -7- funding of energy investments. The Government remains committed to its over- all price reform program. For example, in the last several months, the Gov- erinent has implemented significant price increases and reduced the subsidies in a number of basic commodities, such as grains, cement, and steel. It also indicated its readiness to abandon dual pricing in coal and electricity. Investment Funding System 1.27 China has taken decisive steps recently in energy conservation, environmental protection, and fuel diversification. Improvement; in the scale and technology of energy supply systems have multiplied in recent years, and the share of funds channeled into the energy sector is now approaching accept- able levels. However, the funding of investments has suffered as a result of distorted pricing policies that led to a haphazard and compartmentalized mobi- lization of resources, and an inefficient development of energy sources. To reduce financial pressures on the central government, responsibility for fund- ing of energy investments gradually has been shifting to the provinces, with mixed results. In the coal subsector, local production now exceeds state production but is not operating at the scale required to achieve higher effi- ciency or improve safety. Because of insufficient electric power supplies, some local enterprises are making their own investments in power plants. The investment approva'l system actually biases local investment in favor of less efficient small-scale plants, as these plants do not require clearance or any financial contribution by the central government. C. Energy Sector Strategy 1.28 The Government of China (GOC) is working to eliminate energy short- ages in an environment of rapid economic growth. The Government's principal objectives in the energy sector are to: (a) accelerate the expansion of elec- tric power and oil/gas production; (b) expand and imp7.ove the scale of coal production; (c) increase the efficiency and change the forms of coal utiliza- tion; (d) minimize the environmental impact of energy use; (e) rationalize energy prices and investment funding; and (f) encourage the transfer of modern know-how and technology in energy industries. 1.29 Allowing the power subsector a larger share in final energy consump- tion will help to modernize the Chinese economy, reduce overall energy inten- sities, and curtail pollution through the harnessing of hydropower, more effi- cient technologies, and larger-scale plants. The same holds true for the oil and natural gas subsectors, both of which yield cleaner, more efficient fuels than coal. The continued development of coal mining is an inescapable neces- sity but it must occur under conditions of higher efficiency, safety, and environmental acceptability. D. Bank Role in the Energy Sector 1.30 The Bank has supported nine projects in electric power, five in petroleum (including one g,s project), and one in coal. In all three subsec- tors, the objectives have been to support technology transfer, modern manage- ment practices, and the development of efficient, large-scale energy produc- tion. Through its sector work and project-related technical assistance, the Bank has assisted in studies to enhance improvements in energy pricing and - 8 - investment policies. The power-specific aspects of the Government's strategy and the role of the Bank are covered in paras. 2.17-2.18. 1.31 With the Bank's assistance, the Chinese have done a good job in evaluating the economic costs of electric power and coal and in suggesting approaches for gradual price reform. With regard to electricity, LRHC and target tariffs were established for East China in 1988. Since then, the Bank has sponsored the formulation of action plans and adapted them to the specific conditions of each regional power grid, with the objective of promoting their execution under repeater projects. An action plan for power pricing reform in Henan is included under the proposed project (para. 5.16). For coal, the Chinese have set pricing guidelines for various types of coal nationwide, but the recent surge in inflation has prevented the Government from moving deci- sively along these lines. However, plans for a large increase in administered coal prices are still alive and the Bank will continue to promote the formula- tion and execution of a plan to rationalize the level and structure of coal prices, with special attention to the most sensitive coal users. 1.32 A Coal Transport Study, being conducted ;ointly by the Bank and various Chinese institutes, will develop a model to identify optimal invest- wznts in infrastructure to move coal more efficiently, taking into consider- ation quality requirements and the impact of more efficient utilization in major consuming areas. A Coal Utilization Study has evaluated options to improve coal use and reduce its environmental impact both in industry and households. In regard to the petroleum subsector, two seminars have been organized in China over the past five years--one on gas utilization and ano- ther on petroleum subsector management. Improving the planning of investments and operations for the power subsector has been the focus of many Bank-spon- sored activities (paras. 2.11 and 2.19). 1.33 Future Bank operations in the energy sector will continue to support rational energy development and technology transfer, energy efficiency and conservation, and improved environmental management. Through both project and sector work, the Bank continues to encourage policies which provide the proper incentives for sustainable energy development and conservation. Finally, the Bank will continue to promote modern enterprise management, greater autonomy and accountability, as well as improvements in the regulatory framework of the sector. - 9 - II. THE POWER SUBSECTOR A. Background 2.1 China is the fourth largest producer of electricity in the world. In 1990, the country had a total installed capacity of 135 GW, 74 percent based on thermal power and 26 percent based on hydropower. That same year it generated 618 TWh of electricity, of which 492 TWh was from thermal. Plant use and network losses accounted for 6.9 and 8.0 percent of generation, respectively. Fuel consumption in thermal plants has been reduced to about 400 gram of standard coal per kWh. These levels of electricity generation, losses, and fuel consumption are close to those in industrialized countries. Power is mostly distributed through 16 major grids, 13 of which exceed 1 GW in capacity and account for about 90 percent of total capacity. By the end of 1990, the total length of the extra high voltage transmission lines reached 7,302 km and the capacity of substations amounted to 20.7 GVA. 2.2 The Government's rural electrification policy emphasizes the devel- opment of local energy resources. Therefore, as much as possible, mini hydro- power development is encouraged in isolated areas. In 1989, mini-hydro, small thermal, and diesel generating sets had a total installed capacity of 19 GW. Mini-hydro plants alone had a capacity of 12.4 GW and an annual generation of 34.3 TWh. The networks in rural areas are made up of 1,990,000 km of 110 kV lines, and 4,020,000 km of low-voltage lines (35 kV and below). These net- works have a transformer capacity of 85.9 GVA at high voltage and 142.5 GVA at low voltage. Approximately 94 percent of townships and 85 percent of villages are electrified. 2.3 The growth of installed capacity, electricity generation, and sales since 1949 is depicted in Annex 1. Annex 2 shows the historical trend of electricity generation, primary energy demand, and the GNP. The target of quadrupling the GNP between 1980 and the year 2000 should result in average growth of 7.0 percent a year for power demand. On this basis, the Seventh Five-Year Plan (1986-90) called for an increase in generating capacity of about 35 GW (8 GW from hydropower) with an additional 120 GW planned between 1990 and 2000. Power generation capacity expansion during the period 1986-90 met the plan objectives for hydropower and surpassed those for thermal power by 80 percent. Various steps are being taken to satisfy power demand. Large thermal power stations are being constructed mainly near ports and major coal mines in Shanxi, Heilongjiang, Henan, Shaanxi, and Shandong. Major hydroelec- tric stations are planned at the middle and upper reaches of the valleys of the Yellow River, Yangtze River, and Hongshui River. Two nuclear power plants are being constructed in Guangdong and %hejiang Provinces (para 1.8). A 500 kV transmission network is being built to integrate regional grids. The first high-voltage direct-current transmission link was commissioned in 1989 to transfer hydropower from Gezhouba in Hubei Province to Shanghai. 2.4 In 1990, China consumed 525 TWh of electricity; 69.4 percent was consumed by industry, 17.3 percent by agriculture including tural household, 2.0 percent by transportation/communications, and 11.3 percent by municipal and residential users. Details of electricity consumption by sectors are - 10 - given in Annex 3. Average per capita consumption in 1990 reached nearly 550 kWh; household use was about 85 kWh in cities and 20 kWh in rural araas. 2.5 Between 1986 and 1990, electricity demand increased faster than generating capacity. As a result, power shortages reached about 20 percent of industrial electricity requirements, which translated into the idling of industrial capacity for one or two days a week. Electricity is still allo- cated through quotas based on priorities set by local and central authorities ana demands for new connections are closely screened; still, power cuts are frequent. The rapid growth of demand can be attributed both to the verv high economic growth and to the increasing share of electricity in commercial energy requirements: 13 percent in 1970, 18 percent in 1980, possibly 27 percent by the year 2000. Since 1986, residential, manufacturing, and trans- portation showed the highest growth rates: 20 percent for residential uses due to income growth and 19 percent for transportation due to railway electri- fication. The manufacturing sector is already a large electricity consumer and is expected to maintain its share in the future. Notwithstanding con- certed efforts at energy conservation, the growth of power supply should not be allowed to fall behind GNP growth. As economic growth is only targeted at 6 percent a year under the Eighth and Ninth Five-Year Plans, the power output is planned to grow at the commensurate rate of 5.8 percent a year to 1,100 TWh in the year 2000; however, such a figure may prove to be too conservative. Indeed, a faster pace of power system development would be justified in order to accelerate the retirement of the less efficient and more polluting small coal-fired plants. B. Institutions, Planning. and Technology Transfer 2.6 Institutions. MOE oversees all strategic aspects of power develop- ment (para. 1.10), including five regional power administ:ations which coordi- nate the operations of the power systems and prepare long-term development programs for the approval of MOE. There are 19 provincial and municipal power bureaus under the regional administrations operating as part of the regional power systems and eight other bureaus which operate in isolation. A number of investigation and design institutions are affiliated with MOE, as are the 16 construction companies involved primarily in building power projects. Several universities, colleges, and research and training centers also fall under the auspices of MOE. 2.7 The Huaneng International Power Development Corporation (HIPDC) was created in 1985 as a financing arm of the former MWREP. It was designed to attract foreign capital and technology for power generating plants located mainly in the open cities of the coast. Unlike the provincial power bureaus (the beneficiaries of multilateral financing), HIPDC has a mandate to raise funds directly from the international financial market. The HIPDC has been active in tapping bilateral and suppliers' credits, and a few commercial bank loans. As a result, the power subsector in China has claimed a significant share of the country's external financing in recent years (Annex 4). 2.8 Separate corporations also have been created for developing major hydroelectric achemes. These new institutional arrangements are beneficial because such corporations are allowed to maximize their efficiency through specialization and economies of scale and to reinvest their earnings into - 11 - future power development. However, in order to achieve maximum efficiency, this division of labor creates a need for coordination of investments and operations among the various power entities in the same region, including transfer pricing arrangements. 2.9 The power industry in China employs about 1.8 million people. Of these employees, fewer than 30Z have received formal education beyond the junior secondary level. As a result, there is a shortage of trained manpower, particularly trained technical and administrative staff. MOE has initiated a long-term program to upgrade the skills of the staff at all levels. The pro- gram is carried out primarily by the provincial power bureaus and regional power administrations. The trainir3 component of the proposed project is designed to support Lhe MOE program and assist in developing manpower to meet the project's human resource needs (para. 3.6). 2.10 Power System Planning. Power system planning in China is the responsibility of the Planning Department of MOE, which reviews the plans proposed by the regional power administrations and bureaus. For the expansion of thermal power plants and transmission networks, the research, planning and designs are carried out by the regional electric power design institutes. For major hydroelectric projects, the research, planning, and design are carried out by the regional hydroelectric investigation and design institutes and the MOE's Water Resources and Hydropower Planning Institute. 2.11 As planning for China's power development becomes increasingly com- plex, there is a compelling need for Chinese planners to adopt state-of-the- art system planning techniques. These techniques are particularly important for evaluating large-scale projects which have long lead times and for making decisions about generation mix, power plant location, and grid configuration. Least-cost generation planning techniques were first introduced for thermal generation in East China through technical assistance from the International Atomic Energy Agency.l/ Under the Planning Support and Special Studies Project (Credit 1835-CHA), least cost planning techniques are being introduced for hydroelectric generation and transmission network expansion plans for the Sichuan and East China power systems. Training in the use of these techniques is being provided to staff of the concerned power bureaus and the Water Resources and Electric Power Economic Research Institute (WREPERI). These staff, in turn, will be able to assist other power bureaus and regional power administrations. 2.12 Modern Technologv Transfer. For China to achieve its ambitious goals for increasing power production, the development and transfer of appro- priate modern technologies will be crucial. Technology transfer is very important for thermal power plants, where increases in the steam parameters and size of units can reduce net fuel consumption. Since thermal generation from coal-fired units is expected to provide about three quarters of total generation until the end of the century, reducing the amount of fuel consumed for power generation would reduce pressures on both the supply and transport of coal, as well as on the environment. The Bank is helping to provide state- of-the-art technology for the construction and operation of large coal-fired 1/ Under the Bank's Second Power Project (Loan 2493-CHA). - 12 - units (300 MW and 600 MW), including environmental assessments and impact mitigation. Technology transfer is also needed for large hydroelectric proj- ects, particularly in connection with the interpretation of geological data, the design of sophisticated structures and large underground works, the selec- tion of equipment, efficient construction management, and environmental assessments. Assistance in technology transfer is being provided under ongo- ing projects and will be ontinued under the proposed project (paras. 5.11- 5.18). C. Power Pricing 2.13 China's current ele'-tricity pricing system has evolved from reforms begun in the mid-1980s and strengthened during the last three years. The current prices faced by consumers represent a complex combination of "old system" rates based on the tariff structure of 1976, and a new set of rates and surcharges for above-quota allocation, which are basically designed to improve cost recovery, especially for reinvestment. Recent reforms have in- cluded both reforms in the "old" tariff, and the development and expansion of the role of the new set of rates and surcharges. "Old system" base rates were increased by 57 percent during 1986-90, and, adding in a new across-the-board surcharge, "old system" rates now average from 10 fen to 17 fen/kWh, depending upon the region. The "new rates" are generally 20-30 fen/kWh, or twice as high as the base rates. A key component is the price charged for electricity from new generating plants, under tho "new plant, new prices" policy enacted in 1988 (para. 1.24). Under this policy, prices for power from new plants, which are largely financed by loans, are set at significantly higher levels to adequately cover the debt service of the power utilities. 2.14 As the role of the "new rates" increases with system expansion, the combined average rates continues to increase. However, there remain consider- able distortions in the structure of electricity prices. Further, the pre- vailing system is far too complicated, and not sufficiently transparent. The low "old" tariff to many customers provides little incentive for efficiency improvement, while new industrial customers are charged at a level which may exceed LRMC. The GOC has made commitments to confront these issues. It has announced its intention to unify old and new system rates into single, more transparent tariffs, and has taken concrete measures in this direction. In- troduction of peak/off-peak and seasonal rates has been expanding. The Gov- ernment also is eliminating certain preferential prices which have existed for some very electricity intensive heavy industries. 2.15 The Bank is engaged in a very active dialogue with the Government on the topic of power pricing. The financial covenants under Bank-financed pro- jects have long supported improvaments in power price levels, and collabora- tive work on tariffs is now reinforcing the corrective actions already taken by GOC to adjust prices. In a specific effort to support a systematic over- haul of power prices by the Government, the Bank financed a study covering Eaet China under the Beilungang Thermal Power Project (Loan 2706-CHA). The primary recommendations of this study--to bring tariffs more in line with the LRMC--are gaining broad acceptance and are being used in formulating specific pricing reforms for power systems with predominantly coal-fired gerneration. A specific power pricing study is included in this proposed project. This study - 13 - should lead to the definition of a concrete action plan to gradually improve the tariff structure of the Henan province (para. 5.16) D. Subsector Issues and Strateay 2.16 China faces the following major issues in the power subsector: (i) acute power shortages; (ii) inadequate power pricing and investment fund- ing; (iii) protracted implementation periods for large projects; (iv) environ- mental impacts of power supply; (v) weak interconnection within regional power systems; (vi) scarcity of skilled manpower; and (vii) outdated methods for planning, operation, and finarcial management. 2.17 The Government's basic policy for the power subsector is to modern- ize it, expand it, and increase its efficiency at a rate sufficient to meet the requirements of industrial development and improve the living conditions of the population. This policy translates into the following objectives: (a) expand coal-fired thermal capacity at mie-mouths or near ports and load centers in order to reduce the rail transportation requirements and use of lower grade coal in urban centers; (b) replace small- and medium-size thermal units with larger, less polluting, and more efficient units; (c) accelerate the pace of hydroelectric development; (d) construct extra high-voltage trans- mission lines; (e) introduce a more rational pricing system; and (f) adopt modern techniques in project design, environmental impact mitigation, and system planning. E. Role of the Bank in the Power Subsector 2.18 The Bank's participation in the power subsector in China has partic- ularly focused on institution building and the transfer of appropriate modern technology. The Bank has supported the Government's sectoral strategy through sector work, policy dialogue, and a series of lending operations in associa- tion with the regional power bureaus. The Bank has helped to introduce state- of-the-art system planning methodologies which identify cost-effective, sus- tainable development policies for the power subsector and, presently, it is participating in the formulation of the Five-Year Plans in Sichuan and East China (para. 2.11). Repeater projects allow the Bank to assist the Government in applying power tariff reforms based on the findings of earlier pricing studies (para. 2.15). Through the Second Beilungang Thermal Power Project (Loan 2955-CHA), the Bank is extending its policy dialogue to cover the reor- ganization, management, and regulation of power bureaus. 2.19 Since China has become a member of the World Bank Group, the Bank has helped to finance nine large power generation projects (600 MW - 3,300 MW)--five thermal and three hydro operations--and one high-voltage tran- smission project. Through these operations, the Bank has successfully (i) introduced international competitive bidding (ICB) for civil works and equip- ment; (ii) supported the transfer of modern technology in project construction and management; (iii) helped to improve the efficiency of pollution abatement equipment; (iv) promoted the integration of a regional power system in East China; (v) supported the development of master plans for modern distribution networks; and (vi) promoted operational efficiency and prudent financial man- agement. Under the Technical Cooperation Credit (TCC), the Bank assisted in supervising and review'ng a feasibility study for the Three Gorges Project. - 14 - 2.20 Most of the ongoing power projects financed by the Bank are being implemented in a satisfactory manner, on schedule, and within budget. The first power operation, Lubuge Hydroelectric Project (Loan 2382-CHA), is virtu- ally completed. The second power operation, the 500 kV Xuzhou-Shanghai Trans- mission Project (Loan 2493-CHA), was put into service, as scheduled. The Yantan Hydroelectric Project (Loan 2707-CHA) is also progressing satisfactori- ly. Several problems were encountered early in the implementation of the Shuikou Hydroelectric Project (Loan 2775-CHA): project management was weak, and the original Government allocation was too low to cover large cost in- creases associated with the resettlement component. Among measures to resolv'a these problems, the Bank agreed to revise the loan allocation and finance the importation of materials needed for resettlement; project management is also being strengthened. The project is now back on schedule. The construction of the Ertan Hydroelectric Project (Loan 3387-CHA) started successfully in Sep- tember 1991. The Daguanba Multipurpose Project (Loan 3412-CHA and CR 2305- CHA) was approved just recently. Furthermore, the Bank is involved in financ- ing three thermal power projects--Beilungang (Loan 2706-CHA), Wujing (Loan 2852-CHA), and Beilungang Extension (Loan 2955-CHA). The Beilungang project encountered delays early on due to procurement p-oblems and poor coordination among the suppliers of various islands. These problems have now been resolved, and construction is almost back on schedule. To minimize problems of coordination among suppliers for the Wujing project, procurement was car- ried out using a single responsibility contract. 2.21 The lessons learned from the previous power projects in China have been taken into account in preparing the proposed project. These lessons include: (i) improving procurement and contractual arrangements; and (ii) en- hancing the role of project management and the use of engineering consultants. Particular attention was given to the further improvement of the environmental aspects of the projects. A study on pollutiou control is being carried out in China financed under the Japanese Yen Grant Facility in order to minimize air pollution from thermal power plants in the coastal regions. - 15 - III. THE BENEFICIARY 3.1 The beneficiary of the proposed loan would be the Henan Provincial Electric Power Bureau (HPEPB). This would be the first Bank loan to be onlent to HPEPB. A. Legal Status and Organization 3.2 HPEPB is a state-owned enterprise operating under the direction of the Central China Electric Power Administration (CCEPA). The bureau falls under the jurisdiction of MOE and is a legal entity with contractual and self- accounting capabilities. The Government has assigned it responsibility for executing within its jurisdiction the program for power generation, capital investment, power sales and tariffs, employment and payroll, materials con- sumption, and tax. A charter for HPEPB has been issued which is acceptable to the Bank. 3.3 HPEPB is headed by a director who is appointed by MOE. Reporting to '.he director are four deputy directors, accountable for, respectively: capital construction; production, power supply, and load dispatching; adminis- tration, including labor and personnel; and management, including finance, general arfairs, and training. The planning, security, and auditing divisions report directly to the director. In addition, the director is assisted by a chief engineer and a chief accountant. Operations are carried out through a number of units engaged in power generation, transmission, power supply, con- struction, and manufacture and repair. Each of these units is headed by a chief with line responsibility to HPEPB's deputy directors for production and construction. The current organizational structure of HPEPB is presented in Chart 3. B. Management 3.4 Under the current institutional framework, HPEPB appears to be well managed. Recent performance indicators for the Henan Power Grid (HPG) shown in Annex 5 reveal high plant capacity factors and low transmission and distri- bution losses. While the customer-per-employee ratio is low, the kWh sales per employee is reasonable. HPEPB prepares accounting information in a timely fashion (para. 3.13) and maintains an effective billing and collection sys- tem (paras. 3.23-24). At present, the central government maintains a high degree of control over the power subsector. As the institutional framework becomes less centralized and the power bureaus receive greater financial autonomy and responsibility for decision-making, HPEPB must prepare itself to manage this transition. The upgrading of management systems and procedures and the strengthening of financial planning deserve special attention in this regard (paras. 3.8-3.12). The proposed project includes specific training in utility management and financial planning (para. 5.12 and Annex 13). 3.5 HPEPB is capable of formulating its own expansion program and implementing medium-size thermal projects (100-300 MW) by itself. Outside assistance is, however, required for the preparation of bid documents, bid evaluation, and contract negotiations for the procurement of equipment on an - 16 - ICB basis, interfacing of engineering and design of different islands and review of vendor's drawings. C. StaffinR and Training 3.6 HPEPB is understaffed in engineering and technical workers, and overstaffed in semi-skilled and unskilled workers. As of December 31, 1990, the bureau had a total staff of about 48,692. Of the total about 9 percent were college graduates, 21 percent graduates of polytechnic institute, 25 per- cent senior high school graduates, and 45 percent junior high school gradu- ates. Except for the core group of key technical and managerial personnel who are assigned by MOE, almost all of HPEPB's employees are recruited locally. Most of the employees also are hired on a permanent basis, except for laborers contracted to do construction. HPEPB has 15 divisions and offices in its headquarters and 39 outside units (Annex 6). 3.7 The Education Division of HPEPS runs three technical schools for skilled workers, one secondary technical school for training technicians, and one staff college for HPEPB's staff. This training capacity is not sufficient to meet HPEPB's long-term needs; currently it meets only about 30 percent of the bureau's annual requirement. The quality of teaching s;aff ard teaching facilities needs to be upgraded and modernized. Training should be designed to help senior managerial and technical staff adapt to the new situations brought about by larger units, higher voltage levels, and a larger power grid. The training component included in the proposed project is designed to meet these needs. It covers upgrading and equipping of HPEPB's technical schools and project-related training for technical staff (paras 5.11-5.15). D. Planning, Budgeting and Control 3.8 The evolution of the systems for planning, budgeting, and control used in China's power bureaus is discussed in detail in Annex 7. In brief, all power bureaus are responsible for developing annual and five-year produc- tion and investment plans which are integrated into the national plans and are approved, through MOE's and SEIC's auspices, by SPC. In the past, these plans have emphasized the planning of quantities of inputs and outputs. Financial planning was confined to attaching monetary values, predetermined by MOE, to the quantities being planned. Although a power bureau's plan might be revised to reflect changes in inputs or outputs arising from changed or unforeseen circumstances, the plans ordinarily would not be revised merely to reflect differences between the prices being assumed for planning purposes and those actually being paid by a particular power bureau. This planning system func- tioned effectively in an environment where prices were controlled and were relatively free of inflation and where investments were financed almost exclu- sively by grants. 3.9 However, under initiatives taken in the early 1980s, prices have begun to move, albeit slowly, toward market levels and the government is increasingly using loans rather than grants to finance investments. There- fore, money is taking on the characteristics of the other commodities which need to be planned, including: (a) possible variations in constituent prices on account of unforeseen circumstances, and (b) a cost, payable over a period - 17 - of years, associated with the financing of investments. Because of this, MOE will need to adjust its planning system to include financial planning. 3.10 MOE and SEIC recognize the importance of financial management in the power subsector in China and are organizing a comprehensive training pro- gram for all the power bureaus under their control. MOE already has begun to make adjustments to its management systems by providing many of the power bureaus with computers and software to use in planning, budgeting, and control accounting functions. As the bureaus have grown larger anad technically more complex and as the scope of their business has expanded, the manual methods used to compile these records have become increasingly unwieldy. Information stored in the computer diskettes can be transferred to MOE, where it will be consolidated into regional and national data. 3.11 The new systems represent a good first generation of automated man- agement information; however, they still are not sufficiently flexible to take into account price changes at the local level or those associated with large-scale debt service obligations. Currently MOE and SEIC, with assistance from the Bank, manage a number of seminars in China as well as overseas, com- prehensively covering not only the computer-based management information sys- tem but also those items of tariffs, cost control, project financing, and organization and structure of financial management. Through these seminars and training the Bank continues to discuss with MOE and SEIC the possibility of assisting in the development of an automated information system. 3.12 While it is developing a management information system that will include modern financial planning, budgeting and control accounting systems, MOE has agreed to introduce a rudimentary financial planning system in power bureaus implementing Bank-financed projects. In connection with the Lubuge Hydroelectric Project (Loan 2382-CHA), the Bank furnished MWREP with a finan- cial forecasting model. This model allows the power bureaus to study the impact of both their expansion plans and variations in prices on their future financial positions. MOE continues to use this model successfully in prepar- ing projects for appraisal by the Bank. The model also forms the basis for the rudimentary financial plans which the bureaus are to provide to the Bank each year. Assurances have been obtained from HPEPB that. by ADril 30 of each lear commencinQ in 1993. HPEPB will furnish to the Bank a rolling financial plan containing proiected income statements, sources and application of funds. and balance sheets for the next eight years. E. Accounting 3.13 Each of HPEPB's operating units maintains financial accounts which are consolidated with those of all other HPEPB operating units. The units prepare accounting information in a timely fashion each month; headquarters compiles consolidated accounts monthly, quarterly and annually. Accounts for all units are prepared on an accrual basis using a double entry system. MOP establishes the regulations governing the presentation of financial accounts for all sectors. These regulations cover matters such as accounting methods and procedures; form of accounts; procedures for distribution of net income and depreciation; taxation; allocations to and use of proceeds from Special Funds, etc. MOF reviews the regulations and corresponding accounting stan- - 18 - standards on an ongoing basis. These regulations and standards are supplemented by detailed implementation procedures issued by MOE. 3.14 HPEPB has a large accounting staff who are well-trained in main- taining ledgers and in compiling accounts according to standards. However, these accounts are used primarily to document historical financial informa- tion, so HPEPB in just beginning to develop other analytical financial capa- bilities. As it modernizes its financial management practices, HPEPB staff will have to learn modern management techniques involving the analysis of financial and cost accounting for decision-making purposes. A technical assistance component for training on utility management and financial planning has been included in the proposed project (para. 5.12). 3.15 HPEPB has several construction units that are responsible for con- structing its power plants, erecting transmission and distribution facilities, and implementing asset renovations. Accounts for construction units which primarily manage construction are consolidated with those of HPEPB's operating units. Accounts for construction units which function primarily as contrac- tors for the bureau are handled separately. Since most of the major new assets are being financed with loans issued directly to HPEPB, HPEPB will remit progress payments to those construction units functioning as contrac- tors. In this way, HPEP3's future accounts should properly reflect the value of major new assets under construction. F. Audit 3.16 Before 1982, the financial statements of organizations in China were not subject to comprehensive audit. Entities such as Ministry of Finance (MOP), the line ministries, tax bureaus, provincial financial bureaus, and banks conducted individual checks to meet their own particular needs. None of them prepared independent reports on the accuracy or reliability of their annual financial statements. China had no professional body of auditors to prescribe auditing standards and regulations. 3.17 When China's new constitution was ratified by the People's Congress in December 1982, this situation changed. A State Audit Administration (SAA) was established in September 1983 and given the status of a ministry reporting directly to the State Council. Provincial audit bureaus also are being estab- lished in each province and municipality (large cities). MOF has been respon- sible for establishing the audit bureaus and has drafted regulations and stan- dards based on international auditing practices in other countries. These interim regulations have been promulgated by the State Council. 3.18 To date, SAM's Foreign Investment Audit Bureau has been conducting the audits of Bank-financed projects; it focuses particularly on audits of enter- prises or undertakings with foreign participation in the form of equity or loan financing. SAM's staff have been receiving financial training under the Technical Cooperation Credit (Credit 1664-CHA) of the Bank. 3.19 The Henan Audit Bureau (HAB) was established in September 1983. Under the proposed project, HPEPB's annual accounts will be audited by HAB under the overall supervision of SAA. This arrangement is satisfactory. - 19 - Assurances have been obtalned from HPEPB that it will furnish annual financial statements, certified by an acceptable auditor, to the Bank within six months of the end of each financial year commencing in 1993. Internal Audit 3.20 HPEPB recently has developed an internal auditing staff (including four chartered accountants) who periodically will examine the accounts of each operating unit; they also will conduct occasional spot checks. The objective of these examinations is primarily to test for accuracy and compliance with MOP regulations. The internal auditing unit is not expected to review the appropriateness of accounting regulations or procedures; such reviews are considered to be the responsibilities of MOP and MOE. The Bank will review the internal auditing function during project implementation with a view toward increasing its efficiency and usefulness to EPEPB. The first HAB audit report for HPEPB is expected to include a review and commentary on HPEPB's internal checks and controls and internal audit. G. Electricity Tariffs 3.21 HPEPB's ta:iffs, generally are too low to cover economic costs. HPEPB's tariff includes four main categories of consumers: (a) large indus- try, (b) commercial and small industry, (c) lighting or domestic uses, and (d) agricultural production. Present tariffs are shown in Annex 8. Among the users, agricultural users pay much less than HPEPB's average tariff per kWh. Large industrial consumers pay both a demand charge, based on the maximum demand or capacity of their installed transformers, and an energy charge based on consumption. All other consumers just pay an energy charge. Large industrial consumers pay an average charge of about 11.0 fen/kwh (USc2.0/kWh), or about 103 percent of the average tariff. Large and small industrial consumers also pay connection charges, which include the cost of substations and distribution lines. Domestic customers do not pay a connection charge to HPEPB but must provide their own meter and internal wiring. Their average rate (20.4 fen or USc3.8/kWh) is almost 1.9 times as high as HPEPB's average tariff per kWh (10.65 fen or USc2.0/kWh). The tariff study for the East China power grid has been completed under the Bank-financed Beilungang Thermal Power Project (para. 2.15). While the general findings of this study are broadly applicable to the predominantly thermoelectric systems of China, there is a need to tailor the tariff target and reform strategy to each particular grid. A similar study is being carried out for HPEPB under the proposed project to achieve this objective and to disseminate modern tariff design techniques in Central China on the basis of the experience gained in East China. H. Billing and Collection 3.22 As of December 31, 1990, HPEPB sales were distributed according to the consumer categories shown in Table 3.1. The greatest number of customers were found in the urban residential category. Together the urban residential and municipal and other categories account for almost 84 percent of customers, although they only represent about 6.5 larcent of HPEPB's power sales. Large industrial users, rural communities, and agriculture account for much larger shares of power sales (about 93.5 percent). - 20 - Table 3.1: DISTRIBUTION OF HPEPB'S CONSUMPTION (As of Drcember 31, 1990) No. of Consumption Customer Category Consumers Z (GWh) % Large industrial 3,582 1.3 15,268 55.0 Ordinary industrial 20,737 7.5 1,248 4.5 Agriculture 19,278 7.0 4,994 18.0 Rural ccmmunities 826 0.3 4,439 16.0 Urban residential La 231,706 83.9 1,387 5.0 Municipal and others /a 31 - 411 1.5 Total 276.160 100.0 27.747 100.0 la Urban residential and municipal and others include public service estab- lishments, public transportation, and street lighting. 3.23 HPEPB conducts its billing and collection activities through twelve power supply bureaus. All major industrial consumers (consuming between 1,000-10,000 MWh/month) are charged in advance three times per month at approximate ten-day intervals. The last two bills, rendered on about the eleventh and twenty-first days of the month, are based on estimated usage derived from the consumer's contractual power consumption. The first bill, rendered on about the first day of the month, is also based on estimated usage but includes an adjustment to reflect the previous month's actual usage as computed from a meter reading. Smaller industrial consumers (consuming belo. 1,000 MWh/month) are billed twice a month, normally on the first and tbhe fifteenth days of the month. These bills are also based on Potima.ed usage, and the bill rendered on the first contains the adjustment for the previous month's meter reading. All other customers are billed once a month based on actual usage. All consumers buying power from HPEPB are metered individually. Most rural communities In the Henan Province receive bulk power directly from HPEPB; they, in turn, distribute it for agricultural, light industrial, and low voltage consumption within their jurisdictions. HPEPB measures these sales at its step-down transformer, normally 35 kV, serving the rural community. All higher and lower voltage consumption within agricultural com- munities is metered. 3.24 Industrial, commercial and bulk consumers pay their bills through direct debit from their bank accounts. Urban residential and low voltage agricultural consumers receiving power directly from HPEPB render payments either directly to HPEPB offices or to local branches of the National Bank. Payment is due within three to ten days of receipt of the bill. Regulations stipulate that consumers who do not pay within this period are to be charged a fine of 0.03-0.05 percent per day of delay, and that after several notices those who still refuse to pay their bills are to be disconnected. Because this regulation is strictly enforced, consumers very rarely allow themselves to fall into arrears. Any nonagricultural consumer is required to pay a - 21 - charge for reconnection. All power supply bureaus are required to submit their monthly bill collections before the eighth of the next month to the headquarters, i.e., HPEPB. These arrangements have established a reliable cash flow from sales and brought HPEPB's accounts receivable from current power sales down to fairly low levels. At the end of 1990 they were less than Y 45 million on sales of Y 2,54-, million, which is satisfactory. I. Insurance 3.25 Agencies such as the People's Insurance Company of China are now available in China providing commercial coverages. HPEPB currently purchases commercial insurance, covering assets, vehicles and public liability; these arrangements are satisfactory. J. Distribution System 3.26 HPEPB's primary distribution system operates at 1 kV, 10 kV and 35 kV voltage levels. Unfortunately, the power shortages in China have focused attention on generation and transmission projects at the 110 kV level and above. When extensions to the distribution network have been the respon- sibility of the municipal or local governments, the activity has often been neglected owing to lack of funds. 3.27 According to HPEPB, system losses have been averaging about 14.1 percent (8.4 percent for plant use, 2.3 percent for transmission losses at 220 kV and 3.7 percent for distribution losses below 110 kV). The distri- bution losses appear to be low in view of the paucity of investment in distri- bution. This is because HPEPB sells a significant percentage of its power in bulk to industrial, agricultural, and rural consumers, and the losses in their systems are not reflected in HPEPB's losses. To acouire a firmer grasp of the situation, the system losses at different voltage levels will be measured and analyzed under the tariff study to be carried out under the proposed project. 3.28 In order to reduce distribution losses for bulk supply, HPEPB has been taking the following measures since 1986: (a) replacing or renovating of old distribution transformers; (b) installing static capacitors so as to im- prove the power factor; (c) improving distribution networks by reconductoring at a pace of above 2,000-3,000 km annually; (d) implementing a meter monitor- ing and repairing program; and (e) setting aside 30 percent of the bulk supply revenue as a rural electrification development fund to be used for the exten- sion and improvement of distribution networks in the rural area. Up to 1990, 24,900 units of old transformers (out of a total of 46,800) have been replaced; 80 percent of the bulk suppliers have a power factor of 0.8 or better; and 435,000 meters have been inspected and repaired. As a result of these measures, losses in bulk-supplied networks have been reduced from 10.3 percent in 1987 to 8.8 percent in 1990. - 22 - IV. THE POWER MARKET AND THE PROGRAM A. The Central China Power Grid 4.1 The Central China Power Grid (CCPG) covers the provinces of Hubei, Hunan, Henan and Jiangxi, which have a combined population of 240 million. In 1990, the installed capacity of CCPG was about 20,100 MW, consisting of about 11,780 MW of thermal capacity (58.6 percent) and 8,320 MW of hydro capacity (41.4 percent). The system peak load and energy generation in that year were 10,950 MW and 96,654 GWh, respectively. About 37,664 GWh, or 39 percent, was generated from hydro plants. 4.2 At present, 500 kV is the highest transmission voltage in CCPG, connecting the provinces of Henan, Hubei and Hunan. At the end of 1990, the system had 2185.9 km of 500 kV transmission lines, 70.9 km of 330 kV lines and 12,447 km of 220 kV lines. There were six 500 kV substations with a total capacity of 4,482 MVA and ninety-one 220 kV substations with a total capacity of 15,424 MVA. A 500 kV direct current transmission line (1,100 km) was commissioned in 1989 extending from the Gezhouba hydro station near Ichang to the East China Power Grid. 4.3 There are four load dispatching centers in the CCPG: Wuhan, Changsha, Zhengzhou and Nanchang. Wuhan, located in Hubei Province, is under the supervision of CCEPA and has overall responsibility for controlling power transfer among the four provinces. The centers of Changsha (in Hunan Prov- ince), Zhengzhou (in Henan Province) and Nanchang (in Jiangxi Province) con- trol the operation of generating stations and transmission and sub-tranumiss- ion systems within their respective provinces. B. The Henan PowAr Grid 4.4 The province of Henan had a population of about 86.5 million in 1990. At that time its power system had a total installed capacity of 6,081.6 MW. Of this, 5,706.1 MW (93.8 percent) was thermal-based and 375.5 MW (6.2 percent) was hydrobased. The major generating facilities include ten thermal power plants and one hydro plant; these are described in Annex 9. Yaomen and Jiaozuo are the two largest thermal plants, with 1,200 MW and 824 MW capacities, respectively. Sanmenxia, with 250 MW, is the only major hydro plant located within the area. 4.5 In 1990, the province generated a total of 31,777 GWh of electricity. HPEPB plants generated 25,186 Gwhn, or 79.2 percent of the total, and local, government-owned and industrial plants generated the remaining 6.591 GWh, or 20.8 percert. Hydro generation accounted for 1,404 GWh (4.4 percent), and thermal generation, primarily from coal, for 30,373 GWh (95.6 percent). 4.6 The transmission system in Henan in 1990 consisted of 324.0 km of 500 kV lines, 70.9 km of 330 kV lines, 3,180.2 km of 220 kV lines, and 6,778.8 km of 110 kV lines. All 500 kV and 220 kv lines and 4,230.4 km of the 110 kV lines were owned and operated by HPEPB. The first 500 kV line from Pingdingshan to Wuhan was put into service in 1981 to interconnect the Henan Power Grid (HPG) with CCPG. The 330 kV line was completed in 1985 and runs from Sanmenxia hydro station to Qinling in Shaanxi province. The thirty one - 23 - 220 kv step-down substations had a total capacity of 5,266 MVA, two hundred and seven 110 kV substations had a capacity of 11,754.3 MVA. All 220 kV substations and 5,713 MVA of the 110 kV substations (117 in total) were owned and operated by HPEPB. 4.7 The growth of peak demand and energy requirements of the CCPG and HPG systems between 1981 and 1990 is shown in Table 4.1. The growth rates for CCPG are substantially higher than those for HPG because CCPG experienced both natural growth and additional demand due to absorption of other power grids over the period; the Henan Power Grid was interconnected to the system in 1983, the Jiangxi Power Grid in 1984, and the East China Power Grid in 1989. The system has a daily load factor of 90 percent and an annual load fact;.;r of about 78 percent. The peak load usually occurs in the month of June due to the heavy pumping load associated with irrigation. Table 4.1: HISTORICAL LOAD GROWTH FOR CENTRAL CHINA AND HENAN POWER GRIDS Peak demand Energy Supply /a (MW) (GWh) Year CCPG HPG CCPG HPG 1981 3,536 2,202 27,500 15,137 1982 3,790 2,320 29,500 16,254 1983 5,350 2,444 47,850 17,397 1984 7,020 2,512 51,200 18,641 1985 7,581 2,682 54,430 19,516 1986 7,961 3,015 59,190 20,888 1987 9,130 3,387 64,270 22,082 1988 10,300 3,658 73,100 24,140 1989 11,450 3,932 80,100 25,950 1990 10,950 3,956 78,676 27,153 Average rate of growth (X) 13.4 6.7 12.4 6.7 la Including generation and purchased energy. 4.8 Industries account for the largest share of energy consumed in Henan. Of the 28,224 GWh of energy consumed in the province in 1990, 70.5 percent was consumed by industrial users, 18.4 percent by rural consumers, 8.9 percent by residential, commercial and other municipal loads in the cities, and 2.2 percent by transportation. Annex 10 provides more details of the energy consumed by different categories of consumers in Henan province between 1985 and 1990. C. Load Forecast 4.9 As part of the economic planning process carried out by HPEPB, load forecasts were developed by applying a combination of statistical methods and planning targets to every major consumer category. Industrial loads were - 24 - estimated on the basis of a market survey and analysis of projected industrial products and unit consumption per product for different categories of indus- tries. Rural loads were estimated based on past growth trends for drainage and irrigation loads, rural industrial loads, and lighting. Municipal loads were estimated based on market surveys of hotels, buildings, and government projects to be put into operation over the next ten years. Population growth and increasing use of home appliances were taken into consideration in esti- mating residential and commercial loads. Transportation loads, which are relatively small, were estimated according to pact growth trends for airports and railway stations and projected load for railroad electrification. Table 4.2 presents the resulting forecasts for peak demand and energy require- ments for CCPG and HPG between 1991 and 2000. Table 4.2: LOAD FORECAST FOR CENTRAL CHINA AND HENAN POWER GRIDS Peak demand Energy requirement (MW) (GWh) Year CCPG HPG CCPG HPG 1990 (Actual) 10,950 3,956 78,626 27,153 1991 11,777 4,313 82,703 28,896 1992 12,661 4,636 88,818 31,063 1993 13,661 4,984 95,385 33,393 1994 14,631 5,358 102,438 35,897 1995 15,728 5,759 110,012 38,589 1996 16,908 6,192 118,142 41,484 1997 18,176 6,656 126,883 44,595 1998 19,539 7,228 136,372 47,940 1999 21,005 7,792 146,354 51,535 2000 22,580 8,400 157,187 55,400 Average rate of growth (p.a.) (2) 7.5 7.8 7.2 7.4 4.10 Based on this forecast, the peak demand for CCPG would increase from 10,950 KW in 1990 to 22,580 MW in 2000; energy generation would increase from 78,626 GWh to 157,187 GWh. These figures represent average annual growth rates of 7.5 percent and 7.2 percent, respectively. This is because no additional demand due to absorption of other power grids is anticipated. For the HPG system, peak demand would increase from 3,956 MW to 8,400 MW and the energy requirement would increase from 27,153 GWh to 55,400 GWh. Their respective annual growth rates would be 7.8 percent and 7.4 percent. 4.11 These load forecasts and growth rates are on the conservative side considering that: (a) power shortages have been occurring for a long time, so there ts quite a bit of suppressed demand for electricity, especially for the first five years; (b) as the rural economy improves, the load for lighting and agro-industries in rural areas will increase; and (c) as the standard of liv- - 25 - ing in the cities improves, per capita electricity consumption will increase rapidly, particularly for lighting and home appliances. D. The Power Development Program (1991-2000) 4.12 Henan is short of hydroelectric potential. The 250 MW Sanmenxia hydro station is the only sizeable hydro development in the area. Another hydro project which is mainly for flood control, Xiaolangdi (6 x 260 kW), is being planned by the Ministry of Water Resources downstream of Sanmenxia on the Yellow River, but it is not expected to be completed before year 1999. Expanding generation c-?pacity in the near term therefore will require the use of coal-fired thermal power stations. 4.13 A study of the least-cost investment program was made by WREPERI in February 1987. This study confirms that a number of thermal power stations will need to be built over the next decade utilizing local coal as well as coal imported from nearby Shanixi province. A summary of the power development program for the HPG system, including generation and transmission, is given in Annex 11. The balance between power demand and supply is given in Annex 12; it indicates that there still would be power shortages up to 1995. Only after the completion of Yanshi Phase II development in 1996, would the Henan power grid have adequate reserve capacity and be able to export baseload energy to the Central China power grid (see para.5.2). - 26 - V. THE PROJECT A. Proiect Obiectives 5.1 In the past, shortfalls in electric generating capacity have been a major constraint to China's economic growth. This situation is likely to continue in the near term unless changes are made. The Government of China gives high priority to electric power development and has developed a compre- hensive strategy for power development. This strategy combines (a) expanding generating capacity by developing coal-fired thermal stations at mine-mouths or near ports and load centers where applicable, and accelerating the pace of hydroelectric development; (b) increasing the financial and managerial autonomy of the power bureaus; (c) introducing a more rational pricing system; (d) adopting modern techniques in project design and system planning; (e) constructing extra high voltage transmission lines for interconnection between regions; and (f) replacing low pressure medium-sized (50-100 MW) thermal units with higher pressure 300-600 MW units. The proposed project reflects the basic conception of these policies. 5.2 The major objectives of the proposed project are to: (a) alleviate the acute power shortage of a major load center in Central China; (b) support the national policies of developing thermal power plants at mine-mouths or near coal mines; (c) introduce up-to-date methods for investment planning, tariff restructuring, and system operation; (d) introduce techniques for mod- ern construction and management of thermal power plant; (e) upgrade HPEPB's capability in financial management and in the operation and maintenance of thermal power plants with 300 MW units; and (f) further improvements in the environmental impact of HPEPB's thermal power stations, including an environmental monitoring program. 5.3 The proposed project would be the first Bank financed power project in the central part of China. This would enable the Bank to extend the insti- tution-building functions that are being carried out in East and South China under previously approved Bank loans, help maintain the momentum reached and enhance further institutional developments in one of the most populous prov- inces in China. B. Proiect Description 5.4 The proposed project is located about 90 km west of Zhengzhou and 27 km east of Luoyang in Henan province. It is situated on a site with favor able topographical conditions and easy access by railroad and highway. Water for the makeup (supplementary water to compensate losses) and circulating water systems will be supplied from underground wells along the banks of the Yi and Luo Rivers. Cooling water towers will be used for recirculation. The existing railroad system with a short branch will supply coal to the project site from the Xinan and Yima mines, located 60 km and 90 km west of the power station, respectively. Xinan has a reserve of 560 million tons and Yima has 627 million tons. Annual production of coal in 1990 was 10.6 million tons at Yima and 1.8 million tons at Xinan. Both mines contain low grade coals which are economically suitable for use in power generation. At appraisal the Government confirmed that these supplies of coal would be guaranteed for the project. - 27 - 5.5 The proposed project would consist of: (a) extension of the existing Yanshi thermal power plant by adding two coal-fired generating units of 300 MW each, comprising: (i) civil works including main building piling and foundation, building structures, cooling water towers and a chimney; and (ii) electrical and mechanical equipment including boilers, turbine- generators, ash handling facilities, and other auxiliaries; (b) construction of five 220-kV transmission lines about 350 km in length with associateA substations; (c) carrying out a monitoring program for environmental protection; (d) carrying out training program for upgrading the technical, financial and managerial skills of HPEPB staff including a management informa- tion system, equipping and upgrading HPEPB's technical schools, and training for the operations and maintenance staff of large thermal power plants with 300-MW units; (e) carrying out a tariff study and an action plan for tariff structure improvements; and (f) provision of consulting services. 5.6 Prolect Origin and Design. The proposed project represents the Phase II development of the Yanshi Thermal Power Project. The first phase, consisting of two 200-MW units has been successfully completed. The first unit was put into operation in March 1988 and the second unit in 1989. 5.7 The project was first brought to the attention of the Bank during the Bank/GOC annual review of the lending program for FY87 and FY88, held in June 1986. In September 1986, an identification miE ion visited the project site and the implementing agency--HPEPB. Between August 1985 and March 1986, a feasibility study of the project was prepared by the Southwest China Electric Power Design Institute (SWCEPDI). This study later was revised to conform to the requirements of a Bank loan. In April 1987 the report was reviewed by MWREP, and in May 1987 it was finalized. The report demonstrated that the project was technically sound and economically justified. 5.8 Extension of the Yanshi Thermal Power Station. Site conditions are well known and there have been no unusual occurrences. A study of the power development program (para. 7.3) has confirmed that the Yanshi thermal power station is the least cost solution for HPEPB's future development program. The station is located at the load centers of Zhengzhou and Luoyang, which have experienced acute power shortages for many years; it also is situated close to the coal mines, reducing both transmission and fuel costs. 5.9 The Phase II development will consist of two 300 MW coal-fired units of conventional design with drum type boilers and reheat tandem compound type - 28 - turbine-generators. They will be operating with a steam condition of 169 kg/cm2 pressure and 538 degrees celsius temperature. 5.10 Transmission System. In order to feed power from the Yanshi plant to the HPEPB system, five 220-kV transmission lines will be constructed. The lines will extend a total of 350 km and run from Yanshi to 'Zhengzhou (104 km), Yanshi to Gaucun through Luobei and Luonan (137 km), Yanshi to Dengfong (60 km), and include two other short connection lines (49 km). The existing Luobei, Jili and Gongxian substations all will be extended. Luobei will receive a 150 MVA transformer, Jlli a 90 MVA transformer, and Gongxian a 120 MVA transformer, representing a total 600 MVA of additional capacity among the three substations. Two new 120 MVA substations will be established at Dengfong and Mixian (see Map IBRD 21114). 5.11 Training. A training program with the following three components will be included in the project (Annex 13): (a) training of HPEPB staff in the areas of utility management, finan- cial planning, and development of a management information system; (b) project-related training for technical staff; and (c) upgrading and equipping of HPEPB's technical schools. 5.12 To modernize the management and financial planning of the utility, study tours and training will be arranged in which HPEPB managers and finan- cial staff will visit a few selected utilities overseas. The objectives are to provide high-level staff with the skills needed to meet the circumstances of the nineties: modern and larger power plants, larger automated grids with load dispatch systems, higher voltage transmission, modern account- ing/costing/pricing and a self-sustained investment planning organization. Before that, seminars on utility management and financial planning will be conducted in China with the assistance cf management specialists. Since this type of training is already included with ongoing Bank loans, seminars and overseas training can be arranged jointly with the other power bureaus. 5.13 Project related training for the technical staff would include: (a) on-the-job training for engineering and design staff by providing opportu- nities for them to work together with the consultants; (b) training of elec- trical and mechanical staff by suppliers of major equipment included under the contracts; (c) training of the operations and maintenance staff at selected power stations available in China; and (d) training of project staff for envi- ronmental monitoring. A training center equipped with a simulator in CCPG will be used to train operators. New technology on construction, especially installation of large generation units and interfacing between different islands will be introduced throughout the project implementation. 5.14 To meet HPEPB's long-term needs for human resources, expansions will be made in its staff college, the Zhengzhou Secondary Technical School for Electric Power, and three technical schools for skilled workers. All these schools will be provided more laboratory equipment and teaching aids and the skills of their teaching staff will be upgraded. - 29 - 5.15 All the training components will be implemented by HPEPB. Asurances have been obtAined from HPEPB that it will carry out the trainina in accordance with a program acceptable to the Bank. 5.16 Tariff Action Plan. A tariff study is being carried out by HPEPB with the assiatance of WREPERI to prepare a concrete plan of tariff restruc- turing (Annexes 14 and 15). The purpose of this study is to review the level and structure of the power tariff on the basis of long-run marginal costs. The study also will take into account other considerations such .s the financial requirements and objectives of HPEPB. A tariff action plan will be executed by HPEPB in order to bring tariffs more in line with the cost of supply for various customer categories, based on the findings of the power pricing study. Assurances have been obtained from HPEPB that it will carry out the tariff study and action plan in accordance with the program agreed with the Bank. 5.17 Consulting Services. As the proposed project physically resembles the Wujing Thermal Power Project (Loan 2852-CHA) in its scope and in the size of units, the same consulting arrangements have been made. The China Interna- tional Engineering Consulting Corporation (CIECC) is the leading firm, sup- ported by the China Electric Power Consulting Corporation (CEPCC) and SWCEPDI to provide the overall consulting services. Sargent and Lundy Engineers U.S.A., a foreign consulting firm retained for the Wujing Project, is used to provide assistance in the review of bidding documents, bid evaluation, includ- ing the preparation of bid evaluation report, and in the interfacing of engi- neering and design for different islands. Terms of reference for these services (Stage I and Stage II) are detailed in Annex 16. 5.18 An emount of $0.6 million has been provided for Stage I services (for project preparation) as one of the subprojects under the Second Technical Cooperation Credit (Credit 1664-CHA).l/ Stage II services for project implementation will be financed under the proposed Bank loan. C. Cost Estimate 5.19 The estimated cost of the project is summarized in Table 5.1. The cost estimates reflect December 1991 prices and are based on the latest ten- dering information available for 300 MW units in China. Unit costs of civil works are based on information obtained during the implementation of Phase I (2 x 200 MW). Since this is an extension project, site conditions are well known. Physical contingencies are calculated at 5 percent for the foreign costs of plant equipment, materials and services, and 10 percent for civil works and other local costs. The price escalation for costs expressed in terms of foreign exchange (US dollars) is calculated according to anticipated international price movements of 3.9 percent per annum in average for 1992- 1997. The price escalation for costs expressed in local currency is calculated according to projected local inflation rates of 8.0 percent per I/ Technical Cooperation Credit is used for project preparation only. This $0.6 million has not been included in the project cost estimate shown in Table 5.1. -30 - annum for 1992, 5.0 percent per annum for 1993 and thereafter. Detailed estimates of project costs are provided in Annex 17. Table 5.1: SUMMARY OF PROJECT COSTS Local Foreign Total Local Foreign Total Foreign (Y million) tS million) . cost as X of total Civil works 237.3 34.4 271.7 44.1 6.4 50.5 12.7 Plant equipment and materials 308.8 860.3 1169.1 57.4 159.9 217.3 73.5 Transmission system 140.4 - 140.4 26.1 - 26.1 - Environmental protection 1.1 0.5 1.6 0.2 0.1 0.3 33.3 Training 6.9 5.4 12.3 1.3 1.0 2.3 43.5 Tariff study and action plan 2.7 - 2.7 0.5 - 0.5 - Engiueering and construction management 91.5 6.5 98.0 17.0 1.2 18.2 6.6 Total Base Cost 788.7 907.1 1.695.8 146.6 168.6 315.2 53.5 Contingencies Physical 78.6 45.2 123.8 14.6 8.4 23.0 36.5 Price 74.2 14.0 88.2 13.8 3.0 16.8 17.9 Total Prolect Cost 941.5 966.3 1.907.8 175.0 180.0 355.0 50.7 Interest during construction IBRD loan - 258.8 258.8 - 48.1 48.1 100.0 Local loan 304.0 - 304.0 56.5 - 56.5 - Total Financing Required 1.245.5 1,225.1 2.470.6 231.5 228.1 459.6 49.6 Notes: 1. Base cost and physirtl contingency (at December 1991 price) have been calculated using an exchange rate of Yuanl - $0.19. 2. The project would be exempted from import duties and taxes. 3. Total physical contingencies are about 7.32 of base cost; local price contingencies are about 8.62 and foreign price contingencies are about 1.71 of the base cost plus physical contingencies, when expressed in US dollars. Since bids were already opened for the boiler and turbine generator packages on a firm price basis, no escalation of prices were provided after contract award, targeted for early 1992. D. Financing Plan 5.20 The financing plan for the project is shown in Table 5.2: Table 5.2: FINANCING PLAN FOR THE PROJECT ($ million equivalent) Local cost Foreign cost Total IBRD - 180.0 180.0 SEIC 115.8 32.1 147.9 Provincial Government 115.7 16.0 131.7 Total 231.5 228.1 459.6 - 31 - 5.21 The proposed Bank loan of $180 million will be used to meet 51 per- cent of the tctal project cost, or 79 percent of the foreign exchange require- ments. The loan will finance the following components: (a) steel products and timber for civil works; (b) construction equipment; (c) boiler island package; (d) turbine-generator island package; (e) ash disposal system package; (f) instrumentation and control package; (g) electrical equipment and cables; (h) water treatment package; (i) environmental protection equipment; (j) training program; and (k) consulting services. 5.22 Financing for the remaining foreign exchange requirement, interest during construction on the Bank loan will be obtained from SEIC and provincial government. These local loans will be repaid over 15 years, beginning after the project is completed. All local costs will be financed equally by SEIC and the provincial government of Henan (ie. an equivalent of $116 million each). 5.23 The proposed Bank loan will be made to the People's Republic of China at the standard variable interest rate for a 20 year term (including 5 years grace f repayment of principal). Assurances have been obtained from GOC that it will onlend the proceeds of the proposed Bank loan to HPEPB under a subsidiary loan agreement with a 20-year term including 5 years arace at the Bank's variable interest rate with no premium. HPEPB will bear the commitment charges and the foreign exchange risk. A Project Agreement will be concluded between the Bank and HPEPB. The execution of a subsidiary loan aRreement satisfactorv to the Bank would be a condition of effectiveness for the loan. E. Procurement 5.24 Equipment and materials financed under the proposed Bank loan will be procured by international competitive bidding (ICB) in accordance with the Bank's Procurement Guidelines. Based on the experience gained from the Wujing Thermal Power Project, the procurement of this project will be carried out on an island basis instead of the single responsibility concept. For selected goods, bids offering domestically manufactured plant, equipment and other components will receive a preference in bid evaluation of 15 percent of the c.i.f. price or the import duty, whichever is lower. Equipment estimated to - 32 - cost leas than $200,000 per contract up to an aggregate amount of $3.0 million could be procured by Limited Intornational Bidding (LIB) in accordance with the Bank's Procurement Guidalines. Civil works to be financed by the borrower will be procured following local competitive bidding procedures (LCB), which has boon roviewed by the Bank and found satisfactory. 5.25 Procurement arrangements are summarized in Table 5.3 belows Table 5 3t PROCUREMENT ARRANGEMENTS ($ million) Item Procuremen. Method Total ICB Other N.B.FP cost 1. Work. 1.1 Site preparation 12.1 12.1 1.2 Civil works - - 39.7 39.7 2. Goods 2.1 Plant equipment 170.6 3.0 68.5 242.1 and materials (170.6) (3.0) (173.6) 2.2 Transmission - - 31.8 31.8 system 2.3 Construction - 3.9 - 3.9 equipment (3.9) (3.9) 3. Consultancies 3.1 Engineering and construction - 21.8 - 21.8 management (1.3) (1.3) 3.2 Training - 2.7 - 2.7 (1.1) (1.1) 3.3 Tariff Study - 0.6 0.6 3.4 Environmental - 0.1 0.2 0.3 protection (0.1) (0.1) Total 170.6 31.5 152.9 355.0 (170.6) (9(4) L180.0) Notes Figures in parentheses are the respective amounts financed by the Bank loan. N.B.F. - Not Bank-financed. 5.26 All procurement documents related to bidding packages for goods financed by the Bank and estimated to cost more than $1.0 million equivalent would be subject to the Bank's prior review; this covers the procurement of eight major packages (par&. 5.21) to be financed out of the Bank loan. The procurement schedule is shown in Annex 18. - 33 - F. Proiect Implementation 5.27 Since this is an extension project, all the land needed for the power plant already is available and most of the common facilities have been completed. The detailed engineering and design for the new extension is being carried out by SWCEPDI. A well-staffed construction unit has been set up under HPEPB to supervise and coordinate the construction of the project. Bidding documents for the boiler and turbine generator were issued on January 25, 1989. Bids were opened on May 4, 1989 and contracts are expected to be negotiated pending Bank loan approval. 5.28 Chart 4 presents the implementation schedule for the various compo- nents of the project. Key dates of project implementation are given in An-no 19 and estimated annual contractual and other payments are given in Table 5.4. The civil work construction is well within the capability of the local cont-actor. Site preparation started in July 1989 under the Phase I development. Foundation excavation will be started in August 1992, and piling will begin in September 1992. Commissioning of the first 300 MW unit would be December 1995; commissioning of the second unit would follow twelve months later, in December 1996. The project completion date would be June 30, 1997, and the closing date of the Bank loan would be December 31, 1997. Table 5.4: ESTIMATED ANNUAL CONTRACTUAL AND OTHER PAYMENTS ($ million equivalent) Proiect Year /a Total Project Element 1991 1992 1993 1994 1995 1996 1997 Payment Remarks Works Site preparation 0.8 5.8 5.2 0.3 - - - 12.1 NBF Civil works 1.4 4.3 14.3 13.9 4.2 1.6 - 39.7 LCB Goods Plant equipment - 15.8 81.1 49.2 16.0 5.1 3.4 170.6 ICB and materials (15.8) (81.1) (49.2) (16.0) (5.1) (3.4) (170.6) - 0.1 1.6 0.9 0.2 0.2 - 3.0 Other (0.1) (1.6) (0.9) (0.2) (0.2) (3.0) 0.1 4.1 28.5 23.3 7.8 4.7 - 68.5 NBF Transmission system - 1.3 3.1 14.2 11.6 1.6 - 31.8 HBF Construction - 0.4 3.5 - - - - 3.9 Other equipment (0.4) (3.5) - - - - (3.9) Environmental protection - 0.1 0.2 - - - - 0.3 IS,NBF equipment - - (0.1) - - - - (0.1) Consultancies Englneering L 1.4 3.3 5.5 5.4 4.8 1.4 - 21.8 Other construction mgmt. - (0.2) (0.7) (0.2) (0.2) - - (1.3) Training - 0.3 1.0 1.0 0.4 - - 2.7 Other (0.2) (0.5) (0.4) - - - (1.1) Tariff study 0.3 0.3 - - - - - 0.6 NBF Total 4.0 35.8 144.0 108.2 45.0 14.6 3.4 355.0 (Bank-Financed) (16.7) (87.5) (50.7) (16.4) (5.3) (3.4) (180.0) la Calendar year. - 34 - G. Disbursement 5.29 The Bank loan would be disbursed against: (a) 100 percent of the foreign expenditures for directly imported equipment and materials quoted on a c.i.f. basis; (b) 100 percent of local expenditures ex-factory for locally manufactured items; (c) 75 percent of the cost of other items procured locally; and Id) 100 percent of the expenditure for consulting services and training. For expenditures relating to training and contracts for goods and services valued at less than $200,000 equivalent, reimbursement will be made on the basis of statements of expenditures. Documentation supporting such expenditures need not be submitted to the Bank but should be retained in the HPEPB office in Zhengzhou and made available for review by the Bank's supervision mission. To facilitate disbursements under this project, a Special Account will be established with an authorized allocation of $10.0 million, representing approximately four months of average project expenditures. Applications for replenishment will be submitted monthly or when the amounts withdrawn equal 50 percent of the initial deposit, whichever comes sooner. 5.30 Annex 20 presents the disbursement schedule for the proposed Bank loan as well as a Bank-wide standard profile of disbursements for all sectors in China. Since the project involves the addition of two units for which most of the preparation works and common facilities were already completed and for which procurement of major plant equipment was in the advanced stage, the implementation period is expected to be shorter than for conventional projects. The disbursements therefore are expected to be faster, scheduled for five and a half years instead of the Bank-wide profile of six years. H. Monitoring and Reporting 5.31 Satisfactory procedures for financial reporting have been estab- lished for use in monitoring the progress of the project (paras. 3.13 and 3.20). HPEPB will submit half yearly progress reports on project execution and a project completion report when the work is finished. I. Environmental Considerations 5.32 The Yanshi site is located about 90 km vest of the capital city of Zhengzhou and 27 km east of Luoyang. It is primarily an agricultural area with a population density of about 8,500 within one km and 45,000 within a radius of 5 km. The nearest township is Yanshi, located about 2 km east of the plant site. The prevailing wind direction is NEE or NE. As Yanshi is a developed site, there would be no need for land acquisition and resettlement. Environment Impact 5.33 An environmental impact (El) report has been reviewed and approved by the Henan Provincial Environmental Protection Bureau. The project has been - 35 - designed taking into account all recomended mitigating measures in the EIS into the project design. The following issues deeerve special note. 5.34 Air Oualitv. The coal to be used for the plant would be low grade coal with a heat value of 4,250 kcal/kg, a sulfur content of less than 1 percent, and an ash content of about 24 percent. Ground level concentrations of dust particles and sulfur dioxide would be kept within the limits of the national standard and comply with the World Bank Guidelines for four units in operation. The stack emission for dust particles also would conform to the requirements of the World Bank Guidelines (see Annex 21). These conditions would be met by using a stack height of 240 m and employing electrostatic precipitators with an efficiency of 99.4 percent for Phase II development. However, this is not the cass for the existing Phase I development of two units of 200 MW which have a Venturi water-filmed type of precipitator. HPEPB has agreed to improve the efficiency of these units by replacing them with high efficiency electrostatic precipitators. Procurement of these precipitators has been started with HPEPB's own funds and installation is scheduled for 1992/93. 5.35 Liauid Chemical Effluent. Plant liquid chemical effluents will be held in a neutralization basin and treated before they are discharged into rivers. 5.36 Ash Dis2osal. Ash from the power plant will be disposed in the gullies along the northern slope of the Mang-shan range enclosed by dams. The total storage capacity of ash disposal yards is about 37.5 million m 3, which is adequate for 30 years of operation. The pH value in the ash water will be kept within the allowable limit of 6-9 before it is discharged into the Yellow River. Facilities to treat the ash water will be provided during project implementation. 5.37 A complete summary of all environmental mitigating measures to be taken is presented in Annex 22 and an environmental monitoring program, in Annex 23. HDEPB will undertake the recommended mitigating measures and rectify problems, if any, during the testing and operation periods. Assurances have been obtained from HPEPB that it will take all necessary steps to iim2lement an environmental monitoring program satisfactory to the Bank. Resettlement 5.38 The transmission facilities will be designed and installed in accor- dance with current technological practices and are expected to cause minimum disturbance to the environment. The area through which the three major 220 kV transmission lines will pass is primarily agricultural, consisting of 75 per- cent wheat or cotton fields and 25 percent uncultivated hills. There will be no houses or people to be relocated. As the land under the line still could be utilized for cultivation, there should be no difficulty to acquire land for tower foundation (about 5.2 ha). - 36 - VI. FINANCIAL ASPECTS A. Introduction 6.1 HPEPB is a financially independent entity which reports to MOE. It follows the financial regulations issued by MOP for all state enterprises and the procedures developed by MOE for adapting those MOF regulations for use by power bureaus. Within this framework, HPEPB manages its own affairs. In the past its revenues have covered its operating requirements and left it with comfortable liquidity. However, most surpluses have been remitted to the Government; in turn, the Government has provided all the funds needed for investments in approved projects. Historically, these funds have been provided on a grant basis, but more recently they have been provided as loans. B. Financial System 6.2 All Chinese power bureaus conduct their affairs accordinig to a stan- dardized financial system, the salient points of which are described briefly in Annex 24. As was the case unde; previous Bank-financed projects for the Chinese power subsector, HPEPB is not permitted to retain more than a nominal amount of its earnings, and the cash corresponding to the earnings that are retained must ultimately be applied to certain specified categories of expen- ditures or investments. Thus, HPEPB has limited incentive to realize revenues in excess of its obligations. Also, the traditional indicators of financial performance, such as rate of return and self-financing ratio, have only limited applicability to an analysis of HPEPB at this time. As part of the ongoing economic reforms, the Government is reassessing the present fiscal system, with particular focus on tax reform issues and options. Since details of such reforms are still being formulated, there are considerable uncertain- ties relating to the specific parameter. affecting the bureaus' future finances. Nevertheless, in keeping with the spirit of the recently enacted Enterprise Law, the integrated measures of the economic reform would be directed at enhancing rather than impeding the commercial orientation of the state enterprises. C. Past and Present Financial Performance 6.3 HPEPB's financial statements for the period 1985-90 are shown in Annex 25 and summarized in Table 6.1. 6.4 During 1985-90, HPEPB'a sales increased by about 41 percent, while operating revenues increased by about 129 percent. Although the tariff was not adjusted during this period, average revenues per kWh increased by about 64 percent, reflecting a modest increase in the proportion of higher priced urban residential and commercial consumption. Despite the increase in average revenues, the operating ratio increased from about 84 percent to 91 percent, indicating that the increase in HPEPB's operating cost is outpacing the increase in average revenues. The downward trend of the rate of return, spe- cifically for 1985-88, is not due to HPEPB's inefficiency in operation but due mainly to its rapidly increasing fixed assets formation during the period; while HPEPB's rate base increased by nearly 39 percent in 1986 and 18 percent in 1988. In order to meet the cost increases expected in the future and to - 37 - Table 6.1: HPEPB'S KEY FINANCIAL INDICATORS, 1985-90 /a (in million Yuan) Year ended December 31 1985 1986 1987 1988 1989 1990 Electricity sales (GWh) 16,992 18,062 19,773 21,870 23,392 23,892 Average revenue (fen/kWh) 6.5 7.1 7.4 7.7 10.0 10.7 Operating revenues 1,110 1,289 1,464 1,680 2,330 2,545 Operating income lb 172 162 152 98 198 154 Capital expenditure 879 864 591 424 196 238 Net fixed assets in operation 2,137 2,991 3,070 3,625 3,919 4,500 Cash at end of year 93 120 142 280 323 344 Operating ratio (%) 84 87 90 94 93 91 Rate of return (x) /c 12.0 7.4 5.7 2.7 4.1 5.3 Debt service coverage (times) 72.0 37.0 9.0 9.0 7.0 7.1 Current ratio (times) 1.6 1.6 1.9 1.7 1.8 3.4 /a In October 1983 the Sanmenxia hydro power station (5 x 50 MW), of which the value of net fixed assets then was 185.7 million Yuan, was transferred from HPEPB to the Yellow River Water Conservancy Commission under the directive of MWREP. lb Operating revenues less the aggregate of fuel, power purchases, adminis- tration, operation and maintenance, and depreciation. ic Based on historically valued average net fixed assets in operation. remain financially viable, HPEPB will need to increase its tariff considerably for the period 1990-2000. Valuation of Assets 6.5 The Chinese financial system does not employ the concept of revalu- ing fixed assets. In the short run, the revaluation of assets would not have a major impact on HPEPB's financial status because inflation has been low over the last 30 years and because there is little foreign content in existing assets in the power sector. However, as incipient changes take place in the structure of prices, revaluation of assets will become more important. Since the adoption of a revaluation policy would have impacts beyond the power sec- tor, it will not be addressed solely in the context of the proposed project. Instead, this subject will become a component of the continuing policy dia- logue between the Bank and MOF. In the meantime a pro forma revaluation was conducted during appraisal of the proposed project, to assess the impact of revaluation on HPEPB's average rate of return on assets. The effect of this revaluation was to reduce the average rate of return on assets by one-third for the period 1991 and 2000. Tariffs 6.6 In the past, HPEPB's tariff allowed the bureau adequate operating revenue and provided substantial general revenues to the State (para. 6.3). However, in the future inflation and other specific price adjustments are - 38 - expected to have a much greater effect on HPEPB's cost structure. For exam- ple, the price the bureau pays for coal, the major part of its cost structure, already increased substantially in 1987/88. In order for HPEPB to recover the full additional cost of coal price increases MOE has authorized it to intro- duce a gradual fuel adjustment into its primary pricing arrangements. The pricing study, being carried out under the project, will form the basis for further discussions with GOC on the level and structure of the power tariff. D. Financina Plan 6.7 HPEPB's financing plan for the project implementation period (1992-97) is displayed in Table 6.2: Table 6.2: HPEPB'S FINANCING PLAN, CY92-97 Z of Item Y million $ million /a total Sources of funds Internal cash generation 11,625 2,161 67 (less) Increment in working capital (889) (166) 5 (less) Increment in Special Fund assets (1) (0) 0 (less) Repayment of loans (4,199) (780) 24 (less) Remittances to Government (1,789) (333) 10 (less) Special Fund expenditures (1,955) (363) 11 (less) Chargeable IDC (284) (53) 2 %Oash Available for Investment 2.508 466 15 Proposed IBRD loan 968 180 6 Other loans for proposed project 1,571 292 9 All other loans 12,199 2,267 70 Total financing 14.738 2.739 85 Total sources of funds 17.246 3.205 100 ADDlication of funds Proposed project 2,221 413 1S Other construction 11,927 2,217 69 Interest during construction 1,132 210 6 Renovations 1,700 316 10 Distribution improvements 266 49 2 Total aRnlication of funds 17.246 3.205 100 /a Y 1 - $0.19. - 39 - The Chinese financial system prevents a power bureau from meeting more than nominal amounts of its investment program from internal cash generation. In the case of HPEPB, more than 78 percent of the cash available for investment is earmarked for renovations and distribution improvements through the Special Fund allocation system. The rest of the cash available for investment would cover a portion of interest during construction which, pursuant to regulations, must be met from net income. The proposed project (excluding interest during construction) accounts for about 13 percent of HPEPB's investment program for the period. The proposed Bank loan will only meet about 6 percent of HPEPB's financing requirements. 6.8 The estimated foreign exchange requirement of the proposed project exceeds the proposed Bank loan by $48.1 million, which represents interest during construction. SEIC has arranged for HPEPB to borrow the yuan equiva- lent of the additional foreign exchange requirement from the People's Con- struction Bank of China (PCBC) at 8.28 percent per annum interest, with repay- ment over a 10-year period beginning upon completion of the project. Arrange- ments have been made to allow HPEPB to purchase the needed foreign exchange from the Bank of China. 6.9 HPEPB will borrow one half of the local currency portion of its financing requirements from the Henan provincial government and the remaining half from PCBC (through SEIC) on terms prevailing at the time of commitment. Currently these terms include interest at 8.28 percent per annum and repayment in equal installments over 10 years beginning after construction is completed. E. Future Finances 6.10 Projections of HPEPB's financial performance for the period 1991- 2000 are displayed in Annex 25 and summarized in Table 6.3. These projections are based on the assumptions presented in Annex 25. Table 6.3: EP3'BS FM PPANACIAL INDICATORS, 1990-2000 (million Yuan) Forecast Projected Actual av'ra a Tear ended 12131 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 1991.200 rgsy sales (G0h) 23,892 25.152 27,017 28.961 31,090 33.638 37,173 40,569 43,341 47,416 53.361 Average pricel/M (fen) 10.65 13.50 15.36 17.23 19.01 21.00 22.46 24.24 27.05 28.80 26.80 Operating reveue 2,545 3,396 4.155 4,991 5,910 7,065 8,350 9.835 11,723 13,654 15.366 Operating inc.e 238 441 766 1.120 1.593 2.180 2,714 3.543 4,581 5,400 5,923 ettanc to government 27 34 93 138 286 326 438 509 564 616 834 Araal capital expenditure 591 1,330 1,414 2,333 2.749 3.048 3,577 4.125 4,494 4,603 4,648 Rate base 4,500 4,877 5,901 7.114 8,298 10,101 12,606 14,834 17,381 22,565 27,651 L, -trm debt 2,067 2,952 3,834 5,359 7.248 8,959 11,062 13,192 15,098 16,489 17,905 Deb bervice 344 313 314 294 348 351 408 440 523 665 1,045 Ca0h In bank 152 187 227 245 264 271 297 386 463 Rate of return lletorically valued aeagt* (2) 5.3 9.0 13.0 15.7 19.2 21.6 21.5 23.9 26.4 23.9 21.4 19.6 Ecotionlly revalued assets (I) 3.6 5.8 8.1 9.6 11.7 13.5 14.0 15.7 17.4 16.4 14.9 12.7 lf-fci ratio (2) 17.3 24.5 22.4 22.2 24.0 25.7 25.0 26.8 25.3 26.2 30.0 25.2 Operating ratio (X) 90.6 87.0 81.6 77.6 73.1 69.1 67.5 64.0 60.9 60.4 61.5 70.3 Debt/totcl capital (2) 37.0 44.2 49.2 55.2 60 7 62.6 64.5 64.9 63.2 60.2 58.4 58.3 Debt service coverage 7.1 2.6 2.2 1.9 2:2 1.8 1.8 1.6 1.5 1.4 1.5 1.8 6.11 Between 1990 and 2000, HPEPB is projected to maintain high rates of growth. Energy sales are expected to increase by about 123 percent over 1990 levels, representing a compound annual growth rate of about 8 percent. Net fixed assets in operation are expected to increase by about 548 percent over - 40 - current levels, repreosenting a compound annual growth rate of about 21 per- cent. Annual capital expenditure is expected to increase by about 686 percent over the 1990 level, representing a compound annual growth rate of about 23 percent. If HPEPB is to maintain its financial viability in the face of this growth, the forecast implies that it will need to increase its average revenue by 170 percent, from 10.65 fen/kWh in 1990 to 28.8 fen/kWh in 2000. This represents a compound annual growth rate of about 10.5 percent in nominal terms, or 4.7 percent per annum in real terms. As early as 1991, HPEPB would have to introduce general tariff revisions in addition to the coal adjustments already approved (para. 6.6). 6.12 Although conventional indicators of financial performance such as rate of rettern and self-financing ratio have limited applicability to a gov- ernment-controlled utility such as HPEPB (para. 6.2 and Annex 24), the rela- tionships between pricing, operating costs, and size of investment program are becoming increasingly important to MOE and SEIC. In their role as nationwide managers of the sector, MOE and SEIC must arrange financing for the large and rapidly expanding investment programs of the numerous power bureaus. In the process they have become acutely aware of the need to mobilize appropriate resources from the consumer. To further their efforts at resource mobiliza- tion, assurances have been obtained that HPEPB will take measures. including but not limited to tariff increases, to ensure that annually it earns a cash surDlus (net ogeratina income) sufficient to meet at least 20 percent of its three-year averate investment protram for the years 1992-94. and at least 25 percent for the years thereafter. For HPEPB, the earned cash surplus would be defined as total cash revenues (including income from the sale of electricity and from connection charges) less the aggregate of (a) cash oper- ating expenses; (b) interest charged to operations; (c) income taxes; (d) gross increases in working capital (including changes in cash balances); (e) net increases in Special Fund Assets; (f) loan repayments; and (g) Special Fund Expenditures for Maintenarce and Employee Benefits. For purposes of this agreement, the Adjustment Tax would not be considered a reduction in earned cash because it is a remittance of a residual and not a tax built into the cost structure and the proceeds are generally recycled into investments in the sector. The average annual investment program would be defined as the average of (a) the previous year's actual capital expenditure; (b) the current year's planned capital expenditure; and (c) the next year's projected capital expen- diture. 6.13 In view of HPEPB's increasing capital expenditures in the next 5- 6 years (from Y 1,414 million in 1992 to Y 4,125 million in 1997: an increase of about 192 percent), the minimum self-financing ratio set at 20 percent initially and 25 percent by the year 1995 cannot be considered an easy target. Specifically, in order to comply consistently with the recommended self- financing ratio target, the average revenue of HPEPB would have to be increased by 9.5 percont per annum in nominal terms (or about 4 percent per annum in real terms) during the projection period. Its self-financing ratio is expected to average 25 percent; its rate of return on historically valued assets is expected to average 19.6 percent; and its operating ratio is expocted to average 70 percent. These already acceptable financial perfor- mance indicators could improve substantially as the anticipated tariff reforms are realized. - 41 - 6.14 The Government's current policy of using loans rather than grants to finance capital expenditure is expected to have an important effect on HPEPB during the projection period. Under the current fiscal arrangement all capi- tal investments except renovations and distribution improvements are to be financed exclusively by loans. As a result, HPEPB is projected to move from a capital structure which included only about 38 percent debt in 1990 to a debt/total capital ratio of about 65 percent in 1997. While the assumption of 100 percent debt financing is the most conservative one and in any case HPEPB ia not allowed to raise debt for any purpose other than capital investments, HPEPB's debt/total capital ratio would not exceed 75 percent throughout the projection period, which is acceptable. The debt/total capital ratio will be used for monitoring RPEPB's financial operation in the future; HPEPB will report it to the Bank annually. Debt service coverage, which is projected to drop from about 7.1 in 1990 to about 1.4 in 1997, remains satisfactory; however, this ratio should be monitored carefully. Assurances have been obtained from HPEPB that it will incur additional debt only if a reasonable forecast of its revenues and expenditures indicates that internal cash gener- ation would Drovide debt service coveraze of at least 1.3. This assurance, taken in conjunction with HPEPB's agreement to annually furnish the Bank with eight-year rolling financial projections (para. 3.12), is expected to draw HPEPB's attention to the long-term financial impact of decisions relating to its investment program. - 42 - VII. JUSTIFICATION A. Need for the Pro1ect 7.1 CCPG is the third largest regional grid in China in terms of insta- lled capacity (para. 4.1). HPG is one of the most important grids within CCPG, providing 30 percent of the capacity (6,082 MW) and 33 percent of the power generation (31,777 GWh). Shortages of generating capacity have been a major constraint to economic development of the area. The system's dependable capacity of 3,968 MW 1/ is not sufficient to meet the peak demand of 3,956 - MW. Even with purchased power there is not adequate reserve capacity. In fact, the power load has been greatly suppressed. In 1990, power curtailments by rotation of supply were enforced almost every day except during the spring festival. Most industries were forced to operate only four days a week, caus- ing considerable underutilization of plant facilities and manpower. In addi- tion, there were 48 new applications from large consumers ready to receive power in 1990. 7.2 The energy and capacity balances of the HPG system with and without the two additional units of the Yanshi plant are shown in Table 7.1. These balances clearly indicate the urgent need for the proposed project, since without it HPEPB's reserve margin would be precarious and the system would not be able to meet the energy requirement in the mid 1990s. Table 7.1: ENERGY AND CAPACITY BALANCE 1995 1996 1997 Without With Without With Without With project project project project project project Peak demand (MW) 5,759 5,759 6,192 6,192 6,656 6,656 Dependable peaking capacity (MW) /a 6,168 6,468 6,518 7,118 7,068 7,668 Reserve capacity requirement (MW) 864 864 929 929 998 998 Power purchased (MW) 250 250 250 250 Capacity shortage or surplus (MW) -205 95 -353 247 -586 14 Energy requirement (GWh) 38,589 38,589 41,484 41,484 44,595 44,595 Energy generation 37,632 38,532 39,982 42,692 43,082 46,832 Energy purchased (GWh) /b 500 500 500 500 -- -- Energy shortage or surplus (GWh) -457 443 -1,002 1,698 -1,513 2,237 la The dependable peaking capacity of a thermal unit is its rated capacity unless it has to be derated for some reason. /b The energy generation of thermal units is calculated at an annual capacity factor of 68.5 percent (6,000 hours) for the first year, and 74.0 percent (6,500 hours) for the second year and thereafter. 1/ Soe Annexes 9 and 10. - 43 - h. Least Cost Studies 7.3 An economic analysis of the Yanshi Power Plant, based on optimizing the Henan System, has been prepared by WREPERI. Least cost expansion sequenc- es have been developed for the period 1990-2000. This analysis confirmed that the development program of HPG should depend largely on the construction of large coal-fired base load thermal plants at mine-mouths or near railway lines which can easily utilize coal from local mines and those of neighboring Shanxi province. The study also confirmed that there are no other alternatives bet- ter than the proposed project. Base load coal-fired plants form the major part of the least cost development program for the HPG, and extension of the existing Yanshi power station provides the most cost-effective and efficient method of augmenting base load capacity. Since the site also is located close to major load centers, only a minimum of transmission facilities would be required. C. Economic Rate of Return 7.4 The economic benefits from electricity consumption were measured by the internal economic rate of return (IERR). The IERR was calculated using the estimated economic costs of inputs for the project and associated invest- ments in transmission and distribution. HPEPB's projected average revenues (adjusted to the 1991 price level) of 16.4 - 18.5 fen/kWh over the period 1995-2000, were taken as a minimum proxy for the economic value of electricity. Added to these figures were a newly applied 2.0 fen/kWh charge for power development to all consumers except lighting, agricultural use and industries who operate at a loss, a 10 percent local government surcharge for urban consumers, and connection charges to new large consumers. These charges, amounting to 1.4 fen/kWh, were added to reflect the surplus benefits. On this basis, the IERR is about 15.7 percent (see Annex 26 for details). Sensitivity Analysis 7.5 The sensitivity of the IERR of the project was measured under three other possible scenarios: (a) with a 10 percent increase in investment cost, (b) with a one-year delay in commissioning and (c) with a coal price of Y130 per ton. It is unlikely that project parameters will exceed these limits. The following results were obtained. IERR (Z) Base case 15.7 101 cost overrun 14.7 One-year delay in commilssioning 14.1 Coal prices increase from 14.7 Y 110/ton to Y 130/ton 7.6 The economic rate of return was also calculated on the basis of the HPEPB's overall expansion program for the period 1991-2000. The expansion program consists of 6,800 MW base load coal-fired plants, including the trans- mission and distribution system. On this basis, the economic rate of return of HPEPB's expansion program, including the proposed project, is 13.4 percent. - 44 - D. Ris!k 7.7 No major risks, including onvironmental problems are foreseen. Since this is an extension project, land is already available and field conditions are well known. The technical soundness and economic feasibility of the project have been well established. Consulting engineers, both local and foreign, will assist in engineering and design, procurement, coordination and review of venders' design di-awings. Construction risks are within reasonable limits and should be manageable with continuous supervision. The economic risks, if any, should be minimal. The project has been designed taking into account the requirement that the environmental impact from operating the station not exceed the internationally accepted norms. An environmental monitoring program is included in the project. HPEPB will replace the precipitators for the existing 2x200 MW units by high efficiency electrostatic precipitators. - 45 - VIII. AGREEMENTS REACHED AND RECOMMENDATION 8.1 During negotiations, the following assurances have been obtained: (a) from the Government, that it will onlend the proceeds of the pro- posed Bank loan to HPEPB on terms satisfactory to the Bank (para. 5.23) and; (b) from HPEPB, that it will: (i) furnish each year to the Bank by April 30 of each year, commencing in 1993, a rolling eight-year financial plan containing projected income statements, sources and application of funds, and balance sheets (para. 3.12); (ii) furnish its annual financial statements, certified by an accept able auditor within six months from the end of each financial year commencing in 1993 (para. 3.19); (iii) carry out the training in accordance with a program acceptable to the Bank (para. 5.15); (iv) carry out a tariff study and an action plan for tariff structure improvements acceptable to the Bank (para. 5.16); (v) take all necessary steps to implement an environmental monitor- ing program satisfactory to the Bank (para. 5.37); (vi) take measures, including but not limited to increasing its tariffs, to ensure that it earns a cash surplus (net operating income) sufficient to meet a minimum of 20 percent of its annual investment program for the period of 1992-1994, and a minimum of 25 percent of its annual investment program thereafter (para. 6.12); and (vii) incur additional debt only if a reasonable forecast of its revenues and expenditures indicates that internal cash genera- tion would provide debt service coverage of not less than 1.3 (para. 6.14). 8.2 Execution of the subsidiary loan agreement between the Government and HPEPB will be a condition of loan effectiveness (para. 5.23). 8.3 Subject to the above assurances, the proposed project is suitable for a Bank loan of $180 million to the People's Republic of China for a term of 20 years, including a 5-yeer grace period, at the Bank's standard variable interest rate. ANNEX I - 46 - CHINA YANSHI THERMAL POWER PROJECT Installed Capacity. Electricity Generation and Sales in the Power Sector Installed Energy Energy CaRacity (MW, /a Generation (GVh) /a Salea/b Year Hydro Thermal Total Hydro Thermal Total (GWh) 1949 163 1,686 1,849 710 3,600 4,310 3,460 1952 188 1,776 1,964 1,260 6,001 7,261 6,277 1957 1,019 3,616 4,635 4,820 14,515 19,335 16,407 1962 2,379 10,686 13,065 9,042 36,753 45,795 n.a. 1965 3,020 12,056 15,076 10,414 57,190 67,604 56,802 1970 6,235 17,535 23,770 20,450 95,420 115,870 n.a. 1971 7,804 18,478 26,282 25,060 113,300 138,360 101,274 1972 8,700 20,801 29,501 28,820 123,630 152,450 123,600 1973 10,299 23,626 33,925 38,900 127,860 166,760 135,106 1974 11,817 26,291 38,108 41,440 127,410 168,850 135,708 1975 13,428 29,978 43,406 47,630 148,210 195,840 156,969 1976 14,655 32,492 47,147 45,640 157,490 203,130 164,698 1977 15,765 35,686 51,451 47,670 175,740 223,410 181,691 1978 17,277 39,845 57,122 44,630 211,920 256,550 210,239 1979 19,110 43,906 63,016 50,120 231,827 281,947 233,577 1980 20,318 45,551 65,869 58,211 242,416 300,627 251,639 1981 21,933 47,069 69,002 65,546 243,723 309,269 258,976 1982 22,959 49,401 72,360 74,399 253,279 327,678 275,299 1983 24,160 52,280 76,440 86,450 264,990 351,440 297,126 1984 25,547 54,373 79,920 86,780 290,207 376,987 319,600 1985 26,120 60,373 86,493 92,374 318,315 410,689 348,353 1986 27,542 66,276 93,818 94,480 355,091 449,571 357,057 1987 30,193 72,704 102,897 100,229 397,092 497,321 420,019 1988 32,698 o2,799 115,497 109,177 435,888 545,065 464,013 1989 34,570 92,060 126,637 118,475 466,200 584,675 495,135 1990 35,370 99,630 135,000 126,000 492,000 618,000 527,154 Average growth rate (p.a.) 11.02 13.02 12.9Z /a On a country-wide basis. /b Energy sales not including uses by stations and captive plants. Source: HOE. ANNEX 2 - 47 - CHINA YANSHI THERMAL POWER PROJECT Growth Index of Electricity Generation and Primary Eneray Demand Installed Capacity Electricity Generation Growth Index Total Share of Total Share of Primary Electricity Year (NW) hydro(2) (TWh) hydro(2) GNP Energy Generation 1979 63,015.9 30.3 281.9 17.8 100 100 100 1980 65,869.1 30.8 300.6 19.4 108 103 107 1981 69,132.6 31.7 309.3 21.2 113 102 110 1982 72,359.6 31.7 327.7 22.7 122 106 116 1983 76,444.9 31.6 351.4 24.6 135 110 125 1984 80,116.9 31.9 377.0 23.0 155 121 134 1985 87,053.2 30.3 410.7 22.5 174 132 144 1986 93,818.5 29.4 449.6 21.0 189 136 159 1987 102,897.0 29.3 497.3 ?0.2 210 141 176 1988 115,497.1 28.3 545.1 20.0 233 148 193 1989 126,638.6 27.0 584.7 20.2 242 157 207 1990 135,000.0 26.2 618.0 20.4 255 160 219 Source: MOE - 48- ANNE CHINA YANSHI THERMAL POWER PROJECT Electricity Consumption by Sectors Share of Nation's Share of industry (Z) transport- Share of rural Share of Year total Whole Heavy Light ation (including municipal & (TWh) (S) household (2) residential (X) 1949 3.5 69.1 34.4 34.7 0.6 0.6 29.8 1952 6.2 80.0 43.0 37.0 0.9 0.7 18.4 1957 16.4 82.9 58.6 24.3 0.4 0.7 16.0 1962 37.8 84.6 70.0 14.6 0.6 4.1 10.7 1966 70.0 84.1 69.1 15.0 0.6 7.8 7.5 1972 123.6 82.3 69.7 12.6 0.6 10.5 6.6 1976 164.7 78.3 64.6 13.7 1.1 14.1 6.5 1977 186.3 78.5 65.0 13.5 1.2 13.7 6.6 1978 214.9 79.0 65.9 13.1 1.1 13.7 6.3 1979 233.6 79.0 65.9 13.1 0.6 13.9 6.5 1980 251.6 77.9 64.5 13.4 0.6 14.9 6.6 1981 259.0 76.2 62.6 13.6 0.8 16.0 7.0 1982 275.3 76.0 62.0 14.0 0.7 16.0 7.6 1983 297.1 75.7 60.9 14.8 0.7 16.0 7.6 1984 319.6 75.2 60.5 14.7 0.8 15.9 8.1 1985 348.5 73.8 58.8 15.0 0.9 16.5 8.8 1986 379.7 72.9 57.7 15.2 1.2 16.4 9.5 1987 423.5 72.5 57.9 14.6 1.2 16.4 9.9 1988 461.3 71.3 57.3 14.5 1.9 16.4 9.9 1989 495.2 71.0 53.9 17.1 1.9 16.7 10.4 1990 524.7 69.k 52.1 17.3 2.0 17.3 11.3 Source: MOE - 49 - APage 1 CHINA YANSHI THERMAL POWER PROJECT Onaoinst Nalor Hydro and Thenmal Power Proiects by External Financing Under the Seventh and Eighth live-Year Plans La Installed Year of Loan capacity commis- amount (Unit x MW) sioning Source of finanee ( mln) HYDRO POWER East China Shaqikou hydro 3 x 75 1988-90 Kuwait Fund for Arab Eco- 32.5 nomic Development North China Ming Tombs pumped storage 4 x 200 1997-99 OECF loan 46.0 Panjiakou pumped storage 3 x 90 1989-90 Government of Italy 38.7 Central China Geheyan hydro 4 x 300 1993-95 Canada Supplier's Credit 108.0 Wuqiangqi hydro 5 x 240 1994 OECF loan 153.0 Southwest China Tienshengqiao (II) hydro 4 x 220 1990-92 OECF loan 600 0 Tienshengqiao (I) hydro 4 x 300 1998-99 OECF loan 230.0 Subtotal 5.775 1 208 2 TL POWER East China Nanton thermal 2 x 350 1989 USA-GE, Supplior's Credit 180.0 Shidongkou thermal 2 x 600 1992 USA, France, Japan, Sup- 350.0 plier's Credit Fuzhou thermal 2 x 350 1989 Japan, Supplier's Credit 180.0 North China Tienjin Beidagang thermal 2 x 320 1991 Italy, Government conces- 200.0 sional loan and Supplier's Credit Shangan thermal 2 x 350 1989 Canada, USA-GE, Supplier's 180.0 Credit East Beijing thermal 2 x 300 1994-95 OECF loan 150.0 Hejing the3mal 2 x 300 1994-95 OECF loan 150.0 -50 NNEX 4 Page 2 Installed Year of Loan capacity commis- amount (Unit x KW) sioning Source of finance ($ mln) THERHAL POWER (cont'd) Northeast China Dalian thermal 2 x 350 1989 Japan-Mitsubishi, Suppli- 180.0 er's Credit Central China Yueyang thermal 2 x 360 1990-94 UK, 1/2 Government conces- 190.0 sional loan and 1/2 Sup- plier's Credit Ezhou thermal 2 x 300 1994-95 OECF loan 190.0 Jiujiang thermal 2 x 300 1994-95 OECF loan 190.0 South China Guangdong Shajiao thermal 2 x 350 1987 Japan-Mitsubishi, Suppli- 230.0 er'8 Credit Shantou gas turbines 3 x 10.5 1987-88 France, Supplier's Credit 33.8 Southwest China Chongqing Lohuang thermal 2 x 350 1991-92 UK, France/Japan, 1/2 Gov- 250.0 ernment concessional loan and 1/2 Supplier's Credit Chongqing gas turbines 3 x 10.5 1987-88 EEC Credit and UK Govern- 12.6 ment Loan Subtotal 14,997 2.666.4 Total 20.772 3.874.6 la World Bank-financed projects are not included. - 51 - ANNEX 5 CHINA YANSHI THERMAL POWER PROJECT Performance Indicators for Henan Power System 1984 1985 1986 1987 1988 1989 1990 Installed Capacity (NW) 3,393.2 3,926.5 4,147.9 4,549.4 4,944.8 5,451.1 6,081.6 HPEPB 2,761.0 3,261.0 3,461.0 3,722.0 3,922.0 4,122.0 4,522.0 Local & captive plants 632.2 665.5 686.9 829.4 1,022.8 1,329.1 1,559.6 Energy Generation (GWh) 19,772 20,854 23.074 25,837 27,643 30,066 31,777 HPEPB 17,181 17,922 19,921 22,082 22,900 24,450 25,186 Local & captive plants 2,591 2,932 3,153 3,755 4,743 5,616 6,591 Energy Generation (GWh) 19,772 20,854 23,074 25,837 27,643 30,066 31,777 Thermal 18,282 19,415 21,805 24,611 26,394 28,507 30,373 Hydro 1,390 1,439 1,269 1,225 1,249 1,559 1,404 Net Energy Purchase (GWh) 1,568.4 1,843.0 1,453.0 1,390.2 1,568.3 2,755.8 1,967.0 HPEPB 1,174.0 1,540.0 710.0 1,037.0 1,060.6 2,283.2 1,417.0 Capacity Factor (Z) 66.5 60.6 63.5 64.8 63.8 62.9 59.6 HPEPB 71.0 68.0 65.7 67.7 66.6 67.7 63.6 Local & captive plants 46.8 50.3 52.4 51.7 52.9 48.3 48.4 Peak Demand (MW) HPEPB 2,512 2,682 3,015 3,387 3,658 3,932 3,956 Energy Sales (GWh) HPEPB 16,056 17,204 17,869 19,903 20,585 23,200 23,761 System Losses (GWh) 2,299 2,438 2,762 3,216 3,375 3,533 3,543 Plant use (1) 7.77 7.81 7.86 7.87 7.83 8.04 8.59 HPEPB 7.53 7.63 7.67 7.69 7.62 7.76 8.38 Local & captive plants 9.95 9.40 9.30 9.52 9.14 9.47 9.48 T & D losses (2) 10.19 9.59 10.60 10.18 9.36 9.92 9.43 HPEPB 5.85 5.96 6.44 6.69 6.59 6.56 6.02 Total (Z) 16.22 15.88 16.72 16.61 16.50 17.70 17.20 HPEPB 12.26 12.34 12.92 13.32 14.10 14.50 14.10 Average coal consumption (standard coal) (g/kwh) 419 417 417 409 407 412 411 HPEPB 399 396 395 385 379 377 375 Local & captive plants 585 592 578 568 572 564 548 Number of customers 159,040 176,589 186,824 218,730 253,603 265,754 275,404 Number of Employees 39,539 41,278 43,949 45,473 47,771 48,268 48,692 Customers per Enpl3yee 406,080 416,783 405,674 481,010 530,839 550,580 565,604 Source: HPEPB - 52 - ANNEX 6 CHINA YANSHI THERMAL POWER PROJECT Staff of HPEPB (As of December 31, 1990) Number of units Number of staff X By Specialitv Staaff Administration /a 4,311 8.8 Technical Engineers 2,047 4.2 Technicians 3,549 7.3 Subtotal 9.907 20.3 Workers Junior 9,997 Average skilled 13,592 Highly skilled 7,022 Apprentices 1,112 Subtotal 31.723 65.2 Others 7,062 14.5 Total 48.692 100.0 By Functional Users Headquarters 15 460 1.0 Generation 10 21,799 44.7 Supply and services 12 13,621 21.9 Construction and installation 4 8,892 18.3 Education 5 958 2.0 Design 1 725 1.5 Repair 2 1,353 2.8 Miscellaneous Lb 5 884 1.8 Total 54 48.692 100.0 la Including personnel, finance and accounting, and social welfare. /b Including one research institute and material supply enterprise. ANNEX 7 5 3 - Page 1 CHINA YANSHI THERMAL POWER PROJECT Planning, Budget and Control of Chinese Power Bureaus 1. All power bureaus are responsible for developing annual and five- year production and investment plans. These plans are integrated with the national plans and approved by SPC through MOE and SEIC auspices. MOE and SEIC play a major role in shaping the bureaus' individual plans. MOE, in conjunction with regional administrations, uses past operating results from the bureaus to compile the quantities and related prices to be used by the bureaus in developing their operating plans. The investment plans are devel- oped on a project-by-project basis using estimates of quantities and prices of inputs included in feasibility studies prepared by the regional design insti- tutes. However, the investment plans do not take into account movements in prices after the final design is completed. Thus, in the planning process, the bureaus them selves do not make a direct linkage between their projected and realized costs. The bureaus' operating plans do include monitoring indi- cators, and variance analyses are conducted to compare quantities actually produced or consumed with plan targets. Because the bureaus themselves do not link their plan targets directly to realized financial performance, the vari- ance analyses have limited usefulness as measures of the efficiency of their operations and the cost effectiveness of their investment programs. Still, this approach to planning has served reasonably well within the environment of a centrally planned economy, where large grants were used to finance large portions of investment and prices were maintained at stable levels. 2. Until 1980, all funds required to implement the annual construction plans were provided through grants allocated from the State budget. The State also provided minor amounts of financing to cover liquidity requirements through an account entitled Working Capital Funds. Under China's economic reform program which began around 1978, major changes have been introduced to encourage economic use of the Government's limited resources. Funds for major new investments are now being provided in the form of loans from the People's Construction Bank of China. These loans are made only after projects have been reviewed extensively and cost estimates have been approved. In addition to construction loans, which now bear an annual interest rate of about 3.6Z, non-repayable government contributions are provided for liquidity; these carry annual finance charges of 3Z. The construction loans are scheduled for repay- ment over 15 years after work is completed. 3. Until 1984, the prices the power bureaus paid for the constituents of operating and investment costs were kept fairly constant. However, since then the Government has announced that it is relaxing controls over the pric- ing system and will allow prices gradually to move toward market levels. In the future, as the power bureaus continue to expand their operations and as costs become more variable, planning and budgeting will be based more and more on actual cost data and projections of productivity improvements, future price movements, and interest rates. Furthermore, as the cost of inefficiency - 54 ANNEX 7 Page 2 increases over time, management will need better tools to evaluate and control the operations of individual cost centers. 4. The Chines, system of planning and budgeting does not make provision for long term financi,. planning. In connection with the Lubuge Hydroelectric Project (Loan 2382-CHA), the Bank furnished NWREP with a financial forecasting model so that the power bureaus could study the impact of both their expansion plans and variations in prices on their future financial positions. Under all subaequent Bank-financed power projecto, assurances have been obtained that, by December 31 of each year commencing in the year following loan signing, the beneficiary power bureau will furnish the Bank with a financial plan contain- ing forecast income statements, sources and uses of funds, and balance sheets for the next five to eight years. So far, Yunnan, Jiangsu, Guangxi, Fujian, Zhejiang and Shanghai Power Bureaus have been required to furnish such rolling plans. 5. MOE and SEIC recognize that they need to modernize the financial and management procedures followed by the power bureaus. They have authorized many bureaus to acquire microprocessors for financial, planning, and adminis- trative purposes. In addition, they have developed some software to allow the bureaus to produce standard computerized reports on a regular basis. For their part, most of the power bureaus which already are dealing with the Bank have computerized some of their personnel, payroll, and administrative records and are adapting software to computerize materials management, system plan- ning, and production management. Once the bureaus finish computerizing these records, they all will be expected to furnish monthly reports to MOE and SEIC on diskettes rather than on paper. Some of the Bank-financed projects have included a provision allowing the beneficiary power bureaus to obtain addi- tional microprocessors and allowing them and MOE to obtain the software sup port needed to facilitate implementation of this first generation of computer- ized reporting. 6. The first generation of computerized reporting should allow MOE, SEIC, and the power bureaus themselves to process, compile, consolidate and retain far more information than in the past. However, the computer approaches used to date have been designed almost exclusively to satisfy the reporting requirements of MOE and SEIC. The software does not allow for a more active role for the power bureaus or for a broader use of data by bureau management. Moreover, the systems being developed still do not include rudi- mentary financial planning or allow the necessary direct linkages between realized performance and planning forecasts. Thus, while the systems repre- sent much progress over current reporcing systems, a second generation of reporting systems will be needed to accommodate changes already in progress in the managerial environment. 7. During appraisal of the Yantan Hydroelectric Project (Loan 2707- CHA), the Bank retained a consultant to assess the management and use of data in MWREP and several power bureaus. His findings confirm that the systems currently being developed are adequate for the existing environment but are not flexible enough to adapt to expected future trends. However, MOE and SEIC have doubts about the substance and extent of these anticipated changes and - 5S - ANNEX 7 Page 3 prefer to be cautious about making further adjustments to reporting procedures in the near term. 8. In considering ways to modernize financial and management practices, the Government is taking the initiative in adapting a modern methodology for use in the Chinese environment. However, given the additional adjustments that are likely to become necessary within a few years, the Government would benefit from greater exposure to state-of-the-art technology in management systems. Under the Beilungang Thermal Power Project (Loan 2706-CHA), the Yantan Hydroelectric Project (Loan 2707-CHA), the Shuikou Hydroelectric Proj- ect (Loan 2775-CHA) and the Wujing Thermal Power Project (Loan 2852-CHA), the Government is obtaining training in up-to-date financial ranagement and util- ity accounting practices. Overseas training and study tours are included in these projects so that senior officials of relevant governmental units can observe the management techniques used by utilities and service organizations in other countries. The first overseas training was held in May 1988, and the outcome was successful. MOE and SEIC plan to have other training sessions in coming years. -56- ANNEX 8 CHINA YANSHI THERMAL POWER PROJECT Electricity Tariffs of HPEPB /a (As of December 31, 1990) Tariff category Rate Unit Lighting Up to 1 kV 16.2-20.0 fen/kWh Over 1 kV 15.0 . J.0 fen/kWh Averafte 20.41/b fen/kWh Commercial and Small Industry /c Up to 1 kV 12.52 fen/kWh 1-10 kV 12.01 fen/kWh Above 35 kV 11.07 fen/kWh Averate 12.15/b fen/kWh Larme Industry (above 320 kVA) Energy charge Ld 1-10 kV 11.59 fen/kWh Above 35 kV 10.75 fen/kWh Capacity (per month) Based on peak demand 6.00 Yuan/kW Based on average capacity 4.00 Yuan/kW Averane 11.00/b fen/kWh Agricultural Production (Direct Supply) Up to 1 kV 8.68 fen/kWh 1-10 kV 10.08 fen/kWh Above 35 kV 7.28 fen/kWh Averaae 8.68/b fen/kWh Bulk SupplV Average 8.62/b fen/kWh Others Average 15.95 fen/kWh Total Average 10.65 fenlkWh 1L The indicated rates include a sales tax of about 15I of the electricity bill. Ib Including fuel adjustment and additional charge for consumption above the approved amount. la This tariff is applied to productive uses. Lighting consumption by commercial and small industrial customers is billed at the lighting rate. J/ Industries enjoy a fen/kWh discount. Sourcet HPEPB. ANNEX 9 - 57 - Pa 1 CHINA YANSHI THERMAL POWER PROJECT Maior Goneratina Facilities in Henan Province Name of Name plate Year of Maximum plant/unit rating commissioning output (MW) (MW) Luovanx Thermal No. 1 25.0 1957 25.0 No. 2 25.0 1958 25.0 No. 3 25.0 1958 25.0 No. 4 25.0 1959 25.0 No. 5 25.0 1960 25.0 No. 6 50.0 1961 50.0 Subtotal 175.0 175.0 Zhenazhou Thermal Plant No. 1 No. 1 12.5 1957 10.5 No. 2 12.5 1957 10.5 No. 3 6.0 1965 0.0 No. 4 10.0 1960 8.0 No. 5 25.0 1965 25.0 No. 6 25.0 1966 25.0 No. 7 25.0 1967 25.0 Subtotal 116.0 104.0 Xinxiant Thermal No. 1 50.0 1966 50.0 No. 2 50.0 1968 50.0 No. 3 50.0 1969 50.0 No. 4 200.0 1989 200.0 No. 5 200.0 1990 200.0 Subtotal 550.0 550.0 Hanzant Thermal No. 1 6.0 1966 4.0 No. 2 6.0 1968 4.0 Subtotal 12.0 8.0 ANNEX 9 5- Page 2 Name of Name plate Year of Maximum plant/unit rating coAmissioning output (MW) (MW) Yanshi Thermal No. 1 200.0 1988 200.0 No. 2 200.0 1989 200.0 Subtotal 400.0 400*0 Anvana Thermal No. 1 - Retired - No. 2 Retired - No. 3 25.0 1960 20.0 No. 4 25.0 1961 20.0 No. 5 40.0 1972 40.0 No. 6 50.0 1975 50.0 No. 7 100.0 1977 100.0 No. 8 100.0 1977 100.0 Subtotal 340.0 330.0 Kaifena Thermal No. 1 40.0 1973 40.0 No. 2 40.0 1974 40.0 No. 3 125.0 1978 120.0 No. 4 125.0 1978 110.0 Subtotal 330.0 310.0 Yaomena Thermal No. 1 300.0 1975 270.0 No. 2 300.0 1980 240.0 No. 3 300.0 1985 300.0 No. 4 300.0 1987 300.0 Subtotal 1.200.0 1.110.0 Danhe Thermal No. 1 100.0 1973 100.0 No. 2 100.0 1975 100.0 Subtotal 200.0 200.0 -59- ANNEX 9 Page 3 Name of Name plate Year of Maximum plant/unit rating commissioning output (MW) (NW) Jiaozuo ThenMal 801 - Retired 802 - Retired 803 - Retired 804 - Retired 805 12.0 1960 0.0 806 12.0 1964 8.0 No. 1 200.0 1979 200.0 No. 2 200.0 1980 200.0 No. 3 200.0 1985 200.0 No. 4 200.0 1986 200.0 Subtotal 824.0 808.0 Pinadingshen Thermal No. 1 50.0 1970 50.0 No. 2 50.0 1971 47.0 No. 3 25.0 1987 25.0 Subtotal 125.0 122.0 S 5mexia H adro /a No. 1 50.0 1977 No. 2 50.0 1976 No. 3 50.0 1976 No. 4 50.0 1973 No. 5 50.0 1979 Subtotal 250.0 250.0 HPEPB Total 4.522.0 4.367.0 Local and Captive Plants 1.559.6 - ,otal 6.081.6 4.367.0 /a Owned and operated by the Yellow River Water Conservancy Commission but dispatched by HPEPB. Source: HPEPB. AEN 10 CHINA YARSHI TEERMAL POWMR PROJECT Enerav Consumption by Catesorv of Consumer la 1985 1986 1987 1988 1989 1990 Consuwer GWh 2 GWh 2 GWh 2 cWh 2 cWh 2 GWh 2 Rural load Iiting 259 1.4 297 1.5 343 1.5 386 1.6- 441 1.7 645 2.3 Draing & irrigation 1,108 5.8 P.394 6.9 1,392 6.2 1,738 7.2 1,920 7.4 1,316 4.7 Rw8al processing & industries 2,347 12.5 2,218 11.2 2,690 V. 9 2,583 10.7 2,984 11.5 3,237 11.4 Subtotal 3.741 19.6 3.969 19.5 4.425 19.6 4.707 19.5 5.345 20.6 5.198 18.4 Industrial load L10t 2,398 12.5 2,558 12.6 2,935 13.0 3,259 13.5 3,633 14.0 3,582 12.7 Esa"" 11,420 60.0 12,143 59.7 13,288 58.9 13,880 57.5 14,532 56.0 16,321 57.8 Subtotal 13.818 72.6 14.701 72.5 16.223 71.9 17.139 71.0 18.165 70.0 19.904 70.5 Mukicival load Urban lighting 775 4.1 767 3.8 848 3.8 917 3.8 986 3.8 1,400 4.9 Water supply & drainage 244 1.3 265 1.3 271 1.2 289 1.2 337 1.3 423 1.51 Nonindustrial power 210 1.1 228 1.1 248 1.1 265 1.1 311 1.2 367 1.3 o Others 158 0.8 182 0.9 213 0.9 241 1.0 259 1.0 324 1.2 1 Subtotal 1.387 7.3 1.442 7.1 1.580 7.0 1.714 7.1 1.894 7.3 2.514 8.9 Trananoration 103 0.5 166 0.8 352 1.5 458 1.9 560 2.1 608 2.2 Total 19.048 100.0 20.327 100.0 22.580 100.0 24.140 100.0 25.950 100.0 28.224 100.0 la Statistics were based on the province as a whole. Source: BPEPB. - 61 - ANNEX 11 CHINA YANSHI THERMAL POWER PROJECT Power Development Program of HPG (1991-2000) A. Generating Stationg Installed Unit Scheduled capacity No. of size Commissioning (MW) Location units (MW) date Jiaozuo 3rd stage 400 Jiaozuo 2 200 1991,1992 eobi 400 Hobi 2 200 1991,1992 Zhongzhou (cogeneration) 400 Zhengzhou 2 200 1992,1993 Sazimenzia I 600 Samenxia 2 300 1993,1994 Yanehi phase II 600 Yanshi 2 300 1995,1996 Yahokou 700 Nanyang 2 350 1995,1996 Luoyang Extension 400 Luoyang 2 200 1996,1997 Yaomeng IV 600 Pingdingshan 2 300 1997,1998 Qinbei I 1,200 Jiyuan 2 600 1998,1999 Sanmenxia II 1,200 Sanmanxia 2 600 1999,2000 Yongeheng 600 Yongeheng 1 300 2000 Total 6.800 B. Transmission Lineg Length Voltage Name (kW) level Completion Associated Transmission for Generation Proiecto Jiaozuo 3rd stage 166 220 1992 Habi 201 220 1992 Zhongzhou (cogeneration) 37 220 1993 Sanmenxia 1 367 220 1995 Yanshi phase II 350 220 1995 Yahekou 550 220 1996 Luoyang Extension 76 220 1996 Yaomeng IV 296 220 1998 Qinbei 1 150 500 1999 350 220 1999 Sanmenxia II 300 500 2000 Yongchang 150 220 2000 Other Lints fc- System Exwansion 250 220 1992-2000 Ioal 3.243 ANNEX 12 CHINA YANSHI THERMAL POWER PROJECT System Demand and Enerzv Balance of HPG System demand System capacitv Energy Power purchased Power balance reserve Year Peak Energy Installed Dependable generated Capacity Energy Capacity Margin Energy (MW) (GWh) (MW) (MW) (GWh) (MW) (GWh) (MW) (Z) (GWh) 1988 3,658 24,140 3,922 3,467/alb 22,900 250 1,240 59 1.6 - 1989 3,932 25,950 4,122 3,667 24,450 250 1,500 -15 - - 1990 3,956 26,330 4,522 3,968 25,186 250 1,144 262 6.6 - 1991 4,313 28,896 4,922 4,368 26,732 250 2,164 305 7.1 - 1992 4,636 31,063 5,522 4,768 29,132 250 1,931 382 8.2 - 1993 4,984 33,393 6,022 5,368 32,532 250 861 634 12.7 - 1994 5,358 35,897 6,322 5,868 35,632 250 265 760 14.2 - 1995 5,759 38,589 6,972 6,468 38,532 250 500 959 16.6 - 1996 6,192 41,484 7,822 7,118 42,682 250 500 1,176 14.9 1,698/c > 1997 6,565 44,595 8,322 7,668 46,832 - - 1,012 15.2 2,237/c 1998 7,228 47,940 9,222 8,168 50,032 - - 940 13.0 2,0921c 1999 7,792 51,535 10,422 9,068 55,032 - - 1,276 16.3 3,497/c 2000 8,400 55,400 11,322 10,268 61,932 - - 1,868 22.2 6,532/c la Definitions of dependable capacity and energy generation by thermal units are given in Table 7.1. lb The dependable capacity of HPEPB in 1988 is calculated as follows: 4,944.8 - 1,022.8 (local and captive plants not connected to the system) - 255 (derated capacity) - 200 (capacity coapleted at end-1988). Le Energy available for export to CCPG. - 63- ANNEX 13 - 63 - Page 1 CHINA YANSHI THERMAL POWER PROJECT Training Proaram Training Obiectives and Needs 1. In order to make management more efficient, high level staff of HPEPB will have to improve their professional skills, understand the strate- gies of decision-making, and learn how to use relevant methods and software for decision making. 2. The training program has the following broad objectives: (a) to allow HPEPB to function as an autonomous entity able to raise and operate its own funds, as planned under the newly reformed economic system; (b to equip HPEPB with a management information system and other modern techniques to assist it in making sound management decisions; and (c) to allow HPEPB to set an example for the senior staff of power plants and power supply bureaus to enhance their performance and promote energy sales. 3. In order for high level staff to develop the required decision-mak- ing capabilities, it is essential that they receive training in the following spheres: planning of grid expansion, planning of power system investments, management of funds, setting up of electricity tariff poliuy, accounting and sales management (including management of the cost of power bought from other systems), personnel management and labor training, computer technology, infor- mation processing systems, and regulations and contract management. 4. Because new recruits must receive pre-service training at various levels, existing training centers and professional schools will need to be provided with sophisticated training facilities such as simulators, computers and audio-visual teaching aids. Similarly, their laboratories and workshops will have to be equipped with advanced technology. The professional skills of teaching staff, particularly the teachers of professional schools, also will need to be upgraded. The Training Proaram 5. The training program will include: (a) a training program for high level staff; (b) a training program for technicians and engineers (seei Table 2); (c) procurement of training equipment; and (d) a training program for the teaching staff of professional schools. ANNEX 13 - 64- Page 2 6. The training program for high level staff will be carried out in three steps: systematic study, investigation, and practical application (see Table 1). In the first step, high level staff of HPEPB, including division chiefs, will investigate and study the management systems of foreign electric power companies similar to HPEPB. In the second step, HPEPB staff will review managerial methodology and technology and prepare action programs and propos- als to improve management of the bureau. Further, high level staff of large power plants and power supply bureaus will investigate and study a similar foreign power plant and an electricity distribution company. They will formu- late proposals to improve the management of their own power plants and power supply bureaus. In the third step, the action plans will be implemented. HPEPB, the power plants and power supply bureaus will carry out improvements in their management at all levels after their action plans are approved by the Central China Electric Power Administration and the Bank. HPEPB's financial staff will participate in the overseas and domestic seminars which MOE is now planning to organize under Power III-VII. 7. Under the proposed project an action program for training is provided, shown in Table 1. A training program for high level staff through seminars in China and overseas training is shown in Table 2 and a project- related training programs for technical staff is shown in Table 3. A list of training programs for schools is given in Table 4. A development plan for the existing schools is given in Table 5. S. The implementation schedule is as follows: Completion Date (a) Detailed training program for high level staff September 30, 1992 (b) Overseas training and investigation September 30, 1993 (c) Action Programs and proposals to improve management September 30, 1994 (d) Training for engineering and design staff June 30, 1993 (e) Training for operation and maintenance staff December 31, 1994 (f) Training for electrical and mechanical staff December 31, 1994 (g) Expansions of the existing schools December 31, 1996 ANNEX 13 Page 3 Table 1: ACTION PkOGRAM FOR T1AINIE Objectives Proposed action Status of progress To provide high-level staff with the Provide ad hoc training, send senior A detailed training program is being skills needed to meet the circumstances staff on study tours, revise existing prepared by PEPB. of the nineties: modern and larger power management and accounting systems, and plants, larger automated grid with auto- advise and recommend necessary reforms to mated load dispatch system, higher volt- senior manageent. age transmission, wodern account- ing/costing/pricing and a self-sustained investment planning organization. To ensure smooth implemntation of the Provide project-related training to: Training schemes are being Integrated proposed project on technical matters, into the bidding documents for major and good follow-up after the project is (a) engineering and design staff for the equipment (Table 3). completed, project through on-the-job training with the Consulting Engineers engaged for this project and liaison meeting. (b) operation and maintenance staff, using those facilities available in China which are sinilar to the facilities of thls project, and (c) electrical and mechanical staff work- ing on the power plant construction site by the vendors of major equipment for this project in their factory or on site. To increase the outrut of existing PEPIB Aueent the training capacity of all five School development plans have been pre- schools and i prave the quality of such exi ting schools of HPPI. pared ty HPEPB (Table 5). output in order to raise the percentage of annual new recruits from own institu- Upgrade the equipment used in workshops An equipment list has been prepared by tions and to provide for higher quality and laboratories and provide modern HP8PJ (Table I). input to DPEl,. facilities such as simulators, computers and language laboratories. - 66- ANNEX 13 Page 4 Table 2: TRAINING PROGRAM FOR HIGH LEVEL STAFF AND TEACHING STAFF A. Specialists Recuired for Seminars in China /a Number of Number of Duration Traininx irogram trainees specialists (months) Planning 25 2 1.0 Financial manaaement 25 3 1.0 Personnel management 10 1 1.0 Management information systems 25 4 3.0 Load dispatch and automation 25 2 2.0 Total 110 12 B. Overseas Training Number of Duration Organization trainees (months) HPEPB 20 1.0 Power plant 10 2.0 Power supply bureaus 10 2.0 Teaching staff 6 6.0 Environmental monitoring unit 4 2.0 La Seminars may be carried out in association with other power bureaus. 67 - ANNEX 13 Page 5 Table 3: TRAINING PROGRAM FOR TECHNICAL STAFF Category of staff Number of trainees Man-months A. Training for Engineering and Design Staff Throuah Liaison Meetings Design staff 20 80 Engineering staff 25 i00 Total 45 180 B. Training for Electrical and Mechanical Staff Construction management 5 10 Installation 10 20 Testing 5 10 Inspection 10 40 Operation 10 60 Maintenance 10 60 Total 50 200 C. Trainina for Operation and Maintenance Staff Operation engineers 30 300 Maintenance engineers 30 150 Total 60 450 Note: Training for A and B will be included in the Vendor's Contract. Training for C will be carried out in China under the technical services. Page 6 Table 4: TRAINING EQUIPMENT TO BE IMPORTED Description Quantity Unit Remarks Main parts and auxiliaries for VAX 8250 computer 1 set See note below WI-7700N senior type 48 set One set of phonetic teaching equipment for 48 seats Video tape for operation and maintenance of plant 1 lot Video tape for operation of transmission and distribution I lot Software of management and training 1 lot Notes VAX 8250 type computer auxiliaries includeds 1. Built-in memory 128 MB. 2. Other auxiliaries including control desk, drum, tape, network supporting module, module input and output, digital input and output. 3. Software. 4. Major parts of computer. - 69 - ANNEX 13 Page 7 Table 5a DEVELOPMENT PLAN FOR EXISTING SCHOOLS Capacity Present caDacity after develoyment Cost estimated (Y'0O00 Bnroll- Grad- Enroll- Grad- Civil Equip- lame of School ment Staff uates ment Staff uatee works ment Total Zhangzhou Secondary Technical School 840 247 2,000 675 560 8,324 3,700 12,024 College level 200 - - 720 - 240 - - - Secondary level 640 - 240 1,280 - 320 - - - Henan Staff College 200 60 - 360 100 120 - - - Henan Technical School t for Skilled Workers 775 245 281 1,000 313 320 2,431 1,455 3,886 lanyang Technical School for Skilled Workers 340 164 118 720 226 240 3,795 1,091 4,886 Anyang Technical School for Skilled Workers 180 59 - 360 90 120 - - - Total 2,335 802 639 5.720 1.404 1.360 14.550 6.246 20.796 - 70- ANNEX 14 Page 1 CHINA YANSHI THERMAL POWER PROJECT Action Plan for Pawer Tariff Structure Improvements Background 1. The power tariff study of Henan Province is being carried out by HPEPB with the assistance of WREPERI and an interim report was submitted to the World Bank in June 1991. The action plan of power tariff structure improvements shall be conducted phase by phase and step by step, in accordance with the actual characteristics and specific conditions of the Henan Power Grid. Obiectives 2. The main objectives of the action plan ares (a) to achieve a gradual transition towards a unified tariffs (b) to increase the capacity charge of large-size industrial consumers to better reflect the relative cost of capacity and energy; (c) to conduct test cases and gradually implement a time-of-day power tariff system for peak and off-peak power consumption; and (d) to reform the bulk sale pcvwer tariff. Action Plan 3. Proaram for the First Year (to be completed in 1992) (a) Completion of the power tariff study to determine target power tar- iff levels, tariff structure and implementation steps for tariff reform. (b) Particular attention will be given to the preparation of a detailed proposal for the process of unification and to the evaluation of this process, targeted for implementation within a five-year period. This proposal and the implementation schedule will be subject to the approval of related agencies and reviewed by the Bank before imple- mentation. Program for the Followina Years (Implementation) Specific components to be implemented in the framework of the restructuring program are as follows: - 71 - ANNEX 14 Page 2 4. Second Year Execution Program (to be completed in 1993) (a) To increase the capacity charge for large and medium-size industrial consumers, so as to make the ratio between capacity charge and energy charge more reasonable. (b) To carry out the test-case for time-of-day tariff system which dif- ferentiates between peak power consumption and off-peak power con- umption and to select test-case consumers based on the specific conditions in the Henan Power Grid. 5. Thlrd Year Execution Proaram (to be completed in 1994) (a) To undertake a detailed study of the bulk sale power tariff, prepare a concrete scheme for bulk sale reform and carry out relevant test- case. (b) To consolidate the experience and existing problems into implement- ing the time-of-day power tariff system and to propose concrete measures to further improve the tariff system. 6. Fourth Year Execution Program (to be completed in 1995) (a) Gradually implement the bulk sale tariff reform. - 72 - ANNEX 15 Page 1 CHINA YANSHI THERMAL POWER PROJECT lerms of Reference for the Tariff Study Oblectlves and ScoDe of the StudY 1. The major objective of the study is to develop a practical state-of- the-art methodology for setting electricity pricos in Henan province. The study will be based on the experience gained from the East China Power Pricing Study which was completed under the Beilungang Thermal Power Project. In particular this study will look into the practical problems raised by the transition from the existing to the proposed pricing arrangements. Because electric power tariff reform is likely to remain a long-term process, more detailed studies will be needed before new tariff options are implemented in China. 2. First priority in the study will be given to the development and dissemination of analytical skills in the entities concerned. In particular the study should evaluate and highlight the relative merits/demerits of the proposed approach in comparison to the ones adopted in Ckina so far, particu- larly the two tier pricing system very recently put in place. This training will serve to familiarize Chinese staff with the various pricing criteria and rate setting steps, emphasizing the complementaritv and differences between financial cost and marginal cost approaches. Wor?shops are planned at three important stages: study start-up, review of Interim Report, and selection of tariff options for the Final Report. 3. The tariff study for the Henan province grid will include the fol- lowing tasks: (a) analyzing consumption patterns and demand projections; (b) reviewing the system expansion plan and operating policies; (c) analyzing marginal economic costs by voltage level; (d) calculating marginal cost of service and comparing it with existing revenues for typical customers; (e) designing several candidate rate structures; (f) analyzing the financial cost and revenue associated with these rate structures; (g) roviewing issues in the taxation and regulation of power utilities; (h) selecting a target rate structure, and adjusting the average rate leveli and - 73 A EX 15 Page 2 (i) making recommendations for future work. OutDut 4. The findings of the above tasks, up to and including the design of alternative rate structures and their revenue implications, will be presented in an Interim Report. A summary of these findings and amplified recommenda- tions for a target rate structure, a rate level adjustment to meet precise financial targets, and a possible framework for its implementation will be presented in the Final Report. The Final Report will include a proposal for a concrete action plan to be executed over a five-year period. Organization. Schedule and Resources 5. The study is being carried out by HPEPB and the Water Resources and Electric Power Economic Research Institutes under MOE auspices. The study is managed through a Steering Committee representing each of the above agencies; this Committee has three working groups addressing, respectively, the power market, the supply system, and subsector finances. The working groups are coordinated by a Principal Investigator from the NOE. MOE and HPEPB will exchange views with the Bank on the progress and fiAdings of the study. 6. Key dates in the timetable for the study are planned as follows: Start-up December 1990 Interim Report December 1991 Final Report December 1992 -74- ANNEX 16 Page 1 CHINA YANSHI THERMAL POWER PROJECT Terms of Reference for Consulting Services The Proiect 1. The thermal power station is located in Yanshi, about 90 km west of Zhengzhou and 27 km east of Luoyang. It is owned by the Henan Provincial Electric Power Bureau (HPEPB). The installed capacity of the first phase development is 2 x 200 MW. The first unit was put into operation in March 1988 and the seuond unit is expected to be commissioned by mid-1989. The proposed project involves developing the existing site to its ultimate capac- ity of 1,000 MW by adding two 300-MW units. 2. The following components would be included under the proposed proj- ect: (a) construction of civil works including cooling water towers, a chim- ney, and auxiliary structures; (b) installation of boilers, turbo-generators and other auxiliary elec- trical and mechanical equipment; (c) construction of associated 220 kV transmission lines and substations to feed into the power grid. Local Consultant 3. The conceptual design, engineering, and detailed design of the proj- ect is being carried out by SWCEPDI. Overall consulting services will be provided by a local consultant, China International Engineering Consulting Corporation (CIECC), and the China Power Engineering Consulting Corporation (CPECC) in Beijing. These two entities will: (a) review the conceptual design, including plot plan, general arrange- ment drawings, line diagrams, and basic plant parameters prepared by SWCEPDI; (b) review bid documents prepared by SWCEPDI on the island concept; (c) assist in the prebidding meeting; and (d) assist in the evaluation of bids. Foreign Consultant 4. A foreign consulting firm will provi,a the following support to CIECC/CEPCC 75 - ANNEX 16 Page 2 Stage I Services (a) assist in the review of bidding documents; and (b) assist in procurement including prebidding meeting, bid evalua- tion, and preparation of a bid evaluation report. Stage II Services (a) assist in the interfacing of engineering and design of different islands; (b) assisc in the review of critical vendors' drawinga and design calculations, such as turbine-generator pedestal design, major structure design, layouts for major equipment, etc.; and (c) provide any other consulting assistance that may be requested by the local consultant. Time Schedule S" Consulting services should be complted within the following time frame: Scope of services Scheduled date of completion Review bidding documents May 1992 (for balance of plant equipment) Assist in bid evaluation November 1992 Assist in interfacing June 1993 Assist in review of suppliers' drawings March 1994 Local SuDDort 6 HPEPB will provide the following local support for the project activities: (a) Make available to the consultants *ll the basic data, information, and documents needed to carry out their services; (b) Provide all the serv'ces required for the consultants to carry out their work efficiently while working in China. These services include office space, facilities and supplies, communication, local transportation, counterpart professionals and technicians, and intorpretation, translation and secretarial -ervices. - 76 - ANNEX 17 CHINA YANSHI THERMAL POWER PROJECT Prolect Cost Estimates (US$ million) Local Foreign Item cost cost Total Power Plant (I) Site preparation 10.6 - 10.6 Pile foundation 1.6 - 1.6 * Civil construction 31.9 6.4 38.3 Boiler 17.6 66.1 83.7 Turbine-generator 7.2 69.3 76.5 Coal conveying system 4.2 - 4.2 Oil system 0.1 - 0.1 Ash disposal system 3.9 4.4 8.3 Water treatment system 4.4 0.8 5.2 Water supply system 3.5 - 3.5 Electrical equipment 13.9 4.9 18.8 220 kv svitchgear 0.4 0.6 1.0 Instrument and control system 2.2 10.3 12.5 Construction equipment - 3.5 3.5 Environmental protection 0.2 0.1 0.3 Training 1.3 1.0 2.3 Tariff study 0.5 - 0.5 Engineering and construction management 17.0 1.2 18. Base Cost 120.5 168.6 289.1 Physical contingency 12.0 8.4 20.4 Subtotal 132.5 177.0 309.5 Associated Transmission (II) Base cost 26.1 - 26.1 Physical contingency 2.6 - 2.6 Subtotal 28L7Z 28.7 Price Contingencies (I and IID 13.8 3.0 16.8 Total Prolect Cost 175.0 180.0 355.0 Interlet During Construction IBRD loan - 48.1 48.1 Local loan 56.5 - 56.5 T2tll Financint Reauired 231,5 228.1 459.6 ANNEX 18 CHINA YANSHI THERMAL POWER PROJECT Procurement Schedule o. I 11 lil IV V VI VIil Vitt Civi work Construction Ite Soiler I Turbie I & C Electrical 200 kw Switcbyard aterial EZqipmet Ab Disposal Water Trestment Pratian for Bid Doeat Oct. 01, 1992 Jun. 01, 1992 Jan. 30, 1992 Dec. 15, 1991 1a 01, 1992 Her 15, 1992 Apprawal by C e. Goweinant Nov. 01, 1992 Jul. 01, 1992 Jan. 15, 1992 Jun. 01, 1992 Jun. 15, 1992 -vi by World Bank Dec. 01, 1992 Aug. 01, 1992 Feb. 15. 1992 Jul. 01, 1992 Jul. 15. 1992 lid Docmn len ne Jan. 26, 1989 Nam. 01. 1991 Dec. 15. 1992 Aug. 15. 1992 Mar. 10, 1992 Bar. 01, 1992 Jul. 15, 1992 Aug. 01, 1992 Clarificatin H eetin Dec. 01. 1991 Bid Opeing may 04, 1989 Web. 01. 1991 leb. 01, 1993 Oct. 15, 1992 May 10, 1992 Apr. 15, 1992 Sep. 01, 1992 S*p. 15, 1992 Did Iwaluation Apr. 30, 1992 War. 01, 1993 Now. 15, 1992 Jun. 10, 1992 May 01, 1992 Oct. 01, 1992 Oct. 15, 1992 A4rwal by Chi a m NeYt 1 30, 1992 Apr. 01, 1993 Dec. 15, 1992 Jun. 01, 1992 Now. 11, 1992 Nov. 01, 1992 1 Cemfiztiom by World Nr- Jun. 20, 1992 May 01. 1993 Jan. 15, 1993 Sep. 01, 1992 Dec. 01, 1992 Dec. 15, 1992 4 Bid ardin Nay 25, 1"0 Jun. 25, 1992 Way 10, 1993 Feb. 28, 199S Jul. 10, 1992 Jul. 10, 1992 Doc. 10, 1992 Dec. 25. 1992 (olted) Contract S3 Apr. 1992 Jul. 30, 1992 Jul. 10, 1993 Apr. 30, 1993 Aug. 10, 1992 Aug. 10, 1992 Jan. 10, 1993 Mar. 01. 1993 Notes All abave.mntioed date, are completin date. - 78 - ANNEX 19 CHINA YANSHI THERMAL POWER PROJECT Key Dates of Project Implementation A. Procurement of Major Plant Eauipment Revision of bidding documents for boiler and turbine generator Nov. 30, 1988 Review by IBRD Dec. 31, 1988 Issue of bid documents Jan. 26, 1989 Bid opening May 04, 1989 Bid evaluation May 25, 1990 Contract negotiation and signing Apr. 15, 1992 B. Proiect Implementation Start excavation Aug. 01, 1992 Start foundation piling Sep. 01, 1992 Start boiler steel structure erection Aug. 15, 1993 Oil flushing of turbine generator Feb. 15, 1995 Hydraulic test of boiler Oct. 15, 1994 Acid cleaning of boiler Mar. 15, 1995 Blow-out of boiler Apr. 15, 1995 Trial operation First unit June 30, 1995 Second unit June 30, 1996 Commercial operation First unit Dec. 31, 1995 Second unit Dec. 31, 1996 Project completion June 30, 1997 - 79 - ANNEX 20 CHINA YANSHI THERMAL POWER PROJECT Disbursement Schedule Bank fiscal year Semester Cumulative Project Bank profile La and semester ---- (US$ million) ---- ----------- (x) - -------- 1993 First 16.7 16.7 9.2 3.0 Second 27.5 44.2 24.5 10.0 1994 First 34.9 79.1 43.9 18.0 Second 45.0 124.1 68.9 30.0 1995 First 25.6 149.7 83.1 46.0 Second 15.0 164.7 91.5 58.0 1996 First 3.4 168.1 93.4 70.0 Second 3.2 171.3 95.2 78.0 1997 First 2.0 173.3 96.3 82.0 Second 3.3 176.6 98.1 90.0 1998 First 3.4 180.0 100.0 94.0 Second - - - 100.0 /a Bankwide standard disbursement profile for all sectors in China issued on April 25, 1990. -80 - ANNEX 21 CHINA YANSHI THERMAL POWER PROJECT Air Pollution Characteristics of Yanshi Thermal Power Plant Air Ouality Analysis (u/sm3) World Dank Chinose Bakrun ee Background sud Background and Background and S02 aut SO u~ 602 602SI e $02 us.t S02 ust Ik II Annual averXGe 100 100 100 - 6 61 4 95 16 115 816/20 66/981127 11/9/24 6911001129 11/10/25 671981126 Daily nazism 500 500 150 300 32 167 14 255 57 337 40/30/94 186/265/374 59/40/107 10712711375 59/41/109 19212MS1SAD One, nais - 00 1. 000 99 464 38 408 276 500 262 572 301 560 305 564 World eSmk Chinese Standard Emissions (units as In,dic,ated) -(Phase 71 nf Ttal of all uhas"e) PhseMEL haes h- Phase U1 Tota Al Phase IL Total All Phs I1 S02(tj v : fui(4j~ 502 D02 Du 2 us S02 Dust 602 Dust S02 Dust 502 Dust 150 20 100 17.S57 3.02 2.17 3.55 0.43 4.95 0.58 7.97 2.75 6.55 1.01 S52mg/We 1362&/as 136ag1W 422ogi/V 136ag/m3 aGB-3095-82, Tanshi area declared class It air category by Hlenan provincial Environmental Protection Bureau. b(1)-Sra HUsa Zang 1(2)-Si Li Det /(3)3* Li Tao. Venturi Water-filmed type of precipitator fforcPhaey of an95 ffcZ.yof9.1fr hs o Venturi Water-film4d type of precipitator efficiencyof 95n2.Pofconyo 9.2frPhm t a UP efficiency of 99.22 for phase I and USP efficineny of 99.22 for Phase II. Tone per hour. Venturi Hater-filmed type of precipitator for Phase 1. E SP for Phase 1. i Venturi Water-filmed type of precipitator for Phase I and ESP for Phase It. Phase I and Phase II all use ESP. gotes Plant etatisticss Coal Phase I Phase I and Phase It Sulfur (2) 0.94 0.94 Ash (2) 28.45 24.20 Stack Height (an) 210 210/240 Notoe, Monitory Point I is located 20 km due Zeast of Yanabi. Monitory Point 2 ts located 20 km virtually due West of Yanshi. Monitory Point 3 is located 11.5 km Southwest of Tenehi. Louyan is 27 km Nortbweet of Yanehi. - 81 - ANNEX 22 Page 1 CHINA YANSHI THERHAL POWER PROJECT Summarv of Environmental Mitigating Measures 1/ Air Qualitv Control Sulfur Dioxidet Use low sulfur coal (less than 0.95 percent); use high chimney dispersion (240 meters) for local environment. Dust: Use high efficiency (99.4 percent) olectrostatic precipitators (ESP) to meet an exit concentration standard of 150 mg/m3 for total suspended particulates (TSP). NOx: Low NOx burners, will be used in the boilers of Phase II Project. Waste Water Control Circulating Cooling Water Blowdown: No chrome chemicals are to be used. Blowdown is to be sent to ash pond after neutralization. Chemical Waste Water and Boiler Blowdownt Neutralization by acid or alkaline prior to discharge. Boiler Cleaning Wastewater: Discharge after treatment in ash water quick reaction clarifier, resultant sludge disposal in ash yard (mineral acid), or inject wastewator into boiler furnace for incineration (organic acid). Oil Contaminated Wastewater: Use flat flow oil scraping pond and air flotation pond in two stages. Sanitary Wastes: Secondary treatment system currently available. Expand if necessary to meet effluent discharge standard. Coal Yard Runofft Collect and settle. Sludge sent to ash disposal site, effluent discharged. )/ Recome nded in the Environmental Impact Assessment. - 92 - ANNEX 22 Page 2 Ash Sluice Water: Settled and adding H2SO4 (acidification) and sent to the Yellow River. Solid Waste Fly Ash: Sluiced to the Xi-Jia-Gou Ash Yard. Surface to be maintained wet. Rainwater from surrounding areas directed to drainage systems. Sides planted with trees to contain dust. After useful life, ash yard is to be revegetated. Bottom Ash: Ground and Trucked to the Xi-Jia-Gou Ash Yard. Noise Allowable noise level of less than 90 db (A) to be specified for main and auxiliary equipment. Noise isolating covers, walls or closets shall be provided where necessary. Silencers shall be provided for boiler safety valves, piping, blowout, and forced draft fans. - 83 - ANNEX 23 Page 1 CHINA YANSHI THERMAL POWER PROJECT Environmental Monitoring Proaram 1. Two 300 MW coal-fired steam generating units will be installed in the Phase II development of the Yanshi Thermal Power Station. In accordance with the requirements of the Environmental Protection Act of PRC (Provisional) and the Regulations for Fossil-Fired Power Plant Environmental Monitoring (Provisional) of MOE. Henan Electric Power Bureau will perform environmental monitoring for the discharge, ambient, and ash disposal areas in accordance with the programs presented in Tables 1 (air), 2 (water), and 3 (noise). 2. In order to successfully implement this program, it is necessary to make up the deficiency of instruments in the environmental monitoring station which was established in 1969, and provide trained staff to operate and maintain the equipment 3. The monitoring program is to be under the direction of the plant director; it should include a station leader and eight technicians, including environmental, chemical and thermal mechanical specialists or engineers. The station leader should report directly to the plant director. 4. Summary reports of the program should be prepared on a regular basis and made available to the World Bank upon request. S. Additional equipment needed from local and foreign sources and the associated training requirements are presented in Tables 4 anc 5. In brief terms, these resources are as follows: US S equivalent Local equipment $ 200,000 Imported equipment $ 100,000 Total $ 300.000 Table 1: AIR AND GAS ENVIRONMENTAL MONITORING PROGRAM Monitoring Parameters or Equipment Frequency Monitoring Point Pollutants to be used of sampling Sampling point period Plue stack S02, NOx, TSP M1,000-type single SO2, NOx; In the middle of All year chimney monitoring continuously the stack system TSP:2-3 times/year Electrostatic Dust removal Isokinetic probe, After overhaul and Standard - precipitator efficiency after every fuel procedures as change (at least 2 manufacturer times/year) specified Residential S02, NOx, Cog Mobile vagon Five-day intervala Prevailing wind ALl year, area TSP automatic system direction, three to four inside plant times/year a fence Ash disposal TSP Mobile wagon Three to four At edge of site, All year yard automatic system times per year several locations Source: 87-Notification No. HE 299, Thermal Electric Power Plant Monitoring Regulation (Ministry of Energy). S IU Iza Table 2i AM AND VUMXU 1501U MOM oaUer water OIl. cm- Lu. & *T dmineralier Sadtar tantmted liver tri- total combined dlecharge etantoer waetmnter Lab yard botary and lisObp tlant tnda- (after treat- treatmet effluezt Coal pard grounewster upe= rl Bollar Analytical St aeb r atl ma t) & boilr plat (after eattll tak Iincluding Cood tor trem cleI prcedur Parmtor * divycel Olt* effluent bludown ad luaut treatmt) diacharge local mile) bl4Ln of juntion Watewater epecutcatio. Autotic ce in 10 N 00elmoutb OneImont,b Onk,c tb Ras water is four timslyar Once In 10 days Twicelyear Before 0-4920-86 day* present discharg dis""" Coelmot cawe in 10 day - aecIootb - tAhn wate. is fur tIsselyear - Ticelyear Before PG-245 _ttcr pret drp oce In 10 days - OeImoutla - tan water Is - - Twicelyear Before 1S-745 preset diacharp Arsenic mmd OmeIeeasocs OoAeIeaaAn - - TwicelYS rutisyear - Twicelyaar Before 0-748S497 &roost" Ocd_ 01 tde/our telyar dischareW luotri and Oel-ab Oelmat - - - - - - - 0-74847 floe ufid ScIot Oncelmcth _ _ _ _ _ _ _ -p8-545 nltrite and 0-IeOaon O-cjeo - _ _ Ticelayr - 0-74794l nitrate O an re" - - - - Talcltb ben water is - - - - PS-945 Wr1ninmI presnt Voltile eol - - Owelotb When water is four tci/lyear - Tcelyear -74047 presntI (at 20 C) _ _ OceIwee - _ four tlasfyear - - - G-7487 en lasideml - - - boltb - - - OucImoot h Ttwcelyear ( A2575445 obl*rimI laterll c_ - - - colt, four tlmslyear _b t - - lotb - - - - ne 10 days - - - Del solda - - - - - - Four timelyear TwlcIyer - _ev mtcle Cd.9g.Pbe Cd.4.Ps - - - Cd.g. Pbi Cd.Hg.lPb Cr.4f - Cd.Ng.Pb. Cd.9g.Fb Cr *6t G0-74674-7 Oe1eeefao. hOco7eaa Cr.ff minum, tour Cr. ' Cr.t6, Cu Cd.Pb. Gd-7475-67 Cr.ff oncel Cr.ff Coce/ twicelyear timseyear TVticelyecr before g G8-7466-87 motb dtacbarge Standrd G04978-8 04978-68 0-8978-68 4-89786-6 0G-6978-64 GS49788 U G-5749-85 C1-8978-86 C-888-5 8 0F4978-88 aplcabl (except Cu) 1=E Table 3: NOISE MONITORING PLAN Monitoring standard & Monitoring point Noise source Location of monitor measurement method Inside main building and Various pieces of Monitor is to be located GB-7441-87 miscellaneous plant rotating machinery: 1 meter from large "Measurement Method of buildings on-cite - Turbine equipment. Number of Power Plant Noise" - Feed water pump points decided by test - Forced draft fan person. For small - MPS Mills equipment, monitor is located at a distance of ½ the equipment length Outside plant fence and General monitoring of Area is divided into 500 GB-3222-87 residential areas ambient noise m x 500 m grid. The "Measurement Method of center of each square Community Noise" will be the monitoring point. Number of locations depends on area Road traffic Mid-point of two GB-3222-87 intersections, 50 meters "Measurement Method of from roadside Community Noise" Administration build- Gb-3222-87 ing, plant from area, "Measurement Method of worker residences Community Noise" N oe - 87 - ANNEX 23 Page 5 Table 4: LIST OF INSTRUMENTS AND EQUIPMENT TO BE PURCHASED LOCALLY Instrument/device type Code Number Remarks 11,000 precision analytical balance TG328A 1 Type 751 spectroscopic meter 751G 1 pH metor PXJ-RA 1 Polarograph MEC-RA 1 Precisiot integrated sound level meter ND-2 1 Dust measuring instrument SYC-1 1 Velocity meter LS-10 2 Wind direction and speed meter - 2 Suspended particle sampler fC-A3 4 Air sampler KB6A 4 Electronic calculator IBN-550 1 Conductivity meter DDS-lla 1 -8- ANNEX 23 Page 6 Table 5: INSTRUMENTS, EQUIPMENT AND TRAINING NEEDS FOREIGN EXCHANGE REQUIREMENTS Instrument/device type Number Remarks Continuous automatic flue gas 1 Including sampler, analyzer analyzer (SO2, NOx) and printer Flue gas automatic monitor for TSP 1 Including sampler, analyzer and printer pH continuous automatic monitor 1 Including sampler, analyzer and printer COD measurement equipment 1 BOD1 measurement equipment 1 Oil measuring meter 1 Dust measurement apparatus for work 1 area in the main power house - 89 -ANNEX 24 Page 1 CHINA YANSHI THERMAL POWER PROJECT HENAN PROVINCIAL ELECTRIC POWER BUREAU Financial System Followed by Chinese Power Bureaus 1. Power companies such as HPEPB may accumulate capital from three separate and distinct sources. These include funds for fixed assets, funds for working capital, and a number of special funds. (a) Funds for fixed assets. These funds are obtained from the State in large enough amounts to permit implementation of approved projects according to agreed schedules. Until 1980, these funds were provi- ded almost entirely as grants; since then, the Govermnent has deci- ded to make these funds available as loans obtained from the banking system or from official sources. The funds under this category are used exclusively to finance works classified as capital expendi- tures. Most Chinese enterprises are not expected to financo any portion of capital expenditure from operationsa rather, they are expected to remit all surplus income to the Government through pay- ment of taxes; (b) Funds for workina capital. These funds are also received from the State. Thev are based on a fixed amount established by regulation and subject to review at intervals of about 10 years. These funds make up only a minor part of the power bureaus' capital and, because most of the bureaus have drawn their entire allocations since the last review, these funds have been used only as a minor source of capital in recent power projects proposed for Bank financing. Because current obligations both to and from the potier bureaus are settled almost as accrued, the working capital funds have been used primarily to finance operating inventory; and (c) Special funds. These funds are earmarked for distinct purposes and are funded from net operating revenues or cash receipts in amounts established according to regulations. The poaer bureaus' accounts contain four separate categories of special funds, including those for: (i) maintenance; (ii) renovations; (iii) employee benefits; and (iv) distribution improvements. The special funds for mainte- nance are financed by allocations charged as operating expenses in determining net operating income before Income Tax. The special funds for renovations are financed by charges against Government Funds (the balance sheet account showing the Government's equity investment in a power bureau) equal to the portion of depreciation provisions not used for debt repayment. The special funds for employee benefits are financed using distributions from Nlt Income after Income Tax but prior to the Adjustment Tax. Receipts and withdrawals from the special funds associated with distribution -90 ANNEX 24 Page 2 improvements are passed through the Flow of Funds statement and are specifically excluded from the Income Statement. All other alloca- tions to the special funds appear or are reflected on the Income Statement as though they are operating costs or distributions from earnings, regardless of whether corresponding cash expenditures have been incurred. Under more traditional accounting systems, the moneys expended from the special funds would largely be classified as operating coats or working capital. However, items charged to the Special Funds for both renovations and distribution improvements would be capitalized as fixed assets once the underlying work is completed. Thus, when the renovations or distribution improvements are completed, their value is deducted from the special funds balance and added to the Government Funds account. The power bureaus have only one way to channel tariff revenues into cash since all operating revenues must either be expended; distributed to cover cash outflows, debt service or taxes; invested in renovations or distribution improvements; or retained for future expenditure chargeable to the special funds.s The bureaus channel revenues into cash by using the excess of special fund allocations over the sum of (i) Special Fund Expenditures; (ii) completed renovations and dis- tribution improvements; and (iii) increases in Special Fund Assets. In turn, cash generated through the Special Funds may be inter- changed with other operating cash; however, allocations to particu- lar special funds create an ultimate obligation for a power bureau to use the accumulated cash only for certain categories of expendi- tures. 2. Until 1983, the power bureaus paid remittances to NOE equal to oper- ating revenues less the sum of cash expei.ditures charged directly to opera- tions, all allocations to special funds, and debt service. Since 1983, the power bureaus pay MOF an Income Tax, assessed at 55% of operating revenues loe the sum of costs (including depreciation) charged directly to operations, all allocations to special funds that are treated as expenses, and debt ser- vice in excess of the portion of depreciation provision specifically allocated for debt repayment. From the residual after Income Tax, the power bureaus must cover the special fund allocations that are treated as distributions from earnings and the amount of debt repayment and capitalized interest during construction to be met from net income, and remit the remainder to MOE as an Adjustment Tax.l/ MOE has some flexibility in controlling the power bureaus' liquidity. It can do this either by changing their allocations to the special funds, making grants for allocation to the special funds, or relieving the power bureau. of a portion of the Adjustment Tax. The power bureaus appear to have adequate liquidity and MOE has not shown any inclination to adjust the procedures that affect their liquidity. 3. Under the existing financial system, the Government does not intend for the power buteaus to retain a surplus. However, tariff revenues must meet debt service requirements and repayment per se does not represent a charge I/ From an accounting point of view, the Adjustment Tax is treated in a manner similar to a dividend. 91ql - ANNEX 24 Page 3 against earnings. Regulations provide that certain stipulated amounts of repayment shall be met from cash that has been generated by depreciation; however, the remainder of the cash generated by depreciation must be added to a bureau's operating cash and a corresponding allocation must be made to the Special Funds f,. renovations. As a result, the remainder of repayment, which must be met from an earmarked increment of tariff revenues, creates an accumu- lation of equity in the form of a corresponding undistributed ear iings. 4. Most power bureaus have units which engage in construction manage- ment and subsidiaries which function as contractors. As i rule, the accounts of the construction management units are consolidated with those of the power bureau's operating units; however, the accounts of subsidiaries acting as construction contractors are, as a rule, not consolidated with those of the operating units. As a result, when investments were financed through grants, the power bureau's consolidated accounts may have routinely "nderstated gross fixed assets and certainly did not reflect atequately construction in prog- ress. Also, in the past, only about 85Z of the value of government grants used to finance new fixed assets was transferred from the books of the con- struction subsidiaries functioning as contractors to the power bureau's con- solidated accounts. The residual was considered to have beer. expended in purchasing moving assets, which remained with those construction subsidiaries upon the coqple-.ion of construction. The change to using loans rather than grants to finance power sector investments has caused investment funds to be channelled from the Government through the power bureaus for payment to con- struction units acting as contractors. Thus, in the future, the consolidated accounts of the power bureau should more accurately reflect the value of gross fixed assets and construction in progress. 5. Given the existing financial system, the power bureaus have little financial incentive to increase tariffs at the present time. Once a power bureau has sufficient revenues to meet the costs charged directly to opera- tions and all special fund allocations and debt service, any additional reve- nues are remitted to the State through income or adjustment taxes. Thus, once expenses and required distributions have been met, even a large tariff increase would not increase a power bureau's financial viability, except to improve debt service coverage. Therefore, the familiar indicators of finan- cial performance such as rate of return and self-financing ratio have very limited application to the financial analysis of a Chinese power bureau. -92 - XNEX 25 Page 1 CHINA YANSHI THERMAL POWER PROJECT HENAN PROVINCIAL ELECTRIC POWER BUREAU Annual Financial Statement' Table of Contents Page No. Key inancial Indicators . . 2.. . ..2 Income Statement . . . . . . . . . . . . . . . . . . 3-4 Balance Sheot . . . . . . . . . . . . . . . . . . . . . . . . . . 5-6 Funds Flow Statement . . . . . . . . . . . . . . . . . . . . . . 7 Derivation of Average Tariff ............. ..8 Investment Program . . . . . . . . . . 9-10 Loan Parameters . . . . . . . . . . . . . . 11-13 Fixed Asset ormation...... .. .... . . . 14 Revaluation of Assets sets.... ..... ..15 Yanshi Expenditures and Financing....9.. ......... 16 Fuel, Purchases and Operating Expenses . a . o . . . . . . . . . 17-18 Special Funds Calculations . . . .... ... . ..... 19 Breakeven Pricing . . . . 20 Self Financing Ratio .v4 20 Assumptions to Financial Projection . . . . . . . . . . . . . . . 21 Annex 25 - 93 Page 2 CHINA YANSHI POWER PROJECT NENAN PROVINCIAL ELECTRIC POWER WBREAU KEY FINACIAL INDICATORS 1991-2000 (Yuan Million) Year Erded Daceebr 31 1991 1992 1993 1994 19 1996 1997 1998 1999 2000 .... .... .... ..... ... .. .... ..... .... ..... .... Energy Satle (OWh) 25152 27017 28961 31090 33638 37173 40569 43341 4741o 361 Avera Price/kilh (ten) 13.50 15.38 17.23 19.01 21.00 22.4S 24.24 27.05 28.80 28.80 Operating R3 396 4155 4991 5910 7065 8350 9835 11723 13654 15366 Operatfng Ince. 441 766 1120 1593 2180 2714 3543 4581 5400 5923 Rooittnes co Goverrmnt 34 93 138 285 326 438 509 564 616 834 Anml Capitat Expenditure 1330 1414 2333 2749 3048 3577 4125 4494 4603 a48 Rate so"e 4877 5901 7114 8298 0101 12606 14834 1381 22563 27651 Long-term Debt 2952 3834 5359 7248 8959 11062 13192 15098 16489 17905 Debt Service 242 404 661 697 1191 1442 2135 3054 384 3919 Projected Cush in Banks 313 314 294 348 351 408 440 523 665 1045 Average 1991-2000 Rote tf Ratum Historically Vatued Assets (1) 9.0 13.0 15.7 19.2 21.6 21.5 23.9 26.4 23.9 21.4 19.6 Naotfnally RevaLued Asstts C) 5.8 8.1 9.6 11.7 13.5 14.0 15.7 17.4 16.4 14.9 12.7 Seltf Financing Ratfo (C) 24.5 22.4 22.2 24.0 25.7 25.0 26.8 25.5 26.2 30.0 25.2 operating Ratio cZ) C7.0 81.6 77.6 73.1 69.1 67.5 64.0 60.9 60.4 61.5 70.3 Debt/Total CapItal (5) 44.2 49.2 55.2 60.7 62.6 64.5 64.9 63.2 60.2 58.4 58.3 Debt Service Coverage 2.6 2.2 1.9 2.2 1.8 1.8 1.6 1.5 1.4 1.5 1.8 _ ----- ----- 94 -ANNEX 2,5 Page 3 CHINA YANSHI THERMAL POWER PROJECT HENAN PROVTINCIAL ELECTRIC POWER BUREAU Income Statements 1985-1990 (Yuan million) Year ended December 31 1985 1986 1987 1988 1989 1990 Sales Increase (Z) 5.0 6.3 9.5 10.6 6.9 7.9 Energy Sales (GWh) 16,992 18,062 19,773 21,870 23,392 23,892 Avarage Price (Fen/kWh) 6.5 7.1 7.4 7.7 10.0 10.7 ODerating Revenue 1,110 1,289 1.464 1.680 2.330 2.545 Operating Costs Fuel 363 433 483 591 786 885 Purchased power 90 110 96 132 362 208 Operation & Maintenance 86 118 170 19G 279 358 Administration 41 53 55 70 79 111 Sales tax 283 314 359 403 457 499 Depreociatior 76 99 149 188 205 246 Total Operatina Costs 939 1.127 1.312 1.582 2.168 2.307 Operatina Income 172 162 152 98 162 238 Other income 0 0 0 0 0 0 Net Income Before Income Tax 172 162 152 98 162 238 Income Tax 95 75 70 44 76 84 Net Income 777 82 54 86 154 Distribution of Net Income Remittances to Government 31 40 37 23 32 27 Transferred to Gov't Funds 14 20 20 20 20 76 Employee Benefits SF 32 27 25 11 35 51 Net Income 77 8 82 54 86 154 Rate Base 1,793 2,564 3,031 3,630 3,951 4,500 Rate of Return (Z) 12.0 7.4 5.7 2.7 4.1 5.3 Annex 25 - 95 - Page 4 CHINA YANSHI POUEq PROJECT HENAN PROVINCIAL ELECTRIC PCMER BUREAU INCOME STATEMFMT (Yuan MItlion) Year Ernded December 31 1991 1992 1993 1994 1995 1996 1997 1998 19°9 2000 Sales Inccrse (X) 5.3 7.4 7.2 7.4 8.2 10.5 9.1 6.8 9.4 12.5 Energy Sales (GWh) 25152 27017 28961 31090 33638 37173 40569 43341 47416 53361 Average Price/kWh (fan) 13.50 15.38 17.23 19.01 21.00 22.46 24.24 27.05 28.80 28.80 ..................... ........................................... . ... ................ ............................. . ......... .......... ............. ...................... ..... Operating Revenue 3396 4155 4991 5910 7065 8350 9835 11723 13654 15366 Operating Costs ..... ....... .... ..... Fuel 1095 1287 1560 1722 1964 2414 2708 3085 3510 3889 Purchased Power 231 251 280 277 282 268 262 249 218 200 Operation & Maintema0ce 454 548 654 765 892 1052 1233 1411 1645 1999 Ad infstration 126 148 170 193 219 248 282 319 362 411 Sales Tax 747 798 784 869 940 935 964 1090 1270 1429 9epreciation 301 357 424 492 589 719 844 987 1248 1516 .............. ....................................................... ............................................................... Total Operating Costs 2954 3389 3871 4317 4885 5636 6292 7142 8253 9443 Operating Income 441 766 1120 1593 2180 2714 3543 4581 5400 5923 *S"xMo "- _ *--r-# * _ Interest Charged to Operations 42 136 195 256 333 470 658 907 1128 1289 ............................................. .................... ........................................... .................. Net Incon. Before Income Tax 399 630 925 1337 1847 2244 2886 3674 4273 4634 MOMUMN uauaau uuuuuu=aguuuffCiUUfMuuuiuunuuumzasUuu8UuuuuiU Incom Tax 125 231 313 575 649 848 976 1077 1173 1559 Net Income 275 399 611 762 1199 1396 1910 2597 3099 3076 Dfstribution of Not Income ................. ............................_ Enterprise D*vetopmnt Furd 15 40 59 122 140 188 218 242 264 358 4mIttances to GoverrAent 34 93 138 286 326 438 509 S64 616 834 Trwnsferred to Govt. Funds 137 185 330 292 603 674 971 1597 2063 180O Chargeobt [DC 35 24 25 0 65 29 140 120 76 0 EWploy e Unfits Spec. Fuifts 53 56 59 62 65 68 72 75 79 83 Net Income 275 399 611 762 1199 1396 1910 2597 3099 3076 ---------- -=s =t _ = -96 - ANNE-25 Page 5 CHINA YANSHI THERMAL POWER PROJECT HENAN PROVINCIAL ELECTRIC POWER BUREAU Balance Sheets 1985-1990 (Yuan million) As at December 31 1985 1986 1987 1988 1989 1990 Current Assets Cash 93 120 142 380 324 344 Inventories 92 103 101 1w0 257 zi5 Receivables ;08 116 117 305 369 228 Total Current Assets 292 339 360 845 950 797 Fixed Assets Plant in Service 2,915 3,868 4,041 4,783 5,295 6,130 Less Accum. Depreciation 778 877 971 1,158 1,377 1,630 Operating Plant 2.137 2.991 3.070 3.625 3.918 4.500 Const. work in proeress 879 864 499 197 305 324 Total Fixed Assets 3.016 3.855 3.569 3.822 4.223 4.824 S6ecial Fund Assets 103 144 181 2Lo 216 306 Total Assets 3.411 433 4.110 i4.Z8 5.489 j.92 Current Liabilities Accounts Payable 140 147 121 347 357 58 Due to Government 42 62 73 138 158 179 Total Current Liab. 182 208 194 485 515 237 Long-term debt 409 1,071 1,104 1,573 1,746 2,067 Consumers' deposit 1 1 1 1 1 10 Government Funds 2,607 2,783 2,465 2,437 2,737 3,113 Working Capital Funds 67 90 102 70 89 91 Special Funds 1445 183 244 311 401 409 Total Liabilities 3.411 4.337 4.110 4.877 5.489 Ja23L Debt as Z of Debt & Equity (1) 13.0 26.5 29.0 36.4 35.8 37.0 Current Ratio (times) 1.6 1.6 1.9 1.7 1.8 3.4 Annex 25 - 97 - Page 6 CHINA YANUHI POWN POJECT HEN PROVINCIAL ELECTRIC PONR JRSAU BALANCE SHEET (Yuan Million) bar *nded Decemd r 31 1991 1992 19M 1994 1995 1996 1997 1998 1999 2000 Assets Current Assets Cash 313.3 313.6 294.1 348.4 351.2 407.7 439.8 522.9 664.6 1044.7 Inventories 254.4 302.8 363.9 408.2 478.2 586.7 662.3 767.9 922.1 1031.1 Receivables 359.1 421.5 490.2 565.8 660.7 766.3 888.4 1043.6 1202.2 1342.9 ...................................................................................... e.......................................................................... Total Current Assets 926.8 1037.9 1148.2 1322.3 1490.0 1760.7 1990.S 2334.3 2788.9 3418.7 Fixed Assets ............ Plant in Service 7185.8 8835.2 10393.9 12118.3 15078.3 18436.9 21097.0 25362.9 33701.2 38298.6 (less) Accun. Depreciation 1931.2 2288.4 2712.0 3203.5 3792.0 4511.3 5355.2 6342.5 7590.7 9106.6 ................. .................................. ...... ........... ....<...................... Net Plant in Service 5254.6 6546.9 7681.9 8914.8 11286.3 13925.6 15741.7 19020.4 26110.5 29192.0 Construction WIP 576.5 339.3 1088.9 2059.9 2079.7 2225.7 3612.2 3840.2 105.0 155.2 Total Fixed Assets 5831.1 6886.2 8770.8 10974.7 13366.1 16151.3 19353.9 22860.6 26215.5 29347.2 - - -- - - - - - - - -s Special Fund Assets 346.3 369.0 371.4 380.1 362.7 367.4 347.3 344.9 364.7 292.2 Total Assets 7104.1 8293.2 10290.4 12677.0 15218.8 18279.4 21691.6 25539.7 29369.2 33058.2 Liabilities ........... Current Liabilitles ................... Accounts Paysbie 132.7 151.6 172.4 191.3 214.8 245.8 2n.4 307.8 350.3 396.3 Oue to GovervWmnt 184.4 189.9 195.6 201.5 207.5 213.7 220.1 226.8 233.6 240.6 .......................................................................................................................... Total Current Ltabilties 317.0 341.5 368.0 392.8 422.3 459.6 492.6 534.5 583.8 636.9 Enterprs O tevelopent Fund 14.5 54.5 113.7 236.2 375.9 563.4 781.4 1023.0 1287.2 1644.9 Corsamers Oeposits 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 Working Capital Funds 90.2 90.2 90.2 90.2 90.2 90.2 90.2 90.2 90.2 90.2 Long-term Debt 2952.4 3834.1 5358.5 nU48.0 m89.3 11062.1 13191.7 15098.5 161U9.4 17904.8 Gover-uwnt Funds 3199.4 3347.1 3657.1 3917.5 4464.4 5045.4 5940.9 7421.3 9309.0 11025.3 Spe"ial Funds 520.5 615.8 692.9 782.3 896.8 1048.8 1184.9 1362.3 1599.5 1746.2 Revaluation Reserve 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.) Total Liabilities 7104.1 8293.2 10290.4 12677.0 15218.8 18279.4 21691.6 25539.7 29369.2 33058.2 ,_____augmaS-- o Debt Z X of Debt & Equity 44.2 49.2 55.2 60.7 62.6 64.5 64.9 63.2 60.2 58.4 Current Ratio 2.9 3.0 3.1 3.4 3.5 3.8 4.0 4.4 4.8 5.4 - 98 _ Annex 25 Page 7 CHINA YANSHI 904ER PROJECT HENAN PROVINCIAL ELECTRIC POUER BUREAU FUNDS FLOWJ STATEMENT (Yuan Miltion) Year ended December 31 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 .... .... . .... .... . .. . .... .... .... . .... .... . ... .... ... ..... . .... ..... internal Sources of Funds Net Income 274.5 398.7 611.0 762.1 1198.7 1396.3 1910.0 2597.2 3099.4 3075.6 Depreciation 301.2 357.2 423.6 491.5 588.5 719.3 843.9 987.3 1248.2 1515.9 Maintenance Special Funds 116.1 142.5 183.8 222.7 265.8 339.8 423.8 490.3 596.9 805.4 Distribution lIprv. Spec. Fda. 55.3 55.9 56.6 57.3 58.0 58.7 59.4 60.1 60.8 61.5 ... . . ........ ............... ......................... ... .... . ..... ......................... ........... ............ ........................ .. .. Total Internal Sources 747.1 954.3 1275.0 1533.6 2111.0 2514.1 3237.1 4134.9 5005.3 5458.5 Borrowings .......... Proposed 18QD Loan 0.0 89.3 470.6 272.3 88.1 27.8 20.3 0.0 0.0 0.0 Yanshi Project Related Loans 21.8 116.2 384.3 "49.3 318.3 213.1 89.4 0.0 0.0 0.0 Other Loans 1019.6 900.8 1068.2 1493.0 1970.9 2624.8 3292.6 3857.8 4001.0 4026.6 IDC Borrowed 30.3 21.1 67.3 169.6 194.9 252.9 142.5 76.7 20.3 19.1 Total Borrowings 1071.6 1127.4 1990.3 2384.2 2572.2 3118.6 3544.8 3934.5 4021.2 4045.7 Goverrnent Funds 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Sources of Fuids 1818.7 2081.7 3265.3 3917.8 4683.3 5632.7 6781.9 8069.3 9026.6 9504.2 Capital Expenditures ...... ......... ..... Proposed Yanshi Project 21.8 200.9 830.4 663.9 324.0 146.4 55.3 c.0 0.0 0.0 Other Construction 1019.6 907.2 1117.8 1604.6 2121.2 2791.7 3384.1 38!/.8 4001.0 4026.6 Interest Durlng Construction 65.6 45.1 92.2 169.6 260.3 282.0 282.8 196.2 96.6 19.1 Completed Renovations 209.1 223.3 248.2 266.0 296.5 310.5 355.7 392.5 457.6 553.4 Distribution loprovements 14.1 37.6 44.7 45.2 45.7 46.3 46.8 47.4 48.0 48.5 ... ........................................ ..................... ................. .............................. I................................................................ . Total Capital Expenditure 1330.1 1414.0 2333.3 2749.3 3047.8 3577.0 4124.7 4493.9 4603.1 4647.6 sho.u-.-___unUU3SuZ3UU3UUUuUUUUUUUUU _ U_ U_ _ Operational Requirements Inc/dec in Working Capital 81.3 86.4 103.3 95.0 135.3 176.9 164.7 218.8 263.6 196.7 Inc/dec in Specifl Fund Assets 40.3 22.7 2.4 8.7 *17.3 4.7 *20.2 -2.4 19.8 -72.5 Loan Repeyjsnt 164.4 244.0 440.8 440.8 M.3.1 943.5 1336.9 2027.7 2630.3 2630.3 Remittances to Government 33.9 93.2 138.2 285.7 326.0 437.7 508.6 563.8 616.5 834.5 Special Fuid Expendftures 164.2 197.1 241.9 283.9 330.2 407.4 494.8 564.8 675.2 887.5 Chargeable IDC 35.3 24.0 25.0 0.0 65.4 29.1 140.3 119.5 76.3 0.0 Total Operational Requfireants 519.3 667.4 951.5 1114.2 1632.6 1999.2 2625.0 3492.3 4281.7 4476.5 wsunuammun Total Applications of Funds 1849.4 2081.4 3284.8 3863.5 4680.4 5576.2 6749.8 7986.2 8884.8 9124.1 vaasuuuuuusinun=4aauinauuuuuu Increase/Decrease in Cash (30.7) 0.3 (19.5) 54.3 2.8 56.5 32.1 83.1 141.7 380.0 ADmsl Debt Servfce Coverag 2.6 2.2 1.9 2.2 1.8 1.8 1.6 1.5 1.4 1.5 Annex 25 Page 8 _ 99 _ ODRIVATION OF AVERAGE TARIFF AUTHORIZED POWER PRICING 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ........................ ...... - - ... .... ... .... .... ... . .... .... .... Energy Sat" (GIh) 25152.0 27017.0 28961.0 31090.0 33638.0 37173.0 40569.0 43341.0 47416.0 53361.0 Domestic Inter grid t.^nkfers 2164.0 861.0 265.0 570.0 500.0 0.0 0.0 0.0 0.0 0.0 Nondoaestic retail 23088.4 25196.3 28985.1 30796.7 33829.6 37179.4 40129.7 44834.0 49081.0 52226.0 Average Rovenu (fen/KWh) 10.98 11.39 11.91 12.28 12.73 13.25 13.72 14.23 14.69 15.07 asee Revenu (Yuan/ASh) 103.15 106.25 109.44 112.72 116.10 119.58 123.17 126.87 130.67 134.59 Inter grid transfers 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 Auth. Cost Adjustments Tranfsers (Current Prs.) Mgndom. Ret. (Const. Prs.) 7.20 7.20 7.92 7.92 8.32 9.15 9.60 9.60 9.60 9.60 Nondom. Rot. (Curr. Prs.) 7.20 8.24 9.64 10.13 11.16 12.89 14.22 14.93 15.67 16.46 Operating Revenu (mtn Y) 2760.8 3078.1 3448.9 3816.3 4283.1 4924.7 5567.5 6167.8 6965.3 8041.5 Totat energy 2594-5 2870.5 3169.4 3504.5 3905.4 4445.3 4997.0 5498.5 6196.0 7182.0 Inter grid transfers 108.2 43.1 13.3 28.5 25.0 0.0 0.0 0.0 0.0 0.0 Cosl price adJ. I-- Inter grid transfers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 --- Nondomestic retail 166.2 207.5 279.5 311.9 377.7 479.4 570.5 669.3 769.3 859.5 BREAKEVEN COAL ADJ. INCREMENT ................... ............................... .......... Revenue - Auth. Coal Pr. AdJs. 166.2 207.5 279.5 311.9 377.7 479.4 570.5 669.3 769.3 859.5 CPA Revenue Net of Sales Tax 141.3 176.4 237.6 265.1 321.0 407.5 484.9 568.9 653.9 730.6 Cost of Coat Prico Increment 52.2 162.0 278.9 388.8 538.0 701.5 878.3 1100.1 1359.2 1619.2 Coat AdJ. SurpLus/Deficit 89.1 14.4 (41.3) (123.7) (217.0) (294.0) (393.4) (531.3) (7J5.3) (888.7) AdditionaL Req. Req. (fen/kWh) 0.0 0.0 0.2 0.5 0.8 1.0 1.2 1.6 1.9 2.1 Adjusted Oper. Rev. (Y stn.) 2760.8 3078.1 3490.2 3940.1 4500.1 5218.7 5960.9 6699.1 7670.6 8930.2 Enwrgy Sales (GUh) 25152.0 27017.0 28961.0 31090.0 33638.0 37173.0 40569.0 43341.0 47416.0 53361.0 AdJ. Avg. Sale Price Cfen/kWh) 11.0 11.4 12.1 12.7 13.4 14.0 14.7 15.5 16.2 16.7 aauuuzuuawmis uuauuamumuau,aamUuuum="=uuuuuuuufUv=UmU General Tariff Revision 23K 35X 43X 50X 57 608 65X 75X 78X 70C Revised Price (fen/kWh) 13.5 15.4 17.2 19.0 21.0 22.5 24.2 27.0 28.8 28.5 AVERAGE SALES PRICE (fen/kWh) 13.5 15.4 17.2 19.0 21.0 22.5 24.2 27.0 28.8 28.8 m Item: av price in 1991 re 13.5 14.1 14.9 15.6 16.4 16.7 17.2 18.3 18.5 17.6 self fin. ratio tX) 24.5 22.4 22.2 24.0 25.7 25.0 26.8 25.5 26.2 30.0 Annex 25 Page 9 - 100 - INVESTMENT PROGRM CAPITAL EXPENDITURES 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 TOTAL ..... ......... ....... ..... .... ..... .... . .... ...... .... ..... .... ..... .... ..... .... ..... ..... LOANS PCRC loWnA Yongchwng Power Plant 0.0 222.0 310.8 734.3 771.0 2038.2 Sveenxnis Power Plant 1 2.1 244.8 691.7 709.6 1e4.2 Qfnbei Power Pimit 201.4 634.3 1036.- 1554.1 905.7 4331.6 Yaoung Power Plant IV 201.4 352.4 814.1 512.9 la0.7 J10ozuo Power Plant III 241.5 76.6 615.0 Saownxio Power Plant It 0.0 0.0 233.1 815.9 2056.1 3105.1 Hobi Power Plant 262.5 143.0 700.5 Zhungzhou Therel 287.7 297.4 704.4 Xuoyang Thorml 63.9 335.6 563.9 51a.0 1481.5 Yah.kou Power Plant 304.4 639.3 1141.1 775.3 2860.2 other power lonts 70.5 296.0 466.2 815.9 1199.4 2848.1 220kv lne coNpletoed with Yongcheng Power Plant 0.0 0.0 69.9 106.1 176.0 500kv YeozheoM line I 0.0 0.0 0.0 0.0 220kv line compltoed with JZ PP 136.5 42.3 210.9 220kv llnce copleted with Sarmenxia Power 57.2 121.8 127.9 306.8 220kv line comploted with H8 PP 57.8 11.4 107.6 220kv line compLoted with ZZ The 31.5 34.3 65.8 220kv line completed 1Ith YHK PP 63.9 201.4 141.0 406.3 220kv line complettd with SIX PP It 74.0 233.1 326.4 633.5 220kv ifne completed with Qinbel Power Plant 64.1 201.8 353.2 296.7 915.8 220kv line corpl. with YS PP 11 8.0 17.1 80.8 66.0 171.8 220kv line coqpleted with Luoyang Power Plant 40.3 91.6 74.0 205.9 220kv line completed with Yaeomng IV 98.7 148.0 124.3 371.0 Other Tranrolasaon Line & S/S 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Yanshi Power Plant It (for inves 21.8 97.3 300.2 245.7 98.1 44.3 0.0 807.3 Yanahi Power Plant II ( IDC & C/F ) 6.3 42.5 65.2 71.9 74.3 35.0 295.1 IFRO loan 0.0 Yanshf Power Plant 11 89.3 470.6 272.3 88.1 27.8 20.3 968.4 0.0 GRANTS 0.0 0.0 0.0 ................................................................................................................................... Total 1041.4 1108.1 1948.2 2268.5 2445.2 2938.1 3439.4 3857.8 4001.0 4026.6 23829.3 uumumauuwuuu.auua uuuuuus. Annex 25 lCl -Pa 10 INVESTIIENTS (INCLUDING IOC) 1991 1992 'J 1994 1995 1996 1997 1998 1999 2000 TOTAL . ...................................... .... .... . .... .... . .+ .... .... .... . .... ..... .. .. ....... .. f . . . LOASS PC1C Loans Yawnheng Power Plant 0.0 231.2 342.8 773. 771.0 2118.4 Sanuanxis Poder Plant 1 2.1 255.1 716.6 709.6 1683.5 oinbei Pawr Plant 209.7 678.0 1152.5 1670.8 905.7 4616.6 Yaang Pijr Plant IV 209.7 384.4 855.5 512.9 1962.5 Jiaowuo Power Ptant iII 259.0 76.6 636.5 taenxel Power Plant II 0.0 0.0 242.8 842.9 2056.1 3141.7 Hebi Power Plant 280.3 143.0 722.7 Zhiazhou Therml 309.7 321.4 0.0 752.5 Luwoya Therml 66.6 355.0 593.0 518.0 1532.6 he"ou Power Plant 0.0 317.0 692.0 1206.5 7S3.3 2990.9 other power plant. 70.5 296.0 469.1 826.3 1218.5 288U.5 220kv line cApltesd with fongcheng Power Plant 69.9 106.1 176.0 500kv Y&ozhan3 lt.i.: ! 0.0 0.0 0.0 0.0 220kv line copleoted Ith JZ PP 140.7 42.3 216.2 220kv line cewplttd with SIaunxie Pomer 59.6 126.8 127.9 314.2 220kv line completed with HI PP 60.6 11.4 111.1 220kv lirn completed with U The 32.8 36.4 0.0 69.2 220kv line copleted with YHK PP 66.6 208.3 141.0 415.8 220kv tne completed with M PP if 0.0 77.1 249.2 346.6 672.8 220kv lirn corploted with Ofnei Powr Plant 0.0 66.7 215.7 372.2 296.7 951.4 220kv line caqploted with YS PP II 8.4 18.5 86.3 72.0 185.2 220kv line completed with LuoyRng Power Plant 41.9 95.3 74.0 211.2 220kv ltne completed with Yoaueg IV 102.8 155.3 124.3 382.4 Other Tranmission Line & 1/1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Yanult Power Plant It 6.6 44.8 72.1 85.1 94.6 48.3 351.5 Yanhi Power Plant 11 (for invetment) 101.3 321.0 290.8 161.2 118.5 992.8 0.0 IUID loan 0.0 Yanhi Power PLant 11 89.3 470.6 272.3 88.1 27.8 20.3 968.4 0.0 GIANTS 0.0 0.0 Total 1085.1 1151.4 2015.3 2384.2 2637.6 3147.8 3644.0 4054.0 4097.6 4045.7 25011.0 __UUUUU4 * _ _ _ _ - - _ _ sauaSuuu Annex 25 - 102 - Page 11 LOAN PARAMETERS uUENUm.-UUUUUUu INTEREST 1991 1992 1993 1994 1995 1996 1997 1998 199 2000 TOTAL . ..... .... .... .... .... .... .... .... .... .... .... ..... Yongchmn Power Plant PCOC loon 0.0 9.2 32.0 "7.9 119.6 238.8 Ssiuonxis Power Plant I PCSC toans 10.3 49.9 93.4 109.0 95.3 81.5 67.8 54.1 40.3 601.7 Qi0b*i Power Plant PUCC loans 8.3 43.6 116.4 233.3 283.9 284.1 969.7 Yanp Power Plant IV PCC loans 8.3 32.0 82.9 118.6 123.9 108.0 473.7 Jiasouo Power Plant ;if PCCC loas 34.9 42.6 40.7 35.5 30.4 25.3 20.2 15.0 9.9 4.8 263.4 tarwmnxis Power Plant 11 PCBC loans 0.0 0.0 9.7 53.9 146.2 209.7 Nebi Power Plant PC8C loans 35.7 46.2 46.3 40.5 34.7 28.8 23.0 17.1 11.3 5.5 293.5 ZhoVsghou Thermal PCIC loans 22.0 48.0 52.3 46.3 40.2 34.2 28.2 22.1 16.1 10.1 321.5 Luovang Thereal PCBC loan 2.6 19.4 58.3 88.8 97.8 85.3 72.9 425.0 Yahekau Power Plant PCUC loans 0.0 12.6 52.7 130.8 180.5 188.4 164.2 139.9 115.7 964.8 other power plents Pcuc loans 1.3 7.9 21.9 40.7 73.0 144.8 220kv line completed with Yongcheng Power Plant PCUC loans 0.0 0.0 2.9 10.4 19.1 32.4 SOOkv Yaozheng lire I PC8C ltons 0.0 0.0 0.0 0.0 0.0 0.0 220kv line comleted with JZ PP III PC8C loans 8.4 14.0 14.0 12.2 10.4 8.7 6.9 5.2 3.4 1.7 85.9 220kv Lirn coNpleted with Sa'wenxis Poer Plantl PCaC loans 2.4 10.0 17.6 20.3 17.7 15.2 12.6 10.0 7.5 113.2 220kv lIne completed with Hi PP KBC loans 5.6 T.5 7.1 6.2 5.3 4.4 3.5 2.6 1.7 0.8 45.7 220kv ltir completed with 22 Thermal PCBC loans 1.3 4.1 4.9 4.3 3.8 3.2 2.7 2.1 1.6 1.0 29.0 220kv line completed with YHK PP PCBC loans 2.6 13.8 24.4 26.9 23.5 20.1 16.7 128.1 220kv line conpleted with SX PP II PCBC loans 0.0 0.0 3.1 16.0 40.5 57.7 117.3 220kv line completed with Oinbei Power Plant PCBC loans 0.0 2.7 13.9 38.0 55.8 60.4 170.8 220kv line completed with YS PP 11 PCBC loans 0.3 1.4 5.6 12.1 13.1 11.9 10.4 8.8 7.2 70.7 220kv line copleted with Luoysng Power Ptant PCBC loans 1.7 7.3 12.3 13.6 11.9 10.2 56.9 220kv line copleted with yacomat IV PCUC loans 4.1 14.6 27.1 27.6 24.6 98.1 Other Transmission Line & StS PCBC loans 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Yarahi Power Plant 11 ImRO lton 1.7 25.2 53.9 67.9 72.4 74.3 70.0 65.0 60.0 490.5 PC8C loans 0.3 2.3 7.0 13.2 20.3 26.6 21.9 19.4 16.9 127.8 PCBC ltons (for investmnt) 4.0 20.8 45.1 63.1 74.2 82.2 58.0 50.9 43.8 442.1 ................................. .................................................................... , .............. Total 107.9 181.5 287.4 425.6 592.9 751.7 940.3 1103.4 1224.2 1307.8 6935.1 wan ussuan ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~ --------- - 103 - Annex 25 Page 12 INTEREST OUMING COUSTRUCTZON 1991 1992 1993 1994 1995 1996 1997 1996 1999 2000 TOTAL ............................ .... . ..... ..... ..... ..... ..... .... .... . .... .... . .... ----. .... .... . .... ........ .. ..... .......... .. Yongebaeg Power Plant P>CC toan 9.2 32.0 39.0 80.17 Stanxif Pawr Ptant I 0.00 PCBC Loans 10.3 25.0 35.28 Qinb.l Power Ptant 0.00 PcsC toas 8.3 43.6 116.4 116.6 284.99 Yrm- Power Ptant IV 0.00 PCUC toans 8.3 32.0 41.4 61.74 Jilozuo Power Ptant III 0.00 PCsC loam 17.5 21.46 SaI.nxle Power Plant II 0.00 PCIC toan 0.0 9.7 26.9 36.59 Nebi Power Ptant 0.00 PCIC toan 17.8 22.23 Zhenzhou Therml 0.00 PC3C toan 22.0 24.0 48.07 Luoya Thcrm_l 0.00 PCBC loans 2.6 19.4 29.1 51.18 Ydtekou Power Plant 0.00 PCIC toans 12.6 52.7 65.4 130.72 other pooer plants 0.00 PCUC toans 2.9 10.4 19.1 32.44 220kv lirn completed wlth Yongchen Power Plant 0.00 PCUC loans 0.0 0.0 0.00 500kv Yaozhwn lfne I 0.00 PCUC toan 0.0 0.0 0.00 220kv tUrn copleted with JZ PP III 0.00 PCBC toan 4.2 5.30 220kv lirn cpleted with Saauexifa Power Plantl 0.00 PCIC toans 2.4 5.0 7.35 220kv line completed with HC PP 0.00 PCBC toan 2.8 3.51 220kv linw completed with ZZ Therml 0.00 PCIC toan 1.3 2.1 3.37 220kv tine completed with YHK PP 0.00 PC8C toans 2.6 6.9 9.57 220kv lier cletoed with SWN PP 11 0.00 PC8C toan 0.0 3.1 16.0 20.3 39.36 220kv Line completoed with alftel Powr PLant 0.00 PCC toa 0.0 2.7 13.9 19.0 35.54 220kv lirt comploted with Ys PP 11 0.00 PCBC toan 0.3 1.4 5.6 6.1 13.35 220kv line copleted with Luoyaw Powr Plant 0.00 PCHC loa 1.7 3.6 5.30 220kv line competoed with Yacun IV 0.00 PCBC toans 4.1 7.3 11.40 Other Trwnmiesn Line & S/S 0.00 PCBC toans 0.0 0.0 0.0 0.0 0.00 Yoshi Powr Plant It 0.00 IUD Loan 1.7 25.2 53.9 67.9 72.4 37.1 258.26 PC8C loan 0.3 2.3 7.0 13.2 20.3 13.3 56.34 PCBC loan (for investment) 4.0 20.8 45.1 63.1 74.2 41.1 248.42 . . . . . ........................ .......................................................... .. . Totat 65.6 4U.1 92.2 169.6 260.3 2812.0 282.8 196.2 96.6 19.1 1502.81 Annex 25 - 104 - Page 13 REPAYMENT 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 TOTAL ................ .... .... . ---- .... . ... .. .... ----. .... .... . .... ...... ....... .. ..... ..... .. Yongcheng Power Plent PCBC loans 207.9 207.9 415.9 Smmnxis Power Ptant I PC8C tow%s 165.9 165.9 165.9 165.9 165.9 165.9 165.9 165.9 1326.8 Ginbei Power Plant PCBC loan 450.0 450.0 450.0 1350.0 Yacueng Powr Plent IV PCSC Loans 192.1 192.1 192.1 192.1 768.4 Jiaozuo Power Plant III PCUC loans 61.9 61.9 61.9 61.9 61.9 61.9 61.9 61.9 61.9 61.9 619.0 Swrmonxia Power Plant 11 PCiC loans 311.5 311.5 623.0 Hobi Power Plant PC8C loans 70.5 70.5 70.5 70.5 70.5 70.5 70.5 70.5 70.5 70.S 704.9 Zhongxhou Thernml PCBC loans 72.9 72.9 72.9 72.9 72.9 72.9 72.9 72.9 72.9 655.7 Luoyang Thermal PCIC loans 150.4 150.4 150.4 150.4 150.4 751.8 Yahokou Power Plant PCBC loans 292.5 292.5 292.5 292.5 292.5 292.5 1755.3 other power plants PCIC loans 110.5 110.5 110.5 331.6 220kv line completed with Yongcheng Power Plant PCIC loans 17.9 17.9 35.8 500kv Yaoxhng line I PC.C loans 0.0 0.0 0.0 0.0 0.0 220kv line completed with JZ PP III PtBC loans 21.2 21.2 21.2 21.2 21.2 21.2 21.2 21.2 21.2 21.2 212.0 220kv line completed with Swomenxis Power Planti PCC loans 30.9 30.9 30.9 30.9 30.9 30.9 30.9 30.9 247.4 220kv tirn completod with HI PP PCBC lowns 10.8 10.8 10.8 10.8 10.8 10.8 10.8 10.8 10.8 10.8 108.3 220kv line completed with ZZ Thermal PCBC loans 6.7 6.7 6.7 6.7 6.7 6.7 6.7 6.7 6.7 60.4 220kv line comploted with THK PP PCBC loans 40.9 40.9 40.9 40.9 40.9 40.9 245.4 220kv lirn comploted with SNX PP 11 PCBC loans 65.3 65.3 130.5 220kv line completed with Olnbs Power Pltnt PCBC loano 93.2 93.2 93.2 279.7 220kv line cqltoted with YS PP II PCBC loans 18.9 18.9 18.9 18.9 18.9 18.9 113.4 220kv lfne completed with Y omng IV PCBC toans 20.8 20.8 20.8 20.8 83.0 220kv linr completed with Lucywng Power Plant PCBC lown 0.0 0.0 37.1 37.1 37.1 111.3 Other Trnsmiesson Line & 8/t PCIC ltoa 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Yanwhf Power Plant II IAR loan 64.6 64.6 64.6 64.6 0.0 PcUC loan 30.5 30.5 30.5 30.5 121.9 PCBC loan Cfor Invetmont) 85.6 85.6 85.6 85.6 342.2 ............. ........................4 244.0 440.6 440 . . .5.1336.9. .3. 11651.7 Total 16".4 244.0 440.8 440.8 MY.1 943.5 1336.9 2027.7 2630.3 2630.3 11651.7 Annex 25 - I OS Page 14 FIXED ASUT FORMATION FIXED ASSET ADDITIONS 1991 1992 199 1994 1995 1996 1997 1998 1999 2000 TOTAL ..................... .... . ..... ..... ..... ... .... .... . .... .... . .... .... . .... .... . .... ...... ..... ....... .. ..... ..... .. LOANS Yangohen Power Plant 1006.2 1006.2 2012.5 Sunnxif Powr Ptlnt 1 799.6 799.6 1599.3 Oinbei Powr Plant 2192.9 2192.9 4385.8 Ysom Power Plrnt IV 932.2 932.2 1864.3 Jiaozuo Power Ptant III 302.3 302.3 604.7 waIfe Power Plant It 1492.3 1492.3 2984.7 Nebi Pomer Plant 343.3 343.3 686.6 Zhengzhou theorl 357.4 357.4 714.9 Luoyang Therml 728.0 728.0 14%. .0 YVhekou Power Plant 1420.7 1420.7 2,.3 other powr plents 1368.2 1368.2 2736.5 220kv line cowpleted with Yongchenv Power Plant 100.77 100.8 500Sv Teotha tine I 0.0 0.0 220kv line completed with JZ PP III 205.4 205.4 220kv ltr eopleted with Saenxia Power Plant! 298.5 298.5 220kv line completed with H8 PP 105.5 105.5 220kv line completed with 22 Thermal 65.7 65.7 220kv line co wleted with YHK PP 395.0 395.0 220kv lfne completed with SMX PP 639.2 639.2 220kv lirn cotleted with Olrbel Power Plant 903.8 903.8 220kv lirn comleted with YS PP 11 175.9 175.9 220kv lrne copleted with Luoyang Power Plant 90.50 90.5 220kv line copleted with Yarnn IV 118.11 118.1 Other Treneifsrion Line 4 S/S 81.42 114.38 108.68 139.18 163.49 124.07 137.37 122.84 129.30 128.73 1249.4 Ywnshf Power Plant 11 638.54 638.54 1277.1 YVashi Power Plant It (IBR loans) 459.99 459.99 920.0 ,................................................................................................................................... Capitalized Borrowings 832.6 1388.6 1265.8 1413.2 2617.8 3001.8 2257.5 3826.0 7832.7 3995.5 28431.5 GRANTS ..................... Comploted Renovations 209.1 223.3 248.2 266.0 296.5 310.5 355.7 392.5 457.6 553.4 3312.8 Completdo Ofst. Extenfso 14.1 37.6 44.7 45.2 45.7 46.3 46.8 47.4 48.0 48.5 424.3 ................................................................................................................................... Capftalized Grants 223.2 260.8 292.9 311.2 342.3 356.8 402.5 439.9 505.6 601.9 3737.1 TOTAL CAPITALIZATIONS 1055.8 1649.4 1558.6 1724.4 2960.0 3358.6 2660.0 4265.9 0338.3 4597.4 32168.6 CUMJLATIVE CAPITALIZATIONS 1055.8 2705.2 4263.9 5988.3 8948.3 12306.9 14967.0 19232.9 27571.2 32168.6 CONSTRUCTION WIP 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ................ .... . ..... ..... ..... ---- .... . .... .... . .... .... . ---- .... . .... .. ..... ..... ..... ..... .. CWIP at begfming of year 324.0 576.5 339.3 1088.9 2059.9 2079.7 2225.7 3612.2 3840.2 105.0 Construction during year 1085.1 1151.4 2015.3 2384.2 2637.6 3147.8 3644.0 4054.0 4097.6 4045.7 Work completed durAng year 832.6 1388.6 1265.8 1413.2 2617.8 3001.8 2257.5 3826.0 7832.7 3995.5 .......................................................................................................................... CIIP at wd of year 576.5 339.3 1088.9 2059.9 2079.7 2225.7 3612.2 3840.2 105.0 155.2 ANNUAL DEPIECIATION 1991 1992 1993 1994 1995 19 1997 1998 1999 2000 ................... .......... ..... ...... ---- ..... .... ..... .... ..... .... ..... .... .. ..... ..... ..... ..... .. Arnsl Fixed Ast Additions 1055.8 1649.4 1558.6 1724.4 2960.0 3358.6 2660.0 4265.9 8338.3 4597.4 Cuo. Incrwmntal Fixed Assets 1260.8 2910.2 4468.9 6193.3 9153.3 12511.9 15172.0 19437.9 2m6.2 32373.6 Incrmental Deprociation 55.2 111.2 177.6 245.5 342.5 473.3 597.9 741.3 1002.2 1269.9 Arut Depr ciation 301.2 357.2 423.6 491.5 588.5 719.3 843.9 987.3 1248.2 1515.9 Cumul. Historfc Derciation 1931.2 2288.4 2712.0 3203.5 3792.0 4511.3 5355.2 6342.5 7590.7 9106.6 Annex 25 - 106 _ Page 15 REVALUATION OF ASSETS 1991 1992 1993 1994 199S 1996 1997 1998 1999 2000 GROSS FIXED ASSETS ................................ Historical Cost: Opening Batance 6130 7186 8835 10394 12118 15078 18437 21097 25363 33701 Additions 1056 1649 1559 1724 2960 3359 2660 4266 8338 4597 Closing Bet. - Historicat Cost 7186 8835 10394 12118 15078 18437 21097 25363 33701 38299 Revaluation Opening Baltnce 8684 10476 13256 15937 18502 22461 27027 31104 37032 47431 Additions 1056 1649 1559 1724 2960 3359 2660 4266 8338 4597 Revaluation Factor 1.08 1.10 1.08 1.05 1.05 1.05 1.05 1.05 1.05 1.05 Revalued Gross Fixed Assets 10476 13256 15937 18502 22461 27027 31104 37032 47431 54514 GROSS FIXED ASSETS 7186 8835 10394 12118 15078 18437 21097 25363 33701 38299 Cuwuletive DepreciftionRtevalued): Openfng Balance 1784 2174 2659 3252 3958 4817 5849 7037 8452 10266 Depr. on Irherited Assets 347 419 530 637 740 898 1081 1244 1481 1897 Depr. on Incremental Asosts 42 66 62 69 118 134 106 171 334 184 ACCWULATED DEPRECIATION(RevaIue 2174 2659 3252 3958 4817 5849 7037 8452 10266 12348 NET FIXED ASSETS(Revalued) 8302 10597 12686 14544 17644 21177 24068 28581 37164 42167 REVALUATION RESERVE 3048 4050 5004 5629 6358 7252 8326 9560 11054 12973 -_ _ o - - r- -_ Annex 25 - 107 - Page 16 Yanshi Power Plsnt 11 ......................... 1BRD LonW 1991 92 1993 1994 1995 1996 1997 1998 1999 2000 ....... ... ... ... ... ... - - ... .... .... .... An-Al disbursement in US S 16.6 87.5 50.6 16.4 5.2 3.8 Forefgn Base Cost 16.5 86.3 49.6 16.2 4.9 3.4 Amust disbursement in RMB 89.3 470.6 272.3 88.1 27.8 20.3 Cum disburseomnt 89.3 559.9 832.1 920.2 948.1 968.4 968.4 968.4 968.4 Cm. disbursement (Cmd-yesr) 44.6 324.6 696.0 876.2 934.1 958.2 968.4 968.4 968.4 Undisbursed (suject to c/f) 923.8 643.8 272.4 92.2 34.3 Coe itment fee 0.75X 3.5 4.8 2.0 0.7 0.3 Cup commitment fee 3.5 8.3 10.3 11.0 11.3 Alviut repmsnt 64.6 64.6 64.6 64.6 Cu. repyment 0.0 0.0 0.0 64.6 129.1 193.7 258.2 Sub ject to interest 44.6 324.6 696.0 876.2 934.1 958.2 903.8 839.3 774.7 Interest a 7.75X 1.7 25.2 53.9 67.9 72.4 74.3 70.0 65.0 60.0 'um interest 1.7 26.9 80.8 148.7 221.1 295.4 365.4 430.5 490.5 Yanshi Power Plant 11 Costs (US$ 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 .................. ... .... .... . ... .... --- .... .... .... ... . Foreign Base Cost(fncl physical con) 16.5 86.3 49.6 16.2 4.9 3.4 Escalated Foreign Cost (FE Inf) 16.6 87.5 50.6 16.4 5.2 3.8 (Dm.Inf) 16.8 89.8 52.3 17.0 5.5 3.4 Local Base Cost 4.1 18.8 53.3 52.2 25.0 7.9 0.0 Escalated Local Cost (FE Inf) 4.1 18.3 53.9 54.8 27.3 8.9 0.0 0.0 (Oc.Inf) 4.1 19.6 59.0 60.7 30.5 10.1 0.0 PC-C loans 1BRO Interest 1.7 25.2 53.9 67.9 72.4 74.3 IBRD Comitment Fee 3.5 4.8 2.0 0.7 0.3 0.0 0.0 Co. Banks Fee 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Umut Foreign Cost 6.3 42.5 65.2 71.9 74.3 35.0 Amiual disburseme nt 6.3 42.5 65.2 71.9 74.3 35.0 Cum disbursewnt 6.3 48.8 114.0 185.9 260.1 295.1 295.1 25.1 295.1 Repayment 30.5 30.5 30.5 30.5 Cmi repayment 30.5 60.9 91.4 121.9 Subject to interest 3.2 27.8 84.0 159.4 245.7 320.7 264.7 234.2 203.7 Interest a 8.28X 0.3 2.3 7.0 13.2 20.3 26.6 21.9 19.4 16.9 Cur Interest 0.3 2.6 9.5 22.7 43.1 PCBC loans (for fnvestment) Arual Investment (Constant) 21.8 93.5 271.2 211.4 80.4 34.6 Anmal investme (Current) 21.8 97.3 300.2 245.7 98.1 44.3 0.0 Cuo investuent 97.3 ' 7.5 643.1 741.3 785.5 785.5 785.5 785.5 785.5 Rqeyment 85.6 85.6 85.6 85.6 Cum rpyment 85.6 171.1 256.7 342.2 SubJect to interest 48.6 251.4 545.1 762.2 896.5 992.8 700.0 614.4 528.9 Interest 9 8.28X 4.0 20.8 45.1 63.1 74.2 82.2 58.0 50.9 43.8 Cumnuletive Interest 4.0 24.8 70.0 133.1 207.3 s____~~- - - - - - - - Annex 25 - 108 - Page 17 FUEL, PURCHASES & OPER. EXPS. FUEL COST CALCULATION 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ..................... .... . ..... ..... ..... ... .... .... . .... .... . .... .... . .... .... . .... .. ..... ..... .... ..... .. Cost of Coat (Exc. Yanshi) ................................ Electricity generated (GUh) 26732.0 29132.0 33532.0 35632.0 39132.0 42982.0 46382.0 50877.6 55697.1 59266.1 Consumption (ton/GAh) 383.0 379.0 375.0 371.0 367.0 365.0 363.0 361.0 359.0 357.0 Standard (000 ton) 10238.4 11041.0 12574.5 13219.5 14361.4 15688.4 16836.7 18366.8 19995.3 21158.0 Std coat price (Constant Y) 101.88 101.88 101.88 101.88 101.8 101.88 101.88 101.88 101.88 101.88 Std coal price (Current Y) 106.97 116.55 124.06 130.26 136.78 143.61 150.79 158.33 166.25 174.56 Cost of coat (mtn Y) 1095.2 1286.8 1560.0 1722.0 1964.3 2253.1 2538.9 2908.1 3324.2 3693.4 Yanshi I1 Electricity generated (GUi) 1500.0 3300.0 3500.0 3500.0 3500.0 3500.0 3500.0 Cansuptfon 320.0 320.0 320.0 320.0 320.0 320.0 320.0 Standard cost (l000 ton) 480.0 1056.0 1120.0 1120.0 1120.0 1120.0 1120.0 Cost of coat (mmn Y) 160.8 168.9 177.3 186.2 195.5 TOTAL FUEL COST 1095.2 1286.8 1560.0 1722.0 1964.3 2413.9 2707.8 3085.4 3510.4 3888.9 Coat price adJ. (Yuan) 5.09 14.67 22.18 28.38 34.90 41.73 48.91 56.45 64.37 72.68 Coal cost adi. (min Y) 52.2 162.0 278.9 388.8 538.0 701.5 878.3 1100.1 1359.2 1619.2 POWER PURCHASES 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ............... .... . ..... .... . .. .... .... . .... .... . .... ----. .... .... . .... .. ..... ..... ..... ..... .. Purchased power (GA) 3700 3550 3860 3760 3710 3560 3460 3260 3060 2850 From Saeenxia Hydro-etec. 1050 1050 1360 1360 1360 1360 1360 1360 1360 1350 From CCEPA 1700 1500 1500 1500 1500 1500 1500 1400 1400 1300 From NIEPA 0 0 0 0 0 0 0 0 0 0 From Locat Power Ptant 950 1000 1000 900 850 700 600 500 300 200 Purchase Price (Yuan) From Sawnegxis Hydro-etec. 33.00 33.00 33.00 33.00 33.00 33.00 33.00 33.00 33.00 33.00 with escalatfon 34.65 37.75 40.18 42.19 44.30 46.52 48.84 51.29 53.85 56.54 From CCEPA 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 35.00 uith escaLation 36.75 40.04 42.62 44.75 46.99 49.34 51.80 54.39 57.11 59.97 Auth. CoaL Adjustnents From NWEPA 70.40 70.40 70.40 70.40 70.40 70.40 70.40 70.40 70.40 70.40 with escatation 73.92 80.54 85.n7 90.01 94.51 99.24 104.20 109.41 114.88 120.63 From Locat Power Plant 132.40 132.40 132.40 132.40 132.40 132.40 132.40 132.40 132.40 132.40 with ec.eation 139.0 151.5 161.2 169.3 177.7 186.6 196.0 205.8 216.1 226.9 Cost of purchased (sin Y) From Sermxia Hydro-etee. 36.4 39.6 54.7 57.4 60.3 63.3 66.4 69.7 73.2 76.3 From CCEPA 62.5 60.1 63.9 67.1 70.5 74.0 77.7 76.2 80.0 78.0 Frm NWEPA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 From Locat Power Ptent 132.1 151.5 161.2 152.4 151.1 130.6 117.6 102.9 64.8 45.4 .......... ....................... ..,............,. ,... .. ..................... Total 230.9 251.2 279.8 276.9 281.8 267.9 261.7 248.5 218.0 199.7 z_x_ __m__8" o Annex 25 - 109 - Page 18 MAINTENANCE 1991 l992 1993 1994 1995 1996 1997 1998 1999 2000 ,. ............ .... .... . .... .... . .... .... . .... .... . .... ........ ..... ..... ..... ..... Incrurmntol aintenarce 5.1 31.5 72.8 111.7 154.8 228.8 312.8 379.3 485.9 694.4 Annusl Maintencnco Expenso 116.1 142.5 183.8 222.7 26S.8 339.8 423.8 490.3 596.9 805.4 OPERATION & MAINTENANCE 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ....................... .... . ..... ..... ..... ..... . .... .... . .... .... . .... .... . .... .... . .... .. ..... ..... ..... ..... .. Weter & Motorial 166.1 191.0 215.8 243.8 275.5 303.1 333.4 366.8 403.4 443.8 with escalation 174.4 218.5 262.8 311.8 369.9 427.3 493.5 570.0 658.3 760.4 Number of Eaptoyass (000) 49.0 49.5 50.0 50.5 51.0 51.5 52.0 52.5 53.0 53.5 Averago Wage (YuarVY*ar) 3339 37m 4151 4566 5022 5524 6077 66b5 7353 8088 Wagos 163.6 186.8 207.5 230.6 256.1 284.5 316.0 350.9 389.7 432.7 MfIntonanco 116.1 142.5 183.8 222.7 265.8 339.8 423.8 490.3 596.9 805.4 Total 454.1 547.8 654.1 765.1 891.9 1051.6 1233.3 1411.2 1645.0 1998.5 ADMINISTRATION 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 .............. .... . ..... ..... . .... .... . .... .... . .... .... . .... .... . .... .. ..... ..... ..... ..... .. uO Cost 119.9 129.5 139.8 151.0 163.1 176.1 190.2 205.5 221.9 239.6 Acb1nIstratfon Expanse 125.9 148.1 170.3 193.1 219.0 248.3 281.6 319.3 362.1 410.6 __ =q~~~~~uuuuuuuuuuuuauuuuuuuuy.muuuuauuuuaa.uiuuuuu Annex 25 - 110 - Page 19 SPECIAL FUNDS CALCULATIONS 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 RenesaL I Rerovation Furnd . .... ---- ---- .... .- .... . ... .... .... .................. ..................... ... Annual alLocation 274.1 298.6 312.4 342.7 398.0 449.4 478.4 556.4 681.2 686.0 Annual expenditure 219.3 238.9 249.9 274.1 278.6 314.6 334.9 389.5 476.8 480.2 Balance at year end 350.0 425.3 489.5 566.1 667.5 806.4 929.1 1093.0 1316.5 1449.2 Cowpl.ttd Renovations 209.1 223.3 248.2 266.0 296.5 310.5 355.7 392.5 457.6 553.4 ... .... ..................................... ............................................................................................. Maintenance Fund ................ Anmal expaocation 116.1 142.5 183.8 222.7 265.8 339.8 423.8 490.3 596.9 805.4 Anrual expenditure 116.1 142.5 183.8 222.7 265.8 339.8 423.8 490.3 596.9 805.4 Balance at year end 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 .......................................................................................................................... Eaplyee Senefits Fund ...................... Annual allocation 53.5 56.2 59.0 62.0 65.1 68.4 71.8 75.4 79.2 83.1 Annual expenditure 48.1 54.6 58.1 61.2 64.3 67.6 71.0 74.5 78.2 82.1 Salance at year end 12.0 13.6 14.5 15.3 16.1 16.9 17.7 18.6 19.6 20.5 ........................................................................................................................ Distribution Extenions Fund ............................ Annual allocation 55.3 55.9 56.6 57.3 58.0 58.7 59.4 60.1 60.8 61.5 Annual expenditure 44.2 44.7 45.3 45.8 46.4 46.9 47.5 48.1 48.6 49.2 Balance at yeac end 152.9 171.2 183.1 195.2 207.4 219.8 232.3 245.0 257.8 270.8 Completed Dist. Extensions 14.1 37.6 44.7 45.2 45.7 46.3 46.8 47.4 48.0 48.5 .......................................................................................................................... Total Special Funds ................... AnnuAl allocation 498.9 553.2 611.8 684.6 786.9 916.3 1033.3 1182.1 1418.0 1636.1 Amauel expenditure 427.6 480.7 53?.1 603.9 655.1 768.9 877.1 1002.3 1200.6 1417.0 Balance at year end 520.5 615.8 692.9 782.3 896.8 1048.8 1184.9 1362.3 1599.5 1746.2 Special Funds Outflows 387.4 457.9 534.7 595.2 67n.4 764.2 897.3 1004.7 1180.8 1489.5 _ 111 _ Annex 25 Page 20 BNEAKEVEN PRICING uas zuuussuuuunow Co ponento of dross Revenue 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 . ............... ... ... ........... .... ........... . .... ...... ... . . ... .... .... ..... .... Operating Costs 2954.4 3388.9 3871.3 4317.3 4885.1 5636.3 6292.1 7142.3 8253.5 9442.6 Interests 77.6 160.4 220.2 256.0 397.9 498.8 797.8 1026.7 1204.0 1288.7 Amortization met by Net Incone 137.3 185.4 329.6 291.9 602.5 673.5 971.4 1596.8 2063.3 1800.4 Income Tax 65.4 68.7 72.1 73.8 79.6 83.6 87.8 92.2 96.8 101.6 Eeployee Benefits Special Funds 53.5 56.2 59.0 62.0 65.1 68.4 71.8 75.4 79.2 83.1 Not Working Capital Incresse 81.3 86.4 103.3 95.0 135.3 176.9 164.7 218.8 263.6 196.7 .............. ........................... . .............. .... ...... ... ... .. . ... . . .. .................. Groes Operating Requirement 3369.4 3946.0 4655.5 5098.0 6165.6 7137.4 8385.6 10152.2 11960.2 12913.1 Sales Volume (WA) 25152 27017 28961 31090 33638 37173 40569 43341 47416 53361 NINIIPJ AVERAGE TARIFF 13.4 14.6 16.1 16.4 18.3 19.2 20.7 23.4 25.2 24.2 SELF FINANCING RATIO 1991 1992 1993 1994 1995 1996 1997 1998 199 2000 - #-suuinuuuuuuaumu .... .... .... .... .... ... .... .... .... Arnnal Capital Expenditures 1330.1 1414.0 2333.3 2749.3 3047.8 3577.0 4124.7 4493.9 4603.1 4647.6 Internelly Generated Cash 747.1 954.3 1275.0 1533.6 2111.0 2514.1 3237.1 4134.9 5005.3 5458.5 (less) Operational Requirements 519.3 667.4 951.5 1114.2 1632.6 1999.2 2625.0 3492.3 4281.7 4476.5 (ltes) Increased Cash Balances (30.7) 0.3 (19.5) 54.3 2.8 56.5 32.1 83.1 141.7 380.0 Cash Avoilable for Investment 258.5 286.6 343.0 365.2 475.6 458.3 579.9 559.5 581.9 601.9 Remittances to Goverlnent 33.9 93.2 138.2 285.7 326.0 437.7 508.6 563.8 616.5 834.5 EARNED CASH 292.4 379.8 481.2 650.9 801.5 896.0 1088.5 1123.3 1198.4 1436.4 SELF FINANCING RATIO CX) 24.5 22.4 22.2 24.0 25.7 25.0 26.8 25.5 26.2 30.0 uuuun2ulauzunauuuuuZuinussuuuuu8Umuu=w& wMwU u2uu auuums=a81 auuuuuu=muuu - 112 - ANNEX 25 Page 21 CHINA YANSHI THERMAL POWER PROJECT HENAN PROVINCE ELECTRIC POWER BUREAU Assumntions to Financial Prolections A. Income Statement 1. Average Price is derived in the attached table entitled, "Derivation of Average Tariff" (page 8 of this Annex). 2. Operating Revenue is the product of energy sales in GWh multiplied by the average price. 3. Fuel Costs are derived in the table entitled, "Fuel, Purchases and Operating Expenses" (page 17 of this Annex). 4. Purchased Power is derived in the table entitled, "Fuel, Purchases and Operating Expenses" (page 18 of this Annex). 5. Oneratina Exnenses are derived in the table entitled, "Fuel, Purchases and Operating Expenses" (page 18 of this Annex). 6. Maintenance Costs represent the specific year's allocation to the Maintenance Special Fund. The allocation represents about 2.5Z of gross fixed assets in services. Activity of the Maintenance Special Fund is derived in the table entitled, "Special Fund Calculations" (page 19 of this Annex). 7. Sales Tax is assumed at the following percentage of each year's operating revenues: 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 19.6 22.0 19.2 15.7 14.7 13.3 11.2 9.8 9.3 9.3 9.3 S. Degreciation is assumed at 4.73Z of gross fixed assets. 9. Interest. HPEPB's borro-ings will be obtained from three sources: (a) the onlent proceeds of World Bank loans, at 7.752 p.a.; (b) direct loans from People's Construction Bank of China, at 8.28Z p.a.; and (c) local loans from the Henan Provincial Government, also at 8.282 p.a. Interest is derived on a project-by-project basis in the subtable entitled, "Interest" within the table entitled, "Loan Parameters" (page 11 of this Annex). - 3_EX 25 Page 22 10. Income TA. represents 55% of net income less debt repayments which must be met from distributions of net income. (This item is entitled, "Transferred to Government Funds" on the income state- ment.) 11. Remittances to Government represents net income after income tax and after authorized distributions. These funds are remitted in cash partly to MOE and partly to MOF. 12. Emplovee Benefit Special Fund represents the annual allocation to this particular special fund; this allocation is met as a distribu- tion from net income. The operation of that special fund is summa- rized in the table entitled, "Special Fund Calculations" (page 19 of this Annex). Allocations to this special fund per one employee are assumed to increase by 4% each year. 13. Chargeable IDC represents interest during construction which, according to regulations, must be met by distributions from net income. Annual amounts are derived in the table entitled, "Loan Parameters" (page 11 of this Annex). B. Fund Flow Statement 1. Distribution Improvements Special Funds represent the receipts of this particular special fund. That fund's operation is summarized in the table entitled, "Special Fund Calculations" (page 19 of this Annex). The allocation (or for this fund, receipts) is expected to increase by 1.2S per year. 2. All Borrowinps are derived in the table entitled, "Investment Program" (page 9 of this Annex). 3. CA2ital Expenditures, other than Interest During Constructl-on. Renovations and Distributions Improvements, are also derived in the Table entitled, "Investment Program" (page 9 of this Annex). 4. Interest During Construction is derived in the subtable carrying that name which is included in the main table, "Loan Parameters" (page 12 of this Annex). 5. Renovations represents 852 of the previous year's and 152 of the year prior to the previous year's expenditures from the Special Fund for Renovations, the operation of which is summarized in the table entitled, "Special Funds Calculations" (page 19 of this Annex). 6. Distribution Improvements represent 852 of the previous year's and 152 of the year prior to the previous year's expenditure. from the Distribution Improvements Special Funds, the operation of which is summarized in the table entitled, "Special Funds Calculation" (page 19 of this Annex). 7. Increase in Working Capital represents the excess of the current year's current assets (net of cash) over current liabilities, less -114- AN-EX25 Page 23 the excess of the previous year's current assets (net of cash) over current liabilities. 8. Special Fund Expenditures represents aggregate amounts actually spent from the various special funds in a particular year. In general, expenditures from the special fund are assumed at 80Z of the previous year's and 20% of the year before the previous year's allocations (excluding those from the Maintenance Special Funds, which are assumed at 100% of the particular year's allocation). This relationship is derived in the table entitled, "Special Funds Calculations" (page 19 of this Annex). C. Balance Sheet 1. Inventories are derived at 1% Gross Fixed Assets and 2 month's fuel. 2. Accounts Receivable are assumed at 30 days' sales amount plus 80 million Yuan. 3. Plant in Service is derived in the table entitled, "Fixed Asset Formation" (page 14 of this Annex). Any revaluation of fixed assets would be derived in the table entitled, "Revaluation of Assets" (page 15 of this Annex). 4. Construction Work in Progress is also derived in the table entitled, "Fixed Asset Formation" (page 14 of this Annex). 5. Special Fund Assets represents renovations and distribution improve- ments under construction. The renovations are financed by expendi- tures from the Special Fund for Renovations. The distribution improvements are financed from the Distribution Improvements Special Funds. Operations of these funds is derived in the table entitled, "Special Funds Calculations" (page 19 of this Annex). 6. Accounts Payable are assumed to increase by the same rate as cash operating expenses. 7. Due to Government is projected to increase by 3Z per year. 8. Long-Term Debt is expected to increase each given year by the amount of the investment program being financed with loans less repayments. The amount of the investment program is derived in the table entitled, "Investment Program" (page 9 of this Annex). The amount of repayment is derived in the subtable entitled, "Repayments", included within the table entitled, "Loan Parameters" (page 13 of this Annex). 9. Government Funds includes all paid in equity, plus transfers to Government for loan repayment and chargeable IDC, less depreciation. !u. Special Funds represents the cumulative balance remaining in the special funds at the end of the given year. This figure is derived in the table entitled, "Special Funds Calculations" (page 19 of this Annex). ANNEX 26 - 115 - Page 1 CHINA YANSHI THERMAL POWER PROJECT Calculation of Economic Rate of Return Costs Capital Costs 1. Costs were based on end 1991 price levels. Shadow pricing was ap- plied as follows: (a) taxes and duties were excluded; (b) a shadow exchange rate of US$1 - Y 5.5 was used to convert foreign currencies to Yuan; (c) bor- der prices were used for net imported items such as steel and timber; (d) all state subsidies were removed from labor costs to reflect the economic cost of labor to the country; and (e) a conversion factor of 1.23 was used to calcu- late the cost of transmission and distribution facilities. 2. Summarized below are annual disbursements of project costs, includ- ing generation, transmission and distribution for both units after shadow- pricing: Generation La Transmission Distribution Lb Total Year ------------ (Y million) ----------------- 1991 21.8 9.5 31.3 1992 184.3 18.9 - 203.2 1993 745.8 85.5 - 831.3 1994 484.2 64.4 110 658.6 1995 169.5 9.5 110 289.0 1996 61.4 - 110 171.4 1997 31.4 - - 31.4 Total 1.698.4 187.8 330 2.216.2 la For the plant only, the unit cost per kW after shadow-pricing is Y 2,830. This compares to Y 2,710 estimated for the thermal units under the Ertan Hydroelectric Project. lb Distribution cost is taken as 20% of the generation cost. O&M Costs 3. The O&M costs were based on the actual cost analysis on a system basis for HPEP8's grid including generation, transmission, distribution and sales at Y 0.0137/kWh. -116 - ANX-Z§ Page 2 Other Costs 4. This was calculated at about Y 0.0046/kWh for administration, etc. Fuel Cost 5. The fuel cost vas estimated using a long-run marginal cost of coal of Y 110 per ton and a unit consumption of 0.325 kg/kWh of standard coal of 7,000 Kcal/kWh. Benefits 6. Quantifying the benefits of power projects is difficult in all coun- tries and particularly so in China, where tariffs and most other prices are not subject to economic pressures and where moat power is allocated adminis- tratively. It is generally accepted, however, that shortages of electricity are constraining China's industrial production (causing undercapacity utiliza- tion in industry) and will continue to do so in the near future. This sug- gests that the economic benefit. of increasing power supply will be substan- tial. A recent Bank report suggests the net value of electricity not served is about Y 0.5/kWh. 7. A conservative estimate of the value of electricity is obtained by using the projected tariffs for HPEPB's system by 1995-2000, adjusted to end- 1991 price levels at 16.4, 16.7, 17.2, 18.3, 18.5 and 17.6 fen/kWh respect- ively (page 8 of Annex 25) and used as the minimum proxy for the economic value of electricity. In addition, other charges were also included to reflect surplus benefits. Thee charges include the 102 local government surcharge, the connection charge for large consumers, and the recently applied surcharge of 2 fen/kWh for new power station construction to all consumers except lighting, agricultural uses, and industries operating at a loss, totally amounting to 1.4 fen/kWh. Economic Rate Of Retur 8. The IERR of the project, the discount rate which equalizes the present value of economic costs and benefits, is estimated at 15.72 (see Table l for details). 9. The economic rate of return was also calculated based on HPEPB'S overall expansion program for the period 1991-2000. On this basis the economic rate of return of HPEPB's expansion program, including the proposed project, is 13.42. The LRMC of the system on a program basis was estimated at 17.7 fen/kWh at a discount rate of 12 percent. This demonstrates that the system tariff in the late 1990O will reach the level of LRMC. Sen. itjliit 100 The sensitivity of the IERR of the project with respect to a 102 increase in investment cost, a one-year delay in conlissioning and a cost - 117 - ANNEX 26 Page 3 price of Y 130 per ton, is presented below. These figures represent the upper limit of possible cost overruns or delays in implementing the project. IERR (Z) Base case 15.7 101 cost overrun 14.7 One-year delay in commissioning 14.1 Coal prices increase from 14.7 Y 120/ton to Y 130/ton Table 1: YANSHI THERMAL POWER PROJECT Economic Rate of Return CaDital Investment Trans- Distr- O&M Fuel Other Total Cash Year Plant mission bution cost cosa costs cost Generation Sales Benefits flow 1991 21.8 9.5 - - - - 31.3 - - - -31.3 1992 184.3 18.9 - - - - 203.2 - - - -203.2 1993 745.8 85.5 - - - - 831.3 - - - -831.3 1994 484.2 66.4 110 - - - 660.6 - - - -660.6 1995 169.5 9.5 110 12.3 32.2 3.6 337.1 900 792 141.0 -196.1 1996 61.4 - 110 37.0 96.5 10.9 315.8 2,700 2,376 430.1 114.3 1997 31.4 - - 51.4 134.1 15.2 232.1 3,750 3,300 613.8 381.7 1998 - - - 53.4 139.4 15.8 208.6 3,900 3,432 676.1 467.5 " 1999 - - - 53.4 139.4 15.8 208.6 3,900 3,432 683.0 474.4 2000-2020 - - - 53.4 139.4 15.8 208.6 3,900 3,432 652.1 443.5 2021 - - - 26.7 69.7 7.9 104.3 1,950 1,716 326.0 221.7 Economic Rate of Return - 15.72 Notes: (1) Fuel costs: fuel cost is estimated at a unit consumption of 0.325 kg of standard coal per kWh. (2) Generation: 6,000 hours for thte first year of operation; 6,500 hours for the remaining so years. I (3) Sales: using a system loss factor of 12.0Z for plant use and transmission and distribu- tion losses. - 119 ANNEX 27 CHINA YANSHI THERMAL POWER PROJECT Selected Documents and Data Available in the Prolect File A. Selected Reports and Studies Related to the Sector A.1 Statistical Brief of the Electric Power Industry in China (1987). B. Selected Reports and Studies Related to the Proiect B.1 Yanshi Power Plant Phase II Extension Feasibility Study Report (May 1987) B.2 Environmental Impact Report (September 1988) B.3 Conceptual Design Report of Yanshi Thermal Power Project, 1988 B.4 Economic Analysis of Yanshi Power Plant Based on Optimization of Henan System (February 1987) B.5 Information on Yanshi Thermal Power Project Vol. I & II by HPEPB (July 1987) B.6 Statistical Data of Electric Power Industry in Henan (1986, 87) C. Selected Work Sheets C.1 Working Sheets for Economic Analysis C.2 Working Sheets for Financial Forecasts. Chart 1 CHINA YANSHI THERMAL POWER PROJECT Organization Chart of the Ministry of Energy Minister Vice Ministers nChia National Nuclear Electnc Power n General Office l l Industry Crporaon Dispatching Center Department of China National Oil & Poiicy & Leqislation Natura1 Gas Corporation Energy Information Ce Department of Planning China National Offshore Electrc Power Planning Oil Corporation & Engineering Insttutions Department of China Northeast and Water Resources & nital ConstructionI Inner-Mongolia United Hydropower Survey Coal Indusby Co rabon _& Design Institutes Department of Sa'ety & Environmental Protection China Napbonal - F Coal Co pration J_colleges Department of Production Coordination China National Local Saeatific & Technical Coal Mines Research Insttutes Department of Development Corporabon Economic Coordinabion I Huaneng Intemabonal Power L Department of Development Corporation Enerr Conservabon Regional Electric Department of Power Administrabons I Science & Technology China Intematiot-.o Water & Department of Educaton EccwerCran IChina HuadianL rj Department of Gru Cop H rau on Internafional Cooperaon I l~~Depa~riment ot China Electricity Couneil Personnel & Labor Nuclear Power Leading 4 ~Department of Electric Power Gou State Councl Oil to Coal Conversion _F -Department of Office, State Council Hydropower Development Departmnent of Rural Energy & Electrification - [oDepartment 0 Coal Department of Administration Chief Engineer's Office for Petroleum Industry I Chief Engineers Office fobr Nuclear lndusr1 Chart 2 CHINA YANSHI THERMAL POWER PROJECT Organization Chart of the State Energy Investment Corporation Presidert I Vice Presidents Chief Efonomlst i-ej - I n I.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ !: iln32tRA:~~~~~~~~~~ 10 Power Plants 12 Power Supply Bureaus 4 Construction & Installalion Companies Co ~~~~~~~~~~~~~~~~~~~~~Materials & Equipment 0 _ & E | Supply Company o~~~~~~~~~~~~~ 2 Repair Shops E 2 Technical Schools 2 Training Schools for Skill Workers Staff Training Center 0 _ i E S qDesign Institute 2~~~~~~~~ 4 <,, 82 q Dispatching Center 1S 3 | Power Testng & ° _L mResearch Institute 0~ C: -- Capital Construction Planning :WO8_ Power Supply| Z - i _ Producton Mfi n _ o c > -| Technical RurSafety Inspection U)~~~~~~~~~~~~C 3 Ps v _ q Environmental Protectpon _ s=X rhG . . 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