ICRR 10036
                                                              Report Number : ICRR10036
             ICR Review
             Operations Evaluation Department




1. Project Data :
        OEDID :
        OEDID: L3433
      Project ID : P003505
    Project Name : Yanshi Thermal Power Project
        Country : China
        Sector : Thermal
     L/C Number : Loan 3433-CHA
 Partners involved :
     Prepared by : Alain A. Barbu, OEDST
    Reviewed by : Yves J. Albouy
   Group Manager : Roger H. Slade
     Date Posted : 04/06/1998

2. Project Objectives, Financing, Costs and Components :
The project, supported by a loan for US$ 180 million, was approved in FY92 and closed in FY98 as
scheduled
(US$1.1 million remained to be disbursed as of Dec . 31, 1997). Actual project cost was US$405 million,
14 percent
higher than appraisal, largely due to an increase in project scope . Primary project objective was to
alleviate power
shortages in Henan Province through addition of generation and transmission capacity . Other objectives
were to: (i)
support national development of mine -mouth coal-fired plants; (ii) minimize environmental impact and
establish
environmental monitoring program; (iii) reform the tariff system; and (iv) strengthen Henan Provincial
Power Bureau
(HPEPB, later transformed into Electric Power of Henan -- EPH). The project included: (i) addition of two
300MW
units at the Yanshi thermal plant and related transmission lines and substations; (ii) installation of
environmental
monitoring equipment; (iii) consulting services for design /engineering and a tariff study; and (iv) training
of HPEPB's
staff.

3. Achievement of Relevant Objectives :
Physical components were completed very successfully, ahead of schedule, helping to reduce power
shortages .
Environmental program was implemented and agreed environmental standards have been mostly met
since
commissioning. Technical assistance and training have helped strengthen EPH's project implementation
and
operating performance and prepare the agency for its commercialization and forthcoming corporatization
and
restructuring. Financial covenants have been met in most years . The tariff study led to some
improvements in tariff
structure (incl. tariff unification in most of the Province ).
4. Significant Achievements :
Project implementation by HPEPB/EPH was highly satisfactory; in particular, company showed capacity
to learn
from initial teething problems with first unit and apply lessons in construction of second one . Company's
ownership
of training program was illustrated by its own funding of some foreign training expenditures .

5. Significant Shortcomings :
Mismatch between quality of local coal (ash content) and design value have led to lower -than-expected
plant
efficiency and capacity utilization . As a result ex-post ERR is 13.8 percent, lower than appraisal's 15.7
percent but
still acceptable. In spite of some improvements (tariff unification and introduction of time -of-day pricing),
tariff
structure remains suboptimal and average level is still below LRMC (by about 20 percent).


6. Ratings :         ICR               OED Review               Reason for Disagreement /Comments
          Outcome : Highly Satisfactory      Satisfactory           Although project implementation was
                                                  highly satisfactory, physical objectives in
                                                  terms of actual plant output and operating
                                                  efficiency are not likely to fully meet
                                                  appraisal expectations, due to
                                                  higher-than-expected heat rate and lower
                                                      capacity utilization (see 5 above).
   Institutional Dev .: Substantial         Substantial
      Sustainability : Likely            Likely               Lower-than-expected capacity utilization
                                                     and plant efficiency not considered likely
                                                     to seriously jeopardize financial
                                                     sustainability
  Bank Performance : Satisfactory               Satisfactory            Bank performance fully satisfactory
                                                     throughout project cycle with the possible
                                                     exception of the apparent insufficient
                                                     attention paid at design stage to local coal
                                                     quality (ash content)
     Borrower Perf .: Highly Satisfactory       Satisfactory           Beneficiary's highly satisfactory
                                                     performance somewhat marred by
                                                     Government's weaker performance in
                                                     moving forward with tariff reform (see 5
                                                     above)
     Quality of ICR :                  Exemplary

7. Lessons of Broad Applicability :
(i) for coal-fired thermal plants, careful analysis of coal quality is critical at design stage; (ii) procurement
packaging
should balance need for minimizing contractual interfacing problems (particularly for Borrowers with
limited project
management experience) with need to reduce costs through maximum competition .

8. Audit Recommended?             Yes     No

9. Comments on Quality of ICR :
ICR is considered exemplary, in spite of OED's (minor) disagreement on some ratings. It provides a clear,
concise
and candid assessment of project implementation and results . Table 6 on Key performance indicators for
future
project operation is a model of what should be included in ICRs for this type of projects . The ex-post
IERR
calculation includes a risk analysis . And findings as well as lessons drawn are fully relevant to on -going
and future
Bank power projects in China