North China Electric Power Group Co. Beijing Energy Management Co. (to be confirmed)

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Project Name Region Sector Project ID Borrower Beneficiary Report No. PIC3325 China-Tuoketuo Thermal Power Station East Asia and Pacific Electric power and other energy CNPA3650 People's Republic of China Tuoketuo Electric Power Generating Company North China Electric Power Group Co. Beijing Energy Management Co. (to be confirmed) Financing Plan Million US $ Background IBRD North China Electric Power Group Co Inner Mongolia Electric Power Co Beijing International Electric Power Development Investment Co Cofinancing Total Contact: Tuoketuo Electric Power Generation Company 1. China Power Sector. China is currently the world's second largest producer of electricity. During the period, installed generating capacity increased from 66 gigawatts (GW) to about 217 GW, and electricity generated increased from 300 terawatt hours (TWh) to 1,007 TWh, at annual growth rates of respectively 8.3 and 8.4 percent. Various measures to improve the efficiency of electricity use have been introduced in attempts to reduce the need for new generating capacity, and these measures have been successful, as is indicated by the low 0.86 elasticity of electricity demand growth to GDP growth achieved by China during Nevertheless China's economic development continues to be restrained by electricity shortages and it is estimated that generating capacity must increase by between 15 and 20 GW per annum for the next five years if the shortages are not to become more acute. 2. Country Power Sector Policies. Large-scale energy development and improvements in the efficiency of energy supply and use are critical to meet the fast growing demand, alleviate shortages and mitigate adverse impacts on the environment in China. National policy emphasizes the addition of 300 MW and 600 MW units in the system and construction of even larger units is under consideration to achieve economies of scale and thereby improve the efficiency of the generation system, reduce generation costs and minimize adverse impacts on the environment. However, new projects have lagged behind demand, largely due to difficulties in mobilizing the large investment resources necessary. A disturbing consequence is that some local governments, pressed by acute shortages of electricity, are continuing to invest in large numbers of

2 new, small coal-fired power plants, in unit sizes of 50 MW or less. 3. China has a sound energy/electricity conservation record among developing countries. Various measures to improve the efficiency of electricity use have been introduced in attempts to reduce the need for new generating capacity, and these measures have been successful, as is indicated by the low ratio of 0.86 for the elasticity of growth in electricity demand to GDP growth achieved during the last decade. However, energy/electricity conservation programs have always been based on centrally designed energy/electricity conservation policies and heavily-subsidized administrative programs. Faced with fiscal revenues constraints, the government is now promoting a shift in the energy conservation programs to rely more on market-based incentives and introduce innovative and commercially-based contractual and financing mechanisms. 4. The Government is also encouraging efficient energy use through reliance upon energy price increases. Significant progress has been made in many ways to simplify the tariff, improve its structure and bring it into line with costs. Consumer prices for electricity now reasonably reflect economic costs in many provinces. However, there is a need for price increases to meet long-run marginal costs in some provinces, especially those where generation is mostly based on hydropower and/or power sector reforms are progressing at a slower pace. 5. On the institutional front, China has recently achieved four important steps in its gradual, comprehensive power reform agenda. First, the State Council (a) approved the creation of the National Power Grid Company which will operate the future national (inter-regional) transmission network; and (b) proposed for consideration by the National People's Congress the creation of a National Power Company to be the legal representative of the "owner" of state-owned assets. Second, the Ministry of Electric Power (MOEP) is to be abolished and its regulatory and policy functions transferred to the State Economic and Trade Commission (SETC), the State Planning Commission (SPC) and the China Electricity Council. Third, the Standing Committee of the 17th session of the National People's Congress passed the first 'Electricity Law of the People's Republic of China', which is scheduled to become effective on April 1, 1996, at the same time as the creation of the National Grid Company and restructuring of MOEP. Fourth, SPC invited 12 of the 31 companies/consortia that have sought prequalification to bid competitively for the Liabin B BOT project in Guangxi Province. 6. North China Electric Power Grid. The North China regional grid was established in 1987 by interconnection of four local grids - those of Beijing-Tianjin-Tangshan, Southern Hebei, Shanxi, and Western Inner Mongolia. The effective capacity of the regional grid at the beginning of 1995 was 21.3 GW and the maximum demand experienced was 23.1 GW. The demand on the grid is projected to increase to 34.6 GW by the year 2000 at an annual average growth rate of 10.7%. There is therefore an urgent need to increase the supply capabilities of the grid to reduce or eliminate power shortages. 7. Primary energy resources are not evenly distributed throughout China. Certain regions of the country experiencing the most rapid -2 -

3 economic growth are in areas relatively poor in energy resources. An example of this situation is the region in which high growth cities such as Beijing, Tianjin and Tangshan are located but which has no significant energy resources. On the other hand, the Inner Mongolia Autonomous Region has abundant coal reserves but its level of industrialization and rate of increase in electricity demand is relatively low. Much of the power sector planning in China is focused on projects that will transfer electricity from areas of surplus to those in deficit. This planning approach is in line with the Bank's strategies for the Chinese power and transport sectors and will reduce the burden on the overloaded railway system as well as avoid pollution loads that exceed local absorptive capacities in the highly industrialized and densely populated areas. Project Objectives 8. The proposed project is intended to: (a) increase electricity supply and electricity trade in north China through creation of an independent power company to develop a mine-mouth power plant in Inner Mongolia Autonomous Region that will supply the Beijing-Tianjin-Tangshan (Jing-Jin-Tang) grid through long term contractual arrangements; (b) improve the efficiency of energy supply and use in the region by: (i) introducing modern technologies and implementing effective operations and maintenance practices and procedures in power generation, and (ii) reducing losses in the transmission and distribution systems of Beijing; (c) advance the power sector reform process in China by: (i) promoting the development of electricity supplies in North China through market oriented commercial arrangements; and (ii) encouraging non utility and private sector investment in existing and new power sector enterprises; (d) diversify financing sources and improve the access of power entities to international financial markets; and (e) increase economic activity and also improve soil conservation and desertification control in Tuoketuo county. Project Description 9. The proposed project supports economic investments to augment power supplies while at the same time improving the efficiency of energy supply and end-use and advancing the sector reform program. The major investment components will be in (a) power station construction, (b) loss reduction measures on the Beijing transmission and distribution systems; and (c) a soil conservation and desertification control component to be implemented within the same time frame as the Tuoketuo project. 10. The Tuoketuo Power Station. A coal-burning thermal power station will be built in Tuoketuo county in the Inner Mongolia Autonomous Region, about 70 km from the capital city Hohhot. The plant is to be built, owned and operated by a new limited liability company in which the shareholders will be the North China Electric Power Group Company (NCEPGC) with 51% of the equity, Inner Mongolia Electric Power Company (IMEPC) with 34% and Beijing International Electric Power Development Investment Company (BIEPDIC) with 15%. The initial capacity of the station is to be 1200 MW (2x600 MW) but plans are for an eventual capacity of 3600 MW (6x6OO MW). The schedule is for the first unit to - 3 -

4 begin commercial operation in July of 2001 and the second in September of the following year. 11. The station will be the first Bank-supported mine-mouth power station in China. Mine-mouth power stations conform with the Chinese Government/World Bank strategy for coal and electricity delivery systems.(see 1/) The fuel will to be low-sulfur (0.47T) coal supplied from the adjacent Zungheer mines, about 90 km from the plant site, and delivered to the plant by rail. The project includes purchase of all rolling stock, including locomotives, required for coal transport as well as construction of a spur line of about 45 km in length to connect with the main line from the mines. The first two units will consume about 4 million tons of coal per year. A comprehensive report on tests of coal quality and combustion characteristics conducted on samples from different areas of the mine has been requested and is being prepared by the primary beneficiary. 12. All power generated by the plant will be sold to NCEPGC and is intended primarily for supply to Beijing. A power purchase agreement between TEPGC and NCEPGC will define the terms and conditions of power sale/purchase. The plant will be interconnected with the regional grid at two points, one about 500 km away and close to Beijing, the other 150 km from the plant site. The transmission lines will operate at 500 kv and will be single circuit initially, although later construction of a second circuit is planned for each line. The lines will be built and owned by NCEPGC and are not part of the project. 13. The turbine-generators will conform to the specifications which have become standard in China for units of this rating. Fuel-efficiency and other operating parameters conform with internationally accepted practice for units of this type. The condensers will be cooled by a closed -circuit cooling water system, equipped with hyperbolic, natural draft cooling towers, one for each unit. Water requirements for the plant (first phase), including cooling-tower make-up, are estimated to be 1.1 m3 per second and will be pumped from the Yellow River, about 12 km away. 14. Boilers will be equipped with low NOx burners generating a maximum of 417 ppm NOx. Electrostatic precipitators will remove 99.76w of the particulates in the flue gas. Flue gas desulfurization equipment will not be installed initially but space will be provided for their subsequent installation if required by future environmental standards. Transmission and Distribution Loss Reduction. 15. This second component, under the responsibility of NCEPGC, will include: (a) construction of two 220 kv indoor substations at Xibianmen and Xizhimen respectively. Xibianmen will be equipped with two 0 MVA, 220/110/10 kv transformers and Xizhimen with two 200 MVA, 220/110/10 kv transformers; (b) addition of a third 0 MVA 220/110/10 kv transformer in the underground Wangfujing substation, currently under construction; - 4 -

5 (c) Replacement of overloaded and inefficient units in the Beicheng and Huichengmen substations by four 50 MVA 110/10 kv transformers; (d) upgrading of the distribution system in the heavily loaded, high-growth Xizhimen area. The upgrading will involve reconductoring of insulated overhead lines (approximately 75 km), and installation of 5 compact 10 kv transformer stations. (e) technical assistance to NCEPGC for (i) implementing accounting and financial management systems, and (ii) developing regional power pooling arrangements. 16. Soil Conservation and Desertification Control. This project component would contribute to the effort already planned in the San Bei (Northeast, North and Northwest China) area, to arrest progressive desertification through soil conservation techniques, establishment of vegetative cover to combat wind erosion and improve the soil microclimate, water retention and fertility properties. If the component is approved by Chinese authorities, a specific action plan and detailed budget will be developed by the Desert Research Institute which has wide experience in the relevant problems. Sector & Institutional Reforms 17. One of the objectives of the proposed project is to assist and facilitate the power sector reform process in the North China region. It will advance the power sector reform process in two main areas: (a) development of contractual arrangements between TEPGC (the Seller) and NCEPGC (the purchaser) that will be based on efficient commercial and economic terms; and (b) divestiture of existing assets and/or involvement of domestic or foreign private investors to raise additional capital for power system expansion. Contractual Arrangements 18. The project will provide technical assistance in establishing TEPGC, the first independent power producer on the NCEPGC system, as a financially autonomous and commercially oriented enterprise. The assistance includes development of a detailed power purchase agreement and dispatch rules that will govern the business relationships between TEPGC (the seller) and NCEPGC (the purchaser). Once the concept of an independent generating enterprise has been successfully demonstrated, privately owned facilities will be more easily accepted. The power purchase agreement developed under the proposed project will serve as the basis for similar agreements with other non-utility and privately owned producers as well. 19. The project will also demonstrate the viability of the purchasing agency model, which is becoming the standard approach to unbundling generation and transmission in many other countries. The regional grid will purchase electricity from various generators and sell to the distribution entities at prices that reflect the overall cost of supply. In subsequent stages, the functions of the regional grid company would eventually be limited to purchase of power from independent producers - 5 -

6 and other power generation companies, ownership and operation of the transmission system (including dispatch), and sale of power to the provincial utilities. Technical assistance will be provided to NCEPGC to develop regional power pooling arrangements that will foster competitive electricity trade and encourage sector efficiency. Assets Divestiture 20. IMEPC's divestiture plans under the proposed project include: (a) establishing a limited liability company to support the sale of the Wulashan coal-fired power plant (200 MW) to an independent Chinese operator by the end of 1997; (b) additional equity offering of 15 million shares of Inner Mongolia Mendian Huaneng Thermal Power Company in Shanghai (about Y4/share is expected by the underwriter for shares with a face value of Y1/share); and (c) involving private investor(s) in further expansion and development of the Haibowan Electric Power Company (2x100 MW installed and 2x200 MW under development). Technical assistance will be provided under the proposed project to carry out preparatory work to implement IMEPC's plans for divestiture and involvement of private investors in existing and new projects Beneficiaries 21. The principal beneficiary will be the Tuoketuo Electric Power Generation Company (TEPGC). As previously described, the shareholders in that company will be the North China Electric Power Group, Inner Mongolia Electric Power Company, and Beijing International Electric Power Development Investment Company. TEPGC has been formally incorporated and registered as a limited liability company. 22. NCEPGC would be the second beneficiary, if agreement is reached to accept the proposal for funds from the project to be applied to investments to reduce power losses in the transmission and distribution systems in the Beijing area. Project Costs and Financing 23. The total financing requirements (including IDC of $208 million equivalent), are estimated at $1,300 million equivalent. The financing required for the Tuoketuo thermal power plant component is estimated at $1,131.8 million equivalent, including IDC of $177.3 million equivalent. The local costs estimated at $518.6 million equivalent, IDC for both local and foreign loans estimated at $177.3 million equivalent and working capital estimated at $5.9 million equivalent will be provided by equity contribution and local borrowings raised by the three shareholders. Their equity contribution is estimated at $281.5 million equivalent, representing percent of the total cost of the component. The remaining financing requirements of about $420.3 million equivalent will be covered through bond issues and borrowings by the three shareholders proportionally to their respective shares in TEPGC. The foreign cost, excluding IDC of $60.5 million, estimated at $430 million will be covered by the proposed Bank loan of $330 million and commercial cofinancing of about $100.0 million. The financing required for the Beijing T & D component is estimated at $168.7 million equivalent, including IDC of $30.7 million equivalent. The foreign cost of the - 6 -

7 component of $70 million will be financed by the proposed Bank loan. The local costs estimated at $68 million equivalent and the IDC for both foreign and local loans of $30.7 million equivalent will be covered by self-financing from NCEPGC and loans from SDB, Beijing Municipality, and Hebei Province. Project Implementation 24. TEPGC will be responsible for implementation and operation of the Tuoketuo thermal power plant component. TEPGC has been staffed with experienced and technically strong personnel and is strongly supported by its sponsors, the North China Electric Power Design Institute (NCEPDI) and high caliber foreign consultants. Preparatory works including access roads and construction power supply started in August 1996 and have been progressing satisfactorily. The bidding documents for the procurement of the main boiler and turbine-generator packages are scheduled to be issued in November 1996 and opened in March The commercial operation of the first generating unit is expected in July 2001 and the second unit in September Thus, the project completion date would be January 2004 and the closing date of the Bank loan would be June 30, NCEPGC will be responsible for execution of the Beijing T&D component including construction, commissioning and operation. NCEPGC has had substantial experience in power generation, transmission and distribution, and has been operating the North China Power Grid since Beijing Power Supply Design Institute (BPSDI) and NCEPDI will undertake preparation of technical bidding documents, bids evaluation, detailed construction design and supply of drawings for respectively Xizhimen and Wangfujing and, Xibianmen. BPSDI and NCEPDI have both design experience in 220 kv substations. Construction of the works will be the responsibility of the construction department of Beijing Municipal Power Supply Company which is a division of NCEPGC. The construction department also has extensive experience in the relevant area. The bidding documents for the items to be procured under ICB packages are scheduled to be issued in January Completion of the T&D component is planned for November Environment and Resettlement 26. Environmental Aspects. In accordance with OD 4.01 (Environmental Assessment), the project has been assigned to Category A. The Environmental Assessment (EA) was prepared with assistance of an international consultant specializing in environmental issues related to thermal power plants, and has been approved by the Inner Mongolia Environmental Protection Agency (IMEPA), and the National Environmental Protection Agency (NEPA). 27. The project is a greenfield operation, located within the boundary of Yanshanying a small village in a rural area of Tuoketuo County. The site is approximately 70 km southwest of Huhhot City, the provincial capital of Inner Mongolia Autonomous Region. Three alternative locations for the power plant were considered. All three were satisfactory from an environmental perspective. The selected site was closest to the ash disposal site with the most favorable geological conditions, was most -7 -

8 convenient to infrastructure (drainage, water supply, transportation facilities etc.) and offered the best natural geologic foundation for plant construction. 28. Key issues addressed in the EA include: air pollution, (dust, sulfur dioxide), noise, water pollution (groundwater at the ash disposal site, and surface water contamination of the Yellow river), electric field strength, bird flight patterns (transmission lines), industrial hazards and worker safety, desertification control, and impacts of both construction and operation labor forces on the local infrastructure and social structure. In addition, the proposed project (2 units of 600 MW each) is the first phase of an overall program to develop 3,600 MW at the Tuoketuo site. To anticipate any future adverse environmental consequences, the EA examined both the immediate impacts of the proposed project (1200 MW), as well as cumulative impacts of the 3,600 MW program. The distribution system component is mostly rehabilitation and reinforcement of existing facilities, there are no environmental impacts. Public safety will be improved. No PCBs (polychlorinated biphenyls) will be utilized in the substations to be financed, and bidding documents will note this restriction accordingly. 29. All mitigating measures (for air, water, solids, noise, electric field etc.) incorporated in the project are designed to meet appropriate Chinese requirements and/or World Bank guidelines, whichever is stricter. In the absence of either, international standards or codes of practice will be used. In addition, a soil conservation and desertification control subcomponent of the project would contribute to the revegetation effort currently planned. The plan calls for the arrest of desertification through soil conservation techniques, establishment of vegetative cover to combat wind erosion, and improvement of soil microclimate, water retention and nutrient properties. The overall target for Tuoketuo County is to establish a 40 per cent forest cover. Local people will be employed in the revegetation effort, with preference given to oustees. 30. Resettlement Aspects. The project design focused on minimizing the scope of resettlement. Where land acquisition and demolition of existing housing are unavoidable, the resettlement plans provide for replacement of housing, agricultural land, infrastructure, services and other resources. They aim at improving the living conditions and at least restoring the income of the resettlers. Both project components involve land acquisition and/or relocation of population. Costs of land acquisition and resettlement are estimated at Y200 million for both components. RAPs have been prepared (power plant, ash disposal yard and the Beijing transmission and distribution component) or will be prepared following the completion of the design studies and population surveys (railway connection, water supply system from Yellow River to comply with appropriate Chinese policies and/or World Bank guidelines (OD 4.30). The participation of the population affected by the project during the preparation of the resettlement plans has been excellent. 31. TEPGC and NCEPGC respectively contracted the Inner Mongolia Academy of Social Science (IMASS) and the Beijing Social and Psychological Research Institute (BSPRI) to monitor the resettlement activities and provide an independent evaluation of resettlement. The monitoring and - 8 -

9 evaluation will be based on a sample of 10 to 15 percent of affected population. The objective of monitoring and evaluation is to ensure that the resettlement program is implemented smoothly and that living conditions and income of resettlers are fully restored. Sustainability and Risks 32. Financial sustainability of the major project component will be assured if the terms of the power purchase agreement between TEPGC and NCEPGC are developed on sound economic principles and include appropriate financial terms. The market for the output of the station is guaranteed and the full cost of supply will be passed on to electricity end-users in accordance with existing Chinese pricing policies. Therefore, NCEPGC will have no problem in fulfilling its obligations under the purchase agreement. Environmental and social sustainability will be ensured by appropriate environmental management and resettlement action plans. 33. The project will be subject to intensive risk assessment. Experience with similar power projects in China clearly shows that: (a) construction risks are minimal and could be addressed through adequate preparation and supervision and by involving international consultants in construction management; (b) market risks are minimal because of existing shortages and sustained economic growth in the Jing- Jin-Tang area and the north China region; and (c) environmental and resettlement risks are manageable through preparation of environmental and resettlement plans and monitoring procedures acceptable to the Bank. Note: See "China: Investment Strategies for China's Coal and Electricity Delivery System", The world Bank, Report No CHA, March 8, Contact Point: Public Information Center The World Bank 1818 H Street N.W. Washington D.C Telephone No.: (202) Fax No.: (202) Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by The Public Information Center week ending November 8,