People's Republic of China: Heilongjiang Energy Efficient District Heating Project

Transcription

1 Project Administration Manual Project Number: September 2012 People's Republic of China: Heilongjiang Energy Efficient District Heating Project

2 CONTENTS ABBREVIATIONS I. PROJECT DESCRIPTION 1 A. Rationale, Location and Beneficiaries 1 B. Impact and Outcome 2 C. Outputs 2 II. IMPLEMENTATION PLANS 3 A. Project Readiness Activities 3 B. Overall Project Implementation Plan 4 III. PROJECT MANAGEMENT ARRANGEMENTS 5 A. Project Stakeholders Management Roles and Responsibilities 5 B. Key Persons Involved in Implementation 6 IV. COSTS AND FINANCING 9 A. Detailed Cost Estimates by Expenditure Category 9 B. Detailed Cost Estimate by Financiers 11 C. Allocation and Withdrawal of Loan Proceeds 14 D. Contract and Disbursement S-curves 15 E. Fund Flow Diagram 16 V. FINANCIAL MANAGEMENT 18 A. Financial Management Assessment 18 B. Financial Performance and Projections 18 C. Disbursement Arrangements 20 D. Accounting 21 E. Auditing 21 VI. PROCUREMENT AND CONSULTING SERVICES 21 A. Advance Contracting and Retroactive Financing 21 B. Procurement of Goods, Works and Consulting Services 22 C. Procurement Plan 22 D. Consulting Services 22 VII. SAFEGUARDS 24 A. Involuntary Resettlement 24 B. Environment 25 VIII. GENDER ACTION PLAN 26 A. Background 26 B. Gender Issues 26 C. Actions and Targets 27 D. Reporting and Monitoring Mechanism 28 IX. PERFORMANCE MONITORING, EVALUATION, REPORTING AND COMMUNICATION 28 A. Project Performance Monitoring 28 B. Project Review and Evaluation 34 C. Reporting 34

3 X. ANTICORRUPTION POLICY 35 XI. ACCOUNTABILITY MECHANISM 35 XII. RECORD OF PAM CHANGES 36 APPENDIXES 1. Design and Monitoring Framework Procurement Plan Outline Terms of Reference for Project Implementation Labor Retrenchment and Reemployment Plan Environmental Management Plan (Environment Safeguards) Grievance Redress Mechanism 73

4 Project Administration Manual Purpose and Process The project administration manual (PAM) describes the essential administrative and management requirements to implement the project on time, within budget, and in accordance with the Government and Asian Development Bank (ADB) policies and procedures. The Heilongjiang provincial government, the executing agency, and the nine implementing agencies (i) Qitaihe Heating Company, (ii) Harbin Taiping Heating Company, (iii) Heilongjiang Tangwanghe Forest Bureau, (iv) Heilongjiang Xinqing Forest Bureau, (v) Daxing'anling Power Industrial Bureau, (vi) Jidong Heat and Power Company, (vii) Raohe County Chenguang Heating Company, (x) Tongjiang Changheng Cogeneration Company, and (ix) Jiamusi Xinshidai Urban Infrastructure Investment Company are entirely responsible for the implementation of ADB financed projects, as agreed jointly between the borrower and ADB, and in accordance with Government and ADB s policies and procedures. ADB staff is responsible to support the implementation including compliance by the executing agency and the nine implementing agencies of their obligations and responsibilities for project implementation in accordance with ADB s policies and procedures. At the loan negotiations on 20 August 2012, the borrower and ADB have agreed to the PAM and it ensures consistency with the loan agreement. In the event of any discrepancy or contradiction between the PAM and the loan agreement, the provisions of the loan agreement shall prevail. After ADB Board approval of the project's report and recommendations of the President, changes in implementation arrangements are subject to agreement and approval pursuant to relevant government and ADB administrative procedures (including the project administration instructions) and upon such approval they will be subsequently incorporated in the PAM.

5 ABBREVIATIONS ADB Asian Development Bank CDM Clean Development Mechanism DHS district heating system DRC Development and Reform Commission EMP environmental management plan EPB Environmental Protection Bureau GHG greenhouse gas HPDRC Heilongjiang Provincial Development and Reform Commission HES heat-exchange station HFB Heilongjiang Provincial Finance Bureau HPG Heilongjiang provincial government MOF Ministry of Finance NDRC National Development and Reform Commission PAM project administration memorandum PCR project completion report PMO project management office PPCU Project public complaints unit SOE state-owned enterprise

6 A. Rationale, Location and Beneficiaries I. PROJECT DESCRIPTION 1. The Project. Heating services in a cold climate region, such as Heilongjiang where temperature fall below 40 C and the heating season lasts up to 6 months, meets one of the basic human needs and provides essential support to socioeconomic activities. The proposed project 1 will expand and upgrade district heating systems (DHSs) in eight cities of Heilongjiang province to make the systems energy efficient, thereby reducing emission of greenhouse gases (GHGs) and air pollutants. 2 The project will allow the closing of around 470 small and inefficient coal-fired boilers and replacing 275,166 household stoves. 2. Emission reduction impact. The project results in substantial environmental benefits by replacing around 470 small, old, and inefficient heating boilers and 275,166 household stoves (equivalent to about 1,014 megawatt thermal) with energy efficient combined heat and power (CHP) or heating boilers, and rehabilitating heating pipes to reduce heat losses. The net reduction in annual coal consumption is estimated at 418,889 tons (t) of standard coal, which results in the reduction of 1 million t of carbon dioxide, 3 4,500 t of SO 2, 4 1,961 t of NO x 5 and 22,819 t of particulate matter. 3. Social and poverty impact. The project will directly benefit more than 1.63 million urban residents of the project cities, about half of whom (0.81 million) are female and 37,000 of whom are from poor households, and provide direct benefits to 174,625 children in 314 schools and patients and medical staff in 108 hospitals. The project will (i) reduce cases of respiratory diseases through improved indoor and outdoor air quality, reduce CO poisoning by providing safer district heating services, and provide a better medical environment by providing cleaner and reliable heating services to hospitals; (ii) improve living conditions through adequate and reliable heating services; (iii) reduce heating expenditure by switching from individual household stoves and decentralized heating systems to centralized energy efficient heating systems; (iv) provide a better schooling environment during the winter by providing cleaner and reliable heating services; and (v) increase income through job opportunities created during construction and operation (3,413 jobs during construction and 1,339 during operation). 4. Sector assessment. The key issues in the district heating subsector are: (i) inefficiency in DHSs, (ii) slow progress in the application of consumption-based billing, (iii) slow heating tariff adjustment associated with the increase of coal cost, and (iv) weak customer orientation in the service delivery by the state-owned enterprises (SOEs) which causes lower tariff collection rate. 5. Special features. Several measures have been adopted in designing the project to address these issues, such as: (i) purchasing heat from existing combined heat and power 1 The Asian Development Bank (ADB) provided project preparatory technical assistance. ADB Technical Assistance to the People s Republic of China for Preparing Heilongjiang Energy Efficient District Heating Project. Manila. 2 The cities included in the project are Harbin, Jiagedaqi, Jiamusi, Jixi, Qitaihe, Raohe, Tongjiang, and Yichun. 3 ADB will support the efforts of obtaining clean development mechanism benefits through its technical support facility. 4 Equivalent to 45% of provincial reduction target. 5 Equivalent to 8.5% of provincial reduction target.

7 2 plants or constructing large size heat-only boilers with circulating fluidized-bed technology which have combustion efficiencies of 87% or higher, (ii) adopting the computerized system to control the demand and supply of heat which prevents the overheating of buildings, and (iii) pilot testing the household consumption-based billing system of the two subprojects to moderate the heating demand. 6. In addition, the project will provide support to two private enterprises to promote private sector participation. To benefit from the private sector experiences and for better track record in the tariff collection rate, the knowledge sharing sessions between private and SOEs will be organized during the loan implementation. A regional conference on district heating with likely participation from the neighboring provinces (such as Jilin, Liaoning, and Inner Mongolia), and countries (such as Japan, Republic of Korea, and member countries of Central Asia Regional Economic Cooperation), to foster knowledge sharing and regional cooperation, will be organized by Heilongjiang provincial government (HPG). 7. Potential clean development mechanism application. The proposed project is likely to qualify for carbon credit under Clean Development Mechanism (CDM) of the Kyoto Protocol or other international GHG emission trading mechanism or domestic GHG emission trading mechanism. Asian Development Bank (ADB) will support the efforts of obtaining CDM benefits through its technical support facility. Heilongjiang Provincial Development and Reform Commission (HPDRC), Heilongjiang Provincial Finance Bureau (HPFB), project management office (PMO), and the nine subproject companies should make sure that all the necessary data and studies are provided to the technical support facility for the evaluation of the project and to arrive at a conclusion with respect to the project s possible registration under CDM. B. Impact and Outcome 8. The impact will be improved energy efficiency and a cleaner environment in Heilongjiang province. The outcome will be improved air quality and reduced GHG emissions in eight urban areas in Heilongjiang province. C. Outputs 9. The outputs will be (i) expanded district heating coverage in eight project cities without net increase in emissions (footnote 2), (ii) improved energy efficient heat generation capacity in three project cities, 6 and (iii) promotion of private sector participation in district heating in two project cities. 7 A detailed summary of the subprojects under component A is in Table 1. The project s design and monitoring framework is in Appendix 1. No. 1. Subproject Harbin Taiping HP and DH Table 1: Summary of Subprojects New Heating Number of Source Heat SCADA (MWth) a Exchanger System 2 x 116 MWth CFB Heating Pipeline (km) Small Boiler Closure Heating Area (million m 2 ) 40 Yes Jiagedaqi DH 30 Yes Jiamusi West DH 111 Yes The three project cities are Harbin, Raohe, and Tongjiang. 7 The two project cities include Raohe and Tongjiang.

8 3 No. Subproject New Heating Source (MWth) a Number of Heat Exchanger SCADA System Heating Pipeline (km) Small Boiler Closure Heating Area (million m 2 ) 4. Jidong County DH 34 Yes Qitaihe DH 33 Yes Raohe Town HP and DH Tongjiang City HP and DH 3 x 14 MWth CFB 3 x 58 MWth CFB 0 b Yes Yes Yichun City 8. Tangwanghe DH 22 Yes Yichun City 9. Xinqing DH 27 Yes Total CFB = circulating fluidized-bed, DH = district heating, HP = heating plant, km = kilometer, m 2 = square meter, MWth = megawatt thermal, No. = number, SCADA = supervisory control and data acquisition. a The subprojects which do not have new heat source installation will purchase heat from existing combined heat and power plants. b Since the heating area is small, the subprojects adopt direct heating system which do not require heat exchanger. Sources: Subproject feasibility studies. II. IMPLEMENTATION PLANS A. Project Readiness Activities Indicative Activities Advance contracting actions Retroactive financing actions Loan Negotiations ADB Board approval Loan signing Government legal opinion provided Government budget inclusion Table 2: Project Readiness Activities Aug Sep Oct Nov Dec Jan Feb Mar Who is responsible PMO, implementing agencies, tendering company, procurement consultant, ADB executing agency, implementing agencies, PMO, ADB MOF, NDRC, ADB ADB MOF, ADB executing agency executing agency, implementing agencies Loan effectiveness executing agency, ADB ADB = Asian Development Bank, MOF = Ministry of Finance, NDRC = National Development and Reform Commission, PMO = project management office. Note: In addition, individual subprojects feasibility reports and environmental impact assessment reports are already approved by the appropriate authorities in the People s Republic of China.

9 4 B. Overall Project Implementation Plan 10. The project will be implemented over 5 years from 2013 to 2017 (Table 3). No. Item 1. Harbin Taiping HP and DH a. Tender documents preparation and approval b. Tender invitation, evaluation, and contract award c. Construction d. Testing and commissioning 2. Yichun City-Tangwanghe DH a. Detailed design and approval b. Tender documents preparation and approval c. Tender invitation, evaluation, and contract award d. Construction e. Testing and commissioning 3. Yichun City - Xinqing DH a. Detailed design and approval b. Tender documents preparation and approval c. Tender invitation, evaluation, and contract award d. Construction e. Testing and commissioning 4. Jiamusi West DH a. Tender documents preparation and approval b. Tender invitation, evaluation, and contract award c. Construction d. Testing and commissioning 5. Jiagedaqi DH a. Detailed design and approval b. Tender documents preparation and approval c. Tender invitation, evaluation, and contract award d. Construction e. Testing and commissioning 6. Jidong County DH a. Detailed design and approval Table 3: Project Implementation Plan

10 5 No. Item b. Tender documents preparation and approval c. Tender invitation, evaluation, and contract award d. Construction e. Testing and commissioning 7. Qitaihe DH a. Detailed design and approval b. Tender documents preparation and approval c. Tender invitation, evaluation, and contract award d. Construction e. Testing and commissioning 8. Raohe Town HP and DH a. Detailed design and approval b. Tender documents preparation and approval c. Tender invitation, evaluation, and contract award d. Construction e. Testing and commissioning 9. Tongjiang City HP and DH a. Detailed design and approval b. Tender documents preparation and approval c. Tender invitation, evaluation, and contract award d. Construction e. Testing and commissioning Implementation of labor retrenchment plan 11. Project Monitoring and Impact Evaluation DH = district heating, HP = heating plant. Sources: Project implementing agencies and Asian Development Bank estimates. III. PROJECT MANAGEMENT ARRANGEMENTS A. Project Stakeholders Management Roles and Responsibilities Table 4: Roles and Responsibilities of Key Project Stakeholders Project Stakeholders Management Roles and Responsibilities Executing Agency Heilongjiang provincial government Provide overall guidance during preparation and implementation The project leading group is under a vice-governor of Heilongjiang provincial government which includes the provincial representatives from the Development and Reform Commission, Finance Bureau, Construction Bureau, and Environment Protection Bureau Ensure counterpart contributions are provided for project implementation on time

11 6 Project Stakeholders Management Roles and Responsibilities Project Management Office under the Heilongjiang Coordinate the implementation of subprojects Development and Reform Commission Ensure environment and social safeguards compliance Submit quarterly progress reports to ADB Submit the withdrawal applications Retain supporting documents Establish and maintain the imprest account Submit annual audit report and financial statements Implementing Agency 1 Harbin Taiping Heating Company Implement Harbin Taiping Heating Plant and District Heating Subproject Implementing Agency 2 Heilongjiang Tangwanghe Forest Bureau Implement Yichun City-Tangwanghe District Heating Subproject Implementing Agency 3 Implement Yichun City-Xinqing District Heating Subproject Heilongjiang Xinqing Forest Bureau Implementing Agency 4 Jiamusi Xinshidai Urban Infrastructure Investment Company Implement Jiamusi West District Heating Subproject Implementing Agency 5 Daxing'anling Power Industrial Bureau Implement Jiagedaqi District Heating Subproject Implementing Agency 6 Jidong Heat and Power Company Implement Jidong County District Heating Subproject Implementing Agency 7 Qitaihe Heating Company Implement Qitaihe District Heating Subproject Implementing Agency 8 Raohe County Chenguang Heating Company Implement Raohe Town Heating Plant and District Heating Subproject Implementing Agency 9 Tongjiang Changheng Cogeneration Company Implement Tongjiang City Heating Plant and District Heating Subproject Asian Development Bank Provide overall project administration. Provide orientation to executing agency and implementing agencies including the project management office. Review draft bidding documents and approval of bid evaluation report. Disburse Asian Development Bank loan proceeds. B. Key Persons Involved in Implementation Executing Agency Government of Heilongjiang Asian Development Bank Division Director Mission Leader Table 5: Key Persons Involved During Implementation Mr. Wang Xiquan Director, Department of Foreign Capital Utilization and Overseas Investment, Heilongjiang Provincial Development and Reform Commission Telephone No address: xqwang3@163.com Office Address: 202 Zhongshan Road, Nangang District, Harbin, Heilongjiang, China, Mr. Ashok Bhargava Director, Energy Division East Asia Department, ADB Telephone No.: Fax No address: abhargava@adb.org Office Address: Room 6648 east core, Asian Development Bank, 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Mr. Teruhisa Oi Senior Energy Specialist, Energy Division East Asia Department, ADB

12 Telephone No Fax No address: teruhisaoi@adb.org Office Address: Room 6640 south core, Asian Development Bank, 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines 7

13 8 Figure 1: Project Organizational Structure Government of Heilongjiang Province (Executing Agency) Project Leading Group (Provincial DRC, FB, EPB) Project Management Office Harbin Municipal Government /Project Coordination Office Yichun Municipal Government /Project Coordination Office Jiamusi Municipal Government /Project Coordination Office Daxing anling Prefecture Government/Project Coordination Office Jidong County Government /Project Coordination Office Raohe County Government /Project Coordination Office Tongjiang City Government/ Project Coordination Office Qitaihe Municipal Government/ Project Coordination Office Harbin Taiping Heating Company Heilongjiang Tangwanghe Forest Bureau Heilong jiang Xinqing Forest Bureau Jiamusi Xinshidai Urban Infrastructure Investment Company Daxing'anling Power Industrial Bureau Jidong Heat and Power Company Raohe County Chenguang Heating Company Tongjiang Changheng Cogeneration Company Qitaihe Heating Company DRC = Development and Reform Commission, EPB = Environmental Protection Bureau, FB = Finance Bureau. Source: Project preparatory technical assistance.

14 9 Table 6: Summary of Subproject Names, Implementing Agencies and Percentage of Ownerships Name of Subproject Project Implementing Agency Ownership Harbin Taiping HP and DH Harbin Taiping Heating Company State-owned enterprise (100%) Yichun City-Tangwanghe DH Heilongjiang Tangwanghe Forest Bureau State-owned holdings (100%) Yichun City-Xinqing DH Heilongjiang Xinqing Forest Bureau State-owned holdings (100%) Jiamusi West DH Jiamusi Xinshidai Urban Infrastructure Investment Company State-owned holdings (100%) Jiagedaqi DH Daxing'anling Power Industrial Bureau State-owned enterprise (100%) Jidong County DH Jidong Heat and Power Company State-owned enterprise (100%) Qitaihe DH Qitaihe Heating Company State-owned enterprise (100%) Raohe Town HP and DH Raohe County Chenguang Heating Company Private, personal holdings (100%) Tongjiang City HP and DH Tongjiang Changheng Cogeneration Company Private, personal holdings (100%) DH = district heating, HP = heating plant. Source: Heilongjiang project management office IV. COSTS AND FINANCING 11. The project investment cost is estimated at $353 million, including physical and price contingencies and financial charges during construction. ADB will finance $150 million (42%) of the total project cost. The remaining $117 million (34%) will be financed by the implementing agencies and $86 million (24%) from domestic banks. The implementing agency financing includes internally generated funds and parent company or local government contributions. The ADB loan will be used for civil works, equipment and supplies, project management, interest, and commitment charges during construction. The implementing agencies will finance civil works, equipment and supplies, and contingencies. A. Detailed Cost Estimates by Expenditure Category 12. The detailed cost estimates by expenditure category is in Table 7. Table 7: Detailed Cost Estimates by Expenditure Category ($ million) Estimated Cost Expenditure Category ADB Loan Foreign Exchange Local Currency Total Cost A. Harbin Taiping Heating Plant and District Heating 1. Base Cost a. Civil works b. Equipment c. Other engineering cost Contingencies a. Physical b. Price Interest during construction Commitment charges Subtotal (A)

15 10 ADB Loan Estimated Cost Foreign Exchange Local Currency Total Cost Expenditure Category B. Jiagedaqi District Heating 1. Base Cost a. Civil works b. Equipment c. Other engineering cost Contingencies a. Physical b. Price Interest during construction Commitment charges Subtotal (B) C. Jiamusi West District Heating 1. Base Cost a. Civil works b. Equipment c. Other engineering cost Contingencies a. Physical b. Price (0.1) Interest during construction Commitment charges Subtotal (C) D. Jidong County District Heating 1. Base Cost a. Civil works b. Equipment c. Other engineering cost Contingencies a. Physical b. Price Interest during construction Commitment charges Subtotal (D) E. Qitaihe District Heating 1. Base Cost a. Civil works b. Equipment c. Other engineering cost Contingencies a. Physical b. Price (0.2) Interest during construction Commitment charges Subtotal (E) F. Raohe Town Heating Plant and District Heating 1. Base Cost a. Civil works b. Equipment c. Other engineering cost Contingencies a. Physical b. Price Interest during construction

16 11 Estimated Cost Expenditure Category ADB Loan Foreign Exchange Local Currency Total Cost 4. Commitment charges Subtotal (F) G. Tongjiang City Heating Plant and District Heating 1. Base Cost a. Civil works b. Equipment c. Other engineering cost Contingencies a. Physical b. Price (0.01) Interest during construction Commitment charges Subtotal (G) H. Yichun City-Tangwanghe District Heating 1. Base Cost a. Civil works b. Equipment c. Other engineering cost Contingencies a. Physical b. Price Interest during construction Commitment charges Subtotal (H) I. Yichun City-Xinqing District Heating 1. Base Cost a. Civil works b. Equipment c. Other engineering cost Contingencies a. Physical b. Price Interest during construction Commitment charges Subtotal (I) J. Project Management 1. Base Cost Contingencies Interest during construction Commitment charges Subtotal (J) Total Project Cost () = negative, ADB = Asian Development Bank. Notes: 1. Physical contingency is 10% of the total base cost. Price contingency is based on domestic and international inflation rates during construction. 2. Numbers may not sum precisely because of rounding. Sources: Project implementation agencies and Asian Development Bank estimates. B. Detailed Cost Estimate by Financiers 13. The detailed cost estimates by financiers is in Table 8.

17 12 Table 8: Cost Estimates by Financiers ($ million) Implementing ADB Loan Agencies Domestic Banks Total Item Amount % Amount % Amount % Amount A. Investment Cost 1. Civil works a. Harbin Taiping HP and DH a1. Civil works of boiler house and auxiliaries a2. Civil works and installation of HESs and pipelines b. Jiagedaqi District Heating b1. Civil works of HESs b2. Civil works and installation of pipelines c. Jiamusi West DH c1. Civil works of HESs c2. Civil works and installation of pipelines d. Jidong County DH d1. Civil works of HESs and other relevant buildings e. Qitaihe DH e1. Pipeline civil works and installation e2. Civil works of HSE e3. Pipeline civil works and installation f. Raohe Town HP and DH f1. Civil works of boiler house f2. Civil works of HESs and pipelines and pipelines installation g. Tongjiang City HP and DH g1. Civil works of boiler plant g2. Civil work and installation of heat pipeline and civil works of HESs

18 13 ADB Loan Implementing Agencies Domestic Banks Total Item Amount % Amount % Amount % Amount h. Yichun City-Tangwanghe DH h1. Civil works of HESs and pipelines and pipelines installation i. Yichun City-Xinqing DH i1. Civil works of HESs and pipelines and pipelines installation 2. Equipment a. Harbin Taiping HP and DH a1. Supply and installation of boilers, HESs, and SCADA A2. Supply of heat pipelines b. Jiagedaqi District Heating b1. Supply and installation of equipment in HESs and SCADA b2. Supply of heat pipelines c. Jiamusi West DH c1. Supply and installation of equipment in HESs and SCADA c2. Supply of heat pipelines c3. Supply of heat pipelines d. Jidong County DH d1. Supply and installation of equipment in HESs, and SCADA d2. Supply of heat pipelines e. Qitaihe DH e1. Supply of heat pipeline e2. HSE and installation f. Raohe Town HP and DH f1. Supply and installation of boilers and auxiliaries

19 14 ADB Loan Implementing Agencies Domestic Banks Total Item Amount % Amount % Amount % Amount f2. Supply and installation of heat pipelines g. Tongjiang City HP and DH g1. Supply and installation of boilers, HESs, SCADA, and heat pipeline g.2 Supply and installation of boilers and heat exchangers h. Yichun City- Tangwanghe DH h1. Supply and installation of equipment in HESs and SCADA h2. Supply of heat pipelines i. Yichun City-Xinqing DH i1. Supply and installation of equipment in HESs and SCADA i2. Supply of heat pipelines Other Engineering Cost Subtotal (A) B. Project Management C. Contingencies D. Finance Charges during Construction Total $ = US dollars, % = percentage, ADB = Asian Development Bank, DH = district heating, HES = heat exchange station, HP = heating plant, SCADA = supervisory control and data acquisition. Note: Numbers may not sum precisely because of rounding. Sources: Project implementing agencies and Asian Development Bank estimates. C. Allocation and Withdrawal of Loan Proceeds 14. The allocation and withdrawal of loan proceeds is in Table 9.

20 15 Table 9: Allocation and Withdrawal of Loan Proceeds Total Amount Allocated for ADB Financing ($ million) ADB Financing Basis Percentage of ADB Financing from the Loan No. Item Category Subcategory Account A. Civil Works Harbin Taiping HP and DH % of total expenditure 2. Qitaihe DH % of total expenditure 3. Tongjiang City HP and DH % of total expenditure B. Goods for Harbin Taiping HP and DH Supply and installation of boilers and ancillary equipments % of total expenditure 2. Supply of heat pipelines, HESs, and SCADA % of total expenditure C. Goods for Jiagedaqi DH Supply and installation of equipment in HESs and SCADA % of total expenditure 2. Supply of heat pipelines % of total expenditure D. Goods for Jiamusi West DH Supply and installation of equipment in HESs and SCADA % of total expenditure 2. Supply of heat pipelines % of total expenditure E. Goods for Jidong County DH Supply and installation of equipment in HESs, and SCADA % of total expenditure 2. Supply of heat pipelines % of total expenditure F. Goods for Qitaihe DH % of total expenditure G. Goods for Raohe Town HP and DH Supply and installation of boilers and auxiliaries % of total expenditure 2. Supply and installation of heat pipelines % of total expenditure H. Goods for Tongjiang City HP and DH % of total expenditure I. Goods for Yichun City-Tangwanghe DH Supply and installation of equipment in HESs and SCADA % of total expenditure 2. Supply of heat pipelines % of total expenditure J. Goods for Yichun City-Xinqing DH Supply and installation of equipment in HESs and SCADA % of total expenditure 2. Supply of heat pipelines % of total expenditure K. Project Management % of total expenditure L. Interest and Commitment Charge % of amount due Total ADB = Asian Development Bank, DH = district heating, HES = heat exchange station, HP = heating plant, SCADA= supervisory control and data acquisition. Note: Numbers may not sum precisely because of rounding. Source: Asian Development Bank estimates. D. Contract and Disbursement S-curves 15. The contract and disbursement S-curve is shown in Figure 2.

21 16 Figure 2: Contract and Disbursement S-Curves Contract And Disbursement S-Curves Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Contract Award Disbursement Note: The difference in the loan amount is due to the interest during construction financed under the loan Item Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Contract Award Disbursement Item Q1 Q2 Q3 Q4 Q1 Q2 Contract Award Disbursement E. Fund Flow Diagram 16. The borrower is the government, which will make the proceeds of the ADB loan available to HPG through a subsidiary loan agreement and to the municipality and county governments and implementing agencies through onlending agreements. The HPG will assume the risks for foreign exchange and interest variation. The fund flow diagram is presented in Figure 3.

22 17 Figure 3: Fund Flow Diagram ADB direct payment imprest fund reimbursement Executing Agency (PMO) Withdrawal application, and supporting documents a Imprest Account supporting documents Implementing Agencies supporting documents Contractors/suppliers = cash fund flow, = documentation flow. ADB = Asian Development Bank, PMO = project management office. a Supporting documents required for direct payment procedure include contract and invoice. For imprest fund procedure, statement of expenditure, corresponding bank statement, and reconciliation statement. For reimbursement procedure, summary sheet, contract, invoice, receipt of payment, or statement of expenditure. Source: Heilongjiang provincial government.

23 18 A. Financial Management Assessment V. FINANCIAL MANAGEMENT 17. The financial management assessment of the implementing agencies 8 indicates that the systems generally are in place for financial reporting, and the accounting system is developed and adequate for the purpose of loan implementation. As this is the first externally-funded project for most of the implementing agencies, extensive training will be required covering ADB procedures and requirements on procurement, disbursement, financial reporting, and various aspects of project monitoring. Financial projections were prepared to assess the financial performance of the implementing agencies. These are presented below. The projections estimate the tariffs required for an appropriate level of financial performance. Periodic tariff reviews will be required to ensure positive financial performance. B. Financial Performance and Projections 18. Harbin Taiping Heating Company. The implementing agency of Harbin Taiping Heating Plant and District Heating Subproject is an SOE founded in 2004 with a registered capital of CNY80.46 million. It is located at the Harbin Economic and Technical Development Zone and is engaged in heating supply. The company had 230 employees, total assets of CNY497.7 million with a liability-asset ratio of 70.9%, sales revenue of CNY71.9 million, and a net profit of CNY1.3 million in Its sales revenue increased by 122% in 2010 from 2008, however its profitability remained low, with a net profit margin of 1.8% in The company had high current ratio level equivalent to more than 1.3 throughout The company obtained long-term loans from a domestic bank to partially finance its construction and the debt service coverage ratio was 1.1 in The counterpart financing for the subproject will be provided from self-raised funds and long-term loan obtained from a local bank. 19. Daxing anling Power Industrial Bureau. The implementing agency of Jiagedaqi District Heating Subproject is a state-owned company (subcompany of Daxing anling Forest Group Company) established in 1965 with a total registered capital of CNY61.2 million. Its main business is on electricity generation, and heat production and supply. It had 2,381 employees, total assets of CNY507.1 million with a liability-asset ratio of 62.6%, sales revenue of CNY207.6 million, and a net profit of CNY0.1 million in The asset revenue increased by 10% and sales revenue increased by 12.7% in 2010 from The profitability remained low with a net profit margin of 0.1% in 2010 and the current ratios were less than 1 throughout There were long-term and short-term loans from domestic banks, and the debt service coverage ratio was 1.1 in Counterpart financing for the subproject will be provided from the local government and long-term loan obtained from a local bank. 20. Jiamusi Xinshidai Urban Infrastructure Investment Company. The implementing agency of Jiamusi West District Heating Subproject is a state-owned company founded in Jiamusi city in 1999 with a registered capital of CNY3,804.5 million. It had 99 employees, total assets of CNY9,215.2 million with a liability-asset ratio of 35.9%, sales revenue of CNY2,233.9 million, and a net profit of CNY765.8 million in Its main businesses are on investment, construction, and management in urban infrastructure projects. Its sales revenue and current assets increased while the fixed assets decreased from 2009 to There were many other incomes throughout , which needs to be explained by the company. There were long-term and short-term loans from domestic banks, and the debt service coverage ratio was 8 Financial management assessment was conducted under the project preparatory technical assistance in 2011.

24 in Counterpart financing for the subproject will be provided from the self-raised funds and long-term loan obtained from a local bank. 21. Jidong Heat and Power Company. The implementing agency of Jidong County District Heating Subproject is a joint venture company between Heilongjiang Zhongmeng Group Company (state-owned, 55% equity share) and Heilongjiang Zhongmeng Heating and Power Company (state-owned, 45% equity share). It was established in Jidong county in It had 465 employees, total assets of CNY387.9 million with a liability-asset ratio of 67.6%, sales revenue of CNY124.1 million, and a net profit of CNY8.1 million in It mainly generates electricity and supplies heat, and in addition, it supplies water for the county. Increase in assets revenue by 8.4% and sales revenue by 16% in 2010 from Meanwhile, its net profit margin decreased to 6.5% in 2010, from 8.8% in The company had a long-term loan from a commercial bank and a debt-service coverage ratio of 3.7 in Counterpart financing for the subproject will be provided from the self-raised funds. 22. Qitaihe Heating Company. The implementing agency of the Qitaihe District Heating Subproject is a state-owned company established in It is responsible for providing district heating services to the three areas of the city with an estimated area of 4.5 million m 2. The company has 36 heat exchange stations and 94 kilometers of heating pipelines. The subproject will cover additional 5.8 million m 2 when completed. The company had 360 employees, including 58 management staff and 35 technical staff; total assets of CNY223.6 million and a liability-asset ratio of 56.7%; sales revenue of CNY135.4 million; and loss of CNY0.8 million in 2010; which is significantly lower than the losses in 2008 and This is primarily due to high operating costs and low heating tariff. Counterpart financing for the subproject will be provided through local government funds. 23. Raohe County Chenguang Heating Company. The implementing agency of Raohe Town Heating Plant and District Heating Subproject is a private company established in 2003 with a registered capital of CNY4.2 million. It obtained its registered capital with the restructuring of the former heat and power company which was established in Its main businesses are on power generation and hot water supply. The company had 178 employees, total assets of CNY107.1 million with a liability-asset ratio of 36.8%, sales revenue of CNY30.1 million, and net profit of CNY4.5 million in The profitability level has shown obvious improvement since 2008, and its net profit margin was 15% and returns on asset and equity were 4.2% and 6.7% in There were long-term and short-term loans from domestic banks, and the debt service coverage ratio was 14.3 in Counterpart financing for the subproject will be provided from self-raised funds and long-term loan obtained from a local bank. 24. Tongjiang Changheng Cogeneration Company. The implementing agency of Tongjiang City Heating Plant and District Heating Subproject is a private company established in Tongjiang city in 2008 with a registered capital of CNY65 million. It obtained its registered capital with the restructuring of the former Tongjiang power company which was established in Its main business is on hot water supply. The company had 174 employees, total assets of CNY138.6 million with a liability-asset ratio of 33.4%, sales revenue of CNY55.4 million, and net profit of CNY6.7 million in The profitability level has shown consistent improvement since 2008 and its net profit margin was 12.1% and returns on asset and equity were 4.9% and 7.3% in The current ratios were more than 1.6 during the There were only short-term domestic loans in Counterpart financing for the subproject will be provided from the self-raised funds.

25 Heilongjiang Tangwanghe Forest Bureau. The implementing agency of Yichun City Tangwanghe District Heating Subproject is an SOE founded in Tangwanghe district of Yichun city in 1958 with a registered capital of CNY84.8 million. Its main business is on timber marketing. The company had 8,998 employees, total assets of CNY480.1 million with a liabilityasset ratio of 50.9%, sales revenue of CNY140.7 million, and net profit of CNY29.7 million in Its sales revenue increased by 22.8% in 2010 from The profitability remained relatively high with a net profit margin of 21.1% in The company had a high current ratio equivalent to more than 1.3 throughout The company obtained long-term loans and short-term loan from a domestic bank and the debt service coverage ratio was 14.0 in Counterpart financing for the subproject will be provided from the self-raised funds. 26. Yichun-Xinqing Forest Bureau. The implementing agency of Yichun City Xinqing District Heating Subproject is an SOE founded in Xinqing District of Yichun city in 1957 with a registered capital of CNY79.2 million. The company had 10,615 employees, total assets of CNY440.8 million with a liability-asset ratio of 46.1%, sales revenue of CNY131.7 million, and a net profit of CNY21.3 million in Decrease in assets revenue by 4.6% and sales revenue by 5.4% in 2010 from The profitability remained relatively high, with a net profit margin of 16.2% in The company had a high current ratio of 1.8 in The company obtained long-term loans and short-term loan from a domestic bank and the debt service coverage ratio was 4.4 in Counterpart financing for the subproject will be provided from the self-raised funds. C. Disbursement Arrangements 27. The ADB loan will be disbursed in accordance with ADB's Loan Disbursement Handbook (2012, as amended from time to time). To expedite project implementation through the timely release of the loan proceeds, HPFB, 9 under the HPG, will establish an imprest account in US dollars upon loan effectiveness at a commercial bank acceptable to ADB. 10 The imprest account will be established, managed, replenished, and liquidated by HPG in accordance with ADB's Loan Disbursement Handbook. The HPG will submit the withdrawal application to ADB for an initial advance based on approved contracts and planned expenditures for the first 6 months of the project, which is not to exceed the approved ceiling. The ceiling of the imprest account will be set at either the estimate expenditures for the next 6 months to be funded from the imprest account or 10% of the loan amount, whichever is lower. If HPG initially funds eligible expenditures from its own resources, the reimbursement procedure will be used. To expedite funds flow and simplify documentation procedures, the statement of expenditures procedure will be used for the liquidation and replenishment of imprest accounts and the reimbursement of eligible expenditures not exceeding $200,000 per individual payment Before the submission of the first withdrawal application, the borrower should submit to ADB sufficient evidence of the authority of the person(s) who will sign the withdrawal applications on behalf of the borrower, together with the authenticated specimen signatures of 9 HPFB is part of PMO. 10 Bank charges will be financed under the ADB loan. 11 Since the down payment for each contract is likely to be more than $100,000, the ceiling for the statement of expenditures procedures of $200,000 is recommended. This ceiling has been applied for ADB financed projects in Heilongjiang province such as Heilongjiang Road Network Development Project (2007) ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People's Republic of China for Heilongjiang Road Network Development Project. Manila (Loan 2247-PRC, approved on 26 July, for $200,000,000). Second Heilongjiang Road Network Development Project. ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People's Republic of China for the Second Heilongjiang Road Network Development Project. Manila (Loan 2631-PRC, approved on 20 April, for $200,000,000).

26 21 each authorized person. The minimum value per withdrawal application is $100,000, unless otherwise approved by ADB. The borrower is to consolidate claims to meet this limit for reimbursement and imprest account claims. The HPG requires to furnish withdrawal application, applicable summary sheet, the corresponding bank statement, and reconciliation statement to ADB for liquidation and replenishment of imprest account. Withdrawal applications and supporting documents will demonstrate, among other things that the goods, and/or services were produced in or from ADB members, and are eligible for ADB financing. D. Accounting 29. The executing agency and each implementing agency will maintain separate project accounts and records that identify goods, work, and services from loan proceeds, financing resources received, expenditures incurred, and use of local funds. These accounts will be established and maintained in accordance with sound accounting principles and internationally accepted accounting standards. E. Auditing 30. The executing and implementing agencies will cause the detailed consolidated project accounts to be audited in accordance with the international standards on auditing and/or in accordance with the government's audit regulations by the provincial auditing bureau at no charge. The audited accounts will be submitted in the English language to ADB within 6 months of the end of the fiscal year by the executing agency. The annual audit report will include a separate audit opinion on the use of the imprest account, and the statement of expenditure procedures. The government, executing agency, and implementing agencies have been made aware of ADB s policy on delayed submission, and the requirements for satisfactory and acceptable quality of the audited accounts. ADB reserves the right to verify the project's financial accounts to confirm that the share of ADB s financing is used in accordance with ADB s policies and procedures. For revenue generating projects, ADB requires audited financial statements for each executing and/or implementation agency associated with the project. VI. PROCUREMENT AND CONSULTING SERVICES A. Advance Contracting and Retroactive Financing 31. To expedite project implementation, HPG has requested advance contracting and retroactive financing. This will include the procurement of goods, civil works, and the project management. All advance contracting and retroactive financing will be undertaken in conformity with ADB s Procurement Guidelines (2010, as amended from time to time) 12 and ADB s Guidelines on the Use of Consultants (2010, as amended from time to time). 13 The amount to be retroactively financed will not exceed $30 million (equivalent to 20% of the ADB loan) and may finance costs incurred before loan effectiveness but not more than 12 months before the signing of the loan agreement. The issuance of invitations to bid, under advance contracting and retroactive financing, will be subject to ADB approval. The borrower, executing and implementing agencies have been advised that approval of advance contracting and retroactive financing does not commit ADB to finance the project. 12 Available at: 13 Available at:

27 22 B. Procurement of Goods, Works and Consulting Services 32. All procurement of goods and works shall be carried out in accordance with ADB's Procurement Guidelines. ADB-financed civil works contracts, costing $10 million or more, and goods contracts costing $1 million or more, will be procured through international competitive bidding procedures using ADB's standard bidding documents. Goods contract packages costing more than $100,000 and less than $1 million will be procured using national competitive bidding, as will civil works contracts costing more than $100,000 and less than $10 million. Civil works and goods contract packages costing less than $100,000 will be procured using shopping procedures. The relevant sections of ADB's Anticorruption Policy (1998, as amended to date) will be included in all documents and contracts. 33. An 18-months procurement plan indicating threshold and review procedures, goods, works, and consulting service contract packages and national competitive bidding guidelines is in Appendix 2. C. Procurement Plan Table 10: Project Information Country People s Republic of China Name of Borrower People s Republic of China Project Name Heilongjiang Energy Efficient District Heating Project Loan Reference Date of Effectiveness (TBD) Amount $150 million Executing Agencies Government of Heilongjiang Province Approval Date of Original Procurement Plan 01 December 2011 Approval of Most Recent Procurement Plan 20 August 2012 Period Covered by this Plan August 2012 January 2014 D. Consulting Services 34. All consultants will be recruited according to ADB s Guidelines on the Use of Consultants. 14 The terms of reference for consulting services are detailed in Appendix Objectives of Consulting Services 35. The main objectives of the consulting services are to assist the executing agency and implementing agencies in (i) monitoring the environment and land acquisition impacts, (ii) reviewing engineering design, (iii) preparing bidding documents in accordance with ADB s Procurement Guidelines, (iv) preparing the disbursement documents in accordance with ADB s Loan Disbursement Handbook, (v) monitoring the progress of district heating subsector reform, and (vi) preparing the report acceptable to the PMO and ADB. 2. Cost Estimate and Proposed Financing Arrangement 36. The total cost of the project management is $1,200,000 equivalent, of which $1,200,000 will be financed by the ADB loan. The government will provide in-kind counterpart costs and 14 Checklists for actions required to contract consultants by method available in e-handbook on Project Implementation at: