Completion Report. People s Republic of China: Hebei Zhanghewan Pumped Storage Project. Project Number: Loan Number: 1922 August 2014

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1 Completion Report Project Number: Loan Number: 1922 August 2014 People s Republic of China: Hebei Zhanghewan Pumped Storage Project This document is being disclosed to the public in accordance with ADB s Public Communications 2011.

2 CURRENCY EQUIVALENTS Currency Unit yuan (CNY) At Appraisal At Project Completion 18 October December 2013 CNY1.00 = $ $ $1.00 = CNY CNY ABBREVIATIONS ADB Asian Development Bank EIA EIRR EMP FIRR HEPC HPG HSPG LARP O&M PCR PRC PSH SEIA SGCC WACC ZPSC ZPSHPP environmental impact assessment economic internal rate of return environmental management plan financial internal rate of return Hebei Electric Power Corporation Hebei Provincial Government Hebei South Power Grid land acquisition and resettlement plan operation and maintenance project completion review People s Republic of China pumped storage hydropower summary environmental impact assessment State Grid Corporation of China weighted average cost of capital Zhanghewan Pumped Storage Company Zhanghewan Pumped Storage Hydro Power Plant

3 ha km kv m m 3 MW t TWh V WEIGHTS AND MEASURES hectare kilometer kilovolt (1,000 volts) meter cubic meter megawatt (1 million watts) ton terawatt-hour volt NOTE In this report, $ refers to US dollars and ton refers to metric ton. For an explanation of rating descriptions used in ADB evaluation reports, see: ADB Guidelines for Preparing Performance Evaluation Reports for Public Sector Operations. Manila.

4 Vice-President S. Groff, Operations 2 Director General A. Konishi, East Asia Department (EARD) Director A. Bhargava, Energy Division, EARD Team leader Team members P. Perera, Principal Energy Specialist, EARD N.W. Kim, Environment Specialist, EARD W.Y. Lee, Energy Specialist, EARD D. Molina, Operations Assistant, EARD T. Oi, Senior Energy Specialist, EARD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

5 BASIC DATA CONTENTS Page I. PROJECT DESCRIPTION 1 II. III. IV. EVALUATION OF DESIGN AND IMPLEMENTATION A. Relevance of Design and Formulation 1 B. Project Outputs 3 C. Project Cost 5 D. Disbursements 6 E. Project Schedule 6 F. Implementation Arrangements 6 G. Conditions and Covenants 7 H. Consultant Recruitment and Procurement 8 I. Performance of Consultants, Contractors, and Suppliers 8 J. Performance of the Borrower and the Executing Agency 8 K. Performance of the Asian Development Bank 9 EVALUATION OF PERFORMANCE A. Relevance 9 B. Effectiveness in Achieving Outcome 10 C. Efficiency in Achieving Outcome and Outputs 10 D. Preliminary Assessment of Sustainability 11 E. Impact 12 OVERALL ASSESSMENT AND RECOMMENDATIONS A. Overall Assessment 13 B. Lessons 13 C. Recommendations 15 APPENDIXES 1. Project Framework Project Cost and Financing Plan Cost Breakdown, by Project Component Projected and Actual Disbursement Project Implementation Schedule Chronology of Main Events Status of Compliance with Loan Covenants ADB-Financed Contract Packages Economic Reevaluation Financial Reevaluation Environmental Impact Assessment Implementation of Land Acquisition and Resettlement Plan and Other Social Benefits Quantitative Assessment of Overall Project Performance 71 ii

6 BASIC DATA A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agency 6. Amount of Loan 7. Project Completion Report Number People s Republic of China 1922 PRC Hebei Zhanghewan Pumped Storage Project People s Republic of China Hebei Electric Power Corporation $144.0 million ($135.9 million net of cancellation) PCR:PRC 1469 B. Loan Data 1. Appraisal Date Started Date Completed 2. Loan Negotiations Date Started Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness In Loan Agreement Actual Number of Extensions 6. Closing Date In Loan Agreement Actual Number of Extensions 7. Terms of Loan Interest Rate Maturity (number of years) Grace Period (number of years) Front-end Fee 8. Terms of Relending Interest Rate Maturity (number of years) Grace Period (number of years) Second-Step Borrower 25 February March August August October August November January December July LIBOR-based % LIBOR-based 25 7 Zhanghewan Pumped Storage Company 9. Disbursements a. Dates Initial Disbursement 15 June 2004 Effective Date 16 January 2004 Final Disbursement 23 August 2012 Original Closing Date 31 December 2009 Time Interval 99 months Time Interval 60 months

7 iii Category b. Amount ($ million) Original Allocation (1) Amount Canceled (2) Last Revised Allocation (3 = 1-2) Amount Disbursed (4) Undisbursed Balance a (5 = 3-4) A. ADB Loan 01 Civil Works 18,960,000 (9,540,000) 28,500,000 28,303, , Equipment 94,230,000 4,238,000 89,992,000 89,826, , Materials 4,710,000 4,710, Institutional Strengthening 1,250, , , , and Training 05 Consulting Services 2,500,000 1,597, , , Front End Fee 1,440, ,440,000 1,440, Interest and Commitment 14,680, ,680,000 14,680,000 0 Charge 08 Unallocated 6,230,000 6,230, Total 144,000,000 7,690, ,310, ,947, ,996 a An undisbursed amount of $362,996 was cancelled when the loan was financially closed on 11 July ( ) = negative. 10. Local Costs (Asian Development Bank-Financed) - Amount ($ million) 0 - Percentage of Local Costs 0% - Percentage of Total Cost 0% C. Project Data 1. Project Cost ($ million) Cost Appraisal Estimate Actual Foreign Exchange Cost Local Currency Cost Total

8 iv 2. Financing Plan ($ million) Cost Appraisal Estimate Actual A. Loan Asian Development Bank China Development Bank Agriculture Bank of China Shareholder s Loan Subtotal (A) B. Equity Hebei Electric Power Corporation a Hebei Construction & Investment Company Xinyuan Company 83.5 Local Government Subtotal (B) Total a includes $184.0 million spent on rural electrification and $7.4 million equity investment in Zhanghewan Pumped Storage Hydro Power Plant. 3. Cost Breakdown by Project Component ($ million) Component Appraisal Estimate Actual A. Base Costs 1. Pumped Storage Power Plant a Rural Electrification Closure of Coal-fired Power Plants Afforestation Institutional Strengthening Irrigation Subtotal (A) B. Capacity Building 1. Consulting Service 0.9 Subtotal (B) 0.9 C. Contingencies 1. Physical Contingencies Price Contingencies Systems 58.7 Subtotal (C) D. Financial Charges during Development Total a Includes land acquisition and resettlement cost estimated at CNY150.6 million at appraisal but actual land acquisition and resettlement cost was CNY289.8 million.

9 v 4. Project Schedule Item Appraisal Estimate Actual Date of Contract with Consultants Sep 2002 Feb 2004 Completion of Engineering Designs Aug 2002 Aug 2002 Civil Works Contract Date of Award Jun 2005 June 2003 Completion of Work Dec 2007 Jul 2008 Equipment and Supplies First Procurement Dec 2003 Feb 2004 Last Procurement Mar 2007 Sep 2005 Completion of Equipment Installation Mar 2008 June 2009 Start of Operations Completion of Tests and Commissioning Jun 2009 Feb Project Performance Report Ratings Implementation Period Development Objectives Ratings Implementation Progress From 18 Oct 2002 to 31 Dec 2002 Satisfactory Satisfactory From 01 Jan 2003 to 31 Dec 2003 Satisfactory Unsatisfactory From 01 Jan 2004 to 31 Dec 2004 Satisfactory Highly Satisfactory From 01 Jan 2005 to 31 Dec 2005 Satisfactory Highly Satisfactory From 01 Jan 2006 to 31 Dec 2006 Satisfactory Highly Satisfactory From 01 Jan 2007 to 31 Dec 2007 Satisfactory Satisfactory From 01 Jan 2008 to 31 Dec 2008 From 01 Jan 2009 to 31 Dec 2009 From 01 Jan 2010 to 31 Dec 2010 From 01 Jan 2011 to 31 Dec 2011 From 01 Jan 2012 to 31 Dec 2012 Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Satisfactory Highly Satisfactory Highly Satisfactory Highly Satisfactory From 01 Jan 2013 to 11 Jul 2013 Satisfactory Highly Satisfactory D. Data on Asian Development Bank Missions Name of Mission Loan Fact finding a Loan Inception Loan Review 1 Loan Review 2 Loan Review 3 Loan Review 4 Loan Review 5 Loan Review 6 Loan Review 6 Loan Review 7 Loan Review 8 Loan Review 9 Project completion review Date 25 Feb 12 Mar Dec Dec May Apr Nov Sep Oct Jul Jul Apr Mar Feb 04 Mar 2014 No. of Persons No. of Person-Days Specialization of Members a, c, k, k a, a a, m a j d, j, m a j, k, n j, h j, n a, m h, n a,b,h,j a = engineer, b = financial analyst, c = counsel, d = economist, e = procurement consultant or specialist, f = control officer, g = programs officer, h = environment specialist, i = co-financing officer, j = social development specialist, k = energy specialist, l = young professional, m = project analyst, n = consultant. a Waiver of loan appraisal approved during the management review meeting on 28 May 2002.

10 I. PROJECT DESCRIPTION 1. Zhanghewan Pumped Storage Hydro Power Plant (ZPSHPP) is located in Hebei Province of the People s Republic of China (PRC), about 400 kilometers southwest of Beijing. It is connected to Hebei South Power Grid (HSPG) serving the southern part of the Hebei Province. 1 At the time of project appraisal, HSPG had insufficient peaking capacity due to an unbalanced generation mix and inadequate transmission interconnections with neighboring provinces. 2 These system constraints resulted in poor quality of electricity supply and prolonged load shedding in rural areas in the Hebei Province. 2. Hebei Electric Power Corporation (HEPC) operated old coal-fired power plants with low thermal efficiency and high coal consumption peaking plants. 3 Most of these plants were over 30 years old, had a unit size of less than 50 megawatts (MW), and lacked the peak load regulation capability. 4 The project design included the closure of old heavily polluting coal-fired power plants that had been used as peaking plants. Due to inadequate conventional hydropower capacity and the absence of adequate natural gas infrastructure in Hebei Province in the 1990s, the ZPSHPP was conceived to provide peaking capacity to HSPG and to improve the reliability and stability of power supply. 3. Although Hebei Province was rapidly industrializing, with large investments in heavy industries (such as the iron and steel and cement industries) majority of the population lived in rural areas and relied on agriculture at the time of appraisal. HSPG s service area covered over 23 nationally designated poor counties, including Jingxing County where the ZPSHPP is located. Given the high emphasis on poverty alleviation at the time of approval, the project design included components to improve the reliability and quality of electricity supply to poor rural counties and expansion of the irrigation network to rural farming villages in Jingxing County. The project design also included an afforestation component to improve soil conservation and environmental sustainability of Jingxing County. The project was approved when the government was contemplating a power sector reform program, and it included a separate capacity building component for institutional strengthening of HEPC to support the establishment of a competitive power market in Hebei Province. II. EVALUATION OF DESIGN AND IMPLEMENTATION A. Relevance of Design and Formulation 4. At appraisal, the project design was consistent with the government s energy sector development priorities, which focused on meeting the growing electricity demand in an environmentally sustainable manner by improving the thermal efficiency of the power sector and 1 The service area of Hebei South Power Grid (HSPG) included six out of the 13 prefectures of Hebei Province and a population of 40 million. HSPG had an installed capacity of 7.25 gigawatts (GW), peak load of 6.33 GW, and annual electricity sales of 43.2 terawatt-hours, at the time of the approval of feasibility study in Annual electricity sales of HSPG have reached 142 terawatt-hours by 2012 (i.e., growth rate of 8.8% per annum). 2 The peak power shortage in HSPG was estimated to be 1.6 GW in comparison to peak demand of approximately 8.5 GW in Furthermore, more than 95% of generation capacity in HSPG was provided by inflexible coal-fired power plants. HSPG had limited transmission interconnection capacity with neighboring provinces such as Shanxi and Shandong as well as Hebei North Power grid. 3 Coal consumption was as high as 550 grams/kilowatt-hour compared to 325 grams/kilowatt-hour possible in modern ultra super critical coal power plants. 4 Coal-fired power plants response to changes in demand is slower compared to gas-fired power plant or pumpedstorage plant.

11 2 reducing coal consumption. In addition, the government s short-term priorities were to improve the reliability of electricity supply and eliminate the peak generation capacity shortage and resultant load shedding. 5 The project was designed to meet these objectives by (i) increasing the generation capacity during peak time, (ii) closing old and inefficient coal-fired power plants used for meeting peak demand, and (iii) increasing the utilization of more efficient supercritical coal-fired power plants during off-peak period. Moreover, the project was designed to improve the socioeconomic well-being of the local population in Jingxing County by enhancing the flood protection capacity and irrigation coverage of the existing Zhanghewan reservoir. 5. A capacity building component to enhance the capacity and readiness of HEPC to establish a competitive power market in Hebei Province was included in the project. Although this component was relevant at the time of approval, the central government decided to restrict the unbundling only between generation and grid (including distribution) assets. As a result five generating companies and two grid companies were established. ZPSHPP was transferred to the State Grid Corporation of China (SGCC), which established Xinyuan Company to own and operate pumped storage hydropower (PSH) plant in SGCC s operating area, including the ZPSHPP. 6 As the original scope of the consultancy services was no longer relevant, the budget allocation for institutional reforms was utilized for capacity building of Xinyuan Company and for preparing a strategy for developing PSH plants. 6. The project was aligned with the Asian Development Bank (ADB) country partnership strategy for the PRC, which supported environmentally sustainable and inclusive economic growth. The ZPSHPP financed under the project is consistent with the objective of promoting economic growth in an environmentally sustainable manner by eliminating the peak generation capacity shortage and improving the overall thermal efficiency of HSPG. This has contributed to the reduction of greenhouse gas emissions in the power sector and improvement of the urban environment. 7. Rural electrification and irrigation expansion components were also included in the project to promote social inclusiveness and poverty alleviation. It included loan covenants to eliminate the tariff disparity between urban and rural areas (rural tariffs were higher than urban tariffs) and to provide tariff discounts to poor households. However, the socioeconomic survey conducted at project completion indicated that the irrigation expansion component may not be relevant in the changed socioeconomic conditions in Hebei Province. Significant outward migration of farm laborers to cities and non-farm jobs, caused by increased employment opportunities and relatively poor farm yields in Jingxing County, resulted in reduced water demand for irrigation. 8. The project design included distinct components (i.e., rural electrification and afforestation) to address environmental sustainability, social inclusiveness, and poverty alleviation aspects and to draw and force attention of the relevant government agencies to ensure their timely completion that would enhance development impact of ZPSHPP project. The rural electrification and afforestation activities have been completed as intended, and the government is continuing the afforestation in Jingxing County as part of the national afforestation program. 5 Load shedding is the deliberate shutdown of electric power in parts of the power distribution system, when demand exceeds the available generation capacity. 6 State Grid Corporation of China is one of the two grid companies after restructuring.

12 3 B. Project Outputs 9. The project included six components: (i) pumped storage power plant with associated ZPSHPP and a transmission line connecting the plant to HSPG; (ii) rural electrification in 23 counties in HSPG, consisting of substations and medium-voltage distribution system 7 (iii) establishment of a competitive power market and institutional reforms of HEPC; (iv) closure of 20 power generating units of 50 MW or less in five coal-fired power plants totaling 505 MW; (v) expanded irrigation capacity of the Zhanghewan lower reservoir from 1,467 hectares (ha) to 8,167 ha; and (vi) afforestation of 16,330 ha of trees in Jingxing County. Appendix 1 shows the project framework and the actual performance. 1. Zhanghewan Pump Storage Hydro Power Plant 10. The 1,000 MW ZPSHPP consisted of (i) increasing the dam height of the existing Zhanghewan reservoir from 54 meters (m) to 77 m and the live storage capacity from 22 million cubic meters (m 3 ) to 52.5 million m 3 ; (ii) constructing an upper reservoir of 7.85 million m 3 at an elevation of 800 m; (iii) excavating two underground caverns to house the turbines or pumps, generators or motors, and the power transformers; (iv) constructing two headrace tunnels of 612 m to connect the upper reservoir to the power station; (v) constructing four tailrace tunnels of 175 m to connect the power station with the lower reservoir; (vi) installing 4 x 250 MW pump and turbine units and the associated motors or generators, transformers, switchyard, and control system; (vii) constructing 63 kilometers single circuit 500 kilovolt (kv) transmission line to connect the ZPSHPP to HSPG; and (viii) providing relocation and livelihood restoration for people affected by project construction. 11. The ZPSHPP was constructed as designed and commissioned in 2009 without any significant delays. Since its commissioning, it has been operating without any major technical issues. It has offered the following services to HSPG: (i) peaking generation capacity; (ii) demand for base load coal-fired power plants during off peak hours (e.g., at night) to enable their operation at rated load and efficiency; and (iii) ancillary services to maintain grid stability The ZPSHPP construction affected 2,878 persons in eight villages mainly as a result of expansion of the surface area of the lower reservoir. In five out of the eight villages, the affected people (664 persons) were resettled within the same village and in the three remaining villages (Beihaoting, Shimen and Nanhaoting Villages); the affected people (2,214 persons) were relocated in newly constructed villages. Residents of Beihaoting Village (343 persons) moved to the newly established Beihaoting Village in December 2007 prior to commissioning of the ZPSHPP. However, the relocation of Shimen Village (229 affected persons) and Nanhaoting Village (1,642 affected persons) was significantly delayed due to the disagreement between the affected people and county government on the location of the resettlement site. The relocation of Shimen Village was completed in December Refers to 10 kilovolt (kv), 35 kv, and 110 kv. 8 Ancillary services refer to spinning reserve (i.e., generation capacity that can be called up at short notice), load following capability (i.e., changing the generator output to match changes in demand), frequency regulation (i.e., maintaining the system frequency by instantaneously varying the output), and black start capability (ability to restart the power plant in the event of system collapse).

13 4 13. The delay in selecting the resettlement site for Nanhaoting Village resulted in a cost increase of CNY 139 million, 9 which was borne by the Zhanghewan Pumped Storage Company, Ltd. (ZPSC). The resettlement of Nanhaoting Village was substantially completed in December 2013 and by the time of the project completion mission in March 2014, 420 out of 438 affected households have been relocated. Jingxing County government expects the remaining 18 households to move to the new village by September 2014 after they have reached agreement on their entitlement to compensation and livelihood support mechanisms. Due to this delay in resettlement, the water level of the lower reservoir could not be raised to the design level of 480 m. Although this has not affected ZPSHPP operations, the irrigation and flood protection benefits of the project could not be fully realized. It is expected that the water level will be raised to 480 m as soon as the outstanding 18 households move to the new village. 2. Rural Electrification 14. Although ADB financing was not allocated to rural electrification, the project included consulting services to improve the poverty targeting and socioeconomic monitoring of the rural electrification network expansion and rehabilitation, financed by the government. Implementation of the rural electrification component was completed in ADB also has engaged in policy dialogue with the provincial government to remove the tariff disparity between rural and urban areas and to provide tariff discounts to rural poor. Hebei Province has achieved 100% electrification in 2005 and the electricity consumption in rural areas of HSPG increased from 3.3 terawatt-hours (TWh) in 2000 to 5.4 TWh in 2005 and 15.4 TWh in The residential tariffs in rural areas have been reduced and made equal to urban residential tariffs in There has been a significant improvement in quality of electricity supply and the consumer satisfaction increased from 47% in 2005 to 72% in 2010 based on the socioeconomic survey financed by ADB in The other socioeconomic benefits attributed to improved electricity supply in rural areas included increase in (i) industrial activity in the rural areas, (ii) rural residents employed in non-farm activities, and (iii) the use of electricity for irrigation. It can be concluded that rural electrification has contributed to improved quality of life and non-farm income generating opportunities to rural communities. 3. Institutional Reforms and Introduction of Competitive Power Market 16. The project included a capacity building component to prepare HEPC to implement the institutional reforms and establish a competitive power market. Given the reduced scope of the reforms implemented by the government, the scope of capacity building activities were suitably revised as detailed in para Closure of Old, Inefficient, and Polluting Coal-fired Power Plants 17. As the ZPSHPP was to increase the peak generation capacity of HSPG, decommissioning of 505 MW of generation capacity provided by five small coal-fired power plants was included as a project component. Total generation capacity of 671 MW was decommissioned in the designated five power plants during The government has 9 The original cost estimate for land acquisition and resettlement was CNY150 million and at project completion the actual cost incurred was CNY289 million.

14 5 further strengthened the requirement for decommissioning old coal-fired power plants under the 11th and 12th Five-Year Plans. An aggregate 3,700 MW of old coal-fired generation capacity has been decommissioned in Hebei Province since Irrigation Improvement 18. This project component was designed to utilize the increased water storage capacity (para 10) of the lower reservoir and to expand the irrigation coverage from 1,467 ha to 8,167 ha, by constructing two additional irrigation canals and expanding the existing Xiyue Canal. This component was to be fully financed by the local government. ZPSC has also entered into legally binding agreements with Jingxing County Water Resource Committee regarding the utilization and sharing of water stored in the lower reservoir. 19. There has been a reduction in the demand for irrigation due to significant decrease in agricultural activities in Jingxing County as a result of outward labor migration for non-farm employment. In addition, the delays in completing the resettlement of Nanhaoting Village reduced the water storage capacity of the lower reservoir. Given the constraints on water release for irrigation and the reduced demand for irrigation, Jingxing County decided to delay implementation of this component. Although with the completion of relocation of Nanhaoting Village in 2014, the storage capacity of the lower reservoir would reach the designed level, due to lack of demand for irrigation and reduced level of agricultural activities in the project area, there are no immediate plans to commence implementation of this component. 6. Afforestation Program 20. This was included as a separate component of the project to ensure timely implementation of the ongoing afforestation program in Jingxing County. It was expected to contribute to the long-term sustainability of the ZPSHPP by reducing soil erosion and improving the lower reservoir watershed protection. It was confirmed that Jingxing County has afforested more than 16,000 ha from and is continuing the program. C. Project Cost 21. At appraisal, the total project cost for the ZPSHPP and other project components, including contingencies and interest and other loan charges during construction, was estimated at $774.9 million equivalent $165.3 million in foreign exchange cost (21.3% of the total) and $609.6 million in local currency cost (78.7% of the total).the base cost (excluding contingencies and interest during construction) was estimated to be $600.7 million, including $438.7 million for construction of the ZPSHPP and associated transmission line. There was no cost increase in local currency terms (the actual cost was CNY5,481.0 million compared with the appraisal estimate of CNY6,413.6 million) or in foreign currency cost (actual cost was $ million compared to the appraisal estimate of $ million). The local currency cost though when expressed in US dollar terms, shows a significant increase due to the appreciation of the Chinese Yuan against the US dollar The financing plan for the ZPSHPP at appraisal consisted of (i) an ADB loan of $144.0 million (18.6%); (ii) domestic loans of $275.8 million (35.6%) from China Development 10 The US dollar yuan exchange rate was $1 = CNY at the time of project completion and $1 = CNY at appraisal.

15 6 Bank and $117.3 million (15.1%) from the Agricultural Bank of China; (iii) equity contributions of $135.7 million (17.5%) from Hebei Electricity Company and $72.8 million (9.4%) from Hebei Construction and Investment Company; and (iv) local government financing of $29.3 million (3.8%). However, the financing plan underwent significant changes during project implementation as a result of changes to the power sector reforms (para 28). SGCC, through Xinyuan Company, contributed $83.5 million to the project equity and $108.6 million as a shareholder s loan at commercial terms. The other major changes were: (i) the $117.3 million loan from the Agricultural Bank of China was not utilized, (ii) HEPC financing was increased to $191.2 million and mainly allocated to the rural electrification component, and (iii) local government financing was increased to $57.3 million. The financing plan is in Appendix 2 and the detailed cost breakdown is in Appendix 3. D. Disbursements 23. The first disbursement under the loan was on 15 June 2004 amounting to $1.64 million for equipment. Due to the large amount of contracts, commitment and direct payment procedures were used to pay for project expenditures. These procedures resulted in efficient disbursements. Total disbursement as of the loan closing date amounted to $ million, or 94.4% of the loan amount of $ million. The loan amount was reduced to $ million after a partial cancellation of $7.69 million in July 2012, and final cancellation of the undisbursed amount of $0.36 million at financial closing. Appendix 4 shows the disbursement projections at appraisal and the actual disbursements. E. Project Schedule 24. The loan and project agreements were signed on 28 August 2003, 10 months after loan approval, and took effect on 16 January 2004, about 5 months after loan signing. Although the project was physically completed in February 2009, the loan closing date was extended twice because of outstanding warranty and retention payments and pending resettlement issues. The loan finally closed on 31 July Appendix 5 shows the projected and actual implementation schedules for each completed component and Appendix 6 lists a chronology of main events. 25. An initial delay in loan effectiveness did not affect implementation of the ZPSHPP. Construction activities commenced in December 2003 using counterpart funding, and all four generation units of the ZPSHPP were commissioned by February 2009 as scheduled. The electromechanical equipment financed under the ADB loan was delivered to the site as scheduled. However, relocation of the affected villages was significantly delayed and it has not yet been completed. Although this did not affect commercial operations of the ZPSHPP, it delayed the realization of irrigation and flood control benefits expected from the project. Other project components such as rural electrification, afforestation, and closure of coal-fired power plants were implemented ahead of the original schedule. F. Implementation Arrangements 26. The executing agency for the project, HEPC, was responsible for overall project coordination and was directly responsible for (i) the rural electrification program, (ii) closure of old power plants, and (iii) the construction and operation and maintenance (O&M) of the 500 kv transmission constructed under the project. ZPSC, the implementing agency, was formally established in August 2002 as a subsidiary of HEPC with direct responsibility for the design, construction, and operation of the ZPSHPP.

16 7 27. Although these institutional changes did not affect implementation of the ZPSHPP, as ZPSC retained the responsibility for implementation and operation of the ZPSHPP, the role of HEPC as the executing agency in coordinating different project components was changed as HEPC did not have supervisory control over ZPSC. Nonetheless, construction of the 500 kv transmission line and implementation of the rural electrification component remained the responsibility of HEPC. The coal-fired power plants to be closed were transferred to newly created power generation companies. The closure of old coal-fired power plants was coordinated by Hebei Provincial Government (HPG), and implementation of the afforestation program and resettlement of affected households were undertaken by Jingxing County government in close coordination with ZPSC. G. Conditions and Covenants 28. The loan covenants were generally complied with, particularly the covenants related to financial management and reporting (Appendix 7). Audited project accounts and audited financial statements, quarterly project monitoring reports, and annual environment monitoring reports were submitted regularly. The ZPSHPP was constructed in compliance with applicable environmental regulations, and adverse environmental impacts during project construction and operation were effectively minimized by implementing the mitigation measures in the environmental management plan (EMP). 29. The loan covenants related to the resettlement of affected people required HEPC and ZPSC to ensure the resettlement, compensation, and livelihood restoration of affected people. These covenants were complied with despite significant delays due to the delay in relocating the affected people (para 13). The primary responsibility for resettling the affected people was with the Jingxing County government and the role of ZPSC was limited to making the required financing available. In particular, obtaining the agreement of affected people to move to relocation sites; determining the compensation payments; constructing resettlement villages, taking into account the preferences of affected people; and providing livelihood support was the responsibility of Jingxing County. 30. The negotiations between affected villages and Jingxing County on the proposed resettlement sites, resulted in increased cost of CNY289 million compared to the original estimate of CNY150 million. As a result, there was a delay on the part of ZPSC in allocating additional funds to Jingxing County for the relocation of the affected people. However, after more than 18 months delay, ZPSC agreed to the revised resettlement cost estimate and the new resettlement village was completed in December The socioeconomic survey of resettled villages confirmed that the affected people have been adequately compensated; their livelihoods restored and living conditions have shown significant improvement. 31. The project agreement required HEPC to implement the power sector reform program based on the agreed recommendation of the consultants recruited under the project for institutional strengthening and power sector restructuring. Furthermore, HEPC was required to implement the tariff reform action plan to be finalized by December 2005 to eliminate the disparity between rural and urban residential tariffs and to provide tariff discounts to the rural poor. In 2005, the responsibility for end user tariff setting was transferred to the Provincial Price Bureau of Hebei Development and Reform Commission and the tariff reform action plan was not prepared. However, the tariff disparity between rural and urban residential consumers was eliminated and rural tariffs were reduced in 2005.

17 8 32. The project agreement also required ZPSC and HEPC to enter into a power purchase and sales agreement to govern the commercial arrangement for electricity sales by ZPSC to HEPC and the supply of electricity by HEPC for water pumping. However, this was no longer required as the ZPSHPP is considered part of the transmission network; and the National Development and Reform Commission stipulated that PSH plants should be paid an annuity payment to compensate their capital and operational costs, and the cost of electricity for water pumping should be absorbed by the grid company. In addition, the project agreement contained financial covenants on HEPC to ensure its financial viability as the majority shareholder of ZPSC. As HEPC ceased to be the majority shareholder of ZPSC since 2005, these covenants are no longer relevant. H. Consultant Recruitment and Procurement 33. ADB loan proceeds were used for the procurement of civil works (one international competitive bidding contract package for bituminous lining of upper reservoir), three international competitive bidding contract packages for equipment (electromechanical equipment for the power plant, 500 kv transformers, and 500 kv switch gear) and two consulting contracts (supervision of civil works and electromechanical equipment installation at the ZPSHPP, and institutional strengthening and power sector reform in Hebei Province). Procurement and consultant recruitment were undertaken in accordance with ADB s Procurement Guidelines and Guidelines on the Use of Consultants, and the contract packages financed by ADB are listed in Appendix The procurement of goods and civil works funded by domestic financing, followed applicable national procurement procedures. 34. The procurement of goods and civil works was carried out in a timely manner, and no major issues or delays occurred in contract awards. The implementation consultants recruited using ADB loan proceeds reviewed the technical specifications for procurement contracts, and ZPSC retained a procurement agent to manage the procurement process. I. Performance of Consultants, Contractors, and Suppliers 35. The performance of contractors and suppliers in undertaking civil works and supplying equipment has been satisfactory for both ADB-financed contract packages as well as for contract packages funded by domestic financing sources. No major delays or instances of unsatisfactory performance by contractors and suppliers occurred. The consultants recruited for project implementation supervision also performed satisfactorily. A change in scope was processed for the consultant services for institutional reforms and power sector reforms, as the original scope of the consulting assignment was not relevant in the context of the government s decision to limit the reform process to the unbundling of power generation. The consultancy assignment was restructured to provide capacity building to Xinyuan Company in planning, designing, and operating PSH plants. J. Performance of the Borrower and the Executing Agency 36. HPG acting on behalf of the borrower, was responsible for coordinating the implementation of different project components, as the role of the executing agency (HEPC) was limited to implementing the rural electrification component and the transmission line connecting ZPSHPP to HSPG. ZPSC had the direct responsibility for implementing the 11 ADB Procurement Guidelines and Guidelines on the Use of Consultants. Manila

18 9 ZPSHPP. Different agencies of HPG were responsible for implementing the other components of the project which did not receive ADB loan proceeds. 37. While ZPSC constructed the ZPSHPP within the original schedule, the local government incurred significant delays in finalizing the resettlement sites for the affected people. While the local government s efforts to reach a mutually acceptable resettlement site are commendable and consistent with ADB s safeguards policy, the delay in finalizing these resettlement issues resulted in the irrigation and flood control benefits of the project not being fully realized. 12 The provincial government also ensured that the implementation of rural electrification, closure of inefficient coal-fired power plants, and afforestation were completed ahead of schedule. Hence, the performance of the borrower and the executing agency is rated satisfactory. The Xinyuan Company, Hebei Construction and Investment Company and other shareholders have provided equity contributions and Xinyuan also mobilized a shareholder s loan in a timely manner. In addition, co-financing from local banks was also mobilized without any delay. K. Performance of Asian Development Bank 38. ADB s performance in monitoring the project is satisfactory. Regular project review missions were conducted, and procurement contracts and disbursements were approved without significant delays. ADB also monitored the project components that were not allocated under ADB loan funds. However, some of the indicators included in the Design and Monitoring Framework (DMF) to monitor the poverty alleviation impacts of the project were poorly defined and difficult to monitor. These indicators have not been appropriately adjusted during the project implementation. In particular, ADB closely monitored the resettlement of affected households and encouraged the relevant parties to reach a mutually acceptable solution. ADB also closely monitored the livelihood improvement of affected households after resettlement. ADB revised the scope of the consulting services for institutional reforms when the original scope became irrelevant as a result of the change in government policy for power sector reforms. III. EVALUATION OF PERFORMANCE A. Relevance 39. The project design was consistent with the government s energy sector development priorities at the time of project approval, which focused on meeting the growing electricity demand in an environmentally sustainable manner by improving the thermal efficiency of the power sector and reducing the rate of growth in coal consumption. The techno-economic rationale for the ZPSHPP financed under the project remains valid and relevant at project completion, as it is making a significant contribution to maintain peaking power demand supply balance as the only large hydropower plant in HSPG. As the original scope of the consulting services for institutional reforms was no longer relevant, the budget allocation was utilized for capacity building of Xinyuan Company and for preparing a strategy for developing PSH plants in the PRC s restructured power system. The project is also consistent with ADB s country partnership strategy for the PRC, which supported environmentally sustainable and inclusive economic growth. Hence, the project is rated highly relevant. 12 ADB Safeguard Policy Statement. Manila.

19 10 B. Effectiveness in Achieving Outcome 40. The project has achieved its main outcome of improving the reliability and stability of HSPG by enhancing the peak load generation capacity and improving the flexibility of electricity generation capacity. This has improved the overall thermal efficiency of the power systems by eliminating the use of inefficient, old, coal-fired power plants as peaking plants, and by reducing greenhouse gas emissions compared with the counterfactual of continued use of small coal fired power plants to meet the peak demand. It has also enabled the closure of over 3,700 MW of old, inefficient, small coal-fired power plants in HSPG during , including the 505 MW of old thermal power plants identified for closure at appraisal. However, the flood control and irrigation expansion benefits resulting from the expansion of water storage in the lower reservoir have not been fully realized because of the delay in finalizing the relocation of one of the affected villages. 41. The rural electrification component of the project was implemented as intended, and the socioeconomic survey of the beneficiaries confirmed the improved quality of electricity supply, increased use of electricity for income-generating activities, and increased employment opportunities in nonfarm sectors. Although the power sector reforms were not implemented as intended at the time of approval, power generation has been separated from transmission, and distribution and tariff reforms have been undertaken to eliminate the urban rural tariff disparity and to ensure the financial viability of the power sector. As a result, the rural tariff has been reduced in real terms. As most of the key outcomes of the project have been achieved, it is rated effective. C. Efficiency in Achieving Outcome and Outputs 42. Although the project consisted of several components, the efficiency of investment at project completion has been quantitatively assessed for the ZPSHPP, the main component of the project funded by ADB. The efficiency of other components has been assessed based on qualitative analysis of the benefits achieved and the actual costs incurred. No significant cost increases were incurred in implementing any of the project components in local currency terms. 13 All project components, except the irrigation component, were implemented ahead of schedule and within budget in local currency terms. The economic and financial evaluation of the ZPSHPP is summarized below and described in detail in Appendixes 8 and 9. The delay in completing the resettlement did not affect the economic benefits of the ZPSHPP, as power plant operations were not affected. However, flood control and irrigation benefits were not realized. As the recalculated economic internal rate of return (EIRR) and financial internal rate of return (FIRR) for the ZPSHPP indicate it to be economically and financially efficient, the project as a whole is rated efficient. 1. Economic Evaluation 43. The economic evaluation of the ZPSHPP was undertaken in accordance with the ADB Guidelines on Economic Analysis. The recalculated EIRR is high but regarded as conservative, as it takes into account only the main benefits of different components and includes all projectrelated costs. The economic net present value of the project without environment benefits is CNY992.2 million. The actual EIRR of the project without environment benefits is 16.1%, which is lower than the projected EIRR (19.1%) at appraisal but is still greater than the 12% economic 13 A cost increase in US dollar terms was due to appreciation of the local currency. (para 21)

20 11 cost of capital (discount rate). This variance is due to (i) exclusion of other parts of the overall project (rural electrification, irrigation, and afforestation, etc.); and (ii) the different methodology used to quantify the economic benefit of the pumped storage plant, particularly the ancillary services. 2. Financial Evaluation 44. The FIRR for the project was determined using actual investment costs, and a combination of historical and projected data for revenues and costs. The recalculated FIRR for the project was 5.9%, compared with 7.3% at appraisal and higher than the weighted average cost of capital of 2.6%. The difference in the recalculated FIRR compared with the appraisal estimate resulted from lower actual annual revenue (CNY415.1 million per year on average) than the appraised revenue of CNY1,048.6 million per year. 14 Although the actual revenue is much lower (60%) than the appraisal, the decrease in the FIRR was negligible because of (i) 5% lower actual investment costs; and (ii) lower actual O&M costs since the electricity for water pumping was provided free of charge by the local grid company. The lower actual revenue is partially offset by both lower capital and O&M costs. In addition, the fixed lease revenue has significantly reduced revenue uncertainty since the guaranteed annual fee would be paid regardless of actual usage. The financial analysis is in Appendix 10. D. Preliminary Assessment of Sustainability 45. The ZPSHPP financed under the project is most likely to be sustainable. It is operated by a highly professional and dedicated team of engineers. ZPSC, which owns and operates the ZPSHPP, is a subsidiary of Xinyuan Company belonging to SGCC. ZPSC is financially rewarded through an annuity payment by SGCC for providing peak generation capacity regardless of actual dispatches. The revenues are more than adequate to recover project costs, including O&M costs, and provide adequate cash flows for debt service and a reasonable return on investment. In addition, the ZPSHPP is likely to be sustainable from an environment point of view as the lower reservoir is not subject to excessive sediment loading, and ZPSC is taking measures to protect the watershed and the lower reservoir banks. 46. The other project components are also likely to be sustainable, given the institutional and financial capacity of the relevant agencies. The rural electrification component has been implemented by HEPC, the provincial unit of SGCC, and it is highly likely that HEPC will have adequate financial resources and technical capacity to maintain the electricity distribution network in rural areas. The government at both national and provincial level is committed to improve the living conditions and public services to rural areas, and remove disparities between rural and urban areas. The government is continuing the closure of old, inefficient, coal-fired power plants, with more stringent conditions and enforcement capacity to reduce air pollution and improve energy efficiency. Similarly, the afforestation program has been mainstreamed in the 12th Five-Year Plan, with targets set for lower level government units. However, no 14 At appraisal, it was assumed that the ZPSHPP would purchase electricity from the grid during off-peak time and sell the generated electricity to the grid during peak time. The difference in electricity tariff in peak and off-peak time was expected to provide adequate margin to meet the cash flow requirements of ZPSHPP. However, the central government has stipulated the pumped storage plants should be treated as part of the transmission network and be paid an annuity payment to cover their operating and capital cost by the Grid Company irrespective of the actual utilization of the plant. The Grid Company was required to provide electricity for water pumping free of charge.

21 12 immediate plans are in place to initiate a power sector reform program with the objective of establishing a competitive power market. E. Impact 1. Economic Impact 47. The ZPSHPP significantly improved the reliability and stability of HSPG, and facilitated the elimination of load shedding that was prevalent prior to In addition, it enabled the improvement of thermal efficiency of HSPG by facilitating the closure of old, inefficient, coalfired power plants. The rural electrification component of the project improved the quality and reliability of power supply in rural areas. The improved power supply in Hebei Province in general and in rural areas in particular contributed to rapid economic growth, increased industrialization, nonfarm employment opportunities, and reduction in rural poverty. Hence, the project had a significant positive economic impact. 2. Environmental Impact 48. The ZPSHPP has been categorized A for environmental safeguards. Compliance with the EMP has been monitored by the independent environment monitoring consultants recruited by the implementing agency, and corrective actions were undertaken during the construction phase of the project. The project was built on an existing reservoir built in the 1970s and only resulted in incremental modifications to the already altered natural environment. The river had already been converted to a seasonal river, and there was no continuous water flow downstream of the existing dam prior to the project. Although the project increased the storage capacity of the lower reservoir and the frequency of fluctuation in water level, as a result of ZPSHPP operations, it had minimal incremental impacts on the aquatic life in the reservoir. However, environmental mitigation measures on rehabilitating the fish habitat and fish population and controlling upstream industrial water pollution sources were seemed overly ambitious in terms of EMP development and unrealistic for ZPSC to implement. 49. The positive environmental impacts of the project were the increased dissolved oxygen level of the lower reservoir, increased flood protection capability, and increased water release capability during drought conditions. In addition, the project contributed to afforestation activities in Jingxing County. The project as a whole also contributed to reducing air pollution in Hebei Province by facilitating the closure of old, inefficient, coal-fired power plants. The project achieved has significant positive environmental benefits at both provincial and local levels, and adverse environmental impacts during construction were effectively mitigated. 3. Social Impacts 50. The social impacts of the ZPSHPP are mainly related to the relocation of 2,878 persons from eight villages. 15 In five of the eight villages, the affected people (total of 664 persons) moved within the same village; in the remaining three villages, the affected people were relocated to new villages constructed under the project that are located near a town. Relocation of two of the villages was significantly delayed by the requirement for obtaining the agreement of affected people to the new resettlement site. The relocation of Nanhaoting Village was not undertaken until December Socioeconomic surveys undertaken after relocation confirmed 15 This does not include the 81 persons affected by the transmission line.

22 13 a significant improvement in quality of life, nonfarm employment opportunities, and access to health and education facilities in the new villages in comparison to the old villages. The affected people have been adequately compensated for lost assets. 51. The improvement in rural electricity supply improved quality of life, income-generation opportunities, and nonfarm employment opportunities for rural residents in 23 counties. The closure of old, coal-fired power plants contributed to an improvement in urban air quality and benefitted urban residents. Electricity tariff reforms supported under the project benefitted rural consumers, as the tariff disparities between urban and rural areas were eliminated and rural tariffs were reduced in real terms. This resulted in increased electricity consumption for productive and leisure activities by rural residents. 4. Institutional Development and Capacity Building 52. The project design had a strong emphasis on institutional development and power sector reforms toward the establishment of a competitive power market in Hebei Province. However, the government decided to limit the scope of power sector reforms to unbundling of generation from transmission and distribution. Therefore, the project had a limited impact on developing a more market-oriented institutional structure for the power sector in Hebei Province. On the other hand, the project supported the establishment of a dedicated entity (Xinyuan Company) under SGCC ownership to construct and operate PSH plants in the PRC. Hence, the project contributed to capacity building and institutional development of PSH plant construction and operation in the PRC, which is contributing to the overall improvement of power system stability and reliability. IV. OVERALL ASSESSMENT AND RECOMMENDATIONS A. Overall Assessment 53. The project is rated successful based on review of its relevance, efficacy, efficiency, sustainability, and impacts. The main investment component of the project financed under ADB financing (the ZPSHPP) is highly relevant to the needs of Hebei Province both at appraisal and completion. The ZPSHPP was implemented within the original schedule, and it has been highly effective in meeting peak electricity demand and improving the grid stability of HSPG. However, completion of the resettlement of some of the affected villages has been delayed due to the disagreement between local government and affected people on the resettlement site for one of the affected villages. The other project components have also been effective in achieving the intended outcomes. The ZPSHPP was implemented within the overall cost estimates (in local currency terms) and is efficient from both financial and economic points of view. Given the high institutional capacity, and strong and steady cash flows, the ZPSHPP is likely to be sustainable from an institutional and financial point of view. The environmental sustainability of the ZPSHPP is ensured through effective implementation of environment mitigation measures. The rural electrification, afforestation, and closure of coal-fired power plants have strong government support and have been mainstreamed into the government s five-year plans. Hence, these components are also likely to be sustainable. The project as a whole has positive economic, environmental, and social impacts that are likely to be sustained. B. Lessons Learned 54. A strong technical and economic rationale for the project ensures its success even if the institutional arrangements for its implementation change. Significant changes to the power

23 14 sector in Hebei Province and to the implementation arrangements of the ZPSHPP did not affect implementation of the ZPSHPP, as it had strong technical and economic relevance to the needs of the Hebei power system. 55. The overall financial strength and institutional capability of the sector are important to ensure the successful implementation of large infrastructure projects such as the ZPSHPP, which require a significant amount of counterpart financing. The ADB loan contributed 21% of the cost of the ZPSHPP and 15% of the total project cost; the remaining financing was mobilized from domestic banks, shareholder financing, and local government financing. 56. Establishing a dedicated entity for the design, construction, and operation the ZHSHPP contributed to the smooth implementation of the project and its subsequent operation. The core staff of ZPSC has been involved in the project from its inception, so ZPSC has a strong sense of ownership and institutional memory. 57. Competent implementation supervision consultants are important to ensure the quality of the technical design and the performance of contractors for complex infrastructure projects. ZPSC highly appreciated the contribution from implementation consultants for the smooth implementation construction of the project within the original schedule. 58. Affected households should be provided with full information regarding their entitlements, livelihood options, and access to other services; and to secure their agreement for proposed resettlement sites as early as possible. The project owner should proactively engage in the consultation process, without delegating the responsibility for managing the resettlement to local government agencies. Consultations with the affected people were not effectively conducted by the local government, which caused significant delays because of lack of consensus on the resettlement sites. This could have been avoided if ZPSC had played a more active role in managing the resettlement program. 59. Obtaining the agreement of affected people to the proposed resettlement sites and entitlements is also significant. Selecting relocation sites near an economic center provides better access to employment opportunities, and public services (such as schools and hospitals) help in obtaining the agreement of the affected people. Providing better housing conditions with basic infrastructure (such as piped water, electricity, internet, and telecommunications) modernized the lifestyle of the affected people, compared with old villages in mountainous areas. In addition, a combined monitoring method with direct inspection through the missions and regular monitoring is highly effective for sensitive resettlement cases. 60. The project design and monitoring framework included components that are not directly related to the project. The implementation arrangements for these components were different from ADB-financed ZPSHPP, and ZPSC did not have any role in implementing these components. This prevented effective monitoring of the implementation of these components by ADB review missions, and confirming their efficacy in achieving the outcomes. Furthermore, the indicators to measure the poverty alleviation impacts were poorly defined as a result these could not be monitored during review missions. ADB should have required HEPC to establish a coordinating mechanism to supervise the implementation of different project components and insisted on more information about these components to be included in annual progress reports and safeguard monitoring reports and inappropriate indicators should have been appropriately revised

24 The relevance and rationale for including an institutional strengthening component to promote power sector reforms is questionable given the uncertainty over the government s strategy for power sector reforms. It is necessary to ascertain the government s vision and strategy for far-reaching sector reforms before committing resources to implement these reforms in lending projects. C. Recommendations 1. Project Related 62. Future monitoring. As the resettlement of affected households had not been completed at the time of the project completion review mission, it has been agreed that ZPSC monitor and confirm the relocation of the remaining 18 households in Nanhaoting Village, the livelihood restoration of the relocated households, and the construction of road access to old Nanhaoting Village. ADB will continue to monitor the resettlement of Nanhaoting Village until all the outstanding issues are resolved. 63. Watershed Protection: More coordinated and targeted afforestation activities are also needed to ensure watershed protection and the long-term sustainability of the project. In this regard, an effective arrangement for upper watershed protection, in consultation with Shanxi Province, needs to be prepared and implemented. 2. General 64. PSH plants can play an important role in the grid integration of intermittent renewable energy sources, provided that appropriate regulatory regimes are in place to the cost of PSH plants with the end users and renewable energy producers, it is recommended to further explore the role of PSH plants in improving the grid flexibility to facilitate renewable energy in other developing member countries.

25 16 Appendix 1 PROJECT FRAMEWORK Design Summary Performance Indicators/Targets Actual Performance Goal To promote pro-poor, sustainable economic growth in Hebei Province and the project area Purpose Improve efficiency and reliability of supply of electric power in the project area Support pro-poor rural development Economic growth in Hebei Province: GDP increases by 6.0% between 2010 and 2014 and by 5.6% between 2015 and Urban unemployment rate decreases from the current 3.2% to 2.5% in 2014 and 2.4% in Per capita income growth rate increases from the current 4.0% to 5.7% between 2005 and 2009 to 5.6% between 2010 and Average per capita income of the poor counties increases from the current level of CNY819 to CNY1,586 in 2009 and CNY2,554 in Reduce load shedding from current 430 hours per year to less than 24 hours per year in 2009 Electricity consumption in Hebei increases by 5.0% between 2005 and 2009, 4.5% between 2010 and 2014, and 4.0% between 2015 and Line loss reduction from the current 20% to 12% in 2006 and 10% in 2010 Per capita electricity consumption increases from current 1,132 kwh to 1,641 kwh in 2009 and 1,980 kwh in 2014 Reduce rural electricity tariffs from the current CNY0.62/kWh to CNY0.51 kwh by ,300 new jobs provided to the poor in the project area between 2003 and Number of electric appliances for poor households increases from the current 1 to 3 in 2005 and 5 in Economic growth in Hebei Province averaged 11.70% from 2006 to 2010 and 10.45% from 2011 to 2012 (11.30% in 2011, 9.60% in 2012) Urban unemployment rate in Hebei Province is 3.69% in Per capita income growth increased by 12.3% for urban households and 11.3% for rural residents during and 12.4% from 2011 to 2012 (13.0% in 2011, and 11.8% in 2012). Per capita income of poor counties reached CNY8,000 in No load shedding in Hebei Province was recorded since Electricity consumption increased on an average by 7.06% per annum during Line losses reduced to less than 5% in 2010 and 1.5% in Per capita electricity consumption has reached 4,223 kwh in The disparity in urban and rural tariffs had been removed and the average tariff paid by rural households was CNY0.52/kWh in The increase in the per capita income in poor counties and the reduction in unemployment rates suggest that significant number of new jobs were created. There has been increase in household electric appliances but the original indicator is poorly defined to

26 Appendix 1 17 Design Summary Performance Indicators/Targets Actual Performance enable quantitative verification. Improve the efficiency of coal consumption Institutional reforms and introduction of competitive power market Outputs Pumped storage generating capacity and dedicated transmission line linking power plant to the grid Rehabilitation of rural electrification network Institutional reforms and introduction of competitive power market Average electricity consumption of the poor household increases from the current 58 kwh to 137 kwh in 2009 and 219 kwh in Increase irrigation areas by 6,700 ha and increase annual domestic water supply by 2.4 million m 3 by 2009 Improve coal consumption efficiency from the current 360 gce/kwh to 331 gce/kwh in 2014 and 325 gce/kwh in 2019 HEPC s separation of generation by 2004 Introduction of competitive power market by Recommend options for the private sector participants in ZPSC. Implementation of the proposed mode privatization of ZPSC. 4 x 250 MW pumped storage plant consisting of upper reservoir, height increase of existing lower reservoir, underground waterways and power station by Erection of one 63 km 500 kv transmission line by Financial performance, 10% return on net assets of ZPSC starting in 2010 Welfare of those resettled reestablished at least to the level prevailing before acquisition. Environmental mitigation measure implemented Restructuring of rural distribution network in 23 counties by 2005 Restructuring of HEPC The average household electricity consumption including in the poor households has increased to more than 200 kwh in 2012 due to higher income levels. Expansion of irrigation area has not occurred due to reduction in agricultural activities in the project area. More villages have been provided with drinking water. Average coal consumption for electricity consumption in Hebei Province in 2012 was 325 gce/kwh. Generation was separated from transmission and distribution in A competitive power market has not been established in Hebei province. Private sector participation options have not been recommended and the privatization of ZPSC was not carried out. 4 x 250 MW ZPSHPP was commissioned in km 500 kv transmission line was commissioned in ZPSC is complying with the financial covenants. Improved livelihood opportunities for the resettled households have been created. Environmental mitigation measures have been implemented. Rural electrification network rehabilitation has been implemented in the 23 counties. HEPC had been restructured by separating generation from transmission and distribution.

27 18 Appendix 1 Design Summary Performance Indicators/Targets Actual Performance Introduction of competitive power market in Hebei by 2009 Establish sound management system of ZPSC by Recommend options on future private sector participation in ZPSC A competitive power market has not been established in Hebei Province. A sound management system for ZPSC has been established but no plans are in place for private sector participation in ZPSC. Closure of old, coal-fired power plants Irrigation improvement Afforestation Closure of generating units at five coal-fired power plants totaling 505 MW by Increase irrigation areas by 6,700 ha and increase annual domestic water supply by 2.4 million m 3 by 2009 Plant 16,330 ha trees in Jingxing County by MW of capacity in the five identified power plants have been closed. Expansion of irrigation coverage has not been implemented. 16,330 ha of trees have been planted in Jingxing County Activities Civil works Equipment Land acquisition Resettlement Environmental mitigation Consultants Closure of old power generation units Irrigation improvement Afforestation Afforestation of Jingxing County will be improved from 46% to 58% Inputs: Project cost: $774.9 million Funding sources: (i) (ii) (iii) ADB loan $144 million Equity $237.8 million Domestic Banks $393.1 million Forest coverage of Jingxing County has increased due to afforestation activities undertaken. Project cost: $901.9 million Funding sources: (i) ADB: $135.9 million (ii) China Development Bank: $251.6 million (iii) State Grid loan: $108.6 million (iv) Equity: $348.7 million (v) Local government: $57.3 million ADB = Asian Development Bank, gce = gram of coal equivalent, GDP = gross domestic product, ha = hectare, HEPC = Hebei Electric Power Corporation, km = kilometer, kv = kilovolt, kwh = kilowatt-hour, m 3 = cubic meter, MW = megawatt, ZPSC = Zhanghewan Pumped Storage Company, ZPSHPP = Zhanghewan Pumped Storage Hydro Power Plant. Source: Asian Development Bank.

28 Appendix 2 19 PROJECT COST AND FINANCING PLAN Table A2.1: Project Cost ($ million) Cost Appraisal Estimate Actual Foreign Exchange Cost Local Currency Cost Total Source: Asian Development Bank. Table A2.2: Financing Plan ($ million) Cost Appraisal % % Actual Estimate A. Loan Asian Development Bank China Development Bank Agriculture Bank of China State Grid Loan Subtotal (A) B. Equity Hebei Electric Power Corporation Hebei Construction & Investment Company State Grid Corporation of China Local Government Subtotal (B) Total Source: Asian Development Bank.

29 20 Appendix 3 COST BREAKDOWN, BY PROJECT COMPONENT ($ million) Appraised Actual Component Foreign Local Total Foreign Local Total Exchange Currency Cost Exchange Currency Cost A. Base Costs 1. Pumped Storage Power Plant Rural Electrification Closure of Coal-fired Power Plants Afforestation Institutional Strengthening Irrigation Subtotal (A) B. Capacity Building 1. Consulting Services Subtotal (B) C. Contingencies 1. Physical Contingencies Price Contingencies Systems Subtotal (C) D. Financial Charges during Development Total Note: Figures may not sum precisely because of rounding. Source: Asian Development Bank and project implementing agencies. 1 The expenses incurred for institutional strengthening are the expenses related to establishment of Xinyuan Company and unbundling of generation and transmission of Hebei Electric Power Company. 2 The expenses incurred for irrigation includes all the expenses incurred by Jingxing County for improving the irrigation network. Separate accounts for expenses incurred on expanding the irrigation network due to enhanced water storage in lower reservoir is not available.

30 Appendix 4 21 PROJECTED AND ACTUAL DISBURSEMENT Table A4: Actual Contract Awards and Disbursements ($ million) Year Contract Award Disbursement Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Total Q = quarter. Source: Asian Development Bank. Note: Disbursement exceeded Contract Awards because interest during construction was included. Source: Asian Development Bank.

31 PROJECT IMPLEMENTATION SCHEDULE 22 Appendix 5 Q = quarter. Note: Irrigation and institutional reform components have not been implemented. Source: Asian Development Bank.

32 Appendix 6 23 CHRONOLOGY OF MAIN EVENTS December 1995 February 1999 and September 2001 February March 2002 May 2002 August 2002 October 2002 June 2003 Project preparatory technical assistance approval Supplementary project preparatory technical assistance approval Loan fact-finding Management review meeting Incorporation of Zhanghewan Pumped Storage Company (ZPSC) Asian Development Bank (ADB) loan approval Award of contract for excavating the upper reservoir Start of upper reservoir works July 2003 August 2003 September 2003 Signing of loan agreement with China Development Bank ADB loan agreement signing Award of contract for excavating power house Award of contract for installing headrace and tailrace tunnels Start of civil works and power house Start of headrace and tailrace tunnels October 2003 Award of contract for dam raising Award of contract for the dam raising January 2004 February 2004 April 2004 April 2005 September 2005 December 2005 Loan effectiveness Award of contract for implementation supervision Award of contract for supply of turbine and generator units and SCADA system Award of contract for limning of upper reservoir Award of contract for switchgear and substation Transfer of majority ownership of ZPSHPP from HEPC to Xinyuan Company

33 24 Appendix 6 February 2006 October 2006 December 2007 Award of contract for transmission line Delivery of switchgear and substation Completion of transmission line Completion of intake gates, headrace, and tailrace tunnels Relocation of Beihaoting Village July 2008 Completion of the dam construction Commissioning of Unit 1 August 2008 Commissioning of Unit 2 December 2008 Commissioning of Unit 3 February 2009 Commissioning of Unit 4 June 2009 September 2009 April 2010 September 2010 October 2010 December 2013 March 2014 Completion of delivery of electromechanical equipment (turbine and generator units ) Raising of lower reservoir to 473 meters for the first time Completion of upper reservoir Completion of the civil works of power house Relocation of Shimen Village Partial relocation of Nanhaoting Village Project completion review mission

34 Appendix 7 25 STATUS OF COMPLIANCE WITH LOAN COVENANTS Covenant Sector 1. HEPC shall implement, in accordance with the power sector reform program of the Borrower, the agreed upon recommendations for institutional strengthening and power sector restructuring. 2. HEPC shall complete the closure of 20 coal fired power generating units with a total capacity of about 505 MW in HSPG, by 31 December 2008, in accordance with all applicable environment s. 3. HEPC shall complete construction and testing of the 500 kv transmission line connecting the project to HSPG before the testing of the first unit. 4. HEPC shall implement the TRAP, to ensure alignments of tariff categories. The objective is for the tariffs of rural consumers in Hebei Province to be reduced and brought in line with the tariffs for urban consumers by 31 December Further, by 31 December 2012, the target is for HEPC s applicable tariff structure to reflect the corresponding economic costs of supply of electric power for each category as specified in the TRAP. 5. HEPC shall take all necessary actions so that by 31 December 2003, the applicable tariffs for each rural consumer end-user category will have been reduced to reflect efficiency gains from rural electrification and the long term marginal cost tariffs as detailed in the TRAP. Reference in Loan Agreement Para. 6, schedule 6, LA; and para. 9, schedule, PA Para. 3, schedule 6, LA; para. 3, PA. Para. 4, schedule, PA. Para. 5, schedule 6, LA; para. 5, schedule, PA Para. 6, schedule, PA. Status of Compliance No longer applicable. The consultants for institutional strengthening and power sector reforms were not recruited as the government decided in 2004 to limit the scope of power sector reforms to separation of generation from transmission and distribution. No recommendations were agreed for power sector reform and structuring. Complied with. All the identified coal-fired power plants and additional plants have been closed. Complied with. The transmission lines were commissioned in December Complied with. The TRAP was finalized in December 2012 However, the tariff disparity between rural and urban consumers was eliminated in The end user tariffs are regulated by the government and provide adequate revenues to SGCC to cover the cost of supply. Not required. End user tariff captures the cost of supply, including any efficiency gains from the rural electrification program.

35 26 Appendix 7 Covenant 6. HEPC and ZPSC shall observe the provisions of the Power Purchase and Sales Agreement (PPSA). In particular, HEPC shall perform the obligations of selling power to ZPSC for pumping water to the upper reservoir and buying power from ZPSC for energy generated by the project power plant. HEPC shall also settle the account with the project power plant at the tariff rate as agreed by HEPC and ZPSC in the PPSA and approved by the SDPC of the Borrower. 7. ZPSC shall observe the provisions of the ADMLR, in particular, shall be responsible in maintaining and operating the Lower Reservoir and guaranteeing the supply of adequate amount of water for use by ZPSC and for drinking and irrigation by downstream users under normal and dry climatic conditions. In the extremely dry year, ZPSC shall follow the principle in the decision dated 22 April 2002 made by Hebei Provincial Development Commission in Document Jijihan [2002] No. 11, which states that during the extremely dry years the priority of using water in the Lower Reservoir should be given to drinking and irrigation purposes. Environmental 8. HEPC and ZPSC shall ensure that the design, construction and operation of all project facilities comply with applicable environmental laws and regulations of the Borrower and environmental policies and regulations of ADB. HEPC and ZPSC shall ensure that any adverse environmental impacts arising from the construction and operation of the project facilities be minimized by implementing the mitigation measures, environmental monitoring program and other recommendations presented in the EIA and SEIA. During project implementation and the first two Reference in Loan Agreement Para. 7, schedule 6, LA; para. 7, schedule, PA Para. 8, schedule 6, LA; para. 8, schedule, PA Para. 10, schedule, PA Status of Compliance No longer applicable. The power purchase arrangements between ZPSC and HEPC follow the NDRC regulations applicable to PSH plants. PSH plants are considered a transmission network asset and transmission company. HEPC is required to pay an annuity payment irrespective of utilization of the PSH plant and provide electricity for water pumping free of charge. Hence, a PPSA was not signed between HEPC and ZPSC. Complied with. The lower reservoir has been managed by the Reservoir Management Committee in coordination with ZPSC. Generally, priority is given to maintaining an adequate water level for operation of the ZPSHPP and water has been released for irrigation during the farming season. An extreme dry year has not occurred since commissioning of the plant. Complied with. Annual environmental monitoring reports have been submitted. However, some of the parameters were monitored on an annual basis against the EMP requirement for quarterly monitoring, and aquatic life restoration in the lower reservoir was not

36 Appendix 7 27 Covenant years of operations, HEPC shall submit to ADB annual reports which includes mitigation measures undertaken and results of the environmental monitoring program. HEPC shall ensure that any adverse environmental impacts arising from the construction and operation of project facilities are minimized by implementing the mitigation measures as identified in the Environmental Monitoring and Management Plan. 9. HEPC and ZPSC shall ensure that management programs as specified in the EIA including the reservoirs and land use, afforestation, water quality, sediment and watershed management under the project shall be implemented to improve the general condition of the Gantao River basin. Such activities shall include the planting of 16,330 ha of trees. Social 10. HEPC and ZPSC shall ensure that all land and rights-of-way required for the project be made available in a timely manner and that the LARP agreed upon with ADB is carried out promptly and efficiently in line with ADB s Policy on Involuntary Resettlement. 11. HEPC and ZPSC shall ensure, with assistance of the Borrower, that all affected people, including host people who provide land to the affected persons, are provided adequate information and are regularly consulted in advance of signing household compensation agreements and other decisions that affect their livelihoods and living conditions as a result of the project. The ZPSC and local resettlement offices shall keep records of consultations and provide copies to ADB upon request. 12. HEPC and ZPSC shall also ensure, with assistance of the Borrower, that all persons affected by the acquisition of land required for the project are compensated in a timely manner and resettled in accordance with the LARP, so that they will be at least as well off as they would have been in the absence of the project. Reference in Loan Agreement Para. 11, schedule, PA; para. 4, schedule 6. Para. 9, schedule 6, LA. Para. 13, schedule, PA. Para. 10, schedule 6, LA; and para. 14, schedule, PA. Status of Compliance monitored at all. Partially complied with. Although the afforestation has been undertaken on the downstream of the dam as well as on the banks of the reservoir to meet the target, ZPSC has not undertaken upper watershed management and sediment control measures as it falls in Shanxi Province. Partially complied with after about 3 or more years of delay in reaching agreement on relocation sites with the affected people. Partially complied with as inadequate information and consultation with the affected people may have contributed to the delays in reaching agreement on the resettlement site. Complied with. The socio economic surveys undertaken on living conditions and livelihood restoration of affected people indicated that their living conditions and livelihoods have been improved.

37 28 Appendix 7 Covenant 13. ZPSC shall ensure, with assistance of the Borrower, timely provision of all counterpart funds to meet any obligations in excess of the LARP budget estimate in order to satisfy resettlement objectives of the LARP. HEPC and ZPSC shall ensure that counterpart funds for compensation and entitlements under the LARP are fully provided directly to the affected persons and the relevant village organizations prior to displacement from housing and prior to loss of land, livelihood, income or other assets. 14. HEPC and ZPSC shall ensure, with assistance of the Borrower, that (i) adequate staff and resources are committed to supervision and internal monitoring of the implementation of the LARP and quarterly reports on resettlement progress will be forwarded to ADB; (ii) an independent domestic monitoring agency is contracted, in accordance with procedures acceptable to ADB, to carry out systematic monitoring twice each year during LARP implementation, conduct two annual evaluations after completion, and forward reports to ADB; and (iii) an annual audit of resettlement disbursements and expenditures is conducted by an auditor acceptable to ADB, and a summary report forwarded to ADB. 15. HEPC and ZPSC shall follow the principles of ADB s Policy on Gender and Development during implementation of the project, including taking all necessary actions to encourage women living in the project area to participate in planning and implementing project activities. HEPC shall monitor project effects on women during project implementation, in consultation with the Hebei Provincial Women s Federation. 16. HEPC and ZPSC shall coordinate with the resettlement offices to (i) ensure that women at county, township and village levels take part in the implementation of the resettlement plan; and (ii) address the preferences of affected women s households during finalization and implementation of the resettlement plan. 17. HEPC and ZPSC shall, together with the appropriate authorities of the Borrower and Hebei PG, cause contractors employed under the project to disseminate information on the risks of socially transmitted diseases to those employed during project implementation. Reference in Loan Agreement Para. 15, schedule, PA Para. 16, schedule, PA Para. 11, schedule 6, LA; para. 19, schedule, PA Para. 12, schedule 6, LA; and para. 20, schedule, PA Para. 17, schedule, PA Status of Compliance Complied with, except for some delay in mobilizing additional counterpart funds for the Nanhaoting Village relocation site as a result of the increase in land price of the relocation site. Complied with. Full compensation was paid prior to dispossession of land and assets. Affected persons are better off. Independent monitoring was undertaken from 2004 to Since then, monitoring has been done using staff consultants because of long delays in resettlement activities. Partially complied with. Scope was limited for women to take part in implementing project activities as project activities were implemented by outside contractors. Complied with. Affected people including women have been consulted during the implementation of resettlement activities. Complied with, The contractors complied with this requirement.

38 Appendix 7 29 Covenant 18. ZPSC shall update the LARP as necessary to reflect any significant changes in project scope or other causes, and such changes will be reported to ADB as part of project reporting. Financial 19. ZPSC shall (i) maintain separate accounts for the project; (ii) have such accounts audited annually; and (iii) furnish to ADB audit reports not less than 6 months of the closure of the financial year. 20. HEPC shall inject, together with HCIC, the equity capital of ZPSC subscribed by HEPC in a phased manner and in accordance with the requirement of the Borrower s Company Law and legal requirements of company registration and incorporation, Investment Agreement between HEPC and HCIC to set up ZPSC and the need for project power plant construction, with the full amount of equity capital being injected not later than 31 December HEPC shall, together with HCIC, provide sufficient foreign exchange, as needed, according to the percentage of its commitment to making equity investment in ZPSC, to finance the project power plant construction, in case that the total foreign exchange cost of the project power plant exceeds $144 million. 22. HEPC and ZPSC shall ensure that ADB is periodically updated on all proposals for the restructuring of ZPSC, including any change of ownership of ZPSC, and that, prior to finalization of any proposal for ZPSC restructuring, including any change of ownership of ZPSC, ADB shall be given adequate opportunity to provide prior commitment thereon. 23. HEPC shall achieve an annual return of not less than 6 % of the average net value of fixed assets in operation commencing from fiscal year Reference in Loan Agreement Para. 13, schedule 6, LA; para. 22, schedule, PA Section 2.09, PA Para. 13, schedule 6, LA; para. 23, schedule, PA Para. 14, schedule 6, LA; para. 5, schedule, PA Para. 15, schedule 6, LA; para. 23, schedule, PA Section 2.17, PA Status of Compliance Complied with. Complied with. Complied with. ZPSC has been adequately capitalized. However, the shareholding structure of ZPSC was changed from what was expected at loan approval and HEPC was replaced by Xinyuan Company as the majority shareholder. Not required as the foreign exchange cost did not exceed $144 million. Complied with. ADB was informed of the change in shareholding structure of ZPSC. Not applicable. HEPC was replaced by Xinyuan Company as the main shareholder of ZPSC. Financial statements of Xinyuan were not made available to ADB as this company was not required under the Legal documents.

39 30 Appendix 7 Covenant 24. HEPC shall maintain a ratio of debt to equity not greater than 70 to 30 commencing from fiscal year HEPC shall achieve a minimum debt service ratio of 1.2 times commencing from fiscal year ZPSC shall achieve, for each of its fiscal years commencing from fiscal year 2009, an annual return of not less than 10% of the average current net value of ZPSC s fixed assets in operation. Others 27. ZPSC shall furnish ADB all relevant reports and information concerning (i) the loan and the expenditure of the proceeds thereof; (ii) the goods and services and other items of expenditure financed out of such proceeds; (iii) the project; (iv) the administration, operations and financial condition of ZPSC; and (v) any other matters relating to the purposes of the loan. 28. ZPSC shall furnish ADB quarterly reports on the execution of the project and on the operation and management of project facilities. Reference in Loan Agreement Section 2.19, PA Section 2.18, PA Section 2.20, PA Section 2.08 (a), PA Section 2.08 (c), PA Status of Compliance Same as above Same as above Partially complied with. The return on assets has been 3% 4%; it is unrealistic to expect a 10% return on assets. Complied with and all the necessary information on use of ADB loan proceeds have been provided. Partially complied with. The quarterly progress reports have been provided during the construction period of ZPSHPP. However, progress reports have not been submitted since ZPSC shall submit within 3 months after the physical completion a report on the execution and initial operation of the project, including its cost, the performance by HEPC and ZPSC of their respective obligations under the Project Agreement and the accomplishment of the purposes of the Loan. Section 2.08 (d), PA Not complied with. ZPSC did not submit a project completion report to ADB. ADB = Asian Development Bank, EIA = environmental impact assessment, EMP = environmental monitoring plan, ha = hectares, LARP = land acquisition and resettlement plan, HCIC = Hebei Construction & Investment Company, HEPC = Hebei Electric Power Corporation, MW = megawatt, HSPG = Hebei South Power Grid, kv = kilovolt, TRAP = Tariff Reform Action Plan, SGCC = State Grid Corporation of China, ZPSC = Zhanghewan Pumped Storage Company, Ltd., PPSA = power purchase and sales agreement, SDPC = State Development Planning Commission, NDRC = National Development and Reform Council, PSH = pumped storage hydropower, ADMLR = Agreement on Dispatch and Management of Low Reservoir, ZPSHPP = Zhanghewan Pumped Storage Hydro Power Plant Source: ADB Staff Estimates

40 Appendix 8 31 ADB-FINANCED CONTRACT PACKAGES PCSS Item No. A. Pumped Storage Power Plant Mode of Procurement (ICB/IS/DP) Date of Contract Contract Amount ($) 01 Civil Works 0003 Bituminous Concrete Lining of Upper Reservoir ICB 15 Apr ,585, Equipment 0001 Turbine and Generator units and Computer ICB 06 Feb ,510,863 Control System 0004 Gas Insulated Transmission Lines ICB 21 Sep ,216, Gas Insulated Metal-Enclosed Switchgear and Auxiliaries ICB 21 Sep ,491, Materials 04 Institutional Strengthening 0006 Institutional Strengthening ICB 21 Feb , Consulting Services 0002 Implementation Consultant ICB 02 Feb ,852 DP = direct procurement, ICB = international competitive bidding, IS = international shopping. Source: Asian Development Bank.

41 32 Appendix 9 ECONOMIC REEVALUATION 1. The Hebei Zhanghewan Pumped Storage Project comprised (i) the 1,000 megawatt (MW) Zhanghewan Pumped Storage Hydro Power Plant (ZPSHPP) and its interconnection to the 500 kilovolt (kv) grid substation; (ii) rural electrification in 23 counties; (iii) institutional strengthening of the implementing agency and the introduction of a competitive power market; (iv) the closure of seven small, old, inefficient coal-fired power plants with a total capacity of 505 MW in Hebei Province; (v) an increase in the irrigation capacity of water supply by 2.4 million cubic meters (m 3 ) per year; and (vi) planting of 16,330 hectares (ha) of trees in Jingxing County. However, the economic analysis was conducted only for the 1,000 MW ZPSHPP, since the economic benefits of other parts of the project can be neither quantified nor assumed. The analysis was done in accordance with the Guidelines for the Economic Analysis of Projects 1 of the Asian Development Bank (ADB). A. General Assumptions for Economic Analysis 2. The economic feasibility was evaluated by a comparison between the without- and withproject scenarios as follows: (i) Under the without-project (baseline) scenario, the respective peaking power would be provided by existing small, old, inefficient coal-fired power plants. (ii) Under the with-project scenario, the proposed project would replace the peak power generated by old and inefficient coal-fired power plants. 3. Economic analysis was conducted for the project lifespan of 27 years plus the project implementation period of 6.5 years. The residual value at the end of the project life is assumed to be zero. All prices and costs were expressed in 2014 prices and in the domestic currency using the world price numeraire. As the analysis was carried out using the world price numeraire, a conversion factor of was used for non-tradables and for tradables. B. Economic Costs 4. The financial capital costs were converted to economic values after deducting taxes and subsidies, then applying the conversion factors specified in the general assumptions. The capital costs of the project included actual costs related to civil works, materials, and equipment, and other associated costs. These costs occurred primarily during the construction period within the first 6.5 years of the project. The operation and maintenance (O&M) costs, assumed to remain constant in real terms, comprised costs for maintenance, raw materials, salaries, overheads, utilities, and administration expenses. The O&M costs occurred throughout the project (27 years). It was assumed that the electricity for water pumping was provided by surplus wind power, which would have been curtailed in the absence of the project. 2 Hence, the economic cost of electricity used in water pumping was assumed to be zero. C. Economic Benefits 5. Annually, the project has generated on average 2,639 gigawatt-hours (GWh) of clean electricity to serve peaking electricity demand. The economic benefits of the project included 1 ADB Guidelines for the Economic Analysis of Projects. Manila. 2 Wind power curtailment in the northern People s Republic of China (PRC) is estimated to be 22% of potential wind generation, and the curtailed wind energy in the North China grid (Hebei South Power Grid is part of the North China Grid) amounted to 10,000 GWh in 2012.

42 Appendix 9 33 (i) coal savings (non-incremental) by replacing coal as a fuel for power generation; (ii) direct environmental benefits, reflected in the reduction in carbon dioxide emissions (CO 2 ) resulting from the closure of old, inefficient coal-fired power plants; and (iii) grid stability and ancillary services (e.g., spinning reserve, frequency and voltage regulation, and black start capability). As the People s Republic of China (PRC) does not have a market for ancillary services, the economic value of these benefits has been assumed based on recent studies that calculated them to be worth $5 $10 per megawatt-hour. 3 Hence, the ancillary services have been valued at $10 per megawatt-hour as these services are more valuable in the PRC than in Europe and the United States because of the inflexible generation capacity mix in the PRC. 6. The project has resulted in considerable environmental benefits by reducing greenhouse gas emissions and other pollutants. On average, the project avoided 1,451,353 tons of coal equivalent (tce) per year, which translates to an annual emission reduction of 3,618,223 tons (t) of CO 2 ; 8,128 t of sulfur dioxide; 4,865 t of nitrogen oxide; and 4,223 t of flue dust. 4 The economic evaluation of the environmental impact is based on the benefits transfer method described in ADB s Economic Evaluation of Environmental Impacts: A Workbook. 5 D. Economic Internal Rate of Return 7. Table A9.1 compares the recalculated economic internal rate of return (EIRR) and economic net present value (ENPV) of the project with the appraisal estimates. Table A9.1: Comparison of Economic Internal Rate of Return Appraisal Actual Without With Without Environmental Environmental Environmental Benefit Benefit Benefit With Environmental Benefit Subproject ENPV (CNY million) 1, , ,237.0 EIRR (%) CNY = yuan, EIRR = economic internal rate of return, ENPV = economic net present value. Source: Asian Development Bank estimates. 8. The recalculated EIRR is high but regarded as conservative, as it takes into account only the main benefits of different components and includes all project-related costs. The ENPV of the project without environment benefits is CNY992.2 million. The actual EIRR of the project without environment benefits is 16.1%, which is lower than the projected EIRR (19.1%) at appraisal but is still greater than the 12% economic cost of capital (discount rate). This variance is due to (i) exclusion of other parts of the overall project (rural electrification, irrigation, and afforestation, etc.); and (ii) the different methodology used to quantify the economic benefit of the pumped storage plant, particularly the ancillary services. The economic benefits and costs of the project with and without environment benefits are shown in Table A CSP Alliance The Economic and Reliability Benefits of CSP with Thermal Energy Storage: Recent Studies and Research Needs. Washington, DC. The pump storage hydropower plants provide the same or even higher capability to enhance the grid stability. 4 The environmental benefits of CO 2 emission reductions were estimated using the marginal abatement cost as a proxy for the economic benefits of emission reductions. The CO 2 price (CNY19/ton) in the PRC is based on the prevailing market price for Chinese Certified Emission Reduction (CCER) credits, which are traded in the domestic carbon market. The environmental benefits of the other emissions were estimated using the emission charges in the PRC issued by the National Development and Reform Commission. 5 ADB Economic Evaluation of Environmental Impacts: A Workbook. Manila.

43 Year Economic Capital Cost Economic Operating Cost Table A9.2: Economic Internal Rate of Return for the Project (CNY million) Total Economic Cost Direct Economic Benefits Generation (Coal Saving) Consumption (Grid Stability) Total Direct Economic Benefit Environment Benefit Net Economic w/o Environment Benefit Net Economic with Environment Benefit 2002 (37.4) (37.4) (37.4) (37.4) 2003 (262.8) (262.8) (262.8) (262.8) 2004 (514.3) (514.3) (514.3) (514.3) 2005 (420.8) (420.8) (420.8) (420.8) 2006 (888.4) (888.4) (888.4) (888.4) 2007 (897.7) (897.7) (897.7) (897.7) 2008 (748.1) (4.4) (752.5) (752.5) (752.5) 2009 (129.9) (82.4) (212.4) , (69.7) (69.7) (85.4) (85.4) , (83.2) (83.2) (83.2) (83.2) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) (80.9) , Appendix 9

44 Year Economic Capital Cost Economic Operating Cost Total Economic Cost Direct Economic Benefits Generation (Coal Saving) Consumption (Grid Stability) Total Direct Economic Benefit Environment Benefit Net Economic w/o Environment Benefit Net Economic with Environment Benefit 2031 (80.9) , (80.9) , (80.9) , (80.9) , (80.9) ,027.4 Base Case EIRR 16.1% 17.4% ENPV ,236.6 ( ) = negative, CNY = yuan, EIRR = economic internal rate of return, ENPV = economic net present value, O&M = operation and maintenance. Source: Asian Development Bank estimates. Appendix 9 35

45 36 Appendix 9 a. Sensitivity Analysis 9. Sensitivity analysis was performed to test the EIRR s sensitivity to certain changes in parameters. This showed that the EIRR without environment benefits could fall to (i) 15.8% if all the economic benefits were reduced by 10%, (ii) 14.9% if the project experienced a cost overrun of 10%, (iii) 16.0% if the O&M costs rose by 10%, and (iv) 14.5% if all cases happen together (Table A9.3). Under the scenarios considered for sensitivity analysis, the EIRR values are greater than the economic discount rate of 12%. Case Table A9.3: Sensitivity Analysis of the Economic Internal Rate of Return Case 1 Base Case without Case 2 Case 3 Economic Environmental Project Cost O&M Cost Benefits Benefits +10% +10% 10% Case 4 Combination of All Cases EIRR EIRR = economic internal rate of return, O&M = operation and maintenance. Source: Asian Development Bank estimates.

46 Appendix FINANCIAL REEVALUATION 1. The Hebei Zhanghewan Pumped Storage Project comprised (i) the 1,000 megawatt Zhanghewan Pumped Storage Hydro Power Plant (ZPSHPP) and its interconnection to the 500 kilovolt (kv) grid substation; (ii) rural electrification in 23 counties; (iii) institutional strengthening of the implementing agency and the introduction of a competitive power market; (iv) the closure of seven small, old, inefficient coal-fired power plants with a total capacity of 505 megawatt in Hebei Province; (v) an increase in the irrigation capacity of water supply by 2.4 million cubic meters per year; and (vi) planting of 16,330 hectares (ha) of trees in Jingxing County. This financial analysis assesses the project s ability to generate sufficient revenues from operations to recover project costs, including operation and maintenance (O&M) costs, and to provide adequate cash flows for debt service and a reasonable return on investment. However, the financial analysis was conducted only for the ZPSHPP, since the financial benefits of other parts of the project can be neither quantified nor assumed. 2. The analysis was performed in accordance with the Financial Management and Analysis of Projects 1 of the Asian Development Bank (ADB). All actual costs and prices are in constant 2014 currency values. In deriving the financial internal rate of return (FIRR), incremental annual cash flows were used throughout the 27-year lifespan of the ZPSHPP since commercial operations began in 2009 plus the project implementation period of 6.5 years. The residual value of physical assets was assumed to equal their depreciated book value at the end of the valuation period. The financial analysis model compared the FIRR with the weighted average cost of capital (WACC). Sensitivity analyses were conducted to assess the impact of various adverse conditions. A. Key Assumptions 3. The capital costs were based on actual costs incurred during construction. The capital costs included civil works, equipment and materials, consulting services, and other related expenses. Revenues were computed on the basis of the actual fixed lease fee paid to Zhanghewan Pumped Storage Company (ZPSC) by the State Grid Corporation of China. 2 O&M costs included the purchase of raw materials and fuel, wages and benefits, maintenance and repair, and other sales and management expenses, which are assumed to remain consistent. Net cash flows from the project were determined after allowing for corporate income taxes at 25% of pretax profit, which is lower than the 33% income tax assumed at appraisal. 4. The WACC was recalculated after tax in real terms using the actual capital mix and costs of funds shown in Table A2.2 in Appendix 2. The real interest costs of loan funds, based on the actual interest rate of loan funds from ADB and other funding sources, were considered after adjusting for inflation (assumed to be 3.0%) and local income tax credit. The cost of equity is assumed to be 7.0% per annum. 3 The recalculated WACC is 2.64 (Table A10.1). 1 ADB. (2005). Financial Management and Analysis of Projects. Manila 2 A new revenue setting methodology was adopted by the National Development and Reform Commission in 2007 for pumped storage hydropower (PSH) plants, whereby a fixed rent is paid irrespective of the actual amount of energy generated or consumed by these plants. This payment is expected to reward the PSH plant for supporting maintenance of the demand supply balance and providing ancillary services to maintain grid stability. It greatly reduced the revenue risk of the project. 3 This is the commonly required return on investment for similar power generation projects in the People s Republic of China (PRC).

47 38 Appendix 10 Table A10.1: Breakdown of Weighted Average Cost of Capital Calculation China State Grid ADB Development Loan Item Bank Equity Total Amount ($ million) Weighting 15.1% 27.9% 12.0% 45.0% 100.0% Nominal cost 3.0% 6.12% 5.5% 7.0% N.A. Income tax rate 25% 25% 25% N.A N.A. Tax-adjusted nominal cost 2.3% 4.6% 4.1% 7.0% N.A. Inflation adjustment to interest rate N.A. 3.0% 3.0% 3.0% N.A. Real cost 2.3% 1.5% 1.0% 3.9% N.A. Weighted component of WACC 0.3% 0.4% 0.1% 1.6% 2.7 WACC 2.7% ADB = Asian Development Bank, N.A. = Not applicable, WACC = weighted average cost of capital. Source: ADB Staff Estimates B. Financial Indicators 5. The results of the financial analysis for the project are in Table A10.2. The recalculated FIRR is still greater than the recalculated WACC. The recalculated WACC is used as the discount rate in calculating the financial net present value (FNPV) of the project and it is projected to generate a positive FNPV. Table A10.2: Projected Financial Indicators Project Appraised FIRR (%) Actual FIRR (%) FNPV (CNY million) WACC(%) HZPSP ,620.5 on) 2.7 CNY = yuan, FIRR = financial internal rate of return; FNPV = financial net present value, HZPSP = Zhanghewan Pumped Storage Project, WACC = weighted average cost of capital. Source: Asian Development Bank staff estimates. 6. The recalculated FIRR for the project is 5.86%, compared with 7.30% during appraisal. The variance between the actual FIRR and the appraisal estimate is due to lower actual annual revenue (CNY415.1 million per year on average) than the appraised revenue of CNY1,048.6 million per year. Although the actual revenue is much lower (60%) than the appraisal estimate, the decrease in the FIRR was negligible because (i) the actual capital investment costs were 5% lower than expected; and (ii) actual O&M costs were lower than expected, since the electricity for water pumping was provided free of charge by the local grid company. Hence, the lower actual revenue is partially offset by lower capital and O&M costs. In addition, the fixed lease revenue significantly reduced financial uncertainty since the guaranteed annual fee will be paid regardless of actual dispatches. Cash flows for the project are shown in Table A10.3.

48 Appendix Table A10.3: Cash Flows for the Project (HZPSP) (CNY million) Year Capital Cost Revenues Operating Cost Income Tax Net Cash Flow After Tax 2002 (36.9) (36.9) 2003 (259.3) (259.3) 2004 (461.4) (461.4) 2005 (415.3) (415.3) 2006 (876.7) (876.7) 2007 (885.9) (885.9) 2008 (738.3) (4.9) 0.0 (535.6) 2009 (128.2) (86.9) (7.5) (75.9) (17.3) (92.8) (12.8) (90.7) (3.5) (90.7) (23.8) (88.3) (21.5) (88.3) (22.4) (88.3) (23.4) (88.3) (24.3) (88.3) (25.3) (88.3) (26.3) (88.3) (27.4) (88.3) (28.4) (88.3) (29.6) (88.3) (30.7) (88.3) (31.9) (88.3) (33.2) (88.3) (34.5) (88.3) (35.9) (88.3) (88.3) (88.3) (88.3) (88.3) (88.3) (88.3) (88.3) WACC 2.6% FIRR 5.9% FNPV 1,620.5 ( ) = negative, CNY = yuan, FIRR = financial internal rate of return, FNPV = financial net present value, WACC = weighted average cost of capital. Source: Asian Development Bank estimates.

49 40 Appendix 10 C. Sensitivity Analysis 7. Sensitivity analysis was performed to test the FIRR s sensitivity to certain changes in parameters. The sensitivity analysis focused on three variables: (i) O&M costs increase by 10%; (ii) project revenue decreases by 10%; and (iii) a combination of all variables. The analysis shows that the project will remain financially viable as the FIRRs are greater than the WACCs. The sensitivity analysis is shown in Table A10.4. Table A10.4: Sensitivity Analysis of Financial Internal Rates of Return Revenue Case WACC FIRR (Base Case) O&M Cost +10% All Variables Combined -10% ZPSP CNY = yuan, FIRR = financial internal rate of return; FNPV = financial net present value, ZPSP = Zhanghewan Pumped Storage Project, WACC = weighted average cost of capital. Note: The sensitivity indicator is the ratio of percentage change in the financial internal rate of return divided by the percentage change in the given parameter. Source: Asian Development Bank estimates. D. Summary of Financial Statement: Implementing Agency 8. Table A10.5 shows a snapshot of the financial sustainability of the implementing agency, ZPSC, through the key financial indicators (both historical and projected) analysis. ZPSC uses less leverage and has a stronger equity position as it shows the low debt-equity ratio (less than 70:30) throughout the loan tenor. In terms of its profitability, ZPSC is expected to earn the sufficient revenue to (i) cover the upcoming debt service as DSCR is greater than 2.00x throughout the repayment period; and (ii) provide sufficient return on the equity investment (>7.00% from year 2017). The summary shows that ZPSC s ability short term liabilities is expected to gradually improve from year 2022 as it shows the acceptable current ratio (greater than 1).

50 Table A10.5: Financial Indicators Analysis of ZPSC Year Debt/ equity ratio Return on equity (%) Debt service coverage ratio Current ratio Appendix 10 41

51 42 Appendix 11 ENVIRONMENTAL IMPACT ASSESSMENT A. Introduction 1. The Hebei Zhanghewan Pumped Storage Project was approved on 18 October 2002 and the loan was closed on 11 July The project is located in Hebei Province in the People s Republic of China (PRC) and involves (i) construction of a 1,000 megawatt pumped storage power plant at Zhanghewan; (ii) construction of a 500 kilovolt (kv) transmission line to transfer electricity from the power plant to Hebei South Power Grid (HSPG); (iii) rehabilitation of the rural electricity distribution network; (iv) closure of old, inefficient coal-fired power generation units; and (v) support for reforms in the provincial power sector, irrigation improvement, and afforestation. The main objective of the project was to improve the efficiency of electricity generation and to reduce emissions in meeting the peaking power requirements of HSPG. Other objectives were (i) to rehabilitate distribution networks in the rural areas designated as poor; (ii) to expand the irrigation system and afforestation in Jingxing County; (iii) to close old, inefficient power plants; and to introduce competitive markets and use market forces to improve the efficiency of power utilities. 2. Construction of the Zhanghewan Pumped Storage Hydro Power Plant (ZPSHPP) commenced in December The dam construction was completed in July Construction of the upper reservoir was completed in April 2009 and civil works of the power house were completed in September The project was classified environmental category A. The domestic environmental impact assessment (EIA) was conducted in 1989 and approved by the state environmental protection agency in The EIA was updated in 2001 following modification to the project design suggested by ADB appointed project preparatory technical assistance consultants. The summary environmental impact assessment (SIEA) was prepared and circulated to the Asian Development Bank Board of Directors in April The SEIA included the environmental management plan to mitigate adverse environmental impacts of the project. 3. ADB project completion review (PCR) mission was conducted from 3 to 7 March Consultations were held with the project executing agency, Hebei Electric Power Corporation (HEPC); the implementing agency, Zhanghewan Pumped Storage Company (ZPSC); Hebei Energy Bureau; Shijiazhuang Planning Commission; Xingtai Planning Commission; Xingtai Coal-fired Power Plant; Jingxing Forest Bureau, Jingxing Water Resource Bureau; and Zhanghewan Reservoir Department. The mission team conducted project document review, site visits, and interviews with relevant authorities and institutes to review the effectiveness of environmental management and protection measures. This document presents the key findings. B. Environmental Protection and Management 4. HEPC was the executing agency for the project responsible for overall project coordination, including the rural electrification program, closure of the old power plants, and construction and operation and maintenance of the 500 kv transmission facilities. ZPSC, the owner of the ZPSHPP, was the implementing agency and responsible for the design, construction, and operation of the ZPSHPP. 5. As part of the power sector reform process in 2005, HEPC was restructured as the provincial unit of the newly created State Grid Corporation of China, responsible for electricity transmission and distribution in Hebei Province. The generation assets of the former HEPC

52 Appendix were transferred to five newly created national level power generation companies. A separate company (Xinyuan Company) was established as a subsidiary of State Grid Corporation of China to invest in and operate pumped storage hydropower plants. ZPSC became a subsidiary of Xinyuan Company. The role of HEPC is limited to implementing the construction of the 500 kv transmission line and the rural electrification components. The closure of the coal-fired power plant was coordinated by HPG, while the afforestation program and resettlement of households affected by the ZPSHPP were implemented by Jingxing County government in close coordination with ZPSC. 6. ZPSC set up a dedicated Environmental Management Department in The department was responsible for managing and supervising environmental protection works during construction, which included (i) planning and implementing specific environmental protection measures; (ii) ensuring that contractors followed the environmental management plan; (iii) hiring and ensuring qualified monitoring institutes to conduct air, water, noise, and other environmental monitoring regularly; (iv) ensuring the monitoring requirements were met; and (v) working closely with local environmental protection bureaus to ensure full compliance with PRC environmental regulations and requirements. 7. The work of the Project Environmental Management Department was supported by a third-party consortium consisting of two environmental consulting firms: (i) Hebei University of Science and Technology, and (ii) Hebei Tiandichaoyang Environmental Science and Technology Company. This consortium served as the environmental advisory agency for the ZPSHPP from 2004 to Hebei Keying Environment Testing Services was contracted to carry out environmental monitoring in For compliance with PRC environmental regulations and requirements, Hebei Environment Protection Bureau and Jingzing County Environment Protection Bureau conducted regular inspection of the ZPSHPP and supervised the environmental performance of the ZPSHPP construction. 8. For the ZPSHPP project component, institutional arrangements were established and environmental mitigation measures were adequately performed to reduce the direct impacts of the ZPSHPP construction. However, the ZPSHPP had limited authority to perform the agreed mitigation measures to promote aquaculture and control upstream water pollution control. The PCR mission noted that the environmental performance of all the project components, including the project components that did not receive ADB financing, followed EMP guidelines of the Project, PRC environmental regulations, s, and requirements. Details of compliances with the environmental management plan (EMP) performance are in the Table A According to the agreed environmental monitoring and reporting requirements, environmental monitoring reports to be submitted to ADB were limited only to the ZPSHPP project component. Semiannual environmental monitoring reports were prepared from 2004 to 2006, and annual environmental monitoring reports were prepared from 2007 to Environmental monitoring reports between 2004 and 2008, and for 2012 were submitted to ADB. During the PCR mission, environmental monitoring reports from 2009 to 2011 were collected. All environmental monitoring reports from 2004 and 2012 were disclosed on the ADB website. 10. At project appraisal, the SEIA estimated the cost of implementing the EMP during project construction phase to be CNY10.68 million ($1.29 million equivalent). Environmental protection measures during construction phase included wastewater treatment, noise and dust control, solid waste treatment, soil treatment, vegetation protection, environmental monitoring during construction, public health monitoring and protection, and environmental protection and supervision. According to the ZPSC, the total cost for environmental protection during

53 44 Appendix 11 construction phase was CNY15.7 million; the detailed cost breakdown by activity was not available. C. Environment Impacts and Mitigation Undertaken 11. The SEIA identified the likely environmental impacts of different project components; and proposed mitigation measures relevant to those impacts during the siting and design, construction, and operation phases. Table A11.1 presents the agreed EMP at project appraisal, including, possible negative impacts, measures to mitigate these impacts, and the implementation status of mitigation measures during project implementation. 12. ZPSC established an environmental emergency response plan in July The plan outlines (i) general principles; (ii) the definition of environmental emergencies; (iii) reporting and assessment of environmental emergencies; (iv) an early warning and response system; (v) command, organization, and roles and responsibilities; and (vi) assurances. According to the plan, environmental emergencies are defined as pollution accidents related to the release of waste gas, wastewater, solid wastes, and toxic and hazardous chemicals. The plan requires the reporting of an environmental emergency specialist/consultant to the project monitoring office within 1 hour and for the local environmental protection bureau within 2 hours from the time of occurrence. By the time of the PCR mission, no emergency event had occurred. Table A11.1: Environmental Impacts, Mitigation Measures, and Implementation Status of Mitigation Measures 1,000 MW Zhanghewan Pumped Storage Hydro Power Plant Phase Benefits Negative Impacts Proposed Mitigation Measures Siting and Design Rationalized base load versus peak plant operations; conversion of unused land at upper reservoir site to beneficial use Inundation of 576 ha of land, including 225 ha of agricultural land, which cannot be readily replaced in immediate area Inundated land will be offset by improved agricultural productivity in resettlement areas; combined with expanded irrigated area, greater unit and aggregated productivity will result. Implementation of Mitigation Measures Affected households have been provided with alternative farmlands and cash compensation. The increased capacity to hold water in the lower reservoir could expand irrigation capacity. However, the irrigation canals for expanding irrigation coverage were not constructed at the time of PCR mission. Creation of new upper reservoir and expansion of existing lower reservoir will allow expansion of fish and waterfowl populations, and provide capacity for expanded irrigation. Relocation of total projected 3,254 residents in 905 households, of which 304 people in 95 households will move a short distance and remain in the reservoir area Land-for-Land resettlement and rehabilitation program for displaced residents. Proposed resettlement areas have available agricultural land, currently producing below capacity. Except 18 households, all the other affected people have been relocated and livelihood improvement assistance has been provided. The remaining households are expected to be resettled by September 2014.

54 Appendix ,000 MW Zhanghewan Pumped Storage Hydro Power Plant Phase Benefits Negative Impacts Proposed Mitigation Measures Environmental rehabilitation of Laoyemiao Mountain upper reservoir area Watershed management plan includes afforestation and revegetation, resulting in ecological restoration; Increase in variety and amount of fauna expected over long term Implementation of Mitigation Measures Ecological rehabilitation of upper reservoir area has been undertaken. At the time of the PCR mission, most revegetation in the project construction sites and landscaping works had been properly performed. The PCR mission noted that Jingxing County completed afforestation activities in and around the lower reservoir and downstream of the river as part of the country afforestation program. Construction Operation Creation of new lake ecosystem will enhance watershed characteristics and support expanded aquaculture. Future tourism development is a possibility. Disturbance during construction; Temporary occupation of 86 ha of agricultural land Possible depletion of dissolved oxygen due to decaying plant material; possible fish mortality caused by depleted dissolved oxygen; possible algal blooms and eutrophication Appropriate construction mitigation (paving and spraying of roads for dust suppression) will maintain air quality within Grade II s. Removal of structures and vegetation from reservoir areas to be inundated Pumping/turbine operation will maintain dissolved oxygen levels. Multi-tube precipitators were installed at batch plants to reduce dust impacts. Personal protection devices like heavy-duty clothes and dust-proof masks were provided to workers. Cement and other construction materials were transported by truck with proper covers. Water spraying on roads and construction sites was performed to suppress dust and associated impacts on workers and residences. Removal of structures and vegetation was undertaken prior to inundation. Water quality monitoring results show that dissolved oxygen is not an issue.

55 46 Appendix 11 1,000 MW Zhanghewan Pumped Storage Hydro Power Plant Phase Benefits Negative Impacts Proposed Mitigation Measures Development of aquaculture (<0.5 ha) in lower reservoir expected to have positive financial and economic benefits Possible loss of habitat for some fish species Existing Zhanghewan and Huangbizhuang dams have permanently altered migratory fish habitat. New aquaculture will offset any incremental loss of habitat. Implementation of Mitigation Measures According to the domestic EIA prepared at project appraisal, migratory fish habitat does not exist because of the location and limited water flow. In addition, fish population has very low density. Based on the information on fish habitat at and near the project areas, the ZPSHPP did not cause any serious adverse impact on fish habitat in the area. Afforestation program will generate positive benefits from economic forests (apple, date, peach, and walnut trees) and sustainable timber harvesting. Sedimentation in reservoirs causing backwater flooding and loss of storage capacity Lower reservoir configuration includes sediment dam and sluice structure for sediment management. Watershed management plan will control excessive upstream erosion and sedimentation. Sediment dam was installed to collect sediment and reduce the amount of sediment collected in the lower reservoir. ZPSP closely monitors the amount of sediment and cleans it up when needed. Improve flood control Loss of land area due to construction design requirements Overall improvements in regional environment will offset land acquisition requirements. 63 km Transmission Line Phase Benefits Negative Impacts Proposed Mitigation Measures Siting and Design Expansion of electric supply capacity in southern Hebei Province Permanent acquisition of 1.86 ha of land for construction of transmission lines; 0.73 ha will be permanently occupied for operation. Minimal disturbance of agriculture land; no displacement or resettlement will be required; no sensitive or protected areas will be disturbed. There have been environmental benefits in terms of closure of coal-fired power plants and increased flood control capacity. However, there is insufficient data to state that environment benefit offset the land acquisition. Implementation of Mitigation Measures Transmission lines were installed on the hillside, where there is no residence or agriculture activity. Thus, it did not involve any displacement or resettlement of residents. In addition,

56 Appendix km Transmission Line Phase Benefits Negative Impacts Proposed Mitigation Measures Construction Operation Possible creation of job opportunities for local residents Could create feeding and nesting sites for birds, edge effect benefiting ecosystem adjacent to rightof-way Air pollution from earthmoving and construction equipment; sanitary wastes from workers camp Disturbance associated with maintenance of lines (e.g., vegetation control); potential health hazards due to electromagnetic fields Appropriate construction mitigation (paving and spraying of roads for dust suppression) will maintain air quality within Grade II Standards (GB ). Provisions have been made for adequate sanitary facilities. No resettlement was required. Local government will control access to right-of-way, precluding health hazards. Vegetation control will favor mechanical maintenance over herbicide application. Closure of Small, Old Power-Generating Units Phase Benefits Negative Impacts Proposed Mitigation Measures Coal consumption will be reduced by about 1.5 million tons per year. Air emissions and fly ash will be reduced proportionately. Clean up of decommissioned sites; redeployment of power plant workers Cleanup of power plant sites will follow national guidelines for redevelopment of industrial lands; reassignment, retaining, and reemployment will be conducted by Hebei Electric Power Company. Implementation of Mitigation Measures lines do not pass through any environmentally sensitive or protected areas. Water spraying was performed during the construction of transmission lines to control fugitive dust. Ambient air quality results show that the project met Class II air quality s. Adequate sanitary facilities that met workers health and safety requirements were installed and provided to construction workers. No resettlement was required. Transmission towers are installed on steep mountain slopes with limited human activities. It seems that there is no issue that occurred due to human accessibility to the areas where the transmission lines are. No specific access control was performed. Implementation of Mitigation Measures According to representatives from power companies, the closure of small power plants was performed following the relevant PRC regulations and requirements. No public complaints were received regarding the closure of small power plants.

57 48 Appendix 11 Irrigation System Expansion Phase Benefits Negative Impacts Proposed Mitigation Measures Siting and Design Operations Achieve original design capacity to serve 8,167 ha irrigated area Improved productivity of agricultural land; improved supply of water for other uses Land required for construction/rehabilitation of canals has already been acquired. Possible increase of erosion due to tiling and harvesting; possible increased use of agricultural chemicals Improved water supply and agricultural productivity will provide economic benefit, offsetting acquisition of land. Best management practices to be implemented for erosion control and agricultural chemical application Expansion of Rural Electric System Phase Benefits Negative Impacts Proposed Mitigation Measures Siting and Design Operations Increased availability of gridbased electric power to rural and impoverished areas, with increased economic opportunities for rural residents Expanded electric supply will reduce residential coal consumption, improving indoor air quality and reducing health risks Right-of-way required for construction of transmission and distribution lines is 3.13 ha; an additional 8.56 ha will be occupied by substations. Minor inconvenience of additional distribution poles and lines on rightof-way Routing to minimize disruption of residents and agriculture activity; construction practices and schedules will be designed to reduce traffic and community disruptions. Compensation for right-of-way access has been or will be made according to existing PRC laws and regulations. Implementation of Mitigation Measures Irrigation system expansion was not implemented because of a delay in increasing water storage in the lower reservoir and reduced demand for irrigation water supply caused by a decline in farming activities. No effort was made to improve or adopt best management practices on erosion control, agricultural chemical use, and others as irrigation expansion was not carried out. Implementation of Mitigation Measures The distribution lines were mostly laid along the roads, with no significant disruption to farming activities. As expansion of the rural electric system was initiated by HPG, these activities complied with PRC environmental regulations and requirements. EIA = environment impact assessment, ha = hectares, HPG = Hebei Provincial Government, km = kilometer, MW = megawatt, PCR =project completion review, PRC = People s Republic of China, ZPSC = Zhanghewan Pumped Storage Company, Ltd., ZPSHPP = Zhanghewan Pumped Storage Hydro Power Plant. Source: Asian Development Bank estimates. D. Public Participation to Enhance Environmental Management Plan 13. A public participation program was implemented by the Project Environmental Management Department and the environmental monitoring and advisory agency from 2004 to The purpose of the program was to solicit the views of the affected people and to gain a better understanding of the project impacts and any improvement needed, to provide feedback to ZPSC for implementation of mitigation and corrective actions. Four different instruments were used for public engagement: (i) telephone hotlines, (ii) quarterly questionnaire surveys,

58 Appendix (iii) interviews with people in the affected communities, and (iv) interviews with construction workers. Table A11.2 details how public participation was performed, concerns received through this process, and corrective actions taken by the ZPSHPP. Table A11.2: Public Concerns and Corrective Actions Taken during Project Construction Year Details of Public Participation Concerns Received and Corrective Actions Taken 2004 Two telephone hotlines were in operation. Quarterly surveys were conducted. A total of 90 questionnaires were received (33% were completed by women). A total of 50 interviews with affected people were conducted through focus and random interviews over three periods. A total of 15 representatives from construction contractors were interviewed over three periods. Dust control. Increased frequency of water spraying; 1.2 meter tall fences were erected around construction sites; digging more controlled; environmental inspection strengthened. Food waste dumping. Cleanup of food waste dumping; garbage bins added; training on waste management conducted. Exposed spoils. Restoration and rehabilitation of completed segments carried out; completed roads planted with trees; slope protection installed at spoil dumping sites. Explosion sound and vibration. Explosions limited to 2005 Two telephone hotlines were in operation. Quarterly surveys were conducted. A total of 267 interviews with affected people was conducted through focus and random interviews over three periods (49% of the participants were women). A total of 18 representatives from construction contractors were interviewed over three periods Two telephone hotlines were in operation. Surveys of 165 construction workers/managers and community members were conducted using random sampling methods, ad hoc visits, and face-to-face interviews Two telephone hotlines were in operation. Two public opinion surveys were carried out; covering 161 participants (46% of them were female) Two telephone hotlines were in operation. A questionnaire survey was carried out, covering 161 participants, of which 50% were female Two telephone hotlines were in operation. A questionnaire survey of 75 participants was carried out, of which 50% were female Two telephone hotlines were in operation. A questionnaire survey was conducted Two telephone hotlines were in operation. A survey was conducted in the last quarter of 11:30 am 12:00 noon. Dust control. Enhanced dust control measures by requesting construction trucks to cover cement, building materials; drivers were instructed to wash trucks and clean tires before they leave loading and unloading yards, and to slow down when passing villages and residential areas. Positive feedback on the performance of environmental protection measures. Positive feedback received due to better road access, improvement in transportation conditions, increased employment opportunities, and increased income generation by small businesses near the project. Positive feedback on the performance of environmental protection measures. Little concern on dust control dust suppression measures like water spraying and vehicle control were enhanced. Positive feedback on the strengthened measures for environmental protection. Respondents were satisfied with greening, soil erosion control, spoil site rehabilitation, and dust and noise control. A few negative comments on piling of construction garbage and exposed spoil sites in some spots. Positive feedback on the strengthened measures for environmental protection. Respondents were satisfied with greening, soil erosion control, spoil site rehabilitation, and dust and noise control. No complaints were received. Respondents are generally satisfied with environmental management works. Respondents are generally satisfied with local environment, including water and air quality. Main concern was on ecological restoration of construction sites. Respondents believe that the project may bring employment opportunities for local residents. Respondents generally thought the local environment quality is better or recovered to the level before

59 50 Appendix 11 Year Details of Public Participation Concerns Received and Corrective Actions Taken the year. ZPSHPP construction. Majority of respondents considered the water and soil conservation measures effective Some respondents mentioned that employment opportunities were created. Public thought the project may play a positive role in regional economy. Most respondents mentioned the project had some impact on ecological environment. ZPSHPP = Zhanghewan Pumped Storage Hydro Power Plant. Source: Zhanghewan Pumped Storage Hydro Power Plant environmental monitoring reports, E. Environmental Monitoring 14. The SEIA indicated the environmental monitoring program for the project. At project appraisal, the environmental monitoring program was developed focusing on the ZPSHPP. From 2004 to 2008, field sampling and laboratory tests were conducted by the subcontractors, Shijiazhuang City Environmental Monitoring Center and Jingxing County Environmental Monitoring Station. The environmental monitoring and advisory agency confirmed that (i) the monitoring exercises covering ambient environmental quality parameters are relevant to the environmental performance of the pumped storage project, (ii) sampling and analytical methods were credible, and (iii) monitoring results were all valid. Table A11.3 presents details of the environmental monitoring program and actual implementation activities under the program. Table A11.3: Environmental Impacts, Mitigation Measures, and Implementation Status Responsible Party Issue Major Impacts Mitigation Measures Monitoring Frequency and Compliance Status Construction Period ( ) Air/ Noise Spray water for dust suppression Daily/ongoing as needed Water Heavy equipment operations and maintenance Equipment certified and maintained to meet national emission and noise s Continue operation of existing meteorological station Ambient air quality was monitored at different locations: office building area ( ), construction camps ( ), Ceyuzhen and adjacent villages (2004 and 2005), Yanzhuangcun Village ( ). Daily average concentrations of TSP, SO 2, NO 2, and CO2 were measured. Noise monitoring was conducted at different locations: office building area ( ), construction camps ( ), Ceyuzhen and adjacent villages (2004 and 2005), Yanzhuangcun Village ( ). The existing meteorological station is still running to monitor meteorological conditions in the project area. Sediment barriers, runoff control dikes and ponds Water-eroded sediment flux and construction waste run-off Sanitary wastewater treatment for construction camps Sediment barriers were constructed to reduce sediment in lower reservoir. Sediment was collected regularly. ZPSHPP EPO Fully complied with Daily/ongoing as needed ZPSHPP EPO As for surface water quality at lower reservoir, a total of 26 parameters, including ph, TSS, COD, BOD, DO, NH 3 -N, nitrate N, Cr6, TP, TN, oil, chlorophyll, phenol, cyanide, arsenic, Pb, Zn, fluoride, chloride, Hg, Cd, coliform, sulphate were measured taking samples from different locations to monitoring water quality of Fully complied with

60 Appendix Issue Major Impacts Mitigation Measures Monitoring Frequency Construction Period ( ) headwater, center, and tail water of lower reservoir. Land As for wastewater, concentrations of TSS, COD, BOD, NH 3-N were collected. From 2004 to 2006, wastewater quality was monitored at discharge outlets of the treatment facilities of the upper reservoir, lower reservoir, and office building area; outlet of the engineering wastewater treatment for underground system. In 2007, wastewater quality was monitored at discharge outlets of the treatment facilities of the upper reservoir, lower reservoir, and office building area; lower dam construction camp wastewater treatment facility; and underground system wastewater treatment facility. In 2008, when most of the civil works were completed, wastewater was measured only at the upper reservoir site wastewater treatment facility; lower reservoir site wastewater treatment facility; project management office wastewater treatment facility. From 2009 to 2012, wastewater quality was measured at project management office wastewater treatment facility. Treated wastewater was recycled on-site for watering vegetation. Land grubbing and clearing of reservoir; demolition of houses and removal of debris; clearing and preparation of transmission line right-of-way Spray water for dust suppression as necessary Responsible Party and Compliance Status Routing of transmission line to Daily/ongoing as needed ZPSHPP EPO minimize tree loss Land protection measures were carried out by construction contractors as part of contract requirements. Site grading was done on time; slope excavation strictly followed the construction design and was properly done to ensure stability of slope. Dust suppression measures were performed frequently to mitigate dust impact. Throughout construction, dust control measures were strengthened, reflecting the public concern on dust. Transmission line was properly routed to minimize tree loss and impacts to local residences. Public Health Pre-employment health screening/certification of workers Public health sanitary wastes and infectious diseases Clinics established to support construction camps Daily/ongoing as needed A health examination system was established. Construction workers were required to pass a health examination covering influenza, malaria, diarrhea, and virus hepatitis prior to entry to the construction sites. Regular health examinations were conducted for workers from 2004 to No infectious, epidemic, contagious, or transmittable diseases, including HIV/AIDS, were discovered. Health examinations were also conducted for residents in the relocation areas of upper and lower reservoirs from 2004 to In 2007 and 2008, the environmental advisory agency visited Yanzhuang Village and local clinics. No risk of major contagious diseases was found, including HIV/AIDS. In 2004 and 2005, training on public health and safety was carried out for construction contractors, in accordance with Shijiazhuang regulations on public health emergency response. During construction, two temporary clinics were built on-site in close cooperation with Ceyu town clinic. Each clinic had one doctor and two nurses to handle health issues for workers. Regular, periodic dialogue and exchange of information was carried out with Ceyu town clinic. The management of water supply and waste disposal was strengthened. Fully complied with ZPSHPP EPO and health specialists plus support from Jingxing County Public Health Department Fully complied with

61 52 Appendix 11 Operation Period ( ) Air and Water Aquaculture Land Social impact mitigation and public health Changes in local climate conditions Water sedimentation Accumulation of pollutants Continuous operation of Erosion control structures and existing meteorological revegetation station Sanitary wastewater treatment systems Cooperation with Shanxi EPB to limit upstream pollutant discharges Existing meteorological station is still operating. Ambient air monitoring on quarterly basis Quarterly for routine water quality Monthly for human wastewater During operation, the domestic wastewater is treated on-site using aeration treatment process, and then recycled on-site for watering vegetation. The pumped storage power station has not been working with Shanxi EPB to limit upstream pollutant discharges. During operation, water quality monitoring was conducted once a year. During operation, ambient air quality monitoring was conducted once a year. Fish population possible entrainment in pump/turbines Active aquaculture limited to maintain desired dissolved oxygen content Annual for first 5 years, then every 5 years if population thrives Correction action to be developed if fish population does not expand Control of human access The revegetation work was completed just before the PCR mission. ZPSHPP submitted and obtained approval for the soil conservation report in ZPSHPP EPO and EPBs Partially complied with. (Instead of the SEIA requirement, the project followed the PRC monitoring frequencies requirements). ZPSHPP EPO and EPBs No action was taken to check fish population in and nearby the project site. Not complied with According to the Zhanghewan Pumped Storage Project, no fish has been seen in lower reservoir or immediate upstream river. Buffer zone established ZPSHPP EPO, Land inundation and Revegetation and Annual for first 5 years; coordination with potential erosion afforestation every 5 years after that forestry and water resource agencies Social impact mitigation Land acquisition plan, and public health resettlement and worker redeployment. resettlement plan, and worker redeployment plans approved by the government and ADB Monitored by ZPSHPP during project construction. ADB has been monitoring the social impacts of resettlement sites using staff consultants since then. Ongoing The ZPSHPP affected a total of 2,878 persons in eight villages due to expansion Ongoing of the surface area of the lower reservoir. In five out of eight villages, the affected people (total 446 persons) were resettled within the same village. Residents of Beihaoting Village moved to newly established Beihaoting Village in December 2007 prior to commissioning of the ZPSHPP. The relocation of Shimen Village was completed in December As for affected people from Nanhaoting Village (780 persons), the relocation of 193 out of 211 affected households was completed in December By the time of the PCR mission, Jingxing County government expects the remaining 18 households will move to the new village within the next 6 months after they have reached agreement on their entitlement for compensation and livelihood support mechanisms. It is expected that this issue will be resolved by September ZPSHPP EPO, health specialists with coordination/support from Jingxing County Public Health Department BOD = biochemical oxygen demand, CO 2 = Carbon monoxide, COD = chemical oxygen demand, EPB = environmental protection bureau, EPO = environmental planning office, N = nitrate, NH3-N = ammonia nitrogen, NO 2 = Nitrogen dioxide, Pb = Lead, SO 2 = Sulfur dioxide, TN = total nitrogen, TP = total phosphorous, TSP = total

62 Appendix suspended particulates, TSS = total suspended solids, Zinc = Zn, ZPSHPP = Zhanghewan Pumped Storage Hydro Power Plant. Source: Zhanghewan Pumped Storage Hydro Power Plant environmental monitoring reports, Table A11.4 presents the monitoring results of effluent discharged at various wastewater treatment facilities at the project site. The results show that wastewater quality met Class I comprehensive wastewater discharge s (GB ) and wastewater treatment facilities have been working properly. Table A11.4: Wastewater Quality Data At Upper Reservoir Site Wastewater Treatment Facility ( ) Comprehensive Wastewater Discharge Quality of effluent discharged after wastewater treatment Standards (GB ) Class I Year SS COD BOD NH3-N Petroleum At Lower Reservoir Site Wastewater Treatment Facility ( ) Comprehensive Wastewater Discharge Quality of effluent discharged after wastewater treatment Standards (GB ) Class I Year SS COD BOD NH3-N At Lower Reservoir Site Wastewater Treatment Facility ( ) Comprehensive Wastewater Discharge Standards (GB ) 10 Petroleum Quality of effluent discharged after wastewater treatment

63 54 Appendix 11 At Project Management Office Wastewater Treatment Facility ( ) Comprehensive Wastewater Discharge Quality of effluent discharged after wastewater treatment Standards (GB ) Class I Year SS COD BOD NH3-N Petroleum At Lower Dam Construction Camp Wastewater Treatment Facility ( ) Comprehensive Wastewater Discharge Quality of effluent discharged after wastewater treatment Standards (GB ) Class Year I 70 SS COD BOD NH3-N Petroleum At Underground System Wastewater Treatment Facility ( ) Comprehensive Wastewater Discharge Standards (GB ) Class I Quality of effluent discharged after wastewater treatment Year SS COD BOD NH3-N Petroleum 0.0 ( ) = data not available, BOD = biochemical oxygen demand, COD = chemical oxygen demand, NH3-N = ammonia nitrogen, SS = suspended solids. Source: Zhanghewan Pumped Storage Hydro Power Plant environmental monitoring reports, Table A11.5 presents ambient air quality, which was measured at and around the project sites. The monitoring results show that ambient air quality met Class II air quality s (GB ).

64 Appendix Table A11.5: Ambient Air Quality Data during Construction and Operation Office Building of the Pumped Storage Power Station ( ) Air Quality Standards (GB3095- Ambient air quality (daily average, mg/m 3 ) 1996)(Daily, mg/m 3 ) Class Year II SO NO CO TSP Workers Camp ( ) Air Quality Standards (GB ) Ambient air quality (daily average, mg/m 3 ) (Daily, mg/m3) Class Year II SO NO CO TSP Ceyuzhen Village (2004 and 2005) and Yanzhuang Village ( ) Air Quality Standards (GB ) Ambient air quality (daily average, mg/m 3 ) (Daily, mg/m3) Class Year II SO NO CO TSP ( ) = data not available, BOD = biochemical oxygen demand, CO 2 = Carbon monoxide, COD = chemical oxygen demand, mg/m 3 = milligram per cubic meter, NO 2 = Nitrogen dioxide, SO 2 = Sulfur dioxide, SS = suspended solids, TSP = total suspended particulates. Source: Zhanghewan Pumped Storage Hydro Power Plant environmental monitoring reports, Table A11.6 shows water quality data at the lower reservoir during construction and operation. The monitoring results show that all the monitoring parameters, except for total nitrogen (TN) and total phosphorus (TP), met Class II surface water quality s (GB3828-

65 56 Appendix ) throughout the project construction and operation. According to the domestic EIA at project appraisal, other parameters except for TN and TP met the s. Thus, an increase in TN and TP is unlikely to be caused by the project, as they are usually associated with agriculture. Table A11.6: Surface Water Quality Data during Construction and Operation Lower Reservoir Intake (headwater) Surface Water Quality Standards Surface water quality (mg/l) (GB ) Class II Year ph mg/l DO mg/l COD(Mn) BOD mg/l NH 3-N Exceedance Lower Reservoir Intake (headwater) Surface Water Quality Standards (GB ) TP mg/l 0.5 mg/l 1.0 mg/l 1.0 mg/l 10 mg/l 15 mg/l 0.05 mg/l mg/l Surface water quality (mg/l) Exceedance TN Exceedance (average ) Zn Fluoride Nitrate-N SS 5 10 <10 <10 8 < Arsenic 0.0 <0.0 < < Hg <0.0 < < Cd mg/l 0.05 Cr +6 mg/l 0.01 Pb mg/l 0.05 Cyanide mg/l Phenol mg/l 0.05 mg/l Oils <0.0 <0.0 < < <0.0 < < <0.0 <0.0 < <0.0 <0.0 <0.0 < < <0.0 <0.0 < < Not detected Not Detected

66 Appendix Lower Reservoir Intake (headwater) Surface Water Quality Standards (GB ) 0.1 Sulfide mg/l 250 Chloride mg/l 2000/l Coliform count Lower Reservoir Center Surface water quality (mg/l) Surface Water Quality Standards Surface water quality (annual average, mg/l) (GB ) Class II Year ph mg/l DO mg/l 15 mg/l 0.5 mg/l mg/l 0.5 COD (Mn) BOD NH 3-N TP TN Exceedance Exceedance (average ) Lower Reservoir Center Surface Water Quality Standards (GB ) 1.0 Zn mg/l 1.0 Fluoride mg/l 10 Nitrate-N mg/l 15 SS mg/l 0.05 Arsenic mg/l Hg mg/l Cd mg/l 0.05 mg/l Cr +6 Exceedance Surface water quality (annual average, mg/l) <0.0 <0.02 < <10 <10 < <0.0 <0.0 < <0.1 <0.0 < Not <0.0 <0.0 < detected <0.0 <0.0 < mg/l 0.05 mg/l mg/l Pb Cyanide Phenol <0.0 <0.0 < Not detected <0.0 <0.0 < <0.0 <0.0 <

67 58 Appendix 11 Lower Reservoir Center Surface Water Quality Standards (GB ) 0.05 Oils mg/l 0.1 Sulfide mg/l 250 Chloride mg/l 2000/l Coliform count Lower Reservoir Outlet (Tail water) Surface water quality (annual average, mg/l) Surface Water Quality Standards Surface water quality (mg/l) (GB ) Class II Year ph mg/l DO mg/l 15 mg/l 0.5 mg/l mg/l 0.5 mg/l 1.0 mg/l COD (Mn) BOD NH 3-N TP TN Zn Exceedance Exceedance (average (average ) 0.132) (average 1.45) (average 1.45) Lower Reservoir Outlet (Tail water) Surface Water Quality Standards (GB ) 1.0 Fluoride mg/l 10 Nitrate-N mg/l 15 SS mg/l 0.05 Arsenic mg/l Hg mg/l Cd mg/l 0.05 mg/l 0.01 mg/l Cr +6 Pb Exceedance <0.0 < Surface water quality (mg/l) < <0.0 < <0.0 < <0.0 <0.0 < <0.0 < <0.0 < Not detected Not detected

68 Appendix Lower Reservoir Outlet (Tail water) Surface Water Quality Standards Surface water quality (mg/l) (GB ) 0.05 Cyanide mg/l 0.0 <0.0 < Phenol mg/l <0.0 <0.0 < Oils mg/l Sulfide mg/l Chloride mg/l /l Coliform count ( ) = data not available, BOD = biochemical oxygen demand, Cd = Cadmium, Cr = Chromium, COD Mn = chemical oxygen demand manganese, DO = dissolved oxygen, Hg = Mercury, mg/l = milligram per liter, N = nitrogen, NH3-N = ammonia nitrogen, Pb = Lead, ph = power of hydrogen, SS =suspended solids, TN = total nitrogen, TP = total phosphorous, Zinc = Zn. Source: Zhanghewan Pumped Storage Hydro Power Plant environmental monitoring reports, Table A11.7 shows noise monitoring data at the lower reservoir during construction and operation. The results show that noise levels in and around the project area met Class I noise s for urban areas (GB ). Table A11.7: Noise Monitoring Data during Construction and Operation Office Building of the Pumped Storage Power Station ( ) Workers Camp ( ) Workers Camp ( ) Noise s for Urban Areas Noise [db (A)] (GB ) Night Ceyuzhen Village (2004 and 2005) and anzhuang Village ( ) Noise s for Urban Areas Noise [db (A)] (GB ) Class I Year Day Night Noise s for Urban Areas Noise [db (A)] (GB ) Class I Year Day Noise s for Noise s for Urban Areas (GB ) Urban Areas (GB ) Class I Year Day Night ( ) = data not available, db = decibel. Source: Zhanghewan Pumped Storage Hydro Power Plant environmental monitoring reports,

69 60 Appendix Environmental monitoring was properly carried out throughout the project. The monitoring results show that the ZPSHPP did not cause any significant adverse impacts on air and water qualities in and around the project areas. Measures to mitigate noise and wastewater treatment were properly carried out. F. Environmental Benefits 20. The project saved an average of 1.45 million tons (t) of coal per annum as a result of the ZPSHPP. This translates into an average annual reduction of 4,233 t of total suspended particulates, 8,128 t of sulfur dioxide, 4,865 t of nitrogen oxide, and 3.62 million t of carbon monoxide (CO 2 ). Table A11.8 presents details of coal savings and air pollutant reduction during operation. Table A11.8: Calculated Coal Savings and Emissions Reduction during Operation (ton) Item Standard coal saving 1,517,186 1,481,984 1,510,729 1,394,219 1,352,647 CO 2 emission reduction 3,782,344 3,694,586 3,766,247 3,475,789 3,372,149 SO 2 emission reduction 8,496 8,299 8,460 7,808 7,575 NO X emission reduction 5,086 5,064 4,674 4,674 4,534 PM emission reduction 4,425 4,322 4,406 4,066 3,945 CO 2 = carbon dioxide, NO X = nitrogen oxide, PM = particulate matter, SO 2 = sulfur dioxide. Source: ADB Staff Estimates 21. ZPSHPP, which replaced old and inefficient small power plants and produces electricity to meet peak power demand in the region, contributes to the improvement of air quality through coal savings in the project area and to climate change mitigation. G. Conclusion, and Recommendation 22. The project design included several components and the responsibilities for implementing for implementing components are not closely coordinated. There were project components which were loosely linked to the core project component of the ZPSHPP and the implementing agency did not have the institutional mandate to ensure compliance with EMP for these components. In addition, environmental mitigation measures on rehabilitating the fish habitat and fish population and controlling upstream industrial water pollution was beyond the mandate of ZPSC and there should have been effective institutional arrangements for addressing these concerns. 23. The overall performance of ZPSHPP on EMP implementation, environmental monitoring, and reporting requirements is generally satisfactory. However, ADB recommends ZPSHPP to improve afforestation efforts to compensate ecological value loss caused by the upper reservoir construction.

70 Appendix IMPLEMENTATION OF LAND ACQUISITION AND RESETTLEMENT PLAN AND OTHER SOCIAL BENEFITS A. Project Description 1. The project is located in Hebei Province and involves (i) the construction of a 1,000 megawatt (MW) pumped storage power plant at Zhanghewan; (ii) a 500 kilovolt transmission line for transfer of electricity from the power plant to Hebei South Power Grid; (iii) rehabilitation of the rural electricity distribution network; (iv) closure of old and inefficient coal-fired power generation units; (v) support for reforms in the provincial power sector; (vi) irrigation improvement; and (vii) afforestation. 2. A land acquisition and resettlement plan (LARP) was prepared in 2002 for (i) the Zhanghewan pumped storage power plant and associated road construction, and (ii) transmission and distribution components. 3. According to the LARP, it was planned to (i) permanently acquire hectares (ha) of land, of which ha was farmland; (ii) temporarily occupy 86.0 ha of land; and (iii) demolish 81,800 square meters (m 2 ) of houses, primarily because of reservoir inundation. In addition, some public infrastructure, facilities, and assets were to be affected, including irrigation canals, village roads, water towers, public wells, telecommunication and transmission lines, telephone lines, a school, and clinics. The affected people were estimated to include 854 households, with 2,907 people from six villages. The cost estimate for the LARP was CNY150.6 million in The planned resettlement and land acquisition impact by component is summarized in Table A12.1. Table A12.1: Planned Land Acquisition and Resettlement Land Acquisition (ha) Total Permanent Of which, farmland Temporary Occupation (ha) Houses Demolished (m 2 ) Estimated Affected Households People Component Reservoir Inundation , ,776 Construction Site Transmission Line Total , ,907 ha = hectare, m 2 = square meter. Source: Original land acquisition and resettlement plan, B. Land Acquisition Planning, Impact, and Budget 4. The LARP was prepared by Beijing Hydroelectric Investigation Design and Research Institute for Zhanghewan Pumped Storage Company (ZPSC) in March 2002, in accordance with the Involuntary Resettlement Policy (1995) of the Asian Development Bank (ADB) and relevant laws and regulations of the People s Republic of China (PRC). 1 Table A12.2 presents the actual resettlement and land acquisition. 1 Preparation of the LARP was guided by the Regulation of Land Requisition and Resettlement for Large and Medium Scale Water Conservancy and Hydroelectric Projects. The compensation rates followed the provision of the Land Administration Law, 1998.

71 62 Appendix 12 Table A12.2: Actual Land Acquisition and Resettlement Land Acquisition (ha) Temporary Occupation (ha) Houses Demolished (m 2 ) Estimated Affected Total Of which, Component permanent farmland Households People Reservoir Inundation , ,833 Construction Site Transmission Line a Total , ,959 ha = hectare, m 2 = square meter. a 1.33 ha of temporary land occupation is estimated by the project managers. Source: Jingxing County Resettlement Office. 5. The actual permanent land acquisition was ha, which was 8.67 ha less than the estimated ha. The actual temporary land occupation was 54.1 ha, which was 31.8 ha lower than the estimated 86.0 ha. The actual housing demolition was 79,596 m 2, down 1,584 m 2 from the estimated 81,800 m 2. The comparison of planned and actual resettlement and land acquisition is summarized in Table A12.3. Component Table A12.3: Planned and Actual Land Acquisition and Housing Demolition Permanent Land Acquisition Temporary Land Occupation Structure Demolition (ha) (ha) (10,000 m 2 ) Planned Actual Difference Planned Actual Difference Planned Actual Difference Reservoir (5.3) (0.2) Inundation Construction (3.3) (31.3) (0.0) Site Transmission (0.1) (0.5) Line Total (8.7) (31.8) (0.2) ( ) = negative, ha = hectare, m 2 = square meter. Source: Jingxing County Resettlement Office. 6. Permanent land acquisition actually affected 812 households, which was 42 households less than the estimated 854 households, and 2,959 people, which was 52 people more than the estimated 2,907 people. The comparison of planned and actual affected people is summarized in Table A12.4. Table A12.4: Planned and Actual Affected People by Component and Village Component/Village Household People Planned Actual Difference Planned Actual Difference Reservoir Inundation (38) 2,821 2, Nansi Shimen Beihaoting (15) (74) Nanhaoting (23) 1,511 1, Zhanghewan Yanzhuang Ceyu Zhuhui 3 0 (3) 10 0 (10) Transmission Line (4) (5) Construction Site Total (42) 2,952 3, ( ) = negative. Source: Original resettlement plan in 2002 and various monitoring reports.

72 Appendix The total cost of land acquisition was CNY289.8 million, which is CNY139.2 million more than the LARP estimates. This is mainly due to the significant increase in compensation rates for permanent land acquisition of the resettlement site for Nanhaoting Village (the largest affected village) because of long delayed relocation. The compensation rate for irrigated land, for instance, increased to CNY720,000/ha after 2009 from the planned CNY229,800/ha in The comparisons of planned and actual cost in total and in some key areas are summarized in Table A12.5 and comparison of planned and actual compensation rates are in Table A12.6. Item Table A12.5: Planned and Actual Land Acquisition Cost (CNY million) Cost Planned Actual Difference Compensation for land acquisition (used to restore livelihoods) Infrastructure construction for resettlement area Building new houses for relocated people Other costs a Total a Includes cost for the two bridges and roads in the old village, which have not yet been completed, and taxes and fees. Source: Original resettlement plan, monitoring reports, and Jingxing County Resettlement Office. Table A12.6: Planned and Actual Land Compensation Rates Period Before 2009 Type of Land Planned (CNY/ha) Actual (CNY/ha) Irrigation land 229, ,865.9 Dry land 93, ,811.2 After 2009 Irrigation land 229, ,000.0 Dry land 93, ,500.0 CNY = yuan, ha = hectare. Source: Monitoring reports and Jingxing County Resettlement Office. C. Resettlement Management, Supervision, and Monitoring 8. Resettlement for the project was implemented in accordance with the Regulation of Land Requisition and Resettlement for Large and Medium Scale Water Conservancy and Hydroelectric Projects of Compensation rates followed the provision of the Land Administration Law, Jingxing County resettlement office was established upon project commencement, and has been operated by eight professional staff, including two staff from ZPSC. The office was responsible for undertaking the LARP, including project planning, implementation, supervision, monitoring, reporting, and financing. The office managed the land acquisition and resettlement activities well because they established a strong communication channel with affected people and implemented the land acquisition and resettlement activities accommodating the needs of affected people. 9. Four (Nasi, Zhanghewan, Yanzhuang, and Beihaoting) out of six villages completed the land acquisition and resettlement in 2006 or early The remaining two villages (Shimen and Nanhaoting) took much longer than planned since careful public consultation with affected people was needed to reach a consensus on resettlement arrangements. The delay in completing the resettlement of Nanhaoting village limited the maximum water level to 474 meters (m) in comparison to the designed water level of 480 m, but this did not affect the

73 64 Appendix 12 operation of the power plant. This was feasible as the power plant is a pumped storage power plant and does not require a large amount of water storage for its operation. However, it reduced the flood control capability of the project, and provision of water for irrigation. Because of the reduction in agricultural activity, water demand for irrigation decreased. Hence, the economic cost caused by the delay in completing the resettlement was insignificant. The land acquisition completion dates by affected village are in Table A12.7. Table A12.7: Village Resettlement Completion Dates Village Planned Actual Difference (months) Nansi April 2006 April Zhanghewan April 2006 April Yanzhuang April 2006 April Beihaoting April 2006 January Shimen April 2006 January Nanhaoting - original - revised April 2006 December July Note: A supplementary resettlement plan made for Nanhaoting village in 2012 included a revised implementation schedule. Source: Monitoring reports and the project offices. 10. ZPSC engaged Xiamen University as the independent external monitor to undertake resettlement supervision, monitoring, and evaluation for the project on a quarterly basis from 2006 to This included information on the status of land acquisition and resettlement, survey results of affected persons, disbursement status of the resettlement budget, capacity building training for concerned officials, and public consultation. The independent monitoring was suspended because of the delay in finalizing the resettlement sites for Beihaoting and Nanhaoting Villages and the absence of progress on the ground from 2008 to Since 2006, ADB carried out monitoring on 12 occasions through the staff consultant and ADB missions to assess the progress of outstanding resettlement issues in two villages (Beihaoting and Nanhaoting). D. Information Disclosure, Consultation, and Participation 11. Jingxin County resettlement office applied a consultative and participatory process in the project planning, design, implementation, and monitoring. All affected persons received full information on the project, on resettlement and land acquisition policies, compensation measures, grievance procedures, and on legal rights. Jingxin County resettlement office held a series of consultation meetings with village leaders and affected households, including female representatives from affected villages, during preparation of the feasibility study and LARP, and implementation of land acquisition and resettlement. A land acquisition and resettlement booklet was distributed to the affected people. E. Grievance Redress Mechanisms 12. A grievance redress mechanism was established at every level of government, stipulating procedures in a transparent and efficient manner. The affected people could appeal through township land administration divisions and township governments, county land administration bureaus and governments, power transmission companies, and power supply companies, if they had problems or grievances regarding land acquisition, housing demolition

74 Appendix and relocation, compensation, and resettlement. No complaint was formally reported from the affected people or nongovernment organizations during the project implementation period. However, through informal procedures and consultations, the resettlement concerns raised by villagers in Beihaoting and Nanhaoting were fully considered and addressed in a manner that satisfied all affected villagers. F. Income Restoration and Rehabilitation, and Job Creation by Village 13. Out of the six relocated villages, Nansi, New Zhanghewan, and Yanzhuang were resettled in 2006; New Beihaoting in 2007 and New Shimen in 2010; and Nanhaoting was substantially completed by April The first five villages were evaluated based on a sample household survey in 2012 and further information collected in March 2014 through key informant interviews. New Nanhaoting Village was evaluated using a sample household survey, group discussion, and key informant interview in March Impacts of land acquisition on the host villages were also briefly assessed. 14. New Nanhaoting Village. This village was affected by the construction of the lower reservoir of the power plant. It was the last one relocated quite recently, but still has some remaining issues. The new resettlement village for the affected households of Nanhaoting village was completed in December 2013 and 96% of the affected households relocated to the new village as of April However, 18 families have not moved as they have not yet reached agreement with the county government regarding their entitlement to new houses and compensation as well as uncertainty regarding livelihood options in the new village. The outstanding resettlement issues are expected to be resolved by September The households were resettled from the old Nanhaoting Village to an area where the land was contributed by four villages and Xiulin township. The relocated households formed new Nanhaoting Village, which is next to a main road to the county center. The village is 12 kilometers (km) from Xiulin township center and 20 km from the county center. 16. Each household was granted a new single-story house of 133 square meters (m 2 ) with a yard of 47 m 2. The house has a separate kitchen and dining room, toilet and shower room, and three bedrooms. The houses can accommodate a second floor at their own cost, which the majority of households has done. The houses have access to basic infrastructure such as water, electricity, internet, and telecommunications. Many of the households have television, air conditioning, an electric washing machine, cooking stoves using natural gas, and a solar heater for hot water. 17. Affected assets were compensated at replacement cost. Each person received 513 m 2 farmland in New Nanhaoting Village, and tenure status for forestland above the inundation line remains unchanged. In addition, (i) affected households will receive a subsidy of CNY75 per m 2 for irrigation cost for 30 years, which will be paid to the households in three installments within the next 3 years; (ii) each affected person is supported by a government subsidy of CNY50 per month for 20 years; and (iii) a transitional subsidy of CNY600 per person per month for 6 months was paid in a single payment. 18. After villagers moved into the new area, two sessions of skills training were provided by the township and county governments. The villagers have been looking for employment opportunities in the factories through referral from their relatives and friends. As of now, 13.2% of laborers earn a salary in the nearby factories, 11.8% are doing business, 10.3% are engaged in transportation, 42.6% of laborers migrated outside, and 22.1% (mainly female) stay at home looking after children and the elderly, and doing housework. Figures A12.1 and A12.2 show a

75 66 Appendix 12 comparison of the employment structure before and after resettlement. Most villagers relied on migrant work rather than farming in the old village, and more laborers are engaged in transport, factory, and self-employment, while fewer migrated outside after resettlement. Therefore, moving to the new village, which is closer to township and county centers, was beneficial to many of the affected people. 19. The major reasons for the changes in the employment structure (i) fewer laborers migrated outside because they need to decorate their new houses; (ii) more employment opportunities exist near the village in factories such as the textile mill, coal plants, and paper mill; and (iii) road conditions are better and demand is greater for transportation services. Source: ADB Staff Estimates based on consultant s report Source: ADB Staff Estimates based on consultant s report