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					Public Disclosure Authorized

Document of
The World Bank

Report No: 17367-CHA
Public Disclosure Authorized

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN
Public Disclosure Authorized

IN THE AMOUNT OF US$300 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A HUNAN POWER DEVELOPMENT PROJECT May 21, 1998 Public Disclosure Authorized Energy and Mining Development Sector Unit East Asia and Pacific Region CURRENCY EQUIVALENTS Currency Unit = Yuan Yuan 1.00 = US$0.12
US$1 = Yuan 8.3 FISCAL YEAR January 1, December 31 WEIGHTS AND MEASURES gms/kWh = Grams per Kilowatt-hour GWh = Gigawatt hour (= 1,000,000 kilowatt hours) kcal = Kilocalories km = Kilometer (= 0.62 miles) kV = Kilovolt (1,000 volts) kW = Kilowatt (=1,000 watts) kWh = Kilowatt hour (= 860.42 kcal) m = Meter m3 /s = Cubic meters per second MVA = Megavolt-ampere (1,000 kilovolt-amperes) MW = Megawatt (1,000,000 watts) MWh = Megawatt hour (= 1,000 kWh) s = Second TWh = Terawatt hour (= 1,000,000,000 kilowatt hours) Vice President: Jean-Michel Severino, EAP Country Director: Yukon Huang, EACCF Sector Manager: Yoshihiko Sumi, EASEG Task Manager: Elaine Sun, EASEG ABBREVIATIONS AND ACRONYMS BOT - Build-Operate-Transfer CAS - Country Assistance Strategy CCEPGC - Central China Electric Power Group Corporation CCPG - Central China Power Grid CEPPDI - Central Electric Power Planning & Design Institute CIF - Cost, Insurance, Freight CRISPP - China Reform Institutional Support and Preinvestment Project EIA(R) - Environmnental Impact Assessment (Report) EMP - Environmental Management Plan FGD - Flue Gas Desulfurization GDP - Gross Domestic Product GEF - Global Environment Facility HEPC - Hunan Electric Power Company HPEPDI - Hunan Provincial Electric Power Design Institute HPG - Hunan Provincial Government ICB - International Competitive Bidding LIB - Limited International Bidding MOEP - Ministry of Electric Power MOF - Ministry of Finance NPC - National People's Congress NEPA - National Environmental Protection Administration NEPRI - Nanjing Environmental Protection Research Institute NO, - Nitrogen Oxide RAP - Resettlement Action Plan SDB - State Development Bank SDPC - State Development Planning Commsision SETC - State Economic and Trade Commission SO2 ^ Sulfur Dioxide SOEs - State-Owned Enterprises SP - State Power Corporation SPC - State Planning Commission T&D - Transmission and Distribution TOR - Terms of Reference CHINA HUNAN POWER DEVELOPMENT PROJECT CONTENTS A: Project Development Objective .............................................................. 2 1. Project development objective and key performance indicators .......................................................... 2 B: Strategic Context .............................................................. 2 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project ...............................2 2. Main sector issues and Government strategy.............................................................. 2 3. Sector issues to be addressed by the project and strategic choices....................................................... 5 C: Project Description Summary .............................................................. 6 1. Project components .............................................................. 6 2. Key policy and institutional reforms supported by the project ............................................................. 6 3. Benefits and target population.............................................................. 7 4. Institutional and implementation arrangements .............................................................. 7 D: Project Rationale .............................................................. 8 1. Project alternatives considered and reasons for rejection .............................................................. 8 2. Major related projects financed by the Bank and/or other development agencies ............................... 9 3. Lessons learned and reflected in the project design.............................................................. 9 4. Indications of borrower commitment and ownership ............................................................. 10 5. Value added of Bank support in this project ............................................................. 11 E: Summary Project Analysis ............................................................. 11 1. Economic ............................................................. 11 3. Technical ............................................................. 13 4. Institutional ............................................................. 14 5. Social ............................................................. 14 6. Environmental assessment ............................................................. 15 7. Participatory approach............................................................. 16 F: Sustainability and Risks............................................................. 16 1. Sustainability ............................................................. 16 2. Critical Risks ............................................................. 17 3. Possible Controversial Aspects ............................................................. 18 G: Main Loan Conditions ............................................................. 18 1. Effectiveness Conditions............................................................. 18 2. Agreements to be reached with the Government ............................................................. 18 H. Readiness for Implementation ............................................................. 19 I. Compliance with Bank Policies ............................................................. 20 - jj - ANNEXES Annex 1: Project Design Summary........................................................................ 21 Annex 2: Project Description ........................................................................ 22 Annex 3: Estimated Project Costs ........................................................................ 28 31 Annex 4: Background on China's Power Sector Reforms ...................................................................... Annex 5: Hunan Electric Power System-Reform Implementation Plan . . 33 Annex 6: Organizational Charts .............................. Error! Bookmark not defined. Chart Al: Organization Chart of the Institutional Arrangement During Project Implementation ......... 40 Chart A2: Organization Chart of Construction Management of Leiyang Power Plant II Project .......... 41 Chart A3: Organization Chart of Construction Management of Power Transmission Project ............... 42 Annex 7: Cost Benefit Analysis Summary ........................................................................ 43 Annex 8: Financial Summary ........................................................................ 51 Annex 9: Procurement and Disbursement Arrangements ...................................................................... 57 Table A: Project Costs by Procurement Arrangements ........................................................................ 59 Table Al: Consultant Selection Arrangements ........................................................................ 60 Table A2: Procurement Plan and Implementation Schedule .................................................................. 61 Chart 1: ICB Procurement Schedule ........................................................................ 62 Chart IA: Consulting Services Schedule ............................ 74 Table A3: Estimated Annual Contractual and Other Payments............................................... 77 Table A4: Key Construction Dates ............................................... 78 Table B: Thresholds for Procurement Methods and Prior Review ............................................... 79 Table C: Allocation of Loan Proceeds............................................... 79 Annex 10: Land Acquisition and Resettlement .................................................. 80 Annex 11: Environmental Management Program .................................................. 84 Annex 12: Project Processing Budget and Schedule................................................. 96 Annex 13: Documents in the Project File ................................................. 97 Annex 14: Statement of Loans and Credits ................................................. 98 Annex 15: Country at a Glance ................................................. 101 MAP IBRD 29405 Hunan Power Grid in 2002 China Hunan PowerDevelopment Project Appraisal Document East Asia and Pacific RegionalOffice Energyand MiningDevelopmentSectorUnit Date: May 21, 1998 Task Manager:Elaine Sun Country Director:Yukon Huang Sector Manager:YoshihikoSumi Project ID: CN-PE-35698 Sector: Energy ProgramObjectiveCategory: Lending Instrument:SpecificInvestmentLoan Programof TargetedIntervention: [] Yes [x] No Project FinancingData [x] Loan [] Credit [] Guarantee [] Other [Specify] For Loans/Credits/Others: Amount(US$M/SDRM): US$300.0 Proposedterms: [] Multicurrency [x] Single currency,US Dollar Grace period (years): 5 [] StandardVariable [] Fixed [x] LIBOR-based Years to maturity: 20 Commitmentfee: 0.75% Service charge: n/a Financingplan (US$M):747.2
Source                                   Local                Foreign           Total
Government                                                                  -                    -                -
HEPC                                                                      138.8                 10.9           149.7
IBRD                                                                          -                300.0           300.0
IDA
ConstructionBank of China/StateDevelopmentBank                            275.8                 21.7           297.5
Total        414.6                332.6           747.2
Borrower:People's Republicof China
Guarantor:
Responsibleagency(ies):Hunan ElectricPower Company
Estimateddisbursements(Bank FY/US$M): 1999 2000 2001 2002 2003 2004 Annual 18.0 57.0 105.0 75.0 36.0 9.0 Cumulative 18.0 75.0 180.0 255.0 291.0 300.0 For Guarantees: [] Partialcredit [] Partial risk Proposedcoverage: Project sponsor: Nature of underlying financing: of Termns financing: Principal amount(US$)
Final maturity
Amortizationprofile
Financingavailable without guarantee?:                             [] Yes                 [] No
If yes, estimated cost or maturity:
Estimatedfinancing cost or maturity with guarantee:
Project implementationperiod:       Expectedeffectivenessdate: 12-31-1998 Expectedclosingdate: 12-31-2004

OSD PAD Form: July 30, 1997
Page 2

A: Project Development Objective

1. Project developmentobjectiveand keyperformanceindicators(seeAnnex 1):

The main objectiveof the project is to alleviatepower shortagesin Hunan by providingefficient,reliable
and environmentallysoundpower supply.

Progress toward the project development objective would be monitored according to quantifiable
performance indicators developed during project preparationwith the assistance of the Beneficiary.
These mainly include the high availability of Leiyang II generating units, improved reliability of
transmission network, reduction in load shedding, improvedfuel efficiency, and reduction in overall
specific emission rates (gms/kWh)of air pollutants (SO , NO,, TSP) (see Project Design Summaryin
2
Annex 1).

B: StrategicContext

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1):

The project supports the CAS objectives to alleviate the infrastructure bottlenecks in interior provinces to
foster integrated economic development, as noted in the CAS (Document No. 16321-CHA, February 25,
1997) discussed with the Board on March 18, 1997, and reaffirmed in the CAS Progress Report to be
discussed with the Board on May 28, 1998. Hunan, where the proposed project is located, remains one of
the poorest provinces in China. In 1996, its per capita GDP was 4,118 yuan, 27 percent lower than the
national average. Electricity consumption per capita was 530 kWh, about one third less than the national
average. Hunan's economic development has been constrained by acute power shortages, estimated at
about 3 TWhbin 1995. The project linkage to the CAS objectives would be achieved directly by the
physical and institutional components of the project. The physical components of the project will
strengthen/reinforce the power supply infrastructure and improve the environment by (a) developing two
300 MW anthracite-fired thermal units; (b) reinforcing critical transmission infrastructure to improve
overall system reliability and ensure delivery of generated power to end-users; and (c) retiring a number
of small, inefficient, aging, and polluting generating units, and avoiding further proliferation of
inefficient and more polluting small plants. The institutional component of the project will increase the
commercial orientation and the efficient operation of the provincial system by (a) unbundling the system
(generation separate from transmission) and increasing competitive procurement of long-term power
supply; and (b) developing and implementing efficient wholesale generation tariffs.

2. Main sector issues and Government strategy:

Despite the progress achieved during the last decade, China's power sector still faces the following
technical, financial, and institutional constraints:

1. Inadequate Financing of Power Infrastructure. Adequate electricity supply in China requires
annual additions of more than 15,000 MW of generation capacity, an investment of about $15-20 billion per year. Despite the government's efforts to develop innovative financing schemes through joint venture, BOT and multiple domestic joint investment projects, the sector is still facing severe capital constraints and difficulties in channeling domestic savings to meet the investment needs of the sector. Further efforts are required to broaden and mainstream power sector financing. Moreover, development of private and nonutility projects is constrained by the lack of a commercial framework for power trade and the weakness of transmission networks. Page 3 2. Transmission Bottlenecks. Transmission infrastructure in China has not been adequately developed to allow for efficient system operation and minimization of supply cost: (a) plants are not optimally located to minimize supply cost and ensure environmental sustainability. For example, some of the large plants constructed in areas close to load centers requiring the transport of large quantities of coal on an overextended transport system were not economically and/or environmentally justified; and (b) about half of the added capacity is in small inefficient units (100 MW and less) built close to the load centers to minimize upfront capital costs and minimize transmission investments. The transmission bottlenecks continue to contribute to investment inefficiencies (untapped economies of scale), location inefficiencies (overburdening of the railway system), environmental inefficiencies (heavy pollution burden on densely populated areas with limited local absorption capacity), and operational inefficiencies (uneconomic dispatch, higher losses). 3. Inadequate Wholesale Electricity and Transmission Pricing Systems. There are two significant shortcomings of the pricing system in the power sector in China. The first relates to the pricing of wholesale/bulk capacity and energy sales/purchases from generating plants. The second relates to the inadequate recognition of power transmission as a separate service that needs to be accounted for in electricity tariffs. The inadequacies of wholesale electricity entail operation of old and/or small and high operation cost coal-fired plants in lieu of modern, more efficient plants. The nonrecognition of the importance of transmission service hampers utilities' ability to recover costs and invest in transmission. Both problems are slowing the implementation of the purchasing agency model, and progress toward competition at the generation level. 4. Unclear Corporate Relationships between Power Sector Entities. Currently, power companies in China operate at three main levels: provincial/municipal, regional, and national: (a) the provincial/ municipal power companies are responsible for generation and transmission within a province or municipality; (b) the regional power entities hold the central Government's ownership stakes in provincial power companies in their territory and are responsible for interprovincial power transfers; and (c) the national power entity holds the central government's ownership stakes in the regional entities. However, unclear ownership rights and not fully commercial relationships between different power entities still impede: (a) full corporatization of power entities to meet the requirements of the new Company Law; (b) financial independence, and profit orientation of the sector entities; and (c) sector and especially transmission financing. 5. Heavy Reliance on Coal. China's heavy reliance on coal (especially for power generation) is expected to continue over the next two to three decades. There is, however, a growing recognition of health impacts and air quality deterioration due to extensive coal use. Recently, the Chinese Government initiated serious efforts to curb air pollution related to utilization of coal in the power sector. In June 1994, the Government announced that it would spend about$2 billion over seven
years to keep SO2 emissions at 15 million metric tons per year. An SO emissions tax (from Yuan
2
0.15 to 0.2/kg of SO2 ) is being experimented with in several provinces and municipalities and a
penalty of Yuan 0.04/kg of SO2 is being applied to all emissions exceeding the 1982 standards in all
provinces. More stringent air quality and emission standards have been issued at the national level in
January and March 1996. Several provinces and municipalities, followed up with local
environmental regulations. A recently issued regulation in Shanghai requires the use of flue gas
desulfurization on all new coal-fired power plants. However, enforcement and adequate
implementation of these standards require greater attention and continued efforts.
6. Low Efficiency of Electricity Supply and Use. China has over 10 years of experience in the active
promotion of electricity conservation, with a solid record of achievement. The strength of its
program lies in the well developed institutional framework. The success is clearly indicated by the
sustained low ratio of elasticity demand to GDP growth of 0.86 during 1980-95. However, energy/
electricity conservation programs have always been based on centrally designed policies and heavily
subsidized administrative programs. Faced with constrained fiscal revenues, the government is now
Page 4

promotinig programs to reduce losses on the supply side and market-based initiatives to improve
electricity use.

The Chinese approach to reform encourages experimentation with different reform options and
institutional forms. This gradual approach permits the Chinese to examine the relevance and applicability
of specific reforms and also to fine-tune reform implementation for broader dissemination or replication
in other parts of the country.

(During the last few years, the Bank's technical assistance program for the sector has focused on helping
the Chinese in assessing reform options, defining implementation strategies, exploring options for
mobilizing domestic and foreign private funds to meet the capital needs of sector development and
developing a regulatory framework. The study entitled "Strategic Options in Power Sector Reform in
China," 1993, sector report entitled "China Power Sector Reform: Towards Competition and Improved
Performance," Report 12929-CHA, 1994, and discussion paper entitled "China: Power Sector Regulation
in a Socialist Market Economy", 1997, which summarized the latest reform emphasis, provide vehicles
for dialogue between the Bank and Chinese institutions. Another discussion paper, No. 377 entitled
"Mobilizing Domestic Capital Markets for Infrastructure Financing: International Experience and
Lessons for China," was prepared based on a seminar held in November 1996 in Beijing on the subject.
The Bank is now assisting the Government to examine institutional structures to develop power markets
in China. The intention is to facilitate increased power exchange between regional and provincial power
systems to economize resource utilization. This assistance is being provided through an IDF grant.)

The Government's future reform agenda includes:

*   At the institutional level:

-   Dissolution of the Minister of Electric Power (MOEP) and transfer of its regulatory
functions to the State Economic and Trade Commission (SETC) and the State Development
Planning Commission (SDPC) and its commercial functions to the State Power Corporation
(SP). This decision made by the State Council was recently confirmed by the National
People's Congress. In parallel, the Government is gradually developing rules to more
efficiently regulate the sector;
*   Corporatization and commercialization of the SP which has been established to hold the
State's ownership interest in the subordinate regional and provincial power companies. It is
expected that the SP will access long-term international and domestic bond markets for
sector financing;
*   Gradual implementation of regional power markets to facilitate economic power exchange,
trade between provincial systems, and competition at the generation level;
*   Rationalization of power tariffs particularly at the wholesale generation and transmission levels;
and
*   Continued focus on increasing the domestic and foreign equity participation in newly formed
generation enterprises. (By end-1997, there were at least 25 power generation companies in
China that had been publicly listed in domestic and international markets.)

*   At the technical/operational level:

*   Achievement of economies of scale in thermal power production, through expanded
development of large and efficient generating units;
Page 5

*   Promotion of conservation technologies and introduction of market-based incentives for
electricity conservation;
*   Development of renewable energy technologies, especially wind power; and
*   More adequate enforcement of environmental protection standards.

3. Sector issues to be addressed by the project and strategic choices:

*   Infrastructure bottlenecks (investment components for power plant and transmission network)
*   Inadequate wholesale electricity pricing systems (wholesale contractual arrangements under TA
component)
*   Unclear ownership rights and lack of commercial orientation of power entities (HEPC's restructuring
plan under TA component)
*   Inadequate financing of transmission projects. (pricing principles agreed between HEPC and the
Hunan Provinical Government for the transmission component)

The project will indirectly address the following sector issues:

*   Development of private power projects (transmission component to support Changsha BOT project)
*   Improving local air quality by replacing about 10 small polluting generating units operating in the
provincial power network (300 MW total) with a large efficient plant utilizing local anthracite fuel
(alleviating pressure on coal supply and transportation and reducing transportation cost) and modem
environmental control systems

There are several reasons why the decision to undertake this project as a Bank-financed public project

*   The project will through separation of generation from transmission and distribution help in: (a)
setting a more predictable and transparent commercial framework; (b) establishing a sector structure
that will allow for the competitive bidding for power purchases; and (c) encouraging investment in
transmission and distribution. This will ultimately lead to the development of fully competitive
markets.
-   Leiyang II will be the first thermal power project in Hunan with a double-arch downshot designed
boiler using 100 percent local anthracite and avoiding transfer of coal over long distance.
Technically, it is more risky and less attractive to private investors. For example, the BOT Changsha
power plant has been designed to use a mix of bituminous coal imported from Shanxi (60 percent)
and local anthracite (40 percent) and to use conventional subcritical boilers.
*   Without the involvement of the World Bank the above technical and institutional improvements are
likely to be delayed by three to five years.
Page 6

C: Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost
breakdown):

Component                              Category        Cost Incl.      % of         Bank        % of Bank
Contingencies    Total     financing      financing
(US$M) (US$M)

1. Leiyang Power Plant Component:                            Physical          463.37        68.3       255.31           55.0
The supply and installation of two additional 300 MW
anthracite-fired generating units at the Leiyang Power
Plant to alleviate power shortage, improve the
generation mix in a system dominated by seasonal
hydropower, and facilitate the retirement of 10 small,
aging, inefficient, and polluting generating units in the
provincial power grid.

2. Transmission Component:                                   Physical          204.90        30.2        39.19           19.1
Reinforcement of the existing 220 kV transmission
systems-supply and installation of about 794 km of
220 kV lines and 1,920 MVA of transformer substations
capacity. The component will connect Leiyang Power
Plant Phase II and competitively bid BOT Changsha
Power Plant (2x300 MW) to the Hunan Provincial Grid
and reinforce the transmission system in order to supply
the increasing demand in a reliable, economic and
efficient manner.

3. Technical Assistance for engineering services for   Project               9.56 (for the     1.4    4.50 (for the      47.1
construction management                              Management               whole TA                 whole TA
component)               component)
4. Technical assistance for implementation of HEPC's Policy (Sector
restructuring plan: (a) incorporation of generation and Reform)
transmission/distribution companies; (b) incorporation
of the future Leiyang power plant; (c) preparation of
contractual agreements and other commercial
documentation

5. Technical assistance for improvement of the financial    Institutional
management system.                                            Building
(Sector
Reform)

6. Training                                                 Institutional         1.00         0.1         1.00         100.0
Building

Total           678.83         100.0     300.00           52.0

2. Key policy and institutional reforms supported by the project:

*    Unbundling of generation from transmission and distribution: This will lead to the implementation of
a purchasing agent structure (a) allowing limited competitive bidding by generator to minimize cost
Page 7

of supply; (b) encouraging investments in transmission and distribution; and (c) easing the transition
to a fully competitive market in the longer term (see Annex 5).

*   Development of efficient wholesale generation tariffs: A revised system of wholesale power pricing
will be introduced to facilitate systemwide economic dispatch and ensure optimal utilization of
resources.

*   Corporatization and Commercialization of power companies: HEPC would be restructured and
incorporated into one transmission/distribution company, one thermal generation company, one
hydro development company, and Leiyang Power Generation Company in accordance with the
Company Law. In addition, the accounting and financial management systems of HEPC would be
upgraded to facilitate the commercialization process.

3. Benefits and target population:

The project would have a marked impact on the economic development of Hunan Province. The direct
benefits attributable to the project are: (a) reduction in the value of lost production due to power
rationing and load shedding; (b) improvements in quality of supply in terms of reduced interruptions and
recognized but difficult to quantify service parameters, such as, more stable frequency and voltage, and
(c) improvements in local air quality with retirement of older polluting generating units (generally
located in urban and populated areas).

The other major benefit of the project is the implementation of the sector reform plan and increased
commercial orientation of HEPC. The development of a competitive commercial framework for
purchase of power from all generating units on the system will be conducive to economic dispatch and
overall generation efficiency. The clear separation of the generation from transmission and distribution
will provide a framework to promote competition at generation level and private investments in power
generation.

The proposed project would therefore benefit all power consumers in Hunan Province.

4. Institutional and implementation arrangements:

Implementation Period. Five years, from December 1998 to December 2003

Executing Agency. HEPC is the beneficiary of the proposed loan and the executing agency of the
project. The overall management of the project would be carried out by HEPC, which would be
responsible for project preparation, implementation and operation, including procurement, construction
supervision, and disbursement of funds. HEPC has been operating the Hunan provincial grid for more
than 20 years and has had operating experience of anthracite fired units (200 MW and below) for more
than 10 years. It has the organization and key staff required for project and construction management.
The detailed arrangements are presented in Chart A1-A3 of Annex 6.

To facilitate effective project implementation according to the planned timetable, HEPC has established
a Project Implementation Unit (PIU) with full-time staff, headed by the Deputy Chief Engineer
(reporting to HEPC Management), to carry out the project preparation and construction management.

Hunan Provincial Electric Power Design Institute has been appointed to assist HEPC in carrying out
engineering, procurement, and project implementation. HEPC and its PIU will also be assisted by an
international consulting firm and a local expert group.
Page 8

Project Oversight and Policy Guidance. The institutional reform elements of the proposed project will
be supervised by SP, SETC, and SDPC (SP in particular). SP will be responsible for obtaining the State
Council approvals on major reform issues. The concerned provincial government agencies will oversee
the planning and implementation of resettlement.

Onlending and Auditing Arrangements. The proposed Bank loan of $300 million will be made to the People's Republic of China represented by the Ministry of finance (MOF) at the Bank's standard interest rate for LIBOR-based US dollar single currency loans, with a maturity of 20 years, including a five-year grace period. Proceeds of the loan will be onlent from the Borrower (MOF) to HEPC on the same terms and conditions as the Bank loan with SP as the guarantor. HEPC agreed to maintain and provide the Bank with semiannual progress report, with unaudited project accounts to reflect project expenditures for the period under report compared with the original project cost estimates. Moreover, HEPC will furnish the Bank with the audited accounts for the project, statement of expenditures, and financial statements within six months of the end of each fiscal year. In this regard, HEPC will also implement any changes to its accounting practices as recommended by the financial management consultants, require the auditors to comply with international auditing practices and provide an audit plan prior to each audit. The proposed project will be audited by the representative office in Hunan of the State Audit Administration (SAA). This office has prepared audit reports in connection with other Bank financed projects in the province in accordance with Chinese audit principles and standards, which are generally consistent with international practices. Finally, HEPC will furnish to the Bank by June 1 of each year, a rolling eight-year financial plan including projected income statements, fund flow statements, and balance sheets. D: Project Rationale 1. Project alternatives considered and reasons for rejection: A least-cost study was carried out by HEPC, with the assistance of local consultants, covering the period 1998-2025 and focusing on 1998-2010. The study was carried out using an optimization model that determines the optimal capacity and generation mix to meet the demand with the minimum cost (net present value of investment and operating costs), given a predetermined reliability criteria. It considered all potential (technically feasible) candidates including: extension of existing hydropower plants, new hydropower plants, thermal power units using local anthracite, thermal power units using bituminous coal from other provinces, combined cycle units using distillate and imports of power from neighboring provinces. The proposed project remains the first investment of the optimal (least cost) power development program under various scenarios. In the without project case, the new development program remains based on greenfield 300 MW units using local anthracite. System reliability in terms of loss-of-load probability will also benefit from the addition of thermal capacity. The present power generation system has substantial hydro capacity (about 55 percent of total capacity) with relatively little storage capacity and generation is thus highly dependent upon hydrological conditions. Page 9 2. Major relatedprojectsfinanced by the Bank and/or other developmentagencies (completed,ongoing andplanned): Latest Supervision (Form 590) Ratings (Bank-financed projects only) Sector issue Project Implementation Development c-completed; o-ongoing; p-planned Progress (IP) Objective (DO) Bank-financed Issues: 1, 3 Tianhuangping Hydroelectric Project-o HS HS Issues: 1, 3, 4, 5 Waigaoqiao Thermal Power Project-o Issues: 1, 3, 4, 5, 6 Tuoketuo Thermal Power Project-o Issues: 1 Wujing Thermal Power Project-c HS HS Issues: 1, 5, Yangzhou Thermal Power Project-o S S Issues: 1, 4, 5 Zhejiang Power Development Project-o HS HS Issues: 6 Energy Conservation Project-o Issues: 2, 3, 4, 6 East China/Jiangsu Transmission Project-o Issues: 5 Renewable Energy Promotion Project-p Other development agencies Issues: 3, 4 ADB (TA No. 2169-PRC) Hunan Electric Power Company Institutional Strengthening Study Issues: 1, 5 ADB (Loan No. 1318-PRC) Hunan Lingjintan Hydropower Project Issues: 1, 5 ADB (TA No. 2739-PRC) BOT Changsha Power Project IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessonslearnedand reflectedin theproject design: * Limited and Achievable Objectives of Power Sector Reform. Setting specific and achievable reform goals in the two latest projects (Waigaoqiao and East China/ Jiangsu Power Transmission) proved to be more effective and better understood approach by the beneficiaries. International experience shows that even in countries with strong legal systems and open economies, the time needed to build consensus on the reform decisions, establish a new regulatory framework, and implement structural changes can be very long. In the UK, the pioneer country in implementing power sector reforms, it took about 10 years for consensus building and laying out the reform options, and two more years for drafting the law and the licenses, and another two for designing the mechanisms to introduce competition. It is clear that the power sector reform agenda in China is far reaching and can be achieved only gradually. It is important to avoid the broad brush reform approach and define clear priorities and focus on specific and limited areas of reform for each project. * Better Preparation of Procurement Packages. Procurement of transmission component features numerous small packages in comparison with generation projects. Each package requires very specialized technical knowledge. Inadequate project management caused significant delays of Page 10 procurement and hence delays of project implementation; noncompliance with the Bank Procurement Guideline due to a lack of awareness, and poor quality of evaluation report have required excessive amount of time for clarification and resulted in delays. Learning from recent experience, the Beneficiary has: (a) established a procurement management group within the organization of the implementing agency from the inception of the project. This group will be part of the project management team and will be responsible of management and coordination of all procurement activities; (b) organized a one-week training course on Bank Procurement Guidelines and a study tour to other Bank financed projects in China to learn from their experience. Experienced procurement specialists from the leading tendering companies in China and staff of the Resident Mission assisted in designing and carrying out the training sessions; and (c) involved independent international consultants to improve the quality of the bidding documents and bids evaluation. * Need for Early Government Approval of Project. In the recent Tuoketuo and Waigaoqiao thermal power projects there were delays in project processing stemming from delayed internal Government approvals. These delays were due to the fact that while the Bank has shortened the project processing period significantly (about six months) under the streamlined operations procedures the government internal approval procedures remain unchanged. The approval process for the proposed project has been closely monitored and special efforts were made by the Beneficiary, MOEP, and MOF to have secured all necessary government approvals before project negotiations. Moreover, the CMU in Beijing has started discussions with the relevant government agencies on how to synchronize both sides' procedures. * Phased Approach to Resettlement. Following the identification mission and in coordination with LEGEA and ASTHR, it is clear that most of the detailed engineering, the routing of the transmission line and siting of transmission towers and substations will not be finalized until early 1999 (which is after the implementation has already begun), two years before the power plants scheduled for trial operations. The agreement with the Borrower, therefore, is that the project will be implemented in two phases. As a result, the Beneficiary should prepare RAP in two phases. The Phase I RAP, submitted to the Bank in February 1998, included: (i) the relevant resettlement policies and regulations, the institutional arrangements and implementation procedures governing all resettlement actions to be carried out under the proposed project; (ii) detailed resettlement action plans for the power plant component, and three substations and two transmission lines under the transmission component; and (iii) a preliminary sample census survey for the second phase. A second-phase RAP, to be submitted to the Bank for approval by March 1999, would include the same policy framework and detailed action plan for the remaining six substations and 18 sections of transmission lines. * Supply of coal with consistent quality. Following a serious boiler accident at Beilungang due to uneven coal quality and start up problem in the Yanshi project, particular attention was given to the boiler design and specifications, coal specifications, and "check coal" specifications, and intensified coal monitoring. A complementary coal study has been prepared by HEPC on coal sampling and analyses. 4. Indications of borrower commitment and ownership: The Beneficiary's commitment and sense of ownership for the proposed project is very high. HEPC has been actively consulting with the relevant government agencies at central and local levels on the required approvals. The approval by MOEP for HEPC's restructuring plan required for the Bank to issue invitation for negotiation of the proposed project was received in March 1998. Contract for consulting service for preparation of detailed reform implementation plan was signied with an international reputable firm on May 1, 1998. Feasibility studies have been submitted to SPC by MOEP. Bid documents for boiler and turbine generator are being prepared with assistance provided by HEPC's Page 11 international engineering consultants and expected to be submitted to the Bank kor review and clearence in June 1998. Final report for the least cost study was received by the Bank in November 1997. The EIA report has been finalized with the assistance of HEPC's international consultants and submitted to the Bank. 5. Value added of Bank support in this project. World Bank Involvement in this project, the first power project in Hunan, is designed to address the technical, financial, and institutional issues by taking into account successful international experiences. The Bank's participation in the project will add value by: * Contributing to the economic development in Hunan to help address the issue of uneven development and widening gap between the coastal and inland areas in the country. * Facilitating implementation of a single buyer market structure in Hunan. The restructuring of HEPC will avoid excessive fragmentation of the sector while setting a framneworkfor competition at the generation level through: (a) creation of two major generation companies; (b) consolidation of Leiyang Phases I and II into a single generation corporation; and (c) incorporation of HEPC into a transmission and distribution company. * Deepening ongoing policy dialogue to address the institutional aspects of wholesale electricity pricing which are critical to the implementation of the power purchasing agency model. Power sales to the transmission and distribution company will be based on adequate contractual arrangements. * Developing a modern environmental management program for the Leiyang power plant, which will serve as a model for other new thermal power plants in Hunan. * Strengthening HEPC's corporate governance, and management capacity through (a) upgrading the financial management system; (b) incorporating the to-be-created companies according to the Company Law; and (c) implementing an intensive training program. * Supporting technology transfer in the construction and operation of 300 MW units using local anthracite resources. Since the project is the first with the design of double arch downshot boiler in Hunan, Bank's participation will help ensure the quality of implementation. E: Summary Project Analysis (Detailed assessments are in the project file, see Annex 13) 1. Economic (supported by Annex 7): [xl Cost-Benefit Analysis: Leiyang Power Plant: NPV = US$191.2 million; IERR = 19.4 percent
HEPC's overall Investment program:        NPV = US$246.8 million; IERR = 13.6 percent Generation A least-cost study was carried out by the Beijing Research Institute for Water Resources and Electric Power (BERI), in conjunction with the Hunan Electric Power Company (HEPC), using a planning model that determines the optimal capacity and generation mix to meet the demand in the most cost effective way (minimum net present value of investment and operation costs). The study covered the development of the system during 1997-2025, study period, with special focus on the investment required during 1997-2010, planning period. The detailed report, "Economic Analysis for Leiyang Coal Fired Thermal Power Plant" (November 1997), prepared by BERI and HEPC is in the project files. A cost benefit analysis was carried out to confirm the economic viability of the project. The analysis was carried out based on the economic cost of the project and the revenues generated by power sales valued Page 12 at the bulk price of 29.1 fen/kWh (1997 prices), based on existing policies for pricing of power output from new power plants and fully passed on to the consumers. The calculation yielded an IERR of 19.4 percent. A risk analysis was also carried out to confirm the robustness of the project. It yielded an expected IERR of 14.8 percent (with a standard deviation of 4.2 percent). The possibility of the expected IERR to be lower than 12 percent is 26 percent. Transmission The strengthening of the transmission system is imperative. The load flow and stability analyses carried out by HEPC show that the need and timing of the proposed lines and substations are justified. The design parameters of the proposed lines and substations has been optimized to ensure that transmission services would be provided in the most cost effective way. To complement the cost-effectiveness approach, a cost-benefit analysis was carried out on HEPC's entire investment program. It yielded an IERR of 13.6 percent. A risk analysis was carried out and yielded an expected IERR of 12.4 percent (with a standard deviation of 4.2 percent). The possibility for the expected IERR to be less than 12 percent is 40 percent. 2. Financial (see Annex 8): Leiyang Power plant: NPV = US$ 2.4 million; FRR = 12.11 percent
Transmission investment: NPV = US$27 million; FRR = 14.86 percent Leiyang Power Plant The financial rate of return for the proposed power plant investment is estimated at 12.11 percent based on pricing principles agreed by the Pricing Department of Hunan Provincial and determined as follows: * Prior to the retirement of domestic debts (from 2002 to 2012): full debt service requirements; O&M cost (including depreciation not used for debt repayments); taxes related to the proposed project; and an annual return of not less than 15 percent on the funds invested by HEPC for the proposed component. * After retirement of domestic debts (from 2013 to the end of the life of the project): full debt service requirements for the Bank loans; O&M cost (including depreciation not used for debt repayments); taxes related to the project; and an annual return of not less than 18 percent on the funds invested by HEPC for the proposed component. The estimated average tariff for the proposed power plant component over the life of the project would be 59.71 fen/kWh in current terms and 29.05 fen/kWh in 1997 prices. Fiscal Impact. The proposed power plant investment is expected to generate tax revenues in a total amount of about$694.2 million equivalent during the project life, of which $89.9 million duties,$286.1
million VAT, $28.7 million surcharges, and$289.5 million income taxes. Based on a discount rate of 12
percent, the net present value of the tax revenues generated by the proposed investment is estimated to be
$123.9 million, of which$7.8 million duties, $51.3 million VAT, and$9 million surcharges, and $55.8 million income taxes. Transmission Component The financial rate of return for the proposed transmission investment is estimated at 14.86 percent based on the pricing principles agreed by the Pricing Department of the Hunan Provincial Government and determined as follows: Page 13 * Full debt service requirements; O&M cost (including depreciation not used for debt repayments); taxes related to the proposed component; and an annual return of not less than 15 percent on the funds invested by HEPC for the proposed component. The estimated average tariff increases for the proposed transmission component over the life of the project would be 0.55 fen/kWh in current terms and 0.32 fen/kWh in 1997 prices. Fiscal Impact. The proposed transmission investment is expected to generate tax revenues in a total amount of about$409.7 million equivalent during the project life, of which $16.5 million duties,$182.7
million VAT, $18.3 million surcharges, and 192.2 million income taxes. Based on a discount rate of 12 percent, the net president value of the tax revenues generated by the proposed investment is estimated to be$143.8 million, of which $1.4 million duties,$62.4 million VAT, and $6.2 million surcharges, and$73.8 million income taxes.

Assessment of HEPC's Financial Management System. The project team reviewed HEPC's financial
management system, including accounting standards and internal control and audit policies/practices,
and the accounting arrangements for the proposed project and found them satisfactory. Technical
assistance and training provided under the proposed project will upgrade HEPC's financial management
capabilities, introduce modem financial management practices, and strengthen the financial and
accounting staff skills.

3. Technical:

The Feasibility Study for the Leiyang Thermal Power Plant, prepared by the Hunan Provincial Electric
Power Design Institute (HPEPDI), has been reviewed by the Central Electric Power Planning and Design
Institute (CEPPDI) and approved by the MOEP. A follow-up review of the Leiyang Plant boiler island
conceptual design, especially on the coal analysis and boiler selection, has been carried out by Black and
Veatch of USA (Engineering Consultants for HEPC). The review confirmed successful burning of the
local very low volatile anthracite requires a furnace design that provides adequate residence time for the
char particle in a high temperature combustion zone. The recommended arch-firing combustion system
(downshot furnace) is the proper technology for the Leiyang power plant. Studies for strengthening
Hunan transmission system were also reviewed by CEPPDI and MOEP. The studies concluded that
reinforcement of the existing 220 kV transmission system is essential to the supply of increasing energy
demand in a reliable, economic and efficient manner. The reinforced 220 kV system would integrate
planned and under construction large size power stations especially the proposed Leiyang thermal power
and the Changsha BOT plants. Load flow, fault level and transient stability analyses were performed for
the Hunan Provincial Grid at the voltage level of 220 kV and above including the 500 kV AC tie line
linking the Hunan Provincial Grid to the Central China Power Grid. Both steady state and transient
stability criteria can be satisfied. The above studies, including environmental impacts and mitigation
measures, were reviewed by the Bank and found adequate. The project's technical design is appropriate
to the needs of Hunan Provincial Power Grid and conforms to required standards. HEPC has been
operating the Hunan Provincial Grid for more than 20 years and has had operating experience of
anthracite coal fired units for more than 10 years. It has the capability to successfully carry out the
implementation of the proposed project. Post-engineering works, including the balance of the
engineering, design, preparation of equipment specifications and tender documents, and interface with
the contractors will be performed by HEPC and HPEPDI, assisted by the Consultants Black and Veatch,
International.

Cost estimates for components of generation and transmission facilities were defined based on studies
and engineering designs carried out by HEPC and HPEPDI. The cost estimates reflect end-1997 prices
Page 14

and are based on the latest international tendering information available for similar equipment and
works, which are realistic. Physical contingencies are calculated at 5 percent for foreign costs and 10
percent for local costs. The price escalation for costs expressed in terms of foreign exchange is calculated
according to anticipated international price movements of the price escalation for costs expressed in
terms of foreign exchange is calculated according to anticipated international price movements of 2.5
percent per year for 1998, 3.1 percent for 1999, 2.9 percent for 2000, 2.8 percent for 2001, and 2.7
percent for 2002, and 2.6 percent for 2003. The price escalation for costs expressed in local currency is
calculated according to projected inflation rate for China of 2 percent for 1998, 4.8 percent for 1999, 5
percent for 2000 and 5.5 percent for 1999-2003. The allowances for physical contingencies and price
increases during implementation are deemed to be adequate.

4. Institutional:

As a new beneficiary of a Bank project, HEPC is not familiar with the Bank procedures, particularly the
procurement procedures. Therefore, a project management unit was established based on the Bank
mission's recommendation with full-time staff. Furthermore, a procurement group was organized and
trained by the Bank procurement specialists. International consultants experienced with power project
procurement has been engaged to assist HEPC in procurement of major equipment.

To strengthen the institutional and managerial capabilities of HEPC, a comprehensive technical
assistance and training program is included under the proposed project and described in details in the
PIP. The program, initiated during project preparation, includes technical assistance and training in: (a)
preparation of detailed reform implementation plan; (b) development and implementation of modern
accounting and financial management system, and (c) development of wholesale power purchase pricing
methodology and contractual arrangements between the restructured HEPC and generation entities.

5. Social:

The resettlement for the proposed project will be carried out in two phases. The first phase includes: (a)
policies and regulations, institutional arrangements, implementation procedures that would be applied to
all components of the proposed project; and (b) detailed resettlement plans for (i) Leiyang Power Plant;
(ii) four 220 kV substations (Furong, Dongfenghu, Hengbei, and Wangcheng); and (iii) two sections of
220 kV transmission lines (Huaneng Power Plant to Dongfenghu, and Macha to Hengbei). The second
phase includes resettlement activities related to five 220 kV substations and 18 sections of 220 kV
transmission lines. A Resettlement Action Plan (RAP) has been prepared for the first phase. The RAP for
the second phase will be prepared by March 1999 following the completion of the design of routing and
siting of these subcomponents.

The Bank carried out full review of the RAP and the assessment found that the resettlement needs and
PAPs are well analyzed and mitigating measures of adverse social impacts are thoroughly formulated
and adequate. The second phase RAP and any unforeseen resettlement associated with the project will be
carried out according to the policy and procedures established in the Phase I.

Minimization of the scope of resettlement was, and will continue to be a high priority throughout the
planning, design and implementation of the proposed project. Where land acquisition and demolition are
unavoidable, the resettlement plans provide for replacement of housing, alternative employment
opportunities, infrastructure, services and other resources to improve, or at least restore, the living
conditions and income of the project affected persons (PAPs). Special attention was given to the most
vulnerable groups (household headed by women, senior people, and poorest households).
Page 15

The project (including two phases) would (a) require acquisition of 1,097.5 mu (about 73 ha) of land; (b)
affect 396 persons due to land loss; (c) demolish 100,145 square meters of floor spaces in rural and urban
areas; and (d) relocate 266 households or 1,418 persons. The first phase components require acquisition
of a total of 438.5 mu land area, affecting 108 people; demolishing 15,941 square meters of floor spaces,
and relocating 175 households or 993 individuals. Based on a preliminary estimate, the remaining project
components will require acquisition of 659.0 mu land area, affecting 289 farmers, removing 84,204
square meters structures, and relocating 91 households or 425 individuals.

In order to effectively implement the resettlement program, resettlement offices were established at the
provincial, city, county, and power supply bureaus levels. To strengthen the resettlement offices'
implementation capabilities, a resettlement policy and implementation workshop was conducted for staff
involved in the resettlement activities in May 1998.

6. Environmental assessment:
Environmental Category          [x] A   []B      []C

In accordance with OD 4.01 (Environmental Assessment), the project has been assigned Category A. The
Environmental Assessment (EA), was prepared as two separate reports: Part A the Leiyang Power Plant,
and Part B the Transmission System. Both Parts were prepared by a team consisting of international
consultants specializing in environmental issues related to thermal power plants and transmission lines
and the Nanjing Electric Power Research Institute (NEPRI). For the power plant, the international
consultant took the lead role in EA preparation and for the transmission line, NEPRI assumed the lead
role. The EA document has been approved by the National Environmental Protection Administration
(NEPA) and has been reviewed and approved by the World Bank; it is considered that all environmental
aspects of the project are satisfactorily addressed and in compliance with all Chinese and World Bank
environmental policies and procedures. Because of the unusual characteristics of the fuel to be used,
some exceedance to existing World Bank nitrogen oxides (NOx) emission guidelines will occur.
Additionally, a variance to Chinese NOx emission standards was established by NEPA. Thermal
discharges from once through cooling water also exceed World Bank Guidelines, but comply with
Chinese standards. However, the EA analysis determined that the environmental consequences of these
exceedances were insignificant. A monitoring program will be incorporated into the project to ascertain
and verify these conclusions on a sustained basis. Should additional mitigation be required, the Borrower
has agreed to take the appropriate measures.
The power plant is located in the southeastern part of Hunan Province in Xinhe and Luqi villages on the
right bank of a meandering section of the Leishui River. The plant is the second phase adjacent to an
existing (2x200 MW) power station. Alternative locations were not considered practical, since the
existing site could take advantage of the available infrastructure (cooling system, ash disposal system,
etc.) and would not involve any resettlement.
Modern pollution control technologies will be incorporated into the design of the power plant, such as
high efficiency electrostatic precipitators. The plant site has sufficient space to accommodate additional
pollution control systems if required as a result of future changes to Chinese standards and/or
technological developments. Annex 11 provides a summary of key environmental issues associated with
the project and their anticipated impacts, the mitigating plan to assure that these impacts are minimized
to acceptable levels, and the monitoring program with which environmental impacts will be measured to
compare to EA predictions. Further strengthening of HEPC is included in the project design. It will
include both training and acquisition of appropriate environmental monitoring equipment (see Annex
I1). Mitigation measures identified in the EA and included in the project design for the transmission
component include: appropriate routing to minimize exposure to sensitive receptors, a 50 m corridor and
Page 16

sufficient height of the line span to avoid interference with traffic (highway, navigational, and air) and
communications and sufficient height to maintain Chinese public health and safety standards for ground
level electric field intensities.
Environmental issues associated with the project (power station and transmission line) and addressed in
the EA included all concerns expressed by affected parties in a series of public meetings. Local public
and local authorities support the project and the recommended mitigating measures presented in the EA
reports. the mitigating and monitoring plans presented in the EAs (see Annex 11) will be fully
implemented.
Key issues addressed in the EAs included: air pollution (dust, sulfur dioxide, nitrogen oxides), water
pollution (primarily thermal pollution impacts to aquatic ecology in the Leishui River), ash management,
worker health and safety (including the mine supplying the coal), electric field, noise, losses in land
productivity, interference with communications and bird flight patterns, and influences of construction
and operational labor forces on the local infrastructure. Furthermore, the proposed project (2 units of
300 MW each) is the second phase of what might be a three phase program at the Leiyang site. To avoid
future adverse environmental consequences, the EA examined both the immediate impacts of the subject
project (600 MW) as well as cumulative impacts including a possible third phase (2x600 MW).
Mitigating measures for air, water, and solids management (coal, ash) are designed to meet appropriate
Chinese requirements and/or World Bank guidelines whichever is stricter. In the absence of either,
international codes of practice will be used (as is the case for nitrogen oxides emissions). For the cooling
water discharge the exceedance of World Bank temperature guidelines was determined to have
insignificant environmental impact, and was within Chinese environmental standards.
7. Participatory approach [key stakeholders, how involved, and what they have influenced; if
participatory approach not used, describe why not applicable]:

a. Primary beneficiaries and other affected groups:
- SP and the Central China Electric Power Group Corporation (CCEPGC) as HEPC's
parent/holding company, they have been involved in some key decision making process,
such as the restructuring plan of HEPC and investment strategy of HEPC, for the proposed
project.
* Hunan provincial government has also been involved in policy issues, including tariffs,
resettlement, environment, and coal supply.
* Leiyang community has been consulted on the resettlement plan through interviews and
public meetings.
b. Other key stakeholders:

F: Sustainability and Risks

1. Sustainability:

The financial sustainability will be achieved through suitable financial covenants to ensure full cost
recovery and modest profitability. The existing pricing policy in China warrants that project costs will be
passed on to the consumers. Given HEPC's operating experience with the first phase of anthracite fired
units in Leiyang, the operational sustainability should not be a problem.
Page 17

2. Critical Risks (reflecting assumptions in thefourth column of Annex 1):

Risk                           Risk Rating                  RiskMinimizationMeasure
Annex 1, cell "from Outputsto Objective"
Completionof Leiyangplant delayed                    Modest        Internationalconsultantswill be engagedto assist HEPC in
construction             and
management procurement.
Equipmentdeficiencyfor the plant                     Modest                         will
Major equipment be procuredthroughICB and bid
bid
documents, evaluation,and interfacewill be assisted
by internationalconsultants.
Leiyangplant and transmissionsystemspoorly             Low         Technicaltrainingwill be provided.
maintained
Coalqualitydifferentfrom designedcoal               Substantial Coalsupplycontractswithpenaltieswill be signed
betweencoal minesand HEPC one year beforetrial
operationof the first unit.
of
Delaysin the construction BOTChangshaplant           Modest     First pilotBOT LaibinB projecthas includedsevere
Financial
penaltiesfor delaysin the concessionagreement.
closurefor LaibinB was only threemonths behindthe
in
plannedschedule.Withthe experience Laibin,further
in
improvement Changshais expected.
Change in governmentcommitment market-
to                      Modest     Effectivepolicydialoguewill be continuedwith both
orientedsectorreform.                                           centraland localgovernmentlevels.
Annex 1, cell "from Componentsto Outputs"
Inadequateprocurement   resources,slow                Modest                     groupwithin the organizationhas been
* A procurement
procurementdecisions                                              established
* Trainingon Bank procurement   guidelineshas been
provided
* Internationalconsultantshas been recruitedto assist in
bid document  preparationand bidevaluation.
Delaysin retirementof agingand pollutingplants      Substantial * Retirement plan for about 10 units with300 MW (total)
installedcapacityhas been agreedwith HEPCand
includedin the ProjectAgreement.
will
* Intensifiedmonitoringand supervision be planned.
due
Delaysin resettlementimplementation to (a)           Modest     * An executable  resettlementplanwas preparedwith
budgets;(b) cost
delays in approvalof resettlement                                 assistanceof experienced resettlement specialistswho
overrun,and (c) poor coordination                                 haveworkedin a numberof similarBankfinanced
powerprojects.
for
* Adequatecontingencies resettlement      costs have been
budgeted.
* The resettlement implementation  agencyat the
provinciallevelwill be strengthened.
Delaysin implementation restructuring
of            plan due    Modest     * Policydialoguewill be continuedwithHEPC's parent
to (a) delaysin approvalof detailedstepsby State                             and
companies localgovernments.
and
Power Corporation CentralChinaGroup,and                         * Basicframework measureshas been agreed.
of
(b) lack of qualifiedstaff                                      * Relevanttrainingwill be provided.
OverallRisk Rating                                   Modest

Risk), M (ModestRisk),N (Negligible Low Risk)
Risk Rating-H (HighRisk), S (Substantial                                 or
Page 18

3. Possible Controversial Aspects:

None.

G: Main Loan Conditions

1. Effectiveness Conditions:

Execution of the subsidiary loan agreement between the Government and HEPC, satisfactory to the
Bank, and approval of the Loan Agreement by the State Council would be conditions for loan
effectiveness.

2. Agreement has been reached with the Government:

The Borrower will ensure that the proceeds of the Loan are onlent to the Beneficiary under a subsidiary
loan agreement on the same terms and conditions as the Bank loan, and that the Beneficiary bears the
foreign exchange risk.

3. Agreements have been reached with the Beneficiary:

FinancialPerformance
*   HEPC shall not incur any debt unless a reasonable forecast of the revenue and expenditure shows
that the estimated internal cash generation would provide a debt service coverage of no less than 1.5
times at all times; and
*   HEPC shall take all necessary measures, including but not limited to tariff adjustments, to earn a
return of not less than 8 percent of the equity (paid-in capital plus retained earnings) in 1999-2000,
10 percent in 2001-2002, and 12 percent in 2003 and thereafter.

FinancialReporting,Monitoringand Auditing

*   maintain and provide the Bank with semiannual progress reports, with unaudited project accounts to
reflect project expenditures and original project cost estimates for the implementation period;
*   furnish to the Bank audited accounts for the project, statements of expenditures, and financial
statements within six months of the end of each fiscal year; implementing any changes to its
accounting practices as recommended by the financial management consultants to meet international
accounting standards; and require auditors to comply with international auditing practices and
provide audit plans for each audit; and
*   by June 1 of each year, furnish to the Bank a rolling eight-year financial plan containing projected
income statements, fund flow statements, and balance sheets.

PowerSectorReform
*   carry out the reform implementation plan according to the timetable agreed with the Bank and
detailed in Annex 5.
*   carry out and complete technical assistance programs for assets restructuring, incorporation of
restructured HEPC and other power generation entities, and development of wholesale power
purchase agreement by December 2000.
Page 19

InstitutionalBuilding

*   carry out the organizational restructuring and financial management systems studies according to the
schedule agreed with the Bank; and implement the recommended organizational improvements, and
accounting and financial management systems, taking into account Bank comments; and

*   carry out the management development and training programs as agreed with the Bank.

Environment

*   carry out the Environmental Management Program in a manner satisfactory to the Bank.

Resettlement

*   carry out the resettlement program in accordance with the agreed Phase I RAP; prepare a satisfactory
the Phase II RAP following completion of the detailed engineering studies for remaining components
of the project no later than March 31, 1999. Prior to commencing the second phase activities, carry
out the compensation, resettlement, and rehabilitation of PAPs in accordance with the Phase II RAP
as shall have been approved by the Bank.

[x] The engineering design documents for the first year's activities are complete and ready for the start of
project implementation. [ ] Not applicable.

[ ] The procurement documents for the first year's activities are complete and ready for the start of
project implementation.

[x] The Project Implementation Plan has been appraised and found to be realistic and of satisfactory
quality.

[xj The following items are lacking and are discussed under loan conditions (Section G):

PhaseII RAP
Page 20

I. Compliance with Bank Policies

[]    This project complieswith all applicableBank policies.

[x]   [The following exceptionsto Bank policies are recommendedfor approval: The project complies
with all other applicableBank policies.]
NO,, emissions will not meet current World Bank Guidelines because these guidelines were not
formulatedfor anthracitecoals.

SectorManager:YoshhikoSu
Page21                                                             ANNEXI

ANNEX 1: PROJECT DESIGN SUMMARY
NarrativeSummary                                   Indicators
KeyPerformance                  Monitoring  and                                 CriticalAssumptions
Evaluation
CAS Goal:
Sector-related                                                      due
I. Reductionin valueof lost production to HunanProvincial  Govern-                           (Goalto BankMission)
Economicdevelopment    by        powerrationingin HunanProvince(billion mentstatistics.
reducinginfrastructure           yuan)
bottlenecks                         1996           2000           2002        2004
2.3      5.7        1.5        1.5
2. Increasedvalue of productionattributedto
increasedpowersupply(Leiyangpower
plant)
2002           2003           2004        2005
3.6           12.4           18.0        19.5
ProjectDevelopment                             of
Objective: I. Availability LeiyangUnits                            and
Monitoring Supervi- * Other barriersto growth
Remedyof powershortagesby                   2002 2003 2004 2005               sion                  removed
providingefficient,reliableand Unit 1       78% 83% 85% 88%                                       * Lowervoltagelevel are
environmentally sound power Unit2                    78% 83% 86%                                    optimallydevelopedto ensure
supply                          2. Improved                           network
reliabilityof transmission                             reliablesupplyto end users
(faults/100km/yearon 220 kV system)                            * Unitson the systemexpansion
1996      2000         2001     2002      2004                                       plan put into operation on
0.99    0.8 0.76 0.73                         0.7                                      schedule
1996 2000                2001     2002      2004
19,239 25,000               650      580       520
4. Improvedfuelefficiency(coalconsumption:
g/kWh)
1996      2000         2001     2002      2004
434        388          386       383      380
5. Reduction in overall specific emission rates
for air pollutants(coal-firedplants:
gms/kWh)
1996     2000         2001      2002      2004
SO2           5.27      4.74        4.27      4.00      3.64
NO,           5.37      5.21        5.16      5.06      4.95
TSP           9.18      9.16        8.50      7.06      5.32
Outputs:                                                                                                                (Outputsto Objective)
* 2x300 MW thermalgenera-     two 300 MWthermalgenerationunits                                              and                   of
Site inspection com- * Construction Leiyang
tion units constructedand             by
constructed December2002,                                      missioningdocumentation powerplant on schedule
operational                                                                                                       * Goodqualityof equipment  for
Leiyangplant
of
* Reinforcement transmis-                                   linescon-
* 794 km of 220 kV transmission                                                       * Both Leiyangplant andtrans-
sion systemcompletedand       structedto reinforcethe network,including                                             missionsystemmaintained
operational                   connectionof Leiyangand Changshaunitsto                                               and operatedin accordance
the grid,by December  2002                                                            with goodindustrypractice
* 9 new220 kV substations             with a
constructed                                               . Coal qualitymaintainedas
totaltransformer capacityof 1,680MVAby                                                designed
2002and extensionof 2 existingsubstations                                           * BOTChangshaplantput in
completedwithadded capacityof 240 MVA                                                 operationon schedule
by 2002                                                                              *   Timely retirement of the
aging,inefficient,andpollut-
. Retirementof small,aging,              of
. Retirement about 10(300 MW) old units                                 and
Monitoring supervi-         ing units
inefficient, polluting
and                by 2003                                                      sion                    *   Continuedcommitment   to
power plants                          1998 2000 2002 2003                                                              power sectorreformof rele-
4x25 4x25 Ix50 IxS0                                                              vant government agenciesand
power entities
* HEPC's reformplan           * Separationof all generationunits fromMonitoringandsupervi-
implemented                                and
transmission distribution December sionof TA andpolicy
by
2000                                 dialogue
* HEPCconvertedinto a limitedliability
company  engagedin transmission,
and           by
distribution dispatching December
2000
* Formalincorporation LeiyangPower
of
Generation Plant by December 1999
* Formalsigningof PPAbetweenLeiyangand
restructuredHEPCby December    2000
of
* Implementation efficientwholesale
generation tariffsby March2001
* Financialmanagement                            systemsdesigned,
system * Financialmanagement
automated,implemented stafftrainedin
use by 2001
* Trainingprogram
*
Page 22                                          ANNEX 2

ANNEX 2: PROJECT DESCRIPTION
COMPONENT
PROJECT       1

Leiyang Thermal Power Plant-US$463.37 million (excluding IDC) The component is the expansion of the existing Leiyang thermal power plant, located on the bank of Leishui River and at the Baisha coal mines area, about 3 km south of Leiyang city. The plant is being developed in two phases. When completed it will have a total installed capacity of 1,000 MW. The layout provides possibility for further expansion in the future. The Phase I , consisting of two generating units of 200 MW each, became operational in 1988-89. The Phase II development of 2x300 MW is proposed to be financed by the Bank loan under the proposed project. The target dates for the commercial operation will be June 30, 2002 for the first unit and December 31, 2002 for the second unit. The feasibility study and the conceptual design for the project component have been completed by the Hunan Provincial Electric Power Design Institute (HPEPDI), in April 1997 and September 1997 respectively, and reviewed by the Central Electric Power Planning and Design Institute of the Ministry of Electric Power. The plant is located near the major load centers of Hengyang, Zhuzhou and Changsha, which have experienced acute power shortages. It is also situated close to the coal mine areas, reducing both transmission and fuel transportation costs. The infrastructure such as site development, access roads, housing complex, construction facilities, has already been completed in Phase I. Coal transportation facilities, coal handling equipment and circulation water pump house have all been constructed in Phase I. The adjacent mines already supply coal to the First Phase development. The greenfield site for the Second Phase Development has been leveled and the geological condition is favorable. The plant will supply a major part of the power requirements for south Hunan. Coal Supply. The second phase development is designed to bum entirely local anthracites containing of about 24.9 percent ash, 8.1 percent of moisture, 6.2 percent of volatile matter and 0.3 percent of sulfur, and with a heating value of 5,070 kcal/kg and a grindability index of 68 (HGI scale). It is estimated that about 1.53 million tons of anthracite will be consumed annually by the two units of the Phase II development. The anthracite coal will be sourced from the Baisha, Jiahe and Xifengdu three mines, which are adjacent to the plant. A total of 1.67 million tons of coal is available from these three coal mines per year for the project. The coal will be transported from the mines by train to the plant. The existing railway system is capable of delivering about 2.7 million tons of coal per year to the plant for both first and second phase development. Boiler. The local anthracites are dense and homogeneous coals with a relatively higher heating value. However, these coals are difficult to ignite since they consist almost entirely of fixed carbon with the very low volatile matter. The options for burning this kind of coal are limited to circulating fluid bed (CFB) combustion technology furnaces and pulverized coal combustion using a special furnace design known as arch-fired combustion system (downshot furnace). A key parameter to successfully burning anthracite is a furnace design that provides 3 to 4 seconds of residence time for the char particle in a high-temperature combustion zone. Both CFB and arch-firing designs provide the residence time required. Because of the limited operating experience with large capacity CFB steam generating units, CFB combustion technology is not recommended for this project. The selected boiler design is an arch- firing furnace, subcritical, single reheat, balanced draft, and outdoor. The boilers are rated at 284.7 kg/s continuous output at a superheater outlet pressure of 183 Bars and 540°C temperature. The boiler is designed to function at full rating with anthracite coal with heating values as low as 4,550 kcal/kg without using supplemental fuel(oil). The minimum net caloric (lower) heating value boiler efficiency is Page 23 ANNEX 2 90 percent. Four-balltube mills will be specifiedfor each unit.Three mills shouldbe capable of carrying full loadwith the design coal. High efficiencyelectrostaticprecipitator(ESP) will be used for the project with a minimum guaranteedefficiencynot lowerthan 99.7 percent. The flue gas volume passing ESP is 1,800,000m3 /h. Steel structurewould be providedfor the boiler building. One commonconcrete stack will be constructed for the 2x300 MW units. The stack will be 210 m high with an outlet diameter of 7m. Turbine/Generator. The generating unit size would be 300 MW. The 300 MW turbines are to be subcritical, once intermediatereheat, steam condensing,single shaft, combined high and intermediate pressure turbine with double steam outlets, double steam outlets for low pressure turbine, and water- hydrogen cooling for generator. Regarding the thermodynamicsystem, each unit is designed as an independentsystem except for the auxiliary steam system. The steam turbine has eight uncontrolled steam extractions. The first three steam extractions supply steam for three high pressure feedwater heaters; the fourth steam extractionsupplies steam for the deaeratingheater, auxiliarysteam system and boiler feed pump turbine; the remainingfour steam extractions supply steam for four low-pressure feedwater heaters,the last two low pressureheaterswill be locatedat the neck section of the condenser. The high pressure extraction steam from high-pressureturbine will also be used as the backup steam source for the auxiliary steam system and feedwaterturbines. For each unit, two 50 percent feedwater pumps driven by steam turbines will be used in normal service and one 50 percent motor-driven feedwater pump with a variable speed coupling will be used as the startup and backup pump. The condensatefrom the condenserwill feed the condensatepolishingsystem, gland steam condenser,four low-pressure heaters to the deaerating heater through two 100 percent condensate pumps, one in operationand one as standby.For each unit, the closedcycle coolingwater(CCCW)system includestwo CCCW pumps, two CCCW heat exchangers,and a CCCW head tank. The steam turbines are designed for a 255 kg/s steam flow at a 167(175) Bar pressureat 537°Csteam temperature.The reheat section is designed for 209 kg/s flow at 32 Bar pressure and 537°C.The generator is rated at 353,000kVA with 0.85 power factor. The unit will generate 300 MW at rated output. The generated electricity will be connectedto the networkat 220 kV level. There will be three groups of power transmissioncables. The wiring style for the main cables shall be of double-bus,double-sectionwith bypass.Steel structurewould be providedfor the turbine/generatorbuilding. Circulating Water System. The water source for plant use will be from the Leishui River. For 97 percent of the time during a year, the minimumdaily water flow in the river section where Leiyang power plant can take water from is 46.3 m3 /s, 46.7 m3 /s from July to September and 48.5 m3 /s from December to February. The pump house at the river bank constructedfor Phase I, with new filtering equipment, three additional circulation pumps and associated pipelines to be added, will be used as the water supply system for phase II project. One-through circulating water system will be used with the projected water consumption to be 21.4 m3/s in the summer and 16 m3 /s in the winter during dry season. Other common facilities such as water pretreatment, wastewater treatment, and demineralized water facilities are designed to incorporate the needs of the Phase II development. Minor expansion is required. Fuel Handling. Minor expansion is required for coal and oil reception, railcar unloading, and coal handling and storage facilities. A new coal yard will be constructed in parallel with the existing first phase coal yard. The outdoor coal yard will have a storage capacity of 86,000 tons and the dry coal shed 43,000 tons. The railway station within the plant area will be renovated and expended so that the effective length of rail lines will reach 700 m to meet the requirement of coal unloading. Ash disposal. Fly ash and bottom ash (slag), will be hydraulically conveyed to an existing outdoor ash disposal site located in the YenpenchongValley about 3.5 km away from the power plant. The site is Page 24 ANNEX 2 currently being used for disposal of ash from the Phase I operating units. It consists of a valley in which an earth dam has been constructed. Ash slurry is deposited behind the dam. For Phase II development the height of the earth dam will be raised for 10 m to increase its ash handling capacity and slurry waters will be recovered and recycled. Instrumentation and Control.. The instrumentation and control would be Distributed Digital Control System (DDCS). Display of plant-specific equipment status and operating parameters on CRT installed in the main control room will provide real-time interface between operators and plant systems. CRT will also provide facilities for retrieval of plant operating data, as desired. Data loggers and sequence of events recorders will automatically record plant performance on a periodic basis, and display operating problems as they occur on a first-out basis. A replica simulator will be provided for operators training. PROJECT COMPONENT 2 Transmission Reinforcement-US$204.9          million (excluding IDC)

With the additions of new generation capacity and increase in demand for power, especially in major
load centers and city center, the Hunan provincial power system needs to be strengthened. As part of the
proposed project this component would include the reinforcement of the existing 220 kV network and
entail the construction of about 794 km of 220 kV transmission lines and a number of substations with
1,920 MVA of load transfer capability. It has three discreet subcomponents: (a) reinforcement of the
transmission network associated with the Leiyang Power Plant Phase II development; (b) reinforcement
of the transmission network associated with the construction of the Changsha BOT Power Plant; and (c)
construction of the Furong substation in the heart of Changsha city to serve the heavily concentrated load
center in that area.

The transmission reinforcement component was based on feasibility studies carried out by HPEPDI.
Load flow, fault level and transient stability analyses were performed for the entire Hunan provincial
grid at the voltage level of 220 kV and above including the 500 kV AC tie line linking the Hunan
provincial grid to the Central China Power Grid (CCPG). System planning and design is based on the
"N-i" reliability criterion. Both steady state and transient stability criteria can be satisfied. The
transmission reinforcement is being financed by HEPC from its own resources. The only segment that is
to be financed under the Bank loan is the Furong substation, along with the underground cable
connection.

Leiyang Power Plant associated transmission would comprise about 411 km of 220 kV transmission
lines, four new 220 kV substations and the extension of one existing substation, having a load transfer
capability of 720 MVA (Table I A and Table 1 B)

TABLE IA: TRANSMISSIONLINE SEGMENTS

Line Name                   Length (km)     No. of Circuits    Scheduled Completion           Remarks

Leiyang-Songbai                  40                2                    07/01                   New
Leiyang-Anren                     60               1                    07/01                   New
Songbai-Yongzhou                 120               1                    06/02                   New
Quhe-Yongzhou                    25                1                    06/02                   New
Chengqianling-Jiahe               75               1                    06/02                   New
Liyujiang-Chengqianling           10               2                    06/02               Interconnect
Macha-Hengbei                    15.5              2                    02/01               Interconnect
Page 25                                          ANNEX2

TABLE   IB: SUBSTATIONS

Name                   Capacity, MVA           MVAR              Scheduled Completion         Remarks
Jiahe                     I x 120                24                      07/02                  New
Chenbei                   I x 120                24                      03/02                  New
Yongzhou                  I x 180               28.8                     07/02                  New
Hengbei                   I x 180               28.8                    06/01                   New
Lounan                    I x 120                24                      06/01                Extension

Changsha BOT power plant associated transmission would comprise about 225 km of 220 kV, new
transmission lines and the improvement of another 153 km of existing lines, five new 220 kV
substations, and the extension of an existing substation, with a total load transfer capability of 660 MVA
(Table 2A and Table 2B).

TABLE   2A: TRANSMISSION LINE SEGMENTS

Line Name                       Length (ki)    No. of Circuits     Scheduled Completion      Remarks

Changsha-Wangcheng                     8               2                  12/00            Interconnect
Tianding-Gaofeng Wangcheng            72               1                  12/00           Rehabilitation
Yigao-Xintiang                         1               2                  08/01            Interconnect
Yuntian-Zhunan-Dishujing              90               1                  08/01                New
Huayue PP-Dongfenghu                  11               1                  12/00                New
Yuexin-Dongfenghu                      5               2                  12/00            Interconnect
Gangshi-Yiyang-Hangshou                7               2                  12/01            Interconnect
Matang-Quhe-Qiyang                     5               2                  08/01            Interconnect
Furong-Changsha (550 kV)              20               2                  12/01                New
Loudi-Lounan                          20               1                  12/01                New
Fengtang-Luxi                         64               1                  08/01                New
Baling-Shumuling-Langli               1.5              2                  12/00            Interconnect
Tianlang-Furong                       13               2                  12/00            Interconnect

TABLE   2B: SUBSTATIONS

Name                   Capacity, MVA           MVAR              Scheduled Completion        Remarks
Wangcheng                 1 x 120                24                     08/00                  New
Dongfenghu                1 x 180               28.8                    08/00                  New
Hanshou                   I x 120                24                     08/01                  New
Qiyang                    1 x 120                24                      12/02                 New
Xinhua                    I x 120                24                      12/01               Extension

Conductors for transmission lines will be of the ACSR type, with one or two conductors per bundle, in
accordance with the load transfer capability desired for each segment. The design ice thickness is
Page 26                                           ANNEX 2

15-20 mm for all transmission lines. Bundle spacing is 400 mm. The overhead ground wires will be
selected to sustain without breaking, the ice loads of the line, and the phase to ground fault current of the
line for a duration equal to the breaker operation time without exceeding a thermal limit of 400°C. The
elevation of the line routes for the various segments varies from 100 m to 200 m. Steel towers will be of
galvanized steel, lattice type. However, about 70 percent of the 220 kV transmission lines will be run
over reinforced concrete poles.

Construction of the New Furong Indoor Substation (220 kV, 3x180 MVA). The substation is located
at the center of Changsha city (Capital of Hunan Province). This substation is urgently needed due to
rapid load growth at the city center of Changsha where load shedding has to take place on a daily basis
caused by overloaded 110 kV substations and lines. With a 2.8 km long, 220 kV underground cable the
Furong substation will be interconnected with the nearest overhead 220 kV transmission line. To provide
high reliability and minimize the operation and maintenance cost of the substation, the equipment
selected for the substation shall be of the GIS type. The switching station will be designed for a 1,050 kV
BIL surge protection and 950 kV BIL frequency withstand. The underground cable will originate at
Chezhang Road East and will run for a distance of about 2.8 km through a tunnel about 10 m deep and
will not interfere with any existing overground structures. The alignment of the tunnel is mostly parallel
to Rennin Road. The tunnel itself will be of a rectangular cross-section, approximately 2,390 mm x
1,970 mm, with an arch at the top. The 220 kV cables will run through three cable trenches placed inside
the tunnel. The 220 kV underground cables, of 5.6 km total length, will be of the XLPE type, 1,400-
1,600 mm cross-sectional area.

3
PROJECTCOMPONENT

Technical Assistance for Construction Management-US$2.0 million (excluding EDC) Engineering consultant services will be provided to assist HEPC on construction management. The services will focus on: * assist in setting up the construction management system, including establishing methodologies, schedules and procedures for project management of various phases of the construction; * assist to coordinate the construction interfaces during the critical stages of main equipment erection, including setting up programmable computerized system for equipment and material management, and assist in controlling delivery of the parts/equipment/material supplied by various contractors in order to meet the project schedule; * assist in cost control and in project financial accounting; and * assist in setting up and implementing quality control system and quality assurance system during site construction and commissioning stage. Technical Assistance for Implementation of HEPC's Restructuring Plan-US$1.0                          million
(excluding IDC)

Advisory services will be provided to help HEPC complete the following:

*   corporate and asset restructuring of HEPC to create four separate corporate entities: HPNOC, LPGC,
thermal generation company and hydro generation company. Corporate charters, incorporation
documents, and financial statements will need to be prepared for all these entities.
*   operational and financial modeling of the Hunan power system to establish baseline capacity and
energy tariffs from each generation plant.
Page 27                                         ANNEX 2

*   preparation of contractual agreements between generation plants and the HPNOC. These agreements
will include: power purchase agreements; operations and maintenance agreements; dispatch
agreements; etc.

Technical Assistance for Organization Restructuring and Improvement of Financial Management
System-US$1.5 million (excluding IDC) Consulting services will be provided to assist HEPC in: * redefining the internal organizational structure, functional boundaries, job descriptions, communication and reporting channels between different units; * upgrading the accounting and financial management practices and systems; and * developing modern, computerized financial management information systems. PROJECT COMPONENT 4 Institutional Development and Training-US$1.0 million (excluding IDC)

The management development and training program is designed to enhance HEPC's managerial, legal,
technical and financial capabilities to meet the needs of the new structure of the power sector in China.
The main objectives of the program are to enable HEPC to function as a transmission and distribution
company in order to more efficiently manage its business, finances, assets, and production and develop
its electricity market and human resources. Under this program, a total of 407 staff members will be
trained either in China or abroad, totaling 498 staff-months. HEPC will be responsible for planning and
organizing the training program with the approval and support of concerned Chinese authorities.
Page 28                                                      ANNEX 3

ANNEX 3: ESTIMATED PROJECT COSTS
Table A: Summary of Project Costs

Description                        Y million                           $million Foreign as Local Foreign Total Local Foreign Total % of Total Leiyang Power Plant Site Preparation 20.34 - 20.34 2.45 - 2.45 Civil Works 296.47 - 296.47 35.72 - 35.72 Traffic Works 42.70 - 42.70 5.14 - 5.14 Erection 285.32 - 285.32 34.38 - 34.38 Construction Management 87.63 - 87.63 10.56 - 10.56 Plant Equipment and material 83.24 1,835.75 1,918.99 10.03 221.18 231.20 96 Transmission Furong Substation 72.54 291.00 363.54 8.74 35.06 43.80 80 Leiyang Power Plant Associated 418.98 - 418.98 50.48 - 50.48 Changsha Power Plant (BOT) Associated 551.14 - 551.14 66.40 - 66.40 Services Engineering and Consultant Services 42.02 16.60 58.62 5.06 2.00 7.06 28 Technical Assistance - 20.75 20.75 - 2.50 2.50 100 Training - 8.30 8.30 - 1.00 1.00 100 Total Base Cost 1,900.38 2,172.40 4,072.78 228.96 261.74 490.70 53 Contingencies Physical 190.04 106.34 296.38 22.53 12.81 35.35 36 Price 251.38 315.90 567.28 20.95 25.45 46.40 55 Taxes and Duties 920.27 - 920.27 106.38 - 106.38 Total Project Cost 3,262.07 2,594.64 5,856.71 378.83 300.00 678.83 44 Interest During Construction 296.61 270.86 567.47 35.74 32.63 68.37 48 Total Financing Required 3,558.76 2,865.50 6,424.46 414.56 332.63 747.19 45 Page 29 ANNEX 3 TABLE Al: SUMMARY OF PROJECT COSTS BY COMPONENT Y million$ million                  Foreign as
Description          Local        Foreign      Total     Local        Foreign        Total      % of Total

I. Leiyang Power Plant

Site Preparation                          20.34             -      20.34       2.45                 -       2.45

Civil Works                              296.47             -     296.47      35.72                 -     35.72

Traffic Works                             42.70             -      42.70        5.14                -       5.14

Erection                                 285.32             -     285.32      34.38                 -     34.38

Construction Management                   87.63             -      87.63      10.56                 -      10.56

Plant Equipment and Material              83.24 1,835.75 1,918.99              10.03       221.18        231.20       96

Services
Engineering and Consultant Services     42.02        16.60       58.62        5.06          2.00          7.06      28
Technical Assistance                        -        20.75       20.75           -          2.50          2.50     100
Training                                      -        8.30        8.30           -         1.00          1.00     100

Total Base Cost             857.72 1,881.40 2,739.12            103.34        226.68        330.01       69

Contingencies
Physical                                  85.77        91.79      177.56        9.97         11.06         21.03      55
Price                                    120.39       289.90      410.29        9.92         23.07         32.99      70

Taxes and Duties                         780.76             -     780.76      89.89                 -      89.89

Total Project Cost         1,844.64 2,263.09 4,107.73           213.12        260.81        473.93       55

Interest During Construction             122.11       249.74      371.85       14.71         30.09          44.8      67

Total I                    1,966.75 2,512.83 4,479.58           227.83        290.90        518.73       56
Page 30                                           ANNEX 3

TABLE Al: SUMMARY PROJECTCOSTSBY COMPONENT
OF                       (cont'd)

Y million                      $million Foreign as Description Local Foreign Total Local Foreign Total % of Total II. System Transmission Improvement Furong Substation Civil works 55.78 55.78 6.72 6.72 Erection 16.77 16.77 2.02 2.02 Equipment 224.93 224.93 27.10 27.10 100 Cable 66.07 66.07 7.96 7.96 100 Leiyang Power Plant Associates Transmission Lines 214.86 214.86 25.89 25.89 Substations 204.12 204.12 24.59 24.59 Changsha Power Plant (BOT) Associates Transmission Lines 221.04 221.04 26.63 26.63 Substations 330.10 330.10 39.77 39.77 Total Base Cost 1,042.66 291.00 1,333.66 125.62 35.06 160.68 22 Contingencies Physical 104.27 14.55 118.82 12.56 1.75 14.32 12 Price 130.99 26.00 157.00 11.03 2.38 13.41 18 Taxes and Duties 139.51 139.51 16.49 16.49 Total Project Cost 1,417.43 331.55 1,748.98 165.70 39.19 204.90 40 Interest During Construction 174.58 21.12 195.70 21.03 2.54 23.57 11 Total 11 1,592.01 352.67 1,944.68 186.83 41.73 228.47 18 Totals (I and II) Base Cost 1,900.38 2,172.40 4,072.78 228.96 261.74 490.70 69 Physical contingencies 190.04 106.34 296.38 22.53 12.81 35.35 36 Price contingencies 251.38 315.90 567.28 20.95 25.45 46.40 55 Taxes and Duties 920.27 920.27 106.38 106.38 Interest During Construction 296.61 270.86 567.47 35.74 32.63 68.37 48 Total Financing Required 3,558.76 2,865.50 6,424.26 414.56 332.63 747.19 45 Page 31 ANNEX4 ANNEX 4: BACKGROUND ON CHINA'S POWER SECTOR REFORMS Power sector reform in China is based on the staged implementation of a series of structural, pricing, regulatory and financial reforms. There is broad consensus amongst policy makers on the objectives and direction of these reforms. Coordination of these reforms is critical to ensure that the expected efficiency gains are built on strong foundations of administrative capacity to manage the new market structure and institutions created through this process. In general, reforms have been progressing at a remarkable pace when viewed in the context of command-and-control administrative structure that China is gradually emerging from. Structural Reform Although the power sector structure and ownership arrangements in the Chinese power sector vary greatly, the purchasing agency or single buyer model has been widely accepted as a useful intermediate structural model for most parts of China. Under this structure, the purchasing agent or single buyer owns the transmission facilities within a specific geographic area and is the only buyer of power from independent and affiliated generators inside and/or outside this area. The single buyer is also the only seller of power in the specified geographic area to affiliated and/or independent power supply entities at the county, prefectural or municipal level. There are four main advantages of this transitional structure: (a) it is not a totally new structure, first steps have been taken towards this structure in many parts of China; (b) it can easily accommodate competitive bidding for the purchase of power with or without joint ventures; (c) it will encourage more investment in transmission and distribution which have traditionally been underinvested in; (d) it can serve as a transition step toward a more fully competitive market. A number of provinces/municipalities have begun to implement the single buyer structure formally, including, Shanghai, Zhejiang, Hunan and Henan. Diversification of Financing Evolution to the single buyer structure with the increasing separation of generation from transmission and distribution has created unique pressures for diversifying financing sources. Based on the legal affirmation of the Electric Power Law (December 1995) to allow private sector financing of generation, generation enterprises separated from transmission are now increasingly seeking private portfolio capital. There have been at least four public equity offerings of formerly state-owned generation enterprises. Even public-sector generation projects financed by the Bank are being included in generation enterprises that are being publicly listed (e.g. Zouxian Thermal Power Project, Touketuo Thermal Power Project, and Waigaogiao Thermal Power Project). Diversified ownership in generation is expected to significantly accelerate the reform effort particularly in the development of economic regulation of the power sector. Pricing Reforms At the level of producer prices (i.e. generation tariffs), China introduced in 1985 the now famous "new plant new price" policy that while extremely successful in attracting large volumes of capital in generation has also distorted incentives for efficient capacity utilization. Under this policy prices for power purchased from plants not financed by the central government from 1986 to 1992 and all power Page 32 ANNEX 4 plants built after 1992 are set at levels sufficient to cover debt repayment, depreciation, and operating costs. Lower producer prices from old state financed plants are used to mitigate the impact on final consumer tariffs during the transition to market based tariffs. There are two significant shortcomings of the pricing system in the power sector in China. The first relates to the pricing of the wholesale/bulk capacity and energy sales/purchases from generating plants. The second relates to the inadequate recognition of transmission as a separate service that needs to be separately accounted for in electricity tariffs. These inadequacies of wholesale electricity pricing are reflected in the inefficient utilization and dispatch of generating capacity. Inefficient resource use stems from operation of old and/or small inefficient and therefore higher energy cost coal-fired plants in lieu of modern, more efficient plants. The non recognition of the importance of transmission service is reflected in the inability of utilities to include costs related to transmission in sale tariffs and to secure adequate investments for the transmission infrastructure. This is also impeding the implementation of the purchasing agency model, and progress towards competition at the generation level. At the retail level, prices have generally been able to recover the cost of generated energy and adequate margins for distribution. Pricing reforms envisage the gradual elimination of the "new plant new price" policy with a price set at levels established through contracts with the purchasing agency. The main thrust here is to establish a two-part tariff structure which maximizes the incentives for efficient plant operation and dispatch. The prices for transmission services based on reasonable cost plus basis are being developed on a pilot basis in the Eastern coastal provinces. The transmission pricing experience gained in East China will be considered for wider application in other regions. Regulatory Reforms China enacted the a new Electric Power Law in April 1996. The Law provides a broad framework and advances key principles to be followed in the power sector. The significant features include: (a) affirmation of the principle that the power sector should be run on a commercial basis, involving negotiated transactions between enterprises driven by market signal and competitive pressures; (b) commercial autonomy of power enterprises and the right of investors to recover invested capital and earn a reasonable return; (c) general guidelines for the determination of power tariffs based on cost recovery; (d) definition of certain rights and responsibilities of the central and provincial governments; (e) recognition of private sector involvement in generation, while maintaining transmission and distribution in the public sector. The Electric Power Law provides a sound foundation for economic regulation of the power sector. This regulatory transformation will be gradual in order to ensure consistency with the process of administrative reform in the Central and Provincial governments. The implementation process will require the following four phases of implementation: (a) elimination of MOEP and consolidation of regulatory responsibilities in one higher government institution; (b) appropriate division of regulatory responsibility between one central and one provincial-level government institution; (c) formation of distinct single-purpose regulatory department within central and provincial government institutions; (d) power sector regulatory authorities at the central and provincial level to be established as regulatory commissions under the State Council, but separate from other government institutions. It is expected that a transition period of about 10 years would be required to achieve the ultimate objective of consolidating all economic regulatory functions in an independent agency. The first phase of eliminating MOEP and transferring regulatory responsibilities to higher level government institutions is now being undertaken. Page 33 ANNEX 5 ANNEX 5: HUNAN ELECTRIC POWER SYSTEM-REFORM IMPLEMENTATION PLAN A. INTRODUCTION Hunan Electric Power Corporation (HEPC) intends to carry out a reform plan aimed at developing a power purchasing agency (or single buyer) market structure in Hunan. The target is to separate generation from HEPC's operations of transmission and distribution by December 2000. HEPC's transmission and distribution operations will be transferred to a restructured company, the Hunan Power Network Operations Company (HPNOC). HPNOC will be incorporated in accordance with the Company Law of China by December 2000. HPNOC's transmission department and the power supply bureaus will be established as pro-fitcenters. Another element of the restructuring program is to consolidate Leiyang Phases I and II (i.e. 2x200 MW in operation and 2x300 MW to be constructed under the proposed project) into a single generation corporation, the Leiyang Power Generation Company, selling power to HPNOC on the basis of adequate contractual arrangements. The Leiyang Power Generation Company (LPGC) will be established by December 2000. B. REFORM OBJECTIVES ANDPRINCIPLES The objectives and principles for power sector reform in Hunan are: * Unbundling of Generation from Transmission and Distribution. The objective of this unbundling is to create a purchasing agency structure which will encourage competitive procurement of future generation and encourage additional investment in generation. The purchasing agency (i.e. HPNOC) will focus on the efficient operation of the transmission and distribution network. * Efficient Wholesale Generation Tariffs: A revised system of wholesale electricity tariffs would be developed and applied to all power purchases from generating plants on the system. These tariffs should be conducive to economic dispatch and overall generation efficiency. All power will be purchased by HPNOC on the basis of wholesale contractual arrangements. All generators on the system will be treated equally and dispatched on a nondiscriminatory basis. (The principles for pricing are described in more detail in section E below) C. REFORM STRATEGYANDIMPLEMENTATIONSTEPS Existing Power Sector Structure The existing structure of the power sector in Hunan is described below and diagrammatically represented in Figure 1. * Generation. The generation capacity in Hunan is evenly split between thermal and hydroelectric plants. Ownership of generation plant is very diverse with entities such as HEPC, Huaneng International Power Development Company, local investment companies, local industries, the Hunan Water Conservancy, and local municipal and county governments owning substantial stakes in generation facilities. * Therrnal plants wholly owned by HEPC: * Jingzhushan (600 MW) * Zhuzhou (100 MW) Page 34 ANNEX 5 * Liyujiang (180 MW) * Leiyang Phase I (400 MW) * Xiangtan Phase l(100 MW) * Hydro Plants wholly owned by HEPC: * Dongjiang (609 MW) * Zhexi (447.5 MW) * Fengtang (400 MW) * Majitang (54.15 MW) * Generation partially owned by HEPC: * Huayin Electric Power Shareholding Company-Listed on Shanghai Stock Exchange. (250 MW)-33.2 percent stake * Shimen Co. (600 MW)-47 percent stake * Wuling LLC (1200 MW)-56.25 percent stake * Baiyutang LLC. (17.5 MW)-62.6 percent stake * Generation not affiliated to HEPC (i.e. Independent and locally owned Power Plants) * Huaneng (775 MW) * Hydro plants owned by Water Conservancy (210 MW) * Local and captive plants (1,070 MW) * Nongrid Connected plants (509 MW) e Transmission and Distribution. HEPC owns and operates the Hunan Power Grid transmission and most of the distribution networks. The transmission network is a major component of the Central China Electric Power Network. All major plants in this network listed above are dispatched by HEPC. HEPC has direct ownership and control of 14 power supply bureaus (PSB) which covers 97 percent of the electricity sales in Hunan province. These PSBs include: Changsha; Zhangjiajie; Zhuzhou; Yiyang; Xiangtan; Chengzhou; Hengyang; Loudi; Shaoyang; Yongzhou; Yueyang; Huaihua; Chandge; and Xiangxi. * Noncore Businesses. HEPC has responsibility and ownership for 13 noncore units for manufacturing, construction, design, research, health, education, etc. Future Structure and Restructuring Plans HEPC plans, with MOEP's approval, to complete the sector restructuring by March 2001. The sector structure in March 2001 is diagrammatically represented in Figure 2. The key power sector reform steps are described below. * Formation of separate Companies for thermal and hydropower plants fully owned by Hunan Power Network Operations Company (i.e. HPNOC). The Thermal Power Generating Company will comprise all thermal plants currently wholly owned by HEPC, with the exception of Leiyang Phase I and II, and Xiangtan Phase I. The Hydro Power Generating Company will comprise all hydro plants currently wholly owned by HEPC. These entities will sell electricity to HPNOC on the basis of economically efficient tariffs. * A separate Leiyang Power Generation Company (LPGC) will be formed comprising Phase I (2x200 MW) and the proposed Phase II (2x300 MW) plants. (See section D. below for details). Page 35 ANNEX 5 * All other generating entities on the Hunan power system which are either partly owned by HPNOC, or independent, vvill remain separate legal entities. They will all sell electricity to the HPNOC on the basis of contracts that treat all plant on the Hunan power system on an equal basis. (The principles on which these contracts are to be based are defined in E. below). * Restructuring of HEPC as a limited liability company engaged in transmission and distribution: * A wholly state-owned company, HPNOC, will be established to own and operate the transmission and distribution networks and provide transmission ancillary services. This company will be registered in conformance with the Company Law of China. * HPNOC will operate as a purchasing agent (or single buyer) at the provincial level. It will remain responsible for the planning, development and operation of the transmission and distribution system, and continue to have the obligation to serve all customers in its service area. * Noncore businesses currently owned and run by HEPC will be formed as subsidiary companies, or profit centers of HPNOC. D. LEIYANG POWER GENERATION COMPANY The Leiyang Power Generation Company (LPGC) will be a generating company incorporated in accordance with the Company Law of China. This company will comprise the existing 2x200 MW units and the proposed 2x300 units to be financed under the proposed project. LPGC will sell electricity in bulk to HPNOC. The following steps will be followed to establish LPGC: - Preparation of draft corporate charter, clearly specifying the capital structure of the LPGC, board of directors, etc. This document will be submitted for World Bank review by July 1999. • Preparation of draft power purchase agreement between the purchasing agent to be formed in Hunan (i.e. HPNOC) and LPGC. The power purchase agreement would be based on principles outlined in section E. below. The draft PPA would be submitted for World Bank review by July 1999. - Formal incorporation of LPGC by December 1999. * Formal signing of PPA between LPGC and HPNOC by December 2000. E. PRINCIPLES FOR ESTABLISHING GENERATION TARIFFS IN HUNAN Based on the proposed direction for reform, it is expected that in the medium term the bulk energy pricing system will be based on long-term contracts. Well-structured contracts would play a key role in providing stability and ensuring economic least cost operation of the power system. The following principles will be reflected in the bulk generation pricing contracts: * A tariff for capacity based on the cost of the plant i.e. service of debt, depreciation, fixed maintenance and operating costs and fair return on investment. * A tariff for energy based on the fuel and variable cost of the unit without any guaranteed amount of energy purchase. * Incentives for capacity and energy. For capacity, incentive targets such as availability should be defined. For energy, marginal costs should include incentives to encourage the generator to reduce energy cost. F. TARGET IMPLEMENTATION DATES The target dates for the reform process are: Page 36 ANNEX 5 * [January 1998] Submission of reform plan to the Ministry of Electric Power for approval. * [March 1998-prior to proposed project negotiations] Expected approval of plan by Ministry of Electric Power. * [April 1998] Begin technical assistance work on: * Training of senior management and operating level staff of HEPC on the concepts of power sector restructuring and implementation of a power purchasing agency market structure * Diagnostic review of existing power system structure operations * Financial and operation evaluation of the purchasing agency structure * [November 1998] Finalize the detailed reform implementation plan. * [January 1999] Begin technical assistance work on: * asset restructuring of HEPC and incorporation of: * Hunan Power Network Operations Company (HPNOC) * Leiyang Power Generation Company * Thermal Generating Company * Hydro Generating Company * Begin work on the preparation of wholesale power purchase contracts for HPNOC's bulk power purchases from all power plants. * [July 1999] Submit following documents for World Bank review: * draft Charter and incorporation documents of Leiyang Power Generation Company. 2 draft PPA between Leiyang Power Generation Company and HPNOC. * [December 1999] Incorporation of Leiyang Power Generation Company. * [December 1999 to December 2000] Trial operation for 12 months based on preliminary purchasing agency operating rules and power purchase contracts between the network company and the generators. This trial period is intended to test the proposed operating rules and contracts in practice and make revisions before finalizing them. * [December 2000] Incorporation of: * HPNOC; * Thermal Generating Company; * Hydro Generating Company. * [March 2001] Full implementation of formally signed and executed power purchase contracts between HPNOC and all generation entities on the Hunan power system. G. IMPLEMENTATIONTECHNICAL ASSISTANCE HEPC and other power sector enterprises/investors in Hunan will require specialized technical, financial and restructuring advice in two phases. Phase I, comprising, the training of HEPC staff and advisory services for the finalization of the implementation plan will be financed through CRISPP. Phase II, comprising work to assist in actual implementation of the purchasing agency structure will be financed through the proposed loan. Phase I-Scope of Work: * Training of staff and managers from HEPC and other power sector entities on: * concepts and terminology in power sector restructuring; Page 37 ANNEX S * basics of power sector economics and economics of developing efficient generation structures; * technical, commercial and contractual issues in operating a power purchasing agency structure; * Review HEPC's organizational structure and identify changes and tasks required for developing a power purchasing agency structure; and review operational practices and existing contractual arrangements for wholesale power purchase. * Defining a detailed restructuring program based on the decision to establish a power purchasing agency structure. Phase II-Scope of Work: * Corporate and asset restructuring of HEPC to create four separate corporate entities: HPNOC, LPGC, thermal generation company and hydro generation company. Corporate Charters, incorporation documents, and financial statements will need to be prepared for all these entities. * Operational and financial modeling of the Hunan power system to establish baseline capacity and energy tariffs from each generation plant. * Preparation of contractual agreements between generation plants and the HPNOC. These agreements will include: power purchase agreements; operations and maintenance agreements; dispatch agreements; etc. Figure 1. Power Sector Structure - July 1997 Independent Power Plants Power Plants under Hunan HEPC Affiliated Generation (775MW) Water Conservancy (2067.5MW) (700 - Huaneng MW) (210MW) Shareholding Ltd 1(250MW) - Huayin Co. - Huaneng MW) (75 Co. - Shimen (600 MW) - Wuling LLC (1,200 MW) - BaiyutangCo. Ltd (17.5 MW) Local Small & Captive Power Plants (1070.85 MW) HEPC Generation - Dongjiang(609 MW) - Jinzhushan(600 MW) - Zhexi(447.5MW) 1(400MW) - Leiyang Hunan Electric g - Fengtang MW) (400 - Zhuzhou(100MW) - Majitang(54.15 MW) - Xiangtan (100 MW) Power Company - Liyujiang(180 MW) (HEPC) HEPC Transmission HEPC Distribution | Independent - Changsha - Zhangjiajie - Zhuzhou - Yiyang - Xiangtan - Chenzhou Distribution - Hengyang - Loudi - Shaoyang - Yongzhou - Yueyang - Huaihua - Changde - Xiangxi z z m x a' Figure 2. Power Sector Structure - March 2001 Hydro Power Thermal Power HEPC Affiliated Generation Generating Co. Generating Co. (2067.5MW) - Zhegi - (609 MW) Dongjiang (69 MW) - Jingzushan(600 - Zhuzhou(1600 MW)- MW) - Huayin Shareholding Co. Ltd I (250 MVW) ShimenCo. (600 MW) - ZFengan(447. MW) - Liyujiang (100MW) -Wuling LLC (1,200MW) - Mangtang (5400M)-1iuiag(8 MW) -BaiyutangCo. Ltd (17.5MW) - Majitang(54.15MW) ~~~~~~~-LLC (650MW) Xiangtan Leiyang Power Generation \ /Independent Power Plants Company \/- Huaneng(700MW) -Phase I (2x200 MW\)> - Huaneng (75 MW\) - Phase (2x300MV\0 11 \ ~Allpower sales to HPNOC -Ohr based on efficient power purchase contracts.\ Power Plants under Hunan Power Plants Water Conservanc Hunan Power III_ NetworkOperations llTransmission Company (HPNOC) Distribution Independent | | 11 ~-Changsha - Zhangjiajie - Zhuzhou_ l l ~- Yiyang - Xiangtan - Chenzhou _ | Distribution - Hengyang - Loudi - Shaoyang_ s - Yongzhou - Yueyang - Huaihua_ l | ~-Changde - Xiangxi_ z z m X 'I_ ANNEX 6: ORGANIZATIONAL CHARTS CHARTAl: ORGANIZATION CHARTOF THEINSTITUTIONAL ARRANGEMENT DURINGPROJECTIMPLEMENTATION Vice Presidentof HEPC Deputy ChiefEngineer of HEPC ViceDirector of PlanningDepartment of HEPC Diretor ofEPDI ofHEPC| of Management| DirectorsEnterprise DirectorsFinancc| of of Officel Directors Resettlement l I l l ~~~~~~Departmnent ofHlEPC DepartmentIHEPC of ofHEPCl EngineeringGrop Engineering Group |Finance F Reform Group & Economic Group [ Resettlement& Environment Group | m E ForeignConsultantson ReformBERI Power Gen Heai Implementation _________j University YMAEPB Page 41 ANNEX 6 z Administration Office 0 EngineeringManagement z f Planning and program Management o Procurement and Contract Management r I Cl Cost and Financial 0' management O j Quality and Safety Z A management 0 Construction Managementand SupervisionAgency CHART A3: ORGANIZATION CHART OF CONSTRUCTION MANAGEMENT OF POWER TRANSMISSION PROJECT 5,-. ~~ ~ ~ ~ ~ HP L l _ l l _ l _ I~~rL Power Transmission and Transformation of Subprojects Leiyang Power Plant Phase 11 Power Transmission and Transformation of Leiyang Power Plant Phase H Furong Station m Page 43 ANNEX 7 ANNEX 7: COST BENEFIT ANALYSIS SUMMARY GENERATIONCOMPONENT Cost Effectiveness A least cost study was carried out by the Beijing Research Institute for Water Resources and Electric Power (BERI), in conjunction with the Hunan Electric Power Company (HEPC), using a planning model that determines the optimal capacity and generation mix to meet the demand in the most cost effective way (minimum net present value of investment and operation costs). The study covered the development of the system during 1997-2025, study period, with special focus on the investment required during 1997-2010, planning period. The detailed report, "Economic Analysis for Leiyang Coal Fired Thermal Power Plant" (November 1997), prepared by BERI and HEPC is in the project files. Shadow Pricing The least cost study and all economic analyses were based on adjusted costs of inputs to reflect their economic value. Imported goods and services were valued at their estimated CIF (e.g., a conversion factor of 1.0 was used). Domestically produced goods and .materials, most notably power generating and transmission equipment and coal, were valued at their shadow prices using specific conversion factors (see appendices A, B and C of the above referred to report). All costs and prices were expressed in 1997 Yuan using the official exchange rate at the time of preappraisal (Y 8.3/US$ 1.0), assuming that trade
distortions are negligible. The discount rate was assumed at 12 percent.

Least Cost Analysis

All potential candidates were considered including: (a) 300 MW units using local anthracite; (b) 300 and
600 MW units using coal imported from other provinces; (c) potential hydropower projects in Hunan; (d)
power imports from neighboring provinces; (e) 300 MW combined cycle units using distillate; and (f)
gas turbines using distillate. A detailed description of the technical and economic characteristics of the
thermal and hydroelectric candidates considered in Hunan's power generation development study are
presented in the above referred report prepared by BERI and HEPC .

The optimization was based on Chinese reliability criteria equivalent to the following LOLP criteria: no
constraints up to year 2000 because of the severe power shortages in Hunan and less than 1 percent
(about 3.5 days per year) in 2001 and after.

Based on the above assumptions and using a discount rate of 12 percent, the study showed that the power
expansion program should mainly be based on 300 MW anthracite-fired units during 1997-2005 and
600 MW coal-fired unit thereafter, development of six out of the nine identified hydropower projects,
and 100 MW gas turbine units. The proposed project is the first investment of the least cost power
development program. In the without project case, the expansion program would still be based on
300 MW anthracite-fired units installed in greenfield sites. The optimum solution with Leiyang is
presented in Table 1 and the optimum solution without Leiyang is presented in Table 2.

The proposed project remains the first investment of the expansion program under a wide range of
assumptions and mainly:
Page 44                                        ANNEX 7

*    The project will still be required by year 2001-2002, even if the demand would grow at 6 percent
during the whole study period compared to 10.1 percent during 1996-2000 and 7.2 percent after in
the base case;
*    The project would be less economical than the Shanbanxi hydropower project only if the investment
cost of the latter were 16.5 percent lower than in the base case (Y 60221kW compared to Y 721 1/kW
in the base case).

Economic Rate of Return

1997 Yuan million

Present Value of Flows                  Fiscal Impact
Generation              Economic         Financial
Analysis        Analysis La            Taxes              Subsidies

Benefits                         5,952.0          6,831.8       64.98 (duties)
425.99 (VAT)
Costs                            4,366.2          6,811.8      463.32 (income tax)
75.07(surcharges)

Net Benefits:                    1,586.6              20.03    1,029.36 (Total in present value)
IRR:                                19.4              12.11

/a Based on 5,000 hours/year.

The economic rate of return (IERR) of the proposed project was calculated based on an estimated plant
gate price of 29.1 fen/kWh and 6850 hours/year, price currently paid by HEPC to recently commissioned
coal-fired base load power plants (the implicit assumption is that consumers will be willing to pay the
estimated price and the plant is optimally dispatched). The estimated plant gate is based on existing
pricing policies for power sales from new power plants and is fully passed on to consumers. The
calculation yielded an IERR of 19.8 percent. The IERR has also been calculated based on an plant gate
price equivalent to the current average generation price (which the consumers are actually paying) of
24.3 fen/kWh. This method yielded an IERR of 15 percent.

The base case IERR would decrease to the test discount rate of 12 percent in the case of one of the
following occurrences:

*    the price paid at the plant gate for electricity were 27 percent lower than the estimated base case
price, i.e., about 21.2 fen/kWh instead of 29.1 fen/kWh in 1996 prices; it should be noted that the
break-even price of 13 percent lower than the current average generation price in Hunan;
*    the project were to experience a cost overrun of about 66 percent;
*    the power plant operation were reduced to about 4442 hours per year instead of about 6850 hours;
*    the economic fuel cost were 110 percent higher than the base case;
*    the project were to experience a delay in commissioning of about 4.5 years.

However, these occurrences are very unlikely because HEPC has a good experience in implementation
and operation of similar projects, the economic evaluation is based on realistic assumptions, and the
Page 45                                          ANNEX 7

power purchase agreement and the financial covenants of the project would ensure that the capacity
factor and price are high enough to meet the economic viability requirements.

To complement the above deterministic approach a risk analysis was carried out using Risk Master
computer software which takes into account uncertainties related to selected risk variables (using the
Monte Carlo Simulation).' The assumed value ranges of the selected six risk variables (including foreign
exchange risk), the probability of distribution attached to them and the results, based on 1,000
simulations, are presented in figure 1. The IERR based on the weighted average of all simulated
combination is 14.8 percent (with a standard deviation of 4.2 percent). The minimum and maximum
IERR, under the considered uncertainties, are respectively 2.0 and 27.5. The probability of a negative
outcome (negative net present value) is 26 percent. This indicates that the risk (margin of error due to
future uncertainties) associated with the project is acceptable.

BERI also conducted an economic evaluation of the environmental impacts of the project and their effect
on the economic viability of the project. The analysis takes into account the: (a) adjusted estimates of the
monetary damages caused by air pollution during the study period, based on the New York State
Externality Model (Rowe et al., 1994); and (b) estimates of average climate change for carbon dioxide
emissions to evaluate the monetary damages caused by greenhouse gas emissions. The adjustment
(transfer) factor takes into account the differences in population density and standard of living. Two
estimates are considered: a low estimate based on a transfer factor using GDP and a high estimate based
on power purchase parity in Hunan. The results of the evaluation show that if the monetary value of the
environmental impacts is added to the project operation costs, the IERR of the project would be reduced
to 17.2/14.5 (low/high) percent.

TRANSMISSIONCOMPONENT

The strengthening of the transmission system is imperative. The load flow and stability analyses carried
out by HEPC show that the need and timing of the proposed lines and substations are justified. The
design parameters of the proposed lines and substations has been optimized to ensure that transmission
services would be provided in the most cost effective way.

In Monte Carlo simulation series of random numbers are generated following the
distribution of each risk variable. For each simulation which represents a combination of
different state of five variables, IERR is calculated and recorded. The results of 1000
simulations are averaged.
Page 46                                            ANNEX 7

1997 Yuan million

Present Value of Flows                    Fiscal Impact
HEPC's Investment Program          Economic        Financial
Analysis       Analysis La              Taxes              Subsidies

Benefits                           25,830.0          2,174.93      112 (duties)
518.05 (VAT)
Costs                              23,782.0          1,949.44      611.76 (Income Tax)
51.72 (Surcharge)

Net Benefits:                       2,048.0               224.49   1,193.53 (Total in Present Value)
IRR:                                   13.6                14.86

/a The incremental benefits and costs for financial analysis relate only to the transmission investment
under the proposal project.

To complement this cost effectiveness approach, BERI calculated an IERR on HEPC's entire investment
program using: (a) incremental sales revenues (incremental sales per category of consumers multiplied
by the 1997 average sales price per category of consumers) as a measure of the minimum benefit of the
investment program, and (b) adjusted costs of inputs according to the same assumptions used in the least
cost study. The method yielded an IERR of 13.6 percent and confirmed the economic viability of the
whole, and particularly the proposed transmission, investment program.

The base case IERR would decrease to the test discount rate of 12 percent in the case of one of the
following occurrences:

*     case 1        energy sales decrease 11.0 percent                               11.99 percent
*     case 2        average price is 3.0 fen/kWh less than assumed price             12.05 percent
*     case 3        generation of investment increase by 16.0 percent                11.99 percent
*     case 4        transmission investment increase by 60 percent                   11.99 percent

A risk analysis was carried out using Risk Master computer software which uses Monte Carlo simulation
technique. The assumed value ranges of the selected five risk variables (including foreign exchange risk),
the probability of distribution attached to them and the results, based on 1,000 simulations, are presented
in figure 2. The IERR based on the weighted average of all simulated combination is 12.4 percent (with a
standard deviation of 4.2 percent). The minimum and maximum IERR, under the considered
uncertainties, are respectively 5.2 and 22.5. The probability of a negative outcome (negative net present
value) is 40 percent. This indicates that the risk (margin of error due to future uncertainties) associated
with the overall investment program is high but acceptable.
TABLE 1: POWER DEVELOPMENTPROGRAM AND SYSTEM DEMAND AND SUPPLY BALANCE

Item                     1997     1998     1999    2000     2001     2002     2003     2004     2005     2006     2007     2008     2009     2010    Total

Peak Demand                            6,470    7,420   8,170    9,000    9,650   10,300   11,100   11,900   12,700   13,600   14,600   15,700   16,800   18,000
Installed Capacity/a                   8,801    9,001   9,361   10,451   13,081   14,091   15,047   15,981   16,969   18,022   19,169   20,591   22,013   23,535
- Thermal                            4,094    4,394   4,694    5,644    7,744    8,394    9,094    9,394    9,994    9,994   10,794   11,994   13,194   14,494
Hydro                              4,707    4,707   4,767    4,957    5,487    5,897    6,203    6,837    7,480    8,533    9,005    9,227    9,449    9,671
Retirement (Thermal only)                  0      100       0       50        0       50       50        0      255        0      125        0        0        0
System Reserve Margin                 36.0%    21.3%    14.6%   16.1%    35.6%    36.8%    35.6%    34.3%    33.6%    32.5%    31.3%    31.2%    31.0%    30.8%

Expansion                               540      300     360     1,140   2,630     1,060    1,006     934     1,243    1,053    1,272    1,422    1,422    1,522   15,904
(1) Thermal                             300      300     300       950   2,100       650      700     300       600               800    1200     1200     1300    10,700
Leiyang Project                                                        300       300                                                                              600
Changsha BOT                                                           350      350                                                                               700
300 MW anthracite                                                      300               600      300      600                                                  1,800
300 MW bituminous coal              300      300     300      650      650                                                                                      2,200
600 MW bituminous coal                                                                                                       600     1,200    1,200    1,200    4,200
Gas Turbine                                                   300      500               100                                 200                         100    1,200
(2) Hydro                               240               60      190      530      410      306      634      643     1053      472      222      222       222    5,204
Feng Tan                                                               160      160                                                                               320
Zha Xi                                                                 150      150                                                                               300
Dong Jiang                                                                               126      126                                                             252
Wan Mi Po                                                                                                  180       90                                           270
Jiang Ya                                                      100      100      100                                                                               300
Three Gorges                                                                                      463      463      463      222      222      222       222    2,277
Hong Jiang                                                                               180       45                                                             225
Wu Qiang Xi                         240                                                                                                                           240
Ling Jin Tan                                          60       90      120                                                                                        270
San Ban Xi                                                                                                          500      250                                  750

/a All at the beginning of the year

z
z
m
x
-J
TABLE 2: SYSTEM DEMAND AND SUPPLY BALANCE (WITHOUT LEIYANG)

Item                   1997    1998    1999    2000     2001    2002     2003    2004     2005    2006    2007     2008    2009    2010 Total

PeakDemand                          6470    7420    8170    9000     9650   10300    11100    11900   12700   13600   14600    15700   16800   18000
InstalledCapacityLa                 8801    9001    9361   10451    13081   14091    15047    15981   16969   18022   19169    20591   22013   23535
--- Thermal                         4094    4394    4694    5644     7744    8394     9094     9394    9994    9994   10794    11994   13194   14494
--- Hydro                           4707    4707    4767    4957     5487    5897     6203     6837    7480    8533    9005     9227    9449    9671
Retirement (Thermal only)              0     100       0       50       0       50       50       0     255       0      125       0       0        0
SystemReserveMargin                30.6%   21.3%   14.6%   16.1%    35.6%   36.8%    35.6%    34.3%   33.6%   32.5%   31.3%    31.2%   31.0%   30.8%

Expansion                           540     300     360     1140     2630    1060     1006     934     1243    1053    1272     1422    1422    1522    15904
(1) Thermal                         300     300     300      950     2100     650      700     300      600       0     800     1200    1200    1300    10700
Changsha BOT                      0       0       0        0      350     350        0       0        0       0       0        0       0       0      700
300 MW anthracite                 0       0       0        0      600     300      600     300      600       0       0        0       0       0     2400
300 MW bituminous coal          300     300     300      650      650       0        0       0        0       0       0        0       0       0     2200
600 MW bituminous coal            0       0       0        0        0       0        0       0        0       0     600     1200    1200    1200     4200
Gas Turbine                       0       0       0      300      500       0      100       0        0       0     200        0       0     100     1200
(2) Hydro                           240       0      60      190      530     410      306     634      643    1053     472      222     222     222     5204
Feng Tan                          0       0       0        0      160     160        0       0        0       0       0        0       0       0      320   <
Zha Xi                            0       0       0        0      150     150        0       0        0       0       0        0       0       0      300   °
Dong Jiang                        0       0       0        0        0       0      126     126        0       0       0        0       0              252   X
Wan Mi Po                         0       0       0        0        0       0        0       0      180      90       0        0       0       0      270
Jiang Ya                          0       0       0      100      100     100        0       0        0       0       0        0       0       0      300
Three Gorges                      0       0       0        0        0       0        0     463      463     463     222      222     222     222     2277
Hong Jiang                        0       0       0        0        0       0      180      45        0       0       0        0       0       0      225
Wu Qiang Xi                     240       0       0        0        0       0        0       0        0       0       0        0       0       0      240
Ling Jin Tan                      0       0      60       90      120       0        0       0        0       0       0        0       0       0      270
San Ban Xi                        0       0       0        0        0       0        0       0        0     500     250        0       0       0      750

L/ At the beginning of the year.

z
-4
Page 49                                                                                 ANNEX?

FIGURE                    1. RISK ANALYSIS SUMMARY FOR ECONOMIC JUSTIFICATION
Risk Variables Report
Risk Variable No. 1                                                  Risk Variable No. 6
50%                                                                  Cost:
Capital                                                                    excharg (RMB/$): Foreign rate 40% -l distnbution: Probability ro distnbution: 30% 10%150%125%110%1 5%° lj%. 20%1 25! % 5 20% I0.901 1.10| 1.2011.30 1°°1 0.6010.701 0.801 1.0011.05 10% 0% ]++ OO [ ~~~~~~~~~~40%- 30%- _20% Risk Variable No. 2 10% 50% FuelPnice:, 40% . - |Probabilitvdistnbution: 0% - ++ L 30% .- 110%|150%1D25%1 10%| 5%1 o o ° CC 120% -.1L0-901 1.00| 1.101 1.201 1.301 C- DC 20% - 0 Results Report Cumulative Distribution of EIRR Risk Variable No. 3 60% - Generat;onn 100% - _ __I __ Probabilitydistrib-ution:Y 40% II 1% 20%1 10% 80% \ 20%-1- 1 j 101 0m901,.001 ~~~1 10.801 -60% 20% *60% 0% 40% 6 -oOX 20% .===_ _ _ _ _ I 0%- - Risk Variable No.4 4 0.00% 6.00% 12.00% 18.00% 24.00% 30.00% 50% Puice Sales 40% - - | distribution: Probability 30% -5 i10%|15%j50%j15%110% 20% -- | 0.o8010901 1.101 1.202 1.001 Frequency Dlstribution of EIRR 10%1- ,I I 1 I 0% - 0.16 I o o - 0 0 - - -o O0.12 - Risk Varlable No. 5 0.1 60% - Commissionin date: 0.08 IProbabilitydistribution:. 0.06 40% -I510T2-/.-O-. 5/ 20% -0.02 20% L|-1| 0 +1| +21 +31 0.04 __7 0o - TO + T.+07 mChC 0 -- Page50 ANNEX7 FIGURE 2: RISK ANALYSIS SUMMARY FOR ECONOMIC JUSTIFICATION Risk Variables Report Risk Variable No. I Risk Variable No. 6 50% energy sales: exchange rate ($IRMB)
40%                                                      IProbability distribution:        DISCRETE                            Probability distribution:                             DISCRETE
30%-                                                         5%      10%           15% 50%         15%        5%                       10%        20%                   25%1 40%                   5%
20%            4 11-0.7                                               0.8           0.9  1          1.1       1.2                       0.6        0.7                   0.81  1                  1.05

10%
0%                        l
0           0                -40%

30%
Risk Variable No. 2                                                          20%
50%                                                       WTP:10
40% .-                                                   |Probability
distribution: DISCRETE|                                             10%                                      L
30%                                                         10%      50%1 25%1 10%0 5%o                                                  0%                                  c       -

20%                                                          0.9|        1|         1.1|   1.15|   1.25                                               0             O        0                o

10%                            1.
0%                                        L                                                                        Results Report of Risk Analysis

Frequency Distribution Of IERR

Risk Variable No. 3
50%                                                |     investmentof generation                                     0.16
40%                                                      IProbabilitydistribution:         DISCRETEI                 0.14
30|   I I
1
10%
0.9
50%
1
25%1 10% 5%
1.11 1.21 1.3
0.12
0.1
20% tIl                                                                                                              0.0
10%+IiI0.06

0.02
1
I0I          S    -        v-            -       --

Risk Variable No. 4
50%                                                |     investmentof T&D                                                                                     _              _N                            CS   CN4
40% |-                                                   Probabilitydistribution:          DISCRETE       I
30%            I               I                            10%1     50%1          25%     10%1    5%
1
120%                                           0.91       11         1.1     1.21    1.3
10%                                                                                                                                Cumulative                      Distribution              of IERR
0%                                                1

100%                        -                              -                              -
90%        -                          -
80%            -              -           --
Risk Variable No. 5                                        70%
50%    -                                                 coal price                                                 60% -
40%                                     |Probability                  distribution:         DISCRETE          |     50%            -              -                                      -             -
30%t
1                  1                           1 1       110%        50%1 25%1             10%°   5%                40%                                                                           -t
0.91       11         1.11    1.21    1.3             30%.                          ...

10%
0%
10%
0%
__
-   0.      ^   _   |                                                                                5.00%
o0.00%                          10.00% 15.00% 20.00% 25.00%
o                               -
_
Page 51                                             ANNEXB

ANNEX 8: FINANCIAL SUMMARY
FINANCIAL VIABILITY AT PROJECT LEVEL

Leiyang Power Plant

The incremental financial benefits for the proposed component are calculated based on the prices
entailed by the "new power new price" policy which warrants cost recovery and a return on the
investments agreed between HEPC and the Pricing Department of the Hunan Provincial Government.
The required annual tariff increase will be proposed by HEPC and confirmed by the Provincial Pricing
Bureau on an annual basis taking into account the following principles:

*   Prior to the retirement of domestic debts (from 2002 to 2012): full debt service requirements; O&M
cost (including depreciation not used for debt repayments); taxes related to the proposed project; and
an annual return of not less than 15 percent on the funds invested by HEPC for the proposed
component.
*   After retirement of domestic debts (from 2013 to the end of the life of the project): full debt service
requirements for the Bank loans; O&M cost (including depreciation not used for debt repayments);
taxes related to the project; and an annual return of not less than 18 percent on the funds invested by
HEPC for the proposed component.

The financial rate of return for the proposed power plant investment is estimated at 12.11 percent.

Based on the latest investment cost estimates, operating costs arrived from historical records to increase
with projected domestic inflation rates, prevailing interest rates and exchange rate, and 5,000 operating
hours per year, the estimated average tariff for the proposed power plant component would be as follows:

*   Average tariff prior to retirement of domestic debts (from 2002 to 2012):
54.73 fen/kWh (in current terms)
34.25 fen/kWh (in 1997 prices)
*   Average tariff during the life of the project life (from 2002 to 2022)
59.71 fen/kWh (in current terms)
29.05 fen/kWh (in 1997 prices)

Transmission Component

The incremental financial benefits for the proposed component are calculated based on the prices
accounting for full cost recovery and a return on the investments agreed between HEPC and the Pricing
Department of the Hunan Provincial Government. The required annual tariff increase will be proposed
by HEPC and confirmed by the Provincial Pricing Bureau on an annual basis taking into account the
following principles:

*   Full debt service requirements; O&M cost (including depreciation not used for debt repayments);
taxes related to the proposed component; and an annual return of not less than 15 percent on the
funds invested by HEPC for the proposed component.

The financial rate of return for the proposed transmission investment is estimated at 14.86 percent.

Based on the latest investment cost estimates, operating costs arrived from historical records (1 percent
of fixed assets value) to increase with projected domestic inflation rates, prevailing interest rates and
Page 52                                         ANNEX 8

exchange rate, and assuming that the electricity sales would grow by 6 percent per year during 1997-
2010, 5 percent during 2011-2015, 4 percent during 2016-2020, and 3 percent during 2021-2025, and 2
percent thereafter, the estimated average tariff increases for the proposed transmission component would
be as follows:

Average tariff increases during the life to the project:
0.55 fen/kWh (in current terms)
0.32 fen/kWh (in 1997 prices)

The sensitivity analyses would not be very meaningful in either case due to the fact that the prices are set
based on regulated cost plus approach. As a result, the rates of return are not sensitive to either the
changes in costs or the fluctuations in electricity sales.

FINANCING PLAN

The total financing requirements (including IDC of $68.4 million equivalent) are estimated at$747.2
million equivalent. The foreign exchange required for the project cost estimated at $300 million will be financed by the proposed Bank loan. 20 percent of the total financing requirement, about$149.7 million
equivalent, will be financed by HEPC's self-generated funds. The remaining local costs and IDC for both
foreign and local loans estimated at $297.5 million equivalent will be covered by loans from the State Development Bank (45 percent) and the China Construction Bank (55 percent). Written commitments from the two local banks have been issued to HEPC. The risk of availability of counterpart funds is extremely low because (i) Chinese banks are competing for financing good power projects like this one for which the debt service of the proposed project is secured by the pricing formula committed by the Hunan Provincial Government; and (ii) HEPC has had strong earning and solid repayment records. VIABILITY OF THE PROJECT ENTITY-HEPC Based on HEPC's financial statements for 1994-96 prepared in accordance with Chinese accounting standards, HEPC is prudently capitalized (debt accounts for about 50 percent of the total capitalization), maintained adequate liquidity (current ratios have been above 1.0 times) and strong debt service positions (debt service coverage have been close to 1.8 times), and made satisfactory profits (net profits represent about 5 percent of return on net fixed assets). The projection of HEPC's finances in accordance with Chinese GAAP for 1997-2005 and the assumptions used are presented at the end of the same annex. HEPC is expected to maintain prudent and strong financial positions throughout the projection period. The debt/equity ratios are projected to stay below 60/40 percent and debt service coverages are averaged above 1.5 times. The net profitability is expected to improve gradually and stabilize at the level of 7-8 percent of the net fixed assets. FINANCIAL MANAGEMENT SYSTEM HEPC has strengthened its financial management system in the past five years. At HEPC's headquarters, a deputy general manager and a chief accountant were appointed to be in charge of operations and company's finance. Under the chief accountant, the financial department is staffed with 21 professional financial staff and accountants. HEPC's subordinate units (including power plants and power supply bureaus) and wholly owned subsidiaries have set up financial departments and each is staffed with 10 to 15 qualified financial and accounting personnel. As of 1997, the total number of full-time financial and accounting staff working in HEPC system and its subsidiary companies is 1206, of which 12 are senior accountants, 208 chartered accountants, and 294 assistant accountants. Page 53 ANNEX 8 HEPC's financial management system, including the accounting and auditing policies, standards, and internal control, as well as the accounting arrangements for management of the proposed project have been reviewed and their summary descriptions are given in the Project Implementation Plan (PIP), available in the project file. The Chinese GAAP are generally consistent with IAS. The major differences include: the approach and accounting treatment for bad debt provisioning, for short-term investments' valuation, for permanent devaluation of long term investments, and for public welfare funds. However, HEPC is still confined to other rules or set formats stipulated by MOF and MOEP and could not prepare its financial statements that fully conform to the Chinese GAAP. HEPC's existing systems for accounting and financial management are satisfactory. Improvements has been made to its cash management system through a technical assistance provided by Asia Development Bank. Centralized cash management functions and policies covering credit control, bank account control, collection, payment and inventory have been established. However, there are areas, including ineffective budgetary control, fragmented financial information flows, and lack of modern financial management practice, where improvements could be made to meet modem financial management standards: * On the issue of budgetary control, the current practice is that annual operating budget proposals are mostly based on administrative instructions and are seen as formalities. As a result, the comparison between actual and budget allocation is not very meaningful and there is a lack of discipline and effective budget control. * On the issue of information flows, currently, most of the information flows take a vertical hierarchical path. Financial, planning, and construction departments/units each prepare and maintain its own financial data, such as information related to investment, sales, costs, and tariffs, and do not share information on a routine and timely basis. Therefore, discrepancies exist and may cause mistakes on important decisions; and * On the issue of modem financial management, as HEPC was incorporated just few years ago, the financial staff are strong in financial accounting but still at early stage of modern financial management. HEPC could improve its financial management in financial planning, assets and liabilities management, performance evaluation, and cost and management accounting, etc. Under the proposed project, a TA will be provided to upgrade HEPC's financial management systems, including intensive training for its financial staff, to address the above issues (see training program in PIP, available in the project file). FINANCIALPERFORMANCETARGETS To promote prudent and sound financial management and adequate tariffs, HEPC agreed that the following financial covenants will be included for the proposed project: * HEPC shall not incur any debt unless a reasonable forecast of the revenue and expenditure shows that the estimated internal cash generation would provide a debt service coverage of no less than 1.5 times at all times; * HEPC shall take all necessary measures, including but not limited to tariff adjustments, to eam a return of not less than 8 percent of the equity (paid-in capital plus retained earnings) in 1999-2000, 10 percent in 2001-2002, and 12 percent in 2003 and thereafter; and * By June 1 of each year, HEPC shall furnish to the Bank a rolling eight-year financial plan containing projected income statements, funds flow statements, and balance sheets. A written commitment on the principles of cost recovery through tariff increase for the proposed project was issued by the Pricing Department of the Hunan Provincial Government and provided to the Bank. Page 54 ANNEX 8 FINANCIALSUMMARYFORREVENUE-EARNING PROJECTENTITIES YEARSENDING: 1994 THROUGH2005 (Yuan million) Actual Forecast Year Ended December31 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Income Statement Items Sales (GWh) 211 230 239 244 258 274 294 314 337 365 392 416 Revenues 4,697 5,823 7,066 7,859 9,031 10,400 11,914 13,842 16,879 20,226 23,383 26,203 Operating Income 660 912 1,004 1,223 1,494 1,930 2,150 2,596 3,377 4,483 5,277 5,702 Net Income 367 450 392 382 467 668 796 1,039 1,549 2,082 2,634 2,449 Funds Statement Items Internal Sources 899 1,349 2,276 2,734 3,113 3,669 4,015 4,628 5,550 6,767 7,651 8,532 Borrowings 2,760 1,908 2,644 1,918 2,465 2,761 3,822 4,748 5,785 5,921 6,372 7,369 Equity Investments 274 1,172 134 279. 100 36 50 183 382 424 399 375 Total Sources 4,087 4,429 5,053 4,931 5,679 6,465 7,887 9,559 11,716 13,112 14,422 16,276 Capital Expenditure 3,753 4,031 3,715 1,744 3,546 4,157 5,414 6,142 7,638 7,933 8,323 9,327 Working Capital Increase -719 -1,014 -425 800 22 270 187 163 366 199 205 144 (Decrease) Debt Service 581 697 1,301 1,845 1,884 2,108 2,488 2,776 3,516 4,318 4,905 5,245 Total Applications 3,639 4,087 4,846 4,788 5,479 6,562 8,113 9,103 11,576 12,586 13,677 15,040 Balance Sheet Items Current Assets 4,341 3,946 4,507 4,839 5,252 5,385 5,361 6,057 6,662 7,680 8,921 10,649 Less Current Liabilities 4,110 4,388 4,977 4,266 4,538 4,830 5,044 5,834 6,415 6,984 7,579 8,261 Net Fixed Assets 6,493 7,748 14,844 14,874 16,037 17,742 18,630 20,979 24,648 27,645 30,094 32,247 Total Assets 17,330 20,734 24,227 24,624 27,153 29,803 33,366 38,096 43,847 50,022 56,538 64,271 Debt 7,654 8,241 10,177 10,080 11,510 12,902 15,158 17,626 20,649 23,532 26,231 30,264 Equity 5,566 8,104 9,074 10,278 11,105 12,071 13,164 14,636 16,782 19,505 22,729 25,747 Total Liabilities and Equity 17,330 20,734 24,227 24,624 27,153 29,803 33,366 38,096 43,847 50,022 56,538 64,271 Financial Ratios Operating Incomeasa %of Revenue 14.1 15.7 14.2 15.6 16.5 18.6 18.0 18.8 20.0 22.2 22.6 21.8 Net Income as a % of Revenue 7.8 7.7 5.6 4.9 5.2 6.4 6.7 7.5 9.2 10.3 11.3 9.3 Retum on Equity (%) 6.6 5.5 4.5 5.4 6.1 8.0 8.7 10.0 12.6 14.1 14.9 12.0 Return on Net Fixed Assets (%/o) 5.7 5.8 3.5 2.6 3.0 4.0 4.4 5.2 6.8 8.0 9.1 7.9 Debt Service Coverage (times) 1.81 1.94 1.54 1.34 1.51 1.61 1.51 1.57 1.50 1.50 1.50 1.57 Percent of Total Capital (%) 32.12 39.1 37.5 41.7 40.9 40.5 39.5 38.4 38.3 39.0 40.2 40.1 Expenditures financed by Intemal 63.5 39.5 -6.2 29.3 22.7 19.4 21.1 17.4 23.3 25.2 30.1 Sources (%) Current Ratio (times) 1.15 1.04 1.10 1.40 1.43 1.46 1.43 1.54 1.62 1.73 1.86 2.05 Debt as % of Total Capitalization 57.9 50.4 52.9 49.5 50.9 51.7 53.5 54.6 55.2 54.7 53.6 54.0 Major Assumptions: The major assumptions used for HEPC's Financial Projections are as follows: * General * The general inflation rates are assumed as follows: Local: 2.0 for 1998, 4.8 for 1999, 5.0 for 2000, 5.5 for 2001 and thereafter. Foreign: 2.5 for 1998, 3.1 for 1999, 2.9 for 2000, 2.8 for 2001, 2.7 for 2002, 2.6 for 2003 * The foreign exchange rate used is$1=Y 8.3.
Page 55                                          ANNEX B

*  The interest rates are assumed to be 10.53 percent per year for local loans and repayable in
12 and 10 years; 6.09 percent for IBRD loan with commitment charge of 0.75 percent and
repayable in 20 years including a 5-year grace period.
* The capital investment program is based on the least cost power development planning for
HEPC.
*   Income Statements
* Energy sales projection is calculated based on load forecast of HEPC. Energy sales is
assumed to grow by 6.10 percent per year during the period 1997-2005.
* The tariffs are assumed to be adjusted so that the average revenues would be adequate for
achieving the minimum financial performance targets.
* The actual average consumption rate of standard coal in 1997 for generation was 398.8
g/kWh. The rate is assumed to decline to about 369 g/kWh by 2005.
* The cost of purchased power is assumed to increase by 1.5 percent per year in real terms
based on estimated prices in 1997. The tariffs for each IPP is estimated in accordance with
the "new plant new price" policy.
* The average line loss rate of HEPC is assumed to be 9.19 percent and to decline to 8.79 in
2000.
* The annual depreciation rate is assumed to be 6.2 percent.
* All interest during construction (IDC) are capitalized.
* The average wages are assumed to increase by two percent per year in real terms based on
1997's actual plus half of the growth rate of energy sales.
* The total number of employee is assumed to decrease by 5 percent in 1998 due to HEPC's
restructuring and stay unchanged till 2000 and to increase by I percent per year thereafter.
* Fuel costs are assumed to increase by 3 percent per year in real terms based on 1997's
actual, 287.2 Yuan/ton (7,000 kcal/kg), till 2000 and to escalate with the projected inflation
rates afterwards.
* Under the operation & maintenance costs, material cost is assumed to increase by the rate
of growth of original fixed assets per year in real terms; water cost is assumed to increase by
1 percent plus the rate of growth of electricity generated per year in real terms; and
maintenance cost is assumed to be 2.5 percent of fixed assets.
* Income tax is expected to be assessed at 33 percent of taxable income.
* Value-added tax (VAT) is 17 percent.
* Urban and education tax rates are 7 and 3 percent of VAT, respectively.
*   Balance Sheets
* Inventories are assumed to be one month's fuel supply plus two percent of the gross fixed
assets.
* Accounts receivable is assumed to be reduced from 30 days' gross sales revenue (including
VAT) in 1997 and to be reduced gradually to 15 days by 2005.
* Other accounts receivable is assumed to increase by 3 percent per year.
* Fixed assets cost includes estimated total project costs, capitalized interest during
construction, and commitment fees. No annual revaluation of fixed assets is assumed.
* Accounts payable is assumed to decrease gradually from 60 days of costs fro fuel, purchase
power, and materials in 1997 to 16 days by 2005.
* Tax payable is assumed to reduce from 180 days of effective VAT in 1997 to 40 days by
2001 and thereafter.
* Short-term loans are assumed to be 3 month's total amount assets (excluding cash)
* Earned surplus includes accumulated consumer's contribution, and development and
welfare funds that are appropriated from net income each year.
Page56                                        ANNEX8

*    Retained earnings will increase by each year's net income and decrease by the above two
appropriations and declared dividends.
*   Funds Flow Statement
The consumer contributions represents the receipts of consumer connections and is assumed to
increase by I percent per year based on 1996 actual collection
Page 57                                         ANNEX9

ANNEX 9: PROCUREMENT AND DISBURSEMENT
ARRANGEMENTS
PROCUREMENT

All goods and consultant services to be financed under Bank loan will be procured by HEPC in
accordance with the Bank Guidelines ("Guidelines-Procurement under IBRD Loans and IDA Credits,"
January 1995, revised in January and August 1996 and September 1997, and "Guidelines for Selection
and Employment of consultants by World Bank Borrowers," January 1997 and revised in September
1997). Project costs by procurement arrangements are summarized in Table A and Al. Procurement
activities will be processed according to the schedule in Table A2 and Charts 1 and IA. Estimated
contractual and other payments are shown in Table A.3.

In International Competitive Bidding (ICB) and Limited International Bidding (LIB) procurement, model
bidding documents (May 1997) developed by MOF in collaboration with the Bank would be used. In
evaluation of the bids following ICB procedures, qualified domestic manufacturers would be eligible for
a margin of preference of 15 percent of the Cost, Insurance, Freight (CIF) price or the actual custom
duty, whichever is lower.

The invitation to bid for each contract estimated to cost US$10 million equivalent or more shall be advertised in accordance with the procedures applicable to large contracts under paragraph 2.8 of the Bank's Procurement Guidelines. Goods. The Bank loan will be mainly used for procurement of major equipment and materials for Leiyang thermal power plant and Furong substation. About 96 percent of the equipment and materials will be procured through International Competitive Bidding (ICB). The procurement under ICB procedures will include 13 packages for plant and transmission equipment and materials, ranging from about US$1 million to US$126 million with a total value of US$288 million. Some specialized
equipment estimated to cost less than $300,000 per contract up to an aggregate amount of US$4 million,
and equipment which can only be purchased from a limited number of suppliers, notwithstanding the
cost per contract thereof, will be procured through limited international bidding (LIB). Goods,
instruments and accessories needed for construction and operation of power plant and transmission
facilities, including equipment for environmental monitoring, which are readily available off-the-shelf
goods or standard specification commodities, will be procured through contracts awarded on the basis of:
(a) International Shopping procedures (IS) for contracts estimated to cost less than US$300,000 per contract and up to an aggregate amount not to exceed$1.5 million, by soliciting quotations from at least
three suppliers in two different countries; or (b) National Shopping procedures (NS) for contracts
estimated to cost less than US$300,000 up to an aggregate amount not to exceed$500,000, with the prior
agreement of the Bank. Goods of a proprietary nature may be procured through direct contracting with
the bank's prior agreement. It is expected that the aggregate amount would not exceed $500,000. Works. The site preparation, civil works construction and installation of plant electromechanical equipment and transmission facilities are well within the capability of the local contractors. Because of foreign exchange limitations, these works will be financed by HEPC and procured following local competitive bidding procedures. Installation of major equipment will be supervised by the manufacturers. Services. Contracts amounting to about$5.5 million in total for consulting services, including training,
will be awarded in accordance with Bank Guidelines. These include technical assistance for preparation
Page 58                                           ANNEX 9

of commercial power purchase agreements and implementation of HEPC's restructuring plan (1
contract), technical assistance for improvement of the financial management system (I contract), and
construction management (1 contract). Selection of consultants will be carried out through Quality and
cost based Selection (QCBS). These contracts shall be based on the applicable standard form of contract
for consultants' services issued by the bank, with such modifications thereto as shall have been agreed by
the bank. Other consulting services and training may be procured under Consultant's Qualification (CQ)
procedures (appropriate qualifications and reference from an established short list) for contracts expected
not to exceed US$100,000 for firms, or under procedures for the hiring of individual consultants. These may include training, and advisory services to HEPC on restructuring and technical matters. Prior Review Thresholds (Table B). Prior review of draft bidding documents, bid evaluation reports and contract award recommendations and contracts will be carried out for all ICB contracts and LIB contracts exceeding$300,000. This will cover over 99 percent of the Bank loans. Selective post-review
will apply to other contracts during the supervision missions. Prior review of the terms-of-reference, cost
estimates, selection criteria, consultant shortlists, request for proposals, bid evaluation reports and
contract award recommendations and contracts will be required for all consultants with an estimated cost
exceeding $100,000 per contract for firms, or$50,000 for individuals.

DISBURSEMENT

Allocation of Loan Proceeds (Table C). The bank loan will be disbursed against: (a) 100 percent of the
foreign expenditures for directly imported equipment and materials quoted on a CIF basis; (b) 100
percent of local expenditures ex-factory for locally manufactured items; (c) 75 percent of local
expenditure for other items procured locally; and (d) 100 percent of the expenditure for consulting
services and training.

The estimated annual disbursement schedule is shown in the Project Financing data in page 1 and
detailed in the PIP (available in the project file). It reflects the bank experience with previous power
projects in China. The loan is expected to be disbursed over a period of about 5.5 years. The project
completion date would be December 31, 2003, and the loan closing date would be December 31, 2004.

Retroactive financing in an aggregated amount of $10 million, or 3.3 percent of the loan, would be provided for the anticipated expenditures (consulting services for technical assistance and equipment on the critical path of the project construction) incurred after the March 31, 1998 and before signing of the loan. Use of Statements of Expenses (SOEs). For expenditures pertaining to goods contracts valued at less than US$300,000, consultancy contracts valued at less than US$100,000 for firms and US$50,000 for
individuals and all training, reimbursement will be made on the basis of Statements of Expenses.
Supporting documentation need not be submitted to the Bank but will be retained in HEPC's office for
review by Bank supervision missions.

Special Account To facilitate disbursements under this project, a Special Account will be established for
HEPC with an authorized allocation of US$20 million, representing approximately four months of average project disbursements. Applications for replenishment will be submitted monthly or when the amounts withdrawn equal 50 percent of the initial deposit, whichever comes sooner. Separate and auditable accounts would be established by HEPC. These accounts would include: (i) a record of withdrawals on the Bank loan with copies of all disbursement requests and underlying documentation; and (ii) a record of transactions on the Special Accounts and the copies of the Bank statements on this account. Page59 ANNEX 9 TABLE A: PROJECTCOSTSBY PROCUREMENTARRANGEMENTS (in US$ million equivalent)

Procurement Method
Expenditure Category                     ICB       Other /a     NBF Lb     Total Cost

1. Works
Site preparation                                      -           -         2.81         2.81
Civil works                                           -           -        42.84        42.84
Traffic works                                         -           -         5.86         5.86
Erection works                                        -           -        41.23        41.23
Construction management                               -           -        12.66        12.66

2. Goods
Plant equipment & materials                       245.47         4.60      12.04       262.11
(245.47)       (4.60)                (250.07)

Transmission equipment. & materials                37.58          1.61    149.21       188.40
(37.58)        (1.61)                (39.19)

Environmental protection & monitoring eqpt.           4.95        0.29      -            5.24
(4.95)      (0.29)                 (5.24)

3. Services
Engineering services                                              2.00      5.79         7.79
(2.00)                 (2.00)

Technical assistance                                              2.50      -            2.50
(2.50)                 (2.50)

Training                                              -           1.00      -            1.00
(1.00)                 (1.00)

Total                                             288.00         12.00    272.44       572.44
(288.00)       (12.00)    (0.00)     (300.00) /c

/a Includes:
* Limited International Competitive Bidding (aggregate amount US$4 million). * International Shopping (aggregate amount US$1.5 million).
* National shopping (aggregate amount US$0.5 million). * Direct Contract (aggregate amount US$0.5 million).
* Consultant Services under engineering, technical assistance and training components
(US$5.5 million) /b NBF = Not Bank-financed k Figures in parenthesis are the amounts to be financed by the Bank loan (in US$ million equivalent).
Page 60                                       ANNEX 9

TABLE Al: CONSULTANTSELECTION ARRANGEMENTS
(in US$million equivalent) Consultant Services Selection Method Total Cost Expenditure Category QCBS QBS SFB LCS CQ Other NBF (including contingencies) A. Firms 4.50 - - - 0.40 - 5.79 10.69 (4.50) (0.40) (4.90) B. Individuals - - - - 0.30 0.30 - 0.60 (0.30) (0.30) (0.60) Total 4.50 0.70 0.30 5.79 11.29 (4.50) (0.70) (0.30) (5.50) Notes: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. NBF = Not Bank-financed. Figures in parenthesis are the amounts to be financed by the Bank loan. TABLE A.2: PROJECT PROCUREMENT PLAN AND IMPLEMENTATION SCHEDULE Major Procurement Activities Date of Installation/Rehabilitation Financed Procurement Submission Award/Signing Completion Commencement Completion Remarks Project by method of bids of contract of deliveries (1#/2#) (1#/2#) /a Leiyang Power Plant HEPC F-01 Boiler Island IBRD ICB 11/98 04/99 08/1999-04/2001 0112000-07/2000 0812001-05/2002 HEPC F-02 Turbine/Generator Island IBRD ICB 11/98 04/99 08/1999-04/2001 01/2000-07/2000 08/2001-05/2002 HEPC F-03 I & C (including Simulator) IBRD ICB 07/99 10/99 07/2000-02/2001 08/2000-08/2000 08/2001-05/2002 HEPC F-04 Electric Equipment IBRD ICB 07/99 10/99 07/2000-08/2001 08/2000-08/2000 08/2001-05/2002 HEPC F-05 Ash Handling IBRD ICB 09/99 12/99 11/2000-06/2001 12/2000-03/2001 08/2001-05/2002 HEPC F-06 Mechanical Equipment IBRD ICB 09/99 12/99 11/2000-06/2001 12/2000-12/2000 08/2001-05/2002 HEPC F-07 Circulating Water Pump (with motor) IBRD LIB 10/99 01/2000 11/2000-06/2001 12/2000-12/2000 08/2001-05/2002 1 HEPC F-08 Tripper IBRD LIB 10/99 01/2000 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 1 HEPC F-09 Hydrauliccontrolcheckbutterflyvalve IBRD LIB 10/99 01/2000 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 1 HEPC F-10 Rotating screen IBRD NS 11/99 03/2000 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 2 HEPC F-il Movable trash rack IBRD NS 11/99 03/2000 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 2 HEPC F-12 Transmitters IBRD DC 11/99 03/2000 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 5 HEPC F-13 Programmable control system for coal IBRD DC 11/99 03/2000 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 5 hauling HEPC F-14 a. Programmable telephone exchanger IBRD LIB 10/99 02/2000 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 3 b. Digital programmable telephone exchanger with dispatch desk c. Digital programmable telephone exchanger HEPC F-15 Power line carrier IBRD LIB 10/99 02/2000 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 3 w HEPC F-16 Electric blet-scale IBRD LIB 09/99 12/99 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 3 monitoring HEPC F-17 Flue gas continuous device IBRD IS 04/2000 08/2000 11/2000-06/2001 12/2000-12/2001 08/2001-05/2002 4 Furong Substation HEPC B-01 220 kV GIS IBRD ICB 07/98 12/98 12/99 12/99 08/2000 HEPC B-02 110 kV GIS IBRD ICB 07/98 12/98 12/99 12/99 08/2000 HEPC B-03 Substation Protection & Control IBRD ICB 10/98 04/99 04/2000 12/99 08/2000 HEPC B-04 1O kV Distribution Equipment IBRD ICB 10/98 04/99 04/2000 12/99 08/2000 HEPC B-05 220 kV Cable IBRD ICB 07/98 12/98 12/99 12/99 08/2000 HEPC B-06 110 kV Cable IBRD ICB 07/98 12/98 12/99 12/99 08/2000 HEPC B-07 Energy Metering & Billing System IBRD ICB 08/98 01/99 12/99 06/99 12/1999 HEPC B-08 Conductor Stringing Equipment IBRD IS 11/98 06/99 12/99 4 HEPC B-09 Vacuum Filter IBRD IS 11/98 06/99 12/99 4 HEPC B-10 Mobile Crane 20T IBRD IS 11/98 06/99 12/99 4 HEPC B-il Mobile Lifting Work Platform IBRD IS 11/98 06/99 12/99 4 HEPC B-12 Heavy Track for Flat-bed Trailer IBRD IS 11/98 06/99 12/99 4 /a I = Equipment requiring to meet dimensional clearance restriction. and 2 = Relatedto expansionof existingfacilities(forreasonsof compatibility standardization). 3 = Equipment requiringcompatibilitywithexistingunits. 4 = Specialized equipment. 5 = Retrofitting(proprietarynature). z z m x to CHART 1: ICB PROCUREMENT SCHEDULE 7 ] 1998 1999 1 2000 ID Task Name Duration Start Finish Q3 Q4 Ql I Q2 Q3 Q4 Ql Q2 Q3 Q4 Ql Q2 Q3 Q4 1 Leiyang Thermal Power Plant 131.8w 10/15/97 4/18/00 (Phase 11) . 2 Boiler 80.4w 10/15/97 4/26/99 Issue bidding document Preparation of docs X Contract award 3 Preparation of docs 25w 10/15/97 4/6/98 0/15 4 Approval by Chinese 8w 4/7/98 6/1/98 government . 5 Review by World Bank 4w 6/9/98 7/6/98 6 Issue SPN 0.2w 7/7/98 7/7/98 7 Issue bidding document 13.4w 8/7/98 11/5/98 . < j~~ ~~~/7 . a> 8 Bid opening 0.2w 11/6/98 11/6/98 1/6 9 Bid evaluation lOw 11/9/98 1/15/99 Progress RolledUp Milestone Baseline Baseline Summary Kj Project:CN-PE-3 Milestone RolledUp Baseline Date:4/24/98 BaselineMilestone RolledUp BaselineMilestone X Summary RolledUp Progress Rolled Up Task > z z m CHART 1: ICB PROCUREMENT SCHEDULE 7 l 1998 1999 ] 2000 ID Task Name Duration Start Finish Q3 Q4 l|Q3 Ql Q2 Q3 Q4 Q TQ2 Q3 Q4 10 Approval by Chinese 5w 1/18/99 2/19/99 government [..) 11 Review by World Bank 4w 2/22/99 3/19/99 12 Contract negotiation 5w 3/22/99 4/23/99 13 Contractaward 0.2w 4/26/99 4/26/99 4/26 14 Turbine/Generator 80.4w 10/15/97 4/26/99 Issue bidding document Preparation of docs . Contract award 15 Preparation of docs 25w 10/15/97 4/6/98 0/15 16 Approval by Chinese 8w 4/8/98 6/2/98 government .) 17 Review by World Bank 4w 6/9/98 7/6/98 18 Issue SPN 0.2w 7/7/98 7/7/98 Progress RolledUp Milestone Baseline BaselineSummary Project:CN-PE-3 Milestone RolledUp Baseline Date:4/24198 BaselineMilestone RolledUp BaselineMilestone Summary RolledUp Progress Rolled Up Task >_ z m x to CHART 1: ICB PROCUREMENT SCHEDULE 7~~ ~ 1998 11999 12000 ID Task Name Duration Start Finish Q3 Q4 Ql Q2 Q Q2 Q3 Q4Q2 Q3 Q4 19 Issue bidding document 13.4w 8/7/98 11/5/98 20 Bidopening 0.2w 11/6/98 11/6/98 _ * 9~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1/6 21 Bid evaluation lOw 11/9/98 1/15/99 22 Approval by Chinese 5w 1/18/99 2/19/99 government 23 Review by World Bank 4w 2/22/99 3/19/99 24 Contract negotiation 5w 3/22/99 4/23/99 25 Contract award 0.2w 4/26/99 4/26/99 . 4/i6 26 27 I & C, Electric equipment 51.2w 10/28/98 10/18/99 Issue bidding document Prepatation of docs _ Contract award Progress Rolled Up Milestone Baseline BaselineSummary Project:CN-PE-3 Milestone RolledUp Baseline Date:4/24/98 BaselineMilestone RolledUp BaselineMilestone Summary RolledUp Progress Rolled Up Task _ z ID CHART 1: ICB PROCUREMENT SCHEDULE 7 | 1998 J 1999 J 2000 ID Task Name Duration Start Finish Q3 Q4 Q Q2 Q3 |Q4 | QI Q2 I Q3 Q4 Ql Q2 Q3 Q4 28 Preparation of docs 16w 10/28/98 2/15/99 0/28 29 Approval by Chinese 4.4w 2/16/99 3/17/99 government 30 Review by World Bank 4.2w 3/18/99 4/15/99 31 Issue SPN 0.2w 3/18/99 3/18/99 32 Issue bidding document 13.2w 4/19/99 7/16/99 /19 33 Bid opening 0.2w 7/19/99 7/19/99 /19 34 Bid evaluation 4w 7/20/99 8/16/99 .I 35 Approval by Chinese 2w 8/17/99 8/30/99 government 36 Review by World Bank 2w 9/6/99 9/17/99 Progress Rolled Up Milestone Baseline Baseline Summary Project: CN-PE-3 Milestone Rolled Up Baseline Date: 4/24/98 Baseline Milestone K Rolled Up Baseline Milestone 0 Summary Rolled Up Progress Rolled Up Task _ z z m x (a CHART 1: ICB PROCUREMENT SCHEDULE 7 1998 1999 1 2000 ID Task Name Duration Start Finish Q3 Q4 Ql QQ Q2 Q3 Q4 Q Q2 Q3 Q4 37 negotiation Contract 4w 9/20/99 10/15/99 38 Contractaward 0.2w 10/18/99 10/18/99 10/18 40 Ash handling,Mechanical 68.6w 12/28/98 4/18/00 Issue bidding document _ equipment lreparation of docs ctawa ontnr 41 Preparation docs of 15.8w 12/28/98 4/15/99 42 by Approval Chinese 4.4w 4/16/99 5/17/99 government .. 43 Reviewby WorldBank 4w 5/24/99 6/18/99 o. 44 Issue SPN 48.4w 5/18/99 4/18/00 45 Issuebiddingdocument 13.2w 6/21/99 9/17/99 Progress Rolled UpMilestone Baseline BaselineSummary Project:CN-PE-3 Milestone RolledUpBaseline Date:4/24/98 BaselineMilestone RolledUp BaselineMilestone 0 Summary RolledUpProgress RolledUp Task z z m x to CHART 1: ICB PROCUREMENT SCHEDULE 7 J1998 ]1999 J2000 ID TaskName Duration Start Finish Q3 Q4 Ql Q2 Q3 Q4JQ1I Q2 Q3 Q4 Q1I Q2I Q3 Q4 46 Bid opening 0.2w 9/20/99 9/20/99 /0 47 Bidevaluation 4w 9/21/99 10/18/99 48 Approvalby Chinese 2w 10/19/99 11/1/99 govemnment 49 Reviewby WorldBank 2w 11/2/99 11/15/99 50 Contractnegotiation 4w 11116/99 12/13/99 51 Contractaward 0.2w 12/14/99 12/14/99 12/14 53 Transmission 70.6w 12/2/97 4/5/99 54 220kvGIS& 110kvGIS 55.4w 12/2/97 12/18/98 Issue biddingdocument of Preparation does .. ,.Contract award Progress Rolled Up Milestone Baseline Baseline Summary Project: CN-PE-3 Milestone Rolled Up Baseline Date: 4/24/98Baseline Milestone Rolled Up Baseline Milestone K) Summary Rolled Up Progress Rolled Up Task z z m x (D CHART 1: ICB PROCUREMENT SCHEDULE 7 ] 1998 1 1999 2000 ID Task Name Duration Start Finish Q3 Q4 Ql |Q2 Q3 Q4 QI Q2 Q3 Q4 Ql Q2 Q3 Q4 55 of Preparation docs 15.2w 12/2/97 3/16/98 . > ~~2/2 56 by Approval Chinese 7.6w 3/17/98 5/7/98 government 57 Reviewby WorldBank 4w 5/8/98 6/4/98 58 Issue SPN 0.2w 5/8/98 5/8/98 59 Issuebiddingdocument 7.7w 6/8/98 7/30/98 60 Bid opening 0.2w 7/31/98 7/31/98 61 Bidevaluation 5.2w 8/3/98 9/7/998 CD 62 Approvalby Chinese 4.2w 9/8/98 10/5/98 government 63 Reviewby WorldBank 2w 10/12/98 10/23/98 Progress Rolled Up Milestone Baseline Baseline Summary Project:CN-PE-3 Milestone RolledUp Baseline Date: 4124/98 BaselineMilestone Rolled Up Baseline Milestone X Summary Rolled Up Progress Rolled Up Task > z m x (0 CHART 1: ICB PROCUREMENT SCHEDULE 7 1998 1999 2000 ID Task Name Duration Start Finish Q3 Q4 Ql I Q2 | Q3 Q4j Ql Q2 Q3 Q4 QI__ Q2_ Q3 Q4 64 Contract negotiation 8w 10/26/98 12/17/98 65 Contract award 0.2w 12/18/98 12/18/98 ./. . ., . +C~~~~~~~12/18 66 220kv & 110kv Cables 55.4w 12/2/97 12/18/98 Issue bidding document Preparation of docs \\ < Contract award 67 Preparation of docs 15.2w 12/2/97 3/16/98 2/2 68 Approval by Chinese 7.6w 3/17/98 5/7/98 government 69 Review by World Bank 4w 5/8/98 6/4/98 70 Issue SPN 0.2w 5/8/98 5/8/98 co 71 Issue bidding document 7.8w 6/8/98 7/30/98 . <51~~~~~~8 72 Bid opening 0.2w 7/31/98 7/31/98 L/31 Progress RolledUp Milestone Baseline BaselineSummary Project:CN-PE-3 Milestone RolledUp Baseline Date:4/24/98 BaselineMilestone X RolledUp BaselineMilestone C Summary RolledUp Progress Rolled Up Task __> z ._ CHART 1: ICB PROCUREMENT SCHEDULE 7 f1998 1999 2000 ID TaskName Duration Start Finish Q3 4 Qi 1Q21 Q3 Q4 IQ1 IQ2 Q3 Q I Q2 Q3 Q4 73 Bid evaluation 5.2w 8/3/98 9/7/98 74 ApoabyCiee4.2w 9/8/98 10/5/98 government 75 Review by World Bank 2w 10/12/98 10/23/98 76 Contract negotiation 8w 10/26/98 12/17/98 77 Contract award 0.2w 12/18/98 12/18/98 12/18 78~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- 79 220/110/10kv protection & 58.8w 12/2/97 1/12/99 Issue bidding document ( control, & Energy metering ~~~~~Preparation of docs __________________Contract award billing system 80 ~~~Preparation of does 18w 12/2/97 4/3/98 7Q2/2 81 ~~~Approval by Chinese 7.6w 4/6/98 5/27/98 govemnment Progress RolledUpMilestone Baseline BaselineSummary Project:CN-PE-3 Milestone RolledUp Baseline Date:4/24/98 BaselineMilestone Milestone K> Rolled UpBaseline Summary RolledUpProgress RolledUp Task> z z m x CHART 1: ICB PROCUREMENT SCHEDULE 7 ::T 1998 1 1999 1 2000 ID Task Name Duration Start Finish Q3 Q4 | Ql Q2 Q3 Q4 QI Q2 Q3 Q4 J Ql Q2 Q3 Q4 82 Reviewby WorldBank 4w 6/2/98 6/29/98 83 Issue SPN 0.2w 5/25/98 5/25/98 84 Issue biddingdocument 8.8w 6/30/98 8/28/98 85 Bid opening 0.2w 8/31/98 8/31/98 86 Bid evaluation 5.2w 9/1/98 10/5/98 87 Approvalby Chinese 4.2w 10/6/98 11/2/98 govemment 88 Reviewby WorldBank 2w 11/3/98 11/16/98 89 negotiation Contract 8w 11/17/98 1/11/99 90 Contractaward 0.2w 1/12/99 1/12/99 /12 Progress RolledUp Milestone Baseline BaselineSummary Project:CN-PE-3 Milestone RolledUp Baseline Date: 4/24/98 BaselineMilestone K RolledUp BaselineMilestone 0 Summary RolledUp Progress Rolled Up Task _>z z z m CHART 1: ICB PROCUREMENT SCHEDULE 7 1 1998 1 1999 1 2000 ID Task Name Duration Start Finish Q3 Q4 Ql Q2 Q4 Q | Q2 IQ3 Q3 Q4 | Ql Q2 Q3 Q4 91 92 Substation protection & 56.2w 3/11/98 4/5/99 . sue bidding document control, 10kvdistribution Preparation of docs . . Contract award equipment 93 Preparation of docs 14W 3/11/98 6/16/98 . > i~~~~~11, 94 Approval by Chinese 4w 6/17/98 7/14/98 government 95 Review by World Bank 4w 7/21/98 8/17/98 96 Issue SPN 0.2w 7/30/98 7/30/98 -u 97 Issue bidding document 4.6w 8/31/98 9/29/98 Co . . 9~~~~~~~~~~~/31 M% 98 Bid opening 0.2w 10130/98 1O/30/98 L o0/30 99 Bid evaluation 5.2w 11/2/98 12/7/98 Progress Rolled Up Milestone Baseline Baseline Summary ,J Project: CN-PE-3 Milestone Rolled Up Baseline Date: 4/24/98 Baseline Milestone Rolled Up Baseline Milestone X Summary Rolled Up Progress Rolled Up Task > z to CHART 1: ICB PROCUREMENT SCHEDULE 7 1998 1999 200 ID Task Name Duration Start Finish Q3 Q4 Ql Q2 Q3 Q4 QI Q2 Q3 Q4 QL Q2 Q3 Q4 100 Aproval by Chinese 4w 12/8/98 1/4/99 . . . 9 govemment 101 Review by World Bank 3w 1/11/99 1/29/99 102 Contract negotiation 9w 2/1/99 4/2/99 103 Contract award 0.2w 4/5/99 4/5/99 -4 C.. Progress Rolled Up Milestone Baseline Baseline Summary Project: CN-PE-3 Milestone Rolled Up Baseline Date: 4/24/98 Baseline Milestone Rolled Up Baseline Milestone O Summary Rolled Up Progress Rolled Up Task > z z m x CD CHART 1A: CONSULTING SERVICE SCHEDULE 1999 ID Task Name Duration Jul I Aug I Sep Oct Nov Dec Jan Feb Mar Apr I May I Jun Jul Aug Sep 1 Reform Implementation 32.4w Prep. of LOI . Contract Signing 2 Preparation of LOI 5.2w Prep. of LOI 3 Issue of SPN Id 4 Issue of LOI Id 5 Bid Opening (Technical) Id 6 Bid Evaluation (Technical) 3w 7 Review by World Bank Sd 8 Notification to Bidders Id 29 9 Bid Opening (Financial) Id 10 Bid Evaluation (Financial) 1.2w Progress Rolled Up Milestone Baseline Baseline Summary CN-PE-35698 Milestone X Rolled Up Baseline Date: 4/24/98 Baseline Milestone Rolled Up Baseline Milestone X Summary Rolled Up Progress > Rolled Up Task _ _ CHART IA: CONSULTING SERVICE SCHEDULE 1999 1 Duration Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun | Jul Aug Sep ID Task Name 11 Review by World Bank Sd 12 Contract Negotiation 2.4w 13 Contract Signing Id Contract Signin *0 4/12 14 Accounting and Financial 44w Prep. of LOI Contract Signing Management 15 Preparation of LOI 8.8w Prep. of LOI 16 Issue of SPN Id -1 ~~~~~~~~~ 17 Issue of LOI Id . 18 Bid Opening (Technical) Id 19 Bid Evaluation (Technical) 6.2w 20 Review by World Bank Sd Progress Rolled Up Milestone Baseline Summary Baseline CN-PE-35698 Milestone RolledUp Baseline Date: 4/24/98 BaselineMilestone Milestone RolledUp Baseline Summary RolledUp Progress > z z Rolled Up Task ______ _mx CHART IA: CONSULTING SERVICE SCHEDULE 1999 ID Task Name Duration Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr -May Jun | Jul Aug Sep 21 Notification to Bidders Id 22 Bid Opening (Financial) Id 23 Bid Evaluation (Financial) 2w 24 Review by World Bank 5d 25 Contract Negotiation 6w 26 Contract Signing 0.2w Contract Signino* 7/1 -v CD -4 Progress Rolled Up Milestone Baseline BaselineSummary CN-PE-35698 Milestone RolledUp Baseline Date: 4/24/98 BaselineMilestone Milestone RolledUp Baseline X Summary RolledUp Progress > z z Rolled Up Task _ ______m x £0 Page77 ANNEX9 TABLE A3: ESTIMATED ANNUAL CONTRACTUALAND OTHER PAYMENTS ($ million equivalent)

Total
1998     1999        2000       2001      2002      2003      Payments Remarks

Works
Site Preparation                              2.81        -         -          -         -          2.81    NBF
Erection                                      5.9       14.19      12.51      6.43      2.2        41.23    NBF
Civil Works                                   6.13      14.74      13.00      6.68      2.28       41.84    NBF
Machine Hall                                2.42       5.82       5.13      2.64      0.90       16.91
Stack                                       0.28       0.68       0.60      0.31      0.11        1.97
Auxiliary System                            3.43       8.25       7.27      3.73      1.28       23.96
Traffic Works                                 4.36       1.00       0.43      0.06      0.02        5.86    NBF

Construction Management                       1.81        4.36      3.84       1.97     0.68       12.66    NBF

Goods
Power plant equipment,                       33.81       90.80    134.74      65.40     32.49     357.24    ICB &
materials and systems                     (24.15)     (63.96)   (96.28)    (47.36)   (23.56)   (255.31)   others
Transmission                       11.25     39.71       83.37     53.01      12.63      4.93     204.9     ICB &
(2.50)    (7.92)     (24.71)     (4.06)     -         -        (39.19)   others

Services
Engineering & Consulting Service              0.73        2.69       2.75      0.80      0.82       7.79    Others
(0.20)      (0.70)     (0.70)    (0.20)    (0.20)     (2.00)

Technical Assistance                          0.25        0.75       1.00      0.25      0.25       2.50    Others
(0.25)      (0.75)     (1.00)    (0.25)    (0.25)     (2.50)

Training                            0.50      0.50        -          -         -         -          1.00    Others
(0.50)    (0.50)       -          -         -         -         (1.00)

Total                   11.75     96.01     211.9       221.27     94.21     43.67     678.83
(3.0)    (33.02)    (90.12)    (102.04)   (47.81)   (24.01)   (300.00)
Page 78                                  ANNEX 9

TABLEA4: KEY CONSTRUCTION
DATES

Power Plant
Unit 1              Unit 2

Start excavation                                                   07/1999             07/1999
Complete foundation works                                          12/1999             12/1999
Start boiler steel structure erection                              01/2000             07/2000
Start turbine-generator steel structure erection                   01/2000             07/2000
Lifting of boiler drum                                             06/2000             12/2000
Start turbine-generator erection                                   06/2000             12/2000
Hydraulic test of boiler                                           12/2000             06/2001
Complete erection of TG and auxiliaries                            03/2001             09/2001
Testing                                                            09/2001             03/2002
Trial operation                                                    12/2001             06/2002
Commercial operation                                               06/2002             12/2002

Transmission

Furong Substation
Start Civil Works                                                            12/1998
Equipment installation                                                       08/2000
Testing                                                                      1012000
Commissioning                                                                12/2000

Leiyang Power Plant Associated Transmission Lines and Substation
Start project                                                                10/1998
Project completion                                                           06/2002

Changsha Power Plant Associated Transmission Lines and Substations
Start project                                                                10/1998
Project completion                                                           06/2002
Page 79                                           ANNEX 9

TABLE   B: THRESHOLDS FOR PROCUREMENT METHODS AND PRIOR REVIEW

Contracts Subject to Prior
Expenditure           Contract Value                Procurement             Review/Estimated Total Value
Category              (Threshold)                    Method                   Subject to Prior Review
(US$'000) (US$ million)

1. Goods                 >$300,000 ICB 13 contracts subject to prior review/US$288 million

>$300,000 LIB 4 contracts subject to prior review/US$3.79 million

<$300,000 LIB, international and national 11 contracts subject to selective shopping and direct contracting postreview/US$2.71 million

2. Services         >$100,000 for firm QCBS, CQ and Other 3 TA contracts/$4.5 million
>$50,000 for individual and training/$0.7 million
subject to prior review

Total value of contracts subject to prior review: $296.99 million (99% of the Loan) TABLE C: ALLOCATION OF LOAN PROCEEDS Expenditure Amount in Financing Percentage Category lUS$ million

Goods                   256.2        (a) 100% of the foreign expenditures for directly imported
equipment and materials quoted on a c.i.f. basis; (b) 100% of
local expenditures ex-factory for locally manufactured items; and
(c) 75% of local expenditures for other items procured locally.

Services                   5.5       100% of the expenditures for consulting services and training.

Unallocated               38.3

Total            300.0
Page80                                          ANNEX10

ANNEX 10: LAND ACQUISITION AND RESETTLEMENT
General

The Hunan Power Development Project consists of three components: (a) installation of 2X300 MW
anthracite fired units at Leiyang Thermal Power Plant (Phase II); (b) construction and expansion of five
220 kV substations and seven sections of 220 kV lines totaling 410 km associated with Leiyang Power
Plant; and (c) construction and expansion of 6 substations and 13 sections of 220 kV transmission lines
totaling 378 km associated with Changsha BOT power plant. All three components involve land
acquisition and reallocation of population. Minimization of the scope of resettlement was, and will
continue to be a high priority throughout the planning, design and implementation of the proposed
project. Where land acquisition and demolition are unavoidable, the resettlement plans provide for
replacement of housing, alternative employment opportunities, infrastructure, services and other
resources to improve, or at least restore, the living conditions and income of the project affected persons
(PAPs).

The resettlement for the proposed project will be carried out in two phases. The first phase includes: (a)
policies and regulations, institutional arrangements, implementation procedures that would be applied to
all components of the proposed project; and (b) detailed resettlement plans for (i) Leiyang Power Plant;
(ii) four 220 kV substations (Furong, Dongfenghu, Hengbei, and Wangcheng); and (iii) two sections of
220 kV transmission lines (Huaneng Power Plant to Dongfenghu, and Macha to Hengbei). The second
phase includes resettlement activities related to five 220 kV substations and 18 sections of 220 kV
transmission lines. A Resettlement Action Plan (RAP) has been prepared for the first phase. The RAP for
the second phase will be prepared by March 1999 following the completion of the design of routing and
siting of these subcomponents.

The Bank carried out full review of the RAP and the assessment found that the resettlement needs and
PAPs are well analyzed and mitigating measures of adverse social impacts are thoroughly formulated
and adequate. The second phase RAP and any unforeseen resettlement associated with the project will be
carried out according to the policy and procedures established in the first phase RAP.

Scope of Resettlement

According to the first-stage resettlement estimates, the project (including two phases) would (a) require
acquisition of 1,097.5 mu (about 73 ha) of land; (b) affect 397 persons due to land loss; (c) require
demolition of 100,145 square meters of floor spaces in rural and urban areas; and (d) require relocation
of 266 households or 1,418 persons (see Table 1). The first phase components require acquisition of a
total of 438.5 mu land area, affecting 108 people; demolishing 15,941 square meters of floor spaces, and
relocating 175 households or 993 individuals (see Table 2). Based on preliminary estimate, the remaining
project components will require acquisition of 659 mu land area, affecting 289 farmers; removing 84,204
square meters structures, and relocating 91 households or 425 individualsg.

For the Leiyang Thermal Power Plant (Phase II) component, although no land acquisition is required for
the power plant, additional site for the ash pond is needed, which will require acquisition of about
277 mu of land, including 20 mu of cultivated land. For some substations and transmission lines, no land
requisition and relocation are required.
Page81                                          ANNEX 10

TABLE 1: ESTIMATESCOPEOF RESETTLEMENT FORHUNANPOWERDEVELOPMENT
PROJECT
(PHASESI ANDII)

Items           Numberof Relocated Amountof Removed    Amountof Land       Numberof People
2
(persons)
Households          Floor Space(m )    Acquisition(mu)    Affectedby Land Loss

LeiyangPower Plant                  2               510                  276.6                 33
(1 1)

220kV Substations                 172             11,632                 468.5                212
(981)

220 kV Transmissionlines            92            88,003                 352.7                152
(426)
Total                            266           100,145               1,097.8                397
(1,418)

TABLE2: ESTIMATEDSCOPEOFRESETTLEMENTFORHUNAN POWERDEVELOPMENT
PROJECT
(PHASE I)

Items           Numberof Relocated Amountof Removed     Amountof Land       Numberof People
Households(persons) Floor Space(mi)     Acquisition(mu)    affectedby land loss

LeiyangPower Plant                  2               510                  276.6                 33
(I I)

220 kV Substations                157              9,051                 143.5                 67
(908)

220 kV Transmissionlines           16              6,380                 418.4                  8
(174)

Total                           175            15,941                 438.5                108
(1,093)

Legal Framework

The land acquisition and resettlement of Hunan Power Development Project are based on State laws
and/or regulations, and provincial implementation measures. The State laws and regulations include:
"Land Administration Law" (1988), "City Planning Act" (1990), and "Administrative Regulation of
Urban Building Demolition and Relocation" (1991). The provincial implementation measures include:
"Hunan Provincial Implementation Measure of Land Administration Law" (1987), "Changsha City
Methods of Land Requisition and Compensation for State Construction Projects" (1991), and "Changsha
City Administration Method of Urban Building Demolition and Relocation" (1992).

The detailed compensation for lost young crops, land and property, detailed in the first phase RAP, will
apply to all resettlement actions carried out under the proposed project.
Page 82                                         ANNEX 10

Resettlement Institutional Arrangement

In order to effectively implement the land acquisition and resettlement program for the proposed project,
resettlement groups from provincial government to affected village level have bee established.

A leading group, including officials from Hunan Provincial Government and managers from HEPC,
representatives from Hunan Power Construction and Development Company (HPCDC), and other
concerned agencies, will supervise all resettlement activities to ensure successful implementation of the
RAP.

Under the leading group, a project resettlement office has been established within HEPC. The office
consists of key resettlement staff from HEPC and concerned departments and bureaus responsible for
Leiyang Power Plant, and transmission components associated with both Leiyang and Changsha BOT
power plants. It will: (a) supervise the local consultants' work related to the scope of resettlement based
on project engineering studies, detailed census and social economic surveys, and evaluation of
resettlement impacts; (b) arrange resettlement training for the main resettlement staff; (c) develop the
resettlement action plan; (d) carry out extensive consultation on resettlement policies; (e) manage
allocate, and supervise the disbursement of resettlement budget; (f) monitor and coordinate the
resettlement implementation among different city resettlement offices; (g) carry out internal resettlement
monitoring and develop internal monitoring report; (h) coordinate the independent resettlement
monitoring efforts; and (i) prepare progress report for the proposed project.

The resettlement offices at city and county levels comprising resettlement staff from respective power
bureaus are mainly responsible of implementation of the RAP. They will work closely with city and
county land administration bureaus to implement the resettlement programs. Their responsibilities
include: (a) completion of social economic and census surveys; (b) participation in the development of
RAP; (c) organization of public participation; (d) acquisition of land use permit and land requisition
permit; (e) supervision of the resettlement budget allocation and use; (f) provision of assistance in both
internal monitoring and external monitoring works; (g) preparation of progress reports; and (h)
coordination and conflict resolution during the resettlement implementation. In affected townships and
villages, resettlement working teams will be set up to facilitate the resettlement implementation.

Public Consultation and Grievance Procedure

In the process of formulating resettlement policies, developing resettlement action plans, and carrying
out resettlement implementation, special attention was given to consultation with affected people and
affected communities. In the project feasibility phase, the project office consulted extensively with local
governments, local people's congress, nongovernment organizations, and individuals with regard to the
site selection of substation and transmission line corridors. All affected villages and individuals were
consulted during the resettlement planning phase and the census and economic social surveys. Numerous
meetings were held with affected people and local officials on compensation policies and rehabilitation
measures. All relocated households (urban and rural) were interviewed by the project team. Their
concerns and opinions have been incorporated in the first phase RAP. In addition, serious efforts will be
made to inform the resettlers about resettlement policies and entitlements. A resettlement information
booklet, including main contents of the RAP: compensation rates, entitlement policies, and grievance
procedures, will be distributed to each resettler prior to resettlement implementation. Further
consultation with affected people will be ensured by resettlement institutions during implementation.

To ensure that the resettlement program is implemented successfully, and complaints are dealt with in a
timely fashion, a grievance procedure for the project has been established and will be publicized to all
Page 83                                        ANNEX 10

resettlers. Unsatisfied PAPs could: (a) complain to the village committee or resettlement working team in
the township and expect to be responded in 2 weeks; (b) appeal on any unsatisfactory decision to the
county or city land administration bureaus and expect to be responded in 15 days; and (c) report directly
to the project resettlement office (provincial level) or the resettlement leading group and expect to be
responded in two vveeks. In the case of persistent disagreement, the unsatisfied PAPs could request an
administrative review of the case following the administrative appeal law, or go directly to court.

Budget and Timetable

Based on preliminary budget projection, resettlement costs will amount to 129.6 million yuan, with the
first phase being 64.33 million, second phase of 43.65 million yuan, and 21.62 million yuan of other
expenses plus contingencies (see Table 3). The cost estimates for phase one costs include 45.4 million
yuan for Furong and Dongfenghu substations, which have already completed land acquisition and
resettlement. The cost includes a 10 percent of contingency provision of 10.8 million yuan and 5 percent
of management fee.

TABLE 3. RESETTLEMENT BUDGET FOR HUNAN POWER DEVELOPMENTPROJECT
(million yuan)

Items                                           Phase I              Phase II            Total Cost

Land Compensation                                 14.23                23.32                37.56
Housing Compensation                               2.15                20.33                22.48
Infrastructure Compensation                        2.55                                      2.55
Dongfenghu substation                             19.62                                     19.62
Furong substation                                 25.78                                     25.78
Design/Survey                                                                                3.24
Monitoring & Evaluation                                                                      2.16
Implementation Management                                                                    5.40
Contingency                                                                                 10.80

Grand Total                               64.33                43.65               129.60

Source: Hunan Electric Power Company.
Page 84                                         ANNEX 11

ANNEX 11: ENVIRONMENTAL MANAGEMENT PROGRAM
A. SUMMARY OF KEY ENVIRONMENTAL ISSUES

Power Station

Air Pollution. Table 1 presents air pollution characteristics for the existing project (400 MW), proposed
project (600 MW), and a possible additional phase (1200 MW). As can be seen, emission standards for
dust and sulfur dioxide are all in compliance with Chinese standards and World Bank Guidelines.
Nitrogen oxide emissions, however, will not meet current World Bank Guidelines, because these
guidelines were not formulated for the anthracite coal which will be used as the fuel. Basically, the
extremely low volatility of anthracite coals requires unusually high combustion temperatures. As a result
nitrogen oxide emissions tend to be higher than levels observed with more traditional coals. Currently,
international practice recommends an emission level of 1500 mg/Nm3 for boilers fired with anthracite.
World Bank Guidelines are currently in the process of being revised. The updated guidelines have
proposed 1,500 mg/Nm3 for nitrogen oxides emission levels when using anthracite coals. Thus, the
proposed project will be consistent with both international practice and proposed revisions to World
Bank Guidelines.

In addition to the emissions to be realized from the construction of the Phase II power station at Leiyang,
HEPC has agreed to a phaseout of 10 boilers (300 MW total) at 5 other locations in Hunan Province.
Therefore, Table 1 also provides an indication of the emission reductions which will be realized from
this phaseout.

Air quality information are also provided in Table 1. This information must be considered both
preliminary and extremely conservative. It is preliminary, because it is based upon only three months of
continuous monitoring. The complete data set will be available in May 1998, at which time the estimates
would be revised. It is extremely conservative because estimates of background and Phase I/Phase
II/Phase III were made by adding the measured maximums of the background to the calculated
maximum increments of the contributions from Phase I/Phase II/Phase III. The likelihood of the
background maximum occurring simultaneously with a maximum contribution from the power station is
extremely small. Since no information is available concerning the joint probability of occurrence for the
two maxima, an overly conservative approach of adding the two maximums was taken. On this basis, the
only exceedance appears to be with the daily and hourly maxima for nitrogen oxides. The EA report
indicated that these exceedances were not frequent, and concluded that the contribution of the Leiyang
plant to ambient nitrogen oxide levels to be acceptable. It is also worthwhile to note that both World
Bank Guidelines and USA standards only consider an annual average for NO,, and that the Leiyang
contribution to the annual average is comfortably within that limit.

Water Pollution. Wastewaters will be treated by technologies standard to power station operations. This
includes settling of suspended solids (coal transport drainage, boiler acid cleaning waste water, air
preheater wastewater), neutralization tanks for pH control (boiler makeup water treatment plant,
laboratory wastewater, air preheater wash water etc.), oil separators for oily wastes (drainage from oil
storage sites), and oxidation ponds for municipal sewage. After treatment, all of these waters will be used
for ash slurry and recycled to the ash yard. Drainage from the ash yard will be sent back to the plant
mixed with fly ash and treated wastewater discharges and recirculated back to the ash yard. This
recirculation system will include all wastewaters from both the existing plant as well as the proposed
project. Currently, wastewaters from the existing plant are discharged into the Leishui River. Thus, the
proposed project will result in less wastewater discharges to the Leishui River than currently exists.
Page 85                                         ANNEX 11

Effluent from the ash yard consists primarily of a small amount of seepage through the toe of the ash
yard dam which will also be recycled. There is minuscule leakage through the base of the ash yard
because of the geologic substrata. Measurements of groundwater quality indicate compliance with
Chinese standards for groundwater quality (GB/T14848-93).

The Leiyang power station currently uses a once through cooling system which will also be adopted with
the proposed project. Both mathematical and physical modeling were used to develop a discharge
configuration that would provide a minimal impact of the plume on the receiving waters, and an
adequate cross-sectional area for fish passage. However, Dongjiang Dam that has been constructed on
the Leishui River upstream of Leiyang, discharges cooler water than would be experienced without the
dam presence. As a result, the thermal discharge will exceed Chinese standards for temperature rise
relative to the cooler waters. However, the existing Leiyang thermal power station and the proposed
project tend to increase water temperatures to the natural level which previously existed, and in
accordance with Chinese interpretation of their regulations the proposed project is in compliance with
Chinese standards.

Fuel Supply. The existing power station and the proposed project will utilize anthracite coal obtained
from three local State owned underground mines: Baisha (largest supplier), Jiahe, and Xifangdu. Some
coal is currently transported by truck but most is transported by rail. For the proposed project, only rail
transport will be used.,

Existing mining operations were a matter of concern even though no investments are involved. A mining
expert visited the mines and found them to be well managed, and in compliance with all Chinese Coal
Mine regulations. Also, the exceptionally low volatility of the coal gives some comfort that methane gas
is not likely to be present.

Ash Management. Ash (fly ash and bottom ash) is currently slurried and pumped through an enclosed
pipeline to an ash yard about 6 km from the plant site. The ash disposal site is a steep valley, dammed at
one end to form the enclosure. There are no residents living or using the site for any productive purpose.
For the proposed project the same ash disposal yard will be utilized by elevating the height of the
existing dam. However, fly ash and bottom ash will be separated to allow greater utilization of the
bottom ash by the construction industry. As mentioned above, no groundwater contamination is
anticipated and the small amount of seepage through the toe of the dam will be recirculated with the
slurry water. A groundwater monitoring will be maintained to insure no contamination occurs (see Part
C: Environmental Monitoring Program).

Noise. Major noise sources include generators, ball mills, fans (forced and induced draft) and pumps.
Sound levels at the plant boundary were determined to be within Chinese Standards (GB 12348-90 and
GB3096-93) and World Bank Guidelines.

Aquatic and Terrestrial Ecology. Impacts to terrestrial ecology would result from both the increased
emissions from the power station and land surface smothered by the increased levels of ash disposal.
Based upon comparisons of ground level air quality estimates with Chinese requirements for crop
protection (GB9137-88) no impacts to plant species are anticipated. As mentioned before, the ash
disposal site is in a steep valley which is not cultivated. There will be some vegetative loss as the ash
level rise, but it is of minimum extent and insignificant value.

The elimination of all wastewater effluents to the Leishui River should actually improve the water
quality and induce improvements to the aquatic ecology. This would be further enhanced by the addition
Page 86                                       ANNEX 11

of increased thermal discharges which would restore the thermal regime existing before construction and
operation of the upstream dam.

Occupational Health and Safety. Project design will be such that international standards of worker
health and safety will be included in the bidding documents of project equipment. Boilers and other
dangerous equipment will be designed to meet ASME standards of safety and will be so specified in the
bidding documents. Polychlorinated biphenyls (PCBs) are illegal in China, their use is prohibited in the
project. Prohibition of asbestos use will be specified in the bid documents.

Public Consultation. A public consultation was conducted on 21 March 1997 at the Leiyang Power
Plant. The projects benefits were recognized by all participants, and a wish was expressed by the
participants that the project be started and completed as soon as possible so that the benefits could be
realized in the shortest possible time.

Transmission System

Noise. Support towers will be designed to assure that noise at ground level will be within Chinese
standards (60dB[A] daytime and 50dB[A] nighttime-GB3096/93) and World Bank guidelines (55
dB[A]). Noise measurements made at existing power lines with a design similar to the proposed project
indicated values of 36.3-47.1 dB[A]. Affirming the view that the lines will meet standards.

Substation noises arise primarily from the transformers. Estimated noise levels at the plant boundaries of
the eleven substations to be included in the project varied from 40-47.5 dB[A] at night to 37-48dB[A]
during the day. These values are well within Chinese standards (5OdB[A] night and 6OdB[A] day-
GB 12348-90).

Electric Field. Allowable ground level electric field intensities for transmission lines in China are as
follows:

Situation                               Field Intensity Limit Value (kV/m)

Crossing Farm Field                                              9.5
Crossing Highway                                                7.0
Crossing or Close to Residence                                        4.0

Measurements made at existing transmission lines utilizing the same design as the proposed project
yielded values less than 3 kV/m. Therefore, design of the transmission lines are expected to comfortably
meet Chinese standards. There are no World Bank guidelines for electric field intensity.

Allowable ground level electric field intensities for substations in China are as follows:

Situation                               Field Intensity Limit Value (kV/m)

Power Distribution Installation Area                                     10-15
Working Area                                                  8
Power Distribution Installations Enclosure Wall                                5
Page 87                                        ANNEX 11

Measurements made at existing substations utilizing the same design as the proposed project yielded
values less than 3 kV/m. Therefore, design of the substations are expected to comfortably meet Chinese
standards. There are no World Bank guidelines for electric field intensity.

Agricultural Production. Pylon foundations will occupy 12.28 ha of which 3.0 ha is agriculturally
productive and substations will occupy 33.36 ha of which 2.5 ha is agriculturally productive. Thus it is
estimated that the proposed project will reduce the annual grain harvest by about 83 tons. This is
considered negligible for the total extent of the project area.

Ecology. The project does not cross or influence any protected areas, nor does it interfere with any
migratory bird routes. There are no wild or protected species whose habitat is located at or near the
project site or right-of-way.

Public Consultation. A series of public consultations/surveys were conducted at 23 sites     during the
period of October to November 1997. These meetings broadly concluded that: people            should be
compensated for any land occupied by the tower foundations, relocated people should be       adequately
compensated, engineering construction should minimize crop destruction (compensation         should be
provided), and transmissiontowers shouldbe self standingratherthan guyed.
Page 88                                        ANNEX 11

TABLE 1: AIR POLLUTION CHARACTERISTICSOF THE LEIYANG THERMAL POWER STATION

A. Atmospheric Emissions

Phase II (proposed project) Phase III /a
Phase I      Leiyang        Phaseout     (future
(current)    (Increase)    (Decrease) expansion)        Chinese        World Bank
Pollutant       400 MW       +600 MW        -300 MW     1,200 MW        Standard       Guideline

Sulfur Dioxide
tons/hour         1.45          1.66         3.136          3.0          10.88/b          20.8
mg/Nm3            801           778        879-2,427        770          2,100/c

Nitrogen Oxides
tons/hour         1.36           3.2          1.95          4.52
mg/Nm3            750           1,300        2,950          1,300        650/c       300 ng/joule/e

Dust
tons/hour          0.57         0.213         4.584          0.66
mg/Nm3             259           100        658-3,815         100       600/d/200/c         100

La No design details available for hypothetical Phase III plant. NOx and dust emissions will depend on
Chinese and (any) lender standards.
Lk Entire Leiyang site.
LQ New plant standard.
Le It was developed for conventional coal. 1,500 mg/Nm is considered good international practice, and
specified in draft revised World Bank Environmental Guidelines.
B. Air Quality (Jgm/Nm 3 )

World Bank Guidelines                            Chinese Standards                                          Background Levels
TSP      SO2      NO,                      TSP    PM1 o     SO2     NO,                      PM10                     SO2                   Nox
GLmax          SR         GLna1x    SR          GLma         SR

Annual Average                100             100          100            200    100        60            50         38             8-44          20-40       40     20-30        22
Daily Maximum                 500             500               -         300    150       150           100         131             44            76         57      25          35
Hourly Maximum                            -           -                     -              500           150          -              -             87         81       40         54

Background + Phase I                                  Background + Phases I+II                 Background + Phases I+II+III (Existing+Proposed Project +
(Existing Situation)                                (Existing+Proposed Project)                             Possible Future Expansion)
PM,,                S0 2                NO,,                PM1 o            S02              NO°                 PM 10                S02              NO,,
GL..          SR        GLma,   SR          GLm.    SR          GLm.a    SR     GLm.x   SR        GLmax  SR         GL.ax      SR         GLmax     SR     GLmax       SR
CD

Annual    38.3           8.1        22         40.4       26        23    38.7     8.2     26      41.7        32     25      39.3          8.4         31    43.1    41         28      C
Average                  to         to                    to                        to     to                  to                           to          to            to
44.1                              36                       44.2    46                  42                          44.4         51            51

Daily      88            88         105         72        52        62     92      140     143      91         110    91       98          143          183   110     192        131
Maximum

Hourly      -            -          184        146        153       154     -       -      257     205         263    241       -           -           335   269    421         373
Maximum

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B. Mitigating Plan-Summary                of Mitigating Issues/Measures

Issue/Pollutant                                                           Mitigation                                                              Responsible Institution
Sulfur Dioxide Emissions   Burning low sulfur coal (average 0.36%S, max 046%S). 210m high stack to disperse pollution
Dust Emissions             Use of high efficiency (99.68%/o) electrostatic precipitators (ESP) to satisfy exit concentration of 100 mg Nm~'
2 1Omstack.
Nitrogen Oxides            Use of NOx burner technology with design specification in bid document of NOx discharge concentration to be less
3
than 1300 mg Nm- . 210m stack.
Cooling Water              Use existing cool water intake structure. Grill and moving screen to prevent fish entrainment. New outfall structure to
be angled at 47 to bank and an arc shaped flow-guiding dike installed to avoid impacts to navigation and maintain
cool water channel. No biocide treatment is required.
Waste Water (domestic      All waste waters treated to sufficient standard to permit use in ash sluicing system. Treatment to include separation and
sewage, water treatment    recovery of oil, oxidation of organic matter and neutralization where appropriate. Existing Phase I plant waste water
plant, oil contaminated    also to be used in ash sluicing system - eliminating discharge of waste water effluent.
drainage, etc.)
Ash and Slag Disposal      Ash and slag to be disposed of to existing ash yard by hydraulic sluicing system. After completion of the Phase II
project, all of the ash transport water, including that from Phase I will be recycled for re-use, removing the requirement Leiyang Power Plant
for a discharge from the ash yard. This will be facilitated by construction of a drainage channel around the periphery of (Environmental Management
the ash yard to intercept surface water run-off before it reaches the ash yard. Existing ash yard is on clay with low      Department)
7
permeability (average    2.39 x 10- cm s~. Markets for ash and slag utilization are to be developed. Provision is to be
made for recovery of dry ash from the ESPs if required to promote utilization.
Fugitive Dust              The ash yard is to remain flooded to ensure the surface of the ash is covered. The ash yard is in a valley with densely                                  0

wooded sides which will act as a wind break and minimize spread of any wind blown dust. On ultimate completion of
the ash yard, it should be covered with soil and re-vegetated.
Coal delivered by rail rather than road. The coal stock yard area is to be provided a wind shield bank at the west and
north sides and tree screens planted. The coal stock should be sprayed with water if dust nuisance occurs in dry
weather. Coal handling equipment to be designed with tightly sealed baffles to conveyors, efficient dust brushing at
transfer posts, vacuum dust precipitators at coal bunker.
Site to be >15% vegetated to minimize dust blow, enhance visual appearance and reduce noise.
During construction, wheel wash facilities should be provided and roads kept clean to minimize dust from dirt being
Noise                      Maximum noise levels at the plant boundary are to specified as 60db(A) by day and 50 dB(A) by night. Construction
noise should be specified in accordance with GB12523-90. Where necessary silencers or sound insulation should be
provided on noisy equipment. Noise levels specified to be less than 90dB(A) at I m from equipment except for coal
mills at 95-105dB(A) and feed pumps at 101 dB(a). Silencers to be fitted to boiler steam release and safety valves and
forced draft fan outlet.
Contingency Measures       All bulk oil and chemical stores should have bunds of sufficient capacity to contain any spillage. Where practicable,
pumps, valves, couplings, delivery nozzles and overspill pipes should be contained within the bunded area. Materials
(absorbent granules, oil boom, etc.) should be maintained on site to deal with minor spills.                                                             >
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IDuring construction: use water sprays when required to suppress dust. During operation: Substations to be >10%             IConstruction Unit
Issue/Pollutant                                                       Mitigation                                                      ResponsibleInstitution
Fugitivedust            vegetated reduce noiseand dust and improvevisualappearance.
to
WasteWater              Bund equipment   containingoil in substations,oil contaminated drainageto be discharged oil/waterseparators.
via                      HEPC & ConstructionUnit
to
Sewagefrom substations be collectedin septictanks.
Noise                   Maximum    noise levelsat the plantboundaryare to specifiedas 60db(A)by day and 50 dB(A)by night.Construction
noiseshould be specified accordancewith GB12523-90.
in                               Controlroomsin substations   should be sound insulated.
Avoidworkingat night wherepossible.
Routingof Transmission The transmission   systemis designedto minimizeimpacton residential     areas,naturereserves,historicsitesand other
Lines                   sensitivelocations.A minimumclearanceof 5mto residentialpropertiesshould be maintained.Whenthe electricfield
or
othertransmission communication      linesto be providedaccording relevanttechnicalstandards(SDJ3).Provide
to
of                 of                               withroadtraffic to be avoidedby use of
&
of
crossing.
Relocation/Compensation Fullcompensation economiclosses(relocation,loss of crops,etc.) to guaranteeno loss of livingstandards.
for
Minimizedurationof temporary      occupationof land.(10 days for eachpylon). Restorevegetationwithin 2 weeksafter
construction.
Safety                  Education  programsto warn localpopulationof potentialdangersof overheadtransmission        lines. Providesecure
perimeterfencingto substations other transmission
and                   installations.Groundrailingsand other metal structures.
ThermalPollutionfrom   HEPChas an agreementwithauthoritiesthat the Dongjiang       reservoirwill be open in the futureto maintaina minimum HEPC/Agency   responsible
3                                                                                                     of dam operation
coolingwaterdischarge flow of 116m/sec.
Hazardousmaterials     PCBsare outlawedin China.Howeverif eitherPCBsor asbestosare identifiedduringprojectimplementation                   HEPC
PCB/Asbestos           (especially retirementof small powerplants)they will be managed(removed,transported,and disposal)in strict
accordance  withregulations/procedures China.
of

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C. Environmental Monitoring Program

TABLE    C-1: AIR POLLUTION MONITORING

Location of Monitoring      Parameters to be Monitored      Instruments to be Used          Monitoring Sites            Monitoring Frequency       Responsible Institution
Chimney                   Dust, SO2 , NOx, CO, 02            Flue gas monitoring system Sampling point 1/3 height    Automatic continuous
of chimney
ESP Outlet                 Dust (Calibration check of con- Dust sampler                  Downstream of ESP           After ESP overhaul or any
tinuous optical density monitors                                                          change in fuel spec.          Leiyang Environmental
against gravimetric analysis)                                                                                           Management Department
Ambient Air Quality        Total Suspended Particulates      Continuous ambient air      2 Sites at 3 km SSE &       Automatic continuous
(TSP), PM, NO2 , NO, SO2          quality monitors            2.7 km NNW of stack.
Coal Sampling (Total SO2 S, Ash, Heat, Value, Volatile       Calorimeter,                Coal conveyor               Each delivery                 Leiyang PP
emissions)                 Matter, Moisture                  Spectrophotometer                                                                     Chemistry Lab
Within plant boundary      Fugitive Dust (TSP)               Portable monitoring         Perimeter of coal and Ash    5-7 Days Each Season (Min.   Leiyang Environmental
and Ash Yard                                                 equipment                   Yards                        12h sample collection)       Management
I______________________           I__________________________ I______________________      I_______________________
_____D                         epartment
Methods of Analysis for Air Quality - Manufacturers Instruction for Continuous Monitors.
TSP see GB/T 15432-95
PMIOsee GB 6921-86
SO2 see GB/T15262-94 & GB 8970-88
NO, see GB/T 15436-95
NO2 see GB/T 15435095
CO see GB 9801-86

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TABLE C-2: WATERPOLLUTIONMONITORING

Locationof Monitoring   Parameters be Monitored Instruments be Used
to                       to               MonitoringSites        MonitoringFrequency      ResponsibleInstitution
CoolingWater              Temperature            Thermocouples          Intake& Outfall           Continuous
LeishuRiver               Flow rate              Gaugeheight            Plant site                Continuous
ChemicalWastewater        pH                     pH Meter               Effluentoutlet            10 days
Plant AreaDrainage        pH, SS, COD            pH,COD analyzer&       Effluentoutlet            10 days (pH, SS, COD)
Oil                    Spectrophotometer                                14 days (Oil)            LeiyangEnvironmental
F, As, Sulfide                                                          Monthly (F, As, H2 ,S    Management Department
Sewage                    pH SS, COD,           pH, COD & BODanalyzers Outletof sanitary          Monthly
BOD                                          wastewater                 Each Season
treatmentplant
Coal YardDrainage         pH SS, COD,           pH, COD, BOD           Drainagechannelfrom Coal   10 days when draining
VolatileMatter                               Stock
UndergroundWater          pH, Cry',Pb, Cd,As,   pH, Titration,AA       Municipal                  Each Season(4 x per
Ash Yard                  F, Alkalinity,        Spectrophotometer,Ion  HorticultureFarm&          Year)
DissolvedSolids,      SelectiveElectrodes    Liangjiacong
Hardness.N02-N,
NO -N, S0
3      4                                                                                                                  X

Methodof Analysis:
pH GB6920-86            SS GB10911-89            S04 GB5750-85          CODPS-7-85                BID GB7488-87            Pb,CdGB7475-87
As GB7485-87            F GB7484-87              NO -N GB7480-87
2                   NO -N GB7493-87
3                       CrviGB7467-87            VolatilePhenolGB7490-87
DissolvedSolids- Methodsfrom SEPA.
Hardness
Alkalinity,

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TABLE C-3: SUMMARY NOISE AND ELECTROMAGNETIC

Location of Monitoring     Parameters (Noise or Electric Field)     Instruments to be Used           Monitoring Sites         Monitoring    Responsible Institution
Frequency
Equipment in Main         Noise from rotary machinery, turbines, Noise meter according to      I m from large equipment. for    Annual
Power Building and        coal crusher, forced draft fan, induced BG 7441-87 'Power Plant      small devices, measurement at
Auxiliary Buildings       draft fan, coal pulverizer              Noise Testing and            distance of half equipment
Measuring Method'            length.

Leiyang Environmental
Outside Power Plant and Noise at plant boundary and in             Noise meter according to Im outside power plant fence        Annual      Management Department
Substation Fences and   residential areas                          GB12349-90 & GB3090-93 and grid at 100 m intervals in
Residential Quarters                                                                        residential area
Transmission Lines      Electromagnetic radiation and noise        Noise meter and electric Selected locations adjacent to      Annual
field strength meter     residential areas along
transmission lines (approx. 20
locations)

TABLEC-4: LABOR SAFETYAND HEALTHMONITORINGPLAN

Items                          Factors to be monitored        Instruments to be Used          Monitoring Sites           Monitoring Frequency         Responsible Institution
Fire and explosion           Fume                          Fume alarm                  Dangerous goods storage      Automatic and continuous
prevention                                                                             and oil tank areas
Hydrogen                      Hydrogen leak detector      Hydrogen generation system   Automatic and continuous
Boiler temperature            FSS meter                   Inside Boiler                Automatic and continuous       Leiyang Environmental
Dust control                 Coal dust                     Coal dust sampler           Coal crushing building       Monthly                        Management Department

SO2, NOR,CO                   Portable air monitoring     Boiler house                 Monthly
equipment
Noise control                Noise                         Sound meter                 All working areas            Monthly

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D. Institutional Strengthening/Technical Assistance

TABLE   D-1: TRAINING

Training           Numberof Staff             Departments                Location             Duration            Cost            US$Time Local Foreign Ambient& stackgas 2 Managers Management Environmental ForeignCountry 2 person-months 0 14,000 1998-2001 continuous monitoring Department Ambient& stack gas 4 Technicalstaff Management Environmental China 2 person-months 0 14,000 1998-2001 continuous monitoring Department TABLED-2: PRINCIPALINSTRUMENTS& EQUIPMENT FORENVIRONMENTALMONITORING PURCHASED LOCALLY Name of Equipment Quantity Cost (Yuan) Usage Spectrophotometer 2 2x8,000 in Analyzingcomposition gas, liquid (ultraviolet,routine) Atomabsorption spectrophotometer 1 73,000 Analyzingheavymetalcomposition Atmosphere sampler 4 4x5,000 SamplingSO2 , NOx gases Sound levelmeter 2 2x6,000 Measuringnoise Ten thousandbalance 2 2x7,000 Weighing Totalsuspensionparticlessampler 4 4x4,000 SamplingTSP Electriccontactwind directionAnemometer 1 5,000 Recording24 hours winddirectionwind speed Refrigerator 1 2,000 Storingmedicine, sampling Microcomputer 1 8,000 Data processing, statistics Environmentmonitoring van 1 195,000 Plant area surroundings, distantmonitoring pH meter 1 7,860 MeasuringpH Conductivity meter 1 8,540 Measuringconductivityin wastewater CODanalyzer I 4,000 MeasuringCOD contents Biochemistry culturebox/BODanalyzer 5 1 7,000 MeasuringBOD contents 5 Oil analyzer 1 10,000 Measuringoil contents Flow-meter 1 1,600 Measuringdrainageflow capacity Total 400,000 z z m Page 96 ANNEX 12 ANNEX 12: PROJECT PROCESSING BUDGET AND SCHEDULE Planned Actual A. Project Budget (US$'000)                       $436$313.5La

B. Project Schedule

Time taken to prepare the project (months)                                       10 months
First Bank mission (identification)                   06/29/97                   06/29/97
Appraisal mission departure                           03/23/98                   03/23/98
Negotiations                                          05/04/98                   05/11/98
Planned Date of Effectiveness                         12/31/98

Prepared by: Hunan Provincial Electric Power Company.

Preparation assistance: Borrower: CRISPP
Bank Budget
Bank staff who worked on the project included:

Name                                                        Specialty

Bernard Baratz                                               Environmental Specialist
Noureddine Berrah                                            Economist
Weigong Cao                                                  Power Engineer
Clifford Garstang                                            Lawyer
Daniel Gibson                                                Resettlement Specialist
Ranjit Lamech                                                Power Sector Restructuring Specialist
Rui Ma                                                       Operations Assistant
Mihir Mitra                                                  Power Engineer
Heinz Pape                                                   Economist
Elaine Sun                                                   Financial Analyst
Junhui Wu                                                    Power Engineer
Jianping Zhao                                                Energy Specialist
Youxuan Zhu                                                  Resettlement Specialist
/a As of April 30, 1998. Total cost is estimated at US$348,000. Page 97 ANNEX 13 ANNEX 13: DOCUMENTS IN THE PROJECT FILE A. Project ImplementationPlan, February 1998 B. Bank Staff Assessments * HEPCFinancialForecastsin electronicfiles * Financial Analyses for Leiyang Power Plant Component and Transmission Componentin electronicfiles Analysisin electronicfiles * Cost/Benefit * Risk Analysisin electronicfiles C. Other * Phase I ResettlementActionPlan (February 1998) * EnvironmentalImpactAssessmentReport(February 1998) * EconomicAnalysisfor LeiyangCoalFired ThermalPowerPlant(II) (Novermber1997) * EconomicTime SliceAnalysison HunanPower Development Program January 1998) Page 98 ANNEX 14 ANNEX 14: STATEMENT OF LOANS AND CREDITS A. IBRD Loans and IDA Credits in the Operations Portfolio, as of April 30, 1998 Difference between expected Original Amount in USS Millions and actual Loan or Fiscal Cancel- Undis- disbursements /a Project ID Credit No. Year Borrower Purpose IBRD IDA lations bursed Orig. Frm Rev'd Number of Closed Loans/credits: 207 Active Loans CN-PE-3591 1998 PRC 0IBRD43090 State Farms Commerci 150.00 0.00 0.00 150.00 0.00 0.00 CN-PE-3606 IBRD43040 1998 GOC Energy Conservation 63.00 0.00 0.00 63.00 0.00 0.00 CN-PE- IBRD42370 1998 PRC Shandong Environment 95.00 0.00 0.00 95.00 7.00 0.00 40185 CN-PE- IBRD43030 1998 GOC E. China/Jiarngsu Pwr 250.00 0.00 0.00 250.00 0.00 0.00 51736 CN-PE- IBRD42000 1997 PRC Xiaolangdi Multi. Ii 230.00 0.00 0.00 230.00 66.67 0.00 34081 CN-PE- IBRD42001 1997 PRC Xiaolangdi Multi. Ii 200.00 0.00 0.00 193.58 66.67 0.00 34081 CN-PE-3590 IBRD41870 1997 PRC Qinba mts. Povty red 30.00 0.00 0.00 30.00 17.20 0.00 CN-PE-3590 IDAN0280 1997 PRC Qinba Mts. Povty Red 0.00 150.00 0.00 141.32 17.20 0.00 CN-PE-3635 IBRD4063A 1997 PRC Voc. Ed. Reform Proj 10.00 0.00 0.00 10.00 5.67 0.00 CN-PE-3635 IDA28980 1997 PRC Voc. Ed. Reform Proj 0.00 20.00 0.00 16.62 5.67 0.00 CN-PE-3637 IDAN0270 1997 PRC Natl Rur Water III 0.00 70.00 0.00 66.30 4.44 0.00 CN-PE- IBERD41790 1997 PRC Wanjiazhai Water Tra 400.00 0.00 0.00 358.66 85.33 0.00 36405 CN-PE-3643 IBRD40990 1997 PRC Xinjiang Highways II 300.00 0.00 0.00 268.81 34.15 0.00 CN-PE-3650 IBRD41720 1997 GOC Tuoketuo Power/inner 400.00 0.00 0.00 400.00 45.44 0.00 CN-PE-3654 IBRD41240 1997 PRC Hunan/Guang Hwy2-NH2 400.00 0.00 0.00 400.00 66.67 0.00 CN-PE- IDA29540 1997 PRC Basic Ed. IV 0.00 85.00 0.00 74.96 -4.61 0.00 36952 CN-PE- IBRD41610 1997 PRC Heilongjiang ADP 120.00 0.00 0.00 113.02 7.82 0.00 38988 CN-PE- IBRD41970 1997 Shanghai Waigaoqiao 400.00 0.00 0.00 400.00 17.47 0.00 44485 CN-PE- IBRD3967A 1996 PRC Labor Market Dev. 10.00 0.00 0.00 10.00 17.74 0.00 34618 CN-PE- IDA28000 1996 PRC Labor Market Dev. 0.00 20.00 0.00 15.61 17.74 0.00 34618 CN-PE-3507 IBRD3933A 1996 GOC Ertan Hydro II 177.68 0.00 0.00 49.80 -46.78 0.00 CN-PE-3507 IBRD3933B 1996 GOC Ertan Hydro II 88.84 0.00 0.00 2.45 -46.78 0.00 CN-PE-3563 IBRD40010 1996 PRC Animal Feed 150.00 0.00 0.00 150.00 66.18 1.67 CN-PE-3569 IBRD39290 1996 PRC. Shanghai-Zhejiang Hi 260.00 0.00 7.75 141.26 12.71 -. 30 CN-PE-3589 IDA27940 1996 PRC Disease Prevention 0.00 100.00 0.00 79.05 43.00 0.00 ON-PE-3594 IBRD40280 1996 PRC Gansu Rexi Corridor 60.00 0.00 0.00 60.00 12.31 0.00 CN-PE-3594 IDA28700 1996 PRC Gansu Hexi Corridor 0.00 90.00 0.00 70.04 12.31 0.00 CN-PE-3599 IBRD40550 1996 Yunnan Prov. Gov. Yunnan Environment 125.00 0.00 0.00 125.00 2.14 0.00 CN-PE-3599 IDA28920 1996 Yunnan Prov. Gov. Yunnan Environment 0.00 25.00 0.00 16.28 2.14 0.00 CN-PE-3602 IBRD39660 1996 PRC Hubei Urban Env. Pro 125.00 0.00 0.00 125.00 57.35 0.00 CN-PE-3602 IDA27990 1996 PRC Hubei Urban Env. Pro 0.00 25.00 0.00 12.34 57.35 0.00 CN-PE-3638 IBRD40440 1996 PRC Seeds Sector Conuner. 80.00 0.00 0.00 80.00 19.46 0.00 CN-PE-3638 IDA28860 1996 PRC Seeds Sector Commer. 0.00 20.00 0.00 10.05 19.46 0.00 CN-PE-3646 IBRD40450 1996 PRC Chongqing Ind Pol Ct 170.00 0.00 0.00 170.00 60.68 0.00 CN-PE-3648 IBRD39870 1996 Shangai Mun. Govt Second Shanghai Sewe 250.00 0.00 0.00 204.73 60.73 0.00 CN-PE-3649 IDA28340 1996 China Shanxi Poverty Allev 0.00 100.00 0.00 49.24 -16.53 0.00 CN-PE-3652 IBRD39860 1996 PRC 2nd Shaanxi Prov Hwy 210.00 0.00 0.00 178.56 49.55 0.00 CN-PE- IDA28310 1996 PRC Basic Ed. Poor III 0.00 100.00 0.00 35.88 -23.06 0.00 36950 CN-PE- IBRD40270 1996 PRC 2nd Henan Prov Hwy 210.00 0.00 0.00 198.00 36.33 0.00 40513 CN-PE-3493 IBRD39106 1995 PRC Inland Waterways 210.00 0.00 0.00 133.16 16.95 0.00 CN-PE-3571 IBRD38976 1995 PRC Railways VII 400.00 0.00 0.00 392.00 107.34 0.00 CN-PE-3585 IBRD37880 1995 GOC Shenyang Ind. Reform 175.00 0.00 0.00 122.24 34.58 0.00 CN-PE-3596 IBRD9874A 1995 PRC Yangtze Basin Water 97.26 0.00 0.00 59.14 -22.37 0.00 CN-PE-3596 IDA27100 1995 PRC Yangtze Basin Water 0.00 110.00 0.00 9.21 -22.37 0.00 CN-PE-3598 IBRD37810 1995 Liaoning Environment 110.00 0.00 0.00 75.09 44.92 0.00 CN-PE-3600 IBRD3847A 1995 PRC Technology Developme 194.99 0.00 0.00 171.75 37.65 0.00 CN-PE-3603 IBRD3773A 1995 PRC Ent. Housing Soc. Se 262.51 0.00 0.00 240.11 137.63 0.00 CN-PE-3603 IDA26420 1995 PRC Ent. Housing Soc. Se 0.00 75.00 0.00 6.20 137.63 0.00 CN-PE- IBRD38736 1995 MOF Fiscal & Tax Ref. 25.00 0.00 0.00 25.00 36.48 0.00 36041 CN-PE- IDA27090 1995 MOF Fiscal & Tax Ref. 0.00 25.00 0.00 16.88 36.48 0.00 36041 CN-PE-3612 IBRD37870 1995 PRC Xinjiang Highway I 150.00 0.00 0.00 86.27 47.62 0.00 CN-PE-3634 IDA26550 1995 PRC Maternal Child Healt 0.00 90.00 0.00 30.80 9.69 0.00 CN-PE-3636 IDA26510 1995 PRC Basic Educ In Poor & 0.00 100.00 0.00 17.66 1.37 0.00 CN-PE-3639 IBRD39066 1995 PRC Southwest Pov. Reduc 47.50 0.00 0.00 35.59 21.59 0.00 CN-PE-3639 IDA27440 1995 PRC Southwest Pov. Reduc 0.00 200.00 0.00 94.36 21.59 0.00 CN-PE-3642 IBRD3846A 1995 Zhejiang Power Devt 154.15 0.00 0.00 87.25 8.16 0.00 CN-PS-3642 IBRD3846B 1995 Zhejiang Power Devt 215.67 0.00 0.00 173.57 8.16 0.00 CN-PE-3647 IDA26540 1995 PRC Economic Law Reform 0.00 10.00 0.00 6.02 4.66 0.00 Page 99 ANNEX 14 Difference between expected Original Amount in US$ Millions                              and actual
Loan or      Fiscal                                                                                           Cancel-      Undis-                    disbursements /a
Project ID     Credit No.    Year               Borrower                     Purpose                  IBRD        IDA         lations      bursed                Orig.         Fm Rev'd

CN-PE-          IBRD3848A 1995          GOC                         Sichuan    Transmission              270.00             0.00      0.00       190.59            135.47             53.96
36947
CN-PE-          IBRD3914A 1995          PRC                         Iodine    Def.    Disorder              7.00            0.00      0.00             7.00          17.57              0.00
37156
CN-PE-          IDA27560       1995     PRC                         Iodine    Def.    Disorder              0.00           20.00      0.00             8.77          17.57              0.00
37156
CN-PE-3502      IDA25390       1994     MOH                         Rur Health     Manpower                 0.00          110.00      0.00        40.33              25.02              0.00
CM-PE-3504      IBPD37480      1994     PRC                         Hebei/Henan      National             380.00            0.00      0.00       105.86              10.83              0.00
H'ways
CN-PE-3540      IDA26160       1994     PRC                         Loess Plateau                           0.00          150.00      0.00           41.93          -30.68              0.00
CN-PE-3557      IDA26230       1994     PRC                         Forest   Resource     Dev               0.00          200.00      0.00           89.53           38.90              0.00
CN-PE-3562      IBRD37270      1994     PRC                         Xiaolangdi                            460.00            0.00      0.00           14.76           11.45              0.00
Multipurpose
CN-PE-3586      IBRD3711S 1994 PRC                                  Shanghai    Environment               160.00            0.00      0.00        79.76              63.49              0.00
CN-PE-3593      IDA25710  1994 PRC                                  Songliao     Plain ADP                  0.00          205.00      0.00        57.49              -6.40              0.00
CM-PE-359s      IDA25630  1994 PRC                                  Red Soils     II Develop                0.00          150.00      0.00        46.78               9.34              0.00
CN-PE-3609      IBRD3716A 1994 GOC                                  Sichuan Gas Dev &                     175.45            0.00      0.00       145.04              63.39              0.00
Conservation
CN-PE-3622      IBRD36525       Shanghai
1994                   Municipal     Shanghai     MTP II                   150.00             0.00      0.00          10.39           10.40              0.00
Govt
CN-PE-3626       IBRD3681A 1994 GOC                                 Fujian    Prov Highway                 80.33             0.00      0.00          60.53            6.85              5.00
CN-PE-3633       IBRD3687A 2994 Govt of             PRC             Telecommsunications                   132.76             0.00      0.00          79.19           77.85              0.00
CN-PE-3641       IBRD3718A 1994 PRC                                 Yangzhou Thermal                      248.16             0.00      0.00          89.75           30.04              0.00
Power
CN-PE-3644       IDA26050      1994     PRC                         Xiaolangdi                               0.00         110.00       0.00          37.68             5.11             0.00
Resettlement
CN-PE-3473       IDA24750      1993     PRC                         Zhejiang     Multicities                0.00          110.00       0.00          43.85           43.48              0.00
CM-PE-3509       IDA24570      1993     PRC                         Changchun Wat Supp &                    0.00          120.00      27.55          24.17           44.88              0.00
CN-PE-3512       IBRD35525     1993     Govt   of   PRC             Shanghai     Port Rest.               224.26            0.00       0.00           5.11           13.67              2.09
CN-PE-3518       IBRD3530S     1993     PRC                         Guangdong prov.                       240.00            0.00       0.00          21.43            2.74              0.00
Transport
CN-PE-3526       IBRD3515A 1993 COC                                 Shuikou II                             43.86            0.00       0.00       17.02              17.01             17.01
CN-PE-3533       IBRD3572A 1993                                     Tianjin     Ind. II                    82.68            0.00       0.00       56.09              49.76              6.26
CN-PE-3559       IDA24620   1993 PRC                                Agric.     Support Servi                0.00          115.00       0.00       10.44             -11.08              0.00
CN-PE-3561       IDA24110   1993 PRC                                Sichuan ADP                             0.00          147.00       0.00       15.86                4.95             0.00
CN-PE-3567       IDA24710   1993 PRC                                Effective      Teaching                 0.00          100.00       0.00       46.53              44.81              0.00
CN-PE-3570        IBRD35810 1993 PRC                                Railway     VI                        420.00            0.00       0.00      125.14             106.48              0.00
CN-PE-3580        IBRD35820 1993 PRC                                So.Jiangsu       Environ.             250.00            0.00       0.00       29.05              14.68              0.00
Protect.
CN-PE-3581       IBRD35310      1993    PRC                         Henan prov.        Transport          120.00             0.00      0.00           16.15           15.50             0.00
CN-PE-3592       IDA24470       1993    PRC                         Ref. Inst'l.&                           0.00            50.00      0.00           21.58           21.43             0.00
Preinvest     (Crisp)
CN-PE-3597       IBRD3560A 1993         PRC                         Taihu Basin Flood                       88.65            0.00      0.00           64.71           63.76              0.00
Control
CN-PE-3597       IDA24630       1993    PRC                         Taihu Basin Flood                        0.00         100.00       0.00             4.92          63.76              0.00
Control
CN-PE-3616       IBRD3606A      1993    PRC                         Tianhuangping         Hydro           196.60             0.00      0.00           87.40          55.32              0.00
CN-PE-3623       IDA24230       1993    PRC                         Financial      Sector     T.A            0.00           60.00      0.00           33.48          21.04              0.00
CN-PE-3627       IBRD3624A      1993    PRC                         Grain Distribution           P        325.00             0.00      0.00          325.00         344.93          -110.07
CN-PE-3627        IDA25180      1993    PRC                         Grain Distribution           P           0.00          165.00      0.00           53.54         344.93          -110.07
CN-PE-3632        IDA25220      1993    PRC                          Environment       Tech Ass              0.00           50.00      0.00           14.92          15.04              0.00
CN-PE-3486        IBRD3406A     1992                                 Railways     V                        33.73             0.00      0.00           29.05          27.94              0.00
CN-PE-3492        IRD3412S      1992    GOC                         Daguangba-Hainan                       28.88             0.00      0.00             2.83              .97           0.00
CN-PE-3492        IDA23050      1992    GOC                          Daguangba-Hainan                        0.00           37.00      0.00               .42             .97           0.00
CN-PE-3503        IBRD3462A     1992                                 Zouxian Thernal         Powe          26.78             0.00      0.00           14.02            6.76             0.00
CN-PE-3534        IBRD3471A     1992    PRC                          Zhejiang     prov transp              70.13             0.00      0.00           26.40          24.40              0.00
CN-PE-3544        IDA23390      1992    PRC                          Educ Dev in Poor Pro                    0.00          130.00      0.00             4.06          -2.50             0.00
CN-PE-3555        IDA23070      1992    PRC                          Guangdong Ag. Devt.                     0.00          162.00      0.00             7.37          -5.76             0.00
CN-PE-3564        IBRD3415A     1992    Beijing      Munici.         Beijing     Environment               32.90              0.00     0.00            28.41          26.87              0.00
CN-PE-3564        IDA23120      1992    Beijing      Munici.         Beijing     Environment                 0.00           80.00      0.00             3.69          26.87              0.00
CN-PE-3565        IDA22960       1992                                Shanghai     Metro Trans                0.00           60.00       0.00            3.75               .69           0.00
CN-PE-3568        IDA23870      1992    PRC                          Tianjin     Urb Dev h En                0.00          100.00      0.00            28.80          24.34              0.00
CN-PE-3587        IDA23360       1992   PRC                          Rural Wat Supp & San                    0.00          110.00      0.00             1.80            -. 71          -9.10
CN-PE-3624         IDA23170      1992   Min.      of Publ.Health     Infectious       Diseases               0.00          129.60      0.00            51.45          41.77            34.60
CN-PE-3478        IDA22100       1991   PRC                          Key Studies       Developm              0.00          131.20      0.00                .83          -. 79            0.00
CN-PE-3560         IDA22420      1991   PRC                          Henan Agric.        Devt.               0.00          110.00       0.00            3.22          -3.51              0.00
CN-PE-3582         IBRD3337T     1991   PRC                          Irrig.     Agric.    Intens            45.05             0.00      0.00            2.37          -5.15              0.00
CN-PE-3472         IBPD29680     1985   PRC                          Railway     IV                       171.30              0.00      0.00            2.04            2.05             0.00

Total                                                                                                 11,370.12         4,426.80     35.30     9,159.14          3,453.08           -114.95

Active     Loans                  Closed      Loans                   Total
Total    Disbursed        (IBRD and IDA):                              6,655.59                       12,600.56                     19,256.15
of which       has been   repaid:                                   17.76                      2,145.17                     2,162.93
Total    now held       by IBRD and IDA:                              15,956.27                       10,097.94                     26,054.21
Amount     sold                            :                                  0.00                             0.00                          0.00
Of which     repaid                  :                                  0.00                             0.00                          0.00
Total     Jndisbursed                      :                            9,159.14                               3.96                   9,163.10

/a      Intended disbursements to date minus actual disbursements to date as projected at appraisal.
Page100                                                  ANNEX 14

B. STATEMENT OF IFC's COMMITTED ANDDISBURSEDPORTFOLIO
(As of March 31, 1998,in US$million) IFC Committed IFC Disbursed FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1987/92/94 China Bicycles 8.50 3.39 0.00 0.00 8.50 3.39 0.00 0.00 1993 Shenzhen PCCP 3.76 .99 0.00 0.00 3.76 .99 0.00 0.00 1993 Yantai Cement 15.60 1.95 0.00 8.33 15.60 1.95 0.00 8.33 1994 China Walden JV 0.00 6.00 0.00 0.00 0.00 3.53 0.00 0.00 1994 China Walden Mgt 0.00 .01 0.00 0.00 0.00 .01 0.00 0.00 1994 Dalian Glass 20.50 2.40 0.00 40.50 20.50 2.40 0.00 40.50 1994 Dynamic Fund 0.00 12.35 0.00 0.00 0.00 9.46 0.00 0.00 1994/97 Plant. Timber 13.20 1.00 0.00 18.00 13.20 1.00 0.00 18.00 1995 Dupont Suzhou 24.92 4.15 0.00 52.00 22.01 4.15 0.00 45.93 1995 Newbridge Inv. 0.00 10.00 0.00 0.00 0.00 6.70 0.00 0.00 1995 Suzhou PVC 22.00 2.48 0.00 22.20 0.00 2.48 0.00 0.00 1996 Beijing Hormel 5.00 .50 0.00 5.50 4.64 .50 0.00 5.11 1996 Faihyoung Ports 0.00 4.98 0.00 0.00 0.00 4.98 0.00 0.00 1996 Jingyang 40.00 0.00 0.00 100.00 34.29 0.00 0.00 85.71 1996 Nanjing Kumho 16.00 3.81 0.00 45.50 13.63 3.81 0.00 38.75 1996 Tianjin Kumho 11.17 0.00 0.00 33.00 0.00 0.00 0.00 0.00 1996 Weihai Weidongri 4.19 0.00 0.00 0.00 4.19 0.00 0.00 0.00 1997 Orient Finance 10.00 0.00 0.00 20.00 3.33 0.00 0.00 6.67 1997 Rabobank PTPC 2.40 0.00 0.00 2.40 0.00 0.00 0.00 0.00 1998 Rabobank SHFC 2.75 0.00 0.00 2.75 0.00 0.00 0.00 0.00 Total Portfolio: 199.99 54.01 0.00 350.18 143.65 45.35 0.00 249.00 Approvals Pending Commitment Loan Equity Quasi Partic 1996 CALTEX Ocean 31.33 0.00 0.00 66.00 1998 Chengxin-IBCA 0.00 .36 0.00 0.00 1997 Chinefarge 12.80 0.00 0.00 20.00 1998 Eureaca 0.00 3.00 0.00 0.00 1997 Liaocheng Jiamim 18.00 0.00 0.00 18.00 1996 Nanjing Huining 4.00 0.00 0.00 0.00 1997 Ningbo 0.00 2.00 0.00 0.00 1997 Nissan/Dongfeng 20.20 0.00 0.00 27.00 1998 Orient FIN A Inc 3.33 0.00 0.00 0.00 1997 PTP Holdings 0.00 1.50 0.00 0.00 1997 PTP Hubei 13.00 0.00 0.00 25.00 1998 PTP Hubei Blinc 0.00 0.00 0.00 1.50 1998 ScanaLeshan 6.10 1.35 0.00 0.00 1998 Shanghai Coline 13.00 0.00 0.00 0.00 1997 SMC 14.00 0.00 0.00 14.00 1997 Suzhou PVC Add. 7.90 0.00 0.00 6.40 1996 Tianjin 9.10 0.00 0.00 9.10 1996 Xiamen Xian 10.00 0.00 0.00 0.00 1998 XIB 50.00 20.00 0.00 0.00 1998 Zhen Jing 4.50 2.00 0.00 0.00 Total Pending Commitment: 217.26 30.21 0.00 187.00 Page 101 ANNEX 15 ANNEX 15: COUNTRY AT A GLANCE POVERTY and SOCIAL East Low- China Asia income Development diamond' Population mid-1996 (millions) 1215 1,726 3,229 GNP per capita 1996 (US$)                                            750          890         500                        Life expectancy
GNP 1996 (billions USS)                                            906.1        1,542       1,601

Average annual growth, 1990-96

Population (%°4)                                                      1.1         1.3         1.7         GNP                                                Gross
Labor force (%)                                                       1.1         1.3         1.7         per                                               primar

Most recent estimate (latest year available since 1989)                                                   capita                                         enrollmen

Poverty: headcount index (% of population)                             9            -
Urban population (% of total population)                              31           31          29
Life expectancy at birth (years)                                      70           68          63
Infant mortality (per 1,000 live births)                              33           40          69                    Access to safe water
Child malnutrition (% of children under 5)                            16
Illiteracy (% of population age:15+)                                  19           17          34
Gross primary enrollment (% of school-age population)                118          117         105                        China
Male                                                            119          120         112                        Low-income group
Female                                                          117          116          98

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1975       1985         1995        1996
Economic ratlos'
GDP (billions US$) 160.3 378.1 755.9 916.4 Gross domestic investmentGDP 30.3 37.8 40.8 39.2 Openness of economy Exports of goods and services/GDP 5.2 9.9 21.0 19.3 Gross domestic savings/GDP . 30.6 33.7 42.5 41.3 Gross national savings/GDP 30.6 34.0 41.0 40.0 Current account balance/GDP -0.2 -3.9 0.1 0.5 Interest payments/GDP .. 0.2 0.7 0.6 Savings I Investment Total debt/GDP .. 5.5 16.9 15.6 Total debt service/exports 8.4 9.9 9.8 Present value of debt/GDP ., .. 14.1 Present value of debt/exports .. 72.3 Indebtedness 1975-85 1986-96 1995 1996 1997-05 (average annual growth) China GDP 8.3 9.9 10.5 9.6 8.5 GNP per capita 7.5 8.3 7.9 8.6 7.7 Low-income group Exports of goods and services 17.2 13.6 13.2 8.3 8.9 STRUCTURE of the ECONOMY 1975 1985 1995 1996 1 (% of GDP) Grovth rates of output and investment (%) Agriculture 32.0 28.4 20.5 20.2 30 Industry 42.8 43.1 48.8 49.0 20 Manufircturing 31.6 35.4 38.1 38.1 Services 25.2 28.5 30.7 30.8 1 Private consumption 61.9 53.1 46.0 47.6 91 92 93 94 95 96 General government consumption 7.6 13.2 11.4 11.1 Imports of goods and services 5.0 14.0 19.3 17.1 GDI -G P 1975-85 1986-96 1995 1996 (average annual growth) Growth rates of exports and Imports (%) Agriculture 5.4 4.3 5.0 5.1 40 Industry 10.4 13.5 13.9 12.1 Manufacturing 13.0 13.0 133 11.7 20 Services 9.8 9.0 8.3 7.9 Private consumption 8.2 8.8 9.7 11.9 o General government consumption 9.0 9.2 . 8.3 93 94 95 96 Gross domestic investment 9.8 10.8 16.2 7.6 -20 Imports of goods and services 22.1 11.7 10.8 8.8 - xports -8--imports Gross national product 9.0 9.8 9.0 9.7 Note: 1996 data are preliminary estimates. - The diamonds show four- key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. Page 102 ANNEX 15 China PRICES and GOVERNMENT FINANCE 1976 1985 1995 1996 Domestic prices Inflation (%> (% change) 301 Consumer prices .. 9.2 17.1 8.3 20! Implicit GDP deflator -0.9 10.1 13.2 7.0 20 10 Government finance (% of GDP) 0 Current revenue .. 25.5 11.4 11.5 91 92 93 94 ss 96 Current budget balance .. 6.7 -1.4 0.5 - GDPdef. -5--CPI Overall surplusideficit .. -0.5 -1.7 -1.6 TRADE 1976 19S5 1995 1996 (millions USS) Exportand Import levels (mill. USS) Total exports (fob) .. 27,350 148,770 151,073 200,000 Food .. 3,803 9,954 10,232 T Fuel .. 7,132 5,335 5,929 150,000 Manufactures .. 13,522 127,283 129,141 Total imports (cif) .. 42,252 132,078 138,828 100,001 Food er 1,881 9,126 7,866 Capital goods .. 18,694 57,481 63,901 o Export pnce index (1987=100) .. 92 133 129 90 91 92 93 94 9s 56 Import price index (1987=100) 78 132 129 o Exports niports Terms of trade (1987=100) 118 101 100 BALANCE of PAYMENTS 1975 1985 1995 1996 (millions US$)                                                                                         Current account balanceto GDP ratio(%)
Exports of goods and services                         7,828          28,163   147,240   153,740        4
Imports of goods and services                         8,097          41,149   135,284   141,340
Resource balance                                       -269         -12,986    11,956    12,400
2.
Net income                                                0            932    -11,774   -10,370
Netcurrenttransfers                                       0            171        810     1,580         0                    llz'
__          -                         i
Current account balance,                                                                                     90          9          92
before official capital transfers                    -269         -11,883      992      3,610        -2

Financing items (net)                                      ..        9,443     21,477    28,030
Changes in net reserves                                    ..        2,440    -22,469   -31,640        .4

Memo:
Reserves including gold (mill. USS)                                  16,853    80,312   111,690
Conversion rate (local/US\$)                              1.9            2.9       8.4       8.3

EXTERNAL DEBT and RESOURCE FLOWS
1975           1985       1995     1996
(millions UJSS)                                                                                    S Compositionof total debt, 1996(mill. USS)
Total debt outstanding and disbursed                       ..        16,696   118,090   128,817                            A
IBRD                                                                  498     7,209     7,616    i                      7616 B
IDA                                                                   431     7,038     7,579           240779
25407~~~~
Total debt service                                         ..         2,478    15,066    15,756                                       2501
IBRD                                                                   26       810       840
IDA                                                         ..         4        63        73                                                          E
Composition of net resource flows                                                                                                                       21737
Official grants                                              ..       117       328       248
Official creditors                                           ..     1,117     7,902     4,359
Private creditors                                            ..     2,867     5,013     6,454
Foreign direct investment                                    .      1,659    35,849    40,180
Portfolio equity                                             ..         0     2,807     3,486                                F
63977
World Bank program
Commitments                                                   ..     1,092     2,850     1,900         A - IBRD                                   E - Bitateral
Disbursements                                                          565     2,269     2,097         B- IDA               D - Othermultilateral F - Pnvate
Principal repayments                                                     0       364       364         C - IMF                                    G- Short-term
Net flows                                                              565     1,905     1,734    E                                                                    I
Interest payments                                                       29       509       549
Net transfers                                                          536     1,396     1,185

Development Economics                                                                                                                                       4/23/98

Note: The dollar estimates for China's GNP per capita, GNP and GDP are preliminary figures based on an on-going World Bank study of
Chna's GOP. They were calculated to facilitate inter-country comparisons. Official statistics are used as the basis for all other economic
analysis contained in this document.
MAP SECTION
CHINA
HUNAN POWERDEVELOPMENT
PROJECT
HUNAN POWERGRID IN 2002

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