Document of

The World Bank

FOR OFFICIAL USE ONLY

14A/ o2 955-Repor No. 7164-CHA

STAFF APPRAISAL REPORT

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

May 12, 1988

Country Department III (China)Asia Region

This document has a resticted distibution and may be used by recipiens only bn the perfonrance of

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CURRENCY EQUIVALENTS

Currency - Yuan (Y)

Y 1 US$0.27US$1 - Y 3.7

(As of December 1987)

FISCAL YEAR

January 1 to December 31

WEIGHTS AND MEASURES

DWT = Dead Weight Tonkm = Kilometer (= 0.62 miles)kWh Kilowatt hour (- 860.42 kcals)GWh = Gigawatt hour (1,000,000 kilowatt hours)TWh = Terawatt hour (1,000,000,000 kilowatt hours)kW = Kilowatt (1,000 watts)MW = Megawatt (1,000 kilowatts)kV = Kilovolt (1,000 volts)kVA = Kilovolt-ampere (1,000 volt-amperes)MVA = Megavolt-ampere (1,000 kilovolt-amperes)mg = MilligramTCF = Trillion Cubic Feet

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

ECEPA - East China Electric Power AdministrationECEPDI - East China Electric Power Design InstituteECPS - East China Power SystemE!PPEI - Electric Power Planning and Engineering InstituteGOC - Government of ChinaGVIAO - Gross Value of Industrial and Agricultural OutputHIPDC - Huaneng International Power Development CorporationIAEA - International Atomic Energy AgencyMOF - Ministry of FinanceMWREP - Ministry of Water Resources and Electric PowerPCBC - People's Construction Bank of ChinaSAA - State Audit AdministrationSEC - State Economic CommissionSPC - State Planning CommissionWREPERI - Water Resources and Electric Power Economic Research

InstituteZPAB - Zhejiang Provincial Audit BureauZPEPB - Zhejiang Provincial Electric Power Bureau

FOR Os. i LiALU Ubs L

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page No.

LOAN AND PROJECT SUMMARY ..................................... iv

I. THE ENERGY SECTOR.oT...R........... 1

A. Overview.... e.e..o..e...... ........ o.oo.o.o....o.eeo.... 1B. Resource Endowment............... ................................ 1C. Efficiency of Energy Useos.e..eeo.**e...o.o.oo..o.o.o.. 2

II. THE POWER SUB S E C T OR... 2

A. Background...a c k geer.. oe......o.u ndooe. e . e.. e..o..o .. o. 2B. Market Conditions 9.e.o9.eo.e.o..o.ee.......oo..ee...o.... 3C. institutions................. .................... 0..0.00 3D* Plann lo*eoan nieneg**oeo*eeooooooe 4Ei Tariffsaorifofs.... 5F. Technology Transferoeoa n sfoe..o.. *9*999999*9*6oe r 999999 5G. Subsector Strategy 6H. Role of the Bank in the Power Sector 6

III. THE BENEFICIARY .................. *o***e**^^@@ 8

A. Legal Status and Organization.......................... 8B.eaa gmn 8

C. Staffing and Ti gi n i n g 9D. Planning, Budgeting and Control......................o.... 10E. Accounting.....e.e........ ..... oo........ e.. 999999999990 11

F. Audit.... 9 12

G. Ta..f f s 13

H. Billing and Collection...............e........ ............ 13

I. I n s u r a n c e ~~~~~~~~~~~~~15J. Distribution System. y st999e....em 15

This report was prepared by W. Cao, K. C. Ling and H. Hamaguchi of AS3TE whoappraised the project in February 1988.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not othervise be disclosed without World Bank authorization.

- ii -

Page No.

IV. THE POWER MARKET AND THE PROGRAM ............................&. 16

A* The East China Power Gridrit..........e...............e... 16B. The Zhejiang Power Grid .......................... 16C. Load Forecast... r ec... .......... ....... .. st. .. ...... 17D. The Power Development Program (1987-1995)........*...... 19

V. THE PROJECI.............. *999....o99o999o99.9..9.o.....oo 20

A. Project Objectives.o ....................... ...*.... .... 20B. Project Descriptions c riop tei .o..............oono.....o. 20C* Cost Estimate......o9999999m at99 .oo*o*o** ooo oe*o . 24D. Financing Plan 26E. Procurement....o9e999.o.o .o.o..999999999999999999999 27F. Project Implementationoeom......e... o.e..... oe.........o. 28Go Disu semn..u rsooo*ooem e ntooooooooooo 29H. Monitoring and Reportingp.or t in...e99.....e.e...... o.o... 29I. Environmental Considerations..oo... o. 999999999 29

VIo FINANCIAL ASPECTS..oC.... 31

A. Introduction..t r o t u c ti999999999.999.9.9.....on. 9999999999 31B. Financial Ststem 31C. Past a&nd Present Financial Performance.f.oorman*.c.e..... 31D . Financ ing Pllan.. 0000 *00900000*0 3 3E. Future Fnne .....................35

VII. JUSTIFICATION ................... t . 38

A. Need for the Project...ooo..o..o..e...oe..o............ 38B. Least Cost Studies.t u d i e s99oo. o 99 38C. Economic Rate of Return e t u rn..o..o.o.. e...oo.o....eee.. 38D. Risks e.e... .... 99.999999.9....99999999999999999999 40

VIII. AGREEMENTS REACHED AND RECOMMENDATIONS..oN.......D..ION... S. o 40

ANNEXES

1. Installed Capacity, Electricity Generation and Sales in the PowerSubsector

2. Installed Capacity and Electricity Generation by Regional Networks aLdProvincial Grids (1986)

3. Performance Indicators4. Present Training Capacity within ECEPA (1986)5. Planning, Budget and Control of Chinese Power Bureaus6. Electricity Tariffs of ZPEPB (1987)7. Major Generating Facilities of the East China Region (1987)8. Installed Capacity, Energy Generation and Purchased, Energy Supplied

and Sales of Zhejiang Province9. Energy Consumption by Categories of Consumers10. The Power Development Program (1987-95)11. ZPEPB's System Demand and Energy Balance

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ANNEXES (Cont'd)

12. Ongoing Major Thermal Power Projects by External Financing Under theSeventh Five-Year Plan

13. Terms of Reference for a Study on ZPEPB's Reorganization and Kanag emtImprovement

14. Work Plan for a Study of Distribution Network Improvement and Izpansionfor the Cities of Hangzhou and Ningbo

15. Project Cost Estimate16. Key Dates of Project Implementation17. Disbursement Schedule18. Air Quality Analysis19. Environmental Monitoring Program20. Financial System Followed by Chinese Power Bureaus21. Annual Financial Statements of ZPEPB22. Calculation of Economic Rate of Return23. Selected Documents and Data Available in the Project File

CHARTS

1. Organization of MWREP2. Organization of ZPEPB3. Project Implementation Schedule

MAP

1. Beilungang Thermal Power Extension Project (IBRD 20490)

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CHINA

BEILUNCANG THERMAL POWER EXTENSION PROJECT

Loan and Project Summary

Borrower: The People's Republic of China

Beneficiary: Zhejiang Provincial Electric Power Bureau (ZPEPB)

Amount: US$165 million equivalent

Terms: 20 years, including five years grace, at the standardvariable interest rate.

Onlending Terms: The proceeds of the loan will be onlent from theGoverrnment to ZPEPB under a subsidiary loan agreement,with a 20-year term, including five years grace and at avariable rate equal to ¶that of the Bank. ZPEPB will bearthe foreign exchange risk and the commitment charges.

Project Objectives Inadeq;sacies in electric generating capacity have been aand Description: major constraint on China's economic growth in the

past. This situation is likely to be continued in thenear term. The Government gives high priority toelectric power development, with a strategy that combines(a) expanding generating capacity by developing coal-fired thermal stations at mine-mouths and near ports andload centers and, accelerating the pace of hydroelectricdevelopment; (b) increasing the financial and managementautonomy of the power bureaus; (c) introducing a morerational pricing system; (d) adopting modern techniquesin project design and system planning including environ-

mental aspects; (e) constructing extra high voltagetransmission lines for interconnection between regions;and (f) replacing low-pressure medium size (50-100 MW)thermal units by higher pressure 300-600 MW units andconverting oil-fired units to burn coal. The proposedproject seeks to: (i) alleviate the acute power shortageof a major load center in East China; (ii) support thenational policies of developing large coal-fired thermalpower generating units to make effective use of China'sabundant coal reserves; (iii) continue the effort tointroduce the modern technology in plant design andconstruction management of 600 MW thermal power units;and (iv) provide technical assistance to ZPEPB forreorganizing its operations and strengthening its manage-ment. This assistance will facilitate its transformationfrom a power bureau to a more autonomous power entity.

The project includes a generating unit of 600 MW; con-struction of a second circuit 500 kV transmission lineand extension of a substation; provision of consultingservices for engineering and procurement; provision oftechnical assistance for a study on ZPEPB's reorganiza-tion and management improvement; a study for extendingand improving the distribution networks for the cities ofHangzhou and Ningbo; and a training program.

Benefits and The project will contribute significantly towards13L*ks: relieving expected power shortages in Zhejiang in the

early 1990s, thereby enabling planned industrial growthand improvement in the living standards of the popula-tion. ZPEPB's financial health will be maintained byfollowing full fuel cost recovery adjustment in the priceof power and cash generation type financial covenant.Finally, the project will contribute substantiallytowards institutional building to improve efficiency andmanagement of a power utility. The technical and eco-nomic feasibility of the project has been well estab-lished. No significant risks are expected.

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Estimated Costs Local Forei8n Total------------ (US$ million) ----------

Civil works 26.4 - 26.4Plant equipment and materials 12.4 156.1 168.5Associated transmission 18.8 - 18.8Training 1.2 - 1.2TA on reorganization and management 0.5 0.5 1.0Distribuiton network studj 0.4 0.5 0.9Engineering and supervision 9.2 2.3 11.5

Base Cost 69.0 159.3 228.3

Physical contingenLies 7.0 5.7 12.7Price contingenciea 6.9 13.0 19.9

Total Project Cost /a 82.9 178.0 260.9

Interest during construction 7.1 21.7 28.8

Total Financing Required 90.0 199.7 289.7

Financing Plan Local Foreign Total------------ (US$ million)

IBRD loan - 165.0 165.0Provincial government 54.1 - 54.1PCBC loan 35.9 34.7 70.6

Total 90.0 199.7 289.7

Estimated Disbursements:

Bank FY 1989 1990 1991 1992 1993---------------- (USs million) ---------------

Annual 25.0 75.5 39.6 10.9 14.0Cumulative 25.0 100.5 140.1 151.0 165.0

Economic Rate of Return: 15.0X

/a The project is exempt from taxes and duties.

CHINA

BEILJNGANG THERMAL POWER EXTENSION PROJECT

I. THE ENERGY SECTOR

A. Overview

1.1 China is *he fourth largest producer and the third largest consumerof commercial energy in the world. Coal is the most important source ofenergy in the country, accounting for some 75% of commercial energy consump-tion. Oil also is an important source of energy; since the 1950s oil produc-tion has grown to provide about 18% of commercial energy and 22% of exportearnings. Hydroelectric power (5%), natural gas (2%), and limited quantitiescf shale oil and geothermal power make up the balance of commercial energyresources. Non-commercial energy resources amount to about one-third ofcommercial production.

1.2 China has made remarkable progress in developing energy resourcesover the last three decades. Between 1952 and 1986, annual coal productionincreased from about 60 million tons to 894 million tons. During the sameperiod, annual oil pr-duction increased from 0.1 million tons to 130.9 milliontons, and annual electricity generation increased from about 7.3 TWh to449.6 TWh. Nevertheless, a higher rate of growth in energy supplies is neededto sustain the Government's efforts to quadruple the Gross Value of Industrialand Agricultural Output (GVIAO) between 1980 and the year 2000. If energygrowth is not to constrain economic development, China will need to increasecoal production beyond current targets for the year 2000, at least meet theofficial output targets set for other energy resources, and greatly improvethe efficiency of energy use. Achieving these targets will require a moderni-zation of technology and management throughout the energy sector, an increasedcommitment of financial resources, and a strengthening of planning and coordi-nation among the diverse components of the sector. In its Sixth Five-YearPlan (1981-85), the Government gave high priority to the development of thesesubsectors, and the Seventh and Eighth Five-Year Plans (1986-90 and 1991-95,respectively) will continue to accord them priority.

B. Resource Endowment

1.3 China is well endowed with primary energy. Coal and lignitereserves are large and are concentrated in the north and northeast, whichcontain about 70% of the total recoverable reserves (770 billion tons).Future plans call for significant increases in coal production, but this posesdifficult transport problems because of a shortage of railroad capacity.Biomass fuels account for more than 25% of final energy consumption. Recover-able reserves of oil onshore have been estimated at between 6-15 billion tons.and estimates of offshore oil reserves range from 3-10 billion tons. Unoffi-cial estimates of oil shale in China place reserves at 400 billion tons.Recoverable reserves of non-associated gas so far have been estimated at about3 trillion cubic feet (TCF); about 90% of these are located in Sichuan prov-ince. In addition, recoverable reserves of associated gas are estimated at

- 2 --

about 1.8 TCF. China's hydropower potential is among the largest in the worldand is estimated at 1,900 TWh p.a. So far, only 95 TWh p.a. has been devel-oped because most of the potential is located in basins in the southwest andthe northwest of China, 1,200-1,500 km away from major industrial loadcenters. The slow pace of construction also has inhibited the utilization ofhydro resources. Known uranium reserves in China are sufficient to sustain15,000 MW of nuclear power piant fcr 30 years. Although potential sources ofgeothermal energy are abundant in the mountainous southwestern part of thecountry, the role of geothermal energy is likely to remain limited due to itsdistance from major load centers.

C. Efficiency of Energy Use

1.4 China's consumption of energy per unit of GDP is much higher thanthat of any large industrialized or developing country. The country's rela-tively low level of energy efficiency is due to the structure of industrialproduc.ion, the scale of industrial units, the raw materials used, and thetechnology employed. In the late 1970s, the Government began to address theseinefficiencies by instituting regulations on energy use, establishing conser-vation centers to provide technical assistance, and allocating a larger shareof investment funds for industrial modernization, particularly for projectswhich contributed to energy conservation. As a result, energy consumption perunit of GVIAO declined by 7% p.a. during 1979-81, 3X p.a. during 1982-83, 7%during 1984, and 3.1% during 1985. Technical and operational improvementswere responsible for an estimated 40% of these energy savings. About 60% isattributed to a decline in the relative importance of heavy industry, theczosure of some inefficient small-scale plants, and other structural changeswithin industry. Despite these improvements, there is still a need to providemore autonomy to individual entities and develop an energy price structurethat reflects the cost and relative scarcity of each source of energy.

II. THE POWER SUBSECTOR

A. Background

2.1 Since the 1950s, China has grown to become the fifth largest pro-ducer of electricity in the world. Annual per capita generation of electricalenergy grew from 8 kWh in 1949 to 420 kWh in 1986. The total installed capa-city reached 93,818 MW in 1986, of which about 70% was thermal-based and 30%was hydro-based. Power is distributed through 14 grids, of which 10 (provid-ing about 84% of total capacity) exceed 1,000 MW each. Between 1949 and 1974,energy consumption grew at an average annual rate of 13.4%, and at 8.4% since1974, reaching 379.8 :Wh in 1986. At that time, 72.9% of consumption repre-sented industrial uses, 16.4% agricultural uses, 1.2Z transportation, and 9.5%residential and municipal uses. About 65% of the population has access toelectricity.

2.2 The growth of installed capacity, electricity generation and salessince 1949 is depicted in Annex 1, and a breakdown of installed capacity andelectricity generation by regional networks and provincial grids is shown inAnnex 2. In recent years, the rate of growth of installed capacity has

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fallen; during the Sixth Five-Year Plan it averaged only about 5.6X p.a.,increasing only 17,500 MW over that period. At present, customer requestsexceed available supplies by 45-50 TWh per year, and this shortage is likelyto continue in the medium term. Electricity presently is allocated throughquotas based on priorities set by central, provincial and county authorities.

2.3 The Seventh Five Year Plan (1986-90) envisages a number of expan-sions to alleviate power shortages by the 1990s. These expansions wouldincrease generating capacity by as much as 35,000 MW and raise total genera-tion to about 550 TWh p.a. by 1990. Included in the expansions are largethermal power stations, large hydroelectric stations, a nuclear power plant,500 kV transmission networks, and a direct current transmission line. Largethermal power stations are being constructed at ports along the 4ea coast andnear major coal mines in Shanxi, Heilongjiang, Henan, Shaanxi, Shandong,Anhui, Guizhou, Inner Mongolia and Ningxia. The hydroelectric stations areplanned at the middle and upper reaches of the valleys of the Yellow River,the Yangtze River, and the Hongshui River. The nuclear power plant is beingconstructed in Guangdong Province. The 500 kV transmission network is beingextended to supply electricity to northeastern, eastern, sou.'hern and centralChina. The first direct current transmission line was commissioned in late1987 from Gezhouba to Shanghai.

B. Market Conditions

2.4 In recent years, electricity consumption has grown faster thangeneration capacity, resulting in a power shortage of about 15% of industrialelectricity requirements in 1986. One reason for this shortage is that elec-tricity is being used more and more to meet commercial energy requirements.For example, in 1970, electricity provided about 13X of comm'.cial energyconsumption, in 1975 about 15%, and in 1980, 18%. By the year 2000, electri-city is expected to provide 26-27% of commercial energy requirements. To meetthis demand, an additional 150,000 MW between 1985 and 2000 will have to beadded to generating capacity, as generation requirements are expected toexceed 1,200 TWh/year.

2.5 In addition to growth in commercial energy requirements, residen-tial, manufacturing, and transportation uses are expected to expand. In theresidential sector, electricity use is expected to grow at 11-13% p.a.,reflecting growth in household incomes. The manufacturing sector willcontinue to account for a large share of final electricity consumption,although electricity use per unit of value added and its share of total con-sumption may fall slightly. The increasing use of electricity in the trans-portation sector reflects the growing use of electric locomotives in railwayhaulage.

C. Institutions

2.6 Since 1982, the Ministry of Water Resources and Electric Power(MWREP) has been responsible for overseeing all aspects of electric powerdevelopment and water resource management. These responsibilities includepolicy making, system planning and design, and the construction and operationof power and water resource projects of regional importance. Under MWREP,

there are six regional power administrations. These administrations coordi-nate operations and load dispatching for the regional grids and formulatelong-term development plans for approval by MWREP and the State PlanningCommission (SPC). Below the regional administrations are 21 provincial andmunicipal power bureaus operating as parts of the regional grids, while sevenother power bureaus still operate in isolation (see Chart 1). In addition tothe power supplies administered by MWREP, the Huaneng International PowerDevelopment Corp. (HIPDC) was established by the Government in 1985 to attractforeign investment to establish power plants in the open coastal cities. Areform of the state government for the energy sector is under waV. It isexpected to be effective by July 1, 1988.

2.7 MWREP has about 2.6 million employees (about 1.7 million in theelectric power wing), of whom about 52% are directly under the Ministry andabout 48% are under the provincial administrations. Only 30% have receivedformal education beyond the junior secondary school level, reflecting theshortage of trained manpower to fill administrative and technical positions.In the late 1970s, MWREP initiated a long-term training program to upgrade thequality of staff at all levels. The training program includes periodic in-service seminars and on-the-job training for managerial and technical staff.MWREP is also strengthening its capacity for full-time training of potentialemployees through its Education Department. This Department sponsors 9 col-leges, 4 polytechnic institutes, 30 television and correspondence universi-ties, and 33 secondary-level technical schools. About 30,000 students wereenrolled in these schools in 1986. Each year, about 15,300 new staff areassigned to MWREP, about 7,000 from colleges and 8,300 from polytechnic insti-tutes. The proposed project includes a training component in support ofZPEPB's programs in these areas (para. 5.5).

D. Planning

2.8 Overall system planning is the responsibility of the PlanningDepartment of MWREP. It reviews the proposals of the regional administrationsand provincial bureaus for short-term (1-year), medium-term (5-year), andlong-term (10-15 year) plans. The planning and design of major hydro projectsis carried out by the regional hydroelectric investigation and design insti-tutes. Their proposals are reviewed by the Water Resources and Hydro PowerPlanning Institute for MWREP. Planning and design for system expansion,transmission lines and substations above 110 kV and major thermal projects isdone by the regional electric power design institutes. Their proposals arereviewed by the Electric Power Planning and Engineering Institute (EPPEI) forMWREP.

2.9 As the planning of China's power development becomes increasinglycomplex, up-to-date system planning techniques will need to be adopted. Thesetechniques are particularly important for evaluating large-scale projectswhich have long lead times and for making decisions about generation mix,power plant location, and grid configuration. Under the Bank's Second rawerProject (Loan 2493-CHA), least cost investment programming techniques wereintroduced through technical assistance from the International Atomic Energy

Agency.!1 Staff of MWREP and the Electric Power Economic Research Institute(WREPERI) were trained in the use of these techniques. With this training,WREPERI assisted the Guangxi, Zhejiang, Fujian and Shanghai Electric powerbureaus in formulating their least cost development programs between 1985 and1986. The programming techniques now are being successfully used in China toassist with project selection on a regional and provincial basis.

E. Tariffs

2.10 Power tariffs in China have not been adjusted since the 1970s. In1986, the national average revenue was about 7.6 fen/kWh (US¢2.05/kWh). Thereare five different types of tariff categories, for lighting, small industryand commerce, large industry, agriculture, and bulk sales. Two-part tariffshave been applied only to large industry. To support the Government's recentpolicy initiative to rely more on prices rather than administrated quotas, theelectricity allocation system (para. 2.2) will need to be revised and moreappropriate tariff structures introduced. To assist the Government in devel-oping appropriate electricity tariffs, the Bank-financed Beilungang ThermalPower Project (Loan 2706-CHA) includes an important tariff study. This studycommenced in April 1986 with the establishment of a task force drawn frompersonnel of MWREP and East China Electric Power Administration (ECEPA) andthe conduct of a workshop by Bank staff. Focusing on the East China PowerGrid (ECPG), the study covers economic, financial, and administrative aspectsof tariff planning including intersystem purchases. The task force has pro-duced a final report which was found to be comprehensive and well-conceived.It produced cor the first time estimates of long-run marginal costs of elec-tricity at the various voltage and tariff targets required to meet the finan-cial requirements of the ECEPA. The report has been finalized and will beused by the Bank to explore with GOC how to formulate the first major tariffadjustment in the context of China's overall price reform process.

F. Technology Transfer

2.11 The transfer and development of modern technologies will be crucialif China is to increase energy production and efficiency sufficiently toachieve its broader economic goals. Technology transfer,including pollutioncontrol,is particularly iLportant for thermal power plants, where increases inthe pressure and size of uvits and greater development of cogeneration(combined heat and power generation) could reduce net fuel consumption by 20%by the year 2000. This reduction in fuel consumption would greatly alleviatepressure on coal supplies and transport. The Government already is implement-ing this strategy through the gradual introduction of 300 MW and 600 MW stan-dardized coal-fired units (depending upon the size of the network capable ofaccommodating such large units). Thermal generation from coal-fired units isexpected to provide about three-quarters of the total generation until the endof the century. Several types of technology transfer are needed for hydro-electric projects. These include environmental assessment, interpretation of

1/ Using IAEA's WASP III computer program (Wein Automatic System PlanningPackage).

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geological data, judgment of foundation excavation, design of sophisticatedstructures, modern constiuction management techniques, and adoption of thelargest possible generating unit sizes. Timely construction will be animportant focus of ongoing projects financed under previous Bank loans, as thepace of construction will determine the pace of power development in thefuture.

C. Subsector Strategy

2.12 The Government's basic policy for the power subsector is to moder-nize it, increase efficiency, and expand it at a rate sufficient to meet therequirements of industrial development and improve the living conditions ofthe population. The policy includes the following objectives: (a) expandinggenerating capacity as rapidly as possible; (b) increasing the financialautonomy of the power bureaus; (c) introducing a more rational pricing syste(d) adopting modern techniques in project design and system planning;(e) accelerating the pace of hydroelectric development; (f) developing coal-fired thermal stations at mine-mouths and near ports and load centers;(g) constructing extra high-voltage transmission lines for interconnectionbetween regions; and (h) replacing medium-size (50-100 MW) low pressurethermal units with higher pressure (300-600 MW) units and converting oil-firedunits to coal-firing units.

H. Role of the Bank in the Power Sector

2.13 The major thrust of Bank assistance in the power sector has been tointroduce modern concepts of utility management and power system planning andtechnology. Each operation has focused on specific aspects of theGovernment' s sectoral objectives.

2.14 The first power project to be initiated in China was the 600 MWLubuge Hydroelectric Project (Loan 2382-CHA), begun in 1984. This projectsuccessfully promoted cofinancing arrangements which included export creditsfor the major electrical and mechanical equipment and bilateral grants forengineering servi&es. The project also introduced international competitivebidding for civil works and modern construction techniques for a rockfill dam,power tunnel, and undergrotund powerhouse. In addition, the project strength-ened the financial autonomy of the Yunnan Provincial Electric Power Bureau. Atraining component was included under the project in which staff were trainedon design, construction managemlent, quality control, accounting and costcontrol through technical assistance, and the upgrading and equipping of anelectrical training school. The project is being carried out successfully;the first unit is expected to be commissioned by the end of 1988, asscheduled.

2.15 The second power project (Loan 2493-CHA), begun in 1985, providedfor the transmission of power from a 1,300 MW mine-mouth, coal-fired thermalpower station at Xuzhou to the ECPG. This project promoted a bilateral loanfor the Yangtze River crossing works, and assisted with the transfer of tech-nology in 500 kV transmission line and substation design, construction,operation and maintenance. The training component under the project includedthe establishment of a training center and the equipping of two technical

schools in Nanjing and Shanghai for the operation and maintenarice of 500 kVtransmission lines and substations. The project also introduced least-costprogramming techniques to be used in power sector planning in China(para. 2.9). These techniques are being applied by EPPEI and many powerbureaus. The project is expected to be completed by mid-1988, as scheduled.

2.16 Under the third and fourth power projects, begun in 1986, the Bankis financing a 600 MW integrated coal-fired unit (Beilungang Thermal,Loan 2706-CHA) and an 1,100 MW hydroelectric project (Yantan Hydro,Loan 2707-CHA), respectively. These projects are designed to help alleviatesevere power shortages in eastern and southern China. They both were selectedon the basis of least-cost studies (para. 2.15) and will be used to set per-formance standards for large thermal and hydro plants. Both projects arebeing implemented on schedule.

2.17 The fifth power project, initiated in 1987, financed a 1,400 MWhydroelectric project in Shuikou (Loan 2775-CHA). The project is intended tohelp reduce the shortage of generating capacity and energy in the East Chinaand Fujian provincial grids, assist in developing techniques to speed up con-struction of large hydroelectric projects, and promote the integrated opera-tion of a large emerging regional power system. Construction has been under-way since 1987. There were some initial delays due to preparatory works butprogress is increasing and implementation is expected to catch up to theoriginal schedule.

2.18 The sixth power project (the 2x300 MW Wujing Thermal,Loan 2852-CHA), also begun in FY87, will reduce acute power shortages in themetropolitan city of Shanghai and a major load center in the East China powergrid. The project also will support the development of a master plan for amodern distribution network for the city, promote efficiency in the ShanghaiMunicipal Electric Power Bureau, and encourage financial reform through theadoption of appropriate financial performance targets.

2.19 The Bank is currently assisting the Government of China in the managementof a feasibility study for the Three Gorges Hydroelectric Project. With a fore-seeable capacity of 15,000 MW, this would be the largest hydroelectric projectin the world. The final Steering Committee Meeting is scheduled for June 1988.The feasibility study report will be sent to GOC for review after the Committeehas accepted the study.

Rationale for Bank Involvement

2.20 The Bank project would represent a continaation of support for majorelements of the Government's strategy for electric power development. The sixpower projects financed by the Bank so far have successfully introduced inter- Pnational competitive bidding, modern construction techniques, and techriologytransfer in the fields of extra high-voltage transmissioh and construction ofmodern, large hydro and coal-fired thermal power stations. The Bank also hasbeen instrumental in introducing system planning and least-cost investmentmethodologies and helping to strengthen the financial planning and managementcapabilities of the power bureaus. Moreover, the tariff study for the EastChina Power Grid, initiated under the Beilungang Thermal Power Project

(Loan 2706-CHA), provides an analytical framework for a new tariff structurein the East China region (para. 2.10). The Bank recently initiated a secondsector study with the government involving organizational and regulatorypolicies, load forecasting and planning, and a transmission strategy.

2.21 The rationale for financing the proposed project is that rapidsupport is needed to allow for expansion of generating capacity in an areaexperiencing acute shortages. The project also will provide a means for theBank to deepen its involvement in the reform process of power entities inChina by providing a wider range of technical assistance. The assistanceshould focus on improving the management and financial performance of a powerenterprise that the Government has selected as a test case for increasingautonomy.

III. BEtEFICIARY

3.1 The beneficiary of the proposed loan would be the ZhejiangProvincial Electric Power Bureau (ZPEPB). This would be the second Bank loanto ZPEPB (para. 5.4).

A. Legal Status and Organization

3.2 ZPEPB is a st&te-owned enterprise under the direction of the EastChina Electric Power Administration (ECEPA). It is a legal entity withcontractual and self-accounting capabilities. The State has assigned itresponsibility for executing within its jurisdiction the state program forpower generation, capital investment, power sales and tariffs, employment andpayroll, materials consumption, and tax and profit remittances to the state.A charter for ZPEPB which is acceptable to the Bank has been issued.

3.3 ZPEPB is headed by a director who is appointed by MWREP. Reportingto the director are five deputy directors and a chief accountant, respectivelyaccountable for capital construction and materials; production, technicalmatters and safety; power supply, services and rural electrification; person-nel and education; hydroelectric power; and finance. The deputy director forproduction, supply and technical matters also serves as chief engineer.Operations are carried out through 15 departments in the headquarters and35 external units engaged in power generation, distribution, construction,education and repair. Each of these departments and units is headed by a chiefwho reports through the line director to ZPEPB management. Chart 2 presentsthe current structure of ZPEPB.

B. Management

3.4 Under the current institutional framework, within which the centralgovernment maintains a high degree of control over the power sector, ZPEPBappears to be well managed. Recent performance indicators show that ZPEPBhas been expanding steadily, that its fuel efficiency has been improving, andthat its transmission and distribution losses are kept to reasonable levels(paras. 3.27-3.29 and Annex 3). In addition, ZPEPB prepares accountinginformation in a timely fashion (para. 3.15) and maintains an effective

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billing and collection system (para. 3.24). However, the institutionalframework is becoming less centralized and the power bureau is receivinggreater financial autonomy and responsibility for decision-making so ZPEPBneeds to prepare itself to manage this transition. GOC already has decidedthat ZPEPB would be transformed from a power bureau to a power company effec-tive July 1, 1988.

3.5 To successfully carry out this transition, ZPEPB will need toupgrade its management (paras. 3.12 and 3.16) and financial planning capabili-ties (para. 3.13). In particular, managers and administrators need to receivelocal and overseas training in modern concepts of utility management. Theimplementation of modern management methods and the strengthening of financialplanning will require the introduction of a management information system(para. 3.12) responsive to the needs of management as well as the reportingrequirements of the Government. These two components already have been ini-tiated in the training program of Loans 2706-CHA and 2707-CHA.

3.6 ZPEPB is capable of formulating its expansion program and implement-ing 200 MW thermal units and medium-scale hydroelectric projects. ZPEPB isimplementing the second-stage extension of Zhenhai thermal power plant (4 x200 MW) with good progress. (Two 200 MW units were commissioned in 1985 and1986, respectively.) However, for a large project such as Beilungang, outsideassistance will be required for least-cost programming on a regional basis,engineering and design, procurement and coordination among suppliers of dif-ferent packages (para. 5.9).

C. Staffing and Training

3.7 At the end of 1987, ZPEPB had about 33,212 employees, most of themlocally recruited. A small core group of key technical and managerial per-sonnel with formal university education are assigned by MWREP. These staff rep-resent only about 6% of the total staff employed. Most of the workers have fewerthan nine yeacs of formal education. Except for labor contracted to doconstruction work, employees are hired on a permanent basis. As ZPEPB fallsunder the auspices of ECEPA, the two entities face similar problems of train-ing capacity, shortage of teaching staff and facilities and lack of managementskills. Annex 4 shows the training capacity within ECEPA and ZPEPB. ECEPAcurrently has about 3,770 trainees and ZPEPB about 820 trainees. The trainingcapacity is sufficient to meet about 36% of the annual requirements of ECEPAand ZPEPB. Additional facilities would be made available to increase pre-employment and in-service training for engineers, technicians and skilledworkers. A simulator and other new equipment to train operators for thefuture 600 MW units will be procured under Loan 2706-CHA.

3.8 The Education Division of ZPEPB administers four training insti-tutes, including one staff college, one electrical technical school, and twoskilled workers' schools. The purpose of these schools is to train juniorengineers, mid-level technicians, and skilled workers. With three-yearcourses, the Staff College trains employees who have graduated from highschool and have at least two years of practical experience. The HangzhouElectrical Technical School and the two skilled workers' schools (located atHuzhou and Jingde respectively) educate junior high and high school graduates

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for 2-4 years depending on their curricula and background. In 1987, over 400graduated from these four schools; nearly 60% in fields related to power gene-ration, about 30Z in transmission and distribution, and about 10% in capitalconstruction. Specialized training in accounting, finance and managementsciences is limited. Although day-to-day operations of the bureau are ade-quately manned and on-the-job training is commonplace and generally suffi-cient, ZPEPB recognizes the need for training where experience and expertiseare± lacking such as for the proposed project and other new undertakings. Atraining component therefore has been included in Loan 2706-CHA and in theproposed project (paras. 5.5 and 5.14).

D. Planning, Budgeting and Control

3.9 All power bureaus are responsible for developing annual and five-year production and investment plans which are integrated into the nationalplans and are approved, through MWREP's auspices, by SPC. In the past, theseplans have emphasized the planning of quantities of inputs and outputs.Financial planning was confined to attaching monetary values, predetermined byMWREP, to the quantities being planned. Although a power bureau's plan mightbe revised to reflect changes in inputs or outputs arising from changed orunforeseen circumstances, the plans ordinarily would not be revised merely toreflect differences between the prices being assumed for planning purposes andthose actually being paid by a particular power bureau. This planning systemfunctioned effectively in an environment where prices were controlled and wererelatively free of inflation and where investments were financed almostexclusively by grants.

3.10 However, under initiatives taken in the early 1980s, prices havebegun to move, albeit slowly, toward market levels and the government isincreasingly using loans rather than grants to finance investments. There-fore, money is taking on the characteristics of other commodities that need tobe planned, including: (a) possible variations in constituent prices onaccount of nforeseen circumstances, and (b) a cost, payable over a period ofyears, associated with finance for investment. Because of this, MWREP willneed to adjust its planning system to include financial planning.

3.11 Under Loan 2706-CHA, there will be a series of seminars and overseasstudy tours for financial planning and management. Recognizing the importanceof financial management in the power subsector in China, MWREP has decided toorganize a comprehensive training program for all power bureaus and otherentities under its control. MWREP already has begun to make adjustments tothe planning, budgeting and control systems. As the power bureaus have grownlarger and technically more complex and the scope of their businesses hasexpanded, the manual systems that had been used to compile plans, budgets, andcontrol accounts have became increasingly unwieldy. MWREP provided many ofthe bureaus with small computers to be used for planning, budgeting andcontrol accounting purposes and the software needed for them to present therequired statements in standardized formats. Information stored on computerdiskettes would then be transferred to MWREP where it would be consolidatedinto regional and national data.

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3.12 In conjunction with the appraisal of the Yantan HydroelectricProject (Loan 2707-CHA), the Bank retained a consultant to assess the impactof changes in the planning, budgeting and control accounting systems intro-duced by MWREP. The consultant concluded that the new systems represented agood first generation of automated management information; however, they stillwere not sufficiently flexible to take into account price changes at the locallevel or large-scale debt service obligations. Under the proposed project,the technical assistance will be provided for ZPEPB to: (a) review andexamine the existing information system within and among different depart-ments/units, and identify constraints to the effective dissemination of infor-mation; and (b) recommend an MIS system suitable for ZPEPB aiming at an effi-cient long- and short-term utility corporate planning system (para. 5.12).

3.13 While working towards the development of this management informationsystem (para. 5.12), MWREP has agreed to introduce a rudimentary financialplanning system for those power bureaus implementing Bank-financed projects.For the Lubuge Hydroelectric Project (Loan 2382-CHA), the Bank furnished MWREPwith a long-term financial forecasting model which allowed the power bureausto study the impact o- their expansion plans and variations in prices on theirfuture financial positions. MWREP continues to use this model successfully inpreparing projects for appraisal by the Bank. The model also forms the basisfor the rudimentary financial plans which the bureaus are to provide to theBark each year. Assurances have been obtained from ZPEPB that, byDecember 31st of each year commencing December 31, 1988, ZPEPB will furnish tothq Bank a rolling financial plan containing projected income statements,sources and application of funds, and balance sheets for the next eight years.

E. Accounting

3.14 Each of ZPEPB's operating departments maintains financial accountswhich are consolidated with those of all other ZPEPB opera;jng departments.Only the construction units maintain independent accounts.- Accounts for allunits are prepared on an accrual basis using a double entry system. MOFestablishes the regulations governing the presentation of financial accountsfor all sectors. These regulations cover matters such as accounting methodsand procedures; form of accounts; procedures for distribution of net incomeand depreciation; taxation; allocations to and use of proceeds from SpecialFunds; etc. MOF reviews the regulations and corresponding accounting stan-dards on an ongoing basis. These regulations and standards are supplementedby detailed implementation procedures issued by MWREP.

2/ As these construction units are under MWREP's jurisdiction and have onlyan arms-length relationship with ZPEPB, this accounting treatment is cor-rect. However, since ZPEPB's investments have been financed with grantsthat were disbursed directly to the construction units, traditionalChinese accounting substantially understates ZPEPB's construction work inprogress. For presentation to the Bank in connection with appraisal ofthe proposed project, ZPEPB included construction work in progress, takenfrom the accounts of the construction units, on its balance sheet for theperiod 1981-86 (Annex 21).

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3.15 ZPEPB's operating departments prepare accounting information ina timely fashion once a month; headquarters compiles consolidated accountsmonthly, quarterly, and annually. Although the operating departments furnishconsiderable data to headquarters in connection with their monthly accounts,much of this data is lost in the consolidation process. However, the operat-ing units themselves exercise some control over operating costs and conductsimple variance analyses to ascertain why costs vary from planned levels whenthis occurs.

3.16 ZPEPB has an extensive accounting staff weLl trained in maintainingledgers and compiling accounts according to standard. However, the accountsare used primarily to document historical financial information, so ZPEPB isonly beginning to develop other analytical financial skills. As it modernizesits financial management practices, ZPEPB staff will have to learn modernmanagement techniques and corporate planning. A technical assistance compo-nent for a study on the improvement of utility management has been included inthe proposed project (para. 5.12 and Annex 13).

F. Audit

3.17 Before 1982, the financial statements of organizations in China werenot subjected to comprehensive audits. Entities such as MOF, the line minis-tries, tax bureaus, provincial financial bureaus, and banks conducted individ-ual checks to meet their particular needs. None of them prepared independentreports on the accuracy or reliability of their annual financial statements.China had no professional body of auditors to prescribe auditing standards orregulations.

3.18 With the ratification of China's new Constitution by the People'sCongress in December 1982, this situation changed. A State Audit Administration(SAA) w5s established in September 1983 and given the status of a ministryreporting directly to the State Council. Provincial audit bureaus also arebeing established in each province and municipality (large cities). MOF hasbeen responsible for establishing the audit bureaus and has drafted regula-tions and standards based on international auditing practices in other coun-tries. These interim regulations have been promulgated by the State Council.

3.19 To date, SAA's Foreign Investment Audit Bureau has been conductingthe audits of Bank-financed projects; it focuses particularly on audits ofenterprises or undertakings with foreign participation in the form of equityor loan financing. SAA's staff have been receiving training financed underthe Technical Cooperation Credit of the Bank.

3.20 The Zhejiang Provincial Audit Bureau (ZPAB) was established inDecember 1983. Under the proposed project, ZPEPB's annual accounts will beaudited by ZPAB under the overall supervision of SAA. This arrangement issatisfactory. Assurances have been obtained from ZPEPB that it will furnishthe Bank annual financial statements, certified by an acceptable auditor,within six months from the end of each fiscal year.

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Internal Audit

3.21 ZPEPB has an internal audit staff who periodically conduct spotchecks and once a year examine the accounts of each operating unit. ECEPAstaff also may perform occasional spot checks of the accounting records of themember bureaus. The purpose of these examinations primarily is to test ioraccuracy and compliance with MOF regulations. The internal audit unit doesnot review the appropriateness of accounting regulations and procedures; suchreviews are considered to be the respective responsibilities of MOF and MWREP.The training of ZPEPB' s internal audit staff will be provided through thefinancial management training under Loan 2706-CHA (para. 5.14).

G. Tariffs

3.22 Electricity tariffs have not been changed since 1962 (Annex 6).Under the tariff structure, large industrial consumers pay both a demandcharge, based on maximum demand or capacity of the installed transformer, andan energy charge based on consumption. All other consumers pay only an energycharge. Domestic customers pay 15 fen or about USC4.1 per/kWh. This rate isabout twice as high as ZPEPB's average revenue per kWh (8.5 fen or aboutUS¢2.3). Agricultural and large industrial consumers pay an energy charge ofabout 7.5 fen/kWh (USC2.0/kWh), or about 88X of the average revenue. Domesticconsumers do not pay a connection charge to ZPEPB but must provide their ownmeter and internal wiring. Industrial consumers pay connection charges, whichinclude the cost of substations, distribution lines, and service droos.Electricity tariffs for ZPEPB are shown in Anne AC. TI P$Altion, allthe consumers living in the urban area pay a local government tax of about 10Zof the electricity bill. Industrial and commercial consumers with the excep-tion of a few industries which are operated at a loss pay 2 fen/kWh directlyto the local government for the construction of new power stations.

H. Billing and Collection

3.23 At the end of 1987, ZPEPB had 925,277 customers divided into fivecategories: heavy industrial, light industrial, agriculture, transportation,and municipal. The categories are depicted in Table 3.1.

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Table 3.1: DISTRIBUTION OF ZPEPB's CONSUMERS(As of December 31, 1987)

No. of consumers Consumptionz (GWh z

Heavy industrial 21,811 2.3 5,923 37.5Light industrial 65,580 7.1 3,219 20.4Agriculture 370,907 40.1 5,241 33.2Transportation 2,743 0.3 67 0.4Municipal 464,236 50.2 1,341 8.5

Total 925,277 100 15,791 100.0

Municipal consumers represent the largest number of customers but they onlyconsume 8.5% of sales. This category consists of households or establishmentsbeing served by ZPEPB's own municipal offices. In some cases, this includesmunicipalities purchasing power in bulk from ZPEPB for distribution andretailing under their own auspices. More often, it includes domestic house-holds, commercial enterprises, public service establishments such as schoolsand hospitals, and specific municipal users such as public transportationsystems and street lighting.

3.24 ZPEPB conducts its billing and collection activities through79 district offices. All industrial consumers are charged in advance threetimes per month at 10-day intervals based on estimated usage derived fromtheir production or sales plans. At the end of the month, meters are read andadjustments to reflect actual usage are included in the first bill for thefollowing month. Industrial and commercial consumers are all metered indivi-dually. Low voltage customers, are billed once a month based on actual usage.Many households are metered individually; however, some domestic consumptionis metered at the apartment building level and the charge is distributed amongresidents by internal arrangement. Agricultural consumption is generallymetered at ZPEPB's lowest voltage step down transformer serving the particularcommune; the commune arranges appropriate distribution of the charges amongindividual farmers.

3.25 Industrial and commercial consumers pay their bills through directdebit to their bank accounts. Domestic and agricultural consumers renderpayments to meter readers who return to metered premies about three daysafter presenting the bill. Consumers are responsible for paying at ZPEPBoffices amounts due that were not collected by meter readers. Regulationsstipulate that consumers with unpaid amounts outstanding are disconnectedafter ten days; because this regulation is enforced, consumers very rarelyallow themselves to fall into arrears. Any nonagricultural consumer isrequired to pay a charge for reconnection. These arrangements have estab-lished a reliable cash flow from sales and reduced ZPEPB's net accountsreceivable to an unusually low level. At the end of 1987, they were aboutY 45 million on sales of Y 1,208 million, which is satisfactory.

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I. Insurance

3.26 Until recently, insurance coverage was not available from thedomestic insurance industry; instead, ZPEPB relied on self-insurance. TheBureau purchases fleet insurance for its vehicles and fire insurance for itswarehouses since these are now available and required under the law. ZPEPB isliquid enough to self-ensure all of its assets adequately against normallevels of risk. However, as agencies such as the People's Insurance Companyof China are now making commercial coverage available, ZPEPB intends toconsider purchasing commercial insurance, particularly for public liability.The Bureau's current insurance arrangements are satisfactory.

J. Distribution System

3.27 ZPEPB's primary distribution system operates at the 1 kV, 10 kV and35 kV voltage levels. Unfortunately, the power shortages in China havefocused attention on generation projects and transmission projects at the110 k7 level and above. When extensions to the distribution network have beenthe :esponsibility of the municipal or local governments, this activity hasoften been neglected owing to a lack of funds.

3.28 Accurding to ZPEPB, system losses have been averaging less than1OZ. This level would appear reasonable compared with that of other countriesin the region; however, the modest level of measured losses appears suspect inview of the inattention given to investment in distribution. In fact, becauseZPEPB sells a very significant percentage of its power in bulk to industrial,agricultural, and municipal consumers, the system has a lot of room for unmEa-sured losses. While consumers currently are bearing the financial cost ofthese losses, unmeasured losses still neRd to be brought under control ifconsumers are to enjoy the full benefits of ZPEPB's extensive investment ingeneration and transmission.

3.29 An aging distribution system and unmeasured system losses mightrepresent problems that are neither fully understood nor peculiar to ZPEPB.The Bank is discussing with MWREP opportunities for all parties to acquire afirmer grasp on system losses and distribution requirements. This projectincludes a study for extending and improving the distribution network in thecities of Hangzhou and Ningbo. Assessing distribution losses in the ruralarea and methods of reducing such losses will be addressed in that study.

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IV. THE POWER MARKET AND THE PROGRAM

A. The East China Power System

4.1 The East China Power System (ECPS) covers the three provinces ofJiangsu, Anhui, and Zhejiang and Shanghai municipality, with a combinedpopulation of 168 million. The total installed capacity of the East Chinaregion was about 16,460 MW in 1987, consisting of about 14,270 MW of thermalcapacity (87X) and 2,190 MW of hydro capacity (13X). The major generatingstations are listed in Annex 7. The system peak load and energy generation in1987 were 12,850 MW and 90,700 GWh, respectively. Only 5,439 GWh, or about6X, was generated from hydroelectric resources.

4.2 A study of the system balance between capacity and demand for 1987indicates that both hydro plants and thermal plants were derated. Hydroplants were derated by about 300 MW due to a shortage of water during the dryseason, and thermal plants were derated by 330 MW due to equipment troublesand adverse weather conditions, etc. About 1,100 MW was out of operation ascold standby for small and old units or because of oil-fired units beingconverted to coal-fired. Furthermore, some units had to be shut down forscheduled maintenance. As a result, the total dependable capacity of thesystem in 1987 waG only 12,952 MW, to serve a peak of 12,850 MW.

4.3 At present, 500 kV is the highest transmission voltage level in ECPSwith a total length of about 699 km. The total length of 220 kV transmissionlines was 8,272 km at the end of 1987 and the total capacity of 220-kV step-down transformers was 13,415 MVA, (fo, FCPS main grid only) involving 77substations. A network of 500 kV transrnisL ,'n lines is being implemented instages (see Map 1).

4.4 There are four load dispatching centers in the East China grid:Shanghai, Hangzhou, Hefei, and Nanjing. Shanghai is under the supervision ofECEPA and has overall responsibility for transferring power between the threeprovinces and the municipality. The centers of Hangzhou (in Zhejiang), Hefei(in Anhui) and Nanjing (in Jiangsu) control the operation of generatingstations, and transmission and subtransmission systems within their respectiveprovinces. Power is transferred between provinces on the basis ofavailability and the relative costs of energy generation.

B. The Zhejiang Power Grid

4.5 Zhejiang province includes 9 municipalities and 67 counties andextends about 435 km from north to south and 405 km from west to east. Thetotal installed capacity of the system in 1987 was 3,821.2 MW. Of this,2,055.8 MW or 53.8% was thermal-based and 1,765.4 MW or 46.2% was hydro-based. The totai energy generation of the province in 1987 was 16,700 GWh(Annex 8).

4.6 Table 4.1 shows the growth rates in peak demand and energyrequirements of the ECPS and ZPEPB power grids over the past 18 years, from1970-1987. ZPEPB has a higher growth rate because of its relativelv small

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base and the rapid growth in municipal and industrial (light and ruralindustries) uses.

Table 4.1: HISTORICAL LOAD GROWTH

Energy Generation andPeak Demand (MW) /a Energy Purchased (CWh) /a

Year ECPS ZPEPB ECPS ZPEPB

1970 3,224.6 (486.6) 20,315.0 3,1171971 3,519.7 (568.5) 24,497.0 3,8921972 3,852.2 (575.6) 26,800.0 4,2721973 4,335.7 (641.5) 30,350.0 4,7771974 4,268.9 (607.2) 29,370.0 4,2801975 4,985.1 (711.6) 33,400.0 4,5091976 5,180.0 (682.1) 36,260.0 4,8891977 5,658.6 (815.7) 39,610.0 6,0061978 6,175.5 (908.3) 45,699.0 7,1761979 7,071.3 (1,081.8) 50,206.0 8,0141980 7,380.1 (1,081.2) 53,875.0 9,0741981 7,770.4 (1,224.4) 55,947.0 9,8111982 8,306.1 (1,291.6) 58,973.0 10,475i983 8,874.7 (1,422.2) 63,011.0 11,6691984 9,400.0 1,920.0 68,075.0 12,9041985 10,400.0 2,150.0 74,431.0 14,4841986 12,400.0 2,400.0 81,741.0 16,0981987 12,850.0 2,900.0 90,700.0 18,510

Average rate ofgrowth (Z p.a.) 8.5 10.2 /a 9.2 11.0

/a Based on the region or province as a whole, except peak demand for ZPEPBfrom 1970 to 1983 which was for ZPEPB's system only.

4.7 Of the 15,791 GWh of energy consumed in Zhejiang province in 1987,57.91 was consumed by industrial users, 33.2Z by rural users (of which about19.8X were rural industries) and 7.8X by transportation and municipal users.Annex 9 presents details of energy consumption by category of user betw-oen1981 ani 1987.

C. Load Forecast

4.8 As part of the planning process carried out by ZPEPB, load forecastswere developed by applying a combination of statistical methods and planningtargets to every major consumer category. Industrial loads were estimated onthe basis of a market survey and analysis of projected industrial products andunit consumption per product for different categories of industries. Ruralloads were estimated based on past growth trends for drainage and irrigation

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loads, rural industrial loads, and lighting. Municipal loads were estimatedbased on market surveys of hotels, buildings, and government projects to beput into operation over the next decade. Population growth and increasing useof home appliances were taken into consideration in estimating residential andcommercial loads. Transportation loads, which are relatively small, wereestimated according to past growth trends for airports and railway stationsand the projected load for railroad electrification. Table 4.2 presents theresulting forecasts for peak demand and energy requirements for ECPS and ZPEPBfor the period 1988-1995.

Table 4.2: LOAD FORECAST (1988-1995)

Peak Demand (MW) Energy Requirement (GWh)Year ECPS ZPEPB ECPS ZPEPS

1987 (Actual) 12,850 2,900 90,700 18,5101988 15,100 3,200 101,500 20,4001989 17,100 3,500 11?,000 22,5001990 19,000 3,850 125,600 24,8001991 21,000 4,250 137,000 27,3001992 23,100 4,700 150,000 30,0001993 25,300 5,200 163,500 33,0001994 27,400 5,8Q0 176,500 36,1001995 29,650 6,400 191,000 39,800

Average rateof growth (X p.a.) 11.0 10.4 9.8 10.0

4.9 The peak demand for ECPS would increase from 12,850 MW in 1987 to29,650 MW in 1995; energy generation would increase from 90,700 GWh to 191,00GWh. These figures represent average annual growth rates of 11.0% and 9.8Z,respectively. Peak demand and energy generation for ZPEPB would increase from2,90!) MW to 6,400 MW and from 18,510 GWh to 39,800 GWh, respectively, growingat ainual rates of 10.4% and 10.0%.

4.10 This forecast was considerably higher than the original forecastconducted in 1985 during the appraisal of Beilungang Thermal Power Project(Loan 2706-CHA). The increase is attributed to the rate of growth of actualdemand during the last three years. The current forecast is reasonableconsidering that: (a) East China is one of the most prosperous areas in Chinawith many important industries and a booming economy which accounts for almosta quarter of China's gross national product; (b) a number of large users (suchas hotels and certain industries) will be put into operation over the next fewyears; and (c) technical modernization is intensive in the region and islikely to make wider use of electri- power than other forms of energy.

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D. The Power Development Program (1987-1995)

4.11 East China is short of natural energy resources. The Shuikou(1400 MW) project, which is being built in Fujian province under Loan2775-CHA, is the only sizable conventional hydro project located within theregion that is capable of providing peaking capacity to the system. Futuredevelopment will depend primarily on coal-fired thermal power stations locatedat mine mouths or near ports and load centers which use coal from Shanxiprovince.

4.12 WREPERI, with the assistance of IAEA, conducted a long-range powerdevelopment optimization study for the East China power system (para. 2.9)under the Beilungang Thermal Power Project (Loan 2706-CHA). This study wasfurther reviewed an$ revised under Loan 2775-CHA for the Shuikou HydroelectricProject. Both studies demonstrated that the Beilungang Thermal Power Project,with four 600 MW units to be commissioned between 1990 and 1993, forms part ofthe system's least cost expansi-n program. The details of ZPEPB's developmentprogram are presented in Annvx 1(0. The balance of ZPEPB's system loads andcapabilities is presented in Ax;nex 11, which indicates that the system will beshort of dependable capacity anc e.iergy up to 1990. Only after the first unitof the Beilungang project is compLeted, at the end of 1990, will the system'sdependable capacity exceed peak demand and adequate reserves be built upgradually over the following years. As for energy, the system will barelymeet the requirement after the Beilungang second unit comea into operation.The Beilungang thermal plant therefore is a key base load plant both for ECPSand ZPEPB. The program is acceptable to the Bank.

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V. THE PROJECT

A. Project Objectives

5.1 In the past, shortfalls in electric generating capacity have been amajor constraint to China's economic growth. This situation is likely tocontinue in the near term unless changes are made. The Government of Chinagives high priority to electric power development and has a strategy thatcombines (a) expanding generating capacity by developing coal-fired thermalstations at mine-mouths and near ports and load centers;, and accelerating thepace of hydroelectric development; (b) increasing the financial and managementautonomy of the power buresus; (c) introducing a more rational pricing system;(d) adopting modern techniques in project design and system planning includingenvironmental aspects; (e) constructing extra high voltage transmission linesfor interconnection between regions; and (f) replacing low-pressure mediumsized (50-100 MW) thermal units with higher pressure 300-600 MW units andconverting oil-fired units to burn coal. The proposed project would reflectthe basic conception of these policies.

5.2 The objectives of the proposed project are to: (a) alleviate theacute power shortage of a major load center in East China; (b) support thenational policy of developing large coal-fired thermal power generating unitsto make effective use of China's abundant coal reserves; (c) continue theeffort to introduce modern technology in plant design and constructionmanagement of 600 MW thermal power units; and (d) provide technical assistanceto ZPEPB for reorganizing its operations and strengthening its management.This assistance will facilitate its transformation from a power bureau to amore autonomous power entity.

B. Project Description

5.3 The proposed project is located about 25 km east of the city ofNingbo in the Jiantang Strait of the East China Sea. It is situated on a sitewith favorable topographical conditions and easy access by sea, railroad andhighway. Fresh water will be supplied from an existing reservoir about 8.5 kmaway and cooling water will be taken directly from the sea. Coal will besupplied from the Datong and Xiaoyu mines in North Shanxi and transportedthrough the Daqin double-track electrified railroad to the port ofQinhuangdao, then transhiped to the site by 35,000-50,000 DWT ships. The siteis large enough to support the ultimate development of four 600 MW units.

5.4 The proposed project would be the second project involving theBeilungang Thermal Power Plant. The first project, which was approved by theBank on May 29, 1986 (Loan 2706-CHA), is under construction. All thepreparatory and piling works have been completed. Works are under way for thebuilding foundations, chimney, wharf, and dykes for the ash disposal pond.The procurement of plant equipment is about 90% complete. The project isproceeding on schedule.

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5.5 The proposed project would comprise:

(a) extension of the Beilungang Thermal Power Plant by adding a secondunit of 600 MW at a site being developed;

(b) construction of the second single circuit of 500 kV transmissionline (145 km) and extension of Pingyao substation;

(c) provision of consulting services for engineering, procurement, andreview of design drawings and interfacing among various packages ofequipment;

(d) a study for ZPEPB's reorganization and management improvement;

(e) a study for extending and improving the distribution networks forthe cities of Hangzhou and Ningbo; and

(f) a training program.

Beilungang Thermal Power Plant Extension

5.6 It was originally expected that the second unit would be financedout of bilateral/export credits or commercial bank loans, possibly in associa-tion with a Bank "B" loan. During the procurement of the first unit, bidderswere asked to offer an option bid on a cash basis for the second unit withoptional financing offer. However, the results of bidding on the second unitdid not produce financial packages that were any more favorable than whatChina was obtaining under other power projects without Bank assistance. Theexternal debt situation for the power subsector as a whole in 1987 was verytight; the Government is financing ten other thermal power projects in theSeventh Five-year Plan with about US$1.5-1.8 billion in supplier's credits(Annex 12). As a result, the Government has "clamped-down" on furthersupplier's credit borrowing in the sector. During the annual review meetingwith the Bank in October 1987, the Government of China requested the Bank'sassistance for financing the second unit.

5.7 Some common facilities such as the wharf, intake, inlet anddischarge conduits, and water treatement plant are being implemented under thefirst unit; therefore, works involved for the second unit would include only:

(a) civil works including an additional pumping house for circulatingwater, a chimney, and foundations and buildings for the power block;and

(b) electrical and mechanical equipment for the second unit includingboiler island, turbine-generator island, extension of two beltconveyors for the coal handling system, ash disposal facilities,instrumentation and control island, electrical equipment for plantuse and other necessary auxiliaries.

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Transmission System

5.8 A second single circuit of 500 kY transmission line would beconstructed in parallel with the first circuit about 145 km in length. Noextension would be required at the switchyard and the substation at Shaoxin.However, the substation at Pingyao would have to be extended by adding onemore 500/230 kV step-down auto-transformer and some high voltage switchgear.

Consulting Services

5.9 Following the implementation of the first unit, the need forconsulting services for the proposed project would be greatly reduced. ZPEPB,with the assistance of the East China Electric Power Design Institute(ECEPDI), would be able to carry out the conceptual design, cost estimate, andrevision of bidding documents by themselves. However, consulting servicesstill would be required in some areas in order to meet the tight constructionschedule and to obtain a well-coordinated plant for operational economy andefficiency. These include:

(a) assistance in bid evaluation and preparation of an evaluationreport;

(b) assistance in foundation design and coordination and interfacing ofengineering and design for different islands; and

(c) assistance in the review of venders' drawings.

5.10 The cost of these services is estimated at US$2.3 million.

5.11 Ebasco of the U.S. is now providing consulting services for thefirst unit; it will be retained for these additional services because of itsfamiliarity with the project and its satisfactory performance to date.

Technical Assistance for Institutional Building

5.12 GOC is reorganizing the power subsector in China and plans to beginchanging ZPEPB into a power company as one of the first test cases forincreased autonomy. ZPEPB has agreed to carry out a study under the proposedproject for reorganizing its operations and strengthening its management withthe terms of reference (Annex 13) and time table agreed with the Bank. Assur-ances have been obtained that ZPEPB will exc.hange views with the Bank on theprogress and the findings of the study. The proposed project would allow theBank to deepen its involvement in the reform process of power entities inChina by providing a wider range of technical assistance focused on ZPEPB'sreorganization and management improvement. The assistance would includespecialists from the Bank or independently-engaged experts in power utilitymanagement to carry out the following tasks.

Managerial Autonomy and Accountability

(a) Clarify the roles and responsibilities of ZPEPB regardinginvestment, finance, pricing, employment and procurement;

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(b) Recommend appropriate capital structure policies in view of ZPEPB'sability to borrow in financial markets in the future;

(c) Recommend possible types of corporate form and ownership;

(d) Recommend ways/mechanisms for governing ZPEPB;

Modern Management Organizations, System and Procedures

(e) Recommend improvements and changes in the performance evaluationindicators, the monitoring procedures to be used by the managementand by the regulatory bodies;

(f) Recommend improvements in its organization, structure, managementsystem/procedures, delegation of authority, role clarity andmanagement effectiveness, incentive system, recruitment andpromotion policies, training etc. to improve ZPEPB's performance,promote more efficient operations and develop more autonomy;

(g) Recommend a more efficient long and short term utility planningsystem (incorporating investment, manpower, financial resources andmaterials, etc. into an overall corporate plan;

(h) Recommend a suitable MIS system for ZPEPB; and

(i) Recommend an implementation schedule and a staff training programfor this implementation.

Distribution Network Study

5.13 The distribution network for the cities of Hangzhou and Ningbo iscrowded and out of date. Both systems have to be improved and extended tosatisfy rapid system growth. The same kind of study will be carried out forthe metropolitan city of Shanghai under the Wujing Thermal Power Project(Loan 2852-CHA). During appraisal, it was agreed that ZPEPB's planning staffinvolved in the study will be trained together with the staff of the ShanghaiMunicipal Electric Power Bureau (SMEPB) under the consulting services of thedistribution network study for Shanghai. Actual works will be carried out byZPEPB's staff and will include basic data collection, zoning of areas, loadprojection for each area, optimization of voltages, and distribution networkplanning. Terms of reference are given in Annex 14.

Training

5.14 The training of operation and maintenance staff for the second unitwould be carried out in accordance with the program being implemented for thefirst unit, using facilities available in China and those procured underLoan 2706-CHA. No duplication would be required for other components of thetraining program such as management and financial planning, as they are beingcarried out or planned under Loan 2706-CHA.

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C. Cost Estimate

5.15 The estimated cost of the project is summarized in Table 5.1. Thecost estimates are made at end 1987 prices and are based on the contractprices of the first unit and other recent tendering information for 600 MWunits in China. Unit costs for civil works are based on cost data obtainedduring the implementation of the first unit. Physical contingencies arecalculated at 4.5 for the foreign costs of plant equipment and transmissionfacilities, and at 1OX for civil works and other local costs. The priceescalation for costs expressed in terms of the foreign exchange (US dollars)is calculated according to anticipated international price movements of 3.0Xp.a. for 1988-90, and 4.0% p.a. for 1991 and thereafter. The price escalationfor costs expressed in local currency is calculated according to projectedlocal inflation rates of 8.0% p.a. for 1988, and 7.0% p.a. for 1989 and 6.51p.a. for 1990 and thereafter. Detailed project cost estimates are provided inAnnex 15.

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Table 5.1: SUNMARY OF PROJECT COSTS /a

Foreigncost as Z

Local Foreign Total Local Foreign Total of total…-----(Y mln)------- -------…-----(US mln)-------------

Civil works 97.7 - 97.7 26.4 - 26.4 -Plant equipment And

materials 45.9 577.6 623.5 12.4 156.1 168.5 93Transmission system 69.5 - 69.5 18.8 - 18.8 -Distribution network study 1.8 1.5 3.3 0.5 0.4 0.9 44Technical assistance forinstitutional building 1.9 1.8 3.7 0.5 0.5 1.0 50

Training 4.4 - 4.4 1.2 - 1.2 -Consulting services 4.1 8.5 12.6 1.1 2.3 3.4 68Supervision 30.0 - 30.0 8.1 - 8.1 -

Total base cost 255.3 589.4 844.7 69.0 159.3 228.3 70

ContingenciesPhysical 25.9 21.1 47.0 7.0 5.7 12.7 45Price 61.1 115.8 176.9 6.9 13.0 19.9 65

Total Project Cost 342.3 726.3 1,068.6 82.9 178.0 260.9 68

Interest during ConstructionIBRD loans - 80.3 80.3 - 21.7 21.7 100Local bank loans 26.3 - 26.3 7.1 - 7.1 -

Total Financing Required 368.6 806.6 1,'75.2 90.0 199.7 289.7 69

/a The base cost and physical contingency (at end 1987 prices) have been calculatedusing an exchange rate of Y 3.70=US$1.

Note: 1. The project would be exempted from import duties and taxes.

2. Total physical contingencies are about 5.6% of the base cost; local andforeign price contingencies are about 9.1% and 7.9% respectively of thebase cost plus physical contingencies, when expressed in US dollars.

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D. Financing Plan

5.16 The financing plan for the project is shown in Table 5.2.

Table 5.2: FINANCING PLAN

Local Foreign Total(US$ million) --------

IBRD - 165.0 165.0Provincial Govt. loan 54.1 - 54.1PCBC loan 35.9 34.7 70.6

Total 90.0 199.7 289.7

5.17 ZPEPB has requested the Bank's support in seeking grant funds tofinance the technical assistance for institutional building and a distributionnetwork study. In case such aid would not materialize, an amount of US$0.9million is provisionally provided in the loan amount. The proposed Bank loanof US$165.0 million would therefore be used to finance the base cost andphysical contingency of the foreign cost of the following components:

(a) Boiler island package;

(b) Turbine-generator island package;

(c) Belt conveyors for coal handling system;

(d) Ash disposal system package;

(e) Instrumentation and control package;

(f) Electrical equipment for plant use;

(g) Consulting services;

(h) A study on the improvement and extension of the distributionnetworks for the cities of Hangzhou and Ningbo; and

(i) Technical assistance for a study on ZPEPB's reorganization andmanagement improvement.

5.18 Financing of the remaining foreign exchange components--interestduring construction and price contingencies (US$34.7 million)--and part of thelocal costs (US$35.9 million equivalent) would be obtained from the People'sConstruction Bank of China (PCBC) at 3.6Z p.a. interest. The loan would be

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repaid over 15 years, beginning after the project is completed. The balanceof the local cost of about US$54.1 million is expected to be financed by aloan from the Provincial Government.

5.19 The proposed Bank loan would be made to the People's Republic ofChina at the standard variable interest rate for a 20-year term (including5 years grace for repayment of principal). Assurances have been obtained from theGoverment that it will onlend the proceeds of the proposed Bank loan to ZPEPB undera subsidiary loan agreement with a 20-year term (including 5 years ot gracefor repayment of principal) at a variable rate equal to that of the Bank withno premium. ZPEPB would bear the commitment charges and the foreign exchangerisk. A Project Agreement will be concluded between Bank and ZPEPB. Execu-tion of a subsidiary loan agreement satisfactory to the Bank and approval ofthe Loan Agreement by the State Council would be conditions of effectivenessof the loan.

E. Procurement

5.20 Equipment and materials financed under the proposed Bank loan willbe procured through international competitive biddings (ICB) in accordancewith the Bank's Procurement Guidelines except two belt conveyors for the coalhandling system and the instrumentation and control package. Because of thesmall amount involved (US$0.6 million), the Bank has agreed to have the beltconveyors be procured by extending the existing contract concluded under thefirst unit of the Beilungang Thermal Power Project (Loan 2706-CHA). Due totechnical and safety reasons and the consideration of the economy and effi-ciency, the Bank has also agreed that instrumentation and control package(about $8,000,000) will be purchased by direct contracting from the previoussupplier who was selected under ICB procedures for procurement of the firstunit. Items such as testing instruments estimated to cost less than $300,000per contract, up to an aggregate amount not to exceed $1,000,000 may be pro-cured through limited international bidding.

5.21 Domestic preference, following Bank guidelines, will be applicablefor selected goods in the evaluation of bids, provided that the domesticmanufacturers can meet the experience requirement specified in the biddingdocuments. The margin of preference will be 15% of the CIF price of importedgoods or the prevailing custom duties and other import taxes, whichever islower.

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5.22 Procurement arrangements are summarized in Table 5.3 below:

Table 5.3: PROCUREMENT ARRANGEMENTS

Procurement method TotalItem ICB LIB Others a/ N.A. Cost

-------- (USS million) --------------

Civil works - 28.8 - 28.8

Ptant eQuipment and materials 180.0 1.0 14.9 - 195.9(160.2)/b (1.0) (0.6) (161.8)

Transmission system - 22.8 - 22.8

Distribution network study - 0.9 - 0.91 (0.4) (0.4)

Technical assistance - 1.0 - 1.0for institutional building (0.5) (0.5)

Consulting services - 3.4 - 3.4(2.3) (2.3)

Supervision - - 8.1 8.1

Total 180.0 1.0 71.8 8.1 260.9(160.2) (1.0) T3.8) (165.0)

aI Other methods include goods to be procured within the country, civilworks and equipment erection to be executed by ZPEPB or its contractors,studies, and consulting services.

b/ Figures in parentheses are the respective amounts financed out of theproposed Bank loan.

5.23 Procurement documents for all bidding packages on goods financed bythe Bank and estimated to cost over US$1.0 million equivalent would be subjectto the Bank's prior review; this covers six major procurements to be financedout of the Bank loan.

F. Project Implementation

Status of Project Preparation

5.24 Since this is an extension pyoject, all the land needed for theproject already is available. Most of the common facilities have beencompleted. The bidding documents for the boiler package and turbine-generatorpackage which had been revised by incorporating lessons learned from the pro-

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curement of the first unit were issued on February 13, 1988. Bids were openedon April 25, before loan negotiations and are still under evaluation.

5.25 Chart 3 gives the implementatior. schedule for the various componentsof the project. Key dates of project implementation are given in Annex 16.Piling will be started in January, 1989 and foundation excavation in June,1989. Forty-two months would be targeted for the commissioning of the secondunit by mid-1992. The project completion date would be June 30, 1992 and theclosing date of the Bank loan would be June 30, 1993.

C. Disbursement

5.26 The Bank loan would be disbursed against: (a) 100% of the foreignexpenditures for directly imported equipment and materials quoted on CIFbasis; (b) 100% of local expenditures ex-factory for locally manufactureditems; (c) 75% of the cost of other items procured locally; and (d) 100% ofexpenditures for consulting services and technical assistance. For expendi-tures relating to services and contracts for goods valued at less than$200,000 equivalent, reimbursement would be made on the basis of statements ofexpenditures. Documentation supporting such expenditures need not besubmitted to the Bank but should be retained in the ZPEPB office in Hangzhouand made available for review by the Bank's supervision mission. To facili-tate disbursements under this project, a Special Account with an authorizedallocation of $6.0 million, representing approximately four months' averageproject expenditures, would be established. Applications for replenishmentwill be submitted quarterly or when the amounts withdrawn equal 50% of theinitial deposit, whichever comes sooner.

5.27 Annex 17 gives the disbursement schedule for the proposed Bank loanas well as a Bank-wide profile of disbursements for power projects. Since theBank loan will be used to extend ongoing project for which most of thepreparatory works and common facilities were completed during the constructionof the first unit and for which procurement is well underway, the implementa-tion period for the second unit is expected to be shorter than that forconventional projects where the site is to be developed. The disbursementstherefore are expected to be faster, scheduled for five years instead of theBank-wide profile of seven years.

H. Monitoring and Reporting

5.28 Satisfactory procedures for financial reporting have been agreedfor use in monitoring the progress of the project (paras. 3.13 and 3.20).Quarterly progress reports on project execution and a project completionreport will be submitted by ZPEPB.

I. Environmental Considerations

5.29 The Beilungang site is located in one of the less populated ruralareas along the sea coast with a population density of about 2,500 and within1 km and 37,500 within a 5 km radius. The land around the site is primarilyused "or paddy fields, and to grow vegetables and cotton. The prevailing winddirection is northwest and north-northwest in the winter months and east-

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southeast in the summer months. The city of Ningbo is located 23 km west-southwest of the Beilungang site and the city of Zhenhai is located 14 km westof the site. It is therefore favorable for flue gas diffusinn.

Environmental Impact

5.30 An environmental impact report has been reviewed and approved by theZhejiang Provincial Environmental Protection Bureau. Full support for theproject has been obtained from the local government as well as the residentpopulation. The design of the project has taken into account the requirementthat the environmental impact on the operation of the station not exceed theinternationally accepted norms, particularly in the following aspects.

5.31 Air quality. The coal to be used for the plant would be of highquality, with an ash content of about 20% and a sulfur content of less than1%. Employing electrostatic precipitators with an average efficiency of 99.7%for the ultimate development of four units and a stack height of 240 m wouldkeep ground level concentration of dust particles, and sulfur dioxide andstack emission within the limit of the national standard and World Bank Guide-lines (Annex 18).

5.32 Water Temperature. The layout and design of the circulating watersystem will ensure that the residual impact upon the ocean and its life formsis minimal. Dispersal of the thermal plume from the sea outfall has beenmodeled and found to be within acceptable limits (temperature rise about 8°Cin the vicinity of the discharge outlet and estimated thermal pollution zoneabout 0.5 km in radius). The Zhoushan fishing ground is located more than20 km away. There are no fishing activities near the site.

5.33 Liquid Chemical Effluent. Plant liquid chemical effluents will beheld in a neutralization basin and treated prior to discharge into thecirculating water discharge channel where they will be rapidly diluted beforeentering the Jiantang Strait.

5.34 Ash Disposal. Ash from the power plant will be disposed onthe tidal land along the coast enclosed by dykes with a watertight clay coreto prevent leakage. Three such sites have been identified sufficient for 20years of plant operation. The PH value of ash water has been tested and isexpected to be within the acceptable limits.

5.35 Entrusted by ZPEPB, the Nanjing Institute of EnvironmentalProtection of MWREP has completed recently a study to establish the backgroundlevels nearby the site before plant operation and to verifv the impact of theproject on air quality. This type of monitoring program should be continuedin the future. Assurances have been obtained from ZPEPB that it wlllcarry out an environmental monitoring program satisfactory to the Bank (seeAnnex 18).

Resettlement

5.36 The transmission facilities will be designed and carried out inaccordance with current technological practices and are expected to cause

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minimum disturbance to the environment. The area through which two circuitsof 500 kV transmission lines are going to pass is primarily agricultural,consisting of 20% of paddy fields, 451 of rivers and swamps, and 35% of hillyland for the section from Beilungang to Shaoxin. For the section from Sha-zinto Pingyao, the area contains 34% of paddy fields and swamps, 4.3% of flatland, 58.5Z of hills, and 3.2% of high mountains. A total of about 250 housesand 1,500 people would be relocated away from the line route. As these peoplewould still live in the same neighborhood and the land under the line couldstill be utilized for cultivation, no difficulty in resettlement is expecced.

5.37 Assurances have been obtained from ZPEPB that it will carry out aresettlement plan satisfactory to the Bank.

VI. FINANCIAL ASPECTS

A. Introduction

6.1 ZPEPB is a self-accounting entity reporting functionally to MWREP.It must follow the financial regulations issued by MOF for all state enter-prises and the procedures developed by MWREP for adapting those MOF regula-tions for use by all power bureaus. Within this framework, ZPEPB manages itsown affairs. It real zes revenues which in the past have covered its operat-ing requirements and left it with comfortable liquidity. Most surpluses,however, have been remitted to the Government; in turn, the Government hasprovided all funds necessary for investment in approved projects. His-torically these funds have been provided on a grant basis, but more recentlythey have been provided as loans. In the following discussion, ZPEPB's finan-cial system as well as its financial performance and future prospects will beexamined.

B. Financial System

6.2 All Chinese power bureaus conduct their affairs according to a stan-dardized financial system, the salient points of which are described brieflyin Annex 20. As was the case under previous Bank-financed projects for theChinese power subsector, ZPEPB is not permitted to retain more than a nominalamount of its earnings, and the cash corresponding to the earnings that areretained must ultimately be applied to certain specified categories ofexpenditures or investments. Thus, ZPEPB has little incentive to realizerevenues in excess of its obligations. Also, the traditional indicators offinancial performance, such as rate of return and self-financing ratio, haveonly a limited applicability to an analysis of ZPEPB at this time. To enhanceZPEPB's autonomy in the future, the current fiscal arrangement, especially thetaxation system, would have to be reviewed by the Government and revised asnecessary.

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C. Past and Present Financial Performance

6.3 ZPEPB's financial statements for the :;eriod 1980-1986 are shown inAnnex 21 and summarized in Table 6.1 below. The Balance Sheet has beenadjusted to include construction work-in-progress, which is normally carriedon the books of KWREP's construction units and not consolidated into ZPEPB'soperating accounts.

Table 6.1: ZPEPB'S KEY FINANCIAL INDICATORS, 1980-1986

Year ended December 31 1980 1981 1982 1983 1984 1985 1986--------------- (Millions of Yuan) -------

Electricity sales (GWh) 6,357 6,876 7,585 8,436 9,831 11,115 12,386Average revenue (fen/kWh) 6.9 7.0 7.1 7.2 7.4 7.6 8.1Revenues 435 480 538 605 730 846 1,007Operating income /a 80 99 100 114 107 81 90Capital expenditure 184 104 99 207 166 300 332Net fixed assets in operation 591 638 760 917 1,112 1,514 1,750Cash at end of year 20 32 38 54 88 124 225Operating ratio (Z) 82 79 81 81 85 90 91Rate of return (X) /b 15.7 16.1 14.3 13.6 10.5 6.6 5.5Debt service coverage (times) 103 22 22 7 4 4 3

/a Operating revenues less the aggregate costs of fuel, power purchases,administration, operation and maintenance, and depreciation.

/b Based on historically valued average net fixed assets in operation.

6.4 During 1980-1986, ZPEPB's sales increased by about 95% whilerevenues increased by about 131Z. Although the tariff has not been adjustedduring this period, average revenues per kWh have increased by about 17X,reflecting a modest increase in the proportion of higher-priced domestic andcommercial consumption. Despite the increase in average revenues, the operat-ing ratio increased from about 80Z to 90%, indicating that the increase ofZPEP8's operating cost is significantly outpacing the increase in averagerevenues. During the period, ZPEPB realized an average rate of return ofabout 12% based on historically valued net fixed assets in operation. Whilethis average is satisfactory, the trend has been downward. While ZPEPB's ratebase increased by nearly 25% in 1984, 36% in 1985, 15% in 1986, its rates ofreturn dropped by similar degrees du.ing the same period. In order to meetthe cost increases expected in the future and to remain financially viable,ZPEPB will need to increase its tariff modestly. In 1984-86, ZPEPB managed toincrease its liquidity substantially, primarily because increases in cashreceipts for connections, which were not considered as operating revenues andwere allocated entirely to corresponding special funds, considerably exceededincreases in the cash cost of providing connections. ZPEPB has complied withall financial covenants under Loan 2706-CHA.

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Valuation of Assets

6.5 The Chinese financial system so far has not adopted the concept ofrevaluation of fixed assets. Because inflation in China during the past 30years has been low, and because most existing power-related fixed assets havevery little foreign content, asset revaluation would have a limited financialimpact on ZPEPB in the short- to intermediate-term. Because of incipientchanges in the structure of prices, revaluation of assets will become increas-ingly relevant for the Chinese power subsector in the longer term. However,adopting a revaluation policy would have a nationwide impact in a number ofsectors, and therefore should not be addressed solely in the context of theproposed project. Instead, it will become a component of the continuingpolicy dialogue between the Bank and MOF. A pro forma revaluation conductedduring project appraisal, using liberal assumptions, indicated that for theperiod 1987-1995, an average rate of return of about 12% on historicallyvalued assets would decrease by a'third on revalued assets.

Tariffs

6.6 ZPEPB's tariff was established in 1962. Historically, aftercovering operating costs, tariff revenues have provided substantial generalrevenues to the State. Currently, the average revenue per kWh sold (8.5 fenor about USC 2.3) provides ZPEPB wiUL adequate operating revenue (para.6.3). However, inflation and other specific price adjustments are beginningto have an effect on ZPEPB's cost structure. In the future, the impact ofprice changes is expected to become much more pronounced while the price ZPEPBpays for coal, the major part of its cost structure, already increasedsubstantially in real terms in 1985/86 almost up to the long-run marginal costof supply of coal. MWREP has authorized ZPEPB to introduce a fuel adjustmentinto its primary arrangements in order to recover the full additionalincrement of cost resulting from coal price increases. However, priceincreases are expected to be gradual. Exactly how price adjustments are to beimplemented has not yet been determined, and a number of policy parametershave yet to be decided. The Bank will continue to have a dialogue with theGOC on tariffs in accordance with the findings of the East China Power PricingStudy (para. 2.10). The important recommendations supported by the study inapplying electricity price increases are: (a) avoiding two-tier pricing; (b)avoiding real price increases for residential customers; and (c) moving topeak-load pricing for large customers. Assurances have been obtained that theGovernment will take into account the result of the study in determining thelevels and structures of ZPEPB's electricity tariffs. As ZPEPB's energyavailable for sale is expected to increase by about 156% during the comingeight years, it has ample scope for satisfactorily increasing its averagerevenues to reflect increases in its costs.

D. Financing Plan

6.7 ZPEPB's financing plan for the period of project implementation(1988-1993) is displayed in Table 6.2:

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Table 6.2: ZPEPB'S FINANCING PLAN 1988-93

Item Y million US$ million/a Z

Sources of FundsInternal cash generation 4,130 1,116 45(less) Increment in working capital 166 45 2(less) Increment in Special Fund assets 131 35 2(less) Repayment of loans 1,715 464 19(less) Remittances to Government 475 128 5(less) Expenditures for maintenance

and employees benefit 492 133 5

Cash available for investment 1151 311 12

Proposed IBRD loan 611 165 7Other loans for proposed project 550 149 6All other loans 6,886 1,861 75Government grants 18 5 -

Total Financing 8,065 2,180 88

Total Sources of Funds 9,216 2,491 100

Application of FundsProposed project 1,069 289 12Other construction 6,572 1,776 71Interest during construction 602 163 6Renovations 633 171 7Distribution improvements 340 92 4

Total Application of Funds 9,216 2,491 100

/a US$1 = Yuan 3.7.

The Chinese financial system constrains a power bureau from meeting more thannominal amounts of its investment program from internal cash generation; inthis case more than 84% of the cash available for investment is earmarked forrenovations and distribution improvements through the Special Fund allocationsystem, and the rest of the cash available for investment would cover theportion of interest during construction which, pursuant to regulations, mustbe met from net income. The proposed project (excluding interest during con-struction) accounts for about 12% of ZPEPB's investment program for theperiod. The proposed Bank loan, the proceeds of which will be onlentaccording to acceptable terms and conditions (para. 5.19), will only meetabout 7% of ZPEPB's financing requirements.

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6.8 The estimated foreign cost of the proposed project exceeds theproposed Bank loan by about US$35 million. Of that amount about US$22 millionrepresents interest during construction and about US$13 million corresponds toprice contingencies. MWREP has arranged for ZPEPB to borrow the yuan equiva-lent of the needed additional foreign exchange requirement from the People'sConstruction Bank of China (PCBC) at 3.6% p.a. interest, with repayment over a15-year period beginning upon completion of the proposed project. Arrange-ments have been made to enable ZPEPB to purchase the needed foreign exchangefrom the Bank of China.

6.9 ZPEPB will borrow most of the local currency portion of itsfinancing requirements from the Zhejiang provincial government and the restfrom PCBC on terms prevailing at the time of commitment. Currently, theseitems include interest at 3.6% p.a. and repayment in equal installments over15 years beginning upon completion of construction. ZPEPB projects receivinga very small amount of grants from MWREP for minor projects entrusted byMWREP. MOF is no longer making grants available to finance new projects.

E. Future Finances

6.10 Projections of ZPEPB's financial performance for the period 1987-95are displayed in Annex 21 and summarized in Table 6.3. These projections arebased on the assumptions presented in Annex 21.

6.11 During the 1987-95 period, ZPEPB is projected to maintain high ratesof growth. Energy sales are expected to increase by about 156% over 1987levels, representing a compound annual growth rate of about 7%. Net fixedassets in operation are expected to increase by about 500% over currentlevels, representing a compound annual growth rate of about 23%. Yearly capi-tal expenditure is expected to increase by about 176% over the 1987 level,representing a compound annual growth rate of about 8%. If ZPEPB is to main-tain its financial viability in the face of this growth, the forecast impliesthat it will need to increase its average revenue by 99% from 8.5 fen/kWh in1987 to 16.9 fen/kWh in 1995. This represents a compound annual growth rateof about 9% in nominal terms, or slightly more than inflation projected forthe same period. As early as in 1989, ZPEPB would have to introduce generaltariff revisions in addition to the coal adjustments already approved(para. 6.6). ZPEPB would have to increase by about 10% over the coal-adjustedaverage sales price in 1989 and 1990, and by about 25% in 1991 and thereafter.

6.12 Although conventional indicators of financial performance, such asrate of return or self-financing ratio, have limited applicability to thefinancial analysis of a government-controlled and-directed utility such asZPEPB (para. 6.2 and Annex 20), the relationships between pricing, operatingcosts, and size of investment program are becoming increasingly important toMWREP. In its role as nationwide manager of the sector, MWREP must arrangefinancing for the currently large and still rapidly increasing investmentprograms of the numerous power bureaus. In the process it has become acutelyaware of the need to mobilize appropriate resources from the consumer. Tofurther MWREP's efforts for resource mobilization, assurances have beenobtained that ZPEPB will take measures, including but not limited to tariffincreases, in order to ensure that annually it earns cash surpluses sufficient

Table 6.3: ZPEPB'S KEY FINANCIAL INDICATORS, 1987-95(Yuan million)

Estimate -- -- Forecast -Year ended December 31 1987 1988 1989 1990 1991 1992 1993 1994 1995

Energy sales (GWh) 14,127 14,580 14,835 16,660 20,372 23,857 28,789 31,854 36,175Average price/kWh (fen) 8.5 9.0 10.2 11.2 13.4 14.4 15.1 16.1 16.9Operating revenue 1,204 1,318 1,520 1,873 2,735 3,386 4,355 5,131 6,118

Operating income 176 218 291 361 749 808 1,065 1,262 1,456Remittances to government 34 23 50 50 105 121 127 233 311Annual capital expenditure 704 1,217 1,782 1,571 1,444 1,408 1,745 1,807 1,937Rate base 1,795 2,105 2,553 3,232 4,884 6,606 7,927 9,190 10,275Long-term debt 1,352 2,289 3,737 4,860 5,725 6,586 7,468 8,434 9,469Debt service 70 148 162 251 527 583 899 901 965Cash in banks 251 275 295 285 261 302 285 315 301

Rate of returnHistorically valued assets (Z) 9.8 10.4 11.4 11.2 15.3 12.2 13.4 13.7 14.2Notionally revalued assets (%) 6.9 7.3 7.9 7.7 11.2 9.1 9.8 9.8 9.8

Self-financing ratio (%) 17.7 12.9 12.7 13.6 20.1 20.6 24.0 25.6 28.2Operating ratio (%) 85.4 83.5 80.8 80.7 72.6 76.1 75.5 75.4 76.2Debt/total capital (%) 44.7 55.2 64.6 68.1 68.4 68.7 68.0 67.8 68.1Debt service coverage (times) 4.3 2.4 2.6 2.0 1.5 1.5 1.3 1.5 1.5

- 37 -

to meet a minimum of 12.5% of its average annual investment program for theperiod of 1988-1990, a minimum of 2CZ for the period of 1991-1993, and aminimum of 252 thereafter. In this case, the earned cash surplus would bedefined as total cash revenues (including income from the sale of electricityand from connection charges) less the aggregate of (a) cash operatingexpenses; (b) interest charged to operations; (c) income taxes; (d) grossincreases in working capital (including changes in cash balances); (e) netincreases in Special Fund Assets; (f) loan repayments; and (g) Special FundExpenditures for Maintenance and Employee Benefits. For purposes of thisagreement, the Adjustment Tax would not be considered a reduction in earnedcash because (i) it is a remittance of a residual and not a tax built into thecost structure; and (ii) the proceeds are generally recycled into investmentsin the sector. The average annual investment program would be defined as theaverage of (a) the previous year's actual capital expenditure; (b) the currentyear's planned capital expenditure; and (c) the next year's projected capitalexpenditure. Under Loan 2706-CHA, assurances have been obtained that ZPEPBwill take measures, including but not limited to increasing its tariff, toensure that operating revenues are sufficient to meet the aggregate of costsdirectly chargeable to operations, all required allocations to special funds,debt service, income tax and any working capital increases, required to befinanced from operations (i.e. break-even covenant). As the recommendedinternal cash generation covenant under the proposed project would supersedethis existing covenant, the project agreement for Loan 2706-CHA will beamended accordingly.

6.13 During the projection period, ZPEPB is expected to comply consis-tently with the recommended internal cash generation targets by increasing itsaverage revenue from 8.5 fen/kWh in 1987 to 16.9 fen/kWh in 1995. Itsnotional self-financing ratio is expected to average 20Z; its rate of returnon historically valued assets is expected to average 12%; and its operatingratio is expected to average 79%. These already acceptable indicators offinancial performance cculd improve substantially as the anticipated tariffreforms are realized.

6.14 The Government's current policy of using loans rather than grants tofinance capital expenditure is expected to have an important impact on ZPEPBduring the projection period. From a capital structure which included onlyabout 45% debt in 1987, ZPEPB is projected to move to a debt/total capitalratio of about 68% in 1995, because all capital investments except renovationsand distribution improvements would be financed solely by loans under thecurrent fiscal arrangement. While the assumption of 100% debt financing isthe most conservative one and in any case ZPEPB is not allowed to raise debtfor any purpose other than capital investments, ZPEPB's debt/total capitalratio would not exceed 70% throughout the projection period, which isacceptable. An understanding has been reached that the debt/total capitalratio will be used for monitoring ZPEPB's financial operation in the futureand that ZPEPB will report it to the Bank annually. Debt service coverage,which is projected to drop from about 4.3 in 1987 to about 1.3 in 1993, and1.5 in 1995, remains satisfactory; however, this ratio should be monitoredcarefully. Under Loan 2706-CHA, ZPEPB agreed to maintain its debt servicecoverage ratio of at least 1.0. Assurances have been obtained from ZPEPB thatit may incur additional debt only if a reasonable forecast of its revenues and

- 38 -

expenditures indicates that internal cash generacion would provide a debtservice coverage ratio of at least 1.3. This assurance, taken in conjunctionwith ZPEPB's undertaking to furnish with the Bank's eight-year rolling finan-cial projections (para. 3.13) annually is expected to begin directing ZPEPB'sattention to the long-term financial impact of decisions relating to itsinvestment program. The project agreement for Loan 2706-CHA will be amendedaccordingly.

VII. JUSTIFICATION

A. Need for the Project

7.1 East China is one of the most important industrial areas in China,accounting for about 25% of total national production. ZPEPB is one of themost important grids in ECPS, providing 23% of the capacity and 18% of thepower generation. Electricity shortages have been one of the majorconstraints to economic development. Power curtailment by rotation has beenenforced in almost all industries, limiting their operation to only four tofive days a week and causing considerable underutilization of plant facilitiesand manpower. In 1986 the shortage in peaking capacity was about 600-700 MWand the energy shortage was 2,500 GWh. In addition, there were 167 MW incapacity of large consumers ready to receive power but not yet connected.

7.2 The energy and capacity balances of the ZPEPB system with andwithout the first two units of the Beilungang plant are shown in Table 7.1.These balances clearly indicate the need for the proposed project in the ZPEPBsystem, since without it the system would not be able to meet the demand withadequate reserve. Even with the project, ZPEPB would have to purchase someenergy from ECPS between 1991 and 1992.

B. Least Cost Studies

7.3 A study entitled "the Economic Analysis of Beilungang Power PlantBased on Optimization of the East China Power System" was prepared by WREPERIin June of 1986 using IAEA's WASP III computer program (paras. 2.9 and4.12). The study confirmed that the development program of ECPS would dependlargely on the construction of large coal-fired base load thermal plants atmine-mouths, near ports or load centers that use coal from North China. Thereport also confirmed that the Beilungang Thermal Power Plant, with four600 MW units would form part of the system's least cost expansion program.

C. Economic Rate of Return

7.4 The internal economic rate of return (IERR) was calculated using theestimated economic costs of inputs and ZPEPB's projected average revenue of16.9 fen/kWh in 1995. However, the figure was adjusted to end 1987 pricelevels (10.3 fen/kWh) and used as the minimum proxy for the economic value ofelectricity. Added to this figure were a newly-applied 2.0 fen/kWh charge forpower development to all customers except lighting, agricultural use andindustries who operate at a loss, a 10% local government surcharge for urbanconsumers, and connection charges to large customers. These charges, amount-

- 39 -

Table 7.1: CAPACITY AND ENERGY BALANCE

1991 1992 1993Without With Without With Without Withproject project project project project project

Peak demand (MW) 4,250 4,250 4,700 4,700 5,200 5,200

Dependable peaking capa-city /a (MW) 4,083 4,683 5,138 5,738 5,981 6,581

Gross reserve from depend-able capacity (MW) -167 433 438 1,038 781 1,381

Reserve requirements /b (MW) 850 850 940 940 1,040 1,040

Surplus or deficit (MW) -1,017 -417 -502 98 -259 341

Energy requirement (GWh) 27,300 27,300 30,000 30,000 33,000 33,000

Firm energy /c (GWh) 22,500 22,500 25,900 27,000 29,420 33,320

Average energy (GWh) 23,000 23,000 26,400 27,500 29,920 33,820

Surplus on energy to be pur-chased (out of firm) (GWh) -4,800 -4,800 -4,100 -3,000 -3,580 320

/a The dependable peaking capacity of a thermal unit is its rated capacity unless it has| to be derated due to special reasons. The dependable peaking capacity of hydro units

is the working capacity during the peaking hours corresponding to the firm power undera critical hydro-year condition.

/b The reserve requirement is calculated at 20% of peak demand.

/c The firm energy of thermal units is calculated at an annual capacity factor of 75%(3,500 hours for the first year after completion and 6,500 hours per yearthereafter). The firm energy of hydro units is defined as the annual energy outputthat would be available under a critical hydro-year condition.

- 40 -

ing to 1.8 fen/kWh, weee added to reflect the surplus benefits. On thisbasis, the IERR of the proposed project is about 15.0% for the incrementalcosts and benefits of the second unit and 10.4% for the two units as a whole(see Annex 21 for details). This is a conservative estimate, as the economicvalue of electricity is considerably higher. In reality, it lies somewherebetween the estimate of "willingness to pay" and the estimate of 'loss inindustrial production" (Y 1.0) for each kWh not served. If electricityconsumption is valued at the level of Y 14.4/kWh, which is the target revenuearrived at the East China Power Pricing Study after being adjusted to end 1987prices, the IERR is about 18.8%.

Sensitivity Analysis

7.5 The sensitivity of the IERR of the proposed project was calculatedunder two other possible scenarios: (i) with a 10% increase in investmentcost, and (ii) with a one-year delay in commissioning. It is unlikely thatproject parameters will exceed these limits. The following results wereobtained.

IERR (%)

Base Case 15.110% cost overrun 13.8One-year delay in commissioning 13.4

7.6 There do not appear to be any better alternatives to the proposedproject, considering that base load coal-fired plants play a major role in theleast cost development program for the ZPEPB, and that extension of theexisting Beilungang thermal power station provides the least cost and fastestmethod of achieving this objective.

D. Risks

7.7 No special risks are expected with the proposed project, since it isan extension of an ongoing project. Land is already available and siteconditions are well known. The technical soundness and economic feasibilityof the project have been well established. Consulting engineers, both localand foreign, will assist in engineering and design, procurement andcoordination.

VIII. AGREEMENTS REACHED AND RECOMMENDATIONS

8.1 The following agreements have been reached at negotiations:

(a) From the Government, that it will:

(i) onlend the proceeds of the proposed Bank Loan to ZPEPB on termssatisfactory to the Bank (para. 5.19); and

(ii) take into account the results of the tariff study carried outunder the Beilungang Thermal Power Project (Loan No. 2706-CHA)

- 41 -

between the Government and the Bank dated July 1, 1986, indetermining the levels and structures of ZPEPB's electricitytariffs (para. 6.6).

(b) From ZPEPB that it will:

(i) take measures, including but not limited to increasing itstariffs,to ensure that it earns caah surplus sufficient to meeta minimum of 12.5% of its annual investment program for theperiod 1988-90, a minimum of 20% of its annual investmentprogram for the period 1991-93, and a minimum of 25% of itsannual investment program thereafter (para. 6.12);

(ii) incur additional debt only if a reason ble rorecast of itsrevenues and expenditures indicates that internal cashgeneration would provide debt service coverage of not less than1.3 (para. 6.14);

(iii) furnish each year to the Bank a rolling eight-year financialplan containing projected income statements, sources andapplication of funds, and balance sheets (para. 3.13);

(iv) furnish its annual financial statements, certified by anacceptable auditor within six months from the end of eachfinancial year (para. 3.20);

(v) carry out a study on ZPEPB's reorganization and managementimprovement in accordance with the terms of reference andtiming agreed with the Bank, and exchange views with the Bankon the progress and the findings of the study. (para. 5.12);

(vi) carry out an environmental monit-ring program satisfactory tothe Bank (para. 5.35); and

(vii) carry out a resettlement plan satisfactory to the Bank(para. 5.37).

8.2 Execution of the subsidiary loan agreement between the Governmentand ZPEPB and approval of the Loan Agreement by the State Council would beconditions of loan effectiveness (para. 5.19).

8.3 The proposed project is suitable for a Bank loan of US$165 millionto the People's Republic of China for a term of 20 years, including a 5-yeargrace period, at the standard variable interest rate.

- 42- -X

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

Installed Capacity, Electricity Generationand Sales in the Power Subsector (1986)

/a /a EnergyInstalled capacity (MWT Energy generation (GWhY sales/b

Year Hydro Thermal Total Hydro Thermal Total (GWh)

1949 163 1,686 1,849 710 3,600 4,310 3,4601952 188 1,776 1,964 1,260 6,001 7,261 6,2771957 1,019 3,616 4,635 4,820 14,515 19,335 16,4071962 2,379 10,686 13,065 9,042 36,753 45,795 N.A.1965 3,020 12,056 15,076 10,414 57,190 67,604 56,8021970 6,235 17,535 23,770 20,450 95,420 115,870 N.A.1971 7,804 18,478 26,282 25,060 113,300 138,360 101,2741972 8,700 20,801 29,501 28,820 123,630 152,450 123,6001973 10,299 23,626 33,925 38,900 127,860 166,760 135,1061974 11,817 26,291 38,108 41,440 127,410 168,850 135,7081975 13,428 29,978 43,406 47,630 148,210 195,840 156,9691976 14,655 32,492 47,147 45,640 157,490 203,130 164,6981977 15,765 35,686 51,451 47,670 175,740 223,410 181,6911978 17,277 39,845 57,122 44,630 211,920 256,550 210,2391979 19,110 43,906 63,016 50,120 231,827 281,947 233,5771980 20,318 45,551 65,869 58,211 242,416 300,627 257,3001981 21,933 47,069 69,002 65,546 243,723 309,269 263,4101982 22,959 49,401 72,360 74,399 253,279 327,678 280,0801983 24,160 52,280 76,440 86,450 264,990 351,440 301,6001984 25,547 54,373 79,920 86,780 290,207 376,987 319,0101985 26,120 60,373 86,493 92,374 318,315 410,689 330,6001986 27,542 66,276 93,818 94,480 355,091 449,571 357,0571987

Average growthrate (% p.a.) 11.2 13.4 13.4

/a On country-wide basis.

/b Energy sales not including uses by captive plants and station use formini-hydro.

Source: MWREP.

- 43 - ~~~~~~ANNEX 2- 43- -

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

Installed Capacity and Electricity Generation byRegional Networks and Provincial Grids (1986)

Installed capacity/a Electricity generation/aTotal Hydro Thermal Total Hydro Thermal--- (MW)----w - --- (GWh)------

Regional Networks

North China power network 12,479 757 11,722 69,410 1,250 68,160Northeast China power network 14,631 3,063 11,568 75,180 11,880 63,300East China power network 14,144 1,889 12,255 76,190 4,390 71,800Central China power network 13,641 5,246 8,395 66,410 22,370 44,050South China power network 4,438 2,156 2,282 21,060 7,840 13,220Southwest China power network 5,774 2,775 2,999 27,500 11,680 15,820Northwest China power network 5,852 2,494 3,358 30,120 10,660 19,460

Subtotal 70,959 18,380 52,579 365,880 70,070 295,810

Provincial Grids

Shandong provincial grid 4,633 47 4,586 29,800 50 29,750Fujian provincial grid 1,820 945 875 7,040 3,550 3,490Yunnan provincial grid 1,568 825 743 7,260 3,930 3,330Hu-Bao grid 753 - 753 4,650 - 4,650Wulumuqi grid 480 71 409 2,370 180 2,190Lasa grid 128 98 30 260 180 80Hainan Island grid 151 118 33 500 440 60

Subtotal 9,533 2,104 7,429 51,880 8,330 43,550

Total 80,492 20,484 60,008 417,760 78,400 339,360

/a On networks or provincial grid basis (excluding plants not connected to thesystem).

Source: MWREP.

ANNEX 3- 44 -

CHINA

BEILUNGANG THER14AL POWER EXTENSION PROJECT

Performance Indicators /a

1980 1981 1982 1983 1984 1985 1986 1987

Installed capacity (1MW) 2,204 2,254 2,429 2,562 2,714 3,216 3,442 3,821

Peak demand (MW) - - - - 1,920 2,150 2,400 2,900(1,081) (1,224) (1,291) (1,422) (1,560) (1,815) (2,047) (2,543)

Energy generation pluspurchase (GWh) 9,074 9,811 10,475 11,669 12,904 14,484 16,098 18,510

Energy generation (GWh) 7,764 9,131 8,848 10,755 11,128 12,696 14,279 16,700

Energy supplied (GWh) 8,014 8,669 9,405 10,514 11,683 13,024 14,517 16,750

Energy sales (GWh) 7,106 7,772 8,507 9,497 10,539 11,819 13,048 15,074

Growth in sales (M) 15.9 9.4 9.5 11.6 ii.0 12.1 10.4 15.5

System losses (S) /b 11.33 10.35 9.55 9.67 9.79 9.25 10.12 10.01(11.11) (10.24) (9.09) (9.38) (9.18) (8.42) (8.22) (8.15)

Number of consumers 647,258 618,004 747,592 716,309 737,810 794,286 833,315 925,277

Number of employees - - 22,365 23,813 27,818 29,969 31,765 33,212

Consumers per employee - - 33.4 30.1 26.5 26.5 26.2 27.9

Sales per employee (kWh) - - - - 379,000 394,400 410,800 453,900

Average coal consumption(kg of standard coal of7,000 kCal/kg per kWh)Provincial basis,

500 kW above 0.442 0.433 0.429 0.408 0.401 0.396 0.391 0.388

ZPEPB grid (0.440) (0.429) (0.425) (0.403) (0.397) (0.384) (0.381) (0.378)

/a Based on the province as a whole; figures in the parentheses are for ZPEPR's grid only.

/b Plant use not included.

Source: ZPEPB.

- 4) -

ANNEX 4Table I

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

Present Training Capacity Within ECEPA (1986)(Planned additions are shown in brackets)

Province Jiangsu Zhejiang Anhui Shanghai Total

For High School Training

No. of workers colleges 1 1 1 1 4

No. of staff la 484 124 117 125 850

No. of teaching staff 232 58 54 54 400

Capacity (trainees admitted p.a.) /c 440 140 120 80 780

For Middle-Level Technicians

No. of institutions 1 1 1 (1) 3+ (1)

No. of staff /a -lb 211 216 12 439

No. of teaching staff - 100 91 4 195

Capacity (trainees admitted p.a.) 360 360 240 (160) 960+ (160)/c

For Skilled Workers

No. of institutions 3 2 2 2 (1) 9+ (1)

No. of staff /a 469 231 352 301 1,353

No. of teaching staff 167 74 121 109 471

Capacity (trainees admitted p.a.) 770 320 440 500+ (160) 2,030+ (160)

/a The number of staff includes the number of teaching staff.

/b The number of staff is not shown because the institute is jointly operated with the NanjingElectrical College.

/c The total number of trainees enrolled is much greater than the annual admission number, butdue to high internal efficiency, the number of graduates, i.e., the output, is almost equalto the admission number. Hence the capacity is defined here as trainees admitted p.a.

Source: ECEPA, 1986.

- 46 - AbutN 4Table 2

CHINA

BEILUNGANG THERMAL POWER EXTENSICN PROJECT

Estimation of ECEPA Annual Manpower Requirements(up to 1990)

ProvinceLevel of education Jiangsu Zhejiang Anhui Shanghai Total

High LevelFrom universities (bachelordegree and above) 275 145 150 210 780

From colleges 275 145 150 210 780

Subtotal 550 290 300 420 1560

Middle LevelFrom technical institutes 550 290 300 430 1,570

Skilled WorkersFrom skilled workers schools 1,770 760 970 1,370 4,870

Others 3,400

Grand Total 11,400

Assumptions1. Installed capacity in 1990 20,000 MW

2 Present number of staff 162,500Number of staff, 1990 191,600Estimated increase 29,100

3. Attrition rate 2.5% p.a.Number of staff to be recruited to replace lossdue to attrition 16,300

Total staff to be recruited betw. n 1986 and 1990 45,400

Total annual demand in each of the four years 11,400

- 47 - ANN4A 4Table 3

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

Assumptions on Breakdown of Manpower byJob and by Level of Education (1986)

By JobAdministrative and technical jobs 25ZProduction workers 65%Within which, skilled workers - 60% (39%)

general workers = 40% (26%)Other staff 1O0

Total 100%

By Level of EducationPresent number of staff with high and mid-level education 24,300Present total number of staff 162,500Percentage at present 15%

With annual intake of 3,130 neu recruits with high-and mid-level education for four years, the number ofstaff with above qualifications in 1990 will be 34,400(with attrition @ 2.5% being taken into account)

Percentage in 1990 18%

- 48 - ANNEX 5Page 1 of 3

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

Planning, Budget and Control of Chinese Power Bureaus

1. 41JI power bureaus are responsible for developing annual and five-year production and investment plans which are integrated with the nationalplans and are approved, through MWREP's auspices, by SPC. MWREP plays a majorole in shaping the bureaus' individual plans. MWREP in conjunction withregional administrations, uses past operating results received from all thebureaus to compile the quantities and related prices to be used by the bureausin developing their operating plans. The investment plans are developed on aproject by project basis using estimates of quantities and prices of inputsincluded in feasibility studies prepared by the regional design institutes;however, the investment plans do not take account of the movement of pricesafter completion of final design. Thus, in the planning process, the bureausthemselves do not make a direct linkage between their projected costs andtheir realized costs. The bureaus' operating plans do include monitoringindicators; and variance analyses are conducted to compare quantities actuallyproduced or consumed with plan targets. Because the bureaus themselves do notlink their plan targets directly to realized financial performance, thevariance analyses have limited usefulness as measures of the efficiency oftheir operations or the cost effectiveness of their investment programs.Still, within the environment of a centrally planned economy where largegrants have been used to finance significant portions of investment and priceshave been maintained at stable levels, this approach to planning has servedreasonably well.

2. Until 1980, all funds required for implementation of the annualconstruction plans were provided through grants allocated from the Statebudget. The State also provided minor amounts of finance to cover liquidityrequirements through an account entitled Working Capital Funds. Under China'seconomic reform program which began about 1978, major changes have been intro-duced to encourage the economic use of the Government's limited resources.Funds for major new investments are now being provided in the form of loansfrom the People's Construction Bank of China. These loans are made only afterprojects have been reviewed extensively and cost estimates have beenapproved. In addition to construction loans, now bearing an annual interestrate of about 3.6%, funds are provided for liquidity by way of non-repayablegovernment contributions, which carry annual finance charges of 3%. Theconstruction loans are scheduled for repayment over 15 years after completionof the work.

3. Through 1984, the prices the power bureaus have been paying for theconstituents of operating and investment costs have been controlled, mostly atconstant levels. However, the Government has announced that it is relaxingsome controls over the pricing system so that, slowly, prices will move towardmarket levels. In coming years, with the power bureaus continuing to expandtheir operations rapidly and costs increasingly becoming variable, actual cost

- 49 - ANNEX 5Page 2 of 3

data used together with projections of (a) productivity improvements;(b) future price movements; and (b) interest rates, will become more importantas the basis for planning and budgeting. Moreover, as the cost ofinefficiency will certainly increase, management will need to enhance icsability to evaluat' and control more closely the operations of individual costcenters.

4. The Chinese system of planning and budgeting does not includeprovision for long term financial planning. In connection with the LubugeHydroelectric Project (Loan 2382-CHA), the Bank furnished MWREP with a finan-cial forecasting model to enable the power bureaus to study the impact of boththeir expansion plans and variations in prices on their future financial posi-tions. Under all subsequent Bank-financed power projects, assurances havebeen obtained that, by December 31 of each year commencing in the yearfollowing loan signing, the beneficiary power bureau will furnish to the Banka financial plan containing forecast income statements, sources and uses offunds, and balance sheets for the next five years. So far, only the Yunnanand Jiangsu Power Bureaus have been required to furnish such rolling plans.

5. MWREP recognizes that it needs to modernize the financial andmanagement procedures being followed by the power bureaus. It has authorizednumerous power bureaus to acquire microprocessors to be used for financial,planning, and administrative purposes. Additionally, it has developed somesoftware aimed at enabling the bureaus to produce computerized standardreports regularly. For their part, most power bureaus with which the Bank isdealing have already computerized some of their personnel, payroll, andadministrative records and are adapting software to computerize materialsmanagement, system planning, and production management. Once the bureauscomplete computerization of these records, they will all be expected tofurnish monthly reports to MWREP on diskettes rather than on laper. Most ofthe Bank financed projects have included a provision under which the benefi-ciary power bureaus could obtain additional microprocessors and both they andMWREP can obtain the software support needed to facilitate implementation ofthis first generation of computerized reporting.

6. The first generation of computerized reporting should enable MWREP,as well as the power bureaus themselves, to process, compile, consolidate andretain far more information more rapidly than before. However, the approachesto systemization made to date have been designed almost exclusively to satisfyMWREP's reporting requirements. rhe software thus far developed anticipatesneither a more active role for the power bureaus nor a broader use of data bybureau management. Moreover, the systems under development would stillneither include rudimentary financial planning nor enable the necessary directlinkages between realized performance and planning forecasts. Thus, while thesystems under development represent substantial progress over the reportingsystems currently in use, a second generation of reporting systems willinevitably be needed to accommodate changes already in progress in themanagerial environment. In the context of appraisal of the Yantan Hydroelec-tric Project (Loan 2707-CHA), the Bank retained a consultant to assess theprocesses of data accumulation and compilation in several power bureaus, aswell as the manner in which data is used by MWREP and those bureaus. Hisfindings confirm that the systems which are currently under development are

- 50 - ANN.X Page 3 of 3

adequate and appropriate to the existing environment but are not sufficientlyflexible to adapt to expected future trends. However, MWREP has doubts aboutthe extent and substance of these anticipated changes and prefers to becautious about making further adjustments to reporting procedures in the nearto intermediate term future.

7. In considering modernization of financial and management practices,the Government is taking the initiative in adapting modern methodology for usein the Chinese environment. However, given the additional adjustments thatwill most likely become necessary within a few years, the Government wouldbenefit from greater exposure to state of the art hard and soft technology andgreater understanding of the internal disruptions encountered by organizationsthat have already modernized their management systems. Under the YantanHydroelectric Project (Loan 2707-CHA), the Shuikou Hydroelectric Project(Loan 2775-CHA) and the Wujing Thermal Power Project (Loan 2852-CHA), theGovernment will obtain training in up-to-date financial management andplanning and utility accounting practices. Study tours are included in thoseprojects, so that senior officials of relevant governmental units can visitutilities and service organizations in other countries which have beencarefully selected because of their appropriate experiences in introducingmodern managerial techniques. MWREP will design the study tours, with theassistance of consultants where necessary and appropriate.

ANNEX 6CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

Electricity Tariffs of ZPEPB (1987)

Tariff category Rate Unit

Lighting (residential/commercial/small industries)Up to 1 kV 15.30 Fen/kWhOver 1 kV 14.50 Fen/kWhAverage 15.25 Fen/kWh

Commercial and Small Industrial (up to 320 kVA) /aUp to 1 kV 9.27 Fen/kWh1-10 kV 9.29 Fen/kWhAbove 35 kV 8.89 Fen/kWhAverage 9.25 Fen/kWh

Large Industrial (above 320 kVA)Energy charge1-10 kV 5.80 Fen/kWhAbove 35 kV 5.50 Fen/kWh

Capacity charge (per month) /bBased on peak de&..' 6.00 Yuan/kWBased on installed capacity 4.00 Yuan/kVA

Average 7.67 Fen/kWh

Agriculture /cUp to 1 kV 7.95 Fen/kWh10 kV 7.40 Fen/kWhAbove 35 kV 6.00 Fen/kWhIrrigation pumping 4.60 Fen/kWhAverage 7.41 Fen/kWh

Bulk Supply (to rural villages)10 kV 6.91 Fen/kWhAbove 35 kV 6.70 Fen/kWhAverage 6.83 Fen/kWh

Bulk Purchase (from self-generators) 5.00 Fen/kWh

Internetwork Transfer 4.50 Fen/kWh

Overall Average 8.50 Fen/kWh

/a This tariff is applied to productive uses. Lighting consumption by com-mercial and small industrial customers is billed at the lighting rate.

/b Choice of two rates based on availability of demand meters.7T Applies only to activities related to agricultural production (e.g.,

drainage and irrigation), not to rural industries or rural residentialconsumption.

-52 -

BBILONGANG ThIL POWlER EMENSION PROJECT

Wajor Generating Facilities of the East Chla8 Region (1987)

Installedcapacity

(NW) Unit and year of commissioning

Jiansu PoviceJtanpiug Thrmai 385.0 2 x 25 (1960), 50 (1967), 50 (1971), 110 (1974), 125 (1975)

Jianbi Thermal 1,625.0 25 (1965), 2 x 50 (1966), 2 x I0 (1970), 100 (1973), 300 (1980),300 (1983), 300 (1986), 300 (1987)

Xuthou thermal 1,100.0 125 (1977), 125 (1978), 2 x 125 (1979), 2 x 200 (1985), 200 (1986),200 (1987)

Others 2,177,0

Subtotal 5.487.0

linjiang Prov,ince 662.5 2 x 72.5 (1960), 72.5 (1961), 72.5 (1964) 75 (1965), 75 (1967),72.5 (1968), 75 (1975), 75 (1978)

FuCunjiBag Hydro 297.2 57.2 (1968), 60 (1972), 60 (1973), 60 (1976), 60 (1977)

Wuxtjiang Rydro 170.0 2 x 42.5 (1979), 2 x 42.5 (1980)

Sinahuttan IRyro 200.0 4 x 50 (1987)

Zhenbal Thermal 650.0 125 (1978), 125 (1979), 200 (1985), 200 (1986)

Taisbou Thea1l 500.0 125 (1982), 125 (1983), 2 x 125 (1985)

San Shan Thermal 237.0 12 (1960), 50 (1976), 50 (1977), 125 (1984)

Othera 979.3

Subtotal 3,821.0

Anhui Provinceliainan Thermal 601.0 3 x 6 (1956), 6 (1957), 25 (1959), 2 x 25 (1960), 12 (1960),

2 x 120 (1972), 125 (1975), 125 (1977)

HEiatbei Thermal 750.0 2 a 50 (1973), 125 (1977), 125 (1978), 200 (1981), 200 (1982)

Chencun Hydro 150.0 50 (1970), 50 (1972), 50 (1975)

Luohe Thermal 600.0 300 (1985), 300 (1986)

Others 817.0

Subtotal 2,918.0

Sha9nhati )(tucipalityIlangting Therial - 800.0 4 x 22 (1958), 2 x 6 (1958), 4 a 25 (1959), 300 (1974), 300 (1976)

Zhabel Thermal 464.6 2 x 10 (1930), 3.6 (1935), 12.5 (1937), 6.5 (1952), 22 (1956),25 (1958), 25 (1959), 50 (1960), 50 (1966), 125 (1974), 125 (1975)

Vujing Thermal 350.0 2 x 25 (1959), 50 (1961), 100 (1966), 125 (1969), 25 (1975)

Kinlgsilng Therml 818.0 2 x 6 (1959), 2 x 12 (1959), 25 (1960), 25 (1961), 12 (1968),2 x 110 (1972), 125 (1979), 125 (1980), 125 (1985), 125 (1986)

Jinasban Thermal 251.5 2 x 25 (1966), 2 x 50 (1975), 2 x 50 (1976), 1.5 (1981)

BUoshan Steel 1K111 700.0 350 (1982), 350 (1983)

Othere 811.9

Subtocal 4,196.0

Total 16,422.0

Source: ECgPA.

- 53 ANNEX 8

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

Installed Capacity, Energy Generation and Purchased, Energy Suppliedand Sales of Zhejiang Province

Installed Energy generation Energy Energycapacity and purchased supplied sales

Year (MW) (GWh) (GWh) (GWh)

1962 440.0 1,011 893 7451965 602.0 1,744 1,588 1,4041970 916.0 3,117 2,673 2,2711971 929.0 * 3,892 3,271 2,7241972 1,036.0 4,272 3,681 3,1141973 1,146.0 4,777 4,128 3,5191974 1,187.0 4,280 3,855 3,1911975 1,281.0 4,509 3,948 3,2261976 1,385.0 4,889 4,351 3,5961977 1,533.0 6,006 5,417 4,6031978 1,828.0 7,176 6,333 5,4121979 2,076.0 8,014 7,043 6,1291980 2,204.0 9,074 8,014 7,1061981 2,254.0 9,811 8,669 7,7721982 2,429.0 10,475 9,405 8,5071983 2,562.0 11,669 10,514 9,4971984 2,714.3 12,904 11,683 10,5391985 3,216.4 14,434 13,024 11,8191986 3,442.1 16,098 14,517 13,0481987 3,821.2 18,510 16,750 15,074

Average growthrate (% p.a.)

Source: ZPEPB.

ANNEX 9

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

Energy Consumption by Categories of Consumers /a

1981 1982 1983 1984 1985 1986 1987

Consumers GWh % GWh % GWh % GWh % GWh X GWh GWh X

Municipal 508 6.0 572 6.3 645 6.4 761 6.9 948 7.6 1,100 8.0 1,341 8.5

Industrial

Heavy - - 4,435 49.0 4,715 46.9 4,953 44.6 5,147 41.3 5,506 40.1 5,923 37.5

Light - - 1,732 19.1 1,999 19.9 2,206 19.9 2,466 19.8 2,757 20.1 3,219 20.4

Subtotal 5 808 69.5 6.167 68.1 6,714 66.8 7.159 64.5 7,612 61.1 8,263 60.2 9,142 57.9

Rural 2,006 24.0 2,288 25.2 2,645 26.2 3,135 28.2 3,841 30.8 4,319 31.4 5,242 33.2

Transportation 34 0.5 34 0.4 43 0.6 44 0.4 53 0.4 57 0.4 61 0.4

Total 81356 00.0 9.061 100.0 10,047 100.0 11.099 100.0 12,456 100.0 13,739 100.0 15.791 100.0

/a Including consumption of self-generation

(consumer-owned) plants greater than

500 kW in capacity.

Source: ZPEPB.

-55 - ANNEX 10

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

The Power Development Program (1987-95)

Installed Unitcapacity No. of size Scheduled commis-

Name of plant (MW) units (MW) Present status sioning date

Zhenhai thermal (coal) 400 2 200 No. 5 & 6 under 1989construction

Taizhou thermal (coal) 250 2 125 No. 5 & 6 under 1987, 88construction

Beilungang thermal (coal) 1,200 4 600 No. 1 under 1990, 92, 94, 95construction

Wenzhou thermal (coal) 550 3 2x125 No. 1 & 2 under 1990, 91, 941x300 construction

Changxing thermal (coal) 550 3 2x125 Planned 1991, 92, 951x300

Xiaoshan thermal (coal) 250 2 125 Planned 1991, 92

Jiaxing thermal (coal) 1,200 2 600 Planned 1992, 93

Jinshuitan hydro 300 6 50 Under construc- 1987(4), 88(2)tion

Shihtang hydro 78 3 26 Under construc- 1988, 89(2)tion

Wuxijiang hydro extension 100 1 100 Planned 1991

Huangtankou hydro extension 50 1 50 Planned 1992

Source: ZPEPB.

ANNEX 11

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

ZPEPB's System Demand and Energy Balance

Item Unit 1987 1988 1989 1990 1991 1992 1993 1994 1995 Remarks

1. Peak demand MW 2,900 3,200 3,500 3,850 4,250 4,700 5,200 5,800 6,4002. Energy required GWh 18,500 20,400 22,500 24,800 27,300 30,000 33,000 36,100 39,8003. Installed capacity NW 3,821 4,072 4,548 5,573 6,648 7,501 7,981 8,881 9,781 After deducting retired units

Thermal MW 2,056 2,181 2,581 3,306 4 281 5,084 5,564 6,464 7,364Hydro MW 1,765 1,891 1,967 1,967 2,067 2,117 2,117 2,117 2,117Nuclear NW - - - 300 300 300 300 300 300 Located at Qinshan

4. Maximum generating capacity MW 3,717 3,821 4,072 4,548 5,573 6,648 7,501 7,981 8,881 Not including units completed towards

5. Additional retired capacity NW - - - - - 50 170 170 170the end of the year6. Derated capacity NW 337 370 370 380 410 430 440 450 4607. Peaking capacity allocated to MW 480 480 480 480 480 480 480 480 480

ECEPA £8. Dependable capacity MW 2,900 2,971 3,222 3,688 .4,683 5,738 6,581 7,051 7,941 (8) = (4) - (5) - (7)9. Capacity balance Mw - -229 -278 -162 +433 +1,038 +1,381 +1,251 +1,541 (9) = (8) - (1)

10. Generation in average hydro year GWh 16,300 16,900 17,500 19,200 23,000 27,500 33,820 36,100 40,30011. Generation in dry hydro year GWh - 16,400 17,000 18,700 22,500 27,000 33,320 35,600 39,80012. Energy purchased GWh 1,700 1,800 1,800 1,800 1,300 1,300 400 200 200

From ECPS GWh 1,500 1,600 1,600 1,600 1,100 1,100 200 0 0From small hydro GWh 200 200 200 200 200 200 200 200 200 For interconnected hydro units less

than 500 kW13. Energy balance in average hydro GWh - -1,300 -2,900 -3,800 -3,000 -1,200 +1,230 +200 +700 (13) - 00) + (12) - (2)

year14. Energy balance in dry hydro year GWh C -1,800 -3,400 -4,300 -3,500 -1,700 +720 -300 +200 (14) = (11) + (12) - (2)

15. Reserve capacity KW - - - - 392 997 1,340 1,210 1,50016. Reserve margin X - - - - 9.22 21.21 25.77 20.86 23.44

Source: ZPEPB.

- 57 - ANNEX 12

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

Ongoing Major Thermal Power Projects by External FinancingUnder the Seventh Five-Year Plan

Installed Year of Loancapacity commis- amount(Unit x MW) sioning Source of finance (USS mln)

East ChinaNanton Thermal 2 x 350 1989 USA-GE, supplier's 180

creditShedongkon Thermal 2 x 600 1992 USA, Franca, Japan, 350

supplier's creditFuzhou 2 x 350 1989 Japan, supplier's credit 180Beilungang #1 1 x 600 1990 World Bank 230

North ChinaTienjin Beidagang 2 x 320 1991 Italy, government con- 200Thermal cess'onal loan and

supplior's creditShunan Thermal 2 x 350 1989 Canada, USA-GE, suppli- 180

er's crelit

Northeast ChinaDalian Thermal 2 x 350 1989 Japan-Mitsubishi, sup- 180

plier's credit

Central ChinaYueyang Thermal 2 x 360 1990 UK, 1/2 government con- 190

cessional loans + 1/2supplier's credit

South ChinaGuangdong Shajiao 2 x 350 1987 Japan-Mitsubihsi, sup- 230Thermal plier's credit

Southwest ChinaChongqing Lohuang 2 x 350 1990 UK, France/Japan, 1/2 250Thermal government concession-

al loan + 1/2 sup-plier's credit

Total 9,300 2,170

- 58 -ANNEX 13Page 1 of 4

CHINA

BEILUNCANG THERMAL POWER EXTENSION PROJECT

Terms of Reference fo" a Study on ZPEPB's Reorganizationand Management Improvement

Background

1. The Zhejiang Provincial Electric Power 3ureau (ZPEPB) is a state-owned enterprise under the direction of the East China Electric PowerAdministration. It is a legal entity with corcractual and self-accountingcapacity, and is assigned responsibility by the State for executing within itsjurisdiction the state program for power generation, capital investment, powersales and tariffs, employment and payroll, materials consumption, and remit-tance of tax profits to the State. ZPEPB is headed by a director who isappointed by MWREP. Five deputy directors and a chief accountant are func-tionally responsible to him for, respectively, capital construction; powersupply, services and raral electrification; technical matters and safety;hydroelectric power; labor, personnel and education; and finance. Operationsare carried out through a number of units engaged in power generation,distribution, construction, and repair. Each of these units is headed by adircetor with line responsibility to the director of ZPEPB.

2. In 1987, ZPEPB had a total installed capacity of 3,821 MW and salesof about 15,000 GWh. ZPEPB had about 33,000 employees serving approximately925,000 customers, giving a consumer/employee ratio of 28:1.

3. GOC is determined to carrying out the institutional reform of powerutilities in China and plans to use ZPEPB as one of the first test cases for amore decentralized and autonomous structure. To facilitate this transition,ZPEPB will need to carry out a study on its organization and improvement ofmanagement performance. This study will be included under the proposedproject.

4. The principal objectives of the organizational, financial andmanagement study of ZPEPB are twofold:

(a) To strengthen managerial autonomy and accountability, to developproposals for changes in ZPEPB's organization, institutional rela-tionship with regional power authorities and central governmentauthorities, and policy environment in order to establish ZPEPB as amore autonomous unit with full profit and loss responsibility. Thisprogram should be in line with, and explore to the maximum, thebenefit of the new Enterprise Law expected to be passed by theSeventh National People's Congress in March i988. If successfullyimplemented, this program could serve as a model case to be followedlater in other provinces; and

- 59 -ANNEX 13Page 2 of 4

(b) To introduce modern organizational practices, long- and short-termplanning and operational control systems and procedures, and morespecifically to enable ZPEPB to:

(i) Develop a set of goals and priorities to serve as a frameworkfor evaluating ZPEPB's performance;

(ii) Review and evaluate ZPEPB's performance;

(iii) Develop proposals for changing ZPEPB's organization to improveits operational performance; and

(iv) Establish an effective corporate planning system including, butnot limited to, long- and short-term investment and financialplanning, operational planning and control, and resourcemanagement.

Wherever possible, the study should draw comparisons between the changes beingrecommended for ZPEPB and successful practices adopted by power utilities inother countries.

Scope of Work

5. The work will encompass all the activities of ZPEPB which focus onthe core functions of power generation and transmission and distribution inZhejiang province, inter alia:

(a) Analysis (Phase 1)

(i) Review previous institutional, financial and management studiesof ZPEPB;

(ii) Investigate all legislative and other general rules and regula-tions pertaining to ZPEPB for transforming it into a more auto-nomous an accountable company and determine ZPEPB's prioritiesand the level of autonomy it is granted in pursuing theseobjectives;

(iii) Undertake a review of all aspects of ZPEPB's organization andits financial and management practices;

(iv) Review and evaluate ZPEPB's past performance, focusing onwidely used performance criteria;

(v) Review and examine the existing information system within andamong different departments/units, and identify constraints tothe effective dissemination of information;

(vi) Review the existing corporate planning system.

- 60 -ANNEX 13Page 3 of 4

(b) End Products (Phase 2)Managerial Autonomy and Accountability

(i) Clarify the roles and responsibilities of ZPEPB, especially onissues such as investment, finance, pricing, employment andprocurement;

(ii) Recommend appropriate policies for capital structure in view ofZPEPB's future ability to borrow in financial markets;

(iii) Recommend possible types of corporate form and ownership;

(iv) Recommend ways/mechanism for governing ZPEPB;

Modern Management Organizations, System and Procedures

(v) Recommend improvements and changes in the performance evalua-tion indicators and in the monitoring procedures to be used bythe management and by the regulatory bodies;

(vi) Recommend improvements in its organization, structure, manage-ment system/procedures, corporate planning, delegation ofauthority, role clarity and management effectiveness, incentivesystem, recruitment and promotion policies, etc., to improveZPEPB's performance, promote its efficiency, and help it todevelop more autonomy;

(vii) Recommend a more efficient long- and short-term corporate plan-ning system for ZPEPB that would incorporate investment, man-power, financial resources and materials, etc. into an overallscheme to guide the planning and its implementation for alldepartments and units concerned;

(viii) Recommend a MIS system suitable for ZPEPB in view of the above(vii);

(ix) Recommend an implementation schedule and a staff trainingprogram to assist in this implementation.

Method of Implementation

6. ZPEPB will carry out the tasks stated in (a) and (b) of para. 5 byestablishing a Task Force of Chinese experts including management, technicaland financial staff. Foreign experts will be consulted, when necessary.

7. When necessary, members of the Task Force and other Chinese expertswill visit power utilities in selected foreign countries to evaluate theirperformance monitoring and regulatory systems.

8. ZPEPB should engage a foreign consultant to advise it on up-to-dateMIS concepts and systems and to assist thie Task Force in reviewing and asses-sing the existing information system. Chinese and foreign experts should work

- 01 -

ANNEX 13Page 4 of 4

together to recommend a MIS system suitable for ZPEPB in accordance with(b) (viii) of para 5. The foreign consultant will assist ZPEPB in preparingprocurement spe^ifications, as necessary.

9. Bank assistance, if necessary, will be available to ZPEPB staff,particularly for carrying out the tasks stated in subparas. (a) and (b) ofpara. 5. This assistance will cover primarily introducing the Bank's experi-ence in other countries on: (i) identifying useful indicators for staffingand operational performance; (ii) developing the performance indicator database and reporting requirements; (iii) identifying possible tasks for improv-ing cost-effectivenss and developing action plans to achieve them; and(iv) developing reporting documents to monitor the cost-effective improvementplans and provide management with information needed to manage the utility'soperations. If necessary, the Bank will assist ZPEPB in organizing an initialbriefing seminar and training for the members of the Task Force.

Timetable

10. It is envisaged that the study will begin during the first half of1988 and take about two years to cemplete. The implementation schedule is asfollows:

Completion Date(a) Consultation with a foreign

utility on utility managementand establishment of the Task Force December 31, 1988

(b) Initial briefing seminar andtraining for members of theTask Force August 31, 1989

(c) Completion of Phase 1 and thefirst report on (a) of para. 5 May 31, 1990

(d) The second report on(b)(v)-(viii) of para. 5 January 31, 1991

(e) Completion of Phase 2 and thethird report on (b)(i)-(iv)and (ix) of para. 5 September 30, 1991

(f) Comprehensive final report December 31, 1991

- 62 -ANNEX 14Page I of 5

CHINA

BRILUNCANG THERMAL POWER EXTENSION PROJECT

Work Plan for a Study of Distribution Network Improvement andExpansion for the Cities of Hangzhou and Ningbo

Background

1. Hangzhou is the capital city of the Zhejiang Province and representsits political, cultural, commercial and industrial center. The totalpopulation of the metropolitan city of Hangzhou is about 1,285,000. Itspresent capacity demand is about 335.4 MW, and about 2,840 CWh of energyactually is consumed each year. The existing subtransmission and distributionnetwork comprises about (a) 35 km of 220 kV lines, one 2201110 kV substationaggregating 120 MVA; (b) 114 km of 110 kV overhead lines and seven 110 kVsubstations aggregating 419 MVA; (c) 240 km of 35 kV lines, and 874 km of 10kV primary distribution lines; and (d) 630.7 km of 380/220 V secondarydistribution lines. Hangzhou has some underground cables, about 3 x 3.23 kmof 110 kV and 62 km of 10 kV cables.

2. Ningbo is one of the five sea ports that were opened for interna-tional trade towards the end of the Chin Dynasty. It is one of the majorports being developed by the Chinese government for export-oriented industryand trade. Its total population is about 527,0oo. The present demand forelectricity in Ningbo is about 190 MW, and annual energy consumption is about1,660 GWh. Electricity demand and energy consumption have been growing at anannual rate of 10.O and 10.8%, respectively, during the Sixth Five YearPlan. The existing subtransmission and distribution network comprises about(a) 230 km of 220 kV lines, one 220/110 kV substation aggregating 240 MVA;(b) 103 km of 110 kV overhead lines, and seven 110 kV substations aggregating329 MVA; (c) 53 km of 35 kV, 468 km of 10 kV primary distribution lines and496 km of 380/220 V secondary distribution lines. Ningbo has few undergroundcables.

3. The existing distribution network for these two cities is old, over-crowded, and beset with problems. It is in urgent need of improvement andextension. To meet the planned development of these two cities in the future,a modern, reliable distribution network is needed.

Objectives

4. The main objectives of the study are to:

(a) develop an improvement and expansion plan for the distributionnetwork up to the year 2010;

(b) recommend short-term (5 years), medium-term (10 years) and long-term(20 years) improvements to the existing distribution network;

(c) transfer modern technology in distribution system planning, design,construction, operation and maintenance;

ANNEX 14Page 2 of 5

(d) develop in-house capabilities in distribution system planning anddesign, using modern techniques which include computerization; and

(e) identify training needs, tools (hardware/software) and staffingrequirements for the growing distribution system up to the year2010, in the areas of planning, design, construction, operation andmaintenance and management.

Scope of Work

5. General: The study will cover the cities of Hangzhou and Ningbo withtheir industrial zones and will extend to the existing and plannedsatellite townships surrounding them. The study will address thesubtransmission and distribution system starting at the level of 220 kVand extending down to the secondary distribution voltage of 380/220 V,encompassing urban, suburban, and rural networks.

Phase I (Approximate duration six months)

Review of the Existing Network Problems and Limitations

(a) Study the limitations and major problems associated with theexisting and future network (such as right-of-way and landavailability) and outline remedial measures, indicating phases ofimplementation. This may be done on a sampling basis.

(b) Undertake a critical review of the existing planning and designcapability of ZPEPB's organization, identify training anddevelopment needs, and suggest the most appropriate planning anddesign methodology and associated tools (hardware and software) forfuture work.

Load Forecast

(c) Prepare a load forecast (demand and energy) up to the year 2010 forthe area and sector, taking into consideration, inter alia: (i) thehistorical pattern of load growth in various sectors and thesuppressed demand; (ii) ongoing, medium- and long-term sectoraldevelopment plans and policies; (iii) zoning of urban, suburban, andrural areas for industrial, commercial and domestic development andthe corresponding norms for load densities. Modern techniques willbe adopted in formulating the load forecast and alternative demandscenarios will be projected. Demand elasticities will be assessedin relation to GDP, income and tariff levels.

Network Development Plans

(d) To meet the projected growth in load, prepare overall networkdevelopment plans up to the year 2010 covering, inter alia:(i) optimum choice of EHV, HV and MV voltages; (ii) location andsizing of EHV and HV substation feeding points; (iii) network

- b4 -ANNEX 14Page 3 of 5

configurations for specific reliability criteria; (iv) majortechnical parameters such as maximum fault levels, type of earthing,and phasing of supplies. The network development plans will takeinto consideration the limitations of the existing network and thefeasibility of converting it to the proposed system. Alternativenetwork development plans will be presented with corresponding cost(capital, operation and outage), reliability, and maintenanceimplications.

(e) Prepare the Phase 1 report, including,necessary drawings, charts,etc. detailing the findings of the above analysis and makingpositive recommendations for discussion with ZPEPB and the WorldBank, before embarking on Phase 2.

Phase 2 (Approximate duration twelve months)

(a) Refine the load forecasts prepared in Phase 1 and establishalternatives for developing the expansion plan. Provide necessarysoftware and train ZPEPB's personnel in the techniques of loadforecasting. Conduct selective sample surveys to establish theelectricity use patterns of domestic consumers in urban, suburban,and rural areas.

(b) Firm up overall network development plan, building in adequateflexibility for change. Provide necessary software and trainZPEPB's personnel in the planning and design techniques forindependent work in the future. Network development at the MV andLV levels may be done on a sample basis covering typical areas andload densities. Prepare relevant cost estimates and implementationphases, separately detailing improvements to the existing networkand its subsequent growth.

(c) Demonstrate the actual improvements proposed for the existingnetwork, by actually implementing them on a sample portion of thenetwork.

(d) Lay down criteria for detailed design of feeders, substations etc.,considering factors such as voltage regulation, protection, reactivecompensation, grounding, harmonics, etc. Prepare a design manual.

(e) Review standards and practices for ZPEPB's equipment andconstruction and provide models which would result in overalleconomy consistent with reliability. Develop standard designs forsubstations (overhead/underground) for future application. Provideconstruction manual.

(f) Introduce modern techniques for evaluating and measuringdistribution system losses. Assess losses in the existing networkthrough desk studies and actual measurement. Particular attentionwill be given to rural systems where power ii. sold in bulk anddistribution is undertaken by rural authorities. Suggest ways toreduce losses, bringing out their economic implications. This study

- 65 -ANNEX 14Page 4 of 5

should cover typical urban, suburban and rural areas, includingdistribution undertaken by rural authorities.

(g) Review ZPEPB's operation and maintenance (O&M) practices and suggestimprovements for more cost-effective practices. Identify trainingand staffing needs for O&M personnel.

(h) Identify need for Regionai Distribution Control Centers, and provideguidelines for their implementation. Recommend communicationsystems for effective operation and control.

(i) Review management practices for the distribution system and suggestmodels for meeting the increasing volume of work. The review willcover management structure, responsibilities, management informationsystem, central and regional divisions and their responsibilities,stores and inventory control, and classification and management ofconsumers.

(j) Provide a draft report for review by ZPEPB and the Bank and laterfurnish a final report taking their comments into consideration.

Method of Approach

(a) The study will be carried out by the planning staff of the powersupply bureaus of the cities of Hangzhou and Ningbo under theoverall guidance of ZPEPB.

(b) Training of staff assigned to the study will be carried out inassociation with the Master Plan Study for Distribution Network inShanghai being planned under the Wujing Thermal Power Project by theShanghai Municipal Electric Power Bureau (SMEPB). The training willbe accomplished through: (i) on-the-job training and technologytransfer by working with the consultant retained by SMEPB for theMaster Plan Study; and (ii) overseas training to be arranged by theconsultants and SMEPB staff.

(c) Other consultants and experts not mentioned under IV (v) may beretained as necessary for specific problems.

(d) Tools for measurement of distribution losses, and hardware andsoftware needed for the study may be procured under the Bank loan.

UV

ANNEX 14Page 5 of 5

SCHEDULE OF STUDYON

DISTRIBUTION NETWORK IMPROVEMENT AND EXTENSIONFOR HANCZHOU AND NINGBO

Item Date of Completion

1. Select consulting firm with SMEPB December 31, 1988

2. Complete the study of Phase 1 June 30, 1989

3. Discuss the interim report withthe World Bank August 31, 1989

4. Complete the study of Phase 2 June 30, 1990

5. Discuss the final report withthe World Bank December 31, 1990

- 67 - ANNEX 15

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

Project Cost Estimate(US$ million)

Item Local cost Foreign cost Total

Power Plant (I)Site preparation - -Pile & foundation 6.7 - 6.7Civil construction 19.7 - 19.7Boiler 4.3 69.0 73.3Turbine-generator 2.5 66.0 68.5Coal conveying system 0.1 0.6 0.7Ash disposal system 0.8 7.5 8.3Water supply system 0.4 - 0.4Electrical equipment 1.1 5.0 6.1Instrument & control system 1.0 8.0 9.0Construction & office equip& nt 2.2 - 2.2Training 1.2 - 1.2Distribution network study 0.5 0.4 0.9Technical assistance forinstitutional building 0.5 0.5 1.0

Consulting services 1.1 2.3 3.4Supervision 8.1 - 8.1

Base Cost 50.2 159.3 209.5

Physical contingency 5.0 5.7 10.7

Subtotal 55.2 165.0 220.2

Associated Transmission (II)Base cost 18.8/a - 18.8

Physical contingency 2.0 - 2.0

Subtotal 20.8 - 20.8

Price Contingency (I + II) 6.9 13.0 19.9

Total Project Cost 82.9 178.0 260.9

Interest During ConstructionIBRD loan - 21.7 21.7Local loan 7.1 - 7.1

Total Financing Required 90.0 199.7 289.7

/a Including Y 1.6 million for resettlement.

- 68 -ANNEX 16

CHINA

BEILUNGANC THERMAL POWER EXTENSION PROJECT

Key Dates of Project Implementation

A. Procurement of Major Plant Equipment

Revision of bidding documents December 31, 1987

Review by IBRD January 31, 1988

Issue of bidding documents February 13, 1988

Bid opening April 25, 1988

Latest date of bid evaluation and award July 31, 1988

Contract negotiations and signing September 15, 1988

B. Project Implementation

Start foundation piling January 1, 1989

Start foundation excavation May 1, 1989

Start steel structure erectionBoiler October 1, 1989T-C building November 1, 1989

Lifting of boiler drum Januavy 1, 1990

Oil flushing of T-C Septe'mber 1, 1990

Hydraulic test of boiler March 1, 1991

Acid cleaning of boiler October 15, 1991

Blow-out of boiler December 15, 1991

Test-run of the unit February 28, 1992

Co _ rcial operation May 31, 1992

Project completion June 30, 1992

- 69 - ANNEX 17

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

Disbursement Schedule

Bank fiscal Bank /ayear and Semester Cumulative Project profilesemester (US$ million) -- -- (X)

1988First 1.0Second 6.0

1989First 13.0 13.0 7.9 12.0Second 12.0 25.0 15.0 19.0

1990First 36.8 61.8 37.5 27.0Second 38.7 100,.5 61.0 37.0

1991First 25.3 125.8 76.2 46.0Second 14.3 140.1 84.9 56.0

1992First 9.6 149.7 90.7 65.0Second 1.3 151.0 91.5 73.0

1993First 10.0 161.0 97.5 81.0Second 4.0 165.0 100.0 86.0

/a Bankwide disbursement profile for thermal power plants issued onOctober 3, 1985.

AN-EX 18

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

Air Quality Analysis

Chinese World Efficiency of Number of 600 MWnational Bank Background electrostatic units to be installed

Pollutant standards guidelines level precipitators 1 2 4(%)

Dust

Ground-level soncen-tration (mg/m )One-year average 0.10 0.10 - 0.0028 0.0056 0.0112Daily average 0.15 - 0.097 - - - - 0

Max. 24-hour 0.50 0.26 0.165 - 0.0122 0.0244 0.0488

Stack emission (mg/m3)Normal - 100 - - - - -For rural area - 150 99.4 75.0 150.0 300.0

99.6 50.0 100.0 200.099.7 37.5 75.0 150.099.8 25.0 50.0 100.0

Ground-level co cen-tration (mg/m )One-year average 0.06 0.05 - - -Daily average 0.15 - 0.016 - 0.0168 0.033S 0.0672Max. 24-hour 0.50 0.50 0.019 - 0.074 0.148 0.296

- 71 -ANNEX 19Page 1 of 3

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

Environment Monitoring Program

1. During the implementation of the first stage development of theBeilungang site, two coal-fired steam generating units of 600 MW each will beinstalled. According to the requirements of the Act of Environmental Protec-tion of PRC (Provisional) and Regulations for Fossil-Fired Power Plant Envir-onmental Monitoring (Provisional) of the Ministry of Water Resources andElectric Power, Zhejiang Provincial Electric Power Bureau (ZPEPB) will arrangeenvironmental monitoring as described below.

2. An environmental monitoring station will be established in theBeilungang Thermal Power Plant (BTPP) under the direct leadership of the plantdirector and put into full operation by December 31, 1989. The station willbe responsible for periodically monitoring the contaminants discharged duringthe process of generation, supervising the plant discharge to meet thestipulated indices, and compiling information on the quality of environmentalconditions and the trend of variations. During the above-mentioned activitiesthe station will receive guidance from the local department of environmentalprotection.

3. The environmental monitoring station will report directly to theplant director and related authorities any time when the discharge exceeds thestipulated indices and will offer remedial suggestions about its modifica-tions.

4. The environmental monitoring station will accumulate monthly dataabout the quantity of waste discharged through each discharge port within theplant and the quantity of the flue dust and sulfur dioxide discharges.

5. The environmental monitoring station will periodically monitor theitems of contamination at each of the following points of monitoring:

(a) pH value and suspended solids at monitoring duringeach discharge port after neutral- dischargeization of acid and alkali inchemical waste fluid.

(b) pH value, suspended solids, arsenic once per monthand its compounds, inorganic com-pounds of fluorine in ash and slagslu-cing water discharged to the ashdumping yard.

(c) pH value, suspended solids, COD once per month(KMnO4 method) and oil in sanitarysewage at the discharge port.

- 72 -ANNEX 19Page 2 of 3

(d) pH value, suspended solids at water monitoring during rainydischarge port of open-air coal yard. seasons

(e) pH value, suspended solids, COD once every 10 days(KMnO4 method), and oil at maindischarge port.

When firing with oil or with a mix-ture of oil and coal, additionalmonitoring of volatile phenol.

When boiler is cleaned with hydro- monitoring during,(fluoric acid, additional monitoring discharge'of inorganic compounds of fluorine.

When sodium nitrite is adopted as monitoring duringpassivant during boiler acid cleaning, dischargeadditional monitoring of nitrite willbe performed.

(f) Concentration of dust and sulphur once per monthdioxide in chimney flue gas.

(g) Efficiency of dust precipitator. before and aftereach overhaul

(h) Quantity of dust settlement and con- once per seasoncentration of suspended particles inplant areas and living quarters.

(i) Environmental noise in production areas once per yearand living quarters (point for monitor-ing will be determined by the plantitself).

(j) Temperatures of cooling water inlet once per month

(k) Ambient monitoring of du. t and S02 every six months,concentrations outside pLant limits taking account ofat selected critical locations. wind directions

6. The environmental monitoring station will monitor the contaminantsin plant discharge of gas, water, dust and slag according to relevant stan-dards issued by the State Ministry of Water Resources and Electric Power andthe Zhejiang Provincial Government.

7. The method, technical specifications of reagent, treatment of moni-tored data, degree of accuracy and allowance of error, etc., adopted duringmonitoring by the monitoring station will conform with relevant national codesand standards.

- 73ANNEX 19Page 3 of 3

S. The environmental monitoring station will accumulate technicalrecords of the followings

(a) Hydrological information and data on quality of surface water andunderground water.

(b) Technical records and environmental monitoring (including evalua-tion) information on source of contamination.

(c) Information about contamination control, design of environmentalpurification facilities, and technical modifications.

(d) Monitoring instruments and devices, and calibration certificates.

(e) Information on and record of analysis about all previous eventsleading to serioue contamination.

System Diagram

(a) Diagram of plant wastewater and waste slag disposal system.

(b) Height of chimney and distribution diagram of exit gas concentra-tion.

(c) Diagram of seasonal wind direction and wind velocity on a plane atthe same height as the lowest chimney of the plant.

9. Reports on the results of monitoring will be compiled by the envi-ronmental monitoring station according to the requirements of the ZhejiangEnvironmental Protection Bureau and ZPEPB.

10. Details of the environmental monitoring techniques, the instrumentsemployed and the results and remedial actions proposed will be discussed withBank staff during their visits to China. A report on the activities of theenvironmental monitoring station and important results will be furnished tothe Bank once a year.

- 74 -ANNEX 20Page 1 of 3

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

Financial System Followed by Chinese Power Bureaus

1. Power companies such as ZPEPB may accumulate capital from threeseparate and distinct sources. These include:

(a) Funds for fixed assets, which are obtained from the Stete in amountspermitting implementation of approved projects according to agreedschedules. Until 1980, these funds were provided almost entirely asgrants; since then, the Government has decided to make these fundsavailable as loans obtained from the banking system or from officialsources. Funds under this category are used exclusively to financeworks classified as capital expenditures. These funds are releasedmonthly, in accordance with plan provisions, in amounts needed tocover actually incurred expenditares. Most Chinese enterprises arenot expected to finance any portion of capital expenditure fromoperations; rather, they are expected to remit all surplus income tothe Government through payment of taxes;

(b) Funds for working capital, which are also received from the Statebased on a fixed amount established by regulation and subject toreview at intervals of about ten years. These funds make up only aminor part of the power bureaus' capital and, because most of thepower bureaus have drawn their entire allocations since the lastreview, these funds have been used only as a minor source of capitalin recent power projects proposed for Bank financing. Becausecurrent obligations both to and from the power bureaus are settledvirtually as accrued, these working capital funds have been usedprimarily to finance operating inventory; and

(c) A number of Special Funds, each of which is earmarked for distinctpurposes and funded from net operating revenues or cash receipts inamounts established according to regulations. The power bureaus'accounts contain four separate categories of Special Funds, includ-ing Special Funds for: (i) maintenance; (ii) employee benefits;(iii) renovations; and (iv) distribution improvements. The SpecialFunds for maintenance are financed by allocations charged as operat-ing expenses in determining net operating income before Income Tax.The Special Funds for renovations are financed by charges againstGovernment Funds (the balance sheet account showing the Government'sequity investment in a power bureau) equal to the portion of depre-ciation provisions not used for debt repayment. The Special Fundsfor employee benefits are financed using distributions from NetIncome after Income Tax but prior to the Adjustment Tax.

All allocations to the Special Funds (other than those earmarked toaccount for revenues and expenses associated with distribution

- 75 -ANNEX 20Page 2 of 3

improvements) appear or are reflected on the Income Statement asthough they are operating costs or distributions from earnings,regardless of whether corresponding cash expenditures have beenincurred. Receipts and withdrawals from the Special Funds associa-ted with distribution improvements are passed through the Flow ofFunds statement and are specifically excluded from the Income State-ment. The moneys expended from the Special Funds would largely beclassified as operating costs or working capital under more tradi-tional accounting systems. However, items charged to the £pecialFunds for both renovations and distribution improvements would becapitalized as fixed assets once the underlying work was completed;thus, when the renovations or distrib'ition improvements are comple-ted, their value is deducted from the Special Funds balance andadded to the Government Funds account. As all operating revenuesmust be expensed; distributed to cover cash outflows, debt !-Lviceor taxes; invested in renovations or distribution improvements; orretained for future expenditure chargeable to the Special Funds, thepower bureaus have only one means of channeling tariff revenues intocash. They do this by using the excess of Special Fund Allocationsover the sum of (a) Special Fund Expenditures; (b) completed renova-tions and distribution improvements; and (c) increases in SpecialFund Assets. In turn, cash generated through the Special Funds maybe interchanged with other operating cash; however, allocations toparticular Special Funds create for a power bureau an ultimate obl -gation to use the accumulated cash only for certain categories ofexpenditures.

2. Until 1983, the power bureaus paid remittances to NWREP equal tooperating revenucs less the sum of cash expenditures charged directly to oper-ations, all allocations to Special Funds, and debt service. Since 1983, thepower bureaus pay MOF an Income Tax, assessed at 55% of operating revenuesless the sum of costs (including depreciation) charged directly to operations,all allocations to Special Funds that are treated as expenses, and debt ser-vice in excess of the portion of depreciation provisions specifically alloca-ted for debt repayment. From the residual after Income Tax, the power bureausmust cover the Special Fund allocations that are treated as distributions fromearn.ngs and the amount of debt repayment and capitalized interest during con-struction to be wet from net income, and remit the remainder to MWREP as anAdjustment Tax. MWREP has some flexibility in controlling the powebureaus' liquidity, either by changing their allocations to the Special Funds,making grants for allocation to the Special Funds, or relieving the powerbureaus of a portion of the Adjustment Tax. The power bureaus appear to haveadequate liquidity and MWREP has not indicated any inclination to adjust thoseprocedures which affect their liquidity.

3. Under the existing financial system, the Government does not intendfor the power bureaus to retain a surplus. However, tariff revenues must meet

1/ From an accounting point of view, the Adjustment Tax is treated in amanner similar to a dividend.

- 76 -ANNEX 20Page 3 of 3

debt service requirements; and repayment per se does not represent a chargeagainst earnings. Regulations provide that certain stipulated amounts ofrepayment shall be met from cash that has been generated by depreciation; how-ever, the remainder of the cash gererated by depreciation must be added to abureau's operating cash and a correiponding allocation must be made to theSpecial Funds for renovations. As a result, the remainder of repayment, whichmust be met for an earmarked increment of tariff revenues, creates an accumu-Lation of equity in the form of a corresponding undistributed earnings.

4. Most power bureaus have units which engage in construction manage-ment and subsidiaries which function as contractors. As a rule, the accountsof the construction management units are consolidated with those of the powerbureau's operating units. However, the accounts of subsidiaries acting asconstruction contractors are, as a rule, not consolidated with those of theinvestments; the power bureau's consolidated accounts may routinely have con-struction in progress. Also, in the past, an average of only about 85% of thevalue of government grants used to finance new fixed assets was transferredfrom the books of the construction subsidiaries functioning as contractors tothe power bureau's consolidated accounts. The residual was considered to havebeen expended in purchasing moving assets, which remained with those conatruc-tion subsidiaries upon the completion of construction. The change to usingloans rather than grants to finance power sector investments has causedinvestment funds to be channeled from the Government through the power bureausfor payment to construction units acting as contractors. Thus, in the future,the consolidated accounts of the power bureau should in the future more accu-rately reflect the value of gross fixed assets and construction .n progress.

5. Given the existing financial system, the power bureaus have littlefinancial incentive to increase tariffs at the present time; once a powerbureau has sufficient revenues to meet the aggregate of costs charged directlyto operations, all Special Fund allocations and debt service, any additionalrevenues are remitted to the State through Income or Adjustment Taxes. Thus,once expenses and required distributions have been met, a tariff increase,even one of major proportions, would not increase a power bureau's financia'.viability, except to the extent that debt service coverage would be improved.Therefore, the familiar indicators of financial performan_e, such as rate ofreturn and seLf-financing ratio, have very limited applicability to thefinancial analysis of a Chinese power bureau.

- 77 -ANNEX 21Page 1 of 24

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

ZHEJIANG PROVINCIAL ELECTRIC POWER BUREAU

ANNUAL FINANCIAL STATEMENTS

Table of Contents

Page No.

Key FinancialI .................................................... 2Income Statement............................................ ...... 3Balance Sheet..................................................... 5Funds Flow 7................. ............... ...... *99**9*o*9****e 7Derivation of Average Tariff... ... o..............................ooo 8Investment Program....o*9.99*99...... .... .. ............... *.. 9Loan Parameters oeo*oe,oe.ooooooo.e...e.o..oeeo.o 11Fixed Asset Formatione......................o..............o......... 14Revaluation of Assets ......... 9 ................. 15Beilungang Expenditures and Financing............................. 16Fuel, Purchases and Operating Expenses..o...................... 17Special Funds Calculations. ....................................... o 19Breakeven Pricing and Self Financing Ratio........................ 20Assumptions to Financial Projections..o....o..................... 21

- 78 - ANNEX 21Page 2 of 24

CHINA8EILUNGANG POWER EXTENSION PROJECT

ZHEJIANG PROVINCIAL ELECTRIC POWER BUREAUKEY FINANCIAL INDICATORS 1986-1995

CYuan Million)Actual Estimate ------------ Forecast----------------------------

Year Ended Deceeber 31 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Energy Sates (CWh) 12386 14127 14sso 14835 16660 20372 23587 28789 31854 36175Average Price/kWh (fen) 8.1 8.5 9.0 10.2 11.2 13.4 14.4 15.1 16.1 16.9Operating Revenue 1006 1204 1318 1520 1873 2735 3386 4355 5131 6118

Operating Income 90 176 218 291 361 749 808 1065 1262 1456Remittances to Goverranct 8 34 21 S0 50 105 121 127 233 311Annual Capital Expenditure 332 704 1217 1782 1571 1444 1408 1745 1807 1937Rate ease 1632 1795 2105 2553 3232 4884 6606 7927 9190 10275Long-term Debt 815 1352 2289 3737 4860 5725 6586 7468 8434 9469Debt Service 48 70 148 162 251 527 583 899 901 965Cash in Banks 225 251 275 295 285 261 302 285 315 301 Average

1988-1995Rate of Return X

Historically VaLued Assets CX) 5.5 9.8 10.4 11.4 11.2 15.3 12.2 13.4 13.7 14.2 12.4Notionatly Revalued Assets CX) 3.6 6.9 7.3 7.9 7.7 11.2 9.1 9.8 9.8 9.8 8.8

Self Financing Ratio CX) 17.7 12.9 12.7 13.6 20.1 20.6 24.0 25.6 28.2 19.5Operating Ratio (X) 91.1 85.4 83.5 80.8 80.7 72.6 76.1 75.5 75.4 76.2 78.5Debt/Total Capital tX) 34.7 44.7 55.2 64.6 68.1 68.4 68.7 68.0 67.8 68.1 63.7Debt Service Coverage (times) 3.3 4.3 2.4 2.6 2.0 1.5 1.5 1.3 1.5 1.5 2.1

_- - - s w s a s s s as t s t s s _o s= s

- 79 -

CHINA ANNEX 21

BEILUNGANG THERMAL POWER EXTENSION PROJECT Paae 7 of 24

ZHEJIANG PROVINCIAL ELECl-RIC FOWER 81URE(4U

INCOME STATE.MENTS 1981.-1986

Yuan Million

Year Ended DuLember :1 198v 1981 1 82 198Z. 1984 1985 1986

Sales Increase k%) 1.. 8. 2 1).l. 11.2 - 1i .1 11.4Energy Sales (GWh) 6357 6786 7585 5:36 983.1 11115 12386Average Price (Fen/kWh) 6.9 7.. 7.1 7.2 7.4 7.b 6.1

Operating Revenue 436 48C0 538 605 730 846 1007

Operatinq Costs

Fuel 97 105 118 15C0 20CZ3 271 377Purchased povwer 131 137 168 161 196 187 198Operation & maintenance 29 29 31 36 47 56 73Administration 8 9 11 14 21 28 37Sales tax 65 72 79 88 1 08 1 70 162Depreciation 26 30 32 4C0 47 54 69

Total Operating Costs 355 361 438 491 627 765 916

Oper.ALing Income 80 99 1 0C) 114 1 u7 el 90

Other Income -1 1 C () -1 v

Net Income Before Income Tax 80 99 1:00 114 105 87 90

Income Tax C0 0 C0 53 46 37 25

Net Income 8s 99 IC)") 62 60 49 65

Distribution of Net Income

Remittances to government 75 87 88 3;8 20 6 8Transferred to gov't funds 0 6 7 16 29 28 55Employee benefits SF 4 7 6 8 12 15 2

Net Income 80 99 100 62 60 49 65

Rate Base 509 615 699 839 1C015 1313 1632Rate ot Return (%) 15.7 16.1 14.3 13.b 1U.5 6.6 5.5

- 80 -

ANNEX 21Page 4 of 24

CHINABEILUNGANG POWER EXTENSION PROJECT

ZHEJIANG PROVINCIAL ELECTRIC POWER BUREAUINCOME STATEMENT

(Yuan Million)Actual Estimate ------------------------ Forecast------------------. --------

Year Ended Decerber 31 198S 1987 1988 1989 1990 1991 1992 1993 199I 1995.... ---- .... .... . .... ----. .... .... . .... ........ ..... ..... ..... .....

Sates Increase CX) 11.4 14.1 3.2 1.7 12.3 22.3 15.8 22.1 10.6 13.6Enerrgy Sales COlh) 12386 14127 14580 14835 16660 20372 23587 28789 31854 36175Average Price/kWh (fen) 8.1 8.5 9.0 10.2 11.2 13.4 14.4 15.1 16.1 16.9

.......................................................................................................Operating Revenue 1006 1204 1318 1520 1873 2735 3386 4355 5131 61183UUU3UUDssaU--U--a-US# *-3-Unu*U-inU U- =*------uu-u-i-u-u*z-*u-u.-u--u-auuuaJu-aauuuauu= ~aunanuuaunwazOperating Costs

...............

Fuel 377 427 487 565 746 929 1049 1371 1668 2006Purchased Power 198 254 223 207 210 304 563 741 820 1056Operation & Maintenance 73 98 113 130 155 182 241 277 322 365Adfinistration 37 39 44 51 58 67 77 89 102 118Sales Tax 162 120 132 152 187 273 339 435 513 612Depreciation 69 90 101 123 156 230 309 376 443 505

Total Operating Costs 916 1028 1100 1228 1512 1986 2578 3290 3869 4662

Operating Income 90 176 218 291 361 749 808 1065 1262 1456

Interest Charged Operations 0 7 23 32 64 181 232 274 299 320

Net Income Before Income Tax 90 170 195 259 297 568 576 792 963 1137wSsssssws-w=ssJass3-Js =--ss-s- ssssasDs-sss-u-ns=saJa *MDS=saDasn"Umccan Mann=

Income Tax 25 59 44 79 80 149 169 177 307 404................................................................................................................

Net Income 65 111 151 180 217 420 407 614 656 733

Distribution of Net Income..........................

Remittances to Government 8 34 21 50 50 105 121 127 233 311Tranferred to Govt. Funds 43 63 106 111 151 298 268 433 405 361Chargeable IOC 0 0 9 3 0 0 0 37 0 42Employee Benefits Spec. Funds 14 14 15 15 16 16 17 18 18 19

................................................................................................................

Net Income 65 111 151 180 217 420 407 614 656 733

Rate Base 1632 1795 2105 2553 3232 4884 6606 7926 9189 10275Rate of Return CX) 5.5 9.8 10.4 11.4 11.2 15.3 12.2 13.4 13.7 14.2=X--XsB---*-=-9wwssWB3-t---w----wt- tsssX-a=wss=====W

- 81 -

CHINA ANNEX 21

BEILUNGANG THERMAL POWER EXTENSION PROJECT Page 5 of 24------------------------------------------

ZHEJIANG PROVINCIAL ELECTRIC POWER BUREAU

BALANCE SHEETS 1980-1986

( Yuan Million )

As at December 31 1980 1981 1982 1983 1984 1985 1986

Current Assets

Cash 20 32 T8 54 86 124 225Inventories 32 36 35 31 51 6L 71Receivables 12 -2 0) it 19 81 58

Total Current Assets 64 66 737 96 138 2b6 '54

Fixed Assets____________

Plant in service 828 902 1055 1249 1512 1960 22o1Less depreciation 237 264 295 332 400 446 511

Operating Plant 591 636 760 917 1112 1514 175C0_______________

Const. work in progress 36 70 49 132 1R4 220 276

Total Fixed Assets 627 708 809 1049 129c 1734 2u26

Special Fund Assets 54 62 83 109 142 231 313

Total Assets 745 836 965 1255 1596 22-31 2693= = _ _ _ _ _ _- --_-_ _ _ _

Current Liabilities___________________

Accounts payable 24 13 16 30 66 159 267Due to Government 2 4 2 5 8 35 24

rotal Current Liab. 26 17 18 35 74 194 291

Long-term Debt 25 70 151 245 259 588 815Consumers Deposit 0 1 2 1 2 2 2Government Funds 602 638 b58 804 10;37 1145 12-11Working Capital Funds 31 28 32 32 36 36 48Special Funds 61 82 104 138 188 266 32o

Total Liabilities 745 836 965 1255 1596 2231 r2693

=================== ==== == == == == ==

Debt as '. of Debt8'Equity '7) 3.5 8.6 16.1 20.2 17.1 29.4 4.?Current Ratio (times) 2.5 3.9 4.0 2.8 2.1 1.4 1.2Annual Debt Service Coverage 103 22 22 7 4 14 7

(times)

- 8?- ANNEX 21

Page 6 of 24

CHINABEILUNGANO POWER EXTENSION PRJECT

ZHEJIANG PROVINCIAL ELECTRIC POWERt BUREAU8ALANCE SHEET

(Yuen Nittion)Actuat Estimate ------------- Forecast-..............

Year ende Decenbier 31 1986 187 1988 199 1990 1991 1992 199 1994 1995

Assets

Current Assets

Cash 224.8 251.5 274.? 295.1 284.8 261.2 302.4 284.5 315.0 301.4Inventorfes 71.5 73.8 77.0 82.7 109.3 149.9 174.3 220.0 259.4 304.1Receivables 57.7 57.0 59.9 62.8 66.0 69.3 72.7 76.4 80.2 84.2

Total Current Assets 354.1 382.3 411.6 440.6 460.1 480.4 549.4 580.9 654.6 689.7

Fixed Assets

Plant In Service 2260.8 2440.4 3073.4 3559.1 4711.6 7248.9 8694.6 10575.3 12039.4 13694.3Ctess) Accum. Depreciation 511.0 601.0 701.9 825.1 981.2 1211.0 1520.5 1896.5 2339.4 2844.6

Net Plant in Service 1749.8 1839.4 2371.6 2734.0 3730.4 6037.9 7174.2 8678.9 9700.1 10849.6

Construction WIP 276.2 797.2 1357.3 2592.6 2920.7 1787.6 1750.0 13.9 1957.1 2238.8

Total Fixed Assets 2026.0 2636.5 3728.9 5326.6 6651.1 782.5 8924.2 10292.7 11657.2 13088.4

.peciat Fund Assets 312.7 341.4 343.8 358.0 371.3 423.5 470.0 472.2 493.0 510.8

Total Assets 2692.8 3360.2 4484.3 6125.2 7482.5 872.4 9943.7 11345.9 12804.8 14288.9333 333u*3333333333333333333=3333333333:

Liabilities

Current Liabilities

Accountts Payable 266.6 260.0 265.2 270.5 275.9 281.4 287.1 29.8 298.7 304.6Due to Govermsent 23.8 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0 24.0

Total Current Liabilities 290.4 284.0 289.2 294.5 299.9 305.4 311.1 316.8 322.7 328.6zz=*w*l"w333333U333z3U33333Uu333333333U3U333323333333U3333333

Consumers Deposits 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0Working Capital Furtds 48.0 48.0 48.0 48.0 48.0 48.0 48.0 48.0 48.0 48.0Long-temn Debt 815.1 1351.8 2288.7 3736.8 4859.9 5724.9 6585.5 7468.2 8434.3 9468.7Goverrmlant Funds 1210.9 1284.8 1429.1 1563.8 1737.7 2007.8 2245.9 2695.1 3093.5 3448.1Special Funds 326.3 389.7 427.2 480.1 535.0 641.3 751.2 815.8 904.4 993.5RevaLuation Reserve 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Totat Liabiitites 2692.8 3360.2 4484.3 6125.2 7482.4 8729.4 9943.7 11345.9 12804.8 14288.9

Debt as X of Debt & Equity 34.7 44.7 55.2 64.6 68.1 68.4 68.7 68.0 67.8 68.1Current Ratio (times) 1.2 1.3 1.4 1.5 1.5 1.6 1.8 1.8 2.0 2.1

- 83 -ANNEX 21Page 7 of 24

CHINABEILUNGANG POWER EXTENSION PROJECT

ZHEJIANG PROVINCIAL ELECTRIC POWER BUREAUFUNDS FLOW STATEMENT

(Yuan Nillion)Estimote .................... Forecast. .---------- Total of

Year ended Deceiber 31 1987 1988 1989 1990 1991 1992 1993 1994 1995 198B-93--- . . .. . . . .. . . . .. . . . ... .. . .

Internal Sources of Funds

Net Income 111.0 151.5 179.7 216.8 41i.7 406.8 614.4 656.1 733.0 1988.9Depreciation 90.0 100.9 1,3.3 156.0 229.8 309.5 376.0 442.9 505.3 1295.5maintenance Special Funds 31.5 34.0 42.8 49.6 65.8 101.3 121.5 147.9 168.4 415.1Distribution Imprv. Spec. Fds. 69.3 70.0 70.7 71.4 72.1 72.8 73.6 74.3 7s.0 430.6

Totat Internal Sources 301.8 356.4 416.5 493.9 787.4 890.4 1185.6 1321.2 1481.7 4130.1

Borrowings

Proposed IBRD Loan 0.0 52.4 193.5 219.4 88.6 4.8 51.8 0.0 0.0 610.5eei lunrang Project Related Loons 149.9 567.6 728.5 453.6 326.4 194.0 624.5 1074.5 817.4 2894.4

Other Loans 414.2 404.4 610.6 602.2 789.7 948.9 77.4 431.0 786.2 4129.3IOC Borrowed 39.1 52.6 103.6 125.6 45.3 63.5 21.8 61.9 34.0 412.3

Total Borrowings 603.2 1076.9 1636.2 1400.7 1250.0 1211.2 1471.5 1567.4 1637.6 8046.5in u U 2 U U UU n U U 3 U U 3UaUUsUUE3UUmU3 -Uin3-- - --

Goverrnment Funds 2.0 2.5 2.5 3.0 3.0 3.5 3.7 4.0 4.3 18.2ua*suuuuznu2uEmna*3auu3Uz2zu MSz- a#

Total Sources of Funds 907.0 1435.7 2055.3 1897.6 2040.4 2105.0 2660.8 2892.6 3123.7 12194.8

Capital Expendi tures. .... . . . . . . .

Proposed BellungMng Ext. Project 0.0 58.9 312.6 381.4 191.1 36.4 99.8 0.0 0.0 1080.1Other Construction 566.0 967.9 1222.5 896.7 1016.7 1114.8 1353.6 1509.5 1607.9 6572.3Interest During Construction 39.1 63.6 118.7 153.0 64.6 63.5 58.4 61.9 76.3 541.7Completed Renovations 55.2 71.4 n7.8 83.6 94.3 135.9 174.6 177.2 193.0 632.6Distribution lImprovewnts 43.5 55.2 55.9 56.4 57.0 57.6 58.2 58.7 59.3 340.3

................................ ................................................................................Totat Capital Expenditure 703.9 1217.1 1782.4 1571.2 1443.6 1408.1 1744.5 1807.4 1936.5 9167.0

Operational Requirements.........................

Inc/dec in Working Capital 8.0 0.9 3.4 24.3 38.4 22.3 43.6 37.4 42.7 132.8Inc/dec in Snecial Fund Assets 28.7 2.4 14.2 13.3 52.2 46.5 2.2 20.7 17.8 130.8Loan Repayment 63.1 116.1 126.8 186.8 345.7 350.5 588.9 601.3 603.2 1714.7Remittances to Government 33.9 21.4 49.7 49.9 1(5.2 121.5 127.2 232.7 311.1 474.9Special Fund Expenditures 42.7 45.6 55.0 62.2 78.9 114.9 135.7 162.6 183.7 492.4Chargeable IOC 0.0 9.0 3.5 0.0 0.0 0.0 36.6 0.0 42.2 49.1

----------------------............ ......................................................... ............................................................................. .. ....

Total Operational Requirements 176.4 195.4 252.5 336.6 620.3 655.7 934.1 1054.7 1200.7 2994.7= S....... D3sYuUUS2U3ss"stss2w3UuUUUU=w-S#X-saS#SUUUUUU83UU*U3UZUUUUUUUuU3UUU3UU8UZUt=UZuUUuUUUU

Total Applications of Funwds 880.3 1412.5 2034.9 1907.9 2063.9 2063.9 2678.6 2862.1 3137.2 12161.8

Incresse/Oecrease in Cash 26.6 23.3 20.3 (10.3) (23.6) 41.1 (17.9) 30.5 (13.6) 33.0Anrnual Debt Service Coverage (times) 4.3 2.4 2.6 2.0 1.5 1.5 1.3 1.5 1.i 1.9

33C5UUu=SUUUU3UU,U UU3UU3UWUUUUUUU3U.3UUZ3UEU3UU333UuUn3NUUUU2uU3U2UuUZ- S# SS2S--S=Z31WzU22UUt

-84 - ANNEX 21

Page 8 of 24

CHINAUEILUNGANG POWER EXTENSION PROJECT

ZHEJIANG PROVINCIAL ELECTRIC POWER BUREAU

DERIVATION OF AVERAGE TARIFF

AUTHORIZED POWER PRICING 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995........ ...... .... ...... .. .......... ........... .-... .... --- ..... .. ... .... .... .......

Energy Sales (GYh) 14127 14580 14835 16660 20372 23587 28789 31854 36175Domestic 2825 2916 2967 3332 4074 4717 5758 63n1 7235Inter grid transfersNondomestic retait 11302 11664 11868 13328 16298 18870 23031 25483 28940

Average Reveme (fen/Kwh) 8.5 9.0 9.5 10.1 10.6 11.2 11.7 12.3 13.0Base Revewne (Yuwn/1Mh) 77.6 79.3 83.3 87.4 91.8 96.4 101.2 106.3 111.6 117.2

Inter grid transfersAuth. Coat Adjustments

Transfers (Current Prs.) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Nand m. Ret. (Comet. Pre.) 3.7 7.4 8.3 8.3 9.1 9.1 9.6 9.6 9.6 9.6Nondam. Ret. (Curr. Pre.) 7.4 8.6 9.3 10.9 11.6 13.0 13.8 14.7 15.6

Operating Revenu (mn Y) 1203.9 1314.5 1406.9 1674.4 2152.5 2631.7 3377.2 3928.8 4691.2Totat energy 1120.3 1214.0 1297.0 1529.4 1963.6 2387.2 3059.4 3554.4 4238.3

Inter grid transfersCoal price adJ.--- Inter grid transfers--- Nondamestic retail 83.6 100.5 109.9 145.0 188.8 244.5 317.8 374.4 452.9

_ _ _ _ _ _ _uum _ _ _u___s

BREAKEVEN COAL ADJ. INCREMENT........ .............. .. ...

Revenue - Auth. Coat Pr. AdJs. 83.6 100.5 109.9 145.0 188.8 244.5 317.8 374.4 452.9CPA Revenue Net of Sales Tax 75.3 90.5 99.0 130.5 169.9 220.0 286.0 337.0 407.6Cost of Coat Price Increment 0.0 27.8 79.4 143.7 223.1 297.2 449.4 614.3 814.8

Coat Adj. Surplus/Deficit 75.27 62.66 19.56 (13.17) (S3.18) (77.24)(163.45)(277.28)(407.17)Aditianal Req. Req. (fn/Wkh) 0.0 0.0 0.0 0.1 0.4 0.5 0.8 1.3 1.7Adjusted Oper. Rev. (Y dtn.) 1203.9 1314.5 1406.9 1687.5 2205.6 2708.9 3540.6 4206.1 5098.4Energy Sales (Gwh) 14127 14580 14835 16660 20372 23587 28789 31854 36175Adi. Avg. Sate Price (fan/kWh) 8.5 9.0 9.5 10.1 10.8 11.5 12.3 13.2 14.1

General Tariff Revision 0X OX 8X 11X 242 25X 23X 22X 20XRevised Price (fen/kWh) 8.5 9.0 10.2 11.2 13.4 14.4 15.1 16.1 16.9

---.-.-..-.................................. ....... ............... . ......................................................... ... ...............................

AVERAGE SALES PRICE (fan/kih) 8.5 9.0 10.2 11.2 13.4 14.4 15.1 16.1 16.9SELF -IANIN ATIsO (2)- _ - O 1. 129 27 1. 21-06 40 56 28SELF FINAN"CINIG RATIO (%) 17.7 12.9 12.7 13.6 20.1 20.6 24.0 25.6 28.2

- 85 - ANNEX 21

Page 9 of 24

CHINABEILUNtGUG POWER EXTENSION PROIECT

ZHEJIANG PROVINCIAL ELECTRIC POlER WJREAU

INVESTMENT PROGRANuuu=Sauasuuauauu=u

CAPITAL EXPENDITURES 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 TOTAL. ................... . ..... ..... .... .... .... ---- ---- .... .... .... .... . ... .. .... .... ... ..

LOANS

PCRC loans-A 9 Local loans-8............. ............... .... .....

atIII 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Mt II 30.7 22.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 S3.6

_ -. t III 40.0 72.8 167.7 95.5 19.1 0.0 0.0 0.0 0.0 395.0hydro 55.0 53.0 32.4 0.0 0.0 0.0 0.0 0.0 0.0 140.4

s hydro 25.0 41.6 28.6 0.0 0.0 0.0 0.0 0.0 0.0 95.2hydro 4.7 11.4 8.3 0.0 0.0 0.0 0.0 0.0 0.0 24.4hydro 0.0 0.0 6.7 19.1 12.7 0.0 O.U 0.0 0.0 38.5

etion I 65.3 129.5 124.4 0.0 0.0 0.0 0.0 0.0 0.0 319.2ction II 0.0 0.0 0.0 142.8 118.2 137.0 0.0 0.0 0.0 398.0ction III 0.0 0.0 0.0 0.0 0.0 0.0 152.2 159.6 150.9 462.7ase IUinit 1, 500kv Line 1 87.8 188.7 305.3 242.0 57.2 0.0 0.0 0.0 0.0 881.1iase ItUnit 2, 500kv Line 2 0.0 8.5 130.6 189.5 141.8 31.6 48.0 0.0 0.0 549.9

vnase 11 0.0 0.0 0.0 0.0 50.8 162.4 576.5 1074.5 817.4 2681.6t I 0.0 0.0 44.7 179.0 635.4 812.0 576.S 92.4 0.0 2339.9ine 99.4 31.2 193.4 155.1 0.0 0.0 0.0 0.0 0.0 479.1

_ _ _ _l II 0.0 0.0 0.0 0.0 0.0 0.0 44.7 179.0 635.4 859.0

PCBC loans-B

Hunanzhen hydro 0.0 0.0 4.5 10.7 4.4 0.0 0.0 0.0 0.0 19.7

Local loans-A..............Talzhou Thermal III 94.0 41.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 135.9

IBRD loan..........Belliungang Phase I(Unit 1 500kv Line 1 62.1 370.3 292.6 22.1 76.6 0.0 0.0 0.0 0.0 823.6Beitungang Phase IlUnit 2, SOOkv Line 2 0.0 52.4 193.5 219.4 U8.6 4.8 51.8 0.0 0.0 610.S

Grants

Smell Project 2.0 2.5 2.5 3.0 3.0 3.5 3.7 4.0 4.3 28.5

Totat S66.0 1026.8 1535.1 1276.. 1207.7 1151.2 1453.4 1509.5 1607.9 11335.8

Project Cost Calculation (USS Million) 1987 1988 1989 1990 1991 1992 1993 1V4 1995 TOTALProposed Beitungwn Extersion Project ---- ---- --.- ---- .... - .... .... -

.....................................

Foreign Base Cost 14.2 52.3 S9.3 24.0 1.3 14.0 0.0 0.0 165.0Escalated Foreign Cost (RDV) 14.4 S4.7 63.8 26.7 1.5 16.9 0.0 0.0 178.0

(Don. Inf.) 14.7 58.5 70.7 30.4 1.8 20.2 0.0 0.0 196.3Local Base Cost 0.0 22.4 26.7 16.5 5.9 4.7 0.0 0.0 76.2Escalated Local Cost (MUV) 0.0 2Z.5 28.7 18.4 6.8 5.7 0.0 0.0 83.1

(Don. Inf.) 0.0 25.1 31.8 21.0 8.0 6.8 0.0 0.0 92.7

- 86 - AINEX21

Page 10 of 24

CHINABE; UNGANG POWER EXTENSION PROJECT

ZHEJIANG PROVINCIAL ELECTRIC POWER BUREAU

IWVESTMENTS (INCLUDING IDC) 1986 1987 1988 1989 1990 1991 1992 193 1994 1995 TOTAL-------------- .... --- .... . .... .... .... .... ..... .... .... . . .. ..

LOANS

PCBC loars-A & Local loens-B... ... .. .... . . . . . .

8anshan Thermal III 69.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 69.0Zhenghei Thermal II 104.0 30.7 22.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 157.6Zhenghai Thermal III .4.5 41.2 76.1 175.4 95.5 19.1 0.0 0.0 0.0 0.0 421.8Jinshuitan hydro 447.7 72.1 59.6 32.4 0.0 0.0 0.0 0.0 0.0 0.0 611.8Shitang hydro 58.4 27.6 45.4 32.1 0.0 0.0 0.0 0.0 0.0 0.0 163.5Shangbiao hydra 19.1 5.5 12.5 9.8 0.0 0.0 0.0 0.0 0.0 0.0 46.8Hunanzhen hydro 0.0 0.0 6.8 19.7 13.9 0.0 0.0 0.0 0.0 40.4Other Construction 1 87.4 69.6 137.5 137.3 0.0 0.0 0.0 0.0 0.0 0.0 431.8Other Construction It 0.0 0.0 0.0 145.4 125.5 149.2 0.0 0.0 0.0 420.1Other Construction III 0.0 0.0 0.0 0.0 0.0 0.0 154.9 168.1 165.2 488.39eitunwing Phase I(Unitl,Linel) 38.0 90.7 196.8 322.6 269.7 57.2 0.0 0.0 0.0 0.0 975.0Beitungang Phase I(Unit2,Line2) 0.0 8.7 133.2 198.0 156.6 31.6 48.0 0.0 0.0 576.0Beilungang Phase 11 0.0 0.0 0.0 0.0 51.7 167.2 594.8 1123.1 859.6 2796.4Jiaxing Thermal I 0.0 0.0 45.5 183.8 655.0 858.4 513.1 92.4 0.0 2448.3500 kv Other line 58.1 103.3 37.6 204.0 172.4 0.0 0.0 0.0 0.0 0.0 575.4Jiaxing Thermal II 0.0 0.0 0.0 0.0 0.0 0.0 45.5 183.8 655.0 884.4

PCBC loans-B

Hunanzhen hydro 0.0 0.0 4.6 11.5 5.8 0.0 0.0 0.0 0.0 21.9

Local loans-A

Taizhou Thermal III 50.9 96.9 44.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 192.2

I-RO loan

Beltungang Phase I(Unitl,Linel) 9.0 62.1 370.3 292.6 22.1 76.6 0.0 0.0 0.0 0.0 832.6Beltungang Pkase I(Unit2,LIne2) 0.0 52.4 193.5 219.4 88.6 4.8 51.8 0.0 0.0 610.5

Grants

Small Project 12.1 2.0 2.5 2.5 3.0 3.0 3.5 3.7 4.0 4.3 40.6

Total 968.1 601.8 1066.6 1592.3 1340.4 1253.0 1214.7 1511.8 1571.4 1684.2 12804.3

- 87 - ANNEX 21Page 11 of 24

CHINABEILUNGANG POWER EXTENSION PROJECT

ZNEJIAUG PROVINCIAL ELECTRIC POWER BUREAU

LOAN PARAhE tERSz==zS=U=3=wUU3

INTEREST 1987 1988 1989 1990 1991 1992 1993 1994 1995 TOtal.. ..... .... .. ..... ....... .... ..... .... ..... .... ..... .... ----. ..... ..... ... .... .

Banshan Theratl III--- PCBC loans-A 2.5 2.3 2.2 2.0 1.8 1.7 1.5 1.3 1.2 16.4Taizhou Therwal III---Local loans-A 2.9 4.9 5.2 4.8 4.4 4.1 3.7 3.3 2.9 36.3Zhenghai Thermal II--- PCBC loans-A 4.2 4.8 4.8 4.5 4.1 3.7 3.3 3.0 2.6 35.0Zhenghai Thermal III--- Local loons.B 1.2 3.3 7.8 12.8 13.2 12.6 11.5 10.5 9.5 82.5Jinshuitan hydro--- PCBC Loans-A 17.1 19.7 18.3 17.4 16.0 14.5 13.1 11.6 10.2 137.8Shitang hydro--- PCBC loans-A 2.6 3.8 5.2 5.1 4.7 4.3 4.0 3.6 3.2 36.5Shangbiao hydro--- PCBC loans-A 0.8 1.1 1.5 1.7 1.0 0.9 0.8 0.7 0.6 9.0Hunanzhen hydro--- PCBC Loans-B 0.0 0.0 0.2 0.1 1.3 1.6 1.3 1.1 0.9 7.1--- Local loans-B 0.0 0.0 0.1 0.6 1.2 1.5 1.3 1.2 1.1 6.9Other Construction I--- PCBC loans-A 4.3 8.0 12.8 15.5 13.5 12.5 11.4 10.4 9.4 97.9Other Construction II--- PCBC loans-A 0.0 0.0 0.0 2.6 7.4 12.2 15.1 13.3 12.3 62.9Other Construction III--- PCBC loans-A 0.0 0.0 0.0 0.0 0.0 0.0 2.7 8.5 14.3 25.5Beilungang Phase I(Unit 1. 500kv Line 1)--- RD Loan 3.4 21.8 49.9 63.3 67.5 66.0 61.3 56.6 51.9 441.8--- PCBC loans-A 2.9 8.0 17.2 27.7 34.1 30.7 28.4 26.0 23.7 198.8Beltungang Phase I(Unit 2, 500kv Line 2)--- IORD loan 0.0 2.0 11.5 27.5 39.3 42.9 45.1 46.3 44.4 259.1--- PCBC loans-A 0.0 G.2 2.7 8.5 14.8 17.5 18.9 18.4 17.0 98.0Beitunigang Phase II--- PCDC loans-A 0.0 0.0 0.0 0.0 0.5 2.4 9.1 24.3 42.2 78.5--- Local loans-B 0.0 0.0 0.0 0.0 0.5 2.4 9.1 24.3 42.2 78.5Jiaxing Thermal I-- PCBC loans-A 0.0 0.0 0.8 4.9 14.0 27.5 41.0 42.8 41.2 172.2--- Local loans-B 0.0 0.0 0.0 0.0 5.7 19.0 32.1 33.9 31.5 122.2500 kv Other line--- PCBC loans-A 3.9 6.4 10.6 17.3 20.7 17.9 16.5 15.2 13.8 122.3Jiaxing Thermal II--- PCBC loans-A & Local loans-B 0.0 0.0 0.0 0.0 0.0 0.0 0.8 4.9 19.7 25.4

Total 45.8 86.3 150.9 216.8 265.7 295.8 332.2 361.2 395.8 2150.6;2=5=3===u===zX==a=uu=uu==u

- 88 - ANNEX 21

Page 12 of 24

CHINABEILUNGkAN POWER EXTENSION PROJECT

ZHEJIANG PROVINCIAL ELECTRIC POWER BUREAU

INTEREST DURING CONSTRUCTION 1987 1988 1989 1990 1991 1992 19 1994 1995 TOTAL............... ....... ..... ..... .... ...... .... ...... ... ---- .... ..... .... ----. .... ..... .... ..... .....

en Thermal IIICBC loans-A 0.0ou Thermal IIIcal loans-A 2.9 2.5 5.4hai Thermol ItCBC loans-A 0.0

L" wwhai Thermal III--- Local loans-B 1.2 3.3 7.8 12.3Jinshuitan hydro--- PCBC loans-A 17.1 6.6 23.7Shitang h,ydro--- PC8C loans-A 2.6 3.8 3.5 9.9Shangbiao hydro--- PCBC loans-A 0.8 1.1 1.5 3.3Hunanzhen hydro--- PCBC loans-B 0.0 0.0 0.2 0.7 1.3 2.2--- Local loans-B 0.0 0.0 0.1 0.6 1.2 1.9Other Construction I--- PC8C loans-A 4.3 8.0 12.8 25.2Other Construction 11--- PCBC loans-A 0.0 0.0 0.0 2.6 7.4 12.2 22.2Other Construction III--- PCBC loons-A 0.0 0.0 0.0 0.0 0.0 0.0 2.7 8.5 14.3 25.5Beilungang Phase I(Unit 1, 500kv Line 1)--- 18RD loan 3.4 21.8 49.9 63.3 138.4--- PCBC loans-A 2.9 8.0 17.2 27.7 55.9Beilungang Phase l(Unit 2. 500kv Line 2)--- IBRD loan 0.0 2.0 11.5 27.5 39.3 80.3--- PCBC loans-A & Prov Gov't Loan 0.0 0.2 2.7 8.5 14.8 26.1Beilungang Phase It--- PCBC loans-A 0.0 0.0 0.0 0.0 0.5 2.4 9.1 24.3 21.1 57.4--- Local loans-B 0.0 0.0 0.0 0.0 0.5 2.4 9.1 24.3 21.1 57.4Jiaxing Thermal I--- PCBC loans-A 0.0 0.0 0.8 4.9 14.0 27.5 20.5 67.6--- Local loans-B 0.0 0.0 0.0 0.0 5.7 19.0 16.1 40.7500 kv Other line*-- PCBC loans-A 3.9 6.4 10.6 17.3 38.2Jiaxing Thermal 11 0.0 0.0 0.0 0.0 0.0 0.0 0.8 4.9 19.7 25.4

Total 39.1 63.6 118.7 153.0 84.6 63.5 58.4 61.9 76.3 719.0

CHARGEABLE IOC- ... . . . .

Banshmn Thermal IIITaizhou Thermal III 2.5Zhenghai Thermal IIZhenghai Thermal IIIJinshuitan hydro 6.6Shitang hydro 3,SShangbiao hydroHunanzhen hydroOther Construction IOther Construction IIOther Construction IIIBeilungang Phase l(Unit 1, 500kv Line 1)Beiltngang Phase I(Unit 2, 500kv Line 2)Beilungeng Phase II 42.2Jiaxing Thermal 1 36.65Ct kv Other line

- 89 - ANNEX 21

Page 13 of 24

CHINABEILUNGANG P04ER EXTENSION PROJECT

ZHEJIANG PROVINCIAL ELECTRIC PO4ER BUREAU

REPAYMENT 1987 1988 1989 1990 1991 1992 1993 1994 1995 TOTAL......... .... . ..... ..... .... . .... .... . .. .... .... .... . .... ........ .. ...................

' tan Thermal I l'CRC loan-A 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 4.6 41.4Iou Therml IIICal loans-A A 0.0 12.6 12.6 12.6 12.6 12.6 12.6 12.6 12.6 101.2ihaI Thermal tIPCUC loans-A 10.S 10.S 10.5 10.5 10.5 10.5 10.5 10.5 10.5 94.6phal Thermal III.ocal Loans- 0.0 0.0 0.0 28.1 28.1 28.1 28.1 28.1 28.1 168.7

...nniulUtaij hydro-- PC8C loans-A 0.0 40.3 40.3 40.3 40.3 40.3 40.3 40.3 40.3 322.8Shitwng hydro--- PCBC loans-A 0.0 0.0 10.7 10.7 10.7 10.7 10.7 10.7 10.7 74.6Shangbiao hydro--- PC8C loans-A 0.0 0.0 0.0 3.1 3.1 3.1 3.1 3.1 3.1 18.7Hunanzhen hydro--- PCRC loans-B 0.0 0.0 0.0 0.0 0.0 2.2 2.2 2.2 2.2 8.7--- Local loans-B 0.0 0.0 0.0 0.0 0.0 2.7 2.7 2.7 2.7 10.8Other Construction I--- PCBC loans-A 0.0 0.0 0.0 28.8 28.8 28.8 28.8 28.8 28.8 172.7Other Construction II--- PC8C loans-A 0.0 0.0 0.0 0.0 0.0 0.0 28.0 28.0 28.0 84.0Other Construction III--- PC8C loans-A 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Bellunggeng Phase ItUnit 1, 500kv Line 1)--- IBRD loan 0.0 0.0 0.0 0.0 S5.5 55.5 55.5 55.5 55.5 277.5--- PC8C loans-A 0.0 0.0 0.0 0.0 6S.0 65.0 65.0 65.0 65.0 32S.0Beiltungang Phase ICUnit 2, 50 kv Line 2)

-18R loan 0.0 0.0 0.0 0.0 0.0 0.0 11.1 23.6 25.5 60.2PC8C loans-A 0.0 0.0 0.0 0.0 0.0 0.0 38.4 38.4 38.4 115.2

Bellun3ng Phase It--- PCBC loans-A 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0-- Local loans-8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0I§axfng ThermaL I--- PC8C loans-A 0.0 0.0 0.0 0.0 0.0 0.0 91.7 91.7 91.7 275.0--- Local Loans-B 0.0 0.0 0.0 0.0 0.0 0.0 69.1 69.1 69.1 207.3500 kv Other line--- PCBC loans-A 0.0 0.0 0.0 0.0 38.4 38.4 38.4 38.4 38.4 191.8Existing amortization 48.0 48.0 48.0 48.0 48.0 48.0 48.0 48.0 48.0 432.0

Total 63.1 116.1 126.8 186.8 345.7 350.5 588.9 601.3 603.2 2982.4*-#UUUUuuUSuUmUUUUUUUinUUUUuUU _ _ _---- __-------an--u

Loan Repayment from GpWeciation 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 TOTAL...................... .......... .... .... .... .... ..... ..... ..... . . .. . ._.. . .... ...... .

Fixed asset additions 301.0 179.5 633.1 485.7 1152.4 2537.3 1445.8 1880.7 1464.1 1654.8 11734.50epreciation rate 4 X 12.0 7.2 25.3 19.4 46.1 101.5 57.8 75.2 58.6 66.2 469.4lepayment from depreciation 0.0

------- 1986 9.6 9.6 '.6 6.0 6.0 6.0 6.0 6.0 6.0 65.0-- 1987 S.7 5.7 5.7 3.6 3.6 3.6 3.6 3.6 35.2

... 1988 20.3 20.3 20.3 12.7 12.7 12.7 12.7 111.4------- 1989 15.5 15.5 15.5 9.7 9.7 9.7 75.8-- 1990 36.9 36.9 36.9 23.0 23.0 156.7------ 1991 81.2 81.2 81.2 50.7 294.3------- 1992 46.3 46.3 U.3 138.8------ 1993 60.2 60.2 120.4

1994 46.9 U.9

Total 9.6 15.4 35.6 47.6 82.3 155.9 196.3 242.7 2S9.1 1044.5

90 A ANNEX 21Page 14 of 24

CHINASEIi"mANG PWER EXTENSION PROJECT

ZHEJIANG PROVINCIAL ELECTRIC POWIN BUllAU

FlEE ASSET FORATIONa*Suus3$..33R..g8.uUu

ftEES ASSET ADDITIONS 1987 1918 1989 t990 1991 1992 1993 1994 199 1996 TOTAL..... ........................... .... .... . .... . .... .... . .... .... . .... .... ..... ... .... ... .....................

LOANS

; Therl 111 0.0taihou Th ftl 1 96.1 96.1 192.22herahi Tle_a I 78.8 78.8Z2enha Therml III 421.8 421.8Jinhuitan hydro 407.9 203.9 611.8Shiten hydra 54.5 109.0 163.SShangblo hydro 46.8 46.8Ntunmhen hydro 62.3 62.3Other Construction I 43t.8 431.8Other ConstrucCon It 420.1 420.1Other Constructtn III 488.3 488.3efiiWur Plie ICUnit l,S00 kv Line 1) 1507.6 1807.6

Be1twin Phase ICUnit 2,500 kv Line 2) 1186.5 1186.5nei,imunW Phase It 1398.2 1398.2 2796.4Jiaxing Thema 1 1224.2 1224.2 2448.3500 v Other line 573.4 575.4

.............................................................. . .......................... .................................................................. - ...

Cspitelized Sorrowlngp 78.8 504.0 354.5 1009.3 2383.0 1248.8 164.3 ;224.2 1398.2 1886.4 11731.5

Gr ats TOTAL

11 Project 2.0 2.5 2.5 3.0 3.0 3.5 3.7 4.0 4.3 28.5completed Renovations 55.2 71.4 72.8 83.6 94.3 135.9 174.6 177.Z 193.0 1058.1Caopleted Oist. Extanslons 43.5 55.2 S5.9 S6.4 57.0 ST.6 50.2 58.7 S9.3 501.9................ .......................

Capitaelied Grants 100.7 129.1 131.2 14j.1 154.3 197.0 236.4 240.0 256.7 15a8.4

TOTAL CAPITALIZATIONS 179.5 633.1 465.7 1152.4 2S37.3 144S.8 18N0.7 1464.1 16S4.8CINUSLTIW CAPITALIZATIOSS 179.5 612.6 12.3 2450.8 4988.1 6433.8 8314.5 9778.6 11433.5

CONSTRUCTION WIP 1987 1986 1989 1990 1991 1992 1993 1994 1995........... .... .. .. .. .. . . . . .. ..

CWIP et begfiifng of year 276.2 797.2 1337.3 2S92.6 2920.7 1787.6 1130.0 1613.9 1957.1Construction during year 601.8 1066.6 1592.3 1340.4 1253.0 1214.? 1S11.6 1571.4 1684.2Work com eted during year 80.8 S06.S 357.0 1012.3 2386.0 12S2.3 1648.0 1228.2 1402.5

CWIP at end of year 276.2 797.2 1357.3 2592.6 2920.7 1787.6 1750.0 1613.9 1957.1 2238.8

ANNUAL OEPtECIATION 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995................... .... . ..... ..... ..... ..... .... . .... .... . . ... . .... .... . .... .......... .......... ..

Annuat Fixed Asset Additions 301.0 179.5 633.1 48S.7 1152.4 2537.3 1445.8 INS.? 1464.1 1654.8Cum. Incremmntat fixed Assets 301.0 480.5 1113.6 1599.3 2751.8 5289.1 6734.8 8615.5 10079.6 11734.5Incrementat Depreciation 31.9 34.3 87.0 160.8 240.5 307.0 373.9 436.3Anual Depreciation 69.0 90.0 100.9 123.3 156.0 229.8 309.S 376.0 442.9 505.3Cuul. Historic Depreciation 511.0 601.0 701.9 825.1 981.2 1211.0 1520.3 1896.5 2339.4 2844.6

- 91 - ANNEX 21Page 15 of 24

CHINASEILUNGANG POWER EXTENSION PROJECT

ZHEJIANG PROVINCIAL ELECTRIC POWER BUREAU

REVALUATION OF ASSETS..... ..... . ... -U

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995,....................... .... ..... .... ..... .... ..... .... ..... ....

GROSS FIXED ASSETS.............. ........................

Historical Cost:opening Balance 1960 2261 2441 3074 3559 4712 7249 86 10575 12040Additions 301 180 633 486 1152 2S37 1446 1881 1U4 165S

................................................................................................................

Closing Bat. - Historical Cost 2261 2441 3074 3559 4712 7249 865 1057s 12040 13694

RevtluationOpening Balance 900 3222 3402 4332 5138 6662 971S 11639 14550 TO008Additions 322 180 633 486 1152 2537 144 1881 1464 1655Revaluation Factor 1.00 1.08 1.07 1.07 1.07 1.07 1.07 1.07 1.07

Revalued Gross Fixed Assets 3222 3402 4332 5138 6662 971S 11839 145S0 T7008 19622

GROSS FIXED ASSETS 2261 2441 3074 3s59 4712 7249 869 10575 12040 13694

Cimulative D precfation:Opening Balance 640 727 822 949 1104 1316 1643 2049 2557 3156Depr. on Inherited Assets 74 74 S0 86 91 97 104 110 118 125Depr. on Incremental Assets 13 20 47 70 120 230 302 397 482 579

.................................. ....................................................................................................................

ACC. DEPRECIATION (Revalued) 727 822 949 1104 1316 1643 2049 2557 3156 3861

NET FIXED ASSETS (Revalued) 2495 25e8 3383 4034 5346 8071 9790 11993 13851 15961

REVALUATION RESERVE 745 740 1012 1299 1615 2033 2615 3314 4151 5111

- 92 - ANNEX 21

Page 16 of 24

CHINABEILUNANG POWER EXTENSION PROJECT -

ZHEJIANG PROVINCIAL ELECTRIC POWER BUREAU

Beitlungan Thermal Power Extension Project

IBRD loon 1968 1989 1990 1991 1992 1993 1994 1995 TOTAL...... ............. ..... ..... ....... i..... .... ..... .... ..... .... ..... .... ..... .....

Unit No.2, Training & Tech. AssistanceArnnl disbursment in US 14.2 S2.3 S9.3 24.0 1.3 14.0 165.0Anual disbursement in R31 52.4 193.5 219.4 8.6 4.8 51.8 0.0 0.0Cum disbursemnt S2.4 245.9 465.3 553.9 558.7 610.5 610.5 610.5Cum disbursement (mid-year) 26.2 149.1 355.6 509.6 556.3 584.6 610.5 610.5Undisbursed (subject to c/f) 584.3 461.4 254.9 100.9 54.2 25.9 0.0 0.0Camitwent fee 0.75X 4.4 3.5 1.9 0.8 0.4 0.2 0.0 0.0Cum comitment fee 4.4 7.8 9.8 1O.S 10.9 11.1 11.1 11.1Anmal repament 11.1 23.6 25.5Cum repayment 11.1 34.7 60.2SubJect to interest 26.2 149.1 3S5.6 509.6 556.3 584.6 599.4 575.8Interest 9 7.72 2.0 11.5 27.5 39.3 42.9 45.1 46.3 44.4Cum interest 2.0 13.5 41.0 80.3 123.3 168.4 214.7 259.1

Transmission Line 2Anmul disburseent in US 0.0 0.0 0.0 0.0 0.0 0.0Anual disbursement in ESB 0.0 0.0 0.0 0.0 0.0 0.0 0.0Cum disbursemwnt 0.0 0.0 0.0 0.0 0.0 0.0 0.0Cum disbursement (mid-year) 0.0 0.0 0.0 0.0 0.0 0.0 0.0Undisbursed (subject to c/f) 0.0 0.0 0.0 0.0 0.0 0.0 0.0cimitment fee 0.7t5 0.0 0.0 0.0 0.0 0.0 0.0 0.0Cue commitment fee 0.0 0.0 0.0 0.0 0.0 0.0 0.0Amusl repavment 0.0 0.0 0.0Cum repayment 0.0 0.0 0.0SubJect to Interest 0.0 0.0 0.0 .0.0 0.0 0.0 0.0Interest a 7.72X 0.0 0.0 0.0 0.0 0.0 0.0 0.0Cum interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0

SubtotetAmuat disbursement in US 14.2 52.3 59.3 24.0 1.3 14.0 0.0 0.0 165.0Anusl disbursemnt in RNB 52.4 193.5 219.4 88.6 4.8 51.8 0.0 0.0CUM disbursement 52.4 245.9 465.3 553.9 558.7 610.5 610.5 610.5Cu. disburseent (mid-year) 26.2 149.1 355.6 509.6 556.3 584.6 610.5 610.5Undisbursed (subject to c/f) 584.3 61.4 254.9 100.9 54.2 25.9 0.0 0.0Comitment fee 0.753 4.4 3.5 1.9 0.8 0.4 0.2 0.0 0.0Cum comitment fee 4.4 7.8 9.8 10.5 10.9 11.1 11.1 11.1Annusl repament 0.0 0.0 0.0 0.0 0.0 11.1 23.6 25.5Cum repayment 0.0 0.0 0.0 0.0 0.0 11.1 34.7 60.2Subject to interest 26.2 149.1 355.6 509.6 556.3 584.6 599.4 575.8Interest a 7.72X 2.0 11.5 27.5 39.3 42.9 45.1 46.3 44.4Cu. interest 2.0 13.5 41.0 80.3 123.3 168.4 214.7 259.1

PCBC loans-A and Prov. Gov't loans------------- price con of fC 2.1 22.8 42.4 24.0 1.7 22.9 115.8

base cost of LC 0.0 a3.0 96.7 61.1 21.8 17.4 282.1Unit No.2 Anual investment 2.1 11S.6 160.1 101.7 31.1 48.0 0.0 0.0IBRO interest 2.0 11.5 27.5 39.3IBRD comaitment fee 4.4 3.5 1.9 0.8 0.4Total nnuat investment 8.5 130.6 189.5 141.8 31.6 48.0 0.0 0.0Cu. investment 8.5 139.1 328.6 470.3 501.9 549.9 549.9 549.9Repayment 38.4 38.4 38.4Cu. repayment 38.4 76.8 115.2Subject to interest 4.3 73.9 236.6 410.8 486.1 525.9 511.5 473.1Interest a 3.6X 0.2 2.7 8.5 14.8 17.5 18.9 18.4 17.0Cuiulative interest 0.2 2.8 11.3 26.1 43.6 62.6 81.0 98.0

- 9'j - An"i:, Z1Page 17 of 24

CHINASEILUNGANG POiER EXTENSION PROJECT

ZHEJIANG PROVINCIAL E!ECTRIC POWER tUREAU

FUEL, PURCHASES & OPER. EXPS.

FUEL COST CALCULATION 1966 1987 1988 1989 1990 1991 1992 1993 1994 1995.......... ....................... .... .... .... .... .... .... .... .... .... ................... .. ..

Cost of Coal & Oit (Exc. Beilungang)................................

Electricity generated (GSA) 10685 114S5 12035 15160 18160 18160 21160 24760 28360electricity generated -- o@t 1480 1400 1400 1400 1400 1400 1400 1400 1400electricity generated --coal 9205 10055 1063S 13760 16760 16760 19760 23360 26960

Oil I Generation 0.14 0.12 0.12 0.09 0.06 0.08 0.07 0.06 0.05Coat G Generation 0.86 0.68 0.68 0.91 0.92 0.92 0.93 0.94 0.95

Consuiption (ton oil eq./GUh) 378.0 378.0 377.0 370.0 361.0 357.0 351.0 349.0 349.0

Standard (000 ton oil eq.) 4039 4330 4537 S609 6556 6483 7427 8641 9898Oil (000 ton oil eq.) 559 529 528 S18 505 500 491 489 489Coat (O0 ton oil eq.) 3479 3801 4009 5091 6050 5983 6936 8153 9409

Std oil price (Yuan/toe) 110.00 114.40 122.96 131.25 139.78 148.86 158.54 168.85 179.82

Std coal price (Constant Y) 105.00 105.00 108.00 111.65 111.65 111.65 111.65 111.65 111.65 111.63Std cool price (Current Y) 105.00 105.00 112.32 124.80 133.22 141.U8 151.10 160.92 171.38 182.52

Cost of Oil (min Y) 61.5 60.5 64.9 68.0 70.6 74.4 77.9 82.5 87.9Cost of coal (min Y) 365.3 426.9 500.4 678.2 85.4 904.1 1116.1 1397.2 1717.3

Beitugang Unit 2....... ........

Electricity generated (GWh) 1500 3600 3600 3600Consumption (ton oil eq.IGWh) 310 306 306 306Standard coal V OOO ton) 465 1102 1102 1102Cost of coal (mIn Y) 70.3 177.3 18.8 201.1

TOTAL FUEL COST...............

Cost of Oil (min Y) 61.5 60.S 64.9 68.0 10.6 74.4 77.9 82.5 87.9Cost of coat (min Y) 365.3 426.9 500.4 678.2 858.4 974.3 1293.4 1586.0 1918.4

.......................................... ................................................................................... ................ ................

Total 426.9 487.4 565.3 746.2 929.0 1048.7 1371.3 1668.5 2006.2

** Coal price adJ. (Yuan) 0.00 7.32 19.80 28.22 36.68 46.10 55.92 66.38 77.52Coat cost adi. (min Y) 0.0 27.8 79.4 143.7 223.1 297.2 449.4 614.3 814.8

- 94 - ANNEX 21Page 18 of 24

CHINABEILUNGANG POWER EXTENSION PROJECT

ZHEJIANG PROVINCIAL ELECTRIC POWER BUREAU

POWER PURCHASES 1986 1987 1988 1989 1990 191 1992 1993 1994 1995..................... .... . .... . .. .... .... . .... .... . .... .... . .... .....................................

Purchased power (GWh) 3700 4245 4474 4200 4200 4627 6738 7674 7654 9027From Others 774 774 500 500 1427 3738 S174 5654 7027From ECEPA 3f,00 3471 3700 3700 3700 3200 3000 2500 2000 2000

.......... 7 ...........................................................................................Purchase Price (Yuan)

From Others 66.00 68.64 73.77 78.75 110.00 113.58 120.96 128.82 137.19From ECEPA 45.00 58.40 46.0 46.00 46.00 46.00 46.00 46.00 46.00 46.00

Bas Price 43.00 49.64 37.00 37.00 37.00 37.00 37.00 37.00 37.00 37.00Auth. Coal Adjustments 2.0 8.8 9.0 9.0 9.0 9.0 9.0 9.0 9.0 9.0

Cost of purchased (mtn Y)From Others 0.0 51.1 53.1 36.9 39.4 1S7.0 424.5 625.8 728.3 964.1From ECEPA 166.5 202.7 170.2 170.2 170.2 147.2 138.0 115.0 92.0 92.0

Total 166.5 253.8 223.3 207.1 209.6 304.2 562.5 740.8 820.3 1056.1_nuuuuuuaumuuinaauuuauuuuuaustsuuauuuuuu # -u ---- u - - -- - --f SSS- --S----

* Coal price adJ. (Yuen) 0.00 7.32 19.80 28.22 36.88 46.10 5S.92 66.38 77.52Coal cost adJ. (mln Y) 0.0 27.1 73.3 104.4 118.0 138.3 139.8 132.8 155.0

NA;NTENANCE 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995......... - - - -- .... ....... .... --- .. .. ...

Incremntal Maintenance 4.2 6.7 15.6 22.4 38.5 74.0 94.3 120.6 141.1Annual aintenance Expense 27.3 31.5 34.0 42.8 49.6 65.8 101.3 121.5 147.9 168.4

OPERATION & MAINTENACE 1986 1987 1988 1989 1990 1991 ¶992 1993 1994 1995........... ............ . .... .... .... . . ... . ----. ---- .... . .... .... . .... .....................................

Water & Material 18.6 21.3 24.5 28.2 32.4 37.3 42.9 49.3 56.7 65.3with escalation 18.6 21.3 25.5 31.5 38.7 47.4 58.1 71.1 87.1 106.7

Nusber of Eqfloyees (000) 26.6 27.9 29.0 30.1 31.2 32.3 33.4 34.5 35.6 36.7Average Wage (Yuan/Year) 1516 1610 1852 1852 2130 2130 2449 2449 2449 2449Wages 40.3 44.9 53.6 55.7 66.4 68.7 81.7 84.4 87.1 89.8Maintenance 27.3 31.5 34.0 42.8 49.6 65.8 101.3 121.5 147.9 168.4

................................................................................................................

Total 86.1 97.7 113.1 130.1 154.7 181.9 241.1 277.1 322.1 364.8

ADMINISTRATION 1986 1987 1988 1989 1990 1991 1992 19 1994 1995.............. .... .... .... ---- ... ... .... .... .... ....

Base Cost 37.2 38.9 42.0 45.3 49.0 52.9 57.1 61.7 66.6 71.9Administration Expense 37.2 38.9 43.7 50.7 58.4 67.2 77.3 88.9 102.3 117.6

* ---- a- - ass Xsssa swX----- --- aw-s-s -ssu-r=-

ANNEX 21Page 19 of 24

CHINABEILUNeGAN POWER EXTENSION PROWECT

ZHEJIANG PROVINCIAL ELECTRIC PO4ER BUREAU

SPECIAL FUNDS CALCULATIONS

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995....... ..... .... ........ .... ..... . .... ..... .... .......

Renewal & Renovation Furd. ..... . . . . . . . . .

Annal allocatIon 124.0 90.0 91.3 107.9 120.4 182.3 227.2 220.1 246.6 262.6Annuat expenditure 108.0 72.0 73.0 86.3 96.3 145.8 181.8 176.1 197.3 210.1Balance at year end 83.9 118.7 138.6 173.6 210.4 298.3 389.6 435.2 504.5 574.1Coapleted Renovations 104.8 55.2 71.4 72.8 83.6 94.3 135.9 174.6 177.2 193.0

Maintenance Funid

Arual allocation 33.0 31.S 34.0 42.8 49.6 65.8 101.3 121.5 147.9 168.4Anun l expenditure 24.0 31.5 34.0 42.8 49.6 65.8 101.3 121.5 147.9 168.4Blance at year end 39.7 39.7 39.7 39.7 39.7 39.7 39.7 39.7 39.7 39.7~~~~~~~~~~~~~~~. _. _................ ....................... ................. ........... ........ ..................

Employee Benefits Fwid..... ..........

nnual allocation 14.0 14.6 15.1 15.7 16.4 17.0 17.7 18.4 19.2Amual expenditure 11.2 11.6 12.1 12.6 13.1 13.6 14.2 14.7 1S.3Balanee at year end 49.2 52.0 54.9 57.9 61.1 64.4 67.8 71.3 75.0 78.8

..... ....... .................. .................. *......................... ........................................................ ...

Distribution Extensions Fund--------- ....... .............

Amuat attocation 69.0 69.3 70.0 70.7 71.4 72.1 72.8 73.6 74.3 75.0nnual expenditure 54.4 55.4 56.0 56.6 57.1 57.7 58.3 58.9 59.4 60.0Balance at year end 97.0 122.8 137.5 152.4 167.3 182.4 197.7 213.1 228.6 244.4Completed Dist. Extensions S4.1 43.S 55.2 55.9 56.4 57.0 57.6 S8.2 S8.7 59.3

... ... .. ... ... .. ... .. ... ... .. ... .. ... ... .. ... ... .. ... .. ... ... .. ................ ..

Total Speciat Funds........ ...............

Awuial allocation 204.8 209.8 236.6 257.2 336.5 418.4 432.9 487.2 5?W.2Annul expenditure 170.1 174.6 197.8 215.7 282.4 354.9 370.? 419.3 453.8Balance at year end 326.3 389.7 427.2 480.1 535.0 641.3 751.2 815.8 904.4 993.5Speciat Funds Outftows 18.9 141.4 172.3 183.6 202.3 230.2 308.4 368.4 398.6 436.0

56.5 betance of other funds

ANNEX 21Page 20 of 24

CHINAUEILUNGANG POWER EXTENSION PROJECT

ZHEJIANG PROVINCIAL ELECTRIC POGER BUREAU

BREAKEVEN PRICING

Compoments of Gross Revenue 1987 1988 1989 1990 1991 1992 1993 1994 199f.......................... ........... ..... ..... .......... ..... ....... . .... .... ..... .. .. . .... ..... .... ... ..... ..... .....

Operatiw% Costs 1027.6 1100.3 1228.3 1512.3 1985.6 2577.7 3289.6 3869.2 4661.8Interests 6.7 31.7 35.7 63.8 181.1 232.4 310.4 299.3 361.8Aortization met by Net Incom 63.1 106.5 111.4 151.2 298.1 268.2 433.0 405.0 360.5Income TEx 17.1 17.8 18.5 19.2 20.0 20.8 21.7 22.5 23.4Employee Benefits Speciat Funds 14.0 14.6 15.1 1s.7 16.4 17.0 17.7 18.4 19.2Net Working Capital Increase 8.0 0.9 3.4 24.3 38.4 22.3 43.6 37.4 42.7*-................................ ....................................... .... .....................

Gross Operating Requirement 1136.6 1271.7 1412.5 1786.6 2539.6 3138.5 4115.9 4651.8 5469.4

Sates Votume (GWh) 14127 1450 14835 16660 20372 23587 28789 31854 36175

HINIMM AVERAGE TARIFF 8.0 8.7 9.5 70.7 12.5 13.3 14.3 14.6 15.1

Actual Estimete ----------------------Forecast-SELF FINNUCING RATIO 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

w.s . . ~~~~.... .... .... .... .... ---- .... .... .... ----. .. ...... ....... .

AJvt Capitel Expenditures 332.4 703.9 1217.1 1782.4 1571.2 1443.6 1408.1 1744.5 1807.4 1936.S

Internally Generated Cash 231.3 301.8 356.4 416.5 493.9 787.4 890.4 1185.6 1321.2 1481.7(tess) operationet Requirements 139.5 176.4 195.4 252.5 336.6 620.3 65s.7 934.1 1054.7 1200.7(less) Increased Cash Sstanmes 100.6 26.6 23.3 20.3 (10.3) (23.6) 41.1 (17.9) 30.5 (13.6).. . ....... .. .. .. .. .. .-. .. . ....... ..................................................... -.-..... *. . .-- . . . ................ --....... ..........

Cash Avaitable for investment -8.9 98.7 137.7 143.7 167.5 190.7 193.S 269.3 236.0 294.6

Remittances to Government 8.4 33.9 21.4 49.7 49.9 1OS.2 121.5 127.2 232.7 311.1.. .. . .......... ...... ........... .. .. ... ....... ......... .... ...... .. ...... ...... ... ....................

EARNED CASH -0.5 132.6 159.1 193.4 217. 295.9 315.0 306.5 468.6 605.7

SELF FINANCING RATIO (X) -0.2 17.7 12.9 12.7 13.6 20.1 20.6 24.0 25.6 28.2

emo Items: Average Price (Current) 8.5 9.0 10.2 11.2 13.4 14.4 15.1 16.1 16.9Average Price (Costant) 8.5 8.7 9.2 9.4 10.6 10.6 10.5 10.5 10.3

ANNEX 21Page 21 of 24

Assumptions to Financial Projections

A. Income Statement

1. Average price is derived in the attached table entitled"Derivation of Average Tariff" (page 8 of this Annex).

2. Operating Revenue is the product of energy sales in GWhmultiplied by the average price.

3. Fuel Costs are derived in the table entitled "Fuel, Purchasesand Operating Expenses" (page 17 of this Annex). ,

4. Purchased Power is derived in the Table entitled "Fuel,Purchases and Operating Expenses" (page 18 of this Annex).

5. Operation Expenses are derived in the table entitled "Fuel,Purchases and Operating Expenses" (page 18 of this Annex).

6. Maintenance Costs represent the specific year's allocation tothe Maintenance Special Fund. The allocation represents 1.41of gross fixed assets in services. Activity of theMaintenance Special Fund is derived in the table entitled"Special Fund Calculations" (page 19 of this Annex).

7. Sales Tax represents 101 of operating revenues.

8. Depreciation is assumed at 3.6Z of gross fixed assets forinherited assets and 41 for assets capitalized after Dec. 31,1985.

9. Interest. ZPEPB's borrowings will be obtained from threesources: (a) the onlent proceeds of World Bank loans, at theBank's standard variable rate (currently at 7.72% p.a.); (b)direct loans from People's Construction Bank or China, at 3.61p.a. and (c) local loans from the Zhejiang ProvincialGovernment, also at 3.6% p.a. Interest is derived on aproject by project basis in the subtable entitled "Interest"within the table entitled "Loan Parameters" (page 11 of thisAnnex). In turn, interest charged to operations is derived bysubtracting interest during construction and Chargeable IDC,both derived in subtables carrying those very titles, fromtotal interest.

10. Income Tax represents 551 of net income less debt repaymentswhich must be met from distributions of net incou". (Thisitem is entitled "Transferred to Government Funds" on theincome statement).

ANNEX 21Page 22 of 24

11. Remittances to Government represents net income after incometax and after authorized distributions. These funds areremitted in cash partly to MWREP and partly to the Ministry ofFinance.

12. -Employee Benefit Special Fund represents the annual allocationto this particular special fund; this allocation is met as adistribution f:cm net income. The operation of that specialfund is summarized in the table entitled "Special FundCalculations" (page 19 of this Annex). Allocations to thisspecial fund are assumed to increase by 42 e*.^h year.

13. Chargeab.e IDC represents interest during construction which,according to regulations, must be met by distributions fromnet income. Annual amounts are derived in the table entitled"Loan Parameters" (page 11 of this Annex).

B. Funds Flow Statement

1. Distribution Improvements Special Funds represents thereceipts of this particular special fund. That fund'soperation is summarized in the table entitled "Special FundCalculations" (page 19 of this Annex). The allocation (or forthis fund, receipts) is expecced to increase by 1Z per year.

2. All Borrowings are derived in the table entitled "InvestmentProgram" (page 9 of this Annex).

3. Capital Expenditures, other than interest during constructionRenovations and Distributions Improvements are also derived inthe table entitled "Investment Program" (page 9 of thisAnnex).

4. Interest During Construction is derived in the subtablecarrying that name which is included in the main table "LoanParameters" (Page 11 of this Annex).

5. Renovations represents 802 of the previous year's and 202 ofthe expenditures from the Special Fund for Renovations, theoperation of which is summarized in the table entitled"Special Fund Calculations" (page 19 of this Annex).

6. Distribution Improvements represent 80Z of the previous year'sand 20Z of the year prior to the previous year's expendituresfrom the Distribution Improvements Special Funds, theoperation of which is summarized in the table entitled"Special Funds Calculation" (page 19 of this Annex).

- 99 - ANNEX 21

Page 23 of 24

7. Increase in Working Capital represents the excess of thecurrent year's current assets (net of cash) over currentliabilities, less the excess of the previous year's currentassets (net of cash) over current liabilities.

8. Special Fund Expenditures represents aggregate amountsactually spent from the various special funds in a particularyear. In general, expenditures £rom the special fund areassumed at 80% of the previous year's and 20Z of the yearbefore the previous year's allocations (excluding those fromthe Maintenance Special Funds, which are assumed at 100% ofthe particular year's allocation). This relocationship isderived in the table entitled "Special Fund Calculations"(page 19 of this Annex).

C. Balance Sheet

1. Cash represents the balancing figure for these projections.

2. Inventories are derived at 1Z Gross Fixed Assets and 1 month'sfuel.

3. Accounts Receivable are expected to increase by 52 per year.

4. Plant in Service is derived in the table "Fixed AssetFormation" (page 14 of this Annex). Any revaluation of fixedassets would be derived in the table entitled "Revaluation ofAssets" (papt 15 of this Annex).

5. Construction Work in Progress is also derived in the tableentitled "Fixed Asset Formation" (page 14 of this Annex).

6. Special Fund Assets represents renovations and distributionimprovements under construction. The renovations are financedby expenditures from the Special Fund for Renovations. Thedistribution improvements are financed from the DistributionImprovements Special Funds. Operation of these funds isderived in the table entitled "Special Fund Calculations"(page 19 of this Annex).

?. Accounts payable are projected to increase by 2% per year.

8. Due to Government is expected to stay steady at Yuan 24.0million.

9. Long Term Debt is expected to increase each given year by theamount of the investment program being financed with loansless repayments. The amount of the investment program isderived in the table entitled "Investment Program" (page 9 ofthis Annex). The amount of repayment is derived in thesubtable entitled "Repayments", included within the tableentitled "Loan Parameters" (page 13 of this Annex).

-~~~~~~~~~ 1o -2

AME£X 21Page 24 of 24

10. Government Funds includes all paid in equity, plus transfersto Government for loan repaymert and chargeaioie 1DC, lessdepreciation.

il. Special Funds represents the cumulative balance remaining inthe special funds at the end of the given year. This figureis derived in the table entitled "Special Fund Calculations"(page 19 of this Annex).

- 101 -

ANNEX 22Page 1 of 5

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

Calculation of Economic Rate of Return

Costs

Capital Costs

1. Costs were based on end 1987 price levels. Shadow pricing wasapplied as follows: (a) taxes and duties were excluded; (b) a shadow exchangerate of US$ = Y 4.0 was used to convert foreign currencies to Yuan; (c) borderprices were used for net imported items such as cement, steel and timber;(d) all labor costs were adjusted to reflect the economic cost to the countryby removing the state subsidies; and (e) a conversion factor of 1.2 was usedfor the local cost component of transmission facilities.

2. Summarized below are annual disbursements of project cost includinggeneration and transmission for both units and the second unit only aftershadow-pricing:

For two units /a For the secondYear as a whole unit only

(Y million)

1986 35.01987 150.2 -1988 628.9 101.21989 900.3 384.11990 413.9 248.11991 342.2 115.71992 232.3 142.81993 - _

Total 2,702.8 991.9

Unit cost per kW 2,252.0 1,653.0

/a Fo: the plant only, the unit cost per kW after shadow-pricing isY 1,924 comparing to Y 1,800 used in the "East China Power PricingStudy" at 1986 prire level.

- 102 - ANNEX 22Page 2 of 5

0" Costs

3. The O&E costs of the power plant were based on the ictual costanalysis for large thermal power plants in the ZPEPB's grid bus shadow pricedfor labor costs. The O&M cost of the transmission system were oased on 1Z ofthe capital cost for transmission and subtransmission.

Fuel Cost

4. The fuej,cost was estimated using a long-run marginal cost of coalof.Y 112 per ton I and a unit consumption of 0.306 kg per kWh of standardcoal of 7,000 Kcal/kWh.

Benefits

5. Quantifying the benefits of power projects is difficult in allcountries and particularly so in China, where tariffs and most other pricesare vot subject to economic pressu.es and where most power is administrativelyallocated. It is generally accepted, however, that shortages of electricityare constraining China's industrial production (causing undercapacity utiliza-tion in industry) and will continue in the near future. This suggests thatthe economic benefits of increasing power supply will be substantial--ECEPAestimates the net value of industrial output per kWh of electricity consumedto be about Y 1.0 in the East China region. This suggests that the value ofelectricity not served is about Y 1.0/kWh, at least in the short run.

6. The second point of reference is based on the target revenue arrivedat the East China Power Pricing Study. The estimated value of electricity istherefore about 14.4 fen/kWh at the retail level, after being adjusted to end1987 price.

7. A conservative estimate of the value of electricity is obtained byusing the projected tariffs for ZPEPB's system by 1995, adjusted to 1987prices as the minimum proxy for economic benefits. However, in addition,other charges were also included to reflect surplus benefits. These chargesinclude the 10% local government tax, the connection charge for large con-sumers, and the recently applied surcharge of 2 fen/kWh for new power stationconstruction to all consumers except lighting, agricultural uses, andindustries operating at a loss.

1/ Based on the analysis made in the "East China Power Pricing Study,"February 1988.

- 103 - ANNEX 22Page 3 of 5

Economic Rate of Return

8. The IERR of the project, the discount rate which equalizes thepresent value of economic costs and benefits, is estimated at 10.4X for twounits as a whole and 15.1Z for the proposed project with the second unit only(see Tables 1 and 2 for details). This demonstrates the attractiveness ofextending L'n existing plant to take advantage of the availability of commonfacilities already invested.

Sensitivity

9. The sensitivity of the IERR of the project with respect to a 10lincrease in investment cost or a one-year delay in commissioning is asfollows. These figures represent the upper limit of possible cost overruns ordelays in implementing the project.

IERR

Base case 15.010' cost overrun 13.8One-year delay in commissioni£g 13.4

ANNEX 22Page 4 of 5

Table 1: ECONOMIC RATE OF RETURN FOR UNITS NO. 1 AND NO. 2

Capital cost O&M cost Distribu-Generating Trans- Subtrans- Gene- Trans- Fuel tion and Total Gene- /b /c Costs &

Year plant mission mission ration mission cost /a sales cost cost ration Sales Benefits benefits(Y million) - - (GWh) - - (Y million)

1986 35.0 -35.0 - - -35.0

1987 150.2 - - - - - - 150.2 - - - -150.2

1988 536.7 92.2 - - - - - 628.9 - - - -628.9

1989 802.5 97.8 50.0 - - - - 950.3 - - - -950.3

1990 331.6 82.3 75.0 - - - - 488.9 - - - -488.9

1991 265.2 77.0 85.0 35.0 6.7 72.0 22.5 563.4 2,100 1,827 221.1 -342.3 >

1992 187.7 44.6 65.0 42.0 6.7 171.4 53.5 570.9 5,000 4,347 526.0 -44.9

1993-2016 - - - 56.0 6.7 267.3 83.4 413.4 7,800 6,781 820.5 407.1

Economic rate of return = 10.4%

/a The fuel cost is estimated using a long-run marginal cost of coal of Y 112 per ton at plant and a unit consumption of0.306 kg of standard coal per kWh.

/b Sales are estimated assuming 5.5% station use and 8% transmission and distribution losses.77 Benefits are valued at 12.1 fen per kWh, which is the average revenue projected for 1995 of 16.9 fen per kWh, adjusted

to late 1987 prices and including a local tax of 10%, a surcharge of 2 fen/kWh for 'onstruction of the new power sta-tion (limited to industrial and commercial consumers) and connection charges for large consumers.

ANNEX 22Page 5 of 5

Table 2: ECONOMIC RATE OF RETURN (FOR UNIT NO. 2)

Capital cost O&M cost Distribu-Generating Trans- Subtrans- Gene- Trans- Fuel tion and Total Gene- /b Lc Costs &

Year plant mission mission ration mission cost /a sales cost cost ration Sales Benefits benefits

…--- - - - -- - -- (Y million) ----- -- (GWh) - -- (Y million) --

1988 101.2 - - - - - - 101.2 - - - -101.2

1989 365.1 19.0 - - - - - 384.1 - - - -384.1

1990 221.1 27.0 - - - - - 248.1 - - - -248.1

1991 94.4 21.3 - - - - - 115.7 - - - -115.7

1992 114.8 28.0 65.0 7.0 1.0 37.7 11.8 265.3 1,100 956 115.8 -150.3

1993 - - - 21.0 1.0 133.7 41.7 197.4 3,900 3,391 410.3 212.9

1994-2016 - - - 21.0 1.0 133.7 41.7 197.4 3,900 3,391 410.3 212.9

Internal economic rate of return - 15.0%

/a The fuel cost is estimated using a long-run marginal cost of coal of Y 112 per ton at plant and a unit consumption of

0.306 kg of standard coal per kWh./b Sales are estimated assuming 5.5% station use and 8% transmission and distribution losses.

77 Benefits are valued at 12.1 fen per kWh, which is the average revenue projected for 1995 of 16.9 fen per kWh, adjusted

to late 1987 prices and including a local tax of 10%, a surcharge of 2 fen/kWh for construction of the new power

statlon (limited to industrial and commercial consumers) and connection charges for large consumers.

- 106 -ANNEX 23

CHINA

BEILUNGANG THERMAL POWER EXTENSION PROJECT

Selected Documents and Data Available in the Project File

A. Selected Reports and Studies Related to the Sector

A.1 Statistical Brief of the Electric Power Industry in China (1986).

B. Selected Reorts and Studies Related to the Project

B.l Environmental Impact Report of the Preliminary Design for Stage IDevelopment, ECEPDI, November 1986.

B.2 Atmospheric Environment Assessment Report, Nanjing EnvironmentalProtection Institution of MWREP, January 1988.

B.3 The National Emission Standards of Air Pollutants for Fossil-FuelPower Plants, 1986 (in Chinese).

B.4 East China Power Pricing Study, February 1988 (not attached).

B.5 Statistical Data of ZPEPB for 1986 and 1987 (in Chinese).

C. Selected Work Sheets

C.1 Working sheets for Financial Forecasts (Annex 21).

Chart 1

CHINABEILUNGANG THERMAL POWER EXTENSION PROJECT

Organization Chart of the Electric Power Industry Withinthe Ministry of Water Resources & Electric Power

Minister

Depuity-Ministers

Department China Water ElectricofpaScienct Dprmn eea Rosources & Powero ofinc Dplanningt Officel Hydropower Planning & Colleges

ore Pnnlnioy Devolopmont EngineoringTechnology SuCorporation Institute

Department lectionr Electric scientific &Department ~~Department Elcrc Hydropower Powor Tcncal

-of Foreign of of Power Construction Deosign TosachnAffairs Eetity Personnel Adminis- Buireaux Institutes Institutes

Production trations

Department Department HydropowerDepartment of Capital of Labor Survey &of Finance Cosrcin 0DesignConsructon &Wages InStitLutes

Bureau of Deatet ProvincialBureau ~~Cemmuni- Deatet Electric

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Department Bureau ofof Rural L NuclearElectri- PveficationPoe

Hydro & Electric Transmission Electric ElectricThermal Bureaux of Substation PoePwr

Power Perfectures Construction Design ResearchPlants & Cities Companies Instittites Laboratories

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CHINABEILUNGANG THERMAL POWER EXTENSION PROJECT

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MWREP

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PEPB r Chief Engineer|

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