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Document of
THE WORLD BANK
FOR OFFICIAL USE ONLY
Report No: 60014-CN
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
IN THE AMOUNT US$100 MILLION
TO THE
PEOPLE‟S REPUBLIC OF CHINA
FOR AN
URUMQI DISTRICT HEATING PROJECT
April 21, 2011
China and Mongolia Sustainable Development Unit
Sustainable Development Department
East Asia and Pacific Region
This document has a restricted distribution and may be used by
recipients only in the
performance of their official duties. Its contents may not
otherwise be disclosed without World
Bank authorization.
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CURRENCY EQUIVALENTS
(Exchange Rate Effective July 1, 2010)
Currency Unit = RMB (Chinese Yuan Renminbi)
RMB6.70 = US$1.00
US$0.149 = RMB1.00
FISCAL YEAR
January 1 – December 31
ABBREVIATIONS AND ACRONYMS
CDM Clean Development Mechanism NA Not Applicable
CHP Combined Heat and Power Plant ORAF Operational Risk
Assessment
Framework
DA Designated Account PAD Project Appraisal Document
DH District Heating PDO Project Development Objective
EA Environmental Assessment PIU Project Implementation Unit
EHS WB/IFC Environmental Health and
Safety
PLG Project Leading Group
EHS Environmental Health and Safety PM Procurement Manual
EIA Environmental Impact Assessment PMO Project Management
Office
EIRR Economic Internal Rate of Return RMB Renminbi (Chinese
Yuan)
EMP Environmental Management Plan RPF Resettlement Policy
Framework
ESP Electrostatic Precipitators SBD Standard Bidding
Documents
FM Financial Management SCADA Supervisory Control and Data
Acquisition
FMM Financial Management Manual SHN Shayibake Heating
Network
FRR Financial Rates of Return SLA Subsidiary Loan Agreement
FYP Five-Year Plan SOE State-Owned Enterprise
GEF Global Environment Facility SW Staff-Week
HOB Heat Only Boilers TA Technical Assistance
HRBEE GEF-financed China Heat Reform
and Building Energy Efficiency
Project
TOR Terms of Reference
IBRD International Bank for
Reconstruction and Development
TSP Total Suspended Particulates
ICB International Competitive Bidding TTL Task Team Leader
IDA International Development Agency UDHC Urumqi District
Heating Company
IFC International Finance Corporation
(WB Group)
UHN Shuimogou Heating Network
IFRs Interim Financial Reports UITCPO Urumqi International
Technical
Cooperation Project Office
-
L Low UMG Urumqi Municipal Government
LIBOR London Interbank Offered Rate UUCC Urumqi Urban
Construction
Commission
M&E Monitoring and Evaluation WACC Weighted Average Cost of
Capital
MBD Model Bidding Documents WB World Bank
MI Medium-Impact WBPG World Bank Project Group
MFB Municipal Finance Bureau XRAO Xinjiang Uyghur Autonomous
Region Audit Office
MOF Ministry of Finance XRFB
(RFB)
Xinjiang Uyghur Autonomous
Region Finance Bureau
Regional Vice President: James W. Adams, EAPVP
Country Director: Klaus Rohland, EACCF
Sector Director:
Sector Managers:
John Roome, EASSD
Ede Jorge Ijjasz-Vasquez, EASCS
Vijay Jagannathan, EASIN
Task Team Leader: Gailius J. Draugelis, EASCS
-
CHINA
Urumqi District Heating Project
CONTENTS
I. STRATEGIC CONTEXT
..................................................................................................1
A. Country Context
.........................................................................................................1
B. Sectoral and Institutional Context
................................................................................2
C. Higher Level Objectives to which the Project Contributes
............................................4
II. PROJECT DEVELOPMENT OBJECTIVES
.....................................................................4
A. PDO
...........................................................................................................................4
B. Project Beneficiaries
...................................................................................................5
C. PDO Level Results Indicators
.....................................................................................5
III. PROJECT DESCRIPTION
................................................................................................5
A. Project components
.....................................................................................................5
B. Project Financing
........................................................................................................7
1. Lending Instrument
..................................................................................................7
2. Project Cost and Financing
.....................................................................................7
C. Lessons Learned and Reflected in the Project
Design...................................................7
IV.
IMPLEMENTATION........................................................................................................8
A. Institutional and Implementation Arrangements
...........................................................8
B. Results Monitoring and Evaluation
..............................................................................8
C. Sustainability
..............................................................................................................9
V. KEY RISKS AND MITIGATION MEASURES
................................................................9
VI. APPRAISAL SUMMARY
..............................................................................................
10
A. Economic and Financial Analysis
..............................................................................
10
B. Technical
..................................................................................................................
12
C. Financial Management
..............................................................................................
13
D. Procurement
.............................................................................................................
13
E. Social (including safeguards)
....................................................................................
13
F. Environment (including safeguards)
..........................................................................
14
G. Other Safeguards Policies triggered (if
required)........................................................
15
Annex 1: Results Framework and Monitoring
..........................................................................
16
Annex 2: Detailed Project Description
....................................................................................
19
Annex 3: Implementation Arrangements
.................................................................................
27
Annex 4 Operational Risk Assessment Framework (ORAF)
..................................................... 39
-
Annex 5: Implementation Support Plan
...................................................................................
42
Annex 6: Team Composition
...................................................................................................
45
Annex 7: Economic and Financial Analysis
.............................................................................
46
Annex 8: Map
.........................................................................................................................
57
-
CHINA
URUMQI DISTRICT HEATING PROJECT
PROJECT APPRAISAL DOCUMENT
EAST ASIA AND PACIFIC
EASCS
Date: April 21, 2011
Country Director: Klaus Rohland
Sector Director: John Roome
Sector Managers: Ede Jorge Ijjasz-Vasquez;
Vijay Jagannathan
Team Leader: Gailius J. Draugelis
Project ID: P120664
Lending Instrument: Specific Investment
Loan
Sector(s): District heating and energy
efficiency services (100%)
Theme(s): Pollution management and
environmental health (34%); Other urban
development (33%); Climate change (33%)
EA Category: A
Project Financing Data:
Proposed terms: Variable spread loan has a final maturity of
thirty years including a grace
period of five years.
[X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:
Source Total Amount (US$ M)
Total Project Cost:
Cofinancing:
Borrower:
Total Bank Financing:
IBRD
IDA
New
Recommitted
343.20
0
243.20
100.00
100.00
-
Borrower: Ministry of Finance (MOF) / PR China and Urumqi
Municipality
Responsible Agency:
Urumqi International Technical Cooperation Project Office
Urumqi Construction Commission
No. 29, Xinxing Road, Urumqi, PR China
Contact Person: Mr. Qiao Yu, Director
Telephone / Fax No.: +86-991-4617-327
Email: [email protected]
Estimated Disbursements (Bank FY/US$ m)
FY 2012 2013 2014 2015 2016
Annual 30 30 20 15 5
Cumulative 30 60 80 95 100
Project Implementation Period: February 1, 2011 – June 30,
2015
Expected effectiveness date: October 19, 2011
Expected closing date: December 31, 2015
Does the project depart from the CAS in content or other
significant respects?
○ Yes ● No
If yes, please explain:
Does the project require any exceptions from Bank policies?
Have these been approved/endorsed (as appropriate by Bank
management?
Is approval for any policy exception sought from the Board?
● Yes ○ No
● Yes ○ No (Not applicable)
○ Yes ● No
If yes, please explain:
An increase in retroactive financing from 20% to 30% of the Loan
amount has been approved
by management.
Does the project meet the Regional criteria for readiness
for
implementation?
● Yes ○ No
If no, please explain:
Project Development Objective: The proposed project development
objective (PDO) is to
connect consumers in selected districts of Urumqi to district
heating services with improved
energy efficiency and environmental performance.
mailto:[email protected]
-
Project description
Component A. Shuimogou District Urumqi CHP Plant District
Heating Network
Construction of district heating networks with associated
ancillary equipment, substations
(including building level substations), control, monitoring and
dispatch systems and control
centers, meters, and maintenance vehicles, and associated civil
and installation works and
recovery of public infrastructure damaged by installation in
Urumqi‟s Shuimogou District.
Component B: Shayibake District CHP Heating Network
Construction of district heating networks with associated
ancillary equipment, substations
(including building level substations), control, monitoring and
dispatch systems and control
centers, meters, and maintenance vehicles, and associated civil
and installation works and
recovery of public infrastructure damaged by installation in
Urumqi‟s Shayibake District and
Tianshan District.
Component C: Institutional Development and Project
Management.
Strengthening the capacity of UDHC and Urumqi in Project
management, monitoring, and
evaluation; and supporting UDHC‟s and Urumqi‟s institutional
development through the
provision of technical assistance, training, study tours, and
operational support.
Safeguard policies triggered?
Environmental Assessment (OP/BP 4.01)
Natural Habitats (OP/BP 4.04)
Forests (OP/BP 4.36)
Pest Management (OP 4.09)
Physical Cultural Resources (OP/BP 4.11)
Indigenous Peoples (OP/BP 4.10)
Involuntary Resettlement (OP/BP 4.12)
Safety of Dams (OP/BP 4.37)
Projects on International Waters (OP/BP 7.50)
Projects in Disputed Areas (OP/BP 7.60)
● Yes ○ No
○ Yes ● No
○ Yes ● No
○ Yes ● No
○ Yes ● No
○ Yes ● No
● Yes ○ No
○ Yes ● No
○ Yes ● No
○ Yes ● No
Conditions and Legal Covenants:
Financing Agreement
Reference
Description of Condition/Covenant Date Due
Loan Agreement (LA),
4.01 and 4.02
The Subsidiary Loan Agreement has
been executed between Urumqi and
UDHC and duly authorized or ratified by
Urumqi and UDHC.
Effectiveness condition
-
Project Agreement (PA),
Annex A to Schedule,
Paragraph 11
Except as the Bank shall otherwise agree,
UDHC shall maintain for each of its
fiscal years after its fiscal year ending on
December 2011, a ratio of operating
expenses to operating revenues not
higher than 90%.
During implementation
Project Agreement (PA),
Annex A to Schedule,
Paragraph 12
Except as the Bank shall otherwise agree,
UDHC shall maintain a ratio of current
assets to current liabilities of not less
than 1.3.
During implementation
Project Agreement (PA),
Annex A to Schedule,
Paragraphs 11(c) and 12
(c)
If any review shows that UDHC would
not meet the financial covenant
requirements for UDHC‟s fiscal years
covered by such review, UDHC shall
promptly take all necessary measures
(including, without limitation,
adjustments of the structure or levels of
its tariffs in order to meet such
requirements.
During implementation
Project Agreement (PA),
Schedule, Paragraph 2
(a)
For the purposes of carrying out the
Project, the Project Implementing Entity
shall relend the proceeds of the Loan to
UDHC under a Subsidiary Loan
Agreement, with terms and conditions
acceptable to the Bank.
During implementation
Project Agreement (PA),
Annex A to Schedule,
Paragraph 5 and 6.
UDHC and UMG shall undertake to: (a)
carry out the Project with due diligence
and efficiency and in accordance with
appropriate management, financial,
engineering and public utility practices
and social and environmental standards
acceptable to the Bank, including the
Anti-corruption Guidelines applicable to
the recipient of the Loan proceeds other
than the Borrower, and provide, promptly
as needed, the funds, facilities and other
resources required for the purpose; and
(b) without limitation on the foregoing,
take all measures necessary to ensure that
the Project shall be implemented in
accordance with the Environmental
Management Plan and the Resettlement
Policy Framework.
During implementation
-
1
I. STRATEGIC CONTEXT
A. Country Context
1. Economic development of central and western regions in China
is a high priority of
the central government. A policy-induced investment boom tilted
toward western and central
China is a part of the central government‟s efforts to spread
benefits of economic growth into its
less developed regions. Due to its deep integration with the
world economy, China‟s coastal
region was hit directly by weakening external demand during the
height of the global financial
crisis in 2008. The ripple effect of the slowdown in the eastern
areas quickly led to deceleration
in the Western and Central regions, despite the small relative
size of the exporting sectors in
these two regions. However, due to strong efforts by the central
and local governments to
maintain economic development policies, fixed asset investment
growth in these two regions was
generally higher than that in the eastern region, leading to
higher industrial production and GDP
growth. This in turn is driving greater demand for urban
services and improved quality of life.
2. China has made impressive efforts to reduce its energy
intensity and the environmental impacts of energy use during the
11
th Five-Year Plan (FYP) period (2006-
2010) and this is expected to continue in the 12th
FYP (2011-2015). In the 11th FYP China
adopted an energy intensity per unit of GDP target and reported
a 19.1 percent reduction over the
five year period. This quantitative and binding target helped
reverse the upward trend of energy
intensity in the preceding 4-5 years and, importantly, establish
energy conservation as a top
priority at all levels. During this period, a large number of
small inefficient coal -fired power
plants and energy-intensive factories have been closed down.
Among the other major energy
efficiency programs is a central government program of 10 key
projects covering a
comprehensive list of measures. These measures include building
energy efficiency and the
replacement of distributed, inefficient, and polluting small
coal-fired boilers for heating with
central heating supply. These efforts, complemented by flue gas
desulfurization campaigns
(especially for coal fired power plants), have also helped China
move toward its goal of reducing
SO2 emissions by 10 percent over the 11th Five Year Plan. China
has declared its commitment to
a target of 16 percent energy intensity reduction during the
12th FYP.
3. Due to the size of its population and the nature of its
economy, China’s domestic energy efficiency policies significantly
bolster global actions in climate change mitigation.
On November 26, 2009, China reaffirmed its commitment to
addressing climate change
mitigation and announced a national goal of reducing CO2
emissions per unit of GDP by 40% to
45% by 2020 from 2005 levels. Continued energy conservation is
an integral part of its plan to
meet this climate change mitigation target. China included a
target of 17% carbon intensity
reduction in the 12th FYP.
4. China will continue to face local and global environmental
sustainability challenges and energy security concerns as it
strives to meet its growing energy needs that fuel rapid
economic
and social development. One of the major challenges is
unprecedented urbanization. While
export-oriented, industry-led growth has been the main driver in
the growth of energy
consumption, rapid urbanization and the emergence of a consumer
class with higher
requirements for improved living standards are emerging
determinants of energy growth. Urban
growth in China has spearheaded a well known construction boom.
Sixty percent of China‟s
-
2
building stock in 2006 (about 10 billion m2 of residential area)
was built after 1996 and it is
estimated that another 60 percent of China‟s building stock in
2030 will be built after 2006.
B. Sectoral and Institutional Context
5. Urumqi is a major economic center in western China but is one
of China’s most polluted cities. Urumqi, with a population of 2.3
million, is the capital of the Xinjiang Uyghur
Autonomous Region, and has been a principle target for
development under the central
Government‟s initiatives to develop poorer, western provinces.
During the late 1990s, it
experienced accelerated growth in its building stock and,
commensurately, in urban services.
6. Urumqi is one of 113 polluted cities designated for special
attention nationally to
improve air quality. Various international studies have shown
that excessive air pollution
causes premature mortality, morbidity, reduced activity days,
chronic respiratory diseases, etc.
Children, elderly and the poor are most vulnerable, due to the
lack of means for mitigation
exposures (either due to weak health or lack of resources).
There is a lack of health data
available for Urumqi; however, the elevated levels of air
pollution are a strong indication of
negative health effects on its population.
7. Urumqi has targeted modernization of the district heating
sector as a key air pollution
mitigation measure. Due to traditional design approaches and low
environmental standards
enforcement, space heating is estimated to contribute 16% of
annual average concentrations of
SO2, and 8% of PM10 and NOx, respectively. While heating‟s
relative share of pollution load is
less than that of industry on an annual average basis, pollution
is more severe in winter during
the six month heating season.1 During the 2008 heating season,
average SO2 concentrations were
three times, and PM10 concentrations were twice as high as
national standards. 23% of the
district heating plants meet SO2 emission standards. On average,
only 50% of winter days
comply with applicable air quality standards. As in other
cities, heating services follow
traditional sector planning, where small and larger dispersed
heat only boilers (HOBs) were
constructed in the center of new apartment complexes. Overall,
the municipality is promoting
expanded use of Combined Heat and Power Plants (CHPs) and larger
district heating networks,
because they are more energy efficient (compared to producing
electricity, hot water, and steam
separately), reliable, and can absorb the costs of pollution
control due to economies of scale. As
of 2008, CHPs supplied only 13 percent of the 98 million square
meters of total heating floor
area of Urumqi.
8. The main fuel for heating is coal. Aside from coal fired
CHPs, coal fired district heating boilers supply about 63% of
Urumqi‟s heated floor area. Space heating alone is estimated to
consume 14% of annual coal consumption in the city. The
municipality has increased use of gas
for heating, but only in very limited areas where large scale
district heating is not feasible. Gas
is strictly controlled and mostly imported, raising major
security of supply concerns for a vital
service such as heating.
9. District Heating in China has a large potential for energy
efficiency and for reducing
impacts on the environment. Nationally, China‟s urbanization and
construction boom is
driving growth in demand for heating services in China‟s cold
climate provinces. Approximately
1 Tsinghua University Research Center for Energy Efficiency in
Buildings, China Building Energy Efficiency
Annual Report 2008.
-
3
550 million people (43% of China‟s population) now live in
northern and western provinces
where Cold and Severe Cold building code zones apply, and space
heating is required by law.
By 2005, about 326 out of China‟s 661 cities were equipped with
district heating facilities.2 In
the early stages of urbanization, cities invested in small and
medium coal-fired boilers to provide
space heating to new urban areas. Nearly all older boiler
heating systems rely on outdated
heating supply system designs with boiler efficiencies of a
reported 40-60% (compared to about
75-79% efficiency of larger boilers), and use inferior dust or
sulfur removal equipment. They
are not hydraulically connected to each other, removing
advantages of economies of scale that
would make energy efficient operating modes and improved
pollution controls cost effective.
The impact on human health and city aesthetics, with coal dust
and slag in residential centers,
and smoke stacks emitting black smoke over apartment buildings,
is severely detrimental.
10. District heating in China represents one of the last
vestiges of the old-style welfare system in China. The unreformed
heating sector presents no incentives for consumers to
respond to market-based energy costs because heat, unlike water
or electricity, is billed on a flat
floor area basis and many state-owned enterprises (SOEs) pay for
a share of the heating bill.
Reform of urban heating system design, pricing, metering and
bill payment systems has been
gradually emerging on the national agenda since 2003. In July
2003, the central government
issued instructions to move ahead with implementing heat system
reform in pilot cities of
China‟s 16 northern provinces and autonomous regions, including
Urumqi municipality. The
goals of heat reform are to „commodify‟ heating by addressing
key sector issues: (a)
discontinuing employer payment of heating bill and making
households responsible for payment
of the heating bill; (b) introducing heat metering and billing
based on consumption, promoting
consumer control of heating and building energy efficiency; (c)
developing safe, clean and
demand-responsive heat supply systems; (d) reforming heat
pricing; and (e) accelerating reform
of heating enterprises, consolidating many small enterprises in
cities, introducing competition,
and fostering and standardizing the heat market. Reforms involve
major organizational and
institutional challenges at local levels many of which lack the
capacity to rapidly overhaul the
supply, consumption and billing of heating. Thus, the pace of
reform has been less than hoped
for, with few buildings charged according to the meter after
eight years of reform efforts.
11. Modernization of district heating systems can remove
important technical barriers to
implementation of district heating sector reform, which has been
slower than hoped for.
Un-metered space heating has had major negative impacts on
design approaches, technology
choice and operation of heating systems, and business models.
Previously, building codes did
not mandate consumer control devices, a pre-requisite for
consumers to respond to pricing
signals and adjust to desired consumption. Generally, thermal
integrity standards were low or
weakly enforced. Due to lack of thermostats, existing heating
system operation needs to
guarantee heating at the furthest part of the network by varying
water temperatures at the heating
plant. This supply-driven approach results in over-heating of
buildings closer to the boiler plant
and under heating at the edge of the network – forcing consumers
to supplement with more
expensive heating (i.e., electricity) or to open windows. It
also requires larger pumps and
pipelines to guarantee service standards. End-use control
devices are now required in new
buildings in Urumqi and in its building energy efficiency
renovation program. As end use
devices become ubiquitous, district heating systems need to
switch to a demand-driven operating
mode, which varies temperature and water automatically based on
energy needs of buildings.
2 IFC consultant report, Co-and trigeneration and heath systems
policy report and market research, March 14, 2008.
-
4
This transition requires enabling technologies, such as
frequency controlled pumps, automatic
temperature controls and control systems, which will save
pumping costs and energy, and in
some cases, reduce required pipeline dimensions. With this
project, Urumqi would like to create
the technical conditions that would enable more rapid adoption
of district heating reforms in the
future.
12. While the pace of heat reform has been very gradual in
Urumqi as in the rest of China,
Urumqi has taken some important initial steps in heat reform.
Urumqi municipality was included
in the World Bank‟s GEF-financed China Heat Reform and Building
Energy Efficiency Project
(HRBEE). HRBEE requires each pilot heat reform city to submit a
city-wide heat reform and
building energy efficiency plan. Urumqi‟s plan includes specific
targets for more energy efficient
buildings such as 16.5 million m2 (about half of projected new
construction from 2006) built
according to a new 65% energy efficiency standard (which saves
15% more in energy compared
with the current 50% national standard) and 13 million m2 billed
according to metered heat by
2011. Urumqi has not achieved these ambitious targets, but the
GEF project will continue to
provide policy support to accelerate their achievement.
13. District heating has the potential to generate significant
local and global
environmental co-benefits. In addition to reducing large amounts
of local emissions of SO2,
significant levels of CO2 can be reduced through modernization
of district heating systems.
Compared with the baseline, the proposed project could save an
estimated 34.5 thousand tons of
SO2, 17.7 thousand tons of dust, and 1.9 million tons of CO2
emissions over a five year period
(2010 – 2014). Should the CDM be revived, this project could be
a strong candidate for carbon
financing as a result of its potential carbon reduction
emissions. The Bank has already signed
two emission reduction purchase agreements for district heating,
one of which is similar to the
proposed project.
C. Higher Level Objectives to which the Project Contributes
14. The proposed project is consistent with the 2006-2010
Country Partnership Strategy (CPS - discussed by the Executive
Directors on May 23, 2006) which seeks, among other themes, to
engage China on managing resource scarcity and environmental
challenges, through inter alia
reducing air pollution and optimizing energy use. The Government
of China has requested that
the new CPS for 2011-2015 be coterminous with, and aligned to,
its 12th Five Year Plan,
covering 2011-2015, which will be available in spring 2011. The
objectives of the Project are
expected to be consistent with the new CPS.
II. PROJECT DEVELOPMENT OBJECTIVES
A. PDO
15. The proposed project development objective (PDO) is to
connect consumers in selected districts of Urumqi City to district
heating services with improved energy efficiency and
environmental performance
-
5
B. Project Beneficiaries
16. Stakeholders in this project are the Urumqi Municipal
Government, district heating
companies, and customers. UMG is highly committed to this
project. The Vice Mayor in charge
of this project is the former PMO director of the successful
World Bank transport project.
Urumqi Heating Company will benefit from this project as
presented in the Financial Analysis
(Section VI A). The Borrower has undertaken a social analysis
for the project. The vast majority
of stakeholders support the project due to its environmental
benefits.
C. PDO Level Results Indicators
17. Key results will be measured by the indicators given
below.
Energy efficiency performance indicators
Reduced standard coal consumption for heating per connected
floor area
Environmental performance indicators
Reduced dust annual boiler plant emissions per connected floor
area
Reduced SO2 annual boiler plant emissions per connected floor
area3
Reduced CO2 annual boiler plant emissions per connected floor
area4
III. PROJECT DESCRIPTION
A. Project components
18. The proposed project consists of three components: (A)
Shuimogou District CHP Plant District Heating Network (UHN)
Component; (B) Shayibake District CHP Heating Network
(SHN) Component; and (C) Institutional Development and Project
Management Component.
19. Component A: Shuimogou District CHP Plant District Heating
Network (UHN) (estimated cost US$196.8 million; US$56.14 million
IBRD financing). The proposed component
will finance the construction of the UHN district heating (DH)
system. The base heat load of the
UHN district heating system will be supplied by the Huadian
Weihuliang coal-fired CHP Plant,
built in 2009 with a capacity of 2x330 MWp (power output) and
2x350 MWth (heat output). The
peak heat load will be supplied by the coal-fired Hualing
heat-only boiler (HOB) plant with total
heat capacity of 290 MWth owned by Nuan Wanjia Heating Co., Ltd.
The total heated floor area
supplied by UHN will reach about 14.73 million m2 by 2015, of
which about 5.93 million m
2 is
new planned heating area. After component completion, the DH
system will replace use of 14
coal fired heat-only boiler (HOB) plants including 53 coal fired
boilers with a total capacity of
about 923 MWth component will include construction of: (a) about
55 km of primary and
secondary network; (b) a pressure isolation station; (c) about
46 new consumer heating
substations and reconstruction of about 45 existing substations
(including several building level
substations for demonstration purposes); (d) a heat metering
station at the CHP plant; (e) a
3 According to the design, desulphurization and dust collection
efficiencies will increase from 15% to 90% and from
82% to 99% after environmental upgrading measures for peak load
boilers. 4 Referring to the default value of the Intergovernmental
Panel on Climate Change (IPCC) 2006, one ton of standard
coal can be converted to 2.78 tons of CO2.
-
6
dedicated monitoring and dispatch system (SCADA) and control
center with associated
equipment; (f) maintenance vehicles and equipment; and, (g)
associated civil and installation
works and recovery of public infrastructure damaged by
installation (i.e., resurfacing roads).
20. Component A will be implemented in two parts: the 2010
investment program totaling
US$44.8 million equivalent, which the municipality has completed
with its own funds, and the
2011-2014 investment program totaling US$152.0 million
equivalent, which will be supported
by the World Bank loan and counterpart funds.
21. Component B: Shayibake District CHP Heating Network (SHN)
(estimated cost US$145.0 million; US$42.6 million IBRD financing).
The proposed component will finance
construction of the SHN district heating (DH) system. The base
heat load of the SHN district
heating system will be supplied by the Hongyanchi coal-fired CHP
Plant (a part of the Guodian
Group Ltd.), built in 2010 with a capacity of 2x330 MWp (power
output) and 2x350 MWth (heat
output). The peak heat load will be supplied by two coal fired
HOB plants, Shiyue HOB and
Lanzhu HOB with a total installed heating capacity of 311 MWth,
owned by Xinjiang Guanghui
Heating Co., Ltd and Urumqi Lanzhu Centralized Heating Co.,
Ltd., respectively. The total
heated floor area supplied by SHN will reach about 14.74 million
m2 by 2015, of which about
3.35 million m2 is new planned heating area. After component
completion, the DH system will
replace use of 31 coal-fired heat-only boiler (HOB) plants
including 87 coal fired boilers a total
capacity of about 1,368 MWth. The component consists of
construction of: (a) about 39 km
channel length of primary and secondary network; (b) a pressure
isolation station; (c) about 22
new consumer heating substations (including several building
level substations for demonstration
purposes) and reconstruction of about 28 existing substations;
(d) a heat metering station at the
CHP plant; (e) monitoring and dispatch system (SCADA) and
control center with associated
equipment; (f) maintenance vehicles and equipment; and, (g)
associated civil and installation
works and recovery of public infrastructure damaged by
installations (i.e. , resurfacing roads).
22. Component B comprises two parts: the 2010 investment program
totaling US$58.6 million
equivalent), which the municipality has completed and financed
with its own funds, and the
2011-2014 investment program totaling US$86.4 million
equivalent, which will be supported by
the World Bank loan and counterpart funds.
23. Component C: Institutional Development and Project
Management (cost US$1.27 million; IBRD financing: US$1.01 million).
The institutional development and project
management component includes technical assistance, training,
study tours and project
management support primarily to UDHC, but also to Urumqi
municipality, through the following
activities: (a) support UDHC project management and monitoring
of environmental and social
safeguards; (b) study on optimization of a multi-source heat
network, its management and
monitoring of environmental and energy efficiency performance;
(c) update the UHN and SHN
emergency plans to enhance safety and reliability; (d)
international and domestic study tours for
operational knowledge exchange; (e) training of UDHC staff,
including on WB policies and
project management requirements; (f) IT system to strengthen
billing and accounting; and (g)
office equipment and related software for UDHC‟s WBPG to
strengthen project management.
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7
B. Project Financing
1. Lending Instrument
24. The lending instrument is a Specific Investment Loan. The
loan will be a United States
Dollar - denominated, variable spread loan with a maturity of 30
years including five years‟
grace period, at the Bank‟s standard interest rate for
LIBOR-based US dollars, with a Front-end
fee of 0.25 percent.
2. Project Cost and Financing
Component
Cost
(million
US$)
IBRD
Financing
(million
US$)
%
IBRD
Financing
A. Shuimogou District Urumqi CHP Heating
Network Component (UHN) 178.50 56.14 31%
B. Shayibake District CHP Heating Network
Component (SHN) 131.30 42.60 32%
C. Institutional Development and Project
Management 1.30 1.00 77%
Total Baseline Costs 311.10 99.75 32%
Physical contingencies 14.50
Price contingencies 10.30
Total Project Costs 335.80 99.75 30%
Interest During Construction 6.20
Front-End Fee 0.25 0.25
Initial Working Capital Requirements 0.90
Total Financing Required 343.20 100.00 29%
C. Lessons Learned and Reflected in the Project Design
25. Lessons from Industry Practices. The proposed Project
incorporates lessons and
innovations from industry practices in China and Europe: (a)
promotion of use of waste heat
from CHP plants for district heating is considered good practice
in Europe and is promoted by
the central government in China; (b) demand-driven enabled
operation in the primary and the
secondary networks allows the system to respond more efficiently
to individual customer
requirements, saving on pumping and energy costs, compared to
traditional supply-driven
operating modes; (c) metering across the heating supply chain
enables best practice control and
optimization, and provides necessary data for calculating two
part heat tariffs; (d) building level
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8
substations are to be piloted to demonstrate energy efficiency
and heating quality benefits
associated with linking substations to fewer buildings compared
to conventional designs and
preferences for larger substations.
26. Approach to Innovation. Experience gained during preparation
and implementation of this
project will support Bank efforts to promote more energy
efficient and less polluting forms of
space heating in China. District heating in transition economies
has a legacy of being operated
by conservative technicians and this is also the case in China.
The proposed stepwise approach to
innovation and modern technologies through pilots, with policy
development support from the
GEF HRBEE project for related sector issues such as building
energy efficiency and heat
pricing, is an established method for introducing new ideas and
incubating innovations in China.
If successful, the project will contribute to an overall
strategy for scaling up modern district
heating approaches in Urumqi and other cities. Through a series
of projects5, a critical mass of
well implemented examples should further accelerate acceptance
of new ideas in district heating.
This type of project could be replicated in other large
cities.
IV. IMPLEMENTATION
A. Institutional and Implementation Arrangements
27. The Bank loan to the People‟s Republic of China will be
on-lent to the Xinjiang Uighur
Autonomous Region, which will in turn on-lend funds to Urumqi
Municipal Government (UMG)
following standard arrangements used on similar Bank projects in
China. UMG will on-lend the
proceeds of the Bank loan to the Urumqi District Heating Company
(UDHC) under a Subsidiary
Loan Agreement, satisfactory to the Bank.
28. A Project Leading Group (PLG), chaired by the Mayor of
Urumqi, has been established by
UMG to provide high level guidance to the project and coordinate
policy and institutional issues,
as needed. The Urumqi International Technical Cooperation
Project Office (UPMO) has been
established in the Construction Commission and is responsible
for overall management and
oversight of the proposed Project.
29. The Project will be implemented by the Urumqi District
Heating Company (UDHC), a
state owned enterprise established in 1984 and the largest DH
company in Urumqi. UDHC has
established an implementation unit, the World Bank Project Group
(WBPG), composed of four
units (procurement, finance, engineering management, and
operations) with full-time staff from
relevant departments within the UDHC. UDHC has set up two
divisions, one for each network,
to operate and maintain the project assets after their
construction.
B. Results Monitoring and Evaluation
30. Annex 1 lists the PDO level results indicators for the
project, as well as the intermediate
results indicators for each component. UDHC will be responsible
for the implementation of
monitoring plans, meter calibration, and preparation and
submission of periodic monitoring
reports to UPMO, including inputs to the semi-annual project
progress reports and annual reports
on compliance with performance indicators and covenants. It will
also report on its business plan
5 About 17 cities are engaged through Bank / GEF supported DH
operations.
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9
and financial performance. Based on inputs from UDHC, UPMO will
evaluate interim results
and ensure corrective actions are taken as necessary. UPMO will
also submit these reports to the
Bank.
C. Sustainability
31. Long term sustainability will depend on effective
development of DH/CHP as the main
municipal heating energy system with effective and efficient
operation and maintenance (O&M).
The Project will move the municipal heating system toward
sustainability by addressing major
energy efficiency and environmental penalties associated with
the use of distributed boilers in
the city and increasing heat demand by taking advantage of
economies of scale through increased
coverage of DH/CHP systems. The project will introduce meters
and monitoring and control
(SCADA) systems which will collect data that, if properly used,
could start to build more robust
heat load estimates, optimize heating supply operation, help
prioritize O&M budgets, and
provide referential heat load data for future DH system planning
and design. The project also
includes technical assistance to improve the capacity of UDHC to
operate the new integrated
network and optimize network management.
32. The project will also move part of the heat chain into
billing based on real energy consumption data. This important
institutional change will introduce incentives for further cost
containment and energy efficiency. Experience with this stepwise
introduction of meter based
billing is expected to build confidence and pave the way to
switch from existing building floor-
based tariffs to heat meter-based retail tariffs, the final step
in providing incentives for efficient
energy use for heating in the built environment. The project‟s
technical assistance will support
UDHC to accommodate meter based billing in its billing and
accounting system. This should
contribute to creating an enabling environment for heating price
and billing reform to be more
quickly adopted in the city.
33. Although improved efficiency can help lower costs, the
reluctance of municipalities to
adjust tariffs to offset rising input costs has in the past led
to the need for restructuring of heating
companies‟ balance sheets. If input cost increases cannot be
absorbed by the heating companies,
operating performance will suffer and emission controls weakened
to reduce costs. A high
collection rate is also one of critical issues for DH company
development. Thus far, these issues
are less pronounced in Urumqi than in other parts of China
because the coal price in Urumqi is
far lower relative to those in the east. The project includes
financial covenants that address
financial performance, and operating performance indicators that
especially focus on
environmental impacts. This combination allows for the retention
of an open dialogue during
supervision on various aspects of sustainability.
V. KEY RISKS AND MITIGATION MEASURES
34. Project investments are straightforward and the project‟s
technical approach is based on standards that are built on existing
experience of the Urumqi District Heating Company and
Urumqi Municipal Government. While the network design is
challenging due to large pressure
differences within the new network, the feasibility studies
included hydraulic analyses which
identified locations where hydraulic separation is needed to
regulate network pressure. The
municipality has demonstrated during the 2010 construction
season its intent to intensively
supervise implementation. Technical assistance is provided
through the project to address
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10
UDHC‟s relative lack of experience in optimizing operation of a
DH system with multiple heat
sources and distribution companies at this scale. Intensive Bank
supervision in the first few
years of implementation is planned to support UMG and ensure
effective project launch.
35. There has been rioting in the city that has been widely
reported in national and worldwide
media in July 2009, but since then the situation has stabilized.
A social analysis of the project
concluded the project enjoys strong support among the local
communities. Nevertheless, a
traffic management plan has been put in place to address
temporary inconveniences associated
with network installation and municipal policies addressing
potential risks to component results
– specifically mitigation of traffic disturbances, re-employment
of small boiler workers and
heating assistance for the poor – will be included in the
project‟s social monitoring plans. These
arrangements would help to provide actionable information in the
unlikely event that measures
do not achieve their intended mitigation objectives.
36. Slow connection rates to the network remain a substantial
risk because the municipality‟s
boiler closure program is new and the company has little
experience with new commercial
relationships. The UMG also has a framework in place for the
boiler closure program which
provides options, including sale of the business to the UMG,
conversion to a distribution
business and purchase heat from the new network, closure of
unlicensed boilers with a right to
keep land with changed zoning. The commercial agreements were
reviewed by the Bank team.
While they fall short of international practices they are
considered an improvement over
prevailing Chinese contractual arrangements in the heating
sector. Key performance indicators
will also be used as part of supervision to monitor financial
performance. The Bank team plans
to engage the UDHC after construction of the network on
approaches to consumer services as
part of supervision.
VI. APPRAISAL SUMMARY
A. Economic and Financial Analysis
Economic Analysis
37. This project is about changing the way apartments are heated
before, using dispersed large and small inefficient and polluting
boilers, connecting them to CHP-based district heating
networks. This new system improves energy efficiency and
environmental performance of the
DH system resulting in coal savings and reduction of pollution
compared to the baseline. The
economic analysis of the project compares the with-project and
without-project alternatives,
taking into account all comparable costs of the two. Project
alternatives include: (a) base load
from coal-fired CHPs and peak load from coal-fired HOBs; and (b)
construction of the heat
transmission and distribution system as in the project
description. The without-project alternative
includes: (a) the continuation of existing heating methods based
on local coal-fired boilers, and
(b) new coal-fired boilers for new building areas (these boilers
would have emission reduction
equipment to fulfill current environmental requirements).
38. A cost-benefit analysis was conducted to estimate the
economic internal rate of return
(EIRR) of the project compared to the without-project
alternative. The economic costs include
the total investment costs of both alternatives. The major
benefits were estimated by taking into
account the following: (i) fuel efficiency improvements
generated by replacing local, inefficient
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11
coal-fired boilers by heat supply from the CHP plants; (ii)
reduced heat losses generated by
improving existing substation; (iii) operation, maintenance and
repair costs variances for both
alternatives; and (iv) environmental benefits of reduced dust,
SO2 and CO2 emissions as a result
of the project. In the base case, the project EIRR is 21.3%.
Sensitivity analysis on the impact of
increased investment costs, reduced benefits and importance of
environmental benefits , indicate
that if investment costs increase by 20 percent, the EIRR would
be 15.3%, while the EIRR would
be 19.1% with benefits reduced by 20%. Without environmental
benefits, the EIRR would be
11.7%.
Financial Analysis
39. Project financial analysis. The project‟s financial
viability has been assessed by
comparing the financial rates of return (FRRs) for the SHN and
UHN investment components
and for the combined project as a whole with their respective
weighted average cost of capital
(WACC). The financial analysis resulted in an FRR of 8%. The
FRRs are higher than the
WACC for each component and for the combined project. The
project FRR also meets
Government‟s feasibility study guidelines on required rates of
return for similar public
infrastructure projects. The FRRs are adequate for enabling UDHC
to maintain an overall
satisfactory financial performance, and meet the agreed
financial performance indicators.
Sensitivity analysis in regard to the effect on the FRRs of
variations in key variables has been
carried out. Further details are given in Annex 7 to the
PAD.
40. Financial sustainability. During the period 2007 to 2009,
UDHC reported profitable
operations. During the project implementation period, UDHC will
be undertaking a major
investment program, including the proposed World Bank financed
project, which will result in a
very substantial increase in its operations. This will result in
large increases in the levels of its
operating expenses and debt service, and will require UDHC to
correspondingly increase its
annual revenues. Key factors that affect UDHC‟s revenue
generation are: (i) the rate of growth
of heat demand; (ii) heat sales tariffs adequate to cover any
increases in operating expenses,
including heat purchase costs; (iii) revenue collection
performance; and (iv) continuing to
achieve greater efficiency in its operations and maintenance
(O&M) expenses.
41. A detailed analysis, including financial projections, of
UDHC‟s financial performance in the period 2010 to 2020 has been
carried out, and is kept in the Project Files. A summary of
results and key indicators is provided in the Annex 7. The
projections indicate that, subject to
UDHC and the Government undertaking the specified actions to
mitigate possible risks
(discussed above in Section V), UDHC should be able to generate
sufficient revenues each year
to meet its financial obligations to cover its (a) cash
operating expenses, (b) debt service, and (c)
agreed contributions to investment financing, and to meet the
financial performance indicators
listed below.
42. Financial performance monitoring and financial covenants: To
monitor UDHC‟s
performance in meeting its financial obligations, the following
indicators are proposed to be
used:
(a) A working ratio (cash operating expenses/collected revenues)
of not higher than 90%;
(b) A current ratio (current assets/current liabilities) of not
less than 1.3; and
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12
B. Technical
43. Detailed feasibility studies prepared for the two district
heating areas define the technical
solutions, pipeline routes and locations for the pressure
isolation stations, as well as investment
costs for all sub-components and expected benefits. All proposed
technical solutions are based
on well tested solutions and equipment with mature technologies.
In 2010, UDHC successfully
implemented part of the system which already supplies heat from
the CHP plants to final
customers.
44. After project completion, 45 coal-fired local boiler plants,
including 140 coal-fired boilers with about more than 2291 MWth in
the city center, will no longer operate. This will reduce coal
consumption in downtown Urumqi. The base load heat will be
generated by coal-fired CHP
plants, located outside the city center, and the peak load by
coal-fired peak load boilers. The
peak load boilers will be equipped with flue gas cleaning
equipment for SO 2 and dust removal.6
These will be financed by the owners of the peak load boiler
plants and are outside the project
scope.
45. Urumqi‟s unique geological topology, featuring a high
elevation difference over 150
meters between heating plants and consumers, requires special
attention on system design for
safe operation of the two networks. The DH system design has to
ensure the following three
conditions everywhere: (a) no over-pressure; (b) no water
evaporation due to low pressure; and
(c) no vacuum. Because of the high elevation difference between
the CHP and the consumer
area, a three hydraulic separated network system has been
designed with heat exchanger stations
to meet these three conditions: (a) the primary network from the
CHP to the pressure isolation
stations, with a design pressure of 2.5MPa and a temperature of
135°C; (b) the secondary
network from the pressure isolation stations to the consumer
heating substations, with a design
pressure of 2.5-1.6MPa and a temperature of 120 °C; and (c) the
heat distribution network from
the heating substations to the radiators inside the buildings,
with a design pressure of 1.0MPa
and a temperature of 90°C.
46. Pre-insulated pipes will be used in Bank financed components
and directly buried for
primary and secondary networks with some compensators.
Sectioning valves will be installed
every 2-3 kilometers along the main transmission lines and at
each pipeline branch for ease of
maintenance. The project design consultant has experience with
the design of large pipeline
networks based on the non-compensation method.
47. Heating substations, new and renovated, will include heat
exchangers to separate heat
distribution networks from heat transmission networks.
Substations will have heat meters and
local automation systems to optimize the operation of
substations and regulate water
temperatures to buildings in accordance with weather conditions.
All substations will also be
connected to the company-wide monitoring and dispatching system
(SCADA) which allows
operators to remotely change parameters at each substation. The
dispatch center will monitor and
dispatch heat supply from the CHP plants and the peak load
boiler plants to optimize operation,
hydraulic situation, and to maximize reliability of heat supply
to customers.
48. Heat metering systems have been designed at different heat
supply levels. Heat meters are
installed at CHPs and peak load boiler plants, and will be
installed in all heating substations. All
6 The CHPs already have emission control equipment installed and
operating.
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13
new buildings will have building level heat meters to facilitate
the future switch to consumption
based billing.
C. Financial Management
49. The Bank loan proceeds and the oversight of the Designated
Account will be managed by the Xinjiang Uyghur Autonomous Region
Finance Bureau (XRFB). A financial management
capacity assessment was conducted by the Bank and actions to
strengthen project financial
management capacity have been agreed with the relevant
implementing agencies. The financial
management assessment concluded that, with the implementation of
these proposed actions, the
financial management arrangements would satisfy the Bank‟s
minimum requirements under
OP/BP 10.02. Annex 3 provides additional information on
financial management.
D. Procurement
50. UITCPO Procurement Assessment. The Urumqi International
Technical Cooperation
Project Office (UITCPO) will be responsible for ensuring that
the obligations of UMG under the
Project Agreement are executed. UITCPO will: a) play the leading
and coordinating roles in
project implementation and procurement activities; b) provide
guidance to UDHC on
procurement and contract management; c) review procurement
documents prepared by UDHC;
and d) supervise and monitor procurement activities carried out
by UDHC. Staffing in UPMO is
adequate for the nature and extent of procurement work envisaged
under the project.
51. UDHC Procurement Assessment. Procurement will be carried out
by the Urumqi District Heating Company (UDHC). The UDHC World Bank
Project Group (WBPG) includes a
procurement unit. Four full-time procurement staff in place have
substantial experience in
procurement of locally funded projects, but have no direct
experience with Bank-financed
projects. All four procurement staff have attended the World
Bank procurement training course.
UDHC is capable of managing large infrastructure contracts.
52. The procurement risk is UDHC‟s lack of experience in
procurement of Bank-financed
projects. This risk will be mitigated through: close
coordination with UPMO and guidance from
UPMO; targeted training and capacity building of UDHC staff; and
close supervision by
UITCPO and the Bank.
53. UDHC has prepared a procurement plan for the initial 18
months of the project, which is
acceptable to the Bank.
E. Social (including safeguards)
54. A project social analysis identified the project
stakeholders (citizens, religious people, shop keepers,
communities, schools, hospitals, local markets, mosques, heating
company employees,
municipal departments in charge of traffic management, and PMO)
and through broad
participation of project stakeholders, public consultations,
interviews, focus group discussions,
and substantial data gathering and analysis, concluded that all
groups fully supported the project.
Stakeholder concerns focused on three major issues: traffic
disturbance during construction;
workers affected by the small boilers closure program; and
impact of heat pricing on low-income
families. Based on the social analysis, the following documents
have been prepared: traffic
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14
management plan; emergency management plan (e.g., water main
breaks from installation);
monitoring plan for municipal policy addressing workers affected
by its small boilers closure
program; and monitoring plan of UMG‟s policy to protect
low-income families from unexpected
increases in heat pricing.
55. Urumqi has more than 50 different Chinese ethnic minorities
or groups: (Uygurs, Han, Kazaks, Kirgiz, Mongols, etc) totaling
637,000 people, about 27% of population. 75% of them
live in the inner-city area and the rest in peri-urban areas.
Most of these populations have
immigrated to Urumqi since 1951. The characteristics of
indigenous peoples listed in the Bank‟s
OP 4.10, Indigenous Peoples, are not found in the project area.
In particular, they are neither
considered to have collective attachment to ancestral
territories in the project area nor have they
faced forced severance from these ancestral lands. The
Indigenous Peoples policy is therefore
not triggered.
56. Since the Bank-financed pipelines will dispatch heat from
two existing plants and will be
connected to the main heating network financed and installed by
Urumqi in 2010, a due diligence
review was conducted on the two plants and the main heating
network. The two plants were built
more than 10 years ago and their expansions were completed
respectively in 2008 and 2010 on
company-owned lands without involving any resettlement. The due
diligence review concluded
that small scale resettlement activities for the installation of
the main heating network financed
by Urumqi in 2010 were in compliance with Bank policies.
57. The project design has avoided land acquisition and
involuntary resettlement. A resettlement policy framework has been
prepared to address the land acquisition and resettlement
impacts of any changes to the project design.
F. Environment (including safeguards)
58. The proposed project is a Category A project as per the Bank
OP/BP 4.01. By eliminating
the use of locally polluting heat boilers and connecting to an
integrated heating system supplied
by CHP plants and peak load boilers with strengthened emission
controls, the project is expected
to contribute to a net reduction of coal consumption and
associated emissions.
59. Temporary moderate environmental impacts are foreseen during
the construction phase, such as noise, dust, solid waste disposal,
worker safety, social and traffic disturbance, and chance
finds of cultural relics. Standard measures to mitigate the
typical impacts of construction
activities are described in the Environmental Assessment (EA)
and in the Environment
Management Plan (EMP).
60. The EMP includes a traffic management plan and appropriate
mitigation measures identified during the social analysis process.
Good practices from the 2010 construction program
will be continued, e.g., distribution of a bilingual (in Chinese
and Uyghur) information booklet
about construction activities, schedule, and alternative routes
to affected residents.
61. A due diligence review conducted on the construction work
carried out in 2010 found that
the work had been executed consistent with Bank environmental
safeguard policies. A due
diligence review of existing facilities (two CHP plants and
three peak load boiler houses) that
will supply heat to the project networks carried out during
project preparation concluded that
these facilities are compliant with national and local emission
standards, as well as with those of
the WB/IFC Environmental Health and Safety (EHS) guidelines.
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15
62. Environmental Assessment (OP 4.01). Following the
requirements of Bank OP 4.01 and
relevant domestic regulations, the project includes an EA for
each of the two project networks.
Each EA presents baseline environmental and socio-economic
conditions, impact assessment,
alternative analysis, public consultation process, and the EMP.
An executive summary of each
EA was prepared in line with Bank requirements for Category A
projects. Annex 3 provides
more details on the EAs and the EMPs.
G. Other Safeguards Policies triggered (if required)
63. Not applicable.
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16
Annex 1: Results Framework and Monitoring
Project Development Objective (PDO): The proposed project
development objective (PDO) is to connect consumers in selected
districts of Urumqi to district heating services with improved
energy efficiency and environmental performance.
PDO Level Results
Indicators* Co
re
Unit of
Measure Baseline
Cumulative Target Values**
Frequency Data Source/
Methodology
Responsibility
for Data Collection
Description (indicator
definition etc.) YR 1
(2010)
YR 2
(2011)
YR3
(2012)
YR 4
(2013)
YR5
(2014)
Indicator One: Energy efficiency performance indicator7: Reduced
annual boiler plant coal consumption for heating per connected
floor area.
tce / million m2
0 4.9 5.1 5.1 5.1 5.1
annual Note 8 see below. UDHC
Indicator Two: Environmental performance indicators: Reduced SO2
annual boiler plant emissions per connected floor area.
tons/ million m2
0 245 247 248 248 248
annual Note see below. UDHC
Indicator Three: Environmental performance indicators: Reduced
dust annual boiler plant emissions per connected floor area.
tons/ million m2
0 127 128 129 129 129
annual Note see below. UDHC
Indicator Four: Environmental performance indicators: Reduced
CO2 annual boiler plant emissions per connected floor area.
tons/ thousand m2
0 13.7 14.0 14.1 14.1 14.1
annual Note see below. UDHC
Indicator Five: Financial performance indicators: Maintain
working ratio not higher than 90%
percent
-- -- -- ≤90 ≤90 ≤90
annual Note see below. UDHC
7 All the above PDO indicators are calculated by comparing coal
consumption and emissions of the without-project alternative to the
with-project alternative. The difference (reduction of coal
consumption and emissions) is divided by the connected floor area.
8 Calculated according to CDM methodology AM0058 based on actual
data records as applicable.
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17
INTERMEDIATE RESULTS
Intermediate Result (Component One): Shuimogou District Urumqi
CHP Heating Network Component (UHN) All indicators are cumulative
from the beginning of the project.
Intermediate Result Indicator One: Connected heated area to UHN
network
Million m2
0 1.0 9.0 13.0 14.0 14.7
annual Note 9see below. UDHC
Intermediate Result Indicator Two: Kilometers of pipelines
installed.
Km of pipelines 0 20 35 45 50 54
annual Note see below. UDHC
Intermediate Result Indicator Three: Construction of new
pressure regulating stations (large substation).
Number of stations 0 0 1 1 1 1
annual Note see below. UDHC
Intermediate Result Indicator Four: Number of substations
constructed or rehabilitated.
Number of sub-stations
0 10 60 80 90 90
annual Note see below. UDHC
Intermediate Result (Component Two): Shayibake District CHP
Heating Network (SHN)
Intermediate Result Indicator One: Connected heated area to SHN
network
Million m2 0 5.0 8.0 13.0 14.0 14.7
annual Note see below. UDHC
Intermediate Result Indicator Two: Kilometers of pipelines
installed.
Km of pipelines 0 20 30 35 39 39
annual Note see below. UDHC
Intermediate Result Indicator Three: Construction of a pressure
regulation station (large substation).
Number of stations 0 0 1 1 1 1
annual Note see below. UDHC
Intermediate Result Indicator Four: Number of substations
constructed or rehabilitated.
Number of sub-stations
0 15 30 45 50 50
annual Note see below. UDHC
9 Recorded at the start of the project and whenever newly
installed pipelines or equipment start operation.
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18
Intermediate Result (Component Three): Institutional Development
and Project Management. All indicators are cumulative from the
beginning of the project.
Intermediate Result Indicator One: Strengthening the billing and
accounting system of UDHC.
Set of TA activities
Ongoing HRBEE assess-ment study
TOR of HRBEE assess-ment study available
HRBEE assess-ment study available;Procure and carry out
equipment installa-tion
Equip-ment installed and used
annual NA UDHC
Intermediate Result
Indicator Two: Technical assistance to UDHC and study of how to
optimize the multi-heat source operation, management and
monitoring.
Set of TA activities
Draft TOR available
Draft TOR available
Draft TOR available
Selection of Consul-tant and Inception Report available
Draft Final Report available
Final Report available
annual NA UDHC
Intermediate Result Indicator Three: Number of study tours
implemented.
Number of study tours
0 0 7
domestic 1 internatl
14 domestic
2 internatl
17 domestic
2 internatl
20 domestic
2 internatl
annual NA UDHC
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19
Annex 2: Detailed Project Description
1. The proposed project consists of three components: (A)
Shuimogou District Urumqi CHP
Power Plant Heating Network (UHN) Component; (B) Shayibake and
Tianshan Districts CHP
Heating Network (SHN) Component; and (C) Institutional
Development and Project
Management Support Component. The total estimated project costs
are 3 RMB billion
(US$343.2 million equivalent). The proposed indicative financing
plan includes an IBRD loan
of US$100 million, about 30% of total estimated project costs,
which is proposed to partially
finance investment and technical assistance costs. The
municipality has implemented part of this
investment program in 2010, which amounts to about US$100
million equivalent or about 30%
of total estimated project costs. Investments in 2010 were
financed from own sources including
loans from local commercial banks.
2. The Urumqi District Heating Company (UDHC), a municipal State
Owned Enterprise, is
proposed to be the IBRD sub-borrower and will implement the
project under the overall
supervision of UMG. UDHC will own and operate the newly
integrated district heating
networks.
3. Technical Approach. Typically, a district heating system
involves three main components, a heat source, heat transmission
(“primary”) network and heat distribution to buildings through
heating substations. Heat sources generate high temperature hot
water which circulates in a
closed loop system, transmitting heat energy through substations
to a secondary closed loop
network, which in turn transmits lower temperature water (for
safety) to heating elements
(radiators, floor heating, etc.). Heat sources in this project
are Combined Heat and Power Plants
and Heat Only Boilers (HOBs) which produce high temperature
water for the primary network.
4. By supporting the development of an integrated CHP-HOB
system, the project will
improve the performance and quality of district heating services
in Urumqi and have a major
impact on improving air quality in the city. On project
completion, 45 coal-fired local boiler
plants, including 140 coal-fired boilers with about more than
2,291MWth in the city center, will
no longer operate. This will reduce coal consumption in downtown
Urumqi. The base load heat
will be generated by coal-fired CHP plants, located outside the
city center, and the peak load by
coal-fired peak load boilers. The peak load boilers will be
equipped with flue gas cleaning
equipment for SO2 and dust removal.10
These will be financed by the owners of the peak load
boiler plants and are outside the project scope.
5. Technical challenges and design. Urumqi has a unique
geological topology featuring a high
elevation difference over 150 meters between heating plants and
consumers. For safe operation,
the DH system design has to ensure the following three
conditions everywhere: (a) no over-
pressure; (b) no water evaporation due to low pressure; and (c)
no vacuum. Because of the high
elevation difference between the CHP and the consumer area, a
three hydraulic separated
network system was designed with heat exchanger stations to meet
these three conditions. They
are: (a) the primary network from the CHP to the pressure
isolation stations with a design
pressure of 2.5MPa and a temperature of 135°C; (b) the secondary
network from the pressure
isolation stations to the consumer heating substations with a
design pressure of 2.5-1.6MPa and a
temperature of 120°C; and (c) the heat distribution network from
the heating substations to the
radiators inside the buildings with a design pressure of 1.0MPa
and a temperature of 90°C.
10
The CHPs already have emission control equipment installed and
operating.
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20
6. Pre-insulated pipes will be used in Bank financed components
and directly buried for
primary and secondary networks with some pipe expansion
compensators. Sectioning valves will
be installed every 2-3 kilometers along the main transmission
lines and at each pipeline branch
for ease of maintenance. The project design consultant has
experience with the design of large
pipeline networks based on the non-compensation method.
7. The heating substations, new and renovated, will include heat
exchangers to separate heat
distribution networks from heat transmission networks.
Substations will have heat meters and
local automation systems to optimize the operation of the
substations and regulate water
temperatures to the buildings in accordance with weather
conditions. All substations will also be
connected to the company-wide monitoring and dispatching system
(SCADA) which allows
operators to remotely change parameters at each substation. The
dispatch center will monitor and
dispatch the heat supply from the CHP plants and the peak load
boiler plants to optimize
operation, hydraulic situation, and to maximize reliability of
heat supply to customers.
8. Heat metering systems have been designed at different heat
supply levels. Heat meters are
installed at CHPs and peak load boiler plants, and will be
installed in all heating substations. All
new buildings will have building level heat meters to facilitate
the switch to consumption based
billing in the future.
9. Component A: Shuimogou District CHP Plant District Heating
Network (UHN) (estimated cost US$196.8 million; US$56.14 million
IBRD financing). The proposed component
will finance the construction of the UHN district heating (DH)
system. The base heat load of the
UHN district heating system will be supplied by the Huadian
Weihuliang coal-fired CHP Plant,
built in 2009 with a capacity of 2x330 MWp (power output) and
2x350 MWth (heat output) and
owned by Huadian Group, Ltd. The peak heat load will be supplied
by the coal -fired Hualing
Boiler Plant (6x29MWth and 2x58MWth, in total 290 MWth) owned by
Nuan Wanjia Heating
Co., Ltd. of the Hualing Group Heating Company, Ltd. The total
heated floor area supplied by
UHN will reach about 14.73 million m2 by 2015, of which about
5.93 million m
2 is new planned
heating area. The total heat load will be about 973 MW th. After
component completion, the DH
system will replace the use of 14 coal fired HOB plants (9
larger plants totaling about 886 MW th
and 5 smaller plants totaling about 36 MW th) including 53 coal
fired boilers with a total capacity
of about 923 MWth.
10. The component will include construction of: (a) about 55 km
of primary and secondary
network; (b) a pressure isolation station; (c) about 46 new
consumer heating substations
(including several building level substations for demonstration
purposes) and reconstruction of
about 45 heating substations; (d) construction of a heat
metering station in CHP, (e) construction
of a dedicated monitoring and dispatch system (SCADA) and
control center, including
associated equipment; (f) maintenance vehicles and equipment;
and (g) associated civil and
installation works and recovery of public infrastructure damaged
by installation (i.e. resurfacing
roads).
11. Component A will be implemented in two parts. The 2010
investment program totaling
US$44.8 million equivalent, which the municipality has already
completed including the
following:
(a) Construction of 22.4 km of district heating network from the
CHP plant.
(b) Connection of 1.190 million m2, including 1.07 million m
2 of new buildings.
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21
(c) Connection to 10 substations, including construction of 7
new and reconstruction of 3
substations.
(d) Heat metering station at CHP and pressure regulation
substation.
(e) Associated civil and installation works and recovery of
public infrastructure.
This part of the new system will replace the use of 3 HOB plants
with 6 coal-coal fired boilers
(22 MWth).
12. The 2011-2014 investment program totaling US$152.0 million
equivalent, which will be
supported by the World Bank loan and counterpart funds, includes
the following:
(a) Construction of about 32.4 km of district heating network.
(b) Connection of about 13.54 million m
2, including 8.68 million m
2 of existing
buildings, and 4.86 million m2 of new buildings.
(c) Connection to about 81 substations belonging to UDHC,
including construction of 39
new (including several building level substations for
demonstration purposes) and
reconstruction of 42 substations, as well as connection to about
69 substations
belonging to the heat distribution companies.
(d) Construction of SCADA and control center, including
associated equipment.
(e) Maintenance vehicles and equipment.
(f) Associated civil and installation works and recovery of
public infrastructure.
This part of the new system will replace the use of 11 HOB
plants with 47 coal-coal fired boilers
(901 MWth).
13. This implementation schedule is presented in the table
below:
A. Shuimogou District Urumqi CHP Heating Network Component
(UHN)
2010 2011 2012 2013 2014 Total
Connected heating area [million m2] 1.19 8.03 4.2 0.79 0.52
14.73
Connected heating area existing buildings 0.12 6.88 1.8 0 0
8.8
Connected heating area new buildings 1.07 1.15 2.4 0.79 0.52
5.93
Pipeline length installed [km] 22.4 18.7 8.7 4.2 0.8 54.9
Number of connected heat exchanger stations 10 97 43 6 4 160
New substations 7 14 15 6 4 46
Reconstructed substations 3 40 2 0 0 45
Number of substation belonging to others 0 43 26 0 0 69
Number of HOBs 6 23 24 0 0 53
number of boilers closed 6 23 24 0 0 53
Capacity of closed boilers [MW] 22 683 218 0 0 923
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22
14. The corresponding cost estimate is shown in the table
below:
A. Shuimogou District Urumqi CHP Heating Network Component
(UHN)
( in US$ millions equivalent)
Total 2010 2011-2014
Network Pipelines 108.6 32.8 75.8
Primary pipelines 44.4 19.5 24.9
Secondary pipelines 60.0 13.2 46.8
Distribution pipeline replacement 4.2 0.1 4.1
Primary Network Pressure Regulation 14.7 3.5 11.2
Heat Metering Station 0.1 0.1 0.0
Pressure Isolation Station 14.6 3.4 11.2
Control Center for UDHC 7.9 0.0 7.9
Substations and Metering 18.3 0.9 17.4
New Substations 9.3 0.7 8.6
Substation Rehabilitation 3.8 0.2 3.6
Building level substations 0.7 0.0 0.7
Substation automation/SCADA 3.9 0.0 3.9
Meters at former Boiler Site 0.6 0.0 0.6
Other 29.1 3.7 25.4
Land acquisition 4.7 0.4 4.3
Road restoration 6.5 1.6 4.9
Other engineering expenses 17.9 1.7 16.2
Total Base Cost 178.5 3.9 174.6
Contingencies 14.3 3.3 11.0
Interest during construction 3.6 0.6 3.0
Initial Working Capital 0.5 0.0 0.5
Total - UHN Component 196.8 44.8 152.0
15. Component B: Shayibake District CHP Heating Network (SHN)
(estimated cost
US$145.0 million; US$42.6 million IBRD financing). The proposed
component will finance
construction of the SHN district heating (DH) system in the
Shayibake District of Urumqi. A
small part of the Shayibake District CHP Heating Network will
also cross into neighboring
Tianshan District. The base heat load of the SHN district
heating system will be supplied by the
Hongyanchi coal-fired CHP Plant, built in 2010 with a capacity
of 2x330 MWp (power output)
and 2x350 MWth (heat output), and owned by the Guodian Xinjiang
Hongyanchi Power
Generation Co., Ltd., a part of the Guodian Group, Ltd. The peak
load will be supplied by the
Shiyue HOB Plant (5x29MWth) operated by the Xinjiang Guanghui
Heating Co., Ltd., and the
Lanzhu HOB Plant (4x29 MWth + 1x64MWth) operated by the Urumqi
Lanzhu Centralized
Heating Co., Ltd. The total heated floor area supplied by SHN
will reach about 14.74 million m2
by 2015, of which about 3.35 million m2 is new planned heating
area. The total heat load is about
1,010 MWth. After component completion, the DH system will
replace the use of 31 coal-fired
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23
HOB plants (about 11 larger boiler plants and 20 smaller
coal-fired HOB plants) including 87
coal fired boilers with a total capacity of about 1,368
MWth.
16. The component consists of construction of: (a) about 39 km
channel length of primary
and secondary network; (b) a pressure isolation station; (c)
about 22 new consumer heating
substations (including several building level substations for
demonstration purposes) and
reconstruction of about 28 existing substations; (d) a heat
metering station at the CHP plant; (e)
monitoring and dispatch system (SCADA) and control center with
associated equipment; (f)
maintenance vehicles and equipment; and, (g) associated civil
and installation works and
recovery of public infrastructure damaged by installations (i.e.
resurfacing roads).
17. Component B includes two parts. The 2010 investment program
totaling US$58.6 million equivalent, which the municipality has
already completed and financed with its own
funds including the following:
(a) Construction of 22.6 km of district heating networks. (b)
Connection of 5.62 million m
2 including 0.74 million m
2 of new buildings.
(c) Connection to 16 substations belonging to UDHC, including
construction of 1 new
and reconstruction of 15 substations, and 56 substations
belonging to the heat
distribution companies.
(d) Heat metering station at CHP and pressure regulation
substation. (e) Associated civil and installation works and
recovery of public infrastructure.
This part of the new system will replace use of 18 HOB plants
with 43 coal-coal fired boilers
(577 MWth)
18. The 2011-2014 investment program, totaling US$86.4 million
equivalent, which will be
supported by the World Bank loan and counterpart funds, includes
the following:
(a) Construction of about 16.8 km of district heating
networks.
(b) Connection of 9.13 million m2, including 6.53 million m
2 of existing buildings and
2.61 million m2 of new buildings.
(c) Connection to 34 substations belonging to UDHC, including
construction of 21 new (including several building level
substations for demonstration purposes) and
reconstruction of 13 substations, and 78 substations owned by
the heat distribution
companies.
(d) Construction of SCADA and control center, including
associated equipment. (e) Maintenance vehicles and equipment.
(f) Associated civil and installation works and recovery of
public infrastructure
This part of the new system will replace the use of 13 HOB
plants with 44 coal-coal fired boilers
(790 MWth).
19. This implementation schedule is presented in the table
below:
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24
2010 2011 2012 2113 2114 Total
Connected heating area [million m2] 5.61 3.44 5.69 0 0 14.74
Connected heating area existing buildings 4.87 2.75 3.78 0 0
11.40
Connected heating area new buildings 0.74 0.69 1.92 0 0 3.35
Pipeline length installed [km] 22.6 9.0 7.8 0.0 0.0 39.5
Number of connected heat exchaner stations 72 50 62 0 0 184
New substations 1 7 14 0 0 22
Reconstructed substations 15 12 1 0 0 28
Number of substation belonging to others 56 31 47 0 0 134
Number of HOBs 18 9 4 0 0 31
Number of boilers closed 43 25 19 0 0 87
Capacity of closed boi