LOAN: PRC 39653-01 | MFF-Guangdong Energy Efficiency and Environment Improvement Investment Program

China,People'sRep.of

LOAN: PRC 39653-01

MFF-Guangdong Energy Efficiency and Environment Improvement Investment Program - Facility Concept

•	Missions
•	Loan Approval Date
•	Estimated Completion Date
•	Cost and Financing Plan
•	Description
•	Development Objectives
•	Thematic Classification
•	Target Classification
•	Rationale
•	Objectives and Scope
•	Policy Dialogue
•	Environment Category
•	Env't Impact and Mitigation
•	Social Aspects and Remedies
•	Benefits and Beneficiaries
•	Public Consultation
•	Beneficiary Participation in Formulation
•	Beneficiary Participation in Implementation
•	Consulting Services
•	Procurement
•	Contacts
•	Remarks

Location
Guangdong Province

Sector
Energy /Energy Sector Development

Initial Listing
17 May 2006

Most Recent Update
10 October 2007

Executing Agency(ies)

Government of Guangdong Province (GGP)

Missions

Loan Approval Date

2007 (Expected Approval Year)

Estimated Completion Date

Cost and Financing Plan (in US$ million)

Source	Foreign Cost	Local Cost	Total
Bank	100.00	0.00	100.00
Cofinancing	0.00	0.00	0.00
Borrower	0.00	0.00	0.00
Beneficiaries	0.00	0.00	0.00
Others	0.00	0.00	0.00
Project/Program Cost	100.00	0.00	100.00

OCR ADF Total

Loan Amount 100.00 0.00 100.00

Description

Energy supply has become a bottleneck to the sustainable development of the PRC's economic development in recent years. Since 2001, the PRC has entered a rapid economic growth stage, which is mainly driven by rapid development of heavy and chemical industries. These high energy consuming industries, especially metallurgical, building material and chemical industries, contributed a lot to the PRC's economic development. However, it has also resulted in a high increase rate of energy consumption as well. The PRC Government has set a target that the GDP in 2020 should be 4 times that in 2000. In 2004, the total energy consumption reached 1.970 billion tce, while energy production reached 1.846 billion tce. It is expected that total energy supply could reach 3.00 billion tce in 2020 and the eenrgy supply would be far below the energy demand in 2020 if no effective measures are taken to save energy and adjust the industry structure.

Thematic Classification: Economic Growth

Target Classification: General Intervention

Rationale

Since 2000, the PRC's electricity use has been rapidly increasing at annual growth rate of over 13%. By 2004, serious power shortages had become persistent, and more than half of the provinces in the country had to curtail power supplies during the peak periods in summer. PRC added 231 GW of new power generation capacity in 3 years (2004 - 2006). Furthermore, approximately 80% of the electricity is produced by coal-fired power plants, generating substantial amounts of air pollutants and greenhouse gases. More than half of the cities in the country fail to meet the national ambient air quality standards. According to preliminary estimates made by the Netherlands Environmental Assessment Agency, the PRC emitted 6.2 billion tons of carbon dioxide in 2006, exceeding the United States as the world's largest producer of carbon dioxide emissions. The GDP of Guangdong in 2005 was CNY2.24 trillion ($280 billion) which was more than 12% of PRC's GDP and the highest among the provinces and municipalities. The annual electricity consumption (267 TWh in 2005) has been rapidly growing at nearly 15% since 2000. Since 2001, Guangdong has suffered severe power shortages. The power shortage was about 5,000 MW in the summer of 2006. Guangdong also has significant acid rain problems: in 2005, acid rain frequency was about 55%, and 18 cities covering about 85% of the areas in the province, experienced acid rain. Since 2000, most of Guangdong's large cities have an increase in the number of days a year when the ambient air quality fails to meet the national air quality standards. The power shortage and environmental problems, if not resolved quickly, would hinder the economic growth of the province. To address the power shortage and environmental problems, both the PRC and Guangdong Provincial Governments have given the highest priority to energy efficiency. Controlling the demand side of energy will offset the need to increase supply due to increasing economic output. Based on the analysis of the ADTA part B consultants, the cumulative annual electricity savings that could be realized after 10 years of retrofitting program in Guangdong is 41.2 TWh. During the period 1998 - 2000, the Guangdong Energy Conservation Center, a provincial government agency, implemented the Electricity Conservation Fund, assisting enterprises to improve energy efficiency; it was able to achieve an energy savings of about 7.9 TWh/year, and was closed in 2006. The energy saved by installing energy efficient equipment, in the aggregate, will reduce the need for building and burning fuel in a conventional power plant; thus the aggregation of efficient equipment is being referred to as an EPP. This IP addresses one part of demand side management (DSM), i.e., the retrofitting of existing equipment with a more energy efficient one. The collective sub-projects will produce an EPP that will help improve environmental quality as it avoids the air emissions, including greenhouse gases, associated with conventional power plants in the PRC. In the PRC's 11th Five-Year Plan, the Government has set an aggressive energy efficiency target for reducing energy consumption relative to economic growth by 20% between 2006 and 2010. Guangdong, being a relatively energy efficient province, has a target of improving energy efficiency by 16% between 2006 and 2010. The Guangdong Provincial Government (GPG) has made this EPP investment program one of its top 10 programs in the province. GPG recognizes that the benefit from energy efficiency is a public good, but cost of implementation is high, hence it proposes to extend support to catalyze adoption of energy efficiency measures by the energy consumers. It proposes to establish a new Guangdong Energy Efficiency Fund that will promote implementation of energy efficiency sub-projects in various ways, such as, provide incentive for energy savings based on retrofitting with more efficient equipment, validation and verification of energy savings, counter-guarantee for sub-loan repayment, subsidized project management cost, and market EPP, etc. It expects this fund to be financed from various sources, such as budget allocations, multi-lateral donors, Clean Development Mechanism (CDM) revenue, etc.

Objectives and Scope

The Project is to promote energy conservation in Gungdong Province using advanced technologies, and is justified in technical, economic, and financial terms. The Project will provide substantial environmental and health benefits. The environmental benefits from the Project include expected energy savings, and the emission reduction.

Policy Dialogue

Environment Category: C

Environment Impact and Mitigation

Social Aspects and Remedies

The IP includes only retrofits of existing electricity consuming facilities and will not involve any land acquisition or resettlement, thus there is no need for preparing land acquisition or resettlement plan. Negative social impacts, including laying off of workers, from the IP are unlikely. In addition, the IP will reduce coal consumption and free up resources and lower investments in coal mining and transportation. The IP will also create a number of service jobs in the energy efficiency service sector.

Benefits and Beneficiaries

Under the proposed IP, ADB will provide to GPG $100 million loan in three MFF tranches with a 15-year term including a grace period of 3 years. First tier sub-borrowers will be required to repay their loans to GPG over 5 years including a 1 year grace period (sub-loan repayment period can be changed by GFTC, in consultation with ADB, to meet the investment needs). GFTC will be able to finance several cycles of EPP sub-projects as the sub-loans are repaid during the 15-year period, thereby multiplying the benefits of the proposed ADB loan.

Public Consultation

Arranged by

Date for Consultation :

Groups Consulted :

Beneficiary Participation in Formulation

Interviews and site visits have been held with a number of large electricity end-users and middle users (e.g. energy service companies and high efficiency equipment manufacturers) on the development of EPP. The NDRC, MOF, and several provincial government departments (Economic and Trade Commission, Development and Reform Commission, Finance Bureau, State Assets Supervision and Administration Commission, and Energy Conservation and Monitoring Center) have been consulted about the IP.

Beneficiary Participation in Implementation

Consulting Services

Consulting services will be used to assist in (i) assessing EPP sub-project applications, (ii) implementing EPP sub-projects, (iii) carrying out independent measurement and verification of energy savings and demand reductions of implemented sub-projects, and (iv) seeking carbon revenues for EPP projects from CDM. Consultants will be recruited according to ADB's Guidelines on the Use of Consultants.

Procurement

All procurement to be financed will be carried out in accordance with ADB's Procurement Guidelines for loans to financial intermediaries. The sub-borrowers (both public and private sector companies) will undertake procurement of their respective packages in accordance with established commercial practices, acceptable to ADB. The IP is designed to result in economic efficiency because the sub-borrowers will only participate as EPP contributors when the payback period of the investment is shorter than the sub-loan repayment period (and the life of the equipment installed). The EPP PMO will closely supervise the implementation to ascertain that the agreed energy efficiency sub-project is implemented and estimated energy savings are realized.

Contacts

Bank

Siew Fing Wong
Senior Financial Analysis Specialist
EAEN
Tel. No.: (632) 632-6165
E-mail: sfwong@adb.org

Executing Agency
Government of Guangdong Province (GGP)

Contact Person :
Tel. No. :
Fax. No. :
E-mail :

Remarks

Projects