China, People's Republic of: Shandong Energy Efficiency and Emission Reduction Project

Sovereign Project | 40524-013 Status: Approved


The project proposes to finance the reduction of energy intensity and emissions from energy-intensive industries in Shandong Province through a financial intermediation loan (FIL). The aim of the project is to promote energy efficiency and emission reduction measures in the province's industry sector, develop energy service companies (ESCOs), and enhance institutional capacity to identify and manage energy efficiency and emission reduction projects.

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Project Name Shandong Energy Efficiency and Emission Reduction Project
Project Number 40524-013
Country China, People's Republic of
Project Status Approved
Project Type / Modality of Assistance Loan
Source of Funding / Amount
Loan 2771-PRC: Shandong Energy Efficiency and Emission Reduction Project
Ordinary capital resources US$ 100.00 million
Strategic Agendas Environmentally sustainable growth
Inclusive economic growth
Drivers of Change Governance and capacity development
Private sector development
Sector / Subsector

Finance - Infrastructure finance and investment funds

Gender Equity and Mainstreaming No gender elements
Description The project proposes to finance the reduction of energy intensity and emissions from energy-intensive industries in Shandong Province through a financial intermediation loan (FIL). The aim of the project is to promote energy efficiency and emission reduction measures in the province's industry sector, develop energy service companies (ESCOs), and enhance institutional capacity to identify and manage energy efficiency and emission reduction projects.
Project Rationale and Linkage to Country/Regional Strategy

The project has a very good fit and direct relevance with the ongoing and targeted energy intensity improvements in the PRC for the next 10 years to meet the 40% 45% carbon intensity improvement by 2020 compared with 2005. The project follows and complements a previous successful Asian Development Bank (ADB) loan in a similar energy-intensive Guangdong province. Shandong is the second largest in terms of industrial outputs among all provinces in the PRC. Accordingly, the industry sector is the main energy consumer in Shandong consuming more than three-quarters of total energy in 2009. Moreover, the energy supply in Shandong is heavily dependent on high carbon fossil fuels - coal (77%) and oil (21.2%) - causing large emissions. The province's total energy consumption in 2009 was 324 million tons of standard coal equivalent (tsce) 10% of the national total. Shandong's economy, has grown consistently at a rapid rate, expanding at an average rate of 12.49% per annum between (1995 2009). This economic growth momentum in Shandong is expected to continue in the foreseeable future putting even greater emphasis on accelerating investments in energy efficiency.

In the first 4 years of the Eleventh Five-Year Plan, 2006 2010, Shandong Province's energy consumption per CNY10,000 GDP declined by 18.9% compared to a target of 22%. In 2009, its energy intensity improved to 1.072 tsce per CNY10,000 of GDP . Despite improving the energy intensity, the underinvestment in energy efficiency and the existence of many energy-intensive industries in the province provide significant opportunities for further energy intensity reductions through targeted investment.

The existing industrial energy efficiency financing mechanisms in Shandong have mainly benefited small projects primarily through ESCO involvement. While the ESCO concept has been operative in PRC since 1998 its implementation was rather slow and limited to small-scale industrial energy efficiency improvements, e.g., retrofitting of air-conditioners, lighting, boilers, pumps and motors. A large financing gap exists for medium- and large-sized energy efficiency projects that involve all or part of an industrial manufacturing process for an industry. Three key barriers have impeded investment: (i) lack of familiarity with the latest energy efficient technologies, combined with the enterprises' perception of production interruptions and/or loss of revenues; (ii) difficulties for commercial banks to assess cash-flow benefits and forgo collateral for such investment projects which do not generate additional revenues; and (iii) lack of capacity for evaluation and risk assignments for energy conservation investments by commercial banks. Limited market-based incentive mechanisms to reward investors for reducing emissions through energy efficiency also discourage investors. These market imperfections warrant targeted public interventions.

Several measures have been adopted in designing this project to address these barriers. Accordingly, the FIL modality was chosen to (i) allow multiple rollover of the ADB loan, thus, providing larger investments for energy efficiency over the loan tenor, (ii) build knowledge and capacity of provincial government and selected financial intermediary in evaluation and risk assignments for energy efficiency transactions, (iii) reduce transaction complexities and costs due to familiarity and experience gained by the project management office (PMO) and the financial intermediary from the initial subprojects, and (iv) enhance governance and improve safeguard compliance for energy efficiency investments beyond the first batch of subprojects.

Consistent with the Strategy 2020 goals, the project encourages private sector investments. In the first batch, both selected subprojects are private enterprises. The emphasis on technological innovation featured in the design of the project and selection of the first batch of subprojects is expected to be maintained and further intensified for future subprojects. The project design includes an innovative package of financial incentives and rewards to encourage continued participation and enhance interest from similar industrial enterprises thus, leveraging additional private investments. In addition, to encourage and explore ESCO participation in future subprojects specific recommendations and actions are being finalized under the TA (footnote 1). This, combined with the recent PRC Circular No. 25 of the State Council Development and Reform Commission on ESCO policy, will enhance engaging ESCO companies for the project .

The selected two private enterprises Golden Yimeng Group (Golden Yimeng) and Dongying Lufang Metallic Materials (Lufang) are both industrial leaders in their respective areas and are proposing state-of-the-art energy efficiency and renewable energy technologies. The Golden Yimeng sub-project includes expanding the biogas capturing system to generate power and supply heat; using biowaste as fuel and to produce organic fertilizers; waste heat recovery and energy conservation from various process units; and using heat from solar parabolic concentrators to supply a 6-megawatt steam turbine to generate electricity. This will be the first such large-scale industrial solar application in the PRC. Lufang is among the top six copper producers in the PRC. Lufang sub-project will support and supplement the development of a zero coal copper ore smelting furnace an innovative technology. This technology will set the new market entry standard for future copper smelters and have a profound impact on energy efficiency and emission reduction efforts.

The China Everbright Bank (CEB), Jinan branch, was selected as the FI through a competitive bidding process conducted in May 2010. The involvement of CEB, a commercial bank, in rolling over the fund will bring in sound banking expertise and governance in energy efficiency lending. It will also strengthen cooperation between the government agency (the PMO) and the domestic financial institution, which may encourage them to work together beyond the project and expand investments in this high priority area for the government.

To ensure that high standards with regard to due diligence and assessment are followed beyond the first batch of subprojects, ADB, the Government of the PRC, Shandong provincial government (SPG), and CEB have agreed on a set of technical, financial, economic, social, and safeguards criteria for selecting subborrowers and subprojects. This will assist the PMO and CEB in managing risks in future subprojects.

Impact Reduced industrial energy intensity and emissions in Shandong Province
Project Outcome
Description of Outcome Expanded energy efficiency investments in energy-intensive industries of Shandong Province
Progress Toward Outcome Implementation of the first batch of subprojects is ongoing, and the construction activities for Lufang sub-project have completed. Golden Yimeng subproject of the first batch has withdrawn due to IPO listing. Haider ESCO project has been selected as the new subproject and the implementation is ongoing.
Implementation Progress
Description of Project Outputs

Priority energy efficiency and emission reduction projects implemented in selected energy-intensive industries

Capacity developed for government and financial institutions in planning, investments and management of energy efficiency projects

Status of Implementation Progress (Outputs, Activities, and Issues) As of end June 2015, cumulative contract awards and disbursements have reached $70 million (70%) and $61.6 million (62%).
Geographical Location TBD
Safeguard Categories
Environment FI
Involuntary Resettlement FI
Indigenous Peoples FI
Summary of Environmental and Social Aspects
Environmental Aspects The first batch of this FIL project includes two subprojects (Lufang subproject and the new Hider subproject) which have been individually assessed and categorized as B' for environment. Environment and Social Management System (ESMS) approved by ADB has been endorsed and adopted by PMO. The PMO has already appointed an environment and social safeguard manager on 30 September 2012. Project performance and management system (PPMS) reporting and the semi-progresss reports were submitted up to June 2014. The ESMS implementation report were received and is on track.
Involuntary Resettlement All works will be done within the existing premises and does not require any land acquisition. There are no resettlement issues for the two subprojects in the first batch since potential subprojects involving land aquisition and resettlement have been and will be eliminated through the selection criteria for the project.
Indigenous Peoples The project will not have any adverse impact on any ethnic minority group, which is stipulated in the subproject selection criteria.
Stakeholder Communication, Participation, and Consultation
During Project Design

The National Development and Reform Commission, Ministry of Finance, Ministry of Industries and Information Technologies, and Ministry of Environmental Protection have been consulted to ensure the project is aligned with the government's development strategies and priorities.

Shandong Provincial Development and Reform Commission, Shandong Provincial Finance Department, Shandong Economic and Information Technology Commission, and Shandong Provincial Department of Environmental Protection are the partners for the project, and have been participating in all steps for the project design and subproject selection. They are also the main constituent entities of the project management office. Shandong Provincial Energy Conservation and Monitoring Center has been active in providing support for the preparation of the subprojects.

During Project Implementation
Business Opportunities
Consulting Services Based on the readiness of the initial subprojects, in the first batch of the FIL loan, there is no need for implementation consultants. The safeguard reporting requirements of the initial subprojects have been accomplished as part of the project preparatory technical assistance (PPTA) Part A work with the exception of annual ESMS implementation report. The nature of work, as reflected in the subproject categories, is not expected to induce any adverse environmental impacts during the construction period for Golden Yimeng and Lufang subprojects. Thus, the monitoring records furnished by the subproject companies as part of their domestic environmental license conditions and environmental impact assessment requirements will suffice the annual ESMS implementation report which would be forwarded by the PMO to ADB during the 2 years of construction period. The implementation of ESMS may require specific technical expertise for the next batch of subprojects for which SPG has given assurance to engage appropriate consultants utilizing the funds in Shandong Energy Efficiency and Emission Reduction Account.

Procurement will be done in accordance with ADB's Procurement Guidelines (2010, as amended from time to time). Subborrowers will be required to follow the relevant procurement rules in ADB's Procurement Guidelines for financial intermediaries, and adopt appropriate procedures including (i) payment of reasonable prices, and (ii) fair canvassing when selecting suppliers. Procurement must be from ADB member countries. Subborrowers will be encouraged to procure goods through competitive bidding or shopping when such procedures are most appropriate in the interest of economy and efficiency. A procurement manual indicating the detailed procurement procedure that will be used under the overall project implementation will be prepared by the PMO and submitted to ADB for review and approval prior to undertaking any procurement activities including advance contracting and retroactive financing. In case of noncompliance, CEB will exercise the right to recall the subloan.

A procurement capacity assessment was performed on SPG and subborrower companies. The draft procurement packages will be finalized after the detail design.

Responsible ADB Officer Lanlan Lu
Responsible ADB Department East Asia Department
Responsible ADB Division PRC Resident Mission
Executing Agencies
Shandong Provincial Government
People's Republic of China
Concept Clearance 08 Jul 2010
Fact Finding 02 Aug 2010 to 13 Aug 2010
MRM 30 Sep 2010
Approval 18 Aug 2011
Last Review Mission -
PDS Creation Date 13 Jul 2010
Last PDS Update 09 Sep 2015

Loan 2771-PRC

Approval Signing Date Effectivity Date Closing
Original Revised Actual
18 Aug 2011 25 Oct 2011 15 May 2012 19 Sep 2016 - -
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 141.80 Cumulative Contract Awards
ADB 100.00 18 Aug 2011 0.00 0.00 0%
Counterpart 41.80 Cumulative Disbursements
Cofinancing 0.00 18 Aug 2011 61.60 0.00 62%

Safeguard Documents

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Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.

Evaluation Documents

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Related Publications

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