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Project Number: 42117Loan Number: 2611/Grant 0109May 2010

People's Republic of China: Tianjin Integrated

Gasification Combined Cycle Power Plant

Project

Project Administration Memorandum



TABLE OF CONTENTS

Page

I. PROJECT DESCRIPTION 1 A. Rationale 1 B. Impact and Outcome 2 C. Outputs 2 D. Special Features 2

II.

COST ESTIMATES AND FINANCING PLAN 4

A. Project Investment Plan 4 B. Financing Plan 6

III. IMPLEMENTATION ARRANGEMENTS 6 A. Onlending Arrangements 6 B. Project Management 7

IV. IMPLEMENTATION PERIOD 7 V. PROCUREMENT 7

A. Advance Contracting and Retroactive Financing 8 B. Consulting 8

VI. DISBURSEMENT PROCEDURES 9 VII. PROJECT MONITORING AND EVALUATION 9

A. Monitoring 9 B. Accounting, Auditing, and Reporting Requirements 10 C. Project Performance Monitoring and Evaluation 10 D. Project Review 10

VIII. GRANT FROM CLIMATE CHANGE FUND 11 IX. MAJOR LOAN COVENANTS 11 X. KEY PERSONS INVOLVED IN THE PROJECT 11 XI. ANTICORRUPTION 12 XII. RECORD OF PAM CHANGES 12

APPENDIXES1. Project Organization Chart2. Organization Chart for Implementing the Project3. Implementation Schedule4 Revised Procurement Plan



CURRENCY EQUIVALENTS

(as of 28 May 2010)

Currency Unit – yuan (CNY)

CNY1.00 = $0.1464$1.00 = CNY6.83

ABBREVIATIONS

ADB – Asian Development Bank ASU – air separation unitCCF – Climate Change FundCCS – carbon dioxide capture and storageCDM – Clean Development MechanismCEFPF – Clean Energy Financing Partnership FacilityCER – certified emission reductionCHNG – China Huaneng GroupCMI – Carbon Market InitiativeCO – carbon monoxide

CO2 – carbon dioxideDSCR – debt service coverage ratioEA – executing agencyEIA – environmental impact assessmentEIRR – economic internal rate of returnEMP – environmental management planEMU – environmental management unitEXIM Bank – Export and Import Bank of ChinaFIRR – financial internal rate of returnFNPV – financial net present valueFYP – five-year planGDP – gross domestic productGHG – greenhouse gasHTICL – Huaneng Tianjin IGCC Co. Ltd.IA – Implementing agencyICB – international competitive biddingIEA – International Energy Agency

IGCC – integrated gasification combined cycleIPCC – Intergovernmental Panel on Climate ChangeKfW – Kreditanstalt für WiederaufbauLIBOR – London interbank offered rateMOF – Ministry of FinanceMOST – Ministry of Science and TechnologyNCB national competitive bidding



TA – technical assistanceTEPB – Tanggu Environmental Protection BureauTPRI – Thermal Power Research Institute, XianTSP – total suspended particulates

USC – ultra-supercriticalWACC – weighted average cost of capitalWTP – willingness to pay

WEIGHTS AND MEASURES

GW (gigawatt) – 1,000 megawattskV (kilovolt) – 1,000 voltskWh (kilowatt-hour) – 1,000 watt-hoursMW (megawatt) – 1,000,000 wattst (ton) – 1,000 kilogramsToe – ton of oil equivalentTWh (terawatt-hour) – 1012 watt-hours

NOTE

In this report, "$" refers to US dollars.



I. PROJECT DESCRIPTION

A. Rationale

1. The PRC has sustained impressive economic growth averaging 9.5% for the past 2decades. Compared with 2000, its gross domestic product (GDP) is expected to double by 2010and quadruple by 2020. The PRC's energy consumption increased to 2.85 billion tons (t) of standard coal equivalent by end-2008, about 20% of global energy consumption and 121%higher than the 1.29 billion t of standard coal equivalent consumed in 2000.1 Given theprojected growth trajectory and relatively low per capita energy consumption of 0.72 t of oilequivalent (toe) per annum, the PRC's demand for energy is expected to increase rapidly. Coalis the dominant source of primary energy, contributing 70% in 2008, which is significantly higher

than the world average of 26%.2

2. The PRC is the world’s largest coal producer and consumer, as well as a net energyimporter, mainly of oil and gas. In 2008, crude oil imports were more than 178 million t. ThePRC's reliance on imported oil has now increased to more than 50% of total oil consumption.The consistently increasing demand for energy has impacted upon energy security and maybecome a barrier to sustained economic growth.3 A key priority in the 11th Five-Year Plan (FYP)2006–2010 is to lower energy intensity by 20%.4 At the end of 2008, energy intensity had fallen

by 9% compared with 2005.5

By international standards, energy intensity in the PRC is stillrelatively high at about 0.92 toe, compared with 0.21 toe for the United States and 0.15 toe for Japan.

3. The rapid pace of economic growth has created strong demand for electricity. Per capitaelectricity consumption increased from 993 kilowatt-hours (kWh) in 2000 to 2,650 kWh in 2008.6

After the United States, the PRC has the second-largest electricity industry in the world. Bothinstalled generation capacity and actual electricity generation increased at an annual averagerate of more than 8% over the past 2 decades. Since 2001, electricity demand has increased at

an average rate of more than 13%. This increase caused serious power shortages in manyareas of the PRC, which were overcome with an accelerated program of adding more capacity.Total installed capacity has now reached 792.5 gigawatts (GW), and electricity generation hasincreased to 3,433 terawatt-hours (TWh). The current growth trajectory has installed capacityreaching more than 1,000 GW by 2012.

4. In the PRC, electricity is produced predominantly by coal, which is the most carbon-intensive fossil fuel.7 In 2008, coal-fired power plants produced 81% of total electricity. Coal

production increased from 0.98 billion t in 2000 to 2.74 billion t in 2008, more than 48% of worldproduction. The electricity sector is the largest consumer of coal. It consumed 1.34 billion t(49%) of the coal produced in 2008, which has caused serious environmental problems. Coalconsumption is the major cause of poor air quality. The electricity sector now produces 50% of the nation’s sulfur dioxide (SO2) emissions, 36% of its nitrogen oxide (NOX) emissions, and 39%

1National Bureau of Statistics of China 2009 Statistical Communiqué of the People's Republic of China on the



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of its carbon dioxide (CO2) emissions. Acid rain caused primarily by SO2 and NOx falls on onethird of the country and 45% of its farmland. In 2008, among 519 PRC cities with monitored air quality, only 399 met acceptable air quality (national class II) standards. The rapid increase in

coal consumption has triggered a surge in emissions of CO2 —a major greenhouse gas (GHG).8

As per the International Energy Agency (IEA) World Energy Outlook 20099 the PRC is expectedto add more than 1,000 GW of new capacity by 2030, of which 70% will be coal-fired. Most of this new capacity is expected before 2020.

5. A more diversified energy mix with a higher proportion of carbon-free renewablesources, nuclear power, and low-carbon fossil fuel such as natural gas is being activelypursued. The Renewable Energy Law, enacted in 2006, provides financial incentives andregulations to accelerate the increased use of renewable energy resources such as wind, solar energy, and biomass. This led to unprecedented growth in wind power capacity within the first 3years (2006–2008) of the 11th FYP. The PRC now has 12 GW of wind power capacity,compared with less than 1 GW at end-2005. Solar power development is expected to reach2 GW by 2011. The 11th FYP also targets 5.5 GW of biomass power development. TheGovernment of the PRC has set the goal to achieve 15% of electricity generation fromrenewable energy sources by 2020 in its renewable energy development plans, promulgated in

August 2007. The current growth momentum of renewable energy is expected to continue andmay achieve an even higher target.

B. Impact and Outcome

6. The impact of the Project will be reduced GHG emissions from coal-fired power plants.The outcome will be the IGCC plants demonstrating climate change mitigation effect of newtechnology deployed.

C. Outputs

7. The project outputs include (i) constructing and operating an IGCC power plant of 250MW capacity in Binhai New Area, Tianjin city for generating 1,470 gigawatt-hours of electricityannually, which will be sold to the Northern China Grid Company Limited through a 220 kilovoltinterconnecting transmission line; (ii) adequate capacity in project management, safeguardcompliance, and plant operation and maintenance (O&M); and (iii) capacity developed for obtaining carbon offset revenues from IGCC plants.

D. Special Features

1. Demonst ration of an Innovative and Advanced Clean Coal Technology

8. The Project will introduce IGCC technology, the most efficient and least pollutingadvanced clean coal technology currently available commercially for the first time in PRC.Technologically the Project represents a significant change from conventional coal-fired power



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cornerstone of the critical first of the three phases in the GreenGen program that is expected tolead to a near-zero emission coal-fired power plant by 2015. Project implementation will providevaluable insights into the challenges, issues, and benefits of IGCC technologies that will guide

the ensuing phases. By successfully applying IGCC technology in an industrial-size coal-firedpower plant, the Project will bolster the confidence of investors, project developers, and policymakers in IGCC technology and pave the way for multiple demonstration projects. As moreIGCC plants are implemented and designers get more confident in dealing with the technology,larger IGCC plants in the range of 400 MW and higher will be implemented, which will reducecosts per MW and narrow the current incremental cost gap of 80% compared with USC plantsto 20%. The PRC is potentially the largest market for IGCC, whose wider deployment willencourage cost-competitive local manufacturing of key components, which will further reducethe cost and bring rapid deployment.

2. Innovative Risk Mitigation Measures

9. Project implementation carries risks inherent in any project demonstrating an advancedand innovative technology for the first time in a country. A unique approach was adopted tosubstantially reduce risk without increasing project cost, which is already a major barrier topromoting IGCC technology. Lessons on improving the sustainability and performance of similar IGCC power plants in Europe and elsewhere were incorporated into project design by utilizing

part of the $5 million grant from ADB's CCF.10

The initial O&M period of about 2 years for anIGCC demonstration plant is critical to ensuring its sustainability, especially for its keycomponents—the coal gasifier and gas turbines. The suppliers' direct supervision and supportduring this critical phase, financed through the grant, will (i) provide enhanced technicalexpertise at a short notice; (ii) help quickly diagnose problems; and (iii) strengthen the quality of O&M, which will help the Project quickly stabilize at its designed performance level. Supplier-assisted O&M will provide on-the-job training to HTICL staff, thereby developing their capacityand enhancing the sustainability of the Project. The grant will also be used to engageinternational and national consultants for a total of 16 person-months to support the compliancewith the safeguards, and in project management, monitoring and reporting. This will establishappropriate benchmarks and standards for future IGCC projects. Additionally, to avoid anyfinancial distress to HTICL during the initial operation period, a grace period of 6 years for the

ADB loan is included.

3. Potential Benefits from Clean Development Mechanism

10. The Project is anticipated to be eligible for certified emission reductions (CERs) under

the Clean Development Mechanism (CDM).11

By applying the approved ConsolidatedMethodology,12 emission reductions will be achieved through higher efficiency, therebyreplacing coal usage in pulverized coal-fired power generation. Based on this methodology, four high-efficiency pulverized coal-fired power plants in the PRC have been designed and are beingprepared for the CDM validation stage. The Project will construct the first IGCC power plant in



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the PRC that would be eligible under the modalities and procedures of CDM. ADB's TechnicalSupport Facility under its Carbon Market Initiative (CMI) is helping Greengen to develop theCDM project design document based on the approved methodology to support its registration

with the CDM Executive Board. As IGCC technology is considered to have high potential for reducing GHGs, the Technical Support Facility’s additional support for devices and processes tomonitor and validate GHG reduction is being considered to provide enhanced support for thisdemonstration project. The initial assessment has the Project avoiding 134,000 t of coal usageper year and generating 372,000 CERs annually. In addition to this, the project would alsocontribute greatly in reducing emissions of both greenhouse gases and local pollutants like SOxand NOx. HTICL has shown interest in considering the CMI’s Asia Pacific Carbon Fund or Future Carbon Fund to contract CERs, which may frontload up to 50% of the aggregated CERsup to 2020. The quantification of CDM benefits at the current market price tends to grosslyunderstate the global benefits from GHG emission reduction.13

II. COST ESTIMATES AND FINANCING PLAN

A. Project Investment Plan

11. The cost of the Project is $419.59 million equivalent, inclusive of physical and pricecontingencies and financial charges during development (Table 1).

Table 1: Project Investment Plan

($ millions)

Item Amounta

A. Base Costa

1. Civil Works 65.85

2. Power Plant Equipment 213.66

3. Plant Erection and Equipment Installation 57.524. Technical Services, Including Commissioning 21.29

5. Project Management 9.81

6. Land Acquisition and Other Chargesb 6.86

Subtotal (A) 374.99

B. Contingencies

1. Physical Contingencies 14.54

2. Price Contingencies 7.96

Subtotal (B) 22.50

C. Financial Charges During Developmentc 22.10

Total (A+B+C) 419.59



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12. The Project cost estimates were rigorously reviewed by international and nationalexperts engaged under TA 7146-PRC: Capacity Strengthening in Planning and Implementationof Integrated Gasification Combined Cycle Plant. The estimates are conservative, with sufficient

contingencies to cater for the demonstration nature of the Project. A detailed cost estimate is inTable 2.

Table 2: Detailed Cost Estimates

Estimated Cost

ItemCNY

million$

million

A. Base Cost1. Civil Works 449.76 65.85

1.1 Chemical Island Civil Works 148.35 21.721.1.1 Air Separation Device 41.73 6.111.1.2 Coal Gasification 61.47 9.001.1.3 Fuel Delivery System 35.24 5.161.1.4 Syngas Cleaning 4.03 0.591.1.5 Sulfur and Ash Removal Facility 3.01 0.441.1.6 Waste Water Disposal 2.80 0.41

1.2 Power Island Civil Works 301.41 44.131.2.1 Combined Cycle Block 164.19 24.041.2.2 Heating 35.24 5.161.2.3 Water Supply and Treatment Facility 15.50 2.271.2.4 Auxiliaries 86.40 12.65

2. Power Plant Equipment 1,459.30 213.662.1 Gas and Steam Turbine 567.16 83.042.2 Coal Gasifier 352.56 51.62

2.3 Air Separation Unit 128.95 18.882.4 Syngas Cleaning 35.24 5.162.5 Ash and Sulfur Removal System 37.29 5.462.6 Distributed Control System 6.63 0.972.7 Chemical Auxiliary Equipment 54.37 7.962.8 Electrical Auxiliaries 85.65 12.542.9 High Voltage Equipment 191.38 28.02

3. Plant Erection and Equipment Installation 392.86 57.524. Technical Services, Including Commissioning 145.41 21.295. Project Management 67.00 9.816. Land Acquisition and Related Charges 46.85 6.86

Subtotal (A) 2,561.18 374.99 B. Contingencies1. Physical Contingency 99.31 14.54



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B. Financing Plan

13. The Government has requested financing of up to an equivalent of $135.0 million (32%

of project cost) from ADB’s ordinary capital resources to finance the purchase of goods, works,and consulting services, including taxes and duties estimated to be $19.5 million on the ADB-financed portion of project costs. The remaining cost will be financed through equitycontributions of $84.0 million equivalent (20% of project cost) and a domestic loan of $195.59million equivalent (47% of project cost) from a group of local banks led by the ChinaConstruction Bank. ADB's Climate Change Fund will provide a grant cofinancing equivalent to$5.0 million (1% of project cost) to finance some components of the Project (para. 9). Theproject financing plan is in Table 3.

Table 3: Tentative Financing Plan

Source Amount($ million)

Share of Total (%)

Asian Development Bank

Ordinary Capital Resources 135.00 32.00

Grant from Climate Change Fund 5.00 1.00

Counterpart FinancingEquity 84.00 20.00

Domestic Loan 195.59 47.00

Total 419.59 100.00Sources: Huaneng Tianjin IGCC Co. Ltd. and Asian Development Bank estimates.

14. The ADB loan will have a 26-year term, including a grace period of 6 years, an interestrate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending

facility, a commitment charge of 0.15% per annum, and such other terms and conditions setforth in the loan and project agreements. The Government has provided ADB with the reasonsfor its decision to borrow under ADB’s LIBOR-based lending facility based on these terms andconditions, and an undertaking that these choices were its own independent decision and notmade in reliance on any communication or advice from ADB.

III. IMPLEMENTATION ARRANGEMENTS

A. Onlending Arrangements

15. The Borrower of the ADB loan will be the PRC, and loan proceeds will be relent by theBorrower through the Ministry of Finance (MOF) to the Export and Import Bank of China (EXIMBank) on the same terms and conditions as the loan between ADB and the PRC. EXIM Bankwill, in turn, onlend these loan proceeds to CHNG on similar loan terms as the EXIM Bank loanand include an administration fee of 0 15% for providing onlending services to MOF CHNG



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16. The role of EXIM Bank in the Project is crucial to facilitate onlending from MOF toCHNG, an SOE. EXIM Bank is a policy bank of the Government under the direct administrationof the State Council. It has the same credit rating as the Government of the PRC. Onlending

loans and grants to SOEs from international financial institutions is one of its main roles. It hasplayed a similar role in World Bank and European Investment Bank loans but not yet for ADBloans.14 This onlending modality through EXIM Bank will test an innovative new approach for future ADB lending support to similar advanced technology projects in areas of clean energyand climate change mitigation that will be implemented by SOEs. The fund flow of loanproceeds is consistent with the project organization chart included in Appendix 1.

B. Project Management

17. CHNG will be the EA. It is the managing partner of Greengen, which was established in2005 with an authorized share capital of CNY300 million. Greengen established HTICL with themandate to develop the Project and to be the IA. HTICL was registered as a limited liabilitycompany under PRC law in November 2008. Greengen will provide management support andoversight to HTICL, supporting Project implementation, particularly in relation to financialmanagement, financial control, and accounting, and ensuring good governance of the Project.Greengen is also responsible for liaising with CHNG. Establishing HTICL as a separate projectentity is considered prudent as it (i) brings transparency, (ii) improves accountability and

corporate governance, and (iii) ensures a task force approach to project development thatensures a strong management focus. A project director reporting directly to the president of Greengen will be responsible for project management, contract approval, and payments. Aproject implementation unit (PIU) established in HTICL will regularly monitor and reviewimplementation progress. HTICL has already established an environmental management unit(EMU) to coordinate implementation of the environmental management plan (EMP) withcontractors and the Tianjin environment protection bureau. The EMU will oversee environmentalmanagement and monitoring during construction and operation, including the environmentalsupervision of contractors. The PIU will be headed by a project manager responsible for

physical implementation day to day and the preparation of progress reports. A team of international and national consultants will assist the PIU to comply with safeguards, and for project monitoring, review, and reporting. An organization chart for implementing the Project isin Appendix 2.

IV. IMPLEMENTATION PERIOD

18. The Project will be implemented over 3 years from 2009 to 2012. The Project's

preconstruction activities, such as detailed design, preparing bidding documents, tendering, andawarding contracts, began in mid-2008. On-site preconstruction started in July 2009. Main civilworks has started in February 2010 and take about 20 months. The construction of the Projectand the expected completion date for the loan is June 2012, however the grant will beimplemented over a longer period until June 2015 as it involves service contracts duringimplementation. The implementation schedule is in Appendix 3.



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Civil works contracts costing more than $10 million and goods supply contracts costing morethan $1 million financed by ADB will be procured through international competitive biddingprocedures using ADB’s standard bidding documents. Civil works contracts costing less than

$10 million but more than $500,000 will be procured through national competitive bidding(NCB). Goods supply contract packages costing more than $500,000 up to $1,000,000 will beprocured using either NCB or, in exceptional circumstances and with the prior approval of ADB,limited international bidding procedures. Goods supply contract packages costing less than$500,000 will be procured using shopping procedures. A general procurement notice wasposted on ADB's website on 26 March 2008. An initial procurement plan was prepared andapproved in August 2008 during project concept clearance. The procurement plan was updatedand revised in view of refined cost estimates and timing. The revised procurement plan agreedwith the government, Greengen, and HTICL is in Appendix 4. 4.

A. Advance Contracting and Retroactive Financing

20. Initial procurement, mainly under the counterpart funding component, started in mid-2008 with the preparation of bid documents, tendering, and bid evaluation. In view of theadvanced stage of project preparation, the Government requested ADB approval of advancecontracting for civil works and goods. ADB management approved this in August 2008.

21. The Government has requested retroactive financing of up to 20% of the loan amount for the Project for expenditures are incurred in accordance with ADB’s Procurement Guidelines or Guidelines on the Use of Consultants during the 12 months before the signing of thecorresponding loan agreement and loan effectiveness. Retroactive financing is sought for eligible expenditures, including civil works, goods, and consulting services that are criticallyrequired at the start and in the initial stages of construction. The Government has been informedthat approval of advanced contracting and retroactive financing does not commit ADB to financethe Project.

22. To date, three major contract packages in the total amount of $62.081 million and oneNCB in the amount of $0.289 million have been approved by ADB under the advancecontracting.

B. Consulting

23. The loan will not finance consulting services. International and national consultants to befinanced from the grant component (para. 9) of the Project will be recruited in accordance with

ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time). Since therequired services are in a very specialized area with little consulting input, three individualconsultants will be recruited. Consulting services for the Project are estimated at 4 person-months of international and 12 person-months of national. Consultants’ terms of reference are in

Appendix 5.

24 ADB posts all loan/grant projects requiring consulting services on ADB's website15



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is flexible on the deadline, if the EA requires a longer advertisement period, the deadline can bechanged to a later date.

25. At the end of the deadline, the EA will compile a long list of consultants (i.e. all firms thatexpressed interest). From the long list, the EA will select 6 firms to be on the shortlist. Theshortlist must comprise 6 firms with a wide geographic spread, and must be approved by ADBbefore the request for proposal (RFP) is sent out.16

VI. DISBURSEMENT PROCEDURES

26. The loan and grant proceeds will be disbursed in accordance with ADB’s Loan

Disbursement Handbook (2007, as amended from time to time)17and other details as agreedupon in the grant and project agreements. To facilitate project implementation and fund flow,two imprest accounts for loan and grant funds, respectively, will be set up in a bank acceptableto ADB. The imprest accounts shall be managed by HTICL under the supervision of Greengenand used exclusively to finance ADB's share of eligible expenditures for the loan and grant asspecified in the loan and grant agreements.18 The initial advances to be deposited to the loanand grant imprest accounts will not exceed either 6 months of estimated expenditures to befinanced from the imprest account or 10% of the loan or grant amount, whichever is lower. To

simplify documentation, the statement of expenditure procedure will be used for reimbursementof eligible expenses and replenishment and liquidation of eligible expenditures financed from theimprest accounts for any individual payment not exceeding $200,000. Payments in excess of the ceiling for statement of expenditure will be substantiated by full supporting documentation.

27. For every liquidation and replenishment request of the imprest account, the borrower willfurnish to ADB (i) statement of account (bank statement) where the imprest account ismaintained, and (ii) the imprest account reconciliation statement reconciling the abovementioned bank statement (Appendix 30 of the Loan Disbursement Handbook). The direct

payment procedures will apply for large contracts under the Project. The reimbursementprocedure will be used for loan expenditures incurred under retroactive financing, where CHNG,Greengen, or HTICL will initially fund the eligible expenditures from its own resources.

28. Before the submission of the first withdrawal application, the borrower should submit to ADB sufficient evidence of the authority of the person(s) who will sign the withdrawalapplications on behalf of the borrower, together with the authenticated specimen signatures of each authorized person.

VII. PROJECT MONITORING AND EVALUATION

A. Monitor ing

29. A project performance and monitoring system, including indicators and their relevance,was discussed with Greengen and HTICL during project preparation The indicators are based



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During implementation, implementation-supervision consultants and EMU will help HTICLmonitor project impact and keep ADB informed of implementation progress with the EMPthrough biannual progress reports. An environmental compliance report submitted in July 2009

indicated that project implementation was progressing well and in compliance with the EMP.

B. Accounting, Audi ting, and Report ing Requirements

30. The accounting, internal control, and reporting systems and procedures of HTICL willfollow the accounting principles and practices prescribed by the Accounting Law of the PRC,which requires enterprises to prepare financial statements and generally follow internationalaccounting standards. HTICL will maintain separate accounts for its operations and submit to

ADB audited project accounts and agency financial statements, including a management letter,

in English not later than 6 months after the end of each financial year. The audit report willinclude a statement verifying whether the funds disbursed by ADB were used for the purposesfor which they were provided, as well as the separate auditor's opinion on the use of the imprestaccount and statement of expenditure procedures. The submitted project accounts and agencyfinancial statements should be of acceptable quality and subject to an independent audit by theprovincial or municipal audit bureau or an external auditor acceptable to ADB. The Government,CHNG, Greengen, and HTICL have been informed of ADB’s policy on the submission of auditedfinancial statements and possible penalties for delays in submission.

31. Greengen and HTICL will submit to ADB reports and information concerning the use of loan proceeds, project implementation, imprest accounts, and the performance of theconsultants. The reports will include (i) quarterly progress reports on project implementation,including brief monthly updates; and (ii) a completion report for the Project not later than 3months after project completion. In addition, Greengen and HTICL will provide ADB with reportson contract management procedures, including approval of variation orders and progresspayment certificates.

C. Project Performance Monitoring and Evaluation

32. A project performance and monitoring system, including indicators and their relevance,was discussed with Greengen and HTICL during project preparation. The indicators are basedon the performance indicators in the design and monitoring framework. Macroeconomic andsector performance, institutional capacity, and ongoing reforms were taken into account in thedesign of monitoring indicators, which include environmental and socioeconomic indicators.During implementation, implementation-supervision consultants and EMU will help HTICL

monitor project impact and keep ADB informed of implementation progress with the EMPthrough biannual progress reports. An environmental compliance report submitted in July 2009indicated that project implementation was progressing well and in compliance with the EMP.

D. Project Review

33 ADB will field regular missions at least once a year to assess project implementation and



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VIII. GRANT FROM CLIMATE CHANGE FUND

34. Because the Project demonstrates key energy efficiency technology with strong potential

for climate change mitigation, grant assistance not exceeding the equivalent of $5 million fromthe CCF is proposed. The grant will be utilized for (i) long-term maintenance contracts with thesuppliers of the coal gasifier and gas turbines, (ii) the civil works contract cost for the air separation unit of the chemical island, and (iii) recruiting international and national consultantsto supervise project implementation. The grant assistance will significantly reduce risks (para. 9)and strengthen project management capacity and reporting on compliance with key safeguards.The grant passes through the Borrower to HTICL through CHNG and Greengen. The grantutilization plan is in Appendix 6.

IX. MAJOR LOAN COVENANTS

35. The major loan covenants which the Government, CHNG, Greengen, HTICL and ADBhave agreed to comply with is in Appendix 7.

X. KEY PERSONS INVOLVED IN THE PROJECT

36. The following are the key persons responsible for the implementation/administration of the Project.

As ian Development Bank

Name Position/Office Contact Ashok Bhargava Director

Energy DivisionEast Asia Department

Tel. No.: +63-2 6326387Fax No.: +63-2 6362302Email: [email protected]

Merlita Pajarillo Finance Specialist (Energy)Energy DivisionEast Asia Department

Tel. No.: 63-2-6326427Fax No. +63-2-6362302Email: [email protected]

Naruchol (Pat)Phokawat

Young ProfessionalEnergy DivisionEast Asia Department

Tel. No. +63-2-6831915Fax No.:+63-2-6362302Email: [email protected]

Oliver Domagas Financial Control SpecialistLoan Administration Division (CTLA-4)Controller's Department

Tel. No.: +63-2 6324545Fax No.: +63-2Email: [email protected]

Sheila Bulanhagui Project Officer Tel. No.: +63-2 6326430Fax No.: +63-2 6362302Email: [email protected]



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Executing Agency

Name Position/Office ContactWang Xiaoyan Deputy Division Chief, FinanceDepartment, China Huaneng Group

Tel: 86-10-63228726Fax:86-10-63228745Email: [email protected]

Zhang Ying Manager, Finance Department,Greengen Company

Tel: 86-10-58733767Fax:86-10-58733395Email:[email protected]

Tian Zheng International Affairs Coordinator,Greengen Company

Tel: 86-10-58731349Fax:86-10-58733395Email:[email protected]

Lin Yongmei Manager, Finance Department, HTICL Tel: 86-22-59880030Fax:86-22-59880011Email: [email protected]

XI. ANTICORRUPTION

37. ADB’s Anticorruption Policy (1998, as amended to date) was explained and discussedwith the Government, CHNG, Greengen, and HTICL. Consistent with its commitment to goodgovernance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to theProject. To support these efforts, relevant provisions of ADB’s Anticorruption Policy are includedin the loan regulations, grant regulations, and the bidding documents for the Project. Inparticular, all contracts financed by ADB in connection with the Project shall include provisionsspecifying the right of ADB to audit and examine the records and accounts of HTICL and allcontractors, suppliers, consultants, and other service providers as they relate to the Project.

Additional governance and anticorruption provisions in relation to the disclosure of non-commercial project information and procurement, project performance review, and disputereview are included as specific assurances, which will be negotiated and included in the legal

documents.

XII. RECORD OF PAM CHANGES

Dates PAM Changes



Appendix 1 13

ORGANIZATIONAL SETUP AND ONLENDING ARRANGEMENTS

Figure A7.1: Implementation Organizational Setup

China Datang CorporationChina Huadian CorporationChina Guodian CorporationChina Power Investment

CorporationShenhua Group Corporation

Ltd.China National Coal

Group CorporationState Development and

Investment Corporation

Other Shareholders

Tianjin Jinneng Investment Co.

Co. = company, IGCC = integrated gasification combined cycle, Ltd. = limited.Source: Huaneng Tianjin IGCC Co., Ltd.

China Huaneng GroupExecuting Agency

Greengen Company Ltd.

Huaneng Tianjin IGCC Co., Ltd.Project Implementing Agency

Project Implementing UnitImplementation

Supervision Consultant

51% equity

49% equity

75% equity

25% equity



1 4

A p p en d i x 2

Figure A7.2: Project Onlending Arrangements

(i) Loan Agreement(ii) Grant Agreement

ADB = Asian Development Bank, CCF = Climate Change Fund, EXIM Bank = Export-Import Bank of China, HTICL = Huaneng Tianjin IGCC Co. Ltd.Source: Government of the People's Republic of China.

ADB

Borrower People's Republic of China

EXIM BankPrincipal on-lending Agency

China Huaneng Group(Executing Agency)

HTICL(Project Implementing Agency)

GreengenCompany

Project Agreement

CCFProject Agreement



A p p en d i x 3

1 5

IMPLEMENTATION SCHEDULE

Item J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

Tianjin IGCC Project

A. Project Preparation

B. Pre-Construction

C. Procurement

1. Delivery of Plant and

Equipment

2. Civil Works and

Construction

3. Installation of Plant

and Equipment4. Testing and Commi-

sioning

IGCC = integrated gasification combined cycle.

Source: Asian Development Bank.

2011 20122008 2009 2010



Appendix 416

PROCUREMENT PLAN

Project Information The Tianjin IGCC Power Plant involves constructing and

operating an IGCC power plant of 250 megawatt capacity inTianjin in the People's Republic of China (PRC). On completion,the Project will annually generate 1,470 gigawatt-hours of electricity, which will be sold to the Northern China GridCompany through a 220 kilovolt transmission line. Theconstruction of the Project started in 2009 and will be completedby 2012. Asian Development Bank financing will be used toprocure (i) selected civil works, (ii) main and auxiliary equipment

for power plant, and (iii) consulting services.Country People's Republic of China

Name of Borrower People's Republic of China

Project Name Tianjin IGCC Power Plant

Loan or TA Reference tbd

Date of Effectiveness tbd

Amount $ Asian Development Bank financing not to exceed $135 millionloan. Utilization plan is in a separate appendix.

Of Which Committed, $ 20% has been requested eligible for retroactive financing

Executing AgencyImplementing Agency

China Huaneng GroupHuaneng Tianjin IGCC Co. Ltd.

Approval Date of OriginalProcurement Plan

August 2008

Approval of most recentProcurement Plan

24 November 2009

Publication for Local

Advertisements

Procurement notices in China Daily (ICB), and

www.chinabidding.com.cn (NCB and shopping)Period Covered by this Plan Up to 18 months from loan effectiveness

ICB = international competitive bidding, IGCC = integrated gasification combined cycle, NCB =national competitive bidding, TA = technical assistance, tbd = to be determined.Source: Greengen, HTICL and Asian Development Bank estimates.

Table A9.1: Procurement Thresholds, Goods and Related Services,Works, and Supply and Installation

Procurement Method To be used above the value ($)ICB Works 10,000,000ICB Goods 1,000,000NCB Works 500,000NCB Goods 500,000Shopping Works 0



Appendix 418

and in the prequalification documents if the bidding is preceded by aprequalification process.

(iii) If bidding is preceded by a prequalification process, all bidders that meet the

qualification criteria set in the prequalification document shall be allowed to bid,and there shall be no limit on the number of pre-qualified bidders.

(iv) All bidders shall be required to provide a performance security in an amountsufficient to protect the Borrower and project Executing Agency in case of breachof contract by the contractor, and the bidding documents shall specify therequired form and amount of such performance security.

(v) Bidders shall be allowed to submit bids by mail or by hand.(vi) All bids shall be opened in public; all bidders shall be afforded an opportunity to

be present (either in person or through their representatives) at the time of bidopening, but bidders shall not be required to be present at the bid opening.(vii) All bid evaluation criteria shall be disclosed in the bidding documents and

quantified in monetary terms or expressed in the form of pass/fail requirements.(viii) No bid may be rejected solely on the basis that the bid price falls outside any

standard contract estimate, or margin or bracket of average bids established bythe Borrower and/or project Executing Agency.

(ix) Each contract shall be awarded to the lowest evaluated responsive bidder, that isthe bidder who meets the appropriate standards of capability and resources and

whose bids has been determined (a) to be substantially responsive to the biddingdocuments and (b) to offer the lowest evaluated cost. The winning bidder shallnot be required, as a condition of award, to undertake responsibilities for worknot stipulated in the bidding documents or otherwise to modify the bid asoriginally submitted.

(x) Each contract financed with the proceeds of the Loan shall provide that thesuppliers and contractors shall permit ADB, at its request, to inspect their accounts and records relating to the performance of the contract and to have

said accounts and records audited by auditors appointed by ADB.(xi) Government-owned enterprises in the Borrower's country may be permitted tobid if they can establish that they (a) are legally and financially autonomous, (b)operate under commercial law, and (c) are not a dependent agency of theBorrower and/or project Executing Agency.

(xii) Re-bidding shall not be allowed solely because the number of bids is less thanthree (3).



Appendix 5 19

OUTLINE TERMS OF REFERENCE FORIMPLEMENTATION SUPERVISION FOR CONSULTANTS

A. Introduct ion

38. International and national consultants will be engaged to assist the implementing agency(IA) to perform necessary consulting services for the implementation of the Project. Oneinternational and two national consultants will be engaged for the implementation supervisionconsulting work. The international consultant will have previous experience of a similar integrated gasification combined cycle (IGCC) project and the national consultants will befamiliar with national procedures, regulations and policies related to a major power plant

construction management and safeguard compliances.

B. Overall Consulting Services Required

1. International IGCC Power Plant Construct ion Manager (4 person-months)

39. Coordinate and supervise all construction activities and ensure that the work is carriedout in accordance with the contract documents. Ensure that a good quality assurance system isin place to coordinate various contractors and suppliers and their day-to-day work. Prepare

progress reports for submission to IA and ADB, and advise IA on overall project constructionand project management aspects.

2. National Environmental Monitoring Expert (4 person-months)

40. Establish an environmental monitoring office and compliance monitoring system toensure that all People Republic of China (PRC) environmental standards and ADB guidelinesare adhered for environmental safeguards as applicable as per the relevant Environment

Management Plan (EMP). Prepare and submit progress reports as required in the EMP.Coordinate environment compliances of the Project with the local environment protectionbureau. Update the EMP as required.

3. National Finance Management and Project Administration Expert (8 person-months)

41. Assist IA to develop its financial management system in line with the currentinternational practices and to meet ADB loan requirements. Assist the IA and Greengen in

setting up an appropriate owner’s project management practices and procedures for planning,monitoring and control of the Project. This will include among other activities (i) keeping of records of all correspondence between the project implementation unit, contractor, consultants,and financing institutions; (ii) development and implementation of applicable procedures toensure the adequate control of the storage and acceptance of the materials and equipment; (iii)periodic updating of the overall project disbursement schedule and physical target



Appendix 6 21



pp 21

GRANT FROM THE CLIMATE CHANGE FUND UTILIZATION PLAN

Item

Estimated

Cost($ million) Procurement Mode

Long-term operation and maintenancecontract with gas turbine supplier 1.8 Single source selectiona Long-term operation and maintenancecontract with the coal gasifier 1.2 Single source selection

a

Project implementation supervisionconsultants 0.2 Individual consultant selectionb Chemical island civil works associated

with the air separation unit andinstallation engineering 1.8 International competitive biddingc

aSince these contracts can be signed only with the selected suppliers or manufacturers, single sourceselection is the appropriate procurement modality to finalize the contract.

b As the required consulting input is only for one international and two national consultants with expertise inthe relevant areas, individual consultant selection is appropriate.

cThis subpackage for a total estimated cost of $1.8 million is included as one of the two subpackages bidtogether in the procurement plan in Appendix 9, Table A9.2 item A2 under civil works. It will be procuredthrough international competitive bidding. The subpackage of the air separation unit will be financed fromthe grant not exceeding $1.8 million, whereas the other subpackage of gasifier shall be financed from the

loan.Source: Huaneng Tianjin IGCC Co. Ltd. estimates.



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MAJOR LOAN COVENANTS

Project Specific Covenants Reference Due Date Status/Action to be TakenGovernance1. Tariff. HTICL shall make a tariff petition to the Borrower'sNational Development and Reform Commission for a reasonabletariff for electricity generated by the Project facilities to ensurethat it shall cover operating costs, maintenance anddepreciation, debt service, and a reasonable return on HTICL'snet fixed assets. CHNG shall support HTICL's tariff petition tothe National Development and Reform Commission.

PA, Schedule,para. 10.

2. Policy Change. Within 10 working days of becoming awareof any changes to any policies, procedures, regulations, or guidelines that may adversely affect the financial viability of theProject, including power pricing and load dispatch policies,CHNG, Greengen, and /or HTICL shall advise ADB of suchchanges.

PA, Schedule,para 11.

3. Financial Performance. From the start of commercialoperation of the Project, CHNG and Greengen shall ensure that

HTICL: (a) maintain: (i) a debt service coverage ratio of 1.2; (ii) adebt-equity ratio of 80:20 (iii) a reasonable return on fixedassets; and (iv) its accounts receivables at a level that does notexceed two (2) months of sales revenues; and (b) within five (5)years of the start of commercial operations, improves its debtservice coverage ratio to 1.3 and its debt-equity ratio of 75:25.


Audi ting and Accounting4. CHNG and Greengen shall cause HTICL to ensure andHTICL shall ensure that: (a) proper accounts and records are

maintained and audited in time to adequately identify the use of Loan proceeds in accordance with the Loan Agreement and theProject Agreement; and (b) a separate audit opinion is preparedon the SOE procedures and the imprest account.

5. Within 3 months of effectiveness, CHNG and Greengen willcause HTICL to, and HTICL will: (a) establish internal accountingand financial control systems in accordance with nationalaccounting standards to ensure the (i) regular monitoring of

PA, Schedule,

paras. 14 and15.



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2 3

expenditures and all financial transactions, and (ii) the safecustody of all assets financed under the Project, including allProject facilities; (b) establish an independent and autonomous

internal audit department; and (c) adopt computerized financialand management information systems to ensure efficient,effective and accountable financial and information managementin each case in a form and manner acceptable to ADB.

Environment6. HTICL will ensure that construction, operation, maintenance, andmonitoring of the project facilities is in strict conformity with (a) allapplicable national and provincial environmental laws and regulations,

ADB’s Environment Policy (2002), and other national, provincial, and

local laws and regulations and standards on environmental protection,health, labor, and occupational safety; and (b) all environmentalmitigation and monitoring measures detailed in the design andconstruction contracts, the operational guidelines, and the approvedEIAs, summary EIA, and EMP for the Project. HTICL will ensure that anadequate number of fulltime personnel and sufficient resources areprovided to monitor the implementation of the environmental monitoringprogram, under the guidance of the Tanggu Environmental ProtectionBureau (TEPB). HTICL will ensure that TEPB will review any changesto the project design that may have a potential for causing negative

environmental impacts, so that environmental monitoring and mitigationmeasures are adjusted accordingly in consultation with ADB. HTICL willsubmit regular monitoring reports to ADB and semi-annual environmental reports in a format acceptable to ADB, until theloan closing date.

PA, Schedule,paras 21 and22.

Social Issues7. Gender. CHNG, Greengen and HTICL will follow theprinciples of ADB’s Policy on Gender and Development (1998)during the project implementation, including taking all necessaryactions to encourage women living in the Project area toparticipate in planning and implementing and working on projectactivities. CHNG will cause Greengen and HTICL to, andGreengen and HTICL will, monitor the project effects on womenduring implementation, through, where relevant, gender-disaggregated data collected pursuant to the monitoring andevaluation system referred to in the project performancemonitoring system.

PA, Schedule,para 23

2



24

A p p en d i x 7

8. Sexually Transmitted Diseases. With the assistance of therelevant local authorities, CHNG, through Greengen and HTICL,will cause contractors to distribute information on the risks of

socially and sexually transmitted diseases, including HIV/AIDSand malaria, to those employed during construction and to thelocal communities living near the Project.


9. Women and Child Labor. CHNG, through Greengen, andHTICL will ensure that (a) there is no differential paymentbetween men and women for work of equal value; and (b) civilworks contractors do not employ child labor in the constructionand maintenance activities in accordance with the relevant lawsand regulations of the Government.

PA, Schedule,para 25

ccpp project-china fidic

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