Ex-ante Evaluation
1. Name of the ProjectCountry: People’s Republic of China
Project: Inner Mongolia Autonomous Region Hohhot City Atmospheric Environment Improvement
Project(Loan Agreement: June 23, 2006; Loan Amount: 7,400 million yen; Borrower: The Government of thePeople's Republic of China)
2. Necessity and Relevance of JBIC’s Assistance
Because about 68% of China’s energy consumption was derived from coal as of 2004, air pollution has
become a serious concern due to sulfur oxides (SOx), dust and soot. SOx is a primary causative factor
in acid rain, and adversely affects ecosystems and people’s health. Under such circumstances, during
the period of The Tenth Five Year Plan (2001-2005), policymakers established a target of achieving a
10% reduction from 2000 in the output of the six main pollutants from 2000 levels. In addition, theplan prohibits the open-air burning of coal in city areas and promotes the provision of central heatingsystems.
Energy consumption in the Inner Mongolia Autonomous Region has risen dramatically in line with
rapid economic growth. Because coal supplies about 94% of the region’s energy, the area has becomeone of the most polluted cities in China. Hohhot, the capital of the autonomous region and the site of
the present project, was ranked the 36th worst National Environmental Protection Key Air Pollution
Cities, making improvement of the air environment an urgent matter. Hohhot and the eastern districtsof the city, which are the project’s target area, were using coal in winter for small-scale boilers for
district heating. These facilities have low energy efficiency, and dust collectors and desulfurization
units are not employed, so these end up being a major air pollution contributor. Furthermore, in linewith the city’s rapid development, air pollution is becoming more of a concern as large numbers ofsuch small-scale boilers are newly installed, thus adding to the pollution from existing facilities. Under
these circumstances, in the Tenth Five Year Plan in Inner Mongolia Autonomous Region, policymakers
set air pollution reduction targets. In order to reach the above mentioned objectives, the Tenth Five
Year Plan for Environmental Protection in Hohhot City promotes the expanded deployment of central
heating systems, prohibits new installations of small-scale boilers, and encourages the removal ofexisting small-scale boilers.
The present project is in line with the Economic Cooperation Program for China set by the Japanese
government, and also the Basic Strategy of Japan’s ODA Loan, which focuses on environmental
protection as a priority field. JBIC’s assistance for this project is thus highly necessary and relevant.
3. Project Objectives
This project is to provide central heating facilities that have good energy efficiency and low levels ofpollution in Hohhot City of the Inner Mongolia Autonomous Region, and thereby contribute tomitigate the air pollution burden stemming from small-scale pollution emission sources and improve
the living environment in the city.
4. Project Description(1) Target Area
Hohhot City, Inner Mongolia Autonomous Region(2) Project Outline
The outfitting of central heating systems and associated materials and machinery for the eastern
districts of Hohhot City, together with training abroad for associated personnel.
(a) Central heating facilities: construction of heating facilities, laying of heating supply pipes,
construction of heat exchange stations, and the construction of factories to divert ash composite forcomprehensive use(b) Training: Training provided in Japan pertaining to factories to divert ash composite forcomprehensive use(3) Total Project Cost/Loan Amount
13,700 million yen (Yen Loan Amount: 7,400 million yen)
(4) Schedule
July 2006-end-January 2011 (55 months)(5) Implementation Structure(a) Borrower: The Government of the People’s Republic of China(b) Executing Agency: Inner Mongolia Autonomous Region People’s Government(c) Operation and Maintenance System: Hohhot Municipal People’s Government(6) Environmental and Social Consideration(a) Environmental Effects/Land Acquisition and Resident Relocation(i) Category: B(ii) Reason for Categorization
This project is classified as Category B according to the “Japan Bank for International Cooperation
Guidelines for Confirmation of Environmental and Social Considerations” (established April2002). This categorization is assigned because this project does not correspond to sectors orregions described in said guidelines as being sensitive to negative impact, and because it is notdeemed to have a significant harmful impact on the environment.
(iii) Environmental Permit
The Environmental Impact Assessment (EIA) for this project was approved by the Inner Mongolia
Autonomous Region Environmental Protection Bureau in January 2006.
(iv) Anti-Pollution Measures
The level of air pollution at the time of installation is expected to meet Chinese domestic
emissions standards and environmental standards by implementing policies that enforce dust

collection and desulfurization, and by providing 120-150m smokestacks. After recovery andtreatment, cooling water will be reused, and it is not expected to have any major impact on waterquality.
(v) Natural Environment
The project target area does not correspond to an area sensitive to impact or the surroundings ofsuch areas, such as a national park. Undesirable impacts on the natural environment are assumed
to be minimal.
(vi) Social Environment
Because the land use rights for the land slated for this project have already been acquired, there isno need to acquire land or relocate residents.
(vii) Other/Monitoring
The Hohhot Environmental Protection Bureau will monitor air quality and water discharge for thepresent project.
(b) Promotion of Poverty Reduction
None.
(c) Promotion of Social Development (e.g. Gender Perspective)
None.
(7) Other Important Issues
None.
5. Outcome Targets(1) Evaluation Indicator (Operation and Effect Indicator)
Indicator
Baseline(2005)
SO2 emissions reduction volume (tons/year)
NOx emissions reduction volume (tons/year)
TSP emissions reduction volume (tons/year)

Target (2012, 1 year after
completion of project)
06,50004,100015,000(2) Financial Internal Rate of Return (FIRR): 7.6%(a) Cost: Project costs, operation and maintenance costs(b) Benefit: Revenue from fees, subsidies(c) Project Life: 30 years
6. External Risk Factors(1) Current city planning may change planned areas for roads or other developments, causing
construction site changes and delays.
(2) Change in the policy of principle of fee burden could cause a shortage of fiscal funds or feescollected. This in turn could affect operation and maintenance.
(3) There is some risk of a change in prices for coal, the fuel used for central heating facilities.
7. Lessons Learned from Findings of Similar Projects Undertaken in the Past

From past ex-post evaluations of yen loan projects, the lesson has been learned that to ensuresustainability of project results, it is important to set an appropriate fee system, considering operationand maintenance costs, investment cost, ability of beneficiary residents to pay, and the capacity forfiscal burden. It is also important to formulate technical standards for maintenance frequency, such asof operation and maintenance, and evaluation of the necessity for facility renewal. Thus, bearing this inmind, JBIC requested the executing agency to establish a system that sets suitable fees and to
determine requisite technical standards for the present project. The executing agency has alreadyagreed to this.
8. Plans for Future Evaluation(1) Indicators for Future Evaluation(a) SO2 emissions reduction volume(tons/year)(b) NOx emissions reduction volume (tons/year)(c) TSP emissions reduction volume (tons/year)(d) FIRR (%)(2) Timing of Next Evaluation
After completion of project