Ex-ante Evaluation
1. Name of the ProjectCountry: The People’s Republic of China
Project: Inner Mongolia Huhhot Atmospheric Environmental Improvement Project (II)(Loan Agreement: March 30, 2007; Loan Amount: 6,300 million yen; Borrower: The Government ofthe People’s Republic of China)
2. Necessity and Relevance of JBIC’s Assistance
Since China relies on coal for around 69% of its domestic energy consumption (2005), air pollution
caused by sulfur oxide, soot, dust and other particles has become a serious problem. Particularly
harmful is SOx, an agent that causes acid rain, which in turn seriously affects the local ecosystem andthe health of residents. In light of this situation, in the 11th Five-Year Plan (2006–2010), theGovernment of China has set the goal of reducing the emission of principal contaminants by 10%
from the level recorded in the 10th Five-Year Plan. Toward this end, the government prohibits thebuilding of coal-fired plants in the city, and promotes the construction of co-generation energy
facilities and centralized heat supply facilities.
In the Inner Mongolia Autonomous Region, energy consumption is increasing sharply in tandem withrapid economic development. Since around 96% of the region’s energy is derived from coal (as of2005), it is one of the leading areas where air pollution is especially serious. Huhhot, the capital city,with a population of 2.13 million (equivalent to the population of Gifu prefecture) and a land area of
17,000 km2 (equivalent to the land area of Shikoku), is ranked as the 69th worst city among the 113
cities designated in China as national priority environmental protection air pollution cities (as of2005). Therefore improvement of air quality has become one of the most pressing issues. Particularly,
in the western district of Huhhot (with an area of about 25 km2), in the winter most residents andpublic facilities use for heating the 97 small decrepit coal-burning boilers distributed in the district.
However, since these boilers have low energy-efficiency and do not have dust collectors ordesulfurizers, they are the principal emission source of air pollutants. Given the ongoing urbanization(annual urban construction exceeds 2.91km2), there are concerns over more extensive air pollution
caused not only by existing facilities but also by the increasing use of small coal-burning boilers year
after year. In light of this situation, the 11th Five-Year Plan of the Inner Mongolia Autonomous
Region aims to improve urban air quality by promoting the construction of centralized heat supplyfacilities. In addition, to achieve the aforesaid goal, in the 11th Five-Year Plan for Environmental
Protection in Huhhot as well as in the Management Ordinance for the Prevention of Air Pollution in
Huhhot, the spread and improvement of centralized heat supply facilities, the prohibition of theinstallation of new small coal-burning boilers, and the removal of existing small coal-burning boilers
are to be promoted. Centralized heat supply facilities are introduced in the project as alternatives tosmall coal-burning boilers, so reduction in the emission of air pollutants such as SOx can beexpected.
The project addresses environmental conservation, one of the priority areas designated in theEconomic Cooperation Program for China prepared by the Government of Japan and theMedium-Term Strategy for Overseas Economic Cooperation Operations of JBIC (FY2005–FY2007).
Thus, JBIC’s support for this project is highly necessary and relevant.
-1-3. Project Objectives
The project aims to decrease small pollution sources and reduce air pollution by constructing cleaner
and more energy-efficient centralized heat supply facilities in Huhhot City, Inner Mongolia
Autonomous Region. It will thereby help improve the living conditions of its population.
4. Project Description(1) Target Area
Huhhot City, Inner Mongolia Autonomous Region(2) Project Outline
The project involves the construction of centralized heat supply facilities and procurement ofequipment and materials in the western district of Huhhot (covering an area of approx.10.07 km2), as
well as implementation of an overseas training program.
(a) Centralized heat supply facilities: Construction of heat supply facilities, installation of heat
supply ductwork, and construction of heat exchange stations(b) Training: Air quality improvement training in Japan(3) Total Project Cost/Loan Amount
10,094 million yen (Yen Loan Amount: 6,300 million yen)
(4) ScheduleMay 2007–October 2011 (54 months). The definition of project completion is “when the equipment
and installation works are finally inspected.”(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: Huhhot 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 in April, 2002). This categorization is assigned because this project does notcorrespond to sectors or regions described in said guidelines as being sensitive to negative
impact, and because it is not deemed to have a significant harmful impact on theenvironment..
(iii) Environmental Permit
The Environmental Impact Assessment (EIA) report related to the project was approved by
the Environmental Protection Bureau of the Inner Mongolia Autonomous Region in March,-2-2007.
(iv) Anti-Pollution Measures
Regarding air pollution at the time of heat supply, domestic emission standards andenvironmental standards are expected to be met by implementing measures such as theinstallation of 100-meter smokestacks, dust collectors and desulferizers. In additon, sincecoolant water and the like are expected to be reused after they are recycled and processed, no
significant adverse impact on water quality is forseen.
(v) Natural Environment
The project site is not located in or around sensitive areas, such as national parks, and soadverse impact on the natural enivronment is assumed to be minimal.
(vi) Social Environment
The project already owns the right to use the planned site of the project. Thus, it does notinvolve neither land acquisition nor resident relocation.
(vii) Other/Monitoring
In the project, the Huhhot Environmental Protection Bureau will monitor air quality, waterdischarge, etc.
(b) Promotion of Poverty Reduction
None(c) Promotion of Social Development (e.g. Gender Perspective, Measures for Infectious Diseases
Including AIDS, Participatory Development, Consideration for the Handicapped, etc.)
None(7) Other Important Issues
None
5. Outcome Targets(1) Evaluation Indicators (Operation and Effect Indicator)
BaselineIndicator(2005 actualperformance)SO2 emission reduction volume (tons/year)
0NOx emission reduction volume (tons/year)
0
TSP emission reduction volume (tons/year)
0Target(2013, 2 years afterproject completion)
2,860
1,327
3,410

(2) Number of Beneficiaries
Approx. 400,000(3) Internal Rate of Return (Financial and Economic Internal Rate of Return)
Based on the conditions given below, the financial internal rate of return (FIRR) is 6.6%.
[FIRR](a) Cost: Project cost, operation and maintenance expenses(b) Benefit: Income from fees, subsidy(c) Project Life: 30 years-3-6. External Risk Factors
1. Delays in construction due to site changes caused by changes in road maintenance areas,development areas, etc. in urban planning
2. Impact on operation and maintenance due to shortages in financial funds or collected fees due tochanges in the policies relating to the fee sharing principle
3. Risk of a fluctuation in the price of coal, the fuel used for centralized heat supply facilities
7. Lessons Learned from Findings of Similar Projects Undertaken in the Past
From the ex-post evaluation of ODA loans granted in the past, it has been learned that it is importantto secure a budget sufficient for putting in place and ensuring appropriate operation and maintenanceof a system for centralized heat supply facilities. Based on this lesson, efforts will be made in theproject, through interim monitoring and supervision, etc., to ensure proper operation and maintenanceas well as an appropriate fee schedule and fee collection.
8. Plans for Future Evaluation(1) Indicators for Future Evaluation(a) SO2 emission reduction volume (tons/year)(b) NOx emission reduction volume (tons/year)(c) TSP emission reduction volume (tons/year)(d) FIRR (%)(2) Timing of Next Evaluation
After project completion-4-