document of the world bank report no: res22208€¦ · approved on may 19, 2009 to the people’s...

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Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: RES22208

RESTRUCTURING PAPER

ON A

PROPOSED PROJECT RESTRUCTURING

OF

SHANXI COAL BED METHANE DEVELOPMENT AND UTILIZATION PROJECT

LN 7705-CN

APPROVED ON MAY 19, 2009

TO THE

PEOPLE’S REPUBLIC OF CHINA

February 19, 2016

ENERGY AND EXTRACTIVES GLOBAL PRACTICE

EAST ASIA AND PACIFIC REGION

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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ABBREVIATIONS AND ACRONYMS

CBM Coal Bed Methane

CMM Coal Mine Methane

EAPDE East Asia Pacific Development Effectiveness

GHGs Greenhouse Gases

LNG Liquefied Natural Gas

PAD Project Appraisal Document

PDO Project Development Objective

SCBMC Shanxi Coal Bed Methane Company

SECBMIH Shanxi Energy Coal Bed Methane Investment Holding Co., Ltd

TA Technical Assistance

Regional Vice President: Axel van Trotsenburg, EAPVP

Country Director:

Senior Global Practice Director:

Bert Hofman, EACCF

Anita Marangoly George, GEEDR

Global Practice Director: Charles M. Feinstein, GEEDR

Practice Manager/Manager: Julia M. Fraser, GEEDR

Task Team Leader: Ximing Peng, GEEDR

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China

Shanxi Coal Bed Methane Development and Utilization Project

CONTENTS

A. SUMMARY 5

B. PROJECT STATUS 6

C. PROPOSED CHANGES 7

ANNEX 1: RESULTS FRAMEWORK AND MONITORING 11

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DATA SHEET

China

Shanxi Coal Bed Methane Development and Utilization Project (P100968)

EAST ASIA AND PACIFIC REGION

Energy & Extractives Global Practice .

Report No: RES22208 .

Basic Information

Project ID: P100968 Lending Instrument: Specific Investment Loan

Regional Vice President: Axel van Trotsenburg Original EA Category: Full Assessment (A)

Country Director: Bert Hofman Current EA Category: Full Assessment (A)

Senior Global Practice

Director:

Anita Marangoly

George Original Approval Date: 19-May-2009

Practice

Manager/Manager: Julia M. Fraser Current Closing Date: 30-Jun-2016

Team Leader(s): Ximing Peng .

Borrower: People’s Republic of China

Responsible

Agency: Shanxi Coal Bed Methane Company Ltd.

.

Restructuring Type

Form Type: Full Restructuring Paper Decision Authority: Board Approval

Restructuring

Level:

Level 1

.

Financing ( as of 21-Dec-2015 )

Key Dates

Project Ln/Cr/TF Status Approval

Date Signing Date

Effectiveness

Date

Original

Closing Date

Revised

Closing Date

P100968 IBRD-77050 Effective 19-May-2009 02-Jul-2009 18-Sep-2009 31-Dec-2014 30-Jun-2016

Disbursements (in Millions)

Project Ln/Cr/TF Status Currency Origi

nal Revised

Cancelle

d

Disburse

d

Undisbur

sed

%

Disburse

d

P100968 IBRD-77050 Effective USD 80.00 80.00 0.00 41.00 39.00 51 .

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Policy Waivers

Does the project depart from the CAS/CPF in content or in other significant

respects? Yes [ ] No [ X ]

Does the project require any policy waiver(s)? Yes [ ] No [ X ] .

A. Summary of Proposed Changes

The proposed restructuring includes the following changes: (a) revision of the PDO to align it to the

project activities, (b) removal of the provincial level TA activities from the project, (c) modification of the

results framework to align it with the changes to the PDO and project activities, (d) reallocation of loan

between disbursement categories to make efficient use of the Bank loan, and (e) extension of the project

closing date from June 30, 2016 to June 30, 2017. A request for above changes was received from the

Ministry of Finance on December 31, 2015.

Change in Implementing Agency Yes

[ ] No [ X ]

Change in Project's Development Objectives Yes [ X ] No [ ]

Change in Results Framework Yes [ X ] No [ ]

Change in Safeguard Policies Triggered Yes

[ ] No [ X ]

Change of EA category Yes

[ ] No [ X ]

Other Changes to Safeguards Yes

[ ] No [ X ]

Change in Legal Covenants Yes

[ ] No [ X ]

Change in Loan Closing Date(s) Yes [ X ] No [ ]

Cancellations Proposed Yes

[ ] No [ X ]

Change to Financing Plan Yes

[ ] No [ X ]

Change in Disbursement Arrangements Yes

[ ] No [ X ]

Reallocation between Disbursement Categories Yes [ X ] No [ ]

Change in Disbursement Estimates Yes [ X ] No [ ]

Change to Components and Cost Yes [ X ] No [ ]

Change in Institutional Arrangements Yes

[ ] No [ X ]

Change in Financial Management Yes

[ ] No [ X ]

Change in Procurement Yes

[ ] No [ X ]

Change in Implementation Schedule Yes [ X ] No [ ]

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Other Change(s) Yes

[ ] No [ X ]

Appraisal Summary Change in Economic and Financial Analysis Yes

[ ] No [ X ]

Appraisal Summary Change in Technical Analysis Yes [ ] No [ X ]

Appraisal Summary Change in Social Analysis Yes

[ ] No [ X ]

Appraisal Summary Change in Environmental Analysis Yes

[ ] No [ X ]

Appraisal Summary Change in Risk Assessment Yes

[ ] No [ X ]

.

B. Project Status

The project comprises two components: (a) Coal Bed Methane (CBM) and Liquefied Natural Gas (LNG)

Development; and (b) Institutional Strengthening and Capacity Building. The IBRD loan of US$80 million

for this project was approved May 19, 2009, became effective on September 18, 2009, and is scheduled to

close on June 30, 2016. The achievement of the Project Development Objective (PDO) and

implementation progress are currently rated as moderately satisfactory given the steady progress that has

been made since late 2013, following the successful resolution of earlier implementation bottlenecks

related to the change of project sites, co-financing, and gas supply agreements.

The project has made moderate implementation progress: about 90 percent of the LNG plant has been

completed (one LNG production line is in operation and the other LNG production line will be

commissioned by June 2016); Coal bed methane (CBM) test wells have been drilled and are operating

satisfactorily; based on the test results and the evaluation of new drilling technologies, technical schemes

for remaining wells have been finalized and construction is expected to start in early 2016; and capacity

building activities for Shanxi Coal Bed Methane Company (SCBMC, Implementing Agency of the

Project) have been carried out as planned. The original plans for capacity building activities at the

provincial level (Shanxi Province TA activities) have not been realized.

The first restructuring was approved in November 2013, extending the project closing date by 1.5 years to

June 30, 2016, to allow time for SCBMC to recover from the delays caused by changes in CBM drilling

sites and to modify the technology of the liquefaction plant. This proposed second restructuring is

necessary to: (i) allow the completion of the upstream gas drilling component using new gas drilling

techniques that have become mainstream in the global gas industry since the project was approved, and (ii)

revise the PDO and Results Framework to align them with project activities. The satisfactory completion

and operation of the gas drilling component is essential to demonstrate the operation of integrated gas

production and liquefaction technology in the Chinese market, for the project to meet its PDO, and to

make effective use of the loan. During the latest implementation support mission in November 2015, a

time-bound action plan was developed with the borrower that includes a realistic implementation schedule

and detailed disbursement projections. The performance of the SCBMC is also rated as moderately

satisfactory. With the 2nd extension of the closing date, the PDO remains achievable.

The proposed restructuring will not change the safeguard policies triggered by the project, i.e.,

Environmental Assessment OP/BP4.01, and Involuntary Resettlement OP/BP4.12. The Project EMP and

RAPs remain valid. There is no overdue or outstanding audit issues. Bank’s procurement policies and

procedures have been properly followed throughout the project by the borrower. .

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C. Proposed Changes .

Development Objectives/Results

Project Development Objectives

Original PDO

The development objective of the project is to assist Shanxi Province in increasing the production and

utilization of CBM/CMM to replace coal as a fuel for thermal use and to reduce GHGs and local air

pollutants associated with coal combustion.

Change in Project's Development Objectives

Explanation

During a project review by the Bank, an attribution issue was identified between the original PDO, the

PDO level indicators, and the project activities. According to the original project design, the project

included (a) investment in a specific gas drilling component and a gas liquefaction plant, and (b) technical

assistance for capacity building for CBM/CMM development in Shanxi Province as a whole. In addition,

the PDO level indicators refer to increasing gas production in all of Shanxi Province, whereas the

investment activities are more discreet.

Furthermore, the project implementing company (SECBMIH, later renamed as SCBMC) was to be

responsible for both the investment component and the TA component. However, this was not a workable

design as coordination of provincial level TA should be the responsibility of the provincial government,

not a corporate entity such as SCBMC. Accordingly, SCBMC was not able to motivate the relevant

provincial agencies and institutions to implement the provincial-level TA components such as policy

studies and the development of data and information systems. As a result, these provincial-level TA

activities have not materialized, and project implementation has focused only on the investment

component and on capacity building for SCBMC.

Clean energy development, including the important role of gas as a transition fuel, remains a high priority

in China. This project, by demonstrating advanced gas production and the integration of production and

liquefaction by a Chinese company, will help advance clean energy supply in China and Shanxi Province.

The proposed restructuring, which includes modification to both the PDO and the Results Framework, is

critical for the successful implementation of the project.

Proposed New PDO

The revised PDO of the project is to increase production of coal bed methane to reduce GHGs associated

with coal combustion in the project area.

Change in Results Framework

Explanation:

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In line with the change of PDO, both the volumes of annual production of CBM and LNG under the

project are proposed to be PDO level indicators. In addition, avoided GHG emissions annually associated

with the gas supply from the project is proposed to be added as a PDO level indicator. The original PDO

level indicators (Total amount of CBM/CMM produced and captured in Shanxi annually; and Total

amount of CBM/CMM utilized in Shanxi annually) are proposed to be removed. The volume of CBM

produced and volume of LNG produced were considered to be the actual production from facilities

supposed by the project, not the production in the whole Shanxi province, as defined in the original

indicators.

In line with the change of project activities, the three intermediate outcome indicators linked to the

provincial level TA activities (the studies completed and reports produced; new policy and regulations

formulated and implemented; and CBM/CMM data and information inventory system developed) are

proposed to be removed. A new intermediate outcome indicator would be added to measure the

implementation progress of the upstream gas drilling component.

The revised PDO level indicators are: (i) Volume of CBM Produced Annually; (ii) Volume of LNG

Produced Annually; and (iii) Avoided GHGs Emission Annually. The revised intermediate outcome

indicators are: (i) The number of wells drilled; (ii) The number of staff weeks trained for SCBMC; and (iii)

SCBMC’s financial sustainability (debt service coverage ratio, rate of return on equity, ratio of current

assets to current liabilities).

The first restructuring, approved in November 2013, gives SCBMC flexibility to identify more appropriate

gas drilling and liquefaction technologies as the limitation to use only vertical wells technology, described

exclusively in the legal agreement, was removed. The 2nd restructuring will enable SCBMC to complete

the construction of all gas drilling wells after comparison of the performance of different gas drilling

technologies based on on-site tests. Total productions of the project (both volumes of gas production and

liquefied natural gas) will be kept the same or higher after both restructuring, while the overall life-cycle

cost would be reduced.

It should be clarified that annual productions of the project after the restructuring are kept the same: (i) the

annual gas production capacity was 200 million m3 before the restructuring, this equivalent to an annual

actual production of about 100 million m3; after the restructuring the annual production (not production

capacity) is used as the indicator instead, and the targeted annual gas production is still about 100 million

m3, achievable in early 2018 (the targets in 2016 and 2017 show less as the wells drilled in 2017 can only

reach its full production capacity after about 9-month commissioning period); and (ii) the annual gas

liquefaction capacity (200,000 tons) is still the same after the restructuring, but the actual annual

production (not production capacity) is used as the indicator instead, and an estimate capacity utilization

ratio of 80% is considered, so the target annual production of liquefied gas is 160,000 tons.

To monitor the schedule of the implementation, a new indicator is introduced to record the number of gas

wells drilled. The technical design, based on comparison of the performance of both vertical and horizontal

test wells, has been approved by the provincial authority and reviewed by the Bank team. The construction

of all 126 wells (including both vertical and horizontal wells, replacing the original 350 vertical wells in

the PAD) will be completed by the new closing date. The staff training indicator has included only a new

name of the entity, but the actual achievement and target remained unchanged.

.

Financing

Change in Loan Closing Date(s)

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Explanation:

The project closing date is proposed to be extended by one year, from June 30, 2016 to June 30, 2017.

This will be the second extension of the closing date, for an accumulated total of 30 months. The primary

purpose of the second extension is to allow the completion of the upstream gas drilling component that

was delayed as the company tested and acquired new advanced drilling techniques that have become

mainstream in the global gas industry.

Ln/Cr/T

F Status

Original Closing

Date

Current Closing

Date

Proposed Closing

Date

Previous Closing

Date(s)

IBRD-

77050 Effective 31-Dec-2014 30-Jun-2016 30-Jun-2017 31-Dec-2014

Reallocations

Explanation:

As the provincial level TA activities are proposed to be removed, that part of the IBRD loan will be

reallocated to Goods and Civil Works as indicated in the table below.

Ln/Cr/TF Currency Current Category of

Expenditure Allocation

Disbursement % (Type

Total)

Current Proposed Current Proposed

IBRD-77050 USD GOODS and CIVIL

WORKS 78,600,000.00 79,000,000.00 100.00 100.00

CSERVICES,

TRAINING AND

WORKSHOPS

1,200,000.00 800,000.00 100.00 100.00

Designated Account 0.00 0.00 100.00 100.00

FRONT END FEE 200,000.00 200,000.00 100.00 100.00

Total: 80,000,000.00 80,000,000.00

Disbursement Estimates

Change in Disbursement Estimates

Explanation:

Disbursement of the IBRD loan is extended to the newly proposed closing date. The disbursement

estimates will be revised as per the table below:

Fiscal Year Current (USD) Proposed (USD)

2009 0.00 0.00

2010 200,000.00 200,000.00

2011 8,000,000.00 8,000,000.00

2012 0.00 0.00

2013 6,200,000.00 13,096,609.96

2014 10,600,000.00 1,906,454.88

2015 15,000,000.00 13,455,107.33

2016 40,000,000.00 30,341,827.83

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2017 0.00 13,000,000.00

Total 80,000,000.00 80,000,000.00 .

Components

Change to Components and Cost

Explanation:

The provincial level TA activities are removed.

Current Component

Name

Proposed

Component Name

Current Cost

(US$M)

Proposed

Cost (US$M) Action

CBM and LNG

Development 178.60 179.10 Revised

Institutional

Strengthening and

Capacity Building 1.70 1.20 Revised

Total: 180.30 180.30 .

Other Change(s)

Change in Implementation Schedule

Explanation:

The implementation of the project is to be extended to June 30, 2017, to ensure completion of the

construction of the whole project. According to the updated project implementation plan, the 2nd LNG

production line will be commissioned by June 2016; the remaining gas drilling wells will be developed in

three batches, and their construction will be completed in June 2016, December 2016 and June 2017

respectively. .

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Annex 1. RESULTS FRAMEWORK AND MONITORING .

Project Development Objective Indicators

Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target

Marked for

Deletion

Total amount of CBM/CMM

produced and captured in

Shanxi annually

Cubic Meter(m3) Value 300000000.00 8100000000.00 2000000000.00

Date 31-Dec-2008 31-Dec-2015 30-Jun-2016

Comment

New Volume of CBM Produced

Annually


Date 01-Dec-2009 31-Dec-2015 31-Dec-2017

Comment According to the

updated

implementation

plan,

construction of

the last batch of

wells will be

completed by

June 2017 and

achieve their

full production

by March 2018.

The annual

production of all

wells will

achieve about

100 million

cubic meters.

New Volume of LNG Produced

Annually

Metric ton Value 0.00 40000.00 160000.00

Date 01-Dec-2009 31-Dec-2015 31-Dec-2017

Comment 80% capacity

utilization ratio

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is assumed.

New Avoided GHGs Emission

Annually

Metric ton Value 0.00 130000.00 520000.00

Date 01-Dec-2009 31-Dec-2015 31-Dec-2017

Comment Avoided GHG

Emission will be

calculated by

applying a

conversion

factor of 3.25

tons CO2e / ton

of LNG sold, as

estimated in the

PAD.

Marked for

Deletion

Total amount of CBM/CMM

utilized in Shanxi annually


Date 31-Dec-2008 31-Dec-2015 30-Jun-2016

Comment

Intermediate Results Indicators

Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target

Marked for

Deletion

The volume of CBM produced

annually


Date 31-Dec-2008 31-Dec-2015 30-Jun-2016

Comment

New Numbers of wells drilled in

total

Number Value 0.00 53.00 126.00

Date 01-Dec-2009 31-Dec-2015 31-Dec-2017

Comment

New The number of staff-week

trained for SCBMC

Number Value 0.00 1538.00 800.00

Date 31-Dec-2008 31-Dec-2015 31-Dec-2017

Comment

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Marked for

Deletion

The volume of LNG produced

annually

Metric ton Value 0.00 45000.00 200000.00

Date 31-Dec-2008 31-Dec-2015 30-Jun-2016

Comment

Marked for

Deletion

The number of staff-week

trained for both SCBMC and

Shanxi Province

Number Value 0.00 1538.00 300.00

Date 31-Dec-2008 31-Dec-2015 30-Jun-2016

Comment

Revised SCBMC's Financial

Sustainability - DSC Ratio

Number Value 0.00 4.86 1.40

Date 31-Dec-2008 31-Dec-2015 31-Dec-2017

Comment

SCBMC’s Financial

Sustainability - DSC Ratio


Date 31-Dec-2008 09-Dec-2015 30-Jun-2016

Comment


Sustainability - Rate of Return

on equity

Percentage Value 0.00 27.00 9.00

Date 31-Dec-2008 31-Dec-2015 31-Dec-2017

Comment

SCBMC’s Financial

Sustainability - Rate of Return

on equity

Percentage Value 0.00 27.00 9.00

Date 31-Dec-2008 09-Dec-2015 30-Jun-2016

Comment


Sustainability - Ratio of current

assets to current liabilities


Date 31-Dec-2008 31-Dec-2015 31-Dec-2017

Comment

SCBMC’s Financial

Sustainability - Ratio of current

assets to current liabilities


Date 31-Dec-2008 09-Dec-2015 30-Jun-2016

Comment

document of the world bank report no: res22208€¦ · approved on may 19, 2009 to the people’s...

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