CHINA: SHANDONG MINHE POULTRY BIOGAS PROJECT...displacement of coal-fired electricity by using biogas from livestock as a renewable energy source. 3. The Government of China (GoC)

Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 41 192 - CN

CHINA: SHANDONG MINHE POULTRY BIOGAS PROJECT

CARBON FINANCE ASSESSMENT MEMORANDUM

FOR A

COMMUNITY DEVELOPMENT CARBON FUND EMISSION REDUCTION

PURCHASE AGREEMENT IN THE AMOUNT OF APPROXIMATELY US$6.045 MILLION

WITH

SHANDONG MINHE LIVESTOCK CO., LTD.

March 4,2008

Rural Development, Natural Resources and Environment Sector Unit Sustainable Development Department East Asia and Pacific Region

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

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CURRENCY EQUIVALENTS

AMMS BP CBP CDCF

CDM CDMF CER CFO CH4 co2 CPS CSTR DOE EAP EAPVP

EB EL4 EMP ERPA

GDP

(Exchange Rate Effective February 13,2008)

Currency Unit = Renminbi (RMB) RMB7.195 = US$1

US$0.14 = RMB 1

FISCAL YEAR January 1 - December 3 1

ABBREVIATIONS AND ACRONYMS

Advance Animal Manure Systems Bank Policy Community Benefit Plan Community Development Carbon Fund Clean Development Mechanism Clean Development Mechanism Fund Certified Emission Reduction Carbon Finance Operation Methane Carbon dioxide Country Partnership Strategy Continuous Stirred Tank Reactor Designated Operational Entity East Asia and Pacific Region East Asia and Pacific Regional Vice President CDM Executive Board Environmental Impact Assessment Environmental Management Plan Emission Reduction Purchase Agreement Gross Domestic Product

GHG GoC ha H2S IPO IRR kW kwh km m2 m3 m3

NOx NPV N20 OIBDA

OP PDD s o x tC02e UNFCCC

Greenhouse Gas Government of China Hectare Hydrogen sulfide Initial Public Ooffering Internal Rate of Return Kilowatt Kilowatt hour Kilometer Square meters Cubic meters Ammonia Nitrides of oxygen Net Present Value Nitrous oxide Operating Income Before Depreciation and Amortization Operational Policy Project Design Document Sulfur oxide gases Tons of carbon dioxide equivalent United Nations Framework Convention on Climate Change

Vice President: James W. Adams, EAPVP Country Director: David R. Dollar, EACCF

Sector Director: Christian Delvoie, EASSD Sector Manager: Rahul Raturi, EASRE

Task Team Leader: Neeraj Prasad, EASOP

CONTENTS

...................................................................................... A . STRATEGIC CONTEXT AND RATIONALE 1 Country and Sector Context ........................................................................................................ 1

............ Rationale for World Bank Involvement and Contribution to Sustainable Development 2

B . CARBON FINANCE OPEMTION ...................................................................................................... 3 ................................................................................................................................... Overview -3

................................................................................................................ ..... Financial Analysis : -6 Institutional .................................................................................................................................. 7

.................................................................................................................................. Safeguards -8 ................................................................................................. ERPA Main TemslConditions 1 0

....................................................................... Annex 1: Financial Analysis and Project Costs 11 ............................................................................ Annex 2: Environmental Safeguards Issues 1 6

.......................................................................................... Annex 3 : Community Benefits Plan 20 Annex 4 . Legacy Issues Relating to Acquisition of Land by Minhe ........................................ 21

................................................................................... Annex 5: Documents in the Project File 41 ................................................................................ Annex 6: Statement of Loans and Credits 42

Annex 7: Country at a Glance ................................................................................................... 46

........................................................................................................................... Map IBRD35788

A. STRATEGIC CONTEXT AND RATIONALE

Country and Sector Context

1. China has exhibited remarkable annual average gross domestic product (GDP) growth of 9.5 percent since 1980. This has unfortunately also been accompanied by a significant increase in emissions of greenhouse gases (GHGs); China is the world's second largest emitter of GHGs, accounting for 14.8 percent of global emissions. China therefore has a critical role to play in global efforts to address climate change. Signaling its intent to play this role with responsibility, China ratified the Kyoto Protocol under the United Nations Framework Convention on Climate Change (UNFCCC) in August 2002. It also joined the market for emission reductions under the Kyoto Protocol's Clean Development Mechanism (CDM), and has rapidly risen to become the dominant seller in this market. The CDM enables sale and transfer of Certified Emission Reductions (CERs) to countries with Kyoto obligations to reduce their GHG emissions (Annex I countries) to meet their commitments, and it provides a financial incentive to entities in developing countries to undertake projects that lead to such reductions . There is strong interest in China for continued meaningfbl participation in the CDM and the market for emission reductions as instruments to enable industrial upgrades, promote technology transfer, and finance development. This project will demonstrate all these possibilities.

2. While the links between the changing climate and agricultural productivity have long been recognized, the reciprocal effect of agriculture as a potential contributor to climate change has only recently begun to be understood. In 2000, emissions from agricultural sources, excluding land use, land use change, and forestry (LULU-CF), accounted for 21 percent of anthropogenic GHG emissions in China and were the second largest source of emissions in the country afier electricity generation and heating.' GHG emissions fiom agricultural sources are likely to increase in the coming years, given the necessity to expand food production in order to provide for a growing and increasingly affluent population. Reductions are likely to be more easily achievable in some agricultural sectors than in others. In particular, GHG reductions from livestock and other highly concentrated animal production such as poultry could be achieved largely through improved waste management practices and to a smaller extent through the displacement of coal-fired electricity by using biogas from livestock as a renewable energy source.

3. The Government of China (GoC) has encouraged development of the CDM market and has put in place the required policy instruments to enable growth of the market, including the October 2005 Measures for Operation and Management of CDM Projects to regulate project development and identify national priorities such as energy efficiency improvements, development and utilization of new and renewable energy, and methane recovery and utilization. Just three years after entering the market, China accounted for 61 percent of the global CDM market (by 2006). GoC also attaches high priority to the utilization of biogas as a means of both improving the lives of rural households and addressing environmental degradation. As part of a large national rural biogas program launched in 2001, more than 750 large and medium size biogas projects have been completed; this program has achieved considerable technical success, and it is anticipated that investments of about RMB 50 billion will be made in rural biogas

' Source: World Resources Institute Climate Analysis Indicators Tool (CAIT). http://cait.wri.org

development during the 1 lth 5-year plan through both government grant programs and private investments. There is, however, limited experience with very large industrial-scale biogas projects, and there remains a need for both capacity development and market incentives for the private sector to undertake such investments.

Rationale for World Bank Involvement and Contribution to Sustainable Development

4. The World Bank has been a pioneer in the carbon market under the Kyoto Protocol, helping to develop policy, regulatory, fiscal, and financial instruments across sectors and counties to generate incentives to reduce GHGs. Over the past decade, the World Bank has managed 10 Carbon Funds including the Community Development Carbon Fund (CDCF) established in 2003. Carbon Funds do not finance projects, but contract to purchase CERs in a commercial transaction, with annual or periodic payments following verification by a third party auditor. These transactions have provided an additional revenue stream to reduce financial risks and to leverage new private and public investment into projects that reduce GHG emissions. Support for client countries to address the objectives of international environmental conventions such as the Kyoto Protocol, is an identified priority in the World Bank's Environment Strategy, reaffirmed in the 2005 Environment Strategy for the East Asia and Pacific Region (EAP).

5 . The World Bank has supported China's environmental sustainability objectives for many years, and is also associated with a major program of environmental cooperation including Analytical and Advisory Activities (AAA) and new investments. The World Bank's Country Partnership Strategy for China 2006-2010 (CPS) fbrther identifies Carbon Finance transactions as part of the World Bank's intervention for stabilizing GHG emissions. In line with the CPS, many World Bank-supported projects are being developed or implemented in various sectors such as coal mine methane, industrial gases, renewable energy, energy efficiency, forestry (sequestration), and livestock methane recovery. The World Bank has also helped to develop capacity for participation in the CDM market, the design of the policy and institutional framework for the CDM market in China, and the establishment of the Clean Development Mechanism Fund (CDMF). The World Bank is therefore well positioned to facilitate the transaction of CERs from this project.

6 . This project is also consistent with two strategic areas of the CPS. The first is to manage resource scarcity and environmental challenges by contributing to improve land management and energy use as well as protection of the global environmental commons. The second is to reduce poverty, inequality, and social exclusion by promoting sustainable income improvements in rural areas. Overall, the project will contribute to the development of social infrastructure, energy security, and enhancement of rural livelihoods.

The CDMF collects a percentage of all carbon credit transaction income in China, donations from international financial organizations, and other sources approved by the State Council to support the country's activities on climate change based on the National Climate Change Program. In the case of biogas CDM projects, two percent of carbon credit revenues are directed to the CDMF.

B. CARBON FINANCE OPERATION

Overview

7. Livestock and poultry operations in China are becoming progressively more intensive in order to realize economies of production and scale, and these highly concentrated activities result in large inventories of manure and wastewater with significant environmental consequences, such as GHG emissions, odor nuisance, and waterlland contamination from animal waste. Confined anim'al feeding operations (CAFOs) in China usually employ uncovered anaerobic lagoons to treat and store animal manure, resulting in large amounts of GHG emissions from the anaerobic decomposition process. This carbon finance operation (CFO) involves the purchase of GHG reductions that result fiom the conversion of existing poultry operations fiom the high-GHG practice of uncovered anaerobic lagoons to low GHG advanced animal manure systems (AMMS) practices with mesophilic (medium-range temperature) anaerobic digesters; this will be complemented by biogas capture and power generation. The use of centralized mesophilic temperature anaerobic digesters with biogas-based power generation is a mature and proven technology that is widely used in developed counties and this CFO will to promote its use in China.

8. This CFO also entails a carbon finance transaction to purchase CERs between the CDCF, which supports projects that combine emission reductions with local community development benefits, and the sponsor, Shandong Minhe Livestock Co. Ltd. (Minhe), in Penglai city, Shandong Province. A major agricultural enterprise in Shandong Province, Minhe is a large chicken product producer, with assets worth RMB 500 million in 2006. It has 29 chicken farms, 6 incubating centers, one feed processing plant, and one food marketing company. In an average year, Minhe maintains a stock of 5 million chickens. It produces 400,000 tons of feed and processes 15 million meat chickens a year with an annual output of 30,000 tons of chicken products.

9. Minhe's 29 farms are located in three compounds around Penglai. Of these, the third and largest compound (Compound C), which houses more than 87 percent of the five million birds, is also the forthcoming location of the activities that will deliver the emission reductions for the CFO. The physical location of the project activities is located in Annex 7.

Description of the Carbon Finance Operation

10. This CFO covers three components: the construction and operation of improved AMMS and power generation facilities, a carbon finance transaction, and a Community Benefits Plan. All three components are described below.

1 1. Construction and Operation of the improved AMMS and Power Generation: An overview of these activities is presented in Figure 1, along with a short e ~ ~ l a n a t i o n . ~ A detailed technical description of these activities and the subsequent emission reductions are included in the Project Design Document (PDD) which is attached to the CFAM package.

To provide a detailed assessment, the services of an experienced international consultant (Jorgen Boldt, etc.) were retained by the Bank and his assessment c o n f i g the project's viability is at Annex ZZZ.

F i g s r o j ect Activities

Power generation

Stage I: Manure Feed j

[ 1 lSt and 2nd phase

I - .i Slurry storage of biogas . residue, Land application

Manure from farms

Stage II: CDM Project

Stage 111: post CDM project

I - I &

12. Stage k In the first phase of this operation, manure and waste from the farms will be transported to the CDM facility. Manure from the farms within compound C will be transported via underground pipes, and the waste from the other two compounds will be transferred to the central facility by truck. The other two Compounds (A and B) are 5.6 km and 18.5 km respectively from the digester.

13. Stage II: The waste will undergo treatment in the anaerobic digesters and aerobic lagoon, resulting in the generation of biogas (CH4) and other gases ((202 and NOx), some residue from the digesters will be transferred out as slurry. The anaerobic digesters will have a total capacity of 27,200 m3, with an expected annual biogas output of 10.95 million m3. Installation of monitoring equipment and devices will be included.

anaerobic digesters

14. Also at this stage, biogas power generation will be undertaken. Methane produced from the anaerobic processing of waste will be captured at the digesters and piped to small biogas-fired electricity generators (surplus methane, if any, will be flared). Power will be generated by using biogas to drive an internal combustion generator. In this project, seven sets of 500 KW co- generators will be installed; six sets of co-generators are for daily operation, and one for backup to keep the project operation during maintenance periods. The project can produce 54,000 kWh electricity per day and annual biogas electricity will be 19.71 million kWh considering the loading factor of 75 percent of installed capacity. The expected electricity generation efficiency is 40 percent and the heat efficiency is 23 percent. The resulting electricity produced will be sold to the grid. The heat recovered from the power generator will be transferred through needle-tube type heat exchangers - heat recovery steam generator (HRSG) - to produce hot water, which will be used for heating the anaerobic biogas digester and parts of some chicken farms in winter (it

,, Aerobic treatment Lagoon

i . -* Land application of treated liquid

could also possibly be used for a water-based refrigeration system in the summer). Minhe will also evaluate the option of recovering waste heat from flue gas, which would increase the thermal efficiency to over 80 percent. Installation of monitoring equipment and devices will be included as well.

15. For treating the remaining biogas liquid in aerobic lagoons, the com any already has one !? 50,000 m3 storage tank, and plans to construct one more tank of 150,000m capacity on site for effluent storage. These facilities will be large enough to carry loads in seasons not requiring fertilizer to prevent excess effluent discharge into the environment.

16. Stage 111: The residue slurry and the treated liquid from the lagoon will be provided to local farming users for use as fertilizer.

17. Carbon Finance Transaction: The CDM enables the creation, issuance, and sale of CERs from projects undertaken in developing countries that reduce emissions of GHGs. This CFO will facilitate the transaction of the CERs between Minhe and the World Bank-managed CDCF, the terms and conditions of which will be agreed in the Emission Reduction Purchase Agreement (ERPA) to be signed by the two parties. The purchase will be a performance-based contract under which payments are triggered by successful verification of the reduction of GHG emissions by an accredited independent auditor, named the Designated Operational Entity (DOE)', under CDM rules. The quantity of CERs to be contracted, the length of time over which the purchase will be made, and the price to be paid, will be agreed between the World Bank and Minhe before ERPA signature. In addition, as part of its responsibilities, the CDCF will ensure registration of the project with the CDM Executive Board. The Validation and Monitoring Reports, which contain details of how the CDCF will monitor the outcomes for the CFO, are attached as part of the CFAM package.

18. Communitv Benefits Plan: To meet the CDCF's requirements, the project will support activities to improve the quality of life in selected communities living around the project site through a Community benefits Plan (CBP). The CBP will be hnded fiom a premium separate from the payments for the CERs and the value of the premium will be agreed during negotiations of the EWA and recorded in the final signed ERPA. The design of the CBP was based on consultation with residents of the nearby villages of Wujia and Qujiagou in Penglai Beigou Town and the villages of Hanwang and Miaojiagou in Nanwang Subdistrict. These villages are characterized as having higher rates of poverty and limited infrastructure. Through the consultation process it was determined that the needs that could most feasibly be met by the CBP were related to infrastructure improvements and the introduction of organic fertilizers. The infrastructure improvements will focus on road improvements and improved irrigation and drinking water facilities. The CBP will construct or repair 6.3 km of roads including 2 krn of road from Wujia Village to Hanwang Village; 2.8 km of village highway from Hanwang Village to Pengshui Road; and 1.5 km of main road in Miaojiagou Village. In addition, a drinking water project is planned for Qujiagou Village. Minhe also plans to offer fiee digested solid and liquid

All DOES have to be accredited by the CDM Executive Board (EB), and have either of three functions: 1) to validate and subsequently request registration of a proposed CDM project activity; and 2) to verify preparation of a registered CDM project, or 3) to certify the amount of emission reductions generated and to request the EB to issue CERs.

to the villages included in the CBP. The CBP will provide relevant technical training services for using the fertilizer generated from the digesters, to ensure the improvement of production capability of local farmers.

Performance Indicators

19. The CFO's key performance indicators are: (a) biogas flow volume (m3); (b) methane emission reduction (tons); (c) electricity generation (kwh); and (d) the CER credits created and traded (tons of CO2 equivalent, or tC02e). The CBP component's key performance indicators will include road improvements (km); access to clean drinking water (number of wells, persons provided access); and organic fertilizer (tons of fertilizer and number of farmers train for its proper use).

Alternatives Considered

20. There are no significant alternatives to be considered where the key objective is to maximize emission reductions along with other benefits. Covered lagoons could also deliver better manure management and inhibit local odors, but were rejected at an early stage of technology analysis as it was obvious that the cold winter weather in Penglai would seriously inhibit sufficient methane production for a CDM project from lagoons.

21. Four anaerobic manure treatment technologies were compared: a. Continuous Stirred Tank Reactor (CSTR); b. Anaerobic Contact Reactors; c. Up-flow Anaerobic Sludge Bed; and d. Up-flow Solid Reactor.

22. CSTR was finally selected as the technology most suitable for the treatment of wastewater with high solid content as is the case for this project. It also has several other advantages such as low investment costs, easy operational management, high gas yield, and longer hydraulic residence time that ensures stable biogas output and pathogen elimination.

Financial Analysis

23. The World Bank is not financing the construction andlor operation of any part of the activities that will generate CERs. The project sponsor plans to finance the project with its own equity and will not seek outside financing. Financial analysisS was conducted to (i) evaluate Minhe based on its financial statements and (ii) to assess the financial viability of the proposed project including financial projections and sensitivity analysis.

24. Due Diligence of Project Sponsor: Minhe's financial statements from 2004, 2005, and 2006 were analyzed and the resulting financial ratios (See full report at Annex 1) show steady performance in these years. An analysis of profitability was also satisfactory, with operating income growing 1.7 percent in 2005 and 4.4 percent in 2006. In fact,

A national financial expert fully conversant with Chinese accounting systems, and with significant prior experience in analysis of stand-alone CDM projects supported by the World Bank, carried out this analysis.

a. Operating income before depreciation and amortization (OIBDA) was over 22 percent of revenue and the operating income before interest was over 18 percent of revenue. All these indicate comfortable profitability levels for Minhe.

b. However, the company's debt exposure was comparatively high, with a debt ratio of 49 percent in 2006 (even though this was an improvement from 53 percent in 2004). Overall, debt service coverage ratios remained at 0.4 in the period.

25. This situation was also reflected in Minhe's cash flow. Although the cash flow generated by operating activities was always positive, the company did not meet its requirements of debt service. As a result, Minhe took out new loans to meet its maturing obligations. However, this could change with an equity injection; for example, Minhe is considering an initial public offering (IPO) on the national stock market.

26. Project Costs: The total cost of the proposed project is estimated at about RMB 63,679,000 including digester and engineering, equipment and power generators, taxes, and civil works. Construction is expected to take six months and Minhe plans to commission the project by mid-2008. The operating expenses for the proposed project are estimated to be RMB 6,119,465 per year and include power, raw material, labor, power generator operation, repair and maintenance, and administration.

27. Financing Plan: Minhe plans to use its own equity to finance the required investments based on its analysis and comparison of alternatives.

28. Project Financial Analysis: Income from CERs is crucial to the project. The following analysis (Table 1 below) examines project returns with and without CERs, based on Minhe's financing plan as well as the net present value (NPV).

Table 1: Impact of CERs on IRR (NPV in RMB Yuan)

Institutional

IRR NPV (discount rate 9%)

29. All national approvals have been received, with the Designated National Authority based in the Climate Change Coordination Office of the National Development and Reform Commission having issued the national letter of approval.

30. There are three institutional requirements for clearing a project through the CDM Executive Board: validation (that the project as designed is consistent with approved methodologies, and workable, and may be registered), verification (that the project as implemented is consistent with the approved design) and certification (that CERs have been generated as designed, and may therefore be 'certified'). The DOE contracted for the validation of the project has submitted its report in August 2007, and registration of the project by the CDM EB is expected in April 2008. Verification and certification of Emission reductions will take place after the project is commissioned.

Project with CERs 11.43 %

9,060,320

Project without CE&- 4.12 %

-20,059,204

31. This project activity is built on the CDM approved methodology ACM0010Nersion 02, "Consolidated baseline methodology for GHG emission reductions from manure management systems." Under this methodology, emission reductions are subject to periodic ex post monitoring, to determine whether the emission reductions have been achieved in compliance with applicable CDM rules and procedures and specific terms of the ERPA. For this, Minhe must collect and archive all relevant data necessary for calculating emission reductions from the project activity in accordance with a Monitoring Plan included in the PDD. The Monitoring Plan, established under the PDD, will provide the methodology and tools for measuring and calculating CERs generated by the project.

32. Minhe will implement the Monitoring Plan as part of the implementation of the new AMMS and electricity generating facilities that will result in the emission reductions. A new department with 28 staff will be established for the management and monitoring of the biogas digester. Key staff members have already traveled to Germany and Denmark to gain real-time experience with biogas digester management.

Safeguards

33. This project only triggers the World Bank's Environmental Assessment Policy and was designated a Category B at the concept-stage Safeguards Review Meeting, as the potential adverse environmental impacts of the project are site-specific and manageable with readily available mitigation measures. The project boundary for safeguards compliance includes: (i) manure collection and handling at Minhe's three chicken farms; (ii) manure conveyance from the chicken farms to the biogas digesters; (iii) biogas generation and storage; (iv) generation of electricity from biogas and its transmission to the grid; (v) processing and storage of digested manure; and (vi) application of digested manure on nearby agricultural lands in terms of manure quality and application procedures.

34. Table 2 lists the applicable safeguard policies. See Annex 4 for more details.

Table 2: Safeguard Policies

Applicable?

Applicable?

[XI [ 1 [ I [ 1 [ I [ 1 [ I [ 1 [ I

Note:

Safeguard policy: If applicable, how might it apply? Safeguard policy: If applicable, how might it apply? Environmental Assessment (OPBP 4.0 1) Natural Habitats (OPBP 4.04) Pest Management (OP/BP 4.09) Involuntary Resettlement (OP/BP 4.12) Indigenous Peoples (OP/BI-' 4.10) Forests (OPBP 4.36) Safety of Dams (OP/BP 4.37) Cultural Property (OPBP 4.1 1) Projects in Disputed Areas (OP/BP 7.60)

35. Environmental Analysis: Overall, this project will contribute to reducing environmental impacts associated with the current chicken farm operation (methane and odor generation from

the open lagoons); no incremental change is expected from the current operations in the amount of ground water consumed or the application of digested manure.

36. However, this project is close to sensitive environmental areas including five nearby villages and four wells, and appropriate mitigation measures need to be put in place. The key potential environmental impacts may include: (i) dust, noise, and solid waste generated from the construction activities during the construction phase; (ii) spills or leakage of fiesh manure from collection and transportation processes; (iii) odor from the treatment process, (iv) air pollution from the power generation process; and (v) surface and ground water pollution from digested manure storage and land application processes during the operation phase.

37. An Environment Impact Assessment (EIA) was prepared and approved by the Shandong Provincial Environmental Protection Bureau (EPB) in November 2006. However, since this EIA only addressed the environmental impacts of digesters and the power generator, Minhe commissioned the Shandong Academy of Environmental Science to prepare a revised EM that addressed the entire project boundary. The revised EIA was reviewed and found acceptable; it was disclosed locally on August 28,2007 and in Washington, DC on September 17,2007.

38. Institutionally, the head of each farm assumes full responsibility for environmental management and appoints necessary staff. The Quality Inspection Department at Minhe's headquarters regularly inspects the handling of manure and wastewater fiom each farm in all three compounds and supervises and examines its environmental management status. Based on the existing institutional arrangements, an Environmental Management Plan (EMP) has been developed for this project. The EMF defines institutional structures with specific description of relevant departmentlstaff responsibilities, staff training plan, environmental monitoring plan, reporting mechanisms, and occupational safety plan.

39. Social Analysis: Construction of the facilities will take place on land acquired in 2002 and owned by Minhe so that the project will not acquire any additional land. Therefore, the project does not trigger OP 4.12. It was also confirmed that no Indigenous People communities are located in the project area.

40. Legacy and Reputational Risk Issues: During preparation of this CFO, the task team was informed of a newspaper report alleging some irregularities in the acquisition of land by Minhe in 2002, well before the World Bank's involvement with the project. Extensive consultations were canied out prior to and at the concept-stage Safeguards Review Meeting on March 29, 2007. In early discussions with the Safeguards Secretariat, it was agreed that OP 4.12 was not triggered, but the task team needed to address this as a legacy issue, to investigate whether this involved any significant potential reputational risk to the World Bank.

41. Accordingly, during preparation an independent resettlement consultant was appointed based on a Terms of Reference cleared with the Regional Safeguards Advisor, to thoroughly review the land acquisition process undertaken by Minhe. Following the consultant's report, the task team carried out a further investigation as an extensive due diligence exercise, and interviewed local officials, affected persons, and Minhe staff. The team has concluded that: (i) the land acquisition was legally authorized by the Shandong Provincial Government, and procedural short-cuts resorted to by Minhe were rectified through penalties; (ii) the affected villages received

adequate compensation and there are no pending legal cases related to the land acquisition; and (iii) there is no evidence of adverse impacts on the living standards of families affected by the acquisition of land for the farm. There is therefore no significant reputational risk to the World Bank from this issue. The consultant's report and the task team's due diligence exercise are reported in full in Annex 5.

ERPA Main TermsIConditions

42. The World Bank's CER purchase fiom the project will be on behalf of the CDCF. The estimated amount of CERs to be purchased will be negotiated between the project sponsor and the World Bank and recorded in the ERPA, based on the calculations in the PDD that will be submitted to the UNFCCC. The exact number of CERs transacted will be subject to periodic verification by an independent accredited DOE, and the final project outcome will be the annual amount of delivered CERs which have been certified by the CDM Executive Board. The ERPA payments will therefore be conditioned on performance.'

43. As designed, a 10 year crediting period has been chosen for this project. The estimated amount of emission reductions over 10 years will be 846,660 tC02e (see Table 3). At present, the CDCF intends to purchase the first 465,000 tC02e of these emission reductions, with at least 75 percent of total CERs required to be delivered by the end of 201 2.

Table 3: Estimated Amount of Emission Reductions I Vnnr I Annual Estimation of Emission I

44. The CDCF will finance an additional community benefit component that will be funded from a premium over a ~ d above the CERs value. The final size, design, performance indicators, and implementing responsibilities of this component will be agreed and recorded in the final version of the ERPA.

2017 201 8

Total estimated reductions Total number of crediting years

Annual average ERs over crediting period

84,666 35,278 846,660

10 84,666

Annex 1: Financial Analysis and Project Costs

China-Shandong Minhe Poultry Biogas Project

45. Financial analysis was conducted to (i) evaluate the project sponsor based on its financial statements and (ii) assess the financial viability of the CFO including financial projections and sensitive analysis.

Due diligence of the vroiect sponsor

46. Background.. Minhe was established in 1985 and after several rounds of restructuring, the company is now a limited company owned by Sun Ximin (local investor, holding 71 percent of the company), Yantai Xiangrun Economic and Trade Co., Ltd. (external investor, holding 17 percent of the company), Yantai Yukai Electric Appliance Co., Ltd. (external investor, holding 7 percent of the company), and Penglai Fengfa Aquatic Product Co., Ltd. (local investor, holding 5 percent of the company).

47. In an average year, Minhe maintains a stock of 5 million chickens, hatches 100 million chicks, produces 400,000 tons of feed, and processes 15 million meat chickens a year with an annual output of 30,000 tons of chicken products. In addition to 2,000 staff and workers, Minhe collaborates with approximately 100,000 local farmers for part of its business.

48. Financial Analysis of Minhe: The Company provided its financial statements for 2004, 2005, and 2006. The financial statement of the first 2 years were audited by Shandong Huide Certified Public Accountants Co., Ltd., a member of Horwath International, and the third year's financial statement was audited by Continental Certified Public Accountants Co., Ltd., which is based in Beijing. Both auditors presented their unqualified opinions in their reports which assured the accuracy and accordance of those figures with Chinese accounting standards.

49. These statements were used to conduct analysis of Minhe and Table 4 summaries the relevant information and the results of the analysis - financial ratios, which show that the company operated steadily during the three year period (2004-6). Therefore, to the operation of the company are stable, and not a significant indicator to monitor.

F i n a d bformation amd ratios

Fituncial infor-mation Revenue Operating income Profit before tax Profit for the tax

-ho+eisation Depreciation fntcrest paid Rep asment

I Inventories ~ m e n t assets Total asse ts

Current Labilitie s f o t d debt

Finanical ratios I .Pmfitab ilia

OBI)-4 90 of revenue +mating income before interest VO of revenue Operating income 90 of revenue

Liquicbi* Current ratio Qrncbr ratio

Lzvs~qge Debt ratio

s0h:X t~ I Dek s en-ice co+.eraee ratio Source: Minhe

50. Since operating income reflects only the income earned from Minhe's regular operations, it was used to analyze the ability of the company to turn its revenue into profits. The analysis concluded that the company had satisfactory profitability and an operating income that increased 1.7 percent in 2005 and 4.4 percent in 2006. The OIBDA was over 22 percent of revenue and the operating income before interest was over 18 percent of revenue. All these indicate the profitability of the company.

5 1. However, the leverage of the company was comparatively high. The debt ratio was 49 percent in 2006 although that was an improvement from 53 percent in 2004. Minhe's debt service coverage ratios fiom 2004 to 2006 have remained at the level of 0.4. Although the cash flow generated by operating activities was always positive, Minhe could not meet the requirements of debt service and the company borrowed new loans to meet its maturing obligations. From 2004 to 2006, Minhe borrowed larger amounts to cover its debt service.

However, this situation could be changed with an equity injection and the company is planning on an IPO in the Chinese stock market.

Based on the analysis above, there is little risk of Minhe going out of business. The company's business line is profitable and cash flow can fully meet the demand of operations although the high level of leverage and poor solvency may cause difficulties in the coming years. The potential IPO could help improve this situation.

Financial Analysis of the CFO

52. Background of the CFO: Financial analysis of the CFO focused on the proposed construction and operation of facilities to digest chicken manure collected fiom chicken farms, capture of the biogas produced during the process of digesting, and generation of electricity for sale to the grid. It is estimated that the total investment for these components will be RMB 63,679,000 (including digester and engineering, equipment and power generators, tax and other costs) with construction taking place over a six month period, and the plant becoming operational by the middle of 2008. After completion, the proposed project could handle all chicken manure produced by Minhe and generate biogas electricity which will be supplied to the grid. The project will also generate emission reductions over 10 years.

53. Financial Projections and Analysis of the CFO: The financial analysis included assumptions regarding assets and depreciation, borrowing, revenue, operating expenses, accounts receivable (sales of electricity and CERs) and accounts payable, and taxes. For the analysis, the buildings will be depreciated within 20 years and the machinery and equipment will be depreciated within 15 years. Both have salvage values of 5 percent of their costs. The salvage value is collected back at the end of the operating period, year 2032. The comprehensive depreciation rate is 5.65 percent. The other costs including taxes will be depreciated within 20 years without salvage value.

54. Minhe has decided to support the investment of the proposed project with its own equity.

55. As designed, the project will begin operations in the middle of 2008 and generate electricity of 19.71 million kwh annually for sale to the grid. The selling price is regulated by the government and includes the base price of RMB 0.344 per kwh plus a renewable energy subsidy of RMB 0.25 per kwh. Both prices are net prices (excluding sales tax).

56. It is estimated that the proposed project would reduce the emission of 846,660 tC02e within the first 10 years. The price for CER is assumed at $10 per tC02e.

57. The operating expenses for the proposed project are estimated to be RMB 6,119,465 per year and include power, raw material, labor, power generator operation, repair and maintenance, and administration. Table 5 summarizes the operating expenses and detailed calculations of these costs are provided in Table 6.

I Repair & Maintenance I I

( 1.5 percent of equipment cost ( RMB 27,791,000

Table 5: Operating Expenses

Power & Fuel Raw Material Labor Power Generator Operation Administration

Table 6: Detailed Calculation of Operating Expenses

Quantity Consumed 2,297.26 kwh per day 500 tons per day 15 staff and workers 6 sets 10 ~ercent of labor

Power & Fuel Raw Material

Unit Cost RMB 0.60 per kWh RMB 17.00 per tonne RMB 18,000 per worker year RMB300,OOO per set year

Quantity

Labor Power Generator Operation Administration

58. A 5 year income-tax-exemption is allowed for investments in renewable energy production projects for the first 5 years and the income tax for the remaining years is 33 percent.

Unit Cost

2,297.26 500.00

~ Total

59. Table 7 and Table 8 below summarize the results of the financial analysis. Special attention was given to the first 10 years when the proposed project receives income fiom emission reductions. Income fiom CERs is crucial for the financial viability of the investments in improved ANIMS and power generation. Table 7 indicates that without CER revenue, the IRR is only 4.12 percent, but it increases to 11.43 percent (see Table 8) with the additional revenue stream.

Consumed Annual

Operating Cost

15.00 6.00

10.00

kwh per day Tons per day

9

Staff and workers Sets

% of labor

6,119,465

0.60 17.00

503,100 3,102,500

18,000.00 300,000.00

270,000 1,800,000

27,000

Table 8: Financial Analysis with CER Revenue

60. Sensitivity analysis was undertaken to check the resistance of the proposed project to changing conditions. These conditions might be caused by (i) 10 percent decrease of revenue, (ii) 10 percent increase of operating expenses, and (iii) 10 percent increase of investment.

6 1. The results of the analysis show that (i) a 10 percent decrease of revenue would lower the IRR to 6.20 percent from the base case and the NPV would become negative; (ii) a 10 percent increase in operating expenses would result in a lower IRR of 10.33 percent fi-om the base case and the NPV would fall to RMB 4,859,532 from the base case; (iii) a 10 percent increase of investment would lead to an IRR of 9.8 percent and NPV of RMB 3,236,416. The results also show that the proposed project would be more sensitive to a 10 percent increase of investment costs than a 10 percent increase of operating expenses.

Annex 2: Environmental Safeguards Issues

china-shandong Minhe Poultry Biogas Project

A. Applied Policies and EA Preparation

62. This project is a Category B project since the potential adverse environmental impacts of the project are site-specific and manageable with readily available mitigation measures. The project boundary for safeguards compliance includes: (i) manure collection and handling at Minhe's three chicken farms; (ii) manure conveyance fiom the chicken farms to the biogas digesters; (iii) biogas generation and storage; (iv) generation of electricity from biogas and its transmission to the grid; (v) processing and storage of digested manure; and (vi) application of digested manure on nearby apcultural lands in terms of manure quality and application procedures.

63. An EL4 was prepared and approved by the Shandong Provincial Environmental Protection Bureau in November 2006. However, since this EL4 only addressed the environmental impacts of digesters and the power generator, Minhe commissioned the Shandong Academy of Environmental Science to prepare a revised EL4 that addressed the entire project boundary. The World Bank task team reviewed the revised EIA and found it to be satisfactory.

64. The project will follow Chinese environmental and emission standards in terms of air pollution, noise, and odor. With respect to the farmland application of digested manure, European Union countries have standards such as 170 kghalyear for nitrogen to maintain a land- livestock balance. While there are no such regulations or guidelines in China, a localized technical manual will be developed for this project and provided to local farmers to ensure controlled application of digested manure while preventing nutrient leaching to groundwater.

B. Current Practice and Baseline Environmental Conditions

65. Current Operation of Chicken Farms: Minhe is operating 29 chicken farms located in three compounds with a total population of 5 million chickens. The first compound, Compound A includes 6 chicken farms with 0.3 million chickens and 5 open lagoons with a total volume of 9,200 m3. The second compound, Compound B includes 7 chcken farms with 0.4 million chickens and 7 open lagoons with a total volume of 5,100 m3. The third compound and largest is Compound C which includes 16 chicken farms with 4.3 million chickens and 6 open lagoons with a total volume of 66,000 m3. A total of 500 tons of chicken manure and 1,300 tons of wastewater are generated daily at the three compounds. The chicken manure and wastewater are discharged into the respective open lagoons for digestion with the supernatant used for irrigation of the adjacent f m s while the sediments are sold to the local farmers as fertilizer. All the open lagoons are made of concrete and subject to proper anti-seepage treatment. The digested chicken manure is fully utilized and not discharged into surface water bodies.

66. Environmental Conditions: The ground water in the project area flows from south to north and there are four wells near the project site. Monitoring results of ground water over the past three years indicate that the ground water quality satisfies Chinese Class 11 Ground Water Quality Standards. Monitoring results for ammonia and hydrogen sulfide on August 5, 2007 at

the plant boundary met the Class I Standard for Emission Standards for Odor Pollutants. Noise levels are in compliance with the Class I1 Standard for Environmental Noise. There are no protected areas, other valuable natural habitats, or physical cultural properties around the project site.

C. Key Environmental Issues and Mitigation Measures

67. Overall, this project contributes to reducing environmental impacts associated with the current chicken farm operation such as methane and odor generation fiom the open lagoons, while the amount of ground water consumption and digested manure application on farmland will not substantially change from the current operations. Notwithstanding, this project may affect sensitive environmental spots including five nearby villages and four wells unless appropriate mitigation measures are put in place.

Construction Phase

68. The key environmental impacts during the construction phase may include dust, noise, and solid waste generated fiom the construction activities. Such potential impacts will be mitigated by taking appropriate measures including: (i) regular water spraying and fencing at soil and dirt stockpiles, and provision of proper covers to vehicles transporting construction materials; (ii) use of construction machines with lower noise levels, and proper scheduling of high-noise activities; and (iii) proper on-site storage, and timely collection and disposal of construction and domestic waste by the municipal waste department.

Operation Phase

69. Manure Collection and Transportation: Spills and leakage of fiesh manure may occur during collection and transportation. Chicken manure from Compound C will be directly transported to the project site within the compound area via a pipeline. Chicken manure generated within Compounds A and B will be collected and then pumped into tank trucks and transported to the project site within Compound C. Wastewater fiom Compound C will be sent via a sewer tunnel to the project site while that fiom Compounds A and B will be treated on-site with the existing open lagoons. Fully-enclosed tank trucks will be used for transportation vehicles and a high leakage-proof standard will be adopted in the design and construction of the pipeline and sewer tunnel. An emergency response plan will be established and transportation staff will be trained for safety and environmental protection. This project may require 12.5 m3 of additional water usage mainly for cooling, which is less than a one percent increase to the current water usage.

70. Biogas Generation and Storage: Odor generated fiom the treatment process may be the key issue in the biogas generation and storage process. A biological odor control device will be employed to comply with the Chinese Emission Standard for Odor Pollutants. A high leakage- proof standard will be adopted in the design and construction of bio-digesters.

71. Electricity Generation: The power generator may emit air pollutants such as NOx and SOX, however, it is heled with biogas so that only small amounts of pollutant emissions are expected, which will comply with the Chinese Emission Standards for Air Pollutants. Since the

project site is located at least 0.8 krn away fiom the nearest village, the air pollutants from the power generator will have minimal impacts. The project will use the existing input power line for the transmission of generated electricity to the grid so that no new lines will be constructed.

72. Digested Manure Storage and Application: Storage and application of treated manure (effluent and residue) may cause surface and ground water pollution. The dried residue will satisfy the Chinese standard for bio-organic fertilizers. A storage tank with a capacity of 50,000m3 will be constructed for effluent storage. Farmers using the effluent will also construct their own storage tanks with a total capacity of more than 120,000m3. These facilities will satisfy the storage needs in seasons not requiring fertilizer so that no discharge of excessive effluent into the environment is expected. A Technical Manual on Utilization of Biogas Effluent will be developed and provided to the farmers as a guide for the application of biogas effluent and residue to ensure they are applied in a controlled manner in terms of application amount and frequency.

Alternative Analysis

73. A three-stage alternative analysis was conducted including (i) with and without project comparison, (ii) selection of plant site location, and (iii) selection of manure treatment technology.

74. Regarding the location of the plant, three available sites namely Compounds A, B, and C were compared. Compound C was finally selected because the site: (i) requires the least transportation of chicken manure; (ii) has the most favorable geographical conditions for designing the treatment processes; (iii) is the farthest fiom residential areas and unlikely to cause environmental impacts on the villagers; and (iv) complies with the land use plan of Penglai City.

75. Four anaerobic manure treatment technologies were compared including CSTR, Anaerobic Contact Reactor, Up-flow Anaerobic Sludge Bed, and Up-flow Solid Reactor. Covered lagoon was rejected at an early stage of technology analysis since it was evident that the cold winter weather in Penglai City would not allow sufficient methane production for a CDM project. Among the four technologies, CSTR was finally selected since this technology is most suitable for the treatment of wastewater with high solid content as is the case for this project. In addition, CSTR has several other advantages such as low investment costs, easy operational management, high gas yield, and longer hydraulic residence time that ensures stable biogas output and pathogen elimination.

Environmental Management Plan

76. Currently, the head of each farm assumes full responsibility and appoints staff for environmental management. The Quality Inspection Department at Minhe's headquarters regularly inspects the handling of manure and wastewater from each farm at all three compounds, and supervises and examines its environmental management status. Based on the existing institutional arrangements, an Environmental Management Plan ( E m ) has been developed for this project. The EMP defines institutional structures with specific description of relevant departrnentlstaff responsibilities, staff training plan, environmental monitoring plan, reporting mechanisms, and occupational safety plan. Minhe also has a well developed Emergency

Response Plan to Avian Influenza. The EMP will be attached to the ERPA and its implementation will be monitored by the World Bank. The EMF is summarized as follows:

Table 9: Summary of the Environment Monitoring Plan I Media 1 Location I Parameter 1 Frequency I Institution

Construction Phase

Operation Phase Ambient air

Noise

Biogas effluent and residue

, Ground water

Seasonally TSP Ambient air

1

Boundary of construction site

Plant boundary I S02, H2S,

Penglai City Environment Monitoring

Key construction sites and residential areas near the construction site

Exportation points I colifonn 4 wells I PH,

Leq dB (A)

CI, NH4- N, COD-

Environment Monitoring

Monthly

Public Consultation and Information Disclosure

77. Public consultation was canied out for the EIA through a public meeting followed by a questionnaire survey in September 2006. A total of 50 people from nearby villages and relevant institutions participated in the consultation process. The main concerns were noise, waste, and wastewater issues during construction as well as land acquisition. Minhe has committed to address these concerns in both the project design and operation.

Station

78. The EIA report was disclosed locally on August 28, 2007 and in Washington, DC on September 17,2007.

Annex 3: Community Benefits Plan


79. The task team has appraised the Community Benefit Plan prepared by the project entity based on the extensive consultation with the surrounding 10 villages affected by this project. The company plans to implement three community benefit projects: 1) renovate access road and build drinking water tank, 2) provide digested solid partially and all the digested liquid for fkee to villagers of Hanwang Village, Wujia Village, Miaojiagou Village and Qujiagou Village as organic fertilizer for farmland, h i t trees, etc 3) Give relevant training of digested solid and liquid to the community which will receive the fertilizer. The CER payments will be based on linked to the implementation and performance of the CBP. The fill CBP is attached to the CFAM package.

Annex 4. Legacy Issues Relating to Acquisition of Land by Minhe


80. During preparation of this CFO, the task team was informed of a newspaper report alleging some irregularities in the acquisition of land by Minhe in 2002, well before the World Bank's involvement with the project. Extensive consultations were carried out prior to and at the concept-stage Safeguards Review Meeting on March 29, 2007.

81. As part of its due diligence, the task team investigated this issue to determine whether the land acquisition involved any significant potential reputational risk to the World Bank. This process included the recruitment of an independent resettlement consultant who was appointed based on a Terms of Reference cleared with the Regional Safeguards Advisor, to thoroughly review the land acquisition process undertaken by Minhe. Following the consultant's report, the task team canied out a further investigation as an extensive due diligence exercise, and interviewed local officials, affected persons, and Minhe staff.

82. The team concluded that: (i) the land acquisition was legally authorized by the Shandong Provincial Government, and procedural short-cuts resorted to by Minhe were rectified through penalties; (ii) the affected villages received adequate compensation and there are no pending legal cases related to the land acquisition; and (iii) there is no evidence of adverse impacts on the living standards of families affected by the acquisition of land for the farm. There is therefore no significant reputational risk to the World Bank from this issue.

83. The consultant's report and main findings are below.

Shandong Minhe Poultry Manure Biogas Project (P102567) Leeacv issues relating to acauisition of land for the Project

Background

1. The Bank is now preparing the Shandong Minhe Biogas Project to bring forward an Emissions Reduction Purchase Agreement (ERPA) with the Shandong Minhe Poultry Farming Co. ("Minhe") located in Penglai, Shandong Province.

2. During the early preparation process of this project in February 2007, the task team's social specialist drew attention to a newspaper report alleging some irregularities in the acquisition of land by Minhe in 2002. While this was about five years before the Bank's involvement in the project, the article was nevertheless taken very seriously, and the task team decided to make every effort to investigate this legacy issue whether there are any safeguards implications and potential reputational risks to the Bank (Annex I).

3. Extensive consultations were carried out prior to and at the Safeguards Review Meeting on March 29, 2007. In early discussions with the Safeguards Secretariat, it was agreed that OP 4.12 would not be triggered but the task team had to address the legacy issue to avoid potential reputational risk by conducting a due diligence assessment to determine: (i) whether the land acquisition was carried out in compliance with the ex~sting Chinese laws and regulations, (ii) whether there had been a redistribution of

commune land to land losers to compensate for their land losses and the allegedly limited monetary compensation they received for lost land, and (iii) whether any of the affected families were worse off in terms of their standard of living due to the land acquisition.

4. In accordance with this agreement, the task team developed a TOR (Annex II) and hired an experienced independent senior social consultant, Mr. Gong Heping (CV attached in Annex III) to conduct a due diligence assessment of the issue. He visited the site from April 25 to 29, 2007 and submitted a report to the Bank on May 4, 2007. His full report is attached in Annex N (supplemented by Q&A after submission: Annex V). Based on consultation with the Safeguards Coordination team, the report and supplementary Q&A were circulated for review and comments from relevant social safeguards specialists on May 16, 2007.

5 . The task team received comments from a staff (Andres Liebenthal, Country Sector Coordinator for China & Mongolia; No other comments were received: Annex VI). The task team sought clarifications fiom the consultant on those comments, and the specific questions and his clarifications are also attached in Annex VII.

6. Based on the review, the task team proposed to proceed with further project preparation while paying close attention to the legacy issues during the preparation process, and also proposed to fully brief management on the associated reputational risks when seelung a decision to proceed with appraisal. The Regional Safeguards Advisor, in principle, agreed with the proposed approach, and urged the task team to confirm that:

(a) The project was legally authorized by the Shandong Provincial Government and other related authorities;

(b) Every village received adequate compensation including Shangwei village, there are no pending legal cases; and

(c) There is no evidence of adverse impacts on the living standards of families affected by the acquisition of land for the farm.

7. Following the guidance provided by the Regional Safeguards Advisor, the task team carried out a preparation mission from August 20 to 24, 2007. During the mission, the task team met with village leaders and affected persons from four villages (Quguo, Shangwei, Qianhan and Wujia, representing between them 82% of the total land acquired for the company in 2002). It also visited the local land bureau. A detailed record of discussions is attached in Annex IX.

8. Main findings throughout the due diligence assessment process and task team's conclusions are summarized below.

Main Findings of the Due Diligence Assessment

Was the land acquisition carried out in compliance with the existing Chinese laws and regulations?

9. The process of land acquisition underwent two distinct phases. Firstly, after receiving approval to implement the poultry farm project, Minhe purchasedlobtained the land from the concerned villages in 2002. This purchase had no legal authorization from the local Penglai Land Bureau (PLB), and was not legal, but appears to have been common practice at the time. Secondly, following a national campaign to regularize such land holdings, the PLB applied for regularization of all such cases and received Provincial approval to do so. Following this approval, the same land was formally acquired by the Government after

a carrying out a detailed survey and providing information to all concerned village committees. Then the acquired land became Government land, and was leased to Minhe. The task team were provided with copies of Provincial Government Orders no. "Lu Zheng" 700 and 702 of 2004 formally approving the acquisition of lands for all such cases.

Was the compensation paid to every village adequate, and are there any pending legal cases relating to when land was acquired for the company in 2002?

10. Adequacy of compensation. According to the Land Law, compensation for requisitioned cultivated land shall include compensation for land, resettlement subsidies (RS) and attachments and young crops on the requisitioned land. The Shandong Implementation Regulation to the Land Law stipulates compensation rates for each land category as presented in the table below. Average annual output value (AAOV) for cultivated land is to be no less than RMB 600 per mu, and the AAOV of adjacent cultivated land applies in calculating the compensation rates of forest land and waste land. Young crops and trees must be compensated based on their actual value. The AAOV for the cultivated land acquired by the project was RMB 600 per mu due to the poor quality of the land. The actual paid compensation rates for each land category are also summarized in the table below. The comparison of the two rates (required and actually paid) indicates that all the paid rates satisfied the legal requirements for compensation.

1 1. In the consultation with villagers during the August mission, all villages confirmed that they have received adequate compensation for the land acquired in 2002. As most of the land given up consisted of mountainous areas and rocky land, lacking in imgation system coverage, the villagers indicated that these were not considered productive. They therefore believed that the compensation they received was acceptable. It was also confirmed in the village meetings that were held at that time that villagers were satisfied with the compensation arrangements.

Category Cultivated land

Forest land

Waste land TOTAL

12. Pending legal issues. PLB confirmed that at presknt there are no pending legal cases relating the land acquisition. In 2004-05, there were some complaints by a few villagers, which were addressed by Minhe via CSR (corporate social responsibility) programs (roads, water wells, employment opportunities) which have addressed these concerns successfully. PLB does not see that any disputes can arise now. Minhe and the villagers also indicated they did not know of any existing complaints or legal cases related to the land acquisition practices by the project.

Is there any evidence of adverse impacts on the living standards of families affected by the acquisition of landfor the farm?

13. Interviews with the villagers separately carried out by the independent consultant and the task team both confirmed that the villagers did not feel any adverse impacts on the living standards of families

Paid rates (per mu) RMB 4,500 RMB 3,200 RMB 300 RMB 8,000 RMB 3,000 RMB 1,400 RMB 600 RMB 5,000 RMB 2,000

Area (mu) 1017.25

6.9

275.22 1299.37

Required compensation rates (per mu) Land: 7 times of AAOV (RMB 4,200) RS: 5 times of AAOV (RMB 3,000) Yong crops: actual value (RMB 300) Total: RMB 7,500 Land: 5 times of AAOV (RMB 3,000) RS: 2 times of AAOV (RMB 1,200) Trees: actual value (RMB 600) Total: RMB 4,800 Land: 3 times of AAOV (RMB 1,800)

affected by the acquisition of land for the farm, because 1) land redistribution had been conducted in these villages by the village committees; 2) the compensation provided was reasonable; 3) most of the households did not rely on farming for a living in the first place; 4) some villagers were employed in the Minhe company as regular or temporary employees; and 5) Minhe has also helped the local development through their CSR programs.

Conclusions

14. The above thorough due diligence assessment has ensured that:

(a) The project construction was authorized by the National Development and Reform Commission (NDRC) in 2002, and land acquisition for the project was legally authorized by the Shandong Provincial Government in 2004.

(b) The affected villages received adequate compensation for the land acquired. The villagers interviewed, PLB and Minhe have confirmed that there are no pending legal cases related to the land acquisition process.

(c) There is no evidence of adverse impacts on the living standards of families affected by the acquisition of land for the farm.

15. Talung also into account that there has been no appearance of follow up media reports and villagers' actions on this issue, the task team concludes that all the alleged irregularities in the news report are unfounded or have already been successfully settled, therefore, reputational risks associated with the land legacy issue is low.

Annex I Summa y of the news report and information received from Minhe

Summary of the Xinhua news report According to the report dated December 29,2006, there are five major fields of complaints from the villagers:

Very low compensation rates: CNY3500Mu for 250 mu of land and CNY2000-1000/Mu for other 50 mu within Shangwei Village, Beigou Town; Very bad smell caused by chicken farms; The companies' deep-well caused the dried-up of villagers' own wells and causes difficulties for clean water supply in the village; Villagers believed the land acquisition practices had not been approved by authorized organizations yet; No information disclosure and no villagers' discussion for the land acquisition.

The Full Text of the Report is available from http://news.xinhuanet.c0m/lianzhengJ2006- 12/29/content-5546553 .htm

Information requested by the task team from Minhe In order to verify whether the content of news report is true or not, the task team requested Minhe to provide the following information. 1. The total area of Minhe's land acquisition, villages and townships covered, types of land and size, the number of people affected and to what extent, compensation rate and resettlement measures. 2. The housing demolition area and types of houses resulted from Minhe's land acquisition, compensation rate and resettlement measures. 3. Land acquisition contracts signed with villages (copies) and compensation contracts signed with house

owners. 4. Land acquisition documents approved by government departments concerned; 5. Record Notes of the villagers' meeting. 6. Laws and regulations on land acquisition and dismantlement of Yantai City

Minhe's Response On March 6,2007, Minhe sent a fax to the Bank's Beijing Office replying on the request. Documents being received included: 1) An Explanation Note on Project-Related Land Issues (one page, Chinese Only); 2) A Sample Contract signed between Minhe and the local Land Bureau for use of land located in Nanwanglie. Number (2005)074; 3) A Registration Table for Land Acquisition in Zongjiagou Village; 4) A Land Property Survey Table for Qujiagou Village; 5) Land-use Certificates for land in Qujiagou Village and Shijiagou Village ; 6) Minhe Project Approval Document from NDRC.

These documents were provided to the consultant and reviewed as part of the due diligence assessment.

Annex 2: Consultant Terms of Reference

Post Evaluation for Land Acquisition Practices (Shandong Poultry and Livestock Waste Biogas Project)

1. Background: The Bank is preparing a Carbon Finance transaction with the Shandong Minhe Animal Husbandry Company (henceforth addressed as "Minhe"). The proposed transaction relates to a large chicken farm which was established by Minhe following acquisition of land in 2002 in Penglai city. One of the concerns raised during preparation is of the status of the company's acquisition of t h s land, as canied in a Xinhua newspaper article of December 29,2006. During a review of the available information, the Bank has determined that the Task Team will further assess the status of the related land acquisition by Minhe.

2. Purpose: The Bank will hire an expert to undertake a post-evaluation of the land acquisition by the Shandong Minhe Animal Husbandry Company in 2002. The purpose of this assignment is to assess (a) whether the land was acquired in accordance with the Chinese laws and regulations, and (b) whether any of the persons whose land was acquired have been subjected to adverse economic impacts as a result of the acquisition. The evaluation will be based on a review of available documents provided from Minhe Company and Penglai City Land Bureau, interviews with officials, relevant village leaders and affected farmers, and findings of field visits.

3. Tasks: The tasks of the consultant include the following assessments. All the legal compliance stated below will be assessed based on the Chinese national and local laws and regulations applicable at the time of land acquisition. The land acquisition subject to the assignment is that for the construction/expansion of farm compound where currently farms #1 and #15-29 (including a land for the new biogas plant) are located.

a. Legality of land acquisition procedure. The consultant will assess the legal compliance of the land acquisition procedure including the acquisition of necessary approvals and consultation with affected persons if required. This task will be conducted based on available documents provided by Minhe and Penglai City Land Bureau as well as interviews with relevant officials, village leaders and selected farmers who have lost land (35 households

total; the consultant should attempt to interview at least two affected households from each village visited who are still resident in the village; they are also subject to other interviews mentioned below).

b. Adequacy of compensation. The consultant will assess the adequacy of compensation rates paid by the Minhe and received by affected farmers. The adequacy will be verified based on the relevant provisions specified in the Land Law and the local standards. This task will be conducted based on available documents provided by Minhe Company and Penglai City Land Bureau as well as interviews with relevant village leaders and selected farmers who have lost land.

c. Land redistribution. The consultant will verify if there was any redistribution of commune/community land to compensate those members of the commune/cornmunity who lost land. This task will be conducted based on interviews with relevant village leaders and selected farmers who have lost land.

d. Adverse economical impacts. The consultant will verify if there is any evidence to confirm that affected farmers who lost land have become economically worse off as a result of the acquisition of land. Thls task will focus on whether or not there is a direct causal linkage between loss of land and economic reduction, and will be conducted based on interviews with relevant village leaders and selected fanners who have lost land.

e. Collection of other information. The consultant will collect information, malang use of the opportunity of interviews and site visit, on the issues raised by the news report including complaints on odor from the chicken farm and open lagoons, and deteriorated water supply.

f. Reporting. The consultant will prepare a report to the Bank on main findings and conclusions of the assessment.

4. Implementation: The consultant will input 5 days for field work and travel during April 23-27, 2007 and up to two days for report writing. The final report should be submitted to the Bank by May 2, 2007. Information request to Penglai City Land Bureau will be made by the World Bank through Minhe Company.

5. Budget: The total remuneration for the consultant will be for seven days at the relevant applicable World Bank grade. Travel is required and relevant travel arrangements must be made through the World Bank office in Beijing. Fees for travel and per diem will be as authorized under the Bank's travel policy and subject to its formalities.

6. Reporting: During his assignment, the consultant will report to Mr. Neeraj Prasad, Task Team Leader

7. The following documentation is attached for information: a. Project Information Document (PID) explaining the background. b. Copy of original Xinhua report c. Communication of clarifications requested by the Bank from Minhe d. Copies of responses received from Minhe.

Annex 3: CVof Mr. Gong Heping

NAME OF FIRM: EAST CHINA INVESTIGATION AND DESIGN INSTITUTE NAME OF STAFF: GONG HEPING PROFESSION: Senior Engineer /Senior Econornist/Cost Engineer DATE OF BIRTH: JULY 11, 1965 YEARS WITH FIRM: lg(1985-) NATIONALITY: China MEMBERSHIP IN PROFESSIONAL SOCIETIES:

Member, Institution of Hydropower Engineering, London, China, 1990 Member, Institution of Zhejiang Water Conservancy, 1990

Key Qualifications: Years of services with rhejirrn: 18 Years of experience: I 8 1. Gong Heping is currently deputy director of the Institute for Environment Protection And

Resettlement of ECIDI (East China Investigation And Design Institute) and chief resettlement specialist in ECIDI, a member of the Technology Committee Of China Hydropower Consultant Corporation.

2. Gong Heping has 18 years of experience with the firm and has involved in the revision of "The Land Acquisition and Resettlement Regulation For Large and Middle Scale Hydropower and Water Conservancy Projects", "Reservoir Resettlement Design Norm", "Methodology For Reservoir Resettlement Work of Large and Middle Hydropower Project", "Norm Of Site Selection Planning For Pumped Storage Project", drafting of "Resettlement Budget Preparation Methodology For Dam Projects" and preparation work of regarding criterions or norms. He is one of the specialists of the World Bank to work out the "Operation Guideline of Resettlement Monitoring and Evaluation for The Bank financed Projects In China ". He is very familiar with the resettlement regarding lows, regulations and policies of China and the resettlement policies of the World Bank. He has considerable direct experience of International funding agencies' procurement procedures and has participated in the preparation of resettlement action plan for projects such as Zhejiang Wenzhou Shanxi Water Conservancy Project (ADB fmanced), East ChinaIJiangsu 500 kv Transmission Project, Tongbei Pumping Storage Project, Zhejiang Electric Power Development Project, Xinjiang Express Highway llI Project, Hubei Small Hydropower Project, Jiangsu Yixing Pumping Storage Project.

3. He has worked on major resettlement, including 15 years on the World Bank financed projects. Recently years, he was often invited by the World Bank as a local resettlement consultant to involve the resettlement thematic supervision missions, the regular supervision missions and the training programs.

EDUCATION: BSc, Dam Construction, Dalian University of Technology, Dalian, China, 1985. M- of Economy, Engineering Economy, Hohai University, Nanjing, China, 1998.

EMPLOYMENT RECORD: FROM : 1985 TO PRESENT I

A1. POSITION HELD 1 DURATION: Resettlement Specialist / 1998 to present CLIENT: Jiangsu Yixing Pumping Storage Project, Jiangsu Yixing, PR China ACTIVITIES PERFORMED: To organize the preparation of RAP (Resettlement Action Plan). It's the World Bank Financed project with installed capacity of 1000MW.

A'

A2. POSITION HELD I DURATION: Resettlement Specialist / 1999 to present CLIENT: Tongbei Pumping Storage Project, Zhejiang Tiantai, PR China ACTIVITIES PERFORMED: To organize the resettlement monitoring and evaluation. It's the World Bank Financed project with installed capacity of 1200MW.

EMPLOYER : ECIDI (East China Investigation And Design Institute)

A3. POSITION HELD / DURATION: Resettlement Specialist 1 1998-1999 CLIENT: Tongbei Pumping Storage Project, Zhejiang Tiantai, PR China ACTIVITLES PERFORMED: To organize the preparation of the RAP.

A4. POSITION HELD I DURATION: Resettlement Specialist 1 1999 to present CLIENT: East ChindJiangsu 500 kv Transmission Project, Jiangsu, PR China ACTIVITIES PERFORMED: To organize the resettlement monitoring and evaluation. It's a World Bank frnanced project and consists of 5 sub-projects, 5500MVA transformer capacity to be added, A total of 1047 km long 500 kV new transmission lines, Urban transmission sub-project in Nanjing Municipality, A 3.703 km long large-span line crossing the Changjiang River at Jiangyin and Relative automatic communication facilities for the above mentioned.

A5. POSITION HELD 1 DURATION: Resettlement Specialist I 1997-1999 CLIENT: East ChindJiangsu 500 kv Transmission Project, Jiangsu, PR China ACTIVITIES PERFORMED: To organize the preparation of RAP.

A6. POSITION HELD / DURATION: Resettlement Specialist 1 2000 to present CLIENT: Xinjiang Express Highway project, Xinjiang, PR China ACTIVITIES PERFORMED: To organize the preparation of RAP. It's a World Bank financed project and includes 2 sub-projects, Kuitun-Sailimu express highway of 3 1 1 lan and rural roads renovation sub-project.

A7. POSITION HELD 1 DURATION: Resettlement Specialist 1 2000 to present CLIENT: Hubei Small Hydropower Project, .Hubei, PR China ACTIVITIES PERFORMED: To organize the preparation of RAP and minority analysis. It's a World Bank Financed poverty mitigation project and composed by Dongping, Laifeng, Zhushan and Xiakou 4 small hydropower station. Some minority like Miao, Tujia live in the project area.

A8. POSITION HELD / DURATION: Resettlement Specialist I 1994-1999 CLIENT: Zhejiang Power Development Project, Zhejiang, PR China ACTIVITIES PERFORMED: To organize the resettlement monitoring and evaluation. It's a World Bank financed power project and the first time applying resettlement monitoring and evaluation in non-dam projects in the World Bank.

A9. POSITION HELD 1 DURATION: Resettlement Specialist I 1994-1999 CLIENT: Shuikou Hydro Power Project, Fujian PR China ACTIVITIES PERFORMED: To take part in the preparation of the outline and the questionary for Shuikou resettlement monitoring and evaluation. To organize the field survey and involve the preparation of the serial reports. It's a World Bank financed power project with installed capacity of 1400 mw and rural resettlement people of 67239 persons. In China, it's the first project to prepare the RAP and take the resettlement monitoring and evaluation based on the World Bank's resettlement policies. It's the first successful resettlement monitoring and evaluation in all World Bank financed projects. The organization, questionnaire, methodology and report format have been applied to subsequently projects the World Bank financed. The Shuikou resettlement is successful and reputed as a succeeded example in the resettlement of development projects by the World Bank.

A10. POSITION HELD I DURATION: Resettlement Specialist I 1994-1 997 CLIENT: Zhejiang Wenzxhou Shanxi Water Conservancy Project, Zhejiang Wenzhou, PR China ACTIVITLES PERFORMED: To prepare the RAP. It's a ADB financed project and consists of two dam sub-projects, Zhaoshandu dam project and Shanxi dam project. Total resettlement population is 36888 persons. The physical resettlement is basically completed before 2001. In the RAP and the resettlement implementation developed and applied a new resettlement way of "providing land to resettlement people by the way of transferring the registration of the existing farmers in coast area". The resettlement seems to be successful.

A l l . POSITION HELD 1 DURATION: Resettlement Specialist 1 1995 to present (several months intermittent)

CLIENT: Others ACTIVITIES PERFORMED: As a resettlement consultant invited by the China International Consultation Corporation, involved the project appraisal of Xiaolangdi Project (Henan Province) and Longtan Project (Guangxi Zhuang Minority Autonomous Region). As a resettlement consultant invited by China Hydro Power Consultation Corporation, participated in resettlement document reviewing and consultation for hydro power projects such as Lingjingtan project (Hunan Province), Mianhuatan Project (Fujiang Province), Tianshengqiao (Guangxi Zhuang Minority Autonomous Region), Jilintai Project (Xinjiang Uygur Autonomous Regon), Sanbanxi Project (Guizhou Province), Hongjiadu Project (Guizhou Province), Goupitan Project (Guizhou Province), Shuibuya Project (Hubei Province) and Gaobazhou Project (Hubei Province). As a resettlement consultant of the World Bank, took part in the resettlement thematic supervision for highway section projects (Shaanxi Highway Project, Fujian Provincial Highway Project and National Highways I1 Project), environmental section projects (Liaoning Environmental Project, Shandong Environmental Project), rural section projects (Taihu Basin Project, Yangtse Basin Project, Sichuan Agricultural Development Project and Tarim I1 Project) and power section projects (Sichuan Transmission Project, Ertan Hydro Power Project, Daguangba Hydro Power Project, Tuoketuo Power Project) and the annual supervision for Xiaolangdi project, Second National Expressway Project, Third National Expressway Project, Fourth Expressway Project.

LANGUAGES: Speaking Reading Writing English Fair Fair Good Putonghoa Mother tongue Mother tongue Mother tongue

Annex 4: Back To Oflee Report

Post Evaluation for Laud Acquisition Practices

(Shandong Minhe Biogas Project P102567)

1 A World Bank mission consisting of Chengzhuo (STC EASRE), Gong Heping (Senior Social Consultant) visited Shandong Minhe Biogas Project ("the Project") during April 25-29, 2007 to undertake a post-evaluation of the land acquisition conducted by Shandong Minhe Poultry Farming Co.("Minhe") in 2002. The mission met officers from Penglai Land Management Bureau and Beigou Township Government, and also staffs from Minhe. During its staylng in Penglai, the mission visited the field of the Chicken Farm, Qugou Village, Miaogou Village, Qianhan Village and Shangwei Village and met village leaders and interviewed some villagers. This Report records the major findings, discussions and understandings reached.

Introduction

2 The Bank is preparing a Carbon Finance transaction with Minhe. The proposed transaction relates to a large chicken farm which was established by Minhe following acquisition of land in 2002-2003 in Penglai city. One of the concerns raised during last mission is of the status of the company's acquisition of this land, as camed in a Xinhua newspaper article of December 29, 2006. During a review of the available information, the task team has determined that further assessment on legacy issues relating to acquisition of land for establishment of the Project is needed ahead of ISDS review.

3 The purpose of the Mission is to assess (a) whether the land was acquired in accordance with the Chinese laws and regulations, and (b) whether any of the persons whose land was acquired have been subjected to adverse economic impacts as a result of the acquisition.

4 Minhe is located in kilometers Southwest of Penglai City. The location of the Farm is a mountain ridge with 4 km long and about 300 m wide The land occupation took place in 2002 and affected 11 administrative villages in 3 town(ship)s. Totally, 1300 mu (lha=15 mu) of land was occupied. Out of the 1300 mu of land, 1000 mu was cultivated land. Detailed information about land acquisition area is showing below table. As the location of the occupied land is in the ridge of the mountain and this reDon is lack of water resources, the land quality was poor. Villagers the mission interviewed in Qujia Village told the mission that after Minhe land acquisition, they still have 300 mu of cultivated land including 70 mu of irrigation land located in lower altitude. Last year, only 20 mu of the 300 mu cultivated land harvested some grain and remained land harvested nothing because of drought weather.

Land Acquisition Procedure

Village Name

Qugou

Wujia

Shangwei

Nvfeng

Shangkougaojia

Qianhan

Wanglia

Houhan

Miaogou

Shijiagou -

Zongjiagou

Total

5 The investment project proposal was prepared by Minhe in early of 1999 and was approved by Shandong DPC (Development and Plan Committee) in Dec 14th 2001 (see attached document of "Lujinongjing [2001] 1393"). Penglai County Government assigned Magezhuang Town in Penglai Development Zone to be the location of the proposed project. During the preparation of land acquisition in Magezhuang Town in 2000-2001, Minhe delivered land acquisition deposit of RMB200,OOO to related villages in Magezhuang area and completed land scoping and inventory survey. However, Penglai County Government changed their mind and requested Minhe to swap to

Land Acquisition Area (mu) required of 11 Villages

Total Land Area

435.97

37.7

302.08

65.68

7.59

288.58

55.1

49.91

3.64

45.19

7.93

1299.37

Cultivated land

376.35

34.93

252.7 1

4 1.25

6.13 1

171.19

42.73

44.68

40.9

6.38

1017.25

Land

Forest Land

3.26

3.64

6.9

Acquisited (mu)

Other Land

56.36

2.77

49.37

24.43

1.46

117.39

12.37

5.23

0

4.29

1.55

275.22

another land for the proposed project. On April 4th, 2002, Penglai Planning and Construction Bureau issued the Site Selection Paper (see attachment) and confirmed the new site (bordering area amount 3 towns, Beigou, Zijingshan and Nanwang) for the proposed project of Minhe. On July 6th, 2002, Shandong DPC approved the new Feasibility Report with Document of "Lujinongjing[2002]718" (see attachment). All approval documents mentioned that the construction of the proposed project should be completed within 1 year.

6 The land acquisition in new site was happened in early of 2002 which is also the period that the central government ceased its land acquisition approval with the exception of land occupation for emergency and very important projects. To minimize the negative effects of its decision change and avoid the delay of the proposed project, Penglai County Government agreed that Minhe could start the construction while the County Government doing the land acquisition application. In 2004, Shandong Provincial Government formally approved the land acquisition for proposed project of Minhe with Document of "Luzheng[2004]700"and Document "Luzheng [2004]702". Mr. Chen, deputy director of Penglai County Land Bureau, showed the Documents to the mission in his office but refused to provide a copy since those documents cover many land acquisition information for other projects. To get the approval of land acquisition, Minhe was fined for RMB 1 million to government.

7 It can be concluded that both the construction and the land acquisition of the proposed project of Minhe have been legal authorized by Shandong Provincial Government and other related departments.

Compensation

8 According to the Land Law, compensation for requisitioned cultivated land shall include compensation for land, resettlement subsidies and attachments and young crops on the requisitioned land. In the Land Law, the sum of compensation for land and resettlement subsidies must be above 10 times of the average annual output value (AAOV) of the requisitioned land for three years preceding such requisition. In Penglai, the sum of compensation for land and resettlement subsidies must be 12 times ( 7 times f i r compensation for land and 5 times for resettlement subsidies) of the AAOV and the AAOV for cultivated land is no less than RMB 600 per mu whatever the quality of the cultivated land would be. The AAOV for the cultivated land acquired by the proposed project of Minhe is RMB 600 per mu according to the poor quality of the land . By calculating, the compensation rate for cultivated land should be above RMB 7,500 per mu (RMB 4,200 for compensation for land, RMB 3,000 for resettlement subsidies and RMB 300 for young crop).

9 The Implementation Regulation of Land Law stipulates that the compensation for land belongs to the Rural Collective Economic Organization (Administrative Village or Villager TeamIGroup. In this region, it means administrative village), and the resettlement subsidies belongs to who is responsible for the employment or production rehabilitation, and the compensation for young crop belongs to who owned the crop. Also in the same regulation, it says that the county and town governments should strengthen monitoring to the using of land compensation.

10 The land acquisition compensation for the proposed project of Minhe was divided into two parts in accordance with Minhe's introduction. The compensation rates were RMB 8,000 for cultivated land and RMB 5,000 for forest land and RMB 2,000 for waste land. The first part is the sum of resettlement subsidies and young crop compensation. For this part, the compensation rates were: RMB 3,500 per mu for cultivated land, RMB 2,000 per mu for forest land and RMB 1,000 per mu for waste land. Based on these rates, all compensation had been passed to individual villagers through villages in 2002. During the survey, it has been confirmed that most of villages re-allocated their remained land among villagers after Minhe's land acquisition. Another part of land acquisition compensation is the compensation for land (RMB 4,500 per mu). That part was used to build two highways (6.876 krn in length) in 2004 under the endorsement of 7 villages (see attached agreement

between Minhe and villages). In the case that the total compensation for land acquisition is not enough to cover the cost of two highways fully, Minhe contributed RMB 2.68 million to make up the investment gap. The agreements between Mlnhe and villages shows in attached.. The land compensation rate for construction of highway is RMB 7,800 and paid by Minhe directly.

11 Additionally, to satisfy specific demand of different villages, Minhe provided additionally fund to pave in-village road with cement in Qugou Village, Shangwei Village and Qianhan Village and construct water supplying system in Qugou Village, Wujia Village and Qianhan Village. Minhe is planning to construct water supplying system in Shangwei Village which will cost about RMB 150,000.

12 Additionally, Minhe paid more than RMB 20 million to Penglai Government as taxes and fees including Land Assignment Charge.

13 Based on Chinese Land Law and its Implementation Regulation, Shangdong Implementing regulation of Land Law and customary performed, the land acquisition implementation in Minhe project is acceptable and the compensation rates meet the basic standard of Land Law and Regulations.

14 The issues of Minhe land acquisition implementation are insufficient of information opening, informed participation and consulting fully in advance. These are popular issues in China and very often happened even in Bank financed projects.

Land redistribution

15 In Shangwei Village, Qugou Village and Qianhan Village, the remained land was re-allocated and the received resettlement subsidies were distributed averagely among all villagers, which are confinned by the mission during the on-site interview. According to some villagers' introduction, another kind of common practice after land acquisition is that the land re-allocation was conducted among villagers who lost land and the resettlement subsidies fund was kept by village level for public use, for examples, public electricity charge, public water supplying charge, wage of administrative village committee members, etc.

Economical Impacts

16 On-site interview shows that major income source of local villagers is non-agriculture activities, for example, worlung opportunities in cities and Minhe. The impact of land losing is not apparent. People interviewed said that their livelihood including income is certainly better than 2002. Firstly the livelihood improvement owes to the social economic rapid development of whole country., and secondly, during Minhe construction and initial operation, Minhe provides many employment opportunities to those villages, and the third, with Minhe's support, their communication condition and in-village road have been improved.

17 Minhe provided employment opportunities during construction and operation. According to Minhe's information, Minhe has absorbed 172 persons as employee and during the construction, many villagers benefited from the civil work construction. Below table shows the population in each village, Minhe hired employees in each village and temporary employment provided by Minhe to some villages. People the mission interviewed are satisfying of the employment opportunities raised by the construction and operation of Minhe.

Population and Employment of Each Villages

People interviewed during in Mlnhe

Minhe Animal Husbandry Company:

Mr. Sun, President, General Manager

Mr. Qu Hongbo, General Deputy Manager

Ms. Dong

Village Name

Qugou

Wujia

Shangwei

Nvfeng

Shangkougaojia

Qianhan

Wangjia

Houhan

Miaogou

S hijiagou

Zong) iagou

Total

Total

Population

(person)

200

300

400

400

780

200

330

260

160

480

50

Employed

in Minhe

(person)

20

3 0

15

10

10

20

20

25

10

10

2

172

Temporary .

Representative

villager name

WangChunpin

Wei Fuan

Sun Jingye

Shi Zhilai

employment

Number

of

temporary

employee

(perso"

5 0

20

40

80

30

Payment to

temporary

employees since

2004 (RMB

1,000)

883.4

210

823

3 84

- - 135

Mr. Nvwei

Penglai County Land Management Bureau

Mr. Chen, Deputy Director

Beigou Town Government

Mr. Yu, Deputy Head

Qujiagou Administrative Village

Mr. Qu, Village Leader

Qu Decun's Wife, Villager in Qugou Village

Qu Donglie and His Wife, Villagers in Qugou Village

Miaogou Administrative Village

Ms. Nv, SEC of Communist Party Branch in Miaogou

Qianhan Administrative Village

Mr. Han, Village Leader

Mr. Han Mingxin, Villager in Qianhan Village

Shangwei Administrative Village

Mr. Wei Shutong, Deputy Village Leader

Annex 5: Supplemental clarifications from Mr. Heping after submission

Q1 (Team). The report says "To minimize the negative effects of its decision change and avoid the delay of the proposed project, Penglai County Government agreed that Minhe could start the construction while the County Government doing the land acquisition application. In 2004, Shandong Provincial Government formally approved the land acquisition for proposed project of Minhe ... To get the approval of land acquisition, Minhe was fined for RMB 1 million to government (para 9." Does this mean that the procedure was not in compliance with the law but it has been redressed by paying the fine?

A1 (Mr. Heping). Yes. Its procedure of Project Construction was following related laws and regulations but the procedure of land acquisition was not in compliance with the Land Law in the begnning but it has been redressed in 2004. That is why they was fined and got the land acquisition approval.

Q2. On compensation, the report is very clear on cultivated land, but not clears enough as to whether the compensation rates for forest land and waste land meet the requirements since the applicable criteria for those land categories are not given.

A2. According to Shandong Implementation Regulation to Land Law, compensation for requisitioned forest land includes compensation for forest land, resettlement subsidies and compensation for tree. The compensation for forest land shall be 5-6 times AAOV of closed cultivated land; The resettlement subsidies f i r forest land) of one agricultural population needing to be resettled shall be 4 times AAOV of closed cultivated land ror I mu of forest land, the resettlement subsidies=(4/per capita owned cultivated land in their village)); The compensation for tree shall compensated based on the tree's value. Compensation for requisitioned waste land shall be 3 time AAOV of closed cultivated land. By calculating, in Penglai County, the compensation for requisitioned forest land shall be above RMB4,800 per mu (5*RMB 600 for compensation for forest land and 2* RMB 600 for resettlement subsidies and RMB 600 for trees) and the compensation for requisitioned waste land shall be above RMB 1,800per mu.

The implemented compensation rates for forest land and waste land are higher than the Regulation requested.

Q3. The report says "The issues of Minhe land acquisition implementation are insuflcient of information opening, informed participation and consulting fully in advance. These are popular issues in China and very often happened even in Bank financed projects (para 8)." Does this indicate a violation of Chinese requirements or not?

A3. We can say that it was not fully following the Chinese requirements but we can't include that it violated the Chinese requirements.

Q4. It was not clear for me on the meaning of "According to some villagers ' introduction, another kind of common practice after land acquisition is that the land re-allocation was conducted among villagers who lost land and the resettlement subsidies fund was kept by village level for public use (para 9)."

A4. In other villages (except Shangwei, Qugou, Qianhan), as the acquired cultivated land was small, they only distributed cultivated land to villagers who lost land and the resettlement subsidies fund was held by each village for village public use, like public electricity charge, public water supplying charge, wage of administrative village committee members, etc.

Q5. The list of people interviewed includes 7 village leaders and families, which is less than we expected in the TOR (35 households). What was the reason he could only interview with 7 leaders and families?

A5. One reason is the time is not enough and the second reason is the way of interview the mission selected. Thirdly, the land acquisition was already completed years ago thus Minhe doesn't want to re- discuss the land acquisition aflairs again. When we discussed the schedules with Minhe we arrived, Minhe had an idea to hold a meeting with all 35 villagers together or in several groups. The mission refused Minhe's initial suggestion and insisted on independent interviewing individual both village leader in their village and villagers in their houses respectively. And, people are busy and no one was waiting home for our interview. We have to wait for them when we were in the village.

Q6. Is there any information on the task (e) of the TOR - The consultant will collect information, making use of the opportunity of interviews and site visit, on the issues raised by the news report including complaints on odor from the chicken farm and open lagoons, and deteriorated water supply?

A6. About complaints on odor from the chicken farm and open lagoons: As the Chicken Farm is located in the top part of the mountain and v e y closed to the sea, normally, there are windy and little of bad smell. But during cloudy days, especially the low air pressure days, the smell is some strong. In one calendar year, there would have bad smell about 10 days.

Deteriorated water supply: Not only Penglai, all Jiaodong By land, are suffering water shortage. During Minhe construction, Minhe dug 4 deep wells of 50-60 m depth. That may induce deterioration of water supply around Minhe but it's different from village to village. During the interview in Miaogou village, the mission learned that Miaogou sold their water to Minhe. Minhe told the mission that the water quantity in Shangwei is suficient but the water quality is not so good since the water comes from superjicial and it's an original problem before Minhe. Minhe has improved some villages' water supply and has a plan to improve the water supply in Shangwei next year.

A n n a 6: Comments from Staffon the Consultant's Report

1. Andres Liebenthal

Dear Neeraj et al: As I said before, I believe Mr. Gong's report is basically adequate, although one could quibble about the level of detail and specificity. E.g., the report, (and the table in the draft note) suggests that compensation rates appear to have been adequate on average (i.e., RMB 7500Imu required vs. RMB 8000/mu paid for cultivated land), but there seems to have been some variation between villages. I.e., given compensation rates of RMB 3,500 per mu for cultivated land, RMB 2,000 per mu for forest land and RMB 1,000 per mu for waste land, Shangwei village, where 252.71 mu of cultivated land and 49.37 mu of waste land were taken, should have received the total compensation of CNY933,855 yuan. However, according to Cheng Zhuo's information, Shangwei village only received CNY 887,255 yuan in compensation. It would be good if Mr. Gong could c o n f m that every village received adequate compensation.

My main concern is that even if the due diligence report is adequate, there is still some reputational risk associated with the fact that: 1. there seem to have been real complaints about the resettlement disclosure and consultation procedures

and level of compensation in Shangwei village 2. the consultant was constrained from doing his due diligence in this village, and was only able to talk

to the Deputy Village leader, rather than the Village Committee Director and source of the complaint. 3. the press knows of this problem, and the affected people have contacts with the press 4. there is precedent for the Inspection Panel raising such issues, even though they would seem to fall

outside the scope of the Bank's safeguards policies. My main comment therefore is that management needs to be briefed on this reputational risk and provide appropriate guidance for the future of the project. Adding a final para on "residual risk" to the note on legacy issues would be a good way to do this. The Safeguards Secretariat should, of course, also be invited to advice, but the decision needs to be made by management. Cheers. Andres

Annex 7: Q&A with Gong Heping following comments

Q1. The report suggests that compensation rates appear to have been adequate on average (i.e., RMB 7500Imu required vs. RMB 80001mu paid for cultivated land), but there seems to have been some variation between villages. I.e., given compensation rates of RMB 3,500 per mu for cultivated land, RMB 2,000 per mu for forest land and RMB 1,000 per mu for waste land, Shangwei village, where 252.71 mu of cultivated land and 49.37 mu of waste land were taken, should have received the total compensation of CNY933,855 yuan. However, according to Cheng Zhuo's information, Shangwei village only received CNY 887,255 yuan in compensation. Please confirm if every village received adequate compensation.

A l . There are some mistakes in Chen Zhuo's information which I provided. The mistake for Shangwei compensation is that used Shangwei's cultivated land area and Wujia village's waste land (2.77 mu) area to calculate Shangwei's compensation. I found the mistake later but that time, what Cheng Zhuo wanted to express is to compare the average quota and actually received each person. I checked my notes and found that Mr. Wei Shutong, the deputy village leader of Shangwei village, told us they already received compensation CNY 960-970 thousand. Based my feeling and my experience, the compensation rates of RMB 3,500 per mu for cultivated land, RMB 2,000 per mu for forest land and RMB 1,000 per mu for waste land were fully implemented to village. What's the difference among villages is how to use the compensation b d they received.

42. There seem to have been real complaints about the resettlement disclosure and consultation procedures and level of compensation in Shangwei village. What is your professional viewljudgment on the disclosure and consultation procedures and level of compensation in Shangwei village?

A2. They implemented same compensation rates in all affected villages and never had a special compensation policy for Shangwei. To complain lower compensation is understandable in any cases. What I can do in Penlai is to assess whether the compensation rate is acceptable (above the baseline of the Land Law) or not (under the baseline of the Land Law). The disclosure and consultation procedures are inadequate. Taking into account the background of the land acquisition implementation, I can conclude that the inadequacy of disclosure and consultation procedures is one of the widespread issues in land acquisition in China that time.

Q3. We are wondering if you might be constrained from doing your due diligence in Shangwei village, and only be able to talk to the Deputy Village leader, rather than the Village Committee Director and source of the complaint. What is your judgment on the adequacy of the survey methodology?

A3. Shangwei must have their owned story distinguished from other villages. As a Bank's consultant but not a reporter, my site visit must be agreed, supported and cooperated by the opposite part-Minhe. Insufficient i n t e ~ e w in Shangwei, I can't describe the real story in Shangwei. But, other villages' interview, talking to the deputy village leader convinced me that they must implement the same compensation rates in all affected villages. The difference among villages should be how to use the land acquisition fund.

Land Compensation includes 3 parts, compensation for land, resettlement subsidies, and compensation for young crop. According to the Implementation Regulation of Land Law, the compensation belongs to Village Collective Organization, and the young crop belongs to its owner, and the resettlement subsidies belong to whom taking the resettlement responsibility. The compensation for land must be used in activities for livelihood restoration of collective members and doesn't allow to be allocated to individuals. The regulation on how to use the compensation for land was changed after 2004, when the central government issued a new regulation (Document No.[2004] 28, state counci1,Decision To Deepen Reform And Strict Manage on Land).

Annex 8: Record of Discussions on Legacy Issues in a Preparation Mission

1. As discussed with and proceeding on the guidance of the regional Safeguards Coordinator, the mission focused on three aspects of the legacy issue relating to the acquisition of land for the Shandong Minhe company in 2002.

a. Was acquisition of land for the project legally authorized by the Shandong Provincial Government and other related authorities?

b. Was the compensation paid to every village (including Shangwei) adequate, and are there any pending legal cases relating to when land was acquired for the company in 2002? and

c. Is there any evidence of adverse impacts on the living standards of families affected by the acquisition of land for the farm?

A. Village Representatives

2. The mission met with representatives of four villages (Quguo, Wujia, Shangwei, Qianhan) to discuss (b) and (c) above. These villages account for 82% of all the land acquired for the poultry farm

3. All villages confirmed that they have received adequate compensation for the land acquired in 2002. As most of the land given up consisted of mountainous areas and rocky land, laclung in irrigation system coverage, the villagers indicated that these were not considered productive. They therefore believed that the compensation they received was acceptable. It was also confirmed in the village meetings that were held at that time that villagers were satisfied with the compensation arrangements.

4. The villagers also said they did not feel any adverse impacts on the living standards of families affected by the acquisition of land for the farm, because 1) land redistribution had been conducted in these villages by the village committees; 2) the compensation provided was reasonable; 3) most of the households did not rely on farming for a living in the first place; 4) some villagers were employed in the Minhe company as regular or temporary employees; and 5) Minhe has also helped the local development through their CSR programs.

The Villagers also indicated they did not know of any existing complaints or legal cases related to the land acquisition practices by the project.

B. Penglai Land Bureau

5. The task team (Prasad, Ono and Zeng) called on the Penglai Land Bureau (PLB) and held a detailed discussion with Mr. Chen, Deputy Director, on the legacy issue relating to the acquisition of land for the Shandong Minhe company in 2002, with focus on (a) and (b) above.

6. Mr. Chen advised the task team that the entire Minhe poultry project is compliant with the national industrial policy, and was accordingly approved by the NDRC (not by provincial bodies) in 2002. However, NDRC is not involved with land acquisition issues and accordingly did not approve any land allocation for the project. However, Minhe went ahead and entered into private contracts with the concerned villages to obtain land (1299.37 mu) and commence implementation of its poultry farm. At this time, in the absence of authorization from the PLB and Shandong Provincial Government, the project activity was illegal.

However, this situation was not unique to Minhe, and there were several companies involved in similar irregular practices in Penglai City and all over China. Consequently, the State Council undertook a campaign between 2002 and 2004 to resolve the situation, and in 2004 the Penglai city Government applied to the Shandong Provincial government to regularize all such cases in the city. In 2004, the Provincial government formally approved acquisition of land for all such cases via its orders no. "Lu Zheng" 700 and 702 of 2004 (copies of the orders were provided to the mission on request). Following these orders, PLB confirmed that the land used by Minhe has been formally acquired by the government and then leased to Minhe, and the process is therefore now fully compliant with government procedure. The Minhe Company was fined an amount of RMB 1 million for the earlier illegality, which it has paid.

8. The mission also queried PLB on the extent of public consultation and disclosure carried out in 2004, at the time of the acquisition.

9. PLB indicated that the process from 2002-04 being private, there was no question of disclosure at that time. In the regularization process in 2004, PLB did not request Minhe and all other companies involved in similar cases to conduct public consultation and information disclosure because the lands had already been acquired through private transactions. It is PLB's opinion that, had there been any disputes over ownership of the land, they would have emerged in 2002 during the private transaction itself. In 2004, PLB caused a land survey of the area to be acquired and confirmed the area to be acquired and the affected persons with each village committee, and provided documentation regarding

the acquisition to each village. They have therefore formally confirmed ownership of the land to be acquired before the cases were regularized.

10. The mission also enquired whether there were any pending legal cases or disputes or complaints relating to the acquisition of land for Minhe, and whether there is any possibility of such complaints being raised in future.

11. PLB confirmed that at present there are no such cases, In 2004-05, there were some complaints by a few villagers, which were addressed by Minhe via CSR (corporate social responsibility) programs (roads, water wells, employment opportunities) which have addressed these concerns successfully. There is not a statute of limitations to prevent such cases from being raised in future, but the land in question is now state-owned land, and any complaint will be handled by the state, primarily advising persons of the situation but including investigation if necessary. PLB does not see that any disputes can arise now. There is no role for the PLB to monitor distribution of compensation within a village, that being a decision within the jurisdiction of the village committee. To forestall the possibility of disagreements on sharing of compensation within a village, advisory support fiom the Agriculture Bureau are available, and further the village bank accounts are supervised by Township Government, so that expenditure is subject to review for validity.

12. Finally the mission enquired if there were any issues relating to the level of compensation.

13. PLB informed that the level of compensation paid to Penglai villagers was at the average level for industrial land compensation, which is higher than infrastructure project averages. However, the additional CSR inputs provided by Minhe would make the total compensation package higher, as it is not the norm for companies to provide such inputs, and there is no Government requirement to do so. PLB also advised that it saw no other issues associated with the land acquisition of Minhe which might cause reputational risks.

Annex 5: Documents in the Project File


Community Development Plan for Community Development Carbon Fund, August 2007

Environmental Impact Assessment Report for Shandong Minhe, August 2007

Feasibility Study of Minhe Poultry Manure-to- Biogas Project, August 2007

Post-Evaluation Report for Legacy Issues Relating to Acquisition of Land for the Project, May 2007

Project Technical Review Jrargen Boldt, Lars Ellegaard, and Soren Tafdrup, November 2007

Supplemental Environmental Impact Assessment Report for Shandong Minhe, August 2007

Annex 6: Statement of Loans and Credits


Project ID

PO93963

PO865 15

PO88964

PO8 1776

PO91020

PO92618

PO83322

PO77752

PO953 15

PO96285

PO75613

PO84742

PO81348

PO81255

PO75732

PO85124

PO85333

PO86629

PO93906

PO96158

PO99992

PO7051 9

PO57933

PO86505

PO67828

PO68752

PO69862

PO81346

PO81161

PO7 1094

PO75730

PO65035

PO73002

PO65463

Purpose

CN-Guiyang Transport

CN-3rd National Railway

CN-Guangxi Integrated Forestry Dev

CN-GUANGDONGIPRDZ

CN-Fujian Highway Sector Investment

CN-LIAONMG MED CITIES INFRAS 2

CN-SICHUAN URBAN DEV

CN-SHANDONG ENVMT 2

CN-W. Region Rural Water & Sanitation

CN-MSE Finance

CN-Shaanxi Ankang Road Development

CN-MIL I11

CN-HEN AN TOWNS WATER

CN-Changjiangmearl River Watershed Reha

CN-SHANGHAI URBAN APL2

CN-Ecnomic Reform Implementation

CN-5th Inland Waterways

CN-Heilongjiang Dairy

CN-3rd Jiangxi Hwy

CN-Renewable Energy I1 (CRESP 11)

CN-Liaoning Medium Cities lnfrasaucture

CN-Fuzhou Nantai Island Peri-Urban Dev

CN-TAI BASIN URBAN ENVMT

CN-NINGBO WATER & ENVMT

CN-Renewable Energy Scale-up Program

CN-Inner Mongolia Highway & Trade Comd

CN - Agricultural Technology Transfer

CN-LIUZHOU ENVIRONMENT MGMT

CNCHONGQING SMALL CITIES

CN - Poor Rural Communities Development

CN-HUNAN URBAN DEV

CN-Gansu & Xinjiang Pastoral Development

CN-Basic Education in Westem Areas

CN-Jiangxi Integrated Agnc. Modem.

Original Amount in US$ Millions

IBRD IDA SF GEF

100.00 0.00 0.00 0.00

200.00 0.00 0.00 0.00

100.00 0.00 0.00 0.00

96.00 0.00 0.00 0.00

320.00 0.00 0.00 0.00

173.00 0.00 0.00 0.00

180.00 0.00 0.00 0.00

147.00 0.00 0.00 0.00

25.00 0.00 0.00 0.00

100.00 0.00 0.00 0.00

300.00 0.00 0.00 0.00

200.00 0.00 0.00 0.00

150.00 0.00 0.00 0.00

100.00 0.00 0.00 0.00

Cancel.

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

10.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Undisb.

100.00

200.00

76.11

96.00

320.00

173.00

170.70

118.81

25.00

100.00

290.00

106.86

139.63

95.61

144.90

18.44

62.16

91.76

140.31

7 1.95

175.65

98.25

29.77

85.89

2.40

28.66

70.38

55.04

144.82

72.21

155.62

16.93

31.32

51.18

Difference between expected and actual

disbursements

Orig. Frm. Rev'd

0.00 0.00

18.67 0.00

-2 1.39 0.00

5.67 0.00

43.50 0.00

0.00 0.00

28.54 0.00

-22.36 0.00

0.00 0.00

100.00 0.00

7.39 0.00

6.09 0.00

14.63 0.00

17.27 0.00

CN-ZHEJIANG URBAN ENVMT

CN-4th Inland Waterways

CN-GUANGWNGPRD UR ENVMT

CN-Wuhan Urban Transport

CN-Hubei Shiman Highway

CN-3rd Xinjiang Hwy Project

CN-TIANJIN URB DEV I1

CN-2nd Anhui Hwy

CN-SHANGHAI URB ENVMT APLl

CN-Yixing Pumped Storage Project

CN-Tuberculosis Control Project

CN-Hubei Hydropower Dev in Poor Areas

CN-Sustainable Forestry Development

CN-Inner Mongolia Hwy Project

CN-Shijiazhuang Urban Transport

CN-LIAO RIVER BASIN

CN-HUAI RIVER POLLUTION CONTROL

CN-Yangtze Dike Strengthening

CN-BEUING ENVIRONMENT I1

CN-CHONGQING URBAN ENVMT

CN-HEBEI URBAN ENVIRONMENT

CN-Health IX

CN-Tec Coop Credit N

CN-Accounting Reform & Development

Ertan I1 Hydroelectric Project

Total: 8,203.40 90.60 0.00 25.00 75.50 4,561.03 1,276.19 94.42

CHINA STATEMENT OF IFC's

Held and Disbursed Portfolio In Millions of US Dollars

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Part~c. Loan Equity Quas: Partic.

2 002 ASIMCO 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00

2006 ASIMCO 0.00 0.00 4.12 0 .OO 0.00 0.00 3.61 0.00

2005 BCCB 0.00 59.21 0.00 0.00 0.00 59.03 0.00 0.00

2006 BUFH 8.14 0.00 0.00 0.00 8.14 0.00 0.00 0.00

2005 Babei 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00

Babei Necktie 11.00 0.00 0.00 6.00 8.94 0.00 0.00 4.88 1999 Bank of Shanghai 0.00 21.76 0.00 0.00 0.00 21.76 0.00 0.00

2000 Bank of Shanghai 0.00 3.84 0.00 0.00 0.00 3.84 0.00 0.00 2002 Bank of Shanghai 0.00 24.67 0.00 0.00 0.00 24.67 0.00 0.00

CDH China Fund

CDH China I1

CDH Venture

CT Holdings

CUNA Mutual

Capital Today

Changyu Group

Chengdu Huarong

China Green Ener

China Re Life

China Walden Mgt

Chinasoft

Colony China

Colony China GP

Conch

Dagang Newspring

Darong

Deqingyuan

Dynamic Fund

Epure

Fenglin

Fenglin HJ MDF

Five Star

GDIH

Great Infotech

Hangzhou RCB

HiSoft Tech

HiSoft Tech

1B

Jiangxi Chenming

Launch Tech

Maanshan Carbon

Maanshan Carbon

Minsheng

Minsheng & El

Minsheng Bank

Minsheng Bank

NCCB

Nanjing Kumho

Nanjing Kumho

Neophotonics

New China Life

New Hope

Newbridge Inv.

North Andre

PSAM

RAK China

Renaissance Sec

Rongde

SAC HK Holding 0.00 1.60 0.00 0.00 0.00 1 .OO 0.00 0.00

2003 SAIC 12.00 0.00 0.00 0.00 12.00 0.00 0.00 0.00

2006 SBCVC 0.00 20.00 0.00 0.00 0.00 2.00 0.00 0.00

2000 SEAF SSIF 0.00 3.74 0.00 0.00 0.00 3.37 0.00 0.00

SH Keji IT 3.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2004 SHCT 38.18 0.00 0.00 28.64 29.04 0.00 0.00 21.78

2004 SIBFI 0.14 0.07 0.00 0.00 0.00 0.07 0.00 0.00

1998 Shanghai Krupp 19.25 0.00 0.00 36.75 19.25 0.00 0.00 36.75

2006 Shanshui Group 50.00 5.50 2.20 0.00 50.00 5.50 0.00 0.00

1999 Shanxi 12.61 0.00 0.00 0.00 12.61 0.00 0.00 0 .OO

SinoSpring 0.00 0.00 20.00 0.00 0.00 0.00 0.00 0.00

Stora Enso 20.83 0.00 0.00 . 4.17 11.00 0.00 0.00 0.00

2005 Stora Enso 29.17 0.00 0.00 20.83 0.00 0.00 0.00 0.00

2006 Stora Enso 50.00 0.00 0.00 175.00 0.00 0.00 0.00 0.00

2006 TBK 4.00 0.00 0.00 0.00 2.00 0.00 0.00 0.00

2006 VeriSilicon 0.00 1 .OO 0.00 0.00 0.00 1 .OO 0.00 0.00

Wanjie High-Tech 9.89 0.00 0.00 0.00 9.89 0.00 0.00 0.00

2004 Wumart 0.00 1.62 0 .OO 0.00 0.00 1.62 0.00 0.00

2003 XACB 0.00 17.95 0.00 0.00 0.00 0.64 0.00 0.00

2004 Xinao Gas 25.00 10.00 0.00 0.00 25.00 10.00 0.00 0 .OO

2006 Zhejiang Glass 50.00 24.96 0.00 18.00 0.00 0.00 0.00 0.00

2003 Zhengye-ADC 10.43 0.00 0.00 4.87 10.43 0.00 0.00 4.87

2002 Zhong Chen 0.00 4.78 0.00 0.00 0 .OO 4.78 0.00 0.00

2006 Zhongda-Yanjin 21.89 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total portfolio: 733.58 577.30 181.40 340.89 470.95 371.06 29.61 108.03

ADDrovais Pendine Commitment

FY Approval Company Loan Equity Quasi Partic. -

2002 SML 0.00 0.00 0.00 0.00

2004 NCFL

2007 Xinao CTC

2004 China Green 0.00 0.00 0.01 0.00

2006 Launch Tech 0.01 0.00 0.00 0.00

2005 MS Shipping 0.00 0.01 0.00 0.00

2003 Peak Pacific 2 0.00 0.01 0 .OO 0.00 - Total pending commitment: 0.05 0.03 0.03 0.14

Annex 7: Country at a Glance


POVERTY and SOCIAL C hlna

ZOO6 Population, mibyear (millions) 13118 GNIper capita (Allas mefhod, US$) 2.000 GNl (A tlas melhod, US$ billions) 2,623 6

Average annual growth. 2000.06

Population (S6) 0.6 Labor force (?44 10

M o s t recent sstlrnate (latest year avallable, 2000-06)

Poverty (Kolwpulelion bslownal~nslpoveflyline) M a n papulation (%of lolelpopulaflon) 4 1 Life emectancyat binh (pars) 72 Infant mortality(per lOWlive bMhs) 23 Child malnutrilion (%of children underf) 8 Access lo an improved ~ ~ l e r s o u r c e (%ofpopulalion) 77 Literacy (%ofpopulelion age S+) 91 Gmss pnmaryenroliment (%ofschoo~agepopulalion) It3

Male m Female m

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1986 1996

GDP (US5 bllllons) 295.7 856.1

Gross capital formatiow'GDP 38.6 40.4 Eqmrts of goods and sew~ceslGDP 118 20.1 Gross domestic sav~ngsIGDP 35.8 42.5 Gross m t b ~ l sau~ngslMP 35.9 413

Current account balancdGDP -2.8 08 h temt paymenis1GDP 0.2 0.5 Tolal debtlGDP 8.0 6.0 Total debt servicdexpons 8 2 8.7 Present vaiueof debt/GDP Present valueof debtlemons

1966-98 1096-06 ZOOS (sverrgeannuel gronth) GDP 0.1 9.0 0.4 GDP per capita 8.6 8.2 9.7 Eqlorts of goods and se~ l ces 0 0 218 24.3

East Lower. tr,";: Development dlamond. 1

ZOOS 2006

22439 2.644 7

439 446 373 401 494 525 510 54 1

72 9 4 0 1

P 6 3 0 Q3

306

ZOO6 2006-M

GN I per &-

captta

Life ewectancy

Gross w a r y

enrollment

Access to improved watersource I

1 Trade

Dornestlc , Capital savlngs

I fomnat~on

I Indebtedness

STRUCTURE of the ECONOMY

0.7 0.6 0 1 9.9

-China

Lo ~sr-middleincome group 23.3 0.4 I

(%of GDP) Agriculture Industry

M anufactunng Services

Householdfmal consumpllon eapenditure Generalgov't final consumption ewndlture Imports of goods and serfices

(average annual gm Mh) Agnculture Industry

M anufactumg Services

Household final consumption empend~ture General gov'l final consumption emendlture Gross capital formallon Imports of goods and senices

Nole2006 data are prellrnirary estimates. This tablevas pmducedfrom the Development Economics LDB database

'The diamonds showfour keylndicators in the countrf(in bold) compared withits incomegmup average. If data are missing, the diamond Hill

China

PRICES and GOVERNM ENT FINANCE

Oomesf ic pr ices (%change) Consumer prices Implicit GDP deflator

Government finance (%of GDP, includes cumnt grants) Current revenue Current budget balance Overall surplusldeficit

TRADE ZOOS 2006 / ~ x ~ o r t and Import lov.ls (US$ mlll.) 1

(US$ millions) Total emports (fob)

Food M inerai fuels. lubricants. and related material: Manufactures

Total imports (of) Food Fuel and energy Capital goods

Export pnce Index (ZoOO=ao) Import pnce index(2000=00) T e n s of trade (2000=00)

BALANCE of P A Y M E N T S 1988

(US$ millin nsJ Ekvorls of goods and serv~ces 34.952 Imports of goods andsewices 43.453 Resource balance -8.501

Net Income Net current transfers

Current account balance -8,Y6

Financing items (net) Changes in net reserves

Memo: Reserves including gold (US$ millrons) Conversion rate (DEC, local/US$) 3.5

EXTERNAL DEBT and RESOURCE FLOWS lS88

(US$ millmns) Total debt outslanding and disbursed 23,78

IBRD 965 IDA 774

Total debt service BRD IDA

Cornpositionof net resourceflova Official grants 155 Gfficial creditors 1155 Private credilors 3,693 Foreign drect investment (net inflows) 1875 Portfolio equny (net inflows) 0

Wolrd Bank program Comrnitrnenls Disbursements Principal repeyments Net flows Interest paments Net transfers

2006 l ~ u l r s n t account balance to GDP (%) 1

2005 Composlt lon of 2005 debt (US$ mlll.)

2816P

Note: This tablewas producedfrom IheDevelopment Economics LDB database. 9128/07

H u a n g H a i

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PROVINCE CAPITAL

- - - - COUNTY (XIAN] BOUNDARIES - PREFECTURE BOUNDARIES

--- PROWNCE BOUNDARIES

0 2 0 4 0 6 0 8 0 1 0 0 - KILOMETERS

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