The World Bank FOR OFFICIAL USE ONLY · Project Agreement. EXIM Bank shall maintain a project team with adequate staff and resources and apply the Operational Manual, satisfactory

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 64561-CN

PROJECT PAPER

ON A

PROPOSED ADDITIONAL LOAN

IN THE AMOUNT OF US$100 MILLION

TO THE

PEOPLE’S REPUBLIC OF CHINA

FOR AN

ENERGY EFFICIENCY FINANCING PROJECT

September 28, 2011

China and Mongolia Sustainable Development Unit

Sustainable Development Department

East Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in the

performance of their official duties. Its contents may not otherwise be disclosed without World

Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective September 8, 2011)

Currency Unit = RMB Yuan

RMB Yuan 1.00 = US$0.16

US$ = RMB Yuan 6.39

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AF Additional Financing HVAC Heating, Ventilation, Air conditioning

CHEEF China Energy Efficiency Financing

Project

IBRD International Bank for Reconstruction and

Development

CO2 Carbon dioxide ICB International Competitive Bidding

EAF Environmental Assessment Framework IDP Institutional Development Plan

EE Energy Efficiency IFR Interim Financial Report

EIA Environmental Impact Assessment MOF Ministry of Finance

EIRR Economic Internal Rate of Return NDRC National Development and Reform

Commission

EMC Energy Management Company NECC National Energy Conservation Center

EMP Environmental Management Plan OM Operational Manual

ESCO Energy Service Company OP Operational Policies

EXIM Export-Import Bank of China O&M Operation and Maintenance

FI Financial Intermediary PCN Project Concept Note

FIL Financial Intermediary Lending PDO Project Development Objective

FIRR Financial Internal Rate of Return PFI Participating Financial Institution

FM Financial Management PMO Project Management Office

FYP Five-Year Plan PSC Project Steering Committee

GDP Gross Domestic Product RPF Resettlement Policy Framework

GEF Global Environment Facility SME Small- and Medium-Sized Enterprises

GHG Greenhouse gas TA Technical Assistance

GOC Government of China tce Tons of Coal Equivalent

Vice President: James W. Adams

Country Director: Klaus Rohland

Sector Managers: Ede Jorge Ijjasz-Vasquez and

Vijay Jagannathan

Task Team Leader: Xiaodong Wang

COUNTRY

PROJECT NAME

CONTENTS

Project Paper Data Sheet

Project Paper

I. Introduction ..............................................................................................................1

II. Background and Rationale for Additional Financing ..............................................1

III. Proposed Changes ....................................................................................................3

IV. Appraisal Summary .................................................................................................5

Annex 1: Results Framework and Monitoring.................................................................8

Annex 2: Operational Risk Assessment Framework (ORAF) .......................................14

COUNTRY

PROJECT NAME

ADDITIONAL FINANCING DATA SHEET

Basic Information - Additional Financing (AF)

Country Director: Klaus Rohland

Sector Managers: Ede Jorge Ijjasz-

Vasquez/ Vijay Jagannathan

Team Leader: Xiaodong Wang

Project ID: P123239

Expected Effectiveness Date: January

31, 2012

Lending Instrument: Financial

Intermediary Loan

Additional Financing Type: Financial

Intermediary Loan

Sectors: District heating and energy

efficiency services (90%); Banking

(10%)

Themes: Climate change (P)

Environmental category: Financial

Intermediary Assessment

Expected Closing Date: December 31,

2016

Joint IFC:

Joint Level:

Basic Information - Original Project

Project ID: P084874 Environmental category: Financial

Intermediary Assessment

Project Name: Energy Efficiency

Financing Project

Expected Closing Date: December 31,

2013

Lending Instrument: Financial

Intermediary Loan

Joint IFC:

Joint Level:

AF Project Financing Data

[X ] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:

Proposed terms: Fixed-spread loan, recovered over a period of 18 years, inclusive of a

grade period of five years.

AF Financing Plan (US$m)

Source Total Amount (US $m)

Total Project Cost:

Co-financing from sub-borrowers:

Borrower:

Total Bank Financing:

IBRD

New

Recommitted

428

128

200

100

Client Information

Recipient: The People’s Republic of China

Responsible Agency: The Export-Import Bank of China (EXIM)

Contact Person: Mr. Zhou Anyue, Director General, On-lending Department

Telephone No.:86-10-8357 8536

Fax No.: 86-10-8357 8568

Email: [email protected]

mailto:[email protected]

AF Estimated Disbursements (Bank FY/US$m)

FY 2012 2013 2014 2015 2016 2017

Annual 5 20 30 30 10 5

Cumulative 5 25 55 85 95 100

Project Development Objective and Description

Original project development objective:

Improve energy efficiency of medium and large-sized industrial enterprises in China, and

thereby reduce their adverse environmental impacts on climate.

Revised project development objective [if applicable]

Improve energy efficiency of selected energy end-users in key energy-consuming

sectors, thereby reducing their adverse environmental impacts on climate.

Project description [one-sentence summary of each component]:

Component A: Energy Efficiency Investment Sub-loans to Beneficiaries.

Component B: Technical Assistance and Capacity Building.

Safeguard and Exception to Policies

Safeguard policies triggered:

Environmental Assessment (OP/BP 4.01)

Natural Habitats (OP/BP 4.04)

Forests (OP/BP 4.36)

Pest Management (OP 4.09)

Physical Cultural Resources (OP/BP 4.11)

Indigenous Peoples (OP/BP 4.10)

Involuntary Resettlement (OP/BP 4.12)

Safety of Dams (OP/BP 4.37)

Projects on International Waters (OP/BP 7.50)

Projects in Disputed Areas (OP/BP 7.60)

[X]Yes [ ] No

[ ]Yes [X] No

[ ]Yes [X] No

[ ]Yes [X] No

[ ]Yes [X] No

[ ]Yes [X] No

[X]Yes [ ] No

[ ]Yes [X] No

[ ]Yes [X] No

[ ]Yes [X] No

Does the project require any exceptions from Bank policies?

Have these been approved by Bank management?

[ ]Yes [X] No

[ ]Yes [ ] No

Conditions and Legal Covenants:

Financing

Agreement

Reference

Description of Condition/Covenant Date Due

Section I.1 and

Section I.2.01 of the

Schedule of the

Project Agreement.

EXIM Bank shall maintain a project team with

adequate staff and resources and apply the

Operational Manual, satisfactory to the Bank.

Throughout the entire

project implementation

period.

1

I. Introduction

1. This Project Paper seeks the approval of the Executive Directors to:

a) provide an additional loan in an amount of US$100 million to the People’s Republic of

China to scale-up the Energy Efficiency Financing Project (Project ID P084874) through

EXIM Bank (Loan No. 7529-CN); and

b) fund expanded activities by broadening the group of beneficiaries through both EXIM

Bank and Huaxia Bank (Loan No. 7530–CN) under the CHEEF Project and the

Additional Financing Project. The PDO of the original Project (the CHEEF Project) is

modified to be consistent with the PDO of the Additional Financing, concurrently

seeking Board approval.

The project development objective and the project outcome indicators have been revised to

reflect these changes.

II. Background and Rationale for Additional Financing

2. Background. The development objective of the China Energy Efficiency Financing

Project (CHEEF) is to improve energy efficiency (EE) of medium and large-sized industrial

enterprises in China, and thereby reduce their adverse environmental impacts on climate. This is

to be achieved through: (a) two IBRD Loans of US$100 million each (Loan No. 7529-CN to

EXIM Bank and Loan No. 7530-CN to Huaxia Bank); and (b) a GEF Grant (TF 090719) of

US$13.5 million for technical assistance to the government and two participating banks. The

CHEEF project was approved by the Board in May 2008 and became effective in October 2008.

In June 2010 the Bank approved the CHEEF II Project of an IBRD loan of US$100 million to

Minsheng Bank, to improve the EE of selected enterprises, and thereby reduce their adverse

global environmental impacts through scaling-up commercial lending for EE investment.

3. Project Implementation Performance. The overall performance of the CHEEF Project,

including the two separate loans being implemented by EXIM Bank and Huaxia Bank, as well as

the GEF Grant, has been satisfactory. Project management, procurement, financial management,

and safeguards are all rated satisfactory. The project is playing a significant role in increasing

the participating banks’ capacity, interest, and confidence in mainstreaming the EE financing

business line.

4. Performance of EXIM Bank (Loan 7529-CN). EXIM Bank has disbursed more than

half of the allocated IBRD funds (US$57.4 million), and leveraged US$265 million (US$137

million from EXIM Bank and US$128 million from industrial enterprises). It has also exceeded

the agreed matching funds of US$100 million from its own sources. These investments are

expected to save 1.1 million tons coal equivalent (tce) of energy and reduce CO2 emissions by

2.8 million tons per year. In addition, the CHEEF Project has played a catalytic role in

leveraging additional financing for EE to EXIM Bank from KfW and EIB.

5. Performance of Huaxia Bank (Loan 7530-CN). Huaxia Bank has disbursed US$48.4

million of IBRD funds; these have leveraged US$165 million (US$62 million from Huaxia Bank

2

and US$103 million from industrial enterprises and other funding sources). These investments

are expected to save energy of 533,000 tce and reduce CO2 emissions of 1.3 million tons per

year. Huaxia Bank has developed concrete action plans for business development and for

developing new financial products for EE lending.

6. Performance of GEF Grant (TF090719). After a slow start, both components of the

GEF-financed TA are now progressing well:

The national policy support and capacity building component is supporting the

government in development and implementation of the priority EE programs for the 12th

Five-Year Plan (FYP), and building capacity for the National Energy Conservation

Center; and

The building capacity of participating banks component is assisting the participating

banks in market development and new financial products.

7. Lessons Learned from CHEEF. Experience to date of the on-going CHEEF Project

demonstrates that a dedicated EE credit line, together with TA, can contribute significantly to

increasing the capacity of participating financial institutions (PFIs) and their confidence in EE

investments through a learning-by-doing process. The TA program has been critical. However,

changing PFIs’ underwriting criteria from balance sheet financing that relies heavily on sub-

borrowers’ credit rating (favoring large-scale industrial enterprises) to project-based financing

that focuses on energy savings (increasing access to financing for energy service companies –

ESCOs - and SMEs) has been a major challenge. PFIs have focused narrowly on a few main

heavy industries (iron & steel, cement, and chemical) and a few EE technologies (predominantly

waste heat recovery). As a result, they are facing increasing difficulties in finding projects.

However, market needs and opportunities exist (as confirmed by an NDRC study) to expand

lending to a wider range of energy user sectors and EE technologies.

8. Rationale for Additional Financing. The Government of China (GoC) has made energy

conservation one of the highest national priorities, and is targeting to reduce energy intensity by

16 percent during the 12th

FYP (2011-2015). GoC has also committed to reduce the carbon

intensity of GDP by 40-45 percent from 2005 to 2020, and energy conservation will play an

essential role to achieve this target.

9. The use of market-based mechanisms to promote EE is expected to increase during the

12th

FYP. The State Council recently issued new policies to strongly support growth of the ESCO

industry, which offers subsidies, awards, and generous tax incentives for ESCOs, and encourages

bank lending to ESCOs by allowing banks to use and recognize ESCO project assets, contracts

and revenues as loan security. In addition, GoC plans to expand the focus of its energy

conservation efforts from the industry sector to the building and transport sectors, as energy

demand from buildings and transport will increase rapidly - tripling for buildings and more than

quadrupling for the transport sector - over the next two decades.

10. The proposed additional financing (AF) for CHEEF supports the government’s

commitment to EE and endeavors to meet the huge needs of EE investments in China. The

expanded scope for the proposed AF for CHEEF to scale up the project’s impact and

3

development effectiveness takes into account the government’s new EE policies and priorities,

and lessons learned from CHEEF implementation so far, in particular the success of EXIM Bank

in implementing the project. The proposed AF is the most effective way of achieving the above

objectives, especially when compared to a new free standing project.

11. The expanded scope for the proposed AF is fully consistent with the Country Partnership

Strategy for 2006-10 (Report No. 35435-CN) and directly supports a major pillar: managing

resource scarcity and environmental challenges. The objective of the proposed AF is also

expected to be consistent with the new CPS for 2011-2015, which is under preparation, in

alignment with China’s 12th

FYP. In addition, the proposed AF would support the World Bank

Group’s corporate commitment to increasing energy efficiency and renewable energy lending.

III. Proposed Changes

12. Changes in the project development objective (PDO). The AF intends to expand the

target market segments of CHEEF, and hence the PDO of the CHEEF Project and the AF Project

is to “improve energy efficiency of selected energy end-users in key energy-consuming sectors,

thereby reducing their adverse environmental impacts on climate.” Board approval is

concurrently being sought to modify the PDO of the CHEEF Project to be consistent with the

PDO of the AF Project.

13. Changes in project scope. The AF has three improved or expanded features, compared

to CHEEF: (a) piloting innovative ESCO lending, under which end-users pay for ESCOs’ EE

services from the demonstrated energy savings under performance-based contracts, and

broadening the sub-borrowers from large and medium-sized industrial enterprises to energy end-

users of all sizes and ESCOs; (b) expanding the target market segments from the industrial to the

building sector, given the rapid growth in energy demand for buildings, and government’s plan

to expand the range of priority energy conservation programs; and (c) increasing the leverage

ratio of the IBRD loan to EXIM Bank contribution from 1:1 in CHEEF to 1:2 in the AF.

14. Energy Conservation Investment Lending to be financed by the proposed AF. The

proposed AF loan will be on-lent through EXIM Bank to energy end-users of all sizes and to

ESCOs in key energy-consuming sectors, primarily the industrial and building sectors. At least

US$60 million of EE lending from the total AF project of $300 million (both IBRD and EXIM

Bank contributions) will be provided to ESCOs and building EE sub-projects. Sub-project

investments will be limited to renovation and rehabilitation. The AF will not finance any coal-

fired power plants. Detailed eligibility criteria, appraisal guidelines, and risk management

strategies are outlined in the project Operational Manual (OM). Table 1 shows the costs of the

parent loan and the AF by component.

4

Table 1. Costs by Component of the Parent Project and the Additional Financing

Component Original cost

($m)

Changes

with AF($m)

Revised

cost ($m)

1. Promotion of EE financing 18.7 0 18.7

2. Energy conservation investment lending 571.0 428.0 999.0

3. National policy and institutional

support

2.8 0 2.8

4. Project implementation support,

monitoring, and reporting

1.1 0 1.1

Total 593.6 428.0 1021.6

15. TA and capacity building to support the AF loan. The GEF grant associated with

CHEEF will continue to provide TA to EXIM Bank for AF activities. In particular, the TA will

support: (a) developing new financial products for ESCO lending and adaptation of loan

appraisal and underwriting criteria tailored to EE investments; (b) conducting specific market

segment studies to broaden the end-user sectors and EE technologies in the portfolio; (c) building

partnerships and engaging selected EXIM bank branches for marketing development and

generating deal flows; (d) developing market aggregation tools for small and medium-scale

enterprises and projects; (e) strengthening EXIM Bank’s capacity; and (f) exploring a low-

carbon lending business.

16. Changes in project outcome indicators. Because of the expanded scope of the AF, a

fourth Key Performance Indicator (KPI) will be added to the three KPIs of CHEEF. This

indicator will measure the amount of incremental EE investment to ESCOs and building EE

projects supported and leveraged by the project. Table 2 compares the original and revised

project outcome indicators.

Table 2. Project Outcome Indicators

Indicator Original target Changes with

AF

Revised

target

Cumulative amount of incremental

EE investments supported by the

project (US$ million)

900.0 428.00 1,328.00

Associated total annual energy

savings (million tons of coal

equivalent)

2.07 0.59 2.66

Associated total annual reductions of

GHGs (million tons of CO2)

5.05 1.44 6.49

Cumulative amount of incremental

EE investments to ESCOs and

building EE projects (US$ million)

-- 60.00 60.00

5

17. Closing date. The AF loan (Loan No. 8092-CN) closing date will be December 31, 2016.

The closing date of the two loans under CHEEF (Loan No. 7529-CN and Loan No. 7530-CN)

and the associated GEF grant (TF 090719) will be extended from December 31, 2013 to

December 31, 2016.

18. Changes in procurement framework. Based on the experience with CHEEF

implementation and because most supply and installation of EE renovation investments are

widely and commercially available in the Chinese market, the international competitive bidding

(ICB) threshold is proposed to be raised from US$10 million to US$20 million for supply and

installation contracts, and from US$7 million to US$10 million for goods contracts.

19. Changes in environment and social safeguard frameworks. As in the case of the

original CHEEF loan, sub-projects under the proposed AF are expected to be Category B or C.

The Environmental Assessment Framework (EAF) screening procedures of the CHEEF Project,

which equated Chinese screening categories with the World Bank categories, have been updated

to bring out the difference between the two screening systems. EXIM Bank will be responsible

for: (a) environmental safeguard screening; (b) reviewing and approving the Environmental

Management Plan (EMP) prepared by sub-borrowers (end-users or ESCOs) and ensuring that

sub-borrowers (end-users or ESCOs) have properly conducted consultations and disclosure in

compliance of the EAF; and (c) supervising implementation by sub-borrowers (end-users or

ESCOs). The AF will trigger the Involuntary Resettlement Policy (OP/BP 4.12) and a

Resettlement Policy Framework (RPF) has been prepared.

IV. Appraisal Summary

Economic and financial analysis 20. Economic and Financial Due Diligence of the Participating Financial Institution.

CHEEF Project was subject to, and compliant with, Bank policies on financial intermediary

lending, Operational Policy 8.30. EXIM Bank has completed all actions required to comply with

the Corrective Action Plan under the CHEEF Project (which primarily address accounting and

management weaknesses identified) which were agreed with the Bank in December 2007. The

Bank team reviewed the documentation provided by EXIM Bank in relation to each of the issues

of the Plan, and satisfied that EXIM Bank has met the requirements for the time-bound Action

Plan.

21. Economic and Financial Analysis of the AF. Economic and financial analyses were

carried out on two representative sub-projects, which are part of the first batch of sub-projects

envisaged for financing under the proposed AF Project: EE rehabilitation in existing buildings;

and waste heat recovery for power generation in a glass factory. The FIRRs and EIRRs are

shown in Table 3. Both EIRRs exceeded the 12.0 percent economic discount rate that is

normally applied to Bank projects in China. However, the EIRRs of the AF project investments

are lower compared to the original project as: the investment costs of industrial EE renovations

have shown an upward trend in China; and building EE retrofit projects tend to have much

longer payback periods than industrial EE renovation projects.

6

Table 3. Economic and Financial Analysis of Representative Sub-projects

FIRR

(without carbon

finance)

FIRR

(with carbon finance)

EIRR

Subproject 1: building

EE rehabilitation

10.3% 11.2% 12.4%

Subproject 2: waste

heat recovery

32.9% 40.8% 42.9%

22. Technical. The Operational Manual, prepared by EXIM Bank and approved by the

Bank, stipulates that the CHEEF Project team will include energy efficiency experts responsible

for technical due diligence and measurement & verification of energy savings. EXIM Bank will

ensure that sub-projects: are in compliance with Chinese technical policies and regulations for

EE in the industrial and building sectors, as well as ESCO definition; fully satisfy the technical

eligibility criteria; and are technically feasible. The PMO is responsible for reviewing and

approving all subprojects, on behalf of the government, to ensure that they comply with the

eligibility criteria in the OM. TA to build capacity for project technical due diligence will

continue to be provided to EXIM Bank from the GEF Grant associated with CHEEF.

23. Procurement. Procurement capacity will be further strengthened, particularly for close

supervision and timely guidance of sub-borrowers, through additional procurement training and

by hiring individual consultants. The OM has been updated to incorporate Bank procurement

requirements and procedures for Goods, and for Supply and Installation. Based on these

arrangements, the procurement capacity in EXIM Bank is acceptable. Procurement for the

proposed loan would be carried out in accordance with the World Bank’s “Guidelines:

Procurement under IBRD Loans and Credits” dated May 2004 and revised in October 2006 and

May 2010; and “Guidelines: Selection and Employment of Consultants by World Bank

Borrowers” dated May 2004 and revised in October 2006 and May 2010, and provisions

stipulated in the Legal Agreement.

24. Financial Management. The AF project will have the same financial management and

disbursement arrangements as the ongoing CHEEF Project. No outstanding audit issues exist

with the CHEEF project. The assessment for the AF project concluded that the project will

continue to meet the Bank’s minimum financial management requirements, as stipulated in

BP/OP 10.02. The Financial Management Framework in the OM has been updated to integrate

the specific requirements of the AF.

25. Social. As in the case of the CHEEF Project, most sub-projects under the AF loan will

be located within existing premises. However, a small number of sub-projects might involve

limited land acquisition or resettlement. The Resettlement Policy Framework developed for such

sub-projects specifies the procedures and responsibilities for identifying potential resettlement

impacts, preparing and approving relevant resettlement instruments, and monitoring their

implementation. Since EXIM Bank does not have previous experience with land acquisition and

resettlement, all sub-projects that trigger RPF will require prior Bank review.

7

26. Environment. Sub-projects of the CHEEF Project did not indicate any major

environmental issues. The updated EAF describes procedures to be followed by EXIM Bank

and sub-borrowers (end-users or ESCOs) to satisfy both Chinese and World Bank EIA

regulations and policies. EXIM Bank will hire additional qualified consultants and build in-

house capacity to handle the new responsibilities and the increased volume of safeguards work

under the AF.

8

ANNEX 1: RESULTS FRAMEWORK AND MONITORING

CHINA: Additional Financing for Energy Efficiency Financing Project

Results Framework

Revisions to the Results Framework Comments/

Rationale for Change

PDO

Current (PAD) Proposed

Improve energy efficiency of

medium and large-sized

industrial enterprises in China,

thereby reducing their adverse

environmental impacts on

climate.

Improve energy efficiency

of selected energy end-

users in key energy-

consuming sectors, thereby

reducing their adverse

environmental impacts on

climate.

The AF intends to expand the

targeted market segments from

only the industrial sector under

CHEEF to the building sector

and beyond, and broaden the

sub-borrowers from large and

medium-sized industrial

enterprises only under CHEEF

to end-users of all sizes and

ESCOs.

PDO indicators

Current (PAD) Proposed change*

Cumulative amount of

incremental EE investments

supported by the project (US$

million).

Revised from US$900

million to US$1,328

million.

Modified to reflect the

additional financing of US$100

million of IBRD loans, US$

200 million of EXIM’s co-

financing, and US$128 million

from sub-borrowers.

Associated total annual energy

savings (million tons of coal

equivalent).

Revised from 2.07 Mtce to

2.66 Mtce.


additional EE investments of

US$428 million supported by

the AF Project.

Associated total annual

reductions of GHGs (million

tons of CO2).

Revised from 5.05 Mt-CO2

to 6.49 Mt-CO2.


additional EE investments of

US$428 million supported by

the AF Project.

New: Cumulative amount

of incremental EE

investments to ESCOs and

building EE projects (US$

million): US$60 million.

Added to measure the expanded

activities under the AF.

9

Intermediate Results indicators

Current (PAD) Proposed change*

1.1. EE financing amount

demanded by projects in the

pipeline.

Continued.

1.2. EE investment preparation

procedures and financing

modalities piloted.

Continued.

1.3. EE investment monitoring

and evaluation procedures

developed.

Continued.

2.1. Cumulative amount of EE

lending of participating banks.

Revised from US$400

million to US$700 million.



million of IBRD loans and US$


financing.

2.2. Annual energy

consumption avoided as a

result of EE lending of

participating banks.

Revised from 1.58 Mtce to

2.17 Mtce.





financing.

2.3. Annual avoided CO2

emissions as a result of EE

lending of participating banks.

Revised from 3.84 Mt-CO2

to 5.28 Mt-CO2.





financing.

New: Cumulative amount

of incremental EE

investments to ESCOs and

building EE projects (US$

million): US$60 million.

Added to measure the expanded

activities under the AF.

3.1. NECC business plan and

initial work program

developed.

Continued. Target was met.

3.2. NECC established and

becomes fully operational.

Continued. Target was met.

3.3. Mid-term review of 11th

FYP programs conducted and

recommendations made.

Necessary actions taken to

enhance results.

Revised to final evaluation

of 11th

FYP programs

conducted, and

recommendations and

inputs provided to the 12th

FYP.

Because 2010 is the last year of

the 11th

FYP, and 2011 is the

first year of the 12th

FYP.

4.1. Project targets and

delivery schedule met.

Continued.

* Indicate if the indicator is Dropped, Continued, New, Revised, or if there is a change in the end of project target value.

10

REVISED PROJECT RESULTS FRAMEWORK

Project Development Objective (PDO): Improve energy efficiency of selected energy end-users in key energy-consuming sectors, thereby reducing

their adverse environmental impacts on climate.

PDO Level Results

Indicators1

Co

re UOM2

Baseline

Original

Project

Start

(10/08)

Progress

To Date

(2011)3

Cumulative Target Values4

Frequency

Data

Source/

Methodol

ogy

Responsibi

lity for

Data

Collection

Comments 2012 2013 2014 2015 2016

1. Cumulative amount of

incremental EC

investments supported by

the project.

US$

million 0 536 672 1007 1135 1263 1328

Annual

report

Reports of

banks and

NDRC

reports

PMO

2. Associated annual

energy savings capacity.

million

tons of

coal

equivalent

0 1.6 1.89 2.22 2.39 2.57 2.66 Annual

report

Reports of

banks and

NDRC

reports.

PMO

The investment costs of

industrial EE subprojects

are assumed as $290/tce

under CHEEF and

$405/tce under CHEEF II.

Given the upward trend of

investment costs based on

CHEEF experience to

date, and the pipeline for

the AF Project, investment

costs of EE projects under

the AF Project are

assumed as $606/tce for

industrial subprojects and

$3,463/tce for building EE

subprojects.

3. Associated CO2

emission reduction

capacity.

million

tons of

CO2

0 4.1 4.61 5.41 5.84 6.27 6.49 Annual

report

Reports of

banks and

NDRC

reports.

PMO

The estimates are based on

the assumed factor of 2.44

CO2/tce.

1 Please indicate whether the indicator is a Core Sector Indicator (for additional guidance – please see http://coreindicators).

2 UOM = Unit of Measurement.

3 For new indicators introduced as part of the additional financing, the progress to date column is used to reflect the baseline value.

4 Target values should be entered for the years data will be available, not necessarily annually. Target values should normally be cumulative. If targets

refer to annual values, please indicate this in the indicator name and in the “Comments” column.

http://coreindicators/

11

4. Cumulative amount of

EE lending to ESCOs and

building projects.

US$

million 0 0 5 15 30 45 60

Annual

report

Reports of

banks and

NDRC

reports.

PMO

Beneficiaries5

Project beneficiaries.

Number

0 17 23 30 37 44 50

Annual

report

Reports of

banks and

NDRC

reports.

PMO

Estimates are based on the

assumed average project

size of $20 million.

Of which female

beneficiaries.

Number

NA NA NA NA NA NA NA

Intermediate Results and Indicators

Intermediate Results

Indicators

Co

re

Unit of

Measur

ement

Baseline

Original

Project

Start

(10/08)

Progress

To Date

(2010)

Target Values

Frequency

Data

Source/

Methodolo

gy

Responsibili

ty for Data

Collection

Comments 2011 2012 2013 2014 2015

Intermediate Result 1: Promotion of EE Financing

EE financing demand of

projects in the project

pipeline.

US$

million 0 150 250 250 250 150 150

Annual

report PFI records PFI

EE investment

preparation procedures

and financing

modalities piloted.

NA

1-2 pilot

projects

prepared

1-2 pilot

projects

completed

Annual

report

Project

reports PMO

EE investment

monitoring and

evaluation procedures

developed.

NA Draft Final draft Annual

report

Project

reports PMO

5 All projects are encouraged to identify and measure the number of project beneficiaries. The adoption and reporting on this indicator is required for

investment projects which have an approval date of July 1, 2009 or later (for additional guidance – please see http://coreindicators).

http://coreindicators/

12

Intermediate Result 2: EC Investment Lending


EE lending of PFI.

US$

million 0 305 365 475 565 650 700

Annual



EE lending to ESCOs

and building projects.

US$

million 0 0 5 15 30 45 60

Annual


Annual energy

consumption avoided

from the EE lending of

PFI.

million

tons of

coal

equival

ent

0 1.6 1.65 1.73 1.90 2.08 2.17 Annual


Annual avoided CO2

emissions from EE

lending of PFI.

million

tons of

CO2

0

4.1

4.15 4.20 4.63 5.06 5.28 Annual


Intermediate Result 3: National Policy Support and Capacity Building

Establishment and

functional operation of

NECC.

NA

NECC

formed

and

staffed

Annual

report

NDRC

documents

PMO

NECC business plan

and initial work

program developed.

NA

Final Annual

report

Project

reports PMO

Mid-term review of 11th

FYP programs

conducted and

recommendations made.

Necessary actions taken

to enhance results.

NA

Final

evaluation

of 11th

FYP

programs

conducted

and

recommend

ations and

inputs

provided to

the 12th

FYP.

Annual

report

Project

reports PMO

13

Intermediate Result 4: Project Implementation Support and Reporting

Project targets and

delivery schedule met. NA

NA

Mid-term

review

completed.

Semi-

annual

report.

Project

reports. PMO

14

ANNEX 2: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF)

CHINA: Additional Financing for Energy Efficiency Financing Project

Project Development Objective(s)

The Project Development Objective (PDO) is to improve energy efficiency of selected energy end-users in key energy-consuming sectors, thereby reducing their adverse environmental impacts on climate.

PDO Level Results Indicators:

1. The amount of incremental EE investment supported and leveraged by the project. 2. The amount of energy saved through investments financed and leveraged by the project. 3. Associated reduction of green house gases. 4. The amount of incremental EE investment to ESCOs and building EE projects supported and

leveraged by the project.

Risk Category Risk Rating Risk Description

Proposed Mitigation Measure

Project Stakeholder Risks

Low Likelihood/ Low Impact

The CHEEF project’s key stakeholders - the PFIs and their sub-borrowers - have supported the project. Government is encouraging energy conservation related bank lending to the new stakeholders - ESCOs and to the building and transport sectors.

See “Design” below for mitigation measures to ensure adequate participation by the new stakeholders.

Implementing Agency Risks

High Likelihood/ Low Impact

EXIM Bank, its branches, and sub-borrowers (particularly ESCOs) may not have enough capacity to identify, evaluate and supervise EE investments, safeguard procedures, procurement, and ineligible expenditures of sub-borrowers. This could lead to possible misuse of loan funds, loss of project assets, improper reporting, and insufficient funds.

EXIM Bank will conduct more training and hire consultants to improve capacity in technical, safeguards, procurement and financial management, and credit control. EXIM Bank plans to more actively engage the branches by requiring EE lending targets and link EE lending with performance evaluation. EXIM Bank headquarters plans to co-finance EE investments with the branches to share risks in order to improve portfolio quality.

15

EXIM Bank will conduct targeted market studies to broader market segments and build partnerships for more aggressive business development. An updated OM, including the FM and credit control arrangements, acceptable to the Bank, has been prepared by EXIM Bank and agreed by the Bank. It will be circulated to all branches that will execute the project and to project financial staff. Annual project audit will be conducted as external monitoring mechanism to safeguard Bank loan proceeds and project assets.

Project Risks

Design


EXIM Bank may not be able to provide

sufficient lending to ESCOs and building EE

investments.

TA will be provided to EXIM Bank to conduct market studies and develop new financial products for ESCO lending and building EE investments. EXIM Bank has developed a pipeline for ESCO and building EE lending. The project sets a target of US$60 million of the total loan amount to ESCO lending and building EE projects.

Social and Environmental

Low Likelihood/ Low Impact

A few EE subprojects might have minor negative environmental impacts and require land acquisition. Sub-borrowers may not follow the safeguard procedures outlined in the frameworks.

EXIM Bank will hire additional environmental

experts and build in-house capacity for

environmental safeguards.

TA will be provided to EXIM Bank to

strengthen its capacity and help it manage

environmental and social risks of the EE lending

program.

All sub-projects that trigger the RPF will

require Bank prior review.

16

Program and Donor

N/A

Delivery Quality

Low Likelihood/ Low Impact EXIM Bank is committed to developing EE

and green financing as one of its major business lines.

Overall Risk Rating at Preparation

Overall Risk Rating During Implementation Comments



Much has been learned during the preparation and implementation of the CHEEF and CHEEF II Projects. However, the major challenge is whether EXIM Bank can provide lending to ESCOs and building EE. TA to EXIM Bank and setting a target of the loan amount to ESCO lending and building EE projects will mitigate this major risk.

Documents

The World Bank FOR OFFICIAL USE ONLY · Project Agreement. EXIM Bank shall maintain a project team with adequate staff and resources and apply the Operational Manual, satisfactory