RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF ENERGY EFFICIENCY FINANCING PROJECT

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF ENERGY EFFICIENCY FINANCING PROJECT Report No: CN LOAN NUMBER 7530-CHA, 7529-CHA and GLOBAL ENVIRONMENTAL FACILITY (GEF) Grant TF APPROVED ON MAY 27, 2008 TO THE PEOPLE S REPUBLIC OF CHINA March 8, 2013

2 ABBREVIATIONS AND ACRONYMS AF Additional Financing CHEEF China Energy Efficiency Financing Project EE Energy Efficiency ESCO Energy Service Company GEF Global Environment Facility EIB European Investment Bank MTR Mid-Term Review KfW Kreditanstalt für Wiederaufbau PDO Project Development Objective EXIM The Export-Import Bank of China Regional Vice President: Axel van Trotsenburg Country Director: Klaus Rohland Sector Manager / Director: Mark Lundell Task Team Leader: Xiaodong Wang 2

3 CHINA ENERGY EFFICIENCY FINANCING PROJECT P CONTENTS Page A. SUMMARY... 4 B. PROJECT STATUS... 4 C. PROPOSED CHANGES

4 CHINA ENERGY EFFICIENCY FINANCING PROJECT RESTRUCTURING PAPER A. SUMMARY 1. The World Bank Board of Executive Directors approved an Additional Financing to the China Energy Efficiency Financing (CHEEF) Project (the Additional Financing) in an amount of US$100 million on October 27, The AF slightly modified the Project Development Objective and scope based on the new government policies and priorities during the 12 th Five-Year Plan. As a result, the Loan Agreements, the Project Agreement and the GEF Grant Agreement of the original CHEEF Project need to be amended to reflect the changes referred above, as well as to incorporate other changes discussed among the Bank, the Borrower, Exim Bank and Hua Xia Bank which are needed to ensure a successful Project implementation. 2. The Approved Changes: In the attached AF Project Paper, the World Bank Board has concurrently approved the amendment of the original CHEEF Project to be consistent with the AF in the following areas: (a) a revised Project Development Objective (PDO); (b) expanded project scope and Sub-Loan Beneficiaries; (c) expanded Technical Assistance (TA) activities to EXIM Bank (Project Part A.1) financed by the GEF grant; (d) increased procurement thresholds for the IBRD loans; (e) the triggering of the Involuntary Resettlement Policy in connection with project activities under Loan CN, related with EXIM Bank; and (f) extended closing date to December 31, The Proposed Additional Changes: This Restructuring Paper lays out additional proposed changes that have been discussed and agreed with all relevant counterparts, in a request letter from the Ministry of Finance dated February 18, 2013, and are needed to ensure an adequate implementation of the Project, considering the Additional Financing as well as the new focus of the Borrower s 12 th Five-Year Plan, as follows: (a) Expanded Technical Assistance (TA) activities to benefit the government s National Development and Reform Commission (NDRC) and National Energy Conservation Center (NECC), Part C of the Project, financed by the GEF grant to reflect the new priorities of the government; (b) Revised time period related to the delivery of interim un-audited financial reports to be consistent with the Additional Financing; (c) Revised time period related to the reporting of the Performance-based Grant in the GEF Grant Agreement; (d) Increased operating costs for the PMO in the GEF Grant Agreement; and (e) Added a new definition covering Training expenditures. B. PROJECT STATUS 4. Project Implementation Performance. The overall performance of the CHEEF Project, including the two separate loans being implemented by the Export-Import Bank 4

5 of China (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. 5. Performance of EXIM Bank (Loan 7529-CN). EXIM Bank has disbursed US$74.4 million out of the allocated US$100 million IBRD funds, and leveraged US$379 million (US$165 million from EXIM Bank and US$214 million from industrial enterprises). It has 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 CO 2 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. 6. Performance of Huaxia Bank (Loan 7530-CN). Huaxia Bank has disbursed US$91 million out of the allocated US$100 million IBRD funds; these have leveraged US$249 million (US$90 million from Huaxia Bank and US$159 million from industrial enterprises and other funding sources). These investments are expected to save energy of 0.7 million tce and reduce CO 2 emissions of 1.4 million tons per year. 7. Performance of GEF Grant (TF090719). After a slow start, both components of the GEF-financed TA are now progressing well. As of September 30, 2012, the four implementing agencies (PMO, EXIM, Huaxia Bank, and Minsheng Bank) have disbursed GEF grant of $4.43 million, 33 percent of the total grant amount. The approved procurement plans have included about 70 percent of the allocated GEF funds. The national policy support and capacity building component is supporting the government in development and implementation of the priority EE programs for the 12 th Five-Year Plan (FYP), and building capacity for the National Energy Conservation Center; and The building capacity of the participating banks component is assisting the participating banks in market development and new financial products. C. PROPOSED ADDITIONAL CHANGES 8. TA Activities to NDRC and NECC: The original GEF-funded TA component for national policy support and capacity building specified the support for implementation of China s priority energy conservation programs set out in its 11th Five-Year Plan (FYP). As China has started to implement the 12 th FYP ( ), which set out new priorities such as developing market-based mechanisms and expanding to building energy efficiency, the government requested for Bank s assistance under the original CHEEF Project to be expanded to support implementation of the priority energy conservation programs set out in the 12 th FYP. 9. In line with the revised PDO and the expanded project scope from energy conservation in the industrial sector to the building sector, the TA component will also be expanded to finance building EE-related TA activities for the participating banks and the National Development and Reform Commission. 5

6 10. Furthermore, as the National Energy Conservation Center (NECC) has been established and fully operational, the TA activities for NECC are also expanded from supporting its business start-up and strategic business planning to building its capacity. 11. Revised Time Period related to the Interim Un-audited Financial Reports: In line with the Additional Financing, the time period related to the delivery of interim unaudited report is changed from no later than 45 days after the end of each quarter to 60 days after the end of each semester. 12. Revised Time Period related to Reporting of the Performance-based Grant: The GEF Grant Agreement requires that the World Bank has received a semester report prepared by an independent third party to verify the information from each participating bank for the Performance-Based Grant. The Government of China and the Bank agreed that the annual auditing report by the China National Auditing Office will serve the purpose of verification by an independent third party. As a result, the time period of reporting is changed from semester to annual report. 13. Increase in PMO Operating Costs: Given that the project closing date is extended, the PMO requested for increasing its operating costs disbursement category from $100,000 to $200, Added definition for Training expenditures: In the disbursement table of the GEF Grant Agreement, the term Training means the costs of training activities under the Project, based on annual work plans and budgets approved by the Bank, and attributable to seminars, workshops, and domestic and overseas study tours, along with travel and subsistence allowances for training participants, services of trainers, rental of training facilities, preparation and reproduction of training materials, and other activities directly related to course preparation and implementation. 6