China Green II

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	26308
Company name	China Green Energy Limited
Country	China
Sector	Utilities
Environmental category	B
Department	Infrastructure
Status	Pending Signing

Date SPI disclosed	March 11, 2008
Projected board date	April 11, 2008
Previous Events	Approved: July 8, 2008

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

China Green Energy Ltd. (China Green, or the company) is a holding company incorporated in the Cayman Islands in 2004 by Mr. Dou Zhenggang, a Chinese businessman, to own, develop and invest in environmentally friendly power projects in China. China Green currently owns majority interests in four power projects in China, consisting one combined heat and power (CHP) project, one power generation plant that utilizes waste coal as fuel, and two waste to energy (WTE) projects that utilize municipal solid waste (MSW) as fuel. The aggregate power generation and MSW processing capacity of China Green’s existing portfolio are 122 MW and 1,450 tons per day, respectively.

The proposed investment of IFC includes equity of up to $20 million to China Green. The proceeds will be used to partially finance the acquisition of six WTE projects that have been developed by HZJJ and to invest in new WTE projects in China and abroad.

Project sponsor and major shareholders of project company

China Green is owned 40% by Mr. Dou Zhenggang, and 60% by Win Charm Ltd., a company incorporated in the Cayman Islands that is wholly owned by Hangzhou Jinjiang Group Company (HZJJ, or the sponsor), which in turn is owned by Mr. Dou. HZJJ is a large established Chinese company with business interests in non-ferrous metal, petrochemical and power sectors.

Total project cost and amount and nature of IFC's investment

The proposed IFC investment is an equity of up to $20 million, which will be used to partially finance the acquisition and investment by China Green of six WTE projects developed by HZJJ.

Location of project and description of site

The projects that China Green currently owns includes:

Jiaxing Co-generation project: a co-generation plant located in Jiaxing, Zhejiang Province, with power generation capacity of 62 MW;

Yuhang WTE project: a WTE plant located in Hangzhou, Zhejiang Province, with power generation capacity of 12 MW and waste processing capacity of 450 ton/day;

Xinjing WTE project: a WTE plant located in Xinyang, Henan Province, with power generation capacity of 36 MW and waste processing capacity of 1,000 ton/day;

Jiande project: a power plant using waste coal as fuel, located in Jiande, Zhejiang Province, with power generation capacity of 12 MW;

The projects that China Green plans to acquire and invest include:

Wuhu project: a WTE plant located in Wuhu, Anhui Province, with power generation capacity of 42 MW and waste processing capacity of 500 ton/day;

Xiaoshan project: a WTE plant located in Hangzhou, Zhejiang Province, with power generation capacity of 24 MW and waste processing capacity of 800 ton/day;

Zibo project: a WTE plant located in Zibo, Shandong Province, with power generation capacity of 27 MW and waste processing capacity of 1,000 ton/day;

Kunming project: a WTE plant located in Kunming, Yunnan Province, with power generation capacity of 30 MW and waste processing capacity of 1,000 ton/day;

Wuchang project: a WTE plant located in Wuhan, Hubei Province, with power generation capacity of 24 MW and waste processing capacity of 1,000 ton/day;

Hankou project: a WTE plant located in Wuhan, Hubei Province, with power generation capacity of 50 MW and waste processing capacity of 2,000 ton/day.

Anticipated development impact of the project

- Environmental Benefits:

MSW is a major problem that affects China’s environment quality and the sustainable development of China’s economy. The quantity of MSW produced in Chinese cities has been growing in tandem with the economic development and the sweeping urbanization. Yet in most areas in China, solid waste is not properly collected, treated, and disposed. This poses an increasing threat to the health of people and the environment. Toxic contaminants can leak from poorly constructed or improperly maintained waste dumps, and can pollute ground water, often the source of drinking water for many people. Improper disposal has also polluted streams, rivers, lakes and other surface waters, killing aquatic life, destroying wildlife, and stripping areas of vegetation. As waste generation is directly correlated to economic growth, there is an urgent need in rapidly growing China to adopt waste handling practices that are environmentally sustainable.

The proposed investment will support China Green’s expansion in the much needed waste treatment sector, thereby protecting the environment and making direct contributions to the long-term sustainability of economic growth and improvement of human living conditions in the country. WTE projects operated by China Green are practical ways of addressing MSW problems for large cities in China that are facing a high demand for land development. WTE projects of China Green also allow for the recovery of thermal energy by utilizing the energy content of waste to generate electricity and/or steam, thus replacing polluting coal-fired generation plants.

Demonstration Effect and Fostering Competition:

The project will demonstrate that environmentally compliant, well-managed waste treatment projects can be financially viable in the PRC market, thus setting a bench mark for other operators. This will help encourage private participation in this sector and enhance the prospects of the realization of a competitive waste management market in China.

Support to a Future South-South Investment Partner:

Currently most technologies used in the WTE sector are developed by developed countries like France, US and Japan. These technologies are not quite suitable for developing countries like China as the heat content of MSW in developing countries is usually much lower than that of developed countries. HZJJ had invested its owned capital and co-developed its own technology with Zhejiang University of China, which has proven to be low cost and better suited for low heat content MSW. Given that many other developing countries are facing similar MSW problems as their economies rapidly grow, there is a large potential market for China Green to introduce its technology and invest in these countries. The proposed project will support China Green’s expansion and expedite its future south-south investment.

Support to a Local Sponsor:

The project will support the growth and evolution of a local founder-owned unlisted company to a company with independent professional management and strong corporate governance, and its entry into the international capital markets through an IPO. The proposed project will also assist the company in its progression from a local player to a regional player and thus support future south-south investments.

IFC's expected development contribution

IFC’s equity investment continues to support an existing client in achieving its strategic goals. IFC’s presence in the project, especially its equity investment, will provide the “seal of approval” in terms of credit, environmental and social standards, and corporate governance, adding value to the company’s planned IPO. Also, with the proposed equity investment, IFC will provide the company with global knowledge and experience in the power and waste treatment sector. This is highly valued by the company as it is looking to expand into markets outside China and become a regional player. IFC’s presence as an equity partner will help the company build its brand name outside China, and assists its dealings with foreign governments in its strategy to become a regional player.

Environmental and social issues - Category B

The proposed project is an equity investment to China Green, for which the funds will be used to partially finance the acquisition or construction of waste-to-energy power plants. China Green’s WTE plants are fueled with municipal solid waste (MSW), co-fired with coal that is sometimes locally sourced. Environmental issues associated with WTE plants include toxic air emissions, waste water disposal, ash and slag disposal, and coal sourcing. Social concerns include traffic, odor and noise from plant operations, and labor issues related to presorting of the fuel. Offsetting these concerns are the environmental benefits of incineration deriving from the 90% reduction in waste volume as a result of incineration, thus saving valuable landfill capacity. The company’s activities primarily involve relatively small WTE power plants, and this corporate investment is a Category B project because a limited number of specific environmental and social impacts may result.

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