INCaF Kangyuan Hydro

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	556907
Company name	Kangyuan
Country	China
Sector	Other (For Non-Investment Projects)
Environmental category	B
Department	Environment & Social Development
Status	Non-Invest Proj

Date SPI disclosed	September 24, 2007
Projected board date	October 25, 2007

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Anhui Kangyuan Electric Power Group Co., Ltd. (Kangyuan) is a regional power generation company established in 1996 and engaged in development of hydro power projects in the Anhui Province. Kangyuan has extensive experience in development, construction and operation of hydro power projects and is currently operating over ten hydropower stations. Besides power generation, Kangyuan is also engaged in construction of power transmission systems, power technology development and consulting services, among others.

Kangyuan is developing and implementing CDM projects based on run-of-river hydro generation assets that are displacing fossil fuel based generation in the Eastern grid (mostly coal). The total installed capacity of these projects, which are at different phases of development with estimated dates for commencement of operations between August 2007 and December 2008, will be 88.8 MW (made up of 9 plants whose capacity range from 1.3-28.0 MW). These projects when bundled together will enable Kangyuan to sell up to an estimated 177,000 tons/year of Certified Emissions Reductions (CERs) under the Clean Development Mechanism (CDM) of the Kyoto Protocol.

Project sponsor and major shareholders of project company

Kangyuan is a Chinese owned company which has no foreign technical collaborators and which has developed its own in house technical capabilities for designing, constructing and operating small hydro power plants, among other activities. At present Kangyuan’s ownership is split among three (3) shareholders, as follows:

- 45.3% owned by Anhui Mingsheng Power Development Stock Co. (Mingsheng Power), a company engaged in the development of power projects, power technology consulting and leasing of power generation related equipment;

- 6.0% owned by Anhui Jiyuan Grid Technology Co. Ltd. (Jiyuan Grid), a company dedicated to development and integration of computer information systems, safety and disaster prevention systems, electric project design and construction, installation, commissioning and maintenance of equipment, and

- the remaining 48.7% is owned by the company’s staff along with others through the Labor Union Committee of Power Companies in Anhui Province.

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

The value of INCaF’s contract or emissions reductions purchase agreement to purchase CERs is expected to be in the range of USD 9.0 – 10.0 million, payable in installments on annual delivery of CERs (generated through to the end of 2012) to the CDM registry account of the Netherlands.

Location of project and description of site

Nine hydropower stations are involved in this project. The contacts and description are as follows:

1. Jijia (1.3 MW)-
Located at Toutuo Town, which is 48km northern to Yuexi County of Anhui Province. It ranks the 2nd rate of electricity power station at the river cascade development of Toutuo River.

Approximate coordinates of the project site are:
North latitude: 31°03′
East longitude: 116°24′

2. Kuotan (6.4 MW)-
The Kuotan hydropower station is located at Huangwei River in Yuexi County of Anhui Province. The nearest county is Yuexi County, which is about 78 Km away.

Approximate coordinates of the project site are:
North latitude: 31°04′07″
East longitude: 116°18′07″

3. Liubo (25.0 MW)-
Liubo hydropower station is located at Yanzihe River in the southeast of Jinzhai County of Anhui Province. It’s about 15 Km away from Xianghong Dam and 55 km away from Meishan Town.

Approximate coordinates of the project site are:
North latitude: 31°30'
East longitude: 116°0'

4. Shenhe (3.2 (MW) -
Located at is located at Toutuo Town, which is 65km northern to Yuexi County of Anhui Province.

Approximate coordinates of the project site are:
North latitude: 31°03′04″
East longitude: 116°17′46″

5. Tianmaqiao (6.4 MW) -
The Tianmaqiao hydropower station is located at Toutuo Town, which is in the northern to Yuexi County of Anhui Province. It ranks the 1st rate hydropower station.

Approximate coordinates of the project site are:
North latitude: 30°8′35″
East longitude: 116°24′20″

6. Tieqianghe (2.5 MW) -
The Tieqianghe 2.5 MW hydropower station is constructed at Qianshui River in Yuexi County of Anhui Province. It ranks the 3rd rate power station at this tributary of the river. It’s 32km away from Yuexi County.

Approximate coordinates of the project site are:
North latitude: 30°50′
East longitude: 116°4′

7. Yanjia (12.0 MW) -
The Yanjia hydropower station is located at Huangwei River in Yuexi County of Anhui Province. The nearest county is Yuexi County, which is about 60 Km away.

Approximate coordinates of the project site are:
North latitude: 31°06′30″
East longitude: 116°18′45″

8. Yanwan (4.0 MW)-
Yanwan hydropower station is located at Wanhe River at the crossing of Yuexi County and Changpu Town of Anhui Province.

Approximate coordinates of the project site are:
North latitude: 30o45’
East longitude: 116o8’

9. Zhengjiawan (28.0 MW) -
Zhengjiawan hydropower station is located at Taiyanghe River, 90 km southern-west of Huoshan County, Anhui Province.

Anticipated development impact of the project

The project generates power from hydro-electric power plants to improve the sustainability of power generation in Eastern China through:

- Reducing reliance on exhaustible fossil fuel based power sources
- Reducing the local power shortage in Jinzhai, Huoshan and Yuexi Counties in Anhui Province
- Reducing local air pollution
- Promoting the local and economic development
- Reducing global emissions of greenhouse gases

The project fits with the Chinese government’s objective to reduce reliance on coal and make the energy sector and the power sector in particular more sustainable.

IFC's expected development contribution

IFC’s goal is to encourage emerging market private sector participation in the carbon market by providing value-added services to support project’s long term sustainability. As a global investor and advisor committed to developing sustainable private sector in emerging markets, IFC is well positioned to assist project sponsors to participate in the carbon market.

IFC’s experience and knowledge in evaluating and financing private sector projects in developing countries is leveraged to structure contracts that minimize the risks associated with the delivery of CERs from projects. The sale of CERs from these hydro plants will allow Kangyuan to partially fund its investments in expansion of its renewable energy capacity. This possibility will in turn allow Kangyuan to explore new financing sources of reasonable terms to help expand its capacity.

Environmental and social issues - Category B

This is a Category B project according to IFC’s Procedure for Environmental and Social Review of Projects because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. The appraisal of this project included visits to Liubo, Tiamanqiao and Yanjia, where construction have already been completed, as well as to the proposed / construction sites for the other six (6) facilities.

The following potential environment, health and safety and social aspect of the project (s) were analyzed: environmental, social, and health and safety management systems; public consultation and disclosure; effects from multiple hydroelectric facilities on a river system; company and contractor labor practices; management of pollutants and wastes during construction; dam and community safety; land acquisition; loss of forest land and/or adverse impacts on biodiversity; and effects on fish and other aquatic resources.

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