Gansu Heihe Rural Hydropower Development Investment Program: Erlongshan Hydropower Project
sector: Energy | country: China, People’s Republic of
The successful construction of the project resulted from the strong government ownership and provides a valuable lesson on the importance of this factor in facilitating effective implementation and delivery of development results in ADB-financed projects. The Erlongshan Hydropower Company (EHC) always took the initiative in solving problems, including in the provision of design documents, timely delivery of equipment, approach to dealing with issues, and other areas. The owner’s initiative guaranteed appropriate procedures and timely action on key tasks and when problems arose.
The external supervising mechanism was also effective and played an important role in improving the quality of the project. The selection and hiring of competent international and national consultants ensured that the quality standards required for the project were observed.
Procurement. Properly administered bidding processes were vital to obtaining cost- effective bid offers. Strict adherence to such processes, both in equipment procurement and onsite construction, facilitated savings on capital costs and ensured quality construction and equipment. The engagement of an experienced procurement agent proved to be a key factor in facilitating efficient procurement.
Counterpart financing. The project funds comprised international funds and domestic funds. For smooth project implementation, the timely availability of counterpart funds is a key issue. For the project, the actual ADB financing was $22.0 million and the counterpart funds mobilized from stockholders and local banks was $35.9 million, all of which was provided in a timely manner that ensured smooth project implementation and early project commissioning.
Carbon revenue. The project was successfully registered as a clean development mechanism (CDM) project and was able to source significant amounts of revenue from the sale of carbon credits, thereby making it financially viable. This offers valuable lessons as a successful demonstration project for other clean energy developers in the region.
Social development. The project has contributed to regional sustainable socioeconomic development, poverty reduction, and community development in the project area. The good practices of the project include (i) the formulation and implementation of the community development plan, which greatly promoted the development of local communities and enabled the local people to enjoy the benefits from the project in harmony with their traditional values and customs; and (ii) the great importance given to social issues by the Erlongshan Hydropower Project (EHP) throughout project implementation and subsequent operation of project works to strengthen its relationship with local communities.
The project completion report (PCR) identified four lessons, summarized below, which this validation fully endorses. On procurement, strict adherence to bidding processes and the engagement of an experienced procurement agent is a key factor in facilitating efficient process. On counterpart financing, timely availability of all funding is key to smooth project implementation and early project commissioning. On carbon revenue, the project was successfully registered as a clean development mechanism (CDM) project and served as a successful demonstration project for other clean energy developers in the region. On social development, the good practices of the project on social issues paid off in a good relationship with the local community. In addition to the lessons presented by the PCR, this validation provides one additional lesson. The PCR stated that ‘Before the project, few people left their communities in search of jobs. Now most young people do, and over 30% of migrants are female.’ From this statement, it appears that development projects can influence local people in work principles and have a significant benefit on local communities at little cost.
The success of the Erlongshan Hydropower Project resulted from a combination of strong government ownership and the commitment of the Erlongshan Hydropower Company. These factors ensured that any actual or potential problems were quickly and effectively resolved.
Continuity of officials and staff at the executing agency, implementing agency, and ADB, who were involved in the development, implementation, and operation of the project, was maintained throughout the project. This continuity, together with stability in personnel capacity, was an important factor in the success of the project. While this lesson may be self-evident, it is not easily achieved and is often overlooked.
The project demonstrated the importance of retaining qualified and competent consultants at the project preparation stage. Knowledge of the project design and implementation that was transferred from ADB to the government was highly valued, and officials expressed the view that this was more important than the loan financing.
The project was the first tranche of the first multitranche financing facility (MFF) investment program developed in the PRC. Based on the experience from this project, the MFF modality should be suitable for future projects in the PRC where there are discrete components. The MFF enabled sequential construction and financing requirements that were funded by separate tranches, thus limiting unnecessary duplication of administrative effort and approvals.
The timely availability of counterpart funding prevented cash flow problems from arising, which could have delayed project completion. Because counterpart government funding was timely, there were no delays and the project was completed early.