10774 - Peak Pacific Investment Company

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Summary of Proposed Investment

Project Number

10774

Company Name

Peak Pacific Investment Company Ltd.

Date SPI Disclosed

May 2, 2001

Country

China

Industry

Infrastructure

Projected Board Date

Jun 15, 2001

Status

Completed

Sector

Coal - Thermal Power Generation

Department

Gbl Infrastructure & Natural Resources

Environmental Category

B - Limited

Previous Events

Approved : Jun 13, 2001
Signed : Aug 23, 2001
Invested : Sep 21, 2001

Project Description

China suffers from severe air pollution problems caused by huge numbers of small, inefficient, coal-fired heating boilers that supply steam to residential, commercial and industrial customers. Central CHP plants, such as those operated by PPIC, are more efficient and thus generate steam using much less fuel. This enables the shutdown of many of these small boilers, thus reducing regional air emissions (including greenhouse gases) as well as generating substantial cost savings. Unfortunately, Government of PRC environmental regulations are inadequately enforced, and even relatively new CHP plants are non-compliant and sub-optimally managed. The project will have a strong development impact by demonstrating that environmentally compliant, well-managed CHP plants can be financially viable in the PRC market, thus setting a benchmark for other operators. IFC’s involvement will ensure that existing plants are environmentally upgraded to the extent practical and that new units meet international emissions levels.

The World Bank Group Country Assistance Strategy for China calls on IFC to assist China in establishing a more private sector-oriented framework for infrastructure development. Another major objective of the WBG’s work in China is to assist State-Owned Enterprises (“SOE’s”) in becoming more competitive. In an indirect way, this project does that by providing lower priced steam inputs to industrial SOEs. In addition, the WBG’s strategy for China specifically cites the need to assist the country in reducing the level of air pollution.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	25.0
Equity	0.0

The project consists of an investment in Peak Pacific Investment Company Ltd. PPIC was established in 1996 to own and manage the operation of electric and steam generating facilities in the Peoples Republic of China (“PRC”). These facilities are primarily combined heat and power plants (“CHP”) that provide electricity to a local grid and steam to industry and heat to residential customers. The company has also begun to look at investing in plants that sell electricity (as well as in some situations, steam) to a single customer (“captive"). PPIC is registered and has its headquarters in Singapore, with technical and administrative staff based in Beijing. Alliant Energy International, a wholly owned subsidiary of Alliant Energy Corporation (a Midwest US power utility), is the majority shareholder in PPIC.

The PRC continues to be forecasted as the largest growth market for electric power generation in the world over the next 10 years. The CHP market in China continues to be favored by all PRC policymakers. CHP plants will continue to be needed, as they are the only method of providing small towns and cities in China with central heating/process steam for factories in a clean and efficient manner. More recently, captive plants have begun to be offered for sale to investors by a number of Chinese companies as the need to become cost competitive and focus on core business interests has been heightened with the advent of China’s entry into the WTO.

The Company has focused its development efforts in areas where there is a need for locally produced power, and in economically advanced cities and towns where process steam can be used by financially viable industries. A typical investment profile of a PPIC project is a combined heat and power/cogeneration plant or a captive power facility that sells power and/or steam to one/two customers. Electrical capacity is typically 25 to 100 MW. PPIC will consider investing either via acquisition or expansion of an existing plant or construction of a new facility. Funds are invested through a 60 to 80 percent ownership of a joint venture using a Cooperative Joint Venture (“CJV”) structure with the local municipal government or large end user as the normal joint venture partner. PPIC controls the CJV''s in which they have invested to date and has stated clearly that such control is a key requirement for future PPIC investments. Project prerequisites are that the local community and government should fully support the project, there should be a strong and expanding market for heat/steam, and power and steam tariffs should be competitive with the market. PPIC works actively with Chinese banks to raise local RMB financing for its projects whenever possible. The Company has been able to hedge its foreign currency exposures in projects that have foreign currency debt.

PPIC started construction on its first plant, a 24 MW CHP plant in Hebei Province, in October 1998 and it commenced operation in October 2000. The Company''s second project, acquired in April 1999, was a 6 MW CHP plant in Shandong Province. The acquisition of a 2 x 50 MW power plant in Henan Province followed in October 1999. An additional 24 MW CHP plant was acquired in Hebei in 2000. All plants use local coal as fuel. The Company plans to have one additional project in place by the end of June 2001, and to develop two to three projects per year thereafter. PPIC has been able to develop projects with competitive power and steam tariffs (e.g. power tariffs in PPIC projects range from 3.7 UScents/kwh to 4.5 UScents/kwh). PPIC''s projects have long-term power and steam offtake contracts with cost pass-through provisions.

Alliant Energy has already funded/committed to provide USD 85 million in equity investment. IFC has been invited to consider an equity investment in and a convertible loan to the Company. PPIC views IFC’s support at this juncture in its development as important in realizing its strategic objectives.

Development Impact

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/or social impacts may result which, can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria.
Location of environmental documents In locally affected community

Peak Pacific Investment Company
Beijing Reperesentative Office
9th Floor Sunjoy Mansion
6 Ritan Road
Chaoyang District
Bejing, China 100020

Contacts

For Inquiries About the Project, Contact

Mr. Robert Anderson
President
Peak Pacific Investment Company
phone: +65-734--6663
fax: +65-734- 1945

This Summary of Project Information (SPI) 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. The following SPI is disclosed in accordance with IFC's Disclosure of Information Policy that went into effect September 1998.

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