CASE STUDIES: HISTORICAL BACKDROP TO NONSOVEREIGN INTERVENTIONS

Transcription

1 State-Owned Enterprise Engagement and Reform, Linked Document 6 CASE STUDIES: HISTORICAL BACKDROP TO NONSOVEREIGN INTERVENTIONS A. Power Grid Corporation of India Limited (POWERGRID) 1. POWERGRID was established as a wholly government-owned company in October 1989 and began operations in late It is responsible for establishing, owning, and operating the interstate and interregional bulk power transmission systems in India, as well as the regional load dispatch centers. 2. At present, the government holds 56.9% of the total shares, with the remainder held by the public and institutions, with no other single entity holding more than 6% of the shares. The government sold 13.6% of its equity in 2008 for the first time, followed by another 16.9% in 2011 and another 12% in POWERGRID now functions like a commercial company. 3. POWERGRID is managed by a board of directors, which includes two nominees from the Government of India, five independent directors, and four full-time staff directors. The day-to-day business is supervised by the full-time directors under the overall policy guidance of the full board of directors. It is protected by existing regulations from various risks: (i) counterparty risk, (ii) completion risk, (iii) competition risk, and (iv) political and regulatory risk, which makes it a commercially viable entity. POWERGRID s international credit rating is at par with the sovereign rating: BBB (Outlook: Stable) by Fitch and S&P. 4. The Asian Development Bank (ADB) and the World Bank have supported POWERGRID since its beginning and have helped strengthen its procurement policy, environmental and social safeguards policy and financial management systems. 5. As POWERGRID s investment needs expanded by the late-2000s, it could no longer rely solely on sovereign-backed financing. It needed to diversify its sources of financing to include options such as global bond issues, borrowings in foreign currency from international institutions, and off-balance sheet financing (i.e., project finance and joint ventures). ADB approved a technical assistance (TA) project in 2010 (TA 7688) that assessed POWERGRID s financial management systems and its environment and social management policies for their conformity with the ADB Safeguard Policy Statement (2009). 1 The TA helped strengthen its internal policies, procedures and project preparation systems in line with expectations from international lenders. POWERGRID now has a comprehensive project appraisal system covering technical, financial, economic, and safeguards aspects. The TA also helped POWERGRID conclude two financial closures on nonsovereign (NSO) terms with ADB and export credit agencies With support from international lenders, POWERGRID has now adopted tighter financial benchmarks, including a debt equity ratio of 3:1 and a debt service coverage ratio of 1:2. It introduced an enterprise-wide risk management policy from FY2012. The TA could not achieve its intended output of recasting POWERGRID s financial statements following international financial reporting standards (IFRS). However, POWERGRID is fully compliant with all the applicable Indian accounting standards and the Government of India has gradually harmonized India s accounting standards with the IFRS, instead of carrying out a full switchover to IFRS from 1 April 2011, as originally intended. 1 POWERGRID had previously updated its Environmental and Social Policy and Procedures in 2009 after the completion of a safeguard diagnostic review by the World Bank in The review, which was conducted as part of the World Bank s Pilot Program for the Use of Country Borrower Systems, found the Environmental and Social Policy and Procedures to be equivalent to the World Bank policy requirements. An action plan was agreed upon for improving some minor issues in implementation and capacity. See World Bank Safeguards Diagnostic Review for India: Piloting the Use of Country Systems to Address Environmental Safeguard Issues at the Power Grid Corporation of India, Ltd. Washington. 2 ADB Innovative Financial Instruments for Power Grid. Technical Assistance Completion Report. Manila.

2 2 Linked Document 6 7. POWERGRID updated its Environmental and Social Policy and Procedures in 2009 after the completion of a safeguard diagnostic review by the World Bank in The review, which was conducted as part of the World Bank s Pilot Program for the Use of Country Borrower Systems, found the environmental and social policy and procedures to be equivalent to the World Bank policy requirements. An action plan was agreed upon to improve some minor issues in implementation and capacity. 8. Starting in 1995, ADB has provided POWERGRID with six sovereign guaranteed loans, including a multitranche financing facility (MFF) amounting to a total of $2.35 billion to help strengthen the national transmission system (Table 1). Table 1: Indian Power Grid Loans and Technical Assistance ( ) Loan No. Project Title Approval Date Amount ($ million) Sovereign Loans 1405 Power Transmission (Sector) Project 26 Oct Power Transmission Improvement (Sector) Project 6 Oct Power Grid Transmission (Sector) Project 29 Nov MFF-National Power Grid Development Investment Program Tranche 1 28 Mar MFF-National Power Grid Development Investment Program Tranche 2 3 Mar MFF-National Power Grid Development Investment Program Tranche 3 7 Dec Power Grid Corporation of India: National Grid Improvement Project 30 Sep Power Grid Corporation of India Limited Green Energy Corridor and Grid 9 Dec Strengthening Project (Guaranteed by India) Subtotal 2, Nonsovereign Operations 7338 National Grid Improvement Project (formerly POWERGRID) 30 Sep Power Grid Corporation of India Limited Green Energy Corridor and Grid 9 Dec Strengthening Project Subtotal Technical Assistance 3380 Private Sector Participation in Electricity Transmission 28 Dec Innovative Financial Instruments for Power Grid 26 Nov Subtotal Grand Total 3, ADB s support for POWERGRID started with the Power Transmission (Sector) Project (loan 1405), approved in October This project achieved its objectives of strengthening the transmission and evacuation of power from expanded and new power plants, thereby increasing access to electricity and reducing system losses. It facilitated the export of power from the power-surplus eastern region to the power-deficit southern region and strengthened the eastern region network. 10. As a part of the power sector reforms initiated in 1991, the government wanted to increase competition in building transmission lines through private sector participation. The government and POWERGRID requested a TA from ADB in implementing the Meramundali-Jeypore 400 kilovolts transmission line with private sector participation. 4 This TA project was meant to assist the executing agency in preparing the request for proposal (RFP) documents, evaluating offers for the work, and conducting contract negotiations. The TA completion report noted that the TA consultants proposed 3 World Bank Safeguards Diagnostic Review for India: Piloting the Use of Country Systems to Address Environmental Safeguard Issues at the Power Grid Corporation of India, Ltd. Washington. 4 An independent power transmission company was to build the transmission line and give it for POWERGRID s use for an annual fee. The Meramundali-Jeypore 400 kilovolts transmission line was later considered inappropriate because of a delay in the commissioning of the associated generating plants. The executing agency instead chose 400 kilovolts lines for Bina-Nagda and Nagda-Dehgam. See ADB Technical Assistance to India for Private Sector Participation in Electricity Transmission. Manila.

3 Case Studies: Historical Backdrop to Nonsovereign Interventions 3 pragmatic solutions to these issues based on international experience in similar projects and understanding of practices in the Indian power sector in handling these issues The Power Transmission Improvement (Sector) Project (loan 1764), approved in October 2000, supported the construction of transmission facilities with a $250 million loan. Apart from this, it pursued some indirect objectives through policy dialogue with government. These included (i) restructuring of India s power sector by facilitating the unbundling of generation, transmission, and distribution, and the entry of independent power producers (IPPs); (ii) putting all bulk power supply and transmission on a sound economic basis by putting in place appropriate pricing; and (iii) putting all transmission transactions on a sound commercial basis, to ensure POWERGRID s profitability and liquidity. Although ADB did not offer direct support or advice to the government in achieving these objectives, it obtained assurances from the government that it would take the necessary steps The project completion report (PCR) indicated that these indirect and broader objectives of the project were realized, ensuring the financial viability of the project. 7 The central electricity regulatory commission fixed transmission charges, ensuring a 14% return on investments. The Electricity Act of 2003 made it mandatory for all state electricity boards to unbundle and restructure. State electricity boards are maintaining letters of credit up to 104% of monthly billings for current payments. 13. During appraisal, the project also envisaged assistance to POWERGRID to increase its commercial orientation by offering a partial credit guarantee for $120 million cofinancing from a commercial bank (ABN AMRO). The idea was to help POWERGRID transition from government-guaranteed to market-based financing and to become more autonomous and commercially oriented. However, ADB did not extend the partial credit guarantee facility since ABN AMRO decided not to raise the $120 million cofinancing due to the change in market circumstances. Nevertheless, POWERGRID was able to raise more than $120 million through a 15-year bond in domestic currency without ADB support. The broad objective of facilitating POWERGRID to raise funds without a sovereign guarantee was achieved. 14. Subsequently, the Power Grid Transmission (Sector) Project (loan 2125) was approved in November This project aimed to expand national transmission grid, remove transmission bottlenecks, reduce transmission losses, and enable the efficient use of existing and planned power plants. It also aimed to facilitate the development of a national power trading market and to increase private sector participation through open access to the national transmission grid. This was confirmed during the evaluation mission. The PCR has noted progress in removing transmission bottlenecks and reducing losses. However, it did not comment on the power trading market or the extent of private sector participation as there were no corresponding indicators in the design and monitoring framework. 15. The MFF for India s National Power Grid Development Investment Program (loan 2415) was approved in March This was intended to establish new transmission and transformation capacity in the Union Territories and to increase the capacity of existing substations in the Western and Northern Regions. An aggregate amount of $600 million was approved to POWERGRID for the Investment Program to fund 800 kilovolts high voltage direct current (HVDC) North East Northern/Western Interconnector, in two tranches. The loan agreement for Tranche 1 (loan 2415; $400 million) was signed on 28 March 2008 and that for Tranche 2 (loan 2510; $200 million) was signed on 27 March All contracts under Tranche 1 ($388 million) and Tranche 2 ($119 million) were awarded in Based on the contract award, loan savings of $76 million were confirmed. ADB received the periodic financing request for Tranche 3 (loan 2823) for an amount of $76 million on 21 June The investments under Tranche 3 covered part of the POWERGRID investment plan under its transmission sector road map. All the subprojects under the MFF were completed and commissioned. 5 ADB Technical Assistance Completion Report: Private Sector Participation in Electricity Transmission. Manila. 6 ADB Project Validation Report: Power Transmission Improvement (Sector) Project. Manila. 7 ADB Project Completion Report: Power Transmission Improvement (Sector) Project. Manila.

4 4 Linked Document An NSO loan, the National Grid Improvement Project (loan 7338; $250 million), was approved on 30 September 2011, along with a sovereign loan, Power Grid Corporation of India: National Grid Improvement Project (loan 2788; $250 million). 8 The project adopted advanced 800 kilovolt HVDC transmission lines. This technology significantly reduces power losses and supports low-carbon growth. The HVDC supergrid network helped stabilize power supply frequencies and voltage, which will in turn support the development of smart grids. Another NSO loan was expected to help POWERGRID transition to other commercial forms of funding from its complete reliance on domestic bond markets. It was also expected to help POWERGRID establish a much-needed benchmark for any future commercial borrowing program, such as an offshore syndicated loan or an international bond début. 17. POWERGRID raised $500 million through an international bond issue in 2013 (a 10-year note with a coupon rate of 3.875% annually and listed in Singapore Stock Exchange). It is now planning to raise Rs.30 billion by issuing rupee-denominated overseas bonds (masala bonds) if it gets permission from the Reserve Bank of India. The International Finance Corporation issued the first masala bond in 2014 when it raised $1.6 billion (equivalent to Rs.10 billion) to fund infrastructure projects in India. The success of this bond program prompted Reserve Bank of India to consider permitting local companies to issue rupee-denominated bonds in offshore markets. In March 2016, the International Finance Corporation successfully issued a 15-year masala bond on the London Stock Exchange, creating an offshore rupee-market yield curve that stretches from three to fifteen years, and deepening the market. 18. An NSO loan, Green Energy Corridor and Grid Strengthening Project (loan 7467; $500 million), was approved in 2015, along with a $500 million government-guaranteed loan, Power Grid Corporation of India Limited Green Energy Corridor and Grid Strengthening Project (loan 3365; $500 million). 9 A total of $1 billion was therefore approved for renewable energy transmission grid expansion. The governmentguaranteed loan agreement was signed in February 2017 and the NSO loan agreement in August As of May 2018, the conditions precedent to the first drawdown have been satisfied and the first drawdown was made on schedule. The previous ADB sovereign and NSO loans helped POWERGRID diversify its funding sources and the NSO loan 7467helps to continue this trend. 19. ADB s value-addition to POWERGRID. Apart from providing sovereign guaranteed and nonsovereign financing for building or improving physical infrastructure, ADB helped strengthen POWERGRID s procurement policy, environmental and social safeguards policy, and financial management systems. It supported POWERGRID in preparing investment projects that follow environmental and social safeguards policies acceptable to international lenders. ADB also engaged in dialogue with the government to ensure policies and price regulations are in place for the viability of investments. 20. ADB, through its TA, helped POWERGRID strengthen its internal policies, procedures, and project preparation systems in line with expectations from international lenders. Support from ADB over a long period contributed to POWERGRID s increased comfort level in the market for funds. ADB s nonsovereign lending provided a benchmark for commercial borrowing from international sources and helped POWERGRID diversify its funding sources. 21. ADB s assistance also played an important role in achieving the government s renewable energy targets, in addition to increasing the overall interregional interconnection capacity. ADB s sovereign and nonsovereign financing has attractive terms, including its long tenor, which is essential to ensure the bankability of renewable and conventional energy projects and in keeping transmission tariffs at reasonable levels. ADB s presence on both the sovereign and NSO side provided comfort to potential commercial cofinanciers and risk participants. 8 ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan to Power Grid Corporation of India for the National Grid Improvement Project. Manila. 9 ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan to Power Grid Corporation of India Limited Green Energy Corridor and Grid Strengthening Project (Guaranteed by India). Manila.

5 Case Studies: Historical Backdrop to Nonsovereign Interventions 5 B. Songhua River Flood Management Water Quality and Pollution Control Management 22. The Songhua River is important for supporting the water needs in Heilongjiang. However, the People s Republic of China s (PRC) largest chemical industries were established on Songhua s upper reaches, alongside other heavy industries. As a result, by the end of the 20th century the Songhua River was one of the most polluted in the PRC, as documented by a 3-year government study ( ) In 1998, the Songhua River had its worst recorded floods, directly affecting 16 million people including 154 lives lost and property damage estimated at $7.3 billion. In 1999, ADB provided three emergency loans for infrastructure rehabilitation. 11 A TA project (TA 3376) was also approved to support improved management of Songhua River Basin (SRB) natural resources. The objective was to evolve the approach from exclusive emphasis on physical structural solutions to include nonstructural measures through reviews of the flood management plan and regulatory practices, and, formulation of an updated flood management plan, including consensus building among agencies to increase participation by government and community- based groups and to prioritize interventions. 12 The TA assisted the preparation of a feasibility study for an integrated flood management project, followed by a sector loan (loan 1919) approved in The sector loan was to strengthen institutional capacity for an integrated basin-wide flood management system, provide flood management systems, and construct new and strengthen existing flood control works. 13 The SRB flood management system was developed for information management, flood forecasting and warning, and decision support based on computerized spatial data. Together with government-financed infrastructure, the physical infrastructure was strengthened, and a modernized basin-wide monitoring network was established. Capacity was built through workshops and implementation of the project. The sector approach supported the government requirement that flood protection should move from flood control to flood management, reforming the state s approach to water resources management In 1999, it was recognized that the water supply in Heilongjiang, particularly in Harbin and Mudanjiang cities, needed to be better managed. ADB approved a project preparatory TA project (TA 3376) to review existing feasibility studies for proposed water supply projects, as well as to undertake a broad review of the environmental and pollution aspects of the Songhua and Mudan rivers; prepare forecasts of water demands, affordability, and cost recovery; review the status of wastewater treatment; evaluate institutional requirements; and prepare institutional development plans and action plans In 2002, the government requested a TA to support the cleanup of the Songhua River Basin. Alongside the ongoing studies for the 1999 TA for the Heilongjiang water supply project, ADB undertook factfinding to develop the terms of reference for another TA project to support the cleanup. The TA (TA 4061), approved in 2002, was to review the baseline information, analyze current plans, review policies 10 The study was jointly conducted by the Heilongjiang Provincial Environmental Protection Research Institute, Harbin City and National Environmental Monitoring and Testing Stations, Songliao Water Resource Protection Bureau, Harbin University of Medicine, Harbin University of Industries, and Sawa University, France. 11 ADB Report and Recommendation of the President t the Board of Directors: Proposed Loan to the People s Republic of China for the Northeast Flood Damage Rehabilitation Project. Manila (loans 1685, 1686, 1687). The project for $330 million was approved on 22 April The loans covered work in Heilongjiang and Jilin provinces and the Autonomous Region of Inner Mongolia. 12 ADB Technical Assistance to the People s Republic of China for Preparing the Songhua River Flood, Wetland, and Biodiversity Management Project (Cofinanced from the Japan Special Fund). Manila. The original scope of the TA included the development of an action plan for biodiversity conservation. In 2001, this action plan was separated from this TA given the need for separate specialist support. 13 ADB Songhua River Flood Management Sector Project. Manila. 14 ADB Completion Report People s Republic of China: Songhua River Flood Management Sector Project. Manila. 15 ADB Technical Assistance to the People s Republic of China for Preparing the Songhua River Flood, Wetland, and Biodiversity Management Project. Manila.

6 6 Linked Document 6 and existing institutional and regulatory systems, develop recommendations, and formulate a strategic action plan The TA developed the SRB Water Pollution Prevention and Control Master Plan. The master plan developed a long-term vision and a strategic plan for the SRB with targets and reforms, including strengthening of pollution control management practices and a long-term (15-year) physical investment program, refining and prioritizing existing strategic plans developed by different institutions at river basin and provincial levels of government. A road map outlining key milestones led to the development of a river basin management framework for the PRC. Knowledge gaps relating to sources of pollution were identified, and knowledge shared for water quality assessment (notably, micropollutants) and establishment of water quality inventories. 27. The master plan comprised a short-term plan for with an anticipated cost of $2 billion and identified further actions to be completed by 2020 at an estimated cost of an additional $1.5 billion. The master plan was approved by the State Council on 29 March 2006, setting pollution control targets for the SRB for and requiring that urban environmental pollution and ecological damage be controlled by 2010, including a requirement that 70% of wastewater be treated in large and mediumsized cities by The TA results were widely disseminated and an international workshop on revitalization of Northeast PRC was held in Harbin in January The development of the master plan was an innovative design to coordinate the needed activities across three provinces and multiple SRB organizations in order to reform the approach and to agree sequenced actions to provide clean water for the SRB. 17 At the time the provincial planning that was achieved for water services was an important milestone for the PRC, and, in addition to the workshops conducted through the TA, the mayor of Harbin held many informational meetings to share the knowledge of plan development with government officials from many PRC provinces and municipalities. Since then, municipalities have gained far greater understanding of different delivery modes for water services delivery and management and the provincial planning model has been overtaken by municipal government planning mechanisms. 28. In 2003, ADB public and private sector operations formed an in-house partnership to apply joint efforts to address the funding requirements for projects to support implementation of the master plan. Following the priorities set in the master plan, ADB approved three public sector loans to deliver water supply and cleanup projects: (i) Jilin Water Supply and Sewerage Development Project (loan 2175 approved in 2005); (ii) Jilin Urban Environmental Improvement Project (loan 2360 approved in 2007); and (iii) SRB Water Pollution Control and Management Project (loan 2487 approved in 2008). 18 Two additional project preparatory TA projects were approved, the first for the Jilin Urban Infrastructure Project (TA 4804); the second to prepare the Water Pollution Control and Management Project (TA 4971). 19 These infrastructure projects, together with others delivered through government resources, reinforced the emphasis on delivering the master plan as agreed and approved by government. 29. In 2007, ADB s PRC resident mission and Private Sector Operations Department jointly held a seminar on ADB s nonsovereign lending operations for Heilongjiang and Jilin provinces. The seminar 16 ADB Technical Assistance to the People s Republic of China for Songhua River Water Quality and Pollution Control Management. Manila. 17 ADB Technical Assistance Completion Report: Songhua River Water Quality and Pollution Control Management in the People s Republic of China. Manila. 18 ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People s Republic of China for the Jilin Water Supply and Sewerage Development Project. Manila; ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People s Republic of China for the Jilin Urban Environmental Improvement Project. Manila; ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People s Republic of China for Songhua River Basin Water Pollution Control and Management Project. Manila. 19 ADB Technical Assistance to the People s Republic of China for the Jilin Urban Infrastructure Project. Manila, and ADB Technical Assistance to the People s Republic of China Preparing the Songhua River Basin Water Pollution Control and Management Project. Manila.

7 Case Studies: Historical Backdrop to Nonsovereign Interventions 7 included a discussion to identify additional avenues for master plan project implementation, recognizing the strained resources of municipalities in the SRB to develop water infrastructure. Tongfang (Harbin) Water Engineering (TWE), a subsidiary of the publicly listed Tsinghua Tongfang Co., Ltd established in 2004, was identified as a private sector provider of sanitation projects in Heilongjiang. 20 ADB approved a loan and equity investment for TWE in 2010 (Box 1) and a loan for TWE s successor entity, Longjiang Environmental Protection (LJEP) Group, in 2012 (Box 2). 21 The subprojects supported by ADB s financing projects were to deliver 2 million tons per day of additional wastewater treatment capacity, upgrades to existing wastewater treatment facilities delivering 200,000 tons per day, and 1,300 tons per day of sludge treatment through public private partnerships (PPPs). 30. Both TWE (Phase 1) and LJEP (Phase 2) loans were prepaid in In 2017, LJEP became a subsidiary of Shanghai Industrial Holdings Limited (a publicly listed arm of Shanghai State-owned Assets Supervision and Administration Commission) and ADB exited its equity investment. 31. It should also be noted that the ability of TWE or LJEP to undertake the PPPs relies on both cost recovery water tariffs 22 and the policy on entry of the private sector into wastewater treatment. 23 ADB had contributed to both of these. These projects expanded the PPP modality, reforming the delivery of these services through the private sector rather than through municipalities. The use of PPPs for water and water treatment has become a mature industry in the PRC, with the implementation of these projects under the original master plan among the milestones reforming the approach to deliver these services. 20 Tsinghua Tongfang Co s largest shareholder in 2010 was Tsinghua University, which held 29.4%. TTC s management is independent and the company was not involved in any other business or activity of Tsinghua University in ADB Report and Recommendation of the President to the Board of Directors: Proposed Equity Investment and Loan to Tongfang (Harbin) Water Engineering Co., Ltd for the Songhua River Basin Water Pollution Control and Management Project Private Sector Facility. Manila; ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan to Longjiang Environmental Protection Group Share Company Limited for the Songhua River Basin Water Pollution Control and Management Project Private Sector Facility, Phase 2. Manila. 22 The TA produced the National Guidelines on Water Tariffs, in line with the conclusions of a workshop conducted in July 1998, that full-cost recovery must the primary objective in tariff setting, and that tariff structure and approval process needed to be simplified. See ADB Technical Assistance to the People s Republic of China for the Water Supply Tariff Study. Manila. 23 This provided inputs for a draft water pollution law that set water pollution standards. The law spurred subsequent policy activity to create an enabling environment for government and/or private sector projects to achieve the stipulated water quality standards. See ADB Technical Assistance to People s Republic of China for Legislative Reform for Protecting Environment and Natural Resources. Manila.

8 8 Linked Document 6 Box 1: Tongfang (Harbin) Water Engineering Col, Ltd. Songhua River Basin Water Pollution Control and Management Phase 1 (Loan and Equity Investment, approved in 2010) The ADB PRC resident mission and the Private Sector Operations Department jointly began discussions with Tongfang (Harbin) Water Engineering (TWE) in 2007 through a seminar to identify additional avenues to deliver the Songhua River Basin Water Pollution Prevention and Control Master Plan. ADB had previously provided substantial inputs to the master plan through a series of TA projects implemented during In 2010, ADB approved a loan and equity investment to TWE to continue to expand its water supply and wastewater treatment projects in Heilongjiang province. a The plants are implemented under 25- to 30-year public private partnership (PPP) concessions to rehabilitate or build new projects that expand and upgrade wastewater treatment and water supply facilities. All the planned PPP projects for TWE rely on either local government or state-owned water companies backed by local governments for payments on water supply and wastewater treatment services. End-user payments for water services are made to the municipalities or water companies and supplemented by municipal budgets. These undertakings are further supported by the Heilongjiang provincial government, which signed a memorandum of understanding to procure, supervise, and inspect the local governments to pay all water supply and wastewater treatment tariffs under all concession agreements in June 2009 (prior to ADB s approval). ADB s financing structure used TWE s guarantee to lend to TWE subsidiaries and enabled the subsidiaries to make equity investments in individual PPPs. ADB s equity investment was a strategic investment made in advance of TWE s planned initial public offering (IPO) to increase its capital base, diversify its shareholding structure, and improve its independence. ADB s specific focus with its equity stakeholding was to assist TWE in improving its environmental and social management system. ADB was entitled to nominate a nonexecutive director on the TWE board. a ADB Report and Recommendation of the President to the Board of Directors: Proposed Equity Investment and Loan to Tongfang (Harbin) Water Engineering Co., Ltd for the Songhua River Basin Water Pollution Control and Management Project Private Sector Facility. Manila. Box 2: Longjiang Environmental Protection Group Share Company Limited Songhua River Basin Water Pollution Control and Management Phase 2 (Loan approved in 2012) In 2012, ADB maintained its equity investment and approved an additional loan guaranteed by Tsinghua Holdings Company to Longjiang Environmental Protection (LJEP) Group to finance sludge treatment and disposal subprojects and upgrades to existing wastewater treatment plans (separate to the wastewater treatment plants financed in Phase 1). a Untreated sludge is the waste by-product of sewage treatment, with the sludge to be treated by LJEP coming from LJEP s own wastewater treatment plants. Many wastewater operations only dry or thicken the sludge before disposing of it in landfills and therefore, this project is expected to demonstrate the commercial viability of treating the sludge. a ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan to Longjiang Environmental Protection Group Share Company Limited for the Songhua River Basin Water Pollution Control and Management Project Private Sector Facility, Phase 2. Manila.

9 Case Studies: Historical Backdrop to Nonsovereign Interventions 9 Table 2: People s Republic of China: Songhua River Basin Projects Loan/Investment Number Project Title Approval Date Amount ($ million) Documents Sovereign Songhua River Flood Management (Sector) 20 Sep RRP, PCR, PVR Project Jilin Water Supply and Sewerage Development 18 Jul RRP, PCR, PVR Jilin Urban Environment Improvement Project 29 Oct RRP, PCR, PVR Songhua River Basin Water Pollution Control and Management Project 11 Dec RRP, PCR, PVR Subtotal Nonsovereign Songhua River Basin Water Pollution Control 16 Apr RRP and Management Project Private Sector Facility Songhua River Basin Water Pollution Control and Management Project Private Sector Facility, Phase 2 8 Nov RRP Subtotal Technical Assistance Legislative Reform for Protecting the 18 May TA report, TCR Environment and Natural Resources Water Supply Tariff Study 24 Mar TA report, TCR Preparing the Songhua River Flood, Wetland, 27 Dec TA report and Biodiversity Management Project Songhua River Water Quality and Pollution 19 Dec TA report, TCR Control Management Preparing the Jilin Urban Infrastructure Project 22 Jun TA report Preparing the Songhua River Basin Water Pollution Control and Management Project 27 Sep TA report Subtotal 5.2 Grand Total PCR = project completion report, PVR = project/program completion report validation report, RRP = report and recommendation of the President, TA = technical Assistance, TCR = technical assistance completion report.