The Three gorges dam is a hydroelectric dam that spans the Yangtze River by the town of Sandouping, located in Yiling District, Yinchang, Hubeiprovince, China. It is the world's largest power station in terms of installed capacity (22500 MW). The project was completed and fully functional as of july 4, 2012. The construction of the dam body was completed in 2006. The electric generating capacity of the dam is 22,500 MW.
The Three Gorges Dam includes three areas: the dam itself, a hydroelectric, and a system of locks. The height of the Three Gorges Dam is 185 meters (607 ft) above the sea level. It is about 2,300 meters (7,546 ft) long and about 115 meters (377 ft) wide. With a water capacity of 39.3 billion cubic meters, the dam holds a huge reservoir which will efficiently prevent flooding in the middle and lower portions of the Yangtze River. It stretches more than two kilometres across one the greatest rivers in the world, the Yangtze. The dam was built in the stretch of Yangtze known as the three gorges( the Xiling, Wu and Qutang) because of the canyons formed by the immense limestone cliff.
In 1986, Chinese Ministry of Water Resources and Electric Power asked the Canadian government to finance a feasibility study to be conducted by a consortium of Canadian firms.The consortium, known as CIPM Yangtze Joint Venture, included three private companies (Acres International, SNC, and Lavelin International), and two state-owned utilities (Hydro-Quebec International and British Columbia Hydro International). The World Bank was asked to supervise the feasibility study to ensure that it would "form the basis for securing assistance from international financial institutions" . On April 3, 1992, the National People's Congress officially approved the construction of the project. On December 14, 1994, the Chinese government formally began construction. The first electricity was produced in 2003, and the physical dam was mostly completed in 2006. The primary objective is for harnessing and developing the Yangtze with comprehensive benefits mainly in flood control, power generation and navigation improvement. One of the other project's objectives is to generate renewable and sustainable electricity in order to reduce the reliance on conventional thermal energy (i.e., coal, oil, natural gas) and thus curtail carbon dioxide emissions in China.
CONSTRUCTION
It has taken 17 years to complete the entire project. The construction of the Three Gorges project is planned in three phases. The first phase(from 1993 to 1997) was the building of a 790 meter long by 60 meter high coffer dam on the Yangtze River and the diversion cannel to carry shipping around the project. These were completed in November of 1997. The second phase lasted 6 years from 1998 to 2003. During this period, the work was focused on constructing the cofferdam (a temporary barrier that keeps water out of a normally submerged area), the locks, and the hydroelectric. During the third phase (from 2003 to 2009), the installation of all machinery, the construction of the power station and the dam on the right bank were finished.
PROJECT FINANCE
The total budget of the project was 90.09 million Yuan (about 8.8 million Euros/ $24 B US) based on May 1993 prices, among which 50.09 billion Yuan (4.89 billion Euros) were assigned for the construction, and 40 billion Yuan (3.91 billion Euros) for the resettlement, given that more than 1.1 million people should be displaced from their homes. The total cost after the finalization of the dam in 2009 was estimated, to reach 203.9 billion Yuan (19.92 billion Euros)24 due to the inflation but also to the overrun in the costs (Wang, 2002), Nevertheless, a recent (2006) revision of the costs has reduced the budget to 180 billion Yuan (17.58 billion Euros). To obtain the funds for building the dam, the Chinese government initially asked to international lending organizations for funding.
However, the World Bank -usually the main donor for the great development projects in low-income countries-, the Asian Development Bank, and the US Export-Import Bank, refused to finance the dam construction due to the environmental and social concerns involving the project. In 1993, as an indispensable part of the preparatory stage of the Three Gorges Dam project, fund-raising started. The Chinese State compromised to provide half of the total investment needed, mainly through domestic power sales tax, revenue from the Gezhouba Dam power plant, and even from the Three Gorges Dam itself after first turbines are operating. China Development Bank offered an additional funding of 30 billion Yuan (2.93 million Euros), and other loans came from China Construction Bank, Industrial and Commercial Bank of China, but also from foreign credit agencies.
The plan to relocate more than 1 million people from the areas to be inundated was also officially launched during the Phase I -in concrete in 1995-, although a resettlement pilot project was performed between 1985 and 1993 (Wang, 2002). In 1997, at the end of Phase I, Chinese authorities reported that more than 100,000 people were satisfactorily resettled.
SOURCES OF FUNDS
1. The Three Gorges Dam Construction Fund
2. Revenue Gezhouba Power Plant
3. Policy loans China Development Bank
4. Loans domestic foreign commercial banks
5. Corporate bonds
6. US $12 billion from a tax on household electricity (Bloomberg markets estimate
December 2001)
7. International countries
The massive and long-term TGP construction necessitates diversified financing channels, which mainly consist of capital in cash from China government, loans from the State Development Bank of China (SDB) and domestic commercial banks, corporate bonds, equity financing, and export credits and foreign exchange loans from foreign syndicate.
Capital in cash:
Include Three Gorges Project Construction Funds (up price caused by power). Power revenues from Gezhouba Hydropower Plant (Before the restructuring), Reimbursement from income taxes and dividends of China Yangtze Power Company Ltd. (CYPC), Power revenue and reimbursement from income from Three Gorges Power Station. These four sources contribute nearly RMB 80 billion yuan to the project, accounting for approximately 45% of the total project investment (RMB 180 billion yuan). The Three Gorges Project Construction Funds, invested into the project construction as the state capital in cash, is the most reliable financing source.
Policy loans from SDB:{state development bank}
SDB, as a national policy bank, started to provide loans for TGP at the initial construction of the project. SDB provided the loan from 1994 to 2003 with an annual sum of RMB 3 billion yuan, totaling RMB 30 billion yuan which played an active role in the smooth progress of the construction. It is one of the most stable financing sources.
Corporate bonds:
Low-cost construction fund was raised directly from the capital market. Up to the end of 2003, six Three Gorges Bonds were issued with total proceeds of RMB 19 billion yuan.
Equity financing:
CYPC as a new window for CTGPC's equity financing, was successfully listed on capital market in 2003, and broadened the financing channel for TGP construction.
Loans from domestic commercial banks, export credits, foreign exchange loans from foreign syndicates: The remaining loans amounted to RMB 11 billion yuan until the end of 2003
International countries- a look at the countries and campanies involved and an overview of the contracts signed by them
Brazil - The 18,000MW Three Gorges project used turbines produced in Brazil by Alstom Energia do Brasil and Voith Siemens do Brasil. The Alstom contract is reported to be worth US$221M. The contract with Voith was estimated to cost around US$50M
Canada - AGRA Monenco, AGRA Monenco, had signed a letter of intent with the Three Gorges dam's project manager, China Yangtze Three Gorges Project Development Corporation to provide a $25-million project management system for the Three Gorges project.
Dominion Bridge Inc., a Quebec-based company, announced in 1994 that it had signed a deal with Sichuan province and Chongqing city to build a $64-million cement plant that will supply cement for construction of the Three Gorges dam.
GE Canada, is a member of a consortium - including Siemens and Voith of Germany and Sade Vigesa of Brazil . The contract, valued at US$320 million, was awarded in August 1997. Canada's Export Development Corporation (EDC) is providing a US$153 million loan to finance it.
Hydro-Québec International is signed a $2.85-million [US$1.9 million] contract in June 1999 with China Power Grid Development Company to supervise installation of a 900-kilometre transmission line from the Three Gorges dam to Changzhou, 80 kilometres northwest of Shanghai.
France - Electricité de France, in partnership with the French Technical Supervision Bureau (BV), won a US$5.8-million contract to supervise manufacturing of the dam's generator sets
Alstom GEC-Alsthom, an Anglo-French electrical equipment and engineering company (also known as Alstom), is a member of a consortium, agreed to set up a joint venture with the Beijing Capital Electromechanical Holding Company and its subordinate Beijing Heavy Electrical Machinery Plant to manufacture 600 MW steam turbines and generators.
Germany - Siemens, a Munich-based electrical equipment and engineering company, is a member of an international consortium, including GE Canada and Voith Hydro, that won a US$320-million contract to supply six turbine-generator units to the Three Gorges project.
Germany's export credit agency, KfW (Kreditanstalt für Wiederaufbau), and three commercial banks, DG (Deutsche Genossenschaftsbank) Bank, Dresdner Bank, and Commerzbank, provided a US$271-million loan for the purchase of German turbine-generator units. German export credit agency, Hermes Kreditversicherungs AG, provided an export credit guarantee to Siemens and Voith.
Italy - Cifa is supplying one of four major concrete batching plants for the Three Gorges project.
ENEL, the state utility responsible for electricity generation, conducted a study on the second stage of the dam. The study was financed by an Italian government grant.
SWEDEN
National Energy Administration conducted a study of the ship locks from 1985 to 1987 which was financed by the Swedish government.
In 2002 IFS announced an agreement with the Three Gorges Project Corporation for the implementation of IFS Applications. The contract is valued at RMB 8 million (approximately USD 1 million. The system went live at the end of 2003. IFS (Industrial and Financial Systems) is a global business software company listed on the Stockholm Stock Exchange (XSSE:IFS).
United states - The U.S. Three Gorges Working Group included representatives from the U.S. Bureau of Reclamation, the U.S. Army Corps of Engineers, the American Consulting Engineers Council, Guy F. Atkinson Company, Bechtel Civil and Mineral Inc., Coopers and Lybrand, Merrill Lynch Capital Markets, Morgan Bank, Morrison-Knudsen Inc., and Stone and Webster Engineering Corporation. Morgan Stanley's financial involvement in the Three Gorges Dam Co lead and manager of $830 million in bonds for the China Development Bank.
World Bank, a multilateral lending institution and leading financier of the Chinese state, approved a US$200 million loan to Chongqing municipality in June 2000 for a US$500 million project that includes wastewater treatment facilities and solid waste collection services in areas impacted by the Three Gorges dam.
Export credit agencies
Brazil - Banco Nacional de Desenvolvimento Economico e Social (BNDES) - $202 million loan
Canada - Export Development Corporation - $201 million {23+25+153} loan
France - Banque Nationale de Paris (& Banque de Paris et des Pays Bas, Midland Bank SA) - $94.815 million loan
GERMANY (and three commercial banks, Deutsche Genossenschaftsbank, Dresdner Bank, and Commerzbank) Hermes Kreditversicherungs AG - $271-million loan for the purchase of Siemens and Voith turbine-generator units (1997). $40 million export credit guarantee to Siemens and Voith.(1997). $80 million loan for the purchase of Siemens transformer equipment (1999). $52.9 million export credits guarantee (1999).
JAPAN Export Import Bank of Japan (JEXIM) and Ministry of International Trade and Industry (MITI)
SWEDEN Svensk Exportkredit (and Société Générale of France, Australia-New Zealand Banking Group, and Credit Agricole Indosuez)
Financiers Buyers and Underwriters of China's State Development Bank Bonds
China's State Development Bank made its first commitment to the Three Gorges project in 1996 with a ten-year $3.6 billion loan, making the dam the SDB's number one debtor. The bank has injected about $15 billion into the construction of hydroelectric, nuclear, and thermal power stations, including the Three Gorges project.
The SDB receives its capital and funding from the government. It also issues debentures to domestic financial institutions, construction bonds in China, and bonds in international capital markets; and it borrows money from foreign governments, international financial institutions, and foreign commercial banks. Sovereign guarantees make these debt instruments relatively risk free.
The promise of sovereign guarantees was the inducement the private sector in the industrialized countries needed to invest in Three Gorges. In 1996, the SDB launched its first international bond offering, ¥30 billion ($269 million) underwritten by Nomura Securities and IBJ Securities of Japan. SDB issued its second bond issue in January 1997. This time $330 million in bonds was underwritten by Lehman Brothers, Credit Suisse First Boston, Smith Barney Inc, J.P. Morgan & Co, Morgan Stanley & Co Incorporated, and BancAmerica Securities Inc. BancAmerica Securities announced on December 17, 1997 that it would not invest in Three Gorges in future, in response to public pressure from environmental and human rights groups.
In May 1999, SDB (now called China Development Bank) issued a $500 million bond. Merrill Lynch & Co. (a subsidiary of Citigroup) and Chase Manhattan Bank were the lead managers for the bond issue, each responsible for underwriting $225 million. Chase Securities, J.P. Morgan and Morgan Stanley Dean Witter contributed $6.25 million each; Credit Suisse First Boston and Goldman Sachs each contributed $1.25 million.
Morgan Stanley helped underwrite a total of US$830 million in bonds to the China Development Bank, the single largest funding arm for the dam, in 1997 and 1999. The firm's continue involvement with the dam is through their joint venture with the China International Capital Corporation, the lead advisor on raising overseas capital for the Three Gorges Project Corporation. CCIC is managed and 35 percent owned by Morgan Stanley. Goldman Sachs, UBS, HSBC and others were hired by the China Development Bank to help raise €500m (US$600 million) from within Europe and by the Chinese Export Import Bank (CEIB) to place a further $1bn (£540m) worth of bonds worldwide. In July 2004 the China Development Bank registered a $500 million bond sold by Morgan Stanley with the Securities and Exchange Commission (SEC). Earlier that month, the Export Import Bank of China issued $750 million in 144a private placement notes (named after the SEC rule governing them) sold by Citigroup and other banks.
Advisers and Underwriters of China Construction Bank's Initial Public Offering
China Construction Bank held its IPO on the Hong Kong Stock Exchange in October 2005. Underwriters were Morgan Stanley, China International Capital Corp, and Credit Suisse First Boston Corp. It was reported that Morgan Stanley would receive US$80 million for advising China Construction Bank on this listing. Morgan Stanley had been working on the deal for at least two years and would claim about 40% of the total fees, estimated at US$200 million. Credit Suisse, hired only two months before the listing, was expected to claim 10% of the fees.
(Xinhua Financial Network News, "China Construction Bank IPO draws more than 80 bln USD subscription - sources," October 20, 2005)
Underwriters of Yangtze Power's Initial Public Offering
In November 2003 Yangtze Power launched its initial public offering in China's domestic A-share market. The company said it would use the money collected from the stock market to finance its acquisition of four power generators from its parent company - Three Gorges Project Corp. CITIC Securities was the lead underwriter for the IPO.
(Chen Yao, "Yangtze Power Launches IPO," Business Weekly, November 25, 2003; Agence France-Presse, "China Yangtze Power retail shares oversubscribed 68.7 times," November 6, 2003; Agence France-Presse, "China Yangtze Power institutional offer 84 times oversubscribed," November 7, 2003)
Foreign Investors in Yangtze Power's Initial Public Offering
Foreign investors, including UBS AG and Deutsche Bank AG, subscribed to shares under the qualified foreign institutional investor (QFII) program.
(Chen Yao, "Yangtze Power Launches IPO," Business Weekly, November 25, 2003; Agence France-Presse, "China Yangtze Power retail shares oversubscribed 68.7 times," November 6, 2003;Agence France-Presse, "China Yangtze Power institutional offer 84 times oversubscribed," November 7, 2003)
INTERNATIONAL FUNDING
International funding for the Three Gorges Dam project is a major factor in its construction. Companies and banks from Canada, France, Germany, Switzerland, Sweden, and Brazil have all played a role in financing the dam. Government export credit agencies have loaned the Three Gorges Project Development Corporation more than $1.4 billion for the project. China Development Bank has loaned $3.6 billion for the Three Gorges Dam project, making it the primary lender.
There are five main companies in Canada who are helping to finance the project. AGRA Monenco, an international engineering and construction management company, signed a $25 million contract in 1994 for a project management system to provide systems layout and engineering, testing, operational guidance, and training. A year later, they signed another deal for $12.5 million in system management technology and training. This contract was financed by Canada's Export Development Cooperation (EDC). The Dominion Bridge, Inc. signed a $64 million contract with Chongquing City and Sichuan province for the construction of a cement factory to supply the dam with cement. The EDC financed $23.5 million of this contract for machinery and electrical equipment. General Electric of Canada, in a consortium with Siemens and Voith-Hydro, German engineering companies, signed a $320 contract in 1997 to provide six turbine generators for the dam. EDC is providing $153 million to finance GE Canada. Hydro-Quebec International, an electric utilities company, agreed to supervise the construction of a 900 kilometer transmission line from the Three Gorges Dam to Changzhou in a $1.9 million contract with China Power Grid Development Company. The French electrical equipment and engineering company GEC-Alsthom signed a $400 million contract in 1997 in a consortium with Asea Brown Boveri (ABB) and Kvaerner Energy, Swiss and Norwegian electrical equipment companies, to supply eight turbine generators for the Three Gorges Dam. GEC-Alsthom contribution is worth $212 million. In 2000, GEC-Alsthom agreed to supply the left bank power system of the dam with electrical system equipment in a $12.76 million deal. Electricité de France signed a $5.8 million deal to supervise the production of the generators in 1999.
Kreditanstalt für Wiederaufbau, a German export credit agency, along with the banks Deutsche Genossenschaftsbank, Dresdner Bank, and Commerzbank, provided $271 million to finance Siemens bid in the consortium with GE Canada and Voith-Hydro to provide six generators to the dam. Siemens also signed an $80 million contract in 1999 to supply fifteen transformers in Changzhou at the power converter stationed there. The funding for this contract again comes from Kreditanstalt für Wiederaufbau, Deutsche Genossenschaftsbank, Dresdner Bank, and Commerzbank. Siemens and Voith-Hydro merged in 1999 to form the new company Voith Siemens Hydropower Generation, which signed a $12.79 million contract to contribute electrical system equipment to the left bank power system of the dam. GEC-Alsthom signed a similar contract the same day.
CHINA DEVELOPMENT BANK
Project costs, are expected to be $24.6 billion, which includes $4.8 billion that the government plans to inject to cover the relocation of approximately 1.9 million people who live in the affected areas, along with many ancient artifacts and temples that reside in the affected regions.
The Bank has committed RMB 30 billion in loans to the project, RMB 17.9 billion of which has already been funded. CDB has also assisted in raising and on-lending overseas export loans of approximately $1.1 billion for dredging and construction machinery and equipment.
The bank has granted 47.8 billion yuan in loans to Three Gorges Corp. and its affiliates to date.
The companies that gave life to the Three Gorges Dam are BC Hydro International, Hydro-Quebec, SNC-Lavalin and Acres International. AGRA Monenco, an international engineering and construction management company signed a $25million contract in 1994 and another for $12.5 million in 1995, with Canada's Export Development Cooperation (EDC) financing this contract. Dominion Bridge Inc. signed a $64 million contract with Chongqing and Sichuan Province, and EDC financed $23.5 million of this contract. General Electric of Canada, in a consortium with Siemens and Voith-Hydro, German engineering companies, signed a $320 million contract in 1997, and EDC provided $153 million to finance GE Canada. Hydro-Quebec International signed a $1.9 million contract with China Power Grid Development Company.
THREE GORGES DAM CONSTRUCTION FUND
Sources for funding include the Three Gorges Dam Construction Fund, revenue from Gezhouba Dam, policy loans from the China Development Bank, loans from domestic and foreign commercial banks, corporate bonds, and revenue from Three Gorges Dam before and after fully operation, additional charges in electricity to from the Three Gorges Construction Fund. The additional charges works as follows: Every province receiving power from Three Gorges Dam has to pay an addition charge of ¥7.00(US $0.90) per thousand kWh for every kWh it consumes. Every province who won't receive power from Three Gorges Dam has to pay an addition charge of ¥4.00(US $0.51) per thousand kWh for every kWh it consumes. Tibet doesn't have to pay any additional money.
REFERNCES
http://www.cdb.com.cn/english/NewsInfo.asp?NewsId=336 - CHINA DEVELOPMENT BANK
http://www.hydroworld.com/articles/2010/10/china-development.html - hydro world.com
http://harmonyfdn.ca/?p=350 harmony foundation
http://www2.pittstate.edu/reuret/ethics06/derrick06ethics.pdf - PSU-CNCMM Graduate Research, three gorges dam.
http://www.yangtzeforum.com/detail/20060903/69158.asp - essentials of three gorges dam project.
http://www.mtholyoke.edu/~lpohara/Pol%20116/funding.html - Three gorges dam project -funding
http://www.oocities.org/simon22chen/articles/mark/Three_gorges_dam_project.htm - The three gorges dam project by Mark Wong
http://toxipedia.org/display/toxipedia/Three+Gorges+Dam - Toxipedia.
http://www.china-embassy.org/eng/zt/sxgc/t36502.htm - Embassy of people of republic of china in United states of America.
www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&cad=rja&ved=0CEgQFjAD&url=http://probeinternational.org/library/wp-content/uploads/2012/01/Behind3GInternational.pdf&ei=HCK7UKqCFYmj0QWphoGYAQ&usg=AFQjCNGySfsFtjQumgP0OgEVbZhaAVeSUg - Probe international's article - whose behind the three gorges dam financing.
