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No. 10 of 2009 (Serial No. 42): Audit Findings on the Jinshajiang Xiluodu Hydropower Plant (Phase 1)
2010-02-22日   Soure : :

Audit Findings on the Jinshajiang

Xiluodu Hydropower Plant (Phase 1)

(Announced on July 20, 2009)

In compliance with the relevant provisions of the Audit Law of the People’s Republic of China, in 2007 and 2008 the National Audit Office (CNAO) performed successive follow-up audits of the construction management and resettlement of emigrants of the Jinshajiang Xiluodu Hydropower Plant (referred to hereafter as “the Xiluodu project”) built with the investment of the China Three Gorges Project Corp (referred to hereafter as “the Three Gorges Corp”). The audit of Phase 1 has come to an end and the audit findings are hereby announced as follows:

1.       Overview of the Xiluodu Project

The Xiluodu project is one of the four large hydropower plants on the lower reaches of the Yangtze River undertaken by the Three Gorges Corp and Phase 1 of the national project of west-to-east electricity transmission. Its designed installed capacity is 12.6 million kilowatts. The project was approved in 2002 by the former State Planning Commission. In November 2005, the feasibility study report and design were approved and its total investment was 67.478 billion yuan, of which the total static investment was 50.342 billion yuan and the interest of the loans during the construction would be 17.136 billion yuan. The source of the construction fund came from the self-owned fund of the enterprise, enterprise bond and bank loans. The duration of the construction was 13 years. Work on the project started in March 2003 and in November 2007 the damming of the river was completed. At present, communication into and out of the construction site, construction camp site and diversion work have been all basically completed and the excavation for the underground workshops and the main dam is on-going. By August 2008, the Three Gorges Corp had accumulatively raised a total of 15.868 billion yuan of construction fund and made 15.295 billion yuan of investment.

According to the plans for the requisition of construction land and resettlement of and compensation for emigrants in the feasibility study period of the Xiluodu project as approved by the National Development and Reform Commission, the provisional estimate of investment for the requisition of construction land and the resettlement of and compensation for the emigrants stood at 7.78 billion yuan. The Three Gorges Corp signed lump-work agreements with Sichuan and Yunnan provinces, worth respectively 3.46 billion yuan and 4.32 billion yuan. By the end of August 2008, the two provinces had accumulatively received from the Three Gorges Corp 2.074 billion yuan of appropriated fund for relocation, accumulatively allocated 1.417 billion yuan, used 230 million yuan themselves with the balance standing at 448 million yuan (including revenue from interest). The submerged area of the reservoir of the Xiluodu Hydropower Plant covers eight counties and one district of Sichuan and Yunnan provinces and the total planned number of emigrants was 61,035 people. By the end of August 2008, 9,639 people had been relocated and resettled from the construction site and cofferdam-encircled site and the resettlement of the emigrants of the reservoir area was on-going.

2.       Audit Evaluation

The audit findings indicate that under the development concept of “building an electric plant, driving the economic development of an area, improving the environment of the area, benefiting a batch of emigrants”, the Three Gorges Corp and other construction units, overcame difficulties of long construction cycle, complicated technologies, heavy task of resettlement of emigrants, gradually set up and improved various internal control systems and fulfilled the construction tasks of the phase relatively well.

(1)    The construction fund was comparatively well managed and used. The Three Gorges Corp attached importance to financial management and, in accordance with the requirement of the feasibility study report and the need of the progress of the project, raised in a timely manner the construction fund. The internal control systems were relatively adequate and accounting practice and financial management standardized. The audit did not find any problem of embezzling and seriously misappropriating construction fund.

(2)    The management of project construction was constantly stepped up and gradually standardized. After the audit of the Three Gorges Project in 2006 by CNAO, the Three Gorges Corp learned by analogy, enhanced its management of the Xiluodu project, refined the planning of the project, management of the contracts and the quality and safety management process, adopted advanced information management system in control so that the management of project construction was gradually improved, with the good-to-excellent ratio of the completed projects reaching 90%.

(3)    Setting up a system of market access, continually standardizing the conduct of construction enterprises. On the basis of summing up the experience in the construction of the Three Gorges Project and in line with the present situation of the domestic construction market and the actual conditions of the Xiluodu project, the Three Gorges Corp drew up numerous management systems, introduced a system of market access for construction teams on the construction market, conducted closed operations for construction fund of the project and regularly cleaned up unqualified construction teams and effectively ensured the smooth implementation of project construction.

(4)    The two provincial governments of Sichuan and Yunnan actively organized and coordinated, so the resettlement of the emigrants proceeded basically smoothly. The two provincial governments set big store by the resettlement of the emigrants, set up and improved management agencies of emigrants, formulated many management rules on the fund for emigrants. The management units of emigrants at various levels overcame difficulties such as insufficient staff, heavy tasks and adjustments in the policy on the resettlement of emigrants and actively organized the implementation of the resettlement of the emigrants and the investigation and re-checking on the quotas of supplies so that the construction of the project was implemented favorably.

The audit found problems, which affected the efficiency of investment of the project, in investment control, construction schedule, bidding, management of associated enterprises in the Xiluodu project. Problems also existed in the schedule of the resettlement of emigrants and the use and management of fund of relocation in Sichuan and Yunnan provinces, which warrant improvement.

3.       Principal Problems Discovered in the Audit

(1)    The provisional estimate of project implementation was not drawn up, the control targets of investment were not explicit and the control and management of investment remained to be fostered.

Work on the Xiluodu project started in 2003, various contracts were signed worth 38 billion yuan and 15.2 billion yuan of investment was accumulatively made. The Three Gorges Corp, however, has not yet drawn up the provisional estimate for project execution. Due to lack of control standard and grounds for subordinate units and sub-projects in the project investment, problems of inadequate implementation of contracts and lax examination and checking of project cost appeared in the project, which led to the increase of project cost and the cost of some individual projects surpassed the figures in the provisional estimate of the feasibility study. According to the statistics on 264 contracts of construction and installation with more than 90% of the work finished, the original value of the contracts stood at 3.817 billion yuan. By the end of August 2008, 1.097 billion yuan of investment had accumulatively been added, representing 28.74% of the total. Due to not implementing the provisional estimate, it is difficult for the audit to make an assessment on the overall investment control.

(2)    Shortening the duration of project construction by a big margin increased to a certain extent risks for the construction project.

According to the feasibility study report, work on the Xiluodu project was scheduled to start early in 2002 and the damming of the Jinshajiang River to be realized in November 2008. In fact, the work started in March 2003 and the damming of the river was completed in November 2007. With the start of the work postponed for 15 months while the damming of the river advanced by 12 months, the duration of project construction was cut back by 27 months. This has increased the risks and difficulties of project construction and its cost. According to the statistics about the construction and installation of 45 projects of communication with the outside, the value of their contracts stood at 2.014 billion yuan and, due to the meeting of the deadline of the project and other reasons, numerous changes took place, which led to the settlement at 2.685 billion yuan with the rate of change reaching 33.32%. The detailed survey of the communication projects with the outside started in August 2003 and the work began in October the same year. Due to the short period of time for the survey and design, the geological survey had not been properly conducted; a major safety accident of gas leakage and fire in the Daluliangzi Tunnel of F section occurred, which forced work stoppage at the entrance of the tunnel for 34 days.

(3)    The management of bidding of some projects was not standardized.

Bidding should be invited for 464 sub-projects in the Xiluodu project, with the value of the contracts standing at 24.898 billion yuan. In actual execution, bidding was not implemented for 219 sub-projects, accounting for 47.2% of the total, with the value of the contracts being 1.679 billion yuan, amounting to 6.74% of the total.

(4)    The management and fulfillment of duties and responsibilities of some associated enterprises were not adequate and these enterprises made illicit revenue.

In the audit, the checking of some randomly-selected enterprises affiliated to the Three Gorges Corp which took part in the construction of the Xiluodu project revealed that some of these enterprises charged more than deserved and did not fulfill their duties and responsibilities properly. For example, the Three Gorges Corp entrusted bidding agency business of the Xiluodu project directly to its subordinate associated enterprise the Three Gorges International Co. According to the internal charging standard of the Three Gorges Corp, the Three Gorges International Co. collected 25.71 million yuan of agency commission, 10.1 million yuan more than the amount charged in compliance with the national standard. In the audit, the checking of 91 projects showed that, due to inadequate drafting and examination of bid documents and inappropriate bid clearing, the description of technical and commercial stipulations in the bid documents of some projects was ambiguous, leading to the addition of 50 million yuan of investment.

From March 2003 to November 2006, the Three Gorges Corp entrusted part of the supervision business of the Xiluodu project directly to its subordinate enterprise the Three Gorges Development Co. and signed 17 construction supervision and other service contracts and agreements, with the total value of contracts standing at 153.2869 million yuan. Subtracting the cost, the Three Gorges Development Co. earned 34.7109 million yuan. In actual supervision process, however, the Three Gorges Development Co. sent gravely insufficient staff to the supervision spots, with their competence being relatively inadequate and their examination and checking not up to the requirement. A random checking of the supervision record of 22 projects revealed that the situation was quite serious that supervisors concurrently covered positions, projects and specialties; a random checking of the name lists of August 2007 indicated that 49 supervisors joined their posts without supervisor’s certificate, accounting for 23% of the staff of the supervision section of the Xiluodu project of the company.

Moreover, the audit also found that the management of contracts and final settlement of some projects in the construction of the Xiluodu project were not sufficiently strict, that the floor areas of the housing for construction, production and management of the project and the investment surpassed the prescribed figures so that the cost of project construction was increased; careless omissions existed in construction quality and safety management of a few projects; more charges of surveying and design than necessary were included in the provisional estimate; and some environmental protection projects did not meet the planned requirement.

(5)    The resettlement of emigrants was not completed as scheduled.

It is mainly that the resettlement of emigrants in the construction area was not totally completed. In 2003, to meet the requirement of project construction, Sichuan and Yunnan provinces took a temporary, transitional measure in starting the relocation of the emigrants from the construction site. Up till now, Sichuan Province has completed the relocation and resettlement of the emigrants of the construction site while the drafting of the implementation plan for resettlement of emigrants of Yunnan Province is yet to be completed.

Moreover, the audit discovered that due to the too many management links, 1.441 billion yuan of emigration fund was not appropriated in a timely manner.

4.       The Addressing of the Problems Exposed in the Audit and Audit Recommendations

With regard to the problems found in the audit, CNAO has issued the audit report and audit decisions in compliance with law and recommended:

(1)    The Three Gorges Corp should draw up as soon as possible the provisional estimate for the implementation of project, step up the effective control of dynamic investment of the project, set up a scientific and rational calculation and final settlement mechanism for cost differences of the project, improve the investment control and management system and earnestly enhance the efficiency of the use of construction fund.

(2)    The Three Gorges Corp should further foster the management of project construction, strictly carry out the Tendering and Bidding Law to ensure open, fair and impartial bidding; enhance the management of contracts, improve the strictness and practicality of bid documents and contract provisions, strictly fulfill the contract stipulations, cut back irrational expenses; foster the management of the associated enterprises, guide them in the participation in bidding competition with market mechanisms and supervise its affiliates in their fulfillment of their obligations and responsibilities in the provisions of the contracts.

(3)    The departments of the state and local governments concerned should strengthen their leadership and coordination, properly handle the contradiction between  developing local economy and controlling project investment, fulfill as soon as possible the implementation plan for the resettlement of emigrants, earnestly abide by the policy on the resettlement of emigrants, improve the relevant measures and ensure social stability.

5.       Rectification of the Problems Found in the Audit

The Three Gorges Corp and the relevant departments attached great importance to the issues and opinions raised in the audit, combined the rectification and strengthening internal control and management, further standardized engineering calculation and contract management and redressed irregularities involving 36 million yuan. They have formulated numerous management rules, adjusted structural setup, added supervisors, identified duties and responsibilities of posts, stepped up training in the knowledge about the positions and technology and improved the supervision and management mechanisms. They cleaned up in a timely manner the unqualified construction enterprises and strictly abided by the system of access. The provincial governments of Sichuan and Yunnan set big store by the rectification of the problems discovered in the audit and, in view of the belated planning for the resettlement of emigrants and inadequate policy, actively studied methods for properly solving the problems. The Yunnan provincial government has instructed the Immigration Bureau to implement the system by which the emigration fund must be allocated within the time limit so as to accelerate the progress in the resettlement of emigrants.