ADB’s loan will help finance construction of a 50.5MW power plant in Erlongshan and a 60MW power plant in Dagushan as part of the Heihe scheme, which began construction in 1996.

This scheme involves seven run-of-river medium hydropower plants that together will produce 645.5MW of hydropower. Two power plants are already in operation and two more will be in operation by next year, one of which – the 102 MW power plant in Xiaogushan – was funded by ADB. The seventh power plant is expected to be built under a public-private partnership.

With more than 80% of Gansu’s electricity produced by coal-fired power plants, 13 of the province’s 14 cities do not meet air quality standards. Its capital, Lanzhou, has the worst air pollution index of 47 major cities, with some parts, such as the Hexi corridor, suffering from chronic power shortages, says ADB.

“The project, an integral part of the provincial government’s plan to expand power generation in a least-cost manner, will help alleviate power shortages in the Zhangye and Hexi corridor,” says Ashok Bhargava, an ADB senior energy specialist.

Upon completion, the project will avoid about 1 million tons of coal use per year of operation. It is expected to be eligible for generation of certified emission reductions under the clean development mechanism (CDM).

The Erlongshan project is expected to be one of the first eligible for carbon financing through the Asia Pacific Carbon Fund under the recently ADB approved Carbon Market Initiative.

The total project cost is estimated at $110 million, of which $37.86 million will be financed through domestic commercial bank loans, and $22.14 million by the city government and the Heihe Hydropower Development Company.

ADB's support comes in the form of a multitranche financing facility, from its ordinary capital resources, with interest to be determined in accordance with ADB's LIBOR-based loan facility. The Gansu Provincial Government is the executing agency for the project, which will be carried out over seven years.