Final Draft Report

PROMOTION OF RENEWABLE ENERGY, ENERGY EFFICIENCY AND GREENHOUSE GAS ABATEMENT (PREGA)

Viet Nam

Oil Coal-Fired Boiler Replacement in Saovang Rubber Company
A Pre-Feasibility Study Report1

May 2004

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Prepared by the PREGA National Technical Experts from Institute of Energy, Viet Nam.

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Table of Content
1. Project summary....................................................................................................................... 6 2. Project site map......................................................................................................................... 7 3. Introduction............................................................................................................................... 7 4. Backgrounds: ............................................................................................................................ 7 4.1. Sector Description ............................................................................................................. 7 4.2. Constraints and issues related to the project ..................................................................... 9 4.3. Sustainable development objectives of the project: ........................................................ 10 4.4. Governmental policies and strategies related to the areas of the project: ....................... 10 4.5. Overlap of the government’s and ADB’s policies and strategies ................................... 11 4.6. Benefits of the project ..................................................................................................... 11 5. General description of the project........................................................................................... 11 5.1. Name of the projects, project country, address and related responsibilities ................... 11 5.2. Necessity of project implementation............................................................................... 12 5.3. Objectives, outputs, activities, scope, specifications and options of the project : .......... 12 5.4. Poverty alleviation .......................................................................................................... 12 5.5. Technology transfer ........................................................................................................ 13 5.6. Main activities and participants in the project ................................................................ 13 5.7. Financial relations between partners............................................................................... 13 5.8. Product information ........................................................................................................ 13 6. Project implementation schedule ............................................................................................ 14 7. Contribution on sustainable development............................................................................... 14 7.1. Long-term reduction of green house gas emission and local pollution reduction .......... 14 7.2. Other benefits (economic, social, environmental...) ....................................................... 18 7.3. Other impacts of the project............................................................................................ 18 8. Base line of the project and calculation of GHG reduction .................................................... 20 8.1. Existing production situation and emission distribution ................................................. 20 8.2. Diagram of existing emission distribution system with main components: ................... 20

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8.3. Information and operation of baseline in existing emission distribution system:........... 21 8.4. Project boundary and monitoring scope.......................................................................... 21 8.5. Methodology on baseline and calculation of emission in baseline ................................. 21 8.6. Calculation of total GHG emission of the project........................................................... 22 8.7. Real emission reduction .................................................................................................. 22 9. Monitoring and checking GHG emission ............................................................................... 23 9.1. Necessary data, quality, accuracy ................................................................................... 23 9.2. Methodology for collection and monitoring database .................................................... 23 9.3. Estimate of costs for monitoring and inspection............................................................. 24 10. Financial analysis of the project: .......................................................................................... 24 10.1. Calculation of Investment cost..................................................................................... 24 10.2. Other costs and input data conditions ........................................................................... 25 10.3 Financial Analysis.......................................................................................................... 26 10.4. Sensitivity Analysis....................................................................................................... 28 11. Economic Analysis ............................................................................................................... 32 11.1. Contents......................................................................................................................... 32 11.2. Poverty reduction impacts............................................................................................. 32 11.3. Social and environmental impacts ................................................................................ 32 11.4. Economic Analysis........................................................................................................ 33 12. The main factors affecting the project .................................................................................. 36 12.1. Regarding policies, laws ............................................................................................... 36 12.2. Regarding the project risk ............................................................................................ 36

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List of Tables
Table 4.2. Technical-economic indicators of existing boilers ...................................................... 9 Table 7.1. Gas emission due to using coal-fired boilers ............................................................. 16 Table 7.2. Gas emission due to using oil-fired boilers ............................................................... 17 Table 7.3. Project implementation schedule ............................................................................... 19 Table 10.1: Components of borrowing capital sources ............................................................. 27 Table 10.2. Results of financial analysis of the project .............................................................. 28 Table 10.3. Sensitivity Analysis with indicators from the point of view of project ................... 29 Table 10.4. Table of Income ................................................................................................... 30

Table 10.5. Financial Analysis for oil- fired boilers project...................................................... 31 Table 11.1. Data input of Economic analysis ............................................................................. 33 Table 11.2. Economic analysis results assessed according to difference of net income of oilfired boilers and coal-fired boilers.............................................................................................. 34 Table 11.3. Economic Analysis: case of replacing old coal-fired boilers after 10 years............ 35

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1.

Project summary

Objectives of Project " Replacement of old coal fired steam boilers of Saovang Rubber Company with new oil fired boilers with equivalent capacity”" report are as follows: • • Identify site for construction of project, determine project size Propose main technical solutions aimed at meeting future steam demand, suitable to business traits and plan of the company, regulations of safe and environment for labors. Determine investment costs of the project. Determine economic, financial effectiveness of the project.

• •

Owner: Sao Vang Rubber Company (SRC) Site: Thuong Dinh industrial zone in Thanh Xuan, Ha Noi Number of replaced boilers: 03 Total steam output: 19 tons/hour (2x6.5+1x6.0) Project lifespan: 25 years Total investment cost: 0.51 mil.US$ Results of analytical calculations of the project are as follows: The project will be put into operation in 2005 and ends in 2030. Total investment cost is US$ 0.51 million, equivalent to VND 7 billion 752 million. Emission reduction: + CO2: 15915.23 tons/year in 10 years + SO2: 108.584 tons/year in 10 years + NOx: 119.977tons/year in 10 years + Dust 2864.2 tons/year in 10 years Financial indicators of the project: FNPV = 39.76 mil. US$ B/C = 1.26

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Comparing between oil-fired boilers and coal-fired boilers, economic indicators are as follows: ENPV = 15.83 mil. US$ B/C = 1.457

The project will contribute in business development, creating new jobs, increasing labor’s income and decreasing harmful pollution effectiveness to labor’s healthy. 2. Project site map (See attached map) 3. Introduction This project feasibility study is under the PREGA project of ADB. This is project contributes to sustainable development. The objectives of the project are to save energy, improve working conditions for laborers, reduce pollution, reduce greenhouse gas emission, and create friendly environment for people. The project consists of the following stages: + Preparation of FS report, submission for approval + Preparation of technical design, bidding documents + Organizing bidding, for selection of bidder + Contract negotiation, approval + Implementation of the project, taking over The Project was started in January 2003 and completed in December 2004. Main consultant agency is the Institute of Energy 4. 4.1. Background Sector Description

By the end of 2001, the number of registered boilers in Vietnam was about 3000. About two thirds of the boilers belong to the government-owned companies and are registered with the Ministry of Industry of Vietnam. Of all the boilers, more than 90% have a capacity of less than 5 tons/hr. Recently on-site surveys indicated that the actual energy efficiencies of industrial boilers were between 30-70% for coal-fired boilers and 47-85% for oil-fired ones. Of all survey boilers, 43% were located in the

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North region, mainly using coal as fuel, while 31% were located in the South region, mainly consuming fuel- oil. Moreover, approximately 39% of oil-fired boilers and more than 47% of coal-fired boilers were manufactured or built before 1975. Many of the boiler systems are very old. Most of the boilers were made in China, and some of them were made in Japan. Vietnam, Russia and the United States. Evidently, there is a huge potential of energy conservation in industrial boilers in Vietnam Rubber sector was born in Vietnam since French occupation time. After a long period, this sector has existed and been developed. So far, in the course of country industrialization and modernization, the sector is paid much attention in development. In parallel with economic development, the sector also invested in reducing environmental impacts. Sao Vang Rubber Company (SRC) is one of pioneering units of the sector. It is located in Thuong Dinh industrial zone in Thanh Xuan district, Hanoi city. It is bordering with the national road No.6 in the north, Khuong Dinh road in the south, lever HASO Joint Venture in the west and access road to Kim Giang in the east. The company was established on 23 May 1960 with initial name of Sao Vang rubber factory. This is one of factories in the North of Vietnam, which were built with technical assistance of the People Republic of China (PRC). Initial capacity of the plant is 100,000 automobile tires and tubes. At present, the company’s product ranges are as follows: + Automobile tire and tube: 200,000 sets + Motorcycle tube: 1,500,000 pieces + Motorcycle tire: 2,300,000 pieces + Bicycle tube: 8,000,000 pieces + Machine accessories (rubber belt: 400,000 pieces) + Batteries: 40,000,000 pieces The company has four production facilities in Hanoi, Thai Binh, Nghe An and Xuan Hoa, of which facility in Hanoi is main production area. The Energy Enterprise is a member unit of SRC based in Hanoi. The main duty of the energy enterprise is managing production and use of steam, compressed air and water resources.

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At present, the energy enterprise has 06 steam boilers with main parameters as follows: Table 4.1. Main parameters of existing boilers
Installation year Medium repair cycle (year) Operation year Manufacture country Output (T/h) Steam parameter

P
(bar)
13 13 13 16 16 16

T ( C)
o

1 2 3 4 5 6

CT 6,5-13-300 No.1 CT 6,5-13-300 No.2 SZL 6-13 DDHI6-16 No.1 DDHI6-16 No.2 DDHI6-16 No.3

China China China Germany Germany Germany

6,5 6,5 6,0 6,0 6,0 6,0

300 300 300 201 201 201

1960 1960 1993 1998 1999 2000

1961 1961 1994 1999 1999 2001

1 1 1 2 2 2

Coal Coal Coal FO FO FO

4.2.

Constraints and issues related to the project Technical - economic indicators of boilers are as in the table below:
Table 4.2. Technical-economic indicators of existing boilers

No.

Name of boiler

Efficiency (%)

Specific fuel consumption (kg/ton)

Electricity consumption (kWh/ton steam)

Steam production cost (VND/ton steam)

1

CT 6,5-13-300 No.1 CT 6,5-13-300 No.2 SZL 6-13 DDHI6-16 No.1 DDHI6-16 No.2 DDHI6-16 No.3

40%

200

10

126,000

2

40%

200

10

126,000

3 4 5 6

50% 90% 90% 90%

200 60 60 60

10 5 5 5

126,000 315,000 315,000 315,000

Remarks

Name

Fuel

No.

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From the above six boilers, three Chinese coal boilers have backward technologies, long time operation, low efficiency, not treated flue gas led to emitting dust and harmful gas and increasing green house gas. Together with negative environmental impacts, the steam quality is not stable, operation is not reliable and workers have to work very hard in harmful conditions. Replacement of the above coal fired boilers by oil fired ones will overcome the mentioned problems. This is main activity of the project. 4.3. Sustainable development objectives of the project:

Replacing old backward coal fired by advanced oil fired boilers will achieve the following objectives: + Higher efficiency of boiler (90% compared to 60%), saving fuel + Fuel is changed from coal to oil will save area for fuel storage, ash field and reduce green house gas emission, eliminating dusts and harmful gases emission. + Operation will be 100% automatic, improving working conditions. 4.4. Governmental policies and strategies related to the areas of the project: Policies on energy resources: promote exploration, exploitation and effective conservation and use of existing energy resources and development of new energy resources, diversification of exploitation and use of energy types. Policies on saved and efficient exploitation, processing and use of energy: Development of systems for effective management of energy exploitation, processing and consumption with high saving and efficiency in the whole society. Policy on investment: Attract resources of economic components within and outside the country into investment in development, exploitation, transportation, processing and use of energy. Policy on energy tariff: set reasonable energy tariff system in order to facilitate conditions for economic development, improving people's life standards, promoting economic mechanism change.

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Policies on international cooperation: Expand cooperation on energy development including scientific research, staff training, development of energy systems integrated with that of countries in the region and the world. Policies on science and technology: the state manages technologies, application of scientific and technological achievements in seeking, exploration, exploitation, and processing and use of energy in the national economy in saving and efficient way. Policies on environmental protection: sustainable development in combining energy economic development harmonious with ecoenvironmental protection in the national and international scales. The Government has passed and signed the KYOTO protocol in 1995. 4.5. Overlap of the government’s and ADB’s policies and strategies

Almost policies of the Vietnam Government mentioned in item 4.4.are similar to the policies and strategies of ADB. 4.6. Benefits of the project Replacement of old steam boilers with high efficiency, new technological boilers will save energy. Regarding environmental issues of the project, the project will improve environment by reducing emission of harmful gases and dusts. For people, the project will improve working environment for operators, creating environment more friendly to people. 5. 5.1. General description of the project Name of the projects, project country, address and related responsibilities

Name of project: Replacement of 3 old steam boilers of SRC with oil fired boilers having equivalent capacity. Project country: Contact address: Vietnam Institute of Energy No.6 Ton That Tung street, Hanoi - Vietnam

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5.2.

Necessity of project implementation

In the cause of economic development in the past, sectors in general and rubber sector in particular have invested and developed technology lines. Due to technical limitation in that time, many equipment and production lines emitted pollution to environment, making working environment harmful. At present, improvement of working conditions is an urgent issue for community and society. Investment in new technology lines and upgrading old production lines becomes more common. This project meets the above requirements and will contribute in sustainable development of industries. 5.3. Objectives, outputs, activities, scope, specifications and options of the project

Objective: To create working environment with high security, reliability, efficiency. To contribute in development of industries without dusts, little pollution. Targets: The new boilers will be highly automated (100%) with efficiency ≥ 90%. The emission indicators must meet sustainable development standards. Outputs: The system will have greater reliability and stability. Working conditions for workers will improve. The environment will be less polluted. Activities: + Preparation of feasibility study report, submission for approval + Preparation of technical design, bidding documents + Organizing bidding, selection of contractors + Contract negotiation, approval + Implementation of the project, taking over Scope: The boiler hall of the energy enterprise of SRC Features of the project: Because the continuity of production, dismantling the old boiler and construction of new one will be carried for each boiler in sequence. 5.4. Poverty alleviation

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When new boilers have been installed, they will work with reliability and stability, contributing in stable production stability in general and increasing income of employees of the enterprise in particular. 5.5. Technology transfer

The advanced, highly automated boiler technology with efficient oil-fired boilers with low gas emission will be transferred. Technologies of high efficiency oil-fired boilers with low gas emission have been being applied in many industries in Vietnam. Implementation of this project in Sao Vang rubber company will contribute in expansion of clean, environment friendly industries. 5.6. Main activities and participants in the project

Because energy enterprise is under the Sao Vang rubber company, there will not be counterpart consultant from outside. 5.7. Financial relations between partners None 5.8. Product information

The anticipated new boilers will have the following technical data: D=6 tons/hour, P = 16 kg/cm2, t = 201oC. Annual steam production (6000 hours of operation) = 108000 tons. Annual steam production by coal fired boilers: D = 67500 tons. At present, steam requirement is very large for production in Sao Vang rubber company. The steam is used for heating pressing machines, cylinders, curing machines. All rubber enterprises have demands of steam. There are two pressure levels of steam: • Steam for automobile tube P = 12 bar, t = 188oC • Steam for other products P = 6 bar, t = 159oC

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High quality of steam supply is required. If steam supply were interrupted, quality of products would fail. If steam pressure changes by ± 1.5 kg/cm2, the quality of products is seriously affected. The above information showed that using new boilers with ensured steam output, reliable, safe operation will contribute in production stability and ensured quality of products in the whole company. 6. Project implementation schedule (see attached diagram) + Preparation of feasibility study report, approval: 1/2003 - 9/2003 + Preparation of technical design, bidding documents: 7/2003-1/2004 + Organizing bidding, selection of bidder: 2/2004 + Contract negotiation, approval: 3/2004 + Project implementation, taking over: 4/2004 - 12/2004 + Project end: 2030 7. 7.1. Contribution on sustainable development Long-term reduction of green house gas emission and local pollution reduction

The calculation of existing gas emission is carried out based on existing production situation, data of replaced boilers, IPCC emission factor and data of new oil fired boilers. 7.1.1. Emission due to use of coal fuel At present there are 3 steam coal fired boilers, which consume 13500 tons of coal per year. Data of coal are as follows: + Type : anthracite coal + Particle size : 0 ÷ 18mm of which 0-6 mm < 20% + Heat value : Qth = 5800 - 6000 kcal/kg + Volatile content : V = 5-7%

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+ Ash content: Ak = 25% + Moisture content: W = 8-10% • The above coal burnt in the old boilers, its fuel gas is not precipitated and desulphurized in accordance to IPCC, the emission coefficients are as follows: CO2: 98.3 kg/GJ or 2.42 kg CO2/ kg coal SO2: 0.444 kg/GJ or 0.011 kg SO2/ kg coal NOx: 0,425 kg/GJ or 0.2125 kg NOx/ kg coal Dust: 0,85 x 0.25 or 0.2125 kg dust / kg coal • Apart from that, according to IPCC, exploitation of 1 ton of coal produces 20m3 of CH4 or 14.28 kg of CH4 equivalent to 300 kg CO2 to the environment. Therefore gas emission of coal exploitation is 0.3kg CO2 / kg coal • Coal is transported from coalmines to the plant through distance of 300km of river way (from Quang Ninh to Ha noi) and 10km of car road (from Hanoi to the plant). Oil fuel consumption for transportation of coal is 3kg oil/1ton coal / 100km by waterway, and 6kg oil / 1 ton coal / 100km by car. The oil amount necessary for transportation of coal amount for 3 boilers is: 13500 x 3 x 3 + 13500 x 6 x 0.1 = 129600 kg Thus, using 1 kg of oil will transport 13500000 / 129600 = 104.2 kg of coal. Emission coefficients of oil (according to IPCC) are: CO2: 74 tons CO2/ TJ or 3.13 kg CO2 / kg oil N2O: 3 x 10-3 tons N2O / TJ or 0.127 x 10-3 kg N2O / kg oil equivalent to 0.04 kg CO2 / kg oil Converted to CO2 we have 1 kg oil will emit 3.17 kg CO2 Therefore oil used for transportation of 1 kg coal will emit 3.17 / 104 - 2 = 30.4 x 10 kg CO2.
-3

• The gas emissions in using coal are as follows

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Table 7.1. Gas emission due to using coal-fired boilers

Emission

Emission coefficients of 3 coal fired boilers

Emission amount in 1 year (tons/year) 32,670.0 4,050.0

Emission amount in 25 years (tons)

CO2 due to combustion CO2 due exploitation CO2 due to transport to

2.42 kg CO2/kg coal 0.3 kg CO2/kg coal 30.4x10-3 kg CO2/kg coal

816,750,0.0 101,250.0

410.8

10,270.0

CO2 Total SO2 NOx 0.011 kg SO2/kg coal 0.0105kg NOx/kg coal 0.2125 kg dust/kg coal 7.1.2. Emissions due to using oil fuel

37,130.8 148.5 141.75

928,270 3,712.5 3,543.8

Dusts

2,868.75

71,718.8

The substitute oil fired boilers with equivalent capacity will consume oil amount of 6480 000 kg. Heat value of heavy oil is Q = 10100 kcal/kg. • According to IPCC, emission coefficients of oil are: CO2: 3150 kg/TOE or 3.1815 kg CO2/kg oil SO2: 6.1 kg/TOE or 6.16 x 10-3 kg SO2/ kg oil

NOx: 3.324 kg/TOE or 3.36 x 10-3 kg NOx/ kg oil Soot: 0.07% or 0.7 x 10-3 kg of soot / kg oil

• According to IPCC, exploitation of oil will emit CH4 as follows: 3500 kg CH4 / 1015 J or 0.148 x 10-3 kg CH4 oil equivalent to 3.108 x 10-3 kg CO2 / kg oil.

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• Oil is transported from refinery to plant through 700km of water way (from Dung Quat refinery to Hai Phong port) and 120km by road (from Hai Phong to the plant). Oil consumption for water way transportation is 3 kg oil/1 ton oil/100km, by road is 6 kg oil/100 tons oil/100km. Amount of oil necessary for transport of oil for 3 oil fired boilers are: 6480 x 3 x 7 + 6480 x 6 x 1.2 = 182736 kg Emission coefficients of oil for transportation are: CO2: 74 tons CO2/TJ or 3.13 kg CO2 / kg oil N2O: 0.003 tons N2O /TJ or 0.127 x 10-3 kg N2O / kg oil ~ 0.04 kg CO2 / kg oil Therefore, after converted to CO2, 1 kg of oil used for transportation will produce total 3.17 kg of CO2 or 89.4 x 10-3 kg CO2/kg fuel oil. • Emissions due to use of fuel oil are presented in the fallowing table
Table 7.2. Gas emission due to using oil-fired boilers Emission Emission coefficients of 3 oil fired boilers Emission amount in 1 year (tons/year) 20616.12 Emission amount in 25 years (tons) 515403

CO2 due to combustion CO2 due to exploitation CO2 due to transport CO2 Total SO2 Nox

3.1815 kg CO2/kg oil

3.108 x 10-3 kg CO2/kg oil 89.4 x10-3 kg CO2/kg oil

20.14

503.486

579.312

1737.936

21215.57 6.16 x10-3 kg SO2/kg oil 3.36 x x10-3 kg NOx/kg oil 0.7 x10-3 kg dust/kg oil 39.916 21.773

530389.3 997.920 544.32

Dusts

4.536

113.4

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7.1.3. Emission reduction With lifespan of the project of 25 years, the emission will be reduced as follows: CO2: 37130.8 – 21215.57= 15 915.23 tons/year or 15 9152.3 tons/10 years SO2: 148.5 – 39.916 = 108.584 tons/year or 1085.84 tons/10years NOx: 141.75 – 21.773 = 119.977 tons/year or 1199.77 tons/ 10years Dusts: 2868.75 - 4.536 = 2 864.2 tons/year or 28642 tons/10years 7.2. Other benefits (economic, social, environmental...) • Increased steam output • Increased stability of production line • Improved working conditions for laborers • Increased income of laborers 7.3. Other impacts of the project Negative impacts: + Jobs reduced + Decreased coal consumption

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Table 7.3. Project implementation schedule

2003 Work content 1 1 Preparation of FS, approval 2 Preparation of design, approval 3 Preparation documents of Technical 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5

2004 6 7 8 9 10 11 12

bidding

4 Organizing bidding, selection of bidder 5 Contract approval negotiation,

6 Installation of boiler No.1 7 Installation of boiler No.2 8 Installation of boiler No.3 9 Commissioning X

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8. 8.1.

Base line of the project and calculation of GHG reduction Existing production situation and emission distribution

At present, the energy enterprise operates 3 coal-fired boilers, which produce the following emissions: • Emission due to coal exploitation: 0.3 kg CO2 / kg coal • Emission due to coal transportation: 30.4 x 10-3 kg CO2 / kg coal • Emission due to using (burning) coal: CO2: 98.3 kg/GJ or 2.42 kg CO2 / kg coal SO2: 0.444 kg/GJ or 0.011 kg CO2 / kg coal NOx: 0.425 kg/GJ or 0.0105 kg NOx / kg coal Dusts: 0.85 x 0.25 or 0.2125 kg dusts / kg coal (Note: figures taken from calculation see section 7.1) 8.2. Diagram of existing emission distribution system with main components Diagram of emission distribution system when using coal fuel: CH4 CO2 + N2O CO2 + SO2 + NOx

Coal exploitation

Coal transportation

Use (boilers)

20

Ton CO2

Year
8.3. Information and operation of baseline in existing emission distribution system:

Baseline is determined with initial point that emissions will be increased due to reduction of efficiency which will be increased after overhaul and then reducing again. Here the baseline is determined with constant operation. 8.4. Project boundary and monitoring scope

The project is within the energy enterprise where only direct emission is monitored at the project in the form of fuel burnt in boilers. 8.5. Methodology on baseline and calculation of emission in baseline • In the calculation, the emission coefficients are in accordance to IPCC. • The emission coefficients, which are taken in accordance to IPCC for calculation in the project such as emission coefficients of coal, in exploitation, transportation, combustion. The conversion coefficients such as emission of 1kg CH4 is equivalent to 21 g CO2, emission of 1 kg N2O is equivalent to emission of 310 kg CO2. • Total emission is presented in 3 types: emissions due to exploitation, transportation and use (combustion): + Exploitation: From IPCC emission coefficient of exploitation, the emission from amount of exploited fuel is calculated.

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+ Transportation: energy used for transportation of fuel is calculated from the amount of transported fuel and with IPCC emission coefficients the amount of emission from transported fuel is calculated. + Use (burning): using IPCC emission coefficient, emission from the amount of combusted fuel is calculated. • Using calculated figures (as presented in section 7); the baseline is built with boiler output unchanged in time but only subject to affection of reduced efficiency. 8.6. Calculation of total GHG emission of the project

As mentioned above, all direct and indirect emissions are converted to emission coefficients in form of emission amount per fuel amount, and then calculation formula is as simple as follows: Emission amount = emission coefficient x fuel amount calculations are shown in section 7.1. 8.7. Real emission reduction

In the above sections, amount of emissions and emission reduction are calculated for project's lifespan of 25 years. However, if there is no project, the old coal fired boilers will be also replaced in certain time because they will not meet requirements of production. This time point is 2015. Therefore real emission reduction calculated for 10 years from project completion time to 2015. If there is no additional impact, the real emission to be reduced is as follows: CO2: 37130.8 – 21215.57= 15 915.23 tons/year or 15 9152.3 tons/10 years SO2: 148.5 – 39.916 = 108.584 tons/year or 1085.84 tons/10years NOx: 141.75 – 21.773 = 119.977 tons/year or 1199.77 tons/ 10years Dusts: 2868.75 - 4.536 = 2 864.2 tons/year or 28642 tons/10years

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Ton CO2

With out project

With

Year

9. 9.1.

Monitoring and checking GHG emission Necessary data, quality, accuracy The data necessary for monitoring and checking emissions are: + Working contents of fuel (C, O, S, N, H,)

+ Boiler specifications, techno-economic characteristics in operation of boilers (efficiency, precipitation, desulplurization...) + Environmental data (dust concentration, SO2, NOx concentrations etc.) 9.2. Methodology for collection and monitoring database The following methods are used for collecting and monitoring data: • Catch manufacture and operation data of equipment for carrying out calculation • Use measuring instruments and gauges at point of emission sampling (maybe at emission resource and in the area).

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• The quality of collected data and measuring instruments must be ensured to be accurate for preparation of reports and monitoring database effectively. 9.3. Estimate of costs for monitoring and inspection

During process of monitoring and inspection, a framework on the requirements of people and equipment needs to be prepared. The work of monitoring will be extended in long time, complicated and requiring high systematic. In the scope of the project, monitoring work is expected to last for 10 years with annual inspection. Costs are estimated as follows: + Monitoring: Initial investment: US$ 50000 Annual maintenance: US$ 10000 x 10 (years) + Inspection: US$ 5000 x 10 (times) Total: US$ 200000 for the whole lifespan of the project 10. Financial analysis of the project:

10.1. Calculation of Investment cost * Legal Documents used for Financial Analysis
• Unit costs of equipment and electric materials of foreign and domestic manufacturers. Economic- financial analysis guideline Documents of WB, ADB for projects that improve energy conservation efficiency. Format of PFS report prepared by PREGA team of ADB Related papers in force. Exchange rate: US$ 1 = VND 15200

• • •

* Total investment cost for 3 replaced oil-fired boilers: 0.51 million US$ Components of investment cost are: Equipment cost: 350 000 US$ for 3 oil-fired boilers Installation cost = 20% equipment cost = 70 000 US$

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-

Other initial investment costs = 5% (equipment cost + installation cost) = 21 000 US$

-

Spare cost = 5% (equipment cost + installation cost) = 21 000 US$

-

Investment cost for environment monitoring system: 50 000 US$

* Total investment cost for 3 coal-fired boilers: 0.52 milion US$ Components of investment cost are: Equipment cost: 375 000 US$ for 3 coal-fired boilers Installation cost = 20% equipment cost = 75 000 US$ Other initial investment costs = 5% (equipment cost + installation cost) = 22 500 US$ Spare cost = 5% (equipment cost + installation cost) = 22 500 US$ Investment cost for environment monitoring system: 50 000 US$

10.2. Other costs and input data conditions Maintenance and repair costs (except labor cost):

+ For coal-fired boilers: 1.066 US$/ton steam, equivalent to 74605 US$ /year + For oil-fired boilers: 0.224 US$/ton steam, equivalent to 24 258 US$ /year Cost of environmental monitoring and inspection: 15 000 US$/ year for 10 years Electricity price at 6 kV voltage level: 5.7 UScent/ kWh Fuel price:

-

+ Diesel Oil (DO) price: 280 US$/ton + Coal price: 28.3 US$/ ton Data of product and product price

Average product quantity of three coal-fired boilers: 10 million. Units/ year

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Average product quantity of three oil-fired boilers: 15.6 mil. units/ year Average labor cost: 0.112 USD/ product unit Waste product ratio of coal-fired boiler: 1% Waste product ratio of oil-fired boiler :0.3% Selling price of main products: + Automobile tire and tube: 59.21 US$/set + Motorcycle tube: 0.92 US$/unit + Motorcycle tire: 3.29 US$/ unit + Bicycle tube: 0.39 US$/unit + Bicycle tire: 0.79 US$/ unit Year of starting investment: 2004 Year of ending analysis: 2030 Company income tax rate: 10% Depreciation period: 25 years Exchange rate: 15200 VND/ US$ Financial discount rate equal to WACC Economic discount rate: 10% Reduced GHG emission price for project: 5 US$/ ton CO2 10.3 Financial Analysis Objects: Financial analysis is to evaluate the financial feasibility of project, define financial indicators achieved during lifetime of project. Financial analysis includes the following reports: 1. Report of Revenue: represents annual revenue, costs and net income of project during the lifetime.

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2. Table of Cash Flow: represents revenue flow, cost flow and net present value for the project during lifetime with discount rate taken into account. Revenue Flow of the project is defined from steam output of oil-fired boilers, then converted equivalently to the norm to define final product quantity of company and calculate revenue based on final product. Cost Flow of the project includes: Total investment cost for three oil-fired boilers including initial investment cost of environmental monitoring and inspection system Costs depending on norm and steam output of oil-fired boilers include maintenance and repair cost, fuel cost and electricity cost. Costs depending on norm, price and quantity of final converted product, include labor cost and material cost. Environment monitoring and inspection cost is calculated for first ten years of the project since the project starts to operate. Revenue tax of company

Table of cash flow evaluates financial effect, defines financial indicators of the project including: Financial Internal Rate of Return: FIRR Financial Net Present Value: FNPV Ratio of Benefit and Cost: B/C According to commercial loan conditions, the project investor must contribute reserved capital (or equity capital) at least 30% total investment (include interest during construction). 70% remaining is credit loan.
Table 10.1: Components of borrowing capital sources Sources of Fund Loan Among which ADB Loan 10% Domestic loan 60% 6.7% 12% 10% 10% 6.03% 10.8% Weighted 70% Nominal cost Income tax rate Tax-adjusted nominal cost

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Equity participation

30%

12%

From the above sources of fund and interest rates and company income tax rate of 10% WACC =0.1*6.03%+0.6*10.8%+0.3*12%= 10.7% It is anticipated to borrow loan with the terms and conditions as follows:

-

Payback time: 3 years Grace period: 1 years Lifetime of project: 25 years.

Because real cost components of this project are not separated, and it is unable to define revenue of steam due to steam is not final product of company, therefore, financial effect of the project is defined based on revenue and cost flows converted equivalently to those of final product. However, some costs in the past, which have no connection with boiler replacement, are ignored in financial analysis. Hence, net income of this project is not real net income of the company. Financial analysis is to evaluate financial effects of oil-fired boilers contributing to total benefit of the company.
Table 10.2. Results of financial analysis of the project Indicators With CO2 emission reduction taken into account 39.76 1.26 Without CO2 emission reduction taken into account 39.28 1.25

NPV (mil. US$) B/C

Financial effect achieved by the project is rather high due to positive FNPV and B/C> 1. 10.4. Sensitivity Analysis This Study carries out sensitivity analysis based on the most likely changes. Base case: + WACC of 10.7% + CO2 emission reduction taken into account

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+ Investment capital from loans Changes: An increase in investment cost by 20percent Decreases in benefit due to decrease in product selling price by 20 percent An increase in costs of operation and maintenance by 20% An increase in costs of fuel, material and power by 20% Combinations of variables: the effects on FNPV and FIRR of a simultaneous decline in benefits and an increase in investment cost, O&M costs, fuel costs can be computed.

The effects of above changes are summarized in the following table. SI: Sensitivity Indicator SV: Switching Value
Table 10.3. Sensitivity Analysis with indicators from the point of view of project

Items

Change

FNPV (mil. US$) 39.76

SI (FNPV ) (mil. US$)

SV (FNPV) (%)

Base case Investment cost Benefit (product selling price) O&M costs Costs of fuel, material and power Combinations of variables +20% -20% +20% +20%

39.65 0.96 36.68 15.57 -26.4

-0.01 4.88 -0.39 -3.04

-7229 20 -258 -33

Above results of sensitivity analysis show that the project still gets financial feasibility with independent changes. In case of combination of variables changed, project is not feasible due to negative FNPV and FIRR lower than WACC.

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Table 10.4.

Table of Income

Unit: mil. US$
Fiscal Year I. Effects 1. Steam (1000 ton) 2. Average Revenue II. Costs 1. Total direct costs 1.1. Maintenance and repair costs (excluded labour cost) 1.2 Depreciation 1.3. Fuel cost 1.4. Electricity cost 1.5. Environmental monitoring and inspection costs 1.6. Material cost 1.7. Labour cost 2. Interest payment 3. Total cost 4. Income before tax 5. Income tax 6. Income after tax 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2020 2025 2030 Total

108 108 108 108 22.32 22.32 22.32 22.32 17.26 17.26 17.26 17.26 0.02 0.02 1.81 0.03 0.02 0.02 0.02 1.81 0.03 0.02 0.02 0.02 1.81 0.03 0.02 0.02 0.02 1.81 0.03 0.02

108 22.32 17.26 0.02 0.02 1.81 0.03 0.02 13.61 1.74 0.00 17.26 5.06 0.51 4.55

108 108 108 22.32 22.32 22.32 17.26 17.26 17.26 0.02 0.02 1.81 0.03 0.02 0.02 0.02 1.81 0.03 0.02 0.02 0.02 1.81 0.03 0.02

108 108 22.32 22.32 17.26 17.26 0.02 0.02 1.81 0.03 0.02 0.02 0.02 1.81 0.03 0.02

108 22.32 17.25 0.02 0.02 1.81 0.03 0.00 13.61 1.74 0.00 17.25 5.07 0.51 4.57

108 108 22.32 22.32 17.25 17.25 0.02 0.02 1.81 0.03 0.00 0.02 0.02 1.81 0.03 0.00

108 22.32 17.23 0.02 0.00 1.81 0.03 0.00 13.61 1.74 0.00 17.23 5.09 0.51 4.58

2808 580.31 448.53 0.63 0.51 47.17 0.79 0.15 353.95 45.31 0.08 448.61 131.70 13.17 118.53

13.61 13.61 13.61 13.61 1.74 1.74 1.74 1.74 0.04 0.03 0.01 0.00 17.30 17.29 17.28 17.26 5.02 5.03 5.04 5.06 0.50 0.50 0.50 0.51 4.52 4.53 4.54 4.55

13.61 13.61 13.61 1.74 1.74 1.74 0.00 0.00 0.00 17.26 17.26 17.26 5.06 5.06 5.06 0.51 0.51 0.51 4.55 4.55 4.55

13.61 13.61 1.74 1.74 0.00 0.00 17.26 17.26 5.06 5.06 0.51 0.51 4.55 4.55

13.61 13.61 1.74 1.74 0.00 0.00 17.25 17.25 5.07 5.07 0.51 0.51 4.57 4.57

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Table 10.5. Financial Analysis for oil- fired boilers project

Unit: mil. US$

Fiscal Year 1. Total benefit a. Revenue from final products In which: revenue due to failed products reduced b. Environmental benefit 2. Total Investment cost 3. O&M cost 4. Fuel cost 5. Electricity cost 6. Environmental monitoring and inspection cost 7. Income tax 8. Material cost Net Income

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2020

2025

2030

Total 581.11 580.31 4.06 0.80 0.51 45.94 47.17 0.79 0.15 13.17 353.95 0.00 119.41

0.00 22.40 22.40 22.40 22.40 22.40 22.40 22.40 22.40 22.40 22.40 22.32 22.32 22.32 22.32 22.32 22.32 22.32 22.32 22.32 22.32 22.32 22.32 22.32 22.32 22.32 22.32 22.32 22.32 0.16 0.08 0.51 0.00 0.00 0.00 0.00 1.77 1.81 0.03 0.02 0.16 0.08 1.77 1.81 0.03 0.02 0.16 0.08 1.77 1.81 0.03 0.02 0.16 0.08 1.77 1.81 0.03 0.02 0.16 0.08 1.77 1.81 0.03 0.02 0.16 0.08 1.77 1.81 0.03 0.02 0.16 0.08 1.77 1.81 0.03 0.02 0.16 0.08 1.77 1.81 0.03 0.02 0.16 0.08 1.77 1.81 0.03 0.02 0.16 0.08 1.77 1.81 0.03 0.02 0.16 0.00 1.77 1.81 0.03 0.00 0.16 0.00 1.77 1.81 0.03 0.00 0.16 0.00 1.77 1.81 0.03 0.00 0.16 0.00 1.77 1.81 0.03 0.00

0.00 0.50 0.50 0.50 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.51 0.00 13.61 13.61 13.61 13.61 13.61 13.61 13.61 13.61 13.61 13.61 13.61 13.61 13.61 13.61 -0.51 4.66 4.66 4.65 4.65 4.65 4.65 4.65 4.65 4.65 4.65 4.59 4.59 4.59 4.58

B/C NPV =

1.26 39.76

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11.

Economic Analysis

11.1. Contents Economic analysis is to assess the feasibility of the project, calculate and compare economic indicators to select ideal implementing solution. Economic analysis includes table of economic cash flow and economic indicators achieved by each technological and constructional scenario to define economic effects of the project. For this boiler replacement project, economic analysis is to compare economic effects of replacing three coal-fired boilers by oil-fired ones of Sao Vang Rubber Company. 11.2. Poverty reduction impacts Technologies of high efficiency oil-fired boilers with high steam capacity make product quantity of company increasing; therefore, labor income will be higher, contributing to make society wealthy. Economic effects of the project are also benefits of society. 11.3. Social and environmental impacts The project of replacing three backward coal-fired boilers by oil-fired boilers makes profit for the company as well as contributes in increasing economic benefits for society and environment. For the project, replacing old backward coal-fired boilers by new technology, high efficiency oil-fired boilers takes full advantages and saves heat energy resource, decreases waste product ratio, contributes to production stability. Regarding environmental issues of the project, the project will improve environment by reducing emission of harmful gases and dusts. For people, the project will improve working environment for operators, creating environment more friendly to people. There is no land use impact because project-implementing zone is located at the place of coal-fired boilers inside Sao Vang Rubber Company area. Migration, resettlement impacts: none

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11.4. Economic Analysis Contents in economic analysis include cash flow table and economic indicators with each of technology and construction plans to compare and assess economic effects of selected plan. Because coal-fired boilers are old, backward and out of depreciation period (although they may be used by 2015 - according to company’s estimation), If there is no oilfired boilers replacement, the project must use new coal-fired boilers to calculate in order to compare with the similarities of investment costs and time. For this project, economic analysis is to compare economic effects of replacement project to without replacement one. That is to define the difference of net present value of economic revenue and cost flows between two scenarios: using oil-fired boilers and using new coal-fired boilers.
Table 11.1. Data input of Economic analysis

DO price (excluded import taxes) Export price of coal Price of Carbon credit Economic discount rate Case of using oil-fired boilers: Economic benefits includes: -

252 US$/ton 20 US$/ton 5US$/ton 10%

Revenue of final product converted equivalently via steam output Other economic benefits: reduction of GHG emissions of oil-fired boilers compared with coal-fired boilers, calculated during first ten years. Economic costs include investment capital for oil-fired boilers and other costs similar to financial analysis (except taxes)

-

Case of using coal-fired boilers Economic costs include investment capital for coal-fired boilers and other costs similar to oil-fired boilers based on steam output of coal-fired boilers.

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Therefore, the difference of economic benefits between two above scenarios is mainly based on the higher steam output of oil-fired boilers (with lower waste product ratio taken into account) and lower gas emissions amount compared to those of coal-fired boilers.
Table 11.2. Economic analysis results assessed according to difference of net income of oil-fired boilers and coal-fired boilers. Indicators With CO2 emission reduction taken into account 15.83 Without CO2 emission reduction taken into account 15.34

NPV (mil. US$) B/C

1.457

1.45

Above results show that project is economically feasible due to positive NPV. Incase of still using old coal-fired boilers and replaced by three new coal-fired boilers after ten years, project is feasible. Economic analysis results with CO2 emission reduction taken into account are as follows: NPV = mil. US$ 15.57 B/C = 1.456 The project is economically feasible, using oil-fired boilers is more useful than coalfired ones due to NPV >0 and B/C >1 If environmental benefit is taken into account with CO2 reduction price more than 5 US$/ton, the feasibility of the project will be higher.

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Table 11.3. Economic Analysis: case of replacing old coal-fired boilers after 10 years

Unit: mil. US$
Fiscal Year Case of replaced oil-fired boilers 1 Total benefit Revenue of product In which: revenue due to failed products reduced Environmental benefit 2 Investment cost for boilers Investment cost for environmental 3 monitoring and inspection system Costs of environmental monitoring and 4 inspection 5 O&M cost 6 Fuel cost 7 Electricity cost 8 Material cost Net Income Case of replacing old coal-fired boilers after 10 years Fiscal Year 1 Total benefit Revenue from products 2 Investment cost for boilers Investment cost for environmental 3 monitoring and inspection system Cost of environmental monitoring and 4 inspection 5 O&M costs 6 Fuel cost 7 Electricity cost 8 Material costs Net Income Difference of net incomes between oil-fired boilers and coal-fired boilers NPV = B/C = 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2020 2025 2030 Total

0.00 22.40 22.40 22.40 22.40 22.40 22.32 22.32 22.32 22.32 22.32 0.16 0.42 0.05 0.02 0.02 0.02 0.02 0.02 0.08 0.00 0.16 0.08 0.00 0.16 0.08 0.00 0.16 0.08 0.00 0.16 0.08 0.00

22.40 22.40 22.40 22.40 22.32 22.32 22.32 22.32 0.16 0.08 0.00 0.16 0.08 0.00 0.16 0.08 0.00 0.16 0.08 0.00

22.40 22.32 22.32 22.32 22.32 581.11 22.32 22.32 22.32 22.32 22.32 580.31 0.16 0.08 0.00 0.16 0.00 0.16 0.00 0.16 0.00 0.16 0.00 4.06 0.80 0.42 0.05

0.02

0.02

0.02

0.02

0.02

0.15

1.77 1.77 1.77 1.77 1.77 1.63 1.63 1.63 1.63 1.63 0.03 0.03 0.03 0.03 0.03 12.25 12.25 12.25 12.25 12.25 -0.47 6.70 6.70 6.70 6.70 6.70

1.77 1.77 1.77 1.77 1.63 1.63 1.63 1.63 0.03 0.03 0.03 0.03 12.25 12.25 12.25 12.25 6.70 6.70 6.70 6.70

1.77 1.77 1.77 1.77 1.77 45.94 1.63 1.63 1.63 1.63 1.63 42.46 0.03 0.03 0.03 0.03 0.03 0.79 12.25 12.25 12.25 12.25 12.25 318.56 6.70 6.64 6.64 6.64 6.64 172.74

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2020 2025 2030 Total 0.00 14.36 14.36 14.36 14.36 14.36 14.36 14.36 14.36 14.36 14.36 14.36 14.36 14.36 14.36 373.49 14.36 14.36 14.36 14.36 14.36 14.36 14.36 14.36 14.36 14.36 14.36 14.36 14.36 14.36 0.43 0.00 0.00 0.00 0.00 0.43 0.05 0.02 1.20 0.28 0.04 7.89 4.95 1.75 0.02 1.20 0.28 0.04 7.89 4.95 1.75 0.02 1.20 0.28 0.04 7.89 4.95 1.75 0.02 1.20 0.28 0.04 7.89 4.95 1.75 0.02 1.20 0.28 0.04 7.89 4.95 1.75 0.02 1.20 0.28 0.04 7.89 4.95 1.75 0.02 1.20 0.28 0.04 7.89 4.95 1.75 0.02 1.20 0.28 0.04 7.89 4.95 1.75 0.02 1.20 0.28 0.04 7.89 4.95 1.75 0.02 1.20 0.28 0.04 7.89 4.52 2.18 1.20 0.28 0.04 7.89 4.96 1.67 1.20 0.28 0.04 7.89 4.96 1.67 1.20 0.28 0.04 7.89 4.96 1.67 1.20 0.28 0.04 7.89 4.96 1.67 0.05 0.15 31.10 7.28 1.03 40.04 128.42 44.31

-0.05 -0.42

35
15.57 1.46

12.

The main factors affecting the project

12.1. Regarding policies, laws There are some laws and policies of Vietnam as basic factors impacting feasibility of the project as follows: 1. The Government of Vietnam has signed the Frame Convention on Climate Change (FCCC) on 11 June 1992 and FCCC was approved by the National Assembly on 18 November 1994. The Kyoto Protocol was also signed on 3 November 1998 and approved in August 2002. Vietnam committed to implement the contents of Protocol including promotion and development of renewable energy to reduce green house gas emission. 2. The law on environmental protection in Vietnam has been promulgated and effective from 1993. The law is aimed to sustainable development integrating economic development with environmental protection at national and international levels. The measures will focus on the following issues: Determine long-term objectives of energy environment in compliance with regional environmental standards. Establish financial regulation for energy environment and ensure adequate calculation of all costs of all factors pertaining to environmental protection. Implement reasonable technical measures to reduce emission in exploitation, transport, processing and use of energy.

-

-

12.2. Regarding the project risk
Apart from positive factors, there are also negative factors impacting the project, i.e. if the Kyoto Protocol is not effective. At present some concrete articles in the Protocol are not yet approved. So far, the US, the country with largest amount of greenhouse gas emission, accounting for 36.1 % of total GHG emission in 1990, still has signed the Kyoto Protocol. Therefore, as long as Kyoto Protocol has not been passed, CDM is still difficult to implement and this factor also negatively impacts the project.

36