Document of The World Bank FOR OFFICIAL USE ONLY ReportNo: 22742 IMPLEMENTATION COMPLETION REPORT (CPL-37610; SCL-3761A; SCPD-3761S) ONA LOAN/CREDIT/GRANT IN THE AMOUNTOF US$ 260.5 MILLION TO THE GOVERNMENT OF INDONESIA FOR THE SUMATERA AND KALIMANTAN POWER PROJECT December 7, 2001 Energyand MiningSectorUnit East Asia andPacificRegion This documenthas a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed withoutWorldBank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Energy and Mining Sector UnitEast Asia and Pacific Region
This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS
(Exchange Rate Effective ICR Mission - October 2001)
Currency Unit = Indonesia Rupiah (Rp)Rp. 10,000 = US$ 1.01
US$ 1 = 9,900
At the Appraisal - January 1994Rp. 10,000 = US$ 4.75
US$ I = Rp. 2,105
FISCAL YEARJanuary 1 to December 31
ABBREVIATIONS AND ACRONYMS
BAPPENAS - National Development Planning AgencyDGEED - Directorate-General of Electricity and Energy DevelopmentDSM - Demand-Side ManagementEIA - Environmental Impact AssessmentEIRR - Economic Internal Rate of ReturnESP - Electrostatic PrecipitatorETAM - Electricity Tariff Adjustment MechanismGOI - Government of IndonesiaLRAIC - Long-Run Average Incremental CostsIPP - Independent Power ProducerHPP - Hydropower PlantLRMC - Lon-run Marginal CostMIS - Management Information SystemMME - Ministry of Mines and Energy (now Ministry of Energy and Mineral Resources)NERC - North-American Reliability CouncilNGO - Nongovernmental OrganizationPAP - Project Affected PersonsPERTAMINA - National Oil and Gas CompanyPLN - State Electricity CorporationPPA - Power Purchase AgreementPPE - Engineering Services Center of PLNQAG - Quality Advisory GroupRE - Rural ElectrificationSAR - Staff Appraisal ReportSOP - Standard Operating ProceduresSPP - Steam Power PlantTA - Technical AssistanceTOR - Terns of Reference
Vice President: Jemal-ud-din KassumCountry Manager/Director: Mark Baird, EACIF
Sector Manager/Director: Mohammad Farhandi, EASEGTask Team Leader/Task Manager: Kurt Schenk, EASEG
Banjarmasin Coal-fired Thermal Power Plant (2x65 MW)
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Besai Hydropower Plant (2x45 MW)
GEOUNG PEMBANGKITen e Da PIA BESAIJ
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30 MW Barge-mounted Gas Turbine
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10 MW Barge-mounted Diesel->A_s Ns,, j
FOR OFFICIAL USE ONLY
INDONESIASUMATERA & KALIMANTAN POWER PROJECT
CONTENTS
Page No.1. Project Data 12. Principal Performance Ratings 1
3. Assessment of Development Objective and Design, and of Quality at Entry 2
4. Achievement of Objective and Outputs 4
5. Major Factors Affecting Implementation and Outcome I 16. Sustainability 12
7. Bank and Borrower Performance 13
8. Lessons Learned 15
9. Partner Comments 1610. Additional Information 16
Annex 5. Ratings for Achievement of Objectives/Outputs of Components 33
Annex 6. Ratings of Bank and Borrower Performance 34
Annex 7. List of Supporting Documents 35
Maps: IBRD No. 22506R1, 25507R1, 22508R1
This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.
Project ID: P003910 Project Name: SUMATERA AND KALIMANTANPOWER
Team Leader: Kurt F. Schenk TL Unit: EASEG
ICR Type: Core ICR Report Date: December 14, 2001
1. Project Data
Name: SUMATERA AND KALIMANTAN POWER L/C/TF Number: CPL-37610;SCL-3761 A;SCPD-3761 S
Country/Department: INDONESIA Region: East Asia and PacificRegion
STAFF Current At AppraisalVice President: Jemal-ud-din Kassum M. Haug (Acting VP)Country Manager: Mark Baird M. HaugSector Manager: M. Farhandi P. SchererTeam Leader at ICR: K.Schenk S. BhatnagarICR Primary Author: K. Schenk; Y. Zhou; T. Walton;
3. Assessment of Development Objective and Design, and of Quality at Entry
3.1 Original Objective:
The objectives of the Project as stated in the Staff Appraisal Report dated May 27, 1994 were to supportthe first phase of the Government's long-term policy agenda for the power sector aimed at efforts to: (a)increase private sector participation in building generating capacity and upgrade sector operating standardsand practices; (b) restructure PLN to improve its operating performance and service efficiency; (c)formulate and implement regulations to promote efficiency in sector operations; (d) introduce aformula-based periodic tariff adjustment mechanism to recover costs. In addition, the project was to (e)help finance environmentally sustainable expansion of PLN's generation and transmission capacity inSumatera and Kalimantan with more economical central grid systems; and (f) provide technical assistanceto GOI and PLN on environmental management, efficiency improvement and demand management.
The sectoral objectives were overly ambitious regarding power sector restructuring and regulatory reform.They were nevertheless clearly defined and reflected Indonesia's as well as the Bank's priorities for powersector development. In particular, GOI's policy at the time included inter alia the restructuring of energyinstitutions and regulations to ensure efficient and reliable supply of electricity at least cost; promotingincreased private sector participation and independent power generation projects as well as energyconservation measures, and fostering regionally balanced development to ensure that the majority of thepeople could afford the basic services provided by electricity to improve their standard of living.
The objectives had clear links to the Bank's prevailing Country Assistance strategy (CAS) as well as theon-going lending operations prevailing at the time of project preparation/loan approval (1993-1994), whichaimed at assisting the country meet its critical demand for electricity in an efficient and environmentallysustainable way. The CAS supported energy development and highlighted: (a) achieving poverty reductionthrough increased funding for regional development, and a shift towards smaller and regionally orientedprojects targeted at the reducing urban-rural disparities in the quality of life; and (b) striking theappropriate balance between public and private roles in energy distribution.
3.2 Revised Objective:The above objectives were not revised during project implementation.
3.3 Original Components:The original design of the Project included the following components:
Policy Component. including: (a) establishing a policy framework for private sector participation; (b)restructuring PLN and establishing commercial operations as a Persero (limited liability company); (c)implementing a framework for regulatory oversight of the private sector and PLN, and (d) introducingformula-based periodic adjustment of tariff, as well as bulk power purchase and supply tariffs.
Physical Component, including: (a) Construction of a dam and a 2x45 MW Hydropower Plant at Besai; (b)Construction of a 2x65 MW Banjarmasin Thermal Power Plant at Asam-Asam; (c) Construction of a 10MW Diesel and a 30 MW Gas Turbine barge-mounted power plants.
Technical Assistance Component, including technical assistance for (a) engineering and constructionsupervision of Besai Hydroelectric and Banjarmasin thermal power plants; (b) strengthening PLN'senvironmental management capability through the establishment of a specialized environmental unit withinPLN; (c) conducting an evaluation of altemative demand management program options includingtechnologies, delivery mechanism and promotional framework; (d) carrying out pilot projects in PLN's
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regions IV and VI involving decentralization aimed at efficiency improvement of PLN's operations; (e)strengthening the MME environmental management in the coal mining sector through the improvement ofits environmental policy and regulatory framework and its environmental regulation enforcement capacityin coal mining.
While the policy, physical and institutional project components were linked to the project developmentobjectives, the policy components and objectives (a)-(d) were not directly supported by resources providedunder the loan. Rather, the loan included covenants relating to the first three of the four project objectives,but the technical assistance components needed to support objectives (a), (b) and (c) were provided underthe Infrastructure TA, Suralaya, and Cirata II projects, respectively. One TA component under theproject-the efficiency pilot projects in Regions IV and VI-was directed toward supporting objective (c);however, the scope of that component was not commensurate with that of the related objective.
Moreover, apart from the power tariff adjustment objective-which the project did not support eitherthrough covenants or resources-no component was included in the project to directly address PLN'sfinancial management capacity. This should have been a crucial aspect of ensuring the achievement ofobjective (b), given that-at the time-PLN's Outer Islands operations were unprofitable. While PLN'simproved future financial performance was covenanted under the loan, and an objective of related projectsat the time (i.e., Suralaya and Cirata II) was to strengthen PLN's financial situation, none of these projectsincluded resources to directly improve PLN's financial position.
Components Estimated Cost at Appraisal(US$ Million equivalent)
Besai Hydroelectric Power Plant 164.7Banjarmasin Thermal Power Plant 311.2Barge-Mounted Power Plants 34.0Engineering and Construction Supervision Besai 22.6Engineering and Construction Supervision Banjarmasin 12.4PLN Environmental Management 1.8MME Environmental Management 3.5Demand Management 2.5Pilot Projects, Wilayah IV and VI 3.0Compensation and Resettlement 9.9Administration 12.8Total 578.4
3.4 Revised Components:The above components were not revised during project implementation, except that the technical assistanceactivity for the demand management program was cancelled upon request of PLN.
3.5 Quality at Entrv:Overall, quality at entry is rated unsatisfactory, given the disconnect between project resources andobjectives, (as outlined in 3.3 above). Nevertheless, the quality at entry of other aspects of projectpreparation were satisfactory, based on the strength of the (a) consistency of objectives with the prioritiesof the Government and the Bank's Country Assistance Strategy; (b) project design based on lessons learnedfrom prior Bank operations in Indonesia; (c) comprehensive environmental impact and resettlementconsiderations and socioeconomic studies included in project design; (d) extensive consultation with NGOsduring project preparation assisted in relieving the concerns of the PAPs, and subsequently, during projectimplementation, in having the framework for resolving outstanding issues; (e) comprehensive feasibilitystudies carried out by qualified personnel and reviewed by technical experts and the Bank. The
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methodology used to justify both plants was based on the time-tested selection of the least cost alternativesto supply peaking capacity in south Sumatera and base load capacity in south Kalimantan; and (f) highownership of PLN and GOI on the project.
Project risks and associated assessments were included in the SAR. While the assessments and risk ratingsappear to be reasonable, the actual situation turned out to differ in particular related to implementationschedules: (a) the technical and project management risks including potential implementation delays wererated as low. Though the physical components were completed successfully, substantial delays (by about21 months) have been encountered; (b) the risk of underatilization of the power plants was rated low, whichproved to be the case; (c) risk associated with failure by GOI to implement the power sector policy agenda,which was described in SAR the major potential risk associated with the project, was also rated as low.Although GOI commitment to power sector reform was renewed in the launching of a power sector policypaper in August 1998, substantial delays have occurred.
4. Achievement of Objective and Outputs
4.1 Outcome/achievenment of objective.
Overall, the achievement of project objectives can be rated unsatisfactory, primarily because the key policyobjectives under the project have not yet been achieved, and were in fact unlikely to have been achievedunder the design of the project (3.3 and 3.5 above). While progress has been made toward meeting theproject's policy objectives, much of this progress cannot be attributed to the project itself (as described in4.2 below).
Since the project was prepared, the nature and depth of the policy objectives in question has changed. Forinstance, with respect the objective to increase private sector participation, the experience with Indonesia'sindependent power producer (IPP) program has highlighted the pitfalls of unsolicited generation proposals,an approach which was proposed in the project's SAR. More importantly however, the regional crisisactually provided the opportunity for the intended scope of the power sector reforms to be broadened anddeepened, and the Government's Power Sector Restructuring Policy of August 1998 outlines a much moremarket-oriented vision of power sector operation than did the Government's statement of Goals andPolicies for the Development of the Electric Power Sub-Sector, as presented in the SAR.
On the physical side, despite delays, all the physical facilities - the hydropower plant, the thermal powerplant and the barge-mounted power plants - have been completed successfully according to the originaldesigns. They have been under normal operation since their completion.
4.2 Outputs by components:
Policy Components
Establishment of a policy framework for private sector participation. The achievement of thiscomponent is rated unsatisfactorv. The project itself only contained a covenant relating to the increasedprivate sector participation objective/component. The first part of this covenant related to the completionof TA-funded under another project-for preparing the groundwork to draft rules governing privatesector participation in the power sector. While the TA was successfully completed, the second part of thecovenant-which required implementing those rules-was not met. And while the Government wassuccessful in signing 26 power purchase agreements (PPAs) with various IPPs for a total of 11,000 MW ofnew capacity, the majority of these were unsolicited proposals not in line with either PLN's powerdevelopment plans nor the national electricity general plan (RUPTL). In the years preceding the regional
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crisis, the Bank drew the attention of the Government to its concern regarding the manner in which the IPPprogram was being managed through a variety of channels, including Country Economic Memoranda andcovenants in a follow up loan (i.e., the Second Power Transmission and Distribution Project). When thiswas unsuccessful, at the end of 1997 the Bank informed the Government that the processing of new powersector loans was suspended. Finally, while the 1998 Policy (4.1) does establish a sound policy frameworkfor future private sector participation, realistically, significant levels of new private sector investment in thesector will not be possible until the fallout from the impact of the regional crisis on the existing IPPprogram is fully resolved.
Reforming regulatory and sectoral development functions. The achievement of this component is ratedunsatisfactory. Similarly, this objective/component had a covenant which required the completion ofrelevant TA funded under another project, and while this TA was completed, its recommendations were notimplemented. The establishment of an appropriate legislative and regulatory framework still remains amajor sectoral issue. A draft electricity law has been pending enactment since 1998. The new law willreplace the Electricity Law No. 15 of 1985. The legislative and regulatory framework as well as thegovernment regulations relating to tariff structure and levels (i.e. Tariff Code), transmission grid operationand generation dispatch (i.e. Grid Code); distribution connection and operation (i.e. Distribution Code) andplanning and competitive tendering (Planning and Tendering Code), are being covered by ADB's assistanceprogram and are the responsibility of the Governnent under the MME.
Corporatizing and restructuring of PLN to improve the efficiency of its operations. The achievementof this component is rated unsatisfactory. While the covenant associated with this objective/componentwas partially met-since PLN was successfully corporatized into a limited liability company, and twogeneration subsidiaries were established in Java-Bali-the restructuring did not have a fundamental impacton PLN's operations. Most business units within PLN were neither successfully functionally andgeographically unbundled nor transformed into profit centers. The 1998 Policy calls for even more farreaching far-reaching changes in the power sector, including the unbundling of PLN, and thus create asector which is able to grow rapidly, provide high quality and efficient power supply, and be financiallyindependent. The Policy provides for a new direction of the sector along four interlinked strands, namely:(a) restoration of financial viability of the sector; and bring about (b) competition; (c) more transparency;and (d) more efficient private sector participation. To support the Government's restructuring policy, theADB provided a program loan in March 1999 towards reforms at the government and sector level in theareas of legislation, regulation, power market and so on, while the corporate and financial restructuring ofPLN is being undertaken through consulting services under the Bank financed Second Power Transmissionand Distribution Project (Ln 3978). The Bank and the ADB as well as other players have been in closecoordination toward power sector reform and PLN restructuring.
Introduction of formula-based periodic tariff adjustment. The achievement of this component is ratedunsatisfactory. The project contained no resources or covenants to ensure the attainment of this objective.An Electricity Tariff Automatic Adjustment Mechanism (ETAM) was introduced by Presidential Decree(Keppres 68/94) in October 1994. PLN's base tariff was increased by Presidential Decree at the sametime. The formula-based adjustment mechanism, which was designed to maintain the real value of PLN'scharges between changes to the base tariff, empowered the MME to make quarterly adjustments on thebasis of the weighted average of changes in the prices of fuels, prices of power purchases, local inflation,and the US$-Rupiah exchange rate. While the implementation of the adopted mechanism did result inincreases in PLN's tariffs, these were not sufficient to enable PLN meet its ROR target during the periodprior to the crisis in 1997 for three main reasons: (a) the October 1994 increase in the base tariff was toolow as a result of 1995 sales having been significantly overestimated; (b) the mechanism was designed toenable the pass-through only of those changes in costs that outside PLN's control; (c) there were some
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deficiencies in its implementation, including significant lags in applying increases and adjustments made tobase figures. The use of the mechanism was suspended following the onset of the crisis when it becameapparent that the rapid depreciation of the Rupiah would trigger very large across-the-board tariffincreases, with the understanding that consideration may need to be given to introducing an improvedmechanism once the base tariff has been restored to a commercial viable level. However, this has nothappened.
Physical Components
Construction of 2x65MW coal-fired units at Asam Asatn in South Kalimantan. The achievement ofthis component is rated satisfactor .
Banjarmasin Units 1 and 2, comprising 2x65 MW of base-loaded capacity, are located near the village ofAsam Asam, 123 km by public road southeast of Banjarmasin. The mine-mouth power station will bedeveloped in stages with an ultimate capacity of 660 MW. It receives lignite from the adjacent mine inAsam Asam, located approximately 8 km north of the power plant. The lignite is delivered in crushed formby truck along a dedicated haulage road. Coal reserves at both Central and East Asam Asam deposits areestimated in excess of 50 million tons, sufficient for use by the plant over its lifetime. Both base-loadedunits are now in commercial operation, and meeting the growing demand in Wilayah VI. Load forecastsindicate that the average annual demand growth rate is expected to be in the 3-5% range in the short tomedium term. Although this is a reduction from historical 9-10 % growth levels, both units are now loadedto full capacity as base loaded units, after the small hydro units, since they generate electricity cheaper thanexisting diesel units. 228 km of 150 kV transmission lines connected Banjarmasin to the major substations;these were financed through an Australian Loan.
Load factors during the first year of operation were as expected in the 70% range and increased to the 80%range in the second year (i.e. 2001). However, a failure of the cooling water pump in 2001 in Unit Ireduced the output of Unit 1 by 50% till repairs were made, thus reducing the plant load factor for 2001 toabout 68%. The plant has operated safely since commissioning, with both boiler efficiencies and ESPefficiencies close to the design values.
Project delays occurred mainly due to (i) late signing of contracts -from 9-13 months delays, (ii) change inscope of the Turbine Generator and Auxiliaries package, (iii) the implementation of a two-stage biddingprocess for the Instrumentation and Control package, as well as for coal and ash handling equipment, and(iv) change of financing from JBIC (formerly OEFC) to IBRD, due to a shortfall in Japanese financing ofabout US$ 12.7 million caused by foreign exchange variations between the US$ and the Japanese Yen. TheSAR established the commercial operation dates of Units 1&2 as December 1998 and March 1999,respectively; commercial operation for Units 1&2 occurred on November and December 2000,respectively. An acceleration program introduced in late 1998, assisted in improving coordination and inaverting further delays in the implementation of the Project. Therefore, the total delay for the commercialoperation of Units 1&2 was about 21 months. There is no doubt that the economic crisis disturbances inJakarta during early part of 1998, the late final placement of the coal and Ash Contract, late hand-over ofcivil foundation to various contractors, late delivery of contractors' equipment, all contributed to a lesser orgreater degree to delays in Project implementation.
Construction of 2x45MW hydropower units in Besai in South Sumatra. The achievement of thiscomponent is rated satisfactory.
Besai HEPP is a run-of-river hydropower plant with a daily regulating storage capacity, harnessing 95% of
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dependable firm discharge of 8.3 cumecs and a head of 245 m. Besai energy production is about 402GWh, consisting of 144 GWh of primary energy and 258 GWh of secondary energy, with an installedcapacity of 90 MW used principally to meet peak demand in Wilayah IV. The Power House comprises amain building installed with two 45 MW generating units, and two 46.4 MW vertical shaft Francisturbines. A 16 km, 150 kV transmission line was also built to connect Besai to the power Grid of WilayahIV.
The implementation of the Project was on schedule till the wet testing of Unit I in December 1999.Commercial operation was expected in April 2000, with only a three month delay. However, during thewet testing, two unrelated incidences occurred: (a) failure of the headrace tunnel; and (b) flooding of thepower house. An investigation report commissioned by PLN stated that the failure of the tunnel concretewas due in part by the nonexistence of extemal hydraulic pressure surrounding the tunnel (due topermeable/fractured rock formation) and the leak of tunnel water under high pressure through constructionjoints and unfilled grout holes. As a countermeasure and after an investigation of various options, the Bankagreed with PLN and the Consultant that installation of a steel-lining in the affected parts of the tunnelwould be appropriate (i.e. where unusual rock formation with no surrounding ground water pressureexists). Installation of the steel liner was completed in December 2000. The Consultant has taken fullresponsibility for the integrity of the functioning of the headrace tunnel, after completion of the remedialworks. Units 1 and 2 were placed in cormmercial operation in June 2001, a delay of about 14 months.
Cleaning and repair work to the Power House due to flooding of the turbine building was completed inApril 2000. The flooding was caused by sliding to the tailrace spoil pile. Although no mechanical damagewas identified, cleaning and drying of equipment lasted for about 4 months. The units are now operatingsuccessfully.
Construction of two barge-mounted power plants: 10 MW diesel and 30 MW Gas Turbine. Theachievement of this component is rated satisfactory.
The 30 MW barge-mounted gas turbine is now anchored at Lampung in Wilayah IV after meeting thedemand for a time at Madura following the severing of the undersea cable serving the island. Since itscommissioning on schedule in March 1998, the 30 MW GT supplied the south Kalimantan area till thecommercial operation of the two units at Banjarmasin (Asam-Asam) in December 2000. The 10 MWbarge-mounted diesel plant has been operating since its commissioning in April 1997 at Pontianak,Kalimantan. As designed during project conception as mobile power plants, both of these barge-mountedunits have been assisting to meet the load demand during the periodic shortages in the region.
Technical Assistance ComDonents
Strengthening the Capacity of GOI for Environmental Management in the Coal Mining Sector. Theoutput of this component is rated highly satisfactorv. This TA, completed in August 1999, was carried outby Consultants on behalf of the Bureau of Environment and Technology of the Ministry of Mines andEnergy. The Ministry has implemented many of the recommendations made by the Project ManagementTeam. These changes amount to a change in the organizational culture of MME. It has:
* supported the accomplishment of significant regulatory development and environmental protection ofthe Ministry;
* significantly upgraded the enforcement capabilities of the Ministry for mine inspection. It has done soby training a cadre of inspectors in a full suite of training experiences which have improved theirability to inspect mines and enforce environmental requirements;
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* added to the Ministry's analytical capability. It has brought in state of the art analytical equipment andprovided training thereof, and has improved the data used in environmental decision making;
* established new regulatory standards in key areas such as bonding and sedimentary pond constructionand design standards.
Strengthening PLN's Environmental Management Capabilities. The work was completed on December21, 1998. As the TOR for the consultancy services was prepared prior to the establishment of PLN'sEnvironmental Division, with Bank's approval, the TOR was modified to "to assist PLN in strengtheningthe capabilities of existing Environmental Division". The main output of this work was in the preparationof guidelines, namely: Guidelines for occupational and health safety audits; Guidelines for environmentalaudits; Guidelines for a monitoring data transfer system, exchange of experience on atmospheric dispersionmodel; Guideline for minimizing flue gas emissions and optimizing generation of thermal power plants;Guideline for minimizing effluents and reducing water consumption of thermal power plants. One issuethat remains is the definition of role and responsibility of DIVLING (the organization created to oversea theEnvironmental Management in PLN) during the ongoing restructuring process. This will be taken upduring the Financial and Corporate Restructuring work underway. The output of this component is ratedsatisfactory.
Pilot Project to Strengthen Business Processes and Competencies in Wilayah IV and VI. The outputof this component is rated satisfactory. It was completed in November 1997 and has assisted to (a)improve the respective Wilayah overall management capabilities; (b) secure efficiency improvementthrough the adoption of commercial management practices; and (c) prepare both Wilayah for greaterfinancial and operational independence as a foundation of establishing business units and possiblecorporatization. Major outputs of this component included:
* Developing regional business plans in both Wilayah;X Making investment decisions taking into account first the regional needs and not decided on an ad hoc
basis by PLN Pusat.* Making staffing decisions based on a skills assessment methodology developed by the region to make
the Wilayah more autonomous and commercial;* Developing a performance management system based on profitability considerations;* Making environmental issues more visible and assign responsibility to Head/Deputy of the Planning
Department.
Demand Management. In view of the financial crisis in the sector and at PLN in particular, PLN decided,with Bank concurrence, against the continuing with this technical assistance. This component wascancelled in December 1998.
4.3 Net Present Value/Economic rate of retuirn:The SAR assessed the economic viability of the Besai and Banjarmasin power plant on the basis of thecosts and benefits associated with the project. The plants' capital costs were measured as (a) the plant andrelated equipment including associated transmission lines from the generation facility to the interconnectedgrid; these costs include physical contingencies but exclude taxes; and (b) the incremental transmission anddistribution costs arising from the use of the network to supply the customers with electricity generated bythe plants. The benefits were estimated by the revenue from the incremental electricity sales on the basis ofthe current average electricity tariff for Regions IV and VI, and supplemented by the consumer surplus. Inthe case of industrial, commercial and public consumers, their willingness to pay was estimated by the costof self -generation from captive diesel plants.
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Ex-post calculations of EIRR were carried out in line with the same methodology. The results showBanjarmasin with an EIRR of 8.9%, excluding consumer surplus, and 14.4% including consumer surplus.As Banjarmasin was fully loaded since commissioning, there were no incremental T&D investmentsincluded in the evaluation. For Besai the EIRR has been re-evaluated as 10.8%, excluding consumersurplus, and 14.2% including surplus, for a 50 year economic life. For a 25 years economic life, theEIRRs Besai are slightly reduced, namely: 9.9% (without consumer surplus) and 13.8% (with consumersurplus). The appraisal values were calculated with consumer surplus as 15% for Banjarmasin and 14%for Besai (for a 25 year economic life).
The economic returns for Banjarmasin and Besai depend strongly on the assumptions made on the tariffsincreases. In both cases the tariff is assumed to increase to a level of 7 c/kWh by 2006, based on PLN'sexpected tariff increases for full cost recovery in 2005-2006. However, because of the unfavorableexchange rate, the gap between the existing and required average tariff is large and the tariff increase has tobe gradual and with continuous effort in building acceptance. The Government expects to implement theneeded tariff increase over the next five years, thereby arriving at the appropriate level by mid 2005, asassumed in this ICR.
To further gauge the economic benefits of Besai HPP, a comparison was made with the next bestalternative for peaking capacity. This produced an equalizing discount rate of 15%, indicating a preferencefor Besai, and supporting the conclusion reached above.
4.4 Financial rate of return:Not applicable.
4.5 Institutional development impact:Overall, the institutional development impact is rated as modest, and this in spite of the fact that thetechnical assistance components, except for one that was cancelled, were implemented satisfactorily. Allproposed training of PLN and MME staff has been satisfactorily carried out. Despite the financial crisis inthe region, and implementation delays in the physical components of the Project, PLN demonstrated itscompetence and flexibility in decision making, by the satisfactory completion of the project. The Projectalso provided the framework for greater decentralization of management, and the creation of autonomousbusiness units, as well a human resource development and planning. The policy reforms did help to openthe sector to private investors and restructuring of PLN, and for regulatory oversight. The environmentalmanagement capabilities of both PLN and MME were enhanced, and both Wilayah IV and VI have beenintroduced to sound commercial management practices which are serving them well in PLN andGovernment plush to decentralization of functions to the regions. However, the restructuring of PLN andthe creation of a regulatory framework, are still underway, and the high cost of power purchased fromIPPs, coupled with low tariffs, have affected adversely PLN's financial situation.
4.6 Environmental Impacts:The environmental assessments for both power plants accurately predicted the likely impacts ofconstruction and operation. Design features recommended to minimize or avoid adverse impacts wereindeed constructed, and measures to mitigate impacts of plant operation have also been properlyimplemented. In the case of Banjarmasin, where air quality degradation is the most serious potentialimpact, the air pollution control equipment and procedures are proving to be particularly robust; althoughthe coal used at commissioning had twice the sulfur content (0.99% versus 0.5%) suggested as the limit toassure compliance with emission and ambient standards, the plant did not violate either during itsPerformance Test or the first round of normal operation monitoring. The plant was also in compliance withambient noise standards offsite, although it exceeds the limit for industrial facilities at the source (below
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stack). Violations of ambient water quality standards for dissolved oxygen and ammonia in the Asam AsamRiver are attributable to upstream sources of organic pollution and not to the wastewater from the powerplant. Routine monitoring conducted since confirms the plant's ability to comply consistently withstandards. At Besai, periodic drying up of 7 km of the Besai River was accepted as an unavoidableadverse impact when the project was approved. High sediment loads in the river caused by poor landmanagement and resulting erosion in the catchment are a continuing concern and point to the need forintensified catchment management efforts, including continuing encouragement of community-based forestmanagement.
The environmental impacts for the transmission lines for both Banjarmasin (228 km, 150 kV) and Besai(16 kIn, 150 kV 2cct) were not significant, as the transmission lines did not pass through environmentallysensitive areas.
4.7 Resettlement and Land Acquisition:The land acquisition. resettlement and rehabilitation conducted at Asam Asam are nearly textbookexamples of good practice. PLN acquired a total of 187 ha for the plant site, the access road, theresettlement community and a PLN staff housing colony. All but 5 ha were already in governmentownership; however, besides purchasing those 5 ha from the owners, PLN compensated at a lower unitvalue the 8 families that were occupying government land and also provided compensation for trees andcrops on the land taken. Total compensation paid was Rp. 122 million, and all compensation was paidprior to land taking. The resettlement community was ready for occupancy before the 36 families (144persons) were relocated. They were moved in 1995 from wood houses with nipa grass roofs to concretehouses (36 sq m floor area) on 40 x 35 m lots, with slow titling process -- certificates were issued in 2001-- is the only aspect of resettlement that could have been improved, but it was beyond the control of PLN.)Community development assistance given prior to and after resettlement, through contracts with a localuniversity and an NGO, included training in livestock raising, agribusiness management, fish culture, andfood and beverage production. Several of the training programs were designed for and directed to women'sgroups. Sources of income/employment became more diverse, including employment of five householdheads at the plant, and 64 % of the families reported an increase in income since resettlement.
At Besai, 205.5 ha of land were acquired from 129 families -- 88 in the inundated area and 41 in theconstruction area. Nearly all of the land inundated was in private ownership. Owners were offeredreplacement land or cash compensation, and all opted for the latter. Nearly all of the land in theconstruction sites was officially forest land being used by local residents for coffee and other crops. Usersof the forest land were offered an opportunity to participate in the Government's transmigration programand were compensated for lost crops. Total compensation paid was Rp. 4.2 billion (US$ 1.8 million at the1994 exchange rate). To assist communities in restoriug or improving on their previous condition, PLNfinanced the Development Program for Besai Community, implemented by Watala, an NGO, withsupervision and technical assistance from the University of Lampung. Nine community self-help groupswere established, with total membership that peaked at 213 persons. The groups functioned as savings andloan associations and channels for PLN's financial assistance to the communities. Groups receivedtraining in organizational management, but venturing into investment in enterprises was limited byuncertain economic conditions. Other groups were set up to distribute plants and manage land in thegreenbelt area. Community satisfaction with the development program is high, except in the area offorestry for watershed management. That component has not achieved its objectives primarily because oflong-standing, unresolved conflict between the local residents the Forestry Department over ownership ofthe forest land.
During the implementation of Besai's RAP, the issue of Dwikora village came up regarding compensation
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for land and crops as well as formation of community groups. Its connection with Besai was limited as onlya few trees were directly affected by the construction of Besai. Actions initiated by the provincial forestryservice (Dinas Kehutanan), and supported by the provincial and district administrations, completelydisrupted the lives and livelihood of the people of Dwikora village. The claim was made that the area wasunder forestry status and consequently no human settlement was allowed in the area. The claim wasstrengthened with the Govemor of Lampung Decision No. 39 in 1996 to eradicate the village status of thisarea. The matter was finally resolved with the concerted effort from the Bank, the NGO, and by constantpressure from the local people, wherein the Govemor's decision was nullified. In October 1999 theGovernment of Lampung issued Decision No. 99/1999 which reclaimed this area into its original status(described in more detail in Section 10).
5. Major Factors Affecting Implementation and Outcome
5.1 Factors outside the control of government or implementing agency:The economic crisis that affected the country in 1997 has impacted substantially the financial situation ofPLN. The sharp depreciation of the Rupiah greatly increased the cost to PLN of its US$-denominatedlong-term payment obligations. These include debt services payments on foreign loans on-lend by GOI,take-or-pay fuel supply agreements for gas and geothermal steam, and take-or-pay power purchaseagreements with IPPs. As a result, PLN has been unable to fully service its debt and to meet its paymentobligations to IPPs. The crisis has affected the availability of the local counterpart funds. To this end, theBank took proactive actions and amended the loan agreement to increase the disbursement percentages to100% for a certain period of time to cover GOI/PLN cost (excluding VAT). The crisis has also affected thecontractors ability to make progress. Some contractors were forced to cut back on operations to reducecosts, while other contractors barred overtime and delayed start of work.
5.2 Factors generally subject to government control:Strong Government support and commitment to the Project as well as to PLN, were instrumental inbringing the physical components of the Project to closure, with only a six month extension of the Bankloan, despite the substantial devaluation of the Rupiah and the financial collapse of PLN. However, thepace of sector reform has proceeded at a much lower pace than anticipated. Nevertheless, the Govermmentand PLN have shown their commitment and willingness to reform with the aim of increasing the efficiencyof the sector, by launching in August 1998 a Power Sector Restructuring Policy, which provided theunderpinning for PLN's Corporate and Financial Restructuring which is presently underway.
5.3 Factors generally subject to implementing agency control:Effective project management by the Consultants, which was exemplarv at Banjarmasin in particular,strong action by the PMUs. and extensive supervision by PLN and the Bank, were necessary to get thisProject through, despite the many difficulties encountered during implementation. PLN's insistence that theCivil Works contractor at Banjarmasin change the Project Manager, which was causing major difficultiesamong other contractors was in the end successful, albeit causing extensive delays in the Project, despite anacceleration program which commenced in December 1998. Proactive action by PLN. Consultants, andthe Bank were also needed to undertake the repair work at Besai HPP in record time. Very proactive andforceful NGO participation at both Banjarmasin SPP and Besai HPP, were essential for fostering excellentcommunity relations between the community of PAPs and PLN and to discuss problems (i.e. water supplyto the resettled community and maintenance of road and drainage ditches, at Banjarmasin; status ofDwikora village at Besai), before they could cause major difficulties later.
5.4 Costs and financing:As a result of the cost savings, the Bank loan was underutilized. To this end and as part of a broaderrestructuring of the Bank portfolio for Indonesia in response to the crisis, three partial loan proceeds
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cancellations totaling US$56 million were made respectively in August 1998, December 1999 andDecember 2000. The Bank loan size was thus reduced to $204.5 million. Of which, US$ 188.8 million, or92% of the revised loan amount, has been disbursed, and the balance of $15.7 million will be cancelledupon closure of the loan account.
Details of the project costs and financing are available in Annex 2.
6. Sustainability
6.1 Rationale Jor sust'ainability rating:Overall, the prospects for project sustainability are uncertain, mainly based on the financial viability ofPLN, which is required to ensure an effective and efficient power sector. Nevertheless, this must becounterbalanced by the following: First, PLN's Corporate and Financial restructuring is underway, atechnical assistance financed by the Bank (Ln 3978-IND), to turn around the critical financial viability ofthe sector, including PLN's. This is expected to result in the establishment of all PLN successorcompanies as legally distinct functional and financially viable entities. The unbundling of PLN is plannedto occur along functional and geographic lines. It is expected that PLN's outside Java-Bali operations willremain in government hands once PLN has been unbundled, but cooperation with the private sectorcompanies will be encouraged on an open and transparent basis. Second, the demand for electricity inWilayah IV and VI has remained reasonably robust, despite the economic crisis in the country, which hasmajor impact on Java but little on outside Java in terms of electricity demand. The most recent forecastsare for electricity sales to increase at an average annual average growth rate of in the 9-11 % range inWilayah IV and 4-5 % range in Wilayah IV. Both regions have a deficit of capacity and both Besai andBanjarmasin, are meeting part of the demand requirements. Third, both Besai HPP and Banjarmasin SPPare of good quality and have operated at high availability since commissioning. Fourth, PLN's EfficiencyDrive Program is underway, with the aim of reducing inefficiencies in operational and capital expenditures,which are an essential part of improving the efficiency of the sector, improve the financial viability of PLN;each of PLN business units has it own cost reduction targets which are monitored on a monthly basis byPLN. Fifth, the GOI has recently approved measures to reduce PLN's future interest expenditures an theelectricity tariffs have been raised to increase PLN's revenue - the foreign exchange movement has alsobeen encouraging.
In addition to the above, the ADB has supported the power sector reform effort with technical assistancefor the establishment of a competitive electricity market. Enactment of the Electricity Law is expected inthe near future and is a condition for release of ADB's funds.
6.2 Transition arrangement to regular operations:Both power plants have been transferred upon their commissioning to PLN's regional offices -- Wilayah IVand VI respectively. Both Wilayah are at present vertically integrated regional branches of PLN,encompassing generation, transmission and distribution. On a technical level, PLN's technical andinstitutional capacities remain intact today despite the financial crisis; both of the Electricity Units inWilayah IV and VI units are capable of operating and maintaining these two Projects. Besai HPP is nowpart of Wilayah IV electrical system which maintains and operates the plant. Similarly, Banjarmasin SPPis now operated within the Wilayah VI electrical system, and operation and maintenance is undertaken bythe Electricity Unit of Wilayah VI. Bank missions have confirmed the availability of properly trainedoperators at these plants together with comprehensive O&M manuals and procedures. In particular atBanjarmasin, which is a highly automated plant, there is on-site technical assistance by suppliers andoperators receive continuing training in plant operation.
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Management Contracts have been introduced between the Wilayah and PLN Pusat (Headquarters) for anumber of years and they have proved to be effective in meeting mutually agreed performance criteria. Inaddition, PLN's Efficiency Drive Program, is making solid improvement in plant heat rates and otherparameters. Furthermore, decentralization efforts are providing more autonomy to the Electricity Units inplanning in a coordinated fashion their vertically integrated systems. Finally, the operation of both BesaiHPP and Banjarmasin SPP, as well as the two barge mounted power plants, will be monitored throughperformance indicators at regular intervals (Annex I provides details on performance indicators).
7. Bank and Borrower Performance
Bank7.1 Lending:Although Bank performance at entry in designing the project as regards development objectives was flawed(see paras 3.3 and 3.5), identification of project components and techno-economic and, in particular,environmental assessments were satisfactorily conducted in a participatory manner, for the power plantsand the required 150 kV transmission lines. Active participation and commitment of all stakeholdersduring project identification and appraisal was instrumental in seeing the Project through to completion.The project team, comprising appropriate skill mix, built on the successful relationship developed betweenthe Bank, GOI and PLN during the implementation of previous projects in Indonesia. Project objectiveswere consistent with Bank CAS and GOI development objectives, particularly in assisting to meet theelectricity demand in the two regions. Preparation and appraisal for the physical side of the project weresatisfactory and complete. On the policy side, the objectives were not supported explicitly, although animplicit cross support was assumed from other concurrent loans.
Lessons leamed from previous projects, particularly Paiton (Ln 3089-IND) and Cirata (Ln 3602-IND),were incorporated into the design of the project, particularly in allowing for close field supervision,comprehensive environmental assessment and resettlement plans.
The loan amount was overestimated at appraisal and delays occurred for reasons that were not anticipated.These delays were controllable and immediate action was taken by all parties concemed.
7.2 Supervision:
Supervision is rated highly satisfactory. Although the team that prepared the project could not remain thesame till project completion (with different task managers throughout Project implementation), the impacton the continuity of project supervision has been very minor. The Bank project team comprised adequateskills and maintained good rapport and continuing cooperation with PLN.
A total of 14 supervision missions (including the ICR mission) were fielded during the projectimplementation. All supervision missions were carried out in combination with missions for other projects.The frequency, timing, duration and skill mix of the supervision missions are considered adequate. Thesupervision aide memories were well prepared with very detailed findings and recommendations recorded.Follow-up letters were sent to the borrowers on a timely basis. Project Status Reports (PSR) were updatedon a timely basis following each supervision mission with adequate details on project status and relatedratings. The IP (Implementation Progress) was either rated "Highly Satisfactory" or "Satisfactory", whilethe DO (Development Objective) rating was downgraded to "Unsatisfactory" in June 1998 due to thefinancial crisis that began in mid-1997. A Management decision was taken in June 2001 to upgrade theIndonesia portfolio based on PLN proceeding with the TA on Corporate and Financial Restructuring, withthe result that the DO ratings of Indonesia energy projects were changed to "Satisfactory". This ICR hasreviewed this decision and decided to maintain an "Unsatisfactory" DO rating based on unsatisfactoryQuality at Entry.
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The Bank took proactive actions to broaden and deepen the scope of power sector reforns given theopportunity presented in the crisis, and this directly resulted (with support from ADB and USAID) in theGOI's Power Sector Restructuring Policy. Further, when it became apparent that GOI was not respondingto the Bank's concern regarding the IPP program, the Bank suspended processing of new lending (para4.2).
The Bank also responded quickly on loan proceeds cancellations once loan savings were identified, and toPLN's deteriorated financial situation by restructuring the Project and amending the Loan Agreement toallow increase of the Bank loan disbursement percentage for local expenditure (excluding payment oftaxes) to 100% from July 1998 onwards, which relieved considerably the pressure on PLN to pay thecontractors. In addition, following a request from GOI in November 1997 regarding a shortfall of Japanesefinancing of about US$12.7 million due to the exchange variation between the Yen and the US$, the Bankagreed to cover the shortfall which allowed the completion of the Steam Generator & Auxiliaries and theCoal & Ash Handling components without undue delay.
7.3 Overall Bank performance:Bank performance is rated satisfactory overall.
Borrower7.4 Preparation:PLN's performance is deemed satisfactory; it was involved in all aspects of the project concept and design.The implementation arrangements and preparation of resettlement and rehabilitation action plans, as well asenvironmental assessments and social-economic/cultural studies (for Besai HEPP) were undertaken in atimely, comprehensive and professional manner. The Project fit well into PLN's priority investmentprogram in the two Wilayah and was in line with the Government's overall sector strategy.
7.5 Government implementation performance:The Government's performance is rated as satisfactory, although marginally so. Although counterpartsfunds were made available in a timely manner except after the financial crisis when PLN financialperformance was deteriorating rapidly with the resulting additional demands on Government support forPLN, GOI did not approve the tariff increase as required due to political sensitivity which substantiallyaffected PLN's financial situation; in addition, GOI was not proactive in addressing the issues ofunder-capitalization of PLN or the Bank's concerns with regard to the IPP program (para 4.2).Nevertheless, GOI reacted promptly to the requests for the cancellations of loan amounts, as well as for therequired amendments to the Loan Agreements to allow an increase of the Bank loan disbursementpercentages (para 7.2) and for loan extensions. Furthermore, although progress has been slow, the GOI'sPower Sector Restructuring Policy provides a sound framework for future power sector reform includingthe eventual financial viability of the sector.
7.6 Implementing Agency:The performance of PLN is deemed satisfactory with effective project coordination with consultants,suppliers, contractors, and subcontractors. It reacted promptly and took charge of the situation during theheadrace tunnel collapse at Besai. It demanded a change of Manager of Civil Works at Banjarmasin whichwas disrupting the Project's Master Schedule unduly. The Project Management Units (PMUs) within PLNfor the various components of the Project were identified and established at appraisal. Prior to negotiationsthe Borrower had developed a detailed project implementation plan. The quality of the Borrower'scommitment and contribution to the project preparation were commendable.
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The Project Agreement included the following covenants on overall PLN's financial performance: (a) aminimum of 8% rate of return (ROR) on revalued net fixed assets; and (b) a minimum debt servicecoverage ratio (DSCR) of 1.5 times. PLN financial position deteriorated dramatically during the tenure ofthe Project. Particularly since the financial crisis in 1997, PLN's profitability, liquidity, and capitalstructure weakened rapidly: PLN reported an operating loss of Rp.4.7 trillion, and its net loss amounted toRp.24.6 trillion (or US$2.6 billion) in 2000, though mainly due to factors beyond its control (including thefinancial crisis, high cost of IPPs, and GOI's unwillingness to approve required tariff increase -7 UScents/kWh in 1996 to 3.6 US cents/kWh in 2001). As a result, PLN was unable at any time during theProject period to fully comply with the financial covenants established for it under the Project. PLN'smorale also suffered during the latter stages of the Project.
Finally, PLN is fully committed to the implementation of the Power Sector Restructuring Policy includingthe financial and corporate restructuring of its operations (para 4.2).
7.7 Overall Borrower performance:Overall Borrower performance can be considered satisfactory.
8. Lessons Learned
A few relevant lessons can be drawn from the Project:
* Quick action to respond to the financial crisis in the latter stages of the Project including flexibilityby both the Bank and PLN/GOI, as well as active participation and commitment of all stakeholdersduring preparation and implementation, contributed to the success of the physical components ofthe Project.
* The handling of invoices must be streamlined to avoid excessive delays in paying to contractors.Slow invoicing by contractors was responsible for delays in disbursements which caused adiscrepancy between the status of the project works and actual disbursements.
* Maintaining continuity of funding of the NGOs attached to the project to ensure that problems inthe communities of affected peoples are taken care of, is very important for maintaining goodcommunity relations. NGOs must maintain an active role throughout project implementation, andbe invited to the field meetings where resettlement and land acquisition issued are discussed. Theyshould also participate in discussions about the project.
* The establishment of PMUs in both projects was essential in taking timely and corrective actionwhen it was needed, and in coordinating the project. However centralized project management waseffective in monitoring/coordinating progress but less effective in directing change when it wasrequired.
* Quick response by PLN and team Bank during the incident with the headrace tunnel at Besai wasinstrumental in identifying the cause of the problem, and suitable mitigation measures as well asimplementation of the remedial works in record time.
* The use of "rate of return on revalued assets" covenant to measure financial performance is notappropriate for a company like PLN with a very large and lumpy investment program.
* A programmatic approach to lending (i.e. Adaptable Program Lending) in the Energy Sector inIndonesia would appear to be more suitable for support of longer-term policy objectives andinstitution building, than the traditional approach to investment lending exemplified by this Projectand the parallel projects at the time.
More specific lessons leamed include: (i) foreign contractors must maintain capable design offices in thecountry of project execution. Delays were produced when design information was sent to offshore home
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offices. This resulted in delay of design coordination and transmission of data between contractors; (ii) theappointment of the project manager by PLN should take place prior to the issuing of bidding documents, toprovide early focus of the strategic intent of the Project. Concurrently an experience PLN's Sektorrepresentative should be permanently appointed by the Project team; (iii) to enhance the transfer ofmaintenance of operation skills from the Contractor to PLN Sektor, power station personnel should beappointed and seconded to Contractors at the beginning of erection and precommissioning of the plant, and(iv) in remote sites, such as this Project, it is important for PLN to have an incentive scheme to attract,retain and motivate high caliber operations and maintenance personnel, to maximize the benefits of theProject.
9. Partner Comments
(a) Borrower/implementing agency:The Bank's performance is rated satisfactory throughout all the phases of the project, from preparation tocompletion. It is also noted that the Bank regularly fielded supervision missions during implementation,playing a leading role in assisting PLN to complete the project.
(b) Cofinanciers:
(c) Other partners (NGOs/private sector):
10. Additional Information
Demand Forecasts for Wilayah IV and VI
Demand forecast in Wilayah IV [most likely scenario (11 % growth rate)]
Year Required Energy (GWh) Peak Load Required CapacityYear Required Energy (GWh)(MW)
Indonesia Standard Banjarmasin(new plant) (week of 28/9/ 2001)
Max AvgParticulates, mg/Nm3 150 125 40
So2, mg/Nm3 750 227 107
NoX, mg/Nm3 850 123 94
Expenditures for Land Acquisition, Resettlement, Community Assistance
BanjarmasinThermal Power Plant:
Cate2orv Expenditure
Land acquired - 187 ha total (5 ha privately owned, 182 ha owned by 112,576,193government.
Crops and other assets acquired 9,641,000
Construction of resettlement community relocation and community 179,912,000development program
Monitoring, evaluation, other implementation activities 45,000,000
Banjarmasin subtotal 234,553,000
Besai Hydroelectric Power Project:
Catei!ory Expenditure
Land acquired-205 ha total (102 ha privately owned, 103 ha owned by 4,151,814,604government).
Development Program for Besai Community 135,000,000
Monitoring, evaluation, other implementation activities 50,000,000
Besai subtotal4,336,814,604
Total 4,571,367,604
Note: The exchange rate at the time was 2,200 Rp/US$.
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Dwikora's Village Saga.
Dwikora village was home to 474 families or about 2,000 people, and was established since 1959. In1965, the inhabitants received a perrnit from the Forestry Department to live in this area. The village hadpublic facilities such as two primary schools, village office and government, two mosques and a market.Acting without any consultation with the people of Dwikora - which had up to that time been a legallyrecognized village (desa) - or informing PLN (in Jakarta or at the local project office) - officers from thedistrict forestry service cut down many of the tree crops (coffee, pepper, cloves, bananas, etc.) farmed bythe community and forcibly demolished houses and huts located within the plantation/forest area.Fortunately, most of the trees cut down were close to the main road, while the majority of the productivetrees were located further from the main road. This initial assault, occurred on February 2, 1995, as part ofan operation by Dinas Kehutanan called "Jagawana" (forest protection).
The stated rationale for this action was based on the fact that Dwikora village was located within aprotected forest (hutan lindung) area; to facilitate construction of Besai HPP and to assist in protecting thecatchment (e.g. by reducing soil erosion and sedimentation) for Besai HPP. The latter two reasons arepatently false, as the village and its agricultural areas are well separated from the project site (except forthe need to construct an access road to the power house) and are sited downstream of the pondage and damsite. However, despite the claims for legitimate and long-term occupancy of the village area andagricultural land by the members of the community and their assertion that this land was granted to themby President Sukarno in 1952-53 (supported by some documentation and oral history), their formal legalstatus has remained moot as a result of the 1982 decision by the national government that resulted in thewholesale realignment of forest boundaries throughout Indonesia.
On February 19, 1995 the conmmunity was informed by a circular from the head of the district (BupatiLampung Utara) that they would be required to vacate the area and migrate to another part of LampungProvince, and subject to fines and/or imprisonment if they failed to cooperate. Not surprisingly, the peoplerefused to vacate their homes and land. This was followed in early 1996 by other circulars ordering them todemolish their houses, closing the two primary schools in the village and disconnecting them from thepublic water supply. Approximately 2,000 people were directly affected by these actions.
The Bank was informed by Watala of what was occurring in 1995 and conducted a basic investigation,including holding discussions with members of the community, PLN and Watala. The Bank and PLN made(informal) representations to the local government and forestry service, both to inform them that thepresence of the Dwikora community and their agricultural activities was not adversely affecting the BesaiHPP and help them understand that their actions were severely disrupting ongoing community supportprograms, especially those involving people from Dwikora. In addition, PLN Jakarta made contact, againinformally, with the Department of Forestry and BAPPENAS, asking them to assist by persuading theprovincial/district forestry service to end their actions, and the local planning agency (BAPPEDA) to playan active coordination and conciliation role.
At that time compensation activities were still in progress, and there was no suggestion that farmers fromDwikora would not receive compensation for lost crops growing on land that was (now) officially'protection forest'. In this respect their status and the basis for the compensation they would receive wasidentical to that being negotiated with people from the other two communities: Sukapura and Way Petai.The Bank's (and PLN's) concem, at that time, was ensuring that the support activities being conducted byWatala would be able to continue. However, the negative social and psychological effects of the actions bythe forestry service on the people in Dwikora were such that they decided to withdraw from the programsbeing conducted by Watala.
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Thanks to the Bank and NGO actions, as well as constant pressure from local people - particularly Ms.Nonha Sartika, in October 6, 1999, the Government of Lampung, issued decision No.99/1999 reclaimingthis areas into its original status. This decision has brought social stability for the community, and can beconsidered a success story for the local community, PLN and the Bank.
A. Increase private sector participation in (i) No. of Private Plants in PLN's System. PLN signed 26 contracts for about 11,000 MW of IPPbuilding generating capacity and upgrade capacity. On December 22, 1998 PLN initiated itssector operating standards and practices. rationalization of its IPP program.
(ii) System Losses Less than 12% in 2000 in Java-Bali
(iii) Performance Contracts between Performance contracting introduced in 1998.Gencos and Plant Managers
B. Restructure PLN to improve its (i) PLN to become a Persero PLN became a Persero in 1994.operating performance and serviceefficiency
(ii) PLN to restructure and unbundle > PLN's Java-Bali generation assets wereseparated and two generating subsidiaries wereestablished to own and operate the J-B system in1995.
> In August 1998 GOI launched its Power SectorRestructuring Policy.
> In 1999 PLN launched it Efficiency DriveProgramn (EDP).
> In 2001 PLN initiated its Corporate andFinancial Restructuring.
C. Formulate and implement of (i) Creation of a Directorate of Regulation A Directorate of Electricity Business Supervisionregulations to promote efficiency in power (DEBS) to carry the regulatory function was created insector operations 1997.
(ii) Implementation of regulations for > Draft of New Electricity Law in Parliament (toprivate power replace prevailing Electricity Law No. 15 of
1985.> Regulation on private power participation (i.e.
closing the window for unsolicited proposals)introduced in 1998.
D. Introduce a formula-based periodic (i) Establishing ETAM (Electricity Tariff Presidential Decree introduced ETAM in Octobertariff adjustment mechanism to recover Automatic Adjustment Mechanism) 1994.costs.E. Other Objectives
El. Assist in financing environmental (i) Commissioning of 2x65 MW coal-fired Commissioning in September and December 2000.sustainable expansion in Sumatera and power plants in Banjarmasin in DecemberKalimantan. 1998 and March 1999.
(ii) Commissioning of 2x45MW Commissioning in June 2001.hydropower plants in Besai in January2000.
(iii) Commissioning of 10 MW and3O Commissioning in April 1997 and march 1998.MW Barge Mounted Power Plants inApril 1997 and March 1998
E2. Assist GOI and PLN in the areas of (i) Establishing a specialized (i) Doneenvironmental management, efficiency Environmental Unit within PLN (ii) Doneimprovement and demand management (ii) Promote environmental protection and (iii) DSM component cancelled
upgrade enforcement capabilities of mineinspection at MME(iii) Promote Demand Management atPLN
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Key Perfomance Indicators during operation.
PERFORMANCE INDICATORSBESAI HPP
NO DESCRIPTION DESIGN 2001*UNIT 1 UNIT 2 UNIT 1 UNIT 2
1 Capacity Factor (CF %) 50.1 50.1 48.9 46.5
2 Average Availability Factor (AF %) 100 100 95.9 95.9
Note:*) Monitoring period: March 2001 to 30 October 2001.
- Unit # 2 Commissioning: March 7, 2001- Unit # I Commissioning: March 15, 2001- Modification by pass inlet Turbine Unit # 1: May 13 to 28, 2001 (16 days)- Modification by pass inlet Turbine Unit # 2: May I to 12 and May 17 to 18, 2001 (14 days)
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PERFORMANCE INDICATORSBANJARMASIN SPP
Tar t 2000 2001No. Unit I Unit 2 Unit I Unit 2 Unit I Unit 2
* Total Cumulative Operating hours up to March 12, 2000** Total Energy Generation up to March 12, 2001 (PLN Sektor Barito)***' Unit out of service during Jan-April 2001 for repair**** Unit operation at Tarahan Site in Lampung since December 12, 2000 (PLN Sektor BD Lampung
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Annex 2. Project Costs and Financing
Project Cost by Component (in US$ million equivalent)Appraisal ActuallLatest Percentage ofEstimate Estimate Appraisal
Project Cost By Component US$ million US$ millionBesai HPP and related transmission 143.50 123.83 86.3Banjarmasin SPP and related transmission 261.70 238.81 91.3Barge-Mounted Power Plants 30.90 24.65 79.8Engineering Service for Besai HPP 21.80 17.91 82.2Engineering Service for Banjannasin SPP HPP 13.20 15.15 114.7TA for Environmental Management (GOI) 3.10 0.09 2.8TA for Demand Management 2.20 0.00 0TA for PLN's Environmental Group 1.60 1.60 100TA for Pilot Project (PLNs Region IV and VI) 2.70 2.65 98.1
Total Baseline Cost 480.70 424.69Physical Contingencies 55.80Price Contingencies 48.60
Total Project Costs 585.10 424.69Interest during construction 103.80
Total Financing Required 688.90 424.69Note: The actual IDC is not available.
Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent)
Procurement MethodExpenditure Category ICB NCB Other N.BF. Totl'os
(226.50) (0.00) (34.00) (0.00) (260.50)Note: There is a discrepancy between the total project costs in the above two tables. According to SAR,the first table included the expenditures for preliminary engineering and design financed under Bank loans3602-IND for Besai and 250 1-IND for Banjarmnasin, while the second table excluded such expenditures.
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Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent)
Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies.2/Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staffof the project management office, training, technical assistance services, and incremental operating costs related to (i)managing the project, and (ii) re-lending project funds to local government units.
Project Financing By Component (US$ million)
Project A praisal Estimate Actual/Latest EstimateComponent IBRD JBIC Exp. Cr. GOVPLN Total IBRD JBIC Exp.Cr GOIMPLN Total
Besai Hydro Power _ ___ 44.29 38.69 40.85 123.83Banjarmnasin Thenmal Power l r 93.79 56.94 88.08 238.81Barge Mounted Plants 23.67 0.98 24.65TA 127.07 10.32 37.40Total 266.8 23.7 92.0 306.4 688.9 188.82 56.94 38.69 140.24 424.69
Note: IBRD amount at appraisal included $6.3 m from previous Bank loans.
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Annex 3. Economic Costs and BenefitsSumaters and Kalimantan Power Project
Calculation of EiRR for the Banjarmasin Thermal Power Plant ( 1994- 2001)(US$: Million)
Year Operational Plant T&D Total O&M Fuel Tota Inerernental Totai Tariff C Total Benefits -CostsYear Cost Cost Capital Cost Cost Cost Generation Sales Revenue Surplus Benefit Net
Cost GWh (GWh) Benefita b a+b c d a+b+e+d e e f e+f
2. O&M costs: 2% of the plants' capital costs3. Fuel costs: S 0.01/kWh and escalated 2% after 20054. Total Losses 17%5. Salvage Value 33.6 million (Land, buildings, other assets, etc.)6. IDC 3.5%
Years7. Annual Energy Production: Load % 1-2 3-10 11-20 21-25
OMacro policies O H OSUOM O N * NAOSector Policies O H OSUOM O N O NAN Physical OH *SUOM ON ONAF Financial O H OSUOM * N O NAX Institutional Development 0 H O SU *M 0 N 0 NA
Environmental O H *SUOM O N O NA
SocialZ Poverty Reduction O H OSU*M O N O NAD Gender O H OSUOM O N O NAOI Other (Please specify) O H OSUOM O N O NA
X Private sector development 0 H O SU 0 M 0 N 0 NAEl Public sector management 0 H O SU O M 0 N 0 NAEL Other (Please specify) 0 H O SU O M 0 N 0 NA
• Lending OHS*S OU OHU• Supervision *HSOS O u O HUM Overall OHS OS OU O HU
6.2 Borrowerperformance Rating
Z Preparation OHS OS OU O HU• Government implementation performance O HS OS 0 U 0 HUF Implementation agency performance O HS OS 0 U 0 HUX Overall OHS OS OU O HU
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Annex 7. List of Supporting Documents
1. Memorandum and Recommendation of the President of IBRD to Executive Directors2. Staff Appraisal Report (SAR).3. Project Aide-Memoires.4. Consultants Completion Reports for Besai HPP (Nippon Koei) and Banjarmasin SPP (ElectrowattEngineering Services)5. PLN Audited Financial Statements (1994-2001)6. Final Executive Summary, Consulting Services for the Constitution of Electricity Units in Region TVand VI, Coopers and Lybrand, November 19977. Final Report of the Joint Office of Surface Mining (US-OSM)/Bureau of Environment and Technology(Ministry of Mines and Energy), Consulting Service for Mining Environmental Policy in Indonesia, OSM,November 1999.8. Final Executive Summary, Consulting Services for Strengthening PLN's Environmental ManagementCapabilities, Lahmeyer International and PT Jaya CM Manggala Pratama, December 1998.9. Environmental Impact Assessment of Banjarmasin Mine Mouth Coal Steam Power Plant, PLN, April1994.10. Resettlement Plan of Banjarmasin Mine Mouth Coal Steam Power Plant, PLN, November 1993.11. Resettlement Plan of Besai Hydroelectric Power Project, PLN, May 1994.12. Environmental Impact Assessment of Besai Hydroelectric Power Project, PLN, 1994.13. Social-Economic/Cultural Study, Besai HEPP, July 1993.14. Initial Environmental Examination of 150 kV Transmission line from Banjarmasin SPP to CempakaSubstation and Trisakti Substation, PLN, May 1993.15. Summary of Activities, Community Development Project for Besai Community, Research Institute ofUniversity of Lampung (Lembaga Penelitian Universitas Lampung), June 1998.16. Borrower's Completion Reports for Besai, Banjarmasin, and Barge Mounted Power Plants.17. Bank's ICR Aide-Memoire
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