Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 12662-IND

STAFF APPRAISAL REPORT

INDONESIA

SIJMATERA AND KALIMANTAN POWER PROJECT

MAY 27, 1994

IT;.'I ~ .41-r

P'.er-rl Nt<: 1_C

'tvpe .;d•y

Industry and Energy Operations DivisionCountry Department IIIEast Asia and Pacific Regional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorizaion.

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CURRENCY EQUIVALENTS

Currency Unit - Indonesian Rupiah (Rp)(As of January 1994)

US$1 = Rp2,105Rp 1 billion = US$0.475 million

FISCAL YEARApril 1 - March I

WEIGHTS AND MEASURES

1 metric ton = 1,000 kiliograms (kg)1 liter (1) = 0.0063 barrels (bbl)1 kilometer (km) = 0.6215 mile (mi)1 kilovolt (kV) = 1,000 volts (V)1 megavolt ampere (MVA) = 1000 kilovolt ampere (kVA)1 megawatt (MW) = 1,000 kilowatts (kW)1 gigawatt hour (GWh) = 1 million kilowatt hours (kWh)1 terrawatt hol'r (TWh) = 1 billion kilowatt hours (kWh)

ABBREVILATIONS

BAKOREN - National Energy BoardBAPPENAS - National Development Planning AgencyDGEED - Directorate-General of Electricity and Energy DevelopmentEA - Environmental AssessmentGOI - Government of IndonesiaIERR - Internal Economic Rate of RetumLNG - Liquefied Natural GasLRMC - Long Run Marginal CostMIS - Management Information SystemMME - Ministry of Mines and EnergyPAP - Project Affected PersonsPERTAMINA - National Oil and Gas CompanyPLN - State Electricity CorporationPPE - Engineerng Services Center of PLNRE - Rural ElectrificationRENSALITA - Five-Year Corporate PlanREPELITA - Five-Year Development PlanROR - Rate of ReturnTA - Technical Assistance

FOR OFFICIAL USE ONLY

INDONESIASUMATEtA AND KALM[ANTAN POWER PROJECT

LOAN AND PROJECr SUMMARY

Borrower: Republic of Indonesia

Benefidary: State Electricity Corporation (PLN)

Amount: US$260.5 million equivalent

Terms: Repayable in 20 yea s, ii.cluding five years of grace at the standard variableinterest rate

Onlending The proceeds of the loan, except $3.2 million for technical assistance to theTerms: Government of Indonesia (GOI), will be onlent from GOI to PLN for 20 years,

including a grace period of 5 years; the subsidiary loan will be denominated inUS dollars and the onlending interest rate would be equal to the Bank's standardvariable interest rate plus 0.5 percent per annum. PLN will bear the foreigrexchange risk.

Project The proposed project has a policy component and several physical components.Description: The policy component of the project entails: (a) establishing a policy framework

for private sector participation; (b) restructuring PLN and establishingcommercial operations as i limited liability company (Persero); (c) implementingfrmework for regulatory oversight of the power sector; and (d) introducingformula-based power tariffs, as well as bulk power purchase and supply tariffs.The physical components of the project would help finance economical andenviromnentally sustainable expansion of PLN's generation capacity, withassociated transmission lines, in the islands of Sumiatera and Kalimantan andimprove service reliability. The physical project components are:(a) construction of a hydroelectric power plant with an initial generating capacityof 90 MW at Besai in South Sumatera and related transmission facilities;(1) construction of a mine-mouth lignite fired thermal power plant with an initialgenerating capacity of 130 MW at Asam Asam near Banjarmasin in SouthKalimantan and related transmission facilities; (c) procurement of two barge-mounted power plants of 10 MW and 30 MW capacity respectively; and(d) technical assistance comprising: (i) engineering and construction supervisionof Besai hydroelectric and Banjarmasin thermal power plants; (ii) strengtheningthe capability of GOI for environmental management in the coal mining sector;(iii) promoting demand management; (iv) strengthening the enviromnentalmanagement capability of PLN; and (v) implementing pilot projects for PLN'sRegions IV and VI in South Sumatera and South Kalimantan respectively toimprove their operating efficiency.

Benefits: The policy reform underlying the project will change the structure and dynamicsof Indonesia's power sector. Opening the sector to private investors andrestructuring PLN will expand the financial envelope for system expansion and

This document has a restricted distnbution and may be used by recipients only in the performance of theirafficial duties. Its contents may not othewise be disclosed without World Bank authorization.

enhance incentives for lowering the cost and improving the reliability of service.Specifically, the investment components of the proposed project will help PLNmeet increases in eleciricity demand in South Sumatera and South Kalimantanand improve service reliability, as wel' as mitigate periodic power shortages inthese regions. The Besai hydroelectric power plant will help substitute oil-firedgeneration in the region by a renewable energy source. The Banjarmasinthermal power plant will produce electricity at the mine mouth utilizing a cheapsource of fuel Oignite) that is non-tradeable and of no other cormercial value.Further, technical assistance will help strengthen the environmental managementcapabilities of the Bureau of Environment and Technology in the Ministry ofMines and Energy, as well as PLN. Support for demand management will helpreduce the growth rate in electricity demand and curtail peak load in theinterconnected grid systems of PLN. Also, the proposed pilot projects in PLN'sRegions IV and VI will help transformation of the respective systems into profitcenters to improve the efficiency of operations.

Rialks: The GOI has an excellent track record in carrying out reforms to which it hascommitted. While the scope of the proposed sector, institutional and regulatoryreform is ambitious, the main elements are firmly embedded in theGovernment's policy agenda. The risks of delays in implementing the reformare within a relativel-' smal! range, considering the magnitude of the envisagedchanges. Specifically, there is a risk that delays in carrying out the plannedlarge development program would not reduce supply shortages and substitutecostly captive power generation to the extent expected. There is litfle risk thatthe px er generation components of the proposed project would becomeredundant if the projected levels of electricity demand fail to materialize, sincethey are part of the core expansion program of PLN and justified under theprojected demand scenarios. Project implementation risks are small; thegeological and hydrological conditions of the Besai site well known and stable,respectively. The risks of schedule slippage and cost overruns in theimplementation of the coal-fired Banjarmasin thermal power plant are minorconsidering PLN's experience in project management and carefully worked outimplementation schedule.

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Cost Estimate: Local Foreign -Toiw(US$ million)-

Besai Hydroelectric Power Plantand related transmission 40.5 103.0 143.5

Banjarmasin Thermal Power Plantand related transmission 96.2 165.5 261.7

Barge Moimted Power Plants 5.4 25.5 30.9

Technical Assistance:Engineering:

Besai Plant 5.1 16.7 21.8Banjarmasin Plant 4.7 8.5 1 3.2

Environmental Management 0.8 2.3 3.1Demana Management 0.4 1.8 2.2PLN's Environmental Group 0.4 1.2 1.6Pilot ProjectskPLN's Regions IV & VI) 0.6 2.1 2.7

Total Base Cost 154.1 326.6 480.7

Physical Contingency 19.7 36.1 55.8Price Contingency 17.3 31.3 48.6

Total Project Cost /a 191.1 394.0 585.1

Interest During Construction 40.4 63.4 103.8

Total Flnancing Required 31 1.4 !

La The local costs are :uclusive of taxes and duties estimated to be about US$51.1 millionequivalent.

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Fnacing Plan: Local Foreign Total- (LJS$ mililon)

IBRD -Earlier Loans, a 1.5 4.8 6.3- Proposed Loan 6.9 253.6 260.5

Export Credits 15.5 76.5 92.0

Other Sources - 23.7 23.7

PLN 207.6 98.8 306.4

Total 231.5 M

lA Expenditures for preliminary engineering and design fmnareed under earlier loans for:a. Besai Hydroelectric Power Plant (US$ 3.3 million) under Loan 3602-INI)b. Banjarmasin Thermal Power Plant (US$ 3.0 million) under Loans 3501-IND

Estimated Disbursenent:

Bank FY 1995 1996 1997 1998 1999 2000

Annual 10.0 36.0 62.0 75.5 60.0 17.0Cumulative 10.0 46.0 108.0 183.5 243.5 260.5

Rate of Return: Besai Hydroelectric Power Plant - 14 percentBanjarmasin Thermal Power Plant - 15 percent

Poverty Category: Not Applicable

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INDONESIA

SUMATERA .AND KALIMANTAN POWER PR-JECT

CONrENTSPage No.

1 THE ENERGY SECTOR ............................... I

Sector Overview ...................................... 1Energy and the Environment .............................. 1The Government's Objectives and Strategy ...................... 2Institutions in the Energy Sector ............................ 3

2 ELECTRIC OV ......POW............................ 5

The Electrcity Sector ................................... S

The Outer Islands ..................................... 7Electricity Consumption Forecasts ........................... 7Development and Investment Program ........ ................ sStrategic Sector Issues .................................. 9

3 THE BANK'S EXPERIENCE WITH PAST LENDING,AND STRATEGY IN THE POWER SECTOR ................. 1!

Experience with Past Lending .............................. 11Strategy in Support of Sector Policy Agenda ..................... 12- Private Sector Participation .. ................... 12- Restucturing PLN ................................... 13- Regulatory Reform ................................... 14- Adjusting Power Tariffs ................................ 16- Energy Efficiency and Environmental Protection ................. 16

4 THE BENEFICLARY .................................. 17

PLN's Orgamzation ................................... 17Institutional Change ...... : .............................. 17Staff Development and Training ............................ 18Accounting and Budgeting ................................ 19Billing and Collections ................ 19Audit and Internal Control ................ 19Insurance .......................................... 20

The report is based on the findings of an appraisal mission comprising Messws/Mme. Mihir Mitra,Sushffil hatnagar, Hernan Garcia, Arun Sanghvi, Judith Magyari and Subodh Matur (Consultant)who visited Indonesia in October/November 1993. Peer reviewers wore Messrs. Peter Cordukes,Anthony Sparkes and John Irving. Mrs. Marianne Hag, Director (EA3DR) and Mr. Peter R.Scherer, Division Chief (EA3IE) have endorsed the project.

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Page No.

5 THE PROJEOCT .................... 21

Background ........................................ 21Rationale for Bank Involvement ...... ...................... 22Project Objectives ..................................... 22Project Description .................................... 22The Sumatera and Kalimantan Power Project: Physical Components ..... 23- Besai Hydroelectric Power Plant .... I ...................... 23- Banjarmasin Thermal Power Plant .......................... 24- Mobile Power Plants .................................. 24- Tedhnical Assistance .............. 25Cost Estimate ........................................ 26Financing Plan . ...................................... 27- Procurement . ...................................... 28- Allocation of Loan Proceeds .............................. 30- Disbursements ..................................... 31Monitoring and Evaluation .............. ................. 31Supervision Arrangements ................................ 32

6 FINANCIAL ANALYSIS ................................ 33

Past Operating Results and Financial Position .................... 33Financial Objectives and Performance Monitoring ................. 34Present and Future Performance ............................ 35Tariffs . ............................................ 38Overall Development Fund ............................... 38Financing Policy .... ................................. 39Asset Revaluation ..................................... 40

7 PROJECT JUSIFICATION ...... ....................... 41

Demand Growth and Need for the Plants ....................... 41Least Cost Option ........... 42Plant Size and Timing Alternatives ........................... 42Internal Economic Rate of Return ...... ...... ............... 43Project Benefits. 44Project Risks .44

8 AGREEENTS REACHEI AND RECOMmENDATION .45

Agreements Reached with the Borrower .45Agreements Reached with PLN .46Condition of Effectiveness .47Recommendation .47

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ANNEXES

1.1 Indonesia - Sector Overview ............................. 491.2 Organization Chart of MME ............................. 522.1 Growth of Captive Power in Indonesia ....................... 532.2 Growth of PLN's Consumers and Sales ....................... 542.3 Electricity Consumption Forecasts and Assumptions ............... 552.4 Peak Load, Production and bnstalled Capacity: Java-Bali .... ....... 572.5 Peak Load, Producton and Installed Capacity: Outer Islands .... ..... 592.6 PLN's Investment Progran for Java-Bali System ................. 612.7 PLN's Investment Program for Outer Is!nds ................... 623.1 Power Subsector - List of IDA Credits and Bank Loans .... ........ 63a.2 Policy Statement (Goals and Policies for the Development of the

Electric Power Sub-Sector) ................. 644.1 Organization Chart of PLN .............................. 704.2 PLN: Performance Indicators ............................ 715.1 Besai Hydroelectric Power Plant - Design Features ............... 725.2 Hanjarwasin Thcrmal Power Plant - Design Features .............. 795.3 Environmental Assessment Summary - Besai Hydro Plant .... ....... 845.4 Summary Implementation Schedule - Besai Hydro Plant .... ........ 915.5 Procurement Schedule - Besai Hydro Plant .................... 945.6 Environmental Assessment Summary - Banjarmasin Thermal Plant ... ... 955.7 Summary Implementation Scheidiule - Banjarmasin Thermal Plant ... .... 1025.8 Procurement Schedule - Banjarmasin Thermal Plant ............... 1065.9 TOR - PLN's .-vironmental Management Capability .. . 1075.10 TOR - Demnn danagement .e..... .. ............... 1175.11 TOR - Pilot Projects for PLN's Regions IV and VI ....... ........ 1195.12 Cost Estimate - Besai Hydroelectric Power Plant ...... .. ......... 1215.13 Cost Estimate - Banjarmasin Thermal Power Plant ...... .. ........ 1235.14 Procurement Efficiency ................................ 1255.15 Disbursement Schedule .............. ................... 1275.16 Implementation Schedule for TA .......................... 1285.17 Supervision PI-is .......................... 1296.1 PLN's Financial Statements - Past Results and Forecasts ...... ...... 1316.2 Notes and Assumptions for the Financial Forecasts ..... .. ........ 1396.3 PLN's Tariff ................... .................... 1427.1 Forecast PLN Electricity Sales and Peak Load - Region IV .... ...... 1467.2 IERR Calculation ..... ............. .................. 1487.3 Internal Economic Rate of Return - Besai and Banjarmasin Plants ...... 1508.0 Selected Documents and Data in Project File ....... .. .......... 154

MAPS: 1 IBRD 25506 R2 IBRD 25507 R3 IBRD 25508 R

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THE ENERGY SECTOR

1.1 l-donesia is endowed with large and diverse energy resources including crude oil,natural gas, coal, hydropower and geothermal. Oil has played a crucial role in the country'sdevelopment. In the early 1980s, oil's importance in the Indonesian economy peak.d as oilaccounted for 80 percent of the country's export earnings, and most of the government's rev;uuescame from oil. Following the collapse of oil prices in the first half of the 1980s, Indonesia initiateda series of fundamental reforms to restructure and diversify the economy by providing incentivesfor non-oil/LNG manufacturing and exports. While the oil and gas sectors continue to retai-, afundamental role in Indonesia's economy, with oilALNG exports of about US$10.5 billion in 1992,(about 30 percent of total exports), non-oil/LNG exports have now become the engine oIndonesia's external trade with about US$24.8 bHilion in 1992. A detailed overview of the energyresources is given in Annex 1.1.

1.2 Indonesia's domestic energy consumption has been growing rapidly. Overalldomestic net energy use has grown from about 166 milliec barrels of oil equivalent (boe) in 1985to about 263 million boe in 1992, a compound rate of 6.8 per cent per annum; with liquidpetroleum products accounting for about 78 percent of net energy consumed, and the share ofnatural gas at approximately 10 percent. Liquid petroleum product consumption is currentlyincreasing at about 13 percent annually, after having grown at an average annual rate of about 6percent from 1986 to 1989. During the 1980s, electricity consumption grew about 15 percentannually and gas sales grew about 9 percent annually.

1.3 A primary objective of the energy policy in Indonesia is to satisfy the rapidlygrowing demand for energy, while channeling liquid petroleum products for exports. TheGovernment is conscious of the need to conserve Indonesia's exportable surplus of crude oil andthereby slow Indonesia's transition to net oil importer status. This requires the efficient use ofenergy resources to be accomplished through appropriate pricing and other means, and thedevelopment of alternative energy resources that can economically substitute for domestic petroleumuse, such as coal, non-exportable gas, geothermal, and hydropower. The power sector is a majoruser of petroleuit fuels, especially in the Outer Islands (islands other than Java). Plans call forfurther reducing oil's share in power generation, from about 44 percent in 1991 ( about 33 millionbarrels of diesel and fuel oil), to about g percent by the end of this decade (10 million barrels peryear).

Energy and the Environment

1.4 The Environment Law in Indonesia (Law No. 4, 1982) provides that every projectlikely to have a significant impact on the environment must be accompanied by an environmentalImpact analysis (AMDAL). Pursuant to this law, the Ministry of Mines and Energy, in its Decree

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1158 (1989), established uniform procedures and guidelines for preparation, submission andapproval of an environmental impact analysis, as well as subsequent and periodic reporting onenvirormental management and monitoring during the project implementation phase. In the powersubscr, Techni9al assistane.e was provided under Loan 3098-4ND (Paiton Thermal PowerProject) to train a number of staff of the Ministry of Mines and Energy on environmentalmanagement, and provide documentation for environmental guideiines and monitoring [para.1.7(f)]. A separate directorate (Bureau of Environment & Technology) has recently been set upto carry out the environmental management functions under a Director who also chairs the CentralCommission (AMDAL) for environmental clearances. Indonesia's emission standards are evenstricter in some respects th-n those of developed countries; for e-zample, the GOI standard forsulfur dioxide emission is 260 lglm3 only as opposed to the USEPA and Bank standard of 500,4gIm3 , while the nitrous oxide emission standard is 92.5 /Ag/m3 against the USEPA and Bankstandard of 100 ug/m3 . In order to monitor emission compliance, the Suraaya Thermial PowerProject (Loan 3501-IND) provides for the installation of receptors at strategic locations to monitorthe ground level concentrations of sulfurous and nitrous oxides, as well as of particulates, whenall seven units of the plant are placed into operation. The proposed project includes technicalassistance to both MME and PLN to further enhance their environmental management capabilides.

The Government's Objectives and Strategy

1.5 The energy sector is expected to continue to play a key role in the futuredevelopment of the economy. The GOI's main objectives for ttie sector are:

(a) the economic (ecficency) objective: to ensure efficient and reliable supply ofelectricity at least cost, while closing the gap between supply and demand, byconstructing new generating capacity and extending the transmission and distributionnetwork; to promote private sector participation to produce electricity and harnessthe capacity from captive power plants.

(b) the resource mobilizaion (fiscal and financial) objective: to maximize thecountry's foreign exchange earnings and budgetary revenues from the sector, mainlythrough the export of tradeable energy resources, including oil, gas and coal; to setpower tariffs at economic costs to enable producers of energy to recover their costsand obtain sufficient resources to finance their growth and development;

(c) the instutonal objective: to restructure the energy institutions and regulations inresponse to new challenges emanating from the reform of the sector, and to improvethe efficiency of the energy institutions, while enhan.,ing the quality of manpowerresources;

(d) the social (equality and fairness) objective: to promote a regionally balanceddevelopment of the country and to enable the majority of the people to afford thebasic services provided by electricity (lighting, cooking) at affordable rates toimprove their standard of living;

(e) the enionmental objective: to define and promote energy conservation measuresand environmental protection to promote the production ana utilization of energyresources in a manner that will ensure sustainable development and help conservethe environment for future generations.

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1.6 In pursuing the above objectives, GO has relied on the following key policyimprovements:

(a) petroleum product prices: While several adjustments were made earlier, but sinceJanuary 1993, the GOI has maintained the average price of petroleum products atinternational parity, (efficiency pricing) while cross-subsidizing the price of kerosenewith an implicit tax on gasoline through the operation of the BBM (petroleumproducts) Fund (Annex 1.1). However, with the recent softening of crude oilprices, the domestic prices of petroleum products, including kerosene, are nowpegged above their economic cost.

(b) electicity tariff: The GOI maintains electricity rates at low levels for smallresidential, commercial and industrial consumers, who account for about 40 percentof PLN's sales. Periodic adjustments in the average sale price (the latest averageincrease of 13 percent, effective February 1, 1993) have generally maintained theaverage price close to the long-run marginal cost of supply in Java (para 6.15).

(c) private sector participation: The private sector operates significant captive powercapacity, and is expected to play an increasingly important role in the supply of gasand electricity. Independent power generation projects, which would supply powerto PLN's grids, totaling about 2,600 MW of capacity are expected to becommi&sioned over the next five years on a build, own and operate (BOO) basis(para. 2.11), of which about 500 MW -would be outside Java.

(d) protecting the poor: Historically, the GOI has subsidized the consumption ofelectricity by small residential, as well as small non-residential customers. The GOIhad maintained the price of kerosene below its econovaic cost, though this is nolonger the case [para 1.6 (a)I.

(e) regionally balanced development: The GOI has (i) maintained a uniform pricestructure for petroleum products and electricity in all parts of the country, and(ii) extended the supply of petroleum products and electricity in a balanced mannerto all parts of the country. These policies entail the subsidization of the higher costof energy supplies to the Outer Islands and to remote areas.

(t) environmental protection: In 1992, the Government created a Bureau ofEnvironment in the Ministry of Mines and Energy with permanent staff to supervisevarious environmental aspects in the energy and mining sectors. In addition, aseparate body in the Ministry of Mines and Energy, the Commission forEnvironment has the authority to review and approve Environmental Assessments,including their mitigation, management and monitoring plans, for all investmentprojects.

Institutions in the Energy Sector

1.7 The principal agency responsible for implementing Government policies in the energysector is the Ministry of Mines and Energy (MME). MME coordinates all activities in the energysector and supervises the state enterprises in the sector: Pertamina (oil, gas and geothermal),P.T. Bukit Asam (coal), PGN (gas distribution) and PLN (electricity). Other ministries and

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agencies are also Involved in the sector; for example, the Ministry of Public Works, which isresponsible for hydropower resource surveys and the operation of multipurpose hydro plants, dheNational Atomic Energy Commission, which is responsible for nuclear development, andBAPPENAS, which provides sector planning and policy guidelines. An inter-ministerial NationalEnergy Board (BAKOREN) coordinates energy policies and development with those of othersectors. BAKOREN is supponed by a Technical Committee (PTE) consisting of senior officialsof different departments, chaired by the Director General of Electricity and Energy Development(DGEED). The organization chart of the MME is shown in Annex 1.2.

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2ELECTRIC POWER

The Electricity Sector

2.1 The Electricity Act (Law No. 15 of 1985) defines the legal framework for electricitysector. Under this Act, PLN, the State Electricity Corporation that was established by GovernmentRegulation No. 18/1972, has both the right and obligation to supply power in Indonesia. Theprovisions of the Electricity Act are amplified in Government Regulation No. 17/1990 for PLN,the State Electricity Corporation; and No. 10/1989 for others. The Electricity Act permitsestablishment of private power producers, distributors and licensees. Presidential Decree No.37/1992 specifically authorizes private sector participation under Build-Operate-Own (BOO)schemes, and allows cooperatives and other legal entities to generate, transmit, and distribute powerfor public use.

2.2 At present, the sector comprises: (i) PLN; (ii) captive plants installed by privateparties for their own use; (iii) three Government-sponsored rural electric cooperatives; and (iv) alarge number of informal microenterprises providing electricity to clusters of customers in ruralvillages not served by PLN. PLN accounts for about half of the electricity used by industries, andthe rest is provided by captive generation facilities. In 1992, the total installed captive generationcapacity was about 8,500 MD of which about 3,300 MD was reserve capacity that served as abackup to PLN supply (Table 2.1). Annex 2.1 shows the growth in captive plants in Indonesia.

2.3 Indonesia's power sector has grown rapidly during the 1980s and 1990s. PLN'sinstalled capacity increased five-fold from 2,288 MW in 1978 to 10,874 MW in 1992, as its salesgrew at an annual average rate of 16 percent from 4,287 GWh in 1978 to 34,964 GWh in 1992.A statistical profile of the power sector is presented in Table 2.1, while Annex 2.2 shows thegrowth in PLN's consumers, connected load, and energy sales. In spite of this rapid growth, thereis considerable unmet demand at economic prices. In 1992, PLN could serve only about 44percent of the urban households and 29 percent of the rural households, for an overall householdelectrification ratio of about 34 percent (Table 2.1), whereas at least 90 percent of the urbanhouseholds and two thirds of the rural households are estimated to be able to afford purchase ofelectricity.

2.4 The potential for future growth in electricity sales remains high in Indonesia.Residential energy sales are expected to increase as the household electrification ratio and incomesincrease, and industrial sales are expected to increase as the industrial sector GDP grows at anexpected rate of about 10 percent per annum for this decade (Annex 2.3).

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Table 2.1: POWER SECFOR PROFILE: JAVA-BALI AND TME OUTER ISLANDS (1992)

Indonesi Java-Bali O sShare (%) Share (%)

Population (million) 186 114 61 72 39

Power Subsector: PLNGeneration

- Number of Generating Units 3,369 293 9 3,076 91- Installed Capacity (MW) 10,874 7,630 70 3,242 30- Diesel Generator Capacity (MW) 2,062 115 5 1,947 95- Coal Consumption ('000 tons) 4,959 4617 93 342 7- Load Factor (%) 72.8 79.4 na 54.1 na

Length of Transmission Lines (kmc)< = 30 kV 1,856 1,621 87 235 13

70 kV 4,366 3,631 83 734 17150 kV 10,255 7>273 70 2,982 30500 kV 1,189 1,189 100 0 0

Total Consumers (millions) 13.4 8.9 66 4.5 34

Household electrification ratio (%) 34 38 na 27 na

Energy Sales (CWh) 35.0 27.8 80 7.1 20- Residential 11.7 8.6 73 3.1 27- Industrial 17.8 15.1 84 2.7 16

Employee Productivity- Consumers per employee 242 na na- MWh sold per employee 627 na na

Power Subsector: Captive Power

Installed Capacity (MW) 8,548 3,914 46 4,634 54- Connected to PLN La 3,405 2,532 74 873 26

La Reserve capacity that serves as a backup to PLN supply.na: not applicable.

Source: PLN; Statisdcal Yearbook.

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The Outer Islands

2.5 The Outer Islands comprise all of Indonesia's islands except iava,.j includingSumatera (population: 34 million), Sulawesi (population: 12.5 million), Kalimantan (population:9 million), and some 3,000 smaller inhabited islands of Indonesia. The Outer Islands constituteapproximately 95 percent of Indonesia's land mass, with approximately 40 percent of the country'spopulation, while accounting for only about 20 percent of PLN's sales and about 30 percent ofPLN's installed capacity. The household electrification level in the Outer Islands is about 27percent (1992), compared to about 38 percent in Java-Bali. At the same time, residential salesconstitute about 47 percent of PLN's sales in the Outer Islands, but only 31 percent in Java-Bali.Further, PLN's average energy sales per customer in the Outer Islands is about half the Java-Baliaverage.

2.6 The operational characteristics of the power supply systems in Outer Islands aredifferent from those in Java-Bali. The Java-Bali grid is an extensive interconnected system witha number of large, central generating plants, a relatively high load factor, and high capacity (500kV) transmission lines. In contrast, except for a few small grid systems based on low capacity(150 kV or lower) transmission lines, PLN's operations in the Outer Islands depend upon a largenumber of small, isolated diesel generators, with a lower load factor than in Java-Bali. Most ofPLN's electricity sales within the Outer Islands are concentrated within the urban areas of theterritories. Further, the share of captive power in total installed capacity is significantly higher inthe Outer Islands than in Java-Bali (Table 2.1).

2.7 PLN's operations in the Outer Islands are organized into 11 geographical Regions.The proposed Besai hydroelectric plant (para 5.3) would be located in Region IV (southernSumatera), which is the second largest of PLN's Outer Islands Regions in terms of energysales,Z/ and the proposed Banjarmasin thermal plant (para 5.4) would be located in Region VI(southern Kalimantan), which is the third largest of PLN's Regions.

Electricity Consumption Forecasts

2.8 The electricity consumption forecasts, along with the key underlying assumptions,for Java-Bali and the Outer Islands are presented in Annex 2.3. The average annual growth rateof sales over 1991-2003 is projected to be around 12 percent, including PLN sales as well ascaptive power self-consumption, for both Java-Bali and the Outer Islands. The industrial andresidential sectors account for the bulk of the growth in sales for both the Java-Bali system and theOuter Islands.

2.9 PLN's sates forecasts. The forecasts show that PLN's energy sales, including powerpurchased from private producers (para 2.11), are expected to grow at annual average rates in therange of 12-14 percent per year over 1991-2003, with the growth rate in the Outer Islands higherthan in Java-Bali. PLN's share in total electricity consumption is projected to increase slightlyfrom 76 percent (1992) to 81 percent (2003) for Java-Bali, and from 32 percent to 36 percent forthe Outer Islands over the same period. A substantial part of the increase in PLN's sales isexpected to come from additional sales to industrial consumers, with the share of industrial

1/ Bali is served by the interconnected Java-Bali grid.

2/ The largest is Region 1I (North Sumatera).

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consumers in PLN's sales rising from 54 percent (1992) to 56 percent (2003) for Java-Bali, andfrom 37 percent to 49 percent for the Outer Islands over the same period.

Development and Investment Program

2.10 The development program to meet the projected increase in PLN's sales takesaccount of the expected participation by private generators. Annexes 2.4 and 2.5 siummarize theprogram's generation expansion component for the Java-Bali system and for the Outer Islands asa whole up to the year 2003.

2.11 Private Sector Participation. The power sector has already been opened to privatesector participation, beyond captive power generation. In a major change from the past, the privatesector is expected to supply power to PLN's grid systems, and the Government has earmarkedseveral generating projects for independent power producers on a Build, Own, and Operate (BOO)basis. In this context, PLN has very recently signed a power purchase agreement with a privateproducer to supply 2 x 600 MW of power at PLN's Paiton thermal power station site in East Java,and the GOI is actively seeking private sector participation in the construction of two additionalunits of 600 MW each at Paiton. Further, a private promoter, Cikarang Listrindo, has installed76 MW of open cycle capacity (2 x 38 MW) to sell electricity to consumers located in fiveindustrial estates in the vicinity of Bekasi, West Java. This plant is also connected to PLN's 150kV network, and supplies a limited amount of power to PLN.

2.12 Overall, the private sector is expected to play a significant role in the developmentprogram to meet PLN's projected sales. This program envisages that, over 1994-1998, privatesector participants will account for about 27 percent of the net capacity addition of about 8,000MW for the Java-Bali grid, and about 18 percent of the net capacity addition of about 2,700 MWin the Outer Islands. Private sector investments in generation facilities that will sell power to PLNare estimated to be about US$3.8 billion over REPELrrA VI (1994-1998), of which about US$2.9billion wi}l be in Java-Bali, and about US$0.9 billion outside Java, while PLN's investments areexpected to be about US$17.4 billion (para 2.14). These investments include initial expendituresfor plants that will be commissioned after REPELITA VI.

2.13 In addition to grid based generating capacity, the private sector will also installadditional captive power plants, based on its own needs. Captive plant owners are expected tocontinue to produce significant amounts of power for their own use. In 1992, captive powerowners produced about 23 of the electricity consumption in Java-Bali, and about 65 percent of theelectricity consumption in the Outer Islands; by 2003, these shares are projected to decreaseslightly to about 18 percent in Java-Bali and to 63 percent in the Outer Islands (Annex 2.3).

2.14 PLN. PLN's expansion of its operations to meet the additional future load, aftertaking account of expected private sector participation, is constrained by the financial resourcesavailable to it. The outer envelope of financing available to PLN for REPELITA VI from allsources-Government contributions, self-financing, and borrowings-has been estimated at aboutRp. 50 trillion (US$17.4 billion in constant 1993 prices). PLN has prepared a core plan consistentwith this resource mobilization constraint (Table 2.2). After accounting for the estimated privatesector participation, PLN will continue to be responsible for the bulk of the investment in thepower sector. Annexes 2.6 and 2.7 provide estimates of PLN's annual requirements of investmentsup to year 2003, expressed in constant 1993 US dollar equivalent, for the Java-Bali system and theOuter Islands, respectively.

9-

Table 2.2: PLN's INVEsrMENr REQUIREMTS: REPExrA VI (1994-1998)

Local Foreign TotalCosts Costs Costs

- billions of US$ equivalent constant 1993 prices ---Java-Bali Grid 2.29 9.11 11.40

Outer Islands 1.60 4.16 5.96

Total 3.89 37.36

Source: PLN Core Plan, December 1993.

2.15 PLN's generation expansion plans are derived from least-cost planning models. Forthe Java-Bali grid, about 70 percent of the planned gross generation expansion over 1994-2003 isbased on coal, while the expansion plan for the Outer Islands calls for a substantial reduction inthe share of diesel-based generation of (from 68 percent in 1992 to 26 percent by 2003), withincreases in the shares of coal, hydro, geothermal, and natural gas.

Strategic Sector Issues

2.16 The challenge. After two decades of rapid growth in electricity production,Indonesia's power sector is now at a crossroads. Maintaining past rates of growth and improvingfurther the efficiency of operations and quality of service will require structural changes in orderto mobilize financing and manage operations effectively. The time has come for fundamentalchanges, amounting to a major reform of Indonesia's power sector. Several key issues have to beaddressed in a coordinated manner in order to bring about these changes.

2.17 Private sector participation. The 001 has concluded that private sectorparticipation is a pre-requisite for reducing the financial burden on the GOI as well as increasingthe efficiency of electricity production. While the GOI has already earmarked several generationprojects for private investors, and the power sector's development program is predicated upon theirparticipation, (para. 2.12), major policy and institutional changes are needed to encourage privateinvestments.

2.18 PLN's performance. While PLN has been steadily improving its operations, andhas successfully constructed and operated the Java-Bali grid, PLN's performance does not yet meetbest utility practices. Since piece-meal, incremental changes would not any longer allow PLN togo beyond marginal improvements, structurl changes are needed to further improve PLN'sperformance. Efficiency improvements are particularly needed in the Outer Islands, wheremanagement constraints have impeded progress. Several policy and institutional changes have tobe made to facilitate the development in the Outer Islands of interconnected grids, based on largegenerating plants, to replace the small, isolated uneconomical diesel-based generating units.

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2.19 Sectoral development and regulation. With the emergence of a significant role forthe private sector, a new sectoral agency would be required to regulate both PLN and the privateoperators. There would also be a need for a central agency to jointly optimize PLN's and privateinvestors' development strategies, based on least-cost considerations.

2.20 Power tariffs. The present ad hoc tariff setting modalities will not be appropriatein the future. The mechanism for setting power tariffs should allow PLN to deal effectively withthe private sector, and to be able to maintain its financial health in an increasingly competitiveenvironment.

3THE BANK'S EXPERIENCE WITH PAST LENDING,

AND STRATEGY IN THE POWER SECTOR

Experience with Past Lending

3.1 Overview. The Bank group has played a very active role in the development of thepower sector in Indonesia. Since 1969, it has provided about $4.1 billion for the power sector,through three IDA Credits, 18 loans and one supplemental loan. The primary focus of the Bank'sactivities was the Java-Bali grid, although some of the projects had nation-wide benefits. A list ofpast lending operationrL is provided in Annex 3.1. Project Performance Audit Reports (PPARs) andProject Completion Reports (PCRs) on the first 14 projects have concluded that the Bank has madepositive contributions towards the development of the Indonesian power sector over the past 20years by improving PLN's project implementation, operational and managerial capabilities andhelping Indonesia meet critical demands for electricity. These reports attribute the success ofpower operations in Indonesia to the facts that: (i) there was a long-term vision for thedevelopment of the sector and this vision was shared by the Bank, Govermment and PLN; (ii) thevision was translated into a long-term strategy which was resolutely pursued, and (iii) a reasonablebalance was struck between the physical and the institutional development components of theprojects.

3.2 Power Facilities. The infrastructure components of the Bank-supported projectshelped PLN expand its generation capacity of thermal, hydroelectric and geothermal power plants,and associated transmission and distribution facilities. These projects also supported theGovernment's objective of diversifying domestic energy consumption away from oil by the use ofcoal, hydropower and geothermal. At the beginning of this decade, PLN's installed capacity hadgrown to more than 10 times what it was at the beginning of the 1970s, and to more than 2.5 timeswhat it was at the beginning of the 1980s; Bank-financed projects have accounted for 3,800 MWof the approximately 7,600 MW of generating capacity operating in Java in 1992/93.

3.3 Institutional Development. Bank operations have consistently focused on institutionbuilding. During its association with the Bank, PLN has substantially improved its projectimplementation, operational and managerial performance. PLN has made significant progress inimproving the efficiency of its operations. In particular, over the period 1983/841992/93, PLN'stransmission and distribution losses have decreased from 21 percent to 12 percent; annual energysales per employee have increased from 223 MWh to 627 MWh; and overall consumers' accountsreceivable have decreased from 68 to 36 days' sales (Annex 4.2). Technical Assistance has alsobeen provided, inter alia, to strengthen PLN's corporate and financial planning and accountingfunctions.

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3.4 Fnancal Performance. Bank operations have also focused on PLN's financialperformance. In view of PLN's negative rate of return (ROR) at that time, a ROR covenant wasadopted under the Fourteenth Power Project Loan (Loan 2443-IND) in 1984. This covenant wasmodified in 1987 under the Power Transmission and Distribution Project (Loan 2778-IND) toprovide for separate financial performance targets for PLN's operations in Java (ROR of no lessthan 8 percent) and outside Java (to breakeven), in view of their different operationalcharacteristics. Initially, the government did not permit the necessary tariff increases, with theresult that the Bank did not approve further loans in 1987 and 1988, although project preparationcontinued. The Government increased tariffs in 1989, 1991, and most recently, effective February1, 1993. PLN's operations in Java-Bali are largely profitable, but PLN makes a loss on itsoperations in the Outer Islands (paras. 6.2-6.3).

3.5 Implementation Problems. The main problems experienced with theimplementation of power projects in Indonesia have been: (i) delays in the selection andappointment of consultants, procurement of goods and works, acquisition of land and the right-of-way for the construction of transmission and distribution facilities, and (ii) difficulties encounteredin effective absorption of Technical Assistance. Generally, rigid budgetary procedures, outdatedconsultant fee schedules, delays in finalizing contracts with winning bidders, unsatisfactoryperformance of lo. d contractors, and shortage of trained personnel within PLN, have delayed theimplementation of pievious projects. These problems are germane to the implemenion of most,and not just power, projects in Indonesia, and the Government is devising plans to address theseproblems, based on the recent performance review of the projects in the Bank's portfolio.

Strategy in Support of Sector Policy Agenda

3.6 Dialogue with Government. Based on the dialogue between the Bank and 001, aconsensus has emerged that fundamental policy changes are needed for efficient long-rundevelopment of the power sector in Indonesia. The Government has expressed its strategy in aPolicy Statement, "Goals and Policies for the Development of the Electric Power Subsector,*(Annex 3.2) and has stated its intentions to implement it. The Bank intends to support this strategythrough the proposed project as well as the future Rural Electrification H (scheduled for Boardpresentation in the next fiscal year), Sumatera Power Project, and Renewable Energy projects. Thekey elements of the Bank's support are described below.

3.7 Policy Framework. The power sector development agenda has four major aspects:(i) expanding entry to the sector to increase the participation of private investors and operators; (ii)corporatizing and restructuring PLN to improve the efficiency of its operations; (iii) reformingregulatory and sectoral development functions; and (iv) strengthening sector finance throughperiodic power tariff adjustments. Taken together, these policy changes should lead to an increasedrole for the private sector, while restructuring and reorganizing PLN with an ultimate intention ofdivestiture in the future, with the social and public interests safeguarded by an appropriateregulatory agency.

3.8 Private Sector Participation. The Government expects the private sector to playa significant role in satisfying Indonesia's electricity needs in the future (paras. 2.11-2.13). Toachieve this goal, there is a need to expand the options for private sector participation beyond BOOschemes, e.g., purchase of electricity on the basis of competitive bidding, unsolicited proposals,licensing private generation in industil estates and franchising geographical areas to licensees forthe generation andlor distribution of electricity, and transmission access. However, private sector

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participation, at present, is constrained by the lack of a transparent, comprehensive and consistentregulatory framework that defines the rules for, and facilitates the operation of private powerenterprises. Some steps towards addressing this constraint have already been completed. First,the Government has established a Directorate of Private Power under DGEED in the Ministry ofMines and Energy. Second, the Governmenit is following-up on the findings of a study by twointernational consulting firms, sponsored by the Bank with financing from the NorwegianConsultant Trust Fund, which addressed, inter alia, structural changes to promote an increasedprivate sector role. (para. 3.16).

3.9 As a follow-up, the GOI is initiating an action-oriented study ("Private PowerDevelopment Study"), with the assistance of experienced consultants to be financed by the Bank,under the Infrastructure Technical Assistance Project (Loan No. 3385-IND), to develop acomprehensive Private Power Program. The TOR for this study have been finalized, and theconsultants are expected to complete their work by March 1995. The TOR call for the consultantsto: (i) assess the current incentives for private sector participation; (ii) evaluate alternative optionsfor private sector participation; (iii) identify changes in sector organization that would encourageprivate investors; (iv) review all existing laws and regulations related to the power sector, andrecommend modifications as well as additional regulations; (v) recommend a financing frameworkfor private power projects to expedite the project negotiation process; and (vi) recommend a PrivatePower Program, including all activities required to implement it, such as development of guidingpolicies and detailed rules, institutional adjustments, staffing, project identification anddevelopment.

3.10 During negotiadons for the proposed loan, an agreewent was reached with theGovernment that it will: (a) undertake and, by March 31, 1995, complete a study on private powerdevelcpment in accordance with terns of reference and in a manner satisfactory to the Bank,(b) upon completion of the said study, furnsh the same for review and comments to, and discussthe results and recommendations thereof with, the Bank, and (c) based on the said stu4's resulsand recommendations and subsequent review, comments and discussions: (1) prepare draft rudesand procedures to govern private sector participation including the solicitation and evaluation ofallforms ofproposalsfor private power supply, f i) furnish the said draft rules and procedures forreview and comments to the Bank, and Riii) by December 31, 1995, finalize, adopt and enforce thesame takiig into account the comments, if any, thereon by the Bank.

3.11 As a precursor to the Private Power Program, the GOI is planning to develop bulkpower purchase and supply tariffs, and is engaged in a dialogue with the Bank on this issue.Concrete actions on these tariffs will be part of the Bank's next power sector lending operation(Rural Electrification IT), and the GOI has also expressed its intention to develop a transmissionaccess procedures and tariff. Bulk purchase power tariffs, pegged to PLN's avoided costs, willencourage efficient private sector levels and modes of participation in electricity generation bysmall producers; the rates for large independent producers would continue to be set by negotiationsin a competitive environment. Similarly, a bulk power supply tariff, based on PLN's economiccost of supply, will encourage efficient private sector participation in distribution. Further, a"transmission service tariff would permit independent producers to sell power direcdy toconsumers by "wheeling" power from their generating facilities to the consumers, and paying PLNa fee for utilizing its transmission network.

3.12 Restructuring PLN. The GOI's strategy for restructuring PLN has two inter-relatedaspects: (i) decentralization and commercialization, and (ii) corporatization. To improve its

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financial performance as well as the quality and efficiency of service, PLN has already initiated areorganization of its structure and management system, based on a plan developed with theassistance of consultants under Bank financing. To assist in the ongoing reorganization of PLN,and to further develop a detailed action plan for restructuring PLN ("PLN Restructuring Plan"),an international consulting firm, financed as part of Technical Assistance under the SuralayaThermal Power Project (Loan 3501-IND) has begun work, which is expected to be completed byDecember 1994.

3.13 The TOR for the PLN Restructuring Plan call for the consultants to: (i) helpimplement a decentralized and commercialized organization structure and management system,including the establishment of profit centers along functional (generation, transmission, anddistribution) and geographical lines, with the managers of these profit centers given enhanceddecision-making responsibilities and made accountable for their performance; (ii) identify andevaluate options for contracting out functions currently performed in-house by PLN; and (iii)establish performance benchwarks for evaluating the performance of various PLN units, such asPLN's Regions in the Outer Islands, and develop performance contracts and the incentivesframework for the managers of these units. To complement this activity, the proposed projectprovides for Technical Assistance for PLN to set up pilot projects in PLN's Regions IV and VI todemonstrate the feasibility of commercially oriented operations in the Outer Islands (para. 5.19).

3.14 Another key element of the GOI's strategy in restructuring PLN is a change in itscorporate status from a State-owned agency with a social purpose (Perum) to a group of profit-oriented limited liability companies (Perseros), with private participation in their ownership as soonas their financial performance permits. During negotiations for the proposed loan, an agreementwas reached that the Government shalljointly with PLN: (a) take the necessary measures requiredto reorganize PLNV into a limited liability company (Persr; (b) by December 31, 1994, furnishto the Bank a progress report concerning the reorganization of PLNV together with a draft iebound corporate reorganization and restructuring action planfor PLNto operate according to bestutility practices; (c) discuss the said progress report and draft action plan with the Bank; and(d) immediately thereafter, finalize the said action plan taking into account the comments, if any,thereon by the Bank.

3.15 As an initial step, the Government intends to convert PLN to a Persero with aprovisional balance sheet and the current organization structure. The conversion of PLN's statusto a Persero would require a re-definition of PLN's capital structure and financial operating regime,including the valuation of its assets. Over time, the GOI intends that the group of companieswould compete in a market-oriented environment, with Government exercising strategic controlover them on an "arm's length" basis through performance contracts that specify clear objectivesand efficiency indicators. During negotiations for the proposed loan, an understanding wasreached with the Government that it will appoint, by December31, 1994, an internationally reputedaccounting and management flm to provde advice and assistance on financial issues, includingthe valuation of PLVs assets, related to the conversion of PLN's status to a Persero.

3.16 Regulatory Reform. A Bank sponsored study, with financing from the NorwegianConsultant Trust Fund, has identified the broad elementts of regulatory reform needed in view ofthe evolution of the power sector. An initial step towards the establishment of a sectoral regulatoryoversight agency will be the separation of those functions that relate to the power industry'sregulation and oversight from the functions that relate to power sector policy and planning. To this

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end, the Government intends to initially establish a Directorate of Regulation within DGEED, witha view to this later being converted to a higher level agency with greater autonomy and authority.

3.17 In order to identify and define further specific changes needed, the Ministrv of Minesand Energy will undertake a major review, with the assistnce of consultants to be financed by theBank as Technical Assistance under the Cirata Hydroelectric Phase II Project (Loan 3602-IND),of the power sector's current organization and legal and regulatory framework, with the aim offormulating and implementing fresh regulations and strengthening the Directorate of Regulation("Regulatory Reform Study"). The TOR for this study have already been finalized, and theconsultants are expected to complete their work by Ma%ch 1995, in conjunction with the PrivatePower Development Study (para. 3.9). The TOR for the Regulatory Reform study call for theconsultants to: (i) formulate draft by-laws, regulations, and/or decrees necessary to reform theregulatory framework, including (a) the definition and separation of the responsibilities of theassociated government administrative units, and of the publicly-owned and private enterprises, and(b) the structure and staffing needs of an electricity regulatory body; and (ii) a phased action planto progressively implement the proposed reforms.

3.18 During negotiations for the proposed loan, an agreement was reacned with theGovernment that it will: (a) undertake and, by March 31, 1995, complete a study on regulatoryreform in the power sector in accordance with terms of reference and in a manner satisfactory tothe Bank, (b) upon completion of the said study, furnish the samefor review and comments to, anddiscuss the results and recommendations thereof with, the Bank; and fc) based on the said study'sresults and recommendanons and subsequent review, comments and discussons: (O) prepare draftregulations for the power sector, Qii) furn sh the said draft regulations for review and comments tothe Bank, and fiii) by June 30, 1996, finalize, adopt and enforce the same taking into account thecomments, if any, thereon by the Bank.

3.19 Sectoral Development. Effective management of increased private sectorparticipation will require a transfer of responsibility for power sector development to a centralagency in the MME, which would ensure that the demand for electricity is met in jointly optimizedleast-ost manner, taking account of the roles of both PLN and private investors. The centralagency would project the future demand for electricity, and determine the most effective mode ofmeeting the demand, based on an assessment of private sector participation under the prevailingsystem of rules and incentives, and of PLN's resource availability and hnplementation capabilities.This would help to ensure that the iming, size and location of aU large generation plants, includingthose of PLN and private promoters, are part of an overall least-cost generation expansion plan.The Government intends to upgrade DGEED's capacities in the areas of demand forecasting andleast-cost system expansion planning. In this context, PLN is planning to formulate rollingcontingency plans to respond to any supply/demand imbalance due to changes in the anticipatedschedule of private sector participation.

3.20 During negotiations for the proposed loan an agreement was reached with theGovernment that to ensure comitinued soundness of the power sector development program, GOIwill: (a) by December 31 each year, commencing in 1994: O7) review with the Bank. (1) its powersector development program, (2) the least cost planning analysis used to formulate the saidprogram, (3) the roles of PL Wand the private sector in the said program, anu' (4) the transparencyand appropriateness of the busness environment for private power partipatw(n, (i) reviw withthe Bank and PLN, PUW's development and investnent programs with respect to: (1) theirconsistency with GOI's power sector development progran, (2) the balance among generation,

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transmission and distribution investnents, and (3) the balanced development of regions; and(b) ensure that PLN has access to sufficient funds to finance its development and investmentprograms.

3.21 Adjusting Power Tariffs. The Bank supports the importance that the GOI attachesto the pricing of electricity so that there is efficiency in consumption and PLN's financial healthis ensured. The GOI intends to raise power tariffs as needed to ensure that PLN will attain thestipulated rate of return in its operations (para. 6.10). As PLN's purchases of power fromindependent power producers increase, it will become increasingly important that PLN's tariffsadjust in response to changes in purchased power prices. The GOI intends to develop proceduresfor periodic, formula-based adjustments to PLN's tariffs to take account of variations in fuel andpurchase power prices, exchange rate, and inflation. A detailed study on the issue of electricitytariff has already been concluded by PLN with the help of a TA provided under an ADB loan. TheGOI is now considering the modalities of institutionalizing such adjustments (para. 6.11).

3.22 Energy Efrciency. The GOI uses efficiency pricing, complemented by otherappropriate measures, to encourage and induce sound electricity use decisions. In the powersector, the GOI is focusing on more efficient utilization of electricity, introduction of renewableenergy in the rural areas, and demand management (DSM). The proposed project provides fortechnical assistance for PLN to promote DSM (para. 5.19). This TA will assist PLN in: (i)developing a rationalized strategy for DSM and the corresponding action plan, based upon data andconditions specific to Indonesia, (ii) establishing realistic targets of penetration and savings to beachieved, (iii) deternining efficient delivery and incentive mechanisms, and (iv) formulating thefinancing plan for DSM.

3.23 Environmental Protection. The GOI recognizes that safeguarding the environmentis a prerequisite for sustainable development and encouraging conservation and diversification inthe use of energy resources will reduce any possible adverse environmental impacts of energyconsumption. The Bank will continue its support to efforts developed by the Government to putin place the regulatory framework and institutions needed to achieve this. The proposed projectprovides for technical assistance for PLN to improve their environmental management capabilities,and introduce demand management (para. 5.19). This TA will assist PLN in developing itscapabilities to formulate corporate environmental policies, evaluate environmental assessments ofits development projects, and monitor enviromnental impact, and compliance with environmentalguidelines for existing projects. During project supervision, the Bank wiUl pay special attention andresources to ensuring that the environmental protection regulations are implemented as intended.Within the power sector, Bank project preparaion and supervision will be focused on carefulplanning and design of new facilities so as to minimize and mitigate their impacts on theenvironment and affected population, and on effective monitoring designed to ensure propercompliance with applicable standards and practices.

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4THE BENEFICIY

4.1 The proposed loan would be made to the Government of Indonesia (GOI). Theproceeds of the proposed loan, except for a part for technical assistance to GOI frc improving theenviromnental management capability of the Bureau of Environment and Technology under theMinistry of Mines and Energy, would be orlent to PLN (para. 5.24), which is responsible for theimplementation of the proposed project. PLN, the sole government-owned national power utility,has been the beneficiary of Bank Group lending to the power sector in Indonesia since 1969(para. 3.1).

PLNs Organization

4.2 PLN was established as a public corporation (Perum) under a Presidential Decreeof 1972, that confers upon it the responsibility and obligation to manage Indonesia's power system,Including the generation, transmission and distribution of electricity, and the planning, constructionand operation of electricity supply facilities (para. 2.1). At present, PLN operates in a centralized,hierarchical manner, with PLN's Board of Directors having both managerial and supervisoryresponsibilities. PLN's organization chart is shown in Annex 4.1.

4.3 For the Java-Bali system, the operational responsibility rests with the managers oftwo generation ani transmission, four distribution centers and the Java-Bali load dispatch center.Major construction is the responsibility of a number of project managers. For the Outer Islands,the operational responsibility rests with the managers of PLN's eleven operating regions and thespecial region of Batam island. Under the Regional Manager, there are four primary departmentswith Deputy Managers in charge of Operations, Construction, Finance, and Administration. EachRegion has a number of branches and sub-branches. The branch manager is responsible for serviceat the customer level, and reports directly to the Regional Manager. A Region may have one ormore generatilg Sectors, depending upon the scale of operations. At present, only Region IV hasa Load Dispatch Uotter. The Construction Divisions in the Regions have responsibility for onlyfor distribution lines anm small generation facilities (under 1 MW), with major construction beingthe responsibility of PLN headquarters.

Jusfitutional Change

4.4 PLN's managing and operating capabilities have increased along with energy sales;it has effectively managed a large investment program, and constructed and operated large coal-fired plants in Java-Bali. However, PLN has reached the limits of its effectiveness under thepresent organizational structure, and a detailed plan for restructring PLN is now being developed(para. 3.12).

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4.5 Under centralized control, the Managers of PLN's Regions in the Outer Islands havelimited planning and operational flexibility and discretion; correspondingly, their accountability foroperational efficiency is also limited. As a result, the Managers have little incentives oropportunities to initiate steps to i;hlprove the quality and level of service and/or reduce costs byintroducing efficiency measures. Most of the financial planning is also done at PLN headquarters,though the preparation and submission of the annual budget to headquarters is time-consuming.Further, the staff in the Regions spend a significant part of their time preparing reports to betransmitted to PLN's headquarters, without a clear sense of purpose or use of this information.

4.6 A major operational problem in the Outer Islands is the lack of proper maintenanceof generation facilities. This problem is particularly acute for the isolated diesel-based generationunits, which are comprised of a myriad of makes and vintage. Second, the Regions in the OuterIslands face a shortage of qualified staff in most aspec of their operations, and the training levelsare inadequate. There is also a shortage of computers and computer skills. Further, there is oftena mismatch between skills and responsibilities, such as mechanical engineers working in thedistribution department while electrical engineers work in the planning department. Third, someof the Regions in the Outer Islands have significant captive power capacity that is notinterconnected to PLN's grids, though such interconnections have the potential of lowering PLN'sreserve requirements and improving the reliability of supply.

4.7 These, and other related issues, in the development of the power sector in the OuterIslands point towards the need for institutional changes in PLN. The proposed project includesTechnical Assistance to undertake pilot projects in PLN's Regions IV and VI for this purpose(para. 5.19).

Staff Development and Training

4.8 As of March 31, 1993, PLN had 55,737 employees, of whom 45,294 are permanentstaff. PLN had no difficulty in recruiting staff educated at levels up to technical high school, butfaces constraints in recruiting those with higher academic qualifications; the problem is particularlyacute in the Outer Islands. Overall, as well as in Regions IV and VI, less than 5 percent of its staffhave university degrees. To address its training needs, PLN has a separate training department thatplays an important role in PLN's efforts to upgrade the skills of its technical and administrativestaff. These efforts have been largely successfid. In 1992, about 8,000 staff receivedtraining-about 7,800 in the country and about 200 abroad.

4.9 The Bank has supported PLN's training activities and human resources developmentefforts, including the establishment of several training centers. The computer-based training centerat Suralaya has trained many of PLN's power plant staff in the operation and maintenance ofthermal power stations with significant success; the performance record of Suralaya Thermal PowerPlant compares favorably with any power station of comparative size in the industrialized world.Current efforts being supported by the Bank include training in the areas of diesel/thermal plantoperations, distribution management, corporate and financial planning, general accounting and cashmanagement, as well as specific training activities in the rural electrification area and in publicutility practices.

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Accounting and Budgeting

4.10 PLN's accounting system, installed in the early 1970s, follows generally acceptedaccounting principles, and normal utility practices, but it needs upgrading to keep pace with thegrowing complexity and volume of accounting transactions. The accounting system needs toproduce more accurate information in a timely manner for decision-making purposes. Also, PLN'sinternal procedures for preparing budgets and monitoring actual expenditures need to bestrengthened through better coordination among and participation by the various functionaldirectorates and regional offices in the process, to enhance the budget's value as a managementtool.

4.11 A major constraint to PLN's accounting has been a lack of trained senior accountantsand uniform application of accounting procedures, and the problem is acute in the Outer Islands.Since 1987, PLN has been implementing an action plan to improve its accounting practices andfunctions. PLN is also attempting to improve coordination between its departments and its regionaloffices in the areas of budget preparation, and monitoring and evaluation of performance.Technical assistance is provided under the Power Sector Efficiency Project (Loan 3097-IND) toimprove the accounting system, The Rural Electrification Project (Loan 3180-IND) providestechnical assistance to continue to enhance the system for the segregation of PLN's accounting ofits RE operations.

Billing and Collections

4.12 PLN's bills are computerized and prepared monthly at the Jakarta headquarters; forthe Outer Islands, the bills are prepared at the branch level, and printed by the Region's FinanceDivision. Overall collection performance is generally satisfactory. The receivables position ofgeneral consumer accounts has been good, as it has been kept below one and one-half months ofthe yearly billing. The overdues from government users (including the Armed Forces and localgovernments), which account for about 10 percent of PLN's total sales, have also been maintainedto under two months' billing.

Audit and Internal Control

4.13 PLN's accounts are required by its charter to be audited by Government auditors.The audits are carried out following generally accepted accounting practices and standards. In theaudit reports for 1989 through 1992 there were no qualifications. As a result of joint efforts byPLN and its auditors, the time required for completing PLN's audits has been reduced significantlyover the last three years. For 1992, the accounts were finalized within three months after theclosing of the fiscal year and the audited accounts were available within four months of the closeof the fiscal year. The audit covenant under Loan 3602-IND, that requires PLN to submit to theBank its audited financial statements and the report of s!fch audits no later than six months afterthe end of eachfiscal year, was also agreed under the proposed project. In addition, PLN wouldfurnish to the Bank (1) a copy of its unaudited annual accounts whenever they are sent to theauditors; and (ii) its segregated financial and operating information on rural activities within sixmonths after the end of each fiscal year.

4.14 The Bank is discussing with Government and PLN the desirability of having PLN'saccounts audited by internationally reputed commercial accounting firms, independently ofGovernment auditors. Such commercial audits would not only ensure timely availability of PLN's

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audited accounts, but would also provide greater comfort to the capital markets, both domestic andintemational, that PLN plans to access in future for borrowing as well as equity, the latter afterit is converted to a Persero, for funds to finance its capital expenditures.

4.15 PLN has an effective internal audit group which reports to the President Director forvarious special investigations, in addition to keeping general and project accounting matters underreview.

Insurance

4.16 PLN currently carries transit and marine insurance on equipment and materials intransit. Projects under construction are covered by the contractor's all risk and erection insurance.Fire and other hazards on most of the assets in operation are self-insured. In view of thegeographical spread of PLN's assets, any single loss would be relatively small by comparison withtotal assets and operations, and this policy has been considered satisfactory by the Bank. However,with some very large projects having been completed in recent years and others now underimpleir-ntation, there would be a greater concentration of assets in certain locations than in thepast. An understanding was reached under Loans 3097-IND and 3098-IND that major works, plantand equipment at large power projects would be insured with outside agencies. Accordingly, PLNis currently carrying commercial insurance for major operating plants and equipment at severallarge power projects totalling about 4,900 MW, in and outside Java.

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TIE PROJECT

Backfgound

5.I The Bank's involvement in hydroelectric power development in Indonesia dates backto financing of the Saguling hydropower development under the Tenth Power Project (Loans 1950-IND and 19501-IND) and Phase I of the Cirata development under the Thirteenth Power Project(Loan 2300-IND), and Phase II of the Cirata development (Loan 3602-IND). In coal-fired powerdevelopment, the Bank has been involved in the construction of the first coal-fired power staticncomprising 4 x 400 MW generating units at Suralaya in West lava, through the Eighth, Ninth,Twelfth and the Fourteenth Power Projects (Loans 1708-IND, 1872-IND, 2214-IND and 2243-IND), all of which are already in successful operation. Three additional units of 600 MW eachare under construction at Suralaya (Loan 3501-IND). In addition, two coal-fired units of 400 MWeach are being constructed at Paiton in East Java (Loan 3098-IND), the first unit of which hasalready been placed in operation.

5.2 The Sumatera and Kalimantan Power Project focuses on policy agenda of the powersector, as well as institutional restructuring of PLN, which was included in a Policy Letter receivedat negotiations of the proposed loan (para. 3.6). The policy agenda has been dibcussed in Chapter3. The physical components of the project comprise: (a) construction of a hydroelectric powerplant with an initial generating capacity of 90 MW at Besai in South Sumatera and relatedtransmission facilities; (b) construction of a mine-mouth lignite fired power plant with an initialgenerating capacity of 130 MW at Banjarmasin in South Kalimantan and related transmissionfaciities; (c) procurement of two barge-mounted power plants of 10 MW and 30 MW capacityrespectively; and (d) technical assistance to GOI and PLN.

5.3 The Besai hydroelectric scheme is located in the upper reaches of the Besai river,in the Lampung province of South Sumatera, draining into the Java Sea (Map No. IBRD 25507).The Besai plant is planned as a run-of-river type development with a daily regulating storagecapacity. A generating capacity of 90 MW will be supported by the available hydro energy toprovide economical peaking capacity to the grid in close proximity to the load center. It aims tosupply electric power to PLN's Region IV in South Sumatera.

5.4 The mine-mouth Banjarmasin Thermal Power Plant is located at Asam Asam inSouth Kalimantan, about 12 km inland from the coast, and 160 km from Banjarmasin (Map No.IBRD 25508). Two units of 65 MW each will be built initially, using lignite as fuel, which is anon-tradeable resource and available in sufficient quantities in the area. The lignite mine will bedeveloped by the coal company, PT Arutmin, that holds the concession to the coal mines. Thisproject component will service PLN's Region VI in South Kalimantan.

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5.5 The demand forecast for PLN's Region VI indicates that shortage of power is likelyto be experienced in the region starting from 1995, until the proposed Banjarmasin thermal powerplant comes on stream. The mobile power plants (barge-mounted), to be procured specifically tomeet regional power shortages in the Outer Islands, are planned to be deployed temporarily inRegion VI for this purpose. The barge-mounted plants are expected to be moved from one areato another as necessary, to cater to load demands when such periodic shortages are encountered.Several areas in the outer islands, such as Banjarmasin, Batam, Pakanbaru, Bali, Pontianak,Tanjung Pinang and Lombok are projected to experience power shortages at different times.

Rationale for Bank Involvement

5.6 The proposed Sumatera and Kalimantan Power Project, in conjunction with thesubsequent Rural Electrification HI Project, forms an integral part of the Bank's lending strategyfor Indonesia. The two projects are supporting the initial phase of a comprehensive reformprogram of the Government for the country's power sector. The Government has drawn on closecooperation from Bank staff and technical assistance from ongoing Bank loans in developing theagenda for reform: (a) opening the sector for substantial private investor/operator participation;(b) restructuring the dominant public power utility PLN; (c) reforming power tariffs; and (d)establishing effective regulatory oversight. These reforms will, through cost effective expansionof reliable electricity services, contribute to strengthening the competitiveness of Indonesia'sproductive and service sectors, as well as to enhancing the welfare of the population at large.Through its focus on the islands of Sunatera and Kalimantan, the proposed project will alsosupport directly the Government's objective of achieving a more balanced inter-regional equity.These objectives are fully consistent with the Country Assistnce Strategy discussed by the Boardon April 12, 1994.

Project Objectives

5.7 The main objectives of the proposed project are to support the first phase of theGovernment's long-term policy agenda for the power sector aimed at efforts to: (a) increase privatesector participation to accelerate expansion of generating capacity and upgrade sector operatingstandards and practices; (b) restructure PLN to improve its operational performance and serviceefficiency; (c) formulate and implement regulations along with supporting administrativearrangements to promote efficiency in sector operations; and (d) introduce a formula-based periodictariff adjustment mechanism to recover costs. In addition, the proposed project is to help financeenvironmentally sustainable expansion of PLN's electricity generation and transmission capacityin the islands of Sumatera and Kalimantan with more economical central grid systems, as well asprovide technical assistance (TA) to the GOI and PLN in the areas of demand management,efficiency improvement and environmental management.

Project Description

5.8 The policy component of the proposed project entails: (a) establishing a policyframework for private sector participation; (b) restructuring PLN and establishing commercialoperations as a Persero (limited liability company); (c) implementing a framework for regulatoryoversight of the private sector and PLN; (d) introducing formula-based periodic adjustment oftariff, as well as bulk power purchase and supply tariffs.

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5.9 The physical components of the project include: (a) construction of a hydroelectricpower plant with an initial generating capacity of 90 MW at Besai and related transmission facilitiesin South Sumatera; (b) construction of a mine-mouth lignite fired thermal power plant with aninitial generating capacity of 130 MW at Asam Asam near Banjarmasin and related transmissionfacilities in South Kalimantan; (c) procurement of two barge-mounted power plants of 10 MW and30 MW capacity respectively. The barge-mounted power plants of 10 MW and 30 MW generatingcapacity would be powered by diesel engines and gas turbines respectively. A more detaileddescription of (a) and (b) is given in Annexes 5.1 and 5.2 respectively.

5.10 Technical assistance components include: (i) engineering and constructionsupervision of Besai hydroelectric and Banjarmasin thermal power plants; (ii) strengthening thecapability of GOI in environmental management in the coal mining sector; (iii) promoting demandmanagement; (iv) strengthening the environmental management capability of PLN; and(v) implementing pilot projects for PLN's Regions IV and VI in South Sumatera and SouthKalimantan respectively to improve their operating efficiency.

The Sumatera and Kalimantan Power Project : Physical Components

5.11 Besai Hydroelectric Power Plant. The Besai Hydroelectric Power Plant includes:(i) a 9 m high intake dam, with sluiceway, the scouringway and both abutments, complete withgates and stoplogs; (ii) a headrace tunnel, surge tank and an underground penstock; (iii) apowerhouse about 5 km downstream, to accommodate the 2 x 45 MW generating units; (iv) anopen channel tailrace; and (v) about 16 km long double-circuit, 150 kV transmission lines tointerconnect with the nearest transmission system grid. Engineering Consultants forpreconstruction engineering are already appointed and being funded under the Cirata IIHydroelectric Phase II Project (Loan 3602-IND). Prequalification for Civil Works has beenconcluded, bidding documents have been reviewed and cleared by the Bank, and the biddingprocess is in progress. Draft bidding documents for all main contract packages have also beenprepared and submitted by PLN for Bank review.

5.12 Environmental Assessment and Resettlemen' Aspects. The environmentalassessment (EA) summary is given in Annex 5.3. The total surtace area to be acquired for thepurpose of constructing the Besai plant is about 202 ha, out of which about 140 ha will beinundated, while the rest (62 ha) will be required for the dam, power house, office complex andhousing colony, contractors' use and access roads. Even though no physical relocation is involved,129 families will need to be provided with resettlement compensation, parts of whose land will beacquired for the development or inundated by the reservoir. PLN has prepared an adequatecompensation package for tnese 129 affected families; offering land-for-land or cash compensation,including a vocational training for those interested. The policy provisions of the plan aresatisfactory to the Bank; however, a number of clarifications are required from PLN for this planto be a useful tool for the implementing agency and to meet the requirements of public disclosure.Public consultation held at the project site with NGO participation, reached broad agreement onthe positive socio-economic impacts of the project, as well as on the proposed resettlement plans.

5.13 hnplementation. (a) Engineering and ConstructionSupervision- PLN is responsiblefor the implementation of the project and has appointed a project manager for the construction ofthe Besai hydroelectric power plant. The engineering functions have been assigned to fullyexperienced international consultants with local associates. About 84 staff months of foreignconsultants, and 76 staff months of local consultants time are estimated to be required;

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(b) Timebound summary implementation schedules are shown in Annexes 5.4 and 5.5. Bids forthae civil works contract are scheduled to be received in June 1994, contracts awarded in November1994, and works completed by November, 1997. Units 1 and 2 are scheduled for commissioningby December 31, 1999. The Bank will play a proactive role during project implementation to helpPLN meet critical milestone dates.

5.14 Banjarmasin lTermal Power Plant. The mine-mouth, Banjarmasin ThermalPower Plant, located at Asam Asam, includes the construction of 2 x 65 MW coal-fired units andassociated transmission facilities to be provided for the evacuation of power from the plant that willinclude double circuit 150 kV transmission lines: (a) about 75 km long, from Asam Asam powerplant to Cempaka; (b) about 43 km long, from Cempaka substation to Trisakti substation, with(c) an interconnection at Trisakti of the 150 kV bus with the 70 kV bus, and (d) about 110 knlong, from Cempaka to Barikin, this last section being funded totally by PLN. The site willsupport an ultimate generating capacity of 660 MW, with 4 x 65 MW and 4 x 100 MW generatingunits.

5.15 Environmental and Resettlement Aspects. The environmental assessmentsummary is given in Annex 5.6. The construction of the power plant will entail the acquisition byPLN of 110 ha of land. Altogether 36 families will need to be resettled as a result of thisdevelopment, all of whom are residing on Government-owned land. PLN proposes to relocatethese 36 families to a new area of 10 ha in a contiguous block and is in the process of negotiatingauthority for the release of the site with the Ministry of Forestry. When the site is released, PLNwill build comparable houses for the PAPs and also pay their expenses for relocation. Thisrelocation will need to be completed before acta construction of the power station starts in early1995. PLN has budgeted adequate fimds to accomplish the resettlement plan. Public consultationshave been held at the project site with NGO participation and there is broad agreement on thepositive socio-economic impacts of the proposed project, as well as on resettlement plans. Anagreement was reached during negotiatons for the proposed loan that PLN shall cany out theResettlement Action Plans in a manner satfactory to the BankI A detailed survey of the right-of-way for the transmission lines indicates no constraints or construction problems. A separate EAfor the coal mines has been performed. The EA reports in respect of these project components areavailable at the Bank's Public Information Center.

5.16 hnplementation. (a) PLN is responsible for implementing the project and hasappointed a project manager for the Banjarmasin Thermal Power Plant, inclusive of its transmissioncomponent. Timebound summary implementation plan and the schedule of procurement actionsare included in Annexes 5.7 and 5.8 respectively. Consultants for the project have also beenappointed under the Suralaya Thermal Power Project (Loan 3501-IND) for preconsttuctionengineering and design in accordance with the Bank's guidelines for the selection of Consultants.Unit 1 of the proposed plant is scheduled to be commissioned in December 1998 and Unit 2 inMarch 1999.

5.17 Mobile Power Plants. The two barge-mounted power plants of 30 MW and 10 MWcapacity respectively will need to be procured by 1995, when power shortages in the SouthKalimantan area are likely to be encountered. The 10 MW power plant will use diesel engines,while the 30 MW plant will have oil-fired gas turbines.

5.18 Environmental Assessment. The environmental impacts of the barge-mountedpower plants relate to cooling water use by the plants, proper conditioning of any oily wastes

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before they are discharged into the open, sound attenuation, and safety and contingency measuresagainst possible accidents. These requirements will be included in the technical specifications forthe barge-mounted power plants.

5.19 Technical Assistance. The technical assistance components of the project consistof: (a) Engineering, Design and Construction Supervision - for Besai, Banjarmasin and mobilepower plants. Consulting Engineers will render assistance to PLN in detail engineering and designof the respective plants, procurement of goods and works, construction supervision, commissioningand initial operation and maintenance of the plants. (b) Environmental Management in the CoalMining Sector - This technical assistance is designed to assist the Bureau of Environment andTechnology under the Directorate General of Mines in the Ministry of Mines and Energy, in thedevelopment dnd improvement of its mining environmental policy and regulatory framework andto strengthen its capability and enforcement strategy in the mining sector. ne Bank has concurredwith the proposal of the MME to use the Office of the Surface Mining and Reclamation andEnforcement (OSM) of the United States Department of Interior to render this assistance.(c) PLN's Environmental Management Capability - The purpose of this TA component is to assistPLN in establishing a specialized unit to formulate corporate environmental policies, evaluateenvironmental assessments of its development projects, including their management plans, andmonitor environmental impacts as well as compliance with regulations. The proposed specializedunit in the PLN headquarters will deal with environmental matters and command high visibility atthe corporate level. The TOR for this TA component is at Annex 5.9. (d) Demand Management(DSM) - Tne objective of this TA component is to help PLN conduct a tho,ough andcomprehensive evaluation of alternative DSM program options, including technologies, delivery

Table 5.1: ALLOCATtON OF TECmRCAL ASSISANCE

ValueCategory Component US$ million

(with contingencies)

Engineering Support Engineering & Const. Supervision- Besai Hydroelectric 22.6- Banjarmasin Thermal 12.4

Institutional Development Environmental Mgmt. Capability- Burea" of Technology & Env. 3.5- PLN 1.8

Efficiency Improvement Demand Management 2.5Pilot Projects, Regions IV & VI 3.0

Total L 48

LA Including contingencies and value added tax (VAT).

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mechanisms and promotional framework, and develop a rationalized strategy for DSM savings, aswell as its institutional capability. The proposed TOR for this TA is given in Annex 5.10. (e)Pilot Projects, Regions IV and VI - To improve the efficiency of PLN's operations in its RegionsIV and Vl, pilot projects will be launched to identify and implement the actions required to enablethese regions to operate as profit-oriented, commercial enterprises. A TOR for this TA is givenin Annex 5. 11.

Cost Estimate

5.20 The estimated cost of the proposed project is summarized in Table 5.2; details arein Annexes 5.12 and 5.13. Cost estimates aie in October 1993 prices. Unit costs are estimatedfor each work component of the main civil and preparatory works based on the proposedconstruction method and referring to the tunit costs of similar projects in Indonesia in the recentpast.

Table 5.2: CosT ESTMATE

Local Foreign Total Local Foreign Total

-- (US$ million) --- --- (Rp billion)-

Besai Hydroelectric Power Plant 40.5 103.0 143.5 85.2 216.8 302.0and related transmission

Banjarmasin Thermal Power Plant 96.2 165.5 261.7 202.5 348.4 550.9and related transmission

Barge Mounted Power Plants 5.4 25.5 30.9 11.4 53.7 65.1

Technical Assistance:

Engineering:

Besai Plant 5. X 16.7 21.8 10.7 35.2 45.9

Banjarmasin Plant 4.7 8.5 13.2 9.9 17.9 27.8

Environmental Management 0.8 2.3 3.1 1.7 4.8 6.5

Demand Management 0.4 1.8 2.2 0.8 3.8 4.6

PLN's Environmental Group 0.4 1.2 1.6 0.8 2.5 3.3

Pilot Projects 0.6 2.1 2.7 1.3 4.4 5.7(PLN's Regions IV & VI)

Total Base Cost 154.1 326.6 480.7 324.3 687.5 1,011.8

Physical Contingency 19.7 36.1 55.8 41.5 76.0 117.5

Price Contingency 17.3 31.3 48.6 36.4 65.9 102.3

Total Project Cost /a 191.1 394.0 585.1 402.2 829.4 1,231.6

Interest During Construction 40.4 63.4 103.8 85.0 133.5 218.5

Total Fiancing Reqired 231.5 457.4 688.9 47.3 62.8 i 4,50.1

/a The local costs are inclusive of taxes and duties estimated to be about US$51.1 million equivalent.

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5.21 Cost estimates for the procurement of goods and their installation are babed on recentintnatonal bids for similar projects. Rates at which physical and price contingencies have beenapplied are given in the respective cost tables. Annual inflation rates assumed are 2.5 percent perannum for foreign costs and 5.5 percent per annum for local costs. The indirect foreign costs ofpreparatory and civil works for the Besai hydroelecric plant are US$12.4 million, while taxes andduties amount to US$18.6 million. The indirect foreign costs of the Eanjarmasin thermal plantamount to US$31.4 million; taxes and duties accoun-t for US$28.4 million.

5.22 The cost estimate for the mobile plants has been prepared based on vendor inputs,which include engineering, supply, associated works and services, spares, training, constructionsupervision, as well as the cost of barges. Technical Assistance costs are based on PLN's pastexperience and budget costs provided by consultants.

5.23 The proposed Bank loan will help finance the following contract packages: (a) BesaiHydro Plant - Civil Works, Metal Works, Inflow Monitoring System and 150 kV TransmissionSystem; (b) Banjarmasin Thermal Plant - Civil Works II, Turbine Generator, Electrical, andControl and Instrumentation; (c) Barge-mounted Power Plants; and (d) Technical Assistancecomponents, including engineering and construction supervision of Besai and Banjarmasin plants,except the consultancy services for the policy components which are being funded under theongoing loans (Ln. 3501-IND, 3602-IND and 3385-IND).

Financing Plan

5.24 The proposed financing plan for the project is shown in Table 5.3. The proposedBank loan of $260.5 million equivalent would meet about 66 percent of the foreign cost of theproject (excluding IDC) or about 38 percent of project financing requirements. The proposed Bankloan would be made to the Republic of Indonesia at the Bank's standard variable interest rate foia 20 year term including five years of grace. GO will onlend the proceeds of the proposed Bank

T-able 5.3: FINANCING PLAN

Local Foreign TotalUS$ million

- RD: - Earlier Loans /a 1.5 4.8 6.3Proposed Loan 6.9& 253.6 260.5

Export Credits 15.5 76.5 92.0

Other Sources - 23.7 23.7

PLN 207.6 98.8 306.4

Total 231.5 57.4

La Expenditures for preliminay engineering and design, financed underLoan 3602-IND for Besai hydroelectric and under 3501-IND forBanarmsn thermal power plants.

/b Local costs of TA components.

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loan, except $3.2 million for technical assistance to the Ministry of Mines and Energy (GOI) forenWronmental management in the coal mining sector, to PL under a subsdiay loan agreementwith a 20 year term includingfive years grace period; the subsidiary loan wlIl be denominated inUS dollars, and the onlending interest rate would be equal to the Bank's standard variable interestrate plus 0.5 percent per annun. The foreign exchange risk wUIl be borne by PLA (para. 6.21).Execution of a subsidiary loan agreement between GOI and PLN, satisfactory to the Bank, will bea condition of effectiveness of the loan. The Austrian Government is expected to cofinance theproposed project for the procurement of the Hydraulic Turbines and Generating Equipment for theBesai hydroelectric power plant, while export credit will be sought for the supply, erection andcommissioning of the boiler package for the Banjarmasin thermal power plant. The associated highvoltage transmission connections for Banjarmasin are likely to be cofinanced by the Governmentof Australia. During the negotiations of the proposed loan, GOI confirmation was obtained aboutthe cofinancing arrangements and export credit for the Besal and Banjarmasin plant conmonentsand an agreement was reached on dates bvy when these arrangements shall be finalized so that theyare consistent with the overall project unplementation schedule.

5.25 Procurement. Procurement arrangements for the proposed project are presented inTable 5.4. The Bank-financed components are listed in para. 5.23; these will be procured throughinternational competitive bidding (ICB). Domestic contractors would be eligible for a preferencein bid evaluation of 7.5 percent for the Civil Works, and domestic manufacturers would be eligiblefor a preference of 15 percent of the CIF price or the actual import duty, whichever is the lowerof the two. Prequalification of contractors for civil works will be required. Consulting serviceswill be procured in accordance with the Bank's Guidelines for the Use of Consultants. In theprocurement of goods and works, the use of the Bank's standard bidding documents will bemandatory, with such modifications as the Bank may agree to be necessary for the purposes of theproject. Where no relevant standard bidding documents have been issued by the Bank, biddingdocuments based on other internationally recognized standards may be used with the Bank's prioragreement thereto. Prequalification and each contract for goods and works estimated to cost theequivalent of $1.0 million or more are subject to the Bank's prior review. Since all Bank-financedcontracts for Goods and Works are estimated to cost more than $1.0 million, the prior reviewprocess will cover 100 percent of the total contract value. Consultant contracts valued above$100,000 for firns and above $50,000 for individuals will require prior review by the Bank. Theprocurement procedures for non-Bank-financed components will not adversely affect the executionof the project.

5.26 For fixed-price contracts, when contract award is delayed beyond the original bidvalidity period, the successfil bidder's bid price will be increased for each week of delay by twopredisclosed correction factors acceptable to the Bank, one to be applied to all foreign currencycomponents and the other to the local currency component of the bid price, to be mentionedtransparently in the bidding documents. Such an increase shall not be taken into account in the bidevaluation.

5.27 PLN will initiate necessary steps to fiuther improve the efficiency of procurementprocedures. Bidding documents will be standardized in accordance with Bank guidelines and othermeasures, as set out in Annex 5.14, will be implemented by PLN and GOI. The GOI has alreadyinitiated necessary steps in this direction by amending Government Regulation No. 29 (KEPRES29) which seeks to simplify the procurement procedures of government projects.

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Table 5.4: SummARY OF PRocuREMEr ARRANGEMENTS(US$ milton equivalent)

Procurement Method a Total Cost

ICB Cther N.B.P./b

1. Pparatory Works Besai 12.4L/ 12.4

2. Civil Works BW 103./d 103.5

(80.3) (80.3)

Banjarmasin 34.3_d 30.51e 64.8

(8.7) (8.7)

3. Goods

3.1 Mechanical Equipment Besa 13.9 8.7Lf 22.6

(12.0) (12.0)

Banjarmasin 61.4 73 .8Lg 135.2

(53.2) (53.2)

Barge 34.0 34.0

(25.2) (25.2)

3.2 ecetried Equipment Besai 20.7?/ 20.7

Banjarmasin 50.5 50.5

(42.8) (42.8)

3.3 Tranmision Rs 5.5 5.5

(4.3) (4.3)Banjannasin 60.7/i 60.7

4. Tehncal Assistance

4.1 Engineering & Construction Besai 22.61j 22.6Supervision (16.4) (16.4)

Banjarmasin 12.4/; 12.4

(9.0) (9.0)

4.2 PLNs Environment Mgnt. 1.8 1.8

(1.3) (1.3)

4.3 MME Enviromnt Mgmt. 3.5 3.5

(3.2) (3.2)4.4 Dewand Management 2.5 2.5

(1.8) ( 1.8)4.5 Pilot Projects IV & VI 3.0 3.0

(2.3) (2.3)S. Miselanous

5.1 Compeation & Resetement Becu 4.31k 4.3

Banjarmasin 5.6fk 5.6

5.2 Administration Besai 9.6/1 9.6

Bajarmssin 3.2_4 3.2

TOTAL Lm 303.1 45.8 229.6(226) (34.0)

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L} Figures in parentheses are respective amounts to be financed under proposed Bank loan.Ik N.B.F.- Not Bank Fimaced.Lg lucludes access roads, base camp, land acquisition, and construction power.L4 Package for main civil works; prequalified contractors include both foreign cotractors and foreign/local

joint ventures./a LCB package for Civil Works 1, funded by PLN.If Export credit cofinanced contracts for turbines and auxiliaries.Lag Export credit cofinanced contracts for steam generators, coal and ash handling plants.1k Export credit cofinanced contracts for generators, transformers, 150 kV switchyard.hi Export credit cofinanced contract for transmnssion system expansion, and PLN financed transmission

component (Cempaka-Barikin).Li Consultants employed under Bank guidelines for use of consultants.& Compensation and resettlement for project affected persons./I PLN's own engineering, construction supervision and administration.Lm Excludes US$6.3 million for preliminarv cngineering and design funded from Bank Loan 3602-IND for

Besai and 3501 -IND for Banjarmasim respectively.

Table 5.5: ALLOCATION OF LOAN PROCEEDS

Amount of the % ofLoan Allocated Expenditures

(Expressed in Dollar to beCategory Equivalent million) Financed /a

(1) Civil works- Besai Hydroelectric 64.2 85% of total expenditures- Banjarmasin Thermal 7.0 28% of total expenditures

(2) Goods 100% of foreign expenditures,- Bessi Hydroelectric 14.6 } 100% of local expenditures- Baniarmasin Thermal 79.6 ex-factory), 65 % other items- Mobile Power Plant 25.2 procured locally

(3) Consultants' services and training 80% of total expenditure(a) Engineering and Construction

Supervision- Besai Hydroelectric 16.4- Banjarmasin Thermal 9.0

(b) TA component for PLN 5.3

(c) TA component for GOI 3.2 100% of total expenditures

(4) Unallocated 36.0

Total 269.

La Expenditures financed are exclusive of value-added-tax (VAT).

5.28 Alocation of Loan Proceeds. Table 5.5 shows the allocation of the proceeds ofthe proposed loan to each Category and the percentage of expenditures for items to be financed ineach Category.

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5.29 Disbursements. The schedule of disbursements for the Bank-financed projectcomponents and that for cofinancing are shown in Annex 5.15, together with the standarddisbursement profile for Indonesia power projects. The disbursements against the proposed loanfor Bank-financed items will be somewhat slower than the standard profile during the initial yearsof project implementation, owing to simultaneous processing of several components of the project.The project is expected to be eo.npleted by December 31, 1999 and the loan closing date will beJune 30, 2000.

5.30 In order to facilitate disbursements for PLN under the proposed loan, a SpecialAccount in the amount of US$8.0 million, would be established. The account would be maintainedin US dollars and represents approximately four months of average expenditures. The amountwithdrawn for the Special Account will be deposited in a bank on terms and conditions satisfactoryto the Bank, and would be held in the name of the Director General (DG) of Budget, Ministry ofFinance, following established procedures. The Special Account would be used for all eligibleforeign and local expenditures. Replenishment to the Special Account will be made on a monthlybasis, or when 20 percent of the initial deposit has been used, whichever occurs first. At theoption of the DG Budget, individual application with a value of US$1.6 million equivalent (i.e.,20 percent of the initial deposit) or more may be submitted outside the Special Account, usingnormal disbursement procedures.

Monitoring and Evaluation

5.31 GOI and PLN would implement the sector policy agenda as defined in GOI's PolicyStatement (para. 3.6) based on an agreed schedule. Agreements were reached during thenegotiations of the proposed loan that GOI and PLN would initiate actions as are necessary to meetthe mutually agreed schedule of implementation of the proposed policy agenda for the subsector,as well as that of PLN, under schedules agreed with the Bank that are shown individually inChapter 8.

5.32 PLN would designate a manager, satisfactory to the Bank, to facilitate overallcoordination of the various physical components of the project, help remove any bottlenecks intheir implementation, and ensure their completion on schedule.

5.33 PLN would present a report on the inspection and monitoring of the Besai dam forreview by the Bank, at two year intervals starting from 2002. Agreements were reached duringthe negotiations of the proposed loan, that PLN would maintain, and have periodically inspected,the Besai dam in accordance with sound engineering practices and procedures satisfactory to theBank

5.34 PLN would carry out the Environmental Action Plans in accordance with termsagreed with the Bank during negotiations, which, inter alia, would include: (a) for the Besai plant:(i) regular monitoring of public health; (ii) erosion rate and sedimentation; (iii) discharge of waterfrom the dam and its quality; and (iv) routine removal of aquatic weeds; and (b) for theBanjarmasin plant: (i) stack emission on a continuous basis during operation of the plant to ensurecompliance with regulatory limits; and (ii) disposal of solid wastes and liquid effluent in accordancewith Indonesian national standards and the environmental guidelines agreed with the Bank.

5.35 PLN would carry out the Resettlement Plans in accordance with the terms agreedwith the Bank during negotiations, which. inter alia, would include: (a) for the Besai plant:

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(i) providing to Project Affected Persons in accordance with their respective choice, adequate landor cash compensation or other rehabilitation options; (ii) organizing vocational training to improvethe skills of the PAPs; and (iii) providing incentives such as credit and counselling to PAPs whochoose to engage in small business enterprises; and (b) for the Banjarmasin plant: (i) providingresidential structres for all PAPs to be displaced, ensuring that the total area of the residentialplots shall be no less than the original plots occupied by the PAPs; and (ii) pay cas.h compensation,at replacement cost, to PAPs who may select to build the residential structure independently ofPLN. Such compensation shall be made available to the PAPs in a phased manner, linking eachpayment phase to the physical progress in carrying out the resettlement.

5.36 PLN would be required to submit to the Bank monthly progress reports in the earlierphases of the execution of the physical components of the project measurw against the time boundimplementation schedules shown in Annexes 5.4 and 5.7. Such progress reports would be sent tothe Bank within ten days after conclusion of each calendar month. After the procurement activitiesare completed, quarterly reports would be submitted. Arrangements for auditing are discussed inpara. 4.13.

5.37 The monthly and quarterly reports would form the basis of Bank's monitoring of theconstruction of the two power plants and the barge-mounted plant. Monitoring of the technicalassistance components would be carried out with reference to the key dates set out in Annex 5.16.PLN would be required to submit a separate quarterly progress report, detailing progress on thetechnical assistance components. Compliance with loan covenants will be monitored during eachsupervision.

5.38 Banjarmasin thermal power plant would include the installation of environmentalcompliance monitoring instruments, located strategically at the highest points of ground levelconcentration indicated by the model study. PLN would submit to the Bank monthly reports of SO,and NO. concentrations, as well as concentrations of particulates, as measured at strategicmonitoring points.

5.39 Quality control during equipment manufacture and testing, as well as duringconstruction will be exercised by the respective Engineers who have responsibility for constructionsupervision. Erection Manuals for this purpose will be prepared by the Engineers to assist incontrolling the quality of the work performed by the various contractors on the project.

Superviion Armangements

5.40 Project supervision arrangements of GOI and PLN, as well as Bank supervisioninputs, are detailed in Annex 5.17.

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6FINANCIAL ANALYSIS

Past Operating Results and Financial Position

6.1 PLN's operating results and financial position for 1985/86 to 1992/93 are shown inthe financial statements in Annex 6.1. Prior to 1985, in the absence of ROR targets, theGovernment's policy on electricity tariff pernitted PLN's operations to function at or near financialbreak-even. The Government provided substantial equity contribution towards PLN's sizeablecapital investment during this period. In 1986, PLN achieved a positive rate of return (3.4 percent)on net revalued assets and its annual self-financing ratio (SFR) was 23.0 percent. However, in1987, PLN's financial performance deteriorated substantially (ROR of -0.2 percent and SFR of7 percent), mainly due to the devaluation of the Indonesian currency in September 1986, priceescalation, and substantial increases in the proportion of oil-based generation in 1987 because ofdrought. An average increase of about 25 percent in the electricity rates approved by theGovernment, effective April 1, 1989, and subsequent increases in the rates by about 20 percenteffective August 1, 1991, and about 13 percent effective February 1, 1993, restored and improvedPLN's profitability through 1993.

6.2 PLN's operating performance varies considerably at regional levels. PLN's Javaoperations, which supply electricity through an interconnected system, are largely commercially-oriented and profitable. PLN's outside-Java operations, which are mainly small-scale and dispersedover a large number of islands, are mostly unprofitable, and have a negative impact on PLN'soverall finances. The 1991-1992 financial statements for PLN's Java and outside-Java operationsare presented in Annex 6.1.

6.3 In 1991, PLN's Java operations generated an operating profit of Rp 934 billion (RORof 11.7 percent). The outside-Java operations, however, incurred an operating loss of Rp 273billion (ROR of -7.6 percent), and thereby reduced PLN's overall operating profit to Rp 662 billion(ROR of 5.7 percent). In 1992, the operating loss incurred by the outside-Java operationsincreased to about Rp 461 billion (ROR of -10.6 percent), whereas the Java operations producedan operating profit of Rp 1,133 million (ROR of 12.0 percent). A tariff increase of 13 percent inFebruary 1993 compensated (7 percentage points) for the January 1993 increase in the price fordiesel oil by 27 percent and for fuel oil by 9 percent, and enabled PLN to achieve for Javaoperations the covenanted ROR targets. As most electricity generation outside-Java is oil-based,the increases in fuel prices impacted more severely on the outside-Java operations than the Javaoperations. As a result, the profitability of the outside-Java operations deteriorated substantiallyin 1992.

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Financial Objectives and Performance Monitoring

6.4 Under the Cirata Hydroelectric Phase II Project (Loan 3602-4NT) signed June 25,1993), PLN was required to: (a) realize for its Java operations, in 1993/94 and each fiscal yearthereafter, an annual ROR of not less than 8 percent on the average net revalued fxed assets inoperation in Java, and (b) for its outside-Java operations, achieve a break-even situation in eachof its fiscal years beginning with fiscal year 1994/95, i.e., total revenues equivalent to no less thanthe sum of their (i) total operating expenses, and (ii) the amount by which debt servicerequirements exceed the provision for depreciation. The principal financial objectives underlyingthe revenue covenant discussed above were that PLN should realize positive annual rates of return,meet its debt service requirements, maintain adequate liquidity, self-finance over 25-30 percent ofits annual capital expenditures, and rely mostly on borrowings to finance the balance, confining theGovernment's contributions to programs that involve the socially directed activities such as ruralelectrification, mainly outside-Java.

6.5 The structure of the above mentioned revenue covenants for PLN was first adoptedunder the Power Transmission and Distribution Project (Loan 2778-IND, February 6, 1987) to setseparate financial performance targets for PLN's operations in Java and outside-Java in view oftheir substantially different operating characteristics. PLN's operations in Java accounted for about80 percent PLN's sales, and were largely commercial in nature. For these operations, an RORcovenant was considered appropriate for measuring financial performance. PLN's outside-Javaoperations, which were largely socially-oriented and geographically fragmented, had beensustaining large operating losses. For these operations, it was considered appropriate to first bringthem to a financial break-even situation, which was targeted for 1990/91. In addition PLN wasrequired to carry out an action plan for efficiency improvements for all its operations, in a mannerto ensure that the break-even requirements for its operations outside-Java were achieved. It wasrecognized by the Government and PLN that over a period of time the operations outside-Javashould become self-sustaining, and eventually profitable.

6.6 Since 1987, PLN's electricity tariffs have been increased three times by a total of60 percent. During the same period, the prices (excluding transportation) of fuel oil and diesel oilhave increased in total by 20 percent and 90 percent respectively (paras. 6.1 and 6.3). AlthoughPLN has continued to implement the action plan for sales promotion and efficiency improvementin the operation of a large number of isolated and scattered small systems outside Java, the resultantcost reductions have not been sufficient to offset the substantial impact the fuel cost increases, havehad on the financial performance of the outside-Java operations where more than 50 percent of theelectricity generation is based on diesel oil. Consequently, while PLN has been able to achievefor its Java operations the annual ROR target of at least 8 percent since 1989, it has not been ableto achieve a financial break-even for its outside-Java operations. As a consequence, the target datehad to be shifted three times, the latest to 1994, as agreed under the Cirata Hydroelectric PhaseII Project (para. 6.4).

6.7 During the processing of the Cirata Hydroelectric Phase It Project (Loan 3602-TIND)it was recognized that the rationale of using the break-even covenant for PLN's outside-Javaoperations needed to be revisited in view of the overriding impact of the increase in the price ofdiesel oil on the financial performance and the continued rapid expansion of the infrastructure tomeet the projected demand growth. An assessment of the financial objectives for PLN was recentlycarried out jointly with the Government and PLN in the context of three principal factors: (a) theproposed restructuring of the organizational and regulatory famework of the power sectorincluding the decentralizadon and corporatization of PLN's organization and management;(b) the

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financing structure of PLN, where the large share of Government equity contribution is notsustainable in the future; and(c) large investment requirements of PLN,excluding those for theenvisaged private power supply (paras. 2.12-2.14). There was consensus that (i) the financialobjectives that PLN should pursue are: (a) increase resource mobilization through higher levelsof self-financing (30-35 percent) of its investment program, reduced reliance on Government equityfinance, increased borrowings, and recourse to private operators; (b) achieve adequate return onequity capital; and (c) maintain tariffs at sound levels; and (ii) an ROR covenant covering PLN'sentire operation will be most appropriate.

6.8 It was therefore agreed to modify the existing revenue covenant. Duing thenegotiations of the loanfor the proposedproject, agreement was reached that PLN shall, from timeto time, take all such measures, satisfactory to the Bank, as shall be required to realizefor al Itsoperadons, for its fiscal year 1994195 and in each fiscal year thereafter, an annual rate of returnof not less than eight percent (8 %) of its average current value of its net fixed assets in operation.

Present and Future Perforwiance

6.9 PLN's financial performance for 1992, the estimate for 1993 and projections through1999 and related income statements for its Java and outside-Java operations are summarized inTable 6.1. (Details are given in Annex 6.1; notes and assumptions underlying the projections aregiven in Annex 6.2). In the projections, for the Java and non-Java operations the sales growth isbased on PLN's demand projections and generation expansion plans, and the investmentrequirements are based on the proposed investment program to be implemented by PLN andexclude that proposed to be implemented by private investors (paras. 2.11, 2.12 and 2.14)

6.10 The financial projections are based on compliance with the modified revenuecovenant in 1994/95 (para. 6.8). An increase in electricity tariff of 3.3 percent, effective April 1,1994, was estimated to be required for PLN to achieve for its operations as a whole, an ROR of8 percent in 1994/95. The GOI has informed the Bank that it has decided to raise the electricitytariffs as required. It considers that the most suitable opportunity for making a formalannouncement and actually implementing the tariff increase would be in the third quarter of 1994.The GOI has confirmed that the tariff increase, at the time it would be put into effect, would becommensurate with the requirements of the agreed revenue covenant. It has been agreed with theGOI tw taking of all necessary measures, satisfactory to the Bank, to ensure PLl's compliancewuith the modified covenanted ROR target in its fiscal year 1994 would be a condion ofeffectiveness of the proposed loan; these measures include implementation of required increases inelectricity tariffs. To maintain the annual rates of return in subsequent years at the 8 percent level,annual tariff increases would be required mainly to compensate for the variation in the input costs,(e.g., fuel and inflation), except in 1995 where a tariff increase of about 17 percent is estimatedto be required to compensate also for higher fuel expenses resulting from substantially higher useof diesel oil in that year and in 1998 to compensate for substantial increases in the cost of powerpurchases from private producers (para. 2. 11). PLN's annual self-financing ratios during 1994195-1995/96 would be about 25 percent, increasing to a 30-40 percent range on a three-year averagebasis during the balance of the forecast period. These levels of self-financing reflect the fact thatinstead of PLN, private producers are expected to make, large investments in generating capacityto supply PLN (paras. 2.12-2.13). The capital structure would remain satisfactory; the debt as apercentage of debt plus equity (excluding revaluation surplus) would rise from about 36 percentin 1992 to about 53 percent in 1996, and thereafter remain at that level. PLN's debt servicecoverage ratio would be in excess of 2.5 throughout the projection period. An existing coenantwder Loan 3602-IND requirce that PLN may not incur any additional debt unless a reasonabk

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Table 6.1: PLN'S FNNCAL PERFORMANCE

199/93-1999/00

Ac.al Esimate PtoiectionFucal year 1992193 1993t94 199419S 1995t96 1996/97 1997/98 1998/99 1999/00

Taiff incram (S) 13.0 - 3.3 17.6 8.9 2.4 17.3 8.0

Averase 1evenue (Rp kWh)PLN total 137.1 150.5 154.7 181.1 196.1 199.9 233.2 250.5

Increase (S) 6.2 9.8 2.8 17.1 8.3 1.9 16.7 7.4Java 135.7 147.7 151.8 177.7 192.5 196.1 228.8 245.8

Increase (%) 6.4 8.8 2.8 17.1 8.3 1.9 16.7 7.4Outside-Java 142.5 161.4 165.7 193.9 209.6 313.5 249.1 267.2

lcease (% 5.8 13.2 2.7 17.0 8.1 1.8 16.7 7.3Bajn" (GWh)

PLN total 34,964 41,675 48,542 55,884 63,229 71,3S7 79,612 88,921Java 27,837 33,054 38,399 44,126 49,655 55,930 62,391 69,39SOutaide-Java 7,127 8,621 10,143 11,758 13,574 15,427 17,221 19,526

Onerat Revenues (ip billion)PLN total 4,917 6,436 7,709 10,360 12,677 14,569 18,904 22,648Java 3,872 5,011 5,988 8,033 9,776 11,210 14,541 17,347Outside-Java 1,046 1,425 1,721 2,328 2,901 3,359 4,363 5,301

O9Dem Engnses ~(tp billon)PIN total 4,246 5,801 5,881 7,991 9,668 10,U8 14,S04 17,347Java 2,739 3,990 3,742 S,083 6,283 6,942 10,032 12,054Outside-Java 1,507 1,811 2,139 2,908 3,385 3,943 4,472 S,293

ODCtm kmn (Stp billon)PLN tow 671 635 1,828 2,369 3,009 3,684 4,400 5,301

Java 1,133 1,021 2,246 2,950 3,493 4,268 4,509 5,293Outsl-lava (461) (386) (418) (598) (484) (584) (109) 8

RaoBan (Itp billion)PLN total 13,822 18,127 22,836 29,627 37,626 46,054 54,718 62,150Java 9,468 12,650 16,005 21,541 26,842 31,781 36,961 40,253Outside-lava 4,354 5,477 6,831 8,086 10,784 14,273 17,757 21,897

Rate of Retur (%) /aPLN total 4.9 3.5 8.0 8.0 8.0 8.0 8.0 8.0Java 12.0 8.1 14.0 13.7 13.0 13.4 12.1 12.3Outside-Java (10.6) (7.0) (6.1) (7.2) (4.5) (4.1) (0.6) 0.0

OQsaMu Ratio (X)PLN toWa 86 90 76 77 76 75 77 77Java 71 80 62 63 64 61 69 69Outide-Java 144 127 124 125 117 117 102 100

Rados for PNXCusrentratio (tnes) 1.3 1.1 1.1 1.3 1.A 1.3 1A 1.4Dbhdebt tpinequity (%)& 36.3 41.6 47.0 51.1 53.1 53A 53.2 53.7

lf-6iman8g raio (%)Annual 10.9 19.3 23.2 27.0 32.5 40.3 42.3 37.03-yearavemap c 12.7 16.0 27.9 26.1 32.5 40.0 40.3 35.5

Dek sevice coveage (dmes) 2.6 2.1 3.6 3.2 3.3 2.9 2.7 2.6

[A Onrevahuedrame bas.& Eohading rvahuatio surplus.

& Bed on aveu g amal capial_ emVite fot the yeans comishW dte too year, th mmx prceit yearsad xat Wowingyear.

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forecast of its net revenues after expendiures for each year during the term of the debt to beincurred shall be at least 1.5 times its projected debt service requirements. This covenant was alsoagreed under the proposed project. PLN's current ratio is expected to be in the range of 1.2 to1.4 through most of the projection period; this would provide adequate liquidity.

6.11 To avoid erosion of the real value of electricity rates over time and to ensure thecontinued achievement by PLN of its financial objectives, the Government has recently decided tointroduce a mechanism for periodic (quarterly) formula-based adjustment of the electricity tariffthat would take into account changes in the input costs due to inflation, and changes in fuel prices,power purchase price and exchange rates, with the base tariff to be adjusted from time to time totake care of financial and efficiency objectives. The Bank considers the proposed formulasatisfactory. The Govermnent intends to implement the mechanism along with the adjustment ofthe basic tariff that would be necessary to meet the requirements of the agreed revenue Covenant,before effectiveness of the proposed loan (para. 6.10).

6.12 In the financial projections, PLN's capital expenditures (including interest duringconstruction) are derived from the investment requirements of Rp 68,600 billion ($32,590 million)in current prices (Annexes 2.6 and 2.7); they exclude the capital expenditures for generationprojects proposed to be implemented by private investors (para. 2.12). The financing plansassumed in the financial projections for the REPELITA V (1989-1993) and REPELITA VI (1994-1998) are presented and compared to that for the REPELfTA IV (1984-1988) in Table 6.2. Detailsare given in Annex 6.1. In the financing plan for REPELITA V, the Government's contribution

Table 6.2: COMPARISON OF IRNANCING PLANs

REPELU1TA IV REPELITA V REPELITA VIFiscal year 1984-1988 1989-1993 1994-1998

Rp billion (%) Rp billion (%) Rp biUion (%)

Capital expendiues 8.051 100.0 21.081 100.0 50.743 100.0

Financed by:Net intealma sources /a 1,092 13.6 3,999 19.0 16,539 32.6Bonrowings 3,732 46.4 8,892 42.2 25,685 50.6Govenment contribution 3,227 40.0 8,190 38.8 8,519 16.8

Total 8.051 100.0 20.081 100.0 50.743 100.0

LA Ilnluding con_umers' contributions and deposits, and adjusted for changes in wodring capital.

is estimated to be 39 percent, compared to 40 percent for REPELITA IV, with the annualcontribution declining to about 25 percent in 1993, from 60 percent in 1991. PLN's owncontribution from its internal sources is estimated to increase from about 14 percent duringREPELITA IV to about 19 percent during REPELITA V, and 33 percent in REPELITA VI.Borrowings would cover about 50 percent of financial requirements in REPELITA VI comparedto 42 percent for REPELfTA V and 46 percent for REPEL1TA IV. The self-financing levelsprojected for REPEL1TA VI are higher than the levels PLN has achieved historically and largelyreflect the fact that private power projects account for substanffal investment during this period that

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would otherwise have been carried out by PLN (para. 2.13). If PLN were to carry out allinvestment during the REPELITA VI period, its contribution to investment would be about27 percent, or about 6 percentage points lower for that period.

Tariffs

6.13 PLN's tariff schedules, which became effective February 1, 1993, comprise 24consumer categories. For medium and large industrial consumers, large commercial consumers,large social institutions, and for large office buildings, time-of-day pricing is in effect. TheFebruary 1993 and earlier tariff schedules are shown in Annex 6.3.

6.14 Under the Cirata Hydroelectric Phase II Project (Loan 3602-IAD) it was covenantedthat PLN will periodically review ts long-run marginal cost (LRMC) and tariff structure, anddiscuss the results of the review with the Government and the Bank. This covenant was also agreedunder the proposed project, with a modification that PLN would review its LRMC by December 31every year, and take appropriate steps to revise the tariff structure taking into account the viewsof the Government and the Bank.

6.15 The Bank has reviewed PLN's LRMC study of October 1993 for Java-Bali thataccounts for about 80 percent of PLN sales. The study indicates that PLN's average revenuewould be about Rp 163/kWh in Indonesia as a whole, and Rp 154/kWh in Java, if the tariff to eachconsumer category was set at the estimated LRMC of supply in Java. PLN's average revenue ofRp 151/kWh in Java, based on the current tariffs (effective February 1, 1993) and not includingconnection fees paid by consumers, is close to the average LRMC of supply in Java. However,cross-subsidies exist between different consumer groups. To compensate for subsidies to smallconsumers, electricity prices to large consumers in Java, (industrial, commercial and residential),ai e higher than the economic cost of supply. Despite these subsidies, the household electrificationratio remains low at about 35 percent. High lump sum payments for the initial installation chargecoupled with fixed monthly demand charges serve as barriers to many new consumers and toincrease in consumption by existing consumers. Inplementation of key elements of the sectorpolicy and agenda - commercialization of PLN operations, implementation of published bulkpower purchase and supply tariffs, increased participation of the private sector in electricity supplyand distribution, and instituting a uniform regulatory framework for PLN and the private sector- will ultimately bring about conditions under which the need for substantially reducing tariffdistortions will become unavoidable; conditions under which the Government will also find itpolitically easier to allow such changes.

Overall Development Fund

6.16 Government Regulations require that 55 percent of PLN's annual net profit aftercorporate income tax be set aside for "Dana Pembangunan Semesta" (DPS), or the OverallDevelopment Fund for which the required payment should be made to the state treasury. The GOIhas statd that its equity contributions in the past had accounted for a large share of PLN'sinvestments and that it would continue to make its best efforts to provide fimding to ensure thatPLN would be able to implement its investment program. Under the Cirata Hydroelectric Phasen Project (Loan 3602-IM D), it was covenanted ta GOI will take all such actions as shall benecessary to ensure that any transfer ofproflts Jrom PLI to the DPS shall not prevent PLNfronmmplementing its agreed investment program. This covenant was also agreed under the proposed

project. When PLN's corporate status is changed from a "Perum" to a "Persero" (para. 3.15), it

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would not be required to transfer a portion of its net profit to DPS, but instead it may need to makedividend payments to its stockholders.

Financing Policy

6.17 PLN formulates its long-term investment program spanning a ten-year-horizon,which is updated periodically. The plan is reviewed by the GOI and a five-year time-slice of it isincorporated in the country's development plan, the next of which (REPELITA VI) is to commenceon April 1, 1994. Based on the approved framework of the five-year plan, PLN prepares anannual plan and a budget, which is approved by the Government. In recent years, the Governmenthas shown a strong financial comnitment towards these plans and has taken steps to enable PLNto implement them (para. 6.12).

6.18 An existing covenant (Loan 3602-IND) relating to the long-term aspects of PLN'sfinancialplanning was also agreed under the proposed project. This covenant requires, inter alia,that, as part of its ongoing annual planning activities, PLN should prepare a rolling ten-yearfinancial forecast based on its proposed development plan, and also prepare for the first five yearsof the forecast period a financing plan that should indicate the amount of external financing andthe appropriate mix of equity and debt, and if possible the potential sources of financing.Technical assistance is being provided under the Power Sector Efficiency Project (Loan 3097-IND)is helping to strengthen the financial planning capability in PLN.

6.19 The Government proposes to continue to finance PLN's investment from threesources, namely, PLN's internal funds, borrowings and Govermnent contributions. In view of thelarge and rapidly growing investment requirements of the sector, there is a need to develop astrategy for the long-term financing requirements of the se .itor and to define the role of PLN andthe private sector in meeting these requirements. The Cir .a Hydroelectric Phase II Project (Loan3602-IND) provides for technical assistance to GOI f a detailed study of the various issuesinvolved in the long-term strategy for financing the overall investment requirements of the powersector; the terms of reference for the study are under preparation.

6.20 PLN is authorized by its charter to borrow from local and foreign lenders and toissue its own obligations. Until recently, PLN's local borrowings had been only from theGovernment-owned Banks. By Government Regulation No. 60/192 dated September 19, 1992,PLN has been authorized to issue bonds in stages up to a maximum amount totalling Rp 1.2trillion, with the approval of the Minister -;¢ Finance. In September 1992, PLN issued in thedomestic capital market, the first annual tr--r . .e of such bonds amounting to Rp 300 billion, whichwas oversubscribed. PLN raised a further Rp 600 billion through bond issuance in September1993. PLN would require extension of authority to issue bonds beyond the current ceiling ofRp 1.2 trillion, since the practice of issuing bonds is expected to continue in later years. Tosupport the bond issue, PLN has strengthened its treasury functions and reduced the time requiredto finalize the annual financial accounts and complete their audit (para. 4.13).

6.21 In line with its policy for all State Corporations, the Government secures all foreignborrowings on behalf of PLN and bears the foreign exchange risk. The onlending arrangementsfor PLN that were formulated in 1992 under the Suralaya Thermal Power Project (Loan 3501-IND)and also adopted under the last operation for PLN (Cirata Hydroelectric Phase II Project - Loan3602-IND; June 1993), were designed to ensure that PLN bore the full cost of borrowing,including compensating the Government for the foreign exchange risk. At that time, governmentalregulations did not permit PLN's obligations under the subsidiary loan to be denominated in foreign

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currency. Consequently, a proxy onlending mechanism had to be developed to ensure that PLNcompensated the Government for the foreign exchange risk. A recent decree of the Minister ofFinance (No. 259/KMK.017/1993 dated February 27, 1993) regarding the onlending of foreignloans and/or grants to healthy/very health state enterprises, permits the amount of the suasidiaryloan to be denominated in the foreign currency withdrawn and the onlending interest rate to be theinterest rate payable by the Government to the lenderplus 0.5 percent per annum. h view of theabove-mentioned decree, the onlending arrangements under the proposed project have beenmodified. Any proceeds of the proposed loan that would be onlent to PLN under a subsidiary loanagreement, would be denominated in US dollars. Repayment of the subsidiary loan would be onthe same terms and conditions as those for the repayment of the Bank loan by the Government.The onlending interest rate would be the Bank's standard variable interest rate plus 0.5 percent perannum. The exchange risk would be borne by PLN (para. 5.24).

Asset Revaluation

6.22 PLN's assets have been revalued periodically. The last detailed revaluation was donein 1979 as required of all public corporations under instructions of the Ministry of Finance. Therevaluation was recorded in the books and was accepted by the Bank. Fixed assets acquired afterMarch 31, 1979 are appraised at cost. Following the currency devaluation in September 1986, theGovernment issued Regulation No. 45/1986 dated October 2, 1986, providing for the revaluationof assets of businesses and public corporations, acquired through September 12, 1986. TheRegulation specifies the annual revaluation factors for the years 1970 to 1986 for adjusting the assetvalues as of January 1, 1987. For purposes of monitoring the proposed modified revenue covenant(para. 6.8) PLN has prepared a revaluation of its assets for 1979/80-1986/87 based on theRegulation. The methodology used by PLN for asset revaluation is satisfactory to the Bank. Acovenant, under Loan 3602-INID, that requires PLN to revalue annually its fixed assets (includingwrk in progress and consuners' contributions) and accumulated depreciation for the purposes ofthe rate of return calculations under the revenue covenant was also agreed under the proposedproject.

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7PROJECT JUSTICATION

Demand Growth and Need for the Plants

7.1 Besi Hydroelectric Power Plant. PLN's energy sales in its Region IV, where theBesai hydroelectric power plant is to be located, have increased at an annual average growth rateof 14 percent in the last decade, from 301 GWh in 1982 to 1,153 GWh in 1992. Despite thissubstantial increase in supply, PLN has not been able to meet the electricity demand; by 1992, onlyabout 30 percent of the villages had PLN supply, and PLN had about 40,000 applicants on itswaiting list. The load forecast (para. 2.9) indicates that PLN's sales in Region IV will increaseat an annual average growth rate of about 14 percent from 1993 through the end of REPELITAVI (1998) and about 12 percent through the end of REPELITA VII (2003), while peak demand willincrease at annual average growth rate of 12 percent and 11 percent, respectively (Annex 7.1).

7.2 The Besai hydro plant will be part of the Palembang-Lampung interconnected system(Sumbagsel System) within Region IV. PLN's sales for the Sumbagsel system are projected toincrease at an annual average growth rate of about 17 percent through the end of REPELITA VIand about 15 percent through the end of REPELITA VII, while peak demand will increase by about16 percent and 14 percent, respectively (Annex 7.1). The Sumbagsel system is projected to growat a fibster rate than the entire Region IV, which also includes isolated diesel generating systems.

7.3 Banarmasin Thermal Power Plant. PLN's sales in its Region VI, where theBanjarmasin thermal power plant will be located, have increased at an annual average growth rateof 17 percent in the last decade, from 272 GWh in 1984 to 927 GWh in 1992. Nevertheless, thisregion depends heavily upon captive industrial power. In 1992, PLN's installed capacity was 357MW, with a rated capacity of 267 MW, while the captive power capacity was 600 MW, whichserves large industrial units located at considerable distances from PLN's small, fragmented gridsin this Region. By 1992, only about 30 percent of the villages were electrified, and PLN's waitinglist had about 37,000 applicants. The core plan load forecast indicates that PLN's energy sales andpeak load in Region VI will increase at an anmnal average growth rate of about 13 percent from1993 through the end of REPEL1TA VI, and about 11 percent through the end of REPELITA VII(Annex 7.1).

7.4 The 2 x 65 MW Banjarmasin coal-fired plant will be part of the Barito-Benua Limainterconnected system within Region VI. PLN's energy sales and peak load for the Barito-BenuaLima system are projected to increase at an annual average rate of about 16 percent from 1993through the end of REPELITA VI, and about 14 percent through the end of REPEL1TA VII (2003)(Annex 7.1).

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Least Cost Option

7.5 Least cost planning. PLN used a dynamic programming model to optimize itsgeneration expansion plans for the Surnbagsel and Barito-Benua Linia systems over the years 1993-2008. This model optimizes the supply plan, taking into account the projected savings fromdemand management (DSM) in the load forecast. Since PLN is still in the initial stages offormulating and testing appropriate DSM (para. 5.19), only limited savings from DSM measurescan be expected in the medium term. The input data for the generation planning model include thecore plan load forecast, a four-days-per-year loss-of-load probability (LOLP) criterion, and variousthermal, hydlro and gas turbine plants identified as potential candidates for the generation expansionof the syst.-m.

7.6 Besai. The Besai hydro power plant was selected by the model as part of the least-cost expansion plan. The Besai plant, with an installed capacity of 90 MW (2 x 45 MW units),is planned to assist in meeting the peak demand of the Sumbagsel system while also providing somebase load power. Further, implementation of the Besai plant supports the energy resourcedevelopment policy of GOI (para. 1.3) which encourages the substitution of oil in the generationof power with more economical fuels and renewable energy resources. In addition to the least-costgeneration expansion analysis, the Besai hydro plant was compared directly to a thermal alternative.The Besai plant is expected to operate partly on base load (32 MW for 24 hours during the rainyseason), with an additional 58 MW operating daily during the 4-hour peak period. The Besai planttherefore is validated against a conceptual thermal plant comprising 58 MW of oil-fired peakinggas turbine capacity and 32 MW of base load coal-fired capacity. The discount rate at which thetwo alternatives yield the same present value (equalizing discount rate) is 14 percent, indicating apreference for the Besai hydro plant over the thermal alternative.

7.7 Banjarmasin. The Banjarmasin thermal power plant has been selected as acomponent of PLN's generation expansion plan for the Barito-Benua Lima system. The proposedplant, as part of the least-cost plan for the Barito-Benua Lima system, will help PLN meet theincreasing demand for electricity in the region and assist in improving its supply reliability.Further, the more economical base load generation provided by the Banjarmasin plant will enablePLN to replace diesel generation in the system and thus reduce operating costs from 1998 onwards.The Barito-Benua Lima system consists of a large number of small diesel units, with only four non-diesel units (three hydro units and one gas turbine). Therefore, the Barito-Benua Lima systemwould benefit from the addition of central generating capacity that would improve IPLN'soperational efficiency and reduce the cost of supply by taking advantage of economies of scale.Further, the addition of non-oil based generation capacity would be the consistent with the GOI'senergy resource policy, which encourages the substitution of oil in generation (para. 1.3).

Plant Size and Timing Alternatives

7.8 Besai. Studies carried out to determine the optimal development of the hydropotential at Besai demonstrated that the proposed hydro plant with 90 MW (2 x 45 MW) installedcapacity is less expensive than other hydro plant configurations, such as 45 MW or 180 MW. Thegenerating units of the proposed hydro plant are required in 1999 to meet the projected peakdemand of 507 MW at that time.

7.9 Banjarmasin. Studies carried out during the feasibility review stage demonstratedthat the 2 x 65 MW configuration is less expensive than other configurations such as 1 x 45 MWor 1 x 65 MW for the Banjarmasin plant. The 2 x 65 MW configuration shows substantial savings

- 43 -

in capital cost investment as a result of economies of scale, as well as substantial fuel cost savingsarising from the higher efficiency of the larger units.J/ The commissioning of the proposedthermal plant is scheduled for 1998 as part of PLN's least-cost generation expansion plan.

7.10 Barge-mounted plants. PLN's least-cost plan indicated that some additionalgenerating capacity would be needed in 1995. Given the lead time required for construction, theBanjarmasin plant will not be commissioned until 1998. Meanwhile, power shortages are expectedto be experienced in the Barito-Benua Lima system starting from 1995. The proposed procurementof two barge-mounted power plants of 30 MW and 10 MW respectively, is expected to mitigatesuch regional power shortages. After the Banjarmasin thermal power plant is commissioned, thebarge-mounted plants are expected to be towed to other areas of power shortage in the OuterIslands.

Internal Economic Rate of Return

7.11 Costs and Benefits. The Besai and Banjarmasin plants' economic viability has beenestablished by calculating an Internal Economic Rate of Return (IERR) on the basis of the costs andbenefits associated with the project. The plants' capital costs consist of. (i) the plant and relatedequipment, including the associated transmission line from the generation facility to theinterconnected grid; the costs include physical contingencies, but exclude taxes and duties; and (ii)the incremental transmission and distribution costs arising from the use of the network to supplythe customers with electricity generated by the plants. The transmission and distribution costs arebased on recent PLN estimates of the Long Run Average Incremental Costs (LRAIC) fortransmission and distribution. The variable costs for the Besai plant consist solely of the O&Mcosts, since there are no fuel costs. The fuel costs for the Banjarmasin plant are based on theborder price of coal, adjusted for transportation costs to the mine mouth as well as for the heatcontent (kcal/kg) of the lignite to be used in the power plant.

7.12 The benefits of the Besai and Banjarmasin plants have been estimated by the revenuefrom the incremental electricity sales on the basis of the current average electricity tariff for RegionIV, and supplemented by the consumer surplus. In the case of industrial, commercial and publicconsumers, their willingness to pay is estimated by the cost of self generation from captive dieselplants. These costs are estimated to be typically in the range Rp 150/kWh to Rp 300/kWh,depending upon plant scale and utilization. The analysis assumes an average willingness-to-pay ofRp 225/kWh. With the current average industrial tariff at about Rp 132/kWh (6.27 US¢/kWh),this yields a consumer surplus of Rp 93/kWh (4.42 USO/kWh). For residential consumers, theirconsumer surplus is estimated by two components: (a) consumer surplus in the diverted marketi.e., cost savings resulting from the substitution of kerosenie by electricity for lighting, and (b) theincremental consumer surplus in the new market i.e., the benefit of increased consumption becauseof the availability of lower cost electricity. With the current average residential tariff of aboutRp 148/kWh (7.05 USCJkWh) in 1992, the components together are estimated to be 11.95USC/kWh (Annex 7.2).

3/ Power system studies indicate tbat the tnpout of a 65 MW unit, which would represent about 38percent of the Barito-Be Lima system peak load in the initdal stages after the first such unit iscommsioned, culd cause system instability until the second unit comes on line. Under-frequencyrelays will be installed in the system to shed loads on a progrmmable basis in the event of such acontingency, to prevent system collapse.

- 44 -

7.13 IERR. The details of the costs, assumptions, and calculations of the IERR arepresented in Annex 7.3. The internal economic rate of return (AERR) for the Besa; hydroelectricpower plant is calculated to be 14 percent, while the IERR for the Banjarmasin plant is estimatedto be 15 percent. Sensitivity analysis indicates the following: (i) If the capital costs of the BOaWplant increase by 10 percent, then the IERR decreases to 13 percent, or if the plants output isdelayed by one year, then the IERR decreases to 12 percent; and (;i) If the capital costs of theBanjarmasin plant increase by 10 percent, then IERR decreases to 14 percent, or if the project'soutput is delayed by one year, then the IERR decreases to 13 percent.

Project Benefits

7.14 The proposed project is designed to support the implemenation of a comprehensivepolicy agenda for Indonesia's power sector and restructuring of PLN. The policy reformunderlying the project will help open the sector to private investors and restructuring of PLN willexpand the financial envelope for system expansion and enhance incentives for lowering the costand improving the reliability of electricity service. In addition the project wili help PLN meetincreases in demand for electricity in Sumatera and Kalimantan with improved seivice reliability.Further, technical assisiance will help strengthen the environmental management capabilities of GOIand PLN. As part of this program, the proposed project will seLve as a model for the expansionof the power subsector in Sumatera and Kalimantan by setting up pilot projects in Regions IV andVI (para. 5.19).

7.15 Specifically, the Besai hydroelectric power plant will help PLN meet increases inthe peak demand for electricity in its Region IV, provide base load power, and improve servicereliability. It will substitute oil-fired generation in the Region by a renewable energy source, andby deferring the need for new thermal generation capacity, will have a positive impact on theenvironment. The Banjarmasin thermal power plant will help PLN meet increasing demand forelectricity in its Region VI and improve service reliability. The plant will produce electriityeconomically by utilizing cheap lignite as fuel that is non-tradeable and has no other commercialvalue. It will also provide the necessary support for PLN to gradually substitute oil-firedgeneration in the Region.

Project Risks

7.16 The major potential risk associated with the proposed project is that the GOI will failto implement the policy agenda in the power sector. However, this risk is minimal, in view of theGovernment's excellent implementation record, and the continuing dialogue and cooperationbetween the Bank and the GOI. The technical risks associated with the Besai hydroelectdc powerplant and the Banjarmasin thermal plant are minimal. he project management and implemenationrisks will be kept to a minimum by ensuring the appointment of qualified civil works contcorsfor the main physical componem through prequalification processes and the use of experiencedinternational consultants for design and construction supervision, coupled with the appointment ofexperienced project managers and time bound project implementation schedules, with key milestonedates. There is littde risk that the power generation components of the proposed project wouldbecome redundant if the projected levels of electricity demand fai to materalize, since thesecomponents are part of PLN's core expansion program. There is no risk of redundancy associatedwith the barge-mounted power plants, since they can be moved to help alleviate regional powershortages wherever they arise.

45 -

8AGREEMENTS REACHED AND RECOMMNDATION

Agrements Reached

8.1 During the negotiations, the following agreements were reached:

With GOI

(1) Borrower shall: (a) undertake and by March 31, 1995, complete a study on privatepower development in accordance with terms of reference and in a mannersatisfactory to the Bank; (b) upon completion of the said study, furnish the same forreview and comments to, and disct"' the results and recommendations thereof with,the Bank; and (c) based on the said study's results and recommendations andsubsequent review, comments and discussions: (i) prepare draft rules andprocedures to govern private sector participation including the solicitation andevaluation of all forms of proposals for private power supply, (ii) furnish the saiddraft rules and procedures for review and comments to the Bank, and (iii) byDecember 31, 1995, finalize, adopt and enforce the same taking into account thecomments, if any, thereon by the Bank (para. 3.10);

(2) Borrower shall: (a) undertake and, by March 31, 1995, complete a study onregulatory reform in the power sector in accordance with terms of reference and ina manner satisfactory to the Bank; (b) upon completion of the said study, urnish thesame for review and comments to, and discuss the results and recommendatonsthereof with, the Bank; and (c) based on the said study's results andrecommendations and subsequent review, comments and discussions: (i) preparedraft regulaions for the power sector, Ci) firnish the said draft regulations forreview and comments to the Bank, and (iii) by June 30, 1996, finalize, adopt andenforce the same taking into account the comments, if any, thereon by the Bank(para. 3.18);

(3) Borrower shall: (a) by December 31 each year, commencing in 1994, (iv) reviewwith the Bank: (1) its power sector development program, (2) the least costplanning analysis used to formulate the said program, (3) the roles of PLN and theprivate sector in the said program, and (4) the transparency and appropriateness ofthe business enviroment for private power participation; (v) review with the Bankand PLN, PLN's development and investment programs with respect to: (1) theirconsistency with the Borrower's power sector development program, (2) the balanceamong generation, transmission and distribution investments, and (3) the balanceddevelopment of regions; and (b) ensure that PLN has access to sufficient fimds tofinance its development and investment programs (para. 3.20);

- 46 -

(4) Borrower shall complete arrangements for cofinancing and export credits for theBesai and Banjarmasin power plants by dates agreed during negotiations so that theyare consistent with the project implementation schedule (para. 5.24).

(5) The Government shall jointly with PLN: (a) take the necessary measures requiredto reorganize PLN into a limited liability company (Persero); (b) by December 31,1994, furnish to the Bank a progress report concerning the reorganization of PLNtogether with a draft time-bound corporate reorganization and restructuring actionplan for PLN to operate according to best utility practices (para. 3.14); (c) discussthe said progress report and draft action plan with the Bank; and (d) inmmediatelythereafter, finalize the said action plan taking into account the comments, if any,thereon by the Bank.

8.2 The following agreement with respect to PLN's financial performance, alreadyreached under the ongoing Cirata Hydroelectric Phase II Project (Loan 3602-IND), was reaffimed:

Borrower shall ensure that any transfer of profits from PLN to the DPS shallnot prevent PLN from implementing its agreed investment program(para. 6.16).

With PLN

8.3 During the negotiations, the Bank reached agreements with PLN on the following:

(a) PLN shall, from time to time, take all such nLeasures satisfactory to the Bank, asshall be required for it to realize, for all of its operations, for fiscal years 1994/95and in each fiscal year thereafter, an annual rate of return of not less than eightpercent (8%) on its average net revalued fixed assets in operation (para. 6.8).

(b) PLN shall designate a manager, satdsfactory to the Bank, to facilitate overallcoordination of the various physical components of the project, help remove anybottlenecks in their imrlementation, and ensure their completion on schedule(para. 5.32).

(c) PLN shall maintain, and have periodically inspected, the Besai dam in accordancewith sound engineering practices and procedures satisfactory to the Bank(para. 5.33).

(d) PLN shall carry out the Environmental Action Plans, which would include, (a) forthe Besai plant: (i) regular monitoring of public health; (ii) erosion rate andsedimentation; (iii) discharge of water from the dam and its quality; and (iv) routineremoval of aquatic weeds; and (b) for the Banjarmasin plant: (i) stack emission ona continuous basis during operation of the plant to ensure compliance with regulatorylimits; and (ii) disposal of solid wastes and liquid effluent in accordance withIndonesian national standards and the environmental guidelines agreed with the Bank(para. 5.34).

(e) PLN shall carry out the Resettlement Plans in accordance with the terms to beagreed with the Bank during negotiations, which would include: (a) for the Besaiplant (i) providing to Project Affected Persons (PAP) in accordance with their

- 47 -

respective choice, adequate land or cash compensation or other rehabilitationoptions; (ii) organizing vocational training to improve the skills of the PAPs; and(iii) providing incentives such as credit and counselling to PAPs who choose toengage in small business enterprises; and (b) for the Banjarmasin plant:(i) providing residential structures for all PAPs to be displaced, ensuring that thetotal area of the residential plots shall be no less than the original plots occupied bythe PAPs; and (ii) pay cash compensation, at replacement cost, to PAPs who mayselect to build the residential structure independently of PLN. Such compensationshall be made available to the PAPs in a phased manner, linking each payment phaseto the physical progress in carrying out the resettlement (para. 5.35).

8.4 The following agreements with respect to PLN's financial performance, alreadyreached wnder the ongoing Cirata Hydroelectric Phase II Project (Loan 3602-IND), werereaffirmed:

(a) PLN shall submit audited accounts and reports no later than six months after the endof each fiscal year (para. 4.13);

(b) PLN shall not incur any additional debt unless a reasonable forecast of its netrevenues after expenditures for each year during the term of the debt to be incurredshall be at least 1.5 times its projected debt service requirements (para. 6.10);

(c) PLN shall periodically review its LRMC and tariff structure, and discuss the resultsof the review with the Government and the Bank. PLN shall review its LRMC byDecember 31, each year, and take appropriate steps to revise tariff structure, takinginto account the views of the Government and the Bank (para. 6.14);

(d) PLN shall prepare a rolling ten-year financial forecast and for the first five years ofthe forecast, prepare a financing plan (para. 6.18); and

(e) PLN shall annually revalue its fixed assets and accumulated depreciation(para. 6.22).

Condition of Effectiveness

8.5 Execution of a subsidiary loan agreement between Borrower and PLN satisfactoryto the Bank (para. 5.24); and taking of all measures satisfactory to the Bank to ensure PLN'scompliance with covenanted ROR target in its fiscal year 1994 (para. 6.10), would be conditionsof effectiveness of the proposed loan.

Recommendation

8.6 With the above agreements and conditions, the proposed project is suitable for a loanof US$260.5 million equivalent to the Republic of Indonesia, for a period of 20 years includinga grace period of 5 years, at the Bank's standard variable interest rate, which, except for US$3.2million, will be onlent to PLN under a subsidiary loan agreement satisfactory to the Bank.

- 49 - ANNEX 1.1

IDONESIA

SumaT AND KmAMANAN PowER ftojECr

Seetor Overview

Fossil Fue)s

1. Oil. Indonesia's proven and potential reserves of oil have been estimated to beabout 11 billion barrels as of January 1992, of which proven reserves are estimated to be 6 billionbarrels. The production of crude oil and condensates in 1992 was about 551 million barrels, whichimplies a reserves-to-production ratio of 20:1. The World Bank's medium term projections indicatethat whereas in volume terms Indonesia would still appear to be a comfbrtable net exporter of oilthrough this decade, in value terms it could become a net oil importer well before the end of thiscentury. The major reasons for the decline are the rapid growth in domestic product demands andthe growing importation of such petroleum products, as well as the cost recovery and factor servicepayments which have to be made to oil contractors.

2. The Bank's participation in the development of the oil sector has been primarilythrough its dialogue on energy pricing issues. The Bank has been advocating the use of efficiencypricing as the basic guideline for detrmining petroleum product prices under Indonesia'sadministered pricing approach. An appropriate guideline for adjusting domestic fuel prices is theworld market price for refined petroleum products with selective departures from this benchmarkfor revenue and equity reasons. President Suharto's Budget Speech in January 1993, emmciatedthe principle that energy should be treated "as an ordinary commodity with the going price at tLeinternational market", and in the price adjustments announced shortly thereafter, the Governmenthas raised overall product prices by about 24 percent, and eliminatd the overall subsidy thatexisted prior to the increase. With these increases in product prices, only kerosene retains asizeable subsidy, equivalent to about 30 percent of its efficiency price. All other product pricesare at or above international price levels, with an implicit tax on gasoline to finance the cross-subsidy on kerosene.

3. Natural Gas. Indonesia's indicative geological reserves of natural gas are estimatedto be about 217 trillion cubic feet (TCF), of which 91 TCF are classified as proven, and 39 TCFclassified as potential reserves. Among the proven and potential reserves there are about 8.4 TCFrecoverable reserves in structures too small to support LNG exports, but large enough to beexploited for the domesteic market. It is estimated that further exploration could result in theaddition of 4 to 15 TCF to this category. The current gross natral gas production is about 2.58TCF (461 million boe), implying a reserve-to-production ratio of 35:1, which is high byinternational standards.

4. Production of LNG exports continue to rise, responding to strong demand in the FarEast. In 1991, LNG exports were valued at about US$3.8 billion (export volume of 19 milliontons), and represented about 81 percent of total sales, with only 20 percent going to the domesticmarket, mainly in fertilizer, iron and steel, and cement production. LNG demand in Japan, Korea,and Taiwan is projected to expand in the 1990s by about 30-40 mfllion tons, and Indonesia expectto have a significant share of that market. Over the longer term, as oil's share of export revenues

-50- ANNEX 1.1

decline, the Government's expectation is that natural gas exports will compensate for the revenuelosses.

5. Notwithstanding the actual and projected growth of the LNG export markets, theuse of natural gas for domestic energy consumption is becoming economically more attractive.Domestic consumption of gas is projected to increase from 0.3 TCF in 1990 to over 1.0 TCF bythe year 2000. The largest increase in domestic gas consumption is projected to take place in thepower sector, to supply combined-cycle plants that represent a major element of the strategy to cutback on oil-based generation. Plans call for increasing the share of natural gas-fired generationto about 22 percent by the end of this decade (195 BCF), from 5 percent in 1991 (26 BCF).

6. The Government's strategy is to meet the projected domestic gas requirements bydeveloping the non-exportable gas reserves and the necessary gas transmission infrastructure. TheBank has recently completed a 'Natural Gas Development Planning Study" which provides an indepth assessment of the issues and formulates a development strategy for the efficient domestic useof the resource. The findings of the study were reviewed with the Government in June 1992.Bank loans are also helping to finance Gas Distribution (Loan 2690-IND) and Gas Utilization (Loan3290-IND) projects.

7. Coal. Indonesia's coal reserves are estimated to exceed 32 billion tons, locatedprim3rily in Sumatera (23 billion tons) and Kalimantan (9 billion tons). The "measured reserves'are 4.2 billion tons, divided nearly equally between Sumatera and Kalimantan.

8. Indonesia's annual production of coal has increased substantially from about 600,00tons in 1983 to over 15 million tons in 1992. Coal production is expected to exceed 30 milliontons by 1994 and could reach 50 million tons by 2000. Thus the ratio of measured reserves toannual production is about 280:1. About 60 percent of the production at present comes fromSumatera and the remaining amount from Kalimantan. Besides one state enterprise, a dozenforeign contractors share in joint ventures aad in further exploration and mining activities.

9. In general Indonesian coal has low sulfur, low ash, high moisture, and high volatilematter. The South Sumatera and Kalimantan coals have the potential for sustaining the large coal-fired power generation program in the country that has been identified as part of the least-costexpansion plan for the power sector. Under this plan, coal's share of power generation willincrease from about 30 percent in 1991 ( about 5 million tons) to about 50 percent in 1999 (23million tons). In addition to increasing domestic consumption, exports of coal are also beingdeveloped, and Indonesia could become a significant coal exporter in the coming years. In 1991,coal exports reached about 6.0 million tons and an export capability of about 20 million tons isexpected by 1994.

Geothermal

10. The geothermal reserves of Indonesia are estimated at 10,000 MW, of which5,500 MW is on Java. The first geothermal power plant with a capacity of 30 MW was built in1976 at Kamojang near Bandung in West Java. The expansion of this plant to 140 MW was fundedby the Bank Loan 2214-IND. This geothermal field has potential for further expansion by 55 MW.Two more power stations in Java, totalling 165 MW, are being constructed by PLN with financialassistance from the Italian Govermnent and the ADB respectively.

- 51- ANNEX 1.1

I. The main issue in the exploitation of geothermal potential is to locate sites that canbe developed at costs competitive with other options. In lava, where the electricity grid is welldeveloped and where PLN is able to achieve economies of scale by constructing large coal-firedor combined cycle gas-fired stations, the geothermal option is not competitive at the current fuelprices. However, in the outer islands, where the cost of the alternatives are high, geothermaldevelopment would have greater justification. PLN and GOI have, therefore, directed theirpriorities to developing geothermal sites outside Java.

Hydropower

12. Indonesia has considerable hydroelecric resources, but their development to datehas been limited by their geographic distribution relative to the load centers where there is demandfor electricity. The greatest potential (over 35 percent) lies in Irian Jaya, which has less than onepercent of total electricity demand, while Java, which accounts for 80 percent of current electricityconsumption, has less than 10 percent of the total potential. In Java, about 2,000 MW of hydropotential has been already developed, including two major projects viz. Saguling (750 MW) andCirata (500 MW) funded by Bank Loans 1950-IND and 2300-IND. The proposed project will add500 MW of capacity to the existing Cirata project. Hydroelectric plants outside lava totalling about2,000 MW are also currently under either planning or implementation.

Nuclear

13. Development of nuclear power in Indonesia has a lower priority compared to powergeneration using natural gas and coal. However, in the long-term, when coal usage for powergeneration becomes large enough to cause environmental concerns and when suitable sites forlocating coal-fired plants become difficult to find, nuclear technology could provide a viablealternative. The need for a nuclear power plant is not envisaged until year 2005. TheGovernment has recently commissioned a feasibility study for a nuclear plant. This study willdetermine the opportune timing for the first nuclear power plant and also recommend anappropriate technology.

Environment

14. Environmental issues in the energy sector arise from coal mining and powergeneration from coal fired, oil fired, geothermal and hydroelectric plants. It has been customaryto prepare detailed environmental impact studies for all projects funded by the Bank loans.However, energy projects funded by different agencies do not follow a uniform policy in respectof environmental standards. The Indonesian standards are not fully developed and the capabilityof the Ministry of Mines and Energy for preparing such standards is limited. Also, the Ministrydoes not have trained manpower or equipment to monitor and enforce environmental regulationsin operating facilities. To assist in overcoming this shortcoming, technical assistance was providedunder Loan 3098-IND (Paiton Thermal Power Project) which trained a number of staff of theMinistry of Mines and Energy on environmental management, and provided documentation forenvironmental guidelines and monitoring (para. 1.4). The TA was satisfactorily completed inOctober 1992. The proposed project includes technical assistance to the Bureau of Environmentand Technology under the Ministry of Mines and Energy for strengthening its environmentalmanagement capability in the mining sector and to PLN for strengthening its capacity to undertakeenvironmental studies and improve its management and monitoring practices (para. 5.21).

INDONESIASUMATERA AND KALIMANTAN POWERt PROJECT

Organizatlon Chart of the Ministry of Mines and Energy

9-~~~~~~~~~~~~~~~~~~~~96

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H1HU9 S>Bmlka ___ ___ ___ ___

NDONESIASUMATERIA AND KALIMATAN POWER PROJECT

GRowTH 0w CArMvE PoWER iN 1DmmA

lava O_ _ e Java IonedsiaFiccal Connetod La Not onazce Conected la Not conc- ConnectedW Not connec-year to Pl d to P Toal Inczeas to PM t to PlN Totd Icease o ted to PLN TOtal Inctease

QWVA) t % (MVA) -- (MVA) -(%)

1974f7S - - - 622.7 1,447.6 2,070.3 18.0197sn6 - - - - - - 688.4 1,598.8 2,287.2 10.4197677 - - - - - - - - 731.5 1,670.0 2,401.5 5.0197778 - - - - - - - - 807.1 1,767.1 2,574.2 7.01978/79 - - - - - - - - 848.8 1,860.9 2,709.7 5.01979/80 - 872.2 1,911 5 2,783.7 3.019m/81 - - - - - - - - 878.3 1,930.6 2,M8.9 0.91981/82 - - - - - - - 879.7 1,933.9 2,813.6 0.21982/83 - - 900.8 2,073.1 2,973.9 5.7 a1913/84 921.0 918.2 1,839.2 - 212.2 1,456.5 1,668.7 1,333.2 2,374.7 3,507.9 18.01984/85 1,021.4 1,053.0 2,074.4 12.8 289.7 1,347.8 1,637.5 (1.9) 1,311.1 2,400.8 3,711.9 5.81985/86 1,478.8 1,223.2 2,702.0 30.3 358.5 1,358.3 1,716.8 4.8 1,837.3 2,581.5 4,418.8 19.01986/87 1,923.3 1,244.5 3,167.8 17.2 272.3 1,397.7 1,670.0 (2.7) 2,195.6 2,642.2 4,837.8 9.51987/88 2,095.3 1,130.1 3,225.4 1.8 334.1 1,514.6 1,848.7 10.7 2,429.4 2,644.7 5,074.1 4.81988/89 2,022.9 1,078.6 3,101.5 (3.8) 439.8 1,568.2 2,008.0 8.6 2,462.7 2,646.8 5,109.5 0.71989/90 1,911.4 1,365.8 3,277.2 5.7 502.9 1,994.9 2,497.8 24.4 2,414.3 3,360.6 5,775.0 13.01990/91 2,234.3 1,293.7 3,528.0 7.7 752,8 2,268.5 3,021.3 9.2 2,967.1 3,582.2 6,549.2 8.41991J92 2,407.2 1,2S3.1 3,660.3 3.8 802.8 2,103.0 2,905.7 3.8 3,210.0 3,356.0 6,566.0 0.31992/93 2,978.9 1,128.9 4,104.8 12.1 1,026.7 2,159.7 3,186.4 9.7 4,002.6 3,288.6 7,291.2 11.0

Note: Ibe above excludes the folowing najor enclave intalaions:KRkUtau Steb (We lava) 500.0 MVAP.T. INCO (PLN Region VI) 206.3 MVAASAJNHU (PLN Reion U) 669.0 MVAARUN LNG (PLN Region 1) 320.7 MVACALTEX Oil (P12N Region I) 272.5 MVAOhdens (Outide lava) 796.7 MVA

Soumce: PLN./a eserve captive power, serving as backup to P12N supply.

-54 - ANNEX 2.2

1NDONESIASUMATERA AND KALIMANTAN POWER PROJECT

GRowTi OF PLN's CONSumERs AND SALES

Fisal Number of Connectedyear consumers load Sales

('000) (MVA) (GWh)

1975/76 1,140.7 1,426.4 2,804(5.0%) (13.0%) (14.7%)

1976/77 1,208.5 1,594.5 3,082(5.8%) (11.8%) (10.1%)

1977/78 1,413.9 1,939.2 3,527(17.0%) (21.6%) (14.6%)

1978/79 1,783.2 2,459.1 4,287(26.1%) (26.8%) (21.6%)

1979/80 2,246.7 3,063.4 5,343(26.0%) (24.6%) (24.6%)

1980/81 2,745.2 3,744.2 6,523(22.2%) (22.2%) (22.1%)

1981/82 3,232.1 4,502.8 7,845(17.7%) (20.3%) (20.3%)

1982/83 3,802.4 5,270.4 9,101(17.6%) (17.0%) (16.0%)

1983/84 4,406.0 6,126.7 10,000(15.9%) (16.3%) (9.9%)

1984185 5,133.2 7,120.7 11,041(16.5%) (16.2%) (10.4%)

1985/86 5,953.3 8,149.9 12,706(16.0%) (14.5%) (15.1%)

1986/87 6,965.6 9,282.1 14,786(17.0%) (13.9%) (16.4%)

1987/88 8,203.3 10,710.7 17,077(17.8%) (15.4%) (15.5%)

1988/89 9,276.0 12,233.7 20,027(13.1%) (14.2%) (17.3%)

1989/90 10,316.9 14,150.9 23,435(11.2%) (15.6%) (17.0%)

1990/91 11,463.7 16,117.6 27,741(11.1%) (13.9%) (18.4%)

1991/92 12,396.7 17,317.4 31,481(8.1%) (7.4%) (13.5%)

1992/93 13,486.5 18,762.6 34,964(8.8%) (8.3%) (11.1%)

source: PLN.

- 55 - ANNEX 2.3

INDONESIASUMATERA AND KALIMANTAN POWER PROJECT

ELECTRICITY CONSUMPmON FoREECA : JAVA-BALI AND OUR ISLANDs

Java-Bali Outer Islands /aYear Total PLN Captive Total PLN Captive

Consump- Sales /b Power Consump- Sales Lb Powertion Consumption tion Consumption

. .TWh

1991/92 (Actual) 34.5 25.6 9.0 19.5 5.9 13.51992/93 (Actual) 37.3 28.4 8.9 20.4 6.6 13.81993/94 (Estimate) 44.4 33.8 10.6 23.9 7.9 16.01994/95 49.9 39.2 10.7 26.8 9.3 17.51995/96 55.7 45.0 10.7 30.5 10.9 19.61996/97 62.6 50.6 12.0 34.8 12.6 22.21997/98 70.5 57.0 13.5 39.8 14.4 25.41998/99 78.5 63.5 15.0 44.6 16.1 28.51999/2000 87.2 70.7 16.5 50.1 18.3 31.82000/01 96.9 78.7 18.2 56.2 20.6 35.62001/02 106.7 86.6 20.1 62.8 23.0 39.82002/03 117.3 95.2 22.1 70.2 25.6 44.62003/04 128.7 104.5 24.2 78.3 28.4 50.0

La Excluding Bali.Lb Including energy purchased from private generating facilities.

Source: PLN Core Plan, December 1993.

-56 - ANNEX 23

ASSUMPTONS UNDERLYN PLNs CORE PLAN LOAD FORECAST

Variable Region units R%eita VI Repelita VII1994/95- 1999/00-1998/99 2003/04

GDP Growth Java-Bali %/Year 7.18 7.08Outer Islands 96/YeWr 5.13 5.96

Population Growth Java-Bali %/Year 1.54 1.42OuterIslands %/Year 2.16 1.84

Residential Customers- Household Electrification Java-Bali % 60.0 75.2

Ratio at end of period Outer Islands % 45.0 55.6

- Average Additional Java-Bali million 1.15 1.03Customers per Year Outer Islands million 0.61 0.53

Commercial Customers- Value Added Growth Java-Bali %/Year 6.91 6.75

Outer Islands %/Year 10.78 9.2

- Customer Growth Elasticity Java-Bali No. 0.75 0.75Outer Islands No. 0.88 0.88

- Income elasticity Java-Bali No. 1.6 1.4Outer Islands No. 0.9 0.8

Public Sector Customers- Value Added Growth Java-Bali %/Year 6.91 6.75

Outer Islands %/Year 10.78 9.2

- Customer Growth Elasticity Java-Bali No. 0.97 0.97Outer Islands No. 0.85 0.85

- Income elasticity Java-Bali No. 1.4 1.3Outer Islands No. 0.64 0.64

Industrial Customers- Value Added Growth Java-Bali %/Year 11.3 9.85

Outer Islands %/Year 11.4 10.03

- Income elasticity Java-Bali No. 1.0 1.0Outer Islands No. 1.1 1.1

Source: PLN Core Plan, December 1993.

-57 - ANNEX 2.4

INDONESIA

SUMATERA AND KALIMANTAN POWER PROJECT

PEAK LOAD, PRODUCTON Am INsTALLE CAPACITYJAVA - BAI SYsnEm

1993194 1994195 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001102 2002/03 2003/04

1. Salsa (GWh) 33,777 39,202 45,027 50,528 56,953 63,548 70,645 78,601 86,526 95,093 104,344Inoam. (%) 18.6 16.2 14.9 12.2 12.7 11.6 11.2 10.9 10.1 9.9 9.7

2. Loasn, TAD (%) 12.22 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.03. stoA enargy (GWh) 38,614 44,5S6 51,475 57,967 65,280 72,820 80,990 89,657 98,916 108,710 119,2564.Staionuse (%) 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.24. oSta ntion n (GWu) 40,307 46,509 53e732 60,509 68,142 76,012 U4541 93,796 103,253 113,476 124,5156. syGate peak OM3W) 6,512 7,505 8, 650 9730 10,963 12,242 13,627 95,129 16,646 18,284 20,0517. System pa (%M) 60.7 70.7 60.9 70.9 71.0 70.9 70.8 10.8 70.1 10.8 70.98. nbtaed capacity oMW)

Hydro PoEwr Plua:Buis 2,023 2,023 2,014 2,014 2,014 2,014 2,014 2,014 2,014 2,014 2,014lbLi - - 13 13 13 13 13 13 13 13 13TUata StaE 1 - - - - 13o SOO SOO 13o 130 Soo SOO.estmben - - - - 33 33 33 33 33 33 33;:ajamlab - - - - - - - - - - 26

ladge2aedStorage - - - - - - - - 1,000umpndSra - - - 1

AyungAyiung - - - - - - - - - - -

Cobuni -- --

L^sti - - - - - - - -

Kali Oyo

Subtotal 2,023 2,023 2,027 2,027 2,560 2,560 2,560 2,S60 3,560 3,560 3,586

Died Power Plant:Bui s; 86 86 56 56 30 30 30 30 30 30 30

Subtoal 86 86 56 56 30 30 30 30 30 30 30

Steam Power Plant:a. Redu Oil (PO):

Basis 1,500 1,500 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,300 1,200

Subtotal l,S00 1,500 1,400 1,400 1,400 1,400 1,400 1,400 1,400 l,30 1,200

b. Nabral Gas:Basis 400 400 400 400 400 400 400 400 400 400 400

Subtotal 400 400 400 400 400 400 400 400 400 400 400

c. Coa:

Basi 1,600 1,600 .,600 1,600 1,600 1,6C0 1,600 1,600 1,600 1,600 1,600PEiton A, 12 400 800 800 800 800 800 800 800 800 800 800Suralaya #5-7 - - - - 1,200 1,800 1,800 1,800 1,800 1,800 1,800PEa o3,#4 - - - - - - 400 800 800 800 800Wes ava I #347 - - - - - - - - 500West Java 1, #142 - - - - - - -Pait 18 - - - - - - - - - - -Mienut - - -- - --- - - -

Subtotal 2,000 2,400 2,400 2,400 3,600 4,200 4,600 5,000 5,000 5,000 S,500

- 58 - ANNEX 2.4

1993/94 1994/95 1995196 1996/97 1997/98 1998/99 1999/00 2000101 2001/02 2002/03 2003/04

PAivate:Paitwa#7,#8 . 600 1,200 1,200 1,200 1,200 1,200 1,200PaitonO#5,At6 - - 600 1,200 1,200 1,200Central Java #144 - - - - - - - 1,200 1,200Weat Java I #1, #2 - - - - - - - 600 1,200Cilegon - - - - 400 400 400 400 400 400

Subtotal 600 1.600 1.60 2200 2,800 4,600 6.400

Gas Turbine Power Plant:a. Destillate 011 (HSD):

Badia 587 587 300 300 300 300 300 300 300 105 43Ex Tosan Prima 60 60 60 60 60 60 60 60 60 60 60Bali - 84 84 84 84 84 84 84 84 84 84Java - - - 600 600 600 0 100 100 400 400

Subtotal 647 731 444 1,044 1,044 1,044 444 544 S44 649 587

b. Natural GasBasis 80 80 80 80 80 SO 80 80 80 80 40

Subtotal 80 80 80 80 80 80 80 80 80 80 40

Gieothermal Power Plant:PLN:Basis 140 140 140 140 140 140 140 140 140 140 140Salak #I, #2 - 110 110 110 110 110 110 110 110 110 110Drajat #1 - 55 55 55 55 55 55 55 55 55 55Kamojang #4, #5 - - - 55 110 110 110 110 110 110Salak #3 - - - - 55 55 55 55 55 55 55Drajat #2, #3 - - - 55 55 55 55 55 110 110

Subtotal 140 305 305 305 470 525 s25 S25 525 SSO S80

Privat:patuha - - - - - 40 40 40 40 40 40Salak #4 - - - - - - - - - - -Wayang Wndu - - - 40 40 40 40 40 40Dieng - - - - - 55 55 55 55 55 55

Subtotal 13S 135 135 135 13S 135

Combined Cycle Power Plant:PLN:Gaik #1-#3 1,412 1,578 1,578 1,578 1,578 1,578 1,578 1,578 1,578 1,578 1,578Muara Karang 324 514 514 514 514 514 514 514 514 514 514Ptiok#l, #2 780 1,2Q0 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200Tambak Lorok #1 324 324 514 514 514 514 514 514 514 514 514Tambak Lorok #2 - - SOO 500 Soo SOO 500 SOO SO0 500 SOOGratill - - 500 500 500 500 5oo S00 500 500 500Muata Tawar fi - - SOO SOO SOO SOO SO0 SO SOO 500 SOOJava - - - - - 1,000 1,000 1,000 1,000 1,000

Subtota2 2,640 3,616 S,306 5,306 5,306 5,306 6,306 6,306 6,306 6,306 6,306

Pdvate:East Java - - - - - 500 SOO 500 SOOSempong - - - - 400 400 400 400 400 400 400

Subtotal 400 400 400 900 900 900

Total 9.17 11 142 141 10 17.680 1

71::.:.**..~~~~........ir-g~~~~~~~~~~~~~~~~~~~~~~~~~r

iiI?ibIIuiiJJJJJa #s4F I!' 22; ''R''''' B''' ^'' "''' RiI ' ' 'li ' ^ist -it

u 0 owq09|8$ St a i;gA '' ' fa< R8**' 'lS'' ' '' ' '..'.'........' 'gg ...... 'St

e3~~~~~~~~~~~~~~~~~~~V .......... ...

| X "F5{ *S W1 ~~~~~~~~~~~~~~~it -S . . .2 . . .R . . . . . '9 . . . . . ' E . . . . . . . . . . . .R .X . 2

Fn 1 351 3S^3$in "3 33 33 " a 3: 3 : ~~~~~~~~~~~S RoF ...... .3R 34

2~ ~~~~~~P O .................... .R.. ........ p .......3 .. ¢r 1r

| Q | | | ^E- * i -e 33 3i3 r RF...... ........... .......

$ 3 11 t Rt7¢ > -1 sw . > . m R RRR ' ' ' ' ' ' | 'R ' '^ ' R g~~~~~~~~~~~~~~~~~~~~~~~~~~~c0 2 | z: | l3^st >; W1 2' ' ' '' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' 'g i RR' '' ' ' 'n'c ' ' ' ' R

2 g0 Ft$| " l '' '' '' '' '' '' '' '' '' '' '' '' ̂RE' '' '' 91' '' ''o

-60- ANNEX 2.5

1It993 t93tgd 1994195 1995196 1996197 1991/98 19899W 199941 301^1 291012 20241 X044

Bf 40 40 40 4 - 40 40 34 13 13 13 13 13Pda - 35 70 19 10 79 0 10 10 le 10&tiubl4 so 50 S0 50 IS9K"~ 30 40 90 go go_mk.1u - - . 70 105 I OS lOS 105 105 10

$o30 30 3D 30 60 6D 9D

BS 14 - - 30 30 30 30 40 OD 90 10Sb884 - - 30 69 60 go 120

U. pidamg 35 10 10 10 10 10 10 10 10Bmc . - - S935 50 S0- . - 30 30 30 60

Xsbsq - - -. - - - -2430 30'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 20 2D 6D t

S9btatikl 40 L 1110 145 210 310 399 472 678 m 1.01

t 9S 95 So 90 go SD

G.aaft= umw Plam-

_L LL 2.5 2.S 24 2. 2.5 25 25 2.5 2.5 2.5 2.S 2.lAIm3mlEl - -- - 23 20 23 23 23 23 23 20

Ubnbu ~ ~ - - 3 3 3 3 3 3 3 3 3XC - - - - - *2

Ila' 51.2 toHLJbua 51.2 1

&_A1 25 2.5 2.5 55 25.5 25.5 25.5 255 255 25.5 2.S5 412s5

s& IS4 - - * - 110 220 330 30 3051ysk t,2 I t o - - * 110 110 Itt t1

Subala. - - It nO 330 440 440 446

,r_ewl Cycb lrm :uL

Bcbla BbI 257 377 377 377 377 377 377 377 377 377 377 msbu 510 .U 43) 40 400 40 40 400 400 400 400

T. Sm n I a -It - 2&0 28D 20 280 2S0 28DSAs n4 - - - * 56 65 66 66 66 66 6S f6

holal 257 371 377 777 so3 so 1, 1,123 I'M 1,11 ,23 ",12U

Smrgb%, * - - - 112 132 132 132 132 132 132

Bob 1,709 1,691 1.679 1,66P 1,59 1,4f7 1,400 138 1,340 1,250 1,146 1.068Oqcbgpaojada 24 85 85 85 85 85 eS 85 8 85 S5Su4auuiu * 24 24 24 24 24 24 24 24 24 24 24L1ok a 8 15 23 23 23 23 23 23 23 23aknd 1'- 122 176 241 353 450 523 S23 523 523 523 523

S1hot8 l 1, 1,920 1,971 2,014 2,94 2,e0a 2,1i5 2,040 2,0S 19C I,8O 1,7D

TOW 3us WE S ,, 8 7576

1 Ez . Ballad D , _ mbb

WDONESIA

SUMATERIA AND KALMAN OW PROJEC

PLN's INVESD4ENT PROGRAm FoR JAVA-BAu SySTEm(Mllion US$ Constant 1993 prices)

RepeL'a VI Repelita VDiProject Name 1993194 1994/95 1995(96 1996/97 1997198 1998199 1999100 2000(01 2001/02 2002/03 2003104 Total

Steam Coal Fc: 466.44 663.39 597.44 589.77 368.43 143.07 221.56 529.04 902,24 1,146.09 1,341.17 6,968.64Lc: 73.58 115.21 143.96 127.99 77.66 38.30 81.'2 159.48 235.84 304.12 341.35 1,698.72

Hydro Fc: 33.29 36.58 85.71 111.28 90.55 94.52 112 5 99.82 78.05 81.30 207.21 1,030.54Lc: 9.53 22.36 13.99 44.07 66.27 74.65 71.40 56.91 38.19 61.79 110.11 569.27

Gas Turbine Pc: 35.53 0.73 123.55 185.33 0.00 0.00 0.00 123.55 205.92 30.89 0.00 705.49Lc: 2.01 0.02 20.96 13.98 0.00 0.00 0.00 20.96 17.47 2.33 0.00 77.73

Geothermal Pc 88.72 118.10 50.40 15.97 S.99 12.98 26.95 6.99 2.99 1.00 0M 330.07Le: 32.40 21.78 17.43 7.62 1.40 3.56 3.56 4.57 1.02 0.13 0.00 93.47

Combined Cycle Fc: 701.56 747.93 308.35 0.00 0.00 70.18 163.76 0.00 0.00 0.00 0.00 1,991.78Lc: 92.17 121.89 53.73 0.00 0.00 40.10 60.16 0.00 0.00 0.00 0.00 368.05

Tansmission Pc: 178.52 262.44 152.53 92.35 121.31 56.65 42.60 152.68 192.49 100.28 101.55 1,453.40Lc: 55.83 57.96 32.62 40.00 41.01 14.92 29.49 75.85 62.66 30.40 30.02 470.76

Substation Pc: 445.33 474.86 229.96 80.96 82.98 87.65 126.58 158.02 208.00 244.96 232.34 2,371.33Lc: 69.82 57.98 22.18 10.38 10.76 13.39 18.53 23.32 29.58 32.90 28.40 317.16

Conlsumers Pc: 34.80 76.29 77.06 76.63 75.96 74.76 73.33 71.51 69.14 66.35 63.75 759.56Le: 6.94 15.22 15.37 15.28 15.15 14.91 14.63 14.26 13.79 13.23 12.72 151.50

MV Line Pc: 202.22 211.27 223.57 225.87 245.24 258.37 280.39 296.88 310.27 335.04 320.36 2,909.49Lc: 56.02 59.51 61.69 63.48 68.32 72.34 78.52 82.62 86.84 93.76 86.88 809.98

LV Line Pc: 162.81 168.59 177.16 178.57 193.72 204.48 222.18 235.07 244.88 263.49 259.44 2,310.38Le: 41.41 43.58 44.91 46.10 49.60 52.61 57.17 60.09 62.95 67.72 65.21 591.36

Transformers Fe: 106,19 102.95 117.11 109.63 123.11 127.32 138.32 150.33 153.06 164.78 177.17 1,469.98Lc: 58.78 56.99 64.82 60.68 68.15 70.47 76.56 83.21 84.72 91.21 98.07 813.66

Total Fc: 2455. 2.863.13 2.142.83 1.666.35 1.307.29 1.129.97 1.487.61 1,823.88 2,367.05 2.434.18 2.702.98 22.38067Lc: 498.49 572.41 491.68 429.5 398.32 395.26 42 2 581.28 633.06 697.59 772.76 5,961.65

TotalCost : 2.953.89 3.435.54 2.634.51 2.095.93 1,705.61 1.525.23 1.978.83 2,405.17 3.000.11 3.317.77 3i475.74 28342.32

Source: PLN Cotr Pla, December 1993.*0%

INDONESA

SUMATERIA AND KALRIANTAN POWER PROJECT

PLN'S INVEgfwENT PRoGRAm FOR OuTER ILD La(Million US$ Constant 13 pri)

Pmject Name 1993t94 1994/95 1995/96 1996197 1997t98 1998/99 1999/00 2000(01 2001/02 2002/03 2003/04 Total

Diesl Po: 63.63 87.58 82.43 72.04 64.81 46.25 35.51 25.02 30.41 53.01 24.67 586.15Le: 26.14 46.53 58.78 50.54 45.91 31.12 26.68 19.46 18.63 34.39 15.22 373.39

steam Coal PF: 225.00 137.78 95.39 113.10 90.89 64.92 68.89 102.08 195.16 212.94 174.76 1,480.90Le: 26.39 33.30 20.68 25.46 22.03 14.32 18.54 33.51 48.57 50.39 46.98 340.19Hydro Fe: 114.70 123.80 100.04 111.79 134.00 173.56 264.52 351.65 316.00 276.88 226.02 2,192.95Le: 48.38 62.62 69.12 69.54 100.49 111.54 153.26 182.56 154.98 136.00 140.56 1,229.06Mini Hydro Pc: 6.08 8.07 7.86 9.52 7.82 3.68 0.95 1.70 11.87 16.31 8.81 82.66Le: 11.57 14.23 14.17 17.81 15.21 7.12 1.45 2.60 18.87 26.24 14.25 143.62

Gss Turbine Ps: 2.10 7.21 24.20 40.67 48.39 32.43 49.42 77.73 61.26 95.75 103.99 543.50Le,c 2.03 1.22 3.09 5.01 5.30 3.03 7.51 7.51 7.92 11.30 11.53 65.45

GoXhermua PFe 2.66 14.71 18.13 16.40 8.14 4.33 9.76 16.41 13.51 6.25 3.43 113.72Lo: 0.15 1.47 2.80 2.08 0.43 1.00 1.25 1.46 1.18 0.60 0.32 12.74Combined Cycle Fe: 149.91 154.19 53.09 56.96 55.51 92.51 0.00 0.00 0.00 0.00 0.00 562.19Lc: 36.94 22.92 13.72 37.52 31.72 15.86 0.00 0.00 0.00 0.00 0.00 158.68

Transission Fe: 27.41 41.27 58.61 72.57 71.49 56.97 47.17 77.52 150.92 189.32 178.52 971.78Le: 7.42 12.42 20.60 23.86 22.18 17.76 17.22 31.54 45.93 49.20 46.74 294.43

Substaion Pe: 30.71 58.09 69.25 62.56 55.32 45.83 3.71 65.78 105.61 90.36 119.76 746.98Le: 5.75 9.60 10.05 9.06 7.78 6.59 6.71 12.64 14.77 14.44 19.37 116.76Consuners Pc: 33.30 39.81 42.03 42.43 41.83 43.02 36.88 38.06 35.78 35.41 34.75 421.29Le: 6.64 7.94 8.38 8.46 8.34 8.58 7.36 7.19 7.14 7.06 6.93 84.03MV Line Fe: 123.33 135.82 137.19 148.28 159.80 172.05 186.35 197.80 208,76 225.01 263.95 1,958.36Le: 34.92 37.59 38.39 41.51 44.68 48.18 52.14 55.14 58.42 62.95 75.32 549.24

LV Line Fe: 71.59 79.50 78.77 84.74 90.39 96.75 102.92 107.96 112.55 120.00 141.68 1,086.84Le: 18.70 20.14 20.27 21.75 23.24 24.84 26.43 27.62 28.91 30.81 37.25 279.95Transformers Fe: 32.55 40.62 39.65 42.17 44.10 47.80 50.07 53.85 55.40 59.44 63.47 529.13Le: 18.02 22.48 21.95 23.34 24.41 26.46 27.71 29.81 30.67 32.90 35.30 292.88

TOW Pc: 882.96 928.45 806.64 873.21 82.4 81 96.15 1.114.39 1,297.22 1.380.67 1,343.81 11.276.09Le: 24306 292.46 301.55 335.96 351.72 316.40 346.27 4j1.03 435.97 456.29 449.70 3.940.41

Totl : 1.126.03 1j22091 1.108.20 1;20..17 1 M42D 1.1_6.50 1.242.41 1.525.42 1m733.19 1,836.96 1,M.751 1S.216.50

IA Inclfing Baa isad.Source: PLN Core Plan, December 1993

-63 - ANNEX 3.1

ENDONESI

SUMATERA AND KALIMANTAN POWER PROJECT

POWER SuBsECToR - LBs OF IDA CRED1Ts AND BANK LoANS

Bank Credit or Date Psoject Amount PPARIPCRFY Lan No. Closed/Closing Title $ Million Report Date

70 Credit 165 1975 lakata Power Distribution 15.81 2741 Nov 197972 Cradit 334 1978 Jakabt Power Distri. 11 40.00 2741 Nov 197973 Credit 399 1980 Thermal Power 46.00 5104 May 198475 Loan 1127 1980 Power TV 41.00 5104 May 198476 Loan 1259 1981 Power V 90.00 5300 Oct 198477 Loan 1365 1984 Power VI 116.00 6238 Jun 198678 Loan 1513 1985 Power VII 78.40 6762 Apr 198779 Loan 1708 1986 Power VII 158.10 7902 Jun 198980 Loan 1872 1987 Power IX 224.80 7902 Jun 198981 Loan 1950 1987 Power X 250.00 7902 Jun 198982 Loan 2056 1988 Power I 167.00 8701 Jun 199083 Loan 2214 1991 Power Xil 278.63 11014 Sep 199283 Loan 2300 1990 Power Xlll (Cirata) 270.32 11014 Sep 199284 Loan 2443 1991 PowerXIV 205.11 11014 Sep 199285 Loan 1950-1 1990 Power X Supplemental 49.20 7902 Jun 198987 Loan 2778 1992 Power Transmission & Disltib. 222.81 PCR under preration89 Loan 3097 1994/a Power Sector Efficiency 337.00 - -89 Loan 3098 19951A Paiton Thetmal Power 354.00 - -

90 Loan 3180 1994ta Rural Electification 329.00 - -

91 Loan 3349 19961I Power Transmission 275.00 - -

92 Loan 3501 1999LA Sumalaya Thennal Power 423.60 - -

93 Loan 3602 1999(a Ciata Hydroelectric Phase II 104.00

Total

/a Ongoing project.

- 64 - ANNEX3X

Govermment of IndonesiaMIinistrv of Mines and Energy

GOALS AND POLICIES FOR THE DEVELOPMENT OFTHE ELECTRIC POWER SUB-SECTOR

-65 - ANNEX 3.2

Government of IndonesiaMinistry of Mines and Energy

GOALS AND POLICEES FOR THE DEVELOPMENT OFTHE ELECTRIC POWER SUB-SECTOR

BackUround

Indonesia's basic goals and policies for the future development of the energy sector aredescribed in the Outlines of State Policy (Garis-Garis Besar Haluan Negara or GBHN)promulgated by the Peoples' Consultative Assembly (MPR) in March 1993 to guide theformulation of the Sixth Medium-Term (Five-Year) Year Development Plan (REPELITA VI)and Second Stage Long-Term (Twenty-Five Year) Development Strategy (PJPT-II). The GBHNhighlights the importance for Indonesia's sustained economic and social development of meetingits rapidly growing energy needs efficiently--including through conservation and diversificationof primary energy sources and their more efficient utilization--and of minimizing the adverseenvironmental and social impacts of energy use. In the electric power sub-sector, the GBHNrecognizes that an adequate, reliable and reasonably priced electricity supply is essential for thecountry's continuing development, emphasizing its role in serving the needs of other productivesectors and in contributing directly to improving the living standards of the people.

T=he recent development of Indonesia's power sub-sector is characterized by very rapidgrowth in the demand for electricity and in the total capacity of the public power supply. Overthe last 15 years, the generating capacity owned and operated by the sole state-owned powerutility, Perum Listrik Negara (PLN). has increased from about 900 MW in 1975/76 to about11,000 MW in 1992/93. Over this same period, the number of customers served by PLN hasgrown by thirteen times. These impressive achievements have been made possible by thecontinuing institutional development of PLN, and by a strong commitment on the part ofGovernment to ensuring that PLN obtained the necessary financial and other resources.

However, the very rapid pace of growth of power demand since the mid-1980s,attributable to the success of the Government's economic policies, has--when coupled with thecountry's archipelagic geography--posed challenges that have exceeded PLN's evolvingcapacities. Thus while extensive power grids serve most areas of Java and Bali, the coverageand quality of electricity supply in the outer islands generally remains very low while costsremain stubbornly high. Moreover, even in Java and Bali, the rapid growth in industrial demandfor power has outstripped PLN's ability to supply, with the result that the capacity of privately-owned autogeneration plant is now equivalent to around 30% of PLN's installed capacity. TheGovernment recognizes that the challenges confronting the power sub-sector will necessarilyintensify in the coming plan periods, and that this in turn will necessitate changes to the policiesthat have guided its development in the past.

-6- ANNEX 3.2

Policy Goals for REPELITA VI and PJPT-H

During REPELITA VI and PIPT-II the Government's policies for the electric power sub-sector will be designed to:

(a) improve the performance of PLN, notably through decentralization,commercialization and corporatization;

(b) structure electricity tariffs so as to reflect more closely the economic costs ofsupply;

(c) reform and refne the regulatory and institutional framework so as to fostercompetition and facilitate increased and more efficient private sector participation;

(d) enable equal access to primary energy sources at market-determined prices forpublicly and privately owned power generators; and

(e) develop and implement appropriate measures for inducing energy conservationand improving environmental protection.

The broad policies for achieving these goals have been established as part of the process offormulating REPELITA VI and are outlined below.

nmproving PLN's Performance

The Government recognizes that improving the efficiency and quality of PLN's servicesand equipping it to respond effectively to continuing rapid growth in demand for power willnecessitate significant changes to its present organization structure and corporate strategy. Thesechanges, which will be implemented in a number of carefully planned stages, will entail:

Decentralization: PLN's organization and management processes will be restructured anddecentralized so as to establish profit centers along functional (generation, transmission,distribution) and geographical lines. Managers of profit centers will be given expanded andmore clearly defined decision-making responsibilities, and will be made accountable for theirperformance. A system of contract-based objectives and incentives will be established toencourage improvements in the operational performance of profit centers.

Commercialization: PLN will be required to function as a commercially oriented enterprise,with individual profit centers planning and managing their activities in accordance with soundcommercial principles. Cross-subsidy between commercial and non-commercial businesses willbe phased out, with Govermnent providing explicit subsidies on a transparent basis for ruralelectrificatior. and other social programs that are carefully targeted to benefit low income groupsor regions. The sub-sector regulatory and institutional framework will be enhanced, inter aliato prevent exploitation of monopoly powers (see below).

- 67 - ANNEX 31

Corporatization: PLN's corporate status and structure will be amended to reflect and reinforcethese initiatives and to enable it to compete on an equal basis with private power enterprises.The present Perum entity will be converted progressively into a group of profit-oriented limitedliability companies (Perseros); these will be empowered to raise funds on the capital markets,and private participation in their ownership will be sought as soon as their financial performancepermits. Such state-owned companies will be expected to compete in a market-orientedenvirorunent, with Government exercising strategic control over them on an "arm's length" basisthrough performance contracts that specify clear objectives and efficiency indicators.

Restructuring Tariffs

The Government's policies on electricity tariffs are designed, inter alia, to ensure thesustainable sound fmancial health of the power sub-sector and, in particular, its capacity torespond effectively to the rapid growth in demand for electric power. As a first step towardsenabling PLN to play an expanded role in financing the needed massive investments in new andreplacement capacity, the average sales tariff will be increased to enable it to achieve at leastan 8% overall rate of return on revalued assets; this is expected to result in a self-financing ratioof 30-35% for the period 1994-1999. To avoid erosion over time of the real value of the powertariff, rates will be adjusted periodically to reflect changes in the costs of supply, with themechanism adopted being designed to promote efficiency improvements and tight control ofcosts.

The present sales tariff structure will be simplified and the distortions inherent in it willbe progressively reduced so as to enable rates to reflect better the costs of supply. As part ofthis process, the uniform national tariff policy will be reassessed during REPELITA VI with aview to its replacement by a system of two or more regional tariffs. Cross-subsidies betweenbusinesses and between consumer categories will be progressively phased out and replaced bya transparent system of explicit Government subsidies for social programs or services that benefitcarefully targeted low income groups.

To facilitate increased private participation in the power sub-sector, the Government willrequire PLN quickly to establish and publish rates for the purchase of power from smallgenerators through standard forms of contract, and to establish tariffs for the bulk supply ofpower to distribution enterprises. The Government is currently examining mechanisms andconditions for enabling "third party access" to PLN transmission grids, and intends that PLNshould introduce a tariff for "power wheeling".

Reforming the Regulatory Framework and Promoting Private Participation

The Gov-rnent is committed to expanding quickly private sector participation in thepower sub-sector, both to complement PLN's efforts to meet rapidly growing power demandsand to promote healthy competition that will produce improvements in efficiency and standardsof service.. It recognizes that this will require, on the one hand, a transparent, comprehensiveand consistent regulatory framework to define the -ules under which state-owned and privatepower enterprises will operate, and, on the other, an independent agency to oversee theoperation of these regulations and, in particular, to ensure that the natal monopoly elements

-68 - ANNEX 3.2

of the system are managed in a manmer consistent with the public interest. The oversight agencywill be responsible for ensuring that regulations are administered and applied in a transparent,timely, and consistent manner, and will be required and empowered to deal with appeals relatingto their implementation.

During 1994, the Government will review the current legal and regulatory frameworkfor the power sector and plans to formulate the revisions and additions that are needed to securethe above goals. It will also initiate the establishment of a regulatory oversight agency underthe Ministry of Mining and Energy by separating those functions that relate to power sectorpolicy and planning from those that relate to the power industry's regulation and oversight. Asa first step, a separate Directorate of Regulation will be created within the Directorate Generalof Electric Power and Energy Development. This will subsequently be converted to a higherlevel agency with greater powers and independence.

The Government is currently refining its strategy for securing private participation in thesub-sector, and is strengthening its procedures and capacities for promoting, evaluating, andnegotiating proposals from private entities. While the initial efforts in this area have focusedon the solicitation of proposals for large Build-Own-Operate (BOO) power generation projects,the existing regulatory framework permits a much broader spectrum of private participation andconsiderable attention is now being devoted to exploring other opportunities. Unsolicitedproposals for BOO generation projects are being encouraged, and several are now in preparationunder Letters of Preliminary Approval. Arrangements for permitting small independent powergenerators to sell electuicity to PLN at published tariffs through standard forms of contract arebeing developed and will be finalized shortly. These arrangements are expected encourage moreefficient use of existing autogeneration capacity and to promote development of cogenerationcapacity by industrial plants.

Active consideration is now also being given to expanding the role of private enterprisesand cooperatives in the distribution / supply function, and to permitting private participation inthe shortly-to-be-corporatized elements of PLN. In addition, the Government intends also torequire PLN to provide 'third party access" to its transmission grids for independent powerproducers. The conditions and charges for such access will be clearly defmed and theirimplementation will be monitored by the regulatory oversight agency.

Enabling Equal Access to Prinmar Ener=v Sources

The Government recognizes that success in securing efficient private participation in largescale power generation will be contingent on intending private power enterprises being able toenjoy the same access to and prices for primary energy as are enjoyed by PLN. Accordinglyit intends to review and, where necessary, to revise its current policies in these areas,particularly with respect to natural gas and geothermal steam, so as to make the markets forprimary energy resources open and transparent.

-69 - ANNEX 3.2

Promoting Energy Conservation and Environmental Protection

Energy conservation is a central theme of the Government's energy policies, and it isrecognized that the appropriate pricing of primary energy and of electric power as outlined abovewill play a key role in promoting the economically efficient use of scarce resources. TheGovernment's commitrnent to such pricing policies is reflected in the statement of the President,made in January 1993, concerning the principles that will in future govern the pricing of refiedoil fuels for supply to the domestic market. It recognizes, however, that the proper pricing ofenergy products will need to be complemented by other initiatives and measures designed toencourage and induce sound energy use decisions, particularly on the part of industrial,conmnercial, and transport enterprises. In the power sub-sector, the Govermnent is nowdeveloping a strategy for encouraging the more efficient utilization of electricity and theimplementation of this strategy will be accorded high priority during REPELITA VI.

Encouraging conservation and diversification in the use of energy resources is animportant element in the Government's strategy for reducing the adverse environmental andsocial impacts of energy consumption. More generaly, the Government recognizes thatsafeguarding the environment is a prerequisite for sustainable development, and accordingly hasput in place the regulatory framework and institutions needed to achieve this. DuringREPELITA VI, considerable attention and resources will be directed to ensuring that theseregulations are implemented as intended. Within the electric power sub-sector, attention willbe focused on the careful planning and design of new generation, transmission and distributionfacilities so as to minimize and mitigate their impacts on the natural environment and adjacentcommunities, and on effective monitoring designed to ensure proper compliance with applicablestandards and practices.

Implementation

The Government will implement the above policies through a comprehensive andcarefully phased medium-term action plan whose preparation is being coordinated by theMinistry of Mines and Energy. Other concerned institutions and agencies, most notablyrepresentatives of the People's Representative Assembly and the Ministry of Finance, are beingconsulted on those aspects of the action plan that extend beyond the jurisdiction of the Ministryof Mines and Energy. The action plan is conceived as an integral component of Ministry'sstrategy for the development of the energy sector during REPELITA VI, and it is thereforeintended that its key elements will be finalized by the end of 1993.

-70 - ANNEX 4.1

INDONESIASUMATERA AND KALIMANTAN POWER PROJECT

Organizatlion Chart of PLNPLN Region I

Special Area of Aceh

Directors of Corporaon PLN _PLN Region 11

Corporation i North Sumatrainspectorate

Planntng o Directorate on _ West Sumatra and Rtau

. | ~~~~~~~~~~PLN Region IVDirectorate of Directorate of South Sumatra LaconstuettPn N Rncegion V

|Directorate °l|ofWLNRie9°t

Main Project PLN Region VIGeneraton and Transrtssion South, Central and

North Sumatrs East KalimanUn

Main Project PLN Region VHIGeneraton and Transmission North an Central

West Sumatra and Riau Sulawesi

Main Project PLN Region VII Generation and Transnrission - South South and South-East

Sumatra,Lampung,Jambi and Sengkulu |Sulawesi

Main Proect P e| Generation and Mtastso LePNRegion tX|

|eSulawesr a W anuku

ITMansin PrPCtIN I Tr~~~ain Pmisso L Region XEs J"ad } Irian Jaya

i ~~~hftun Project ||PIN Region Xi|Thermal Power Bali, West andi East

East Java Nusa Tenggara

Main Project PIN DistrbutionGeneration (Thermal) and East JavaTransmision - Centa Java

MaHndroPert PLN Distribution§ Central Java l ^ CentalJav

Transmssion Wet Java and Je karta PLN Distibution[ Raya - E H V Transmission and LDC WfstJava

Thenral Power PlNDistributionWest Java and Jakarta Raya Jakta Raya and Tangerang

M HydPowert PLN Generation and TransmissionWest Java Eastem Java

I' Main Project PNCentr | Generation and Transmission[_Physical and Supporting Facitibe: N F Westem Java

main Prmiect ResearchTringCteGerwtion and TramnmissoCenter LWath Lo

[ ~~Kalimantan |lDsac eX

| Ssrvices { | PLN Spesa Regioni I Centor I 1 PUClBa:mI

INDONESIASUMATERA AND KALIMANTAN POWER PROJECT

PLN: PERFORMANCE INDICATORS

1981(B 1982/13 1983184 1984185 1985/86 1986137 1987/88 1998,99 2984!)) 199:9 I 171,92 , 1%243

I Irstalled cacty (MW) 3,1)2 3.4t76 393S 4.515 5.635 6,200 6,421 R,149 81941 KWII$ 19 I9 aIQ974

2 Peak derrmand (MW t,976 2.285 2,413 2.603 2.966 3,403 3 833 4.354 5 I r. nIV 6 124' h414

3 CapaCdy UtIzAtIOn (21 (0 6 12 ( 67 0 61 0 55 0 53 0 5S 0 60) 4 4 13 S8 0 '16 ( 6'7 1 S4

4 Energy prudactun ttiWh) 10.138 11.847 13.392 14.777 16.899 19455 22 305 2 h2! 29.V57 i.87R9 %4 217 41 tSF

5 Sales (OWlhi 7,845 9Y101 1t,(XX) 11041 12.706 14,786 17.077 20.t)27 23 43$ 2 341 491 54 995

6 % LIOtwth to sales 205 2 60 9 9 10 4 15 1 16 4 15 5 17 3 17 II IR4 3 I t I

7 U6sses bsvth satsrxz e l'1%1 226 232 25 3 253 24 T 24() 234 218 2077 204 IB7 167

Without stat1rn use 18 7 t9 1 20 8 20 6 19 a 19.6 1 7 16) 9 152 15 6 14 1 124

8 Number ofer smumers 3.232.075 34t02421 4,406.047 5.13.231 5,953,293 6.W95.580 8."12'.349 9.275.938 10.11.6 945 1141.1739 ' I114 . It436t 56

(% growlh) (1771) 12761 (1591 /105) (1601 (17t71 (1728) 12,1 1112, (11 I1 6K11 1431

9 Villages Electrified (Nr) 9,194 10,725 13.1111 16.771 18,744 2.691) 2 S5 ':714 K 9Nr

(%I2 * 1520 175 214 274 5127 '33 58 417 474

10 ATrajgercemueoperWtWhbs ,d 431 565 760 978 966 915 926 91 7 1141 11 i2 12941 3

11 Ameage fleost IprlkWh Asd 16 2 28 4 53 8 62 4 54 4 4B 3 50 6 49 6 45 3 5S 4 SS I b 0 10

12 Totl marcpower (clhplyees) 3S.741 (9.962 44r9(9 49.696 524i2) Sl.571 51.2103 51 .2 7 SIIB9, s ;S' i 82 5711

23 unsuamn per employtee %2 45 9B tO3 llh 23S t160 181 '14 217 311 42

14 Sales pee employee IMWh\ 119 228 223 222 248 287 334 *91 457 S 1 S77

iS Ratebase (Rpbilhuri,1A 976 1.218 1,497 1.998 2,779 3,867 5.093 6,845 5919 1,1 421 I S76 II13 3

16 Rate of fetern 11 la

Indonesia operatiom 1 9 3 0 (9 0 4 t)3 3 4 0a2 L) o 211 41S

Java operations 87 41 58 1l11 ;5 117 1211

17 Operating ratio (51 105 207 102 Itl 1)l 42 101 118 15 '/n I N4 te

is Current ratut timesl 3 4 2 4 2 2 2 3 2 1 1 3 1 1 0 9 1 , 4 1 A;

19 Dtbt/equity rato I% 141R6 I 285 27n3 3216S 36164 40'6t) 41159 5962 61,61 14.14 101'.! 1tr .

20 suervice coveragt ero Itl 3 6ht 3 6 2 4 1 7 2 6 II t 3 2 a 2

(limes)

21 Self-financing ral (Tit

Amnuat 2538 III6 22 114 1025 11 6 9 12 1., A I')

3-year Iirruirg a-crage 249 303 236 233 107 234 71 163 269 7' 4' 122

22 tverall customers' 3"cIonts

receivable (days sales) 74 hS 68 53 St 4R 47 46 II0 it,

la Based on revalued assets. 3

b Curtent and two preceedtg years lrx 1951/81 1984'85. Itr.m M98S/86 ons4,ds. based on average atnnual uxpcnIditue fIor thrt years c'1mptism11g th1 test year.

ibe last preceding yenv and the tnxt following yeu,

Siurce PI.N

- 72 - ANNEX 5.1

ENDNESSUMATERA AND KALMANTAN POWER PROJECT

BESA HYDROELECRIC POWER PLANT

Location

The Besai hydroelectric power plant is to be located in the upper reaches of the Besairiver, a tributary of the Tulangbawang river which is one of three major rivers in the Lampungprovince of South Sumatera, draining into the lava Sea. The project is designed as a run-of-rivertype development, with a daily regulating storage capacity. The installed capacity of the plant willbe 90 MW, with two generating units of 45 MW each.

The proposed intake dam is located at the entrance of the Besai gorge. The elevationof the crest of the dam will be 9 m only above the river bed, and will provide about 245m fall ina distance of 6 km between the dam and the power house. Ninety-five percent of the dependablefirm discharge of 8.3 m3/sec will be harnessed to produce an annual energy of 367 GWh.

Geology

The geological exploration carried out thus far for this project component includes:(a) mapping and analysis of major regional geological features; (b) detailed surface mapping of theproject area: (c) execution and logging of sample bore holes; and (d) exploration adits into theproposed headrace tunnel, surge tank, penstock and tailrace tunnel. The project area consists ofvolcanic products, mainly composed of tuff breccia associated with tuff and andesite lava. Baserock of the dam site is tuff breccia in both banks. Headrace tunnels will be driven through tuffbreccia for almost the entire length. Favorable tunneling conditions are expected, with temporarysupport limited to shotcrete and bolting. For the large diameter surge shafts, rock conditions aresimilar to the headrace tunnel, with some andesite in the upper parts. Favorable rock conditionsin three kinds of layers, such as andesite, tuff breccia and acidic tuff, are also expected in thepenstock and tailrace tunnels. Again, support would be limited to shotcrete and bolting except nearthe tailrace portals, where consolidation work and heavier support are expected. Base rock of thepower house site is fresh acidic tuff,

Physiography and Hydrology

The catchment area of the intake damsite is 415 km2 . The dam is located at theentrance of the Besai gorge. The river has a gentle slope around the damsite, continues for about100m in the downstream reach of the dam axis, and then slopes steeply for about 4 km toward theproposed power house site. Then it changes again to a gentle slope for about 2 km. The riverbedat the proposed damsite is 15 m wide. Behind the left bank of the intake damsite, there are lowlying hills; the right bank forms a steep slope to the top of about 200 m high hill. The headracetunnel will be driven through ridges running along the left bank of the river. The surge tank islocated on a berm excavated in the escarpment inclining toward the power house. The undulatingtopography continues along the proposed route of the penstock. The power house will be locatedat the foot of a gentle hill on the left bank of the Besai river.

- 73 - ANNEX 5.1

The climate around the project area is maritime tropical, hot and humid with anaverage rainfall of about 2,550 mm. The average flow in the river is estimated at 8.3 mtesec, withlargest flood discharge of 140 n9'sec recorded in 1988. Design flood for the intake damsite isdetermined as a probable flood discharge of 800 m&/sec with a probability of occurring once in 100years. With additional safety margins, design flood for each structure is as follows:

Extraordinary Flood

Structure 2 years 100 years 10,000 years

Intake Dam - 800 m 31s 1,400 m 3/s

Power House - 820 m3 /s 1,435 m3/s

River Diversion 240 m3/s

Sedimentation

The Besai river carries a considerable volume of sediments, particularly during the highflow season. Sediment control upstream of the proposed dam includes such measures as soil managementthrough better agricultural practices, terracing, and planting. In addition, the project will provide for:(a) periodic flushing of the reservoir; (b) retention of sediments in the desilting basins; and (c) selectionand specification of equipment to minimize wear and off-time maintenance. The project authorities wouldmonitor during the early years of operation the performance of the sediments handling provisions.

A scouringway, with two upper and two lower gates, will be installed at the dam to flushout bed loads of sedimentation through the lower scouring gates, and suspended loads through the upperones. The size of the scouringway is designed to ensure the same scouring capacity as the existing river.

Construction Materials

Two prospective quarry sites have been identified for the project. One is about 13 kmfrom the project area, the other is 1 kn downstream of the Besai river from the power station. The rockin the first quarry is basalt, with an estimated volume of 97,000 mn, while the rock in the other quarryis andesite, having an estimated volume of 84,000 mn. Physical and chemical properties of both quarriessatisfy international standards in terms of specific gravity, absorption, abrasion and alkali reactivitycharacteristics.

Design Features

Intake Dam: The intake dam comprises the sluiceway, the scouringway and the twoabutments. The sluiceway is designed as a gated concrete overflow weir, 33.5 m wide, 25.2 m long and6.5 m high, fitted with four sluice gates. Downstream of the sluiceway, the horizontal stilling basin is33.5 m wide and 16 m long to dissipate the energy of design flood equivalent to 100 years probable peakdischarge. The scouringway is 16.5 m wide and 25.4m long, fitted with two upper and two lower gates,each 6 m wide and 1.5 m high.

Intake Facilities: The intake facility, laid out on the left bank of the river, is composedof an intake, a sand trap basin and the inlet to the headrace tuel. The intake is designed to be 13.8 mwide and 10.1 m high to keep inflow velocity less than 1 m/sec for the maximum plant discharge of 45.6m3/sec, and to minimize the inflow of trash and sediments into the intake. Ihe two intake gates are each3.8 m wide and 6.1 m high. The sand trp basin between the intake and the headrace tunnel is 39.4 mwide and 60.3 m long, with an overflow spillway 40 m long. The inlet of the headrace tunnel is 7.6 m

- 74 - ANNEX 5.1

wide and 10.1 m high, and designed to prevent air entrainment by assuring adequate water cover at thesill level of the inlet.

The pressurized headrace tunnel is reinforced concrete, about 4.9 km long, with a circularsection of 4.3 m inside diameter. Three work adits, with a total length of 790 m are provided forconstruction use. The most downstream work adit will be used for draining water from the headracetunnel during maintenance.

The surge tank is restricted orifice type, with an upper chamber at the end of the headracetunnel. It is a pressurized concrete surge tank consisting of a prestressed concrete upper chamber, 13 minside diameter and 50.6 m high above ground, and a reinforced concrete shaft, 2.5 m inside diameterand 44.7 m high.

The penstock is underground, steel-lined, 3.4 m inside diameter and 610 m long. Itbifurcates about 31.5 m before entering the power house for the two hydraulic turbines. A work adit isprovided about 140 m upstream of the power house entrance.

The power house comprises a main building furnished with two hydrauic turbine generatorunits, each capable of generating 45 MW. The tailrace, discharging back into the Besai river, is a 23 mwide, 50 m long, and 21m high open concrete channel. The 150 kV switchyard comprising conventionalswitchgear, is located behind the power house.

Environmental Aspecs

The environmental impacts of this project component is minor for the following reasons:(a) the power plant is a run-of-the-river facility; (b) the dam and the reservoir are located at the bottomof a deep gorge, and many of the structures will be built underground; (c) the dam itself is only 9 mhigh, and the pondage is comparatively small; and (d) since the river is at the bottom of .^ gorge, fewpeople ever approach the river and fewer live near it. The 6 km stretch between the dam and the powerhouse is uninhabitated. PLN will, however, maintain a constant discharge of water from the dam ofabout I m3 /sec to prevent the river bed from the dam to the power house from drying up. Ihe effect ofconcentrating flows will be insignificant on existing riverine and lacustrine environments. Environmnitalmanagement, therefore, is primarily during the constructionperiod with appropriateprovisions includedin the bid documents for such aspects as: erosion control for access roads and temnorary works, disposalof unnel excavation muck and other spoil in existing disposal areas, potable water supply, waste disposal,health and amenities in contractors' temporary camps and facilities. A detailed EnvironmentalAssessment Summary is given in Annex 5.3.

The total area to be acquired for the purpose of constructing this project is about 202 ha,out of which about 140 ha will be inundated, while the rest (62 ha) will be required for the dam, powerhouse, office complex and housing colony, contractors' use and access roads. 129 families will need tobe resettled under the plan, parts of whose land will be acquired for the development; however, nophysical relocation is involved in any of these cases. Public consultations have been held in the projectarea, with NGO participation, and the Project Affected Persons (PAP) are satisfied with the resettlementplan presented by PLN. Some 35 percent of the PAPs have exercised the land for land option. PLN iscommitted to providing equivalent land to all of those who have asked for it. The rest of the PAPs haveopted for assistance to be able to engage in small business enterprises, improve their own housing, orpurchase consumptive products. PLN wil provide appropriate counselling and credit facilities for thebusiness entrepreneurs, in addition to arranging for vocational training in regional instions for thosewho are interested in it. Qualified PAPs will also be eligible for work in the construction of the project.A Resettlemet Plan in respect of this project component is included in Annex - 5.3; PLN wi1l be the

- 75 - ANNEX 5.1

implementing agency for the plan and has made appropriate budget provisions for the same. The Bankhas reviewed the plan and found it acceptable.

Jrnple tation

Construction A'rangements. PLN has appointed a project manager for overseeing theimplementation of the hydroelectric plant. Engineering, design and construction supervision have beenassigned to experienced international consultants with local associates. The consultants have beenappointed in accordance with the Bank's guidelines for the use of consultants. The constructionorganization will be modelled on that successfully employed for the Saguling and Cirata projects. Theproject will be implemented over a period of six years. The generating units are expected to becommissioned by December 1999.

Dam Safety and Instrumentation Monitoring. PLN has several dams which arecategorized as large dams under the ICOLD definition, including the 99 m high Saguling and 125 m highCirata rockfill dams. Under the Cirata II hydroelectric project (Loan 3602-IND), strengthening ofPLN's dam safety procedures and training of PLN staff in dam safety inspections and instrumentationmonitoring, are being facilitated through appropriate technical assistance.

Water Rights

The Bank is satisfied that the project will not result in any adverse effects on the quality,quantity or the time-distribution of water flows downstream of the proposed dam. The project does notcause any upstream flooding because the weir gates have been designed for a maximum flood dischargecapacity with a probability of occurring once in 100 years (para 3.2). Also, the project authorities arecommitted to maintaining a steady discharge of I m3/sec from the dam to prevent the 6 km stretch ofrivet between the dam and the power house, as well as downstream of the power house itself, fromdrying up.

Status of Preparation

Engineering Consultants (Nippon Koei) are already appointed; preliminary engineering forthis component has been completed under the Cirata I Hydroelectric Project (Loan 3602-IND).Prequalification for Civil Works has been concluded, bidding documents have been reviewed by the Bankand the bidding process is already in progress. Draft bidding documents for other major componentshave also been submitted by PLN to the Bank for review.

-76 - ANNEX 5.1

Principal Design Features

Operating Parameters

Installed capacity 90,000 kWMaximum discharge 45.6 m3l/sec.Maximum effective head (Gross Head) 244.6 m

1.1 Reservoir Scale and Hydrology

Catchment Area 415 km2

Reservoir area 0.7 km2

Maximum flood water level 725.8 mMaximum normal water level (LOL) 720.9 mLow water level (MOL) 719.0 mTotal reservoir capacity 1.2 x 106 n3

Flood discharge capacity 1,435 m3/sec).Live storage capacity 1.074 x 106 e 3

Dead storage capacity 0. 126 x 106 e 3

Mean annual discharge 24.3 ml/sec.Probable flood discharge (PMF) 800 m3/sec.

1.2 Output

Maximum normal water level (FSL) 722.0 mLow water level (MOL) 719.0 mNormal water level for design (Rate RWL) 721.6 mTailrace water level 477.0 mGross head (max), for 2 unit operation 244.6 mGross head (min), for 1 unit operation 243.8 mMax. effective head for NWLi) 231.3 mInstalled capacity 90,000 kWAnnual generated energy: Primary 144 Gwh

: Secondary 231 GWhFirm discharge, 95% dependable 8.3 m3/sec.Peak discharge, for 2 unit operation 45.6 me/sec.

1.3 Structural Features

Dam

Type Gated concrete weirHeight 18.3 mCrest length 50.0 mElevation of crest EL. 726.3Volume of dam 1,200,000 inm

77 - ANNEX 5.1

1.4 Intake

Inlet dimension 13.8 m wide x 10.1 Im highIntake gate (2 nos.) 3.8 m wide x 6.1 m highTrashracks (2 nos.) 6.0 m wide x 10.1 Im high

1.5 Sand Trap Basin

Width 17.3 mLength 60.3 mSand flush gate (2 nos.) 1.0 m wide x 1.0 m high

1.6 Inlet of Headrace Tunnel

Inlet dimension 7.6 m wide x 10.1 Im highSRi elevation EL. 716.2 mTrash rack (1 no.) 7.6 m wide x 10.1 m highblet gate (1 no.) 7.6 m wide x 6.1 m high

1.7 Headrace Tunnel

Type Concrete lined, circular sectionDiameter 4.3 mLength 4.9 km

1.8 Surge Tank

Type Restricted orifice, prestressed concrete with reinforced concreteshaft

Up-surging water level EL. 733.4 mDown-surging water level EL. 702.8 mDiameter 13.0 m in chamber; 2.5 m in riser shaftHeight above headrace

unnel ceiling 94.7 m

1.9 Penstock

Type Inclined/horizontal pressure shaft, steel linedDiameter 3.8 m to 1.8 mLength 610.4 m

1.10 Powerhouse

Type SurfaceMain building 28.0 m wide x 44.0 m long x 36.0 m highOffice and control building 10.0 m wide x 32.0 m long x 8.0 m highDraft tube gate (2 nos.) 2.4 m wide x 2.3 m high

- 78 - ANNEX 5.1

1.11 Generating Equipment

Turbine

Type Vertical shaft, FrancisNo. of units 2Rated output 46,400 kWRated head 231.3 mRated speed 500 rpm

Generator

Type 3-phase, vertical shaft, synchronousNo. of units 2Rated capacity 53,000 kVARated voltage 11 kVFrequency SO HzPower factor 0.85 lagging

Main Transformer

Type 3-phase, oil-immersed, forced oil circulation, forced air cooled,outdoor

No. of units 2Voltage 11/150 kVCapacity 53,000 kVA

1.12 Transmission Line

Route Power station to existing transmission line between Baturaja andKotabumi

Length 16 kmNo. of circuits TwoVoltage 150 kVConductor ACSR 240 m112

Tower Double circuit, steel

- 79 - ANNEX 5.2

INDONESIA

SUMATERA ANDKALMAMAN POWM PROJ

BAmAwAsNTnRmAPOwER PANT

Loation

The proposed project will be located about 12 km inland from the coastal area ofSouth Kalimantan, in the village of Asam Asam in the Jorong Subdistrict. The project covers anarea of about 110 ha. The project site is bounded to the west by the Asam Asam river, to thenort. by the Baru river, a tributary of Asam Asam, to the east by a secondary forest and tall grassfield, and to the south by another tributary of Asam Asam. The project site mvostly occupies forestareas and swampy land; only a small part to the west occupies abandoned rice fields a'nd uplandareas. The land will support an ultimate capacity of 660 MW, with 4 x 65 MW and 4 x 100 MWgenerating units, including the coal storage and ash disposal facilities, staff housing colony,electrical substation and administrative office buildings. A saw mill is located next to the projectsite.

Design Parameters

The commercial dates of operation of the power plant are scheduled as follows:

Unit I December, 1998Unit 2 March, 1999

The power plant will use about 460,000 tonnes of coal per year, operating at 70%capacity factor. When all 8 units are built to the full plant capacity of 660 MW, the plant wouldbe consuming about 2.5 million tonnes of coal per year. The coal will be transported initially bycoal trucks over a distance of about 5 km, but in the next phase of development, the transportationof coal would be over belt conveyors or an aerial ropeway system.

The turbine steam conditions will be 87 bars and 510' C. The steam, after drivingthe. turbine, will exhaust into a condenser, operating at a pressure of 65 mm Hg, based on a coolingwater design temperature of 280 C. The condensate is pumped back through a number of feedwater heaters into the boiler. The condenser is cooled by water from a cooling tower thatrecirculates between the tower and the condenser. The cooling tower will need about 10 percentmakeup water to account for evaporation and other losses.

Units 1 and 2 will have a nominal capacity of 65 MW each. Many units in this sizerange have been manufactured all over the world; they have proven track record of satisfactoryperformance. Each turbine generator will have five feed water heaters, including a deaeratingheater. The boiler feed pumps will be motor driven. Each generator will be air cooled, and willhave its own, brushless excitation system. Generator transformers will be naturally cooled andlocated outside the turbine house.

The boilers will use pulverized coal as primary fuel, and light diesel oil mainly forstart up purposes. Located adjacent to a coal mine, the boilers will burn lignite having about 4,000

- 80 - ANNEX 52

kcal/kg heat value, 37 percent volatiles, 35 percent moisture, 3 percent ash and about 0.23 percentsulfur. Each boiler will use 4 pulverizers. The boilers will be capable of operating at rated steamconditions upto 30 percent load on light oil. Fuel oil will also be used for flame stabilization whenusing excessively wet coal and/or at low loads.

Ash handling will be done with the help of drag link conveyors. The amount of ashgenerated will be comparatively small because of the characteristics of the lignite having only3 percent ash content. Ash generation per day will approximate 38 tonnes, of which 30 tonnes willbe in the form of fly ash. Electrostatic precipitators will be designed for 99.7 percent collectionefficiency. The ash will be disposed of in an environmentally acceptable manner, one of theoptions being hauling it back to the coal mines for land reclamation.

nnstrmentation and Controls

A microprocessor based distributed control system will be used. Display of plant-specific equipment status and operating parameters on CRTs installed in the main control room,will facilitate real-time interface between the operators and various plant systems. Data loggersand sequence of events recorders will automatically record plant performance at periodic intervals,and display operating problems as they occur, on a first-out basis.

Fire Protection

The fire protection system wIll primarily comprise a wet hydrant system supportedby high pressure local spray systems, in addition to fuxed and portable gas and powder systems aswarranted by specific plant areas and equipment. The whole of the fire piping system will be keptcharged and pressurized at all times. The fire pump will automatically start up in the event of afall in system pressure whenever the fire fighting system is used.

Water Treatment

The plant will use some quantities of fresh water to service the requirements for:

- Steam cycle make up- Cooling tower make up- Fire fighting systems- Domestic use

The required water treatment facilities will include a pretreatment plant for the rawwater, which may be drawn from the river or from underground aquifers, to remove salinity, siltburden, organic content, as necessary. While raw water can be used for fire fighting purposes, thepretreated water will be used for cooling tower make up, or for domestic use after appropriatechlorination. The water for boiler make up will be demineralized.

Black Start System

To serve the requirement for supplying power needed during the construction andplant commissioning stages, to maintain a black start capability in an emergency in the event theplant gets isolated from the electrical trassmission system, a gas turbine of about 4 MW rating willbe installed.

- 81 - ANNEX 5.2

Enironmental Issues

Annex- 5.6 serves to provide the detailed environmental issues associated with theproposed Banjarmasin Thermal Power Plant. Because of the very low sulfur in the coal, it hasbeen determined by stack plume dispersion modeling that no flue gas desulfurization will benecessary at this plant even when it is built to its ultimate capacity of 660 MW. Low NO,, burnerswill be used in the boilers to reduce nitrous oxide emissions. Altogetner 36 families will need tobe resettled due to land acquisition.

!rincipal Design Features

Operating Parameters

Installed capacity 130,000 kW (2 x 65,000 kW generatingunits)

Live steam pressure 87 bar (- 1,260 lbs/sq.in.)Live steam temperature 510 C (950° F)Rated steam flow 210 t/h at rated pressure and temperatureSteam exhaust pressure 87m bar (- 2.5 in. Hg)

Fuel Characteristics

Fixed Carbon 31.4%Volatile Matter 37.6%Ash 3.3%Inherent Moisture 27.7%Moisture as received 38.3%Sulfur 0.2%Nitrogen 0.73%Hardgrove Index 58Specific Energy, as received 4,000 kcal/kg (16.75 MJ/kg)

Number of Pulverizers/unit 4

Fuel Handling

Coal Consumption for 2 units 476,000 tonnes/yr l 70% load factor

Coal Transportation Haulage by trucks initially for thefirst two units

Distance from coal mines 5 km average

Number of trips per day 38 in 40t haulal a trucks(excluding Sundays)

Number of Feed Water Heaters/unit 5, including Deaerating Heater

- 82 - ANNEX 5.2

Cooling Water

Towers

Wet Bulb 250 CDry Bulb 280 CApproach 50 C

Flow/unit 3.2 m3/s

Makeup Water, for 2 units 3%; -0.38 m 3/s

Ash Disposal

Handling Drag link conveyor

Quantity, for 2 units 14,280 t/yr

Fly ash 11,425 t/yr

Bottom ash 2,855 t/yr

Disposal Backfilling in coal minesLandfilling in southern half of site

Instrumentation and Controls

System Microprocessor based, distributed controlCRT display, real-time interfaceData logger, Sequence of Events recorder

Fire Protection

System Wet hydrant, supported by high pressure localspray

Fire extinguishers, gas and powder

Electrical System

Generator Air cooled, brushless excitation

Generation Voltage 21 kV

Generator Transformer 21/150 kV, natural cooled

Station Auxiliary Voltage 6 kV/400 V

Black Start Capability Gas Turbines (-4 MW capacity)

- 83 - ANNEX 5.2

Transmission System

Transmission Voltage 150 kV

BanJarmasin-Cempaka 75 km; ACSR 2404 mm2

Cempaka-Trisakti 43 km; ACSR 240 mm2

Cempaka-Barikin 110 km; ACSR 240 mm2

- 84 - ANNEX 5.3

IDONESIA

SUMTERAADKLMANA POWRPRJCT

1NviRoNMENTAL AsSEssNT SummARY

Besai Hydroelectric Power Plant

Introduction

1. Pursuant to the objectives of the Government of Indonesia (GOI) to improve thewelfare of the population and to support the growth of economic activity by meeting the electricityrequirements in an efficient and reliable manner, the State Electricity Corporation (PLN) hasproposed to construct a hydroelectric power plant at Besai, in the Lampung province of SouthSumatera, under the Sumatera and Kalimantan Power Project. The proposed loan will be madeto the GOI. The proceeds of the loan would be onlent to PLN, which is .,sponsible for theimplementation of the project. The project is likely to be cofinanced by Austria and Australia, forthe turbine generator and transmission components. GOI/PLN will meet the financing gap fromtheir own internal resources.

2. The Electricity Act (Law No. 15 of 1985) defines the legal framework for theelectricity subsector of Indonesia. The subsector comprises: (i) PLN, the State ElectricityCorporation; (ii) captive plants; (iii) rural electric cooperatives; and (iv) a large number of informalmicroenterprises providing electricity to rural customers not served by PLN. The provisions ofthe Electricity Act are amplified in GO Regulation No. 17/1990 for PLN and No. 10/1990 forothers. PLN was established as a public corporation with responsibility for the generation,transmission, and distribution of electricity, and the planning, construction and operation of electricsupply facilities. PLN is managed by a Board of Directors headed by a President Director, whois appointed by the President and is accountable to the Ministry of Mines and Energy. Operationalresponsibility devolves upon 17 regions, and the responsibility for major construction upon 13project managers. PLN has already appointed a project manager for the proposed Besaihydroelectric power plant.

3. Since 1969, the Bank group has provided about $4. 1 billion for the power subsectorin Indonesia, through 3 IDA credits, 18 loans, and one supplemental loan. Project PerformanceAudit Reports and Project Completion Reports on fourteen projects have been issued. The reportshave concluded that the objectives set out for these projects at appraisal have been achieved.

Project Description

4. The Besai hydroelectric power plant is proposed to be a run-of-river typedevelopment, with a daily regulating storage capacity, to be built in the upper reaches of the Besairiver in the Lampung province of Sumatera. The Engineering Services Center of PLN, inassociation with their Consulting Engineers, have conducted an environmental assessment (EA) ofthe proposed hydroelectric plant based on the feasibility study and the preliminary design reports.The plant will have the following components:

- 85 - ANNEX 5.3

- Intake dam- Power house, about 6 km downstream- Tunnel and penstock connecting the intake dam and power house- Access roads to the project site- Quarrying for stone and gravel to be used for construction- Construction camp- Permanent housing colony and offices- Transmission lines

5. The dam commands a catchment area of 415 sq.km. Locat- in a steep gorge, theheight of the dam will be 9 meters only; however, because of the slope, the net available head atthe power house 6 km downstream will be about 240 m. Two turbine-generators will be installedinitially in the power house to generate 45 MW each. The headrace tunnel from the dain will rununderground for a length of approximately 5 km, aad connect through a surge tank, with theunderground penstock for a further distance of about 0.6 km leading into the power house. Therewill be two access roads; one about 2.5 km from the village of Sukapura to the dam site; the other,about 2 km long, in the village of Dwikora. A double-circuit, 16 km long, 150 kV transmissionline will connect the power house with the nearest PLN transmission grid to evacuate powergenerated at the Besai plant.

6. There are possibilities of soil erosion because of land clearing operations. Theremay also be some minor air and water pollution issues because of construction activities. Theseadverse effects will be mitigated by appropriate measures as described below in this summaryreport.

Baseline Data

7. Geophysical - Climate, Physiology and Hydrology. It is a high rainfall area (rainsfor 11 months) with a fairly strong wind (39.31 lkn/day) blowing from the north most of the time.There are no months of water deficit and the air quality in terms of dust content, gases and noiseis considered to be pure. The catchment area is mostly mountainous even though there are someundulating plains in patches. The country rock is basically volcanic deposit. The drainage patternis characterized by many trenches which finally appear as tributaries of the main river. Acatchment area, such as this, has the advantage of having a very small flood discharge. Thegroundwater level is quite shallow, about 3-12 m from the land surface. The quality of water hasbeen analyzed and found to be clean.

8. Soil. The soil has been analyzed based on the factors of chemical and physicalproperties and the factor of climate. The larger parts of the soil comprises of Inceptisol and issensitive to erosion. Land is used mostly for Sawah (wet rice cultivation) and also dry cultivation.Local farmers do not take recourse to conservational measures resulting in very high rate oferosion. Much of the forest area has disappeared; it has turned into farmland and underbrush.Future farming operations must include better land management practices.

9. Flora. There are wet-cultivated areas in the farmlands, garden and forest lands.Mainly, there are six types of vegetation consisting of stable crops, like rice and maize, rootvegetables like potatoes, and other vegetables like tomatoes, chilies etc. Fruits such as durian,mahogany wood trees, flowers and bamboos also abound. Many popular varieties of wood arefound in the forest.

- 86- ANNEX 5.3

10. Fauna. The study has recorded 20 species of mammals, 9 reptiles and 10 birds.There are domestic aiimals like cows, buffakw-'% chicken and sheep. Most of the well-known fishvarieties are found in the rivers.

11. Socio-econonic Study. A study of the population of the area has been conducted.The main occupation is farming (more than 80 percent). Farming is not practiced seriously; mostof the people go for traditional rice cultivation and unattended coffee plantation. Over the yearsmost of the people tend to migrate towards the Trans-Sumatera Highway in search of employmentin small business. People are generally healthy even though malaria and influenza have beenreported. In the survey most of the people tended to support the project.

Inpacts

12. The environmental impacts of the proposed project can be subdivided into 3categories: (a) preconstruction, (b) construction and (c) post construction.

(a) Preconstruction:Preconstruction impacts include investigation and surveys, and land acquisition.

(b) Construction:Land clearing and preparation, movement and operation of heavy constructionequipment and materials, and the concentration of a fairly large construction laborforce, many of whom may come from outside the local region, are the main impactsof the construction stage.

(c) Post Construction:The environmental impacts of the dam and the hydroelectric power plant will beinsignificant, except for liquid effluent and solid wastes from the housing colonyand office facilities.

13. The project will have both physical and social impacts on the environment andhabitat of the area. However, the social impacts are -not severe as there are no relocation issues.Most of the affected land for construction activities, comprising the two villages Sukapura andDwikora, belongs to the Forestry Departnent of GOI; however, several people cultivate the landand grow coffee crops on it. The area to be inundated covers private land, where the major cropis paddy. The village, Waypetai, is close to this area. No residential homes are affected by theconstuction; only a few huts used for keeping crops will need to be relocated. The physicalimpacts can be listed as follows:

(a) Soil Erosion.

(b) Air and water pollution from construction and waste disposal.

(c) Social impact of construction.

(d) Quarrying.

(e) Water quality.

- 87 - ANNEX 5.3

(f) Sedimentation o1 the reservoir.

(g) Scouring of river bed below dam.

(h) Earthquakes and floods.

(i) Loss of forest lands and wildlife.

Oj) Increase of water related diseases due to impounding.

(k) Impact on drinking water.

Analysis of Alternatives

14. The run-of-river type development planned for Besai is to provide peaking powerto the PLN system in South Sumatera. One of the main objectives of GOI for the electricitysubsector is to meet the country's energy requirements in a least-ost way, and conserve exportablepetroleum reserves, principally by encouraging the domestic market to substitute oil consumptionby alternative, more economical fuels, such as natural gas, coal, hydropower and geothermal.Indonesia's hydroelectric resources are enormous; estimated at about 32,000 MW (out of atheoretical potential of about 75,000 MW), but their development todate has been limited by theirgeographic distribution relative to the load centers where there is demand for electricity. The Besaisite is ideally suited for hydropower development; a dam about 9 meters high constructed at thenarrowest portion of a deep gorge, helping to provide a net head of 240 m just 6 km downstreamfrom the dam. No natural gas or geothermal energy is available in the vicinity; also a coal-firedpower plant for peaking purposes is not economical. Other forms of energy for the proposed 90MW power plant are determined to be not feasible.

MNtigation Plans

15. The mitigation plans for the environmental impacts of the Besai hydroelectric powerplant can be listed as follows:

(a) Soil erosion - The river subcatchment area of the Besai may be categorized intotwo groups; the volcanic group and the hilly group. More than 85 percent of thearea is of the volcanic group. The volcanic material is tuff, covered with andesiteand basalt. Soil erosion will be caused by the construction of access roads andtemporary works, land clearing and cut and fill operations, disposal of tunnelexcavation muck and other spoils. Soil erosion will be minimized by landreclamation, terracing, and replanting.

(1) Air and water pollution - Dust suppression and noise abatement measures,management of waste disposal (domestic and construction) in accordance withacceptable standards will help mitigate these impacts.

(c) Social impacts - The construction site will be designed such that workers have ahealthy work environment, adequate recreational facilities outside working hoursand living conditions with acceptable health and sanitary facilities. Potable water

- 88 - ANNEX 5.3

supply, waste disposal, health and amenities in contractors' temporary camps andfacilities will be ensured.

(d) Quarrying - This environmental impact will be minimized by selecting severalsuitable sites, far apart from each other. Three possible sites for stone and gravelhave been identified. Quarry I is 4.5 km and Quarry II is 14 km from the intakedam, while Quarry ImI is located near the proposed power house site. Sand will beobtained from the surrounding areas of two villages; one about 6 kin, and the otherabout 16 km from the intake dam.

(e) Water quality - Vegetation in the reservoir area will be cleared before inundationto avoid deterioration of the water quality. Because of the daily pondage that willexpose parts of the submerged land everyday, the vegetation clearing operation willbe undertaken on a regular basis.

(f) Sedimentation - Scouring gates are provided to rid the reservoir of accumulatedsediments by flushing on a regular basis. Regree-ing of the bare land areas areexpected to reduce soil erosion and sedimentation.

(g) Scouring of river below dam - The flow rate in the river throughout the year variesbetween 11.04 and 32.01 el/s. Even though the steep slope of the river acts as adisincentive for habitation, and there is no irrigation downstream of the dam, PLNhas decided that, in accordance with Japanese regulatory practices, the plant willmaintain a minimum release of at least I m31s of water from the dam so the riverbed between the dam and the power station never goes dry and that any aquatic lifein the area is sustained. No wild animals or migratory fish, however, are knownto have been found in the arca covered by this section of the river. The dischargeof water from the power plant would amount to about 45.6 M?/s, for A hours a day,when running at full capacity.

(h) Earthquake and floods - The project has been designed to accommodate the seismicacceleration of the volcanic region. The weir, as stated at the outset, is only 9 mhigh, and the surface of the reservoir, only 140 ha. The holding capacity of thisrn-of-the-river type development will be small due to its limited volume.Therefore, the induced seismic effect of the dam is insignificant. A horizontalstilling basin is designed to dissipate the energy of design flood equivalent to 100years probable peak discharge.

(i) Loss of forest lands and wild life - Most of the forest in the project area hasalready been converted into coffee plantation. The area to be inundated represensmostly, wild rice cultivation. However, since the area of inundation is small, theloss of land is manageable. Some farmers will lose part of their farmland and willbe compensated for the loss in accordance with Bank guidelines for involuntaryresettlement and the Presidential Decree, KEPRES 55/1993. This issue is discussedin detail under the Resettlement Plan for Besai. There is presence of wildlife in thevicinity of the project; the main habitat of the animal species is found to be in theadjacent forest area, very litde of which is affected by the proposed project.

-89- ANNEX D.3

(i) Water related diseases due to impounding - The reservoir is planned to be of adaily pondage for power generation, which is the inherent nature of a run-of-rivertype developmernt. The current in the river is expected to be too strong to supp.ortmosquito brceding. Additionally, mosquito-larvae eating fish to be stocked in thereservoir would mitigate this negative impact.

(k) Drinking water - The reservoir is relatively far from the dwelling areas. Peopleget their drinking water from the springs or existing wells located near their houseswhich are not iikely to be affected by the impounding of water by the dam.

Resettlement Plan

16. The Resettlement Plan of the-Besai- plant has the following objectives which are inkeeping with dte Bank's operational directives.

development of a timebound resettlement plan,based on replacement valuation andcompensation principles of land and other assets affected by the project

-establishment of a budget and an implementation plan

identification of organizational responsibilities for implementation.

17. The plan has been prepared after consulting the affected people and NGOs who areactive in the area. The project affects lands (160 ha) in three villages primarily because ofimmdation, acquisition for construction of the dam and the power house and for laying roads forthe project. The project affected people (PAP) comprise 129 families both in the inundated areaas also the construction area. In a social survey which was specially carried out in the area, almostthe entire community including the affected families supported the project. The PAPs felt that theproject will bring with it improvements in the infrustructure of the area which in turn wil help inthe growth of both industrial and agricultural activities. PLN is committed to providing them withroads, drinking water supply, sanitation facilities, etc. Most of the PAPs also expressed a desireto get jobs in the project. In the public consultation before the preparation of the resettlement plan,which was held on 14 September 1993, some PAPs raised the question of "Replacement" principlein the matter of compensation and it was explained to then that the GOI would provide for fullcompensation at replacement value and also othbcr opportuni. es to the PAPs so that their qualityof life would positively improve after the project. A fiuther taund of consultation was held withthe local NGOs on 22 December 1993 in which the NGOs seemed satisfied with the solutionsoffered by PLN to their concerns regarding the resettlement aspects.

18. Thirty-five percent of the PAPs expressed interest in land-for-land compensation.PLN is committed to providing such PAPs with alternate land, after due consultation with them ontheir choice. PLN will procure the land and hand over to the PAPs who might choose this option.The compensation for land acquisition will be determined by a oommittee appointed by the GOIas per the relevant Presidential Decree. PLN will encourage the PAPs to take up other activWieslike small business, trading and will also help them in developing other skills. PLN will makecounselling and credit faciities available for such people, if desired. Education and training -rillbe provided by PLN in vocational schools to those who may opt for this option. A budgetprovision of Rp 660,000,000 (US$330,000) has been made for the implemenion of the plan.

go0* - - ANNEXS3

The resettlement is scheduled to be completed in accordance with the project implementationschedule, based on which sections of land will be affected earlier due to construction activities orlater, due to inundation. 'rhe resettlement implementation schedule provides for monitoring by acommittee over the next five years.

Monitering and Evaluation

119. The most important area of action is the strengthening of the internal structure ofPLN so that they may be in a position to monitor the implementation aspects, Vas well as the finalresults of the resettlement plan. Pendi'g this, it has been agreed that an independent organization,suck as the local university and -some- government agencies, would be engaged to monitor the- -implementation of the resettlement plan, evaluate results, and report on the progress on a periodicbasis. The university will be requested to include a local NGO in their monitoring team.

Institutional Needs

20. Provision for Technical Assistance has been made under the proposed project toassist PLN to establish an environmental organization to develop PLN's capability to formulatecorporate environmental policies, evaluate environmental assessmens of its development projectsand monitor environmental impacts and compliance with GOI guidelines for existing projects.

Public Participation

21. Public consultations have been held by PLN at the project site, with local NGOparticipation. During the public conmltations, while 99 percent of those attending supported theconstruction of the project, a large majority of the Project Affected Persons (PAP) expressed astrong preference for cask compensation, and an opportunity to work in the construction of theproject. While the amount of cash compensation will be determined by the Land AcquisitionCommittee in accordance with Kepres 55 guidelines, which allows for compensation at the currentvaluation of the land, the project proponents (PLN) have agreed to provide work to qualified PAPsin the construction of the project.

Seantera aNd Kallmmnan Power ProjectB581 Hydrohcfrl Power Plant Annex 5.4 page 1/3

kflplementaton Schedule

1993 14 1996 99 1999ID Name JJ $ NDJF JJAS NDJF JJ S~~~~~~~~~~ NJ JiS OF ) S DJI IIAJIJ S JNOd AJJ

2 CMloworks__ _ _ _ _ ., ' I .

3 Issue bids/NIT26

4 Sufmission of bkids

5 Open bis

a~ Evakwlton

7 Review byPLN Boar

8 Review by GOI

9 Review by Bank . I *

to Approvelby Bank

I1I LOB

12 Letterof Award10112

13 ExcuIJon MOO .MW.M -- w

15 IssuebkdsNIT I$2

le Submisson of bids

1? OpenbiMs

is Evaston

19 Revew by PLN Boad

20 Retiew by WOI

21 RevIew by Ban . I 22 Appovsiby Bark D* lo23 WOI j0

24 Lowerof Awawd I hI'O.

Pap I

SwuAwer and KaWniantan Power PrefectBenal Hydroebectrl Power Plan Annex 5.4 page 2/3

1993 1994 11995 1996 1997 1 lm 1999~~~~~~~~~199

25 Eacecutlo

21 nflow Monitoring Systen

271 s i61bkds/NTT. i .2B Submission of bids

29 Open bids ()If

30 Ewalulon

31 ReWew by PLN Board

32 eftew bI WOI9

33 ReWlewbyBanr

A4pArova by Ban

35 LOI I

33 Engineetng & Construction super- -

39 Letter of Award ®~

40 Execution* . I -41 Hydraulic Turbines & Generators42 Issue bkdsNIT43 Submrission of bids

44 Open bds I ~ 12/2

46 Review by PiNBoard 9.,.. . , ,

4? Raviw byGOl U46 LOt

Sumatera and KaiUantan Power Project

B"n pydmenScht Power PWM Annex 5.4 page 3/3hnpemetatonSchedule

1993 1994 1995 t996 11997 1998 1999ID Name JJANSONJJ AMJASNI|J J JIJ ASPNIJFAMJJ|AIS| D J IF A JIJ|A|S JNJF JMAMa|J S JSIF A lJIJlAIS49 Letter of Award * ;6/23

50 Executhn _ _: = _ _ _ _ _ _ _ _ :__::_________

51 Transmission Lines & Substation -.

52 Isste bdsNIT (*) 3

53 Submission of bids

54 Openbids (*97m22

S6 Evaluation

56 Review by PLN Board

57 Review by GOI |

'58 _ 0 .___

59 Letter of Award I 1

___-__ 3 _

Pagte

RDONESIASUMATERA AND Y -. UIANrAN POWER PROJERC

BESM HYDROELECTRIC POWER PLANT PRoCURNT SCHEDULE

- - .. .. . .R - - Contract Value

packaBanktats . Jm. OPen Cnpicpe Boar d _GOI BBank a LOI Award tCor . (

civil Weo (8) S/93 69 gm93 2M94 5/94 7/94 894 9/94 9/94 9/94 10194 10194

=F) - - - - - - - - -

(A) . ._.______

MejsJ W 3 12( 2/94 3/94 5194 894 10/94 11/94 12/94 1/95 IS 2/95 2/95

(A) - -- ___ = -

tsMteiqW IS) 10195 1295 2/96 4/96 7/96 10_ 10/96 I Il/96 12V" 12(96 I/97 1117

lhds_ui 4/9() 10/94 12/94 3/95 3/95 4/95 5/95 6/95

(ebi .. .S)(Ii)

(A)_ - - - - -_

(S 4O9 10/94 12/4 3/95 3/95 4/95 _S/9S 6195

(A')

-tblation (S) 10/94 4=95 7/95 10/95 11i95 ==i9s 12J05 1/96

(F) -- _ _ - --

(A) == = =. . ===. ..

(S) 10194 4/95 7/95 10/95 11195 IIJ9S 12/9S 1/96

(A) aG T()=Appiaal Sheul* (B Formiaa (A) -AcMtua 0 Bank financed contmact package.

- 95 - ANNEX 5.6

INDONESIA

SUMATERA AND KALIMANTAN POWER PROJECT

ENvRoNMENTAL AssEssMEw SUMMARY

Banjarmasin Thermal Power Plant

Introduction

1. Pursuant to the objectives of the Government of Indonesia (GOI) to improve thewelfare of the popul.tion and to support the growth of economic activity by meeting the electricityrequirements in an efficient and reliable manner, the State Electricity Corporation (PLN) hasproposed to construct a coal-fired thermal power plant at Banjarmasin, in the Jorong Subdistrictof South Kalimantan, under the Sumatera and Kalimantan Power Project. The proposed loan willbe made to the GOI. The proceeds of the loan would be onlent to PLN, which is responsible forthe implementation of the project. The project financing includes the procurement under suitableexport-credit/supplier's credit, of the boiler package, inclusive of coal and ash handling plants,and possible cofinancing by the OECF, Japan, and Australia. GOItPLN will meet the financinggap from their owti internal resources.

2. The Electricity Act (Law No. 15 of 1985) defines the legal framework for theelectricity subsector of Indonesia. The subsector comprises: (i) PLN, the State ElectricityCorporation; (ii) captive plants; (iii) rural electric cooperatives; and (iv) a large number of informalmicroenterprises providing electricity to rural customers not served by PLN. The provisions ofthe Electricity Act are amplified in GOI Regulation No. 17/1990 for PLN and No. 10/1990 forothers. PLN was established as a public corporation with responsibility for the generation,transmission, and distribution of electricity, and the planning, construction and operation of electricsupply facilities. PLN is managed by a Board of Directors headed by a President Director, whois appointed by the President and is accountable to the Ministry of Mines and Energy. Operationalresponsibility devolves upon 17 regions, and the responsibility for major construction upon 13project managers. PLN has already appointed a project manager foi the proposed Banjarmasinthermal power plant.

3. Since 1969, the Bank group has provided about $4.1 billion for the power subsectorin Indonesia, through 3 IDA credits, 18 loans, and one supplemental loan. Project PerformanceAudit Reports and Project Completion Reports on fourteen projects have been issued. The reportshave concluded that the objectives set out for these projects at appraisal hav"e been achieved.

Project Description

4. A sizable deposit of lignite (165 MT proven, plus another 60 ),'vT indicated) hasprompted PLN to build a mine-mouth thermal power plant at Asam Asam, initially with twogenerating units of 65 MW each by the year 1998/99 and an ultimate capacity of 660 MW by

- 96 - ANNEX 5.6

2014, to cater to the continuing demand growth. The Engineering Services Center of PLN, inassociation with their Consulting Engineers, have conducted an enviromnental assessment (EA) ofthe proposed thermal power plant based on the feasibility study and the preliminary design reports.The environmental impacts and their mitigation and monitoring measures, including a resettlementplan for the Project Affected Persons (PAP), that are planned to be undertaken to ensure that theimpacts are contained within the regulatory limits set by the Government of Indonesia and theWorld Bank, are summarized in this report.

5. The proposed project, 130 km south of Banjarmasin, will be located about 12 kminland from the coastal area of South Kalimantan, in the village of Asam Asam. The project coversan area of about 110 ha. The project site is bounded to the west by the Asam Asam river, to thenorth by the Baru river, a tributary of Asam Asam, to the east by a secondary forest (mostly tallgrass field), and to the south by another tributary of Asam Asam. The site will support an ultimatecapacity of 660 MW, with 4 x 65 MW and 4 x 100 MW generating units, including the coalstorage and ash disposal areas, staff housing colony, electrical substation and administrative officebuildings, as well as the construction camp. A saw mill is located next to the project site.

6. Fuel. The fael for the mine-mouth power plant is lignite. The concession for thecoal mines is held by a private operator, PT Arutmin. PLN has already signed a Memorandumof Understanding with PT Arutmin for the supply of coal to the power plant at a cost of aboutUS$0.90/MI. The lignite is typically characterized by a heat value of about 4,000 kcallkg, an ashcontent of 3.0 percent, sulfur 0.23 percent, and total moisture 35 percent.

7. Boiler and Turbine. The natural circulation boiler will be pulverized coal fired.4 coal pulverizers will be installed per boiler. Steam at 87 bar and 5100 C will be generated in theboiler and piped to the inlet of the steam turbine. Steam flow through the turbine will correspondto about 270 t/h at full load of 65 MWI. The steam will be condensed in a condenser and pumpedback into the boiler through a series of feed water heaters.

8. Cooling Water. The power plant will have a closed circuit cooling water system,with cooling towers, for the condensers. The make up water required for operation will be drawnfrom ground aquifers, and treated chemically before use. However, part of the makeup watercould also be derived from the waste water treatment plant, provided the effluent from the plantis of acceptable quality.

Baseine Data

9. Geophysical - Climate, Physiology, Hydrology. The project site is located in awet, tropical climate area. The local air is very clean, as determined by actual measurements, andthe content of particles and gases is way below the threshold of the Standard Ambient air quality.The area surrounding the project site is a lowland plain, with almost flat topography, with anelevation of 0-10 m. The project site was once a rainforest, but this has been cut down many yearsago. It now mostly occupies swampy land owned by the government; only a small part to the westoccupies abandoned rice fields and upland areas. The Asam Asam river, flowing north to south,empties into the Java sea. The river water is used by the local population living on the river bankfor drinking, bathing and washing purposes. It also serves as a transportation infastructure forthe locality.

-97 - ANNEX 5.6

10. Soil. Soil analysis of the area indicates that it is mostly alluvial. Some latosol, ared tropical soil developed from the weathering of bedrock with intensive leaching of its nutrientelements, and some lateritic red yellow podzolic soil, are also present. The lowland alluvial soilis not much different from the upland soil types cxcept for its low pH value, which is detrimentalto vegetation. It is particularly unfriendly to paldy cultivation, which has been tried in the pastwith unsatisfactory results.

11. Flora. Most of the project area is covered by tall grass (alang alang), interspersedwith uplands, orchards, and bushes. The remaining primary forest in the northern part of this areais characterized by creeping vegetation and several species of trees that are continuously beingreduced by the logging operations. The secondary forest consists of shrubs and bushes whichundergo a succession of changes due to logging, cultivation, and wood gatherings. Thepredominantly swampy area is always inundated. Mangrove forests occupy the littoral areas, theirdensity increasing towards the coast.

12. Fauna. Mammas found in the area are mostly wild pigs, some monkeys, wfld cats,etc. There are many varieties of birds in the area, including falcons, hawks, parrots, and singingbirds. Lizards and water snakes, as well as some crocodiles, are also found in the riverine areas.Aquatic biota include varieties of fish.

13. Socio-economic Study. In all 36 families, comprising 144 people, will be affectedby the proposed project. 26 families reside on the actual project area, while 10 families, belongingto the same community, reside on the other side of the river. Most of the families in thiscommunity are transmigrants, who once had jobs in the saw mill, but gave up for various reasons.Preseny, they ear their livelihood by making thatch roofs from nipah palm leaves, by collectingscrap wood from the saw mill and selling them in the local market and by fishing.

Impacts

14. The environmental Impacts of the proposed project can be subdivided intu 3categories: (a) preconstuction, (b) construction and (c) post consuction.

(a) Preconstruction:Preconsteuction impacts include investigation and surveys, and land acquisition andresettlement.

(b) Construction:Land clearng and preparation, movement and operation of heavy constructionequipment and materials, and the concentration of a fairly large construction laborforce, many of whom may come from outside the local region, are the main impactsof the construction stage.

(c) Post Construction:The environmental impacts of the power plant will be caused by: gaseous emissionsfrom the chimney, liquid effluent and solid wastes from the power plant, housingcolony and office facilities.

-98 - ANNEX 5.6

Analysis of Alternatives

15. In the electidty sector, GOl's policy of substituting the use of oil by bydro,geothermal, gas, and coal-based energy is resulting in a mix with a higher percentageof generationby these means. One of the major objectives of GO} is to maximize the country's foreign exchangeearnings and budgetary revenues from the sector, mainly through the export of tradeable energyresources, including oil, gas and coal. Lignite, the chosen fuel for the proposed plant, is not atradeable commodity. Additiona1ly, it is cheap; the price of lignite being much lower than that ofbituminous or sub-bituminous coals. The proposed mine-mouth location of the power plant makesit the least-cost alternative.

Mitigation Plans

16. Gaseous Emissions. The products of combustion are SO., NOQ, and CO2.Sulfurous oxides are produced during combustion by the sulfur present in coal, nitrous oxides arepmduced by the inherent nitrogen in the fuel, as well as nitrogen in the air used for combustion,while carbon dioxide is the natural product of any combustion when carbon in the fuel unites withoxygen in the air.

17. Based on a 100-meter high chimney, a dispersion modeling has been conductedusing the USEPA's SCREEN Model. The predicted emissions at 660 MW generation level(ultimate plant capacity), and using the design coal, are as follows:

Constituent Max.Concentration GOI Standard WB Standard

SW 136.8 260 500

NO1 88.2 92.5 100

Dust 3.0 260 500

18. Based on the above results, it is concluded that flue gas dwulfuriz-tion will not berequired; however, coal quality must be closely monitored to ensure that there is no significantincrease of sulfur in raw coal. Ihe regulatory limit with respect to S% emission will be reachedif the sulfur in coal should exceed 0.5 percent.

19. Although NO2 emission is also indicated to be wihin the regulatory limits, low-NO.burners will be installed in the boilers to reduce the nitrous oxide emissions. Excess air will bekept at the minimum required to help complete combustion in the boilers.

20. Electrosttic Precipitators (ESP) will be instaled in the boilers, specified to havea dust collection efficiency of 99.7 percent. Particulates discharged from the chimney in any 24-hour period, with the power plant runnig at full load, will approximate 0.05 tons only for a totalquantity of 640 tons of coal fired in the boilers.

- 99 - ANNEX 5.6

21. Uquid EMueitt. The liquid waste streams are: (a) water treatmemt plant drqins;(b) demineralizer plant wastes; (c) boiler blowdowr.; (d) cooling tower blowdown; (e) power plantmiscellaneous drains; (f) run off and leachate from the coal and ash yards; and (f) sanitary wastes.

22. Some of the liquid effluent will be neutralized in a neutralizing basin, while otherstreams in a waste water treatment plant, treated for the removal of oily wastes and heavy metals.The quality of the waste water treatment plan t will comply with regulatory requirements. Tbiswater will then be used as makeup for ihe cooling towers. It can also be used for spraying overthe coal and ash pilcs to prevent dust nuisance, gardening and such other purposes. In the eventash is disposed 4f in the form of a slurry, the treated waste water from the waste water treatmentplant is a convenient source for that purpose. The sanitary wastes wi1l be treated in a sewagetreatment plant.

23. Solid Was"s:

(a) The solid wastes are fly ash and bottom ash from the boilers and fugitive dust inthe coal and ash handling facilities, and the water trea4ment plants. The coal supplycontract will provide for the ash to be taken back to the coal mines by the samecoal haulage trucks, for land reclamation purposes. When this is not possible, ashwill be disposed of in an ash disposal area, sized to accept ash for the next 30years, assuming there will be no commercial use of ash. However, because of itspozzolanic properties, fly ash could find use as an admixture to cement to the extentof 25-30 percent. The market for fly ash utilization is yet to develop in Indonesia.

(b) Water will be sprayed over the coal pile, as well as the asn disposal area, tomiugate fugitive dust muisance. The coal and ash handling faciities, as well as thewater treatment plants, will be designed to include dust mitigation measures.

Othe Impacts:

(a) Noise - All power plant equipment will be designed for a maximum allowablenoise level of 85 dBA at 1 meter from the equipment In addition, PLN guidelineof maximum 60 dBA at the fence will apply.

(b) Safety - OSHA regulations are enforced for the safety of workers and strictlymonitored. The plant design will include provisions for handling emergencysituations that might be caused by cheiaical spills, fires, etc.

(c) Socioeconomic and Public Health - Even though a mnmber of workers, especiallyof the skilled categories, will come from outside the localitv, which could be causefor initial resenment, the local people will be enriched by the interaction of culturewith the outsiders, as well as transfer of sldlls. Many of the local people will findwork in the construction of the power plant; their income level will rise as resultof the project.

(d) Flora and Fauna - 110 ha of land clearing will have insignificant negative impacton the flora species. The land is basically parched during the dry season, coveredat other times mostly in grass and scrubby bush, and some occasional strands of

-100 - ANNEX 5.6

taller trees. The area involved is relatively small. The fauna will migrate andrelocate in other areas.

25. Transmission Unes. Double-circuit 150 kV transmission lines will be constructedbetween dte power plant and Cempaka substation, about 75 kin away, between Cempaka andTrisakti substations, about 43 km apart, and between Cempaka and Barikin, about 110 km away.The spread of the impact is along the right-of-way (ROW), 50 m or either side of the transmissionlines. A separate EA has been performed for the proposed high voltage transmission lines. Thereis no significant impacts indicated, based on the proposed ROW.

26. Coal Mine Development. An EA report has been prepared by PT Arutmin fot thecoal mines. Its impacts mainly relate to quality of liquid effluent, noise and dust pollution.Effective mitigation measures and managing plans have been devised by the developers. The coalmine development has no resettlement component.

Resettlement Plan

27. The PAPs (36 families on the power plant site) will be resettled in a manner suchas to receive positive benefits from the project under a plan that has been conceived as adevelopment program. PLN has prepared a comprehensive resettlement olan in consultation withthe affected people, the host community, NGO and Government of"P&iaiS -Wicating budgetprovision, time schedule for implemtntation, and organizational respon..V ne plan is basedon the Presidentiai decree 55/1993 and the Bank's guidelines. The underiyimg , rin. :le is that mnecompensation and resettlement will be such as to assist the PAPs to improve theb ,ormer livingstandards, income earning capacity, and production levels, or at least to restore them. All of thepeople in this hamlet have immigrated from other places. As the hamlet has been established ongovernment land, none of the families have any formal titles to their land. The houses are of basicconstruction, rough-sawn timber, with one or two large rooms, and a small veranda facing the mainpathway. Some of the houses have add on kitchens. Many have planted fruit bearing tees in theirback yards, as well as the area in the immediate vicinity of the hamlet. PLN is committed tobuilding houses for resettlement that will have plot sizes no smaler than the current holdings.They will also have some open spaces so that those who want to grow fruit trees can do so. Thedesign of the houses will be such that it is acceptable to the PAPs and uses as much local materialas possible. PLN has also made provision for education and training for those PAPs who maywish to acquire new skills. These may include apprenticeship or training in vocational schools.For those of the PAPs engaged in the business with nipa palm leaves, PLN wi1l offer creditfacilities and help set up a cooperative society to better organize the trade. The compensationamounts and resetflement terms will be finalized by a "Local Team", comprising governmentdepartment officials, the subdistrict administrator, the village head, and the PAP in accordance withKepres 55 and the Bank's guidelines for involuntary resetement. These will also includecompensation or the fruit bearing trees. A complete resettlement plan, with budget cost, andimplementation plan has been prepared.

28. The implementation of the resettlement plan will be completed over a period of 18months and well ahead of the construction of the power plant. The financing of the resettlementwill be the responsibility of PLN. An area north of the project site has been earmarked, inconsultation with the PAPs, for resettlement. The location of the new site is near the nipah leaf

-101- ANNEX 5.6

resources and also, near the project road. Arrangement for infrastructure facilities, such as roads,drinking water supply to the new site, and sanitation will be made by PLN.

Monitoring and Evaluation

29. Monitoring and evaluation of the rescettlement plan will be done by an independentbody, consisting of local GOI officials, the university, NGO group, PAP representatives, and PLNmanagement. The independent body will undertake periodic monitoring of the implementation ofthe resettlement plan, identify issues affecting program implementation for attention of projectmanagement and formulate further action plans to improve the program.

Public Par,ieipation

30. Public consultations have been held by PLN at the project site, with NGOs operatingin South Kaiimantan area in attendance, besides officials of the local government, the saw mill, andPLN. One of the NGO representatives acted as the moderator fo- the meeting on 23 October 1993.During the consultation process, PLN agreed to provide for every family: (a) a similar-sized plotof land and a new house, similar to the one or better than that they now owned; and (b) fullcompensation for the tree crop they would have to abandon. PLN would also give preference tothe local people during construction based on their skills and experienice. PLN further agreed tofinance the construction of the necessary infrastructure in the new settlement area to assure, interalia, the availability of water for household purposes, -- ads, paths and electricity.

Sumalera and Keumntan Power ProjectBanjamasn Theanal Power Plant

bami onmernchedule Annex 5.7 page 1/4

1994 1995 1996 199. I9 9810 Nam MIAMJ IJ AISION J |F|M|AMJ J A S ONAS1 IFNMA M I J DA SFONjAM J F MA M J J AIS ON 0 J JF MIAMJ 1J |A SOiND 0J f MIAIMJ It SW*i't

2ilWoIs 1 *W- .___

3 Spinalon X

4 Approal by Bank

S Isoue b IdsiNIT

6 Subnlsbon of bids

7 Openblds . ®1/2.

a Evakhiotn .i.

9 Review by PLN Boa

10 Review by GOI .

11 Review by Bank 1o

12 Approval by Bank 6M5

1 3 LOI

14 Lelter of Award i6/2

15 Execto _

16 Steam Generator & Auxiarlies

17 Speificaton - I

18 Issue bids/NIT 3/16

19 Submisson of bids

20 Openbids

21 Evalualon

22 Revew by PLN Board

23 ReviewbyGOI

24 LOI

page I

Sumatera and Kalinaentan Power ProectSanlarmasnTmennalPowerPtant Annex 5.7 page 2/4

kmpementatlon Schedule

1994 .1995 199 1997 19998

ID Natme AMJJASONDJFMAMJJASOND JIfIMJAIMIJJ ASN JFIMIAMJJASONDJFMAMJIJAISONDJ AMJJ

25 Lelter of Award i )1/23.

2- Exectulbn .E E>=R................ Sa*xa,A ;

2_ TurbineGenerator Auxiliries I . . . .. __-______W

28 Specifiatlon l

29 Approval by Bank 2* 3l30

30 issue blsNIT C )4/13

31 Submbssion of bids 2I

32 Openbids 7120

33 EvawmUon

34 Rvw by PLN Bou I35 Rlew by WI

.

3B Retlew by Bank I37 Appb 88ar @ 1 30.

36 LOI .

39 Letr ofAward I i1M4

40 t .E. __on _.

41 Instwmenta & Controls .

42 Specification

43 Appval by Bank @ 125

44 IasubklNlT .. 3t7

45 Submbssn of bids 1

46 Open bids ( @6

47 Evauabkon.

48 R&vew by PLN Board , i

Page 2

Suratera and Kalimantan Power ProjectBanjarmasen Themial Power Plant

Implementation Schedule Annex 5.7 page 314

1994 1995 1996 1997 9 _1999ID Narne vl||MJ |J ATsToTND J |||F J| SONIDJ|MA||J|JAIs0ND |FM A 6 JJJJ_ IA Is|oE t0 E Al@ i Z49 Review by GOI i50 Review by Bank

51 ApprovalbyFBank (O) 1 f752 1 (7

53 LeterofAward I(0 11/14

54 ExecuIon { 4 -==

go Electrical Systens ,-...... . . >

se speiticaon cX

57 Approval by Bank ( 8/14

s8 Issue bidsINIT -I( 821

59 Submissfon otbds

60t Open bids - 11/13

ft1 Evaluation -.

62 Pevlew by PLN Board EJ

63 RevIew by GOI El

64 Review by Bank E 3

65 Approval by Bank (!) 41

66 L 0

67 L.er oft Award 4r2q

1 Transmtssion LIhes .

70 Specificatbon

71 IssuebkdsNrT . 6/15

72 Satbi . .Su misson of bids

Page 3

Sumatera and KI a_m Power Project

B*mw hennl Schedule Annex 5.7 page 4/4bnpemetaionSchedule

1994 1996 199 1997 1998 159

to Nne M MJ IJ A |SIOINIJIFM|A|M| JIJIAISIOIJI|NID J FAIMIAIMIJ JI |A|SOINIO F J MIAIMIJ IJA ISON J F MAMI I

73 OpenI . ..

74 EOnuto

75 Reiew by PLN Board Ea

76 Re ewby Go -

77 LOI

78 Lel o, f Avmd t@V

79 ExaAencution

30 Eng_t_e..,v

el Let o Award * 41

82 Exe .t .. _ _ _ _ _

P

Page 4

INDONESIA

SUMATERA AND KALIMANTAN POWER PROJECT

BAI IARMASIN THERMAL POWER PLANT: PROCUtREMT SCIIEDULE

. ' d .. B I Evao - Contract Counract vlue

to Bank to to to Bank US$ Eqv + Rpape .. Sta Bank Appr. Uwe Open Compl>te Board t01 Bank Appr LO Award CoOtr2Cor (wie VArT

woska (S) 10194 3/95 3195 6/95 9/95 12195 12/95 12J95 12/95 1/96 2/96 3/96

..) - - - -- - . .. -- - 1- --

(A)2gqBu1 t(S) 194 3195 3195 4195 7/95 10/95 10195 10/95 11195 11/95 12/95 1/96

(1F)

(A)

ctdichM (S) 2.95, 6195 6195 89S 1l95 1/96 1/96 3196 3196 3/96 4/96 5196

(A) _ _ _ _ _ _ _ _ _ _ _

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(F) - -

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(F) __.._

.. _ . _ _.... _.....(A )_ _ _ _ __ _ __ _ _ _ _ _ _

t @~~(3 10Q94,, 6195 9t95 1119S 11/95 11195 3/96 ,4196,,,t

Sw - = ( -- = (-= === = - = C P(3 cedl F - Poca p A -a ABPcPbtua * .. BakFnne onrc akg

- 107 - ANNEX 5.9

INDONESIA

SUMATERA AND KALIMANTAN POWER PROJECT

CONSUTANCY SERVICES FORSTRENGTHENG PLN'S ENVIRONMENTAL MANAGEMENT CAPABILIES

I. INTRODUCTION

1. The power sector in Indonesia is undergoing rapid growth. The fast pace ofdevelopment requires additional attention to be paid to the environment.

2. To date, PLN, which is responsible for power development in Indonesia, has noenvironmental policy of its own, nor does it have any dedicated environmental unit at the corporateor regional levels. This reflects directly on PLN's operations due to: (a) lack of managementguidance during planning and implementation stages; (b) inconsistent selection of technologies forpollution control; (c) lack of corporate policy on atmospheric emissions, especially in relation toglobal warming; (d) the unrealistic low cost of natural resources used by the power industry,mainly water and land, which leads to wvasteful utilization of these resources; (e) lack of long rangeplanning.

H. CURRENT °ISTITMONAL STRUCTURE

3. Environmental matters are presently handled Dy a division in the EngineeringServices Center (PPE) of PLN at the planning and assessment stage. When environmentalassessment (EA) reports are finally approved by the Central Commission (AMDAL) of theGovernment, EA monitoring for compliance with regulations is done at the plant level only. Thesmall environmental unit at the plant level, headed by the chief of the chemical testing laboratory,manages environmental affairs at each power plant. The unit reports to the plant manager who isdirectly responsible for plant operation and maintenance. As a result, management decisionsrelated to environmental matters may sometimes be biased by production-oriented considerations.

4. A small environmental unit in the corporate engineering office is responsible foradministeing processing of official environmental permits for new projects. EAs are typicallyprepared by consultants, with very little guidance from the company.

5. Routine monitoring is also sometimes performed as an exteral service byconsultants. The monitoring program is incomplete even though it is based on guidelines set in themonitoring plan of the environmental impact assessment.

m. PROPOSED OBJECTVES OF TIHE CONSULTANCY SERVICES

6. The objectives of the consultant's team will be to assist PLN in establishingenvironmental capabilities at corporate and plant level.

-108 - ANNEX 5.9

(i) Overall Objectives:

(a) Develop environmental management capabilities.

(b) Enhance computer data bases, environmental modeling capabilities, GIS(Geographic Information Systems) mapping capabilities and office technology forthe environmental groups.

(c) Improve the quality and capabilities to produce or guide environmental assessments.

(ii) Technical Objectives:

(a) Develop PLN's environmental policies.

(b) Standardize effluent a. emission disposal and treatmenttechnologies.

(c) Establish company's training programs, to keep pace with changing environmentalregulations, for workers at various management and operations levels, forenvironment and safety.

(d) Central follow-up and control on environmental compliance and safety performanceof plants.

(e) Enhance monitoring, data collection and analysis capability.

(iii) Resettlenent and Rehabilitation Objectives:

(a) Establish a Resettlement and Rehabilitation unit within the environmental group totake care of all aspects of land acquisition, community development, planDing,implementation and monitoring.

(O) Develop the company's R&R policies.

(c) Strengthen the human resources development program.

(d) Improve quality of life in employee's colonies,as well as for the project affectedpeople.

(e) Develop standard operating procedures (SOP) for R&R.

IV. RESPONSIBILITIES & ACTIVITIES OF THE ENVIRONMETAL UNIT

7. T'he environmental organization at the corporate level will engage in the flMowingactivities when fully developed:

- 109 - ANNEX 5.9

A. Policies and Regulations

(i) Formulate operational guidelines to conform with GOI's environmentalstandards, laws and regulations.

(ii) Develop overall corporate targets for pollution and waste reduction; thesemay cover more areas than government regulations, and/or be morestringent than current regulations.

(iii) Develop energy conservation programs for the generation, transmission andutilization of electric power.

B. Establish Corporate Stanhards

(i) Operations

a. Fuel quality standards and a policy for fuel selection.b. Operations methods to minimize emissions and effluent.

(ii) Development and engineering

a. Long term environmental planning and action plansb. Environmental equipment selectionc. Determination of effluent and em.ssions treatment systemsd. Engineering safety standards

(iii) Safety

a. Safety rating system for power plants and power transmissioninstallations

b. Emergency contingency plans and drills.c. Formation and training of staff health and safety committees at each

power plant.

(iv) Natural resources

a. Establish guidelines for utilization and preservation of naturalresources: surface water; groundwater; agricultural land; forests;cultral resources; and others.

(v) Monitoring

Develop standards and guidelines for:

a Monitoring methods, frequency, analysis, and data reportingb. equipment selection criteriac. establish a computer center and data bank for atmospheric emissions

dispersion models, and monitoring data collection and analysis

-110 - ANNEX 5.9

d. establish qualification criteria for selection of monitoringcontractors.

e. compile existing data or initiate monitoring activities for base linedata for future installations.

f. Develop SOP and associated training and follow-up trainingworkshops.

(vi) Auditing

a. Establish a routine for auditing and supervision of enviromnentalmanagement and safety.

(vii) Environmental assessments

a. Prepare guidelines and T.O.R. for Environmental ImpactAssessment (EIA) to supplement the Government's requirenments

b. Establish selection criteria for EA consultants

(viii) Corporate environmental laboratory

a. The environmental maintenance and environmental impactassessment groups should be supported with adequate fieldmobilization, sampling and analysis equipment

8. Tne environmental organization at the corporate level will also engage in thefollowing activities when fully dev'loped:

(i) Training centers for management and operations personnel in environmentaland occupational health and safety management and policy.

(ii) Coordinate field operations and program implementation.

(iii) Facilitation of environmental initiatives in laboratory and field studies.

Technical Activities Plant Site Levels

9. The scope of activities at the plant site level will include the following activitieswhen fully developed:

(i) Implementation of environmental health and safety policies.

(ii) Monitoring for compliance with regulatory and corporate standards.

(iii) Environmental initiatives in laboratory and field studies.

(iv) Develop site-specific SOP for environment and safety, with associatedtraining.

-1ll- ANNEX 5.9

Resettlement and Rehabilitation (R&R) Activities

10. The Resettlement and Rehabilitation unit will be established to take care of allaspects of land acquisitions, coninunity development, planning, implementation and monitoring.

R&R Corporate Level Activities

I. At the corporate level, the. R&R unit will engage in the following activities whenfully developed:

(i) Develop the company's R&R policies.(ii) Strengthen the human resources development program.(iii) include the concept of R&R and community development as an integral and

important part of the plant General Manager's job description andperformance rating.

(iv) Set up incentives for staff at all levels, and for individual power plants, forexcellence in the R&R and community development field.

(v) Encourage formation of corporate-wide integrated R&R and communitydevelopment strategies through regular seminars and the establishment of anR&R Community Development Newsletter at corporate headquarters,drawing on experience from the various power plants in the PLN systems.

R&R Plant Site Level Activities

12. At the plant site, the R&R units will:

(i) Register all people to be affected by land acquisition;

(ii) Inform and consult the affected population, and organize appropriategrievance mechanism;

(iii) Monitor the formal process of land acquisition and payment ofcompensation, and provide relevant assistance if needed;

(iv) Implement resettlement and rehabilitation of affected people as per approvedplans;

(v) Establish collaboration with local NGOs which represent PLN staff andfamily members and other local interest groups;

(vi) Broaden the concept of R&R to include community development in thevicinity of the plant, including the improvement of the quality of life inemployee's colonies.

-112- ANNE 5.9

Support Services Activities at Corporate Level for R&R and Technical

13. At the corporate level, support services will be developed to undertake thefollowing:

Develcp humanu resources by establishing a clearly defined career developmentprogram with professional growth opportunities.

Develop data management services to:

(i) Support environmental monitoring and monitoring data analysis.

(ii) Design monitoring data analysis software.

(iii) Develop geographic information database to support environmentalassessments.

(iv) Develop or obtain software for environmental impacts analysis, to supportenviromnental assessments and routine monitoring.

(v) Word processing and report production equipment and staff to support alloperations under the Head of the Environmental Department.

V. lMPLEMENTATION

14. Prior to the commencement of the consultant's activities PLN will appoint a headof the new Environmental Department who will then work with the consultant's team to determinethe needs for environmental staff at corporate and plant levels. The consultant will make additionalrecommendations according to its finding during all phases of his consultancy work.

15. It is expected that the person in charge of the environmental department in PLN willbe a Senior Manager, fully dedicated to environment and safety, and reporting directly to thePresident Director.

16. During his work, the consultant will review the existing structurJ of PLN, identifydepartments that presently have direct or indirect bearing on environmental work, and review theirperformance based on past experience, in relation to environment. Based on this analysis andfuture needs of the environmental unit stipulated above, the consultant will recommend which ofthese should be strengthened, canceled or integrated into the new department.

17. The consultant will assist the new head of the Environment Department to developa staffing plan. ITe development of environmental management capability will be compared withsimilar utilities on an international basis as well as organizations operating within the environmentalperformances standards of GOI in Indonesia.

18. The staffing plan for hiring skilled staff will be developed based on a salary surveyof environmental professionals in the public and private sectors. Consideration should be given tothe possibility of farming out part of the services to qualified outside contactors. This wil

-113 - ANNEX 5.9

depnd, of course, on a survey performed by the consultant assuring the availability of qualifiedserces.

19. The consultant will develop a financial plan as detailed in section VI below.

VI. SCOPE OF CONSULTANCY SERVICES

A. Environmental Unit Development Plan

20. The consultant would be asked to prepare a development plan of the environmentalunits within PLN, for the first 3 years of the unit's operation. The plan will include, but notlimited to, the following:

(a) Identification of a focused management set of priority objectives and activities foriraplementation at corporate and plant levels in PLN, with specific performancecriteria for each activity at each level.

(b) Preparation of a staffing plan for hiring skilled environmental staff, and farming outpat of the work to outside contractors.

(c) Design a training program for all levels of the environmental units to cover:environmental management, natural resources, pollution control, monitoring R&R,and community development data collection and processing, preparation of EIA,safety and environmental audit and legal aspects and GOI regulations. The programto include a curriculum for the various teaching programs, estimated list ofclassrooms and equipment for each curriculum. A mobilization plan for teachingstaff equipment and facilities from inside and outside PLN (using existingUniversities and research institutes), should be presented.

(d) Preparation of a financial plan setting out the costs of:

(i) routine environmental management activities; e.g. monitoring and audits.

(ii) purchase installation and operation of pollution control technology.

(iii) costing of training and followup training workshop activities.

21. Prior to preparing the development plan, the consultants would survey the regulatoryfrmnework for pollution control in the energy sector in Indonesia, and would identify key existingregulations and possible gaps therein. Such survey, together with the technical assessment of keyissues, would be the basis for identifying the priority objectives and activities of the environmentalunit in the development plan.

B. Implementation assistance as detailed in section V above.

-114- ANNEX 5.9

C. Policy Guidelines and Regulations

22. The consultant will prepzre suggestions for policy guidelines and regulationscorresponding to those included in the objectives of the PLN's environmental unit, as follows:

(a) Guidelines and interpretation of GOI's environental laws and regulations, knownto the date of preparation, that will enable PLN to comply efficiently and in adependable manner.

(b) Corporate targets for PLN's total atmospheric emissions effluent discharges solidwastes disposal (mainly ash). The targets will be variable with time and willdepend on demand/supply constraints and development plans of PLN. The variabletargets will have to be associated with changes in fuel quality, abatementtechnologies and a comprehensive energy conservation program. Energyconservation will reduce both green house gases and various emissions effluent andsolid wastes.

(c) Guidelines for EA preparation and SOP preparation.

(d) R&R policies and SOP.

(e) Establish guidelines for utilization and preservation of natural resources such aswater, land, forest, cultural resources, and others.

(f) Establish safety and health policies and SOP preparation guidelines.

D. Technical/Operational and Managenent guidelines

(a) The consultant will develop a methodological approach to long term environmentalplanning.

Safety

(b) The consultant will review Indonesian and other international safety designstandards and will recommend which one, or any combination, should be used byPLN.

(c) The consultant will present a review paper of existing plant safety rating systemsand recommend one to be used by PLN.

(d) The consultant will prepare an outline for preparation of emergency response plans.

(e) MonitoringDevelop a monitoring guideline package for power plants covering methods,equipment, frequency of monitoring, data processing and reporting. The packageshould include an atmospheric dispersion model, and verification and analysis ofdispersion model results. The package should also include criteria for selection ofmonitoring contractors.

-115- ANNEX 5.9

(f) Auditing and EA

- Prepare general T.O.R. for environmental and safety audits of typical PLNinstallations, covering generating plants (coal-fired, hydrc, geothermal, gasturbines, diesel engines and combined cycle plants).

- Prepare T.O.R.'s for EAs for transmission and distribution components.

E. Corporate Laboratory - An outline for setting up a corporate environmentallaboratory should be prepared. This should cover manning, equipment (stationaryand mobile) and a computer center and data bank for collection and analysis ofmonitoring data.

F. Support Services - Define the scope, manpower equipment, computers andsoftware required for support services for the enviromnental unit as follows:

(i) Human resources development

(ii) Data management services for:- monitoring data collection- monitoring data analysis- geographic information data base- word processing and reports generation

VII. REPORTS AND OUTPUT

23. The consultant will prepare monthly progress reports, as well as consolidated reportsat the end of each phase; however, other working papers may be required as a result of the study.The reports will be submitted to a Technical Committee to be appointed by the head of the newviivironmental unit for review and evaluation. All the data collected and the analyses carried out,shall be handed over to PLN and the World Bank, both in computer-readable form, and in the formof hard-copies, copies of software with manuals he has made use of, and arrange adequate trainingto the staff on conclusicn of the study.

24. The direct and indirect costs of training the staff, excluding the time dedicated bythe consultant's team will be borne by PLN.

Vm. WORKSHOPS

25. The consultant will c ,nclude each part of his study by running a short workshop tothe core management of the new enviromnental unit.

IX. PERW NNEL QUAIFICATIONS AND RESOURCES

26. The consultant will include in his team expertise in -e following areas:

(a) Sociology resettlement and rehabilitation(b) Corporate environmental management

- 116- ANNEX 5.9

(c) Computeized data management and GIS development(d) Office management(e) ProfeUsional program development for health and safety taining(f) GOI environmental regulatory programs

27. Altogether, about 50 man months will be required. Local non-qualified support stiawill be provided by PLN.

X. REPORTING AND REVIEW

28. The consultant wil clearly distiguish between various stages of the study and allowfor a review of each stage by PLN's envirnmetal unit core. The suggested stages of work areas follows:

Preeted XWeeks After

Reports Inception

1. Inception report: Confirmation or modificationof work plan depending upon a quick review 10

2. Report I: Environment unit development planas described in 6A above 25

3. Short implemenation progress reports, startingfrom the inception report, every 4 weekss

4. Report II: Policy guidelines and regulationpackage as described in VI C above 50

5. Report III: Technical, operational and managementguidelines as defined in VI D above 60

6. inal Report: Compilation of reports I to m intoa final report commented and approved by PLN. 80

-117- ANNEXS.10

NNESIASUMATERA AND KALTMANTAN POWER PROJECT

DEMAN MANAGEMENT

Background

1. PLN's five year Corporate Plan and Strategy (RENSALITA 92/93-96/97) establishesa target of 144 GWh of energy savings by 96/97, from implementation of a DSM program(24 GWh in 93/94, 85 GWh by 94/95, and 136 GWh by 95/96). Plans are underway to undertakepilot field tests of compact fluorescent lamps (CFLs), as well as an electronic ballast pilot program.Other pilot programs are under consideration as well. Negotiations are also underway with theADB to obtain financing that will enable expanded implementation of the some of these pilotprograms.

2. Whereas PLN's efforts are to be applauded and encouraged, what is missing atpresent is a carefully developed and rationalized strategy for DSM and the corresponding actionplan based upon data and conditions specific to Indonesia; including the identification anddevelopment of detailed program designs, establishment of realistic quantitative targets ofpenetration and savings to be targeted, and determination of the most efficient delivery andincentive mechanisms for achieving the established goals of the DSM program as well as thefnancing plan for DSM. In this context, a recently completed study on demand-side management,funded by USAID, has identified an action plan for DSM in Indonesia. The USAID study providesa good base of understanding and a starting point for further analysis and program design, strategyformulation, and refinement of the action plan.

3. Key institutional issues also have not been addressed in Indonesia with respect toDSM. Within PLN itself, if it is serious about expanding DSM from pilot programs to full scale"production grade' programs, will require the establishment and training of a core group of staffdedicated full time for this purpose. Simply expanding the responsibilities of existing staff membersor assigning them to yet one more (DSM) task force will not enable PLN to capture savings to anappreciable degree. Although PLN is a natural candidate for designing and implementing DSMprograms, a role also exists for DGEED especially in the areas of policy formulation and nationalenergy strategy planning. Specifically, Presidential Decree No. 43, issued in 1991, outlining abroad mandate in energy conservation, has been followed in 1992 by the preparation of a nationalenergy conservation plan by DGEED. It is reported that the current goal is a 17 percent reductionin projected national energy demand by the year 2000. However, specific programs and targets bysector remain to be identified, including supply and demand-side targets for the power sectorconsistent with this ambitious goal. Among some of the other government agencies that have abearing on DSM is the Department of Public Works (DPW), that has released guidelines for energyefficient building design and construction and needs assistance to develop a mandatory buildingenergy code; including gaining the acceptance of building developers, A&E firms, and equipmentmanufacturers.

-118- ANNEX5.10

Proposed TA

4. The objective of the proposed DSM technical assistance component of the Sumateraand Kalimantan Project will be to provide funding to facilitate the following types of activities:

e conduct a thorough and comprehensive evaluation of alternative DSM programoptions-technologies, delivery mechanisms, and incentive and promotionalframework-in order to develop detailed program designs for the most promisingoptions for Indonesia. On this basis, rationalize quantitative targets for DSMsavings by consumer sector, program type, and over the short and medium term.Identify financing strawgies and effective institutional mechanisms for supportingDSM implementation, taking into consideration the interests and perspectives of thevarious stakeholders and the regulatory framework in Indonesia.

° develop PLN's institutional capability to conduct and/or manage the full range ofactivities that are likely to be required if DSM is to be implemented on a wide scaleand is to be truly effective.

o train PLN and DGEED staff in the areas of program design, monitoring andevaluation.

* design and implement an evaluation methodology for PLN's CFL pilot project aswell as develop a DSM program monitoring and evaluation methodology morebroadly.

5. The proposed TA would provide for long term technical assistance to facilitate thework elements identified above among others; perhaps over a two year time frame. The expatriateconsultants (up to two individuals) would be based in Jakarta, possibly in PLN Pusat. They wouldwork closely with a counterpart team of PLN and DGEED staff. For this purpose, PLN wouldassign at least two or three staff members on a full time basis to this effort. Other staff could beinvolved on a part time basis. In addition to the long term resident staff, foreign consultants withspecial areas of expertise would be available for short term assignments/missions on a as neededbasis. The TA would also include finding for study tours and participation in specialized DSMseminars/training programs overseas for PLN and DGEED staff. Funding could also potentiallybe made available for securing training materials and some equipment to support the DSM programactivities.

-119- ANNEX5.11

INDONESIA

SUMATERA AND KALMIANTAN POWER PROJECT

TERS OF REFEUENCE FOR PILOT PROJECTS FOR PLN'S REIONS IV & VI

Background

1. Indonesia's power sector is growing rapidly. PLN's installed capacity has increasedfrom 2,288 MW in 1978/79 to about 11,000 MW in 1992/93, and its sales has grown at an annualaverage rate of 16 percent during the same period. A primary objective of the Government ofIndonesia is to ensure efficient and reliable supply of electricity at least cost, while closing the gapbetween supply and demand, by constructing new generating plants and extending the transmissionand distribution network. The rapid growth has placed heavy demands on PLN to expand its abilityto manage its ever increasing operations.

2. PLN's operations in the Outer Islands, i.e., outside Java, are organized into 11geographical regions (Wilayahs). The operational characteristics of the power supply systems inthe Outer Islands are different from those in Java-Bali. Except for a few minor fragmented gridsystems, based on low capacity (150 kV and lower) transmission lines, PLN's operations dependupon a large number of small, isolated diesel generators, with a low load factor. Most of PLN'ssales within the Outer Islands are concentrated in the urban areas. The share of captive power intotal installed capacity is about 50 percent.

3. The long run development of the power sector in the Outer Islands requires theprogressive replacement of the large number of isolated diesel generating units by interconnectedgrids supplied by central generating plants. Even though the private sector is expected to play anincreasingly important role in the development programs, and there is scope for harnessing captivepower capacity that is not connected to PLN's grids, PLN will continue to play a dominant rolein the supply of electricity. The transformation of the sector therefore will require a number ofchanges in PLN's operations.

4. At present, PLN is constituted as a single entity, which manages its operations inall parts of the country with centralized control. The Managers of the regions in the Outer Islandshave limited autonomy and responsibility, and little accountability for theirperformance. Recently,PLN has developed a preliminary reorganization plan for decentralization of authority andresponsibility. The options for restructuring PLN include the vertical disaggregation of generation,transmission and distribution functions in the Outer Islands.

Objectives

5. Through appropriate technical assistance, it is proposed to devise specific action planto implement efficiency improvements in PLN's operations through decentralization. PLN'sRegions IV in South Sumatera and VI in South Kalimantan are selected as pilot regions forimplementing the proposals on an accelerated basis to serve as models for other regions.

-120 - ANNEX 5.11

Scope of Work

6. The scope of work would include: (a) strengthen the organization; (b) implementdistribution management recommendaions; (c) prepare a 5-10 year investment strategy forgeneration, transmission, distribution and telecommunications, etc., with due cognisance of thelarge captive capacity and provide scope for private participation; (d) introduce accounting systemssuited for decentralized operations; (e) decentralize authority for Wilayah managers for staffing,training, consumer administration, billing, accounting, etc., as if they were an autonomouscommercial center; and (t) design a performance contract between PLN Headquarters and theWilayah through which the Headquarters will control.

7. A management consulting firm is already studying how best to improve utilizationof the instaled capacity in the Wilayahs, reduce demand-supply gap, facilitate adequatemanagement and financial resources for the Wilayahs to accelerate electrification, create anincentive framework and performance criteria to promote greater innovation and efficiency, andintroduce a system of management control, budgeting, planning, staffing, manpower development,spare parts inventory, etc.,. to encourage local initiative. The recommendations under the proposedTA and detailed action plans for the two pilot projects will need to be developed in light of theagreed strategy adopted by PLN on the basis of the management consultants' recommendations.

-121- ANNEX 5.12

INDONESA

SUMATERA AND KALIMANTAN POWER PROJECT

BESM HYDROELECIRIC POWER PLANT

Cost Estimate: Local Foreign Total Local Foreign Total

- (US$ million) (Rp billion)-

1. Preparatory Works

- Access Roads 3.0 2.5 5.5 6.3 5.3 11.6

- Base Camp & Office 2.1 1.7 3.8 4.4 3.6 8.0

- Erection of Substation 0.4 0.3 0.7 0.8 0.6 1.4

- Land, Resettlement 3.5 - 3.5 7.4 - 7.4

2. Civil Works 17.9 64.3 82.2 37.7 135.4 173.1

3. Metal Works 1.4 9.1 10.5 2.9 19.1 22.0

4. Hydraulic Turbines 1.1 5.9 7.0 2.3 12.4 14.7

5. Generating Equipment 2.4 14.4 16.8 5.1 30.3 35.4

6. Transmission Line 0.9 3.5 4.4 1.9 7.4 9.3

7. Inflow Monitoring System 0.2 1.2 1.4 0.4 2.5 2.9

8. Engineering: Preconstruction La 0.8 2.5 3.3 1.7 5.3 7.0

Construction 4.3 14.2 18.5 9.1 29.9 39.0

9. Administration 7.6 - 7.6 16.0 - 16.0

Total Base Cost 45.6 119.7 165.3 96.0 251.9 347.9

Physical Contingency 6.2 15.2 21.4 13.1 32.0 45.1

Price Contingency /c 5.9 12.2 18.1 12.4 25.7 38.1

Total Project Cost Ld 57.7 147.1 204.8 121.5 309.6 431.1

Interest During Construction 24.9 31.9 56.8 52.4 67.1 119.5

Total nancing Required 82.6 179.0 261.6 173.9 376.8 550.7

/n Pronstrucun egineei and desig being fianced under Loan 3602-INDlb Prparatory Works 20%; Civil Works 15%; Metd Works 5%; Ecl Equipment,

Engineering and Administration 10%./c Applied to expendiues beyond 1993 at global fori and local annual nflaton rates of 2.8% and

5.5% respectively./d Ihe local costs are inicusive of taxes and duties estimat to be about US$18.6 million equivalen.

-122 - ANNEX 5.12

IONESIA

SUMATERA AND KALIMANTAN POWER PROJECT

BESAI HY]DROELC POWER PLANT-------- (US$ million equiv.) --------

Cost Estimate: Local Foreign Total(with contingencies)

1. Preparatory Works

- Access Roads 3.7 3.1 6.8

- Base Camp & Office 2.5 2.1 4.6

- Erection of Substation 0.5 0.5 1.0

-Land, resettlement 4.3 - 4.3

2. Civil works 23.2 80.3 103.5

3. Metal Works 1.7 10.5 12.2

4. Hydraulic Turbines 1.5 7.2 8.7

5. Generating Equipment 3.0 17.7 20.7

6. Transmission Line 1.2 4.3 5.5

7. Inflow Monitoring System 0.2 1.5 1.7

8. Engineering: Preconstrucfion 0.9 2.7 3.6

Construction 5.4 17.2 22.6

9. Administration 9.6 - 9.6

Total Project Cost La 57.7 147.1 204.8

Interest During 24.9 31.9 56.8Construction

Tota Fanciug Requhed 82.6 179.0 261.6

Li Ibe local costs ae inclusive of taxes and duties estimated to be about US$18.6 miflion equivalent

-123 - ANNEX 5.13

INDONESIA

SUMATERA AND KALIMANTAN POWER PROJECT

BAIqARMSN THEIAL POWER PLANT

Cost Estimate: Local Foreign Total Local Foreign Total

----(US$ million)---- ----(Rp billion)--

1. Civil Works I 24.5 - 24.5 51.6 - 51.6II 19.9 6.9 26.8 41.9 14.5 56.4

2. Steam Generator, Coal 18.3 42.7 61.0 38.5 89.9 128.4and Ash Handling

3. Turbine Generator 6.8 44.0 50.8 14.3 92.6 106.9

4. Electrical 3.9 25.1 29.0 8.2 52.8 61.0

5. Control and 2.4 10.3 12.7 5.0 21.7 26.7Instrumentation

6. Transmission 13.2 36.6 49.8 27.8 77.0 104.8

7. Engineering:- Preconstruction /a 0.9 2.1 3.0 1.9 4.4 6.3

- Construction 3.8 6.4 10.2 8.0 13.5 21.5

8. Administration and 2.6 - 2.6 5.5 - 5.5Supervision

9. Housing and 4.6 - 4.6 9.7 - 9.7Resettlement

Total Base Cost 100.9 174.0 274.9 212.4 366.3 578.7

Physical Contingency 12.3 17.7 30.0 25.9 37.3 63.2

Price Contingency 11.2 19.0 30.2 23.6 40.0 63.6

Total Project Cost /b 124.4 210.7 335.1 261.9 443.5 705.4

Interest During 15.5 31.5 47.0 32.6 66.3 98.9Construction

Totad FinancIng 139.9 242.2 382.1 294.5 509.8 804.3Required

/a Preconstucdon engineering financed under Loan 3501-INDlb The local costs are inclusive of taxes and duties estimated to be about US$28.4 miUlion equivalent.

- 124 - ANNEX 5.13

INDONESA

SUMATERA AND KALIMANTAN POWER PROJECT

BANJARMASI ThERMAL IPOWVER PLANT

Cost Estimate: Local Foreign Total(with contingencies) - (US$ million eqv.)---

1. Housing and Resettlement 5.6 - 5.6

2. Civil Works I 30.5 - 30.5II 25.6 8.7 34.3

3. Steam Generator, Coal and 22.2 51.6 73.8Ash Handling

4. Turbine Generator 8.2 53.2 61.4

5. Electrical 4.8 30.4 35.2

6. Control and Instrumentation 3.0 12.4 15.4

7. Transmiission 15.8 44.5 60.3

8. Engineering Service: Preconstruction 0.9 2.1 3.0

Construction 4.6 7.8 12.4

9. Administration and Supervision 3.2 - 3.2

Toftal Prject Cost La 124.4 210.7 335.1

Interest during Construction 15.5 31.5 47.0

Total Tiancing Required 139.9 242.2 382.1

/a The local costs are inclusive of taxes and duties estmated to be about US$28.4 million equivalet

-125 - ANNEX S.14

INDONESA

SUMATERA AMD KALIMANTAN POWER PROJECT

PROCu1tEmET EcIENCY

1. Improvement of the internal procurement procedures of PLN to significantly shortenthe procurement cycle and satisfy the requirements of the project implementation schedules willentail the following essential steps. Actions in this regard are required to be taken by PLN as wellas by GOI. While GOT procurement regulations (KEPRES 29 and other related regulations) areof importance, some of these differ from the World Bank's requirements for procurement, andcause major delays in the implementation of projects. It is to be noted that, in accordance with thelegal opinions expressed by the Bank and the GOI, Bank guidelines for procurement underinternational competitive bidding (ICB) for items financed under Bank loans, supersede those ofthe GOI. Although newly-issued Bank procurement guidelines will be mandatorily enforced forfture lending operations, it is strongly recommended that all procurement under ongoingoperations also conform to the current guidelines.

2. Standardization of Bidding Docuwn ,f Current World Bank procurementguidelines mandate that for all future loans, bidding documiients shall be the Bank's Sample BiddingDocuments (SBD) in their organization, format and language, as this reduces the time required byPLN to prepare them, the Bank to review them and protects the interests of both the Buyer and theSupplier. The commercial sections comprising the Invitation for Bids, Instructions to Bidders,General Conditions of Contract, and other commercial conditions, including the Bid Form, BidSecurity Form, Performance Security Form, the Letter of Intent, etc., should be standardized inaccordance with the Bank's SBD for Goods and for Works. A similar SBD for the Electrical andMechanical Works is under preparation by the Bank and will be available shortly. Until such timeas this document becomes available, it is recommended that the FIDIC Conditions for theProcurement of Electrical and Mechanical Works be used for such procurements. These standardsshall be used for all procurements to be financed out of the proceeds of the Bank loans.

3. Contract signing with the lowest evaluated bidder should be expedited.

(a) Prolonged discussions with the winning bidder on issues extraneous to its bid causemajor delays. All deviations from the specification, both commercial and technical,should be listed and attached to the Letter of Intent (LOI), which should constitutethe formation of a Contract, with attendant legal connotations. This should permitthe Supplier to start work immediately upon receipt of the LOI, because even if aContract is not signed for any reason, the Supplier is assured of compensation forany authorized work it undertakes before contract signing. Discussion with thewinning bidder should be restricted to the listed items only and resolved as earlyas possible to facilitate the signing of a contract.

(b) No attempt should be made to increase the "local content" or switch subcontractorsin favor of one who may have a higher level of local participation than the other,

-126- ANNEX 5.14

as this is likely to introduce economic inefficiencies. It also violates Bankguidelines for procurement and may actually constitute misprocurement.

4. The procurenat proces, leading to contract award, should be completed withinthe bid validity period, especially in respect of firm price contracts.

(a) Current Bank guidelines call for automatic adjustment of the bid prices for all firmprice bids, based on the movement of declared indices in the bid document, suchas for labor and material, in the event an extension of the bid validity is required.

(b) If Suppliers do not have to build into their price the cost of expected delays incontract signing, and if it is specified that a delay beyond the bid validity periodwould carry automatic adjustment of prices, it can be expected that this policywould result in a lower level of bid prices to the advantage of PLN.

5. Leter of Credit (LC) should be opened in no more than 30 days following thesigning of the Contract.

(a) This requires that contract approval by agencies external to PLN, should beexpedited, which includes Form II approval as well.

(b) It is strongly recommended that for all large projects, a senior level manager beassigned to coordinate all aspects of the implementation of the project, especiallythose relating to procurement. This senior person would interface directly withPLN Board, as well as with concerned Government agencies, to expedite the entirebidding process, including approvals and issuance of L/Cs.

6. Time taken for the evaluation of Consultant proposals and contract award is too longand should be shortened.

7. It may be noted that GOI guidelines for expatriate compensation rates are no longeradequate in many cases. These rates should be revised to reflect current conditions and updatedannually.

8. Contract finaLization under export-credit financing needs to be completed withmuch greater expedition.

9. It is necessary to finalize export-credit financing to meet the requirements of theproject implementation schedule, set at appraisal. Contract packages financed by export-creditshould not be seen in isolation from the rest of the procurement cycle under the project.

- 127 - ANNEX 5.15

IDONESUSUMATERA AND KALIMANTAN POWER PROJECT

DIBURSEMEN SCHDULE

Disbursement Indonesia DisbursementBank FY Cumulative Prryfile (Power)

& Semnester Semester Cumulative % of Loan Cumulative % of Loan

1995 1 3.0 3.0 1 3

II 7.0 10.0 4 10

1996 I 15.0 25.0 10 14

II 21.0 46.0 18 26

1997 I 28.0 74.0 28 38

II 34.0 108.0 41 54

1998 I 36.0 144.0 55 66

II 39.5 183.5 70 74

1999 I 35.0 218.5 84 82

II 25.0 243.5 93 86

2000 I 10.0 253.5 97 90

II 7.0 260.5 100

Source: Implementation SchedulefPLN

IMPLEMENTATION SCHEDULE FOR TA COMPONENTSUNDER THE SUMATERA AND KALIMANTAN POWER PROJECT

STEPS/COMPLETION DATES

NVITATION EVALUATIONSTUDYI TOR POR REPORT TO CONTRACT INCEPTON INTERIM FINAL REPORTim1 AREED MR= p mROPOSAL SIG NE" RTEPORT(S) COMPLETION

1) Envinameutl (APP) NAManganet for theCoal Mining Sector (ACT) 6/93 6t93

Dirw4Appointl

2) DanadSide (APP) 5/94 6/94 7t94 11/94 3J95Managav

(ACT)

3) PLN' Etviwnmcntal (APP) 5/94 6/94 7/94 11/94 3/95Mwgemat Cepsbidy

(ACT)

4) Pilot Proijota (APP) 5/94 7/94 8/94 12/94 4/95PLN's Region IV & VtG

(ACT)

5) Bajmasin Steam (APP) 8W92 8/92 1/93 3/95 6/95 9195 4199Poww Phnt (CoNU-in Supeviion) (ACT)

6) BDa Hydmelctric (APP) 8/92 8/92 12/92 6/94 9/94 12194 11/98Power Pzoject (Contt-Job Supavision) (ACM)

(AP - AFppi(AMI - Miud

- 129 - ANNEX 5.17

NDONESI

SUMATERA AND KALIMNATAN POWER PROJECT

PROJECT SUPERVSON ARRANGEMENS

1. PLN's Supervision Arrangements. PLN has appointed Project Managers for thetwo major physical components of the project; Besai hydroelectric and Banjarmasin thermal powerplant. The bidding documents will be prepared in accordance with the procurement schedule, byPLN's Engineering Services Center (PPE), supported by the Engieering Consultant appointedfor each of these project components. Construction supervision and quality assurance are includedin the scope of services of the Engineering Consultants, who will be assisted by local associates.Tedhnical assistance components, other than that for GOI, will be managed by PPE who willsupervise the work of Consultants.

2. GOI's Supervision Arrangements. The technical assistance component for theBureau of Environment and Technology to improve its environmental capabilities in the miningsector will be managed by the Directorate General of Mines, Ministry of Mines and Energy, whichwill be supervising the work of the Consultants.

3. Bank Supervision Inputs. During the initial phase of project implementation, Banksupervision will involve close monitoring of the procurement and technical assistance activities.The Consultants will be required to submit monthly progress reports. Preconstruction engineeringservices for the Besai hydroelectric and Banjarmasin thermal power plants will be monitored toensure compliance with best engineering practices and regulatory environmental requirements.Implementation of the Resettlement Plans for the two power plants will be closely monitoredthrough RSI to ensure that the agreements reached with the project affected people and the NGOsare complied with to the Bank's satisfaction. Technical assistce components will be monitoredto ensure adequate counterpart staff participation and effectiveness of the programs.

4. The Bank staff resources to supervise the project would be about fifteen staff weeksfor the first two years of project implementation, and would require about three supervisionmissions each year; thereafter, Bank staff resource reqirements would decline gradually to aboutfur staff weeks and two supervision missions each year. Most of the field supervision activitieswould be carried out in conjunction with the supervision of other ongoing power projects and theprocessing of future lending operations. The Bank supervision schedule and resource requirementsare listed in the attached table.

-130 - ANNEX S.17

INDONESIA

SUMATERA AND KALIMANTAN POWER PROJECT

BANK SUPERVISION SCHEDULE

Date, StaffProjeet/year/ Adtivity - Msor Fotis ~'lfla Weeks

I)ur stzon ______________________________________ Needed reR ed

t11/1994 Projecst management samngomenta and coordination, procurement, {Bssi IM; PE 2 weeksPYI preparatory and civil works contracts, monitoring progress in PLN2 wks retucturig plan, Privat Power Developmeat and Regulatory Reform

tudio.1 consultnts sUoinbnetas (TA).

0211995 PUdot project arragents, procurement, barge mid plants, PLN IM; PE; 3 weeksPY2 resructuring plan reviw and dicusson, moning Private Power PE2 wks Developme and Ra story Reform Studies. TA acivit review.

06/1995 Site visit Beasi, civil wos review, procurement, review progess in TM; PB; 3 weekPYZ trgatory reforms, monitori pilot ptojects (Region IV) and TA ES; PA3 weeks actitie. Review of inception repots. Power sector developmont

il Pn review. Fenial review.

10/199S Site visit Banjarnasin, ciil works review, contacts, procurement, TE; PE. 3 weeksPY2 monitorig pilot projec (Region VI). Review of interim repor. EC2 wks Review insiui develoment.

02/1996 Turbine generatr contact (Ban4armiasn), prcurement, moniting pilot TM; PE 2 weeksPY3 projects, review of conDSUtan repons.2 w.

0611996 Monoring progess of ccniction, procurement, TA projects. Power TM; PE; 2 weeksPY3 ectr deveopmentprogam review, finanial review. istitutional PA2 wl dove reviw. __ __._ _.

10/1996 Site viit, armarsin, review progre in civil works, uansmission TM; PE 2 weeksPY3 works, concts, procurement, conslarnt progs rtpoing.2 wks __ . _. _ I

04/1997 Site vit Beai, review civil work and metal work, contracts, TM, PE 2 weeksPY4 poremenw , consutant progress reporing. Intitutional developnt2 wk review. ___

1011997 Site vist Bjamasin, review constin work, contac, TM; PE: 2 weeksPY4 procurement, consutants progress teporting. Power Jetor deveopment PA2 wbs proam review, finani review, institutonal developmet review.

W1998 Review progss in procument, constuction ad trnsmisson works, 7M; PE 2 weeksPYS conslant progres repo and barge mid plants finl report.2 wks _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

10/1998 Site visit Besa, review onsutio, intalltio and tansmsson Wok, 1M; PE; 2 weebPYS prm en_ d prgre repowng. Power sector development pgram ES2 wbe I review, fincial review. ___ _____

M1999 Site vist Benjannasin, project ceompltion arrangmens, conants final TM; PE 2 weeks

2w repot.2 wks. _ _ _ _ __ _ _ _ __._ _ _ _ _ _ ___ ._____I

10/1999 Site visit Besai, first isson of project competion repOrt, fact finding. 7M; PE; 2 weekswbY Power sector development progmn review, financial eview. PA

2 w. I___ . ._._, _

P4Y7 Ptoct completion mission.PY72wIts _wks_______ __._.

TM - Task Manager PE - Power Bngieea, BC - Economis; PA - Funacial Analyst; ES - vinma Speciait.

-131- ANNEX 6.1

INDONESIA

SUMATERA AND KALANTAN POWER PROJECT

PLN's FINANCaAL STATEMENTS - PAST RESLTS AN FOREcAS

1. PLN - PAST FINANCLAL REULTS

PLN - Income Statements(Rp billion)

Fwal year 1985/86 1986187 1987/88 1988/89 1989/90 1990/91 1991/92 1992193

Sales increase (%) 15.1 16.4 15.5 17.3 17.0 18.5 13.5 11.1nergy sal (GWh) 12,706 14,786 17,077 20,027 23,435 27,741 31,481 34,964

AVerage venue (Rp/k1h) 96.6 93.5 92.6 91.9 114.1 113.2 129.0 137.1

Enegy revenue 1,227 1,382 1,581 1,840 2,674 3,139 4,063 4,794Other operating revenue 36 43 48 59 83 95 115 123

Tote; Revenues 1.263 1.425 L629 1.899 2.75 3.234 4.178 4.917

FueJIbulk Power 775 720 881 1,006 1,085 1,552 1,851 2,132Operatons 237 251 320 375 469 623 810 1,148Depreiationk 261 321 438 515 640 745 85S 967

ToEmms 12 .2 L2 1.639 1.896 2.194 2.920 3 S16 4

XlnOD078mg, A 133 3 1 S 3 314 662 gQ

ohr income (net) (21) (9) (8) 1 (133) 22 25 29

Net Income Before Interct (1 124 t8 4 43 22 687

Intres Charged toOpetions 24 87 118 137 230 293 370 391

Not Income /a (55) (136 (133) 200 U 317 0

RAt base/b 2,779 3,867 5,100 6,832 8,919 10,423 11,576 13,823

Pat of return ( (0.3) 3.4 (0.2) 0.0 6.3 3.0 5.7 4.8

opatiu gratio (%) 101 91 101 100 80 90 84 86

Li Before ae.& Based on evalud fixed asset.

- 132 - ANNEX 6.1

PLN - Balance Sheets(Rp billion)

Fiscal year 198518 1986/87 1987188 1988/89 1989/90 1990/91 1991/92 1992193

Fixed AssetsPlant in service 5,002 6,833 8,779 11,846 14,550 16,832 19,124 23,917Less: Accumulated

depreciation 1,136 1,584 2,179 2,826 3,570 4,516 5,560 6,794Net plant in service 3,866 5,249 6,600 9,020 10,980 12,316 13,564 17,123Work in progress 2,503 3,192 4,112 3,806 3,116 3,670 6,057 9,395

Total Fuced Assets 6369 8441 10.712 12.6 14.06 15.986 19.621 26.518

Current AssetsCash 124 216 239 295 595 705 804 916Inventories 280 146 210 244 292 332 409 477Receivables 208 226 263 288 384 421 491 563Other current assets 45 29 27 41 31 92 177 273

Total Current Assets 657 617 D2 868 L1 1.550 1.881 2.22

Other Assets 20 69 143 180 99 118 153 611

TOTAL ASSLS 7.0 9.127 11.594 1.?4 1S.497 17.654 21.655 29.358

EOUIrrY AND LIABILTPaidin capital 3,000 3,422 4,282 5,245 5,890 6,690 8,964 11,694Retained earnings (193) (152) (288) (421) (221) (218) 30 (207)Revaluation resewve 1,439 2,120 2,912 3,563 3,890 4,692 5,391 6,394

Tota} Euit 4.246 5.390 6.96 8.387 9.59 11.164 14.385 17f881

Long-tem debt(Pn) 1,856 2,535 3,140 3,481 3,666 3,835 4,165 7,161Current liaWities 312 465 695 1,023 1,025 1,132 1,497 1,723Odthr liabilites a 632 737 853 983 1,?A7 1,523 1,608 2,593

TOTAL EOUITY ANDLIABILlES L7 9.127 11.594 13.874 IS497 17.654 2.5 29.3

Debt % of debt + oquit 36 40 41 39 36 34 30 36Currentratio (times) 2.1 1.3 1.1 0.9 1.4 1,4 1.3 1.3

LA Including consumers' contibutions and deposits.b Including consumers' contrIbutions, but exclding revalution surplus.

- 133 - ANNEX 6.1

PLN - Funds Flow Statements(Rp billion)

Fiscal year 1985186 1986187 1987188 1988/89 1989/90 1990/91 1991t92 1992/93

Intemal Sources of Funds

Net income before interestand tax (31) 124 (t8) 4 430 292 687 699

Depreciation 261 321 438 515 640 745 855 967

Consumers contributionsother adjustments 89 108 115 130 198 276 95 233

Total Internal Funds 319 553 535 649 1.268 1.313 L.637 I.899

Onerational Requirements

Variation working capitaland others 19 (107) (8) (97) (99) 48 191 410

Debt repayment 135 87 269 253 279 299 290 323

Interest charged tooperations 24 87 lS 137 267 294 242 307

Total OmerationalReuuirenent 178 67 379 293 447 641 723 1.040

Total capital investment 1,408 1,712 1,925 1,976 1,615 1,830 3,782 6,844

Balance to be Financed 1.267 1.226 1.769 1.620 794 1.158 2.868 5985

Fmaned by

Borrowings 702 896 932 714 448 469 693 3,367

Government contributions 558 422 860 962 646 799 2,274 2,730

Total Capital Sources 1.260 1,318 1.792 1.676 1.094 1.268 2.967 6.097

Cash Increase/Decras _92 23 56 300 110 99 112

Debt service coverage ratio(times) 1.7 2.6 1.1 1.3 2.0 1.8 2.9 2.6

Contribution to oonstruction:

Annual (%) 10.5 23.0 6.9 15.2 323 30.7 21.5 10.9

3-year average (%) /a 10.7 23.4 7.1 16.3 28.8 23.3 19.7 12.7

/a Based on average annual capial expenditure for three years comprising the test year, the next precedig year andthe next following year.

- 134- ANNEX 6.1

PLN - FINANCIAL FORECASTSPLN - Indonesia Operations

Income Statements(Rp bi(lion)

Actual Eatirmte 1'rojection

Fiscal Year 1991/92 1992/93 1993/94 1994/95 1995/96 1996!97 1997/98 1998/99 1999/00

En1r Sake (OWb) 31.481 34,964 41.675 48.542 55.884 63.229 71,357 79,6t2 88.921

Salo ieaa(%) 13.5 11.1 19.2 16.5 15 1 13 1 12.9 11.6 11.7

Taaiff cae (%) 20 13 3.3 l6' I 8 9 2.4 17.3 8

Avc revan:ue(RP/kWh) 129.1 137.1 150.5 154.7 181 1 196.1 199,9 233.2 250.5

Avg.teveince[(%) 14.1 6.2 9.8 2.6 17.1 83 1.9 16.7 7.4

Energy rvenue 4,063 4,794 6.273 7,510 10.121 12,402 14,261 18,566 22.277Odetb operain gm-u. 115 123 163 199 239 2-15 308 338 371

Total Rvenue 4.178 4,917 6.436 7709 103 1, 7 14.5 18.904 2.2641

O-lpaift ExDeDSef

Fwl & lubricting oi 1,829 2.132 3.275 2,729 4,106 4,845 4.127 4,230 4.804

Powerpumbased 22 20 17 16 54 56 1,066 3.493 4,726

Peuaonne8expeme 308 428 561 609 725 863 1,028 1,227 1.465

Rqeirlmainiraance 340 497 535 584 721 997 1,205 1,509 1.736

Depreciauion 855 967 1,222 1.731 2,150 2,646 3,170 3.725 4,262

Olberxexaa 162 202 181 212 235 261 289 320 354

TuS Exxa 3.516 4.246 5.801 5.881 7991 9.668 0.885 15 17.347

operas= inome 662 671 635 L.828 2.369 3.009 3,6U 4.400 5.301

Nonopetig income 154 292 62 79 105 151 172 174 184

Noaapeliag xpensc 129 173 172 395 415 438 466 498 535

O3!b.lome Ld%.2 29 (1101 (316) (310 (287) (294) (3241 (351)

Net oam Befor le 687 700 525 1.512 2.059 2.722 3390 4076 4.950

I_et c&updec to aperuo 370 391 463 557 823 1,038 1.253 1.497 2,003

Net-cOMBe&f=e ComomueTax 317 309 62 955 1.236 1,684 2137 57994

Coupozue Tax 0 0 0 0 0 0 0 23 328

Netlnoom AftcrComomcTa 316 309 955 1 236 1,684 2.137 2 56 2.619

Raftbowe(ralued 11,576 13.822 18,127 22,836 29.627 37.626 46,054 54,718 62.150

ml. of reban (%) 5.7 4.9 a.0 8.0 8.0 8.0 8.0 8.0 8.0

Opesain.gm(%) 84 86 90 76 77 76 75 77 77

-135 - ANNEX 6.1

PLN - Java OperationsIncome Statements

(Rp billion)

Acut! Esmat Pojcetion - -Faca Yar 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00

Eaergy Sates (GWh) 25,078 27,837 33,054 38,399 44,126 49.655 55.930 62,391 69,395

Sales increas (%) 13.8 11.0 18.7 16.2 14.9 12.5 12.6 11.6 t1.2

Tariffincrease(%) 20.0 13.0 - 3.3 17.6 8.9 2.4 17.3 8.0

Avege reveaue (RP/kWO) 127.6 135.7 147,7 151.8 177.7 192.5 196.1 228.8 245.8

Avg. revemul increa (%) 14.7 6.4 8.8 2.8 17.1 8.3 1.9 16.7 7A4

O5peraing Revenues

Eery revenue 3,200 3,77' 4.882 5,829 7.842 9.557 10,968 14.277 17,059

O(ta opezta g reveu 85 93 129 159 191 219 242 264 288

Total Revenue 3.285 372 011 5.98 8033 9.776 112.210 14.541 t7.347

Fztl & lubricating oil 1.301 1,476 2,457 1,675 2,530 3,110 2.509 2,600 3,083

Power pwdcsd 22 19 16 if 15 15 765 3,110 4,111

Pesonet expense 189 237 316 343 408 48S 579 691 825Repair/makgenanr. 2008 263 296 340 421 614 691 870 960

Dereciati 558 618 755 1,203 1,525 1,854 2,172 25,111 2.798

Other expensee 73 126 150 166 184 204 226 250 277

Total Emeses 2.351 2.739 2299 3.742 5.083 6.283 6.942 t.032 12054

Ove Itlcn mc 934 1.133 1 021 2 46 2.950 3.493 4.268 4.509 5.293

No-operating icone 96 117 so 66 91 131 155 155 163Nonopeating expense 80 89 139 348 373 401 433 468 506

Other Income (net) 16 Lo (89) ( (2823 (270) %.278) 31) (343)

Net IncomeBeforef ntrest 950 1,161 932 1,964 2,668 3,223 3,390 4.196 4.950

In4rest churged to opertion 283 285 375 470 587 783 980 986 1,215

Net Income Befem Cornom Tax 667 876 557 1.494 2.081 2.440 3.010 3.210 3,735

Coqporat Tax 0 0 0 0 0 0 0 23 328

NetlncomieAferCorporateTax 667 876 557 1,494 2,081 2.440 3,010 3,187 3,407

Rat bae (revalued 7,967 9,468 12,650 16.005 21,541 26,842 31,781 39,961 40,253

raft.ofCom(m) 11.7 12.0 8.1 14.0 13.7 13.0 13.4 12.1 12.3

Oprtwing raon (%) 72 71 S0 62 63 64 62 69 69

-136- ANNEX 6.1

PIN - Outside-Java OperatonsIncome Statements

(Rp billion)

A&W - Etimate Projtct

Fscal Year 1991/92 1992/93 1993194 1994195 1995/96 1996/97 1997/98 1998/99 1999/00

Energy Sal (CWb) 6,403 7.127 8.621 10.143 11.758 133,574 15,427 17,221 19,526Sal. icreas e (%) 12.4 11.3 21.0 17.7 15.9 15.4 13.7 11.6 13.4

Taiff icse (%) 20.0 13.0 - 3.3 17.6 8.9 2.4 17.3 8.0Aveage revenue (RP/kWh) 134.7 142.5 161.4 165.7 193.9 209.6 213.5 249.1 2657.2Avg. reveue hree (%) 11.7 5.8 13.2 2.7 17.0 8.1 1.8 16.7 73.0

ODe Reveiues

Ener vevite 862 1,016 1.391 1,681 2.280 2,845 3,293 4,289 5.218Oder opeating meveue 30 30 34 40 48 56 66 74 83

Total Rcrenuc r2 1.046 1 425 1721 2 328 29 3.359 4 363 5.301

Faul & lubri g oil 528 656 818 1,054 1,576 1,735 1.618 1,630 1,721Powerp ased 0 1 1 1 39 41 301 383 615

Peoned expaqe 119 191 245 266 317 377 449 536 640Repalrlmaineaa 1332 234 239 244 300 383 514 639 776Dqeciao 297 349 467 528 625 792 99S 1,214 1,464O&err expeaa 89 76 41 46 Sl 57 63 70 77

Told E a 1.16S 1507 1.811 2.139 L 3.385 L39 4 472 5M29

a icom c 2 =? B 86) am(418S) (580) 4M4) o US0.91 A

Nonoperiag iamom. 58 aS 12 13 14 20 17 19 21Noopeating expc- 49 84 33 47 42 37 33 30 29

00whcome(nag 9 1 (21) l34 -28 L1 (17 (

Ne Incomc BefMeerb (264) (460) (407) (452) (60S) (501) (600) (120) 0

Inutesgedtoopeaim 87 106 88 87 236 255 273 511 7S8

Net oiom Befo M Comonmt Tax ( 5 ( f39) (S4 a7m DM2 (fl6 a2

Coqiora Tax 0 0 0 0 0 0 0 0 0

Netlnom Af*tCoiprqat Tax (351) (566) (495) (539) (844) (756) ((873) (631) (783)

RPae- .z(rvalud 3,609 4,354 5,477 6,831 8,086 10,874 1473 17,757 21.897nae of ttumf (%) (7.6) (10.6) (7.0) (6.1) (7.02) (4.5) (4.1) (0.6) 0.0

Op 4lia ad= 131 144 127 124 125 117 117 102 1O0

137 - ~~~~ANNEX 61

PIN - Indonesia OpeatiolksBalance Shees

(Rp billion)

FUWY*ul 1991/9 199a3 99S 1994W9 19i96m 19mmV 1997/W 199SX 199"1

Flo in"C 19,124 23,911t 3t,"7 3?747 5ff,241 611,36 74,t51 "42S 99,SUim-ADALdmdk 5,0 6 ,79 4 8 30 10,332 12J15 5 15,965 619,711 24,14 9 29=t

O F-* l ~13.564 17123 22.786 27.40S 37t386 44,39f 55.114 6273t 70.5

W,ki,g, 6.0$7 93,935 10,58m 16,95S 16,640 1S,S3S 16NW94 17,951 t9,27

TOW Fd As_ 19.62 _26.51_8 33.37 44.366 5,4 63.24 71.944 S0*33 S9 S12

Cobod bank 804 91 461 419 41¢2 545 563 66 S29Acad meOivb 412 477 67A 768 I,am 1,234 1.419 I S4-7 2.21t_1wsee 409 563 491 579 754 S69 7S6 841 947

aLber ood 2S6 2m 365 384 403 423 444 466 49t

TOW lCOT Awi ,!=8 2,22 1.941 2.15 2b6 3-071 3212 Lo4 Am

*nbwe@sm 152 611 2ES 382 :14 835 957 942 9SI

TOTAL ASSEIS 21,654 29,358 35,603 44898 5t,218 67,140 76,113 S5,112 WX478

Ppad4 "V,9964 11,694 13,436 16.0lt 17,602 19,W88 2D, 21t, M282

Rddl_wmh 29 CZ07) (46M 2m 730 1,445 2.319 3-W 4.W7

1WW Vab 5391 6.M 7,471 S,676 10,27 12,27 14,W 17,107 2w07

''Squtv 143B 4 ftSBI1 438 25.019 a32.09 7- 42 W amf4

aw mdou (LTD) 4,56 7,69 10,571 16,54 2Z,O96 26"3 3D0Z 33,195 3792

Low: Can _aJ 402 448 355 479 583 672 803 1XS6 1>2

Not l4m deh 4,165 7,161 10.216 16&S 21U12 26,131 29,451 32,109 3S730

C0o Libtbs

am-_pdmoLSD 4ti2 448 355 478 SS3 672 E03 1fi 1.3

A _ hwx Pe59 m Ge 715 t51 7S 82t S69 912 95

Otl Bzml; ;bUti 436 M9 624 655 aSS 722 756 796 Om3

TcXOW amillTbaLm- h 1IA97 L 1723 1.94 1.1184 2g m 2 21 Le2-79 LM

C=WbwtoD10vmpyb/ 63 445 595 67 994 1,37S 1,79S 23S 2Wt

csn 0abwt 924 1,076 11SS 1S4 21W 209 206 2,94 Xt49

am _'&4dt 4S3 534 6S S6 I"S 1J69 1,4h5 1J7 Xfw

Othw elo 1fS 5Sm 592 651 716 7S S67 95 I."4

TarAL EOtIlrY UBI 21.fS4 2tMS 35.03 gmLE982ST 67-t40 764113 SS.112 115-M

ckrl id* (&) 1.3 1.3 1.1 1. 1 3 IA 1.3 1.4 IA

Do% a S cddi VW owly/b 29.6 33 41J 47.0 51.1 53. MA. 532 3.7

A)wbmbb dp 37 36 36 37 36 36 36 36 3Q

is .omDun VOL

lb bdaSOD_FF

ANNEX 6.1-1238 -

PLN - Indonesia OperationsFunds-Flow Statements

(Rp billion)

A__ _ _ FAdmW* Pgocctim

Ftc Ye. 1992/92 19 93/94 1994195 1995/Y6 1*197 199398 199S/99 19991tw0

SOURCES OF FUNDSttua S~x

No tb wfon a. 687 700 525 1.512 2,09 Z22 3,390 4,076 4,00

Dsuin 855 967 1,231 1,731 21.50 2,646 3,170 3.725 4.2Cms o 41 1S2 312 416 441 348 213 178 165Odut 54 81 2W 244 283 258 215 238 2

TW n,mu.zeo 1,637 190 2.2 3.903 4,93 5,974 6,988 8,21t 9,615

ha. dwt. %-a- 242 307 463 557 82 1,038 1, 1,497 2.0DOW t 290 323 3S0 35t 478 s83 972 1,43 1,16

T ag1L &m m 6a0 S4 9 L.301 L.621 2.225 am .

CoDCNAm toDCWEBbs 1 12 28 19 as 85 110 137 163

C1,1dmto P8/b 1 7 144 182 325 502 732 282 1,184

CctpmI.ta 0 0 0 0 0 0 0 23 328

Not kolmd LGSm" 1.07 .25 1L253 2790 3239 37e e i 329m L'

B Utmwfr 693 3,067 3,315 5,707 5,422 4.703 3,792 3,562 4,707

BOA& 0 300 60 7W SOD SDW W 503 50m

G& oo.q4 ii 2,274 2,730 1,742 2,635 1,531 1,486 1,44D J,427 2.627

TOTALSOURCES 406 7- 6.910 11.632 am6 10.44 9ao" La4 JIe

AMlATIONS OF FUNDS

Ca_utucmap 3,7V21 6,60 10,02 8.81 s8,64 7,412 7,12D 8489

bmMAUftduscmatu.dax 61 76 380 916 1,36 I,39 2,186 2,395 2,3

TOWCAD E owaim AV 6S14 7.010 J9 Loan 9..0 9_ to"

a in wwda Iaand1.t 282 SW (4100 113 484 551 32 (56) (7

TOTAL APPl ONS 4ZI 6.910 £L=Z 120. 2 9Al, 2J2 A

_iom (D .) InCah 112 A4 Jm i is M LM

Caba ct) at 705 804 916 461 419 482 545 so 10,76

CuaNs dat 804 916 461 419 455 563 636 143

Ah1ld.bt covanoetWoft ) 2.9 a 2.1 3.6 32 3.3 2.9 2,7 26

Ahuu 21.5 10.9 19.3 23.2 27 32.5 40.3 42.3 3731yme _bamasNI. 19.4 12.7 t6 27.9 26.1 325 40 403 35.

la DCW8 _ C_l Wk E

/b W&: Owu 11Dm1_ FuL

AD P_elp_ IkainI M m .

-139 - ANNEX 6.2

INDONSA

SUMATERA AND KALIMANTAN POWER PROJECT

NomS AND ASSUMPTIONS FOR TEE FINANCIAL FoREcASTS

1. Inflation has been taken into account as follows:

(a) for foreign costs (including indirect foreign costs, excluding fuels), 2.1 percent perannum in 1991, 4.3 percent per annum in 1992, and 2.5 percent per annum in 1993and each year thereafter; and

(b) for local costs (excluding indirect foreign costs and fuels) at 9.4 percent per annunin 1991, 7.5 percent per annum in 1992, and 5.5 percent per annum in 1993 andeach year thereafter.

2. Separation of accounts of PLN's operations in Java and outside Java is basedon individual accounts maintained by PLN for each of its regional units. These accounts areseparate except for overhead expenses, which, for the purposes of financial projections, have beenallocated proportionately on the basis of unit sales of energy.

3. Ener sales are based on the sales forecasts in Annexes 2.4 and 2.5.

4. Revenues for FY93 are based on the estimated average revenue per unit sold in thatyear.

5. Fuel/purchased power costs for FY93 are based on the estimated outcome for thatyear, and for FY94 and beyond are derived from PLN's computer simulation of system operation.The fuel costs are calculated on the basis of current domestic fuel prices (established in July 1993)charged to PLN: fiuel oil - Rp 240/1 plus transportation charges of about Rp 24/1 for Java andRp 34/1 for Outside Java; diesel - Rp 380/1 plus transportation charges of about Rp 27f1 for Javaand about Rp 32./1 for Outside Java; coal - Rp 70/kg for Java and Rp 59.2/kg for Outside Java;geoheWmal - Rp 53.76/kWh for plants at Kamojang, Dieng and Outside Java, and US$0.047/kWhfor plants at Salak and Drajat; and natural gas - US$2.53/thousand standard cubic feet (MSCF) forJava and US$3.00/MSCF for Outside Java. The fuel prices to PLN ara assumed to remain at theircurrent level throughout 1994; from 1995 onwards they are escalated on the assumption that pricesfor fuel oil, diesel and coal will change in line with international prices and the prices for naturalgas and geothermal wiUl remain constant in dollar terms. Purchase of power from private investorswho would construct generating plant in Indonesia on a "Build, Own and Operate" (BOO) basis,which is projected to commence from 1997, is assumed to be at US$0.082/kWh (m 1993/94prices).

6. PLN's diesel and fuel oil consumption in Java-Bali is expeced to decrease fromabout 2,080 thousand kIloliters (3d) and about 2,730 thousand kd respectively in 1993 to 490thousand Id and 880 thousand kI in 1994, due partly to the retiring of all diesel generators (about

- 140 - ANNEX 6.2

115 MW), and partly to the conversion of some gas turbine and combined cycle power plants fromoil to natural gas. This decrease is expected to be followed by a sharp increase in diesel use in1995 to 2,400 thousand kl, due to the commissioning of combined-cycle (1,500 MW) and gasturbine (60 MW) power plants, which will be temporarily operated on oil.

7. Operating expense, other than fuel and personnel expenses, have been forecasttaking into account the facilities expected to be in use each year, and subject to foreign and localcost inflation, as appropriate. Personnel expenses are estimated to increase about 19 percent perannum to provide for inflation, volume growth and staff training. Repair and maintenanceexpenses for PLN's Java and outside-Java operations are estimated at about 2.1 percent and about3.5 percent of their respective gross fixed assets in operation during the preceding fiscal year.

8. Depreciation is based on the application of PLN's normal rates (straight-linemethod) to assets revalued annually. For purposes of corporate income tax, the current Indonesiantax code permits the use of the accelerated method of depreciation of assets in operation insteadof the straight-line method.

9. Financing. Terms of foreign borrowings are assumed to be 20 years including 5years' grace, at average interest rates of 13.5 percent per annum. Terms of local borrowings areassumed to be 12 years including two years' grace, at interest rates of 20 percent per anm; localbonds are asswned to be issued at similar interest rates with a maturity of five years.

1O. Capital expenditures are based on PLN's investment program (Annexes 2.7 and2.8), and exclude capital expenditures for generation projects proposed to be implemented byprivate investors, and the costs of geothermal steam field development, which are assumed to beincurred by other agencies. The 10 percent Value Added Tax (VAT) on the foreign contracts isassumed to be borne by Government, and on the local contracts it is assumed to by borne by PLN.

11. Government equity contributions are assumed to be equal to about 23 percent ofPLN's capital expenditures in 1994195, and to 15 percent of annual capital expenditures from1995/96 onwards.

12. Gross fixed assets, work in progress and consumers' contributions arerevalued annually, up to FY86 according to Govermnent Regulation No. 45/1986, dated October2, 1986, and from FY87 onwards, according to weighted annual escalation rates (foreign andlocal). The rate base is the average of the revalued net fixed assets in operation, less revaluedconsumers' contributions. The rate base does not include work in progress.

13. Customer acoounts receivables are assumed at about 36 days of energy revenues,which is the current level.

14. Tranmission and Distribution (T&D) system losses are estimated to be about12.2 percent for Java in FY93/94, and are assumed to decline to 12.0 percent in 1994/95 andstabilize thereafter. T&D losses for outside-Java are estimated to be about 15 percent in FY93/94,and are assumed to decline gradually to about 13 percent in FY98/99.

15. In accordance with the prevailing Indonesian tax legislation effective since 1984,PLN is subject to a 10 percent value added tax (VAT) and to corporate income tax. The

-141 - ANNEX 6.2

Government currently bears the VAT on the foreign contracts, and PLN bears it on the localcontracts; this policy is assumed to continue throughout the projection period. With respect tocorporate income tax, the current Indonesian tax code permits the use of accelerated depreciationof assets in operation, instead of the straight-line method used by PLN in its financial accounting.As a result, PLN does not expect to pay any corporate income tax for its fiscal year 1992, andduring the projection period up to 1997. In calculating the rate of return, however, any incometax payments will be taken into account.

16. By the Minister of Finance decree No.1232/KMK.01311989 dated November 11,1989, PLN is required to contribute to a fund for the Development of Cooperatves and WeakEconomic Businesses (DCWEB) an amount equal to 5.0 percent of its annual net income aftercorporate tax. Such contributions for DCWEB commenced from 1991.

17. In terms of Government Regulation No. 17 of 1990, PLN is required to contributeto an Overall Development Fund (DPS), 55 percent of its annual net income after contribution forDCWEB (para. 15) and corporate tax. Contributions to DPS due for 1990 onwards are assumedto be paid in five equal installments commencing two years after the year for which the paymentto DPS is due.

iNDONESISUMATERA AND KALEMANTAN POWER PROJECT

JPLN's TARIFEXPLANATION OF THE TARIFF CATEGORIES IN THE BASIC ELECTRICITY TARIFF SCHEDULE, 1993

TariffNo. Catezov Contracted Power Explanation of the Tariff Category

1. S-1ILV U to 60 VA to 200 VA Tariff S-l for Small Consumer (LV)2. S-2JLV 250 VA to 2,200 VA Tariff S-2 for Small Social Institutions (LV)3. S-3/LV 2,201 VA to 200 kVA Tarrif S-3 for Medium Social Institutions (LV)4. S-4IMV 201 kVA & above Tariff S-4 for Large Social Institutions (MV)5. SS4/MV 201 kVA & above Tariff SS4 for Large Conmercialized Social Institutions (MV)

6. R-11LV 250 VA to 500 VA Tariff R-l for Small Residential ServiCe (LV)7. R-2/LV 501 VA to 2,200 VA Tariff R-2 for Small Residential Service (LV)8. R-3/L"' 2,201 VA to 6,600 VA Tariff R-3 for Medium Residential Service (LV)9. R-4ILV 6,601 VA & above Tariff R-4 for Large Residential Service (LV)

10. U-l/LV 250 VA to 2,200 VA Tariff U-1 for Small Commercial Service (LV)11. U-2/LV 2,201 VA to 200 kVA Tariff U-2 for Medium Commercial Service (LV)12. U-3/MV 201 kVA & above Tariff U-3 for Large Commercial Service (MV)13. U-4/LV - Tariff U-4 for Tempoary Service (LV)

14. H-1ILV 250 VA to 99 kVA Tariff H-1 for Small Hotel Service (LV)15. H-2/LV 100 kVA to 200 kVA Tariff H-2 for Medium Hotel Service (LV)16. H-3/MV 201 kVA & above Tariff H-3 for Large Hotel Service (MV)

17. I-ltLV 450 VA to 2,200 VA Tariff 1-1 for Home Industrial Service (LV)18. I-2/LV 2,201 VA to 13.9 kVA Tariff 1-2 for Small Industrial Service (LV)19. 1-3/LV 14 kVA to 200 kVA Tariff 1-3 for Medium Industrial Service (LV)20. I-4M1V 201 kVA & above Tariff 14 for Large Industrial Service (MV)21. 1-5IHV 30,000 kVA & above Tariff 1-5 for Large High Voltage Industrial Service (HV)

22. G-l/LV 250 VA to 200 kVA Tariff G-1 for Small & Medium Government Office Service (LV)23. G-2/MV 201 kVA & above Taiiff G-2 for Large Government Office Service (MV)

24. J/LV - Tariff J for Street Lighting Service (LV)

Note: LV = Low Voltage; MV Medium Voltage; HV = High Voltage. ZSource: PLN Finance Department.

BASIC ELECtRIcy TARIFF SCHEDuLEs, 1991-1993

L= l"I199tA aUtl 1993 (Fbrar)Tariff Contracted Jd Charge l jae Av Pricc Lemnad (.argc 3 1 - - Avg rP -

No. Cegoy Power (RplkVAlM) rp h)e k)m

1. S-IILV 60 VA to 200 VA la - 57.50 /b - 66.502. S-2ILV 250 VA to 2200 VA 2,700 45.00 70.75 3,12) 52.00 75.803. S 3/LV 2,201 VA to 200 kVA 3,780 G3.00 99.04 4.340 71.00 115.534. S-41MV 20ikVA& above 4,280 P = 217.50 141.51 4,860 P = 245.00 171.95

OP = 86.50 OP = 98.505. SS-4IV 201 kVA & above 4,420 P = 227.50 145.74 5,520 P - 284.00 172.74

OP = 92.00 OP = tI 5.006. R-I/LV 250 VA to 500 VA 3,160 63.S0for <60bramo 104.28 3,620 74.00(or<60hbr/mo 118.6886.00 for >60 brIlmo 99.50 for >60 brs/mo7. R-2/LV 501 VA 50 2,200 VA 3,160 76.00 for <60 hbramo 123.78 3,660 88.00forC60 br1mo 142.53

115S. 50 for > 60 btg/mo 133.50 for >60 bhtlro8. R-3/LV 2,201 VA to 6,600 VA 6,600 187.00 254.43 7,560 212.50 271.519. R-4ILV 6,601 VA & above 7,200 253.50 329.85 8, 180 289.00 347.65

10. U-IILV 250 VA to 2 200 VA 5,520 158.50 205.68 6,000 172.00 223.5511. U-21LV 2,201 VA to 200 kVA 6,420 210.00 279.49 7,000 229.00 292.6212. U-3IMV 201 kVA &above 4,500 P = 337.50 197.96 4,940 P = 370.00 21S.68

OP = 147.50 OP = 147.5013. U-4/LV - 520.00 520.00 - 585.00 585.00

14. H-I/LV 250 VA to 99 kVA 3,820 97.00 120.98 4,180 107.50 130.2615. H-2/LV 100 kVA to 200 kVA 4,840 133.00 160.93 5,700 157.00 182.5716. H-3/MV 201 kVA & above 4,420 P 274.00 149.39 5,020 P = 308.00 173.17

OP = 123.00 OP = 123.00

17. I-l/LV 450 VA to 2 200 VA 3,460 68.00 113.29 3,860 76.00 129.3518. 1-2tLV 2,201 VA to i3.9 kVA 3,800 74.50 123.74 4,400 86.50 138.4619. 1-31LV 14 kVA to 200 kVA 4.500 P = 220.00 144.78 5.300 P 2 250.00 I64.41

OP =85.50 OP = 101.5020. 14/MV 201 kVA & above 4,200 P 212.00 122.42 4,680 P = 234.50 03334

OP = 84.00 OP = 94.0021. I-5/HV 30,000 kVA & above 3,960 P = 188.50 106.92 4.440 P =214.50 116.78

OP = 76.50 OP = 85.0C22. G-lILV 250 VA to 200 kVA 6,900 153.00 211.42 7,920 175.5(, 245.0623. G-2/MV 201 kVA & above 3,700 P = 236.00 146.58 4,24A P = 271 50 167.66

OP = 94.50 OP = 108.50

24. JALV - 123.50 123.50 148.50 148.50

Averag 134.52 150.52

Triff S-: Contracted Da ar0e Demand aagcPower IA,rnwun.o} ef }7

75 VA 2:200 2,550100 VA 2,850 3,300125 VA 3,650 4,200150 VA 4,300 4,950175 VA 4,950 51700200 VA 5,450 6,300

Note, P Peak boars (18:00-22:00); OP = Off-peak bous (22:00-18:00; LV = Low Voltage; MV Medium Voltage-; HV High VoltageSone.: PLN Fiae Depament.

Pes TAFW

HIEitRY OF TARJF ADjusmzr, 1982-1989

f Megd Drny Ava Dg Demani3r )Xv`c DPamid hergy Avera Daed PEry Avenge Dd Pomp Av-gddem ch"g pde afirre dU pnz cbtc dM pe dl d pric c1lave dzp pnce

(RpV Iplwh) (4pOkW) (PWkVA) (Rp&lWb) f1t&kWh 0ltpkVA) (RpJkVho (Rp/kWh) (Rp/kVA) (RplkWh) (Rp/kWh) Qtp/kVA) (RpikWb) (R;ZVh)

S1 /a Ic -.* Ic 50.50 Id 57.50S, 1600 22.00 34.12 1,6I0 35.00 48.22 2 ,1 k 43.50 60.57 2.1l 43.50 65.62 2.7i 45.00 S1.97

S- - - -- - - - - - 3.160 P = 13650 94.92Rs 1.600 37.50 48.85 1,600 56.00 67.21 2,100 70.M0 85.19 2.100 70.50 89.56 3.160 63.S0for < 60hrhmo 103.58

86.00 for > 60 WhnoR, 1.600 45.50 55.76 -soO 67.00 79.12 2,100 34.50 98.41 2.100 84.50 100.07 3.160 76.00 for < 60 briou 119.74

.50 for > dOhrAmoR, 2,800 63.50 36.08 2.800 97.00 121.78 3,680 126.50 156.42 3,680 126.50 159.60 SI520 155.50 2.9.96R. 2.800 79.SO 99.08 2,800 117.50 137.50 3,680 158.00 184.10 3,680 158.00 188.81 5,520 196.50 239.91U, 2,800 66.00 84.67 2,100 99.50 121.04 3.680 134.M0 160.10 3,680 134.00 167.37 5,520 166.00for < I50bjrmo 209.50

133.00 for > IS0 bhrhoU, 2,800 70.00 96.17 2,800 108.50 137.37 3,680 1SOM.0 189.73 3,680 150.00 190.92 5.520 186.50 for < 150rhro 244.43

149.50 for > 150 br/mo

U, 1,750 WBP -74.00 63.46 1.750 P 111.00 89.28 2,300 P = 158.00 123.17 2,300 P 15-.00 118.75 3,4650 P = 219.50 152.07

LVBP = 46.S0 OP =70.00 OP = 99.00 OP = 99.00 OP = 109.50

U4- 160.00 160.00 221.00 221.00 - 307.00 307.00 - 307.00 307.00 400.00 400.00

1 2,100 54.50 68.03 - - * - - . 91.43 3,460 87.00 112.45

1 1,750 38.50 44.45 8- - - - - - - 2.18 3,460 95.00 114.58

I1H - - - - * - - - - - - 73.44 34,160 94.00 102.55i, 1,750 WBP =49.00 53.33 1,750 P = 81.:0 76.65 2.300 P = 106.00 93.97 2.300 P = 97.50 90.63 3.460 68.00 105.91

LWBP = 30.50 OP = 51.00 OP =66.00 OP = 60.501, 1.750 WBP = 46.50 46.09 1.750 P = 77.00 67.15 2,300 P = 100.00 85.51 2,300 P = 92.50 82.46 3.460 P = 138.50 106.92

LWPP = 29.00 OP = 48.00 OP a 62.50 OP = 57.50 OP = 70.00is 1,600 VWBP = 44.00 38.19 1.600 P = 68.50 56.40 2.100 P = 96.50 75.88 2.100 P = 90.50 73.23 3,160 P 134.00 95.03

LWBP = 25.50 OP = 43.00 oP =60.50 OP = 56.50 oP =60.00

13 1,SOO WBP = 40.00 34.01 1,500 P = 58.00 44.12 1.970 P 81.50 61.13 1.970 P = 77.00 59.22 2,960 122.50 161.040,/MV 1,500 UWP = 46.00 44.10 1.500 P - 72.00 64.02 1,970 P - 99.00 84.92 1.970 P = 99.00 87.88 2,960 P = 159.50 112.47

LWBP = 30.00 OP = 47.00 OP = 65.00 OP = 65.00 OP= 79.50* 41.00 41.00 - 56.50 56.50 * 76.50 76.50 - 76.50 76.50 - 98.00 98.00

Avcme 53.91 74.72 98.32 92.65 115.81

A Taff S,. 00 to 200 VA = Rp 1.465 to 2,935hnouhTadff St 100 to 200 VA = tp 2,OlOto 4.020outhTaiff S: l00to 200 VA = tp 2S10 to 5025hoaE Taiff S,: 60 to 200 VA = 1,750 to5 450 lmoh

Noter WBP - P = Peak hou (18:00-22:00)LWP- OP - Off-peekhoun(22:00-18:00)For 1983. de triff Caltgoy wd rauced to 17 briff catgoriel. Cdaegode H, (low 1H) rnd HI (nw IH) for botel consumers with low votage were gromped int 1, end 1a , respecvely. For 1989. the ;tarfftegoywaes d from 17 to 21 tegori. A nw aiff categoy (S) establishe for lrg social insttio with melium voage. od asepm tarff catgories (,/H. W1K, LH) wer esbisidfor houl onsumer wih low and mumuzm volta, who wer previous grcoped with indsial coners at eorrespoding voltags (. I, and L). The aveagp fpice shwn for 1986 a t the ariff

ea 1 Ie 1989.

Sote: PLN Phons Dqeumat

PLN's TARIF

AVERAGE REVEN FROm ELECRIC SOLD, BY MAJOR CONSUMERS(Rpf]kWh)

Tariff category 1979/80 1980/81 1981U82 1982/83 1983/84 1984/85 1985/86 i986187 19S7/88 1988/89 1989/90 1990/91 1991/92

Residertial 29.55 49.43 49.50 64.09 85.01 102.15 102.59 102.35 102.64 102.45 123.60 123.33 125.82

Commercial 33.99 63.92 68.45 90.17 123.73 167.66 168.99 167.77 165.77 165.07 202.96 203.64 228.60

ndustrial 23.58 31.77 33.08 42.84 58.15 77.62 75.78 70.84 69.78 69.85 91.17 91.17 112.51

Buildings 27.40 42.S9 43.78 58.17 79.18 91.76 91.98 91.58 92.25 91.18 120.53 120.13 144.26

Lightings 20.10 33.84 35.18 44.90 59.56 78.02 77.83 78.17 78.07 80.38 100.59 101.27 93.73

Source: PLN Finance Dpaitment.

INDONESIASUMATERA AND KAJLJANTAN POWER PROJECT

FoREcAsT PLN ELECICmTY SAIYS AND PEAK LOAD: PLNd's REGION IV

Year Region IV ------ Sumbagset SystemEnergy Growth Peak Growth Energy Growti Peak GrowthSales rate Load Rate Sales rate Load Rate(GWh) (%) (MW) (%) (GWh) (9) (MW) (%

1991/92 & 1,048.4 n.a 253.5 n.a 786.1 21.9 161 0.01992/93 La 1,175.3 12.1 274.1 16.7 881.1 12.1 190 18.01993194 & 1,301.4 10.7 320.0 16.8 1,005.0 14.1 215 13.0

Repelita VI 1994/95 1,642.5 26.2 392.0 22.5 1,156.1 !5.0 246 14.11995/96 1,826.7 11.3 429.3 9.5 1,347.7 16.6 285 15.51996/97 2,039.5 11.5 470.3 9.6 1,580.5 17.3 331 16.21997/98 2,270.0 11.3 513.2 9.1 1,855.1 17.4 385 16.31998/99 2,511.4 10.6 562.0 9.5 2,144.4 15.6 442 14.8

Repelita VII 1999/00 2,849.9 13.5 631.8 12.4 2,478.9 15.6 507 14.72000/01 3,212.8 12.7 705.7 11.7 2,851.7 15.0 580 14.52001/02 3,596.5 11.9 782.7 10.9 3,282.4 15.0 664 14.52002/03 4,005.9 11.4 864.4 10.4 3,775.1 15.0 760 14.42003/04 4,451.7 11.1 953.1 10.3 4,339.2 14.9 869 14.4

la Actual.& Estimate.

Source: PLN Core Plan, December 1993. I

INDONESIASUMATERA AND KALIMANTAN POWER PROJECT

FORECAST PLN EECyimrry SALES AND PEAK LoAD: PLN's REGIONS IV AND VI

Year -------- --- RegionvI---------------------- -------Barito-BenuaLima System La--------------Energy Growth Peak Growth Energy Growth Peak GrowthSales rate Laad Rate Sales raw Load Rate(GWh) (%) (MW) (GWh) () (MW) (%)

1991/92 /b 840.7 n.a 163.9 n.a1992/93 / 927.0 10.4 184.31993/94 Ic 996.1 7.5 198.2 7.6 476.0 95 -

Repelita VI 1994/95 1,129.0 13.3 224.7 13.3 589.8 23.9 115 20.41995/96 1,280.7 13.4 254.8 13.4 686.9 16.9 132 15.51996/97 1,451.2 13.3 288.4 13.2 799.1 16.3 152 14.71997/98 1,638.2 12.9 325.3 12.8 931.8 16.6 174 14.91998/99 1,839.7 12.3 365.3 12.3 1,070.4 14.9 198 13.4

Repelita Vf 1999/00 2,058.8 11.9 408.8 11.9 1,220.2 14.0 223 12.82000/01 2,298.3 11.6 456.4 11.6 1,388.6 13.8 253 13.22001/02 2,563.7 11.5 509.4 11.6 1,577.4 13.6 285 12.82002/03 2,851.9 11.4 567.0 11.3 1,788.8 13.4 321 12.72003/04 3,174.8 11.1 631.8 11.4 2,025.3 13.2 353 9.8

J1 Te Barito and Benua Lima systems will be interconnected in 1998/99.lb Actual.Sc Estimate.

Source: PIN Core Plan, December 1993.

- 148 - ANNLX 72

INDONESA

SUMATERA ANM KALEMANTAN POWER PROJECT

IE CALCULATION: BENEms MEHODOLOGY FORRESEDENTIAL CONSUMERS

1. The methodology used to estimate economic benefits for residential consumers canbe explained with the help of Figure 1, which shows a demand function for a household definedby two points. One end of the function is anchored by the price-quantity pair (Q 1P), where Q,denotes household consumption of electricity at PLN's average price, P,, to this consumer class.To anchor the 'upper end" of the demand function, which represents consumer willingness to payfor higher valued uses of electricity, the price-quantity pair (Q0,P0) is estimated assuming thatkerosene would be used for lighting absent availability of electricity. Household survey data onkerosene consumption and expenditure for lighting and other data were utilized to establish themonthly kWh consumption (Q0) that would yield an equivalent amount of lighting intensity(lumens) prior to the availability of electricity; as well as to convert the unit financial price ofkerosene to an equivalent financial cost per kWh of lighting (Pk). Thus, prior to electrification,Q5, units of kerosene (in kWh equivalence) are consumed at a financial price of Pk. Followingelectrification, Q, units of electricity are consumed at a price of P,.

2. The net economic benefit associated with released resources is estimated as (Pl-P,C)Qo, where Pi represents the economic price of kerosene per kWh of equivalent lighting, Pi. isthe economic cost of electricity supply, and QD is defined above.

3. The incremental consumer surplus on the diverted market is represented by theshaded area in Figure 1. A linear demand function is postulated between the points (Ql, P1) and(Qo, Pk) for the purpose of estimating the consumer surplus. This specification tends tounderestimate the willingness to pay since it does not account for the additional value of the higherquality of light obtained from electricity.

- 149 - ANNEX 7.2

Figure 1: 14ousehold electricity demand function and benefits from electrification

Rp/kWh

Pk

eB EM

M ED

Ik mQO Q, ~~kWh/month

- 150- ANNEX 7.3

INDONESIA

SUMATERA AND KALIMANTAN POWER PROJECT

INTERNAL ECONOMIC RATE OF R11:BESAm AND BAmNARMAS POWER PLANT

Capital Costs

1. The capital costs of the plant and equipment, excluding taxes and duties, butincluding physical contingencies, have been measured in constant 1993 prices, and are based onthe available engineering estimates. These costs are estimated to be US$172 million for the Besaiplant and US$273 million for the Banjarmasin plant. The capital costs of the transmission anddistribution network strengthening and extension are estimated to be US C 2.5/kWh, based onrecent PLN estimates of the Long Run Average Incremental Costs.

Variable Costs

2. The only variable costs for the Besai plant are the O&M costs, whose annual valueis assumed to be equal to 0.5 percent of the plant's capital costs. For the Banjarmasin plant, thefuel costs are based on a border price of US$35.00/ton for standard coal (6,000/kcal/kg).Assuming a transportation cost of US$5.00/ton, the economic cost at the mine mouth isUS$30.00/ton for standard coal. By extrapolation, the economic value of the 4,000 kcal/kg ligniteused in the Banjarmasin power plant is US$20/ton. With the Banjarmasin plant's thermal efficiencyof 36 percent, the economic cost of the fuel is USC 1.2/kWh. The annual value of theBajarnuasin O&M costs is taken to be 2.0 percent of the plant's capital costs.

Annual Energy Generation and Losses

3. The 2 x 45 MW Besai hydro plant is expected to produce primary energy of 136GWh per year, and secondary energy of 231 GWh per year, for a total energy production of 367GWh per year. The transmission and distribution losses are assumed to be 12 percent, with anadditional own/station use of 1 percent, for total losses of 13 percent.

4. The 2 x 65 MW Banjarmasin thermal plant is expected to produce base loadenergy, according to the schedule below, which shows the number of hours for which the plant canbe operated at different load levels. For example, in years 1-2, on an annual basis, the plant canbe operated at 100 percent capacity for 4,500 hours, at 75 percent capacity for 730 hours, at 50percent capacity for 900 hours, and is unavailable for 2,630 hours. The transmission anddistribution losses are assumed to be 12 percent, with an additional own/station use of 5 percent,for total losses of 17 percent.

- 151 - ANNEX 7.3

Hours of Generation

YearsLoad (%) 1-2 3-10 11-20 21-25

100 4,500 6,000 5,000 3,50075 730 480 1,480 2,20050 900 480 480 1,0600 2,630 1,800 1,800 2,000

Total 8,760 8,760 8,760 8,760

Source: NERC.

Revenues and Consumer Surplus

5. The average revenue in 1992/93 was Rp 146/kWh (US¢ 7.0/kWh). The consumersurplus for industrial, commercial and public customers has been estimated to be Rp 93/kWh(USc 4.42/kWh), and for residential customers to be USc 11,95/Kwh, as explained in Annex 7.3.The weighted average of the consumer surplus is USc 5.3/kWh, with the weights based on theshares in projected incremental sales after the commissioning date of the Besai plant. The weightedaverage of the consumer surplus is USc 6.5/kWh, with the weights based on the shares in projectedincremental sales after the commissioning date of the Banjlarmasin plant.

Salvage Value

6. The length of the analysis is taken to be 25 years, while the length of life of theBesai civil works is estimated to be 50 years. The salvage value of the civil works is based on thesum of the discounted values of the cash flows in years 26-50 of a 50-year annuity at a real interestrate of 12 percent.

INDONESIA

SUMATERA AND KALIMANTAN POWER PROJECT

Calculation of the Internal Economic Rate of Return for the Besai Hydroelectric Power Plant

Calendar Operational Plant T&D Tot. Capital O&M Total Incremental Sates I arit Constsnriet Totdl NetYear Year Cost Costs Cost Cost Cost Generation lRevenues Surplus Benefits Benelits

* S mill S mill $ mill $ mill $ mill GWh GWh $ n"Il $ mill $ mill inill

1994 1 13 245 0 13245 0 13 245 0 0 0 00 0 00 0 00 13 251995 2 27 627 0 27 627 0 27 627 0 0 0 00 0 00 0 00 27 631996 3 32.137 0 32 137 0 32 137 0 0 0 00 0 00 0 00 32 t41997 4 30.471 0 30 471 0 30 471 0 0 0 00 0 00 0 00 30 471998 5 36 242 0 36.242 0 36 242 0 0 0 00 0 00 0 00 36 241999 6 24.939 9 1i 34.1i4 0 86 34.972 367 319 29 22 20 16 71 38.91 3 942000 7 7.047 9.18 16 222 0 86 17.081 367 319 29 22 20 16 71 38 91 21 832001 B a 000 9 I8 9 175 0 86 10.034 367 319 29 22 20 16 71 38 91 28 882002 9 0.000 9.18 9.175 0 86 10.034 367 319 29 22 20 16 71 38.91 28 882003 10 0.000 9.18 9175 0 86 10.034 367 319 29 22 20 16 71 38 91 28 882004 11 0 000 9.18 9 175 0.86 10.034 367 319 29 22 20 16 71 38 91 28 882005 12 0.000 9.18 9.175 0.86 10.034 367 319 29 22 20 16 71 38 91 28 882006 13 0 000 9.18 9 175 086 10.034 367 319 29 22 20 16 71 3S91 28 882007 14 0 000 9 18 9 175 0.86 10.034 367 319 29 22 20 16 71 38 91 28 882008 i5 0000 9.18 9.175 0 86 10.034 367 319 29 22 20 16 71 38 91 28 882009 16 0.000 9 18 9 175 0 86 10.034 367 319 29 22 20 16 71 38 91 28 8e2010 17 0 000 9.18 9.175 0 86 10 034 367 319 29 22 20 16 71 38 91 28 882011 18 0 000 9.18 9.175 0 86 10.034 367 319 29 22 20 16 71 38 91 28 882012 19 0 000 9.18 9.175 0 86 10.034 367 319 29 22 20 16 71 38 91 28 882013 20 0 000 9.18 9 175 0 86 10.034 367 319 29 22 20 16 71 38 91 28682014 21 0 000 9.18 9 175 0 86 10.034 367 319 29 22 20 16 71 3891 28882015 22 0.000 9 18 9 175 0 86 10 034 367 319 29 22 20 16 71 38 91 28 882016 23 0 000 9 8 9175 0 86 10034 367 319 29 22 20 1671 38 91 28882017 24 0.000 9.18 9 175 0 86 10 034 367 319 29 22 20 16 71 38 91 28882018 25 0.000 9.18 9.175 0 86 10 034 367 319 29 22 20 16 71 38 91 28 882019 26 0.000 9.18 9.175 0.86 10.034 367 319 29 22 20 16 71 38 91 28 882020 27 0.000 9.18 9.175 0.86 10.034 367 319 29 22 20 16.71 38.91 2 8882021 28 0.000 9.18 9.175 0.86 10.034 367 319.29 22 20 16.71 38 91 28 8882022 29 0.000 9.18 9.175 0.86 10.034 36? 319.29 22.20 16.71 38.91 28 882023 30 0.000 9.18 9.175 0.86 10.034 367 319.29 22.20 16.71 38.91 28.88

Salvage Value 4.77Intmral Economic Rate of Raturn - 13.69%

INDONESIA

SUMATERA AND KALIMANTAN POWER PROJECT

Calculation of the Internal rate of Return for the Banjarmasin Thermal Power Plant

Yewr Plant T&D Tot CGapitil O&M Fuel Total Incremental Sales Iatril Consumer Total NetCost Cost Cost C6st Cost Cost Generation Revenue Sutplus Benefits Benefits$ mill $ mill S mill $ mill S mill m mill GWh GWh S mill $ mill SnIl! $ mill

1994 39.758 0 39.758 0 0 39.758 0 0 0 00 0 00 0 00 39 761995 49.825 0 49.825 0 0 49.825 0 0 0 00 0.00 0 00 - 49 821990 109.798 0 109.798 0 0 109.798 0 0 0 00 0.00 0 00 109.801997 60.050 0 60.050 0 0 60.050 0 0 0 00 0.00 0 00 -60 051998 13.223 8.93 22.157 0 4.29 26.445 357 2966 1989 19.28 39.17 12.72 -

1999 0.000 17.87 17.867 5.45 8.58 31.896 715 593.2 39 78 38.56 78 33 4644 i2000 0.000 19.66 19.658 5.45 9 44 34.548 786 652.7 43 76 42.42 86 19 51 642001 0.000 21.45 21.450 5.45 iO30 37.199 858 712.1 47.75 4629 9404 56842002 0.000 21.45 21.450 5.45 10.30 37.199 858 712 1 47.75 46.29 94 04 568842003 0.000 21.45 21.450 5.45 10.30 37.199 058 712 1 47.75 4629 9404 56842004 0.000 21.45 21.450 5.45 10.30 37.199 858 712 1 47.75 46.29 9404 56842005 0.000 21.45 21.450 5.45 10.30 37.199 858 712 1 47 75 46.29 94 04 56 842006 0.000 21.45 21.450 5.45 10.30 37.199 858 712 1 47.75 46.29 9404 56842007 0.000 21.45 21.450 5.45 10.30 37.199 858 712 1 47.75 46 29 94 04 56 842008 0.000 21.04 21.044 5.45 10 10 36.598 842 698 7 46 85 45.41 92.26 55 662009 0.000 20.64 20.638 5.45 9.91 35.997 826 685 2 45 94 44.54 90.48 54 482010 0.000 20.64 20.638 5.45 9.91 35.997 826 685 2 45 94 44.54 90 48 54 482011 0.000 20.64 20.638 5.45 9.91 35.997 826 685 2 45 94 44.54 90 48 54 482012 0.000 20.64 20.638 5.45 9.91 35.997 826 685 2 45 94 44.54 90 48 54 482013 0.000 20.64 20.638 5.45 9.91 35.997 B26 685 2 45 94 44.54 90 48 54 482014 0.000 20.64 20.638 5.45 9 91 35.997 826 685 2 45 94 44.54 90 48 54 482015 0.000 20.64 20.638 5.45 9.91 35.997 826 685 2 45 94 44.54 90 48 54 482016 0.000 20.64 20.638 5.45 9 91 35.997 826 685 2 45 94 44.54 90.48 54 482017 0.000 20.64 20.638 5.45 9.91 35.997 826 685 2 45 94 44.54 90.48 54 482018 0.000 19.55 19.549 5.45 9.38 34.385 782 6490 4352 42.19 85.71 51 32 M2019 0.000 18.46 18.460 5.45 8.86 32.774 738 612.9 41.10 39.84 80.93 48.162020 0.000 18.46 10.460 5.45 8.86 32.774 738 612.9 41.10 39.84 80.93 48.16 -2021 0.000 18.46 18.460 5.45 8.86 32.774 738 612.9 41.10 39.84 80.93 48.162022 0.000 18.46 18.460 5.45 8.86 32.774 738 612.9 41.10 39.84 80.93 48.162023 0.000 9.23 9.230 5.45 4.43 19.113 369 306.4 20.55 19.92 40.47 21.35

CASE: BASE Internal Economic Rate of Return a 15.06%

-154- ANNEX 8.0

INDONESA

SUMATERA AND KALIMANTAN POWER PROJECT

SELECD DOCUMENs IN THE ftOJECI FaE

1. Electricity Act of 1985.

2. Government Regulation No. 17/1990 dated May 28, 1990, concerning PLN.

3. Policy Statement of GOI and Action Plan

4. Audit Report of PLN - 1992/93

5. Financial Accounts of PLN - 1992/93

6. PLN's Core Investment Plan and Financial Projections: December, 1993

7. Environmental Assessment Summary - Besai Hydroelectric Plant

8. Environmental Assessment Summary - Banjarmasin Thermal Plant

9. Project Cost Estimates, October 1993

10. Project Implemention Plans

IBRD 25506R

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