Implementation Completion and Results Report (ICR) Document · Report No: ICR00005098 IMPLEMENTATION COMPLETION AND RESULTS REPORT IBRD-79400 ON A LOAN IN THE AMOUNT OF US$225 MILLION

Document of

The World Bank FOR OFFICIAL USE ONLY

Report No: ICR00005098

IMPLEMENTATION COMPLETION AND RESULTS REPORT

IBRD-79400

ON A

LOAN

IN THE AMOUNT OF US$225 MILLION

TO THE

REPUBLIC OF INDONESIA

FOR THE

INDONESIA POWER TRANSMISSION DEVELOPMENT PROJECT

APRIL 30, 2020

Energy and Extractives Global Practice

East Asia And Pacific Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may

not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective October 31, 2019)

Currency Unit = Indonesian Rupiah (IDR)

IDR 1,000 = US$0.072

US$1 = IDR 13,940

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

Bappenas State Planning Ministry (Badan Perencanaan Pembangunan Nasional) CIA Cumulative Impact Assessment

CPF Country Partnership Framework CPS Country Partnership Strategy

EIRR Economic Internal Rate of Return EMP Environmental Management Plan ESF Environmental and Social Framework

ESIA Environmental and Social Impact Assessment ESMP Environmental and Social Management Plan

FS Feasibility Study FM Financial Management

FMR Financial Management Report GoI Government of Indonesia GDP Gross Domestic Product

HPP Hydroelectrical Power Project ICB International Competitive Bidding

ICR Implementation Completion and Results Report IFR Interim Financial Report IFI International Financial Institution

IPP Independent Power Producer IPTDP Indonesia Power Transmission Development

ISR Implementation Status and Results Report KfW Kreditanstalt für Wiederaufbau LARAP Land Acquisition and Resettlement Action Plan

M&E Monitoring and Evaluation MEMR Ministry of Energy and Mineral Resources

MoF Ministry of Finance NPV Net Present Value PAD Project Appraisal Document

PDO Project Development Objective PLN State Power Company (PT Perusahaan Listrik Negara)

PMC Project Management Consultant

PMU Project Management Unit PSO Public Service Obligation

QPR Quarterly Progress Report RF Results Framework RUPTL Electricity Supply Business Plan (Rencana Usaha Penyediaan Tenaga Listrik)

SAIFI System Average Interruption Frequency Index SCD Systematic Country Diagnostic

SOE State-owned Enterprise TOC Theory of Change

TROD Transformer Outage Duration TROF Transformer Outage Frequency WTP Willingness to Pay

Regional Vice President: Victoria Kwakwa

Country Director: Satu Kristiina Jyrintytar Kahkonen

Regional Director: Ranjit J. Lamech

Practice Manager: Jie Tang

Task Team Leader(s): Muchsin Chasani Abdul Qadir, Stephan Claude Frederic Garnier

ICR Main Contributor: Sathyanadhan Achath

TABLE OF CONTENTS

DATA SHEET ............................................................................................................................ 1

I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 5

A. CONTEXT AT APPRAISAL .................................................................................................. 5

B. SIGNIFICANT CHANGES DURING IMPLEMENTATION...........................................................13

II. OUTCOME.......................................................................................................................16

A. RELEVANCE OF PDOs......................................................................................................16

B. ACHIEVEMENT OF PDOs (EFFICACY) .................................................................................18

C. EFFICIENCY....................................................................................................................20

D. JUSTIFICATION OF OVERALL OUTCOME RATING ................................................................22

E. OTHER OUTCOMES AND IMPACTS (IF ANY) .......................................................................22

III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME .................................24

A. KEY FACTORS DURING PREPARATION ..............................................................................24

B. KEY FACTORS DURING IMPLEMENTATION ........................................................................26

IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME ...29

A. QUALITY OF MONITORING AND EVALUATION (M&E).........................................................29

B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE..................................................30

C. BANK PERFORMANCE.....................................................................................................31

D. RISK TO DEVELOPMENT OUTCOME..................................................................................32

V. LESSONS AND RECOMMENDATIONS ...............................................................................33

ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ............................................................35

ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ..........................44

ANNEX 3. PROJECT COST BY COMPONENT .............................................................................46

ANNEX 4. EFFICIENCY ANALYSIS .............................................................................................47

ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ....50

ANNEX 6. SUPPORTING DOCUMENTS (IF ANY) .......................................................................62

ANNEX 7. LOCATION OF IPTD SUBPROJECTS...........................................................................63

The World Bank Indonesia Power Transmission Development Project (P117323)

Page 1 of 64

DATA SHEET

BASIC INFORMATION

Product Information Project ID Project Name

P117323 Indonesia Power Transmission Development Project

Country Financing Instrument

Indonesia Investment Project Financing

Original EA Category Revised EA Category

Partial Assessment (B) Partial Assessment (B)

Organizations

Borrower Implementing Agency

Republic of Indonesia PT PLN

Project Development Objective (PDO)

Original PDO

The development objective of the project is to assist the Borrower to meet growing electricity demand and improve the reliability of electricity supply in Java and South-Central Sumatra by strengthening the power transmission system. Revised PDO

The development objective of the project is to assist PLN to meet growing electricity demand, improve the reliability ofelectricity supply, strengthen the power transmission system, and support the preparation of hydropower projects.


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FINANCING

Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$)

World Bank Financing IBRD-79400

225,000,000 205,000,000 182,064,708

Total 225,000,000 205,000,000 182,064,708

Non-World Bank Financing 0 0 0

Borrower/Recipient 29,100,000 29,100,000 8,379,303

Total 29,100,000 29,100,000 8,379,303

Total Project Cost 254,100,000 234,100,000 190,444,011

KEY DATES

Approval Effectiveness MTR Review Original Closing Actual Closing

08-Jul-2010 30-May-2011 12-Jan-2015 31-Dec-2015 31-Oct-2019

RESTRUCTURING AND/OR ADDITIONAL FINANCING

Date(s) Amount Disbursed (US$M) Key Revisions 16-Dec-2015 87.12 Change in Loan Closing Date(s)

Change in Safeguard Policies Triggered

29-Jun-2016 97.42 Change in Project Development Objectives Change in Results Framework Change in Components and Cost Change in Loan Closing Date(s) Cancellation of Financing Change in Safeguard Policies Triggered Change of EA category Change in Procurement Change in Implementation Schedule

27-Jun-2018 147.93 Change in Results Framework Change in Loan Closing Date(s) Change in Implementation Schedule


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KEY RATINGS

Outcome Bank Performance M&E Quality

Moderately Satisfactory Satisfactory Substantial

RATINGS OF PROJECT PERFORMANCE IN ISRs

No. Date ISR Archived DO Rating IP Rating Actual

Disbursements (US$M)

01 14-Sep-2011 Satisfactory Moderately Satisfactory 0

02 30-Jun-2012 Moderately Satisfactory Moderately Unsatisfactory 0

03 01-Nov-2012 Satisfactory Moderately Satisfactory 0

04 23-Oct-2013 Satisfactory Moderately Satisfactory 27.34

05 27-Jun-2014 Moderately Satisfactory Moderately Unsatisfactory 48.98

06 08-Jan-2015 Moderately Satisfactory Moderately Unsatisfactory 58.40

07 07-Jul-2015 Moderately

Unsatisfactory Moderately Unsatisfactory 69.31

08 30-Oct-2015 Moderately


09 27-Jan-2016 Moderately


10 13-Jun-2016 Moderately


11 28-Dec-2016 Moderately Satisfactory Moderately Satisfactory 107.80

12 27-Jun-2017 Moderately Satisfactory Moderately Satisfactory 111.64







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SECTORS AND THEMES

Sectors

Major Sector/Sector (%)

Energy and Extractives 100

Energy Transmission and Distribution 100

Themes

Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Private Sector Development 13

Jobs 13

Job Creation 13

Urban and Rural Development 86

Urban Development 33

Urban Infrastructure and Service Delivery 13

Services and Housing for the Poor 20

Rural Development 53

Rural Infrastructure and service delivery 53

ADM STAFF

Role At Approval At ICR

Regional Vice President: James W. Adams Victoria Kwakwa

Country Director: Joachim von Amsberg Satu Kristiina Jyrintytar Kahkonen

Director: John A. Roome Ranjit J. Lamech

Practice Manager: Sonia Hammam Jie Tang

Task Team Leader(s): Leiping Wang Muchsin Chasani Abdul Qadir, Stephan Claude Frederic Garnier

ICR Contributing Author: Sathyanadhan Achath


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I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES

A. CONTEXT AT APPRAISAL

Country Context

1. A decade after the Asian financial crisis,1 Indonesia emerged economically and fiscally stronger than many had expected. The real gross domestic product (GDP) grew at 5 to 6 percent annually since 2003 and reached 6.1 percent in 2008. Despite the global financial crisis, the country’s GDP growth rate reached 4.2 percent in 2009, one of the highest in the region. Its fiscal position remained strong, providing Indonesia with options to respond to the global financial crisis as well as additional resources to meet infrastructure development priorities. Successful implementation of priority infrastructure projects was considered essential for Indonesia to emerge as a strong middle-income country in the coming decade.

2. Java and Sumatra are the islands with the densest population, accounting for 57 percent and 21 percent, respectively, of Indonesia’s total population of 237.5 million in 2010. These islands accounted for over 80 percent of the national GDP and 88 percent of the country’s electricity consumption in 2009. Based on the 2009 statistics of the State Power Company (PT Perusahaan Listrik Negara, PLN), there were 668,000 customers on the waiting list, with an estimated demand of an average 1,647 MW, due to inadequate electricity infrastructure—especially transmission capacity—in these islands. Expansion of power infrastructure in Java and Sumatra, including reliability electricity services, is crucial to maint aining the national economic growth as targeted.

Sectoral and Institutional Context

3. While the power sector underwent rapid expansion between the early 1980s and late 1990s, it was significantly weakened by the Asian financial crisis. For about a decade thereafter, investments in the power sector were below the level needed to ensure reliable supply. As a result, Indonesia had the lowest per capita electricity consumption and electricity access rate among all the World Bank’s middle-income member countries in the East Asia region. The power sector faced the following challenges to sustain economic growth and social development: (a) electrification rates remained low (as of 2006, 70 million people had no access to electricity and roughly 2 million new customers needed to be connected to reach 90 percent electrification target by 20202); (b) insufficient electricity tariffs to cover the PLN’s financial viability, made the utility reliant upon the Government’s public service obligation (PSO) subsidies, which reached US$7.2 billion (48 percent of the total revenues) in 2008, and was US$5.6 billion (37 percent of total revenues) in 2009); (c) restructuring and institutional reform of the PLN remained in flux, weakening the Government’s ability to provide public financing for power sector development ; and (d) while the abundant renewable resources were largely unexploited, it was feared that rapid increase of coal in the generation fuel mix could expose the country to environmental risks, both locally and globally (according

1 A period of financial crisis that gripped most of East Asia and Southern Asia, beginning in July 1997, raised fears of a worldwide

economic meltdown due to the spread of market downside from one country to another. 2 Data from the Project Appraisal Document (PAD).


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to the PLN’s long-term capital investment plan, the share of coal in the generation fuel mix was expected to increase from around 35 percent then, to roughly 51 percent by 20193).

4. Institutionally, the power sector in Indonesia is dominated by the PLN, the state-owned power utility, which owned and operated 25.6 GW of the 30.9 GW of installed generating capacity (2009).4 Independent power producers (IPPs) represented 5.5 GW of installed capacity, and the balance was from captive generation. In 2009, the total electricity produced was 156.8 TWh, of which 120.6 TWh was produced by the PLN and 36.1 TWh was purchased from IPPs. The PLN has the monopoly on power transmission and distribution (40,041 km of transmission lines and 639,517 km of distribution lines). The sector was and is still regulated by the MEMR, while decisions relating to the sector’s financial footing are taken at the Parliamentary level (Commission VII of the House of Representatives) in discussion with the Ministry of Finance (MoF); the State Planning Ministry (Badan Perencanaan Pembangunan National, Bappenas); the Ministry of State-owned Enterprises; and PLN. Investment loans from multilateral/bilateral development banks would be approved and channeled by the MoF to the PLN through a Subsidiary Loan Agreement. The MoF conducted a verification process before the loan was channeled to the PLN for payment to its vendors. Bappenas was in charge for the planning and monitoring of investment loans, including all the PLN’s projects financed by multilateral/bilateral development banks.

5. After successful completion of the general election in July 2009, the new Government’s focus was on (a) facilitating private investments and increasing public financing to grow supply capacity; (b) improving the generation fuel mix by developing coal fired and renewable energy, especially geothermal and hydropower generation; (c) rationalizing electricity tariff and subsidy regime; and (d) further strengthening institutional capacity and improving the management efficiency of the PLN.

6. The PLN had developed a power system expansion plan called the RUPTL for 2010–2019 aligned with the Government’s priorities in the power sector. The RUPTL outlined the expansion plan which included generation capacity, transmission lines, substation capacity, and distribution lines. A total of additional 55.5 GW generation capacity was expected during 2010–2019 with an estimated total cost of US$70.6 billion, nationally. Table 1 provides information on the electricity infrastructure expansion plan for Sumatra and Java islands. The PLN planned to add a generation capacity of 11 GW for Sumatra and 36 GW for Java in the 10-year expansion plan. Table 1 also includes the expansion plan for the transmission lines, substation capacity, and distribution lines, to support the existing and additional generation plants for these islands.

3 Refer to the Electricity Supply Business Plan (Rencana Usaha Penyediaan Tenaga Listrik, RUPTL) PLN 2010–2019 and PLN

Statistics 2008. 4 Statistics of Electricity and Energy 2009, Ministry of Energy and Mineral Resources (MEMR).


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Table 1. Summary of RUPTL 2010–2019 for Sumatra and Java

Unit Baseline Forecast

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sumatra Island

Economic growth % 5.4 5.6 5.9 6.0 6.0 6.0 6.0 6.2 6.2 6.2 6.2 Electricity sales GWh 17,620 18,602 20,355 22,368 24,772 27,837 31,329 35,247 39,298 43,448 47,987 Electricity sales growth % — 5.6 9.4 9.9 10.7 12.4 12.5 12.5 11.5 10.6 10.4 Electrification ratio % 63.5 64.3 66.3 — 71.3 — 80.5 — 90.4 — 98.00 Additional generation capacity MW 4,385 285 888 1,149 1,480 2,115 600 1,090 1,230 1,030 1,330 US$ — — 1,328 473 2,430 3,791 921 1,090 1,555 1,665 1,650 Additional transmission line kms 9,232 603 3,374 3,334 1,942 1,588 1,913 1,963 243 1,679 270 Additional substation capacity MVA 5,300 1,020 3,130 4,230 1,915 2,705 1,880 5,900 1,080 6,040 880

(Transmission + Substation) US$ — 79 437 515 220 403 377 578 76 444 55 Additional distribution line kms 1,62,794 5,817 6,710 7,044 7,293 7,669 7,959 8,713 9,122 9,779 10,399

US$ — 155 173 190 200 216 230 256 274 295 313

Java Island

Economic growth % 5.3 6.0 6.3 6.3 6.3 6.3 6.3 6.0 6.0 6.0 6.0 Electricity sales GWh 1,04,110 1,15,199 1,25,199 1,36,807 1,49,618 1,63,688 1,79,053 1,95,314 2,13,020 2,32,167 2,52,547 Electricity sales growth % — 7.6 8.8 9.3 9.4 9.4 9.4 9.1 9.1 9.0 8.8 Electrification ratio % 69.8 72.2 74.8 77.6 80.5 83.6 86.9 90.1 93.3 96.3 98.2 Additional generation capacity MW 21,601 3,629 4,069 2,833 1,925 5,597 1,030 3,840 3,910 4,718 4,670 US$, millions - 3,997 3,078 4,164 2,350 8,228 2,890 5,312 4,509 4,714 5,677 Additional transmission line kms 17,080 2,130 1,614 1,983 887 1,676 1,019 760 438 140 340 US$, millions — 793 1,109 1,288 616 1,168 751 1,882 581 387 544 Additional substation capacity MVA 47,650 6,490 10,964 11,710 7,050 8,470 5,930 8,460 6,720 5,340 7,720 US$, millions — 423 732 773 542 674 475 1,343 470 344 473 Additional distribution line kms 3,40,014 16,372 21,428 19,980 20,014 21,317 24,433 24,602 26,524 25,536 21,415

US$, millions — 453 700 601 545 571 727 699 779 775 695


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7. To meet the rapidly increasing demand for electricity, the Government of Indonesia and PLN’s primary focus was on expanding capacity for power generation. The development of the power transmission networks, however, did not keep pace and there were congestion and bottlenecks in a number of regions, including in the main systems of Java-Bali and South-Central Sumatra.

8. In the Java-Bali power system, some major 500 kV substations required urgent capacity expansion to accommodate the growing power demand and the requirement of higher reliability of supply. According to the data of 2007, 24 out of 35 of 500/150 kV substations operated at peak loads , over 80 percent of their capacity. Four of them operated at peak outputs over their full nameplate capacity.5 Some of the primary 500 kV substations were unable to pass the reliability test during the PLN’s 2008 operation planning exercise. The conditions of these substations posed significant threats to the security of electricity supply in Java-Bali and impeded efficient operation of the transmission system. In January 2009, load shedding reached about 110 MW and lasted 6–14 hours a day. For the Jakarta area, it was reported that 30 MW was being shed daily because of inadequate transmission capacity.

9. In Sumatra, the transmission backbone from Lahat to Kiliranjao was built as a 275 kV transmission line in 2003 but has been operating at 150 kV since. The transmission line links the South-Central systems of Sumatra and at that time transmitted up to 200 MW from South Sumatra to Central Sumatra to serve demand in this region. With a rapid increase in the demand and expansion of the generation capacity in both systems, transfer needs between them had been increased, exceeding the technical limit of the 150 kV system. Starting from 2006, Central Sumatra experienced shortages, which resulted in load shedding during the dry season. The load shedding was increased to around 200 MW in 2008–2009. The connections to new customers were frozen because of transmission bottlenecks between South-Central Sumatra. Upgrading the transmission lines from 150 kV to 275 kV was urgently needed to address the supply shortage in the Central region, reduce losses, improve operational efficiency and reliability of the two systems, and authorize connection of new customers.

10. In line with the Government’s strategic priorities, the World Bank supported a large investment lending program to finance (a) public sector power infrastructure projects, especially renewable energy, to sustain economic growth; (b) development policy lending programs to support the Government’s efforts to establish a sustainable policy environment for infrastructure project development and move the energy sector toward a low-carbon development path; and (c) technical assistance to rationalize electricity tariff and subsidy regime, establish incentives for geothermal resource development, and strengthen capacity of the national state-owned companies in the energy sector.

11. The Indonesia Power Transmission Development (IPTD) Project was proposed as an integral part of the World Bank’s support to finance public sector power infrastructure projects. It was designed to strengthen the main transmission systems of Java and Sumatra islands through the expansion of substations’ capacity in scattered areas of both islands. The incremental substation capacity will strengthen the transmission system and eliminate bottlenecks between the load centers with areas rich in primary energy resources for generation, South to Central and North areas in Sumatra, and East to West areas in Java. The incremental substation capacity will also allow the PLN to increase electricity supply and reliability for existing customers and connect more new customers to the grid. The proposed project was

5 According to the PLN’s planning criteria for transmission system planning, the peak output of the transformers should be less

than 80 percent of the capacity in the Java-Bali system and 70 percent in the outer islands.


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expected to play a role in supporting the PLN to meet the growing electricity demands and indirectly supporting economic growth in both islands over the medium and long term.

12. The IPTD Project was the first large-scale investment project in the power sector with the PLN since 2003—the year when the Java Bali Power Restructuring and Strengthening Project was approved. The IPTD Project was prepared against the backdrop of the World Bank preparation of two other investment projects—the Upper Cisokan Pumped Storage Hydroelectrical Power Project (HPP) with the PLN and the Geothermal Clean Energy Investment Project with Pertamina Geothermal Energy—which were approved few years later in FY11 and FY12, respectively. The long interval from the previous World Bank project (Java Bali Power Restructuring and Strengthening Project in 2003) caused a capacity gap in the PLN staff regarding experience in managing the World Bank’s project. Many of the PLN staff engaged with the previous project had retired or moved to other positions within the PLN. Most of the staff involved in the IPTD Project were relatively new to the World Bank-funded project.

Theory of Change (Results Chain)

13. The project consists of investments for the expansion of substations ’ capacity to meet its development objective and assist the borrower in meeting the growing electricity demand and improving the reliability of electricity supply in Java and South-Central Sumatra by strengthening the power transmission system, as referred to the original objective before the restructuring. Strengthening the power transmission system could be achieved by increasing the capacity of transmission lines and substations, reducing transmission losses and therefore increasing its efficiency, and increasing reliability of the power system. A strengthened power transmission system will allow the PLN to provide more reliable electricity to its existing customers, including businesses and industries, and also connect new customers to the grid. More supply to new and existing customers will increase sale of electricity, thus supporting the PLN’s effort to meet the growing electricity demand in Sumatra and Java islands. The theory of change (TOC) is illustrated in figure 1 and presents the activities envisaged under the project components, the associated outputs, and how they contribute to the achievement of the intermediate outcomes and development objectives. More specifically the following:

• The IPTD Project was designed in line with the assumptions outlined in the PLN’s RUPTL for 2010–2019. The PLN’s plan assumed that the average annual national economic growth during that period was 9.1 percent. To translate the economic growth to electricity supply, the PLN will need to increase electricity supply by an average of 9.6 percent annually. Specifically, for Java-Bali and Sumatra, the expected average annual electricity supply growth was 9.4 percent and 11.1 percent, respectively, during 2010–2019. An increase in tariff will not have a major influence on the PLN’s electricity sales. The Government provided an annual electricity subsidy to the PLN ensuring that the electricity tariff to customers will be affordable.

• The expansion of 500/150 kV and 150/20 kV substations in Java led to an additional substation capacity of 2,000 MVA for 500/150 kV substations and 1,350 MVA for 150/20 kV substations.

• The expansion of 275/150 kV and 150/20 kV substations in Sumatra led to an additional substation capacity of 2,000 MVA for 275/150 kV substations and 1,230 MVA for 150/20 kV substations.


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• The length of transmission lines between two substations is a key factor, which could cause electricity losses in the transmission system. The lengthier a transmission line, the higher transmission losses will be. Expansion of 500/150 kV substations in Java and 275/150 kV substations in Sumatra will reduce losses of the transmission system both in Java and Sumatra. The investment in 275 kV substations also allow the PLN to operate the Sumatra transmission line backbone at 275 kV instead of 150 kV. This would reduce transmission losses and increase the transmission capacity of the whole backbone.

• According to the PLN’s planning criteria for transmission system planning, the peak output of the substation’s transformer should be less than 80 percent of its capacity in the Java-Bali system and 70 percent in the outer islands. With growing electricity demand in the future, if there are no additional substations, the existing ones will be overloaded, and a higher electricity demand could not be served. The overloaded substations will lead to a risk of transmission system outage—a threat to the security of electricity supply. These conditions were measured from the indicators of transmission system outage frequency and duration.

• Increased substation capacity will also mean an increase in the PLN’s ability to deliver more electricity to existing customers and connect new customers to the grid, particularly business and industrial customers. Delivering more electricity, measured from the increased sales, is the PLN’s effort to meet the growing electricity demand. The improved PLN grid encouraged participation of IPPs and contributed to the increased generation capacity as well. Reducing bottlenecks in the PLN’s grid enables more power plants to be connected. While the PLN planned to increase the generation and distribution capacity during the project period, the design of the project was also assuming that there was adequate capacity on generation and distribution to be supported by the project.

• The project would contribute to the increased total of 3,350 MVA substation capacity out of 50,614 MVA capacity increase in the Java system, which the PLN planned during 2010–2015. Similar to the Sumatra system, the IPTD Project would contribute to an increase of 3,230 MVA substation capacity from the PLN’s plan of 14,880 MVA increase during the same period.6

• Considering that the IPTD Project was a new engagement with the PLN after the 2003 project, the project implementation was also expected to support the PLN’s capacity building to manage investment projects financed by international financial institutions (IFIs).

6 Refer to the PLN’s RUPTL 2010–2019


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Figure 1. Results Chain

Project Development Objective: To assist the Borrower to meet growing electricity demand and improve the reliability of electricity supply in Java and South-Central Sumatra by strengthening the power transmission system.

Component 1:

Java-Bali Transmission Substation Expansion and

Construction

• Expansion of 4 existing

500/150 kV and 20 to 25

existing 150/20 kV

substations.

• Construction of one new

150/20 kV substation, including two 60 MVA

transformers.

Additional capacity of 500/150 kV substations and 150/20 kV substations constructed

Project areas in Java-Bali and Sumatra

Objective: to meet growing electricity demand Outcome: increased sales of electricity Objective: to improve reliability of electricity supply Outcomes: • Reduced transmission

losses • Reduced transmission

outage frequency for 500/150 kV and 150/20 kV

• Reduced transmission outage duration for 500/150 kV and 150/20 kV

Component 2:

South-Central Sumatra

Transmission Substation

Upgrading and Expansion

• Upgrading of five existing

275/150 kV substations.

• Expansion of 10 to 15

existing 150/20 kV

substations.

Additional capacity of 275/150 kV substations and 150/20 kV substations constructed

• Improved PLN operational

efficiencies, which will reduce the electricity production cost

• Increased PLN capacity in managing investment projects financed by other IFIs

Activities Intermediate Outcomes PDO-level Outcomes Long-term Outcomes

Assumptions. It was expected that the average annual national economic growth was 9.1 percent and the increase in electricity supply was on average 9.6 percent annually. Specifically, for Java-Bali and Sumatra, the expected average annual electricity supply growth was 9.4 percent and 11.1 percent, respectively, during 2010–2019.


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Project Development Objectives (PDOs)

14. The PDO was to assist the Borrower to meet growing electricity demand and improve the reliability of electricity supply in Java and South-Central Sumatra by strengthening the power transmission system.7

Key Expected Outcomes and Outcome Indicators

15. The IPTD Project financed the expansion and upgrading of the existing substations as well as construction of new ones to strengthen the power transmission system in Java and Sumatra islands with the following key expected outcomes: (a) to meet the growing electricity demand and (b) to strengthen the power transmission system. The main outcome to meet the growing electricity demand will be measured from the electricity sales. The other main outcome to strengthen the power transmission system will be measured from (a) transmission losses (improved efficiency of the system) and (b) transmission outage duration and frequency (improved reliability of power system). Table 2 describes the outcome indicators of the project.

Table 2. Outcome Indicators (original)

Indicator Name Baseline (2009)

End Target (2014)

1. Electricity sales in Project areas • Electricity sales in the Project areas: Java (GWha/year) • Electricity sales in the Project areas: South-Central Sumatra (GWh/year)

50,442 4,919

77,270 7,770

2. Transmission losses in Project areas • Transmission losses in Java-Bali system (%)

• Transmission losses in Sumatra system (%)

2.09 3.47

2.03 2.95

3. Reliability of power system in Project areas - Java • Transformer Outage Frequencyb (times/transformer/year)

500/150 kV 150/20 kV

• Transformer Outage Durationc (hours/transformer/year) 500/150 kV 150/20 kV

0.35 0.19

30.22 4.97

0.20 0.10

4.00 4.86

4. Reliability of power system in Project areas: South-Central Sumatra • Transmission Outage Frequency (times/transformer/year)

150/20 kV

• Transmission Outage Duration (hours/transformer/year) 150/20 kV

0.47

1.16

0.35

0.64

Note: a. Gigawatt hours. b. Transmission outage frequency is a similar indicator to the System Average Interruption Frequency Index (SAIFI) to assess the reliability of a power system. While the transmission outage frequency is measured against the transformer, SAIFI is measured based on the number of interrupted customers. c. Transmission outage duration is a similar indicator to the System Average Interruption Duration Index with a measurement is based on transformer instead of customer.

7 The PDO refers to the formulation in the Loan Agreement, which is identical to formulation in the PAD.


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Components

The project supported two components as detailed in the following paragraphs:

16. Component 1: Java-Bali Transmission Substation Expansion and Construction: (US$103.5 million at appraisal, of which the World Bank’s finance was US$91.7 million, and US$108.8 million at project closure, of which the World Bank’s actual finance was US$101.59 million; the increase was because of the utilization of project savings which resulted in higher achievement). This component supported the (a) expansion of four existing 500/150 kV substations and 20 to 25 existing 150/20 kV substations through the installation of new transformers and associated equipment and (b) construction of one new 150/20 kV substation, including two 60 MVA transformers, and installation of associated equipment. At closure, the project expanded the four existing 500/150 kV substations and constructed or expanded 43 150/20 kV substations.

17. Component 2: South-Central Sumatra Transmission Substations Upgrading and Expansion: (US$150.6 million, of which the World Bank’s finance was US$133.3 million, and US$79.3 million at project closure, of which the World Bank’s actual finance was US$78.16 million; the actual cost was lower but still resulted in higher achievement due to project savings). This included (a) upgrading of five existing 150 kV substations through the installation of new transformers and associated equipment and (b) expansion of 10 to 15 existing 150/20 kV substations through the installation of new transformers and associated equipment. At closure, the project has five existing 275/150 kV substations and 23 existing 150/20 kV substations.

B. SIGNIFICANT CHANGES DURING IMPLEMENTATION

18. At the Government’s request the project underwent three restructurings.

(a) First Restructuring - Level 28 (December 16, 2015)

(i) Change was introduced in the project closing date. As described in the Restructuring Paper, dated December 15, 2015, the original closing date of December 31, 2015, was extended in December 2015 by 12 months to December 31, 2016, to enable completion of the existing project packages and prepare for a follow-up Level-19 restructuring. There was an unintended mistake when updating the datasheet because the first restructuring did not trigger any change of safeguards policies.

(b) Second Restructuring - Level 1 (June 29, 2016)

(i) Change in the PDO. To enable the use of uncommitted funds from the project saving, it was decided to add more substations ’ expansion and a new component on hydropower preparation (section iii). A revised PDO was required to support the broader development objectives, triggered by the addition of the component related to the preparation of hydropower projects. To reflect the broader scope of the project,

8 Level-2 restructuring applies to modifications not involving changes in the PDO, safeguards category, or any new safeguard

policy (refer to OP/BP 10.00 Investment Project Financing, effective 2014 and retired in 2017). 9 Level-1 restructuring applies to modifications involving changes in the PDO or changes in the safeguards category or triggers a

new safeguard policy (refer to OP/BP 10.00 Investment Project Financing, effective 2014 and retired in 2017).


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the PDO was revised to read, “To assist PLN to meet growing electricity demand, improve the reliability of electricity supply, strengthen the power transmission system, and support the preparation of hydropower projects.”10 The original PDO formulated the strengthening of power transmission system as the high-level objective, which was the right approach. However, during restructuring, this high-level objective was formulated at the same level as reducing transmission losses and improving the reliability of electricity supply. This change in formulating the PDO does not change the overall objective of the project, and the outcomes remain the same: meet growing electricity demand and improve the reliability of electricity supply. There is therefore no need for a split assessment, the main change in the PDO was to add a new component related to the preparation of hydropower projects.

(ii) Change in the Results Framework (RF). The restructured project contained US$52.06 million for construction and development related to substation expansion, including the installation and upgrading of transformers at additional locations in Java and Sumatra. The indicators for the existing components were revised because of the increase in target from the loan savings utilization, change of demand growth assumption, and recent update on the actual condition of the transmission system. New indicators were added for the new component on hydropower preparation. The target dates were also revised to accommodate the extension of project closing. The RF was revised in line with these changes.

(iii) Change in component and cost. The use of US$60 million, from a total of US$80 million in project savings, for the following components: (a) US$52.06 million for construction and development related to substation expansion, including the installation and upgrading of transformers at additional locations in Java and Sumatra according to the scope of work provided in the PLN’s letter of April 22, 2015; (b) US$8 million to support the preparation of hydropower projects; and (c) US$20 million of loan funds to be cancelled as agreed upon with the PLN and MoF.

As a result of these changes, the World Bank will now finance US$197 million for Components 1 and 2, and US$8 million to be used for hydropower preparation, bringing the total IBRD loan financing to US$205 million instead of US$225 million for the original project.

(iv) Change in the loan closing date. A second extension was approved for 18 months from December 31, 2016, to June 30, 2018, to enable completion of the existing project activities.

(v) Cancellation of financing. This is described in the section ‘Key Factor during Implementation’.

10 It refers to the Project Restructuring Paper. The revised PDO formulation in the amended Loan Agreement is slightly different: “To assist the Project Implementing Entity to meet growing electricity de mand, improve the reliability of electricity

supply, strengthen the power transmission system, and support the preparation of hydropower projects .”


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(vi) Change in the safeguard policies triggered. The policies were revised to account for the new component on hydropower project preparation.

Table 3. Triggered Safeguards Policy at Restructuring

Change in Safeguard Policies Triggered Safeguard Policies Original Triggered 1 Natural Habitats (OP/BP 4.04) No Yes 2 Forests (OP/BP 4.36) No Yes 3 Physical Cultural Resources (OP/BP 4.11) No Yes 4 Indigenous Peoples (OP/BP 4.10) No Yes 5 Safety of Dams (OP/BP 4.37) No Yes

(vii) Change in the environmental category. The environmental category was elevated from ‘B’ to ‘A’ to reflect preparation of the new Poko HPP. Construction of the Poko HPP is expected to have significant, irreversible, and large-scale potential environmental and social impacts as the project will involve resettlement and potential impacts to physical cultural resources, indigenous peoples (to be confirmed through an Environmental and Social Impact Assessment [ESIA] survey), and dam safety. Thus, it is a Category ‘A’ project.

(viii) Change in procurement. The procurement of substations and transformers from savings was to be carried out under the Procurement Guidelines dated January 2011 and revised July 2014 (instead of the May 2010 Guidelines applicable under the existing Loan Agreement). Furthermore, the selection of consulting services for the Poko HPP were to be undertaken under the Consultant Guidelines dated January 2011 and revised July 2014 (instead of the May 2010 Guidelines referred to in the existing Loan Agreement).

(ix) Change in implementation schedule. The project was extended by 18 months to June 30, 2018, to accommodate the completion of the following components:

• Construction and development related to substation expansion, including the installation and upgrading of transformers at additional locations in Java, Bali, and Sumatra.

• The preparation of hydropower projects.

(c) Third Restructuring - Level 2 (June 27, 2018)

(i) Change in the loan closing date. A third extension was approved for 16 months, from June 30, 2018, to October 31, 2019, to enable completion of the Feasibility Study (FS) Stage III and ESIA of the new Poko HPP. With such an extension the cumulative extensions of the project would be 46 months.

(ii) Changes in the RF. The indicators’ end targets were adjusted to reflect the project’s new closing date. Other adjustments were also made in the description of indicators


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to reflect low growth in energy sales across Indonesia (annex 1) and transformer capacity installed (MVA) as part of the project subprojects.

(iii) Change in implementation schedule. The proposed extension from June 30, 2018, to June 30, 2019, will enable the completion of Stage III FS and ESIA of the proposed Poko HPP.

Rationale for Changes and Their Implication on the Original Theory of Change

19. The rationale for changes is provided in earlier in this section. The extension of project closing and utilization of project savings on the existing components did not change the TOC apart from the additional component on HPP preparation, and therefore there is no need to replicate the TOC. The outcome of the hydropower component is the preparation of an HPP with the completion of the FS and ESIA study as key output deliverables. There is no impact of adding this component to the original PDO and achievement of original outcomes. One new outcome indicator was added to reflect the Poko HPP preparation.

II. OUTCOME

A. RELEVANCE OF PDOs

Assessment of Relevance of PDOs and Rating

20. Relevance of PDO is rated High. The original PDO at appraisal was still aligned with the Government’s commitment to rapidly eliminate bottlenecks in the major transmission systems. The PDO after restructuring remained consistent with the World Bank’s Country Partnership Strategy (CPS)11 for Indonesia for FY09–FY12, which contributed to better meeting the increasing demand for electricity and improving the reliability of power delivered. The PDO was also perfectly in line with the envisaged World Bank investment financing program under the CPS which was seeking to reduce the local and global environmental impacts of the sector and focus on clean and renewable energy such as geothermal power investments, pumped storage, and power transmission and distribution projects. Furthermore, the PDO was also in line with the Government’s National General Energy Plan 2017 (‘Rencana Umum Energi Nasional’, RUEN) which emphasized the need of additional generation capacity, including its supporting infrastructure such as transmission system, and increase of renewable energy in the generation mix. The PLN’s RUPTL 2019 also still considers transmission system as part of its major investment program in the coming years.

21. Alignment with the current Country Partnership Framework12 (FY16–FY20). The PDO remains aligned with the current CPF which highlights developing the energy sector as the Government’s top priority and one of the major bottlenecks to growth, shared prosperity, and human capital formation. Chronic underinvestment throughout Indonesia has left the country with a power deficit and demand that continues to increase at an annual rate of about 8 percent. In 2015, the Government projected that the country would need at least 35 GW of new generation capacity over the next 10 years. The Government

11 http://documents.worldbank.org/curated/en/513571468268221103/Country-partnership-strategy-for-Indonesia-FY2009-

2012-investing-in-Indonesias-institutions-for-inclusive-and-sustainable-development. 12 http://documents.worldbank.org/curated/en/195141467986374707/Indonesia-Country-partnership-framework-for-the-

period-FY16-20.


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was looking to simultaneously increase generation capacity together with associated transmission and distribution capacity to meet demand and assist growth, substantially increase the share of renewables in the energy mix and provide universal access to all Indonesians. Against this background, the main focus areas for the World Bank Group’s engagement are (a) energy infrastructure to improve operational efficiencies and reliability of services (through, among others, transmission and distribution); (b) renewable energy and low-carbon development to accelerate penetration of renewable energies in the system, including geothermal and other renewables complemented with sustainable development of hydropower and the gas sector; and (c) access to modern energy services (potentially through grid extension and possible off-grid solutions).

22. Alignment with the World Bank’s Systematic Country Diagnostic (SCD13). The PDO was also consistent with the September 2015 SCD which underscores increasing investments in the energy sector given the need for a rapid supply response to the growing energy demand. The report emphasizes growth in energy demand by about 8 percent annually, requiring a rapid supply response to avoid an energy crisis in the years to come. It is estimated that meeting the needs of the economy and closing the access gap would require 66.8 GW of incremental generation capacity and 477 TWh power supply capacity for a total investment over US$200 billion. The new Government’s goal is to increase the generation capacity by 35 GW by 2019, an ambitious goal. Increased generation capacity will simultaneously require the increase of associated transmission and distribution capacity to meet the electricity demand.

23. As of 2018, the PLN could still not meet the target of electricity infrastructure development such as generation plants, transmission and distribution lines, as well as substation capacity, mainly because of insufficient investment funding to finance the PLN’s program. The unexpected lower economic growth, which caused the low increase of electricity demand, eased the PLN’s constraints on transmission and distribution but the data demonstrated that the PLN was still behind its national planned targets for the period and the project remained relevant. Table 3 shows that the PLN was only able to fulfil the target for distribution lines in Sumatra and transmission lines in Java. Other types of infrastructure were still below the target. These data show the relevance and contribution of the IPTD Project to assist the PLN in developing electricity infrastructures to meet the fast-growing electricity demand.

Table 4. Comparison of 2018’s Plan and Actual on Electricity Infrastructure

Unit 2018 Plan Actual Achievement (%)

RUPTL 2010–2019 PLN Statistics Sumatra Island

Generation Capacity MW 13,980 10,192 72.9 Transmission Line kms 25,871 16,339 63.2 Substation Capacity MVA 33,200 22,382 67.4 Distribution Line kms 2,32,899 2,33,852 100.4

Java Island

Generation Capacity MW 50,085 37,872 75.6 Transmission Line kms 27,727 28,626 103.2

13 http://documents.worldbank.org/curated/en/576841467987848690/Indonesia-Systematic-country-diagnostic-connecting-

the-bottom-40-percent-to-the-prosperity-generation.


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Unit 2018

Plan Actual Achievement (%) RUPTL 2010–2019 PLN Statistics

Substation Capacity MVA 1,18,784 95,183 80.1 Distribution Line kms 5,40,220 4,79,720 88.8

B. ACHIEVEMENT OF PDOs (EFFICACY)

Assessment of Achievement of Each Objective/Outcome

24. The original PDO at appraisal formulated the strengthening of power transmission system as the high-level objective and consisted of two project-level objectives: (a) to meet growing electricity demand and (b) to improve reliability of electricity supply. Generally, strengthening the power transmission system leads to (a) increasing transmission and substation capacity, (b) reducing transmission losses to increase efficiency of the system, and (c) increasing reliability of the power system. After restructuring, with the inclusion of the hydropower component to the project, the revised PDO consisted of (a) strengthening power transmission system to (i) meet growing demand and (ii) improve reliability of electricity supply and (b) supporting the preparation of hydroelectricity projects (added through restructuring). The original outcomes remain the same: meet growing electricity demand and improve the reliability of electricity supply, apart for the addition of the new component. Assessment will be made as referenced in the TOC. Assessment will be made as referenced in the TOC on meeting three objectives—(a) meet the growing electricity demand, (b) improve reliability of electricity supply, and (c) support the preparation of hydroelectricity projects. This assessment will be carried out (as detailed in following paragraphs) including with their associated outcomes and targets. Annex 1 provides the link between the objectives, outcomes, and indicators.

25. Objective 1: to meet growing electricity demand. The indicator of increased electricity sales in the RF is sufficient to measure the objective to meet growing electricity demand. The outcome indicators of increased electricity sales in project areas are fully achieved, both for Java and Sumatra. At the project closing, electricity sales were 180,381 GWh per year in Java and 36,294 GWh per year in Sumatra, compared to the revised targets of 170,000 GWh per year and 34,000 GWh per year for Java and Sumatra, respectively. The original targets for this outcome were 77,270 GWh per year in Java and 7,777 GWh per year in Sumatra. The revised electricity sales targets were increased to adjust the new closing date, from 2015 to 2019, and additional project areas from the subprojects financed by the project savings. The total number of customers in Java and Sumatra has increased: 33.5 million in 2009, 49.5 million in 2015, and 85.4 million in 2018.14 The additional substation capacity has contributed to the increase in the number of customers and electricity sales, though it could not claim a full attribution to those increases, because external factors beyond the project boundary may have played a major role.

26. Objective 2: to improve reliability of electricity supply . There are three outcome indicators which are relevant to the project’s objectives and which were used to measure achievement of this objective.

• 2.a. Reduced transmission losses. The transmission losses at the project closure were 2.34 percent in the Java system and 2.64 percent in the Sumatra system. The actual level of losses

14 PLN’s Statistics 2009, 2015, and 2018 .


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in Java was better than the target of 2.40 percent whereas in Sumatra the losses was slightly less than the target of 2.49 percent. In the Java system, the target and actual losses were higher than the baseline because more electricity was evacuated from East and Central Java to supply the demand in West Java and Jakarta. In contrast with the Sumatra system, the baseline data were higher than the target and actual losses. The operation of a new 275/150 kV transmission line connecting South-Central Sumatra reduced the transmission losses. However, with recent development of the 275/150 kV transmission line, which started to connect North Sumatera as well, the actual losses have increased above the target due to the longer transmission line. The North Sumatra system was operating independently from the Central-South Sumatra. At appraisal, it was not expected that the two systems will be interconnected within the project period. This achievement cannot be fully attributed to the project because the project is only part of the bigger power transmission system in Java and Sumatra.

• 2.b. Improved reliability of power system. The reliability of the power system in project areas was shown in transformer outage frequency (TROF) and transformer outage duration (TROD). TROF is measured from the average outage frequency of each transformer in the project areas each year. TROD which relates to outage duration is measured in a similar way. The outcome targets for both TROF and TROD were fully achieved at the project closure. The actual TROF of 500/150 kV and 150/20 kV substations was 0.01 and 0.02 times per transformer per year at the end of 2019 in the project areas of Java. Meanwhile, the TROD of 500/150 kV and 150/20 kV substations was 0.065 and 0.047 hours per transformer per year by the end of 2019. The Sumatra system achieved 0.09 times per transformer per year of TROF and 0.12 hours per transmission per year of TROD for 150/20 kV transmission system. Similar issue on the project attribution as in above outcomes because the project is only part of the bigger power transmission system in Java and Sumatra.

27. Objective 3: to prepare hydropower project. The outcome indicator for this objective is the number of megawatts of hydropower prepared with associated outputs on the completion of two preparatory studies, FS and ESIA, as the intermediate indicators. The FS was successfully prepared, and assessments were completed and covered the key technical issues with a recommendation of 124.5 MW for the development of the Poko HPP and additional up to 4.3 MW for a mini hydropower station arranged at the dam toe, with a total potential development of 128.8 MW. From a technical perspective, the FS is ready to be tendered. However, to move to the tendering stage, many decisions still need to be made by the PLN on development/implementation aspects, such as tender strategy and contract packaging and, most importantly, whether to develop it publicly or privately. The Environmental and Social Assessments have been prepared with the completion of the ESIA, an Environmental and Social Management Plan (ESMP), and a Cumulative Impact Assessment (CIA), though a few additional works are still required and are ongoing to make those documents fully acceptable by the World Bank. Though the objective has been achieved based on the current indicator, the Poko HPP still needs some decisions and additional work (preparation of tender documents) to be considered as fully prepared. Therefore, the outcome target for this objective is considered almost achieved.

Justification of Overall Efficacy Rating

28. The project achievements are Substantial. The project almost fully achieved its objectives. The first two objectives on meeting the growing electricity demand and improving reliability of electricity


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supply have been achieved based on their target indicators, except for the transmission losses of the Sumatra system which, however, almost achieved the target despite a significant increase in access (more than 5 million households connected over the course of the project). The project contributed to achievement of the development objectives by increasing substation capacity and preparing the hydropower project. Incremental substation capacity will lead to reduced transmission losses and improved reliability which then will strengthen the power transmission system. Increased capacity and strengthened power transmission system will allow the PLN to connect more new customers and increase sales of electricity to meet the growing demand of electricity. Expectational targets have been substantially met and even exceeded for some of them. On the third objective, the outcome target was considered almost achieved (even if key outputs were completed before closing), but the project may not be considered as fully prepared for the next stage of development (tendering stage for construction).

C. EFFICIENCY

Assessment of Efficiency and Rating

29. Aspect of design and implementation. The project assisted the PLN in meeting the growing electricity demand, improving the reliability of electricity supply, strengthening the power transmission system, and preparing hydropower projects. These are challenging tasks, partly because the project ’s subcomponents are scattered across the country, thus creating difficulties in manpower deployment and project supervision. Several technical challenges also unfolded during the construction period, including the changes in the technical specifications leading to major scope variations in the contracts , inadequate contract management capacity, and prolonged internal processes and reviews that accordingly delayed the project’s implementation up to 46 months against the original schedule.

30. The overall efficiency is rated Substantial. Albeit with significant delay, all the planned activities were successfully completed while project resources and inputs were converted adequately toward achieving the results. Although the project implementation period increased substantially, the PLN successfully minimized the impact of project delay to possible increase in construction cost. Also, as shown in table 5, the economic internal rate of return (EIRR) of the project at completion is higher than at appraisal owing to the good use of project savings.

31. The EIRR of the project at appraisal was assessed for the five subcomponents of the project using the cost and benefit approach. The estimated EIRRs range from 25 to 65 percent. Further, the sensitivity analysis carried out demonstrated that the project will remain economically viable against a simultaneous 10 percent drop in benefits, 10 percent increase in investment costs , and 10 percent increase in supply costs.15 The project experienced some delays during its initial years of implementation and the activities were adjusted as described earlier.16 A discount rate of 10 percent, approximately twice the country’s

15 The sensitivity analysis of the project at appraisal did not include a scenario where the project ended up having more beneficiaries than what was anticipated. In recollection, such analysis, even if unusual as adverse scenarios are the ones usually

undertaken, could have been useful in providing a more complete picture of the project. 16 The impact of the delay in project’s implementation is assumed to cost proportionally to the annual interest rate (set at 5

percent). Accordingly, a delay of one year is equal to a 5 percent increase in investment costs. As the project experienced a delay of 46 months, the costs of the delay are estimated to be equivalent to a 20 percent increase in costs. As presented in

annex 4, the project remains economically viable against this scenario.


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annual GDP growth, is used for sensitivity analysis. Table 5 presents the summary of outcomes indicators at appraisal and completion.

Table 5. Summary of Outcomes Indicators at Appraisal and Completion

Scenario Unit

500/150 kV

Substations in Java

150/20 kV Substations in Central

Java

150/20 kV Millennium

substation in West Java

275/150 kV Substations in

Sumatra

150/20kV Substations in Sumatra

At Appraisal Base Scenario NPV @10% US$, millions 335 230 34 185 139 EIRR % 60 65 39 25 55

At Completiona NPV @10% US$, millions 355 242 40 237 149 EIRR % 74 81 49 33 69

Note: NPV = net present value. a. The number of beneficiaries taken into account at the completion is the same considered at the appraisal.

32. Direct beneficiaries of the project include people who directly benefit from electricity supply from all substations financed by the project. Indirect beneficiaries include people who are not directly connected to the substations financed by the project but are connected to the power grids indirectly supported by the project. The number of beneficiaries of the project at completion was five times greater than what was expected at appraisal. While the unpredicted low economic growth had caused a lower electricity demand, new electricity connections were still increasing because of the commodities boom17 in Sumatra areas and also due to the longer implementation period. Because the project investments provided quantifiable benefits to and served more people than what was expected at appraisal, accordingly, if these benefits are considered, the EIRRs of the project at completion could have been significantly higher than what are presented in table 5.

33. Despite not affecting the rating proposed, it is worth noting that the total benefits presented do not fully quantify various positive externalities resulting from higher electricity availability and reliability in Java and Sumatra, arguably two most important islands in Indonesia. Conversely, the figures presented do not consider the negative externalities that resulted from the projects. In particular, as the project did not finance evacuation of power plants, negative externalities from direct connection to fossil fuel power plants18 are not considered in the economic analysis. At the same time, the project contributed to reduced transmission losses, which have a positive impact on reducing emission.

34. In addition to have effectively achieved nearly all the targeted goals, the project successfully used savings of US$80 million, nearly 36 percent of the budgeted resources, while conveniently adding new subprojects to increase substations’ capacity above the initial targets and completing an additional task of producing the Poko HPP FS and ESIA. The latter, if completed, would be important in adding supply of electricity in South Sulawesi through a more environmentally friendly source of energy. The project

17 Mining and plantation. 18 In the hypothetical case where the project connects the distributions and the transmissions to the fossil fuels-powered generation, the total economic benefit of the project would be adversely adjusted, proportionally to the cost of emitted local

pollutants and greenhouse gases and potential damaging impact of these emissions to the local and global economy.


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estimated a total budget of US$254.1 million for the expansion of substations under Components 1 and 2. It was concluded with the actual cost of US$188.1 million or 25.9 percent less than the initial budget. The total incremental capacity for all substations is 8,140 MVA compared to 5,740 MVA of the original target or 141 percent higher than what was expected at appraisal. The cost efficiency resulted from competitive international bidding carried out by the PLN.

35. The loan closing date was extended by 46 months from the original date because of (a) additional subprojects to use the project savings, (b) additional component on hydropower project preparation, and (c) project delays in the construction of substations’ expansion and completion of the Poko HPP FS and ESIA studies. The project delays were considered in the economic evaluation and the project remains economically viable against the scenario.

D. JUSTIFICATION OF OVERALL OUTCOME RATING

36. The overall outcome rating is considered Moderately Satisfactory. Though there were project restructurings, the split rating for assessing the project outcome is not applied. The PDO had basically remained the same and the only change was due to the addition of a new component. The additional component on hydropower project preparation had no impact on the original PDO outcomes. The Moderately Satisfactory outcome rating is based on (a) High rating for the PDO relevance to the CPF at appraisal and the current CPF (FY16–FY20), (b) Substantial rating for the overall efficacy, and (c) Substantial rating for Efficiency for the whole Project. Referring to the Implementation Completion and Results Report (ICR) guideline on deriving the overall outcome rating, the above ratings may lead to a Satisfactory rating. However, Moderately Satisfactory has been considered based on the consideration that achievement of the outcomes on the objectives to meet the growing electricity demand and improve reliability of electricity supply cannot be fully attributed to the project (see M&E section). Rating is also supported by the fact that the intermediate results indicators were fully attributed by the project and the outcome indicator for the objective to prepare hydropower project has been achieved. The hydropower project will be able to move to the tendering stage, once a few key decisions are made by the PLN on development/implementation aspects, such as tender strategy and contract packaging and, most importantly, whether to develop it publicly or privately.

E. OTHER OUTCOMES AND IMPACTS (IF ANY)

Gender

37. The project did not specifically target gender inequalities in the country. Increased access to electricity is considered to benefit both women and other vulnerable groups, however, regional and global evidence suggests that women in particular benefit from electricity as it extended both productive and leisure activities.19

19 According to the East Asia and Pacific Companion to the World Development Report 2012, ‘Toward Gender Equality in East Asia and Pacific’, while lack of electricity affects both female and male-led enterprises, evidence suggests that such constraints

may be more onerous among small and informal firms than among larger firms and, therefore, may constrain female -led

enterprises disproportionately. In Indonesia, female-led enterprises tend to be smaller, more precarious, less capital -intensive,

and less productive than male-led enterprises (Indonesia Country Gender Action Plan). Furthermore, having access to electricity extends the hours available for both productive and leisure activities, particularly for women and girls (World Bank 2012).


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Institutional Strengthening

38. The project provided training to the PLN staff on areas such as environmental safeguards, procurement, FM, and hydropower project preparation, which significantly improved the PLN’s capacity in dealing with the preparation and implementation of investment projects. The trainings and actual works in the implementation of the IPTD Project have increased the knowledge and experience of the PLN staff in managing a project financed by an IFI such as the World Bank. The PLN staff also learned from the international consultants in preparing the FS and safeguards documentation on hydropower projects. Increased capacity of the PLN staff from implementing the IPTD Project was later useful in the implementation of loan savings and the World Bank’s subsequence projects with the PLN. For example, it took more than 12 months to complete the procurement of original scope of works, from the bid issuance in July 2011 until contract signing in October 2012. The procurement of subprojects to use savings could be completed only in six months, from the bid issuance until contract signing. The PLN staff, particularly young engineers, also indirectly had an opportunity to learn from the technical/safeguards consultants and project expert panel members on how to prepare a hydropower project, through discussion and interactions during the preparation of the FS and ESIA studies.

Mobilizing Private Sector Financing

39. The IPTD Project contributes to increase the capacity and improve reliability of the transmission systems enabling additional generation projects, including renewable energy projects which are usually developed by the private sector. In addition, there are some discussions on the financing of the Poko HPP and private financing solutions are under consideration.

Poverty Reduction and Shared Prosperity

40. Poverty reduction and shared prosperity were supported by the project, by way of increasing electricity supply to a population of around 56 million through increased dispatch of generated power (49 million in Java and 7 million in South-Central Sumatra). The increased access is likely to be significant given the increased dispatch. Without the project, the PLN had no option but to engage in load shedding and curtailing connections of new consumers. The project positively affected the rural poor, because the substations would have only served areas where there was substantial suppressed demand because of long waiting lists for consumer connection. The project also improved the security of supply and reduced losses of the power grids as a whole, providing opportunities to the general public to be more productive and prosperous.

Other Unintended Outcomes and Impacts

41. The IPTD Project loan was provided to the PLN from the MoF through a Subsidiary Loan Agreement which created a long payment process. Annually, the PLN will request approval of budget allocation from the MoF. There is a requirement to verify payments by the MoF, through its Investment Management System and State Treasury Office. The MoF verification process, together with the internal PLN process, has cumulatively created a long payment process and delayed payment to contractors. Learning from this situation, the World Bank team, with the support and direction from the Country Management Unit, initiated a dialog with the MoF on the possibility to provide a direct loan to state-owned enterprises (SOEs), backed up with a sovereign guarantee provided by the MoF. There would not be requirements to verify payments through the MoF. SOEs would receive loan payments directly from


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the World Bank. The Government has issued a Presidential Decree for direct loans to SOEs. A Minister of Finance decree, which stipulates detailed procedures for the issuance of Government guarantees for direct loans to SOEs, was issued in October 2015. Thus, this could be considered more as the project ’s unintended impact to a wider multilateral donor lending program in Indonesia including the World Bank, especially in the power sector. It could also be credited as the proactivity of the task team.

III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME

A. KEY FACTORS DURING PREPARATION

42. The PAD covered all the requirements of the World Bank’s preparation guidelines and was consistent with OP/BP 10.00 (Investment Project Financing).

Lessons Learned from Previous Projects

43. Lessons learned from the then ongoing Java-Bali Power Sector Restructuring and Strengthening Project and similar projects in other jurisdictions were reflected in the project design, such as the following:

(a) The delays with the transmission lines in similar projects are not unique. It has been known to happen with several other transmission projects in the country where the land acquisition for the transmission right-of-way caused or is causing delays in project implementation. It is therefore important to include provisions for these safeguard issues in the project design and allow time either during project preparation or during implementation to increase the certainty of the time frame of the project. During the selection of subprojects, prioritization was made on the substation expansion which would only use the PLN’s existing land and not require new or additional land acquisition, and only few substations required land acquisition for the expansion. This lesson helped the project avoid any potential delay because of the land acquisition process, though there was a significant delay during the project implementation because of the contract management issue.

(b) Organizational changes may lead to delays in project implementation. Organizational changes therefore need to be followed immediately by making human resources available for timely and effective project monitoring during implementation. These changes in organization might require some changes in the way the project is implemented (changes in the operation manual) to adjust implementation arrangements to the new organization of the implementing entity.

Processing of Project Preparation

44. The project was prepared and appraised in 3.5 months under an express track (Track 1) with fewer clearances—obtain agreement at concept stage to proceed with preparation/appraisal, no formal decision meeting, and no control point until completion of appraisal—and simpler documentation (simpler PAD with fewer annexes). The decision to use the Track 1 process was taken during the Project Concept Note Review Meeting after considering that the IPTD Project had low to moderate overall preparation risk. The PAD is considered short compared to a normal PAD under the Track 2 process. For


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example, there was no descriptive information on the analysis and assumptions to design the RF. Short time of preparation had caused some implementation issues as described in para. 46.

Flexibility of Project Design

45. The project has very little flexibility in adding new subprojects of similar nature compared with other World Bank projects of similar design. Any additional subprojects during implementation would prompt a project restructuring. This issue was raised by peer reviewers at appraisal, but the team decided to stick to its decision. However, the project had developed selection criteria on technical, safeguards, and economics which were defined in the Project Agreement to allow inclusion of new subprojects during the implementation. These criteria were later used for the selection of subprojects to use the project savings.

Readiness for Implementation

46. The project preparation commenced in end-2009 and appraisal was completed in March 2010. The Loan Agreement was signed on November 18, 2010, and was declared effective on May 30, 2011. The selection of subprojects and drafting of the bidding document were carried out during project preparation for implementation readiness. The bid was launched on July 6, 2011, and the contracts were signed in October 2012, or about two years after the loan signing. Due to the short project preparation period, the project was not fully ready (according to World Bank standards in similar projects) at appraisal and it had impacts and created delays in implementation. In particular, there could have been potential timesaving if the PLN had commenced the bidding process before signing the loan through retroactive procurement and signing the contracts only after loan effectiveness. This approach was applied for the bidding of subprojects to use the project savings. Procurement started in January 2016 before the amendment of loan agreement on June 30, 2016. The contracts were signed in July 2016, just a month after the amendment of the loan agreement.

Risks and Mitigation Measures Considered During Project Preparation

47. The project was considered technically simple and was implemented by an established power utility which had implemented many similar projects under its own budget. The overall project risks were considered Moderate. Preparation risk was rated Low because the project design was considered simple and ready for implementation. Implementation risks are rated Moderate in case of unanticipated delays in International Competitive Bidding (ICB) procurement, financial reporting, and payments to the contractors, as well as the possible failure to implement the safeguards policies. Appropriate mitigation measures were in place to address these risks which will be monitored throughout implementation. The team had adequately identified the most relevant risks to the project through an Operational Risk Assessment Framework tool, which was prepared during appraisal. Implementing agency risk and project safeguards risk was rated medium whereas other risks, such as project stakeholder, design, program and donor, and delivery quality risks, were rated Low.

48. Procurement risk was rated Moderate, as described in the PAD. The PLN was considered to be familiar with the World Bank procurement procedures through its experience with implementing past projects financed by the World Bank. Only one type of procurement (ICB) was envisaged, and all contracts were subject to prior review. Mitigation measure for procurement risk: The PLN would include the World Bank guidelines in its Procurement Manual for procurement using loan funds. A Procurement Committee


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would be established with qualified and adequate members. A Procurement Plan will be submitted by the PLN for progress monitoring.

49. Reassessment of the project’s risks was carried out during the implementation. The risks related to the PLN’s capability to deliver the project were rated higher compared to the assessment during appraisal. Institutional capacity for implementation was rated Substantial. The risk on technical design of project was rated Moderate. The increased rating was because of the additional scope of the hydropower project preparation. Higher risk on institutional capacity for implementation was mitigated by the task team by conducting informal supervisions, between two formal implementation support missions. During the last 12 months before the project closure, the team conducted monthly meetings with the PLN to monitor and ensure that implementation progress was on track and that the payments to contractors were being processed on time. Specific monitoring on disbursement by the team was also carried out to make sure that all payments would be processed in time before the disbursement deadline date.

B. KEY FACTORS DURING IMPLEMENTATION

50. The project was approved in May 2010 and was made effective with a one-year delay in May 2011. Compared with other projects of similar nature and given the fact that it was the PLN’s first project with the World Bank after long period, this gap between approval and effectiveness dates was not unusual. Delays to effectiveness were also due to the provision of legal opinion which was obtained from the Ministry of Law. Since its effectiveness, the project continued to face implementation challenges, including significant delays in the delivery of all the contracts. Key factors affecting implementation are detailed in the following paragraphs.

Factors Subject to PLN Control

51. Changes to technical specifications and scope of works during early implementation caused significant delays. There was nearly a two-year gap between preparation of the technical design and bidding documents during project preparation and the contracts signing. During that time, to anticipate high and unpredictable electricity demand growth, the PLN was forced to upgrade and install new transformers for the substations which reached critical capacity, including in some substations which were selected as subprojects under the IPTD Project. When the contractors commenced the works, they found out that the actual condition of the substations was different from the technical and bidding document because the PLN has installed equipment or modified the substations. A survey of recent existing conditions was carried out by the PLN and contractors, followed by a contract amendment to accommodate changes in technical specifications and scope of works. It caused the first delay in the construction of substations expansions for both the Java and Sumatra components. Considering the urgency for the PLN to take immediate actions to meet the growing electricity demand and the time needed for the procurement process, the selection of subprojects did not include any substation that had nearly reached its critical capacity. This lesson was taken into consideration during preparation of subproject selection to use the loan savings. Before issuing the bid document, a final check was carried out by the PLN to ensure that the recent substations ’ condition was reflected in the technical design and bidding document.

52. The completion time of various contracts was routinely underestimated for which numerous extensions were granted only to be replaced by another after several months. Also, the delays were only


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highlighted when the ‘time for completion’ had exceeded. The previous quarterly progress reports (QPRs) prepared by the client did not provide sufficient indications or warnings of impending completion delays.

53. Contract validity. Because the contracts are considered valid and do not cease at the expiry of the ‘time for completion’, payments were withheld, and work was stopped at the sites when the time for completion was exhausted. This was based on a mistaken notion by the PLN’s Treasury Division, which is in charge of payment to vendors, that the contract had expired even though the ‘General Conditions of Contract’ under the World Bank’s bidding documents (GEC 26.2) lays down steps that could have been taken when the time for completion ended. This issue was identified for the first time in 2014 when the first contract extension was required. The PLN and the task team routinely monitored the status for each contract and tried their best to start processing the contract amendment for time extension before the expiry of contract validity.

54. Delays in custom clearances. Though it was a standard procedure, the preparation of a ‘Master List’20 of all imported items to be issued by the customs authority caused delays. The PLN was responsible for obtaining approval of the Master List with the supporting documentation to be prepared by the contractors. It took a while for the PLN and the contractors to prepare the required documentation to obtain the approval.

55. Delays in contracting a firm for the ESIA. Because of the delay in contracting a firm to carry out the ESIA for the Poko HPP development, the project had to be given an additional extension of the closing date to carry out the ESIA and various baseline studies.

56. Uninterrupted payments to contractors. The payments to contractors were not processed even after delivery of satisfactory work. The average number of days from invoice submission by vendors until payments were made by the World Bank was high, in the range of 42–133 days.21 Many factors contributed to this issue: (a) delay of the annual project budget approval from the MoF, which was partly beyond the PLN’s control; (b) incomplete documentation submitted by contractors; (c) delays in submission of the supporting documents from project office in the regional area to Treasury Division in the headquarters office; (d) delays in getting the regional director’s clearance for payments (the Treasury Division would not process without clearance from the regional directorate, which supervises the implementation of each contract); (e) delays in completing the Government’s document requirements; and (f) delays in verification by th

Documents

Implementation Completion and Results Report (ICR) Document · Report No: ICR00005098 IMPLEMENTATION COMPLETION AND RESULTS REPORT IBRD-79400 ON A LOAN IN THE AMOUNT OF US$225 MILLION