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Document ofThe World Bank
FOR OFFICIAL USE ONLY
Report No: 20676
IMPLEMENTATION COMPLETION REPORT(38450; 3845A; 3845S)
ONA
LOAN
IN THE AMOUNT OF US$398 MILLION
TO THE
GOVERNMENT OF INDONESIA
FOR THE
SECOND RURAL ELECTRIFICATION PROJECT
September 11, 2000
Energy and Mining Sector UnitEast Asia and Pacific Regional Office
This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS
(Exchange Rate Effective February 2000)
Currency Unit = Indonesian Rupiah (Rp)Rp 1000 = US$ 0.14
US$ 1 = Rp 7200
Exchange Rate Effective December 1993 (Appraisal)Rp 1000 = US$ 0.46US$ I = Rp2193
FISCAL YEARApril 1 to March 31 (GOI)
January 1 to December 31 (PLN)
ABBREVIATIONS AND ACRONYMS
ADB Asian Development Bank PMU Project Management UnitCAC Contract Administration Contract Pola I KUD Meter reading and billing services schemeCS Consumer Surplus Pola 1I KUD House wiring services scheme(30I Government of Indonesia Pola III KUD Assets Ownerslhip and RE services schemeEIRR Economic Internal Rate of Return PSKSK Regulations for the Pricing of Small Private and
Cooperative Power GenerationGWh Gigawatt Hours PUEKK PLN Fund for Development of Small Enterprises
& CooperativesHV High Voltage QAG World Bank Quality Assessment GroupICR Implementation Completion Report RBS Rural Business ServicesIPP Independent Power Producers RCP Reinforced Concrete PoleKPI Key Performance Indicator RE Rural ElectrificationKUD Village Cooperative Unit RE I First Rural Electrification Project (31 80-IND)kWh Kilowatt Hour RE II Second Rural Electrification (3845-MNP)lm Lumen Repelita Five-year Development PlanLV Low Voltage RESP Renewable Energy Small PowerLRMC Long Run Marginal Cost ROR Rate of ReturnMIS Management Information System Rp. RupiahMOCSE Ministry of Cooperatives and Small & SAR Staff Appraisal Report
Medium EnterpriseMSA Management Services Agreement SPLN PLN Technical StandardsMV Medium Voltage SWER Single Wire Earth ReturnMW Megawatt TA Technical AssistanceNGO Non-govermmental Organization TAP SS Tapped substationNOL No Objection Letter US$ United States DollarPLN State Electricity Corporation WTP Willingness to pay
Vice PresidenIt: Jemal-ud-din Kassum
Country Manager/Director: Mark BairdSector Manager/Director: Yoshihiko Sumi
Task Team Leader/Task Manager: Anil Cabraal
FOR OFFICIAL USE ONLY
Implementation Completion ReportIndonesia Second Rural Electrification Project
CONTENTS
Page No.1. Project Data 1
2. Principal Perfonnance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 35. Major Factors Affecting Implementation and Outcome 56. Sustainability 67. Bank and Borrower Performance 78. Lessons Learned 89. Partner Comments 1010. Additional Information 11Annex 1. Key Performance Indicators/Log Frame Matrix 13Annex 2. Project Costs and Financing 15Annex 3. Economic Costs and Benefits 19Annex 4. Bank Inputs 27
Annex 5. Ratings for Achievement of Objectives/Outputs of Components 29Annex 6. Ratings of Bank and Borrower Performance 30Annex 7. List of Supporting Documents 31
Annex 8. Status of Loan Covenants 32Annex 9. Lessons Learned: Results from Stakeholders Meeting 35
This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not be otherwise disclosed withoutWorld Bank authorization.
Project ID: P003979 Project Name: RURAL ELECT II7Team Leader: R. Anil Cabraal TI Unit: EASEG
ICR Tvpe: Core ICR Report Date. September 15, 2000
1. Project Data
Name: RURAL ELECT II L/C'/TFNumber: 38450; 3845A; 3845S
Country,Department: INDONESIA Region: East Asia and PacificRegion
Sector,'subsector: PD - Distribution & Transmission
KEY DATESOriginal Revised/Actual
PCD: 05/15/92 Effective: 07/19/95 07/19/95
Appraisal: 01/10/94 MTR: 03/01/96 03/27/97
Approval: 02/28/95 Closing: 12/31/98 03/31/2000
Borrower/Implementirng Agency: Government of Indonesia/State Electricity Corporation (PT PLN(Persero)/Ministry of Cooperatives
Other Partners:
STAFF Current At Appraisall'ice President: Jemal-ud-din Kassum Gautam Kaji
Country Manager: Mark Baird Marianne Haug.Sector Manager: Yoshihiko Sumni Peter R. SchererTeam Leader at ICR: R. Anil Cabraal Arun P. Sanghvi
ICR Primary Author: R. Anil Cabraal
2. Principal Performance Ratings
(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=HighlyUnlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)
Outcome: S
Sustainability: L
Institutional Development Impact: H
Bank Performance: S
Borrower Performance: S
QAG (if available) ICRQuality at Entrv: S
Project at Risk at Any Time: Yes
Project Development Objectives (DO) were downgraded in mid-1998 becausePLN was not in compliancewith the Rate of Return and other financial covenants on account of the macroeconomic crisis and inabilityto raise the retail tariffs to adequate level. PLN became technically insolvent on account of the crisis. AllIndonesia power projects DO were rated Unsatisfactory in June 1998 for this reason.
3. Assessment of Development Objective and Design, and of Quality at Entry
3.1 Original Objective:The objectives of the Second Rural Electrification (RE II) Project as noted in the Staff Appraisal Report ofFebruary 3, 1995 were to advance the efforts begun under the RE I project to place the rural electrificationprogram in Indonesia on an efficient and sustainable footing and expand the coverage and supply ofelectricity to rural areas through a time slice investment program. The project would establish incentivesfor private sector and local cooperatives to take an increasingly larger share of REl distribution andrenewable energy development wiithin the framework of a least cost RE Master Plan and continue PLN'sinstitutional development to undertake RE planning and implementation, especially at the regional level. Itwould support pilot programs with potential for further reducing the costs of RE.
The objectives were clear and consistent with the Government of Indonesia (GOI) stated objective toimprove the welfare of the population and to support and stimulate economic activities and socialdevelopment in both rural and urban areas. RE is a fundamental part of the Government's ruraldevelopment strategy and the long-term goal is to electrify all villages and enable the basic servicesprovided by energy. The scale of the Project was realistic given the progress PLN had achieved in theprevious years, particularly the achievements in the RE I Project (Loan 31 80-IND).
3.2 Revised Objective:The objectives were not revised.
3.3 Original Components:1. Electrification of 7,000 villages in the second and third years of Repelita VI (95/96-96/97) comprising
about 2.1 million new consumers.2. Promote private sector participation in small scale generation especially using renewable energy
sources.3. Development by PLN of 7.5 MW mini-hydro projects and field test drilling of two mini-geothermal
fields.4. Pilots to test the adaptability of low cost, "low tech" equipment designs, low Cost network designs and
more efficient construction management methods for full scale adoption in future RE programs.5. Expansion of the ongoing rural business services component to promote productive uses of electricity
and get 30,000 rural enterprises to start or enhance their productive use of electricity by 36 GWh/year.6. Support participation by village-level cooperatives and organizations in RE services delivery. Double
the number of Pola I, II and MSA schemes to 4400 and increase five fold the number of MSA schemesto 600.
7. Technical assistance for planning and RE implementation support.
3.4 Revised Components:The components were not revised.
3.5 Quality at Entry:Quality of entry was not assessed by QAG. At appraisal no significant technical or implementation riskswere foreseen with respect to the RE planning, management and implementation and other investmentsexcept the geothermal field development risks. This was substantially borne out daring implementation.Risks of private sector participation in small power production and sale to PLN were expected to beminimal due to issuance of standard power purchase agreement and published tariff. The private sectorresponse was positive but it took longer than anticipated for PLN to operationalize the approach. Risksassociated with implementing the overall policy reform agenda (institutional restru[cturing and tariff policyreform) were under estimated. Work towards attaining these objectives continues today with support from
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the Bank, ADB and other sources. The financial crisis that hit Indonesia in 1997 which was beyond GOIand PLN's control could not be foreseen at project appraisal. While the crisis did not affect PLN's abilityto achieve the physical targets, it caused substantial deterioration in PLN's financial performance.
4. Achievement of Objective and Outputs
4.1 Outcome/achievement of objective:Over the five year period, 1994/95 to 1999/00, good progress was made in meeting the overall objective ofplacing the rural electrification program on an efficient and sustainable footing. The Project exceeded itsphysical objectives and is economically viable. To improve the benefits and reduce costs, PLN emphasizedconsumer connections rather than village electrification by intensifying connections in already electrifiedvillages and by increasing connection ratios in newly electrified villages(villages electrified was 80 percentgreater and connections made were 270 percent more than estimated) The higher achievements areconsistent with the Repelita VI targets and were feasible because the Project period of performance wasextended to nearly five years from the original three. Household electrification ratio increased from 32percent in 1994 to 53 percent by October 1999. To further improve the economic value of RE, the Projectsuccessfully promoted productive uses of electricity by rural businesses.
Unit costs were significantly below estimates at appraisal (see Annex 1). Cost reductions are mainlyattributed to lower cost of materials, higher density of connections per km of MV and LV line, and lowerinternational inflation and higher Rupiah depreciation than projected in price contingencies. The projectsuccessfully piloted a number of lower cost RE technologies and management methods as well asmini-hydro as an alternative to diesels.
The Pola program targets were met albeit two years later than anticipated,in PLN's efforts to decentralizesome RE service functions to cooperatives to reduce costs However, Village Cooperative Unit (KUD)training was not fully successful due to: (a) shortage of training funds from PLN which had anticipatedproviding funds out of its profits, and from GOI which had agreed at negotiations to make up any shortfall;(b) PLN fee structure for KUD services were considered too low to permit the KUDs to fund the trainingout of its own resources; and (c) lack of a clear policy mandate within PLN for outsourcing services toKUDs.
Private participation in small power generation was supported by the issuance of regulations and letters ofawards, announcement of purchase tariffs, but the financial crisis in 1997 prevented further progress.
The project substantially strengthened PLN's RE management capacities. Of particular note was theeffectiveness of the Project Management Unit which was specifically set up to coordinate projectimplementation. The PMU greatly facilitated Bank supervision as well as provided timely information toPLN management.
While the Project addressed the issues of financial sustainability through cost reductions from improvedmanagement practices and adoption of lower cost technical solutions, it did not have actions to explicitlystrengthen PLN's overall financial capacity, other than financial covenants addressing such considerations.PLN's financial position weakened dramatically during the tenure of the Project. Since 1994, prior to theonset of the crisis, PLN was moderately profitable but nonetheless was unable to achieve the target RORlevel of 8 percent. PLN was able to comply with the debt service coverage covenant of 1.5 times until the1997 financial crisis. The financial problem is especially acute outside Java. While PLN RE operations inJava had operating profits (Rp 557 billion in 1999), outside Java RE operations were loss making (Rp. 657billion operating loss in 1999). For details see Section E in Annex 3. Based on GOI's agreement with theIMF on rationalization of energy prices in January 2000, PLN's average tariff was increased by about 29%effective April 1, 2000. The GOI issued a Power Sector Restructuring Policy in August 1998 for which theMinistry of Mines and Energy is drafting the supporting legislation. The policy addresses a number of
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financial sustainability issues affecting RE.
4.2 Outputs bv components:1. Distribution component. PLN substantially exceeded the targets by electrifying 12,300 villages (7,900
outside Java and 4,400 in Java) and connecting about 7.7 million consumers (2.8 million outside Javaand 4.9 million in Java) up to October 1999. Annual average connection rate was 1.8 million per yearover the five year time slice in Repelita VI. At appraisal, PLN expected to connect 2.1 millionconsumers in 7,000 villages during a two-year period.
2. Private sector participation in small scale generation. By January 1996 the 'GOI had issued the smallpower purchase (PSKSK) regulations,announced the purchase tariffs and established the MW limits ofPLN's obligation to purchase. By March 1997 PLN had issued Letters of Award for power purchasesfor nearly 220 MW from renewable energy sources. The Bank approved the Renewable Energy SmallPower Project (RESP) Project in 1997 to finance such projects, but the financial crisis preventedfurther progress and the RESP Project was subsequently canceled.
3. Mini-hydro and mini-geothermal component. The mini-hydro projects (7.8 MW) were commissionedat about 14 percent under estimated cost. After geo-scientific studies PLN decided to proceed withdrilling at the Ambon (Malukku) site but was later abandoned as acceptable biLds were not received.PLN also prepared mini-hydro and mini-geothermal projects with an aggregate capacity of about 30MW for assistance under a future project, but the financial crisis prevented further action.
4. Pilot projects. Tap substation, reinforced concrete pole, contract administration contract pilots weresuccessful. The wood pole tending were successfully completed, but implementation could not takeplace due to contracting delays. PLN has begun incorporating these approaches into PLN guidelinesbut formal issuance of standards has yet to occur. SWER project was stopped during the crisis.
5. Rural business services component. PLN successfully engaged rural NGOs to promote productiveelectricity uses resulting in 66,000 enterprises investing Rp. 148 billion in electric equipment, andcreating 22,000 new jobs and increasing consumption by 180 GWh per year. ][mportantly, thisdevelopment took place even during the national financial crisis.
6. Participation by cooperatives in RE services delivery KUD participation in RE service deliveryincreased as planned. The total number of Pola I, II and MSA schemes doubled to 4,516 compared to4,400 expected at appraisal to serve 20.8 million customers. The number of MSA schemes increasedseven-fold to 665 compared to 600 expected at appraisal. The secondary objective of setting up PolaIII schemes could not be met. The training planned under this component was :not as successful asexpected due to the reasons mentioned in Section 4.1.
7. Other Technical assistance. The RE planning capability was developed for four regions extending thework in the RE I Project. Renewable Energy Master Plan software and databases were developed andtransferred. However their routine use in RE planning has yet to take place. T'he PMU functioned as avery effective management unit.
4.3 Net Present Value/Economic rate of return:For the distribution component, the EIRR was estimated at 26.2% and the NPV at 12% discount rate at2,079 BRp (1995 Rp). The analysis is sensitive to the estimate of residential willingness to pay, which isin tum sensitive to the consumer surplus. There is also a high degree of uncertainty in the consumer surplusestimate as it had to be estimated from secondary data sources (for details see Section 8 lessons learned andAnnex 3 Economic Costs and Benefits). The switching value for consumer surplus at which the EIRRdrops to 12% is estimated to be -12%. Almost all the other components also met or exceeded the economicperformance indicators estimated at appraisal. Summary results are shown in the table below with detailsgiven in Annex 3.
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Component Criteria At Appraisal End of ProjectDistribution Component EIRR 21% 26.2%Mini-hydro EIRR 22 to 26% 10-38%Mini-geothermal EIRR -40% not completedPilot Projects:- CAC Cost Savings Compared to 20% 30%- SWER Conventional Approach 44-54% not completed- HV TAP Substations 20% 50-60%- Reinforced Concrete Poles 10-15% 30%
- Wood Poles (tendered but not 60% 60-80%implemented)
Rural Business Services Enterprises benefited 30,000 66,000Increased prod. elect. use 36 180(GWh/year)
KUD Pola I, II & MSA Services Total no. of participating KUDs 4400 4516MSA Schemes 600 665
4.4 Financial rate of return:Financial rate of return for the RE II Project was neither calculated at project appraisal nor at projectcompletion.
4.5 Institutional development impact:A key innovation introduced in the project was the establishment of the PMU, initially under the Director ofPlanning and subsequently under the Director of Marketing and Distribution. This unit effectivelycoordinated this complex project which involved a multiplicity of components scattered throughoutIndonesia and requiring cooperation among numerous PLN departments at headquarters and regions,consultants, contractors and the Bank. The PMU was particularly effective in monitoring and reportingprogress and advising PLN Directors on problem resolution. However, given the vertically organizeddepartmental structure within PLN, the PMU had little capacity to directly effect change by cutting acrossthe departmental hierarchy. The PMU's effectiveness as a management unit was also constrained bythelack of reliable inventory and performance data. The use of a supervision consultant to oversee theimplementation of the mini-hydro and pilot projects was effective given the multiplicity of PLN officesinvolved but reflects the need for institutional streamlining. The use of trained local NGOs in promotingproductive uses of electricity was particularly effective and the capacity built will permit these groups tocontinue to provide such services.
5. Major Factors Affecting Implementation and Outcome
5.1 Factors outside the control of government or implementing agency:The economic crisis in Indonesia led to: (a) the sharp depreciation of the Rupiah and greatly increased thecost to PLN of its US$-denominated long-term payment obligations; and (b) PLN's planned addition ofabout 11,000 MW by 26 projects of IPP-based capacity has resulted in excess capacity given the economicdownturn. The net result is that PLN is currently unable to service fully its debt or to meet its paymentobligations to IPPs.
5.2 Factors generally subject to government control:Sector reform has proceeded at a much slower pace than anticipated. Technical assistance undertaken in1996 under Cirata II project (Ln 3602-IND) provided a set of recommendations which served as a
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blueprint for power sector reform and restructuring. The recommendations provided the underpinnings for
the Government's Power Sector Restructuring Policy which was launched in August 1998. The Policy callsfor far reaching changes in the power sector, including the unbundling of PLN and subsequent privatizationin phases. It is expected that the policy framework will be instrumental in providing a sound foundation of
PLN's and the sector's medium and longer-term viability, including establishment of a Social ElectricityDevelopment Fund to explicitly fund the GOI's obligation to provide electricity services to rural consumers.The Ministry of Mines and Energy is presently drafting legislation to support this policy. To promote thegains so far achieved, the Bank is providing technical assistance (under Loan 3978-IND) for corporate andfinancial restructuring of PLN. The Financial Advisor which was funded under this project, also providedtimely input to PLN in this critical time.
5.3 Factors generally subject to implementing agency control:
Appointment of competent, properly motivated staff at the PMU was a key to the success achieved inproject management. PLN has strong technical capacities down to the regional and branch levels whichenabled it to embark on the ambitious RE program. Nevertheless, there are managerial, organizational andimplementation improvements possible to lower cost and speed execution. Further cost reductions andefficiency improvements require PLN to adopt the low-cost technical solutions piloted in this project,establish tighter inventory controls and audit procedures, increase procurement efficiency, and mostimportantly give regional and branch-level managers the right incentives to minimize costs and increaserevenues (see Section 8 and Annex 9). MOCSE performance was constrained by inadequate training fimdsfrom PLN and GOI sources and clear PLN directives for outsourcing RE services.
5.4 Costs and financing:Estimated total project cost at appraisal was $841 million while the actual projeclt cost was $656 million(based on PLN and Bank disbursement records of August 1, 2000). Total savings of $185 million (22%)occurred while PLN connected 7.7 million consumers between July 1995 and October 1999 compared tothe appraisal target of 2.1 million consumers in two years. Reasons for the cost savings include: Rupiahdepreciation far greater than estimated in price contingencies at appraisal caused the dollar costs to decline;
lower cost of materials; and greater emphasis on intensification rather than extensification (300 connectionsper km of MV and LV line compared to 100 connections estimated at appraisa).
6. Sustainability
6.1 Rationale for sustainability rating:
Sustainability of RE II Project achievements is likely because of the inherent techmical and institutionalcapability of PLN which were further strengthened during the Project; and through the implementation ofthe GOI's announced Power Sector Restructuring Policy The policy proposed (a) setting up a SocialElectricity Development Fund (SEDF) to transparently subsidize rural and less developed area electricityoperations to "promote national cohesion and unity,"by providing explicit funding by the GOI of theincremental costs of RE as part of its social obligation. The SEDF will subsidize the difference betweenallowable costs and revenue receipts from electricity sales to the poor in less developed and rural areas(b)increasing average tariffs over time to permit full cost recovery, especially on Java(c) restructuring PLN
to establish a regional electricity company to own outside Java assets and be fully accountable for itsoperation; and (d) to functionally unbundle Java operations. The legislation to support the policy is
presently being drafted. The Bank and ADB are financing technical assistance to support policyimplementation.
PLN's technical and institutional capacities remain intact today despite the financial crisis. Care should betaken during the proposed restructuring of PLN to ensure that these capacities are strengthened and notdiminished. PLN has begun adopting the low cost designs and improved construction management methods
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piloted in the Project which will further reduce costs.
6.2 Transition arrangement to regular operations:On a technical level, PLN's current organization is fully capable of operating and maintaining the REinvestments and providing new service connections.RE will continue to be a priority as a majority ofIndonesians yet live in rural areas and 20 million rural households are still without access to electricity. Itis recommended that the PMU be established as a permanent feature for RE project management and suchfunctional units be mainstreamed to the regions during PLN restructuring.
7. Bank and Borrower Performance
Bank7.1 Lending:Identification of project components and techno-economic and environmental assessments weresatisfactorily conducted in a participatory manner. Project objectives continue to be consistent with Bankand GOI development objectives. Preparation and appraisal were satisfactory and complete. Themanagement structure established was a key contributor to the Project's successful completion.
7.2 Supervision:Supervision is rated highly satisfactory with typically two to three missions per year. The team thatprepared the project essentially remained the same throughout the implementation period except for oneteam member substituting for another as task team leader in 1999. This team continuity permitted betterunderstanding, greater confidence and cooperation with PLN.The IP (Implementation Progress) was eitherrated "Highly Satisfactory" or "Satisfactory", while the DO (Development Objective) rating wasdowngraded to "Unsatisfactory" in June 1998 due to the financial crisis that began in 1997, and was keptso till loan closing.
The Bank took proactive actions on loan proceeds cancellations once loan savings were identified; the Bankalso responded quickly to PLN's deteriorated financial situation by restructuring the Project and amendingthe Loan Agreement to allow increase of the Bank loan disbursement percentage for local expenditure(excluding payment of taxes) to 100% from July 1998 onwards, which relieved considerably the pressureon PLN to pay the contractors.
7.3 Overall Bankperfonnance:Bank performance is rated satisfactory overall.
Borrower7.4 Preparation:GOI and PLN's performance is deemed satisfactory. They were involved in all aspects of the projectconcept and design.
7.5 Government imiplementation performance:The Govemment's performance during implementation was marginally satisfactory. Counterpart fundswere made available in a timely manner except close to project completion when the financial crisis was infull swing and PLN's financial performance was deteriorating drastically. In August 1998,GOI officiallyissued the Power Sector Restructuring Policy, which provided the framework for restructuring the powersector, including PLN. The Ministry of Mines and Energy is presently drafting legislation needed toimplement the policy. Delays in instituting agreed-to tariff reforms have substantially eroded PLN'sfinances. GOI also has not been proactive in addressing the issues of under-capitalization of PLN.
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Govemment rules goveming procurement led to delays in contracting which was a further drain on PLN'sresources (see below).
7.6 Implementing Agency:PLN's overall performance is generally satisfactory, with RE program management and physicalimplementation capacity rated highly satisfactory. Areas where improvements are essential are inprocurement and contracting, inventory management and technical auditing. Because of procurementdelays, PLN had to draw substantially on their own funds to permit it to meet its Repelita VI targetsparticularly in the first the two years of the Project (e.g., two thirds of 1995/96 and 1996/97 RE investmentfunds were from PLN's own resources). This further exacerbated PLN's already strained financialsituation. There is also a need to have better inventory information and controlPl,N was also never able tosatisfactorily conduct technical audits of physical progress (see Section 8).
PLN's financial performance has not been satisfactory. It's financial position has deteriorated dramaticallyduring the tenure of the Project, though mainly due to factors (including the financial crisis, high cost ofIPPs, and GOI's unwillingness to approve required tariff increase) beyond its control. As a result, PLNwas unable at any time during the Project period to fully comply with the financial covenants establishedfor it under the Project.
7.7 Overall Borrower performance:Overall Borrower performance can be considered marginally satisfactory.
8. Lessons Learned
Rural electrification programs must be financially sustainable and the implementing organizationmust be financially accountable. The Government continues its policy of uniforn national tariffs whichresulted in revenue losses to PLN for its higher cost rural operations outside Java. PLN maintains separateoperating cost accounts for its RE operations. Data from 1995 onwards show that Java RE operationsconsistently had operating profits while outside Java operations had operating los,sesRevenues fromoutside Java operations did not even cover variable operating costs. These losses were covered by crosssubsidies from Java operations and from Government funds.The Bank's appraisa]. of the RE II project didnot evaluate the financial viability of the RE program, rather, only the financial viability of PLN as a wholewas considered. As such, inadequate attention was paid to the financial viability of RE, especially outsideJava operations. Moreover, the lack of transparency in allocating government budgets and use of PLNresources for RE makes it difficult to assess performance and assign accountability.
Holding management accountable for financial performance down to region and branch levels isrequired to increase cost efficiency of RE services. Presently PLN allocates annual budgets to regional(Wilayah) offices with unspent funds used to reduce following year's allocation. The regional and branch(Cabang) offices are set village and household electrification targets, and loss recduction goalsThere islittle incentive for regional and branch level managers to increaserevenues or reduce costs Holdingmanagement accountable for meeting cost reduction and revenue enhancement goals is essential.
Productive uses promotion was effective in increasing economic benefits and revenues. The Projectdemonstrated that local NGOs could be effectively used to advise rural businesses to increase productiveelectricity use. The rural business service (RBS) component clearly demonstrated that a marketing orientedapproach can increase energy sales, investment and rural employment for productive purposes, even duringthe crisis period after 1997. The approach used could be considered good practice (see Annex 7, Reference8). Similar approaches should be included in future rural electrification projects.
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Electricity consumption by key consuming categories must be included as Key PerformanceIndicators as this is a better indicator of benefits from a project, rather than just the number ofconnections made. As noted in OED's 1994 review of rural electrification in Asia, accurate determinationof the benefits and costs of RE is needed to ensure that resources are optimally allocatedConsumptiondata is routinely collected by utility billing departments, but their managementinformation system must bedesigned to report on consumption by consumers connected during a specified time-slice investmentprogram. In addition, consumer surveys must be conducted prior to and after connections to determine howenergy use and expenditure patterns changed after receiving electricity services.
Centralized project management was effective in monitoring progress but less effective in directingchange. The PMU demonstrated the importance of having a centralized unit for managing this complexproject involving multiplicity of components scattered throughout the Indonesian archipelago, and requiringcoordination between numerous PLN departments, consultants, contractors and the Bank. The PM-Lenhanced the effectiveness of Bank supervision. The PMU ability to take timely corrective actions waslimited by the vertically organized directorate structure at PLN which required instructions from the PMUto a division in another directorate to be coursed through their respective directors. Futuremulti-disciplinary projects can benefit from such a management unit if it is led by experienced managersand has the necessary authority to affect change in a matrix management structure.
Complex procurement procedures cause implementation delays and inefficiencies. PLN acknowledgedthat their current procurement processes are lengthy and inefficient, partly due to GOI-mandatedrequirements. The CAC pilot demonstrated that significant cost and time saving are possible usingperformance-based contracting approaches.
Management commitment supported by timely, accurate and accessible information is essential foreffective management and increasing the efficiency of rural electrification. Current approaches inaccounting, inventory management, technical audits, demand/benefits assessments and timely disseminationand adoption of best practices can be improved.* Transparency of accounts: In a time-slice investment program of this type, the current accounting
practices made it nearly impossible to determine the sources and uses of financing for a particular REscheme - a specific RE scheme may use material financed by several sources, the Bank, GOI, PLN oreven other donor funds. Therefore, the actual costs are hard to determine due to the co-mingling ofresources.
• Inventorvy Effective inventory information and control are needed. This is essential in a project such asthe RE II Project where huge quantities of materials are procured, delivered and installed throughoutthe vast regions of Indonesia. PLN must have better ability to track costs, material distribution andusage, and inventory levels in each region in a timely manner.
* Audits: Independent technical audits - a Project monitoring requirement - while valid in concept failedin implementation. These audits were expected to check compliance with construction standards,authenticate inventory reporting, confirm customer service standards, verify equipment performance,and accuracy and adequacy of reports on materials used. Strong management support and convictionis needed for such independent audits to be conducted effectively. Without such audits, theeffectiveness of RE programs cannot be evaluated adequately.
* Best Practices: The Project implemented pilot projects and mini-hydro projects with lower costs thanconventional alternatives, and developed new RE planning tools. PLN is compiling standards andissuing guidelines for their use. benefits from these experiences will occur only if PLN adopts thesestandards ("SPLN") and procedures and requires their use.
See Annex 9 fbr additional lessons learned that were documented during stakeholder meetings.
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9. Partner Comments
(a) Borrower/implementing agency:The following are synopses. The full reports are in the Project Files.
9.1 PLN Assessment of the Project
9.1.1 General. PLN is a very large organization responsible for generation, transmission anddistribution for both urban and rural area throughout the country. In the past PLN emphasizedgeneration, transmission, urban distribution and village electrification (in contrast to consumerconnection). However the RE II project has helped PLN develop the know-how and capacity to carryout rural electrification in a more efficient manner. PLN is now in a good position to proceed withfuture rural electrification projects and ensure that it is undertaken economically and in accordance withPLN and GOI objectives.
PLN was able to achieve these impressive goals of electrifying 7.7 million households in five years withan effective management team - The PMU. The PMU became the focal point for directing the programfrom its conception to final implementation. Bank has been an essential and effeclive partner to PLNduring the design and implementation of the project. It supported PLN both financially and in guidingimplementation. PLN Implementation Completion Report is in the Project files.
9.1.2 Key Lessons. Based on the experience carried over from the RE I Project and the lessons learnedduring the RE II Project, PLN acknowledges that four major points need to be considered in future REefforts.
(i) Improve procurement processes. During project implementation, PLN endeavored to reducethe procurement processing delays. However, existing institutionalized processes at PLN and at theBank sometimes took almost twice as long as the period of performance (e.g., delays of up to 20 monthsfrom tendering to contract award for components with a one-year delivery time). This caused problemswith the construction phase, and to overcome this, PLN drew on its own funds to purchase thenecessary materials to keep up progress of work. Shorter procurement time is possible as demonstratedby the TAP Substations pilot project, when only 10 months was needed from tendering to contractsigning. However, some of the delays are due to GOI procedural requirements.(ii) Encourage adoption of least cost solutions for materials and construction. The pilot projectswere designed to demonstrate least cost solutions in RE. PLN found that a lack oif awareness as to theforeseen benefits by PLN staff hindered progress. Even though results were positive, PLN still foreseesa difficult task to get these approaches mainstreamed regionally.(iii) Planning and management software must be transparent and accessible to headquarters andfield staff. PLN found that lack of skilled staff in the Regions as well as Head Office constrained theadoption of Renewable Energy Master Planning and RE Planning software developed by consultants.Moreover, PLN staff did not fully perceive the benefits of such software. An important lesson is thatPLN staff must be more involved in all phases of software development.(iv) Establish a permanent Project Management Unit for Rural Electrification. PLNacknowledges the positive impact of the PMU approach for any multi-disciplinary program andcongratulates itself on the success of this approach. This in-house team enabled a more efficientapproach to project management in all phases of the RE program.
9.1.3 Effectiveness of the Bank and Borrower Relationship. The relationship between the Bankand PLN was generally good. Most of the problems encountered were clearly identified by both parties,solutions were promptly agreed to and provided to those concemed. In particular, mutual understandingwas achieved in selecting least cost materials and processes, developing monitoring and trackingprocesses and overcoming procedural problems likely to cause potential delays.
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9.1.4 Performance of Co-financiers and Effectiveness of Relationship between Borrower andCofinanciers. None.
9.1.5 Assessment of Outcome. As a continuation of the RE I program, the main objectives of theproject were not only to electrify villages and connect rural households but also to build PLN capacityto efficiently and sustainably carry out rural electrification program. It also included a number of othercomponents as detailed in Section 3.3 of the ICR. PLN confirms that the outcome isin globo positive.
9.2 Evaluation of PLN's Performance by PLN
PLN staff gained significant experience from the project. PLN's capacity to carry out ruralelectrification program efficiently has improved. Positive features must be mainstreamed within PLN.To maintain PLN's financial health, its important for PLN to minimize construction and service costand at the same time maximize revenue through tariff revenues and through Government assistance.PLN must also develop systems criteria to prioritize selection of villages for electrification. Systemsdeveloped within the RE II Project to monitor and track progress should be mainstreamed to the regions,especially if PLN is restructured.
9.3 Evaluation of Bank Performance by PLN
The RE II Project effectively built upon the Bank and PLN's prior relationship and experience duringRE I Project (Loan 31 80-IND). Implementation assistance by the Bank was generally satisfactory. Theefforts were very constructive in every aspect from project identification through implementation. TheBank's involvement was consistent and diligent through all phases. During the identification phase, theBank sent qualified and competent missions so that the process in establishing the project objective, andassessment of the project cost, scope of work, financing plan and time schedule was accomplishedsuccessfully in a relatively short time. During appraisal, the Bank was fully involved in the assessmentof cost, planning the scope of work, source of finance, time schedule, and delivered constructivesuggestions during cost revision and scope of work negotiations. During construction phase, Bankconsistently assisted PLN in supervision of procurement, and implementation of the components.
9.4 MOCSE Assessment of the Project
MOCSE notes that Pola training targets could not be achieved due to sharp decrease in PUKK funds fromPLN and the Government's inability to provide additional funding as originally planned. However, the Polatraining program need not be overly dependent on formal classroom training provided by PLN trainingcenter - direct on-the-job training provides an acceptable alternative. A clear policy and mission statementfor rural electrification is needed if the Pola Program and its training is to be effective.
(b) Cofinanciers:
(c) Other partners (NGOsJprivate sector):
10. Additional Information
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Annex 1. Key Performance Indicators/Log Frame Matrix
Project Objective Performance Indicators Baseline Midterm ICRYear (1994) March Year (2000)
19971. Expanded coverage Outcome Indicatorsand supply of electricity - Additional MV lines (kmc) Not applicable -17 000 -19 500to rural areas through a - Additional LV lines (kmc) Not applicable -18 500 -24 000time slice investment - Additional poles (million) Not applicable -0.75 -0.87program - Additional distribution transformer Not applicable -323 -775
capacity (MVA)
Impact Indicators- Additional villages electrified Not applicable -7 100 -12 300- Additional rural households electrified Not applicable -3.2 -7.7(million) 32 45 53- Rural household electrification ratio(%)
2. PLN RE Program mademore efficient andsustainable by:a) reducing RE unit delivery Outcome Indicatorscosts - $/kmc MV lines 7 580 3 850 - 4 960
- $/kmc LV lines 4 111 1 667 - 2 777- $/pole 131 126.- 81.10- $/Distribution transformer capacity 81 57.50 32.70(kVA)
Impact Indicators -59 -186- Total costs savings on materialspurchased within RE II project (MillionUS $ equivalent)
b) establishing incentives for Outcome Indicatorsprivate sector firms and - Number of KUD customers - 9 million - 16 Million 20.8 Millionlocal cooperatives to take an - Pola I (meter reading and billing) -2200 (Pola I, 3657increasingly larger share of - Pola II (house wiring) 11 and MSA) 24RE distribution and rural - Pola I + 11 170renewable energy -MSA (line maintenance, simple fault 665generation clearing, tree trimming, streetlight
maintenance (PLN owns assets)- Pola IlIl (ownership of diesel 3 1generation & distribution assets andoperation
Impact Indicators- Generation capacity served by KUD's
c) increasing the economic Outcome Indicatorsbenefts of RE by promoting - No. of enterprises in RBS program 15 519 84 000productive uses of electricity - Number of enterprises benefted 66 000in rural areas
Impact Indicators- Number of jobs created 4 927 22 000- Increase in productive electricity use 180(GWh/year)
d) investing in renewable Outcome Indicatorsenergy generation to - Numbers of Projects 0 5displace high cost diesel - Capacity (MVW) 0 7.8generation
Impact Indicators- Electricity Generated (GWh/year) 0 56.6- Hydro Electricity Cost (Rp/kWh) 0 95 - 343- Displaced Diesel Electricity Cost 0 156 - 211(Rp/kvh)
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Project Objective Performance Indicators Baseline Midterm ICRYear (1994) March Year (2000)
19972. Capacity of institutionsbuilta) Prepared renewable Outcome Indicatorsenergy development plan for - Plan developed (4 regions only) 75 % 100 %outside Java andstrengthened PLN capacity Impact Indicatorsto undertake RE planning - Projects Identified 0 10and implementation at theregional levelb) Strengthened Outcome IndicatorsMOCSEIKUD capacity to - Number of KUD's trained 667 3 820facilitate implementation of Impact Indicatorsthe Pola program - Number of KUD's operating with 3257 4561
trained staff3. Pilot ProjectsConducteda) CAC [Contract Outcome IndicatorsAdministration Companies] - Number of projects 3
Impact Indicators- Cost Savings 30 %
b) SWER [Single Wre Outcome IndicatorsEarth Retum] - Number of Projects 2 0
Impact Indicators- Cost Savings Not completed
c)..TAP SS [HV Tapped Outcome IndicatorsSustations] - Number of Projects 2 2
Impact Indicators- Cost Savings 1 'i % 50-60 %
d) RCP [Reinforced Outcome IndicatorsConcrete Poles] - Number of Projects 5 4
Impact Indicators- Cost Savings 1'5% 30 %
e) WP [Wood Poles] Outcome Indicators- Number of Projects 65 6Impact Indicators-Cost Savings (tender prices) 40 % 60-80 %
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Annex 2. Project Costs and Financing
RE 11 PROGRAM - LOAN 3845-INDANNEX 2: PROJECT COST & FINANCING
2.1: Project Cost by Component
Appraisal Actual/ Percent ofEstimate Laet AppraisalProject Cost by Component Estimate
US $million US $million %1. Distribution Schemes 601.7 537.2 89
2. Pilot Projects including relevant TASWER 0.2 0.1 50Low Tech Concrete Poles 2.2 1.2 55Tap Substations 4.9 2.0 40CAC 3.7 2.6 70Wood Poles - 0.5
Sub-Total Pilots 11.0 6.4 58
3. Mini HydrolGeothermal including relevant TAMini Hydro 17.2 16.7 97Geothermal 11.6 1.9 16
Sub-Total Mini Hydro/Geo 28.7 18.6 65
4. RBS 6.5 6.8 105
5. POLA Program 6.2 1.6 26
6. Other Technical Assistance 9.5 6.9 73
Total Baseline Cost 663.5 577.5 87Physical Contingencies 41.6 - -
Price Contingencies 35.6 - -
Total Project Costs 740.7 577.5 78Interest during Construction 98.3 76.4 78
Total Financing Required (PLN) 839.0 653.9 78
B. MOC Component 2.2 2.2 100
Base Cost for MOC Component 2.2 2.2 100Physical Contingencies 0.1 -Price Contingencies 0.1 -
Total Project Cost (MOC) 2.4 2.2 92Interest During Construction 0.2 - -
Total Financing (MOC) 2.7 2.2 81
Total Project Base Costs 665.7 579.7 87Physical Contingencies 41.7 -
Price Contingencies 35.7
Total Project Costs 743.1 579.7 78Interest During Construction 98.3 76.4 78Total Financing Required 841.3 656.1 78
Appraisal estimates in constant December 1994 dollars. Actual costs as of August 1, 2000.
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2.2: Project Cost by Procurement Arrangement at Appraisal(Millions of US$)
Expenditure Category Procurement MethodICB NCB Other NBF Total Cost
A PLN ComponentA.1 Line Materials & Poles 197.7 67.6 3.6 24.4 293.3
(197.7) (54.1) (2.7) (254.5)
A.2 Transformers & Other Equipment 44.7 12.7 57.4(44.7) (10.7) (55.4)
A.3 Construction of A.1& A.2 160.6 160.60.0
A.4 House Connections (incl. construction) 48.5 24.0 72.5(48.5) (48.5)
A.5 Drilling Services & Civil Works 10.8 7.8 18.6(10.8) (10.8)
A.6 Technical AssistanceA.6.1 Implementation Support 17.8 17.8
(17.8) (17.8)
A.6.2 Policy Support 0.7 0.7(0.7) (0.7)
A.6.3 Institutional Development 8.1 8.1(8.1) (8.1)
A.7 Pola Training Program 6.4 6.40.0
A.8 Engineering, Construction Supervision 41.6 41.60.0
A.9 Taxes 63.5 63.50.0
A.TOT Subtotal PLN 290.9 67.6 53.7 328.4 740.6(290.9) (54.1) (50.8) 0.0 (395.8)
B MOC ComponentB.1 POLA Training 1.5 1.5
(1.5) (1.5)
B.2 Pola Ill Preparation 0.7 0.7(0.7) (0.7)
B.3 Taxes 0.2 0.20.0
B.TOT Subtotal MOC 0.0 0.0 2.2 0.2 2.40.0 0.0 (2.2) 0.0 (2.2)
TOTAL 290.9 67.6 55.9 328.6 743.0(290.9) (54.1) (53.0) 0.0 (398.0)
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RE II PROGRAM - LOAN 3845-INDANNEX 2: PROJECT COST & FINANCING
2.3: Project Cost by Procurement Arrangement - ActuallLatest(Millions of US$)
Expenditure Category __ _ Procurement MethodICB NCB Other NBF Total Cost
A PLN ComponentA.1 Line Materials & Poles 126.6 55.9 0.0 0.0 182.5
(126.6) (44.7) 0.0 (171.3)
A.2 Transformers & Other Equipment 26.1 2.7 28.8(261) (2.7) (28.8)
A.3 Construction of A.1& A.2 260.9 260.90.0
A.4 House Connections (incl. construction) 28.5 13.9 42.4(285) (28.5)
A.5 Drilling Services & Civil Works 0.0 0.0 0.00.0 0.0
A.6 Technical AssistanceA.6.1 Implementation Support 9.1 9.1
(9.1) (9.1)
A.6. Policy Support 0.8 0.8-REDP (0.8) (0.8)
A.6. Institutional Development 4.6 4.6-RE Planning & PMU (4.6) (4.6)
A.7 Pola Training Program 0.0 0.00.0
A.8 Engineering, Construction, Supervision 0.0 0.00.0
A.9 Taxes 48.4 48.40.0
A.TOT Subtotal PLN 181.2 55.9 17.2 323.2 577.5(181.2) (44.7) (17.2) 0.0 (243.1)
B MOC ComponentB.1 POLA Training 1.3 0.4 1.7
(1.3) (1.3)
B.2 Pola Ill Preparation 0.3 0.3(0.3) (0.3)
B.3 Taxes 0.2 0.20.0
B.TOT Subtotal MOC 0.0 0.0 1.6 0.6 2.20.0 0.0 (1.6) 0.0 (1.6)
TOTAL 181.2 55.9 18.8 323.8 579.7(181.2) (44.7) (1 8.8) 0.0 (244.7)
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RE II PROGRAM - LOAN 3845-INDANNEX 2: PROJECT COST & FINANCING
2.4: Project Financing by Component(Millions of US$)
Component Appraisal Estimate Actual / Latest Estimate PercentageAppraisalBank Gol Bank Gol Bank Gol
PLN Component 395.8 442.8 243.1 410.7 61 % 93%
MOC Component 2.2 0.5 1.6 0.6 73C% 120%
Total Financing 398.0 443.3 244.7 411.3
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Annex 3: Economic Costs and Benefits
A. Economic Analysis of Distribution ComponentThe economic analysis of the distribution component involves a cost benefit analysis of electricity sold toresidential and non-residential consumers that were connected under the project. The analysis was done inconstant 1995 Rp to facilitate comparison with the original SAR. Input data from PLN and other sources,as well as key estimates and assumptions are contained in tables at the end of this section of the Annex.
Connections and Consumption by Residential and Non-residential Consumers Under the Project
Data on total annual connections per year under the project was supplied by PLN for 1995-1999, alongwith forecasts of intensification connections to be made in villages electrified under the Project. Based onestimates supplied by PLN for all rural customers in 1998 and 1999, these connections were split betweenresidential and non-residential customers. Average annual residential and non-residential consumption perconsumer was obtained from PLN records for rural Java and outside Java for 1998 and 1999. In 1995,average consumption per new customer per year was estimated at 540 kWh/year per residential customer inJava, 430 kWh/year per residential customer off Java and 5,000 and 3,184 kWh per year fornon-residential customers on Java and outside Java, respectively [1] Growth in average consumption ofnewly connected customers, based on PLN sales data by consumer category, was estimated at 2% per yearfor residential consumers and 7.8% per year for non-residential consumers.
Estimation of Benefits
Willingness to Pay ofResidential Consumers. Benefits for electricity are based on the willingness to payfor electricity used for lighting and other purposes. The willingness to pay for electricity used for lighting isestimated as the tariff paid plus the calculated consumer surplus obtained from the substitution of kerosenelamps by electric lights. The methodology used to estimate consumer surplus compares the price andquantity of light obtained from kerosene lamps and electric lights, on a per lumen basiq'2]. In the absenceof recent survey data, it is assumed that half of all electricity used is for lighting, the other half for otherpurposes [3]. Willingness to pay for electricity used for other purposes is estimated as only the tariff paid,in the absence of survey evidence on uses and willingness to pay for altemative energy sources for thoseuses. The analysis probably underestimates the willingness to pay for services other than lighting. In thefuture, conmected consumers should be surveyed to better determine the uses and value of electricity to theuser. Prices used in this analysis are based on 1995 price levels, which are considered to be morerepresentative of realistic prices for kerosene and electricity than post-1997 financial crisis price levelf4].Using 1995 price levels and the methodology for calculating consumer surplus developed for theBangladesh Third RE Project ICR, results in an estimated consumer surplus for lighting of 1,153 Rp/kWhfor both Java and outside Java[51. The willingness to pay for all uses is then calculated to be 709 and 715Rp/kWh for residential consumers in Java and outside Java, respectively[6j.
Willingness to Pay of Non-residential Customers. Benefits for non-residential customers were based onwillingness to pay, estimated as the costs of self generation using a captive diesel. These costs wereestimated in 1995 prices as 400 and 440 Rp/kWh in Java and outside Java respectively.
Project Costs
The project investment costs were adjusted to 1995 prices and taxes were excluded. Investment costsincluded the MV and LV distribution network and house connections, including house wiring. Energysupply costs were based on LRMC for residential customers at LV and commercial customers at MV,estimated in a 1998 study prepared by Hagler & Bailly for PLN. LRMC were corrected to 1995 prices,and the costs for residential customers were corrected to MV, since distribution investments were includedin the project costs.
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Results of the Economic Analysis
The results of the economic analysis for the base case and switching value analyses are shown in Table I.The detailed cash flow is given in Table II. The EIRR was estimated at 26.2% and the NPV at 12%discount rate at 2,079 BRp. This is slightly higher than the original estimate in die SAR of 21. 1%. Theanalysis is very sensitive to the estimate of residential willingness to pay, which is in turn sensitive to theconsumer surplus. The switching value of the consumer surplus at which EIRR drops to 12%, wasestimated to be -12%. The analysis is robust with respect to electricity consumption levels as the switchingvalue is -72%.
Table I Summary of Results of Economic Anal sisBase Case EIRR (%) NPV @,12% (BRp)
Estimate in Staff Appraisal Report 21.1%ICR Estimate with Consumer Surplus 26.2% 2,079ICR Estimate without Consumer Surplus -15,134
Switching Value Analysis Percent Decrease in Value to Reach 12% EIRRConsumer Surplus 12%Residential Electricity Consumption 72%
Endnotes1. The kWh consumption for a newly connected consumer was taken as 90 percent of average estimated 1995
consumption per residential consumer. PLN data of average 1999 sales to rural residential andnon-residential customers on and outside Java was deflated back to 1995 levels using consumption growthrates experienced by PLN.
2. Using the model developed by D. Barnes (SASEG) to compute consumer surplus for the Bangladesh ThirdRural Electrification Project ICR (Report No. 21290).
3. From Indonesia Rural Electrification Review (1986), the last data available on consumption patterns.4. Kerosene price has not changed since 1995, while the electricity tariff increased only 20% in current terms (by
end of Project). Since the financial crisis resulted in inflation that increased the CPI by 226% over the period,the real kerosene price declined by 56% while the real electricitv price declined by 46%.
5. There is no difference between Java and outside Java because the kerosene price are the same, and the resultsare insensitive to variations in quantities consumed.
6. This is calculated as [(tariff+consumer surplus)*(percent kerosene used for lighting)-Ftariff*(percent keroseneused for other purposes)]. The methodology used is veiy sensitive to two key assumptions:* The demand curve is a straight line. While the use of a straight line demand curve is standard practice
when calculating consumer surplus in the Bank, there is little empirical evidence to support thisassumption. If the demand curve were to be concave rather than a straight line, the consumer surpluswould be less. Assuming a concave shape (slope of 0.3) rather than a straight line (slope of 0.5) wouldreduce the estimated consumer surplus to 691 RpIkWh.
* The share ofpressurized lamps in the lighting mix is small. Because pressurized lamps are moreefficient, the consumer surplus from the switch from such lamps to electricity is much less than from wicklamps or hurricane lamps. The shares assumed in this analysis are 10% pressurized lamps, 40%hurricane lamps, and 50% wick lamps based on PLN estimates. If the share of piessurized lamps were toincrease, the consumer surplus would drop.
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Table 11INDONESIA
SECOND RURAL ELECTRIFICATION PROJECT (Loan 3845-IND)Re-calculation of Economic Rate of Return: INDONESIA
PLN's RE Investment Proeram 1995/96 - 1999/00[BillionRp., Jan. 1995 Prices]
Costs
Investment:
Distuibution& Conrec. O&M GnidElectricily Supply DieselElec SuEe y Total Cost
Year BRp BRp GWh BRp GWh BRP BRp1995 569 28 1,231 451 51 126 1,1741996 626 60 2 793 1,021 114 278 1,9851997 831 101 4,417 1,621 190 462 3,0151998 468 125 5 6S2 2,079 238 575 3,2471999 130 131 6,379 2,342 281 671 3,2752000 64 134 6,813 2,499 300 709 3,4072001 50 137 7,227 2,648 319 744 3,5792002 37 139 7,629 337 776 3,7442003 27 140 8,025 355 805 3,9052004 198 141 073 372 831 4,0652005 12 142 _ 8,821 321 389 856 4i242006 6 142 9,228 3 357 406 880 4,3852007 3 142 9,652 424 903 4,553
2008 1 142 10,097 3,661 442 926 4,7302009 142 10,567 3,824 462 950 4,9172010 142 11,067 3,999 483 974 5,1162011 142 11!601 4,184 505 1.000 5,3262012 142 12,169 4,381 528 1,027 S,SS02013 142 12,774 4,592 553 1,054 5,7882014 142 13.420 4,116 580 1,083 6,0412015. 142 14,110 5,054 608 1,113 6,3092016 142 144 5 638 1,144 6,S952017 142 15 632 5,580 670 1,176 6,8992018 142 16 472 705 -1,210 72222019 _ 142 17.370 6,180 741 1,245 7,5672020 142 18,331 6,511 781 I 282 7,935
NPV (&12% 2,166 900 54,928 19,970 2,38 5,195 28,128
BeneritsResidential Non-residential Total Net
Elec use WTP Elec use | WTP Benefits CashFlowYear GWh BRp GWh BRp BRP BRp
1995 794 564 365 149 713 (46111996 1 785 1 268 842 345 1,613 (372)
1997 2,805 1,993 1,356 556 2,549 (466)1998 3 563 2,531 1,786 732 3,263 161999 3,951 2,807 2,065 847 3,654 3802000 4,146 2,946 2,279 935 3,881 4742001 4,319 3,069 2,497 15025 4,094 S15
2002 4,473 3,178 2722 1 117 4,296 552
2003 4,612 3,277 2,957 1,214 4,491 5862004 4,739 3,367 3,203 1,315 4,682 6182005 4,856 3,450 3.463 1,421 4,872 6482006 4,964 3,527 3,738 1,534 5,062 6772007 5,069 3,601 4,032 1,655 5,257 7032008 5,172 3,675 4,348 1,785 5,460 729
2009 5,276 -3748 4,687 1,924 5,672 756
2010 5,381 3,823 5,052 2,074 5,897 782
2011 5,489 3,900 5.446 2,236 6,135 8092012 5 599 3,978 5,871 2,410 6,388 8382013 5,711 4,057 6,329 2,598 6 655 867
2014 5,825 4.139 6,823 2,801 6,939 8992015 5,941 4 227 t355 3,019 7,240 9312016 6,060 4306 73,254 7,560 9662017 6,181 4,392 8,547 508 7,900 ,2018 6,305 4,480 9,214 3,782 8,262 1,039
2019 6,43 4,077 8,646 1,0792020 6,560 4,66 10,07 9,056 1,121
NPV_312% 29,87 21,213 21,917 3094 07 2,079
-IRR 2622
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Input Data for Distribution Component Economic Analysis
Table A. 1Connections Made Outside Java
Year Java Connections Connections Total Connections1995 1,103,418 557,300 1,660,7181996 1,373,503 663,192 2,036,6951997 1,294,008 784,846 2,078,8541998 1,005,140 456,070 1,461,2101999 326,152 365,216 691,3682000 147,795 99,276 247,0712001 111,819 79,972 191,7912002 83,508 60,520 144,0272003 60,562 45,013 105,5752004 44,105 30,099 74,2042005 27,038 19,526 46,5652006 12,826 11,233 24,0602007 6,232 4,996 11,2292008 2,507 1,938 4,445
Total 5,598,612 3,179,199 8,777,812Source: PLN, PMU Final Report March 2000
Table A.2RE II Investments Billions of Current Rupiah Billions Const Rp
Distribution Household Conn. Management Total Total1995/96 361.71 229.29 29.55 620.56 569.321996/97 389.52 312.45 35.10 737.07 626.121997/98 485.76 511.51 49.86 1,047.14 831.321998/99 483.88 403.49 44.37 931.74 468.171999/00 136.47 212.12 17.43 366.03 130.38
1,857.35 1,668.87 176.31 3,702.53 2,625.31Source: PLN, RE: More Data Clarificationfor EIRR: "RE2PDP from 12-7.x1s", Email of July 13, 2000.
Table A.3Long Run Marginal Costs Java Off-Java
Grid Elec. Diesel Elec. Grid Elec. Diesel Elec.Residential 346 n/a 476 540 Rp/kWhNon-residential 309 n/a 431 488 RpkWhSource: PT PLN (Persero), System Long-Run Marginal Cost Study, Chapter 4, prepared by Hagler Bailly Company, 1998.Corrected to MV line by data provided by Bob Vemstrom, consultant on the report, by email to Anil Cabraal Aug. 8, 2000.All data corrected to 1995 Rph using inflation rates below
Table A.4Economic Data: Exchange (Rp/$) Dom. Inflation Intn'l Inflation
1994 2,1931995 2,300 9% 7.9%1996 2,383 8% -4.4%1997 5,773 7% -5.1%1998 9,607 58% -3.9%1999 7,400 24% -0.6%
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Table A.5Willingness to Pay Java Off-JavaResidential 709 715 Rp/kWhNon-residential 400 440 Rp/kWhBase case assumes 50% electricity used for lighting.Assumes no consumer surplus for non-lighting uses of electricity.Non-residential value based on self generation using small diesel genset
Table A.6Average Tariff Rp/kWhand Consumer Surplus Residential Non-ResidentialOutside Java Tariff 138Java Tariff 132Outside Java Tariff 181Java Tariff 310Consumer surplus residential 1,153Tariff data from PLN Tariff Schedule, PLN Annual Report 1997.Average tariff corresponds to consumption levels in Table A.8.Java and outside Java average kWh tariff differential reflects theeffect of fixed kVA charge.Residential consumer surplus uses methodology applied inBangladesh Third Rural Electrification Project ICR (Rpt 21290).Consumer surplus only applied to lighting where kerosene lightingreplaced by electric lights.
Table A.7Other AssumptionsOff-Java Diesel Elec. 15%Residential Consumers 95%O&M 5% of capital costT&D Losses, Java 9%T&D Losses, Off-Java 12%T&D Losses, Diesel 7%Source: PLN
Table A.8Rural Electricity Consumption (kWh/connection/year)
Java Off-JavaResidential 540 430Non-residential 5,000 3,184PLN 1999 consumption data for rural residential consumers adjusted to1995 base case data using growth rate, then adjusted by factor 0.9reflect lower new customer consumption level. Non-residentialestimated for Java at 5000 kWh.
Table A.9Consumption (kWh) Growth Rate per Connected Consumer
Java Off-Java
Residential 2.0% 2.0%Non-residential 7.8% 7.8%Based on historical rates 1994 to 1999. Java and off-Java assumed to be sameSource: PLN Annual Report 1998
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B. Economic Analysis of Mini-hydro Component
The economic analysis for the mini-hydro component is given below:
Table 2 Mini-hydro Levelized Energy Cost (LEC, 1994 Rp/kWh)
Levelized Electnicity Cost At Levefized Electricity CostAppraisal Ex-Post
Site LEC Hydro LEC Diesel LEC Hydro LEC Diesel
U. Peliang 343 191 193 211
Bambolo 95 161 147 214
Kolondom 146 156 167 212
Lokomboro 167 212 177 255
Werba 172 198 166 233
All Projects 151 176 163 223
The mini hydro projects, except for Ulung Peliang are lower in economic cost, i.e. the least costsolution compared to diesel alternative. The EIRR is also greater than Io% for all sites except forUlung Peliang even if useful energy output dropped to 80% of base case assumptions (Table 3).
Table 3 Economic Internal Rate of Return EIRR (Percent)
U. Peliang Bambolo Kolondomn Lokoinboro Werba
Base Case - Ex-post 10.1 38.S 32.4 25.3 245evaluation
Base Case - At 25.6 31.6 25.1 22.7 21.5Appraisal
If Useful Energy is 7.3 33.0 26.4 21.3 20.680% of Base
The poor performance of Ulung Peliang is a result of a poor analysis of the site hydrology duringthe feasibility study. The design consultants overestimated the size of the catchment (30 km2 versus9 km2 actual due to erroneous maps and over-estimated mean annual flows. In order to avoidsimilar problems in future projects it is essential to have critical project design work such ashydrological analysis reviewed and vetted by qualified consultants.
Details of cost calculations and assumptions are given in: Worley Intemational, "RE II MiniHydropower Project Completion Report," June 2000 in the Project Files. Further details with respect tothe Ulung Peliang issues are found in: Winrock International, "Post Commissioning Inspection Reportof the RE II Mini-hydro Projects," prepared for World Bank, April 2000.
- 24 -
C. Pilot Projects Component
Pilot Project Cost Savings Compared to Conventional AlternativesContract Administration Companies 30% in overall line and distribution construction costsSingle Wire Earth Return Pilot could not be completed due to financial crisisHV Tapped Substations 50-60% compared to conventional substationsReinforced Concrete Poles 30% compared to spun concrete polesWood Poles (based on tender prices) 60-80% compared to spun concrete poles
Details are found in the various pilot project final reports in Project Files.
D. Rural Business Services Component
The RBS program demonstrated that PLN can increase productive uses of electricity by targetingmarketing interventions and price incentives which address information constrains and businessneeds of small enterprises in rural areas. it also demonstrated that local NGOs can be viable ruralmarketing partners for PLN. The RBS component enabled 63,000 new commercial enterprises tobecome PLN customers receive electricity services and resulted 16,700 jobs being created. Thecorresponding increase in electricity usage was 180 million kWh per year. For details: see: WorleyInternational, "Case Study Review of the Rural Business Services Program," prepared for PT PLN(Persero), May 2000, in the Project Files.
- 25 -
E. Financial Accounts of PLN Rural Electrification Operations
PLN INCOME STATEMENT - RURAL ELECTRIFICATION
1 JANUARY - 31 DECEMBER 18"9
in --- ordonc. with SE Oi3PST/tII7
Rp 000,00CI
| PLNReion R Erw ySaiea F. InoomeT 1o perati5n Maintenance Direct Deprecie | h"d| Total Operalig
1 2 3 4 5=3.4 6 7 8 9 IS 16708.9.10 12-5-11
1. Re" in 28,374 72 28,447 23,617 5,675 11 ,362 13,125 10,944 64,727 (36,280)
2. Region II 487,921 500 468,421 381,661 29,094 4Z758 66,826 18,367 541.720 (73,266)
3 Reain III 75,691 276 76,240 25 364 436847 13,137 54,076 2,725 138,950 (5Z710)
4. Regin IV 178 ,54 401 178,56 7,644 51,420 18,213 56,271 18,336 231,884 (52,8
5. Re.0n V 35,039 28 35,087 9,329 14,046 2,428 19,114 3,780 48,668 (13831)
6. Region Vl 10,836 1,916 102,752 89284 65,530 11,846 79,196 7,246 249,399 (148,641)
7. Regicn Vil 41,447 161 41,626 17,824 26,043 7,316 21,147 4,821 77,131 (35.504)
S. Region VIII 64,728 624 65,352 63,983 23,790 7,115 50,653 4,835 158,352 (91,000)
9. Regin IX 14,424 89 14,513 4,738 4,420 7,040 16,319 1,310 33,626 (19,313)
10. Regin X 11,572 35 11.60 11,019 15,599 5,158 8,664 2,403 42,843 (31,237)
11. RegicnXi 278.,23 1,277 277,500 128946 110,007 51,243 60,814 19,624 371,833 (94,033)
OFF JAVA 13,65,072 5,463 1.30,.525 846,330 389,543 177,614 443209 94,389 1,957,086 (896.540)
12. Di.t. Eatj va 1,65013 13391 138404 783675 56s67n 44884 210,61 26171 1122,052 178,352
13 Dist C-nftai J- 567,623 1,646 569.269 118,874 63.332 495307 228,028 378621 497,183 72.108
14. Dis.Weut Java 88n307 78497 957,804 234901 89666 188.80 154,863 64,20 659,488 36,316
JAVA 2.741,3 9633 2,835,477 1,137,490 219,09 2C0,00 593S2, 128,51B 2,278,703 556,773
IN DO N ES IA 4,037,015 98,986 4,138,001 1,983,761 609,152 377,614 1,1042,771 223,450 4,2358768 (9,778)
Sobr. :PLN SE6013.=#Wbn DBL - DIVDES
Profit/Loss from PLN Rural Electricity Services Operations
800
600
400-
n. 200-
0o ° I I I I
C 19 4 1995 1996 1997 1998 1999 20 0_ -200 -
-400 -
-600 --- e
-800 --ear Java
Year - - - Outside Java
- 26 -
Annex 4. Bank Inputs
(a) Missions:{age of Project Cycle No. of Persons and Specialty Performance Rating
(e.g. 2 Economists, 1 FMS, etc.) Implemerdation DevelopmentMonthWYear Count Specialty Progress Objective
Identification/Preparation07/92 4 1 Renewable Energy Spec., 1.
Sr. Power Engineer, 1 WindEnergy Spec., 1 SeniorOperations Officer
05/93 3 1 TTL/Economist, 1 RenewableEnergy Spec., 1 Ssr. PowerEngineer
08/93 2 1 TTL/Economist, lPowerEngineer
Appraisal/Negotiation11/93 7 1 TTL/Economist, 1 Senior S S
Financial Analyst, 1 PowerEngineer, IRuralEnterprises Spec., IRenewable Energy Spec., 1Enviromnental Spec., IEconomist
02/94 6 1 TTL/Economist, 1 Power S SEngineer, IRenewable Energy, 1Rural Enterprises Specialist, 1Rural Electrification PlanningInformation System Spec., 1Economist
Supervision06/95 4 1 Task Team HS HS
Leader/Economist, 1Renewable Energy Spec., 1Rural Enterprises Spec., 1Economist
11/95 4 1 Task Team Leader/Economist, S S1 Renewable Energy Spec., 1Rural Enterprises Spec., 1 PowerEngineer
03/96 5 1 Task Team Leader/Economist, S S1 Renewable Energy Spec., 1Rural Enterprises Spec., 1 PowerEngineer, Resettlement Spec.
06/96 6 1 TTL/Economist, 1 Renewable S SEnergy Spec., 1 ResettlementSpec., 1 Power Engineer, 1 RuralEnterprises Spec., 1Environment Spec.
- 27 -
11/96 5 1 TTL/Economist, 1 Renewable S SEnergy Spec., I ResettlementSpec., I Rural Enterprises Spec.,1 Power Engineer,
03/97 6 1 TTL/Economist, I Renewable S SEnergy Spec., 1 RuralEnterprises Spec., I Economist,1 Power Engineer, 1Environment Spec.
06/97 6 1 ITL/Economist, 1 Renewable S SEnergy Spec., 1 RuralEnterprises Spec., I Economist,I Power Engineer, I DSMPlanner,
11/97 6 1 TTL/Economist, 1 Renewable S SEnergy Spec., 1 Economist, 1Power Engineer, 1 ResettlementSpec., 1 Renewable EnergyEngineer
03/98 6 1 TTL/Economist, 1 Renewable S SEnergy Spec., 2 Power Engineer,1 Economist, I RenewableEnergy Engineer
06/98 5 1 TTL/Economist, I Renewable S UEnergy Spec., 1 Economist, IPowerEngineer, 1 RenewableEnergy Engineer
05/99 3 1 TFL/Economist, 1 Renewable S UEnergy Spec., 1 Power Engineer
12/99 2 1 TTL/Economist, 1 Power S UEngineer
ICR02/00 2 1 TTL/Renewable Energy S U
Spec., 1 Power Engineer
(b) Staff
Stage of Project cycle Actual/Latst Estimate; No. Staff weeks uS$ (,000)
Identification/Preparation 103 377Appraisal/Negotiation 5 5 206Supervision 104 488ICR 5 25Total 267 1096
Note: Regional direct costs in 1999 and prior FYs have been marked up by 25% to adjust to full costs
- 28 -
Annex 5. Ratings for Achievement of Objectives/Outputs of Components
(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)Rating
Macro policies O H OSUOM O N * NAFSector Policies O H O SU *M O N O NAN Physical * H OSUOM O N O NAO Financial O H O SU O M * N O NAO Institutional Development 0 H O SU O M 0 N 0 NAO Environmental O H OSUOM O N * NA
SocialL Poverty Reduction O H OSUOM ON * NAO Gender O H OSUOM O N * NAEl Other (Please specify) OH OSUOM ON O NA
Z Private sector development 0 H O SU 0 M 0 N 0 NAO Public sector management 0 H 0 SU O M 0 N 0 NAEl Other (Please specify) O H OSUOM O N O NA
- 29 -
Annex 6. Ratings of Bank and Borrower Performance
(HS=Highly Satisfactoiy, S=Satisfactoiy, U=Unsatisfactoiy, HU=Highly Unsatisfactory)
6.1 Bank performance Rating
F Lending OHS OS Ou OHUF Supervision OHS OS OU OHUF Overall OHS OS O u O HU
62 Borrowerperformance Rating
1Z7 Preparation OHS OS O u O HUZ Government implementation performance O HS 0 S 0 U 0 HUZ Implementation agency performance OHS OS OU O HUZ Overall OHS OS 0 U 0 HU
- 30 -
Annex 7. List of Supporting Documents
1. Intemational Science & Technology Institute,Pola Program Services, Final Report prepared forDirectorate General of Urban Cooperative Development, Ministry of Cooperatives and Small &Medium Enterprises, November 1998.
2. Ministry of Cooperatives and Small & Medium Enterprises,Borrowers Project Completion Report,March 2000.
3. PT PLN (Persero),Rural Electrification RE If Program PMUFinal Report, Jakarta, Indonesia,March 2000.
4. PT PLN (Persero),Borrowers Project Completion Report, Draft report submitted by Head of RuralElectrification Division, Jakarta, Indonesia, March 24, 2000.
5. World Bank, Indonesia Second Rural Electrification Projecf Staff Appraisal Report Report No.12920-IND, Washington DC, USA, February 3, 1995.
6. World Bank, Aide Memoire, February 1994, June 1995, November 1995, march 1996, June 1996,November 1996, April 1997, July 1997, December 1997, July 1998, May 1999, December 1999, ICRAide Memoire of February 2000.
7. World Bank, RE II Project Economic Analysis, MS Excel Spreadsheet, Washington DC, USA, June 6,2000.
8. Worley International, Case Study Review of the Rural Business Services Program, Report to PT PLN(Persero), Jakarta, Indonesia, May 2000.
9. Worley International, RE II Mini Hydropower Project: Completion Report, Report to PT PLN(Persero), Jakarta, Indonesia, June 2000.
10. Winrock International, Post Commissioning Inspection Report of the RE II Mini-hydro Projects,prepared for World Bank, April 2000.
- 31 -
Annex 8. Status of Loan Covenants
LoanAgreement Descrption of Covenant Covenant Status
3.01(b) Relend portion of proceeds to PLN under a subsidiary loan Complied withagreement.
3.04 (a) undertake, and by 31 March 1995, complete a study on private Partially complied withpower development; (b) review and discuss study report with bank; after dlelav(c) based on results of study, prepare draft rules and procedures,review with Bank, finalize and adopt approved rules and proceduresby 31 December 1995.
3.05 (a) undertake, and by 31 March 1995, complete a study on Not ccimplied with butregulatory reforn in the power sector, (b) review and discuss study Power Sectorreport with bank; (c) based on results of study, prepare draft Restructuring Policyregulations for the power sector, review with Bank, finalize, adopt paper issued in Augustand enforce regulations by 30 June 1996. 1998. Legislation
presently being drafted.3.06 (a) Reorganize PLN into a limited liability company (Persero); (b) Partially complied with.
furnish to Bank a progress report concerning reorganization, TA funded by Bank (Lntogether with draft time bound action plan for corporate 3602-IND, 3501-IND)reorganization and restructuring; (c) review report with Bank; and and ADB. Bank and(d) by June 30, 1995 take appropriate steps to implement action ADB currentlyplan. suppoiting preparation
of PLN corporate andfinancial restructuringplan.
3.07 Establish Directorate of Regulations within DGEED with adequate Partially complied withstaff and funds by 30 June 1995. after delay
4.01(b) Furnish, no later than six months after the end of each PLN FY, Complied withaudit report concerning special Account and Expenditures inrespect of all components provided under the project.
4.02 (a) By 12/31 eachyear commencing in 1995: (a) review with Bank: (i) Complied with afterPower Sector Development Program, (ii) least cost plan, analysis delayused to formulate program, (iii) roles of PLN & private sector inprogram, (iv) transparency and appropriateness of businessenvironment for private sector participation: (b) review with theBank and PLN, PLN's development and investment program withrespect to: (i) their consistency with power sector developmentprogram, (ii) balance among generation, transmission anddistribution Investments, and (iii) balanced development of regions.
4.02 (b) By January 31 each year commencing in 1995 until project Complied with aftercompletion, furnish to the Bank for review and comment, prior to delayfinalization, annual targets for village electrification for thefollowing fiscal year
4.02 (c) Ensure PLN has access to funds to finance its capital expenditures Not complied with afterfor its investment programs. 1997 financial crisis
- 32 -
ProjectAgreement Description of Covenant Covenant Status
3.01 PLN to carry out operation with sound administrative, financial and Complied with partiallyengineering, managerial, public utility and environmental practices.
3.02(a) PLN to maintain its existence and right to cany out operations and Complied withtake steps necessary to acquire, maintain and renew all interest inland and other properties in carrying out implementation of theproject.
3.02(b) PLN to operate and maintain plants, facilities, equipment and other Complied withproperty, and promptly make all necessary repairs and renewals.
3.02(c) PLN shall not sell, lease or transfer, or otherwise dispose of any Complied withproperty or assets
3.03 PLN to take out and maintain with responsible insurers, or make Complied withprovision for insurance against risks and in amounts consistent withappropriate practice.
Covenants 4.01 to 4.08 with respect to PLN's financialperformance reaffirmed agreements reached under theSumatra and Kalimantan Power Project (Ln. 3761-IND)
4.01(a) PLN to maintain records and accounts adequate to reflect its Complied withoperations and financial condition.
4.01(b) PLN to furnish to Bank no later than six months after the end of Complied witheach FY: (a) certified copies of its financial statements; (b)corresponding audit report.
4.02 PLN shall: (a) by October 30 every year conmencing in 1995, Not complied withreview its LRMC with a view to formulating its tariff structure; (b) sporadically and delay.discuss results with Borrower and Bank; (c) take steps to revisetariff structure.
4.03 PLN not to incur any debt unless a reasonable forecast of revenues Not complied with afterand expenditures of PLN shows that projected new revenues for 1997 financial crisiseach FY during the term of debt shall be at least 1.5 times theprojected debt service requirement.
4.04 PLN shall (a) prepare a ten-year financial forecast; (b) test each Not complied with fullydevelopment plan for financial feasibility; (c) develop financing after 1997 financialplan to cover first five years of forecast period, including identifying crisispotential financing sources; (d) ensure review with Borrower andBank prior to adoption by its Board.
4.05(a) PLN to take measures as necessary to realize for all its operations, Not complied withfor its FY1994/95, and in each FY thereafter, an annual ROR ofeight percent (8%) of the average current value of PLN's net fixedassets in operation.
4.05(b) PLN shall review whether its tariffs are adequate to meet the Review complied withrequirements of 4.05(a) for the next FY and furnish to Bank for but tariff not revisedreview.
4.06 PLN shall for its FY 1994/95, and for each FY thereafter, revalue Complied withits fixed assets and accumulated depreciation
4.08 PLN shall review: (a) annually with the borrower and Bank, PLN's Complied withinvestment plan for the next five FYs, including balance betweengeneration, transmission and distribution; and (b) by December 31every year, commencing in 1994, PLN's development plan andassociated financial forecasts and financing plan.
- 33 -
ProjectAgreement Description of Covenant Covenant StatusSchedule 2 PLN shall, by June 30 (or such other date as may be agreed by the Compiled with in
Para 5 Bank) every year commencing in 1995, revise, and publish the December 1996 onlysmall power purchase Tariff (SPPT) schedule including the form ofthe standard power purchase contract in accordance with themethodology agreed to by the Bank.
Schedule 2 PLN shall, by June 30 (or such other date as may be agreed by the Partially complied withPara 6 Bank) every year commencing in 1995, revise and publish the bulk
supply tariff schedule in accordance with the methodology agreed toby the Bank.
- 34 -
Annex 9. Lessons Learned: Results from Stakeholders Meetings
With 47% of rural consumers yet unelectrified, attention should be given to enhancing PLN's REcapability and increasing its effectiveness within a restructured and unbundled PLN. Therefore, it isimportant to ascertain and record the lessons learned from the project to benefit future RE programs inIndonesia (as well as similar programs in other countries). To assist in the process of gathering andanalyzing the lessons learned from the various stakeholders, the Bank ICR team led two half-daybrainstorming sessions attended by PLN, MOCSE and consultants. Representatives included PLN (RuralElectrification, PMU, Supporting Services, Foreign Cooperation Administration, Construction Accounting,Environment, Procurement. Construction Control, Supervision Unit, MOCSE, Central NGO for RBS, andconsultants).
The method used in eliciting and ranking responses was a modified form of the Objective Oriented ProjectPlanning (OOPP) approach. The OOPP methodology is described in detail in the UNIDO publications"Quality Management of Development Cooperation, Part 2, The Method," UNIDO, Vienna 1997.
These sessions were well attended with a very high level of participation (-25 persons/day) andcontribution from all the attendees. Observations made by the participants summarized below and noted inthe subsequent tables. The scores assigned to each "Lesson" were based on the votes cast by theparticipants - the higher the score, the greater the importance assigned to that observation. Due to timeconstraints, mini-geothermal component, technical audits and small power purchase regulation adoptionwere not discussed.
Management- The Project Management Unit demonstrated the importance of having an organizational
mechanism for managing this complex project involving multiplicity of components scatteredthroughout the Indonesian archipelago, and requiring coordination between numerous PLNdepartments, consultants, contractors and the Bank. The PMU ability and authority to cut acrossthe vertically organized directorate structures are critical.
Distribution Investment Component- The PLN should not have to bear the public service obligation of rural electrification. The off-Java
RE operations requires GOI assistance for financial sustainability. The establishment of the SocialElectricity Development Fund as proposed in the August 1998 policy statement supports thisfinding.
- Existing GOI regulations and PLN procedures cause delays in tender preparation, bid evaluationand contract award. Permitting just-in-time materials supply; timely issuance of NOLs by theBank; and use of perfonnance-based contracting can reduce time and costs.
- The lack of adequate materials inventory information and controls and recording of physicalprogress through field audits are a severe hindrance to effective management and cost controlAnintegrated Management Information System accessible by all PLN units is needed to provide wideand timely access to information
- Centralized planning, management and operations hinders responding effectively to customer needsand local conditions - many such functions should be decentralized to regional offices.
Pilot Projects (CAC, Tap substations, RCP, Wood poles, SWER)- The CAC, Tap substations, RCP poles pilot projects in particular, have clearly demonstrated that
significant cost savings are possible even at pilot scale. Prospects exist for even more savings whenmainstreamed. PLN has begun drafting the standards and guidelines for mainstreaming but as yethave not required their adoption.
- Future pilot project identification and formulation should involve PLN regional staff to increasebuy-in and ownership.
- 35 -
Mini-hydro- The mini-hydro projects have demonstrated their technical and economic viability. Further
significant cost and time-to-completion reductions are feasible. In particular, design simplification,use of perfonmance-based tendering procedures and EPC contracting approaches can reduce costand time.
- PLN does not have a comparative advantage in implementing these small power projects.Therefore, PLN should encourage private sector or others to invest in such projects and sell powerto PLN. Similar small hydro projects by the private sector with Bank financing in India and SriLanka cost less than half the cost of the projects by PLN. Complex organizational arrangementsand bureaucratic approaches at PLN increased coordination difficulties, costs and time tocompletion.
- There is presently little encouragement to recognize the cost effectiveness and environmentalsoundness of these projects as subsidized diesel fuel (USc 7.5/liter vs USc 18/liter at appraisal)give no financial incentive to PLN to use anything other than diesels.
* Rural Business Services (RBS) Program- The efforts of the local NGOs through the RBS program were effective in incr,easing productive
uses. A marketing oriented approach can increase kWh sales for productive purposes. The actualmarketing services could be also out-sourced to other agents or done in-house by PLN Productiveuse promotion should target consumers both in rural or urban areas.
- The integration of RBS with related services, such as tariff classification and connectioncommitments within and outside PLN, equipment supply and credit access, could contribute toincreased effectiveness.
- The effectiveness of RBS can be improved if the PLN regional/branch management is convinced ofthe value of increased kWh sales for productive uses. This requires appropriate tariff structuresand decentralized implementation.
* Pola Program- Since GOI Law # 15 has been issued, Pola MSA approach is important for encouraging the
cooperatives, NGO's and private enterprises to develop their own generation.- PLN's out-sourcing of services such as billing, collection, line maintenance, bulk power purchase
and distribution to cooperatives can be effective as part of a least cost approach to ruralelectrification services. However, the fee structure and other arrangements must be carefullyconsidered to make them viable for both PLN and the cooperatives. These services to PLN shouldbe open to a broad range of agents including private companies, community organizations andNGOs, in addition to cooperatives.
- The effectiveness of efforts to out-source pola services depends in part on the commitment of PLNto 'rightsizing'.
- The lack of progress in implementing MSAs reflected a lack of policy-level and staff commitmentto handing over PLN sites, which may have been a reflection of fears about the effects on PLNstaffing levels.
Technical Assistance- In general, regional involvement is needed to enhance ownership and facilitate 'implementation.- RE planning tools should be tailored to the organization level at PLN responsible for specific
planning activities. e.g., bulk supply planning may be done at headquarters and regional levelswhile distribution planning should be delegated to branches and sub-branches. PLN staff must beinvolved in selecting and designing planning tools rather than having a consultant specify anddevelop them independently.
- Accessible (e.g., web-based) planning tools and data should be used to increase access.
-36-
WORKSHOP RESULTS: RE n PROJECT ICR- LESSONS LEARNEDI - DISTRIBUTION COMPONENT
I II III IV V VI VII
Design Planning Supervision Procurement Disbursements Institutional CommunicationOf & & & & &
Component Implement. Management Contracting Finance Development Coordination
RE funding should Better Better Procurement Financial Inter-Directoratenot be a burden on reporting on understanding process takes a project control communicationsPLN. Given GOI' regional of cost of long time. in a timely for PMU must bes regional progress of implementation Procurement manner facilitated.development implementatio delay to PLN procedures required PMU should begoals, GOI should n required, by needed. should be W=20 integrated in aset up a social RE using a Slippages not streamlined Matrixfund. W=l9 adequate MIS acknowledged W=43 Organization
approach as a & penalized W=2Scommon tool. enough. W=13W=17
Application of Programs PMU is an More effective Timely Coordinationdesign specs are directed by a effective contracting availability of between alltoo standardized. centralized organization methods needed local portion for concemed partiesDesign to approach do tool for to reduce delays distribution must betechnical limits not always coordinating a in construction & maintained at allenables cost meet multifaceted implementation. erection causes stages, fromsavings customers program E.g., EPC delays in concept toW=14 needs. Better W=10 contracting, implementation planningto
coordination incentives & W=13 implementation.between milestonecustomer payments. W=13service &planning isrequired.W=13
RE development is RE targets set Auditing of Streamlineexpensive, loans by PLN HQ & loans should be consultantsshould "subsidize" GOI are often done by procurementcorresponding difficult to independent procedures: DraftPLN losses. reach, regional auditors. The Contracts!W=9 decenralized required budget NOLs should be
planning should be approved byshould be included in the Bank Jakartaaccepted & loan amount. Office & not HQ.implemnented. W=6 W -7W=9
Maximumprocessing timesfor contractingshould beintroduced andenforced.
More flexibletechnical specs toencouragecompetition
W= Score given by workshop participants
- 37-
WORKSHOP RESULTS: RE II PROJECT ICR- LESSONS LEARNEDII- PILOT PROJECTS ICAC, SWER, TAP SS, RCP, WPJ
I I III IV V VI Vll
Design Planning Supervision Procurement Disbursements & Institutional CommunicationOf Component & Implement. & & Contracting Finance Development & Coordination
Management
CAC Pilotprojects Intensive Procurement Pilots wereimplementation showed good supervision for pilots implemented inshould consider savings, required to expensive specificoperational & They should be enable more (small regions, & notmaintenance incorporated in detailed quantities, new countrywide.problems raised SPLN to analysis & product). Full Forby direct enable evaluation of cost savings sustainability,application of mainstreaming. pilot projects. not fully provideleast cost W=8 W=6 assessable due training ofmethodology. to small trainers acrossW=4 quantities. PLN.
Consider W=15duringappraisal.W=26
Assess local Some Pilot WB should not Tendering for Replicate TAPcommunity projects were stop pilot distribution SS acrossbenefits before not projects that poles should Indonesia, asdeciding on doing implemented are being allow for pilot achievedpilot project. (SWER, WP). implemented. alternative mostW=14 A more W=17 types of poles objectives.
positive to counter Request furlherapproach is cartel funding for thisneeded to formations. type of projectensure trial of W=7 The WBthese projects. shouldW=22 promote this
approachworldwide.W=8
TAP substations Involve regions To ensuremore economic from the proper &for RE under T/L beginning in timelythan with isolated the Pilot procurementdiesels projects, & (RCP PP),W=2 1 integrated increase
them into the awareness ofplanning & goals amongimplement. concemedphases. W=21 parties
Improvement in Reliable costthe design of TAP analysisSS needed for required priorimproved to pilotprotection implementatio(OLTC, relays ...). n to confirmW=4 benefits. W=12
W= Score given by workshop participants
- 38-
WORKSHOP RESULTS: RE II PROJECT ICR- LESSONS LEARNEDIII - RE II PROJECT COMPONENTS
[RE PLANNING TOOLS, REDP, RE INSTITUTIONAL STRENGTHENING]
I II III IV V VI VIl
Design Planning Supervision Procurement Disbursements Institutional CommunicationOf & & & & Development &
Component Implement. Management Contracting Finance Coordination
Future RE planning RE planning Consultancy Data Capture& management should focus on payments subcomponentcomputerized bulk should be should beprograms should distribution by based on mainstreamedintegrate all PLN & leave performance. into PLN regionsactivities including retail to other W=16 for planning,financial reports for agents. Private operations & assetall concerned PLN suppliers managementdivisions/units. should handle W=36W= 13 renewable
energies.Distribution/marketingshould behandled atBranch level.W=19
Software Planning For sustainability,development should process should training oftake into account the be developed trainers should beexisting software! collaboratively made in allplatforns, and keep with PLN disciplinesit as simple as implementors" W=16possible. Black box"W=5 approach
developed byconsultants hasno buy-in fromPLN. W=49
Transparency for REshould provide for aweb-based MIS.W=13
Training manualsmust be preparedbefore trainingimplementation.
W= Score given by workshop participants
-39-
WORKSHOP RESULTS: RE 11 PROJECT ICR - LESSONS LEARNEDIV - RE II PROJECT COMPONENTS IPOLA SCHEMES]
I f1 lif IV V VI VII
Design Planning Supervision Procurement Disbursements Instituti onal CommunicationOf & & & & &
Component Implement. Management Contracting Finance Development Coordination
POLA program Facilities Kl-D training Since GOI Law # Even thoughshould not be Management should not depend 15 has been MOU's betweenlimited to KUD's, transfers to on availability of issued, POLA PLN & MOCSEbut be opened to KUD's has not PUKK fund. MSA approach is exist,companies & NGO' occurred as Training should important for coordination,s on a market planned. be budgeted by preparing the communicationavailability basis. This issue is KUD's KUD's & NGO's & cooperationW=49 linked to themselves and & SPE to develop too limited to
rightsizing" of costs recovered their own ensure positivehuman through PLN fee generation (MSA actions/resultsresources by structure. being considered W=14Pl.N W=28 as a TOT mnedlia)W=o More attention
needed to theMSA programimplementation.W=47
Fee structure for KUD's as POLA programsPOLA L II & MSA multi purpose should beshould be increased organizations discontinuecd duefor better are not well to PLNcollaboration with suited to reorganization/dePLN. Present become POLA centralization, &structure hurts IlI partners. PLN should takerather than enhances This approach over.quality of services. should be W=25W=18 made with
specialpurposeentities.W=9
Training forPOLA I, II, MSAshould beimproved. 'W=9
W= Score given by workshop participants
- 40 -
WORKSHOP RESULTS: RE II PROJECT ICR - LESSONS LEARNEDV - RE II PROJECT COMPONENTS [RBSI
I II III IV V VI VII
Design Planning Supervision Procurement Disbursements Institutional Comm.Of & & & & &
Component Implement. Management Contracting Finance Development Coord
Incorporate RBS Main CSF & PI Monitoring of Contracting Timely The Businessmarketing into PLN. should be the program methods critical in payments by ServicesOutsource marketing defined in by outsourcing PLN are approach shouldservices to NGO's, accordance Wilayahs/Regi relationship. Make essential to be continued inprivate sector for with conceptual ons should be contracts maintain urban &effective promotion. approach. improved. performance-base optimal suburban areas.W=33 W=3 W=8 d. Make results relationship W=27
readily measured with NGO's& accepted by who are PLN'sPLN. W=35 partners. W=4
Identify, understand RBS as driven Contracting RBS should bemarket potential and by PLN is methods too financed as arespond to customer pioneer work. complex & should GOI Publicdemands. Facilitate" The benefits for be streamlined. Servicesynergy" from rural businesses Adopt simpler Obligation. Asnatural private sector must be clearly procedures for such shouldstakeholders. W=18 shown to render NGO's. W=3 entail COI
it sustainable. contributionW=14 only. W=27
PLN should Contracts should PLN HQ shouldhave good be separated into be facilitator ofcooperation survey & study program, givingwith other operations, and the ownershiprelated bodies guidance. (responsibilities)to promote to the PLNRBS. W=10 Branches &
sub-Branches.W=6
Awareness programs Establishon benefits of procedures tobusiness services track/recordneeded for PLN as actual kWhwell as for customers used by RBSnecessary. W=6 customers to
measurecost/benefit ofprogram moreaccurately.W=6
W= Score given by workshop participants
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WORKSHOP RESULTS: RE II PROJECT ICR - LESSONS LEARNEDVI - RE II PROJECT COMPONENTS [MINI HYDRO]
I II III IV V VI Vll
Design Planning Supervision Procurement Disbursements Institutional Comm.Of & & & & &
Component Implement. Management Contracting Finance Development Coord
Mini Hydro Principal project Classical Mini Hydro Separation PLN to identifyproject costs parameters to be implementation GOIIWB or establish unithigh as reviewed scheme needs funding for MH for promotion &compared to /revisited prior re-working. EPC schemes renders implementationothers in Asia to commitment approaches could disbursement of Mini Hydro.Need innovative for save time & money. issues difficult. Cur-ently toolower cost implementation. W=5 1 W=3 many PLN unitsapproaches, not W=6 are involved.scale down of W=15large hydrodesigns. W=41
Minihydro is the Mini Hydro Owner's estimatesbest way to planning to (OE) should be basedsubstitute diesel include on market prices, notPP using fuel oil. integration of institutional ratesEvaluation of the the plant in the (Public Works Dept).proj ects must be existing system, OE (budgeted)based on the " load flow & should not bereal price" of usage. W=3 divulged to bidders &fuel, not the tender prices beyondsubsidized one. ± 5 %should beW=34 accepted for all types
of tenders (ICB,LCB). W=ll
Increaseawareness of thebenefits of MiniHydro plants tothe environment.W=23
W= Score given by workshop participants
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