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The World Bank
FOR OFFICIAL USE ONLY
Report No. 7718-IND
STAFF APPRAISAL REPORT
INDONESIA
PAITON THERMAL POWER PROJECT
MAY 25, 1989
Industry and Energy DivisionCountry Department VAsia Regional Office
Thbis document has a restricted distribution and may be used by reipients only in the performance oftheir official duties. Its contents may not otherwise be disdosed without World Bank authorization.
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CURRENCY EQUIVALENTS
Currency Unit - Indonesia Rupiah (Rp)(As of January 1989)
US$1 Rp 1,700Rp 1 billion US$0.588 million
GOVERNMENT OF INDONESIA AND PLNFISCAL YEAR (FY)
April 1 - March 31
WEIGHTS AND MEASURES
1 metric ton - 1,000 kilograms (kg)1 liter (1) 0.0063 barrels (bbl)1 kilometer (km) = 0.6215 miles (mi)1 kilovolt (kV) = 1,000 volts (V)1 megavolt-ampere (MVA) = 1,000 kilovolt-amperes (kVA)1 megawatt (MW) - 1,000 kilowatts (kW)1 gigawatt hour (GWh) = 1 million kilowatt hours (kWh)
ABBREVIATIONS
BAKOREN - National Energy BoardBAPPENAS - National Development Planning AgencyDGEP - Directorate-General of Electric Power, Ministry of Mines
and EnergyEHV - Extra High VoltageEIA - Environmental Impact AssessmentESMAP - Energy Sector Management Assistance ProgramGOI - Government of IndonesiaIERR - Internal Economic Rate of ReturnLNG - Liquified Natural rasLRMC - Long Run Marginal CostMIS - Management Information SystemMME - Ministry of Mines and EnergyPERTAfINA - National Oil and Gas CompanyPLN - State Electricity CorporationPPE - .ngineer'ng Services Center of PLNPUSDIKLAT - PLN's Center for Education and TrainingRE - Rural ElectrificatioaREPELITA - Five-Year Development PlanROR - Rate of ReturnTA - Technical Assistance
FOR OMCIUL USE ONLY
INDONESIA
PAITON THERMAL POWER PROJECT
Table of Contents
Page No.
LOAN AND PROJECT SUMMARY . .. ... iv
I. THE ENERGY SECTOR AND ELECTRICITY SUBSECTOR
Sectoral Context ......................,;;. 1Energy Resources ........................................... 1Institutions in the Energy Sector .......................... 2The Electricity Subsector .................................. 3PLN's Organization ......................................... 3Sector Objectives and Priorities ........................... 3Rationalization of Energy Prices ........................... 4Liberalization of the Institutional Framework .............. SBank Role and Strategy ..................................... 6The Bank's Earlier Operations and PLN's Performance ........ 8
II. THE POWER MARKET AND THE DEVELOPMENT PROGRAM
The Market ................................................. 9Demand ..................................................... 9PLN's Facilities ........................................... 10Development Program ........................................ 10
III. THE BENEFICIARY
Institutional Development .................................. 12Accounting and Budgeting ................................... 15Billing and Collections .................................... 15Audit and Internal Control ................................. 16Insurance .................................................. 16
IV. THE PROJECT
Background ................................................. 17Rationale for Bank Involvement ............................. 17Project Objectives ......................................... 18Project Description ........................................ 18Status of Implementation ................................... 19
This report was prepared on the basis of the appraisal carried out by V.P.Thakor (Principal Power Engineer), A. Liebenthal (Senior Energy Economist),S.K. Bhatnagar (Financial Analyst) and M.K. Mitra (Consultant) inFebruary/March 1989.
This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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Page No.
Coal Su?ply ........ . .................................. 19Technical Assistance P rogram ............................. 21Cost Estimate ........ ... 9.................. ............ $ ........ 21Financing Plan . ...................................... 23Contract Strategy . .... 24Procurement ......... . I............ 24Implementation Schedule ..... 25Disbursement .... .................................... .. . . 26Monitoring and Reporting ................................. . . 26E.-ironmental Aspects ...... 26
V. FINANCIAL ANALYSIS
Past Results ..................................................... 27Regional Operations . . ...................................... 28Financial Objectives ..... 29Present and Future Performance .. 30Performance Monitoring . . . 34Tariffs ... 34Taxes ...................................................... 35Financing Policy ..... 35Asset Revaluation ....................... .................... 36
VI. JUSTIFICATION
Primary Energy Options ........... . 37Demand Growth and Project Need .... 37Economic Rate of Return . . . ...... 38Risks ... 39
VII. AG!EEMENTS REACHED AND RECOMMENDATIONS
Agreements Reached ......................................... 40Condition of Effectiveness ... 41Recommendations ...... ............ 41
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ANNEXES
Annex 1 Organization ChartsChart 1 - MMEChart 2 - PLN
Annex 2 Growth of PLN's Consumers and SalesAnnex 3 Growth of Captive Power in IndonesiaAnnex 4 Peak Load, Production and Installed Capacity in Jav-iAnnex 5 Peak Load, Production and Installed Capacity Outside JavaAnnex 6 Investment Program - IndonesiaAnnex 7 Investment Program - JavaAnnex 8 PLN: Performance IndicatorsAnnex 9 Design Features of the Paiton Thermal Power ProjectAnnex 10 Environmental AspectsAnnex 11 Cost Estimate for Paiton Units 1 and 2Annex 12 Summary Scope of Hajor Contract PackagesAnnex 13 Implementation Schedule - Units I and 2Annex 14 Terms of Reference for Technical Assistance ProgramAnnex 15 Schedule of Contract AwardsAnnex 16 Key Construction DatesAnnex 17 Disbursement ScheduleAnnex 18 PLN's Financial Statements - Past Results and Forecasts (Tables 1-10)Annex 19 Notes and Assumptions for the Financial ForecastsAnnex 20 PLN's Tariff
Table 1 - Explanation of Tariff Categories in the Basic Tariff ofElectricity, 1989
Table 2 - History of Tariff Adjustments, 1982-1989Table 3 - Average Revenue from Electricity Sold, by Major Consumers
Anrex 21 Table 1 - PLN's Oil Consumption StatisticsTable 2 - Domestic and World Prices of Petroleum Products
Annex 22 Calculations of the Internal Economic Rate of Return on JavaInvestment Program (Tables 1 and 2)
Annex 23 Calculations of the Internal Financial Rate of Return for the PaitonUnits 1 and 2
Annex 24 Selected Documents and Data Available in the Project File
MAPS
IBRD 12453 R8IBRD 21408
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INDONESIA
PAITON THERMAL POWER PROJECT
Loan and Project Swnmar'
Borrower: Republic of Indonesia
Beneficiary: State Electricity Corporation (PLN), and the Ministry ofMines and Energy.
Amount: US$354.0 million equivalent
Terms: Repayable in 20 years. including five years of grace, atthe standard variable interest rate.
Onlending Terms: The proceeds of the loan, except US$l.o million fortechnical a~.sistance to the Government of Indonesia (GOI),will be onlent from GOI to PLN for 20 years including agrace period of five years; the onlending rate will beequal to the Bank's standard variable interest rate plusfees of 1.90Z. The Government will bear the foreignexchange risk.
ProiectDescription: The project includes: (a) the construction of the Paiton
power plant comprising two coal-fired generating units of400 14W each and other support elements necessary tocomplete the installation, together with an infrastructureto accommodate future units for an ultimate plant capacityof 4,000 MW; (b) construction of a 500 kV double-circuittransmission line between Paiton and Krian and associatedsubstations; (c) a 150 kV transmission line betweenProbolinggo, Paiton and Situbondo, with associated sub-stations; and (d) technical assistance to strengthen thecapability of the Ministry of Mines and Energy to formulateand enforce environmental standards in the energy sector,and to train PLN's engineering and design staff. The firstgenerating unit is planned to be in commercial operation bySeptember 1993, followed by the sscond unit six monthslater, in March 1994.
Risks: The Paiton project is similar to the coal-fired Suralayaproject financed under the Eighth and the Ninth PowerProjects. The experience gained at Suralaya confirms thatthere are no technical risks associated with the Paitonproject. There is a risk of delay in the project for tworeasons: first, PLN will need to award the contracts onschedule; and second, there could be inefficiency inimplementation. To reduce the first risk, an understandingwas reached on a suitable time schedule for contractawards. Regarding the second, PLN has gained considerableexperience in the management of such projects in the lastfew year? and has developed competent personnel for project
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management, who will woik with the consultants, already inplace, to manage thu construction of the Paiton ThermalPower Project.
Cost Estimate:
Local Foreign Tota&------ (US$ million) ------
Preparation works 67.0 - 67.0Power houseTurbine generators & otherplant auxiliaries 12.0 183.0 195.0
Steam generators & auxiliaries 41.0 177.0 218.0Chimney 2.0 6.0 8.0Civil works 29.0 18.0 47.0
Marine works 40.0 48.0 88.0500 kV transmission & substations 15.0 74.0 89.0150 kV transmission & substations 4.0 9.0 13.0Engineering and construction management 9.0 50.0 59.0Overhead and administration 21.0 - 21.0Technical assistance (a) Environment - 1.0 1.0
(b) Training - 1.0 1.0Total Base Cost 240.0 567.0 8C7.0
Physical contingency 25.0 41.0 66.0Price contingency 60.0 94.0 154.0
Total Prolect Cost la 325.0 702.0 1,027.0
Interest during construction - 90.0 90.0
Total Financing Required 325.0 792.0 1,117.0
/a The local costs are inclusive of taxes and duties, estimated to be aboutUS$15.0 million equivL sat.
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Financing Plan:
Local Foreign Total------ (US$ million) -------
IBRD - Earlier Loans La - 28.0 28.0- Proposed Loan - 354.0 354.0
Export Credits 57.0 217.0 274.0Other Cofinancing - 92.0 92.0PLN 268.0 101.0 Lb 369.0
Total 325.0 792.0 1,117.0
La Funds provided under earlier loans for design, engineering and specifica-tions.
Lb Indirect foreign cost of civil works contract, plus interest during con-struction.
Estimated Bank FY 1990 1991 1992 1993 1994 1995 1996-- (US$ million) -------
Disbursement:Annual 15.0 30.0 75.0 102.0 73.0 45.0 14.0Cumulative 15.0 45.0 120.0 222.0 295.0 340.0 354.0
Rate of Return: The IER is 222 on the 1989/90 - 1994195 time-slice ofPLN's investment program in Java, of which the PaitonThermal Power Project is a part.
INDONESIA
PAITON THERMAL PO'WER PROJECT
I. THE ENERGY SECTOR AND ELECTRICITY SUBSECTOR
Sectoral Context
1.1 Indonesia is richly endowed i'th energy resources including oil, gas,coal, hydropower and geothermal energy. Since the country depends on oil fora major part of its exports, and its earnings therefrom have been decliningsince 1981, a major objective of the Government's energy policy has been tomaintair the level of export earnings by diversification of domestic energyconsumption away from heavy reliance on petroieum products (which account for88Z of commercial energy consumption) towards aLternative fuels for whichthere is a nonexportable surplus (gas and coal) or which are nontradeable(hydropower and geothermal). The power subsector is playing ay, important rolein this respect. It offers the iaost important market for the alternativefuels, and promotes their development in such a way as to take advantage ofeconomies of scale in infrastructure. Electricity also substitutes petrolesimfuels in industrial and domestic usage.
Energy Resources
1.2 Oil. Indonesia's resources of original oil-in-place have beenestimated at about 70 billion barrels, and the proven remaining recoverablereserves at about 8-10 billion barrcls. Though production had reached a peakof 1.7 million barrels per day (bbl/d) in 1977, as a result of the gradualdepletion of reservee and, since 1983 OPEC production quotas, productiondeclined to about 1.3 million fbbl/d) in 1987, and is expected to continte atabout 1.1-1.3 million bbl/d until the year 2000.
1.3 Natural Gas. The estimated proven remairing natural gas reservesare about 80 trillion cubic feet (TCF)l/ of which 90Z is nonassoclated and canbe developed independently of oil. However, major reserves are generallylocated away from population and industrial centers. The Arun field in NorthSumatra has 14 TCF and Natuna in the South China Sea, 41 TCF. About 5.0 TCFof reserves are proven offshore Java, of which about 2.7 TCF are in the Eastand 2.3 TCF are in the West. Production of natural gas reached 1.7 TCF in1987. Half of this was exported as liquefied natural gas (LNG) to Japan fromArun and Badak. LNG production was about 16.8 million tons in 1987.2/Domestic consumption is only about 0.3 TCF/year at present but is expected togrow rapidly through the 1990s as reserves on and offshore Java are developedand t'he power sector becomes a major consumer. A major issue that the GOI iscurrently addressing to facilitate this development is the formulation of apricing policy that would encourage gas producers to develop the resource andthe power sector and other consumers to use gas in lieu of petroleum products.
11 1 TCF of gas = 175.7 million barrels of oil equivalent.
2/ 1 ton of LNG - 8.8 barrels of oil equivaleit.
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1.4 Coal. Indonesia's coal reserves are believed to be as high as 25bill-ion tons,3/ mostly located it Sumatra and Kalimantan. While productionis currently 2.7 million tons per year, major increases are planned by GOI.Wor1c on a three million ton-per-year mine at Bukit Asam and on a 0.6 millionton-per-year mine at the nearby Muara Tiga coal field is nearing completion.Proven reserves in this area are over 600 million tons. A program to raisethe coal production at Ombilin in West Sumatra to 1.3 mi'lion tons per year,mainly for export, is also being implemented by GOI. In addition, in 1981,GOI entered into a number of production-sharing agreemer,s with privateforeign and Indonesian joint-venture companies for the exploration andexploitation of coal reserves in Kalimantan. Coal reserves already defined bythese contractors and expected to be economically recoverable ar-c't to about700 millio.. tons. The South Sumatre and Kalimantan coals have the potentialfor sustaining a large program of coal-fired power generation in the countryand also provide for exports.
1.5 Hydropower. Indonesia's total hydroelectric resources are large butdevelopment is limited by their geographic distribution relative to demand.The greatest potential (over 352) lies in Irian Jaya where the demand is lessthan 12 of total domestic demand, while Java, which accounts for 80Y of elec-tricity consumption, has less than 101 of the total potential. Existinghydroelectric installations aggregate to 2,807 m they are located in Java(1;840 MW), Sumatra (736 MW), and Sulawesi (203a .4). Schemes with anaggregate capacity of about 300 MW are currently under construction. TheState Electri_ity Corporation (PLN), has carried out a systematic countrywideresource survey, that has produced an inventory of hydroelectric sites. Thesurvey is being followed up with various prefeasibility and feasioilitystudies of the promising hydroelectric sites.
1.6 Geothermal. Surface manifestations of geothermal energy are found onal. islands except Kalimantan. Several sites have been investigated and one,Tamojang in West Java, has been developed. It is believed that potentialreserves may approach 10,000 MM, distributed as follows: Java, 5,500 MW;Sulawesi 1,400 MW; Sumatra 1,100 MW; other islands 2,000 MW. GOI initiateddevelopment of the Kamojang field in 1976. The first 30 4W generating set wascommissioned in 1983, and the expansion of the station by 110 MW, was comple-ted in 1987. Further development potential exists in Kamojang. In 1982,PERTAMINA (The National Oil and Gas Company) entered into a joint operationcontract with Union Geothermal, a subsidiary of Union Oil of California, fordevelopment of the Salsk field in West Java. A potential of over 200 Mh hasbeen proven by exploration. Also, PERTAMIM& has explored geothermal fields inthe Dieng and Drajat areas in Java, which appear promising for furtherdevelopment. A decision has been made to develop the Salak and Drajat fieldsto the extent of 110 MW each, during the next five-years.
Institutions in the Energy Sector
1.7 The principal agency responsible for implementing government policiesin the energy sector is the Ministry of Mines and Energy (MMS). MME wasestablished in 1978 to coordinate all activities in the energy sector and con-trol the three state enterprises responsible for the execution of government
31 1 ton of coal = 4.3 barrels of oil equivalent.
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policies in the energy subsectors; PERTAMINA for oil and gas, P.N. Batubarafor coal, and PLN for electricity. Other ministries and agencies are alsoinvolved in the sector; for example, the Ministry of Public Works primarilydeals with hydropower resource surveys, the Ministry of Agriculture overseesforestry products, and the National Atomic Energy Commission is responsiblefor nuclear development. In order to ensure appropriate coordination ofenergy policy, the GOI established an interministerial National Eaergy Board(BAKOREN) to oversee sectoral development. BAKOREN is supported by a Techni-cal Committee (PTE) consisting of senior officials in different departments,chaired by the Director General of Electric Power and New Energy (DGEP). ThisDiractorate is also charged with the responsibility of developing environmen-tal management plans for existing projects, as well as approving new projects.The organization chart of the MME is shown in Annex 1, Chart 1.
The Electric'ty Subsector
1.8 The electricity subsector is regulated by M*E through the DirectorGeneral of Electric Power and New Energy (DGEP). The subsector comprises.(a) FLN, the State Electricity Corporation; (b) captive plants installed byprivate parties for their own use; and (c) a small number of cooperativesuhich were set up to provide electricity in certain rural areas remote fromPLN supply systems. An Electricity Act was passed in 1985 ,Law No. 15). Itconsolidates earlier decrees, and permits private and cooperativeparticipation in the electricity subsector. The DGEP is the chairman of theSupervisory Board which oversees PLN's operations and reviews PLN's investmentplans, budgets and tariffs.
PLN's Organization
1.9 PLN was established as a public corporation (Perum) underPresidential Decree No. 18 of 1972, with responsibility for the generation,transmission and distribution of electricity and the planning, constructionand operation of electricity supply facilities. PLN is managed by a Board ofDirectors headed by a President Director, who is appointed by the Presidentand is accountable to the Ministry of Mines and Energy. The PresidentDirector has authority for all operations of PLN. The Board currentlyincludes five other directors with functional responsibility, respectively,for planning, construction, operations, finance and administration.Operational responsibility devolves in 17 regions, and responsibility formajor construction in 12 project managers. Also reporting to the Board areseveral staff units responsible for power research, education and training,management services, an internal audit unit called the CorporationInspectorate, the Java system operation and control unit, and a newlyestablished Engineering Services Center (para. 3.7). PLN's organization chartis shown in Annex 1, Chart 2.
Sector Obiectives and Priorities
1.10 In view of Indonesia's rich endowment in energy resources, the mainobjectives of the sector may be summarized as follows:
(a) to maximize export earnings by promoting the development of tradeableenergy resources, including oil, gas and coal; and
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(bi to meet the country's growing energy requirements in a least costway, and coneerve exportable petroleum reserves, by encouraging thedomestic market to substitute oil consumption by alternative fuelsfor which there is a nonexportable surplus (gas and coal) or whichare nontradeable (hydropower and geothermal).
The underlying developmental objective should be, of course, to improve thewelfare of the population, both directly, by keeping its energy expenses low,and indirectly, by stimulating economic activity through the provision ofenergy in a cost-effective way and the maximization of export earnings. Inthis regard, a subsidiary objective has been to use the energy sector as oneof the means for reducing the developmental imbalance between urban and ruralareas, and between Java and the Outer Islands. This objective is beingpursued through the implementation of uniform countrywide prices for petroleumproducts and electricity, and tLe promotion of rural electrification.
1.11 The major priorities associated with the pursuit of the above objec-tives are the following:
(aj in regard to export markets, the uncertainties associated with thefuture level of petroleum, LNG and coal prices, as well as theresource constraints on the economy, make it advisable to continuewith the current policy of relying on foreign investors to absorb amajor part of those risks and invest in the development of theresources;
(b) in regard to domestic markets, the uncertainties associated with thefuture level of demand make it advisable to improve the feasibilityof the relatively large infrastructure investments through thecoordinated development of coal and gas. Here also, the resourceconstraints on the economy point to the need to attract foreigninvestors;
(c) in regard to increasing the efficiency and reducing the costs of thesector, it is desirable to introduce transparency in the funding ofthe socially directed loss-making operations and also to introducecompetitive pressure in some areas;
(d) in regard to the energy sector's contribution to rurA. development,the very limited implementation capacity of Governiment agencies inrural areas (as well as budget constraints) make it advisable toestablish a framework which would encourage the development ofcommunity self-heip and private initiatives to meet the needs ofrural areas.
As outlined in the Bank's "Energy Options Review' (keport No. 6583-IND, August1987), the desirable policy framework to achieve the above objectives andpriorities would include establishment of efficient energy prices andliberalization of the institutional framework.
Rationalization of Energy Prices
1.12 In the pricing area, the policy objective should be to minimizedistortions in domestic prices, using economic costs and netback value as the
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norms. Specifically:
(a) the level of the electricity tariff needs to be maintained such as toenable the power sector to fund a reasonable share of its investmentprogram through self-generated funds, and the structure of the tariffneeds to be maintained to signal to the different classes of-consumers the economic cost. (i.e., LRMC) of electricity supply (para.5.20);
(b) the prices for primary fuel resources that are nontradeable or ofwhich Indonesia has a nontradeable surplus (coal, natural gas andgeothermal), need to be set between a ceiling imposed by the cost ofcompeting fuels and a floor dictated by their own economic cost(i.e., their LRMC); and
(c) the prices of petroleum products, particularly kerosene and diesel,need to be adjusted to correct existing distortions in the relationbetween domestic and international prices.
1.13 To assist the Government in achieving the energy pricing objectives,an OEnergy Pricing Policy Study' is being funded under the Gas DistributionProject (Loan 2690-IND). Also, under the proposed Power Sector EfficiencyProject, the GOI has agreed to specific proposals for institutionalizing theprocess of review of the energy prices, including the prices of petroleumfuels (LPG, kerosene, gasoline, diesel, fuel oil), gas, geothermal steam, coaland electricity. The proposals consist of the followings
(a) establishment of an Interdepartmental Energy Pricing Task Force toreview and to advise Government on energy prices--the Steering Com-mittee for the Energy Pricing Policy Study would be the core groupfor this; and
(b) establishment of an Energy Pricing Unit in MME to provide analyticalsupport and technical data to the Task Force--the counterpart teamfor the Energy Pricing Policy Study could be the core group for this.
Such an agreement is also included under the proposed loan.
Liberalization of the Institutional Framework
1.14 In addition to the rationalization of energy prices, the achievementof the long-term objectives of the sector will require the liberalization ofthe institutional framework. In the power subsector, this policy directioncan be pursued through:
(a) encouragement of the financial autonomy of PLN by reducing itsdependence on the Government budget, and giving it responsibility forinvestment and commercial decisions; and
(b) encouragement of private sector investment in situations where it maybe able to produce electrical energy at a cost competitive with thatof PLN.
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1.15 Segregated Information on Rural Electrificatiion.. As an importantstep towards financial autonomy, PLN needs to obtain a better understanding ofthe costs associated with its substantial socially-directed activities (e.g.,rural electrification), particularly in its operations outside Java. Thesocially-directed activities impose a growing financial burden on PLN. Toassess the impact on its finances of such activities, PLN has agreed toinstitute a system for segregating information on rural electrificationactivities, as a proxy for socially-directed activities (para. 5.18).
1.16 Coordination with Private C.eneration. In regard to the encouragementof private sector involvement, a first step will require the coordination ofgeneration between PLN and existing privately owned captive generation capa-city, of which there are about 2,900 MW in Java and 4,600 MW in all ofIndonesia. Thus, the initial objectives would be to:
(a) enable PLN to save in the installation of reserve capacity requiredfor system reliability by encouraging capacity assistance agreementsbetween PLN and major industrial captive generation plants. Aboutten such captive plant users in Java currently have an installedgenerating capacity of over 1,000 MW; and
(b) encourage cogeneration by industrial units that may be able to pro-duce electrical energy at a cost competitive with that of PLN byusing industrial waste (e.g., wood waste, rice husks, bagasse),combined heat and power generation (cogeneration), or for otherreasons.
1.17 For both these measures, it is necessary to prepare a suitable regu-latory framework and establish model administrative and operating agreements.Under the proposed Power Sector Efficiency Project, the Government has agreedto establish basic rules and regulations, covering legal, technical andcommercial aspects, to utilize captive power in coordination with PLN'ssystem, based on mutual benefit. Such an agreement is also included under theproposed loan. The draft interim rules and regulations will be prepared byNovember 30, 1989. Thereafter, during an initial period of one year, pilotprojects will be used to gain experience.
Bank Role and Strategy
1.18 The above sectoral objectives have been supported through the Bank'sinvolvement with the electricity subsector which has gone through threedistinct phases. In the first phase (1968-77), the Bank's work was directedtowards creating an autonomous national entity to deal with power supplyproblems and, after PLN's creation in 1972, to help put in place proceduresand systems to manage and improve its then small-scale operations. In thesecond phase (1978-84), the primary thrust of the Bank's work was to enablePLN to rapidly expand its supply facilities and, coupled with efforts toevolve integrated grids (particularly in Java), to take advantage of advancedtechnologies to reduce supply costs. The fruits of this effort are now beingreaped with the commissioning of large power plants at Suralaya (1,600 MW),Saguling (700 MW), and Cirata (500 MW) with an overlay of 500 kV transmissiongrid running across Java. The current phase of the Bank's involvement focusespartly on contributing to the financing of Indonesia's massive power programs
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to meet its development needs, and even more, on building on the foundationslaid in the second phase to transform PLN into a moeern and mature utfility byemphasizing institutional objectives. These objectives include greater finan-cial autonomy, better operating efficiency, and improved corporate and finan-cial planning capability. In the future, the Bank vill continue to supportthe development of the power subsector with the objectives of 2 (i) improvingthe efficiency of PLN; (ii) enabling PLN to become more commercially orientedand financially self-supporting; (iii) maintaining electricity prices ateconomically and financially appropriate levels; (iv) assisting in thepreparation and implementation of a least-cost investment program; and(v) guiding and supporting institutional development to meet the sector'sevolving needs. Also, the Bank would pursue two main objectives for efficientdevelopment of the rural electrification program: (i) reducing the cost ofsupply to rural areas by optimizing design and construction standards; and(ii) encouraging the mobilization of village resources, from private andcooperative enterprises.
1.19 In addition to the development of the electricity subsector, the Bankhas in recent years brcsdened its support of sectoral objectives through grow-ing involvement in sector-wide policy dialogue. This broadening began whenthe Bank carried out a study of energy sector issues and prepared a reportentitled 'Indonesiat Issues and Options in the Energy Sector in 1981. Thereport confirmed that alternatives to oil must be developed quickly for elec-tricity generation and recommended that this strategy should be extended tosuch other sectors as industry, transportation and households. It emphasizedthe need for efficiency pricing, stronger institutions and manpower dovelop-ment as major objectives. In 1984, the Bank carried out a detailed review ifPLN's 1984185-1993j94 investment plan. The findings supported the generaldirection of the plan but suggested a scaling down and some measures forimproving investment efficiency. These findings, which were accepted by theGovernment, were presented in a report entitled Olndonesias Power SectorInvestment Review" (Report No. 5486, September 1985). Also, the Bank studiedpossible improvements in the efficiency of operation of thermal and hydroplants and of maintenance of diesel plants and presented its findings in areport entitled v.'ndonesia: Power Generation Efficiency Study* (Report No.050186, February 1986). This was followed up by a more detailed reportentitled "Diesel Generation Efficiency Improvement Study" (Report No. 085/88of December 1988). The Government and PLN have accepted the recommendationsof these reports. In addition, the Bank reviewed the rural electrificationprogram in Indonesia and presented its findings in a report entitled"Indonesia: Rural Electrification Options Review.' (Report No. 6144-IND,November 1986). The Bank also financed a set of three gas-related studiesthrough the Fifth Technical Assistance Credit, including the 'City Gas Distri-bution Study', the 'Gas Utilization Study* and the "LPG Feasibility Study".In 1987, an 'Energy Options Review" (Report No. 6583-IND) assessed thepriorities for energy sector development and recommended a strategy for theirimplementation. Most recently, the Bank has undertWken an 'InstitutionalDevelopment Review' of the power sector, which will, inter alia, analyzeregulatory and organizational issues to promote efficient institutionaldevelopment.
1.20 The Bank has also been involved in the coal and gas subsectorsthrough the Bukit Asam Coal Mining Development and Transportation Project
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(Loan 2079-IND) the Coal Exploration Engineering Project (Loan 2153-IND), andthe Gas Distribution Project (Loan 2690-IND). The Gas Distribution Projectincludes an Energy Pricing Policy study. which is expected to be completed inAugust 1989. In the future, the Bank will continue to support the broadobjectives of the sectoral development through pursuit of the followingstrategy:
(a) Promote the development of nontradeable natural gas, particularly inJava, which appears to be the most economic fuel for use in powergeneration. Since the presentation of the "Energy Options Review",progress has been made in the acceptance of the gas option for powergeneration, particularly gas from the offshore fields in East Java(KODECO and ARCO). Prospects also exist for gas supply from onshorefields in Central Java (CEPU and others) but little action has beentaken to explore these fields. By coordinating the development ofgas and power strategies, the Bank can provide an impetus for morerapid development of economical gas supply to industries and house-holds as well. The Bank would also have a role in helping GOI todevise suitable institutional and financing arrangements which wouldattract private sector participation in gas-fired power plants.
(b) Promote the growth of coal mining primarily to meet the short andmedium terms needs of the power sector. In this respect, coalproduction from South Sumatra mines will need to be stepped up toabout 5.0 MT per year to meet the requirements at Suralaya from 1990.In addition to the mining capacity, augmentation of the infra-structure facilities (railway, port and shipping) will be needed.Also, a production and transportaticn capacity of about 2.5 milliontons of coal per year will be needed from Kalimantan to supply theproposed Paiton Thermal Power Project.
(C) based on the "Energy Pricing Policy Study', further the dialogue withthe Government on implementing policies and plans for the pricing ofprimary energy resources including diesel oil, residual fuel oil,kerosene, natural gas, LPG, and geothermal steam and electricity.
The Bank's Earlier Operations and PLN's Performance
1.21 Since 1969, the Bank Group has provided US$2,309 million for powergeneration, transmission and distribution facilities through 15 separateprojects. Six transmission and distribution projects (Credits 165-IND and334-IND, and Loans 1259-IND, 2056-IND, 2443-IND and 2778-IND) rehabilitatedand expanded the distribution facilities in Java. Ten power projects (Credit399-IND and Loans 1127-IND, 1365-IND, 1513-IND, 1708-IND, 1872-IND, 1950-IND,2214-IND, 2300-IND and 2443-IND) assisted PLN to expand electricity generationcapac.ty in Java, to provide a strong all-Java 500 kV grid, to extenddistribution facilities, to reduce system transmission and distributionlosses, and to introduce a pilot program of mini-hydro development in Sumatra.Project Performance Audit Reports and Project Completion Reports on the firstseven projects (Credits 165-IND, 334-IND, 399-IND and Loans 1127-IND,1259-MID, 1365-IND, 1513-IND) have been issued. Also, PCR's for the Eighth,Ninth and Tenth Power Projects (Loans 1708-IND, 1872-IND and 1950-IND) arefinalized. They conclude that these projects achieved the objectives set out
at the time of the appraisal and were implemented within the budget. Takentogether, these projects have enhanced PLN's institutional capabilities,particularly its capability to carry out a rapid system expansion program.Currently, PLN handles an investment expenditure of over $1.0 billion andconnects over one million new consumers, each year. However, the problemsencountered in the earlier projects, relating to the need to reduceimpl-mentation delays by timely appointment of consultants, and speedierprocurement and construction, still persist, though to a reduced extent. PLNand GOI are both aware of them and are addressing them at the institutional aswell as the national levels. The Bank has been actively associated with theGovernment in the resolution of these issues, which are common to manysectors.
II. THE POWER MARKET AND THE DEVELOPMENT PROGRAM
The Market
2.1 Principal sources of electricity supply in Indonesia are PLN andself-generation (captive), mainly by industries. Electricity consumption inthe country grew rapidly in the last decade from about 50 kWh per capita in1977 to about 200 kWh per capita in 1988.
2.2 The share of captive generation, which accounted for over 60? ofcapacity in 1976177, declined to about 43Z in 1987/88 and, although captivegeneration capacity has continued to increase in recent years, a moreimportant trend has been a rapid ohift by industrial users from exclusivereliance on captive generation to use of captive generation for standbypurposes only. Annex 2 shows the growth in PLN's consumers and sales, andAnnex 3 shows the growth in captive plants in Indonesia.
2.3 Notwithstanding the rapid growth, the level of consumption ofelectricity in Indonesia remains low, at about 200 kWh per capita, compared toa level of about 550 kWh per capita in Egypt or about 350/400 kWh per capitain Thailand and the Philippines. Indonesian per capita electricity usage iseven lower than that in India and Pakistan, both of which countries have lowerper capita GDP.
Demand
2.4 The low level of electricity consumption is primarily due to lack ofsupply facilities and access to the network for the residential and other aa.-tors. In 1987/88, only 242 of all households in Indonesia were electrified.The electrification ratio was about 272 in Java and about 19Z off Java.
2.5 Several studies have shown that the demand for electricity is stilllarge and that there is a potential for rapid growth in PLN's sales as supplycapacity expands. This is supported by the fact that, even though PLN's salesin 1982-88 grew by about 14? a year, additional growth in electricity consump-tion was supported by expanding use of private generation by industry. Therapid growth in PLN's sales originates from three sources, viz.,(a) extension of supply to new areas for residential and other users;
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(b) gradual take-over of supply in industries currently using their own dieselplant; and (c) growth in consumption by existing customers as a result ofrising output and income.
PLN's Facilities
2.6 PLN's total installed capacity in 1987188 was 6,421 MW, of which4,280 KW (67Z) was in Java. About 602 of the capacity uses petroleum fuels.Table 2.1 shows the breakdown of the generating capacity in Java and OutsideJava.
Table 2.1: PLN'S GENERATING CAPACITY (MARCH 31, 1988)(MW)
ShareType Java Outside Java Total Z
Steam (coal) 800 65 865 13.5Steam (oil) 1,475 180 1,655 25.8Gas turbines 630 294 924 14.4Diesel - 1,420 1,420 22.1Hydro 1,235 182 1,417 22.0Geothermal 140 - 140 2.2
Total 4.280 2,141 6,421 100.0
Development Program
2.7 PLN's investment program in Java is designed to meet the followingimportant targets by the end of the Government's Fifth Five-YearDevelopment Program (Repelita V) in 1993/94: (a) a 752 electrificationratio in urban areas (up from 542 in 1988), (b) a 29Z electrification ratioin rural areas (up from 162 in 1988), and (c) the substitution of 802 ofthe captive generation in Java, which is currently 3,225 MVA (Annex 3).The Bank views these targets as attainable if the supply can be expanded tomeet them, although they should be close to the economic limits of themarket (i.e., to meeting the 'unmet' demand for PLN's electricity).
2.8 Based on these expansion targets and the projected growth in theindustrial and comdercial demand, the electricity sales forecasts, shown inTable 2.2, have been agreed for the planning of the system expansionprogram.
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Table 2.2: SALES FORECASTS
Sales (GWh)Year Java I Indonesia 2
1988/89 15,345 15.8 19,682 16.31989/90 17,647 15.0 22,697 15.31990/91 20,293 15.0 26,112 15.11991192 23,235 14.5 29,932 14.61992/93 26,488 14.0 34,169 14.21993/94 30,065 13.5 38,850 13.71994195 33,973 13.0 43,862 12.9
2.9 Annexes 4 and 5 summarize the least-cost generation expansion programfor Java and Outside Java for the period 1988/89 to 1994/95 based on theprojected sales targets. The corresponding investment requirements forIndonesia and Java are shown in Annexes 6 and 7. The estimated requirementsof additional generating capacity in the period 1991/92 through 1994/95 isabout 2,500-3,000 MV. The proposed project would provide 800 MW of generatingcapacity to meet a part of this demand.
2.10 As a measure to ensure soundness of the development program, the Bankhas reached the following agreements with the GOI and PLN which are insubstance the same as those reached under the Power Transmission andDistribution Project (Loan 2778-IND).
(a) Each year, PLN and GOI will review with the Bank PLN's developmentplan and investment budget so that the Bank can express its views onthe priorities and the balance among the generation, transmission,and distribution investments; and
(b) The Government will ensure that PLN has access to sufficient funds tofinance its capital expenditures as reviewed and agreed with theBank.
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III. THE BENEFICIARY
3.1 The borrower of the proposed loan would be the Government ofIndonesia (GOI) and the principal beneficiary would be PLN, the solegovernment-owned national power utility in Indonesia. PLN's organizationwas described in para. 1.9.
Institutional Development
3.2 Over the past ten years PLN has grown impressively. Since1977178, PLN has connected new consumers at an average rate of about680,000 per year, increasing from about 370,000 in 1978179 to about1,200,000 in 1987188. Its sales increased at an average annual compoundrate of about 17T in 1977178-1987188, from 3,530 GWh to 17,077 GWh. Annex8 summarizes selected performance indicators for PLN, which show gains inmany areas.
3.3 During the next several years, PLN is expected to continue to growrapidly (para. 2.9). The rapid expansion of supply facilities involvesincreasingly complex technical and managerial tasks, for which PLN willneed to continue to strengthen its institutional capacity. Areas that needstrengthening have been recognized, and actions and programs are eitheralready underway or planned, in many cases with assistance from the Bank.These actions and programs are designed to support PLN's efforts in thefollowing major areas, namely: (a) planning; (b) organization andmanagement; (c) improvement in operating efficiency; and (d) manpowerdevelopment and training.
(a) Planning
3.4 Through the years, PLN has strengthened its technical planningactivities in the areas of generation, transmission and distribution. Thegeneration and transmission planning functions are now well established inPLN and are functioning smoothly. The emphasis now rests on improving theplanning, operation, maintenance and management of distribution facilities,for which responsibility is largely dispersed in PLN's regional offices.The proposed Power Sector Efficiency Project provides technical assistancefor the strengthening of PLN's distribution management functions.
3.5 PLN set up a corporate planning unit in 1981, and its first five-year corporate plan defining corporate objectives for all of its majorfunctions was issued in 1984. However, the process of corporate planningin PLN is yet to develop into a substantive activity. Factors that havehampered the effectiveness of corporate planning in PLN have been the lackof appropriate organizational structuring of the function, inadequatestaffing, and insufficient familiarity of management and staff with moderncorporate and strategic planning techniques and procedures. There is alsoneed for better coordination among PLN's directorates (planning,construction, operations, finance, and administration, including humanresources) on planning matters, and for their active involvement in thecorporate planning process. Closer coordination between the corporateplanning and financial planning functions is particularly important, since
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financial objectives are a critical set of corporate objectives, and it isessential that both the corporate and financial plans are betterintegrated. The corporate planning and financial planning functions needto be further strengthened, botn organizationally and technically. TheBoard of Directors of PLN fully supports this concept and, as part of the1988 reorganization of PLN, has already set up planning units in thefunctional directorates and the regional offices, with the corporateplanning division in the planning directorate having the responsibility forthe overall coordination of the planning activities (para. 3.6). Staffingof these planning units is substantially complete. Technical assistancefor strengthening these functions is provided under the proposed PowerSector Efficiency Project.
(b) Organization and Management
3.6 Annex 1, Chart 2 shows PLN's organization chart. Theorganizational structure is basically centralized. However,decentralization of functions and responsibilities to the regional managersis a necessity that has been recognized. In December 1987, PLN implementeda reorganization within its functional directorates at its headquarters andin its regional offices to streamline the planning, programming, budgeting,operational and evaluation activities. Under this reorganization, planningand evaluation units have been set up in each functional directorate andregional office, and the responsibility for the overall coordination ofthese activities is vested in the corresponding units in the Directorate ofPlanning. To decentralize further, the regional managers have beenassigned a larger role in the preparation of t.eir annual programs andbudgets, and greater responsibility and accountability for carrying outtheir operational functions. These organizational changes are a step inthe right direction and are expected to help improve the overall efficiencyand effectiveness of PLN. In view of the erpected substantial growth inPLN's operations, the need for a further review of PLN's institutionaldevelopment was recognized. Towards this end, a review of the adequacy ofthe institutional framework in the power sector, including the role of PLNand its relationship with the Government, was undertaken by the Bank inFebruary/March 1989. The results of this review will be presented in aBank report and discussed with the Government.
3.7 As agreed under the Fourteenth Power Project (Loan 2443-IND), PLNhas established an Engineering Services Center (PPE) where activities suchas project formulation, engineering, design, procurement and constructionmonitoring are unified. The staffing of the Center has been accomplished.Consultants financed under the Power Transmission and Distribution Project(Loan 2778-IND) are already assisting PLN in developing the Center. Theproposed project will support further development of the Center byproviding hands-on experience to PLN's staff in carrying out theengineering, contract management, post-contract coordination andconstruction management of the Paiton Thermal Power Project, along with theexpatriate consultants. Also, training will be provided for PLN engineersin specialized fields through technical assistance funds included in theproposed project (para. 4.16).
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(c) Improvement in Operating Efficiency
3.8 Annex 8 shows some of the performance indicators for PLN for theyears 1979180 to 1987/88, which indicate significant achievements inseveral areas. However, further improvements are possible and necessary.Under the Power Transmission and Distribution Project (Loan 2778-IND), PLNagreed to carry out an action plan for such improvements, whict, is underimplementation. The major components of that action plan ares(a) efficiency improvement in distribution including reduction in losses;(b) conversion of selected oil-fired thermal plants to gas-firing;Ic) improvements in the operatior of major thermal power plants;(d) improvements in the operation and maintenance of diesel power plants,including their relocation and rehabilitation; and (e) renovation of smallhydro plants. The proposed Power Sector Efficiency Project supports theimplementation of this plan. The agreement to carry out such an actionplan will be continued under the proposed loan.
(d) Manpower Development and Training
3.9 As of March 31, 1988, PLN had about 51,200 employees of whom about36,700 are employed on the permanent payroll. PLN has no difficulty inrecruiting staff educated at levels up to technical high school, but lessthan 3Z of the staff have university degrees. To address its trainingneeds, PLN has a separate department for training. This department, knownas PUSDIKLAT, plays an important role in PLN's efforts to upgrade theskills of its technicil and administrative staff, and manages ten trainingcenters with a staff of about 470, including about 180 trained instructors.PLN expends considerable effort in the training of staff not only withinthe organization, but also through student scholarship and foreigntraining. These efforts have been largely successful. In 1987/88, shout3,800 staff received training of various duration; of these staff, a' t1,900 received training at the PUSDIKLAT, about 1,700 domestically outsidePUSDIXLAT, and about 200 outside Indonesia.
3.10 The Bank has been supporting PLN's training activities and humanresources development efforts, including the establishment of severaltraining centers. Currently, three major training efforts are wellunderway with assistance provided under the Twelfth Power Project(Loan 2214-IND). Tney ares (a) technical assistance to reorganize aadenlarge the entire manpower development, training and personnel managementfunctions for middle- and lower-level staff; (b) setting-up new trainingcenters, for thermal power plants, transmission lines and middle-levelmanagers; and (c) a program for the training of senior- and middle-levelpersonnel outside Indonesia in technical and financial areas. Progressunder these activities has been satisfactory. The proposed projectprovides for training of PLN's staff in the Engineering Services C?nter(para. 3.7) as well as training of the staff for the operation and main-tenance of the thermal plant at Paiton (para. 4.8).
3.11 An extensive training program for operators and maintenancetechnicians is also being conducted at the Suralaya coal-fired thermalpower station by the British Electricity International Ltd. under a BritishGovernment grant. Additionally, PLN has set up an advanced training school
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for operators of thermal power plants, at Suralaya Power Station, funded bythe Bank (Loans 1872-IND and 2214-IND). Operators for the Paiton ThermalPower Plant are scheduled to be trained at this training center, inaddition to hands-on training at the Suralaya power station, before beingposted at the Paiton plant.
Accounting and Budgeting
3.12 PLN's accounting system, installed in the early 1970s, followsgenerally accepted accounting principles, and normal utility practices, butit needs upgrading to keep pace with the growing complexity and volume ofaccounting transactions. There is need for improvement with respect to thecompleteness and accuracy of fixed asset accounting, depreciation,inventory accounting and accounts receivables. The accounting system needsto produce more accurate information in a timely manner for use by PLNmanagers in making decisions. Also, PLN's internal procedures forpreparing budgets and monitoring actual expenditures need to bestrengthened through better coordination among and participation by thevarious functional directorates and regional offices in the process, toenhance the budget's value as a management tool.
3.13 Under the Eleventh Power Project (Loan 2056-IND), funds wereprovided for management consultancy for developing an integrated system forbudgeting, accounting, and financial reporting. This study is complete andits recommendations are in various stages of implementation. PLN hasengaged or is engaging consultants to improve fixed assets accounting, costaccounting, and inventory management. Since 1987, PLN is implementing anaction plan to improve its accounting practices and functions by(a) establishing a uniform accounting system, (b) improving related supportsystems, (c) sensitizing concerned non-financial managers and staff to theimportance of timely and accurate accounting, (d) upgrading the skills ofthe accounting staff through in-house and external training courses, and(e) computerizing the accounting process. Through its recent reorganiza-tion, PLN is also attempting *o improve coordination between its depart-ments and its regional offices in the areas of budget preparation, andmonitoring and evaluation of performance as discussed in para. 3.6.Technical assistance is being provided under the proposed Power SectorEfficiency Project to further improve the accounting system.
Billing and Collections
3.14 Bills are prepared monthly. Computer billing is utilized at thecomputer center at the headquarters in Jakarta. Overall collectionperformance is generally satisfactory. The receivables position of generalconsumer accounts has been good, as it has been kept at about one and one-half months of the yearly billing. The collections from government users(including the Armed Forces and local governments), who account for sbout1OZ of PLN's total sales, has also improved in recent years. TheGovernment has taken various measures to reduce overdue governmentaccounts--from over one year in 1981/82 to under two months' billing now.A covenant under Loan 2778-IND requires that amounts owed to PLN by allgovernment users will not be overdue in the aggregate by more than twomonths of total billings to such users. This covenant will continue underthe proposed loan.
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Audit and Internal Control
3.15 PLN's accounts are required by its charter to be audited byGovernment auditors. The audits are carried out following generallyaccepted accounting practices and standards. The audit reports in recentyears have received qualified opinions from the auditors. In the latestreport for FY1987/88, the qualification related to its inventory accounts,The magnitude of discrepancies is not so large as to render the accountsunacceptable; the Bank has, therefore, considered them acceptable. Since1983, PLN has made special efforts to expedite the closing of accounts andhas succeeded in completing them usually within six months after the closeof the fiscal year as stipulated by Government for all public corporations.PLN is also taking measures to train its accounting staff and has preparedcomputerization plans to expedite accounts processing (para. 3.13).Government audits normally take about three months. While the unauditedaccounts are generally finalized and received in time, there are stilldelays in auditing of accounts. These delays have been largely due toprotracted discussions between PLN and the auditors on matters that havebeen the subject of qualified opinions from the auditors. As these delaysare expected to be transitory, the audit covenant under Loan 2778-IND, thatrequires PLN to submit to the Bank its unaudited accounts no later than sixmonths, and the audited financial statements and the report of such auditsno later than nine months after the end of each fiscal year, will becontinued under the proposed loan.
3.16 PLN has an effective internal audit group which reports to thePresident Director for various special investigations, in addition tokeeping general and project accounting matters under review.
Insurance
3.17 PLN currently carries transit and marine insurance on equipmentand materials in transit. Projects umder construction are covered by thecontractor's all risk and erection insurance. Fire and other hazards onmost of the assets in operation are as yet self-insured. In view of thegeographical spread of PLN's assets, any single loss would be relativelysmall by comparison with total assets and operations, and this policy hasbeen accepted by the Bank. However, some very large projects have recentlybeen completed and others now under implementation would result in agreater concentration of assets in certain locations than in the past. Asagreed under the Fourteenth Power Project (Loan 2443-IND), with assistancefrom a local insurance company, PLN carried out a review of its insurancepractices and requirements. As a result of the review, PLN took outcommercial insurance for all the major operating plant and equipment at theMuara Karang and Suralaya thermal plants. Under the proposed loan, anunderstanding was reached that major works, plant and equipment at otherlarge projects such as the recently completed Saguling, Cirata and Mricahydroelectric plants and the proposed Paiton Thermal Power Project, wouldbe insured with outside agencies.
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IV. THE PROJECT
Background
4.1 The power sector has been rapidly growing Ln Indonesia with FLN'ssales growth exceeding 171 a year. As discussed in para. 2.10, the Bank hasbeen closely associated with the review of PLN's expansion plans to ensure theimplementation of a least-cost development program. To provide the baseloadgenerating capacity, coal-fired generating plants are identified as the mosteconomic option for the expansion of the generating capacity in Java. TheBank supported the construction of the first coal-fired power plant in WestJava at Suralaya, through the Eighth, Ninth, Twelfth and the Fourteenth PowerProjects (Loans 1708-IND, 1872-IND, 2214-IND and 2443-IND), which will have acapacity of 1,600 MW in operation by the end of 1989. The Bank aiso supportedthe construction of a 500 kV transmission backbone to enable integratedoperation of all generating plants in Java. The next step in the least-costdevelopment program is the construction of generating capacity in East Java.The Bank fin-nced under Loan 1513-IND a site selection and feasibility studythat resulted in the selection of the Paiton site. Subsequently, the lankloans financed the design and detailed engineering of the Paiton project.Initially, the project implementation was to commvnce in 1985 to achievecompletion of the first two units of 400 MW each by 1990. However, a slowdownin demand growth in the period 1982-85, delayed the requirements of additionalgenerating capacity. Demand forecasts and generation expansion plans havebeen reviewed periodically. Current estimates place the need of additionalgenerating capacity in Java during 1992 to 1995 at about 2,500-3,000 MW.
4.2 The Bank's Energy Options Review (Report No. 6583-IND of August 1987)concluded that the major least-cost options for power generation in 1990-2010will involve a balance between the use of natural gas, to the extent it isavailable, and coal. PLN has formulated a generation expansion plan thatproposes to meet these requirements by adding combined-cycle gas- and coal-fired generation, geothermal units, and small hydro plants. The Bank supportsthis program which requires the proposed project to be commissioned in1993/94. The proposed project will provide 800 MW of the estimated shortfall;a combined-cycle gas-fired plant at Gresik near Surabaya in East Java isexpected to provide between 900 MW and 1,200 MW of additional generatingcapacity during the same period.
Rationale for Bank Involvement
4.3 As discussed in para. 4.1, the Bank has been closely involved in thepreparation of the Paiton project, including the feasibility study, siteselection, design and engineering phases. Project implementation wouldbenefit from the Bank's continued association through technical advice andfinancial support. The proposed project would act as a vehicle for furtherstrengthening PLN's financial autonomy, development of skilled manpower forcomplex engineering tasks, and strengthening GOI's institutional capacity toformulate, monitor and enforce environmental protection measures in the energysector. The project would also help foster an efficient coal industry inIndonesia through agreed Government actions, which would include:
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(a) providing a choice to PLN. on the basis of price, to contract for thesupply of coal from amongst several private companies; (b) establishinginfrastructure for coal transportation from Ralimantan to Paiton, includingloading and shipping facilities; and (c) ensuring that the price of indigenouscoal to PLN will be no higher than the world market price.
Proiect Obiectives
4.4 The Paiton Thermal Power Project stpports the major elements of theGOI's energy policy of promoting the use of nontradeable surplus coal as aneconomic option for the generation of electricity and expanding PLN's generat-ing capacity in Java to meet part of the expected growth in demand for elec-tric power during 1992193-1995196. The objectives of the proposed project areto: (a) expand PLN's generating capacity in Java to meet the expected demandgrowth; (b) promote the use of coal for economic electricity generation;(c) develop PLN's project implementation capability by fully involving itsnewly-established Engineering Services Center in the engineering, design andproject management aspects of the plant; (d) strengthen the Government'senvironmental monitoring capability as well as its ability to formulate andenforce environmental standards in the energy sector; (e) promote economicdevelopment of indigenous coal industry; and (f) provide training for PLN'sstaff.
Project Description
4.5 The project includes: (a) the construction of the Paiton power plantcomprising two coal-fired generating units of 400 MW each and other supportelements necessary to complete the installation, together with aninfrastructure to accommodate future units for an ultimate plant capacity of4,000 MW; (b) the construction of a 500 kV transmission line between Paitonand Krian (about 140 km), with associated substations; (c) the construction ofa 150 kV transmission line between Probolinggo, Paiton and Situbondo (about100 km), with associated substations; and (d) technical assistance to(i) strengthen the capability of tFe Ministry of Mines and Energy to formulateand enforce environmental standards in- the energy sector; and (ii) developPLN's engineering and design staff by helping them attend higher educationalcourses and receive advanced training in power plant technology. The firstgenerating unit is planned to be in commercial operation in September 1993,followed by the second unit in March 1994
4.6 Paiton is located on the north coast of East Java between the citiesof Probolinggo and Situbondo and is about 140 km southeast of Surabaya city.The plant will receive coal, oil and materials by ship through the strait ofNadura. The coal will be pulverized, and burned in the steam generators toproduce steam at high pressure and temperature to run the turbine generators.The cooling system will consist of once-throt.gh design, using sea water fromthe strait of Madura. The plant will supply power to the 500 kV transmissionsystem at Krian and to the 150 kV sutztations at Probolinggo and Situbondo. Amore detailed project description comprising plant design features is given inAnnex 9.
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Status of Implementation
4.7 Engineering and Design. The site selection and prefeasibility studyfor the Paiton Steam Power Plant in East Java was financed under the SeventhPower Project (Loan 1513-IND). Several other power projects (Loans 1872-IND,2056- D , 2300-IND and 2778-IND) provided funds for consulting engineeringservices for design and engineering, including preparation of equipmentspecifications and tender documents.
4.8 The engineering and design of the Paiton Steam Power Plant is beingcarried out by PPE (para. 3.7). with the assistance of Sargent and Lundy ofthe USA and Intercontinental Engineering of Canada, who were selectedfollowing Bank guidelines for the appointment of consultants. They areassociated with a local consulting firm, PT Citaconas. The work has beencrganized to ensure utmost transfer of knowledge to and training of PLN'spersonnel, in Indonesia as well as overseas. Also, PLN's staff will betrained in the areas of plant operation, maintenance and management, with theassistance of the consultants and the suppliers of plant equipment.
4.9 Post-engineering coordination, including the balance of theengineering, design, procurement and interface with the contractors will beperformed in Indonesia jointly by PPE and the consultants. A special ProjectManagement office (Proyek Induk) will be established for the Paiton Project tocoordinate and implement the project. PLN will also establish a constructionmanagement organizaticon at the site supported by the consultants' sitepersonnel. Construction management will include, inter alia, qualityassurance during actual construction and measurea to assure compliance witherection specifications.
Coal SuplY
4.10 The co&l for the Paiton plant will be derived primarily fromKalimantan, in view of its proximity to the plant, where GOI has alreadyentered into production sharing agreements with private companies (para. 1.4).Annual coal consumption for the Paiton plant at a 702 capacity factor will beapproximately 2.5 mmt/y (million tons per year) for the 800 MW generationplanned initially, the average heat value of the coal being 6,040 kilocaloriesper kilogram and average sulfur content of about 0.672 (range 0.2-1.01). Theaggregate production potential from the three major mining regions inIndonesia is summarized in Table 4.1.
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Table 4.1: INDONESIA-COAL PRODUCTION POTENTIAL(million tons)
Region/minelcontractor 1987 1988 1989 1990 1991 1992 1993 1994 1995
South SumatraBukit Asam 1.0 2.0 2.5 3.0 3.0 3.0 3.0 3.0 3.0Muara Tiga - 0.5 2.0 2.7 2.7 2.7 2.7 2.7 2.7Banko Barat - 1.0 3.0 4.5 5.4 5.4 5.4 5.4 5.4
Subtotal 1.0 3.5 7.5 10.2 11.1 11.1 11.1 11.1 11.1
West SumatraOmbilin 1.0 1.2 1.5 1.6 1.6 1.7 1.7 1.7 1.8
KalimantanPT Arutmin 0.5 1.5 1.5 2.5 4.0 5.0 5.0 5.0 5.0PT Utah - 0.5 1.0 1.0 1.0 1.0 1.0 1.0 1.0PT Kideco Jaya - - - 1.0 2.0 3.0 4.0 5.0 5.0PT Adaro - - - 1.0 1J.0 6.0 6.0 6.0 6.0PT Berau - - - - - 0.5 1.5 2.5 2.5PT Kaltim Prima - - - - - 0.5 2.5 4.0 6.0
Subtotal 0.5 2.0 2.5 5.5 10.0 16.0 20.0 23.5 25.5
Grand Total 2.5 6.7 11.5 17.3 22.7 28.8 32.8 36.3 38.4
Source: Mission estimates.
4.11 The domestic coal industry in Indonesia has in recent years developedto a point where there exists a variety of public and private enterpriseswilling and able to produce and deliver coal at prices competitive withimported coal. The Bank's Energy Options Review estimated the economic costof development of these coals to be in the range of $18-2.Iton delivered toPaiton. Under a current GOI decree, PLN will have freedom to select and enterinto contracts with any of the suppliers in Kalimantan area for theprocurement of coal for Paiton.
4.12 Two methods of transportation of coal from Kalimantan are currentlyenvisaged for the Paiton plants One, coal could be transported from EastKalimantan to Paiton by barges with capacities up to 10,000 tons. A suitablejetty for loading such barges would be needed. Two, coal could be transportedby larger ocean-going ships up to a capacity of 60,000 tons, in which case aharbor will need to be built at Pelabuhan Kota Baru on Pulau Laut. A study isin progress to determine the most efficient plan for the transportation ofcoal to Paiton. Under the proposed loan, the GOI has agreed to finalize thecoal supply plans by December 31, 1989 and implement them thereafter, so as toreach a supply capability of about 2.5 million tons per year beginning March31, 1994.
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4.13 As discussed in para. 4.11, the economic cost of coal is in the rangeof US$18-24/ton delivered to Java at 1986 prices. Even after correcting thecost to 1988 prices and adding taxes and profits, it should be possible todeliver the coal at below the current average international price of $40/tondelivered to Java, provided, of course, the coal industry is tun efficiently.PLN has an option to import coal for Paiton, if necessary. In view of this,GOI has agreed under this loan to ensure that the price of indigenous coal forthe Paiton plant will be no higher than the long-term contract price of steamcoal in the world market, adjusted for quality and accounting fortransportation and handling costs to Paiton.
4.14 In the event of a delay in the development of indigenous coalproduction, it would be possible to meet the coal requirements of Paiton byimported coal. The boiler design and the arrangement of the coal handlingsystem at Paiton is based on the characteristics of a range of coals thatcould be made available at the plant from Kalimantan, South Sumatra (BukitAsam), as well as from Australia.
Technical Assistance Program
4.15 As a component of the Paiton Thermal Power Project, technicalassistance (TA) will be provided tot (a) supplement the Government's effortin developing appropriate environmental management and control plans for theenergy sector, which will reflect state-of-the-art technology; and (b) supportthe institutional development of PLN's engineering and design staff.
4.16 With regard to the environmental aspect, the following objectiveswill be accomplished through this TA program: (a) formulation of environ-mental regulations and quality standards; (b) development of standard methodo-logies for controlling various environmental impacts; (c) development ofenvironmental monitoring plans; (d) strengthening of enforcement procedures;and (e) training of personnel. The TA program would provide the necessarymeans to formalize the environmental management strategy at the sectorallevel. The Ministry of Mines & Energy, as the implementing agency of the GOIpolicies in the energy sector, and having responsibility for management vestedin the Central Committee on Environmental Impact Assessment (EIA), would bethe immediate beneficiary of this TA program. The institutional developmentprovided by the TA would also assist in satisfying the EIA requirements ofdevelopment projects in the energy sector. The terms of reference for theconsulting assignment for the TA, agreed with the >XI, are given in Annex 14.Under the proposed loan, the GOI has agreed to appoint consultants accordingto a time schedule satisfactory to the Bank. In addition, PLN's design andengineering staff will receive working experience on the Paiton project asthey work hand in hand with the consulting engineers. The TA program agreedwith PLN, envisages complementary academic and vocational training for aboutforty of PLN's design and engineering staff to help them expand theirknowledge and expertise.
Cost Estimate
4.17 Table 4.2 summarizes the project cost estimate. The costs are net oftaxes and duties for the imported items since PLN is exempt from them. Localcosts include VAT and other taxes, estimated to be about US$15.0 millionequivalent.
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Table 4.2: SUMMARY OF PROJECT COST
Local Fore ln Total Local Foreign Total Foreign as--- (Rp billon) - -(MS million) - l of total
Preparation works 114.0 - 114.0 67.0 - 67.0 -Power house
Turbine generatore & otherplant auxiliaries 20.0 511.0 851.0 12.0 183.0 196.0 98.8
Stem gnerators & auxilIlaries 70.0 801.0 871.0 41.0 177.0 218.0 81.2Chimney 8.0 10.0 18.0 2.0 6.0 8.0 76.0Civil work* 49.0 81.0 80.0 20.0 18.0 47.0 80.8
Marine works 68.0 82.0 150.0 40.0 48.0 68.0 54.6500 kV tranmission & substations 26.0 126.0 162.0 16.0 74.0 89.0 83.1150 kV transmission & substations 7.0 16.0 22.0 4.0 9.0 18.0 69.2Engineering a constructionmanagement 16.0 86.0 100.0 9.0 60.0 69.0 84.7
Overhead and administration 86.0 - 86.0 21.0 - 21.0 -Technical assistance
(a) Environment - 2.0 2.0 - 1.0 1.0 100.0(b) Training 2.0 2.0 - 1.0 1.0 100.0
Total Base Coot 408.0 9B6.0 1.373.0 240.0 667.0 807.0 70.8
Physical contingency 48.0 70.0 118.0 26.0 41.0 66.0Price contingency 102.0 160.0 262.0 60.0 94.0 164.0
Total Project Cost 665.0 1.196.0 1.748.0 826.0 702.0 1.027.0 68.4
Interest during construction - 165.0 168.0 - 00.0 90.0
Total Financina Reauired 668.0 1.848.0 1.901.0 825.0 792.0 1.117.0 71
4.18 The Bank loan will finance the following:
(a) structural steel, tiank and chimneys;
(b) supply and installation of 2 x 400 MW turbine-generators and plantauxiliaries, including water treatment plant, instrumentation andcontrols, mechanical and electrical works, and mobile equipment;
(c) marine works;
(d) 150 kV transmission lines and associated substations;
(e) consulting services for detailed engineering and constructionmanagement; and
(f) technical assistance for environmental management, and academic andvocational training of PLN's engineering and design personnel.
4.19 Annex 11 gives the detailed cost estimates for the Paiton Units 1 and2. Al1 costs are based on December 1988 prices; physical contingenciesaverage about 8.2Z of the estimated base cost, ranging from 5I for equipmentto 10-151 for civil and other construction works because of higher levels of
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uncertainty. The price contingencies, calculated on the basis of theinflation factors shown in Table 4.3, average about 17.72 of the base costplus physical contingencies. The cost estimate was developed using historicalrecords for coal-fired steam plants of the same size as Paiton. Actual bidprices were used for the turbine generator (FCO1), steam generator (FC02) sitepreparation (LCOI) and equipment unloading dock (LCO6) packages.Additionally, Suralaya steam power station bid prices were taken into accountfor items with similarity of work content.
Table 4.3: INFLATION FACTORS
Local 1989 1990 1991 onwards
Foreign 5.3 5.3 4.1
Local 9.0 9.0 5.2
Financing Plan
4.20 The financing plan for the project is expected to be as shown inTable 4.4.
Table 4.4: FINANCING PLAN(USIS million)
Source Local Foreign Total X
IBRD (a) Earlier loans la - 28.0 28.0 2.5(b) Proposed loan - 354.0 354.0 31.7
Exnort creditst Steam generators 50.0 165.0 215.0 19.2Ash handling plant 1.0 12.0 13.0 1.0Coal handling plant 6.0 40.0 46.0 4.3
Other cofinancing - 92.0 92.0 8.3PLN 268.0 101.0 369.0 33.0
Total 325.0 792.0 1,117.0 100.0
/a Funds provided for design, engineering, and specifications under Loans1872-IN, 2056-IND, 2300-IND, and 2778-IND.
4.21 The proposed Bank loan will finance 44.7Z of the foreign cost of theproject or 31.7? of the project financing requirement, including the interestduring construction. The proceeds of the Bank loan, except $1.0 million fortechnical assistance to GOI, would be onlent to PLN for 20 years including agrace period of 5 years, under a subsidiary loan agreement, the signing ofwhich will be a condition of loan effectiveness. The onlending rate will bethe Bank's standard variable interest rate plus fees of 1.902 to coveradministrative charges, and a part of the foreign exchange risk that will beborne by the Government.
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4.22 Parallel co-financing arrangements are envisaged for the Paitonproject to meet the foreign exchange requirement for discrete packages ofgoods and services, such as the 500 kV transmission lines and substations, aswell as EHV transformers. Export-credit is already being discussed for thesteam generators and auxiliaries, while further export credits, to bedetermined through international tendering, will cover the cost of coal andash handling plants. PLN will meet the total cost of site preparation, civilcontracts, the full requirement of local expenses and the interest duringconstruction. It is agreed that the financing arrangements will be finalizedby March 31, 1990.
Contract Strategy
4.23 The contract strategy divides the scope of work into fifteeninternational and seven local contract packages. In addition, there areanother eight packages of work associated with the total development, and forease of identification, the undistributed costs have been divided into fourpackages. These thirty-four contract packages are described in Annex 11 (CostEstimates) under contract description. A description of the scope of eachitem is given in Annex 12.
Procurement
4.24 All equipment and services financed under the proposed Bank loan willbe procured by international competitive bidding (ICB), in accordance with theBank's procurement guidelines. The Bank-financed items are those listed inpara. 4.18. Procurement arrangements are summarized in Table 4.5. In the ICBprocedures for the procurement of equipment, domestic manufacturers would beeligible for a preference in bid evaluation of 152 or the import duty,whichever is lower. Also, in the ICB procedures for the procurement of civilworks, domestic contractors would be eligible for a preference in bidevaluation of 7.5Z. All bidding packages for goods financed by the Bank loanestimated to cost over US$1,000,000 equivalent will be subject to the Bank'sprior review of procurement documents, which covers all contracts. Forconsulting services, the consultants will be selected and engaged inaccordance with Bank guidelines.
4.25 Bids for the steam generators and turbine generators have beenreceived, evaluated and the lowest evaluated bidders were determined. Bidsfor turbine generators were invited following Bank guidelines. Discussions tofinalize the contract with the steam-generator supplier are already inprogress, to be followed by discussions with the turbine-generator supplier.
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Table 4.5, PROCUREMENT ARRANGEMENTS
Procurement methodProject element ICB LCB Other N.A. Total cost
-------------- (US$ million) -------------
Preparation works - 85 - - 85Turbine generators and 244 - - - 244other auxiliaries (227) la (227)
Steam generators andother auxiliaries - - 215Lb - 215
Ash and coal handling - - 59Lb - 59Civil works 43 20 - - 63
Chimney 10 - - - 10(7) (7)
Marine works 117 - - - 117(60) (60)
500 kV lines & substation - - 1131c - 113150 kV lines & substations 17 - - - 17
(11) (11)Engineering and construction - - 47 - 47
management (47) (47)Overhead & Administration - - - 27 27Technical Assistance - - 2 - 2
(2) (2)Total 431 105 436 27 999 id
(i305) (49) (354)
La Figures in parentheses indicate proposed Bank loan use./b By export credits./c Bilateral cofinancing./d Excludes $28.0 million funded from earlier Bank loans.
Implementation Schedule
4.26 Annex 13 gives the implementation schedule for Paiton units 1 and 2.Unit 2 will be built and commissioned first primarily to facilitate theconstruction and initial operation of the coal handling system. All commonfacilities necessary for the operation of both units are to be installed withUnit 2.
4.27 The commercial operation dates for the first unit (Unit 2) isSeptember 1993 and that for the second unit (Unit 1) is March 1994. Theproject is expected to be completed by March 31, 1995 and the closing date ofthe loan will be September 30, 1995. The implementation schedule for thePaiton units is based on the contracts for both turbine generators and steamgenerators being awarded no later than August 1989. Annex 13 provides thedates for major contract package awards. For the balance of the contracts to
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be awarded on schedule, specifications on Piling, Powerhouse Civil Works,Mechanical and Electrical Works and Instrumentation and Control Systems arerequired to be finalized, based on the technical data obtained from the boilerand turbine bids. PPE has started doing this work with the help of theconsultants. Key dates for major contract awards are given in Annex 15. Somekey construction dates are given in Annex 16. It was agreed that contractawards would be carried out in accordance with a schedule satisfactory to theBank (Annex 15).
Disbursement
4.28 The Bank loan would be disbursed against approved contracts and willcover: (a) 10O of the foreign costs of directly imported equipment andmaterials; (b) 100? of local expenditures ex-factory of locally manufactureditems; (c) 55Z of the total cost of the marine works contract; and (d) 10OZ ofthe expenditures for consulting services, and technical assistance.
4.29 The disbursement schedule for the proposed Bank loan is given inAnnex 17, which also gives the disbursement profile for power projects inIndonesia. The disbursements for this project are expected to be somewhatfaster than the profile since major contracts are expected to be awarded soonafter loan signing.
Monitoring and Reporting
4.30 Satisfactory procedures for progress reporting on the project wereagreed upon. The arrangement provides for the submission by PLN to the Bankof monthly progress reports in the earlier phases of the project.
Environmental Aspects
4.31 The design of the Paiton power plant has taken into account theapplicable environmental guidelines of the Bank as well as of GOI. The designof the plant ensures that the limits imposed by these guidelines are notexceeded at the fully developed plant capacity of 4,000 MW. Duringnegotiations of the proposed loan, GOI assured that, while implementingsubsequent phases of the project, the various aspects of these design featureswould be kept in view, which, inter alia, would maintain the sulfur dioxideemission within permissible limits. Transmission facilities will be designedand carried out in accordance with the current technological practices andwill cause minimum disturbance to the environment. The environmental aspectsof the project and the design features concerning them are described in Annex10.
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V. FINANCIAL ANALYSIS
Past Results
5.1 PLN's financial operating results for 1980181 to 1987188 aresummarized in Table 5.1. Historical financial statements are given inAnnex 18.
Tabl- 5.1: SUIMARY OF PIN'S FDNUNCIUL OPERATING RESULTS,1980/81-1987/88
Fiscal yer 1980/81 1981/82 1982/88 1988/84 1984 ac 1985/86 1988/87 1987/88
Energy sales (0Mh) 6,623 7,845 9,101 10,000 11,041 12,706 14,78B 17,077Sles Increase (X) 22.1 20.8 16.0 0.9 10.4 15.1 18.4 15.5Average revenue (Rp/kWh) 41.4 48.8 6.5 76.0 07.8 96.6 98.5 92.6Operating revenues(Rp bin) 284 856 586 787 1,111 1,263 1,425 1,629
Operating expenses(Rp bin) 2S8 875 571 600 1,119 1,278 1,292 1,685
Operating Income (Rp bin) 26 (19) (B8) (18) (8 (10) 188 (6)Net income (Rp bIn) 20 (20) (41) (82) (46) (55) 87 (182)Rate base (Rp bin) /a 787 970 1,218 1,497 1,998 2,779 8,867 5,098Rate of return (U) - 8.5 (1.9) (8.0) (0.9) (0.4) (0.8) 8.4 (0.1)Capital investment O#p bIn) 808 409 585 981 1,080 1,408 1,712 1,918Self-financing ratio (X)
Annual 87.0 26.8 80.6 18.2 11.4 8.7 28.0 1.0Three-year average b 28.4 29.9 80.8 28.6 16.8 12.2 16.8 10.7
Debt service coverage(times) - 10.8 6.6 8.8 2.4 1.7 2.6 1.1
Debt/debt plu equity (X) /c 9.8 14.1 17.8 27.4 82.8 86.1 89.9 40.5Operating ratio (X) 91 106 107 102 101 101 91 100Current ratio (times) 4.5 8.4 2.4 2.2 2.6 2.1 1.8 1.1
/a Based on revalued assets (pore. 5.26).Lb Three-year moving average (current plus two preceding years).c Excluding revaluation surplus.
5.,: During 1981/82-1985/86, PLN's operating revenues and expensesinceeased at about the same rate, averaging about 35Z p.a. PLN's energy salesgrew at an average annual compound rate of about 14Z. Although, the averagerevenue per kWh sold increased by 18.52 p.a. over the period, PLN'sprofitability was negative. Nevertheless, throughout this period, PLN hadcomfortable liquidity, good debt service coverage, and an adequate capitalstructure as a result of substantial paid-in capital. This situation resultedfrom the Government's policy during this period of permitting tariff increasesthat were just adequate to meet the increases in operating costs, causedmainly by increases in fuel prices. The Government enabled PLN to proceed
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with the sizeable investment program by providing equity capital, whichreflected in its healthy debt/equity ratio and debt service coverage. In1986/87, PLN achieved a positive operating income, a positive net income, anda positive rate of return (3.41) on net revalued assets. PLN's net internalgeneration of funds in 1986/87 was about Rp 394 billion (US$232 million), andits annual self-financing ratio (SFR) was 231 on a total capital investment ofabout Rp 1,712 billion (US$1,007 million). Its operating ratio (91Z) and debtservice coverage ratio (2.6 times) showed significant improvements, and itsdebt to total capitalization ratio (excluding revaluation surplus) increasedto about 40X.
5.3 The outcome for 1987188 showed a substantial deterioration in PLU'sfinancial performance compared to that in 1986/87, due to several factorsincluding (a) the devaluation of the Indonesian currency in September 1986;(b) inflation; and (c) substantial increases in the proportion of oil-basedgeneration in 1987/88 compared to 1986/87, mainly due to the drought of 1987.To meet an increase of about 15X in sales, PLN's operating expenses in 1987/88increased by 262, resulting in an operating ratio of 1002 and a ROR of -0.12.As a result, the debt service coverage declined to 1.1 times and the annualSFR was about 12. The Government did not permit tariff adjustment during1988, which resulted in further deterioration of PLN's financial performancein 1988/89 (para. 5.10). However, the Government approvrd on March 27, 1989,an average increase of about 252 in the electricity rates effective April 1,1989, which is expected to restore and improve PLN's profitability. (para.5.11).
Regional Operations
5.4 Considerable disparity exists in PLN's regional operatingperformances. PLN's Java operations, which include large central powerstations supplying electricity through an interconnected grid system, arelargely commercially-oriented and profitable. PLN's non-Java operations aremainly small-scale and dispersed over a large number of islands, and encompassover 600 separate generation and supply networks. Most of them are highlyunprofitable, and have a negative impact on PLN's overall finances. Theselected 1986/87-1987/88 financial indicators for PLN's Java and non-Javaoperations, presented in Table 5.2, illustrate the substantial operationaldifferences between the two operations.
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Table 6.2: SELECTED FINANCIAL INDICATORS FOR PUN AND ITS JAVAAND NON-JAVA OPERATIONS, FY1986/87-1907/88
FY1986/87 TtlFf1987SIS oJava Non-Java PLN Java Non-Java PIN
Energy sales (OWh) 11,677 8,209 14,786 18,890 8,679 17,07?Sales lncreas () 16.2 20.9 10.4 16.7 14.6 16.6
Operating revenues (Rp billion) 1,096 880 1,425 1,256 874 1,829Operating expense (Rp billion) 848 444 1,292 1,108 682 1,686Operating tnco (Rp billion) 247 -114 188 162 -168 -BNet income (Rp billion) 176 -189 87 62 -184 -182Rate base (Rp billion) 2,848 1,021 8,867 8,652 1,441 5,098
Rate of return (X) 8.7 -11.1 8.4 4.2 -10.9 -0.1Operating ratio (%) 78 135 91 88 142 100
5.5 In 1986187, PLN's Java operations generated an operating profit ofRp 247 billion, with a ROR of about 8.7Z, which exceeds the 82 ROR target of
the revenue covenant (para. 5.7). The non-Java operations, however, incurredan operating loss of Rp 114 billion with a ROR of about -11.1, and therebybrought down PLN's overall operating profit to Rp 133 billion and the ROR to3.4Z. Nevertheless, the operating results of PLN's non-Java operations showedan improving trend in 1986/87 compared to the results in 1985186. While thenon-Java sales increased by about 212 in 1986187, the related operatingexpenses increased by about 13.82, and the ROR improved to -11.12 from -14.22in 1985/86.
5.6 The factors discussed in para. 5.3 impinged heavily on PLN's Javaoperations, for which the operating ratio rose from 782 in 1986187 to 882 in1987/88, largely as a result of an increase of about 322 in fuel expensesbecause of 19Z higher oil-based generation and 152 lower hydro generation.
Also, the Java operations' rate base grew by about 28Z from 1986187 to 1987/88due to the addition of new assets, the cost of about 802 of which was affectedby the rupiah devaluation, and asset revaluation. As a result, the ROR for
the Java operations declined in 1987/88 to 4.22.
Financial ObJectives
5.7 In the revenue covenant agreed under the Power Transmission andDistribution Project (Loan 2778-IND, 1987), PLN was required to: (a) realizefor its Java operations, by no later than its fiscal year 1988/89 and in eachfiscal year thereafter, an annual ROR of not less than 82, and (b) for itsnon-Java operations, achieve a break-even situation in each of its fiscalyears beginning with fiscal year 1990/91, i.e., total revenues equivalent tonot less than the sum of their (i) total operating expenses, and (ii) theamount by which debt service requirements exceed the provision fordepreciation. A covenant under Loan 2778-IND also required PLN to carry outan action plan for efficiency improvements for all its operations (para. 3.8),in a manner to ensure that the break-even requirements of the revenue covenantfor the non-Java operations are achieved.
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5.8 The principal financial objectives underlying the revenue covenantare that PLN should achieve: in the short term, sufficient overallprofitability for it to cover its operating expenses, realize positive annualrates of return, meet its debt service requirements, maintain adequateliquidity and self-finance about 202 of its annual capital expenditures; andin the medium term, to improve its profitability further to self-finance ahout30-35i of its capital expenditures, and rely mostly on borrowings to financethe balance, confining the Government's contributions to programs that involvethe building of the infrastructure rapidly and supplying electricity to thetargeted low income groups at affordable rates. Such a strategy should enablethe share of PLN's retained earnings in total equity to rise, with thedebt/total capital ratio remaining below 55Z and the debt service coveragestaying above 2.0 times. To achieve these financial objectives, PLN will needto undertake measures to improve the efficiency and reduce the costs of itsoperations, both in Java and outside Java (para. 3.8), and the Government willneed to permit tariff adjistments for increases in costs due to fuel priceescalation, inflation and exchange rate depreciation.
Present and Future Performance
5.9 PLN's actual financial performance for 1986/87-1987/88, the estimatefor 1988/89 and projections for 1989/90 through 1994195 and related incomestatements for its Java and non-Java operations are summarized in Table 5.3and details are given in Annex 18, and notes and assumptions underlying theprojections are given in Annex 19. In the projections, the sales growth andiuvestment requirements for Java and non-Java operations are based on PLN'slatest demand forecasts and related power development program agreed with theBank (paras. 2.8 and 2.9).
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Table B.St RNIS FINANCL. PRFOR8AN001981/7-199,4/98
acual Eattats Prolatico.sFmll year 1/8 1987/ae 199/89 199/90 1990191 191/902 1992/9S 199/94 1994/95
Ahwmje avrnu Q(p kWh)PRN total 98.5 99.6 92.3 tts.6 120.8 1.4 100.4 128.6 141.0
Incrasae (t) (3-8) (0.9) (0.4) 2B.0 4.0 4.0 4.0 4.0 4.0Java 91.7 91.0 90.6 110.2 117.7 12.4 17.3 12.4 187.7
Incraa (5) (3.4) (0.8) (0.4) 25.0 4.0 4.0 4.0 4.0 i.0Non-Java 99.9 98.8 98.8 125.2 180.2 188.4 140.6 146.5 182.3
Incrasa (5) (2.9) (1.4) (0.2) 27.3 4.0 4.0 4.0 4.0 4.0
Enera Sale (G h)PLN tatal 14,766 17,077 19.862 22.697 2.11,2 29,982 84.169 38,860 48.612Java 11.877 10,396 15,801 17 7V 4 20,93 2s,2as 26,4e8 80.06, 8a.97eNon-Jes 3.209 3.679 4.81e 4.948 8.819 6.697 7.61 6e,76s 9,869
Oo..ratln. Ravanuaa (l billfin)PN total 1,425 1.629 1,690 2.6S4 a3.2 8.ee 4.567 5.386 6,621Java 1.09 1,288 1,480 2.057 2.442 2.905 8,442 4.060 4.766Nor-Java 8a0 374 440 687 760 93s 1,115 1,826 1.888
flpratln Exaans" (R billIon)PRN total 1.292 1.68 1.987 2,261 2.597 2.995 8,416 6,6SI 4,a89javw 8e 1.103 1,87 1,82B 1,762 2.082 2,370 2,663 8,048Nm-Java 444 s62 594 723 6S3 948 1,046 1,166 1.316
Cflari1JnaIom (t billion)RN totl 183 (6) (77) 448 65 648 1,141 1.888 1,962Jawa 247 12 7r 829 S6W 6s 1,072 1.897 1,725N.-Java (114) (16 (184) (as) (8) (10) 69 la 287
Rote Ons R billion)PIN total 3,867 s.03 6,924 8,95 10,628 12,178 18,9S7 17,006 20.411Java 2.848 e ,682 4.980 6.614 7.772 6841 9,62 12,060 14.669Non-Java 1.021 1,441 1,044 2.841 2.656 3,882 4.10 4,988 5,722
Rate of Ratuen )PLRN totI .4 (0.1) (1.1) 4.9 8.9 6.9 8.2 9.0 9.6Java 6.7 4.2 1.5 6.0 6.7 9.9 10.9 11.6 11.8Non-Java (11-.) (10.9) (7.6) (37 ) (1.9) (0<.) 1.7 2.6 4.1
Otrtine Ralto CO)PW total 91 100 104 64 61 eo 78 72 69Java T7 a8 94 74 72 71 69 e6 64Non-Java 198 141 108 110 107 101 94 9o as
Current ratio (tie") 1.8 1.1 1.4 1.5 1.8 2.0 2.2 2.8 2.8Oabt/debt plus eqity M l 39.9 40.5 48.5 40.1 40.9 44.4 48.2 80.4 51.8Self-ftinancng ratio (t)
Autual 26.0 1.0 0.6 20.6 27.8 29.8 81.6 37.9 48.1-ear avarage IS 10.8 10.7 6.7 6.0 16.5 26.6 80.0 a3.6 S8.A
Debt service coverage (tit_) 2.6 1.1 1.3 2.0 2.5 2.9 8.5 4.1 5.1
1* On ravolued rat. ba.A Eacluding revaluation aurplus.1* Threa-year aming average (currant plua tao previous years).
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5.10 As mentioned i para. 5-3, the financial performance of PLN isexpected to deteriorate in 1988189 compared to 1987188. The operating ratiofor the Java operations is estimated to rise from 87Z in 1987188 to 942 in1988189. With an estimated growth of about 352 in the rate base for 1988/89,the ROR in that year for Java operations would decline to 1.52 from the 4.22achieved for 1987/88, with PLN's ROR becoming negative (-l.l) and the annualSFR remaining about 1Z.
5.11 With the adjustment of its tariff, effective April 1, 1989 (para.5.3), PLN's financial position is expected to improve substantially in1989/90, with the ROR for the Java operations rising to 82 and that of PLN asa whole to about 4.9X, with an annual self financing ratio (SFR) of about 20Z.PLN will achieve further improvements in its financial position throughefficiency gains, if the tariff is adjusted periodically to compensate forchanges in those costs that are outside PLN's control, such as fuel costs,exchange rate depreciation and inflation. In the financial projections, whichare based on constant fuel prices, the tariff is assumed to be adjustedannually by 42 for fiscal years after 1989/90 to absorb the impact ofincreases in operating costs and in the rate base assumed in the financialforecasts.
5.12 As reflected by its projected operating ratios, PLN's overall profit-ability would improve substantially over the projection period, and its over-all annual rate of return would rise from about 4.92 in 1989190 to about 9.62in 1994195. The capital structure would remain satisfactory; the debt as apercentage of debt plus equity (excluding revaluation surplus) would rise from412 in 1987188 to 512 in 1994195. PLN's debt service coverage ratio would bewell in excess of 2.0 throughout the projection period. An existing covenantunder Loan 2778-IND requires that, unless the Bank shall otherwise agree, PLNmay not incur any additional debt unless a reasonable forecast of its netrevenues after expenditures for each year du_ing the term of the debt to beincurred shall be at least 1.5 times its projected debt service requirements.This covenant will continue under the proposed loan. PLN's current ratio isexpected to be about 2 times through most of the projection period; this wouldprovide adequate liquidity. With the projected level of financialperformance, PLN would meet the principal financial objectives underlying therevenue covenant (para. 5.8).
5.13 The financial projections show that during the forecast period, theprofitability of PLN's Java operations would improve substantially, with theoperating ratio declining and the annual ROR rising, respectively, from theestimated 94Z and 1.52 in 1988/89 to 742 and 82 in 1989/90, and thereaftercontinuing to improve to 642 and 11.82 in 1994/95. Consequently, the Javaoperations would meet from 1989190 onwards the ROR target of the revenuecovenant (para. 5.7). PLN's operations outside Java, however, would be unableto achieve a financial break-even situation in 1990/91 (projected operatingratio of 1072 and operating loss of Rp 55 billion), as required under therevenue covenant (para. 5.7) agreed under Loan 2778-IND. Crucial to reachingthe financial break-even outside Java is the implementation by PLN of anaction plan for sales promotion, efficiency improvement and cost reduction inthe operation of a large number of isolated, scattered small systems (para.5.7). Based on the current plans for system expansion and cost reduction, thefinancial projections show that the operating ratio for the operations outsideJava would improve to 1012 in 1991/92 and a financial break-even would be
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achieved in 1992193 when the operating ratio is projected to be 94Z. In viewof the above, under the proposed loan, the test year for the financialperformance targets in the revenue covenant is revised as follows:
(a) an annual rate of return of not less than 82 for the Javaoperations in FY1989190 and fiscal years thereafter; and
(b) a break-even situation for the non-Java operations, beginning withFY1992193.
5.14 In the financial projections, PLN's capital expenditures projectedfor 1989190-1994/95 are derived from the investment requirements and least-cost expansion plans discussed in paras. 2.8-2.9. These capital expenditures(including interest during construction) total about Rp 29,110 billion(US$17,123 million) in current prices. The financing plan assumed in thefinancial projections for the Repelita V (1989190-1993194) is presented andcompared to that for the Repelita IV (1984185-1988189) in Table 5.4. Detailsare given in Annex 18.
Table 5.4: COMPARISON OF PINANCING PLANS
Repelita IV Repelita VFiscal year 1984185 - 1988/89 1989190 - 1993/94
Billion Rp (Z) Billion Rp (Z)
Capital expenditure 9,017 100.0 21,865 100.0
Financed by:Net internal sources La 677 7.5 6,810 31.1Borrowings 4,752 52.7 10,985 50.3Government contribution 3,588 39.8 4,070 18.6
Total 9,017 100.0 21,865 100.0
la Including consumers' contributions and deposits, and adjusted for changesin working capital.
5.15 In the projected financing plan for the Repelita V (1989/90-1993/94),the Government's contribution is estimated to be about 19Z, compared to about402 for the Repelita IV period, with the annual contribution declining to 16Xin 1991/92, and to 91 in 1993194. PLN's own contribution from its internalsources is projected to increase from about 72 during Repelita IV to about 312during Repelita V, with annual SFRs increasing from about 202 in 1989/90 toabout 382 in 1993/94. Borrowings would cover about 502 of the financialrequirements during the Repelita V, almost at the same level as in theRepelita IV.
- 34 -
Performance Monitoring
5.16 The revenue covenant agreed under Loan 2778-IND (para. 5.7), whereseparate financial performance targets are adopted for PLN's Java and non-Javaoperations, will be retained under the proposed loan. The target years,however, would be revised under the proposed project, as discussed inpara. 5.13.
5.17 For monitoring the financial performance under the revenue covenantsfor PLN's Java and non-Java operations, PLN has been providing the Bank, asagreed during the negotiations of the loan for the Power Transmission andDistribution Project (Loan 2778-IND), with separated historical financialresults (beginning with its fiscal year 1986187) and forecasts on a proformabasis, but not separate audited financial statements. Accounting for PLN'sJava and non-Java operations is separate except for overhead expenses and debtservice payments, which have been difficult to separate except on a notionalbasis. It was also agreed with PLN that, while initially the overheadexpenses and debt service payments could be allocated on the basis of unitsales of energy, PLN will pursue the separation of debt service payments onthe basis of actual debt and related service payments. Simultaneously, thereis also a need to pursue a financing strategy that provides a higherproportion of equity contribution and concessional funding to investmentsoutside Java, which have a higher social content. These objectives will bepursued as a part of ongoing dialogue with GOI and PLN.
5.18 As an important step towards improved efficiency, PLN needs to obtaina better understanding of the costs associated with its substantial socially-directed activities (e.g., rural electrification), particularly in theoperations outside Java, which are not commercially viable and pose a growingfinancial burden on PLN (paras. 5.4-5.5). To assess the impact on itsfinances of such activities, PLN has agreed to implement a system forsegregating financial and operating information on rural electrificationactivities both for Java and outside Java operations, which, as a first step,will serve as a proxy for socially-directed activities. The data generated bythis system would provide a basis for the Government to assess the extent towhich it should assist PLN to sustain and expand the agreed socially-directedelectrification programs. Under the proposed loan, it was agreed with PLNthat such information will be compiled and submitted to the Bank, along withthe annual accounts.
Tariffs
5.19 PLN's current tariff schedules, which became effective April 1, 1989,comprise 21 consumer categories, compared to 17 consumer categories in theprevious schedules. A separate tariff category has been established for largesocial institutions, and three new tariff categories have been established forthe hotels that were previously included in the industrial consumercategories. For all except the smallest domestic class, two-part charges areapplied. For medium and large industrial, and large commercial consumers, andfor large office buildings, time-of-day pricing is in effect. The currenttariff schedules and the history of past tariff increases are given inAnnex 20.
- 35 -
5.20 Under the Power Transmission and Distribution Project (Loan2778-IND), agreements were reached that (a) PLN will periodically review itslong run marginal cost (LRMC) and tariff structure, and discuss the results ofthe review with the Government and the Bank, and (b) before December 31 ineach year, PLN will review the adequacy of its tariffs to meet therequirements of the revenue covenants (para. 5.7). Such a review will takeinto account the results of the review of the LRMC-based structure and anaction plan for efficiency improvements to achieve, inter alia, therequirements of the break-even revenue covenant for the non-Java operations(para. 5.7). These covenants will be continued under thue proposed loan.
5.21 In September 1987, PLN completed a. study of its LRMC of supply inJava, which was reviewed by the Bank. The study indicated that PLN's averagerevenue in 1987/88 would have been Rp 106.3/k1Wh if the tariff of each consumercategory was set at the estimated LRMC of supply in Java. With the currenttariff schedule, PLN's average revenue in 1989190 is estimated to beRp 115.8/kWh. The current level of the electricity tariff is close to orabove the LRMC of supply for all categories of consumers except small socialinstitutions, and small residential and small industrial consumers. The abovementioned LMRC study also indicated that there was a need to apportion alarger percentage of the electricity price to the demand charge (fixed charge)for all categories of consumers, and to increase the peak energy charges forSeveral consumer categories, particularly for industrial consumers. Under thecurrent tariff effective April 1, 1989, the demand charge has been raised by502 for all categories of consumers, and energy charges have been raisedsignificantly for both peak and off-peak uses of electricity. Two issuesremain in the current structure of tariffs. The first is the continuation ofthe substantial cross-subsidy to small social institutions, small residentialconsumers and small industrial consumers, all of whom continue to be chargedrates that are lower than the LRMC of supply; and second, there is scope forrecovering a larger portion of revenue through the demand charge (fixedcharge) rather than the energy charge. These matters will be kept underreview as part of the Bank's ongoing dialogue with the Government and PLN inthe context of the periodic reviews of the adequacy of electricity tariffs.
Taxes
5.22 In accordance with the prevailing tax legislation effective since1984, PLN is subject to a 10? value-added tax (VAT) and to corporate incometax. The Government currently bears the VAT on the foreign contracts, and PLNbears it on the local contracts; this policy is assumed to continue throughoutthe projection period. With respect to corporate income tax, the currentIndonesian tax code permits the use of accelerated depreciation of assets inoperation, instead of the straight-line method used by PLN in its financialaccounting. As a result, PLN does not expect to pay any corporate income taxfor its fiscal year 1988/89, and during the projection period. In calculatingthe rate of return, however, any income tax payments will be taken intoaccount.
Financing Policy
5.23 The Government provides substantial financial assistance to PLN invarious forms, the most important of which is equity. PLN is authorized by
- 36 -
its charter to borrow from local and foreign lenders and to issue its ownobligations. However, in line with its policy for all State Corporations, theGovernment secures all foreign borrowings on behalf of PLN and bears theforeign exchange risk.
5.24 PLN prepares long-term development plans for corporate and nationalplanning purposes, and also prepares multi-year financial forecasts andfinancing plans. Based on these plans, the Government approves PLN's capitalexpenditures and the operating budget one year at a time. Although the systemof annual budget approval will continue, formulation of a long-term financingstrategy is essential in view of the inherently long-term nature of electricutility planning; most investment projects in the electricity sector have amulti-year execution period. Preparation of a long-term financing strategy,where the parameters of the capital structure of PLN--including the sharestherein of PLN's retained earnings, Government equity and debt--are defined,helps in more substantive policy discussions between PLN and the Government.Therefore, an existing covenant (Loan 2778-IND) relating to this aspect offinancial planning will be continued under the proposed loan. This covenantrequires that, as part of its ongoing annual planning activities, PLN shouldprepare a ten-year financial forecast based on its proposed development plan,and also prepare for the first five years of the forecast period a financingplan that should indicate the amount of external financing and the appropriatemix of equity and debt, and if possible the potential sources of financing.The covenant also requires that PLN's development plan, and related financialforecast and financing plan should be reviewed and adopted by its Board, andthat these plans and the forecast should be submitted to and discussed withthe Government and the Bank.
5.25 It is desirable that PLN should bear the foreign exchange risk on theBank loan onlent to it by the Government. However, the Government has apolicy of bearing the foreign exchange risk for all the borrowings for thepublic sector corporations (PERUM). In the Bank's past loans in the powersector, the Government had not accepted any fee in the onlending rate to PLN,to cover the foreign exchange risk. However, as a step in this directionunder the proposed loan, the Government has agreed to charge fees to PLN, overthe Bank's standard variable interest rate, of 1.9Z to cover administrativecharges and a part of the foreign exchange risk (para. 4.21).
Asset Revaluation
5.26 PLN's assets have been revalued periodically. The last detailedrevaluation was done in 1979180 as required of all public corporations underinstructions of the Ministry of Finance. The revaluation was recorded in thebooks and was accepted by the Bank. Fixed assets acquired after March 31,1979 are appraised at cost. Following the currency devaluation in September1986, the Government issued Regulation No. 45/1986 dated October 2, 1986,providing for the revaluation of assets of businesses and public corporations,acquired through September 12, 1986. The Regulation specifies the annualrevaluation factors for the years 1970 to 1986 for adjusting the asset valuesas of January 1, 1987, and corrorations had until December 31, 1987 to reportthe revalued data. PLN has also prepared a revaluation of its assets for1979/80-1986187 based on the Regulation; however, it has not yet been recordedin the books. The methodology for asset revaluation was discussed during the
- 37 -
loan negotiations and found satisfactory to the Bank. A covenant under Loan2778-IND, that requires PLN to revalue annually its fixed assets (includingwork in progress and consumers' contributions) and accumulated depreciationfor the purposes of the rate of return and break-even calcalations under therevenue covenant (paras. 5.7 and 5.16), is continued under the proposed loan.
VI. JUSTIFICATION
Primary Energy Options
6.1 The power sector offers the most important opportunity for reducingthe share of oil consumption and increasing the use of alternative sources ofenergy. These alternate sources are: natural gas, coal, geothermal andnuclear. Natural gas can, of course, take a substantial share of the powergeneration provided it is available at a competitive cost and in sufficientquantities. Proven reserves in Java would be fully committed after earmarkingabout 65 billion cubic feet per year for fuel oil substitution in existingplants and another 80 billion cubic feet per year for a 900 MM of capacityincrement needed in 1991-93. Any increase in gas utilization by the powersector in Java above these levels would need to be based on the confirmationof as yet unproven or unverified reserves onshore/offshore Java.
6.2 The geothermal development program has progressed, albeit more slowlythan anticipated. Exploratory work is continuing; however, lead time betweendiscovery of potential and actual exploitation for the generation of power isusually long (about seven years). Also investigations on three fields so farin Java (Salak, Dieng and Drajat) indicate that geothermal generation will bemore expensive than other available alternatives such as coal- and gas-firedgenerating plants.
6.3 Studies on the possible role of nuclear energy have revealed that,under most assumptions, the cost of nuclear generation is higher than that ofgeneration from co'nl-fired plants. Therefore, for the short to medium term, anuclear power progrsm cannot be justified on economic grounds.
6.4 Thus, the major least-cost options for power generation revolvearound a balance betv4en the use of gas, subject to availability, in combined-cycle plants and the use of coal in steam plants. A risk-averse strategy forthe power sector, therefore, calls for pursuing the policy of a balanceddevelopment of both coal and gas. The sector will act as the balancingconsumer of gas whenever nontradeable surplus is identified. Paiton coal-fired plant is a .Art of that least-cost development plan.
6.5 Annex 4 shows the least-cost Generation Expansion Program for theJava systems during 1988'89 to 1994195. The program is based on fullutilization of available gas from offshore fields in East Java for generationup to 1,800 MW at Gresik and using coal for baseload generating capacity.
Demand Growth and Project Need
6.6 Taking into account the projects currently under implementation, theforecast shows that available capacity would not be able to meet the demand
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from 1992193 onwards unless new generating capacity is added to the system.The deficit will be about 700 MW in 1992193 and 1,570 MW in 1994195 inaddition to Gresik combined-cycle generation of about 900 MW to utilize theavailable gas. The Paiton units (800 MS) would meet a part of this need withtheir commercial operation dates of September 1993 and March 1994. Thebalance of the shortfall in generating capacity is expected to be met by theexpansion of the Suralaya Power Station or the Gresik combined-cycle plant.6.7 The proposed project would support GOI's efforts to stimulateproduction and employment in Java by helping to satisfy the demand ofelectricity, and contribute to institution-building in the electricity, coaland environmental subsectors. The Bank has been involved in the developmentof this major thermal generation project at Paiton starting from siteselection, feasibility study, and design and engineering phases. The Bank'ssupport of the project will ensure timely implementation of generationfacilities.
Economic Rate of Return
6.8 It 's difficult to assess the benefits attributable to the specificcomponents of the expansion program in power projects that form a part of aleast-cost development plan. In such cases, it is appropriate to evaluate theeconomic rate of return of the entire program rather than attempt separateeconomic analysis of the components. For this project, an economic analysisof the FLN's investment program in Java for the period 1989/90- 1994/95, ofwhich the current project is a part, was carried out. Annex 22 sets out thedetails.
6.9 The economic analysis uses the investment costs for generation,transmission and distribution facilities that would be put in place during theperiod. Investments incurred prior to 1989/90, for the generating plants tobe commissioned in the same time slice, are included in the cost stream. Ashadow price factor of 0.8 is used for locally procured equipment andmaterials which account for about 2OZ of the investments and a factor of 0.65is used for unskilled labor which constitutes about 10 of the cost of theprogram. The balance of the investment costs are not shadow priced since PLNwould import equipment and materials on which it pays no duties or taxes. Theforeign exchange rate is its shadow price in Indonesia due to an open foreignexchange environment. The incremental fuel costs are derived from thecomputer simulation of system operation for the period under study. Fuelcosts have been valued at economic prices derived in December 1988.
6.10 The benefits are derived by using the estimated incremental salesthat would result from the proposed investments. In addition to revenues toPLN, consumer surplus has been quantified on the basis of 'willingness to pay"of industrial and residential consumers.
6.11 The willingness to pay for industria' consumers is estimated by twomethods. One, there is ample evidence that industrial consumers &re willingto pay the cost of electricity provided by captive diesel plant (para. 1.16),which is in the range of Rp 120 to 200 per kWh, depending on the size of theinstallation and the usage pattern. Considering PLN's average revenue per kWhfrom industrial consumers of about Rp 90, the willingness to pay would be in
- 39 _
the range of 1.3 to 2.2 times the current tariff. In an earlier study, ademand curve was constructed using available information which showed thatsome industrial consumers were willing to pay up to three times PLN's tariffand over 502 of them were willing to pay over 1.5 times the cost of PLN'ssupply. Based on such a survey, the consumers' surplus for the industrialconsumers was estimated at 1.7 times PLN's industrial tariff. For the presentanalysis, a factor of 1.5 is used.
6.12 Willingness to pay for residential consumers is estimated in a Bankstudy entitled "Indonesia: Rural Electrification Review" (Report No.6144-IND, November 1986). The study concludes that the willingness to pay forresidential consumers is of the order of 2.0 to 2.5 times the prevailingtariff, mainly consisting of the benefits for substitution of kerosene forlighting and other uses of electricity such as additional lighting, use ofelectrical appliances and television. For the present analysis, a multiplierof 2.0 is used.
6.13 PLN's average tariff to commercial consumers is relatively high(about Rp 200 per kwh). Hence the willingness to pay is equated to thecurrent tariff. Similarly, for the Government users and public supply such asstreet lighting and mosques, the willingness to pay may be no nigher than thecurrent tariff and the multiplier has been taken as 1.0.
6.14 The IEER for the investment program in Java works out to 222. Itwould fall to 202 if the investment costs increase by 102 or if sales declineby 10X. The IERR, with only revenue at current tariff as a benefit, works outto about 13?.
6.15 The financial rate of return (m) for th-: Paiton Thermal PowerProject is estimated at 102. The costs include investments on the plant aswell as the associated transmission and distribution facilities, incurredbetween 1990 and 1995, and the operation, maintenance and fuel costs over thelife of the plant. The expected revenue from the sale of energy from thePaiton plant is taken as the benefit. The calculations of IEER and PRR showthat the project is viable, both economically and financially.
Risks
6.16 The Paiton Thermal Power Project is similar to the coal-firedSuralaya project financed under the eighth and ninth power loans; theexperience gained at Suralaya confirms that there are no technical risksassociated with the Paiton project. There is a risk of delay in the projectfor two reasons: first, PLN will need to award the contracts on schedule; andsecond, there could be inefficiency in implementation. The first is reducedby the understanding reached with PLN and GOI on a time schedule for contractawards. Regarding the second, PLN has gained considerable experience in themanagement of such projects in the last few years and has developed competentpersonnel for project management who will work with the consultants, alreadyin place, to manage the construction of the Paiton Thermal Power Project.
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VII. AGREEMENTS REACHED AND RECOMMENDATIONS
A8reements Reached
7.1 During the negotiations, the following agreements were reached:
With GOI
Ca) the Government will furnish to the Bank, by December 31, 1989, anaction plan for the supply of coal to Paiton Thermal Power Plant,and will implement it thereafter to eLsure that coal supply at therate of about 2.5 million tonslyear to Paiton is reached by March 31,1994 (para. 4.12);
(b) the Government will ensure that the price of indigenous coaldelivered to Paiton is no higher than the equivalent price ofimported coal (para. 4.13);
tc) the Government shall employ consultants in accordance with a timeschedule satisfactory to the Bank (para. 4.16); and
With PLN
(a) PLN will ensure tlat the award of contracts for the implementation ofthe projects will be carried out in accordance with a the schedulesatisfactory to he Bank Cpara. 4.27).
7.2 The following agreements, reached during the negotiations, are insubstance the same as those reached under the Power Transmission andDistribution Project (Loan 2778-IND) and the proposed Power Sector EfficiencyProject.
(a) Establishment of an energy pricing task force and an energy pricingunit (para. 1.13);
(b) Coordination with private generation (para. 1.17);
(c) Review of PLN's development plans and investment program(para. 2.10);
(d) Action plan for efficiency improvement (para. 3.8);
(e) Overdue electricity accounts of Government users (para. 3.14);
(f) Audited accounts and reports (para. 3.15);
(g) Revenue requirements (paras. 5.13 and 5.16);
(h) Debt limitation (para. 5.12);
li) Segregation of Information for Rural Electrification (para. 5.18);
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(j) LRMC and tariff review (para. 5.20);
(k) Financing plan for the investment program (para. 5.24); and
(1) Asset revaluation (para. 5.26).
Condition of Effectiveness
7.3 Signing of the subsidiary loan agreement between GOI and PLN(para. 4.21) will be a condition of the effectiveness of the proposed loan.
Recommendations
7.4 With the above agreements and understandings, the proposed project issuitable for a loan of US$354 million for a period of 20 years including afive-year grace period, at the Bank's standard variable interest rate, to theRepublic of Indonesia.
C~~~~i ISE
|t~~r- Xl I , X
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ANNEX 143 Chart 2
INDONESIAPAITON THERMAL POE PROECT
Ogonhaaton Chat of PIN
Ill ld KNRegionR
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Generahan and TronsmisAd**taW Sinxtcnclbn
| oh uDa _ _ 7
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- 44 -ANNEX 2
INDONESIA
PAITON THERMAL POWER PROJECT
Growth of PLN's Consumers and Sales
Fiscal Number of Connected Salesyear consumers load MVA in GWh
1975176 1,140,745 1,426.4 2,804(5.02) (13.0) (14.72)
1976177 1,208,538 1,594.5 3,082(5.82) (11.8?) (10.12)
1977178 1,413,855 1,939.2 3,527(17.02) (21.62) (14.62)
1278/79 1,783,246 2,459.1 4,287(26.1Z) (26.82) (21.62)
1979180 2,246,657 3,063.4 5,343(26.0Z) (24.62) (24.62)
1980/81 2,745,176 3,744.2 6,523(22.22) (22.22) (22.1?)
1981182 3,232,075 4,502.8 7,845(17.7Z) (20.3Z) (20.32)
1982183 3,802,421 5,270.4 9,101(17.6?) (17.02) (16.02)
1983184 4,406,047 6,126.7 10,000(15.92) (16.3Z) (9.9z)
1984/85 5,133,231 7,120.7 11,041(16.52) (16.2Z) (10.4Z)
1985/86 5,953,293 8,149.9 12,706(16.02) (14.52) (15.1?)
1986/87 6,965,580 9,282.1 14,786(17.0Z) (13.92) (16.42)
1987/88 8,203,349 10,710.7 17,077(L7.82) (15.42) (15.52)
Sources PLN.
- 45 - -
PAlUh THi4A. PEg f RiJM
Geot, o emCotive Pa In I,donmela
o.fa *l tei do Jays tenonibFleol Cuwnicte4 Not conec- conected eOe .e- ConqeOted Not conne-
Jenr to PUr ted to PW* Total Incerna to PKm ted to PWN Toai Incremr to P0U ted to PLU Total Increvee----- (WVA)-CB) - - VA) ("VA)---- (S)
1974/75 - - -S62.7 1,447.6 2,070.8 18.0
1975/76 - - - - - - - - 688.4 1,598.8 2.227.2 10.4
197s77 - - - - - - -8 781.5 1,070.0 2,401.S 5.0
1sr/N - - - - _ - - - P07.1 1,757.1 2,574.2 7.0
1978/79 - - - - - - - - 846.8 1,880.9 2,709.7 5.0
1n97/8- - - - - - - - 072.2 1,911.5 2.780.7 8.0
1980/81 - --_ _ 78. 1_980.6 2,608.9 0.9
1981/82 - - - - - - - 79.? 1,933.9 2,818.6 0.2
19s2/s - - - - - - - - 900.8 2,078.1 2,973.9 5.7
198/84 91.o 918.2 1,9.2 - 212.2 1,486.5 1,686.7 - 1,888.2 2.874.7 s.so7.9 18.0
1984/85 1,21.4 1,088.0 2,074.4 12.8 289.7 1.847.8 1,687.5 (1.9) 1,811.1 2,480.8 8,711.9 5.8
195/8u 1,478.8 1,z22.2 2.702.0 80.8 888.5 1,888.8 1,716.8 4.8 1,857. 2,881.5 4,418.6 19.0
19e8/87 1,928.8 1,244.5 3,167.8 17.2 272.8 1,897.7 1,670.0 (2.7) 2,195.6 2.642.2 4,887.8 9.s
1987/88 2,095.8 1,180.1 8,225.4 1.8 884.1 1,514.6 1,84.7 10.7 2,429.4 2.844.7 5,074.1 4.8
Note: The above *%cludev the following mjor itetallotiona:
Krakateu Steel (eat la) 800.0 NP.T. NCO (PW)4 Region VIII) 20.8 NoASAHAN (PI Region II) 785.8 NAMM LNO KM Region 165.0 MoCALTrE Oil (ew Region ffl) 272.5 No
Source: PWN.
- 46 -
Il!DONESIA
PAITON THERMAL POWER PROJECT
Peak Load. Production and Intal led Cagacitl
Java Syte
Actual1997/88 1988/80 1989/90 1990Q11 1991/92 1902/9/ 193/94 19C4/9S
Sleso (G1h) 13 ,88 16,845 17,647 20,293 13,285 26,488 30,065 88,978EE.O of growth (3) 16.7 16.8 15.0 16.0 14.6 14.0 15.6 18.0TnD lossec (X) 18.8 17.1 16.6 16.1 16.7 16.2 14.7 14.3Gross noeration (GWh) 17,678 19,701 22,617 26,787 29,166 82,762 86,477 89,988System peak load (MW) 2,862 8,260 8,714 4,246 4,832 6,476 6,178 6,941System load factor (7) 0 69 9 609 69 609 69 89
Installed Ca sclt (MIN)Htdr Powr Plnt
-VBal Power Flot1,286 1,238 1,286 1,285 1,286 1,285 1,2SS 1,286Wades Li ntang p1-2 0 16 16 16 16 16 16 16Mrica #1-8 0 60 180 180 180 180 180 180Sengguruh 0 29 29 29 29 29 29 29Cirata 0 6m0 600 F00 5W0 500 600 600C5liomn 0 0 0 0 0 0 10 10Tulunao ung 0 0 0 0 0 0 go soKudungauno 0 0 0 28 28 28 28 23
Subtotal 1.286 1.U40 1.960 1.98a 1_088 1.98S 2.023 2.023
Stea Power PlantRes'ual OilIBasis 1,475 1,475 1,400 1,400 1,400 1,200 1,200 1,200Greelk -4 0 400 400 0 0 0 0 0
Subtotl 1 .476 1.876 .800 14400 1.200 1.200 1.200
Natural GasTres-ikt3-4,1-2 0 0 0 400 400 600 600 600
Subtotal 0 a 400 400 600 600 6O
Coa Itsis 800 800 8OO 800 800 800 800 800
Suralays #8-6 0 400 800 300 800 800 800 1,400Paoton #1-2 0 0 0 0 0 0 800 800
Subtotal 800 1200 1.600 1.80 1.0 oo 2.400 8.000
Gas Turbine Power PlantDistil lte uiI-ihsls 660 680 630 sao 580 680 680 44
Subtotal 560 650 680 5C83 580 50 680 446
Natural Gas 0 80 so 80 80 on 8p 80Geothermal I Power P I ant
Kamo) ang t1-3 4lO 140 140 140 140 140 140 140S lak #1-2 0 0 0 0 110 110 1l1 11oOrajat #1-2 0 0 0 0 0 110 11o 11o
Subtotal 140 140 140 140 260 860 go0 860
CobinCyCcle (Gas)
EstJava #1-8 0 0 0 ki 0 600 900 900
Subtotal Q Q Q 0 600o 900 O0
Total 4.280 S26 6.110 6.188 6.243 6.9C8 8.098 8.708
- 47 At- 5
MO4ESIA
PAITON TIRNAL POWER PROJECT
Peak Load, Production and lnatalled Camaelty Outside Java
Actul1987/68 198/91989/90 100/91 I01/02 0M/98 1993/94 1904/96
Sales (0wh) 8,670 4,387 5,050 5,819 0,697 7,061 8,786 9,889--- Ea of growth (S) 14.6 17.9 16.4 16.2 16.1 14.7 14.4 12.6T&D looga (X) 18.8 17.8 16.8 16.8 15.8 15.4 14.9 14.4Gros generation (G0h) 4,728 .6,09 6,377 7,804 8,854 9,525 10,829 12,119Syatem peak load (mm 971 1,104 1,261 1,487 1,621 1,844 2,081 2,827Systa. load fctor (3) 55 67 50 so 59 69 59 so
Inslld Cacity (MU)
5W C 18.19 .9 191.0 181.9 181.9 181.9 181.9 181.9 191.9Mini hydro 0.0 0.0 0.0 0.0 0.6 12.0 24.4 87.2Too 1 91-4 0.0 0.0 10.0 16.0 16.0 16.0 16.0 18.0Tangoari I 0.0 17.0 17.0 17.0 17.0 17.0 17.0 17.0Tangpri ll 0.0 0.0 0.0 0.0 0.0 0.0 19.0 19.0Bakaru #1-2 0.0 0.0 0.0 0.0 126.0 128.0 126.0 126.0
Subtotal 181.9 198.9 214.9 214.9 841.6 a52.9 j0 4.$ 897.1
Dieel Power Plant 1,419.8 1.501.2 1.578.4 1.619.0 1.629.? 1.8011.1 1.79.2 1.681.7
Steam Power PlantNatural CaoBaa-a 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Kramsan 91-2 0.0 0.0 26.0 26.0 26.0 26.0 26.0 25.0bELAWAN 91-2 0.0 0.0 130.0 180.0 180.0 180.0 180.0 180.0
Subtotal 0.0 0.0 S55.0 165.0 155.0 155.0 15.0 155.0
Co IFeels 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Ombilin #1-2 0.0 0.0 0.0 0.0 0.0 100.0 100.0 100.0Sukit Am 91-4 65.0 180.0 180.0 180.0 180.0 195.0 195.0 195.CBalikpapan #1-2 0.0 0.0 0.0 0.0 0.0 100.0 100.0 100.0B.nJoraaain 91-8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Subtotal 65.0 180.0 180.0 180.0 180.0 295.0 895.0 446.0
Resldual OilBaala 100.0 180.0 25.0 25.0 2S.0 25.0 25.0 25.0Beloawn 98-4 0.0 0.0 0.0 180.0 180.0 180.0 180.0 180.0
Subtotel 180.0 180.0 25.0 155.0 165.0 165.0 156.0 155.0
PetPontianak I 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Subtotal 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Gae Turbine Power PlantNatural Gas
WMio 111.0 111.0 111.0 111.0 111.0 111.0 111.0 111.0Payapaair 91-2 0.0 80.0 80.0 80.0 80.0 80.0 80.0 80.0Selowan 91-2 0.0 100.0 200.0 0.0 0.0 0.0 0.0 0.0
Subtotal 110.0 241.0 841.0 141.0 141.0 141.0 141.0 141.0
Distillate OllBasna 188.0 158.0 138.0 188.0 188.0 138.0 188.0 188.0Pandang 0.0 0.0 0.0 20.0 20.0 20.0 20.0 20.0
Subtotal 188.0 158.0 188.0 158.0 158.0 168.0 158.0 158.0
Comnbin dCle (Case)Power *lint
Proexct 0.0 0.0 0.0 800.0 800.0 800.0 800.0 300.0
Subtotal 0.0 0.0 0.0 800.0 800.0 800.0 300.0 300.0
Total 2.140.? 2.484.1 2.677.8 2.872.9 8.010.2 83165.0 3.267.s 8.6B4.8
- 48 - ANNEX 6
INJ %ESIA
PAITON THERM&L POWER PROJECT
Investment Program - Indonesia(All costs in constant 1987 USS million)
TotalFY89190 FY90191 FY91192 FY92193 FY93/94 FY94195 FY90-95
DieselForeign cost 21.5 15.2 6.8 8.7 8.0 11.0 71.2Local cost 8.5 6.1 3.6 3.6 4.2 4.3 30.3
Gas turbineForeign cost 60.0 3.2 0.0 0.0 9.0 13.4 85.6Local cost 25.3 0.3 0.0 0.0 2.0 1.3 28.9
ydroForeign cost 67.0 51.4 92.7 138.9 175.3 255.3 780.6Local cost 39.1 35.7 61.9 76.3 99.2 140.2 452.4
Steam oilForeign cost 21.5 69.0 11.4 71.6 65.1 61.1 299.7Local cost 4.6 2.8 4.9 8.1 8.6 9.1 38.1
Steam coalForeign cost 117.4 283.3 464.6 572.4 618.8 626.3 2,682.8Local cost 54.2 109.2 168.5 200.2 219.3 221.1 972.5
Geo thermalForeign cost 29.2 17.2 8.1 5.1 6.0 9.2 74.8Local cost 5.8 3.5 1.8 1.0 0.7 0.8 13.6
Combined cycleForeign cost 0.0 114.4 151.2 75.6 10.8 0.0 352.0Local cost 0.0 16.4 27.2 18.9 4.2 0.0 66.7
TransmissionForeign cost 68.0 48.4 56.5 103.6 60.4 49.3 386.2Local cost 23.9 14.6 20.0 22.5 22.5 20.4 113.9
SubstationForeign cost 111.8 107.6 112.3 129.4 161.1 165.4 787.6Local cost 14.0 15.4 17.4 18.4 23.3 23.6 112.1
ConsumerForeign cost 27.0 28.1 29.3 30.7 32.2 34.3 181.6Local cost 27.0 28.1 29.3 30.7 32.2 34.3 181.6
MV LineForeign cost 67.7 76.9 85.5 94.0 102.0 109.1 535.2Local cost 68.6 77.8 86.4 94.9 102.7 109.8 540.2
LV lineForeign cost 42.2 47.8 53.1 58.4 63.3 67.8 332.6Local cost 42.7 48.4 53.6 58.9 63.8 68.2 335.6
Dist transformerForeign cost 31.3 35.9 40.0 44.0 48.3 51.8 251.3Local cost 31.3 35.9 40.0 44.0 48.3 51.8 251.3
Other investmentForeign cost 0.0 0.0 0.0 0.0 0.0 0.0 0.0Local cost 20.2 25.8 32.5 38.2 39.8 42.8 199.3
SubtotalForeign cost 664.5 898.3 1,111.6 1,332.4 1,360.3 1,454.1 6 821.2Local cost 365.3 419.9 547.4 615.6 670.8 727.8 3,346.8
Total 1.029.8 1,318.2 1,658.9 1,948.0 2,031.1 2,181.9 10,168.0
Note: Includes rural electrification.
- 49 -
ANNEX 7
INDONESIA
PAITON THERMAL POWER PROJECT
Investment Program - Java System(All costs in constant 1987 US$ million)
TotalFY89/90 FY90/91 FY91192 FY92193 FY93194 FY94/95 FY9o-95
DieselForeign cost 0.0 0.0 0.0 0.0 0.0 0.0 0.0Local cost 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Gas turbineForeign cost 0.0 0.0 0.0 0.0 9.0 13.4 22.4Local cost 0.0 0.0 0.0 0.0 2.0 1.3 3.3
HydroForeign cost 31.9 15.1 22.9 25.3 21.8 50.4 167.4Local cost 13.4 7.4 9.8 8.2 5.5 14.7 59.0
Steam oilForeign cost 0.0 57.4 0.0 28.7 0.0 0.0 86.1Local cost 0.0 0.1 0.0 0.1 0.0 0.0 0.2
Steam coalForeign cost 78.6 192.7 325.5 414.2 492.9 568.0 2,071.9Local cost 43.4 85.6 133.8 168.7 197.7 209.8 839.0
GeothermalForeign cost 29.2 17.0 7.3 2.4 0.0 0.0 55.9Local cost 5.8 3.5 1.7 0.6 0.0 0.0 11.6
Combined cycleForeign cost 0.0 86.4 151.2 75.6 10.8 0.0 324.0Local cost 0.0 12.6 27.2 18.9 4.2 0.0 62.9
TransmissionForeign cost 46.4 32.0 43.5 85.9 39.8 17.2 264.8Local cost 13.2 8.3 13.3 14.5 8.9 7.2 65.4
SubstationForeign cost 84.9 82.2 88.6 105.7 128.1 116.0 605.5Local cost 10.3 11.9 13.9 15.0 17.0 17.6 85.7
ConsumerForeign cost 19.2 20.0 20.9 21.8 22.8 24.2 128.9Local cost 19.2 20.0 20.9 21.8 22.8 24.2 128.9
14V lineForeign cost 45.5 51.8 57.7 63.9 70.4 77.0 366.3Local cost 46.2 52.4 58.3 64.5 71.1 77.6 370.1
LV lineForeign cost 29.2 33.2 36.9 40.8 44.9 49.0 234.0Local cost 29.6 33.6 37.3 41.2 45.3 49.4 236.4
Dist. transformerForeign cost 24.4 28.1 31.2 34.5 37.9 41.5 197.6Local cost 24.4 28.1 31.2 34.5 37.9 41.5 197.6
Other investmentForeign cost 0.0 0.0 0.0 0.0 0.0 0.0 0.0Local cost 11.9 17.6 22.7 25.7 25.8 28.0 131.7
SubtotalForeign cost 389.4 616.0 785.7 898.8 878.3 956.6 4,524.8Local cost 217.5 280.9 370.1 413.7 438.1 471.1 2,191.8
Total 606.9 897.0 1,155.8 1,312.5 1,316.5 1,427.8 6,716.6
Note: Includes rural electrification.
- 50 -
IiAi nO4 PWa PROJECT
B&I ParfanrMn Ind;catrar
1979/80 19tiO/U 1981/82 1482/88 19818/4 1984/65 198/66 196/87 1907/88
1. Intalled capacity (KW) 2.686 2,5t5 Sae2 .406 SS 9S5 4.815 5,685 6.200 5.4212. Peak demnd () 1.276 1.577 1.876 2.265 2,413 2.608 2,946 8,40S S,83SS. Capecity qtiliasticn (2)*(1) 0.60 0.62 0.62 0.67 0.61 0.58 0.88 0.55 0.604. Energy production (W1) 7.004 8.420 10.130 11.847 1S.842 14,777 16.6u 19.455 22.3055. Selee (oh) 6S.4a 6.52s 7.84 9.1o01 1O.ttO 11.041 12.70 14.786 17.0776. S growth in mias 24.6 22.1 20.8 16.0 9.9 10.4 15.1 16.4 lS.57. Loies with stltIon mm (U) 28.7 22.5 22.6 28.2 25.8 25.8 24.8 24.0 23.4
eithoft stetion uoe (i) 19.5 19.1 18.7 19.1 20.8 20.6 10.8 19.6 l8.78. Number of eer 2.246.8657 2.745.176 S.212.075 8.802.421 4.406.047 6.13S.291 5.958.293 6.5665.80 8,201,349
S groeth) (28.9) (27.2) (17.7) (17.6) (15.9) (16.5) (16.0) (17.0) (17.8)9. Average revn, per k%h esld (Rp) 27.8 41.4 48.8 56.5 75.0 97.8 96.61 98.5 92.6
10. Average fuel cost per kWh eold (Ra) 9.4 14.8 16.2 28.4 58.8 62.4 54.4 48.3 50.611. Total npoewr (eplqee) so8.10o 32,51 85.791 89.962 44,909 4*.6t9 51.290 51.571 61.203
12. Conoumsr per eaye 76 88 90 95 98 l0S 116 tS6 16O1s. Sales per eaploe (IWh) 177 198 219 228 228 222 248 287 334
14. Average fuel pw gWh in central
tl.erl plenta (oil) (liter) 0.80 0.80 0.so 0.29 0.2? 0.29 0.29 0.29 0.30
15. Rote bae (Rt billion) ,a - 737 976 1.216 1,497 1,998 2,779 8.$67 6.09316. Rate ot return an revalued
rote bes M -8.7 8.5 -1.9 -8.0 -0.9 -0.4 -4.8 8.4 -0.1
1?. Operating ratio (S) 114 91 10 107 102 101 101 91 t0018. Current ratio (time) 4.8 4.5 S.4 2.4 2.2 2.8 2.1 1.8 1.1
19. Debt/emi ty ratio C3) 7/98 10/90 14/86 17/6s 27/73 WAS/6 36/64 40/60 41/5920. Debt service overage ratio
(ti MO) - - 10.8 6.8 8.6 2.4 1.7 2.6 1.121. Self-financing ratio (S)
(S-year oving average) 20.0 28.4 29.9 S0.8 2S.6 18.8 12.2 15.8 10.722. overall cuetamra' eccounts
receivable (day'. sales) 6o s6 74 a6 6a 58 51 48 47
A eased on revlued e .
Source: PIN.
ANNEX 9- 51 - Page 1 of 2
INDONESIA
PAITON THERMAL POWER PROJECT
Design Features
General
1. Paiton Steam Power Plant will initially consist of two coal-firedgenerating units with each unit having a nominal rating of 400 MW. The firstunit is planned to commence commercial operation in September 1993, and thesecond unit in March 1994.
2. Coal from East Kalimantan will be delivered to the plant by ship onthe Strait of Madura. Mechanized ship unloaders will help unload and conveythe coal to the unit silos after being crushed. The coal will then bepulverized in the mills and blown into the boiler furnace where it will beburned. Part of the ash would fall to the bottom of the furnace as bottom ashfrom where it will be sluiced out. Most of the ash, however, will be carriedin suspension by the flue gas. This fly ash will be separated from the gasstream in the electrostatic precipitators and will be removed from thehoppers.
3. Air for combustion will be provided by the forced draft fans. Theinduced draft fans would take suction from the furnace through the precipita-tors and blow the flue gas through the chimney out to the ambient atmosphere,in accordance with environmental guidelines (Annex 10, Sec. ld).
4. The plant will supply a major part of the power requirements for EastJava and will ultimately have a capacity of 4,000 MW consisting of 4 x 400 MWunits and 4 x 600 MW units.
Turbine Generator
5. Units 1 and 2 will have a nominal capacity of 400 MW each. Manyunits in this size range have been manufactured worldwide. The turbines willhave seven stages of extraction for feed-water heating, and will be designedfor 169 kg/cm2 throttle pressure, 5380C live-steam temperature and 5380Creheat temperature. The turbine generator will also be capable of operatingcontinuously at 51 overpressure.
6. The design will include a turbine by-pass system consisting of ahigh-pressure by-pass and a low-pressure by-pass. The turbine will also besuitable for variable pressure operation. The generator will be hydrogencooled, with water-cooled stator windings.
Steam Generator
7. The steam genera.or will be pulverized coal-fired. There will befive pulverizers sized such that four pulverizers will be capable of carrying
'1 I1 oil will be used during start-up. The steam generator
- 52 - ANNEX 9Page 2 of 2
will be capable of operating up to 302 load at full pressure on fuel oil only.Fuel oil will also be used for flame stabilization when burning excessivelywet coal and/or at low loads. There will be two regenerative air heaters forprimary air and two regenerative air heaters for secondary air.
Coal Handling
8. Coal will be delivered to the plant site by barges or ocean-goingvessels which will be moored at the site jetty. The coal will be unloaded bymechanical means and transported to the boiler silos by belt conveyors,undergoing weighing, sampling and crushing in the process. Coal may also bediverted to yard stock-out facilities and reclaimed from reclaim hoppers.
Circulating Water System
9. The circulating water system will be designed as an open-flumearrangement with a minimum of pipe or conduit in the intake or discharge sys-tem. Each pump-house structure will contain a bar grill with powered trashrack, drum-type screens and vertical mixed-flow type circulating water pumps.The structure will also contain auxiliary water pumps primarily used to supplycooling water for closed cooling water-system heat exchangers. The condenserswill have titanium tubes and titanium tube sheets. Each condenser will have aball-type continuous tube-cleaning system.
Transmission Lines and Substations
10. A double-circuit 500 kV transmission line (about 140 km) betweenPaiton and Krian, and associated substations, will be constructed to evacuatepower generated by the Paiton plant. A 150 kV transmission line (about 100km), between Probolinggo, Paiton and Situbondo with associated substations,will also be constructed. The 500 kV substation at Paiton will be designed asa gas-insulated substation.
- 53 -ANNEX 10Page 1 of 5
INDONESIA
PAXTON THERMAL POWER PROJECT
Environmental Aspects
An Environmental Impact Assessment (EIA) has been made for the PaitonThermal Power Project with regard to the likely effects of the plant on theenvironment. The design of the plant for the fully developed capacity of4,000 MW, has been made to ensure that the plant will meet the Bank's andGOI's environmental guidelines in respect of various ecological factors. Apreliminary EIA has also been performed on the transmission lines to beconstructed under the project. These design features are discussed below:
1. Air Quality
(a) Electrostatic Precipitators with a particulate removal capacity of99.5Z are provided to prevent ash and dust particles from pollutingthe environment.
(b) SO, emissions will be controlled by burning low sulfur coal. Inaddition. a stack height of 200 meters has been selected foreffective dispersal of the flume.
(c) NOx levels will be controlled by the use of properly designed burnersand combustion system. SO, and NOx levels will not exceed the limitslaid down by the Government of Indonesia and the World Bank environ-mental guidelines.
(d) A meteorological and air quality modeling analysis has been conductedto define the expected ground-level air quality effects of the Paitonplant. The analysis was carried out to delineate the likely impactsof the plant, and to provide information on optimal stack heights,pollution control requirements, and other design factors. Airquality impacts have been investigated through a review of climaticconditions in the Paiton site area, analysis of more than one-year ofdetailed onsite meteorological measurements, and application of asequential hour-by-hour air quality dispersion model. The computermodel utilized on-site meteorological data to predict 24-hour maximumpollutant (SO2, TSP and NO.) concentrations and annual averageconcentrations in the regions surrounding the plant. The complex-Imodel was developed by the U.S. Environmental Protection Agencyspecifically to treat dispersion from point sources involving complexterrain, where sections of land areas surrounding the source may haveelevations as high or even higher than the emitting stack. The WorldBank guidelines allow a maximum of 500 micro g/m3 S02 concentrationfor populated areas and 1,000 micro g/m3 for areas without humansettlements. Results of the modeling calculations have been inter-
- 54 - ANNEX 10Page 2 of 5
preted in terms of probable plant impacts, with consideration givento local meteorology, possible variations in fuel characteristics,l/and potential plant expansions. Based on the data, it is predictedthat the annual arithmetic mean of the 502 concentration in thepopulated areas will be 3 micro g/m3 only, with a maximum possible24-hour concentration of 28 micro g/m3 (assuming full load plantoperation at 800 NW and average fuel sulfur content of 0.67Z), bothof which are well within the permissible limits. At an elevation ofapproximately 450 m, 6 km south south-east of the plant location, themaximum 24-hour average S02 concentration is predicted to be 487micro g/m3, although the annual arithmetic mean at the same locationis 26 micro g/m3 only. The nature of the topography around the plantis such that this particular location happens to be on top of ahillock, that is a reserved forest under the Department of Forestrywhere there is no human settlement. Table 1 presents the maximumpredicted S02 concentration, for 24-hour and annual periods, forthree different plant sizes.
11 The characteristics of Kalimantan coal are predicted to be as follows:
Kalimantan Coal Ultimate Analysis(as received)
Average (Z by weight)
Moisture 5.1Carbon 60.7Hydrogen 4.9Nitrogen 1.1Chlorine 0.01Sulfur 0.67Ash 17.5Oxygen (Diff) 10.0
I by weight 100.00
Average sulfur in South Sumatra (Bukit Asam) coal: 0.652 by weightAverage sulfur in imported Australian coal: 0.27Z by weightAverage hardgrove grindability index: 37
- 55 - ANNEX 10Page 3 of 5
Table lt PREDICTED GROUND LEVEL S02 CONCENTRATIONS(micro g/m3)
High terrainPopulated areas (>300 m MSL)
Number of Annual Annualunits MW Max. 24-hr Arith. Mean Max. 24-hr Arith. Mean
2 800 28 3 487 264 1,600 56 6 966 528 4,000 114 12 1,96,2 106
In light of the data analysis and the predicted levels of S02concentration, it is considered unnecessary to provide flue gasdesulfurization (FGD) equipment for the first two units at Paiton.This will represent a saving of S80-100/kW in capital investment atthe initial stages of development of the Paiton project. FGDequipment may, however, be necessary for future units. To maintainthe highest concentrations of S02 within a limit of 1,000 micro g/m3per the environmental air quality guidelines for areas with no humansettlement, 661 sulfur removal would be required in the remaining sixunits.
(e) Provision for the installation of emission monitoring instrumentationin the stack kas been made.
2. Liquid Effluents
(a) The thermal pollution guidelines have been met by limiting thetemperature rise across the condenser and the proper design of thecirculating water system. The maximum temperature rise across thecondenser and the auxiliary cooling water heat exchangers is 8.50C.The distance from the condenser to the circulating water dischargestructure is 1.5 km. The average ambient sea water temperaturevaries between 280C and 300C. A thermal dispersion model analysishas been performed that indicates that the maximum rise in thesurface temperature of sea water due to circulating water dischargewould be about 20C with full production of 4,000 MK at Paiton. Thistemperature rise is well within the permissible guidelines for theprotection of marine life.
(b) Liquid chemical effluents from the Water treatment plant.Demineralizing plant, Boiler blowdown and Air preheater wash will becontrolled by the use of a properly designed waste water treatmentsystem. The liquid wastes at full plant capacity will amount toapproximately 50 m3/day and the pH of the effluent will be anywherebetween 1 and 14, depending on the specific ion exchanger beingregenerated at the demineralizing plant. These effluents will beconditioned in a neutralizing tank to a pH between 6 and 9 before
- 56 - ANNEX 10Page 4 of 5
being discharged into the circulating water discharge channel wherethey will be rapidly diluted prior to entering the sea.
(c) Sanitary waste water will be treated in a sewage treatment plant.
(d) Oil separators will be installed in the waste water treatment plantto minimize oil discharge.
(e) To ensure minimum water usage, and consequently minimum waterdischarge, the ash is collected and discharged almost in a dry state.Some ash, however, would fall into a water-filled trough located atthe bottom of the furnace. Drag bars will remove this bottom ash upan inclined plane where the ash will be dewatered by gravity. Nowaste water will thus be produced from the ash system.
(f) The condition of the ground water quality at the disposal site willbe monitored on a continuous basis.
3. Solid Wastes
(a) Both bottom ash and fly ash will be disposed of dry. The disposalarea is located south of the public highway to the west of the plantarea. The disposal area consists of hilly terrain where the toplayer basically consists of clay with thickness varying from 20 cm to40 cm underlain by layers of clayJbSlty clay interbedded withboulders. Fly ash and bottom ash wiil be spread and compacted inlayers following the existing grade in the disposal area. Perimeterdrainage ditches and/or berms will be constructed around the activedisposal area to divert the sur.ace run-off from the surrounding areaaway from the disposal area to settling ponds to settle out thesuspended solids prior to disposal into the sea. Since the claylayer will prevent leachate entering into the ground water table,contamination of ground aquifers will be prevented.
(b) Dust containment and suppression methods will be used in the coal,ash handling and water treatment facilities. Bag filters and watersprays mixed with chemical wetting agents will minimize dust fromcoal, ash, lime and alum handling areas to remain within specifiedlimits.
(c) The coal storage area will be surrounded by drainage ditches thatwill carry runoff to a settling pond. The function of this pond willbe to collect and treat runoff from the coal pile area, which ischaracterized by high suspended solids concentration and low pH. Thepond will be lined with at least 750 mm thick layer of clay. Theoverflow from this pond, neutralized and having a suspended solidsconcentration of less than 200 mg/l, will run into the sea.
4. Coral Reefs. Marine investigations reveal that, in general, thecoastal area of Paiton is not rich in biological species. Evidence of somecoral reef formation has, however, been found in the vicinity of the site. Alighthouse will be erected in this area to protect the coral reefs from coal-carrying barges and ships.
- 57 -ANNEX 10Page 5 of 5
5. EHV Transmission Line. Construction of a 500 kV transmission linebetween Paiton and Surabaya (Krian), as well as the 150 kV line, are notexpected to pose any major environmental problem. The routes do not runthrough either heavily populated or protected foiest areas. The routing ofthe transmission lines will be so selected as to avoid disruption to humansettlements. Only the land required for the towers will be acquired by PLN.No major resettlement component, as a result of such acquisition, is expected.A preliminary survey of the routes and the tower-spotting studies have beencompleted, which indicates that the implications of the line construction onthe environment are not significant. A detailed EIA is scheduled to becompleted by October 31, 1989.
- 58 - ANNEX 1
INONESA
PAITON POWER THERMAL PROJECT
Cefor Patton Untie 1 A 2(US8 000 ln De nme 'n8 Prices)
Contract Unit 2 Unit 1 Unit 1 2no. Contract description Coval Forelgn T Local Foreign Total Lcasl Foreign Total
FCO1 Turbine- nerstore & auxiliaries 1.4 54.8 56.2 0.3 48.7 44.5 2.2 98.5 100.7FCW2 Steaw-generntore & suxiliari.e 19.8 75.2 95.0 16.9 60.5 76.6 35.8 115.7 171.6FCW4 Ash handling system 0.5 6.0 5.5 0.5 4.9 6.4 1.0 9.9 10.9FCOS Coal handling systom 2.8 19.2 22.0 1.0 12.8 18.7 3.8 31.9 36.7FCOs Water tretment plsnt 1.1 5.2 0.8 - - - 1.1 5.2 6.8FCO7 Mechanical A electrIcal works 3.9 28.2 82.1 2.6 21.6 24.8 6.6 49.7 56.3Fc0o Instrumentation A controls 0.2 4.8 6.0 0.2 4.0 4.2 0.5 0.8 9.2FCW9 EHV transformers 0.8 5.7 6.0 0.2 2.7 2.9 0.5 8.4 8.9FCIO Paiton A Krten substation 2.8 24.1 26.4 0.05 0.1 0.15 2.3 24.3 26.6FCII HV transformers 0.1 1.9 2.0 0.1 1.8 1.4 0.2 3.3 8.4FC12 Chiaey 1.0 2.9 3.8 1.0 2.8 8.8 2.1 5.6 7.7FC13 Marine works 39.6 47.9 67.6 - - - 39.6 47.9 87.6FC14 Steel structures 1.0 7.1 6.1 0.6 6.0 5.4 1.6 12.0 ;3.6FC15 Civil works I-power house 9.7 12.1 21.8 4.9 6.3 11.2 14.6 18.4 32.9FC1I Mobile equipment 0.1 8.0 3.1 0.06 2.5 2.56 0.1 5.6 5.6
LCOI Site preparation 10.8 - 10.6 0.5 - 0.6 11.8 - 11.31C02 Piling 10.8 - 16.8 6.3 - 6.3 23.1 - 2381LCOS Civil works U1 - site 7.2 - 7.2 7.5 - 7.6 14.7 - 14.7LCO4 Site finishing 1.9 - 1.9 2.1 - 2.1 4.0 - 4.0LCOS Tanks 0.6 - 0.6 0.1 - 0.1 0.7 - 0.7LCO6 Equipment unloading dock 8.7 - 3.7 - - - 3.7 - 3.7LCO7 Ash disposol ares 6.3 - 6.8 0.7 - 0.7 7.0 - 7.0
PCO1 500 kV lines (Pit.on-Krian) 12.4 41.4 53.8 - - - 12.4 41.4 53.8PCO2 150 kV lines & equipment (supply) - S.9 8 - - - - 8.9 8.9PC03 150 kV lines & equipment (install) 4.1 - 4.0 - - - 4.1 - 4.1PC04 Water supply system 6.0 - 6.0 0.8 - 0.8 6.8 - 6.3PCOS Main highway reloltion 1.4 - 1.4 - - - 1.4 - 1.4PCQ8 Substation site prpration 4.5 - 4.6 - - - 4.6 - 4.5PCOT Permanent housing 4.0 - 4.9 - - - 4.9 - 4.9PCOS Personnel service vehiles 0.1 - 0.1 - - - 0.1 - 0.1
UCO0 Land 5.0 - 6.0 - - - 6.0 - 6.0UC02 Owner' management 6.1 - 4.9 8.6 - 8.5 8.7 - 8.7UCOS Construction facilities 5.4 - 6.2 2.2 - 2.2 7.6 - 7.6UC04 Engineering and construction
managment 6.7 82.2 41.0 8.1 17.3 20.4 9.7 49.6 68.2
Total Base Cost 165.6 879.68 66.2 U4. 185.8 239.6 240.0 564.8 804.8
Physical contingency L. 19.9 29.0 48.9 5.3 12.0 17.8 26.2 41.0 68.2Price contingency /b 43.8 59.0 102.8 18.1 35.1 51.2 59.9 94.1 164.0
Tot l Cost 249.3 467.6 718 9 75.7 232.4 808.1 825.0 700 0 1,026.0
io Average 10X on local costs and 7X on foreign costs.Inflation factors (1) Year 19S9 1990 1991 onwards
Foreign 5.8 5.8 4.1Local 9.0 8.0 5.2
-59- ANMEX 12Pg 1i of 3
INDONESIA
PAITON THERMAL POWER PROJECT
Summary Scon. of major Contract Patkowss
Covered bv Contract Packs. Mos..Work Description Foroign Contrracts Loca Contracts
1. Sit. Preparation, Sit. Finishinf, 10, 13, 14 01, 02, 08, 04 PLNSubstations Sit. Improvement, AshDispoal Area Development
2. Roads S Parking, Accoss Road for Ash 18, 16 01, 03, 04Olsposal Area
8. Permanent Drainage Waste Water, Coal 18, 16 01, 02, 03, 04yard drainage, Sanitary System
4. Site Socurity 01, 04, 06
S. Shore Protection 13, 1C 01, 04, PLN
6. Unloading Dock, Coal Jetty 13 PLN
7 Well Water System PuMp Station, District PLNPipeline, facilities
S. Percanent Warehouses 16
0. Structures for Boiler, Ash Handling, 02, 04, 06, 07, 14, 16, 18 02, 08Precipitators and Fans, Fuel OilHandling, Aux. Boiler, misc.
10. Stack (Chimney) 12 02
1. Equipment Buses, Transformer Str., Bus 6, 10, 15 02, 03Duct and Support Str., Substation YardStr., Die7sl Generator Structures
12. Turbine Room, Turbine Foundation 01, 07, 14, 16 02
13. Control Building, Substation Control 06, 07, 10, 14, 15 02Bldg., Yard Control Bldg.
14. Civil A Str. Work - Probolinggo PUN
16. Bldgs. for Wasto Water Treatment, Water 01, 06, 0?, 14 02, 08, PLUTreatment, Chlorination, Hydrogen, FireStation, Mosque, Machine Shop and Stores,Admlnistrotion, Central Lab
; 16. CW Pumphouse, Discharge Channel and 18, 15 08, PLNBa in, Intake Str., Intake Channel and
11. Coal Transfer Houses, Crusher Houses, 05, 15 02, 08Unloading to Stockout Support Str.
- 60 -ros 2 of a
Covered by Contract Package Nos.Work Ossoriptlon Faorein Contracts L"oaI Contracts-
18. Housing, General Facilities, Services PLN
19. Water, Steam, Air and Us Circuits, Fuol 02, 07, 08 05Firing, Steam Gsnerator AuxilIaries,Primary Stem, Auxiliary Steam
20. Bottom Ash, Fly Ash, Ash Disposal, 02, 04 07Particulate Removal System
21. Steam Turbine and Gonerator, Turbine 01, 07, 08enewrator Auxi lI ries
22. Condensing, Condensat, Feod Water and 01, 02, 0?, 08 0o, 05Extraction Steam Vents and Drains
23. Main Generator Output, WV, LV and DC 01, 05, 07, 09, 11 03Power Dist, UPS, Emergency Power Supply
24. Motor Control, Station Grounding and 05, 06, 07, 12, 1S 03Lighting System
25. Cable Troy and Cabilng Systems 02, as, 08, 07, 10 08
26. Comaunlcation S estam as
27. Fire Protection and Cathodic Protection 05, 07, 10 02
28. Paiton and Krian Substations (500 kV, 09, 10, 11150 kv), and Aux. Systems
29. Probolinggo and Situbondo Substations PLN
a0. Polton - Krion 500 kV Trans. Lines PLNPolton - Probolinggo and Palton -Situbondo 160 kV Transmission Lines,Steel Towers
S1. Controls for Stem Generator 02, 07, O8
82. Turbine - Generator Monitoring andControls, I A C for Water InductionPrevention, Control Panels and Desks,Plant Computer, Coordinated Load Control,Electronic Controls and Interlocks
83. Water and Steam Sampling, and Analysis 07
- 61 -ANNEX 12Page 8- 8
Covered Jb Contract Packaso Nos.Work Description Foreign Contracte Local Contracts
84. I A C for Coal Handling, Cire. Water, 01, 02, 04, 06, 06, 07, 08 02, 08, 05Water Treatmnt, Water Condtlloning, 10, 14, 16Water Servicela, Fire Protection,Compressed Air, Vacuum and Gas
86. Ventilation and Air Conditioning 02, 04, OB, 07, 10
88. Liquid Wastes as 0O
87. Materials Handling 04, 06, 07
88. Mobile and Portable Equipment, Bldg. 01, 06, 07, 16Equipment and Furnishing, Central Lab.Equipment
89. Miscellaneous Piping 1S 08
40. Ship Unloading and Stockout, Crusher 05, 18, 16House Supply Unit Silo Supply and CommonSystems
41. Temporary Construction Facilities 01, 08
42. Engineer's and Owner's Facilitios PUN
48. Spare Parts 01, 02, 04, 05, 06, 07, 08 0509, 10, 11, 12, 16
INDONESIAPAITON THERMAL POWER PROJECTImplementation Schedule: Units 1 & 2
1987 lees 1989 1990 1991 1992 1993 199SS2 3 4 1 2 3 4 1 2 3 4 1 2 3I 1 2 13 I4 1 l2 1 3 l2 3 1 l2 3 4
1. Ste P1epamation
2. Coaln Tanllina P lan t II13. CinlWrstueaio W& Coantrols.1W . 1
14. StelSransfores
15. Substlationg VtrS ytmW
*.*.m....s.u Egneeing v7 BId Isue FCL Pull CommrctiaJl Loaid|"*@|@g|*||@§@*BIdding Cycle W Contract Awrd HV: Higt SVolage
-.-.-.- - Bid Ealuatbon n itJt Compbete EHV Extra Hig Voltage A d nPactrg Devery CostructIn C o s SST: StatIon ServIce Transformer ,
11. ~ ~ ~ ~ ~ ~ ~ i Marin Workst W 4 448a
- 63 - ANNEX 14
Page 1 of 5
TERMS OF REFERENCE
TECHNICAL ASSISTANCE PROGRAM
I. SCOPE AND WORK PROGRAM
1. Under the proposed technical assistance program, the Consultant'swork will cover, but not be limited to, four major areas, namely, training,planning, institutional development, and data management system.
A. Training
2. The Consultants will be required to provide on-the-job training totheir counterparts in the Ministry of Mines ard Energy, or their designeesdrawn from other departments under the Ministry, in the following subjectareas: environmental screening of development projects; an EIA studyconforming to the guidelines formulated for the control of the environment;review of EIA reports submitted by project proponents; monitoring of theimplementation of EIA recommendations during both construction and operationphases of the projects; integration of EIA with development planning at theproject, regional, provincial and sectoral levels; and management andadministration of EIA activities. In addition, the Consultants will berequired to conduct at least two in-house training workshops to complement theabove hands-on program. These workshops are expected to be of two to threedays duration with about 30 to 40 participants.
B. Planning
3. The Consultants will be required to help the Ministry of Mines andEnergy (MME) develop guidelines for environmental protection and management inthe energy sector and its capability to deal with EIA requirements, includinginitiation of studies, analysis of reports, formulation of action plans, andenforcement of the environmental regulations. Additionally, the Consultantswill help the Ministry prepare operational programs for the EIA WorkingGroups, training of personnel and development of institutional support, suchas the appropriate use of the Management Information System.
C. Institutional Development
4. The Consultants will assist the MME in initiating institutionaldevelopment for implementing the ETA program including arrangements for:(a) the coordination of activities of the Working Group of each DirectorateGeneral in the Ministry to ensure the consistency of their EIA programimplementation procedures and the cross-sectoral cohesiveness, therebysimplifying the review process; and (b) interagency coordination andcooperation to ensure the effectiveness of the ETA program.
D. Data Management System
5. The Consultants will assist MME in setting up a data managementsystem for supporting the EIA program including recommendations on the use ofexisting resources of the Ministry to manage the program.
- 64 - ANNEX 14Page 2 of 5
6. In performing these tasks, the Consultants will work in closeassociation with their MME counterparts so that, together, they will comprisethe Working Groups charged with the responsibilit; of carrying out the EIAprogram. This working arrangement would ensure the necessary transfer ofskills from the consultants to their counterparts.
7. The consultants will comprise three foreign experts and one localexpert. Two of the three foreign experts will serve as EIA advisors with oneof them serving as the Team Leader. The Team Leader will work directly withthe Secretariat, and, as needed, with the Minister of the Ministry of Minesand Energy, and other Government agencies. These advisors, working withWorking Groups, and other designated staff, will divide their available timeamong the various Directorates General. The third foreign advisor will be anexpert in Management Information Systems who will advise the Ministry onestablishing an environmental data manag3ment system for the purpose ofmonitoring compliance with the program. The local EIA consultant will assistthe Team Leader in project coordination and training.
II. SPECIFIC TASKS
8. The initial task of the Consultants will be to develop a specificwork plan to allocate appropriately their time and responsibilities among theWorking Groups. The objective is to make optimal use of the consultants' timeand expertise. This initial task will be the substance of the InceptionReport.
9. The above areas of work required of the consultants would involve,but not be limited to, the specific tasks set out belows
A. Training
(a) Methodology for environmental screening of projects, including theuse of the Initial Environmental Evaluation process, to determine theneed for detailed EIA.
(b) H4ethodology for formulating a pragmatic EIA study including preparingterms of reference, identifying required expertise, estimating inputsrequired with minimum but sufficient use of expatriate skills toensure acceptable results, and implementation planning.
(c) Methodology for preparing critiques of draft ETA reports, forreviewing these with the project proponents and for ensuring that theneeded environmental management provisions are included in the ETAand in the project feasibility study.
(d) Methodology for ensuring that the environmental management measuresto be observed during the construction period will be complied with.
(e) Methodology for preparing cost effective environmental monitoringprograms following completion of construction, as the project goesinto operation. Institutitonal aspects for reporting and distributionof monitoring results should alre be included so that pertinent
- 65 - ANNEX 14Page 3 of 5
agencies will be kept informed and that necessary corrective measurescan be taken by the appropriate authorities in the event of non-compliance.
(f) Review and preparation of critiques of all available ETAs done todate on energy-related projects in Indonesia within the area ofinterest of the Working Groups (to be done as part of the initialwork program).
(g) Conducting at least two in-house training workshops (withparticipation by pertinent Bank staff and others, if possible). Thelocal consultant will translate the workshop proceedings into BahasaIndonesia in a training module format for use at the provinciallevel.
B. Planning
(a) Assessment of needs for academic and practical training forenvironmental staff of the MME Directorates, PLN and other agencies,including needs for training in ZIA technology for field staff.
(b) Assistance in planning for the establishment of an appropriateenvironmental library containing guidelines for environmentalprotection and management in the energy sector for the Commission'sEnvironmental Team and Working Groups, including suggestions onpractical ways for continuing procurement of significant referencematerials.
(c) Preparation of detailed ZIA Manuals appropriate for use by theparticular Working Groups, including use of formats that will meetthe needs of the Directorates General, as well as the individualDirectorates.
(d) Assist the Ministry in continuing appraisal of the programimplementation capabilities of the NME environmental staff so thatoptimal use of these personnel can be made and that, those whodeserve merit, receive proper guidance in their career developmentneeds.
(e) Assistance in planning the use of standard equipment of approvedquality for control and monitoring purposes so that data processingrequirements are simple, maintenance procedures are streamlined andspares inventory is substantially reduced.
(f) Making arrangements for use of specialist consultants on specificproblem areas.
(g) Preparation of an operational program for the NME, the Directorates-General, and the Working Groups.
- 66 - ANNEX 14
Page 4 of 5
C. Institutional Development
(a) Coordination of the assistance given to each Working Group to meetthe overall needs of the program, including maintenance of optimalrelationships on project implementation with other implementingagencies.
(b) Preparation of an appropriate system for gradinglevaluation of theElk capabilities of private sector firms and for licensing of firmsconsidered qualified to carry out EIA projects.
(c) Assistance in developing methodology for relating already completedstudies to ongoing or planned regional development projects.
(d) Review and assessment of the present MME environmental stafforganization, and the extent of financial and budgetary support itcommands.
(e) Assistance in designing the most appropriate institutionalarrangements for meeting the EIA program implementation requirementswith particular attention to the organizational efficiency andgeneral staffing requirements of the MNE Environmental Team and thevarious Working Groups.
(f) Identification of the technical and managerial skills that will berequired by MME for conducting an effective EIA program and assessexisting staff capabilities for meeting such requirements.
Sg) Identification of training needs and formulation of a training plan(short- and long-term training) including short-term overseastraining and on-the-job training.
(h) Assistance to the Ministry to determine an effective approach forstrengthening the EIA capabilities of related agencies whosecooperation will be needed by MHE such as, other implementingagencies, university environmental centers, and private consultingfirms.
D. Data Management System
10. The MIS should include procedures and guidelines for ensuring closecommunication between MWE and other agencies so that the information obtainedfrom the HIS is not only fully disseminated among participating agencies, butis used effectively to enforce the environmental management plan. The workwill includes
(a) Review of the existing data management system in the energy sector toprepare recommendations on the strengthening of the system to supportthe EIA program.
(b) Assist in establishing au appropriate computerized data bank storageand retrieval system for management of the data on environmentalquality, that are obtained from the continuing EIA program, and that
- 67 - ANNE 14
Page 5 of 5
are also compatible with the overall needs of the Ministry. Thiswill include an evaluation of the compatibility of any existingcomputers that are in use.
(c) Evaluate environmental monitoring data to determine its usefulness inimproving control standards in existing projects and in planning newprojects, as well as in periodic reorientation of the monitoringprograms to make them more cost effective.
(d) Recommend the present and future training needs for the applicationof computer programs for information system operation and informationmanagement.
- 68 - ANNEX 15
INDONESIA
PAITON THERMAL POiWER PROJECT
Schedule for Contract Awards
Bid ContractNo. Name Issue Award
FC01 Turbine Generators Finalized 08189FCO2 Stezm Generators Finalized 08/89FC04 Ash Handling 12/89 07/90FC05 Coal Handling 06189 0190FC07 Mech. & Elec. Works 01/90 09/90FCO8 Instrumentation and Control 12/89 08/90FCO9 EHV Transformers 06/89 01/90FClO Substations 06189 01/90FC1l H.V. Transformers 09/89 03/90FCl2 Chimney 09189 03/90FC13 Marine Works 07/89 02/90FC14 Steel Structures 01190 09/90FCl5 Civil Works I 11/89 07190
-69- ANNEX 16
INDONESIA
PAITON THERMAL POMER PROJECT
Key Construction Dates
Unit 2 Unit 1
1. Complete Turbine Foundations 04191 10/912. Complete Boiler Foundations 04/91 02/923. Complete Circulating Water Pumphouse
Foundations 02/91 10/914. Start Steel Erection 04/91 11915. Start Boiler Erection 04/91 09/916. Install Turbine Room Crane 02192 -7. Start Turbine-generator Erection 04/92 10/928. Complete Piping Installatio- 12192 05/939. Complete Condenser Erection 01/93 0619310. Vacuum Test 04193 10/9311. Complete Instrumentation and Control
Installation 05193 11/93
12. Coal Handling Systems Start 03192 06/92Complete 07/93 01194
13. Ash Handling System: Start 04/92 10/92Complete 07193 01/94
14. Water Treatment Plant Installation: Start 07191Complete 07/92
15. Complete Marine Works 0719316. Provide Startup Power 02/9217. Complete 500 kV Tranmission Lines and Substations 01/9318. Energize 500 kV Transmission Lines and Substations 04/93
-70 - ANNEX 17
INDONESIA
PAITON ?HERMAL POVER PROJECT
Disbursement Schedule
Bank Disbursement Indonesia ProfileFY Semester Semester Cumulative X (Power) ?
1990 I 0.0 0.0 0.0II 15.0 15.0 4.2 0
1991 I 15.0 30.0 8.5 -II 15.0 45.0 12.7 6.0
1992 I 30.0 75.0 21.2 -II 45.0 120.0 33.9 20.0
1993 I 52.0 172.0 48.6 -II 50.0 222.0 62.7 43.0
1994 I 43.0 265.0 74.9 -II 30.0 295.0 83.3 72.0
1995 I 25.0 320.0 90.4 -II 20.0 340.0 96.0 86.0
1996 I 14.0 354.0 100.0 92.0
- 71 - ANNE'. 18Table 1
INDONESIA
PAITON THERMAL POWER PROJECT
PLN - Past Financial Results
Income Stateents(Rp billion)
Fiscal year 1980/81 1981/82 1982/68 1968/84 1984/85 1986/88 1986/87 1987/88
Sale- increase (U) 22.1 20.8 10.0 9.9 10.4 16.1 16.4 16.5Energy sales (CUb) 6,523 7,846 9,101 10,000 11,041 12,708 14,786 17,07Average revenue (Rp/kWh) 41.4 48.8 66.5 76.0 97.8 96.0 98.5 92.6
Energy revenue 271 840 614 760 1,080 1,227 1,382 1,581Other operating revenue 18 16 21 27 31 36 48 48
Total Revenues 284 86S 636 787 1.111 1.2683 1.425 1.629
3e:rat no ExpensFu61/bUlk power 99 147 283 477 712 776 720 881Operations 8S 107 143 165 203 237 261 320Depreciation 78 121 146 158 204 261 321 434
Total Expenses 258 375 671 800 1.119 1.273 1.292 l.836
Operatino Income 26 (19) (3) (13) ( 10O) 133 I!L
Other tncom (net) (6) 1 - - (14) (21) (9) (8)
CIross Interest 12 29 33 68 144 110 164 214Less: Interest during
construction 12 27 28 44 120 s6 77 98
interest CharL ci touperalFons - - 2 S 19 24 24 87 118
Net Income / 20 (20) (41) (82) (5l (S5) 87 (132)
Rate base L6 787 976 1,218 1,497 1,998 2,779 3,867 5,093
Rate of return (X) 3.5 (1-9) (3.0) (0.9) (0.4) (0.3) 8.4 (0.1)
Operating ratio (U) 91 lO 107 102 101 101 91 100
la Before taxes (see para. 5.22).
Lb Based on revaluation of fixed assets from FY79/80 onwards, In accordance with Government Regulation No.45/1986 dated October 2, 1988 (see para. 5.26).
- 72 -ANNEX 18Table 2
INDONESIA
PAITON THERMAL POWER PROJECT
PLN - Rest Fnasncial Results
Balance Sheets(Rp billion)
Fiscal year 1980/81 1981/82 1982/83 1983/84 1984/86 1985/06 1988/87 1987/88
ASSETSFixed AssetsPlant in service 1,233 1,716 2,124 2,771 3,710 5,002 8,8S3 8,735Leus Accumulated depreclation 143 276 436 614 842 1,186 1,584 2,163Net plant In service 1,080 1,442 1,669 2,167 2,866 3,886 E,249 6,682Work In progress 856 1,057 1,370 1,878 2,148 2,503 3,192 4,089
Total Fixed Ausets X 4 2.499 a.0o9 4.036 S.018 8.389 8.441 10.671
Current AssetsCash 136 179 237 142 131 124 218 239Inventories 79 96 122 171 213 280 146 210Receivables 63 88 108 165 1SO 208 226 283Other current assets 23 23 0o 44 44 46 29 26
Total Current Assets 301 3a4 497 522 574 e6s 617 738
Other Assets - - 1 1 18 20 69 143
TOTAL ASSETS 2.247 2.883 3 .57 4.658 ;.608 7.046 9.127 11,562
EQUITY AND LIABILITIESPaid-in capital 1,189 1,468 1,779 2,017 2,442 3,000 3,422 4,282Retained earnings (6) (33) (689) (97) (143) (193) (162) (284)Revaluation reserve 633 811 931 1,083 1,238 1,439 2,120 2,865
Total Equity 1.812 2.248 2.641 3.003 3.537 4.246 6.390 6,863
Long-term debt (net) 151 276 417 8" 1,302 1,s85 2,535 3,140Current liabilities 67 112 206 235 227 312 486 696Other liabilitiss / 213 249 291 454 542 632 737 863
TOTAL EQUIM AND LIABILITIES 2.247 2,88a 3.657 4a58 _6s_08 7.048 9.127 11.652
DeLt X of debt oequity Lb 10 14 17 27 32 as 40 41Current ratio (times) 4.5 3.4 2.4 2.2 2.5 2.1 1.3 1.1
/ Including consumers' contributions and deposits.
tb Including consumers' contributions, but excluding revaluation surplus.
- 73 - ANNEX 18Table 3
INDONESIA
PAITON THERMAL POWER PROJECT
PLN - Post Financial Results
Funds Flow Statements(Rp billion)
Fiscal year 1980/81 1981/82 1982/88 1988/84 1984/85 1985/88 198R/87 1987/88
Internal Sources of Funds
Not income before Interestand tax 20 (18) (36) (13) (22) (31) 124 (14)
Depreciation 73 121 145 158 204 281 321 434
Consumers contributions andoth,r adjustents 42 so 45 187 71 89 108 118
Total Internal Funds 135 183 164 312 253 319 S58 536
Operational Reuiremants
Variation working capital andothers 23 (6) (41) 93 71 68 (107) 107
Debt repayment - 8 i1 21 52 112 87 289
Interest charged to operations - 2 6 19 24 24 87 118
Total Operattonal Requirement 23 6 (26) 133 147 204 (67) 494
Total capital Investment 303 496 S8S 981 1,030 1,408 1,712 1,918
Balance to be Financed 191 868 406 802 924 1.293 1.228 1.875
Financed by
Borrowings 64 132 163 489 488 728 898 1,038
Government contributions 191 279 311 238 425 658 442 8B0
Total Capital Sources 256 411 4U4 707 913 1.288 1.318 1.898
Cash Increase/Decrease 84 43 58 t (11 92 23
Debt service coverage ratio (times) - 10.3 6.8 3.6 2.4 1.7 2.6 1.1
Contribution to construction:
Annual (U) 37.0 26.8 30.6 18.2 11.4 8.7 23.0 1.0
3-year average (I) La 28.4 29.9 30.3 23.6 18.3 12.2 16.8 10.7
/a Current and two preceding years.
- 74 - ANNEX 18Tablo 4
INDOESIA
PAITOt4 THERMAL POWER PROJECT
PLN - Indonesis Operations
Inco_ Statemnte(tp bi lli on)
Actual Estimate Proiet t onFiscal yer 1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94 1994/96
Energy sles (CWh) 14,788 17,077 19,882 22,697 26,112 29,932 94,189 38,860 43,862Sales Incre"a (X) 16.4 15.6 16.4 14.2 16.1 14.6 14.2 13.7 12.9
Average revenue (Qp/kWh) 98.47 92.60 92.90 116.81 120.62 126.86 130.36 186.62 141.01Average revenue increase (1) (3.3) (0.9) (0.8) 26.0 4.0 4.0 4.0 4.0 4.0
Operati no RevenuesEnery revenue 1,382 1,681 1,636 2,629 3,147 8,7S2 4,466 6,2e9 6,185Other operating revenue 43 48 65 6S 76 88 102 117 136
Total Revenue 1.426 1.629 1.990 2.694 a,m2 8.839 4.567 S6388 6.321
Operating Exeno"Fuel *nd lubricating oil 701 870 1,040 1,160 1,240 1,466 1,660 1,799 1,946Power purchased 19 11 1o 12 18 la la 13 13Personnel expense 131 149 189 216 228 242 267 272 289Repsir/malntenance 76 118 10l 136 161 187 224 284 333Depreciation 321 434 s66 640 860 997 1,166 1,390 1,681Other expe 44 66 60 89 96 101 106 113 119
Total Expense 1.292 1.636 1.967 2.261 2.697 2.996 !.41 .8M 4.9ss
Operating Income 133 (77) 443 826 843 1.141 1.536 1.982
Nonoperating incom 1s 26 7 1B 18 23 30 39 S0Nonoperating expense 22 33 18 U4 37 41 48 so 64
Other Income (Net) (9) ( 21) (19) (18) (16) (11) (4
Not Income Bo.ore Interet 124 (14) (83) 422 806 826 14125 1 624 1.968
Total interet 164 214 267 $21 440 68? 998 1,363 1,721Lees: I.9.C. 77 96 136 68 165 393 697 1,024 1,393
Interest charged to operations 87 118 121 258 286 294 301 339 328
Net Income 37 (132) (204) 169 821 631 824 1 186 1.630
Rote base 3,867 6,093 6,924 6,966 10,628 12,173 13,957 17.008 20,411Rate o- return (X) 3.4 (0.1) (1.1) 4.9 5.9 6.9 8.2 9.0 9.6
Operating ratio (X) 01 100 104 94 81 80 75 72 69
*75 - ANNEX 18Tabl- 6
INONESIA
PAITON THERMAL POWER PROJECT
PLN - Java Operations
Income Statm_wnte(Rp billion)
Actual Estimate ProiectionFiscal yer 198S/87 1997/88 1986/89 1089/90 1990/91 1991/92 1992/93 1993/94 1994/95
Energy sales (01h) 11,677 18,998 15,601 17,764 20,298 23,286 26,489 30,065 33,973Sales lncrease (5) 16.2 16.7 15.7 14.6 14.8 14.5 14.0 18.5 13.0
Average revenue (Rp/kWh) 91.69 90.99 90.66 118.20 117.78 122.44 127.84 182.43 187.78Average revenue lncrese (X) (3.4) (0-8) (0.4) 25.0 4.0 4.0 4.0 4.0 4.0
Operating RevenuesEnergy revenue 1,061 1,219 1,404 2,010 2,869 2,845 8,873 3,962 4,679Other operating revenue 33 86 48 47 65 60 69 78 89
Total Revenues 1.096 1.255 1.460 2.057 2.442 2.905 3.442 4.060 4.768
OD ratino ExpensesFuel and lubricating oil 460 595 722 797 843 1,020 1,193 1,263 1,396Power purchased 17 10 9 11 11 11 11 11 11Personnel expense 61 92 194 1S0 18 146 166 164 174Repair/maintenance 48 78 6e 87 102 115 139 119 213Depreciation 225 a30 892 440 601 689 797 966 1,1seOther expense 29 86 48 68 67 71 75 60 84
Total Expene 648 110 1.378 1628 1.762 2.052 2.870 2.663 3.043
Operating Income 247 162 7 529 690 858 1.072 1.397 1.726
Nonoperating Income 11 7 4 7 14 16 28 80 39Nonoperating expense 14 9 7 18 29 32 86 39 42
Other Income (Net) .() (2 ( (11) (15) (14) (12) 9Net Income Before Interest 244 150 74 618 606 839 1.060 1.388 1.722
Interest chergWd to operations 66 98 101 208 215 228 210 226 204
Net Income 176 52 (27 815 450 616 860 1.2 1.618
Rate ba" (revalued) 2,846 3,662 4,960 6,614 7,772 8,641 9,S02 12,060 14.639Rate of return (5) 8.7 4.2 1.6 8.0 8.7 8.9 10.9 11.6 11.8
Operating ratio (5) 78 66 94 74 72 71 69 66 64
- 76 - ANNEX 18
Table 8
INDONESIA
PAITON THERMAL PO2ER PROJECT
PLN - Non-Jova ODerations
Income Statemnt,(Rp billion)
Actual Estimate ProlectionFiscal year 19*8/87 1987/88 18 88/89 1989/90 1990/91 1991/92 1992/93 1993/94 1994/96
Energy sales (W) 3,209 3,679 4,881 4,943 5,810 6,697 7,881 8,786 9,689Sales increase (3) J-?,.9 14.8 19.1 12.8 17.7 15.1 14.7 14.4 12.6
Average revenue (Rp/kWh) 90.86 98.47 08.32 125.20 130.21 136.42 140.84 146.47 162.33Average revenue incroese (1) (2.9) (1.4) (0.2) 27.3 4.0 4.0 4.0 4.0 4.0
Operating RevenuesEnergy revenue 320 362 431 819 768 007 1,082 1,287 1,506Other operating revenue 9 12 9 18 22 26 33 39 47
Total Revenues 30 874 440 837 780 933 1.115 1.328 1.653
Operating ExnensesFuel and lubricating oil 251 275 310 3e3 307 436 467 516 660Power purchaad 2 1 1 1 2 2 2 2 2Personnol expense S0 57 S5 85 90 96 102 108 114Repair/maintenance 30 43 33 48 59 72 8s 106 120Depreciation 96 184 175 200 259 308 369 424 496Other expense 15 22 12 26 28 30 31 33 as
Totel Expenses 444 532 s94 723 3ss 943 1.046 1.188 1.316
Operating Incom (114) (156) (1544 ( (S6) 10) 89 138 237
Nonoperating income 2 16 8 6 4 5 7 9 11Nonoperating expense 8 24 6 16 8 9 11 11 12
Other Income (Net) Le Lei m (10) (41 [i 141 Q M
Net Income Before Interest (1201 (164) (157) (S8) (S9) (14) e6 136 236
Interest charged to operations 19 20 20 s0 70 71 91 i13 124
Net Income (139) (184) QI I4 (129) (85) (26) 23 112
Rate base (revalued) 1,021 1,441 1,944 2,341 2,866 3,632 4,165 4,968 5,772Rate of return (X) (11.1) (10.9) (7.8) (3.7) (1.9) (0.3) 1.7 2.8 4.1
Operating ratio (3) 185 142 18S 113 107 101 94 90 85
-77- ANNEX 18Tsbl- 7
INDONESIA
PAITON THERMAL POWER PROJECT
PLN - Indonesi Operations
Bmalance Sheets(Rp bilIIIon)-
Actual Estimate PaoiacttonFiscalI year 196/87 1987138 -TUU7UU 1989/90 199/91 199i/9 1992/93 L993/94 19W965
A`;SETS-Tx-d Assets
lant in service 6,883 8,785 12,058 14,621 17,668 20,418 24,300 80,162 85,483Less: Accum. depreciation 1,604 2,168 2,868 8,694 4,778 6,981 7,402 9,120 11,185
Operating plant 5,249 8,682 9,190 10,927 12,880 14,486 16,898 21,042 24,278
Work in progress 8,192 4,089 4,641 6,760 7,061 9,687 12,616 14,627 18,661
Total Fixed Assets 8,441 10,671 18,731 16,677 19,931 24,122 29,18 a6.689 42,829
Current AssetsCash and bank 216 289 100 100 344 420 480 626 86BAccounts receivable 181 204 252 802 345 411 488 577 878Inventories 146 210 211 247 241 278 822 871 423Other current assets 74 8S 87 185 182 200 270 242 266
Total Current Assets 617 788 660 815 1.112 1,309 1,610 1,715 1.951
Other assets 69 148 211 228 282 284 287 289 241
TOTAL ASSETS 9,127 11,662 14,692 17,720 21,276 2,e6 8261 37,628 46,021
EUITY AND LIABILITIES
VPiA,-in capital 8,422 4,282 6,605 6,980 7,840 8,620 f,110 9,676 10,226Retained earnings (152) (284) (486) (816) 6 586 1,860 2,646 4,176Revaluation surplus 2,120 2,e8s 8,647 4,480 6,416 6,800 7,a89 8,677 10,266
Total Equity 6.890 6.863 6,667 11,094 18,261 16,860 17.689 20,897 24,65e
Long-term debt (LTD) 2,748 3,456 4,740 6,240 6,400 8,489 11,256 14,217 17,468Less: Current portion 218 al8 268 200 882 849 a84 382 486
Net long-term debt 2,U 3,140 4.482 4.980 6,068 8,090 10,891 18,886 17.023
Current LiabilitiesCurrent portion of LTD 213 818 258 260 863 849 864 882 436Accounts payable 218 816 18O 246 262 284 810 841 378Other current liabilities 84 62 15 20 21 22 23 24 26
Total Current Liabilities 465 696 463 626 6le 656 697 747 839
Consumers' contributions 589 6O0 695 785 904 1,058 1,220 1,408 1,620
Other liabilities /a 198 247 292 366 426 611 818 786 88a
TOTAL EQUITY A LIABILITIES 9i127 il,562 14,692 17,720 21,276 26,666 31,260 37,628 46,021
Current ratio (times) 1.3 1.1 1.4 1.6 1.8 2.0 2.2 2.3 2.3Debt as % debt plus equity L 39.9 40.5 *3.6 40.1 40.9 44.4 48 2 50.4 51.5Accounts receivable (days) 48 47 42 42 40 40 40 40 40
/ Including consumers' deposits.Including consumers' contributions, but excluding revaluation surplus.
- 78 -
ANNEX 18
Table 8
INDONESIA
PAITON THERMAL POWER PROJECT
PLN - Indontsi Operations
Funds Flow Statement,(Rp bilIion)
Actual Estimate Pro2ctionFiscal year I19.1T7 sT177WU 1988/89 asEWq 1S99/91 101/92 1m/99 199(a94 194/95
SOURCES OF FUNDS-Iternl souirces
Not income befor- Interest 124 (14) (88) 422 6o8 826 1,126 1,524 1,958Depreciation 821 484 667 640 80 997 1,166 1,890 1,661Consumers contributions ea 67 89 70 189 149 167 1se 212Other 46 49 50 71 71 85 102 126 147
Total Internal Sources 568 588 628 1.208 1,676 2,056 2,660 8,225 3,978
Debt Servicentirst chsrged operations 87 118 121 25a 285 294 8ol 889 828
Debt repymnt 87 269 260 281 81o 882 849 864 882
Total Debt Service 174 a8e 8Sl 684 596 626 650 708 710
Net Internal Sources 879 160 242 669 1.021 1.480 1,900 2jS22 s,2es
Borrowings-ietITno borrowings S89 1,088 1,602 658 a6s 164 le 71 -
Future borrowings - - - 221 1,042 2,199 2,987 8,236 3,68s
Total Porrowings 696 1,0o8 1,602 779 1.896 2.688 8.148 8,807 a,688
Oovernmnt equity 422 660 1,828 1,875 860 890 500 565 560
TOTAL SOURCES 1.897 2,048 8,167 2,828 8,889 4,463 5.888 6s94 7.86
APPLICATIONS OF FUNDSC*pEtel Exp nditureToNne ructiin expenditure 1,685 1,828 2,818 2,646 2,978 8,912 4,782 5,216 5,849Interest during construction 77 96 Is8 66 1S6 898 69. 1,024 1,898
Total Capitol Expenditure 1,712 1.918 2,949 2,718 8.129 4.806 6,479 6,289 7,242
Changes In working capitaland other (15) I8O 218 11o 210 158 169 165 144
TOTAL APPLICATIONS 1,697 2,048 8.187 2.82a 8,889 4.463 6.688 6,a94 7,S8e
Increase (Decrease) in Cash 92 28 (la9) - 244 76 60 46 60
Cash at beginning of year 124 216 289 100 100 844 420 480 626
Cash at end of year 216 289 loo 1oo 84a 420 480 625 S8
Annual debt service coverageratio (times) 2.6 1.1 1.8 2.0 2.6 2.9 8.5 4.1 6.1
Self-Finsncing R-tio P)Aebiii i 28.0 1.0 0.8 20.8 27.8 29.5 31.8 37.9 48.1
8-year moving average(current + 2 post years) 15.8 10.7 6.7 8.0 16.5 26.6 80.1 83.6 88.1
ANNEX 18Table8
INDONESIA
PAITON THERMAL POWER PROJECT
PLN - Indonesia, Java and Non-Java Operatilons
Calculat;ons of Rabe Base /a(Rp billion)
Fiscal year 1986/88 1988/87 1987/88 1988/89 1989/90 1990/91 1991/92 19m9/98 1993/94 1994/95
Indonesia OperationsGross fixed assets (revalued) 5,002 6,838 8,736 12,053 14,821 17,853 20,416 24,300 30,1762 35,4s8
Less: Accumulated depreciation 1,138 1,584 2,158 2,888 8,694 4,778 5,981 7,402 9,120 11,185
Not Fixed Assets in Operation 3,868 5,249 6,582 9,190 10,927 12,88 14,485 18,898 21,042 24,278
Loes: Corsumers Iontri buti ons(revalued) 625 756 89o 1,03S 1,172 1,379 1,690 1,828 2,097 2,401
Balance 8,241 4j494 6,s92 8,1665 9,7ss ll,SO 12,845 1S,07 18,946 21,897
Rate Base - 8.887 s,093 8,924 9.955 10,628 12,173 18,957 17,008 20,411
Java Operations NO
Gross fixed assets (revalued) 8,860 4,999 8,238 8,788 10,788 12,896 14,488 17,188 21,504 25,454
Less: Accumulated depreciation 784 1,098 1,528 2,016 2,658 3,339 4,178 5,156 6,352 7,s80
Not Fixed Assets in Operation 2,896 3,903 4,707 6,772 8,198 9,a37 10,262 12.030 15,152 17,664
Less: Co vsu 6s' ontributions 608 708 817 925 1,087 1,251 1,438 1,646 1,882
Balance 2,393 8,800 4,004 5,965 7,278 8,270 9,011 10,694 1L,60s 15,722
Rate Base - 2,848 3,862 4,98o 6.814 7,772 8,641 9,80 12,060 14,639
Non-Java Operations
Gross fixed assets (revalued) 1,822 1,834 2,502 3,266 s,888 4,957 5,978 7,112 8,658 10,009
Less: Accumulated depreciation 852 488 627 847 1,109 1,484 1,805 2,244 2,768 3,886
Not Fixed Assos in Operation 970 l,aU 1.876 2418 9 2L?22 4,17 4,s88 5,890 6,624
'V*C;4ss 122 152 187 218 247 292 889 892 451 519
Balance 848 1.194 1,898 2,200 2.482 8,231 38, 4,478 5.489 6 IOS
Rate Base - 1,021 1.441 1,944 2.841 2,856 ,582 4,165 4,958 6,772
/a The rate base is the averaga of not fixed asseto in operation, less revalued consumers' contributions.
Ib 0D
ANEX leTab le 10
INDONESIA
PAITON THERMIAL POWER PROJECT
PLN - Non-Java Operations
Break-Even Revenue Covenant Monitoring Indicators(Np bilon)
Actual Estimate Projection
Fiscal year 1996/87 1987/38 1988/8S 1361/90 1990(11 1991/92 19293 1993/94 1994/9S
Revenue.Operating revenues 880 374 440 687 760 988 1,116 1,826 1,663
Net nonoperating income (6) (6) (8) (10) (4) (4O (4) (2) (1)
Total Revenues 824 868 437 627 778 M 1,111 1,324 1,662
Tota I Oeratl no Expensee 444 632 594 728 885 948 1 048 1,188 13 16
Of Thich: UepreCiation P 1 UN i W ..B69 424i 49S
Debt ServiceIterestcharged operations 19 20 20 SO 70 71 91 118 124
Debt repayment 19 109 100 79 98 78 93 107 122 0
Total Debt Service s8 129 120 129 168 149 184 220 246
Excess of debt serice over depreciation - - - - - - - - -
Revenues required for break-even 444 632 594 728 885 948 1,048 1,188 1,816
Total revenues as X of revenues required forbreak-even 73 89 74 87 93 98 106 111 118
Operating ratio (3) 18S 142 18S 118 107 101 94 90 8S
t-~1§O
- 81 -ANNEX 19Page 1 of 2
INDONESIA
PAITON THERMAL POWER PROJECT
Notes and Assumptions for the Financial Forecasts
1. Inflation has been taken into account at the following rates (2):
1992 andYear: 1987 1988 1989 1990 1991 after
Offshore costs /a 9.8 5.3 5.3 5.3 4.1 4.1
Local costs /b 9.3 9.0 9.0 9.0 5.2 5.2
Ja Including indirect offshore costs, excluding fuel./b Excluding indirect offshore cost and fuels.
2. Separation of accounts of PLN's operations in Java and outside Javais based on individual accounts maintained by PLN for each of it s regionalunits. These accournts are separate except for overhead expenses, which, forthe purposes of financial projections, have been allocated proportionately onthe basis of unit sales of energy. In the financial projections, consumers'contributions have also been allocated in a similar manner.
3. Energy sales are based on the sales forecasts that have been agreedfor the planning of PLN's system expansion program (para. 2.8).
4. Revenues for FY89/90 are based on average tariff increase of 252 thatbecame effective on April 1, 1989. For fiscal years thereafter, the tariff isadjusted annually by 42 to absorb the impact of increases in operating costs(other than fuel), and on the rate base assumed in the financial forecasts.Efficiency gains are assumed to be internalized to improve the financialperformance of PLN so that it can undertake an increasing percentage of self-financing of its rapidly growing investment program.
5. Fuel/bulk power for FY89/90 is based on the budget, and for FY90/91nnd beyond is derived from PLN's computer simulation of system operation. Thefuel costs are calculated on the basis of current domestic fuel prices chargedto PLN, plus transportation costs. The fuel prices to PLN are not escalated,on the assumption that any increases during the forecast period will be passedon to PLN's electricity customers through its tariff.
6. Operating expenses, other than fuel and personnel expenses, have beenforecast taking into account the facilities expected to be in use each year,and subject to foreign and local cost inflation, as appropriate. Personnel
- 82 -ANNEX 19Page 2 of 2
expenses are assumed to increase at an overall rate of 62 p.a. in line withexpected productivity gains. Repair and maintenance expenses for PLN's Javaand non-Java operations are estimated at 1.12 and 1.62 of their respectiverevalued gross fixed assets ir operation during the preceding fiscal year.
7. Depreciation is based on the application of PLN's normal rates(straight-line method) to assets revalued annually. For purposes of corporateincome tax, the current Indonesian tax code permits the use of the acceleratedmethod of depreciation of assets in operation instead of the straight-linemethod.
8. Financing. Terms of foreign borrowings are assumed to be 20 yearsincluding 5 years' grace, at interest rates of 102 p.a. in FY89/90-FY90/91,and 112 p.a. in FY9l/92 and thereafter. Term of local borrowings, which areto be from Government-owned banks, are assumed to be 12 years including twoyears' grace, at interest rates of 182 p.a. from FY89/90 onwards.
9. Capital expenditures are based on PLN's investment program (Annexes 6and 7) to meet the projected sales growth (para. 3 above), and exclude costsof geothermal steam field development, which are assumed to be incurred byanother agency. The 10 Value Added Tax (VAT) on the foreign contracts isassumed to be borne by Government, and on the local contracts it is assumed toby borne by PLN.
10. Gross fixed assets, work in progress and consumers' contributions arerevalued annually, up to FY86187 according to Government Regulation No.45/1986, date October 2, 1986, and from FY87/88 onwards, according to weightedannual escalation rates (foreign and local). The rate base is the average ofthe revalued net fixed assets in operation, less revalued consumers'concributions. The rate base does not include work in progress.
11. Customer accounts receivables are assumed at 40 days of energyrevenues.
12. Transmission and Distribution (T&D) system losses are estimated todecline by about 0.72 in FY88/89 to a level of about 182 and are assumed todecline gradually thereafter to a level of about 14.32 in FY94/95.
13. Substitution of fuel oil ii the existing oil-fired plant at Gresik inJava by natural gas is assumed to be completed in two phases duringFY90191-FY92193 when gas-bdsed generation is projected to account for about172 of total energy generation in Java.
14. For PLN's operations outside Java, implementation of an action planto improve the efficiency of these operations (e.g., reduction of T&D systemlosses) and to reduce costs, is assumed for the forecast period.
15. All projections are net of Corporate tax. Based on the currentIndonesian tax code, PLN does not expect to pay any corporate income taxduring the projection period (para. 5.22).
- 83 ANNEX 20Table 1
INDONESIA
PATTON THERMAL POWER PROJECT
PLN's Tariff
Explanation of the Tariff CateEoriesin the Basic Tariffs of Electricity. 1989
Tariffcategory Contracted power Explanation of tariff category
S1 to 200 VA For small consumers (low voltage)S2 250 VA to 200 kVA For small to medium social institutions (low
voltage)S3 201 kVA and over For large social institutions (medium
voltage)
RI 250 VA to 500 VA For small residential service (low voltage)12 501 VA to 2,200 VA For small residential service (low voltage)13 2,201 VA to 6,600 VA For medium residential service (low voltage)R4 6,601 VA and over For large residential service (low voltage)
U1 250 VA to 2,200 VA For small commercial service (low voltage)U2 2,201 VA to 200 kVA For medium commercial service (low voltage)U3 201 kVA and over For large commercial service (medium voltage)U4 For temporary service (low voltLge)
Il/H 250 VA to 99 kVA For small hotel industry service (lowvoltage)
I2/H 100 kVA to 200 kVA For medium hotel industry service (lowvoltage)
I3/H 201 kVA and over For large hotel industry service (mediumvoltage)
Il 450 VA to 13.9 kVA For small industrial service (low voltage)12 14 kVA to 200 kVA For medium industrial service (low voltage)13 201 kVA and over For medium industrial service (medium
voltage)14 10,000 kVA and over For large industrial service (high voltage)
Gl 250 VA to 200 kVA For small to medium office service (lowvoltage)
G2 201 kVA and over For large office service (medium voltage)
J For street lighting service (low voltage)
Source: PFN Finance Department.
il~~~~~~~~~~~~~~~~~~~~~~~2
PAITON TMO4AL POWER PROJECT
PLN' Tariff
Hietor. of Tariff Adiu tment. 1802-19
1962 IFebruar.- 1983 .F bu
1r 1
1 Ah..st 1989 AritI
Tariff Demand Eneray Awvrage otend Enargy Aragi Dland -Leroy Average t.nd Enray A.ea4 ond EnerMr Anr n.g
cateomry charges charge rice tharge charge price chiarg. chaorge rice charge charge Price Charge chrePrice
(Rp;/hVA) (Rp/kWh) (RX/kh) (Rp/kVA) (Rp/;Wh) (Rp/kWh) (Rp/' VA) (Rp/hh) (Rp;/kh) (Rp/VA) CRp=/W) (Rp/kWh) (Rp/k VA) (Rp;W) (Rp/kWh)
St La - - A - - LS - is - 5050 L - 57.50
S2 I,tiO 22.00 S4.12 1.S00 35.00 48.22 2.100 43.bO 60.57 2,100 43.50 65.62 2.700 45.00 81.97
55 , _ _ _ _ _ _ _ __ - - 3.160 P.136.50 94.92
OPSeB 00
Al 1,600 37.80 48.65 1,600 66.00 67.21 2.100 70.50 85.19 2,100 70.50 89.:o 3.160 63.80 fo ( hra 1 0.86.00 for ) 60hra/.
R2 1.600 45.80 58.76 1,600 67.00 79.12 2.100 84.50 90.41 2.100 84.50 100.07 3,160 76.00 for < s0h r./ao. 119.74115.50 for I Shro./m.
83 2,800 68.0 006.00 2,600 97.00 121.75 3,660 126.50 156.42 5,660 126.50 119.60 5S520 155.50 20.96
R4 2.6d0 79.80 99.05 2,d00 117.60 137.50 S,680 150.00 184.10 3.680 158.00 U1.81 5,520 196.50 239.91
U1 2,600 66.00 84.67 2,800 99.50 121.04 3.600 134.00 160.10 3.680 134.00 167.37 5,520 166.00 for C llOhra,Ieo 209.30
U2 2,600 70.00 96.17 2,800 100.50 137.37 3,600 10.O00 189.73 3.6d0 150.00 190.92 5.520 1866.8 for < tlb0r./o. 244.43149.10 for ) lSOhra./ao. 0
4.0
U8 1o750 WiP * 74.00 63.46 1,750 P * 111.00 89.28 2,300 P . 158.00 123.17 2,300 P " 158.00 118.75 3,460 P.219.50 152.07
lW *46.50 OP * 70.00 GOP - ".c eo * 9.0 OP-109.50
U4- 160.00 160.00 - 221.00 221.00 - 307.00 307.00 - 507.00 307.00 - 400.00 400.00
lI^ 2.800 54.50 68.03 - _- - - - 91.43 3.460 67.00 112.45
12H 1.750 38.50 44.45 - - - - - - - - 82.18 3.460 95.00 114.5S
13H - - -
73.44 34.160 94.00 102.55
it 1,750 VIP -409.0 58.S3 1,t70 p 81.50 76.65 2,J00 P ,106 00. 93.97 2.300 P 947.60 90.66 3,460 60.00 105.91
*te 30.80 OP - 51.00 OP *6.0 OPO a 60.50
12 1.150 P * 46.50 46.09 1.750 P * 77.00 67.15 2.SO0 P . 180.00 85.81 2,300 P - 92.50 82.46 3,460 P.136.S0 106.92
1LW * 29.00 OP - 48.00 OP * 62.50 OP - 57.50 ONP70.00
I 1.600 V8P * 44.00 S8.19 1,60 P . 68.b0 36.40 2,100 P -96.50 75.60 2.100 P * 90.50 73.23 3,160 PU134.00 95.03
SMw * 27.50 OP * 43.00 OP * 60.10 OP * 56.50 OP.cS.00
14 1,500 WIP * 40.00 34.O 1.500 P - 50.00 44.12 1.970 P * 81.50 61.13 1,970 P . 77.00 59.22 2,960 P.119.50 76.90
LV8P * 25.50 OP - 37.00 OP * 52.00 OP * 48.50 'S60.00
0° 2,800 40.00 62.00 2,800 71.00 89.06 3.S68 96.00 120.86 5.680 96.00 125.71 5,520 122.50 161.04
02/NV 1,600 WP * 46.00 44t0 1,500 P * 72.00 64.02 1.970 P * 9.00 84.92 1,970 P * 99.00 07.06 2,9t0 P1159.50 112.47
WUPa 3OCO OP . 47.0 GP e6s.00 OP 65.00 OP.79.50
J9 - 41.00 41.00 - 56.50 66.80 76.50 76,60 76.5 76.50 - '6.00 98.00
Avora" WS.91 71
> 92.65 UL51
Tariff Si! 100 to 2t0 VA * Rp 1,465 to 2935/month7Triff SI' 100 to 200 VA * Rp 2.010 to 4 020/Amnth
1_ t
Tariff 51 100 to 200 VA Rp 2.510 to 5 023/aonth
m x
a Triff S.: 60 to 200 VA * RP 1,750 to S,450/eonth
Note: WIP - P * Peak houra (18:00-22:W)
1
tWP . OP * Off-peak hour* (22:00-18:00)For 1983. th triff cateoory was reduced to 17 tariff c&t*egorie. Categories H (ma I /H) and H4 (no, Lf4 for botel roneuwer with 1o volt ar. grouped .nto I and IL,,
respectively. For 1989, the tariff category i- expnded fres 17 to 21 categoriel. A net ter;ff cAtegory Tb,) h bean eetabliahed for large eccal ,no.itutiona with dlue ; oIto";
and oeparate tariff ce:tgoriea ( /94, 12/9, I /H) ha, been *otebli;d for hotel Consumers with tow and au voltegee, aho oere previously grouped wth industrial eonnu_er- at
Corresponding voltage (1. 1,2 ane Y). The lverage prico shown for 1986 relates to the tariff cataeories in 1909-
Sour-e: PLt Finance DCPertment
ANNEX 20Table 3
INDONESIA
PAITON THERMAL POWERPROJECT
PLN's Tariff
Average Revenue from Electricity Sold. by Maior Consumers(Rp/kWh)
Tariff category 1978/79 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985185 1986/87 1987/88
Residential 29.51 29.55 49.43 49.50 64.09 85.01 102.15 102.59 102.35 102.64
Commercial 34.98 33.99 63.92 68.45 90.17 123.73 167.66 168.99 167.77 165.77
Industrial 23.72 23.58 31.77 33.08 42.84 58.15 77.62 75.78 70.84 69.78
Buildings 27.57 27.40 42.59 43.78 58.17 79.18 91.76 91.98 91.58 92.25
Lightings 20.10 20.10 33.84 35.18 44.90 59.56 78.02 77.83 78.17 78.07
Source: PLN Finance Department.
r zF- m
w t_o
ANNEX 21
Table 1
IINDONESIA
PAITON THERMAL POWER PROJECT
PLN's Oil Consumption Statiatics
The date Of 1978/79 1979/80 1980/81 1981/52 1962/88 1808/84 1985/86 1066187 1987/88
fuel price change 04/01/78 04/06/79 05/01/60 01/04/82 01/07/88 12/01/84 1984/86 04/01/86 07/10/86
HiahepeedDiesl OH) KI 768,219 680,261 842,441 886,290 1,088,041 966,827 932,961 043,071 48",106 1,263,897
Price of fuel
(NSA) Rp/i 25.00 86.00 62.60 86.00 146.00 220.00 220.00 242.00 200.00 200.00
Average price in
an Ft Rp/l 26.76 34.79 51.84 60.46 97.13 167.08 221.97 888.00 224.82 202.00
Industrial DieselOil (IZO) KI 81,?77 16,116 16,264 1U,-46 84,067 41,766 92,269 81,100 1,862 66,367
Price of fuel
(I00) Rp/l 22.00 30.00 46.00 76.00 126.00 200.00 200.00 220.00 200.00 200.00
Average price Inan FY Rp/l 24.54 89.76 46.46 64.47 00.83 140.87 205.58 226.19 224.32 216.01
Relidual KI 480,282 806,286 1,161,961 1,386,278 l,78,652 2,08S,247 2,182,605 2,188,851 1,840,782 1,996,592
Price of fuel
(residual) Rp/l 22.00 80.00 46.00 76.00 126.00 200.00 200.00 220.00 200.00 200.00
Average price In
an FY Rp/l 22.27 29.47 42.64 65.17 8s.?8 141.89 203.69 224.92 214.03 206.74
Source: PLN Finance Department.
-87- ANNEX 21
Table 2
INDONESIA
PAITON THERMAL POWER PROJECT
Domestic and World Prices of Petroleum Products(As of October 1988)
Share of International -mestic Ratio of domesticCategory consumption parity price lb price to world price
(t) la ------ (Rp/liter) ------- (2)
Aviation turbo 2.6 265 250 0.94
Gasoline super 0.9 242 440 1.82
Gasoline regular 18.2 231 385 1.66
Kerosene 27.2 255 165 0.64
Automotive diesel 33.9 259 200 0.76
Industrial diesel 5.2 244 200 0.81
Fuel oil 11.9 144 200 1.39
Total/Average 100.0 237 226 0.95
Ia 1987 data.
Lb Based on estimated average price of Indonesian crude of US$15.00 per bar-rel, converted at 159 literslbarrel. US$1.00 - Rp 1,700.
Source: Bank staff estimates.
INDONESIA
PAITON THERMAL POWER PROJECT
Calculations of the Internal Economic Rate of Return on Java Investment Prooram. 1989190-1994196
FY Invstments Increrment.l Increm_ntel Incremental Consumrse(ending Generation TM Total Shadbw price Production production Fuel cost fuel cost OWM cost contribution Total cCCtMarch 31) -- ----- tUS m-lion) ---- ------…-- _________ (USS m1tilon) -- -. --- ------------ ----- - - ---
t1) a O (4) O(8) l7) ()1)()(1
1986 17.0 17.0 16.7 15.71986 38.0 36.0 35.2 36.21987 86.0 05.0 80.1 88.11989 89.6 89.6 62.8 82.81969 72.6 438.9 511.5 473.1 473.11990 170.2 491.8 "61.8 612.2 22,614 106.7 20.7 74.7 558.21991 362.8 540.8 923.1 858.9 26,740 8,226 162.1 66.4 34.6 82.2 862.71992 08.9 641.5 1,250.4 1,156.6 29,290 8,776 186.2 79.6 63.3 90.4 1,199.01993 454.0 796.8 1,250.9 1,167.0 38,164 10,670 248.6 142.9 72.1 99.5 1,272.61994 166.7 842.0 1,000.7 988.0 37,442 14,926 299.6 193.0 87.2 109.4 1,104.61995 97.7 - 97.7 90.4 42,062 19,548 862.2 256.6 88.7 120.8 316.31996 - - - - 42,062 19,4U8 302.2 256.6 " .7 - 346.21997 - - - - 42,06? 19,648 302.2 258.5 88.7 - 846.21996 - - - - 42,062 19,54U8 32.2 256.5 88.7 - 345 .21999 - - - - 42,062 19,548 N82.2 265.6 S8.7 - 345.22000 - - - - 42,062 19,548 382.2 2S6.5 88.7 - 345.2 $2001 - - - - 42,082 19,54U8 32.2 268.5 68.7 - 346.22002 - - - - 42,062 19,548 362.2 256.5 88.7 - 245.22003 - - - - 42,062 19,648 362.2 256.6 88.7 - 846.22004 - - - - 42,062 19,548 862.2 268.6 68.7 - 34S.22006 - - - - 42,062 19,648 862.2 26B.S 88.7 - 346.22006 - - - - 42,062 19,548 382.2 266.6 88.7 - 34s.22007 - - - - 42,062 19,548 862.2 268.6 88.7 - 845.22008 - - - - 42,062 19,548 a82.2 260.6 88.7 - 845.22009 - - - - 42,062 19,648 362.2 260.6 88.7 - 846.22010 - - - - 42,062 19,4S8 382.2 256.6 88.7 - 346.22011 - - - - 42,062 19,548 382.2 268.6 88.7 - 846.22012 - - - - 42,062 19,54U8 32.2 266.5 88.7 - 465.22013 - - - - 42,062 19,548 362.2 256.6 86.7 - 346.2 2 .
2014 - - - - 42,002 19U468 382.2 256.6 88.7 - 846.22016 - - - - 42,062 19,S48 362.2 268.6 88.7 - 845.22016 - - - - 42,062 19,548 362.2 286.6 88.7 - 846.2 r 2017 - - - - 42,062 19,648 362.2 256.6 88.7 - U46.2 "w
/a Generation lnvestments are for the projects scheduled to be comissloned 1989/90-1994/96.7b T&D investments from 1989/90-1993/94 are as planned.Z Shadow pricing: About 80X of the investmo;nt program consists of equipment and materials imported at offshore prices. This component does not need shadow
pricing. Out of the remaining 40X, about 203 would be for local moterials with shadow price fector of 0.8, 10 for unskilled labor with-shadow pricefactor of 0.65 and 10 for skilled labor with a shadow price factor of 1.0 since skilled labor is scarce. The composite shadow price factor for the totalinvestment cost works out to 0.926.
L Fuel costs have been worked out using an operation simulation model. The economic costs of fuol are as follows: coal, USt24 per ton; fuei oil, USSP.10per liter; diesel, US$0.17 per liter; natural gas, USt1.40 per MMcf; geothermal steam, USSO.028 per kWh.
/ OUM costs are estimated at 1.65 of the cumulative investments.
INDONESIA
PArTON THEMAL POt RffJ5ECT
Calculations of the Internal Feconomic Ratm of R,twrn on Java Inttet Proaree. 1989M90-1994/95
FY Sjle. Incremntal sales Revenue Add'l economic banefit/b Bonaf,..
end- R-i- Comer- Indus- Ro-i- Co_mer- Indu-- at avorage Resi- Indus- Total Total costs minus
ing dntial cial Public trial T.:tal d.ntial cial Public trial Total tariff La dential trial Total benefit* (froe Table 1) coats
03/31 ------------------------------------- (…Q)… ----------------- - (US$ million) ------------------
1986 15.7 -15 7
1986 35.2 -35.2
1987 60.1 -6D.1
19S8 82.8 -82.8
1989 473.1 -473 1
1990 6,233 1,151 2,090 8,173 17.647 568.2 -637.3
1991 6,963 1,207 2.418 9,706 20.294 730 56 328 1,53S 2,647 176.3 52.9 41.1 94.0 270.3 862.7 -592.4
1992 7,711 1,273 2,772 11.481 23.236 1.478 122 682 8,308 5,389 372.2 107.2 88.7 195.9 568.1 1,192.0 -630.9
1993 8.479 1.341 8.161 13.517 26.489 2,246 190 1,061 5,344 8,842 588.9 162.8 143.2 306.0 894.9 1,272.5 -377.6
1994 9,267 1,519 3,657 16,833 30,066 3,034 259 1,467 7,660 12,419 827.1 220.0 205.3 425.3 1,252.4 1,140.6 147.8
1995 10.090 1,519 4.000 18,366 33,974 3,867 368 1,910 10,193 16,328 1,087.4 279.6 273.2 352.8 1,64C.2 315.3 1,324.9
1996 10,090 1.519 4,000 18.366 33.974 3,867 388 1,910 ^0,193 16,528 1,087.4 279.6 273.2 552.8 1,640.2 345.2 1.295.0
1997 10,090 1,519 4,000 18,366 23,974 3S867 368 1,910 10,195 16,328 1,087.4 279.6 273.2 652.8 1,640.2 345.2 1,295.0 OD
199S 10,090 1,519 4,000 18,366 33,974 3,O57 S68 1,910 10,193 16,328 1,C87.4 279.6 273.2 662.8 1,640.2 345.2 1,295.0
1999 10,090 1.619 4,00 18,366 33,974 3,867 S66 1,910 10,193 16.328 1,087.4 279.6 273.2 652.8 1,640.2 345.2 1,295S0
2000 10,090 1,619 4,000 18,366 33.974 3,857 368 1,910 10,193 16,328 1,087.4 279.6 273.2 6£2.8 1,640.2 345.2 1,295.0
2001 10,090 1,619 4,000 18,366 33.974 3,957 368 1,910 10,193 16,328 1,067.4 279.6 273.2 552.8 1,640.2 345.2 1,295.5
2002 10,090 1,519 4,000 18,366 33,974 .,a57 868 1.910 10.193 16.328 1,087.4 279.6 273.2 552.8 1,640.2 34S.2 1,29S.0
2003 10,090 1.519 4,000 18.360 33,974 3,867 S38 1,910 10,193 16,328 1,067.4 279.6 273.2 652.8 1,640.2 34,.2 1,295 0
2004 10,090 1,619 4,000 18,366 33,974 3.857 368 1,910 10,193 16,328 1,007.4 279.6 275.2 552.8 1,640.2 345.2 1,295.0
2005 10,090 1,519 4,000 18.366 33,974 3,867 S68 1,910 10,193 16,328 1,087.4 279.6 27t 2 552.8 1,640.2 345.2 1,295.0
2006 10,090 1,519 4,000 18,366 33,974 8,067 368 1,910 10,193 16,328 1,087.4 279.6 27?..2 562.8 1,640.2 345.2 1,295.0
2007 10,090 1,519 4,000 18,866 33,974 S,867 S68 1,910 10,193 16,328 1,087.4 279.6 273.2 652.8 1,640.2 345.2 1,295.0
2008 10,090 1,S19 4,000 18,366 33,974 3,867 368 1,910 10,193 16,328 1,067.4 279.6 273.2 552.8 1,640 2 345.2 1,295.0
2009 10,090 1,619 4,000 18,366 33.974 8,867 368 1,910 10,193 16,328 1,087.4 279.6 273.2 632.8 1,640.2 345.2 1.295 0
2010 10,090 1,619 4,000 18,366 33,974 3,857 368 1,910 10,193 16,328 1,087.4 279.6 273.2 532.8 ),640.2 345.2 1,295.0
2011 10,090 1,619 4,000 18,366 33,974 3,SS7 S68 1,910 10,193 16,328 1,06;.4 279.6 273.2 552.8 1,640.2 345.2 1,295 0
2012 10,090 1,519 4,000 18,366 33,974 3,867 368 1,910 10,193 16,326 1,067.4 279.6 273.2 552.0 1,840.2 345.2 1,295.0
2013 10,090 1,619 4,000 18,366 33,974 S,857 36s 1,910 10,193 18,3S2 1,087.4 279.6 273.2 652.8 1,640.2 345.2 1,295.0
2014 10,090 1,619 4,000 18,366 83,974 3,857 S38 1,910 10,193 16,325 1,087.4 279.6 273.2 852.8 1,640.2 345.2 1,295 0
2015 10,090 1,519 4,000 18,366 33.974 3,857 368 1,910 10,193 16,326 1,087.4 279.6 275.2 652.8 1,640.2 545.2 i,295.0
2016 10,090 1,519 4,000 18,S6b 3S,974 3,857 368 1,010 10,19' 16,328 1,087.4 279.6 278.2 552.P 1,640.2 345.2 1,295.0
2017 10,090 1,619 4,000 18,366 33,974 3,887 368 1,910 10,193 16,S32 1,087.4 279.6 273.2 532.8 1,640.2 345.2 1,295.0
IERR = 21.8S.
/r Average tariff in FY90 a Rp 113.2/kWh - US* 6.66 por ivWh.& Additional economic benefit for r-eidential and industriel conumra calculated as fol lo.:
R.sidential : Current average revenue per kWh * Rp 123.2 a US* 7.25;
Additional seonoeic benefit r US* 7.25 per kWh.Industrial Current average revenue Dor kWh a ,p 91.2 a US$ 5.36;
Additional econoeic beneift a USJ 2.68 per kWh.
Am* 231
IDONESIA
PAITON TPS4L POlwER PROJKT
Calculations of Int.rnal Financial Rat, of Raturn (IFRRt - Paiton Unita 1 A 2(US6 million)
Capital Cost.
Unit. I A 2 Production L Total Cost Energy Sold k* Caeh fIsFia'al Yesr and Tranasi. Di-tri. LI 0 14 Coot. tb (Ch) Fuel Coat Ld (4).(2).(3)*(S) (Ch) Rewnoue L (If -fO.
(ending 3/31) (1) (2) (S) (4) (5' (6) (7) (a) (9)
1990 85 as 4-1991 111 IDO 211 -2111992 281 100 381 -3611993 230 100 a30 -3301994 1lo 5.2 1.099 18.4 124.6 7n W.5 -6.11995 43 21..5 4.398 73.4 135.9 351.6 234.3 97.41996 22 20.5 46.18 77.1 119.6 369.4 246.0 126.41997 20.5 52.80 83.2 108.7 42.24 201.3 172.61998 20.S 52.80 88.2 108.7 42.24 211.3 172.61999 20.3 32.80 88.2 108.7 42.24 281.3 172.6 02000 20.3 52.80 LS.2 108.7 42.24 281.3 172.62001 20.S 52.80 88.2 108.7 42.24 281.3 172.62002 20.5 52.80 88.2 108.7 42.24 281.3 172.62003 20.5 52.30 87.3 107.8 41.64 276.7 170.92004 20.5 50.80 84.8 105.3 40.64 270.7 165.42005 20.3 50.80 84.6 105 40.64 270.7 16B.42006 20.5 50.80 84.6 .05.3 40.64 270.7 165.42007 20.35 0.80 84.8 IIS.3 40.64 270.7 165.420D8 20.5 50.80 64.8 105.3 40.64 210.7 185.42009 20.5 80.80 84.8 105.3 40.U4 270.7 166 4
2010 20.5 50.81 64.8 IOS.3 40.64 278.7 IS.42011 20.3 88.80 84.6 105.3 40.64 270.7 165.42012 20.6 50.80 84.8 105.3 40.64 2m.7 165.42013 20.5 50.13 83.7 10.42 40.10 267.1 162.92014 20.3 45.4 75.9 96.4 36.33 242.1 14.572013 20.5 45.44 73.9 96.4 36.35 242.1 14.572018 20.5 45.44 73.9 96.4 36.35 242.1 14.572017 20.3 45.44 75.9 96.4 36.33 242.1 14.5?2016 13.2 34.08 6.9 72.1 27.26 1U1.6 109.5
LI Distributbon cost approximtely 3SS of Cmneration cost.L 0lM cost 25 of aeneration plus 1 of distr;iution. Tpll AL U.S. Criteria (NERC) for coal-fired poor plant perforsance statistics applid as Yea r Y ear VYear
ahoen in Table A. Loa 1-2 3-10 11-20 21-.2Li Fuel cost . Ulk 1.6/kWh or U516.700/tWh at USt42.5/ton of coal with heat value 'WS 4.500 6.OOD 5.000 3.510
of 6.000 kcal/gk. and overall plant heat rat of 2.355 kcal/'Wh. 753 730 460 1.410 2.2D8/ Sales - 0.8 n Generation. WS 91.0 460 48; 1,080
Lf Revenue at Rp 113.2 *.h or USe 6.66/kUh average tariff 05 2.630 1.600 1.800 2.000
- 91 - ANNEX 24
INDONESIA
PAITON THERMAL POWER PROJECT
Selected Documents and Data Available in the Project VFle
Reports on the Sector
1. Legislation Affecting PLN: Electricity Act of 1985.
2. Final Accounts of PLN, 1987/88.
3. Audit Report of PLN, 1987/88.
4. Financial Forecasts (1988/89-1994/95) ard Working Papers.
5. Commercial Information, 1986/87, PLN.
6. Annual Financial Information, 1986/87,PLN
7. The Decree of the President of the Republic of Indonesia No. 3 of the Year1983, Concerning the Procedures of Promoting and Supervising DepartmentalAgency (PERJAN), Public Corporation (PERUM) and Limited Liability StateCorporation (PERSCRO), dated February 17. 1983.
8. The Decree of the President of the Republic of Indonesia No. 28 of theYear 1983, Concerning Amendment to Decree No. 3 of the Year 1983, datedNovember 28, 1983.
9. Electricity Basic Tariff, 1989 PLN.
10. Long Run Marginal Cost Study, 1987, PLN.
11. Government Regulation No. 45/1986 dated October 2, 1986, concerning the
adjustment of prices or acquisition values of assets in connection withtbh change of the Rupiah exchange rate in September 1986.
12. The Decree of PLN Board of Directors, No. 185/DIR/85 on the CorporateFive-Year Plan (1984/85-1988/89).
13. The Decree of PLN Board of Directors, No. 090/DIR/87 on the Action Planfor Improving Accounting Functions, 1987/88-1989/90.
14. The Decree of PLN Board of Directors, No. 097/DIR/87 on Action Plan forImproving Consumer Administration, 1987/88-1989/90.
15. Circular letter No. 013/PST/1987 regarding Report on Rural Electricity, by
PLN's Board, dated October 5, 1987.
16. Paiton Design Reports, Vol. I thru VII, by the Consulta-ts (Sargent &
Lundy).
17. PLN's Investment Program (1987/88-2000/01) Scenario 481C. February 1989.
- -' ,' . ,'IBRD 12453R'fo,ot \rHA^LAND 05 lISo kS] l~~ ~ ~ ~~~~~~~~~io, lis- g' r30 13 f5- 1io
ondo AceS -S_>'} '\ THAI LAND ' flY IV INDONESIAi. PHIlhPPINES PLN GENERATING CAPACITIES BY Rt-GIONSoA-n / ' SEPTEMBER 1988
{- i MALAYSIA BRUNEI *<v / INtuAnDMW INSTAUEDMW'-* t. i NtdQno v i r * 'F,9,, ,- 5? ,1 50S5 v!Is .22 _ _ _ W 4s
285 4. 68 WAWAyS 110&M.olos/ A5shcor \.0, .t. \ ) _ EV 501 1> _ . _ h n69I s - ! S . r N / -v 119 137
MALAYSIA ., VI 236Sholgo C 1080090>1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I23 -A57.. :SINGAPORE
'- onjtgplnng Pi. I / ,q4tMAA ERA .) K.
/ 0 IM0A Govo- , I , t | 4 . ~~~Pontionok \K / ° folonkolo, I : /_.
,ombifi. KALIMANTAN *Sr 0.rdo I ' y / ;
Jon,ui 7sNCrs i 9trSoobro, oap o t V ; 'l.7 SEPAl ,OL&O 510 -7 .' 1 > )
S MoIhl A oA,b f T-Aon rTo-og -d. . ' W SULAWESI '/ Ix _ -0
Thb. C W-w Am im 8FqStUN1 o R .SIAN JIA r '-
N801 4 S igor.BURLLS LM,Envtidu~~~~~~~~~~~~~~~~~~~~~~~~~~_sloroIv 'goj 5
ToluISbotng * P r i g h009r Poodn;Q~, - *_ Agt >eo's
I/ JAKARTA Booboo . E/' -oI~W JAWA > '~N,
psorog MADUR/A 7 A8Ao,°Komojoog * ,, I,-
YULoKovo 3uA0b0yo-
4 AtP LBAWA- -J~~ ~ ~ A_~ -) .qiop"a Spr - Bimo, rtonojoo 6 , Me,oo2S,
Mln.Pows r10.-i K 0 i 0 - 20 300 400 5IX IY
00 Io =0 0 oO 10 sokO Bone E cM r rB lv | SVMYA 20,0 300Q0o 4090 590 6po 7po spo
/ovPn rn-KILOMETERS
lrQ Ip0' _ !°' I,i ! wno t2J' 130 125 APRIL 1985~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ARI 18
'06' 108. 110' INDONESIA 114' IBRD 214
INDONESIASUMATERA PAITON THERMAL POWER PROJECT
MAJOR POWER PLANTS AND MAIN TRANSMISSION LINES
UNDER PROPOSED TUTUREeXISnNG CONSTRUCTION PROJECT DETEUOPMENT
Transmission Lines:- - S t \ +) n - 500 kV
150 kV + 70 kV" JAKARTA I * U U Power StationsS- a_
500 kV SubstationsYEkolou S,.rl i , e0 150 kV + 70 kSV 7 ubstations
S era ns ** , ~R.naodevklokRon,k,nb,lun, > / ;;_;p SUk-mcnd,
EndunWv XIV PLN's Wilayah Numbers
Buronnb H 0 _ Wilayah or Distribusi HeadquartersRo,g.Johur J.i . PLN's Wilayah Boundaries
*__ _f--vzl ! Koiofzoodo,g Adi'00' SEMARANG fTo.,... Jo-
Ubrug ( $ \ \ ht;< D9 S-ns C Po,lS Srepg lCo mo
XPsIabuhaRn SEUnblsI!|
JAWA BA RAT S-ooojo-p
D-N a ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~LEom=ob ToSo', Mu,oodlou 108' -Ca lAio A g\ / mll
5olr5hr Por -i SaT ' Ea_dak1 *e - vu8lmgo SMaun/i
mo=romuvcul bPallr-ebk TIMUR
AKARTA Wl5 \ \*/ - -,,_
oea9t S I~~A- P,,.k M-rnd. l<IPWoi 2°=
S C,ng SEhtARAN 9Je- n S1EMARANG
SerS K m gi> Cikorong , r | ~~~~~~~~SURABAYA /Kondon,J99 Smm 8nuog
G\ono ,df So,kH=i<m / S.Kabo.R. RNgko.bOa'g / vCI.mnop " 3 E=slS.moron S egod o in dPian Ocen
eDum~~~~~~~'il~ r -g _ ndiorpng 0\c,n '.KmeonbC,b,no-gTo9n
\.Q.. / Ung5ron- 10 ]so
<lh, 1 0 KILOMETERS
Koas\o\ Mojoberk 59 d D 2D 40D 44 0 IDD MILES
\ /____________________/_________'________\___ 112 114'
FEBRUARY
