ASIAN DEVELOPMENT BANK PCR: INO 27075

PROJECT COMPLETION REPORT

ON THE

SUMATRA POWER TRANSMISSION PROJECT (Loan 1320-INO)

IN

INDONESIA

December 2003

CURRENCY EQUIVALENTS

Currency Unit – Rupiah (Rp)

At Appraisal At Project Completion April 1994 July 2003

Rp1.00 = $0.000474 $0.000117 $1.00 = Rp2,110 Rp8,525

ABBREVIATIONS

ADB – Asian Development Bank FIRR – financial internal rate of return PLN – Perusahaan Listrik Negara (national power company) TA – technical assistance

WEIGHTS AND MEASURES

km (kilometer) – 1,000 meters kV (kilovolt) – 1,000 volts kWh (kilowatt hour) – 1,000 watt hours MW (megawatt) – 1 million watts

NOTE

In this report, "$" refers to US dollars.

CONTENTS

Page BASIC DATA i MAP vii I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation 2 B. Project Outputs 3 C. Project Costs 4 D. Disbursements 4 E. Project Schedule 5 F. Implementation Arrangements 6 G. Conditions and Covenants 6 H. Related Technical Assistance 7 I. Consultant Recruitment and Procurement 7 J. Performance of Consultants, Contractors, and Suppliers 8 K. Performance of the Borrower and the Executing Agency 8 L. Performance of the Asian Development Bank 9

III. Evaluation of Performance

A. Relevance 9 B. Efficacy in Achievement of Purpose 9 C. Efficiency in Achievement of Outputs and Purpose 10 D. Preliminary Assessment of Sustainability 11 E. Environmental, Sociocultural, and Other Impacts 11

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment 12 B. Lessons Learned 12 C. Recommendations 12

APPENDIXES 1. Chronology of Events 2. Project Outputs at Appraisal and Actual 3. Line Work: Appraised, Actual, and Status 4. Cost Estimate and Schedule for Remaining Work 5. Appraised and Actual Project Costs 6. Actual Disbursements, 1996–2001 7. Contracts Transferred to Power Development and Efficiency Enhancement Project 8. Implementation Schedule. 1994–2002 9. Compliance with Covenants 10. Summary of Contracts Financed by the Asian Development Bank 11. Financial Analysis

BASIC DATA

A. Loan Identification 1. Country 2. Loan Number 3. Project Title

4. Borrower 5. Executing Agency 6. Amount of Loan 7. Project Completion Report Number

Indonesia 1320-INO Sumatra Power Transmission Republic of Indonesia Perusahaan Listrik Negara $272 million PCR:INO 787

B. Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity (number of years) – Grace Period (number of years)

8. Terms of Relending – Interest Rate – Maturity (number of years) – Grace Period (number of years)

16 May 1994 1 June 1994 29 August 1994 1 September 1994 27 September 1994 22 November 1994 22 February 1995 27 April 1995 1 30 April 1999 5 June 2001 2 Variable 20 4 Loan rate plus 0.5% 20 4

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9. Disbursements

a. Dates

Initial Disbursement

29 October 1996

Final Disbursement

14 May 2001

Time Interval

55 months

Effective Date

27 April 1995

Original Closing Date

30 April 1999

Time Interval

48 months

b. Amount ($ million)

Category or Subloan Original

Allocation

Last Revised

Allocation Amount Canceled Net Amount

Available Transmission Lines

157.39

98.00

(59.39)

98.00 Substation 57.23 35.65 (21.58) 35.65 Live Line Maintenance

4.00

0

(4.00)

0 Construction

Supervision

13.04

4.34

(8.70)

4.34 Consulting Service for

Kusan 3 Hydropower Project

3.40

2.34

(1.06)

2.34 Consulting Services for

Iralalaro Hydropower Project

3.50

0

(3.50)

0 Consulting Services for

Live Line Maintenance Project

1.00

0

(1.00)

0 Unallocated 32.44 0 (32.44) 0

Total 272.00 140.34 (131.66) 140.34

Amount Disbursed

98.00 35.65

0

4.34

2.34

0

0 0

140.34 10. Local Costs (Financed) –Amount ($) 19,385,519 –Percent of Local Costs 15.18 –Percent of Total Cost 6.97

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C. Project Data

1. Project Cost ($ million) Cost Appraisal Estimate Actual Foreign Exchange Cost 300.0 150.36 Local Currency Cost 114.0 127.73 Total 414.0 278.09

2. Financing Plan ($ million)

Cost Appraisal Estimate Actual Implementation Costs

Borrower-Financed 114.0 117.67 ADB-Financed 272.0 140.34

Subtotal 386.0 258.01

IDC Costs Borrower-Financed 28.0 20.08

Total 414.0 278.09 ADB = Asian Development Bank, IDC = interest during construction. 3. Cost Breakdown by Project Component ($ million)

Component Appraisal Estimate Actual

Part A: Southern Sumatra 37.58 31.92 Part B: Northern Sumatra 54.74 50.06 Part C: Central Sumatra 68.24 70.58 Part D: Central and Southern Sumatra Interconnector 145.67 89.17 Part E: Construction Supervision 16.19 11.14 Part F: Engineering Design for Kusan 3 Hydropower Project 5.40 5.13 Part G: Engineering Design for Iralalaro Hydropower Project 5.00 Canceled Part H: Live Line Maintenance 6.00 Canceled Contingencies 47.18 Canceled IDC on ADB Loan 28.00 20.08 Total 414.00 278.09 ADB = Asian Development Bank, IDC = interest during construction.

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4. Project Schedule Item Appraisal Estimate Actual Part A Tendering July 1994–July 1995 19 June–28 Nov 1995

Bid Evaluation/Contract Negotiations

Aug 1995–Apr 1996 3 June–16 Dec 1996

Manufacture and Supply May 1996–Oct 1997 22 Nov 1996–4 Apr 1998 Erection and Commission Dec 1996–May 1997 10 Mar 2000–3 Apr 2001

Part B Tendering July 1994–May 1995 19 June 1995–28 Nov 1995

Bid Evaluation/Contract Negotiations

June 1995–Mar 1996 30 Aug 1996–07 Jan 1997

Manufacture and Supply Jan 1996–Oct 1997 28 Novr 1996–28 February 1998 Erection and Commission Nov 1995–Nov 1997 26 Aug 1997–June 1999

Part C Tendering July 1994–May 1995 19 June–28 Nov 1995

Bid Evaluation/Contract Negotiations

June 1995–Mar 1996

30 Aug–16 Dec 1996

Manufacture and Supply Jan 1996–Oct 1997 28 Nov 1996–31 Oct 1998 Erection and Commission June 1996–Nov 1997 31 Oct 1998–Nov 2000

Part D Tendering Apr 1995–Feb 1996 11 July 1995–11 Dec 1996

Bid Evaluation/Contract Negotiations

Mar 1995–Dec 1996

14 Oct 1996–13 Nov 1997

Manufacture and Supply Oct 1996–July 1998 28 Nov 1996–25 July 2000 Erection and Commission Aug 1996–Aug 1998 22 Dec 1997–2 June 2001

Part E Construction Supervision for Parts A–D

Part A Contract Signed Mar 1996 13 Mar 1997 (terminated Mar 1999) Part B Contract Signed Mar 1996 2 June 1997 (terminated Mar 1999) Part C Contract Signed Mar 1996 16 June 1997 (terminated Mar 1999) Part D Contract Signed Mar 1996 26 Sep 1997 (terminated Mar 1999)

Part F Engineering Design for Kusan

3 Hydropower Project Contract Signed

Nov 1995

26 Sep 1997

Part G Engineering Design for

Iralalaro Hydropower Project

Canceled

Part H Live Line Maintenance

Canceled

5. Project Performance Report Ratings

Ratings

Implementation Period

Development Objectives Implementation

Progress (i) From 1 Dec 1998—31 Jan 1999 S PS (ii) From 1 Feb 1999–30 June 2000 PS PS (iii) From 1 July –30 Nov 2000 PS S (iv) From 1 Dec 2000–31 May 2001 S S PS = partly satisfactory, S = satisfactory.

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D. Data on Asian Development Bank Missions

Name of Mission

Date

No. of Persons

No. of Person-Daysa

Specialization of Membersb

Fact-Finding 27 Jan – 16 Feb 1994

6 104 a, b, d, i, ,j, k

Appraisal 16 May–1 June 1994 3 48 a, b, d Review 1 10–29 Oct 1994 1 19 a Review 2 14–24 Nov 1995 2 20 2 a Review 3 19–30 Aug 1996 2 22 c, i Review 4 2–13 Dec 1996 1 11 c Review 5 1–15 Apr 1997 3 42 a, e, i Review 6 28 Oct–11 Nov 1997 2 28 c, i Review 7 13–27 Feb 1998 2 28 a, i Review 8 14–24 Apr 1998 2 20 a, i Review 9 6–11 July 1998 2 10 a, i Review 10 24 Nov–5 Dec1998 2 22 a, i Review 11 24–30 June 1999 1 6 a Review 12 10–17 July 2000 2 14 f, h Project Completion Reviewc 4–8 Aug 2003 3 12 g, l, k a Most of these missions were undertaken in conjunction with reviews of other projects. b a = project engineer, b = senior program officer, c = energy specialist, d = senior economist, e = social

development specialist, f = power sector specialist, g = project economist, h = sector specialist, i = senior project economist/financial analyst, j = environment specialist, k = staff consultant, l = associate project analyst.

c The project completion report was prepared by S. Gupta, project economist (energy), Southeast Asia Infrastructure Division and E. Festejo, associate project analyst, Southeast Asia Infrastructure Division.

I. PROJECT DESCRIPTION

1. Until 1993, the demand for electricity in Indonesia had been increasing at 15% per year for more than two decades. Large regional disparities in the power system between Java and elsewhere in the country in 1992/93 were reflected in the high share of electricity consumption in Java (79.6% of national electricity consumption), higher transmission and distribution losses outside Java, and the low electrification ratio outside Java (64.5% in Java compared with 37.2% outside Java). The Sumatra Power Transmission Project aimed to support the Government's objective of achieving geographically balanced development in the power sector by reinforcing transmission networks in Sumatra and improving supply efficiency through system interconnection. The Project's main objectives were to (i) transmit power generated from power plants and permit an economic interchange of power and sharing of reserve margins between the central and southern Sumatra grids; (ii) promote the development of hydropower potential in South Kalimantan and East Timor, now Timor-Leste, a separate country since 20 May 2002; and (iii) improve transmission system availability through live line maintenance, that is, repairing power lines while they are energized and conducting electricity. 2. As anticipated during appraisal, the following were the main components of the Project:

(i) Part A: Southern Sumatra Transmission: construction of 116 kilometers (km) of 275-kilovolts (kV) line (for initial operation at 150 kV), 45 km of 150 kV line, and a 150 kV substation at Lubuk Linggau and expansion of 150 kV substations at Bukit Asam, Curup, and Lahat;

(ii) Part B: Northern Sumatra Transmission: construction of 485 km of 150 kV lines and 150 kV substations at Banda Aceh, Bireuen, Idie, Lhok Seumawe, and Sigli and expansion of 150 kV substations at Binjai, Langsa, and Pankalan Brandan;

(iii) Part C: Central Sumatra Transmission: construction of 525 km of 150 kV lines and 150 kV substations at Bagan Siapi Api, Dumai, Duri, New Pekanbaru, Rengat, and Teluk Kuantan and expansion of 150 kV substation at Pekanbaru and gas insulated substation at Ombilin;

(iv) Part D: central southern Sumatra interconnection: construction of 429 km of 275 kV lines (for initial operation at 150 kV), 220 km of 150 kV lines, and 150 kV substations at Bangko, Jambi, Kiliran Jao, and Muara Bungo and expansion of gas insulated substation at Ombilin;

(v) Part E: consulting services: for construction supervision for parts A through D; (vi) Part F: engineering design: for the Kusan 3 hydropower plant in South

Kalimantan; (vii) Part G: engineering design: for the Iralalaro hydropower plant in the former East

Timor; and (viii) Part H: live line maintenance: transfer of technology, establishment of a training

center at Semarang, and provision of tools and equipment.

3. The Project supported the Government's objective of reducing disparity between levels of development of the power transmission systems of Sumatra and Java, and diversified the generation mix away from oil (scattered diesel power plants) by extending the existing 150 and 275 kV transmission lines in Sumatra and connecting nonoil-based power plants to load centers. 4. In 1998 and 1999, in view of Indonesia’s severe economic and financial crisis, the Government and the Asian Development Bank (ADB) undertook comprehensive portfolio reviews of on-going ADB projects. These resulted in a revision of the loan amount and a major change in the Project’s scope. The main objectives of the Project, that is, to develop power

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transmission systems in Sumatra and improve the reliability of the power supply by diversifying the generation mix through better interconnection of small grids in Sumatra, were not, however, substantially affected. 5. The Project (i) contributed to the development of a power system on the island of Sumatra that interconnects the regional power grids of central and southern Sumatra, thereby allowing the interchange of power and reducing standby capacity requirements; (ii) allowed the removal of existing diesel power plants from various load centers, connected to more efficient generation facilities, in northern, central, and southern Sumatra; and (iii) allowed the further expansion of power supply in the regions involved.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

6. The chronology of major events in the processing and implementation of the Project is given in Appendix 1. A. Relevance of Design and Formulation

7. The transmission components for the Project were identified based on least-cost transmission planning studies for a long-term generation expansion program for Sumatra. Based on these studies, at appraisal Perusahaan Listrik Negara (PLN), the national power company, had already undertaken the required detailed system studies for the Sumatra transmission systems. ADB reviewed these and confirmed that the transmission components identified under the Project were justified and represented the least-cost solution. 8. PLN’s Engineering Services Center prepared the project design. The selection of the network elements—namely, transmission lines and associated substations—to be developed or extended under the Project was in line with PLN’s least-cost, long-term (1994–2009) transmission development program for Sumatra. Lines were designed mainly to connect new generation capacities to load centers, to expand the area supplied by power, and to interconnect regional grids. The Project’s objectives are consistent with ADB’s country strategy and program for Indonesia for 2003–2005, which provides for the continuation of public sector investment to remove power transmission bottlenecks. The design of the interconnectors provides for the construction of 275 kV lines that are initially operated at 150 kV. The design voltage of 275 kV was selected to allow economic transmission of bulk electric power over long distances in the future, while the initial operation of these lines at 150 kV serves subtransmission purposes. 9. Minor changes in network design took place dictated by the review of priorities during project implementation. Certain line sections were replaced by other sections that became more important because of the development of new load centers and generating capacity. These changes were part of the updated least-cost planning exercise. As a result, the 150 kV Dumai–Bagan Siapiapi transmission line (90 km, first circuit) was replaced by the Duri–Bagan Batu transmission line (110 km, first circuit) and the 150 kV Teluk Kuantan–Rengat transmission line (130 km, first circuit) was replaced by the Garuda Sakti–Teluk Lembu transmission line (22 km, double circuit). These changes were justified because the lines to Bagan Batu approach the border with North Sumatra Province, thereby allowing interconnections with that grid, and the lines to Teluk Lembu enabled the connection to a gas turbine power plant under construction at that location.

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10. The design of the Kusan hydropower plant included all phases from the review of previous studies, site investigations and testing, basic and detailed design, and preparation of tender documents. B. Project Outputs

11. The expected outputs of the Project as envisaged after revision of its scope have been mostly achieved. The Project had a prolonged implementation period that spanned a period of radical changes in the economy and subsequent changes in priorities to satisfy load demand. PLN responded rapidly to the changing conditions by slightly modifying the initially envisaged extension of the network. These measures improved the Project’s benefits, because they took the latest load conditions in the network into account. 12. Appendix 2 shows the achievement of project outputs. Even though work on some segments of the Project has yet to be completed, most parts of the Project are operational 13. Appendix 3 details line length and segments at appraisal and as actually implemented. Major changes and remaining work are as follows:

(i) Part A: All components were completed, and 25 km of additional transmission lines had to be constructed because of the mountainous terrain.

(ii) Part B: On the Bireuen–Sigli (90 km) and Sigli – Banda Aceh (75 km) line sections, stringing was delayed because of a lack of security (mainly sabotage and theft) in Aceh Province. Portions of the transmission line already erected were destroyed and materials worth approximately $4 million were stolen. The associated substations—Bireuen, Sigli, and Banda Aceh—are complete, but cannot be finally commissioned because of the missing lines.

(iii) Part C: The Teluk Kuantan–Rengat line (130 km, first circuit) was canceled and replaced by a higher priority line from Garuda Sakti to Teluk Lembu (22 km, second circuit), where a 2 x 20 megawatt (MW) gas turbine power plant was being installed. The Dumai–Bagan Siapiapi (90 km, first circuit) line was canceled and replaced by the Duri–Bagan Batu (110 km, first circuit) line to set up a second interconnection path between the provinces of Riau and North Sumatra (via Rantau Prapat). However, this line could not be completed because of the theft of tower components. Other changes were dictated by demand in the region and consisted of replacing double circuit stringing with single circuit stringing on the Kiliran Jao–Teluk Kuantan line (52 km). However, stringing has not been completed on 41 km of this line because of right-of-way uncertainties. All associated 150 kV substations have been completed, but the unfinished lines have prevented final commissioning of the line bays.

(iv) Part D: 55 km of the 195 km Lubuk Linggau–Bangko line and 28 km of the Muara Bungo–Jambi line (now the Muara Bungo–Aur Duri line) could not be completed because of right-of-way uncertainties and land acquisition disputes.

(v) Part E: Because of the 1997 Asian financial crisis and the resulting shortage of counterpart funding, the scope of consulting services for supervising construction under parts B and C was reduced considerably. This was made possible because PLN could mobilize sufficient experience and capacity within its own staff to supervise construction of the 150 kV lines.

(vi) Part F: Basic and detailed design, social and environmental impact analysis, cost estimates, and production of tender documents were completed by the consultants and handed over to PLN.

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(vii) Parts G and H were canceled because of the lack of counterpart funds and the reduced priority given to the engineering design studies.1

14. In all cases, towers have been erected and conductor stringing can start in the unfinished sections as soon as the security situation has improved and right-of-way problems have been settled. PLN has taken over the contractors’ outstanding work and has decided to procure the materials required to complete the components through its own budget allocation. Right-of-way settlements will be achieved using PLN's budget, and PLN has given this issue priority by engaging all concerned stakeholders. Given PLN's corrective action, it is envisaged that the Project will be completed and all project objectives will be fully achieved by mid-2004. Appendix 4 presents the cost of and schedule for completing the remaining work. C. Project Costs

15. At appraisal, the Project cost was estimated at $414 million equivalent, consisting of $300 million in foreign exchange costs (72.5%) and $114 million equivalent in local currency costs (27.5%). The actual Project cost was $278.09 million equivalent, consisting of $150.36 million in foreign exchange costs (54.1%) and $127.73 (45.9%) million equivalent in local currency costs (Appendix 5). 16. The actual foreign exchange costs were lower than estimated at appraisal, even without considering the canceled components, because of substantial variations in the rupiah-dollar exchange rate during project implementation. Except for part D, whose scope was reduced significantly, local currency costs exceeded appraisal estimates partly because of a higher than anticipated inflation rate. The local currency costs of part C almost tripled, partly due to inflation, but also because of right-of-way and land acquisition problems. Higher amounts of compensation had to be paid and significant delays resulted in higher overheads. 17. In 1998, the Government and ADB undertook a comprehensive portfolio review of all on-going ADB projects because of the severe economic and financial constraints Indonesia had been facing since the 1997 financial crisis. The first review resulted in a major change in project scope and the cancellation of $79.3 million of the loan amount resulting from (i) the cancellation of the construction supervision contracts for the 150 kV transmission lines and the direct supervision by PLN engineers instead, (ii) the cancellation of the live line maintenance equipment and associated consultancy services (part H), (iii) the termination of the engineering design studies for the Iraralalo hydropower project (part G), and (iv) the substantial cost underruns due to lower contract prices than those estimated at appraisal. A second review in 1999 resulted in the cancellation of a further $33.9 million, mainly through a reduction in scope for the transmission lines and consulting services for engineering studies and the elimination of contingencies that would not be used. D. Disbursements

18. Total disbursements were $140. 34 million, compared with the original approved amount of $272 million. Appendix 6 shows the annual disbursements under the loan. To limit expenses in the aftermath of the Asian financial crisis, the Government and PLN took corrective action and canceled some components of the Project. Moreover, as some components had not been completed by the extended loan closing date, PLN asked ADB not to extend the loan closing date further, but to transfer the undisbursed balance of $8.1 million as an additional amount to the

1 ADB. 1998. Report on the 1998 Comprehensive Portfolio Review. IN.300-98. 14 December 1998. Manila.

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Power Development and Efficiency Enhancement Project.2 ADB agreed to the request. Appendix 7 lists the contracts that were started under the Project and then transferred to the Power Development and Efficiency Enhancement Project. E. Project Schedule

19. According to the original implementation schedule, the Project was scheduled to be completed in 1998. The actual implementation schedule (Appendix 8) shows delays of two years for part A and more than four years for some line sections of parts B, C, and D. The Asian financial crisis and the resulting shortage of counterpart funding affected the execution of parts of the Project, as did such project-specific problems as right-of-way issues and the theft of materials. 20. Part A was behind schedule because of delays in the tendering process and the late approval of bid evaluation results. 21. Delays in part B were caused mainly by continuing hostilities between rebel forces and the military in the province of Nangroe Aceh Darussalam and the related security issues, (para. 13), which affected 330 circuit-km of 150 kV lines (Bireuen–Sigli and Sigli–Banda Aceh). Plans are in place to complete these line sections by April 2004. PLN intends to use primarily local contractors and local PLN personnel to avoid possible animosity and confrontations on the construction site. PLN will fund the remaining works out of its budget allocations. 22. For the Duri–Bagan Batu (part C) 150 kV line that could not be completed because of stolen materials, PLN plans to complete the line section by June 2004 using its own budget allocations. The Kiliran Jao–Teluk Kuantan 150 kV line was delayed because of right-of-way issues and land acquisition disputes. This section is expected to be completed by January 2004. 23. In part D, the 275 kV (for initial operation at 150 kV) line section, about 55 km of the Lubuk Linggau–Bangko segment, and about 28 km of the Muara Bungo–Aur Duri segment, cannot be strung because of the pending settlement of right-of-way issues. These sections are expected to be completed by January 2004. 24. Right-of-way negotiations are extremely slow and difficult because of the following reasons:

(i) Landowners are claiming exaggerated amounts compared with settlements already reached where right-of-way issues must be urgently settled to complete the work.

(ii) Landowners who already received compensation at reasonable rates will claim higher compensation if PLN provides the remaining landowners with significantly higher amounts of compensation.

(iii) Landowners and PLN differ about how to calculate the compensation amounts. PLN uses the opportunity cost of land to determine compensation, but many landowners want a higher lump sum settlement that is not related to opportunity cost.

(iv) Landowners have refused to clear vegetation under lines. (v) Many landowners are involved, e.g., according to PLN, more than 1,000 owners are

involved in the 55 km uncompleted portion of the Lubuk Linggau–Bangko line section.

2 The original loan amount approved was $272 million, with cancellations of $79.3 million in 1999 and $33.9 million in

2000. In June 2001 at loan closing, $18.46 million were undisbursed, of which $8.1 million were transferred to the Power Development and Efficiency Enhancement Project.

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(vi) Many landowners live in remote areas and are difficult to reach. (vii) In some cases ownership is unclear and duplicate claims arise.

25. PLN has made several attempts to settle the disputes. Since June 2002 three different teams—involving local police, local administration, and the military—were established in an attempt to resolve the issues. PLN has held periodic dialogue with these teams and pertinent landowners to resolve the right-of-way problems. 26. PLN engaged in processes to improve public relations using printed and electronic mass media, public hearings, and group and individual explanations. PLN and local governments attempt to give local communities a better understanding of the benefits of the Project, while providing reasonable compensation to affected landowners to facilitate the settlement of right-of-way problems. ADB expects that the remaining work will be completed given PLN's commitment to the Project. F. Implementation Arrangements

27. PLN was the executing agency for the Project and PLN’s head office was responsible for project implementation. PLN’s Engineering Services Center and Directorate of Construction handled the engineering and procurement and designed the 275 kV lines, while local PLN project organizations were responsible for day-to-day construction coordination and supervision. Both PLN’s head office and its local project organizations received assistance from international consultants financed by ADB. 28. The technical arrangements were familiar to PLN, and the Project could be started and implemented without major hindrances. Problems arose when local funding was considerably reduced as a result of the economic crisis and the parity of the rupiah against the dollar started to fluctuate. 29. In 1994, PLN underwent significant changes that had implications for project reporting. The corporatization of PLN in 1994 was followed by a continuous restructuring process to establish new branches and decentralize its operations. The reorganization and the reduction in the number of employees at the head office, the merger and reorganization of regional project offices and the resulting shifts of responsibilities, and the unavailability of consultants for project management for the remaining parts of the Project (para. 13) made obtaining information about the progress of implementation difficult. G. Conditions and Covenants

30. PLN generally complied with the Project’s covenants. The submission of audited project accounts and financial statements could have been more timely. Significant delays in meeting some of the loan conditions occurred because of disputes during the land acquisition and right-of-way negotiations, which prevented the timely completion of some line sections. 31. Appendix 9 shows the status of compliance with conditions and covenants. The covenants were realistic and those initially laid down in the Loan Agreement have not been modified, suspended, or waived.

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H. Related Technical Assistance

32. ADB provided technical assistance (TA) to help the Government with its energy sector initiatives aimed at promoting efficient and environmentally sustainable development, and energy conservation.3 The TA had three components as follows:

(i) A study of total energy management of urban buildings with decentralized cogeneration. The study evaluated the technical, financial, and economic feasibility of a combined natural gas-based cooling and power generation system with analysis of the environmental considerations. The executing agency was the Directorate General of Electricity and Energy Utilization.

(ii) The development of an energy efficiency labeling program for electrical appliances, the selection of appliances, and the development of proposals for the institutional framework and the legislation for implementation. The executing agency was the Directorate General of Electricity and Energy Utilization.

(iii) The provision of assistance to enhance PLN’s in-house technical capabilities in environmental impact assessments of transmission lines. The executing agency was PLN.

33. The TA was rated as partly successful.4 The TA addressed two broad areas: the incorporation of environmental considerations into transmission system expansion and energy conservation. Component (iii) directly contributed to the goal of the Project by enhancing PLN's capacity for conducting environmental impact assessments of transmission lines. The other components had indirect positive implications for transmission systems. For component (i), the TA report recommended that cogeneration systems for urban buildings based on absorption chillers and power generation were viable in shopping malls and hotels, whereas for hospitals and office buildings, such systems were uneconomical. Component (ii) identified the residential sector as the second largest consumer of electricity and the largest contributor to peak load. Establishing an appliance labeling program for air conditioners and refrigerators would result in 9 million kilowatt hours (kWh) of energy savings from refrigerators and 80 peak MW in air conditioner energy use. An instructors guide was developed under component (iii) and a training course entitled Environmental Impact Assessment of Transmission Lines was conducted for PLN staff. The financial crisis prevented the TA’s recommendations from being fully implemented, especially for components (i) and (ii). Recommendations in relation to component (iii) helped PLN undertake environmental impact assessments of transmission lines and incorporate environmental concerns into the system expansion process. The TA’s findings are still relevant, but will need to be updated as part of ADB's policy dialogue with PLN and the Directorate General of Electricity and Energy Utilization in relation to future loans. I. Consultant Recruitment and Procurement

34. Consulting services were required under part E of the Project to supervise construction of the transmission components for parts A through D and under part F for the engineering design of the Kusan 3 hydropower plant. Consultancy services under part G were canceled (para. 13). ADB reviewed and approved the terms of reference for the consulting firms. PLN carried out separate recruitment for each component following ADB’s Guidelines on the Use of Consultants by ADB and its Borrowers. 3 ADB. 1994. Loan and Technical Assistance for the Sumatra Power Transmission Project. Manila (TA No. 2171-

INO, for $416,000, approved on 27 September 1994 with the project loan). 4 ADB. 2003. Environment and Energy Efficiency. TA Completion Report. (TA 2171-INO, for $416,000). Manila.

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35. As envisaged in the report and recommendation of the President, the line survey, site selection, and land acquisition for the substations started in 1994. All ADB-financed supplies and services were procured using international competitive bidding in accordance with ADB's Guidelines for Procurement. For preparatory work, civil work, erection, and construction, procurement used local competitive bidding procedures, which ADB reviewed and found acceptable. ADB did not finance any local competitive bidding contracts. Four 275 (150) kV line sections have been tendered as turnkey contracts. For the other line sections and substations (all 150 kV), separate tenders for material supply, civil works, erection, and construction were issued. Advance procurement action was not used for the Project. Appendix 10 summarizes all contracts financed by ADB. 36. The procurement of goods and services was a laborious undertaking because of the many contracts to be awarded. A total of 165 contractors was engaged (18 for part A, 65 for part B, 54 for part C, and 28 for part D), which made tendering for construction supervision, project administration, and monitoring a time-consuming process. Preparing and handling tender documents and bid evaluations, coordinating packages, and carrying out contract negotiations, for so many, sometimes small, project components required a high level of effort. 37. The process of awarding contracts suffered from delays beyond PLN’s control. Delays in the award process occurred after evaluation. The time between the invitation to bid and the award of contracts was lengthy because approval was required from many departments. To avoid these delays, contracts were divided into smaller lots requiring fewer approvals; however, the invoicing of extremely small amounts unnecessarily burdened the Project’s administrative staff. J. Performance of Consultants, Contractors, and Suppliers

38. The performance of the international consultants and their domestic associates was satisfactory; however, in the case of part B, PLN had expected the consultants to transfer knowledge pertinent to project management and administration to PLN project engineers more effectively and to involve them more in the day-to-day work. 39. The Project was executed by a large number of contractors who generally performed well, but in the case of part D, the performance of some of the contractors was reported to be below expectations. Complaints included inadequate materials storage and handling, significant construction problems caused by the incompatibility of the equipment supplied by multiple vendors, and careless handling of drawing revisions by the contractors. K. Performance of the Borrower and the Executing Agency

40. The Borrower and PLN were responsible for providing all funds not provided by ADB. They did so in a timely manner until the onset of the Asian economic crisis, which caused shortages of local counterpart funds and had a serious impact on project implementation. 41. PLN attempted to cope with the situation and took the initiative to participate directly in the erection work through its regional project units with the aim of reducing costs to the lowest possible level. The assessment of PLN’s capabilities at appraisal was reasonably accurate. The delegation of authority from the head office to the regional units was implemented progressively during the course of the Project. The Project was a challenge for the two PLN regional project units as PLN head office’s involvement was gradually reduced and an increasing share of responsibility was transferred to them. The head office no longer performed operational

9

activities, but was responsible only for policy and strategic matters. The Directorate for Construction and Construction Administration in PLN’s head office was dissolved and the regional project units undertook project administration and construction supervision up to commissioning. 42. To facilitate the transition to an unbundled power sector, the focus is now on the decentralization and empowerment of operational units of PLN by making them strategic business units. The corporate office, which previously made all decisions about operational and investment-related matters, is now transforming itself into a holding company, with strategic business units as "virtual" subsidiaries. During the past 2 years, many corporate staff have been relocated to the strategic business units, and their general managers now exercise full responsibility for energy sales, including the expansion of the distribution network. The larger generation and transmission projects are implemented under the direct control of the corporate office; however, during the next phase of decentralization, managers of strategic business units will share the responsibility for procurement and be fully responsible for implementing all projects in their respective regions. This will result in more effective project management, taking into account the considerably shortened decision-making process. 43. PLN continues to develop its organization by broadening the delegation of authority from its head office to its regional units and implementing a market mechanism to mesh with the liberalization of the energy market. Given the difficult economic circumstances with which it had to contend, the performance of the borrower and PLN is rated as satisfactory. L. Performance of the Asian Development Bank

44. ADB responded in a timely and adequate manner to the Project’s requirements. Reviews of tender documents and subsequent bid evaluation reports were processed appropriately. Project progress was reviewed at least twice a year, and withdrawal applications were processed promptly. ADB also helped PLN manage the loan through the comprehensive reviews of ongoing projects after the 1997 financial crisis. ADB's performance is rated as satisfactory.

III. EVALUATION OF PERFORMANCE

A. Relevance

45. The design of the Project was satisfactory and met the main project rationale of supporting the Government's objective of achieving geographically balanced development for power transmission systems. The Project supported diversifying the generation mix away from oil-based generation and expanding the power supply in Sumatra. Changes made at midterm were intended to improve the Project’s design relevance in line with economic developments in the region and to achieve the Project’s goals more effectively. The Project is considered to be highly relevant. B. Efficacy in Achievement of Purpose

46. During appraisal the Project was anticipated to contribute to the reinforcement of PLN’s power network in Sumatra by constructing additional 275 kV and 150 kV transmission lines. This purpose was achieved with the exception of a few line sections that could not be completed for reasons discussed earlier (para. 13). The Project is partially functional because of the incomplete sections, but has improved the power transmission network in Sumatra. The cost of

10

the works to be completed by PLN is estimated to be less than 3.3% of the total project cost. According to PLN’s schedule, these line sections will be completed between December 2003 and June 2004. 47. The purpose of transmitting power from the generating plants to load centers was achieved, and municipalities connected by 150 kV transmission lines are fed from the network and their diesel generating units can be relocated to remote areas. The economic interchange of power between central and southern Sumatra will be achieved step by step, initially, by a short distance (subtransmission) interchange of power at 150 kV, then followed by a supraregional interchange at 275 kV when the uprating takes place. The objective of preparing the engineering design, technical specifications, and final tender documents for the Kusan 3 hydropower plant in South Kalimantan was achieved. 48. The Project contributed to the wider development goal of reducing the geographic disparity between the Sumatra and Java electrical networks by providing a more efficient transmission system in Sumatra. Transmission losses decreased from 4.08% in 1997 to 3.32% in 2001 in northern Sumatra and from 2.84% to 2.70% in southern Sumatra during the same period. Overall, the purpose of the Project as formally modified during implementation was achieved less than efficaciously. C. Efficiency in Achievement of Outputs and Purpose

49. The Project's efficiency was affected by implementation delays. Because it was not feasible to isolate and quantify the benefits of the Project from those attributable to the entire power network, a time-slice method was used at Project appraisal to estimate the economic internal rate of return and the financial internal rate of return. However, the use of time-slice analysis for the economic internal rate of return calculations does not seem appropriate in this instance, and it was decided, in consultation with the ADB Economics and Research Department, not to conduct a similar analysis for the economic reappraisal. The Project is part of the least-cost development plan for power system generation and transmission and is considered to be economically viable. 50. In recalculating the financial internal rate of return, the time-slice method was used as in the report and recommendation of the President because no better alternative is available. Appendix 11 provides details of the calculations. The recalculated financial internal rate of return is 1.7% compared with the analysis at appraisal of 10.8% (base case) and a weighted average cost of capital of 4.15% for PLN in 2001. The deviation from the appraisal results is due mainly to the lower than expected growth in demand, a higher than expected increase in the cost of electricity supply because of the depreciation of the rupiah and the high share of foreign exchange costs, and the inability of PLN to increase tariffs in line with the increase in costs because of the economic crisis. 51. As the transmission facilities provided under this Project made the dismantling of diesel power plants possible, this demonstrates the efficiency of the investment. The Project resulted in the substitution of high-cost, oil-based generation by relatively low-cost generation based on natural gas, coal, and geothermal and hydroelectric sources. The Project made possible the relocation of oil-based diesel power units totaling an installed capacity of 156 MW from the area affected by the Project to other (remote) areas of Indonesia. At the same time, the Project averted investments in about 126 MW of additional diesel generating capacity in the area. Given the implementation delays and the low financial return, the Project is rated as less than efficient.

11

D. Preliminary Assessment of Sustainability

52. Energy losses in Indonesia in 2001 were 13.52% (station own use not included), which was higher than the 12.33% in 1995, but still below the covenant value of 15%. This was due to the increase in distribution losses from 9.47% in 1995 to 11.14% in 2001. Transmission losses decreased from 2.86% to 2.38% during the same period, thereby indicating an improvement in the transmission network. The rural electrification ratio improved considerably from 61.75% in 1995 to 82.39% in 2001. The rural electrification ratio in the project area in 2001 ranged from 69.49% in southern Sumatra to 94.92% in Aceh. The Project contributes to a sustainable power transmission system by providing a more efficient transmission system with lower losses. Nevertheless, the level of rural electrification still needs further improvement in southern Sumatra. 53. Electricity tariffs charged to consumers were too low to ensure the sector’s economic sustainability, and tariffs had to be increased to a level adequate to ensure not only financial survival, but also the capacity to repay loans needed to fund new capital investment. PLN has made good progress in increasing tariffs since 1999. Average revenues from electricity sales increased from Rp211 per kWh ($0.024 per kWh) in 1999 to Rp557 per kWh ($0.065 per kWh) in July 2003. Consumers have accepted the tariff increases, but tariffs are still slightly below the economic cost of power generation and supply, which is currently estimated at $0.07 per kWh. Expectations are that they will reach the required level in 2005. PLN's financial strategy is based on strict budget control over strategic business units and operational units, stringent cash flow norms to maintain a reasonable level of power supply within the financial constraints, Government approval for gradual increases in tariff levels, determination of the subsidy necessary to offset the partial recovery from small consumers, low levels of energy losses, and efficient energy billing and bill collection. 54. Continuation of the reform program by the Government is expected to ensure the sector’s sustainability and the optimization of Project-related benefits. The 2002 Electricity Law provides for a gradual transition to a fully competitive electricity market and is an important milestone in the reform program. The blueprint for the development of the national electricity industry recognizes the need for making high-quality and reliable electricity services available and for developing transmission and distribution facilities to meet regional electricity demand. The Government’s programs to develop the electricity industry that will lead to the optimization of benefits from the Project include designating national grids that in the long-term are consistent with the development plan for the Association of Southeast Asian Nation’s grid, increasing supply capacity by addressing transmission bottlenecks and improving the capacity of the transmission network capacity, and including the preparation of a grid code to facilitate competitive electricity markets among the duties of the electricity supervisory board. Given the initiatives taken by the borrower and PLN, the Project is likely to be sustainable. E. Environmental, Sociocultural, and Other Impacts

55. At appraisal, the Project was classified “B.” PLN carried out the initial environmental assessment and submitted it to ADB. During the route selection for the transmission lines, efforts were made to reduce environmental, sociocultural, and other impacts to a minimum. This was achieved by preventing ecological damage and conserving biodiversity and ecosystems in the design of the Project. 56. In certain line sections, land acquisition and right-of-way issues were a more serious sociocultural problem than had been anticipated at appraisal. PLN has taken steps to address

12

these problems by establishing committees of stakeholders and local authorities to facilitate settlement of the disputes (paras. 25, 26). Overall, the Project is considered to have moderately positive impacts.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

57. The Project is considered successful based on a review of its relevance, efficacy, efficiency, sustainability, and other impacts. The Project was implemented as conceived and only minor remedial measures were taken. B. Lessons Learned

58. Land acquisition and right-of-way disputes of the type experienced by the Project are likely to be encountered more frequently as members of the community become more aware of their rights and become involved in prolonged negotiations. This serious issue, which has arisen elsewhere, not just in Indonesia, may affect other projects in the future and should be taken into consideration when preparing upcoming projects (paras. 70, 71). 59. Numerous tender packages and contracts result in additional administrative work and coordination problems (para. 36). Future contracting procedures should ensure adequate time for processing contracts (paras. 37, 67) and optimize the number of tenders and contracts (para. 68). 60. Given the termination of the construction supervision consultancy because of financial constraints, the lack of project progress reporting up to the expiry of the consultant's contract resulted in significant delays and difficulties in subsequent supervision and administrative services (para. 69). C. Recommendations

61. The following paragraphs describe specific and general recommendations that may affect projects or may be generally applicable to ADB practices in the future.

1. Project Related

62. To ensure the Project’s operational efficiency, an assessment of the loading of each individual transmission line and of the step-down transformers in the associated substations is required. This can be done by using substation reading records at various characteristic load conditions (low load, peak load, and so on) and periodic control of the quality of maintenance of transmission lines and substations built under the Project. 63. The covenants in the loan and project agreements should be maintained in their existing form. Although it is too late at this stage to change it, the covenant on land acquisition and rights-of-way could have been strengthened (para. 71). 64. Actions are necessary to settle the land acquisition and right-of-way disputes as soon as possible to permit completion of the line sections affected and conclude local currency disbursements. This is important to achieve the Project’s full benefits.

13

65. No additional assistance is needed to substantially improve the Project's performance and sustainability. 66. The Project has greatly benefited Sumatra’s transmission and generation network; however, its full benefits will only be realized when it is completely implemented. As a few components of the Project were transferred to the Power Development and Efficiency Enhancement Project and stringing work remains to be done in three sections of the Project, the Project Performance Audit Review should be carried out in 2005 following full completion of the Project, which is expected in 2004.

2. General

67. The scheduling of project implementation should allow more time for the approval process of tender evaluation results as well as for right-of-way negotiations. 68. In future, tender packages should be optimized in such a way as to reduce the number of contracts to a minimum without prejudicing competition or price. 69. The terms of reference for future consultancies should include the provision of a final report in case of premature termination of contracts. 70. Executing agencies should develop better formulated and transparent rules and regulations for calculating prices for land acquisition, compensation for the costs of crops and other outputs, to make them acceptable to landowners and for timely settlement of right-of-way issues. Awareness programs should also be developed to obtain more public support for efficient resolution of right-of-way problems and to enable the delivery of efficient and reliable energy. 71. ADB covenants concerning land acquisition and compensation should be strengthened by including requirements that land acquisition or rights-of-way should be obtained prior to the construction of any physical infrastructure. Early settlement would ensure that all affected people are compensated, and would also prevent landowners from taking advantage of the urgency to negotiate and to claim exaggerated prices as compensation.

Appendix 1 14

CHRONOLOGY OF EVENTS

A. Project Processing

27 Jan–16 Feb 1994 Fact Finding Mission 16–1 June 1994 Appraisal Mission 29 Aug–1 Sep 1994 Loan Negotiation 27 Sep 1994 Loan Approval 27 Apr 1995 Loan Signing

B. Procurement

1. General 1995 19 June ADB receives draft bid documents for northern Sumatra (lots

2C1, C2, and C3 for 150 kV transmission line equipment and lot 3C for 150 kV substation equipment), southern Sumatra (lots 2B1, B2, and B3 for 150 kV transmission line equipment and lot 3B for 150 kV substation equipment), and central Sumatra (lots 2A1, A2, and A3 for 150 kV transmission line equipment and lot 3A for 150 kV substation equipment).

11 July Bid documents published in the United Nations Development

Business. 31 July ADB comments on draft bid documents sent to PLN. August Bid documents published in the ADB-Business Opportunities 3 August PLN responds to ADB’s comment on draft bid documents

provided. 10 August Bid documents published in local newspapers. 14 August Bid documents issued. 5 September ADB comments on PLN’s reply to draft bid documents. 18 October PLN responds to ADB’s fax of 5 September regarding

comments on draft bid documents. 25 October Original closing date for bid submissions. 14 November ADB receives original bid documents and the corresponding

addenda issued to prospective bidders.

Appendix 1

15

28 November Actual bid closing date for bid submissions.

2. Category 1A: Equipment (Transmission Line) a. Part A: Southern Sumatra Transmission 1996 28 May ADB receives BER for lots 2A1, 2A2, and 2A3. 19 June ADB approves BER for lots 2A1, 2A2, and 2A3. 23 August ADB receives signed contract for lots 2A2 and 2A3. 1997 7 February ADB receives signed contracts for lots 2A1, 2A2, 2A3, and

3A. 13 October ADB receives a copy of amendment no. A.01/97 for lot 2A1

covering change of the company name of SAE (India), Ltd. to RPB Transmission Ltd.

23 October ADB approves amendment no. A.01/97 for lot 2A1. 1998 22 December ADB receives a copy of amendment no. A.03/98 for lot 2A1

covering extension of completion delivery time from 28 March 1998 to 22 October 1998.

1999 4 January ADB approves amendment no. A.03/98 for lot 2A1 2000 16 October ADB receives a copy of amendment no.A.03/2000 for lot 3A

covering 26 October ADB approves amendment no. A.03/2000 for lot 3A b. Part B: Northern Sumatra Transmission 1996 30 August ADB receives BER for lots 2C1, 2C2, and 2C3. 9 October ADB approves BER for lot 2C2.

16 Appendix 1

25 October

26 November

1997

7 February

1998

24 April

27 April

22 October

3 November

2000

27 March

2 April

16 May

23 May

c.

1996

30 August

4 October

18 October

1997

7 February

PartC:

ADB approves BER for lot 2C1.

ADB approves BER for lot 2C3.

ADB receives signed contracts for lots 2C1, 2C2, 2C3, and3C.

ADB receives copy of amendment no. A.O1/97 for lot 2C1covering changes of quantity based on actual requirements atsite and extension of delivery time.

ADB approves amendment no. A.O1/97.

ADB receives copy of amendment no. A.O2J98 for lot 2C1covering deduction of the scope of work based on actualrequirements at site.

ADB approves no. A.O2/98.

ADB receives a copy of amendment no. A.O3/2000 for lot 2C1covering adjustment of contract price.

ADB approves amendment no. A.O3/2000

ADB receives a copy of amendment no. A.O2/2000 for lot 2C2covering adjustment of contract price in line with Government

guidelines.

ADB approves amendment no. A.O2/2000 for lot 2C2.

Central Sumatra 150 kV

ADB receives BER for lots 2B1, 2B2, and 2B3.

ADB approves BER for lots 2B1 and 2B2.

ADB approves BER for lot 2B3.

AD8 receives signed contracts for lots 281, 282, 283, and38.

Appendix 1

17

1998 13 April ADB receives copy of amendment no.A.02/98 for lot 2B3

covering changes of quantity based on actual requirements at site and extension of delivery time.

27 April ADB approves amendment for lot 2B3. 17 June ADB receives copy of amendment no. A.01/98 for lot 2B1

covering changes of quantity based on actual requirements at site and supply the shortage tower materials under the previous contract, i.e., lot 2D: 150kV Transmission Lines for Loan 1032-INO.1

18 June ADB approves amendment no. A.01/98 sent to PLN. 10 July ADB receives copy of amendment no. A.01/98 for lot 2B2

covering addition or reduction of quantity of conductors based on actual requirements at site, supply the shortage conductor materials under the previous contract, i.e., lot 2D for the Power XX Project and extension of delivery time.

31 August ADB receives copy of amendment no. A.02/98 for lot 2B1

covering extension completion time up to 31 October 1998. 2 September Bank approves amendment no. A.02/98 for lots 2B1, 3A, 3B,

and 1AA4-2. 2000 5 April ADB approves amendment no.02/2000 for lot 2B2. d. Part D: Central and Southern Sumatra Interconnection 1995 21 November ADB receives draft bid document for lot 3D turnkey project. 14 December ADB comments on draft bid documents. 1996 17 April ADB receives bid documents for lot 1AA1. 30 April Opening of bid for lot 3D.

1 Lot 2B1 is Supply and Delivery of Tower Materials (150 kV Transmission Lines Central Sumatra). Lot D2 is

Contract for 150 kV Transmission Lines under Power XX Project.

18 Appendix 1

14 May

29 May

19 June

12 July

16 July

30 July

19 August

16 September

6 October

19 November

1997

12 February

21 March

1 July

15 August

6 October

24 October

6 November

1998

19 February

3 March

Bid documents for lots 1 M4-1, 1 M4-2, and 1 M4-3 issued

ADB receives draft bid documents for lots 1M4-1, 1M4-2,1AA4-3, and 3E.

ADB comments on draft bid documents for lot 3E.

PLN Informed ADB that contents1 AA2, 1 AA3, and 1 BB were thedocuments issued.

of bid documents for lotssame as for lot 1 AA 1 and

Published in the ADB-Business Opportunities and UnitedNations Development Business

Opening of bids for lots 1 AA4-1 and 1 AA4-2.

ADB approves bid documents for lots 1 AA 1, 1 AA2, 1 AA3,and 1 BB.

ADB receives revised bid documents and correspondingaddenda as issued for lots 3D, 1AA4-1, 1AA4-2, and 1AA4-3.

Opening of bids for lot 1AA4-3.

ADB receives copy BERof for lot 3D.

ADB approves BER for lot 3D.

ADB receives copy of signed contract for lot 3D.

ADB receives BER for lot 3E.

ADB approves BER for lot 3E.

ADB receives copy of BER for lots 1 AA 1, 1 AA2, 1 AA3, and1 BB for 275 kV transmission lines.

ADB approves BER for lots 1AA1, 1AA2, 1AA3, and 1 BB.

ADB receives copy of signed contract for lot 3E.

ADB receives copies of signed contracts for lots 1 M 1,1M3, and 1 BB.

1M2,

no. 1 for lot 1 AA2 for performanceADS receives

guarantee.amendment

Appendix 1

19

5 March ADB receives amendment no. 1 for lots 1AA1, 1AA3, and 1BB for performance guarantee.

24 November ADB declares no objection to amendment no. 1 for lots 1AA1,

1AA2, 1AA3, and 1BB. 4 December ADB receives a copy of amendment no. A.01/98 for lot 3E

covering change in shunt reactor manufacturer from overseas to local.

10 December ADB approves amendment no. A.01/98 for lot 3E. 23 December ADB receives a copy of amendment no. 01/98 for lot 3D

covering extension of completion from 20 September 1998 to 20 December 1998.

1999 4 January ADB approves amendment no. 01/98 for lot 3D. 26 February ADB receives a copy of amendment A.02/98 for lot 3D

covering extension of completion time up to 20 January 1999 1 March ADB receives a copy of amendment no. A. 02/99 for lots

1AA1, 1AA2, 1AA3, and 1BB covering London Metal Exchange price adjustment and additional manufacturers for towers and fittings.

5 March ADB approves amendment no. A.02/98 for lot 3D. 8 March ADB approves amendment no. A.02/99 for lots 1AA1, 1AA2,

1AA3, and 1BB. 26 May PLN’s advised on reallocation of contract amounts for lots

1AA2 and 1AA3 under Sumatra Power Transmission Project and Loan 1397.2

28 May ADB approves reallocation of contract amounts for lots 1AA2

and 1AA3. 18 October ADB receives a copy of amendment no. 03/1999 for lot 3D

covering reduction of erection and commissioning due to the unavailability of Kiliran Jao Substation and the Ombilin-Kiliran Jao transmission line.

25 October ADB approves amendment no. 03/1999 for lot 3D.

2 Contracts include both the 1st and 2nd circuit of 275 kV transmission lines funded the Project and Power

Development and Efficiency Enhancement Project, respectively. Procurement of 1st and 2nd circuits was combined into a single contract package for each section of the transmission line.

20 Appendix 1

28 December

2000

6 January

13 March

20 March

27 March

30 March

25 April

2 May

16 May

23 May

6 September

7 September

21 September

26 September

26 September

ADB receives a copy of amendment no. 03/99 for lots 1 AA 1and 1 BB covering adjustment of contract price in line withGovernment guidelines.

AD8 approves18806.

amendment no. 03/99 for lots 1 AA 1 and

ADB receives a copy of amendment no. A.O4/00 for lots 1M2and 1M3 covering effective contract date and extension ofcompletion time.

ADB approves amendment no. A.O4/00 for lots 1M2 and1M3.

ADB receives a copy of amendment no. 04/2000 for lot 3Dcovering price escalation of French Franc portion for erectionand commissioning works.

ADB approves amendment no. 04/2000 for lot 3D.

ADB receives a copy of amendment no. OS/2000 for lot 3Dcovering adjustment of contract price in line with Governmentguidelines.

ADB approves amendment no. OS/2000 for lot 3D.

ADB receives a copy of amendment no. 03/2000 for lots1AA2 and 1M3 covering adjustment of contract price in linewith Government guidelines.

ADB declares no objection to amendment no. 03/2000.

ADB receives a copy of amendment no. OS/2000 for lots1M1, 1AA2, and 1M3 covering adjustment of the contractprice.

ADB requests PLN to revise contract amendment no. OS/2000for lots 1 AA 1, 1 AA2, and 1 AA3 to separate and indicate thespecific amounts under the two loans (Loan 1320 andLoan1397).

ADB receives copies of amendment no. OS/2000 for lots1AA1, 1AA2, and 1AA3.

ADB receives PLN's response to its fax of 7 September 2000.

ADB approves amendment no. OS/2000 for lots 1 AA 1, 1 AA2,and 1 AA3.

Appendix 1

21

23 October ADB receives a copy of amendment no. A.05/2000 for lot 1BB covering adjustment of contract price in line with Government guidelines.

26 October ADB approves amendment no. A.05/2000 for lot IBB. 31 October ADB receives a copy of amendment no. A.03/00 for lot 3E

covering price adjustment. 8 November ADB approves amendment A.03/00 for lot 3E. 17 November ADB requests PLN to submit draft amendment of contracts

for lots 1AA1, 1AA2, 1AA3, and 1B to shift outstanding payments from Loan 1320 to Loan 1397.

6 December ADB receives copies of amendment no. 08/2000 for lots

1AA1 and 1AA3, and amendment no. 07/2000 for lot 1AA2. 13 December ADB comments on amendment no. 08/2000 for lots 1AA1 and

1AA3 and amendment no. 07/2000 for lot 1AA2. 19 December PLN responds to ADB comments of 13 December. 2001 6 February ADB receives a copy of amendment no. A.04/2000 for lot 3E

covering correction to amendment no. A.03/00. 8 February ADB approves amendment no. A.04/2000 for lot 3E. 12 March ADB receives a copy of amendment no. 07/2000 for lot 1BB

covering adjustment of contract price in line with Government guidelines.

12 March ADB receives copies of amendment no. A.09/2000 for lot

1AA1, amendment no. A.08/2000 for lot 1AA2, and amendment no. A.09/2000 for lot 1AA3.

3. Category 1B: Equipment (Substations) 150 kV Substations for Lots 3A, 3B, and 3C 1996 30 August ADB receives evaluation report. September ADB reviews the evaluation report. 8 October ADB approves the evaluation report.

Appendix 122

1997

23 January

19 March

1998

11 August

26 August

2 September

3 September

8 September

2000

24 January

29 June

29 June

26 October

26 October

Consultant Services

1. General

1995

16 March

c.

AD8 receives signed copy of contract for lot 3A.

AD8 receives signed copy of contract for lot 38.

ADB receives amendment no. A.O1/98 for lot 3A coveringextension of completion time.

ADB receives no. A.O1/98 for lot 3B covering extension ofcompletion time.

ADB's declares no objection to amendment no. A.O1/98 forlots 3A and 3B.

ADB receives amendment no. A.O1/98 for lot 3C due tochange in quantity based on actual requirements at site.

ADB's declares no objection to amendment no. A.O1 for lot3C.

ADB receives amendment no. 03/2000 for lot 3C coveringadjustment of contract price in line with Governmentguidelines.

ADB receives amendment no. A.03/2000 for lot 3B coveringadjustment of contract price in line with Governmentguidelines.

objection to amendment no. A.O3/2000 forADB' declares nolot 3B.

ADB receives amendmentprice adjustment.

coveringno. A.O3/2000 for lot 3A

ADB declares no objection to amendment no. A.O3/2000 forlot 3A.

ADB receives the shortlist of consultants and TOR for Part A(Southern Sumatra Transmission), Part B (Northern SumatraTransmission), Part C (Central Sumatra Transmission), Part

Appendix 1

23

D (Central-Southern Sumatra Interconnection), Part F (Engineering Design for the Kusan 3 Hydropower Project in South Kalimantan), and Part H (Live Line Maintenance Facilities).

5 April ADB requests PLN to submit proposed invitation letter,

criteria to be used for selecting consultants, and confirmation that ADB guidelines will be used to select consultants.

11 May ADB receives the proposed documents (draft invitation letter

and criteria to be used for selecting consultants for each project) for parts A to H.

June –July ADB reviews documents. 31 August ADB receives TOR, narrative evaluation criteria, letter of

invitation, shortlist of firms, and sample contract document. 6 September Consultant selection committee meeting convened ADB to

review shortlists, invitation documents, and evaluation criteria. 12 September ADB approves the TOR, shortlists, evaluation criteria,

invitation letter, and draft contract document. 2. Category 2A: Construction Supervision

a. Part A – 275 kV Southern Sumatra Transmission 1996 26 August ADB receives evaluation report for engineering services for

Part A. 3 September ADB approves evaluation report for Part A. 27 December ADB receives draft contract for engineering services for Part

A. 1997 13 January ADB approves the draft contract for Part A. 7 May ADB receives a copy of signed agreement for engineering

services for Part A. 1999 13 December ADB receives a copy of memorandum no.1 to engineering

services to cover the extension of services from September 1999 to July 2000 for completion of the work.

Appendix 124

17 December

2000

12 September

ADB approves the issuance of memorandum no. 2.

Part B: 150 kV Greater Northern Part of Sumatra Grid

13 September

b.

1996

30 July

7 August

1997

31 March

19 June

Part C: 150 kVc.

1996

30 July

7 August

1997

14 May

28 May

29 June

2000

28 February

7 March

ADB approves the issuance of memorandum no. 1.

ADB receives a copy of memorandum no. 2 to cover theextension of duration of the services until November 2000 forcompletion of the work.

ADS receives for Part B.

ADB approves the evaluation report for Part B.

ADB approves draft consulting services contract for Part B.

ADB receives a copy of signed agreement for engineeringservices for Part B.

Central Sumatra

evaluation report for the engineering servicesADB receivesfor Part C.

ADB approves the evaluation report for Part C.

servicesADB receives draft agreement forPartG.

engineering for

ADB approves draft for Part C.agreement

ADB receives a copy of the signed agreement for Part C.

ADB receives a copy of memorandum no. 1 for Part C tocover the reduction in the period of services due to the earlytermination of the services.

ADB sends fax requesting clarification on memorandum no.1

Appendix 1

25

11 April ADB receives PLN’s clarification on memorandum no. 1. d. Part D: 275 kV for Interconnection of Central and South Sumatra

1996 2 August ADB receives a copy of the evaluation of technical proposals

for Part D. 13 August ADB approves the evaluation of technical proposals for Part

D. 1997 4 August ADB receives draft agreement for Part D. 6 August ADB approves draft agreement for Part D. 6 October ADB receives a copy of agreement for Part D. 2000 24 October ADB receives a copy of contract memorandum no. 1 covering

the optimization and extension of time to complete the construction supervision of the work.

31 October ADB declares no objection to issuance of memorandum no. 1. 2001 13 March ADB receives a copy of contract memorandum no. 2 covering

additional cost due to extension of duration of the services. 16 March ADB declares no objection to issuance of memorandum no.

2. 3. Category 2B: Kusan 3 Hydropower Project

Part F: Engineering Design for the Kusan 3 HydropowerProject in South Kalimantan

1996 18 October ADB receives the result of evaluation of consultants. 24 October ADB approves the result of evaluation of consultants.

26 Appendix 1

1997

12 August

14 August

16 October

1999

27 December

2000

3 January

10 January

Category 2C: Iralalaro Hydropower Project

Part G: Engineering Design Services for Iralalaro Hydropower Project

1996

18 February

20 February

27 Novemberhydropower plant.

Category 2D: Live Line Maintenance

Part H: Consulting Services for Live Line

1996

7 November

11 November

ADB receives draft agreement.

ADB approves the draft agreement.

ADB receives signed agreement for engineering services.

which covered thememorandum no. 2,

of domestic currency

ADB receives memorandum no. 1,extension of consultant services, andwhich covered the price adjustmentcosts.

ADB reviews memorandums 1 and 2.

ADB declares no objection to the issuance of memorandums1 and 2.

ADS receives proposed list of consultants to be short-listed,draft TOR, letter of invitation, and evaluation criteria.

ADS requests PLN to submit report for Iralalaro and Kusan 3before approving the issuance of the invitation letter to theshort-listed consultants.

ADS receives draft final social acceptance report for Iralalaro

Maintenance

ADS receives result of evaluation of consultants.

ADS's declares no objection to the result of the evaluation ofconsultants.

Appendix 1

27

1997 20 June ADB receives draft agreement for consulting services. 26 June ADB reviews the draft agreement. 18 July ADB declares no objection to the draft agreement. 4 September ADB receives signed copy of the agreement.

ADB = Asian Development Bank, BER = bid evaluation report, kV = kilovolt, PLN = Perusahaan Listrik Negara, TOR = terms of reference. Source: ADB Files.

28 Appendix 2

Project Outputs at Appraisal and Actual

Appraisal

Actual

Part A: Southern Sumatra Transmission • 116 km of 275 kV line (for initial operation at 150 kV) • 45 km of 150 kV line • new 150 kV substation at Lubuk Linggau • expansion of 150 kV substations at Bukit Asam,

Lahat and Curup

• Completed as appraised • 70 km of 150 kV line • Completed as appraised • Completed as appraised

Part B: Northern Sumatra Transmission • 485 km of 150 kV lines • new 150 kV substations at Banda Aceh, Bireuen,

Idie, Lhok Seumawe, and Sigli • expansion of 150 kV substations at Binjai, Langsa

and Pankalan Brandan; •

• Only 320 km of 150 kV lines completed • Completed as appraised • Completed as appraised

Part C: Central Sumatra Transmission – • 525 km of 150 kV lines • new 150 kV substations at Bagan Siapi Api, Dumai,

Duri, New Pekanbaru, Rengat, and Teluk Kuantan • expansion of 150 kV substation at Pekanbaru and

at Ombilin gas insulated substation

• Only 283 km of 150 kV lines completed • Completed as appraised • Completed as appraised

Part D: Central Southern Sumatra Interconnection • 429 km of 275 kV line (for initial operation at 150 kV) • 225 km of 150 kV line • new 150 kV substations at Bangko, Muara Bungo,

Kiliran Jao and Jambi • expansion of Ombilin gas insulated substation;

• Only 335 km of 275 kV line completed • Only 167 km of 150 kV line completed • Completed as appraised • Completed as appraised

Part E: Consulting Services for Construction Supervision of Parts A Through D

Consulting services reduced to the design phase and the construction supervision of 150 kV substations and 275 kV transmission lines with the balance of consulting services required provided by PLN

Part F: Engineering Design for the Kusan 3 Hydropower Project in South Kalimantan

Completed as appraised

Part G: Engineering Design for the Iralalaro Hydropower Project in the Former East Timor

Canceled

Part H: Live Line Maintenance • technology transfer • establishment of training center at Semarang • provision of tools and equipment

Canceled

km = kilometer, kV = kilovolt, PLN = Perusahaan Listrik Negara.

Source: appraisal data: Report and Recommendation of the President – Sumatra Power Transmission Project. September 1994, Manila, and PLN.

LINE WORK: APPRAISED, ACTUAL, AND STATUS

275 kV 150 kV New Names/ 275 kV 150 kV 275 kV 150 kVkm cct cctkm cctkm Alternative Section km cct cctkm cctkm km cct cctkm cctkm

Part A Lahat-Lubuk Linggau, 1st cct 116 1 116 - 116 1 116 - 116 1 116 -Curup-Lubuk Linggau, 2cct 45 2 - 90 70 2 - 140 70 2 - 140

Subtotal 161 116 90 186 116 140 186 - 116 140Part BBinjai-P. Brandan, 2nd cct 51 1 - 51 51 1 - 51 51 1 - 51P. Brandan-Langsa, 2nd cct 79 1 - 79 79 1 - 79 79 1 - 79Langsa-Idie, 2 cct 55 2 - 110 55 2 - 110 55 2 - 110Idie-Lhokseumawe, 2 cct 85 2 - 170 85 2 - 170 85 2 - 170Lhokseumawe-Bireun, 2cct 50 2 - 100 50 2 - 100 50 2 - 100Bireun-Sigli, 2 cct 90 2 - 180 90 2 - 180 - 2 - 0Sigli-Banda Aceh, 2 cct 75 2 - 150 75 2 - 150 - 2 - 0

Subtotal 485 0 840 485 789 320 0 459Part CPekanbaru-New Pekanbaru,2 cct 22 2 - 44 Garuda Sakti1) - Rumbai1) 20 1 - 20 20 1 - 20New Pekanbaru-duri, 2 cct 85 2 - 170 Rumbai1)-Duri 97 1 - 97 97 1 - 97Duri-Dumai, 1st cct 61 1 - 61 56 1 - 56 56 1 - 56Dumai-Bagan Siapiapi, 1st cct 90 1 - 90 Duri-Bagan Batu2) 110 1 - 110 1 - 0Kiliran Jao-Teluk Kauntan, 1st cct 52 1 - 52 52 1 - 52 11 1 - 11Teluk Kuantan-Rengat, 1st cct 130 1 - 130 Garuda Sakti-Teluk Lembu 22 2 - 44 22 2 - 44Ombilin-Kiliran Jao, 2 cct 85 2 - 170 77 2 - 154 77 2 - 154

Subtotal 525 0 717 434 0 533 283 0 382Part DLubuk Linggau-Bangko, 1st cct 199 1 199 - 195 1 195 140 1 140 -Bangko-Muara Bungo, 1st cct 77 1 77 - 78 1 78 78 1 78 -Muara Bungo-Kiliran Jao, 2 cct 153 2 306 - Muara Bungo-Kiliran Jao, 1 117 1 117 117 1 117 -Muara Bungo-Jambi, 2 cct 225 2 - 450 Muara Bungo-Aur Duri 195 2 - 390 167 2 - 334

Subtotal 654 582 450 585 390 390 502 335 3341,825 698 2,097 506 1852 451 1,315

plan vs. appraised 72% 88% completed vs. plan 89% 71%cct = circuit, cctkm = circuit kilometer, kV = kilovolt 1) New names of Pekanbaru=>Garuda Sakti, New Pekanbaru=>Rumbai, Jambi=>Aur Duri.2) Alternative line section.Source: appraisal data - Report and Recommendation of the President - Sumatra Power Transmission Project. 1994 and PLN.

Current Status Plan for ImplementationTransmission Lines At Appraisal

Appendix 3 29

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Appendix 5

31

Appraised and Actual Project Costs (Million $)

Appraisal Actual Component

Foreign Exchange

Costs

Local Currency

Costs

Total Foreign Exchange

Costs

Local Currency

Costs

Total Costs

Part A: Southern Sumatra

24.37 13.21 37.58 17.17 14.75 31.92

Part B: Northern Sumatra

42.78 11.96 54.74 22.72 27.35 50.06

Part C: Central Sumatra

52.00 16.24 68.24 28.61 41.98 70.58

Part D: Central and Southern Sumatra

95.47 50.20 145.67 54.00 35.17 89.17

Part E: Construction Supervision

13.04 3.15 16.19 5.22 5.93 11.14

Part F: Engineering Design for Kusan 3 Hydro Power Plant

3.40 2.00 5.40 2.56 2.56 5.13

Part G: Engineering Design for Iralalaro Hydro Power Plant

3.50 1.50 5.00 0.00 0.00 0.00

Part H: Live Line Maintenance

5.00 1.00 6.00 0.00 0.00 0.00

Contingencies 32.44 14.74 47.18 0.00 0.00 0.00Interest During Construction on Bank Loan

28.00 0.00 28.00 20.08 0.00 20.08

Total 300.00 114.00 414.00 150.36 127.73 278.09Source: Asian Development Bank.

32 Appendix 6

ACTUAL DISBURSEMENTS, 1996–2001 ($)

Year

Quarter Amount

Disbursed Annual Total

Cumulative Total

1996 IV 20,411 20,411 20,411

1997 I 784,019 804,430

II 5,489,775 6,294,205 III 5,730,925 12,025,130 IV 5,044,921 17,070,051 17,070,051

1998 I 17,211,189 34,281,240 II 17,401,010 51,682,250 III 17,717,279 69,399,529 IV 4,490,172 56,819,650 73,889,701

1999 I 15,692,141 89,581,842 II 10,605,633 100,187,475 III 11,797,668 111,985,143 IV 12,797,271 67,962,764 124,782,414

2000 I 5,631,597 130,414,011 II 3,466,964 133,880,975 III 2,157,407 136,038,382 IV 2,323,806 70,399,424 138,362,188

2001 I 1,221,211 139,583,399 II 758,210 69,942,185 140,341,609Source: Asian Development Bank.

Appendix 7 33

CONTRACTS TRANSFERRED TO POWER DEVELOPMENT AND EFFICIENCY ENHANCEMENT PROJECT

Contract Amendments

Description Currency Amount $ Equivalent

Lahat Lubuk Linggau Line $ 881,952.00 881,952.00 Rp 4,221,492,451.00 501,486.96 Lubuk Linggau Bangko Line $ 1,027,922.00 1,027,922.00 Rp 17,360,046,664.00 2,051,759.34 Bangko Muara Bungo Line $ 852,812.00 852,812.00 Rp 6,625,815,199.00 784,915.23 Muara Bungo-Kiliran $ 1,232,976.00 1,232,976.00 Rp 5,734,750,659.00 676,108.31 Total $ 3,995,662.00 3,995,662.00 Rp 33,942,104,973.00 4,014,269.84 Amount Transferred: $ 8,009,931.84 Source: Asian Development Bank.

IMPLEMENTATION SCHEDULE 1994–2002

Task DescriptionPart A: South Sumatra Transmission

Prelimary Survey

Land Acquisition

Tendering

Bid Evaluation/ContractNegotiations

Manufacture & Supply

Erection and Commissioning

Part B: North Sumatra Transmission

Prelimary Survey

Land Acquisition

Tendering

Bid Evaluation/ContractNegotiations

Manufacture & Supply

Erection and Commissioning1

1 Transmission line Bireuen-Sigli-Banda Aceh and associated sub station planned to complete April 2004. Planned per Appraisal Actual

2001 2002I II III IV I II III IV

1994 1995I II III IV

1996 1997 1998 1999 2000I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV

34 Appendix

8

Appendix 1

35

IMPLEMENTATION SCHEDULE 1994–2002 (Continued)

Task DescriptionPart C: Central Sumatra 150 kV Transmission

Prelimary Survey

Land Acquisition

Tendering

Bid Evaluation/ContractNegotiations

Manufacture and Supply

Erection and Commissioning

Part D: Central and South Sumatra Interconnection

Prelimary Survey

Land Acquisition2

Tendering

Bid Evaluation/ContractNegotiations/LC

Manufacture & Supply

Erection & Commissioning

2 Still not complete.3 Slowed down due to right-of-way disputes.

Planned per Appraisal Actual

2001 2002I II III IV I II III IVI II III IV

1996 1997 1998 1999 20001994 1995I II III IV I II III IV I II III IV I II III IV I II III IVIV I II III

Appendix 8 35

36 Appendix 9

COMPLIANCE WITH COVENANTS

Covenant

Reference in Loan

Documents

Compliance

I. 1.

General Implementation Arrangements PLN shall be responsible for the overall execution, supervision, and coordination of the Project.

Loan . Agreement Schedule 6, I.1

Complied with.

2. The overall responsibility for the implementation of the Project shall rest with PLN’s head office, while the day-to-day coordination and supervision of construction for the respective parts of the Project shall be undertaken by the following: (a) Parts A through E, the Principal Project

Generation and Transmission Office in Southern Sumatra;

(b) Parts F and G, the Directorate of Construction and Engineering Services Center of PLN’s head office; and

(c) Part H, the Directorate of Operations and Training Center of PLN’s head office.

L.A. Schedule 6, I.2

Complied with.

3. The Borrower shall ensure that PLN appoints, by the commencement of the site development works, site project managers, with experience and qualifications satisfactory to ADB, in the principal project generation and transmission offices in Sumatra for each of parts A,B,C, D, and E.

L.A. Schedule 6, 3(a)

Complied with.

4. The Borrower shall also ensure that, for each of parts F, G, and H of the Project, PLN has project coordinators with experience and qualifications satisfactory to ADB.

L.A. Schedule 6, 3(b)

Complied with.

5. PLN will select site project managers and project coordinators with experience and qualifications satisfactory to ADB and will provide staff with suitable experience and qualifications.

L.A. Schedule 6, 3(c)

Complied with.

II. 6.

Specific Implementation Aspects The Borrower and PLN shall acquire or cause to be acquired all land, rights-of-way and other property rights as may be required for the timely completion of the Project.

L.A. Schedule 6, 4

Partly complied with.

Appendix 9

37

Covenant

Reference in Loan

Documents

Compliance

7. The Borrower and PLN shall ensure that compensation satisfactory to ADB is provided to people affected by the construction of the Project facilities under parts A,B, C and D of the Project. The compensation shall be determined in consultation with representatives of the landowners and a committee for land acquisition that includes village authorities.

L.A. Schedule 6, 5 (a)

Partly complied with. Problems arose in three segments of the Project. The price of land acquisition was based on negotiations between PLN and landowners and involved local government staff.

8. The Government and PLN will ensure social acceptance before undertaking the detailed design and engineering of the Kusan 3 and Iralalaro hydropower projects.

L.A. Schedule 6, 5.(b)

Complied with. Design of the Iralalaro hydropower project was canceled.

9. The Borrower shall ensure that, for each transmission line PLN proposes, PLN shall prepare and implement mitigation and monitoring measures as described in the environmental management plans and environmental monitoring plans, satisfactory to ADB

L.A. Schedule 6, 5

Complied with.

III 10.

Financial, Accounting, and Related Matters The Borrower and PLN shall, prior to the effective date, take all necessary measures, satisfactory to ADB, required to achieve a rate of return of not less than 8% as defined in Section 2.18 of the Project Agreement, except that to satisfy the condition of effectiveness specified in Section 6.01(b) of this agreement, the period of time shall be 1 April 1994 to 31 March 1995.

L.A. Schedule 6 7 (a)

Complied with.

11.

The Borrower shall ensure that PLN annually conducts an overall review of its tariff levels (taking into account long-run marginal costs and average cost of supply of electricity at various voltage levels and for different categories of consumers) and furnishes a report thereon to ADB for its comments by 31 December of each year. The report shall also contain PLN’s proposals for taking any corrective measure as may be found to be required for ensuring compliance with the financial covenants set out in Sections 2.17 and 2.18 of the Project Agreement.

L.A. Schedule 6, 7 (b)

Complied with.

12. PLN will keep energy losses, excluding station use, at no more than 15%.

L.A. Schedule 6, 8

Complied with.

Appendix 9 38

Covenant

Reference in Loan

Documents

Compliance

13.. The Borrower shall ensure that PLN furnishes to

ADB annually segregated information on its rural electrification operations, in such manner and in such detail as may be required by ADB.

L.A. Schedule 6, 9

Complied with.

14. The Borrower shall ensure that PLN’s accounts receivable, both overall and those related to the public sector, are maintained at a level not higher than the equivalent of 3 months’ sales of electricity.

L.A. Schedule 6, 510

Complied with.

ADB = Asian Development Bank. LA = Loan Agreement, PLN = Perusahaan Listrik Negara.

Appendix 10 39

SUMMARY OF CONTRACTS FINANCED BY THE ASIAN DEVELOPMENT BANK

Mode of ContractCategory Description PCSS No. Supplier/ Contract No. Procurement Amount

IA - Equipment - Transmission Lines Part A - Southern Sumatra Transmission Lot 2A1 S/D of Tower Materials for 150 kV T/L 0003 -8/96 Sae India - 073.PJP/922/1996/M ICB 1.335 Lot 2A2 S/D of Conduct for 150 kV T/L 0001 -8/96 Walsin Lippo - 050.PJP/922/1996/M ICB 1.828 Lot 2A3 S/D of Insulator & Hardwares - 150 kV T/L 0002 -9/96 Sicamex - 051.PJP/922/1996/M ICB 0.969 4.132 Part B - Northern Sumatra Transmission Lot 2C1 Supply and Delivery of Tower Materials for 150 kV T/L 0007 -12/96 Hyundai - 080.PJP/922/1996/M ICB 6.620 Lot 2C2 Supply and Delivery of Conduct for 150 kV T/L 0008 -12/96 Walsin Lippo - 081.PJP/922/1996/M ICB 6.447 Lot 2C3 S/D of Insulator & Hardwares - 150 kV T/L 0012 -01/97 Sicamex - 088.PJP/922/1996/M ICB 4.032 17.099 Part C - Central Sumatra Transmission Lot 2B1 Supply and Delivery of Tower Materials for 150 kV T/L 0004 -12/96 Buana Teknisindo - 077.PJP/922/1996/M ICB 6.886 Lot 2B2 Supply and Delivery of Conduct for 150 kV T/L 0005 -12/96 Walsin Lippo - 967.PJP/922/1996/M ICB 5.523 Lot 2B3 Supply and Delivery of Insulator & Hardwares - 150 kV T/L 0006 -12/96 Bagus Triantho - 079.PJP/922/1996/M ICB 5.001 17.410 Part D - Central-Southern Transmission Interconnection Lot 1AA1 Lubuk Linggau-Lahat- 275 kV OH T/L 0024 - 05/98 KEC International - 002.PJP/922/1998 ICB 10.086 Lot 1AA2 Lubuk Linggau Bangko - 275 kV OH T/L 0025 - 05/98 KEC International - 003.PJP/922/1999 ICB 16.896 Lot 1AA3 Bankgo Muara Bungo - 275 kV OH T/L 0026 - 05/98 KEC International - 004.PJP/922/1998/M ICB 6.688 Lot 1BB Muara Bungo Kiliran Jao - 275 kV OH T/L 0027 - 05/98 KEC International - 005.PJP/922/1998/M ICB 14.831 Lot 1AA4-1 Supply and Devlivery of Tower Materials 0022 -11/97 Kalpataru Trans. - 055.PJP/922/1997/M ICB 3.701 Lot 1AA4-2 Supply and Delivery of Conductors 0021 -10/97 PT Jembo Const. - 045.PJP/922/1997/M ICB 4.702 Lot 1AA4-3 Supply and Delivery of Insulators and Hardwares 0015 -6/97 PT. Anugera Dwi - 031.PJP/922/1997/M ICB 2.456 59.360 IB - Equipment: Substations Lot 3A Supply and Delivery of Equipment for Part A 0009 -12/96 Aryasada - 082.PJP/922/1996/M ICB 4.233 Lot 3B Supply and Delivery of Equipment for Part C 0010 -12/96 Siemens - 083.PJP/p22/1996/M ICB 6.845 Lot 3C Supply and Delivery of Equipment for Part B 0011 -12/96 Aryasada - 084.PJP/922/1996/M ICB 10.074 Lot 3D Ombilin substation - GIS for 150 kV Substation 0013 -03/97 Cogelex - 012.PJP/922/1997/M ICB 5.927 Lot 3E 150 kV Substation Equipment 0023 -11/97 Siemens AG - 056.PJP/922/1997/M ICB 8.575 35.654 IC- Equipment: Live Line Maintenance Canceled IIA - Consultancy - Engineering Services Part E : Engineering and Construction Supervision

Part A - Const. Supervision - Part A (Greater South Sumatra) 0014 -5/97 ELC Electroconsult- 066.PJ/010/1998/M ICB 1.273 - Part B (North Sumatra) 0016 -6/97 Lahmeyer - 022.PJ/070/1997/M ICB 0.606 - Part C (Central Sumatra) 0017 - 6/97 Worley - 024.PJ/070/1997/M ICB 0.572 - Part D (Central/South Interconnection) 0020 -10/97 Merz/McLellan - 059.PJ/070/1997/M ICB 1.892 B. Consulting Services - Kusan 3 0019 -10/97 Electrowatt - 060.PJ/070/1997/M ICB 2.344 C. Consulting Services - Iralalaro Canceled D. Consulting Services -Live line Maintenance 0018 -9/97 Electricite De France - 034.PJ/070/1997/M - ICB Canceled 6.687 Total 140.342 GIS=geographical information system, ICB=international competitive bidding, kV=kilovolts, OH=overhead, T/L=transmission line.

Source: ADB Files.

Appendix 11 40

FINANCIAL ANALYSIS 1. The Project comprised the installation of transmission lines and construction of substations and is an integral component of the least-cost power expansion program for Sumatra. These components were required to transmit power from new generation projects to load centers, expand the supply area and interconnect regional grids to optimize reserve margins, and enable economic exchange of electricity among the regional grids. The components were also required to maintain system stability, prevent network overloading, and maintain a flatter voltage profile to minimize transmission losses. 2. Because isolating and quantifying the benefits of the Project is not feasible, at appraisal a time-slice analysis was used to estimate the Project’s financial and economic viability by considering the Project as an integral part of Perusahaan Listrik Negara’s (PLN’s) complete investment program. The financial internal rate of return (FIRR) and economic internal rate of return were originally calculated using the time- slice 1994/95–1998/99 of the entire PLN investment program. The recalculated FIRR was based on the time-slice analysis undertaken for 1998 to 2001 to remove extreme distortions from exchange rate fluctuations.1 In the recalculated analysis, all costs and benefits are expressed in 2001 prices. 3. The calculations assume that all incremental energy sales during the selected time-slice are attributable to PLN’s incremental investments during 1998–2001. The data were drawn from PLN’s 2001 Statistical Yearbook2 fixed asset and depreciation table and adjusted for book write-offs. 4. The fuel costs were calculated based on price projections in the Annual Energy Outlook 2003 published by the US Department of Energy3 and the PLN fuel mix for the respective year during the analysis period. The main features of the Annual Energy Outlook 2003 projection are an increase in the price of all hydrocarbon fuels of about 0.6% starting in 2005 and a steady value for coal prices. PLN’s fuel mix after 2001 was projected to be the same as in 2001. 5. The benefits were calculated by applying the average sales price for electricity for the respective year to the incremental energy available from PLN generation and from power purchased from independent power producers. For the financial analysis, all costs and benefits are expressed in terms of costs incurred by or accruing to PLN. For independent power producers, the price under power purchase agreements beyond 2001 is assumed to be $0.0493/kilowatt-hour, which is the price recently renegotiated for the PT Paiton Energy Project. 6. On the benefits side, incremental energy sales are valued at their average selling price consistent with the PLN 2001 Statistical Yearbook. As the current average tariff is below cost, a phased increase to $0.07 per kilowatt-hour until 2005 was assumed. 7. Table A11 provides details of the FIRR calculations. The recalculated FIRR is 1.67%. This is considerably lower than the base case FIRR of 10.8% in the appraisal analysis and the weighted average cost of capital for PLN of 4.15% in 2001. The deviation from the appraisal results is mainly due to the impacts of the Asian economic crisis in 1997 on PLN, which

1 The rupiah devalued from Rp2,110 to the US dollar in 1994 to Rp10,294 to the US dollar in 2001. During 1998–

2001 the exchange rate fluctuated only between Rp7,877 and Rp10,294 to the US dollar. 2 PLN. 2002. PLN Statistics 2001. Jakarta. 3 US Department of Energy. 2003. Annual Energy Outlook 2003 with Projections to 2025. Report #DOE/EIA-0383

(2003).

Appendix 11 41

dramatically changed the financial environment in which PLN was operating. The following were the main implications of the crisis for PLN:

(i) All imported and internationally traded inputs, such as power plant machinery, spare parts, and fuel, increased because of the devaluation of the rupiah.

(ii) The radical economic changes in Indonesia caused electricity demand to grow at a much lower rate than expected, and because of the devalued rupiah, energy tariffs remained far below the estimates at appraisal despite regular tariff adjustments.

(iii) The payment obligations for independent power producers in power purchase agreements were extremely high in US dollar terms compared with rupiah-denominated tariffs and revenues.

(iv) PLN could not raise tariffs in line with increases in the prices of input. (v) Industrial consumption, which was a major pillar of the cross-subsidy system to

provide low residential and public consumption tariffs, decreased in 1998. As a result, costs increased substantially while revenues declined, thereby having a severe negative effect on the FIRR.

42 Appendix 11

PLN Incremental Purchased Incremental Total IPPFiscal Production PLN Prod. from IPPs IPPs Incremental Energy CostYear

$ Million GWh GWh GWh GWh GWh $ Million $ Million $ Million $ Million $ Million

1997 6,470 74,800 - 1,820 - - - - -1998 1,750 74,695 -105 2,939 1,119 1,014 -1.3 69.8 -0.3 -20.1 1,7981999 1,585 80,497 5,697 4,279 2,459 8,156 87.1 370.8 31.5 -28.2 2,0462000 1,905 84,190 9,390 9,135 7,315 16,705 137.5 894.0 55.9 -28.7 2,9642001 1,848 88,355 13,555 13,299 11,479 25,034 208.8 730.9 86.6 -25.8 2,8482002 - 88,355 13,555 13,299 11,479 25,034 196.5 565.9 86.6 - 8492003 - 88,355 13,555 13,299 11,479 25,034 255.9 565.9 86.6 - 9082004 - 88,355 13,555 13,299 11,479 25,034 276.1 565.9 86.6 - 9292005 - 88,355 13,555 13,299 11,479 25,034 279.0 565.9 86.6 - 9312006 - 88,355 13,555 13,299 11,479 25,034 280.4 565.9 86.6 - 9332007 - 88,355 13,555 13,299 11,479 25,034 281.8 565.9 86.6 - 9342008 - 88,355 13,555 13,299 11,479 25,034 283.2 565.9 86.6 - 9362009 - 88,355 13,555 13,299 11,479 25,034 284.6 565.9 86.6 - 9372010 - 88,355 13,555 13,299 11,479 25,034 286.0 565.9 86.6 - 9382011 - 88,355 13,555 13,299 11,479 25,034 287.4 565.9 86.6 - 9402012 - 88,355 13,555 13,299 11,479 25,034 288.8 565.9 86.6 - 9412013 - 88,355 13,555 13,299 11,479 25,034 290.3 565.9 86.6 - 9432014 - 88,355 13,555 13,299 11,479 25,034 291.7 565.9 86.6 - 9442015 - 88,355 13,555 13,299 11,479 25,034 293.2 565.9 86.6 - 9462016 - 88,355 13,555 13,299 11,479 25,034 294.7 565.9 86.6 - 9472017 - 88,355 13,555 13,299 11,479 25,034 296.2 565.9 86.6 - 9492018 - 88,355 13,555 13,299 11,479 25,034 297.6 565.9 86.6 - 9502019 - 88,355 13,555 13,299 11,479 25,034 299.1 565.9 86.6 - 9522020 - 88,355 13,555 13,299 11,479 25,034 300.7 565.9 86.6 - 9532021 - 88,355 13,555 13,299 11,479 25,034 302.2 565.9 86.6 - 9552022 - 88,355 13,555 13,299 11,479 25,034 303.7 565.9 86.6 - 9562023 - 88,355 13,555 13,299 11,479 25,034 305.2 565.9 86.6 - 9582024 - 88,355 13,555 13,299 11,479 25,034 306.8 565.9 86.6 - 9592025 - 88,355 13,555 13,299 11,479 25,034 308.3 565.9 86.6 - 9612026 - 88,355 13,555 13,299 11,479 25,034 309.9 565.9 86.6 - 962

Total Costs

Table A11: RECALCULATED FINANCIAL INTERNAL RATE OF RETURN

InvestmentsIncremental Fuel Costs

Incremental ConsumerContributionO&M

FiscalYear Resid. % Comm. % Other % Indust. % Total Resid. Comm. Other Indust. To

1997 22,698 35.3 7,250 11.3 3,595 5.6 30,769 47.8 64,3121998 24,865 38.1 8,656 13.3 3,745 5.7 27,996 42.9 65,261 2,167 1,406 150 -2,7731999 26,875 37.7 9,330 13.1 3,790 5.0 31,337 43.9 71,332 4,177 2,081 195 568 72000 30,563 38.6 10,576 13.4 4,013 5.1 34,013 43.0 79,165 7,865 3,326 417 3,244 142001 33,340 39.4 11,395 13.5 4,192 5.0 35,593 42.1 84,520 10,642 4,146 597 4,824 202002 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202003 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202004 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202005 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202006 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202007 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202008 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202009 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202010 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202011 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202012 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202013 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202014 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202015 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202016 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202017 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202018 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202019 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202020 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202021 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202022 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202023 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202024 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202025 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 202026 33,340 - 11,395 - 4,192 - 35,593 84,520 10,642 4,146 597 4,824 20

Table A11: RECALCULATED FINANCIAL INTERNAL RATE OF RETUR

Sales (GWh) Incremental Sales (GWh)

tal$ Million $ Million $ Million

950 19.5 1,798 -1,778,021 195.8 2,046 -1,850,853 493.6 2,964 -2,470,209 656.8 2,848 -2,192,209 808.4 849 -41,209 1,010.4 908 102,209 1,212.5 929 284,209 1,414.6 931 483,209 1,414.6 933 482,209 1,414.6 934 480,209 1,414.6 936 479,209 1,414.6 937 478,209 1,414.6 938 476,209 1,414.6 940 475,209 1,414.6 941 473,209 1,414.6 943 472,209 1,414.6 944 470,209 1,414.6 946 469,209 1,414.6 947 467,209 1,414.6 949 466,209 1,414.6 950 464,209 1,414.6 952 463,209 1,414.6 953 461,209 1,414.6 955 460,209 1,414.6 956 458,209 1,414.6 958 457,209 1,414.6 959 455,209 1,414.6 961 454,209 1,414.6 962 452

FIRR = 1.67%

N

Total Costs Net BenefitsTotal Benefits

(Continued)

Appendix 11 43