Indonesia - Geothermal Clean Energy Investment Project

Page 1 INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE Report No.: AC4331 Date ISDS Prepared/Updated: 10/29/2009 I. BASIC INFORMATION A. Basic Project Data Country: Indonesia Project ID: P113078 Project Name: Geothermal Clean Energy Investment Project Task Team Leader: Migara Jayawardena Estimated Appraisal Date: July 16, 2010 Estimated Board Date: October 11, 2010 Managing Unit: EASIS Lending Instrument: Specific Investment Loan Sector: Renewable energy (50%);Power (50%) Theme: Climate change (100%) IBRD Amount (US$m.): 500.00 IDA Amount (US$m.): 0.00 GEF Amount (US$m.): 0.00 PCF Amount (US$m.): 0.00 Other financing amounts by source: Borrower 208.00 208.00 B. Project Objectives [from section 2 of PCN] The development objective of the proposed project is to increase the utilization of clean geothermal-based electricity in order to reduce pollution and improve the environment. This will be achieved through: a) development of geothermal power generation capacity in fields under the control of Pertamina Geothermal Energy (PGE), and b) strengthen the institutional capabilities of the company through technical assistance and capacity building so that PGE can contribute to sector development in a sustained basis. The achievement of the development objective of the project will be assessed through the following indicators: a) geothermal power generation capacity developed, b) avoided global and local pollution due to the displacement of additional coal-based capacity. C. Project Description [from section 3 of PCN] The GoI has requested a loan from the World Bank to support the development of up to 370 MW of capacity, of which about 260 MW are at an advanced stage of preparation, and are expected to be tentatively included in the scope for the loan. The designated implementing agency is Pertamina Geothermal Energy (PGE), a subsidiary of the national oil company, and a leading state-owned geothermal developer. It is expected that the project will strengthen the capacity of Page 2 PGE to better undertake the scale-up in geothermal development planned over time by the company so that they can make an increasing contribution to the GoI development target. This is particularly significant since it is only recently that PGE has been established as subsidiary, and the enhanced capacity will better place them to make more independent decisions and operate with greater autonomy. Proposed Project Components The following section includes the key components proposed under the project and their preliminary indicative costs. The specific breakdown as to the contribution of each source of funding will be finalized during project preparation upon the completion of the feasibility studies for each geothermal field. 1. Investment in Geothermal Power Generation Capacity - $708 million by World Bank, PGE, Dutch Grant 2. Institutional Strengthening and Capacity Building - To be determined Component 1: Investment in Geothermal Power Generation Capacity. Investment in up to 260 MW of power generation capacity, which will include the conformation of resources, production drilling, development of the steam gathering systems, and the construction of the power plant. Upon completion, PGE will be in a position to sell geothermal power into the national electricity grid in order to meet growing demand in an environmentally friendly manner. PGE has indicated their interest in securing the maximum possible loan to finance the project, while the GoI has tentatively agreed by signing a memorandum of understanding with the World Bank for a loan up to $500 million. The Government of the Netherlands has also agreed in principle to assist the project with $10 to $15 million in grant funds. It is expected that the remaining funds will be provided by PGE in the form of equity. The financing arrangement will be finalized during project preparation. Component 2: Institutional Strengthening and Capacity Building. PGE is in the midst of implementing a Corporate Development Plan that has been prepared with the assistance of a leading consulting firm. It is a program that began in 2006 and expected to continue until 2014, where PGE expects to progressively strengthen their institutional capacity and operational autonomy in order to become a "world class geothermal company". PGE has requested the proposed project to include assistance to help complete some outstanding actions as well support their upcoming reforms in several key areas: - Technical and Scientific Capacity: improve their technical capacity in line with the highest industrial standards through activities that could include: a) technical collaboration with a world class geothermal company, b) information technology for real-time connectivity between field offices and headquarters for enhanced decision making, c) training programs to improve staff skills. - Financial Management: implement initiatives that could include enhanced financial controls, independent audits, and greater disclosure. - Good Corporate Governance (GCG): implement GCG program initiated by Pertamina, within PGE. This may focus on areas that include training on GCG policies and practices to improve awareness, implementation of whistleblower functions, and application of e-procurement. Page 3 The specific actions that will be included in the project as a part of the institutional strengthening and capacity building components will be firmed up during project preparation. D. Project location (if known) The sub-projects under consideration are located in the Indonesian islands of Sumatra and North Sulawesi. E. Borrower