Indonesia - Infrastructure Guarantee Fund Project

 INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE Report No.: AC5498 Date ISDS Prepared/Updated: 10/26/2011 I. BASIC INFORMATION A. Basic Project Data Country: Indonesia Project ID: P118916 Project Name: Infrastructure Guarantee Fund Task Team Leader: Kamran M. Khan Estimated Appraisal Date: September 20, Estimated Board Date: March 22, 2012 2010 Managing Unit: EASIS Lending Instrument: Specific Investment Loan Sector: Water supply (25%);General energy sector (25%);General transportation sector (25%);General water, sanitation and flood protection sector (25%) Theme: Infrastructure services for private sector development (90%);Municipal finance (10%) IBRD Amount (US$m.): 35.00 IDA Amount (US$m.): 0.00 GEF Amount (US$m.): 0.00 PCF Amount (US$m.): 0.00 Other financing amounts by source: Borrower 0.00 0.00 B. Project Objectives [from section 2 of PCN] The Project Development Objective (PDO) of the proposed Infrastructure Guarantee Fund (IGF) Project is to help strengthen the institutional capacity of the Infrastructure Guarantee Fund (IGF) as a single window for appraising infrastructure public-private partnership (PPP) subprojects requiring Government of Indonesia (GOI) guarantees, and providing the eligible subprojects with appropriate guarantee support. This will be achieved by: (i) Making available WB Partial Risk Guarantees (PRGs) and providing credit support to help the IGF mitigate specific government-related risks associated with eligible infrastructure PPP subprojects. (ii) Enhancing the institutional capacity of the IGF via the provision of technical assistance in the development of appraisal procedures, business processes, standard documents, corporate governance, and other critical functions of the IGF. C. Project Description [from section 3 of PCN] The proposed IGFP will help the Government of Indonesia (GOI) operationalize the IGF, with the specific aim of developing it as a viable and credible #single window# for the appraisal of all GOI guarantees provided for infrastructure PPP subprojects. The #single window# concept will be reinforced in the GOI legislation on the use of GOI guarantees. The GOI views the operational involvement of the WB via a sizable WB guarantee facility, a mechanism to make WB funds available to IGF to back-stop additional IGF guarantees, and provision of TA to establish the critical functions and operational standards of the IGF as critical to establish the credibility of the IGF in the market place. It is envisaged that eligible subprojects passing the IGF#s appraisal criteria will receive guarantees which would be backed by a suitable combination of: (a) IGF guarantees (using IGF capital), (b) the GOI balance sheet (MOF guarantees), (c) at the discretion and approval of the WB, WB PRGs using the Guarantee Facility (WB guarantees), and (d) WB loan funds on-lent to IGF and ring fenced in separate escrow account (IGF guarantees backed by WB funds for subprojects which are appraised by WB and meet WB policies as well as other reputational risk considerations). The IGF will require significant and timely enhancement of its capacity and a suitable corporate governance structure to deliver its guarantee operations (subproject screening, guarantee appraisal, including the necessary management of environmental and safeguard functions, guarantee issuance, monitoring, claims processing and payment), and manage its institutional functions and responsibilities (fund mobilization and management, internal audit, financial controls and management). The corporate governance structure is being put in place with a TA grant of S$470,000 assistance from the Government of Singapore, which will also establish financial controls and fund management functions of the IGF. The IGF is designed to be an open platform in that once it is fully operational, it will be able to attract third parties (in addition to the WB) in its capital structure, and/or as partners in providing guarantees to eligible subprojects. This will enable the IGF to gain the breadth and depth of experience that will serve to not only develop its capacity but also demonstrate the IGF#s operational and institutional legitimacy to the market. The proposed project has three components: Component 1. Guarantee Facility (GF) will make available a principal amount of up to approximately US$480 million for IBRD Partial Risk Guarantees (PRG) to help catalyze up to US$2 billion of PPP subproject debt against subproject risks. PRGs will be provided to cover debt issued by a private lender, e.g., a lending commercial bank or the project sponsor. Each PRG will be counter-guaranteed by the Ministry of Finance (MOF) on behalf of the GOI. It is envisaged that some of the PRGs may be issued in local currency, subject to the policies of, and terms acceptable to, IBRD. As far as IGF#s role goes, the Operations Manual and appraisal process for PRGs under this component will be the same as those used to process IGF#s own guarantees. It is also envisaged that the WB will appraise projects proposed for PRGs in accordance with IBRD#s usual procedures and policies. It is proposed that the final decision to award or not a specific guarantee be made for all projects by the Bank#s President, with the authority exercised through the Operations Committee#s review and Managing Director approval (the Bank will maintain the right to refuse to issue a guarantee at any time under the Guarantee Facility Agreement). The IBRD PRGs will only be offered to cover risks which are allowed under current WB policies. Such risks would be assessed and analyzed by IBRD, in its full discretion, and would be consistent with prevailing Bank policy and practice in this regard. The detailed specification of the types of risks which the IBRD PRGs will cover will be stipulated in the Guarantee Facility Agreement to be signed between the WB and the Government of Indonesia. Component 2. Credit Facility (CF), financed through an IBRD Specific Investment Loan (SIL), will provide US$25 million to the IGF to assist IGF to issue additional guarantees of its own for subprojects which are appraised by WB and meet WB policies as well as other reputational risk considerations. In order to prevent the co-mingling of the $25 million for component 2 under the SIL (guarantee type (d)) with the IGF capital, the WB loan proceeds under component 2 will be disbursed into a separate escrow account of the IGF. Disbursement to the account will be made after such project(s) have been identified and appraised by IGF and WB. Component 3. The IBRD SIL will also provide a loan for Technical Assistance (TA) in the amount of approximately $5 million to develop IGF#s institutional capacity to appraise and monitor projects as a single window for GOI guarantees for infrastructure PPPs, manage its allocated capital, and build capacity in Contracting Agencies (CAs) and develop standardized documents and procedures for preparing PPP subprojects - the adoption of which would become eligibility conditions for IGF guarantees. D. Project location (if known) In principle, the geographical scope of the project extends to the entire country. Out of the 5 possible subprojects identified to date, 3 subprojects are located on the island of Java, and the other 2 subprojects are in Borneo and Bali. E. Borrower’s Institutional Capacity for Safeguard Policies [from PCN] The Borrower, i.e., the Ministry of Finance (MOF), through the IGF will ensure that loan covenants pertaining to safeguards will be implemented consistently as specified in the Loan Agreement. IGF is a newly established entity, with all the Board of Directors and other staff required for critical functions in place. IGF will engage an Environmental Specialist and a Social Development Specialist who will oversee the environmental and social aspects of the infrastructure subprojects during their preparation, construction, operation, and handover phases. These specialists will implement the detailed procedures to be prescribed in IGF's Operations Manual (OM) in conformity with the Indonesian as well as the World Bank's environmental and social safeguards requirements. IGF's environmental and social specialists will hire expert consultants to conduct detailed subproject reviews depending on specific subproject characteristics. IGF's environmental and social development specialists will help IGF management implement the safeguards elements of the OM. They will oversee the IGF guidance on safeguards provided to the CAs, oversee the appraisal of subprojects, and monitor the implementation of the subprojects by the private investors during the construction and operation stages. In addition, during the first two years of IGF's operations (until adequate capacity at IGF is established), the Bank will supervise closely IGF's operations for approving such safeguards instruments as EIA, EMP, IPP and RAP, and will have a prior review (no objection) authority to approve the first three subprojects to ensure that IGF's internal guidance and appraisal procedures are robust enough to meet the standards established in the OM All subprojects which receive WB guarantees (component 1) will be approved by the WB. The WB will review of the subproject appraisal conducted by the IGF, and will reserve the right to conduct additional analysis and reviews before providing approval. Note that all subproject guarantee contracts signed under the component 1 of the Project will be between the private investors and the WB, i.e. IGF will not be party to the agreements involving WB guarantees. IGF's OM will be used to develop guidance to assist the Contracting Agencies (CAs) during the project preparation, and the Private Investors during the construction, operation, and handover. As part of its guidance to the CA and private investors, IGF will also conduct workshops, consultations and training to develop CA and private sector capacity in identifying, planning and managing environmental and social safeguards risks in infrastructure PPPs in accordance with the IGF OP. IGF's internal process for managing subproject cycle involves the following 5 steps. 1. Guidance to the CA on how to prepare the projects so they are in compliance with the OM 2. Screening of the subprojects (based on information provided by the CAs) to ensure project eligibility and provide detailed guidance on key issues in subproject preparation. On the safeguards side, this step will focus on ensuring that the key safeguards risks are identified and appropriate instruments (and next steps) are proposed for managing the safeguards risks. 3. Appraisal of the full subproject package (including the Feasibility Study) to ensure that the subproject meets all the standards established in the OM before it is approved. Otherwise, the subproject will be rejected and returned to the CA for further preparation, along with detailed guidance on what needs to be done to meet the OM standards. 4. Preparation of a customized guarantee package for the subpeoject, including identification of the key safeguards responsibilities which would be (a) first communicated to the short list of bidders and (b) transferred to the winning bidder during the contract signing stage. 5. Monitoring the investment, including all the implementation by the Private Investor of all the provisions and responsibilities associated with safeguards risks management. F. Environmental and Social Safeguards Specialists Mr Bekir A. Onursal (EAPCO) Mr John R. Butler (EAPCO) Ms Indira Dharmapatni (EASIS) Mr Andrew Daniel Sembel (EASIS) II. SAFEGUARD POLICIES THAT MIGHT APPLY Safeguard Policies Triggered Yes No TBD Environmental Assessment (OP/BP 4.01) X The project will guarantee infrastructure subprojects that would belong to the following infrastructure subprojects: (i) transportation infrastructure for airport services, harbor services, Safeguard Policies Triggered Yes No TBD and railroad facilities and infrastructure; (ii) road infrastructure (toll roads and toll bridges); (iii) irrigation infrastructure (ducts for raw water); (iv) drinking water infrastructure (supply, transmission, distribution, treatment); (v) wastewater infrastructure (collection, conveyance and treatment); (vi) solid waste management infrastructure (transportation and disposal facilities); (vii) telecommunications and informatics infrastructures (telecommunication networks and e- government infrastructure); (viii) electricity infrastructure (generation, transmission, distribution - including geothermal); and (ix) oil and natural gas infrastructure (oil and natural gas transmission and distribution). A preliminary list of 5 possible subprojects has been identified. As these subprojects have not been fully defined and others have not been identified, an Environmental and Social Management Framework (ESMF) will be prepared by IGF by project appraisal and will have to be approved by the Bank. The ESMF will include: (i) the background information on the project, (ii) the project objective, (iii) project components and financial products, (iv) types of subprojects; (v)objective of ESMF, (vi) applicable policies, (vii) methodology for the environmental and social assessment of subprojects [including: (a) classification of subprojects based on the level of environmental and social risks, (b) studies required considering a subproject's environmental and social risks - environmental assessment/environmental auditing, (c) public consultation requirements, (d) disclosure requirements, and (e) environmental and social management tools], (viii) environmental supervision during construction and operation; (ix) implementation arrangements of subprojects (institutional responsibilities), (x) consultation and disclosure of ESMF, and (xi) exclusion list of sectors or subsectors. By loan effectiveness, IGF's OM will be completed. The OM will include detailed procedures to be implemented by the Contracting Agency (CA) during the subproject preparation phase prior to requesting the guarantee from the IGF and by the Private Investor during subproject construction, operation, and handover phases, following issuance of the guarantee by IGF. In addition, the Manual will provide detailed guidance for IGF's environmental and social specialists and their consultants to follow. The environmental and social requirements to be specified in the OMwill follow the Indonesian requirements as well as the World Bank safeguards requirements (including World Bank's Operations Policies), as specified in the ESMF including RPF and IPPF It is most likely that all subprojects guaranteed by IGF will have moderate to significant short-and/or long-term environmental and social impacts (i.e. EA Category A and B subprojects). However, the scale, type and location of impacts will only be confirmed at subproject appraisal by the CAs. The environmental instruments to be used under this project will include: (i) environmental assessment (EA) to be undertaken by the CA during preparation of the greenfield subprojects; and (ii) environmental audit associated with any construction undertaken by the CA during transfer of the constructed facility to the Private Investor. Impact mitigation measures and environmental management plans (EMPs) of subprojects for the construction, operation and handover phases will be prepared by the CAs as part of the EA according to the guidance provided to the CA by IGF. The EMP will be implemented by the CA according to the OM (based on guidance provided by IGF) during subproject preparation ; and by the Private Investor (again, according to the OM based on the guidance provided by IGF) Safeguard Policies Triggered Yes No TBD during the construction operation and handover phases. Natural Habitats (OP/BP 4.04) X Each subproject will be screened to determine if the subproject will potentially cause a significant conversion (loss) or degradation of natural habitats, whether directly (during construction) or indirectly (during human activities induced by the subproject). If OP 4.04 is triggered, then the subproject's impact assessment on natural habitats or critical natural habitats will be conducted as part of the EA process, and the necessary mitigation measures will be prescribed for adverse impacts and included in the EMP along with a monitoring plan. These subproject preparation activities will be undertaken by the CA prior to requesting the guarantee from the IGF, and reviewed by IGF during the appraisal stage. The implementation of the EMP will be the responsibility of the Private Investor, following issuance of the guarantee by IGF. IGF will monitor the implementation by the Private Investor. Forests (OP/BP 4.36) X The project will not provide any guarantee to subprojects that involve: (i) commercial logging operations in primary tropical moist forests, (ii) purchase of logging equipment for use in primary tropical moist forests, or (iii) production or trade in wood or other forestry products from unmanaged forests. These activities will be specifically listed in an exclusion list to be included in the OM as well as IGF guidance to the CAs. Pest Management (OP 4.09) X The project will not provide any guarantee to subprojects that involve: (i) production, distribution or sale of illegal pesticides; or (ii) production or trade in pesticides/herbicides subject to international phase-outs or bans. In addition, in Indonesia, no pesticides are used for maintenance of the right-of-way of an energy transmission line or water pipeline. These activities will be specifically listed in an exclusion list to be included in the OM as well as IGF guidance to the CAs and the Private Investors. However, this policy is triggered as the subject project may provide guarantees to subprojects that involve supply of irrigation water to agricultural activities. In such subprojects, pest and pesticide management issues will be addressed in an EA, and a separate pest management plan (PMP) will be prepared in case of significant pest management issues in the subproject's area of influence. Physical Cultural Resources (OP/BP 4.11) X Some of the subprojects receiving guarantees from IGF may have adverse impacts on physical cultural property. During preparation, each subproject will be screened to identify the presence of physical cultural resources that might be adversely affected by subproject activities in the subproject's area of influence. As part of the EA process, the subproject's impacts on physical cultural resources will be assessed. If adverse impacts are identified, mitigation measures for avoiding or mitigating these impacts will be incorporated into the Physical Cultural Resources Management Plan. In addition, the Plan will include provisions for chance finds, any necessary measures for strengthening institutional capacity, and a monitoring system to track the progress of these activities. These subproject preparation activities will be undertaken by the CA prior to requesting the guarantee from the IGF, and will be reviewed by IGF during subproject appraisal. The implementation of the Physical Cultural Resources Management Plan will be the responsibility of the Private Investor, following issuance of the guarantee by IGF. IGF will monitor implementation by the Private Investor. Indigenous Peoples (OP/BP 4.10) X No subprojects have yet come to the facility, but based on available information on sectors Safeguard Policies Triggered Yes No TBD and geography, subprojects may occur anywhere in the country, including rural areas that may contain IP communities. Because subprojects may trigger OP/BP 4.10, IGF will prepare an Indigenous Peoples Planning Framework (IPPF), approved by the Bank and disclosed by appraisal. The CA will undertake the screening and the social assessment (SA) to evaluate the subproject's potential positive and adverse effects on the IPs. If the policy is triggered by a subproject, then on the basis of the SA and in consultation with the affected IPs communities, an IPP should be developed and implemented based on the IPPF by the CA or PI as appropriate. IGF will monitor, supervise and verify IPP's implementation in the field to ensure that the CA and/or PI implement the approved IPP. For all subprojects involving IPs, the IPP will be provided to the Bank (through IGF) for clearance before the subproject guarantee is granted. The TT should accompany IGF on the field appraisal for the first 3 projects affecting IP communities. Involuntary Resettlement (OP/BP 4.12) X Based on the identified possible subprojects it is likely that many subprojects in the IGF pipeline will require land acquisition and thus may require resettlement instruments including resettlement plans (RP) or subproject specific RPF.However, impact areas will only be known after the subproject is identified and submitted to the IGF and the CA (or in some cases, possibly the PI) conducts a detailed assessment of the subproject area. A Resettlement Policy Framework (RPF) will be prepared during Project preparation in accordance with the Bank's OP/BP 4.12 by the IGF, approved by the Bank, and disclosed by appraisal. The approved RPF will serve as guidance for subprojects that involve involuntary resettlement. The CA or PI will screen individual subprojects based on the site visits and project sitting, definition of project area for involuntary land acquisition/use and any unavoidable structure demolition, crop/asset destruction, livelihood displacement, restriction of access to natural resources that may be caused by the subproject construction following appropriate alternative analysis in the EA phase. The CA or PI will prepare the RP instruments according to the OM, and the IGF will be responsible for ensuring compliance with OM. The IGF will ensure that the approved RP instrument has been implemented appropriately through document review and field verification. It is recommended that TT accompany IGF on the field appraisal for the first 3 subprojects with RAPs. The WB will have prior review right to review and approve the first three subprojects receiving IGF guarantees. Safety of Dams (OP/BP 4.37) X Some subprojects may involve construction of a large dam (a dam with a height greater than 15 meters) or a high hazard dam (10-15 meter dam with design complexities, located in high seismic zones, with difficult soil/geological properties for foundations, dams that retain toxic materials). For large dams, an expert panel review will be conducted, detail plans will be prepared and implemented, bidders will be prequalified, and periodic safety inspections of the dam will be conducted after dam construction. For small dams, generic dam safety measures designed by qualified engineers will be considered adequate. Those activities that will be undertaken during the subproject preparation phase are under the CA's responsibilities prior to issuing the guarantee, and others to be undertaken during construction, operation and handover phases are under the Private Investor's responsibility, following issuance of the guarantee by IGF. IGF will monitor the implementation of the safeguards management plans by the Private Safeguard Policies Triggered Yes No TBD Investor. Projects on International Waterways (OP/BP 7.50) X The project will not involve any infrastructure investment activity that would impact international waterways. Projects in Disputed Areas (OP/BP 7.60) X The project will not finance any activity in disputed areas. Environmental Category: A - Full Assessment III. SAFEGUARD PREPARATION PLAN A. Target date for the Quality Enhancement Review (QER), at which time the PAD-stage ISDS would be prepared: 05/31/2010 B. For projects that will not require a QER, the target date for preparing the PAD-stage ISDS: N/A C. Time frame for launching and completing the safeguard-related studies that may be needed. The specific studies and their timing1 should be specified in the PAD-stage ISDS. The Environmental and Social Safeguards Framework (ESMF) will be initiated on April 15, 2010 and completed by June 15, 2010. IV. APPROVALS Signed and submitted by: Task Team Leader: Mr Kamran M. Khan 06/10/2010 Approved by: Regional Safeguards Coordinator: Mr Panneer Selvam Lakshminarayanan 10/26/2011 Comments: Refer to RSS emails to Kamran dated 10/25/2011 Sector Manager: Ms Sonia Hammam 06/10/2010 Comments: 1 Reminder: The Bank's Disclosure Policy requires that safeguard-related documents be disclosed before appraisal (i) at the InfoShop and (ii) in-country, at publicly accessible locations and in a form and language that are accessible to potentially affected persons.