Indonesia - Geothermal Clean Energy Investment Project

Page 1 INTEGRATED SAFEGUARDS DATASHEET APPRAISAL STAGE I. Basic Information Date prepared/updated: 04/07/2011 Report No.: AC5232 1. Basic Project Data Country: Indonesia Project ID: P113078 Project Name: Geothermal Clean Energy Investment Project Task Team Leader: Migara Jayawardena Estimated Appraisal Date: December 17, 2010 Estimated Board Date: May 26, 2011 Managing Unit: EASIS Lending Instrument: Specific Investment Loan Sector: Renewable energy (50%);Power (50%) Theme: Climate change (100%) IBRD Amount (US$m.): 175.00 IDA Amount (US$m.): 0.00 GEF Amount (US$m.): 0.00 PCF Amount (US$m.): 0.00 Other financing amounts by source: Borrower 274.70 Clean Technology Fund 125.00 NETHERLANDS: Netherlands Finance Company 0.00 399.70 Environmental Category: A - Full Assessment Repeater [] Is this project processed under OP 8.50 (Emergency Recovery) or OP 8.00 (Rapid Response to Crises and Emergencies) Yes [ ] No [X] 2. Project Objectives The development objective of the proposed project is to increase the power generation from renewable geothermal resources, and reduce local and global environmental impacts. This will be achieved by assisting PT. Pertamina Geothermal Energy (PGE), a leading public sector geothermal developer, expand the power generation capacity in the Ulubelu and Lahendong (Tompaso) geothermal fields located in South Sumatra and North Sulawesi, respectively. 3. Project Description The proposed project includes a single component with an investment cost estimated at US$574.7 million. Of this total, the World Bank will provide financing of US$175 million through an IBRD loan which complements a US$125 million concessional loan from the Clean Technology Fund (CTF). PGE will contribute US$274.7 million from funds secured from its parent company. Page 2 ** Investment in Geothermal Power Generation Capacity (US$574.7 million) - confirmation of geothermal resources, steam field development, construction of the Steamfield Above-Ground System (SAGS), and power plants of 110 MW and 40 MW at the Ulubelu and Lahendong (Tompaso) geothermal fields, respectively. The World Bank is providing technical assistance to PGE with an approximately $2.5 million grant facilitated through the Government of The Netherlands. It is helping PGE prepare the proposed investment to international and industry standards. PGE is also undertaking a considerable recruitment and capacity building effort in anticipation of its substantial expansion of geothermal capacity. Given the globally unprecedented scale- up, PGE together with the World Bank has developed an additional $7 million technical assistance program to complement and further strengthen its already planned capacity building efforts. The program is subject to securing grant funding by donors, and if successful, the technical assistance program will be supervised together with the proposed project. 4. Project Location and salient physical characteristics relevant to the safeguard analysis The Ulubelu geothermal field is located 80km west of Bandar Lampung, in Lampung Province on the island of Sumatra, Indonesia. The proposed project will affect the villages of Datarajan, Gunung Tiga, Karang Rejo, Pagar Alam, and Muara Dua, which are located in the Tanggamus District. The area is a cultivated basin (rice and tree crop plantations) surrounded in the western, northern and eastern sides by mountainous areas. An area of watershed protection forest occupies the steep slopes to the north and south, but it will not be disturbed by the Project's physical activities or emissions. The first stage of Ulubelu Unit 1&2 (capacity 2x55 MW) is under development by PGE (upstream) and PLN (downstream) and financed by the Japanese International Cooperation Agency (JICA). The proposed project focuses on the development of the second stage consisting of two supplementary 55 MW units, referred to as Ulubelu 3 & 4. Drilling is underway, but construction of the station and Steam Above-Ground System (SAGS) for the second stage has not started yet. Most of land for the envisioned facilities, except the transmission line to connect Units 3&4 to the grid at Units 1&2, has been acquired through PGE's market based approach using a willing-buyer/willing-seller process. Further land acquisition needs will only be ascertained based upon the results of the ongoing drilling activities and subsequent operation. The Lahendong 5 & 6 units (2x20 MW) are being developed in the Tompaso geothermal field that is located about 30 km South of Manado, in North Sulawesi Province, on the island of Sulawesi in Indonesia. It stretches across the villages of Sendangan, Pinabetengan, Tompaso, and Kanonang (I and II), Tomsewer, and Talikuran in the Tompaso and Kawangkoan sub districts, Minahasa District. The Tompaso field is adjacent to the existing Lahendong geothermal field already under development (4x20 MW units). Most of the project site is in agricultural use, with grazing being predominant. Tree crops plantations, rice fields, and vegetable gardens are also present. There is watershed protection forest on steep slopes to the south and west of the site, but it will not be disturbed by the project's physical activities or emissions. PGE has already Page 3 acquired almost 16 ha for Lahendong 5&6 using its market based approach through a willing-buyer/willing-seller process. Further land acquisition needs, which may ultimately total about 40 ha, will only be ascertained based upon the results of the ongoing drilling activities. 5. Environmental and Social Safeguards Specialists Mr Norval Stanley Peabody (ECSS2) Mr Thomas E. Walton (EASNS) 6. Safeguard Policies Triggered Yes No Environmental Assessment (OP/BP 4.01) X Natural Habitats (OP/BP 4.04) X Forests (OP/BP 4.36) X Pest Management (OP 4.09) X Physical Cultural Resources (OP/BP 4.11) X Indigenous Peoples (OP/BP 4.10) X Involuntary Resettlement (OP/BP 4.12) X Safety of Dams (OP/BP 4.37) X Projects on International Waterways (OP/BP 7.50) X Projects in Disputed Areas (OP/BP 7.60) X II. Key Safeguard Policy Issues and Their Management A. Summary of Key Safeguard Issues 1. Describe any safeguard issues and impacts associated with the proposed project. Identify and describe any potential large scale, significant and/or irreversible impacts: The project's large scale, long-term, significant impact is identified in the ESIAs as a "major beneficial" impact -- the global benefit resulting from avoided greenhouse gas production. The geothermal plants will produce power with GHG emissions that are approximately ten percent of those of coal-fired plants, the most likely alternative, and one-third of the average emissions from Indonesia's present mix of power sources. The potential environmental impacts during construction identified in the draft ESIAs as of critical or major significance consist of the following: noise from site preparation, drilling and construction; degradation of surface water quality caused by flow diversion, sedimentation from cleared land, and contamination from waste pond overflows or chemical and fuel spills; contamination of shallow aquifers during steam well installation or by chemical spills; and soil contamination from drilling muds and cuttings. The ESIAs include ESMPs with proposed mitigation measures that will reduce all of these impacts except for noise to low or negligible significance. Noise during construction could have a major impact at a few residences close to the Ulubelu site, and the ESMP provides for monitoring at those locations and erection of temporary noise barriers if the monitoring shows that standards are being exceeded. There are two potential impacts of operation identified in the ESIAs as critical or major: surface water contamination can result from poor chemical storage or spills at either site, Page 4 and the dispersion modeling in the ESIAs indicates that air quality degradation in residential areas may be caused by hydrogen sulfide (H2S) releases from the cooling towers at Ulubelu (but not at Lahendong Units 5 & 6, where the distance between the cooling towers and residential areas is greater). Measures in the ESMP will reduce the significance of the water quality impact to low. Mitigating the air quality impact at Ulubelu Units 3 & 4 is the most significant safeguards issue PGE has to confront: without abatement, PLN's Units 1 & 2 will themselves cause H2S concentrations that exceed World Health Organization (WHO) health guidelines in nearby residential areas, and the cumulative impact of the four units would increase both the size of the area affected and the H2S concentrations at some of the receptors. The ESIA for Ulubelu Units 3 & 4 estimates that approximately 60 percent removal of H2S will be necessary at both PGE's and PLN's plant, based on the best data currently available, in order to avoid the adverse air quality impact. None of the potential social impacts identified in the ESIAs is of major or critical significance. Land acquisition for the site is carried out on a market basis through a willing-buyer/willing-seller approach, which has proved satisfactory. The process is transparent, non-coercive and fair, involving group negotiations with affected owners in the presence of local officials. Owners are free to refuse to sell, and have done so. When negotiations fail, PGE relocates the facility. Affected landowners have been able to replace lost land and invest in housing improvements. The process has generated no outstanding grievances or disputes. During construction, local employment opportunity (approximately 1000 jobs) is considered a moderate, beneficial impact, and so is investment by PGE in community development. Risks to community health and safety, damage to local infrastructure, and interruption of water supply are moderate adverse impacts that can be mitigated to low or negligible. During operation, there is the potential to employ local residents in up to 75 percent of the approximately 350 positions, but the significance is low beneficial without the skills development training recommended in the ESMP that will raise it to moderate beneficial. Community development investment remains a moderate beneficial impact, and health and safety risks to community members on the site are considered moderate adverse impacts that can be mitigated to negligible. 2. Describe any potential indirect and/or long term impacts due to anticipated future activities in the project area: None anticipated. 3. Describe any project alternatives (if relevant) considered to help avoid or minimize adverse impacts. Overall site selection is determined by the presence of an exploitable geothermal resource, and well locations are selected based on information on the characteristics of the resource. The availability of multi-directional drilling technology is being used to minimize PGE's footprint and to allow well pads to be located to avoid impacts such as relocation of dwellings, and to change locations if land owners decide not to sell their land to PGE. Alternative energy sources were compared to geothermal, and a number of Page 5 design alternatives were also examined. The ESIAs summarize the analysis of alternatives. 4. Describe measures taken by the borrower to address safeguard policy issues. Provide an assessment of borrower capacity to plan and implement the measures described. PGE had already undertaken an ANDAL (ESIA under the Indonesian system) for Ulubelu and an environmental management and monitoring plan (UKL and UPL) for Lahendong (which fell below the threshold for full ESIA according to Indonesian regulations), but for the project, the company engaged an independent qualified international consultant that prepared dedicated ESIAs to international standards for both locations. The ESIAs contain ESMPs covering all identified impacts, and they require contractors to prepare detailed ESMPs for their individual works. The approach to managing the impacts of H2S involves the following. * The cooling towers at Ulubelu Units 3 & 4 and Lahendong Units 5 & 6, which are the principal sources of H2S at both locations, are designed to comply with the Indonesian emission standard (35 mg/m3 as a 1-hr average), as per the feasibility studies prepared for the project. * PGE already observes the Indonesian workplace exposure limit (14 mg/m3 for 8 hr) at all of its geothermal facilities and engages safety consultants to ensure that workers are protected. This is also consistent with international good practice, and PGE will continue to apply the standard to the World Bank financed project. * An odor standard for H2S (28