The World Bank Indonesia Power Transmission Development Project (P117323)

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized The World Bank RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE INDONESIA POWER TRANSMISSION DEVELOPMENT PROJECT APPROVED ON JULY 8, 2010 TO THE REPUBLIC OF INDONESIA REPORT NO.: RES32007 Public Disclosure Authorized ENERGY & EXTRACTIVES GLOBAL PRACTICE EAST ASIA AND PACIFIC REGION Public Disclosure Authorized Regional Vice President: Country Director: Senior Global Practice Director: Practice Manager/Manager: Task Team Leader: Victoria Kwakwa Rodrigo A. Chaves Riccardo Puliti Julia M. Fraser Tendai Gregan

2 ABBREVIATIONS AND ACRONYMS Acronym DSCR ESIA kv MoF MVA PDO PLN Definition Debt Service Coverage Ratio Environmental & Social Impact Assessment Kilo Volt Ministry of Finance, Indonesia Mega Var Ampere Project Development Objective PT PLN (Persero)

3 BASIC DATA Product Information Project ID P Original EA Category Partial Assessment (B) Approval Date 08-Jul-2010 Financing Instrument Investment Project Financing Current EA Category Partial Assessment (B) Current Closing Date 30-Jun-2018 Organizations Borrower Republic of Indonesia Responsible Agency PT PLN Project Development Objective (PDO) Original PDO The development objective of the project is to assist the Borrower to meet growing electricity demand and improve the reliability of electricity supply in Java and South-Central Sumatra by strengthening the power transmission system. Current PDO The development objective of the project is to assist PLN to meet growing electricity demand, improve the reliability of electricity supply, strengthen the power transmission system, and support the preparation of hydropower projects. Summary Status of Financing Ln/Cr/Tf Approval Signing Effectiveness Closing Net Commitment Disbursed Undisbursed IBRD Jul Nov May Jun

4 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. The original loan of US$225 million Indonesia Power Transmission Development Project was approved on July 10, 2010, signed on November 18, 2010, and became effective on May 30, The original closing date of December 31, 2015 was first extended in December 2015 by 12 months, to December 31, 2016, to enable the completion of existing project packages, and to prepare the project for a follow-up Level 1 restructuring. A second extension of another 18 months, to June 30, 2018, was approved on June 29, 2016, as part of the Level 1 restructuring. In addition, the 2016 Level 1 restructuring: (i) revised the Project Development Objective (PDO) to reflect the broader scope of the project; (ii) elevated the Environmental Category from B to A to reflect preparation of the Poko Hydro Electrical Power Project (Poko HPP); (iii) triggered new safeguards policies to account for the preparation of Poko HPP; (iv) added a new component, hydropower project preparations ; (v) cancelled US$20 million, resulting in a revised loan amount of US$205 million; and (vi) revised the results framework in line with the changes. 2. The revised PDO as approved on June 29, 2016 is, to assist PLN to meet growing electricity demand, improve the reliability of electricity supply, strengthen the power transmission system, and support the preparation of hydropower projects. The project now has three components: (a) Java-Bali Transmission Substation Expansion and Construction; (b) South-Central Sumatra Transmission Substation Upgrading and Expansion; and (c) preparation of hydropower projects. 3. Project implementation is divided into three phases: (i) the original Java (J-series) and Sumatera (S-series) contracts (US$145 million IBRD allocation), awarded in 2012; (ii) project savings contracts (US$52 million IBRD allocation), awarded in June and July 2016; and (iii) hydropower project preparation (US$8 million IBRD allocation), relating to Poko HPP, which were added on June 29, Status of each of these is described below. Project Status 4. The overall rating for achievement of Development Objectives and Implementation Progress is Moderately Satisfactory. The Overall Borrower performance has been satisfactory over the last six months as evidenced by: (a) the original component of the project, relating to substation upgrades in Java and Sumatra, has been completed; (b) substantial positive progress has been made with Project Savings contracts (US$52 million) awarded in 2016, with around half of the substation upgrades energized; and (c) preparations of the proposed Poko hydropower project are advancing. The financial management, procurement, counterpart funding and monitoring and evaluation performance ratings have been rated MS or better in the June 2018 ISR. However, the Project Management rating has been rated as Moderately Unsatisfactory primarily due to contract management issues, with insufficient overall progress on the civil works design, construction and electrical installation of the incomplete 14 substation sites under the Project

5 Savings contracts awarded in June and July While overall implementation shows moderately satisfactory progress over the last 18 months, there have been significant delays and other challenges across a range of the substations under various contracts, as outlined below. 6. Original Java (J-series) and Sumatera (S-series) contracts (US$145 million IBRD allocation). All 49 substations under the J1, J2, S1, S2 and S3 contracts are now energized, fully completed, and are in the contract closing stage. The cumulative installed new transformer capacity is 6560 MVA, comprising: (a) Java, 3440 MVA of which 2000 MVA (500 kv, in Package J1), 60 MVA (150 kv, in Package J2), 1380 MVA (150 kv, in Package J3); and (b) Sumatra, 3120 MVA of which 1000 MVA (275 kv, in Package S1), 1250 MVA (275 kv, in Package S2), and 870 MVA (150 kv, in Package S3. There were delays in with contracts for J3 and S3 due to further additions to the scope of works for the J3 package, and delays in commissioning transmission lines that feed several substations under Package S3. PLN had earlier committed to complete all the J3 and S3 substations by June 2016 (the original schedule, per the contract, was July 2014), but the final 1 of 22 of the J3 substations (i.e. Solo Baru S/S) was only energized on March 3, 2018 and the last 1 of 17 of the S3 substations (i.e. Sungai Penuh S/S) was finally energized on October 31, In summary, after significant delays against the planned and revised schedules, all the J and S series contracts have been completed and there are no remaining activities left. 7. Project Savings Contracts (US$52 million IBRD allocation). Since the first quarter of 2017, it has become evident that the good work done in relation to procurement/award of contracts has not been matched subsequently by improved contract management following the signing of the contracts. a. On the positive side: (i) the procurement of six new packages using the US$52 million in project savings was completed quickly, with contracts worth US$45.1 million signed in June and July 2016; (ii) advance payments were disbursed to the contractors in late September and early October 2016; (iii) the effectiveness dates for these contracts are the same as the dates on which the contracts were signed, a real step forward for PLN in terms of contract management. The original schedule for completing these new contracts was 18 months from the contract signing dates, i.e., by December 2017 and January 2018, respectively. The new contracts under the Project Savings cover 30 substations, scattered across Java and Sumatra. b. In May 2018 PLN informed that 16 of the 30 substations under the Project Savings component have been energized, while 14 remain under construction. All 6/6 substations in Lot 1 have been energized, for a total installed capacity of 360 MVA (150 kv, Sumatra). However: (i) only 4 of 14 substations in Lot 2 have been upgraded, with a total capacity of 180 MVA (150/20 kv transformers, on Java); and (ii) only 6 of 10 of the substations in Lot 3 have been energized, with a total capacity of 180 MVA (150/20 kv transformers, on Sumatra). c. On the less positive side, contract management remains an issue, with insufficient overall progress on the civil works design, construction and electrical installation as a result of the incomplete 14 substation sites mentioned above. To accelerate completion of the civil and electrical works, since November 2017 PLN has asked its contractors to: (i) deploy more labor on site; (ii) improve the coordination between the contractor and sub-contractors; and (iii) incentivizing site crews to complete the works in an accelerated fashion. While these measures are appropriate, the Bank team considers that they are not sufficient and have proposed to complement them by asking the contractor to deploy additional skilled labor, heavy machinery, and improved logistics and project 5

6 management to accelerate the completion of all civil and electrical works. With the existing works and contract management capacity and considering the delays which occurred in 2017, these contracts cannot be completed by current closing date of June 30, Hydropower Project Preparations (US$8 million IBRD allocation). Hydropower project preparations are now finally underway, with the Poko Hydro Stage III Feasibility Study progressing, together with the Poko Hydro Environmental and Social Impact Assessment (ESIA) Study. PLN has also selected a consultant to carry out the Land Acquisition and Resettlement Action Plan (LARAP) for Poko Hydro, with the contract signed in January However, the ESIA consultant indicates that it will require a total of 25 months to complete the ESIA Study for Poko, i.e., an expected completion date of August While Project Management is still rated as Moderately Unsatisfactory (MU), PLN s performance over the last 6 months has improved. The MU rating is due to past delays related to contract management and execution arising from the highly disbursed project management accountabilities that spread across PLN s central, regional and sub-regional (i.e. Willaya, Rayon, and site) administrations. The improvements in Project Management in the last 6 months are demonstrated by PLN having energized 16 of the 30 of the Project Savings sites, in that period, after very slow progress in calendar That improvement in delivery is the result of: (a) faster approvals by PLN of modifications to detailed designs, which have been proposed by contractors or PLN s site-operators after detailed site surveys and discussions regarding technical operations and maintenance requirements; (b) the push by PLN to have contractors complete outstanding civil and electrical works, prior to the June 30, 2018 project closing date; (c) PLN applying liquidated damages to the S2 and S3 contracts, and advising other contractors of its intent to apply liquidated damages and enforce other contractual remedies. As discussed further below, in May 2018, PLN agreed to new reporting templates and to discuss them at monthly meetings with the Bank; indicating a stronger commitment by PLN to improved contract management on the remaining construction and electrical installation activities. The steps outlined in the Action Plan below is expected to bring the Project Management rating back to Satisfactory status. 10. As of June 14, 2018, loan disbursements totaled US$ million, or 72 percent of the project loan amount. 11. The project is in compliance with fiduciary and safeguard requirements. There are no outstanding audits or unresolved financial issues under the project. Procurement performance has improved since June 2016 and no procurement complaints have been received. The project is in compliance with the Bank s safeguards requirements, and there are no major pending safeguards related issues. The safeguard instruments remain relevant, following the June 2016 restructure that added the hydropower project preparations component and revised the project s safeguards requirements. 12. The project complies with all but one legal covenant, specifically requiring that PLN maintain a Debt Service Coverage Ratio (DSCR) of at least 1.5. PLN and the Government of Indonesia have sought and been granted waivers from this DSCR covenant over the last 4 years. On December 18, 2017, following an October 5, 2017 request from Indonesia s Minister of Finance, the World Bank issued another waiver to the DSCR covenant applying to this IBRD loan to PLN and five others, for a temporary period ending June 30, That waiver suggested that PLN and the Government take steps to: (i) develop a new Corporate Financing Strategy for PLN, which critically assesses the current power system investment plan and considers the fiscal implications 6

7 Action Plan and risks; and (ii) develop a credible and sustainable method of achieving the DSCR covenant from July 1, 2018 onwards. The Bank has mobilized funding for technical assistance to support PLN and MOF with those two steps, with a consulting firm expected to be appointed in July In the meantime, ahead of the new financing strategy, the Government is increasing its electricity Public Service Obligation (PSO) subsidy payments to PLN and providing other forms of financial support to help PLN as it seeks to implement the Government s ambitious electricity sector capital expenditure program. It is expected that the Government will seek another waiver of the DSCR loan covenant, in the period from July 2018 until such time that the Government implements a credible and sustainable method of achieving the DSCR covenant. 13. An action plan was originally agreed to in 2015 following earlier delays in project implementation, and leading up to the tendering of the Project Savings contracts. The original action plan included, among other things: (a) PLN awarding the six contracts under the Project Savings component of the project (US$52 million) within 60 days of the opening of bids (which it achieved); (b) minimizing the time taken to make the signed contracts effective; (c) improvements in contract management and contract enforcement, to ensure works were completed in a timely manner; and where not, either amendments be made in a timely manner or contractual remedies applied. 14. A range of enhancements to that original action plan were agreed to in November 2017, specifically: 1) For each site and contract lot (under the J-series, S-series and Savings packages), PLN should: (a) quickly and carefully document the root causes of delays and which party PLN or the contractor was responsible; (b) apply liquidated damages under the contract for any delays due to the contractor; and (c) push to have all the remaining works completed as quickly as possible and latest before June 30, ) PLN is to ensure that its submission to the Ministry of Finance for the 2018 fiscal budget (DIPA) includes: (a) all the remaining funds under the project loan that are needed to complete the J-series, S-series, and Savings sub-projects in calendar 2018; (b) the necessary funds to complete all the scheduled works for 2018 for the hydropower component; (c) PLN should allocate enough of its own 2018 budget funds to co-finance the activities under (a) and (b), so that they can be completed on time. 3) A range of enhanced project implementation support activities will henceforth be undertaken in between the formal supervision missions, including: (i) regular site visits by members of the Bank team; and (ii) monthly meetings with PLN Headquarters and Regional Construction teams in Java and Sumatra. To assist with this, additional engineering consultants are to be recruited within Indonesia as part of the World Bank s implementation support task team. 15. Recent additional steps have been taken on the action plan to get the Project Management rating back to a satisfactory rating, including: (a) PLN to apply liquidated damages and accelerate the completion of outstanding works; (b) J-Series and S-Series sub-projects close out contracts, now that all sub-stations are energized; (c) Savings sub-projects complete and energize the 14 remaining substations by December 31, 1 As of June 20, 2018, all of the substation upgrades in Java and Sumatra under the original component of the project have be energized, as have 16 of the planned 30 upgrades to substations financed through project savings. The remaining 14 substations are all expected to be completed before the proposed new closing date. 7

8 2018; (d) Hydropower project preparations time-bound action plan for advancing the Poko HPP Phase III Feasibility Study and the environmental and social safeguards studies during 2018, in order to ensure that all Poko HPP preparations can be completed. 16. In addition, in May 2018, it was agreed with PLN to further enhance project implementation monitoring. Specifically, henceforth, new templates would be used for detailed monthly reporting to the Bank of: (a) progress and remedial actions, by substation site; and (b) disbursements by contract package. The monthly meetings between the Bank and PLN project teams would use these new templates to even more closely track physical progress and financial disbursements, with the aim of having all the remaining substation subprojects completed by the end of calendar PLN s agreement to regularly update the new reporting templates and discuss that them at monthly meetings with the Bank indicates a commitment by PLN to improved contract management on the remaining construction and electrical installation activities. 17. These steps aim to accelerate delivery of project activities and outcomes, prior to the proposed new closing date of October 31, II. DESCRIPTION OF PROPOSED CHANGES 18. An additional extension of the closing date is required for two reasons. First, the delay in contracting a firm to carry out the Environmental & Social Impact Assessment (ESIA) for the proposed Poko Hydropower development and the related Bakaru Hydropower projects on the same river catchment and cascade, means that various baseline studies that are inputs into the ESIA have also been delayed. Second, the Phase III Feasibility Study for Poko HPP has also been delayed, in part because ESIA study findings are a key input into the Phase III FS, because they can impact on the proposed basic design of Poko HPP, water availability, and hence its economics. In turn, any changes in the basic design of Poko HPP arising from the ESIA will affect the preparation of the Poko HPP design and tender documents. 19. The proposed extension from June 30, 2018 to June 30, 2019 will enable the completion of Phase IIII Feasibility Study (FS) and Environmental & Social Impact Assessment (ESIA) of the proposed Poko Hydropower project. Such an extension would mean that the cumulative extensions of the project would be 46 months. 20. The restructuring will not affect the PDO, project components, results framework, institutional arrangements, implementing agency, or procurement or financial management arrangements. 21. There will not be any changes to the loan s covenants, including the DSCR covenant that PLN is currently not complied with. 22. The Results Framework remains relevant in terms of the indicators agreed to as part of the June 2016 restructure. However, it was agreed that the end targets of the indicators should be adjusted to reflect the proposed new closing date of the project, October 31, In addition, other adjustments have been made to reflect: (a) low growth in energy sales across Indonesia; and (b) transformer capacity installed (MVA) as part of the Project Savings sub-projects. For update on the project s KPIs under the Results Framework, and an explanation of the adjustments proposed, see Annex Citizen Engagement (CE) actions are being carried out as part of Poko HPP preparation, including the Phase 8

9 III Feasibility Study, ESIA, and LARAP/AMDAL and are being documented as part of those preparations. 24. The overall risk for the project remains Moderate. The main identified risks are: (i) Institutional capacity for implementation and sustainability specifically, there are substantial risks relating to PLN s contract management capacity and practices; and (ii) social and environmental safeguard compliance going forward. PLN has developed and is implementing risk mitigation measures for the Poko Hydro project. No changes to risk ratings are proposed. III. SUMMARY OF CHANGES Changed Change in Results Framework Not Changed Change in Loan Closing Date(s) Change in Disbursement Estimates Change in Implementation Schedule Change in Implementing Agency Change in DDO Status Change in Project's Development Objectives Change in Components and Cost Cancellations Proposed Reallocation between Disbursement Categories Change in Disbursements Arrangements Change in Overall Risk Rating Change in Safeguard Policies Triggered Change of EA category Change in Legal Covenants Change in Institutional Arrangements Change in Financial Management Change in Procurement Other Change(s) Change in Economic and Financial Analysis Change in Technical Analysis 9

10 PDO_IND_TABLE The World Bank Change in Social Analysis Change in Environmental Analysis IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_RESULTS_TABLE RESULTS FRAMEWORK Project Development Objective Indicators Electricity sales in the project areas in Java (GWh) Unit of Measure: Number Value Date 31-Dec Mar Oct-2019 Electricity sales in the project areas in south-central Sumatra (GWh) Unit of Measure: Number Value Date 31-Dec Mar Oct-2019 Transmission losses in the Java-Bali system Unit of Measure: Percentage Value Date 31-Dec Mar Oct-2019 Transmission losses in the Sumatra system Unit of Measure: Percentage Value Date 31-Dec Mar Oct-2019 x

11 Hydropower projects prepared Unit of Measure: Megawatt Value Date 01-Apr Mar Oct-2019 Intermediate Indicators IO_IND_TABLE Incremental Capacity of 500/150 kv Substations in Java (MVA) Unit of Measure: Number Value Date 31-Dec Mar Oct-2019 Incremental Capacity of 275/150 kv Substations in Sumatra (MVA) Unit of Measure: Number Value Date 31-Dec Mar Oct-2019 Incremental Capacity of 150/20 kv Substations in Sumatra (MVA) Unit of Measure: Number Value Date 31-Dec Mar Oct-2019 Incremental Capacity of 150/20 kv Substations in Java (MVA) Unit of Measure: Number Value xi

12 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE The World Bank Date 31-Dec Mar Oct-2019 Hydropower project preparation studies prepared satisfactory to the Bank Unit of Measure: Number Value Date 01-Apr Mar Oct-2019 LOAN CLOSING DATE(S) Ln/Cr/Tf Status Original Closing IBRD Effective 31-Dec-2015 Closing(s) 31-Dec-2016, 30- Jun-2018, 31-Oct- 2019, 30-Jun-2018 Proposed Closing 31-Oct-2019 Proposed Deadline for Withdrawal Applications 29-Feb-2020 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed ,335, ,335, ,640, ,640, ,331, ,331, ,123, ,111, ,285, ,224, ,283, ,000, ,000, ,128, xii

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14 Annex 1: Proposed changes to KPIs in Results Framework PDO Indicators PREVIOUS REVISED Comment on revisions Indicator Baseline Current End Target End Target Electricity sales in the project areas in Load growth lower than originally Java (GWh) Value 50, , , ,000 projected across Indonesia. End target date extended to new closing Date 31-Dec Mar Jun Oct-2019 date of project. Electricity sales in the project areas in Load growth lower than originally south-central Sumatra (GWh) Value 4,919 32,060 37,580 34,000 projected across Indonesia. End target date extended to new closing Date 31-Dec Mar Jun Oct-2019 date of project. Higher system losses due to more Transmission losses in the Java-Bali system Value generation in distant East and Central Java is being used to meet load in West Java. Date 31-Dec Mar Jun Oct-2019 End target date extended to new closing date of project. Transmission losses in the Sumatra system Value Lower end target for losses in Sumatra, reflecting major power system efficiency improvements from installation of 275kV and 500kV transmission. Date 31-Dec Mar Jun Oct-2019 End target date extended to new closing date of project. Hydropower projects prepared Value Value unchanged. Date 1-Apr Mar Jun Oct-2019 End target date extended, to reflect closing date extension in 3rd restructure due to delays in hydropower project preparations

15 INTERMEDIATE RESULTS INDICATORS PREVIOUS REVISED Comment on revisions Indicator Baseline Current End Target End Target Incremental Capacity of 500/150 kv Substations in Java (MVA) Value Value unchanged. End target date extended to new closing Date 31-Dec Mar Jun Oct-2019 date of project. Incremental Capacity of 275/150 kv Substations in Sumatra (MVA) Value Value unchanged End target date extended to new closing Date 31-Dec Mar Jun Oct-2019 date of project. MVA capacity increased to incorporate Incremental Capacity of 150/20 kv Project Savings additional transformer Substations in Sumatra (MVA) Value capacity. End target date extended to new closing Date 31-Dec Mar Jun Oct-2019 date of project. Incremental Capacity of 150/20 kv Substations in Java (MVA) Value Value unchanged End target date extended to new closing Date 31-Dec Mar Jun Oct-2019 date of project. Hydropower project preparation studies prepared satisfactory to the Bank Value Value unchanged. Date 31-Dec Mar Jun Oct-2019 End target date extended, to reflect closing date extension in 3rd restructure due to delays in hydropower project preparations

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