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Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 4356-IND STAFF APPRAISAL REPORT Public Disclosure Authorized INDONESIA PERUSAHAAN UMUM LISTRIK NEGARA THIRTEENTH POWER PROJECT Public Disclosure Authorized May 3, 1983 Public Disclosure Authorized Projects Department East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit - Indonesian Rupian US$1 = Rp 970 Rp 100 = US$0.103 Rp 1 million = US81,030 WEIGHTS AND MEASURES 1 metric ton = 1,000 kilograms (kg) 1 liter (1) = 0.0063 barrels 1 kilometer (km) = 0.6215 miles (mi) 1 kilovolt (kV) = 1,000 volts (V) 1 megavolt-ampere = 1,000 kilovolt-amperes (kVA) 1 kilovolt-ampere = 1,000 volt-ampere (VA) 1 megawatt (MVTW) = 1,000 kilowatts (kW) 1 gigawatt hour (GWh) = 1 million kilowatt hours (kWH) ABBREVIATIONS BAKOREN - The National Energy Board BOC - Board of Consultants DGEP - Directorate-General of Electric Power, Ministry of Mines and Energy DGWDR - Department of Water Resources Development DPMA Institute of Hydraulic Engineering Edf - Electricite de France EHV - Extra High Voltage ICLARM - International Center of Living Acquatic Resources Management LE UNPAD - Institute of Ecology of Padjadjaran University LNG - Liquified Natural Gas LRMC - Long Run Marginal Cost MME - Ministry of Mines and Energy Newjec - New Japan Consulting Engineers NORL - Normal Operating Reservoir Level OECF - Overseas Economic Cooperation Fund of Japan PCR - Preece, Cardew and Rider PERTAMINA - National Oil Company PLN - National Electricity Authority PMAS - Project Management Advisory Service POJ - Jatiluhur Dam Authority Pusdiklat - PLN-s Centre for Education and Training RE - Rural Electrification SEKNEG - Central Procurement Committee GOVERNMENT OF INDONESIA FISCAL YEAR (FY) April 1 - March 31 FOR OFFICIALUSE ONLY INDONESIA PERUSAHAANUMUM LISTRIK NEGARA THIRTEENTH POWER PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. THE ENERGY AND ELECTRICITY SECTORS . 1 A. Economic Background . I B. Energy Resources and Status of Development . 1 Oil . .... .....1 Natural Gas . 1 Coal. 2 Hydroelectric Resources . 4 Geothermal Energy . 6 Nuclear Power. 7 Noncommercial Sources. 7 C. Organization of the Energy Sector . 8 D. Bank Role and Strategy in the Energy Sector . 8 E. The Electricity Subsector .9 DGEP .9 PLN .10 Captive Plants .10 Rural Electrification .10 F. Bank Role and Strategy in the Electricty Subsector . 11 II. THE POWER MARKETAND THE DEVELOPMENTPROGRAM . 12 A. Status of Surveys .12 B. Present Consumption and Access to Service. 13 C. Projections of PLN's Sales .13 D. Connection Program ................... 14 E. Long-Term Development Program . 14 This report was prepared on the basis of the appraisal carried out by C. K. Chandran (Sr. Power Engineer), J. Chang (Financial Analyst) and B. K. Thomas (Sr. Financial Analyst) during December 1982/January 1983. The appraisal mission was assisted by Dr. C. Cunningham (consultant) on the resettlement aspect of the project, and by G. Kalauzi (Dam Specialist) on the design of the dam. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii - Page No III. THE BENEFICIARY . 16 A. Legal Status and Responsibility . 16 B. Organization.. ............ 17 C. Facilities . 17 D. Corporate Development. 17 E. Management . 18 F. Manpower and Training ... 19 G. Accounting and Budgeting ... 20 H. Audit .... 21 I. Insurance .... 22 J. Construction .... 22 K. Procurement . 22 L. Performance of PLN under Earlier Bank Operations . 23 IV. THE PROJECT .... 24 A. Objectives of the Project. 24 B. Project Description. 25 C. Status of Development of the Citarum River . 25 D. Status of Investigations and Engineering of Cirata Project .26 E. Dam Site and Other Features . 27 F. Optimization of Project Features . 27 G. Geology .28 H. Seismology .28 I. Reservoir Area .29 J. Hydrology, Reservoir Operation and Energy Assessment Studies ... 29 K. Sedimentation . 30 L. Construction Materials ... 30 M. Engineering and Design and the Board of Consultants . 31 N. Environmental Aspects ... 31 0. Special Equipment Requirements . 33 P. Energy Sector Support Program . 34 Q. Project Cost Estimates ... 34 R. Contingencies .... 35 S. Consulting Services ... 36 T. Financing .... 36 U. Construction Arrangements ... 37 V. Implementation Program ... 38 W. Procurement .... 39 X. Disbursement . 40 Y. Maintenance for Dam Safety ... 40 Z. Operation. 40 - iii - V. FINANCIAL ANALYSIS . 41 A. General.. ..................... 41 B. Past Operating Results . 41 C. Comparative Financial Positions. 45 D. Tariffs.. ..................... 46 E. Financing Policy . 47 F. Future Financial Performance . 49 G. Corporate Income Tax . 52 VI. JUSTIFICATION AND RISKS ....... .. ... .. .. .. 52 A. Growth of Demand and Need for the Project . 52 B. Least Cost Solution . 52 C. Economic Rate of Return of the Project . 53 D. Risks . 53 VII. AGREEMENTS REACHED AND RECOMMENDATIONS . 54 ANNEXES 1. Energy Consumption, by Source 2. Organization Chart of the Ministry of Mines and Energy 3. Growth of Captive Power Plants in Indonesia (1976-82) 4. Growth of PLN-s Consumers and Sales 5. Growth of Demand, Installed Capacity and Energy Generation 6. Energy Production by Category and Fuel Consumption 7. PLN-s Investment Program (FY83-FY94) 8. PLN-s Organization Chart 9. Salient Features of the Project 10. Citarum River Development Plan 11. Energy Sector Support Program 12. Project Cost Estimate 13. Annual Expenditures on the Cirata Project 14. Implementation Schedule of the Project 15. Summary Implementation Schedule 16. Procurement Milestone Schedules 17. List of Key Dates for Construction 18. Schedule of Disbursements 19. PLN-s Past Financial Results 20. PLN-s Financial Forecasts (FY83-FY89) and Assumptions made in the Financial Forecasts 21. Cost and Benefit Streams for IERR Calculations of the Project 22. Selected Documents and Data Available in the Project File - iv MAPS 1. IBRD 16563 R - Java Power System 2. IBRD 16802 - Major Irrigation, Hydroelectric and Water Resources Development 3. IBRD 16750 - Cirata and Saguling Hydroelectric Projects 4. IBRD 16751 - Cirata Hydroelectric Project - General Site Layout I. THE ENERGY AND ELECTRICITY SECTORS A. Economic Background 1.01 Indonesia is endowed with abundant energy resources and has large, as yet undeveloped, reserves of natural gas, coal, geothermal energy and hydroelectric power, but the availability of indigenous oil and subsidized domestic prices caused it to develop a primarily petroleum-based energy sector. Seventy eight percent of the total commercial energy consumption now derives from petroleum (Annex 1). Currently oil and liquified natural gas (LNG) exports generate 70% of government-s revenues and finance almost all of its non-oil imports. Domestic oil consumption has been growing at 12% per year. If this trend continues Indonesia could become a net importer of oil in the mid-1990's with devastating effects on its economy. To avoid this, Government's energy policy, developed in 1978, has been to accelerate oil exploration and development, encourage conservation measures, including adjustment of domestic prices of petroleum products and development of appropriate norr-oil sources. The following paragraphs explain the progress in implementing this policy since 1978. B. Energy Resources and Status of Development Oil 1.02 The proven oil reserves are reported to be 9.5 billion barrels, amounting to 16 years production at the annual production rate of about 575 million barrels during 1981-82. Currently it is about 20% below that level. Exploration of much of Indonesia is still at an early stage. During 1975-77, after a period of rapid increases in oil exploration, there was little activity as a result of uncertainty following GOIs moves to renegotiate terms of production-sharing contracts. An active program of exploration and development is now being carried out after resolution of this problem in 1978. Investment in oil exploration and development last year was expected to reach $3.8 billion. Undiscovered reserves are estimated between 10 billion and 40 billion barrels. There have not been any major discoveries in recent years. Unless further massive reserves are discovered, it is considered unlikely that annual production will increase beyond 700 million barrels. Natural Gas 1.03 Reserves of natural gas are estimated at some 69 trillion cubic feet (TCF), almost equivalent to the proven level of oil reserves. The bulk (85%) of this gas is non-associated and can be developed independently of the level of oil production. However, the reserves are generally located far away from major population and industrial centres. Arun field in North Sumatra contains 17 TCF and the recently discovered Natuma field in the South China sea contains 35 TCF. - 2- 1.04 The largest increases in non-oil development have been in the natural gas sector, due both to the shorter lead times and the domestic need for gas as feedstock for fertilizer plants and for reduction in steel plants. Production of natural gas during 1979 was equivalent to one-third of the country's oil production. Nearly half of that production was exported as LNG to Japan from liquefaction centers at Arun and Badak. An integrated pipeline