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Regional Technical Assistance Report

Project Number: 41074 November 2007

Efficiency Improvement and Connectivity Strengthening in Archipelagic Project (Cofinanced by the Regional Cooperation and Integration Fund under the Regional Cooperation and Integration Financing Partnership Facility)

The views expressed herein are those of the consultant and do not necessarily represent those of ADB’s members, Board of Directors, Management, or staff, and may be preliminary in nature.

ABBREVIATIONS

ADB – Asian Development Bank aSEA – archipelagic Southeast Asia ASEAN – Association of Southeast Asian Nations BIMP-EAGA – Darussalam---Philippines-East ASEAN Growth Area IMT-GT – Indonesia-Malaysia-Thailand-Growth Triangle PLN – Perusahaan Listrik Negara (State Electricity Company) RETA – regional technical assistance SESCO – Electricity Supply Corporation

WEIGHTS AND MEASURES

GWh – gigawatt-hour (1,000 megawatt-hours) MW – megawatt (1,000 kilowatts)

TECHNICAL ASSISTANCE CLASSIFICATION

Targeting Classification – General intervention Sector – Multisector (energy, transport and communications) Subsectors – Renewable energy generation, transmission and distribution, multimodal transport and sector development Themes – Sustainable economic growth, regional cooperation, environmental sustainability Subthemes – Fostering physical infrastructure development; cross-border infrastructure; cleaner production, control of industrial pollution

NOTE

In this report, "$" refers to US dollars.

Vice President C. Lawrence Greenwood, Jr., Operations Group 2 Director General A. Thapan, Southeast Asia Department (SERD) Director J. Cooney, Infrastructure Division, SERD

Team leader S. Hasnie, Senior Energy Specialist, SERD Team members J. Ferreira, Principal Regional Cooperation Specialist, SERD R. Valkovic, Senior Transport Specialist, SERD

Map 1

o o 112o 00'E 110 00'E 130 00'E o o 10 00'N South China Sea I N D O N E S I A 10 00'N PROJECT LOCATION

PACIFIC OCEAN INDONESIA BRUNEI DARUSSALAM EFFICIENCY IMPROVEMENT AND MALAYSIA HALMAHERA CONNECTIVITY STRENGTHENING IN 0o 0o ARCHIPELAGIC SOUTHEAST ASIA BANGKA BELITUNG BURU SERAM J a v a S e a KEPULAUAN ARU SUMBAWA o J A V A o 10 00'S TIMOR-LESTE 10 00'S N SUMBA TIMOR I N D I A N O C E A N

110 o 00'E 130o 00'E 0 50 100 150 200 250

o Kilometers 116 00'E

National Capital South China Sea Provincial Capital City/Town Power Station Substation Project Transmission Line BRUNEI Existing Transmission Line DARUSSALAM Proposed Transmission Line Road o o 4 00'N Provincial Boundary 4 00'N International Boundary Boundaries are not necessarily authoritative. Malinau

Tarakan Tanjungselor M A L A Y S I A Tanjungredeb

Liku Sambas Aruk Mambone Badau Kerumuk

Mempawah Siantan o o 0 Parit Baru Tayan Sintang 0 Sei Raya KALIMANTAN

Muara Teweh Tanahgrogot Palangkaraya

Sampit Barabai Kuala Kapuas Kotabaru

Banjarmasin

o o 4 00'S 4 00'S J a v a S e a

o 112o 00'E 116 00'E

07-4060a HR o o 100 00'E PEOPLE'S REPUBLIC OF CHINA 130 00'E EFFICIENCY IMPROVEMENT AND MYANMAR Ha Noi LAO CONNECTIVITY STRENGTHENING IN S o u t h C h i n a S e a 20 o 00'N PEOPLE'S ARCHIPELAGIC SOUTHEAST ASIA 20 o 00'N Naypyidaw DEMOCRATIC REPUBLIC Vientiane

VIET NAM Laoag Tuguegarao Yangon N THAILAND San Fernando Bayombong Baguio P

Tarlac h 0 100 200 300 400 LUZON i

San Fernando l Malolos i Bangkok Manila p Kilometers PHILIPPINES Daet p

i

Batangas n

CAMBODIA e

National Capital

Phnom Penh

Catbalogan Andaman S Major City Roxas Ho Chi Minh City e

Sea a Road Iloilo Tacloban PALAWAN Gulf of Bacolod Cebu VISAYAS International Boundary Puerto Princesa Surigao Thailand Dumaguete Boundaries are not necessarily authoritative. Krabi S o u t h C h i n a S e a Phatthalung S u l u S e a Dipolog Malaybalay BIMP-EAGA : Brunei Darussalam-Indonesia-Malaysia- Phuket Philippines East ASEAN Growth Triangle Pattani IMT-GT Kudat Zamboanga Davao IMT-GT : Indonesia-Malaysia-Thailand Narathiwat Isabela Digos Growth Triangle Kota Kinabalu Sandakan Banda Alor Setar General Santos Kuala Terengganu Jolo George Town BRUNEI DARUSSALAM MINDANAO PENINSULAR Bandar Seri Begawan P A C I F I C O C E A N Ipoh Niampak MALAYSIA Miri Kuala Lumpur NATUNA Kuantan BIMP-EAGA Tahuna Bintulu Seremban Melaka M A L A Y S I A C e l e b e s S e a Sinabang Sibu Johor Bahru Kuching SINGAPORE Singkawang Tolitoli Gunongsitoli Ternate Halma hera S e a 0 o Tanjungpinang 0 o Samarinda S U M A T R A LINGGA Pontianak KALIMANTAN Biak Muarasiberut Balikpapan Poso Sorong Palangkaraya Siberimanua Pangkal Pinang SULAWESI Lelinta Kotabaru Palopo Namlea Tanjungpandan Nabire Kendari P Ambon A Batakan Parepare S E R A M P Timika U A

Makassar

Bandar N Dobo PAPUA

B a n d a S e a E Jakarta J a v a S e a Serang Tual W

Semarang MADURA I N D O N E S I A G U

Bandung I J A V A Bangkalan Kimaan N o BALI SUMBAWA E 8 00'S Yogyakarta Mataram FLORES Kalabahi A

Saumlaki I N Dili O Bima Larantuka Merauke

0

7 LOMBOK Waingapu TIMOR-LESTE M - 4 A r a f u r a S e a 0

SUMBA TIMOR a 6 I N D I A N O C E A N

0 Kupang p b

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H o

100 00'E 130 00'E 2 R

I. INTRODUCTION

1. Intra-regional trade within East Asia has grown faster than trade with world markets. Prospects for future growth in trade will, however, depend on investment in infrastructure. In the archipelagic Southeast Asia (aSEA) ,1 infrastructure investments have failed to keep pace with growth in trade. With constrained government fiscal capacities in the region, the infrastructure gaps can only be filled by fostering new approaches, modalities, and sources of investment.

2. Through regional cooperation in aSEA, the Asian Development Bank (ADB) will support activities covering multicountry participation, including cross-border infrastructure and subregional initiatives. These activities will encompass (i) the Brunei Darussalam-Indonesia- Malaysia-Philippines-East ASEAN Growth Area (BIMP-EAGA) initiative established in 1994; and (ii) the more recent Indonesia-Malaysia-Thailand-Growth Triangle (IMT-GT) grouping. The main challenge for both groupings is to connect island populations, thereby enabling economic and social development through improved connectivity and cooperation.

3. To develop ADB’s proposed support, several stakeholder consultations were held, which culminated in a fact-finding mission in June 2007 to agree with aSEA governments the goals, scope, approach, cost estimates, and implementation arrangements for a regional technical assistance (RETA) project.2 The design and monitoring framework is in Appendix 1.

II. ISSUES

4. The region contains countries at varying levels of development, and with substantially different rates of economic growth. Overall, however, growth is around 4-5% per annum. For this to increase, or even be maintained, will require investments in basic economic infrastructure – energy and transport in particular – to be around 5-6% of gross domestic product (GDP), rather than the 2-3% that is presently typical, particularly in Indonesia and the Philippines. The governments alone will not be able to mobilize the substantial additional funding required. The private sector and multilateral and bilateral development partners must also be involved. The proposed RETA will provide a basis for identifying programs and projects that support infrastructure development, in the energy and transport sectors within the aSEA country grouping, with an emphasis on those that have regional characteristics.

A. Energy Sector

5. The energy sector is at different stages of development in the region. For example, in Mindanao, the Philippines, about 800 megawatts (MW) of additional generation capacity will be needed over 2010–2014 to meet demand growing at 6.5% per year. Yet other areas have power surpluses that could be traded across borders if the transmission infrastructure was available. An example is Sarawak in Malaysia, which has large hydropower-based and hence relatively low cost power generation, while neighboring West Kalimantan in Indonesia relies on very expensive diesel generation. Linking these two areas by an interconnected power transmission system will not only improve reliability and overall economic efficiency but will allow electricity to be delivered to customers in Kalimantan at a much lower cost than is presently the case.

1 Brunei Darussalam, Indonesia, Malaysia, Philippines, and Singapore. 2 The TA first appeared in ADB Business Opportunities on 18 May 2007.

2

6. The aSEA governments are also examining alternative energy options such as small hydropower, solar, wind, and biomass, and demand-side options (energy efficiency), to meet growing energy demand. This focus on alternatives has increased of late, due to the rapidly increasing cost of traditional petroleum-based energy sources. Despite the significant potential throughout the region for renewable energy and opportunities for saving energy through efficiency improvements, typically at the national level, only a fraction of this potential is being developed. This situation exists at least in part because the countries are approaching the issue in a piecemeal manner. This comment applies within the countries themselves, but even more so regionally, where there has been to date very little coordination and exchange of information. The proposed RETA will address this by establishing linkages among the countries to assist them with sharing information and developing approaches to increasing the proportion of alternative energy and energy efficiency in their power sector planning. While the bulk of investments that will arise from this initiative will likely be national, there will be a substantial benefit gained from developing common approaches to what are in essence common issues, not least because the power sector and natural resource bases of the aSEA countries, on which renewable energy and energy efficiency programs will be built, are themselves very similar.

7. Overall, the proposed RETA will address all these issues for the energy sector in aSEA by assessing regional demand, undertaking pre-feasibility studies for potential investments, and preparing a list of conventional, renewable energy, and energy efficiency projects that could be suitable for subsequent detailed development and financing.

B. Transport Sector

8. As for energy, investment in the region’s transport sector is not keeping pace with demand, and transport bottlenecks are restricting investment and curtailing growth. Again assuming an overall economic growth rate of 4-5%, transport demand is growing at between 6 and 10% per annum. Infrastructure investment of about 2-3% of GDP per annum, as noted above, is not adequate to meet this future growth, and even less so given the lack of past investment in providing and maintaining adequate and efficient transport infrastructure. This applies to all infrastructure sectors but, given the archipelagic nature of the region, particularly to land and sea transport, and the linkages between them. Reflecting this reality, transport has been identified by the aSEA governments as a priority sector, within the framework of the overall development of economic corridors throughout the region. The BIMP-EAGA Governments have requested ADB to carry out a study for two BIMP-EAGA corridors: the Western Economic Corridor (land-based) and the Greater Sulu Sulawesi Economic Corridor (maritime). For IMT-GT, there is an urgent requirement for a master plan for transport infrastructure in Sumatra, a critical component of the IMT-GT subregion, as part of an economic corridor that encompasses Sumatra, Peninsular Malaysia, and southern Thailand.

9. Again reflecting the archipelagic nature of the region, improved port connectivity across the Strait of Malacca between Indonesia’s Sumatra Island and Peninsular Malaysia/Southern Thailand requires particular attention. For example, Sumatra’s Aceh province is planning to develop its ports to improve linkages with South Asia, and with Malaysia and Thailand. The transport component of the RETA will address each of these aspects of regional transport development.

III. THE PROPOSED TECHNICAL ASSISTANCE

10. The principal objective of the RETA is to promote higher and sustainable growth in aSEA by increasing investment in transport and energy infrastructure. This will be achieved by 3 preparing a list of subprojects and completing pre-feasibility studies for the highest priority of them, to a stage suitable for further development as actual investments.

A. Impact and Outcome

11. The RETA’s impact will be improvement in access to power and transport infrastructure for people in aSEA. Reliable and cheaper power will be accessible to a larger population, a framework for bilateral power trade between utilities in Malaysia and Indonesia will be formulated, and priority investments in selected economic corridors will be identified.

B. Methodology and Key Activities

12. The activities will build on previous work in the area in close coordination with the Association of Southeast Asian Nations (ASEAN) Secretariat, the BIMP-EAGA facilitation center, and the governments. The activities will be grouped into energy and transport components. Both components will ensure appropriate environmental and social planning and assessment is done.3

1. Energy Sector

13. The main output of the energy sector component of the RETA will be several implementable and financially viable subprojects covering conventional and renewable energy, and energy efficiency. The following three subcomponents have been identified as priorities within the energy sector.

a. West Kalimantan–Sarawak Transmission Line

14. This transmission line project is an essential building block for a power grid on the island of Borneo. The RETA will study the financial, economic, and technical viability of the proposed transmission line by reviewing past technical studies and establishing medium-term demand and supply forecast on the Indonesian and Malaysian power systems.

b. Study of Renewable Energy and Energy Efficiency Projects

15. This component of the RETA will work with the aSEA Governments to develop a common approach to renewable (biomass, biofuels, micro-hydro, solar) energy-based generation projects and energy efficiency projects for meeting energy demand. It will (i) identify several energy generation and energy efficiency subprojects through consultation with the governments, utilities, and large industries (for cogeneration and energy efficiency options); (ii) identify one or more subprojects with high economic and financial viability, through appropriate screening criteria; and (iii) develop prefeasibility studies for them. The initial longlist of subprojects will include the projects identified by the road map4 for BIMP-EAGA, prepared with ADB assistance.

16. The RETA will also examine innovative financing mechanisms, instruments, or modalities to promote renewable energy and energy efficiency investments, and for financing small-scale projects. This could lead to a subsequent project to finance some of these projects

3 With appropriate reference to work to be done under the proposed ADB-financed RETA for Strengthening Sound Environmental Management in aSEA. 4 ADB. 2007. Road Map for the Development of the Energy Sector in the BIMP-EAGA Region. Manila.

4 on a pilot basis through, for example, infrastructure funds, credit facilities, guarantees). The study will also assess the benefits of carbon credits under the clean development mechanism.

c. Study of Conventional Energy Projects

17. This component will study conventional energy projects identified by the aSEA governments, some of which need financial support to complete analyses of technical, financial, and economic viability. The initial long list of projects will include the projects identified by the BIMP-EAGA road map (footnote 4). This component will also develop prefeasibility studies for the highest priority subprojects to a stage suitable for detailed study and subsequent financing.

2. Transport Sector

18. The transport component will develop (i) a master plan for the IMT-GT connectivity corridors in Sumatra, including a detailed assessment for improving port connectivity from Sumatra to Malaysia and Thailand, and road transport within Sumatra; and (ii) a study in BIMP- EAGA to identify viable projects in the Western Borneo and Greater Sulu Sulawesi Economic Corridors.

a. IMT-GT Connectivity Corridors

19. The IMT-GT connectivity corridors include (i) the Eastern Sumatra national highways from north to south, (ii) two corridors across the Strait of Malacca; (iii) the highway along the western coast of southern Thailand and Peninsular Malaysia from Trang to Malacca; and (iv) the Aceh-Phuket-Runong corridor. Ports in Sumatra also require rehabilitation and expansion. The largest port in Sumatra, Medan, is operating far beyond its design capacity. Southern Thailand also lacks deepwater ports, and is thus dependent on shipping exports through Malaysia or Singapore. The northernmost province of Sumatra, Aceh, is also exploring options for developing its ports. Improved port connectivity across the Strait of Malacca would substantially improve IMT-GT subregional cooperation.

b. BIMP-EAGA Connectivity Corridors

20. For BIMP-EAGA, the study for the two corridors (para. 8) will analyze the constraints to economic integration. The analysis will include physical linkages such as roads, waterways, and air and sea transport. The analysis of trade integration will examine the volume, value, and flow of commodities being traded; and the potential for expanded trade between the corridors. The investment analysis will look at the comparative and competitive advantages of BIMP-EAGA, and at mechanisms for promoting foreign and domestic investments. Tourism is a major productive sector in BIMP-EAGA, and the potential of this sector to promote pro-poor growth is well known.

3. Program Coordination and Additional Study

21. Under this component, ADB will coordinate the overall program for aSEA. This coordination will include (i) developing a repository of energy and transport sector related documents and policy papers relevant for the region; (ii) coordinating the RETA consultants’ work and advising ADB and the governments on key strategic policy issues; (iii) maintaining ADB’s presence in working group meetings; (iv) identifying and alerting ADB to key strategic events and trends in the regional policy setting; and (v) developing a database for transport and energy stakeholders in the regional power and transport agencies and companies. 5

C. Cost and Financing

22. The total cost of the proposed RETA is estimated at $2.75 million. It will be financed on a grant basis by ADB’s TA funding program ($1.25 million) and the Regional Cooperation and Integration Fund ($1.5 million) under the Regional Cooperation and Integration Financing Partnership Facility. Details of the cost estimates and financing plan are in Appendix 2.

D. Implementation Arrangements

23. ADB will be the Executing Agency for the RETA and will oversee its overall administration.5 Local counterparts will vary according to the country, sector, and whether the identified projects are public or private.

24. The TA will require 212 person-months of consulting services: 86 from international consultants and 126 from national experts. The consultants for the energy component will have, among others, experience in (i) legal and regulatory frameworks, (ii) environmental and social impact assessment, (iii) power transmission, (iv) renewable energy development, and (v) demand-side management and energy efficiency. The consultants for the transport component will have experience in (i) transport planning, (ii) highway engineering, (iii) financial and economic analysis, (iv) social and environmental impact assessment, and (v) road safety. The consultants for the program coordination component will include international and national specialists with relevant experience.

25. Two consulting firms will be engaged, one each for the energy and transport components, by ADB in accordance with its Guidelines on the Use of Consultants (2007, as amended from time to time). ADB will select consultants using its quality and cost-based selection methodology (80:20) with full technical proposals. In addition, individual consultants will be recruited for the program coordination component. The major reports required from the consultants for each component will be (i) an inception report describing a detailed work program (3 weeks after the start of the RETA), (ii) progress reports each quarter, (iii) a draft final report, and (iv) a final report. Both groups of consultants will arrange workshops and seminars as required throughout the duration of the RETA. Outline terms of reference for the consultants for each component are in Appendix 3.

26. The RETA will be implemented over about 2 years, ending in March 2010. All equipment will be purchased according to ADB's Procurement Guidelines (2007, as amended from time to time) and will be transferred to the respective regional bodies after completion of the RETA.

IV. THE PRESIDENT'S RECOMMENDATION

27. The President recommends that the Board approve (i) ADB administering a portion of technical assistance not exceeding the equivalent of $1,500,000 to be financed on a grant basis by the Regional Cooperation and Integration Fund under the Regional Cooperation and Integration Financing Partnership Facility, and (ii) ADB providing the balance not exceeding the equivalent of $1,250,000 for the Efficiency Improvement and Connectivity Strengthening in Archipelagic Southeast Asia Project.

5 Activities funded by this RETA may only commence within a particular DMC after ADB has received written confirmation of no objection from the particular DMC.

6 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Data Design Performance Sources/Reporting Assumptions Summary Targets/Indicators Mechanisms and Risks Impact Assumption Improvement in access Increased investments Industry publications and • Regional to power and transport by governments and journals governments infrastructure for people the private sector establish and in archipelagic National development maintain an Southeast Asia (aSEA) plans effective cooperation framework. Outcome Assumptions Cheaper imported Import from Sarawak of Periodic government • Benefits from electricity in West about 80 MW capacity publications energy efficiency Kalimantan during peak times and recognized by overall about 350 GWh key decision each year by West makers Kalimantan • Consumers’ Increased indigenous Renewable, indigenous Reports published by the ability to pay for electricity generation power generation System Control Division connection to and and reduced GHG source identified and of PLN and SESCO consumption of emissions implemented electricity

Economic corridors and Government policy Government statistics, Risk investments within the statements International Energy • Actual demand corridors identified Agency publications for electricity lower than forecast Outputs Assumption 1. Study of the Transmission line study Technical assistance • Governments’ Sarawak–Kalimantan completed by March review, back-to-office continued transmission line 2009 reports commitment

2. Identification of Studies completed by Consultants’ reports Risk several conventional March 2010 • Economic or energy, renewable and political disruption energy efficiency to regional projects, and a cooperation completed study with financing options from each category

3. Study the potential Completion of studies Consultants’ report economic corridors in by March 2010 BIMP-EAGA and IMT- GT

4. Efficient program Program coordination Feedback from the coordination facilities established by BIMP-EAGA and IMT- May 2008 GT senior officials’ meetings

Appendix 1 7

Activities with Milestones Inputs

Component 1: West Kalimantan–Sarawak Transmission Line ADB: $1,250,000 1.1 Establish joint SESCO-PLN study team (month 1) Regional Cooperation and 1.2 Data collection and interconnection and system analysis (months 2–3) Integration Fund: 1.3 Establish demand and supply forecast for West Kalimantan and $1,500,000 Sarawak (months 2–3) 1.4 Prepare the Project by analyzing the financial, economic, and technical International and domestic viability; and the social and environmental impact (months 4–7) consultants with 1.5 Communicate initial and final findings at workshops in each region appropriate skills and (month 8) expertise

Government counterpart Component 2: Renewable Energy and Energy Efficiency Projects with appropriate skills and 2.1 Identify projects from earlier studies and from BIMP-EAGA road map experience 2.2 Analyze legal, regulatory, and technical barriers (months 1–2) 2.3 Prepare the highest priority project among the short-listed projects (months 4–7) 2.4 Organize consultation meetings and workshop with governments and interested parties (months 6–8) 2.5 Prepare a detailed feasibility study report (months 9–18)

Component 3: Conventional Energy Projects 3.1 Identify projects from previous studies and from the BIMP-EAGA road map (months 1–2) 3.2 Develop screening criteria and finalize a list of projects (months 2–4) 3.3 Prepare the highest priority project among the short-listed projects (months 4–8) 3.4 Organize consultation meetings and workshop with governments and interested parties (months 6–8) 3.5 Prepare a detailed feasibility study report for the highest priority project (months 9–18)

Component 4: Transport Corridors 4.1 Identify and prioritize corridor subprojects (months 1–5) 4.2 Perform detailed study for selected subprojects (months 6–14) 4.3 Undertake trade integration analysis (month 15) 4.4 Prepare a program for development of transnational transport Agreements (month 15 onwards)

Component 5: Program Coordination 5.1 Establish coordination office and recruit consultants (months 2–3) 5.2 Organize inception workshop in each country (month 3) 5.3 Finalize coordination mechanism among stakeholders in each country 5.4 Develop stakeholder database and support technical assistance implementation (months 12–15)

ADB = Asian Development Bank, BIMP-EAGA = Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area, GHG = greenhouse gas, GWh = gigawatt-hour, IMT-GT = Indonesia-Malaysia-Thailand Growth Triangle, MW = megawatt, PLN = Perusahaan Listrik Negara (State Electricity Company), SESCO = Sarawak Electricity Supply Corporation.

8 Appendix 2

COST ESTIMATES AND FINANCING PLAN

Table A2.1: Cost Estimates and Financing Plan ($’000)

Item Total Cost Asian Development Bank Financinga 1. Consultants a. Remuneration and Per Diem i. International Consultants 1,431 ii. Domestic Consultants 324 b. Reports and Communications 21 2. Travel a. International 180 b. Regional Travel 29 3. Program Coordination and Additional Studies 250 4. Training, Seminars, and Conferences a. Workshops 245 5. Representatives for Contract Negotiations 4 6. Contingencies 266 Total 2,750 a Financed on a grant basis by the Asian Development Bank’s technical assistance funding program ($1.25 million) and the Regional Cooperation and Integration Fund ($1.5 million) under the Regional Cooperation and Integration Financing Partnership Facility administered by the Asian Development Bank. Source: Asian Development Bank estimates.

Table A2.2: Cost Estimates by Component ($’000)

Study Components Amount 1. West Kalimantan–Sarawak Transmission 600 2. Renewable Energy and Energy Efficiency 500 3. Conventional Energy 500 4. Transport Corridors 900 5. Program Coordination 250 Total Cost 2,750 Source: Asian Development Bank estimates.

Appendix 3 9

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS

I. Energy Components

A. West Kalimantan–Sarawak Transmission Line (21 person-months international, 32 person-months national)

1. The consultants will work closely with the existing joint study team, comprising representatives from Malaysia’s Sarawak Electricity Supply Corporation (SESCO) and Indonesia’s State Electricity Company (PLN), which will act as the steering committee for the Project (PLN will take the lead). The steering committee will be responsible for coordinating consultants’ work on the technical, project, legal and institutional, and economic and financial aspects of the proposed project. The consultant will deliver the following outputs:

1. Background Information and Policy Analysis

(i) Summary of previous studies: (a) planning criteria for each region and development strategy, (b) existing power generation plans in Sarawak and West Kalimantan, (c) network development plans in Sarawak and West Kalimantan, (d) tariff and subsidy related studies in West Kalimantan, (e) assessment of self-generation and potential loads in West Kalimantan, and (f) other industry trends and facts.

(ii) System information: (a) system control philosophy; (b) summary of existing generation (installed capacity, operational history, remaining economic life) and generation plants to be retired in next 5 years; (c) existing transmission bottlenecks and constrained network; (d) technical losses and options identified for loss reduction; (e) voltage levels in different parts of both networks; and (f) utilities load forecasts and daily load profiles in Sarawak and West Kalimantan.

(iii) Analysis of existing policy and options: (a) options for power generation and policies that influence fuel prices, (b) fuel mix for power generation in West Kalimantan and options for optimizing fuel mix, (c) assessment of overall supply risk and options for risk management, (d) tariff structure and subsidy schemes, and (e) regulatory and approval needs for new projects and cross-border projects.

2. Interconnection and Systems Analysis

(i) Supply and demand forecast of energy: (a) analyze supply and demand forecasts, (b) identify key growth sectors in both regions, (c) establish supply and demand forecasts for each region, (d) identify key areas of supply–demand imbalance (shortfalls), and (e) develop simplified energy trading models for assessing the value of interconnection.

(ii) Least-cost development option: (a) develop technical solutions for meeting demand, (b) assess possible interconnection options and options for retiring existing generation plants, (c) assess options for energy efficiency and demand management potential, (d) perform optimization

10 Appendix 3

analysis using CEMOS software, and (e) training in CEMOS for transmission planners at Planning Department of PLN.

3. Commercial Power Purchase Framework

(i) Power purchase agreement: (a) land rights and access; (b) force majeure; (c) pricing methodology—ancillary services, alternative (avoided) cost at both grids (including oil imports); and (d) pricing options—currency, composition, and basis for selection, tariff structure (longterm), and payment terms.

(ii) Bilateral trade agreement: (a) options (and examples) for intergovernmental agreement that could be applied, and (b) overall regulatory framework (or exemptions from existing regulation). In addition, the consulting team will review bilateral agreements under ADB’s existing regional cooperation projects, e.g., Greater Mekong Subregion projects.

4. Technical Study for West Kalimantan to Sarawak Transmission Line

(i) Evaluation of earlier feasibility study: (a) assessment of technical feasibility, (b) benchmarking of cost estimates and benefits, (c) robustness of financing plan (if any), and (d) evaluation of environmental impact analysis.

(ii) Project preparation: (a) finalize cost estimates; (b) establish wheeling tariff or revenue requirement for medium to long term, based on consultant’s forecast, cost of capital, and project cost; (c) perform financial and economic analysis of the project, (d) establish timeline for project implementation; (e) develop optimum contract packaging for efficient bidding; (f) prepare bid documents; (g) assess and make recommendations for environmental and social safeguards; (h) draft initial environmental assessment report; (i) develop detailed social assessment and resettlement action plan and indigenous peoples development plan; and (j) plan and consider impact of land acquisition and effects on indigenous peoples (if any).

B. Renewable Energy and Energy Efficiency (17 person-months international, 24 person-months national)

2. The consultants will identify and prepare a list of renewable energy and energy efficiency projects for financing under this component.

1. Background Information and Analysis of Identified Projects

(i) Identify projects: (a) Analyze projects from previous studies and the Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA) road map; (b) analyze legal, regulatory, and technical barriers; (c) prepare the highest priority project among the short-listed projects; (d) organize consultation meetings and workshop with different parts of the governments and interested parties; and (e) prepare detailed feasibility study report.

Appendix 3 11

(ii) Project preparation: (a) finalize cost estimates and energy sales forecast, (b) establish tariff and revenue requirement for medium to long term, (c) perform financial and economic analysis of the project, (d) establish timeline for project implementation, (e) develop optimum contract packaging for efficient bidding, (f) prepare bid documents, (g) assess and make recommendations for environmental and social safeguards, (h) draft initial environmental assessment report, (i) develop detailed social assessment and resettlement action plan and indigenous peoples development plan, (j) plan and consider impact of land acquisition and effects on indigenous peoples (if any), and (k) assess overall financial performance of the proposed implementing agency.

(iii) Financing options: Assess alternative innovative financing mechanisms, instruments, or modalities to promote renewable energy and energy efficiency investments, and financing of small-scale projects.

C. Conventional Energy Project (16 person-months international, 22 person-months national)

3. The consultants will identify and prepare a list of conventional energy projects for financing under this subcomponent.

1. Background Information and Analysis of Identified Projects

(i) Identify projects: (a) Analyze projects from previous studies and the BIMP-EAGA road map; (b) analyze legal, regulatory, and technical barriers; (c) prepare the highest priority project among the six short-listed projects; (d) run consultation meetings and workshop with different parts of the governments and interested parties; and (e) prepare detailed feasibility study report.

(ii) Project preparation: For the selected project, (a) finalize cost estimates and energy sales forecast, (b) establish tariff and revenue requirement for medium to long term, (c) perform financial and economic analysis of the Project, (d) establish timeline for project implementation, (e) develop optimum contract packaging for efficient bidding, (f) prepare bid documents, (g) assess and make recommendations for environmental and social safeguards, (h) draft initial environmental assessment report, (i) develop detailed social assessment and resettlement action plan and indigenous peoples development plan, and (j) plan and consider impact of land acquisition and effects on indigenous peoples (if any).

12 Appendix 3

II. Transport Component

4. Transport Corridor Study (32 person-months international, 48 person-months national). This component will assess the proposed road and sea corridors under the IMT-GT and BIMP-EAGA programs to determine the key issues for the development of infrastructure and operational procedures for trade facilitation and transport accessibility. It will comprise the following tasks.

(i) Review the technical, economic, social, and environmental conditions for each of the five corridors in IMT-GT and the three BIMP-EAGA corridors1 in accordance with the relevant ADB guidelines.

(ii) Prepare a matrix of technical, economic, social, and environmental issues to allow the determination of viable levels of improvement for each project for a range of funding options—identifying projects in each transport subsector and in tourism. In consultation with the governments, identify a priority list of infrastructure improvements, and undertake a detailed study of the top-ranked projects.

(iii) Identify suitable methods for implementation of the priority projects, proposing effective models for public and/or private sector investment and development of an institution framework for cross-border cooperation. Undertake a further detailed study for several priority projects identified, preparing necessary documentation in accordance with relevant government regulations for implementation under ongoing public, or private, or joint initiatives.

(iv) Undertake a comparative analysis of each trade corridor, including referencing trade to other regions, to determine the extent of trade integration and potential for growth.

(v) Assess the legal, policy, regulatory, and institutional constraints at each of the land borders and major ports in each corridor. Identify the specific issues that are restricting free flow of trade across each border or through the port; and develop a framework for the resolution of these issues.

1 West Borneo Economic Corridor, East Borneo Economic Corridor, and Greater Sulu Sulawesi Corridor.