`
Report and Recommendation of the President
to the Board of Directors
Project Number: 50182-001 November 2018
Proposed Loans, Partial Risk Guarantee, and
Administration of Loan
PT. Medco Ratch Power Riau
Riau Natural Gas Power Project
This is an abbreviated version of the document approved by ADB's Board of Directors that excludes information that is subject to exceptions to disclosure set forth in ADB's Access to Information Policy.
CURRENCY EQUIVALENTS (as of 25 October 2018)
Currency unit – rupiah (Rp) Rp1.00 = $0.000066 $1.00 = Rp15,202.00
ABBREVIATIONS
ADB – Asian Development Bank CCGT – combined-cycle gas turbine EPC – engineering, procurement, and construction ESIA – environmental and social impact assessment IFC – International Finance Corporation IPP – independent power producer MEMR – Ministry of Energy and Mineral Resources PLN – Perusahaan Listrik Negara (national power utility) PPA – power purchase agreement PRG – partial risk guarantee RUPTL – Rencana Usaha Penyediaan Tenaga Listrik (National Electricity Business Plan)
WEIGHTS AND MEASURES
km – kilometer kV – kilo-volt m – meter MW – megawatt
NOTE
In this report, “$” refers to United States dollars.
Vice-President Diwakar Gupta, Private Sector and Cofinancing Operations Director General Michael Barrow, Private Sector Operations Department (PSOD) Director Jackie B. Surtani, Infrastructure Finance Division 2, PSOD
Team leader Kota Yasumura, Investment Specialist, PSOD Project advisor Yuichiro Yoi, Senior Investment Specialist, PSOD Team members Genevieve Abel, Principal Transaction Support Specialist (Integrity), PSOD Ian Bryson, Senior Safeguards Specialist, PSOD Dennis I. Eucogco, Senior Guarantees and Syndications Specialist, PSOD Kristy Harrison, Senior Safeguards Specialist, PSOD Manfred Kiefer, Senior Economist, PSOD Juan-Pablo Martinez-Molina, Investment Specialist, PSOD Nicholas Moller, Principal Counsel, Office of the General Counsel
In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.
CONTENTS Page
PROJECT AT A GLANCE I. THE PROPOSAL 1 II. THE PROJECT 1 A. Project Identification and Description 1 B. Development Impacts, Outcome, and Outputs 3 C. Alignment with ADB Strategy and Operations 3 D. Project Cost and Financing Plan 4 E. Implementation Arrangements 4 F. Projected Financial and Economic Performance 5 III. THE PROPOSED ADB ASSISTANCE 5 A. The Assistance 5 B. Value Added by ADB Assistance 6 C. Risks 6 IV. POLICY COMPLIANCE 6 A. Safeguards and Social Dimensions 6 B. Anticorruption Policy 8 C. Investment Limitations 8 D. Assurances 9 V. RECOMMENDATION 9 APPENDIXES 1. Design and Monitoring Framework 10 2. List of Linked Documents 12
Project Classification Information Status: Complete
PROJECT AT A GLANCE
1. Basic Data Project Number: 50182-001 Project Name Riau Natural Gas Power Project Department PSOD/PSIF2 /Division Country Indonesia
Borrower qq PT. Medco Ratch Power Riau 2. Sector Subsector(s) ADB Financing ($ million)a Energy Conventional energy generation 70.00 77.90 Total . 0 qq 147 9 3. Strategic Agenda Subcomponents Climate Change Informationb Inclusive economic Pillar 2: Access to economic CO2 reduction (tons per annum) 375,000 growth (IEG) opportunities, including jobs, Climate Change impact on the Project Low made more inclusive Qq 4. Drivers of Change Components Gender Equity and Mainstreaming Partnerships (PAR) Commercial cofinancing Some gender elements (SGE) Official cofinancing Private Sector Private sector Promotion of private sector development (PSD) investment qq 5. Poverty and SDG Targeting Location Impact Geographic Targeting No Rural High Household Targeting No SDG Targeting Yes SDG Goals SDG7 qq 6. Nonsovereign Operation Risk Rating Obligor Name Final Project Rating Facility Risk Rating PT. Medco Ratch Power Riau 7. Safeguard Categorization Environment: A Involuntary Resettlement: B Indigenous Peoples: C Qq 8. Financing Modality and Sources Amount ($ million) ADB 70.00 Nonsovereign LIBOR Based Loan (Regular Loan): Ordinary capital resources 70.00 Cofinancing 152.00 Commercial Banks (Full ADB Administration) 82.00 International Finance Corporation (IFC) 50.00 Leading Asia’s Private Infrastructure Fund (LEAP) (Full ADB Administration) 20.00 Others c 71.00 Total 293.00
Currency of ADB Financing: USD
a ADB’s proposed PRG will cover up to $77.90 million, i.e., 95% of the B loan for the commercial banks of up to $82.00 million. b The project reduces greenhouse gas emissions. However, it does not fall under the eligibility criteria for climate mitigation finance as defined by the joint multilateral development bank methodology on tracking climate finance, which notes that not all activities that reduce greenhouse gases in the short term are eligible to be counted towards climate mitigation finance. Accordingly, greenfield fossil fuel projects are excluded, and climate mitigation finance is considered zero. c Derived by deducting ADB financing, B loans and Cofinancing from Project Total Cost.
Source: Asian Development Bank This document must only be generated in eOps. 09102018094717289799 Generated Date: 05-Nov-2018 11:20:33 AM
I. THE PROPOSAL
1. I submit for your approval the following report and recommendation on (i) a proposed A loan of up to $70,000,000; (ii) a proposed B loan of up to $82,000,000; and (iii) a proposed partial risk guarantee (PRG) for the B loan covering up to $77,900,000 of principal plus interest and guarantee fees for the Riau Natural Gas Power Project in Indonesia. The report also describes the proposed administration of a loan of up to $20,000,000 to be provided by the Leading Asia’s Private Infrastructure Fund1 (LEAP), and if the Board approves the proposed loans and partial risk guarantee, I, acting under the authority delegated to me by the Board, approve the administration of the loan.
2. The proposed loans and PRG will support the construction of a 275-megawatt (MW) combined-cycle gas turbine (CCGT) power plant and ancillary infrastructure in Riau province in central Sumatra. The Asian Development Bank (ADB) invited and is working together with the International Finance Corporation (IFC) on its first joint project in Indonesia. Furthermore, ADB will also be providing its PRG product to commercial banks for the first time in Indonesia thereby significantly increasing our cofinancing relationships. This plant will contribute to the diversification of energy sources in the country and will also provide an affordable power generation source that could increase the penetration capacity of renewable energy sources in the Sumatra grid.
II. THE PROJECT
A. Project Identification and Description
1. Project Identification
3. Indonesia is the largest economy in Southeast Asia, with gross domestic product of about $1,015.4 billion (current United States dollars) in 2017.2 Economic growth averaged 5.0% during 2015–2017, but stronger growth is needed to drive poverty down and reverse high inequality.3 Growth remains below potential because of structural impediments such as deficient energy infrastructure. ADB estimates Indonesia’s infrastructure investment needs at $1.1 trillion for 2016– 2030, or $1.3 trillion if climate adaptation measures are included.4 Accelerating investment in affordable and sustainable energy is critical for achieving the country’s economic and social development goals.
4. The Ministry of Energy and Mineral Resources (MEMR) anticipates power demand to exceed current forecasts, resulting in a shortage that could undermine the country’s sustainable growth potential if not addressed adequately. Every year, the MEMR issues a rolling 10-year plan prepared by Perusahaan Listrik Negara (PLN), the national electric utility, to prioritize new power
1 Financing partner: Japan International Cooperation Agency (JICA). 2 International Monetary Fund. 2018. World Economic Outlook (WEO). Washington, DC. 3 The proportion of people living in poverty has declined by more than half, from 24% in 1999 to 10.1% in 2017, but remains high for a lower middle-income country. 4 ADB. 2017. Meeting Asia's Infrastructure Needs. Manila.
2
investments. The National Electricity Business Plan (RUPTL), 2018–20275 indicates that, during this period, 56 gigawatts will be added to PLN’s network.6
5. Supporting sustainable growth. The use of combined-cycle gas-fired power generation can improve the environmental sustainability of the current energy mix by displacing diesel and coal as fuels for electricity generation.7 Gas engines and turbines can respond more quickly than coal and diesel units and, therefore, are better suited to responding rapidly to load fluctuations. This, in turn, can enable greater use of intermittent renewable energy sources, such as wind and solar. The increased usage of natural gas will therefore help the government to reach the target of 23% power generation from renewable energy sources.
6. Increasing power affordability. PLN awarded the project to the sponsors through a competitive bidding process. The project will contribute to lowering the average power generation cost in Sumatra. The MEMR issued new regulations in January 2017 to set energy tariffs against the local and national grid cost of power generation.8 The cost of power generation is issued by the MEMR every year. The project’s tariff is well below the cost of power generation in the area,9 delivering savings to PLN and ultimately to its energy users.
2. Project Design
7. The project entails the construction, operation, and maintenance of a 275-MW CCGT power plant with all supporting facilities and necessary equipment (including a gas pipeline of approximately 40 kilometers (km) that connects to the existing gas pipeline network, 150-kilo-volt (kV) transmission lines of approximately 0.75 km, and 150-kV substation and switchyard infrastructure). It will connect to the Tenayan 150-kV sub-station in Pekanbaru city in Riau province in central Sumatra. The project will be implemented under a 20-year power purchase agreement (PPA) with PLN. PLN will supply natural gas to the project, and the project will operate as a load-following10 power plant.
[CONFIDENTIAL INFORMATION DELETED]
3. Borrower and Sponsors
8. The project will be implemented through a special purpose vehicle, PT. Medco Ratch Power Riau, which is the borrower. It will be 51% owned by PT. Medco Power Indonesia, a leading developer and operator of small and medium size independent power producers (IPPs)
5 Government of Indonesia, MEMR. 2018. Rencana Usaha Penyediaan Tenaga Listrik (RUPTL), 2018–2027. Jakarta. 6 In the RUPTL, 2018–2027, power demand was revised downward from 2015–2017 levels because economic growth was lower than expected. However, the planned additional new power capacity by 2027 is still 56 gigawatts, which is larger than existing installed capacity in 2017. 7 A combined-cycle power plant uses both a gas and a steam turbine. The waste heat from the gas turbine is routed to the nearby steam turbine, which generates extra power. Combined-cycle plants are more efficient than traditional simple-cycle plants. 8 Sector Overview (accessible from the list of linked documents in Appendix 2). 9 The 2017 cost of power generation published in April 2018 shows an average cost of generation of $0.1098 per kilowatt-hour in Riau and the Riau archipelago. [CONFIDENTIAL INFORMATION DELETED] 10 The project plant will adjust its power output as demand for electricity fluctuates throughout the day. Based on the dispatch profile, the anticipated annual capacity factor is 60%. 3 in Indonesia, and 49% by Ratchaburi Electricity Generating Holding Public Company Limited (Ratch), Thailand's largest IPP (rated BBB+ by Standard and Poor’s and Baa1 by Moody’s).11
Integrity due diligence, and enhanced tax integrity due diligence were conducted and shared concerns were discussed together with IFC.12
[CONFIDENTIAL INFORMATION DELETED]
B. Development Impacts, Outcome, and Outputs
9. Impacts. The project will have the following impact: implemented national energy policy which aims to re-establish Indonesia’s energy independence by using domestic gas for power generation, and improved reliability of power supply in the Sumatra grid.13
10. Outcome. The project will have the following outcome: increased delivery of stable and reliable power to the domestic grid through CCGT power generation of 1,445 gigawatt-hour annually.14
11. Outputs. The project will have the following outputs: (i) successful completion of a 275MW CCGT power plant and ancillary infrastructure, operated by the private sector; (ii) generation of local employment opportunities during the construction phase; (iii) stimulation of local and national economy; and (iv) implementation of measures to promote gender equality and women’s empowerment.
C. Alignment with ADB Strategy and Operations
12. Consistency with ADB strategy and country strategy. Following ADB’s Strategy 2030, the project meets this operational priority: tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability. 15 Also, the project supports private sector participation in infrastructure to fill the infrastructure gap and catalyze and mobilize financial resources for development.16 The project is consistent with ADB’s country partnership strategy for Indonesia, 2016–2019 in supporting the expansion of infrastructure and environmentally friendly technologies for energy generation. 17 It also contributes to the objectives of Indonesia’s National Energy Plan (footnote 13).
11 Client Information (accessible from the list of linked documents in Appendix 2). 12 ADB. 2003. Enhancing the Asian Development Bank’s Role in Combating Money Laundering and the Financing of Terrorism. Manila; ADB. 2016. Anticorruption Policy: Enhancing the Role of the Asia Development Bank in Relation to Tax Integrity. Manila. 13 Government of Indonesia. 2017. National Energy Plan (Presidential Regulation No. 22/2017). Jakarta. 14 The design and monitoring framework is in Appendix 1. 15 The project reduces greenhouse gas emissions. However, it does not fall under the eligibility criteria for climate mitigation finance as defined by the joint multilateral development bank methodology on tracking climate finance, which notes that not all activities that reduce greenhouse gases in the short term are eligible to be counted towards climate mitigation finance. Accordingly, greenfield fossil fuel projects are excluded, and climate mitigation finance is considered zero. 16 ADB. 2018. Strategy 2030: Achieving a Prosperous, Inclusive, Resilient, and Sustainable Asia and the Pacific. Manila. 17 ADB. 2016. Country Partnership Strategy: Indonesia, 2016–2019: Towards a Higher, More Inclusive and Sustainable Growth Path. Manila. 4
13. Consistency with sector strategy and relevant ADB operations. The project is consistent with ADB’s Energy Policy, which supports natural gas-based power plants and efficient technologies such as combined-cycle. 18 The energy policy also supports public-private partnership models that enable the participation of the private sector to help achieve efficiencies and reduce reliance on public sector funds. Further, the project complements ADB’s assistance to the MEMR and PLN through its results-based and policy-based lending, which includes support to PLN for grid capacity improvement in Sumatra.19
14. Lessons from previous operations. The project will benefit from ADB’s exposure to Indonesia’s energy sector and experience gained from structuring and implementing energy projects in Indonesia.20 Most of the private sector power projects that have been financed by ADB to date are still under construction but are generally on track. ADB’s experience indicates that successful project implementation depends on the sponsors’ strength, experience, and ability to understand the regulatory environment, as well as the terms and conditions governing the financing of such projects.
D. Project Cost and Financing Plan
[CONFIDENTIAL INFORMATION DELETED]
E. Implementation Arrangements
15. Table 3 summarizes the implementation arrangements.21
Table 3: Summary of Implementation Arrangements Aspects Arrangements Regulatory framework PT. Medco Ratch Power Riau will develop the project under Indonesia’s Electricity Law (2009). Management MPI and Ratch will establish a joint engineering and management team to implement the project, closely supervise construction arrangements, and manage operations when the combined-cycle gas-turbine power plant is completed and has achieved commercial operations. Implementation period [CONFIDENTIAL INFORMATION DELETED] Construction arrangements Type of arrangement The project has a fixed-price, date-certain, turnkey EPC arrangement for the construction and commissioning of the power plant and associated transmission line facilities, while 40 km of gas pipeline are to be done by a separate EPC arrangement. Contractor [CONFIDENTIAL INFORMATION DELETED] Operations arrangements
18 ADB. 2009. Energy Policy. Manila. 19 ADB. 2015. Report and Recommendation of the President to the Board of Directors: Perusahaan Listrik Negara Electricity Grid Strengthening, Sumatra Program. Manila. 20 The current nonsovereign portfolio operation in Indonesian power sector consists of: Jawa-1 LNG-to-Power Project (2018), Rantau Dedap Geothermal Power Project (Phase II) (2018), Eastern Indonesia Renewable Energy Project Phases I and II) (2017–2018), Muara Laboh Geothermal Power Project (2017), and Sarulla Geothermal Power Development Project (2014). 21 Details of Implementation Arrangements (accessible from the list of linked documents in Appendix 2). 5
Revenue structure The project is being developed under the terms of a 20-year PPA with PLN (rated BB by Standard and Poor’s, BBB- by Fitch Ratings, and Baa3 by Moody’s). [CONFIDENTIAL INFORMATION DELETED] Operation and maintenance [CONFIDENTIAL INFORMATION DELETED] Relevant parties Day-to-day operation of the project will be carried out by PT. Medco Power Servis Indonesia, a subsidiary company of MPI. PT. Medco Ratch Power Riau will supervise the operations of PT. Medco Power Servis Indonesia. Aspects Arrangements Performance monitoring ADB and other lenders will monitor the project’s compliance with ADB’s safeguard requirements, construction progress, updates, and financial performance during operations. ADB = Asian Development Bank; EPC = engineering, procurement, and construction; LTSA = long-term service agreement; MPI = PT. Medco Power Indonesia; PLN = Perusahaan Listrik Negara (national power utility); PPA = power purchase agreement; Ratch = Ratchaburi Electricity Generating Holding Public Company Limited. Sources: Asian Development Bank and PT. Medco Ratch Power Riau.
F. Projected Financial and Economic Performance
[CONFIDENTIAL INFORMATION DELETED]
III. THE PROPOSED ADB ASSISTANCE
A. The Assistance
16. ADB’s assistance consists of (i) a proposed A loan of up to $70.0 million,22 (ii) a proposed B loan of up to $82.0 million, (iii) a proposed PRG for the B loan covering up to $77.9 million of principal plus interest and guarantee fees,23 and (iv) a proposed parallel loan of up to $20.0 million, to be provided by LEAP and administered by ADB (footnote 1).
[CONFIDENTIAL INFORMATION DELETED]
17. ADB’s PRG will cover up to 95% of the B loan for the commercial banks, mitigating losses caused by the following perils: (i) breach of PPA: an arbitral award default and denial of recourse; (ii) expropriation: actions by the host government which deprive the project of rights or assets or interferes with the ownership control of such assets or of the borrower; (iii) war and civil disturbance: acts of war, revolution, and insurrection; and (iv) transfer restrictions or inability to transfer: events, including actions by the host government that prevent or restrict conversion and transfer of currency.
22 ADB’s direct A loan will rank pari pasu with the B loan to be funded by commercial banks, sharing a pooled security package over project assets. A portion of the risk on ADB’s direct loan and PRG may be transferred to counterparties eligible under applicable policies, in which case the investment committee will endorse the terms of the risk transfer arrangement. 23 ADB’s maximum aggregate liability under this PRG will be up to $150,000,000. 6
B. Value Added by ADB Assistance
18. ADB’s participation in the project will add substantial value in the following ways: (i) ADB has played a lead role in structuring the project by ensuring fair risk allocation under various project documents and the financing structure. (ii) Securing long-term commercial bank financing necessary for any large-scale infrastructure investments remains a challenge in Indonesia. ADB’s role as a lender and provider of PRG cover for the B loan will enable the project to mobilize a significant amount of long-term debt. (iii) ADB is playing a lead role in ensuring the implementation of environmental and social safeguards of international standards.
C. Risks
[CONFIDENTIAL INFORMATION DELETED]
IV. POLICY COMPLIANCE
A. Safeguards and Social Dimensions
19. ADB has categorized the investment in compliance with ADB’s Safeguard Policy Statement (2009) as follows: environment category A, involuntary resettlement category B, and indigenous peoples category C.24 ADB has undertaken due diligence and reviewed the potential environmental and social impacts of the project and the measures to avoid, minimize, mitigate, and compensate for the adverse impacts in the safeguard reports and plans. To meet ADB requirements for an environment category A project, a draft environmental and social impact assessment (ESIA) was disclosed on ADB’s website on 18 May 2018. 25 This includes an environmental and social management plan and a framework environmental and social management system to manage and monitor impacts during pre-construction, construction and operation. The environmental and social measures and the institutional capacity and commitment of the borrower to manage the project’s social and environmental impacts are deemed adequate.
20. Environment. The CCGT site is on an oil palm plantation and is surrounded by the plantation to the south, west, and east, and road 45 to the north. Ancillary infrastructure includes a 150-kV switchyard on site, 0.75 km long 150-kV power line with eight new pylons, a 40-km gas pipeline connecting to the main gas network, 3 km of water intake and discharge pipelines to the Siak river, and a temporary jetty for the transport of heavy equipment. The temporary jetty, water intake and outlet are located adjacent to the existing Tenayan coal-fired power plant. Pekanbaru city is approximately 3 km to the west and the closest residence is 0.45 km to the south-east. There are residential properties, a school and a mosque near the gas pipeline, which follows existing roads.
21. The project area is modified habitat with 0.24 hectares of degraded natural habitat. The critically endangered Sunda pangolin (Manis javanica) and endangered agile gibbon (Hylobates
24 ADB. Safeguard Categories. 25 https://www.adb.org/projects/50182-001/main. 7 agilis) occur in or near the project area. Sunda pangolin can occupy modified habitat including an oil palm plantation but are threatened by hunting and poaching. Agile gibbon occurs in intact and degraded forest and forest edges. Due to actual or potential impacts on natural and critical habitat the project has developed a Biodiversity Action Plan. This includes a no tolerance policy towards poaching by workers, education programs for the community, and conservation initiatives.
22. The main air pollutant of potential concern from a CCGT is nitrogen dioxide. Baseline air quality monitoring showed that the airshed is non-degraded for nitrogen dioxide. During operation, air dispersion modeling shows that maximum ground level nitrogen dioxide concentrations, accounting for maximum potential cumulative emissions from the Tenayan coal- fired power plant, comply with Indonesian air quality standards and the World Bank Environmental Health and Safety Guidelines. In addition, nitrogen dioxide emissions from the power plant only are well within the World Bank 25% threshold to allow for future sustainable development.26
23. The plant will source water from the Siak river at a rate of less than 0.5% of minimum daily flows. Wastewater will be treated on site before discharge to the river in compliance with Indonesian and World Bank Group standards.27 Cooling water does not result in elevated water temperatures and no cumulative impacts are caused by the existing power plant. Impacts on river ecology have been assessed as minor and a fisherfolk survey has also been conducted.
24. During construction, the sponsor is to implement measures to minimize disturbance to residents. This includes a staged approach for gas pipeline installation in 500 meters (m) lengths over a two-week period. Stakeholder consultation was undertaken during the local environmental approval process and during the preparation of the ESIA. This has included disclosure of the ESIA and feedback from the community, with additional meetings to be held in November 2018. A community grievance redress mechanism was developed and socialized.
25. Involuntary resettlement. The project will not cause involuntary physical displacement but will produce some temporary involuntary economic displacement and restriction impacts through pipeline construction. The power plant and switchyard will be constructed on privately owned land. Purchase of this land by the borrower was on a voluntary willing-seller willing-buyer basis on commercial terms at market value. Land required for the pumphouse and water intake area will be leased from the government. Water intake and discharge pipelines are on government land and will be laid along existing corridors with easement rights. Land on the bank of the Siak river required during construction for a temporary jetty is unoccupied but its use for the project may restrict the access of river users during the 8month construction period. The route of the 40-km buried gas supply pipeline has been designed to minimize displacement impacts and will be built within an existing road right-of-way and on state-owned and privately-owned oil palm plantations.
26. A plan to manage all temporary project-related involuntary economic displacement impacts through compensation and livelihood restoration measures has been developed by the borrower. It is not expected that any involuntary physical displacement will occur because there are no dwellings located at the power plant site or within the transmission tower alignment and
26 IFC. 2008. Environmental, Health, and Safety Guidelines for Thermal Power Plants. World Bank Group, Washington, DC. 27 IFC. 2007. Environmental, Health, and Safety General Guidelines. World Bank Group, Washington, DC. 8 the gas and water pipelines will predominantly run along the road reserve or within easements which will be agreed with the affected landowners. The borrower is directly responsible for the implementation of the compensation and livelihood restoration measures.
27. Indigenous peoples. No distinct and vulnerable indigenous peoples or ethnic minority groups as defined in ADB’s Safeguard Policy Statement (2009) are identified as present in the project’s area of influence. The project impact assessment identifies presence of ethnic subgroups of the Malay (Melayu) majority, which is one of Indonesia’s larger ethnic groups.
28. Some gender elements. In addition to measures required under national law and safeguards requirements, at ADB’s request and guidance, PT. Medco Ratch Power Riau has committed to implement measures to promote gender equality and women’s empowerment in its project business activities following ADB’s Policy on Gender and Development (2003). These measures are: (i) women’s health training events programmed in collaboration with community health centers; (ii) early childhood education and development training events focused on the needs of girls, programmed in collaboration with community groups; and (iii) financial literacy training events for households and enterprises focused on the needs of women, programmed in collaboration with community groups. The borrower will submit periodic reports on implementation of gender measures to ADB as part of its environmental and social monitoring reports.
29. Other social aspects. PT. Medco Ratch Power Riau will comply with national labor laws and, pursuant to ADB’s Social Protection Strategy (2001), will take measures to comply with internationally recognized core labor standards. The client will report regularly to ADB on (i) its compliance with such laws and that of its contractors, and (ii) the measures taken. Information disclosure and consultation with affected people will follow ADB requirements.28
B. Anticorruption Policy
30. PT. Medco Ratch Power Riau was advised of ADB’s policy of implementing best international practice relating to combating corruption, money laundering, and the financing of terrorism. ADB will ensure that the investment documentation includes appropriate provisions prohibiting corruption, money laundering, and the financing of terrorism; and remedies for ADB in the event of noncompliance.
C. Investment Limitations
31. The proposed loans and PRG are within the medium-term, country, industry, group, and single exposure limits for non-sovereign investments.
D. Assurances
32. Consistent with the Agreement Establishing the Asian Development Bank (the Charter),29 ADB will proceed with the proposed assistance upon establishing that the Government of
28 Summary Poverty Reduction and Social Strategy; and Safeguards and Social Dimensions Summary (accessible from the list of linked documents in Appendix 2). 29 ADB. 1966. Agreement Establishing the Asian Development Bank. Manila. 9
Indonesia has no objection to the proposed assistance to PT. Medco Ratch Power Riau. ADB will enter into suitable finance documentation, in form and substance satisfactory to ADB, following approval of the proposed assistance by the Board of Directors.
V. RECOMMENDATION
33. I am satisfied that the proposed loans and partial risk guarantee would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve (i) an A loan of up to $70,000,000 from ADB’s ordinary capital resources, (ii) a B loan of up to $82,000,000, and (iii) a partial risk guarantee for the B loan covering up to $77,900,000 of principal plus interest and guarantee fees from ADB’s ordinary capital resources, to PT. Medco Ratch Power Riau for the Riau Natural Gas Power Project in Indonesia with such terms and conditions as are substantially in accordance with those set forth in this report, and as may be reported to the Board.
Takehiko Nakao President
6 November 2018
10 Appendix 1
DESIGN AND MONITORING FRAMEWORK Impacts the Project is Aligned with
Indonesia’s energy independence reestablished by redirecting energy resources from export to the domestic markets, and reliability of power supply improved (National Energy Plan) a Performance Indicators with Data Sources Results Chain Targets and Baselines and Reporting Risks Outcome By 2022: Delivery of stable and a. Electricity delivered to a–f. Annual Changes in reliable power to the offtaker reached 1,445 GWh per monitoring report regulatory domestic grid year (2018 baseline: 0) submitted by the environment or increased borrower power purchase b. 375,000 tCO2-equiv avoided agreement annually (2018 baseline: 0)b Natural gas supply c. Number of jobs provided is delayed or during operation totals at least 87 disrupted (2018 baseline: 0) Availability of d. Percentage of jobs provided female work force to women during operation totals and qualification more than 9%. Number of jobs provided to women during operation totals to at least 7 (2018 baseline: 0)
e. Annual domestic purchase of goods and services amounts to more than $3.2 million during operation (2018 baseline: 0)
f. Payments to the government during operations totaled at least $50.1 million (2018 baseline: 0) Outputs By 2022: 1. CCGT and ancillary 1a. Total installed electricity 1–4. Annual Construction delay infrastructure generation capacity of project monitoring report because of force constructed and reached 275 MW (2018 baseline: 0) submitted by the majeure events commissioned borrower. 1b. Total length of transmission Cost overruns lines installed increased to 0.75 km (2018 baseline: 0)
1c. Total length of pipeline installed increased to 40 km
(2018 baseline: 0)
2. Local employment 2. Number of jobs provided during generated construction phase totals, on an aggregated basis, 1,255 (2018 baseline: 0)
Appendix 1 11
Performance Indicators with Data Sources Results Chain Targets and Baselines and Reporting Risks 3. Growth of local and 3a. Total payments to government national economy provided during construction and supported early operation reached at least $2.1 million (2018 baseline: 0)
3b. Total domestic purchases during construction and early operation reached at least $58.8 million (2018 baseline: 0)
4. Community 4. Training events programmed in Testimonials from at Women and girls outreach and collaboration with community least 5 women event cannot attend education activity groups in the project area for participants events due to undertaken women’s health, early childhood conflicting priorities education and development, and financial literacy provided during construction and operation phases totaled at least 1 per annum for all people, and 1 every 2 years for women and girls (2018 baseline: 0)
Key Activities with Milestones [CONFIDENTIAL INFORMATION DELETED]
Inputs Asian Development Bank: $70.0 million (A loan) $77.9 million (partial risk guarantee for the B loan)
Commercial Banks (B lenders): $82.0 million (B loan)
Leading Asia’s Private Infrastructure Fund (Parallel Debt Subprogram): $20.0 million (loan)
[CONFIDENTIAL INFORMATION DELETED]
Assumptions for Partner Financing Not applicable ADB = Asian Development Bank, CCGT = combined-cycle gas turbine, GWh = gigawatt-hour, km = kilometer, MW = megawatt, tCO2-equiv = ton of carbon dioxide equivalent. a Government of Indonesia. 2017. National Energy Plan (Presidential Regulation No. 22/2017). Jakarta. b Contribution to the ADB Results Framework (accessible from the list of linked documents in Appendix 2). Source: Asian Development Bank.
12 Appendix 2
LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=50182-001-4
1. Contribution to the ADB Results Framework 2. Country Economic Indicators 3. Summary Poverty Reduction and Social Strategy 4. Safeguards and Social Dimensions 5. Environmental and Social Impact Assessment