Responsive COVID-19 for Recovery Project under the Asia Pacific Access Facility (RRP INO 54425-001)

STRATEGIC PROCUREMENT PLAN

I. SUMMARY OF PROCUREMENT STRATEGY

Project Name: Responsive COVID-19 Vaccines for Recovery Project under the Asia Pacific Vaccine Access Facility (APVAX) Project Number: 54425-001 Total Number of Direct contract with the manufacturer(s) for bulk and finished vaccine Procurement Packages: supply. Three possible contracts are identified for loan financing. Asian Development Bank (ADB) reviews the signed contract prior to disbursement. Once the vaccine candidates meet the APVAX eligibility requirements, PT Bio Farma (Persero) (Bio Farma) to propose ADB the loan to finance which contract(s). Amount Multiple contracts for eligible vaccines through direct contracting that will be financed in full or part by up to $445.27 million under Rapid Response Component. Implementation schedule: April 2021 – December 2022a Executing Agency (EA)/ EA: PT Bio Farma (Persero), IA: PT Indofarma Tbk, a subsidiary of Bio Implementing Agency (IA) Farma Procurement arrangement: Presidential regulation No.99/2020, as amended by Presidential Regulation No. 14/2021, defines the procurement of the coronavirus disease (COVID-19) vaccine in . The regulation states the procurement of COVID-19 vaccine is conducted through an assignment by the Ministry of Health’s appointment to Bio Farma, including its subsidiaries and PT Indofarma Tbk (Indofarma). The Ministry of Health (MOH) will purchase the vaccine from Bio Farma or its subsidiary based on the price the Ministry determines. The loan will support Bio Farma and Indofarma to deliver the assignment from the government.

To meet the assignment from the MOH, Bio Farma and Indofarma procured the vaccine directly from suppliers following the company’s procurement regulations and procedures, which are governed by the Ministry of State-Owned Enterprise (SOE) Regulations No PER 08/08/MBU/12/2019, on General Guidance on the Procurement of Goods and Services at SOEs. The procurement of vaccine is treated as an emergency operation for public safety.

The loan will not finance consulting services. Bio Farma will support Indofarma’s procurement by providing physical support to the inspection of vaccine upon arrival.

Value for money will be achieved by securing multiple types of vaccines at reasonable commercial terms and through close monitoring of contract implementation to increase the probability of timely delivery. Overall procurement risk: Medium a Covers up to loan closing date. Financial closing date is expected in June 2023. Source: Asian Development Bank.

1. Asian Development Bank (ADB) reviewed one feasibility study Bio Farm conducted to identify the candidate vaccines and three contracts signed by PT Bio Farma (Persero) (Bio Farma) and PT Indofarma Tbk (Indofarma). The Bio Farma feasibility study records the procurement 2 rationale of identifying the first vaccine candidate. Three key issues Bio Farma considered are (i) the technical compatibility with the platform owned by the company, (ii) past and current business relationship with a supplier, and (iii) price comparison, which is found to be a common process to establish the value for money to the company.

2. The terms and conditions of three signed purchase contracts vary in terms of the balance of risk between the parties. Two contracts reviewed provide a balanced and equitable division of risk. A third contract places more risk on the buyer. ADB has reviewed the contract and advised the buyer of the large risk imbalance and the potential for increased costs. ADB acknowledges the weak bargaining power of buyers due to the constrained vaccine market and the prevalence of imbalanced contracts, which have been observed across the world. ADB has reviewed all three contracts and advised that they are acceptable to ADB, subject to the contracts including reference to ADB’s audit and anticorruption provisions.

II. STRATEGIC PROCUREMENT PLAN DUE DILIGENCE

A. Operating Environment

1. Borrower Capacity and Capability Assessment

3. Bio Farma is a 100% state-owned vaccine manufacturer in Indonesia and sole supplier to the government’s public program. One of candidate vaccine will be procured through its subsidiary, Indofarma. The proposed procurement strategy relies on the existing agreements between Bio Farma with Sinovac Life Sciences and AstraZeneca Indonesia and an agreement between Indofarma and Serum Institute of . Bio Farma and Indofarma treated the vaccine procurement as emergency operation for public safety and applied a direct contracting in compliance with the corporate procurement regulations. For a case of bulk vaccine, Bio Farma conducts the fill and finish process with the existing facility and supplies the finished products to the Ministry of Health based on the agreement to be signed.

4. Bio Farma has extensive experience in manufacturing vaccine with annual filling/finishing capacity equivalent to 1.3 billion doses as well as bulk vaccine production capacity equivalent to 2 billion doses. The company supplies finished vaccines to the United Nations Children’s Fund and other countries from the Association of Southeast Asian Nations. The procurement of bulk vaccine for filling/finishing is a part of core corporate operations. According to the 2018 annual report, the company's total purchase amount was Rp2.78 trillion. 61% of their purchase were foreign products.1 Yet, the total volume of vaccine procurement scheduled in 2021 is considerably larger than the corporate’s operation. The decree of the Board of Directors regulates corporate procurement. The latest decree is No PER - 08/MBU/ 12/2019. Article 3 (2) of BOD No PER- 00019/DIR/III/2020 states that in the case of procurement financed under the foreign and domestic loan, these regulations are mandated to be followed as long as they are not in conflict with the procurement provision in the loan agreement.

5. The procurement at PT Bio Farma is carried out centrally by the Procurement Division, who reports to the Director of Finance and Business Relations of the company. A total of 10 procurement staff working under the Procurement Division with clear delegation and responsibility. Within the company, there is the Company internal auditor (SPI) provides an internal independent oversight on procurement, and the Quality Assurance Division provides an

1 Bio Farma. 2018. Annual Report 2018 – Acceleration Transformation Towards Life Sciences Company. Jakarta. 3 internal oversight on the complaint handling. The Supreme Audit (BPK) performs the financial audit to government institutions, which includes procurement aspects.

6. Bio Farma has no prior experience of an International Financial Institutions (IFI) funded project. Their unfamiliarity to IFI procurement requirements and limited staff resources are the main risks found by the assessment.

7. Indofama is a subsidiary of Bio Farma. The Board of Directors Decree No 0181/DIR/SK/III/2020 on the Guidance on the Procurement of Goods and/or Services governs the procurement funded by the company budget, including the following sources of funding: the state capital injection, the company own funds to deliver public services obligation/official government assignment which is refunded through the national state budget, and the company loan from the government. The Procurement Division is under the Director of Production and Supply Chain. There are 18 staff under the Procurement Division, and three of them will take the lead on the contract implementation under the Project. The remaining 15 are the supporting personnel. Bio Farma, as the holding company, provides an overall oversight. Within the company, there is the Company internal auditor (SPI) provides an overall internal independent oversight, and the Quality Assurance Division provides an internal oversight on the complaint handling. Indofarma has no prior experience of an IFI funded project. The company has a limited volume of vaccine procurement in recent years compared to the expected supply from Serum Institute of India. The limited human and physical resources are the main risks found by the assessment.

B. Market Analysis

8. The government has a short-term vaccine procurement plan for 2021 and 2022 based on considerations of cost, availability, efficacy, cold chain capacity and potential for domestic production. The Ministry of Health (MOH) decree 12758/2020 lists the following vaccines as current candidates for the government’s purchase: Astra Zeneca, Moderna, , Pfizer Inc, and BioNTech Sinovac Life Sciences, and Sinopharm, as well as vaccines to be produced by Bio Farma. The list is subject to updates by the MOH. Aside from purchase through state-owned enterprises, the Ministry of Health also directly handles vaccines procurement.

9. Bio Farma and Indofarma have signed the direct purchase agreement with the three listed vaccines' Suppliers as per below. Three contracts are the candidates for the loan financing subject to meet the Asia Pacific Vaccine Access Facility (APVAX) vaccine eligibility criteria. ADB examined the prices the manufacturers offer and find that the prices are within the acceptable price range compared to price information publicly available.2

COVID-19 Vaccine Procurement Plan Serum Institute of Supplier AstraZeneca Indonesia Sinovac Life Sciences India Requested binding commitment 50.0 50.0 125.5 (million doses) Estimated Delivery Q2 2021–Q1 2022 Q2 2021– Q1 2022 Q4 2020–Q1 2022 timeline

2 United Nations Children’s Fund. COVID-19 Vaccine Market Dashboard. 4

Serum Institute of Supplier AstraZeneca Indonesia Sinovac Life Sciences India Signed with Indofarma in October 2020 and Bulk vaccine contract Purchase Signed with Bio Farma updated through signed with Bio Farma agreement status in December 2020 commitment letter in in September 2020 December 2020 Source: Ministry of Health.

C. Risk Management

10. The assessment identified the risk of resource constraint at Indofarma for executing the vaccine contract. The similar human resource constraint risk is identified for Bio Farma at a lesser extent compared to Indofarma. For Indofarma’s physical constraint, Bio Farma will support Indofarma in conducting a test upon arrival of product and storage and contract management, if necessary. Bio Farma has an intergrade and centralized e-Procurement system called BICEPS. The system covers the procurement of holding company and its subsidiaries. Two companies will use the e-procurement system to manage and monitor the purchase orders and logistics both by Bio Farma and Indofarma. Bio Farma has the procurement transformation plan, which includes enhancement of the e-Procurement system. The use of an IT system can slightly reduce the risk of human resource constraint. Yet, the resource constraint risk remains high after the mitigation measure. Due to the extraordinary coronavirus disease (COVID-19) vaccine procurement, and distribution scale is unprecedented to all involving parties in Indonesia, the risk of resource constraint after the mitigation measure should be accepted.

11. Aside from the discussion on the vaccine eligibility, the agreements yet require the contracting parties to comply with ADB Anticorruption Policy and ADB's right to audit as the agreements are signed before the commencement of ADB's discussion a possible loan. If the supplier does not agree to accept the ADB Anticorruption Policy and ADB’s right to audit in a format acceptable to ADB, the loan cannot finance the subject contract. ADB shared its requirement with Bio Farma and Indofarma for the initial discussion with the suppliers.

12. Due to the large risk imbalance of the purchase agreement, the buyer bears higher risk in contract management. The management of delivery schedule and quantity are particularly challenging in the silverly constrained vaccine market. Having multiple purchase agreements in parallel mitigates the risk of uncertainty on delivery. A centralized monitoring of purchase order and delivery schedule can help Bio Farma in determining a purchase order to prioritize.

D. Option Analysis

13. The project will finance one or more eligible vaccines described in section B. As of 9 March 2021, no vaccine satisfies APVAX vaccine eligibility criteria. Thus, the option is not finalized. The progress of the regulatory approval process and satisfaction of APVAX vaccine eligibility criteria will determine the final option the project will take. The procuring entity also depends on the selection of vaccine.

III. PROCUREMENT STRATEGY

14. The project primarily relies on the purchased agreements Bio Farma and Indofarma signed with the vaccine manufacturers in 2020. These agreements include international logistics 5 by the Supplier from the manufacturing place to Indonesia. The agreements shall incorporate these requirements before it becomes eligible for ADB financing. Bio Farma to propose ADB the loan to finance which contract(s). ADB reviewed the signed agreements during the project due diligence. The above does not exclude a possibility of financing another purchase agreement of eligible vaccine to be negotiated and signed by Bio Farma and Indonesia, in future. Similar to the existing agreements, ADB will review an agreement prior to agreeing to finance the contract.

Mandatory Appendices Appendix A - Procurement plan attached to the Project Administration Manual