Integrated Safeguards Datasheet Appraisal Stage

INTEGRATED SAFEGUARDS DATASHEET
APPRAISAL STAGE

I. Basic Information
Date prepared/updated: 04/23/2008 Report No.: AC3268

1. Basic Project Data
Country: Indonesia Project ID: P099757
Project Name: Geothermal Power Generation Development
Task Team Leader: Migara Jayawardena
GEF Focal Area: Climate change Global Supplemental ID:
Estimated Appraisal Date: December 17, 2007 Estimated Board Date: May 29, 2008
Managing Unit: EASTE Lending Instrument: Technical Assistance Loan
Sector: Renewable energy (75%);Power (25%)
Theme: Climate change (P);Other financial and private sector development (S)
IBRD Amount (US$m.): 0.00
IDA Amount (US$m.): 0.00
GEF Amount (US$m.): 4.00
PCF Amount (US$m.): 0.00
Other financing amounts by source:
BORROWER/RECIPIENT 5.00
5.00
Environmental Category: C - Not Required
Simplified Processing Simple [] Repeater []
Is this project processed under OP 8.50 (Emergency Recovery) or OP 8.00 (Rapid Response to Crises and Emergencies) Yes [ ] No [ ]

2. Project Objectives
The project's development objective is to assist the GoI to prepare and implement their geothermal reform program designed to address key policy, institutional, and risk associated barriers in order to promote the progressively greater utilization of geothermal resources that will provide renewable energy to the electricity market in an efficient, cost-effective, and environmentally friendly manner. The key barriers are:

- Lack of an adequate policy framework that incorporates the environmental benefits of geothermal and provides sufficient incentives for investing in the sector;
- Lack of management, planning, and implementing capabilities to identify, prepare tender and supervise the development of feasible geothermal resources;
- Technical risks associated with developing upstream geothermal resources, particularly in unexplored areas (greenfields); and
- Lack of domestic technical capacity;
The global environment objective of the project is to help address climate change (Priority #4) through the reduction of GHG emissions. The proposed project falls in the operational areas o the GEF's Operational Program 6 "Promotion the Adoption of Renewable Energy by Removing Barriers and Reducing Implementation Costs". It will primarily address GEF's strategic priority of CC-3 - power sector policy frameworks supportive of renewable energy.

3. Project Description
The proposed project is designed to address some of these key barriers in an integrated manner so that investments in geothermal can be mobilized quickly for fields that are ready to be developed while also including measures that will strengthen the long-term development prospects. The components that make up this integrated geothermal policy reform project are:

Component 1: Policy Framework for Scaling-Up the Development of Geothermal Power. The project will aim to assist the GoI improve the present set of policies in order to enhance the investment climate for high quality geothermal development.

- Policy to Address Incremental Costs: This subcomponent is designed to develop a pricing mechanism to provide adequate economic incentives for developing geothermal resources. It will also address any incremental costs that may be associated with some geothermal developments as a result of the market failure to incorporate the environmental externalities into investment decisions, which remains a key barrier to geothermal development.

- Instrument for Upstream Risk Mitigation: This sub-component is designed to create a mechanism for mitigating upstream resource development risks faced by geothermal developers in Indonesia. It is intended to limitinvestor's exposure to uncertainty stemming from the potential power capacity in geothermal fields and the relatively higher upfront investment cost - both of which can be prohibitive for commercial financing of geothermal projects.

- Support the implementation of the Geothermal Law: This sub-component will review the Geothermal Law and the draft Implementation Rules and Regulations of the Geothermal Law, identify gaps within the documents and potential hindrances to future geothermal power project investments, and recommend necessary amendments and supplementary policies and regulations.

C2.3 Component 2: Transactions to Mobilize Investments in the Geothermal Sector. This component will assist the GoI, especially the MEMR, to develop the capacity for planning and transacting geothermal power developments in an efficient and transparent manner. The present lack of a credible mechanism for offering geothermal development opportunities is a key shortcoming to attracting investors.

- Expanding development in fields that are already allocated to investors: This sub-component is designed to catalyze investments by existing developers to expand geothermal power generation in fields under their control. It will help achieve financial closures for installation of at least 300 MW of new generation capacity (for estimated leverged investment of about US$700 million)in these geothermal fields, by project closing.

- Tendering unexplored and unallocated fields for development. This sub-component will develop the procedures through which MEMR will offer new geothermal development opportunities to potential investors. This sub-component will also financially engineer a selected project (50 MW installed capacity or greater in scale for a leveraged investment of at least US$100 million) to ensure that it is "bankable" and offer it to investors through the transaction process towards achieving financial closure of the investment.

C2.4. Component 3: Technical Capacity Building: This component will address the limited domestic technical capacity for handling most geothermal related activities, and support the long-term development prospects of the sector.

- Training to facilitate geothermal transactions. This sub-component will train relevant staff in the central and local governments in preparing transactions, engaging investors, evaluating bids, and negotiating financial closings.

- Awareness program for geothermal development. This sub-component is designed to enhance the familiariaty of various stakeholders with the implementation aspects of the Geothermal Law as wellas the GoI geothermal power development targets and sector reform program.

- Long-Term cost reduction options. As a preparation for implementing a cost reduction program in geothermal related industries in Indonesia for enhanced domestic participation and competitiveness, the project will support an industrial analysis that will be conducted to identify key areas where local industries maintain a comparative advantage, and develop a sector strategy to strengthen their roles and participation in the geothermal power development industry.

4. Project Location and salient physical characteristics relevant to the safeguard analysis
The project is primarily capacity building and assistance for development of policy frameworks and approaches. However, the project will also assist MEMR to develop model procedures and processes, including environmental and social assessments and management plansas well as bidding documents, for transacting geothermal fields in an efficient and transparent manner. The location of these fields is as yet unknown, but is likely to be national in scope.

5. Environmental and Social Safeguards Specialists
Mr Thomas E. Walton (AFTTR)
Mr Bruce M. Harris (EASTE)

6. Safeguard Policies Triggered Yes No
Environmental Assessment (OP/BP 4.01) X
Natural Habitats (OP/BP 4.04) X
Forests (OP/BP 4.36) X
Pest Management (OP 4.09) X
Physical Cultural Resources (OP/BP 4.11) X
Indigenous Peoples (OP/BP 4.10) X
Involuntary Resettlement (OP/BP 4.12) X
Safety of Dams (OP/BP 4.37) X
Projects on International Waterways (OP/BP 7.50) X
Projects in Disputed Areas (OP/BP 7.60) X

II. Key Safeguard Policy Issues and Their Management
A. Summary of Key Safeguard Issues
1. Describe any safeguard issues and impacts associated with the proposed project. Identify and describe any potential large scale, significant and/or irreversible impacts:
Indonesia's future expansion of base-load power is predominantly expected to be coal-based, and any incremental development of geothermal power resulting from the project will displace an equivalent amount of power produced from coal. It is initially estimated that a business-as-usual approach is only likely to result in about 2,800 MW of the GoI target of 6,000 MW by 2020 set in the Geothermal Blueprint. With the implementation of the proposed reforms, GoI can quickly mobilize some of the fields that are already partially developed and are not hindered by other obstacles. This could enable financial closure within the duration of the project of as much as 500 MW of incremental capacity and develop them in a relatively short period of time. Over the longer-term the reforms supported through the project will enable further expansion in these fields while also promoting the development of greenfield areas that are unexplored. With the help of the proposed project, the GoI will be able to get their geothermal development program back on track towards achieving their target. Over the long-term, this would result in an incremental capacity of 3,200 MW by 2020, which would result in the reduction of about 7.0 million tons of CO2 per year. The project will also facilitate compliance by geothermal power investors with Indonesian environmental assessment regulations, and for investors who are interested in securing international financing, suggest measures that would be consistent with international goood practice.

2. Describe any potential indirect and/or long term impacts due to anticipated future activities in the project area:
NA

3. Describe any project alternatives (if relevant) considered to help avoid or minimize adverse impacts.
NA

4. Describe measures taken by the borrower to address safeguard policy issues. Provide an assessment of borrower capacity to plan and implement the measures described.
The proposed project will not have a direct environmental impact as it will not finance geothermal investments. Therefore, the project is classified as environmental assessment Category C, where an environmental assessment is not required. Instead, the project seeks to assist geothermal developers, who will bid on transactions that are competitively tendered under Component 2, in complying with safeguards requirements in Indonesia.

GOI's AMDAL (Environmental an Social Assessment) requirements are generally adequate for the energy sector, but it is their implementation that can often fall short of the standard desired by the Ministry of Environment. As a part of the transaction component, the project will seek to imporove the application of the existing environmental and social regulations in Indonesia. A Guidance Document on environmental and social aspectes of geothermal development will be developed and included in the bid package. The Guidance Document will include:
a) Guidelines, timelines and models for compliance with GOI environmental and social requirements; abd
b) suggestions based on international good practice to enhance the "bankability" of potential projects for investors intending to make proposed projects suitable for international financiers.

5. Identify the key stakeholders and describe the mechanisms for consultation and disclosure on safeguard policies, with an emphasis on potentially affected people.
Disclosure of the ISDS and PID will be adequate to inform inteested stakeholders of the safeguards arrangements for the project. Consultation will become important when the guidance document is drafted. MEMR will arrange for consultations on the drafts with stakeholders that will include MOE, environmental NGOs, industry representatives, a sample of sub-national environmental and development planning agencies (drawing from areas where geothermal power development is most likely), and interested bilateral and multilateral development agencies. The completed guidance document will be made available to the public in Indonesia and in the Bank's Infoshop.


B. Disclosure Requirements Date
Environmental Assessment/Audit/Management Plan/Other:
Was the document disclosed prior to appraisal? N/A
Date of receipt by the Bank
Date of "in-country" disclosure
Date of submission to InfoShop
For category A projects, date of distributing the Executive Summary of the EA to the Executive Directors
Resettlement Action Plan/Framework/Policy Process:
Was the document disclosed prior to appraisal?
Date of receipt by the Bank
Date of "in-country" disclosure
Date of submission to InfoShop
Indigenous Peoples Plan/Planning Framework:
Was the document disclosed prior to appraisal?
Date of receipt by the Bank
Date of "in-country" disclosure
Date of submission to InfoShop
Pest Management Plan:
Was the document disclosed prior to appraisal?
Date of receipt by the Bank
Date of "in-country" disclosure
Date of submission to InfoShop
* If the project triggers the Pest Management and/or Physical Cultural Resources, the respective issues are to be addressed and disclosed as part of the Environmental Assessment/Audit/or EMP.
If in-country disclosure of any of the above documents is not expected, please explain why:
N/A


C. Compliance Monitoring Indicators at the Corporate Level (to be filled in when the ISDS is finalized by the project decision meeting)

The World Bank Policy on Disclosure of Information
Have relevant safeguard policies documents been sent to the World Bank's Infoshop? No
Have relevant documents been disclosed in-country in a public place in a form and language that are understandable and accessible to project-affected groups and local NGOs? No
All Safeguard Policies
Have satisfactory calendar, budget and clear institutional responsibilities been prepared for the implementation of measures related to safeguard policies?
Have costs related to safeguard policy measures been included in the project cost?
Does the Monitoring and Evaluation system of the project include the monitoring of safeguard impacts and measures related to safeguard policies?
Have satisfactory implementation arrangements been agreed with the borrower and the same been adequately reflected in the project legal documents?


D. Approvals

Signed and submitted by: Name Date
Task Team Leader: Mr Migara Jayawardena 11/29/2007
Environmental Specialist: Mr Thomas E. Walton 11/29/2007
Social Development Specialist Mr Bruce M. Harris 11/30/2007
Additional Environmental and/or Social Development Specialist(s):

Approved by:
Regional Safeguards Coordinator: Mr Panneer Selvam Lakshminarayanan 08/23/2007
Comments: Safeguard Clearance transferred to EASTE by Reg. Safeguards coordinator, e-mail dated August 23, 2007
Sector Manager: Ms Junhui Wu 12/03/2007
Comments: