Sustainable Energy Access in Eastern Indonesia-Electricity Grid Development Program (EGDP)

Project Dates: January 2017 - December 2021

PROJECT OBJECTIVE

program aims to support the development of electricity distribution networks to connect businesses and households and to enhance the quality of life in Eastern Indonesia by the sustainable use of electricity as a key driver of increased economic activity. The program will complement a proposed sector loan for small- to mid-sized natural gas-fired power stations to deliver more sustainable energy services to communities across Eastern Indonesia. Natural gas is a much cleaner fuel compared to diesel and the quick-responding nature of gas-fired engines and turbines make them a good match for intermittent renewable energy sources such as solar and wind. It is an appropriate transition fuel to move towards a low-carbon energy system. The two loans will help enhance access to sustainable energy services and contribute to climate change mitigation.

The overall investment needs for the government's generation, transmission, and distribution program are $83.5 billion of which $43.5 billion is to come from the private sector (independent power producers) and the balance of $40 billion from the State Electricity Corporation (Perusahaan Listrik Negara or PLN). The government and PLN will not be able to meet the investment needs on their own. PLN has an estimated funding gap of $30.3 billion which will have to be borne by other financing sources including from development partners. In Eastern Indonesia where there are many isolated grids, PLN is already using its own resources to establish 70 kilovolt (kV) and 150 kV backbone transmission systems while seeking support from ADB and other partners to strengthen and expand local distribution networks.

PROJECT DESCRIPTION

A results-based lending modality will be used for this proposed operation. This will finance a slice of the overall broader program needs as identified in PLN's Electric Power Supply Business Plan (Rencana Usaha Penyediaan Tenaga Listrik or RUPTL) 2015 -2024 for grid development in Eastern Indonesia. 8. A results-based lending modality will be used for this proposed operation for strengthening and developing the electricity distribution network, which involves many small-scale activities and expenditures. This will finance a slice of the overall broader program needs as identified in PLN's RUPTL, 2016 2025 for grid development in Eastern Indonesia. The RBL is a suitable modality for the program as: (i) it allows PLN to use its own program systems, thus providing a platform for institutional strengthening; (ii) it focuses attention on results rather than expenditures, leading to a stronger evaluation culture and in line with the government's intent to move towards performance-based regulation; (iii) it is well-aligned to a broader nationwide PLN program and is, therefore, able to scale up innovations from the RBL program; (iv) it has lower transaction costs associated with program implementation; and (v) it could stimulate cofinancing and donor harmonization with other development partners through a focus on common results. This operation is part of an overall programmatic approach and is embedded within a policy reform framework that is supported by the Sustainable and Inclusive Energy Program policy-based loan and complements the ongoing RBL for grid strengthening in Sumatra. This RBL is included in the Country Operations Business Plan, 2015- 2017 and is integral to the Country Partnership Strategy's goal of closing the energy divide between Western and Eastern Indonesia.