EEPINDProDoc

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Ministry for Foreign Affairs of Finland

Energy and Environment Partnership Program with Indonesia(EEP Indonesia)

Project Document

Jakarta, 21 May 2011


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ENERGY AND ENVIRONMENT PARTNERSHIP PROGRAM WITH INDONESIA (EEP INDONESIA), Draft Project Document. Jakarta, 21May 2011

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TABLE OF CONTENTS

1. BACKGROUND 1

2. ENERGY AND ENVIRONMENT STATUS IN INDONESIA 2

2.1 Energy demand and supply 2

2.2 Strategies, priorities and the existing policy framework to developrenewable energy in Indonesia 2

2.3 Renewable energy development targets 42.4 Bioenergy development 42.5 Renewable energy programs 5

3. THE EEP PROGRAMME 8

3.1 Energy challenges and EEP Indonesia approach 83.2 Overall objective and scope 83.3 Technological scope 93.4 Links to other programs supporting renewable energy 93.5 Geographical scope 113.6 Beneficiaries 12

3.7 Eligible applicants and project implementers 123.8 Funding 133.9 Results, outputs and activities 13

3.9.1 Result area 1- Strengthened knowledge base, know-how and institutional collaboration for renewable energynationally and in the participating provinces 13

3.9.2 Result area 2 - Increased public and private financingfor RE projects 14

3.9.3 Result area 3 - Sustainable, reliable and affordablesolutions for renewable energy are available in theparticipating provinces, also increasingly in rural areas 14

3.10 Implementation of the activities 143.11 EEP Indonesia Organization 16

3.11.1 Supervisory Board 173.11.2 Steering Committee 173.11.3 Technical Committee 173.11.4 National Coordination Unit 18

3.12 Guidelines for EEP Indonesia project financing approval 193.13 Evaluation criteria 223.14 Project financial management and reporting 233.15 Sustainability of program results 24

4. CROSS-CUTTING ISSUES 25

4.1 Environment 254.2 Gender 254.3 Good governance 25

4.4 Combating poverty 26

5. PROJECT IMPLEMENTATION 27

5.1 Schedule 275.2 Indicative budget 27

5.2.1 Budget for operation 275.2.2 Budget for execution 275.2.3 Finnish Technical Assistance 27


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LIST OF ANNEXES

Annex 1 Problem AnalysisAnnex 2 Logical Framework MatrixAnnex 3 Tentative Partnership Project Evaluation Grid and the Selection

CriteriaAnnex 4 Draft Application FormAnnex 5 References

LIST OF FIGURES

Figure 2.1 Roadmap for biofuel development in Indonesia 5Figure 3.1 Possible technology paths for biomass utilization for energy 10Figure 3.2 EEP Indonesia organizational structure 16Figure 3.3 EEP project cycle 22

LIST OF TABLESTable 2.1 National energy potential, production and reserves 2Table 2.2 National energy consumption 3Table 2.3 On-going or pipeline RE related initiatives 6Table 3.1 Financing windows and activities implemented directly by the

EEP Indonesia 15Table 3.2 Steps in the EEP Indonesia project cycle 20


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ABBREVIATIONS

ASEAN Association of Southeast Asian NationsBAPPENAS National Planning Development AgencyCDM Clean Development Mechanism

CER/VER Certified Emission Reduction/Verified Emission ReductionCPO Crude Palm OilDGEEU Directorate General of Electricity and Energy UtilizationEEP Energy and Environment PartnershipEEP-CA Energy and Environment Partnership with Central AmericaEIA Environmental Impact AssessmentEU European UnionEUEI EU Energy Initiative for Poverty Eradication and Sustainable

DevelopmentEUR EuroGHG Greenhouse gas(es)IMIDAP Integrated Microhydro Development and Application ProgramIRES7METI Indonesian Renewable Energy Society

IFC International Finance CorporationkW kilowatt (electricity)MDG Millennium Development GoalsMECT Modern energy and clean technologyMEMR Ministry of Energy and Mineral ResourcesMOE Ministry of EnvironmentMFA Ministry for Foreign Affairs of FinlandMHPP Microhydro Power ProgramMJ Mega jouleNC National CoordinatorNCU National Coordination UnitNGO Non-governmental organizationPLN Indonesian state electricity firm PT Perusahaan Listrik Negara

PNPM National Program for Community EmpowermentPPF Project Profile FormPPP Public-Private PartnershipRE Renewable EnergyRES Renewable Energy SourcesSB Supervisory BoardSC Steering CommitteeSCM Steering Committee MeetingSME Small and Medium size Enterprises


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1. BACKGROUND

The Government of Finland decided, in 2007, on a new Development Policy Program which isan integral part of the foreign and security policy of Finland. Its primary aim is to contribute to

the global effort for eradicating poverty through economically, socially and ecologicallysustainable development. The Policy can also be seen as a response to new and growingdevelopment challenges that have risen along with the accelerating trend of globalization.

The new Development Policy program lays much emphasis on energy as a key factor ineconomic development and in combating climate change. Finland supports programs andprojects that focus on saving energy, increasing energy efficiency and producing renewableenergy.

At the Johannesburg World Summit on Sustainable Development in 2002, Finland announceda Partnership program on energy and environment together with seven Central Americancountries. Subsequently, the Energy and Environment Partnership with Central America(EEP-CA) was developed and has acquired effective working principles and methods, which

concentrate on concrete projects in all fields of renewable energy. The basic idea is to adopt abottom-up approach, providing part-financing to project proposals prepared and presented byactors directly engaged in the development of various local renewable energy sources andreduction of dependence on imported fossil fuels. Special emphasis is laid on avoidingunnecessary administrative burden and on flexible and rapid actions by making use of moderninformation and telecommunications technologies.

Based on the Development Policy and experiences in Central America, the Ministry for theForeign Affairs of Finland (MFA) is now establishing similar partnership mechanism withIndonesia, Eastern and Southern Africa, Andean and Mekong Region Countries.

The EEP Partnerships act under the umbrella of the EU Energy Initiative for PovertyEradication and Sustainable Development (EUEI). They are in line with the EU

Principles/Considerations for Integrating Energy Interventions into Development Cooperationadopted by the EU General Affairs and External Relations Council meeting in April 2006.

Indonesiaholds abundant sources of renewable energy sources: various types of biomass,wind, solar, hydro and various sources of biofuels. Also municipal and agricultural waste isregarded as an important source of energy. Private companies, universities, research centersand other public and private entities can play an important role in ensuring better use of theseresources through the adoption of modern technologies and services to enhance access toenergy in rural areas, particularly favoring the poor and women. Use of renewable energyaddresses all three pillars of sustainable development: economic progress, socialimprovement, and improved environment. Some renewable energy technologies are maturingrapidly and are increasingly cost competitive. Renewable energy provides important socialand economic benefits in rural areas. For households, small industry, agriculture, schools,

medical clinics and community centers, renewable energy can power lighting, transportation,communications, water-pumps, refrigeration, cooking, and more, both cost effectively andreliably.

A demand-oriented public-private partnership program with Indonesia in renewable energydevelopment, based on the EEP-CA model, responds well both to Indonesian priorities andconditions and the Finnish Development Policy program.

The structure for such program prepared in this program document has been developed bythe MFA in collaboration with the Ministry of Energy and Mineral Resources (MEMR) ofIndonesia, based on extensive consultations with key stakeholders and potential partners.The design process has included a fact finding mission and a stakeholder workshop in 2008,and the program appraisal and design mission in 2009.


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2. ENERGY AND ENVIRONMENT STATUS IN INDONESIA

2.1 Energy demand and supply

Indonesias energy demand is projected to grow at 2.9 percent per year, while the populationgrowth is about 1.11% annually. The Government of Indonesia needs to provide sufficientenergy for about 218 900 000 inhabitants (2005) living on more than 17 000 islands.Indonesia currently relies mainly on its coal, oil and gas reserves for energy supply.Indonesias future development and the energy needed to sustain its growth present analarming picture. The demand for energy is increasing rapidly and the sources, particularlyfossil-based fuels, are not currently available to keep up with the increasing demand.

Approximately 64% of the country is now (2007) electrified, highest rate being found in Java.The predominance of electrification on Java resulted from the National Public ElectricityCompanys (PLN) grid extension into rural areas with relatively high population densities. Thisapproach cannot be easily replicated on the other islands where rural villages are scatteredand isolated and population density is significantly lower. According to PLN, over 6,000

villages in the country are so remote that it is unlikely that they could be economically servedby grid extension in the medium to long term, and more decentralized approaches arerequired to increase off-grid electricity production. Electrification rates in the provinces ofCentral Kalimantan and Riau are 45% and 63% respectively.

The government has taken steps to gradually accelerate schemes for the removal ofsubsidized prices for oil products and electricity to increase the development of other energysources. One of the main objectives in the Governments development strategy for energy isto intensify the energy diversification activities by developing the use of new and renewableenergy. Priority is given to developing low-carbon economy - producing carbon neutralrenewable energy has significant potential, particularly in residential and transportationsectors that account for 21.4% and 38% of the total energy consumption respectively(DGEEU 2006 statistics). The national energy potential, production and reserves are

summarized in Table 2.1.

Table 2.1 National energy potential, production and reserves

Energy type Total reserve Proven reserve Annualproduction

Ratio(reserve/

production)

Oil and Gas 56.6 billion barrel 8.4 billion barrel 348 million barrel 24Gas 334.5 TSCF 165 TSCF 2.79 TSCF 59Coal 90.5 billion ton 18.7 billion ton 201 million ton 93Coal BedMethane (CBM)

453 TSCF - - -

Potential Installed Capacity

Hydro power 75.67 GW 4.2 GWGeothermal 27 GW 1.0 GWMini/micro-hydro 500 MW 210 MWBiomass 49.81 GW 0.4 GWSolar energy 4.8 kWh/m

2 /day 12 MW

Wind energy 3-6 m/sec 2 MW

2.2 Strategies, priorities and the existing policy framework to develop renewableenergy in Indonesia

The Government of Indonesia has undertaken several initiatives to promote the utilization of

renewable energy, including the utilization of clean energy and energy-efficient technology inindustrial and commercial sectors, promoting the efficient use of energy, gradually eliminatingenergy market distortions through stepwise removal of various subsidies, restructuring the


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energy sector to allow more participation of private sector, and providing significant incentivesfor renewable energy development.

The main aims of the National Energy Policy (Presidential Decree on National Energy Policy

No. 5, 2006) in Indonesia are to: (i) guarantee the energy supply to meet national interests; (ii)increase the added value of energy sources; (ii) manage sustainable sources of energy in anethical and sustainable manner; (iii) focus attention on conservation of environmentalfunctions; (iii) provide affordable energy for low income people and for less developed areas,develop gender sensitive energy programs and develop domestic capacities. The policy hasprovisions for (i) supply (production exploration, energy diversification, and productionoptimization), (ii) demand (energy efficiency and energy conservation), and (iii) supportingactions (energy infrastructure development, subsidy policy for the poor, government andprivate sector partnership scheme, public involvement, research and development, biofuelstandardization).

The National Energy Policy aims at optimizing the energy mix in national energy consumption(Table 2.2).

Table 2.2 National energy consumption

Share of consumption (%)

Oil 30

Coal >33

Biofuels >5

Geothermal energy >5

New energy and renewable energy (biomass, nuclear, hydropower, solarpower, and wind power)

>5

Liquefied coal 2

In addition, also the following laws and regulations aim to promote the development of therenewable energy sector.

1. The Presidential Instruction no. 1/2006 for the provision and utilization of biofuels inIndonesia as an alternative energy source,

2. Minister of Energy and Mineral Resources (MEMR) Regulation No. 2/2004concerning New and Renewable Energy and Conservation Policy,

3. MEMR Regulation No. 32/2008 on Supply, Utilization, and Trading of Biofuel asOther Fuel, which instructs a mandatory use of biofuel according to the time-tableappended into the regulation

4. Energy Law No. 30/2007 was issued in 10 July 2007 with special attention on newrenewable energy development and energy conservation. Provision and utilization ofnew renewable energy may obtain incentives from government/local government forcertain period until it reaches economical development stage.

5. National Biodiesel Standard No. SNI 04-7182-2006 has been issued by the head ofNational Standard Agency, letter No: 73/KEP/BSN/2/2006

6. Electricity Law no 20/2002, which outlined the path towards a liberalized electricitysector, measured to facilitate the privatization of the sector and to introduce multi-seller/multi-buyer system. The Law also stipulated the social and environmentalresponsibilities of power producers, such as requiring a certain percentage ofrenewable energy used and a percentage of electricity provided to the poor. Yet, theLaw was annulled by the Constitutional Court in 2004 because it was seen to be notin line with the Indonesian Constitution (UUD 1945). While the Government of

Indonesia will draft a new law, the Electricity Law no. 15/1985 has been re-enacted.


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Also, a roadmap: National Energy Management (Pengelolaan Energi Nasional/PEN) for thedevelopment of alternative energy sectors has been formulated. The roadmap proposesrenewable energy programs to be integrated into the regional development (i.e.provincial/district levels) plans and to be part of the effort in generating income as well as

increasing social and economic welfare.

The development of energy in Indonesia will, in addition to the above, be directed by theTriple Track Strategy, declared by the President of Indonesia. The strategy, which becomes anew deal in Indonesian economic development, covers three important aspects:

Pro-growth: Economic growth through export and investment,

Pro-job: Job creation, and

Pro-Poor: Poverty reduction in rural areas.

2.3 Renewable energy development targets

Increased availability of sustainable energy from renewable sources will be critical forIndonesia to reach the Millennium Development Goals. The Government of Indonesia hasrecognized this and has set a target to develop renewable energy through three steps asfollows:

Short to medium term:

Small scale for fulfilling basic energy need for rural area

Intensification use of hydro, geothermal, solar and wind energy for electricitygeneration

Development of Biofuels

Long term:

Development of new energy (fuel cells, hydrogen)

Development of Nuclear Energy

Development of Unconventional energy sources

In the year 2025:

At least 15% of the energy mix should be based on renewable energy (PresidentialDecree 5/2006)

However, despite of these targets set, the implementation of renewable energy activities hasbeen sporadic, fragmented and inconsistent. Renewable energy is not a priority in the central

or provincial/district development programs. This may create mistrust among the potentialinvestors, energy producers, developers, consumers and other related parties and act as abarrier to investment in RE development. Restructuring the energy sector to systematicallysupport RE development by reducing legal barriers, defining incentives, including tax, fiscaland funding schemes, improving energy infrastructure, and empowering small, mediumenterprises as well as communities in general would create a stronger basis for increased useof renewable energy both at the industrial and community levels.

2.4 Bioenergy development

As indicate above, there is a recognized need to replace fossil fuels in electricity production,transportation and rural energy development with renewable sources of energy. Indonesia has

abundant resources for bioenergy development and the country needs to put in placerenewable energy programs that make good use of these in a sustainable way that also helpsto reduce the greenhouse gas (GHG) emissions. Using wood biomass and agricultural


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residues to produce energy is ideal for the Indonesian context. Indonesia is one of the fewdeveloping countries where a large proportion of the rural people still live in forestedlandscapes. Forest and agricultural biomass, from sustainably managed forest/agriculturallands, will enable rural people to create bioenergy for sustainable rural livelihoods and

sustainable development. The utilization of biomass for energy production based on newtechnologies will provide a wide range of economic, environmental, and social benefits.

The two most common types of biofuels that are currently produced in Indonesia arebioethanol (or a blended fuel that is called gasohol) and biodiesel. For biodiesel productionthe Crude Palm Oil (CPO) from large scale palm oil plantations is becoming the primarysource. Several other programs are relying on both non-edible oil such as jatropha oil fromJarak/Physic nuts (Jatropha curcas) and edible plants such as coconuts. Municipal waste isalso considered as raw material for bioenergy.

As a part of the renewable energy development targets, the Roadmap for BiofuelDevelopment in Indonesia (20052025) set the targets as shown in Figure 2.1.

Figure 2.1 Roadmap for biofuel development in Indonesia

Forest or agricultural biomass use for energy production (other than cooking in rural areas) isstill in its infancy in Indonesia. So far only few demonstration or pilot projects have beencarried out. The possibilities to use fuels based on biomass (e.g. logging or sawmillingresidues, agro-biomass, and other biomass) have not yet been fully recognized.

At the same time unsustainable biofuel production methods endanger the livelihoods of the

rural people, and create environmental problems related to land use changes. Therefore anyactivities promoting the use of wood biomass refinement for fuel must be implemented in sucha way that the sustainability of all operations is secured. All activities must carefully considerenvironmental and social aspects in their design and implementation and participatingpartners must follow the principles of social responsibility.

2.5 Renewable energy programs

A number of projects and programs are in place or in the pipeline to support theimplementation of RE related policies in Indonesia (Table 2.3), either as self-standinginitiatives or as part of broader development programs. Especially micro-hydro development isreceiving systematic support but there are also initiatives in other areas of RE development

implemented by the Government with or without donor support. Despite of these efforts, it is

MINISTRY OF ENERGY AND MINERAL RESOURCES25

ROADMAP BIOFUEL DEVELOPMENT*)

Biodiesel

Bioethanol

10% ofdiesel fuel consumption

2.41 million KL


4.52 million KL

Tahun 2005-2010 2011-2015 2016-2025


10.22 million KL

5% ofgasoline consumption

1.48 million KL

10% ofGasoline consumption

2.78 million KL

15% ofGasoline consumption

6.28 million KL

Biooil

Biofuel

Utilization of1 million KL

Utilization of1.8 million KL

Utilization of4.07million KL

Biofuel utilization for2% of mix energy5.29 million KL



- PPO for electricity

generation

- Biokerosene

Utilization of

0.4 million KL

Utilization of

0.74 million KL

Utilization of

1.69 million KL

*) As in Strategic Planning on National Energy Development

National Standard of Biofuel


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notable that bioenergy, particularly the second and the third generation of bioenergy fromforest biomass, is not currently being supported by any program.

While other renewable energy sources are currently supported through various schemes, by

several donors, the only program focusing biomass is the Dutch supported biogas program(small-scale biogas production from manure, see Table 2.3). The financing institutions do notsee yet biomass energy projects as bankable projects.

Table 2.3 On-going or pipeline RE related initiatives

RE Sources Name of Project Purpose YearSource of

funding

Solar Urban SolarProgram

Support solar photovoltaicimplementation in urbansociety. The results are notsignificant yet

2003 Governmentof Indonesia

Energy Self-

Sufficient VillageProgram

Improve energy security on

village level by diversifyingrural energy mix; developinglocally available renewableenergy sources in the form offuel (biofuel) and electricity forhousehold and also productiveend uses.

2007 Government

of Indonesia

PNPM(Empowermentprogram) / Greenwindow

Rural communities benefitfrom use of renewable energytechnology

Underpreparation

Canada, TheNetherlands,Denmark,Australia

Wind Energy Self-Sufficient Village

Program

Improve energy security onvillage level by diversifying

rural energy mix.


Rural electrificationprogram

Provide access onelectrification for ruralcommunities; since 2005 thegovernment has been decidednot to utilize diesel generatorand only to implement locallyavailable renewable energy (ifthe extension of grid isimpossible).




Underpreparation


Microhydro Energy Self-Sufficient VillageProgram

Improve energy security onvillage level by diversifyingrural energy mix.


Rural electrificationprogram

Provide access onelectrification for ruralcommunities.


Program oninterconnection ofRenewable EnergyPower Generation

Initiative for investors todevelop small/medium scalepower generation fromrenewable energy to sell ofelectricity to PLN (stateelectricity company) with

standardized price followinggovernment regulation.

2002 PLN

PNPM Rural communities benefit Under Canada, The


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RE Sources Name of Project Purpose YearSource of

funding

(Empowermentprogram) / Greenwindow

from use of renewable energytechnology

preparation Netherlands,Denmark,Australia

IntegratedMicrohydroDevelopment AndApplication Program(IMIDAP)

Accelerate microhydroimplementation by removingexisting barriers.

2007-2012 GEF (UNDP)

Microhydro PowerProgram (MHPP)

Technical cooperation withGermany to developcapacities on technology andsustainability of microhydroimplementation.

1991 GTZ(Germany),TheNetherlands

Geothermal Implemented by private companiesBiomass,

biomassbased fuels

Biogas Program Technical assistance and

financing development system

2008 The Dutch

GovernmentEnergy Self-Sufficient VillageProgram

Improve energy security onvillage level by diversifyingrural energy mix




Underpreparation



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3. THE EEP PROGRAMME

3.1 Energy challenges and EEP Indonesia approach

The EEP Indonesia attempts to address the challenges of energy and poverty, energysecurity and energy related global and local environmental impacts, particularly climatechange, in an integrated way.

Major drivers behind the EEP design are lack of access to modern, affordable and reliableenergy services in Indonesia, and the interrelated negative social and economic impacts forthe majority of the population, and the global concern of increasing GHG emissions andaccelerating global warming and climate change. Root causes behind climate change are themodern world dependence on fossil fuels, increasing energy demand, and at the same timethe degrading capacity of forests to absorb atmospheric carbon.

The Problem analysis, which has supported the formulation of the EEP objectives and results,is summarized in Annex 1.

3.2 Overall objective and scope

The overall objective of the Energy and Environment Partnership Programme with Indonesiais to increase access to sustainable renewable energy and reduce the growth rate of GHGemissions accelerating climate change in the participating Provinces of Indonesia.

The EEP Indonesia will address a range of issues and barriers which hinder the achievementof socio-economic development by focusing on the efficient use of traditional energy sourcesand promoting clean and renewable energy technologies as well as innovative businessmodels for the provision of energy services.

The Energy and Environment Partnership Programme with Indonesia (EEP Indonesia)will:

Promote the use of renewable energy, particularly biomass based bioenergy, inIndonesia

Enhance access to energy in rural areas, particularly favoring the poor and women

Scale up energy services for the livelihood and transportation needs of the poor

Contribute to the abatement of GHG emissions and the mitigation of the adverseimpacts of global climate change

Based on the experience gained from the design and execution of the EEP in Central America(EEP-CA), the EEP Indonesia aims at upholding the three pillars of sustainable development:economic, social and environmental. Government and non-governmental organizations as

well as private enterprises will be invited to participate in this effort by taking active part in thedesigning and execution of the projects to fulfill the above objectives.

There is a great potential to share information and knowledge gained through the variousproject activities and outputs at national and provincial levels. The program offers anopportunity to reduce the barriers that constrain the development of modern energy and cleantechnologies since the project design provides scope for local participation, human resourcedevelopment, and institutional strengthening.

Promotion of the use of renewable energy is challenging and any incremental improvement inthe contribution of the private sector (especially the domestic financial institutions and themultitude of SMEs) should be seen as of great value for achieving the longer term sustainabledevelopment goals of Indonesia.


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3.3 Technological scope

The EEP Indonesia will in principle be open to all forms of renewable energy. For the first callsfor proposals the program will give priority to the production and use of biomass based solid

and liquid fuels. After 12 months, the steering committee may review the scope and ifnecessary, expand to other renewable energy areas including solar and photovoltaic systems,small hydropower plants and wind power.

Up to date, there has not been much experience on biomass use for energy neither inindustries nor in village scale applications in Indonesia. Also in most of the support schemesfor renewable energy production biomass has been neglected. Because of forest operationsand wood processing industry, there seems to be plenty of wood based biomass residuesavailable. It is mostly left unutilized for various reasons, including regulatory issues.

There are several technological solutions to use biomass for heat, electricity or fuel production(Figure 3.1). Based on locally available raw materials, the project proposers may choose anytechnology that best suits their needs.

3.4 Links to other programs supporting renewable energy

As listed in Table 2.3, several actors are currently supporting renewable energy developmentin Indonesia. EEP Indonesia will avoid creating any overlapping activities with the otherinitiatives but will rather seek cooperation and synergies to improve efficiency.

The central role of the Ministry for Energy and Mineral Resources (MEMR) in the nationalcoordination on EEP Indonesia will help to coordinate renewable energy developmentactivities of different actors. Due to their similar scope, EEP should search for cooperationespecially with the PNPM Green Window program where synergies could be found for ruralelectrification with renewable energy. The PNPM is a countrywide multidonor supported

community development program which has a well established system to identify and designcommunity-level development projects through a bottom-up participatory approach. This coulddirectly feed proposals for the EEP. For industrial scale projects EEP should searchcollaboration with the International Finance Corporation (IFC) which is in the process ofsetting up a program to support investment in industrial scale RE projects with financing fromthe Dutch Government. After the start up of EEP a workshop will be organized to agree onand find ways for cooperation with other donors.


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Figure 3.1 Possible technology paths for biomass utilization for energy

Combustion GasificationPyrolysis

LiquifactionHydrolysisExtraction

Heat Electricity Fuels

Es/trans-esterification

Fermentation

Distillation

RuralElectrification

RuralTransportation

AgriculturalMachinery

AgriculturalProcessing

Industry

Domesticenergy use for

cooking

Pure plantoil

Steam

Steam engine/turbine

Gas

Gas turbine,combined

cycle, engine

Fuelcell

Methanol,HC, hydrogen

syntesis

Oil Charcoal

Upgrading

Biomass-based energy:Logging residues, sawmill residues, agricultural wastes, energy farming, etc

Community+NGO or

university

Community+NGO or

univ.+publicic sector

.

Potentialsources

Potentialtechnology

Potentialutilization

Potential

promotersCommunity+NGO oruniversity+industry


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3.5 Geographical scope

Two Indonesian provinces were selected to be the focus area of EEP Indonesia: CentralKalimantan and Riau. At later stage, the EEP Steering Committee may decide to expand thisscope.

Central Kalimantan (Kalimantan Tengah) is one of the four Indonesian provinces located inthe island of Borneo. Its provincial capital is Palangkaraya. The province has a population of1.9 million (2007). The population growth (2.7% annually between 1990 and 2000), is one ofthe highest provincial growth rates in Indonesia. Central Kalimantan is the 3rd largestIndonesian province by area with a size of 153 800 km

2, about 1.5 times the size of the island

of Java. It is bordered by West and East Kalimantan provinces to the north, by the Java Seato the south, by South and East Kalimantan provinces to the east, and by West Kalimantanprovince to west.

The centre of the province is still to a large extent covered with tropical forest, which producesrattan, resin and valuable timber such as Ulin and Meranti. There are 0.28 million hectares(mha) of forest plantations, and 5.20 mha of natural forest concessions in the province. Thesouthern lowlands are dominated by peatland swamps that intersect with many rivers.

Sebangau is a protected peatland area internationally acknowledged as sanctuary for theendangered Orangutan. Recently the peat swamp forests have been damaged by the ex-Mega Rice Project (ERMP), which unsuccessfully sought to turn large areas into rice paddies.

Central Kalimantan is one of the poorest provinces in Indonesia. About three-fourth of thepopulation in the province is engaged in agriculture, forestry or fishing related activities fortheir livelihood. Although the province has some mining resources (such as coal andzirconium), the mining sector contributes only marginally to the local employment. Profits fromthis sector are often drained away from the province. Nevertheless, studies indicate thatpoverty has generally been in decline in the province in last few decades. The proportion ofthe total population living below the poverty line was about one-tenth in 2004 compared withabout one-fifth in 1990.

The province is the home to the dayak people and several other indigenous communities livingin or in proximity of the forest areas. Ngaju, Ot Danum and Dusun Ma'anyan Ot Siang are thethree major dayak tribes living in the province. These three major tribes are further extendedinto several branches of prominent dayak tribes such as Lawangan, Taboyan, Dusun Siang,Boyan, Bantian, Dohoi and Kodorin.

Coal is the main fossil-based energy source in Central Kalimantan. The province is also rich inpeat. In addition, forests contribute a substantial share of the energy demand in the province.

Electrification rate in Central Kalimantan is 45%. Households in rural areas are mostly outsidethe coverage of electrification schemes and rely on kerosene-based lamp (lantern orpetromax lantern), stove, and woodfuel to support their daily life. However, both the provincialand central governments have undertaken several projects to increase the electrification rate

in the province. On 14 January 2008, China National Heavy Machinery Corporation-ShandongElectric Power Construction and PT Mega Power Mandiri have been contracted under the OffJava Power Project to enhance the electricity production in the province.

In addition to the EEP Indonesia, Finland is planning to support Central Kalimantan in thearea of forests and climate change, possibly in the context of the ex-Mega Rice Project(ERMP) and/or the Central Kalimantan Peatland Project (CKPP).

Riau province is located in the centre of Sumatra Island. The province has a population of5.07 million (2005), and land area of 85 988 km

2. Population density is about 99/km

2

(Indonesia is 106 people per km2).

Riau is one of the wealthiest provinces in Indonesia. The province is rich in natural resources,particularly petroleum and natural gas, rubber, and palm oil. Yet, the number of poor people is

quite significant and most of them are working in agricultural related occupations. According to


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BPS-Statistics Indonesia, the number of poor people is decreasing; they were 660 700 in2003, 658 600 in 2004, 640 400 in 2005, and 574 500 in 2006. Currently, the provincialgovernment of Riau is working to provide more opportunity for the development of community-based economic programs, particularly for people working in the agricultural sector.

Palm oil plantations are dominating agricultural development in Riau. In 2006, palm oil

plantations both industrial and community scales have reached 4 659 264 tonnes, farabove the production of coconut (456 261 tonnes), rubber (415 905.68 tonnes), and coffeebean (3 803.93 tonnes). Riau has also significant areas of pulpwood plantations 0.73 mha andnatural forest concessions 1.63 mha with potential availability of logging residues for energyuse, as well as downstream sawmilling residues.

Crude oil and coal are main fossil-based energy sources in Riau province. In addition, PT.Arara Abadi produces peat from Perawang and Siak districts.

Electrification rate of Riau is 63%. There are three different providers (managed by PLN) thatsupply electricity to various type of consumers. The rest of population, particularly in remoteareas, uses kerosene-based lamp (lantern or petromax lantern), stove, and woodfuel tosupport their daily life. There are at least 646 540 households that use electricity provided

supplied by PLN, and about 244 927 households use electricity from non-PLN producers.Most of the electricity is used for household related activities, yet some of the electricity isallocated to support small and medium enterprises.

Community members that do not have any access to PLN, get the electricity mostly fromdiesel generators. 244 927 households were using diesel generators in 2006. Provincialgovernment of Riau considers using coal and natural gas to provide enough electricity, yet theplan has not been implemented due to lack of financial support and interest from investors tobuild the facility. So far, the development process in Riau will mostly rely on energy from thePLN.

The choice of Central Kalimantan and Riau as a starting point for the EEP Indonesia will offerthe program a possibility to pilot activities in a poor and in a relatively wealthy province and

provide a good possibility to promote both community and private sector projects. In bothprovinces there are good possibilities to develop linkages with sustainable forestmanagement, and in addition Central Kalimantan offers possibilities to create synergies withthe evolving Finnish Indonesian forest and climate change cooperation.

3.6 Beneficiaries

EEP Indonesia direct beneficiaries will be project developers and institutions directlyinvolved in EEP and its activities. Final beneficiaries are the energy end-users and finallyalso the global community through the reduction of the growth rate of the GHG emissions.

3.7 Eligible applicants and project implementers

Governmental organizations in cooperation with community-based organizations, community-based organizations alone, non-governmental organizations, companies and other privateentities, universities, research institutes and consulting companies will be able to apply forEEP Indonesias project financing.

Project profiles can be presented by one institution alone or by a group of institutions, led byone of them. Universities and research institutes may propose projects together withcommunities or private companies to secure the transfer of the results to practice.

To enhance technology transfer, cooperation between donor country and local projectdevelopers is encouraged.


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3.8 Funding

The EEP contribution, as a non reimbursable fund, will cover up to 100% of the total cost ofthe projects. Project Developer co-funding contributions will positively affect the approval ofproject proposals and EEP Indonesia will prefer projects with co-funding in the selection

process. Co-financing can be by means of project developers own resources, funds allocatedfrom other programs and/or in kind contributions.

The Partnerships contribution may cover the following expenses:

Technical services and consultancies

Travel expenses (air tickets, accommodations, etc.)

Vocational training programs

Equipment and materials for the project

Project execution expenses

Project promotion and dissemination

3.9 Results, outputs and activities

The EEP Indonesia Project will aim to achieve its overall objective through three result areas.Each result area and, especially under Result 3, each program output provides a theme for afinancing window to be established under EEP (Table 3.1). A detailed description of the EEPIndonesia objectives, results and outputs as well as their indicators is presented in the LogicalFramework matrix in Annex 2. The description of activities is indicative especially for resultareas 2 and 3, and the actual activities will depend largely on the proposals prepared byproject developers.

The reduction of GHG emissions and establishing public-private partnerships are two mainthreads running through the EEP approach. However, their separation into independent resultareas would not be practical; instead GHG emission reduction and development of PPPs are

integrated into the EEP approach within all result areas.

The following activities are included in the result areas.

3.9.1 Result area 1- Strengthened knowledge base, know-how and institutionalcollaboration for renewable energy nationally and in the participating provinces

Activities include:

Awareness raising to increase the knowledge of decision makers, public sectorofficials and potential project implementers in RE in general and specifically in EEPactivities and opportunities.

Studies at the National and Provincial levels to identify institutional, legal andregulatory, and financial barriers to RE production and consumption, and to identifybest practices in RE.

National forums and workshops on RE and related climate change issues.

Dissemination activities providing decision makers and public sector officials up-to-date information on RE technologies to support RE policy and strategy development.These activities should be organized in co-operation with other relevant stakeholdersand donor programs when feasible.

Dissemination activities providing decision makers, public sector officials and potentialproject developers up-to-date information on legal/regulatory reforms at the Nationaland Provincial levels. These activities should be organized in co-operation with otherrelevant stakeholders and donor programs when feasible.


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3.9.2 Result area 2 - Increased public and private financing for RE projects

Activities include:

Financing for (pre)feasibility studies which test project ideas on new approaches,technologies and project ideas on RE to provide sustainable and affordable

alternatives for energy supply. Establishing a networking arena for project developers, service providers and financial

institutions to improve collaboration.

Providing funding for prefeasibility and feasibility studies.

Proposing innovative financing mechanisms for investors and MECT projectdevelopers by making funds available during pre-investment and investment stages.

Assistance for supportive financing instruments establishment.

Establishing close relations with international financial institutions and governmentinitiated programs.

Proposing feasible power purchase agreement models that allow project developersto fulfill commercial banking system requirements.

Integration of emission reduction benefits into project development.

3.9.3 Result area 3 - Sustainable, reliable and affordable solutions for renewableenergy are available in the participating provinces, also increasingly in ruralareas

Activities include:

Providing financial support for project developers to identify innovative industrialapplications of RE, to test and demonstrate the ideas in practice.

Providing funding for rural communities (and their partners) to implement innovativeRE projects contributing to their development.

Providing financing for implementation of sustainable and pro-poor demonstrationprojects that are likely to strengthen the modern energy and clean technology (MECT)

emerging markets. Supporting the development, dissemination and implementation of sustainable pilot

projects to showcase the use of MECT as a viable alternative to develop businessoriented initiatives.

Adopting a monitoring and evaluation plan for each pilot project on the basis of thecriteria and indicators already outlined in the project application form and projectdocument in order to guarantee their efficient operation and draw lessons for thefuture.

Developing strategies to disseminate suitable technologies for rural electrification,especially targeting rural poor and women.

Providing financing for bio-fuel production pilot projects (biodiesel, ethanol) aimed atmeeting on-farm energy needs (farm mechanization, water pumping, etc.).

Creating documentation of MECT projects. Promoting MECT business opportunities for foreign and regional investors.

Supporting to a mechanism development for carbon credits pooling from RE projectsto benefit from Clean Development Mechanism (CDM)/Voluntary carbon markets.

3.10 Implementation of the activities

EEP Indonesia activities are divided into a) demand driven activities financed throughfinancing windows and b) activities implemented by the EEP Indonesia organization. Table3.1 describes the financing windows based on the EEP outputs, as well as the activitiesimplemented directly by the EEP Indonesia organization.


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Table 3.1 Financing windows and activities implemented directly by the EEP Indonesia

Demand driven activities

Output Financing window

Tentativeshare of

budget forexecution

Potentialimplementers

1.1 Studies conducted at the nationaland provincial levels to identifyinstitutional, legal and regulatory, andfinancial barriers to RE production andconsumption, and to identify bestpractices in RE.

Strategic studies onbarriers to and bestpractices of RE

10

NGOs and researchorganizations, andconsulting companies,etc.

2.1 (Pre)feasibility studies which testproject ideas on new approaches,technologies and project ideas on RE toprovide sustainable and affordablealternatives for energy supply.

Prefeasibility andfeasibility studies onRE

20

Government incooperation withcommunity-basedorganizations,community-basedorganizations, NGOs,companies and otherprivate initiatives,universities, researchinstitutes.

3.1 Innovative1

approaches,technologies and project ideas on REare identified, tested and demonstratedin practice in industrial applications.

Pilot anddemonstrationprojects in industrialapplications forbiomass based RE

35

Companies and otherprivate initiatives,universities, researchinstitutes, consultingcompanies

3.2 Innovative projects contributing tothe development of rural communitiesare implemented by the communitiesalone or in collaboration with others.

Pilot anddemonstrationprojects in modernRE for rural areas

35

Government incooperation withcommunity-basedorganizations,community-basedorganizations, NGOs

Activities implemented by EEP organizationOutput Activity

1.1 Studies conducted at the national andprovincial levels to identify institutional, legaland regulatory, and financial barriers to REproduction and consumption, and to identifybest practices in RE.

Strategic studies on barriers to and best practices of RE

1.2 Decision makers and public sector officialshave up-to-date information on RE technologiesto support RE policy and strategy developmentand legal/regulatory reforms at the National andProvincial levels

Information on RE and related climate changeissues is efficiently disseminated at nationallevel (National forums and workshops)

Studies and dissemination activities

1.3 Provincial level stakeholders have capacity

to build institutional support for RE

Training events and on-the-job training

1.4 Potential applicants have capacity to planand implement successful projects.

Training events and on-the-job training

2.2 Linkages created between projectdevelopers, service providers and financinginstitutions, and supportive financinginstruments established

Forums and events

1Note: innovative means in this context that the project is (a) based on the utilization of a new (in the

Province) energy source, (b) contains an element of innovation in terms of technology, or (c) presentsan innovative solution to make a piloted technology commercially available on a wider scale.


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3.11 EEP Indonesia Organization

The EEP Indonesia is expected to function as a dynamic platform of activities at national andprovincial levels. The overall organizational structure of the program is described in Figure 3.2and further detailed in the subsequent chapters.

Figure 3.2 EEP Indonesia organizational structure

Ministry for Foreign

Affairs (MFA) of Finland

Ministry of Energy and

Mineral Resources of

Indonesia

Supervisory Board

Steering

Committee

MFA Finland

MEMR Indonesia

Bappenas - Indonesia

MFA: Finlad

DGNREEC/ National Director

Bappenas

Ministry of Forestry

Ministry of Agriculture

Ministry of Home Affairs

Ministry of Environment

Dinas Pertambangan dan Energi

(Central Kalimantan and Riau)

Bappeda (Central Kalimantan and Riau)

NationalCoordination Unit

TechnicalCommittee

Applicants

DGNREEC/ National Director

Donor Representative

Chief Technical Adviser

National Coordinator

Indonesia Renewable Energy Society

Private sector association

Association of Bioenergy Experts

Dinas Pertambangan dan Energi

(Central Kalimantan and Riau)

Independent expert

Chief Technical Adviser

National Coordinator

Administrative Secretary

Community organizations NGOs

Research Institutes and Universities

Private sector

Government

Combination

Provincial representatives

Central Kalimantan

Riau

In addition to the structure presented in Figure 3.2 the programme will facilitate meetings ofthe provincial working groups on RE in the both target provinces to share information anddraw lessons learned from the implementation of EEP supported projects.


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3.11.1 Supervisory Board

The Supervisory Board will be constituted of the MFA and MEMR of Indonesia.The Supervisory Board, based on the recommendations of the Steering Committee, will:

Approve the EEP Indonesia overall annual work plan and budget

Approve periodically the audited program costs Approve the EEP Indonesia annual monitoring report

Procure periodically the evaluation of EEP Indonesia results and agree onamendments to the Project Document

Provide policy guidance

Order external evaluation

3.11.2 Steering Committee

The key Indonesian government entities and participating provinces will have a formalparticipation within the organizational structure of the Partnership through their designatedRepresentative Member in the Steering Committee (SC). Members of the Steering

Committee will be

Representative of the MEMR of Indonesia (co-chair)

Representative of the MFA (co-chair)

Bappenas (State Ministry for National Development Planning) of Indonesia

Representative of the Ministry of Forestry of Indonesia

Representative of the Ministry of Agriculture of Indonesia

Representative of the Ministry of Home Affairs of Indonesia

Representative of the Ministry of Environment of Indonesia

Representative of Riau Provincial Government

Representative of Central Kalimantan Provincial Government

Other donor representatives2

The Steering Committee will have the following functions:

Select the Indonesian NCU staff, and guide and supervise the work of the NCU.

Guide the activities of the EEP Indonesia to meet national and provincial levelpriorities and to identify potentials for synergies between the energy and environmentsectors.

Identify areas and actions where the EEP Indonesia could provide relevant input tothe formulation of national and provincial energy policies, strategies and actions, andachieve synergies with other donor supported projects and programs.

Discuss and decide on the themes for the National Forums and other eventssupported by the EEP Indonesia.

Discuss and propose to the Supervisory Board the EEP Indonesia annual work plan

and budget, including the allocation of funds between the EEP Indonesia result areas,financing windows and for NCU operations.

Discuss the EEP Indonesia annual monitoring report, and other reports presented bythe National Coordination Unit, and agree on actions to be taken to ensure theeffective progress in the implementation of the EEP Indonesia.

Approve the projects to be financed by the EEP Indonesia.

Approve the summaries of the project final reports.

3.11.3 Technical Committee

The TechnicalCommittee is a working group of the Steering Committee, formed by a donorrepresentative, a representative of the Directorate General of Electricity and Energy

2If other donors join the EEP Indonesia they will be participating as members of the Steering Committee.


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Utilization, a representative from the Indonesian Renewable Energy Society (METI-IRES) andthe CTA and NC. In case Finland decides to outsource technical support to all EEP programsto a specific support unit, this support unit could also represent the MFA in the TechnicalCommittee. Private sector and independent experts may also be invited by the SC.

Based on the eligibility assessment carried out by the NCU the Technical Committee will:

Evaluate the submitted Project Profiles.

Look for a balance between result areas and financing windows in the selection ofprojects according to the decisions of the SC.

Give recommendations to the Steering Committee on proposed approval, disapprovalor required clarification and amendment of submitted Project profiles.

Review project proposals in light of the NCU comments to submitted projectproposals and endorse final approval of the project document.

Assess significant changes on activities, time schedule, budget allocation, expensesin projects under execution following a request by the National Coordination Unit.

After the Technical Evaluation Team has established commonly agreed principles andmethods to apply the Team members will independently pre-review the project profiles and

give their comments and points based on the commonly agreed selection criteria. Projectapplications can be made available for the team members in a specific EEP intranet siteestablished for this purpose. The RCU will give their own comments as a member of theEvaluation Team and will also collect the Team comments for Steering Committee decisionmaking.

3.11.4 National Coordination Unit

The National Coordination Unit will be responsible for the operational and financialmanagement of the EEP Indonesia Program.

The NCU will consist of the Chief Technical Advisor (CTA) (energy specialist), the National

Coordinator (operational manager) and the Administrative Secretary. The CTA and theNational Coordinator will be selected in accordance with the normal tendering procedures ofthe MFA.

The National Coordination Unit (or project office) of the EEP Indonesia is placed in the MEMRto allow for close contacts with the relevant MEMR units and staff. The MEMR will provide theoffice facilities.

Support to the provincial level will be organized through the national consultants. It issuggested that at least one such consultant will work on a semi-permanent basis in eachparticipating province.

The key functions of the NCU are as follows:

Financial management and payments.

Provides information to representatives of provincial governments and otherstakeholders.

Facilitates the planning processes and proposal elaboration based on the approvedproject profiles.

Supports the representatives of provincial governments in their interaction with projectdevelopers in the participating provinces.

Advices and supports project developers in project proposal preparation.

Receives project profiles and proposals from the proposers, assesses the eligibility ofthe proposed project, and sends the eligible profiles to the Technical Committee.

Agrees on the modifications to be requested from the project proponents based on the

recommendations of the Technical Committee. Communicates the decision to the project proposers.


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Facilitates the drafting of contracts for project execution.

Monitors the implementation of projects and other activities financed by EEPIndonesia.

Compiles information about the progress in the execution of projects in periodicalreports and reports to the Steering Committee.

Elaborates periodical reports about the progress of the Partnership program including

an analysis of results achieved and proposals for modifications if necessary to achievethe objectives of the EEP Indonesia. The reports should also contain a list of projects,divided in appropriate stages of completion (e.g. Project Profile Form (PPF) agreed,contract signed, ongoing, closed) and a second list of PPFs received but notsupported or pending due to remarks from the EEP Indonesia.

Compiles information about similar programs and projects that are being executed orproposed in the region.

Establishes contacts with other EEP Coordination units (Mekong region, CentralAmerica, Southern and eastern Africa).

Develops and maintains a contact network with Partnership members, collaboratorsand relevant stakeholders, in order to make public and promote the achievements inthe renewable energy field.

Establishes the respective links and cooperation agreements with those programs and

projects, as well as other potential partners. Assures the optimal use of information technologies during the Partnerships

execution with emphasis on the Internet (Website maintenance, communication withothers members of the Partnership, etc.).

Publishes information about the Partnership.

Manages additional financial resources, in order to increase the available resources toexecute the Partnership.

Monitors the administrative and financial execution of the Partnership together withthe SC.

Organizes and facilitates the meetings of the Supervisory Board and the SteeringCommittee.

Organizes thematic seminars (Forums).

Acts as the secretary in the Steering Committee meetings. Plans and suggests to the Steering Committee training events, training material

development, studies and surveys that are considered necessary in order to achievethe Partnerships objectives.

Hires the necessary consultancies for the activities implemented directly by the EEPIndonesia, as well as monitors, controls and supervises the results of their work.

Performs additional functions defined by the Steering Committee.

The office facilities for the NCU will be provided by MEMR.

3.12 Guidelines for EEP Indonesia project financing approval

The application and approval of project funding through the EEP Indonesia is performedfollowing a very simple procedure which is summarized in Table 3.2. The EEP IndonesiaProject Cycle is described in Figure 3.3.

The financing windows will be used to call for proposals for the separate demand drivenoutputs and activities (see Table 3.1). Through the use of the windows, the proposed projectswill be more easily comparable for selection. The project profile forms include informationnecessary to evaluate each project and also guide the formulation of the projects to integratethe essential themes into their approach, including crosscutting themes of the EEP Indonesia.

There will be no pre-defined financing quota for the participating provinces. The selection willbe based on the merits of the proposals.


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The tentative Partnership Project Evaluation Grid and the Selection Criteria, formulated basedon the documents of EEP Mekong, is set out in Annex 3, and the project application form inAnnex 4.

Table 3.2 Steps in the EEP Indonesia project cycle

Step Process/Activities1 Identification of initiatives:

Initiatives to promote EEP Indonesia might come from all partners including localgovernment institutions (always together with community organizations), nongovernmental organizations (NGOs) or the private sector. The initiatives shall conform tothe EEP Indonesias three main components described above. The NationalCoordination Unit (NCU) supported by the donor Representative(s) in the SteeringCommittee will help identify potential partners from donor countries if necessary and willfollow up communication among parties. NCU will also provide technical andadministrative assistance for those projects where a suitable partner from a donorcountry should be identified.

2 Call for proposals, elaboration of Project Profile:Project proponent provides a Project Profile according to the Project Profile Form (PPF)

included in Annex 4. Once completed, the Project Profile is sent to the NationalCoordination Unit for evaluation.

3 National Coordination Unit (NCU) receives project profile:National Coordination Unit evaluates project profile eligibility. If in the opinion of NCU theproject is not eligible, NCU notifies the projects proponent and informs the TechnicalCommittee the reason for rejection. If the project profile is eligible, the NCU will send it tothe Technical Committee to be evaluated. A proposal is considered non-eligible if it failsto provide the information necessary for the assessment based on the final SC approvedevaluation grid. In addition, the proposal should fit into at least one of the EEP Indonesiaresult areas and outputs and provide an element of innovation (i.e. not replication ofsomething already in wide use).

4 Project Profile Evaluation:The Technical Committee reviews and assesses the Project Profile. An endorsed ProjectProfile might receive some recommendations as well as a preliminary money allocationamount. The allocation amount is expressed either in money terms or as a percentage ofthe total project cost forming the basis for subsequent payments.

5 Project profile presentation to the Steering Committee:The NCU presents the endorsed Project Profiles during the Steering Committee Meeting.After listening to the advice given by the Technical Committee, the SC meeting approvesor disapproves the project profile.

6 Elaboration of the Project Proposal:Based on the recommendations of the Technical Committee and the Steering CommitteeMeeting, the Project Developer is requested by the NCU to present a more elaborateddocument called the Project Proposal.

The Project Proposal is prepared by the Project Proponent. In the case of Projects where

no partner involved has experience in the preparation of project proposals, the NCU willsupport the proponents to prepare the Project Proposal.

Parties preparing the Project Proposal clearly define the responsibilities of each party,including the definition of the lead party, in order to elaborate Terms of Reference,Contracts for service providers and/or equipment suppliers, and any other legaldocument needed among the parties. The proposal should clearly define the leadpartner.

In order to keep record of projects execution involved partners should inform NCU aboutthe development of the activities.

7 Project Proposal is presented for final approval:The Project Proponent sends the Project Proposal to the National Coordination Unit forfinal evaluation/assessment. The NCU will decide to approve or not to approve theProject proposal, or to request improvements and/or additional information.


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Step Process/Activities

8 Start up of project execution:All the documents prepared and included in the Project Proposal will enter into forceupon signature between parties. Any changes on activities, time schedule, budgetallocation, expenses, etc. should be informed to the National Coordination Unit foreventual endorsement by NCU.

9 Project execution:Reporting, transferring of money and monitoring of the different activities to be developedduring the execution of the project will be according to the time schedule indicated in theproject proposal.The NCU will handle all payments and financial administration. It should be noted that allpayments are based on actual costs and will in principle be paid after finalization of theproject, based on audited accounts. It can be agreed to make partial payments based onintermediate accounts.

10 Project Monitoring:The NCU will conduct monitoring and supervision processes during projectimplementation. The NCU may also provide technical and administrative consultationduring the project implementation.

11 Project closure:The closure of the project will be when the NCU accepts the final and audit Report sentby the project developer.


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Figure 3.3 EEP project cycle

3.13 Evaluation criteria

Only those proposals that gain the pre-set minimum points will be presented in the SC. TheTechnical Evaluation Team will give recommendations on how to improve project proposalswhich do not gain minimum points and the NCU TA may assist applicants on request toimprove their project applications.

The EEP Central America and EEP Mekong have recently adopted new project SelectionCriteria. In view of co-financing opportunites for the EEP and need for the overall

harmonization of donor efforts, EEP Indonesia applies these criteria to the project selection in


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Indonesia (Tentative Partnership Project Evaluation Grid and the Selection Criteria producedbased on the documentaion of EEP Mekong is given in Annex 3).

The criteria assess funding proposals for the following aspects:

Financial and operational capacity

Project management capacity, technical expertise, sources of finance

Relevance

How relevant is the proposal to the objectives and one or more of the priorities ofthe component (This could be specified in the call for proposals)?

How relevant to the particular needs and constraints of Indonesia or a provinceis the proposal? (Including avoidance of duplication and synergy with otherinitiatives)

How clearly defined and strategically chosen are those involved (finalbeneficiaries, target groups, intermediaries)?

Have the needs been clearly defined and does the proposal address themappropriately?

Methodology

Are the activities proposed appropriate, practical, and consistent with theobjectives and expected results?

How coherent is the overall design of the action?

Is the partners' level of involvement and participation in the action satisfactory?

Does the proposal contain objectively verifiable indicators for the outcome of theaction? Is the action plan clear and feasible?

Sustainability

Is the proposal likely to have multiplier effects?

Economic sustainability: what are the positive (and negative impacts) on the

local and national economy? Social and environmental sustainability

Budget and cost effectiveness

Is the ratio between the estimated costs and the expected results satisfactory?

Extra merits are given to the projects which enhance cooperation between donor countriesand project developers and technology transfer.

3.14 Project financial management and reporting

The NCU will be in charge of the financial management of the EEP program as a whole.

Projects implemented with the EEP Indonesia support shall provide frequent reports for theNCU covering use of funds and progress in implementation. In short-term projects (e.g.feasibility studies) a final report will be sufficient; in longer term projects (implementation)semi-annual reports should be provided. Reporting shall be based on simple formulas ormodels and shall include key figures and themes for verification of EEP Indonesia indicators.These formulas will be drafted by the NCU and the reporting models will be streamlined withthe monitoring system developed for the EEP Indonesia projects.

If seemed necessary, NCU may carry out an audit in projects funded from the EEP Indonesiafunds. These costs will be covered from EEP Indonesia operational budget.

EEP will require applicants to sign a statement of non-fraudulent practices. In case fraudulentpractices occur in any project, the applicant/implementer is obliged to return the fundingreceived from the EEP.


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3.15 Sustainability of program results

EEP Indonesia supports economically, environmentally and socially sustainable renewableenergy production in Indonesia. EEP Indonesia will also contribute to the creation of politically

favorable environment for renewable energy development.

As EEP Indonesia supports activities developing new renewable energy technologies, testingthese technologies in different environments, and creating new partnerships, some level ofproject failures is expected and should be accepted due to the piloting nature of the activities.However, careful selection of the projects to be approved aims to minimize the number offailures in implementation.

The key for sustainability of the results is their commercial viability. To ensure the viabilityspecial attention must be given in the Technical Committee to the project preparation processof the applicants applying for EEP Indonesia funding. Projects should be formulated throughparticipatory processes with careful analysis of socio-economic and environmental factors.Biomass and biofuel production may not in any circumstances conflict with food production or

lead to environmental degradation (e.g. forest loss). Considering the piloting nature of manyproposed activities, feasibility of the selected technology of the projects to be financed underresult area 3 should have been studied properly.

Another important aspect is the applicants own funding; projects with a considerable share ofown financing are more likely to be viable in the long-term than projects depending on onlyone source of funding. Though the project implementers have a key role in searching forfinancing, also EEP Indonesia organization has a role in supporting the creation of linkagesbetween financiers and project implementers. Furthermore, the institutional set up of theprojects to be financed should be carefully considered and should show capacity to continueactivities in the long run. Linking EEP Indonesia projects to carbon trade may also improve thefinancial sustainability of the projects but this would require a special arrangement for poolingof the credits alone the projects are likely to be too small to benefit from the carbon funds.

The contribution of the EEP Indonesia to national policies may not have a major impactthough some policy related activities are listed under the result area 1. However, EEPIndonesia can provide decision makers examples of tested and suitable technologies andpractices on renewable energy to increase their interest in renewable energy, encourage andaccelerate the development of supporting policy and legislative framework for the sector, andprovide targeted inputs to remove specific barriers to the production and marketing of RE.


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4. CROSS-CUTTING ISSUES

4.1 Environment

The Central American EEP was established as a consequence of the World Summit onSustainable Development of the United Nations in Johannesburg 2002, in order to promoterenewable energies, with the purpose of contributing to the sustainable development and themitigation of the global climate change. EEP with Indonesia has similar objectives and it willstrive for environmental sustainability by increasing the use of renewable energy, byincreasing the share of sustainable renewable energy in total energy production thus reducingthe growth rate of GHG emissions.

Environmental concern is a key issue in all areas of energy support and thus environment isintegrated in the EEP Indonesia approach as a whole. Climate change issues, landdegradation and land use changes are of particular interest, but also biodiversity, theprotection of wetlands and rivers, and the preservation of forests are important areas ofconcern, which will be given due consideration in the implementation of the EEP Indonesia.

Sustainability will also be considered in evaluating different renewable energy sources and

technologies: environmental impacts shall be considered in each activity carried out under theEEP Indonesia program. As an example, in raw material production for biofuels theenvironmental aspects must be carefully considered. The piloting nature of the projects alsoaims at eliminating solutions and technologies with negative effects on the environment.

The following project selection criteria with linkages to the project application form addressenvironmental issues: 2.1 and 4.3.

4.2 Gender

The health, education, and productive activities of women and children are particularlysensitive to the availability of modern energy services. Men and women have different energyneeds which are largely a result of their different roles and responsibilities in the householdand in society. Energy for cooking, cleaning and child-care are obvious examples of womensneeds, but womens equally important and often less obvious energy needs include energy forwater pumping (for household and irrigation), energy for labor intensive tasks such as huskingand milling, and energy for home-based enterprises which are usually run by women.Introducing new forms of energy may have positive effects on both men and women but insome cases there might also be unintended negative effects, increasing the workload ofwomen and exacerbating their subordinate position, e.g. lighting which increases the numberof working hours may mean that women have their days extended unbearably. Thus theimpact of energy interventions on men and women must be assessed in both its positive andits negative results for each project considered for financial support.

In areas where the partnership is acting directly, like on selecting speakers for workshops and

forums as well as regarding experts hired for the NCU, the partnership will endeavor toachieve gender balance without compromising on the quality required.

Gender issues will also be taken into account in individual project design and in definingindicators. Participatory project preparation methods involving women ensure that their needsare also considered in the project design.

The following project selection criteria with linkages to the project application form addressgender issues: 2.1 and 4.2.

4.3 Good governance

Projects supported by EEP Indonesia should actively promote the participation ofstakeholders and end-users in the planning, implementation and management of energy


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solutions, both through consultations on their needs for energy services and through theiractive participation in the implementation and management of the chosen solutions. Theparticipatory approach will duly respect and seek to make use of local knowledge andtraditions by involving local communities and end-users, especially women, in thedevelopment of the sector.

EEP Indonesia and individual project accounting and project management shall followtransparent and good practices in their activities. EEP Indonesia will set a condition forfinancing and require applicants to sign a statement of compliance with non-fraudulentpractices. In case fraudulent practices occur in any project, the applicant/implementer wouldbe obliged to return the funding received from the EEP Indonesia.

The following project selection criteria with linkages to the project application form addressgood governance issues: 2.3, 3.1, and 3.3.

4.4 Combating poverty

Lack of access to adequate, affordable, reliable, safe and environmentally benign energy is a

severe constraint on development. Poor people see access to energy as a priority. Manyalready pay more per unit of energy than the wealthier, due to inefficient technology andregulation that favors the more well-off. Improving access to appropriate affordable energyservices includes: better management and regulation of the energy sector; increasing thechoice of energy services; developing local capacity; encouraging partnerships and attractingprivate investment in energy services; providing access to finance at all levels and reducingcosts; and designing smarter subsidies and other policies that work for poverty reduction.Energy is not just about electricity, neither is electricity always the best energy source for allneeds. Energy alone will not reduce poverty but it does have an important role to playalongside other things: raw materials, finance and local skills.

Although the partnership is being initiated not as a national pro-poor program as such, it willhelp the poor directly by facilitating access to modern fuels and electricity, creating projects

which will support energy needed for social services (health, education, communication) andpromoting energy-efficient and less polluting end-use technologies for traditional fuels. Thepartnership aims also at reducing the cost and improving the quality of energy supplied to low-income households by supporting mainly decentralized sustainable energy solutions. TheEEP Indonesia will also actively collaborate with programs with a clearly defined povertyreduction focus, such as the PNPM, and its output 3.2 is directly focused on supportingprojects at rural community level.

In individual project design, direct and indirect beneficiaries shall be described and taken intoaccount in project selection.

The following project selection criteria with linkages to project application form addresspoverty issues: 2.1 and 2.3.


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5. PROJECT IMPLEMENTATION

5.1 Schedule

The EEP Indonesia is planned to be implemented during the period 2010-2012.

5.2 Indicative budget

The EEP Indonesia is expected to be launched with seed money of EUR 4 000 000 as a grantfrom the MFA.

It is expected that throughout project execution, there will be an increase in the budget due tothe co-funding contribution from EEP Indonesias partners or project developers. These fundscould come from their own resources, funds from other programs and/or as in-kindcontributions. The Government of Indonesia (MEMR) will contribute the office facilities for theNCU.

5.2.1 Budget for operation

The total annual budget to operate the National Coordination Unit and its related activitiesincludes Administrative Costs, Logistic Costs, Event Costs and Other Costs for localconsultancies and training and capacity building.

Operational budget will also cover the implementation costs of the Outputs 1.1-1.4 and 2.1(activities implemented by EEP Indonesia organization).

5.2.2 Budget for execution

This entry indicates the amount allocated activities to be implemented through financingwindows (EEP Grants).

The amount assigned to each financing window will be the responsibility of the SteeringCommittee which will ensure an adequate distribution among the three result areas.

Financial and in-kind contributions for the execution of the activities under eachoutput/financing window are be part of the co-funding and will be specified in the projectproposal.

5.2.3 Finnish Technical Assistance

A financial allocation for the additional Finnish TA will cover the costs of the Chief TechnicalAdviser (CTA) for three years, and is included under the administrative costs as a budget line.The need for this additional technical assistance was verified during the appraisal/project

design mission and agreed with both the Indonesian and Finnish authorities.


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Annex 1


PROBLEM ANALYSIS


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Annex 2


LOGICAL FRAMEWORK MATRIX

Overall Objective Indicators Source of verification Assumptions

Increased access tosustainable renewableenergy

3and reduced growth

rate of GHG emissions in theparticipating provinces ofIndonesia.

RE proportion of the total energy production &consumption in the participating provinces

GHG emissions avoided (replacement of fossilfuels with renewables)

National and provincial statistics GHG emissions estimated utilizing a

recognized calculation model

Project PurposeBroad range of renewableenergy solutions adopted inenergy related policies andstrategies and implementedby public and private actorsand local communities in theparticipating provinces.

Renewable energy is widely taken intoconsideration in national and provincial plansand regulations

Increase of renewable fuels and energyproduction in the participating provinces (byenergy source) through EEP Indonesiaprojects

Showcase of sustainable and successfulimplementation of biomass based renewableenergy solutions available

Barriers to renewable energy development Number of rural communities benefitting on

new energy sources and technologies Number of industries, including SMEs,

benefitting on new RE solutions

EEP Indonesia reporting National and provincial statistics National and Provincial policy and

strategy papers Central and local government

decisions Annual reports of provincial Dinas

National and Provincialdevelopment of policy and legalframework for energy creates afavorable environment forrenewable energy.

National and Provincial institutionsare supportive of a switch towardsRE

Result 1Strengthened knowledgebase, know-how andinstitutional collaboration forrenewable energy nationallyand in the participatingprovinces.

EEP Indonesia supported forums, trainingevents and workshops

Number of proposed projects in line with theEEP Indonesia eligibility criteria

Percentage of successfully completed EEPIndonesia projects (of pipeline projects)

EEP Indonesia reporting & statistics,lists of participants

Feed-back from the participants inEEP Indonesia supported forumsand workshops

Participating organizationsmaintain their interest and thereis sufficient level of institutionalcontinuity

3The program will, at least initially, give priority to biomass based energy but may be expanded to include other RE sources a nd technologies.


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Annex 2


Output 1.1 Indicators Source of verification AssumptionsInstitutional, legal andregulatory, and financialbarriers to RE production andconsumption and bestpractices in RE identified.

Studies facilitad by EEP Indonesia and Concrete suggestions for improvements made Information available on RE and best practices

in RE in Indonesia and elsewhere

EEP Indonesia reporting, statistics Published studies, websites with

i

Documents

EEPINDProDoc