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CLEAN DEVELOPMENT MECHANISM

SIMPLIFIED PROJECT DESIGN DOCUMENT FOR SMALL SCALE PROJECT ACTIVITIES (SSC-PDD)

Version 01 (21 January, 2003)

Project Design Document

Small Scale CDM Project:

MSS Biomass 9.7 MWe Condensing Steam Turbine

Version 1.0; September 2005

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CONTENTS

A. General description of project activity B. Baseline methodology C. Duration of the project activity / Crediting period D. Monitoring methodology and plan E. Calculation of GHG emission reductions by sources F. Environmental impacts G. Stakeholders comments Annexes Annex 1: Information on participants in the project activity Annex 2: Information regarding public funding

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A. General description of project activity A.1 Title of the project activity: MSS Biomass 9.7 MWe Condensing Steam Turbine Project A.2 Description of the project activity: The project consists of the construction of a new cogeneration unit running on Palm Kernel Shell (PK Shell) and palm kernel fibre. Both PK Shell and fibre are biomass produced as by-products from the production of palm oil and palm kernels from palm fruit in a Palm Oil Mill. These by-products are commonly used as fuel for Palm Oil Mills on Sumatra who are self sufficient in their own heat supply. Even if the biomass is used fuel for the Palm Oil Mills there is a surplus of biomass especially PK Shell. On Sumatra this surplus is not transported over large distances. Until recently the surplus of PK Shell was used for paving roads or it was landfilled. At PT. Murini Samsam (MSS) a new palm oil production unit will be built, together with a palm kernel oil production unit, and an edible oil fractionation and refinery in Pelintung close to Dumai on Sumatra in Indonesia. MSS will use PK Shell for the production of steam for the processes in the palm oil refinery. This is not common practice on Sumatra because, apart from the sister company MNA none of the other palm oil refineries in the region do this. The management of the company wants to go one step further by also using PK Shell and fibre for the production of electricity for internal use, which is a novelty in the palm oil refining sector on Sumatra. The proposed CDM project consists of installing a new steam boiler and a full condensing steam turbine for the production electricity with a capacity of 9.7 MWe. The PK Shell and fibre will mainly come from a new Palm Oil Mill with a capacity of 45 tonnes Fresh Fruit Bunch (FFB) that will be built near the new palm oil refinery. The remaining PK Shell will be purchased from palm oil mills in the Riau region. PT. Murini Samsam is part of the Wilmar Group. The Wilmar Group is a large Palm Oil and Palm Kernel Oil producer in South East Asia. Wilmar is a leading producer of edible oils, oilseeds and related products in Asia. Wilmar’s head office is based in Singapore. The company and its affiliates own palm oil mills and palm kernel and copra crushing facilities, as well as edible oil refineries in Malaysia and Indonesia. It is the company’s policy to consciously protect the environment. The company will always comply with the environmental regulations in every country of operation. The products of the company ultimately come from the nature and the environment, and the company stands ready to protect it. The company is processing agricultural products. Waste minimisation and reducing emissions is in line with the company’s environmental protection policies. The construction of a new boiler and condensing steam turbine running on biomass for the production of electricity for the processes of MSS has a significant contribution to the sustainable development of the company. Installation of this new biomass unit will avoid the diesel oil used for electricity in diesel generators and the use of electricity from the Sumatra power grid. Also landfill of organic waste will be reduced by the project. The decision to install a new biomass unit for electricity production will avoid high CO2 emissions of the company.

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A.3 Project participants: Project Proponent:

PT. Murini Samsam (MSS) Attn. Mr. Erik Tjia Gedung Bank Mandiri Lantai V Jalan Imam Bonjol No. 7 20112 Medan INDONESIA Telephone: +62 61 4147 524 Facsimile: +62 61 4145 346

Buyer of the CERs:

ADM European Management Holding GmbH Attn. Mr. Tido Böhle Glockengiesserwall 22, 6th Floor 20095 Hamburg Germany

Parties involved and project participants:

Parties involved

Private and/or public entities acting as project participants

Kindly request if the Parties

involved wish to be considered as project participants (Yes/No)

Indonesia (Host Party)

PT. Murini Samsam (MSS)

No

Germany (Sponsor Party)

ADM European Management Holding GmbH

No

The DNA of Indonesia (National Commission on CDM, KOMNAS MPB) has submitted a letter of approval for the project on 23 December 2005. After validation of the project by TÜV-Süd the project participants will request the German DNA to submit an approval letter of voluntary participation in relation to the project.

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A.4 Technical description of the project activity: Fresh Fruit Bunches (FFB) of a palm tree contain many palm fruits. This fruit contains about 23% palm oil. In the palm fruit there is a palm kernel that contains 45% palm kernel oil. Both oils are produced from the fruit and can be used for many food applications. The palm kernel is covered with fibre which is separated from the kernel. About 13% of the FFB consists of fibre. Before the palm kernel can be used for oil production the shell has to be removed in a cruncher. About 8% of the FFB is so called Palm Kernel Shell or PK Shell. The picture below give an impression of the raw material.

Fresh Fruit Bunch (FFB): The fresh palm fruit contains 23% Palm Oil (PO).

Palm Kernels: The palm kernels after removal of the fiber and shell contain 43% oil. This oil is called Palm Kernel oil (PK).

PK Shell: 8% of the Fresh Fruit Bunch consists of the shells of the palm kernel.

Fibre: 13% of the Fresh Fruit Bunch consists of the fibre of the palm kernel.

The proposed project consists of installing a new steam boiler and a condensing steam turbine running on PK Shell and fibre (biomass). The capacity of the new unit will be 9.7 MWe. The project avoids the production of electricity by diesel generators or the use of electricity for the Sumatra grid obtained from the National Electricity Company in Indonesia called PLN.

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The new unit will produce electricity for the operations of PT Murini Samsam as well as for the existing fertilizer plant at the same location. The electricity production capacity will be shared by the following production units: Palm oil mill and refinery: 2 MW Palm Kernel oil plant: 4.5 MW Fractionation plant: 1.7 MW Fertilizer plant: 1.5 MW In order to ensure sufficient supply of electricity of the MSS operations after building the new production units the company had the following options:

Option Description

1 The proposed project: Installation of a 9.7 MWe condensing steam turbine running on PK Shell.

2 Install 6 additional diesel generators with a total capacity of 9.6 MWe in order to be able to operate on diesel genset continuously.

3 Use electricity from the Sumatra grid with diesel generators as backup for the grid. In order to operate reliably 6 diesel generator with a total capacity of 9.6 MWe have to be installed.

The first option was selected, because this project could be developed as CDM project. The new installation will consist of a new boiler producing 42 bar(g) superheated steam at 450 ºC at a capacity of 45,5 tonnes per hour using PK Shell and palm kernel fibres as fuel. The steam will be used to run a 9.7 MWe full condensing steam turbine. The third option, using electricity from the grid was abandoned because of the expected problems with the grid electricity. Moreover there is no grid connection at the site of MSS in Pelintung and the electricity company (PLN) informed the company that in case they would like to get a connection to the electricity grid they had to invest in a 40 km cable themselves. This would require an investment of 4 million USD. With this investment the company still had to invest in diesel generators for back-up during power failures. The supplier of the boiler is Vickers in Malaysia. The grid of the boiler is from Stocker in Detroit, USA. The steam turbine will be supplied by Dresser Rand a US based company having production facilities in Brazil, where the turbine is produced. As part of the commissioning programme for the new installation the operators and maintenance staff that will work with the new installation will be adequately trained and familiarised with the new technology in order to limit the maintenance costs and dependency on the foreign suppliers of the equipment. A.4.1 Location of the project activity: A.4.1.1 Host country Party: Indonesia A.4.1.2 Region/State/Province etc.: Riau District, Sumatra A.4.1.3 City/Town/Community etc: Pelintung close to Dumai.

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A.4.1.4 Detailed description of the physical location, including information allowing the unique identification of this project activity:

The MSS palm oil and palm kernel oil refinery is located in Pelintung 40 kilometre from Dumai on Sumatra. The site is located outside the village in an area with other industries in a region with many oil plantations. Outside the MSS site there is room for expansions. The coordinated of the MSS site are 1º 36’ N; 101 º 24’ E.

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Map with the project location A.4.2 Type and category(ies) and technology of project activity Indicative simplified baseline and monitoring methodologies for selected small-scale CDM project activity categories: Type I-A: Electricity generation by the user. Sectoral scope: Energy industries (renewable - / non-renewable sources) Category: Cogeneration, biomass A.4.3 Brief statement on how anthropogenic emissions of greenhouse gases (GHGs) by sources are

to be reduced by the proposed CDM project activity: The project will reduce the CO2 emissions because emissions from diesel generators for electricity will be avoided by the installation of a new steam boiler and steam turbine running biomass (PK Shell and fibre) from the new Palm Oil Mill of MSS in Pelintung. The emission reductions are the emissions in the most likely baseline scenario (baseline emissions) minus the project emissions. Baseline emissions

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The most likely baseline scenario would be to install new diesel generators and to fully operate the installations on diesel generators. This requires a much lower investment and the investment for 6 new diesel generators has a much lower risk. Using grid electricity is not a preferred alternative because of the unreliability of the delivery of the grid. Small Scale CDM Methodology I.A. suggests using an emission factor of 0.9 kg CO2/kWh electricity in case the project replaces power generation by diesel generators. Experiences with diesel generators in the operations of Wilmar on Sumatra demonstrate that the diesel consumption of a modern generator is 0,29 liter per kWh, while the density of the diesel fuel used on Sumatra is 0,8646 kg/liter. Applying the IPCC nett calorific value (43.33 GJ/tonne) and carbon content (74.04 kg CO2/GJ) of diesel fuel leads to an emission factor of 0.29*0.8646*43.33*74.07/1000= 0.805 kg CO2/kWh. Using this emission factor would be in line with the most likely baseline scenario and this is more conservative than using the suggested 0.9 kg CO2/kWh. Therefore this emission factor has been applied for the calculation of the emission reductions of the proposed project. The expected nett quantity of electricity that will be produced in one year is 70,145 MWh based on the expectation that the installation will operate around 8000 hours per year. The nett electricity production has been calculated by deducting the expected electricity consumption of the boiler and the turbine from the gross capacity. The expected baseline emissions are: 0.805 tonne CO2/MWh * 70,145 MWh / year = 56,467 tonnes CO2 Project emissions The expected project emissions will be zero. The emissions of the combustion of shells and fiber do not have to be taken into account because they can be considered short cycle CO2 emissions. Emission reductions The total expected emission reductions of the proposed project are equal to the baseline emissions 56,467 tonnes CO2 per year. A.4.4 Public funding of the project activity: No funding or other form of financial support has been obtained from any Official Development Assistance resource or other resource from international development funding agency. Also the project has not been directly or indirectly subsidised by the Indonesian Government. Possibilities for funding for this type of projects in the private sector through development programmes or national subsidies do not exist. A.4.5 Confirmation that the small-scale project activity is not a debundled component of a larger

project activity: The debundling guidelines state: “A proposed small-scale project activity shall be deemed to be a debundled component of a large project activity if there is a registered small-scale CDM project activity or an application to register another small-scale CDM project activity: • With the same project participants; • In the same project category and technology/measure; and • Registered within the previous 2 years; and • Whose project boundary is within 1 km of the project boundary of the proposed small-scale activity at the closest point.”

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The technology of this project is new for MSS. No other small scale projects of this type have been proposed by MSS for the location in Pelintung.

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B. Baseline methodology B.1 Title and reference of the project category applicable to the project activity: Project type I: Renewable Energy Projects Category I.A.: Electricity generated by the user. B.2 Project category applicable to the project activity: The Project Category I.A., “Electricity generated by the user” is applicable for this project because the project is: • A biomass project can be considered a renewable energy project. • Electricity will be generated by the project proponent and not delivered to the grid. • The project is a small scale CDM project because the generation capacity is less than 15 MW. B.3 Description of how the anthropogenic GHG emissions by sources are reduced below those that would have occurred in the absence of the proposed CDM project activity The tool for demonstration and assessment of additionality published by the CDM Executive Board (EB16, Report Annex 1) has been used to assess the additionality of the project. The steps from this tool have been described below. Step 0: Preliminary screening based on the starting date of the project activity (a) The starting date of the project activity is 1 January 2005. The project activity started in the first quarter of 2005. This is after 1 January 2000. According to the project plan the turbine will be delivered in January 2006. Soon after that the project should start production. The CDM project activities will be submitted for registration before 31 December 2005. (b) CDM was seriously considered in the decision to proceed with the project activity. MSS started to seriously consider the idea of developing CDM projects in April 2004 after they got into contact with Jacques Segers Consultancy in the Netherlands who discussed the idea of developing CDM projects. The decision to proceed with the development of the MSS biomass cogeneration project was taken in December 2004 after a feasibility study for CDM projects by KPMG. Step 1: Identification of alternatives to the project activities consistent with current laws and regulations Sub-step 1a: Define alternatives to the project activity: The following alternatives to the project activity can be identified: • The proposed project activity not undertaken as a CDM project activity. • Invest in diesel generators in order to be able to operate the operation without using grid electricity. • Use electricity from the grid combined with an investment in diesel generators as backup for the grid. Sub-step 1b: Enforcement of applicable laws and regulations All alternatives comply with the existing national legislation. Also the proposed project scenario faces no legal restriction. It is allowed to produce your own electricity using biomass produced in your operations as a fuel or using diesel generators. Step 2: Investment analysis

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Sub-step 2a: Determine appropriate analysis method. Option II, the investment analysis has been identified as the appropriate analysis method. The 3 alternative options have been used for the investment analysis. Sub-step 2b: Option II. Apply investment comparison analysis.

Scenario

Description

Total investment

in US$

Costs in US$/kWh

1 The proposed project: Installation of a 9.7 MWe condensing steam turbine running on PK Shell. 8 million 0.066

2

Install 6 additional diesel generators with a total capacity of 9.6 MWe in order to be able to operate on diesel genset continuously.

3 million

0.076

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Use electricity from the grid combined with installation of diesel generators as backup for the grid. In order to operate reliably 6 diesel generators with a total capacity of 9.6 MWe have to be installed.

Scenario abandoned because of expected problems with the grid electricity and the high investment in the required 40 km cable.

Scenario 3 was abandoned because of the expected problems with using grid electricity and the fact that the company had to invest 4 million USD for a getting connected to the grid (40 km cable). This would make scenario 3 a larger investment than scenario 2 and would ultimately also lead to a higher electricity price per kWh than scenario 2. Sub-step 2c: Calculation and comparison of financial indicators MSS uses the payback period of projects as leading criteria for investing in projects or not. The payback period of the project scenario in relation to baseline scenario have been calculated by dividing the investment difference (scenario 1 – scenario 2) by the annual costs saving. The expected nett electricity production of the proposed project is 70,145,000 kWh. The calculation results in:

3.7000,145,70*)066.0076.0(

000,000,3000,000,8=

−−

years payback period.

At the moment of taking the decision for the investment the assumption was that 0.9 kg CO2 per kWh electricity production could be used and the price one tonne of CER would be 6 USD. In the event the CERs of the project can be sold for a price of 6 USD per tonne of CER the project the will attract additional funding of 0.0009 * 6 = 0.0054 USD/kWh (0.9 kg CO2 emission reduction per kWh electricity). In that case the payback period will be 4.7 years. A detailed costs analysis has been performed for these calculations (see attachment 1).

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The investment policy of the company is to only invest in projects having a payback period of 4 years or shorter. For long term investments in the core business of the company (palm oil production and processing) a somewhat longer payback period can be accepted (4 - 6 years). However a payback period of 7.3 years for a utility project would be too long and the management of the company would not approve the project. A payback period of 4.7 years is definitely more attractive. Step 3: Barrier analysis Sub-step 3a: Identification of the barriers that would prevent the implementation of the proposed project activity Investment barriers. The project requires an investment of 8 million USD, while the alternatives require a much lower investment. Investors in industry on Sumatra are reluctant to make large investments in industry and banks are reluctant to provide loans especially after the Asia crisis in 1998. High interest rates are applied for a loan from the bank. The current interest rate for loans in USD from a bank for private investments on Sumatra is 10% Investors in the Sumatran industry require a high internal rate of return and a short payback because of the increased country risk. Without the possibility of developing the project as CDM project and without the additional funding for the project the project would not have been an attractive alternative. Technological barriers Producing your own electricity using bio-mass as fuel is a new concept for the company in Indonesia. The steam turbine is produced by an American company in Brazil and the boiler is imported from Malaysia. Technical service support will be expensive and it will take considerable efforts to train personnel in working with the new technology and maintenance staff. Barriers due to prevailing practice The project is the “first of its kind”. Apart form the sister company MNA in Kuala Tanjung that will implement a similar project simultaneously no other palm oil mill or palm oil refinery in Indonesia uses PK Shell as fuel for own electricity production. Sub-step 3b: Show that the identified barriers would not prevent the implementation of at least one of the alternatives Both alternative options (the option of installing diesel generators and the option of using electricity from the grid combined with diesel generators for back up) face substantially less barriers than the proposed project activity. Both alternative options require a much lower investment and can be implemented as part of the project to build the new production units. The technological barriers for both alternative options are low because the company already has experience with operating diesel generators. Therefore barriers due to prevailing practice do not exist.

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The alternative of continuation of using power from the grid requires the lowest investment. However from an operational point of view this is not the preferred option. The Sumatra electricity grid is overloaded and demonstrates frequent power failures. Step 4: Common practice analysis The project activity is first of its kind in Indonesia. PK Shell and the fibre of the palm kernel have been used as fuel for steam production in the palm oil mills. Even if the palm oil mills use PK Shell and fibre as a fuel there is a surplus of PK Shell from the palm oil production. Until recently this surplus of PK Shell was used for improvement of unpaved roads in Sumatra or dumped as waste in the plantations. Transporting the material over longer distances is not feasible because of the low value of the material. Step 5: Impact of CDM registration If CERs generated by the project can be sold additional funding for the project can be generated, which will change the project from an economically unfeasible project into a less unattractive project. At a price of 6 USD per tonne of CERs the payback period of the project reduces from 7.3 years to 4.7 years. Conclusion regarding the additionality of the project: Without CERs the project has a long payback period considering the investment climate in industry in Sumatra and the company’s investment policy. This would make the project unattractive in case it could not be developed as CDM project. Besides that the project proponent has to overcome significant barriers to implement the proposed project. The project requires a much higher investment compared to its alternatives and it is technologically new to the company on Sumatra. The alternative options for the proposed project do not have these barriers. The option of using power from the grid, however is not desired because of the large number of power failures and the expectation that this situation will deteriorate if the new Palm Oil Mill will become operational. B.4 Description of the project boundary for the project activity: In figure 1 the boundaries of the baseline delivery system has been presented. The boundaries of the baseline situation are limited to the generation of electric power in diesel generators on the site on MSS. The project is limited to electricity generation only and apart from the electricity generation the processes do not change. For reasons of being conservative the transport of diesel fuel has been kept outside the baseline boundaries because actual data is not available. The emissions for electricity generation of modern diesel generators operating in Sumatra have been used for calculating the baseline emissions. This value is 0.805 tonne CO2 / MWh.

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Figure 1: Boundaries Baseline Delivery System

Figure 2 shows the boundaries of the project delivery system. The project boundaries have been limited to the boiler and the steam turbine using biomass as fuel. The transport of PK Shell has been kept outside the project boundaries to be consistent with the baseline scenario in which the transport of diesel has been kept out of the scope. PK Shell is produced in the region of Riau and transport distances will be smaller than for the transport of diesel fuel. The diesel generators as back up of the electricity production have been kept outside the boundaries because there will be no difference between producing power with the diesel generators in the project scenario and the normal power generation in the baseline scenario.

Figure 2: Boundaries Project Delivery System

Production Processes

Diesel Generators

Diesel transport

Steam Production PK Shell

(biomass)

Production Processes Boiler and

Steam Turbine

Diesel Generators

PK Shell (biomass)

Diesel transport

Steam Production PK Shell

(biomass)

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B.5 Details of the baseline and its development:

B.5.1 Specify the baseline for the proposed project activity using a methodology specified in the applicable project category for small-scale CDM project activities contained in appendix B of the simplified M&P for small-scale CDM project activities:

B.5.2 Date of completing the final draft of this baseline section: 15 September 2005.

B.5.3 Name of person/entity determining the baseline: Mr. Erik Tjia C. Duration of the project activity and crediting period C.1 Duration of the project activity: C.1.1 Starting date of the project activity: 15 April 2006. C.1.2 Expected operational lifetime of the project activity: 20 years C.2 Choice of the crediting period and related information C.2.1 Renewable crediting period) C.2.1.1 Starting date of the first crediting period: Not applicable. C.2.1.2 Length of the first crediting period: Not applicable. C.2.2 Fixed crediting period: C.2.2.1 Starting date:

01.04.2006 C.2.2.2 Length (max 10 years):

10 (ten) years D. Monitoring methodology and plan Small Scale Methodology I.A. states about monitoring: “Monitoring shall consist of: (a) An annual check of all systems or a sample thereof to ensure that they are still operating (other evidence of continuing operation, such as on-going rental/lease payments could be a substitute).

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OR (b) Metering the electricity generated by all systems or a sample thereof.” The proposed project will apply method (b). The electricity of the project will be measured with two electricity meters. Accuracy will be monitored applying a ISO 9001 quality management system. The plant management of MSS in Pelintung close to Dumai is responsible for the well functioning of the electricity meter, the registration and filing of the metering results and the preparation of an annual report of produced electricity. Modern electricity meters do not require frequent calibration. The electricity meters will be calibrated annually or in case the meter readings of the two meters deviate more than 2%. Monitoring data will be registered and filed over the full crediting period and two years after the end of the crediting period or the last issuance of CERs for this project activity, whichever occurs later. D.1 Name and reference of approved methodology applied to the project activity: The small scale methodology I.A. has been applied. D.2 Justification of the choice of the methodology and why it is applicable to the project activity: The project will produce electricity for own use of the production installations of MSS and will not be connected to the Sumatra grid. Small Scale Methodology I.A.: “Electricity generated by the user” was developed for this type of projects. The project is a small scale CDM project because the electricity generation capacity of the project is less than 15 MW.

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D.3 Data to be monitored: Since the methodology allows to apply a fixed emission factor per MWh electricity produced for the own operations and the most likely baseline scenario is based on using diesel generators for the electricity use on the MSS site only one variable will be monitored. ID number

Data type Data variable

Data unit

Measured (m), calculated (c) or estimated (e)

Recording frequency

Proportion of data to be monitored

How will the data be archived? (electronic/ paper)

For how long is archived data to be kept?

Comment

EG Net Electricity Output

Electricity delivered to the own operations.

MWh m continuous

100% electronic Until two years after the last issuance of CERs for this project

The following social and environmental indicators will be monitored: The number of people employed in the new power plant will be monitored and reported in the annual monitoring reports of the biomass power project. The air emissions from the biomass power project will be monitored in compliance with the Indonesian environmental requirements regulated by the environmental permit of the new installation. The result of this monitoring will also be included in the annual monitoring reports of the biomass power project. The monitoring reports will include the results of evaluating eventual leakage during the operation of the new biomass power unit. If the use of biomass in the new biomass power unit leads to the use of other materials elsewhere leading to an increase of emissions outside the boundaries of the project this will be described in the monitoring report. The eventual impact of this will be estimated and deducted from the project emission reductions in the respective period. The manager of the new biomass power plant will be responsible for data collection, reporting and archiving of the monitoring data. D.4 Name of person/entity determining the monitoring methodology: MSS represented by Mr. Erik Tjia. See annex A for contact details.

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E. Calculation of GHG emission reductions by sources E.1 Formulae used:

E.1.1 Selected formulae as provided in appendix B:

Small Scale Methodology I.A. does not describe formulae. The calculation applied for the proposed project as well as the considerations regarding leakage have been included in chapter E.1.2.

E.1.2 Description of formulae when not provided in appendix B:

E.1.2.1 The formulae used to estimate anthropogenic emissions by sources of GHGs due to the project activity within the project boundary The project activity will only have GHG emissions from the combustion of biomass. This biomass will be mainly Palm Kernel Shell (PK Shell) but also the fibre from the palm kernel could be used as fuel. PK Shell is an organic material. The emission from burning PK Shell can be considered short cycle CO2 emissions and do not have to be taken into account as GHG emissions. Emissions from transport of PK Shell have not been included because the emissions of transport of diesel oil for the baseline scenario also have not been included in the baseline scenario. Emissions from the transport, construction and installation of the new installation have been neglected because this usually is less than 1% of the avoided emissions over the life cycle of the project. Also the emissions for installing additional diesel generators have been neglected for the same reason and to be consistent.

E.1.2.2 The formulae used to estimate leakage due to the project activity, where required, for the applicable project category in appendix B of the simplified modalities and procedures for small-scale CDM project activities Leakage is related to the alternative use of PK Shell in Riau district. The Palm Oil Mills on Riau district use the fibre and PK Shell for their own steam production. The fibre is firstly used for steam production because fibre cannot be easily stored or transported. The remaining energy for the Palm Oil Mills is obtained from PK Shell. There is a surplus of PK Shell from the Palm Oil Mills in Riau district. MSS is the only user of PK Shell outside the Palm Oil Mills. The surplus of PK Shell is currently used for road improvement or the material is land filled on the palm plantations. The use of PK Shell for road improvement cannot be considered a high quality application. The only reason why PK Shell is used for this purpose is that it is freely available. The use of PK Shell does not lead to seriously improved roads because the rain will wash away the material soon after its application. Therefore the leakage aspects of this alternative use of PK Shell have not been taken into consideration. The new 9.7 MWe steam boiler and turbine mainly will run on the PK Shell and fibre from the new Palm Oil Mill of MSS. The steam for the new Palm Oil Mill will be sourced from a steam boiler running on biomass and all remaining biomass from the palm

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oil and palm kernel production can be used for electricity production. Appendix 2 contains a calculation of the volume of biomass that will be produced in the new Palm Oil Mill and the biofuel demand of the new steam boiler and turbine. The calculation demonstrates that more than 80% of the biofuel of the new steam boiler and turbine will be produced on site. Appendix 3 contains an overview of the production of PK Shell and fibre by all Palm Oil Mills in Riau district within a distance of 300 kilometres from Pelintung close to Dumai (MSS site). After finishing the MSS Palm Oil Mill in September 2005 there will an overall Palm Oil Mill capacity in the Riau district of 705 tonne per hour Fresh Fruit Bunches. Together they produce 372,240 tonnes of PK Shell and 604,890 tonnes of fibre. After deducting the quantities of fibres and PK Shell used for steam production by the Palm Oil Mills and after deducting the consumption of the MSS (for the existing steam boilers and the proposed boiler and steam turbine project) there will still be a surplus of PK Shell in the Riau district. In the event there will be insufficient PK Shell available on the market also other biomass can be used for the new installation in the form of empty fruit bunches from the new palm oil mill on site. As part of the project an installation will be built to process empty fruit bunches into suitable fuel to ensure sufficient supply of biomass fuel. PK Shell has an opportunity value for the Palm Oil Mills because it is used for own steam production. The surplus of PK Shell however has little or no value. The price paid by MSS for additional PK Shell purchased from traders mainly consists of transport costs and trading costs. MSS is expected to pay US$ 18 per tonne delivered at the gate. The Palm Oil Mills selling the PK Shell obtain a much smaller amount for the PK Shell . The current prices are only paid because MSS currently purchases PK Shell for the existing steam boilers. Before MSS started to purchase the PK Shell there was hardly a market for PK Shell. The conclusion from the investigation of the PK Shell market is that no leakage occurs.

E.1.2.3 The sum of E.1.2.1 and E.1.2.2 represents the project activity emissions Zero project emissions + zero leakage = zero E.1.2.4 The formulae used to estimate the anthropogenic emissions by sources of GHG’s in the baseline using the baseline methodology for the applicable project category in appendix B of the simplified modalities and procedures for small-scale CDM project activities In the baseline scenario the electricity will be produced using diesel generators. According to the small scale methodology a default value for the emissions from electricity generated by diesel generators can be used. This default emission factor is 0.9 kg CO2/kWh. The most likely baseline scenario is to produce all electricity using diesel generators because there is no connection with the power grid. Making a connection to the grid would not be feasible, because of the high investment for this option (see chapter B3). The emission factor of modern diesel generators available for Sumatra has been used for determination of the baseline emissions, because installing these generators would be the most likely alternative for the project and results in a more conservative emissions factor than using the default value. This emission factor is 0.805 tonnes CO2/MWh.

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E.1.2.5 Difference between E.1.2.4 and E.1.2.3 represents the emission reductions due to the project activity during a given period The emission reductions of the proposed project can be calculated using the following formulae:

Emission Reduction

(tonnes CO2)

= Electricity generation by the new installation

(MWh)

* Emission factor of diesel generators

(0.805 tonne CO2/MWh)

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E.2 Table providing values obtained when applying formulae above:

Expected emission reductions of the project

Factor Unit 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total

Electricity generation MWh 49686 70145 70145 70145 70145 70145 70145 70145 70145 70145 20459 701450 Emission factor tonne CO2/MWh 0,805 0,805 0,805 0,805 0,805 0,805 0,805 0,805 0,805 0,805 0,805 Baseline emissions tonne 39997 56467 56467 56467 56467 56467 56467 56467 56467 56467 16469 564667 Project emissions tonne 0 0 0 0 0 0 0 0 0 0 0 0 Leakage tonne 0 0 0 0 0 0 0 0 0 0 0 0

Expected emission reductions tonne 39997 56467 56467 56467 56467 56467 56467 56467 56467 56467 16469 564667

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F. Environmental impacts F.1 If required by the host Party, documentation on the analysis of the environmental impacts of the project activity: The project requires no Environmental Impact Assessment. According to the Indonesian regulation for Environmental Impact Assessments (Analysis Mengenai Dampak Lingkungan, or AMDAL) electricity generation units having a larger capacity than 10 MW should prepare an Environmental Impact Assessment (EIA). The MSS Biomass Condensing Steam Turbine Project has a lower capacity than 10 MW. Therefore no EIA will be required for this project. Brief description of the expected environmental impact of the project The project will result in a reduction of waste of the new palm oil mill at Pelintung. Empty fruit bunches of palm oil mills are usually dumped on the plantation or burned. Palm kernel shell was often dumped near the palm oil mills because there was a lack useful applications for this material. The new biomass power unit will solve this problem for many palm oil mills in the region. The transport of palm kernel shell in the region will increase. The new biomass power unit can process 220 tonnes of palm kernel shell per day. This will lead to additional transport from the palm oil mills in the region. This additional transport is partly compensated by the reduction of transport of diesel fuel for the diesel generators. Compared to the baseline scenenario, the project will reduce the use of diesel fuel at the location in Pelintung. Consequently this will lead to a reduction of diesel transport and storage. The air emissions of the diesel generators at the location in Pelinting will be reduced while the project will generate its own air emissions. The combustion of palm kernel shell, and empty fruit bunches in the new installation is relatively clean, because the organic material does not contain sulphur. The air emissions of the new power plant will meet the Indonesian requirements regulated by the environmental permit for the new operations. The noise of the new turbine may increase the noise levels in the surrounding area which will be partly compensated by the fact the diesel generators will no longer produce noise. The production facilities at Kuala Tanjung are located in an industrial area far away from houses. Therefore no increase of noise levels is expected in the village. G. Stakeholders comments G.1 Brief description of the process by which comments by local stakeholders have been invited and compiled: The management of MSS organised a stakeholder consultation meeting on 10 June 2005 to present the project to the local stakeholders. The general Manager of the company Mr. Pandian presented the project. The meeting was attended by about 150 persons from the local community in Pelintung and the surrounding area. The chief of the Pelintung village Mr. Ruslan, the sub-district head and district head, the chief of the district police several other prominent members of the community participated in the meeting. G.2 Summary of the comments received:

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The entire community supported the project and no objections were made. The community requested to involve people from the local community to fulfil the vacancies resulting from the new activities. The local community request the company: • to control water and air pollution; • to employ more people from the local community; • to provide more charity (supporting social community development). G.3 Report on how due account was taken of any comments received: Since no objections were made there was no need to change the project or the project implementation. The company’s response to the local stakeholders was: • All legal environmental standards shall be respected; • 25 New jobs will be created in the biomass power plant mainly for people from the local community; • The company has always provided and will remain providing charity in the form of in kind

contributions to the social development of the community. The local stakeholders concluded that this project is an important economical development supporting the community.

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Annex 1

CONTACT INFORMATION FOR PARTICIPANTS IN THE PROJECT ACTIVITY Organization: PT. Murini Samsam (MSS) Street/P.O.Box: Jalan Imam Bonjol No. 7 Building: Gedung Bank Mandiri Lantai V City: Medan State/Region: North Sumatra Postcode/ZIP: 20112 Country: Indonesia Telephone: +62 61 4145777 extn. 1003 FAX: +62 61 4154891 E-Mail: Etjia@kpn.co.id URL: Represented by: Erik Tjia Title: Director Salutation: Mr. Last Name: Tjia Middle Name: - First Name: Erik Department: PT. Murini Samsam Mobile: Direct FAX: +62 61 4154891 Direct tel: Extn. 1003 Personal E-Mail: Etjia@kpn.co.id Organization: ADM European Management Holding GmbH Street/P.O.Box: Glockengiesserwall 22 Building: 6th Floor City: Hamburg State/Region: Hamburg Postcode/ZIP: 20095 Country: Germany Telephone: +49 40 533026948 FAX: +49 40 53302643 E-Mail: tido_boehle@ADMWORLD.com] URL: Represented by: Tido Böhle Title: European Energy Manager Salutation: Mr. Last Name: Böhle Middle Name: - First Name: Tido Department: ADM European Management Holding GmbH Mobile: Direct FAX: +49 40 53302643 Direct tel: +49 40 533026948 Personal E-Mail: tido_boehle@ADMWORLD.com

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Annex 2

INFORMATION REGARDING PUBLIC FUNDING

No funding or other form of financial support has been obtained from any Official Development Assistance resource or other resource from international development funding agency. Also the project has not been directly or indirectly subsidised by the Indonesian Government. Possibilities for funding for this type of projects in the private sector through development programmes or national subsidies do not exist.

- - - - -

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Appendix 1: Costs calculation of the project (option 1) versus the most likely baseline scenario (option 2)

Calculation of the pay-back period of the project (Option 1) versus the most likely baseline scenario (Option 2)

Description Unit Option 1 Option 2

Project Diesel gensets Notes :

Initial Investment USD 8.000.000 3.000.000 Gross Capacity Kwatt 9.700 9.700 Nett Capacity Kwatt 8.768 8.768 Running time per year hours 8000 8000 Real capacity MWh/year 70.145 70.145 Costs PK Shell Boiler : Fuel cost (PK Shell) USD/MT 4,500 0 PK Shell price USD 18/MT, Consumables USD/MT 0,126 0 PK Shell use = 250 kg/MT steam Repair and maintenance USD/MT 0,824 0 Personal expense and labour USD/MT 0,240 0 Water cost USD/MT 0,600 0 Depreciation of PK shell boiler (12 yr) USD/MT 0,008 0 Total cost of steam USD/MT 6,298 0 Power cost : Turbine Diesel Genset Turbine : Fuel cost USD/kWh 0,0287 0,0608 Steam consumption = 4.55 kg/Kwh Personal expense and labour USD/kWh 0,0020 0,0020 Repair and maintenance (10 % for turbine) USD/kWh 0,0114 0,0043 Diesel Genset : Depreciation (12 years) USD/kWh 0,0095 0,0036 Fuel consumption = 0,29 litre/Kwh Interest (10 %/year) USD/kWh 0,0114 0,0043 Fuel price = Rupiah 1950

Total insurance (3 %/year) USD/kWh 0,0034 0,0013 Exchange rate: 1 USD = Rupiah 9300

Total cost of power USD/kWh 0,066 0,076

Costs saving USD/kWh 0,010 Incremental investment USD 5.000.000 Pay-back periode without CERs years USD 5,000,000 / (0.010*70,145,000 kWh) 7,3 Pay-back with CERs years @ 6 USD/tonne CER and 0.9 kg CO2/kWh 4,7

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Appendix 2: Production and Consumption of Biomass of the new Palm Oil Mill

Parameter Annual production Value Comments

Production capacity new POM tonnes FFB 396000 60 tonnes per hour 20 hours per day 330 days per year Power production new unit kWh 69379 Fibre production tonnes 51480 13% of the FFB Combustion heat fibre GJ 584298 NCV Fibre = 11.35 GJ/tonne PK Shell production tonnes 31680 8% of the FFB Combustion heat PK Shell GJ 549648 NCV PK Shell = 17.35 GJ/tonne Fibre production tonnes of PK Shell eq. 33677 Fibre production*NCV fibre/NCV PK Shell Total available biofuel tonnes of PK Shell eq. 65357 PK Shell requirement new unit tonnes of PK Shell eq. 78051 4.5 tonnes of steam per MWh; 0.25 tonne PK Shell per tonne steam Additional PK Shell demand tonnes of PK Shell eq. 12694 POM = Palm Oil Mill; FFB = Fresh Fruit Bunch; PK Shell eq. = PK Shell equivalents; NCV = Net Calorific Value

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Appendix 3: Palm Kernel Shell Raw Material Resources in Dumai, Riau

PALM KERNEL SHELLS RAW MATERIAL RESOURCES IN DUMAI, RIAU

NO. COMPANY DISTANCE FROM MSS CAPACITY (FFB) PK - SHELL (8%) FIBER (13%) TOTAL PK (Eq.)

KM MT/h MT/year MT/year MT/year 1 PT. Dharma Wungu Guna Own Group +/- 150 45 23.760 38.610 48.857 2 PT Murini Samsam - 1 (MSS-1) Own Group +/- 200 90 47.520 77.220 97.713 3 PT. Sinar Siak Dian Permai Own Group +/- 100 90 47.520 77.220 97.713 4 PT Sinar Perdana Caraka Own Group +/- 100 80 42.240 68.640 86.856 5 PT Sawit Ledong Jaya Outside Group +/- 100 120 63.360 102.960 130.284 6 PTPN V tanah Putih Outside Group +/- 100 40 21.120 34.320 43.428 7 PT Geliga Bagan Riau Outside Group +/- 100 30 15.840 25.740 32.571 8 PT Gunung Mas Raya Outside Group +/- 50 60 31.680 51.480 65.142 9 PT Tunggal Mitra Plantation Outside Group +/- 50 45 23.760 38.610 48.857 10 PTPN V Lubuk Dalam Outside Group +/- 300 15 7.920 12.870 16.286 11 PTPN V Sei Buatan Outside Group +/- 300 30 15.840 25.740 32.571

Total PK Shell resources from outside and own group 340.560 553.410 700.277 Own consumption of Palm Oil Mill 170.280 553.410 529.997 Rest of PK shell and fiber (surplus/shortage) 170.280 - 170.280

12 PT. Murini Samsam- 2 Own Group +/- 0 60 31.680 51.480 65.142 Total PK Shell resources 201.960 51.480 235.422

PK Shell Consumption : 1 Steam for Turbine - power plant 78.750 2 Steam for Oil Production 62.500 Total PK Shell Consumption 141.250

PK Shell Surplus 94.172

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Notes: Own Consumption of PK - Shell and Fiber for Palm Oil Mill Net Calorific Value Fiber = 2710 kcal/MT = 11.35 GJ/tonne Net Calorific Value PK Shell = 4120 kcal/MT = 17.35 GJ/tonne 1 MT FIBER is equivalent to 0.65 MT PK Shell (caloric value) Consumption of PK - Shell for Turbine 1 Kwh requires 4.5 Kg Steam 1 MT Steam requires 250 Kg PK Shell Power Use for Turbine = 67,977,600 kWh/year PK Shell Use for Turbine = 67,977,600 kWh/year x 4.5 Kg/1,000 x 250 Kg/1,000 = 76,475 MT/year Consumption of PK - Shell for Steam Boiler for Oil Production 1 MT Steam = 250 Kg PK Shell 280,000 MT Steam/year x 250 Kg/1,000 = 70,000 MT/year

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Appendix 4: References IPCC (1996). Revised Guidelines for National Greenhouse Gas Inventories UNFCCC, Kyoto Protocol UNFCCC, Marrakesh Accords UNFCCC: Recommendation by the panel on baseline and monitoring Methodologies (meth panel), Annex b: Indicative simplified baseline and monitoring methodologies for Selected small-scale CDM project activity categories