Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 39850-11)

PROJECT APPRAISAL DOCUMENT

OF THE

INDONESIA: PONTIANAK LANDFILL GAS .RECOVERY PROJECT

FOR A

NETHERLANDS CLEAN DEVELOPMENT MECHANISM FACILITY EMISSIONS REDUCTION PURCHASE AGREEMENT

IN THE AMOUNT OF APPROXIMATELY USfi2.5 MILLION

PT GIKOKO KOGYO INDONESIA

June 8,2007

Rural Development, Natural Resources and Environment Sector Unit Sustainable Development Department East Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQLIVALENTS

Exchange Rate Effective June 1,2007

AAA BAPEDAL BAU BOO BP Btu C CDM CERs co2 CHq CO DAK DAU DNA DOE DPRD EAP EB ENVCF ERPA ERs GHGs EA EMP GO1 HAP Hz Ha ICR IRR IS 0 Kg Km

Currency Unit = Indonesia Rupiah US$1 = IDR8,827.00

FISCAL YEAR January 1 - December 3 1

ABBREVIATIONS AND ACRONYMS

Analytical and Advisory Activities Badan Pengendalian Dampak Lingkungan Business as usual Build Own and Operate Bank Policy British thermal unit Celsius Clean Development Mechanism Certified Emission Reductions Carbon dioxide Methane Carbon Monoxide Dana Alokasi Khusus Dana Alokasi Umum Designated National Authority Designated Operating Entity Dewan Perwakilan Rakyat Daerah East Asia and Pacific Region Executive Board Environment Department - Carbon Finance Emissions Reduction Purchase Agreement Emission Reductions Greenhouse gases Environmental Assessment Environment Management Plan Government of Indonesia Hazardous Air Pollutants Hydrogen Hectare Implementation Completion Report Internal Rate of Return International Standards Organization Kilogram Kilometer

KUDP Kalimantan Urban Development Program kW Kilowatt LFG Landfill Gas LO1 Letter of Intent LUCF Land Use Change and Forestry m3 Cubic Meter MOA Memorandum of Agreement MOU Memorandum of Understanding MSWM Municipal Solid Waste Management Mg Milligram NCDMF The Netherlands Clean Development Facility NGO Non-governmental Organization NPV Net Present Value NOx Nitrogen Oxides Nm3 Normal Cubic Meter O&M Operating and Maintenance OP Operational Policy PCF Prototype Carbon Fund PDD Project Design Document PT Perusahaan Terbatas RP- Indonesian Rupiah S W M Solid waste management RT Rukun Tetangga (Neighborhood Unit) RW Rukun Warga (Community Unit) tCOze Tons of C02 equivalent TPA Tempat Pembuangan Akhir UK EPA United Kingdom Environmental Protection Agency UNFCCC United Nations Framework Conventions on Climate Change USEPA United States Environmental Protection Agency VOC Volatile Organic Waste

Vice President: James W. Adams, EAPVP Acting Country Director: Joel Hellman, EASPR

Sector Director: Christian Delvoie, EASSD Sector Manager: Rahul Raturi, EASRE

Task Team Leader: James Orehmie Monday, EASRE

INDONESIA

Pontianak Landfill Gas Recovery Project

TABLE OF CONTENTS

................................................................................... A . STRATEGIC CONTEXT AND RATIONALE 1

....................................................................................................... 1 . Country and Sector Issues 1

............................................................................................. 2 . Rationale for Bank Involvement 2

3 . Higher Level Objectives to which the Project Contributes .................................................... 4

B . PROJECT DESCRIPTION ................................................................................................................... 4

1 . Lending Instrument ................................................................................................................. 4

................................................................................................................. 2 . Project Background 4

3 . Project Development Objective and Key Indicators ............................................................... 6

4 . Project Components ................................................................................................................ 6

5 . Lessons Learned and Reflected in the Project Design ........................................................... 8

6 . Alternatives Considered and Reasons for Rejection ............................................................... 9

.......................................................................................................................... C . IMPLEMENTATION 10

.............................................................. 1 . Institutional and Implementation Arrangements 10

...................................................... 2 . Monitoring and Evaluation of outcomes and Results 11

. . . ..................................................................................................................... 3 . Sustamability 12

4 . Critical Risks and Possible Controversial Aspects ........................................................... 12

D . APPRAISAL SUMMARY ................................................................................................................... 15

..................................................................................... 1 . Economic and Financial Analysis 15

. . .............................................................................................................. 2 . Flduclary Aspects 19

3 . Technical Analysis ............................................................................................................ 19

.................................................................................................... 4 . Environmental Analysis 21

5 . Social Analysis .................................................................................................................. 22

............................................................................................................. 6 . Safeguard Policies 22

. ...................................................................................... 7 Policy Exceptions and Readiness 22

............................................................................................. Annex 1 : Country and Sector Background 23

.................................................................................................... Annex 2: Detailed Project Description 28

................................................................................................ Annex 3: Implementation Arrangements 35

Annex 4: Financial Management and Fiduciary Issues ......................................................................... 36

................................ Annex 5: Summary of Memorandum of Agreement between the Project Sponsor ......................................................................................................................... and the City of Pontianak 39

...................................................................................................................... Annex 6: Safeguards Issues 40

.................................................................................................................. Annex 7: Country at a Glance 49

.................................................................................................. Annex 8: Documents in the Project File 51

Annex 9: Project Preparation and Supervision ...................................................................................... 52

MAP IBRD #I35487

INDONESIA

PONTIANAK LANDFILL GAS RECOVERY PROJECT

PROJECT APPRAISAL DOCUMENT

EAST ASIA AND PACIFIC

EASRE

Date: June 8,2007 Team Leader: James Orehrnie Monday Acting Country Director: Joel Hellman Sectors: Solid Waste Management Sector ManagerDirector: Rahul Themes: Climate Change RaturiIChristian Delvoie

Project ID: P 104482

1 Lending Instrument: NIA. Carbon Fund

Environmental screening category: B Safeguard screening category: B

"

1 Project Financing Data

I [ ILoan [ ] Credit [ ] Grant [ ] Guarantee [ X ] Other:

For Loans/Credits/Others: Total Bank financing (US$m.): NIA Proposed terms: In negotiated prices designated in Euros per ton for Certified Emission Reductions (CERs). aid annuallv.

Financing Plan (US$m) Source 1 ' Local 1 Foreign 1 Total

I Borrower I I I 1 IBRDIIDA NCDMF

Borrower: NIA. The Bank, as trustee for the Netherlands Clean Development Mechanism Facility, will sign the Purchase Agreement with PT. Gikoko Kogyo Indonesia

Total:

Responsible Agency: NIA

2.5

Project implementation period: 8 Ex~ected effectiveness date: June 15.2007

2.5

FY Annual Cumulative

2007 0.41 0.41

2008 0.44 0.85

2009 0.47 1.3 1

2010 0.50 1.81

2011 0.54 2.35

2012 0.15 2.50

d a n/a d a

d a n/a d a

d a n/a d a

Expected closing date: December 3 1, 20 14 Does the project depart from the CAS in content or other significant respects? [ ]Yes [XI No Does the project require any exceptions from Bank policies? [ ]Yes [XI No Have these been approved by Bank management? NA Is approval for any policy exception sought from the Board? NA Does the project include any critical risks rated "substantial" or "high"?

[ ]Yes [XI No

Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ] No Project development objective

The project development objective is to reduce methane emissions fiom solid waste disposed in the TPA Batu Layang landfill in Pontianak, Indonesia through a carbon finance transaction between the World Bank-managed NCDMF and the project sponsor. The key indicator for this objective will be the annual delivery of ERs. The key project performance indicators will include the following:

a) the annual volume of methane collected and flared; and b) the ER credits created and traded annually.

Project description:

The project will reduce emissions of methane gas by installation of a capture and flaring facility at the TPA Batu Layang.

Which safeguard policies are triggered, if any?

Environmental Assessment Policy (OPBP 4.01) Involuntary Resettlement (OPBP 4.12)

Significant, non-standard conditions, if any, for:

Board presentation: NIA.

Loanlcredit effectiveness: NIA.

Covenants applicable to project implementation: 1. Registration of the Project with the CDM Executive Board. 2. Annual certification of ERs, including implementation of the Environment Management Plan, and Community Development Plan.

A. STRATEGIC CONTEXT AND RATIONALE

1. Country and Sector Issues

Urban areas in Indonesia have grown rapidly in recent years. Well-performing urban centers are key instruments of growth and poverty reduction in Indonesia, but the negative effects of h s growth include increased pollution and strained public services such as solid waste management (SWM). Revenues for SWM have not kept pace with growing urban population and quantities of solid waste produced by increasingly affluent populations. As a result, most landfills in Indonesia follow the practice of controlled open dumping leading to inadequate waste disposal and negative environmental impacts in urban areas such as uncontrolled emissions of methane, a greenhouse gas (GHG), which is generated through the anaerobic degradation of organic matter in landfills and dump sites. At present, no facilities exist in Indonesia to collect and combust methane and awareness of the technology and its development are limited due to the lack of financial resources and incentives for such activities.

2. While the majority of Indonesia's GHG emissions are due to land use change and forestry (LUCF) and the subsequent release of C02 from deforestation, the contribution of other sectors is growing rapidly. For example, according to recent United States Environmental Protection Agency (USEPA) estimates GHG emissions from the waste sector in Indonesia generated between 32-60 million tons of C02 equivalent (tC02e) in 2000, due in large part to the release of methane which has 21 times the global warming potential of C02. At present, Indonesia ranks as the sixth largest source of GHG emissions from the waste sector globally.

3. Therefore, climate change is receiving more attention in Indonesia now than ever before. Growing concentrations of GHGs such as carbon dioxide (C02) and methane ( C b ) are warming the planet and Indonesia will, over the long term, likely experience increased mean temperatures, more intense rainfall, threats to food security, and inundation of the country's extensive and heavily populated coastlines due to sea level rise. Political leaders are adjusting to the realization that climate change will have a significant effect on the country and that Indonesia is the world's third largest emitter of GHGs.' As a result, national decision makers are working with other nations and international organizations to address the causes and consequences of climate change.

4. To avert the most severe impacts of climate change, governments and international organizations have sought to create opportunities to implement market mechanisms that promote the cost-effective reduction of GHGs such as methane and support sustainable development. As part of the country's growing response to climate change, Indonesia signed the Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC) in 1997 and ratified it in 2004 through Law No. 17/2004. The objective of the Kyoto Protocol is the stabilization of GHG concentrations in the atmosphere at a level that will prevent dangerous anthropogenic interference with the climate The Kyoto

' Indonesia and Climate Change: Current Status and Policies. DFID. May, 2007. Article 2. The United Nations Framework Convention on Climate Change. http://unfccc.int~resource/docs/convkp/k

Protocol entered into force on February 16, 2005, committing Annex I (industrialized) countries to reduce their collective GHG emissions by about 5 percent below their 1990 levels on average during the period from 2008-2012. Annex I1 (developing) countries that signed and ratified the Kyoto Protocol is not required to reduce their emissions during the 2008-2012 period. In hlfilling these commitments, the Annex I countries can achieve their emission reductions (ERs) through several means including the Clean Development Mechanism (CDM) which allows companies or entities in Non-Annex I countries to develop projects leading to reductions of GHG emissions, verify and certify these emission reductions, and transfer the Certified Emission Reductions (CERs) to other entities or governments in Annex I countries at a price. Thus, project sponsors in developing countries can "cash in" on their carbon reduction assets efficiently and effectively. As an Annex I1 Party to the Kyoto Protocol, Indonesia can participate in the CDM and has strong interest in meaningful participation in the market for CERs including credits produced from the landfill sector.

The proposed project will construct the first landfill gas (LFG) flaring facility in the country and provide a demonstration of the technology that takes into consideration Indonesia's tropical environment and other local factors as well as create a revenue stream from the sale of CERs. The collection and subsequent combustion of methane through flaring will result in emission reductions that will be quantifiable and can be sold in the emerging carbon trading market. The successfU1 implementation of this project will result in not only the generation of a revenue stream through the sale of ER credits, but also help finance sustainable municipal solid waste management (MSWM) activities at the project site and serve as an example that can be replicated at other landfills in Indonesia's rapidly growing urban areas.

2. Rationale for Bank Involvement

6. The impacts of climate change to Indonesia threaten many of the development gains of the last several decades. Recognizing that climate change will have the most impact on developing and middle income countries, the Executive Directors of the World Bank approved the establishment of the Prototype Carbon Fund (PCF) as a pilot program to combat climate change through public private partnerships on July 20th, 1999. In April 2000, the PCF became operational as a collaboration among seventeen companies and six governments and managed by the World Bank. As the first carbon fund, the PCF's mission was to pioneer the market for project-based GHG emission reductions while promoting sustainable development and offering a learning-by-doing opportunity to its stakeholders.

7. Building on the early success of the PCF, the World Bank now manages 10 Carbon Funds which use money contributed by governments and companies in Annex I countries to purchase project-based GHG emission reductions in developing countries within the framework of the Kyoto Protocol's CDM. Unlike other World Bank development products, the Carbon Funds do not lend or grant resources to projects, but rather contract to purchase

ERs similar to a commercial transaction, paying for them annually or periodically once they have been verified by a third party auditor. As a result, these carbon finance transactions have provided an additional revenue stream that reduces financial risks and provides a means of leveraging new private and public investment into projects that reduce GHG emissions, thereby mitigating climate change while contributing to sustainable development.

8. In 2002, the World Bank announced an agreement with the Government of The Netherlands to establish The Netherlands Clean Development Facility (NCDMF) to purchase ERs from projects in the following categories: (i) renewable energy technology, such as geothennal, wind, solar, and small-scale hydro-power; (ii) clean, sustainably grown biomass; (iii) energy efficiency improvement; (iv) fossil fie1 switch and methane recovery; and (v) sequestration. Since then, the NCDMF has agreed to purchase ERs fiom projects in several sectors in Indonesia and for example, signed Letters of Intent (LOIS) with Indonesia-based project sponsors that are developing projects for geothermal energy production and methane recovery at landfills. For Indonesia these agreements have provided valuable experience in both knowledge and technical transfer that are strengthening the country's capacity to participate in the emerging global carbon market.

9. Moreover, these carbon finance initiatives are an integral part of the World Bank's mission to reduce poverty through its environment and energy strategies. Support for client countries to address the objectives of international environmental conventions such as the Kyoto Protocol is an identified priority in the World Bank's Environment Strategy, and the 2005 Environment Strategy for the East Asia and Pacific Region (EAP) reaffirms that commitment. It also identifies carbon finance in E M as an area of major potential for generating local and global environmental benefits. The World Bank has supported Indonesia's environmental sustainability objectives for many years, and is currently associated with a major program of environmental cooperation including Analytical and Advisory Activities (AAA) and new investments in both the urban and environment sectors as well as global environmental projects supported by multilateral financing facilities.

10. Since the creation of the PCF, the World Bank has undertaken a pioneering role in developing the CDM market in Indonesia, including capacity building workshops and the first Emissions Reduction Purchase Agreement (ERPA) signed in EAP with Indonesia-based cement producer, INDOCEMENT in 2004. With the prior experience of developing other carbon finance projects in E M , the World Bank is well positioned to facilitate the carbon finance transaction for the purchase of ERs fiom the Pontianak Landfill Gas Flaring Project.

11. Also, th~s project is fully consistent with the World Bank's mandate to spur the development of the CDM market as well as with Pillar 2: Improving Services for the Poor, of the World Bank's Indonesia Country Assistance Strategy (2003-2007). The project sponsor is providing funds fiom a portion of the ER revenue for improved service provision in the waste sector and social benefits for the communities living near the landfill site. Therefore, this CDM project will enhance the sustainability of effective SWM and result in positive public health benefits and other outcomes for the city's poor.

3. Higher Level Objectives to which the Project Contributes

12. The project development objective is to reduce methane emissions from solid waste disposed in the City of Pontianak's landfill, TPA Batu Layang through a carbon finance transaction between the World Bank and the project sponsor. In addition, a percentage of the project sponsor's revenues from the ERs will be allocated for improving MSW collection and disposal thereby reducing GHG emissions that would otherwise be generated through the burning of uncollected waste within the municipality and improving overall solid waste collection rates resulting in various public health benefits. Moreover, implementation of this CDM project can also act as a catalyst for the development of similar CDM projects in the SWM sector, benefiting not only reductions of global GHG emissions, but improvements to solid waste collection and disposal throughout Indonesia.

B. PROJECT DESCRIPTION

1. Lending Instrument

13. The World Bank is not financing the LFG collection and flaring system that will result in ERs from this CDM project. The World Bank will purchase the ER credits resulting from the project on behalf of the NCDMF from the project sponsor, a private enterprise that is self-financing the project and will be the recipient of the ER credits. The NCDMF will purchase approximately 250,000 to 350,000 tCOze annually of ERs fiom 2007 to 2014. ERPA payments will be made periodically subject to verification by an independent Designated Operating Entity (DOE) accredited by the CDM Executive Board (EB) that was established under the Kyoto ~ro tocol .~ The NCDMF will coordinate both the verification and certification of ERs generated periodically by the project sponsor.

2. Project Background

14. Pontianak's landfill, TPA Batu Layang, is located 15 km from the city centre on a 30 (hectares) ha parcel of land owned by the city government.4 The landfill began receiving solid waste in 1996 and to date, approximately 411,498 tonnes of organic waste (80-85 percent of all waste is organic) has been deposited in the landfill.

3 DOE has two functions: 1) to validate and subsequently request registration of a proposed CDM project activity; and 2) to verify emission reduction of a registered CDM project, to certify it as appropriate and to request the CDB board to issue CERs.

4 The city government has just purchased two hectares of land adjoining the current landfill bringing the total area to 30 hectares. An EIA that is currently being undertaken will incorporate this new area into the current landfill site and all of the Municipality's past, present, and planned land acquisition process associated with this landfill have been subjected to a rigorous due diligence process by the Bank task team during preparation of this project.

15. Under the World Bank's Kalimantan Urban Development Program (KUDP) in Indonesia, improvements were made to upgrade the landfill to that of a "controlled landfill" management system from 1998-99. However, controlled landfill management has decreased over the past few years due to limited operational and maintenance budgets. Prior to preparation for this CDM project, no cover material was being placed on the landfill due to a lack of funds for application and needed repairs for heavy equipment that was out of service. Leachate containment and effective management presented a significant challenge for the municipality. The sustainability of landfill management was recognized as a problem in the World Bank's Implementation Completion Report (ICR) for KUDP in 2003: ". . .landfill sites are unlikely to be maintained at acceptable levels because of the limited operating and maintenance budget and attention given it."5

16. The project sponsor and the city have addressed the lack of public funds currently available for landfill management including methane abatement as part of a 21-year Build Own and Operate (BOO) commercial agreement where the project sponsor owns the LFG collection and flaring systems to be installed at the project site at TPA Batu Layang and the resulting ERs. The local government will continue to own the landfill and be responsible for waste collection and disposal. The two parties have also signed a Memorandum of Agreement (MOA) which provides for a percentage of the ER revenue generated from the project's landfill gas flaring activities to be earmarked for improved waste collection and sustainable landfill management in the future.

Project Sponsor - PT Gikoko Kogyo Indonesia (Gikoko)

17. The project sponsor, PT Gikoko Kogyo Indonesia (Gikoko) is an engineering company that designs, manufacturers, and installs power plants for industrial pollution control, waste management, and energy recovery systems in Indonesia. The company was established over 40 years ago in Indonesia and has been manufacturing equipment at its two International Standards Organization (ISO) 9001 certified plants in metropolitan Jakarta since 1993. Its clients have included multinational automotives, chemical, food, and consumer product manufacturers as well as public utility companies in Indonesia. Gikoko has participated in several World Bank sponsored CDM capacity building workshops and its commitment to CDM is underscored by an LO1 the company signed with the World Bank to develop a series of CDM projects that will deliver 2 million tC02e in Indonesia in addition to the Pontianak LFG project.

Approvals by Relevant Authorities

18. The LO1 for the Pontianak LFG project was signed between the World Bank and the project sponsor, Gikoko on October 18,2006. On January 18,2007, the project Gikoko and the City of Pontianak signed an MOA which detailed both parties support for the CDM project at TPA Batu Layang landfill and also described the processes and procedures for allocating a percentage of the ER revenues for waste collection and management improvements and a social component. During the World Bank's pre-appraisal mission, the Mayor of Pontianak

The World Bank, Implementation Completion Report - Kalimantan Urban Development Project, June 24, 2003.

reaffirmed his support for the project by providing the World Bank team with a letter detailing the city's commitment to the project including a plan to provide finds for landfill improvements in anticipation of ERPA signature.

19. PT Gikiko is in the process of submitting the project to Indonesia's Designated National Authority (DNA~) for CDM for review and approval. This project meets all the criteria for DNA approval, therefore, a decision is expected prior to registration of the project with the UNFCCC CDM Executive Board. Also, the ERPA is expected to be signed before the Letter of Approval (LoA) is issued by the DNA.

3. Project Development Objective and Key Indicators

20. The project development objective is to reduce methane emissions from solid waste disposed in the TPA Batu Layang landfill in Pontianak, Indonesia through a carbon finance transaction between the World Bank-managed NCDMF and the project sponsor, Gikoko. The key indicator for this objective will be the annual delivery of ERs. The key project performance indicators will include the following:

a) the annual volume of methane collected and flared; and

b) the ER credits created and traded annually.

21. In addition to the global benefits of methane reductions through LFG collection and flaring, the agreement between the project sponsor and the municipality will provide finds from the ER revenues to improve landfill management and waste collection, as well as social benefits for the surrounding communities. Procedures for monitoring and reporting on these activities will be agreed upon in the terms of the ERPA.

4. Project Components

22. This CDM project consists of two distinct project activities:

a) Component A: the construction and operation of LFG collection and flaring equipment that will result in ERs; and

b) Component B: a carbon finance transaction that will facilitate the purchase of the ERs.

Component A : LFG Project

23. The first activity will consist of LFG extraction and flaring facilities that will include the following components: (i) a collection system consisting of horizontal and vertical wells and collection pipes that will be installed in the area containing waste that will be expanded over time as additional areas of the landfill are filled; (ii) LFG pumping equipment including a pipeline and blowers; (iii) LFG treatment and flare systems which will remove moisture and

DNA - Designated National Authority, a body appointed by a CDM host country to oversee CDM implementation within its jurisdiction. In Indonesia the DNA is located in the Ministry of Environment (KLH).

6

combust the gas; and (iv) monitoring and control systems. After the LFG collection and flaring systems have become operational, the roject sponsor will evaluate the addition of a 120 kW generator for on-site electricity needs. P

24. This public-private sector partnership for investment in MSWM is one of the first such agreements in Indonesia. While previous public-private collaborations in this sector in Indonesia have resulted in mixed results, this project will be the first to demonstrate the potential for removing commercial barriers that have restricted private sector involvement and success in the sector by providing a revenue stream from the sale of ERs fiom LFG flaring.

5. As part of the BOO agreement, the project sponsor and the City of Pontianak have signed an MOA that includes a revenue sharing agreement. Article 12 of the Memorandum states that 10 percent of after tax ER revenues will be applied to agreed SWM activities including improved collection and 7 percent for community development activities. Under this arrangement, the project sponsor will invest the 10 percent share of revenues directly into heavy equipment and other components to improve the city's waste management activities, thus avoiding transfer of cash to local government accounts. The details of this agreement are described in Annex 4.

Component B : Carbon Finance Transaction

26. The World Bank-managed NCDMF will finance the purchase of ER credits resulting fiom the flaring of the gas. The purchase will be a perfonnance-based contract under which payments are triggered by successhl verification of the reduction of methane emissions by an independent, accredited international entity, DOE, under the rules of the Kyoto Protocol. The quantity of ERs to be contracted, the length of time over which the purchase will be made, and the price paid will be agreed between the World Bank and the project sponsor during ERPA negotiations.

1 A percentage of the LFG captured may be used to produce electricity &om the 120 kW generator that would supply the site's electricity requirements, but no emission reductions would be claimed &om the displacement of electricity firom the grid. The project will neither supply electricity fiom this generator to local communities nor any other off-site use, or sale to the grid.

Figure 1 : Schematic Diagram of LFG Collection and Flaring Process

Amount of LFG P

Amount of LEG P

I-' I I I

L - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - l

Note Measmment Item

Am0unt electricity - - - - - - - - - - - - - - - - - - - - - - --- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - , other energy for project I

I

I

1 , t

I Amount Methane Pressure Tempera tm 1 I

I of LFG fraction I

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Small scale electricity I

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I , LFG combusted in power plant I

I a LFG captured I I I I I I

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8 I

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I I I I I I I I I I I I I I I

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5. Lessons Learned and Reflected in the Project Design

Costs

Initial Capital Investment

Expansion~Extension of LFG collection system over 10 year life of project

Operation and ~aint'enance costs (10year proj ect life)

Total

27. Sustainability of SWM improvements depends on the ability to increase the h d s available for operations. This will be accomplished, in part, through an agreement between the project

Amount in US$

475,750

542,250

761,608

1,779,608

sponsor and the City of Pontianak to provide a percentage of after tax ER revenues to improve waste collection.

Technical capacity of city government for sustainable MSWM needs to be assessed and enhanced if needed. Sustainability of management improvements depends largely on the leadership and professionalism shown by local government representatives. The World Bank is bringing together about 15 cities (including the City of Pontianak) for training in Bali, Indonesia, on sustainable MSWM in mid-June 2007, just after the ERPA signing ceremony for this project. The training will be led by the World Bank's Solid Waste Management Advisor and other techmcal specialists and will include courses to be delivered by the Ministry of Public Works, who have recently approved a policy to upgrade all landfills in Indonesia to sanitary landfills.

29. For small landfill sites such as this one, electricity production for off-site supply such as to local communities in addition to flaring is to be avoided, as low gas recovery rates may make this difficult and lead to disquiet among expectant communities. Therefore, there are no plans in this project for off-site supply of electricity.

30. The revenue sharing arrangement should be reviewed prior to closing to ensure sustainability of the project.

31. There are no significant technical issues, although care is needed to ensure adequate training and operating budgets as well as maintain leachate control and other environmental good practices.

32. A clear lesson is that stakeholder involvement, local institutional ownership, and meaningful and sustained dialogue are critical for the long-term success of environmental projects in Indonesia.

6. Alternatives Considered and Reasons for Rejection

33. Alternatives to the proposed project that were considered and rejected include:

a. Alternative 1:Maintaining the current business as usual (BAU) landfill operational and management practices of controlled open dumping, minimal cell capping on closure, and passive LFG venting.

b. Alternative 2: A project to improve landfill management with LFG capture, flaring, and electricity generation for on-site use is undertaken, but not as a CDM project.

c. Alternative 3: LFG collection and utilization for power generation or gas supply off-site.

d. Alternative 4: A CDM project with LFG capture and flaring as well as a composting component.

34. There are no mandatory laws, regulations, or national standards that require municipal governments in Indonesia to collect and flare methane or to use it for any other purpose. Therefore, Alternatives 2 and 3 are additional to the baseline - Alternative 1. As Alternative 2 has no revenue stream, implementing this alternative would likely divert scarce local government resources away from other waste management activities and therefore is not a viable alternative. Alternative 3 requires a much higher capital investment, technology, expertise, and yearly operating and maintenance costs than Alternative 1. This would also divert local government fimds and have a higher risk due to the lack of local expertise. Moreover, current "buy-back rates" for selling into the national grid are seen by the private sector as too low to make such an approach commercially viable. Also, the feasibility study showed Alternative 3 would also require significantly more quantities of methane to be generated than what is annually available.

35. Due to the presence of many food markets in Indonesia, the project sponsor showed interest in implementing Alternative 4, developing composting plants for organic waste, and coupling it with carbon financing. The benefits of such operations are numerous, including increasing the lifetime of the landfill, decreasing environmental and health concerns fiom leachate and gas issues fiom landfills, as well as establishing a new revenue stream fiom both the market for compost and the resulting ERs, and creation of job opportunities. However, Gikoko, the project sponsor, was reluctant to take on the risks involved with simultaneously investing in the first LFG flaring BOO arrangement in Indonesia and the additional investment and technology associated with establishing composting at the landfill site.

36. Therefore, fiom the above analysis of likely alternatives to the proposed project, Alternative 1, the BAU scenario, is the only realistic alternative to the project. Notwithstanding this, with regards to Alternative 1, while controlled dumping is the least cost option, it does not meet national environmental regulatory requirements. GHGs are not usually as high in such dumping conditions as in fully anaerobic sanitary landfill conditions, but other impacts caused by burning, uncontrolled leachate, unstable slopes, and open access of all wastes to disease vectors are significant. In this option, there might be some potential for a modest amount of residual gas capture for flaring after closure of a given area and proper sealing, but probably not enough to justify a CDM project.

C. IMPLEMENTATION

1. Institutional and Implementation Arrangements

37. This CDM project will be implemented under a 21 year BOO commercial agreement between the project sponsor, Gikoko and the City Government of Pontianak. Under the terms of the BOO agreement, the city government will continue to own and operate the landfill, manage waste collection, disposal of new waste in active disposal cells, and be responsible for the other issues such as leachate control, storm water drainage, and security of the municipal landfill. The Gikoko will be responsible for closing waste disposal cells once full and to install, operate, and own the LFG extraction and flaring facilities that will produce the ERs h m the closed cells. Gikoko will own the ER credits fiom the flaring

activities. As per the terms of the Memorandum of Agreement between Gikoko and the city, Gikoko will set aside a portion of the ER revenues for improvements to the city's landfill management and waste collection activities as well as fund a community development plan for the nearby communities. The design and implementation of this agreement are described in detail in Annex 5.

38. The fully operational LFG collection and flaring project and subsequent ERs will be the basis for an ERPA to be signed between Gikoko and the World Bank, the latter serving as the trustee for the NCDMF. The NCDMF will purchase ER credits resulting from the flaring of the methane collected from the landfill and be a performance-based contract under which payments are triggered by successhl verification of the reduction of methane emissions by an independent, accredited DOE under the rules of the Kyoto Protocol. The quantity of ERs to be contracted, the length of time over which the purchase will be made, and the price paid will be agreed between the World Bank and Gikoko in an ERPA to be negotiated after project approval by the EAP Vice President.

39. The ERPA and Monitoring Plan will also define other delivery conditions for ERs to be purchased by the NCDMF, as well as monitoring and verification systems and methods. Verification and certification of ERs generated annually by the project sponsor will be coordinated by the NCDMF, which will ultimately purchase the ERs. The project sponsor will periodically monitor emissions and other relevant parameters, and organize periodic auditing of the project during implementation.

2. Monitoring and Evaluation of Outcomes and Results

40. Outcomes of the project, including the amount and quality of LFG recovered and flared will be monitored and evaluated. Once the project is validated by the DOE and registered with the CDM Executive Board as a CDM project, the ER credits created and traded annually will be monitored, verified, and certified so that the project sponsor can sell the ER credits to the NCDMF. The NCDMF will retain the services of a hlly independent DOE accredited by the CDM Executive Board to verify the ERs and create a verification report to be submitted to the CDM Executive Board for ER certification. The verifier will determine whether the project complies with the design and implementation specifications and meets the requirements listed in the Monitoring Plan. Data requirements for the Monitoring Plan have been clearly articulated in the Project Design Document (PDD) that is submitted to CDM Executive Board. The necessary data will be monitored closely during the project commissioning phase.

41. The World Bank will also monitor for compliance the implementation of the Environment Management Plan (EMP) and the Community Development Plan, through half yearly visits to the project site and through review of the project sponsors periodic progress reports, during the lifetime of the ERPA.

3. Sustainability

42. From an engineering perspective, the project design is sound as it incorporates proven technology that has been implemented around the world. The specific project design has taken into account the local conditions at the project site which is in a tropical environment. Final design plans were developed with technical support (design, manufacturing, installation, and commissioning assistance) fiom a Canadian firm that specializes in LFG systems. Construction of the LFG collection and flaring system for the first closed cell is expected to be operational prior to signing of the ERPA. The project sponsor's commitment to and ownership of the project is well established as the company's goal is to successfully implement this project in order to expand its business line and investments with larger LFG projects in Indonesia.

43. The municipality is a growing city with an increasing rate of waste production in absolute terms as well as per capita. From the economic point of view, the project sponsor has an incentive to generate more methane and therefore, produce more ERs revenues. Investment into increasing the availability of the primary resource (organic waste) has been built into an agreement with the city in which 10 percent of ER revenues will be reinvested in improving waste collection. The ERs will continue to be valid through the project and beyond.

44. Financing is the major barrier the municipal government of Pontianak faces for improving the environmental and health impacts of landfill disposal as well as improving the current collection and disposal practices. The proposed project has been designed to overcome this through a Private Public Partnership whereby the private sector provides the financial means and expertise to improve SWM within the municipality and overcome other significant barriers to sustainability.

45. The LFG system will be manufactured locally in the project sponsor's facility, which will cut costs significantly. The project developer is looking at this project as a business opportunity to expand future operations as a manufacturer and supplier of MSW components including LFG systems.

4. Critical Risks and Possible Controversial Aspects

46. A number of risks have been identified for the project, all of which are deemed manageable.

Risks and potential mitigation measures

47. Institutional and financial risk. Financing is the major bamer the City of Pontianak faces in mitigating GHG emission fiom its landfill as well as improving the environmental and health impacts associated with operating the landfill. The proposed project has been designed to overcome this through a private-public partnership with the project sponsor, Gikoko whereby the private sector provides the financial and technical means and expertise to capture and flare the methane fiom the landfill while simultaneously supporting through the ER revenue agreement, the City of Pontianak's continued and expanded landfill operational commitments.

48. The project sponsor has completed a feasibility study of this project and plans to finance the investment entirely from its internal resources, with an aggregate capital investment of about US$475,000 upon implementation, and further investments of US$540,000 over the next few years to expand LFG operations to newly closed cells as they become available and to enhance efficiencies. This study indicates an internal rate of return (lRR) of 22 percent on the investment over a 10 year life, at an assumed collection efficiency of 50 percent. At a conservative estimate of 30 percent collection efficiency, the IRR drops to around 15 percent. The sponsor considers this as an adequate return on their investment. However, their feasibility study has noted that the proposed investment generates no financial benefit without the CDM related income; M e r it will also not generate any commercial benefits to the municipal government or a potential private sector investor. The CDM revenue is therefore key to the project's commercial viability. In addition, an appropriate mix of incentives for commercial viability of this project will be generated by the agreement the sponsor has reached with the local government to transfer 10 percent of its annual after tax revenues to the local government by way of reinvestment in waste management and an additional 7 percent of annual after tax revenues for assisting in Community Development activities to affected communities.

49. The installation of a 120 kW capacity LFG generator is considered to be the required size to meet the on-site electricity requirements for the methane collection and flaring facility. This component would only be implemented after the project is operational and there is confirmation that it is cost effective to produce on-site electricity.

50. Technology risk. The LFG extraction and flaring facility is based on a mature and proven technology which is widely used in many developed countries. The required investment is relatively modest and the return on investment is significant so the financial risk is low. However, in Indonesia these technologies are largely hewn. The project sponsor is a well established company that has been operating in Indonesia for four decades designing, manufacturing, and installing environmental management systems. They have a proven record and both the human and financial capital to construct and operate the project. The project sponsor is developing this project with technical support fiom a Canadian firm that specializes in LFG systems.

5 1. There is very little information on LFG generation in Indonesia so there is some uncertainty regarding the potential ER revenues. Local environmental conditions suggest that the high organic content in landfills in Indonesia should produce high amounts of LFG, especially in the early years after disposal. The Pontianak landfill has been operating since 1996, and has a high organic content of approximately 80-85 percent. These conditions should also enhance the degradation of the most recalcitrant organics over 10 to 15 years. On the other hand, high internal temperatures, high rainfall, and corresponding high internal leachate levels in the landfill may limit methane generation. Leachate can be overcome through better cell design, management, and closure. The effect of internal core temperatures above 60 degrees C is not currently known. The current design estimates for emission reductions in the ERPA period are approximately 350,000 tCOze.

52. Landfills in tropical climates typically have high leachate levels that reduce LFG extraction rates if traditional vertical well collection systems are used. Due to the existing conditions, this project will employ both the traditional vertical well collection system and a horizontal well system. In addition, cells at the Pontianak landfill will be covered with a synthetic blanket as well as a drainage layer and then a vegetative layer. This will limit rainfall infiltration therefore reducing leachate output and improving LFG capture ensuring that all of the waste material in the cell will be in an anaerobic environment. Cells will have to be monitored to ensure that they do not dry out as this will have an impact on degradation and methane generation. Stability of cover as well as rainfall run-off and drainage will be taken into consideration in the project design. The design of this system will employ dropouts within the collection systems to reduce the effects of excessive leachate on the extraction system. Horizontal collection piping will be progressively installed during the filling of new cells and designed to ensure protection from damage during filling operations. This system will increase LFG capture during the period of filling, reduce the impact of high leachate levels, and provide improved leachate drainage within the cells. The Gikoko and the City of Pontianak will work closely together to ensure that the collection system is not damaged during the disposal of new waste.

Table 1: Risks and Mitigation Measures

Risk

County and sectoral risk

The company might not have enoughjnancial and institutional capacity to implement the project.

Project preparation might be delayed due to the delays of necessary approvals.

Risk rating

M

N

N

Miiigation Measures

Government will review and approve the project through the DNA, before registration of the Project with the CDM Executive Board. Ministry of Public Works is providing financial support to the City of Pontianak for improvements in landfill management.

Gikoko, the project sponsor has already committed the capital costs and all equipment and plant have been or are being delivered to the landfill site. Installation of this equipment is on-going and capture and flaring operation fiom first cell will be commissioned during the ERPA signing ceremony planned for June 1 4 ~ 2007. Gikoko has enhanced its management and technical capacity by recent staff recruitments and are working with a reputable Canadian firm who provided them with the technology to execute this project. Approval and Registration of the CDM project locally by the DNA and CDM Executive Board respectively is being pursued and is necessary pre-requisite before the CERs can be issued and purchased. However, this is not a pre-requisite for ERPA signing.

D. APPRAISAL SUMMARY

LFGflaring technology might fail due to the lack of technical capacity of the company.

Electricity generation from LFG might be overestimated so that expected cost savings for landfill operations might not be achieved. This project might cause local environmental and social problems due to inadequate environmental measures and land acquisition/resettlement practices. Overall risk rating

Risk Ratings: H (High), S

1. Economic and Financial Analysis

53. The commercial viability of a CDM Methane Collection and Flaring project is heavily reliant upon the techniques employed for improving the collection efficiency. Efforts to increase this eaciency also have a major contribution to improving local environmental impacts as well as increasing the projects contribution to reducing Climate Change impacts. The use of substandard means of capping of Indonesia landfill cells (non environmental closure) is a major impediment to the efficient collection of the methane gas. Substandard capping allows the ingress of rainfhll which increases leachate levels (especially if drainage is substandard also) restricting methane gas extraction under vacuum.

M

M

M

M

(Substantial), M

54. Therefore, to increase efficiencies in capturing the methane gas to ensure increased revenues, appropriate closure and capping of the cell is required which in turn requires a significant investment.

This is the first time a LFG project as a CDM project is being undertaken in Indonesia. Gikoko has purchased the technology from reputable Canadian firm that had used it in similar ecological climatic conditions internationally and will continue to advise the Gikoko. Gikoko has also recruited additional technical staff and consultants to ensure adequate capacity to run the CDM operation. Gikoko will divert a portion of the methane gas for power generation for on-site use only, once adequate quantities of methane are available for flaring to meet its terms under the ERPA. As revenue will only be due to Gikoko fiom CERs fiom the flaring operation, no credits will be acceptable for offsets due to power generation.

Environmental and social issues will be managed through the agreed upon environmental management plan and community development plan. The implementation will be monitored semi-annually by the World Bank during supervision of the project.

The project through its ERPA provisions, Financial Management, Environment and Social due diligence work, and mitigation measures provides an acceptable risk management plan.

(Modest), N (Negligible or low risk)

55. Table 2 provides a forecast of emission reduction which could be achieved through different investment levels into cell closure and capping techniques. The forecast assumes the following different collection efficiencies and investment scenarios:

30 percent assumes minimal investment; 300mrn capping layer poorly compacted. 50 percent investment into standard landfill capping techniques, lm of compacted soil. 70 percent investment into entombment of cells using a synthetic capping blanket, drainage layer and vegetative layer.

Table 2: Collection Efficiency Scenarios

56. It is clear from the financial analysis made in Tables 5, 6 and 7 that an increased investment into cell closure has a significant impact on the commercial viability of this project. An approximate additional investment into environmental closure of US$746,750 above that required for 30 percent collection efficiency, over a 10 year period, would improve the project IRR from 15.24 percent to 39.48 percent for 70 percent collection efficiency, providing an additional US$3,417,987 in CERs revenue over the same time frame.

57. In line with the LO1 the project sponsor, Gikoko, has settled on the assumption that for the ERPA, the 30 percent collection efficiency scenario will suffice. Please see Table 4.

Table 3: CDM Project - 30% Collection Efficiency

Frequency

On implementation

Costs

Initial Capital Investment

Expaasion/Extension of LFG collection system over 10 year life of project Operation & Maintenance costs (10 year project life) [includes upfront finance repayment and monitoring]

CERs Revenue based on a 10 year purchase agreement (@ 1 253,425 1 $2,534,251 $10.00 I tonne C02e)

Amount (US$)

$375,750

Total

Project Revenue

$432,250

$743,708

On closure of cells

Total of life of project

$1,551,708.00

Tonne C02e Sold

I

Financial Indicators

$US

- US$ .

Table 4: CDM Project - 50% Collection Eff~ciency

$160,000

$808,000

15.24%

15.31%

Total Debt (Upfiont finance CDM Development)

Total Equity

NPV

IRR Project

Asset

DISCOUNT RATE

10.00% 15.00% 18.00%

WACC (asset)

US$

$109,558 $3,972

($40,960) $591,405

F ~ ' e q w c ~

On implementation

On closure of cells

Total of life of project

US;F

$3,500,000

Costr

Initial Capital Investment

Expansion/Extension of LFG collection system over 10 year life of project Operation & Maintenance costs (10 year project life) [includes upfront finance repayment and monitoring]

Total

Project Revenue I

CERs Revenue based on a 10 year purchase agreement (@ $10.00 I tonne Cole)

Amount (US$)

$475,750

$542,250

$76 1,608

$1,779,608.00

Toms C%e Sohl

350,000

Table 5: CDM Project - 70% Collection Efficiency

us$ $160,000

$1,018,000

22.19%

2 1.43%

US$

$339,688 $159,984 $82,200

$1,095,450

Financial Indicators

Total Debt (Upfront finance CDM Development)

Total Equity

IRR

NPV

Costs

Initial Capital Investment

Expansion/Extension of LFG collection system over 10 year life of project Operation & Maintenance costs (10 year project life) [includes upfront finance repayment and monitoring]

Total

Project

Asset

DISCOUNT RATE

10.00% 15.00% 18.00%

WACC (asset)

Amount (US$)

$575,750

$932,250

$790,458

$2,298,458.00

Frequency

On implementation

On closure of cells

Total of life of project

US%

$5,952,238

Us$

$160,000

$1,508,000

39.48%

36.34%

US%

$1,009,463 $663,376 $510,691

$2,360,022

Project Revenue Tonne C02e Sold

CERs Revenue based on a 10 year purchase agreement (@ $10.00 1 tonne C02e) 595,224

Financial Indicators

Total Debt (Upfiont finance CDM Development)

Total Equity

IRR

NPV

Project

Asset

DISCOUNT RATE

10.00% 15.00% 18.00%

WACC (asset)

2. Fiduciary Aspects

58. A fiduciary assessment canied out for this proposed arrangement included a due diligence on the project sponsor and an assessment of their financial capacity. The assessment has noted that Gikoko is registered as a 100 percent foreign-owned limited liability company in Indonesia and has the required legal registrations to be in business in Indonesia. It is capitalized at Rupiah 7.7 billion, equivalent to US$850,000 including cumulative capital reserves of about Rupiah billion (equivalent to US$390,000).

59. The financial assessment concluded that fiduciary risks may arise from the project sponsor's weak financial management capacity and also from significant debt exposure. Some risk mitigation measures are suggested, including requiring the project sponsor to furnish audited financial statements annually to the World Bank during the tenure of the ERPA. Further, it is recommended that the project sponsor hrnish annually to the City of Pontianak and the World Bank an independently audited accountability statement confirming and summarizing the project sponsor's compliance with its obligations with respect to the City of Pontianak for re-investment in waste management (10 percent of after tax revenues) and the provision for their financing of the Community Development Plan (7 percent of after tax revenues).

3. Technical Analysis

Table 6: Technical Issues/Risks and Mitigation Measures

Issues and Risks Poor cell capping and closure due to poor construction, resulting in methane loss outside of the collection system and penetration of rain water resulting in uncontrollable leachate drainage.

Inefficient LFG collection system, poorly installed, resulting in methane loss in the pipe, leachate flooding the collection system, and air intrusion. -

Mitigation Measures Proper closure and capping of cells is essential for this project. Gikoko will employ the most appropriate techniques suitable for the local conditions on the ground. This will include use/combination of low permeability mineral layers to a minimum depth of l m and flexible membrane of ample thickness and durability. This work is underway on Cell Number 1 and was observed during the appraisal mission. Gikoko has employed the required skills on-site and supervising this work. As of May 3 1,2007,35 percent of this cell is now covered with clay soil.

Gikoko has acquired the technology taking into account these risks and will mitigate these risks through different measures. The collection systems would be able to drain leachate out of it.

Gas leakage from rotary joints.

Inefficient combustion of methane in the flaring process.

Maintenance period or emergency failure of LFG unit.

Lack of operational knowledge of this new technology.

Patented sealing technology (design, seal material, and gas pressurized sealing technique) is adopted.

Gikoko have acquired the flaring system to be used fiom a reputable and experienced Canadian arm of USA technical consultants with experience working in landfills in South America and Asia Pacific and have supervised initial scoping surveys, checked on implementation of the LFG collection system, and shall supervise training for operation and maintenance upon completion of the works. The flaring system is designed to achieve efficiency required by the United Kingdom Environment Protection Agency (UKEPA) standards and to satis@ the UNFCCC EB 28 methodology which will be monitored.

Gikoko has devised their operations and maintenance plan.

The supplier of the technology will provide warranty and training for the management and operation of the LFG flaring unit.

Gikoko has an agreement with their supplier of the technology to:

- Train key Gikoko staff on operation and maintenance of the LFG flaring unit.

- Technical Guidelines, Operation Manual, and Emergency Response Plan;

- On-site technical guidance for operation.

4. Environmental Analysis

60. The project is classified as a Category B. Environmental Assessment (EA) was conducted for the LFG collection and flaring system and an Environmental Management Plan (EMP) was established. It is expected that the adverse environmental impacts such as air pollution due to the installation and operation of LFG collection and flaring facilities are not significant and can be well managed by planned mitigation measures.

6 1. Under the terms of the MOA between the City of Pontianak and the project sponsor, the city will continue to be responsible for the collection of waste and operation of the landfill while the project sponsor will be responsible for planning, designing, installing, and operating the LFG collection and flaring system. The project sponsor will set aside 10 percent of the ER revenues for improving the waste collection system and increase waste collection rates. In addition to the global benefits through the combustion of methane, the project will bring in significant positive local environmental consequences because: (a) capturing methane at the levels estimated in the feasibility study will require improved management of leachate and capping for closed cells; (b) waste collection rates are expected to increase due to the investment of ER revenues in capacity improvements.

62. At the existing landfill site where the LFG collection and flaring system is installed, the management of leachate is facilitated through the use of drains around the waste cells. However, the drainage system is not managed well and is often blocked by waste, especially during the rainy season. Occasionally, the leachate overflows to nearby land outside the landfill. The waste pickers at the landfill site collect recyclables from disposed waste without wearing any protective devices. In addition to these existing problems, the installation of LFG collection and flaring facilities may also entail adverse environmental consequences such as air pollution unless properly designed and implemented. Also, the planned landfill expansion may cause environmental impacts such as noise, dust, odor, and water pollution both in the construction and operation phases.

63. Although neither the operation of the existing landfill nor the expansion of the landfill are within the boundary of this project, an assessment of the existing landfill performance and the EMP for the landfill expansion was conducted for due diligence. The City of Pontianak, with financial support from the Ministry of Public Works, is implementing a comprehensive plan to improve drainage and leachate management of the landfill as well as water quality monitoring, and public health and sanitary services. The expanded landfill site will be equipped with leachate collection pipelines and treatment facilities such as a facultative pond, sludge drying bed, sedimentation pond, and maturation pond. Although environmental impacts such as noise, dust, odor, and water pollution are expected both in the construction and operation phases of the expanded landfill, these potential impacts can be well managed by the EMP. Details of the EA and due diligence report are summarized in Annex 6. The EMP and Environment Due diligence reports were both disclosed in the World Bank Infoshop on May 1 1,2007.

5. Social Analysis

64. Social: There are no communities living on the landfill. However, the Municipality of Pontianak is in the process of acquiring additional land for the landfill. The ongoing program requires a 26.61 ha expansion of which the purchase of the final 2.08 ha is currently under negotiation. The Social Due Diligence report which was disclosed in the World Bank's InfoShop on May 11, 2007, found that there are no inhabitants on the land proposed for acquisition. It is not anticipated that the project will displace any persons or economic activities.

65. Indigenous Peoples: The Dayak people who are living near the landfill site are not indigenous peoples as described in OP4.12 as they are: (i) migrants from other towns and villages, not the original inhabitants of the area; (ii) not dependent on the natural resources; and (iii) working in the informal sector. Therefore, this Safeguards policy does not apply.

6. Safeguard Policies

Table 7 lists the applicable safeguard policies. See Annex 6 for more details.

Table 7: Safeguard Policies

Safeguard policy: App'icab'e? Ifapplicable, how might it apply?

[XI Environmental Assessment (OPIBP 4.0 1 ) [ 1 Natural Habitats (OP/BP 4.04) [ 1 Pest Management (OP 4.09)

[ XI Involuntary Resettlement (OPIBP 4.12) [ 1 Indigenous Peoples (OD 4.20) [ 1 Forests (OP/BP 4.36) [ 1 Safety of Dams (OP/BP 4.37) [ 1 Cultural Property (draft OP 4.11-OPN 11.03) [ 1 Projects in Disputed Areas (OP/BP/GP 7.60) [ 1 Projects on International Waterways (OP/BP/GP 7.50)

7. Policy Exceptions and Readiness

66. No policy exceptions are being requested.

Annex 1: Country and Sector Background

1. The Pontianak LFG Flaring Project brings together two very pressing issues for Indonesia, climate change mitigation and SWM. Moreover, recent developments at both the national and international levels have provided opportunities for the country to address both, climate change and improvements to local solid waste collection and disposal.

2. With a population of 203 million (2000 Census), Indonesia is the fourth most populous country in the world after China, India, and the United States. Despite its large size and geographic and cultural diversity, Indonesia maintained a highly centralized political, administrative, and fiscal system until 200 1. The centralized system weakened links between local demands and decisions on local public services, undermined local accountability, and led to ad hoc allocations of fiscal resources across regions. The decentralization of 2001 addressed these shortcomings and allowed citizens and local decision-makers in provinces and local jurisdictions to address these problems. Yet, throughout Indonesia, there continues to be a number of problems associated with public service delivery in sectors such as SWM including technical, financial, environmental, social, and institutional aspects that have not been overcome or resolved.

3. On the global front, Indonesia, recognizing that climate change may have a profound effect on the many islands of the archipelago, signed the Kyoto Protocol of the 'UNFCCC in 1997 and ratified it in 2004 through Law No. 1712004. The objective of the Kyoto Protocol is the stabilization of GHG concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.' As a non-Annex I signatory of the Kyoto Protocol, Indonesia can participate in the CDM which allows companies or entities in Non-Annex I countries to develop projects leading to reductions of GHG emissions, verifL and certify these emission reductions, and transfer the CERs to Annex I entities or govemments that have commitments to reduce GHG emissions under the Kyoto Protocol. The CDM offers a market-based incentive to address many of the challenges facing SWM in Indonesia by generating revenue fiom the capture and destruction of uncontrolled emissions of methane generated through the degradation of organic matter in landfills and dump sites.

4. This Annex provides an overview of the changes in local governance in Indonesia, the implications of decentralization for addressing SWM, the characteristics of solid waste and its management in the country, and the sector's contributions to GHG emissions.

- --

a Article 2. The United Nations Framework Convention on Climate Change. http://unfccc.int~resource/docs/convl<p/

The Effects of Decentralization on SWM

The Regional Governance Law (2211999) and the Fiscal Balance Law (2511999) heralded a fundamental change in the way Indonesia is governed and managed. Law 2211999 devolved most functions of government, to Indonesia's regions, while Law 2511999 provided the resources to finance the devolved tasks by assigning revenue sources and broad expenditure functions to the regions. In 2004, the Government of Indonesia (GOI) issued Law (3212004) and Law (3312004) to revise Law (2211999) and Law (2511999) respectively. The Law (3212004) strengthened the coordination roles of the provincial governments, while Law (3312004) changed various regional financing mechanisms, in particular Dana Alokasi Umum @AU) (block grants of general allocation funds) and Dana Alokasi Khusus (DAK) (special purpose grants) as well as the regional governments' borrowing through bond issue.

6. With these changes, local governments-kutas (municipalities) and kubupatens (districts)- are now controlled by elected local councils known as Dewan Perwakilan Rakyat Daerah (DPRDs) and their Walikotas (heads of municipalities) and Bupatis (heads of districts) are elected by direct vote. Local governments also deliver most public services, including solid waste management and are accountable for their performance. DAU and DAK became the principal mechanisms for fiscal transfers to local governments, ending central control over local financial decision-making. Subject to certain rules and conditions, local governments have also been accorded the power to tax. Greater transparency and public participation in key local government decision-making are now mandated by law. The goals of transfemng power and responsibilities to the regions were to bolster local democratic institutions and foster a new culture of governance with greater efficiency, accountability, and transparency. However, the hasty preparation and implementation of decentralization has led to a number of challenges to the efficient functioning of local governments.9

In theory, decentralization has given the local governments a degree of functional autonomy. In practice, however, most kotas and kubupatens remain heavily dependent on the center for operating revenues. On the fiscal side, the equalization formula does not adequately consider the expenditure needs for minimal service provision. Disconnects continue to exist between local government revenue and expenditure functions, leading to a situation where many local governments have more expenditure responsibilities than revenue resources, For example, while SWM coverage is relatively high, if uneven, most final disposal sites are inadequate in number and quality and revenues for collection and disposal have not kept pace with increasing demands for these services.

8. Prior to decentralization, responsibilities for SWM were scattered across several departments and ministries including the Ministry of Public Works, Ministry of Home Affairs, Ministry of Health, Agency for Technology Assessment and Development, Badan Pengendalian Dampak L Ingkungan (BAPEDAL), and the Sub-Directorate for Solid Waste Management. This structure resulted in overlapping responsibilities and weak implementation and enforcement

Project Appraisal Document, Indonesia Urban Sector Development Reform Project, May 2005. p 4.

of solid waste laws and regulations. With decentralization, local governments have acquired more responsibilities in planning and implementing SWM programs within their locality.

9. Laws and regulations have been developed to properly and efficiently manage solid waste services in Indonesia. With decentralization, municipalities and rural kabupaten are entitled to plan and manage environmental services, including SWM. While in the long term decentralization is expected to bring about improvements in the quality of services offered, many goals have yet be achieved.

Solid Waste Collection and Disposal

10. Enforcement of existing laws is generally weak due to lack of political will, inadequate coordination among various agencies, low technical capability for proving violations, limited access to information, and lack of adequate funding. Accepted sanitary landfill practices are not being followed consistently at landfills in Indonesia. For example, soil cover may be applied once every three months. A lack of financial resources, properly trained and skilled staff, and lack of political support from the local government also contribute to SWM problems in the country. Even though there are some regulations concerning the amounts to be paid by various waste generating sources, the fees actually collected are very low. To improve compliance, the national and local governments are trying to complement existing command-and-control regulations with market-based instruments and public-private partnerships.

11. Since the late 1990s, solid waste generation has increased significantly in Indonesia as the economic situation in the country improves. While data is limited for the country as a whole, the 2003 Indonesia Environment Monitor reported that per capita generation of solid waste in major cities in Indonesia ranged between 0.66 to 0.90 kg per capita per day. Solid waste collection is decentralized and varies across regions, depending on economic prosperity, degree of urbanization, and cultural practices.

12. Local governments have the primary responsibility for garbage collection. While most municipalities carry-out these activities themselves, some rely on contractors, and in other cases residents are personally responsible. It is estimated that 50 percent of waste is officially collected throughout the country. Larger cities tend to have higher collection rates (up to 75 percent), but poorer areas of the cities and many nual areas are generally under- served or not served at all. Approximately 85 percent of small cities and 53 percent of medium-sized cities officially dispose of their waste in open dumps. There are several cases of small cities that do not have any official dumpsites. As a result, both waste workers and residents use illegal dumpsites as there are often no legal alternatives.

General Characteristics of Indonesian Municipal Solid Waste

13. While the composition of waste varies fkom site to site due to factors such as location, weather, and living standards in individual cities, most waste in Indonesia is considered high in organic content. In addition, the country's tropical environment and poor disposal

practices result in a number of negative environmental impacts including leachate and landfill gas.

14. Waste characteristics: Up to 75 percent of Indonesia's municipal waste is biodegradable and includes large amounts of kitchen and market waste. These types of waste are high in moisture and organic content, but low in calorific value so estimates of landfill gas production and collection should take these factors into consideration. The more economically developed cities such as Jakarta and Surabaya display similar composition of MSW as industrialized countries including a higher percentage of paper and plastics and a decrease in the putrescible matter component of solid waste.

15. One positive impact derived fiom the cment SWM systems in Indonesia is the high level of recycling of the non-organic waste. Although the methods employed by waste pickers for sorting and separation of MSW are considered inappropriate for SWM systems as defined by developed countries, these existing methods provide an income stream to the thousands people involved in this unofficial sector and ensure a far greater amount of MSW is recycled. One of the added benefits of recycling is a higher overall organic content of the landfills.

16. Leachate: Uncontrolled discharges of the liquid formed in solid waste dumps or landfills, commonly referred to as leachate, contaminate groundwater and contribute to the proliferation of disease-canying pests and pathogens. Indonesia's tropical climate results in high amounts of rainfall and as water percolates through the solid waste in landfills, it absorbs chemicals and micro-organisms present in the decomposing materials creating high levels of leachate. When properly managed, leachate is captured in a collection system and pumped to a treatment plant, where it undergoes treatment prior to discharge, however most landfill sites in Indonesia do not have such treatment facilities.

17. Landfill gas: Another by-product of waste disposal sites is LFG which is produced during the decomposition of organic matter such as food waste, garden waste, and paper products. LFG typically is 50 percent methane, while the rest is comprised of mainly COz and small traces of volatile organic waste (VOC), hazardous air pollutants (HAP), and odorous compounds. The composition of waste affects the amount, quality, and rate of LFG production. Landfill conditions such as moister content, cell depth, cover, and compaction are also factors in LFG production.

18. The production on LFG begins as soon as waste is deposited in dumps and landfills and in Indonesia tends to produce gas quickly (completing LFG production within five to 10 years) due to high organic waste material such as food which decomposes rapidly, and results in lower quality gas (e.g., lower Btu content). Landfill gas production generally peaks about a year after the deposit of waste and then gradually declines, over the next 10 to 20 years. In Indonesia, the country's monsoon climate and high annual rainfall contribute to high moister levels. As a result, waterlogged landfills may not attain optimum temperatures because the bacteria do not generate sufficient heat to raise the temperature of the excess water.

19. LFG in Indonesia can be reduced by using proven technologies applied in other countries. For example, active gas collection systems can remove LFG with a vacuum pump fiom the

landfill or the surrounding soils. Projects in wet tropical environments such as Indonesia often employ both the traditional vertical well collection systems and horizontal well systems. These systems may provide migration control or recover methane for use as energy or flaring. The cost-effectiveness of generating electricity from landfill gas is limited by the price of electricity which can vary depending on local power costs and generating capacity. In the case of Indonesia, the current price from the national electricity utility is not sufficient to make investments in such generating facilities economically viable.

Contributions to Global GHG Emissions

20. Indonesia is one of the three largest emitters of GHGs in the world largely due to the significant release of C02 from deforestation whch is estimated by the IPCC to release about 2,563 million tC02e. Yearly emissions from energy, agriculture, and waste account for a smaller amount of total GHG emissions, approximately 451 million tC02e. While non- deforestation contributions are relatively small in absolute and per capita terms, emissions from these sources are growing rapidly. In the waste sector the main contributions of GHGs are fi-om methane and nitrous oxide and estimates for 2000 ranged from 32 - 60 million tCOze, ranking Indonesia as the sixth largest emitter in the waste sector (USEPA 2006). Estimates for the future indicate that emissions fi-om the waste sector will grow considerably.

21. As there are no traditional incentives to reduce these emissions at Indonesian landfills, the CDM offers the first such opportunity to do so by offering a revenue stream fi-om ERs. For CDM projects to be successful, improvements to existing landfills must be made to maximize LFG collection thus providing another benefit. In addition, with more government decision- making devolved to local governments, many more municipal governments may explore such CDM opportunities that improve SWM and the environment.

Annex 2: Detailed Project Description

Background

1. The Municipality of Pontianak has a population of approximately 521,000 people, and a population growth rate of 2.76 percent per year. The city's solid waste generation rate is approximately 0.8 kg per capita per day. In 2006 disposal rates averaged 146 tonnes per day with a collection rate of approximately 35 percent and total disposal of 53,201 tonnes per year'0. The organic content in municipal waste disposed in landfills produces methane gas as a bi-product of anaerobic decomposition, a process that will continue for many decades until all available organic content is degraded.

2. Pontianak's landfill, TPA Batu Layang, is located 15 lan from the city centre. Since receiving municipal solid waste in 1996 it is estimated that approximately 41 1,498 tonnes of organic waste has been deposited in the landfill. Based on population growth estimates and improvements in collection services in Pontianak, it is expected that an additional 3,183,404 tonnes of organic waste will be collected from the city and disposed in the landfill over the remaining 2 1 -year lifetime of the landfill.

3. From 1998-99, under the World Bank's KUDP improvements were made to upgrade the landfill to that of a "controlled landfill" management system. Controlled landfill management has decreased in recent years due to limited operational and maintenance budgets. Currently, due to budget constraints, no cover material is being placed on the landfill and heavy equipment for carrying out such activities is out of service. The sustainability of landfill management was recognized as a problem in the World Bank's Implementation Completion Report for KUDP "...land~ll sites are unlikely to be maintained at acceptable levels because of the limited O M budget and attention given it. " I 1

4 . These issues will be addressed under the proposed BOO agreement with the support of revenue generated from the projects landfill gas flaring activity. This CDM project will be implemented under a BOO commercial agreement between the project sponsor, Gikoko and the Municipal Government of Pontianak that will cover the LFG collection and flaring systems as well as the required budgetary requirements for landfill management and waste collection improvements. This private sector approach to investment in municipal solid waste management will be one of first for Indonesia, demonstrating the potential for removing commercial barriers that have restricted private sector investment into sustainable waste management in Indonesian cities and the associated environmental and social improvements.

'O ina as-~ebersihan dan Pertamanan, Profil UPTD TPA, Kota Pontianak, 2005 The World Bank, Implementation Completion Report - Kalimantan Urban Development Project, June 24,2003

5. Indonesian design guideline^'^ and standards13 for landfill construction and operation require only basic gas venting to be installed but there is no enforcement of even t h s basic requirement. Environmental regulations are equally limited in their guidelines for reducing the environmental impacts of methane production and emissions fiom landfills. Without strengthened policies, regulation requirements, and financial capacity the current practice of bbcontrolled open dumping" with little regard to methane gas generation and emissions from landfills will be continued by local governments. Implementation of this proposed CDM project will therefore substantially reduce anthropogenic emissions through the installation of the proposed LFG collection system and the destruction of the methane content of the LFG.

6. The organic waste disposed of during the expected remaining operational lifetime of the landfill will generate and emit methane gas as the available organic carbon resources are degraded. Calculations using the First Order Decay ~ o d e l ' ~ forecast potential emissions during the proposed 21-year project period (2007 - 2027) to be approximately 304.07 x lo6 m3 methane, minus that which is oxidized (10 percent) within the landfill surface leaving potential atmospheric emission of 273.66 x lo6 m3 methane. This is equivalent to approximately 4,119,394 tCOze.

7. The objectives of this project are:

a) Abatement of global GHGs through an Emissions Reduction Purchase Agreement; b) Improvement of municipal solid waste collection and. disposal services within the

city; and c) Improvement of the living and working environment for the landfill workers

(government and scavengers) and the surrounding community.

Project Participants

8. The project sponsor, Gikoko, under a BOO agreement with the Municipality of Pontianak, will construct and operate an LFG collection and flaring facility resulting ER credits. The World Bank-managed NCDMF will purchase of ER credits fiom the project sponsor. Table 8 lists the parties involved in this Carbon Finance Transaction.

I t Department Peke rjaan Umum, Spesifkasi area penirnbunan sarnpah dengan system lahan urug terkendali di TPA Sarnpah, Pt S-07-2000-C

l 3 Badan Standardisasi Nasional (BSN), Tata cara teknik operasionalpengelolaan sarnpah perkotaan, SNI 19-2454- 2002, and Tata cara pernilihan lokasi ternpat pernbuangan akhir sarnpah, SNI 03-3241-1994

l4 IPCC (1996) First-Order Decay Model -Equation 4

Table 8: Carbon Finance Transaction - Parties Involved

Project Components

Name of Party involved ('host' indicates a host Party)

Indonesia (host)

The Netherlands

9. This CDM project consist of two distinct project activities: (i) Component A: the construction and operation of LFG collection and flaring equipment that will result in the ERs to be purchased; and (ii) Component B: a carbon finance transaction that will facilitate the purchase of ERs.

Private andlor public entity(ies) project participants (as applicable)

PT Gikoko Kogyo Indonesia The Municipal Government of the City of Pontianak, West Kalimantan, Indonesia International Bank for Reconstruction and Development ("IBRD) acting as the trustee of the Netherlands Clean Development Mechanism Facility ("NCDMF")

Component A: LFG Collection and Flaring

10. The installation of a landfill gas collection and flaring system will result in a reduction in methane which constitutes approximately 50 percent of LFG. Methane has a global warming potential 21 times that of COz, and combusting it will generate revenue through the sale of CERs. To achieve the objective of creating CERs project will employ a proven technology and engineering approach to LFG extraction and flaring with the potential to add an additional small-scale electricity generation component. These systems have been established on many landfills around the world but this will be the first LFG capture and flaring facility to be established in West Kalimantan, Indonesia. The basic operating principle is the application of a vacuum in the waste mass to extract the gas. The main components of the collection system to be installed are as follows:

Collection System: The project will employ a horizontal LFG collection piping system. The design of this system will employ dropouts within the collection systems to reduce the impacts of excessive leachate and condensation on the extraction system. Horizontal collection piping will be progressively installed during the filling of new cells and designed to ensure protection fiom damage during filling operations. This system will increase LFG capture during the period of filling, reduce the impact of high leachate levels, and provide improved leachate drainage within the cells. These LFG extraction wells will be connected to a manifold pipe that will carry the LFG to the blower facility. Condensation which forms in the collection system pipe work will be controlled by self- draining condensate traps and manholes fitted with pumps where necessary.

Landfill Cell Closure: The "entombed cell" technique will be used for cell closure to improve LFG efficiency and leachate discharge and reduce rainfall infiltration. This form of closure is recommended for all landfills in western countries so as to limit methane gas emissions and improve gas collection efficiency. The cells will be capped with a

synthetic liner which is then covered with a 300mm vegetation layer. As a result, infiltration of rainfall is minimal which reduces leachate levels in the cells and maximizes the LFG capture due to the liner prohibiting LFG surface emissions. As this technique reduces internal moisture content of the cells, moisture content levels of the cells will be monitored and a leachate recycling system will be employed.

Leachate Management System: To maintain low levels of leachate, a leachate management system will be installed to improve LFG recovery efficiency. This system will include the recycling of leachate within the landfill.

LFG pumping equipment: A pipeline manifold system and single-stage centrifugal blowers will be installed. A pipeline will convey the LFG from the well system to the LFG treatment unit.

LFG treatment unit: The treatment units will consist of condensate and flare systems. A knockout vessel will be used to remove gas condensate. The project will utilize an enclosed flare system (also known as ground flare), in which an insulation system will reduce heat losses and enable operation at higher temperatures. An enclosed flare, which meets the United Kingdom Environmental Protection Agency (UK EPA) "Guidance on Landfill Gas ~ 1 a r i n ~ " ' ~ o r similar standards, will be installed to burn the LFG in a controlled environment so as to maximize the destruction of methane and other harmful constituents before discharging them safely to the atmosphere.

Monitoring and control systems: The facility's monitoring and control systems will be linked by telemetry to an off-site supervisory control and data acquisition monitoring location which will allow for real time performance monitoring, systems control, error logging, analysis, and reporting. In addition, monitoring points and valves will be installed at each wellhead to allow for manual measurements and "tuning" of individual wells to ensure optimum performance of the collection system.

LFG Generator, 120 kW output capacity: In the future, the project may utilize a small percentage of the collected LFG for the generation of electricity required to meet the needs of the facility. During implementation, studies will be undertaken to evaluate the potential for such electricity generation.

11. An active LFG collection system consists of the mechanical blower described above to a system of gas extraction wells or collection trenches. A pressure gradient is created in the wells or trenches, thereby forcing the removal of gas fiom the landfill. The gas is then piped to a flare. The effectiveness of an active LFG collection system depends greatly on the design and operation of the system, and on the methane generation capability of the landfill waste. An effective collection system should be designed and configured so as to:

15 Environmental Agency, Guidance on Landfill Gas Flaring,-Environmental Agency & SEPA, Bristol, UK, November 2002, ISBN: 1844320278

handle the maximum LFG generation rate; effectively collect LFG from all areas of the landfill; and provide the capability to monitor and adjust the operation of individual extraction wells and trenches.

12. Air intrusion is a major concern in the design of the active LFG collection system as air intrusion may naturally permeate through the landfill cover and into the refuse. Drainage points must also be incorporated within the connector pipe work to ensure drainage of leachate and condensate. This pipe work must be laid on a gradient so as to ensure drainage and scouring of the pipes.

13. The collection pipe is designed using horizontal trenches in order to maximize the capturing of landfill gas. The figure only displays the layout for one cell - named Cell B. But same method will be applied continuously to other cells - after closure - in order to maximize the utilization of the equipment.

Component B: Carbon Finance Transaction

14. The World Bank-managed NCDMF will finance the purchase of ER credits resulting from the flaring of the gas. The purchase will be a performance-based contract under which payments are triggered by successful verification of the reduction of methane emissions by an independent, accredited international entity, DOE, under the rules of the Kyoto Protocol. The quantity of ERs to be contracted, the length of time over which the purchase will be made, and the price paid will be agreed between the World Bank and the project sponsor during ERPA negotiations.

Estimated Emission Reductions during the Crediting Period

15. The volume of methane captured and flared from Pontianak's municipal solid waste landfill, TPA Batu Layang, is dependant upon the efficiency and effectiveness of a leachate and LFG management design. Installation of a sealed cell design will reduce rainfall infiltration and methane gas emission, therefore improving efficiency of methane extraction and destruction over the next 10 years. The emission reduction and monetary value of this would increase collection efficiency from a low of 30 percent and to 70 percent.

16. Methane gas composition of 50 percent is typically given for LFG concentrations as per the default given in the IPCC (1996). This default figure was used to estimate ERs for the project due to the complex nature of anaerobic decomposition within landfills. The estimated ERs are equivalent to 1,928,089 tC02e during the 2 1 -year period, 2007 to 2027. Table 9 shows the potential yearly ERs through 2027. The average yearly emission reductions are estimated to be 91,814 tC02e.

Table 9: Estimated Project Emission Reductions

BOO Agreement for the LFG Collection and Flaring Facility

17. The operation of the LFG flaring project will require both financial and technical resources. The project sponsor and the Municipality of Pontianak have addressed the lack of public funds currently available for landfill management including methane abatement as part of a 21 year BOO commercial agreement where the project sponsor owns the LFG collection and flaring systems to be installed at the project site. As such, the project sponsor will own the ERs that result from the flaring of methane. Figure 2 illustrates the roles and responsibilities

of the parties involved in this project. The local government will continue to own the landfill and be responsible for waste collection and disposal.

Figure 2: LFG Collection and Flaring Project Business Plan

Certified Emission Methane Reduction (CER) Offset CO,

I '

[__ Annual payment for JERPA

Reinvest: Waste CO, Reduction Management Equipment

Dividend Interest Social, Economic O&M Cost Development

Annex 3 : Implementation Arrangements

1. Monitoring and reporting will be undertaken by a yet to be identified independent consultant contracted for maintenance and testing of the monitoring equipment as well as undertaking the ongoing monitoring of the project. Monitoring points and control systems of the facility will be linked by telemetry to an off-site SCADA monitoring location which will allow for real time performance monitoring, systems control, error logging, analysis and reporting. In addition, monitoring points and valves will be installed at each wellhead to allow for manual measurements and "tuning" of individual wells to ensure optimum performance of the collection system.

2. IS0 10012:2003 standards will be applied. The definition of IS0 10012:2003 specifies generic requirements and provides guidance for the management of measurement processes and metrological confirmation of measuring equipment used to support and demonstrate compliance with metrological requirements. It specifies quality management requirements of a measurement management system that can be used by an organization performing measurements as part of the overall management system, and to ensure metrological requirements are met.

Annex 4: Financial Management and Fiduciary Issues

Summary

A: Project Sponsor

1. A fiduciary assessment carried out for this proposed arrangement included a due diligence on the project sponsor and an assessment of their financial capacity. The assessment has noted that the project sponsor, Gikoko is registered as a foreign investment limited liability company in the country and has the required legal registrations to be in business in Indonesia. It is capitalized at Rupiah 7.7 billion, equivalent to US$850,000, including cumulative capital reserves of about Rupiah 3.5 billion.

2. Audited financial statements of the sponsor company for the years 2001 to 2005 have been have been reviewed. The audit reports for the years 2004 and 2005 have a qualified audit opinion, due to the absence of supporting details for the valuation of the year-end inventory, consisting substantially of work in progress. Audited Financial Statements for year ended December 3 1,2006 were not available at the time of project appraisal.

3. It was noted that significant amounts are due to and fiom an afiliated company, including financial accommodation received from its shareholders for raw materials and unsecured loans provided to its shareholders.

4. Fiduciary risks may arise from the weak financial management capacity of the sponsor. Some risk mitigation measures are suggested, including the obligation to furnish audited financial statements annually to the World Bank. Further, it is recommended that the project sponsor furnish to the local government of Pontianak and the World Bank annually an audited statement confirming and summarizing the compliance with its obligations with respect to the local government for re-investment in waste management (10 percent of revenues) and the provision for assisting in Community Development activities to affected communities (7 percent).

Shareholders of the Project Sponsor Company

The Company is owned by foreign investors, as follows:

B: City of Pontianak

5. According to the MOA between the City of Pontianak and Gikoko, the City of Pontianak has a right to receive minimum 10 percent of CERs net revenue (after tax) that Gikoko receives in the form of re-investment. Re-investment will be given at the latest in the end of year 2008, after Gikoko receives the certification of ERs. It is suggested that this income will be integrated in their accountability system to ensure these assets will be recorded as the city's assets.

6. The mechanism of this re-investment is not stated clearly in the MOA. It is suggested that Gikoko clarify this in writing with the City of Pontianak before the project has started.

7. It is also suggested for local government to ensure that assets are procured by Gikoko in a competitive nature; hence the assets will be recorded in accordance to their fair value in the local government accountability framework.

C: Community Risk

8. Gikoko obliges to provide no greater than 7 percent of total net after tax CERs revenue as per the MOA for assisting in the development of the community surrounding the area, such as community empowerment programs, public facilities, small and medium enterprise development associated with the recycling industry, and provide job opportunities in LFG flaring project establishment in TPA Batu Layang. This 7 percent will be provided annually based on the division between the total amount and ERPA validity term.

9. Accountability reports should be produced annually and made accessible to the public. Specific guidelines should be prepared to ensure that the h d is managed transparently and properly.

D: Operational Risk

10. Financial audit reports should be produced annually and submitted to the city government and to the World Bank.

1 1. The purchase of ER credits will be a performance-based contract under which payments are triggered by successful verification of the reduction of methane emissions by an independent, accredited international entity, the DOE under the rules of the Kyoto Protocol.

E: Commercial Risks

12. In Indonesia no landfill gas flaring projects have been implemented so far. The commercial viability of a CDM LFG collection and flaring project is heavily reliant upon the techniques employed for improving the collection efficiency. The use of substandard means of capping of Indonesia landfill cells is a major impediment to efficient collection of LFG. Appropriate cell closure and capping is an investment into collection efficiency and hence return on investment.

13. Poor financial viability would generate commercial risks. A technical and financial feasibility study of this operation has been completed by the sponsor and indicates an internal rate of return of 22 percent at a collection efficiency of 50 percent.

14. The feasibility study report described 3 different scenarios based on efficiency of collection, as follows:

15. The IRR of the project depends on the collection efficiency, which is dependent on the capital investment made. Based on the projections prepared for the feasibility study it is noted that investment up to 50 percent of collection efficiency will give IRR of 22.19 percent.

Collection Efliciency

16. It is noted that the key technical and commercial assumptions underlying this feasibility study have been separately evaluated by ENVCF.

Investment

Potential Emission Reductions (tonne C02e) for a 10 year period ERPA Volume (tonne C02e) for a 10 year period Project revenue - assume market price for a 10 year period (@$lO.OO/tonne Cole) IRR-Project for a 10 year period

Minimal investment - 300mm capping layer poorly compacted

$1,551,708 362,036

253,425

$2,534,25 1

15.24%

Standard landfill capping techniques - lm of compacted soil

$1,779,608 606,177

350,000

, $3,500,000

22.19%

Entombment of cells using synthetic capping blanket, drainage later and vegetative layer

$2,298,45 8 850,3 18

595,223

$5,952,238

39.48%

Annex 5: Summary of Memorandum of Agreement between the Project Sponsor and the City of Pontianak

1. Over the past ten years, waste collection has decreased significantly in proportion to the amount of wastes produced. This is largely attributable to the limited number of appropriate collection vehicles, absence of transfer points, and the lack of enforcement of and compliance with rules and regulations.

2. Under the agreement between the project sponsor and the Municipality of Pontianak, 10 percent of after tax ER revenues will be allocated for improvements that will increase the city's waste collection service levels. This will ensure that collection services increase at the same rate as population growth, estimated at approximately 2.7 percent per year. In addition service coverage areas are to be increased to ensure full service within the city and ensuring collection rates of 80 percent are both obtained and maintained. Funds fiom the allocation will go toward purchase of additional collection vehicles and other service improvements.

3. The project sponsor and the City of Pontianak have also agreed to invest an additional 7 percent of after-tax ER revenues to implement local programs that bring direct benefits to the communities in the vicinity of TPA Batu Layang including:

a) residents native to the area; and b) waste pickers (pemulung) and small-scale non-organic recycling industries that are

non-native to the area.

4. Many of the impacts of municipal waste disposal on both nearby residents and pemulung are similar including exposure to environmental pollution, poor health, and a reduced quality of life. The major difference between the two groups is that for economic reasons the recycling communities chooses to live and work around landfills while the native residents have had the landfill imposed upon them. Developing appropriate solutions and benefits for both groups, while avoiding any social conflict between the communities, is essential to the successful implementation of the proposed community development programs. The objectives of the community development activities are therefore to implement appropriate solutions for each group that results in real, measurable, and sustainable improvements in "quality of life," education, and income earning opportunities. There will be a specific focus on women and children in the scavenger community.

5. The project will establish a joint committee (The project sponsor, City of Pontianak, and community) to develop, implement, and oversee community development activities that are to be partly financed from a percentage of the ER revenues generated by the project. Initial programs will' concentrate on clean water supply, non-organic processing, and improved local living environment. These programs are discussed in more detail in Annex 6 .

Annex 6: Safeguards Issues

Part I ENVIRONMENT

Scope

1. To ensure compliance with environmental safeguards policies, an EA was conducted for the LFG collection and flaring system and an EMP has been developed. In addition, given that significant environmental problems exist related to the operation of the current landfill, an environmental due diligence review was conducted to determine if appropriate prevention and mitigation measures are in place for the existing landfill as well as for the planned expansion.

LFG Collection and Flaring System

2. Key environmental issues. The main environmental issues associated with the project include air pollution caused by LFG combustion in the operation phase, as well as dust, noise, and workers' safety in the construction phase. Possible environmental, health, and safety risks associated with LFG flaring in the operation phase are summarized below along with the applicable national and international (UKEPA) emission standards for LFG flaring.

** United Kingdom Emission Standarh for Enclosed Landfill Gas Flares

Parameter

Carbon Monoxide (CO) Nitrogen Oxides (NOJ Methane (CH4)

3. Environmental Monitoring Plan. The EMP for the project is summarized below. The project sponsor has the ultimate responsibility in implementing the EMP, with close cooperation with the landfill operator, the Municipality of Pontianak.

Construction Phase

Risk Generated

Health risk Health risk Health & safety risks (ftre &

Emission Standards National*

No Standard 1,000 mg/ ~ r n ~ No Standard

Implementation Timing and Cost . During construction phase (May-June 2007); included in design cost

During construction phase (May-June 2007); Rp.20 million Construction in May-June 2007; included in design cost

W** 50 mg/Nm3 1 50 mg/Nm3 10 mgINm3

Mitigation and Monitoring Measures -sound level Yeasurement -use of ear plugs/muffs during construction - limit hours of operation if necessary -Use of masks -Use of watering trucks - standard fire prevention devices - installation of fire extinguishers -buffer zone against sensitive uses -sensors installed to warn of fire breakout -safety inspections and assessments - suitable warning signs and notices

ltem Noise

Dust

Fire and Explosion

M m t i o n Stratepy Proper design location and construction of flare system Use of dust suppressant techniques Locating flare with consideration of safety aspect

Operation Phase

Item ( Mitigation Strategy 1 Mitigation and Monitoring Measures ( Implementation Timing and Cost Noise I Proper design of the I -sound level measurement I During operation phase (in 3 times 7

Emission years period); R ~ . > rnillion~~ear During proiect start up phase (June

- equipment Assure correct operation of the methane capture and flaring system Minimize harmful emission

- - -. 2007), periodically &required during operation phase; Rp.10 millionlyear

-use of ear plugs/muffs -adequate training for operator -proper use of safety gear -monitoring trough continuous gas sampling

-Use of enclosed flare system During operation phase (continuously); included in design

Fire and Explosion

1

4. Public Consultation and Information Disclosure. Consultation with local communities

Standard fire prevention devices Proper operational procedure

I -adequate training for the operator

. -

Odor

Heat

(including waste pickers), local government officials, and local journalists has been undertaken several times including two rounds of stakeholder meetings in December 2006 and January 2007. More than 80 people attended these meetings. A local community interview was also conducted in March 2007. The majority of the participants had, in principle, no objection to the project and strongly supported the improved waste management activities associated with the project. They raised concerns on negative impacts upon waste transportation and leachate encroachment to their houses, and expected that this project would provide an opportunity to mitigate such problems. The environmental report was disclosed locally as well as at World Bank's InfoShop in May 2006.

Asphyxia / Adequate ventilation 1 -location of the vent 1 During operation phase; Rp.20 I

Existing Landfill Facility

1 cost

and systematic safeguard must be used Use enclosed flare system Proper design of the flare and site location

5. Existing Landfill Site Design and Operation. The landfill started its operation in 1996. The land acquisition started in 1994J1995 for Phase 1 with an area of 5.4 Ha followed by the acquisition of 4.1 and 3.3 Ha in Phases 2 and 3, respectively. Within the current 12.8 Ha of land, 11 Ha have been used for waste disposal and the rest kept as a buffer zone. The landfill is estimated to have received approximately 400,000 tons of municipal solid waste by the end of 2006. The landfill receives wastes from the city, mainly organic wastes from residential areas. It also receives waste from commercial areas, markets, offices, public facilities, and industrial areas. No hazardous wastes are allowed to be disposed in the landfill. The bottom soil layer in the landfill is not impermeable.

-use of fire extinguisher -buffer zone against sensitive uses -warning sign in flaring system -use of portable gas analyzer

6. At the existing landfill, the collection of the leachate is conducted by using ditches or pits around the waste cells. However, the drainage system is not managed well and, as a result, most drainage areas are often blocked by waste, especially during the rainy season. This

During operation phase; Rp.80 million)

-use of mask 1 million

-observation from operator and local resident

-proper ventilation design -use of thermometer

During operation phase, included in design cost During operation phase; included in design cost

leads to the overflow of leachate in the surrounding lands and surface water bodies. Simple visual monitoring is done by workers at the landfill to check if the leachate overflow occurs. When there is a risk of leachate overflow, the workers build embankments at that location to prevent intrusion.

7. Key Environmental Issues. The quality of surface and ground water near the landfill does not meet the applicable water quality standards. The water is highly acetic and contains high quantities of organic material since the site is located on peat soil. It is not clear to what extent the leachate contributes to the organic and other components of the water. There are two large waste picker communities near the landfill site; the Batulayang Village has about 556 residents of which more than 20 percent work as waste pickers, and Siantan Hilir Village has about 52 residents of which 80 percent work as waste pickers. Those who live close to the landfill site may be affected by noise and vibration fiom heavy machinery operation. The waste pickers, including children, collect recyclables from disposed waste without wearing any protective devices at locations where waste is unloaded prior to final disposal by an excavator into an active cell. There are pests and vectors in the landfill area, including flies, ants, cockroaches, mosquitoes, and rats. Given these significant environmental concerns as well as surface and ground water contamination possibly due to leachate, the health and safety conditions of waste pickers are a high priority.

8. Mitigation Measures and Action Plan. The Municipality of Pontianak, with financial support fiom the National Public Works Department, is implementing a comprehensive plan to improve drainage and leachate management of the landfill as well as water quality monitoring and public health and sanitary services. The activities included in the plan are summarized below.

9. In addition, the project sponsor provides capping on the closed cells with a synthetic liner which is then covered with a 300mm vegetation layer. These measures will also prevent excessive leachate discharge from the landfill site and enhance slope protection. Although these measures might not solve all the environmental problems associated with the existing landfill, significant improvement in environmental performance and sanitary conditions can be expected.

Planned Expansion of Landfill

10. Site Design and Operation. The expansion of the landfill is planned to accommodate increasing waste volumes from the city. The expansion plan will increase the landfill area from 13 Ha to 26.6 Ha and includes the improvement of leachate management. The National Public Works Department issued national requirements for sanitary landfills in 2006, but compliance with these requirements are not mandatory for city governments. The expanded landfill will have a leachate collection and treatment system with collecting pipes at soil layer and leachate treatment facilities such as facultative pond, sludge drylng bed, sedimentation pond, and maturation pond. However, it is not clear if all the sanitary landfill requirements could be met due to technical and financial difficulties.

1 1 . Key Environmental Issues and EMP. Key environmental issues identified in the draft EIA report prepared by the Municipality of Pontianak include noise, odor, surface and ground water pollution, and community health. An EMP presented in the draft EIA report is below. The West Kalimantan Provincial Government is now reviewing the draft EIA report and the approval is expected before project registration. The commencement of the use of the expanded site is subject to the final approval of the EIA report.

Item

Ambient Air Quality and Noise

Surface Water and Groundwater Quality

Odor

Community Health

Pammeter

PP Year 999 and Kepmen LH No. Kep-48 MENLWIIII 996

PP No.82 Year 2001

Kepmen LH No. Kep- 50 MENLHAU1996

Incidence and prevalence number

Responsible Entity

City of Pontianak

City of Pontianak

City of Pontianak

City of Pontianak

Prevention & Mitlgrtion

Periodic maintenance of vehicles Speed limitation of vehicles Plantation for road buffer

Collecting waste from vegetation to prevent entering into river Bulld drainage

Control water circulation and cleaning sludge periodically Plantation (Mimosops elengi, Mutingia calabura, Agathis alba)

:izi:~;"~~~ soil everi days Prevent contamination of water, air and soil Help the patlent of disease caused by landfill management with medication aid.

IBlplementation Timing

During lifetime During lifetime During construction phase During land clearing

During construction phase As necessary, penodicall y

During construction phase

During lifetime

During lifetime

During Ilfehme

An environmental monitoring plan in the EIA is summarized as below:

1 Item I Parameter 1 Method ( Frequency I KeSp( Fn

I i I I I " ~nsible

I I I -"ti@ . . . . . . I PP N0.41 Year 1999 1 Monitorine air aualitv in certain AInDlent ~ i r

Quality and Noise

Surface Water and Groundwater Quality

Part I1 SOCIAL

Odor

Community Health

12. Key social issues. There are 3 main issues related to social safeguards; (i) land acquisition; (ii) indigenous people; and (iii) social development plan to mitigate the social issues.

and Kepmen LH No. Kep-4g MENLHIIV1996

PP No.82 Year 2001

13. Land acquisition has been executed by the City of Pontianak since 1995. The City of Pontianak Government Administrations ("Pemkot") has conducted five phases of land acquisition to obtain the area for the landfill (see Table I). The Phase One was completed in 1995, Phase Two in 1996, Phase Three in 1998, and Phase Four in 2001. Phase Five is still in progress all will require 26.6 ha. According to the final plan of the Government of Pontianak the total area of Batulayang Landfill will be 30 Ha. However, the city does not have a clear plan yet regarding the acquisition of the final 2.9 Ha of land for Phase Five. The purchase of the land will depend on the available budget of local government. Within this fiscal year the city will acquire 0.5 Ha of land and the budget for this land acquisition has been allocated.

Kepmen LH No' Kep- 50 MENLH/IY 1996

Incidence and prevalence number

~ -~ - ,~ - ., - - ~ - - - - - ...

locations with method as described in PP No.41 Yr 1999 and Kep-48 MENLH/II/I 996 Sampling water with method as described in Kepmen LH No.37 Yr 2003 Lab analysis follow PP No.82 Yr 2001

Sampling and analysis method follow Kepmen LH No Kep-50 MENLWII/l 996 Observation on disease pattern at Puskesmas Batu Layang

Every months

Every 3 months

City of Pontianak

City of Pontianak

Every 3 months

Every 3 months

City of Pontianak

City of Pontianak

Table 1: Summary of Land Acquisition Process

Timing of land acquisition for the landfill including drainage works,

buffer zone etc. Completed

Phase 1: 1995 P

Phase 2: 1996

,Applicable law or regulation

Phase 3: 1998 Phase 4: 2001

# of affected asset

In progress

Phase 5: negotiation in 2005 but the payment in

2006

14. The communities living and working in or around the landfill belong to the ethnic groups of Dayak, Madurese, and Javanese. They are not the original inhabitants but rather migrants from other districts or island. This area consists of two Rukun Tetanggas (RTs) from two urban villages, namely Batulayang urban village and Siantan Hilir urban village (see Table 2).

Land 0

complete complete

In 2007

Table 2: Neighboring settlements around the landfill area

( Complete Presidential Decree Nr.5511993 5.4398 complete Presidential Decree Nr.55/1993 4.1 196

complete

Presidential Decree Nr.55/1993 Presidential Decree Nr.55/1993 Pontianak's Mayorial Decree

Note: Mayor Decree No 328 of 2004 determines total size of Batulayang Landfill is 30 Ha

Ongoing

3.2581 3.3274

Nr.32812004 Presidential Decree Nr.5511993

Regional Regulation Nr. 12/2004

10.4685 1.3034

Presidential Decree Nr.3612005 & 6512006

Name of settlement

Batulayang

I (RT05/RW04) I Javanese, peOples) I I Dayalc

15. In Batulayang, this means that more than 33 percent of the residents derive their livelihood fiom landfills. In this community, dominated by Madurese, the average daily income level is approximately Rp.15,000 - Rp.26,000 or US$1.65 - US$2.86. Scavengers have a daily income of approximately Rp. 10,000 - Rp.20,000 or US$1.10 - US$2.20.

0.5

Ethuic identity

Madurese, (MadureseIJavanese)

Siantan Hilir (RTO~IRWI 5)"

# of F d y in settlement

76 (556

Distance to

landfill* 0.52 km

, Any relation to 'landfill

* Distance to Landfill denotes distance of boundaly of HH settlement to the landfill's main gate. ** RTB W: Indonesian terms assigned to identzjj formal organization heads representing the residents

living in the designated locations.

13 (52 peoples)

EmpIoyees of DMP

5 Families

Scavengers

74 adults

0.43 km Madurese 5 Families (Madurese)

(< 1 5 years) 27 adults and 15

children (< 1 5 years)

16. Their work day is from 6.00 am to 5.00 pm with a rest at midday for an hour. They collect recyclable waste, which they sell to waste collector merchants (e.g. plastic bags, plastic bottles, milk cans, used iron, old tires) and bring their children along to help them. The children are in the age range of 6-15 years old and work for three hours on a daily basis. Most children spend their day with their parents who engage in waste picking activities.

17. Their level of education in RT05/RW04 is low with 50 percent not completing elementary school education, 30 percent having completed elementary school, 10 percent having completed junior school, and 10 percent having completed high school. The nearest elementary school is located three kilometers from the perimeter of the landfill where the families live. A junior high school and high school are located more than five kilometers from the landfill.

18. In Siantan Hilir, the occupational proportion is: farmer 5 residents; daily government agency employee @KP) 5 residents; and scavengers 42 residents. More than 90 percent of the residents depend on the landfill for their livelihoods. The daily income of this community is approximately Rp.15,000 - Rp.24,000 or US$1.65 - US$2.64. Most of scavengers are Madurese. They start to work in landfill at 3 AM till 11 AM. They receive a daily income of approximately Rp.10,000 - Rp.20,000 or US$1 .10 - US$2.20. Scavengers bring also their children to help them. The total number of children who work as a scavenger is approximately 10 - 15. Sometimes children under 5 years of age play at the landfill site while their parents work.

19. The level of education in RT05lRW15 is also low, with 55 percent not having completed elementary school, 25 percent with elementary school education, 10 percent with junior high school education, and 10 percent with high school education. The nearest elementary school is located three kilometers from the perimeter of the landfill where the families live. A junior high school and hlgh school are located more than five kilometers from the landfill. There is no public transportation around the landfill. Residents take rides on a waste trucks or use a rented motorcycle taxi system called ojek if they need to leave the area. Children and adults pick up any food from freshly delivered municipal waste including dried fish, discarded h i t s , and cooked leftover fast food and eat them.

20. Waste collection and recycling of commercially valuable scrap steels and other material shunned by other communities provide economic opportunities for the Madurese throughout Indonesia. The landfill provides a livelihood of last resort for many families who have lost all other means of earning a living. Expansion of the landfill and increased recyclable waste should mean increased opportunities for economic development and Gikoko plans to implement its Community Development program to aid this process in consultation with the community leaders (see Table 3).

2 1. The consultation process from December 2006 to March 2007 with the local communities, local government officials and local journalists has been performed several times since the signing of the MOU between Gikoko and the local government on July 28,2006.

22. The MOU states that a tripartite community development program team with representatives from local communities, the local government and Gikoko will be formed as part of the community development plan.

23. The scope of the community development plan are the local community requirements regarding environmental safeguards, community economic development, socio-cultural development for the children, and capacity building for the occupational health and safety issues of communities living near the landfill.

Table 3: Community Development Plan

Isstles

Improve of the Environment of Scavengers

- Noise and Vibration (1 Person complain)

- Unhealthy location of dormitory

Individual sanitation to 33HHe** 5 public water tab***Provide shelter for temporary waste collection 6x20~11 Provide inoculation against hepatitis and tetanus. Provide washing station for the scavengers Dissemination of information to the scavengers and workers regarding occupational health and safety standard (see AS. page 15) Provide a segregated safe waste separation area

Limit hours of work adjacent to house next to landfill. (Mayor's stajfhave reached an understanding with the concerned resident)

Relocation for better situation

20d Quarter of 20092" Quarter of 20102"~ Quarter of 2009 1 " Quarter of 2008

2nd Quarter of 2010

Immediately: bulldozers work for only once for 2-3 hours

I

3 years (on at time a new expansion of new cell)

30% of available Fund*,**

Municipality Waste Agency of Pontianak

PT Gikoko Kogyo Indonesia

Municipality Waste Agency of Pontianak

None

Municipality Waste Agency of Pontianak

Rp. 150,000,000 = US$16,000 (According to Mr. Sugeng Head of Municipality

Note

***- Each HH will be supplied with cement and closet for sanitation development ***-Public tab will be executed by the peoples

Economic development of recycling activities

Provide ergonomic press tools Provide Free seed of vegetables, agncuIture tools (mattock, grass knife) and fertilizer

I Quarter of 2008 Kogyo Indonesia

20% of available

Waste Agency of Pontianak

Children's development P"0gram

Provide non-formal education equal to primary school (Paket A for around 50 children) Provide non-formal education equal to junior high school (Paket B for around 30 children) Provide small garden patch to supervise children to plant flowers and

Social

Monitoring & Evaluation

2 * Quarter of

Municipality Education Agency

PT Gikoko

30% of available Fund*

Note: * 7% contribution of CERs and Regional Government Budget of Pontianak (APBD). **It is estimate that it takes 2-3years to build up collection capabi l i~ to maximum (35,000 ton per year x US$7 x 7% = US$17,150, before tax). Therefore for thejrst year it may be 30% of the average or US$5145, so only enough to do training.

Renovatelupgrade Mosque (Surau) Hiring good facilitators, at least 2 facilitators

Monitoring and evaluation will be reported every quarterly

Municipality Waste Agency of

Pontianak

Municipality Waste Agency Of Pontianak assisted by PT Gikoko

20% of available Fund*

- Renovation of the Mosque will be executed by the community

alone - Facilitators should be non- government official.

Annex 7: Country at a Glance

Ix~donesia at a glance

CrBSl-admWow --- T a u dg'rT)k

?WE*- -raenu.lsrBmumm

PRICES and GOVERNMEnT FINANCE

Domeslic prices * C W J Carsumer pnces Impkcif GDP deRator

Export and hport hvelr (US$ MI.)

1m.m

Sam

am Anom ma0

0 3 P m n ~ m o 3 M ~

.=r- .w

( U S Ilsmflst Torat Eqxit9 (fob)

fuel i 3 a k m ManuQochrns

~ o l a g hrgmm laf) Food Fuefmdenapy C&qmds

Elrportpnw m6ex ~ ~ 1 0 0 1 Im9m price kdcx (2000-700) Terms cf trade (2030=100)

B A M C E of PAYMENTS

~ m u q m a (net) eh-irw- Yomo: Reserves rnctudRlp pQld (US$ WhWIS)

C m m!c ID=. looeMlSSl

EXTERNAL DEBT and RESOURCE FLOWS

(Us -1 Total bsW and dpkMd

IBRD IDA

Total dsbt snwca IBRD IDA

WaldawrLpogun c- - Pmapslnp.- Net lbvs lntaestpaymsnb Net bansfem

Annex 8: Documents in the Project File

1 . Notary deed No. 1 09 dated 23 January 1993 - PT Giko Indonesia Manufacturing

Corporation.

2. Notary deed No. 6 dated 7 May 1998 (Changes of article of association).

3. Notary deed No. 7 dated 24 April 2001 (Changes of shareholders composition).

4. Limited Importer Identification Number (APIT - Angka Pengenal Irnportir Terbatas).

5. Tax Identification Number.

6. Limited Company Registration.

7. Company Domicile Letter.

8. Permanent Business License.

9. Approval of Foreign Lnvestrnent Extension.

10. Audit reports for the year 2001,2002,2003,2004 and 2005.

1 1. The company's financial statement for the year 2006.

12. Detail Work In Process for the year 2006.

13. Detail Account Payable for the year 2006.

14. Environment Due Diligence Report and Environmental Management Plan.

15. Social Due Diligence Report.

16. Stakeholders Meeting Report.

Annex 9: Project Preparation and Supervision

- -

Name Title Unit

James Orehmie Monday Senior Environmental Engineer (Task E A S E Team Leader)

Ahrned Mohamed Khaled Mostafa Techca l Specialist (Deal Manager) ENVCF

Josef Lloyd Leitmann Lead Environment Specialist (Environment Coordinator, Indonesia)

EASRE

Hiroshi Ono Senior Environmental Specialist E A S E

Rajiv Sondhi

Xueman Wang

Sulistiowati Niannogolan

Ina Pranto

William Nicholas Bowden

Remo Anna Widiana

Cynthia Dharmajaya

Sukanya Venkataraman

Sandra Cointreau

Sanjay Srivastava

Senior Financial Management Specialist (Financial Management Specialist)

Senior Counsel (Project Lawyer)

Urban Specialist (Social Specialist)

Consultant (Techca l Specialist)

Consultant (Techca l Specialist)

Team Assistant

Program Assistant

Program Assistant

Solid Waste Management Advisor (Peer Reviewer)

Senior Environmental Specialist (Peer Reviewer)

EAPCO

LEGCF

EASSO

E A S E

EASRE

EACIF

E A S E

E A S E

FEU

SASES

MAP SECTION

IBRD 35487

n U n O h m 0 0 - r 4 0 r 4 n r 4 r 4 r 4 r 4 m n n n n

MAY 2007