A detailed due diligence report covering the following key ...



Indonesia - Lahendong II Geothermal Power Project (P096677)

Environmental and Social Due Diligence

1. Project Description

As a trustee of the Dutch Carbon Fund, the World Bank intends to purchase partial certified emission reductions (CERs) to be created by the Lahendong II Geothermal Power Project in North Sulawesi of Indonesia for a period of seven to ten years. The purchase amount and price will be defined in an Emission Reduction Purchase Agreement (ERPA) to be reached through negotiation between the World Bank and PLN. The project is financed by the Asian Development Bank (ADB) and the project sponsor, PT Pelayanan Listrik Negara (PLN) under the Renewable Energy Development Project (REDP) approved by ADB. The Lahendong II Geothermal Power Project is one of the twelve sub-projects of the REDP. The World Bank’s role is limited to purchasing partial emission reduction assets created by the project.

The Lahendong II Geothermal Power Project comprises the design, procurement, construction, and commissioning of a single 20 MW geothermal steam turbo-generator plant. It will provide 20 MW of additional capacity and deliver up to 158 GWh of additional electricity generation annually into the existing PLN’s Minahasa System in north Sulawesi, to meet increasing demand in the system. Steam for the project will be supplied from an expansion of the existing Lahendong geothermal field, under a take-or-pay agreement with the field’s owner and developer, Pertamina[1]. Once operational, the plant is expected to mitigate about 60,000 tCO2 annually. The power plant will be operated by the project sponsor, PLN.

2. Environmental Due Diligence

2.1. Plant Operation Process

Operation of the Lahendong II GPP involves the following processes:

o Steam is delivered to the power plant through steam pipes from Pertamina’s well field. Prior to flowing into the turbine, the steam passes through a separator / demister to remove water droplets (generally less than 0.5 % of the steam flow), which is drained as condensate from the separator / demistor and, via an atmospheric flash tank, piped to the cooling tower basin.

o Dry steam then flows through the turbine and into the direct contact condenser where it condenses as it mixes with cold cooling water sprayed into the condenser. The mixture of steam condensate and cooling water is (as warm water) pumped to top of the cooling tower, where the water is cooled as it falls under gravity down into the cooling tower basin.

o Air drawn into the cooling tower and mixing with the water provides the bulk of the cooling through evaporation of a small portion of the water, which leaves the fan stack as vapor. This so-called evaporation loss represents approximately 60 to 80 % of the steam condensate volume, leaving the balance to overflow from the cooling tower basin into a settling pond, from where it is pumped to re-injection well LHD-7 and returned to the ground formation. Cooling water re-circulates between the condenser and cooling tower in a closed system.

o Non-condensable gases (NCG) are removed from the condenser by steam ejectors and piped to the cooling tower fan stack where they are discharged to the atmosphere following dilution with large amounts of cooling air. NCG comprises a mixture of H2S, CO2 and others. NCGs typically comprise 0.35% by weight of the steam flow.

o Sludge containing dirty water from the bottom of the cooling towers and from the settling pond will be periodically removed, and deposited in a concrete lined sludge pond adjacent to the site where it will dry naturally before being taken to a designated landfill site.

2.2. Major Environmental Issues

According to the Environment Management Plan (EMP) developed by PLN for the Lahendong II Geothermal Power Project, Lahendong II will have a neutral or only very small impact on the environment. This is largely due to the fact that the project will be developed on the existing site of Lahendong I, as such it will not entail activities associated with full blown geothermal power development such as building of new roads, clearing of forested area for temporary facilities, and drilling of several exploratory wells, and that water conservation and water and air pollution control measures are effectively built into the project design. In addition, PLN will incorporate the recommended mitigation and monitoring measures into the relevant phases of project implementation, appropriate mitigation measures have either been incorporated into the project design or proposed along with a monitoring plan and an appropriate budget has been allocated in the project cost.

This section will describe details of project location and its impacts on natural habitats, impacts on Lake Pangolombian and the potential thermal impacts (brief description of the amount of water withdrawn, proposed closed cooling water cycle and return of condensate back to the wells), emissions controls, and institutional arrangements, including budget allocations for environmental monitoring and implementing the EMPs.

2.2.1 Project Location

The proposed Lahendong II Geothermal Power Project site is located on the land of the village of Leilem (adjacent to Lahendong village) and close to Tondangow Village, Sub-District Tomohon Selatan, Tomohon City, North Sulawesi Province, about 30 km south from Manado. Topographically the site is located on a hilly plateau 700 - 1200 m above sea level. The morphology of the plateau is strongly related to volcanic activities.

The natural vegetation within the site comprises grasses and weeds. Adjacent to the site the vegetation comprises secondary forests (Lengkoan which is located 7 km south of the project, and Tampusu located 6 km east from the project) and scrub that has been highly disturbed by human activities. Land to the north, east and west of the site is used primarily for estate crops and farming

Cooling system during the operation of PLTP Lahendong II is conducted by means of cooling tower. The water will be taken from Pangolombian Lake and circulating within the system during operation of the power plant. Based on document review and field visit, it is confirmed that the pipe from the Pangolombian Lake does not go through the secondary forests (Lengkoan and Tampusu), it mainly goes through rice fields (buried underground).

2.2.2. Impacts on Lake Pangolombian

Impacts related to disruption of local hydrology will be insignificant. Prior to commissioning approximately 1,000 m3 of water will be abstracted step by step during the wet season so as not to impact on water discharge and other water uses of Pangolombian Lake. This process will be repeated approximately once every three years during major maintenance work. Daily abstraction of 20 m3 per day during operation will have an insignificant impact on water levels and other water uses (irrigation, domestic water supply etc) as the surface area of the lake is over 3 hectares and volume of the lack is around 210,000 m3.

Liquid waste management systems will be installed to ensure that there will be no unacceptable impacts on the surrounding land or water bodies. Domestic and sanitary wastewater from site facilities will be directed to a septic tank and soak-away pit. Condensate and excess cooling water along with water from the demister / separator will be collected in a condensate-settling basin before being re-injected into well LHD7. During routine maintenance cooling water will be drained from the cooling towers and treated in the settling basin (pH reduction with caustic soda) before being re-injected into well LHD 7. Sludge will then be removed from the base of the cooling towers, placed in a concrete-lined solid waste pond (located adjacent to the site) and allowed to dry naturally before being deposited in a nearby landfill.

Site runoff from areas where oil and grease are used (turbine oil, garage) will be filtered in a grease trap prior to discharge through the site stormwater drainage system. Thus, there will be no water polluting discharges from the site. In addition to the above, other outflow prevention measures will be installed including:

– A storage tank capable of accommodating 15 minutes supply of hot water flow in case of failure of the re-injection pumps.

– An oil retention pit with sufficient capacity for generator lubricant and transformer oil, should leakage occur.

– The caustic soda (for water treatment) storage tank will be enclosed in a bunded area.

2.2. 3. Emissions Controls

A gas waste management system will be installed to ensure that the concentration of H2S in Non Condensable Gas (NCG) emissions from the cooling towers are minimized and in compliance with Government of Indonesia Environmental Standards on Air Emissions from Stationary Sources (KEP13/MENLH/3/1995). Detailed calculations of concentrations of H2S emissions from the cooling tower undertaken during the feasibility study (2001) show that during operation of Lahendong II, the concentration of H2S from the cooling tower will be well below the H2S discharge standard.

As has been the experience during operation of Lahendong I GPP, noise impacts of Lahendong II on the nearest residents of Tondangow Village during operation of the plant will be negligible. This is due to the noise attenuation afforded by 300 m distance between the site perimeter and the nearest houses.

Potential environmental impacts during the construction stage such as silt run-off, noise and dust nuisance due to site traffic and construction works will be minor, temporary and easily mitigated through inclusion of relevant clauses in the construction contract for good environmental site practice.

2.2. 4. Institutional Arrangements

The environmental investigations have made it clear that only very minor environmental impacts are expected. A detailed environmental management plan was prepared for the project by PLN and approved by the Minahasa Regional Environmental Agency in November 2003. An appropriate budget (approximately USD 550,000) has been allocated in the project cost exclusively for environmental monitoring and implementing the EMP.

Table 1: The key elements of the environmental management plan

|Activities |Responsibility for Execution |Assistance or Approval by |

|Equitable opportunities for local labor involvement during |PLN |Minahasa Regional Environmental|

|construction | |Agency |

|Minimization of dust, noise and traffic nuisance during |PLN through contractor |Minahasa Regional Environmental|

|equipment mobilization | |Agency |

|Noise levels during the construction period are within |PLN through contractor |Minahasa Regional Environmental|

|acceptable levels at nearby residential areas and that | |Agency |

|construction workers are provided with ear plugs as required | | |

|Ear plugs to be provided to plant operational staff |PLN |Minahasa Regional Environmental|

| | |Agency |

|Hydrogen sulfide dilution facilities operating effectively |PLN |Minahasa Regional Environmental|

| | |Agency |

|Abstraction of cooling water from Pangolombian Lake during |PLN |Minahasa Regional Environmental|

|commissioning and during maintenance periods in a step by | |Agency |

|step manner to be scheduled in the wet season to avoid | | |

|conflicts over water use. | | |

|Wastewater and sludge treatment facilities including septic |PLN |Minahasa Regional Environmental|

|tank, grease and oil trap, sludge pond operating effectively | |Agency |

|Health of operational staff checked periodically. |PLN |Minahasa Regional Environmental|

| | |Agency |

|Supervision of project construction phase to ensure |PLN through environmental expert or |Minahasa Regional Environmental|

|environment-friendly execution. |engineer |Agency |

|Implementation of an environmental monitoring program: |PLN through environmental expert or |Minahasa Regional Environmental|

|During project construction phase |engineer |Agency |

|During operation phase (i.e. throughout project lifetime) | | |

|Bimonthly preparation of environmental status reports during |PLN through environmental consultants|Minahasa Regional Environmental|

|project construction and operation | |Agency |

2.3. Due diligence by the Bank staff

According to the Decree of Environmental Minister No. 17 of 2001, the construction of thermal power plants of up to 100 MW capacity does not require a full Environmental Impact Assessment (AMDAL), but does require the preparation of environmental management and environmental monitoring plans.

Accordingly, an Environmental Management and Monitoring Measures Report (UKL-UPL) was developed by PT PLN (PERSERO) and PT Hexamatra (a consultant firm), Makassar in November 2003. The Environmental Management and Monitoring Measures Report was prepared in accordance with the Decree of the Power and Energy Development Director No. 78-12/008/600.2/1995 (06 October 1995) which provides technical guidance on the preparation of UKL-UPLs for thermal power stations including steam, geothermal, diesel, etc. The UKL-UPL was approved by the Minahasa Regional Environmental Agency on 3 November 2003.

The Bank project team assessed and is satisfied with PLN’s capacity for implementing both GOI and the Bank safeguard policies based on PLN’s past and current performance in environmental management:

1. The Bank’s safeguard specialists noted that under Lahendong I operation, PLN is implementing an environmental monitoring and management review program and producing a regular report (every 3 months) stating a baseline data and the trend as a result of the operation. The report also states the occupational health and safety measures.

2. PLTP Lahendong 1 received an award for best performing environmental management of the year from the Governor of North Sulawesi on June 6, 2007 (on the Environment Day)

On public consultation and disclosure, the project proponent, PLN, has conducted public consultation with the community through the assistance of the local village headman as well as through informal community leaders. It is reported that community leaders are pleased with the project since they expect to benefit from employment opportunities during both construction and operation even though they recognize that such employment will be based on existing skill levels. A number of villagers are currently employed on Lahendong I as security guards and cleaners.

In addition, for the purpose of public disclosure, the approved EMP is disclosed at the Local Environmental Agency in the City of Tomohon, as well as at the project site (GPP). In compliance with Bank’s policies, both EMP and this Due Diligence Report will be disclosed prior to appraisal and 30 days prior to the Registration of the project, or signature of ERPA whichever occurs later.

2.4 Status of compliance with ADB policies:

The ADB financed REDP was classified as an Environmental Category B project and the Lahendong II project is one of the subprojects of REDP. A review of the Environmental Management and Monitoring Plan (UKL-UPL) prepared by PLN was undertaken by ADB in April 2004. The review confirmed that the UKL-UPL met the ADB requirements.

A site visit was conducted by the Bank project team in January 2007. It confirmed that all the relevant environmental safeguards policies of ADB have been followed by PLN and its contractors during the construction of the project.

3. Social Due Diligence

The Lahendong Geothermal Power Plant is part of the ADB-financed Renewable Energy Development Sector Project that consists of four core subprojects and eight non-core subprojects. Lahendong is one of the eight non-core subprojects.

3.1. Involuntary Resettlement.

Referring to the RPP (Report and Recommendation of the President) of this Renewable Energy Development Project, ADB required the project to provide Compensation Policy Framework and Procedural Guidelines (CPFPG) that applies to the project. For subprojects entail land acquisition, the Land Acquisition and Resettlement Plan (LARP) are to be applied. The CPFGP reflect the main project preparation and implementation principles: (i) negative impacts will be minimized; (ii) compensation will be sufficient to improve or at least restore the pre-project income and living standards of affected persons; (iii) affected persons will be fully informed and consulted on compensation options and resettlement planning; (iv) asset compensation will be provided at replacement rates; and (v) lost assets compensation, resettlement dwellings, and rehabilitation provisions and allowances will be provided in full before ground leveling and demolition.

For Lahendong II, according to the Project Preparation Document (June 2004) prepared by PLN, PLN already owns the site of the existing Lahendong geothermal power station, including the land area required for the 20 MW extension of the station proposed under this subproject. A copy of a PLN letter confirming land ownership was provided to the Bank. Accordingly, execution of this sub-project does not involve any new land acquisition or the resettlement of households, nor does it have any direct impacts on other assets or sources of livelihood of any members of surrounding communities. This direct compensation under the provision of ADB and GoI resettlement policies are not required. No LARP is required for this subproject.

3.2. Indigenous Peoples

Similar requirement also applies to the indigenous people issue, in which the Indigenous Peoples Policy Framework (IPPF) is required for the project level and Indigenous Peoples Development (IPDP) for subprojects that indicated to affect indigenous people. For the indigenous people identification criteria, the IPPF establishes that indigenous people are those who in various degrees (i)descent from groups present in specific areas before the establishment of modern states and relative borders, and (ii) maintain district self-or non-self-ascribed identities. Other identification criteria will be used to establish the degree of vulnerability of affected indigenous people and the type of action to be developed for an IPDP: (i) use of distinct languages; (ii) active maintenance of sociocultural systems and institutions that differ from those of dominant societies; (iii) pursuit of livelihood in the margins of the market system; and (vi) maintenance of unique ties and attachments to natural resources and ancestral territories.

The population in Lahendong is mostly Minahasan. This is the native and dominant population of much of the region. The Minahasan people have distinct cultural practices, but they are also generally well integrated into Indonesian society and do not exhibit any special issues or problems that would set them aside from the general mainstream. Accordingly, an IPDP will not be required in respect of this Lahendong II subproject.

3. Status of compliance with the ADB policies

The proposed Lahendong II Geothermal Power Project itself does not entail involuntary resettlement nor it affects indigenous community so that no need to provide Land Acquisition and Resettlement Plan (LARP) nor Indigenous People Development Plan (IPDP) as required by ADB’s policy. The task team concludes that there is nothing incompliance with the ADB’s policy and no legacy issue both on land acquisition and indigenous people.

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[1] Pertamina is Indonesia’s national oil company which owns the Lahendong Geothermal Field.

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