Rural electrification project
 Report No: ; Type: Report/Evaluation Memorandum ; Country: Indonesia; Region: East Asia And Pacific; Sector: Distribution & Transmission; Major
                                          Sector: Electric Power & Other Energy; ProjectID: P003918


Indonesia: Rural Electrification Project (Loan 3180-IND)

The Implementation Completion Report (ICR) on the Indonesia Rural Electrification Project (Loan 3180-IND, approved
in FY90) prepared by the East Asia and Pacific Regional Office, including the Borrower's contribution, was reviewed by
the Operations Evaluation Department (OED). The loan for an amount of US$329 million was approved in March 1990
and closed in June 1995, one year behind schedule; about US$68 million were canceled as a result of cost savings.

The project built on the Bank's Rural Electrification (RE) Review carried out in 1986 and aimed at expanding rural
coverage while developing the institutional basis for a sustainable RE program. Specific project objectives were to: (i)
electrify about 4,500 new villages, while increasing invillage connections; (ii) reduce unit construction costs through the
adoption of appropriate design and standards; (iii) promote the productive use of electricity by small businesses through
a pilot program; (iv) enhance the role of village cooperatives in the implementation and operation of rural power
systems; (v) strengthen the capacity of RE units in PLN-the state-owned national power utility-and in the Ministry of
Cooperatives (MOCSE), particularly in the area of planning; and (vi) increase financial transparency and accountability
of the RE program by segregating RE activities in PLN's accounts.

The project achieved most of its physical objectives, in spite of some delays mainly due to burdensome Government
procurement procedures. In some cases objectives were exceeded (thanks to cost savings); 6,000 villages were
connected under the program; in-village connections substantially exceeded targets; and the adoption of new standards
led to unit cost savings of about 20 percent. About 9,000 small rural businesses developed productive uses of electricity
under the pilot program and the number of cooperative-run programs (Pola) grew to about 4,000 (covering 11,000
villages, 60 percent of which are outside Java). The project's economic rate of return was reestimated at 15 percent,
compared to 12 percent at appraisal, mainly due to cost savings. These successes have prepared the ground for the more
ambitious targets pursued under the Second Rural Electrification Project (Loan 3845-IND, approved in FY95).

On the institutional side, RE planning was substantially improved by PLN's development of an RE Master Plan and of a
customer information system. But the transfer of skills (for the planning and operation of RE systems) from consultants
to PLN staff was slower than anticipated; and the Institutional Study of MOCSE's RE activities had little impact.
Furthermore, little progress has been made in segregating RE activities in PLN's accounts, which will hamper any future
efforts to make more transparent, and rationalize, the current cross-subsidization of RE tariffs.

On balance, the outcome of the project is rated as satisfactory and its institutional development as moderate. Project
sustainability is considered as likely but is largely dependent on the Government's willingness to continue its past
subsidization policies or, alternatively, to let RE tariffs gradually cover costs, in parallel with the implementation of
current plans to decentralize and restructure the whole power sector. These ratings are the same as in the ICR. Bank
Performance is assessed as satisfactory, instead of highly satisfactory in the ICR, as it could have been more effective in
formulating more detailed and focused reporting requirements and in keeping the MOCSE institutional study on track.

Key lessons learned include: (i) the importance of establishing a central coordinating unit when project implementation
involves many actors and covers a broad range of geographical areas; and (ii) the fact that properly structured local
participation in the management of RE programs can bring about significant cost savings.
Save for an inconsistency in the ratings given in the text and table 1 of the ICR, and the fact that the section on future
operation of the project relates instead to the ongoing Second Rural Electrification Project, the ICR is thorough and
informative and is thus assessed as satisfactory. No audit is planned.