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January 04, 2011 Dear Council Member:

The UNIDO as the Implementing Agency for the project entitled : Indonesia: CF:Promoting Energy Efficiency in the Industries through System Optimization and EnergyManagement Standards under the Regional: CF: Reducing Industry's Carbon Footprint InSouth East Asia Through Compliance With a Management System for Energy (ISO 50,000)(PROGRAM) , has submitted the attached proposed project document for CEO endorsement priorto final Agency approval of the project document in accordance with the UNIDO procedures.

The Secretariat has reviewed the project document. It is consistent with the project

concept approved by the Council in November 2008 and the proposed project remains consistentwith the Instrument and GEF policies and procedures. The attached explanation prepared by theUNIDO satisfactorily details how Councils comments and those of the STAP have beenaddressed.

We have today posted the proposed project document on the GEF website atwww.TheGEF.org for your information. We would welcome any comments you may wish toprovide by February 01, 2011 before I endorse the project. You may send your comments [email protected] .

If you do not have access to the Web, you may request the local field office of UNDP or

the World Bank to download the document for you. Alternatively, you may request a copy of thedocument from the Secretariat. If you make such a request, please confirm for us your currentmailing address.

Sincerely,

Attachment: Project Document Copy to: Country Operational Focal Point

GEF AgenciesSTAPTrustee

1818 H Street, NWWashington, DC 2043 3 USATel: 202.473.3202Fax: 202.522.3240/3245E-mail: [email protected]

MONIQUE BARBUT Chief Execut ive Off icer and Chair person


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CEO Endorsement Template-December-08.doc

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Submission Date: 8 July 2010Resubmission Date: 21 December 2010

PART I: PROJECT INFORMATIONGEFSEC PROJECT ID: 3595GEF AGENCY PROJECT ID:XX/INS/07/X02 COUNTRY (IES ): IndonesiaPROJECT TITLE : Promoting industrial energy efficiency throughsystem optimization and energy management standards in Indonesia GEF AGENCY (IES ): UNIDO OTHER EXECUTING PARTNER (S): Ministry of Energy andMineral Resources (MEMR), Ministry of Industry (MOI) andBadan Standardisasi Nasional (BSN)GEF FOCAL AREA (s): Climate Change GEF-4 STRATEGIC PROGRAM (s): CC-SP2 Industrial EE NAME OF PARENT PROGRAM / UMBRELLA PROJECT : Reducing

industrys carbon footprint in South East Asia through compliance with an energy management system (ISO 50001) PROJECT FRAMEWORK (Expand table as necessary)

Project Objective : Promote industrial energy efficiency through system optimization approach and introduction of ISO energymanagement standards.

ProjectComponents

IndicatewhetherInvestment, TA,or STA 2

ExpectedOutcomes

Expected Outputs

GEF Financing 1 Co-Financing 1 Total c=a+($) a % ($) b %

1.Introductio

n of EnergyManagement SystemsandCapacityBuilding

TA Compliance to apolicy instrument

that encouragesindustrialenterprises toadopt ISOcompatibleenergymanagementstandards todeliversustainableimprovements inindustrial EE and

competitiveness

1.1. Reinforcedcapacity of

governmentinstitutions on energymanagement

1.2. Trainingmaterials and toolsdeveloped

1.3. Nationalawareness campaignlaunched on ISO50001

1.4. Trained nationalexperts/factorypersonnel on energymanagement

1.5. Peer-to-Peernetwork establishedbetween industrialenterprises

600,000 43% 800,000 57% 1,400,0

REQUEST FOR CEO ENDORSEMENT/APPROVALPROJECT TYPE : Full-sized Project THE GEF TRUST FUND

Expected Calendar (mm/dd/yy)

Milestones DatesWork Program (for FSPs only) Agency Approval date Implementation Start 3/01/2011Mid-term Evaluation ( if planned) 09/01/2013Project Closing Date 08/31/2016


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2. CapacityBuildingon SystemOptimization

TA A cadre of energy efficiencyprofessionalscreated bothwithin industrialfacilities as wellas consultantsand equipmentsuppliers toinitiate a processto transformlocal marketeffectively andprovideindustrialsystemsoptimizationservices

2.1. Trainingmaterials and toolsdeveloped

2.2. Trained nationalexperts/factorypersonnel on systemoptimization

2.3. Equipment

vendors/supplierstrained on systemsoptimization

607,380 62% 365,000 38% 972,380

3.Financialcapacitydevelopment tosupportenergyefficiencyprojects inindustry

TA Increasedavailability of financial andinstitutionalsupport forindustrial energyefficiencyinitiatives

3.1. Projectevaluation criteriadeveloped andharmonized

3.2. Training materialdeveloped andcapacity of industrialenterprises built onbankable energyefficiency projectsdevelopment

3.3. Capacity of financial institutionsand local banks built

to promote and investin industrial energyefficiency projects

275,000 63% 163,000 37% 438,000

4.Implementation of energymanagement andsystemoptimization projects

TA &Invest.

Increasedadoption of energymanagementstandards andsystemsoptimizationenergy efficiencyprojects by the

industry forcontinuoushigher energysavings

4.1. Energymanagement systemsimplemented

4.2 Documentedindustrydemonstrationprojects

4.3. Recognitionprogram developed

and implemented

400,000 3% 12,325,000 97% 12,725,

Project Management 218,000 30% 502,000 70% 720,00Monitoring and Evaluation 80,000 80% 20,000 20% 100,00Total Project Costs 2,180,380 13% 14,175,000 87% 16,355,3

1 List the $ by project components. The percentage is the share of GEF and Co-financing respectively of the total amount for the component. 2 TA = Technical Assistance; STA = Scientific & Technical Analysis


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B. SOURCES OF CONFIRMED CO-FINANCING FOR THE PROJECT 1 (expand the table line items as necessary)Name of Co-financier (source) Classification Type Project %*

Government Contribution

Ministry of Energy and Mineral ResourcesMinistry of IndustryBadan Standardisasi Nasional

Nat'l Gov't Cash & In-kindCashIn-kind Cash & In-kind Cash & In-kind Cash & In-kind

2,175,0001,113,0001,062,000

1,545,000280,000350,000

14%

BRI Bank Government Investment Bank Mandiri Bank**

Private SectorNational Govt National Govt

LoanLoanLoan

10,000,0002,000,000

71%15%

Total Co-financing 14,175,000 100%* Percentage of each co-financiers contribution at CEO endorsement to total co-financing.

** The Mandiri Bank has issued co-financing commitment at the rate of $10,000 - $$500,000 per enterprise. The co-financing for investment on energyefficiency projects has been secured more than expected requirements.

C. FINANCING PLAN SUMMARY FOR THE PROJECT ($)

ProjectPreparation a Project bTotal

c = a + bAgency Fee

For comparison:

GEF and Co-financing at PIF

GEF financing 80,000 2,180,380 2,260,380 226,038 2,260,380Co-financing 150,000 14,175,000 14,325,000 6,931,000Total 230,000 16,355,380 16,585,380 226,038 9,191,380

D. GEF RESOURCES REQUESTED BY AGENCY (IES ), FOCAL AREA (S) AND COUNTRY (IES )1

Information not provided as it is a single focal area, single country and single GEF agency project. E. CONSULTANTS WORKING FOR TECHNICAL ASSISTANCE COMPONENTS :

Component Estimated personweeks

GEFamount($)

Co-financing($)

Project total ($)

Local consultants* 426 530,000 320,000 850,000International consultants* 129 451,000 451,000

Total 555 981,000 320,000 1,301,000* DETAILS TO BE PROVIDED IN ANNEX C.

F. PROJECT MANAGEMENT BUDGET / COST

Cost Items Total Estimated

person weeksGEF amount ($) Co-financing

($) Project total

($)National project coordinator* 96 120,000 0 120,000International consultants* 10 34,000 0 34,000Local consultants 270,000 270,000

Project office 200,000 200,000Office equipment & supplies 5,000 20,000 25,000


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Furniture 10,000 10,000Communication 4,000 2,000 6,000Office assistant 30,000 - 30,000Travel* 5,000 5,000Vehicle 20,000 0 20,000Others** Total 106 218,000 502,000 720,000

* Details to be provided in Annex C . ** For others, it has to clearly specify what type of expenses here in a footnote.

G. DOES THE PROJECT INCLUDE A NON -GRANT INSTRUMENT ? yes no(If non-grant instruments are used, provide in Annex E an indicative calendar of expected reflows to your agency

and to the GEF Trust Fund).

H. DESCRIBE THE BUDGETED M &E PLAN:

The following table presents the budgeted monitoring and evaluation plan of this project.M&E Activity Responsible

PartiesBudget (USD) Timeframe

Prepare and hold Inception workshopMeasure impact indicators

PMU, UNIDO,consultants

15,000 At project start

Carry out mid-term evaluation UNIDO,consultants

30,000 At mid-point of projectimplementation

Carry out final evaluation UNIDO,Independentconsultants

45,000 Within 12 months aftercompletion of projectimplementation

Complete project terminal report PMU, UNIDO,consultants

10,000 Within 6 months of completion of externalevaluation

Total Budget 100,000

The GEF and the Ministry of Energy and Mineral Resources will contribute on the M & E budget in the tune of USD 80,000and US$20,000 respectively. The Project Management Unit (PMU) will be responsible for continuous monitoring of project activities execution, performance and track progress towards milestones. The UNIDO will be responsible fortracking overall project milestones and progress towards the achievement of the set project outputs. The UNIDOproject manager will be responsible for narrative reporting to the GEF. The M & E Plan is detailed in the Annex H.

PART II: PROJECT JUSTIFICATION : In addition to the following questions, please ensure that the project designincorporates key GEF operational principles, including sustainability of global environmental benefits, institutionalcontinuity and replicability, keeping in mind that these principles will be monitored rigorously in the annual ProjectImplementation Review and other Review stages.

A. STATE THE ISSUE , HOW THE PROJECT SEEKS TO ADDRESS IT , AND THE EXPECTED GLOBAL ENVIRONMENTAL

BENEFITS TO BE DELIVERED :

Indonesian economic and energy outlook

Indonesias economic wealth is highly dependent on the growth of the industry, which contributes to almost 48% of theGDP. The industry also contributes to 64.5% of good exports. The Gross Domestic Product (GDP) of Indonesia at 2000constant price grew from IDR 1,577,000 billion in 2003 to IDR 2,082,000 billion in 2008. This represents an annualgrowth between 4.8% and 6.3%. Over the same period, the industry growth varied between 3.8% and 4.7% 2.

2 Asian Development Banks Key Indicators for Asia and the Pacific 2009


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According to Statistics Indonesia, there were 27,808 manufacturing establishments classified as medium and largeestablishments in 2008. About 80% of the manufacturing establishments are located in Java 3.

The countrys export value in 2009 was reported by the Badan Pusat Statistik (Statistics Indonesia - BPS) to be USD116.5 billion. This figure suggests that the export value of Indonesia is 18% below the 2008 level, which was estimatedat USD 137 billion. The manufacturing industry sector contributes annually to about 64.5% of the total exports since19944. The textile and garment, food and beverages, pulp and paper, and chemicals subsectors are all almost in the topten main contributors to manufacturing exports.

The modern energy supply is dominated by fossil sources representing 96% of the total primary energy supply in 2008.Hydro and geothermal power supplied only the remaining 4% 5 of the primary energy. Energy consumption in Indonesiais dominated by petroleum fuel and coal. The petroleum fuel share in the final energy mix amounts to 46.7% in 2008,followed by coal (including briquette) (25.3%), gas (13.7%), electricity (11.9%), and LPG (2.4%) 6.

The industrial sector is the largest energy-consuming sector in Indonesia. The final energy consumption (excludingbiomass and non energy use) was 643.9 million of BOE in 2008, of which 49% was used in the industrial sector. Thisrepresents an increase of 22.4% in industrial energy consumption compared with figures of 2007. The industry sectordrew more than 90% of its final energy consumption from fossil fuel sources 7. Within the industry sector, non-metallicminerals, pulp and paper, and chemicals and petrochemicals are the largest consumers of bituminous coal while textileand leather, mining and quarrying, non-metallic minerals, food and tobacco, chemicals and petrochemicals, and

construction consume diesel oil the most. According to the 2009 Handbook of Energy and Economic Statistics of Indonesia, about 37% of the total electricitysales (of 129,019 GWh) were sold to industries in 2008. In addition, captive generation by industries is estimated at26,000 GWh, resulting in a total electricity consumption in industries of around 74,000 GWh in 2008. The current andfuture electricity consumption trends per sector in Indonesia suggest that electricity consumption in the different sectorswill grow rapidly from 2010. The consumption of the industrial sector is predicted to reach a share up to 60% of thetotal electricity consumption in the country by 2025 8. The distribution of energy consumption in the industry sector isdetailed by energy source in TABLE 1.

Table 1: Energy Consumption by Source in the Industry Sector (in Thousand BOE) 9 2004 2005 2006 2007 2008

Coal 55,344 65,744 89,043 121,904 159,696Briquette 80 94 94 89 157 Gas 85,076 86,277 82,845 79,723 90,845Fuel 74,718 64,239 57,203 52,418 48,856LPG 1,101 1,131 1,453 1242 1124 Electricity 24,719 26,021 26,736 28,077 29,405Total 241,038 243,506 257,374 283,453 330,083

3 BPS, Statistical Yearbook of Indonesia 2009.4 BPS Industry Statistics, 20095 Handbook of Energy and Economic Statistics of Indonesia 20096 Handbook of Energy and Economic Statistics of Indonesia 20097 Handbook of Energy and Economic Statistics of Indonesia. 20088 Pengkajian Energi Universitas Indonesia (PEUI), Indonesia Energy Outlook & Statistics 2006 (also available athttp://peui.eng.ui.ac.id/files/publikasi2007/EXECUTIVE%20SUMMARY%20IEOS%202006.pdf . Visited on 10/04/12)9 Handbook of Energy and Economic Statistics of Indonesia 2009


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Coal48%

Briquette0%

Gas28%

Fuel15%

LPG0%

Electricity9%

Figure 1: Energy Consumption in Industry by Energy Source in 2008

The main point to be highlighted in the energy consumption trend in the industry sector during the five past years is theshift from gas and fuel consumption to more coal use in the sector. Between 2004 and 2008, coal consumption hasalmost doubled (188% increase) while gas consumption has grown by only 6.9% and fuel consumption has decreasedby 3.5%. As shown in Figure 1, coal in the main energy used in the industry with a share of 48% followed by gas, fueland electricity with a share 28%, 15% and 9% respectively.

In terms of greenhouse gases emissions, the Ministry of Energy and Mineral Resources statistic data (2008) 10, revealedthat between 2000 and 2007, CO 2 emissions from the industry and electricity generation reached 81.4 millions tons in2000 and 59.8 millions tons respectively and increased to 117 millions tons (about 36.2% of energy related GHGemissions) and 93.6 millions tons in 2007. This represents an increase in CO2 emissions of almost 45% in the industrialsector in 2007 compared with the levels in the year 2000. Therefore, under a business as usual approach, the CO 2 emissions will more or less increase in line with the energy demand.

There is a general concern at the government level about the inefficiency of energy usage in the industry. Moreover, theincreasing greenhouse gas emissions arising from fossil fuel combustion in industry and power generation and high fuelprices at the international markets constitute a threat to the environment and economy sustainability of the country. Thegovernment is also conscious about the need to improve the competitiveness of the industry by reducing production costand promoting sustainable and low-carbon development. To address this issue, the government has initiated severalactions to promote energy conservation. The governments energy conservation program, which aims at creating theappropriate environment that is conducive for energy conservation practices, include awareness raising activities,demand-side management, and an energy conservation partnership program. In addition, the government is alsostrengthening capacity building of small and medium enterprises through a number of training provisions on sustainableenergy management and pilot projects on energy efficiency programs.

In the industrial sector, the Directorate General of Electricity and Energy Utilization (DGEEU) estimated the potentialof energy saving within 15% to 30% of current energy consumption. From the survey conducted during the PPG phase,35% of the interviewed enterprises estimated that it was possible to achieve between 6% to 22 % energy savings in theircurrent energy use for the next 5 years depending on the money to be invested in the projects. The DGEEU, through a

partnership program, has conducted free energy audits for 183 industrial facilities and 100 buildings since 2003covering only 1% of the industry with very little achievements. Only no-cost and low-cost recommendations have beenimplemented on ad hoc basis. In general, the decision for investing in EE projects in the facility is taken at the highestmanagement level. The commonly implemented EE measures include efficient lamps (which are the most popularmeasure), process control, motors replacement, variable-speed drive, heat recovery, fuel switching, etc.

Despite these encouraging efforts initiated by the government, little achievement has been observed in the field. The EEprograms and initiatives in the country have not delivered comprehensive capacity building focused on the Indonesianindustrial sector. As a result, there is a very limited penetration of energy-efficient measures, technologies, and systemsin the industries. Industrial enterprises have not implemented energy efficiency programs despite of the large potential

10 MEMR. 2008 Key Indicator of Indonesia Energy and Mineral Resources


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of efficiency improvements. Based on the observed situation, it is likely that the energy consumption and GHGemissions will continue to increase in the industrial sector if business as usual scenario persists.

Equipment based efficiency instead of system improvementIn most countries, current practices in the field of energy efficiency tend to focus more on individual systemcomponents, such as motors, pumps, or boilers than on the whole system. Indonesia is not an exception. The componentlevel improvement has potential of increasing system energy efficiency of 2-5%. Virtually, there is no focus onimproving energy efficiency at the system level which can provide higher savings in energy consumption and GHG

emissions. During the project preparation phase, an assessment of current practices in terms of energy management andsystem optimization was carried out among the industry. Usually, the technical managers consider just making sure thatthe technical facilities are operational through current housekeeping practices that focus on fixing any trouble andfailure. The equipment procurement procedures tend to rewind motors and buy low-cost equipment instead of high-performance equipment and working at the system level. The business-as-usual scenario would likely includecontinuation of oversized and poorly controlled industrial energy systems that inadequately match system supply toproduction demand. Opportunities may be lost to accelerate adoption of energy efficient best practices for the industrialsector in Indonesia. Ad hoc energy management practices versus built-in energy management

As in many countries, energy management is an ad hoc practice in the Indonesian industrial sector. Though more than70% of the industrial enterprises surveyed during the project preparation viewed energy consumption reduction as veryimportant, it was found that only 10% spend 31 to 39 hours on energy management per week. In the baseline scenario,most enterprises monitor their energy use by linking it to their production and analyzing it based on a performance goalevery year or monthly for some. At the facility/company level, there is no built-in energy management policies andstrategies that integrate energy issues in the existing management structure. There is no continuous implementation of energy management. The current practice does not institutionalize energy management and does not allow acomprehensive and integrated approach that ensures sustainable energy cost reduction and improves the facilityproductivity in an irreversible way.

Barriers to Energy Management and Systems Optimization in the Industrial Sector

Industrial enterprises have not implemented energy efficiency programs despite of large potential of energy efficiencyimprovements and several initiatives launched by the government. Several barriers contribute to the failure of the uptakeof industrial energy efficiency measures.

Informational barriers: Informational barriers highly contribute to the widespread failure to recognize the presentopportunities in energy management systems and systems optimization. Currently, there is a lack of information aboutavailable options, best practices, and benchmarks. There are no awareness activities in the country to promote energymanagement standards and system optimization with comprehensive guidelines and documentation of demonstrationcases. The government and other donors initiative focussing on energy management in the industry are at the nascentstage and are cited more in government policies than implemented in ground activities. In fact, the top management anddecision-makers of the industry are not aware of the opportunities that energy management and system optimization canbring in to reduce production cost and improve competitiveness. As a result, there is very limited commitment on thepart of management of enterprises to promote industrial energy efficiency on a regular basis.

Technical barriers: The absence of energy efficiency technical expertise constitutes a major barrier to improve energyefficiency in facilities. In addition, high turnover of plant personnel assigned to the operation of industrial systems andchanges in production lead to a lack of persistence for system optimization improvements. Local manufacturers andequipment suppliers also lack technical information and trainings for supporting decisions to pursue energy efficiencyimprovements in the products.

Market barriers: Most industries have a budgetary disconnect between capital projects and operating expenses(energy and maintenance).Life cycle assessment on purchases is rarely considered on industrial energy efficiencyprojects. Low-investment cost is mostly considered when the decision has to be taken to change equipment. Besides,most consulting expertises on energy efficiency available in the country focus on technology and not on processes andsystems. On the local suppliers of equipment part, the experience and skills are limited in marketing their products andbrands to the industry without offering alternatives to improve the system efficiency as a whole.


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Financial barriers: The financial barriers to investment in EE projects are more related to the lack of information onavailable financial mechanisms and incentives and how to access them. At financial institutions and banks levels, thereare two main issues: (i) the lack of understanding of the particularity of energy efficiency projects and how to properlyevaluate them, and (ii) the disconnect between the financing products offered and the needs of EE projects.

Policy barriers: There are many policy and regulatory measures taken by the Government of Indonesia to promoteenergy conservation in the country. However, these initiatives have resulted in very little achievements in the industrysector because of the lack of targets to improve industrial energy efficiency, the weakness of the existing instruments toeducate market players (industries, consultants, equipment suppliers, and banks) on the promotion of energy efficiency,

and inadequate financing incentives and mechanisms.

GEF ALTERNATIVE (THE PROPOSED PROJECT )

During preparatory phase, UNIDO engaged direct and opened discussions with the Ministry of Energy and MineralResources and the Ministry of Industry to identify and understand the countrys needs and priorities in terms of enhancement of the industrial sector. The government identified eight key sub-sectors to focus on to avoid duplicationand resources wasting as there were already ongoing and planned government initiatives, which aimed at reducing theGHG emissions in some energy intensive industrial sectors such as the cement, and steel and foundry sectors. Theselection of the industry sub-sectors were based on criteria such as the sub-sector impact on GHG emissions mitigation,capacity to respond to energy management opportunities, replication factor, and importance of the sector to the nationaleconomy.

Four industry sub-sectors, out of eight initially identified were retained under the proposed project. They include textileand garment, food and beverages, pulp and paper, and chemicals. The industrial sub-sectors selected for this study arecategorized as medium and large size industries. The project will directly provide benefits to 300 facilities in the fourselected sub-sectors. However, the replication opportunity is much larger. Within these sub-sectors, there areapproximately 13,000 facilities, which represent 48% of medium and large size manufacturing units in Indonesia.According to the latest BPS statistics (Statistical Year Book of Indonesia 2009), the profile of the four selected sectorscan generally be summarized as follows:

Table 2: General Profile of the Targeted Subsectors in 2008Item Food &

BeveragesTextile &Garment

Pulp &Paper

Chemicals Total

Number of establishments (units) 6,316 5,050 457 1,253 13,076Total workers employed (people) 750,836 69,9418 119,725 232,991 1,802,970Labour cost (IDR billion) 19,007 14,513 5,421 11,388 50,329Value of gross output (IDR billion) 435,990 229,300 104,585 244,497 101,4372Input cost (IDR billion) 320,062 153,464 61,863 144,369 679,758Added value (IDR billion) 112,557 74,766 41,996 97,413 326,732

The activities including TA and investment components that will address the key issues and barriers to the promotion of industrial energy efficiency can be divided into three categories including strengthening the policy, capacitydevelopment and demonstration of pilot projects. There are four components designed under the proposed project:

COMPONENT 1: INTRODUCTION OF ENERGY MANAGEMENT SYSTEMS AND CAPACITY BUILDING The outcome from this component is to establish a policy instrument that encourages industrial enterprises to adopt ISOcompatible energy management standards to deliver sustainable improvements in industrial energy efficiency andcompetitiveness. The project is itself a capacity building initiative for the government counterparts (MEMR, MOI andBSN) who are involved at the design stage and will be main partners for the project implementation. The MEMR, theMOI, and the BSN will be closely involved to provide coordination and ensuring of sustainability of the activities.


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Output 1.1: Reinforced capacity of government institutions on energy managementThe activities for delivering this output will include:

Review of existing initiatives and policy to recommend particular actions for promoting/institutionalizingenergy management in industrial sector.

Workshops to introduce energy management and implementation guidelines and increase the capacity of keygovernment institutions like DGEEU, Directorate for New Renewable Energy and Energy Conservation Agencyfor Research and Development.

Development of a replication and scaling up plan to guide the government in the design and implementation of a long-term energy management program in the industry.

Transfer of the maintenance of the peer-to-peer database and reporting tools to the relevant government agency. Output 1.2: Training material and tools developed The activities aim at developing training material and tools for energy management and implementation of ISO 50001.The material and tools will be translated into Bahasa Indonesia language, printed, and reproduced based on guidelinesand case studies. The energy management material and tools will allow industrial facility managers/personnel tounderstand the importance of energy management standards and undertake energy management planning. The energyperformance reporting structure will be developed to help industries track the improvement when implementing thestandards. The expected activities from this output include:

Development of training material and tools publicly available for participating industries Development of guidelines for energy management and ISO 50001 implementation in English and Bahasa

Indonesia Development of energy performance reporting tools to enable benchmarking in industry sub-sectors and peer-

to-peer networking. Output 1.3: National awareness campaign launched on ISO 50001The national awareness campaign aims at urging industries and key stakeholders to shift from current operations toenergy management practices by adopting ISO 50001. The campaign will use promotional literature for the project andISO 50001, press releases, and presentations to industry associations. Output 1.4: Trained national experts/factory personnel on energy management

It will consist of two-step trainings. The first step will target trainers where international experts will deliver intensivetraining to national experts to a level such that they can train others. At the second step, international and nationalexperts will provide trainings and assistance to factory personnel. The preparatory activities will include the compilationof the training material by international experts, translation, identification of initial factories for the on-site training andidentification of classroom facilities. The national experts and factory engineers will be selected based on criteria agreedin consultation with the government counterparts. Intensive training for 25 national experts:The UNIDO international team will provide training for the national energy management experts with most of thistraining taking place within the first two years of the project. These individuals will subsequently assume the role of national energy management experts, become a source of national energy management expertise, and serve asmultipliers for project impacts. The curricula will be introduced to the national experts in three stages: observing the

international experts teach, co-teaching with the international experts, and teaching with international experts observingand commenting on teaching techniques. The national energy management experts will be trained through a mentoring and on-the-job (OJT) process to anintermediate level of expertise. They will be capable of:

- Conducting short (one-half day) workshops for factory managers on the benefits of implementing an energymanagement system in conformance with ISO 50001 and highlighting the technical assistance available toparticipating companies

- Conducting two-day training sessions for energy managers on implementation of an energy managementsystem in conformance with ISO 50001, including information on internal auditing techniques


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- Coaching facility personnel on energy management system implementation Energy management trainings for factory managers and personnel At this second step, UNIDOs international team along with trained national experts will conduct additional energymanagement training sessions. Together, they will develop specific criteria to select relevant participants for whom theywill conduct energy management training sessions:

- Half-day workshops for factory personnel, including energy managers, targeting 300 factories acrossIndonesia. The purpose is to encourage managers to register their key staff to participate in the subsequentfull-day implementation training sessions. The role of ISO 50001 in improving competitiveness, EEmandates, and enhancing prospects for international trade will be discussed at the workshop. A part of theworkshop will be dedicated to presenting the range of technical assistance that would be available to theircompany and staff as a benefit of project participation. A guest speaker from the industry who is alreadyengaged in energy management will also be sought for each workshop.

- 200 factories will receive two-day training on ISO 50001 energy management system implementation and

internal auditing techniques to assist them in conforming to ISO 50001. The assumption is that, out of the300 factory managers participating in the half-day workshops, approximately 200 will choose to committheir employees to the energy management system implementation training.

The two-day training will guide participants through the Plan-Do-Check-Act cycle as it applies to the ISO 50001 energymanagement system. Instruction will be given on how to establish an effective energy policy, set improvement targetsand objectives, establish energy performance indicators, and identify significant energy uses and opportunities forimprovement. At least half a day will be dedicated to internal auditing and integrating the ISO 50001 energymanagement system into existing ISO management systems such as ISO 9001 and 14001. Each participant of the two-day training session will be registered in the peer-to-peer network. Each participatingfactory will also have access to support from the national energy management experts to assist them in implementingtheir energy management system, resulting in operational improvement.

Output 1.5: Peer-to-Peer network established between industrial enterprises

A peer-to-peer network will be created and managed by the project management unit to facilitate information exchangebetween the participating facilities. Enterprises taking part in the project will be encouraged to send their energymanagement implementation plan and the following results. This exchange of information will stimulate industries byproviding them with information on a big range of energy management and systems optimization solutions and theirimpact on the industry energy consumption. The main activities to be conducted under Component 1 are summarized in the following table.

Table 2: Activities and Outputs under Component 1 of the Project

Component 1: Introduction of energy management systems and capacity building

Output 1.1: Reinforced capacity of government institutions on energy management

Output 1.2: Training material, software, and tools developed

Output 1.3: National awareness campaign launched on ISO 50001

Output 1.4: Trained national experts/factory personnel on energy management

Output 1.5: Peer-to-peer network established between industrial enterprises

Activities Responsibility Development of a detailed work plan incorporating schedule, role andresponsibilities, and milestones

UNIDO,international experts, and PMU

Preparation, development, and production of training material and toolsin English and Bahasa Indonesia

UNIDO,international experts, and PMU


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Review of existing policy framework and activities andrecommendations for the government to promote energy management inindustries

Workshops to increase the capacity of key government institutions onenergy management

Development of a replication and scaling up plan for the government

Transfer the maintenance of the peer-to-peer database and reporting

tools to the relevant government agency

UNIDO,international experts, andPMU

Production of promotional/media material to promote the ISO 50001standard

Production of articles to introduce ISO 50001 in standard newspapers,journals, and magazines

Event launch of the standard ISO 50001

Organisation of seminar road shows in the country to introduce ISO50001 to entrepreneurs/members of Indonesia industryassociations/organizations

UNIDO,international experts,PMU, MEMR, MOI, and BSN

Select trainees to become national experts on energy management based

on certain agreed criteria

UNIDO, international experts,

and PMUProvide logistics support for the trainings PMUConduct trainings on energy management for national experts PMU and international expertsConduct trainings on energy management for factory personnel PMU, national experts and

international expertsExchange information with industries and establish a peer-to-peernetwork

PMU, MEMR, MOI

COMPONENT 2: CAPACITY BUILDING ON SYSTEMS OPTIMIZATION The main outcome from this component is development of a cadre of energy efficiency professionals within industrialfacilities as well as international experts and equipment suppliers to initiate a process to transform local markets

effectively as to provide industrial systems optimization services.

Output 2.1: Training materials and tools developed

This output consists of the development of training material and tools to assist industrial enterprises and internationalexperts in understanding and applying the systems optimization approach applied to targeted industrial systems (steam,compressed air and pumping).The material and tools will be translated into the Bahasa Indonesia language, printed, and reproduced based onguidelines and case studies from other countries.The expected activities from this output include:

Development of training material and tools publicly available for participating industries

Development of guidelines for systems assessment and optimization in English and Bahasa Indonesia

Output 2.2: Trained national experts/factory personnel on systems optimization

This will principally consist of two-phase trainings as explained in the output 1.4. The preparatory activities involvethe compilation of training material by international teams, translation, the identification of appropriate factories for thein-plant training with requisite compressor/steam systems, securing approval of site visits, purchase of measurementequipment to perform the in-plant training, acquisition of technical data from host plants pertaining to the systems andcomponents to be evaluated by the teams, identification of classroom facilities, provision of accommodation fortrainees, etc.


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Intensive training for 45 national experts in systems optimizationIn the first phase, a one-to-one and a one-to-many training and implementation schemes will be achieved, in whichUNIDOs team of international experts is engaged in initial capacity building to create a core of 45 highly skilledIndonesian experts. These individuals would subsequently assume roles as systems optimization experts, become asource of national systems optimization expertise, and serve as multipliers for project impacts. To ensure success of theproject, trainees will be rigorously selected based on technical and training capabilities and consultation with theMEMR. Systems optimization training for 45 national experts will consist of:

- Training of 45 national systems optimization experts by the UNIDO international team in classroom and plantsettings. The national experts will be trained on-the-job on the use of measuring instrumentation, datacollection and analysis, and the preparation of investment proposals for energy system improvements whichare subsequently submitted to the management of the plants hosting the training.

- Training on use of UNIDOs tools designed to assist national experts and their industrial customers indeveloping and documenting sustainable projects.

- Prepare national systems optimization experts to deliver training (specific to each system type) curricula. UNIDOs international team will offer intensive training on systems optimization to participants. Most of this trainingwill take place within the first two years of the project. The national experts will receive both classroom training and on-site interactive training involving participating industrial facilities. Following completion of initial systemsoptimization training courses, the international team returns to work with their trainees on plant assessment and projectdevelopment skills. In addition, the international experts will prepare and observe trained national experts conductingtraining of local personnel in factory training sessions. Factory personnel capacity building on systems optimizationAt this second stage, UNIDOs international team and trained national experts will jointly conduct additional systemsoptimization training sessions.

- One-day trainings for 300 factory personnel across Indonesia to introduce general concepts on pumpingsystems, steam systems, and compressed air systems optimization. This session will be a mix of theory andpractical considerations.

- 150 factory employees that have already taken part in the 1-day training sessions will receive additional 2-day training sessions in the utilization of the UNIDOs tools designed and developed under this component.

Output 2.3: Equipment vendors/suppliers trained on systems optimization In addition to experts training, the international team will conduct training to introduce Indonesia-based equipmentvendors, manufacturers representatives, and suppliers of pumping, compressed air, and steam systems equipment tosystems optimization techniques. The purpose of this training is to prepare manufacturers, vendors, and suppliers (in total 50) to: (i) participate inreinforcing the systems optimization message with their customers, and (ii) assist them in identifying what will berequired to reshape their market offerings to reflect a system services approach. Each training session will be a mix of theory and practical considerations. This training will target fifty companies and will be taught by instructors withequipment, manufacture, or sales experience. The activities and the expected outputs of this component are summarized in the following table.

Table 3: Activities and Outputs under Component 2 of the Project

Component 2: Capacity building on systems optimization

Output 2.1: Training material, software, and tools developed


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Output 2.2: Trained national experts/factory personnel on systems optimization

Output 2.3: Equipment vendors/suppliers trained on systems optimizationActivities Responsibility Development of a detailed work plan incorporating schedule, role andresponsibilities, milestones, etc.


Preparation, development, and production of training material and toolsin English and Bahasa Indonesia


Select trainees to become national experts on energy management andsystems optimization based on agreed criteria

UNIDO, internationalexperts, PMU, and MEMR

Provide logistics support for the trainings PMU Conduct trainings on systems optimization for national experts PMU and international

experts Select factories and conduct trainings on systems optimization forfactory personnel

PMU, national andinternational experts

Select equipment suppliers and conduct trainings for 50 vendors each onsystems optimization of pumping, steam systems, and compressed airsystems

International experts,PMU, and national experts

COMPONENT 3: F INANCIAL CAPACITY DEVELOPMENT TO SUPPORT ENERGY EFFICIENCY PROJECTS IN INDUSTRY The expected outcome from this component is the increased availability of financial and institutional support forindustrial energy efficiency initiatives.Output 3.1: Project evaluation criteria developed and harmonized The following activities will be carried out to deliver this output:

Development of project evaluation criteria to be used by financial institutions to better rate energy efficiencyand systems optimization projects. The criteria will take into account lifecycle cost of efficient technologies,best practices, and monetary savings generated by energy efficiency projects as a positive cash flow for the

industry. Harmonization of available criteria for evaluation of industrial EE projects. Preparation of guidelines to assist financial institutions in enhancing their capacity to evaluate industrial EE

projects. Output 3.2: Training material developed and capacity of industrial enterprises built on bankable energy efficiencyprojects developmentThis output will include the development of training material and tools and build the capacity of industrial facilitymanagers to develop bankable projects. The following activities will be carried out:

Development of training material and tools on bankable EE projects for industrial enterprises in English andBahasa Indonesia.

Compilation and dissemination of information on financial incentives/schemes available for investments onenergy efficiency improvements in Indonesia. Training of factory personnel in preparation of bankable energy efficiency project proposals. The learning-by-

doing approach to be used will be based on case studies and real projects from participating facilities. Somefinancial institutions will be invited to present their investment credit lines in industrial EE projects.

Output 3.3: Capacity of financial institutions and local banks built to promote and invest in industrial energyefficiency projectsThe activities foreseen to be implemented in order to achieve this output include:

Dissemination of the developed project evaluation criteria and guidelines among the financial institutions.


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Trainings for local banks and government financial institutions to understand the main features of EE projectsand better appraise project proposals submitted by the industries.

Activities to be undertaken under Component 3 and their outputs are summarized in the following table.

Table 4: Activities and Outputs Under Component 3 of the Project

Component 3: Financial capacity development to support energy efficiency projects inindustry

Output 3.1 Project evaluation criteria developed and harmonized Output 3.2: Training material developed and capacity of industrial enterprises built onbankable energy efficiency projects development

Output 3.3: Capacity of financial institutions and local banks built to promote and invest inindustrial energy efficiency projects

Activities ResponsibilitiesDevelop and harmonize criteria for evaluation of industrial EE projects forfinancial institutions

PMU, UNIDOexperts, andFinancialInstitutions (FI)

Develop guidelines for EE projects evaluation by the financial institutions PMU, UNIDOexperts, and FI

Develop training material and tools on bankable EE projects for industrialfacility personnel

PMU, UNIDOexperts, and FI

Compile and disseminate information on financial incentives/schemesavailable for investments in EE projects in Indonesia

PMU

Train factory personnel on energy efficiency financing and bankable EEprojects development


Disseminate EE projects evaluation criteria and guidelines among financialinstitutions


Train and increase awareness of financial institutions and local banks tounderstand, promote, and invest in industrial EE projects PMU, UNIDOexperts, and FI COMPONENT 4: IMPLEMENTATION OF ENERGY MANAGEMENT AND SYSTEMS OPTIMIZATION PROJECTS

The expected outcome from this component is the increased adoption of energy management standards and systemsoptimization energy efficiency projects by industries for higher energy savings on continuous basis.

Output 4.1: Energy management systems implemented

The project will provide technical assistance to industries for the purpose implementing ISO compliant energy

management systems in their facilities. The industrial facilities who had their staff participated in the two-day trainingevents, will be expected to implement operational improvements projects as well. The activities will include:

Support of the implementation of operational improvement projects by national experts, with limited support

from UNIDOs international team, in 150 factories selected among the participating industrial facilities. Direct support to 25 industrial factories to enable them to conform to the ISO 50001 standard. The support

consists of extensive on-site assistance from the national energy management experts guided by the UNIDOinternational experts.


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It is expected that 150 factories will complete operational improvement projects and participating factories register forthe peer-to-peer network.

Output 4.2: Documented industry demonstration projects

The project will support the implementation of systems optimization projects in industrial enterprises. The activities willinclude the following:

Complete 60 systems assessment by the trained Indonesian experts nationwide with limited support from

UNIDO international experts. Implementation of 35 systems optimization projects. This will lead to completed systems optimization projects,which will be developed using the UNIDO tools.

This output will also lead to lessons learnt (success stories, but also failed cases) from the demonstration projectsimplemented in order to promote energy management standards and systems optimization in the industry sector inIndonesia. The information on the project and the promoted concept will be available for both participating and non-participating industries. Out of the 35 completed projects, 20 projects are planned to be documented as case studies.. The case studies will bedeveloped illustrating financially attractive investments in efficiency improvements for steam, pumps, and compressedair systems. They will document the energy and GHG emission savings directly attributable to the project. They willalso be used in the subsequent factory training by the national experts. Output 4.3: Recognition program developed and implemented A recognition program will be developed and made available for facilities that will implement an energymanagement plan and report their energy savings. This activity will include the management of a peer-to-peerdatabase and the website. Participating industries will provide their energy savings which will then be madeavailable trough the peer-to-peer network website. Every year, awards will be given to industries based on theirannual savings performance. The recognition program will be implemented in close collaboration with the MEMR. Activities foreseen to be undertaken under Component 4 are presented in the following table.

Table 5: Activities and Outputs under Component 4 of the ProjectComponent 4: Implementation of energy management and systems optimization projects

Output 4.1 Energy management systems implemented

Output 4.2: Documented industry demonstration projects

Output 4.3: Recognition program developed and implementedActivities Responsibility

150 industrial enterprises implement operational improvementprojects after receiving energy management trainings

Industrial enterprises

25 industrial enterprises implement activities towardsconformance with ISO 50001

Industrial enterprises,International Experts,PMU

Registration of enterprises who implemented projects in the peer-to-peer networks

Industrial enterprises and PMU

60 assessments undertaken to identify systems optimizationopportunities in the industrial facilities

Industrial enterprises, PMU,national experts, andinternational experts

35 industrial enterprises implement systems optimization projects

Industrial enterprises, nationalexperts, international experts,


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and PMUSet up energy performance indicators for recognizing improvementon energy efficiency in the peer-to-peer networks MEMR recognizes industries through the awards based on theenergy saving performance indicators

MEMR and PMU

EXPECTED GLOBAL ENVIRONMENTAL BENEFITS

The project interventions will lead to energy savings for the industry, which can be translated into GHG emissionreductions based on the fuel/electricity used. Global benefits in terms of avoided carbon-di-oxide emissions resultingfrom energy savings are estimated from the project as followed:

A. Direct GHG reductions Emission reductions achieved by demonstration projects that are planned andimplemented as part of the project as well as energy efficiency investments leveraged as result of the projectduring the projects supervised implementation period.

B. Indirect GHG Emission Savings Emission reductions achieved after project completion as result of theenabling environment for EE practices and investments created by the GEF project and projects implementedby the equipment vendors/suppliers after receiving technical assistance from the projects.

The industrial demonstration projects and training activities are expected to result in direct electricity and fuel savings of 37,484 MWh and 404,000 GJ during project period. In terms of GHG reduction, the project is expected to provide67,442 tCO2 during this period. Indirect fuel and electricity savings are estimated to be in the order of 3,057,000 GJ and297,540 MWh. In conclusion, the project will result in total emission reduction to the tune of 596,402 tCO2: 67,442tCO2 from direct emission savings and 522,960 tCO2 from indirect emission savings. Calculation details of theseestimates are given in the annex F.

B. DESCRIBE THE CONSISTENCY OF THE PROJECT WITH NATIONAL AND / OR REGIONAL PRIORITIES / PLANS :

The Government of Indonesia has initiated several actions to promote energy conservation and efficient use of energyresources as early as in 1982 as a response to high oil price at that time.

In June 2002, the Government of Indonesia developed the Green Energy Initiatives which was drafted in June 5, 2002with the following aims: i) maximizing the utilization of renewable energy through intensive exploration and sustainableexploitation, promotion of renewable energy technology to obtain high value added of good and services, ii) utilizingenergy efficient technologies by supporting facilities to use EE technologies, enhance the energy efficient technologydevelopment and facilitating market development for EE technologies, iii) public awareness to encourage the diffusionof EE technologies in the country.

Aware of the problems related to energy supply and utilization and the need for policy guidance, the Government of Indonesia through the Presidential Regulation No 5/2006 formulated the National Policy on Energy. It aimed atachieving energy elasticity less than 1 (one) in 2025 and gaining optimum energy resources mix in 2025. It also aims toprovide baseline guidance that directs the activity and program related to energy which would lead to secure the energysupply for the country development in the long-term perspective.

The energy policy relies on five pillars: (i) energy diversification to emphasize the importance to diversify energyutilisation, which includes the use of renewable and non-renewable energy sources, creation of optimal energy mix,which will bring maximum net benefit, and support sustainable development; (ii) energy intensification to urge thesearch for new energy sources (both new, renewable, or non-renewable sources) should be intensified as fossil energyreserves are running out; (iii) energy conservation for promoting the efficient use for both supply side and demand side;(iv) energy pricing to reflect real market costs as a measure to urge optimal energy utilisation, increasing the economiccompetitiveness, and protect the consumers and equality; and (v) environment and sustainable development as a directconsequence of sustainable energy utilisation and development.

The Energy Act No. 30, 2007, which was issued on August 10, 2007, reinforced the governments visions to guaranteethe security of national energy through the establishment of appropriate national energy policies, proper instruments,


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law enforcement related to the national energy policy, use of environmentally sound energy sources and technologies,and the establishment of the National Energy Council (Dewan Energi Nasional DEN).

The Energy Act has put an emphasis on some energy conservation issues, which are presented as follows: National energy conservation shall be the responsibility of the government, the regional government, business

entities, and the community. The national energy conservation shall cover all phases of energy supply and utilization., Consumers of energy and producers of energy-saving equipment who conserve energy shall be given facilities

and/or incentives by the government and/or the regional government.

Energy consumers who do not conserve energy shall be given disincentives by the government and/or theregional government.

Further provisions on the implementation of energy conservation and the provision of facilities, incentives, anddisincentives shall be regulated by the government regulation and/or the regional regulation.

The Government Regulation No. 70/2009 issued on November 16, 2009 provided more directives for the application of the Energy Act. Some important points of the regulation are spelt out as follows:

The government should implement the energy conservation measures based on the five-year National EnergyConservation Master Plan (RIKEN).

The energy conservation activities have to be implemented in the supply and demand sides and should involveall stakeholders including government, regional governments, business enterprises, and society.

On the demand side, mandatory energy management is required from energy consumers that use more than6,000 TOE/year. Concretely, these consumers have to designate energy managers, develop an energyconservation program, perform periodic energy audits, implement energy audit recommendations, and reportyearly on energy conservation implementation to the government.

Major steps towards energy conservation and efficiency undertaken by the government of Indonesia can chronologicallybe summarized as follows:

Figure 2: Regulation Chronology on Energy Conservation Many initiatives have been undertaken within the Ministry of Energy and Mineral Resources (MEMR) regarding energyconservation to translate in concrete activities the government willingness to promote efficient use of energy. Some of the activities are summarized in Table 5 below.


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Table 6: Energy Conservation activitiesProgram Activities Supply-Side Management Reducing electricity productioncost and utilization of alternative energy sources

Replacement of high speed diesel (HSD) for power generation to marinefuel oil (MFO) and gas

Utilization of renewable energy sources for electricity generation Switching from oil to liquefied petroleum gas (LPG)

Demand-Side Management Appliance labelling Label display on energy consuming appliances showing the energy

efficiency level for costumer information Promotion of energy saving lamps Preparation of Ministerial Decree for the implementation of a labeling

system for CFLs Preparation of labeling for electric fans, televisions, ballasts, air-

conditioners (AC), and refrigeratorsPublic awareness campaign Organization of seminars/workshops and public advertisement of energy

saving through newspapers, electronic media, and talk shows Dissemination of information through publication of brochures, leaflets,

and stickers on energy efficiency

Organization of National Energy Award 2008 for building and energymanagement Participation in ASEAN Energy Award 2008 for building and energy

management

Education and training Training on energy efficiency and conservation by the Centre for Trainingand Education - MEMR

Participation in the abroad training on energy conservation conducted byJICA, ECCJ/ACE, etc.

Partnership program on energy

conservation

Provision of free of charge energy audits for buildings and industries

Free energy audits have been provided for 283 industries and buildingsfrom 2003 to 2009 Energy audits will be conducted in 160 industries and buildings in 2010

Energy manager and auditorcertification program

Energy manager and auditor accreditation mechanism and certification forenergy managers in buildings under preparation since 2007

Clearing House of EnergyConservation

Development of a clearing house for energy conservation (information centrefor energy conservation activities)

Considering all the above, the proposed UNIDO-GEF project is perfectly in line with the strategic as well as specific

objectives of key policy and regulatory framework of the government and it is consistent with and supplemental to therecommended plan of actions. The proposed project would provide the additional international expertise, technical best-practices and inputs needed to support and effectively leverage national efforts. The project will contribute to thedevelopment of the human, institutional, industry and market capacity, and supporting structure necessary to realize theindustrial energy efficiency related goals of the National Energy Policy and the Presidential Instruction on Efficient Useof Energy in Indonesia.

C. DESCRIBE THE CONSISTENCY OF THE PROJECT WITH GEF STRATEGIES AND STRATEGIC PROGRAMS :

The project falls under and supports GEF-4 Climate Change Strategic Program 2: Promoting energy efficiency in theindustrial sector. By addressing key existing barriers on information, technical capacity and market barriers forsustainable IEE in Indonesia, the project will directly contribute to promote and increase the deployment and


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diffusion of energyefficient technologies and practices in industrial production and manufacturing processes (ClimateChange Strategic Long-term Objective 2). The project would also make a tangible contribution to stimulate the creationof an Indonesian market for IEE products and services.

D. J USTIFY THE TYPE OF FINANCING SUPPORT PROVIDED WITH THE GEF RESOURCES .

The project is targeted to address barriers as mentioned above through technical assistance. The financing supportprovided by the GEF to this project is a grant to cover the incremental costs of the project for technical assistanceactivities. No loan or revolving fund mechanisms are considered appropriate, and therefore grant-type funding isconsidered most adequate to enable successful delivery of the project outputs. The GEF resources are needed to secureexpertise, human resources and services needed to remove identified barriers and encourage the financialinstitutions/banks to provide loans for energy efficiency investment projects. The GEF funding will leverage USD 9.275million from the Government and the national banking institutions. E. OUTLINE THE COORDINATION WITH OTHER RELATED INITIATIVES

There are currently some on-going international cooperation programs in place in Indonesia which are described asfollows:

Promotion of Energy Efficiency and Conservation (PROMEEC), Japan. Within the multilateral cooperationwith ASEAN, the Energy Conservation Center, Japan (ECCJ) initiated the Promotion of Energy Efficiency and

Conservation (PROMEEC) project in 2000. The program included energy audits in factories and buildings inIndonesia and training courses for high-level officials of ASEAN. The ASEAN Center for Energy (ACE) is thecounterpart institution for the project.

Energy Conservation and Energy efficiency Improvement in Republic of Indonesia, Japan. This study is

promoted by Japan International Cooperation Agency (JICA) within the period of 2007 to 2009. The studyfocuses on development of energy management systems, labeling systems, and demand-side management(DSM) activities.

Energy Efficiency in Industrial, Commercial and Public Sector, Denmark. Through its International

Cooperation Agency (DANIDA), Denmark is conducting a cooperation, which aims to strengthen the EnergyConservation Clearing House and develop demonstration projects of energy-efficient buildings. This program

will last for five years starting in 2008. Application of Energy Potential Scan (EPS) in Industrial Sector, Dutch Government. Together with the

Dutch Embassy in Jakarta, SenterNovem is engaged in capacity building, sharing and providing knowledge to arange of counterparts in the private and public energy sectors in Indonesia. The project will primarily focus onmedium-sized industries. The project approach has been discussed with the Ministries of Industry, of Energyand Mineral Resources, and of Environment. The main element of the approach is the Energy Potential Scan(EPS) methodology, which is an instrument to identify energy efficiency improvements and create a base forenergy management. As first step of the project, SenterNovem has established training for Indonesianconsultants in June 2009 in Bogor.

AFD Technical Assistant in the Indonesian Cement Sector. This technical assistant project is promoted by the

Ministry of Industry of Indonesia and the Agence Franaise de Dveloppement (AFD). The tasks include amongothers: accurate setting of the GHG abatement target, data gathering for CO 2 emissions estimate, and costs of CO2 abatement in the Indonesian cement sector. It is also foreseen to develop the incentive scheme that will beneeded to stimulate and support participating cement producers in reaching the agreed target.

Moreover, the project will work with the Ministry of Energy and Mineral Resources and the Ministry of Industry tobuild the synergies with other bilateral and multilateral agencies and donors initiatives in the country and the region toavoid efforts duplication and maximize the added value of the project. To this end, initiatives have been taken to discusswith the MEMR and the MOI on their bilateral co-operations with the AFD, JICA, ASEAN, Dutch mission etc. TheMEMR and MOI are the government institutions through whom all donors interventions related to energy used in the


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industrial sector are channelled in Indonesia. The strong involvement of these two key national partners through theProject Management Unit and the Project Steering Committee is the most effective way to monitor other initiatives andensure synergies with the project. The project will continue to liase with the above energy efficiency initiatives in the country to build the necessarysynergy to deliver the project outputs. UNIDO will also ensure the synergy between The UNIDO-GEF Vietnam,Indonesia and Philippines projects.

F. DISCUSS THE VALUE -ADDED OF GEF INVOLVEMENT IN THE PROJECT DEMONSTRATED THROUGH

INCREMENTAL REASONING :

Baseline Scenario

As detailed in Section A, there are several issues to be dealt with regards to the importance of the industrial sector in theIndonesian economy and in any strategy to curb down the countrys GHG emissions. Current trend shows a shifttowards more coal usage and accordingly more CO2 emissions. It is common practice to go with ad-hoc energymanagement and focus on single equipment replacement. This is due to several barriers among which lack of technicalcapacity, lack of information and understanding of opportunities related to energy management, system optimizationand EE projects investments and first cost oriented market. This results to missed EE opportunities from the business-as-usual scenario applying to existing and new systems (steam, compressed air, and pumping). For existing systems,conservative engineering practices would dictate replacing failing or aging equipment with equipment of similar orlarger capacity without first conducting a thorough assessment of actual system needs. For new systems or thoseundergoing a major retrofit, this missed opportunity could be even greater, since these systems, once oversized ormismatched to load requirements, are likely to remain so for the life of the equipment, which could be ten to twentyyears or more. Such a situation needs to be improved, particularly for manufacturing industry that produces verycompetitive goods with tight requirements of the buyer.

Most of industries assign energy efficiency improvement task to their technical personnel. Few industries integrateenergy efficiency as part of their management cycle. Information dissemination on best practices of energy managementand system level efficiency improvement through system optimization remain limited.

Project alternativeThe proposed project proposes approach to use a combination of market push via introduction of ISO 50,001 energymanagement standards and market pull via delivery of technical expertise on system optimization to both energyefficiency services buyers, such as industry managers and engineers, and energy efficiency products and servicessellers, such as equipment manufacturers, distributors, operation and maintenance contractors. The GEF supportedactivities are expected to support and leverage national efforts in enhancing technical capacity to promote and sustainindustrial energy efficiency, stimulate market demand for EE services and reduce GHG emissions leading to higherlevel of savings on continuous basis and corresponding GHG emissions savings as well. The project will provide technical assistance to industry decision makers to make them understand the importance of energy management and systems optimization for improving their productivity and competitiveness through EEimprovements. The planned training and other capacity building activities will be implemented in the systematic way inline with the international norms effectively leading to system level energy efficiency improvements at the industrialfacilities. The project will also share international experiences and best practices from other countries where systemoptimization have successfully been implemented in industry. The project will also provide technical assistance to the industries on the implementation of ISO energymanagement standards. It will build capacity of local experts and industrial enterprises to comply with thestandards and share successful international experiences on the implementation of energy management standards inother countries. With the energy management standards in place, energy efficiency will be integrated intomanagement systems of industrial enterprises to accelerate adoption of energy efficient best practices oncontinuous basis. This will lead to improved operations and productivity thereby helping industrial enterprises to


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enhance its competitive position. Additionally, it will facilitate preparation of bankable energy efficiency proposalsfor investments by financial institutions/banks.

Sustainability and replicability

The project is designed to create an enabling environment for market transformation of more energy efficienttechnologies and practices in the industry through awareness raising, institutional, technical and financial capacitybuilding and demonstration projects. Once established, the project will effectively transform the market to a higher levelof energy saving services, including energy management, assessment, and systems optimization measures

implementation in industrial facilities.The project will specifically focus on addressing issues related to technical, market and information barriers by capacitydevelopment and awareness as well as providing information on energy management and systems optimization toimprove the knowledge of industrial enterprises, manufacturers, engineering firms, and various governmental agencies.All this will lead to the establishment of individual sustainability by training Indonesian professional on energymanagement and systems optimization and generating a new market where they will be able to use their acquiredknowledge. Similarly, raising awareness on EE projects in the financial sector will enable financial institutions tobecome more familiar with the intricacies of EE financing. The project will bridge the communication channel betweenbanks and financial institutions and the industry to create confidence and promote EE investments through particularservices like training, opportunities assessment, development of EE projects evaluation guidelines and support fortechnical and financial proposals preparation.

The replication and scaling up potential of the project is huge. Within the targeted subsectors only, more than 13,000enterprises are recorded. Besides, the promoted concepts are applicable in any sector. One of the key requirements forreplicability is to overcome the low penetration of energy management and systems optimization in the industry due tothe lack of knowledge on its mechanism and its long-term benefits. This will be addressed through increasedinstitutional, technical capacity and awareness as well as demonstration projects in the country and the development of anetwork where industrial facility managers can share their experience regarding the implementation of energy efficiencyprojects in their facility.

The government institutions capacity will be reinforced to ensure proper knowledge transfer and encourage the marketplayers to replicate and scale up energy management and systems optimization. To this end, the project will develop areplication and scaling up plan for the government and transfer the performance reporting to the relevant governmentagency.

Moreover, a comprehensive monitoring, feedback, and evaluation system will accompany the proposed project. Thiswill help to identify what works, what doesnt, and why. Lessons will be extracted from that experience and, through thenetwork, disseminated within the industry sector in Indonesia.

G. INDICATE RISKS , INCLUDING CLIMATE CHANGE RISKS , THAT MIGHT PREVENT THE PROJECT OBJECTIVE (S)

FROM BEING ACHIEVED AND OUTLINE RISK MANAGEMENT MEASURES :

Risk Rating MitigationInstitutional : Change in government prioritiesleading to reduced support for the UNIDO/GEFproject, implementation delays, and reductions inthe effectiveness of delivery of the training anddemonstration programs. Capacity of MEMR tomanage the UNIDO/GEF project diverted to otherprojects.

Low A newly enacted legislation in Indonesia explicitlyrefers to energy management and audits for enterprises.The project actively supports MEMR mandatedresponsibilities. Through its linkage with ISO 50001,the project incorporates a strong element of marketdrivenness in parallel to its dependency on governmentsupport.

Technology : Technical risks associated with theoptimization of compressed air and steam systemsare very low. Considerable energy savings havebeen achieved in many countries through systemlevel efficiency opportunities.

Low To deliver the required capacity building, UNIDO willemploy the services of highly skilled experts withsystems specific expertise (steam and compressed air),and proven training skills.


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Sustainability :

o Failure to achieve outcomes due toinability to scale up outputs

o Failure to achieve sustainable markettransformation

o Unwillingness of industrial energy-usingfirms to bear even minimal costs of project participation and concerns overdisruption to current operation andbusiness priorities

Medium Through its linkage with ISO 50001, the project buildson the regular audit process, which assures that energy-efficient operations become part of each participatingfirms operating culture. The combination of standards with tools and trainingwill allow companies to hardwire industrial EEprojects/investments into management structures, suchas ISO, that provide documentation, independentverification, and continuous improvement. As one of itsoutcomes, the project seeks to strengthen existingfinancing incentives for industrial users to improve EE. The institutional capacity will be built to pursue theproject efforts. As a market driven approach, thecapacity and the awareness of major players will beenhanced including equipment vendors, equipmentbuyers (industry), services providers (consultants,designers), financers and the government.

ISO 50001 ISO 50001 is planned to be approved late thisyear or early 2011, but uncertainty andunexpected events could delay the final approvaleven up to mid- or late 2011.

Low The project activities have been developed consistentlywith the possibility of ISO 50001 coming into effectlater then expected. With this possibility in mind,activities related to ISO 50001 are scheduled to startmostly in the second half of 2011.

Financial: Following the systems optimizationaudit and report, enterprises might not be willingto invest and finance the installation of newequipment, even if the energy reduction potentialis important.

Medium Through the project financial activities, UNIDO willprovide training for enterprises key personnel, to buildtheir capacity to better understand the value of investingwithout delay on systems optimization and energymanagement, and the long-term financial benefits itbrings.

H. EXPLAIN HOW COST -EFFECTIVENESS IS REFLECTED IN THE PROJECT DESIGN :

The proposed project that will benefit from the support of the GEF will result in the reduction in electricity and fuelconsumption due to adoption of system optimization and energy management standards by industrial enterprises. Thedirect electricity and fuel saved from the successful implementation of the project will lead to a reduction of carbondioxide emission (CO 2) which is estimated at 67,442 tones of CO 2 over the project lifetime. The indirect savings afterproject completion, resulting due to capacity development and introduction of ISO50,001 is estimated at 522,960 tonesof CO 2. As a result, the intervention of the GEF will lead to emissions reduction impact of 596,402 tons CO2 over a 10year period. Given GEF funding of USD 2,180,380 for this project, the avoided cost based on direct emissions reductionis USD 3.7 per ton of CO 2. Therefore the cost effectiveness of the GEF contribution to this proposed project is veryreasonable and acceptable.

PART III: INSTITUTIONAL COORDINATION AND SUPPORT

A. INSTITUTIONAL ARRANGEMENT

As an implementing agency, UNIDO will implement the project in close collaboration with the Ministry of Energy andMineral Resources (MEMR), the Ministry of Industry (MOI) and Badan Standardisasi Nasional (BSN). It will take theresponsibility to oversee the project implementation through its internal monitoring. However, the day-to-day projectmanagement will be responsibility of the Project Management Unit (PMU) which will be located within the premises of the MEMR. The PMU will be guided by the Project Steering Committee on the implementation of the project andcoordination among different government agencies and organizations. The UNIDO Country office and Head Officewill provide necessary support for smooth execution of the activities.


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Ministry of Energy and Mineral Resources (MEMR)The Ministry of Energy and Mineral Resources (MEMR) is the government body of Republic of Indonesia responsiblefor energy related matters. MEMRs jurisdiction covers direction setting, planning, implementation, and regulation of energy policies. The energy efficiency and conservation is administered by the Directorate General of Electricity andEnergy Utilization (DGEEU) within MEMR and specifically operated by the Directorate of New Renewable Energy andEnergy Conservation. Ministry of Industry (MOI)The Ministry of Industry is in charge of developing and monitoring the government policies and strategies in theindustrial sector. The MOI has the mandate to implement the Presidential Decree No. 28/2008 on the National IndustrialDevelopment Policy, which primarily aims at improving the industrial competitiveness by strengthening and developingcore industrial clusters including food and beverages, textile, pulp and paper, and petrochemical industries. Badan Standardisasi Nasional (BSN)The National Standardization Agency (BSN) was established in 1997 under the Presidential Decree No. 13/1997 andreinforced by the Presidential Decree No. 166/2000. BSN is a government institution, having the responsibility todevelop and promote national standardization in Indonesia. The mission of BSN is to provide real contributions for theeconomic development by:

Developing Indonesian National Standard (SNI) Developing a system of standards and conformity assessment Improving public perception and participation of stakeholders in the field of standardization and conformity

assessment Developing policies and legislation of standardization and conformity assessment Providing standardization information and training services, and promoting the application of the SNI Representing Indonesia in various international organizations and fora on standard and conformity assessment.

B. PROJECT IMPLEMENTATION ARRANGEMENT :

The MEMR will coordinate overall direct project inputs from the government agencies and organizations according tothe objectives and activities of the project. The MEMR will designate one of its high level officer to the projectManagement Unit as National Project Director (NPD) to guide the PMU in the implementation of the project. The PMUwill be fully responsible for day to day activities of the project and will report to the UNIDO Project Manager. UNIDOwill recruit the international teams responsible for delivering the tools, material and trainings.

UNIDO and the MEMR in collaboration with the BSN and the MOI will assume responsibility for the followings:

Identification/approval of host factories to participate in the project and facilitate training sites

Identification of trainees

Recognition program

National campaign to promote ISO energy management standards

Delivery of the case studies, documenting the energy savings, and reductions in GHG emissions directlyattributable to the project.

The block diagram of the project arrangement is given below:


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Figure 3: Core commitments and linkages

Project Steering Committee (PSC) The Project Steering Committee (PSC) will consist of high-level representatives from the MEMR, the MOI, the BSN,GEF focal point, and UNIDO. It will be chaired by the MEMR. Other bilateral donors/partners will be invited on an ad-hoc basis according to their cooperation with the project implementation. The PSC have the following primary roles: (i)to provide overall guidance to the implementation of the project, and (ii) to ensure good coordination amongparticipating agencies and other organizations. The PSC will meet every year to monitor the implementation progressand confirm the work plan for the subsequent year. Minutes of meetings will be signed by UNIDO and MEMR. The PSC will be responsible for the planning and implementation of all key project activities in the country and willensure satisfactory performance of national experts during their training and subsequent active participation in the

project. The work plans will be developed and implemented by the PMU and UNIDO in consultations with the MEMR. Project Management Unit (PMU)

UNIDO will create a Project Management Unit responsible of the overall operational management and implementationof the project activities. The PMU will manage day-to-day operations of the project and will be based at the premisesprovided by the MEMR. The PMU will comprise two core members: a national coordinator and a project assistant. TheGovernment of Indonesia, through the MEMR, will appoint a national project director who will be in charge of guidingthe PMU. Both the national coordinator and the project assistant will be recruited by UNIDO in close consultation withthe MEMR, MOI and BSN as per the UNIDO rules and regulations. In addition, a number of national experts,subcontractors, and international experts will support the PMU as needed when implementing the project activities.

The PMU will prepare quarterly progress reports to review achievements in the previous quarter, prepare a financialreport, and develop a work plan and budget for the next quarter. All these documents will be sent to UNIDO forendorsement/approval. The PMU will also produce annual progress reports, which must be submitted to the PSC at leasttwo weeks before the annual meeting. For both mid-term and final evaluations, the PMU will provide all relatedinformation to the evaluation experts. At the end of the project, the PMU will produce the terminal report, which is to besubmitted to the PSC at least two weeks before the final meeting.

National Project Coordinator

The National Project Coordinator (NPC) overall role is to ensure the successful execution and implementation of theproject toward achieving project results. The NPC is accountable to the Government and UNIDO for the substantivequality of the project and for the proper

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