BIOGAS POWER PLANT PROJECT

Business Process, Due Diligence and Risk

Management
USAID ICED II
Belitung, 26 October 2016

10/26/2016 1
 OUTLINE

Small Scale Commercial Biogas Power Plant Business

Commercial Biogas Power Project Development
Biogas Power Project Due Diligence
Risks Analysis and Management
 Small Scale Commercial Biogas Power Plant Business

Pembelian/ Konversi Energi

Penjualan & Revenue/
Pengadaan Energi Primer Menjadi Produk
Penyaluran Produk Penghasilan
Primer Energi Listrik

Energi Primer/
Teknologi Titik Koneksi,
Sumber Energi Tenaga Listrik Pembayaran PLN
Pembangkit Listrik Jaringan Listrik PLN
Terbarukan

JTR 400 V, JTM 20 kV, IDR/USD as FIT

BIOGAS DARI POME PLTBG 20 kV, 50 Hz, 3 Phase
Transmisi diatas 20 kV Regulation

PLTBG= Pembangkit Listrik Tenaga Biogas

 Small Scale Commercial Biogas Power Plant Business
Model
Resources Resources Owner Developers Mechanism

Own Project
Resources Owner
(In-House or Turn-Key)

Private / BUMN /
FEEDSTOCK (POME)
Public
BOO Scheme
(Built-Own-Operate)
Third Party
Project Developer
BOOT Scheme
(Built-Own-Operate-
Transfer

BOOT/BOT approach requires Key Benefit of BOOT/BOT approach:

Legally Binding Agreements on:
Land Use
Delivery of waste stream
Energy supply and purchase
Reduces many financial risks for Host company of implementing an
improved energy system
Reduce energy costs in the near term, during BOOT period, and significantly
over the long term after transfer of assets
Improves Environment around mill
 OUTLINE

Small Scale Commercial Biogas Power Plant Business

Commercial Biogas Power Project Development
Biogas Power Project Due Diligence
Risks Analysis and Management
 Commercial Biogas Power Project Development:
Project Stages
3 ~ 6 bulan 6 ~12 bulan
Pra-Studi 12 ~ 18 bulan
Kelayakan/Pr PJBL/PPA Typically 15 ~ 20 years
Detail
e-FS/FS
Equitas Engineering
12 bulan Design
Studi EPC Kontrak O&M
Lingkungan Draft
Konsep/ Procurement
Financing COD
Basic Desain
Studi O&M Kontrak Production
Interkoneksi Draft
Perijinan & Construction
Lahan
Pengurusan Fuel Supply
Ijin, Akusisi Agreement
Lahan Draft

Operational
Design & Planning Stage Construction Stage Stage

Kualitas Basic Design & Planning yg baik menentukan Project Management dan Kontraktor
tingkat kelayakan finansial, ekonomi, dan lingkungan yang berkualitas menentukan
dari proposal bisnis suskes tidaknya tahap konstruksi

RISK MANAGEMENT and DUE DILIGENCE MUST BE DONE IN ALL STAGES OF THE PROJECTS!!
 Commercial Biogas Power Project Development:
Project Timeline
3 - 6 months 6 - 12 months 6 - 12 months 12 18 months Typically 15 ~ 20 years

1. Pre-FS and & Interconnection Study 9. Obtain balance of permits & License
2. Raise Seed Equity 10. Raise balance of equity
3. Feasibility Study 11. Obtain debt financing
4. Obtain Local Permits 12. Financial Closure
5. Feedstock Supply Agreement (FSA) 13. Implement construction work
6. Power Purchase Agreement (PPA) with PLN 14. Test Run and COD
7. EPC Contract & O&M Contract 15. Operation Stage
8. Land Acquisition 16. Project Transfer or Decommissioning
 OUTLINE

Small Scale Commercial Biogas Power Plant Business

Development of Commercial Biogas Power Project
Due Diligence of Commercial Biogas Power Project
Risks Analysis and Management
 METODE DUE DILIGENCE DALAM TAHAP DESIGN &
PLANNING (GREEN FIELD TYPE PROJECT)
Independent cek semua aspek lingkungan Independent
Engineering cek semua aspek teknis Environment & Socio-
& sosial apakah ada Culture Consultant
Consultant desain, analysis, metode
rencana mitigasi & alokasi
konsultan ahli project dan data apakah valid? konsultan ahli
risk yg jelas?
biogas yang lingkungan,sosio-kultur
berpengalaman DETAIL DESK REVIEW & harus nasional/lokal
nasional/internasional ASSESMENT

FIELD REVIEW/CHECK
cek semua aspek yg berkaitan dengan legalitas cek semua aspek teknis yang
contract,perizinan, hukum apakah ada masalah? spesifik apakah ada masalah?
Due Diligence Process
Independent Law Independent
Consultant Independensi, kerahasiaan, bebas dari konflik Specilist

interest, quality & control risk management control

konsultan ahli hukum spesialis ahli project biogas yang
harus nasional
adalah kunci suksesnya due dligence yg berkualitas 9
berpengalaman nasional/internasional
 METODE DUE DILIGENCE DALAM TAHAP DESIGN &
PLANNING (GREEN FIELD TYPE PROJECT)
Independent cek semua aspek lingkungan Independent
Engineering cek semua aspek teknis Environment & Socio-
& sosial apakah ada Culture Consultant
Consultant desain, progress project,
rencana mitigasi & alokasi
konsultan ahli project dan output apakah sesuai konsultan ahli
risk yg jelas?
biogas yang dengan desain? lingkungan,sosio-kultur
berpengalaman DETAIL DESK REVIEW & harus nasional/lokal
nasional/internasional ASSESMENT

DETAIL FIELD REVIEW &

cek semua aspek yg berkaitan dengan ASSESSMENT cek semua aspek teknis yang
legalitas, contract, perizinan, hukum apakah spesifik apakah ada masalah?
ada masalah?
Due Diligence Process
Independent Law Independent
Consultant Independensi, kerahasiaan, bebas dari konflik Specilist

interest, quality & control risk management control

konsultan ahli hukum spesialis ahli project biogas yang
harus nasional
adalah kunci suksesnya due dligence yg berkualitas 10
berpengalaman nasional/internasional
 PROPER DUE DILIGENCE
DETAIL DESK REVIEW & ASSESSMENT of
GREEN FIELD TYPE
PROJECTS PROJECT DEVELOPER and PROJECT
PROPOSAL + FIELD REVIEW/CHECK

Questions need to be answered:

Is the project developer a credible, experienced and financially
capable to develop the proposed project design?
Is the project proposal complete, qualified, and feasible?
PROPER DUE Is the project location properly selected and located?
DILIGENCE
Is there any issue related to land right, environment and social
related to project site?

DETAIL DESK REVIEW & ASSESSMENT

BROWN FIELD TYPE of PROJECT DEVELOPER and PROJECT
PROJECTS PROPOSAL + DETAIL FIELD REVIEW &
ASSESSMENT

Questions need to be answered:

Is the project developer a credible, experienced and financially
capable to finish the proposed project construction/operation?
Is the project detail design complete, qualified, and constructible?
Is the project location properly selected and located?
Is there any issue related to land right, environment and social related
to project site?
 TUJUAN DAN MANFAAT DARI DUE DILIGENCE
(DD)/UJI TUNTAS
TUJUAN:
1. Mengindentifikasi gap atau resiko yang ada pada proposal investasi yang
diajukan oleh pengembang proyek.
2. Mengundang pengembang proyek untuk melakukan proper mitigasi dan
proper alokasi resiko yang berhasil diindentifikasi dalam proses DD.

MANFAAT:
Mendapatkan proposal proyek dan pengembang proyek yang dapat
diandalkan dalam mengembangkan/mewujudkan proyek.

Note:
Due Diligence/Uji Tuntas adalah suatu proses yang berulang yang harus dilakukan oleh
lender/investor untuk sampai pada tahap dimana lender/investor yakin dan puas bahwa
tidak ada lagi gap/resiko signifikan pada proposal proyek yang diajukan oleh pengembang
dan lender/investor yakin bahwa pengembang akan mampu mewujudkan proyeknya
sesuai dengan target dan jadwal yang ditentukan, dan project tersebut mampu beroperasi
dan menghasilkan revenue sesuai dengan yang diperkirakan sehingga pada akhirnya
lender/investor sampai pada keputusan untuk membiayai proyek.
12
ASSESSMENT OF VARIOUS KEY ASPECTS IN THE DUE
DILIGENCE

Aspect of Structure Type of The Project

Aspect of Project Company & Sponsor
Aspect of Contractual Structure
Aspect of Technical (Engineering Design & Construction)
Aspect of Environment and Social Culture
Aspect of Financial

13
ASPECT OF STRUCTURE PROJECT (1)
LIMITED RESOURCE STRUCTURE, PROJECT FINANCING

PEMEGANG SAHAM
Other PLN
Partner 1 Partner 2 equity
FUEL investors POWER
SUPPLIER PURCHASER

Fuel Supply Shareholders Power Purchase

Agreement Agreement Agreement

Deliver or pay Take or/& pay

Agreement Agreement

LENDERS Loan Agreement

Project Permits & HOST
Licenses
Vehicle GOVERNMENT
Permits (IUPTL, Principal
Permit, IMB, UKL-UPL, Etc)
Loan Proceeds
Construction Insurance
Contract Agreement O & M Contract

Sub-contractor

MAIN INSURANCE O&M

CONTRACTOR COMPANY OPERATOR
EPC
Limited
Guarantees
 ASPECT OF STRUCTURE PROJECT (2)
FULL RESOURCE STRUCTURE, BALANCE SHEET FINANCING

PLN

POWER
LENDERS
PURCHASER

Power Purchase
Loan Agreement Loan Repayment
Agreement

Take or/& pay

Agreement

Loan Proceeds
Project Sales Proceeds
Sponsor

Construction
Contract
Sub-contractor

MAIN Loan Proceeds

CONTRACTOR

EPC

15
 GENERAL CHARATERISITICS

A small commercial project: The capacity of small scale Biogas Project

capacity is around 0.5 MW to 3 MW.
A dedicated Power Plant: A small scale IPP Biogas Power Plant that
connects and serves to PLN as a Sole Of Taker within TAKE OR PAY
PPA type or TAKE AND PAY PPA type.
Project Sponsor generally has Equity around 20-35% of total
investment cost and Lender provides Loan for the rest.
Project Company may use single EPC (turn key) contractor or some
different contractors for project construction.
Project Company may use different O & M contractor(s) to Operate
and Maintenance the Biogas Power Plant.
All agreements or contracts are significant for project risk allocations
BOO/BOT/BOOT agreement is complicated. All related parties are
looking for the best deal structure for the agreement.
ASSESSMENT OF VARIOUS KEY ASPECTS IN THE DUE
DILIGENCE

Aspect of Structure Type of The Project

Aspect of Project Company & Sponsor
Aspect of Contractual Structure
Aspect of Technical (Engineering Design & Construction)
Aspect of Environment and Social Culture
Aspect of Financial

17
 Review/Assessment of Project Company & Sponsor
Lakukan Audit/Investigasi pada Project Company dan Sponsor
pada:
Besarnya presentase saham masing-masing partner dalam project
Pengalaman partne & sponsor utama dalam pengembangan proyek
Role masing-masing masing-masing partner dalam project
Cek Share Holder Agreement/BOO/BOT/BOOT Agreement: Perjanjian
yang ada diantara partner (struktur, prosedur voting, dll)
Apakah sponsor utama memiliki dokumen legal yang cukup?
Financial Statement proyek (Proforma) dari sponsor utama
Struktur Manajemen Proyek, CV manager dan board member
Strategi corporate dan kebijakan manajemen finansial sponsor (termasuk
rasio finansial, dividend policy, dll)
Rencana pengembang untuk akses ke sumber-sumber pendanaan jika
sponsor kekurangan equity dimasa yang akan datang.
Flow Diagram to review/assess the Strength of Project
Company & Sponsor in the Project Development
Example Check list for DD of Project Company & Sponsor
(1)
No Due Diligence Item Informasi Yang Diperlukan Check

1 Shareholders and percentage of Project Company Name : PT. XYZ Yes No

ownership of each shareholder in Share holders:

the Project Company
2 Corporate Licenses
3 Shareholders review
a. Share holder 1 : ? %
b. Share holder 2 : ? %
c. Share holder 3 : ? %
d. Share holder 4 : ? %
a. Approval Letter of Foreign Capital Investment ("SP-PMA")
b. MOLHR approval of the IPPs deed of establishment.
c. Certificate of Domicile issued by the Head of Sub District.
d. Registration of the Deed of Establishment with the DOT.
e. Corporate Financial Year Reports
f. Report on Domestic and Foreign Capital Investment
Activities
a. Shareholders Agreement
b. Shareholders structure changes
c. Shareholders s structure changes
d. Voting procedures
Example Check list for DD of Project Company & Sponsor
(2)
No Due Diligence Item Informasi Yang Diperlukan Check

4 Company Management Review a. CV of each manager

b. CV of each board member
c. Relevance of background experience
5 Proforma review a. Project assumptions are reasonable
b. Financial model is audited.
c. Sensitivity/scenario analysis conducted to weigh various risks.
d. Cost & production structure is appropriate from technical
perspective.
e. Technical specialists are involved in the analysis
6 Project sponsor experiences a. Experiences in RE power projects in Indonesia
b. Experiences in the similar/same power projects
c. Experiences in RE power projects in overseas
7 Project sponsor corporate a. Financial management policy (financial ratios, dividend policy)
strategy b. Plan to access the equity market/investors in the future
c. Plan for developing future projects
ASSESSMENT OF VARIOUS KEY ASPECTS IN THE DUE
DILIGENCE

Aspect of Structure Type of The Project

Aspect of Project Company & Sponsor
Aspect of Contractual Structure
Aspect of Technical (Engineering Design & Construction)
Aspect of Environment and Social Culture
Aspect of Financial

22
 Review/Assessment of Project Contractual Structure

Lakukan Investigasi pada seluruh kontrak/perjanjian yang meliputi:

Purchase Power Agreement (PPA)
Kontrak EPC, atau kontrak-kontrak dengan seluruh kontraktor.
Fuel Supply/POME Supply Agrement
Kontrak Operation & Maintenance (O & M)
Kontrak servis dan maintenance jangka panjang (Long-Term Services
Agreement LTSA) dengan suplier peralatan (jika ada)
Perjanjian jual beli/sewa tanah
Rencana persiapan Jaringan listrik dan Interkoneksinya ke grid PLN
Asuransi (Construction All Work, business interruption, third party
liabilities, dll.)
Example Check list for DD of Contractual Structure of The
Project (1)
No Due Diligence Item Informasi Yang Diperlukan Check

5 Land-lease agreement review a. Agreement in place ? Yes No

b. Located in protected forest land?

c. Any guarantee on available capacity
d. Fair reward and penalty clause on meeting contracted
capacity
6 Interconnection and distribution a. Interconnection requirements
line arrangement review b. Agreement and planned facilities
c. Testing and Commissioning Date & Procedures
d. Interconnection point review
e. Transaction point review
f. Power meter review

7 Project insurance program a. Construction insurance all work

b. Business interruption insurance
c. Third party liabilities
Example Check list for DD of Contractual Structure of The
Project (2)

No Due Diligence Item Informasi Yang Diperlukan Check

1 PPA review a. PPA in place ? Yes No

b. Type of PPA contract: (take-or-pay contract)?

c. Any guarantee on available capacity
d. Fair reward and penalty clause on meeting contracted
capacity
2 EPC contract review a. EPC contract or not
b. EPC salient features:
c. - Warranty
d. - Lump sum
e. - Cost plus fee
f. Match with PPA

3 O & M contract review a. O & M contract in place?

b. Match with PPA
c. LTSA with equipment suppliers

4 Fuel Supply Agreement (in case of a. FSA in place?

biomass/biogas projects) b. Supply guarantee
c. FOB/CIF price structure
d. Review of transportation methodology
25
ASSESSMENT OF VARIOUS KEY ASPECTS IN THE DUE
DILIGENCE

Aspect of Structure Type of The Project

Aspect of Project Company & Sponsor
Aspect of Contractual Structure
Aspect of Technical (Engineering Design & Construction)
Aspect of Environment and Social Culture
Aspect of Financial

26
Example Check list for DD of The Technical Aspect (1)

No Due Diligence Item Note

1 Identify, evaluate & review Design Criteria Document
2 Check , evaluate and review Project Access Plans & related Issues
3 Evaluate & review POME and BIOGAS analysis
4 Evaluate & review energy analysis
5 Evaluate & safety design and analysis
6 Evaluate & review topographic studies
7 Evaluate & review geotechnical analysis
8 Evaluate & review M& E Equipment quality and specification
9 Evaluate & review Project Drawings
10 Evaluate & review Cost Estimate & cash flow, and Project scheduling
11 Evaluate & review design of transmission & interconnection system
12 Evaluate & review Project organization & quality control and O&M plan
Example Check list for DD of The Technical Aspect (1)

No Due Diligence Item Informasi Yang Diperlukan Check

1 Identified risks and mitigation plan a. Has the project company done it? Yes No

development
2 Feasibility Study Review a. Is FS in place?
b. Is FS updated with the newest information?
c. Review of project layout
d. Review of general design
e. Review of DED by Technical specialists/consultants

3 Project Organization review (during a. Key management post s are filled

construction and operational b. Key management competency are relevant
phases)

4 Technology issues review a. POME & BIOGAS study review

b. Feedstock availability and security supply study
c. Choice of technology review
d. Choice of equipment suppliers review
e. Choice of contractors review
f. Choice of DED consultant review

28
ASSESSMENT OF VARIOUS KEY ASPECTS IN THE DUE
DILIGENCE

Aspect of Structure Type of The Project

Aspect of Project Company & Sponsor
Aspect of Contractual Structure
Aspect of Technical (Engineering Design & Construction)
Aspect of Environment and Social Culture
Aspect of Financial

29
 Review/Assessment of Environment & Social Aspects

Lakukan Investigasi pada aspek lingkungan dan sosial yang meliputi:

Kewajiban dan perijinan untuk memenuhi persyaratan lingkungan untuk
semua fasilitas proyek (AMDAL/UKL/UPL)
Dokumen AMDAL/UKL/UPL, apakah ada isu kritis lingkungan dan sosial
spesifik yang harus diperhatikan didalam pengembangan dan pengoperasian
PLTA. Apakah sudah diperhitungkan biaya yang mungkin timbul?
Aktivitas dan prosedur konsultasi publik: apakah sudah dilakukan atau
direncanakan? Bagaimana hal yang menjadi perhatian utama publik
dipertibangkan didalam dokumen AMDAL/UKL/UPL? Apakah ada protes
atau publisitas negatif untuk pembangunan proyek?
Tingkat pemahaman masyarakat terhadap manfaat PLTA
Example Check list for DD of The Environment and Social
Aspect (1)
No Due Diligence Item Informasi Yang Diperlukan Check

1 Review AMDAL/UKL-UPL a. AMDAL/UKL-UPL in place? Yes No

b. UKL/UPL addresses and mitigates the environmental and

social risks
c. Critical socio-environmental issues addressed for project
development and operation
d. Critical socio-environmental issues reflected in the project
cost
2 Review description of project facilities a. Is there any potential risk that may affect project design
and investment and/or operational costs?
3 Review if public consultation a. Are the procedures and activities have been completed (or
procedures and activities planned)?
b. Review key public concerns and how they are addressed
in project planning/AMDAL documents
c. Have there been any protests or negative publicity
regarding the project?
4 Review support from the local a. Does the local communities understand the benefit of the
communities development of RE project for them

31
ASSESSMENT OF VARIOUS KEY ASPECTS IN THE DUE
DILIGENCE

Aspect of Structure Type of The Project

Aspect of Project Company & Sponsor
Aspect of Contractual Structure
Aspect of Technical (Engineering Design & Construction)
Aspect of Environment and Social Culture
Aspect of Financial

32
 Review/Assessment of Financial Aspects (1)
No Due Diligence Item
1 Review rincian detail biaya proyek
(termasuk rincian biaya kontrak EPC
dan contingency
2 Review kemungkinan terjadi COST OVERRUNS
(apakah diberikan skenario optimis dan pesimis
disamping skenario dasar, dan apakah diberikan juga
analisa sensitivitas & bagaimana rencana
mitigasinya?)
3 Bagaimana rencana pendanaan: terms for
subscription of shares by any other shareholder ;
terms of proposed bridge financing (if any); terms of
proposed senior debt financing
4 Review detil asumsi yang digunakan:
Asumsi Makroekonomi dan referensi asumsi yang
diambil.
5 Asumsi Finansial: suku bunga, financial fee, IDC,
Required ROR
Note
Konsultan independen harus mereview apakah detail
biaya proyek sudah diperkirakan dengan akurat.
Memastikan bahwa lingkup kerja kontraktor dan supplier
sudah lengkap tanpa ada kekurangan atau contingeny
yang kurang tepat. Garansi penyelesaian dari semua
kontraktor
Selain alokasi contigengy budget didalam total biaya
proyek, bank dapat meminta sponsor untuk berkontribusi
pada contingency modal yang siap untuk dilepaskan/
diberikan ketika diminta oleh bank.
Bank, as the senior debt provider, needs to ensure that it
has the strongest lenders security in the financing terms
Asumsi tersebut seharusnya realistik, tidak terlalu jauh
dari kondisi saat ini.Refernsi asumsi: Gunakan asumsi
dari sumber terpercaya APBN, BI dan BPS
Suku bungan dan financial fee harus dikonfirmasi dengan
sumber pendanaan.Praktek umum proyek: memasukkan
IDC dalam biaya investasi. - ROR harus reaslistik
33
 Review/Assessment of Financial Aspects (2)
No Due Diligence Item Note

6 Review financial model: Check that the financial model assumptions,

costs and revenues are reasonable and
Investment and operational assumptions
realistic (e.g. the price of CER/carbon credit);
Energy sold and revenues; other revenues, if any (e.g.
comparisons may be made with other project
carbon credit, steam, compost etc)
investments, best practices, or in accordance
Operational costs; administrative costs (salaries); O&M
with the accounting standard. The Bank will
costs; lease payments, etc
take input from engineer about project output
Taxes
and project cash flow
Depreciation and amortization of assets
Interest during construction
Insurance
Fees to be paid to the government, if any
Assumptions related to current assets and current
liabilities
Dividend pay out
Capital expenditures
Disbursement schedule
7 Review capital cost; major equipment, Different technology supplier may cause
differences in capital cost (for example Chinese
civil work, mechanical and installation technology typically has lower investment cost
work, transmission lines compared to its European competitors).
Therefore comparing the technology and the
cost proposed in important.
 Review/Assessment of Financial Aspects (3)
No Due Diligence Item
8 Review the project profitability and debt
service capacity (ratios, sensitivity and scenario
analysis, debt service coverage ratio)
9 Review applicable PPA tariff (see if theres any price
escalation over time, pass through of feedstock prices, etc).
Note
Review that the project has adequate cash
flow to pay for the operational cost, debt
(interest and principal), taxes, and dividend
Bank would want to ensure that PPA tariff
would be able to cover the project cost and
return on equity to project sponsor during the
term of the PPA
PPA tariff should be able to cover the
operational and maintenance cost that are
influenced by inflation
For biomass project, feedstock supply risk,
including prices should also be reflected in the
PPA tariff (however, the current price regime
does not provide a basis for tariff indexation.
35
TYPICALL SMALL SCALE BIOGAS POWER PLANT
PROJECT: Project Cost Component
CAPEX:

Project Development Cost: Permits, Overhead Cost, Study and Engineering Cost (Feasibility
Study, Interconnection Study, Feedstock Lab Test, Soil Test, UKL-UPL,
Basic Engineering Design)
EPC Cost: Site Preparation & Civil Work
Digester System, Piping & Flaring
Gas Cleaning & Pumps System
Gas-Engines & Generator
Controller & Electrical System
Balance of Plants
Grid Interconnection System
Other Cost (IDC & Insurance)
Financing Cost: Interest, Equity Return

Other Cost: Insurance, Tax, CSR, etc

OPEX: Operating Labor

General Administration & Others
Insurance
Digester Service & Maintenance
Gas Engine Service & Maintenance
36
 TYPICALL SMALL SCALE BIOGAS POWER PLANT
PROJECT: Project Cost Reference (Value in 2008)

Sources: World Bank, 2008

 TYPICALL SMALL SCALE BIOGAS POWER PLANT
PROJECT: Project Cost Reference of Biogas Power Plant
Project Cost Composition
Capital Expenditures:
Project Development Cost 2%
Site Preparation & Civil Work 5%
Unit Cost / MW
Digester System Digester System, Piping & Flaring 34%
(USD Million)
Gas Cleaning & Pumps System 11%
CAL System 1.5 3 Gas-Engines & Generator 17%
CSTR System 2.5 3.5 Controller & Electrikal System 10%
Balance of Plants 11%
Grid Interconection System 4%
Other Cost (IDC & Insurance) 5%
Install Capacity CAL System Cost
100%
1 MW 2,000,000 Operational Expenditures:
Operating Labour 25%
1.5 MW 2,500,000
General Administration & Others 14%
2 MW 3,500,000 Insurance 5%
Digester Service & Maintenance 17%
Gas Engine Service & Maintenance 39%
100%
 Example Check list for DD of The Financial Aspect (1)

No Due Diligence Item Information Check

1 Review the detailed breakdown of a. Detailed cost has been accurately estimated Yes No

total project costs b. The Contractor(s) and Supplier(s)work scopes have full
coverage without gaps or inadequate contingencies
c. Completion guarantees of all parties
2 Review the probability of cost a. The contingent budget allocation in the total project cost
overruns b. Project sponsor(s) to commit contingent equity
contribution, ready to be disbursed upon request by the
bank
c. Check optimist and pessimist scenario besides basic
scenario
d. Sensitivity analysis and mitigation plan
3 Financing plan a. Check the financing plan: terms for subscription of shares
by any other shareholder ; terms of proposed bridge
financing (if any); terms of proposed senior debt financing

4 Review detail assumptions used a. Macroeconomic assumptions and the references of the
assumptions taken.

39
 Example Check list for DD of The Financial Aspect (2)

No Due Diligence Item Informasi Yang Diperlukan Check

5 Financial assumptions a. Interest rate & financing fees should conform to the Yes No

proposed source of fund.

6 Review financial model
7 Review capital cost
8 Review the project profitability and
debt service capacity
b. Include IDC in investment cost
c. Expected return of equity should be realistic compared to
current economic condition & market return
a. Is financial model in place?
b. Financial model assumptions, costs and revenues are
reasonable and realistic
a. Is there any comparison of different capital cost at different
technology ?
a. The project has adequate cash flow to pay for the
operational cost, debt (interest and principal), taxes, and
dividend

40
 Example Check list for DD of The Financial Aspect (3)

No Due Diligence Item Informasi Yang Diperlukan Check

9 Review applicable PPA tariff a. Theres any price escalation over time, pass through of Yes No

feedstock prices, etc

b. PPA tariff would be able to cover the project cost and
return on equity to project sponsor during the term of the
PPA
c. PPA tariff should be able to cover the operational and
maintenance cost that are influenced by inflation
d. For biomass project, feedstock supply risk, including prices
should also be reflected in the PPA tariff

41
 OUTLINE

Small Scale Commercial Biogas Power Plant Business

Commercial Biogas Power Project Development
Biogas Power Project Due Diligence
Risks Analysis and Management
 ANALIS MANAJEMEN RESIKO PADA TAHAP DESIGN &
PLANNING
Independent Independent
Engineering Resiko-resiko baru Rencana-rencana Environment & Socio-
Consultant tambahan yg baru Mitigasi Culture Consultant
terindentifikasi Resiko
konsultan ahli project konsultan ahli
biogas yang lingkungan,sosio-kultur
berpengalaman DETAIL DESK REVIEW & harus nasional/lokal
nasional/internasional ASSESMENT

FIELD REVIEW/CHECK

Due Diligence Process

Independent Law Independent
Consultant Alokasi Resiko kedalam Specilist
perbaikan Studi, Desain
Kontrak, dll.
konsultan ahli hukum spesialis ahli project biogas yang
43
harus nasional berpengalaman nasional/internasional
 ANALIS MANAJEMEN RESIKO UNTUK
PENGEMBANGAN PROYEK BIOGAS

Pengembangan proyek IPP

skala kecil adalah pekerjaan
yang melibatkan
IDENTIFIKASI, MITIGASI
dan ALOKASI RESIKO
proyek selama
pengembangan dan
pengoperasiannya.
TANPA DESIGN, CONTRUCTION,
OPERATION & MAINTENANCE &
MANAGEMENT SAFETY YG TEPAT PROYEK
BIOGAS DAPAT MUSNAH TERBAKAR !!
 Peran BANK dalam MANAJEMEN RESIKO

BANK harus memahami dan

memanajemen RESIKO
- Identifikasi Resiko
- Mitigasi Resiko:
Data yang akurat
Desain yang tepat
Lingkungan
Sosial
- Alokasi Resiko:
Contracts
Insurance
Management
 CHALLENGES OF THE DEVELOPMENT OF BIOGAS
POWER PROJECT IN INDONESIA
Seduction of "free money" from CDM
Development of new estates is a priority for many palm oil mill enterprises
Self-contained business generally not interested in local interaction
Limited sense of obligation to operate cleanly
Permit issues: Limited GOI support: incentive + permits
Long wait to obtain PPA
Significant deposits and demanding supply condition made by PLN
Unrealizable grid infrastructure
Lack of business trust between business entities
Term & Condition Lender for Loan Application cannot be fulfilled by
Returns generally not attractive to developers
 THE OVERALL PROPER PROJECT PROPOSAL
SUSTAINABLE SUPPLY OF FEEDSTOCK (POME, OTHER
ORGANICS WASTE)

+
SUITABLE ANAEROBIC DIGESTION TECHNOOGY

+
SUITABLE GAS HANDLING & SCRUBBING TECHNOLOGY

+
HIGH RELIABILITY & PERFORMANCE RECIPROCATING
GAS ENGINE

+
HIGH RELIABILITY GRID INTERCONNECTION

=
LONG LASTING, LOW COST INCOME STREAM + OTHER
BENEFIT

Note: by making good choices will a project be viable. Optimal decisions

are necessary for a good return.
 ALIGN FINANCIAL EXPECTATIONS WITH REALITY
Capital cost of digester system...too much and it will slow
down the returns, say 30% total
Performance of biogas system...often overstated
Scrubber and gas handling .. must work well otherwise create
problems, say 20%
Gas Engines ...efficiency, reliability, focus on biogas,
maintenance support, parts cost, suggest 50% of total cost
(include transformer, control panel, MW switchgear)
Grid Connection requirement and cost..often
underestimated
Electricification costs ...variable and underestimated
A biogas project is an infrastructure project ...simple payback
periode 5 year or longer
 UNDERSTANDING COMMERCIAL BIOGAS PROJECT
RISKS
Construction risks, process performance risks, operating risks
Risk management theory says: P(sucess) + P(failure) = 1
P(success)= high standards of gas yield, high performance, financial return, safe
operation
Resource of time, money, know-how are scarce, and there is competition
Wisely allocate scarce resources to increase P(success) or decrease P(failure)
Example of ways to increase P(success):
choose commercially proven technology
select good quality equipment
hire (possibly more expensive) qualified consultant
Examples of ways of decrease P(failure):
ensure senior management commitment
independent project assessment
detailed checking and review during construction
maintain effective communication
RESIKO DALAM PENGEMBANGAN PROYEK BIOGAS (1)

Identifikasi Mitigasi Alokasi

Key area: Perencanaan dan Desain Resiko proyek di
- POME & Biogas yang tepat: alokasikan melalui
analysis KONTRAK-KONTRAK:
- Perizinan yang lengkap
- Geoteknik - Kriteria desain berkualitas - BOO/BOT/BOOT
- Project Layout - Analisa resiko kebakaran, agreement
- Equipment longsor, gempa bumi dan - EPC contract
- Project Budget desain pencegahannya yang - Owner Financial Ability
- Logistik
lengkap. - Insurance
- Distribusi listrik dan
- Rencana pengoperasian, - PPA
interkoneksi jaringan pemeliharaan dan perawatan - Land Contracts
yang lengkap & terjadwal
- Engineer
- Local Authorities
RESIKO DALAM PENGEMBANGAN PROYEK BIOGAS (2)
MANAJEMEN RESIKO penting dalam Kontrol Biaya dan Pendapatan Proyek
BANK SEHARUSNYA TIDAK MENERIMA RESIKO YANG BELUM
DIALOKASIKAN
Identifikasi Mitigasi Alokasi
- Detail POME & Akses Kapital yang cukup Equipment Contract with
BIOGAS Analysis reliable supplier
Perencanaan dan target
- Analisa Geoteknik Fixed price contract(s) for
yang cukup akurat yang realistis
Civil Works and
- Concept Design Analisa Engineering yang Installation
- Batasan Lingkungan lengkap
Proper Property Rights
dan Sosial Desain dilaksanakan oleh Enforceable PPA
- Local Political Risk Konsultan yg kompeten
Completed Permits
- Kebutuhan Equity Estimasi biaya yang Sufficient Capital -
masuk akal dan lengkap Proper Project
Securing Land Rights Contingency
Quality Control
RESIKO KONSTRUKSI DALAM PENGEMBANGAN
PROYEK BIOGAS
RESIKO EQUIPMENT/PROCESS PERFORMANCE
RESIKO OPERASI
CONTOH RESIKO PROYEK KETIKA DALAM TAHAP
KONSTRUKSI DAN PENGOPERASIAN: KEBAKARAN
 CONTOH RESIKO PROYEK KETIKA DALAM TAHAP
KONSTRUKSI DAN PENGOPERASIAN: INSTALASI LINING
COVER LAGOON YG TIDAK TEPAT
 Resiko Biaya dalam pelaksanaan Konstruksi dan
Pengoperasian Proyek
Tahap Konstruksi:
Unexpected conditions
Design Changes
Delays
Delivery Delays
Commodity Prices
Contractor financial problems
Tahap Pengoperasian, Perawatan dan Pemeliharaan:
Hyper-inflation
Excessive repairs or replacement
Design related problems
 Resiko-resiko kunci terhadap
Pendapatan Proyek (Revenue)
Kapasitas terpasang, instalasi, pengoperasian,
pemeliharaan dan perawatan pembangkit
Total volume BIOGAS yang tersedia Analisa POME
DAN BIOGAS
Total efficiency (including unit efficiency and losses in the
system)
Kerugian karena transmisi listrik dijaringan
Kehandalan Pembangkit
Currency/Inflation
 DR. Hanny J. Berchmans
Clean Energy Project Development Consultant
6287775006229
+
hanny.berchmans@iced.or.id
USAID ICED Indonesia Clean Energy Development II
Implemented by
Tetra Tech | Complex World, Clear Solutions
Menara Jamsostek, North Tower 14th Floor | Jl. Gatot Subroto No. 38 | Jakarta12710 INDONESIA
Main: +62 21 5296 2325 | Fax: +62 21 5296 2326
www.iced.or.id