Full Report - Feasibility Study KSCS K-Exim

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia To be more specific, the route starting from the Karian to the Solear branch point with 20.6km in length still refers to the AMDAL approved in 2009. On the other hand, the changed route from the Solear branch point to the Parung Panjang branch point with 15.4km in length and the extended route with 11.9km in length refer to the AMDAL conducted in 2012, as shown in <Figure 7.13>. (2) Current state of LARAP (Land Acquisition and Resettlement Plan) The construction of the conveyance system and the booster pumping station requires land acquisition. As a result, civilians may lose their property or some resources of production, which in turn need to be properly compensated. To ensure a successful implementation of a project, it is necessary to establish a Land Acquisition and Resettlement Plan (LARAP) pursuant to Indonesia’s related regulation and rules. To acquire land for the project site, the project execution agency should prepare a location statement for land and houses to be affected by the construction project in accordance with the related regulation and rules and then request a land acquisition negotiation with landowners from the governor of the Banten province. If the governor finishes the negotiation amicably, the project execution agency compensates the landowners and then starts construction. It is not necessarily that all the compensation needs to be finished before the construction. The compensation process can go along with the construction depending on the area. Social impact assessment (LARAP) plan for main conveyance pipeline with the lengths of 47.9km were conducted in 2017 and 2018. It surveyed potential houses and area to be affected by the construction of the Karian-Serpong conveyance system to prepare for the land acquisition with the compensation cost. 7.3.2 Prerequisites for project implementation (1) Legislation of AMDAL The AMDAL prepared for the main conveyance line connecting the Karian dam and the Serpong water treatment plant with the length of 47.9km is already expired. Under the relevant law amended in 2012, it is mandatory either to revise the existing AMDAL or to prepare a new one. Since an AMDAL for the branch conveyance pipeline extending to four water treatment plants – Rangkas Bitung, Maja, Solear, and Parung Panjang WTPs has never been prepared, a new AMDAL needs to be written. The final approval of the AMDAL is authorized by the Governor of the Banten province, whereas the examination and approval-related affairs are performed by the Environmental Agency of Banten province. The project execution agency (PUSATAB, BBWS C3) is currently preparing an integrated AMDAL for the main and branch conveyance pipelines. However, the whole process of obtaining an AMDAL will require at least six months since it takes time to prepare the 7-22

Chapter 7. Project execution agency and implementation system revised documents for the main line; to prepare new documents for the branch line; and for the environmental agency to review and approve the documents. This project is possible only when the AMDAL for the entire project route is approved before the construction begins. In order to shorten the project period, it would be more efficient if the AMDAL process is prepared in line with the selection of consultants and working design. As of November 2018, the project execution agency is performing the AMDAL for the entire project route that includes both main and branch lines. It is expected that the examination, report submission, and approval will be finished by early 2019. (2) Land acquisition and compensation To implement the construction project of the water conveyance system, it is necessary to acquire a land located in the construction area but owned by civilians. The construction route includes the Banten province and parts of Parung Panjang. Since the land with an area of 14,383m2, which is needed to install the booster pumping station, is a state-owned land, there requires no extra procedure, but the land for the entry road to the pumping station needs to be acquired. As for the land required for the installation of the conveyance pipeline connecting the booster pumping station and the Serpong water treatment plant, the land with the occupation and use width of 30m needs to be acquired. As for the planned width for occupation and use for the branch pipelines to be installed in the second phase, it is 6m for the Rangkas Bitung branch line, 4m for the Maja branch line, 13m for the Solear branch line, and 6m for the Parung Panjang branch line. The number of houses to be migrated in the construction area for the first phase route is tallied 581. Matters to be considered in land acquisition are as follows: ○ to prepare a LARAP and related documents to be submitted to the Governor of the Banten province ○ to implement land acquisition and assessment ○ to announce land acquisition ○ land compensation and resettlement of the affected residents The land acquisition process is as follows: the Banten province begins negotiations with the landowners in accordance with the location statement prepared by the project execution agency. As for the land whose negotiation is finished, the project execution agency compensates the landowners before the construction begins. This process will also be conducted in tandem with the working design so as to shorten the project period. 7-23

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia 7.4 Project implementation system and cooperation system 7.4.1 Project execution agency and related organizations (1) Ministry of Public Works and Housing (PU) The Ministry of Public Works and Housing (also called PU for short) is a government department in charge of managing this project. The municipal government consisting of the province, regency and city serve the function of implementing self-governance and managing/controlling the area. According to the law No. 23/2014, when water resources belong to or are located within a regency or a city, it is the responsibility of the government of the pertinent regency or city to manage such resources. When water resources belong to or are located across more than two regencies or cities, the provincial government is responsible for managing such resources. When water resources belong to or are located across more than two provinces, it is the PU in charge of managing such resources. Since the project area of the Karian-Serpong conveyance system construction encompasses Banten province, Parung Panjang, and Jakarta, the PUSATAB, which is an affiliated arm of the PU, and the BBWS C3, which is a provincial agency corresponding to the central PUSATAB, are tasked with the implementation of the project. The functions and activities of the provincial government are as follows: ∘ to review the environmental impact assessment ∘ to review land acquisition and resettlement plan ∘ to support tasks related to water right ∘ to decide fees for raw water and for final water supply (waterworks office) ∘ to supervise and coordinate waterworks project management (2) Establishment of a project implementation unit (PIU) It will not be easy for the project execution agencies (PUSATAB, BBWS C3) to manage such a large-scale project as the Karian – Serpong conveyance system construction since they have a limited number of staff with its own given tasks. Therefore, it is worth considering that a project implementation unit (PIU) in charge of the management of this project is established. The PIU will be comprised of the concerned officials from the project execution agencies as well as independent experts who can support this project and will be run only for a while from the starting point of this task to the completion. The establishment of the PIU offers the following benefits. • A group of experts from various backgrounds is gathered together for a successful implementation of a project. • A project funded by the Korea EXIM bank requires expertise and knowledge in bid procedures. Through the dedicated implementation of a project, the PIU will learn such expertise and knowledge related to the loan agreement (financing program) by the EXIM bank. • Experience and knowledge accumulated throughout the project management process 7-24

Chapter 7. Project execution agency and implementation system will improve the technical and managerial capabilities of the PIU, which in turn results in its enhanced capability to operate the system in an efficient and systematic manner. In addition, it will help the PIU to better perform manage a project when a waterworks project similar to this is introduced or the water supply system of the Karian dam is expanded in the future. At present, the construction project of the Karian dam is under the direct charge of the PUSATAB and BBWS C3 with no PIU organized. The SDA needs to check if it is necessary to set up a PIU or to let the project execution agency manage the project. (3) Requirements from the Korea EXIM bank (KEXIM bank) If a project is funded by the Korea EXIM bank, the project execution agency is required to comply with the procurement and implementation guidelines given by the bank. Therefore, the project execution agency (PUSATAB and BBWS C3) needs to keep in touch with the KEXIM bank so that it can report to or obtain an approval regarding the selection of consultants/constructors, submission of the reports, and disbursement of funds. Unfortunately, the project execution agency has a limited number of staff dealing with all requirements from the KEXIM bank and lacks technical expertise. Hence, it is desired that the project execution agency hires Korean consultants who are capable of handling and supporting all the requirements regarding the selection of constructors, execution of the construction, performance and quality assurance, and all kinds of achievements. 7.4.2 Organization structure for project implementation This project is a large-scale project which requires a comprehensive performance assurance of the entire system. This means not only strict quality control of each element but also a stable operation of the system. To successfully implement the project, all the related organizations should closely cooperate one another from the technical and managerial aspects. <Figure 7.14> shows the organization for the implementation of the project. (1) Accountability in project implementation For an effective implementation of a project, each organization needs to hold clear accountability and pursue a close coordination and cooperation at the same time. ① The project execution agencies (PUSATAB and BBWS C3) are tasked with the overall project management and responsible for an effective management and successful implementation of a project. ② The PUSATAB tasked with planning will be in charge of employing consultants who conduct working design, support bidding preparation for the selection of contractors, and carry out construction supervision. 7-25

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia ③ The BBWS C3 tasked with the project management on the construction site will be in charge of hiring contractors to supply materials, perform construction, and assure quality and performance. ④ The hired consultants will support bidding process including preparation of bidding documents, bidding procedure for the selection of contractors, bidding evaluation, and contracting so that the project execution agency can select highly competent contractors in accordance with the proper guidelines. ⑤ The project execution agencies (PUSATAB and BBWS C3) will review, manage, and approve the tasks performed by consultants and check process. ⑥ Consultants will check and examine if the design and construction conform to the quality standards set by the project execution agencies and KEXIM bank. ⑦ Consultants will support the project execution agencies in preparing documents and communicating regarding all kinds of reports and approval requests by the KEXIM bank. <Figure 7.14> Organization structure for project implementation Project execution agency - overall project management (PUSATAB/BBWS C3) - selection and employment of consultants report to higher authorities (PU, SDA): working process, controversial issues, - requirements for project implementation coordination with the Indonesian government agencies (Banten province, PLN) - report to KEXIM on provisions of the loan agreement - budget management, project working process supervision - review, management, and approval of tasks performed by consultants - consultants - working design - bidding preparation for the selection of contractors - construction supervision: process, quality, safety control - support reporting to the KEXIM - support overall project management Contractor - engineering work PUSATAB : Ground Water - supply materials and equipment and Raw Water Center - construction: civil/architectural BBWS C3 : Balai Besar work. Mechanical/electric work Wilayah Sungai Cidanau, - commissioning Ciujung, Cidurian - performance and quality assurance 7-26

Chapter 7. Project execution agency and implementation system (2) Requirements for project implementation ① before construction The project implementation plan including the financing plan should be prepared before the construction stage. This is critical to achieving the purpose of the project, and matters to be considered for the implementation of the project are as follows: - An efficient structure needs to be established so as to have a clear understanding of the project purpose and to conciliate fields of other related organizations. - To assure quality and efficiently operate the system, a proper structure among the project execution agencies, consultants, and contractors needs to be established in the initial stage before construction. ② during construction During the course of project implementation, the relationship among the project execution agencies, consultants, and constructors need to be coordinated based on the contractual relationship between the contractor and supplier. One of the important points considered by the project execution agencies is to conclude an agreement on technology transfer for the operation/maintenance of materials and equipment newly adopted by consultants and contractors, which BBWS C3 can rely on. 7.5 Operation and maintenance system 7.5.1 Operation and maintenance organization The task of this project is comprised of the conveyance pipeline that takes raw water from the Karian dam and the booster pumping station. Booster pumps and water conveyance facilities need to be operated according to the demand and distribution amount of each water treatment plant by phase, but the operation of pump facilities has to be controlled by water levels at the Karian dam. Accordingly, the following plans are to be established by connecting the operation of the booster pumping station and the conveyance pipeline. ① an integrated operation organization for the Karian dam, pumping station, and conveyance system (integrated operation/maintenance); or ② separate operation organizations (separate operation/maintenance) for the pumping station and conveyance pipeline Since understanding the overall system of the Karian dam such as seasonal conditions (rainy and dry seasons), quality of water source, and location of water intake is critical to the effective operation of the conveyance and pumping facilities, an integrated operation organization is chosen in this feasibility study. 7-27

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia <Table 7.6> Required number of manpower for Karian - Serpong conveyance system (KSCS) Classification Total Day duty Notes (persons) Head manager 0.5 0.5 (Integrated operation with the Karian dam) 0.5 0.5 Vice manager (Integrated operation with the Karian dam) Operation department - Booster pumping station operation senior manager 1 1 - Booster pumping station operator (in 3 shifts) 6 2 Group of two Maintenance department - Team leader 11 - Technician (in 3 shifts)_mechanical 4 2 Pumping station - Technician (in 3 shifts)_electric 4 2 Pumping station - Technician (pipeline)_civil engineering 22 Pipeline - Technical assistant 2 1 Pumping station General staff - Security guard (in 3 shifts) 6 2 Pumping station - Tour guide 2 2 Pumping station Total (this project) 29 16 Note) The captain and vice-captain of O&M office of this project will also held positions for the Karian Dam as well as the conveyance system, so their day duty is calculated as 0.5 each. The organization is composed of the operation department, maintenance department, and general staff department. The operation department is staffed with 29 employees in total, who are assigned to their respective fields - the mechanical and electric works in the pumping station and the civil works in the pipeline. The planned operation/maintenance organizational chart is shown in <Figure 7.15>. The head and vice managers of the Karian dam will be in charge of the overall management of the conveyance system including the Karian dam and the pumping station, and will be generally monitoring water levels at the dam to operate the dam and the pumping station. The operation manager and maintenance team leader will be working interactively by sharing information about water levels at the dam, the operation status of the pumping station, the status of the conveyance pipelines, intake water conditions, the status of water intake, and 7-28

Chapter 7. Project execution agency and implementation system so on. Technicians assigned with their respective field of work will take charge of maintaining facilities through a close cooperation. <Figure 7.15> KSCS operation/maintenance organizational chart PUSATAB BBWS C3 Head manager of the Karian dam (0.5) Vice manager of the Karian dam (0.5) Operation department(7) Maintenance department(13) General staff (8) Security guard (6) Pumping station Maintenance team operation senior leader (1) manager (1) Pumping station (mechanical) Technical Tour guide (2) operator (6) technician (4) assistant (1) (electric) technician (4) (civil) technician (2) 7-29

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia 7.5.2 Costs for operation and maintenance Costs for operation and maintenance are composed of the following items. ① labor cost ② electricity cost ③ maintenance cost ④ other expenses (1) Labor cost The number of manpower required for the operation and maintenance of the water supply system is calculated by considering the local conditions as well as the need of technical experts in the pumping station and the conveyance system. As shown in <Table 7.7>, the unit labor cost is computed by applying the average wage of a civil engineer in the project area. <Table 7.7> Labor cost for operation and maintenance Unit price Monthly Yearly labor cost labor cost Classification Item No. (IDR/ (IDR/ (USD/ (IDR/ year) year) month.person) month) Management Head 0.5 30,000,000 15,000,000 180,000,000 13,333 Operation manager 0.5 30,000,000 15,000,000 180,000,000 13,333 Vice 1 20,000,000 20,000,000 240,000,000 17,778 manager 6 20,000,000 120,000,000 1,440,000,000 106,667 Operation manager Operator Maintenance 1 20,000,000 20,000,000 240,000,000 17,778 team leader 4 20,000,000 80,000,000 960,000,000 71,111 Mechanical technician Maintenance Electric 4 20,000,000 80,000,000 960,000,000 71,111 technician Civil 2 20,000,000 40,000,000 480,000,000 35,556 technician Technical 2 8,478,040 16,956,080 203,472,964 15,072 assistant 6 2 Security 29 8,478,040 50,868,241 610,418,892 45,216 General staff guard 8,478,040 16,956,080 203,472,964 15,072 205,434,121 474,780,402 5,697,364,820 422,027 Tour guide Total (2) Electricity cost The electricity rate in Indonesia is 1,294.73IDR/kW.month (103.58KRW/kW.month) for contract charge and 1,399.73IDR/kWh (111.98KRW/kWh) for consumption charge. It is relatively higher than that of Korea, whose basic rate is set at 7,220 to 9,810KRW/kW and energy charge is 55.2 to 196.6KRW/kWh (which varies by season and time). The estimated electricity cost required for the operation of the booster pumping station and the corrosion protection of the conveyance pipelines by phase is shown in <Table 7.8>. 7-30

Chapter 7. Project execution agency and implementation system <Table 7.8> Electricity cost for operation and maintenance Classification Item Consumption Unit Unit price Daily price Yearly price Yearly price (IDR) (IDR/day) (IDR/year) (USD/ year) Basic 7,500 kW 43.16 323,700 118,150,500 8,752 Phase power 1 Consumed 117,469 kWh 1,399.73 164,425,548 60,015,325,020 4,445,580 power Booster Subtotal 60,133,475,520 4,454,332 pumping station Basic 5,000 kW 43.16 215,800 78,767,000 5,835 power Phase Consumed 92,411 kWh 1,399.73 129,350,540 47,212,947,100 3,497,255 2 power Subtotal 47,291,714,100 3,503,090 Basic 2 kW 48.91 97 35,405 3 48 kWh 1,667.28 Flow meter Phase power chamber 1 Consumed 80,029 29,210,585 2,164 power Subtotal 116,983,960 8,668 Total 107,542,173,580 7,966,090 (3) Maintenance cost By referring to EDCF water supply projects implemented in Bangladesh and Vietnam, in which 0.1% of the facility cost is applied for the maintenance cost of the civil and architectural facility and 0.3 percent of the facility cost is applied for the maintenance cost of electric and mechanical equipment, the applied yearly maintenance cost is 0.3 percent of the initial installation cost for the booster pumping station and 0.1% of the initial installation cost for the conveyance pipeline, and the detailed maintenance items are shown in <Table 7.9>. <Table 7.9> Maintenance cost Classification Phase Construction cost Applied Yearly maintenance cost Unit IDR/year unit USD/year (IDR) rate Booster Phase 1 372,098,898,121 0.30% 1,116,296,694 82,689 pumping Phase 2 132,601,461,549 0.30% 397,804,385 29,467 station Subtotal 504,700,359,670 0.30% 112,156 1,514,101,079 Conveyance Phase 1 2,341,180,360,219 0.10% 2,341,180,360 173,421 pipeline Phase 2 2,469,477,736,843 0.10% 2,469,477,737 182,924 Subtotal 4,810,658,097,062 0.10% 4,810,658,097 356,345 Phase 1 2,713,279,258,340 3,457,477,055 256,109 Total Phase 2 2,602,079,198,392 2,867,282,121 212,391 Total 5,315,358,456,732 6,324,759,176 468,501 7-31

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia (4) Other expenses In order to make up for contingency cost that may arise during operation, 10 percent of the operating cost is appropriated as a reserve fund. The applied rate was quoted from the EDCF water supply project implemented in Bangladesh and Vietnam. The corresponding expenses are estimated as shown in <Table 7.10>. <Table 7.10> Other expenses for operation and maintenance Classification Phase Yearly expenses O&M cost (IDR) Applied rate Unit IDR/year Unit USD/year Phase 1 5,697,364,820 10% 569,736,482 42,203 Labor cost Phase 2 - 10% - - Subtotal 5,697,364,820 10% 569,736,482 42,203 Phase 1 60,250,459,480 10% 6,025,045,948 446,300 Electricity cost Phase 2 47,291,714,100 10% 4,729,171,410 350,309 Subtotal 107,542,173,580 10% 10,754,217,358 796,609 Maintenance Phase 1 3,457,477,055 10% 345,747,705 25,611 cost Phase 2 2,867,282,121 10% 286,728,212 21,239 Subtotal 6,324,759,176 10% 632,475,918 46,850 Total Phase 1 69,405,301,355 6,940,530,135 514,114 Phase 2 50,158,996,221 5,015,899,622 371,548 119,564,297,576 11,956,429,758 885,662 Total (5) Raw water fees According to the 2015 report on the basic design and PPP basic scheme for Karian – Serpong conveyance system, raw water fee is 65Rp/m3, and its operation and maintenance cost is estimated as shown in <Table 7.11>. Classification Phase <Table 7.11> Raw water fees Yearly fee Yearly fee (IDR/year) (USD/year) Supply Unit price Daily fee (m3/day) (IDR/m3) (IDR/day) Phase 1 380,000 65Rp 24,710,400 9,019,296,000 667,428 Raw water 120,000 65Rp 7,862,400 2,869,776,000 212,363 fees Phase 2 7-32

Chapter 7. Project execution agency and implementation system (6) Sum of the operation/maintenance cost The sum of the operation/maintenance cost in the Karian – Serpong conveyance system project is shown in <Table 7.12>. The labor cost for the second phase equals to that of the first phase, so zero labor cost (0) in the second phase as shown in the table below means there is no additional labor cost. <Table 7.12> Cost for operation and maintenance Classification Phase Operation and maintenance cost Ratio Unit IDR/year Unit KRW/year Unit USD/year Phase 1 5,697,364,820 455,789,186 422,027 7% Labor cost Phase 2 - - - 0% Subtotal 5,697,364,820 455,789,186 422,027 4% Electricity Phase 1 60,250,459,480 4,820,036,758 4,463,000 71% cost Phase 2 47,291,714,100 3,783,337,128 3,503,090 81% Subtotal 107,542,173,580 8,603,373,886 7,966,090 75% 4% Maintenance Phase 1 3,457,477,055 276,598,164 256,109 5% cost Phase 2 2,867,282,121 229,382,570 212,391 4% Subtotal 6,324,759,176 505,980,734 468,501 8% 6,940,530,135 555,242,411 514,114 9% Other Phase 1 5,015,899,622 401,271,970 371,548 8% expenses Phase 2 11,956,429,758 956,514,381 885,662 11% Subtotal 9,019,296,000 724,873,201 667,428 5% 2,869,776,000 230,641,473 879,791 8% Raw water Phase 1 11,889,072,000 955,514,674 879,791 fees Phase 2 Subtotal Phase 1 85,365,127,490 6,832,539,720 6,322,678 100% Total Phase 2 58,044,671,843 4,644,633,141 4,966,820 100% Total 143,409,799,333 11,477,172,861 11,2889,498 100% 7.5.3 Educational training and program A successful project or construction requires a thorough implementation plan in the stage of investment preparation, an effective management in the stage of investment, and professional staff with experience, competence, and expertise in the stage of operation. likewise, the training program is one of the important tasks that can make or break a project. 7-33

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia (1) Training plan ① Training on administrative management, project management, accounting, and disbursement ② Training for managers: director, deputy directors, manager, team leader ③ Training for technicians: improving professional knowledge and understanding of water supply system and water treatment plant ④ Training for technicians who supervise the operation and management of the system ⑤ Curriculum for sustainable development and environmental protection issues ⑥ Domestic/overseas study tour for water supply projects at home and abroad ⑦ Environment monitoring staff ⑧ How to use advanced monitoring equipment, the methodology of monitoring, and environmental landscape ⑨ Education on the method of operating the pumping station and the water conveyance system: practice in similar projects (2) Training program 1) Training program for the project execution agency ① Waterworks business, restructuring for a new construction and operation, strict and proper accounting records and separation of accounts ② Setting and storing database for the existing and newly built work in the computer 2) Program to enhance awareness and operation training program ① Planning and budgeting for a project, public relations/communication skills ② Construction, operation, and maintenance of the facility ③ Management methods on record keeping, accounting, computer software, management report and monitoring skills ④ Gender awareness, local economy/community development, resettlement and socio- economic survey ⑤ Inspection and evaluation of a project Professional consultants will provide advice and support on training sessions and courses where employees can learn about operation and maintenance with education materials and guidebooks. In some cases, hiring local labor helps a project to be implemented effectively, which also holds significance for the local economy. However, it does not seem easy to find suitable local workers in the neighborhood who are capable of operating the pumping station and the conveyance system. It is anticipated that we can hold training sessions for managerial staff, engineers, technicians, and workers in a nearby academy or college. A university at national levels will 7-34

Chapter 7. Project execution agency and implementation system also be a great venue for educational programs for professional engineers specializing in environment and water supply. Therefore, it is possible to perform educational and training programs for management staff for the Karian – Serpong conveyance system project. It is also worth considering an overseas educational program in developed countries. It will provide a great opportunity for Indonesian managers and engineers of the project execution agency to learn and experience the management and operation of the water supply system in depth. The project execution agency needs to develop a strategy for human resources management, not to mention the orientation and training plan for its managers and engineers. ① Leaders should make continuous efforts to develop and improve a program that contributes to enhancing productivity and welfare of employees and their families. ② The project execution agency should always seek and develop an education plan that encourages young employees to try their best to get promoted. ③ Leaders should have a clear understanding of the technical and institutional innovation – computerization, participation from the private sector, and contract on new technology and solution, which is at the heart of human resource development of the organization. ④ In an effort to motivate and encourage employees, leaders should create a close relationship between individuals (or the organization) and their performance. Employees who increase their productivity should be rewarded with higher wage or bonus. (3) Effective system for human resource management The best strategy for human resource development is to provide staff and employees with training which is designed to nurture their expertise and specialty. In doing so, the project execution agency needs to closely cooperate and coordinate with its individual employee. In order to maintain balance between the logical and the actual tasks aimed at achieving a given set of goals, a specific plan for human resource management needs to be established. The plan should include a continuous plan designed to enhance capability and to handle professional requirements. At the same time, the project execution agency needs to check if there is any omission or issue beyond the agency’s ability. ① Arrange managers and workers at a suitable time and place ② Appoint individuals most capable of performing the task ③ Apply a remuneration system satisfactory to staff and workers ④ High performing staff and employees should be given reward corresponding to their achievement. A company welfare system that basically satisfies all staff and workers should be established. ⑤ The project execution agency needs to create an environment where its staff and employees can share their opinions on how to achieve the company’s common goals while performing their job. 7-35

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia 7.5.4 Commissioning and technology transfer plan (1) Basic direction There will be separate sessions for theory education and practical training. － theory education: professional instructors and engineers give lectures on the principles of the water supply system and the methods of construction － practical training: technicians provide job training sessions on the structures, functions of the facilities and their maintenance/inspection (2) Technology transfer plan The technology transfer plan for the Karian – Serpong conveyance system is shown in <Figure 7.16>. For an effective operation and maintenance of the facility to be introduced, training programs for technology transfer will be given by an independent contractor, not consultants. The training period and curriculum will be determined through consultations between consultants and the project execution agency in the working design stage whereas the specific training plan will be established by a contractor. <Figure 7.16> Technology transfer plan Setting a target Curriculum Technology transfer ∙ Understanding of the ∙ About the conveyance system system General ∙ About the facility ∙ Practical training by facility ∙ Training on ∙ System ⇨ To train a materials/equipment by operation handful of manufacturers and suppliers ⇨ operation Professional specialists ∙ Training on electricity/ within a short instrumentation /control ∙ System analysis period of time equipment In site ∙ Operation of ∙ Training on the operation of the pump the pumping station in an emergency ∙ Operation of the automated system 7-36

Chapter 7. Project execution agency and implementation system (3) Technology transfer plan The technology transfer plan for employees and operators of the project execution agency is shown in <Table 7.13>. <Table 7.13> Technology transfer plan Classification How to transfer technology Content Conveyance ∙ Hold a joint training session for ∙ Theory on the conveyance of raw water pipeline operation technicians and the P&ID (piping and ∙ Fully understand a basic design instrumentation diagram) Maintenance report ∙ Indicators of the operation management ∙ Provide on-site orientation of each unit facility Operation ∙ the conveyance system of raw water Control ∙ Features and operation skills of the equipment installed equipment ∙ Explain design drawing ∙ Maintenance in normal ∙ On-site inspection and operation operation/operation skills ∙ Response measures in an emergency and matters related to A/S ∙ Hold a seminar on ∙ Detailed operation management skills commissioning technology of the pump ∙ Explain operation of materials ∙ Adjusting mode and emergency and equipment response measures ∙ Hold a seminar for operation ∙ Specification and compatibility of the technicians ∙ hold a joint on-site control panel operation ∙ Operation of the integrated ∙ Build and operate an integrated management system management system ∙ Record keeping and emergency response measures (4) Training plan for commissioning The training plan for commissioning is shown in <Table 7.14>. For an effective operation and maintenance of the facility to be introduced, training programs for technology transfer will be given by an independent contractor, not consultants. The training period and curriculum will be determined through consultations between consultants and the project execution agency in the working design stage whereas the specific training plan will be established by a contractor. 7-37

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia <Table 7.14> Training plan for commissioning Instructor (trainer) Trainee Content Commissioning ∙ Theory on the operation of the pumping station and P&ID team leader (the piping and instrumentation diagram) －Ground plan of the piping in the pumping station －P&ID system diagram －Conveyance pipeline system ∙ Practical training for each process Commissioning Operators － On the job training for each process team leader of the － Operation methods of each equipment and operational In charge of unit conveyance state process system － Electrical equipment － Instrumentation/control equipment: monitoring control equipment － Operation and maintenance of measuring instrument Equipment ∙ Equipment training manufacturers and suppliers Commissioning ∙ Joint duty team － Continuous training on matters left out in the previous training session 7-38

Chapter 8. Review of technical and political feasibility Chapter 8. REVIEW OF TECHNICAL AND POLITICAL FEASIBILITY 8.1 Review of technical feasibility 8.1.1 Adequacy of the design criteria The waterworks system should be designed in accordance with the relevant law and regulations in Indonesia, if there are established. The Karian – Serpong conveyance system is a large-scale project aimed to supply water to a large region, which will be closely related to the quality of people’s lives in the service area once the system begins to supply water. Under any circumstances, therefore, the water supply of the system must not be suspended. To this end, as for the detailed design criteria, the facility needs to have a stability of the hydraulic system and an excellent durability with no defect. <Table 8.1> Applicable design criteria Code Organization Code Organization General KS Korea Industrial Civil and SNI Indonesian National Works ISO Standard Architectural ASCE Standard ANSI ACI Water ASTM International Standards Works AIA American Society of Civil Quality BS Organization ASME Engineers JIS Mechanical NFPA Water American National Works ASHAE American Concrete Institute supply WHO Standards Institute IEC facilities KWWA Electrical and American Institute of including AWWA American Society of Instrumental IEEE Architects pipe JWWA Testing and Materials & Control materials ISA American Society of British Standards Works NEC Mechanical Engineers NEMA National Fire Protection Japanese Industrial Standard Association American Society of Regulation No. 82 of 2001 on Water Quality Heating and Air- Management and Water Conditioning Engineers International Electro- Pollution Control, technical Commission Indonesia Institute of Electrical & Drinking Water Quality Electronics Engineers of World Health Instrument Society of Organization (WHO, America 2003) National Electrical Code Korean Water Works Association Standard National Electrical Manufactures Association American Water Works Association Standard Japan Water Works Association Standard 8-1

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia The quality of water must also be assured since the principal purpose of the waterworks system is to provide clean and hygienic water and prevent water-borne diseases, so the design and construction should be implemented according to design criteria already established in advanced countries. <Table 8.1> shows the applicable design criteria for the water supply system. Korea is a country who has recently modernized its waterworks system. Its expertise and experience accumulated for the past decades are reflected in the standards set by the Korean WaterWorks Association (KWWA). Designed to provide a sufficient amount of water and assure the quality of water, the Korean criteria and standards are on par with those established by the most advanced countries such as the AWWA and JWWA. Therefore, it is no exaggeration to say that the project carefully designed by Korean consultants and strictly observing the Korean Standards and KWWA will achieve a world-class level of the water supply system. <Table 8.2> Demand outlook and allocation plan Water demand (2030) Water allocation Conveyance rate Demand Shortfall Planned Region Service area (m3/sec) (m3/sec) Phase 1 Final Phase Final WTP 1 (%) (m3/sec) (m3/sec) (%) Total 52.80 31.35 4.6 13.9 14.67 44.34 Subtotal 32.40 26.05 1.4 9.5 5.37 36.47 Tangerang regency 10.72 8.53 - 3.6 - 42.2 Solear WTP South Tangerang city 6.31 5.03 0.65 1.8 12.92 35.79 Tangerang city 9.47 7.86 0.75 Serpong WTP 2.0 9.54 25.45 Banten Lebak regency 1.16 0.81 - 0.6 - Rangkas province 74.07 Bitung/ Maja WTP Serang regency 2.73 2.09 - 0.7 - 33.49 Serang city 1.14 1.09 - 0.3 - Out-scope of Cilegon city 0.87 0.64 - 0.5 - 27.52 the project area (Petir WTP) 78.13 Ciujung river - - (6.55) (4.0) - - River maintenance West Java Bogor regency 0.36 0.26 - 0.2 - 76.92 Parung (Parung Pnjang) Panjang WTP West Jakarta West Jakarta 20.04 5.04 3.2 4.2 83.33 Serpong WTP Source: data from BBWS C3(Balai Besar Wilayah Sungai Cidanau-Ciujung-Cidyrian) 8.1.2 Adequacy of the demand outlook and allocation plan Demand for water outstrips supply capacity in most regions of the project area. The Karian dam has a supply capacity of is 14.6m3/sec (1,261,440m3/day) and the Pasir Kopo dam has a capacity of 3.3m3/sec (285,120m3/day), totaling 17.9m3/sec (1,546,560m3/day). Of which, 12.4m3/sec (1,071,360m3/day) will be supplied via the Karian – Serpong conveyance system 8-2

Chapter 8. Review of technical and political feasibility (the scope of this project). <Table 8.2> shows the water allocation plan made by considering the water demand outlook by region for the year 2030 and the Indonesian government’s plan on the supply of water resources (POLA). Here, phase 1 refers to the allocated amount of water to be supplied by the Serpong WTP to South Tangerang city, Tangerang city, and West Jakarta, excluding other WTPs connected to the branch lines. The final allocated amount of water refers to the allocated amount of water to be supplied after the completion of the second phase project. As shown in <Table 8.2>, the amount of water to be allocated accounts for 44.34 percent of the demand. Unless a sufficient supply of water resource is secured, it is inevitable that water supply cannot satisfy demand. To supply a clean and safe water according to demand, a continuous development of water resources and expansion of the related facility are needed. 8.1.3 Adequacy of the hydraulic system This feasibility study plans a single hydraulic system with dual pipelines connecting the Serpong, Parung Panjang, Solear, and Maja water treatment plants, except the Rangkas Bitung water treatment plant located at a high ground level. <Figure 8.1> High and low head separated hydraulic system According to the master planning and development basic scheme of the Karian – Serpong conveyance system and water treatment plant PPP (a 2014 report), a high-head pump system with a height of 86m is planned to supply raw water to the Serpong and Parung Panjang water treatment plants whereas a low-head pump system with a height of 47m is planned to supply raw water to the Solear water treatment plant. The plan is thought to be as shown in <Figure 8.1>. 8-3

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia A high and low head separated hydraulic system causes an interruption of water supply service for long hours if any periodic inspection of the pipeline or a repair work is needed in case of a leakage accident. Furthermore, when the system is extended in the second phase, each facility needs to be extended, which will increase construction costs. In the 2014 report, the second phase conveyance pipeline is planned to be extended in parallel with the first phase route, and the high and low head pipelines look as if they were interconnected in the drawing. However, in reality, the combined operation with high head pump (86m) and low head pump (47m) is deemed impossible since their head difference is so large that their operation line does not meet at all. In other words, the low head pump cannot perform if the two pumps are operated together. Therefore, it is better to design the conveyance system with dual pipelines so that even if one of the pipelines is in trouble, the other one is still capable of supplying water. In this plan, one pipeline is to be installed in the first phase and the other pipeline is to be installed in the second phase, which results in the single hydraulic system with dual pipelines in the final stage. Given the friction losses of the pipeline, the pump head needs to be 50m for the first phase. But if the two pipelines are interconnected in the second phase, the hydraulic load caused by the friction losses of the pipeline will be reduced, lowering the pump head to 32m. Such reduction in the pump head can also be achieved by either processing or replacing the outside diameter of the impeller. <Figure 8.2> shows the conceptual drawing of the single hydraulic system with dual pipelines. The single hydraulic system with dual pipelines has a number of merits as follows: (1) The pipeline can be recovered without interruption of water supply in case of emergency The conveyance pipelines are subject to unexpected accidents such as a pipeline damaged by an external shock or leakage at a corroded area due to the deterioration. The broken pipelines should be repaired either very quickly or without interruption of service since the suspension of water supply causes great inconvenience to people in the service area. Things could be worse if any damage or leakage occurs in a railroad-, road-, or river-crossing point since it is almost impossible to finish the repair work quickly due to difficulties in controlling traffic and securing an access. Hence, the dual conveyance pipeline is the best solution to control accidents in the pipeline, which allows one pipeline to keep supplying water while the other line is under the repair work, without suspending water supply service. (2) A periodic inspection can enhance reliability of the system To prevent against accidents and extend the service life of the pipelines, an inspection of the system including check valve, air valve, drain valve, telescopic pipe, flowmeter, and water hammer protection device, needs to be conducted on a regular basis. Sometimes, such a periodic inspection may interrupt the operation if necessary, however, the dual pipeline does 8-4

Chapter 8. Review of technical and political feasibility not require any interruption of service by checking two pipelines alternately. <Figure 8.2> Single hydraulic system with dual conveyance pipeline (3) Economic operation A combined hydraulic system standardizes water pressure inside the pipeline, thereby reducing the peak head found in the single pipeline. A reduced peak head means lower probabilities of leakage accidents and less power consumption as well as less operating costs by reducing wasted residual head. In other words, an economic operation can be achieved. In Korea, the waterworks system of the metropolitan area has established a reputation as a reliable supplier of water through its continuous efforts in making a dual hydraulic system and integrating the pipe network, which all contributing to a stable conveyance system. Having a dual pipeline system does not only eliminate the risk of the suspension of water supply but also makes economic operation. 8.1.4 Adequacy of the selection of pumps The water level at the dam is designed to change by up to maximum 21.5m, between high water level of (+) 67.5m and low water level of (+) 46.0m depending on whether it is drought or rainy season. Such a great fluctuation in water level may go beyond the operational range of the pump, so the impact on the operation of the pump needs to be examined. <Figure 8.3> shows the water level at the dam and the elevation of the pumping station. 8-5

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia <Figure 8.3> Water levels and elevation of the pumping station ∇H.W.L.(+)67.50 G.L.(+) 45.97 ∇M.W.L.(+)56.43 ∇L.W.L.(+)46.00 C.O.P. Booster BOT El.(+)42.40 El.(+) 42.67 Pump To WTP Bottom El.(+)40.87 Karian Dam Booster Pumping Station The required pumping head should be determined by the hydraulic calculation based on the low water level of (+) 46.0m, which is the worst-case scenario during dry seasons. However, in practice, the frequency of the pump operation at the low water level is extremely low. Plus, if the pump determined based on the low water level is operated at the high water level of (+) 67.5m, it will make the operation inefficient as it exceeds the regulated operating line of a pump, or even cause an operation failure. In this feasibility study, the hydraulic calculation is made based on the mean water level of (+) 56.4, the most frequently operated level, and the corresponding pump head is determined. In this case, the pump still deviates from the operating line when operated at the high and low water levels, but given the low frequency of such cases, it is deemed not to disrupt the operation of the pump station as a whole. <Figure 8.4> shows an efficiency curve of the pumps produced by South Korean pump maker H. Line A is an operating point at the mean water level, line B is an operating point at the high water level, and line C is an operating point at the low water level of (+) 46.0m. A, B, and C is an operating point at a respective mean, high, and low water level when the pump is operated at the rated pump head of 50m for the first phase. (the size of an impeller varies by manufacturer, for this model, the diameter of the impeller is 629mm.) A0, B0, and C0 is an operating point at a respective mean, high, and low water level when the pump is operated at the rated pump head of 32m with the interconnected operation of the pipelines after the completion of the second phase. If the same impeller model is used here, the outer diameter of the impeller is to be trimmed to 572mm. In fact, it is possible to reduce the pump head by trimming the outer diameter within the allowable range of the characteristics of the pump. 8-6

Chapter 8. Review of technical and political feasibility <Figure 8.4> Efficiency curve and operating line of the booster pump To show a chart of operating points, the curve C-A-B is an efficiency curve at phase 1 and the curve C0-A0-B0 is an efficiency curve at phase 2 with the integrated operation. <Table 8.3> Changes in operating point depending on water levels (phase 1) Water level at a dam (m) Pump Flow rate Pump NPSHreq head efficiency H.W.L (+)67.5 38.93m 4,500 CMH (1.25 CMS) 78.0% 9.5m M.W.L (+)56.43 50m 3,600 CMH (1.0 CMS) 86.8% 5.0m L.W.L (+)46.0 2,500 CMH (0.70 CMS) 78.0% 4.5m 60.43m <Table 8.4> Changes in operating point depending on water levels (in case of operation with pump head 32m) Water level at a dam (m) Pump Flow rate Pump NPSHreq head efficiency H.W.L (+)67.5 20.93m 4,500 CMH (1.25 CMS) - - M.W.L (+)56.43 32m 3,600 CMH (1.0 CMS) - - L.W.L (+)46.0 2,500 CMH (0.70 CMS) - - 42.43m 8-7

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia As indicated above, the pump determined based on the mean water level can also be operated at the high and low water levels within the normal range of the operating line. In this case, the flow rate at the low water level accounts for 80 percent of the flow rate at the mean water level, which means the amount of water to be pumped needs to be reduced during extreme dry seasons. But considering the fact that the operation is mostly done at the mean water level, there is not much to be concerned. Suppose you insist on maintaining 100 percent of the conveyance rate even during extreme dry seasons, the pump should be determined based on the low water level. If this is the case, the rated pump head needs to be 60m for the first phase and 42m for the second phase with the integrated operation. The problem of this approach is that the efficiency of the pump operated in normal times, which is most frequently operated at the mean water level, is very low, resulting in higher operating costs considering relatively high electricity charges in Indonesia. Besides, the operating line will be outside its normal range if the water level of the dam is high. Therefore, it is believed appropriate that the pump is selected based on the mean water level, at which the pump is most frequently operated, and that the pump is operated within the range of the water levels of the dam. 8.1.5 Adequacy of the selection of a steel pipe and its construction The steel pipe in this project does not only account for a large portion of the project costs. But assuring its quality and durability in terms of material and construction is also an important factor to make or break the project. The service life of the steel pipe that the project execution agency (PUSATAB) wants is 50 years. Thus, our teams of consultants paid a visit to two major Indonesian steel pipe makers, KHI Pipe Industries and Gunung Steel, to learn more about the quality of steel pipes they produce and the local standards for the construction site, and then compared them with those produced in Korea as well as standards required in Korea. (1) Physical properties of steel pipe Steel materials are the raw material for steel pipe, which consists of iron (Fe) as its main ingredient and contains a small quantity of other chemical elements including carbon (C), silicon (Si), manganese (Mn), phosphorus (P), and sulfur (S). Despite being very small in quantity, these elements affect the properties of steel materials – tensile strength, stiffness, and ductility and brittleness. The properties have a great impact on the steel pipe’s pressure resistance, durability, machinability, weldability, and corrosion resistance. However, it is not easy for a user to test and identify such property values on one’s own since testing methods are complicated and require expert knowledge. Therefore, it is better to use raw materials certified by internationally recognized standards including KS (Korean Industrial Standards), 8-8

Chapter 8. Review of technical and political feasibility ANSI, ASTM, BS, EN, and JIS. KHI Pipe Industries is a joint company formed by Indonesia’s state-owned company KRAKATAU STEEL with a 30 percent stake and Korea’s POSCO with a 70 percent stake, so it is believed that KHI Pipe Industries will be able to procure the same quality as KS certified steel materials. Gunung Steel is currently using steel materials imported from Brazil, which calls for a more thorough quality check. (2) Production method of steel pipe Steel pipes are produced in the unit length of 6m, 9m, and 12m. Spiral steel pipe molding equipment is used in producing steel pipes with a diameter up to 3,000mm. Three-roller bending machine and bending shearing equipment are used in producing steel pipe with a diameter greater than 3,000mm, and the larger diameter steel pipes are made to be single tube due to the difficulty of producing a 6m length. Local steel pipe makers currently have this equipment, so they are capable of producing straight pipes. However, they do not produce deformed pipe fittings (bent pipe, T-shaped pipe, and taper pipe). This could pose serious obstacles to maintaining good quality as a situation takes place where deformed pipe fittings need to be produced in the construction site. The number of fittings required for this project is not large, the fittings are an important part which is exerted hydraulically and need precision manufacturing. So they were was planned as materials produced in a foreign country. (3) Thickness of steel pipe The thickness of steel pipe is determined by considering the internal and external pressure on the buried steel pipe. Nevertheless, the minimum thickness of steel pipe is required by the Korean Industrial Standards (KS) because there needs to be some margin for durability, corrosion resistance, machinability, and weldability, in addition to internal pressure resistance. <Table 8.5> shows the thickness of steel pipe required by the KS D 3565. <Table 8.5> Thickness of steel pipe (required by the KS D 3565) STWW400 Nominal Outer A B diameter diameter(mm) Thickness(mm) Thickness(mm) Unit weight Unit weight (A) (kg/m) (kg/m) 2,200 2,232.5 20 1,093 16 876 746 2,000 2,032.0 18 894 15 582 336 1,800 1,828,8 16 715 13 - 1,350 1,371.6 12 402 10 - 600 609.6 6 89.3 - 350 355.6 6 51.7 - 8-9

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia The thickness of the steel pipe to be used for this project (refer to chapter “5.5.2 Determination of pipe thickness” in this report) was calculated according to the applied water pressure by section and edge conditions. Since it is sufficient enough with type B, type B is chosen for steel pipes with a diameter greater than 700mm in consideration of economics. Our investigation shows that the two local steel pipe makers, KHI Pipe Industries and Gunung Steel, are capable of producing steel pipe with the thickness required by the KS D 3565. (4) Nondestructive testing of weld zone Regardless of the equipment used to produce steel pipes – whether it be the spiral molding equipment or the three- roller bending and shearing machine, the connected parts need to be joined by welding. As the quality of steel pipe is directly related to its water tightness, nondestructive testing is conducted to check the quality of the weld zone. Our investigation found that KHI Pipe Industries is equipped with automatic and manual equipment for nondestructive testing but Gunung Steel has portable equipment only, which will make it difficult to inspect the quality of all the steel pipes to be mass produced. Consisting of the unit (L6m, L9m, and L12m), the automatic steel pipe nondestructive testing facility will greatly help save nondestructive testing time. (5) Corrosion protection of steel pipe Steel pipe is exposed to a corrosive environment since it is a metal with its inner surface contacting raw water and its outer surface contacting the soil. To prevent the metal from corrosion, the outer surface is to be coated with polyethylene and the inner surface is to be lined with epoxy resin paint used for waterworks. In general, a steel pipe is required to have a service life of more than 30 years, so the painting of a steel pipe needs to have a strong adhesiveness, wear resistance, and hydrophobicity, a physical property of a material that is not attracted to water. The painting materials used for coating the inner surface of a steel pipe that contacts drinking water must not produce any hazardous substances. Coating methods used to paint the inner surface of a steel pipe include the fusion bonded epoxy coating and liquid spray coating using nanocomposite resin epoxy, ceramic epoxy, or polyurea resin. A specific coating method will be determined when developing a working design. In painting the outer surface of a steel pipe, not only the quality of the painting materials is important, but it is also important to apply a reliably painting method. Until 1993, asphalt enamel and coal tar enamel were used as the painting material In Korea. However, they are now discarded in Korean Industrial Standards and no longer used in advanced countries due to the following reasons. 8-10

Chapter 8. Review of technical and political feasibility ① Asphalt or coal tar enamel coated steel pipes are easily damaged during transportation and attachment. ② Due to low temperatures in winter, cracks or pinholes are created, and even a minor shock causes damage. ③ Low adhesiveness to a steel pipe makes the pipe less durable. In Korea, its service life is 20 years. ④ Coal tar enamel is a hazardous substance listed in Material Safety Data Sheet (MSDS). The surface coated with this substance causes soil contamination. In Korea, the fusion bonded polyethylene coating is used to paint the outer surface of a steel pipe. In this method, the outer surface is painted with polyethylene power melted at high temperatures ranging from 180-250 ℃ and with th KS D 3608, as shown in <Table 8.6>. The pipe is mostly coated with three-layered polyethylene to protect the surface of a steel pipe buried underground. <Table 8.6> Thickness of polyethylene coating (KS D 3607) Nominal diameter (A) Minimum coating thickness (mm) No. 1 No. 2 - 100 1.2mm 1.8mm 125 - 250 1.5mm 2.0mm 250 - 500 2.0mm 2.2mm 550 - 600 2.2mm 2.5mm 650 - 2,500 3.0mm 3.5mm According to our investigation, Gunung Steel does not only have a PE coating machine to paint the outer surface of a steel pipe, but it is also not equipped with a fusion bonded epoxy coating machine, and currently coating the inner surface with a spray gun using compressed air. Furthermore, the company has no special place dedicated to painting work and poor production conditions where gases for welding are not removed. It is not sure that it will be possible to secure high quality coating under given conditions. On the other hand, KHI Pipe Industries has a PE coating machine to paint the outer surface of a steel pipe. But with regard to the steel pipe with a diameter larger than 1,200mm, it is using a manual coating method either with liquid PE or asphalt enamel. To paint the inner surface of a steel pipe, it is also using a low-temperature liquid epoxy painting method instead of the fusion bonded epoxy coating. (6) Conclusion According to our investigation, local steel pipe makers are capable of producing straight 8-11

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia pipes but not capable of applying the fusion bonded epoxy coating method for coating the inner surface. Besides, the PE coating method cannot be applied for the large pipe (with a diameter greater than 1,200mm). It will difficult for local producers to invest in additional PE coating machine for the large pipe, secure skilled technicians, and assure quality in a short period of time. Therefore, it seems reasonable that we source steel pipes less than 1,200mm in diameter from Indonesian companies and steel pipes larger than 1,200mm from an advanced country. 8.1.6 Adequacy of the introduction of the automatic welding and nondestructive test In the construction of the conveyance pipeline, welding is an essential process to connect steel pipes. Considering the fact that most accidents after construction arise from poorly connected joints, the precision in the field welding is undoubtedly the core area of the pipe installation. In other words, precision welding may not be necessary for the assembly of a simple steel structure that does not withstand any force, but surely necessary for the piping system that needs to have perfect water tightness. As long as working conditions for field welding are good and there are plenty of licensed welders, it is okay not to adopt an automatic welding. Unfortunately, extremely hot and humid climate on the construction site in Indonesia makes working conditions even more unfavorable to manual welding. Besides, it is deemed to be difficult to hire skilled welders locally. It is not always easy to hire a large number of skilled welders who are capable of performing precision welding, in a short period of time when there is a lot of welding workload in the construction site. This will affect the construction period as well as construction cost. High performance is all the more important to secure the quality of welding, but poor working conditions may hinder quality assurance and cause safety accidents such as a welder getting an electric shock, falling, and being buried. All things considered, it is necessary to adopt an automatic welding device to achieve a precise welding, assure good quality, and construct safely and economically within a given period of time, as described as follows: ① Precise welding: an automatic welding device allows to secure the power supply on the construction site and achieves uniform welding ② Good quality: precision welding enabled by an automatic welding device ensures high quality ③ Safe construction: an automatic welding helps prevent safety accidents such as a welder getting an electric shock, falling and being buried ④ Speedy construction: the minimum number of subsidiary equipment and the automatic piping/welding helps shorten the timeline ⑤ Economic construction: economic construction is made possible by reducing labor cost and subsidiary work 8-12

Chapter 8. Review of technical and political feasibility Generally applied automatic welding process is as shown in <Figure 8.5>. <Figure 8.5> Automatic welding process 1. Preparation 2. Preliminary arrangement 3. Adjustment of roundness of steel pipes of steel pipe (automatic molding) Install the external automatic Roughly arrange steel pipes. Recognize both ends of a molding device and steel pipe with the automatic subsidiary machine with a molding device and crane, and connect power. subsidiary machine. Adjust and maintain the roundness 4. Preparation before 5. External automatic with a radial shaped welding welding hydraulic cylinder. 6. Internal automatic welding Use a hydraulic towing gear Weld the external welded Weld the internal welded installed on the external joints (butt weld and lap joints (butt weld and lap automatic molding and weld) with the welding weld) where the roundness is subsidiary machine to device mounted on the maintained, with the internal precisely insert and lay pipes. external automatic welding automatic welding device device. The weld zone, the joints connected by the field welding, may cause a leakage accident if the welding work is poorly performed, so it is necessary to inspect the quality of the welding to secure water tightness and durability. In general, nondestructive tests are conducted to test the quality of the weld zone since destructive testing techniques are inappropriate for inspecting the weld zone. Nondestructive tests applied to inspect any defect in welded joints include Radiography (RT) and Ultrasonics Test (UT). In Korea, RT is the most widely used technique using radiation with a short wavelength such as X-ray and or γ-ray that penetrates into the object reacts with an atom of the object, and loses its energy. The radiation intensity changes according to the density or thickness of the object being inspected, so it can detect internal defects. The 8-13

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia nondestructive testing procedure is shown in <Table 8.7>. <Table 8.7> Nondestructive testing procedure Procedure Task Test preparation 1. to review specification, design description, acceptance criteria Test performance 2. to establish a safety management plan Test evaluation 3. to design a test and have consultation Report preparation 4. to set up an organization to conduct a test 5. to review test details 6. to review process 7. to hold technical training 1. to prepare test procedure 2. to check in-site conditions and prepare a test 3. to control quality 4. to conduct a test 1. to evaluate test results 2. to determine fail or pass 1. to prepare a test report When it comes to detecting inner defects, Radiography (RT) is excellent at providing detection images. However, RT is a technique that requires relevant safety facility and control, so it is not always easy to apply RT on the construction site. For this reason, it will be better to use RT in the factory and Ultrasonics test (UT) on the site. It is deemed reasonable that we take sufficient time to review a number of test methods and local conditions in the working design stage before making a decision. In nondestructive testing, any incomplete part caused by welding is called discontinuity. If such discontinuity goes beyond the allowable range for the use of a test object, it is called a defect. Whether to allow discontinuity depends on the type, size, and location of discontinuity. The radiography (RT), which easily identifies the features of discontinuity, is widely used to search defects in the weld zone. <Figure 8.6> shows some examples of the defect detection by RT. Under the technical standards for nondestructive testing such as American Society of Mechanical Engineers (ASME) and those in advanced countries, at least five (5) percent of the welded joints are subject to nondestructive testing. As for the welded joints where nondestructive tests are not performed, hydraulic tests or water/air tightness tests need to be conducted. To secure the desired service life (50 years) of the steel pipe as well as to inspect and maintain the quality of the welded joints, it is deemed appropriate to adopt an automatic welding device and nondestructive tests. 8-14

Chapter 8. Review of technical and political feasibility <Figure 8.6> Defects detected by NDT (a) Longitudinal cracks (b) Transverse cracks (c) Gas Porosity and gas holes (d) Lack of root penetration 8.2 Review of political feasibility 8.2.1 Overview It is difficult to quantify and include political factors in a cost-benefit analysis, but they are surely important elements to be considered in deciding whether to implement a project. By comprehensively analyzing criteria such as the ripple effect on the economy, social and political factors, the political feasibility of a project is examined. Items for political feasibility analysis include the balance regional development (ripple effect on the local economy, poverty reduction, and potential economic growth); consistent implementation of a policy and the government’s will to implement (consistency with high- level plans); the necessity of a project investment and adequacy of financing program; the determination and preparation for the implementation of a project; and risk factors in implementing a project (environmental factors). Factors for political feasibility analysis are shown in <Table 8.8>. 8.2.2 Necessity of an investment project (1) The need for project investment The Jabotabek (Jakarta, Bogor, Tangerang, and Bekasi) region, which has seen an exponential growth in population led by a rapid industrialization and urbanization, is expected to face a shortage in water supply. 8-15

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia <Table 8.8> Factors for political feasibility analysis No. Analysis item Content - Current state of a region and necessity of a 1 Necessity of project investment and project investment adequacy of financing - Adequacy of financing - Adequacy of the timing of a project implementation 2 Balanced regional development - Ripple effect on the local economy - Poverty reduction - Potential for economic growth - Consistency with high-level plans 3 Consistent implementation of - Determination and preference to push for a policies and will to implement project - Preparedness for a project 4 Determination to push for a project - Will of project execution agencies and cooperation from related - Support system of the central government agencies - Support system of the provincial government - Environmental review 5 Risk factors in implementing a - Additional data may be needed in project project implementation - Comprehensive measures to protect water source Still, the supply capacity of the Serpong water treatment plant, which supplies domestic water to West Jakarta, remains at 2,800lps (241,920m3/day) with the service ratio of 18.40 percent. So, it is urgent to expand the capacity of the facility and to increase the amount of water to be supplied. Except for the Serpong WTP, the majority of the population in the other four service regions, is using a well and surface water. Although some urban areas including Tangerang, Serang, Pandeglang, and Rankas Bitung have the PDAM, a regional water service provider, its service ratio is very low. Besides, the PDAM of Tangerang regency is supplying water to South Tangerang city since the city has no available PDAM. The main purpose of the water supply system is to supply a clean hygiene water to prevent water-borne diseases. In rural areas, low water supply rate does not translate into the rapid spread of water-borne diseases whereas the poor waterworks in urbanized areas has a higher risk of spread of water-borne diseases. In this regard, low water supply rate in urbanized areas presents a good basis for policy decision. As <Table 8.9> shows the low service ratio of the said regions, implementing a conveyance system project is deemed to be the top priority. 8-16

Chapter 8. Review of technical and political feasibility <Table 8.9> General status of PDAMs No. PDAM WTP(s) Production Service area Service Service capacity(lps) population ratio (%) (household) 11 513 Tangerang regency 44,293 7.00% 1 280 South Tangerang 44,000 15.70% (Serpong city 1 Tirta Kerta WTP) 2,800 Palyja(West Jakarta) 122,479 18.40% Rahardja 75 Palyja(West Jakarta) 3,281 0.50% 1 (Cikokol 540 Tangerang city 63,490 16.30% WTP) 885 Tangerang city 76,413 12.10% 2 Tirta 6 570 Tangerang city 26,449 8.80% Benteng 5 6,400 279,953 42.00% Palyja 3 Palyja (West Jakarta) 4 Tirta 1 Bogor regency Kahuripan 100 (Parung Panjang 7,375 30.80% 9 21 district) 2 5 Tirta 350 Lebak regency 17,341 6.90% Multatuli 6 Tirta 503 Serang regency 29,667 10.20% Albantani 59 Serang city 5,221 4.20% *Source: BPKP Audit Reports (2013) and Field Surveys (2015) (2) Adequacy of financing plan The Karian dam construction project, which is in line with the conveyance system project, is funded by the EDCF and scheduled to be completed by October 2019. The Serpong water treatment plant construction project, the other project that is in line with the conveyance system, is implemented under public-private partnership (PPP) by the K-water, the governmental agency for water resources management. Only when all three projects – the conveyance system, Karian dam, and Serpong WTP – are financed and constructed in an organized manner, they can serve the purpose of providing a stable supply of water to the project area. Therefore, it is fair to say that the conveyance project financed by Korea’s fund will be much more efficient than the one financed by a multilateral development bank (ADB, World Bank) or a third country’s fund, in connection with the other two projects. (3) Adequacy of project implementation period The construction of the Karian dam is scheduled to be completed by the end of 2021, and by then the dam will begin to be filled with water to test its performance. The conveyance system includes an intake tower, which is installed in the dam for water intake, and the 8-17

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia conveyance tunnel connecting the conveyance pipeline with the dam. Considering practical constraints, it is extremely difficult to perform this kind of construction after the dam is filled with water. Therefore, it is necessary to connect the dam and the conveyance system before the dam is filled with water, From the perspective of the lender (Korea), a speedy implementation of the conveyance project is thought to be vital since doing so helps provide a timely financing to the borrower and contributes to maximizing the benefits of the loan agreement. 8.2.3 Balanced regional development (1) Ripple effect on the local economy There will be great ripple effects on the local economy driven by a rapid urban development once this project is completed and starts supplying water. Plus, this is a large-scale project which requires a lot of labor for construction, creating new jobs and the corresponding economic boost in the local economy. (2) Poverty reduction Job creation, especially by hiring construction workers, will help reduce poverty. The expanded water supply service region will also contribute to boosting economic participation, resulting in poverty reduction. (3) Potential bilateral economic cooperation This project will serve as an opportunity to take the bilateral economic cooperation between Korea and Indonesia to a higher level by providing more opportunities for Korean companies to take part in infrastructure projects ordered by the Indonesian government. This, in turn, will increase the ripple effect of the bilateral economic cooperation. 8.2.4 Consistency of policy and the will of the local government (1) Compliance with higher level plans Indonesia’s national development plan for water supply is specified in the RPJMN 2015- 2019, which is the mid-term plan laid out by President Joko Widodo. The government aims to create an environment where everyone in the country is supplied with clean water. The basic design and PPP basic scheme for Karian – Serpong conveyance system (2015) refers to this plan as follows: The Indonesian government aims to supply water to 60 percent of its population through the water supply system by the year 2019. This means the service population needs to grow 4.5 percent every year by 15 million households, to go from 9 million to 26 million households. In order to meet the target, additional 31m3/sec (2,678,400m3/day) of clean and hygiene water needs to be supplied by 2019, which means an annual increase of 5m3/sec (432,000m3/day) in water supply ratio. In an effort to secure more sources of water, the 8-18

Chapter 8. Review of technical and political feasibility government of Indonesia plans to construct a total of 62 dams and embankments from 2015 to 2019, and in particular, it plans to construct multipurpose dams for hydroelectric power, irrigation, and supply of drinking water. The conveyance system that transports water from the dam to the water treatment plant plays an important role in the overall waterworks system of supplying water from a source of water to the water treatment plant to the service population. Hence, the Karian – Serpong conveyance system project is undoubtedly a project consistent with the policy laid out by the Indonesian government. (2) The will of the Indonesian government to implement the project <Table 8.10> shows the list of studies and plans that have been implemented so far for this project including its higher level plan, the Karian – Serpong conveyance system and water treatment plant construction project. <Table 8.10> Records of studies and plans for the KSCS project Year Study content Conducted 1985 by 1994 1995 ∙ feasibility study on the construction of the Karian dam JICA ⇒ main subject: to use be used for agricultural water in Banten WB 2006 JICA 2008 province 2011 KOICA ∙ Jabotabek water resources management plan (JWRMS) K-EXIM 2015 ⇒ Karian dam water resources: to be used in West Jabotabek KOICA ∙ Ciujung-Cidurian integrated water resources management K-EXIM plan(C-C IWRMS) ⇒ main subject: development plan of four dams (including the Karian dam) ∙ feasibility study and working design of the Karian dam construction ⇒ feasibility study and working design on the Karian dam and KSCS 1 conveyance pipeline route ∙ feasibility study on the validity of water supply using PPP fund ⇒ water supply plan for the service area by using PPP fund ∙ feasibility study and basic scheme of the Karian – Serpong conveyance system ⇒ water supply plan and financing investment plan after the construction of the Karian dam ∙ basic design and PPP basic scheme for Karian – Serpong conveyance system ⇒ water supply plan and financing investment plan after the construction of the Karian dam 8-19

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia As shown in <Table 8.10> above, the Indonesian project execution agency has long prepared for the implementation of a project through which the conveyance system is constructed to supply water to water treatment plants and regions with low service ratio. (3) Preparation of project implementation The two project execution agencies, the PUSATAB and BBWS C3 (Balai Besar Wilayah Sungai Cidanau, Ciujung, Cidurian), a provincial agency corresponding to the central PUSATAB, have experiences in implementing construction projects similar with this project as well as organizations for the project implementation. Main tasks required for the project implementation include coordination with related institutions in Indonesia, loan agreement with/performance report to KEXIM bank, employment of consultants for design/supervision, bidding process to select a contractor for construction and materials, and payment management. The PUSATAB has a planning and administration department (planning subdivision and technical subdivision), which is capable of performing the aforementioned tasks. The BBWS C3 also has an organization for planning, implementation, and administration/management. The two organizations are deemed to have enough capability to implement and manage this project. Given that this project is closely connected to the construction of the Karian dam, intake tower, and conveyance tunnel, it is fair to say that the BBWS C3, which is now taking charge of management and supervision of the construction site, should manage and supervise the site. It is viewed that the agency’s preparedness for the project is aligned with its policies, determination, and direction to implement the project. 8.2.5 Cooperation from the related organizations (1) Cooperation from the central government Since Korea’s EDPF is a type of aid fund, it is necessary to follow the given guidelines for a loan agreement. The loan agreement is a contract between the donor and the recipient countries, which requires a great deal of cooperation from the central government of Indonesia for smooth financing. The relevant organization is the Ministry of National Development Planning / National Development Planning Agency (BAPPENAS). (2) Cooperation from the provincial government The Banten provincial government, a local government that has jurisdiction over the project area, is the key stakeholder. For a successful implementation of this project, it is essential to keep a close cooperative relationship with the Banten government from the planning stage of this project. 8-20

Chapter 8. Review of technical and political feasibility 1) Approval of AMDAL The construction of the Karian – Serpong conveyance system requires an approval from the Governor of the Banten province, which includes an AMDAL (Environmental Impact Assessment). The final approval of the AMDAL is authorized by the Governor of the Banten province, the project area whereas the examination and approval-related affairs are performed by the Environmental Agency of Banten province. 2) Land acquisition and compensation Pursuant to Indonesia’s related regulation and rules, the project execution agency needs to establish a Land Acquisition and Resettlement Plan (LARAP). To acquire land for the project site, the project execution agency should prepare a location statement for land and houses to be affected by the construction project in accordance with the related regulation and rules and then request a land acquisition negotiation with landowners from the Governor of the Banten province. If the governor finishes the negotiation amicably, the project execution agency compensates the landowners and then starts construction. It is not necessarily that all the compensation needs to be finished before the construction. The compensation process can go along with the construction depending on the area. 8.2.6 Risk factors (1) Environmental risks Based on the data and information obtained, the Karian – Serpong conveyance system project will cause no severe or major environmental damage. There may be some topographical changes in some parts of the neighboring area due to the construction of the pumping station and the installation of the conveyance pipeline. Therefore, appropriate compensation as well as damage mitigation measures are deemed necessary. Except for temporary issues that take place unavoidably over the course of a construction, there will be no long-term impact on the environment. No major problems will come up in the operation stage after the completion of the construction. The booster pumping station will be built in a state-owned land whereas the land for the entry road to the pumping station and public facility near the installed conveyance pipeline will need to be acquired. Again, there will be no setback in land acquisition since the project execution agency (PUSATAB and BBWS C3) are fully capable of handling such issues and have legal priority. Nevertheless, there is a possibility that the construction of the pipeline may cause soil erosion. So, it would be wise for the relevant department to come up with countermeasures against negative environmental impact. 8-21

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia (2) Potential need for additional financing This project is to construct a new booster pumping station and conveyance pipeline for water supply. Due to price fluctuation in Indonesia and unexpected situations, there may be some increase in materials and labor costs. It is also possible that there may be an increase in prices for main equipment and electric materials which are made in Korea, even if foreign exchange rate and price remain relatively stable. Also, the construction cost may go up depending on soil conditions identified by a thorough soil investigation, therefore setting aside appropriate physical and price contingency is deemed necessary. (3) Potential need for comprehensive measures to protect the source water There is a risk that the upstream of the Karian dam may be contaminated by a range of pollution sources including domestic sewage, pesticide residue and fertilizer components from the agricultural area, and livestock waste from the livestock farming area. To protect the source water of the Karian dam, not only relevant law and regulations need to be legislated but also efforts to raise public awareness and develop local community should be made. In addition, there need to be more and better sewage treatment systems to prevent pollutants from entering the river. 8-22

Chapter 9. Economic and financial feasibility analysis Chapter 9. ECONOMIC AND FINANCIAL FEASIBILITY ANALYSIS 9.1 Overview Economic feasibility analysis is an analysis method used to find out if the benefits of a project exceed its costs by measuring and comparing the estimated costs and the expected benefits from a project and its operation. This analysis has the advantage of assessing the feasibility of a project by calculating all measurable costs and benefits, but it has the disadvantage of not being able to include social benefits that are hard or impossible to quantify. Therefore, both economic benefits that are expressed in monetary terms and non-economic or social benefits that are not quantifiable need to be taken into account when making a final decision on the feasibility of a project. In this chapter, we have analyzed the feasibility of this project using Cost/Benefit and Internal Rate of Return (IRR) analysis method. 9.2 Analysis conditions 9.2.1 General items (1) Precondition ∙ Base year: October 2018 ∙ Construction period including the design period: 2019 – 2022 (4 years) ∙ Commissioning period: 2023(3 months) ∙ Operation period of the facility: 2023 – 2072 (50 years) The operation period of the water supply facility is determined to be fifty (50) years according to the design life of the steel pipe. As a fifty-year analysis period is set for the conveyance pipeline and the Serpong water treatment plant in the economic feasibility analysis for this project, the same fifty-year period is determined for this project analysis to be consistent with higher plans. (2) Social discount rate To assess the feasibility of an investment project, the estimated benefits and costs need to be compared. But the problem is that costs are usually incurred in the initial stage of a project while benefits are generated over time after completion of a project. So, if the annual costs and benefits are simply summed up and compared, the time factor will be left unincluded in the analysis. Therefore, it is necessary to convert future costs and benefits to their net present value, which can be solved by applying a proper discount rate. A discount rate refers to an expected rate of return on a project. Unlike private projects, when assessing the feasibility of a public project, a market interest rate (i.e., a yield of 3-year blue-chip corporate bonds) cannot be used as a discount rate. Instead, a social discount rate is used as a standard for converting costs and benefits into their net present value. A social discount rate is usually lower than a market interest rate because a feasibility analysis of a project is conducted by the government, who places a high importance on the future benefits that a project will bring. 9-1

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia Appropriate discount rates recommended by a number of reports are shown as in <Table 9.1>. <Table 9.1> Recommended discount rates Report Recommended discount rate Remarks EDCF Guidelines for feasibility study (November 2010, 12.0% EDCF KEXIM Bank) 12.0% Guidelines for feasibility Basic design and PPP basic scheme for Karian – study applied Serpong conveyance system (2015, KEXIM Bank) Standard guidelines for preliminary feasibility study of Indonesia public projects abroad (March 2013, KDI) -in local currency : 15.3% -in USD : 9.4% Guidelines for preliminary feasibility analysis of public Overseas natural resources development projects abroad (November 2015, PIMAC) development project -standard discount rate 10% + Country credit risk ×50% (and more) General Guidelines for preliminary feasibility study of Actual discount rate applied public/quasi-governmental projects (March 2013, KDI) (domestically) in Korea 5.5% + risk premium of the relevant country Revised guidelines for preliminary feasibility study (5th Domestic standards edition) (December 2008, KDI) - up to 30 years : 5.5% - after 30years : 4.5% In accordance with a discount rate set forth in EDCF Guidelines for feasibility study, which has been recently changed to 9 percent, a discount rate of 9 percent is applied in this feasibility study. (3) Applied exchange rate Pursuant to “EDCF Guidelines for feasibility study (December 2010)”, the average basic exchange rate which the Korea Exim bank notifies for 30 days before the date of the agreement, is applied for the exchange rate of IDR to USD in the calculation of project costs. <Table 9.2>Applied exchange rate Classification KRW-USD IDR-KRW 100IDR-USD Average exchange rate 1,086.1 won 12.44 rupiahs 0.0074 dollars (4) Inflation When measuring costs and benefits which will be generated throughout a long period of time, future benefits and costs are converted into constant (fixed) values of the base year to rule out the inflation effect. This is because it is impossible to precisely predict future inflation, and even if an unpredictable inflation occurs in the future, such inflation will have the same effect on both costs and benefits, not causing any change in the net present value. 9-2

Chapter 9. Economic and financial feasibility analysis 9.2.2. Analysis method An economic feasibility study is a method used to assess the feasibility of a project by monetizing, comparing, and analyzing costs and benefits. The Cost/Benefit analysis that excludes the subjectivity of an evaluator and applies uniform criteria is generally used. Indicators commonly used in an economic feasibility analysis include B/C ratio, NPV, and IRR. (1) Benefit-Cost analysis (B/C) A Benefit/Cost ratio is the ratio of the present value of benefits of a project relative to its present value of costs. If B/C≥1, a proposed project is considered economically feasible. ������������ ������������������������ ������������ ������������������������ + ������������)������������ + ������������)������������ ������������/������������ = � (1 / � (1 ������������=0 ������������=0 Here, Bt : present value of benefits Ct : present value of costs r : discount rate (interest rate) n : service period of a project (period to be analyzed) (2) Net Present Value (NPV) A Net Present Value is a difference between the present value of future benefits and the present value of costs of a project. If NPV≥0, a proposed project is considered economically feasible. ������������ ������������ ������������������������������������ = � (1 ������������������������ − � (1 ������������������������ + ������������)������������ + ������������)������������ ������������=0 ������������=0 (3) Internal Rate of Return (IRR) An Internal Rate of Return is the discount rate that makes the present value of total benefits and costs equal to zero. If IRR of a project is greater than a social discount rate, a proposed project is considered economically feasible. ������������ ������������ ������������������������������������ ∶ � (1 ������������������������ = � (1 ������������������������ + ������������)������������ + ������������)������������ ������������=0 ������������=0 (4) Comparison of analysis methods Pros and cons of each method are compared in <Table 9.4>. 9-3

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia <Table 9.3> Comparison of economic feasibility analysis methods Method Criteria Pros Cons Benefit/Cost analysis B/C≥1 ⸱ Easy to understand ⸱ Not easy to clearly clarify benefits and NPV≥0 ⸱ Considers the size of a project costs NPV IRR≥r ⸱ Considers the period ⸱ May lead to a mutually exclusive option IRR benefits/costs are generated ⸱ Hard to identify a social discount rate ⸱ Provides clear criteria for ⸱ Hard to identify a discount rate choosing an option ⸱ Not easy to understand ⸱ May lead to erroneous option ⸱ Gives the present value of future benefits ⸱ Does not consider the size of a project ⸱ May have multiple IRRs ⸱ Considers the marginal net present value ⸱ Can be applied in other analyses ⸱ Measures the profitability of a project ⸱ Easy to compare with other options ⸱ Easy to understand the process and result (5) Economic feasibility analysis method applied to this project As listed in the table above, there are several analysis methods including B/C ratio, NPV, and IRR. In this feasibility study, the B/C ratio, which is widely used in an economic feasibility analysis, is applied to assess the economic feasibility of this project. 9.3 Cost estimation 9.3.1. Overview The project cost of this project is composed of the investment cost for construction and the operation cost. The scope of the analysis goes from the Ciuyah pumping station to the Serpong water treatment plant, but given the fact that the final revenues from the supply of water come from the Serpong water treatment plant, both investment and operation costs of the Serpong WTP need to be assessed for the accurate analysis. Therefore, in this feasibility analysis, the investment and operation costs of the conveyance system and the Serpong WTP + transmission line are analyzed. The construction and operation/maintenance cost of the Serpong WTP + transmission line in the basic design and PPP basic scheme for Karian – Serpong conveyance system (2015, KEXIM Bank) is applied. 9.3.2. Investment plan (1) Karian – Serpong Conveyance System (KSCS) The first phase KSCS project encompasses the conveyance pipeline from the Ciuyah booster pumping station to the Serpong water treatment plant, and its total investment cost not including taxes is estimated at 261,343 thousand USD. 9-4

Chapter 9. Economic and financial feasibility analysis <Table 9.4> Investment cost estimate of the KSCS project Classification Total Phase 1 Counterpart Phase 2 (Unit: USD) fund (GoI) Construction cost 202,583,020 EDPF 192,939,102 Total Commissioning 1,031,460 - 911,103 Consulting fee 202,583,020 - 395,522,122 Physical contingency 14,981,072 1,031,460 - 15,200,508 1,942,563 Price contingency 10,929,778 - 10,452,536 Service charge 14,981,072 - 30,181,580 Project management 6,792,168 10,929,778 - 5,060,526 21,382,314 - - 11,852,694 cost 6,792,168 Land compensation - - 8,522,928 cost 4,371,911 - 4,371,911 4,181,017 Total 30,653,171 20,653,171 - 20,653,171 10,000,000 500,087,372 25,025,082 238,744,793 261,342,580 236,317,498 (2) Serpong WTP + transmission pipe line The investment cost of the Serpong WTP + transmission pipeline is estimated at 129,894 thousand USD with reference to the basic design and PPP basic scheme of this project. (taxes are not included) <Table 9.5> Investment cost estimate of the Serpong WTP + transmission line (Unit: USD) Cost Estimate (PPP) Classification Total Phase 1 Phase 2 Construction 96,912,247 76,799,853 20,112,394 Consulting fee 9,691,225 7,679,985 2,011,239 Project management 4,845,612 3,839,993 1,005,620 Physical contingency 9,691,225 7,679,985 2,011,239 Price contingency 4,093,573 3,244,026 849,548 Financial Fee (Commitment fee) 1,698,623 1,475,436 223,186 Financial Fee (Upfront fee) 2,631,824 2,349,925 611,899 Total 129,894,329 103,069,203 26,825,125 Source) the basic design and PPP basic scheme for Karian – Serpong conveyance system (annex) (3) Annual investment plan In this economic feasibility analysis, the conveyance system project includes the investment funded by the EDPF, project management cost, and land compensation cost. Its annual investment plan is shown in <Table 9.6>. 9-5

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia <Table 9.6> Annual EDPF investment plan of the KSCS project (phase 1) (Unit: USD) Classification Total 2019 2020 2021 2022 2023 Construction 202,503,020 - 61,894,466 80,373,460 60,295,075 - Commissioning 1,031,460 - - - - 1,031,460 Consulting fee 14,981,072 6,301,163 Physical contingency 10,929,777 315,058 2,695,074 2,792,923 2,792,923 398,989 Price contingency 6,792,168 543,373 3,229,477 4,159,319 3,154,401 71,522 Project management 4,371,913 126,023 2,037,650 2,037,650 2,037,650 135,843 Land compensation 20,653,171 20,653,171 1,291,791 1,663,728 1,261,760 28,611 27,938,788 Total 261,342,580 - - - - 71,148,458 91,047,080 69,541,829 1,666,425 <Table 9.7> Annual EDPF investment plan of the KSCS project (phase 2) (Unit: USD) Classification Total 2019 2020 2021 2022 2023 Construction 192,939,102 - 57,881,731 77,175,641 57,881,731 - Commissioning - - - 911,103 Consulting fee 911,103 - 384,957 Physical contingency 2,674,922 2,694,700 2,694,700 64,803 Price contingency 15,200,508 6,751,230 3,027,833 3,993,517 3,028,822 101,211 Project management 1,518,158 1,518,158 1,518,158 25,923 Land compensation 10,452,536 337,561 1,221,133 1,597,407 1,211,529 - Total 5,060,526 404,842 - - - 1,487,997 66,313,777 86,979,422 66,334,939 4,181,017 135,025 10,000,000 10,000,000 238,744,793 17,628,658 <Table 9.8> Annual investment plan of the Serpong WTP + transmission line (Unit: USD) Classification Total 2019 Phase 1 2022 2031 Phase 2 2033 2020 2021 2032 Construction 96,912,247 7,679,985 15,359,971 30,719,941 23,039,956 6,033,718 6,033,718 8,044,957 804,496 Consulting fee 9,691,225 767,999 1,535,997 3,071,994 2,303,996 603,372 603,372 402,248 804,496 Project management 4,845,612 383,999 767,999 1,535,997 1,151,998 301,686 301,686 339,819 Physical contingency 9,691,225 767,999 1,535,997 3,071,994 2,030,996 603,372 603,372 - Price contingency 4,093,573 324,403 648,805 1,297,610 973,208 254,864 254,864 242,845 Financial Fee 1,698,623 701,020 542,589 231,828 - 142,238 80,948 10,638,860 (Commitment fee) Financial Fee 2,961,824 246,865 475,294 932,283 695,483 185,185 183,870 (Upfront fee) Total 129,894,329 10,872,269 20,866,651 40,861,648 30,468,636 8,124,435 8,061,830 Source) Basic design and PPP basic scheme for Karian – Serpong conveyance system (Annex) 9-6

Chapter 9. Economic and financial feasibility analysis 9.3.3 Operation and maintenance cost 1) Total operation and maintenance cost The benefits of the conveyance system are completely calculated only upon completion of the entire water supply system – the conveyance system, Serpong WTP, and its transmission line. Therefore, in this feasibility analysis, the benefits of the conveyance system are distributed with the same ratio by which the cost for the conveyance system is divided from the total cost for the entire system (conveyance, Serpong WTP, transmission). The operation cost of the Serpong WTP + transmission line is cited from the report on the basic design and PPP basic scheme for Karian – Serpong conveyance system. The detailed information about labor, electricity, maintenance and other costs is described in “Chapter 7 Project execution agency and implementation system” of this report. The operation cost of the KSCS project is composed of labor cost, electricity cost, maintenance cost, raw water fees, and replacement cost, and the total amount over fifty years of operation is estimated at 545,919 thousand USD, as shown in <Table 9.9>. The operation period as suggested in “the 2015 report on the basic design and PPP basic scheme for Karian – Serpong conveyance system” is fifty (50) years, accordingly, the operation cost in this feasibility analysis is re-estimated over the fifty-year period to distribute benefits equally with the conveyance system. <Table 9.9> Total operation cost estimate Classification Total amount Ratio (Unit: USD) (50 years) Notes Conveyance Labor cost 21,080,250 4% system Electricity cost 369,908,354 68% 65Rp/m3 Operation/maintenance cost 21,704,178 4% 41,269,278 8% Other cost 41,688,697 8% Raw water 50,268,644 9% Repair/replacement cost 545,919,400 100% Subtotal WTP + Labor cost 19,570,780 3% transmission Administration cost 5,224,252 1% 242,441,908 39% pipeline Electricity cost 57,396,916 9% Operation/maintenance cost 18,386,928 3% 212,035,124 34% 348Rp/m3 Chemicals cost 63,773,603 10% Raw water 618,829,511 100% Repair/replacement cost Subtotal 9-7

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia 9.4 Benefits analysis 9.4.1 Overview Benefits from a water supply project are divided into direct and indirect benefits. Direct benefits are easily measured and expressed in monetary terms whereas indirect benefits are hard to be monetized due to multiple external factors and subject to change depending on who gains benefits. Economic benefits refer to cost reduction or any direct/indirect effect arising from the construction of the water supply facility. Economic benefits are classified into user benefits, local community/economy benefits, and public benefits, but in practice not all of them can be quantified and monetized. Therefore, some of them which are relatively easy to be expressed in monetary terms are chosen and estimated as indirect benefits. 9.4.2 Distribution of benefits Benefits from a waterworks project are calculated upon completion of the entire water supply system – the conveyance system, Serpong WTP, transmission line, distribution line, and final water supply facility. Only then, total benefits including water fees paid by end users and other benefits will be calculated. So, it is natural that benefits specifically related to the conveyance system of this project are not separately calculated. Therefore, benefits are distributed with the same ratio applied in the operation costs of the conveyance system to the Serpong WTP + transmission line. <Table 9.10> Cost estimate for the distribution of benefits Classification Cost (thousand USD) Notes Construction (EDPF) 500,087 545,919 Conveyance Operation/maintenance 1,046,007 Phase 1 + 2 system (50 years) 129,894 58% 618,830 Subtotal 748,724 Phase 1 + 2 42% Construction (PPP) Serpong WTP Operation/maintenance +transmission line (50 years) subtotal In this economic feasibility analysis, indirect benefits excluding direct revenues from the Karian dam’s supply of raw water are estimated at 58 percent of the total benefits. 9-8

Chapter 9. Economic and financial feasibility analysis 9.4.3 Water price system As suggested in the basic scheme report, the unit price of raw water to be paid by the project execution agency (PEA) for the Karian dam is 65 Rp/m3, which is included in the operation/maintenance cost of the KSCS project. The unit price of raw water to be paid by the PPP provider of the Serpong water treatment plant for the PEA will be suggested as 348 Rp/m3 in this “Feasibility Study for Karian – Serpong Raw Water Conveyance System.” The price to be paid by the KSCS PEA for the Karian dam (65Rp/m3) is included in the operation/maintenance cost of the KSCS whereas the price to be paid by the PPP provider of the Serpong WTP for the PEA (348 Rp/m3) is included in the operation/maintenance cost of the Serpong WTP. Therefore, revenue earned from collecting water fees is excluded from the economic feasibility analysis. (1) Water price system The PPP provider of the Serpong WTP plans to supply water to its users, regional water service provider called PDAMs. In this feasibility study, we analyzed the economic feasibility based on water fees priced with 5 percent of inflation reflected from 2015 to 2021 and fixed at 3,675Rp/m3 from 2021. <Table 9.11> PDAM’s supply prices Phase WTP Service area Average price PDAM Supply price (2021) (Unit: USD) (Rp/m3) Remarks for end user (Rp/m3) 2015 2015 2021 West Jakarta 7,673 Phase 1 Serpong Tangerang city 6,180 2,975 3,657 Price estimation 2,890 method: cost South recovery Tangerang city Subtotal 6,263 Solear Tangerang 2,890 1,445 1,828 regency 4,239 2,278 Rangkas 4,555 2,120 2,682 Price estimation Bitung Lebak regency 2,882 method: 50% of the average charge Phase 2 for end users Parung Panjang Bogor regency Petir Serang 3,254 1,627 2,059 regency Source) Basic design and PPP basic scheme for Karian – Serpong conveyance system Treated water supplied by the Serpong WTP to PDAMs is priced as shown in <Table 9.11>. Consumer prices charged by PDAMs are listed as in <Table 9.12> 9-9

Feasibility Study for Karian – Serpong Raw Water Conveyance System (KSCS), Indonesia <Table 9.12> Consumer prices by WTP (Unit: USD) Classification Service area Consumer prices Survey on actual demand Unit price of benefit West Jakarta 7,667 10,075 Serpong Tangerang city 7,333 9,636 Solear Subtotal 7,500 9,855 Parung Panjang Tangerang regency 4,889 6,424 3,556 4,673 Bogor regency Rangkas Bitung Lebak regency 5,333 7,008 Serang regency 3,556 4,673 Petir Serang city 5,333 7,008 Subtotal 4,445 5,840 Source) Basic design and PPP basic scheme for Karian – Serpong conveyance system (2) Summary of water price system Water price system of the water supply facility – from the Karian dam, conveyance system, Serpong water treatment plant, and PDAM to the end consumer – is as shown in <Table 9.13>. <Table 9.13> Water price system Karian dam Conveyance Serpong WTP PDAM 65 Rp/m3 → Raw water system (PEA) (PPP provider) 348 Rp/m3 → 3,657 Rp/m3 → 9,855 Rp/m3 End → consumer Raw water Treated water Treated water (3) Annual plan for raw water supply Since it will be difficult to satisfy 100 percent of demand upon completion of the construction, the amount of raw water to be supplied yearly is planned step by step on the assumption that the demand is 50 percent in the first year, 75 percent in the second year, and 95 percent in the third year. The supply amount of raw water is calculated by adding the surplus of five percent to treated water, as specified in the standards for waterworks (Korea Water Works Association, 2010). In accordance with the said standards, the annual plan for raw water supply is shown as in <Table 9.14>. 9-10

Chapter 9. Economic and financial feasibility analysis <Table 9.14> Annual plan for raw water supply Classification Year 1 Year 2 Year 3 Year 4 Remarks PPP Basic Treated water 50% 75% 95% 95% scheme for the to be supplied Serpong WTP Raw water 53% 79% 100% 100% Additional 5% to be supplied (50%x1.05) (75%x1.05) (95%x1.05) (95%x1.05) to the amount of treated water Note) amount of raw water to be distributed: 105 percent of the amount of treated water 9.4.4. Service population plan Service population is estimated as shown in <Table 9.15> by considering the capacity of the Serpong WTP (phase 1: 380,000m3/day, phase 2: 500,000m3/day) and the regional Non-Revenue Water (NRW) described in the basic scheme report. <Table 9.15> Service population estimation Classification 2020 2025 2030 2035 2040 South Tangerang city 20% 20% 20% 20% 20% Tangerang city 20% 20% 20% 20% 20% West Jakarta 31% 28% 26% 23% 21% Capacity of the 380,000 500,000 Serpong WTP (m3/day) Service population (s) 2,138,003 2,169,093 3,004,672 3,035,109 3,066,805 Source) Basic design and PPP basic scheme for Karian – Serpong conveyance system 9.4.5 Benefits from the reduction in healthcare expenditure Without proper waterworks or water management facility, people are exposed to contaminated drinking water and an insanitary environment, which all contribute to an increase in healthcare expenditure. In this feasibility analysis, benefits from the reduced healthcare cost are estimated on the assumption that the reduction in healthcare expenditure is 30 percent, by referring to the per capital expenditure in healthcare published by the World Bank and the EDCF project implemented in Bandaju, Bangladesh. Benefits from the reduced healthcare cost led by the installation of the conveyance system are calculated at 1,072,267 thousand USD over the period of 50 years, and the total benefits from the conveyance system and the Serpong WTP combined are calculated at 1,839,787 thousand USD as shown in <Table 9.16>. 9-11