Original Compact Project Amount at Signing: $332.5 million Total Disbursed: $228.0 million
Project Summary
Indonesia’s constraints analysis identified a lack of infrastructure as its primary development constraint, noting that:“Deficiencies in…electricity supplies are a particular concern. The electricity sector is characterized by a low electrification rate, low consumption, and high inefficiency in transmission and distribution. Moreover, investment in generation, transmission, and distribution has not been able to keep up with growing demand, resulting in power shortfalls.”[[Asian Development Bank (2010), Country Diagnostic Studies, Indonesia: Critical Development Constraints.]]
The analysis also found that “the current pattern of growth is putting increasing pressure on the environment and natural resources, posing significant risks to both economic growth and poverty reduction in the long run.” The constraints analysis identified some of the barriers to investment in these areas, including inefficiencies in spatial planning and weak human and institutional capacity. Furthermore, the consultative process identified a keen interest from the private sector and civil society to engage in and support a project that appreciated the challenges and opportunities for green growth in targeted areas of Indonesia, including renewable energy.
Thus, the objectives of the Green Prosperity Project were to 1) increase productivity and reduce reliance on fossil fuels by expanding renewable energy; and 2) increase productivity and reduce land-based greenhouse gas (GHG) emissions by improving land use practices and management of natural resources. These objectives supported low carbon economic development and the protection of natural capital to increase household incomes in project areas, addressing critical challenges to economic growth while supporting the GOI’s commitment to a more sustainable, less carbon-intensive future.
The GP Project was comprised of four discrete activities:
| Activity | Revised Compact Allocation | Final Disbursements | ||
| 1 | Participatory Land Use Planning | Administrative boundary setting; updating and integration of land use inventories; enhancing spatial plans at the village, district, and provincial levels; peatland mapping | $43.1 million | $38 million |
| 2 | Technical Assistance and Oversight | Technical assistance to project sponsors and community groups; program management support needed to implement the GPF; GHG emission reduction estimations | $62 million | $57 million |
| 3 | Green Prosperity Facility (GPF) | Grant financing for renewable energy, peatland restoration, sustainable agriculture, and natural resource management projects | $192.6 million | $123 million |
| 4 | Green Knowledge | Grants for technical assistance to build local, provincial, and national capacity to advance Indonesia’s low carbon development strategy | $15 million | $10 million |
| TOTAL | $312.7 million | $228 million | ||
Participatory Land Use Planning (PLUP) Activity
Understanding where land boundaries are and what land use is taking place within those boundaries can help communities to plan and make informed decisions about managing natural resources. As such, the GP Project aimed to strengthen the spatial planning and transparency of land use decisions made in participating villages, districts, and provinces through the PLUP Activity. With greater spatial certainty, communities completing the PLUP Activity were expected to benefit from improved tenure security and related increases in ability and willingness to protect and invest in their land and natural resources. The PLUP Activity inverted the traditional Jakarta-led approach to mapping by actively involving the community, in direct collaboration with the local government, in the collection of geospatial data on land and natural and cultural resources.The PLUP Activity developed and implemented a novel approach for determining and setting administrative village boundaries by combining government regulations with community participation, international best practices, and use of geospatial technologies, including global positioning systems, geographic information systems, and unmanned aerial vehicles with the aim of producing boundaries that would both earn social legitimacy and acceptance and maintain government authority. This innovative approach for village boundary setting was documented through a ‘Village Boundary Setting/Resource Mapping Guidelines’ and widely disseminated to national, district, and village governments as well as international donors like the World Bank and Asian Development Bank to foster and guide further use of the approach throughout Indonesia.[[http://www.mca-indonesia.go.id/assets/uploads/pubs/PanduanTeknis%20PPB%20Des%20MCA-Indonesia%20Final.pdf . Viewed October 24, 2018.]] As a direct result of the PLUP Activity, two district governments, Pesisir Selatan in West Sumatra and Lombok Tengah in West Nusa Tenggara, organized an effort to self-fund participatory village boundary setting using a combination of district and village budgets in late 2018 after the compact concluded. Customized versions of the MCC-funded PLUP Activity were implemented in all the districts where GP grants were made.
The PLUP Activity trained 1,535 village representatives in various aspects of village boundary setting and mapping of community resources. Additionally, the PLUP Activity trained 2,891 government technicians in the integration, management, and exchange of geospatial data for land use planning, permitting, and licensing. It provided 18 districts, 27 sub-districts, and 363 villages with improved spatial certainty by piloting a local-level-up-to-national-level approach to participatory village boundary setting and resource mapping. Definitive boundaries of 256 villages were formally accepted and registered in the official Ministry of Home Affairs village registry. This work and the associated learning ultimately fed back into the refinement of the GOI’s One Map Policy, which makes land and natural resource information widely available across national government agencies and to the general public. The Activity collected 16 terabytes of geospatial data across Indonesia, making it available to the public through internet-based geo-portals. Of particular note is the contribution of PLUP Activity learning in the application of Free Prior and Informed Consent as a key step in the Village Boundary Setting/Resource Mapping process and in the participation of customary communities in the collection of geospatial data. MCA-Indonesia presented this experience at the AMAN (Association of Indonesian Customary Communities) national workshop in March 2018 and delivered all the relevant geospatial data to the Indonesian Ancestral Domain Registration Agency. The PLUP Activity also installed an integrated system for managing land use and natural resource licensing and permitting data in 40 districts and 11 provincial land use planning offices.
Green Prosperity Facility (GPF) Activity
In light of the interdependent, multi-sectoral constraints identified during compact development, the majority of the GP Project’s investment occurred through an adaptable and market-responsive grant facility, the Green Prosperity Facility, which provided grant financing to mobilize greater private sector investment and community participation in renewable energy and sustainable land use practices. Project- and compact-level objectives required GPF investments to increase economic productivity, improve livelihoods, and credibly demonstrate a net reduction in GHG emissions. The GPF Activity implemented multiple, sequenced solicitations designed to identify projects that were ripe for implementation or scaling-up in an evolving and dynamic market.[[For further detail on the evolution of the GPF Activity, please see the Green Prosperity Facility Evaluation referenced and linked below in this report.]]The Activity also aimed to leverage private sector funds to maximize the impact of compact funding and help address sustainability issues as early as the project design phase. Flexibility in timing and targets of solicitations allowed the project to address emerging priorities in areas such as peatland restoration and support independent smallholder producers as a key component of avoided deforestation, and to expand geographic scope to encourage a larger quanity and better quality of project proposals. GPF activities and investments were grouped into two main portfolios: renewable energy (on- and off-grid) and natural resource management (sustainable agriculture, peatland restoration, and improved land use planning and natural resource management).
The GPF Activity solicited grant proposals through five intake windows: two rounds of partnership grants, commercial on-grid renewable energy, community off-grid renewable energy, and community-based natural resource management. From April 2014 to February 2016, GPF grantees were selected from a pool of more than 600 proposals using a demand-driven, competitive, and transparent process, incorporating international best practices for social, environmental, and project design. A total of 66 full project grants were awarded and completed.
Three of the five intake windows (the two rounds of partnership grants and on-grid renewable energy) included evaluation criteria and requirements related to project sponsor co-financing contributions, with the objective of catalyzing private sector investment by providing viability gap funding, de-risking and supporting project preparation costs, and supporting rapid scale-up of viable models. The community off-grid renewable energy window required community contributions, and the community-based natural resource management window made small grants without counterpart contribution requirements. By compact end, the GPF funds were combined with approximately $28 million in private sector co-financing and outside resources, with almost 90 percent of that coming from the partnership grants and commercial renewable energy intake windows. The GPF also provided $10.8 million in technical assistance grants to project sponsors to finance project preparation and pre-construction activities for 47 separate project proposals, mostly related to on- and off-grid renewable energy. Fifteen grants were terminated midway (during project preparation phase) as MCA-Indonesia determined that the project itself would not be completed during compact implementation. In order to follow up on projects that did not move forward due to compact timeline limitations, during the last few months prior to compact end, a matchmaking task was undertaken by MCA-Indonesia with the objective of finding investors.[[The matchmaking process has been somewhat successful. Several letters of agreement were signed and other “process” milestones reached. But, the GOI unit tasked with monitoring these outcomes has not yet delivered any satisfactory reporting covering this information.]]
The original plan was for the GPF to award and administer grant funding over a four year period with three to three and a half years preserved for project implementation. The actual timeline for grantees, however, gave the majority much less time than three years to deliver projects, with some having to complete activities in only 18 months. The shortened GPF timeframe resulted from a series of challenges early in implementation, most notably a pivot by the GOI. At the time of compact signing, the National Development Planning Agency (Bappenas) intended that the GPF would be able to make loans as well as grants, a request that was ultimately denied by the Ministry of Finance. Despite MCC’s usual practice, this compact was not ratified by the Indonesia legislature and did not have the status of Indonesian law.[[MCC’s standard practice is to have compacts ratified or approved by the partner country’s legislature.]] This meant the compact agreement could not prevail over the Indonesian regulations that prevented MCA-Indonesia from issuing loans. This change, along with initial poor project management and slow implementation of the unique funding structure, meant that the GP Project stalled during its critical launch phase. Despite having specifically identified this issue as a risk in its own investment documents, MCC was not able to accelerate implementation within MCA-Indonesia until a significant reset in management structures and resources by both MCC and MCA-Indonesia in late 2014—more than a year and a half after the compact entered into force. This was the largest grant-making facility for MCC to date, bringing experience and learning that should inform decision-making at MCC for years to come.[[See the MCC Learning section for details about what lessons MCC took from implementing the GPF and how the agency is actively applying them to current and future facilities.]]
Renewable Energy Portfolio
When the compact entered into force in 2013, there were about 48.5 million people (20 percent of Indonesia’s population) without access to electricity. Many of them reside in households in difficult-to-access remote areas or on small islands. They typically use kerosene for lighting, biomass for cooking, and small diesel generators for a couple of hours in the evening. These forms of energy are not only expensive, they emit unhealthy and environmentally dangerous fumes and GHGs. The National Energy Policy adopted by the GOI in 2014 set ambitious goals to achieve a 100 percent electrification rate by 2020; a 23 percent share of renewable energy power generation by 2025; and a 29 percent reduction in GHG emissions by 2030. MCC’s investments in renewable energy projects supported these objectives by funding partnerships between private developers and local communities to build and operate new generation plants and mini-grids using renewable energy resources with no or little GHG emissions. These new energy sources would provide 24-hour electricity service to the nation’s most underprivileged populations.GPF provided approximately $62 million in grant funding for 28 renewable energy projects (solar, hydro, and bioenergy). These projects created 12.73 MW in new generation capacity through four on-grid projects generating 8 MW and 24 off-grid projects generating 4.73 MW—the largest MCC-completed investment in renewable energy generation and in off-grid energy production and distribution (or mini-grids). Through these projects, 9,095 electricity connections were made, including 2,622 households who were provided with a lighting or cooking source fueled by renewable energy through GPF-funded projects. Almost $11 million was leveraged from private sector partners and developers in these renewable energy projects by the end of the compact, with another $2.3 million in commitments to follow after compact closure to complete the off-grid community operations components.
The shortened timeline limited the GPF’s ability to fund micro-hydro projects, which represented the bulk of the incoming proposals in the commercial, on-grid renewable energy category, using a technology that tends to have a lower cost than other renewables. However, in addition to new generation capacity and connections, notable accomplishments of the Renewable Energy Portfolio include:
- Piloting new models in community ownership and management by establishing legal entities in remote rural locations with the majority share of ownership of the power utility going to the community with the aim of enhancing sustainability.
- Investing, on a cost-share basis, in three palm oil mills to install methane capture systems from palm oil mill effluent (POME) for electricity generation, demonstrating the recovery and use of biogas from POME as one potential strategy for the GOI to meet both their renewable energy targets and GHG emission reduction obligations.
Natural Resource Management Portfolio
As Indonesia’s post-independence economic growth has been largely predicated on the capitalization of the country’s rich and varied natural resource base, sustainable management of these resources has emerged as the highest of priorities for GOI. One third of Indonesia’s labor force is engaged in agriculture and independent smallholders produce about 40 percent of the country’s palm oil and nearly all of the country’s cocoa, coffee, and rubber, Indonesia’s most important export commodities. Thus, support for Indonesia’s 11 million independent smallholder farmers and promotion of sustainable agriculture practices that both increase incomes and reduce pressure on critical natural resources is a focus of the GOI.[[FAO’s Data Portrait of Smallholders. http://www.fao.org/family-farming/data-sources/dataportrait/farm-size/en/]] Low productivity leads independent smallholders to search for new lands, mostly forests, to clear and burn, releasing significant amounts of GHGs.The GPF provided almost $62 million in grant funding for 60 natural resource management projects that leveraged an additional $15.4 million in private sector resources and co-financing targeted at sustainable agriculture, peatland restoration, improved land use planning, and natural resource management. Almost 40 percent of the total GPF investments in the natural resource management portfolio supported sustainable cocoa and palm oil partnerships to scale up and pilot new approaches with another $9 million in commitments by December 2018. This additional funding represented the remaining co-financing by the cocoa and palm consortia to continue funding project activities after MCC’s investment closed. In addition, significant resources were provided to local NGOs to support GOI and community priorities in peatland restoration, sustainable palm oil production, and community-based natural resources management, including small-scale sustainable agriculture interventions in rubber, coffee, patchouli, and rice.
Sustainable Cocoa: Scaling up with private sector co-financing
Cocoa is one of the most important commodities produced in Indonesia, with around 1 million independent smallholder farmer households dependent on the crop for their livelihoods. To address the challenge of falling productivity and economic returns in the cocoa sector, GPF prioritized catalytic private sector investment that promoted sustainable and less carbon-intensive economic growth among independent smallholder cocoa farmers. The grants scaled-up ongoing, industry-supported technical assistance and training activities in improved and sustainable production and land use practices and increased supply of quality agriculture inputs. Because of changing market dynamics, including the increased importance of farmer certification and supply chain traceability, the program included independent smallholder farmer training and support for sustainable farmer certification with the expected outcomes of increased farmer productivity and premiums paid to farmers as well as improved cocoa bean quality. In addition, MCC-supported cocoa investments supported activities aimed at increasing indepdendent smallholders’ access to finance and markets.Eleven multinational and Indonesian cocoa industry companies participated in and contributed to these partnerships, including three U.S. multi-nationals. Despite often being competitors, these companies worked together to achieve common objectives that benefitted both individual company supply chains and independent smallholder cocoa producers. The private sector is applying the experience and lessons learned from cocoa to improve sustainability in other supply chains, such as palm oil.[[This refers to the CocoaTrace technology / app which is now being used for Palm Oil as well. Learn more here: https://koltiva.com/#aboutus]]
GPF and its partners invested $26.6 million in the four projects in the sustainable cocoa portfolio—$16.0 million from GPF and $10.6 million from private sector partners—with an additional $5.2 million co-financing commitment to be disbursed by December 2018.[[MCC is waiting for information from the Government of Indonesia to verify this statement.]] Investments reached roughly 74,000 cocoa-growing households and nearly 62,000 hectares across 24 districts in the six main cocoa producing provinces of Indonesia, significantly scaling up industry-led activities and reaching nearly 10 percent of all Indonesian cocoa farmers.[[FAO, “Small Family Farms Country Factsheet – Indonesia,” http://www.fao.org/3/i8881en/I8881EN.pdf.]] As part of climate-smart and environmentally sound production practices, over 5.7 million shade trees were planted, resulting in an expected GHG emissions reduction of over 460,000 tons of CO2-equivalent/year.[[It is important to note that because the GP Project funded 66 grants under the GPF Activity, it was not possible to verify the data above in the same way that MCC normally does for a project. The data above were reported by grantees/implementers, which is standard; but the standard of evidence for accepting their reports was lower than for normal MCC projects because it was not possible to closely monitor activities of each grantee.]] Using co-financing commitments made after the end of the compact, project implementers are expected to reach a total of 90,000 cocoa farmers and 80,000 hectares by December 2018.[[MCC is waiting for information from the Government of Indonesia to verify this statement.]]
Sustainable Palm Oil: Building on the Cocoa Experience
The palm oil industry is the largest driver of Indonesia’s agricultural economy. In 2016 the country led the world in palm oil exports, accounting for 52 percent of all palm oil exports and contributing $14.4 billion to the country’s economy. Almost one million independent smallholder palm oil farmers account for about 35 percent of the country’s palm oil production. GPF supported a portfolio of six projects that worked with seven Indonesian palm oil mills and their independent smallholder supply bases to catalyze and scale-up private sector efforts to promote sustainable palm oil production. Over $10 million in investments—almost $6.5 million from GPF and an additional $3.6 million from private sector partners—directly supported technical assistance and training activities for nearly 12,000 independent smallholder farmers. These investments supported their efforts to achieve certification and continued market access, and resulted in the world’s first five independent smallholder cooperatives to gain International Sustainability and Carbon Certification. In addition, GPF investments included $4.2 million in technology and systems in three of these mills to install methane capture systems to use POME for electricity generation.[[POME investments also covered under the renewable energy portfolio section.]]Peatland Portfolio: Paving the Way for Improved Peatland Management
In the period 2000 to 2010, over 2 million hectares of peatland forest in Indonesia (20 percent of the base) were deforested and/or drained (often referred to as “degraded”). This pattern of peatland loss continues today, and many of Indonesia’s most significant peatlands are now severely degraded. This process of degradation usually begins with the extraction of marketable timber. The deforested area is then drained to make the land suitable for establishing palm oil or pulpwood plantations. Drained peatlands dry out and subside and are subsequently affected by fires in the dry season and floods in in the wet season. In 2015, wildfires caused more than 2.6 million hectares of peatland to burn, resulting in more than IDR 221 trillion (1.9 percent of GDP) in damage and releasing tremendous amounts of GHG, an estimated 14-16 million tons of CO2-equivalent – more than the daily emissions from the entire US economy – each day at their peak.These catastrophic fires provided a dramatic illustration of the importance of sustainable peatland management. In response, the President of Indonesia issued a Presidential Regulation to establish a Peatland Restoration Agency (Badan Restorasi Gambut, BRG). The GP Project supported this new GOI priority by funding a $12.4 million portfolio of peatland related projects—two partnership grants, two support contracts, and one smaller community-based grant. This portfolio focused on rehabilitating drained and fire-prone peatlands, supporting alternative livelihoods for communities near peatlands, and building capacity for sustainable peatland management within local and national government entities. Through the GPF investments, 253,559 hectares of peatland were mapped and 232 dam structures were designed, constructed, and placed in canals to re-wet drained peatland. This doubled the number of dam structures constructed by the GOI and demonstrated the proof of concept that large scale canal blocking (and re-wetting) through community consent is possible. The investment also aimed to increased GOI capacity to manage peatland for years to come.
At the end of the compact, preliminary modeling estimated potential GHG emissions reductions for the 66 projects GPF supported at approximately 1 million tons of CO2-equivalent per year, or the equivalent of 2.3 million barrels of oil consumed per year or 1.1 billion pounds of coal burned per year. Of those estimated reductions, 94 percent are attributed to natural resource management projects, including sustainable agriculture.
Green Knowledge Activity
The Green Knowledge Activity was designed to award grants focused on workforce development, skill acquisition, capacity building, and knowledge dissemination related to one or more areas of the GP Project. In early 2014, MCA-Indonesia competitively selected and awarded seven grants. Six grants were completed and supported projects that facilitated the collection, application, and dissemination of knowledge to build local, provincial, and national capacity to advance Indonesia’s low carbon development strategy.[[Brief summaries of the grants can be found at: http://www.mca-indonesia.go.id/en/project/green-prosperity/grant/green-knowledge-grant. Viewed October 24, 2018.]] MCA-Indonesia worked with several grantees to design a Green Knowledge management information system to showcase for the public Green Prosperity Project results and make available knowledge products such as training and certification manuals and modules, databases, technical designs, maps and feasibility studies, and portfolio-level lessons learned.[[The Green Knowledge Management Information System can be accessed at: https://forum-greenknowledge.ipb.ac.id/. Viewed October 24, 2018.]]Technical Assistance and Oversight Activity
Initially conceived to help project sponsors develop marketable projects that could be funded by the GPF, the Technical Assistance and Oversight Activity allocated funds to hire a program management consultant and a separate grant administration team that provided technical resources for the solicitation to support MCA-Indonesia, review, due diligence, and selection process for the five windows of the GPF. The process in its entirety took 12-18 months, depending on the solicitation, and required significant resources not anticipated in the original design and budgeting. This resulted in approximately $40 million of this budget item going for consultants to support MCA-Indonesia as the GPF Facility Manager.[[For further explanation on the administrative costs associated with the GPF Activity, please see the Green Prosperity Facility Evaluation referenced and linked below in this report.]]Gender and Social Inclusion, Women’s Economic Empowerment, and Environmental and Social Performance in the GP Project:
Each GP grantee was required to conduct a Landscape-Lifescape Analysis (LLA), a participatory methodology developed by MCC that integrates environmental, social, and gender tools to understand the three-way interaction between the local environment, communities, and proposed project. Since project performance depended on sustainable use of natural resources and addressing existing local factors such as inequality, jealousy, and potential tensions between communities; the integrated LLA methodology helped grantees identify potential risks, develop mitigation strategies and provide opportunities to improve or adjust their projects to achieve results. LLA findings also helped MCA-Indonesia and MCC to better appraise the realities on the ground and oversee grantees according to their needs.Findings of the LLA also informed project-level Social and Gender Integration Plans (P-SGIPs) and Environmental and Social Management Systems required for all GP grantees, which included actions and budgets to increase access and opportunites for the economic empowerment of women and disadvantaged groups and ensure compliance with IFC Performance Standards, respectively. GPF also provided $2.2 million in targeted grants for women-owned organizations within the Natural Resource Management window to five women’s organizations and coalitions to enhance their approaches, capacity, and competitiveness in the low carbon economy.
By the compact’s end, over 43,000 women were trained in improved skills in sustainable agriculture, value and supply chain development (especially regarding agricultural commodities and non-timber forest products in social forestry), natural resources management, renewable energy, and eco-tourism. The MCA-Indonesia Gender Team reviewed and selected 15 grants with good quality P-SGIPs and entrepreneurship components, and hired an expert to provide additional trainings to women participants and cooperative members in financial management, entrepreneurship, value chains, business development, and marketing to enhance their ability to establish or expand profitable businesses. Most of these women were from the poorest groups and ethnic minority communities. Compact funds were provided to form or expand cooperatives and enterprises, as well as to establish savings and loan facilities, which were managed by these women to maintain their access to finance and increase productivity.
At the end of the compact, MCA-Indonesia conducted an assessment of these 15 grants in order to capture lessons on whether women’s economic empowerment activities undertaken by these projects helped to promote the desired outcomes, especially an increase in economic opportunities, productivity, market access, changes to gender norms, and other changes at the local level.[[MCA-Indonesia (2018) Policy Study to Promote Economic Opportunities for Women and Vulnerable Groups in Indonesia Low Carbon Economy, Jakarta Indonesia.]] Anecdotal evidence from this assessment indicated that women’s increased participation in outside training and work, and gender training provided to both men and women promoted a gradual reversal of gender roles, norms, and traditional patriarchal attitudes and behaviors that were observed in households and communities. There are indications that many women have become successful entrepreneurs and business owners, especially in food production, artisanal salt making, and traditional high value handicraft production.
Economic Analysis of Green Prosperity
It was not possible to calculate a project-level, ex ante economic rate of return (ERR) for the entire project prior to implementation due to several factors. First, the Green Prosperity (GP) Project included a component to disburse small grants which covered roughly 54 percent of the total GP Project budget, and ERRs for these individual grants were typically not known in advance. Second, it was unclear what counter-factual to use for a grant facility with many project types included and without an understanding of what market failures the grant types were intended to solve. In addition, data and evidence were unavailable to estimate the impacts of the Participatory Land Use Planning (PLUP) and Green Knowledge activities. However during compact development, MCC due diligence consultants did conduct ERRs for example projects for the anticipated pipeline based on feasibility study-level information.Throughout implementation, MCA-Indonesia estimated ERRs for all short-listed proposals using data provided by grant applicants. The cost-benefit analysis models were reviewed by the MCC economist and every proposal ultimately selected for funding had an estimated ERR above the 10 percent threshold. Based on these models, MCA-Indonesia estimated that the GP-financed grants would reach up to 291,637 beneficiaries and yield net present-value benefits up to $1.09 billion over the 20-year projects’ lifetimes under the assumptions of the initial proposals. Later, as grant agreements were amended to allow for a change in scope and/or results of detailed engineering designs, the net benefits of the GPF were not recalculated to reflect these changes in scope and project selection. However, these changes suggest that benefits have fallen below the initial $1 billion estimate.
Project Sustainability
The GP Project relied on both strong partnerships with the GOI and a model of private sector partnerships and leveraging to promote the sustainability of compact investments. For the PLUP Activity, compact investments directly fed into the GOI’s One Map policy refinements.[[The Government of Indonesia's One Map Policy was initiated in 2011 to establish a unified database of geospatial information, including land use and land tenure, to be used to inform government decisions on the allocation and use of land and natural resources.]] MCA-Indonesia also signed a memorandum of understanding with the National Geospatial Data Agency that committed the agency to updating and maintaining all 40 PLUP district-level geospatial data collected during the compact.The focus on blending compact funds with private sector and other resources to enhance sustainability was prioritized in the design phase of the GPF, articulated in calls for proposals for all in-take windows, and maintained as a key feature in the selection process. The GPF awarded grants to projects that prioritized and fostered partnerships with the GOI, the private sector, other donors, and regional vocational training institutions. By the compact’s close, GPF leveraged $28 million in private sector funding from its $123 million in grant funding.
Consistent with the compact’s pilot-and-scale approach, some partnerships with government institutions under the GPF have been more successful than others. Relations with the Ministry of Environment, which became the Ministry of Environment and Forestry in 2016, were productive and led to keen GOI interest in innovative solutions created under the compact to address the often unique environmental permitting and social analysis needs presented by GPF activities. For GPF’s renewable energy projects, the Ministry of Energy and Mineral Resources (ESDM) and the National Electricity Company (PLN) had no formal agreements in place with MCA-Indonesia. ESDM had been an on-again, off-again interlocutor as the ministry shifted direction multiple times to meet ambitious energy expansion targets.
A strong partnership with PLN was critical to implementing GPF funded on-grid renewable energy projects. However, dealings with PLN were mixed. During the preparations for MCA-Indonesia's calls for proposals for renewable energy projects in 2015 and 2016, PLN took little interest, as a buyer of power, in interacting with possible project sponsors. The result was that MCA-Indonesia ultimately had fewer project proposals that it could take forward to construction in the absence of stronger support from PLN.
On the other hand, PLN showed interest in late 2017 and early 2018 in two projects in the off-grid renewable energy portfolio that were close to its existing service area. For one of those renewable energy projects, PLN concluded a power purchase agreement to buy and distribute electricity from the small business set up to manage and operate the power project. Known as a special purpose vehicle (SPV), this small business serves as a micro-utility for the project, providing project governance, billing, and operations and maintenance. This arrangement will help ensure the sustainability of the project and contribute economically to the community, which owns a majority share in the project. In another biomass project, PLN initiated discussions with the project sponsor for a similar power purchase and distribution arrangement to be concluded after compact end. Despite these more positive trends towards the end of the compact, the lack of consistent support from the GOI in the renewable energy sector seriously impacted the GP Project’s ability to accomplish its objective with respect to on-grid renewable energy.
Rather than relying on the government for sustainability, the GPF commercial and off-grid renewable energy components instead aimed to build sustainability through partnerships with the private sector. The goal was to mitigate risk and address past failures and implementation challenges by:
- Structuring on-grid projects with a combination of private finance provided by project sponsors and viability gap funding from GPF needed to de-risk and accelerate the investments in a challenging regulatory environment;
- Emphasizing community-developer partnerships pairing technology providers, operations and maintenance vendors, and developers with communities and their resources;
- Requiring Community Benefit Sharing Plans for commercial renewable energy grants; and
- Targeting local energy NGOs and renewable energy service partners to replicate success.
- Four of the six partnership grant projects are continuing after the end of the compact with additional funding commitments already in place. One example is L’Oreal’s $650,000 commitment to continue the Sustainable Palm Oil activity from the EMM Berback project in Jambi. The SwissContact-led sustainable cocoa consortium and World Wildlife Fund together have committed $8.3 million in co-financing to be disbursed from April to December 2018.[[MCC is waiting for information from the Government of Indonesia to verify this statement.]]
- The $308,000 GPF investment in PalmOilTrace and the PatchouliTrace Pilot and a local service provider start-up, Koltiva, is paying off. Major off-takers, such as Givaudan, and their supply chains are buying-in and expanding use of these databases and traceability tools, building on the significant investment and experience from the GPF cocoa portfolio. As an example, in early 2019, Golden-Agri Resources, a Singapore-based palm oil company worth over $4 billion, agreed to adopt this technology for 60,000 of the smallholder famers and 81 of the mills from whom they source. To date, this initial investment has resulted in $1.1 million in follow-on financing to continue the palm oil pilot and develop a similar traceability pilot for patchouli (also building on work done under the compact). In addition, Koltiva is signing major implementation contracts with six clients, including Mars and Cargill, worth $1.5 million in 2019. Due to the publicity from working with multinational donors and demonstrating its ability to deliver results at scale through MCC-funded projects, Koltiva has secured contracts for SeaweedTrace, RubberTrace, and SupplyChainTrace, with their main services now being offered and used in nine countries without any public donor support.[[Details can be found at: https://www.rspo.org/palmtrace. Viewed October 24, 2018.]]
- The GPF’s work with independent smallholder coffee producers has resulted in nine new Indonesian coffee buyers contracting directly from the farmer groups.
Evaluation Findings
The GP Project aimed to increase productivity and reduce GHG emissions by expanding renewable energy and improving land use practices and management of natural resources. The GP Project results will be assessed by seven different evaluations, which are summarized in the table below. The structure of the GP Project as a series of geographically and sectorally diverse grant-funded projects presented a challenge for designing a comprehensive evaluation strategy. The approach has been to evaluate the PLUP Activity through a standalone evaluation and to conduct a process evaluation of the GPF to assess its design and implementation, including the Technical Assistance and Green Knowledge Activities. The remaining evaluations align with the various programmatic portfolios of grants. While not all grants or projects funded by the GPF were individually evaluated, a strategy was designed to evaluate a sample across key portfolios and speak to the broad aims of each portfolio.| Activity | Type | Component | Status | |
| 1 | Participatory Land Use Planning Evaluation | Performance | Baseline/ Interim | Data collected in September 2016. Report released in July 2017. |
| Second Interim | Second interim - Data collection expected in late 2019 and report to be released in 2020. | |||
| Endline | Endline – Data collection expected late 2020 and report expected in 2021. | |||
| 2 | Green Prosperity Facility Evaluation | Performance | Endline | Data collection conducted from November 2017 to January 2018 and report released in November 2018. |
| 3 | Green Prosperity Cocoa Grant Portfolio Evaluation | Performance | Interim | Data collection completed September and October 2017. Report expected in 2019. |
| Endline | Data collection to be completed September 2019. Report expected in 2020. | |||
| 4 | Green Prosperity Off-grid Renewable Energy Grant Portfolio Evaluation | Impact and Performance | Baseline | Data collection completed between September and November 2017. Report published March 2018. |
| Interim | Data collection to be completed late 2019. Report expected in 2020. | |||
| Endline | Data collection to be completed mid 2021. Report expected in 2021. | |||
| 5 | Green Prosperity Peatland Portfolio Evaluation | Performance | Data to be collected in April 2019 and final report expected in 2019. | |
| 6 | Green Prosperity On-grid Renewable Energy Grant Portfolio Evaluation | Performance | Data to be collected in April 2019 and final report expected in 2019. | |
| 7 | Green Prosperity Social Forestry Evaluability Assessment | Performance | Data to be collected in April 2019 and final evaluability assessment expected in 2019. |
- Stakeholders from the village- to the national-levels considered the PLUP activities to be relevant and important.
- There is evidence of improvements across expected short-term outcomes, including improved spatial certainty among villagers, resolution of land conflicts and disputes, and more strategic thinking about land use planning at the district level.
- The evaluation identified four key areas of risk related to the achievement and sustainability of PLUP results: 1) program design and approach, 2) design and management of implementation contracts, 3) coordination of closeout and sustainability, and 4) engagement at the national level.
Evolution of Design
- The GPF was not well-defined upfront and its design was protracted and largely reactive. This delayed and shortened grant implementation.
- The GPF ended up being an innovative model that addressed Indonesian government priorities and provided non-traditional groups with access to international donor finance.
- With three months of implementation remaining, the GPF had disbursed 45 percent of 2014 funding plans. 85 percent of awarded grants continued to completion.
- The limited implementation timeframe and high operational costs diminished the GPF’s potential cost-effectiveness.
- Grantees perceived GPF’s requirements and standards, particularly environmental, to be beneficial for their capacity to take on future grants. GPF is linked to positive changes in the national and local policy and enabling environment.
- The high administrative burden and changing guidance from MCC and GPF managers led to significant delays in grant implementation.
- Most of the trained farmers applied what they learned, but they needed ongoing mentoring and more time to see results from their improved practices.
- The Sustainable Cocoa Production Program (GP-SCPP) and Cocoa Revolution (CR) grants performed well against their training targets and achieved short term behavior changes. However, they faced obstacles in trying to create sustainable markets for cocoa farming inputs (seedlings, fertilizer, etc.) and extension services (farmer training). The third grant, Economic, Quality, and Sustainability Improvement (EQSI), had implementation delays.
- With MCC funding, the GP-SCPP grant grew its operations from 13 to 50 districts and will continue operating post-compact. The other two grants, CR and EQSI, will not continue post-compact.
- Weather extremes and market conditions significantly undermined project results. Implementers will need to develop climate resilience and risk mitigation measures to achieve higher yields.
- The effect on energy consumption patterns of households and businesses.
- Whether the electricity provided by the renewable energy infrastructure has been used for economic purposes at the community and household level.
- Whether any changes in household expenditure will lead to reduced GHG emissions.
- Whether the Special Purpose Vehicle has been an effective intervention to improve community buy-in and sustainability of the infrastructure.
The GP On-Grid Renewable Energy Portfolio Evaluation will assess the sustainability of the GPF’s on-grid infrastructure grants in terms of continued power sales to the national utility and benefit sharing with communities surrounding the generation sites.
The GP Social Forestry Portfolio Evaluation will consist of an Evaluability Assessment to investigate whether grants categorized as social forestry were truly designed around and applied a common theory of change related to agro-forestry and the sustainable management of forest lands.
Key Output and Outcome Indicators and Explanation of Results
Participatory Land Use Planning Activity
Outcome: Improved local capacity for administrative boundary setting, updating and integration of land use inventories, and enhancing spatial plans at the district and provincial levels.| Key Performance Indicators | Baseline | End of Compact Target | End of Compact Achievement | Percent Target Satisfied |
| Number of villages assisted in participatory village boundary setting and resource mapping | 0 | 450 | 363 | 81% |
| Land area of villages delineated through village boundary setting (in hectares) | 0 | No target | 1,463,999 | N/A |
| Number of village boundaries formally established | 0 | 450 | 256 | 57% |
| Number of enhanced district-level spatial plans created | 0 | 45 | 40 | 89% |
| Number of district-level inventories of land use, land cover, permits and licenses created | 0 | 45 | 40 | 89% |
Technical Assistance and Oversight Activity
Outcome: Improved quality and design of renewable energy and natural resources management projects.| Key Performance Indicators | Baseline | End of Compact Target | End of Compact Achievement | Percent Target Satisfied |
| Proposals that received project preparation support | 0 | No Target | 47 | No Target |
| Technical assistance funds disbursed for project preparation support | 0 | No Target | $10,775,189 | No Target |
Green Prosperity Facility Activity
Outcome: Increased investment in renewable energy and natural resources management, increased productivity, and reduced GHG emissions.| Key Performance Indicators | Baseline | End of Compact Target | End of Compact Achievement | Percent Target Satisfied |
| Estimated hectares improved, rehabilitated, or protected through sustainable practices | 0 | 498,382 | 432,971 | 87% |
| Canal blocking structures built in peatland areas | 0 | 570 | 232 | 41% |
| Hectares of peatland mapped | 0 | 249,329 | 253,559 | 102% |
| Renewable energy generation capacity added (in MW) | 0 | 27.2 | 12.7 | 47% |
| Electricity customers added by off-grid grants | 0 | 10,352 | 9,095 | 88% |
| Households provided with renewable energy source for lighting or cooking | 0 | 3,240 | 2,622 | 81% |
| Project participants trained through GP Facility-funded projects and/or partnerships | 0 | 136,973 | 139,553 | 102% |
| External resources (co-financing) disbursed by grantees | 0 | $80,146,154 | $27,571,443 | 34% |
| Project financing disbursed by the GP Facility | 0 | $136,654,166 | $123,099,779 | 90% |
The GPF was not able to meet its grant disbursement targets due to a combination of legal, regulatory, management capacity issues, and a shortened implementation timeline (from 3 years to 18 months) as discussed previously. The shortened implementation timeline limited the GPF’s ability to fund commercial on-grid projects, particularly mini-hydro, which impacted key performance indicators related to generation capacity. In addition and relatedly, GPF did not receive proposals for watershed management activities/projects as originally anticipated. In the end, a lot of work was accomplished between December 2017 and April 2, 2018 (compact end date) after a project delivery unit was put in place to focus on the off-grid portfolio.
The disbursement of external resources, or co-financing secured by grantees, was well below the target due to the termination of seven grants that included significant co-financing contributions, the re-scoping of an additional grant, and some delays in spending of these funds for partnership grants. Most grant terminations and re-scopings were the result of long delays during implementation, which meant that completing project works in the remaining compact implementation period was no longer feasible. In the case of the partnership grants, grantees planned to spend these funds for their original purpose by December 2018.[[MCC is waiting for information from the Government of Indonesia to verify this statement.]] The canal blocking target was not met due to a de-scoping of one of the grantee’s work plans after failure to get community consent for the canal blocking in one targeted geographic area.
Green Knowledge Activity
Outcome: Improved local, provincial, and national capacity to drive forward Indonesia’s national low carbon development strategy within the context of the GP Project.| Key Performance Indicators | Baseline | End of Compact Target | Quarter 1 through Quarter 19 Actuals (December 2017) | Percent Compact Target Satisfied (December 2017) |
|---|---|---|---|---|
| Centers of Excellence established | 0 | 6 | 4 | 67% |
| Project participants trained through Green Knowledge-funded projects | 0 | 3,687 | 2,325 | 63% |
| Number of knowledge products produced | 0 | 420 | 197 | 47% |
Lessons Learned
As acknowledged above, $126 million of the Indonesia compact was not spent. Of this, approximately $70 million was due to the slow start-up and implementation challenges faced by the Green Prosperity Facility . In order to better understand the operational drivers of these issues, MCC completed an evaluation of the GPF. As described above, the evaluation highlighted the start-up and implementation delays experienced by the GP Project and how that hindered its ability to meet its process and output targets. This finding raises various lessons for future grant-making facilities being considered by MCC. Lessons drawn from the findings of the Green Prosperity Facility Evaluation include:- Design projects and facilities to be focused. The broad scope of the Green Prosperity Facility was one of many factors that caused continual delays in launching the grant-making facility. MCC has learned that facilities need to be focused, in terms of addressing principle root causes of the bindng constraint, with clear objectives, scope, size, and strategy, in order to be viable. Focus is also critical to helping the project team develop a targeted engagement strategy with government and private sector counterparts who can support the success of the facility over its lifetime. This focus needs to be determined and agreed to during compact development, and key, non-negotiable features should be documented in the compact and/or Program Implementation Agreement. In addition, an approved operations manual should be produced no later than entry-into-force (EIF) and ideally as a condition precedent to initial disbursement. This way, the pre-EIF and implementation periods can be dedicated to launching the facility and implementing grants. MCC has already begun applying this lesson to facilities designed after GP, like in Benin II which targets one sector/subsector.
- Standardize and streamline. The lack of standardized processes and templates greatly delayed the ability to start GPF grant proposal intake, evaluation, and due diligence, and grantees were often confused by conflicting and ad hoc guidance during both the solicitation and implementation phases. Lack of effective project management structure and systems further delayed and challenged development and implementation of processes, once finalized. Standard tools, policies, procedures, and approaches to management and implementation of grant facilities that can support efficient start-up of facilities and prevent the loss of precious time for grant implementation is necessary. MCC grant facilities in early stages of development and implementation have internalized lessons from the GPF’s early challenges and are utilizing facility managers and prioritizing development of manuals and templates significantly earlier in the compact timeline. In addition, MCC is expanding and operationalizing the current MCC Grants Facilities Guidance, including producing a start-up toolkit.
- Test the market early. Insufficient market analysis of the targeted GP sectors resulted in delays in launching the facility and in unrealistic disbursement targets. To allow for a minimum of three years for grant implementation and provide information to facility design and target-setting, it is critical to conduct market analysis, assess the potential pool of grantees and the size and characteristics of the addressable market, and initiate pre- or full feasibility studies very early in the compact development and implementation preparation periods. Early on-boarding of a facility manager would also allow the accountable entity to continue or expand market research and/or release calls for proposals once the compact implementation period begins. Recent grant facilities have been conducting market research well in advance of compact signing. This allows MCC to set more reasonable expectations for the absorptive capacity of the market as well as incorporate information from the market and prospective grantees to better guide selection and investment criteria and begin due diligence.
- Build in an exit strategy. The GPF Evaluation highlighted that despite efforts in the final year of the compact to link the activities funded under GP to government units, the work of the GPF is not likely to be sustained by the GOI. This is largely because the facility itself was not designed to continue post-compact through existing Indonesian structures, but rather through the private sector and other partnerships developed during the selection and implementation process. As a result, facilities should be designed up front to have a future beyond the compact or should include a clear exit strategy that ensures the knowledge generated by the facility has an appropriate off-taker and that investments made will be sustainably managed and continued. MCC is considering this recommendation in its updates to operational guidance.
- Recognize MCC’s competitive advantage with facilities. MCC’s ability to provide grant funding for both technical preparation and to buy down the cost of equity for potential investors is a real competitive advantage that can support the deployment of new technologies in the right circumstances. The Indonesia case has shown that there is a clear viability gap between the tariff and technical studies that are required to prepare an investment grade project for new, potentially disruptive technologies where the incentives are weaker to be the first investor on such projects.[[Learning from the experience with the Green Prosperity Facility has been applied to MCC facilities underway in Morocco, Benin, and Niger compacts.]]