Validation Report. PT. Multimas Nabati Asahan (MNA) Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine

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1 Validation Report PT. Multimas Nabati Asahan (MNA) Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine Report No , Revision , April 26 TÜV ndustrie Service GmbH TÜV Süd Group Carbon Management Service Westendstr Munich GERMANY

2 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 1 of 22 Report No. Date of first issue Revision No. Date of this revision Certificate No th April th April Subject: Executing Operational Unit: Client: Contract approved by: Report Title: Number of pages Summary: Validation of a Small Scale CDM Project TÜV ndustrie Service GmbH TÜV SÜD Group Carbon Management Service Westendstr Munich Federal Republic of Germany PT. Multinas Nabati Asahan (MNA) Jalan mam Bonjol No. 7 Gedung Bank Mandiri Lantai V Medan North Sumatra, ndonesia Michael Rumberg Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, Smale Scale CDM Project, NDONESA 22 (excluding cover page and annexes) The Certification Body Climate and Energy of TÜV ndustrie Service GmbH TÜV SÜD Group (TÜV SÜD) has been ordered by the ndonesian private company PT. Multinas Nabati Asahan (MNA), located in Medan, North Sumatra, to perform a validation of the above mentioned project. Using a risk based approach, the validation of this project has been performed by document reviews and on-site inspection, audits at the locations of the project and interviews at the offices of the project developer and the project owner. n summary, it is TÜV SÜD s opinion that the small scale CDM project MNA Biomass 9,7 MWe Condensing Steam Turbine, as described in the final project design document of April 2006, meets all relevant UNFCCC requirements for the CDM, set by the Kyoto Protocol, the Marrakech Accords and relevant guidance by the CDM Executive Board and that the project furthermore meets all relevant host country criteria and correctly applies the approved baseline and monitoring methodology AMS-.D/version 07 ( Grid connected renewable electricity generation ). The project will hence be recommended by TÜV SÜD for registration with the UNFCCC under the CDM. Additionally the assessment team reviewed the estimation of the projected emission reductions. We can confirm that the indicated amount of emission reduction of tonnes CO 2e over a crediting period of 10 years, resulting in a calculated annual average of tonnes CO 2e, represents a reasonable estimation using the assumptions given by the project documents. Work carried out by: Thomas Kleiser (Project manager, GHG lead auditor, technical expert) Michael Rumberg (GHG lead auditor) Cristian Delamarian (Auditor Environmental Management Systems (SO 14001), technical and local expert, GHG auditor) nternal Quality Control by: Werner Betzenbichler

3 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 2 of 22 Abbreviations AE CAR CDM CER CR DNA DOE EB EA / EA ER GHG KP MNA MP PDD TÜV SÜD UNFCCC VVM Applicant Operational Entity Corrective Action Request Clean Development Mechanism Certified Emission Reduction Clarification Request Designated National Authority Designated Operational Entity Executive Board Environmental mpact Assessment / Environmental Assessment Emission reduction Greenhouse gas(es) Kyoto Protocol PT. Multinas Nabati Asahan Monitoring Plan Project Design Document TÜV ndustrie Service GmbH TÜV SÜD Group United Nations Framework Convention on Climate Change Validation and Verification Manual

4 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 3 of 22 Table of Contents Page 1 NTRODUCTON Objective Scope GHG Project Description 7 2 METHODOLOGY Review of Documents Follow-up nterviews Resolution of Clarification and Corrective Action Requests 11 3 VALDATON FNDNGS Project Design Discussion Findings Conclusion Baseline and Additionaliy Discussion Findings Conclusion Monitoring Plan Discussion Findings Conclusion Calculation of GHG Emissions Discussion Findings Conclusion Environmental mpacts Discussion Findings Conclusion Comments by Local Stakeholders Discussion Findings Conclusion 20 4 COMMENTS BY PARTES, STAKEHOLDERS AND NGOS VALDATON OPNON...22

5 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 4 of 22 Annex 1: Validation Protocol Annex 2: nformation Reference List

6 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 5 of 22 1 NTRODUCTON 1.1 Objective ndonesian private company PT. Multinas Nabati Asahan (MNA), located in Medan, North Sumatra, ndonesia has commissioned TÜV ndustrie Service GmbH TÜV SÜD Group (TÜV SÜD) to validate the small scale CDM project MNA Biomass 9,7 MWe Condensing Steam Turbine in ndonesia. The validation serves as a design verification and is a requirement of all CDM projects. The purpose of a validation is to have an independent third party assess the project design. n particular, the project's baseline, the monitoring plan (MP), and the project s compliance with relevant UNFCCC and host country criteria are validated in order to confirm that the project design as documented is sound and reasonable and meets the stated requirements and identified criteria. Validation is a requirement for all CDM projects and is seen as necessary to provide assurance to stakeholders of the quality of the project and its intended generation of certified emission reductions (CERs). UNFCCC criteria refer to the Kyoto Protocol criteria and the CDM rules and modalities as agreed in the Bonn Agreement and the Marrakech Accords. 1.2 Scope The validation scope is defined as an independent and objective review of the project design document, the project s baseline study and monitoring plan and other relevant documents. The information in these documents is reviewed against Kyoto Protocol requirements, UNFCCC rules and associated interpretations. TÜV SÜD has, based on the recommendations in the Validation and Verification Manual, employed a risk-based approach in the validation, focusing on the identification of significant risks for project implementation and the generation of CERs. The validation is not meant to provide any consulting towards the client. However, stated requests for clarifications and/or corrective actions may provide input for improvement of the project design. The audit team has been provided with a draft PDD in August After a first document review (pre-check) and a first questioning via an intensive document review and a fact finding mission in form of an on-site visit for has taken place in the period from August 31 st, 2005 to September 2 nd, This PDD served as basis for the validation protocol. Afterwards the Client revised the PDD. The final PDD version was submitted to the validation team on January 18 th, 2006 and published in the Global Stakeholder Process from January 19 th, 2006 to February 17 th, Afterwards final open issues had to be clarified and solved by the client. On April 25 th, 2006 the client submitted a final revised PDD version (version 1.2, 25 April 2006) to the audit team of TÜV SÜD. This revised final PDD version serves as the basis for the assessment presented herewith. Studying the existing documentation belonging to this project, it was obvious that the competence and capability of the validation team has to cover at least the following aspects: Knowledge of Kyoto Protocol and the Marrakech Accords Environmental and Social mpact Assessment

7 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 6 of 22 Skills in environmental auditing (SO 14000, EMAS) Quality assurance Technical aspects of biomass utilization for heat/steam and/or electricity generation Monitoring concepts Political, economical and technical random conditions in host country According to these requirements TÜV SÜD has composed a project team in accordance with the appointment rules of the TÜV certification body climate and energy : Thomas Kleiser is project manager and lead auditor for CDM and J projects at TÜV ndustrie Service GmbH TÜV SÜD Group. n his position he is responsible for the implementation of verification and certifications processes for GHG mitigation projects. He has received extensive training in the CDM and J validation processes and participated already in more than 35 CDM and J project assessments. Michael Rumberg is head of the division CDM/J at TÜV ndustrie Service GmbH TÜV SÜD Group. n his position he is responsible for the implementation of validation, verification and certifications processes for greenhouse gas mitigation projects in the context of the Kyoto Protocol. Before entering this company he worked as an expert for renewable energy, forestry, environmental issues, climate change and sustainability within the environmental branch of an insurance company. His competences are covering risk assessments, quality and environmental auditing (EMS auditor), baseline setting, monitoring and verification due to the requirements of the Kyoto Protocol. Cristian Delamarian is a lead auditor for quality and environmental management systems (according to SO 9001 and SO 14001) at TÜV Philippines, nc., TÜV SÜD Group in Manila. He is an acknowledged expert for electricity and heat generation project based on renewable sources world-wide. n his position he is responsible for the implementation of validation, verification and certifications audits for management systems. He has received extensive training in the CDM validation process and participated already in several CDM project in the South- and South-East Asian region. The audit team covers the above mentioned requirements as follows: Knowledge of Kyoto Protocol and the Marrakech Accords (ALL) Environmental and Social mpact Assessment (ALL) Skills in environmental auditing (ALL) Quality assurance (ALL) Technical aspects of energy generation from renewable sources - biomass utilization for heat/steam and/or electricity generation (ALL) Monitoring concepts (ALL) Political, economical and technical random conditions in host country (DELAMARAN) n order to have an internal quality control of the project, a team of the following persons has been composed by the certification body climate and energy : Werner Betzenbichler (head of the certification body climate and energy )

8 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 7 of GHG Project Description The project aims to produce electricity for the internal needs of Pt. Multimas Nabati Asahan (MNA), a palm oil refinery and site for palm kernel oil production and processing in Kuala Tanjung on Sumatra in ndonesia. Therefore a new steam boiler and a full condensing steam turbine will be installed using Palm Kernel Shells (PK Shells) and fibre mainly from a new Palm Oil Mill which is currently built near the existing palm oil refinery. Additional required PK Shells will be purchased from further palm oil mills in the region. The project is designed as unilateral CDM-project. Project participant is the ndonesian private company Pt. Multimas Nabati Asahan (MNA), based in Medan on Sumatra, ndonesia. Thus only a Letter of Approval issued by the DNA of ndonesia as host country is required for the registration of this small scale CDM-projct. The project starting date is January 1 st, 2005, when the first planning for the project started. The start of the 10 years fixed crediting period is August 1 st, 2006.

9 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 8 of 22 2 METHODOLOGY The project assessment aims at being a risk based approach and is based on the methodology developed in the Validation and Verification Manual (for further information see an initiative of all Applicant Entities, which aims to harmonize the approach and quality of all such assessments. n order to ensure transparency, a validation protocol was customised for the project, according to the Validation and Verification Manual. The protocol shows, in a transparent manner, criteria (requirements), means of verification and the results from validating the identified criteria. The validation protocol serves the following purposes: t organises, details and clarifies the requirements a CDM project is expected to meet; t ensures a transparent validation process where the validator will document how a particular requirement has been validated and the result of the validation. The validation protocol consists of three tables. The different columns in these tables are described in Figure 1. The completed validation protocol is enclosed in Annex 1 to this report.

10 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 9 of 22 Validation Protocol Table 1: Mandatory Requirements Requirement Reference Conclusion Cross reference The requirements the project must meet. Gives reference to the legislation or agreement where the requirement is found. Validation Protocol Table 2: Requirement checklist This is either acceptable based on evidence provided (OK), or a Corrective Action Request (CAR) of risk or non-compliance with stated requirements. The corrective action requests are numbered and presented to the client in the Validation report. Used to refer to the relevant checklist questions in Table 2 to show how the specific requirement is validated. This is to ensure a transparent Validation process. Checklist Question Reference Means of verification (MoV) The various requirements in Table 1 are linked to checklist questions the project should meet. The checklist is organised in seven different sections. Each section is then further subdivided. The lowest level constitutes a checklist question. Gives reference to documents where the answer to the checklist question or item is found. Explains how conformance with the checklist question is investigated. Examples of means of verification are document review (DR) or interview (). N/A means not applicable. Comment Draft and/or Final Conclusion The section is used to elaborate and discuss the checklist question and/or the conformance to the question. t is further used to explain the conclusions reached. This is either acceptable based on evidence provided (OK), or a Corrective Action Request (CAR) due to noncompliance with the checklist question (See below). Clarification is used when the validation team has identified a need for further clarification. Validation Protocol Table 3: Resolution of Corrective Action and Clarification Requests Draft report clarifications and corrective action requests Ref. to checklist question in table 2 Summary of project owner response Validation conclusion f the conclusions from the draft Validation are either a Corrective Action Request or a Clarification Request, these should be listed in this section. Reference to the checklist question number in Table 2 where the Corrective Action Request or Clarification Request is explained. The responses given by the Client or other project participants during the communications with the validation team should be summarised in this section. This section should summarise the validation team s responses and final conclusions. The conclusions should also be included in Table 2, under Final Conclusion. Figure 1 Validation Protocol Tables

11 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 10 of Review of Documents The project design document submitted by the client and additional background documents related to the project design and baseline were reviewed. A complete list of all documents reviewed is attached as annex 2 to this report. The audit team has been provided with a draft PDD in late August A revised version which was published in the Global stakeholder process has been submitted in January This version served as basis for the development of the draft validation protocol. The project design document then again underwent several revisions addressing clarification requests and corrective action requests issued by TÜV SÜD. A revised final PDD version (version 1.2, dated April 25 th, 2006) serves as the basis for the final assessment presented herewith. 2.2 Follow-up nterviews n the period of August 31 st, 2005 September 2 nd, 2005 TÜV SÜD performed interviews with project participants and stakeholders in Jakarta, ndonesia to confirm selected information and to resolve issues identified in the document review. Representatives of ndonesian company PT. Multimas Nabati Asahan (MNA) as project owner as well as from further ndonesian companies, PLN P. Siantar and EHS SPV responsible inter alia for technical planning and construction were interviewed. Furthermore a representative from the dutch office of KPMG, which assisted MNA as business advisor and in the PDD development, was interviewed. The main topics of the interviews are summarised in Table 1. Table 1: nterview topics nterviewed organisation PT. Multimas Nabati Asahan (MNA), PLN P. Siantar and EHS SPV, ndonesia KPMG Business Advisory Services, The Netherlands nterview topics Project design Technical equipment Sustainable development issues Baseline determination Additionality Crediting period Monitoring plan and Management system Environmental impacts and EA Stakeholder process Approval by the host and investor country Legislation in the host country Questions concerning the electricity grid in Sumatra Project design Sustainable development issues Additionality Questions concerning financial figures, intended investments and sponsor acquisition Baseline Monitoring GHG emissions reductions calculations

12 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 11 of Resolution of Clarification and Corrective Action Requests The objective of this phase of the validation was to resolve the requests for corrective actions and clarification and any other outstanding issues which needed to be clarified for TÜV SÜD`s positive conclusion on the project design. The Corrective Action Requests and Clarification Requests raised by TÜV SÜD were resolved during communications between the client and TÜV SÜD. To guarantee the transparency of the validation process, the concerns raised and responses given are summarised in chapter 3 below and documented in more detail in the validation protocol in annex 1.

13 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 12 of 22 3 VALDATON FNDNGS n the following sections the findings of the validation are stated. The validation findings for each validation subject are presented as follows: 1) The findings from the desk review of the project design documents and the findings from interviews during the follow up visit are summarised. A more detailed record of these findings can be found in the Validation Protocol in annex 1. 2) Where TÜV SÜD had identified issues that needed clarification or that represented a risk to the fulfilment of the project objectives, a Clarification or Corrective Action Request, respectively, have been issued. The Clarification and Corrective Action Requests are stated, where applicable, in the following sections and are further documented in the Validation Protocol in annex 1. The validation of the project resulted in 8 Corrective Action Requests and 5 Clarification Requests. Furthermore there have been three outstanding issues. 3) Where Clarification or Corrective Action Requests have been issued, the exchanges between the client and TÜV SÜD to resolve these Clarification or Corrective Action Requests is summarised. 4) The conclusions for validation subject are presented. The validation findings relate to the project design as documented and described in the final project design documentation. 3.1 Project Design Discussion The project participants in the PDD version published in the Global Stakeholder Process are PT. Multimas Nabati Asahan (MNA), ndonesia as project owner and ADM European Management Holding Company as investor (sponsor). Both participating Parties, ndonesia as the host Party and Germany as the Annex Party, meet all relevant participation requirements. The project currently has received a written Letter of Approval by the host country, which still has to be submitted to the validator, but not yet a LoA from Germany. A positive validation opinion in the final validation report is one of the requirements for issuing the Letter of Approval from Germany. Both Letters of Approval and additional a Letter concerning Modalities of Communication with the UNFCCC-Executive Board (UNFCCC-EB) have to be submitted to the validator before starting the registration process for this project at the UNFCCC-EB. The objective of the project is to reduce GHG emissions by producing electricity for the ownconsumption of MNA using biomass (Palm Kernel shells, fibre etc.) as renewable energy source. The project itself does qualify as a Small Scale Project as it fulfils the requirements defined in paragraph 6 (c) of decision 17/CP.7 on the modalities and procedures for the CDM by being a project in the category i) renewable energy project activities with a maximum output capacity equivalent to up to 15 megawatts. The project activity itself is not a debundled component of a larger project activity according to the rules for determining the occurrence of debundling as they are outlined in Appendix C of the Simplified Modalities and Procedures for Small-Scale CDM project activities. Currently there is no other small scale project activity already registered

14 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 13 of 22 or in the process of applying for registration - done by the same project participant within one kilometer distance. The project design engineering does reflect current good practices. Via internal feasibility studies carried out in advance to the project implementation and on basis of the experiences with the applied technology in other countries the appropriateness of the employed technology could be confirmed retreaceably and plausibly. The project is hence professionally managed and the applied technology represents state of the art technique in this sector of renewable energy. The project equipment can be expected to run for the whole project period and it can not be expected that it will be replaced by more efficient technologies. The project leads to a technology and knowledge transfer to the host country as the project makes, on the one side, use of an existing technology but on the other side this technology currently is (unless in some isolated pilot projects) not used (and known) in ndonesia and especially not in this region of the country. As in the context of the project local people are trained in this technology there is an impulse and incentive to use this technology more widespread in future. As ndonesia has the objective to make use of renewable energy sources the project is in line with sustainable development policies of the country according to the information received during the on-site audit.. The contribution of the project to sustainable development has to be confirmed by the ndonesian DNA in the written Letter of Approval. The project has already received all permissions and licences for implementation and operation of the new boiler and steam turbine so far as possible at this stage of the project. All local stakeholders and the involved regional and national authorities have been inmformed about the project and have confirmed the assistance for the project verbally. More than 1000 persons from the community of Kuala Tanjung gave joinde the stakeholder meeting. Requests made by the community to improbe the environmental and socucial performance of the project and to submit additional information have been included in the project planning documents. The funding for the project does not lead to a diversion of official development assistance as according to the information obtained by the audit team ODA does not contribute to the financing of the project. The operational lifetime of the project has been clearly defined and also handled in a reasonable manner. The fixed crediting period of 10 years has also been described correctly as wel as the starting date of the crediting period. Additional information has to be submitted to the validator concerning the starting date of the project. Furthermore the concrete address of the project location should be added to the PDD. The potential risk of problems in the supply of palm kernel shells should be discussed and explained more detailed Findings Outstanding ssue No. 1: The DNA of the host country ndonesia has to confirm in a written Letter of Approval that the project assists non-annex Parties (in this case ndonesia) in achieving sustainable development.

15 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 14 of 22 Response: The ndonesian DNA already has issued a LoA to the project owner on December 23 rd, Outstanding ssue No. 2: Both involved countries (ndonesia and Germany) have to confirm the voluntary participation of the involved countries in the written Letter of Approval. Final Response: The ndonesian DNA has issued a LoA for the project on December 23 rd, The project was re-designed as an unilateral CDM project. So the written Letter of Approval from the German DNA is no longer required for this project. After the registration of the project it is intended to include the German company ADM European Management Holding GmbH as second project participant, to seek approval from the German DNA and to make the project a bilateral CDM project. Outstanding ssue No. 3: The project design document does not conform to the Small Scale CDM Project Design Document format (version 02). t is based on the version 01. Response: The revised PDD uses the correct small scale PDD version (02). Corrective Action Request No. 1: The exact address of the project activity should be included in the PDD. The location of the project activity should be clearly shown (illustrated) in the map Response: The exact address was included in the revised final PDD. A map in chapter a of the final PDD demonstrates the concrete location of the project. Corrective Action Request No. 4: The project starting date should be clearly stated. Response: This was corrected in the revised PDD. Corrective Action Request No. 6: A part of the PK Shell will be purchased from only a few palm oil mills (major suppliers) in the region. There is a not negligible risk that the necessary amount of biomass cannot be obtained. This risk is not addressed in the PDD. Furthermore, are there any contracts with the other palm oil mills? The contracts should be submitted to the validator. Response: The subject has been explained in more detail in the revised final PDD. The management of MNA considers the risk of insufficient biomass limited. Only a limited quantity of PK Shell has to

16 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 15 of 22 be bought from palm oil mills outside the group of company to which MNA belongs. Empty fruit bunches can also be used as fuel for the new biomass power unit Conclusion After receipt of the written LOAs the project will comply with all requirements. 3.2 Baseline and Additionality Discussion The project uses the small scale CDM project category.a. Electricity generation by the user. But the project confirms not with this methodology as AMS-.A/version 07 asks only for electricity supply to households or small amounts of electricity - produced by multiple installations (as indicated in the baseline and monitoring methodology) - and not for a single mini grid connected installation as foreseen in the project. This has to be corrected and the baseline has to be elaborated more detailed and clearly. The project proponent should make use of an appropriate methodology (AMS-.D/Version 07) for the respective project type. This has to be corrected in the final PDD. The PDD describes that the project is not a likely baseline scenario according to various barriers faced by the project. The technological, investment and prevailing practise (cultural) barriers argued by the project participants could be verified during the on site audit in various discussions and interviews with the project owner and further interviewed persons. Additional information has been submitted during the on-site audit which backed the argumentation in the PDD. Without the refinancing of the CDM the project owner would choose one of the project alternatives, this means invest in more diesel generators or source the electricity from the grid. The CDM revenue was considered in the project from the very beginning of the project development. The respective agreements have been verified during the assessment process. The application of the baseline methodology is transparent and conservative, but has to be elaborated more detailed. Not all data have been sourced and transparently explained until know. The chosen approach should be explained more substantiated. The conservative approach in the baseline development has to be elaborated more detailed. Nevertheless it is clear that the calculations are conservative as for the calculations the carbon emission factor of the Sumatra Grid has been used which is definitely lower than the carbon emission factor for in case of electricity generation with Diesel which would be the most realistic scenario in absence of the project as the electricity grid is not stable on Sumatra. Relevant national policies have been taken into account as the energy policy of the Government of ndonesia. The project is in line with the energy policy in ndonesia Findings Corrective Action Request No. 8: The project confirms not with the project category.a. Electricity generation by the user as the project ASM.A asks only for electricity supply to households or small amounts of electricity - produced by multiple installations (as indicated in the baseline and monitoring methodology) -

17 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 16 of 22 and not for a single mini grid connected installation as foreseen in the project. Response: The revised PDD uses correctly the baseline methodology of project category AMS-.D. Renewable electricity generated for a grid (version 07). Clarification Request No. 2: The explanation to choose the baseline scenario is not elaborated clearly enough. The scenario 3 should be used. This issue should be clearly solved and the explanations should be corrected/ elaborated more detailed. Response: n B.3. of the revised PDD it is clear stated that relying on the electricity grid is considered as a too high risk. Clarification Request No. 2: Additional documentation of the national grid data used for the calculation of the carbon emission factor of the grid (calculation of baseline emissions) should be submitted to the validator. Response: nformation source has been included in the PDD (a report describing the capacity of the PLN grid on North Sumatra and actual production data for 2004 obtained from the logbooks of PLN). Added documents: 1. The spreadsheet prepared after the visit to the PLN office in Medan. 2. The spreadsheet for the calculation of the grid emission factor. 3. The front page of the PLN report describing the capacity (a copy was provided to the validator during the site visit). Only the data of the last recent year 2004 are available so these data have been used to calculate the carbon emission factor Conclusion The project does comply with the requirements. 3.3 Monitoring Plan Discussion The selected monitoring methodology, in this case the approved baseline and monitoring methodology AMS-.A, is not in line with the monitoring methodologies for this type of project. The approved monitoring methodology AMS-.A asks only for electricity supply to households or small amounts of electricity - produced by multiple installations (as indicated in the baseline and monitoring methodology) - and not for a single mini grid connected installation as foreseen in the project. This has to be corrected and the baseline has to be elaborated more detailed and clearly.

18 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 17 of 22 No indicators have been defined regarding project emissions and leakage emissions to be monitored according to the monitoring plan as there are no emissions to be expected in the regular operation of the plant. The responsibility of the project management is clearly described to a wide extent. During the visit on site, the validator was able to discuss the practical implementation on site. Nevertheless the overall responsibility should be explained a little bit more detailed Findings Corrective Action Request No. 8: The project confirms not with the project category.a. Electricity generation by the user as the project ASM.A asks only for electricity supply to households or small amounts of electricity - produced by multiple installations (as indicated in the baseline and monitoring methodology) - and not for a single mini grid connected installation as foreseen in the project. Response: The revised PDD uses correctly the monitoring methodology of project category AMS-.D. Grid connected renewable electricity generation (version 07). Clarification Request No. 4: The project management and the responsibilities in the project have to be described and elaborated more detailed. Repsonse: The manager of the new biomass power plant responsible for all operational aspects of the new biomass power plant will report to the MNA plant manager who reports to the MNA director Conclusion The project does comply with the requirements. 3.4 Calculation of GHG Emissions Discussion The PDD does correctly define the project s spatial boundaries to a large extent. But the diesel aggregates as stand by equipment have to be included in the project boundaries. The PDD does also correctly define the project s system boundaries. Thus, all components used to mitigate GHG s are covered. nformation regarding the installed new equipment is supported by corresponding documentation and could be confirmed during the on-site audits. No project scenario emissions are to be expected. But the aspect leakage should be discussed and elaborated more detailed. The calculations of the baseline emission are documented in a complete and transparent manner. Hereby, conservative figures have been used. Concluding it can be stated that all aspects related to direct and indirect baseline emissions are captured in the project design under the pre-assumption that the questions of leakage and project boundaries can be clarified in the revised PDD.

19 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 18 of Findings Corrective Action Request No. 2: The Diesel generators are excluded from the project boundaries. They should be included if they are use as back up equipment for the electricity production. Response: The Diesel generators are included in the project boundaries in the revised PDD. Clarification Request No. 4: The Appendix 4 in the PDD is not complete. The complete table should be included in the PDD. Response: The format has been changed. Thus all required information is available for the validation team. The data and calculation have been demonstrated to the local expert in TÜV SÜD s validation team during the on-site audits in August/September Corrective Action Request No. 5: Leakage is possible in case that there is not enough biomass available and that additional biomass has to be bought. This has to be discussed and addressed in the PDD. Response: PK Shell is currently only used as fuel in palm oil mills and in the oil refinery of MNA. The use of PK Shell as fuel for palm oil mills will remain because this is the cheapest fuel available for palm oil mills. The remaining surplus of PK Shell is currently land filled in the plantations, used on unpaved roads (not effective). To the best of our knowledge there are no current applications for PK Shell that could lead to leakage. The project developer added this text to the PDD in chapter E at the end. Clarification Request No. 5: The emission reductions for the first year are not clearly defined. This should be clarified. Response: The revised PDD uses a 5 months period for the calculation of the reductions of the first year. The mistake has been corrected Conclusion The project does comply with the requirements.

20 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 19 of Environmental mpacts Discussion An analysis of the environmental impacts of the project activity is not required according to ndonesian legislation. This should be proved transparently and re-traceably by submitting the respective text in the law. Nevertheless the project does comply with environmental legislation. Nevertheless all aspects of the project which could cause environmental impacts have been described and discussed in the PDD. But the aspects have to be elaborated a little bit more detailed and transparently Findings Clarification Request No. 1: The additional transportation processes are not clearly addressed in the environmental impacts (noise, exhaust, frequency). Response: A more detailed description of the additional transport has been added to the final PDD. Corrective Action No. 7: Documentation to confirm that an EA is not required should be submitted to the validator. Response: A more detailed description was added to the final revised PDD. According to the ndonesian regulation for environmental impact assessments (PP 27/1999 from AMDAL) electricity production units below 10 MW do not require an EA. The document describing this has been attached Conclusion The project does comply with the requirements. 3.6 Comments by Local Stakeholders Discussion There is no legislation in ndonesia to carry out a Stakeholder Process for such projects. Furthermore currently there is no guidance how to conduct such a process. Nevertheless the project participants published the projects in a local newspaper already in early 2005 and presented the project to local stakeholders on April 23 rd, More than 100 participants joined this meeting. There have been no negative comments on the project, but from the side of the community there was a request to describe the influence of the project on air pollution and water quality and to describe the employment effects of the project. These requirements will be taken into account in the implementation phase of the project.

21 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 20 of Findings There are no findings Conclusion The project does comply with the requirements.

22 Validation of the Small Scale CDM Project: MNA Biomass 9,7 MWe Condensing Steam Turbine, ndonesia Page 21 of 22 4 COMMENTS BY PARTES, STAKEHOLDERS AND NGOS TÜV SÜD published the project documents on its website on January 19 th, 2006 and invited comments within 30 days, until February 17 th, 2006 by Parties, stakeholders and nongovernmental organisations. No comments have been received. The PDD has been publicly available under the following link: 04&mode=1.

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24 Annex 1 Validation Protocol

25 Table 1: Mandatory Requirements for Small Scale Clean Development Mechanism (CDM) Project Activities REQUREMENT REFERENCE CONCLUSON Cross Reference/ Comment 1. The project shall assist Parties included in Annex in achieving compliance with part of their emission reduction commitment under Art. 3 Kyoto Protocol Art See below Table 2, Section E The project shall assist non-annex Parties in achieving sustainable development and shall have obtained confirmation by the host country thereof Kyoto Protocol Art. 12.2, Simplified Modalities and Procedures for Small Scale CDM Project Activities 23a Outstanding ssue No. 1 The contribution to sustainable development in the host country (in this case ndonesia) has to be confirmed by the host country in a written Letter of Approval (LoA). The written LoA from ndonesia has to be submitted to the validator before starting the registration process at the UNFCCC EB. The LoA has to be in compliance with the requirements for LoAs defined by the UNFCCC-CDM-Executive Board. The ndonesian DNA has issued the required LoA for this project on December 23 rd, The project shall assist non-annex Parties in contributing to the ultimate objective of the UNFCCC Kyoto Protocol Art See below Table 2, Section E The project shall have written approval of voluntary participation from the designated national authorities of each party involved Kyoto Protocol Art. 12.5a, Simplified Modalities and Procedures for Outstanding ssue No. 2 Both involved countries (ndonesia and Germany) have to confirm the voluntary participation of the involved countries in the written Letter of Approval (see also point 2). Page A-1

26 REQUREMENT REFERENCE CONCLUSON 5. The emission reductions should be real, measurable and give long-term benefits related to the mitigation of climate change Small Scale CDM Project Activities 23a Kyoto Protocol Art. 12.5b See below Cross Reference/ Comment The ndonesian DNA has already issued the Letter of Approval (LoA) for this project on December 23 rd, The German LoA can be issued not till a positive validation opinion in the final validation report for this project is available. Both LoAs - from ndonesia and Germany - have to be submitted to the validator before starting the registration process at the UNFCCC EB and have to fulfil the requirements for LoAs defined by the UNFCCC- CDM-Executive Board. Final Conclusion: The project was re-designed as an unilateral CDM project. So the written Letter of Approval from the German DNA is no longer required for this project. After the registration of the project it is intended to include the German company ADM European Management Holding GmbH as second project participant, to seek approval from the German DNA and to make the project a bilateral CDM project. Table 2, Section E.1 to E.4. Page A-2

27 REQUREMENT REFERENCE CONCLUSON Cross Reference/ Comment 6. Reduction in GHG emissions must be additional to any that would occur in absence of the project activity, i.e. a CDM project activity is additional if anthropogenic emissions of greenhouse gases by sources are reduced below those that would have occurred in the absence of the registered CDM project activity Kyoto Protocol Art c, Simplified Modalities and Procedures for Small Scale CDM Project Activities 26 See below Table 2, Section B Potential public funding for the project from Parties in Annex shall not be a diversion of official development assistance Marrakech Accords (Decision 17/CP.7) The funding for the project does not lead to a diversion of official development assistance as according to the information obtained by the audit team ODA does not contribute to the financing of the project. 8. Parties participating in the CDM shall designate a national authority for the CDM Marrakesh Accords (CDM modalities 29) Germany as well as ndonesia have already established a Designated National Authority (DNA). The nominated German DNA is: Umweltbundesamt - Deutsche Emissionshandelsstelle Postfach Berlin Contact: Dr. Enno Harders, Dr. Wolfgang Seidel (enno.harders@uba.de,wolfgang.seidel@uba.de ) Phone: (49-30) Fax: (49-30) The nominated ndonesian DNA is: National Commission on CDM (KOMNAS MPB) J.D. Panjaitan, Kebon Nanas JAKARTA Page A-3

28 REQUREMENT REFERENCE CONCLUSON Cross Reference/ Comment Kotak Pos/PO Box 7777 JAT The host country shall be a Party to the Kyoto Protocol Marrakesh Accords (CDM modalities 30) 10. The proposed project activity shall meet the eligibility criteria for small scale CDM project activities set out in 6 (c) of the Marrakesh Accords and shall not be a debundled component of a larger project activity 11. The project design document shall conform with the Small Scale CDM Project Design Document format Simplified Modalities and Procedures for Small Scale CDM Project Activities 12a,c Simplified Modalities and Procedures for Small Scale CDM Project Activities, Appendix A Ms. Masnellyarti Hilman Head, National Commission of the CDM nellyhilman@yahoo.com Phone: (21-85) , Fax: (21-85) 18135, As the project has been re-designed as an unilateral CDM project for the registration only ndonesia as host country is participating in the project and only a LoA of ndonesia is required for this project. ndonesia is a Party to the Kyoto Protocol and has ratified the Protocol at December 12 th, See below Table 2, Section A.1 Outstanding ssue No. 3 The project design document does not conform to the Small Scale CDM Project Design Document format (version 02). t is based on the version 01. This open issue has been solved in the final PDD (Version 1.2, dated April 2006). Page A-4

29 REQUREMENT REFERENCE CONCLUSON Cross Reference/ Comment 12. The proposed project activity shall confirm to one of the project categories defined for small scale CDM project activities and uses the simplified baseline and monitoring methodology for that project category 13. Comments by local stakeholders are invited, and a summary of these provided 14. f required by the host country, an analysis of the environmental impacts of the project activity is carried out and documented Simplified Modalities and Procedures for Small Scale CDM Project Activities 22e Simplified Modalities and Procedures for Small Scale CDM Project Activities 22b Simplified Modalities and Procedures for Small Scale CDM Project Activities 22c See below Table 2, Section A.1.3 and B.1 See below Table 2, Section G See below Table 2, Section F 15. Parties, stakeholders and UNFCCC accredited NGOs have been invited to comment on the validation requirements and comments have been made publicly available Simplified Modalities and Procedures for Small Scale CDM Project Activities 23b,c,d A global public stakeholder process on the UNFCCC website has taken place from January 19 th, 2006 to February 17 th, 2006 for 30 days. No comments on the project have been received. PDD and comments for the Global Stakeholder Process are public available under the link: aspx?d=1527&ebene1_d=26&ebene2_d=40 4&mode=1 Page A-5

30 Table 2: Requirements Checklist CHECKLST QUESTON Ref. MoV* COMMENTS A. Project Description The project design is assessed. A.1. Small scale project activity t is assessed whether the project qualifies as small scale CDM project activity. A.1.1. Does the project qualify as a small scale CDM project activity as defined in paragraph 6 (c) of decision 17/CP.7 on the modalities and procedures for the CDM? A.1.2. The small scale project activity is not a debundled component of a larger project activity? The project itself does qualify as a Small Scale Project as it fulfils the requirements defined in paragraph 6 (c) of decision 17/CP.7 on the modalities and procedures for the CDM by being a project in the category Type-1 i) renewable energy project activities with a maximum output capacity equivalent to up to 15 megawatts. The project activity is not a debundled component of a larger project activity according to the rules for determining the occurrence of debundling as they are outlined in Appendix C of the Simplified Modalities and Procedures for Small-Scale CDM project activities. Currently there is no other small scale project activity already registered or in the process of applying for registration - done by the same project participant and less than 1km far from this project activity. Draft CAR 1 Final Page A-6

31 CHECKLST QUESTON Ref. MoV* COMMENTS Nevertheless to confirm this statement the complete address of the project activity should be added in the PDD. Corrective Action Request No.1: The exact address of the project activity should be included in the PDD. Draft Final A.1.3. Does proposed project activity confirm to one of the project categories defined for small scale CDM project activities? 1-4 The project confirms not with the project category.a. Electricity generation by the user as the project ASM-.A/version 07 asks only for electricity supply to households or small amounts of electricity - produced by multiple installations (as indicated in the baseline and monitoring methodology) - and not for a single mini grid connected installation as foreseen in the project. CAR 8 Corrective Action Request No. 8: The project proponent should make use of an appropriate methodology for the respective project type. Page A-7

32 CHECKLST QUESTON Ref. MoV* COMMENTS A.2. Project Design Validation of project design focuses on the choice of technology and the design documentation of the project. A.2.1. Are the project s spatial (geographical) boundaries clearly defined? 1-4 Yes, the PDD does clearly define the project s spatial boundaries. Draft Final A.2.2. Are the project s system (components and facilities used to mitigate GHG's) boundaries clearly defined? 9-10, 15 The project boundaries are clearly and correctly defined to a large extent. But there is one inconsistency in the PDD. Corrective Action Request No.2: CAR 2 The Diesel generators are excluded from the project boundaries. They should be included if they are used as back up equipment for the electricity generation. A.2.3. Does the project design engineering reflect current good practices? 1-17, Yes, the project design engineering does reflect current good practices. The project is, hence, professionally managed. A.2.4. Will the project result in technology transfer to the host country? 1-17, Yes, according to the information given during the on-site audits the equipment to be installed in the Page A-8