Indonesia : Tangguh Liquefied Natural Gas Expansion Project

Project Name

Tangguh Liquefied Natural Gas Expansion Project

Project Number

49222-001

Borrower / Company

• HSBC BANK USA, NATIONAL ASSOCIATION

Country / Economy

• Indonesia

Location

West Papua

Type or Modality of Assistance

Approval Number	Facility	Fund Source	Amount	Status
3489	Loan	Ordinary capital resources	USD 400.00 million	Committed

Strategic Agendas

• Environmentally sustainable growth
• Inclusive economic growth
• Regional integration

Drivers of Change

• Partnerships
• Private sector development

Sector / Subsector

• Energy / Conventional energy generation

Gender

Some gender elements

Project Sponsor(s)

• BP Plc
• CNOOC
• Inpex Corporation
• Japan Oil Gas and Metals National Corporation
• JX Nippon Oil & Gas Exploration Corporation
• MITSUBISHI CORPORATION
• MITSUI & CO.
• Sojitz Corporation
• SUMITOMO CORPORATION

Description

The Tangguh natural gas liquefaction facility (Tangguh) has been operating in West Papua, Indonesia's least developed region, since 2009. It currently consists of two trains (Train 1 and 2) that were financed with ADB, JBIC and international commercial bank support in 2007. Each train is designed to produce 3.8 million metric tons per annum (mtpa) of liquefied natural gas (LNG) each. The LNG is currently sold to buyers in Indonesia, the PRC, Japan, Korea, and USA. The Tangguh Expansion consists of a third 3.8 mtpa LNG train (Train 3) and associated offshore and onshore production facilities and supporting infrastructure. Train 3 is expected to commence production in 2020, and has committed 40% of production to PLN (the Indonesian national electric utility) under a long term sales and purchase agreement (SPA).

The financing of Tangguh Expansion will be through a New York-based commercial bank that will act as trustee borrower. The sponsors of Tangguh, through production-sharing arrangements with the Government of Indonesia (GOI) are: BP (37.2%); CNOOC (13.9%); Mitsubishi Corp. and INPEX Corp. (together 16.3%); Nippon Oil Corp. and Japan Oil Gas and Metals National Corp. (JOGMEC) (together 12.2%); Mitsui (10% in JV with Mitsubishi Corp., INPEX, Nippon Oil, JOGMEC); Sumitomo and Sojiz (together 7.3%); and Talisman Energy Inc (3.1%). A subsidiary of BP, BP Berau Limited, operates the Tangguh project on behalf of the sponsors.

Objectives and Scope

The Tangguh expansion will provide much needed natural gas to meet domestic demand that has increased considerably in the last decade. The project will support the development of a more sustainable fuel mix and government efforts to reduce carbon emissions. On a local level, the proposed project will accelerate economic development for West Papua, providing additional local employment opportunities and scope for human resource development.

Status of Operation/Construction

Operational.

Linkage to Country/Regional Strategy

The Tangguh expansion aligns with Strategy 2020 and ADB Energy Policy (2009) by promoting environmentally sustainable growth through the expansion of LNG infrastructure and domestic gas supply, which has strong potential to offset greenhouse gas emissions generated by coal-fired power stations. The project is also consistent with Strategy 2020 Mid-Term Review's recommendations and the Interim 2015 Country Partnership Strategy for Indonesia through its increased emphasis on energy security and domestic fuel mix diversification, as well as prioritization of investment in less-developed Eastern Indonesia.

Safeguard Categories

Environment

A

Involuntary Resettlement

B

Indigenous Peoples

A

Summary of Environmental and Social Aspects

Environmental Aspects

Key environmental issues identified during the greenfield development of Tangguh include the need to protect air and water quality, and effects on terrestrial, freshwater aquatic, intertidal, and marine ecosystems. The original project planning included careful environmental management based on the inputs required by the Indonesian law, as well as ADB's safeguard requirements. The Project was designed to minimize the risk of adverse environmental impacts. A wide range of environmental protection measures and safeguards have been incorporated to protect against adverse impacts to the physical, biological, and social components of the environment. The Tangguh Expansion is expected to follow the same philosophy of careful environmental planning and abiding to the current Indonesian law and ADB's revised safeguard requirements. An EIA including EMP is going to be developed and will revisit the key environmental issues identified above. ADB participation in the project is seen as critical to ensure these high standards.

Involuntary Resettlement

Construction of the LNG plant site required the acquisition of 3,266 hectares of land from several clans of the Simuri tribe, which held customary (adat) rights to the land and physical relocation of 122 households into two host communities, Onar (28 households), and Saengga (94 households). The host villages benefitted of housing renovation and infrastructure and livelihood and community development programs by the project. All villagers have experienced some loss of access to fishing area as a result of restrictions around the LNG plant, subsea pipelines and offshore platforms. The project implemented a benefits-sharing mechanism that goes beyond a one-off compensation payment to offer revenue streams to those clans losing resources. The Tangguh Expansion is expected to have no further land acquisition and resettlement. However, due diligence is required to determine whether BP's efforts to enhance and diversify the livelihood sources of the resettled community have been successful.

Indigenous Peoples

During the greenfield development, two main ethnic groups, the Sebyar and Simuri, were identified in the project area and indigenous peoples development plan in the form of an Integrated Social Program (ISP) was prepared and implemented in accordance with ADB's Indigenous Peoples Policy (1998). Due diligence will assess the Tangguh Expansion impact on indigenous people, the extent to which various programs under the ISP Phase 2 have improved the well-being of villages in the project areas. Based on the outcome of the assessment, an Indigenous People Plan in the form of an ISP will be prepared based on ADB Safeguard Policy Statement (2009).

Stakeholder Communication, Participation, and Consultation

Stakeholder consultation process was undertaken by the project during the development of environment and social impact assessment in order to comply with ADB's Safeguard Policy Statement requirements.

Contact

Responsible ADB Officer

Shankaran, Bharath

Responsible ADB Division

Portfolio Management Division, PSOD

Responsible ADB Department

Private Sector Operations Department

Timetable for assistance design, processing, and implementation

Concept Clearance

22 Jun 2015

Credit Committee Meeting

25 Oct 2016

Approval

01 Dec 2016

Last PDS Update

19 Feb 2024