THE WORLD BANK/IFC/M.I.G.A.
OFFICE MEMORANDUM
DATE: April 26, 2006
TO: Mr. Leonard Good, CEO/Chairman, GEF
FROM: Steve Gorman, GEF Executive Coordinator 
EXTENSION: 35865
SUBJECT: Indonesia, Malaysia and Singapore: Marine Electronic Highway Demonstration
Project - Request for CEO Endorsement
1. Please find attached the electronic file of the GEF Project Document, the agreed minutes of negotiations with Indonesia (to confirm its co-financing), and the Memorandum on Arrangements (sections F and G of which confirm the shipping industry’s co-financed inputs) for the above-mentioned project for your final review and endorsement. This project was approved for Work Program entry in August 2003, under streamlined CEO endorsement procedures. We would appreciate receiving your endorsement as soon as possible, so that we may finalize the World Bank Board submission package.
2. The proposed final project is fully consistent with the objectives and scope of the project proposal that was approved for Work Program entry. At the GEF Secretariat’s request prior to CEO endorsement, the project’s Marine Environment Protection component has been expanded to (a) map all environmentally-sensitive areas within the demonstration site, in collaboration with the national environment institutions; (b) incorporate these maps into an oil spill impact prediction model for the demonstration area; and (c) add simulated oil spill response exercises in all three countries that will use these outputs and involve the national environment agencies. As a result of these enhancements, the estimated cost of this component has increased from US$0.61 million at the time of Work Program entry to US$0.85 million now. An additional US$200,000 in GEF co-financing is requested to cover the incremental costs of these additional activities. Cost inflation, and particularly oil price increases over the nearly three years since the project’s Work Program entry, has also increased the cost of other components, particularly the production of electronic navigation charts for the demonstration site. Consequently, the project’s estimated total cost has increased from US$15.45 million at the time of Work Program entry to US$17.00 million now. An additional $100,000 in GEF co-financing is also requested to help cover a small portion of these additional incremental costs. Thus a total of $300,000 in additional GEF project co-financing, over and above the $8 million approved at Work Program entry, is now requested to complete the project financing plan.
3. The GEF Secretariat conditions for CEO endorsement have been met as follows:
(a) Confirm commitment of co-financing: Indonesia’s co-financing is confirmed by the minutes of negotiations. Co-financing commitment letters from the other financing partners, INTERTANKO and the International Chamber of Shipping, are attached.
(b) Environmentally-sensitive areas will be mapped for inclusion in the MEH information system: This work comprises component 4.2.
(c) Involvement of the environment institutions in the countries will be strengthened: The national environmental institutions will coordinate the activities under the Marine Environment Protection component and participate in the sensitive area mapping, the national emergency response system exercises, and in the project evaluation.
4. The issues raised by Council members at the time of Work Program entry have been addressed as follows:
(a) What is the baseline, number of accidents in the project area, severity of oil spills and targeted outcome? An expert, independent economic cost-benefit analysis of the potential full-scale Straits of Malacca and Singapore MEH system that the project is designed to catalyze has been performed and is summarized in Annex 9. This analysis defines the baseline – i.e. ship movements through the MEH demonstration area, the baseline ship accident rate, and the risk of a major oil spill. The analysis then projects the impact of a potential full-scale MEH system on the baseline ship accident and major oil spill risk rates and estimates both the system’s economic rate of return, which is 21% for its oil spill reduction benefits alone. The analysis also notes that the owner/operators of large vessels using the full-scale MEH system’s precision navigation tools to navigate the Straits would reap additional benefits from the opportunity it would offer to reduce their ship’s required under-keel clearance and thus carry more cargo. These potential cost-savings are estimated to be more than sufficient to cover the full-scale system’s development and operating costs, and thus make it economically viable.
Many thanks.Attachments
cc: Messrs./Mmes. Ramankutty, GEF Program Coordination, Merla, Duda and Severin (GEFSec); Bajpai, Burningham, Broadfield (EAP); Hatziolos, Khanna, Wedderburn, Illouz (ENV); ENVGC ISC, Regional Files