Documeait of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 3736/-IND

STAFF APPRAISAL REPORT

INDONESIA

NUCLEUS ESTATES AND SMALLHOLDERS VI PROJECT

March 22, 1982

Projects DepartmentEast Asia and Pacific Regional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EOUIVALENT

US$1.00 Rupiahs (Rp) 625Rp 100 US$0.160Rp 1 million US$1,600

WEIGHTS AND MEASURES - METRIC SYSTEM

1 millimeter (mm) = 0.039 inches1 meter (m) = 39.37 inches1 kilometer (km) = 0.62 miles1 square kilometer (sq km) = 0.386 square miles1 hectare (ha) = 2.47 acres1 cubic meter (cu m) = 35.31 cubic feet1 liter (1) = 0.264 gallons (USA)1 kilogram (kg) = 2.2 pounds1 metric ton (ton) = 2,205 pounds

GLOSSARY OF INDONESIAN TERMS

Adat = Body of traditional lawAlang-alang = (Imperata cylindrica), a coarse grass which establishes

after slash and burn operationsBupati = District ChiefCamat = Subdistrict ChiefDesa = VillageDukuh = Hamlet of 25-30 homes, part of a villageGotong-royong = Community self-help projectHak Pakai = Land title giving the right to use to exploitHak Milik = Land title giving full ownership to the landKabupaten = DistrictKecamatan = SubdistrictMarga = Community group under Adat lawMushalla = Small prayer housePuskesmas = Community health center usually subdistrict levelTeam Khusus = A group of specialists within DGE working on foreign

assisted projects

GOVERNMENT OF INDONESIAFISCAL YEAR

April 1 - Mlarch 31

FOR OFFICIAL USE ONLY

ABBREVIATIONS

BAPPEDA = Provincial Developmnent Planning AgencyBAPPENAS = Badan Perencanaan ]'embangunan National - National

Development Planniing AgencyBI = Bank IndonesiaBRI = Bank Rakyat Indonesia - People's Bank of IndonesiaDGA = Directorate Genera:L of Agrarian AffairsDGE = Directorate Genera:L of EstatesDGFCA = Directorate Genera:L of Food Crops AgricultureDIP = Daftar Isian Proyek - Project Implementation BudgetDPD = Dinas Perkebunan Daerah - Provincial Estate Crop

ServicesFFB = Fresh fruit bunchesGOI = Government of IndoniesiaINPRES = A Rural Development ProgramIPEDA = Iuran Pembangunan ')aerah - Land taxJMO = Joint Marketing OfEiceLPP = Estates Training InstituteMOA = Ministry of AgricuLtureMOF = Ministry of FinanceNES = Nucleus Estate and Smallholder projectsPCC = Provincial Coordinating CommitteePNP = Perusahaan Negara 'Perkebunan - State-owned estate

enterprisePPL = Field extension workerPTP = Perseroan Terbatas Perkebunan = State-owned enterprise

with limited liabilityREPELITA I = First Five-Year Development Plan (1969/70-1973/74)REPELITA II = Second Five-Year Development Plan (1974/75-1979/80)REPELITA III = Third Five-Year Development Plan (1980/81-1984/85)RSSI = Ribbed smoked sheet (rubber) Grade 1SIR = Standard Indonesia Rubber

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

INDONESIA

NUCLEUS ESTATES AND SMALLHOLDERS VI PROJECT

Table of Contents

Page No.

1. BACKGROUND AND PROJECT AREA

General . . . . . . . . . . . . . . . . . . . . . . . 1The NES Projects. . . . . . . . . . . . . . . . . . . 1Project Formulation . . . . . . . . . . . . . . . . . 2Location. . . . . . . . . . . . . . . . . . . . . . . 3Climate . . . . . . . . . . . . . . . . . . . . . . . 4Topography and Soils. . . . . . . . . . . . . . . . . 4Land Use, Population, Farm Size and Tenure. . . . . . 5Existing Infrastructure and Services. . . . . . . . . 8

2. THE PROJECT

Project Works . . . . . . . . . . . . . . . . . . . . 11Agricultural Development. . . . . . . . . . . . . . . 13Physical Development. . . . . . . . . . . . . . . . . 14Settlement and Community Development. . . . . . . . . 22Technical Assistance and Program Support. . . . . . . 24Status of Engineering . . . . . . . . . . . . . . . . 26Implementation Schedule . . . . . . . . . . . . . . . 27Cost Estimates. . . . . . . . . . . . . . . . . . . . 28Financing . . . . . . . . . . . . . . . . . . . . . . 29On Lending Interest Rates . . . . . . . . . . . . . . 32Procurement . . . . . . . . . . . . . . . . . . . . . 32Disbursement;. . . . . . . . . . . . . . . . . . . . . 34Accounts and Audits . . . . . . . . . . . . . . . . 35Environmental Effects . . . . . . . . . . . . . . . 36

3. ORGANIZATION AND MANAGEMENT

General . . . . . . . . .. . . . . . . . . .. . . . 36Project Management. . . . . . . . . . . . . . . . . . 36Agricultural Support Services for Smallholders. . . . 39Operations and Maintenance. . . . . . . . . . . . . . 40

4. AGRICULTURAL PRODUCTION, MARKET PROSPETS, PRICES,FARM INCOMES AND PROJECT CHARGES

Agricultural Production . . . . . . . . . . . . . . . 41Market Prospects. . . . . . . . . . . . . . . . . . . 41Prices. . . . . . . . . . . . . . . . . . . . . . . . 42Farm Incomes. . . . . . . . . . . . . . . . . . . . . 43Cost Recovery .. . .. . . . . . . . . . . . . . . 43

1.05 The first three NES projects are sufficiently advanced to assesstheir effectiveness. Initially, delays in budget preparation and receipt offunds by the nucleus estates, slowed implementation. To resolve this, GOIhas simplified financial procedures with automatic release of funds for thefirst two quarters to the estates. Smallholder and estate plantings are nowon schedule, with the planting or rehabilitation of about 46,900 ha ofrubber, 10,000 ha of oil palm and 3,300 ha of coconuts (Table 1.1). Fielddevelopment is good, with total plantings for NES I, II, and III, already52% completed. The construction of smallholder infrastructure, however, hasbeen less satisfactory and the movement of smallholders to the project areasat times has been behind schedule. At certain locations this causes laborshortages for further project construction and maintenance of tree cropplantings. When building roads, water supplies, village facilities andsettler housing, the central and provincial governments and nucleus estatesneed to carefully plan and coordinate their inputs. To facilitate this, NESIII and IV initiated several changes in project design and organization.The nucleus estates now have greater autonomy in designing and implementingthe smallholder components and this has improved the timeliness of infra-structure construction. The DGE has estabished a special team (Team Khusus)to assist the nucleus estates, particularly with coordinating agenciesengaged in project works. NES IV and V contain funds to commence prepara-tory works for the succeeding projects. These cover key start-up activitiessuch as nursery establishment, access roads, and laborer housing. While allthese activities have considerably helped project implementation, the TeamKhusus needed strengthening to expand and upgrade its project formulation,design and supervision activities. NES V commenced this, and providesconsiderable consultant services to Team Khusus which would enable it givegreater technical assistince to the estates in project area selection,project area and village design, tree crop establishment and processingfacility construction. These services would also assist Team Khusus givemore attention to the timely disbursing of project funds, and prepare it toplay a much larger role in the preparation, design and supervision of Bankassisted projects. Despite these problems the DGE has well prepared andimplemented NES projects. It played a key role in preparing the difficult(involving land redistribution) West Java components of NES V and thisproject. Progress with tree crop plantings are now excellent; and disburse-ments, which at end-1980 were 11% of total funds allocated to the first fourprojects, are presently (mid-December 1981) 20% of these loans.

Project Formulation

1.06 This project would be the sixth in the NES series. By using PTP XIIand PTP XXIII to transfer technology to smallholders and settle them on predo-minantly tree crop holdings, it meets the GOI's desire for using the technicaland managerial resources of the public sector estates to promote smallholderdevelopment. It also would intensify land use and farmer productivity in WestJava and Bengkulu, raise smallholder incomes by increasing food crop, rubberand coconut oil production for local and export markets; and assist stop theeroding and degrading of project lands in West Java.

INDONESIA

NUCLEUS ESTATES AND SMALLHOLDERS VI PROJECT

Table of Contents

Page No.

1. BACKGROUND AND PROJECT AREA

General . . . . . . . . . . . . . . . . . . . . . . . 1The NES Projects. . . . . . . . . . . . . . . . . . . 1Project Formulation . . . . . . . . . . . . . . . . . 2Location. . . . . . . . . . . . . . . . . . . . . . . 3Climate . . . . . . . . . . . . . . . . . . . . . . . 4Topography and Soils. . . . . . . . . . . . . . . . . 4Land Use, Population, Farm Size and Tenure. . . . . . 5Existing Infrastructure and Services. . . . . . . . . 8

2. THE PROJECT

Project Works . . . . . . . . . . . . . . . . . . . . 11Agricultural Development. . . . . . . . . . . . . . . 13Physical Development. . . . . . . . . . . . . . . . . 14Settlement and Community Development. . . . . . . . . 22Technical Assistance and Program Support. . . . . . . 24Status of Engineering . . . . . . . . . . . . . . . . 26Implementation Schedule . . . . . . . . . . . . . . . 27Cost Estimates. . . . . . . . . . . . . . . . . . . . 28Financing . . . . . . . . . . . . . . . . . . . . . . 29On Lending Interest Rates . . . . . . . . . . . . . . 32Procurement . . . . . . . . . . . . . . . . . . . . . 32Disbursement. . . . . . . . . . . . . . . . . . . . . 34Accounts and Audits . . . . . . . . . . . . . . . . . 35Environmental Effects . . . . . . . . . . . . . . . . 36

3. ORGANIZATION AND MANAGEMENT

General . . . . . . . . . . . . . . . . . . . . . . . 36Project Management. . . . . . . . . . . . . . . . . . 36Agricultural Support Services for Sma]lholders. . . . 39Operations and Maintenance. . . . . . . . . . . . . . 40

4. AGRICULTURAL PRODUCTION, MARKET PROSPECTS, PRICES,FARM INCOMES AND PROJECT CHARGES

Agricultural Production . . . . . . . . . . . . . . . 41Market Prospects . . . . . . . . . . . . . . . . . 41Prices. . . . . . . . . . . . . . . . . . . . . . . . 42Farm Incomes. . . . . . . . . . . . . . . . . . . . . 43Cost Recovery . . . . . . . . . . . . . . . . . . . . 43

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Page No.

5. BENEFITS, JUSTIFICATION AND RISKS . . . .. . . . . . 51

6. AGREEMENTS REACHED AND RECOMMENDATIONS . . . . . . . . 56

LIST OF TABLES IN MAIN REPORT

1.1 NES Projects: Progress of Tree Crop Plantings . . 101.2 Mean Annual Rainfall at Sites . . . . . . . . . . . . 41.3 Present Land Use: West Java Sites. . . . . . . . . . 61.4 Farm Size Distribution: Bengkulu . . . . . . . . . . 72.1 Road Design Standards . . . . . . . . . . . . . . . . 172.2 Project Road Construction . . . . . . . . . . . . . . 182.3 Village Infrastructure. . . . . . . . . . . . . . . . 202.4 Crop Processing: Installed Capacity. . . . . . . . . 212.5 Consulting Services . . . . . . . . . . . . . . . . . 272.6 Annual Price Contingencies. . . . . . . . . . . . . . 282.7 Project Cost Summary. . . . . . . . . . . . . . . . . 292.8 Source of Project Funds . . . . . . . . . . . . . . . 324.1 Phasing of Tree Crop Plantings. . . . . . . . . . . . 464.2 Tree Crop Yields and Production . . . . . . . . . . . 474.3 Project Area Cropping Patterns, Yields and Production 484.4 Smallholder Farm Incomes. . . . . . . . . . . . . . . 494.5 Rent and Cost Recovery per Farm Family. . . . . . . . 505.1 Investment Costs for Economic Analysis. . . . . . . . 525.2 Economic Rates of Return. . . . . . . . . . . . . . . 535.3 Sensitivity Analysis. . . . . . . . . . . . . . . . . 545.4 Estates Financial Standing (1980) . . . . . . . . . . 54

ANNEX

1. Table 1: Project Cost EstimatesTable 2: Estimated Schedule of DisbursementsTable 3: Proposed Allocation of Loan FundsTable 4: Development Cost Per Smallholder FamilyTable 5: Consulting Services - Cost Breakdown

2. Table 1: PTP XII - Summary Cash Flow StatementTable 2: PTP XXIII - Summary Cash Flow StatementTable 3: PNP XXVIII - Summary Cash Flow Statement

3. List of Machinery, Vehicles and Equipment

4. Start-Up Funds

5. Related Documents and Data Available in Project File

MAPS

1. IBRD 16212 - West Java Sites2. IBRD 16213 - Bengkulu Sites3. IBRD 15636 - Maluku Sites

1. BACKGROUND AND PROJECT AREA

General

1l01 Under its nucleus estates and smallholders development program, theGovernment of Indonesia (GOI) has requested Bank assistance to develop about28,000 ha of tree crops (rubber and coconuts),, food crops and house gardens inWest Java, Bengkulu and Maluku provinces with the public sector estatesPTP XII, PTP XXIII, and PNP XXVIII as development agents. The project wouldimmediately benefit some 8,450 families in the first two provinces and,through estate development in the other, set :he stage for additionalsmallholder investments at a later time. it would also include technicalassistance to the Directorate General of Estai:es (DGE) and the participatingPNP/PTPs.

1.02 GOI identified the project with Bank assistance, and it reflects thenational needs and priorities outlined in the Third Five-Year Plan(Repelita III, April 1979-March 1984). GOI aiad the Bank prepared the project,using feasibility and resource survey studies by PTP XII, PTP XXIII,PNP XXVIII and the consultant firm P.T. Agriconsult International. Thisreport is based on material contained in the above studies, and the findingsof an appraisal mission composed of Messrs. M. Saddington, C. Carlier (Bank),T. Phillips, L. Gullan, P. Durham (Commonwealth Development Corporation), andW. Cooke (consultant), which visited Indonesia in August 1981.

1.03 GOI's major objectives in the agricaltural and rural sectors, andits development strategies, are detailed in thie Staff Appraisal Report of theNucleus Estates and Smallholders V Project, May 6, 1981 (SAR NES V), and wouldnot be described again here. This report also outlines the Bank Group'sagricultural lending strategy, describes the rubber, palm oil and coconutsubsectors, and lists the Bank Group's lending in these subsectors.

The NES Projects

1.04 Recognizing the scarce technical and managerial expertise availablewithin GOI to implement rural development projects, GOI has increasinglysought to use the technical and managerial resources of the public sectorestates to promote and guide smallholder development. The Bank, sinceNovember 1977, has helped finance five nucleus estates and smallholdersprojects. When fully developed, these projects would settle/resettle some49,000 smallholder families, developing for them about 66,000 ha of rubber,27,000 ha of oil palm, 10,000 ha of coconuts, and associated food crop andhouse garden areas. For the nucleus estates, they would develop about44,000 ha of rubber, 18,000 ha of oil palm, and 6,000 ha of coconuts.

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1.05 The first three NES projects are sufficiently advanced to assesstheir effectiveness. Initially, delays in budget preparation and receipt offunds by the nucleus estates, slowed implementation. To resolve this, GOIhas simplified financial procedures with automatic release of funds for thefirst two quarters to the estates. Smallholder and estate plantings are nowon schedule, with the planting or rehabilitation of about 46,900 ha ofrubber, 10,000 ha of oil palm and 3,300 ha of coconuts (Table 1.1). Fielddevelopment is good, with total plantings for NES I, II, and III, already52% completed. The construction of smallholder infrastructure, however, hasbeen less satisfactory and the movement of smallholders to the project areasat times has been behind schedule. At certain locations this causes laborshortages for further project construction and maintenance of tree cropplantings. When building roads, water supplies, village facilities andsettler housing, the central and provincial governments and nucleus estatesneed to carefully plan and coordinate their inputs. To facilitate this, NESIII and IV initiated several changes in project design and organization.The nucleus estates now have greater autonomy in designing and implementingthe smallholder components and this has improved the timeliness of infra-structure construction. The DGE has estabished a special team (Team Khusus)to assist the nucleus estates, particularly with coordinating agenciesengaged in project works. NES IV and V contain funds to commence prepara-tory works for the succeeding projects. These cover key start-up activitiessuch as nursery establishment, access roads, and laborer housing. While allthese activities have considerably helped project implementation, the TeamKhusus needed strengthening to expand and upgrade its project formulation,design and supervision activities. NES V commenced this, and providesconsiderable consultant services to Team Khusus which would enable it givegreater technical assistvnce to the estates in project area selection,project area and village design, tree crop establishment and processingfacility construction. These services would also assist Team Khusus givemore attention to the timely disbursing of project funds, and prepare it toplay a much larger role in the preparation, design and supervision of Bankassisted projects. Despite these problems the DGE has well prepared andimplemented NES projects. It played a key role in preparing the difficult(involving land redistribution) West Java components of NES V and thisproject. Progress with tree crop plantings are now excellent; and disburse-ments, which at end-1980 were 11% of total funds allocated to the first fourprojects, are presently (mid-December 1981) 20% of these loans.

Project Formulation

1.06 This project would be the sixth in the NES series. By using PTP XIIand PTP XXIII to transfer technology to smallholders and settle them on predo-minantly tree crop holdings, it meets the GOI's desire for using the technicaland managerial resources of the public sector estates to promote smallholderdevelopment. It also would intensify land use and farmer productivity in WestJava and Bengkulu, raise smallholder incomes by increasing food crop, rubberand coconut oil production for local and export markets; and assist stop theeroding and degrading of project lands in West Java.

1.07 The project would continue and expaad development commenced underNES V, and further prepare DGE and the public sector estates for future Banksector lending in the NES program. PTP XII would develop smallholder foodand tree crops in relatively highly populated West Java, thus continuing inthis province a program initially commenced unider NES V, while PTP XXIIIwould establish smallholders around the Bengkuilu nucleus estate it currentlyis establishing under NES V. To increase DGE's expertise in preparing andsupervising smallholder infrastructure development, the project wouldprovide technical assistance in road planning and construction to the TeamKhusus, which in turn would make this expertise available to the PNP/PTPs.To help restructure and strengthen the Departtient of Agriculture's estateadministration and support staff (SBPN), it would provide them withtechnical assistance in project preparation anid financial analysis of theestates.

1.08 Using start-up funds NES V provided, PTPs XII, XXIII and PNPXXVIII have already undertaken preparatory works. PTP XII has startedrehabilitating the access road to the Agrabinta estate, while PTP XXIII andPNP XXVIII have established rubber nurseries at Seluma and Seram. Theseactivities would ensure NES VI-s early implementation. The proposed projectalso contains funds for preparatory works for future NES projects.

Location

1.09 The project is located in three provinces, West Java, Bengkulu andMaluku. The West Java component has two adjacent sites, Cikaso andAgrabinta, situated on the West Java south coast some 220 km due south ofJakarta in the districts (kabupatens) of Sukatumi and Cianjur. Both small-holder sites border old PTP XII rubber estates of the same name. PTP XII'sCikaso estate has a leased area of 2,000 ha gross, with a surrounding pro-posed smallholder development area of 3,500 ha gross, while the Agrabintaestate-s leased area is 3,000 ha gross, with a proposed smallholderdevelopment area of 6,400 ha gross.

1.10 The Bengkulu site (gross area 22,000 ha), known as Seluma, liesabout 14-34 km southeast of Bengkulu township along the eastern side of theBengkulu-Manna road. The site, about 20 km long and 6-12 km wide, is situa-ted in kabupatens North and South Bengkulu. The Bengkulu-Curup road is itsnorthern boundary, a protected forest is its eastern boundary, and a locallyfinanced smallholder rubber replanting project near Tumbuan village, itssouthern boundary. The site, which is solely for smallholders, surroundsthe rubber nucleus estate which PTP XXIII is currently establishing underNES V to service the proposed smallholders. The Maluku site is on thesouthern coast of Seram island, lying about 100 km to the north-east ofAmbon, the provincial capital. Its gross area is some 11,000 ha, consistingof several PNP XXVIII concession areas bordering the Gulf of Elpaputik.

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Climate

1.11 The climate at all sites is wet tropical, with generally a short orno dry season. Mean annual rainfall varies from 2,450 mm at Seram to 3,635 mmat Cikaso and Agrabinta. Table 1.2 shows the mean annual rainfall at thevarious sites. In West Java the dry season is normally between May andSeptember, however, the monthly averages at the sites are generally above 200mm for the driest month. Nevertheless extended dry periods (below 60mm/month) of four to five months do occur about once every five years. TheBengkulu site has no pronounced dry season, and only occasionally a monthbelow 150 mm. At the Maluku site, the dry season extends from November toMarch. The amount and annual distribution of rainfall are suitable for theselected crops (rubber, coconuts or food crops) at the different sites.Temperatures are relatively high and uniform year round, and do not limit cropgrowth. Average monthly maximum temperatures vary from 29-310c, and minimumfrom 21-220C.

Table 1.2: MEAN ANNUAL RAINFALL AT SITES(Minimum of ten-year recording)

Cikaso and Agrabinta Seluma SeramRainfall Rain days Rainfall Rain days Rainfall Rain days

Month (mm) (no.) (mm) (no.) (mm) (no.)

January 288 14 304 25 133 9February 204 11 270 13 90 9March 257 13 292 15 155 12April 289 12 292 14 200 12May 277 11 229 11 251 15June 210 10 187 9 400 16July 225 9 175 9 406 19August 205 8 206 10 215 17September 235 9 234 11 202 14October 501 15 357 16 171 11November 574 18 394 17 105 9December 370 17 359 18 124 11

Total 3,635 147 3,299 168 2,452 154

Topography and Soils

1.12 The West Java sites lie adjacent to each other in a narrow coastalstrip some 60 km long, and extending up to 10 km inland from the sea. Theyhave a narrow coastal plain, which quickly becomes undulating to hilly awayfrom the coast, and quite mountainous with many deep ravines further inlandto the north. Several large rivers dissect the sites, flowing from north to

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south into the Indian Ocean, and make access across the area difficult. Thelargest river, the Cibuni, separates the two Cites. The land generally liesat 5-150 m above sea level, and while the Agrebinta or eastern end conta-nsperhaps the larger proportion of flat land, bcoth sites have at least 25% ormore above 35% slope. The sites' topography generally is unsuitable for foodcrops, which should be restricted to the coastal plain, or to small, flatplots on top of the ridges and in the valleys, About two thirds of the areais generally suitable for tree crops. The soils are red yellow mediterraneanand grumosols, consisting of limestone sediments on the hilly to mountainousland, and regosols in the coastal area. They are acidic to neutral, containmedium amounts of nitrogen and potash, but are low in phosphorus. However,with the correct fertilizer inputs they are suitable for tree and food crops.In places the soils are shallow (10-20 cm deep), underlaid by rock. PTP XIIis currently surveying the sites to exclude such small areas from cropdevelopment.

1.13 The Seluma site lies in the narrow area between the western Sumatracoast and the Barisan mountain range. In the west it is flat to undulating(0-15% slopes), with this land form covering up to 40% of the total area,while towards the east it is undulating to hilly (15-40% slopes). Some 50% ofthe site is above 30% slope. The main soils are red-yellow podzolics, brownpodzolics and brown latosols. They are all lc,w in plant nutrients, and highlyacidic. However, with the correct fertilizer inputs, they are suitable forrubber and food crops.

1.14 The Seram site is on the narrow coastal plain and terraces betweenthe island's southern coast and the central Seram mountain range to the north.it is flat to undulating in the north, dissected by three major rivers andmany small streams, all running south. The rivers are fast flowing, risequickly following rain in the moutains and their beds have moved considerablyup and down the coastal plain over time. Site elevation is from sea level to250 m. The soils are silty clay, with some sandy areas near the coast, andhave good potential for coconuts and rubber. Only coconuts would be plantedin sandy areas.

Land Use, Population, Farm Size and Tenure

1.15 West Java. Present land use at the two West Java sites is similarto that described in the NES V SAR (para. 2.0g), that is, a mixture of houselots, rainfed sawah (rainfed, bunded rice fields), upland crops (rainfed rice,corn, cassava, soybean, peanut or vegetables), kebun (small, irregularlyplanted areas of rubber, coconuts, cloves, bamboo, various fruit trees andtimber species), open grasslands and belukar (scrubby regrowth). Table 1.3shows the present estimated land use at the two sites.

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Table 1.3: PRESENT LAND USE: WEST JAVA SITES('000 ha)

House- Rainfed Grass-lots sawah Upland Kebun land Belukar Total

Cikaso 0.2 0.7 0.7 - 3.1 - 3.5Agrabinta 0.4 0.1 1.1 0.3 4.0 0.5 6.4

Total 0.6 0.8 1.8 0.3 7.1 0.5 11.1

Source: Directorate General of Agrarian Affairs (Agraria) land usemaps scale 1:10,000, and village leaders' (lurah) records.

1.16 Farmers usually plant upland crops on sloping areas, which they croponly once every two or three years. The grasslands consist mainly of Imperatacylindrica, a coarse grass of little nutritional value known as alang alang,which quickly takes over areas left fallow. Belukar grows on steep or otherareas which farmers have thinned or cleared for timber or cropping, but thenleft unused or uncropped-for at least five years. The project would establishtree crops mainly on the grassland and upland areas.

1.17 The proposed project areas lie within the boundaries of severallarge villages (two at Cikaso, two at Agrabinta) which themselvesconsist of several hamlets or small groups of houses known as dukuks. Asthere is insufficient suitable land, the project would be unable to developtree crops for every family in each village. Thus the project would treat thedukuk as the basic unit for development, that is, establish tree crops forevery family within each dukuk developed. Existing farms occupy the entiregross area proposed for smallholder development, with some 3,700 separate farmfamilies (about 1,350 families at Cikaso and 2,350 at Agrabinta) operatingthem. Average gross farm sizes are 2.6 ha at Cikaso and 2.7 ha at Agrabinta.Farm size distributions are generally similar to those shown in NES V SAR(para. 2.09, Table 2.3). Except for some 100 ha which farmers own (TanahMilik title), the provincial government owns (Tanah Negara title) the land atthe sites. The lurahs have discretionary control over the government land andcan grant individual farmers the right to cultivate it. The Government,however, can withdraw this right to cultivate at any time, and thus candirect, if necessary, that farmers release this land for the project, or forredistribution to other farmers. The West Java Governor has alienated the*areas proposed for development, and all farmers concerned, including thosewith Tanah Milik titled land, have agreed to enter the project.

1.18 Bengkulu. Secondary forest predominantly covers the Seluma site,particularly in the center and western portion, with grassland or scrubbygrowth adjacent to it and with small patches of wild rubber and coffee spreadthroughout the project area, and upland crops mainly near the villages on

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the eastern boundary. Present land use within the 22,000 ha is approximately100 ha swamp forest, 200 ha rainfed sawah, 1,000 ha kebun, 1,000 ha alangalang, 1,200 ha coffee, 1,300 ha wild rubber, 1,900 ha upland crops, 6,300 hascrubby regrowth and 9,000 ha dryland secondary forest.

1.19 An estimated 2,550 farm families cu:Ltivate or have land rights inthe project area. They are basically shiftingl cultivators, who clear a siteand grow upland crops (mainly rainfed rice) on it for two years. During thefirst year they usually interplant the area with rubber or coffee, which theythen leave until it bears. On average each family is cultivating about 3.0ha, consisting of 1 ha p.a. of upland crops and 2 ha of bearing tree crops,either rubber or coffee, or a mixture of both. Each family has several smallsites around their village, and as they wish -o expand their holdings, theyclear forested land progressively outwards from the village. Table 1.4 givesthe estimated farm size distribution for the area.

Table 1.4: FARM SIZE DISTRIBUTION: BENGKULU

(%)

Farm 3izeLess than More than2.0 ha 2.0-3.0 ha 3.0-8.0 ha 8.0 ha Total

Number of farms 58 24 16 2 100Area 26 29 37 8 100

1.20 The community (margha council) basiaally owns and controls the useof this land. When a family wishes to open naw land, they ask the margha forpermission. Providing they continue to cultivate or occupy that land, theyhave the right to use it and own the produce from it. However, if theyabandon the land for a certain period (6 montAs to 3 years), the right of usereverts to the margha. The Governor has alieaated the area proposed fordevelopment, and provincial and PTP XXIII officials are currently taking acensus of the project area farmers to determine all those with land rights,and make certain, as expected, that all farmers agree to enter the project.

1.21 Maluku. The Seram island site (11,300 ha) is covered by old coconut

plantations (850 ha, over 70 years old) and forest (10,150 ha). The forestconsists of primary and secondary growth, plus some abandoned rubber. Thecoconuts are still producing at a low level. The primary forest contains sometimber of commercial value, while the secondary forest has large amounts ofbamboo but little else of value.

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1.22 The project area lies within old PNP XXVIII concession areas andprovincial government land. The Directorate General of Agrarian Affairs(Agraria) is currently renewing the PNP leases, and alienating additionalareas PNP XXVIII requires for the project. By about end-March 1982 Agrariawould complete its surveys and land title checks, and issue PNP XXVIII withthe right to use this land (Hak Guna Usaha). The issuing of Hak Guna Usaha isa condition of disbursing for the works PNP XXVIII would undertake under theproject. Squatters, from coastal villages bordering the concessions, havecultivated small patches (total about 50 ha) of coconuts, bananas, cocoa andfood crops within the concession areas. While they have no land title they dohave rights under customary (adat) law, and PNP XXVIII would compensate themfor their trees.

Existing Infrastructure and Services in Smallholder Areas

1.23 Existing Infrastructure. Agrabinta and, to a lesser extent, Cikasohave extremely poor access, both into and within the project areas. Thisseverely constrains development of the sites. Except for a small, hand-operated vehicle ferry over the Cikaso river, which limits loads and the flowof vehicles, access to the Cikaso estate is reasonable. However, access toand within the proposed smallholder area is poor to nonexistent. At Agrabintaonly four-wheel drive vehicles can traverse the access road from the kabupatenroad (offtake at Patrol village) to the estate. Access within the smallholderarea is by bike or walking track, and the site is dissected by several largerivers (para. 1.12). Although the sites border each other, it is impossibleto drive directly from one to the other. Because of the sites long, narrowshape, the main access roads must traverse completely each site. Thus thesites would require some 84 km of main access road, and PTP XII has startedconstruction of this (65 km) using start-up funds from NES V. Jakarta,some 160 km away, is the closest major port to the sites.

1.24 PTP XII currently operates old rubber estates at Cikaso andAgrabinta. It recently planted (1978/79-80/81) some 500 ha of tall coconuts(50 ha underplanted with cocoa) at Agrabinta. The project would rehabilitateboth estates, which would then serve as nucleus estates for the proposedsmallholder development.

1.25 A bitumen road connects the Seluma site with Bengkulu, theprovincial capital, and present port. The provincial public works wouldreplace one bridge (25 m long at 22 km marker from Bengkulu) on this roadby December 1983. A bitumen road also connects the site to the new Bengkuluharbor which the province is constructing, and is scheduled to complete byend-1983. The smallholder site presently has no internal road network. PTPXXIII's only other activity in the province is the establishing of a 5,000 harubber nucleus estate (under NES V), which would service the proposed

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smallholder site. PTP XXIII started work on the nucleus estate in late 1980,and has constructed an access road into the site, and is currentlyestablishing 700 ha of rubber. Under start-up funds (from NES V), it also is

establishing 200 ha of rubber for the proposed smallholders.

1.26 In Maluku the Seram island site is isolated. Transport in and outof the area is only by small motor launch. The site has no jetty or wharf,and large equipment or supplies must be unloaded on the beach from landingships (LST vessel, 200 ton). The nearest main port is Amahai, some 50 kmsoutheast around the coast, with a new jetty (1979) capable of handling 2,000ton vessels. The provincial government is presently extending to Seleman, onthe island's north coast, the road running north from Amahai to Makariki (12km). An access road to the project area would off-take from this road some 4km north of Makariki. From there the proposed main estate compound is some 25km to the west. The road contractor has already constructed the road to theproposed project area access off-take, and expects to complete it to Selemanby end-1983. Ambon, the provincial capital, is connected to Amahai by lightplane or passenger ferry. PNP XXVIII has operated the old coconut estates atthe project site since the early 1960s.

1.27 Existing Services: West Java. The project area's two subdistricts(kecamatans) and six villages have some public health, education andagricultural facilities. About half of the villages have health facilities,all have elementary schools (grades 1-6) and two have junior high schools(trades 7-9). Most villages have a local market place, although the kecamatanmarket is at a considerable distance from them all. The two kecamatans haveagricultural extension services, however, only one or two extension staff(usually a field extension worker, PPL) are stationed in each kecamatan, whicheach have in excess of 5,000 farm families. The desired extensionworker/farmer ratio is about 1 PPL/1,600 farmers. Generally the agriculturalservices are concentrated in the sawah areas, with little or no services inthe upland areas, that is, the proposed project areas.

1.28 Existing Services: Bengkulu. Public services in the Seluma siteare similar to those described in West Java. Some villages have healthservices, all have elementary schools, while two have junior high schools.Agricultural extension services are available at the kecamatan level, but theratio of PPLs to farmers is lower than desirable.

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Table 1.1: NES PROJECTS: PROGRESS OF TREE CROP PLANTINGS(End-April 1981)

NES I NES II NES III NES IV NES V Total------------------- (ha) -----------------------

RubberSmallholder - Planned /a 11,500 22,700 28,000 - 37,000 65,900

- Actual 6,750 3,880 3,800 - 0 14,430

Estate - Planned 24,800 3,500 10,790 - 5,000 44,090- Actual 25,600 790 6,060 - 0 32,450

Oil PalmSmallholder - Planned - - - 8,000 19,000 27,000

- Actual - - - 0 0 0

Estate - Planned 5,000 - 5,100 - 7,500 17,600- Actual 5,630 - 4,370 - 0 10,000

CoconutSmallholder - Planned - - - - 9,700 9,700

- Actual - -- - 0 0

Estate - Planned 4,800 - - - 700 5,500- Actual 3,300 - - - 0 3,300

SubtotalSmallholder - Planned 11,500 22,700 28,000 8,000 32,400 102,600

- Actual 6,750 3,880 3,800 0 0 14,430(Percentage completed) (59) (17) (14) (0) (0) (14)

Estate - Planned 34,600 3,500 15,890 - 13,200 67,190- Actual 34,530 790 10,430 - 0 45,750

(Percentage completed) (99) (23) (66) - (0) (68)

Total- Planned 46,100 26,200 43,890 8,000 45,600 169,700- Actual 41,280 4,670 14,230 0 0 60,180

(Percentage completed) (90) (18) (32) (0) (0) (35)

/a As proposed in the NES projects.

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THE PROJECT

2.01 This project is the sixth in the Bank assisted NES series, andwould continue GOI's smallholder development Frogram using public sectorestates to establish nucleus estate and smallholder tree crops andinfrastructure. It would also assist the program's future expansion byrehabilitating and upgrading an existing estate which would eventuallypromote future smallholder development. The project would establish orrehabilitate some 17,000 ha of rubber and 9,5CO ha of coconuts (11,500 forthe estates and 15,000 ha for smallholders) and provide processingfacilities, in the provinces of West Java, Ber.gkulu and Maluku; resettlesome 8,450 families in West Java and Benkulu; and rehabilitate and expandPNP XXVIII, an estate in Maluku. The project would provide technicalassistance to DGE and the public estates.

Project Works

2.02 The proposed project would include:

A. West Java - PTP XII at Cikaso and AErabinta

(a) Nucleus Estate Development

(i) planting about 1,170 ha of rubber at Cikaso and 970 ha ofrubber and 500 ha of coconuts at Agrabinta, rehabilitatingabout 600 ha rubber at Cikaso and 770 ha of rubber and480 ha coconuts at Agrabinta;

(ii) constructing estate housing and buildings at bothsites,

(iii) constructing about 30 km of collection roads (13 km atCikaso, 17 km at Agrabinta), rehabilitating some 60 km ofcollection roads (24 km at Cikacso, 36 km at Agrabinta) and160 km of farm tracks (70 km at Cikaso and 90 km atAgrabinta);

(iv) rehabilitating a rubber factory at Cikaso (8 ton/day) andAgrabinta (9 ton/day), and conEtructing copra preparationfacilities on both sites and a copra processing factoryat Agrabinta (2 ton/hour); and

(v) procuring vehicles, road construction and agriculturalequipment and machinery.

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(b) Smallholder Development

(i) planting about 2,000 ha coconuts for about 1,350 smallhold-ers at Cikaso and about 3,500 ha coconuts for about 2,350smallholders at Agrabinta;

(ii) developing about 600 ha for house gardens and food cropsat Cikaso (200 ha) and Agrabinta (400 ha);

(iii) building housing with sanitation and water supply, and thenecessary village infrastructure, for about 400 families atCikaso and 800 families at Agrabinta, and rehabilitating(including completely rebuilding some houses) houses for some580 families at Cikaso and 1,000 families at Agrabinta;

(iv) constructing about 21 km of principal access road, about100 km of village roads and 150 km of farm tracks;

(v) providing at both sites seeds, fertilizer and pesticideswhich the smallholders can purchase for their food cropareas, and cash payments of Rp 110,000 to families movedonto new house lots for seeds, seedlings fertilizers andpesticides (Rp 55,000), and subsistence (Rp 55,000); and

(vi) procuring road construction and agricultural machinery andequipment for both sites.

B. Bengkulu - PTP XXIII at Seluma

(a) Nucleus Estate Development

(i) constructing estate housing and buildings and procuringestate vehicles needed for managing smallholder development.

(b) Smallholder Development

(i) planting about 9,500 ha rubber for about 4,750 smallholders,and developing about another 1,100 ha for house gardens andfoodcrops;

(ii) resettling about 3,400 families from Bengkulu, and buildingfor them housing with sanitation and water supply, thenecessary village infrastructure, and rehabilitating about650 houses for existing smallholders;

(iii) constructing about 120 km of village roads and about 285 kmof farm tracks; and

(iv) providing at the site seeds, fertilizer and pesticides whichthe smallholders can purchase for their food crops, and

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distributing to families moved onto new house blocks aninitial package of food crop and vegetable seeds, perennialseedlings, fertilizer and pesticides, plus an initialRp 55,000 cash payment for subsistence.

(v) procuring road construction and agricultural machinery andequipment.

C. Maluku - PNP XXVIII at Seram Island

Estate Development

(i) planting about 4,000 ha of rubber and 3,000 ha of coconuts,and constructing estate housing, buildings and about 40 kmof main access, 80 km of collection roads and 240 m ofbridgeworks; and

(ii) constructing a 40 ton/day rubber factory, copra preparationfacilities and processing factory (1 ton/hour).

(iii) procuring road construction and agricultural machinery andequipment.

D. Technical Assistance and Program Support

(i) providing consultant services tD assist Team Khusus and theestates to implement the project and identify and preparefuture projects;

(ii) providing consultant services tD help strengthen SBPN, toprepare sugar projects in the Other Islands, and tostrengthen staff training for sagar production; and

(iii) providing funds for start-up activities, including planning;nursery and field development; and construction of houses,buildings and roads for future Bank-assisted tree cropprojects.

Agriculture Development

2.03 West Java. All project land would be free from title or compen-sation disputes, and available for redistribution. At each site PTP XIIwould pool the land suitable for tree crop planting into blocks of at least50 ha, and up to 500 ha. Suitability would depend on slope and present orpotential land use. Because of harvesting difficulties on land too steep,the estate would plant coconuts up to about 30% slope and estate rubberup to about 35% slope. Existing irrigated or rainfed sawahs and suitableflat areas required for villages, houses and gardens or foodcrops would notbe planted to tree crops. Each settler family would receive 1.5 ha of blockplanted coconuts. The project would redistribate project area lands so thateach settler family would be left with at least 0.5 ha for their house,

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garden and food crops. Any families moved into a new village area, inaddition to the 1.5 ha of coconuts, would also receive a cleared 0.5 ha fortheir house and garden (0.2 ha) and food crops (0.3 ha). PTP XII wouldprovide these settlers with a Rp 110,000 (US$178) cash payment for subsis-tence (Rp 55,000), and to purchase (Rp 55,000) seedlings for the garden,

vegetable and food crop seeds and fertilizer and pesticides. At each sitePTP XII would make available seeds, fertilizer and pesticides which thesmallholders could purchase annually for their gardens and food crops. Sofar at NES V West Java sites the smallholders have used these funds toimprove their gardens and food crops. PTP XII would maintain and fertilize

the block planted coconuts until they come into bearing and were transferredto the smallholders. At this stage (fifth year after planting) PTP XIIwould provide tree crop extension services, fertilizers and agrochemicals,collection, processing and marketing services for the smallholders. Thesmallholders would finance these services (para. 3.13). The existingkecamatan agricultural services would provide food crop extension services.

2.04 Bengkulu. As in West Java all project land would be free fromtitle or compensation disputes, and available for redistribution. Eachexisting settler family would receive 2.0 ha block planted rubber, andat least another 1.0 ha of which 0.5 ha would be suitable for their house,garden and foodcrops. If possible the remaining 0.5 ha could include anycoffee, cloves or kebun areas the settlers consider too valuable todemolish. New settler families would receive 3.0 ha, of which 2.0 ha wouldbe -uiltable for rubber, 0.5 ha for house, garden and foodcrops, and theremaining 0.5 ha for either food or tree crops. PTP XXIII would clear 2.5ha per family, block planting 2.0 ha with rubber and leaving 0.5 ha for thehouse, garden and food crops. The estate would maintain and fertilizer therubber until maturity in the sixth year after planting when the smallholderbecomes responsible for it. PTP XXIII would supply each family resettledwith an initial package of seedlings, seeds, fertilizers and pesticides forthe garden and the food crops. After the smallholders take control of theirrubber, PTP XKIII would provide tree crop extension services, collection,processing and marketing services, and make available seeds, fertilizers andpesticides which the smallholder can purchase for both his tree and foodcrops. The local kecamatan agricultural services would supply food cropextension services.

2.05 Maluku. PNP XXVIII would establish a 4,000 ha rubber estate onthe proposed site's western end, on the eastern end, and possibly oncoastal areas, it would establish a 3,000 ha coconut estate. As theirexisting operations include only some 600 ha of rubber, 3,300 ha of coconutsand 1,100 ha of nutmeg on scattered sites, along with a proposed oil palmdevelopment in Sulawesi, the proposed plantings would become one of itslargest and most important production areas.

Physical Development-

2.06 Land Clearing and Planting. Using the prospective settlers andother labor, the estates would manually clear the sites. They would usechainsaws on trees, regrowth or bush, and weedicides on small brushes and

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alang-alang. They would poison old rubber treas, preferably in the yearbefore land clearing. If that is impossible, they would poison the stumps,and any regrowth. To facilitate the burning of felled timber, the estateswould clear mainly during the dry season (April to September in West Javaand Bengkulu, November to February in Maluku). They would first underbrushthe area, then fell all trees, leaving them for six to eight weeks to drywhere cut down, preferably in a north-south direction. After the firstburning, the estates would chainsaw the remaining timber of about 15 cm orless in girth, stack this around stumps and larger logs, and reburn thearea, concurrently spraying with weedicide any alang-alang or other weeds.They would then manually plant the cover crop, line the tree rows, dorequired terracing, and dig the pits for the trees. Finally, during the wetseason, they would plant the tree crops.

2.07 In Maluku the existing labor is insufficient and unskilled inplanting rubber. PNP XXVIII would arrange with one of the Javanese provin-cial governments for families skilled in rubber estate work to transmigrateto Maluku as estate labor. Additionally, when clearing the existing coconutareas, PNP XXVIII would cut the tree trunks into sections and stack toensure they burn completely. To prevent cocorut beetle breeding, it wouldquickly plant the cover crop and ensure it covers stumps left in the field.

2.08 Nurseries. The, estates should establish nurseries about twelvemonths before planting. In West Java, using start-up funds from NES V,PTP XII would establish rubber and coconut nurseries during the 1981-82 wetseason. PTP XXIII and PNP XXVIII have both established nurseries andcommenced planting at Seluma and Seram during the 1981-82 wet season (PTPXXIII, 200 ha smallholder rubber; PNP XXVIII 400 ha rubber, 250 hacoconuts). They used NES V start-up funds, antd would continue to use thesefunds for nursery production for 1982-83 plantings, the first fieldplantings the proposed project would finance.

2.09 Road Construction. The estates wouLd establish a network ofaccess, collection and village roads throughout the proposed sites, and anetwork of estate or farm tracks through the -:lantations. Project roads,which would complement the existing provinciaL and kabupaten roads, havethree basic designs. Firstly, principal access roads (Department of PublicWorks Class III Standard), which would connec-: the project area, factory andmain offices with the nearest provincial road; secondly, primary collectionand village roads which would connect the estate divisions and all villageswith a principal access road, and year round would allow heavy loads to betransported to and from the estate divisions and villages to the processingfacilities; and thirdly, estate or farm tracks which would allow infieldproduce collection and input distribution to within some 300 m of any treecrops or cultivated area. The project would require about 25 m of thesetracks per ha of tree crops on undulating land and 30 m per ha in more hillyareas. These tracks would also serve as streets or secondary village roadswithin the smallholder villages. As far as pDssible all roads would followground contours to reduce gradients and earthworks to a minimum. All

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estate and farm tracks would be surfaced with a minimal thickness of gravelto ensure their use during the wet season when agricultural activity isgenerally at its peak. Table 2.1 lists the road design standards, which areDirectorate General of Highways (Bina Margha) standard designs.

2.10 The project would construct a total of about 61 km of principalaccess road, 250 km of primary collection or village road, 680 km of estateor farm track and 80 km of secondary village road. It would alsorehabilitate about 60 km of primary collection road and 160 km of estatetrack. Except for bridgeworks the estates would construct the roads andtracks by force account. Using funds from NES V, both PTP XII and PTP XXIIIalready have commenced constructing (by contract) the access roads to theirrespective sites, that is, PTP XII to Cikaso and Agrabinta (65 km) and PTPXXIII to its nucleus estate at Seluma (8 km). This latter road would alsoservice the proposed smallholders. The estates would locally recruitconsultants to assist survey road alignments, design the cross-section andsupervise construction. Table 2.2 shows each estates' proposed estimatedroad construction by length and type. The estates would ensure that theirmachinery suppliers train the estate road construction staff in theappropriate use of the purchased machinery. An assurance was obtainedfrom GOI that PTP XII, XXIII and PNPXXVIII would hire consultants, underterms and conditions acceptable to the Bank, to assist survey, design andsupervise construction of the road works (see para. 2.25).

9.11 Housing, and Sanitary Facilities. In West Java and BengkuluPTP XII and PTP XXIII would construct (mainly by contract) about 4,600 small-holder houses (1,200 in West Java, 3,400 in Bengkulu) and rehabilitateanother 2,230 (1,580 in West Java, and 650 in Bengkulu). Besides buildingnew villages, PTP XII and PTP XXIII would replace any substandard houses ofexisting settlers. The basic house would be about 36 sq m including anenclosed kitchen (3 sq m) and adjacent porch (3 sq m) attached to the backof the house. The house would be of timber, or steel and prefabricatedmaterials, with either a tiled or galvanised iron roof. Wherever possiblethe estates would use locally available materials, and generate the maximumpossible local employment. Within each site the house lots and housingunits would be modular and of uniform design. On each house plot theestates would construct pit latrines at a minimum 15 m from the house andpotable water supply. The houses would be ready before the smallholdersarrive. The estates would locally recruit consultants to assist design thevillage, food crop and garden layouts and supervise construction. For PTPXII and PTP XXIII, these consultants would also assist with road design(para. 2.10). An assurance was obtained from GOI that PTP XII and PTPXXIII, under terms and conditions acceptable to the Bank would hire theseconsultants (see para. 2.25). Using standard estate designs, the estatesalso would construct housing for their management and permanent field staff.

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Table 2.1: ROAD DESIGN STANDARDS

Primary Estate/farmPrincipal collection track oraccess or village 2nd village

Design detail (Class III)/a (Class VI) (Class VII)

Geometric /bDesign speed (km/h) 60-40-30 /, 30 -Maximum gradient (%) 6-8-12 6 12Right-of-way (m) 20 10.0 8.0Formation width (m) 5.0-8.0 6.0 3.0Pavement width (m) 3.5-6.0 4.0 -

StructuresBridge width (m) 4.5 /d 4.0 4.0Loading /eCulvertsTf

PavementDesign wheel load (kg) 5,000 4,000 1,000Compaction (% AASHO) 95 95 90Pavement thickness (cm) /g 15 8Compaction subgrade (% AASHO) 90 90 90

/a Directorate General of Highways, Department of Public Works (BinaMargha) standard class number.

/b Pavement to be designed in accordance with Bina Margha guidelines forflexible pavement design No. 04/PD/BM/1974.

/c Flat-rolling-mountainous terrain, Bina Mar,gha standard specificationsNo. 13/1970.

/d 4.5 m per single lane.

/e Structures to be designed in accordance with Bina Margha LoadingSpecifications for Highway Bridges No. 12/L970.

/f Minimum culvert width is 5.0 m.

/g Depending on design speed.

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Table 2.2: PROJECT ROAD CONSTRUCTION(km)

PrimaryPrincipal collection Estate/farm Secondaryaccess or village track village

(Class III) /a (Class VI) (Class VII) (Class VII)

West JavaPTP XIIConstruction (NE) /b - 30 70 -

(SH) 7c 21 70 150 30Rehabilitation (NE) - 60 160 -

BengkuluPTP XXIII

Construction (SH) - 70 285 50

MalukuPTP XXVIIIConstruction (Estate) 40 80 175 _

TotalConstruction 60 250 680 80Rehabilitation - 60 160

-~~~-

/a Bina Margha standard class number.

/b NE, nucleus estate.

/c SH, smallholders.

2.12 Water Supply. At the West Java sites existing settlers obtainpotable water from small streams or shallow wells (1-3 m deep). Usuallythese sources are adequate for year round water supplies, and PTP XII woulddig and equip a well for each new house lot. Equipping consists of aconcrete apron and raised ring (about 0.5 m) around the well top and astructure for a rope and pulley. At Seluma local settlers also obtainpotable water from rivers, streams or wells (5-8 m deep). PTP XXIII woulddig and equip a well, or construct some other suitable water source, foreach new house lot for year-round water supply.

2.13 Village Infrastructure. Settlement planning and village designare related to traditional community living patterns and the physicalfactors of topography, water supply and access. Generally the villageswould be about 200 families, consisting of a number of small groups or

19 -

blocks (25-30 households) arranged around a v[llage center with communityfacilities. The villages would be constructeil on flat to gently undulatingland preferably with suitable underground waters The settlers' food cropareas would be adjacent to their house lots and ideally within 0.5 km fromthem. The community facilities usually include a village office, communityhall, elementary school, place of worship, market, sports ground and,depending on village size and location, a sub--health center (sub-puskesmas).Houses would also be constructed for the educational and health staff.Allowing 0.2 ha per house lot and 0.1 ha per Eamily for community areas,roads footpaths and waste land, the estates would clear some 0.3 ha/family or60 ha gross/village. They would also clear all estimated 70 ha gross/villagefor the 0.3 ha per family food crop area. Besides these areas, the estateshould allocate each village some 0.5-0.75 ha gross per family reserve landfor a graveyard, fuel wood reserve and community grazing land. The estateswould construct all the village infrastructure except the health andeducation facilities which the Provincial Coordinating Committee (PCC) wouldconstruct, using central government funds for local infrastructuredevelopment programs (INPRES). In West Java }'TP XII would construct aboutsix villages (two in Cikaso and four in Agrab:Lnta). These are required tosettle farmers near to their proposed tree crop plantings. In Bengkulu PTPXXIII would construct some 15 villages, of wh:.ch one would be a mainvillage, containing additional public buildings and services, forexample, a bank, post office, health center (puskesmas) and lower secondaryschool. Table 2.3 shows the proposed village infrastructure by site.

2.14 Processing Facilities. At each site the estates would have orwould construct sufficient processing capacity to handle their own and thesmallholder's production. Table 2.4 gives details by site of estimatedproduction and installed processing capacity. Under the project, PNP XXVIIIwould install the total required processing capacity for rubber at Seram, asconstructing by stages would give only minimal savings. Only about Rp 6.4million or 4% of the total expenditures could be delayed. However, at allother areas the estates would install processing capacity by stages, and,unider the project, install sufficient capacity to handle production up toaround 1990. At Cikaso and Agrabinta PTP XII would rehabilitate two existingrubber factories in three stages, the first itL 1982, the second in 1987, andthe third in 1991. The project would finance the first two stages. PTP XIIwould also construct a coconut oil extraction factory at Agrabinta to be inoperation by end-1986. This would initially Ihave a single 1.0 ton/hour screwpress, and eventually by 1995, five such presses (plus stand--by capacity),working three shifts per day. The project wouLld finance two of the presses,which in 1990 would start working three shifts per day. Additionally, PTPXII would construct two copra preparation facilities, one at each site.Each facility would have an initial copra proc.uction capacity of 2 tons/hourwhich would be sufficient up to 1990, when it .would be doubled.

2.15 At Seluma, under NES V, PTP XXIII woWuld install a 40 ton/dayrubber factory. This could cope with the nucleus estate and smallholderproduction up to 1990. Eventually PTP XXIII wrould build a second factory,sited in the smallholder area, to handle the mtaximum production.

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Table 2.3: VILLAGE INFRASTRUCTURE

Floor Totalarea Unit cost cost Number of units

Item (sq m) (Rp'000/sq m) (Rp mln) Cikaso Agrabinta Seluma

Village office 36 60 2.2 2 4 14Village office 108 60 6.5 - - 1Community hall 48 50 2.4 2 4 14Community hall 135 50 6.8 - - 1

Mosque 100 50 5.0 - - 2Mushalla 50 50 2.5 2 4 13Market 100 50 5.0 1 - 7Bank 36 60 2.2 - - 1Bank houses 36 85 3.1 - - 4Sports ground 1.5 ha -/a - 2 4 15Post office 54 50 2.7 - - 1Post office houses 50 85 4.3 - - 3Primary school 320 90 28.8 2 4 15Junior high school 1,000 90 90.0 - - 1Teacher houses 50 85 4.3 6 12 48Health center 250 85 21.3 - - 1Subhealth center 80 85 6.8 1 1 8Warehouse 40 45 1.8 2 4 14Warehouse 54 45 2.4 - - 1

Settler housesNew house /b 36 20 0.72 650 1,200 3,400Well - 30 0.03 650 1,200 3,400Latrine - 25 0.02 650 1,200 3,400Rehabilitatedhouse 36 10 0.36 330 600 650

/a The sports ground would be cleared only, this being done during generalclearing of the village.

/b At Cikaso and Agrabinta the new houses include some existing houses whichwould be completely rebuilt, that is, complete rebuilding is necessary forrehabilitation.

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Table 2.4: CROP PROCESSING: INSTALLED CAPACITY

InstalledEstimated processing capacity

Commodity Production /a under maximumSite Crop processed 1987/b 1990 Peak project required

Cikaso Rubber L & S /c 3.8 5.6 12.0 6.0 12.0(ton/day)

Agrabinta Rubber L & S 2.9 5.2 13.1 6.0 13.0(ton/day)

Coconut/d Copra 1.0 2.1 4.2 2.0 5.0(ton/hour)

Seluma Rubber L & S 2.2 32.4 114.1 40.0/e 100.0(ton/day)

Seram Rubber L & S 1.2 12.0 40.0 40.0 40.0(ton/day)

Coconut/d Copra 0.3 1.3 2.5 1.0 3.0(ton/hour)

/a Where relevant estimated daily production includes nucleus estate andsmallholders.

/b Final year of project implementation.7-c L&S refers to latex and slab./d PTP XII and PNP XXVIII would install central copra preparation

facilities to dry the coconut meat./e To be provided under NES V.

2.16 At Seram PNP XXVIII would install a coconut oil extraction factory,which would be operating by end-1987. It would initially have a single1 ton/hour screw press, and eventually (1994) three such presses (plusstand-by capacity), operating three shifts per day. The project wouldfinance the one press stage of the factory, plus a 2 ton/hour coprapreparation facility and a small bulking depot near the Amahai wharf forstorage of coconut oil and copra cake before shipment to markets.

2.17 At all sites, if requested by GOI,, the completion of requiredprocessing capacity could be considered for Bank financing under subsequentloans. The rubber factory costs have been estimated to allow either 100%crumb rubber production or a mixture of crumib and sheet rubber. The estates

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would be responsible for installing, operating and maintaining all proces-sing facilities. The project provides, however, for consultant assistanceto design, prepare specifications and tender documents, assist evaluatetenders received and supervise construction of the project rubber andcoconut oil processing facilities. PTP XII and PNP XXVIII would constructtheir coconut oil extraction factories using at least two main contracts:(a) civil works plus buildings (design, supply and construct); and (b) plantand equipment (supply, erect and commission). These factories would takeabout 42 months from the appointment of engineering consultants tocommissioning. Assurances were obtained from GOI that: (a) PTP XII and PNPXXVIII would hire consultants for the above mentioned work withqualifications and under terms and conditions acceptable to the Bank (para.2.25); (b) PTP XII would complete its coconut oil extraction factory byDecember 31, 1986, and PNP XXVIII by December 31, 1987; and (c) if the PTPXII mill is not in operation by the stated date, PTP XII would purchase fromsmallholders at an appropriate price any coconut production offered forsale after December 31, 1986.

Settlement and Community Development

2.18 Recruitment and Selection. In West Java the smallholders wouldcome from those presently cultivating project lands either as owners orrenters of private land (Tanah Milik), or as leasers or squatters on govern-ment land (Tanah Negara). The Provincial Government has already made acensus of all cultivators within the proposed sites and currently is obtainingland owners agreement to give title to the project of the land requiredfor project purposes. Those leasing or squatting on government land havealso given to the project any rights to the areas they are cultivating.Although existing right holders would become project beneficiaries, theywould not necessarily receive back under the project the same amount ofland they had pre-project. In allocating project lands, preference would begiven to small farmers or the landless. Farmers who own or cultivate landboth outside and inside the project area may have to give their rights to aproject block to a-married child. In particular, families from Cikaso wouldbe ineligible to enter the project who, besides land in the project area,own 1.0 ha or more within a sawah area, adjacent to the project area, wherethe provincial government proposes to construct future irrigationfacilities. Cultivators from blocks or dukuhs which have insufficientsuitable land to allow each existing cultivator a tree crop block would begiven the opportunity to move to another block with excess land. Allproject beneficiaries would have to live within the project boundaries, andmay have to move to a project village. Beneficiaries would be marriedcouples, aged 20 to 60 years, with possible exceptions to this age limit forexisting settlers. Those between 40 and 60 years should have children. ThePCC and project manager would select the smallholders to enter the project.

2.19 In Bengkulu the smallholders would be all those with cultivationrights within the project area, and the inhabitants of several trans-migration settlements adjacent to the site (total some 2,550 families).After these groups, small farmers (3.0 ha or less) from the project

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kecamatans and kabupatens would have priority. The Bengkulu PCC wouldselect the additional smallholders, and with PTP XXIII, transport them tothe site. The PCC also is presently takirg a census of those with culti-vators- rights within the project area to obtain their agreement to enteringthe project and giving to the project title of the required land.

2.20 PTP XII and PNP XXVIII would hire one member of each smallholderfamily as a permanent estate laborer, and guarantee him or her a permanentjob until the estates hand over to the smallholder family the operation ofits individual holding. The estates would hire prospective coconut small-holders for four years and prospective rubber smallholders for five years.The estates would train the smallholders :Ln planting and maintenance ofimmature trees, and harvesting and maintenance of mature trees. At SelumaPTP XXIII would plant about 50 ha of rubber as a tapping training area forsmallholders. It also would establish other required facilities to runabout a one-week residential course in tree tapping and care. PTP XXIIIwould train at least two members from eaclh smallholder family. To obtaincontrol of their holdings the smallholders must prove themselves satisfac-tory estate laborers/trainees and willing to work and live on their treecrop holdings.

2.21 Land Allocation. In West Java *:he PCC, in association with theDirectorate General of Agrarian Affairs (DGA), where necessary would provideall families with the right of use title 'hak pakai) to 0.5 ha for house,garden and food crops within one year of ?roject works commencement in thearea. In Bengkulu the PCC, also in assocLation with DGA, would provide allsmallholders with hak pakai to 1.0 ha (house lot of 0.2 ha, food crop 0.3 ha,remaining 0.5 ha suitable for either food crops or tree crops) within oneyear of their arrival. If appropriate, the PCC and DGA would also providethis for existing settlers. At all sites the PCCs and DGA would provide thesmallholders judged satisfactory settlers with land ownership title (hakmilik) to their entire holding within three years after settlement. The BankRakyat Indonesia (BRI) however, would retain the hak milik certificates assecurity until the smallholders repay their debt incurred under the project.The provincial and kabupaten DGA would do the cadastral survey necessary todefine each smallholder-s holding. Each smallholder would receive a treecrop block fully planted with the appropriate number of trees. An assurancewas obtained from GOI that each qualifying smallholder would receive withinthree years after settlement hak milik to 1.5 ha of planted tree crops inWest Java and 2.0 ha of planted tree crops in Bengkulu and in each case anadditional area for house lot, garden and food crops to give a total ofabout 2.0 ha in West Java and 3.0 ha in Bengkulu.

2.22 Subsistence. In West Java and Bengkulu each family moved onto anew house lot and food crop area would receive Rp 55,000 (US$88) initialcash payment for food and transportation before arrival at the projectsite. this would be in addition to Rp 55,000 for the purchase of inputs(para. 2.02-2.03).

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2.23 Health. The West Java and Bengkulu provincial governments,through their PCCs and using INPRES funds, would provide health care facili-ties to Repelita III standards in the project areas. In Java these stand-ards are one puskesmas (one building 80 sq m, doctors's house 70 sq m, twostaff houses each 50 sq m) per 30-40,000 people and one sub-puskesmas (onebuilding 30 sq m, one staff house 50 sq m) per 5,000 people, and in theOther Islands (includes Sumatra) one puskesmas per 15-15,000 people and onesubpuskesmas per 1-2,000. At both Cikaso and Agrabinta the PCCs wouldconstruct one sub-puskesmas, and at Seluma one puskesmas and five sub-puskesmas. The provincial health authorities would staff and operate thecenters. Health services, with a primary health care approach, would focuson malaria control, immunization, nutrition, family planning and environ-mental sanitation. Malaria control would include house spraying, malario-metric surveys and treatment.

2.24 Education. Using INPRES funds the West Java and Bengkulu PCCs,in association with the Ministry of Home Affairs, would be responsible forconstructing an elementary school (grades 1 to 6) in each new village (6 inWest Java, 10 in Bengkulu). The project would provide funds for one lowersecondary school (SMP, grades 7 to 9) in Bengkulu. The Directorate Generalof education would construct the lower secondary school, and be responsiblefor staffing all schools.

Technical Assistance and Program Support

2.25 To help the DGE and individual estates implement the project,the DGE in its overall smallholder development programs, strengthen SBPNand prepare sugar projects in the Other Islands, the project would providethe following consultant services:

(a) DGE would:

(i) internationally recruit one civil engineer (with considerableexperience in road construction) to be attached to the TeamKhusus for two years. His contract would be signed, and hewould be ready to start work by September 1, 1982. He wouldcoordinate and supervise: (a) any road survey and design theestates undertake, using consultants or their own staff, forsmallholder project preparation, appraisal and implementa-tion; and (b) any subsequent road construction the estatesundertake, by force account or contract;

(ii) internationally recruit a rubber processing engineer to beattached to Team Khusus for two years. He would assist theestates with the design, preparation of tender documents,evaluation of tenders received and supervision of construc-tion of rubber mills (contract to be signed by July 1, 1983);

(iii) internationally or locally recruit appropriate short-termconsultants for Team Khusus to assist with the preparation of

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future projects, and the implementation of this or otherongoing projects, particularly with PNP XXVIIITs component atSeram (24 man-months);

(iv) internationally recruit consultants for SBPN to plan, designand help supervise implementation of sugar projects in theOther Islands. SBPN is currently evaluating proposals forthis work, which would be financed by funds from NES V andfrom this project (178 man-morLths, contract to be signed byJanuary 1, 1983); and

(v) internationally recruit a fina,ncial analyst and a land useplanner experienced in tropiccl tree crop development, eachto be attached to SBPN for two years. Both experts wouldlead groups within SBPN which would advise and assist theestates in development planning. The financial analyst'sgroup would review each estate-s financial resources annuallyand would advise on the amount: of development the estatescould finance and the type and source of funds the estateshould employ. The land use planner's group would collectall existing pertinent resource data (land use maps, topo-graphical maps, soil surveys, climate and so on) and wouldidentify areas with potential for tree crop development.Taking account of GOI s long-range regional planning, socio-economic data, existing infrastructure and services, it wouldestablish priorities for further investigations and projectpreparation in such areas. This group would closely coord-inate with Team Khusus project preparation group. (48 man-months, contracts to be signed by August 1, 1982). SBPN wouldform two other groups to work on commodity marketing andinspection services. Using funds already available under NESI DGE would internationally recruit consultants to lead thesetwo groups;

(b) PTP XII would:

(i) internationally recruit consuLtants to design, prepare tenderdocuments and specifications, assist evaluatetenders received, and supervise construction of the proposedcopra preparation facilities and oil extraction mill atCikaso and and Agrabinta (32 man-months, contract signed byJanuary 1, 1984);

(ii) locally recruit consultants to survey, site, design, and wherenecessary supervise construction of the smallholder villages,food crop area layout and project roads (196 man-monthsconsisting of 36 man-months for village design and 160 man-months for road design and construction, contract signed byAugust 1, 1982);

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(c) PTP XXIII would:

(i) internationally recruit an agriculturalist experienced inrubber and oil palm establishment (24 man-months, contractsigned by September 1, 1982) to assist with the implementationin Bengkulu province of PTP XXIII's development program;

(ii) locally recruit consultants to survey, site, design, and wherenecessary supervise construction of smallholder villages, foodcrop areas, and project roads (136 man-months consisting of 60man-months for village design and 76 man-months for road designand construction, contract to be signed by August 1, 1982); and

(d) PNP XXVIII would:

(i) internationally recruit a financial expert to assist with thefinancial management of the estate and training of counterparts(24 man-months, contract to be signed by September 1, 1982,plus an additional 12 months for short-term follow-ups);

(ii) internationally recruit consultants to design, prepare tenderdocuments and specifications, assist evaluate tenders received,and supervise construction of the proposed copra preparationfacilities and oil extraction mill at the Seram site and copraand coconut oil bulking depot at Amahai (30 man-months,contract to be signed by January 1, 1985);

(iii) locally recruit consultants to survey, site, design andsupervise construction of project area roads (130 man-months,contract to be signed by August 1, 1982).

2.26 Table 2.5 lists the required consulting services and their basecost. An assurance was obtained from GOI that the agencies would have signedcontracts and finalized arrangements for engaging consultants withqualifications and under terms and conditions acceptable to the Bank by thedates specified in para. 2.25 and Table 2.5.

Status of Engineering

2.27 Topographical maps at 1:25,000 scale exist for Cikaso and Agrabinta,and 1:100,000 scale for Seluma and Seram showing height contours and drainagepatterns. DGA has prepared (May 1980) 1:10,000 scale present land use mapsfor Cikaso and Agrabinta, while PTP XXIII-s consultants have completed recentfield surveys (May 1981) of Seluma, checking on present land use. Sufficientsoils information is available for the sites except at Cikaso and Agrabintawhere PTP XII is currently checking on soil depth to exclude areas of shallowsoils. PTP XXIII has already excluded some 1,500 ha at Seluma because ofrocky outcrops. While more detailed work is not required to furtherdelineate shallow soils here, PTP XXIII would watch for them during landclearing, and if encountered would exclude them. All estates have either

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Table 2.5: CONSULTING SERVICES

Consultants CostInternat. Locally Internat. Locallyrecruited recruited recruited recruited Total--- (man-months) --- ------ (US$ million) ------

DGE (for SBPN) 226 0 2.7 0 2.7

Project implementation,road engineer, rubberprocessing engineer,agriculturalist,financial expert (DGE,PTP XXIII, PNP XXVIII) 132 0 1.6 0 1.6

Design, supervise con-struction coconut oilprocessing facilities(PTP XII, PNP XXVIII) 62 0 0.7 0 0.7

Design, supervise con-struction villagesroads (PTP XII,PTP XXIII, PNP XXVIII 0 462 0 1.2 1.2

Total 420 462 5.0 1.2 6.2

established or selected the sites for nurseries to supply the initial year'splantings, and PTP XXIII and PNP XXVIII are presently defining the boundariesfor the first year's land clearing. PTP XXIII and PNP XXVIII have preparedoutline plans, presented on existing topopgraphic maps, showing project layoutand preliminary road alignments. PTP XII is currently undertaking atopographic, soil and vegetation survey for outline planning. Standarddesigns and specifications exist for all smallholder and estate housing,buildings, village infrastructure and roads. When the estates have clearedthe sites, to assist detailed planning, they would produce 1:10,000 basictopographical maps with five meter contour intervals for at least the villageand food crops areas and project road alignments.

Implementation Schedule

2.28 GOI would fully implement the project over 12 years, that is, fromestablishing the first nurseries till the last blocks of trees planted com-mence bearing. The proposed project would assist with implementation overfive years, from mid-1982 till mid-1987. During the first 24 months the

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activities most crucial to project implementation would be access road con-struction at PTP XII; land clearing and estate housing and buildings at PTPXXIII; and estate housing, labor recruitment from Java, and procurement ofinitial road construction and agricultural equipment at PNP XXVIII. Usingstart-up funds from NES V, the estates have already commenced most of thesecrucial tasks.

Cost Estimates

2.29 Total estimated project cost over 12 years is US$250 million. TheBank and CDC would assist finance the project during the first five years,during which period US$190 million is the estimated project cost, of whichUS$103.9 million (55%) is the foreign exchange component. The cost ofstart-up works, commenced under NES V, are excluded from this five-yeartotal. GOI would finance all project costs (US$60 million) from year six tocompletion. Project costs are expressed in mid-1982 prices and because ofthe tax exempt status of the implementing agencies, do not include taxes.

2.30 Base cost estimates were derived from the detailed cost analysisof contract prices of recent similar works undertaken by estates, includingPTP XII, PTP XXIII and PNP XXVIII, or have been based on the NationalDevelopment Planning Agency (BAPPENAS) standards and unit construction costsin nearby areas. Consultant service costs are based on recent contracts forsimilar services in Indonesia. Estimated direct and reimbursable costs areUS$12,000/month for foreign consultants and US$2,500/month for local con-sultants (Annex 1, Table 5). Before calculating base cost estimates, allrecent unit prices were projected to mid-1982 prices by using the appropri-ate local and foreign price contingencies listed in Table 2.6. Base costsinclude allowances for the recent (January 1982) 60% increase in domesticoil prices. Because of the different wet and dry months in West and EastIndonesia, in West Java and Bengkulu PTP XII and PTP XXIII would clear andprepare land from about April to September and plant from October to March,while in Maluku PNP XXVIII would clear and prepare from about August toJanuary and plant from February to July. At each site estimated tree cropestablishment costs are based on these "development" periods, that is, atWest Java and Bengkulu from April 1982 to end-March 1987, and at Maluku fromAugust 1982 to end-July 1987. The cost estimates include an allowance forphysical contingencies of 15% for housing, infrastructure and roads, and 10%for field development, services, equipment and supplies. The cost estimatesalso include allowances for price escalations during implementation (30% ofbase cost plus physical contingencies) based on the price contingencies inTable 2.6.

Table 2.6: ANNUAL PRICE CONTINGENCIES

(%)

1981 1982 1983 1984 1985 1986 1987

Domestic costs 18 14 12 10 10 10 10Foreign exchange costs 9 8.5 7.5 7.5 7.5 6 6

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Table 2.7 summarizes project costs while Annex 1, Table 1 and Staff WorkingPapers give their details.

Table 2.7: PROJECT CCST SUMMARY

ForeignLocal Foreign Total Local Foreign Total exchange----(Rp million)------ ---(US$ million)--- (%)

Smallholderdevelopment 15,375 17,251 32,626 24.6 27.6 52.2 53

Nucleus estatedevelopment 16,665 22,692 39,257 26.7 36.3 63.0 58

Program support 2,442 8,621 11,063 3.9 13.8 17.7 78

Base cost 34,482 48,564 83,046 55.2 77.7 132.9 58

Physicalcontingencies 3,844 4,900 8,744 6.2 7.8 14.0 56

Price contingencies 15,462 11,498 26,960 24.7 18.4 43.1 43

Total Project Cost 53,788 64,962 118,750 86,1 103.9 190.0 55

Financing

2.31 The proposed Bank loan of US$68.1 million (including US$1.1 mil-lion capitalized front end fee) would finance 35% of the project's estimatedtotal cost and 64% of the foreign exchange cost for the first five years ofproject implementation. During this period CDC would finance the project inparallel, and its proposed loan of US$28 million would supply 15% of theproject's total cost and 27% of foreign exchange costs. GOI would provideto the project implementing agencies Rp 53.8 billion (US$86.1 million) outof annual budget appropriations, and would secure suppliers' credit of aboutRp 5.6 billion (US$8.9 million) to assist ftnance the new processing plants.GOI expects no problems in obtaining suitabLe suppliers' credits.

2.32 Nucleus Estate Development. The Ministry of Finance (MOF) would

finance the bulk of local cost for nucleus estates and estate tree cropplantings, infrastructure, road building and agricultural equipment. TheMOF would obtain suppliers' credits to finance the foreign exchange cost ofthe copra preparation facilities and coconul: oil extraction mills at PTP XIIand PNP XXVIII, and the rubber factory at PNP XXVIII. Because theimplementing estates do not currently have sufficient investment funds, theywould not finance any project works.

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2.33 Smallholder Development. The MOF would directly provide funds forpractically all smallholder local costs, while the Bank and CDC loans wouldfund the foreign exchange costs. INPRES program funds would finance educa-tion and health facilities. Smallholders would repay part of their develop-ment costs, that is for the credit items of tree crop planting, subsistencepayments, settler housing, road, and tree crop development overheads (cal-culated as 10% of the tree crop establishment costs). They would not repaythe noncredit items of water supply, village infrastructure, education andhealth facilities, and project management (calculated as 5% of the tree cropestablishment costs and paid to the implementing estate). GOI would providethe Rp 37.5 billion (US$60 million) required to carry out the project inYears 6-12. These funds would maintain smallholder and nucleus estateplantings while they are immature and construct additional processing capa-city. The funds would come from the MOF and possibly machinery suppliers'credits. Sources for all project finance for the first five years aresummarized in Table 2.8.

2.34 Budgetary Allocations: Smallholders. The MOF, as at present,would channel smallholder development funds directly to the nucleus estatesthrough quarterly disbursements in accordance with an approved annual budgetand in advance of the expenditures as required by the nucleus estates. Bankfunds would be used to reimburse expenditures by PNP/PTPs based on thedisbursement percentages for the works as carried out (para. 2.41). Thecosts of development of smallholder credit items would be translated intostandardized credit amounts for individual settlers in credit agreements atthe end of the year when each tree crop area has come into maturity (seepara. 4.09). Bank Rakyat Indonesia (BRI) would be the designated bank torecover smallholders' outstanding debts. Subloans to smallholders would befor 17 years, with a two-year grace period and repayments starting in thesixth year after planting for coconut, and a three-year grace period andrepayments starting in year seven for rubber. Interest would be 10.5% p.a.,and that accruing during the grace period would be capitalized.

2.35 Budgetary Allocations: Estates. The MOF would allocate funds fornucleus estate and estate development quarterly in accordance with a pre-viously agreed annual expenditure budget. It would make these funds avail-able to the participating PNPs/PTPs either directly or through BankIndonesia (BI) under the terms of a loan agreement, or as interest-freefunds which GOI would convert to equity not later than three months afterthe closing date for the Bank and CDC's loans. The loans would havedifferent lengths and grace periods depending on the estates- present andprojected financial ability to repay the loans, and whether the funds comefrom GOI-s annual budget appropriations or from the Bank and CDC loans. GOIwould only on-lend budget funds for a maximum of 16 years including aneight-year grace period. All loans would have a 13.5% p.a. interest ratepayable on the amounts withdrawn and outstanding. The finalizing of thesefinancing arrangements in a form and substance satisfactory to the Bank is acondition of disbursing against the works the individual estates wouldundertake with the funds. Both PTP XII and PNP XXVIII would require inter-est-free funds, which later would be converted to equity, to financially

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undertake the proposed nucleus estate development. PTP XII currently has atight cash flow position, resulting from earlier development loans obtainedfrom BI and commercial banks with onerous repayment conditions, present lowcommodity prices, and a large development program GOI is requesting it toundertake. Some 80% of PTP XII's income comes from tea, which presently isselling at depressed prices, and for which future prices are forecast nobetter. PNP XXVIII has a poor financial standing, having made losses in thelast two years because of a small, inadequate production base which ispredicted to cause future losses. Any other proposed developments for PTPXII during the next eight years must be closely scrutinized to ensure PTPXII's debit to equity ratio does not exceed 60/40. GOI and the Bank havealready agreed to a development program for ENP XXVIII until 1990. Annex IIcontains projected cash flows for PTP XII and PTP XXIII. The project filecontains other detailed financial data for the estates.

2.36 For PTP XIIs nucleus estate develcpment MOF would provide budgetfunds as a 16-year loan, including eight years grace, and repayable in 16semiannual repayments over the balance of the loan period. It would provideBank and CDC funds on an interest-free basis, and would convert these fundsto equity not later than three months after the Bank and CDC loans closingdate. For PTP XXIII-s nucleus etate development MOF would provide budgetfunds as a 16-year loan, including an 8-year grace period, and Bank and CDCfunds as a 20-year loan, including an 8-year grace period. For PNP XXVIII'sestate