FILE Copy Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. P-2213-IND

REPORT AND RECOMMENPATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO

THE REPUBLIC OF INDONESIA

FOR THE

BUKIT ASAM-COAL MINING AND TRANSPORTATION-ENGINEERING PROJECT

ApriL 24, 1978

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 EQUIVALENT

Currency Unit = Rp

US$1 = Rp 415Rp 1 = US$0.0024

ABBREVIATIONS

PNB - P.N. Batubara, the state coal enterprise.PJKA - Perusahaan Jawatan Kereta Api, the

Indonesian State railwaysPLN - Perusahaan Umum Listrik Negara, the electric

power authorityPANN - National Fleet Development CompanyPMG - Project Management Group (KP5BA)PSC - Project Services ContractorMW - MegawattsBAPPENAS - National Planning Council

GOVERNMENT OF INDONESIAFISCAL YEAR

April 1-March 31

FOR OFFICIAL USE ONLY

THE REPUBLIC OF INDONESIA

BUKIT ASAM COAL MINING AND TRANSPORTATION ENGINEERING PROJECT

LOAN AND PROJECT SUMMARY

Borrower: The Republic of Indonesia

Amount: US$10.0 million equivalent in various currencies.

Terms: Repayable in 10 years, including 3 years of grace,through semi-annual installments with interest at 7.5%per annum. The loan would be refinanced under anylater loan or credit that the Bank or the Associationmight make to implement the Bukit Asam Coal Mining andTransportation Project (the Project).

Prolect Description: The engineering project will: (i) establish the tech-nical and economic viability of the Project in termsof substituting coal from the Bukit Asam mine for oilat competitive cost to be used for electricity genera-tion at Suralaya; (ii) determine the optimal mining andtransport system; (iii) recommend the institutionalarrangements and training required for executing theProject and strengthening the various operatingentities; and (iv) complete the detailed engineeringand procurement documentation for the Project. Theengineering loan will resolve the outstanding questionsregarding the economic viability of coal substitutionand prepare for the implementation of an integratedcoal mine - transportation expansion project, whichwill ensure the delivery of approximately 2.5 milliontons of coal per annum from South Sumatera, to adual-fired (coal/oil) power plant to be locatedin Java, with a power generation capacity of 750 MW,thus substituting for 9 million barrels of oil per annum.An Indonesian Project Management Group (PMG), assistedby technical and legal specialists, will represent andcoordinate the participation of the power, mining andtransport operating entities, and will supervise theProject Services Contractor (PSC) employed to evaluateand engineer the Project.

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.

Cost Estimates: The estimated costs of the proposed engineering projectare as follows:

Local Foreign Total----- US$ million

Project Management Group (PMG) 1.86 0.25 2.11Technical Assistance 0.21 0.98 1.19Legal Assistance - 0.05 0.05Project Services Contractor (PSC) 0.66 6.90 7.56Physical Contingencies 0.13 1.00 1.13Price Contingencies 0.11 1.07 1.18

Total Project Costs 2.97 10.25 13.22

Financing Plan: Local Foreign Total------- US$ million -------

Bank loan - 10.00 10.00Government 2.97 0.25 3.22

Total 2.97 10.25 13.22

Estimated Disbursements: Bank FY 1979 1980(US$ millions)

Annual 4.90 5.10Cumulative 4.90 10.00

Appraisal Report: There is no separate appraisal report.

REPORT AND RECOMMENDATION OF THE PRESIDENTOF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE EXECUTIVE DIRECTORSON A PROPOSED LOAN

TO THE REPUBLIC OF INDONESIAFOR THE BUKIT ASAM COAL MINING AND TRANSPORTATION ENGINEERING PROJECT

1. I submit the following report and recommendation on a proposedengineering loan to the Republic of Indonesia for the equivalent of$10.0 million to help finance the preparation of a feasibility study, and thedetailed design and engineering required for the Bukit Asam Coal Mining andTransportation Project (the Project). The loan would have a term of tenyears including three years of grace with interest at 7.5% p.a. The loanwould be refinanced under any later loan or credit that the Bank or theAssociation might make to implement the Project.

PART I - THE ECONOMY /1

2. The last economic report on Indonesia, "Indonesia: Recent Develop-ments and Medium-Term Perspective," of March 8, 1977 (1516-IND) described therecovery of the economy from world recession and the financial troublesof Pertamina, the state oil company, and examined some of the importantdevelopment issues which the country faces in the next few years.

3. During Indonesia's First Development Plan period (1969/70-1973/74),/2 the rehabilitation of the Indonesian economy was almost completed.Transport, power, irrigation works and other infrastructure facilities, afteryears of neglect, were greatly improved and strengthened. Agriculturaloutput expanded at an average rate of 4.5% a year and the foundations ofmodern industry - fertilizer, cement, etc. - were laid. During this period,the annual rate of economic growth exceeded 7.5%; domestic savings andinvestments also rose rapidly.

4. With the start of the Second Development Plan period (1974/75-1978/79), the Government expected that rehabilitation would be completed anda start made on a course of long-term development which would assure notonly a satisfactory rate of economic growth but also a wider distribution ofincome. Progress in these respects has been mixed. While there has beenconsiderable further improvement in the country's physical and socialinfrastructure (power, roads, telecommunications, education, family planning),much of the Government's attention and efforts have been focused on short-term issues, the economic growth rate has tended to slacken, and publicconcern with equitable distribution of income has grown. The first twoyears of the Plan were dominated by the developments in the oil sector -the sharp increase in the price of oil and Pertamina's serious financial

/1 This part is an updated version of the one contained in the President'sReport No. P-2257-IND, dated March 15, 1978, for the Small EnterpriseDevelopment Project.

/2 Indonesian fiscal year April 1 to March 31.

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difficulties. The latter arose from Pertamina's undertaking of a large anddiverse investment program without arranging satisfactory financing. Foreignbank credit became more restrictive with the onset of world recession.Pertamina was unable to roll over its short-term debt and failed to meet thefinancial obligations which were falling due. In these circumstances, theGovernment stepped in and assumed the oil company's obligations. The repay-ment of these obligations, along with the fall in export earnings as a resultof the recession, necessitated large foreign commercial borrowing, seriouslystrained the Government's budgetary resources and Indonesia's balance ofpayments, and led to a sharp decline in the foreign exchange reserves.

5. In most respects, the Government managed the Pertamina crisiswell, and the following two years (1976/77 and 1977/78) witnessed a substan-tial improvement in the balance of payments and the Government's budgetaryposition as well as a reduction in the rate of domestic inflation. During1976/77 Indonesia's exports recovered strongly (following improvements inthe world economy), and rose to a higher level than anticipated. Importscontinued to increase rapidly but the rate of increase of import pricesslowed down, and Indonesia's terms of trade improved. These trends continuedinto 1977/78, and resulted in substantial additions to the foreign exchangereserves, which have averaged over $2 billion (or about four months ofimports) in the early months of 1978.

6. The Government's budgetary position also improved in 1976/77.With the boost in oil exoorts and a further renegotiation of oil contracts,oil revenues rose by close to 40%. Non-oil revenues also exceeded theamounts budgeted, mainly as a result of government efforts to curb smugglingand a more rigorous collection of customs duties. The additional revenuestogether with continued restraint on current expenditures enabled theGovernment not only to increase development expenditures substantiallybut also to repay the debt to Bank Indonesia, which it had incurred inthe previous year. This helped to neutralize the monetary expansion onaccount of the accumulation of foreign exchange reserves, and contributed tobringing down the inflation rate to 14% a year compared to 20% in 1975/76.The Government budget tightened in 1977/78, since oil as well as non-oilrevenues rose more modestly while the current expenditures rose more rapidlylargely due to an overdue general increase in civil servant salaries. Asa result, budgetary savings declined in real terms for the first time inrecent years. Nevertheless, through a cautious monetary policy, theinflation rate was further reduced to about 10%.

7. The substantial increase in oil revenues since 1974 has beenlargely invested. Government development expenditures more than quadrupledfrom 1973/74 to 1977/78 when they amounted to Rp 2.5 trillion (or about$6 billion); even after allowing for the high rate of inflation, thisrepresented a real increase of over 30% a year. Over this period, the rateof gross domestic investment averaged about 22.5% of GNP. However, thishigh level of investments has so far failed to increase the rate of growthof the Indonesian economy; economic growth in the first four years ofIndonesia's Second Development Plan (1974/75-1976/77) has, in fact, beenslower than that in the First Plan period. The world recession, slackening

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agricultural output and domestic inflation (which made some domestic industriesuncompetitive with imports), all had a dampening effect on the growth of theeconomy. In addition, public investments in recent years have been concentratedon relatively capital-intensive industrial and infrastructure projects withlong gestation periods. Moreover, the realization of economic benefits frominvestments in such sectors as transportation, telecommunications, etc.,depends on the growth in demand which in turn is determined by the growthof the rest of the economy, mainly the private sector, which has failed toprovide the necessary momentum to growth. The indications are that privateinvestments rose only modestly in recent years for a number of reasons,including the Government's attempts to control domestic inflation and toencourage indigenous (pribumi) investors, and the uncertain state of theworld economy.

8. Reliable data on recent trends in employment are not available.The labor force has been increasing at a rate close to 1.2 million persons ayear, but the current level of unemployment and the extent of underemploymentare not known. However, there is no indication that the labor market hastightened or that the wages of unskilled workers have more than kept pacewith domestic inflation. Labor productivity and wages remain extremely low,particularly in Java. On the other hand, the Government's efforts at familyplanning appear to have yielded impressive results. Preliminary estimatesfrom an inter-censal survey in 1976 indicate that the birth rate in Java andBali has significantly declined since 1971. Nevertheless, population pressurecontinues to increase on Java where an expanding work force, combined with alimited supply of arable land, has already resulted in fragmented farms withvery low labor productivity, which has made farming a part-time activity.Viable transmigration programs to open up new areas outside Java and programsto create off-farm rural employment in Java are essential both to provide jobopportunities to new entrants into the labor force and to improve the produc-tivity for the majority of the currently employed.

9. Perhaps the most worrying development in recent years, and one withimportant long-term implications, is the slackening in the rate of growth inagricultural production, particularly of rice. Over the 1975-77 period, riceoutput failed to rise appreciably; for 1977, rice production is estimated at15.2 million tons, down 4% from the previous year, and over 10% below thesecond plan target for that year. The domestic price of rice has been keptstable only by means of very substantial imports. In 1976/77 rice importsamounted to 1.6 million tons and in 1977/78 they are expected to reach 2.6 mil-lion tons, or over 15% of domestic consumption and 30% of total world trade inrice. The stagnation in rice output over the last two years, while reflectinga complex of institutional and policy constraints, is primarily the result ofsuccessive droughts and, in Java, the wereng (brown planthopper) infestation.The Government is taking steps to remedy the bottlenecks in the supply ofagricultural inputs, but may have to further adjust the price ratio of riceto fertilizer to encourage fertilizer use. However, long-term expansion offood crop production and a substantial reduction in rice imports, requireprompt assessment of available land and water resources, accelerated construc-tion of irrigation and drainage facilities, acceleration in land settlementand transmigration programs based on food crop production and, most impor-tantly, expansion and deepening of agricultural support services.

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10. The long-term consequences of the Pertamina crisis remain in theform of large foreign debt and some burdensome ongoing investment projects.The heavy foreign borrowing in 1975 and 1976 has raised the level of debtservice, which is now projected to reach $1.6 billion in 1978 or more than18% of projected export earnings compared to 13% in 1976. This does not takeinto account the $255.8 million settlement in the dispute over the hire -purchase contracts for tankers, which is to be repaid in four equal annualinstallments in 1977-80, interest free. However, a large cash loan made bya syndicate of private banks in 1975 to help resolve the Pertamina crisiswas recently rolled over on more favorable terms. This provides an indicationof Indonesia's improved creditworthiness rating on international capitalmarkets and should also help reduce Indonesia's debt service ratio to under15% by 1980. The Government has continued to exercise prudence in undertakingnew foreign commercial debt, and total external borrowing in 1977 remained wellwithin the limit of $2 billion that had been recommended in the last BankEconomic Report. At the meeting of the Inter-Governmental Group on Indonesia(IGGI) in April 1977, aid pledges of over $500 million from bilateral sourceswere made. The likely commitments from those IGGI donor countries which didnot pledge, from the multilateral agencies and from OPEC and East Europeancountries should raise the total of official development assistance to$1.5 billion.

11. Net resource transfers from abroad are expected to decline from$1.56 billion in 1976/77 to about $640 million in 1980/81, or from about 5%to 1% of GNP. At the same time, there is a growing doubt that crudeoil production can be increased much above the current level of 1.7 millionbarrels a day during the next few years. Oil exploration activity inIndonesia has remained much below the peak of 1975 partly as a resultof the renegotiation of the oil contracts in 1976 and partly on account of aU.S. Internal Revenue Service ruling which declared the oil revenues withheldby the Government of Indonesia as royalties rather than tax for the purposeof allowing income tax credit to the U.S. companies operating in Indonesia.In the meantime no large new oil fields have been discovered, and, although theGovernment has now offered improved incentives to the oil companies andrevised the contracts to meet the IRS objections, it is not certain that theexploration activity would revive soon enough to make up for the time lost.

12. The implication of recent developments for imports, net foreignexchange earnings and future capital inflow requirements are currently understudy, but indications are that, while foreign exchange will be scarcerover the coming years, Indonesia would be able to finance essential importsof consumer, intermediate and capital goods and still meet its debt serviceobligations. However, the relative decline in oil revenues will have seriousbudgetary consequences. In order to maintain the relatively high rate ofdomestic investment already reached, the Government would need to raisesubstantial additional non-oil revenues over the coming years. The Governmenthas been quite cautious in increasing current expenditures and there does notappear to be much scope for reducing them further; they should, in fact, rise

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in step with the growth in GNP and inflation, to permit reasonable growth inGovernment salaries as well as materials expenditures, a significant part ofwhich is development related. Nevertheless, despite the Government's effortsto limit current expenditures and raise domestic revenue, there is likely tobe a serious domestic resource constraint in the coming years.

13. The Government is fully aware of the serious concerns regardingIndonesia's future development discussed above and will make them the focus ofthe Third Development Plan which is now under preparation. In the meantimethe Bank is undertaking a major review of the development problems facingIndonesia, covering in depth such issues as domestic and foreign resourcemobilization, as well as trends and outlook for agricultural growth, popula-tion, employment, and income distribution. This review is expected to assistthe Government's deliberations and preparation of the Third Plan; the finalreport will be ready towards the end of 1978.

PART II - WORLD BANK OPERATIONS IN INDONESIA

14. As of March 31, 1978, Indonesia had received 38 IDA creditstotalling $601.8 million and 31 Bank loans amounting to $1,526 million. Atthat date, IFC investments totaled $61.3 million. The share of the BankGroup in Indonesia's total (disbursed) external debt outstanding at the endof 1976 was about 6% and the share of debt service, less than 1%. By 1978,these ratios are expected to increase to around 12% and 5%, respectively.Annex II contains a summary of IDA Credits, Bank Loans and IFC Investmentsas of February 28, 1978, as well as notes on the execution of ongoing projects.

15. To date, the Bank Group has financed projects in virtually allsectors of the Indonesian economy, although there has been particular stresson agriculture, which accounts for over one third of all lending. Most ofthe loans for agriculture have been for rehabilitation and expansion ofproductive capacity, both for food and tree crop development. Severalnational programs to provide inputs and advice to farmers and to promoteagricultural research have also been financed by the Bank Group. Morerecently, a major effort to aid the Government's transmigration program hasbeen initiated. In the industrial sector, the major thrust has been onexpanding fertilizer production on the basis of Indonesia's gas resources andon establishment and improvement of development finance institutions. Themain emphasis in education has been on improving primary and secondaryeducation and manpower training as well as on expanding non-formal education.In the social sector, the Bank Group has also financed urban development,through neighborhood improvement programs, urban water supplies and familyplanning and nutrition. A major portion of Bank Group financing has beenused to rehabilitate and expand Indonesia's inadequate infrastructure,particularly in the power and transportation sectors as well as in tele-communications and tourism. Finally, the Bank Group has assisted the Govern-ment's efforts to prepare and formulate its development programs and projectsthrough four technical assistance credits and a loan for a natural resourcesurvey and mapping project.

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16. Bank Group lending to Indonesia started with an IDA credit in 1968for irrigation rehabilitation, with lending on Bank terms commencing in June1974. Disbursements on loans and credits, which were slow in the early years,are now at satisfactory levels. The Indonesian authorities have also becomeincreasingly aware of the cost to the country of delays in project execution,caused by cumbersome procedures, and the need to establish an effectivecontrol system in Bappenas (the National Development Planning Agency). Atthe Government's request, the Bank arranged in 1974, for assistance under theFourth Technical Assistance Credit (Cr. 451-IND) to help set up a monitoringand control system which is now in operation and which should lead toimproved project implementation not only of Bank Group-assisted projects butof development projects generally.

17. The discussion in Part I of this report underscores the need for adevelopment program which will provide increasingly productive work opportun-ities and incomes for Indonesia's presently underemployed and growing laborforce and which will increase agriculture production particularly of foodcrops. Major efforts are needed to increase employment through programsdirected towards improving the incomes of the poor and their living standards;these are expected to be the major focus of the Third Development Plan(1979-84) which is now under preparation. To assist the Government, the BankGroup has undertaken a major review of the development problems facingIndonesia (mentioned above, para. 13). This review should help the Govern-ment formulate policies and programs to expand food production, furtherreduce population growth, and expand nonfarm rural employment, particularlyin Java. While some of these programs are likely to be suitable for BankGroup financing, it will be some time before they are ready for implementation.Meantime, the Bank Group proposes to finance a number of already preparedprojects and project components designed to increase non-agricultural employ-ment in rural areas and small towns. These include small enterprisedevelopment and integrated rural development projects. With respect toagriculture development, projects are being prepared which would improve andexpand agriculture credit, research and extension services, rehabilitate andexpand irrigation systems, help replant smallholder rubber and coconutplantations, and develop presently underutilized land in areas outside Javafor transmigrants and other smallholders. In addition to the populationprogram, which continues to have high priority, other areas of particularimportance for Bank Group assistance will be improvement of urban servicesthrough construction of urban water supply systems and further expansion ofneighborhood improvement programs, and improvement and expansion of highereducation particularly of technicians, accountants and agriculture specialists,as well as primary and secondary education. Finally, Bank Group financingcontinues to be important for the Government's program of infrastructurerehabilitation and expansion, particularly in transport and power, which willcontinue to require very large investments for many years before thesefacilities are adequate to support Indonesia's development.

18. Between 1968 and 1974, all Bank Group lending to Indonesia was on IDAterms. Following the rapid increase in Indonesia's oil income which enabledIndonesia to borrow on less concessional terms, it was decided that alllending to Indonesia after June 30, 1974, would be on Bank terms. Since 1974,

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the Government has saved and invested almost all of the increase in its oilrevenues and greatly expanded its development expenditures which are expectedto reach about $6 billion in 1977/78. For reasons discussed in Part I above,it now appears, however, that both the budgetary and balance of paymentssituation is again likely to become more difficult in the years ahead. Thus,while Indonesia has always qualified for assistance on concessional terms ongrounds of its low per capita income ($240 in 1977) and the quality of itseconomic management, such terms are now also necessary to enable it tomaintain a high level of investment without impairing its ability to serviceits external debt. The Bank has accordingly informed the Government thatfrom now on it will provide a portion of its lending on IDA terms.

19. In the past few years, the Bank Group has financed, from time to time,DP=t of the local cost of projects with a low foreign exchange component,particularly in the social sectors, in order to make a meaningful contributionto the financing of these projects. As noted in Part I, Indonesia now facesa more difficult financial situation, in part for reasons outside its control.Despite the Government's efforts to increase its non-oil revenues and limitthe growth of current expenditures, Government savings in real terms arelikely to increase very slowly, if at all. At the same time , the Governmentis attempting to increase development expenditures, particularly for employment-creating programs, as well as for programs and projects in agriculture and thesocial sectors, the costs of which are largely in local currency. The BankGroup cannot provide adequate assistance to the Government's overall develop-ment effort if it limits its financing to the foreign exchange cost ofprojects, and future Bank Group financing will, therefore, include increasingamounts for local costs particularly in the case of projects designed tocreate nonfarm employment, provide social services and raise agricultureproduction.

20. The proposed loan is the fifth lending operation presented to theExecutive Directors this fiscal year and would bring total lending toIndonesia this year to $239 million. Projects for rural credit, irrigationand nucleus estates and smallholders are expected to be ready for presenta-tion in the next several months.

PART III - SECTORS AND SUBSECTORS

The Energy Sector

21. After the sharp increase in oil prices in 1973, oil becameIndonesia's largest export earner. Recently, however, the oil reserve/outputratio has tended to decline and is causing increasing concern as thelimits of the Indonesian oil reserves have become bet'ter known. Meantime,starting from one of the lowest per capita energy consumption levels in theworld, Indonesia's domestic fuel consumption is increasing at 17-20% perannum. Currently, 80% of the electricity produced in Indonesia is based onoil-fired facilities consuming approximately 14'imillion barrels of oil perannum. The prospect of declining oil exports as a result of stagnating oilproduction and rapidly increasing domestic consumption poses a seriouschallenge to Indonesia's development planners, and calls for a restructuringof the use of domestic energy resources.

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22. The Government has begun to address the implications of thesedevelopments and there is increasing concern with the optimal use ofIndonesia's several alternative sources of energy - oil, natural gas, coal,hydroelectric and geothermal. The hydroelectric potential is estimated to belarge (31,000 MW), of which only 1.5Z is presently utilized. With fewexceptions, however, the unfavorable location of the potential hydroelectricsites and the long gestation periods involved limit hydroelectric developmentin the near future. A small pilot geothermal plant (30 MW) is to be set upin Java in collaboration with New Zealand; if successful, it could lead tothe development of an important nonfuel energy source in Java, Sumatera andSulawesi. Current production of oil is about 1.7 million barrels per daywhile annual production of natural gas is about 20 billion cubic meters,mainly for export in liquified form, but also for domestic production offertilizer and petrochemicals.

23. So far the Government has not developed an overall energy policy,however, and many complex questions need to be examined in the framework of acomprehensive long-term energy strategy to utilize optimally the vast anddiverse domestic sources of energy. These include fuel diversification,setting of fuel prices to reflect their economic cost, incentive systems toguide energy suppliers towards an evolving national least-cost system,increase of energy supply in rural areas and for rural industries, andconservation measures to avoid wasteful consumption. The Government hasrecently requested Bank assistance in studying some aspects of the energysector and the Bank intends to look into them.

24. One element of an emerging energy sector strategy is the Govern-ment's decision to use coal as fuel for domestic electricity generation,whenever economically feasible. Coal is Indonesia's main potential oil-substitute; mineable coal reserves are estimated by the Indonesian Departmentof Mines to be about 2.6 billion tons, but indicated reserves are up to10 billion tons. The rehabilitation and expansion of the Bukit Asam coalmine is the first project designed to substitute coal for oil to be used atthe first major dual-fired power plant in Indonesia. Although an overallenergy policy for Indonesia is lacking, this project is likely to represent aviable component of any such policy if proven to be economically feasible.At present, P.N. Batubara, the only major supplier-of coal, operates unprofit-ably and needs financing to expand production rapidly. Actual coal productionhas fallen from 2.0 million tons in 1940 to under 200,000 tons in 1977. Theproject will also enable the Government to examine realistically the economicsof substitution and the operational decisions necessary to start the use ofcoal for electricity generation. This experience will provide a basis forformulating general energy policies and for implementing further coal miningprojects and coal-fired power plants.

25. In the course of project preparation, a series of questionsarose regarding the variability of coal quality, the recoverable reserves,the reliability and efficiency of the different transport systems to deliverthe coal to the power plant, and, hence, the most likely cost for deliveredcoal and the economic viability of substituting coal for oil (at competitive

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cost) for power generation at Suralaya in order to supply the Java powermarket. Previous studies proved to be insufficient to answer precisely thesequestions and to define the optimal configuration of the mining and transpor-tation systems. In addition, the successful implementation of the Projectrequires close coordination of the activities at several public sector agenciesand ministries, covering the power, mining and transport sectors. The complex-ity of the organizational and contractual arrangements during the preparationand implementation of the Project demands careful organizational design, tech-nical assistance, manpower planning and training. The proposed engineeringloan will therefore be concerned with establishing the economic viability ofcoal substitution, determining an optimal mining and transport system, andwith strengthening and coordinating the various operating entities in thepower, mining and transport sectors to achieve an effectively operatingintegrated system.

The Power Sector

26. The public power sector is managed by Perusahaan Umum ListrikNegara (PLN), a Government-owned enterprise under the Ministry of Mines andEnergy, which is statutorily responsible for all generation, transmission,and distribution of electricity in Indonesia. The Bank has assisted PLN withthree credits and four loans to rehabilitate and expand its power generationand distribution facilities. Due to inadequate and unreliable public powersupplies, approximately 50% of the country's power output is currently beingsupplied by small, uneconomical, privately owned diesel generating stations.In 1977/78 Indonesia had an installed electricity generating capacity ofapproximately 3,000 megawatts (MW) L1, of which about 80% was based onoil-fired facilities. If the engineering project determines that coal can beeconomically substituted for oil for power generation at Suralaya, this willbe the next generating facility to be developed. Together with other powergenerating plants to be constructed by PLN during 1978-85, the Suralaya plantis expected to meet the bulk of the overall growth in power demand and toincrease PLN's share of the market to about 80% by 1985.

The Mining Sector

27. Government mining policy, as implemented by the Ministry of Mines,recognizes that the country's mineral potential cannot be quickly realizedwithout a substantial contribution by foreign capital and technical know-how.The Government encouraged the activities of large foreign mining companies inIndonesia during the 1970s, and a number of contracts of work have beensigned with such groups. Exploration contracts covering over one halfmillion square kilometers, or more than 25% of the country's total landarea, have been let by the Government. New discoveries include extensivelignitic coal deposits in Banko and surrounding areas of south Sumatera.However, market constraints relating to coal quality and lengthy project leadtimes have so far limited the development of these resources.

/i Including an estimated 1,500 MW of captive plant.

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28. P.N. Tambang Batubara (PNB), the state-owned coal enterprise, wasformed in 1970 and presently operates two coal mines: the Ombilin mine inwest Sumatera, and the Bukit Asam mine in south Sumatera. The Bukit Asammine is PNB's most important operation with present production at 150,000 tonsand a planned output of 2.5 million tons annually after completion of theProject. PNB is party to a production sharing contract with Shell MijnbouwN.V. of the Netherlands which resulted in a substantial exploration programin south Sumatera and the delineation of major new coal fields in the area.The development of the Shell concessions is presently technically lessadvanced than Bukit Asam, and the company recently deferred plans to developa major mine awaiting sales contracts to provide steam coal to Japan andother Asian markets and to other domestic power plants presently in theplanning stage. The proposed expansion of PNB's Bukit Asam mine willbe the first Bank Group-assisted project in Indonesia's mining sector.

.he Transport Sector

29. Railways. The Indonesian State Railways (PJKA) operates an exten-sive railway system in Java, where most of the railway traffic is located,and three separate systems in Sumatera, of which the one in South Sumaterahas the longest routes currently in operation (about 650 km). In addition tocoal, the south Sumatera system carries considerable quantities of construc-tion stone and petroleum. There are good prospects for freight trafficincreases based on a large cement plant currently under construction atBaturaja, and on stepped up agricultural production in the south part of theisland. The railway will also serve the inflow of transmigrants to settlementareas in Southern Sumatera. The proposed engineering loan will include acareful assessment of the transportation needs of the Project and the regionas a whole to ensure that, despite the severe management and financialproblems experienced by PJKA in recent years, the South Sumatera railwayssystem will be able to move coal as needed at reasonable cost and that PJKAwill have available to it all the technical assistance required for thispurpose.

30. Maritime. The Directorate General of Sea Communications supervisesshipping and ports. Depending on which rail-sea route is found to be moreeconomical, the Project will include the rehabilitation of a coal loadinginstallation near Palembang or the building of a new facility near Panjang.It will also include the strengthening of shipping operations to transportcoal in barges from Sumatera to Java.

PART IV - THE ENGINEERING PROJECT

Project History

31. In 1976 the Bank was requested by the Indonesian Government toassist with the preparation of a project to mine and transport coal fromBukit Asam in South Sumatera to a dual fired (coal/oil) electricity generationfacility to be located at Suralaya on the western tip of Java. Since thattime the Government of Indonesia has undertaken a number of studies to define

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the coal reserves and to select the ideal mine and transport configurationfor the Project. While drilling has indicated the probable existence ofsufficient coal reserves for about 25 years of production at the proposedrate of 2.5 million tons per annum, there are nevertheless certain issuesrelating to the determination of the coal reserves and coal quality variations,the selection of a mining system, the delineation of a mining plan, and thechoice of the optimal transportation configuration that have not yet beensatisfactorily resolved. Resolution of these issues is necessary to determinethe economic viability of using Bukit Asam coal for electricity generation atthe Suralaya power plant. Consequently it has been agreed with the Govern-ment that further work is required to resolve these issues and to prepare adeta4.ied feasibility report before the Project can be appraised by the Bank.The proposed engineering project is designed to resolve the outstanding-. estions and to prepare the Project for implementation. The appraisalmission for the proposed engineering loan visited Jakarta during November6-20, 1977. Supplementary project data is given in Annex III. Negotiationswere held in Washington, D.C., April 4-9, 1978; the Government Delegation washeaded by Mr. Abdulrachman, Director of Planning, Department of Communications.

Project Description and Purpose

32. Preliminary studies suggest that the use of coal for domesticelectricity generation is likely to be competitive with oil. The proposedengineering loan would finance the cost of consulting services to establishmore precisely the economic viability of the Project and its optimal configura-tion, and to complete other preparatory and detailed engineering work. Theconsultants would: (a) determine the financial and economic viability of theProject by defining the recoverable coal reserves and coal quality variationsat Bukit Asam and whether coal can be delivered to Suralaya at a cost competi-tive with the cost of equivalent thermal units of oil; (b) determine the optimalconfiguration and the capital and operating costs of the Project; (c) recom-mend the institutional arrangements, including staffing and training,required to execute the Project; and (d) complete the detailed engineeringand procurement documentation needed to implement the Project.

33. While the precise definition of the Project will have to await thecompletion of the proposed engineering studies, it is anticipated that it willconsist of: (a) an expansion of the existing mining operation at Bukit Asamfrom 150,000 tons per annum to approximately 2.5 million tons per annum; and(b) rehabilitation, expansion and/or building of new transport facilities tocarry coal from the mine over the South Sumatera Railway and then by a tugand barge system across the Sunda Strait to Suralaya. Two possible rail-searoutes are available and will be examined by the consultants. They are: (a)the eastern route of approximately 160 km ending adjacent to Palembang onthe Musi River, and (b) the southern route of approximately 320 km endingon Lampung Bay. The coal would supply the fuel requirements of Stage I ofthe proposed Suralaya dual-fired (coal/oil) power plant to be constructedby PLN at Suralaya on the western tip of Java. Stage I of the power plantwould consist of two 375 MW units which would become operational in early1984 and 1985, respectively. The power plant will be built under a

- 12 -

separate but coordinated project, with possible Bank financing (a proposedEighth Power Project). Further development of the Suralaya power project toa maximum capacity of 3,000 MW will be subject to the growth of Indonesia'slong-term power requirements.

34. It is estimated that, without the Project, the power sector wouldabsorb 43 million barrels of oil in 1985, or 6% of the country's present oilproduction. The successful implementation of the Project and the first twounits of the proposed Suralaya power project would enable Indonesia: (a) toutilize approximately 2.5 million tons of steam coal, which is not ideallysuited for export, for power generation thus reducing annual domestic oilconsumption for power by approximately 9 million barrels per annum in 1985;(b) to develop rail and maritime infrastructure which could provide the basis.,r the future expansion of other mining concessions in the vicinity of

Tanjung Enim, and the further use of coal for power generation; and (c) tolower the future economic cost of electricity in Indonesia.

Project Organization

35. Prolect Management Group (PMG). The PMG, charged with carrying outthe ongoing project, would coordinate the participation of the variousministries involved and would supervise the activities of the consultingengineers employed to evaluate and engineer the Project. It would alsocoordinate the work of the operating units in the development of the Projectand reconcile their individual interests in the context of overall Governmentpolicy. The exact role of the PMG in the implementation of the Project willbe determined on completion of the studies. The PMG will be staffed withprofessionals seconded from PNB, PJKA, PLN and the Department of Communica-tions. The PMG will provide guidance to the consultants. Major policydecisions resulting from the consultants' proposals will be referred, withrecommendations for action, by the PMG to a Steering Committee for resolution.The Steering Committee consists of senior representatives of the variousministries that will be affected by the Project. Its Chairman is the Secre-tary General of the Department of Communications. Both the PMG and theSteering Committee have been established by Government decrees.

36. Technical and Legal Assistance. As all the specialist skillsrequired to coordinate and evaluate the activities of the consultants are notavailable within the Indonesian organizations supplying staff to the PMG, thePMG will require both technical and legal assistance to enable it to:

(a) review the proposals submitted by the consulting firmsprequalified to carry out the terms of reference of the ProjectServices Contractor (PSC) (see para. 39), and negotiate the contractwith the selected firm;

(b) review the technical aspects of the PSC's reports; and

(c) review the organizational aspects, training and contractingarrangements for the Project, as proposed by the PSC.

- 13 -

37. Technical assistance will be provided by a consultant firm whichhas been selected with the agreement of the Bank. A senior engineer repre-senting the selected consultant firm should commence work in Jakarta by earlyMay 1978, and would then be joined by other specialists as required by thePMG. Approximately 35 man-months of consultant time will be required toJune 30, 1979, which is three months after the PSC has submitted the study ofthe optimal Project configuration. Further technical assistance will beneeded by the PMG during the 12 months to June 30, 1980 during which time thedetailed engineering and procurement documentation would be prepared by thePSC. The exact scope and financing of this further technical assistance willbe agreed with the Bank prior to June 30, 1979 (Section 3.03 [b] of the LoanAgreement), at which time the PMG would have received the preliminary recom-mendations of the PSC on the appropriate organization for the Project. It isestimated that an additional 55 man-months of technical assistance will berequired by the PMG in the period July 1, 1979 to June 30, 1980. In additionto general technical assistance, legal assistance will be required to helpthe PMG in negotiating contracts with the PMG's technical advisory firm andwith the PSC.

38. As the PMG will not have contracting powers, the Government, onbehalf of the PMG, will sign contracts with the organizations providingconsulting services. These contracts will be administered by the PMG.

39. Prolect Services Contractor (PSC). The PSC will be responsible forthe evaluation and design of the Project. The PSC will sequentially carryout the following specific tasks:

(a) review all the basic data and findings incorporated in all ofthe existing consulting studies, to analyze the results of the coalexploration program which should be completed by June 30, 1978, toassess the probable cost at which approximately 2.5 million tons ofcoal per annum can be delivered from the Bukit Asam site to theproposed power station at Suralaya (with precise indication of thethermal quality of the coal in oil equivalent), to provide PLN withsufficient coal quality data to initiate the design of the powergenerating boiler facilities, and to assure PLN that coal reserveswill be sufficient for the assumed 25-year life of the powerstation. This information, determining the technical and economicviability of the Project, is required by September 30, 1978.

(b) based upon the studies already undertaken and any additionalinvestigations which may be necessary, the PSC will: (i) recommendthe optimal production level of the mine in view of coal qualitycharacteristics and power plant requirements; (ii) develop anddesign the optimal mining system; (iii) determine the optimaltransportation system to deliver coal from Bukit Asam to the powerplant at Suralaya, taking full account of projected non-coal andpassenger traffic; (iv) recommend in outline the proposed organiza-tional structure of the Project. This information will be madeavailable by March 31, 1979.

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(c) review the existing organizational, financial, and operatingprocedures of the mine, railway, and shipping operations andrecommend any changes, training efforts, or new proposals considerednecessary to create a system which will operate efficiently bothduring the construction and operation of the proposed facilities.The recommendations will include proposals for the pricing of coaland its railway movement, materials handling and sea transport.Preliminary recommendations are required by March 31, 1979 and indetail by September 30, 1979.

(d) finalize the detailed engineering, as well as capital and operatingcost estimates, and prepare contract documents consistent with theBank's Guidelines for Procurement and a detailed implementationschedule. While the completion of these tasks will be staggeredover time, the procurement documentation will be completed no laterthan June 30, 1980, which is the scheduled date for the implementa-tion of the Project.

40. Five prequalified consulting firms, all having intermodal projectmanagement design and construction experience, have been invited by the PMG,with the agreement of the Bank, to submit proposals to act as the PSC. It isexpected that the selected consulting firm will start work in Indonesia nolater than July 1, 1978. It is estimated that approximately 1,400 man monthsof consulting time would be required to complete the PSC's assigned tasks.

41. The prequalification and selection of the PSC and of the firmsto provide technical and legal assistance to the PMG are being carried outin accordance with the Bank's policies for the recruitment of consultantsand the terms of their contracts will be subject to Bank approval(Sections 3.02 (a) and 3.03 (a) of the Loan Agreement).

42. Cost Estimate. The estimated costs of the proposed engineeringproject are.

Local Foreign Total Total----- US$ million ----- …

Project Management Group (PMG) 1.86 0.25 2.11 16.0Technical Assistance 0.21 0.98 1.19 9.0Legal Assistance - 0.05 0.05 0.4Project Services Contractor (PSC) 0.66 6.90 7.56 57.2Physical Contingencies 0.13 1.00 1.13 8.5Price Contingencies 0.11 1.07 1.18 8.9

Total project costs 2.97 10.25 13.22 100.0

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43. The above cost estimates are based on an examination of consultantssubmissions to act as PSC and,to provide technical assistance to the PMS and

an estimate of the time-and skills-Erequired.-to complete the tasks-enumeratedin the.consultants' terms of reference. Technical-.assistance to the PMG.is

estimated to require approximately-90man-months of expatriate consultanttime at a cost per, man-month of about $8,\900 which includes salaries, overheadsand overseas allowances. Approximately 1j,4,0Q man-months of consulting time.will be required by the PSC;at a cost- per man-month of, about. $7,300 forexpatriates and $1,400 for local consultants and staff. As the initial.studies carried out by the PSC. may indicate the need-,for additional minedrilling, a breakwater at Lamp.ung Bay-, aniexpanded marine facility at Suralaya,or oLher engineering work not included in the basic scope of the PSC's termsof reference, a provision for physical contingencies has been included in theist estimate. Such modifications to the scope of the engineering project

would-be agreed-with t-he Bank before implementation by the PSC (Section.3.09(d) (iii) of the Loan Agreement). Any cost overruns associated with theproposed engineering project would be financed by the Government (Section3.01 of the Loan Agreement)-.

Finance and Disbursement

44. The proposed loan of $10.0 million would finance 76% of thetotal cost ,of the ongoingjproj,ect.- which. is equivalent to the.estimatedforeign exchange-,cost excluding t-he foreign .travel-costs of the Indonesiansemployed by the PMG.l The pr-,oject's foreign exchange costs include up to.$225,000 for technical, and legal assistance to,the PMG which will be incurredprior to loan signature, and,it is recommended that this be financed by theBank retroactively. Disbursement will b.e made.,against: - (a) 90% of thetotal.costs associated w-ith the PSC;- and (b).100% of the foreign costsassociated with the provision of legal assistance to the PMG and technicalassistance to the PMG and PNB. The foreign cost of the PSC's contract isestimated,at approximately 90t of the total contract-,cost.. If the PSCeffectivelyi used local consultants to a g,reater extent than presently anti-cipated, the Bank would be financing,some local,costs.; the amount of localcost financing would be small, however, and would be appropriate in order toavoid,discour-aging the PSC from using local consul-tants to the maximumfeasible. extent.

45. The loan would be made.to,the.-Rep.ublic of:Indonesia, and would berepayable in 10 years including,3 years of grace through,semi-annual install-ments.with interest,at 7..5% per annum. The- Government would financethe remaining costs esti.matied to be apprioximately $.3..0 million. T-he Bankloan.would be refinanced under any later loan or credit that the Bank Groupmight make for the Project-

Benefits and Risks

46. If the Project proves feasible, the main benefits,which will resultfrom its completion will be a lowering of the economic cost of producingelectricity in Indonesia and the substitution of approximately 2.5 milliontons of coal not ideally suited for export for approximately 9 millionbarrels of oil per annum that would have been required to produce 750 KW ofelectricity. Suralaya would be the first coal based electricity facilityoperated by PLN.

- 16 -

47. Previous studies have left unresolved a number of questions as tothe exact definition of the recoverable coal reserves at Bukit Asam and adrilling program is underway to answer these questions. It is expected thatthe PSC will develop the necessary information by September 30, 1978, in timefor the appraisal of the Suralaya power project. If it is determined at thattime that the coal reserves at Bukit Asam are not suitable, or, if coalcannot be delivered to Suralaya at an economically competitive cost, theconsultant services would be terminated and approximately $8.5 million of the

loan would be cancelled. In this event, another scheme for power generationwould be substituted for the proposed Suralaya power project. If, byOctober 31, 1978, uncertainties still remain regarding the viability of theProject, consideration would be given to allow the PSC to undertakefurther investigations in order to obtain a definitive conclusion. Such'drther work would need to be agreed with the Bank (Section 3.02(d)(ii) ofthe Loan Agreement) after an examination of the repercussions that such adelay would have on the implementation of the Suralaya power project. In theevent that further study proved that the Project was not viable, all con-tracts would be terminated and the balance of the loan cancelled.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

48. The draft Loan Agreement between the Republic of Indonesia andthe Bank and the Report of the Committee provided for in Article III,Section 4(iii), of the Articles of Agreement are being distributed to theExecutive Directors separately.

49. In addition to the features of the Loan Agreement which arereferred to in the text and listed in Section III of Annex III, the follow-ing features are of particular interest:

(a) the employment by the Borrower of the PSC and the consultantproviding technical assistance to the PMG are conditions of effec-tiveness (Section 5.01 of the Loan Agreement);

(b) conditions of disbursements would be: (i) for disbursements forwork of the PSC and related technical and legal assistance afterOctober 31, 1978, that the Borrower and the Bank agree that theProject is technically and economically viable; and (ii) fordisbursements for such work after June 30, 1979, that the Borrowerand the Bank agree that the Project configuration proposed to beimplemented by the PMG, on the basis of the recommendations madeby the PSC, is optimal. If no such agreement were to be reached,the funds allocated for further studies would be cancelled (para-graphs 4(b), 4(c), 7 and 8 of Schedule 1 to the Loan Agreement).

50. I am satisfied that the proposed loan would comply with theArticles of Agreement of the Bank.

- 17 -

PART VI - RECOMMENDATION

51. I recommend that the Executive Directors approve the proposed loan.

Robert S. McNamaraPresident

Attachments

April 24, 1978

Washington, D.C.

AINEX ITABLE 3APae1o 4pgs

INOONESrA - SOCIAL INDICATORS DATA SHEET Page 1 of 4 pageeLAND AREA (THOU KM2) - - INDONESIA REFERENCE COUNTRIES (1970)

TOTAL 1904.3 MOST RECENTAGRIC. 263.8 1960 1970 ESTIMATE BANGLADESH INDIA PHILIPPINES**

GNP PER CAPITA (USS) 90.0 * 130.0* 240.0 */a a0.O 100.0* 230.0*

POPULATION AND VITAL STATISTICS

POPULATION (MID-YR. MILLION) 94.7 117.6 135.2 /a 70.8 547.6 36.9

POPULATION OENSITYPER SQUARE KM. 50.0 62.0 71.0 ja 492.0 167.0 123.0

PER SO. KM. AGRICULTURAL LAND 337.0 419.0 476.0 a 730.0 306.0 375.0

VITAL STATTSTICSCRUDE BIRTH RATE (/THOU, AV) 46.0 45.9 42.9 50.3 41.0 44.2

CRUDE DEATH kATE (/THOU.AV) 25.4 20.6 16.9 22.9 19.0 13.2INFANT MORTALITY RATE I/THOU) 125.0 .. .. .. .. 8t.0LIFE EXPECTANCY AT BIRTH (YRS) 47.5 .. 48.1 43.2 47.2 55.6GROSS REPRODUCTION RATE 2.8 6 3.2 3.1 3.1 2.9 3.3

POPUL:TION GROWTH RATE ()2TOTAL 2.1 2.0 2.4 2.8 2.2 3.0URBAN *- 2.7 Li 4.1 6.2 3.2 4.0

URBAN POPULATION (X OF TOTAL) 14.9 17.1 /b 19.2 6.4 19.8 27.6

AGE STRUCTURE (PERCENT)0 TO 14 YEARS 42.1 L 44.0 43.9 L .. 41.6 45.815 TO 64 YEARS 15.2 4 52.5 53.6 a *- 55.3 51.665 YEARS AND OVER 2.6 4a 2.5 2.5 a 3.1 2.8

AGE DEPENDENCY RATIO 0.0 6.9 0.9 .. 0.8 0.9ECONOMIC DEPENDENCY RATIO 1.4 .. 1.3L / .. i.' Li 1.5

FAMILY PLANNINGACCEPTORS (CUMULATIVE. THOU) .. 259.3 5 6796.2 /C *- 14585.0 320.0

USERS (X OF MARRIED WOMEN) .. .. .. .. .. 2.0

EMPLOYMENT

TOTAL LABOR FORCE (THOUSAND) 34600.0 .. 44200.0 /b 22300.0 218000.0 12400.0

LABOR FORCE IN AGRICULTURE (5) 75.0 .. 69.0 A 71.0 69.0 s5.0LaUNEMPLOYED (X OF LABOR FORCE) 1.4 .. d .. .. 7.6

INCOME DISTRIBUTION_______ -- --_ _ ___

S OF PRIVATE INCOME RECOD BY-HIGHEST 5 OF HOUSEHOLDS .. .. 33.73/e 16.7 /a 25.0 lbHIGHEST 20% OF HOUSEHOLDS .. .. 52.0/ 42.3 a S3.1

LOWEST 20% Of HOUSEHOLDS .. .. 6.8 7 7.9 4.7

LOWEST 40% OF HOUSEHOLDS .. .. 17.3 19.6 " 13.1 *-

DISTRIBUTION OF LAND OMNERSHIP

X OWNED BY TOP 10% OF OWNERS 40.0 /b .. .. 24.0.b .X OWNED BY SMALLEST 10% OWNERS 2.0 / .. ..

1 0..

HEALTH AND NUTRITION

POPULATION PER PHYSICIAN 413B0.O/26830.0 16930.0 7600.0 /C 4890.0POPULATION PER NUR.ING PERSON .. 7770.0 O / f IL 72030.0 7 5220.0 /CIPOPULATION PER HOSPITAL BED 1370-0/b 1670 0 1430.0 8 120.0 o 1610.0 850.0

PER CAPITA SUPPLY OF -CALORIES (S OF REQUIREMENTS) 09.0 91.0 98.0 a6.0 / 93.0 93.0PROTEIN (GRAMS PER DAY) 43.0 43.0 43.8 .. 53.0 45.0

-OF WHICH ANIMAL AND PULSE IS.O/d- 14.0 16.6 16.0 22.0

DEATH RATE (/THOU) AGES 1-4 .. .. .. .. .. 6.6

EDUCATION

AOJUSTEO ENROLLMENT RATIOPRIMARY SCHOOL 67.0 68.0 79.0 lR 90.0 65.0 113.0SECONDARY SCHOOL 6.0 12.0 19.0 15.071 .. 49.0

YEARS OF SCHOOLING PROVIDED(FIRST ANO SECOND LEVEL) 12.0 12-0 12.0 10.0 12.0 10.0

VOCATIONAL ENROLLMENT(X OF SECONDARY) 20.0 29.0 32.0 1.0 6.0 8 6.0 .b

ADULT LITERACY RATE (5) 47.0 /a 59.0 62.0 /h *- 23.0*

HOUSING

PERSONS PL. ROOM (URBAN) .. .. 1.6 /bOCCUPIED DWELLINGS WITHOUT

PIPED WATER (%) .. .. .. .. .. 76.0ACCESS TO ELECTRICITY

(X OF ALL DWELLINGS) .. .. .. .. .. 23.0RURAL DWELLINGS CONNECTED

To ELECTRICITY (5) .. .. .. .. .. 7.0

CONSUMPT ION

RADIO RECEIVERS (PER THOU POP) 7.0 . 39.0 B.0 21.0 72.0

PASSENGER CARS (PER THOU POP) 1.0 2.0 3.0 0.4 1.0 B.0

ELECTRICITY (KWH/YR PER CAP) 15.0 20.0 26.0 20.0 114.0 235.0

NEWSPRINT (KG/YR PER CAP) 0.2 0.4 0.4 0.1 0.3 2.0

SEE NOTES AND DEFINITIONS ON REVERSE

Paeg 2 of 4 pages

SAL

Unless otherwise noted, data fw 1960 refer to any rest between 1959 end 1961, fOr 19-70 between 1966 and 1970, and for Moat Recent Estimate betwee

1973 and 1975.

GCi?P per capita date an baed on the World Bank Atlas .ethOdolOg (1974,76 heasis).

- The PhilLppinan has keen selected as so objective counotry for its geograpbicei si"milrity sod because of its apparent advance acage of aconoic

dve-lop-sot.

DMO A !96 L. Excludes Weat trian; lb 1962; le. 1931-56; /g 1961-63; LI 10 years and over, ability to read end write,in either Latin or notiLetifl characters.

1970 J. 1961-71; Lb 1971; I. 1968-70; LA lncluding nuree-nidvives.

MOST! IICUa EsfTAf: La 1976; ab 19fl; La 1968-73; Ld Mostly imneloped workes seaking their first job; Le Inca"erecipiente; Lf Inclueing sidwive; LI lPst nerollssnt; Lk tO year and over, ability to reed andwrite inL either Latin or non-Latin characters.

BAICLAIEMS 1970 a,196-67; /b 196748; a, Registered, not all precticiog In the country; 4.d Govermneent hospital establiahento

________ - ~only; /s Average 1969-71; /f Apprzmnte enrollnsnt as percentage of population Ltc 6-10 sod 11-15 ago groupsreapsotively.

hDA 1970 /sRatio of population under 15 end 63 end ousr to labor force age LS and over; a, 1967-68; a, Including nidwives;

Li 1967.

-HItLIPPtliES 1970 La AS PerCentage Of aWinpl11uet Lb Hot includLin private vocational schools.

RIB, January 26, 1979

owulils oP SXciL UDICA1K

I rs(thou ~ b2) oulto ost ureie ean euel iIe ynMar or practicing

'd-Total Surface are cOoprialog teed are and island wetere. ees4faegeuas a, 'trained' or "certified' oursee, and

orte. M- Motrcatetimate of triculturel ens used teeponraily Or peia- euniliary peronnel wick trainig or aepsriancs.neotly for crops, psetura, aerket & kitchen grdena or to lie fatly. hn11IIIsPar.± l8iMl. Pod- pulation divided by n.ber of hospital beds

aneilablinpublin; Leand private gemerel sod aPocilisend hoepital and

CR? et sola (03) GCNP Per capita estimates at curren t nerket prices, rehabilitation cnters; eCludsa nursing hoses and sstsblinhesnte to.

cacltdby am conversIon, osthod as world Bank Atlas (1973-75 basin); cutedinl and Preventive cere.1960;, 1970 end 1975 data. PerT caita ewol, of calories % of reomirsemntsl - COopoted fie_ energy

equivalent of net food supplies avaiabls incmustry per caia e day;-4 yi-I cati.tic! ~ ~ ~ ~ ~ ~ ~ ~ vilbl sppis nrlsdostecl productIon Loporca lees. Po...ta and

Ponualn mdyareit sof Juyfirst: if not available, average Changes in sock; c-sppIlsS aexlude anima food, seeds, quanrtit usaead

of tue end-ear estimaes;116.0. 19700and 1975 data. in food processing and loose in distributIon; requireast, wer estivnetdby TAO based on Physiological naeed for nornal activity end health cuMied-

!oowltien density- oar a-o uatsb - Mid-year pepliation per aware bilosseter erieg soirivoatal tnpsPebote. body weights, age and see distrIbution of

(100 h..ct_e) oftotaL area,. population, and Allowing 1in for waste at boesehold level.PruLott1ou densit - net snun ho of eerie, Land - Ctopnotd es above for Ner csit ecl feoel r e l - Protin naneso of per ceplce

agrlcoturel l ndoLy. Mat supyo fodprdy ntapl t food is defined So show; equir--nenta for el1 coontries established by USDA Econosic leaserch Servion

Vinta eteistice Provide for a iniesse ailowance of 60 growa of total protein per day, and

Crda birth rat et thousnd avrses - Annual lIve birtha per thouaand of 20 gras of animal and pulse protein, of which 10 gross should be anIma

old-_a popltIon; te-e r, _ri Leti averages endin In 1960 and 1970, prtotin; th"es atendards an lomt then th-os of 75 greas of total protein

and fiv-y-r a-.t-S. ening In 1973 for net reMat estiasa. ean 23 gras, of animal Protein es an avorgs for the _orld, proposed by fAC

Crude death rate net thousand. yavas, - Annual deaths pot thousand of nid-pear In the Third World Pond Survey.

population; tn.-year erittestis enr-aes ending In 1960 end 1970 and fiv- Par caia orti so finel aniMal and roles - Protein wepply Of fond

year averag endi.g in 1975 for nest tenatesia, derive finr elol andlm pulses in grans per day.Infet nrcaiyrats f/thou) -Annual daotho of infaent under as year of aSs. et a fto) se - Anual deaths per th-ouad L. age group lJ"

po t t Soue lIebirths. yastocildrn in S.- g grow; ..Suggstd aanindictoCr of

Lif. xscan ec birttth (viey vra geA-S Wober of pears of life recaicing at seloutrition.birth; usually five-year enrages ending in 1960. 1970 and 1P75 fot davelop-

log countries. edusatboIr-on reoroduetion rats - Average ousbor of live daughters a wan will beer Adjusted enrollen Iei tmey sho - tErollmet of all eges as per-

in her Mcoral rerdc Ieproafse xaioe rsn g-pecfcc-antga of poiayatol-g poultion; includes Children aged b-tl years

fertility rtate; uausIly fivs-yur averages ending in 1960, 1970 and 1975 hut edjetsd for different lengtha of primary education, for ctoutries sith

for dov.PAloi countries. universal education, enrollment ney sneed 1001 Since a_ pupls era hol_

ponultion styd rte CZ) - totall - Cospound annual grwtb retus of e-pee7-r or above the official school age.

pouoinfr1950460. 1960-70 sod 1970435. Adutd erlmn ei so r scoo Couputad es beys: se.osdery

Povoati nwcruc rate 1) uba -.COnputed 1LIb grnrth rats of total dctm reies1intforpasof approved priory Inatruotion;

pouation; diffrn efntosf I urbmanenes ny affect anparability of provides general, vocational or teeher treinlog Inatructiell, for puils

date aft cmmntrien. of 12 te 17 yeara of age; ceorsapondenas cournes an generally eo-lodd.

Urba mnpletin C of total) - satio of urbani to ntotl population; differen er fshala rvdd (ist adeaeoevi) sai years of

defisitl .o ur6n nam" mey effect coparebility of data auag coantrias. bseln; a eee, lvl,vctos srsinm e perCially acsompletely exucluded.

Ass strtturo o.ert -a oebdren (0-14 pears), weting-age (15-68 years) Vocatio-alenolmet It Of- scondar - Yanetbosel leatiuttoes InLude"and re2tired f(Alpeasadoe)a ecnae fmdya5euetn tno. cs.. ied,astr.s or ohr progres which oera-te indepadenly or an

Ass deend...y ratI - Rati of populaion under 15 snd 65 and over to cheat depeoteents of secondary Institutions.of ge 15 through 66. Adult literacy rata (11 - Literat adnlts (able to read sd wits) aso per-

Eoononic deosodency ratio - tatio of popuietos todst 15 sod 65 and ovr to .cantos of total adult population. aged 15 yers and over.

che labor tarts in age group of 15-64 year.rentlo lnnn ca.outors iceSulative.thou) - IseLative -boer of acc..pporr Jjfljjs

of bit-otoldvcsuder auspice ofntoa taiypanning progre Perona strm uan-Aaeensr of prersn per rom in occpied

sinc Inception. conve tioa dwllgn in urban area; dwellings seclude non-pemnast

Faniln eI.La.is-ues f of nettle wane - Peroantagas of earnied woen of structures and unoccupied parts.

child-hearing age(15-44 years) hj e birth-control devices to eli earned Otct e wlio ihu sod wtr I)-Ocpedcnetoa oiseeas, in eas age group. ~~~~~~~~~in when sd rural ays withou InsIde or otsid pipedtcaca dtaillta,

as Percentge of all occupied dwellIngs.

onoloneant Access t Oelectricity (1 Of ait dwsllinesl - Conventional dwellings ith

Ioa labor foc ousand) - Econneica11y active persona, Lncluding atnd eleCtricity Ln living quarters es percrrt of tor1 dwellings to urban andfore n oolydht Secluding housewives, students, ertc.; definitions rrlaes

In various counItries an not cotnpareble. tural dontline cntocted to elaciricity Mt - Cteputd as above for rural

Lbrforce in aeiutr M - Agricultural labor force (in feosiog, forestry, dwelling only.bunting and fishing) en peroontage of totel labor force.

V-S.newavd Ct of lsbar force) - Unepoy*d are usualy defined as persona who C~Oapentoa

are ble and wilingta ak a job , out of a job on a given day, mescmed out Radio reCeiver (ear thou one) - All types at receiloer f.r radio broedoasco

of aob, sod wseiegtwortk forolm a- speciftied silems perod not seconding one tognrlpblIc per thound Of population; onClInd unlinensed raenivrer

wea, may nor be cusparebla between countriss due to different definitluns in cosentries and in peers uhan registration Of radIo sets -a in sffst;

of onnployad and source of data, e.g., neployeent off inn Statistics, ~smPIs date for recent pear say not be oearaabl siocs wes cOuntriss abolished

..tV-ys, co-pulsry unamploywent inauranc. lIcensing.ess.ne Arsca (ear tbsu see) - PFass... crcopIs noise care sealing

in-sAJ.rbtig-Par'ontge of privete incas (both in cus end bind) les thn iht penono; includes aboleos, heense. and ilitarvrecevedby rchet t. richest 207. poorest 20,ad poorest AOl of house- vehlclsa.

holds. glectrinity (kwh/vt~~~~~~~~~~~k -Dtca - Asns1 conasuptton of industr.Ial. -mrctslpulcadpiat electric Ity in klI-Ltui hours per capIta, generally

DIls tiltouto Of land -nnerohi -Presoteges of lad nnd by esetthist 101 beed on production dats, eithouc lt ec for boossa In gride but allo-

and poorest 101 of lend onners. tug for teotpate end soporta of electricity.iseworit (a/vt set cas - Per ospit. steua1 tn.-sption, in kitagras,

Ileelfm en"d Nutrritio esiaedfn asat productIon plus eat Imports of newprintpp Lato oa ohvsician - Population, divided by noer of practicing

physician qslifiad Imes a nedical sahool at oiniveaty lawe.

ANNEX IPage 3 of 4 nages

INDONESIA

ECONOMIC D(DICATORS

GROSS NATIONAL PRODUCT IN 197^ ANNUAL RATE OF GROWrH (%, constant prices)

US$ Nil % 1960 -65 1965 -70 1971-75

GNP at Market Prices 28,146 100.0 1.9 4.9 7.1

Gross Domestic Investment 6,891 24.5 3.3 11.5 17.1

Gross National Saving 5,634 20.0 5.8 5.1

Current Account Balance -1,257 4.5

Exports of Goods, NFS 4,738 16.8 1.5 7.8 6.5

Imports of Goods, NIS 5,533 19.7 0.2 10.9 27.1

OUTPUT, LABOR FORCE ANDPRODUCTIVITY IN 1971

1/ 2oceValue Added 7 Labor For2/ V. A. Per Worker

US$ Nil %Mil _ _U

Agriculture 4,221 44.8 30.5 69.0 138 65.0

Industry 1,915 20.3 3.0 6.8 638 300.0

Services 3,279 34.9 8.3 18.8 395 185.0

Unallocated - - 2.4 5.4

Total/Average9,415 100.0 213 100.0

GOVERNMENT FINANCECentral Government

(Rp Bil.) % of GDP

1976/77* 1975/76 1975 1974

Current Receipts 2,904 2,201 18.1 17.0

Current Expenditure 1,613 1.247 10.2 10.2

Current Surplus 1,291 954 7.8 7.7

Capital Expenditures 2,070 1,425 11.7 9.8

External Assistance 784 492 4.0 2.4

* Provisional estimates.

MONEY, CREDIT and PRICES 1971 1972 1973 1974 1975 1976(Billion Rp outstanding end periodT

Money and Quasi Money 469 695 987 1,452 1,995 2,645

Bank credit to Public Sector 387 333 357 412 1,637 1,752

Bank Credit to Private Sector 317 500 908 1,163 1,353 1,690

(Percentages or Index Numbers)

Money and Quasi Money as t of GDP 12.8 15.2 14.6 14.8 16.4

General Price Index (Sept. 1966 - 100) 642 807 1,028 1,370 1,640 1,873

Annual percentage changes insGeneral Price Index 2.6 25.7 27.4 33.3 19.7 14.2

Bank credit to Public Sector .. tl4.0 7.2 15.4 297.3 7.0

Bank credit to Private Sector *- 57.7 81.6 28.1 16.3 24.9

NOTEs All conversions to dollars in this table are at the average exchange rate prevailing during the periodcovered.

1/ Conversion at an exchange rate of Rp 390 - US$1.

2 Total labor force; unemployed are allocated to sector of their normal occupation. "Unallocated"' consists

mainly of unemployed workers seeking their first job.

not available

not applicable

East Asia & Pacific Programs

November 30, 1977

ANNEX I

Paee 4 of 4 pages

TRADE PADEENTS AND CAPITAL FLWW.

BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1973.75)

1974 197 1976 US $ MAl %(Millions USS) Provisional

Exports: 4351 4738 6033 Oil (net) 1897 50.4

Oil (net) 2169 2921 3650 Rubber 416 11.0

Non oil 2182 1817 2383 Timber 602 16.0

Imports -4220 -B533 -6297 Palm oil 132 3.5

Resource gap 131 - 795 - 264 Tin 138 3.7

Factor service: - 210 - 462 - 781 Coffee 99 2.6

Interest - 64 - 178 - 354

Investment income - 146 - 284 - 427 All other commodities 483 12.8

Balance on Current Account - 79 -13257 -1045 Total 3767 100.0

Di r-c Foreign Investment 462 497 432 EXTERNAL DEBT, DECEMBER 31. 1976b.ct MLT Borrowing

Disbursements 664 2395 2365 Us s kil

Amortization - 80 - 322 - 435

Subtotal 584 2073 1930 Public Debt, incl. guaranteed 10,140

Capital Grants 62 .. .. Non-Guaranteed Private Debt

Other Capital (net) - 126 -2250 - 205 Total outstanding & Disbursed

Other items n.e.i - 214 -.46 -j3fl.Increase in Reserves (+) 689 - 983 737 DEBT SERVICE RATIO for 1976-

Gross Reserves (end year) 1473 590 1494 %

Net Reserves (end year) 1472 489 1226 Public Debt. incl. guaranteed 13.1Non-Guaranteed Private Debt

Fuel and Related Materials Total outstanding & Disbursed

Imports 4 120 152of which: Petroleum 1 116 146

Exportsof which: Petroleum 2169 2921 3650 IBRD/IDA LENDING; (December 31, 1977) Million USS

RATE OF EXCHANGE IBRD IDA

Outstanding & Disbursed 402.2 4,55.7____uahJuLyl971 since August 1971 Undisbursed 1,012.5 106.1

Rp 1000 = US$2.67 Rp 1o00 = US$2.41 Outstandin ingl. Undisbursed 1,414.7 561.8

1/ Ratio of Debt Service to Exports of Goods and Non-Factor Services, with oil exports on a net basis(i.e. excluding factor payments and imports of the oil companies)

not available

not applicable

East Asia & Pacific Programs

December 31, 1977

ANNEX IIPage 1 of 19 pages

SUMMARY OF BANK GROUP OPERATIONS IN INDONESIA

A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of February 28, 1978)

US$ million

Loan/ Amounts (less cancellations)

Credit Fiscal Undisbursed

Number Year Purpose Bank IDA Bank/IDA

Fourteen Credits fully disbursed 155.9 0.0

195 1970 Second Irrigation Rehabiitation 18.5 0.1

220 1971 Third Irrigation Rehabilitation 14.5 0.3

246 1971 Seeds 7.5 0.9

259 1971 Tea 15.0 2.6

260 1971 Second Highway 34.0 0.6

288 1972 Second Education 6.3 0.3

289 1972 Fourth Irrigation Rehabilitation 12.5 0.7

300 1972 Population 13.2 5.5

318 1972 Inter-Island Fleet Rehabilitation 8.5 2.1

319 1972 Fourth Agricultural Estates 11.0 3.3

334 1973 Second Electricity Distribution 40.0 1.7

355 1973 Beef Cattle Development 3.6 0.9

358 1973 North Sumatra Smallholder Development 5.0 0.8

387 1973 Third Education 13.5 5.4

388 1973 Third Highway 14.0 1.3

399 1973 West java Thermal Power 46.0 6.3

400 1973 Smallholder and Private Estate Tea 7.8 6.7

405 1973 Sugar Industry Rehabilitation 50.0 4.7

428 1974 Pulo Gadung Industrial Estate 16.5 10.6

436 1974 Private Development Finance Co. ofIndonesia (PDFCI) 10.0 2.8

451 1974 Fourth Technical Assistance 5.0 3.1

479 1974 Bali Tourism 16.0 12.6

480 1974 Fisheries Credit 6.5 2.4

514 1975 Jatiluhur Irrigation Extension 30.0 26.5

1005 1974 Railway 48.0 8.6

1040 1975 Jakarta Urban Development 25.0 4.9

1049 1975 Five Cities Water Supply 14.5 11.8

1054 1975 Development Finance Co.(BAPINDO II) 50.0 4.5

ANNEX IIPage 2 of 19 pages

US$ million

Loan/ Amounts (less cancellations)Credit Fiscal UndisbursedNumber Year Purpose Bank IDA Bank/IDA

1089 1975 Second Fertilizer Expansion 115.0 3-3

1100 1975 Sixth Irrigation 65.0 56.2

1127 1975 Fourth Power 41.0 15.7

1139 1976 Fertilizer Distribution 68.0 5.0

1179 1976 Agricultural Research & Extension 21.5 20.8

1197 1976 National Resource Survey & Mapping 13.0 12.3

1236 1976 Fourth Highway 130.0 117.6

1237 1976 Fourth Education 37.0 35.4

1250 1976 Second Shipping 54.0 52.7

1254 1976 Third Fertilizer Expansion 70.0 22.9

1259 1976 Fifth Power 90.0 85.6

1267 1976 National Food Crops Extension 22.0 20.3

1268 1976 Seventh Irrigation 33.0 27.3

1318 1977 Transmigration and RuralDevelopment 30.0 22.8

1336 1977 Second Urban Development 52.5 36.4

1337 1977 Tanjung Priok Port 32.0 27.21363 1977 Second Private Development

Finance Co. of Indonesia(PDFCI-II) 15.0 14.2

1365 1977 Sixth Power 116.0 98.41373 1977 Nutrition Development 13.0 13.01433 1977 Teacher Training-Fifth Education 19.0 18.51434 1977 Eighth Irrigation 63.0 62.81435 1977 Ninth Irrigation 35.0 33.71437 1977 Development Finance Co.

(BAPINDO III) 40.0 40.01472 1977 Second Population 24.5 24.5

1486 1978 Non-Formal Education 15.0 15.01499 1978 Nucleus Estates and Smallholders 65.0 65.01513 1978 Seventh Power 109.0 109.0

Total 1,526.0 560.8 1,118.6of which has been repaid 2.3 0.0

Total now outstanding 1,523.7 560.8

Amount sold 26.9

of which has been repaid 0.0 26.9 0.0

Total now held by Bank and IDA/a 1,496.8 560.8Total undisbursed/b 1,090.4 102.2 1,192.6

/a Prior to exchange adjustment.

/b Excludes a small enterprise development credit (785-IND), signed on April 7, 1978.

ANNEX IIPage 3 of 19 pages

B. STATEMENT OF IFC INVESTMENTS (as of March 31, 1978)

US$ millionFiscal Loan Equity TotalYear

1971 P.T. Semen Cibinong Cement 10.6 2.5 13.11971 P.T. Unitex Textiles 2.5 0.8 3.31971 P.T. Primatexco

Indonesia Textiles 2.0 0.5 2.51971 P.T. Kabel Indonesia Cable 2.8 0.4 3.21972 P.T. Daralon Textile

Manuf. Corp. Textiles 4.5 1.5 6.01973 P.T. Jakarta Int. Hotel Tourism 11.0 - 11.01973 P.T. Semen Cibinong Cement 5.4 0.7 6.11974 P.T. Primatexco

Indonesia Textiles 2.0 0.3 2.31974 P.T. Monsanto Pan Electronics 0.9 - 0.91974 P.T. PDFCI Devel. Fin. Co. - 0.5 0.51974 P.T. Kamaltex Textiles 2.4 0.6 3.01976 P.T. Semen Cibinong Cement 5.0 1.5 6.51976 P.T. Semen Cibinong Cement - 1.1 1.11977 P.T. Daralon Textile

Manuf. Corp. Textiles 0.3 - 0.31977 P.T. Kamaltex Textiles 1.4 0.1 1.5

Total 50.8 10.5 61.3

Less: sold or repaid and cancelled 25.9 1.7 27.6

Total held by IFC 24.9 8.8 33.7

Undisbursed (including participants' portion) 0.8 - 0.8

ANNEX IIPage 4 of 19 pages

C. PROJECTS IN EXECUTION /1

These notes are arranged by sectors in the following order:

Agriculture Page

Irrigation (Cr. 195, 220, 289, 514, Ln. 1100, 1268, 1434 4and 1435)

Other Agriculture Production (Cr. 259, 319, 355, 358, 400, 6405, 480, Ln. 1318, and 1499)

Agriculture Support Services (Cr. 246, Ln. 1179, and 1267) 8

Education (Cr. 288, 387, Ln. 1237, 1433 and 1486) 9

Energy (Cr. 334, 399, 1127, 1259, 1365 and 1513) 11

Industrial Development and Finance

Fertilizer Production (Ln. 1089 and 1254) 12Industrial Estates (Cr. 428) 13Development Finance Companies 13

Bapindo (Ln. 1054 and 1437) 13PDFCI (Cr. 436 and Ln. 1363) 13

Population and Nutrition

Population (Cr. 300 and Ln. 1472) 14Nutrition (Ln. 1373) 14

Technical Assistance (Cr. 451 and Ln. 1197) 14

Transportation

Fertilizer Distribution (Ln. 1139) 15Highways (Cr. 260, 388 and Ln. 1236) 15Marine Transport (Cr. 318 and Ln. 1250) 16Ports (Ln. 1337) 16Railways (Ln. 1005) 17

Tourism (Cr. 479) 17

17Urban Development (Ln. 1040 and 1336)

18Water Supply (Ln. 1049)

/1 These notes are designed to inform the Executive Directors regardingthe progress of projects in execution, and in particular to report anyproblems which are being encountered and the action being taken toremedy them. They should be read in this sense, and with the under-standing that they do not purport to present a balanced evaluation ofstrengths and weaknesses in project execution.

ANNEX IIPage 5 of 19 pages

C. PROJECTS IN EXECUTION

AGRICULTURE

Irrigation

Credit No. 195 Second Irrigation Rehabilitation: US$18.5 Million Creditof June 15, 1970; Effective Date: December 31, 1970;Closing Date: December 31, 1978.

Initial progress was delayed by difficulties in equipment procure-ment and civil works ex~ecution, and later, by rising construction costs. Theproject is expected to be completed by March 1979. The credit is about 98%disbursed. The rehabilitated and new facilities are technically sound andhydraulically adequate. The quality of maintenance of completed works isimproving with the availability of operation and maintenance funds substan-tially higher than previous levels. The estimated project cost has more thandoubled since appraisal due to high inflation rates and increases in contractquantities, but the estimated economic rate of return remains satisfactorybecause rice prices and yields have been higher than those projected duringappraisal.

Credit No. 220 Third Irrigation Rehabilitation: US$14.5 Million Creditof November 6, 1970; Effective Date: May 28, 1971;Closing Date: December 31, 1978.

Overall project completion is expected by about September 1978,about 3 years years behind schedule. The problems which caused this delay -difficulties in preparation of contract documents, late financial allocations,heavy rains in the 1973 construction season and, more recently, high inflationrates and consequent civil works cost overruns - have been overcome, buttime lost cannot be regained. The project is now essentially completed with97% of the Credit disbursed. The quality of maintenance of completed worksis improving with the availability of operation and maintenance funds substan-tially higher than previous levels. The estimated project cost is about twicethe appraisal estimate, but rice prices and yields substantially higher thanthose projected at appraisal enable the project to achieve an estimatedeconomic rate of return of over 20%.

ANNEX IIPage 6 of 19 pages

Credit No. 289 Fourth Irrigation Rehabilitation: US$12.5 Million Creditof March 9, 1972; Effective Date: May 5, 1972; ClosingDate: December 31, 1978.

The construction program has escalated in cost by 190% over theappraisal estimate due to an increase in the magnitude of the works and priceescalation due to unexpected inflation. About 70% of the works are finishedand completion of the project is expected by March 1979. The Credit is

about 92% disbursed. Feasibility studies included in the project have beenconcluded and groundwater investigations are nearing completion.

Credit No. 514 Jatiluhur Irrigation Extension: US$30 Million Creditof October 3, 1974; Effective Date: January 10, 1975;Closing Date: December 31, 1980.

Initial organizational difficulties and a delay in awarding thefirst construction contract have caused a delay of about 2 years in theproject schedule. The first construction activity started in February 1977and good progress has been achieved. The remaining contracts are expected tobe awarded in the next 6 months. Based on bid prices for the first contractand revised quantity estimates on the basis of detailed design, the totalproject cost is now estimated to be about 140% over the appraisal estimate.

Loan No. 1100 Sixth Irrigation: US$65 Million Loan of April 10,1975; Effective Date: June 20, 1975; Closing Date:June 30, 1982.

Most of the project programs have advanced well during the pastyear. Design of works for the Cirebon and Rentang subproject systems isbeyond the capability of PROSIDA to execute, and assistance has been providedunder Loan 1434-IND to expedite this work through the use of local consultants.Critical review of the program for benefit monitoring is under way.

Loan No. 1268 Seventh Irrigation Project: US$33 Million Loan of June 4,1976; Effective Date: September 21, 1976; Closing Date:December 31, 1981.

The implementing agencies have completed the engagement of theconsultants. The project is slightly behind schedule in the North Sadang andtertiary development areas. The mapping program is progressing satisfactorily.Disbursements are well ahead of schedule.

Loan No. 1434 Eighth Irrigation Project: US$63.0 Million Loan of June 6,1977; Effective Date: July 7, 1977; Closing Date: March 31,1983.

The project is progressing satisfactorily and is on schedule.

ANNEX IIPage 7 of 19 pages

Loan No. 1435 Ninth Irrigation Project: US$35.0 Million Loan of June 6,1977; Effective Date: July 7, 1977, Closing Date:

December 31, 1981.

The project is on schedule and progressing satisfactorily.

Other Agriculture Production

Credit No. 259 Tea: US$15 Million Credit of June 24, 1971; Effective Date:September 17, 1971; Closing Date: June 30, 1978.

Nearly all the targets set at appraisal have been achieved one year

before project completion, but factory capacity still has to be increased

to take account of the increased production which exceeds appraisal estimates

by about 5,000 tons or 25%. Inflation and additional construction and

equipment costs are expected to increase project costs by about 17% above

appraisal estimate.

Credit No. 319 Fourth Agricultural Estates: US$11 Million Credit ofJune 28, 1972; Effective Date: January 30, 1973;Closing Date: June 30, 1981.

Progress of the project continues to be good with planting of

rubber and oil palm ahead of appraisal estimates and in excellent condition.

The project has been expanded to 15,000 ha (originally 11,400 ha). The

remaining area to be planted is about 3,500 ha of which 2,300 ha have been

cleared and are ready for planting in early 1978. Technical problems exist

in processing and equipment maintenance but construction of the oil palm millwill be accelerated and additional capacity for crumb rubber production willalso be provided. Profitability and cost of development at PNP X are satis-factory, while the capital structure of PNP X is to be improved during the

course of the Nucleus Estates and Smallholders I Project.(NES I -Loan 1499-IND) PNP X is participating in both the NES I project and the

Transmigration and Rural Development Project (Loan 1318-IND).

Credit No. 355 Beef Cattle Development: US$3.6 Million Credit ofJanuary 31, 1973; Effective Date: May 30, 1973;Closing Date: September 30, 1980.

Several problems have seriously delayed project implementation.

Government's budget allocation has been insufficient, and financial manage-

ment and coordination have been weak. The January 1977 review mission's

recommendations, which included major changes in project scope and objectives,

were approved by the Executive Directors in June 1977. These amendments

reflected a change in the project from one of breeding and fattening of beef

cattle for export to that of production of improved cattle for domestic sale

as draft and breeding animals. The project was reveiwed in November 1977 andthe mission found the state of ranch development and management satisfactory.

ANNEX IIPage 8 of 19 pages

Credit No. 358 North Sumatra Smallholder Development: US$5 Million Creditof February 14, 1973; Effective Date: August 13, 1973;Closing Date: December 31, 1981

Progress of this project continues to be satisfactory, and the full

program of planting 9,000 ha of rubber and oil palm by smallholders wascompleted by the end of 1977. By 1981, when the project is completed, theseolantings will have been brought to maturity. Government has decided not to

expand the project in its present location because of the extensive supportalready given to North Sumatra Province through this and other Bank supportedprojects; instead, Government is seeking the Bank's assistance for small-holder development projects in other Provinces, including Aceh, Jambi, Riau,S. Sumatra, W. Kalimantan and S. Kalimantan.

Credit No. 400 Smallholder and Private Estate Tea: US$7.8 Million Creditof June 22, 1973; Effective Date: November 30, 1973;Closing Date: March 31, 1982.

Disbursements are slower than anticipated and are about a third of

appraisal estimates. This is due to fewer than anticipated credit applica-tions mainly because smallholder tea price has been higher than anticipatedat appraisal, which reduced the need for subloans. Also private estates have

been slow in joining the project because of their difficult financial posi-tion, which made them ineligible for subloans and because of difficulties

in establishing land ownership titles. The Project Management Unit (PMU) isnow considering two alternatives: completion of planting by 1980/81 extendingthe project period by two years to achieve 80% of appraisal estimates; or,achievement of 53% of appraisal estimates by 1978/79. The project spin-offand training have been excellent; about 2,300 ha of tea were replanted orrehabilitated using funds outside the credit program but still under theinfluence of the PMU. Over 3,000 farmers have been trained in trainingcenters and village level courses. A marketing study indicates that teaconsumption in Indonesia increases by 5% yearly and all of the tea producedby the project will be consumed domestically.

Credit No. 405 Sugar Industry Rehabilitation: US$50 Million Credit ofJund 26, 1973; Effective Date: April 22, 1974;Closing Date: June 30, 1979.

The project is on schedule and about 75% completed. The JointSugar Projects Unit is efficiently supervising the procurement and installa-tion of machinery and equipment. The two PTPs which are involved in therehabilitation process are both in a weak financial position and thisproblem requires attention. Consultant services are gradually being phasedout as planned except for the sugar research station which still requires amajor input.

ANNEX IIPage 9 of 19 pages

Credit No. 480 Fisheries Credit: US$6.5 Million Credit of June 14, 1974;Effective Date: January 8, 1975; Closing Date:June 30, 1979.

After some initial delays, the project has generally been progres-sing satisfactorily. Construction of shore facilities at Ambon is virtuallycompleted. Boat construction is under way and all related equipment is onsite ready for installation. While the quality of fishpond lending hassuffered some deficiencies in the past, remedial action taken by Bank RakyatIndonesia is gradually improving the situation.

Loan No. 1318 Transmigration and Rural Development Project: US$30 MillionLoan of July 21, 1976; Effective Date: February 28, 1977;Closing Date: December 31, 1981.

In 1976 the first 416 families moved as scheduled from Java toBaturaja, Village 1. During 1977 some 200 ha of food crops and 318 ha ofrubber were planted, and an additional 149 families were settled in Village2. Houses were completed for another 100 families who will be settled earlyin 1978; 50 more houses are under construction and the remaining housesshould be started soon. Physical layout plans for Villages 3 and 4 have beencompleted and will be reviewed with the Bank in January. Project progress isgenerally satisfactory. Continued improvement is expected in project adminis-tration following the appointment of consultants to the Project ManagementUnit in mid-1977.

Loan No. 1499 Nucleus Estates and Smallholder I Project: US$65.0 MillionLoan of November 18, 1977; Effective Date: January 12, 1978;Closing Date: June 30, 1982.

This loan became effective on January 12, 1978.

Agriculture Support Services

Credit No. 246 Seeds: US$7.5 Million Credit of May 19, 1971; EffectiveDate: December 7, 1971; Closing Date: June 30, 1978.

At Sukamandi 1,600 ha have been developed and it is planned todevelop an additional area of 400 ha in 1978. Significant results as of1976/77 season, expressed as percentages of appraisal estimates are:(a) area under production - 2,020 ha (54%), (b) yields of rice seed -2.9 tons/ha (72%), and (c) production of certified seed - 4,900 tons (42%).Due to cost escalations and implementation difficulties, only one seedmultiplication district, Klaten, out of the three planned at appraisal, hasbeen developed. Total area developed so far is 250 ha of a total estimate of500 ha. National Seeds Corporation's cost of production continues to be highand it is not commercially viable even with increases in production. TheCorporation will need continued financial support from the Government.

ANNEX IIPage 10 of 19 pages

Loan No. 1179 Agricultural Research and Extension: US$21.5 Million Loanof December 19, 1975; Effective Date: February 23, 1976;Closing Date: December 31, 1981.

The project having suffered initial delays is about one year behindthe appraisal report schedule, but is now progressing satisfactorily.Architects for civil works construction have now completed schematic drawings,a contract for provision of technical assistance for research is under activeimplementation and an agreement with FAO for technical assistance in extensionof agricultural information was signed in October 1977.

Loan No. 1267 National Food Crops Extension Project; US$22 Million Loanof June 4, 1976; Effective Date: September 21, 1976; ClosingDate: June 30, 1982.

The construction and procurement programs, after a somewhat slowstart, are now on schedule. Staff appointments are on schedule with theexception of some supervisory staff and subject matter specialists outsideJava. The new extension methodology has been adopted in all project provincesand is being gradually applied. The coordination of extension services betweenthe five directorates general in the Ministry of Agriculture has not beenfinalised; this matter is being closely followed. Improvements in projectmanagement, and accounting are also being sought.

EDUCATION

Credit No. 387 Third Education: US$13.5 Million Credit of June 1, 1973;Effective Date: August 29, 1973; Closing Date:December 31, 1981.

The project finances the production and distribution of 138 millionprimary school textbooks, and related in-service training for 350,000 primaryschool teachers. Printing of 81 million textbooks has been completed,generally about nine months behind schedule. Similar delays are expected inthe printing of 31 million books for 1977/78, due in part to delays in paperprocurement. Teaching equipment has been procured and delivered. Teacher

ANNEX IIPage 11 of 19 pages

training is on schedule and 3,800 tutors and administrators and 370,000teachers have participated in training seminars. Due to delays in bookproduction, it has proved difficult to keep the training program in phasewith book deliveries. Project management has been strengthened by additionspecialists under a technical assistance contract signed with UNESCO. TheGovernment is presently seeking additional technical assistance in publishingand paper procurement. Disbursement has improved and is now 91% of theappraisal estimate as against 69% a year ago. The Government is planning amajor review of the project to focus on its relation to other ongoing Govern-ment textbook projects and to overall future needs for production ofinstructional materials.

Loan No. 1237 Fourth Education Project: US$37 Million Loan of April 15,1976; Effective Date: June 17, 1976; Closing Date:December 31, 1980.

The project suffered initially a ten-month delay due to latesigning of the Funds-in-Trust agreements with the UN agencies providingtechnical assistance and slow site selection. However, since January 1977,no further delays have occurred and good progress is now being made inimplementation. Cumbersome implementation procedures in the Department ofManpower are still a potential source of delay for that Department's sub-proiect and should be kept under review. Architectural designs for all threesubprojects have been prepared by consultants and approved by the Bank. Mostsites have been acquired and surveyed. Construction firms have been prequal-ified. Tenders for construction of 14 to 24 project institutions will becalled in the next six months. Equipment lists are in advanced stages ofpreparation. Eleven additional technical assistance specialists assumedtheir posts over the last six months and the technical assistance program isproceeding satisfactorily.

Loan No. 1433 Teacher Training Project: US$19.0 Million Loan of June 6, 1977;Effective Date: July 7, 1977; Closing Date: June 30, 1983.

Overall project implementation is satisfactory. The overseasfellowship program to train 40 Indonesian educators in ways to improveteacher training has started. The technical assistance contract has beensigned. The design of physical facilities has fallen behind schedule becauseof delays in appointing consultant architects.

Loan No. 1486 Non-Formal Education Project: US$15.0 Million Loan ofSeptember 14, 1977; Effective Date: November 4, 1977;Closing Date: June 30, 1983.

Initial implementation progress is satisfactory with the exceptionof delays in selecting a technical assistance contractor.

ANNEX IIPage 12 of 19 pages

ENERGY

Credit No. 334 Second Electricity Distribution: US$40 Million Creditof September 29, 1972; Effective Date: March 12, 1973;Closing Date: June 30, 1978.

The Jakarta distribution program financed from Credits 165-INDand 334-IND (together $55 million) encountered setbacks in implementationdue to delays in the preparation of designs for the system expansion becauseof constantly changing city development plans during the early period ofimplementation, procurement problems and cumbersome management procedures.As a result the project is two years behind the original schedule. Thesedifficulties have been resolved and recent progress is encouraging. TheClosing Date has been postponed from December 31, 1977 to June 30, 1978to allow additional time for the delivery of some recently ordered goods.Completion of voltage changeover and connection of consumers will requireanother 12 months after Closing Date.

Credit No. 399 West Java Thermal Power: US$46 Million Credit of June 22,1973; Effective Date: August 28, 1973; Closing Date:June 30, 1978.

Bids received for the first two 100 MW units at Muara Karang (PartA of the Project) were about 65% higher than estimated at the time ofappraisal. This, together with construction cost increases, has resulted inan increase in the total project cost of more than 100%. Government willprovide the additional funds required. The additional financing requirementsled to a delay in the award of the general construction contract and, as aresult, the project is about two years behind schedule. PLN has satisfactorilymet the targets in its financial recovery plan (Part B) provided forunder the terms of the Credit Agreement. The Java System Study (Part C) hasbeen completed. The Citarum Hydroelectric Feasibility Study (Part D) had tobe extended by another working season to complete additional field work. Itis likely that the Closing Date of the Credit will need to be postponed byabout 12 months.

Loan No. 1127 Fourth Power: US$41 Million Loan of June 17, 1975; EffectiveDate: October 23, 1975; Closing Date: June 30, 1980.

Part A of the project provides for the expansion of the MuaraKarang thermal power station at Jakarta by addition of a third 100 MWgenerating unit. The general construction contracts covering this unit aswell as the first two financed under Credit 399-IND have been awarded althoughafter some delay because of the problems of cost-overruns for the first twounits. The Financial Recovery Plan (Part B) and feasibility study for a newthermal plant in West Java (Part C 1) have been completed. The TrainingProgram (Part D) is proceeding satisfactorily. Implementation of the projectis now satisfactory but final completion will be about 18 months behind theoriginal schedule.

ANNEX IIPage 13 of 19 pages

Loan No. 1259 Fifth Power Project: US$90 Million Loan of May 20, 1976;Effective Date: September 20, 1976; Closing Date:March 31, 1981.

The procurement of equipment is under way but disbursement issubstantially behind schedule. Orders have been placed for the first ofthree lots of equipment for about $11.0 million; these are now beingreceived enabling field work to be commenced. Bids are being issued for thesecond lot worth about $40.0 million and arrangements for constructionaltered to speed up implementation. Nevertheless a delay of about a year isexpected in completion of the Project, due to the slow start. Part B of theProject (the financial recovery plan) has been completed.

Loan No. 1365 Sixth Power Project: US$116 Million Loan of February 4, 1977;Effective Date: June 6, 1977;Closing Date: December 31, 1982.

Orders have been placed for main generating plant and equipment.

Loan No. 1513 Seventh Power Project: US$109.0 Million Loan ofFebruary 3, 1978; Closing Date: December 31, 1983.

This loan is expected to become effective in May 1978.

INDUSTRIAL DEVELOPMENT AND FINANCE

Fertilizer Production

Loan No. 1089 Second Fertilizer Expansion: US$115 Million Loan ofFebruary 28, 1975; Effective Date: April 29, 1975;Closing Date: August 31, 1978.

The project (PUSRI III) was mechanically completed in December1976, one month ahead of schedule. Some operational difficulties are yet tobe resolved. The PUSRI III gas system has been completed. Total cost ofPUSRI III is expected to be within the appraisal estimate.

Loan No. 1254 Third Fertilizer Expansion Project: US$70 Million Loan ofMay 20, 1976; Effective Date: August 15, 1976; Closing Date:June 30, 1979.

The project (PUSRI IV), which is designed to have an annual cap-acity of 570,000 tons of urea, was commissioned in mid-October 1977, i.e.,about three months ahead of schedule. The total project cost is expected tobe below the appraisal estimate.

ANNEX IIPage 14 of 19 pages

Industrial Estates

Credit No. 428 Pulo Gadung Industrial Estate: US$16.5 Million Creditof September 14, 1973; Effective Date: November 13,1973; Closing Date: December 31, 1978.

The estate is progressing satisfactorily. Of 430 ha of raw land

earmarked for acquisition, 290 ha had been acquired as of May 1977 and

acquisition of another 31 ha is under negotiation. 104 ha of the 129 ha of

developed land have been sold to 83 firms. Factory employment at full capa-city will be around 17,000 and an estimated 1,400 are employed on the average

in both factory construction and land development. Overall, operations areprofitable. The return on capital investment, which is now projected to be

20.6%, is significantly higher than the appraisal forecast of 13.4%. This is

due to the fact that developed land values are rising faster than the cost

of raw land and development.

Development Finance Companies

Loan No. 1054 Development Finance Co. (BAPINDO II): US$50 MillionLoan of November 20, 1974; Effective Date: January 14,1975; Closing Date: December 31, 1978.

The loan is expected to be fully committed in the fourth quarter of1977. Despite significant institutional improvements achieved by BAPINDO,

the company has still a high level of arrears; its appraisal work is slow andadministrative costs are excessive. These problems are being addressedthrough a Program of Action discussed and agreed among the Government,

BAPINDO and the Bank.

Loan No. 1437 BAPINDO III Project: US$40.0 Million Loan of June 6, 1977;Effective Date: September 23, 1977; Closing Date:September 30, 1981.

This project is progressing satisfactorly.

Credit No. 436 Private Development Finance Company of Indonesia (PDFCI):US$10 Million Credit of November 2, 1973; Effective Date:

March 6, 1974; Closing Date: December 31, 1978.

Despite a long start-up period and difficulties in recruiting

qualified staff, the project has progressed satisfactorily. The Credit is

fully committed.

ANNEX IIPage 15 of 19 pages

Loan No. 1363 Second PDFCI Project: US$15 Million Loan of January 28,1977; Effective Date: April 21, 1977; Closing Date:June 30, 1981.

The project is proceeding satisfactorily.

POPULATION AND NUTRITION

Credit No. 300 Population: US$13.2 Million Credit of April 20, 1972;Effective Date: November 2, 1972; Closing Date:June 30, 1978

The national family planning program, of which the project isan integral part, is expanding in terms of the numbers of new acceptorsrecruited annually and now covers about 18% of all married women in thereproductive age group. Implementation of the civil works component isnow on schedule.

Loan No. 1472 Second Population Project: US$24.5 Million Loan of July 6,1977; Effective Date: August 4, 1977; Closing Date:April 30, 1983.

Progress under this project is satisfactory.

Loan No. 1373 Nutrition Development Project: US$13.0 Million Loan ofMarch 14, 1977; Effective Date: March 31, 1977; ClosingDate: March 31, 1982.

The initial progress under this project is satisfactory.

TECHNICAL ASSISTANCE

Credit No. 451 Fourth Technical Assistance: US$5 Million Credit ofJanuary 2, 1974; Effective Date: February 15, 1974;Closing Date: December 31, 1979.

Progress under the project is satisfactory.

Loan No. 1197 National Resource Survey and Mapping Project: US$13.0 Mil-lion Loan of February 5, 1976; Effective Date: April 2,1976; Closing Date: December 31, 1981.

The project is essentially on schedule. Construction ofBAKOSURTANAL headquarters and facilities, including cartographic, printing,

ANNEX IIPage 16 of 19 pages

photographic interpretation, and data processing wings, is about 50% com-plete. Contracts covering about 40% of the equipment to be procured underthe project have been awarded. The first new topographic map sheets ofSumatra have been completed, and an orderly schedule for several hundredadditional sheets are in various stages of compilation and production.Training programs and the work of expert advisors engaged under the projectare progressing well. Final loan documents for a parallel CIDA financedproject are in Jakarta awaiting Government's signature.

TRANSPORTATION

Loan No. 1139 Fertilizer Distribution: US$68 Million Loan ofJuly 10, 1975; Effective Date: August 28, 1975;Closing Date: December 31, 1979.

All the contracts for the original project have been let and mostmaterials and three ships have been delivered to Indonesia. Savings of about$12.5 million from the loan were realized in the original project. Procurementof an additional ship and bulk reception facilities to serve expansion offertilizer output beyond that anticipated at appraisal were approved by theExecutive Directors on April 5, 1977. The expanded project is under way, thefourth ship has been delivered, and other components are likely to be com-pleted successfully.

Credit No. 260 Second Highway: US$34 Million Credit of June 24, 1971;Effective Date: August 10, 1971; Closing Date:December 31,1978.

Quality of work is satisfactory and cost overruns have been rela-tively small (despite sharp price increases) due to efforts to reduceconstruction quantities, and to cost savings for consulting services.Construction work is completed; but work is still proceeding on detailedengineering of the Padang-Medan Road, the initiation of which was delayed toreconsider road design standards in relation to those recently developed forthe highway betterment program and to take into account IDA's recommendationsregarding standards for urban portions of the road.

Credit No. 388 Third Highway: US$14 Million Credit of June 1, 1973;Effective Date: June 25, 1973; Closing Date:December 31, 1978.

Construction work on the two North Sulawesi road sections in theproject was started early in 1974 under two contracts. Contractors have beendelayed mainly because of long mobilization periods and unusually adverseclimatic conditions. Construction costs will likely exceed original estimatesby more than 100%, mainly caused by increased quantities combined with

ANNEX IIPage 17 of 19 pages

sharply escalated prices. The project also included feasibility and detaileddesign studies of highway betterment works. Most of the studies are nowcompleted and formed the basis of the Fourth Highway Project (Loan 1236-IND).However, work on a few studies will continue for another 3-4 months and willthen form the basis for lending by ADB or bilateral agencies. The trainingprogram component was satisfactorily prepared and is being implemented by theGovernment.

Loan No. 1236 Fourth Highway Project: US$130 Million Loan of April 15, 1976;Effective Date: August 13, 1976; Closing Date: December 31,1980.

Nearly all key activities in the initial implementation scheduleagreed with the Government have been completed, although with delays rangingfrom nine months to about one year. Construction contracts for almost 900 kmof roads have been awarded, and tender evaluation has been completed for theremaining about 380 km. Some problems in the execution of the road workshave been revealed on contracts started in 1976 but it is still too early toassess the future impact of these difficulties on the overall constructionprogress and project completion.

Credit No. 318 Inter-Island Fleet Rehabilitation: US$8.5 MillionCredit of June 28, 1972; Effective Date: October 19,1972; Closing Date: March 31, 1979.

At the request of the Government the Closing Date has been post-poned to March 31, 1979 in order to provide additional time for severalnew projects of ship rehabilitation and the technical assistance to bedeveloped. Due to sharply increased costs and lack of creditworthy appli-cants,just over half the tonnage of shipping expected at appraisal willhave been rehabilitated.

Loan No. 1250 Second Shipping Project: US$54 Million Loan of May 20, 1976;Effective Date: October 8, 1976; Closing Date:December 31, 1980.

Delay in the appointments of a number of consultants, most ofwhich have now been made, has caused a slow start to the project and hasslowed project implementation and disbursements. The financial position ofthe state shipping company (PELNI) is unsatisfactory,, and further deteriorationcould cause financial problems for the project entity (PANN). The Governmentis considering steps to deal with this problem and with the acquisition ofhigh-cost new ships. Solutions likely to be proposed may require amendmentto the project description. It is expected that such a proposal will bediscussed with the Bank in March 1978.

ANNEX IIPage 18 of 19 pages

Loan No. 1337 Tanjung Priok Port Project: US$32 Million Loan of November 4,1976; Effective Date: March 3, 1977; Closing Date:December 31, 1979.

Tanjung Priok Port traffic during 1977 slightly exceeded appraisalforecasts for total dry cargo, about 2.8 million tons were handled in thefirst half of 1977. The first construction contract for Basin III civil worksand the second for Regional Harbor improvements have been let; containerhandling and other equipment is being procured. There continue to be problemsin completing government financed works in Basin III but these works areexoected to be completed by December 1978.

Loan No. 1005 Railway: US$48.0 Million Loan of June 14, 1974;Effective Date: August 16, 1974; Closing Date:December 31, 1978.

Procurement is now well under way and almost all contracts havebeen signed or are about to be signed. Project execution is behind scheduledue to initial slow procurement and execution of works. Freight and passengertraffic declined in 1976, due largely to poor service. However slightimprovements were made in the second half of 1977 after the arrival of newlocomotives and rolling stock, and with operations improved with the aid ofconsultants. The financial performance of the railway deteriorated in 1976and 1977 due mainly to the declining traffic and to an increase in costincluding a large wage raise in early 1977. The overall situation is beingreviewed with the railway administrators and the Government.

TOURISM

Credit No. 479 Bali Tourism: US$16.0 Million Credit of June 14, 1974;Effective Date: December 4, 1974; Closing Date:August 31, 1979.

The construction of major infrastructure for the Nusa Dua tourismestate, including the hotel training school is under way and is scheduled forcompletion in December 1978. The completion of project components outsidethe estate (roads) is scheduled for October 1979, about one year later thanplanned at project appraisal. Visitor traffic to Bali has increased rapidlydue to a considerable number of charter flights coming to Bali. Promotionalefforts to encourage investors have been intensified. Agreement has beenreached for the construction of the first 300-room hotel in Nusa Dua.

ANNEX IIPage 19 of 19 pages

URBAN DEVELOPMENT

Loan No. 1040 Jakarta Urban Development: US$25 Million Loan ofSeptember 27, 1974: Effective Date: January 15, 1975;Closing Date: March 31, 1978.

The kampung improvement part of the project is substantiallycomplete. Some 2,080 ha have been upgraded as compared with the originalplan of 1,980 ha. The sites and services component is about 15 months behindschedule. This is primarily due to land acquisition problems encountered inthe early stages of the project. Project costs for the sites and servicescomponent are expected to be about 7% above the appraisal estimate. Problemswhich have arisen with regard to the standard of materials and the proceduresto be utilized in allocating the plots have been resolved.

Loan No. 1336 Second Urban Development Project: US$52.5 Million Loan ofNovember 4, 1976; Effective Date: March 28, 1977; Closing Date:March 31, 1980.

The progress of civil works is ahead of schedule, and costs aregenerally within the estimates. Although land acquisition is causing somedelays, efforts are being made to speed up procedures. Progress is beingmade in developing Government capabilities in undertaking a nationwidekampung improvement program in the future.

WATER SUPPLY

Loan No. 1049 Five Cities Water Supply: US$14.5 Million Loan ofOctober 31, 1974; Effective Date: May 21, 1975;Closing Date: June 30, 1980.

Due to administrative and managerial problems the project isrunning 18-24 months behind schedule. This delay together with higher ratesof inflation than anticipated is expected to increase project costs about 14%

ANNEX IIIPage 1

SUPPLEMENTARY PROJECT DATA SHEET

Section I - Timetable of Key Events

(a) Time taken to prepare the engineering project: 2 years

(b) Agencies which have prepared the engineering Dept. ofproject: Communications,

Dept. of Minesand Energy,PNB, PJKA

(c) Date of first presentation to the Bank,and date of the first Bank mission September 1975to consider the engineering project: and March 1976

(d) Date of departure of appraisal mission: November 6, 1977

(e) Date of completion of negotiations: April 7, 1978

(f) Planned date of effectiveness: July 1978

Section II - Special Bank Implementation Actions

The PSC will be required to verify by September 30, 1978 the natureof the coal reserves at Bukit Asam and the most probable cost of coal deliv-ered to Suralaya so that the appraisal of the Suralaya power project canproceed. If the PSC cannot favorably confirm these aspects of the Projectthen PLN would need to substitute another scheme of power generation based onoil. The Bank intends to mount a supervisory mission to Indonesia in June1978 to review the results of the current mine drilling program, to ensurethat arrangements relating to the appointment of the PSC are proceedingsatisfactorily, and that the PSC will be in a position to start work inIndonesia no later than July 1, 1978.

Section III - Special Conditions

1. The PMG will consult and agree with the Bank on the technical andeconomic feasibility of the Project, after the PSC has reviewed the

existing studies and mine drilling results (para 47).

ANNEX IIIPage 2

2. The PMG will consult with the Bank on the study of the optimalconfiguration of the project, prepared by the PSC, and agree with

the Bank on the scope of the Project before proceeding with thedetailed design and engineering of the Project (para 39[b]).

3. The PMG will consult and agree with the Bank on the amountof technical assistance required by the Project ManagementGroup in the 12 months prior to the commencement of the Project(para 37).

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