DocumenL of

The World Bank

FOR OFFICIAL USE ONLY

. . . ~ ~ ~ ~ ~ ~ ~ ~ 1AZ

Report No. 5959-IID

STAFF APPRAISAL REPORT

INDONESIA

INDUSTRIAL ENERGY CONSERVATION PROJECT

September 16, 1987

Asia Country- Department V

This document has a resticted distnrbution and may be used by recipients only in the perfonnance oftheir offical duties. Its contents ma!y not otberwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

US$1.00 Rupiah (Rp) 1,650Rp I million US$606.87

(as of September 1987)

FISCAL YEAR

GOI April 1 - March 31KONEBA: January 1 - December 31PUSRI January 1 - December 31

WEIGHT'jq AND MEASURES

1 Barrel (bbl) of CrudeOil (0.85 SpecificGravity/340 API) 0.136 Metric Ton (t)

1 bbl = 0.159 Cubic Meter (m3)1 British Thermal Unit (Btu) = 0.252 Kilocalories (Kcal)1 Cubic Foot (cu ft) = 0.028 Cubic Meter (m3)1 Metric Ton of Crude Oil = 44.4 x 106 Btu1 SLandard Cubic Foot

(SCF) of Natural Gas = 1,000 Btu1 Ton of Oil Equivalent (toe) = 10.415 x 106 Kcal

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

BAKOREN - National Energy Coordinating BoardBAPPENAS - National Development Planning Agencybpd - barrels per dayboe - barrels of oil equivalentKONEBA - P. T. Konservasi Energi Abadi (Energy Conservation

Center)GOI - Government of IndonesiaLNG - Liquified Natural GasLPG - Liquified Petroleum GasmmBtu - million BtuMmE - Ministry of Mines and EnergyMW - megawattPERTAMINA - National Oil CompanyPGN - Perusanaan Umum Gas Negara (National Gas Company)PLN - Perusahaan Umum Listrick Negara (Natioral

Electricity Company)PME - Permanent Energy Assessment CommitteePTE - Technical Committee on Energy ResourcesPUSRI - P. T. Pupuk SriwidjajaREPELITA IV - Fourth Five-Year Development Plan, 1984-89TCF - trillion cubic feettpd - tons per daytpy - tons per year

FOR OFFICAL USE ONLY

INDONESIA

INDUSTRIAL ENERGY CONSERVATION PROJECT

Loan and Project Summary

Borrower: Republic of Indonesia

Amount: US$21.0 million equivalent

Terms: 20 years, including 5 years of grace, at standard variableinterest rate.

On-Lending For the PUSRI Energy Efficiency component, the GovernmentTerms: will onlend US$16.5 million to PUSRI for 10 years,

including 4 years of grace at an onlending rate of 13.5%which is positive in real terms. For the EnergyConservation component, GOI will onlend US$4.5 million toKONEBA (the Energy Conservation Center) for 15 years,including 5 years of grace at an onlending rate of 13.5%.The Government will bear the foreign exchange risk.

Proj ectDescription: The Project will assist the Government in establishing the

institutional framework and policies for planning, pronot-ing, coordinating, implementing and monitoring energyconservation activities. The Project will, in parallel,provide a demonstration of the benefits of energy conserva-tion in industry through the implementation of energyefficiency schemes in large fertilizer plants.

The proposed Project includes: (a) the establishment of anEnergy Conservation Center to assist the industrial sectorto realize the substantial potential for reducing energycosts through conservation and rationalization activities;and (b) the implementation of specific energy efficiencyinvestments aimed at reducing current energy use andoptimizing production capacity in three ammonia unitsoperated by PUSRI, the largest nitrogenous fertilizerproducer in Indonesia. The establishment of the Centerwould help Indonesia to tap the substantial potentialdemand for energy conservation services in the industrialsector and would complement the Government's efforto topromote energy conservation through appropriate incentives,including a realistic energy pricing policy.

Risks: The technical, financial and commercial risks associatedwith the Project are minimai. The energy conservation mea-sures that would be implemented by the Center and PUSRI arebased on proven technolog

This document has a resrited distrbution and may be ued by nripients only in the perfonraneof th offed duties. Its contents may not otherwe be diclosed without Wodd Bank autho=b I

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administrative requirements for establishment of the Centerhave been completed with the incorporation of a newcompany in January 1987, P. T. Konservasi Energi Abadi(KONEBA), to be operated as an autonomous commercialentity. This removes the risk of further Implementationdelays resulting from bureaucratic processes. There is,however, a risk of KONEBA not being able to realize fullythe huge potential for energy savings in Indonesia'sindustrial sector, since its ability to do so will dependmuch on the effectiveness of both the promotional campaignthat KONEBA will undertake and on the technical assistancethat it will provide to industries. KONEBA's organizationand work program have been formulated around sichconsiderations. Risks associated with the PUSRI energyefficiency component are minimal; PUSRI has an impressiverecord of efficiency in commissioning and implementingcomplex fertilizer projects.

Estimated Costs: Foreign Local a/ Total(!S$ million equirvalent)

KONEBA Energy Conservation Center:Technical Assistance 1.6 0.2 1.8Tralning 0.2 0.1 0.3Energy Audits andFeasibility Studie;. 1.6 0.2 1.8

Equipment 0.3 0.1 0.4Operating Costs - 0.7 0.7Working Capital - 0.2 0.2

Sub-total T1.5 5.2

PUSRI Energy Efficiency:Engineering Services 3.1 1.0 4.1Royalties and License Fees 3.3 - 3.3Equipment and Materials 7.4 0.9 8.3Construction 0.4 3.2 3.6Start-up and Commissioning 0.2 0.3 0.5

Sub-total 14.4 5.4 19.8

Total Base Costs 18.1 6.9 25.0

Physical and PriceContingencies 2.9 1.5 4.4

Total Project Costs - 21.0 8.4 29.4Interest During Construction 4.0 2.7 6.7Total Financing Required 25.0 11.1 36.1

a/ Includes applicable local taxes and duties amounting to about US$0.9million (Rp 1.5 billion) which have been included in the local costcomponent.

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Financing Plan: Foreign Local Total z(USSmillion equivalent)

Debt:IBRD 21.0 - 21.0 58

Equity:PUSRI and Other Shareholders- For KONEBA Energy Conservation

center Component 1.0 2.6 3.6 10

PUSRI- For PUSRI Energy

Efficiency Component 3.0 8.5 11.5 32

Subtotal 4.0 11.1 15.1 42

Total Financing 25.0 11.1 36.1 100

Estimated Disbursements:

Bark FY 1988 1989 1990 1991 1992 1993- -(US$ million equivalent)-

Annual 3.1 8.7 7.0 1.5 0.5 0.2Cumulative 3.1 11.8 18.n 20.3 20.8 21.0

Economic Rate of Return: 50Z for the PUSRI Energy Efficiency Component.

Map: IBRD-19366R

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v

INDONESIA

INDUSTRIAL ENERGY CONSERVATION PROJECT

Table of Contents

Page No.

I. INTRODUCTION I*....................................... 1

II. ENERGY CONSUMPTION. RESOURCES AND CONSERVATIONPOLICY I.**......................................... 1

A. Background ................................. 1B. Energy Consumption 3

C. Energy Resources and Supply ..................... 5D. Energy Conservation Policy, Activities and

Institutions 7E. Potential for Energy Savings .................... 8

III. THE FERTILIZER INDUSTRY ...--.-...---..-...---..... 10

A. Fertilizer Consumption Trends 10

B. Fertilizer Distribution and Pricing ............. 11C. Production Performance ........ 12D. P.T. Pupuk Sriwidjaja (PUSRI) ................. 12

E. Bank Experience with Past Lendingin the Fertilizer Sector 14

IV. THE PROJECT 15

A. Project Objectives and Scope 15

B. Rationale for Bank Involvement .................. 15

C. Project Description 161. Energy Conservation Center Component ....... 16

2. PUSRI Energy Efficiency and CapacityOptimization Component 20

D. Environmental Aspects ........ 21

This report has been prepared by Ms. P. Urbano and Mr. R. Ghozali of theIndustry Department following appraisal in May 1985 and post-appraisal inJanuary 1986. Mesdames C. Lawrence, M. Greaves, A. Johnson and E. Georgeprovided secretarial and word processing assistance in the preparation ofthe report.

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TABLE OF CONTENTS (Continued)Page No.

V. PROJECT COST, FINANCING PLAN, PROCUREMENT ANDDISBURSEMENTS ...................* ................. 21

A. Project Cost Estimate .. 0006.......es.e .. s...s.... 21B. Financing Plan . ................................. 22Co Procurement ..................... 24D. Disbursements and Allocation of Bank Loan ....... 24

VI. STATUS OF PREPARATION; PROJECT MANAGEMENT,IMPLEMENTAIION AND RISKS ......................... 26

A. Status of Preparation .... **.... ................. 26B. Project Management, Implementation and

Monitoring ............................... 26C. Auditing and Reporting Requirements ............. o 27D. Project Risks .......................-.. *.......... 28

VII. FINANCIAL AND ECONOMIC ANALYSES OF PUSRIENERGY EFFICIENCY COMPONENT ................. e....... 28

A. Financial Analysis ............................. 28B. Economic Analysis .... 30

VIII. AGREEMENTS AND RECOMMENDATIONS ....................... 32

A. Agreements ...................................... 32B. * ecommendations ............ ................... . 33

ANNEXES

2-1 Domestic and Economic Prices of Petroleum Products2-2 Effective Demand for Energy Conservation Services in Large

Industrial plants

4-1 Identified Industries and Plants for Energy Audits and FeasibilityStudies

4-2 Terms of Reference for Consultancy Services for the EnergyConservation Center

4-3 Energy Conservation Center - Projected Financial Statements

5-1 Detailed Cost Estimates5-2 Estimated Disbursement Schedule for Bank Loan5-3 Bank Loan Allocation7-1 Assumptions Used for Financial Analysis7-2 PUSKI - Historical Financial Statements7-3 PUSRI - Projected Financial Statements7-4 PUSRI - Incremental Cost and Benefit Streams for Financial

Rate of Return Calculations

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ANNEXES (Continued)

7-5 Assumptions Used for Economic Analysis7-6 PUSRI - Incremental Cost and Benefit Streams for Economic

Rate of Return Calculations7-7 Estimated Foreign Exchange Savings

CHARTS

1 Energy Conservation Center - Organization Chart2 PUSRI Energy Efficiency and Capacity Optimization Component -

Implementation Schedule

MAP

IBRD-19366R- Location of Fertilizer Plants

DOCUMENTS AVATTARLE IN THE PROJECT FILE

Reference Title, Author/s and Date

A Energy Conservation in Indonesia (Phase I), Trans Energ(France), June 1985.

B Ammonia Plant Energy Efficiency and Capacity OptimizationStudy, M. W. Kellogg (Houston, Texas), August 1984.

C Project Proposal for Optimization of Energy Efficiency andProduction Capacity of PUSRI II, III and IV Ammonia Units,P. T. Pupuk Sriwidjaja (Indonesia), December 1984.

D Indonesia - Industrial Energy Conservation Center, BruceApplebaum (Hagler, Bailly & Co., Washington, DC), September1985.

E Indonesia - Industrial Energy Conservation Project: PUSRIComponent, Erkal Sanigok, September 1985

F Indonesia - Industrial Energy Conservation Project:Feasibility Studies Component, Erkal Sanigok, September 1985.

G Indonesia - Industrial Energy Conservation Project: Demand forEnergy Conservation, Jorge Fernandez, February 1986.

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INDONESIA

INDUSTRIAL ENERGY CONSERVATION PROJECT

I. INTRODUCTION

1.01 The Government of Indonesia (GOI) has requested Bank assistancefor the financing and implementation of an Industrial Energy ConservationProject (the Project). The Project will assist GOI in establishing theinstitutional framework and policies for planning, promoting, coordinating,implementing and monitoring energy conservation activities. The Projectwill, in parallel, demonstrate the benefits of energy conservation inindustry through the implementation of energy efficiency investments inPUSRI, the largest nitrogen fertilizer producer in Indonesia.

1.02 The Project originated from the 1981 UNDPIWorld Bank assessmentof Indonesia's energy sector which highlighted the need for GOI to, amongothers, formulate energy pricing policies and promote programs andtechnologies that would induce more efficient energy use and stimulateinterfuel substitution. While significant progress has been achieved inthe area of energy pricing, the development and implementation ofcomplementary measures to spur energy conservation have lagged behind. TheGovernment is now developing a comprehensive energy rationalization programand has recognized the need for an Energy Conservation Center to implementthis program. The proposed Project is designed to assist GOI in thiseffort, and help the industrial sector, which is the largest consumer ofcommercial energy, realize the large potential for energy savings and makean inroad towards achieving international competitiveness.

II. ENERGY CONSUMPTION, RESOURCES AND CONSERVATION POLICY

A. Background

2.01 Indonesia is endowed with abundant and diversified energyresources which include oil, gas, coal, hydropower and geothermal energy.The energy sector plays a key role in Indonesia's economic development,providing about 50% of the country's foreign exchange earnings (1986/87)through oil and liquified natural gas (LNG) exports. The surplus of oilavailable for export, however, has declined in recent years. This is duein part to lower oil production and to the slow development of non-oilenergy resources which could substitute for domestic oil consumption.

2.02 In February/March 1981, a UNDP/World Bank Energy AssessmentMission visited Indonesia. Its findings'! highlighted the need to:(i)explore and develop the country's large non-oil energy resources (gas,coal, hydropower, etc.) as substitutes for oil in the domestic market to

1/ Indonesia: Issues and Options in the Energ Sector (Report No.3543-IND), November 1981. A status report (Activity Completion ReportNo. 022/84) was issued in September 1984.

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save oil for export; (ii) assess the substitution potential among fuels forspecific end-uses; (iii) formulate energy pricing policies and developprograms and technologies required to promote more efficient energy use andstimulate interfuel substitution; and (iv) establish appropriate institu-tional mechanisms for national and subsector energy planning, includingmanpower development programs.

2.03 Energy resource diversification and utilization efficiency havesince become the cornerstones of the Government's energy policy. With Bankassistance, GOI has embarked on a coal development program which consistsof exploration and development projects, coal basin studies, and a manpowerdevelopment study for the coal sector. Extensive hydro resource surveywork has been carried out, also with Bank assistance, to develop a largerinventory of hydro projects that would allow systematic exploitation ofIndonesia's large hydropower potential.

2.04 In spite of the pot..ntially large economic benefits that could bederived from expanded natural gas consumption, progress in this area hasbeen slow. The Government is now reviewing its policy in relation tonatural gas utilization in the light of apparentlv limited further opportu-nities in the LNG market and the continuation of new gas discoveries. Toassist GOI in this process, IDA financed (Credit 898-IND) the execution ofthree studies intended to provide guidance in designing an appropriateinvestment strategy and policy framework for the gas sector. A city gasdistribution project (Loan 2690-IND), which was approved for Bank financingrecently, proceeded from one of these studies, and would involve therehabilitation of existing gas distribution networks and the conversionfrom liquid petroleum products to natural gas of industrial and commercialentities located in Jakarta, Bogor and Medan.

2.05 Significant improvements have also been achieved in the area ofenergy pricing. Over the last four years, the Government has adjusted thedomestic prices of petroleum fuels, which account for about 80% of totalcommercial energy consumption, with nominal average increases of 60% in1982, 60% in 1983, and 35% in 1984. A further value-added tax of 10% wasintroduced in April 1985 on all fuels. However, in response to the declinein international oil prices, and in an attempt to improve the competitive-ness of the corporate sector, Government decided in July 1986 to decreasethe price of selected petroleum products (aviation gas, diesel oil and fueloil). The recent price adjustment translates into an average nominaldecrease of 8% in petroleum fuel prices. Nonetheless, domestic prices ofpetroleum products, except for kerosene and diesel oil are close tointernational price levels (Annex 2-1). Electricity tariffs were increasedby over 200% on average between 1981 and 1984, and until the recentdevaluation, they were comparable to those prevailing in the region.Further increases are now under discussion with the Government to bringtariffs more into line with estimated long-run marginal costs. Current gasprices to consumers, on the other hand, are set close to the energyequivalent prices of substitute fuels. Perusahaan Umum Gas Negara (PGN),the state gas company, sells gas at US$3.0/rmmBtu, which is between theenergy equivalent domestic price of keroserne and that of diesel and fueloil.

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2.06 Current gas prices to consumers are set close to the energyequivalent prices of substitute fuels. There is, at the moment, relativelylittle differentiation in the pricing of gas in relation to salesquantities, with a range of only 1OZ between the smallest and largestusers. The Government finds it difficult to identifv clear and rationalmechanisms to set producer and consumer prices of natural gas and resolvethe difficult linkage and substitution problems in pricing the variousforms of energy available. In connection with the gas distribution projectmentioned earlier (para 2.04), the Bank would support GOI's efforts to laysound economic foundations to its overall energy pricing policy.

B. Energy Consumption

2.07 Level and Structure of Consumption. Total commercial energydemand increased by 3Z p.a., from 27 million tons of oil equivalent (toe)in 1981 to 30 million toe in 1984. This growth rate represents a markedchange from an average rate of 12% p.a. during the 1970s. The lower growthrate resulted mainly from lower petroleum consumption, and may beattribured to substantial increases in petroleuwl product prices and lessrapid rates of economic growth.

-2.08 The industrial, household/services and transport sectors are thelargest single consumers of commercial energy, as shown below:

Commercial Energy Consumption byEconomic Sector and Type of Energy, 1984

(in million toe)

Natural Elect.Oil Gas Coal Power a/ Total (Z)

Agriculture 0.6 - - - 0.6 2.0Mining 0.8 - - - 0.8 2.6Industry 4.3 5.1 0.2 0.9 10.5 34.7Construction 0.3 - - - 0.3 1.0Household & Services 7.0 - - 1.7 8.7 28.7Transport 6.9 - - - 6.9 22.8Others 2.5 - - 2.5 8.2

Total 22.4 5.1 0.2 2.6 30.3 100.0

Percent (Z) 73.9 16.8 0.7 8.6 100.0

a/ PLN-supplied.

Sources: Ministry of Mines and Energy, staff estimates.

2.09 Indonesia's energy consumption is concentrated heavily on oil.In 1984, 74% of the total commercial energy used was in the form of oil,

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while only 17X was in gas. In addition, a substantial part of the 9%contributed by the electrical power utility PLN is Itself based on oil.The transport and household/services sectors each accounted for 31Z oftotal oil consumption, and industry for 19%. Natural gas was usedprimarily for LNG exports with the balance going to industry, i.e.,fertilizer, cement, iron and steel industries. To ensure continuatton ofoil export earnings by developing other indigenous energy resources fordomestic use (particularly natural gas which is in abundance), GOI, withBank assistance, is now actively pursuing a program of energydiversification and substitution (paras 2.03 and 2.04).

2.10 Energy Consumption in Industry. Total industrial consumption ofcommercial energy amounted to 10.5 million toe in 1984, as shown in thefollowing table.

Industrial Consumption of Commercial Energy, 1984(in million toe)

Natural Elect.Oil Gas Coal Power Total Z

Energy-IntensiveIndustries:

Fertilizer 0.1 1.9 - - 2.0 19Iron & Steel 0.2 0.4 - - 0.6 6Cement 0.8 0.3 0.2 - 1.3 12

Subtotal 1.1 2.6 0.2 - 3.9 37Non-Energy-Intensive

Industries:Intermediate &

Capital Goodsa/ 0.7 - - 0.1 0.8 8Consumer GoodsW/ 1.8 - - 0.2 2.0 19

Subtotal 2.5 - - 0.3 2.8 27Energy Producing

Industries 0.7 2.5 - 0.6 3.8 36Total Consumption 4.3 5.1 0.2 0.9 1o.5 100

Percent (%) 41 49 2 8 100

_/ Wood, pulp and paper, basic chemicals, and metal products.b/ Food, beverages and tobacco, textiles, and building materials.

Sources: Ministry of Mines & Energy, staff estimates.

Of the 10.5 million toe, 3.9 million toe (37%) was consumed in energy-intensive industries (fertilizers, iron and steel, cement), 2.8 million toe(27%) in non-energy-intensive industries (pulp and paper, textiles, basicchemicals, building materials) and 3.8 million toe (36%) in energyproducing industries (refineries and LNG/LPG plants). The fertilizer,cement, textile, and iron and steel industries were the largest singleusers. Forty-one percent of commercial energy used in industry was in theform of oil, of which most was consumed in the cement and textile

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industries. Natural gas formed 49% of industrial energy use, of which thebulk was consumed in the fertilizer industry. Nearly half of industrialenergy consumption was used to generate electricity in captive plants; therest was used for processing.

C. Energy Resources and Supply

2.11 Indonesia's potential energy resources are estimated as follows:

Potential Energy Resources

In Original In MillionUnits toe

Fossil Fuels

Crude Oil 9.5 billion barrels 1,296Natural Gas 80 trillion cubic feet 1,854Coal 25 billion tons 14,325

Total 17,475

Other Energy Sources

GCethermal 10,000 megawattsHydropower 32,000 megawatts

Sources: Ministry of Mines and Energy, staff estimates.

Cumulative production of oil as of December 1985 was about 11.5 billionbarrels (bbls). Over the past years, oil production has declined fromabout 1.6 million barrels per day (bpd) in 1978 to 1.2 million bpd in 1985in response to changing world market conditions and lower OPEC quotas.Estimates of oil reserves are inevitably subject to large uncertainties.Remaining proven oil reserves are reported to be about 9.5 billion bbls.These reserves could support a moderate growth in annual production(current production capacity is estimated at 1.6 million bpd). However,without unexpected aew finds, production will then start to tail off. Thislong-term production constraint, together with continuing uncertainty inworld market conditions, underscores the importance of diversifyingIndonesia's primary energy sources. Exploration activity has recentlyshown a downturn following the country's most active period from 1980 to1983. While the slowdown in the interest of oil companies may, to a largeextent, reflect world-wide trends, a revision of incentives provided toindustry and the pace at which new acreage is being offered are probablyneeded if Indonesia is to increase or maintain its production potential.

2.12 Indonesia has vast reserves of natural gas. Recoverable reservesare estimated at 80 trillion cubic feet (TCF which is equivalent to about14 billion bbls of oil equivalent, and almost one and a half times as muchas the remaining proven level of oil reserves. The bulk of this gas is

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nonr-associated and consequently can be developed for use independent of thelevel of oil production. There is a drawback, however, to developing thesereserves as they are generally located away from the high population andmajor industrial areas. Associated gas reserves comprise 15 TCF or 19% ofthe total. The majority of these reserves are located in south and centralSumatra and east Kalimantan.

2.13 Gas production increased eight-fold between 1974 and 1985,reaching 1,580 billion cubic feet in 1985. This is equivalent to one-halfof Indonesia's oil production for the same year. About fifty percent ofthat production was exported as LNG to Japan from liquefaction centers inArun and Badak. In addition, natural gas processing for LNG also resultsin the production of natural gas liquids which can be used directly asgasoline substitute or mixed with crude oil to upgrade its quality.GOI has recently approved LPG extraction projects upstream of Arun andBadak LNG plants. Currently very little LPG is produced from natural gasin Indonesia even though much more could be produced.

2.14 Indonesia's coal reserves are believed to be in excess of 25billion tons, located primarily in west and south Sumatra and Kalimantan.While current production of about 450,000 tons per year (tpy) is still wellbelow the peak levels achieved in the 1940s (2 million tpy), major projectshave been undertaken to increase production. Coal is expected to becomethe major fuel source for the power sector in the 1990s. Work started in1982 on a 3.0 million tpy mine at Bukit Asam in south Sumatra (Loan2079-IND) and on a 0.6 million tpy mine at the nearby Muara Tiga coalfield. A program to raise coal production at Onbilin in west Sumatra to1.3 million tpy is also being implemented. In addition, in 1981, theGovernment entered into a number of production-sharing agreements withprivate foreign and Indonesian joint-venture companies for exploration andexploitation of the Kalimantan coal reserves.

2.15 Surface manifestutions of geothermal energy have been found onall islands except Kalimantan; the country's entire geothermal potential isestimated at about 10,000 megawatts (MW). A few sites have been investi-gated but only one field, Kamojang in west Java, has been developed, withthe first 30-MW geothermal generator commissioned for commercial operationin 1983. Total hydroower resources are large (current estimated hydro-power potential is 32,000 MW) but development is limited by their geogra-phic distribution relative to demand centers. The greatest hydropowerpotential (over 35%) is in Irian Jaya where electricity demand is less than1Z of total national demand. On the other hand, less than 10% of the totalpotential is in Java, which accounts for 80% of the current electricitydemand. Existing hydroelectric installations have an aggregate capacity ofabout 1,600 MW. Schemes with an additional combined generating capacity ofabout 1,500 MW are currently under construction.

2.16 In view of the abundance and diversity of energy resourcesavailable to Indonesia, the basic institutional structure for energyplanning has been oriented towards energy supply. Indonesia's economicdifficulties since 1981, however, highlight the need for new planning andmanagement strategies to develop the sector. The recent decline in the

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growth of foreign exchange earnings from oil, which accounted in 1986/87for about 50% of the country's total foreign exchange earnings, shouldprompt measures to promote non-oil exports. In complement, there should bea stronger emphasis on energy conservation and economically sounddiversification of domestic energy supplies, particularly natural gas andcoal, to save oil for export.

D. Energy Conservation Policy, Activities and Institutions

2.17 Policy and Activities. As mentioned, Indonesia has madesignificant progress in setting energy prices at levels that reflect theirlong-term opportunity costs. Over the last four years, GOI has taken boldsteps to increase the domestic price of petroleum fuels (para 2.05) tostimulate the substitution of oil by other competing fuels, remove distor-tions in demand between individual petroleum fuels, and spur conservation.As stated earlier (para 2.05), the domestic prices of all petroleumproducts are close to international price levels, with the exception ofkerosene and diesel oil.

2.18 Other energy conservation-related activities have also beenundertaken to complement the upward adjustment in energy prices. Theseactivities, however, which have been carried out in a sporadic anduncoordinated manner, have been less than successful in creating interestamong energy users, particularly in industry. The Ministry of Mines andEnergy (MME), through its Sub-directorate for Energy Conservation,provides energy conservation information to the public through a periodicbulletin ("Energy Dan Kita") containing practical energy conservationtechniques and tips. An energy conservation conference aimed at managementstaff of both private and public establishments was held recently. Thispromotional campaign, however, did not have much impact due to inadequaciesof methods, materials and coverage. In 1983, the MNE issued a decree thatcalled for periodic reporting of energy use in government offices. Inaddition, recommendations for energy conservation measures related tolighting, air conditioning, machinery and office equipment were issued.However, no mechanism was established for monitoring compliance. Further-more, training in energy conservation techniques and analysis is lacking.Among most industrial plants, there is insufficient knowledge of specificenergy utilization rates in the industrial processes. The energy conserva-tion staff in the MME, which functions as a research group, has beeninvolved in no more than preliminary energy surveys, and that onlyrecently.

2.19 Institutions. Overall policy guidance on energy resourcedevelopment and utilization is provided by the National Energy CoordinatingBoard (BAKOREN). This body was created in 1980 to coordinate the energysupply organizations and energy consuming institutions. It is chaired bythe Minister of Mines and Energy and has as members nine other cabinetministers, the president of the national oil company (PERTAMINA), and thedirector general of the National Atomic Energy Agency (BATAN). BAKORENalso provides, through its Secretariats, administrative and financialmanagement of local and foreign technical assistance operations. TheTechnical Committee on Energy Resources (PTE) serves as a permanent working

group providing analytical and monitoring support to BAKOREN on mattersrelated to the definition, programming and implementation of nationalenergy policy. The Permanent Energy Assessment Committee (PME), on theother hand, coordinates research activities of the different centers withinthe MME and external centers and agencies. The Agency for the Developmentand Application of Technology (BPPT) conducts research activities relatedto energy savings and energy substitution.

2.20 Due to the functional nature and the structural level of theSub-directorate for Energy Conservation within the MME, which confines itsactivities to research on energy use and its coverage to public sectorcorporations, the Sub-directorace has not been able to effectively pushforward the concept of energy conservation in Indonesia. In addition, theSub-directorate's staff is not sufficiently trained in energy conservationpromotion, techniques and analysis. In order to overcome theselimitations, an organization capable of dealing with all involved agencies,particularly those in the private sector, and fac:ilitating the creation ofa team of experts in the field of energy conservation and rationalization,was establlshed under the Project. This organization, KONEBA, would be thefocal entity for all energy conservation activities in Indonesia. KONEBAwould operate as an autonomous commercial entity in the form of asubsidiary company of P.T. Pupuk Sriwidjaja (PUSRI), the largestnitrogenous fertilizer company in Indonesia, and four other Indonesianfertilizer companies. The Sub-directorate in the MME will remain in placeand function as a regulatory body providing legislative support to KONEBA.KONEBA's organization, scope of work and planned work program are discussedin detail in Chapter IV.

E. Potential for Energy Savings

2.21 During 1984, Trans Energ (France) conducted preliminary energysurveys of a number of large private and public industrial, transport andpublic utility establishments to evaluate the potential for energysavings. This work was performed under the French-Indonesian CooperationProgram, and was coordinated by the MME. The industrial plants surveyedaccount for about 172 of current total industrial energy consumption, andincluded a number of facilities in the cement, glass, tire, pulp and paper,textiles and sugar industries. In addition, Bank staff, assisted byconsultants, evaluated the potential for energy savings in four largefertilizer plants; these plants account for about 10% of total industrialenergy use.

2.22 The results ,L the above preliminary surveys provide a goodindication of the magnitude of savings that could be realized in theindustrial sector if energy conservation programs were implemented. It isestimated that in the surveyed plants alone, about 23% of current energyconsumption, equivalent to about US$38 million/year at a crude oil price ofUS$15/bbl, could be saved through conservation measures. Of this amount,at least 8% (or US$13 million) could be saved in the short run throughbetter housekeeping measures and improved operating practices, and 15% (orUS$25 million) in the medium term through modest plant investments. Theresults of the surveys are summarized in the following table.

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Overall Energy Savings Potential in Plants Surveyed

Energy Potential Energy SavingsConsumption Total Potential Without Investment

Plants ('000 ('000 Z of t'000 Z ofIndustry Surveyed boe/yr) boe/yr) Cons. boe/yr) Cons.

Fertilizer 4 4,015 803 20 400 10Basic Chemicals 4 145 36 25 17 12Plywood 4 75 16 21 8 11Cement 2 2,872 536 19 205 7Sugar 10 1,500 435 29 75 5Glass 3 340 119 35 34 10Textiles 15 1,360 353 26 68 5Paper 10 380 114 30 27 7Tires 2 150 47 31 12 8Food, beveragetobacco 11 290 58 20 11 4

Ceramic 2 10 2 20 1 10Total 67 11,137 2,519 23 858 8

_=:

Sources: Trans Energ and Bank staff estimates.

2.23 In spite of the substantial benefits that could be derived fromenergy conservation, very few industrial establishments in Indonesia havemade serious effort to follow a comprehensive energy conservation program.In theory, the adjustment of energy prices to long-term opportunity costsshould be sufficient incentive for consumers to react to price signals.However, in Indonesia, as in many other developing countries, even whenenergy prices have been set at a level that reflects long-term economiccosts, only a few industrial consumers have reacted promptly or adequatelyto conserve energy. This, in a way, reflects the lack of a competitiveenvironment in the Indonesian industrial sector. For certain industries,like steel, the inaction stems from the fact that a more fundamentalrestructuring, of which energy conservation is only one of many aspects, isneeded as a matter of priority. For other industries, the inertia is dueto a general lack of awareness of the potential and benefits of energysavings. Among.many industrial plants, there is insufficient knowledge ofprocess and unit energy utilization rates, and of simple, low-costoperational and housekeeping measures to reduce energy use. There is evenless awareness of energy conservation investments, which are complex andrequire intensive studies and, in many cases, technological innovations.Information on energy conservation techniques, strategies and equipmentperformance is limited, and training is not available.

2.24 With the financial difficulties brought about by depresseddomestic market conditions, industrial establishments are now looking atenergy conservation and rationalization as ways of improving costefficiency in the short run, and gaining competitiveness in the long run.

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Indeed, out of the 67 industrial establishments surveyed (para 2.21),56 (or 84Z) expressed keen interest in obtaining training and technicalassistance on energy conservation, and undertaking energy audits in theirfacilities. A large percentage of these companies is in the chemical,textiles, sugar, and pulp and paper industries, with the chemical industry(i.e. fertilizer) providing the greatest potential for energy savings.More than half of these companies are in the private sector and most arefinancially able to carry out an energy conservation program. With aneffective technical assistance program and information campaign, the demandfor energy conservation services is expected to expand to include 103energy-intensive industrial plants in the short run, and 407 in the mediumterm (Annex 2-2).

2.25 The experience of the industrialized countries suggests that inorder to realize the potential for energy conservation, there is a crucialneed to undertake energy conservation campaigns and training to supplementa realistic energy pricing policy. The campaign should aim at creating anawareness in all economic sectors and among the general public of therelative costs and benefits associated with energy rationalizationmeasures. In addition, there is need for technical assistance to carry outdetailed energy audits, especially in industrial plants, to identify andevaluate attractive opportunities for energy conservation and inter-fuelsubstitution. These needs, which are quite evident in Indonesia, would bemet through the proposed Project. The related activities will beundertaken by KONEBA, established under the Project.

III. THE FERTILIZER INDUSTRY

A. Fertilizer Consumption Trends

3.01 Indonesia's fertilizer consumption is characterized by (')heavy reliance on nitrogenous fertilizers, mostly urea for paddy (rice)which is grown extensively; and (ii) concentration of consumption in Java,Madura and Bali, the major rice-growing regions. GOI has long favoredintensive fertilizer use to achieve self-sufficiency in food production.The rapid growth of fe-tilizer consumption, particularly during the period1964-80, was attributed to the deliberate policy of the Government topromote food production, improvement of the fertilizer distribution systemand further relaxation of supply constraints. By the start of the 1980s,94.0% of nitrogen, 93.8Z of phosphate and 16.3% of potassium were consumedin the food crop sector.

3.02 In the early 1970s, Indonesia's fertilizer requirements were metto a large extent through imports. Total fertilizer imports (urea andtriple superphosphate (TSP), the main fertilizers for food crops) weresubstantial; in 1975, fertilizer imports totalled 1.4 million tons of ureaand 0.5 million tons of TSP. The large imports were required to supply theGovernment's agricultural development programs. During the second half ofthe 1970s and the early 1980s, domestic fertilizer production capacity rosesteadily through the construction of new plants, which were financed under

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three Bank group operations (para 3.10). In 1976, Indonesia becameself-sufficient in urea and from 1977 onwards, became a net exporter ofthis product. The nitrogenous fertilizer industry in Indonesia is based onnatural gas, which is in abundant supply locally. Phosphate fertilizersare imported as raw materials for domestic production of TSP andpotassium-based fertilizers, on the other hand, are imported as finalproducts.

3.03 For the period 1987-95, Indonesia is expected to increase itsimports of phosphate and potash fertilizers. For urea, however, with thecompletion during 1983-85 of four new plants with a combined annualcapacity of 2.3 million tons, and with another plant now underimplementation and to be commissioned late 1988, a surplus is projectedwell into the early 1990's. Urea production in excess of domesticrequirements reached 1.2 million tons in 1986 and was placed profitably inexport markets despite highly depressed international prices. With ahighly cost-competitive nitrogenous fertilizer industry, as well asproximity to countries with substantial projected nitrogen deficits,Indonesia is not expected to face major difficulties in exporting itsprojected surplus ammonia and urea production.

B. Fertilizer Distribution and Pricing

3.04 By Government regulation, PUSRI, the largest fertilizer producerin Indonesia, is also responsible for marketing and distributing alllocally manufactured fertilizer in the domestic and international markets.The marketing and distribuion system is complex, extending from theproducing plant, the bulk storage shed or bagging station and the inlandstorage depots, to the village kiosks operated by retailers orcooperatives. Products move in bags or in bulk, by sea, railway or truck,to either bulk storage and bagging stations or inland depots. PUSRI hasdeveloped expertise in fertilizer marketing and distribution and has beeneffective in these operations.

3.05 Fertilizer prices are controlled by the Government at both theproducer and farmer levels. At the plant level, GOI sets prices on thebasis of standard operating cost recovery based on reasonably efficientplant operations at 97% capacity utilization. Actual depreciation andfinance charges are then added to standard costs to calculate theex-factory production costs. Prices are set for each company separately,which translates in a different price paid by the Government to eachproducer. For each fertilizer producer, the formula also provides a fixedmargin of Rp 6,000/ton produced minus (or plus) 10% of the excess (orshortfall) of actual over standard production costs to arrive at the totalex-factory price for that producer. While this pricing formula provides anincentive to minimize production costs, not enough safeguards have beenprovided in the past to keep investment and capital costs as low aspossible. In the case of Xaltim, because of its very high capital costs,it receives through depreciation charges an ex-factory price twice as muchas that paid to PUSRI, the lowest-cost producer.

3.06 GOI's overriding concern in recent years has been to keep pricesof agricultural inputs, including fertilizers, at a low level to encourage

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increased farm production. As a consequence, retail prices have remainedlow since the 1970s, while the benefit/cost ratio for crops such as paddyrice has increased. In April 1986, to reduce the budgetary and economicsubsidy associated with such low prices, GOI increased fertilizer prices tofarmers by 25%-from Rp 100,000/ton to Rp 125,000 ton. All fertilizers aresold to farmers at the same price throughout the country. However, despitesuch periodic price increases, the subsidy element remains high particular-ly for TSP and ammonium sulfate, and for remote locations on account ofhigh distribution costs. The domestic price of fertilizers needs to beincreased further and rationalized to reflect the relative economic valueof each fertilizer and to remove the heavy subsidy burden on the Governmentbudget. In addition, since GOI is encouraging more TSP use, and since thisproduct bears a subsidy percentage almost double that of urea, there is acase for increasing TSP price faster to reflect the commodity's relativeeconomic value. Another way to achieve further reductions in Governmentsubsidies is to liberalize the marketing system, which is funded entirelyby GOI, in order to optimize the movement of fertilizers throughout thedistribution chain. These policy recommendations are being activelyconsidered by GOI in the context of its overall objective of curtailing thefertilizer subsidy bill.

C. Production Performance

3.07 Indonesia has 13 fertilizer plants with a total installedcapacity of 6.2 million product tons per year (tpy) of which 4.4 milliontpy is dedicated to urea production. There are currently six fertilizerproducers; five are owned by the Government, and one, P. T. Asean Aceh, isa joint venture between Indonesia and other Asean countries. Three ofthese producers (PUSRI, Asean Aceh and Iskandar Muda) are located inSumatra, two (Kujang and Gresik) in Java, and one (Kaltim) in Kalimantan(Map IBRD 19366). The Indonesian fertilizer industry has demonstrated overthe years that it can operate at high capacity utilization and efficiencyrates, and the nitrogenous industry with a relatively low-cost feedstock isnow one of the most cost competitive producers in the world. Urea exportshave grown 40Z p.a. over recent years, from 162,000 tons in 1980 to 1.2million tons in 1986, with major increases achieved between 1984 and 1986.The industry follows a dynamic program of plant debottlenecking andrehabilitation, and more recently, energy efficiency improvement, as wellas staff training, to enhance its international competitiveness. Data onIndonesia's fertilizer plants, design capacities, and 1986 utilizationlevels are 6ummarized on the following page.

D. P. T. Pupuk Sriwidjaja (PUSRI)

3.08 Background. PUSRI, Indonesia's first fertilizer company, wasestablished in 1959 as a government-owned entity in Palembang tomanufacture urea from gas which had previously been flared. The initialsmall plant, PUSRI I, went on stream in 1964 and quickly achieved capacityoperation of 100,00) tpy of urea. Subsequent expansion of output to thecurrent design capacity of 1.5 million tons of urea was carried out withthe assistance of IDA and IBRD. PUSRI now operates three ammonia/u-:acomplexes and has an excellent record of high capacity utilization. Its

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effective staff development program and its expertise in fertilizermarketing have made it the key organization in the industry. It providesthe Government with advice on all aspects of fertilizer industrydevelopment, including project management and initial operationalresponsibility for new fertilizer plants. PUSRI was instrumental in theefficient implementation and initial operation of the Asean Aceh andIskandar Muda complexes. Executives trained at PUSRI are currentlyoperating most of the country's other fertilizer plants. PUSRI, through ajoint venture (P. T. Kelsri) with M. W. Kellogg (US), also trains foreignfertilizer plant operators in its facilities, and undertakes procurementfor all Kellogg-designed plants in Asia. PUSRI's subsidiary in Houston,Texas, procures all parts and chemicals for its plants.

Indonesia - Fertilizer Plants, Design Capacities and1986 Production

1986 ProductionPlants Capacitvy (Capacity

('000 tpyS ('000 tons) Utilization, Z)

UREAPUSRI II, III and IVa/ 1,520 1,526 100-uj ang 570 630 111

Asean Aceh 570 585 103Kaltim I and 11b/ 1,140 559 49Iskandar Muda - 570 638 112

Total Urea 4,370 3,938 90

TSPGresik I and II 1,200 1,120 93

Ammonium SulfateGresik I and II 650 576 89

Total Fertilizers 6,220 5,634 91

a/ Excludes PUSRI I which is being phased out and currently producingonly small quantities of ammonia.

b/ Kaltim II came on stream in November 1984, and Kaltim I in July 1985.The low capacity utilization in Kaltim is due to design problems inKaltim I. A third plant, Kaltim III, is under implementation and willbe completed in 1988. Kaltim also has capacity to produce 330,000tons p.a. of excess ammonia.

3.09 Organization and Management. PUSRI is generally considered to beone of Indonesia's best managed large industrial enterprises. PUSRI'smanagement structure, in keeping with Indonesia's company law, is patternedafter the European two-tier model, with a supervising Board ofCommissioners (Dewan Komisaris) and a Management Board (Direksi). Members

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of the Board of Cocmissioners include: (a) the Director General ofMonetary Affairs, Ministry of Finance; (b) the Secretary General of theDepartment of Industries; (c) a representative of the Minister ofAgriculture; and (d) the Director General of Chemical Industries.Managerial authority for PUSRI's day-to-day operations rests with a six-manManagement Board, consisting of the President-Director and Directors ofProduction, Technology, Finance, Development, and Marketing. Members ofthe Management Board, as in the case of the Board of Commissioners, areappointed by the Government. PUSRI's highly capable and well-experiencedmanagement team enjoys a significant level of autonomy, allowing alloperating, financial and administrative decisions to be made and carriedout expeditiously. PUSRI's financial performance, which has beensatisfactory, is discussed in detail in Chapter VII.

E. Bank Experience with Past Lending in the Fertilizer Sector

3.10 The Bank Group has been actively involved in the development ofIndonesia's fertilizer industry since 1970 when a US$35 million IDA credit(Credit 193-IND) was approved to help finance PUSRI II. In 1975 and 1976,respectively, Loans 1089-IND (US$115.0 million) and 1254-IND (US$69.3million) were approved to finance PUSRI III and IV. The credit and twoloans enabled the expansion of Indonesia's production capacity from 100,000tpy to 1.6 million tpy of urea. To ensure adequate and efficientdistribution of fertilizer from the producing facilities, the Banksubsequently approved financing of two PUSRI fertilizer distributionprojects (Loans 1139-IND in 1976 and 2120-IND in 1982).

3.11 The Bank's experience with the ahove lending has been extremelygood. PUSRI III and IV are among the most successful industrialoperations financed by the Bank. 3/ PUSRI III was commissioned one monthahead of schedule with actual proTect costs 7% lower than the appraisalestimates and higher rates of capacity utilization in the first two yearsof operation than expected. PUSRI IV, benefitting from the experience inimplementing PUSRI III, was also commissioned one month ahead of schedulewith savings in project costs of 23% compared to appraisal estimates; italso achieved higher rates of capacity utilization than expected in theinitial two years of operation. As a consequence, the financial rates ofreturn which had been estimated at 13.8% for PUSRI III and 21.4% for PUSRIIV were re-estimated at 18.2% and 31.0%, respectively; the re-estimatedeconomic rates of return were 31.0% and 41.0%, respectively, compared to19.7% and 28.6% at appraisal.

3.12 The above favorable performance has been attributed to thefollowing elements, which were also included in the design of the proposedProject:

(a) creation of a competent, strong and stable management corefor PUSRI and for project implementation, assisted by acapable technical advisor;

31 Project Performance Audit Report, Indonesia PUSRI III and IV, January28, 1985.

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(b) use of competent and highly experienced engineering firmsfor all stages of project implementation;

(c) provision of bonus/penalty clauses tied to implementationschedules for engineering contractors;

(d) provision of extensive training facilities to develop localskilled and managerial personnel and rapid promclion of suchstaff to relevant responsibilities; and

(e) extensive arrangements made to facilitate procurement,including stationing of PUSRI staff at the head offices ofthe engineering firms and, in the case of PUSRI IV, advancearrangements with the cofinancing institutions onprocurement procedures.

IV. THE PROJECT

A. Project Objectives and Scope

4.01 The proposed Project will assist Indonesia in establishing theinstitutional framework and policies for planning, promoting, coordinating,implementing and monitoring energy conservation activities. The Projectwill, in parallel, demonstrate the benefits of energy conservation inindustry through the implementation of an energy efficiency scheme inPUSRI, the largest nitrogenous fertilizer producer in Indonesia. TheProject includes the following components:

(i) establishment of an Energy Conservation Center to assist inreducing energy costs through conservation and rationalizationactivities; and

(ii) implementation of specific energy efficiency investments aimed atreducing current energy use and optimizing production capacity ofthree ammonia plants in PUSRI.

B. Rationale for Bank Involvement

4.02 The Project would support the Government's primary objective inthe energy sector, to Increase the economic and technical efficiency ofenergy use, an objective which has taken on increased importance in recentyears due to the country's severe resource constraints. As mentioned, themost important measure to induce energy conservation in general is to setenergy prices at levels that reflect long-term economic opportunity costs.Indonesia has made significant progress in this direction, with domesticenergy prices now set close to international price levels. However, inorder to realize fully the potential for energy conservation, there is aneed to carry out an extensive promotional campaign and training tocomplement this pricing policy. (para 2.23). The energy conservationcampaign should be accompanied by technical assistance and training tocarry out energy audits and feasibility studies in order to identify and

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evaluate attractive opportunities for energy conservation andrationalization. Under the proposed Project, the Bank will assist inestablishing the institutional framework and policies for planning,promoting, coordinating, implementing and monitoring energy conservationactivities. Through the Project, the Bank will help (i) prepare acomprehensive energy conservation program for the industrial sector and setenergy related norms for industrial energy use by industry subsector andproduct; (ii) carry out promotional campaigns and coordinate technicalassistance to help enterprises identify and implement energy conservationmeasures; and (iii) provide training in energy conservation matters,including training for independent energy auditors and energy managers ofindustrial enterprises. These activities would be carried out throughKONEBA which was established under the proposed Project.

C. Project Description

1. Energy Conservation Center Component

4.03 Functions. In order to provide further development and effectiveimplementation of Indonesia's national energy rationalization program, anEnergy Conservation Center (KONEBA) was established under the proposedProject. KONEBA will be broadly entrusted with planning, coordination,training, promotion, research, as well as energy auditing and monitoringtasks related to energy conservation. In the initial years, KONEBA willfocus its attention on the industrial sector, this sector being the largestconsumer of commercial energy. In the succeeding years, KONEBA will expandits sectoral coverage to include the household/services and transportsectors. KONEBA, geared towards both private and public sectorestablishments, would have the following overall functions:

(a) preparation of a comprehensive energy conservation programfor the industrial sector and setting of energy-relatednorms for industrial energy use by industry subsector andproduct;

(b) coordination of technical assistance and promotional effortsto help individual enterprises, particularly theenergy-intensive ones, effectively identify and implementenergy conservation measures and investments;

(c) provision of advice on conservation policy and legislationas well as proposal of measures, including incentiveschemes,designed to encourage small- and medium-scaleindustries to undertake energy conservation and interfuelsubstitution investments, and where necessary, performanceof energy audits in these indust-ies;

(d) preparation of energy surveys of selected subsectors andindustries;

(e) coordination of applied research related to energyconservation;

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(f) coordination of training in energy conservation matters,including training for independent auditors and energymanagers of industrial enterprises both at university andtechnical school levels;

(g) dissemination of information (manuals, reports andpublications), undertaking of demonstration projects, andorganization of promotion and awareness seminars; and

(h) updating of energy manuals and subsector studies by repeatedauditing over the years.

4.04 Organization and Staffing. KONEBA will serve as the focal entityfor energy conservation activities in Indonesia and will be operated as anautonomous, commercial entity (persero) owned jointly by PUSRI and fourother Indonesian fertilizer companies4/. PUSRI owns 60% of the sharecapital of KONEBA with the four other fertilizer companies owning each10%. This decision follows GOI's recent policy to restrict theestablishment of new government agencies particularly those aimed atundertaking commercial operations. This decision is also intended toaccommodate GOI's firm commitment to energy conservation while taking intoaccount current and projected budgetary constraints. Finally, it willenable KONEBA to obtain the necessary organizational and managerial supportto carry out a program of a national scope. PUSRI is generally consideredto be one of Indonesia's best managed large industrial enterprises and wasinstrumental in the efficient implementation and initial operation of twofertilizer complexes in Indonesia. As an autonomous enterprise, KONEBAwill have the necessary operational flexibility to carry out effectivelyits tasks, as well as its own financial and manpower resources. Itsoperations will also be principally commercial in orientation.

4.05 KONEBA's activities will be carried out by four small operatingunits--audits and studies, training, consultancy services, andinformation-which will constitute the Company. Some of these activitieswould not be carrieu out by KONEBA itself, but through specializedengineering/consulting agencies. KONEBA, however, will plan, mobilize,coordinate and monitor all this work. This will allow it to remainrelatively small in size, but effective.

4.06 At full strength, which would be by its second year of o_eration,KONEBA will have a permanent staff of 15 senior and junior professionals.KONEBA is headed by a President-Director, formerly the Technical Directorof PUSRI, assisted by a Deputy President-Director; both have been appointedon a full-time basis. KONEBA's other core staff (information specialist,training specialist and two senior engineers) have also been appointed. Tomaintain direct industrial experience and channel energy rationalizationtechniques back to the enterprises, additional staff which might berequired would be provided through secondment of technical personnel fromvarious private and public sector companies to KONEBA. When these secondedstaff return to their respective enterprises, they would be in an excellentposition to carry out energy rationalization measures in their own plants.In addition, to build upon the experience in energy conservation research,

4/ P. T. Gresik, P. T. Iskander Muda, P. T. Kaltim and P. T. Kujang.

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policy and legislation existing in the MME, relevant staff in the MME wouldbe seconded to KONEBA to provide guidance to the Company in its formativeyears. The planned organization structure of KONEBA is shown in Chart 1.

4.07 KONEBA will receive policy guidance from a board of commissionerswhich consists presently of three members drawn from the Ministry Mines andEnergy, PUSRI, and Kujang. The MME would be represented by the DirectorGeneral of Electric Power and New Energy who also chairs the PTE (para2.19). Such a representation from the MME will enable KONEBA to have theimportant linkage to BAKOREN, the agency which coordinates all energyproduction and utilization activities in Indonesia (para 2.19).

4.08 Work Program. To assist KONEBA in carryiag out a number ofpriority activities, a consulting company will be engaged for a period oftwo years. The consulting company will provide overall guidance to KONEBAin its formative years, and help the Company implement the followingpriority activities:

(a) prepare publications, disseminate information, and carry outa comprehensive promotional campaign;

(b) design, organize and implement a national energy survey andestablish a national energy data base;

Cc) identify and assist in the procurement of KONEBA'sinstrumentation needs, as well as in the recruitment of itsadditional staff;

(d) organize, initiate and supervise energy audits andfeasibility studies in priority industries, such asfertilizers, textiles, sugar, and pulp and paper (Annex4-1);

(e) develop and conduct training programs for the Center's staffand industrial energy managers; and

(f) prepare subsector energy manuals.

The detailed terms of reference for the above technical assistance(Annex 4-2) were agreed upon between the Government, KONEBA and the Bankand consultant selection was carried out under Bank review according toBank guidelines for employment of consultants. The consesltant has beenselected to provide guidance to KONEBA in its formative years and help theCompany carry out its priority activities. The technical aesistancecontract between KONEBA and the consultant has been signed.

4.09 Development and Operating Costs. The development costs requiredto establish KONEBA, and make it fully operational, including one yearoperating costs, are estimated at US$6.4 million, of which about US$4.5million (70%) is expected to be in foreign exchange. The foreign exchange

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requirement would principally be for foreign technical consultancyservices, external staff training, technical audits and feasibilitystudies, and purchase of energy measuring equipment. The localexpenditures would comprise local technical services, staff salaries,equipment and supplies, and general overhead.

4.10 Financing Plan. The proposed Bank loan will cover the foreignexchange requirements of KONEBA over its first three years of operation,while PUSRI and other shareholders will finance all the local costs throughequity contributions. KONEBA will be operated principally on a commercialbasis. Many areas of KONEBA's activities are expected to generaterevenues; these areas include the provision of energy audits, projectevaluation services, training, and technical information. In the shortrun, however, and in view of the heavy promotional campaign and trainingthat will be undertaken by KONEBA, it could be expected that revenuegeneration would be quite limited. KONEBA's projected fund shortagesduring the first two years would be covered by equity contributions.Assurances were obtained from PUSRI that it will will make available toKONEBA, in a timely manner, all funds, including working capital, as andwhen required to enable KONEBA to carry out its tasks.

4.11 For its internal source of funds, KONEBA will charge its clientsfor services provided. For the energy audits which will be carried outduring the first tvo years, KONEBA will charge only a portion (i.e. -'0Z) ofthe costs as a means of developing further its market. The rest of theaudit costs would be recovered within six months after audit completionwhen the recommended housekeeping measures start yielding benefits. Thisdeferred-charging procedure would be adopted for the industrial plants tobe audited under the proposed Project (Annex 4-1), except for thefertilizer plants which would be charged in full in the course of theaudits. For the succeeding audits, KONEBA would recover their full costsas the audits progress.

4.12 In addition to the energy audits, KONEBA is expected to generaterevenues from the provision of (i) technical information and consultancyservices (i.e., international and local energy utilization norms byindustry, process &ad product; energy conservation technologies, strategiesand analysis, etc.); and (ii) training of industrial operators on energyconservation techniques. These activities would contribute about 15% ofKONEBA's revenues. Gross revenues are estimated at US$0.2 million, US$0.4million and US$1.0 million in each of the first three years, respectively.KONEBA's projected financial performance (Annex 4-3), which is expected tobe satisfactory from the third year onward, is summarized on the followingpage. Assurances were obtained fro:-i KONEBA that it will follow prudentfinancial practices and maintain a satisfactory financial position (i.e.,current ratio of at least 1.1 until December 31, 1988, not less than 1.2from January 1, 1989 to December 31, 1991 and not less than 1.3 thereafter;not incur additional debt, if after such incurrence the debt/equity ratiois greater than 60/40; and debt service coverage of at least 1.3 times in1989 and 1.5 times thereafter).

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KONEBA

Projected Financial Data(in current Rp million, unless otherwise indicated)

1987 1988 1989 1990 1995

Revenues 252 672 1,659 2,378 4,635

Net Income (722) (373) 581 1,003 463

Internal Cash (722) (349) 605 1,027 3,107Generation

Current Ratio 1.2 1.2 1.7 2.1 1.4Debt/Equity Ratio 27/73 45/55 51/49 49/51 29/71Debt Service Coverage,

times - - 1.3 1.5 2.2

2. PUSRI Energy Efficiency and Capacity Optimization Component

4.13 The PUSRI complex consists of three ammonia/urea plants5/ with acombined capacity of 2,660 tons per day (tpd) of ammonia and 4,60W tpd ofurea. All plants were constructed prior to the development of modernprocess technology geared towards maximizing energy efficiency andoptimizing capacity. In 1984, P. T. Kelsri (Indonesia), the joint ventureof PUSRI and M. W. Kellogg (US), carried out a detailed techno-economicstudy which recommended (i) a gradual phase-out of PUSRI I, the oldest ofthe four plants, and its replacement with a new, more energy-efficient1,000 tpd ammonia plant and 1,725-tpd urea plant; and (ii) modifications inPUSRI II, III and IV ammonia plants to reduce energy consumption andincrease process efficiency. The project for PUSRI I is still underconsideration but is unlikely to be implemented in view of the high cost ofdeveloping and bringing gas to the site. The modifications for PUSRI II,III and IV would be implemented under this proposed Project.

4.14 The Project will enhance PUSRI's overall production efficiencythrough plant modifications directed towards increasing energy efficiencyand effective capacity. The Project is expected to result in: (i) a10Z reduction in current energy use per ton of ammonia; and (ii) acorresponding 122 increase in effective production capacity in PUSRI's II,III and IV ammonia units, Through the Project, the plants' heat recoverysystems, furnaces and associated equipment will be upgraded and modernenergy-saving equipment such as superheat burners, low-pressure boilers andmolecular sieves will be installed. Upon completion of the Project, theaverage energy use per ton of ammonia is expected to decline from 38.3mmBtu to 34.3 mmBtu.

5/ Excluding PUSRI I, the smallest and oldest plant which is being phasedout and now producing only small quantities of ammonia.

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4.15 With the lower unit energy requirement after plant modifications,the Project will enable the production of additional 100,000 tpy of auoniawithout any increase in total natural gas consumption. In the interim,20,000 tpy of this additional ammonia production will be used to optimizecurrent urea production, and the balance will be exported. In the future,surplus ammonia production would be used either to further increase ureaproduction through modifications in the urea plants, or to produce capro-lactam. PUSRI is currently evaluating a technical proposal from TOYOEngineering Corporation (Japan) which would increase the combined produc-tion capacity of the II, III and IV urea plants from 1.5 million tpy to 1.7million tpy, and enable the conversion of all incremental ammonia produc-tion to urea. At the same time, PUSRI is considering diversifying tocaprolactam production through a joint venture with P. T. Branta Mulia(Indonesia) and Hankook Caprolactam Corp. (Korea).

D. Environmental Aspects

4.16 No environmental issues are expected under the Project. UnderLoan 1089-IND, PUSRI agreed to take adequate environmental protection andmonitoring measures and continues to comply with this agreement. The PUSRIplants to be modified under the Project have been designed to comply withenvironmental standards acceptable to the Bank and the modifications willbe environmentally neutral.

V. PROJECT COST, FINANCING PLAN, PROCUREMENT AND DISBURSEMENTS

A. Project Cost Estimate

5.01 The total financing requirement of the Project, includingphysical contingencies, price escalation and interest during constructionis estimated at US$36.1 million equivalent, of which US$25.0 million (69%)is in foreign exchange, as summarized on the following page. Details ofthe project cost estimates are shown in Annex 5-1. The project implementa-tion period is assumed at six years based on the past Bank experience withsimilar projects as reflected in the relevant standard profile.

5.02 The base cost estimates are in March 1987 prices and are based on(i) a detailed feasibility study prepared by P.T. Kelsri (Indonesia) andM.W. Kellogg (US) in August 1984 for the PUSRI Energy Efficiency component;and (ii) energy surveys conducted by Trans Energ (France) in June 1984 andBank staff in March 1987, and operating cost estimates prepared by theMinistry of Mines and Energy and PUSRI for the Energy Conservation Centercomponent. Physical contingencies of 15% and 10% were applied on theEnergy Conservation Center and PUSRI Energy Efficiency components, respec-tively. Price contingencies were based on (i) domestic inflation of 10% in1987, 5% in 1988 and 3.5% in 1989 and thereafter; and (ii) internationalinflation rates of 3.0% in 1987, 1.0% p.a. in 1988-90 and 3.5% in 1991 andthereafter, in accordance with the latest Bank projections. Technicalassistance, including plant-specified detailed energy audits andfeasibility studies, for the Energy Conservation Center will require 265man-months of foreign consultancy services. Engineering services for PUSRIwill require 283 man-months of foreign assistance and 500 man-months oflocal services.

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Summ of Project Costs a/(1,650 Rupiah - 1 US$)

billion Rupiah - million US$ as Z ofForeign Local Total Foreign Local Total Total

Energy Conservation Center

Technical Assistance 2.7 0.3 3.0 1.6 0.2 1.8 89Training 0.3 0.2 0.5 0.2 0.1 0.3 67Energy Audits andFeasibility Studies 2.7 0.3 3.0 1.6 0.2 1.8 89Instrumentation 0.5 - 0.5 0.3 - 0.3 100Fixtures & Vehicles - 0.2 0.2 - 0.1 0.1 -Operating Costs b/ - 1.2 1.2 - 0.7 0.7 -

Working Capital - 0.3 0.3 - 0.2 0.2 -Sub-total 6.2 2.5 8.7 3.7 1.5 5.2 71

PUSRI Energy Efficiency

Engineering Services 5.1 1.7 6.8 3.1 1.0 4.1 76Royalties andLicense Fees 5.4 - 5.4 3.3 - 3.3 100

Equipment and Materials 10.9 0.2 11.1 6.6 0.1 6.7 99Freight and Insurance 1.3 1.3 2.6 0.8 0.8 1.6 50Construction 0.7 5.2 5.9 0.4 3.2 3.6 11Start-up and Commissioning 0.3 0.5 0.8 0.2 0.3 0.5 40

Sub-total 23.7 8.9 32.6 14.4 5.4 19.8 73

Base Cost Estimate 29.9 11.4 41.3 18.1 6.9 25.0 72

Physical Contingencies c/ 3.3 1.1 4.4 2.0 0.7 2.7 74Price Escalation d/ 1.5 1.3 2.8 0.9 0.8 1.7 53

Total Project Cost 34.7 13.8 48.5 21.0 8.4 29.4 71

Interest During Construction 6.6 4.5 11.1 4.0 2.7 6.7 60Total Financing Required 41.3 18.3 59.6 25.0 11.1 36.1 69

a/ Includes applicable local taxes amounting to about US$0.9 million (Rp 1.5 billion)which have been included in the local cost component.

b/ For the Center's first year of operation.c/ Total physical contingencies are about 11% of base cost.d/ Local price contingencies are about 11Z, and foreign price contingencies are about

5% of the respective base costs plus physical contingencies.

B. Financing Plan

5.03 The proposed Bank loan of US$21.0 million will cover 58% of thetotal financing and 84% of the foreign exchange requirements of the

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Project. For the Energy Conservation Center component, the Bank loan willfinance all the foreign exchange project costs (technical assistance,energy audits and feasibility studies, training and instrumentation, total-ling US$4.5 million) during KONEBA's first three years of operation, whilePUSRI and the other shareholders will cover interest during constructionand all the local costs through equity contributions. For the PUSRI energyefficiency component, the Bank loan will cover US$16.5 million, or all theforeign exchange costs (engineering services, royalties and license fees,and equipment and materials); the balance, including interest duringconstruction as well as all local costs, will be financed by PUSRI throughinternal cash generation. PUSRI is capable of weeting such financingrequirements, and its cash flow position is projected to remain sound (para7.03).

5.04 The Bank loan will be extended to GOI for 20 years, including 5years of grace, at the Bank's standard variable interest rate. For thePUSRI Energy Efficiency component, GOI will onlend US$16.5 million to PUSRIfor 10 years including 4 years of grace at an onlending rate of 13.52,which is positive in real terms. For the Energy Conservation Centercomponeat, GOI will onlend US$4.5 million to KONEBA for 15 years including5 years of grace at an onlending rate of 13.5%. GOI will bear the foreignexchange risk. The onlending to PUSRI and KONEBA will be made undersubsidiary loan agreements between GOI ane PUSRI, and GOI and KONEBA, onterms and conditions satisfactory to the bank. The execution of thesesubsidiary loan agreements will be a condition of loan effectiveness.

5.05 The financing plan for the Project is summarized as follows:

Project Financing Plan(in US$ million)

Foreign Local Total (X)Equity

PUSRI and OtherShareholders- For Energy Conser-

vation Center 1.0 2.6 3.6 10

PUSRI- For PUSRI Energy

Efficiency 3.0 8.5 11.5 32Sub-total 4.0 11.1 15.1 42

Debt

IBRD loan 21.0 - 21.0 58Total Financing 25.0 11.1 36.1 100

- 24 -

C. Procurement

5.06 The procurement arrangements for the Project are summarized onthe following page. All equipment and materials contracts to be financedby the Bank will be procured in accordance with Bank procurementguidelines. International competitive bidding (ICB) will be used forprocurement of individual items costing over US$200,000. This willrepresent about 60% of the total contracts for equipment and materials.Equipment proprietary to the process design, estimated to cost US$2.0million (about 10% of the Bank loan), will be procured on the basis ofprices negotiated with original equipment suppliers. Small items costingless than US$200,000 up to an aggregate amount of US$1.4 million will beprocured through limited international bidding (LIB) after solicitation ofquotations from qualified suppliers from at least three Bank-eligiblecountries. To the maximum extent possible, identical or similar itemswould be grouped together for purposes of bidding and procurement. Forpurposes of evaluation and comparison of bids for the supply of goods underICB, qualified domestic suppliers will be allowed a preference of 152 ofthe CIF price or the applicable import duty, whichever is lower.

5.07 Civil works contracts for construction (for PUSRI component)totalling US$4.1 million will be awarded through local competitive bidding(LCB). None of these civil works contracts will exceed US$2.0 million andare not likely to attract interest from foreign bidders. The Bank willfinance the design and supervision of civil works, which amounts to aboutUS$0.5 million. Bidding packages for these works, as well as for goodsover US$1.0 million will be subject to the Bank's prior review ofprocurement documentation. Contracts for consulting services (technicalassistance, energy audits and feasibility studies for KONEBA, andengineering and supervision services6/ for the PUSRI component) will beawarded in accordance with Bank guidelines on the use of consultants.

D. Disbursements and Allocation of Bank Loan

5.08 An estimated schedule of loan disbursements is given in Annex5-2. Loan disbursement is expected to be completed by December 1992. Thedisbursement period for this project is estimated at six years, based onthe standard profile derived from past Bank experience with similarprojects. Disbursement against contracts for (i) equipment and materials,(ii) training, and (iii) civil works costing less than US$100,000 will bemade against statement of expenditures. Reimbursement applications againststatement of expenditures would be aggregated to about US$50,000 beforethey are submitted to the Bank. Documentation for disbursements understatement of expenditures will be retained by KONEBA and PUSRI. All otherdisbursements will be fully documented. Retroactive financing of up to

6/ Including the provision of licenses required.

- 25 -

(million US$)Procurement Method

TotalProject Element ICB LIB LCB Other N.A. Cost

PUSRI Component:

Equipment and Materials 5.4 1.0 1.2 2.0 a/ - 9.6(5.0) (1.0) - (2.0)I/ - (8.0)

Civil Works - - 4.1 - - 4.1

Engineering Services and - - 9.4 b 9.4Licenses - - - (8. D - (8.5)

Energy Cons. Center Component:

Technical Assistance - - - 2.2 - 2.2- - - (2.0) - (2.0)

Energy Audits and Feasibility - - - 2.2 - 2.2Studies - - - (1.7) - (1.7)

Training - - - 0.4 - 0.4- - - (0.4) - (0.4)

Instrumentation, Vehicles & - 0.4 - 0.1 - 0.5Fixtures - (0.4) - - - (0.4)

Others c/ - - - - 1.0 1.0

Total 5.4 1.4 5.3 16.3 1.0 29.4(5.0) (1.4) - (14.6) - (21.0)

a/ For proprietary equipment which will be procured through directnegotiations with original suppliers.

b/ Of which US$0.5 million is for design and supervision of civil works.c/ Procurement not applicable; comprises operating costs and working

capital. .

Note: Figures in parentheses are the respective amounts to be financedby the Bank.

- 26-

US$1.0 million would be provided to cover expenses for preparatoryactivities, mobilization and other payments after January 1, 1986, for thePUSRI energy efficiency and KONERA Energy Conservation Center components.The Bank loan allocation is shown in Annex 5-3.

5.09 The proceeds of the Bank loan will cover: (i) for equipment andmaterials, 100% of foreign exchange cost for direct imports, 95% ofex-factory price of locally manufactured items, and 65Z of totalexpenditures for items imported but procured locally; and (ii) forengineering services (including US$0.5 million for design and supervisionof civil works), royalties and license fees, consultancy services, andoverseas training, 100% of expenditures. The Project is expected to becompleted by December 31, 1992, and the loan closing date will be June 30,1993.

VI. STATUS OF PREPARATION, PROJECT MANAGEMENT,IMPLEMENTATION AND RISKS

A. Status of Preparation

6.01 Energy Conservation Center. The Energy Conservation Center,KONEBA, was legally incorporated in January 1987; its Board ofCommissioners as well as the President Director, the Deputy PresidentDirector and four other key staff were also appointed at the same time.KONEBA will operate as an autonomous, commercial entity in the form of awholly-owned subsidiary company of PUSRI and four other Indonesianfertilizer companies.

6.02 Given the critical role technical assistance will play in helpingKONEBA achieve Project objectives and the need to ensure early availabilityof this assistance to the Company, advance contracting has been carriedout. The Bank was involved at each stage of the consultant selectionprocess to ensure that selection procedures have followed Bank guidelineson the use of consultants ane that contracts conform with Project objec-tives. The consultant has been selected to provide guidance to KONEBAduring its formative years and to help the Company carry out its priorityactivities. The technical assistance contract between KONEBA and theconsultant has been signed.

6.03 PUSRI Energy Efficiency. The equipment and works required forthis component have been identified and costed by P.T. Kelsri and M.W.Keliogg in a detailed feasibility study completed in 1984 (para 5.02). Thebid documents and the draft contract have been reviewed by the Bank. Bidevaluation is planned to be completed in October 1987, and contractsawarded in December 1987. This component is sufficiently ready forimplementation.

B. Project Management, Implementation and Monitoring

6.04 Energy Conservation Center. During its first two years ofoperation, the consultant will assist KONEBA in the areas of (i) promo-tional campaign; (ii) establishment of energy data base; (iii) conduct of

- 27 -

energy audits and feasibility studies; and (iv) training. The detailedenergy audits and feasibility studies will be carried out by an engineeringfirm (or group of firms) with which KONEBA will enter into a separatetechnical assistance contract. The consultant will prepare the terms ofreference for the audits and studies, and assist KONEBA in the selection ofthe engineering firm(s). The consultant will also supervise the carryingout of the audits and studies. To monitor project implementation, KONEBAwould submit quarterly progress reports in a form acceptable to the Bank.

6.05 PUSRI Energy Efficiency. The implementation of this componentwill be the responsibility of PUSRI. PUSRI will be assisted by qualifiedforeign and local engineering firms and will undertake the major activitiesas follows:

(a) basic design engineering will be carried out by the foreignengineering firm in its home off'.ce, with participation ofPUSRI engineers;

(b) detailed engineering will be done by PUSRI in Indonesia,under the supervision of the foreign engineering firm;

(c) procurement will be handled by PUSRI, through its offices inIndonesia, Houston and Tokyo, with back-up from the foreignengineering firm;

Cd) performance guarantees will be provided by the foreignengineering firm and the equipment suppliers.

PUSRI has established a Project Management Team under the TechnicalDirector which will be responsible for the overall implementation of theproject, as well as for the coordination with the foreign and localengineering firms. The implementation schedule for this component is shownin Chart 2.

C. Auditing and Reporting Requirements

6.06 PUSRI will be required to submit to the Bank annual financialstatements and reports, as well as project accounts, examined byindependent auditors acceptable to the Bank within six months of the end ofits fiscal year. The reports would also include a separate audit ofaccounts relating to disbursements against statements of expenditure.PUSRI will give prompt attention to audit exceptions and recommendations.PUSRI will also be required to submit to the Bank quarterly financialstatements and progress reports on the physical implementation of theproject within two months after the end of each quarter.

6.07 KONEBA will complete by December 31, 1987, the design, installa-tion and operation of an accounting system to record all financialtransactions of KONEBA. It will maintain records adequate to monitorproject implementation, and will submit quarterly progress reports to theBank within 45 days after the end of each quarter in a form acceptable tothe Bank. KONEBA will maintain accounts satisfactory to the Bank for all

- 28 -

expenditures incurred under the Project. KONEBA will also submit quarterlyfinancial statements to the Bank within two months after the end of eachquarter. It will have its annual financial statements examined byindependent auditors satisfactory to the Bank, and submit to the Bank suchstatements along with the audit report within six months of the end of itsfiscal year.

D. Project Risks

6.08 The technical, financial and commercial risks associated with theProject are minimal. The energy conservation measures that would beimplemented by KONEBA and PUSRI are based on proven technology andpractices. The completion of the administrative and legal requirementsestablishing KONEBA as well as appointments of its Board of Commissionersand core key staff remove the risk of further delays resulting frombureaucratic processes.

6.09 There is a risk of KONEBA not being able to realize fully thepotential for energy savings in Indonesia's industrial sector, since itsability to do so will depend much on the effectiveness of both thepromotional campaign that KONEBA will undertake, and on the technicalassistance that it will provide to industries. With the Bank's assistance,KONEBA's organization and work program have been formulated around suchconsiderations. Risks associated with the PUSRI energy efficiencycomponent are minimal; PUSRI has an impressive record of efficiency inimplementing and commissioning complex fertilizer grassroot projects.

VII. FINANCIAL AND ECONOMIC ANALYSES OF PUSRIENERGY EFFICIENCY COMPONENT

A. Financial Analysis

7.01 Background. The key assumptions used in the financial analysisare given in Annex 7-1. In order to provide an overall view of PUSRI'sfinancial performance, adjustments were made to consolidate and reclassifycertain accounts as necessary according to conventional accountingconcepts. Detailed historical financial data are given in Annex 7-2, whileprojected financial performance is shown in Annex 7-3.

7.02 Past Financial Performance. PUSRI's past financial performancehas been good. Net profit increased consistently over the years andreached Rp 41 billion in 1984. Net return on sales rose from 12% in 1982to 21% in 1984. In 1985, however, as a result of a 23%-reduction in ureaex-factory prices by GOI, net income declined to Rp 16 billion and netreturn on sales to 12%. In 1986, net income increased again to Rp 22billion and return on sales improved to 17%. The company's financialposition has also been sound. Over the last five years, PUSRI's liquidity,leverage and solvency positions have been satisfactory at averages of 1.7(current ratio), 29/71 (debt/equity) and 2.4 (debt service coverage),respectively. PUSRI's recent operating performance and key financialindicators are summarized in the table below.

- 29 -

PUSRI - Historical Financial Data(in billion current Rp, unless otherwise stated)

1982 1983 1984 1985 1986

Sales 151.5 185.6 192.6 138.9 131.7Net Income 17.6 53.5 40.6 16.3 21.8Internal Cash Generation 44.4 75.7 79.7 53.1 62.8Net Income/Sales, 2 11.6 28.8 21.1 11.8 16.6Net Income/Total Assets, % 3.3 7.9 5.3 2.2 3.1Current Ratio 1.4 1.3 1.6 1.7 2.4Debt/Equity Ratio 31/69 28/72 31/69 29/71 24/76Debt Service Coverage, times 2.1 2.9 2.9 2.1 2.0

7.03 Projected Financial Performance. The Project, which is designedto reduce current unit energy consumption and increase effective productioncapacity in three ammonia plants, will enhance PUSRI's profitability andoverall financial position. Based on present sustainable operating levels,sales are projected to increase from Rp 132 billion in 1986 to Rp 204billion in 1991, the first year when full benefits from the Project areexpected to be earned. Net income is also projected to rise from Rp 22billion in 1986 to Rp 40 billion in 1991. PUSRI's financial position isexpected to remain sound. Current ratio is projected at an average of 2.3,debt/equity ratio at 13/87 (assuming no additional debt is contracted), anddebt service coverage at 2.7 times, over the period 1987-95. PUSRI'sprojected financial performance is summarized below.

PUSRI - Projected Financial Data(in billion current Rp, unless otherwise noted)

1987 1989 1991 1993 1995

Sales 154 159 204 219 227Net Income 27 29 40 50 51Internal Cash Generation 69 65 76 77 71Net Income/Sales, (Z) 17.7 18.1 19.7 22.7 22.4Current Ratio 2.3 2.3 2.3 2.3 2.3Debt/Equity Ratio 22/78 19/81 13/87 7/93 2/98Debt/Service Coverage, times 2.3 2.0 2.6 3.2 3.6

7.04 Financial Rate of Return and Sensitivity Analysis. The Project'soverall financial rate of return (FRR) is estimated at 41% in April 1987US$. Individual FRRs are estimated at 39% for PUSRI II, 41% for PUSRI III,and 42% for PUSRI IV. Financial cost and benefit streams are shown inAnnex 7-4. The Project's FRR is most sensitive to changes in productprices and construction delays. A 20%-decline in ammonia and urea pricesresults in an FRR of 34%. A two-year delay in project completion, on theother hand, reduces the Project's FRR to 28%. Under a combination ofadverse situations, i.e. 20%-increase in capital cost, 20%-decrease in

- 30 -

revenues, and 20%-increase in variable costs, the Project's FRR isestimated at 28%, still a satisfactory return. The overall and individualFRRs, as well as their sensitivities, are sunmArized below. FRRcalculations assume an implementation period for this component of fouryears based on Bank past experience with lending in the fertilizer sector(para 3.11).

Financial Rates of Return (Before Taxes)and Sensitivity Summary

(in Z)Total

PUSRI II PUSRI III PUSRI IV Project

(1) Base Case 39.2 40.6 42.2 40.8(2) Capital Cost Up 20% 33.8 35.5 37.0 35.5(3) Revenues Down 20Z 31.1 33.4 35.1 33.5(4) Variable Costs Up 20% 38.5 40.3 42.0 41.2(5) Two-year Delay in

Project Completion 24.5 28.6 29.5 27.7(6) Combination of (2),

(3) and (4) above 25.5 28.5 30.0 28.2

7.05 Financial Performance Covenants. Assurances were obtained fromthe Government that it shall continue to take, or cause to be taken, allmeasures which, under conditions of efficient operation, will enable PUSRIto meet all operating expenses from revenues, service its debt frominternal cash generation, and earn a reasonable return, after taxes, on itsassets (except fixed assets not yet in service). Such return is projectedto be satisfactory as shown in Annex 7-3. It would imply that ex-factoryfertilizer prices would be adjusted to reflect general price increases inenergy and other inputs.

7.06 Also, assurances were obtained from PUSRI that it will (i)maintain a current ratio of no less than 1.4; (ii) not incur any long-termdebt if, after incurring such debt, the company's debt/equity ratio willexceed 55/45; (iii) not incur additional debt if, by so doing, theprojected debt service coverage will fall below 1.5 tines; and (iv) notmake any repayment in advance of maturity in respect of any of itsoutstanding debt which would materially and adversely affect its ability tomeet its financial obligations. These financial covenants were providedfor under Loans 1089-IND and 1254-IND (para 3.10) and wiere complied with.

B. Economic Analysis

7.07 Economic Costs and Benefits. The assumptions used in theeconomic analysis are described in Annex '-5. The cost and benefits areexpressed in April 1987 prices. All economic costs and benefits fortradeable items were valued at international prices estimated to prevailduring the economic life of the Project. The local component of thefinancial capital cost was translated to economic terms using a conversionfactor of 0.64. The economic analysis was carried out on an incremental

-: ~~~~~~~~~- 31 -

basis. In addition, the economic viability of the three plants covered bythe Project was analyzed to establish the justification for modificatlaninvestments in the existing facilities.

7.08 The economic benefits of the Project are derived mainly from (i)an increase in ammonia production through capacity optimizatior. aftermeating requirements for urea production; and (ii) a decrease in specificenergy consumption. For calculating economic benefits, the future price ofbagged urea, expressed in April 1987 terms, is assumed to increase in realterms from US$108/ton (FOB, West Europe) in 1987, to US$201/ton in 1990,and will subsequently decline to US$187/ton in 1995 before increasing againto US$202/ton by 2000, in accordance with Bani' projections. These pricesreflect expected future increases and the world demand and supply situationfor urea in the late 1980's and the 1990's. The FOB price of ammonia isbased on Bank-projected fertilizer prices assuming a ratio of 1.05 betweenammonia and urea prices. The economic price of natural gas is based on itsfuel oil equivalent as natural gas is, at the margin, expected tocubstitute for fuel oil in industry. On this basis, the economic price permmBtu of natural gas at plant site is calculated at US$2.1 in 1987, US$2.2in 1990, US$2.8 in 1995 and US$4.0 in 2000, based on Bank projections offuture crude oil prices.

7.09 Economic Rate of Return and Sensitivity Analysis. The Project'soverall incremental economic rate of return (ERR) is estimated at 50% inconstant terms. The individual ERRs are estimated at 50% for PUSRI II, 48Zfor PUSRI III and 51% for PUSRI IV. The economic cash flows for the ERRcalculations are given in Annex 7-6. The results of sensitivity analysisare summarized below. It includes an analysis of the effect of criticalvariables on the economic viability of the Project, i.e. the switchingvalues 7 /, at an assumed opportunity cost of capital of 12%.

Sensitivity Tests on Economic Rates of Return(in %)

TotalPUSRI II PUSRI III PUSRI IV Project

(1) Base Case 50.2 48.2 50.5 49.6(2) Capital Cost Up 20% 43.7 42.4 44.7 43.6(3) Economic Benefits Down 20% 38.9 39.6 42.7 40.5(4) Variable Cost Up 20% 49.3 47.3 50.4 48.6(5) Delay in Completion by

two years 29.8 31.7 33.4 31.7(6) Combination of (2), (3),

and (4) above 32.7 33.1 37.0 33.7

Switching Values of Selected Variablos (Z)

Capital Cost +302 +314 +348 +323Sales Benefits -51.6 60.5 68.9 -60.2

7/ The percentage changes in economic costs and benefits that result in anet present value of zero for the Project, or in an ERR equal to theopportunity cost of capital.

- 32 -

7.10 The results of the sensitivity tests indicate that the Projectwould remain economically viable under reasonable changes in the mainparameters. The economic attractiveness of the Project is confirmed by theswitching values of two variables--capital cost and benefits (i.e. outputprices)-to which the ERR is rather sensitive. Other things remaining asexpected, an increase of more than 323% in capital cost will result in anegative net present value at a discount rate of 12%. Such an increaseoccuring, however, is highly unlikely considering that PUSRI has a goodrecord of implementing projects efficiently and below estimated costs.Changes in output prices of 52-69% are also unlikely; the Bank, in fact,projects urea prices to increase by 4.9% p.a. from 1987 to 2000 fFr supplyto balance demand. The ERR calculations are based on an implementationperiod for this component of four years based on the Bank's past experiencewith lending in the fertilizer sector (para 3.11).

7.11 In considering the basic justification for energy savingsmodifications, it is important to analyze, in addition to the incrementalreturns, the economic viability of the plants before and after suchmodifications. Therefore, an economic analysis of the individual plantfacilities, before and after the Project, was carried out taking intoaccount the economic value of txisting investments. Although the threePUSRI plants are largely depreciated, they are well maintained and areriuning profitably. Thus, the market value of these inveqtments, estimatedby PUSRI to represent about three times their book value, was used in theeconomic analysis. On this basis, the economic value of existinginvestments in PUSRI II, III and IV plants before the Project wereestimated at US$79 million, US$84 million and US$114 million, respectively,in April 1987 prices. The economic analysis shows that all plants underthe Project are economically viable with positive economic cash flows overthe plants' operating life.

7.12 Foreign Exchange Savings. The Project is expected to generatereasonably good foreign exchange through (i) incrensed ammonia productionfrom the same quantity of natural gas now used owing to a lower specificconsumption; and (ii) increase in urea production. Additional ammoniaproduction for exports resulting from the modifications is expected togenerate net foreign exchange earnings of about US$62 million in real termsover the economic life of the P;^cject, or an average of US$6.2 million peryear. The estimated foreign exchange savings derived from the Project areshown in Annex 7-7.

VIII. AGREEMENTS AND RECOMMENDATIONS

A. Agreements

8.01 The following agreements have been reached with the Government ofIndonesia, PUSRI and KONEBA:

a. From the Government that it will:

(i) continue to take, or cause to be taken, all measures,which, under conditions of efficient operation, will

J

- 33 -

enable PUSRI to meet all operating expenses fromrevenues, service its debt from internal cashgeneration, and earn a reasonable return, after taxes,on its assets (except fixed assets not yet in service(para 7.05);

b. From PUSRI that it will:

(i) make available, in a timely manner, all funds,including working capital, as and when required toenable KONEBA to carry out its tasks (para 4.10);

(ii) submit to the Bank project reports and financialstatements as described in para 6.06; and

(iii) follow prudent financial practices and maintain asatisfactory financial position as described in para7.06.

c. From KONEBA that it will:

(i) follow prudent financial practices and maintain asatisfactory financial position as described in para4.12; and

(ii) complete by December 31, 1987 the design, installationand operation of an accounting system to record allfinancial transactions of KONEBA, and submit to theBank periodic progress reports ton the Company'soperations and financial position (para 6.07).

8.02 The following are conditions of effectiveness:

Execution of subsidiary loan agreements between ti) GOI andPUSRI covering the PUSRI energy efficiency component, and(ii) GOI and KONEBA covering the Energy Conservation Centercomponent, on terms and conditions satisfactory to the Bank(para 5.Oh); and

B. Recommendations

8.03 Retroactive financing of up to US$1.0 million for the PUSRIenergy efficiency and KONEBA Energy Conservation Center components isrecommended (para 5.08).

8.04 Subject to the above agreements and conditions, the proposedProject 5s suitable for a Bank loan of US$21.0 million repayable in 20years, including a grace period of 5 years, at the standard variableinterest rate. The Borrower will be the Republic of Indonesia.

Asia Country Department VSeptember 1987

INDONESIA

INDUSTRIAL ENERGY CONSERVATION PROJECT

Domestic and Economic Pricos of Petroleum Products

------Average for 1986 …------- ----------… Mid-1987-----Share of Domestic Economic Ratio of Domestic Economic Ratio of Domestic

Consumption Price a/ Price j to Economic Price Price to Economic erice(2) ------(Rp/liter)----- () (Rp/liter) (Z) _

Aviation turbo 2.8 250 210 119 257 97

Gasoline super 0.4 440 218 202 266 166

Gasoline regular 16.3 385 208 185 255 151

Kerosene 29.2 165 232 71 279 59

Motor diesel 29.9 200 235 85 283 71

Industrial diesel 6.2 200 221 91 268 75

Fuel oil 15.2 200 124 161 171 117

otal/averaze 100.0 222 212 105 258 86

a/ Including 102 value-added tax.b/ Average prices for 1986, plus distribution and transport costs, based on crude oil at US$13.5/bbl and converted .

at US$1 - RP 1,650. Mid-1987 prices based on crude oil at US$18.0/bbl.

"3

- 35 -

ANNEX 2-2

INDONESIA - INDUSTRIAL ENERGY CONSERVATION PROJECT

Effective Demand for Energy ConservationServices ln Large Industrial Plants

Demand (in number of plants)Industrial Plants Present Short-Term Medium-Term

Sugar 12 20 64Textiles 15 30 225Plywood 3 6 14Pulp & Paper 10 15 24Fertilizers 3 4 6Tires 1 3 10Other basicchemicals 4 7 18

Glass 2 4 8Cement 1 3 10Others 5 11 28

Total 56 103 407_m _m

- 36 -

AMNEX 4-1

LDONESIA - INDUSTRIAL ENERGY CONSERVATION PROJECT

Identified Industries and Plants for Energy Auditsand Feasibility Studies

Fertilizers1. P. T. Pupuk Kujang2. P. T. Pupuk Kalimantan

- Kaltim I and II ammonia/urea plants3. Acean Aceh Fertilizer

Textiles1. P. T. Patal Senayan2. P. T. Damatex3. P. T. Primissima

Pulp and Paper1. P. N. Blabak2. P. T. Kertas Bekasi Teguh

Tires1. P. T. Intirub

Glass1. P. T. Iglas

Synthetic Fiber1. P. T. South Pacific Viscose2. P. T. Tri Rempoa3. P. T. Yasinta Poly

Sugar1. P. T. Gunung Madu2. P. T. Madukismo3. P. T. Kebon Agung

Cement1. P. T. Semen Gresik2. P. T. Semen Baturaja

Food and Beverage1. P. T. Bintang Agung2. P. T. Miwon

Plywood1. P. T. Kayu Lapis Indonesia

- 37 -ANNEX 4-2Page 1 of 7

INDONESIA - INDUSTRIAL ENERGY CONSERVATION PROJECT

Energy Conservation Center

Terms of Reference for Consultancy Services

A. Background

1. In order to facilitate the effective implementation and furtherdevelopment of Indonesia's energy conservation policy, the Government ofIndonesia (GOI) will establish an Energy Conservation Center (Center) inSeptember 1986. The Center will be set up as an autonomous, commercialentity in the form of a wholly-owned subsidiary of P. T. Pupuk Sriuidjaja(PUSRI), a major fertilizer company in Indonesia. The Center will bebroadly entrusted with the overall planning, promotion, implementation,coordination, monitoring and training responsibilities related to energyconservation. In the initial years, the Center w.ll focus its attention onthe industrial sector, this sector being the largest consumer of commercialenergy. In the succeeding years, the Center will expand its sectoralcoverage to include the transport, commercial and household sectors.

2. The Government has approached the World Bank with a request toconsider financing the technical assistance that the Center requires in theperformance of its tasks.

B. Objectives of the Consultancy Services

3. To assist the Center in carrying out a number of priorityactivities, the Center requires the services of a consulting firm for aperiod of two years. The consulting firm will provide overall guidance tothe Center in its formative years, and help the Center implement thefollowing priority activities:

(a) design, organize and implement a national energy survey and anindustrial energy conservation incentives study;

(b) establish a national energy data bank;

(c) prepare publications, disseminate information, and carry out acomprehensive promotional campaign;

(d) develop and implement a training program for the Center's staffand industrial energy managers; and

(e) organize, initiate and supervise the carrying out of energyaudits and/or feasibility studies in priority industries.

C. Scope of Consulting Services

4. The services to be provided by the consulting firm are asfollows:

- 38 -

ANNEX 4-2Page 2 of 7

4.1 Make recommendations for the improvement of the Center's institutionalset-up, organization, staffing and work program. In this regard, theconsulting firm shall carry out the following tasks:

(a) Prepare a detailed task description for the Center;

(b) Prepare an organizational manual, including organizationalcharts, job descriptions and classification of the mainpositions;

(c) Recommend the recruitment procedures and help the Center in theselection and evaluation of candidates for the main positions;and

(d) prepare a job performance evaluation program for the professionalstaff of the Center.

4.2 Organize and carry out a national energy survey. The focusof the energy survey shall be the industrial sectorl/. However, theconsulting firm shall also carry out a limited, but7representative,survey of the transport and commercial/services sectors. Theconsulting firm shall undertake the following activities:

(a) review of the existing statistical data available inIndonesia;

(b) Design of the appropriate survey questionnaire,

(c) Selection of the industrial plants and establislhments to beincluded in the survey;

(d) Selection and training of local staff (from the Center) who willassist the consulting firm in carrying out the survey;

(e) Supervision of the local staff carrying out the survey;

(f) Visits to plants and establishments to be surveyed to (i) explainthe importance of the survey, and (ii) provide any assistanceneeded in completing the questionnaire;

(g) Design or adaptation of the necessary software to process bycomputer the results of the survey. The software must have thecapability to perform consistency testing of the results andearly detection of errors;

(h) Checking of the results of the survey with data available fromenergy suppliers (power companies, marketing data from oilsuppliers, etc.);

(i) Carrying out an analysis of the survey; and

l/ Covered by codes 31-39 of the United Nations international standardindustrial classification (ISIC) of economic activities, plus mining.

- 39 -ANNEX 4-2Page 3 of 7

(j) Preparation of a comprehensive report on the results and analysisof the survey.

4.3 Design a data bank and system On energy consumption and conservationin Indonesia, and after review and approval by the Center, establishsuch data bank and system. This includes the provision of thenecessary software and the training of the Center's professionals inrunning and updating the data bank. The results of the energysurvey, and its periodical updating, are to be incorporated in thedata bank. In addition to this task, the consulting firm shallorganize the Center's documentation unit and a small but effectivelibrary.

4.4 Design and supervise a campaign program to be carried out by theCenter to promote energy conservation and rationalization in theindustrial sector. The consulting firm must take ir.to considerationthat a vigorous campaign must start as early as possible and besustained for a period of at least two years. The campaign should betargeted in particular to the decision makers (directors and aanagersof enterprises, industry and professional associations, etc.), butmust reach down to the operational levels of the industrial plants.The consulting firm shall present a detailed promotional program andbudget, including the media to be used, for the approval of theCenter prior to implementation.

4.5 Carry out a study of the constraints for energy conservation inindustry (focusing on the large and medium scale operations 2 /) andpropose incentiveb, based on sound economic analysis, leadiWg toproposals for energy conservation policy and legislation.

4.6 Design a detailed training program (including an estimated budget)for the staff of the Center and for energy managers in the industrialsector. The program shall cover a period of two years. Afterapproval by the Center, the consulting firm will conduct suchtraining program.

4.7 Prepare subsector manuals on energy conservation and rationalizationtailored to the specific needs of the industrial sector in Indonesiafor the following industries: Fertilizer, Pulp and Paper, Cement,Textiles, Sugar, Food processing, Glass and Basic Organic Chemicals.

4.8 Based on the results of the energy survey described in para 4.2,determine the individual plants where considerable potential forenergy savings exists. Upon agreement with the Center and acceptanceof the plants selected, the consulting firm shall conduct preliminaryaudits (pre-audits) in the selected plants. Eack pre-audit shall becarried out by the consulting firm with its process expert(s), andshould take only a few days. The report that the consulting firmshall prepare for each pre-audit must point out (i) the main areas

2/ Per Indonesian classification, large scale is with 100 or moreemployees, and medium scale is with 20-99 employees.

- 40ANNEX 4-2Page 4 ef 7

where potential for energy savings exists, and (ii) therecommendation for instrumentation required to carry out in-depthenergy audits.

4.9 Determine the requirements, prepare the purchase specifications, andsupervise the purchasing of the following items for the Center:

(a) Instruments, including those under para 4.8 required by theCenter;

(b) Mobile equipment;

(c) Micro computer hardware and software;

(d) Audiovisual equipment for training, seminars and workshops; and

(e) Technical information.

4.10 Based on the results of the pre-audits, select the industrial plantswhere in-depth audits should be carried out.

4.11 Prepare the budget for t-.e in-depth audits, as well as the Terms ofReference and all neceedary bidding documents for the selection ofthe consultants who will carry out the in-depth audits and/orfeasibility studies. Propose a short list of internationalconsultants and identify local consultants who can,associate with theinternational consultants for the carrying out of the in-depth auditsand/or feasibility studies.

In the preparation of such TOR and bidding documents, the consultingfirm should note that the in-depth audits must meet the followingrequirements:

(a) They shall include complete material and energy balances,estimates of the energy savings from improved operational andmaintenance procedures, and estimates of potential energysavings from equipment or process improvements or modifications;

(b) For the improved operational and maintenance procedures, theirdetailed description and implementation scheme shall b'e part ofthe in-depth audit report;

(c) For the equipment and process improvements, the investmentrequired and changes in operating costs must be calculated andincluded in the report, as well an assessment of the technical,economic and financial feasibility of the proposed investment;

(d) The in-depth audits are to be carried out after the Center andthe enterprise involved have reached an agreement and enteredinto a contract; and

- 41 -

ANNEX 4-2Page 5 of 7

(e) After the in-depth audit report is reviewed and approved by theCenter and the enterprise involved, and the enterprise decidesto proceed with a feasibility study, then the consultant, underthe supervision of the consulting firm, may start such a study.A feasibility study must include the basic design and fullbidding documents for the project.

4.12 Evaluate the proposals and recommend the selection of theconsultant(s) who will carry out the in-depth audits and/orfeasibility studies.

4.13 Supervise the execution of the in-depth audits and fe _.bilitystudies. The consulting firm must make all po_sibie effort to ensurethat the staff of the Center as well as plant staff participateactively during the pre-audits, in-depth audits and feasibilitystudies.

4.14 Organize two yearly seminars on energy conservation and inter-fuelsubstitution: one for Government officials and managers of privateand public enterprises and the other, more technically oriented, forspecialists and industrial energy managers.

4.15 Provide continuous technical and management advice to thePresident-Director in the operation of the Center for two years.

D. Reporting Requiranents and Time Schedule

5. The consulting firm shall prepare and submit to the Centerreports on the following aspects:

(a) Institutional set-up and organization (containing all itemsreferred to in para 4.1);

(b) Methodology, results and analysis of the energy survey;

(c) Promotional campaign program;

(d) Industrial energy conservation policy, incentives andlegislation study;

(e) Training program (and budget) and manuals;

(f) Industrial subsector Prergy manuals (referred to in para4.7);

(g) Documentation unit of the Center; and

(h) Proceedings of the seminars (referred to in para 4.14).

6. Besides these reports, the consulting firm shall submit quarterlyreport containing the progress achieved, unresolved issues andrecommendations, and detailed work plan for the next quarter. At the end

- 42 -ANNEX 4-2Page 6 of 7

of the assignment, the consulting firm shall submit a completion report,covering in full detail all areas of the work performed, as well as finalrecommendations for the further development of the Center. The completionreport should also contain the consulting firm's recommendation on aneffective approach that the Center should adopt to implement and energyconservation program in the transportation and commercial/services sectors.

7. The estimated time schedule of activities and completion ofreports is contained in Attachment 1 of these Terms of Reference.

E. Organization of Work

8. The consulting firm shall provide the services specified underthese Terms of Reference through an Advisory Team and Support Resources.

8.1 The Advisory Team, which will be maintained in Indonesia for twoyears, shall consist of a senior engineer/manager assisted by asenior engineer. The senior engineer/manager will function as anadvisor to the Center, and as such, he will be directly responsibleto the President-Director of the Center. In addition, he will be thecoordinator of all the activities of the consulting firm related tothe Energy Conservation Center. He must have a strong technicalbackground in process engineering and experience in energyconservation projects, combined with industrial and programmanagement experience.

8.2 The senior engineer will report to the senior engineer/manager andwill act as his deputy during his absence. His qualifications mustbe similar to those of the senior engineer/manager.

9. Although the Advisory Team will be the primary resource that theconsulting firm will provide to carry out the tasks specified under theseterms of reference, the consulting firm is solely responsible for thesatisfactory timely completion of all tasks. Therefore, the consultingfirm shall also provide all resources from its home office as required tosupplement and/or complement the services provided by the Advisory Team.The Support Resources provided by the consulting firm will includepersonnel working in the consulting firm's home office, or in Indonesia onan interim basis.

F. Data and Service to be Provided by the Center

10. The Center will provide the consulting firm with access to allavailable data relevant to the consulting services, and provide aninventory of such data. The data shall include, but not be limited to (i)past reports prepared by or for the Government on energy conservation; (ii)statistical information on energy production, consumption and conservation;(iii) information related to energy research and technology development;(iv) detailed information on the organization, composition (i.e. majorindustries, sub-industries, plants, capacities, etc.) and energy

- 43 -

ANNEX 4-2Page 7 of 7

consumption of the Industrial sector in Indonesia; (v) Government policies,rules and regulations relevant to energy conservation; and (vi) otherdata/information whichi would be required by the consulting firm in theperformance of its tasks.

11. The Center will likewise provide the consulting firm with theassistance of the Center's staff, particularly in the carrying out of theenergy survey and pre-audits, as well as normal facilities (office space,office equipment, etc.) required by the consulting firm in the performanceof its assignment.

- 44 -

ZUEUTA - XIDU3STL CON3UATZ PROJE A s 4-3

ZOEDA - arW Commtawrm Cetee Pag* 1 of 3

lo Peis Dslanas Sheet

(in _vrmmt Up KLILLo.

1967 193 199 1990 1"1 1992 1993 1994 1"5 1i9

ASMSE

CzOu t Assets

Cash SI *5 87 90 1U7 193 200 206 213 220

Ree Lvables 110 120 207 296 926 1.046 1.012 1.119 1.153 1.199--- --- --- -_ _ -- --- --- --- ---

Total Curr nt Assets 191 205 294 313 1.113 1,239 1,252 1,325 1.371 1.419

Suzplus Cash - - - 775 1.411 2,542 3.835 5.26 '."'3 ,563

FLx-d Asets 362 690 344 955 1.096 1.096 1.146 1.196 1,246 1.296

Les -AcaunmaLtd Depreciation - 24 43 72 96 315 520 735 960 1.195

ot FLusd Asssets 362 66f 796 S33 1.000 731 620 461 236 101

Istsglble Assets 2.331 4.897 7,604 9.566 12,057 12.057 12.057 12.057 12.057 12.057

LassJAacinclA1tod AwsattzatLos - - - - - 1.717 3.434 5,151 6.63 5.535

Not XtsssLble Assets 2,331 4.597 7,604 9,566 12.057 10.340 1.623 6.906 5.139 3.472

Total Assets 2.384 5,768 8,694 11,612 15,561 14,902 14.366 13.960 3,6S9 13.555

LIASZLUIE

Currznt LiabiLities

Accounts Payable 163 170 175 131 187 195 204 211 219 229

Cuszrnt Portieo of LT Debt - - - 742 742 742 742 742 742

Totial Current LlablILties 163 170 175 131 929 937 946 953 961 971

Long Terr Debt 726 2,492 4,356 5.709 6.663 5,940 5.197 4,455 3.713 2.970

Share Capital 2.717 4.201 4,677 5.233 5,940 5,940 5.940 5.940 5.940 5.940

Retained Eanins (722) t1.095) (C14) 489 2.029 2,085 2,283 2,612 3,075 3,674

Total Zquity 1.995 3,106 4,163 5.722 7,969 S.025 8,223 8,552 9.015 9.614

Total LLsbilities 2,384 5,768 3.694 11,612 15,561 14,902 14,366 13.960 13,669 13.555

MO It_e:

Curr st Ratio 1.2 1.2 1.7 2.1 1.2 1.3 1.4 1.4 1.4 1.5

Debt/Zqulty Ratio 27173 45155 5l149 50150 46154 43157 39161 341/6 29/71 24176

- 45 -

zmauKZA - USn=L CO VAUZOU PRMOJ Page 2 of 3

WEED" - herqw C..ea.wvat Custer

PMs V ~ Ime stagmsa

(in ourrust Up '.11216)

1967 1g33 1969 1990 1991 1972 1993 1994 199 1996

Revenu

Imezgy Ailta - 334 493 1,021 2,113 2.734 2r629 2.928 3,031 3,137

neaalbLhitv StudiSa 19 206 351 nS 910 941 973 1.007 1.042 1.075

Con.ultancy a Information 56 97 242 250 258 267 274 2a5 294 304

Training '5 73 227 235 243 251 259 268 277

Total Reinyue 252 672 1.659 2,378 3.516 4.135 4.32 4.479 4,635 4.796

operating Costs

P ra.mel 549 576 596 616 637 459 682 705 729 754

Office Reantl & UUiLties 15S 163 16 173 179 185 191 197 203 210

Telephone STelex 65 6S 70 72 74 76 75 U 82 84

Supplies *1 a5 37 90 93 96 99 102 105 10S

AdvertiIng/lremtLoSn 123 129 133 137 141 145 150 155 160 165

DoprecLatLon S Amortl-atLon. - 24 24 24 24 1.937 1,923 1,933 1.943 1.953

Total Operating Costs 974 1.045 1.075 1.112 1.148 3.098 3.123 3,172 3.222 3.274

Gross ProfLt (722) (373) 581 1,266 2.363 1,087 1,206 1.307 1.413 1.522

Interest charges - - - - - 1.002 902 302 701 601

Profit Zefore TaxSs (722) (373) 5S1 1.266 2.368 85 304 505 712 921

IncormmI - - - 263 38o 29 106 176 249 322

Sat Income tArm Taxes (722) (373) 581 1.003 1.340 56 195 329 463 S99

,i,- - - -- -.- -. :

- 46 -

AN= 4-3

page 3 of 3

10U33?A - XINXSlZAL 8AT COIIOIYATI P TOJT

Mo0MM& - hazuy Conservation Ccnter

wo Frorn Funds nev satement

(is eurent Up NLilLa.)

1937 1933 1969 1990 191 1992 993 1994 1995 1996

Net Lncome After t -- C722) (373) 5S1 1.003 1.540 56 198 32 463 599

Add:

Deprzealatio AmorttatIon - 24 24 24 24 1.937 1.923 1.933 1.943 1,953

intereJt an LT Debt a) - - 1.002 902 * 02 701 601

Internal Caxh C-neratlon (722) (349) 605 :,027 1.564 2,995 3.023 3.064 3.107 3,153

LT Loans

Disbueaement XED Loan 726 1.766 1,3K 1,353 1.716 - - - -

EquLty Contributeon 2.717 1.434 476 556 707 - - - - -

…____ ----- ----- ----- ----- -----

Total Sources 2.721 2.901 2,945 2.936 3.957 2,995 3.023 3.064 3,107 3.153

USES

Debt Servlce

Interest on LT Debt 49 217 462 679 8S7 1.002 902 802 701 601

LT Debt Repay ent - - - - - 742 742 742 742 742

Total Debt ServLce 49 217 462 679 U37 1,744 1,644 1.544 1.443 1,343

lncrease lCDcreaa) In Vozklng 23 6 4 87 71 120 36 37 39 40

Capital

Capxal. Expendttursa 2.644 2,676 2.399 1.395 1.746 - 50 50 so SO

Total Uses 2.721 2.901 2,945 2,161 3.351 1.664 1.730 1,631 1.532 1,433

sirplus Funds - - - 775 636 1.131 1.293 1.433 1.575 1.720

AcckiuLated SurpLus Cash - - - 775 1.411 2.542 3.835 5.268 6.843 8,563

Mu I tem:

Debt SeriVce Coverage 1.3 1.5 1.8 1.7 1.3 2.0 2.2 2.3

a) Interst during the develpm_nt period La capitalize.

- 7- A8 5-1

INDONESIA - INDUSTRIAL ENER=Y CONSERVATION PROJECT

Detailed Capital Cost Estimates f

--- billion Rupia-- -- illion U$S- Foreignas Z of

Foreign Local Total Foreign Local Total Total

Energy Conservation Center

Technical Assistance 2.7 0.3 3.0 1.6 0.2 1.8 89Training 0.3 0.2 0.5 0.2 0.1 0.3 67Energy Audits and

Feasibility Studies 2.7 0.3 3.0 1.6 0.2 1.8 89;njstrumentation 0.5 - 0.5 0.3 - 0.3 100Fixtures & Vehicles - 0.2 0.2 - 0.1 0.1 -Operating Costs b/ - 1.2 1.2 - 0.7 0.7 -

Base Cost Estimate 6.2 2.2 8.4 3.7 1.3 5.0 74

Physical Contingencies c/ 1.0 0.3 1.3 0.6 0.2 0.8 75Price Escalation 0.3 0.3 0.6 0.2 0.2 0.4 50

Working Capital - 0.3 0.3 - 0.2 0.2 -

Total Component Cost 7.5 3.1 10.6 4.5 1.9 o.4 70

Interest During Development 1.7 1.2 2.9 1.0 0.7 1.7 59

Total Financing Required 9.2 4.3 13.5 5.5 2.6 8.1 68

PUSRI Energy Efficiency

Engineering Services 5.1 1.7 6.8 3.1 1.0 4.1 76Royalties and Licence Fees 5.4 - 5.4 3.3 - 3.3 100Equipment and Materials 10.9 0.2 11.1 6.6 0.1 6.7 99Freight and Insurance 1.3 1.3 2.6 0.8 0.8 1.6 50Construction 0.7 5.2 5.9 0.4 3.2 3.6 11Start-up and Commissioning 0.3 0.5 0.8 0.2 0.3 0.5 40

Base Cost Estimate 23.7 8.9 32.6 14.4 5.4 19.8 73

Physical Contingencies . 2.3 0.8 3.1 1.4 0.5 1.9 74Price Escalation 1.2 1.0 2.2 0.7 0.6 1.3 54

Total Component Cost 27.2 10.7 37.9 16.5 6.5 23.0 72

Interest During Construction 4.9 3.3 8.2 3.0 2.0 5.0 60

Total Financing Required 32.1 14.0 46.1 19.5 8.5 28.0 70

Total Project Financing Required 41.3 18.3 59.6 25.0 11.1 36.1 69

a/ Base cost estimates expressed .a March 1987 prices for the PUSRI Component and the EnergyConservation Component.Exchange rate used: US$1 - Rp. 1,650, as of March 1987.

b/ For the Center's first year of operation.c/ 15Z of base cost estimuete.d/ 101 of base cost estiate.

- 48 -

ANNEX 5-2

INDONESIA - INDUSTRIAL ENERGY CONSERVATION PROJECT

Estinated Disbursement Schedule for Bank Loan(in US$ Thousands)

Bank Fiscal Cumulative East Asia/lYear and Disburse- PacificSemester PUSRI z KONEBA % Total X ment Profile (1)

198812/31/87 1,000 6.1 440 9.8 1,440 6.9 1,440 706/30/88 1,200 7.3 440 9.8 1,640 7.8 3,080 7

198912/31/88 3,700 22.4 630 14.0 4,330 20.6 7,410 1106/30/89 3,700 22.4 630 14.0 4,330 20.6 11,740 11

199012/31/89 3,000 18.2 500 11.1 3,500 16.7 15,240 1206/30/90 3,000 18.2 490 10.9 3,490 16.6 18,730 11

199112/31/90 900 5.4 330 7.3 1,230 5.9 19,960 1106/30/91 - - 300 6.7 300 1.4 20,260 8

199212/31/91 - - 290 6.4 290 1.4 20,550 806/30/92 - - 250 5.6 250 1.2 20,800 6

199312/31/92 - - 200 4.4 200 0.9 21,000 8

16,500 100 4,500 100 21,000 100.0 100.0

a/ For Technical Assistance/General Loans.

- 49 ~ ANNEX 5-3

INDONESIA -INDUSTRIAL ENERGY CONSERVATION PROJECT

Bank Loan Allocation

Category US$ million Eligible Expenditures

A. PUSRI Component

(a) Equipment, materials 6.6 100Z of foreign exchangeand spare parts cost for direct imports,

95% of ex-factory priceof locally manufactureditems, and 65% of totalexpenditures for itemsimported but procuredlocally.

(b) Engineering services 6.0 100%(including royaltiesand license fees)

*c; Unallocated 3.9

Subtotal 16.5

B. Energy ConservationCenter Component

(a) Instrumentation, 0.3 100% of foreign exchangeVehicles & Fixtures cost for direct imports,

95% of ex-factory priceof locally manufactureditems, and 65% of totalexpenditures for itemsimported but procuredlocally.

(b) Consultancy servicesand external training 2.0 100%

(c) Energy audits andfeasibility studies 1.7 100%

(d) Unallocated 0.5

Subtotal 4.5

Total Bank Loan 21.0

Aff . k -..-i

_ 50 -

ANNEX 7-1Page 1 of 3

INDONESIA - INDUSTRIAL ENERGY CDNSERVATION PROJECT

Assumptions Used for Financial Analysis

A. PUSRI Energy Efficiency Component

1. Basis for Projections. Project life is assumed to be 10 yearsafter energy savings modifications, with no salvage value at the end. Thefinancial projections were carried out in current Rupiah using thefollowing inflation rates: (a) annual domestic inflation of 1U% in 1987,5% in 1988 and 3.5% in 1989 and thereafter; and (b) international inflationrates of 3.0% in 1987, 1.0% p.a. in 1988-90 and 3.5% in 1991 andthereafter. The cost and benefit streams were expressed in April 1987terms for the calculation of the financial rates of return. Theassumptions used for capacities and capacity utilization with and withoutthe Project and the forecast production levels are given in Anniel 7-5.The PUSRI Marketing Unit operates on a no profit no loss basis withGovernment compensating PUSRI for any shortfall in revenues to cover thecost of fertilizer distributed on behalf of Government. Accordingly,income projections were prepared for the Production Unit only excludingPUSRI I being or phased out, while other financial projections (balancesheet and funds flow) take into account overall PUSRI operations.

2. Sales Revenues. Sales revenues were calculated using urea pricesbased on total standard production cost at 97% capacity utilization(including interest end depreciation) plus a margin of Rp 6,00U/ton plus(minu4) ten percent of the difference between a preset standard cost at 97%capacity utilization and the actual cost. This margin was assumed to bemaintained in real terms. Ammonia revenues from exports were based onprojected international FOB prices.

3. Variable Production Costs. Annual consumption of inputs wasbased on the material and utility balances before and after the Project forindividual plants. Details of raw materials and utilities consumption andproduct and output before and after the modifications are given in Annex7-5. Currently, the price of gas to the fertilizer industry isUS$1l0/mmBtu.

4. Depreciation. Fixed assets are depreciated using the doubledeclining balance at rates (as a percentage of their net value of fixedassets) determined as follows: building and inland depots 5%; plantmachinery and equipment; office equipment and ships 25%; vehicles 50%; dockequipment and wagons 10%.

5. Interest Expense. The outstanding balances and interest expensesfor the IBRD and other foreign loans are calculated in US Dollars andconverted into Rupiah using an exchange rate of Rp 1,650/US$1.0.

6. Taxes. A tax rate of 35% was used in accordance with presentIndonesian laws.

- 51 -

ANNEX 7-1Page 2 of 3

7. Investments. Equity investments by PUSRI in the Center areaccounted for using the cost method and were valued at cost.

B. KONEBA - Energy Conservation Center Component

8. Basis for Projections. The financial projections for KONEBA werecarried out in current Rupiah using the same international and localinflation rates as those outlined in para I of this Annex.

9. Revenues. The assumptions used in revenue estimates shown belowwere basLd on a programme of work for KONEBA derived from a detailed studyof the existing and potential demand for energy conservation in Indonesia.

1987 1988 1989 1990 1991 1992-96a. Energy Audits

Number of audits - 7 10 15 20 25Fee per audit(in '000 Rp.) 82,500

b. Feasibility Studies

Number of studies 1 1 2 2 2 2Fee per study(in '000 Rp.) - 356,000 -

c. Consultancy Services

Man-months 15 25 25 30 30 30Fee per man month(in '000 Rp.) --- 5,100 --

d. Informations Services

Number of clients 15 30 50 50 50 50Fee per client

(in 'UOO Rp.) -- 1,650 --

e. Training

Number of courses - 4 8 12 12 12Man-month per course ---- 3 ---

Fee per man-month 5,100(in '000 Rp.)

During the first two years of operations, a discount of 50% would beprovided by the Center on services rendered as part of its promotionalprogram.

10. Operating Costs. Personel costs are expected to represent about55Z of total operating (excluding depreciation and amortization) costs. A

_ 52 -

ANNEX 7-1Page 3 of 3

detailed staffing list including the respective salaries was prepared byKONEBA to calculate the Company's salary expense. These salaries werebased on prevailing market rates. Social overhead was calculated at 100I-of the salary base. KONEBA's overall salary expense, including socialoverhead is calculated at Rp 549 million in 1987. Other operating costsinclude office rental and utilities (Rp 156 million p.a.), general supplies('tp 81 million), telephone and telex (Rp 65 million) and an advertising andpromotion program estimated to cost Rp 123 million p.a.

11. Development Costs. Expenses incurred during the first threeyears of operations were capitalized and then amortized over an eight-yearperiod. Interest during development on the IBRD loan during the graceperiod was capitalized and amortized over a period of five years. Otherfixed assets such as vehicles and fixtures, expected to represent a limitedshare of KONEBA's total assets, were depreciated over five years also.

12. Taxes. A tax rate of 35% was used consistent with presentIndonesian laws for similar commercial enterprises. A loss-carry-forwardperiod of five years was assumed in the analysis.

13. Long Term Debt and Interest Expense. The outstanding balancesand interest expenses for the IBRD loan were calculated in US Dollars andconverted into Rupiah using an exchange rate of Rp 1,650/US$1.0. Theonlending terms of the IBRD loan to KONEBA would be 15 years including 5years of grace at 13.5Z. No payments of dividends by KONEBA were assumed.

- 53 -

AMX 7-2page 1 Of 3

INDONESIA - INDUSTRIAL KNEW1Y CONSEIVATION PROJECT

PUSRI - Historical Coamlidated Blance Sbeets (1980-84)(in Killion current Rp)

1981 1982 1983 1984 1985 1986ASSETS

Current Assets

Cah 68.057 77.693 183.276 203,791 203.482 237,234lettera of Credit 19.725 13,335 15.507 20.961 14,lS0 5,154Receivables 69,196 106.667 110,681 76.255 151.521 149.935Inventories 78.063 102.556 105,801 112,559 93,962 104,752Governent Compensatlon 27,897 25,754 44,516 48.817 65.193 -Prepaid Efpenes 38.372 62.300 79.177 73.053 17.850 5.865

Sub-total 301,310 388,305 538,958 535,436 546.158 502,943

Non Current Assets 400 400 400 400 400 400

Net Flxed Assets

Assets in Service 170.375 153,694 179,159 159.136 158.446 157,012Construction ln Progress 11.355 30,268 19.591 34.492 20.221 22.498

Sub-total 181,730 183,962 198,750 193.628 178.667 179.510

Other Assets 6.484 9,990 31.595 32.999 -29.570 27,254

Total Assets 489,924 582,657 769,703 762.463 754.795 710.107

LIABILITIES AND SUAREQOLDERS'KOUIT!

Current Liabilities

Accounts Payableand Accrued Liabilities 112,781 203,525 233,587 225,945 172.771 54,334Current Portion of LT Debtand Short-Term Bank Loans 67,949 69,728 171,161 106,872 148.763 157.334

Subtotal 180,730 273,253 404.748 332,817 321.534 211.668

Long Term Debt 95.690 96.519 102.463 134.837 126,849 121,298

Equity

Paid in Capital& 145.000 146,588 152.812 217.721 223.234 276.566Retained Earnings 33,488 31.281 74,664 77,088 83,178 100,575

Fixed Assets llevaluation 35.016 35,016 35.016 - - -

Surplus

Sub-total 213,504 212,885 262,492 294,809 306.412 377.141

Total LiabiliLtles andShareholders' Equity 489.924 582,657 769,703 762.463 754.795 710,107

Current Ratio 1.7 1.4 1.3 1.6 1.7 2.4Debt/Equity Ratio 31/69 31/69 28/72 31/69 29/71 24/76Return on Assets 3.7 3.3 7.9 5.3 2.2 3.1

a/ Includes share capital and calls received in advance.

Source: PUSRI

- 54- hm1AM= 7-2Page 2 of 3

INDONESIA - INDUSTRIAL ENERGY CONSERVATION PROJECT

PUShI - Historical Income Statement for the Years EndAd December 31(in million current Rp)

1981 1982 1983 1984 1985 1986Marketlng Unit Operation

Sales 178,580 194,626 287.432 326,841 368,797 467,294lAss: Cost of Sales 133,588 145,324 216,243 237,445 206,413 281,404

Gross Income 44,992 49,302 71.189 89,396 162,384 185.890

Less: Expenses:

Regional Marketlig 45,466 47,971 62,734 80,485 79,281 73,642Corporate Marketing 10.551 14,069 22,590 30,101 105.741 95.242

Marketing Income/(Loss) (11,025) (12,738) (14,135) (21,190) (22,638) 17,006Other Income/(expenses) (4,835) (4,817) (10,233) (8,475) (4,747) (14,780)

Marketing loss (15,860) (17,555) (24.368) (29,665) (27,385) 2.226Government Compensation a/ 15,860 17,555 24.368 29.665 27,385 -

-0- -0- -0- -0- -0- 2,226

Production Unit Operation

Sales 123,343 151,501 185,629 192,646 138,939 131,724Less: Cost of Sales 94,944 121,324 136,043 150.341 141.267 129.910

Gross Income/(Loss) 28,399 30,177 49,586 42,305 (2,328) 1,814Other Income/(Expenses) (1,113) 1,701 14,603 19,974 25,560 23,556

Production Unit Net Income 27,286 31,878 64,189 62,279 23,232 25.370

Income Before Corporate Income Tax 27,286 31,878 64,189 62,279 23,232 25,370less: Provision for

Corporate Income Tax 11.089 14,283 10,652 21.717 6.905 3,553

Net Income After Income Tax 16,197 17,595 53,537 40.562 16.327 21.817Add: Retained Earnings

Beginning of Year 55,219 33,490 31,283 74,667 77,091 83,181Less: Prior year adjustment 4,133 2,455 3,262 15,247 (2,479) (2,108)Dividend Paid/payable -o- 17,347 6,891 10,894 12,716 6.531Transfer to Capital 33,793 -o- -o- 11.997 -o- -

17,293 13,688 21,130 36,529 66,854 78.758

Retained Earnings Ending Year 33.490 31,283 74.667 77,091 83.181 100,575

Net Income/Sales (Z) 13.1 11.6 28.8 21.1 11.8 16.6

a/ Government makes up losses on products marketed on behalf of Government.

Source: PUSRI

- 55 -

ANNEX 7-2Page 3 of 3

INDONESlKA NDUSTRIAL EEERGY CDNSERYATION PROJECT

PUSRS - fistorical Funds Flow Statement (1981-85)(In million current Rp)

soUces1981 1982 1983 1984 1985 1986

Net Income After Tax 16,197 17,595 53,537 40,562 16,327 21,817Add: Depreciation 17,.834 26.824 22,206 39,096 36,757 40.935

Internal Cash Generation 34,031 44,419 75,743 79,658 53,084 62,752Prior Year Adjustment (37,927)aI (2.455) (3.262) (15,247) 2,479 2,111

'Increase/(Decrease) In calls receivedin advance (24,475) 1,588 6,224 17,896 5,513 26,176

Increase/(Decrease) In long term loans 507 719 5,944 34,199 (7,988) (5.551)

Increase/(Decrease) in long termadvances (1.775) 109 - (1,825) - -

Increase in Capital 65,000 - - - - -

Increase in Surplus Revaluationof Fixed Assets 6.070 - - - - 27,156

Total Sources 41,431 44,380 84,649 114.681 53,088 112,644

USES

Increase in Fixed Assets 8,792 10,143 47,671 19,073 36.067 39,694

Increase/(Decrease) in Constructionin Progress (169) 18,913 (10,677) 14.901 (14.271) 2,277

Increase/(Decrease) in Project Funds 5,889 (6.555) 2,887 7,176 (16.708) (174)

Increase in investments 3,990 3,341 7,293 7,510 1,60; (338)

Increase/(Decrease) in deferredexpenditures 831 209 (1,241) (6,106) 3.613 (2,171)

Increase/(Decrease) in deferredCorporate Tax - - 15,553 - (8,649) -

Dividend Paid/Payable. - 17,348 6,891 10.895 12,716 6.531

Decrease in other non currentliabilities 5,487 - - - - -

Increase in Working Capital 16.611 981 16,272 61.232 38.713 66.825

Total 41,431 44,380 84.649 114,681 53,088 112,644

Debt Service Coverage Ratio 2.8 2.1 2.9 2.9 2.1 2.0

a/ Includes transfer to capital of Rp 33,793 million.

Source: PUSRI

- -r56

AIU 7-3DIDaMIASI - INDTL DIOWY CONSVATOII mOJc ---------

-------------------------------------------- Pa I of 3

PUSRI - Projected Balance Shoat

(in currant Rp Million)

1987 1988 - 1989 1990 1991 1992 1993 1994 1995 1996

ASSETS

Current AssetsCash far Operations 233.593 236.928 239.958 242.320 248.684 249.529 250.331 255.039 260.603 264.399Rcdeivables 154.076 157.020 159.303 163.666 166,947 168,361 179,375 182.130 15B.798 188.710Prepaid Ezpanses 14.233 14.502 14.719 15.173 15.660 16.133 15.888 16.246 16.659 16.974Inventories 107.853 L09.914 1l.SlZ 114.566 118.085 119.25 126.875 128.823 131.413 133.478

Total Current AsJets 509.755 518.364 525.492 535.725 549.376 553.648 572.469 582.239 594.478 603.561

Surplus Cash 16.627 23.048 27.920 31.021 49.544 69.900 79.138 92.643 106.190 113.653

Znv"e*t ts-In E.C.Cmnter 3.. 1.197 2.092 2.741 3.564 3.564 3.564 3.564 3.564 3.564-Other 27.654 27.654 27.654 27.654 27.65' 27.654 27.654 27.654 27.654 27.654

Total Investm r ts 28.003 cno.851 29.746 30.395 31.218 31.218 31.218 31.218 31.218 31.218

1ixed AssetsLand 7.328 7,328 7.328 7.328 7,328 7.328 7,328 7.328 7.328 7.328Property.Plant LE4uipment 438.326 438.326 438.326 438.326 489.896 489.896 489.896 489.896 489.896 489.896

Less:Accmalated, Depreciation 293.730 317.968 339.462 350.663 373.901 394.600 413.376 430.695 446.906 462.273

Not Fined Assets 151.924 127.686 106.192 94.991 123.323 102.624 83.848 66.529 50.318 34.95L

Constutctios in irngres 1,22_ 29.8640 46.439 51.570 - - - - -

Total Assets 717,537 727.789 735.789 743.702 753,461 757.390 766.673 772.628 7B2.304 783.383

------ ----------

Current LiabilitieAccounts Payable 199.271 203.030 206.067 212.432 222,728 233.037 238.330 240.038 249.891 230.105Current Portion of LT Debt 22.618 17.596 19.412 16.592 20,922 15.89S 15.895 15.341 11.016 9.17S

Total Current LiabilLtie 221.889 220.626 225.479 229.024 243,650 248.932 254.225 255.429 260.907 239.280

Long Tare Debt 110.330 107.753 99.396 89.239 68.317 52.422 36.527 21.136 10.170 99S

Share Capital 276.566 276.S66 276.566 276.566 276.566 276.566 276.566 276.566 276.S66 276.566Detained ganiegs 108.752 122.84 134.348 148.873 164.928 179.470 199.355 219.447 234.661 266.542

Total L1abilities and_____________________

9hrahLders equity 717.537 727.789 735.789 743.702 753.461 757.390 766.673 772.628 782.304 783.383- ----------------

C mt ratio 2.3 2.3 2.3 2.3 2.3 2.2 2.3 2.3 2.3 2.!DebtI(D*bt+qDity) (C) 22178 21/79 19/181 17/83 13187 10/90 7193 4/96 219B Ol/CCREtur on Ases(z) 3.8 3.9 3.9 3.9 5.4 6.4 6.5 6.5 6.5 GJ

- 57 _

Pae 2 of 3

nMM=Xh - DIDU3!RA UY MuMou PROJmC

POSRI a) - Projeotad nemme Statent

Cia currant Up HlUllon)

1967 196 1969 1990 1991 1992 199) 1994 1995 1996

Urns 154.076 157.020 159.303 163.666 186.695 191,101 188.366 191,732 195,711 196.426

Aino-La - - - 16.700 30,427 30,387 30.378 30,672 31.707

Tatal Rave11s 154.076 157.020 159,3J3 163,646 203.595 221,528 218.751 222.110 226,583 230,135

Variable Caets

Natural Ca" 79.908 60,707 6L,514 82,332 90.900 96.911 93.453 96,725 100.110 103,614

Catalyst/CbemiLels 2,947 2.913 2,921 2,929 3.226 3,362 3,396 3.431 3,467 3.505

Others 492 482 482 487 517 531 537 543 550 556

SaWg1a 4.273 4.466 4.643 4,505 4.973 5,147 5,327 5.513 5,705 5,904

Total Variable Cost *7.620 86.546 69.560 90.553 99.616 105.951 102,713 106.212 109,832 113.579

Fixed CDots.

Labor 1.648 1.731 1,791 1,854 1,919 1,964 2.056 2,127 2,202 2,279

-alnteanace S Supplies 2,683 2,513 2,916 4.946 5.142 5,322 6.254 6,473 6,699 6,933

inarance 782 621 349 1,074 1.112 1.151 1,191 1,233 1,276 1.321

General & AduLa.Ezpenses 12,536 13,163 13,623 14,100 14.594 15,104 15.633 16.180 16,747 17,333

Ovexrhad 31.109 32.665 33.806 34,991 36,216 37,483 38,795 40,153 41,553 43,013

Deprecltlen 5.959 5,235 4,643 4,196 15.407 12,261 9.696 6,138 6.788 4,151

Total lied Opera tzi Costs 54,717 56,433 57.630 61,163 74,390 73,307 73.a27 74,304 75,270 75,030

Gross Operating M=ome 11,739 11,99S 12,113 11,930 29,569 42,270 42,211 41.594 41,481 41,526

Less: Interet Cbirges 3,659 3,059 2,784 2,606 3.626 2,680 2.268 1.655 1,043 248

Add: Other 3acene 33,646 34,416 3-A,917 35,369 35,766 35,183 36,536 37,337 37,S80 40,467

Profit Jefore Tanes 41,926 43,356 ;.u246 44,691 61,749 74,573 76,479 77,276 78,018 51,745

Inome TaS 14,674 13,:t5 15.486 15,641 21,612 26,100 26,767 27,046 27,306 26,610

Mac Income 27,254 28.183 28,760 29,050 40,137 40,473 49,712 50.230 50,712 53,335

Not IncomeISalas CX) 17.7 17.9 18.1 17.7 19.7 21.9 22.7 22.6 22.4 23.1

A) For the productio enlt only

_ 58 -AC 7-3

IIOS8ZA - ZUDUSZRL1L JMin CoUIEnv*u v.OJu C Pge 3 of 3

Po - izjewed rams now Statemet

(la earcnt Rp LIUI)

197 198 1299 1990 1991 192 1993 1994 199MS 996

SOURE

Net Lnom Afte-r Ta 27.254 28.83 28.760 2".050 40,137 46,473 49.712 30.230 50.712 53.135

Depr eDattlo 27.586 24.238 21.494 11.201 23.236 20.69 18.776 17.319 16,211 15.367

interest an LT Debt 13.784 11.960 14.003 12.769 12.29S 9.9a6 7,979 6,009 4,337 3.199______ ------ ------ ------ ------ ------ ------ ------ ------ ____

Internal Cash Generation 63,624 64.381 65.037 53.020 75.670 79.158 76,467 73.550 71.260 71,701

Long~ Taco Loans

Disbuzsment IR3D Loan 1.650 3.065 11.053 6.435 - - - - - -

Disbursements Other Loam 10,000 6.934 - - - - - - - _

Total SourCaa 30,274 79,400 76.112 59.433 75,670 79.15 76.467 73.558 71.260 71.701

Debt Service

Interest on LT Debt 23,784 11.960 14.603 12.769 12,295 9.986 7.979 6.009 4.337 3.199

LT Debt Uepament 16.543 22,618 17,596 19.412 16.592 20,922 15.895 15.895 13.341 11.016

Debt Sezvlce 30,327 34.578 32.399 32,161 28.687 30.905 23.874 21.904 19,678 14,215

Increasa Lin Morking Capital 2.666 4.350 4,091 3.86S 3.355 (6.037) 13,528 8.011 2,437 28,869

Investments 349 s8h 895 649 823 - - - - -

Increase In Fixed Assets 11.228 18.612 16.599 5,131 - - - -

Dlvidends 19,077 14.091 17.256 14.525 24,082 33,931 29.827 30,138 35.498 21.234

Surplus Funds 16.627 6,421 4,872 3.101 18.523 20,356 9.238 13.505 13.647 7.363

Total Uses 80,274 79.400 76.112 59,455 75.670 79.158 76.467 73,558 71.260 71.701

ActMlAted Surplus Cash 16,627 23.048 27.920 31,021 49.544 69,900 79.138 92,643 106.290 113.653

Debt Servlce Cove rae 2.3 1.9 2.0 1.6 2.6 2.6 3.2 3.4 3.6 5.0

INDONESIJ - INDUSTRtAL ENERCY cOuSIRVATION FgOJUCT

tUSRl - IncrementaL Cost nd Revenue Stream for

FinancLal Rate of Return Calculations

(in ApriL 1987 US$ Mllilon)

PUSR1 11

1907 19a0 195S 1990 1991 1992 1993 1994 1993 1i9e 1997 199l I m 2000---- ---- .... .... ___.__._., ... ... .... ---- ---- ---- .... __

VenAfit - - - - 5.2 5.2 5.1 5.0 5.0 5.0 5.1 5.2 5.2 2.7

Variable Costs - - 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.4 0.6 0.5

Fixed Cnt - - - 0-5 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.2

Capitol Costs 0.4 2.0 2.7 1.6

net Nenefits -0.4 -2.0 -2.7 -1.6 4.3 4.3 4.2 4.1 4.1 4.1 4.2 4.Z 4.3 2.1

Ineocmantal 13 239.21

IIw

IMShhA - INDUSTRIAL Urn! C0SUUATII 1J3CT

PUnI - Ineremental Cost and Renue Strams for

Vinamial Rate of Retumn Calculations

(in April 1937 US$ Million)

PUSIU III

1937 19" 1989 1990 1991 1992 1993 1994 1'5 1996 1997 193 1999 2000

efLtt 3 - - - 3.2 6.8 6.7 6.8 X .5 6.3 6.7 *.3 6.3 2.5

Varlable Costs - - - - -0.1 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.3

hue4 Costs - - - 0.3 0.3 0.2 0.3 0.3 0.2 0.2 0.2 0.2 0.2

Capltal Costs 0.5 2.2 3.0 1.0

not lenfits -0.5 -2.2 -2.0 -1.3 3.0 5.9 5.3 5.7 5.6 5.7 5 . 5.9 5.9 2.9

0t

Znereuntsl 1140.62

II

F.''~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~S

IMDOhISIA INDUSTRIAL IMtOY CO4IUVATIOW POECT

PUSUI - Incemsntal Cost and Revemn Streams for

Financial Rate of Return Caloulattoio

(In April 1967 US$ HIllioa)

YUSRI IV

1967 19U 1969 1990 19l 1992 1993 1994 1995 199 1997 1996 1999 2000.... ---- ... ... ... ... .... .... .... ---- .... ....____ .... ....

14M fit 3 - - - 2.2 6.8 6.7 6.6 6.5 6.6 .JI 6.6 6.6 X.4

Variable Cost - -0.4 0.3 0. 0.3 0.3 0.2 0.2 0.3 0.3 0.2Fiz.d costs - - - 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.2 0.3 0.3Capital Costs 0.5 2.2 3.0 1.6 1

Net lemfits -0.5 -2.2 -3.0 -1.8 3.3 6.2 6.1 6.0 5.9 6.0 6.1 6.2 6.2 2.9 at

IVram_ntal FDn 42.22

s~~~~~~~~~~~~~~~~~I

VinanLal Rate of REtum; CalculatimstS

(in ApriL 1967 US$ MLLLIon)

TOTAL PnJEC

1117 1968 1919 1910 1991 1992 1993 1991 1995 1996 1997 lo" 1999 200

UmnAfita 11.6 16.6 16.5 16.2 16.0 16.2 18.5 16.6 16.6 g.eVariable Costs 0.1 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 0.6Fixed costs - - - -0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9CapuLtaZ Costs 1.4 6.4 8.7 3.2

Met lkAefLts -1.4 -6.4 -6.7 -5.2 10.6 16.4 16.1 15.6 15.6 15.8 16.1 16.4 16.4 7.9

lhremental IPR 40.6'

NPV at 12X OCC US$ 37.1 MLILLonDiscounted at 12X

5 ;,' Z~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~., |~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~f

_ 63 -

ANNEX 7-5Page 1 of 3

INDONESIA - INDUSTRIAL ENERGY CONSERVATION PROJECT

PUSRI - Assumptions Used in the Economic Analysis

1. General. The economic rates of return (ERR) for the three plantsand .he Project as a whole are calculated on an incremental basis inconstant April 1987 prices. The salvage value for the Project at the endof its economic life is assumed to be zero. Duties and taxes are excludedfrom all cost and benefit streams. The assumptions for the increase incapacity and production are as follows; energy savings by plant are shownon page 2 of this Annex.

1986-90 1991 1992-99II III&TV II III&IV II III&IV

Capacity ('000 mt)Without Project

Ammonia 196 297 196 297 196 297Urea 342 512 342 512 342 512

With ProjectAmmonia 205 321 235 356 235 356Urea 353 553 371 561 371 561

Production ('000 mt)Without Project

Ammonia 205 321 205 321 205 321Urea 353 553 353 553 353 553

With ProjectAmmonia 205 321 235 3.8 235 356Urea 353 553 371 561 371 561

2. Capital Costs. The economic capital costs of the Project iscalculated from the financial capital cost in December 1986 prices lessduties and taxes, using a conversion factor of 0.64 for the local costs.

3. Working Capital. No additional working capital is required forthe Project. The increase in ammonia and urea production will be achievedwith no change in working capital requirements due to lower specificconsumptions.

4. Economic Benefits. Economic prices of products are based on thelatest Bank projections for internatlonal prices. Projections of economicprices of products are given on page 3 cf this Annex.

5. Operating Costs. The economic value of natural gas is assumed tobe equivalent to its fuel oil equivalent of US$2.2/mmBtu in 1990,US$2.8/mmBtu in 1995 and US$4.0/m=Btu in 2000 based on projected FOB crudeoil prices of US$15.7/bbl in 1990, nnd US$19.5/bbl in 1995 and US$27.9/bblin 2000. Gas would, at the margin, substitute for fuel oil in theindustrial sector. The economic costs for utilities, power, and steam areaccounted for in the gas consumption of the plants. Economic prices ofcatalysts and chemicals are expressed at their import parity cost.Additional maintenance and insurance costs are assumed at 4.5% and 0.5% ofinvestment, respectively. No additional labor would be required for theProject.

ANNUK 7-5

Page 2 of 3

INDONESIA - INDUSTRIAL ENERGY CONSERVATION PROJECT

PUSRI - Main Projeact Benefits at Stabilized Productiona

PUSRI II PUSRI III PUSRI IV Total ProjectB A A-B B A A-B B A A-B B A A-B

output(tons x 1.000)Total Ammonia Produced 204.9 235.2 320.8 356.4 321.s4 356.4 847.1 948.0Ammonia Converted to'Urea 204.9 215.3 320.8 325.6 321.4 325.6 847.1 866.5Surplus Ammonia - 19.9 19.9 - 30.8 30.8 - 30.8 30.8 - 81.5 81.5Urea 353.3 371.3 18.0 553.0 561.3 8.3 554.0 561.3 7.3 1,460.3 1,493.9 33.6

inputsNatural Gas (MMBTU x 1,000)For Ammonia (feed & fuel) 9,620 10,012 392 13,586 13,939 353 13,547 13,682 135 36,753 37,633 880For Urea (fuel) 2,614 2,748 134 3,779 3,856 77 3,850 3,901 51 10,243 10,505 262 Total 12,234 12,760 526 17,365 17,795 430 17,397 17,583 186 46,996 48,138 1,142

EnryCnssto (O4BTU/ton)Ammonia (feed I fuel) 46.95 42.57 (4.38) 42.35 39.11 (3.24) 42.15 38.39 (3.76) 43.39 39.70 (3.69)Urea (fuel) 7.40 7.40 - 6.87 6.87 - 6.95 6.95 -7.03 7.03 0.02Urea (feed & fuel) 34.63 32.09 (2.54) 31.43 29.55 (1.88) 31.40 29.22 (2.18) 32.18 30.06 (2.12)

Enrg ",inis '

*;~

Ammonla (feed & fuel) 9.3 8.3 8.9 8.5Urea (feed & fuel) 7.3 6.0 6.9 6.6

a / Bo before project; A: after project.

_ 65 -

ANNEX 7-5Page 3 of 3

INDONESIA - INDUSTRIAL ENERGY CONSERVATION PROJECT

Economic Prices for Main Outputs and Inputs(In April 1987 prices)

Urea (US$/ton) 1987 1990 1995 2000

FOB Bagged, West Europe 108 201 187 202

Ammoniaa/ (US$/ton)

FOB West Europe 113 211 196 212

Natural Gas b/(US$mm Btu) 2.1 2.2 2.8 4.0

Crude Oil (US$/bbl) 15.0 15.7 19.5 27.9- . (US$/Mt) 110.0 115.1 142.9 204.5

Fuel Oil (US$/mt) 82.5 86.3 107.2 153.4

a/ Ammonia surplus would be exported. PUSRI is already exporting smallquantities of ammonia to Far Eastern countries. Urea is valued at FOBprices since Indonesia is now, and expected to remain, in the mediumterm, a net exporter of urea.

b/ Gas value estimated at fuel oil equivalent based on projected crude oilprice, and assuming 7.33 bbls to a metric ton and a fuel oil to crudeoil price ratio of 0.75.

INDOISIA - INDUSTRIAL DES! COUIUVAU0UN FflJUCT

PUCE - Inouemmtti Coat rA Ravsnu Strams for

Economic Rate of Return Calculations

(in April 1987 US$ Millon)

f~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~UR i..,;t

1967 1968 1969 1990 1991. 1992 1993 1994 1993 1996 1997 1996 1990 2000

Senafita - - - - ~~~~ ~~~~ ~~~~~7.7 7.6 7.4 7.2 7.2 7.2 7.5 7.6 7.7 4.0

Variable Coats - 1.6 1.7 1.1 1.9 2.0 2.2 2.2 2.3 2.7 1.5Vixsd Coats - - - 0.3 0.3 0.2 0.2 0.2 0.3 0.2 0.3 0.2 0.5

Capital Coats 0.4 1.8 2.5 1.4 - --------

m et lesvfita -0.4 -1.6 -2.5 -1.4 5.6 5.6 5.3 5.1 4.9 4.6 4.9 4.8 4.7 2.2

* Incr.emntal DRR 02

,, .,, r .~~~~~~~~~~~~~~~~~~~~~~~~~~~~

IKDONESIA -INDUSTRIAL ENERGY CONSERVATION PROJECT

FUSE! - Incremental Cost sand Revenue Streams for

Zoonosic Rate of Return CaiculatLona

t*,' P | ' ' . . .~~~~~~~~~~~~~~~~~~~~~~~~~~. ..... .... .... ....

(in AprLil 1967 US$ Million)

FUSE! III

1uai 1968 1969 1990 1991 1,92 1993 1994 1693 1996 1997 1916 1999 2000

,; . . _________________._________.................................................. - - - - - - - - - - - - .... .... - -- - .... .... .... _

B enefits -- - 4.3 7.9 7.8 7.7 7.6 7.7 7.3 6.0 3.1 4.2

* Variable Costas -0.5 1.3 1.3 1.4 1.4 1.5 1.6 1.7 1.6 1.0I

* Fxed Costas - - 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3

Capital Coats 0.4 2.0 2.7 1.6 - - - - ------

Net ensfiLta -0.4 -2.0 -2.7 -1.6 4.5 6.3 6.2 6.0 5.9 5.9 5.9 6.0 6.0 2.9

Inor emes ntal ERR 48.2n

I

136DOISLA - ZUDUSthAL Z.IMY ONUERYATION PIKOJZC,, , ._ . ____ ..... __.. __.___ __________................................................__.. _

pUSnt - Inate_antal Cost "a 3eyesv e Streams for. _______ _._.___.____.______ .................................................................... _._.

c. eae late of Oetur Celeulatie.m

(L April 1937 US$ Milion)

*USRI IV

1967 196U 1959 1990 19o1 1992 1993 1994 1995 1994 1997 196 1999 2000... ... __ _.____ _ ....... ...-...--.. .... ..... __..... .__... ---- ---- ..... .... ..... ....

DenefIta - - - - 4.2 7.7 7.4 7.5 7.4 7.5 7.0 7.S 7.9 4.1Variable Cots - - - - -1.0 0.6 0.4 0.6 0.7 0.7 0.7 0.3 0.3 0.4Srxed Costs - 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4Capitel Costs 0.4 2.0 2.7 1.6 - - - - - - - - - -

Net *<a fLts -0.4 -2.0 -2.7 -1.6 4.6 0.7 6.4 6.5 6.3 6.4 6.5 4.6 S.7 * s

luge1enatal *9R 50. 1

INDONSIA -INDUITRIA ZNEnGY CONSERVATION PROJECT

0! ~~~~~~~~~~~~~~~~~PUSRI - Incremental Cost and Revenue Struams for

EconocaLo Rate of Return CalculatLons

(Ln ApiLL 1987 US$ MLLILLon)

TOTAL PROJECT

191? 1918 1989 1990 1991 1992 1993 1994 1995 1996 19 1996 1999 2000

* Nenefita - - - - ~~~~~ ~~~~~ ~~~~16.2 25.2 22.9 22.6 22.2 22.6 22.9 25.5 25.7 12.2

Variable Costs - -- 0.2 5.6 5.8 5.9 4.1 4.4 4.7 5.0 5.5 2.9

Flied Coats - - - - 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0* Capital Coste 1.2 5.3 7.9 4.6 - ----- - - - -

NoRt lemeflte -1.2 -5.8 -7.9 -4.6 15.0 18.6 18.1 1?.? 17.1 17.1 17.2 17.5 17.4 8.5

Inotmuotal RRR 49.61

NW at 123 0CC us$ 45.8 NiLILon

t ' '~~~~~~~~~~~~~~~'. ':~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~t

PUSRJ INDUSTRIAL ENERGY COISURVATIOW PnoJ1Wf

EstLmated Foreign Exchange Savings

(in 4thL i9ai UU$ Thousands)

1967 1966 1969 1990 199 1992 1995 1994 1995 1996 1997 1996 1999 2000 Total

ForelAgo Exchange Inflovs

------------------- ~~.-------- __ __ __ __ __ __ _

Loans 1,000 4,900 '8700 3,900 - - -- -16,500

Project Revenues- -- - 16.160 22,239 22,901 22,566 22,239 22.591 22,946 23,312 23,680 12,151 211.789

Total 1,000 4,900 6,700 U,900 16,160 22,239 22,901 22,566 22,229 22,591 22,943 23.312 22,680 12,151 226,289

Poreign Exchange Outflows

_______,....__ _________.

Project nvestment 2,550 7,920 7,130 1,900 - - - - - - - - 19,500

Debt rnvice - - . - 64,977 4,606 4,223 22,06 3,492 2,121 - 24,274

Total 2,330 7,920 7,130 1,900 4,977 4,606 4.235 2,663 3,492 3,121 - " 43,724

ARaMA9 Wet twLnge (1,550) (3,020) (430) 2,000 11,165 16,633 16,666 16,705 16,747 19,470 22,946 22,312 22,660 12,151 164,495__...^...__........

mN 0e Foresgn EXchange Savings streams discounted

at 122 oppartunity cost of capltal (OCC), USS 62,460 Thousand...... ........... ... .. _. .

.~~~~~~~~~~~~~~~~~~~~~~~~~~ I.

- 71 -

CHART 1

INDONESIA - INDUSTRIAL ENERGY CONSERVATION PROJECT

KONEBA

Organization Chart

BAKORENa1

PTEa/

Board ofCommissioners

Board ofManagement

re*sident-Director

DeputyEPresidentDi rector

|Audit Training Consultancy InformationStudies Unit Services UnitUnit . Unit

a/ National Energy Coordinating Board.b/ Permanent working sub-committee in BAKOREN.

CHARY 2

INNESIA INDUSTRIAL ENERGY CONSERVATION PRO:ECT

PUSRI Encurn Efiinc & Cr~ty_O,ti i,ati Not

Iaolmantation Schedule

ACTIVITIES 1986 1987 1988 ~~~~~~~~~~~~~~1989 1990 1991

1-Sa 10VIOII I 21 3 4* 5 61 71 S 9 1011112 I1 21 3 A 5 6 71S 9 1UI1112 1 2 3 4 5 6 7 S 9 101It12 1 21 31 41 5 61

* Preparatory ActivitiesProcess design, ti, tiIUIv

!' ',' Analytical detgn, ti, .I/Detailed design, 11, HIM/KProcurewnt, ItPro-shutdown constr., It

* FLnal tie-in, ItProcurement. t,Pre-shutdown constr., IVFinal tie-In, IV

* I-NProcurement, III PROJECT* Pge-ahutdown constr., IIIFnal tie-Ln, III

*Annual Turnarounditt it______________________________l

THAILAND K- -- 'A i , A r

<C :

ic- 1r

--8;; i .R r--U , . 1

~~~CA i' RR tlSEt AN ,

DX I ALYIA,> 4y rs a-'

-. ,~~~~~~ ;at Pa.u,,,,7' ¾'. -- cJ'ML YIA . -d.U; 6t - s p t. X-

-- R:~ ~ ~ ~~~- , ,S'a.uX <w z <JA -S

- " N F~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~U"Pd

-~~~~~~' s. 4- "-1 , \-1 4_ F,- '

- st s r t*mA-VA* F*rt I~ ~ T~II.f

j tLT.gyctcncS

-~~~~~ D.LAO.6 /A~~~~~~~~~~~~~~~~~~~ADIA'93 swvwwA ASEANAE ( 5|I_ \MdOUiA13*~~~~~~~~IS'

D KCUJANGb7'1 Kabinem S.is..-17 Nasa. TingeE PETROICIMIA0REStIK JALtI S1M5.AWA

if SiJmiI blaF. F ALTIM u.11

)9 kiawul T ..g.,a &DawsuTagwo*

. cm-budmdbma .,.rLN

--',. in Iw' ¶ 3 - = S :-M . m n s a

:-- -.-

IBRD 193-66R

-' ~~~~~~~~ ~INDONESIA-~~ PHILIPPINES,>,~~~ I NDUSTR IA L EN ERGY

CONSERVATION PROJECTFERTILIZER PLANTS

* NITROGEN* PtIOUPHATE

S REGIONAL MARKETING OFFICE OFPFuSfil@9 PIERrE, IANDolEPOrsIFOR JAVA WEE IBRO 1422

B SLK TERMINALSU -. -.-- HU~~~~~~~~~~~~KLK SHIPAENT OF UREA/ -e--- SI~~~~~~~~~~~BLK SHIPMAENT OF OTHER FEWIMLIZEPIUACK - HAUU

ROADS/} -- -. RALROADS

s-I) -. - - ~~~~~~~~~~~~~~INTERNATIONAL ICUNDA RIGS

-~ ~ -~

( 26 oMna

:~~~~~~~~~~

. 19 K ' / .,UAAN si21

SYLWS a '_, COSERATINPRJC_s, * / FERTILtZERw.- FLANTFSbk

:- ivr\ Fk- IR.A N JA- r A

: - ,_ ;CERAM .' :-.p~~2 rk.0 ~-- -e :w

A~~~~~~~~~~~~~~~~~~~~~~~~AW

r )2; 1, -- fs cfRJtFf-<j : '2 - 0

; ~ ~ ~ ~ ~ ~ ~ ~ 2 '-_° -M;, .O

'---M - 1987

'- Sa., - O 10 DO Jl 400 tq l"EWi 5 : . mc U ttt P Ro lODXO30e0bd

-., ' C, . ,f,

.-- ' f - ~- 1ta . 13

MAY 1987