FILE COPYDOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

Not For Public Use

Report No. P-1565-IND

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

EXECUTIVE DIRECTORS

ON A PROPOSED

LOAN

TO

THE REPUBLIC OF INDONESIA

FOR A

SECOND FERTILIZER EXPANSION PROJECT: PURSI III

February 13, 1975

This report was prepared for official use only by the Bank Group. It may not be published, quotedor cited without Bank Group authorization. The Bank Group does not accept responsibility for theaccuracy or completeness of the report.

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Currency Unit = Indonesian Rbapiah (0p.)

US$1.00 = Rp 415

1 Rapiah = $D.0024

1 million Fapiah = $2,41o

Fiscal Year

Government of IndonesiaApril 1 - March 31

PTSRIJanuary 1 - December 31

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF TIIE PRESIDENT TO THEEXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE

REPUBLIC OF INDONESIA FOR A SECOND FERTILIZERPROJECT: PUSRI III

1. I suDbmit the following report and recommendation on a proposedlean to the Republic of Indonesia for the equivalent of US$115 million to

help finance a 570,000 ton per year (TPY) amonia/urea plant for P.T. Pupuk

Sriwidjaja (PUSRI). The loan would have a term of 15-1/2 years, including

3-1/2 years grace with interest at 8-1/2 percent per annum. The proceeds

of the loan would be on-lent to PUSRI at the same repayment term, with an

interest rate of 12 percent per annum, with the Government assuming the

toreign exchange risk.

PART I - THE ECONOMY

2. The latest economic report on Indonesia "The Indonesian Economy:

Recent Developments and Prospects for 1974/75", of November 26, 1973,

(R73-273) described and analyzed the substantial changes which had taken

place in the Indonesian economy in 1973. Since then there have been

important further developments, especially in oil prices. A basic economic

mission has completed field work for a report to reassess Indonesia's

development prospects and policies. Country data are shown in Annex I.

3. The Indonesian economy, which was dualistic and export-oriented

in the colonial period, was severely affected by the great depression in

the 'thirties, and the war, followed by the struggle for independence in the

'forties. After a relatively brief period of recovery in the early 'fifties,

the economy stagnated again in the decade 1957-1967 largely as a result of

poor economic policies. Thus, after a long period of economic difficulties,

in which the population nearly doubled, Indonesia had become one of thepoorest countries in the world.

4. The Suharto Government introduced an effective stabilizationprogram to combat the economic disruption and spiralling inflation of the

mid-1960's, and there was a period of recovery and rehabilitation under the

First Five-Year Plan. Real annual economic growth was about 7 percent in

the period 1968-1973. Domestic savings and investments increased con-

siderably, thus providing the basis for continued economic expansion after

the rehabilitation phase. By 1973, investments, excluding those in the

oil sector, which were very substantial, had grown to an estimated 19 percent

of GNP, of which about three-quarters were financed from domestic sources.

Sustained efforts were made to increase food production, with emphasis on

rice. Although a drought in the second half of 1972 led to a setback in

food production and a steep increase in prices, production has recovered

since then. On average rice productior. increased by 4 percent per annum

between 1968 and 1973. Efforts to expand food production continue to receive

high priority and in this connection the Government increased fertilizer

imports in 1974 to a level of about US$435 million equivalent. Expansion

of domestic fertilizer capacity is being pursued actively.

5. Even before the increase in petroleum prices in late 1973, the

money economy was booming, and real growth was accelerating under the

influence of steep increases in Indonesia's other export prices, a sig-

nificant physical expansion of production in the oil and forestry sectors,

a rapid growth in direct investment (initially in petroleum exploration

and production and in forestry and mining, but increasingly in manufacturing),

and a large inflow of short term credit. The samre factors, however, also

contributed to significant inflation, which reached a rate of nearly 50 per-

cent during the fiscal year 1973/74. 1/ The Government took a number of

measures to combat the inflation in April 1974. These included measures to

restrict credit and continued augmentatic-A by import of supplies of rice

and fertilizers, sold domestically at subsidized prices. Since then, the

rate of inflation has declined to about 18 percent on an annual basis.

More recently, the Government has relaxed somewhat the monetary restrictions.

6. The contribution of the oil sector to the economy, which was al-

ready increasing rapidly, has taken a quantum jump since September 1973.

The Indonesian oil price, which was $3.73 per barrel in that month, reached

$12.60 per barrel in July 1974. In addition, early in 1974 Indonesia

renegotiated the contracts with the foreign oil ccmpanies to receive a

larger share of the total oil proceeds. Thus, while the net oil contribu-

tions to the balance of payments and the Government's revenues were below

$0.5 billion in 1972/73 (less than 5 percent of the GNP), they are expected

to reach well over $3 billion in 1974/75, an increase of about $20 per

capita. Given also the external and domestic inflation, both exports and

budgetary receipts will probably exceed $5 billion in 1974/75, a rough

quadrupling in two years. This rapid growth of export receipts is unlikelv

to continue, however, as the prices of Indonesia's major non-oil exports,

particularly timber and rubber, have recently declined rather sharply, and

the volume of exports is likely to rise at a much slower rate in the future.

7. At the same time, the inflation continues to affect the expendi-

ture side of the balance of payments and the budget. Average Indonesian

import prices are estimated to have increased by 80 percent between 1972 and

1974, with the largest increases occuring in the prices of foodstuffs and

agricultural inputs (rice, wheat, sugar, fertilizer). Thus, more than one-

half of the additional oil earnings will have to be used to pay for the

price-induced additional cost of imports. Moreover, to shield the domestic

consumer against the effect of high external prices, the Government has been

subsidizing the sale of certain essential imported goods (mostly rice and

fertilizer) at an annual cost equivalent to nearly $1 billion. While the

international price of these oroducts may decline somewhat in the coming

years, the high prices of manufactured goods, which account for some two-

thirds of the commercial imports, are likely to continue to increase, thus

1/ April 1, 1973 to March 31, 1974.

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permanently reducing the real value of the balance of payments surplus. Theoverall surplus on the balance of payments in 1974/75 is expected to beabout %850 million and, as a result, foreign exchange reserves may increasesfrom $900 million on March 31, 1974 to almost double that level by the endof March 1975 (equivalent about four months of imports at the then expectedrate).

8. Domestically, the Government now has to pay more for goods andservices (including Government salaries). Thus, as in the case of theexport earnings, more than half of the additional budgetary receipts isexpected to be eroded by the effects of inflation. The remainder will largelybe spent on real. increases in Government outlays, including much-neededgradual salary increases, development expenditures, routine material ex-penditures, and grants in support of the budgets of the local governments.Thus, the overall budgetary surplus in 1974/75 will probably be well below$500 million. The Government has recently submitted to Parliament the1975/76 budget which, as in previous years, is in overall balance aftertaking into account expected receipts from foreign assistance, equal toabout US$575 million equivalent.

9. The Second Five-Year Plan (1974/75-1978/79) provides significantnew directions for Indonesia's development policy by emphasizing its social,regional, employment and equity aspects. It is recognized that, while theGovernment's initial economic stabilization and rehabilitation pro-rams,as well as a number of other specific activities, have benefitted largesegments of the population, the benefits of investments in industry - muchof it in or around Jakarta - have not been widely spread. Also, the coIn-tinued high level of agricultural prices after the 1972 crop failure hasbenefitted the rural areas but has severely reduced the real income of theurban poor. The Government's policy to keep the consumer prices of basiccommodities in chleck through subsidies is providing relief, but it is theintention to work out and implement gradually a number of more basic sociallyoriented policies and programs in the fields of employment, education, housing,etc.

10. In the short and medium run, Indonesia will need continued inter-national technical assistance for project planning, preparation and imple--mentation. In view of the rising prices of the country's imports andpressing development needs, Indonesia's earnings from oil and other exports,which are likely to grow at a slower rate in the future, will not besufficient to finance the development programs necessary to deal effectivelywith its major problems of poverty, overpopulation and unemployment.Indonesia will therefore continue to need, and should be able to use ef-fectively, financial and technical assistance from abroad on a large scaleif the Government is to be able to implement programs to accelerate itseconomic growth and to alleviate wide spread poverty. This poverty under-lies the strong case for continued international assistance to Indonesia,even though oil payments may help the country earn relatively modest bud-getary and balance of payments surpluses for a limited period.

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11. The soft average terms of foreign) assistance providea n the con-

text of the Inter-Governmental Groulp on Indonesia (IGGI), and th-1 re-

scheduling of pre-1966 external. debt obligations (under the 1';70u Paris Club

Agreement with the Western countries and Japan, and parallel ar:-:g Arei.s

with several East European countries) have kept Indonaesia's p,_'lc:C debt

service ratio low. Service payments on rescheduied public debt dan'1 that

subsequently incurred up to the end of 1973 are estinated at $14L i-ilLion

in 1974, will reach a peak of $371 million in 1975, and are prcjr ced t:

decrease gradually thereafter. Comparing these amounts wit7,. thae projected

export level of $5 billion in 1974/75, it appears that indonesiai .- ha..

the capacity to service significant additional debt. However, in view cf

the country's continuing need for large amounts of external cap.s:ai. i. is

important that the average terms of foreign borrowing remain moderate so

that Indonesia's ability to service its ex:erna'L debt is not unduly strained.

Since no further quantum jump in Indonesia's exports is anticipated at

present, the debt service payments on the accumulating debt, aria tbe debt

service ratio, could .ise quickly if those who provide aid and tide Governr-

ment do not continue to give close attention to the terms of new foreigsn

borrowings.

PART II - BANK _ROUP _'PET'RAIOPOS IN INDGNESIA

12. As indicated in Part I, Indonesia will continue to need substan-

tial external financial and technical assistance to expand and m',p;ove

infrastructure and to expand production capabilities and employmert: Gppor-

tunities in agriculture, minerals, forestry and manufacturing. With the

continued growth of the economy, the Government will also be able to devote

increasing attention to ensure that the benefits of development are c:1.stri-

buted widely. Programs to increase the productivity of smallholdeL farmers

and to resettle farmers from Java on presently unutillized areas in the outer

islands, the expansion of labor-intensive industry in java, the development

of new industrial activities in Java a~nd the outer islands, family planning,

water supply, education, health and oLlber social programs will therefore

have an important place in the development strategy during the meriod of the

Second Plan. The work of both the Bank's headquarters and Resident Staff

has been oriented toward these objectives.

13. As of Decemnber 31, 1974, Indonesia had received 37 IDA credits

amounting to $561.8 million and four Bank loans amounting to $1'27.5 million.

All lending to Indonesia in the foreseeable future is expected Lo be in

the form of Bank loans. The Bank Group accounts for less thaa 4 percer.t

of Indonesia's total outstanding public debt a t he end of 1,973. .;. '978 it

is expected to account for less than '- percent of totai outstanding deDbt

and less than 5 percenit of Indonesia's annual debt service obligatlons.

Annex II contains a suirmmary statenent of 13ank loans, IDA credits and IFC

investments as of December 31, 1974, arid notes on the execution of ongoing

projects.

14. In accordance with the prioriti_s of Indoniesia's Five-Year Plans,

about one-third of Bank Group lendin-g to date has been for agriculture.

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IDA has extended four credits to help rehabilitate Government agricultural

estates, producing principally rubber, oil palm and tea, five to assist

rehabilitation and expansion of irrigation systems serving millions of

smallholders on Java, two for fisheries and one each for improved seedsmultiplication, beef cattle development, smallholder rubber development,

sugar industry rehabilitation and smallholder tea development. Industry is

of growing importance to the Indonesian economy and the Bank Group hasassisted in five projects in this sector. It organized a consortium of

lenders to finance the first expansion of the PUSRI fertilizer plant,assisted in the reorganization and provided one credit and one loan for

the major state development bank (BAPINDO), provided financial assistance

for Indonesia's first industrial estate project, and assisted in the estab-

lishment and financing of the Private Development Finance Company of Indonesia

(PDFCI). Other priority sectors to which loans and credits have been

extended are power, transportation, telecommunications, education, popula-

tion, urban housing improvement and water supply. In addition, four creditshave been made to assist the Government in preparing and formulating ap-

propriate development programs and projects.

15. The first IDA credit to Indonesia was made in 1968, and almost

half of all loans and credits have been mnade since June 1972. Bank lending

to Indonesia began only in June 1974. The program has increased rapidly

from a relatively small base, and consequently the undisbursed portion

of loans and credits is substantial. Moreover, several credits have financedprojects planned for execution over extended periods. Many, in addition,

have been associated with institutional reforms involving, inter alia, the

creation and reorganization of program and project authorities, drafting ofnew charters and the enactment of new legislation, all of which has taken

time. Thus, a number of projects have experienced delays in the initialstages of implementation and some are inherently slow disbursing. However,the performance of most project agencies has improved continously asorganizational improvements have begun to take effect and Indonesian staffhave become more experienced in project execution. Despite the improvedadministrative capabilities, most development projects, including thosefinanced by the Bank Group, have been adversely affected by cumbersome

budgetary, procurement and customs clearance procedures. The Indonesianauthorities recognize the need to streamline procedures and are consideringsteps necessary to accomplish this. As a first step, the Government has

requested, and we have arranged for assistance under the Fourth TechnicalAssistance Credit (Credit 451-IND) to establish an effective control system

in the National Development Planning Board (BAPPENAS) to monitor theprogress of development projects. Additional measures to improve projectadministration are now under consideration by the Government.

16. The future Bank lending program will continue to support the

Government's efforts to expand economic growth and to ensure that the

benefits of development are distributed widely. Specifically, it will

give high priority to agriculture, concentrating on broad programs of

support to increase production of rice on the inner islands and to expand

resettlement and agricultural productior, on the less populated outer islan.!,.

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Emphasis will also be given to socially-oriented projects in the fields ofpopulation and nutrition, education and urban development. The Bank progran.will also continue to provide support for the Government in developing theadditional industrial capacity and infrastructure which are essentiil toeconomic growth. Projects in agricultural research, irrigation, fertilizeldistribution, power, and natural resource surveying and mapping are btingprepared and may be ready to present to the Executive Directors during thisfiscal year.

PART III - THE INDONESIAN FERTILIZER INDUSTRY

17. Increased supplies of fertilizer are crucial to the success of theIndonesian Government's efforts to increase the production of food and cashcrops. On the inner islands of Java and Bali, where limited additional landis available, increased production will depend principally on raising yieldswhich can only be achieved through application of additional fertilizer incombination with improved and increased irrigation water supplies and useof high yielding varieties of seeds. As is indicated in paragraph 14, theBank Group has already provided substantial assistance to the Governmentin rehabilitating and expanding irrigation systems and increasing theproduction of fertilizer and high-yielding seeds. In the longer run, theGovernment is planning to expand its resettlement efforts to open up newareas of production in the outer islands. The Bank has recently appraiseda first transmigration project. The success of these efforts will depend,in part, on the increased availability of fertilizer as the soils in theouter islands are less fertile than in Java and heavier applications offertilizer are therefore necessary.

18. Indonesia, with its large reserves of natural gas, offers veryfavorable conditions for the production of nitrogen fertilizer. P.T. PupukSriwidjaja (PUSRI) built the first urea plant in Indonesia, which went intooperation in 1964. While the 100,000 tons per year (TPY) plant is small bypresent standards, it operated at an average of 94 percent of designcapacity over its first six years of operation and maintained an average out-put of 105 percent over the last four years. A second fertilizer plant,Petrokimia, at Gresik in East Java, was commissioned in 1972, and has anannual production capacity of about 45,000 TPY of urea and about 150,000 tonsof ammonium sulfate based on the partial oxidation of fuel oil. In 1969, theGovernment asked the Bank Group to take the lead in financing the expansionof PUSRI by adding a modern 380,000 TPY urea plant. In 1970, a consortiumof international aid agencies joined the Association to finance the foreignexchange cost of the project; in addition to $35 million provided by theAssociation (Credit 193-IND), the Asian Development Bank (ADB) provided$10 million, the United States Agency for International Development (USAID)$24 million and the Japanese Overseas Economic Cooperative Fund (OECF)$11.7 million. The plant passed its performance test in October, 1974 andis now in commercial operation at rated capacity.

19. Further planning for nitrogen fertilizer production in Indonesiais determined mainly by three factors. First, consumption of nitrogenfertilizer, spurred by Government programs to increase food crop production,is rising much faster than anticipated only a few years ago. The AppraisalReport for the first expansion project, prepared in early 1970, projectedurea consumption for 1972 and 1973 at 315,000 tons and 360,000 tonsrespectively. Actual consumption was 584,000 tons in 1972 and 643,000 tonsin 1973. The demand for fertilizer in 1973 was probably even higher asIndonesia was not able to obtain all the fertilizer it wanted to import andhad to resort to distribution controls and rationing. Second, very largedeposits of natural gas have been found in North Sumatra and East Kalimantanand, on a smaller scale, in West Java. The resource base for additionalnitrogen fertilizer production has thus been greatly enhanced. Finally,recent energy price developments give nitrogen fertilizer plants based onin situ natural gas a very strong competitive advantage over such plantsbased on either coal or hydrocarbons imported in the form of crude oil,fuel oil, naphtha or liquified natural gas (LNG). The Bank's report, "TheFertilizer Requirements of Developing Countries" of May 15, 1974 (R74-109),therefore identifies Indonesia as one of the future suppliers of nitrogenousfertilizer to the countries in East and South-East Asia. In these countries,Indonesian plants would also have a transport cost advantage over competingproducers. The Government, after consultation with the Bank, has nowdecided to build two additional urea fertilizer plants: a second expansionof PUSRI (PUSRI III) to produce 1,725 tons per day (TPD) of urea; and aplant in West Java with the same capacity. Another plant to produce 1,725TPD urea and 500 TPD ammonia is already under construction in EastKalimantan.

20. Assuming that all these plants would be in commercial operationby the end of the decade, Indonesia's total urea production in 1980 wouldbe 1.8 million TPY compared to the Bank's domestic market forecast of 1.5million tons, 1/ leaving about 300,000 TPY of urea for export. The ureadeficit for the region consisting of the Philippines, Thailand, Malaysiaand South Vietnam is expected to be about 850,000 TPY of urea in 1980, evenif the Philippines and Malaysia each proceed with tentative plans to builda 570,000 TPY urea plant and the Republic of Vietnam to build a smallerplant of 330,000 TPY. The Government of Indonesia has agreed with itsneighbors on a region wide market survey to form a basis for coordinatednitrogen fertilizer development plans and for the allocation of markets forexportable surplusses.

21. For the longer term, the Government is also considering threeadditional urea plants: a third expansion of PUSRI, a second plant in EastKalimantan and a plant at Aceh in North Sumatra. We expect the Government

1/ Latest consumption figures for 1974 suggest a slightly higher demandin 1980.

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to continue to exchange views with the Bank o0l ics piad S _or adjilg to u.

country's fertilizer capacity.

22. Since no phcspliate or potash deposits hnve oee:a fouaid in Thdc;>s_

phosphatic fertiiizer a-i potash have so _ar bee.. imported, most!y -'itform of triple superphesphate (TSP) arid muriate of ;,otash (r`P' . Perrorci-.`

plans to build a 200.002C TPY TSP plant at Gresik, East Java. hc,wev.-r, e -v-

after completion of t.i-s plant, Indonesia wouLd stiA need to inmport sub-

stantial amounts of pthsphate and potash. Trials to letermiae the optimsl'i

nutrient ratios appropriate to the various soils and crops are underway.

23. In 1972, nearly 80 percent of all nitrogen fercilizer was usej or.

Java. With the development of the other islands, Java's share is expec-ec

to decrease to 70 percent in 1978 and 64 percent in 1983. Since the major

gas deposits are on Sumatra and off-shore East Kaliniantan, an efficient

fertilizer transport and distribution system is required tc, connect the ra-..

material and production centers with the Java market. The bank has appraised

a fertilizer shipping and distribution proj6ect cons's.ing of self-unloaint>,

bulk carriers, bulk terminals with bagging capacitv an6 storage faziliti_-sin major marketing areas. This proiect is to be coiaplezed .r. i:iime to enso:r-

the efficient transportation and distribution of tne fertilizer Droduced lb

PUSRI and I expect to recoTmnend Bank financing to rhe Exec.-,.ve ->irectors

within this fiscal year.

24. The Government currently purchases all fertilizez produced by

domestic producers at Rp 63,900 ($154) per ton of urea c.i.f. Java port and

purchases imports at a cost of more than $400 per tori. PUSRI, like othe;:

distributors/importers, purchases urea frorm the Government at Rp 41,900

($101 .00) per ton ex-pcrt and sells it to local sub-distributors at Rp <c.U3O

($132.50) per ton, thus retaining a margin of Rp i3,100 ($31.50) co cover tre

cost of handling, transport, storage and interest on f.inds borrowed to ' .irc.e

the current assets of its marKeting operation. Tne iocal distributor wire-

houses and distributes the fertilizer, to either prrvate retailers or v1i se~

cooperatives, wnich in turn sell ur-ea at Rp 60,000 per ton '";144.60) to tr.;-

farmers, most of it under the BIMAS and INMAS piograms referred to in

paragraph 25 below. Thus, there is a substantial subsidy on domestical?:produced fertilizer, and (at present international prices) a muc:; higher

one on imported ferti)izer. The Governmenit's fert.lizer subsidy is clobely

linked to the price it: sets for rice so as to provide a sufficient incentive

to farmers to apply fertilizer to rice. With regaet, to rice prices, the

Government has until now kept the domestic price substantilally below thZ

unprecedentedly high international prices to avoid large increases in fe d

costs which could jeopArdize its stabilization efforts and adversely affeC.

large urbanized segmea.t- sf the Tndonesian popuijation. As noted in

paragraph 7, the Govert-.-:t is keeping its rice and fertilizer price and

subsidy policies under -nnstant review in the light of international and

domestic price developments. Major implications of the fertilizer price

policies for PUSRI's orerations are discussed in paragrapth 37.

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25. Over 60 percent of the fertilizer is consumed in Indonesia inareas covered by two successful programs for promoting intensive cultivationof foodcrops; the BIMAS (Mass Guidance Program) and the INMAS (Mass Intensi-fication) Programs. The rest of the fertilizer is used mostly by thecash crop and estate sectors. Bank Rakjat Indonesia (BRI) is now the solecredit agency for the BIMAS and INMAS Programs, while the estate sectordepends on the normal banking facilities to meet its credit needs, whichcover the import of fertilizers at prevailing world prices. Credit forfertilizer purchases in all these sectors is currently provided by BRI andnormal banking facilities at monthly interest rates of 1 to 2 percent andexisting arrangements are adequate to ensure that sufficient credit willbe available in the future.

PART IV - THE PROJECT

26. In 1969 a mission visited Indonesia to assist in the preparationof PUSRI II, and a credit of $30 million (Credit 193-IND) was made inJune 1970. Later, the Government, with the help of consultants financedunder the First Technical Assistance Credit (Credit 135-IND), carried outa national fertilizer study which reviewed the agronomic, economic andmarketing aspects of fertilizer in Indonesia and developed a program offuture action to expand fertilizer production, marketing and consumption.After completion of this study, IDA financed, under the Third TechnicalAssistance Credit (Credit 275-IND) the feasibility study for the West Javafertilizer project based on gas supplies in that area. Assistance infinancing this plant was originally asked of the Government of Japan andis now expected to be provided by Iran. At about the same time Pertamina,with financial assistance from private sources, undertook construction of anammonia-urea plant in East Kalimantan based on newly discovered gas suppliesavailable in that area. As PUSRI II neared completion in early 1974, theGovernment requested the Bank, in view of its long-standing involvement inthe fertilizer sector and close association with PUSRI, to finance thedevelopment of PUSRI III, which would be based on additional gas suppliesavailable in South Sumatra. Due to the need to proceed as expeditiouslyas possible and the Government's intention to carry out two other fertilizerprojects which would also need external financing, the Government requestedthe Bank to participate in this project as the sole foreign lender providing60 percent of the total financing required for the project, which representedthe portion of the project which would reasonably be financed by borrowing,given PUSRI's debt/equity position. In view of the very high priority theGovernment attached to Bank financing of this project, the evident economicmerit of the project, and after considering the contribution which the Bankstaff could continue to make in strengthening'PUSRI's production, financialand marketing capabilities and in developing overall policies for thefertilizer sector, we agreed to appraise the project on this basis.

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27. The feasibil'iy studv for PUSRI I1I was cuarple-:ed in June 1974.The project was appraised by missi.ois in July and No%,em'ber 4974; negotiatiovswere held in Washington; .n January 1975. The Goverrnei!t's i.egc-at:nng teamwas led by Dr. Saleh Afiff, Deputy Chairm.ani of BAPPENAS, and PUSATIs teamwas led by Ir. Kotan Paya,.ran, the Technical Direct..r. -The appraisal report

is being circulated to tne Executive Directors siwultaneousl&. ;a A(izfl

and project summary is .. rntaired in inex I11.

Project Description

28. The project would consist of a single ti2-n ammonia unwit with

about 1,000 TPD capacirv and a urea unit of 1,725 TD'D zapacity wrtich would1convert all available ar-&1nia into urea. The urea urit would havc an annual

capacity of 570,000 tons. The plant would be located atO- cert to P1USRI's

existing facilities at Palembang, Southi Siffatra, and would 'be inrer-onneciecwith them to provide greater safety in operation ana better u.se of conmuorfacilities.

29. The project would include the necessary auxillary faciiitias suchas an ammonia storage tank, an electric power plant, a scearn generating unitfor the urea plant and a plant to ma.ke polyethylene-11nad wo-ven pol,y.)ropylenecfertilizer bags to meet PUSRI 'S needs. ft would include necassara eq-ipm>Ž-for construction, material handling, warehouses, and a iaborars:o. housing

would be expanded and the existing jetty enlarged to help, handle che incresin shipments.

30. Pertaniina has discovered substantial nev gas diepusits a.ouc 140kilometers southwest of FUSRI, and these fiel''s wul.4 be '.±riked te tne

present gathering and transmission sysceM LO guarance_ a-r auiue . s;ipplyover the economic life of the proposed plant and also -o meet rhe neeosof other industrial ccr..ari;ers irn the Paiembang areg. Pert-a-ii-na installJ.ithe required gas supply i.iciiities. The work is schedu'led to be completedin October 1976, six m;untbs before PUSRI. li begins eperati.ons. Shc;.ild thenew system not be completed on schedule, natural _.as foi use as fue&. andfeedstock would be prov-ided initially from thse prssenr system which, wi-hminimal additions of looping and compressor capacity and an. e:8sbanded drillic.gprogram, could meet the needs of beth PUSRI TI an, PUSRI MII. Partamina

and PUSRI have been instructed by the Government to amc;.td, Lefore September1975, the existing gas Purchase agreement to include thie prcect's reqaire-ments. Polypropylene chi's for FUSRI's bag-mraking plant would be suppliedeither from Pertamina's ¢3ant across the Mtus§. River frotm PUER! or imported.

Project Cost and FinancIgu

31. The total fir.aicing reeuired for the sro,e" ir.ng incre-

mental working capital and interest during co..strwur..ic1. -s estwuated at$192 million, of which $157.6 million would be in -re.gn exchat!geg Costestimates include provision for a physical conringe.ncy D percent of the

basic cost estimate. Given the advanced stage of procurements priceescalation, amounting to only 12 percent of the basic cost estimate, hasbeen allowed for on the basis of expected increases in the internationalcosts of equipment and machinery and in the cost of civil works in Indonesia.

32. The Bank loan would provide 60 percent of the financing requiredfor the project. The balance would be provided by the Government to PUSRIin the form of equity contributions. The Bank loan would have a repaymentterm of 15-1/2 years including 3-1/2 years grace with equal semi-annualinstallments of principal. At the request of the Government, the Bank loanwould be made to the Government which would relend the proceeds to PUSRI onthe same repayment terms, but charge its standard rate of interest for loansto Government corporations, which is now 12 percent per annum. TheGovernment would bear the foreign exchange risk. The terms on which theGovernment would pass on the Bank loan and make its equity contributionsare set forth in a financing agreement to be concluded by the Governmentand PUSRI before the effectiveness of the Bank loan (Sections 3.01(b) and6.01(b) Loan Agreement).

Procurement and Disbursement

33. The worldwide nitrogen fertilizer shortage leading to world marketprices four to five times those prevailing in 1971 places a high premiumon speedy project completion. In order to expedite this project, the Bankstaff agreed that PUSRI retain, on a negotiated basis, the team that helpedit to develop, design and build PUSRI II. Scientific Design is continuingas technical advisor; Kellogg Overseas Corporation (KOC) as ammonia processvendor; and Toyo Engineering Corporation (TEC) as urea process vendor. KOCwill also act as engineer, responsible for the design, engineering, and pro-curement management for the whole plant except the urea unit (which TEC willdesign, engineer and procure) and will supervise construction, erection andcommissioning of the plant. Contracts with these companies have been con-cluded at fixed prices for their services. There are few qualified suppliersfor the specialized equipment required for the project, and with order booksfilled, prices as well as delivery periods have increased. With the approvalof the Bank, procurement of process-critical equipment and long-lead timeitems (see para 34 below), whose delivery determines the mechanical comple-tion date, was started shortly after conclusion of the engineering contracts.The plant is expected to be completed by the end of 1976, or 32 months afterthe project was first submitted by the Government for Bank consideration. Itshould be in commercial operation by May 1977. The procedures described aboveare expected to save nearly a year in completing the project with concomitantsavings in capital cost and with very substantial savings on fertilizerimports.

34. All equipment and services (other than consulting services) financedfrom the proposed loan would be procured in accordance with acceptable pro-cedures. Major equipment, material and supplies (estimated to cost about$85 million including contingencies) are being procured under international

- 12 -

competitive bidding procedures. In addition, orders for critical equipment

and long-lead time items as well as related spare parts (at a cost of about

$10 million) have been placed on the basis of competition among a list of

selected qualified suppliers approved by the Bank. Items costing less than

$50,000 each, and totaling about $1 million, are being purchased from suppliers

on the basis of suitability, availability and prices following approval by

the Bank of the list of items to be included in this category. For purposes

of bid comparison where international bidding is followed, qualified local

manufacturers would receive a preference of 15 percent or the level of customs

duties, whichever is less.

35. The Bank loan would be disbursed against the foreign exchange

cost of imported machinery, material, Japplies and consultant services

(excluding those paid before Loan signing); and erection, pre-operating

and start-up expenses. PUSRI would submit withdrawal applications directly

to the Bank for eligible project costs which it wishes to finance from

the proceeds of the Bank loan. Although contracts for engineering services

($27 million), process critical and longlead time items ($10 million) and

other equipment procured under international competitive bidding ($33 million)

have already been placed as outlined in paragraph 34 above, no retroactive

financing would be necessary because the Government would finance payments

made before Loan signing (about $15 million) from its equity contribution.

Another $53 million in contracts are expected to be placed by the end of

June 1975.

PUSRI: Organizational and Financial Position

36. PUSRI is a very well managed enterprise by an standard and one

of the best in Indonesia. In addition to operating its small existing

plant continuously above rated capacity, it completed construction of the

PUSRI II plant one month ahead of the contract schedule. PUSRI is a wholly

government-owned limited liability company and the Government interests are

represented through a supervisory board consisting of representatives of

the Ministries of Finance, Industries and Agriculture. Managerial re-

sponsibility for PUSRI's day-to-day operations rests with a four-man

management board. While the quality of technical and commercial management

has been sound, PUSRI has had to rely heavily on its expatriate accounting

advisor to improve its financial and accounting procedures. In order to

strengthen PUSRI's financial management, additional financial staff is being

trained. PUSRI's total staff requirements would also rise with the work

associated with PUSRI III and it will be necessary for PUSRI to recruit and

train 550 additional staff which would bring its total number of employees

to 2,750. PUSRI's consultants will assist in training the necessary

additional staff and a few selected PUSRI personnel will receive specialized

training outside Indonesia.

37. Though it operated its plant efficiently during 1970-1973, PUSRI

had small or negative earnings due to an increase in all input cost except

gas and to low prices fixed by the Government for the purchase of locally-

produced fertilizers. To rectify this situation, the Government increased

its purchase price c.i.f. Java port of PUSRI-produced urea by stages from

- 13 -

Rp 28,220 ($68) per ton in 1972 to about Rp 63,900 ($154) per ton in themiddle of 1974. This price, though substantially lower than the currentworld market prices for urea (more than $400 per ton), provides sufficientrevenue for PUSRI's manufacturing operations to be financially viable.However, under a new system of fertilizer rationing and distribution controlintroduced in Indonesia in October 1973, independent wholesalers to whomPUSRI used to sell its urea against cash have now become agents whom PUSRIhas to pay for their services. PUSRI has to pre-finance the distributionof fertilizer from the port to the sub-distributor, and is only creditedfor its sales after the farmer's payment (in cash or through credit vouchers)is received by BRI. This system applies not only to PUSRI's own fertilizerbut also to fertilizer imported by it on behalf of the Government (in 1974about three times PUSRI's sold output) and has led to excessive receivablesad inventories, part of which represent the Government's stockpiling program.Total current assets for the marketing unit stood at about US$100 sillionequivalent by the end of 1974 and were exclusively financed by short-termborrowing from BRI at an average rate of interest of 15 percent per annum.This interest burden could not be accommodated within the marketing profitallowed PUSRI under the margins set by the Government for all importers/distributors, and PUSRI was thus losing money on its marketing operation.The Government, recognizing that this loss is caused partly by the controlpystem and partly by its stockpiling programm--both considered essential aslong as Indonesia's fertilizer needs cannot be met from domestic production--has undertaken to make up these losses. The Supplemental Letter on PUSRI'sMarketing and Distribution cost stipulates that the estimated shortfall inearnings for the marketing unit for each fiscal year will be paid by theGovernment in quarterly installments during that year, subject to subsequentadjustments on the strength of PUSRI's audited income statements for itsmarketing tmit. For 1975 these payments have been set at Rp 1,400 million($3.4 million equivalent). This arrangement, which insulates PUSRI fromthe financial effects of public service functions entrusted to it will applyas long as a distribution control system is in force. This is acceptable tothe Bank for the time being but PUSRI will be required to earn a reasonablereturn on the substantial distribution assets which it will acquire underthe proposed fertilizer distribution project when these are put into service.

38. As PUSRI I was financed with Government equity, the Company hadno debt service obligations until 1974. However, the outstanding debt ofthe Company increased sharply during 1971-73 with the debt/equity ratioreaching 72/28 in 1974 partly because of negative or low earnings duringthis period but mainly because only upon completion of PUSRI II did theGovernment convert into equity that part of financing which was in excessof the $62 million of debt permissible under Credit 193-IND. The Govern-ment has now converted an appropriate share of PUSRI's debt into equity,which brought the debt/equity ratio to about 60/40 at the beginning ofFY 1975.

- 14 -

Financial Projections

39. Total sales from the PUSRI III project are expected to increase

from about Rp 17.1 billion in 1977 (from 8 months of operation) to Rp 31.1

billion in 1980. Net after tax profits would increase from about Rp 3.3 bil-

lion in 1977 to Rp 8.2 billion in 1980 and Rp 8.6 billion in 1981, but would

decline the following year to Rp 5.0 billion because the 5-year tax holiday

for the project ends in 1981. However, the percentage of net profit/sales

in 1982, the first year of tax payment, would be at a satisfactory level of

16 percent.

40. From the beginning the project is expected to generate more cash

than is needed to meet its debt service requirements. Beyond 1981, the debt

service coverage would weaken because of the tax payments, but would still

be at a satisfactory level of over 1.5.

41. The project's financial rate of return before taxes would be

13.8 percent in real terms. Sensitivity analyses indicate that the financial

rate of return would remain satisfactory even after allowing for the possible

adverse effects of a reduction in capacity utilization, a decline in sales,

an increase in capital or operating costs, or delays in construction.

42. The consolidated projections for PUSRI's entire operations show

that during 1975-1982 total sales from its production would increase by about

130 percent and the net profit as a percentage of sales would exceed 15 per-

cent from 1977 onwards. The return on assets in service would exceed 15 per-

cent when PUSRI III is in full production and the Company is projected to

have a sound liquidity position and adequate debt-service-coverage. The

debt/equity ratio of the Company would reach a satisfactory level of 49:51 in

1978 and improve to 26/74 in 1982 if all earnings are retained. In order to

ensure a sound financial position for the Company, the Government has agreed

to maintain price policies that would permit PUSRI to earn a reasonablereturn on net fixed assets in service (Section 4.05 of the Loan Agreement).

In addition, PUSRI: (i) would maintain a current ratio of at least 1.4 and

a debt-service coverage ratio of at least 1.5; and (ii) would not incur

further debt other than under the financing agreement if this would raise the

debt/equity ratio to more than 50/50 (Sections 4.06 and 4.07 of the Project

Agreement).

Economic Benefits

43. The widespread realization in the early 1970's of the production

possibilities of high yielding varieties of seeds used in combination with

other agriculture inputs led to a rapid increase in the demand for ferti-

lizer. The resulting large worldwide shortage raised fertilizer prices

to the equivalent of more than $400 per ton. Recent Bank projections, which

take into account new nitrogen fertilizer plants planned or under con-

struction, indicate that by 1980 there may still be a small worldwide

fertilizer deficit. However, with additional plants a small surplus cannot

- 15 -

be ruled out. For the purpose of the economic analysis of this project, wehave assumed that by the time PUSRI III begins production, the world marketprice for bagged urea would fall from $350 at present to $151 per ton in1977 current dollars (f.o.b. exporting countries) or $176 c.i.f. Jakarta.

44. On this basis, the economic rate of return of the project has

been estimated at 20.0 percent. Sensitivity analysis indicates that the

economic rate of return remains satisfactory under a wide range of possible

adverse circumstances, including lower urea prices, increased capital

and operating costs, and delays in construction.

45. Assuming 90 percent capacity utilization, the project would augment

annual fertilizer production by 522,000 tons of urea and would contribute

to an increase in foodgrain production of 1.9 million to 2.4 million tons

per year. Annual gross foreign exchange savings at full production would

amount to $87 million. While the direct employment created by the project

would only be 550 jobs, the project would create substantial indirect

employment in the supporting areas of construction, transportation, storage

and distribution of fertilizer and of exploitation and distribution of

natural gas.

46. The Project Agreement provides that the project would be implementedand operated with adequate measures for environmental protection (Section 3.04).

Small quantities of nongaseous effluents from the project would be treated in

the unit already established under PUSRI II.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

47. The draft Loan Agreement between the Bank and the Republic of

Indonesia, the draft Project Agreement between the Bank and P.T. Pupuk

Sriwidjaja, the Report of the Committee provided for in Article III, Section

4 (iii) of the Articles of Agreement and the text of a draft resolution

approving the proposed Loan are being distributed to the Executive Directors

separately.

48. Features of the Loan Agreement and the Project Agreement ofspecial interest are referred to in paragraphs 32, 42 and 46 of this Report.

- 16 -

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

PART VI - RECOMMENDATION

50. I recommend that the Executive Directors approve the proposedloan.

Robert S. McNamaraPresident

KL41LEd IPage 1 of 3 Pages

WUUNTEY DATA - INWNESIAL

AREA POPOILATION DENSITYanDi21.3- mllo (etd-1972)

Per ke2of a..able land

SOCIAL INDICATORS

Reference Countries

M uOnoc. enladenh ing..2 l the1V9 1970197 197c 1970

GNP PEN CAPITA USs (ATLAS BASIS) /1 0-(. 0 L. 113 In 270 /

Cr_ude bith ruin (Per thonsaed) .. 631 /~ J 3/ Crude death rain (per thnusacd) 17 c 21 77 i6i , ip

Detent enrtclity rate (per thnus-d lien clothe) I.. 1,0 7ry 120-110/c d I

Life xopsotano.y at birth (pears) 1! 8' 5T

Sense reproduction rate 25 5 0 3 .2 /3{ 3.1 27 .

PPoplation groath rate 14/27C 2.2 5h 2.6 5 3 3 1 C)

Pup.ietico growth rote - nehbn /

Age et-u...re (percnt0-11 L L!/ J.5/ I.5/os I,

15-6L 53/65 nod 000(41/c 3on.

Ago dpood-oy, rotio /I 0.91 7 ) /7 0.9 .1q

Eonnoot doperd-ocy rod.J. 1 .1 1i.5 /d~ 1.6 I5. I. ~ Urb-n population os per-oet of total 1, /I 1i 13 /1 .. /82/b

PFcrly PIs...ig.r No, of acce ptors -eslati-n (thous.) .. 175 ... .9

No. of n-or (9 of married000) .. .....

EMPWYMENTTotal labor foro (thon--ds) 316< 1 1 100 Id 1,2,301 721,3005/8 13,200 /d

Por-eta.ga osployod in agrlonlt-r 66 /i 62 /7 7 71 /o.d 56 TdPorontago onoeployod 57, /1 2.. (

DNCOME DISTRIBUTIONP -roe-t of nation.oL .. ..o.n ooiundoOy high-ct 59 . 17 Ic,u 25 /p,0 :25PL

Peroent of notio-ol ibos connio..nJd by high-ot 20%....; / 3/,0 S

Ponnsot of ontionol Ibooms ronei-d by inces.t 20% .. 9 /o,s I4. o 1'.oPoro-ot of naticool Ioo... roo..i-nd by I....ot 49 ... 2/o 3t 1

9 ocoe by tp 10%of namers . .31 8z

9 normd by nolllsot 30% of cIao.. . o-.

HEALTH AND NTlThITIONPopul~a-tion pu ph-ysIiani 35,111.. It 27,650 7,600 /s,L lOC, 9,100 ,Population Per nursing ps-so . 8,010 72,030 c ,10 530l1

Popllticob PeT bonpitol). hd 1.12 / 1,720 6,121 uo ,p /t6,c 511 0 .

Per naPton coln,OPply 00 9 of roqibreoste /5 62 /o_ 02l o72/ 90 6,2Par capita prooto, supply, total (gron Per dayTW/6 1.3 L. 3 /I. 53 .

Of uhich, ant,a1 end poles1 t 1.I . 65 8

Dethrtc 1-1, yoaro /7 . .. ./

E13JIATTONAdjo-atd /8 Priscry 001o01 onru1l-t ratio So /I0 71 50 /.,.1/L o I?/Žo

dduetod 79 sonondory school anroiust ratio 67- /n 5 15 oo 28 T7 L,Yours nf sohooliog proeidod, first and .... nd loca 12 - 12 11 17 0

V-ontinoal socolloe-i as 9 of s-. school n-olloont 20/n 20 6 /cg 10h.

111011 Iltersop nato 9 ~~~~~~ ~~~~~~~39 56 /d,.i . 3 /.dn 72 /01

H11311110A-orge No. of persons per soon (-nhan) ./1 .. 2.8 I

Panoot of nonupiod nolto aithout piped -at-o..... 66 f,ho.nya

Oncoss to s1eotrioity (as 9 of total popaoti-o) ... .. .. -'

P-ront of `rura population oconotod tn slo-trinity b .. . 27o

CONSUMPTION919117o in..Lee. per 1000 ppolotion17 6 27 /c It,

Paso-gor nero Pec 1008 pepeltico 1 2A LIs /o /n7I

Ela-trin puouc -oosu tici (khal p.o. 19 23 /a12 /n 146 7Ia 751a

Neonpniot ocoonsptti.c. h-- g per year 0.2 0.2 79. 0.2 ~ 017 __

Noton: Figocon rofor ith-r in the latest p-ricdu ..t.0000t of eirmntal pso..ertore, body sgt n

the incest ya-ro. Lut-t parinde rrfaninipri-iplc to dietribotton by age asd e of national poPulations.

the yenin :956-60 or 1966-70; th. boote. yo-rn 1 pr.- /6 Prtisi standards (reqi-emaot) fnr oil oc-trio.asc eat.n-

niPle to 1p60 nod i970. liahed by USDAk Eoono-lo Nesaruh Sarici proide for miooc-

/I The P.r Copita, IAP eutirte in ot -ckot pricc In looo f oO grane of total protein Per day, cod SO graze ofYcnco tihr thou 1960,cnl-nloted by the .-0 ioc~.ci anboca and palee protein, of ohioh 1.8 grams eho1d be anma

tachniqon as thu 1972 Wnrld innok AtIuc. protein. Those stanhdards are somahat bee than those of 75

12 A-arge o-bhe of dooghtero pro 00000 of repodooti-o gr ooj f total protein and 23 gram of animal protein as ccage. avora.g. for the ..nld, prcpo...d hy PAO in the Third World Poods

/2. Popultion groth raien am for tho d-codon -ding 1 .I S-u- -Y.1960 nod 1970. /7 Soo studies boos sggootod tout ur-do death cotes of rhildran

Raticil of population under 15 nod 65 nod noor to p.p.1c- ago. 1 thr-ogh 4 nay ha a.ds as n first appr-onti.uto indes oftiho of cgsc5-61 for age dependencY ctin cod to labor tci-tr'itiom.

L.force of ogo 15-61 for -oh.mi,1 dapndan-y ratio. /8 P-rootngs asr1lid of -orr-p-diog population, of sohnol ago

IS P80 renoo -acnd-rds repr..ea t phytinloglcul rs- nodfcdfor ocoh no.-try.

q,tcocr,int fur co -ctioity and hnnLth1, taboo 11

Ia 1972; /6 1965-70; /n Eotioat.; /d 1771; /0 1262; /f Pr.jc70tton, 1273; I/ 1951-06: /6~ i06o-2~;

~ Nsoinialittes,ragon-y opliolo and ot-her PIceen chth orba h orceriotion1 I/_ For the dofinition of o-hor, nes

loin Ie..rbnk 1972, pnge i51,; /k For the doficicilon of urban, eeo Ui L,roorrpobl YIsorko 1972, Pago 1611

Li 161~ 8 192-73; /8 AID settoote of lub-r froe io ago groop 15-591 18B1 report gir-c a figao of 180.1 millionhoned on ibo 1971 Ppnpnltion -oo,n- The diff-rence isdoo to ohuogot in the defn,iLion of a oorkor. In tho 1971 o-oeno

prson crer olutofied onlY on'he basio of choir main cntiia hia led to the xlso of -o-er1 o-sgrt hso

as hoocenioes; /o 1966-67; /p Hon-nhlds; /q 1967-68; /r 1961; Li iNober -u tho r-gintor, not all -orin,g

Inib choc-iry; 7Ti 1969; G-sOoeronc octy; /8 1968; 7. lonludlog real honpit.uls; /. 196i-63;

/v 1969-71; I8 1969-70; /n lo i-olodiog Went lrio; /ob Approcloat.e enrolls..c an cero-tcgo of popoictbonIn10t to- ogo grup; /L. oineobo lAsnorg cdoe /od 1962; beo App-itolcct

enrolmen cc perocolago of Ppopntictb in 11-15 ego group; /oS Up to and of secod lon1; lag 0965; /8(1 Po,bIlo

duoctino; /id 11 ynnru. nd 0--4 /a; Dofoitic- coo~ sotob /i Popoli.no. of ten years ocd 00c bood .n

nun pnrc-;.i eocple dots of 1971; /al nporto only; /.o Ricil of PupuIlauon uc.d- 15 ood 65 nod 00- 00 cocci labor

force; /cr. GOcoobi.lo i--oryIoTioo /ao I-uide or -uttide; /8p Percent of d-ellinge.

0-Th Philirplncs boo boon colcocd as on objeotL- -eLty, for i1 gogroputo-I sio~l-aiLy and inoonoc of ito opaoret

eoe doood igo of nooc-ni dso-lnpoeut

i6 feb-ory 3, 1975

ANNEX IPage 2 of 3 pages

ECONOMIC INDICATORS

GROSS NATIONAL PRODUCT IN 1972 ANNUAL RATE OF GROWTH (%. constant prices)

US$ Mln. % 1960 -65 1965 -70 1972

GNP at Market Prices 10735 100.0 1.9 4.9 7.0

Gross Domestic Investment 1843 17.2 3.3 11.5 19.8

Gross National Saving 1361 12.7 5.8 5.1 7.7

Current Account Balance 482 4.5 *

Exports of Goods, NFS 1757 16.4 3.7 7.8 11.5

Imports of Goods, NFS 1875 17.5 0.2 10.9 15.0

OUTPUT, LABOR FORCE ANDPRODUCTIVITY IN 1971

Value Added Labor Force-/ V. A. Per Worker

US$ Mln. % __%__ % US $ _%

Agriculture 4188 43.6 24.9 62.3 168 16.0

Industry 2267 23.6 3.8 9.5 597 56.6

Services 3151 32.8 10.9 27.2 289 27.4

Unallocated - - 0.4 1.0

Total/Average . . .--7Yo loo. o 7E570 y5u7u 24 100.0

GOVERNMENT FINANCEGeneral Government Central Government

( Mln.) % of GDP ( RpBln ) % of GDP

17_ 197 196 -7_ 1972w 1972 1971

Current Receipts 585 12.9 10.8

Current Expenditure __44 9.8 9.3

Current Surplus -I41T *Tt

Capital Expenditures 291 6.4 4.9

External Assistance (net) 150 3.3 3.5

MONEY, CREDIT and PRICES 1968 1969 1970 1971 1972 1973

(Pillion fp outstanding end period)

Money and Quasi Money 126 230 315 432 690 987

Bank credit to Public Sector 45 60 57 78 19 33

Bank Credit to Private Sector 90 172 306 4h2 601 9L1

(Percentages or Index Numbers)

Money and Quasi Money as % of GDP 6.o 8.5 9.4 11.h 15.2

General Price Index (Sept. 1966=100) 463 5h5 612 638 680 891

Annual percentage changes in:General Price Index 124.8 17.7 12.3 4.2 6.6 31.0

Bank credit to Public Sector 80.0 33.3 - 5.0 36.8 -75.6 73.7

Bank credit to Private Sector 190.3 91.1 77.9 4-.4 36.0 56.6

NOTE: All conversions to dollars in this table are at the average exchange rate prevailing during the period

covered.

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

mainly of unemployed workers seeking their first job.

not availablenot applicable

ANNEX IPage 3 of 3 pages

TRADE PAYMENTS AND CAPITAL FWWS

BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1971-73)

197n 1972 1973 US $ Min %(Millions US $)

Exports of Goods, NFS 1307 1757 2957 Oil 913 45.5Imports of Goods, NFS 1519 1875 3114 Rubber 271 13.5Resource Cap (deficit = -) - 21 -71T8 - 157 Timber 328 16.3

Tin 72 3.6Interest Payments (net) - 29 - 46 - 74 Coffee 68 3.4Workers' Remittances - - -Other Factor Payments (net) - 172 - 318 - 543Net Transfers - - - All other commodities 355 17.7Balance on Current Account -13 1uiS - 77- Total 100,0

Direct Foreign Investment 139 258 290 EXTERNAL DEBT, DECEMBER 31, 1973Net MLT Borrowing + Capital Grants

Disbursements 405 447 626 US $ MlnAmortization - 70 - 70 - 138Subtotal 335 337 18 Public Debt, incl. guaranteed 4933

Capital Grants .. Non-Guaranteed Private DebtOther Capital (net) 9 181 297 Total outstanding & DisbursedOther items n.e.i - 98 24 /Increase in Reserves (+) 70 432 325 DEBT SERVICE RATIO for 1973-

Gross Reserves (end year) 187 574 806Net Reserves (end year) 26 458 783 Public Debt, incl. guaranteed 7.2

Non-Guaranteed Private DebtFuel and Related Materials Total outstanding & Disbursed

Imports 4 4 5of which: Petroleum 2 2 2

Expor ts 515 877 1348of which: Petroleum 515 877 1348 IBRD/IDA LENDING, (December 31, 19 74) (Million US$)

RATE OF EXCHANGE IBRD IDA

Since August 1971 Outstanding & Disbursed - 199.5Throus h July 197 Since August 1971 Undisbursed 137.5 362.3US 1. 00 = Rp 1.0 oo - 1 Outstanding incl. Undisbursed 1j7-5 561.

1/ Ratio of Debt Service to Exports of Goods and Non-Factor Services.

. not available

not applicable

ANNEX IIPage 1 of 11 pages

THE STATUS OF BANK GRDUP OPERATIONS IN INDONESIA

A. STAT&HENT OF BANK LOANS AND IDA CREDITS (as of December 31, 1974)

Loan/ US$ MillionCredit Fiscal Amount (less cancellations)Number Year Parpose Bank IDA Undi1str_sed

127 1969 Irrigation Rahabilitation 5.0 0.1135 1969 Technical Assistance 2.0 -154 1969 Highway 28.0 0.9155 1969 Agricultural Estates 16.0 1.2165 1970 Electricity Dlstribution 15.0 0.4193 1970 PUSRI Fertilizer 35.0 2.9194 1970 Second Agricultural Estates 17.0 5.6195 1970 Second Irrigation Rehabilitation 18.5 6.6210 1971 Teleconmunmcations Expansion 12.8 3.6211 1971 Fisheries 3.5 3.1216 a/ 1971 Second Technical As3istance 4.0 0.3219 1971 Education 4.6 3.7220 1971 Third Irrigation Rehabilitation 14.5 5.0246 1971 Seeds 7.5 5.0259 1971 Tea 15.0 7.1260 1971 Second Highway 34.0o 180275 1972 Third Technical Assistance 4.0 1.7288 1972 Second Education 6.3 5.9289 1972 Fourth Irrigation Rehabilitation 12.5 5.7300 1972 Population 13.2 10.7310 1972 Development Finance Co. (BAPINDO I) 10.0 5.4318 1972 Inter-Island Fleet Rehabilitation 8.5 5.7319 1972 Fourth Agricultural Estates 11.0 9.3334 1972 Second Electricity Distribution 40.0 35.7355 1973 Beef Cattle Development 3.6 3.3358 1973 North Sumatra Smallholder Development 5.0 4.5387 1973 Third Education 13.5 13.5388 1973 Third Highway 14.0 11.7399 1973 West Java Thermal Power 46.0 45.5400 1973 Smallholder and Private Estate Tea 7.8 7.6405 1973 Sugar Industry Rehabilitation 50.0 48.9428 1974 Palo Gadung Industrial Estate 16.5 16.2436 1974 Private Development Finance Co. (PDFCI) 10.0 10.0451 1974 Fourth Techrical Assistance 5.0 4.9479 1974 Bali Tourism 16.0 16.0480 1974 Fisheries Credit 6.5 6.5514 1974 Jatiluhur Irrigation Extension 30.0 30.0

1005 1974 fBailway 48.0 48.01040 1975 Jakarta Urban Development 25.0 25.01049 b/ 1975 Five Cities 1Wter Supply 14.5 14.51054 1975 Developnment Finance Co. (BAPINDO II) 50.0 50.0

137.5 561.8 499.8

a/ Closed in January 1975.b/ Not yet effective

ANNEX IIPage 2 of 11 pages

A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of December 31, 1974)

US$ MillionAmount (less cancellations)Bank IDA Undisbursed

Total 137.5 561.8 499.8

of which has been repaid -__-

Total now outstanding 137.5 561.8 998

Amount sold .025of which has been repaid 0.0 oO25

Total now held by Bank and IDA 137.475 561.8(prior to exchange adjustment)

Total undisbursed 137 .5 362.3 499.=8

B. STATEMENT OF IFC INVESTMENTS (as of December 31, 1974)

Fiscal Type of US$ MillionYear Obligor Business Loan Equity Total

197] P.T. Semen Cibinong Cement 10.6 2.5 13.11971 P.T. Unitex Textiles 2.5 0.8 3.31971 P.T. Primatexco Indonesia Textiles 2.0 0.5 2.51971 P.T. Kabel Indonesia Cables 2.8 0.4 3.21972 P.T. Dralon Textiles 44.5 1.5 6.01973 P.T. Jakarta Int. Hotel Tourism 11.0 - 11.01973 P.T. Semen Cibinong Cement 5.4 0.7 6.11973 P.T. Primatexco Indonesia Textiles 2.0 0.3 2.31973 P.T. Monsanto Pan Electronic pdts. 0.9 - 0.91974 P.T. PDFCI Devp. Fin. Co. - 0.5 0.51974 P.T. Kamaltex Textiles 2.4 0.6 3c81974 P.T. Semen Cibinong Cement 5.0 1.5 605

Total 49.1 9.3 58.4Less sold or repaid 19.6 o14 21.0

Total now held 29.5 7.9 3704

Undisbursed(including partici- 7.0 1.6 8.6pant's portion)

ANNEX IIPage 3 of 11 pages

PROJECTS IN EXECUTION-/

Cr. No. 127 Irrigation Rehabilitation: US$5 Million Credit ofSeptember 6 1968; Closing Date: December 31, 1975

This project includes the supply of earth-moving equipment andmachinery to rehabilitate three irrigation systems in Java and the con-struction of a fourth in South Sumarta. All the equipment supplied underthe credit is being well utilized and disbursements are 98 percent ofappraisal timetable. Completion of the project is expected to be delayedin order to complete much needed additional drainage work, the financingof which was not provided for tder the credit. These additional costswill be met by the Government. The revised economic rate of return on theproject, which was calculated at 50 percent at appraisal, is now expectedto be about 25 percent. The closing date has been postponed to December 31,1975.

Cr. No. 154 Highway: US$28 Million Credit of June 20, 1969;Closing Date: December 31, 1975

This project included the rehabilitation of 3,000 km of highpriority roads in five provinces, procurement of maintenance equipment,and a substantial training program. Rehabilitation work was substantiallycompleted prior to the original closing date. However, it was necessaryto postpone the closing date by one year to December 31, 1975 to completeprocurement of a small amount of equipment and materials.

Cr. No. 155 Agricultural Estates: US$16 Million Credit ofJune 2, L 96 , ClosinM Date: December 31, 1975

This credit is for the rehabilitation of two Government ownedestate groups (PNP V & VII) in North Sumatra. With recent improvementsin management and much higher international prices the financial situationof the estate group is improving. The field and factory standards havenow been raised to a good technical level and the management has beenadvised to concentrate on cost control in order to prepare for the timewhen produce prices are less attractive than they are today. The combinedefforts of the management, consultants and IDA supervision missions areyielding good results.

1/ These notes are designed to inform the Executive Directors regardingthe progress of projects in execution, and in particular to reportany problems which are being encountered, and the action being takento remedy them. They should be read in this sense, and with theunderstanding that they do not purport to present a balanced eval-uation of strengths and weaknesses in project execution.

ANNEX IIPage 4 of 11 pages

Cr. No. 165 Electricity Distribution: US$15 Million Credit ofOctober 29, 1969; Closing Date: June 30, 1975

See conment for Credit No. 334. The closing date has been post-poned by 18 months to June 30, 1975.

Cr. No. 193 PUSRI Fertilizer: US$35 Million Credit ofJune 15, 1970 (as amended May 1973); Closing_ateDecember 31, 1975

The urea plant has successfully passed its performance test andis operating at close to rated capacity. The gas gathering and transmis-sion system is also completed and sufficient gas is being delivered to theplant. Disbursements are expected to be completed by the closing date ofDecember 31, 1975.

Cr. No. 194 Second Agricultural Estates: US$17 Million Credit ofJune 15, 1970; Closing Date: June 30, 1975

After initial delays, there have been considerable improvementsin management and these, combined with high prices for palm oil and rubber,have resulted in a much stronger financial position, particularly for theoil palm group (PNP VI). On the rubber group (PNP IV) more effort isnecessary to improve fertilizer application and tapping methods. Withthe rapid expansion of investment on both estate groups, there is a needto employ expertise in financial planning and management, which are nowthe main constraints on efficient development.

Cr. No. 195 Second Irrigation Rehabilitation: US$18.5 Million Creditof June 15, 1970; Closing Date: November_30, 1976

Problems of quality and progress of construction still exist,but the consultants are tackling these vigorously, and the situation isimproving, although not sufficiently to make up for earlier delays. Costsare likely to exceed the overall appraisal estimate, but the Governmentwill provide any additional funds required. Completion of disbursementswill be about two years behind the original schedule.

Cr. No. 210 Telecommunications Expansion: US$12.8 Million Creditof July 13, 1970; Closing Date: December 31, 1975

Contracts for all equipment have been awarded. The closing datehas been postponed by 18 months due to delays in delivery of goods. TheGovernment has increased the tariffs to achieve the required rate of re-turn, and a new charter for PERUMTEL has also been published.

ANNEX IIPage 5 of 11 pages

Cr. No. 211 Fisheries: US$3.5 Million Credit of July 13, 1970;

Closing Date: June 30, 1976

The project includes construction of 30 fully equipped skipjack

boats and provision of technical assistance. The project is about 24 months

behind the original schedule due to delays in engaging the consultants and

in executing the contracts for the shore facilities. No further delay is

anticipated. There have been very substantial project cost increases (from

$4.3 million to $8.5 million). Because of the greatly increased skipjack

prices, however, the project is still expected to be financially viable.

Cr. No. 219 Education: US$4.6 Million Credit of November 6, 1970;

Closing Date: December 31, 1976

Project implementation is generally satisfactory. Civil works are

progressing well and will be completed before the end of 1975. Contracts

for about 60 percent of the equipment have been awarded and deliveries will

take place before the TTCs start operations in 1975. The remaining equip-

ment has been retendered because incomplete bids were received. All equip-

ment will be delivered by September, 1975. Technical assistance is provided

by Overseas Development Administration (ODA) of the United Kingdom. Cost

overruns on construction, furniture and equipment and savings on tecnnical

assistance will probably result in a total cost overrun of about 30 percent

above the appraisal estimate. The Government will provide funds to meet

this overrun.

Cr. No. 220 Third Irrigation Rehabilitation: US$14.5 Million Credit

of November 6, 1970; Closing Date: December 31, 1975

This project includes rehabilitation and re-introduction of

an 0 & M organization in three irrigation systems, two in Java and one

in South Sulawesi. Construction remains about two years behind schedule

partly because of problems with preparation of contract documents. These

have now been overcome. While no further delays are expected, it is un-

likely that the time lost could be regained. There has been some increase

in overall project costs, which is being met by the Government. Sensitivitv

tests run at the time of appraisal showed that a two year delay and 15 per-

cent cost overrun would reduce the economic rate of return from 25 percent

to 21 percent.

Cr. No. 246 Seeds: US$7.5 Million Credit of May 14, 1971;

Closing Date: September 30, 1977

Project implementation is behind schedule due to initial delays

in organization, management and procurement. The latest supervision

mission has reported that development of the seed farm is hampered by

the slow execution of a contract to develop irrigation infrastructure.

The contract is now being renegotiated. The establishment of rice-seed

research facilities at the project site is progressing slowly due to

ANNEX IIPage 6 of 11 pages

difficulties in recruiting qualified local staff. This matter is being

reviewed within the Bank before being discussed with the Government. Theseeds certification service is performing well and development of theKlaten Seed Distract is progressing satisfactorily.

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

This credit is for the rehabilitation of two groups of Govern-

ment-owned tea estates in West Java. Revised cost estimates for factory

rehabilitation and expansion are substantially above appraisal estimates

and project consultants are reviewing then.

Cr. No. 260 Second Highway: US$35 Million Credit of June.24, 1971;Closing Date: September 30, 1975

This project in Sumatra consists of construction of about 200 kmof highway, detailed engineering of further highway sections, and a regionaldevelopment study. All construction work is now satisfactorily under way.

However, the delay caused initially by slow progress in mobilizing con-

tractors, difficulties in equipment delivery, heavy rains and land slides

will result in the project being completed about one year behind schedule.Design standards for the road sections have been slightly lowered and some

savings will therefore be achieved. These and other savings are expectedto offset construction cost increases.

Cr. No. 275 Third Technical Assistance: US$4.0 Million Credit ofDecember 29, 1971; Closing Date: December 31 1975

Progress on this project is satisfactory. The closing date hasbeen postponed to complete disbursements for ongoing studies.

Cr. No. 288 Second Education: US$6.3 Million Credit ofMarch 9, 1972; Closing Date: December 31, 1976

Working drawings and furniture and equipment lists for all proj-

ect institutions have been completed. Physical facilities will be com-

pleted by October 1976 and all project institutions will begin operationsby the end of 1976. However, this schedule depends greatly on timely pro-vision of adequate Government funds, which will have to be substantiallyincreased to meet an expected cost overrun of $8.6 million. Postponementof the closing date by about six months is likely to be required.

ANNEX IIPage 7 of 11 pages

Cr. No. 289 Fourth Irrigation Rehabilitation: US$12.5 Million

Credit of March 9, 1972; Closing Date: June 30, 1977

Civil works and equipment purchase for the main project, Pekalen-

Sampean, are proceeding but completion of civil works will be about one

year behind schedule. Due to inflation, project costs are likely to be

substantially higher than appraisal estimates. Consultants for the various

studies are at work with their counterparts. Groundwater investigations

will be delayed due to procurement difficulties. The rehabilitation and

storage feasibility studies are on schedule. Disbursements are a little

behind schedule.

Cr. No. 300 Population: US$13.2 Million Credit of April 20, 1972;

Closing Date: June 30, 1978

Although progress is being made under this project, implementation

continues to be hampered by management weaknesses. Lack of clear administra-

tive direction has resulted in overall delays in securing budgetary funds and

problems of program coordination. Procurement contracts have been let and

civil works construction is underway.

Cr. No. 310 Development Finance Co. (BAPINDO l): US$10 Million

Credit of June 7, 1972; Closing Date: December 31, 1976

This credit is fully committed. Disbursements are expected to

rise rapidly.

Cr. No. 318 Inter-Island Fleet Rehabilitation: US$8.5 Million Credit,

of June 28, 1972; Closing Date: September 30, 1976

Progress on this project is satisfactory and disbursements are

expected to rise.

Cr. No. 319 Fourth Agricultural Estates: US$11 Million Credit of

June 28, 1972; Closing Date: June 30, 1981

This project includes the rehabilitation of a Government-owned

estate group in southern Sumatra. The physical progress of the project is

ahead of the appraisal schedule and the financial position of the estate

group is satisfactory.

Cr. No. 334 Second Electricity Distribution: US$40 Million Credit

of September 29, 1972; Closing Date: December 31, 1976

The Jakarta distribution program financed from Credits 165-IND

and 334-IND (together $55 million) has encountered substantial foreign

cost increases ($7.0 million) and implementation delays due to procurement

problems and cumbersome management procedures. Many of tihese difficulties

have been resolved but it is unlikely that the project can be completed

before mid-1978, two years behind the original schedule.

ANNEX IIPage 8 of 11 pages

Cr. No. 355 Beef Cattle Development: US$3.6 Million Credit of

January 31, 1973; Closing Date: March 31, 1980

Progress on this project for development of beef cattle production

in the outer islands has suffered from serious delays caused largely by prob-

lems in securing Government funds and in clearance of documents by Indonesian

Government departments and consequent lack of essential equipment. Land ac-

quisition and procurement of cattle are proving more difficult than expected,

and there has been a substantial increase in total project costs. The means

of improving project performance are currently being discussed with the Gov-

ernment.

Cr. No. 358 North Sumatra Smallholder Development: US$5 Million Credit

of February 14, 1973; Closing Date: December 31, 1981

This project has suffered from severe financial and organizational

difficulties due primarily to the lack of experience of project management,

the remote location of the project and inadequate Central Government support.

The Resident Staff has been following the project closely. Government has

taken a number of steps to overcome the problems and accelerate project im-

plementation. Project progress will continue to be closely monitored.

Cr. No. 387 Third Education: US$13.5 Million Credit of

June 1, 1973; Closing Date: December 31, 1981

Manuscript preparation and testing are on schedule and the first

year's staff training programs will be completed in sufficient time to enable

the mobile teacher training teams to start operation in January 1975 as

planned. Equipment procurement is now under way. Because of the sharp in--

crease in worldwide paper prices and shortage of supply, difficulty will be

experienced in obtaining sufficient paper under the Canadian loan included in

the project financing for the 1975 printing schedule; the Government has there-

fore undertaken to release supplies from its stockpile. The expected cost

overrun arising from increased paper prices will be met by the Indonesian

Government. Project management is good and the team of technical assistance

specialists is operating effectively.

Cr. No. 388 Third Highway: US$14 Million Credit of June 1, 1973;

Closing Date: June 30, 1977

This credit is for the construction of 124 km of highway and

two bridges in North Sulawesi and the study and detailed engineering of

further highways in Java. Construction bidding and consultant selection

have been proceeding on schedule. Some cost increases, due to inflation,

are expected.

ANNEX IIPage 9 of 11 pages

Cr. No. 399 West Java Thermal Power: US$16 Million Credit ofJune 22, 1973; Closing Date: June 30, 1978

Bids received in November 1974 for the first two 100 mw units at

Muara Karang were about 65 percent higher than estimated at the time of

appraisal. This, together with construction cost increases, have resulted

in an increase in the total project cost of more than 100 percent. The

Government is currently considering how best to finance the cost increase.

PLN has satisfactorily met the first year targets in its financial recovery

plan provided for under the terms of the credit agreement.

Cr. No. 400 Smallholder and Private Estate Tea: US$7.8 Million Credit

of June 22, 1973; Closing Date: March 31, 1982

This credit is for the rehabilitation and replanting of smallholder

and private estate tea areas, rehabilitation of five privately owned black

tea factories, and the construction of two new black tea factories in West

and Central Java. Progress is satisfactory.

Cr. No. 405 Sugar Industry Rehabilitation: US$50 Million Credit

of June 26, 1973; Closing Date: June 30, 1979

This credit is for rehabilitation of the Government-owned sugar

industry. Bids for equipment required for first phase major rehabilitation

have been received: a substantial cost overrun is expected, which the Gov-

ernment has agreed to finance. Some organizational problems are now being

resolved and disbursements are expected to rise.

Cr. No. 428 Pulo Gadung Industrial Estate: US$16.5 Million Credit

of September 14, 1973; Closing Date: December 31, 1978

Despite recent increase in construction costs, the project remains

financially viable because revenue from the sale of plots has risen propor-

tionately. Construction has fallen behind schedule due to land acquisition

problems, but developed land is being occupied as fast as it is made avail-

able. While there is still a backlog of applications for industrial plots,

the rate of new applications has fallen off during recent months and the

estate is intensifying its promotional efforts.

Cr. No. 436 Private Development Finance Company (PDFCI):

US$10 Million Credit of November 2, 1973; Closing Date:

December 31, 1978

After a long start-up period and difficulties in finding and

recruiting qualified local staff, PDFCI hias now reached the operating

stage. Its commitments are rising at a satisfactory rate.

ANNEX IIPage 10 of 11 pages

Cr. No. 451 Fourth Technical Assistance: US$5 Million Credit of

January 2, 1974; Closing Date: December 31, 1976

Progress under the project is satisfactory.

Cr. No. 479 Bali Tourism: US$16.0 Million Credit of

June 4, 1974; Closing Date: August 31, 1979

After initial delays, most of the advisors have been appointed

and the contract for final design of the Nusa Dua estate has been signed.

Preliminary discussions with potential hotel investors are proceeding.

Overall implementation of the project is several months behind schedule.

Cr. No. 480 Fisheries Credit: US$6.5 Mtillion Credit of

June 4, 1974; Closing Date: June 30, 1979

This credit became effective on January 8, 1975 and is progressing

satisfactorily.

Cr. No. 514 Jatiluhur Irrigation Extension: US$30.0 Million Credit

of October 3, 1974; Closing Date: December 31, 1980

This credit became effective on January 10, 1975 and the progress

is satisfactory.

Loan No. 1005 Railway: US$48.0 Million Loan of June 4, 1974;

Closing Date: December 31, 1978

The procurement of material and equipment for the project has yet

to be organized, although recently a procurement agency to assist in this

field has been engaged by the Railway. Initial steps have been taken to

obtain the technical assistance included in the project. The Railway has

proposed additional investments to meet a projected substantial increase

in traffic during the next four years resulting from increases in the

production of cement, fertilizers and coal. The financial position of

the Railway remains weak.

Loan No. 1040 Jakarta Urban Development: US$25.0 Million Loan of

September 27, 1974; Closing Date: December 31, 1977

The first year of the two-year Kampung Improvement Program in

Jakarta has been substantially and satisfactorily completed. Site design

for the 130 ha site and service component is proceeding. Consultants have

been retained for execution of this part of the project and are being en-

gaged to assist the new National Mortgage Bank and the National Urban Devel-

opment Corporation.

ANNEX IIPage 11 of 11 pages

Loan No. 1049 Five Cities Water Supply: US$14.5 Million Loan

of October 31, 1974; Closing Date: June 30, 1980

This loan is not yet effective.

Loan No. 1054 Development Finance Co. (BAPINDO II): US$50 Million

Credit of November 30, 1974; Closing Date: December 31, 1976

This loan became effective January 14, 1975.

ANNEX IIIPage 1 of 3 pages

INDONESIA: SECOND FERTILIZER EXPANSION PROJECT: PUSRI III

LOAN AND PROJECT SUMMARY

Borrower: Republic of Indonesia

Beneficiary: P.T. Pupuk Sriwidjaja (PUSRI)

Amount: US$115 million equivalent

Terms: 15-1/2 years including 3-1/2 years of grace

with equal semi-annual installments of prin-

cipal at an interest rate of 8-1/2 percent

per annum.

Relending Terms: To PUSRI with the same repayment terms, but

at an interest rate of 12 percent per annum.

The Government would bear the foreign exchange

risk.

Project Description: The detailed engineering, construction and

start-up of a fertilizer plant at Palembang,

Sumatra, to manufacture about 570,000 metric

tons of urea annually; training of PUSRI's

staff in the operation and maintenance of the

plant, as well as financial and accounting

procedures; and the preparation of the fertili-

zer shipping and distribution project. The

plant's facilities would include:

1. a single-train ammonia unit with an

annual capacity of about 330,000 metric

tons;

2. a single-train urea unit with an annual

capacity of about 570,000 metric tons;

3. a gas treatment unit; and

4. the usual off-sites and auxiliaries

required to support such plant, including,

inter alia, an ammonia storage tank, a

15 MW electric power plant, a steam gen-

erating unit, a bag making plant, shipping

facilities, spares, and housing and hos-

pital facilities.

ANNEX IIIPage 2 of 3 pages

Estimated Cost: US$ Million

Local Foreign Total

Equipment and spares 4.4 84.0 88.4

Erection and civil construction 8.0 5.1 13.1

Engineering Services and ProjectManagement 1.2 29.9 31.1

Pre-operating and start-upExpenses 3.3 1.5 4.8

Distribution Project Preparation 0.2 0.1 0.3

Jetty and Housing 3.2 3.1 6.3

Incremental Working Capital and

Interest During Construction 10.9 15.3 26.2

Physical and Price Contingencies 3.2 18.6 21.8

Total 34.4 157.6 192.0

Financing Plan:

Bank - 115.0 115.0

Government 34.4 42.6 77.0

Total 34.4 157.6 192.0

Es timated Disbursements:

Calendar Year 1975 1976 1977

Annual 53.0 47.0 15.0

Cumulative 53.0 100.0 115.0

Procurement Arrangements: All major equipment, material and supplies

(estimated to cost about $85 million including

contingencies), irrespective of the source

of financing, are being procured after

international competitive bidding in

accordance with the Bank's guidelines. In

addition, proprietary equipment essential to

the process and items in limited supply, as

well as related spare parts (estimated to

cost about US$10 million) are, after Bank

approval, being procured based on quotations

from firms included in the vendors list of

qualified suppliers. Items costing less than

$50,000 each, and totaling about $1 million,

are being purchased from suppliers on the

basis of suitability, availability and price

following approval by the Bank Staff of the

ANNEX IIIPage 3 of 3 pages

list of items to be included in this category.For purposes of bid comparison where interna-tional bidding is used, qualified local manu-facturers would receive a preference of 15percent or the level of customs duties, which-ever is less.

Technical Assistance: Scientific Design is continuing as technicaladvisor; Kellogg Overseas Corporation (KOC)as ammonia plant engineer and process vendor;and Toyo Engineering Corporation as ureaplant engineer and process vendor. KOC willalso be responsible for the ammonia and ureaplant erection and commissioning.

Rate of Return: The economic rate of return for the projectis 20.0 percent.

Appraisal Report: No. 624-IND.

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