The World Bank

Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No. 4356-IND

STAFF APPRAISAL REPORT Public Disclosure Authorized INDONESIA

PERUSAHAAN UMUM LISTRIK NEGARA

THIRTEENTH POWER PROJECT Public Disclosure Authorized

May 3, 1983 Public Disclosure Authorized Projects Department East Asia and Pacific Regional Office

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

Currency Unit - Indonesian Rupian

US$1 = Rp 970 Rp 100 = US$0.103 Rp 1 million = US81,030

WEIGHTS AND MEASURES

1 metric ton = 1,000 kilograms (kg) 1 liter (1) = 0.0063 barrels 1 kilometer (km) = 0.6215 miles (mi) 1 kilovolt (kV) = 1,000 volts (V) 1 megavolt-ampere = 1,000 kilovolt-amperes (kVA) 1 kilovolt-ampere = 1,000 volt-ampere (VA) 1 megawatt (MVTW) = 1,000 kilowatts (kW) 1 gigawatt hour (GWh) = 1 million kilowatt hours (kWH)

ABBREVIATIONS

BAKOREN - The National Energy Board BOC - Board of Consultants DGEP - Directorate-General of Electric Power, Ministry of Mines and Energy DGWDR - Department of Water Resources Development DPMA Institute of Hydraulic Engineering Edf - Electricite de France EHV - Extra High Voltage ICLARM - International Center of Living Acquatic Resources Management LE UNPAD - Institute of Ecology of Padjadjaran University LNG - Liquified Natural Gas LRMC - Long Run Marginal Cost MME - Ministry of Mines and Energy Newjec - New Japan Consulting Engineers NORL - Normal Operating Reservoir Level OECF - Overseas Economic Cooperation Fund of Japan PCR - Preece, Cardew and Rider PERTAMINA - National Oil Company PLN - National Electricity Authority PMAS - Project Management Advisory Service POJ - Jatiluhur Dam Authority Pusdiklat - PLN-s Centre for Education and Training RE - Rural Electrification SEKNEG - Central Procurement Committee

GOVERNMENT OF INDONESIA

FISCAL YEAR (FY)

April 1 - March 31 FOR OFFICIALUSE ONLY

INDONESIA

PERUSAHAANUMUM LISTRIK NEGARA

THIRTEENTH POWER PROJECT

STAFF APPRAISAL REPORT

Table of Contents Page No.

I. THE ENERGY AND ELECTRICITY SECTORS ...... 1

A. Economic Background ...... I B. Energy Resources and Status of Development ...... 1 Oil ...... 1 Natural Gas ...... 1 Coal...... 2 Hydroelectric Resources ...... 4 Geothermal Energy ...... 6 Nuclear Power. 7 Noncommercial Sources. 7

C. Organization of the Energy Sector ...... 8 D. Bank Role and Strategy in the Energy Sector ...... 8 E. The Electricity Subsector .9 DGEP .9 PLN .10 Captive Plants .10 Rural Electrification .10

F. Bank Role and Strategy in the Electricty Subsector . . . . 11

II. THE POWER MARKETAND THE DEVELOPMENTPROGRAM ...... 12

A. Status of Surveys .12 B. Present Consumption and Access to Service...... 13 C. Projections of PLN's Sales .13 D. Connection Program ...... 14 E. Long-Term Development Program ...... 14

This report was prepared on the basis of the appraisal carried out by C. K. Chandran (Sr. Power Engineer), J. Chang (Financial Analyst) and B. K. Thomas (Sr. Financial Analyst) during December 1982/January 1983. The appraisal mission was assisted by Dr. C. Cunningham (consultant) on the resettlement aspect of the project, and by G. Kalauzi (Dam Specialist) on the design of the dam.

Page No

III. THE BENEFICIARY ...... 16

A. Legal Status and Responsibility ...... 16 B. Organization...... 17 C. Facilities ...... 17 D. Corporate Development...... 17 E. Management ...... 18 F. Manpower and Training ...... 19 G. Accounting and Budgeting ...... 20 H. Audit ...... 21 I. Insurance ...... 22 J. Construction ...... 22 K. Procurement ...... 22 L. Performance of PLN under Earlier Bank Operations . . . . . 23

IV. THE PROJECT ...... 24

A. Objectives of the Project...... 24 B. Project Description...... 25 C. Status of Development of the Citarum River ...... 25 D. Status of Investigations and Engineering of Cirata Project .26 E. Dam Site and Other Features ...... 27 F. Optimization of Project Features ...... 27 G. Geology .28 H. Seismology .28 I. Reservoir Area .29 J. Hydrology, Reservoir Operation and Energy Assessment Studies ...... 29 K. Sedimentation ...... 30 L. Construction Materials ...... 30 M. Engineering and Design and the Board of Consultants . . 31 N. Environmental Aspects ...... 31 0. Special Equipment Requirements ...... 33 P. Energy Sector Support Program ...... 34 Q. Project Cost Estimates ...... 34 R. Contingencies ...... 35 S. Consulting Services ...... 36 T. Financing ...... 36 U. Construction Arrangements ...... 37 V. Implementation Program ...... 38 W. Procurement ...... 39 X. Disbursement ...... 40 Y. Maintenance for Dam Safety ...... 40 Z. Operation...... 40 - iii -

V. FINANCIAL ANALYSIS ...... 41

A. General...... 41 B. Past Operating Results ...... 41 C. Comparative Financial Positions...... 45 D. Tariffs...... 46 E. Financing Policy ...... 47 F. Future Financial Performance ...... 49 G. Corporate Income Tax ...... 52

VI. JUSTIFICATION AND RISKS ...... 52

A. Growth of Demand and Need for the Project ...... 52 B. Least Cost Solution ...... 52 C. Economic Rate of Return of the Project ...... 53 D. Risks ...... 53

VII. AGREEMENTS REACHED AND RECOMMENDATIONS ...... 54

ANNEXES

1. Energy Consumption, by Source 2. Organization Chart of the Ministry of Mines and Energy 3. Growth of Captive Power Plants in Indonesia (1976-82) 4. Growth of PLN-s Consumers and Sales 5. Growth of Demand, Installed Capacity and Energy Generation 6. Energy Production by Category and Fuel Consumption 7. PLN-s Investment Program (FY83-FY94) 8. PLN-s Organization Chart 9. Salient Features of the Project 10. Citarum River Development Plan 11. Energy Sector Support Program 12. Project Cost Estimate 13. Annual Expenditures on the Cirata Project 14. Implementation Schedule of the Project 15. Summary Implementation Schedule 16. Procurement Milestone Schedules 17. List of Key Dates for Construction 18. Schedule of Disbursements 19. PLN-s Past Financial Results 20. PLN-s Financial Forecasts (FY83-FY89) and Assumptions made in the Financial Forecasts 21. Cost and Benefit Streams for IERR Calculations of the Project 22. Selected Documents and Data Available in the Project File - iv

MAPS

1. IBRD 16563 R - Java Power System 2. IBRD 16802 - Major Irrigation, Hydroelectric and Water Resources Development 3. IBRD 16750 - Cirata and Saguling Hydroelectric Projects 4. IBRD 16751 - Cirata Hydroelectric Project - General Site Layout I. THE ENERGY AND ELECTRICITY SECTORS

A. Economic Background

1.01 Indonesia is endowed with abundant energy resources and has large, as yet undeveloped, reserves of natural gas, coal, geothermal energy and hydroelectric power, but the availability of indigenous oil and subsidized domestic prices caused it to develop a primarily petroleum-based energy sector. Seventy eight percent of the total commercial energy consumption now derives from petroleum (Annex 1). Currently oil and liquified natural gas (LNG) exports generate 70% of government-s revenues and finance almost all of its non-oil imports. Domestic oil consumption has been growing at 12% per year. If this trend continues Indonesia could become a net importer of oil in the mid-1990's with devastating effects on its economy. To avoid this, Government's energy policy, developed in 1978, has been to accelerate oil exploration and development, encourage conservation measures, including adjustment of domestic prices of petroleum products and development of appropriate norr-oil sources. The following paragraphs explain the progress in implementing this policy since 1978.

B. Energy Resources and Status of Development

Oil

1.02 The proven oil reserves are reported to be 9.5 billion barrels, amounting to 16 years production at the annual production rate of about 575 million barrels during 1981-82. Currently it is about 20% below that level. Exploration of much of Indonesia is still at an early stage. During 1975-77, after a period of rapid increases in oil exploration, there was little activity as a result of uncertainty following GOIs moves to renegotiate terms of production-sharing contracts. An active program of exploration and development is now being carried out after resolution of this problem in 1978. Investment in oil exploration and development last year was expected to reach $3.8 billion. Undiscovered reserves are estimated between 10 billion and 40 billion barrels. There have not been any major discoveries in recent years. Unless further massive reserves are discovered, it is considered unlikely that annual production will increase beyond 700 million barrels.

Natural Gas

1.03 Reserves of natural gas are estimated at some 69 trillion cubic feet (TCF), almost equivalent to the proven level of oil reserves. The bulk (85%) of this gas is non-associated and can be developed independently of the level of oil production. However, the reserves are generally located far away from major population and industrial centres. Arun field in North Sumatra contains 17 TCF and the recently discovered Natuma field in the South China sea contains 35 TCF. - 2-

1.04 The largest increases in non-oil development have been in the natural gas sector, due both to the shorter lead times and the domestic need for gas as feedstock for fertilizer plants and for reduction in steel plants. Production of natural gas during 1979 was equivalent to one-third of the country's oil production. Nearly half of that production was exported as LNG to Japan from liquefaction centers at Arun and Badak. An integrated pipeline system - some 450 km long in South Sumatra and 420 km long in West Java is now in operation. Domestic consumption of natural gas is expected to increase at about 15% per year during the next few years. LNG production is expected to reach 15 million tons per year by 1985 and 28 million tons by 1990.

1.05 About 30% of the natural gas associated with oil production is currently flared much of it associated with small oil production scattered all over the country. The constraints on increased use of natural gas resources within Indonesia are pricing, and institutional/contracting arrangements. The price paid to private producers has been too low to provide sufficient incentives for them to produce and deliver non-associated gas for domestic users or to conserve associated gas by reinjection. To accelerate the gas development program the Government is considering setting the price paid to consumer at $3.0 per million BTU which could double the availability of gas in West Java during the next 2-3 years to the equivalent of 50,000 barrels of oil per day. Government is also carrying out studies of (a) flared gas use; (b) city gas distribution systems; and (c) domestic LPG marketing as a potential replacement of kerosene.

Coal

1.06 After natural gas, coal is the next most promising source of energy in Indonesia. The total coal resources of Indonesia are large, perhaps as high as 20 billion tons. The bulk of it (15.5 billion tons) is lignite and brown coal, followed by sub-bituminous coal (4.0 billion tons) and just over 0.6 billion tons of bituminous coal. Coal bearing formations are scattered throughout the country but the major Jeposits (about 99% of known resources) are located in West and South Sumatra, 'nl &tlong the coast of East and South Kalimantan.

1.07 Coal iias been produced in Indonesia for a long time. The Ombilin mine, dating back to 1892, reached a peak of 665,000 tons in 1930. Around 1941, the annual production at Bukit Asam was 850,000 tons and 600,000 tons from mines in East Kalimantan. The industry declined thereafter. Current coal development and production is undertaken by two large state companies, PN Batuba.: nn-' PT Bukit Asam, and a number of small private firms. PN Batubara covers major coal reserves outside South Sumatra, whereas recently formed PT Bukit Asam covers the South Sumatra coal fields, maiAl Bukit Asam and Banko. The production in 1982 was about 450,000 tons, of which Ombilin provided about 300,000 tons, and Bukit Asam, about 150,000 tons. -3-

1.08 There is considerable uncertainty about the true quantity and quality characteristics of the various deposits. Enough information is available, however, to establish the basic features and to draw up a short- term development strategy, while, at the same time, organizing systematic coal exploration which would lead to firm long-term plans. The best quality coal of all reserves is that from Ombilin in West Sumatra. It is low in ash and sulfur, has a heating value of 6,800-7,500 kcal/kg, and most of it has to be mined by underground methods. The limited reserve and its high quality requires that it be earmarked for special industrial uses. Although lower in heat value (5,000-6,500 kcal/kg) the sub-bituminous coals of South Sumatra which are accessible to surface mining are eminently suitable for steam generation and general industrial purposes. This is also true of East Kalimantan coal. The large South Sumatra reserves at Banko and surrounding areas, which are estimated at 15 billion tons, represent a large surface mining area, but the high moisture content (35-60%) and low heating value render the coal uneconomic to transport over long distances. Further, several technical and economic problems associated with development and utilization of this type of coal remain to be tackled and solved. The government's short- and medium-term coal development strategy has therefore concentrated mainly on the Bukit Asam and Kalimantan sub-bituminous deposits (paras. 1.09-1.10). However, GOI is also implementing a crash program of expansion of production at Ombilin to about 1.3 million tons per year by 1989.

1.09 Work started early in 1982 on an integrated coal mining and transportation project. It includes a 3.2 million ton per year coal mine at Bukit Asam in South Sumatra, extending and upgrading the railway line from Tanjung Enim to Panjang port, constructing a new coal loading terminal at Tarahan near Panjang and upgrading one at Palembang, and a self-unloading ship to carry coal across Sunda strait to the 800 MW (initial) Suralaya power plant in West Java. This station is being constructed by the national power .entity (PLN) with assistance from the Bank under the eighth and ninth power projects (Loan 1708-IND and Loan 1872-IND). The cost of the mining and transportation project to be completed in 1986 is about $1,124 million. A Bank loan of $185 million (Loan No. 2079-IND) was approved in December 1981 for this project. Loans from several foreign aid agencies and export credit sources will meet the balance of foreign costs. Work has also started on a new shallow mine in the adjoining Muara Tiga area to the west of Bukit Asam to produce about 0.6 million tons per year by 1986. It has the potential to produce 2.8 million tons per year and GOI plans to achieve this by 1990. Besides these developments, which are expected to provide enough coal for four 400 MWgenerating sets at Suralaya by the end of the decade, a comprehensive coal exploration program in South Sumatra and East Kalimantan has been initiated by the Ministry of Mines and Energy (MME) for which the Bank approved a $25 million loan (2153-IND) in 1982. - 4 -

1.10 The bulk of domestic coal production is expected to take place in East and South Kalimantan. These areas have been set aside for exploration and development by private companies. Tenders were invited in 1978 but agreements were not reached until 1981 when bidders agreed to the establishment of local companies and on principles of production sharing. Between May and November 1981, the government signed four production sharing agreements with joint ventures of Atlantic Richfield and Utah International of the USA; AGIP Overseas of Italy; Conzino Rio-Tinto of Australia and British Petroleum of the U.K.; and separately with Utah of U.S.A. The agreements are patterned on those now in successful use in the Indonesian oil sector, with the difference that the partners get a guaranteed share in output rather than a share of gross profits. Three of these contractors are now actively engaged ,in surveying and drilling in the Senakin and Mahakam areas. It is to be followed by mine development and production in the mid 1980s. The contracts provide that 13.5% of the production would be given to PN Batubara and the balance would be exported subject to Indonesia's own needs. If the country requires large quantities of coal, they would be paid for at current average sale prices in the South West Pacific Region. A period of 8 years is specified for general surveys, exploration and construction of mining facilities but it is expected that actual production would start well before that, reaching up to 10 million tons per year at the end of the 1980s. The government intends that a part of this production should be used at the 4,000 MW (ultimate) Paiton power station in East Java, which is planned to be commissioned in 1989. PLN is currently studying the location of a new site for a third coal fired station located either in Central or in West Java, to be developed by about 1992. The proposed loan would provide funds to carry out a feasibility study of this project. A second round of negotiations was started in March 1982 with 10 contenders for further exploration and development work in Kalimantan. Three contracts now await Government approval. Investment in coal is expected to come primarily from the private sector.

Hydroelectric Resources

1.11 Indonesia-s total hydroelectric energy resources are large but its development is limited by its geographic distribution relative to demand. The greatest potential (over 35%) lies in Irian Jaya where the current electricity demand is less than 1%; Java, which accounts for 80% of the current demand, has less than 10% of the total potential. Hydro resources have an increasingly important role in electrical energy generation in the islands of Sumatra, Kalimantan, Sulawesi and Irian Jaya. It will have continuing significance until the 1990s in Java and some smaller islands. -5-

1.12 The status of hydro development is summarized below.

Table 1.1: HYDRO STATUS

Capability Installed capacity Annual energy (MW) (GWh)

Existing installations 1,312 5,800 Sites under construction 978 3,600 Sites under investigation 1,362 4,150 Identified 22,658 112,816 Remaining 5,655 33,634 Total technical potential 32,000 16C,000

1.13 The existing installations are distributed as follows: Java, 489 MW (including Jatilihur, 150 MW, set up by the Jatilihur Authority as a multiple-purpose project and Karangates, 105 MW); Sumatra, 612 MW (including 600 MW at the Asahan site developed jointly by the governments of Japan and Indonesia primarily for meeting the demands of an aluminum smelter); Sulawesi 181 MW (including 165 MW at Larona I, owned by the International Nickel Company and constructed in 1978) and Kalimantan, 30 MW.

1.14 PLN has assumed the role of the lead agency in the country for investigation and development of hydroelectric power, which it does in close concert with the Department of Water Resources Development (DGWRP). An important nation-wide study of hydroelectric potential was commenced in 1981 by PLN, with the assistance of Nippon Koei of Japan using funds provided under the Sixth Power Project (Loan 1365-IND). It is being carried out with the active involvement of a team of about 30 of PLN-s staff and an Indonesian consulting engineer (Indra Karya) to ensure that adequate technical capabilities are developed within the country to continue the work of hydro electric surveys and detailed investigations after the first phase of this study is completed. The entire data base and all previous studies have now been reviewed. By mid-1983, PLN will prepare (i) a detailed inventory of sites; (ii) a priority list of schemes to be considered for implementation by the year 2000 taking into account access to power markets, status of electricity supply, demand growth and alternative sources; and (iii) a program of field investigations.

1.15 As an interim step, the Bank has agreed that feasibility stage investigations of four sites, and prefeasibility site studies of 21 others - all revealed by the study described in para. 1.14 - could be carried out during FY84 using funds under Loan 1365-IND. Feasibility studies of 6 more sites, and prefeasibility investigations of' 20 others, will be included in the scope of this project (para. 4 .33(e)). -6-

1.16 Development of hydroelectric resources requires considerable engineering and administrative skills, particularly in construction supervision. In the past, apart from PLN, GOI has utilized independent public agencies, e.g., the Jatiluhur Dam Authority (POJ), and the Indonesianr-Japanese joint enterprise - the Indalum Company - (for development of the 600 MW Asahan site in Sumatra), as well as private companies, e.g. the International Nickel Company (to whom the 165 MW Larona site in Sulawesi has been leased). MME and PLN are associated with all these developments. In order to extend development possibilities beyond the administrative and financial resources of these agencies in March 1982, GOI, through PLN, entered into an innova- tive turnkey (design-and-construct) contract with an Anglo-Swedish consortium for the 180 MW Mrica hydroelectric project in Central Java. The contract is valued at about $650 million and will be financed entirely by commercial credits. Completion is scheduled by 1988. If this project is completed on schedule and within the estimated cost it could be a factor in accelerating development of hydroelectric resources in future.

Geothermal Energy

1.17 Surface manifestations of geothermal energy sources are found on all the major islands of Indonesia with the exception of Kalimantan. However, only a half a dozen or so of these sites have been investigated thoroughly and only one, Kamojang in West Java, has been explored suffi- ciently to enable its energy potential to be classified as proven. Conse- quently, estimates of geothermal reserves, all of which are owned by the state, vary considerably. Identified reserves are currently about 1,500 MW, mostly in Java where most of the exploration work has been carried out. It is believed that potential reserves may approach 10,000 MW though the economic and technical feasibility of their exploitation is not known at present. Of these 5,500 MW are in Java, 1,400 MW in Sulawesi, 1,100 MW in Sumatra, and the rest (2,000 MW) in the other islands.

1.18 Exploration began as early as 1920 but it proceeded in a slow and sporadic manner until the early 1970s when the changing international energy environment caused a renewed interest in geothermal resources. In 1973, a bilateral grant from the New Zealand Government was used to develop the geothermal resources in the Kamojang field, where a 30 MW geothermal power plant was commissioned in January 1983. Under the twelfth power project (Loan 2214-IND) the capacity of the station would be increased by addition of two more generating sets, each rated at 55 MW, which will be commissioned during FY87. PERTAMINA, the national oil company, is in charge of production and supply of steam to the power station site and PLN is responsible for construction and operation of the power station. This pattern of separate and distinct responsibilities has been formalized in 1981 for all future geothermal developments in the country by a Presidential Decree. - 7 -

1.19 GOI has accorded geothermal energy development a high priority in its energy program and has announced its intention to develop about 900 MW by the end of the decade. To accelerate work it has decided to rely on private capital and its entrepreneurial skills. In February 1982 PERTAMINA signed a 30-year joint operation contract with Union Geothermal of Indonesia Ltd (a subsidiary of Union Oil of California) to explore and develop the 56,650 hectare Salak geothermal field in West Java, wherein up to about 495 MW could be installed in increments of 55 MW. Union Geothermal would operate and maintain the wells, pipelines and other facilities. An energy sales contract has been signed at the same time between PERTAMINA (which will own the steam) and PLN (which has to install the power plant within a stipulated time from notice by Union Geothermal). This agreement assures Union Geothermal a price set to yield a rate of return of 20% on its estimated development and construction costs of the Salak field at December 1980 price levels and escalated thereafter by an agreed formula. There will be an upper limit of not more than 80% of the fuel cost (ex Singapore) generated by an equivalent oil fired power plant. This agreement would set the future pattern for development of other areas such as Darajat in West Java, and Dieng in Central Java. The first generating set at Salak is expected to commence operation in 1989.

Nuclear Power

1.20 Since 1976 several studies have been carried out on the need for nuclear power in Java. The most recent study carried out by NIRA-ENEL of Italy in 1981 concluded that introduction of the first nuclear power station with a 636 MWe CANDU type reactor by FY90 would be feasible. GOI has, however, decided to defer action on this recommendation for a few years. It has recently ordered a small (50 MW) reactor for experimental use. PLN-s latest development plans assume that no large nuclear power stations would be operational before FY97.

Non-Commercial Sources

1.21 Non-commercial fuels (fuelwood and agricultural wastes) contributed over 60% of total energy in 1960 but its share declined to just under half now. These fuels are almost entirely used in rural areas. Forests cover 64% of the land surface areas constituting biomass capacity far in excess of current usage. However, demand is heavily concentrated in Java and as a result there have been increased instances of deforestation there. About 16 million tons of logs are exported annually from Kalimantan and Sulawesi rainforests and provide the second largest source of export earnings. A substantial increase in indigenous milling industries, which would result in substantial quantities of residues, is expected. Agricul- tural residues (from coconuts, paddy, cassava, etc) contribute an equally large source which accounts for almost all the biomass production in Java.

1.22 Precise and reliable information on the sources and distribution of noncommercial energy sources are not yet available despite some recent - 8 -

surveys. Further studies are needed to refine them. They are relevant because of apparent trends of substitution by kerosine, whose consumption has been increasing by about 10% annually causing concern because of the heavy subsidies involved. The extent to which rural electrification could have a beneficial impact also requires examination in this context.

C. Organization of the Energy Sector

1.23 In May 1978, the MME was established as part of a general reorganization of government departments to coordinate all activities in the e-nergy sector. MME has overall responsibility for mining, oil, natural gas and electricity. It controls the state enterprises responsible for the execution of the government policies in the energy subsectors - e.g. the national oil and gas entity (PERTAMINA), the coal agencies (PN Batubara and PT Bukit Asam) and PLN. MME-s organization chart is shown in Annex 2.

1.24. GO has established a Technical Committee on Energy Resources. The Chairman and Vice-Chairman of the Committee are the MME's Directors- General of Oil and Gas and of Electric Power (DGEP), respectively. A Permanent Committee on energy problems has also been formed by the minister and entrusted with the tasks of assessing energy technologies, dealing with day-to-day energy problems and preparing long-term projections for demand and supply. A ministerial level National Energy Board (BAKOREN) was formed in 1981 to review proposals emerging from the technical comnmittee. It is functioning actively. Perhaps one of the most important of these organizational steps was the establishment of a unit for energy planning in the MME under the control of DGEP. The Bank is assisting MME in ths area of institutional development (para. 1.27).

D. Bank Role and Strategy in the Energy Sector

1.25 The Bank has been actively involved in some of the sector developments described above. During 1981, at the invitation of GOI the Bank/UNDP carried out a detailed assessment of the Indonesian energy sector, identifying policy options and analyzing investment priorities to provide a framework for technical assistance and advice to GOI on institutional aspects. The results have been incorporated in a report (No. 3453, August 1981) entitled "Indonesia - Issues and Options in the Energy Sector." This report confirms earlier findings that alternatives for oil must be developed quickly for electricity generation, and recommends that this should be extended to industry, transportation and households. It further points out that subsidized oil prices, weak institutions, manpower shortages and a lack of detailed energy sector planning remain the chief obstacles to rapid substitution of oil. During 1982 the Bank carried out a follow-up study whose specific focus is on the pricing of energy products and the implications of increasing energy prices in the industrial, household and transportation sectors and on the macroeconomic environment. - 9 -

The report is being finalized. It is expected to assist GOI in formulating the future course of its energy policy.

1.26 In 1979, in the context of the seventh power project (Loan 1513-IND), GOI and PLN agreed that tariffs for electricity should reflect long-run marginal costs (LRMC) as closely as possible. In 1980, in the context of the ninth power project (Loan 1872-IND), GOI agreed in principle to the eventual elimination of all energy subsidies, subject to the consumers ability to pay. Domestic oil price increases of about 50% in May 1980, 60% in January 1982 and about 60% again in January 1983 have since reduced the oil subsidies significantly.

1.27 The Bank is providing, through the tenth power project (Loan 1950-IND), assistance to the energy planning init of the MME by financing the services of a few experts. Under the seventh power project (Loan 1513-IND) a consultant, PA International of the UK, also carried out a study and has reported last year on installation of a management information system for all DGEP activities. It will be implemented during the next two years.

1.28 The magnitude of investments necessary to implement GOI s policy of diversification of energy sources is large. The Bank estimates that the annual investments in the sector will increase from about $1.27 billion in 1980 to about $10 billion (at 1980 levels) in the year 2000. About half of these will be directly in the electricity subsector. The Bank-s lending strategy for the energy sector that has emerged from the study referred to in para. 1.25 is to continue its support for the investment program in the electricity and coal sectors during the next few years with a focus on steps to overcome institutional weaknesses and manpower shortages.

E. The Electricity Subsector

1.29 The Electricity subsector is regulated by MME through DGEP. It comprises (i) PLN, (ii) captive plants installed by private parties for their own use, (iii) some small municipal franchises, and (iv) a small number of cooperatives which were set up to provide electricity in certain rural areas remote from PLN supply systems. Legislation was enacted in 1979 to provide for private and cooperative franchise participation in the electricity sector.

1.30 DGEP. Since its inception in 1978 DGEP has been responsible for electricity policy in the country. Until its establishment, PLN had been responsible for giving advice to the Minister on sector policy and for planning and licensing. Legislation enacted in 1979 transferred these responsibilities, particularly in policy planning, licensing of franchises, and general supervision of the sector from PLN to DGEP. - 10 -

1.31 PLN. PLN was first formed in 1961 when three Dutch-owned electricity utility companies were nationalized but its growth as an effective modern organization started around 1972 when its status was changed from that of a department of a ministry to a public corporation and foreign financing became available for its urgently needed rehabilitation of existing systems and for its expansion programs. PLN now has 3.9 million consumers and provides about 70% of the total electricity consumed in the country. It has made impressive progress during the past decade. The improvement is discernible not only in the trend of PLN-s sales growth - an average of about 22% p.a. since 1978, but also in the decline in the growth of captive (oil-consuming) private generating plants, whose total capacity rivalled that of PLN in the mid-1970s (and was growing faster) and is now virtually halted in areas (e.g. Java) where public supply has proved its reliability (para. 1.32).

1.32 Captive Plants. Until the mid-1970s public sector development was severely constrained mainly because of lack of finance. Consequently PLN could not meet the demand for electricity with any reliability. Captive plants therefore grew rapidly. The total capacity of such plants is currently about 2,200 MW compared to about 3,000 MW of PLN. Most of the plants are small diesel installations with a few larger gas turbines. During 1973-76, the average annual growth rate of captive plant was 15 percent (with a peak of 22 percent in 1975). Since then the growth rate has fallen rapidly to an average of about one percent during 1980-1982 (Annex 3). This is a direct consequence of the rapid augmentation of PLN-s system capacity, significant improvements in reliability standards and positive marketing measures. It is PLN-s policy when connecting owners of captive plant to allow such plant to remain in use as reserve until the end of its economic life. Some captive plants will continue to be installed as PLN's investment program is not large enough to meet the entire demand at all locations in the country; but the rate of growth is likely to remain below five percent.

Rural Electrification (RE)

1.33 As explained in para. 2.02, access to electricity supply is still very limited in Indonesia. This is true both of urban areas and more so of rural areas. There are an estimated 60,000 villages, less than 10% of which have electricity. As about 80% of the population live in these villages GOI attaches high priority to RE and it is expected that the Repelita IV (FY85 to FY90) target will be substantially higher than in the preceeding one (4,700 villages). Several Indonesian agencies are presently involved in RE. They are PLN (which carries the bulk of the responsibility), the Director General of Cooperatives, regional agencies and some private parties. Donor countries such as the USA and Holland have made concessionary finance and technical assistance available. The costs of ongoing projects are high and there is little evidence of their profitability. The programs bear the stamp of the experiences of donor countries elsewhere and have been slow in - 11 -

getting off the ground and making the expected impact. The poor institutional base and the absence, so far, of productive uses for electricity, e.g. pumping for irrigation, or village industries, have been the main limiting factors. However there is evidence that a greater number of households than originally expected are connecting up, spending a larger proportion of income on energy. The implications of this require further study. While the Bank has been keeping in close touch with these developments, it has not been actively involved in investments. The main focus is expected to remain on the policy side.

1.34 Any strategy for RE in Indonesia must recognize (a) the very different pattern of population distribution in Java (where habitations are practically contiguous) compared with the other islands where they are dispersed into distinct villages; (b) the state of development of public supply systems, which are the only ones likely to conform to the national energy policy of oil conservation; and (c) the status of institutional development. Java is far better placed for rapid development of RE because of the existence of a main grid (para. 3.06) and ongoing extensions of its main distribution systems. However, RE in Java will be so closely inter- woven with the development of the main electricity system as to be physi- cally indistinguishable. In the other islands, almost all extensions of electricity outside the few main urban centers, at the present stage of development, would fall in the category of rural electrification.

F. Bank Role and Strategy in the Electricity Subsector

1.35 The Bank strategy in the electricity subsector has been to assist PLN in its institutional growth and to support its development program. It has already provided $1,590 million through twelve projects for generation, transmission and distribution and institutional development measures. In view of PLN's impressive progress during the last decade, the size of its investment program and the greater need in the future to influence policy in the entire energy sector, the Bank plans to move towards subsector lending as rapidly as possible. The timing would depend on:

(a) the progress made by GOI and PLN on measures agreed under the eleventh power project (Loan 2056-IND) to prepare short and medium term financing plans for PLN's investment program to provide adequate assurances on availability of funds;

(b) improvements in PLN-s planning capability on the basis of measures agreed in connection with the tenth power project (Loan 1950-IND); - 12 -

(c) improvements in construction management on the basis of studies initiated through the eighth power project (Loan 1708-IND) and measures which will be agreed under the proposed project (paras. 4.43-4.46); and

(d) reorganization of procurement of goods and services agreed under the twelfth power project (Loan 2214-IND).

1.36 The electricity subsector continues to be a major focus of the Bank's lending program in Indonesia. Further power projects have been proposed by PLN and are in course of preparation with the Bank-s assistance. It is expected that the Bank's future lending program would include these projects as appropriate.

II. THE POWER MARKET AND THE DEVELOPMENT PROGRAM

A. Status of Surveys

2.01 Several attempts were made during the 1970s to prepare a meaningful demand forecast for the Indonesian power sector in a difficult situation characterized by very low per capita consumption levels (on the order of 10-14 kWh), haphazard development of captive plants (para. 1.32) and imper- fect records. The most useful of these was the study carried out for Java in 1974-76 by consultants financed by IDA Credit 399 for the third power project. Similar studies have recently been made for the islands of Sulawesi and Bali and other areas in Sumatra. Thus about 90% of PLN's market has been reasonably surveyed. During the negotiations of the tenth power project (Loan 1950-IND) PLN agreed to build up its own expertise to keep these studies updated and to extend them throughout the country. PLN has recently established a new sub-division in the Planning Directorate for power market surveys. The work will be carried out both at the headquarters and the wilayah (regional) levels. PLN has recently built up a data base from billing records. Consultants have been selected to assist PLN in this work. Their services would be financed out of Loan 1950-IND. To improve the quality of PLN-s future surveys, DGEP of MME has undertaken to provide PLN with guidelines on national energy policies and firm data on energy availability, energy usage and pricing policies as these would influence the future demand for electricity. New forecasts are now being compiled. Until they are available surveys carried out earlier by consultants and updated by PLN (para. 2.03) constitute the basis for planning the development of Indonesia's power sector. - 13 -

B. Present Consumption and Access to Service

2.02 The per capita consumption of electricity in Indonesia is very low at about 85 kWh (FY82). This compares with about 800 kWh in Malaysia and about 300 kWh in the Philippines and Thailand. Only about 9.4% of all the households have access to electricity though in electrified urban areas about 40-60% of the households have been connected. The degree of electrification in different regions varies, being about 10% of households in Java, 7.8% in Sumatra, 9.8% in Kalimantan, 10.3% in Sulawesi and about 5.8% in the other islands.

C. Projections of PLN's Sales

2.03 The initial results of the Java study (para. 2.01) suggested that the magnitude of the underlying demand was so large that annual growth rates of public electricity supply would have to be on the order of 30-35% during FY76-85, compared with historic rates of 10-12%. It was recognized, however, that PLN-s sales in Java could not rise quickly to such levels and that, in the short and medium term, the growth of sales would depend on the rate at which PLN could build up its facilities and meet an increasing proportion of the existing demand. In the longer term, PLN sales would reflect more closely the growth of the power market itself. Extensive discussion of these forecasts and their assumptions and methodology took place during the period 1977-79 and eventually agreement was reached between GOI and the Bank on the sales forecasts to be adopted in Java for planning purposes up to 1990. The development program for electric power incorporated in Repelita III is based on these and PLN-s estimates for the other islands. PLN increased its sales during the period 1978 to 1982 by an average of about 22% per year (Annex 4). Its future targets are given in para. 2.04. PLN is now poised to meet them.

2.04 PLN's energy sales targets are summarized below:

Table 2.1: ENERGY SALES TARGETS (GWh)

Fiscal year Java Other islands Total % growth

Actual 82 6,209 1,636 7,845 21.8 83 7,398 2,006 9,409 19.9 84 8,811 2,822 11,633 23.7 85 10,484 3,646 14,130 21.5 86 12,476 5,089 17,565 24.3 87 14,597 6,332 20,929 19.2 88 17,222 7,570 24,792 18.5 89 20,496 9,212 29,708 19.8 90 24,185 10,680 34,865 17.4 - 14 -

D. Connection Program

2.05 As a necessary instrument of meeting its sales targets, PLN agreed with the Bank in 1978 that it would prepare and actively implement a consumer connection program consistent with its improving capabilities. The growth of PLN-s consumers, connected load and sales since 1976 are summarized in Annex 4.

2.06 PLN exceeded its customer connection targets each year from FY78 through FY80, but energy sales grew rather less rapidly. In FY81 energy sales growth overtook that of both connections and connected load, reflecting mainly the diminishing use of captive plant by PLN's industrial consumers. Targets for FY82 have been met; those for FY83 are also expected to be achieved.

2.07 In some of the wilayahs, notably East Java and North Sumatra, the results of PLN's efforts at expediting consumer connections have been striking. For example, in East Java the growth rates in FY79 to FY81 were 30%, 36% and 33% respectively. These growth rates give some indications of the extent to which potential demand exceeds PLN-s near-term sales targets. Of more immediate concern is the fact that growth rates of new connections are ahead of PLN's capacity to provide adequate and reliable supplies. In particular, the gains made so far need to be urgently consolidated, but equal, if not greater, emphasis needs to be given to programs for improving operational reliability and reducing system losses. These needs are being addressed under the twelfth power project, which has allocated $80 million specifically for equipment requirements of a program currently being finalized by consultants, to reduce transmission and distribution losses by 5% by 1986. Special teams have been established at PLN-s Wilayah and headquarter organization and the work is being personally supervised by Director (Operations).

E. Long-term Development Program

2.08 On the basis of its forecast of power sales, PLN prepares annually a long-term development plan to cover the projected requirements of generation, transmission, distribution and other facilities based on least-cost studies. The latest plan finalized in April 1983, covers the 12-year development period from FY83 to FY94. The development plan has been formu- lated specifically to: (a) optimize resource utilization by substituting coal for oil, by greater exploitation of hydro and geothermal resources for power generation and by reducing the use of fuel inefficient installations; (b) realize economies of scale by larger sized installations; (c) achieve operational economy by coordinating the utilization of plants through interconnected operations; and (d) provide acceptable standards of reliability of supply. The plan is acceptable, subject to the observations at para. 2.12. - 15 -

2.09 The generation program is summarized in Table 2.2 below:

Table 2.2: INSTALLED CAPACITY (MW)

Java Other Islands Total Change FY82 FY94 FY82 FY94 FY82 FY94 X

Hydro 489 2,589 59 2,178 548 4,767 +870 Steam Oil/gas fired 1,106 1,656 50 910 1,156 2,566 +222 Coal fired - 7,200 - 695 - 7,895 Total 1,106 8,856 50 1,605 1,156 10,461 +905

Gas turbine 635 400 161 155 796 555 -30 Diesel - - 470 2,329 470 2,329 +495 Geothermal - 1,185 - 85 - 1,270 -

Total 2,230 13,030 740 6,352 2,970 19,382 +652

2.10 The details of the generation expansion program in Java and other islands are given in Annex 5. Coal-fired steam, hydro-electric, and geothermal plants will register the greatest growth in a program which will increase generating capacity about six and one-half times. These sources presently account for only 18.6% of the total generating capacity but will increase their share to over 70% by FY94. Oil accounted for about 80% of PLN's energy generation during FY82. Its share will decline to about 20% in FY94 (See Annex 6). It is thus a vital part of GOI's program of development of non-oil energy sources.

2.11 The corresponding investments are detailed in Annex 7. Excluding the Rural Electrification component, the physical features of this investment program are substantially the same as discussed in connection with the twelfth power project a few months ago. The cost estimates have been updated. The annual investments increase (in constant 1983 prices) from $1.05 billion in 1982/83, to about $2.56 billion at the end of the decade. It is a balanced program and is fully justified. PLN should be able to implement it substantially given the necessary financial resources if it continues to maintain the impressive progress of its institutional growth (para. 3.10). The same confidence cannot be extended to the new RE program recently added to PLN's investment program, both because no supporting data and justification of such a separate distribution component have yet been - 16 -

provided by PLN and because of what has been stated at paras. 1.33 and 1.36 above. Presently it should be taken merely as an indication of the great scope for evential extension of electricity supply to rural areas.

2.12 Thus far, PLN's development plans have not been supported by complementary manpower plans or financing plans. Measures to address these weaknesses in the planning process are described in paras. 3.14 and 5.17-5.18 respectively.

III. THE BENEFICIARY

3.01 The beneficiary of the proposed loan would be PLN, the sole government-owned national power utility in Indonesia.

A. LregalStatus and Responsibility

3.02 PLN was constituted by Presidential Decree No. 18 of 1972 as a public corporation with exclusive responsibility in the country for planning, construction and operation of facilities for generation, transmission and distribution of electricity. In 1979, GOI amended PLN-s charter giving MME the role of policy and planning in the electricity sector. The 1979 regulation also provided for the establishment, under license from MME, of private utilities and cooperatives in the hope of accelerating the pace of expansion of electricity supply. Hiowever,none has been licensed so far.

3.03 Financially, PLN is required to cover all operation and maintenance costs (including depreciation and financing costs) from current revenues and to generate a contribution to the financing of its expansion programs. PLN-s major policies and programs - including its investment plans, budgets and tariffs - are subject to review by a supervisory board, established in 1981 and chaired by the DGEP and ultimately to approval by GOI. PLN is also bound by a number of GOI procedures affecting all public sector enterprises. Of particular importance are those set out in Presidential Decrees 10 and 14A of 1980, relating to the award of procurement contracts and for the award of consultants contracts (para. 4.50).

3.04 PLN participates in the national economic planning process. It is instrumental in implementing the country's energy policy of developing non-oil energy sources. In recent years it has been the lead agency for national surveys and planning for development of hydroelectric power (para. 1.14), and it now plays an active role in utilizing geothermal energy, builds large coal-fired thermal power stations, and participates in national energy studies and research on energy problems. - 17 -

B. Organization

3.05 PLN-s organization chart is at Annex 8. PLN's operations are managed by a board of directors headed by a President-Director who is appointed by the President and is responsible to the Minister of Mines and Energy. The board includes five directors, respectively of planning, construction, operations, finance and administration, who are all responsible to the President-Director. The President-Director is the chief executive empowered to issue directives, supervise and guide the work of directors and managers responsible to him. Responsibility for major construction work devolves from the board as a whole to 14 project managers, and for operations (and minor construction work) from the board to 17 regional (wilayah) managers and the manager of the new all-Java load despatch center. -Also responsible to the Board are three staff departments respectively for power research, education and training, and management services, and an audit unit - the corporation inspectorate.

C. Facilities

3.06 PLN has about 3,000 MIJ of installed generating capacity - 1150 MW of steam (oil-fired), 800 MW of gas turbines, 500 MW of diesel and the balance in hydroelectric installations. It operates about 6,400 km of transmission lines at 70 and 150 kV and about 50,000 km of distribution lines, the bulk of which are in Java. Java now has an interconnected grid at 150 kV. By 1984, a 500 kV system will effectively link West and Central Java; it will be extended to East Java by 1986.

D. Corporate Development

3.07 Over the past ten years PLN has grown impressively from a department of a Ministry, unable to meet even half the country's demand and leaving industries and commercial establishments to install their own captive power plants, to become the largest infrastructure public utility in the country. The first five years (1972-77) was a period during which rehabilitation of distribution systems, crash programs to expand generating capacity (mostly gas-turbines), and establishing proper financial management (the Financial Recovery Program under Credit 399) had precedence. Growth of PLN's sales averaged 12%, whereas captive plants grew at a higher rate about 15-20%.

3.08 During the past four years (1978-1982) PLN has connected new consumers at the rate of about half a million every year, and its sales increased annually by an average of 22%. Access to service increased by about 50%. Performance indicators such as the number of consumers per employee and the energy sold per employee improved. Transmission and distribution losses were reduced by 5%. Standards of reliability of supply were improved. The growth of uneconomic captive plants in the country - 1 -

declined after 1977 and seems to have been virtually eliminated (Annex 3). On the financial side the corporation gained in strength, mainly as a result of increasing sales, and the rate of capital investment almost doubled.

E. Management

3.09 Inevitably, such rates of growth have been attained at the cost of considerable strain on the management system. Areas in which a need for strengthening has been recognized as a condition of maintaining the rate of growth are described elsewhere in this report and summarized below:

(a) planning: the need for a more comprehensive corporate planning process, including manpower and financial plans: paras. 3.14, 5.17-18;

(b) construction: the need to rationalize and clarify responsibilities for, and to improve control of progress and cost of, major projects, including arrangements for procurement: para. 3.23-3.24;

(c) finance: the need to rebuild the accounting system to provide accurate and timely information, and develop the budgeting system into a useful tool of management control: paras. 3.15-3.19; and

(d) manpower development: the need for improved manpower planning and enhanced training facilities, including manager training: paras. 3.14 and 3.20.

3.10 As described in more detail at the references quoted above, in all these areas technical assistance is either already underway or planned, in many cases with support from the Bank. A major consulting assignment is well advanced in the construction area, and others are about to start in accounting/budgteing and manpower development/training; smaller technical assistance inputs have been arranged to address specific weaknesses in most ares of PLN's operations. As the results of these inputs materialize over the course of the next few years, improvements in efficiency can be expected in the management areas affected. To maximize the benefits however, and to sustain the planned rate of growth over the next decade (20% per annum averge in sales, 15% in facilities), PLN could with advantage consider new approaches to its system of general management. The present system is characterized by a high degree of centralization, a preference for consensus decision making, and a practice of communication through strict hierarchial channels. The consequences are a heavy and growing workload on senior managers, over-dependence of regions and projects on decisions from headquarters, and sometimes poor coordination between directorates at the - 19 -

staff level. A management system based on greater delegation of responsibility - both from senior to junior management levels and from headquarters to regions - could yield considerable gains in efficiency and motivation if carried out prudently and under adequate control. The Minister has already initiated a move in this direction by instigating a review of PLN's organization structure and the job descriptions of managers designed to clarify responsibilities and remove anomalies (completed in 1981), and hy encouraging PLN to move towards a management-by-objectives (MB0) system of control between headquarters and regions. To this latter purpose, regional management have received MB0 training, and a system of regional performance targets has been in experimental use for a year or so. The Bank has given, and will continue to give, full support to these initiatives. Nevertheless these measures have so far had a mixed reception and it must be recognized that progress will be slow both because MB0 principles represent a radical departure from established practice, and because there is understandably little experience of large corporation management in Indonesia. Hasty introduction of unfamiliar procedures in these circumstances could be counter-productive.

F. Manpower and Training

3.11 PLN now has a staff of about 32,100, 19,700 of whom are employed in technical and 12,400 in administrative jobs. About 21,000 of these are on the permanent payroll. A manpower study carried out late in 1981 by Electricite de Frace (EdF) confirmed PLN-s own projections of manpower growth over the next decade. By FY86 the labor force will number 42,000 of whom 25,900 would be technical and by FY91 these figures will increase to 54,500 and 33,400 respectively. These estimates constitute a sound basis for planning.

3.12 PLN has had no difficulty in recruiting staff at levels up to technical high school, but the proportion of technical graduates at only 4% of the total, is unusually low for an electricity utility. It needs to be raised considerably, particularly if PLN seriously intends to limit its reliance on foreign consultants. Though it has been sponsoring 30-40 student scholarships annually to meet the need for graduates it has had difficulty in recruiting them. PLN has recently begun recruitment of technical graduates working elsewhere and is retraining them in electricity work.

3.13 PLN has a separate center, known as Pusdiklat, for education and training. Its staff of about 200, including 48 trained instructors, manage various training centers and programs and play an important supporting role. The Bank accorded high priority to training in its earlier lending operations starting in 1973 with the establishment of six training centers. They now train/retrain about 1,300 personnel annually, providing induction training to new technical recruits and financial/administrative training to others. The centers were set up with EdF acting as consultants and have - 20 -

adequately met requirements of existirng smaller installations and systems. As these were due to be replaced by larger thermal power stations, and existing power systems would be overlain by extra-high voltage power systems, special training programs were arranged under various earlier power projects for training thermal power station operators and supervisors. These culminated in the program under the ninth power project (Loan 1872-IND), which provides for an advanced training school (now under construction at Suralaya in West Java for commencement in 1983/84), which includes a fascimile digital training simulator. It will upgrade existing training facilities for thermal station operators at Tanjung Priok. About 300 such personnel have been trained so far and now hold key positions at the 500 MW Muara Karang (West Java) and Gresik (East Java) thermal stations. More are under training in operation of ve-ry large generating units (400 MW) to meet future needs. Additionally, training is being arranged in Canada under the ninth power project in the fields of system protection, design of thermal stations, their special maintenance problems, and in extra-high voltage (500 kV) practice. Under the tenth power project (Loan 1950-IND) on-the-job training is being arranged in the country, with the help of consultants in selected specialisms, e.g., civil works contract administration, power system planning and operation, and power market surveys. These programs have been proceeding reasonably satisfactorily.

3.14 PLN's training program was reviewed in 1982 in the context of overall staffing requirements in the decade ahead. The twelfth power loan (Loan 2214-IND) includes a large training component ($25.0 million) to (a) reorganize and enlarge the entire manpower development, training and personnel management functions for middle and lower level staff by starting five more training centers, improving job-performance evaluation systems and introducing in-house management training and (b) develop by end December 1983 a training/development program for PLN-s senior technical staff. About 30 man-years of expatriate assistance will be involved.

G. Accounting and Budgeting

3.15 PLN prepares its financial statements according to generally accepted accounting principles and normal utility practice. The present accounting system was originally installed in the early 1970s. While this system served the company generally well in the past, it is now in urgent need of redesigning and restructuring.

3.16 Under the present system the local branch offices, besides their main function of providing customer services, also maintain accounts and prepare financial reports; there are about 120 such branch offices scattered all over the country. With the increased complexity and volume of accounting transactions, and extensions of services to new and distant areas, the closing of PLN-s accounts and preparation of consolidated financial statements has been increasingly delayed by cumbersome and timeconsuming inter-office reconciliation procedures. - Z1 -

i.17 As a state company, PLN's budgets are subject to review by a supervisory board and Government's approval (para. 3.03). PLN-s internal procedures for budget preparation and for monitoring actual expenditures are not effective. Coordination among various departmental units and between regional offices is also weak. PLN's management has started reviewing the current procedures and identifying areas for improvement.

3.18 Under the eleventh power project (Loan 2056-IND), funds have been provided for the foreign costs of management consultancy to assist PLN in setting up a more appropriate accounting system and in strengthening procedures for budgetary control. The assignment will address weaknesses of basic accounting and budgeting and the inadequate provision of financial information to management. It will also cover utilization of computer facilities for accounting and financial reporting. The assignment is of 20 months duration. The consultants have just been appointed after a delay of about a year through GOI contractual formalities.

3.19 As an experimental measure to expedite the processing of accounts, PLN is currently planning to prepare consolidated financial statements in some areas at the wilayah level. The results of this consolidation of accounts will be reviewed and evaluated under the financial management consultancy assistance assignment. PLN has also engaged an outside accounting firm to improve its procedures for fixed assets and work in progress, inventory control and project cost accounting (the latter is funded under an ADB loan). PLN has agreed to use these new procedures on the Bank-financed Saguling (Loan 1950-IND) and the proposed Cirata hydroelectric projects as part of its program of improving project management and cost control systems.

3.20 A major constraint to PLN's accounting has been an almost total lack of trained senior accountants. To address this fundamental problem, PLN, with support of the Ministry of Finance (MOF), has made an effort to strengthen its training program and, at the same time, to recruit qualified and experienced accountants to fill more senior posts. A senior accountant has recently been transferred from MOF to PLN as Sub-Director, Accounting; two more accountants have been promised by MOF. In addition to its regular in-house training program for new recruits, PLN is in the process of preparing a crash program of training regional and branch office staff in accounting practices and procedures. PLN is also preparing a program for appropriate overseas training for certain accounting/finance staff in areas of financial projection and planning, tariff setting, etc.

H. Audit

3.21 As prescribed in its charter, PLN's accounts are required to be audited by the Directorate General of State Financial Control of the Government. The Directorate General follows the standards of the International Accounting Standards Committee and the International Auditing - 22 -

Guidelines of the International Federation of Accountants and their audit reports are acceptable to the Bank. But PLN-s audits have been subject to increasing delays due to the problems affecting PLN-s accounting system (para. 3.16). As a result, the submission of audited accounts to the Bank by PLN has been falling behind the required dates by nearly a year. This situation is expected to be corrected after PLN has implemented the measures for accounting improvement. PLN also has an internal audit group reporting to the President Director; this group carries out various special investigations in addition to keeping general accounting matters under review.

I. Insurance

3.22 PLN carries motor vehicle insurance, and transit and marine insurance on equipment and materials in transit. Fire and other hazards are self-insured. In view of the geographical spread of PLN's assets, any single loss would be relatively small by comparison with total assets and operations, and this policy is therefore considered satisfactory.

J. Construction

3.23 The position of the Project Manager within PLN's organizational structure (with direct responsibility to the Board rather than to any Director of the Board), and the job description are entirely consistent with delegation of responsibility and authority for (a) the timely completion of their projects and (b) the financial as well as the physical aspects of the project under their management in accordance with the approved budget. However, the situation in practice is clearly the opposite, with responsibility being dispersed through various directorates at headquarters, and with considerable interference by headquarters staff in day to day operations at different stages. During 1980 and 1981, as PLN took over construction of very large and complex coalfired thermal and hydroelectric power stations, construction work faltered behind tight schedules and rates of disbursement on foreign loans and budgeted rupiah expenditures dropped sharply. A major consulting assignment (PMAS) was commissioned, funded by the Bank under the Eighth Power Project (Loan 1708-IND), to review all t aspects of PLN-s construction management organization and procedures, and recommend and implement measures for improvement. The consultants- prelir- inary recommendations have very recently been presented and are under review by PLN and the Bank. In the interest of efficent implementation of the proposed project, certain specific assurances as to the construction arrangements were obtained from PLN at negotiations; these are described at paras. 4.42-4.48.

K. Procurement

3.24 Efficient procurement of goods and services is essential for PLN to implement its large investment program in time as most construction delays arise from tardy beginnings in this area. It is equally important - 23 -

for PLN to achieve self sufficiency in this regard as early as possible. Starting from total dependence on consultants ten years ago, last year 90% of the work on diesel power plants, 72% on transmission and distribution and 13% of thermal power station work was handled directly by PLN without consultants. But procurement responsibility is fragmented within PLN and not well coordinated with construction. Procurement arrangments are also being reviewed in the PMAS study. It was agreed under the twelfth power project that PLN would (a) prepare an action plan no later than January 1, 1984 to deal with its internal reorganization of procurement to cope adequately with the scope and complexity of the tasks in the decade ahead; and (b) implement this plan promptly thereafter; PLN agreed that the draft of such a plan would be forwarded to the Bank during October 1983 for comments.

L. Performance under Earlier Bank Operations

3.25 The Bank has provided $1,590 million for power generation/ distribution facilities in and around Jakarta and in West and Central Java. Four distribution projects (Credits 165 and 334, and Loans 1259 and 2056) rehabilitated and expanded the distribution facilities in the greater Jakarta area. These early power loans enabled some major institutional training, organizational and financial reforms to be carried out in the electricity subsector, including providing PLN with a new charter giving it some autonomy. Eight power generation projects (Credits 399, and Loans 1127, 1365, 1513, 1708, 1872, 1950 and 2214) in West and Central Java were undertaken to help PLN expand electricity generation capacity in Java and provide a strong all Java 500 kV grid and to introduce a program of micro hydro development in Sumatra. Past loans and credits have also provided funds for various consulting services such as that of SOFRELEC of France (to establish PLN-s original accounting systems), the Java System Development Study undertaken by Preece, Cardew and Rider (PCR) of the UK, and feasibility studies for a number of thermal, hydroelectric, transmission and distribution projects.

3.26 A completion report on the first two projects (Credits 165 and 334) was issued in November 1979. It describes how, after an initial period of difficulty and delay (the two projects were completed some three and a half years behind schedule) many institutional and operational improvements were effected, greater reliability of supply was achieved, and PLN-s sales began to increase rapidly. The completion report on the third and fourth projects was prepared in 1981 and is still under review by OED. Lessons learned from all these operations have been applied to subsequent operations. They relate mainly to timely appointment of consultants, effective supervision, and lending as late as possible in the project cycle. A specific program for financial recovery, designed to improve PLN's management capabilities and to reach financial breakeven, was incorporated in Credit 399 and was accomplished ahead of target during FY76. - 24 -

3.27 PLN-s performance in implementing twelve Bank-assisted power projects was uneven at first. The earliest generation project (Credit 399-IND) covering the first and second 100 MW units at Muara Karang thermal station was completed about two years behind schedule; the next (Loan 1127-IND) for the third 100 MW unit, had a delay of less than one year. The 2 x 200 MW extensions at Muara Karang (Loan 1365-IND) have just been completed, over a year late and are operating satisfactorily. The Semarang project (Loan 1513-IND) is about 18 months behind the appraisal schedule. The two projects at Suralaya (Loans 1708-IND and 1872-IND) are also about a year behind the original program. Physical progress of construction at the Saguling hydropower project (Loan 1950-IND) was poor at start but it has since improved and is now proceeding fairly satisfactorily. Completion of the Saguling dam is expected close to the appraisal target date though the commissioning of the power station may be delayed by a few months mainly due to landslide problems in the power house area. Good progress has been made on procurement under the eleventh power project (Loan 2056-IND) with contracts for about 87% of the loan amount having been approved within six months of effectiveness of the loan. As agreed with the Bank, under the twelfth power project contracts valued at about $40 million for urgently needed equipment, were approved before Board Presentation. The overall record of implementation of agreements reached in connectiion with these power operations has been satisfactory.

3.28 Responding to the slowdown in pace of disbursements on earlier loans during early 1982 a system of joint monitoring of disbursement performance on Bank loans by PLN and the Bank on a monthly basis was established. It identified the causes of slippages and enabled management to take timely remedial steps. It has been working satisfactorily.

4. THE PROJECT

A. Objectives of the Project

4.01 The main objective of the project is to provide complimentary hydroelectric generating capacity needed by the Java system in view of the steady growth of base-load thermal generating capacity from 1984 onwards. The project forms part of a comprehensive least-cost program to meet future demands for electricity by developing domestic non-oil energy sources as far as possible and it will utilize the remaining hydroelectric potential of about 1,426 GWh of the Citarum river in West Java, the third largest river in Java. It will also strengthen PLN-s ongoing institutional development measures, particularly in regard to improved construction management of complex major generation projects and studies for further development of the energy sector (para. 4.33). - 25 -

B. Project Description

4.02 The project comprises construction of:

(a) a 125 m high concrete faced, rockfill dam at Cirata, with a crest length of about 450 m and volume of 3.9 million cu m;

(b) two circular diversion tunnels, 10.0 m diameter, and 800 m long;

(d) a bottom outlet tunnel 610 m long, 5.0 m diameter;

(e) a tower type intake structure with a capacity of 540.0 cu m m/sec;

(f) a water conductor system comprising (i) two 640 m long, circular, 8.4 m diameter, concrete lined headrace tunnels, (ii) two 18.6 m diameter, 80.0 m high surge tanks, (iii) four 200 m long penstock tunnels with inside diameters varying from 5.2 to 4.5 m, lined with mild steel 20-34 mm thick, and (iv) four 155 m long, 6.4 m diameter, tailrace tunnels;

(g) an underground power station, 30 x 50 x 240 m, with an initial installed generating capacity of 500 MW (4 x 125 MW); and

(h) a 500 kV switchyard and a 25 km, 500 kV, transmission line to connect the station to the Java EHV grid at Saguling.

The Cirata power station will generate 1,426 GWh annually on the average, of which about 70% will be firm. Salient features of the project are given at Annex 9.

4.03 Preparatory works cover 25 km of new roads, upgrading of 24.5 km of existing roads, three bridges and two camps at Cirata base and Cilangkap and 70/20 kV lines for construction power. The project also involves relocation of 22.0 km of roads, building of several small bridges for this purpose, resettlement of 10,121 families (about 40,000 people) and miscellaneous environment-related activities. Consultancy services for the Cirata project, and energy sector support (para. 4.33) are included in the scope of the project.

C. Status of Development of the Citarum River

4.04 Three storage dam sites on the Citarum river viz Jatiluhur, Saguling and Cirata (see Map nos. 16802-16750) have been known to be suitable for development for many years. The overall Citarum river - 26 -

development plan is shown schematically in Annex 10. It would enable about 4,400 GWh of energy to be generated annually on the average, irrigate about 300,000 ha of land and provide about 34 m3 /sec of water for municipal uses in and around Jakarta. Jatiluhur (150 MW) was developed in 1964 primarily for irrigation of 244,000 ha, and now provides about 820 GWh annually to the PLN system and about 7 m3 /sec of water supplies to Jakarta. The Saguling power project (700 MW) is currently under construction for operation in 1985 with financial assistance from the Bank's tenth power loan (1950-IND). It will generate 2 156 GWh annually and increase assured water supplies to Jakarta to 14 ms/sec which is considered adequate until about 1995.

D. Status of Investigations and Engineering of the Cirata Project

4.05 The feasibility study of the Cirata site was carried out during 1980-81 with financial assistance from the sixth power loan (1365-IND) by New Japan Consulting Engineers (Newjec) of Japan. The study considered optimum development of the resources of this river for development of irrigation, water supply and hydroelectric generation. It concluded that (a) the Cirata site was suitable for construction of a 120 m high dam, and (b) the normal operating reservoir level (NORL) at Cirata should be +220 m for purposes of conservation of the entire Citarum river flows and optimum energy generation. The DGWRD and POJ concurred with PLN on these conclusions but they explained that some experts had pointed out that possibilities may exist of trans-basin diversion of surplus flows from some rivers in Western Java which could be used in other arid regions of Java. This might require a higher NORL at Cirata at a future date. As this possibility though remote cannot be ruled out at this stage it was decided that during detailed engineering the possibility of an eventual increase in NORL to the extent technically feasible at Cirata would be borne in mind so as not to pre-empt development of storage at one of the few remaining large storage sites in Java.

4.06 Detailed engineering of Cirata project was commenced by Newjec in February 1981, using funds provided for this purpose under the tenth power project (Loan 1950-IND). The basic design was finalized in February 1982. The Board of Consultants (BOC) appointed to review the progress of investigation and engineering of the Cirata project (para. 4.25) opined that geological features at higher reservoir elevations on both the river banks limit the maximum safe reservoir operating level at Cirata to +235 m. Further investigations and designs have since proceeded on the basis of construction of the Cirata dam with an initial NORL of +220 m, but capable of being eventually raised, if necessary, to +235 m. This entails a relatively small initial expenditure of about $5.0 million now and about $40 million (1983 prices) later. Detailed engineering was completed in October 1982. Tender documents for civil and metal works issued to prequalified bidders were opened on February 1, 1983, and for electrical and mechanical works were opened in April 1983. - 27 -

E. Dam Site and Other Features

4.07 The Cirata dam site is located at the base of Pasir (Mt) Cirata, just upstream of the foreshore of Jatiluhur reservoir. Two alternative damr sites, about 2 km apart, were investigated at the feasibility stage. The downstream site was selected because of superior geological conditions and advantages for location of the spillway. At the downstream site, options were available for construction of a concrete-gravity dam, a conventional rockfill dam with an impervious core, and a concrete-faced, homogeneous rockfill dam. During detailed engineering these were evaluated in detail taking into account availability of construction materials and costs. The concrete faced rockfill dam emerged as the most economic.

4.08 Both overground and underground powerhouse sites were explored for location of the power station. An underground site located in sound rock (para. 4.14), about 300 m from the river bank, was chosen on technical and economic considerations. The associated water-conductor system is a short one, totalling just over 1.0 km, including head race, penstock, and tailrace tunnels. The water-conductor system and power station sites have been well investigated with adequate drillings and an adit to the location of the power station.

F. Optimization of Project Features

4.09 The project features subject to optimization studies were the following: (a) the minimum and normal maximum operating levels of the reservoir; (b) the tail water level (TWL); and (c) the power station generating capacity.

4.10 The tail water level of Cirata power station was fixed at +103 m (about 4 m below the NORL at Jatiluhur) considering (a) the duration of high water levels at Jatiluhur ultimately and (b) the length of the waterway. Several alternatives were considered to utilize the remnant head between Saguling TWL (+252 m) and Jatiluhur, including construction of a supplementary lifting dam at Rajamandala (where the average bed level is at +225 m). They included a critical review of Cirata-s NORL in the range of +200 m to +235 m and alternative minimum drawdown (MDD) levels. It was found that the power output was most sensitive to the depth of drawdown of Cirata reservoir. The optimum solution, based both on effective reservoir storage at Cirata and total power output was obtained by construction of a dam at Cirata with a NORL of +220 and MDDL of +205 m, and construction at a later stage of Rajamandala lifting dam and its associated power station of about 100 MW.

4.11 By virtue of its proximity to the main load center of West Java, and the fact that the investment cost per KW installed of incremental generating capacity at Cirata is of the order of $300, the site is well located to provide a major source of economic peaking capacity to the Java grid. Newjec's studies indicate that an ultimate conventional generating - 28 -

capacity of 1,000 MW should be provided, though, consistent with the growth of base load coal-fired thermal station capacity, the appropriate initial generating capacity during FY88 would be 500 MW. Further expansion of peaking capacity would be required commencing 1992 and has been planned as an extension of the first stage works. The conceptual layout of the power station area also provides for an eventual further increase in peaking capacity by the addition of a separate 500 MW pumped-storage station at a later stage. This would merit consideration along with large base-load nuclear power stations in the late nineties. The short transmission line to Saguling (25 km) will have double circuit towers to carry the full planned station output of 1,500 MW. Initially only a single circuit will be strung.

G. Geology

4.12 The foundation rocks at the dam site are breccia, sandstone and mudstone. Breccia, interbedded with sandstone and claystone lamina, is widely distributed over the entire left abuttment of the dam and the lower portion (below +155 m) of the right abuttment. It forms a sound and stable foundation for the concrete-faced rockfill dam. The mudstone at elevations above +155 m on the right abuttment is soft and careful foundation treatment is necessary. No fault of any significance has been found in the river bed or flanks. Over the initial 60% of its length the diversion tunnels pass through breccia, which presents no problems, but the final traverse in soft mudstone would require careful design of the tunnel support system.

4.13 The breccia zone extends over the headrace tunnel and power house areas. Investigations have confirmed that the structural and lithic conditions of the rock are good and that the 8.4 m diameter tunnels could be driven without difficulty.

4.14 The powerhouse cavern will be in the breccia zone. The rock is homogeneous and massive in composition and has few cracks or joints. It is suitable for an underground power station.

4.15 The tailrace tunnel traverses both breccia and mudstone areas. The mudstone here contains montomorillorite which could cause swelling and may require special treatment, e.g., shotcreting immediately after excavation.

H. Seismology

4.16 Seismological studies have been made by Newjec with earthquake data available for the last 57 years. They indicate a low probability of earthquake occurances in or around Cirata. Newjec has used a seismic coefficient of acceleration of 0.15 g for design. This is acceptable. - 29 -

I. Reservoir Area

4.17 There are a number of small landslides in the reservoir area. Their sliding planes are generally shallow in depth and their danger of sliding after reservoir filling is considered very low. There is little concern about leakage of water from the reservoir because it is largely covered with thick lake deposits.

J. Hydrology, Reservoir Operation and Energy Assessment Studies

4.18 The project area has a rainy season from November to April resulting from a western monsoon and a dry season for the rest of the year. The mean annual rainfall is about 2,160 mm. River discharge data are available at the dam site from 1923 onwards with an interruption during 1944-1962. This data was used to establish a long-term (62 years) pattern of flows at the dam site for energy assessment studies.

4.19 There are about 90 rainguage stations in the drainage area dating back to 1919. The available data was ample to compute probable maximum flood flows. Floods with the following return periods were computed to have peak flows as follows:

Return period Peak flow cu m/sec

Probable maximum flood 8,391 Once in 10,000 years 6,360 Once in 1,000 years 4,976 Once in 100 years 3,667 Once in 50 years 3,306

The hydrological data and studies used to support the project are acceptable. The project has been designed for the probable maximum flood of 8,391 cu m/sec. Moderation by the Saguling reservoir and the Cirata storage will limit the outflow to about 2,600 cu m/sec.

4.20 In view of the facts that the Jatiluhur reservoir is located closest to the Tarum Irrigation and Water Supply Systems, and it has the largest effective storage (about 3,000 million cu m), reservoir operation studies have been carried out assuming that this major reservoir would continue to be operated primarily to meet irrigation and water-supply requirements. At POJ request a reservoir minimum level of +75 m was assumed to ensure that the Jatiluhur station is operable throughout the 62 year period. This is higher than the low level irrigation off take level of - 30 -

+48 m and would reduce effective storage to about 2,000 million cu m. The Saguling reservoir is the smallest of the three reservoirs but in view of its high elevation (+645 m) it offers the greatest advantage for power generation. It was therefore assumed that the Saguling reservoir would be operated to maximize power generation whereas Cirata reservoir releases were assumed to be adjustable according to the needs of both irrigation and power. Detailed reservoir operation studies made by Newjec on the above assumptions have shown that the storages available in the Citarum valley and the Cirata reservoir could meet the overall targets of multi-sectoral development in the valley (para. 4.04). These studies have been explained by Newjec and PLN to DGWRD and POJ and their consultants. In view of the large reregulating storage available at Jatilihur no difficulties in operating these three reservoirs in accordance with the above assumptions are expected. The energy assessment of the Cirata project has been based on detailed studies carried out over a 62-year period and the results are acceptable.

K. Sedimentation

4.21 The Institute of Hydraulic Engineering (DPMA) in Bandung has been carrying out measurements of the silt carried by the Citarum river and of river bed loads since 1975. DPMA carried out intensive observations of suspended silt loads at those key points from December 1980. On the basis of analyses of this data Newjec has estimated the erosion rate from the 1,836 sq km between Saguling and Cirata catchment at 2.5 mm/year. The corresponding sediment volume was estimated at 5.7 million cu m per year. The storage in the reservoir below the intake level (+190 m) is 110 times this volume. Newjec has also carried out a study of the likely effect on live storage at Cirata by aggradation at the reservoir entrances, taking topographic characteristics into account. Its conclusion is that sedimentation at the top levels of the reservoir would be small and will not be significant for at least 50 years after construction.

4.22 A supplementary sediment monitoring program has been included under environment-related measures. It would consist of daily monitoring at Palumbong during the wet season. The measuring site will be shifted to the foreshore of the reservoir after construction of the Cirata dam.

L. Construction Materials

4.23 During 1980-82 several field and laboratory investigations were carried out by Newjec under the supervision of the BOC. These have confirmed the availability and suitability of sufficient rock for the construction of the main dam and for aggregate.

4.24 Two quarry sites have been identified for rockfill materials - one very near the dam site for rockfill and the other about 14 km away for andesite required for structural concrete aggregate. The main quarry site, - 31 -

1.0 km upstream of the dam (see Map 16751) and comprising sound breccia, was investigated with 20 drillings of 1,050 m and 4 adits of 240 m. It has been established that it could provide an adequate quantity of good quality rockfill suitable for the dam embankment. The location of the andesite quarry at Aseupan is shown in Map no. 16750. Investigations with 29 drillings totalling 1,300 m here have indicated that the rock, though suitable, is highly weathered and wastage would therefore be heavy. This has been allowed for in the cost estimates and necessary contingencies have been provided (para. 4.37). Basic concrete tests using local cement and aggregates from the andesite quarry site were carried out in Japan.

M. Engineering and Design and the Board of Consultants

4.25 Newjec of Japan is the consulting engineer and is responsible for design and construction supervision of the project. The status of engineering has been explained at paras. 4.05 - 4.06. A Board of Consultants (BOC) has been closely supervising the feasibility and engineering studies since 1980. It comprises Professor G. Sowers (USA), Dr. L. Mueller (Austria), Mr. I. Pinkerton (Australia) and Dr. Tanaka (Japan) and has terms of reference to review the project concept and designs giving due consideration to all aspects involving safety of the structures. The BOC has worked extremely well and because of its association from the start of investigations of this project it has been a major factor in the rapid progress of work achieved. During negotiations, it was agreed that PLN would continue to employ these consultants, including the BOC, under terms and conditions satisfactory to the Bank for the entire construction period (Section 2.08(b) of the draft Project Agreement).

N. Environmental Aspects

4.26 Environmental aspects have been given due consideration from the initiation of the project investigations in 1980. Thanks largely to the pioneering efforts of PLN's ecological group set up for the Saguling project (Loan 1950-IND), which experts have described as representing a quantum jump ahead of such dam or other large development projects elsewhere in Indonesia, issues were identified in time and necessary action taken to ensure that proposals incorporated in the project:

(a) are sound in terms of cost estimates, schedule, and practical considerations;

(b) minimize the risks which could delay construction or cause budget overruns;

(d) are sensitive and responsive to the expectations of families who will be displaced from their homes or otherwise directly affected by the project. - 32 -

4.27 There has been extensive involvementof environmentalspecialists in baseline and impact studies, design review, and implementationplanning. Senior environmentalspecialists and managers from the Institute of Ecology of PadjadjaranUniversity, Bandung, (LE UNPAD) have contributed two man-years of effort to the project supplementedby 18 man-years by junior specialists,technicians and students. Cooperationof project management and provincial and kabupaten leaders has been commendable. The Governor of West Java and the Bhupatis of the three kabupatens viz. Bandung, Cianjur and Purwokarta have supported the project by issuing seven decrees to facilitate land acquisition,resettlement planning and implementation. In January 1983, the Minister for Environment,GOI, cleared the project for construction.

4.28 Compensationand resettlementof persons with houses or other major interests in the reservoir areas is the most serious environmental problem because:

(a) areas surrounding the reservoir are densely populated; 10,121 families have to be dealt with, 6,355 of whom reside in the reservoir area and 3,766 reside above it but own land or work in the reservoir area;

(b) of complex proprietary and inheritancerights and out of date records of land ownership; and

(c) traditions,customs, economic conditions,and perceptions of transmigrationare such that most families prefer to remain in the vicinity of the reservoir and are reluctant to leave Java.

4.29 The following actions have been taken to date to deal with the resettlementproblem, based on the experienceswith the ongoing Saguling hydroelectricproject located in the same vicinity (Loan 1950-IND)where about 9,500 families had to be dealt with:

(a) a two-year,anthropological, socioeconomic, and ecological baseline and impact study (includingcensuses and property inventories)has been completed;

(b) practical alternativesto transmigration(of about 2,000 families) have been developed, scheduled and evaluated for the 6,355 families residing in the reservoir area. These include developmentof aquaculture (for 2,000 families), employment training (for 1,250 families) and simple compensation(for 1,105 families). The employment training option is currently under review by the authorities in view of Bank comments during appraisal that it does not appear to be a meaningful long term resettlementoption. Other alternatives,e.g. employment under nucleus estate small-holders(NES) projects are under consideration; - 33 -

(c) decrees freezing land transactions, creating a Resettlement Coordinating Board, stating resettlement policy, and creating resettlement implementation teams have been issued and are now in effect;

(d) a direct-payment compensation system has been in satisfactory operation for about a year;

(e) a resettlement cost estimate has been prepared on the basis of recent experience in land acquisition, compensation administration, access road construction, and site planning and development;

(f) detailed implementation planning has been initiated; and

(g) an aide memoire listing and scheduling additional resettlement necessities has been prepared and agreed by PLN and the Bank.

4.30 To ensure successful implementation of the measures described in para. 4.29, the following assurances were obtained from GOI during negotiations of the proposed loan that it will continue:

(a) to carry out an environmental/resettlement Plan of Action satisfactory to the Bank;

(b) to monitor closely resettlement and environmental activities; and

(c) to furnish to the Bank quarterly reports on the progress and implementation of the Plan of Action and other aspects related to resettlement and environmental activities (Section 3.06 of the draft Loan Agreement).

4.31 There are no archaelogical sites or artifacts of any significance in the submergence area. Construction of the project is not expected to adversely affect fauna in the valley.

0. Special Equipment Requirements

4.32 Basically all the project works will be done by contract. How- ever, PLN has built up a small construction task force of its own, equipped to repair and maintain roads other than those covered by the main contract, construction camps, etc. Some construction equipment estimated to cost about US$1.2 million, is required for this unit and is therefore included in the scope of the project. - 34 -

P. Energy Sector Support Program

4.33 As PLN-s development program increases in size and complexity and major complex projects, such as Cirata, Saguling (hydroelectric), Suralaya and Paiton (thermal) are being constructed, PLN would require a variety of consultancy services, both to support specialized activities on these projects, for specialized equipment for information processing and for feasibility studies to sustain its future development. These have been identified and detailed in Annex 11. In order to introduce some flexibility that is required in dealing with these and other essential sector support activities, it is proposed that a fund of about US$37.0 million be set apart in the proposed loan for such purposes. During negotiations, it was agreed that GOI and PLN would undertake the studies listed in Annex 11 in accordance with terms of reference satisfactory to the Bank (Section 3.07 of the draft Loan Agreement).

Q. Project Cost Estimates

4.34 The total project cost over the six-year implementation period (1983-1988) is estimated at $625.7 million equivalent of which $346.3 million represents the foreign component. The costs are summarized in the table below and detailed in Annexes 12 and 13.

4.35 The cost estimates of the main civil works to be carried out through contracts under ICB have been prepared by Newjec after first preparing a detailed construction program and then assessing the equipment and manpower required. Their costs were calculated and applied to a bill of quantities estimated from the final designs incorporated in the bidding documents. Other items such as fuel, power, compressed air, lighting etc. were added. Foreign costs cover the following: (a) mobilization and supervision costs; (b) foreign skilled labor; (c) main structural steel materials and principal reinforcement; (d) freight and transportation of equipment and materials; (e) depreciation on equipment; (f) explosives; and (g) indirect foreign costs of certain items, e.g., cement, timber and reinforcing steel bar. Local costs cover: (a) applicable mobilization and supervision costs; (b) local labor; (c) costs of fuel and lubricants; (d) timber; and (e) cement and supplementary reinforcement bars. Where applicable the rates were checked with prevailing costs. The method followed and the resulting estimates are acceptable.

4.36 The costs of penstock steel have been estimated on the basis of designs prepared by Newjec and recent international prices for mild steel. The costs of turbines, generators, transformers and switchgear (all items to be procured through bids inviting suppliers credits) are based on prices relevant to this type of bidding. - 35 -

Table 4.1: SUMMARY OF PROJECT COST

Item Local Foreign Total Local Foreign Total --- ($ millions) ------(Rp billions) ---

Cirata Hydroelectric Project Preliminaries and environment- related work 107.6 17.4 125.0 104.3 16.8 121.1 Civil works 47.5 125.4 172.9 46.1 121.6 167.7 Metal works 1.6 14.2 15.8 1.5 13.7 15.2 Electric and mechanical works 7.4 64.5 71.9 7.1 62.5 69.6 Engineering 5.2 25.9 31.1 5.0 25.1 30.1 Administration 5.5 - 5.5 5.3 - 5.3 Special vehicles 0.1 1.0 1.1 0.1 0.9 1.0 Insurance 0.5 0.8 1.3 0.4 0.8 1.2

Total Base Cost 175.4 249.2 424.6 169.8 241.4 411.2

Contingencies Physical 28.6 36.1 64.7 27.7 35.0 62.7 Price 63.4 36.0 99.4 61.5 34.9 96.4

Total Cost of Cirata Project 267.4 321.3 588.7 259.0 311.3 570.3

Energy Sector Support 12.0 25.0 37.0 11.6 24.2 35.8

Total Project Cost /a 279.4 346.3 625.7 270.6 335.5 606.1

Interest During Construction Bank loan 1.4 72.6 74.0 1.4 70.3 71.7 Others 43.3 25.4 68.7 42.0 24.6 66.6

Front-end fee on Bank loan - 0.7 0.7 - 0.6 0.6

Total Financing Required 324.1 445.0 769.1 314.0 431.0 745.0

/a Project costs are exempted from direct taxes and duties.

R. Contingencies

4.37 Physical contingencies have been provided at the following rates: (a) a preparatory civil works - 15%; (b) main civil works - 12%; (c) metal works and electrical and mechanical equipment - 5%. An additional physical - 36 -

contingency is provided for unforseeable conditions especially expected on this project due to: (a) complications of geology in the Andesite quarry site (para. 4.24); and (b) potential landslides of volcanic breccia and mudstone zones. These have been assessed in rough detail and work out to about 10% of the base cost of the civil works. Base prices are at June 1983 levels. Price contingencies on the local currency portion have been estimated at the following rates: 20% for 1983, 15% for 1984, 11% for 1985, and 7% for 1986 and beyond. Escalation on foreign costs was calculated at the following annual rates: 8.0% for 1983, 7.5% for 1984, 7.0% for 1985 and 6% for 1986 and beyond.

S. Consulting Services

4.38 The cost estimate for engineering covers about 600 man-months for pre-construction stage work and about 2,400 man-months for supervision of construction. The average man-month cost, including basic salary, overhead and fee, international travel, overseas allowance for resident field engineers and subsistence allowances for staff on short field visits, is about US$10,400. In addition, local sub-consultants will contribute about 700 manmonths of work estimated to cost about US$2,600 per man-month. The cost of consulting services for energy sector support is based on a rough estimate of the periods of use, prevailing rates, and contingencies.

T. Financing

4.39 The project would be financed as shown in Table 4.2 below.

Table 4.2: FINANCING PLAN

Source Foreign Local Total …------(US$ million) ------

CDC - 20.0 20.0 Bank /a 279.0 - 279.0 Export credit 68.0 - 68.0 GOI/PLN /b 98.0 304.1 402.1

445.0 324.1 769.1

/a Includes $0.7 million of capitalized front-end fee. 7W Includes estimated IDC on loans/credits.

An amount of about $6.2 million is proposed to be retroactively financed on Newjec's consultancy contract from April 1, 1983. - 37 -

4.40 The CDC loan will cover part of the estimated local cost of the civil works contracts. The Bank loan will cover (a) the estimated foreign costs of the civil works contracts, including the estimated indirect foreign costs, (b) the foreign costs of the metal works, and (c) the total costs of engineering and construction supervision. Export credits will cover the estimated foreign costs of electrical and mechanical equipment. The local costs of the project will be financed partly from PLN's own internal resources, borrowings and partly from contributions from the GOI. These are assured because of the high priority accorded to the project by PLN/GOI.

4.41 As in the past loans, GOI will relend the proceeds of the proposed loan to PLN. The onlending rate will be equivalent to the variable interest rate charged on the Bank loan, plus a quarter percent as the administration charge. Under GOI's present policy the foreign exchange risk will be borne by Government. Signing of the Subsidiary Loan Agreement will be a condition of effectiveness of the proposed Bank loan.

U. Construction Arrangements

4.42 The project will be implemented by PLN with the help of consultants engaged in consultation with the Bank. Newjec of Japan is the engineer so appointed (para. 4.06). Newjec's performance on feasibility studies and detailed engineering of the Cirata project has been favorably commented upon by the BOC. However, Newjec's construction supervision on the Saguling hydroelectric project required close supervision by the Bank during 1981 and 1982 and several discussions with Newjec's top management on measures for improvement which have generally been implemented with improved results. Close supervision by the Bank would continue to be required during the next two years.

4.43 PLN's own organization for construction supervision of the Cirata project has been prepared.taking into account the need for the highest possible quality of staff, the close proximity of the two major hydroelectric projects in West Java (viz Cirata and Saguling), and their overlapping construction periods. The Project Manager for Saguling, who has been quite effective on that project and was also concurrently responsible for supervision of the feasibility study and detailed engineering of the Cirata project, will be in overall charge of construction of both projects as the General Project Manager (GPM). For the work on the Cirata project, the GPM will be assisted by a Project Manager (PM) who was appointed in October 1982 and has assumed full-time responsibilities effective March 1983. This arrangement is satisfactory to the Bank subject to certain specific assurances explained in para. 4.46.

4.44 In the context of paras. 4.42 and 4.43 above, PLN has agreed that it will employ an expert in hydroelectric construction (dams and underground works) on a full-time basis. Hle will assure from PLN's side that (a) major - 38 -

construction problems are adequately foreseen, (b) response to changing conditions due to geological or other factors is as rapid as possible, and (c) there is good communication all around on these problems. The latter, (b) and (c), have been areas of weaknesses on the Saguling project. PLN is currently negotiating for the services of a suitably qualified specialist. His appointment should both reduce construction delays at Cirata to the minimum, and on the institutinal side, train up PLN engineers to shoulder increasing responsibilities on such major projects in future. Employment of this expert in construction of hydroelectric works on terms and conditions satisfactory to the Bank is a condition of the proposed Bank loan (Section 2.02 of the draft Project Agreement).

4.45 For effective management of major civil works contracts of the type involved on Saguling and Cirata projects, PLN now uses the services of an expert, on-call, financed out of Loan 1950-IND. This practice will be continued on the Cirata project and the proposed Bank loan would provide funds for the purpose. During negotiations assurances were obtained from PLN that it will continue to use the services of a civil works contract specialist, on terms and conditions satisfactory to the Bank, for the duration of the Cirata project (Section 2.02 of the draft Project Agreement).

4.46 In view of the scale of the two construction operations at Saguling and Cirata sites, during negotiations PLN agreed that the Project Manager (Cirata) shall be responsible for the implementation plan of the project, the cost estimating and expenditure controls and forecasting and monitoring all disbursement on loans for the project, and making Rupiah payments to contractors with respect to the Project (Section 3.05(a) of the draft Project Agreement). It was agreed during negotiations that PLN shall ensure that the Project Manager (Cirata) is adequately trained for and assisted in carrying out the said responsibilities (Section 3.05(b) of the draft Project Agreement).

4.47 The preparatory works on the project started in April 1982 by local contractors selected on the basis of local bidding. Upgrading of existing roads has been completed. Progress of construction of new roads so far has been adequate to meet the deadlines for providing access and other facilities to the contractors for the main works.

4.48 On the basis of the recommendations at paras. 4.42-4.46 above, it is considered that PLN's construction organization and arrangements proposed are appropriate for the nature of work involved and would enable PLN to complete the project within the short construction period programmed.

V. Implementation Program

4.49 Following established procedures for the Saguling project (Loan 1950-IND) the implementation program has been drawn up to achieve the short- est possible construction period. The main project works have been divided - 39 -

into eight contracts, of which two will cover the civil works, two will deal with metal works (penstock steel and gates), and the balance, the electrical and mechanical equipments and the 500 kV transmission line. A very detailed implementation program has been prepared (Annex 14) and it is summarized in Annex 15. The target is to commence construction of the main civil works on September 1, 1983, divert the river in June 1985 and to start impounding of the reservoir in May 1987. This will enable commissioning of the first two generating sets in November 1987 and the remaining two in April 1988. Detailed procurement milestone schedules have been prepared (Annex 16) as also lists of key dates of construction (Annex 17).

4.50 Crucial to the success of the implementation program of the Cirata project is the timely award of the main civil works contract, no later than June 1983, to enable the main civil works contractor to mobilize and start work on the dam by 1st September. Prequalification of civil works and penstock contractors was carried out from 47 applicants. Bids were invited from the successful contractors on November 1, 1982 and they were received on February 1, 1983. Evaluation of proposals and award of contracts is the next critical step. Under the Saguling hydroelectric project (Loan 1950-IND) delays of a few crucial months in obtaining approval of the GOI's Central Procurement Committee (SEKNEG) led to acceleration payments of several millions of dollars to the chosen contractors, serious construction difficulties due to consequent limitations in an already tight construction program and further alterations in construction plans with cost implications even though the final completion date of the Sagauling dam is still expected to be achieved. During negotiations the progress on the evaluation of bids for the main civil and penstock metal works was reviewed and found to be good. The Bank reiterated its view that PLN submission of its award recommendation to SEKNEG would be essential to maintain the tight construction schedule. The GOI delegation agreed that PLN will closely monitor the progress, take corrective measures required and keep the Bank informed.

W. Procurement

4.51 Works. The construction of major civil works on the dam, water conductor system and underground powerhouse totalling US$249.5 million, including contingencies, and metal works totalling US$20.8 million, including contingencies, would be procured by ICB in accordance with Bank's Guidelines. The balance of the construction to be financed under the project totalling US$45.1 including contingencies consisting of site preparation, road relocation and miscellaneous environment-related works (excluding resettlement/compensation) would be procured through local competitive bidding procedures which were found at appraisal to be satisfactory to the Bank. - 40 -

4.52 Goods. Electrical and mechanical equipment consisting of turbines, generators, transformers, switchgear and transmission lines totalling US$76.9 million including contingencies will be procured under supplier's credits in accordance with GOI regulations. Certain special vehicles required for the project organization totalling $1.2 million including contingencies will be procured by ICB in accordance with Bank guidelines.

4.53 All bidding packages for works and equipment over US$1 million equivalent would be subject to Bank's prior review of procurement documenta- tion resulting in coverage of about 86% of total estimated value of works contracts.

X. Disbursement

4.54 The Bank loan would be disbursed against (a) 71.5% of the total cost of the main civil works,/l (b) 100% of the foreign expenditures of the metal works and equipment; or 100% of the local expenditures (ex-factory) for locally manufactured equipment, (c) insurance - 65% of expenditures, and (d) 100% of expenditures on consultants' services and the services covered under the energy sector support program. In order to assist in project financing during the Special Assistance Program years it has been decided to increase the percentage disbursement under (a) to 90% through November 1985 and to reduce the same thereafter to achieve the overall disbursement percentage.

4.55 The schedule of disbursement of the project is at Annex 18. It is based on the special disbursement provision (para. 4.54) and the experiences to date on the similar Saguling hydroelectric project (Loan 1950-IND of 1980), rather than other regional hydroelectric projects. The latter are considered less satisfactory as a guide to project disbursement in view of the unusually short planned construction period and the fact that the loan application is being processed at a more advanced stage of the project cycle.

Y. Maintenance for Dam Safety

4.56 In order to ensure that the project works are maintained satisfactorily, assurances were obtained that before completion of the project, PLN would prepare a program of periodic inspection and maintenance of the project works which is satisfactory to the Bank, and to implement it throughout the operational period of the project (Sections 2.08(a) and 2.09 of the draft Project Agreement).

Z. Operation

4.57 At present the only operating facility on the Citarum river is Jatiluhur, operated by the Jatiluhur Dam Authority (POJ). Arrangements for coordination between POJ and PLN for irrigation releases and power generation

/I The Bank-s disbursement against the main civil works will be equivalent to about 80% of the balance of the total value of the contracts after $20 W^jgijU- CDC funds have first been fully disbursed against the same - 41 -

are presently satisfactory. With the commissioning of the first generating units at Saguling at the end of 1985 and Cirata at the end of 1987, arrangements will need to be firmly established for the coordinated operation of the three reservoirs for power generation, irrigation, potable water and flood control. The Bank will monitor the setting up of satisfactory arrangements during supervision of this project and the Saguling project.

V. FINANCIAL ANALYSIS

A. General

5.01 In the financial sphere, PLN has advanced considerably from the near chaotic conditions in the late 1960s to reasonably sound operations in the 1980s. The history of PLN can be divided into three stages for the review of its financial performance: (a) the pre-recovery period prior to FY72; (b) the financial recovery period from FY72 to FY76; and (c) the post recovery period from FY76 until the present.

B. The Past Operating Results

(a) The pre-recovery period

5.02 When PLN was formed in 1961, its revenue and expense accounts were incomplete and distorted; accounting was further handicapped by inadequate systems and a severe shortage of trained staff. Government provided all the funds required for PLN's operations. Tariff increases had lagged far behind inflation and PLN could not generate sufficient revenues to cover the high expenses because of rundown facilities and inefficient operations.

5.03 When IDA undertook its first lending operation in the power sector in 1969, no meaningful financial statements could be prepared from PLN's accounts to ascertain its financial situation. Accordingly, Credit 165-IND (1969) provided funds for the services of consultants to assist PLN in setting up an accounting system and an operating budget, and in preparing a balance sheet after proper valuation of assets and classification of the ownership of properties. This was accomplished by 1972 with the completion of revalued FY71 accounts and preliminary FY72 budgets.

(b) The financial recovery period

5.04 With the information available from the consultants work, it became apparent that PLN's financial situation was critical with substantial operating losses being incurred. Operating cash flow including depreciation was barely positive and capital expenditure was at a low level and funded entirely by Government contributions. - 42 -

5.05 When PLN-s status was changed to a public corporation (para. 3.02), its new charter specifically provided that PLN should produce revenues sufficient to cover all operating expenditures, including depreciation, debt service in excess of depreciation, and taxes, and to provide a surplus for financing of further expansion. Its tariffs, however, would be subject to Government's approval.

5.06 Elimination of operating losses became the first priority for this period and an earnings test was devised under Credit 399-IND (1973) which required PLN to achieve full cost coverage from revenues in FY79 with interim targets given for the revenue/cost ratios for intermediate years. A financial recovery plan aimed at strengthening PLN's operation efficiency and improving both costs and revenues was made a specific part of the project; the plan included an extension of consultant services to all managerial aspects and the timely planning and implementation of adequate tariff adjustments by PLN. Under the recovery plan, PLN achieved full cost coverage three years ahead of schedule (in FY76 instead of FY79). But, as the following table indicates, the recovery was attained mainly through increases in the average revenue per kWh totalling 105% between FY72 and FY76; these increases were effected, not by changes in the basic tariff structure, but mainly through the mechanism of surcharges, which was applied only to energy consumption (para. 5.13). This system was instituted in May 1974 and revised upwards in November 1974, April 1975 and April 1976.

5.07 The revenue/cost target of the recovery plan was of a temporary nature. Given the characteristics of PLN's operating systems and the desirability of financing a reasonable share of the increasingly large investment programs by debt and internal cash generation, a new set of financial targets was introduced under the seventh loan (1513-IND, 1978). These targets included a debt service limitation of 1.3 times, a maximum debt:equity ratio of 60:40 and an internal cash contribution of 30% of construction (on a 3-year moving total basis), starting from FY86, with lower interim targets for intermediate years (para. 5.19).

5.08 The progress of PLN's operating results since the recovery has been impressive. Energy sales increased from 2,804 GWh in FY76 to over 9,400 GWh in FY83 and, beginning from FY78, the rate of growth has been exceeding 20% per year. However, tariffs were not increased between FY77 and FY80 and PLN's net income was kept around breakeven point with its cash flow derived mainly from depreciation (assets are revalued every fourth year) and customers contributions. The major source of its funding has been equity capital subscriptions by GOI (para. 5.15). - 43 -

Table 5.1: SUMMARY OF OPERATING RESULTS, FY72-76

FY72 FY73 FY75 FY76 Fiscal years/a A B A B A B A B

1. Energy Sales (GWh) 1900 1893 2280 2175 2680 2444 3050 2804

2. Average revenue per kWh (Rp) 8.6 9.0 9.9 11.1 11.2 16.4 11.2 21.7 - Increase over previous - - 15.1 24.7 13.1 47.7 - 32.3 period (%)

3. Operating revenues/b 17 19 24 24 31 41 35 61 (billion Rp) - Increase over previous - - 41 26 29 71 13 49 period (%)

4. Operating expenses 29 26 33 31 38 43 42 57 (billion Rp) - Increase over previous - - 14 19 15 39 11 33 period (%)

5. Revenue/cost ratio (3/4:%) 59 73 73 77 82 95 83 107

Column A: Target figures based on the Appraisal Report for Credit 399-IND.

Column B: Actual figures based on the Completion Report for Credit 399-IND.

Notes:

/a Fiscal years coincided with the calendar year until 1973. Since 1975 they extended from April 1 through March 31. The year FY74 was not shown in the above table and the actual figures for FY75 did not include the first quarter of calendar 1974.

/b Operating revenues included revenues from electricity sales and other revenues. - 44 -

5.09 Highlightsof operationsfor this post-recoveryperiod are shown below; detailed financial statementsare given in Annex 19.

Table 5.2: SUMMARY OF OPERATING RESULTS, FY76-FY83

FY76 FY77 FY78 FY79 FY80 FY81 FY82/a FY83/b ------(Rp billion)------

Energy Sales (GWh) 2,804 3,082 3,527 4,270 5,340 6,523 7,856 9,404 Av Rev (Rp/kWh) 21.7 27.2 27.4 27.4 27.3 41.4 43.8 57.4

Revenue (Rp Bn) 61 85 94 119 151 279 354 556 Operating Income 4 9 (1) 8 (16) 39 36 65

Net Income (1) 9 (1) 8 (16) 38 /c 35 /c 55/c

Capital Expn. 187 161 258 294 331 449 477 818

Contributionto construction(%) 8.3 13.7 13.2 21.0 20.0 30.4 25.8 21.5 Debt service coverage (times)/d ------11.4 6.0

Debt/equity ratio 2/98 2/98 5/95 7/93 12/88 20/.80 24/76 31/69

/a Subject to audit.

/b Estimated.

/c Before corporatetax (see para. 5.26).

/d Interest during constructionis capitalized. - 45 -

C. Comparative Financial Position

5.10 PLN's estimated balance sheet as of March 31, 1983 is sound. Its present position is summarized below and is compared with FY72 and FY76 which marked the dividing points of the three development stages in PLN's history (para. 5.01):

Table 5.3: COMPARATIVEBALANCE SHEETS, FY72, FY76 AND FY83

Fiscal year ending FY72/a FY76 FY83 March 31 (Rp billion) ------

Assets Fixed assets Net plant in service 105 168 1,329 Plant under construction 34 274 1,755

Total Net Fixed Assets 139 442 3,084

Current assets 24 83 337

Total Assets 163 525 3,421

Liabilities Equity 155 458 2, 093 Long-term debt - 8 949 Current liabilities 8 18 83 Other liabilities /b - 41 296

Total Liabilities 163 525 3,421

Current ratio 3.0 4.6 4.1 Debt/equity ratio 0/100 2/98 31/69

/a Fiscal year ending December 31, 1972.

/b Including consumers contributions. - 46 -

5.11 As shown in Table 5.3, the change in PLN's financialposition over the last decade has been remarkable. Total net fixed assets have increased by more than 20 times since the beginningof the financialrecovery period in FY72. Reflectingthe trend of increasingdebt financing,PLN's debt:equityratio has risen from zero in FY72 to about 30:70 in FY83, leaving PLN a comfortablemargin for future borrowing. The current ratio stands around four times, with inventoryand accounts receivablepositions at acceptablelevels; the high current ratio reflects the liquid position (currentlyabout Rp 100 billion) part of which PLN has built up to cover any need that might occur in project progress as a result of the Government's budget appropriationconstraints./l

D. Tariffs

5.12 PLN's present tariff schedule comprises 17 consumer categories. For all except the smallest domestic class, two-part charges are applied, and for industrialand large commercialconsumers time-of-daypricing is in effect. Provision can be made for surcharges on energy consumptionto cover cost increases. Variation of surcharges requires the Minister'sapproval; alteration of the basic rate, however, requires Presidentialapproval. PLNs latest tariff increase was made in February, 1983 by about 38% over the previous level mainly to pass on the impact of a 67% fuel price increase in January 1983. Like the two preceding tariff increases,it was effected entirely through the energy charge.

5.13 While this practice is adequate from a revenue viewpoint,the failure to adjust the demand charge has severely distorted the tariff structure. The present basic rate schedule was introducedby PLN in May 1980 as a first step to structureits electricitytariffs according to the LRMC pricing principlesas agreed with the Bank under the seventh power project (Loan 1708-IND, 1978). However, some compromiseswere inevitable and were left to be adjusted in subsequentchanges. One of these was a lower charge on peak hour consumptionthan the LRMC in this category. This represents an unjustifiablesubsidy and would encourageunwarranted growth

/1 The project budgeting (DIP) system through which PLN obtains its capital funds from GOI involves approval of expenditureson a project-by-project basis in advance of the beginning of each fiscal year. Under this system, the insertion of new projects and the redeploymentof funds from one project to another, during any fiscal year, while technically permissible,are in practice difficult and time-consuming. PLN's flexibility to deal with unforeseencontingencies and to accommodatediver- gencies between planned and actual project progress, is to this extent constrained. - 47 -

of demand at peak hours. Such tariffs would also depress the rate of return on otherwise economical schemes of expansion such as hydro-electric projects (para. 6.02). During negotiations for the proposed project, agreement was reached with PLN that it:

(a) would complete a study of the structure of LRMC by December 31, 1983, following the lines of the study made in 1979 to meet the covenant under the seventh power project;

(b) would design by March 31, 1984, after consultation with GOI and the Bank, a new tariff structure to better reflect the LRMC of supplies including peak hour characteristics; and

(c) should thereafter implement the appropriate recommendations, and routinely update its analysis of LRMC each year and review the results with GOI and the Bank.

5.14 In April 1983, PLN calculated its average LRMC level at about Rp 114 per kWh in 1983 prices and on the basis of its latest development program. The present average tariff of Rp 75 per kWh is about 65% of the LRMC. In line with agreements reached under Power XII (Loan 2214-IND), it is intended that the average tariff level will approach the LRMC in real terms by FY86; domestic oil prices to PLN are expected to be raised to international levels at the same time.

E. The Financing Policy

5.15 Around FY75, PLN's investment program began to accelerate rapidly from its previous low level. With negligible net income, PLN's only sources of internal funds have been depreciation retentions and customers' connection fees. According to its charter, PLN is authorized to borrow from local and foreign lenders, and to issue its own obligations. In practice, the remainder of PLN's investment program which is not financed from internal cash generation has been. funded exclusively by GOI. Local currency expenditures are customarily reimbursed to PLN in the form of equity contributions. Foreign exchange expenditures have been funded partly as equity and partly by the onlending on terms of finance similar to that secured by GOI from overseas lenders; this latter source of financing has become increasingly important as illustrated in the following paragraph.

5.16 The pattern of PLN's financing of its investment program over the period from FY72 through FY83 can be summarized under two 6-year subperiods as follows: - 48 -

Table 5.4: FINANCING PLANS FOR FY72-77 AND FY78-83

FY72-77 FY78-83 Financing plans Billion Rp % Billion Rp %

Capital expenditures 466 100.0 2,881 100.0

Financed by: Net internal sources 8 1.7 555 19.3 Borrowings 12 2.6 955 33.1 Equity 446 95.7 1,371 47.6

Total 466 100.0 2,881 100.0

5.17 Budgetary constraintsfacing GOI in the near term strongly suggest that it would be difficult for PLN to count on continuing to receive the same level of Government equity contributionas in the past. It would be prudent for PLN to plan its longterm investment program by carefully analyzing its financingrequirements and preparing a feasible financing plan. For this purpose, an agreementwas reached under the eleventh power project (Loan 2056-IND, 1981) to institute financialforecasting as part of the annual planning process for the preparationof a rolling five-year financing plan for review by GOI and the Bank. PLN has been given professionalassistance with this task (para. 5.18).

5.18 In reviewingPLN-s present position and its financialforecasts, it is evident that PLN is currentlywell placed to increase its level of borrowing; its balance sheet is sound; its debt:equityratio is notably low (para. 5.11) and the debt service is currently covered over five times. Given these considerations,PLN should be attractive to lenders both inside and outside Indonesia. Therefore, its near-term objectiveshould be to secure a significantlyhigher degree of leverage in its financing plan by increasing its long-term borrowing from sources includingcommercial banks, supplier credits and possibly even local insurance companiesand pension funds. The possibilityof a limited amount of funding through bond issues can also be considered. To develop these concepts, define a capitalization policy and prepare a financingplan as agreed with the Bank, GOI has assigned its banking advisors (Lazard Freres, S.G. Warburg and Lehman Bros., Kuhn Loeb) to work with the corporation. Their work is expected to be completed in the second half of 1983 and the conclusionswill be reviewed with the Bank. - 49 -

F. Future Financial Performance

5.19 In 1976, PLN adopted cash generation targets /1 as a measure of financial performance. The quantification of the targets has been revised from time to time; the latest agreement (Twelfth Power Project - loan 2214-IND) provides for a rate of 20% to be achieved in FY86. Interim targets are presently set at 10% for FY84 and 85. These targets will be retained under the proposed loan.

5.20 In order to facilitate steady progress towards the pricing objectives (para. 5.14), it is necessary that the cash flow targets be protected so far as possible from the risk of erosion, particularly as a result of possible slippage in the investment program. Accordingly, the current agreement provides that in the event of significant variation (upwards or downwards) of capital expenditures from those on which the above targets were predicated,/2 the target cash generation percentages would be adjusted correspondingly (downwards or upwards). It is also provided that additional costs that might be imposed on PLN in any year as a result of increases in the price of fuel oil above the levels of the base year (1982), should be allowed as a deduction from the cash generation requirement for that year; this provision is designed to avoid the risk of exceeding LRMC when cash generation targets are set on top of cost recovery.

5.21 The necessity to build in adjustments such as those described above is an indication that the cash generation targets are less appropriate to PLN's circumstances now than they were five years ago. Adoption of a rate-of-return formulation for PLN's objective would have a number of advantages including in particular the following:

(a) it is very little affected by non-operating revenues, which have made an important contribution to PLN's cash flow in the past, and so bears more directly on the level of prices and the efficiency of operations;

(b) the value of assets in use can usually be established with certainty at the beginning of each year, and so the rate base for tariff setting is less susceptible to error; and

(c) it is neutral as to the disposal of net cash flow, and so it does not highlight self-financing rather than any other financing policy.

/I The percentage of capital expenditures for the target year plus the two preceding years covered by its net revenue plus depreciation retentions less debt service for the same three years.

/2 These are set out in the side letter dated October 22, 1982, under Loan 2214-IND. - 50 -

PLN itself endorses this view; but GOI has indicated that it does not wish to initiate any change until they have received the report of their financial advisers on PLN's financial structure and policies (para. 5.18). /1

5.22 Beginning from FY86, PLN is expected to benefit from declining unit costs by 1 to 2% per year in real terms. The contributing factors include the expected impact of the loss reduction program (para. 2.07); increased efficiency of operation as a result of the completion of the EHV grid in Java, expected savings in fuel cost from diversified sources of production, and improved economy of scale in the main systems. Currently, PLN is also considering plans to implement measures to reduce other operating expenditures. PLN's latest financial projections show that, with adjustments for fuel cost increase (para. 5.20), the targets for the self-financing ratio can be comfortably met in FY84 at the present average tariff level. The target for FY86 will require the average tariff to be raised to the current equivalent of LRMC in FY86 and be maintained in real terms thereafter. In terms of operating income, PLN is expected to improve its rate of return (on fully revalued net fixed assets in service) from around 3% in FY84 to about 17% in FY86 after LRMC tariff adjustment, and should maintain the annual rate of return not less than 12% thereafter./I Forecast financial statements for the period FY84 through FY89 are given at Annex 20.

5.23 Existing covenants binding PLN to a maximum debt:equity ratio of 60:40 and a minimum 1.3 times coverage of future maximum debt service out of current revenue are changed under the proposed loan. The new covenant requires a minimum of 1.5 times coverage of future debt service each year out of the forecast internal funds for that year (Section 4.03 of the draft Project Agreement). This change reflects the growing recognition that the new covenant would suffice for PLN's prudent debt management and, at the same time, make allowance for the added earning power to be expected from an investment being financed by borrowed funds. For the new covenant, debt shall be deemed to incur when the agreement providing for such debt or guarantee is signed. This new definition of the timing of debt incurrence gives the debt limitation covenant a more practical application for PLN, especially as PLN is expected to rely more on external borrowing to finance its large investment program over a long period. The financial projections assume international borrowing at 2% above LIBOR on l9-year maturities (including four years' grace), and domestic borrowing at 13.5% over 12-year maturities (including four years grace). These assumptions are probably fairly severe, considering that certain concessionary financing is likely to be available to PLN for some years; nevertheless, debt service remains covered at least three times at a debt:equity ratio approaching 50:50. These projections are satisfactory.

/1 The study by GOI's banking advisors on PLN-s future financing policy will also review alternative monitoring indicators for PLN's financial performance including a rate of return criterion (paras. 5.18, 5.21, 5.22). The Bank will pursue this topic in the context of possible future lending operations. - 51 -

5.24 The recommended financing policy will substantially reduce the equity funding expected from GOI and initiate a declining trend; annual requirements could be expected to average around Rp 540 billion during the proposed project period. Pressure on the GOI budget would be still further reduced by the elimination of fuel oil subsidies to PLN, which would have reached a level of around Rp 900 billion in constant 1983 prices (or Rp 150 billion per year) for the period FY84-89.

5.25 PLN's financing plan for the period of project construction would appear as follows: Table 5.5: FINANCING PLAN FOR FY84-89

By FY84-89 Financing plan Rp billion %

Capital Expenditure 18,706 100.0

Financed by:

Net internal sources 4,826 25.8 Borrowings 10,660 57.0 Equity 3,220 17.2

Total 18,706 100.0

By comparison with the financing plan for the past twelve years set out in para. 5.16, the future plan shows the following main changes:

(a) the proportion of debt financing has risen from less than 3% of the FY72-77 program to 33% of the FY78-83 program, and is projected to reach 57% of the FY84-89 program;

(b) the proportion of equity required from GOI has fallen from over 95% to 47% and finally to about 17% of the programs for the corresponding three periods; and

(c) the self-financing percentage increased from less than 2% of the FY72-77 program to about 19% of the FY78-83 program and is projected to increase to about 26% of the FY84-89 program, after charging Rp 1,191 billion for debt service, which was negligible in prior years. - 52 -

G. Corporate Income Tax

5.26 In accordance with prevailing tax legislation, PLN's profit is subject to corporate income tax. Since FY81 PLN has begun to earn profit; but, as an investment incentive, which is also being applied to some revenue earning corporations in Indonesia, PLN has been exempted the income tax payment. PLN's financial projections do not assume an income tax liability and the self-financing ratios are computed on this basis.

VI. JUSTIFICATION AND RISKS

A. Growth of Demand and Need for the Project

6.01 The forecast of electricity demand and the growth of supply in Java from FY82 to FY94 is shown in Annex 5. Even though these sales targets were set some time ago, before the onset of the present recession, it is felt that the latter is likely to affect them - if at all- only temporarily, and that sales growth would soon resume the trend indicated in the forecasts. It is also believed that for the period of the forecast, sales are likely to be relatively price-inelastic, so that sales growth will continue even when the tariff is raised to the level of LRMC. Grounds for, this belief are given by PLN's maintenance of a steady rate of sales growth of over 20% through the last four years despite two substantial tariff increases; by the present relatively low utilization of electric power in Indonesia by comparison with neighboring countries (para. 2.02); and by the virtual cessation of growth of competitive private and captive generating capacity (paras. 1.31-1.32). Based on projects now under construction, the available generating capacity would not be adequate to reliably meet the anticipated demand during FY89. The corresponding firm energy supply of 21,000 GWh would also be well short of the required 25,000 GWh during FY89. It is therefore necessary to plan to augment generating capacity by about 650 MW during FY88; the proposed project would provide 250 MW in FY88 and a further 250 MW in FY89.

B. Least Cost Solution

6.02 The Java System Development Study for the period up to 1995 carried out in 1976 by PCR with Bank assistance (Credit 399-IND) established the least cost sequence of expansion of generating capacity for discount rates up to 15%. It recommended the highest priority for development of Java's remaining hydroelectric potential, emphasizing their role in meeting peak capacity requirements wherever technically feasible. Newjec's feasibility study of the Cirata project which was completed in 1981 further confirmed the above conclusions for a range of discount rates from 6-20%, based on prevailing international fuel prices and comparisons with available alternatives in Java viz. thermal power stations and gas turbine - 53 -

installations. The Cirata hydroelectric project which can be commissioned in 1987 is therefore the next step in the least cost sequence of expansion of power supply in Java.

C. Economic Rate of Return

6.03 The economic rate of return (ERR) is the discount rate which equalizes present values of the streams of economic costs and benefits attributable to the project. The costs include all the direct costs of construction of the project and those required to deal with rehabilitation and environmental measures. Extensions of the transmission and the distribution systems required have also been allowed for in the cost estimates.

6.04 The cost and benefit streams are provided in Annex 21. The ERR is 14%. Benefits have been assessed at the prevailing average tariff level for the first two years of operation and thereafter at the peak-hour tariff, as appropriate to the intended use of the plant. Benefits assessed in this way, however, ignore consumer surpluses. Finally, the project would provide additional power benefits in the next stages as also downstream benefits of improved water supplies, both of which have not been evaluated.

6.05 The ERR of the project would be reduced to about 12.3% if there is a delay in construction of 6 months and a cost increase of 10%. The thorough investigations carried out, ample physical and price contingencies and adequate rates for base cost estimates, and assurances by PLN and GOI authorities and expeditious action on contract approvals make it unlikely that such an increase in cost would actually occur on this project.

D. Risks

6.06 The risks associated with the proposed project are, first, the uncertainties inherent in most hydroelectric projects, such as hydrological complexities, geological problems and similar matters. The long period of observations of river flows at the dam site (para. 4.18), the thorough and competent preparatory work undertaken by PLN and consultants and the precautions taken in establishing the BOC from the start of feasibility stage investigations (para. 4.25) have reduced these risks. The appointment of an expert in construction of dams and underground power stations by PLN (para. 4.44) further reduces the possibility of delays in execution of a tight construction program. A further risk is delay to the project as a result of scarcity of counterpart local currency funding resulting from the present recession. Tariff action by PLN to increase its self-financing ratio (para. 5.19) will reduce its dependence on GOI budgetary funding. - 54 -

VII. AGREEMENTS REACHED AND RECOMMENDATIONS

7.01 Specific agreements reached during negotiations for the proposed loan are:

(a) from PLN that it will:

(i) continue to retain consultants, including the Board of Consultants, for the entire construction period of the project under terms and conditions satisfactory to the Bank (para. 4.25);

(ii) continue to retain an expert in construction of hydroelectric works on terms and conditions satisfactory to the Bank (para. 4.44);

(iii) continue, for the duration of the Cirata project, to use the services of a civil works contract specialist on terms and conditions satisfactory to the Bank (para. 4.45);

(iv) ensure that the project manager at Cirata is adequately trained and assisted; and is responsible for the implementation plan of the project, the cost estimating, and all expenditures control, forecasting and monitoring all disbursements on loans for the project, and making rupiah payments to contractors with respect to the project (para. 4.46);

(v) before completion of the project, prepare a program of periodic inspection and maintenance of the project works which is satisfactory to the Bank, and implement it throughout the operational period of the project (para. 4.56);

(vi) complete a study of the structure of LRMC by December 31, 1983, and design a new tariff structure after consultation with GOI and the Bank by March 31, 1984, to better reflect the LRMC of supplies, including peak hour characteristics (para. 5.13); and

(vii) thereafter implement the appropriate recommendations and routinely update its analysis of LRMC each year and review the results with GOI and the Bank (para. 5.13).

(b) from GOI that it will continue to carry out an environmental/ resettlement Plan of Action satisfactory to the Bank; to monitor closely resettlement and environmental activities; and to furnish to the Bank quarterly reports on the progress and implementation - 55 -

of the Plan of Action and other aspects related to the resettlementand environmentalactivities (para. 4.30).

7.02 Conditionsof effectivenessfor the proposed loan would be:

(a) fulfillmentby GOI of all conditions of effectivenessfor the CDC loan; and

(b) Signature by GOI and PLN of a subsidiary loan agreement on terms and conditions satisfactoryto the Bank.

7.03 Subject to satisfactoryagreement being reached on the above matters, the project is suitable for a loan of $279.0 million (including capitalized front-end fee) for a period of 20 years including 5 years of grace, at the standard variable interest rate. - 56 - ANNEX I

INDONESIA

PERUSAHAAN UMUM LISTRIK NEGARA

THIRTEENTH POWER PROJECT

Energy Consumption by Source (in Million Barrels of Oil Equivalent)

Calender Natural gas year Oil & coal LPG Coal Hydroelectric Total

1971 47.500 5.956 0.833 2.870 57.159 1972 54.500 3.655 0.802 2.579 61.536 1973 63.500 6.130 0.634 3.133 73.397 1974 72.400 4.507 0.794 3.641 81.342 1975 81.300 6.658 0.816 3.954 92.728 1976 91.600 7.736 0.656 3.633 103.625 1977 107.700 11.534 0.780 3.793 123.807 1978 127.300 21.348 0.707 5.175 154.453 1979 139.100 25.729 0.746 5.733 171.308 1980 149.400 30.283 0.951 5.552 186.186 1981 156.300 37.168 0.824 4.808 199.100 INDONESIA THIRTEENTH POWER PROJECT ORGANIZATION CHART OF THE MINISTRY OF MINES AND ENERGY

r~~~~~~~~~~~~~Mnse - f Mie an Enr

Sertre Genera Insperrr Onenrealen

ofofinesl of 01 z i | o Fofer 01 ofof of of Of i~ ~ ~~~~~~~~~~~~~~~~~~~~~~fMaera-Cnta OAffair-an Elnosiciy and Gas Planning PersonelFinance Onrigo Coon Legel ffairs GeneralPero-ni ls~c & ogsisDevelopm-t Prlet Ovlenmen Pro,e-ts

of~ M. of to.__o

Direotorefe~ ~Generni~ ~~ ~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~ ~~~~~~~~~~~~~~~~~~10_,, , of~ ~~ ~ ~ ~ ~ ~ ~ ~~~~~o ie Resional~Th ~earmn~ ~ ~f le-ndEt~ ~ ~ ~ ~ ~Offce - oF

of Envirn- Oese r.s -. 1Oftd ofechnoo DirectortM-.dof e -I

State Er tstpriser IfegiocalMines andOffices Feergyld of The Depainmeot of B. k 2198 *~~~~~~~~~~~~~~~~PT-h T-b1 - 58 -

ANNEX 3

INDONESIA

PERUSAHAANUMUM LISTRIK NEGARA

THIRTEENTH POWER PROJECT

Growth of Captive Power in Indonesia

Not Connected connected Percent to PLN to PLN Total increase Year (MVA) (MVA) (MVA) (%)

1975 622.7 1,447.6 2,070.3 18.0

1976 688.4 1,598.8 2,287.2 10.4

1977 731.5 1,670.0 2,401.5 5.0

1978 807.1 1,767.1 2,574.2 7.0

1979 848.8 1,860.9 2,709.7 5.0

1980 872.2 1,911.5 2,783.7 3.0

1981 878.3 1,930.6 2,808.9 0.9

1982 879.7 1,933.9 2,813.6 0.2 - 59 - ANNEX 4

INDONESIA

PERUSAHAAN UMUM LISTRIK NEGARA

THIRTEENTH POWER PROJECT

Growth of PLN's Consumers and Sales

Fiscal Number of Connected Sales year consumers load MVA in GWh

76 1,140,745 1,426.4 2,804 (5%) (13.0%) (14.7%)

77 1,208,538 1,594.5 3,082 (5.8%) (11.8%) (10.1%)

78 1,413,068 1,933.5 3,527 (16.9%) (21.3%) (14.6%)

79 1,784,001 2,448.5 4,270 (26.2%) (26.6%) (21.6%)

80 2,246,657 3,063.4 5,343 (25.9%) (25.1%) (24.6%)

81 2,591,067 3,588.0 6,440 (15.3%) (17.1%) (20.5%)

82 3,232,075 4,502.9 7,845 (24.7%) (25.5%) (21.8%) - 60 -

ANNEX 5 Page 1 of 2

INDONESIA

PERUSAHAAN I'MU LISTRIK NEGARA

THIRTEENTH POWER PROJECT

Growth of Demand, Installed Capacity and Energy Production in Java

1981 1982 1983 1984 1985 1986 1987 1988 1989 1I9O l991 1902 19q3 /82 /83 /84 /85 /86 /87 /88 /s9 /90 /91 /92 /93 /94

Sales increase (GWh) 6,209 7,398 8,811 10,484 12,476 14,597 17,222 20,496 24,185 28,540 33,301 3Q,067 49,319 Increase (%) - 19 19 19 19 17 18 19 18 1l 17 17 16 Losses, T&D (GWh) 1,406 1,624 1,805 1,997 2,212 2,184 2,573 3,063 3,614 4,265 4,989 5,838 6,77? (%) (4) 18 18 17 16 15 13 13 13 13 13 13 13 13 Sent out energy (GWh) 7,615 9,022 10,616 12,418 14,678 16,778 19,795 23,559 27,799 32,808 38, 380 44,915 52, ll Station use (GWh) 316 429 488 487 899 1,020 1 ,125 1, 688 2 ,127 2.567 3,0ns 3 747 4, 356 Gross generation (GWh) (1) 7,931 9,451 11,104 12,968 15, 577 17,798 20,920 25, 247 29 ,926 15,372 41,388 4, 652 56, 447 System peak (MW) 1,324 1,587 1,864 2,177 2,615 2,988 3,512 4,238 5,024 5,938 , 948 0,167 1,476

System load factor (9) 68 68 68 6 6 R 686 68 68 68 6 68 68 6R

Installed Capacity (MW) Hydro Basis 482 482 482 482 482 482 482 482 482 4P2 487 402 4R2 Mini hydro 7 7 7 7 7 7 7 7 7 7 7 7 7 Garung #1-2 - 28 28 28 28 28 28 2P 28 2R 28 ?7 2R Wadaslintang I& 2 ------16 16 16 16 1 16 16 Saguling #1-4 - - - - 350 700 700 700 700 700 7nn 7no 7n0 Mrica #1-3 ------In 180 18n I18 I8 10r Maung ------100 190 Wonogiri - - 13 13 13 13 13 13 13 13 13 15 13

Lodoyo - - 5 5 5 5 5 5 5 5 5 5 5 Sengguruh ------29 29 29 29 79 7q 29 Kesamben ------33 33 13 13 33 33 Curug - - - - - 6 6 6 6 6 6 6 6 Cirata - - - - - 250 5on 500 5on 7 50 75n 75n Jatigede ------150 150 150

Total 489 517 535 535 885 1,241 1,536 1,999 1,999 1,999 2,3q9 2,589 2,589

Steam Basis 1,106 1,106 1,106 1,106 1,106 1,106 1,106 1,106 1,106 1,106 1,106 1,106 1,056 MuaraKarang #5 - 200 200 200 200 200 200 2o0 20n 200 200 2n7 ?00 Semarang #3 - - 200 200 200 200 200 20n 200 200 200 200 200 Gresik#3 - - - 200 200 200 200 200 200 200 2n0 2n0

Total 1,106 1,306 1,506 1,506 1,706 1,706 1,706 1,706 1,706 1,706 1,706 1,7n6 1,656

Steam Coal Suralaya #>1-6 - - - - 800 800 1,600 1,600 7,20n 2,780 2,80n 2,Ron 2,Rno East Java #I-5 (Paiton) ------400 8on 8on 1,400 2,00n ?,600 Central Java #1-3 ------600 1,20n 1,80n

Total - - - - 800 800 1,600 2,00n 3,000 3,600 4,800 6,0no 7,20n

Geotlhermal Kamojang#1-3 - 30 30 30 140 140 140 140 140 140 14n 14n 140 Salak #1-4 ------110 220 220 220 220 220 Drajat#1-3 ------110 110 110 165 169 16 Dieng #1-4 ------o10 220 330 440 440 Cisolok #1-2 ------110 110 11 1 10 110 Banten ------110 110 1 10 110 110

Total - 30 30 30 140 140 140 360 800 qlO 1,075 1,185 1 ,I85

Gas turbine 635 635 695 680 680 680 680 680 680 575 548 50n 40n

Total (MW) 2,230 2,488 2,766 2,751 4,211 4,567 5,662 6,745 8,185 8,790 In,528 i1,98n 13,030 -61-

ANNEX 5 Page 2 of 2

INDONESIA

PERUSAHAAN UMUM LISTRIK NEGARA

THIRTEENTH POWER PROJECT

Growth of Demand, Installed Capacity and Energy Production outside Java

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 /82 /83 /84 /85 /86 /87 /88 /89 /90 /91 /92 /93 /94

Sales increase (GWh) 1,636 2,006 2,822 3,646 5,089 6,332 7,570 9,212 10,680 12,418 14,183 16,126 18,329 Increase (X) - 23 41 29 40 24 20 22 16 16 14 14 14 Losses, T&D (GWh) 489 502 662 800 1,242 1,206 1,336 1,500 1,596 1,856 2,119 2,410 2,73a (%) 23 20 19 18 17 16 15 14 13 13 13 13 13 Sent out energy (GWh) 2,125 2,508 3,484 4,446 6,131 7,538 8,906 10,712 12,276 14,274 16,302 18,536 21,068 Station use (GWh) 82 112 120 149 181 234 361 509 736 768 888 1,007 1,129 Gross generation (GWh) 2,207 2,620 3,604 4,595 6,312 7,772 9,267 11,221 13,012 15,042 17,190 19,543 22,197 System peak (MW) 450 544 722 904 1,221 1,479 1,763 2,100 2,435 2,769 3,165 3,598 4,087 System load factor (%) 56 55 57 58 59 60 60 61 61 62 62 62 62 Installed Capacity (MW) Hydro Basis 55 55 55 55 55 55 55 55 55 55 55 55 55 Mini hydro 4 6 6 6 7 7 7 7 7 7 7 7 7 Mini hydro power XII - - - - 6 6 6 6 6 6 6 6 6 Peusangan ------50 50 Asahan I #1-2 ------180 180 180 180 180 Asahan III #1-4 ------150 300 300 300 Renon ------90 Maninjau #1-4 - - 68 68 68 68 68 68 68 68 68 68 68 Singkarak #1-4 ------240 240 240 240 Koto Panjang ------111 111 Ill Ill III Tes I - - - 16 16 16 16 16 16 16 16 Tes II ------17 17 17 Tes III ------20 20 Batutegi #1-2 ------24 24 24 24 24 Sumber Jaya ------20 20 20 Ranau ------81 81 81 RomeringI ------114 114 114 Padng Bindu ------79 79 Bulu ------93 pade Kembayung #1-4 ------30 30 30 30 Rian Kiwa #1-2 ------42 42 42 42 42 Tanggari #1-4 - - - - - 17 17 17 32 32 32 32 32 Poigor I ------8 8 8 Poigor II ------15 15 Poigor ITI ------19 Sawangan ------18 18 Bakuru #1-4 - - - - - 126 126 189 252 252 252 252 252 Kuri-Kuri ------83 83 83 Jenebrang ------11 11 11 Paleleng II ------72 Sentoni ------13 13 13 26 26 26 Total 59 61 129 129 135 278 294 370 806 1,226 1,773 1,904 2,178 Steam Basis 50 50 50 50 50 50 50 50 50 50 50 50 50 Bando Aceh #1-4 ------50 50 50 Lhok Seumawe #1-2 ------50 50 Belgwan #1-5 - - - 130 130 130 260 260 260 260 260 260 360 Jambi #1-2 ------50 50 50 50 Pontianak #1-4 ------50 100 150 150 150 Balikpapan #1-2 ------100 100 100 100 100 Banjarmasin #1-2 ------100 100 100 10O Total 50 50 50 180 180 180 310 310 460 660 760 810 910 Steam Coal Ombilin #1-4 ------100 200 200 200 200 200 200 Bukit Asam #1-3 - - - - - 130 130 130 195 195 195 195 195 Tarahan #1-3 ------50 100 100 150 150 150 Loo Kulu 4I-3 ------50 100 150 150 150 Total - - - - - 130 230 380 545 645 695 695 695 Geothermal Lahendong #1-2 ------30 30 30 30 30 30 Bali - - 55 55 55 55 Total _ - - - _ - - 30 30 85 85 85 85 Diesel Basis 470 470 454 449 443 440 439 436 425 423 419 417 412 AP - - - 320 627 627 627 627 627 627 . 627 627 627 Committed

PERUSAHAANUMUM LISTRIK NEGARA

THIRTEENTH POWER PROJECT

Energy Production, by Category, and Fuel Consumption

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 /82 /83 /84 /85 /86 /87 /88 /89 /90 /91 /92 /93 /94

Hydroelectric (GWh) 2,504 2,154 2,391 2,709 3,044 5,531 6,459 8,386 10,766 13,207 14,955 16,591 18,006

Geothermal (GWh) - 77 184 184 437 858 858 1,713 3,737 5,753 6,596 7,439 7,776

Diesel (GWh) 1,423 1,616 2,026 2,654 4,071 3,730 4,432 5,276 3,670 3,004 2,700 3,465 4,392 HSD/IDO (10,000 ton) 427 485 608 796 1,221 1,119 1,330 1,583 1,101 901 810 1,040 1,318

Gas turbine (GWh) 998 1,428 2,566 2,776 2,296 1,158 1,023 1,224 547 369 408 633 1,087 HSD/IDO (10,000 ton) 469 671 1,206 1,305 1,079 544 481 575 257 173 192 298 511

Steam oil (GWh) 5,213 6,796 7,541 9,240 8,625 8,998 9,101 8,805 8,351 8,019 8,851 8,882 9,223 MFD (10,000 ton) 1,564 2,039 2,262 2,772 2,588 2,699 2,730 2,642 2,505 2,406 2,655 2,665 2,767

Steam coal (GWh) - - - - 3,416 5,295 8,314 11,064 15,868 20,063 25,068 31,184 38,159 Coal req. (10,000 ton) - - - - 1,708 2,648 4,157 5,532 7,934 10,032 12,534 15,592 19,080

Total Production (GWh) 10,138 12,071 14,708 17,563 21,889 25,570 30,187 36,468 42,939 50,415 58,578 68,194 78,643

0' INDONESIA

PERUSAHAANUMUM LISTRIK NEGARA

THIRTEENTH POWER PROJECT

PLN's Investment Program (1982/83-1993/94) (In constant 1983 US$ million)

Fiscal year 1982/83 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94

Generation Fx 425 649 809 1,025 1,128 1,193 1,298 1,329 1,319 1,354 1,499 1,619 Lc 228 332 337 377 436 480 524 544 558 534 531 572

Transmission Fx 52 111 115 74 53 49 72 147 63 10 6 2 Lc 53 87 82 53 47 42 74 84 30 9 5 1

Substations Fx 26 53 54 33 20 26 31 39 22 17 6 1 Lc 15 25 20 10 8 11 15 13 8 6 2 0

Distribution Fx 186 220 261 292 326 363 400 423 453 475 508 380 Lc 44 52 62 69 78 86 95 101 108 113 121 94

Rural Elec- Fx ------trification Lc 36 139 177 198 229 252 252 259 311 296 343 403

Other Invest. Fx ------(Facilities) Lc 21 33 38 43 47 50 55 59 57 56 60 61

Capital Cost Fx 689 1,034 1,240 1,425 1,528 1,631 1,802 1,938 1,856 1,856 2,020 2,001 Lc 398 668 716 751 844 920 1,015 1,058 1,073 1,014 1,063 1,132 z z Total Capital x Cost 1,087 1X702 1,955 2,176 2,372 2,551 2,816 2,996 2,929 2,871 3,082 3,133

Note: Figures may not add due to rounding. Source: PLN Directorate of Planning. -64 - ANNEX 8

INDONESIA THIRTEENTH POWER PROJECT Organization Chart of PLN

PLN Regiona I J Special Area of Aceh

The Board of Directors PLN Region II Corporatoof North Sumatra |

ICorpecoratao PLN Region II West Sumatra and Riaa Directorate of _ _ Directorate of Planning Administration PLN Region IV South Sumatra, Lampang, Jambi and Banghulu _ Directorate of _ Directorate of

Main Project PLN Region V Generation and Transmission North Sumatra Wsaaint

Main Project l PLN Region VI Generation and Transmission r~ _ South, Central and West Sumatra l East Kalimantan

Main Project PLN Region VIl Generation and Transmission South Sumatra, Lampung North and Central Jambi and Bengkulu Sulawesi

Main ProjectPLReinVI Hydropower and Transmission Woah dPLNRS EonV laI South and South-East Sulawesi

Main Project Transmi ssion ion IX Fast Java Maluk ' ~~ ~ ~ t ; ~~~~~CentralI . Main Project Compuser PLN Region X Thermal Power N ion X East Javanay

Main Project PLN Region Xl Transmission Bali, West and East Central Java NasaTenggara

t P tbtion

CentralJava East ~~~~~~~~~~~~~~~~~~~~~Java

Main Project PLN Distribution Hydra Power Central Java Central Java

Main Project PNDsrbto Transmission PVestJan WestilJa ina and Jakarta Raya tjv

Main Project PLN Distribution Thermal Power Jakarta Raya and rnmisol est Java aastWestJava West Java and Jakarta Raye Tangerang

Main Project . PLN Generation

Hydra Power EsenJu

Main Project E PowerLEucation and EHV Transmission Traiing Center Generation and LDC WesTernJana

MainProject e J Load Handl Supporting Center Dsaten Wacilities

World Bank-221 19 ANNEX 9 - 65 - Page 1

INDONESIA PERUSAHAAN UMUMLISTRIK NEGARA THIRTEENTH POWER PROJECT

Salient Features of the Project (CIRATA Hydroelectric Project - Stage 1)

Main Features Installed capacity ...... 500 MW /a Maximum discharge ...... 540 cu l sec (Stage 1) Maximum effective head ...... 112.5 m Average effective head ...... 107.5 m Reservoir and Hydrology Catchment area ...... 4,119 sq km Reservoir area ...... 62.0 sq km Maximum flood water level(MWL) ...... 223.0 m Normal maximum operating level (MWOL) ...... 220.0 m Average water level ...... 215.0 m Minimum operating level (MOL) ...... 205.0 m Total volume (Gross storage) ...... 2,165 x 106 cu m (up to +223.0 m) Flood surcharge capacity (between +220 & +223) .... 192 x 106 cu m Live storage (between +220 cu m and +205 m) ...... 796 x 106 cu m Dead storage (below +205 m) ...... 1,177 x 106 cu m Mean annual runoff (1920-1981)...... 174.0 cu m/sec Probable maximum flood discharge (PMF) ...... 8,400 cu m/sec Probable maximum flood discharge after saguling .. 5,900 cu m/sec Observed maximum flood ...... 2,100 cu m/sec (Dec. 1980) Energy Assessment Normal water level for Design (NWLD) ...... + 215.0 m Tailrace water level (TWL)...... + 103.0 Gross' head (maximum) ...... + 117 m Gross head (minimum) ...... + 102 m Firm discharge ...... 140 cu m/sec Average discharge ...... 174 cu m/sec Firm annual energy generation ...... 1005 Gwh Average annual energy generation ...... 1426 GWrh Structures Dam Dam type ...... Concrete-faced rockfill dam Dam height ...... + 125 m Crest length ...... 453 m Crest elevation ...... + 225.0 m Volume of dam ...... 3,900,000 cu m Excavation for the dam ...... 834,000 cu m

/a Will be increased to 1,000 MW in stage II, and 1,500 MW ultimately. ANNEX 9 - 66 - Page 2

Spillway Type ...... Two inclined tunnels about 85 m long, connected to the diversion tunnels Maximum capacity ...... 2,600 cu m/sec (with 3 gates in operation) Size ...... 25 m diameter reducing to 10 m Gates ...... Four radial gates, 8.6 m (width) x 15.5 m (height) Diversion Tunnels Type ...... Two, circular, concrete-lined, 10 m diameter Length ...... 800 and 840 m

Bottom outlet ...... A separate concrete lined, 610 m with a long tunnel, 5.0 m diameter, Howel Bunger cone valve (100 cu m/sec capacity) and a butterfly guard valve on the left bank.

Waterconductor System Intake ...... Two side intake structures, with 40 m gate shafts Headrace ...... Two concrete-lined pressure tunnels, 8.4 m diameter, 640 m long Tailrace ...... Four concrete-lined tunnels, 6.4 m diameter, about 155 m long Surge tank ...... Two restricted orifice type, 18.6 m diameter x 80 mn high

Penstock Tunnels and Steel Lining Type ...... Four, circular steel-lined, pressure shafts, 202 m, 5.2 m diameter reducing to 4.5 m at turbine inlet Steel ...... 3,000 tons of mild steel, thickness varying from 20.0 mm to 34.0 mm, embeded Powerhouse in the pressure shaft.

Type ...... Egg shaped, underground Cavern dimensions ...... 240.0 m (long), 30.0 m (Maximum width), 50.0 m (height)

Electro Mechanical Works Generating unit size ...... 125 MW Number ...... 4 Type ...... Francis Main transformers ...... Two, three phase, 280 MVA, outdoor type on the left bank Switch yard (500 kV) ...... Outdoor type; 174 m (L); 136.0 m (W) located on the right bank Transmission system (500 kV) .A 25 km, single circuit line strung on double-circuit towers, frcomCirata to Saguling -67-

INDONESIA PERUSAHAANUMUM LISTRIK NEGARA THIRTEENTH POWERPROJECT CitarumRiver Development Plan

2 Catchment Area - 2,283 km 3 Average Yield - 80.2 m /sec/yr. MWL 645 m

| NWL 643 m SAGULING RESERVOIR 2 Dependable - Area 48.7 km r 3 Discharge52 m3/sec . LTotal Storage881 X 106 m 3 < g c Effective Storage609 X 106m i LWL623 m_ CD c-- Operation to Maximize DependableDischarge I Im 2 TWL 252 m Catchment Area (Intermediate) - 1,836 km 2 3 I 4 2,283 km Average Yield - 93.8 m /sec/yr. SAGULING POWER STATION _ 2 m VLJ ~~~~~~~~MWL 223 m Installed Capacity 700/1,400 MW Maximum Discharge 224/448 m3/s NWL 220 m Nett Head(Av.) 362 m -- - CIRATA RESERVOIR 2 Average Annual Energy 2,156 GWh I r E Area 62.0 km I-i- _ ~ FTotalStorage1,973 X 106 m3 3 Dependable IB I LWL 205 m , Effective Storage 796 X 106 m 3 Discharge140 m /s ' I °- Operation to Maximize 0 o l Dependablera) - _ Discharge

2 u (n t 4,119 km2 Catchment Area (intermediate) -488 km 3 |w |I E > 9Average Yield - 19.0 m /sec/yr.

PTWL 103 m MWL 111.5 m

1 t1 107/ mNWL _ _ JATILUHUR RESERVOIR CIRATA POWERSTATION A 8 Installed Capacity 500/1,500 MW E E r Area 81.2kmm 6 3 MaximumDischarge ~~~~(forPower) 0) LTotalStorage3,000 X 10 m 3 Nett4Head0(Av.)1,6207.5m 3 ns L WL 75 m _ L Effective Storage2,050 X 106 m Nett Head (Av.) 107.5 m LL5 Average Annual Energy 1,426GWh Operation to Supply Irrigation and Other DependableDischarge Water Requirements 3 (PresentStatus) 30.7 m /s Irrigation Intake Level 48 m 2 Total Catchment Area -4,607 km 3 JATILUHUR POWER STATION TWL 32 m Average Yield -5,922 X 103 m /yr.

InstalledInstalled CaaiyCapacity~ ~ ~ 10Mp150 MW IrrigationPresent Requirements Status Maximum Discharge 240 m3/s 260,000 ha Nett Head(Av.) 73 m EastTarum 260[0Ws Ta Average Annual Energy 820GWh 96,000 ha 84,000 ha + 14 m3/sec North Tarum for Water Supply to Jakarta 80,000 ha

Rajamandalahydroelectric site between SagulingPower Station and Cirata Reservoiris not shown here as it does not have any effective storage. World Bank-24463 - 68 - ANNEX 11

INDONESIA

PERUSAHAAN UMUM LISTRIK NEGARA

THIRTEENTH POWER PROJECT

Energy Sector Support Program

Foreign Local exchange costs Total Item ----- (US$ million) ----

(a) Board of Consultants for Cirata 0.9 0.1 1.0 (b) Expert on construction of dams and underground power stations 0.5 0.1 0.6 (c) Expert on designs and. construction of major thermal power stations 0.5 0.1 0.6 (d) Feasibility study of a new coal-fired thermal station site, to meet demands of West-Central Java beyond 1992 2.0 0.5 2.5 (e) Feasibility studies of 6 hydroschemes. Pre-feasibility studies of 20 hydroschemes including installation of gauges 10.5 7.8 18.3 (f) Computer and software for construction and finance management 0.5 0.1 0.6 (g) Paiton coal-fired thermal station. Engineering for Units I & II (Stage II) 5.4 2.5 7.9 (h) Salak Geothermal station. Engineering design for Unit I,II,III and IV 3.5 0.5 4.0 (i) Feasibility studies for transmission and distribution schemes 0.7 0.2 0.9 (j) Financial advisory services, and other activities to be identified later 0.5 0.1 0.6

Total 25.0 12.0 37.0 - 69 - ANNEX 12 Page 1

INDONESIA

PERUSAHAANUMUM LISTRIK NEGARA

THIRTEENTH POWER PROJECT

Project Cost Estimate (US$ thousands) (Contingencies included separately)

Local Foreign Total

Cirata Hydro-Electric Project Preliminaries & Environment-related Work Site preparation 5,433 5,884 11,317 Road relocation 5,101 5,686 10,787 Miscellaneous (Environment) 4,279 5,865 10,144 Resettlement/compensation 92,776 - 92,776 Subtotal 107,589 17,435 125,024 Civil Works Dam and spillway 23,280 61,168 84,448 Water conductor system and powerhouse 24,264 64,225 88,489 Subtotal 47,544 125,393 172,937 Metal Works Gates, screens and valves 770 10,762 11,532 Penstock 856 3,392 4,248 Subtotal 1,626 14,154 15,780 Electrical/Mechanical Works Turbines and auxiliaries 1,477 18,068 19,545 Generators and auxiliaries 2,636 28,522 31,158 Transformers/switchgear 885 13,073 13,958 Transmission lines 2,423 4,806 7,229 Subtotal 7,421 64,469 71,890 Engineering 5,212 25,929 31,141 Administration 5,435 - 5,435 Special Vehicles 60 1,021 1,081 Insurance 456 847 1,303 Total Base Cost 175,343 249,248 424,591 Contingencies Physical 28,575 36,173 64,748 Price 63,410 35,980 99,390 Subtotal 91,985 72,153 164,138 Total Cost of Cirata Hydroelectric Project 267,328 321,401 588,729 Energy Sector Support 12,000 25,000 37,000 Total Project Cost 279,328 346,401 625,729 - 70 - ANNEX 12 Page 2

(Contingencies included under each item)

Local Foreign Total

Cirata Hydro-Electric Project Preliminaries & Environment-related Work Site preparation 5,518 5,974 11,492 Road relocation 8,713 8,630 14,343 Miscellaneous (Environment) 7,530 8,776 16,326 Resettlement/compensation 142,565 - 142,565

Subtotal 164,326 23,400 187,726

Civil Works Dam and spillway 36,336 84,915 121,251 Water conductor system 37,745 90,517 128,262

Subtotal 74,081 175,432 249,513

Metal Works Gates, screens and valves 1,307 13,988 15,295 Penstock 1,370 4,176 5,546

Subtotal 2,677 18,164 20,841

Electrical/Mechanical Works Turbines and auxiliaries 1,698 18,971 20,669 Generators and auxiliaries 3,031 29,948 32,979 Transformers/switchgear 1,018 13,727 14,745 Transmission lines 3,049 5,427 8,476

Subtotal 8,796 68,073 76,869

Engineering 8,016 34,076 42,092 Administration 8,739 - 8,739 Special Vehicles 85 1,128 1,213 Insurance 608 1,128 1,736

Total Cost of Cirata Project 267,328 321,401 588,729

Energy Sector Support 12,000 25,000 37,000

Total Project Cost 279,328 346,401 625,729 INDONESTA

PERUSAHAAN UMUM LISTRIK NEGARA

THIRTEENTH POWER PROJECT

Annual Expenditures on the Cirata Project (US$ 000)

1982/83 1983/84 1984/85 1985/86 1986/87 1987/88 1988/89 Total Foreign Local Foreign Local Foreign Local Foreign Local Foreign Local Foreign Local Foreign Local Foreign Local

Site preparation 4,097 3,784 1,877 1,734 ------5,974 5,518 Road relocation - - 554 559 1,833 1,851 2,027 2,046 2,229 2,250 1,987 2,008 - - 8,630 8,714 Environmental - - 1,074 874 1,301 1,089 1,161 952 2,812 2,481 2,395 2,085 53 49 8,796 7,530 Resettlement/ compensation - - - 20,204 - 33,425 - 41,437 - 44,420 - 1,940 - 1,139 - 142,565 Dam/spillway - - 23,251 5,528 17,426 7,488 18,252 7,646 14,549 7,521 7,191 6,336 4,246 1,817 84,915 36,336 Water conductor system - - 21,458 6,204 16,039 8,284 16,881 7,414 15,462 6,762 11,020 5,041 9,657 4,040 90,517 37,745 Gates/screens/ values - - 2,368 100 - - 1,861 189 6,631 649 2,319 246 809 78 13,988 1,307 Penstock - - 339 - - - 2,471 407 793 473 330 404 243 86 4,176 1,370 Generators - - 3,794 339 1,918 - 5,754 - 5,275 - 1,281 1,274 949 85 18,971 1,698 Turbines - - 5,989 606 ------22,462 2,273 1,497 152 29,948 3,031 Transformers/ switchgear - - 2,746 203 - - - - 5,648 - 4,647 764 686 51 13,727 1,018 Transmission lines - - 1,390 820 - - 367 1,555 2,999 328 419 207 252 139 5,427 3,049 Engineeringn - - 3,764 515 10,587 1,703 6,585 1,883 6,975 2,070 6,165 1,845 - - 34,076 8,016 Administration - - - 561 - 1,856 - 2,052 - 2,257 - 2,013 - 8,739 Special vehicles - - 1,128 - - 85 - - - - - 1,128 85 Insurance - - 1,128 608 ------1,128 608

Total 4,097 3,784 70,860 38,855 49,104 55,781 55,359 65,581 63,373 69,256 60,216 26,436 18,392 7,636 321,401 267,329

INDONESIA PERUSAHAAN UMUM LISTRIK NEGARA THIRTEEN lH POWER PROJECT Implem.ntatib Program

1986 1987 1988 Y_a 1982 983 1941985 2 e 2 4 IWe Dr = | Dr2ae e r 1 T 7-3 4 4re 1Ia 2r

.a SITE PREPASATIOS

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INDONESIA PERIJSAHAAN UMUM LISTRIK NEOARA THIRTEENTH POWVERPROJECT ImPl-erotatiom rga

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INDONESIA PERUSAHAAN UMUM LISTRIK NEGARA THIRTEENTH POWER PROJECT Summary Construction Schedule of the Cirata Project

Ad :~~~~~~~~~~~~~~~~4 2 3 4 1 |2 3NDS 3 4 _ 2 3 4 _

_ ~~ ~ ~ ~ ~~ ~ ~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~Tjrc.. te No_.1 Tu iGt

Symbols 5Q Enqineer's Instruction to Commence Works V Interface between Lots

Commencementa of Works (fdasite) Key dates World Bank--24383 ANNEX 16 - 75 - Page 1

INDONESIA

PERUSAHAANUMUM LISTRIK NEGARA

THIRTEENTH POWER PROJECT

Procurement Milestone Schedule for Main Civil Works

Dam/ spillway Waterway/ powerhouse

Issue for bid 11/01/82 11/01/82

Bid opening 02/01/83 02/01/83

Latest date for completion of evaluation (NEWJEC) 03/31/83 03/31/83

Latest date of GOI (SEKNEG) approval 05/31/83 05/31/83

Latest date for IBRD approval 07/01/83 07/01/83

Latest date of issue of letter of intent to negotiate 07/10/83 07/10/83

Latest date of issue of letter.of accep- tance and engineer's instruction to commence works 08/07/83 08/07/83

Latest date for opening letter of credit 09/01/83 09/01/83

Complete mobilization and begin construction 10/01/83 10/01/83

Latest date to complete construction 10/31/87 03/31/88 - 76 - ANNEX 16 Page 2

ProcurementMilestone Schedule for Metal Works

Gates and screens Penstock metal

Issue for bid 03/01/83 11/01/82

Bid opening 06/01/83 02/01/83

Latest date evaluation complete (NEWJEC) 08/31/83 03/31/83

Latest date of GOI (SEKNEG) approval 10/30/83 05/31/83

Latest date of IBRD approval 12/01/83 07/01/83

Latest date of issue of letter of intent to negotiate 01/10/84 07/10/83

Latest date contract award 02/10/84 08/07/83

Date letter of credit opened

Starting date begin shipment (FOB) 06/01/85 12/01/84

Complete shipment (at site) 11/01/87 07/01/87

Complete mobilizationand begin construction 11/01/85 05/01/85

Latest date to complete construction 01/31/88 12/31/87 77 ANNEX 16 Page 3

Procurement Milestone Schedule for Electromechanical Works

Transmis- Transformer sion line Turbines Generators switchgear

Issue of bids 12/01/82 12/01/82 12/01/82 12/01/82

Bid opening 04/09/83 04/02/83 04/02/83 04/02/83

Latest date to complete evaluation (PLN, NEWJEC) 07/01/83 07/01/83 07/01/83 07/01/83

Latest date of GOI (SEKNEG) approval 08/01/83 08/01/83 08/01/83 08/01/83

Latest date of issue of letter of intent to negotiate 09/01/83 09/01/83 09/01/83 09/01/83

Latest date of contract award 10/01/83 10/01/83 10/01/83 10/01/83

Starting date of shipments (FOB) 01/01/86 02/01/85 01/01/86 01/01/86

Complete shipment (at site) 04/30/86 05/01/86 07/01/86 04/30/86

Begin installation 03/01/86 11/01/85 01/01/86 01/01/87

Latest date of completion of installation Nos. 1, 2 09/01/87 09/01/87 09/01/87 09/01/87 Nos. 3, 4 03/01/88 03/01/88 03/01/88 03/01/88

Initial operation of plant Nos. 1, 2 09/01/87 09/01/87 09/01/87 09/01/87 Nos. 3, 4 03/01/88 03/01/88 03/01/88 03/01/88

Commercial operation Nos. 1, 2 11/01/87 11/01/87 11/01/87 11/01/87 Nos. 3, 4 N/A 04/30/88 04/30/88 N/A - 78 - ANNEX 17 Page 1

INDONESIA

PERUSAHAANUMUM LISTRIK NEGARA

THIRTEENTH POWER PROJECT

List of Key Dates for Construction

Dam and Spillway

Date

Commence works (Lots I and II contractor) 10/01/83

Supply of concrete aggregate by Lot I to Lot II contractor 03/01/84

Access from Cilankap Bridge to intake 05/01/85

Spillway gate installation 07/01/86

Bottom outlet valve installation 09/01/86

Impounding, dam to E1+221 m, spillway intake completion, and bottom outlet completion 05/01/87

Dam/spillway completion 11/01/87 - 79 - ANNEX 17 Page 2

Waterway/Powerhouse

Date

For swiichingequipment installationat Saguling Switchyard 01/01/85

For headrace inspectionadit access 04/01/85

For penstock metal installation 04/01/85

For Nos. 1 and 2 draft tube installation 10/15/85 For Nos. 3 and 4 draft tube installation 04/01/86

For trailraceoutlet gate installation 01/01/86

For gantry crane installation 01/01/86

For Nos. 1 and 2 casing installation 04/01/86 For Nos. 3 and 4 casing installation 10/01/86

For intake gate installation 07/01/86

For Nos. 1 and 2 generator installation 10/01/86 For Nos. 3 and 4 generator installation 04/01/87

For main transformerinstallation 01/01/87

For switching equipmentinstallation at Cirata Switchyard 01/01/87

For impounding 05/01/87

For No. 1 headrace inspectiongate installation 08/01/87 For No. 2 headrace inspectiongate installation 02/01/88

Complete waterway for units nos. 1 and 2 09/01/87 Complete waterway for units nos. 3 and 4 03/01/88

Waterway/powerhousecompletion 04/30/88 - 80 - ANNEX 17 Page 3

Metal Works

Date

Gates/ Screens/Valves

Completion of bottom outlet valves 05/01/87

Completion of spillway intake gates 05/01/87

Completion of intake gates and screens 05/01/87

Completion of tailrace outlet gates 09/01/87

No. 1 headrace inspection gate completion 09/01/87

No. 2 headrace inspection gate completion 03/01/88

Penstock Metal

Nos. 1 and 2 penstock completion 09/01/87

Nos. 3 and 4 penstock completion 03/01/88 - 81 - ANNEX 18

INDONESIA

PERUSAHAAN UMUM LISTRIK NEGARA

THIRTEENTH POWER PROJECT

Disbursement Schedule

Hank fiscal year & Disbursement ($ million) Percent disbursement semester Semester Cumulative Project /a

1984 I 8.8 8.8 3.1 II 30.2 39.0 13.9

1985 T 25.0 64.0 22.9 II 30.0 94.0 33.7

1986 I 40.0 134.0 48.0 II 42.0 176.0 63.0

1987 I 32.0 208.0 74.5 II 25.0 233.0 83.5

1988 I 21.0 254.0 91.0 II 7.0 261.0 93.5

1989 I 18.0 279.0 100.0

/a Comparisons with regional/IBRD profiles have not been made in view of the unusual nature of the disbursement provisions (para. 4.54). - 82 - ANNEX 19 Page 1

INDONESIA

PERUSAHAANUMUM LISTRIK NEGARA (PLN)

PAST FINANCIAL RESULTS

Income Statements (Rupiah, Billions)

Fiscal year ending March 31 1978 1979 1980 1981 198 2/a 1983 /b

Sales increase (%) 14.4 21.1 25.5 22.2 20.8 19.9 Energy sales (GWh) 3,527 4,270 5,340 6,523 7,845 9,404 Average price (Rp/kWh) 27.4 27.4 27.3 41.4 43.8 57.4

Energy revenue 97 117 146 271 344 540 Other operating revenue 1 1 - - 1 1 Other net income -4 1 5 7 9 15

Total Revenues 94 119 151 278 354 556

Operating Expenses Fuel/bulk power 28 31 52 99 129 257 Operations 44 51 66 86 122 154 Depreciation 23 29 49 55 67 80

Total Expenses 95 111 167 240 318 491

Operating Income -1 8 -16 38 36 65

Gross interest 1 4 12 12 28 44 Less: interest during construction 1 4 12 12 27 34 Interest charged to operations - - - - 1 10

Net Income /c -1 8 -16 38 35 55

Rate base 189 254 417/d 568 720 934 Rate of return (x) -0.5 3.1 -3.8 6.7 5.0 7.0

/a Subject to Audit. T_ PLN estimates. /c Before taxes (see para. 5.26). /d Revalued Assets. - 83 - ANNEX 19 Page 2

INDONESIA

PERUSAHAANUMUM LISTRIK NEGARA (PLN)

PAST FINANCIAL RESULTS

Funds Flow Statements (Rupiah, Billions)

Fiscal year ending March 31 1978 1979 1980 1981 198 2/a 1983/b

Internal Sources of Funds Operating income -1 8 -16 29 36 65 Depreciation and other noncash charges to income 28 30 50 57 67 80 Consumers contribution 26 37 43 50 36 52

Total Internal Funds 53 75 77 136 139 197

Operational Requirements Variation working capital 8 10 10 2 6 55 Debt repayment 1 8 14 Interest charged to operations 1 10

Total Operational Requirement 9 10 10 2 15 79

Total Capital Investment 258 294 331 447 477 818

Balance to be financed 214 229 264 313 353 700

Financed by Borrowings 31 37 109 206 182 396 Equity 197 198 176 173 215 228

Total Capital Sources 228 235 285 379 397 624

Cash Increase/Decrease 14 6 21 66 44 -76

Contribution to construction: 3 year average (%) 13.2 21.0 20.0 30.4 25.8 21.6

/a Subject to audit.

/b PLN estimates. - 84 - ANNEX 19 Page 3

INDONESIA

PERUSAHAAN UMUI LISTRIK NEGARA (PLN)

PAST FINANCIAL RESULTS

Balance Sheets (Rupiah, Billions)

Fiscal year ending March 31 1978 1979 1980 1981 1982 /a 1983 /b

Assets Fixed Assets Plant in service 391 556 741/c 921 1,257 1,586 Less: Accummulated Depreciation 106 136 50 108 177 257 Net plant in service 285 420 691 813 1,080 1,329 Work in progress 531 660 857 1,124 1,266 1,755

Total Net Fixed Assets 816 1,080 1,548 1,937 2,346 3,084

Current Assets Cash 43 49 70 136 179 103 Inventories 40 50 58 79 96 84 Receivables 24 34 34 63 89 126 Other current assets 36 34 26 24 24 24

Total Current Assets 143 167 188 302 388 337

Total Assets 959 1,247 1,736 2,239 2,734 3,421

Equity and Liabilities Capital and reserves 814 1,013 1,354 1,527 1,742 1,980 Retained earnings 02 5 -10 39 68 123

Total Equity 812 1,018 1,344 1,566 1,810 2,103

Long term debt 42 78 188 397 567 939 Current liabilities 24 32 42 67 113 83 Other liabilities /d 81 119 162 209 244 296

Total Equity and Liabilities 959 1,247 1,736 2,239 2,734 3,421

Debt % of debt + equity 4.9 7.3 12.2 19.9 23.9 30.9 Current ratio /e 5.9 4.1 4.5 4.5 3.4 4.1

/a Subject to Audit. /b PLN estimates. /c After Revaluation. 7X Including consumers contributions. /e Current liabilities do not include current maturities of long-term debt. INDONESIA PERUSAHAAN UMUM LiSTRIK NEGARA FINANCIAL FORECASTS 1984 - 1989 INCOME S'IA-TEMENt RUPIAH, Bli-ll{ONS)

1984 1985 1986 1987 198S 1989 SALES INCREASE X 23.70 21.46 24.31 19.15 18.46 19.83 ENERGY SALES(GWH) 11633 14130 17565 20929 24792 29708 AVE PRICE/KWH 74.7013 97.1691 142,8978 142.8640 145.2081 162.0102 ENERGY REVENUE 869 1373 2510 2990 3600 4813 OTHER OP REV 2 3 3 4 5 6 OTHER INCOME NET 23 26 33 42 52 62

TOTAL REVENUES 894 1402 2546 3036 3657 4881

OPERATING EXFPENSES co FUEL/BULK POWER 559 792 1203 1215 1495 1839 OFERATIONS 213 294 431 548 692 935 DEFPRECIATION 90 155 283 374 513 734

IOTAL EXPENSES 862 1241 1917 2137 2700 3508 OFERATING INCOME 32 161 629 899 957 1373 NET INCOME BEFORE - INTEREST 32 161 629 899 957 1373 IN-FEREST 104 218 392 575 600 999 I DC 81 179 326 439 480 730

- rCHRGD OFERATIONS 23 39 66 136 120 269 NEI INCOME 9 122 563 763 837 1104 RETAINEDl EARNINGS 9 122 563 763 837 1104 RA-FE BASE 1196 1939 3776 5776 7733 10962 RAfTE OF RETURN X 2.7 8.3 16.7 15.6 12.4 12.5 OPERA,TING RATIO % 96.4 88.5 75.3 70.4 73.8 71.9

oQz fD X-

C)o4 INDONESIA PERUSAHAAN UMUM LISTRIK NEGARi-. FINANCIAL FORECASTS 1984 - 1989 FUNDS FLOW STATEMENT C RUPIAH. BILLIONS)

1984 1985 1986 1987 1988 1989 TOTAL INTERNAL SOURCES - OF FUNDS OPERATING INCOME 32 161 629 899 957 1373 4051 DEPRECIATION 90 155 283 374 513 734 2149 CONSUMERS CONTBNS 55 113 120 129 137 152 706

TOTAL INTERNAL - FUNDS 177 429 1032 1402 1607 2259 6906 OPERATIONAL - REQUIREMENTS INCREASE/DECREASE - WORKING CAPITAL 16 102 285 65 164 256 888 INTEREST CHARGED - OPERATIONS 23 39 66 136 120 269 653 DEBT REPAYMENT 17 37 57 93 141 193 538

TOTAL OPERATIONAL - REQUIREMENTS 56 178 408 294 425 718 2079 INTERNAL FUNDS 0 - AVAILABLE FOR -- INVESTMENT 121 251 624 1108 1182 1541 4827

CAPITAL INVESTMENT TOTAL CONSTRUCTION 1650 2092 2519 2926 3349 3935 16471 INTEREST DURING - CONSTRUCTION 81 179 326 439 480 730 2235

TOTAL CAPITAL - INVESTMENT 1731 2271 2845 3365 3829 4665 18706 BALANCE TO BE - FINANCED 1610 2020 2221 2257 2647 3124 13879 FINANCEDI BY BORROWINGS 860 1300 1600 1600 2200 3100 10660 EQUITY 820 700 650 650 400 0 3220

TOTAL CAFITAL - SOURCES 1680 2000 2250 2250 2600 3100 13880 C-ASH INCREASE/ - DECREASE 70 -20 29 -7 -47 -24 1 CASH AT BEGINNING mM - O F YEAR 103 173 153 182 175 128 103 o CASH AT YEAR END 173 153 182 175 128 104 104 o ANNUAL DEBT SERVICE - COCVERAGE 3.1 4.2 7.4 5.6 5.6 4.6. 5.2 ANNUAL CONTBN - TO CONSTRUCTION 7.0 t1.1 21.9 32.9 30.9 33.0 25.8 - 3 YEAR AVJERAGE % (F) 7.6 11.0 22.1 33.1 29.9 35.7 - 3 YEAR AVERAGE % (P) i0,2 14.5 23.4 29.0 32.3 IN [ONES IA PERLJSAHAAN UMIIM LISTRIK NEGARA

FINANCIAL FORECAST-S 1984 - 1989 BALANCE SHEETSr RUPFIAH, BILLIONS)

1984 19S5 1986 1987 1988 1989

FIXED (iSSETS PLAMU IN SERVICE 2104 3594 6593 8694 11937 17072 LEES: DEFRECIATION 369 555 879 1318 1929 2806 OPERATTNG PLANT 173 30-39 5714 -- 7376 10008 - 14266 WORF IN PROGRESS 3101 4059 4171 5923 7152 7565

C-Ui:RRENT ASSETS LASh 173 153 182 175 128 104 IENORpIES 98 128 227 270 360 445 !EN10FC A BLES 155 244 447 490 590 789 OTHER 25 25 26 26 27 28

TOTAL 4----1- - 550 882 961 1105 1366

TOT-AL ASSETS 5287 7648 10767 14260 18265 23197

EOQUITY AND - LIABILITIES EQUIrTYf

P4ID 1N EAPITAL 2613 3313 3963 4613 5013 5013 RETAI.NED EARNINGS 132 254 817 1580 2417 3521 RiEVALUA-TION RESRVE 273 387 573 946 1427 2089

TOTAL^ EQUITY 3018 3954 5353 7139 8857 10623 LON T9XE:RM DEBT

DEBT DUE 1782 3045 4588 6095 8154 11061 CU5iRRENT - LIABILITIES FYAB-LES 111 128 146 167 194 223

31AL1 128 146 167 194 223 CONSUMERS CONTBNS 376 521 680 859 1060 1290

TOTAL EGLIY ANID - LIABILITIES S287 7648 10767 14260 182h6 23197

DEPT t OF - DEPT + EQU ITl Y 37.1 43.5 46.2 46.1 47.9 51.0 CUF:RENT RATIO 4.1 4.3 6.0 5.8 5.7 6.1 ANNEX 20 - 88 - Page 4

INDONESIA

PERUSAHAAN UMUMLISTRIK NEGARA (PLN)

Assumptions for the Financial Forecasts

General

1. Inflation has been taken into account at the following rates (%):

1983 1984 1985 1986 and after

offshore costs 8 7.5 7 6 Local costs (exc. fuel) 20 15 11 7

Income Statements

2. Revenues assume a tariff increase of 30% at the beginning of FY85 and about 45% at the beginning of FY86 so as to attain the current price equivalent of LRMC in the latter year. Thereafter, the tariff is assumed to be adjusted to absorb the impact on costs due to local inflation,with the aim to meet the self-financingtargets while maintaininga rate of return of not less than 12% during the project period.

3. Fuel/Bulk Power is derived directly from the planting schedule. Steam produced at geothermal fields is assumed to be bought by PLN from the agency responsible for generating it. The price of all fuel oil to PLN is assumed raised to internationallevels by FY86.

4. Operating Expenses have been forecast in detail taking into account the facilitiesexpected to be in use each year, and subject to local cost inflation indices as at 1 above.

5. Depreciationis based on the apaplicationof PLN-s normal rates to assets revalued annually as described at para. 8.

Funds Flow

6. Financing. Borrowing has been assumed for approximately50% of capital expenditures,including interest during construction. - 89 - 89 - ~~~~~AN'NEXPage 520

7. Capital Expenditures exclude costs of geothermal steam field development which are assumed to be incurred by another agency.

Balance Sheet

8. Fixed Assets are revalued annually according to the following percentages:

FY84 ..... 11.5% 85 ..... 8.5% 86 on ..... 6.5%

9. Current Liabilities are assumed to increase by about 15% per annum. INDONESIA

PERUSAHAAN UMUM LISTRIK NEGARA

THIRTEENTH POWER PROJECT

Cost and Benefit Streams for Economic Rate of Return Calculations (in US$ millions)

PLN's Costs /a Incremental Revenues /d Benefits FY Foreign Domestic/b O&M/c Total (1)/e (2)/f (l)/e (2)/f

1983 4.10 3.06 - 7.70 - - -7.70 -8.47 1984 69.04 33.44 - 102.48 - - -102.48 -112.73 1985 44.28 42.53 - 86.81 - - -86.81 -95.49 1986 46.62 46.48 - 93.10 - - -93.10 -102.41 1987 72.01 63.22 - 135.23 - - -135.23 -148.75 1988 103.18 65.49 2.80 171.47 44.63 - -126.84 -188.62 1989 46.19 33.97 3.51 83.67 90.92 90.92 7.25 -1.12 1990/2032 - - 3.51 3.51 117.07 117.07 113.56 113.21

/a Includes full base cost (June 1983) of the first stage (500 MW) of Cirata project ($424.6 million) plus physical contingencies ($64.7 million) and attributable costs of sub-transmission and distribution ($200 million). /b Less taxes at 5% on civil works (local costs). Ic Includes operating costs at $3.2/KW/year, insurance and reservoir maintenance. Id Based on generation of 1,426 GWh, losses at 15%, prevailing average revenue of 7.7 US4 (Rp 74.7) per KWh through FY89 and peak tariff (8.0 USJ) from FY90. /e Based on commissioning of power station in November 1987. If Based on a commissioning delay of 6 months and an increase in project construction costs of 10%.

The ERR for the net benefit stream in Column (1) based on currently estimated costs and completion on schedule is 14.0%. The ERR for the benefit stream in Column (2) is 12.3%. - 91 - ANNEX 22 Page 1

INDONESIA

PERUSAHAANUMUM LISTRIK NEGARA

THIRTEENTH POWER PROJECT

Selected Documents and Data Available in the Project File

Reports on the Sector

IBRD Report "Indonesia: Issues and Options in the Energy Sector". 3543-IND of 1981

Java System Development Plan by Preece, Cardew and Rider (PCR) UK .1976/76

Legislation Affecting PLN ...... 1972, 1979, 1980

Organization and Job Descriptions of PLN (based on September 1981, Decree of the MJE) ...... 1981

Final Accounts of PLN through FY81

Audit Reports of PLN through FY81

Financial forecasts (FY82-89) and working papers

Management Audit Report, S. Parman & Co., October 1979 ... October 1979

"PLN's Internal Procurement Procedures: Suggestions for Improvements," by Mr. C.P. Ohri, Sr. Power Engineer, AEPEN ...... April 1982

"The Decree of the President of the Republic of Indonesia No. 10 of the Year 1980, Concerning the Team for Control of Procurement of Government Goods/ Equipment, dated January 23, 1980.

The Decree of the Minister/Secretary of State as Chairman of the Team for Procurement Control of Government Goods/Equipments No. 215/TPPBPP/VIII/80 Concerning The Guidelines for the Work Procedure of the Team for Procurement Control of Government Goods/Equipments, dated August 20, 1980

Letter of the Minister/Secretary of State No. R-182/TPPBPP/VIII/80, dated July 22, 1980, Concerning Program for Executing Contracts/Procurements Exceeding Rp 500 million - 92 - ANNEX 22 Page 2

Circular of the Minister of Finance No. SE-61/MK/1980, dated October 21, 1980, Concerning the Implementation of the Presidential Decree No. 14A of the Year 1980 for Project Financed out of Foreign Loans and/or Grants

Notes on PLN's Investment Plan ...... November 1981

Power Sector MIS : Stage B Report ...... July 31, 1982 Stage C Report ...... November 13, 1982

PA Management Consultants Ltd.

PMAS Draft Study Report ...... December, 1982

PA Management Consultants Ltd.

Environmental Aide M4emoire with SEKNEG ...... January 1983

Reports on the Project

Cirata Hydro Project

Project Brief ...... May 14, 1982

Prequalification Instructions for Civil Construction Works and Penstock Metal Work (Draft) ...... May 8, 1982

Progress Report on Environmental Aspects of the Feasibility Study by New Japan Engineering Consultants, Inc ...... December 15, 1980

Report on Site Visit and Review of Designs and Drawings (Draft) by Mr. G. A. Kalauzi ...... October 26, 1981

Environmental Aide Memoire by PLN ...... January 11, 1983

Guidelines for Improving Project Management by PA Management Consultants, Ltd. and P.T. Indra Karya ...... December 18, 1982

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IBRD16751R FEBRUARY 1983 INDONESIA THIRTEENTHPOWER PROJECT

CIRATA HYDROELECTRICPROJECT PROJECT GENERAL SITE LAYOUT - Roads __Transmission Lines :/gZ Disposal Areas Tunnels Bridges Cirata Reservoir

To C,/oRgkmp Rivers

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