Document of "-W l l The World Bank HX cA)U

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No. 3185-IND Public Disclosure Authorized

STAFF APPRAISAL REPORT

INDONESIA

PERUSAHAAN UMUM LISTRIK NEGARA

TENTH POWER PROJECT Public Disclosure Authorized

January 16, 1981 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 Rupiah

US$1 = Rp 625 Rp 100 = US$0.16 Rp 1 million = US$1,600

WEIGHITSAND 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 (MWl7) = 1,000 kilowatts (kW) 1 gigawatt hour (GWh) = 1 million kilowatt hours (kWh)

ABBREVIATIONS

BAPPENAS - National Planning Agency BATUBARA - National Coal Entity DGEP - Directorate-General Electric Power, Ministry of Mines and Energy DPMIA - Institute of Hydraulic Engineering, Bandung COI - Government of Indonesia LE UNPAD - Institute of Ecology, Padjadjaran University, Bandung LNG - Liquified natural gas NINE - M.linistryof Nines and Energy Newjec - New Japan Engineering Consultants, Japan NI.RA-ENEL- Italian Nuclear and Electricity Agencies OECF - Overseas Economic Cooperation Fund (Japan) PCR - Preece, Cardew and Rider, UK PERTANINA - National Oil Company PLN - National Power Authority REPELITA - Five-Year Development Plan SBC - Special Board of Consultants

GOVERNMENT OF INDONESIA FISCAL YEAR

April 1 - March 31 FOR OFFICIALUSE ONLY

INDONESIA

PERUSAHAAN UMUM LISTRIK-NEGARA

TENTH POWER PROJECT

Table of Contents

Page No.

1. THE-ENERGY SECTOR ...... 1

Energy Resources and Status of Development ...... 1 Petroleum ...... 1 Natural Gas ...... 2 Coal ...... 2 'Hydroelectric Resources ...... 3 Geothermal Resources ...... 4 Nuclear Power ...... 4 Non-Commercial Sources ...... 4 Growth of Energy Consumption ...... 5 Organization of the Energy Sector ...... 5 Problems in the Energy Sector, Policy and Pricing ...... 6 The Electricity Subsector ...... 6 DGEP ...... 7 PLN ...... 7 Captive Plants ...... 7 Rural Electrification ...... 8

2. THE POWER MARKET AND THE DEVELOPMENT PROGRAM ...... 8

Status of Surveys ...... 8 Demand Projections ...... 9 Access to Service . 10 Connection Programs . . . 10 Development Program . 11 Overview of the Program . 12

3. THEBENEFICIARY ...... 13

Legal Status and ResponsibilitiesP...... 13 Organization and Management ...... 14 Present Facilities ...... 16 Manpower and Training ...... 17 Research ...... 17 Accounting and Audit ...... 18 Insurance ...... 18 Peformance Under Earlier Bank Operations ...... 18

This document has a restricteddistribution 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. -2

Page No.

4. THE PROJECT ...... 19

Objectives of the Project ...... 19 Project Description ...... 20 Investigations and Suitability of the Saguling Site . . . . . 21 Dam Site and Other Features ...... 22 Optimization of Project Features ...... 22 Geology ...... 23 Seismology ...... 23 Allied Structures ...... 23 Reservoir Area ...... 23 Siesmology ...... 24 Hydrology ...... 24 Sedimentation ...... 25 Construction Materials ...... 25 Engineering and Design ...... 26 Environmental Aspects ...... 26 Construction Equipment for PLN Task Force ...... 29 Engineering of Cirata Hydroelectric Project ...... 29 Project Cost Estimate ...... 30 Contingencies ...... 31 Consulting Services ...... 31 Financing ...... 32 Construction ...... 32 Implementation Program ...... 33 Procurement ...... 33 Disbursement ...... 33 Maintenance for Dam Safety ...... 34

5. FINANCIAL ANALYSIS ...... 34

Past Results ...... 34 Present Financial Position ...... 35 Future Financial Performance ...... 36

6. JUSTIFICATION ...... 37

Demand ...... 37 Least Cost Solution ...... 38 Internal Economic Rate of Return ...... 38 Risks .39

7. AGREEMENTS TO BE REACHED AND RECOMMENDATIONS ...... 39

ANNEXES

1. Organization Chart of the Ministry of Mines and Energy 2. Forecast of Future Generation Requirements 3. Growth of Generating Capacity, Sales and Peak Demand in Java 4. PLN-s Organization Chart 5. Principal Features of Saguling Hydroelectric Project 6. Citarum River Development Plan 7. Salient Features of Cirata Hydroelectric Project 8. Project Cost Estimate 9. Summary of Financing for the Saguling Project 10. Implementation Schedule of the Saguling Project 11. Milestone Schedule for Main Civil Works and Penstocks 12. Estimated Schedule of Disbursements 13. PLN Past Financial Results 14. PLN Financial Forecasts 15. Assumptions for the Financial Forecast 16. Cost and Benefit Streams for IERR Calculations 17. Information Available in the Project Files

MAPS

Public Generating Facilities by Areas Java Power System Saguling Power Project General Site Arrangement

This report was prepared by Messrs. C.K. Chandran and B. Keith Thomas, who appraised the project in August/September1980.

1. THE ENERGY AND ELECTRICITY SECTORS

Energy Resources and Status of Development

1.01 Data on energy resources in Indonesia are incomplete and the coverage is uneven, varying from fairly good documentation on oil reserves to very little on geothermal resources or nuclear fuels; data on existing and potential energy consumption patterns is similarly incomplete. Energy policy formulation is thus rendered difficult and is presently limited to broad generalities. In the past the Bank has agreed to finance a number of studies designed specifically to rectify statistical deficiencies (e.g., hydropower surveys - Power VI Loan 1365). Recently, however, the Minister of Mines and Energy has asked the Bank to undertake a more comprehensive survey of the energy sector with a view to systematizing the data currently avail- able, identifying the major deficiencies and assisting the Government of Indonesia (GOI) to determine the best method of proceeding with sector documentation and policy formulation. A Bank mission to initiate this work visited Indonesia in November 1980. Available information on the energy sector and the main issues are summarized in the following paragraphs.

1.02 Indonesia is endowed with abundant energy resources and has large as yet underdeveloped natural gas, coal, hydroelectric power and geothermal sources. Petroleum reserves have been exploited for some time. The availability of indigenous oil caused Indonesia to develop a petroleum-based energy sector rather than exploiting other available energy resources. Prior to independence, the country relied on coal and hydroelectric energy to a large extent for its commercial energy but now petroleum accounts for 90% of total commercial energy consumption. Steps are being taken by the Government to increase the shares of coal, hydroelectric power and geo- thermal energy as rapidly as possible.

Petroleum

1.03 Petroleum reserves are estimated at about 50 billion barrels, but proven resources are between 10-15 billion barrels. The figure has not in- creased significantly since 1970. Present production is about 1.6 million barrels per day, and it is expected to increase to 1.8 million barrels per day by 1984. The government assessment is that with virtually static reserves and constant production, and the rapid increases in domestic demand (about 14% per year), surpluses available for export would steadily decline, seriously undermining the economy. GOI has therefore adopted a policy of developing other indigenous energy sources such as coal, hydroelectricity, natural gas and geothermal for internal consumption. As a result of these policies and due to expected increases in oil prices the annual growth of domestic consumption of oil is expected to decrease to about 8.5% in 1983. Liquified natural gas (LNG) and condensate exports are expected to increase - 2 -

rapidly and will compensate partially for the slowdown in oil exports. In the above context, it is imperative that detailed plans be drawn up urgently for well-coordinated development of the energy sector and its various subsector_.

Natural Gas

1.04 The estimated natural gas reserve is about 34 trillion cu ft, of which 5 trillion cu ft represents gas associated with oil production. The present production level is about 80 billion cu ft per year. Pipelines have recently been laid to steel and fertilizer factories and consumption is expected to increase at the rate of 15% per year during the next five years. Following agreement reached with Japan a few years ago, export of natural gas in the liquid form (LNG) has commenced and is expected to grow rapidly. A study of natural gas pricing and utilization has been agreed under Credit 451-IND to determine the potential usage of gas in Indonesia and the resources available. GOI policy is to use surpluses, where available, for electricity production. In Java, where some thermal stations have been designed for dual firing (oil and gas), no surpluses are now available. Natural gas is being used however in Java and Sumatra.

Coal

1.05 Indonesia-s coal reserves are conservatively estimated at 1.2 billion tons, 86% of which are in Sumatra and the balance in Kalimantan. Some estimates place the total reserves at 15.0 billion tons. Actual production was as high as 2.0 million tons per year in 1940, but declined to 140,000 tons in 1973. Rehabilitation measures increased production to 250,000 tons in 1979. Of this, 150,000 tons came from the Bukit Asam collieries and 100,000 tons from the Ombilin mines, both in Sumatra.

1.06 Government has decided to encourage the development of coal for national consumption wherever technically and economically feasible. The power sector is the largest market for Indonesia-s coal. Exploration carried out between 1976 and 1979 having confirmed that proven reserves of about 125 million tons were available at Bukit Asam, and aided by a US$10.0 million engineering loan from the Bank, GOI proceeded to evolve an integrated mining and transportation system to deliver about 3.0 million tons per year for use at an 800 MW dual-fired (oil and coal) thermal power station at Suralaya in West Java. This power station is now under construction with financial assistance from the Bank (Loans 1708 and 1872). The first generating unit of 400 MW is expected to be commissioned in January 1984. The Bank is now considering a loan for this integrated coal mining and transportation project. An appraisal mission visited Indonesia in September 1980. Other similar projects are expected to follow. GOI has also encouraged private concessionaires to survey reserves with a view to increasing the export of coal. A large concession in South Sumatra was given up by Shell, but other concessions in Kalimantan are under active consideration. -3-

Hydroelectric Resources

1.07 The hydroelectric potential of the country has been roughly estimated at 31,000 MW distributed as follows: Irian Jaya 9,000 MW, Kalimantan 7,000 MW, Sumatra 6,750 MW, Sulawesi 5,600 MW and Java 2,500 MW. The greatest potential lies in Irian Jaya where electricity demand is the smallest while Java, where the demand is the greatest, has the least.

1.08 The figures in para. 1.07 are estimates of the theoretical potential. There are no reliable estimates of the proportion that can be actually developed. Reconnaissance and preliminary studies (mostly the former) of the sites where an aggregate installed capacity of about 15,000 MW is believed technically feasible have been carried out but little is known about the costs of their development.

1.09 The total installed hydroelectric generating capacity in the country now is 662 MW, of which 460 MW is in Java, 174 MW in Sulawesi and the balance in Kalimantan (20 MW) and Sumatra (8 MW). A major hydroelectric project is under construction at Asahan (600 MW) in Sumatra, as part of a large aluminum complex being built by a Japanese consortium of investors. Its surplus capacity of about 50 MW will be made available to the national electricity entity, Perusahaan Umum Listrik Negara (PLN) for distribution. Besides the 700 MW Saguling project to be financed with assistance from the proposed loan, three hydroelectric sites, Cirata (500 MW) in West Java and Mrica (180 MW) and Maung (120 MW) in Central Java are under detailed field investigations. These projects are included in PLN's development program, along with a few small hydroelectric stations associated with irrigation projects.

1.10 The limited reserves of petroleum and the relatively high cost of energy from new coal-fired thermal stations place a high premium on develop- ment of hydro resources. Unfavorable location of potential sites away from the main demand centers, and relatively long gestation periods, have limited development in the past. The pace of investigation of hydroelectric projects has been slow, however, and needs to be accelerated. During 1979 PLN agreed to build up its investigative capabilities to expedite hydropower surveys. Funds for the necessary technical assistance were arranged out of the savings available under Loan 1365. PLN has decided to draw upon a firm of consultants experienced in the field to provide the services of three experts who would work with a PLN counterpart team and prepare within a couple of years (a) a detailed inventory of all sites, (b) a priority list of these sites based on location, demand growth in likely areas of supply, status of supply and available alternatives, and (c) a detailed investiga- tion program. Most of this work would be outside Java where the main sites have been either developed or investigated. - 4-

Geothermal Resources

1.11 Judging from evidence of surface activity, stretching from Sumatra to Irian Jaya, and limited exploration,Indonesia is believed to have substantialgeothermal resources. They are not all close to major load centers and are widespread. Over 17 significant (greater than 100 MW, heat value) fields have been identified indicatingdevelopment potentials in Sumatra, Java, Bali, Flores and Sulawesi. The full potential of these fields is not certain. Some identified fields in Java (e.g., Kamojang) are reasonably close to load centers. A 30 MW plant is under constructionat Kamojang at a total constructioncost of about US$1,200 per KW installed. The Government of New Zealand is providing financial assistance. GOI attaches high priority to developmentof geothermal energy as a part of its policy of diversificationof energy sources (para. 1.02) and conserving petroleum. It has recently invited proposals from interested parties in several countries for financing explorationand exploitationof seven identified geothermal fields in Java, on a commercial basis. The results are awaited.

Nuclear Power

1.12 Since 1976 several studies have been carried out on the need for nuclear power in Java. The general consensus of these studies, with which the Bank agrees, is that a nuclear power station would not be economically justifieduntil the early nineties. PLN's investment program until 1990 therefore does not provide for one. However, a recent study carried out by NIRA-ENEL of Italy has concluded that introductionof the first nuclear power station with a 636 MWe CANDU type generating set by FY89/90 would be feasible. The Bank-s initial reaction is that the underlying assumptions of the study as to capital and fuel costs strongly'favored the nuclear alternative against equivalent coal-fired thermal stations with which it was compared. The question is being carefully examined by PLN and other Government agencies concerned.

Non-Commercial Sources

1.13 Accurate information on firewood and agricultural waste consump- tion in Indonesia is not available although some scattered statistical data has been collected in this admittedly important area. A recent national survey conducted by the Forestry Products Research Institute for instance has estimated that the per capita consumption of firewood in rural areas has increased about threefold from 0.6 cu m p.a. in 1971. Charcoal consumption estimates show a sharp decline since 1968. About 17.0 million tons of agricultural wastes (in the form of rice husks, baggasse and sawmill wastes) are produced annually but most of these are not used as energy sources. Recognizing the need to develop these energy sources GOI set up the Development Technology Center in 1973 but with its limited staff the results achieved so far have been meager. Shortly a USAID-financed study involving field work and data collection is expected to clarify both resources and existing patterns of use. -5-

Growth of Energy Consumption

1.14 Consumption of commercial forms of energy in Indonesia grew in the recent past at about 13.6% p.a., doubling in about five years. For Repelita III (FY80-84), growth is projected at 11% p.a., with the share of petroleum products falling from 90% in 1977 to 79% in 1984. Currently) electricity provides only 7% of the country's energy, but is projected to increase to 11.3% by 1984. The table below shows a breakdown of consumption by energy sources:

Table 1.1: ENERGY CONSUMPTION BY SOURCES (in million tons of coal equivalent - MTCE)

1970 % 1977 % 1984 X

Petroleum products 8.656 87.9 21.670 90.0 41.202 79.1 LNG - - 0.189 0.4 Natural gas 0.880 8.9 2.017 8.4 8.339 16.0 Coal 0.161 1.6 0.178 0.7 1.254 2.4 Hydro 0.154 1.6 0.219 0.9 1.084 2.1 Geothermal - - 0.015 0.0

Total 9.851 100.0 24.084 100.0 52.083 100.0

Organization of the Energy Sector

1.15 In May 1978, the Ministry of Mines and Energy (MME) was established as part of a general reorganizationof government departments to coordinate all activities in the energy sector. MME has overall respon- sibility for mining, oil, natural gas and electricty. It controls the state enterprises responsible for the execution of the government policies in the energy subsectors - viz. the national oil and gas entity (PERTAMINA), the coal agency (BATUBARA) and PLN. The Ministry has been recruiting staff over the past two years and developing its organization to fulfill its role in the energy sector. MME-s organization chart is shown in Annex 1.

1.16 GOI has established an interdepartmentalenergy policy and planning committee at the technical level. The Chairman and Vice-Chairman of the Committee are the MME-s Directors-Generalof Oil and Gas and of Electric Power (DGEP), respectively. A permanent energy committee 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 has recently been formed to review proposals emerging from the -6-

technical committee and eventually to establish a more clearly defined energy policy with specific implementation instructions to the ministries concerned. The first meeting of this Board will be held towards the end of 1980.

Problems in the Energy Sector, Policy and Pricing

1.17 Because of the deficiencies of available statistics on both resources and consumption (para. 1.01) a comprehensive energy balance, indi- cating the various sources of energy, patterns of transformation, transpor- tation and consumption has not yet been prepared for Indonesia. The country consequently lacks a quantitatively based overall energy policy. This policy weakness is compounded by a system of energy pricing that does not equate rational consumer choices with the national interest. In particular, petroleum prices - subsidized by Government for political and social reasons - have caused serious distortions in the economy by failing to reflect their value to the economy as an export good. The effect has been to favor the use of oil over other competing fuels, promotion of domestic consumption over exports, and because the degree of subsidy between oil products is uneven, to distort the demand between individual petroleum products.

1.18 The elimination of these subsidies has been under serious discussion between GOI and the Bank for some time. In the context of negotiations of Loan 1872 (Power IX), the Government confirmed that, as a matter of policy, it would ultimately abolish subsidies on domestic oil consumption, subject to the ability of consumers to pay, and a further step in this direction was taken in May 1980 when oil prices were increased 50%. In order to consider the full implications of removal of subsidies and the best manner of achieving this objective, GOI and the Bank agreed that an energy pricing study would be carried out using about US$3.0 million out of the surplus available under Loan 1513 (Power VII Project). The Bank has recently provided GOI with an outline scope for this pricing study and suggestions regarding terms of reference and is awaiting MME response. This study would also provide guidelines for pricing of competing energy sources.

1.19 The Bank has also agreed to provide funds through Loan 1513 to build up a management information system for DGEP activities in the electricity sector and ensure that development programs in the electricity sector are entirely consistent with national policy objectives. Proposals have been invited recently from an agreed short list of consultants to carry out the study in accordance with terms of reference finalized in consultation with the Bank.

The Electricity Sector

1.20 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 irom PLN supply systems.

1.21 Legislation was enacted in 1979 to provide for private and co- operative franchise participation in the electricity sector with the intention of providing electricity generation/supply in areas where PLN was unable to develop its own supply systems fast enough. However, no new parties have so far been licensed.

1.22 DGEP. Since its inception in 1978 DGEP has been responsible for electricity sector 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. Its organizational structure is shown in Annex 1.

1.23 PLN. PLN was first formed in 1961 when three Dutch-owned electricity utility companies were nationalized, but its growth as an ef- fective modern organization started around 1972, when its status was changed from that of a department of a ministry to an autonomous entity and foreign financing became available for its urgently needed rehabilitation and ex- pansion programs. PLN's subsequent growth has been impressive. It now has over 2.2 million consumers and provides 70% of the total electricity supply in the country. Further details are given in Chapter 3.

1.24 Captive Plants. Until the mid-seventies public sector development was severely constrained due mainly to lack of foreign financing and PLN could not meet the demand with any reliability. Captive plants therefore grew rapidly (see Table 1.2 below). Currently, the total capacity of such plants is about 2000 MW compared to 2,662 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% (with a peak of 22% in 1975). Since then the growth has fallen off rapidly to an average of about 4% during 1976-79 (Annex 2). It has been negligible during 1979/80. This is a direct consequence of the rapid augmentatiohiof PLN-s system supply and significant improvements in reliability standards and other 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 more likely to be below 5%. - 8 -

Table 1.2: GROWTH OF CAPTIVE POWER IN INDONESIA

Connected Not connected Percent Year to PLN to PLN Total increase

1973 325.5 848.2 1,173.7 13 1974 358.5 971.0 i,329.5 13 1975 483.8 1,143.3 1,627.1 22 1976 535.? 1,292.3 1,828.2 12 1977 568.1 1,326.7 1,894.8 4 1978 597.9 1,391.0 1,988.9 5 1979 609.7 1,413.6 2,023.3 2

Rural Electrification (RE)

1.25 Rural electrificationis being undertaken by PLN with consultancy assistance,among others, from the National Rural Electric Cooperative Association (NRECA) of the US and financed by USAID, which provided a loarn for seven proiect areas (-US$20million). Financial assistance in the form of a loan has also been committed by Holland (Fl 15.5 million/ US$7.7 million) and as a grant by Finland (FM 0.48 million, US$0.12 million).

1.26 Rural electrificatior.as defined in Indonesia covers all towns and villages in the country except provincial capitals and second level provin- cial towns. During Repelita III PLN plans :o electrify about 3,700 of the 64,000 villages in Indonesia; currently 1,081 villages are included in committed projects whlch will benefit about 29,000 consumers. Indonesia does not yet have a planior time scale in which all villages in the country will be provided access to electric.ity,but those villages and areas in which electricitywould have the greatest economic impact are given priority. Some time must elapse before the modest national RE plan is accelerated;currently only 6% of the total populationhas electricityand a sector base to support RE is required 'beforea national program can be effective.

IL THE POWER.MARKET AND TrE DEVELOPMENTPROGRAM

Status of Surveys

2.01 Several attempts have been made during the seventies to prepare a meaningful demand forecast for the Indonesian power sector. They were dif- ficult because of the very Low prevailing consumption levels and severe restrictionson supply which made past records (limited to ?LN's sales which then accounted for only a fraction of the total consumption) an unsatis- factory basis for future projections. One of the first of these attempts was by Chas T. Main of the USA in 1973. It applied an indirect method of using growth probabilities in selected sensitive economic sectors and their probable impact on other sectors to arrive at the demand for electricity. A more direct detailed assessment of the underlying demand and future trends (up to 1985) was made during 1974-76 by Preece, Cardew and Rider (PCR) of the UK as part of a Bank-financed System Development Study (Credit 399). This study quantified the effects of restrictions on supply and low voltages, self-generation and PLN's waiting lists. It was limited to Java, which is believed to account for two-thirds of the market (see para. 2.03).

2.02 In recent years PLN has carried out market surveys in some of the other islands using consultants. PLN has also begun to develop methods to scan the power market using its own limited organization at headquarters and in PLN's operational regions (Wilayahs). The stage has now been reached (see para. 2.07) where PLN has to build up a power market survey unit capable of updating the PCR study in Java and similar consultant studies now in progress and to compile similar data for all islands. PLN's intention is to expand the presently small unit in the Planning Directorate. To improve the quality of its power surveys PLN requires the active association of the DGEP of MME which should provide (i) guidelines on national energy policies, (ii) firm data on primary energy availability and (iii) usage and pricing policies, as these influence the demand for electricity. PLN will, in future, take full responsibility for the work and will employ experts, drawn either from operating entities or other organizations involved in this work, on a short-term basis at periodic intervals. Funds have been provided in the proposed loan to meet the requirements of such experts. Henceforth the use of consulting firms should be selective and confined to tasks for which PLN is unable to mobilize adequate manpower if the time required. An assurance that PLN, with the assistance of GOI, will take steps to improve the capability of its power market survey units - at Central (Pusat) and Wilayah (Regional) levels to carry out surveys to update the PCR study in Java and similar consultant studies in other islands and compile data for all islands, was obtained from PLN and GOI during negotiations.

Demand Projections

2.03 The initial results of the PCR study in Java (2.01) implied that the magnitude of the underlying demand was so large that annual growth rates of public electricity supply would have to be of the order of 30-35% during FY76-85 against historic rates of 10-12%. It was recognized, however, that PLN's sales in Java could not quickly rise to such levels and that, in the short and medium term, they would depend on the rate at which PLN could build up its facilities and meet an increasing proportion of the existing demand, whereas, in the longer term, PLN sales would reflect more closely the growth of the power market based on the overall levels of economic development. Retaining the initial results as "high" forecasts, and in - 10 -

order to provide a basis for preparing a practicable development program for PLN, PCR then determined lower, but more realistic projections, referred to as its "low forecasts." The forecasts are summarized in Annex 2.

2.04 Optimized programs of generation and transmission were prepared by PCR for both "high" and "low" forecasts. During FY77-79 PLN and the Bank agreed that PLN would (i) adhere to the low forecast for its development program in Java and (ii) ensure a proper balance between its investments on generation, transmission and distribution. It was also agreed that PLN-s development should be annually updated to accord with actual experiences and be jointly reviewed by PLN and the Bank for necessary modifications. The reviews have indicated that PLN's studies of the power market are rather limited and need to be improved (para. 2.02). The reviews also resulted in somewhat lower forecasts of sales than the PCR "low" forecast in the near future with prospects of catching up with it by 1990. According to the latest (1979) such revision (Annex 2) the average growth rate between FY79-85 was expected to be 21% per year; thereafter the growth is expected to decline to about 15% per year. The development program based on these rates of growth has been accepted by GOI and incorporated in Repelita III. During FY79 and FY80 PLN's sales in Java increased by 22% and 24% respectively which is slightly better than expectations.

Access to Service

2.05 The per capita consumption of electricity in Indonesia is still extremely low at about 70 kWh (FY80) compared to 570 kWh in Malaysia, 250 kWh in the Philippines and 250 kWh in Thailand. Indonesia-s population has low access to electricity; only about 6% of the households are connected. The degree of electrification in different regions varies, being about 9.6% in Java, 4.3% in Sumatra, 5.0% in Kalimantan, 4.2% in Sulawesi, 4.6% in West Irian and 2% to 3% in the other islands.

Connection Programs

2.06 During FY78 PLN agreed with the Bank that it would prepare and actively implement a consumer connection program consistent with its improved capabilities. The results are summarized in Table 2.1 below. Figures in parentheses indicate the growth over the previous year. - 11 -

Table 2.1: GROWTH OF PLN'S CONSUMERS AND SALES

Number of Connected Sales Year consumers load MVA in GWh

1975/76 1,140,745 1,426.4 2,804 (5%) (13.0%) (14.7%) 1976/77 1,208,538 1,594.5 3,082 (5.8%) (11.8%) (10.1%) 1977/78 1,413.068 1,933.5 3,527 (16.9%) (21.3%) (14.6%) 1978/79 1,784.001 2,448.5 4,287 (26.2%) (26.6%) (21.6%) 1979/80 2,246,657 3.063.4 5,343 (25.9%) (25.1%) (24.6%)

2.07 PLN exceeded the consumer connection program targets during FY78-80. During FY81, the target set for Java was 23% but midway during the year consideration is being given to reducing it to about 21.5%, because of delays in commissioning the 4th generating set (200 MW) at Muara-Karang and in the commissioning of some 150 kV transmission lines and substations. Alternatives discussed during appraisal may make this reduction unnecessary. In some of the Wilayahs, notably in East Java (XII) and North Sumatra (II) the results of PLN's efforts at expediting consumer connections have been really impressive and must be regarded as a clear indication of growth potential in the near future. In East Java the growth rates in FY79 and FY80 were 30% and 36% recently and the target of 33% set for FY81 could easily be attained or even exceeded, judging by the progress so far on payments of connection charges and waiting lists. These growth rates are ahead of the growth of PLN-s supply capacity and it is a matter of some concern that (i) construction of the 150 kV Central-East Java link and (ii) financing of Gresik Unit 3 (included in the development program and planned for commissioning in FY83 with assistance from the Overseas Economic Cooperation Fund (OECF) have not kept pace. The latest demand forecast in the East Java region is some 20-25% higher than the PCR "low" forecast, and could justify advancing the construction of the 500 kV Central-East Java link, planned for completion in FY88, two years earlier. The situation in North Sumatra is similar. There is an urgent need for PLN to carry out a detailed power market survey both in Java and other islands in order to properly plan the scale and pace of its immediate expansion program. To sustain the momentum built up during the past 3 years, special efforts should be made by PLN and GOI to ensure that the targets of expansion of power supply facilities in - 12 -

Repelita III are achieved by improved monitoring of construction, and providing financial resources, where necessary. Serious consideration has also to be given from now on to initiating work on schemes whose benefits are to be derived in the early years of Repelita IV. PLN hao& also to improve its system planning capabilities, to identify emerging system bottlenecks in advance and to ensure that its power systems continue to be adequate as the demand escalates. PLN intends to improve the capability of its central system planning unit at headquarters to do this, using experts on a short-term basis (para. 2.02) with funds to be provided under this loan, and an assurance on this was obtained during negotiations.

Development Program

2.08 Within the limitations of its power market surveys (paras. 2.02/2.04) PLN follows the practice of preparing annually a 10-year development plan to cover the projected requirements of generation, transmission, distribution and other facilities. The latest plan finalized in August 1980 for Java, covers the development period FY80 to FY90. Investment requirements based on this plan were revised in September 1980. A time slice of the program for the period FY80-84 has been incorporated in Repelita III. In the past, least cost investment programs for generation, transmission and distribution were planned with the help of the consultants. PLN has recently developed in-house capability for carrying out least cost generation planning studies with computer modelling which is utilized to review and update the Java generation plan. It represents a significant improvement, but requires further refinement.

2.09 Java accounts for 62% of the population of the country (90 million out of 145 million) and 80% of electricity sales!,of PLN in FY80 (4,242 GWh out of 5,343 GWh). Of PLN's total installed generating capacity of 2,662 MW in the country, 1,760 MW (66%) was in Java. In FY89, the proposed installed capacity in Java would be 6,410 MW (71.3%) against the total of 8,986 MW and the sales of electricity would be 21,530 GWh, about 80% out of the total projected sales of 27,010 GWh; Java continues to be the centerpiece of the power development plan of Indonesia.

2.10 Detailed studies have been carried out to devise the optimal deve- lopment strategy for the power system in Java and the least cost path has been identified. The plan has been formulated to achieve the following objectives: (a) optimize resource utilization by substituting oil by using coal, 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. - 13 -

2.11 During the past two years PLN's system planning unit has made efforts to refine its development program (included in Repelita III) for the other islands, which had not been based on (a) reliable demand forecasts and (b) an accent towards full use of indigenous energy resources. More work requires to be done in this area, as recent trends indicate that the demand growth may have been under-estimated. PLN expects to be able to bring its studies for other areas up to acceptable standards within a couple of years.

Overview of the Program

2.12 The energy sales forecasts and the generating capacity require- ments are summarized in the following tables:

Table 2.2: FORECAST OF ENERGY SALES (GWh)

Year Java Outside Java Total % growth

1980/81 5,324 1,178 6,502 22.0 1981/82 6,495 1,438 7,933 22.0 1982/83 7,924 1,754 9,678 22.0 1983/84 9,588 2,122 11,710 21.0 1984/85- 11,506 2,547 14,053 20.0 1985/86 13,692 3,030 16,722 19.0 1986/87 16,157 3,576 19,740 18.0

1987/87 18,604 4,606 . 23,210 17.6 1988/89 21,530 4,480 27,010 16.0

Table 2.3: INSTALLED CAPACITY (MW)

Installed Java Outside Java Capacity 1979/80 1988/89 1979/80 1988/89

Hydro 460 1,720 47 353 Steam 700 3,900 50 1,195 Gas turbine 600 600 147 147 Diesel - - 546 1,412 Geothermal - 30 - -

Total 1,760 6,250 790 3,107 - 14 -

2.13 The estimated investment at end 1979 constant prices for genera- tion, transmission and distribution facilities to meet the development plan from 1979AIC to 1988/89 is equivalent to US$11.0 billion with a foreign component of about US$7.0 billion.

2.14 In Repelita III covering the period FY80 to FY84, investment targets shown in Table 2.4 below are incorporated:

Table 2.4: INVESTMENTTARGETS IN REPELITA III (FY80-84) (In US$ million, constant FY79 prices)

Investment Iter Foreign Local Total

Generation 1,536 645 2,181 Transmission 586 175 761 Distribution 1,034 701 1,735 Rural Electrification 123 87 210 Administration - 8 8 Management & Organization 5 5 10 Research & Development 21 20 41 Facilities & Buildings - 96 96 Survey of Energy Resources 53 65 118

Total 3,358 1,802 5,160

2.15 The program for expansion of generating capacity, sales and peak demand is detailed in Annex 3.

3. THE BENEFICIARY

3.01 The beneficiary would be PLN, the Government-owned national power utility.

Legal Status and Responsibilities

3.02 By Presidential Decree No. 18 of 1972, PLN was constituted a public corporation (Perum), with responsibility for the generation, trans- mission and distribution of electricity and the planning, construction and operation of electricity supply facilities. Until 1979 these - 15 -

responsibilities were exclusive to PLN, but in that year, with the objective of facilitating the exploitation of electric power to the greatest degree possible, GOI enacted legislation allowing the intervention of private entities and cooperatives in the sector under license of MME. PLN is required to participate in the national economic planning process and in the formulation of national power policies. Financially, PLN is expected to cover all operating and maintenance costs (including depreciation and financing costs) from current revenues, and to generate a contribution to the financing of its expansion program; the amount of this contribution has been the subject of a continuing dialogue with the Bank (para. 5.07). PLN's investment plans and tariffs are subject to approval by GOI, as are bid evaluation and contract awards.

Organization and Management

3.03 PLN is managed by a board of directors headed by a president director, who is appointed by the President and is accountable to the Minister of Mines and Energy. The president director has authority for all day-to-day operations of PLN. The board currently comprises five other directors with functional responsibility for planning, construction, operations, finance and administration. These directors operate more in a staff than a line role, since line responsibility strictly devolves from the board as a whole (following the principle of collective responsibility) to 16 regional operating managers on the one hand and 12 construction project managers on the other. Regions are responsible for minor construction work, whereas all major construction work is handled by construction managers. PLN's organization chart is at Annex 4.

3.04 The exact division of responsibility between the regions/construc- tion divisions and the central departments is sometimes unclear. For example, construction managers are not fully responsible for ensuring the progress of their projects on schedule since, inter alia, all contracting work is handled by the Directorate of Construction. The Directorate does not have practical systems to effectively control such a large and far-flung development program as PLN-s is. In order to overcome the problem and to speed up project construction, Power VIII (Loan 1708) provided US$2.5 million to cover foreign costs of a thorough review by a management consultant of PLN-s construction organization and procedures. The work has unfortunately not yet been initiated, owing to delay in contract negotiations; but the appointment of a suitable consultant is expected within the next three-six months.

3.05 The next major management development in PLN is therefore likely to involve increased decentralization of responsibility, so as to strengthen regional and construction management and avoid the risk of headquarters becoming a bottleneck as the corporation grows. Steps towards greater regional involvement in facilities planning were taken during the 1981 - 16 -

planning cycle, and a series of management development courses has been initiated specifically for regional and branch managers. Extension of the decentralization policy to regional operation and construction units must naturally be undertaken slowly and carefully; to some extent It will be dependent on the introduction of improved and restructured information systems (paras. 3.06 and 3.11).

3.06 PLN's management systems have in general been well designed and although there are some undoubted weaknesses (para. 3.04) progress in their implementation in recent years has been impressive. Recently they were reviewed in the context of a management audit commissioned by PLN and carried out by a local firm working in association with international management consultants. Their report contained a large number of recommendations for improvement covering in particular the establishment of a more comprehensive corporate planning process; improvements in coordination between the various headquarters departments, and between headquarters and the regions; adoption of common design standards and methodology for project feasibility studies; and detailed technical proposals for improvement in procurement, accounting, computing, inventory control and personnel management. The president director has set up a working party to progress consideration of the recommendations, and a number have already been implemented. There is currently a pressing need for better information to support planning and decision making, both within PLN and between PLN, MME and other ministries and agencies concerned with power development. This problem will be addressed in the upcoming power sector management information system study, which is to be financed out of savings on the Power VII Project (Loan 1513).

Present Facilities

3.07 Until the early seventies, PLN's expansion was severely restricted because of the lack of foreign exchange in the country. A crash program resulted in gas turbines being preferred; currently they comprise about 34% of the total capacity. The imbalance in plant is being corrected with the commissioning of 1,000 MW of new steam capacity by 1982 and PLN's planning is now based on the least cost program of system development for Java. Similar programs are being developed for the grids located in the other islands. PLN's istalled capacity on March 31, 1980 is shown below:

Type of plant MW %

Hydro 504 18.9 Steam 756 28.4 Gas turbines 896 33.7 Diesel 506 19.0

Total 2,662 100.0 - 17 -

3.08 PLN operates over 4,000 km of transmission lines at 70 and 150 kV and about 45,000 km of distribution lines, the bulk of which are in Java. About 2,000 km of 150 kV transmissionunder constructionare scheduled for completion by 1982. Java will have a fully interconnectedgrid at 150 kV by 1982. By 1984, a 500 kV system linking West and Central Java will be commissioned, and extended thereafter to cover all Java.

Manpower and Training

3.09 PLN now has a total of about 29,000 staff of which about 19,000 are on the permanent payroll; of these 1,200 (4%) are university and college graduates and 6,300 (22%) are high school graduates. A steady improvement in the proportion of graduate and high school staff has occurred in recent years. Difficulty is encountered in obtaining technicalmanpower in sufficient numbers; PLN sponsors 30-40 scholarships annually at technical universities and 70-80 university graduates and 40-50 college graduates are recruited each year, to overcome the problem.

3.10 Six training schools are run by PLN throughout the country to provide vocational courses for the staff; about 1,100 attend the various courses each year. Staff members are sent abroad for advanced and other training not available in Indonesia. Project oriented training, particularly in foreign financed projects, is also provided. Numbers trained and the courses given are not yet geared to provide adequate staff of all the categories required by comprehensivemanpower planning but PLN will move closer to this goal in conjunction with the program of strengthening regional staffs during the next two years.

3.11 PLN does not have adequate training facilities for the operation and maintenance staff for steam power stations. About 40 people have been trained in the USA with the assistance of Black and Veatch International (BVI), the Project Consultants for the Muara Karang and Semarang steam stations. A similar training program is also being arranged for the operation and maintenance staff for the Suralaya project. To provide more advanced training needed, Power IX Project (Loan 1872) contains a provision for the establishment of a thermal station training school including a simulator replacing the existing facility at Tanjung Priok.

Research

3.12 PLN has established a power research institute which includes a high voltage testing laboratory. The institute, which conducts applied research in power associated areas, has a staff of 278, including87 graduates. - 18 -

Accounting and Audit

3.13 PLN prepares its financial statements according to generally accepted accounting principles and normal utility practice. Assets in use are revalued from time to time according to indices published by the Ministry of Finance, and annual depreciation charges are revised accordingly. PLN has agreed with the Bank that in years when an official revaluation is not carried out it will make a memorandum revaluation for Project Agreement purposes. PLN-s accounting system was installed by consultants in the early 1970s and, while it has generally served the company's needs well, there are now some signs that it may be due for overhaul. Furthermore, the trend towards increased decentralization of management functions (para. 3.05) will call for some restructuring of the system so that adequate financial informa- tion is available to local managers in a timely manner. These system developments are likely to involve increasing use of computers, possibly including terminal links between regions and headquarters. PLN has an inter-departmental working group examining this and related data processing developments, and the Bank should stand ready to assist with appropriate components of future projects when the needs have been defined.

3.14 Audit of PLN's accounts by the Directorate General of State Financial Control is prescribed by PLN's charter. The Directorate General follows the standards of the International Accounting Standards Committee (IASC) and the International Auditing Guidelines of the International Federation of Accountants (IFAC) and their audit reports are acceptable to the Bank. In 1981 they plan to introduce a management audit component into their audit program which will examine the efficiency of PLN-s operations and systems as well as the accuracy of its accounting. PLN also has an effective internal audit group which carries out various special investiga- tions in addition to keeping general accounting matters under review.

Insurance

3.15 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. PLN is separately examining the particular risks associated with the proposed project (para. 6.07)

Performance Under Earlier Bank Operations

3.16 The Bank has provided US$889 million for power generation/distri- bution facilities in and around Jakarta and in West and Central Java. Three distribution projects (Credits 165 and 334, and Loan 1259) for the rehabi- litated and expanded the distribution facilities in the greater Jakarta area. They also enabled some major institutional, organizational and financial reforms to be carried out in the electricity subsector, including - 19 -

providing PLN with a new charter giving it substantial autonomy. Six power generation projects ICredit 399, and Loans 1127, 1365, 1513, 1708 and 1872) in West and Central Java were undertaken to help PLN expand electricity supply in Java. Past loans and credits have also provided funds for various consulting services such as the large management consulting effort of SOFRELEC, the Java System Development Study undertaken by PCR, and feasibility studies for thermal, hydroelectric, transmission and distribution projects.

3.17 A completion report on the first two projects (Credits 165 and 334) was issued in November 1979. It describes how, after an initial period difficulty and delay (the two projects were completed some three and a half years behind schedule) many of the institutional and operational development improvements were effected, greater reliability of supply was achieved, and PLN-s sales began to increase rapidly. Lessons learnt from these operations were applied to subsequent operations. A specific program for financial recovery, designed to improve PLN's management capabilities and to overcome its financial weaknesses over time was incorporated in Credit 399, for example, and it was accomplished ahead of target during FY76.

3.18 PLN's performance in implementing the 9 Bank-assisted power projects has been uneven but is now improving. The earliest generation project (Credit 399) covering the first and second 100 MW units at Muara Karang thermal station was completed about two years behind schedule; the next (Loan 1127) for the third 100 MW unit, had a delay of less than one year. Subsequent generation projects at Muara Karang (Loan 1365) and Semarang (Loan 1513) are about 4-6 months behind appraisal schedule; two projects at Suralaya (Loans 1708 and 1872), although still at an early stage, are more or less on schedule. These projects are currently free of major problems.

3.19 There are other quantitative indications of PLN-s steady improve- ment in performance. Its system losses, as high as 27% on FY75, were down to 5% during FY79 and less than 22% in FY80. The generation (MWH) per employee increased from 240 in FY75 to about 340 during FY80. There is still scope for considerable improvement.

4. THE PROJECT

Objectives of the Project

4.01 The main objective of the project is to utilize the large undeveloped, hydroelectric potential of the Citarum river - the third largest river in Java - to meet Java's rapidly growing demand for electricity in the most economic manner. It will also provide PLN with technical assistance build up its capabilities in the fields of power market surveys, system planning, and contract management of major civil works awarded under international competitive bidding procedures. - 20 -

Project Description

4.02 The main project comprises constructionof:

(a) a 97.5 m high rockfill dam at Saguling, with a crest length of 290 m and volume of 2.9 million cu m;

(b) a side-channel,gated, concrete spillway with a capacity of 2,400 cu m/sec;

(c) two horse-shoe shaped diversion tunnels, 750 m long with inside diameters of 7.5 m and 9.0 m, respectively;

(d) a tower type, intake structure,with a capacity of 224.0 cu m/sec;

(e) two lines of water conductor system each involving: (i) a 4.7 km long circular,5.8 m diameter, concrete lined pressure tunnel; (ii) a 12.0 m diameter, 100.0 m high, differentialsurge tank; and (iii) a 530 m long penstock tunnel with an inside diameter of 5.5 m and an embedded steel liner; and (iv) about 1,250 m of penstock,with inside diameters varying from 4.3 m at the steel liner end to 2.54 m at the power house end;

(f) a conventionaltype power house at Saguling with an initial installed generating capacity of 700 MW (4x175 MW, with Francis type turbines);and

(g) a 500 kV switchyard.

The Saguling power station will provide the Java Grid with 700 MW of peaking capacity and 2,156 GWh of energy annually, of which 80% would be firm. Further details are at Annex 5.

4.03 The following preparatoryworks of the project are now in various stages of implementation:

(a) constructionof about 34 km of access roads, improvementand upgrading of about 17 km of existing roads, and two main construc- tion camps;

(b) relocationof about 8 km of roads and constructionof 3 new bridges;

(c) resettlementof some 3,000 families; and

(d) miscellaneousenvironmental related works.

4.04 The costs of the following items are also included in the scope of the project: - 21 -

(a) construction equipment for a PLN task force to be established by PLN (para. 4.32);

(b) selected consultancy services, including the Special Board of Consultants and other experts who will be appointed by PLN on a short-term basis to assist: (i) civil works contract management (para. 4.44); (ii) power market surveys (para. 2.02); and (iii) power system planning (para. 2.07); and

(c) detailed engineering of the Cirata Hydroelectric Project (para. 4.34).

Investigations and Suitability of the Saguling Site

4.05 Three sites on the Citarum river viz Saguling, Cirata and Jatiluhur, have been known for many years to be topographically suitable for construction of storage dams. A fourth site, Rajamandala with a relatively smaller potential is located between Saguling and Cirata. It is estimated that about 4,480 GWh of energy can be generated annually at these four sites. Their location and features are shown on Map 3 and the profile of the Citarum River Development at Annex 6. Jatiluhur, the lowermost of these sites, was developed in 1964 primarily for irrigation of 244,000 ha; its 125 MW power station provides about 800 GWh of energy (mostly seasonal) annually to the PLN system.

4.06 A reconnaissance survey of the other two sites was first carried out by New Japan Engineering Consultants (Newjec) during 1972/1973 on behalf of the Overseas Technical Cooperation Agency of Japan. It was followed during 1975/78 by a feasibility study, with financial assistance from IDA (Cr 399-IND). The study was carried out by Newjec in two phases. During the first phase, the features of the Saguling site (which had the advantage of a sharp 330 m natural drop in river bed level in a 6 km stretch, but required a long water conductor system) and Cirata (which had the advantages of a larger catchment area and shorter water conductor system - about 1.0 km - but could develop a head of only about 100 m) were compared. These investigations established that the Saguling site was the better of the two to initiate further hydro-electric development of the Citarum river. Further feasibility studies were concentrated at Saguling. Funds from TA 451 were used in 1978 to complete the feasibility study and to have it reviewed by the SBC constituted with well-known specialists. Guidance of the SBC was also available for the subsequent work of detailed engineering which has been carried out by Newjec since 1979, with financial assistance from the OECF. Final project designs were completed by mid-1980 and the results were incorporated in tender documents issued to prequalified bidders for civil and metal works on August 1, 1980 (para. 4.46). Bids have been received and are under evaluation.

Dam Site and Other Features

4.07 Two dam sites, located about 700 m apart, were available near Saguling village and were investigated in detail at the feasibility stage. The downstream site was preferred because it was narrower - requiring - 22 -

smaller volumes of excavation and fill - and the thickness of lake deposits on the right bank was thinner (10 m) than at the upstream site (35 m). The foundation rock at both sites was such that only an embankment type dam was possible. In view of several faults observed, deep weathering and the pattern of jointed rock, the downstream site was further explored with 60 drillings of about 3,000 m and 12 adits totalling700 m.

4.08 The steep valley walls and deeply weathered rock posed problems for spillway design. The spillway will be located on the left bank, and consists of both a gated and free overflow section, with a spillway chute and stilling basin. The arrangementand final design of the spillway has been based on a hydraulicmodel study Larried out at Bandung University in Indonesia. The results have been accepted by the SBC.

4.09 The alignment of the main headrace tunnels - some 5 km long - was topographicallyobligatory on the right bank. Two tunnels, rather than one, were chosen for the project, especially in view of the poor geological conditions expected in the initial section (about one third) of the tunnel route (para. 4.15) and also to provide better reliabilityin operation. The tunnel route has been investigatedby 14 drillings, extending about 1,100 m and one adit.

4.10 The 1.8 km long penstock route, with an average gradient of 170, was explored by 21 drillings totalling 1,000 m, 3 adits totalling170 m and 3 tiltmeters. The tiltmeterswere installed in 1978 on the suggestion of the SBC, to investigatecreeping in view of shallow landsliding observed. Although no signficant signs of creep have been observed, these investiga- tions have led to the adoption of a trench type layout which will ensure good anchors for the penstock. Considerationwas given to the alternative of underground shafts (instead of surface penstocks)but seismic explorations cast considerabledoubt on the adequacy of the rock for an underground powerhouse chamber. The undergroundpowerhouse alternativewas therefore not pursued further. A conventionalsurface power station, founded on sound rock, has been adopted.

Optimizationof Project Features

4.11 After the dam site was chosen, the project features were optimized for the maximum operating level of the reservoir, the ultimate capacity of the water-conductorsystem and generating capacity of the Saguling power station.

4.12 High water levels of the reservoir were critically examined in the range of 645 m to 650 m. It was finally fixed at 645 m as the incre- mental gain in energy was estimated at only 20 GWh annually,whereas the submergencewould extend to 2,500 additional hectares of land affecting some 24,000 more inhabitants. At 645 m, the number of people affected would be only 13,500, (3,000 families)whose resettlementwas consideredmanageable. The area submerged is 56.1 km2, of which 40% represents rice fields, 30% farm land and 30% forests, orchards and residentialareas. - 23 -

4.13 The Saguling site is well suited to provide a major source of peaking capacity for the Java Grid. Based on PCR's Java System Study and Newjec's further aa-lysis, the ultimate capacity of the station has been optimized at 1,400 MW, which would enable it to operate at an average annual plant factoi of about 17.5%. In the present stage of development (700 MW) the station would operate at an average plant factor of 35% which is appropriate. Operation studies carried out by PLN have shown that an installed capacity of 700 MW at Saguling would during 1986/87 relegate gas turbines (which would otherwise have to be operated to provide energy) to only peak load functions. Plans for extension of the water-conductor system and power station at a future stage have been incorporated in the project designs. The need for a downstream reregulating pond was considered in detail during the feasibility study and it was not recommended as (a) there are no downstream users, e.g., irrigation, whose abstraction of river flows would be adversely affected, (b) the construction of Cirata reservoir (expected to follow within a few years) would eliminate possible hazards or, account of sharp fluctuations in river flows, and (c) in the interim period hazards would be kept at a minimum by warning systems, whose costs are included in the project.

Geology

4.14 Main Dam. The foundation rocks at the downstream site are andesite, agglomerate, conglomerate, and conglomerate with limestone pebbles and mudstone. There are a number of minor faults, none of which is active. Except for a few local places in the river bottom and a few areas located above two thirds the dam height on both abutments which can be treated, the foundation rock is impervious and is expected to be stable.

Allied Structures

4.15 The tunnel route comprise lake deposits for the first 50 m, followed by fairly good, though not very hard, andesites, agglomerates and conglomerates for about 1,700 m. The tunnel then traverses a 1,000 m weak stretch of soft and cracky rocks comprising alterations of sandstones and mudstones. All other rocks along the tunnel route are hard and compact.

4.16 The foundations along the penstock slope comprise overburden, badly weathered sandstone and shale. The surface penstocks will be laid in a trench excavated to a sufficient depth to give sound rock foundations. Stable rock conditions are expected at depths not exceeding 20 m.

4.17 The powerhouse excavation level corresponds with the level of underlying hard limestone. Rock below this level is sound and continuous. Local slots, pinnacles and chimney-like channels are considered possible, but drilling data does not suggest that these would be extensive.

Reservoir Area

4.18 There is little concern about leakage of water from the reservoir because the reservoir is largely covered with lake deposits and the abutmenL of the dam site and the reservoir area are composed of impervious beds of - 24 -

volcanic tuffs and tuff breccias. There are no topographicallythin ridges around the reservoirs that would be favorable to leakage of water. Some landslideshave been observed in the area but they are mostly on a small scale, occurring in the lake deposits and at the lower sections of the reservoirand below the lake level. They have been studied in detail to enable preventive action to be taken against damage to temporaryworks during construction.

Siesmology

4.19 Siesmologicalstudies have been made by Newjec with earthquake data available for the last 30 years, which indicate a low probabilityof earthquake occurrencesin or around Saguling. Newjec has used a design seismic coefficientof accelerationof 0.15 g, which is greater than that used at Jatiluhur (0.10 g). The SBC has concluded that the analysis made leads to conservativesafety factors which are in line with current engineeringpractice.

Hydrology

4.20 The project area has a rainy season from November to April result- ing from a western monsoon and a dry season for the rest of the year. The mean annual rainfall is about 2,300 mm. River discharge data are available as follows: (a) at the damsite - for 9 years; (b) at 80% of the drainage area - for 20 years; (c) at 105% of the drainage area - for 12 years; and (c) at 175% of the drainage area - for 36 years. This data, considered adequate, was used to establish a long-termpattern of flows at the dam site for power potential studies.

4.21 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

Once in 10,000 years 6,597 Once in 1,000 years 6,165 Once in 100 years 3,942 Once in 20 years 3,208

The hydrologicaldata and studies used to support the project are acceptable. The project has been designed for the maximum probable flood of 6,597 cu m/sec. - 25 -

Sedimentation

4.22 The Institute of Hydraulic Engineering (DPMA) in Bandung has been carrying out measurementsof the silt carried by the Citarum river, and of river bed loads since 1972. These have not been continuous,however. During 1976 Newjec sampled suspended loads at 138 points, and collected data on river bed materials at 7 points. On the basis of analyses of this data Newjec has conservatively estimated the erosion rate from the 2,283 sq km Saguling catchment at just over 2.0 mm/year (this compares with about 1.0 mm/year assumed for the Jatilihur project downstream). The corresponding sediment volume was estimated at 4.0 million cu m per year. The storage in the reservoirbelow the intake level (618 m) is 50 times this volume. Newjec has also carried out a study of the likely effect on live storage at Saguling by aggradation at the reservoir entrances, taking into account the topographiccharacteristics of the Saguling reservoir. Its conclusion is that sedimentationat the top levels of the Saguling reservoirwould be small and will not be significant for about 50 years after construction.

4.23 There are uncertainties about future land use patterns and erosion rates in the watershed. In response to these, a supplementary sediment monitoring program has been included under environmental related measures. It would consist of daily monitoring at Nanjung, just upstream of the reservoir during the wet season. If sediment loads are seen to be higher than assumed, monitoring would be extended to other locations to identify sources of increased sedimentation and create a data base for corrective action.

Construction Materials

4.24 During 1975-80 several field and laboratory investigations were carried out by Newjec under the close supervision of the SBC. These have confirmed the availability and suitability of sufficient rock and earth materials for the construction of the main dam and for aggregate.

4.25 Three quarry sites were identified for rockfill materials during reconnaisance. Of these a site 8 km upstream of the dam at Karang, explored by 11 drillings of 670 m and 2 adits of 100 m, was chosen at the stage of detailed engineering, after establishing that it could provide an adequate quantity of good quality andesite suitable for dam embankments and for concrete aggregate production. The location of the main quarry site is shown in Map 4. A smaller scale limestone quarry site at Sangiantikoro has also been identified and explored. It will provide aggregate for concrete work at the surge tank, penstock and power house sites. Basic concrete tests using local cement, and aggregates from the two quarry sites were carried out in Indonesia and Japan and have yielded satisfactory results. - 26 -

4.26 Sites at: (a) Selak, 1.0 km upstream of Saguling; and (b) Kaak, 1.5 km downstream, were investigated for core materials. The Kaak site (see Map 4) proved more favorable in regard to the quality of clay. The site has been inve-sz;gatedby 20 drillings totalling 400 m, 3 vertical shafts 30 m deep and a 50 m adit. Soil tests were carried out at the project field laboratory. The results were satisfactory.

Engineering and Design

4.27 Newjec of Japan is the consulting engineer and is responsible for design and construction supervision of the project. The SBC was appointed early in 1978 to review the investigations and designs of the project and ensure that due consideration was given to all aspects involving safety of the structures. It has been agreed with PLN that the SBC will be continued throughout the construction stage. The appointments of Newjec and the SBC members were made by PLN in consultation with the Bank. An assurance of continued appointment of consultants under terms and conditions satisfactory to the Bank was obtained during negotiations of the proposed loan.

4.28 Detailed engineering of the project was completed during mid 1980. Final designs, including proposals for instrumentation, have been prepared and incorporated in bid documents for the main civil works (comprising the dam, water-conductor system, penstocks, power house & switchyards) which were issued on August 1, 1980. The final designs, as well as the bid documents have been reviewed by the SBC.

Environmental Aspects

4.29 Environmental aspects have been given due consideration from the initiation of the project investigations in 1976. Issues were identified in time and 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;

(c) are acceptable to both project management and the administrative hierarchy of the project area; and

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

There has been extensive involvement of environmental specialists in base- line and impact studies, design review, and implementation planning. Senior environmental specialists and managers from the Institute of Ecology - 27 -

Padjadjaran University, Bandung, (LE UNPAD) the Royal Tropical Institute, Amsterdam, The Netherlands and several others have contributed approximately 3 man-years of effort to the project, supported by an additional 12 man-years of effort by junior specialists, technicians, and students. Twenty-four project reports have been prepared and a formal project seminar was conducted. The cooperation of project management and provincial and Kabupaten leaders has been commendable. Project management has been responsive to environmental recommendations of specialists and the Bank, and effective in arranging compromise approaches to complicated problems such as resettlement. The Governor of West Java and the Bhupati of Kabupaten, Bandung have supported the project by issuing five decrees to facilitate land acquisition, resettlement planning and resettlement implementation. In June 1980 the Minister for Environment, GOI, cleared the project for construction.

4.30 Apart from the problem of optimizing the high water level of the reservoir and its design life (dealt with in paras. 4.12 and 4.22 above), resettlement, public health impacts, aquatic weed control, fisheries enhancement and drawdown agriculture were the main environmental issues. Compensation and resettlement of persons with homes or other major interest in the reservoir areas was the most serious environmental problem confronting the project mainly because:

(a) areas surrounding the reservoir are densely populated; about 9,500 families have to be dealt with, 3,000 of whom reside in the reservoir area and 6,500 reside elsewhere but own land or work in the reservoir area;

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

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

4.31 The following actions have been taken to date to deal with the resettlement problem:

(a) a 2-year anthropological, socio-economic, and ecological baseline and impact study (including censuses and property inventories) has been completed;

(b) alternatives to transmigration have been developed, scheduled, and evaluated. These include resettlement in Java through the Nucleus Estate Smallholders program (NES - 5) for about 1,200 families, resettlement in Java through the independent redevelopment of an abandoned plantation (for 500 families), development of aquacul- ture and drawdown agriculture in the reservoir area, employment training (for 500 families), and simple compensation (for 300 fam- ilies). Transmigration is expected to cover about 500 families; - 28 -

(c) decrees (para. 4.29) freezing land transactions,creating a ResettlementCoordinating Board, stating resettlementpolicy, and creating the resettlementimplementation team have been issued and are now in effect;

(d) a direct-paymentcompensation system has been in satisfactory operation for more than a year;

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

(f) detailed implementationplanning has been initiated;and

(g) an aide memoire listing and scheduling additional resettlement necessities (for item b above) has been prepared by PLN. The proposed arrangementsconstitute a program acceptable to the Bank.

4.32 The status of other environmentalaspects of the project is as follows:

(a) Public health - A fortunate circumstanceof the project, which reduces the potential for adverse impacts of the project on public health, is the fact that the geographic ranges of vectors of several parasiticdiseases including schistosomiasis,sleeping sickness,and river blindness, which are associatedwith river systems, reservoirs,and irrigation systems in other parts of the world, do not extend into the project area. However, concern about epidemicsof water-borneand insect-bornediseases has resulted in the developing of monitoring programs that will continue through the early years of operation. Construction health services will be provided in accordancewith past practice on other PLN projects.

(b) Aquatic weed control - Because circumstancesappear likely to favor the growth of aquatic weeds in many parts of the reservoir, provisions have been made for an aquatic weed control plan to be implementedin 1984.

(c) Fisheries enhancementand drawdown agriculture- As developmentof the reservoirshoreline area between elevations 640 m and 645 m is possible as also developmentof penned culture of carp and other species of fish, these potentialitieswill be assessed in detail during FY81 and implementationplans will be developed in accordancewith the findings. - 29 -

(d) Watershed erosion - In response to observations of increasing erosion rates in other watersheds and concern about the effects of population pressure and clearing of steep slopes on future erosion rates in the Saguling catchment area, supplemental sediment monitoring will be initiated in early 1981.

(e) Safety measures for persons living near the river downstream of the power house - These will be reinvestigated during the feasibility study for the Cirata Project which would inundate much of this area. Appropriate safety measures, including foot bridges, warning systems, bathing facilities, and resettlement, will be implemented thereafter. The project cost estimate makes adequate provision for these.

4.32 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.

Construction Equipment for a PLN Task Force

4.33 Basically all the project works will be done by contract. How- ever, PLN intends to build up a small construction task force of its own, equipped to deal with emergencies - mainly on work being carried out by local contracts - to ensure that the construction schedule of the main project is not adversely affected by delays, etc. The Bank agreed that this is necessary under the prevailing circumstances. The construction equipment required, estimated to cost about US$500,000, is therefore included in the scope of the project.

Engineering of Cirata Hydroelectric Project

4.34 As explained in para. 6.01, there would be need for both a substantial addition of generating capacity and energy potential of the Java Grid before FY88 in addition to the Saguling Project. Of the available sites for hydroelectric potential the Cirata site (para. 4.02) has the largest firm energy potential. Its salient features are at Annex 7. PLN-s latest update of studies of the least cost development sequence for Java indicated that the Cirata site should be developed for commissioning during 1986/87. Feasibility investigations of the site are in progress with financial assistance through Loan 1365 (Power VI) and an interim report was submitted in December 1980. It has been reviewed by the Bank, and one of the members of the SBC. The report confirms the technical feasibility of constructing the Cirata dam. A final report will be prepared by May 1981. PLN intends to carry through with detailed investigations and engineering of this project. MME and the national planning commission (BAPPENAS) support this approach and have requested the Bank to provide funds under this loan for the purpose. The Bank has agreed to do so and the project includes US$7.5 million for the foreign costs of detailed investigations and designs up to the stage of preparation of bidding documents. - 30 -

Project Cost Estimate

4.35 The total project cost over the 6-year implementationperiod (1980-86)is estimated at US$726.7 million equivalent,of which US$386.6 mil- lion represents the foreign component. The costs are summarized in the table below and are detailed in Annex 8:

Table 4.1: PROJECT COST ESTIMATE (SUMMARY)

Item Local Foreign Total Local Foreign Total ---- Rupiah billion------US$ million------

Saguling hydro-electric 211.3 235.7 447.0 338.1 377.1 715.2 project (700 MW) Construction equipment - 0.3 0.3 - 0.5 0.5 Engineering of Cirata hydroelectricproject 0.9 4.7 5.6 1.5 7.5 9.0 Selected consulting services 0.3 0.9 1.2 0.5 1.5 2.0

212.8 241.6 454.1 340.1 386.6 726.7

4.36 The cost estimates for the preliminaryworks of the Saguling project (access roads and constructioncamps) are based on local contracts awarded. The cost of road relocation has also been estimated on the basis of these rates. The costs of compensationand resettlementare based on (a) a detailed program of resettlementand (b) rates based on PLN's recent experiencesin the project area in connection with preliminaryworks. The cost of the other environment-relateditems (included in the "miscellaneous" category)are based on detailed estimates for known work and lump sum estimates for the rest, made by PLN in consultationwith LE UNPAD and Newjec.

4.37 The cost estimatesof the main civil works to be carried out through contractsunder ICB have been prepared by Newjec on the basis usually followed by contractorsviz a detailed constructionprogram was first worked out and then equipment and manpower of known capacitieswere applied to the preliminarybill of quantities estimated from detailed final designs incorporatedin the bidding documents. Other items such as fuel, power, compressed air, lighting etc. were added. Foreign costs cover the following: (a) mobilizationand supervisioncosts; (b) foreign skilled labor; (c) main steel structural materials and principal reinforcement;(d) - 31 -

freight, insurance and transportation of equipment and materials; (e) depreciation on equipment; (f) explosives and (g) fuel costs. Local costs cover: (a) applicable mobilization and supervision costs; (b) local labor; (c) timber; and (d) cement and supplementary reinforcement bars. The method followed and the resulting estimates are acceptable.

4.38 The costs of penstock steel have been estimated on the basis of designs prepared by Newjec, expected international prices for mild and high tensile steel, and adequate provisions for fabrication (at shop and site), transport and erection. The costs of turbines, generators, transformers, switchgears, spillway gates and screens (all items which are to be covered by OECF financing) are based on prices relevant to the type of limited bidding involved.

Contingencies

4.39 Physical contingencies have been provided for at the following rates (a) electrical and mechanical equipment - 5%; (b) penstocks and other metal works - 10%; and (c) civil works - 15%. These are adequate. Base prices are at September 1979 price levels. Price contingencies on the local currency portion have been estimated at the following rates: 15% for FY80/81 and 10% thereafter. For electrical and mechanical equipment and engineering costs, foreign escalation has been based on an annual escalation rate of 5% (reflecting the expected rate in the country of origin of goods and services agreed between OECF and PLN during OECF appraisal in July 1980) whereas other foreign costs have been calculated at the following rates: 10.5% for FY80; 9.0% for FY81; 8.0% for FY82; 7.0% for 1983-85 and 6.0% for 1986.

Consulting Services

4.40 The cost estimate for engineering of the Saguling Project covers 740 man-months for construction design and 1,100 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. Detailed engineering for the Cirata hydroelectric project covers the work up to preparation of bid documents, and is expected to take 20 months, involving about 500 man-months of expatrate effort, at an average man-month cost (as explained above) of US$10,000. In addition, local subconsultants, will contribute about 80 man-months of work estimated to cost about US$2,400 per man-month. Both the estimates include additionally provisions for test equipment, testing and surveys, and other minor items. The cost of selected consulting services is based on an estimate of the periods of use and prevailing rates. - 32 -

Financing

4.41 The project would be financed as follows:

Proposed Bank loan ...... US$250.0 million OECF loans ...... US$136.6 million PLN/GOI ...... US$340.1 million

Total ...... US$726.7 million

4.42 The Bank loan will cover the estimated foreign costs of (i) the main civil works and penstocks ($240.5 million), (ii) engineering of Cirata hydroelectric project ($7.5 million), (iii) selected consulting services ($1.5 million), and (iv) limited construction equipment ($0.5 million). The OECF loan would cover the foreign costs of (i) engineering and construction supervision of the project, and (ii) electrical, mechanical and hydraulic equipment. The local costs of the Project will be financed partly from PLN-s own cash flow and partly through contributions from the GOI. These are assured because of the high priority accorded to the project by PLN/GOI. Annex 9 provides a summary of the items to be financed by the main sources and their costs.

4.43 As in previous operations, the Bank loan would be to the Govern- ment which will relend the proceeds to PLN, the beneficiary, on the same terms as the Bank loan. Interest and commitment charges during the grace period of the loan would be capitalized. Signing of the Subsidiary Loan Agreement will be a condition of loan effectiveness.

Construction

4.44 The project will be implemented by PLN, with the help of consul- tants engaged in consultation with the Bank. PLN has appointed a project manager who has experience in dam construction in Indonesia, along with an adequate complement of field staff. The project manager will be assisted by PLN's headquarters staff, who also have some experience in execution of hydroelectric projects on a smaller scale. The engineer, Newjec, will be solely responsible for technical supervision and control of the project. As this is the first major ICB civil works contract which PLN will be involved in, it feels that expert advice may be required on occasion during the implementation period particularly on contract disputes where PLN as the employer would have an important role. Funds have been provided under the proposed loan for the use of such experts by PLN. The construction organization and arrangements proposed are appropriate for the nature of work involved.

4.45 The preparatory works on the project are being carried out by local contractors selected on the basis of local bidding. The contracts were placed in time and progress of construction so far has been adequate to meet the deadlines for providing access and other facilities to the contractors to be selected for the main works. - 33 -

Implementation Program

4.46 The main project works have been divided in categories, in accordance with the requirements of associated financing. The work has been divided into eight lots. Bid invitations for four of these covering civil works for the (i) dam and spillway, (ii) water-conductor system, (iii) powerhouse and switchyard, and (iv) metal work viz penstocks, have been issued on August 1, 1980. They are multiyear contracts with adequate (15%) provision for advance payments. The bid invitations for the items to be financed by OECF, viz. (i) gates and screens, (ii) turbines, (iii) generators and (iv) main transformer and switchyard equipment, have been issued in October 1980. The implementation schedule for the main project works is at Annex 10. The target is to commission the first two generating sets by March 1985 and the remaining two by September 1985. Milestone schedules have been prepared for both sets of contracts and are presented in Annex 11.

4.47 The construction program is tight but capable of being achieved. Crucial to the success of this program is the award of the main civil works contract in time to enable the main contractor to mobilize and start work on the diversion tunnels for the main dam by July 1, 1981. Only then would it be possible to complete the first diversion tunnel in time to start diver- sion of dry weather river flows by April 1982 and thus keep to the schedule of construction of the main dam. A failure to achieve these dates would set back completion of the dam, and hence the commissioning of the project by a whole year. Cognisant of the problem, PLN and GOI have reviewed their procedures and prepared a detailed working arrangement involving special procedures for bid evaluation and contract approval of the main civil works contracts, which, if adhered to by all parties involved, could meet the project requirements. The arrangements are workable. The crucial dates for award of the other contracts are 2-6 months later than the civil works (May 1981). There is adequate time to follow normal procedures for award of these contracts.

Procurement

4.48 Procurement of items to be financed under assistance from the Bank loan would be through international competitive bidding in accordance with Bank guidelines. The civil and metal works bidders were prequalified by PLN, after due international notification, in consultation with the Bank. The items to be financed under the OECF loan would be procured through limited bidding in Japan and less developed countries. Other local cost items would be procured, as hitherto, through local bidding procedures, which have been found to be appropriate so far.

Disbursement

4.49 The Bank loan will be disbursed against the following items:

(a) metal works - 100% of the foreign expenditures;

(b) civil works - 61% of expenditures; - 34 -

(c) construction equipment - 100% of foreign expenditures for directly imported goods, 95% of the ex-factory cost for locally manufactured goods and 65% of the total expenditures for imported goods procured locally; and

(d) consultants services - 100% of expenditures.

No disbursements will be made for expenditures prior to loan signing.

4.50 The schedule of disbursement of the Bank loan is at Annex 12. It has been based on the implementation schedule of the project (Annex 10) and the payment provisions made in the bidding documents. If contract approval is accorded by the critical dates in the milestone schedule (Annex 11), the schedule can be achieved.

Maintenance for Dam Safety

4.51 In order to ensure that the project works are maintained satisfactorily, it was agreed, during negotiations, that PLN will, 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.

5. FINANCIAL ANALYSIS

Past Results

5.01 PLN-s operations have grown strongly throughout the last decade, and energy sales tripled between 1971 and 1980. During the last five years the rate of growth accelerated; energy sales increased from 2,800 GWh in 1975/76 to 5,300 GWh in 1979/80, and for the last two years the rate of growth has exceeded 20% per year.

5.02 Revenues from energy sales in recent years have been derived from a tariff which was introduced in 1973. The tariff contained provision for the application of a surcharge to recover increased costs attributable to fuel prices, and this facility was used in 1974/75 and 1975/76 to increase average revenues to Rp 27 per kWh, at which level they remained until the introduction of a completely new rate schedule on May 1, 1980 (para. 5.06). With this revenue base PLN operated at or near breakeven in net income terms through 1978/79. A loss of Rp 22 billion is reported for 1979/80,/i attrib- utable entirely to increased depreciation charges arising from the revalua- tion of assets which was carried out during that year (para. 3.13).

/_ 1979/80 financial results are provisional and subject to audit. - 35 -

5.03 PLN's investment program began to accelerate rapidly in 1974/5 from the low level of the early 1970s, and by 1979/80 capital expenditure was running at over Rp 300 billion annually - more than twice sales revenue. With negligible net income, PLN's only sources of internal funds have been depreciation retentions and customers' connection fees, which amounted to 17% of capital expenditures over the last five years. GOI provided the rest of the funds required, mainly in the form of -uity capital, though since 1978 the onlending of finance from international lenders has formed an increasing proportion of GOI funding Lo PLN.

5.04 Income statements, funds flow statements and balance sheets for the last five years are at Annex 13.

Present Financial Position

5.05 PLN's balance sheet at March 31, 1980 may be summarized as follows:

Rp billion

Net Worth Fixed assets in operation, at depreciated replacement cost 684 Construction in progress 857

1,541

Current assets 187 less current liabilities 44

Net current assets 143

Total net worth 1,684

Financed by Capital and reserves 1,336 Customer contributions 157 Long-term debt 191

1,684

Since loan financing is a relatively recent innovation for PLN, the debt: equity ratio stands only at 12:88, which leaves the company conservatively leveraged to sustain a high level of borrowing for capital expenditure. The - 36 -

current ratio is 4.3, and with current assets includingRp 70 billion in cash the company's liquid position is satisfactory. The level of receivableshas given some cause for concern in the past, but as a result of the adoption in 1980 of a more rigorous policy towards delinquent debtors the average length of credit has been reduced from 94 to 72 days. While still too high, this measure reflects mainly the long delay in settlement of certain public accounts; discussionsare presently in progress between PLN and the concernedauthoriities to try to improve payment procedures. At negotiationof the Power IX Project (Loan 1872), it was agreed that GOI outstandingaccounts will be reduced to two months billing by March 31, 1982; this covenant will be repeated in the proposed loan.

Future FinancialPerformance

5.06 PLN introduced a new tariff on May 1, 1980, whose salient features were as follows:

(a) the structureof the tariff and classificationof customerswere revised, so as more closely to reflect the long run marginal costs of supply to the various consumer groups, while at the same time restrictingcharges to the lowest income households to what was consideredaffordable;

(b) rates were revised, increasing average revenue per kWh sold from Rp 27 to Rp 42; and

(c) the surcharge facility was widened to allow all cost increases to be passed on, not merely those relating to fuel.

Coincidentallywith this tariff increase GOI raised the price of all petroleum products by 50%, so that initially about one third of PLN's additional revenue will be absorbed in higher fuel bills. In terms of net income, PLN would be able to maintain breakeven for two years if the new tariff were retained without change.

5.07 In 1977 PLN and the Bank agreed that a level of contributionto capital expendituresfrom internally generated funds was suitable as a measure of financialperformance. At negotiationsfor the Power VIII Project (Loan 1708) this was set at 30% (on a 3-year moving total basis) which was to be achieved by 1985/86; this agreement was repeated in the loan documents for the Power IX Project (Loan 1872). Indicative targets for the interveningyears have also been the subject of discussionand revision from time to time between PLN and the Bank; the latest ones are:

FY81 through 82 12% FY83 through 84 20% FY85 25% - 37 -

Projections indicate that the 1980 tariff increase will permit continued growth of internal cash generation, and this would be sufficient to attain PLN-s current indicative targets for FY81 and 82. But, because the rate of growth will be lower than that of capital expenditures, PLN will need a further tariff increase to achieve its indicative targets for FY83-85 and the convenanted level for FY86. This is estimated to be on the order of 20-30% in real terms. Some flexibility exists as to the timing of this increase; in the financial forecasts (Annex 14) it is assumed to be implemented in two approximately equal steps in FY82 and FY84.

5.08 Around 1986, PLN is expected to enter a period in which its unit costs will decline gradually (1-2% per year) in real terms. The factors contributing to this include, in particular:

(a) the expected impact of the loss reduction program;

(b) increased efficiency of operation in Java on completion of the EHV transmission line; and

(c) increasing economy of operation in some of the systems outside Java as a result of scale and improving load factors.

These considerations suggest that for the remainder of the forecast period (through 1989) PLN's requirements for increased unit revenues will be entirely within the scope of the tariff's surcharge facility (para. 5.06(c)), and that average revenues may therefore be allowed to advance at rather less than the rate of cost inflation.

5.09 On this basis, PLN would maintain its target self-financing ratio throughout the remainder of the forecast period and would generate a rate of return (on revalued net fixed assets in operation) approaching 8% by the end of the period. Continuation of GOI's existing policies on capitalization of PLN would result in a debt: equity ratio of about 25:75 at the end of the period with debt service covered over 3 times throughout, thus leaving the company comfortably leveraged for continued growth in the 1990s. The forecasts indicate that the existing agreement between GOI and the Bank on securing an adequate cash flow for PLN (para. 5.07) is reasonably quantified for the medium term; it will be continued under the proposed project.

6. JUSTIFICATION

Demand

6.01 The forecast of electricity demand in Java (Annex 2) and growth of supply (Annex 3) indicates that the available generating capacity based on additions under implementation through 1985/86, would not be able to meet - 38 -

the anticipatedmaximum demand of about 3,440 MW during 1986/87 or its energy requirementof about 20,500 GWh. The installedgenerating capacity during 1985/86 would be 3,727 MW, which, after allowing for the 25% margin which studies have shown to be necessary to provide a reliability index (loss of load probability)of one day in one year, can safely meet a maximum demand of about 3,000 MW. The energy capabilityof the system, assuming operation of all its steam plant at base load and all of its gas turbines at annual capacity factor of 25%, would be only 18,100 GWh. Augmentationof generating capacity is required before 1986/87. The most recent trends of accelerationin the growth of PLN sales (para. 2.07) indicate that the demand indicatedabove may materialise earlier than 1986/87. Because of this, and the possible fuel savings, PLN has planned to commission the Saguling hydroelectricproject during 1985/86. This is appropriate.

Least Cost Solution

6.02 The Java system developmentstudy carried out by PCR of the UK with Bank assistance (Credit 399) had establisheda least cost development sequence of expansion of generating capacity for discount rates up to 15%. PCR recommendedin 1976 that out of all the new generation schemes examined, the Saguling hydroelectricproject had the highest economic rate of return (18%) and that it should be implementedwith an installed capacity of 700 MW by 1981, if possible. However, investigationsof the scheme did not proceed rapidly enough and precedencewas correctly given to the Suralaya thermal station. This enabled PLN to complete the investigationsof the Saguling hydroelectricproject thoroughly and meet the equally urgent need for a large base load thermal power station at Suralaya. Subsequent investiga- tions by PLN and other agencies have confirmed that the conclusionsof the PCR study still remain valid and that the Saguling hydroelectricproject is the most economic next step in the least cost developmentsequence. Economic studies carried out by Newjec for the feasibilityreport (1978), indicated that for the range of discount rates used (6-20%) the Saguling project was more economic than thermal power stations,as well as gas turbine installations.

Internal Economic Rate of Return

6.03 The internal economic rate of return (IERR) is the discount rate which equalises present values of the streams of economic costs and benefits attributableto the project. The costs include all the direct costs of constructionof the project, and those required to deal with rehabilitation and environmentalmeasures. Extensions of the transmissionand the distributionsystems required have been allowed for in the estimates of costs. - 39 -

6.04 As the scheme has been designed and is being constructed as a peaking station (with an initial plant factor of 35%, capable of extension to operate ultimately at 17.5% plant factor) incremental revenues, which are used as a proxy for total benefits, have been assessed on the basis of the project design and the expected pattern of operation of this power station. Roughly half the energy output of the scheme would be generated during the 4-hour peak period and the balance during off-peak hours. These components have been evaluated at the respective tariffs currently applied by PLN.

6.05 The cost and benefit streams and details of shadow pricing are provided in Annex 16. The IERR is 16%. It is a minimum measure of the benefits principally because consumer surpluses have been ignored. The project would, in addition to the benefit of power generation at Saguling, afford downstream benefits both for further power generation as at Cirata and Rajamandala sites. These have not been evaluated.

6.06 The IERR of the project would be reduced to about 14% if there is a delay in construction of 12 months involving 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 expeditions action on contract approvals make it unlikely that such an increase in cost would occur on this project.

Risks

6.07 The risks associated with the proposed project are the uncertain- ties inherent in most hydroelectric projects, such as possible geological problems, hydrological complexities, and similar matters. However, the thorough and competent preparatory work undertaken by PLN and consultants, as well as the precautions taken in establishing the SBC right from the stage of feasibility studies through detailed engineering, are expected to keep the risks to a minimum. Contractors have been directed to provide for conventional all-risk insurance as a separate item in their bids. PLN is separately carrying out a risk analysis study using a consultant acceptable to the Bank. If the study indicates that it would be more advantageous to PLN to modify its insurance for the project, the question would be reviewed and necessary changes made in the contract documentation.

7. AGREEMENTS TO BE REACHED AND RECOMMENDATIONS

7.01 The following main covenants in the earlier power loans and project agreements will be continued in the agreements for the proposed loan: - 40 -

(a) GOI should, through PLN, review annually with the Bank changes in the demand growth in Java and consequent variations in PLN's development program for Java, and take steps to implement such development programs;

(b) GOI should, through PLN, review annually with the Bank, PLN's investment program for the next year;

(c) PLN should prepare and furnish to the Bank annually for review, its customer connection program, and thereafter implement it in a satisfactory manner;

(d) PLN should attain a level of contribution to its capital expenditures of not less than 30% by 1985/86;

(e) PLN should maintain a debt:equity ratio of not more than 60:40;

(f) PLN should maintain a debt service cover of not less than 1.3 times;

(g) GOI shall ensure (i) that amounts owing by its departments and agencies to PLN for elecric power shall be settled by the 15th of the month in which they are due; and (ii) by March 31, 1982 the amounts so owing to PLN do not exceed two months billing.

7.02 The specific agreements reached during negotiations of this loan are:

(a) PLN would with the assistance of GOI take steps to improve the capability of its power market survey units - at Central and Wilayah levels - to carry out power market surveys to update the PCR study in Java and similar consultant studies in other islands and compile data for all islands (para. 2.02);

(b) PLN would improve the capability of its central system planning unit at heaquarters appropriately to identify emerging system bottlenecks in advance and ensure that its power systems continue to be adequate as the demands escalate (para. 2.07);

(c) PLN would continue to employ consultants (including the SBC) on terms and conditions satisfactory to the Bank for engineering of the project (para. 4.27); and

(d) PLN would, 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. 4.51).

(e) Signing of a subsidiary loan agreement will be a condition of effectiveness of the loan. - 41 -

7.03 Agreement having been reached on the above matters, the project is suitable for a Bank loan of US$250 million, for a period of 20 years, including 5 years of grace, at interest rates prevailingat Board presentation. INDONESIA TENTH POWERPROJECT ORGANIZATION CHART OF THE MINISTRY OF MINES AND ENERGY

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World Book - 21988 - 43 -

ANNEX 2

INDONESIA

PERUSAHAANUMUM LISTRIK NEGARA

TENTH POWER PROJECT

Forecasts of Future Generation Requirements in Java (GWh)

Year PCR (high) PCR (low) PLN/IBRD (1) (2) (3) (5)

1981 18,538 11,639 8,491

1982 21,513 13,285 10,291

1983 24,894 15,054 12,388

1984 27,212 16,999 14,771

1985 31,393 19,198 17,332

1986 36,187 21,646 19,810

1987 41,684 24,370 22,643

1988 47,986 27,393 26,039

1989 55,266 30,739 29,945

1990 63,669 34,439 34,437 ANNEX 3

INDONESIA

TENTh POWERPROJECT

Growth of Generation Capacity, Salea, and Peak Demand in Java

Actual Forecast 1975/76 76177 77/78 78/79 79/80 80/81 81/82 82/83 83/84 84/85 85/86 86/87 87/88 88/89

Sales target (GWh) 2,286 2,506 2,840 3.446 4,242 5,324 6,496 7,924 9,588 11,507 13,692 16,157 18,604 21,530 Increase (2) - 9.6 13.3 21.3 22 25 22 22 21 20 19 18 15 16 Losses (CGh) 769 804 911 1,051 1,307 1,681 1,995 2,367 2,800 3,264 3,640 4,321 4.946 5,552 Gross generation (GUh) 3,055 3.310 3,751 4.510 5,544 7,005 8,491 10,291 12,388 14,771 17,332 20,478 23,550 27,082 system pek (NW) 491 556 630 766 955 1,176 1,425 1,728 2,080 2,480 2.910 3,438 3,953 4,546 System load factor 71 68 68 67 66 68 68 68 68 68 68 68 68 68 Installed capacity (NW)

Hydro Basis 406 406 406 406 406 406 406 406 406 406 406 406 406 406 Vlingi I 6 2 - - - 27 54 54 54 54 54 54 54 54 54 54 Garung I A 2 ------28 28 28 28 28 28 28 28 Saguling 1-4 ------700 700 700 700 Mrica 1-3 ------120 Saepor - - - - - 1 1 1 1 1 1 1 1 1 Wonogiri ------13 13 13 13 13 13 13 13 Juanda 6 - - - - - 25 25 25 25 25 25 25 25 25 Lodoyo ------5 5 5 5 5 5 5 Sengguruh ------29 29 29 29 29 29 Kesamben ------33 33 33 33 33 Curug ------6 6 6 6 6 6 6 Cirata ------250 500 500

Total Hydro (HW) 406 406 406 433 460 486 527 538 567 600 1_300 1,550 1,800 1,920

Steam Basis 200 200 200 200 200 200 200 200 200 200 200 200 200 200 Semarng I & 2 - - - 100 100 100 100 100 100 100 100 100 100 0oo Semarang 3 - - - - 200 200 200 200 200 200 200 Perak364 - - - 100 100 100 100 100 100 100 100 100 100 100 Gresaik I 2 ------200 200 200 200 200 200 200 200 Huars KaIarg 1-3 - - - 100 300 300 300 300 300 300 300 300 300 300 Xuara Karang 4 & 5 - - - - - 200 AKOO 400 400 400 400 400 400 400 Gresik 3 - - ______200 200 200 200 200 200 Surlay I &2 - - - _ - _ _ _ - 400 800 800 800 800 New coal fired station - - - - 400 1,400 3 Total Steam (NW) 200 200 200 SOO 700 900 1,300 1,500 1.700 2,100 2500 2,500 2,900 3,900

Gas Turbines Basis 200 340 340 340 340 340 340 340 340 340 340 340 340 340 Semarsng - - 20 20 20 20 20 20 20 20 20 20 20 20 Tg. Priok - - 200 200 200 200 200 200 200 200 200 200 200 200 Gresik I & 2 40 40 40 40 40 40 40 40 40 40 40 40

Total Gas Turbines (HW) 200 340 600 600 600 600 600 600 600 600 600 600 600 600

Total Diesels (MU) 57 57 57 14 ------_ _ _

Geothermal (NW) Kamojung T /s ------30 30 30 30 30 30 30 30

Total Installed (MW) 863 1,003 1,263 1,547 1,760 1,986 2,457 2.668 2,897 3,330 4,430 4,680 5,330 6,450

Energy generating cap-bility (GWh) /b - - - - 5,500 6,700 9,700 11,800 12,400 18,iOO 18,100 18,100 18,100 18,100

/a New geotherml plants are expected to be constructed by other organizations under the ministry of Mining and Energy and are not shown in PLN's schedule of capacity.

/b Assuming Saguling, Cirsta and Mrics hydroelectric and new coal fired steam stations are not contructed, 6,000 operating hours for Lteam plant, 2,000 operating hours for gas turbines and full energy output of hydroelectric stations, based on average runoffs. kANNEX

INDONESIA TENTH POWERPROJECT OrganizationChart of PLN f P g

SnemcalArea of Acan

The Board of Oir etor | t.N PRqion it of PLN i Ncrtn Sumatwra

PLN Region III

DirwrorOirector stof of VWet Sumatera ano Riau _ Oir,ctorat. sf § irbetorete i f_ ,P!an_ Acministration PLN RgieonIV South Sumatera. Lamoung, Directorate of Oirectorate of Jambi ano 3anghulu Main Pro$ I Conrjitucton Finance IGenreraton anri Trammtmion __ PLN Regioona "JRo"t 5u - twa _ est Kaiimana Directorate of

______1: _ _ _ South _ PLN Region VIt Generation ano Transrnisigion ot,Cnra I n 1 West uranam,s Central South,t ant

Tahen.ist Contral i PLN Region Vil Main Project Ea _ J atreNorth an Cat Ssnaet -sMainProject Thermal Power Central PLNSRegion Vill CEetra Java Workshop South an aSoutn Es Suinw |

Cntral JaI N IeiII.

MainMai'n ProjectProject P" einX T 7HadsoiPoienrransmssicn Pwe BegNPLN RegionRegtanm XIEaX I

Main Project j Hyrm Poww PLN Region Xi 5 |Central JavaanaJWe CentralJava Iri~~~~~~~~~~~~~~~~~~~~astand5JavaYSaa t

Wt Jail

3MainMain ProjanPINGeeatoProject 5 'aysmsonWesTermamPssiow Ja oWer Jaw r Wls &adJicraRy JavaPUN egtndRgdiotibtinJaara a | Javaand Jakat i I| N WTestraw a | EHTransm"si4 envSs 9, PLNeOlsibti |

I MainPsiaj m II | hsia ahnnrSPro i PLN Dinonidurian Main Project

5 WenJr I r H W" J wndJoResearch '~~~~~~~~~~~~~~~~~~~~~~~oi SaI - 2 Facilities Jakarta RJ and Yagerang

5learicHo E-ducat L Bnank- 51 -46- ANNEX 5 Page 1 of 2

INDONESIA

PERUSAHAAN UMUM LISTRIK NEGARA

TENTH POWER PROJECT

PRINCIPAL FEATURES

SAGULING HYDROELECTRICPROJECT

General

1. The main features of the Saguling hydroelectricproject are a 97.5 m high rockfill dam and spillway, an about 6.5 km long water-conductor system comprisingtunnels, surge shafts and penstocksand a 700 MW overground power station.

A. SagulingReservoir

Full Supply Level (FSL) +643 m Maximum ReservoirLevel (MRL) +645 m Minimum Operating Level (MOL) +623 m Gross Storage Capacity (at +645) 982 x 106 m3 Effective storage (capacity) 609 x 106 m3 Effective storage (between FSL & MOL) 609 x 106 m3 Surface area at: MRL 56.1 km2 Catchment area 2,283 km2 Average annual rainfall 2,322 mm Average annual inflow 80.5 m3/sec

B. Dam Type Rockfill dam with an impervious central core Crest elevation +650.5 m Crest length 301.4 m Height 97.5 m Embankment volume 2,959,000m3

Spillway Type/capacity Chute type with side channel/2400m 3/sec Gate particulars 3, fixed roller gates 10 m x 8.3 m, Net crest length 62m Chute width 62m Inflow design flood 5,193m3/sec Energy dissipator Stilling basin with baffle piers ANNEX 5 Page 2 of 2

Diversion tunnel Number 2 Length 750 m, each Cross section horse-shoe shaped, with inside diameter of 7.5 m and 9.0 m respectively

Lowlevel Outlet Works Number 1 Location inside one of the diversion tunnels Type Hollow jet valve

C. Water Conductor System

(a) Intake Type/capacity Tower/224.0 m3 /sec

(b) Pressure tunnel Number 2 Length 4690 m Cross section circular, 5.8 m wide diameter

(c) Surge Tank Number 2 Type Differential, with a circular section Inside diameter 12.0 m Height 103.2 m

(d) Penstock Tunnel Number 2 Length 530 m each Cross section Horse-shoe shaped, 5.5 m wide and 5.5 m high Steel liner inside diameter4.3 m embedded in the tunnel

(e) Open portion of Penstock Length about 1,250 m Width of grade 14 m Penstock pipe 2 lines, inside dia 4.3 m reducing to 2.54 m D. Power Station Width 32.5 m Length 104.4 m Height 44.0 m _ 48 -

INDONESIA ANNEX6 TENTH POWERPROJECT CITARUM RIVER DEVELOPMENT PLAN

2 verageinflow 8 0 .5rn /sec (CA = 2,283 km )

SAGULING DAM

N .W .L 643 E L 650.5

s7LW.L 623 609 x tG6m3 Q.

600 - dead storage , n

27 x . p z: E.L. 553

0Doperating rule of Saguling releasef irm discharge 52m fsec constantly, 500 except when water level of other downstream ' reservoirs reaches LVVL,when discharge req- E- uired for supply will be released E r

0. r; (3operating rule of Cirata ,

400 ~ releasef irm discharge 125 m /sec constantly, E .2 except when water level of Jatiluhur reservoir E reaches LWL, when discharge required for x x Saguling Power Station supply will be released E E TWL 252 E 3P-700 MW) z averageinflow 179.9m /sec lE - 2156 GWh Avi 2 300 averageinmow /CA=4,500 ki ) Rajamandaladam < ~~163.4mn RajamandalaPower Station > (CA-4,090 km2j (P - 57 MW) EL 255 > . IE -183 GWh Av) D N.W. L 252 E

~~~4~~~220N.W.L22C \, | ~~~Ciratadam | L25/2 __~~~~L W z L2

200 200-6xO _ ~~LW.L 200 968 x 06m,3 EL 138

dead storage 8 . _

345 x 106m3 Jatiluhu;d E N.W.L 106 3.000 x 106 m3 EL 11.5Cirata Power Station tO0 -T 102 0% EL LW. L 78 1 900 x 106 m3 (p-500 MW) . Ejgt E l ~~~~~~~~~E- 1332 GWh AOE EL 47.5 S60 x 108 m3 7 Jatilihur Power Station

O. -(E = 807 GWh Av)

Doperating rule of Jatiluhur Requirement *releesedischarge required for supply, irrigated area keeping minimum discharge 750m3/sec 244 x 103 ha for power until water levei reaches water supply for Jakarta to L.W.L 17.7m3/sec *releasedischarge required for suppiy, LEGEND usingdead capacity when water level of other upstream reservoirsreaches to LVW.L M Existing T3Tenth Project Ea Future

World Bank - 21987 ANNEX 7 -49- ...... Page 1 of 2

INDONESIA

TENTH POWER PROJECT

Perusahaan Umrum Listrik Negara

Salient Features of Cirata Project /a

Main Features Installed capacity . . .500 14W Maximum discharge . . .516 cu m/sec Maximum effective head ... 112 m

Reservoir and Hydrology Catchment area ...... 4,090 sq km (Saguling 2,283 sq km) Reservoir area ...... 58.8 sq km High water level ...... HWL 220.0 m Low water level ...... LWL 200.0 m Total volume ...... 1,883 x 106 cu m Effective volume ...... 968 x 106 cu m Mean annual yield ...... 163.4 cu m/sec Probable flood discharge ...... 8,000 cu m/sec (1/1000/years) Probable after Saguling ...... 5,600 cu m/sec (1/1000/years) Actual flood ...... 1,400 cu m/sec (Sec. 1973)

Energy Assessment High water level...... HWL + 220.0 m Low water level ...... LWL + 200.0 m Tailrace water level ...... TWL + 102.0 Gross head (maximum) ...... + 118 m Gross head (minimum) ...... + 102 m Maximum effective head ...... 112 m Installed capacity ...... 500 MW Effective output ...... 432 MW Annual generated energy ...... 1,332 GWh Firm discharge ...... 125 cu m/sec Peak discharge ...... 516 cu m (24% plant factor)

Structures

Dam

Dam type ...... Concrete gravity Dam height ...... + 101 m Crest length ...... 481 m Concrete volume ...... ,.1,654,000 cu m

/a Engineering for the future Cirata Project is included in the Tenth Power Project covering construction of the 700 MW Saguling Hydroelectric Project. -50-

ANNEX 7 Page 2 of 2

Spillway Capacity ...... 5,600 cu m/sec Width ...... 6 x 10 m Depth ...... 10 m

Waterway Conductor System

Intake ...... Inclined type Headrace ...... 4 x 1,068 m, 7.3 m, dia Surge tank ...... Differential open type

Penstock Type ...... Underground diagonal tunnel Dimensions ...... 5.6 m dia; 4 x 236 m, 4,090 ton

Power House ...... Semi-underground type

Electro Mechanical

Unit size ...... 125 MW Number ...... 4 Type ...... Francis -51- ANNEX 8 Page 1 of 2

INDONESIA

PERUSAHAAN UMUM LISTRIK NEGARA

TENTH POWER PROJECT

Project Cost Estimate (US$'000)

Local Foreign Total

I. Saguling Hydro-Electric Project Preliminaries Site preparation 15,396 15,396 Road relocation 12,357 - 12,357 Miscellaneous (Environment) 14,485 2,826 17,311 Resettlement/Compensation 49,220 - 49,220 Subtotal 91,458 2,826 94,284 Main Civil & Metal Works Dam and spillway 25,230 51,573 76,803 Water conductor system 21,764 39,302 61,066 Powerhouse/switchyard 15,529 19,004 34,533 Gates & screens 675 6,276 6,951 Penstocks 6,552 43,089 49,641 Subtotal 69,750 159,244 228,994 Electrical/Mechanical Equipment Turbines and auxiliaries 1,224 20,784 22,008 Generators and auxiliaries 3,937 29,687 33,624 Transformers/switchgear 6,592 34,168 40,760 Subtotal 11,753 84,639 96,392 Engineering 7,600 19,265 26,865 Administration 6,126 - 6,126 Total Base Cost 186,687 265,974 452,661 Contingencies Physical 28,904 26,818 55,722 Price 122,476 84,357 206,833 Subtotal 151,380 111,175 262,555 Total Cost of Saguling Project 338,067 377,149 715,216 II. Construction Equipment - 500 500 III. Engineering of Cirata Project 1,500 7,500 9,000 IV. Consulting Services 500 1,500 2,000 Total Project Cost 340,067 386,649 726,716 -52-

ANNEX 8 Page 2 of 2

INDONESIA

TENTH POWER PROJECT

Perusahaan Umum Listrik Negara

Project Cost Estimate (Contingencies Included in Each Item) (US$'000)

Local Foreign Total

Saguling Hydroelectric Project

Preliminaries Site preparation 22,238 - 22,238 Road relocation 22,010 - 22,010 Miscellaneous 30,717 3,264 33,981 Resettlement/compensation 86,673 - 86,673

Subtotal 161,638 3,264 164,902

Main Civil and Metal Works Dam and spillway 44,966 81,120 126,086 Water conductor system 40,331 63,334 103,665 Powerhouse/switchyard 28,036 30,079 58,115 Gates and screens 1,336 9,713 11,049 Penstock 12,530 66,010 78,540

Subtotal 127,199 250,256 377,455

Electrical/Mechanical Equipment Turbine and auxiliaries 2,552 24,006 26,558 Generator and auxiliaries 8,175 34,288 42,463 Transformers and switch gear 13,676 39,463 53,139

Subtotal 24,403 97,757 122,160

Engineering 13,989 25,872 39,861 Administration 10,838 - 10,838

Total Cost of Saguling Project 338,067 377,149 715,216

Construction equipment - 500 500 Engineering of Cirata Project 1,500 7,500 9,000 Consulting services 500 1,500 2,000

Total Project Cost 340,067 386,649 726,716 -53- ANNEX 9

INDONESIA

TENTH POWER PROJECT

PerusahaanUmum Listrik Negara

Summary of Cost of Saguling Project by Financing Sources (US$ '000)

Foreign Local Total

IBRD Financed Items /a A-1 (Civil: dam) 81,120 44,966 126,086 A-2 (Civil: waterway) 63,334 40,331 103,665 A-3 (Civil: powerhouse) 30,079 28,036 58,115 B-2 (Metal: penstock) 66,010 12,530 78,540

Subtotal 240,543 125,863 366,406

OECF Finance Items /a B-1 (Metal: gates) 9,713 1,336 11,049 C-1 (Elec.: turbine) 24,006 2,552 26,558 C-2 (Elec: generator) 34,288 8,175 42,463 C-3 (Elec.: trans.) 39,463 13,676 53,139 Eng (Engineering) 25,872 13,989 39,861 D-3 (Hydro monitoring equipment) 3,264 880 4,144

Subtotal 136,606 40,608 177,214

Local Finance D-1 (Preparatory) - 22,238 22,238 D-2 (Road) - 22,010 22,010 D-3 (Miscellaneousenvironment) - 29,837 29,837 OWN (Administration) - 10,838 10,838 COM (Resettlement) - 86,673 86,673

Subtotal 171,596 171,596

Total 377,149 338,067 715,216

/a IBRD and OECF will finance only the foreign costs of the items included in the respective lists. INDONESIA PERUSAHAAN UMUM LISTRIK NEGARA TENTH POWERPROJECT IMPLEMENTATION SCHEDULEOF THE SAGULING PROJECT

1 1982 1983 1984 1985 1986 198 lOtT` YVEAR 1979 1980 1981 3 4 1 2 3 4 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 No. ITEM OlJARTER 1 2 3 4 1 2 3 4 1 2

CIViL WORKS Prepare Design Prepare Specification ork r Piequalilication Tender Call Eva l I It for .Ci L/C Work| | (Civil Worl I ldrS e Diversi|n Tunnel Closure A--i Da3 & Spillway TernderColl Eval. Neg. L/C Construction (Civil Work) I I I Ten Tend Call erEval. NLI. L/C A2 Watcrvway IEl e r - a - | (civil Work) I- -Construction Eval. NIu .Ia A - 3 Powerhouse and Tuilrace TesideCall *-- Cntuio (Civil Work)

METAL WOHKS I IL Tender Call Eval. Nag. L/C II [S- I Gate Screen tlridgepo sm Ilnstallation and Taestin | (Metal Work) I, 8 2 Penetock ~~~~~~~~~~~~~~~TenderCal Evel. Neq. LIC, Design Manul. and Delivery, f . 1 2 C Penstc(- W rk 22141 Cw 1. Tue. [snel lnd Aux. E.quipl.melnJ.L4tIJ.Il l.-e.der Call Eval. Nag ICD CDesigni, I Tuobiiieanti Aux.Manul1. Etluipment dwm anBd n Tesing,I~ (Elecitescl/Mechanical) I I 11 Istlaio MauanDeie II F andiAusx. E4quiprent alEj.Ng1C[e DInesign I C -2 Genierator nsYaTIatioinarid Teasting (Elactricdt/Mechanical) ~~~TeniderCell ElNag L/C C - 3 Mainarid Trarrsfrrrnrer vaDeOsign Matftad eivr C - Man Tasifu(ieriin an n SwIlt;tryard] Eqluipnrunt IntlaioJn (Elecirical/Mechanicall

Wobild Bank -22141 -55- ANNEX 11 Page 1 of 2

INDONESIA

PERUSAHAANUMUM LISTRIK NEGARA

TENTH POWER PROJECT

Milestone Schedule for Main Civil Works and Penstocks

Main dam, Water Power house Penstock spillway conductor & switchyard metal works system civil works work

Issue for bid 01 Aug 80 01 Aug 80 01 Aug 80 01 Aug 80

Bid opening 03 Nov 80 03 Nov 80 03 Nov 80 03 Nov 80

Latest date evaluation complete PLN/NEWJEC 08 Feb 81 08 Feb 81 08 Feb 81 21 Mar 81

Latest date GOV. (SEKNEG) approval 15 Feb 81 15 Feb 81 15 Feb 81 30 Mar 81

Latest date issue IBRD approval 21 Feb 81 21 Feb 81 21 Feb 81 07 Apr 81

Latest date of issue letter of intent to negotiate 23 Feb 81 23 Feb 81 23 Feb 81 09 Apr 81

Latest date contract award 31 Mar 81 31 Mar 81 31 Mar 81 15 May 81

Date letter of credit opened 01 May 81 01 May 81 01 May 81 15 Jun 81

Starting date begin shipment (FOB) N.A. N.A. N.A. 01 Apr 82

Complete shipment (at site) N.A. N.A. N.A. 31 Jul 83

Begin construction (mobilization complete) 01 Jul 81 01 Jul 81 01 Jul 81 01 Sep 82

Latest date complete construction 31 Dec 84 31 May 85 30 Sep 85 31 Mar 85

Plant initial/trail N.A. N.A. N.A. N.A. operation

Commercial operation N.A. N.A. N.A. N.A. -56- ANNEX 11 Page 2 of 2

INDONESIA

PERUSAHAAN UMUMLISTRIK NEGARA

TENTH POWER PROJECT

Milestone Schedule for Electrical and Mechanical Equipment, aid Gates

Transformer Gates & Turbines Generators & switchgear screens

Issue for bid 29 Oct 80 29 Oct 80 29 Oct 80 01 Jul 81 Bid opening 29 Jan 81 29 Jan 81 29 Jan 81 30 Sep 81 Latest date evaluation complete PLN/NEWJEC approved 30 Jun 81 30 Jun 81 30 Jun 81 31 Jan 82 Latest date OCEF approval 20 Jul 81 20 Jul 81 20 Jul 81 20 Feb 82 Latest date issue letter of intent to negotiate 31 Jul 81 31 Jul 81 31 Jul 81 28 Feb 82 Latest date contract award 31 Aug 81 31 Aug 81 31 Aug 81 31 Mar 82 Date letter of credit opened 30 Nov 81 30 Nov 81 30 Nov 81 30 Jun 82 Starting date begin shipment (FOB) 01 Jan 83 01 Jan 83 01 Jan 83 01 Jan 83 Comple shipment (at site) 31 Jan 84 31 Jan 84 28 Feb 84 31 Jul 83 Begin installation (mobilization complete) 01 Mar 83 01 Mar 84 01 Jan 84 01 Nov 83 Latest date complete installation 01 Jan 85 01 Jan 85 01 Jan 85 31 Oct 84 (No. 1&2) (No. 1&2) (No. 1&2) 01 Jul 85 01 Jul 85 01 Jul 85 (No. 3&4) (No. 3&4) (No. 3&4) Plant initial/trial 01 Feb 85 01 Feb 85 01 Feb 85 N.A. operation (No. 1&2) (No. 1&2) (No. 1&2) 01 Aug 85 01 Aug 85 01 Aug 85 (No. 3&4) (No. 3&4) (No. 3&4) Commercial operation 31 Mar 85 31 Mar 85 31 Mar 85 N.A. (No. 1&2) (No. 1&2) (No. 1&2) 30 Sep 85 30 Sep 85 30 Sep 85 (No. 3&4) (No. 3&4) (No. 3&4) -57- ANNEX 12

INDONESIA

PERUSAHAANUMUM LISTRIK NEGARA

TENTH POWER PROJECT

Estimated Schedule of Disbursements (US$ million)

IBRD Quarter Disbursement Cumulative disbursement fiscal year ending during quarter at the end of quarter

FY81 06/30/81 30.0 30.0

FY82 09/30/81 7.0 37.0 12/31/81 6.5 43.5 03/31/82 7.5 51.0 06/30/82 17.5 68.5

FY83 09/30/82 17.0 85.5 12/31/82 17.0 102.5 03/31/83 12.0 114.5 06/30/83 20.0 134.5

FY84 09/30/83 19.0 153.5 12/31/83 12.5 166.0 03/31/84 12.0 178.0 06/30/84 14.0 192.0

FY85 09/30/84 14.0 206.0 12/31/84 6.0 212.0 03/31/85 6.0 218.0 06/30/85 6.0 224.0

FY86 09/30/85 7.0 231.0 12/31/85 6.5 237.5 03/31/86 6.0 243.5 06/30/86 6.5 250.0 INDONESIA

PERUSAHAAN UMUN LISTRIK NEGARA

PAST FINANCIAL RESULTS

INCOME STATEMENTS (Rupiah, Billions) Years ended March 31

1976 1977 1978 1979 198011

Sales Increase % -6.5 9.9 14.4 21.1 25.0 Energy Sales (GWh) 2804 3082 3527 4270 5340 Average Price/kWh 21.7 27.2 27.4 27.4 27.3 Energy Revenue 61 84 97 117 146 Other Operating Revenue - - 1 1 Other Income Net - 5 1 - 4 1 5

Total Revenue 56 85 94 119 151

Operating Expenses Fuel 14 22 28 31 52 1 Operations - 30 38 44 51 66 n Depreciation 13 16 23 29 55

Total Expenses 57 76 95 111 173

Operating Income -1 9 -1 8 -22

Net Income before Interest -1 9 -1 8 -22

Interest 1 4 4 IDC 1 4 4 Charged to Operation

Net Income -1 9 -1 8 -22

Rate Base 128 150 189 254 5092/ Rate of Return % -1.0 6.0 -0.5 3.1 -4.3 Operating Ratio % 101.8 89.4 101.0 93.2 114.5 ° t

1/ Provisional / Revalued Assets INIONESIA

PERUSAHAANUMfJM LTSTRIK NECAUA

PAST FINANCIAI. RESULTS

FUlNDSFLOW STATEMENTS (Rupiah, Billions) Years ended March 31

1976 1977 1978 1979 19801/ Internal Sources of Funds Operating Income -1 9 -1 8 -22 Depreciation and other non-cash charges to Income 13 16 28 30 57 Consumers Contributions 18 13 26 37 40

Total Internal Funds 30 38 53 75 75 Operational Requirements Variation Working Capital 14 18 8 10 10 Interest Charge to Op Debt Repayment 1

Total Operational Requirements 14 18 9 10 10

Internal Funds Available for Investament 16 20 44 65 65

Total Capital Investment 187 160 258 294 330 Balance to be financed 171 140 214 229 265 Financed by Borrowings 8 4 31 37 111 Equity 159 149 197 198 175

Total Capital Sources 167 153 228 235 286

Cash Increase/Decrease -4 13 14 6 21 Caslhat beginning of year 20 16 29 43 49 I D. Cash at year end 16 29 43 49 70 Annual Contribution 0 ) - To Construction 8.5 12.5 17.0 22.1 19.4 ' - 3 Year Average % 8.3 13.7 13.2 21.0 19.6 1

1/ Provisional INDONESIA

PERUSAIIAANUIMUM lIASTRIK NECARA

PAST FINANCIAL RESULTS

BALANCESHEETS (Rupial, Billions) As at March 31

1976 1977 1978 19/9 1980-1

Assets Fixed Assets 21 Plant in Service 229 306 391 556 741- Less Depreciation 61 78 106 136 57 Operating Plant 168 228 285 420 684 Work In Progress 274 358 531 660 857

Current Assets Cash 16 29 43 49 70 Inventories 25 31 40 50 57 Receivables 15 22 24 34 34 Other Current Assets 27 35 36 34 26

Total 83 117 143 167 187

Total Assets 525 703 959 1247 1728

Equity and Liabilities

Capital and Reserves 468 617 814 1013 1352 Retained Earnings -10 -1 -2 5 -16

Total Equity 458 616 812 1018 1336

Long Tern Debt 8 12 42 78 188 pt Other Long Term Liabilities I 1 2 3 Current Liabilities 18 20 24 32 44 : Consumers Contributions 41 54 80 1.17 157

oI'talEquity and Liabilities 525 703 959 1247 1728

Debt % of IDebtt Equity 1.7 1.9 4.9 7.3 12.3 Current Rtatl.o 4.6 5.8 5.9 4.1 4.3

2/, Aftertrovlseonali Itevalusition INDOUNSIA

PERUSAHAAN UMUM LISIRIK NEGARA

FINANCIAL FORECASTS 1981 . 1989

INCOME STATEMENI ( RUPIAH, BILLIONS) 1961 1982 1983 1904 196S 1986 1987 1988 1989 SALES INCREASE X 21.95 Z2.0U 21.94 21.20 19.88 19.07 18.05 17.52 16.37 ENERGY SALES(GWH) 6500 7930 9670 11720 14050 16730 19750 23210 27010 AVE PRICE/KWH 41.2308 53.9723 53.9814 66.6382 66.7616 71.0102 7hO6070 80.4826 83,4876

ENERGY REVENUE 2b8 426 522 751 938 1188 1513 1808 2255 OTHER OP REV I 1 2 2 2 3 4 4 5 OTHER INC NET 5 7 10 14 19 25 31 38 47

TOTAL REVENUES 274 436 534 797 959 1216 1548 1910 2307

OPERATING EXPENSES

PUEL I 121 119 147 242 306 354 460 569 649 FUEL/BULK POWER 12l 119 147 242 306 354 460 569 649 POWER PURCHASE 2 2 3 3 3 6 10 17 25 PERSONNEL EXP. 4b 57 bb 74 84 94 106 122 138 MATERIALS 29 40 54 73 96 125 156 192 231 SERVICES 10 12 13 17 20 26 32 39 47 ADMINISTRATION 13 IS 17 - 19 21 24 26 30 33 INSURANCE 2 3 4 4 6 7 9 1t 13 OPERATIONS 104 t29 157 190 230 282 339 all 487 DEPRECIATION 53 87 119 163 220 280 353 439 539

TOTAL EXPENSES 2e8 335 423 595 756 916 1152 1419 107S OPERATING INCO.t -4 101 111 202 203 300 390 491 632 NET INCOME BEFORE . INTEREST .4 101 III 202 203 300 396 491 632 INTEREST 21 45 69 96 128 162 194 229 268 IDC 20 30 46 64 90 64 70 7b 91 |~~~~-, _ -- _ _ _ _ _

- CHRGD OPERATIl)NS I 1S 23 32 38 98 124 153 177

NET INCOME -5 8b 88 1 I 165 202 272 338 455 RETAINED EARNINGS -5 bo 88 17U 265 202 272 338 455

RATE BASE 636 940 1410 2094 3005 4035 5150 o402 7944 RATE OF RETURN X -U.6 10.7 7.8 9.6 6.8 7,4 7.7 7.o 8.0 OPERATING RAltO X 1O0.S 76.8 79.2 74.7 78.8 75.3 74.4 74.3 72.8 INDONESIA

PERUSAhAAN UHUM LISlRII NEGAijA

FrINANcIAL FOHECAs` 6 1983 _ 1989

FUNuS FLuIw STATLMntT 1 RUPIAH, BILLIUNSI 1989 TOTAL 1981 19$ 1983 1984 1985 198h 1987 1988 INTERNAL SOURCES -OF FUNDS 3ve 4"91 e32 2432 OPERATING INCOML -4 101 111 2u2 2u3 300 280) 353 439 539 2253 DEPRECIATION 53 87 119 103 224 102 120 132 144 15 909 CONSUMERS COhTBNS 39 55 72 88

TOTAL INTERNAL 74u 881 1074 1328 5594 . FUNDS 8e 243 302 453 525

OPERATIONAL - REQUIE ENIS

INCREASE#DECREASE 45 56 79 69 429 * WORKING CAPITAL 25 50 20 59 26 INTEREST CHARGED 124 153 177 661 - OPERATIONS I 15 23 32 38 98 75 100 130 157 530 DtBT REPAYMENT 0 9 is 23 29

TOTAL OPERATIONAL 280 362 403 1628 -REQUIJFNENTS 26 74 58 114 93 218

INTERNAL FUNDS * AVAILABLE FOR 432 482 601 712 925 3966 - INVESTMENT 62 169 244 339

CAPItAL INVEST7ENT -...... _...... 1732 1920 2041 11661 TOTAL CONSTRUCTION 535 684 997 1177 -152 1423 INTEREST OURINC 64 TO 76 91 '551 ' CONSTRUCTION 20 30 46 64 90

TOTAL CAPITAL 1487 1802 1996 2134 12212 * INVESTMENT 555 714 1043 1241 1242

BALANCE TO BE 810 1005 3203 1284 32o7 8246 - FINANCED 493 545 799 902

FINANCED BY 426 414 466 521 602 3591 ;oIRoRIN0S 155 312 340 355 801 626 4857 EOUITY 317 232 444 590 395 635 777 _ ,,.- -…

TOTAL CAPITAL 1049 1243 1322 1228 8448 SO* WRCES 472 544 82 945 821

CASH INCREASE/ 44 42 38 21 202 - DECREASE -21 -1 Z5 43 11

CASH AT BEGINNING jib 127 171 213 251 70 . OoF YEAH 70 49 48 73 213 251 272 272 i ,CASH AT IEAR END 49 48 73 116 127 171

ANNUAL DOTB SERVICE ° 4U 6.6 6.3 3.4 3.3 3.3 3.5 3.9 NNV DERAGE 49.0 7.8 6.1 ANNUAL CONI"N 27.3 34.8 32.4 33.4 35.7 43.4 32.5 - Tn CONSTRUCTIOn 11.2 23.7 23.4 2h.9 32.7 31.9 34.1 3u*0 45.4 - 3 YEAR AVERAGE X (F) I1.6 21.9 24.4 25.1 28.8 31.o 33.4 3o.0 37.7 * 3 YEAR AVERAGE X (RI 16.3 14.0 20.5 INDONESIA

PEAUSAHAAN UNUN LISTRIK NEGARA

FINANCIAL FURECASTS 1981 * 1989

_ALANCE SHEETS ----- t N*'Pl-AW-FUIttTURTT- -______

1901 1982 195-1 ----984 1-98-- -1986 -- r?7 -- 6 1989

ETS

;;RVICE 0t51 1616 24th 3S13 4949 6492 d335 1050G 13015 _ _ ..-RECIATIUN 1 z e9 34b 537 duo 1144 1S62 2138 283S

OPERATING PLANT 941 1407 2066 2976 4149 534G 6753 83c6 so0o0

NORKIN PROGRESS 1102 1368 1754 2090 2179 2521 2960 3402 3802

CURRENT ASSEtS

CA4H 4e 4e 73 116 l27 171 213 1SI 272 INVENTORIES 5 72 97 122 138 167 210 260 302 RECEIVABLES 6S 105 114 160 179 211 248 306 370 OTHER CURR ASSET 21 26 32 38 44 52 61 71 83 - _- TOTAL 191 2St 31t 436 488 601 732 - 88 1027

TOTAL ASSETS 2234 3026 4138 5502 6836 8470 10445 126e6 150t9

EQUITY AND - LIABILITIES ...... ___.... foully t w. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~0 PAlO IN CAPITAL 3483 1715 2199 2789 3184 3819 45s9 5397 6023 SETAINED EARNINGS -21 65 153 323 488 690 982 1300 1755 REVALUATION REORVE 387 270 3bs 505 706 989 1325 1752 2282

TOTAL EQUITY 3649 2es0 272t 3617 4378 5498 e883 8449 10060

LONG TERN DEBT

DEOT DUE 343 646 971 1303 1700 a039 2405 2796 3241

CURRENl LIASILITIES

PA4VALES 46 57 77 95 110 134 167 206 255

'TOTAL 46 57 77 95 110 134 167 206 a55

CONSUNERS CONTIONS 19e 273 36b 487 628 799 990 1207 1453

TOTAL EfUIl ANt) * LIABILITIES 2234 3026 4138 5502 6836 8470 10445 12658 15o09

DEST I OF - DEBT t EQullY 17.2 24.0o .s 26.5 a2.0 27.1 25.9 24.9 24.4 CURRENT RATIO -- 4.- --- 44 - - 4.6 -4.4 4.5 4-4 4 3 4.0 NM INSTALLED 2970 34713 4076 4791 5341 6s7s 7078 7835 8986 GROSS PLANT -- - - -/KW tIH RUPIA) 313.0 440.0o92.0 733.2 926.6 987.4 1177.6 134o.9 1448.4 -64- ANNEX 15 Page 1 of 2

INDONESIA

PERUSAHAANUMUM LISTRIK NEGARA

Assumptions for the Financial Forecasts

General

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

81 82 83 84 85 86 87 88 89

Offshore costs 9 8 8 7 7 6 6 6 6 Local costs (exc. fuel) 15 10 10 10 10 10 10 10 10 Fuel costs - - 30 10 10 10 10 10 10

Income Statements

2. Revenues assume a tariff increase of approximatey12% in real terms in 1982 and another of about 8% in 1984. This assumption is adopted to exemplify the scale of tariff adjustments likely to be required before FY 86; in practice, the phasing of the adjustmentsmay vary somewhat, and they may be consolidated. Thereafter use of the surcharge facility is assumed to maintain a self-financingratio above 30% for the rest of the period.

3. Fuel/BulkPower is derived directly from the planting schedule at Annex 3. Power produced at geothermal plants is assumed to be bought by PLN from the agency responsible for generating it.

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

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

Funds Flow

6. Financing. Borrowinghas been assumed for 50% of the foreign exchange component of capital expenditures,except where loan agreements with internationalagencies require a higher proportion of foreign exchange -65- ANNEX 15 Page 2 of 2 costs to be financed as debt. Assumed terms on future borrowings are 9% for 19 years, including4 years grace. Remaining foreign exchange and all local capital expenditures(after deducting internal cash generation)are assumed financed by equity contribution.

7. Capital Expendituresexclude geothermal generating plants, which are assumed to be constructedand operated by another agency.

Balance Sheet

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

1981 ...... 1.11 1982 ...... 1.09 1983-85 ...... 1.08 Thereafter ...... 1.07 -66- ANNEX 16

INDONESIA

TENTH POWER PROJECT

Perusahaan Umum Listrik Negara

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

Costs /a Incremental Benefits For- Domes- revenues /e (net) Year eign /b tic /c O&M /d Total (1) (2) (3) (4)

1979 - 0.4 - 0.4 - - -0.4 -0.4 1980 0.4 9.6 - 10.0 - - -10.0 -10.0 1981 68.7 34.6 - 101.3 - - -101.3 -85.7 1982 50.8 38.8 - 89.6 - - -89.6 -99.8 1983 79.7 48.6 - 128.3 - - -129.3 -132.7 1984 127.5 42.0 - 169.5 - - -169.5 -191.0 1985 54.2 33.4 4.0 91.6 - - -91.6 -107.7 1986 13.4 35.0 5.2 53.6 149.4 - 95.8 +59.9 1987 - - 5.2 5.2 149.4 149.4 +144.2 +131.7 1988-2036 - - 5.2 5.2 149.4 149.4 +144.2 +144.2

/a Inclues full cost of the 700 MW Saguling Project (US$508.4million) and attributablecosts of transmissionand distribution(US$200.0 million), less taxes (about 5% of total costs).

/b Shadow price 1.0.

/c Composite labor conversion factor of 0.8 applied.

/d Includes normal project operation costs at US$4.0/KW/year,insurance and reservoir maintenance: transmissionand distributioncosts have been assumed at 1% of capital investment.

/e Figures in column (1) are based on the expected pattern of utilization of the energy output of the project viz about 1,020 GWh during the 4-hour peak load period (with a correspondingtariff rate of Rp 86.8/kWh) and the balance of 1,136 GWh during off peak hours (with a corresponding tariff rate of Rp 28/kWh). This works out to an average of Rp 55.8/kWh. The prevailing average revenue is Rp 42.0/kWh. The energy sale is assumed to be 75% of the gross generation during peak hours and about 85% during off peak hours. Figures in column (2) and column (4) are based on an increase in the cost of constructionof Saguling Project by 10% and a commissioningdelay of six months. - 67 -

ANNEX 17 Page 1

INDONESIA

PERUSAHAANUMUM LISTRIK NEGARA

TENTH POWERPROJECT

Information Available in the Project File

A. Reports on the Sector (1) IBRD Appraisal Reports PU 18(a) of 1969 PU 95 of 1972 87(a)-IND of 1973 766-IND of 1975 1054(b)-IND of 1976 1289(a)-IND of 1977 1638(a)-IND of 1978 2375-IND of 1979 2694-IND of 1980 (2) Java System Development Plan by Preece, Cardew and Rider (PCR) UK: 1975-1976

(3) Legislation affecting PLN 1972; 1979

(4) Final Accounts of PLN through FY1979 and Draft A/Cs, FY1980

(5)- Audit Reports of PLN through FY1979

(6) Financial forecasts and working papers

(7) Management Audit Report, S. Parman & Co., October 1979 October 1979

B. Reports on the Project

(1) Survey Report on the Saguling Hydroelectric Power Development Project By Overseas Technical Cooperation Agency, Government of Japan March 1973

(2) Technical Proposal for Citarum Hydroelectric Feasibility Study By Overseas Technical Cooperation Agency, Government of Japan July 1974

(3) Report for Stage I Study of Citarum Hydro- electric Feasibility Study By Newjec (Vol. I & II) August 1975 - 68 -

ANNEX 17 Page 2

(4) Summary Report for Stage II Study (Second Interim Report) of Citarum Hydroelectric Feasibility Study by Newjec February 1977

(5) Draft Final Report - Stage II Study of Citarum Hydroelectric Study January 1978

- Supporting Data (Geology) for Chapter 3 - Supporting Reports No. 5, 6, 15 and 16 - Exhibits

(6) Final Report for Stage II Study of Citarum Hydroelectric Study March 1978

(7) Report for Stage II Study (March 1978) by Newjec Vol. 3 Supplementary Reports on "Erosion and Sedimentation Studies," "Environmental Assessment, " "Project Output Studies" and "Compensation for Resettlement" March 1978

(8) "Draft Environmental Impact Analysis of Saguling Dam - By Institute of Ecology, Padjadjaran University, Bandung February 1379

(9) Consultant's report on the Environmental Status of the Project by Newjec August 1979

(10) PrequalificationDocument April 1980

(11) (i) Geological Investigation Work of Saguling Hydroelectirc Project

(ii) Interim report on Geological Investigation work for Saguling Hydroelectric Project

(iii) Supporting data for 7 (ii) above

(iv) Interim report on Investigation of fill materials

(v) Supporting data for 7 (iv) above

(vi) Technical specifications for field embankment tests on Quarry -69- ANNEX 17 Page 3

(vii) TechnicalSpecifications for field embankment tests on Soil Materials

(viii) Comparison between Present Dam Design and a Homogenous Embankment with an Upstream Impervious Membrane May 1980

(12) Design Reports - Saguling Hydroelectric Project October 1980

(13) Tender and Contract Documents for

(a) Main Dam and Spillway

(b) Water Conductor System

(c) Power House Civil Works and Switchyard;and

(d) Penstocks August 1980

(15) Addenda to (9) above September1980

(16) Final PrequalificationEvaluation Report October 1980

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