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Document of 5 P The WorldBank A FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. P-3572-IND REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNTEQUIVALENT TO $279.0 MILLION To THE Public Disclosure Authorized RF.PUBLIC OF INDONESIA FOR A THIRTEENTH POWER PROJECT May 11, 1983 Public Disclosure Authorized TisN document hals 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 970 Rp 10 = US$0.103 Rp 1 million = US$1,030 WEIGHTS AND MEASURES 1 metric ton = 1,000 kilograms (kg) 1 liter (1) = 0.0063 barrels 1 kilometer (km) = 0.6215 miles (mi) 1 kilovolt (kV) = 1,000 volts (V) 1 megavolt-ampere = 1,000 kilovolt-amperes (kVA) 1 kilovolt-ampere = 1,000 volt-ampere (VA) 1 megawatt (MW) = 1,000 kilowatts (kW) 1 gigawatt hour (GWh) = 1 million kilowatt hours (kWH) ABBREVIATIONS BAKOREN - The National Energy Board BOC - Board of Consultants CDC - The Commonwealth Development Corporation of the United Kingdom DGEP - Directorate-General of Electric Power, Ministry of Mines and Energy GOI - Government of Indonesia LNG - Liquified Natural Gas LRMC - Long Run Marginal Cost MME - Ministry of Mines and Energy Newjec - New Japan Consulting Engineers PLN - National Electricity Authority REPELITA - National Five-Year Development Plan (Repelita I, 1969-74, Repelita II, 1974-79, Repelita III, 1979-84) GOVERNMENTOF INDONESIA FISCAL YEAR April 1 - March 31 FOR OFFICIAL USE ONLY INDONESIA THIRTEENTH POWER PROJECT Loan and Project Summary Borrower: Republic of Indonesia Beneficiary: Perusahaan Umum Listrik Negara (PLN), the National Electricity Authority .Amount: $279.0 million equivalent (including capitalized front-end fee) Terms: Repayable in 20 years including 5 years of grace at the standard variable interest rate. Onlending Terms: The proceeds of the loan will be onlent from the Government of Indonesia (GOI) to PLN for 20 years including a grace period of 5 years; the onlending rate will be equivalent to the variable interest rate charged on the Bank loan plus a quarter percent for administrative charges. The GOI will bear the foreign exchange risk. Project The project will provide peak hydroelectric generating Description: capacity to complement the steady growth of base-load coal-fired thermal generating capacity on the Java grid from 1984 onwards. The project comprises: (a) construction of a storage dam, 125 m high, at Cirata on the Citarum river; a 1 km water conductor system comprising tunnels, surgetanks, and penstock tunnels; and a 500 MW power station (with four generating sets each rated at 125 MW), with an associated 500 kV step-up substation and a 25 km transmission line to nearby Saguling; (b) construction machinery for a PLN task force; and (c) support of the GOI's energy sector program by providing technical assistance, studies and related equipment. IThis 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. - ii - The risks associated with the project are mainly those inherent in all major hydroelectric projects but long observation of river flows at the dam site, thorough preparatory work, and the retention of a special board of consultants to oversee design and construction, have reduced these risks. In addition, appropriate physical contingencies have been provided for unforseeable cond- itions especially expected on this project due to: (a) complications of geology in the Andesite quarry site; and (b) potential landslides of volcanic breccia and mud- stone zones. A further risk is delay to the project as a result of scarcity of local counterpart funding resulting from the present recession. Tariff action by PLN to increase its self-financing ratio will reduce its dependence on GOI budgetary funding. The measure to increase the disbursement percentage of the Bank loan against the civil works during the first two years of the project implementation will also help reduce this risk. Estimated Costs:/l Local Foreign Total ---($ million) -- Site preparation and environmental related work 107.6 1/.4 125.0 Civil and metal works 49.1 139.6 188.7 Electrical and mechanical works 7.4 64.5 71.9 Engineering 5.2 25.9 31.1 Administration 5.5 - 5.5 Special construction machinery 0.1 1.0 1.1 Insurance 0.5 0.8 1.3 Total Base Cost 175.4 249.2 424.6 Contingencies Physical 28.6 36.1 64.7 Price 63.4 36.0 99.4 Total Cost of Cirata Project 267.4 321.3 588.7 Energy sector support 12.0 25.0 37.0 Total Project Cost 279.4 346.3 625.7 Interest During Construction Bank loan 1.4 72.6 74.0 Others 43.3 25.4 68.7 Front-end fee on the Bank loan - 0.7 0.7 Total Financing Required 324.1 445.0 769.1 /1 Project costs are exempt from direct taxes and duties. - iii - Local Foreign Total Financing Plan: ($ million) --- Bank - 279.0 279.0 Commonwealth Development Corporation 20.0 - 20.0 Export credits - 68.0 68.0 GOI/PLN /_ 304.1 98.0 402.1 324.1 445.0 769.1 Estimated Disbursements: Bank FY 1984 1985 1986 1987 1988 1989 ------------- ($ million) ------------ Annual 39.0 55.0 82.0 57.0 28.0 18.0 Cumulative 39.0 94.0 176.0 233.0 261.0 279.0 Economic Rate of Return: 14% Staff Appraisal Report: No. 4356-IND, dated May 3, 1983. /1 Includes estimated interest during construction on loans and credits. a a REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF INDONESIA FOR A THIRTEENTH POWER PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Indonesia for the equivalent of $279.0 million (including the capitalized front-end fee) to help finance a Thirteenth Power Project. The loan would have a term of 20 years, including five years of grace, at the standard variable interest rate. The proceeds of the loan would be onlent to Perusahaan Umum Listrik Negara (PLN), the National Electricity Authority, at an interest rate equivalent to the variable rate charged on the Bank loan plus a quarter percent for administration charges, for 20 years including a grace period of 5 years. The foreign exchange risk will be borne by the Government of Indonesia (GOI). In addition to the Bank loan, a loan of $20 million equivalent would be provided by the Commonwealth Development Corporation of the United Kingdom (CDC) to help finance part of the project cost. The project would also involve about $68 million equivalent in export credits. PART I - THE ECONOMY/1 2. A basic economic report, "Indonesia: Growth Patterns, Social Progress and Development Prospects" (No. 2093-IND dated February 20, 1979), was distributed to the Executive Directors on February 26, 1979, and a country economic memorandum has been prepared in each subsequent year. The latest of these, titled "Indonesia: Financial Resources and Human Development in the Eighties" (No. 3795-IND dated May 3, 1982) was distri- buted to the Executive Directors on May 6, 1982. Annex I gives selected social and economic indicators for the country. Background 3. The Republic of Indonesia is a highly diverse country spread across an archipelago of more than 13,000 islands with a land area of about two million sq km. It now has a population of over 150 million, growing at about 2.3% p.a., and is the world's fifth most populous nation. The country has a highly diversified resource base, with plentiful primary energy * resources, significant mineral deposits, large timber potential and a developed system of agricultural commodity production and export. A high proportion of these primary resources are located on the sparsely populated islands of Sumatra and Kalimantan, while two thirds of the population live /1 Substantially unchanged from the President's Report on Fifth Bapindo Project (No. P-3525-IND), circulated under cover of R83-109, dated April 21, 1983, and approved by the Executive Directors on May 10, 1983. on Java which has areas with some of the highest rural population densities in the world. About 20% of the population live in urhan areas in both Java and the Outer Islands, and the current rate of urban nopulation growth is over 4% p.a. The 1981 estimate of GNP per capita is $520, which places Indonesia for the first time amongst middle income countries./l Macroeconomic Developments and Resource Management 4. Until 1981, the economy had been growing at almost 8% p.a. for over a decade. This was associated with rapid increases in public expendi- tures, total investment and savings. The initial impetus for this occurred in the period of recovery from the turbulence of the mid-60s. The Govern- ment took effective action to restore macroeconomic stability, liberalize the economy, rehabilitate infrastructure, and provide incentives for domestic and foreign private investment. However for the last decade the dominant external influence has been the huge expansion, and significant variability, in foreign exchange earnings from oil. Net exports from the oil and gas sector rose from $0.6 billion in 1973/74 to $10.8 billion in 1980/81, when the current account enjoyed a surplus of $2.5 billion. Oil receipts also provide about 70% of Central Government receints and have helped finance the sustained increase in demand via the budget.