Document of FILEOOPY The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No. P-3412-IND

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

Public Disclosure Authorized INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

IN AN AMOUNT EQUIVALENT TO $300.0 MILLION

TO THE REPUBLIC OF INDONESIA Public Disclosure Authorized FOR A

TWELFTH POWER PROJECT

November 22, 1982 Public Disclosure Authorized

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. CURRENCYEQUIVALENTS

Currency Unit - Indonesian Rupiah

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

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) TCF = Trillion cubic feet

ABBREVIATIONS

AIP - Accelerated Investment Program of the National Electricity Authority (1982/83-1984/85) BAKOREN - The National Energy Board BATUBARA - National Coal Entity BWI - Beca-Worley International of New Zealand DGEP - Directorate-General of Electric Power, Ministry of Mines and Energy GENZL - Geothermal Energy of New Zealand GOI - Government of Indonesia LNG - Liquified Natural Gas LRMC - Long Run Marginal Cost MME - Ministry of Mines and Energy MONENCO - Montreal Engineering Company of Canada PLN - National Electricity Authority PERTAMINA - National Oil and Gas Company REPELITA - National Five-Year Development Plan (Repelita I, 1969-74, Repelita II, 1974-79, Repelita III, 1979-84)

GOVERNMENT OF INDONESIA

FISCAL YEAR

April 1 - March 31 FOR OFFICIAL USE ONLY

INDONESIA

TWELFTH POWER PROJECT

Loan and Project Summary

Borrower: Republic of Indonesia

Beneficiary: Perusahaan Umum Listrik Negara (PLN), the National Electricity Authority

Amount: $300.0 million equivalent (including capitalized front- end fee)

Terms: Repayable in 20 years, including 5 years of grace at the standard variable rate.

Onlending Terms: The proceeds of the loan will be onlent from the Govern- ment to PLN at an interest rate at least equivalent to that of the Bank loan plus an appropriate administrative cost, for 20 years including a grace period of 5 years. The Government will bear the foreign exchange risk.

Project The main objectives of the project are to diversify the Description: sources of electricity production mainly through the use of geothermal energy and coal, improve the operational efficiency of PLN's distribution networks, reduce PLN's system losses, and provide a training and consultancy program for the continued institutional development of PLN. The project will consist of:

(a) construction of a 110 (2 x 55) MW extension of the Kamojang geothermal station in West Java and substation equipment to interconnect with the existing transmission system;

(b) construction of the third 400 MW, coal-fired, generating unit at the Suralaya thermal station in West Java, and step-up substation extensions to connect it with the 500 kV system under construction including engineering of the third and fourth generating units;

(c) distribution system improvements in Java, North Sumatra and South Sulawesi;

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. - ii -

(d) a mini-hydro development program in North Sumatra; and

(e) training facilities and services to assist PLN's manpower development program.

There are no unusual risks associated with this project. The inherent risks associated with geothermal developments, viz. of assured steam supply have been minimized by extensive investigations, and adequate advance production drilling.

Estimated Costs:/l Local Foreign Total ------($ millions) -----

Kamojang Geothermal 11.0 69.3 80.3 Suralaya Unit 3 38.6 204.0 242.6 Distribution subproject 175.0 350.0 525.0 Mini-hydro Project 4.9 7.6 12.5 Training Program 12.4 8.7 21.1

Base Cost 241.9 639.6 881.5

Physical contingencies 24.2 59.5 83.7 Price contingencies 94.9 129.5 224.4

Total Project Cost 361.0 828.6 1,189.6

Interest during const- truction Bank loan - 127.7 127.7 Others - 149.2 149.2 Front-end fee on the Bank loan - 4.4 4.4

Total Financing Required 361.0 1,109.9 1,470.9

/1 Project costs are exempt from direct taxes and duties. - iii -

Financing Plan: Local Foreign Total ------($ million) ------

Bank Power XII - 300.0 300.0 Power VI (1365-IND) - 2.3 2.3

ADB Firm - 69.5 69.5 Planned - 26.0 26.0

Export Credit (Firm) - 182.0 182.0 Export Credit/Others/l (Planned) - 253.2 253.2

GOI/PLN 361.0 276.9 637.9

Total 361.0 1,109.9 1,470.9

Estimated Disbursements: Bank FY 1983 1984 1985 1986 1987 1988 ------($ million) ------

Annual 12.0 36.7 105.1 88.1 30.9 27.2 Cumulative 12.0 48.7 153.8 241.9 272.8 300.0

Economic Rate of Return (on the PLN Investment Program): 12%

Staff Appraisal Report: No. 4046-IND, dated November 3, 1982.

/1 "Others" include possible bilateral aid.

REPORT AND RECOMMENDATIONOF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF INDONESIA FOR A TWELFTH POWER PROJECT

1. I submit the following report and recommendation on a proposed loan to the Republic of Indonesia for the equivalent of $300.0 million (including the capitalized front-end fee) to help finance a Twelfth 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 Unum Listrik Negara (PLN), the Nhtional Electricity Authority, at an interest rate at least equivalent to that of the Bank loan plus an appropriate administrative cost, 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, the project would also involve loans from Asian Development Bank and export credits (and other possible bilateral aid) amounting to about $95 million and $435 million respectively.

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 distributed 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 mil- lion sq km. It now has a population of over 150 million, growing at about 2.2% 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 on Java which has areas with some of the highest rural population densities in the world. About 20% of the population live in urban areas in both Java and the Outer Islands, and

/1 Substantially unchanged from the President's Report on the Central Java Pulp and Paper Engineering Project (No. P-3377-IND), circulated under cover of R82-263, dated September 1, 1982, and approved by the Executive Directors on September 21, 1982. - 2 -

the current rate of urban population 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. The economy has now been growing at almost 8% p.a. for over a decade. This has been associated with rapid increases in public expenditures, total investment and savings. The initial impetus for this occurred in the period of recovery from the turbulence of the mid-60s. The Government 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 receipts and have helped finance the sustained increase in demand via the budget. In 1981/82 depressed international markets, combined with continued rapid expansion in demand for imports, :Ledto a $5 billion turnaround in the current account, which registered a deficit of $2.5 billion. However, the economy appears remarkably resilient in the face of this change: growth was maintained at an estimated 8% in 1981, the reserve cover is more than adequate and the country is highly creditworthy. The reason for this macroeconomic resilience can in part be attributed to effective management of the oil-related resource windfalls. Throughout the 19;70sthe Government has kept public expenditures broadly in line with medium-term receipts, through a combination of temporary savings of windfall gains, reining in of recurrent expenditures in years of relative shortage, and changing the extent to which the external oil price increase is passed on to domestic consumers. The pattern of expenditures has also helped foster diversified growth: of particular note has been the support for agriculture, ithrough investment in infrastructure, support services and effective use of subsidies to maintain producer incentives. This bore fruit in two successive record rice harvests in 1980 and 1981. During 1971 to 1980 manufacturing has also enjoyed a high growth rate (of about 14% p.a.) from a very low base, but here sectoral growth has been in spite of a more restrictive policy environment and distorted incentives. Despite the demonstrated resilience of the macroeconomy to the short-run developments in the oil market, the likely decline in the relative importance of external oil receipts implies that Indonesia faces a need for substantial structural change in the eighties. If the pace of development is to be sustained the development of a strong and diversified nonoil production and export base is essential. This will have to be supported by major investments in new infrastructure - particularly in transportation and electric power - if a rapidly modernizing production base is to be serviced.

/1 On the basis of the World Bank's system of country classification and Atlas methodology for calculation of GNP. Incomes, Employment and Human Development

5. Despite the high concentration of the resource windfalls, the available evidence, from household expenditures surveys, indicates a fairly wide distribution of the benefits of growth and a reduction in poverty incidence over the past ten years. This is also borne out in the basic health indicators, with a 25% reduction in the infant mortality rate and an increase in life expectancy from 47 to 53./l These improvements should not, however, mask the continued existence of widespread poverty. Almost 50% of the population are estimated to have been in this condition in 1978. The core of the poverty problem continues to be in rural Java, where landless laborers form a large, and possibly rising, fraction of the population, and where, for most of the 1970s, there is little evidence of any rise in real agricultural wages. However, in the last two years of good rice harvests, it is likely that significant improvements occurred on Java, while agricultural incomes on parts of the Outer Islands dependent on export crops have declined in the face of the international recession.

6. In the future the availability of productive employment will be a key determinant of the distribution of income. The labor force will grow at about 3% p.a., equivalent to around 2 million people p.a., in the next decade. In 1980 agriculture still accounted for 55% of employment, and industry only 13%, while the growth of services employment, from 24% of the total in 1971 to 32% in 1980, was the main mechanism for providing incremental employment in the 1970s. The growth in service incomes was partly sustained by rising oil incomes in the 1970s; if services are to continue to be a major source of labor income there is again a strong case for diversifying the pattern of productive growth. Open unemployment, at 4% in 1980, is not yet a serious problem - it is concentrated amongst secondary school leavers waiting for high income work; the key issues are of widespread underemployment (seen in short working hours in some sectors) and low wages. To tackle this a sustained rise in labor demand is crucial - through the maintenance of overall growth and the encouragement of labor-intensive choice of techniques in production, especially in the industrial sector.

7. In the 1970s there was substantial progress in extending the pro- vision of social services throughout the population. Universal enrollment in primary education has been virtually achieved and the enrollment rate in junior secondary schools is now 35%. However, the weak educational base of the population continues to be a major obstacle to rapid economic development and a substantial further expansion of secondary and tertiary education will be necessary as well as a major effort to raise the quality of the whole system. The situation is similar in the health sector. There has been a large expansion in facilities, notably at the level of the district and below, but continued expansion and an improvement in quality will be necessary to

/1 On the basis of the 1971 and 1980 population censuses. - 4 -

raise standards. This will have to be complemented by a major expansion in water supply and sanitation if the improvement in indices of mortality and morbidity in the 1970s is to be maintained. Currently only 18% of the rural and 40% of the urban population have access to safe water /1 compared with Government targets of 60% and 75%, respectively, for 1990.

Policy for Structural Change

8. Indonesia's past growth performance has been good, but the country is now faced with the need both to put the nonoil economy on to a viable long-run growth path and to effectively improve the basic needs situation of the poor. The maintenance of a high level and an improved structure of investment will be crucial to this. This will involve substantial investment by the public sector, especially in economic and social infrastructure, complemented by improvements in the policy environment to provide an appropriate incentive structure for private sector investment.

9. In industry, the Government of Indonesia (GOI) is planning a program of large-scale natural resource-based investments, in refineries, LNG, petro- chemicals, fertilizer, cement, pulp and paper, basic metals and mining. This will broaden the industrial base, but will have very limited employment implications. Of greater importance for both employment and exports is the encouragement of small- and medium-scale private manufacturing through an improvement in the economic environment. The 1978 devaluation of 33% against the US dollar significantly improved the profitability of labor-intensive import substitution and export industries. Further more, the GOI has initi- ated a general review of the trade regime, with a view to removing the distortions caused by the wide variations in rates of effective production. It has also embarked on a program designed to promote the expansion of nonoil exports, including export financing arrangements, export insurance, improved ports procedures, export processing zones and a system of export certificates (duty rebates). However, the private sector suffers from significant domestic constraints to its expansion, including a heavy regulatory burden, especially in the area of investment licensing, and a distorted and poorly developed financial system. Further policy reforms to alleviate these constraints are needed to create an environment conducive to private investment.

10. The energy sector is at the core of the structural adjustment problem. Oil and gas now account for 98% of domestic consumption of commer- cial energy and demand has been growing rapidly. If Indonesia is to avoid a serious reduction in foreign exchange earnings from the oil sector in the 1990s, it is essential to diversify energy usage and improve the efficiency of energy consumption. This will require both price and investment measures. In January 1982 domestic oil prices were increased by over 60%, and this followed a 40% increase in May 1980. This was a decisive step, but domestic prices are still only about 55% of the average opportunity cost, and price relativities

/1 Government estimates for 1981. - 5 -

between products diverge widely from those prevailing on the international market. In addition a major program of investment is planned, with public and private participation, in coal exploration and development, exploitation of hydro and geothermal resources, and a sixfold increase in electric power generation in the coming decade.

11. Agriculture will continue to be of great importance for export revenue (accounting for almost 75% of 1980 nonoil exports), food production and employment. Rice production has been steadily rising to a record level of about 22 million tons in 1981, compared with 13 million a decade earlier. This achievement is largely a result of the provision of new and the rehabilitation of existing irrigation systems and the dissemination of new agricultural technology particularly with respect to the timely delivery of seeds and fertilizers. Future investment in physical infrastructure, especially in irrigation and rural roads, combined with a favorable market environment and good support services will be the main determinants of further expansion in food production. In the past tree crops have suffered from relative neglect, and the age structure of the trees is now very old, but GOI has a highly ambitious program of rehabilitation and replanting, necessitating substantial investment in manpower and improved organization of distribution and marketing. Transmigration remains a high priority program for promoting development in underpopulated regions, providing opportunities for landless families on Java, Bali, and Lombok, and relieving economic and environmental pressures on those densely populated islands.

Financing Development - Domestic Resources and External Capital Flows

12. Structural adjustment will require a high investment rate, and an expanding level of public services; it also involves adapting to a declining relative level of oil rents. The problem of financing development is clearly central. This will require a major increase in resource mobilization through the public sector, through a combination of reduced subsidies on petroleum products and increased nonoil taxes. In 1980 it is estimated that taxes on the domestic economy were only 6% of GDP, if the domestic oil subsidy is netted out, compared with well over 10% for comparable countries. The 1982/83 budget represents a significant effort to improve the situation, with a halving in the annual level of the oil subsidy and a 15% budgeted increase in nonoil taxes, but this will have to be sustained in following years. In addition to public resource mobilization it is becoming increasingly important to encourage the growth and improve the efficiency of distribution of finan- cialized savings, through an improved financial regime and the development of a domestic capital market.

13. Even with effective measures to mobilize domestic resources there will be a substantial need for foreign savings in the 1980s, of which the most important component will be in the form of medium- or long-term debt flows. Total disbursed and outstanding external public debt was almost $16 billion at the end of 1981 and undisbursed debt amounted to an additional $11 billion. The Inter-Governmental Group on Indonesia remains a principal - 6 -

source of external capital, including Official DevelopmientAssistance, to the country. During the 1970s, however, Indonesia experienced an unusually rapid transformation in its public debt structure from a situation of heavy reliance on official concessional loans to increasing use of private, nonconcessional and variable interest loans in the second half of the decade. In 1981 private source debt accounted for 52% of new commitments of public debt. The fact that Indonesia remains highly creditworthy at the beginning of the 1980s, and the efficiency with which GOI has managed debt, are clear indicators of how far the country has progressed. However, the debt servicing capacity depends on commodity production rather than a broad industrial base, and this makes Indonesia somewhat more vulnerable to developments in international markets. The implication is that debt utilization should remain very prudent, and that there will be a continued justification for official debt of long maturities in the 1980s. If the measures to support structural adjustment are implemented then present projections indicate that Indonesia's financing requiremuentscan be met with the debt service ratio remaining below 20% throughout the decade.

PART II - BANK GROUP OPERATIONS IN INDONESIA /1

14. As of September 30, 1982, Indonesia had received 48 IDA credits totalling $931.8 million, and 75 Bank loans amounting to $4,938.6 million. IFC investments totalled $136.8 million. The share of the Bank Group in Indonesia's total (disbursed) external debt outstanding at the end of 1980 was about 10.7%, and the share of debt service about 7.1%. By the end of 1981, these ratios increased to around 11.2% and 7.4%, respectively. Annex II contains a summary of IDA credits, Bank loans and IFC investments as of September 30, 1982, as well as notes on the execution of ongoing projects. Given the critical importance of agriculture (including transmigration) for employment, food security and exports, over one-third of Bank Group supported projects have been in this sector. In addition, loans and credits have been extended to virtually all other sectors of the economy, including transportation, education, urban development, water supply, rural development, nutrition, industrial development financing (including small-scale industry), power, telecommunications, population and technical assistance.

15. During Repelitas I and II, and in line with the objectives of these first two Five-Year Plans, a high proportion of Bank Group lending was directed initially toward the rehabilitation and then the expansion of infrastructure and production facilities. Special attention was also given to meet the shortage of skilled manpower and technical assistance needed for

/1 Substantially unchanged from the President's Report on the Central Java Pulp and Paper Engineering Project (No. P-3377-IND) circulated under cover of R82-263, dated September 1, 1982, and approved by the Executive Directors on September 21, 1982. - 7 -

preinvestment studies and project execution. Repelita III, published in early 1979, stressed the need for continued high growthi and stability, but departed from previous plans by placing special emphasis on more equitable income distribution and poverty alleviation. This focus, which was fully irn line with the conclusions of the basic economic report, required greater attention to employment generation (particularly in the industrial sector) and to improvements in basic public services. While Bank lending was already consistent with these objectives, increased emphasis has been given to these priorities.

16. Although the country has moved from a position of resource surplus to deficit, as discussed in Part I, it is essential that the development momentum be maintained. This will require both effective policy reform, notably in improving the environment for private investment, and major investments in industry, infrastructure, tree crop development and human resources development. The Bank's program of lending and economic work is being geared to support the required measures. The primary emphasis of Bank involvement will be on policy and institutional development and technical assistance in the key sectors. This will involve a close integration between sector work and lending and the gradual broadening of lending to the sub- sector and sector level in order to assist with policy issues at this level.

17. The only significant shift in the composition of lending involves a rapid expansion planned in the education sector, a direct response to the severe shortage of skilled manpower. In the industrial sector, in-depth sector work focused on a policy for the promotion of labor-intensive, export- oriented growth has been substantially completed, and it is planned to follow this with a series of industrial projects. In energy, sector work and continued lending is concentrating on policies to diversify Indonesia's energy base, rationalize pricing and improve sectoral planning. Irrigation and tree crops will continue to absorb a substantial portion of lending in view of the importance of these sectors, and continued support for transport is anticipated. Continued lending in the areas of provision of social services, in population, health and nutrition, urban development and water supply will increasingly emphasize institutional support and the development of innovative low-cost solutions. For example, the proposed health project will focus on improving the working of the whole health care system at the level of a specific province.

18. For about the last two years the Bank and GOI have made a major effort to improve disbursement performance, which deteriorated rapidly in the late 1970s. The disbursement ratio (the ratio of actual disbursements during the fiscal year to cumulative undisbursed amount at the beginning of the fiscal year) declined from about 26% in FY77 to about 13% in FY80. The Bank-wide average was 21.31% in FY80; the comparable ratios for Thailand and Nigeria were 21.2% and 17.31%, respectively, in the same year. While much of this decline was merely a result of the rapid increase in commitments which took place during this period (total Bank/IDA commitments to Indonesia increased by 122% in the FY77-79 period compared to a Bankwide increase of - 8 -

83%), it also reflected increasing implementation difficulties. Many of the problems appear to be related to GOI's cumbersome budgetary, procurement and payment procedures, including issuance of tender documents and opening of letters of credit. These problems are further compounded by the severe shortages of both managerial and technical manpower. A number of steps have been taken by GOI and the Bank to address these issues. Several special Bank missions have visited Indonesia to analyze the problems and make recommendations for simplifying budgetary and financial procedures. The GOI and the Bank have also instituted formal and regular joint review procedures to identify general and project specific problems and work out corrective measures. In addition, procurement seminars were held in Jakarta in September 1979 and November 1981. As a consequence of these joint initia- tives, GOI has taken several measures to streamline some of the complex budgetary and financial procedures affecting project implementation. In addition, the Bank is helping the GOI in a special effort to identify problems in the construction industry with a view to developing appropriate remedial actions and policies. Weaknesses in the domestic contracting industry have been identified as one of the major causes of implementation problems in Indonesia. Finally, to reduce initial project implementation difficulties, many operations are now being presented for Board consideration at a later stage in the project cycle. Indications are that, as a result of these efforts, improvements are taking place. This was reflected in an increase in disbursements from $204.0 million in FY79 to $277.8 million in FY80, and to $373.5 million in FY81, and $501.3 million in FY82, the last implying a disbursement ratio of around 18%. While it is important that the Bank and GOI maintain their efforts, these trends are encouraging.

19. From 1968 until 1974, all lending to Indonesia was made through IDA. Due to the country's improved creditworthiness following the commodity and oil price boom in 1973/74, the bulk of the Bank Group's subsequent lending has been through IBRD loans, with a modest amount of IDA lending being justified primarily on poverty grounds, as the per capita GNP was well below the IDA cutoff of $625. Given Indonesia's much improved balance of payments position, IDA lending was discontinued in FY80.

20. The proposed project constitutes the second lending operation pre- sented to the Executive Directors this fiscal year. Projects under advanced stage of preparation and appraisal include the Seventh Nucleus Estates and Smallholder, Third Transmigration, Twelfth Education and the Provincial Health projects.

PART III - THE ENERGY SECTOR AND ELECTRICITY SUBSECTOR

Energy Resources

21. Indonesia is richly endowed with energy resources including oil, natural gas, coal, hydropower and geothermal energy. Oil and natural gas now account for almost all of total commercial energy consumption. While undiscovered oil reserves are estimated at 10-40 billion barrels, proven -9-

resources are 9.5 billion barrels. As production capacity is unlikely to inrease beyond 1.9 million barrels per day unless massive new reserves are discovered, projected increases in domestic oil demand could rapidly reduce the surplus available for export and have serious consequences for the growth of the economy. GOI has therefore adopted a policy of promoting alternative indigenous energy sources.

22. The estimated natural gas reserve is 69 trillion cu ft (TCF) of which 85% is non-associated and can be developed independently of oil. However, reserves are generally located away from population and industrial centers. The Arun field in North Sumatra has 17 TCF and Natuma, in the South China Sea, 35 TCF. Production of natural gas reached 2,700 million cu ft per day in 1979. Half of this was exported as LNG to Japan from Arun and Badak. LNG production is expected to double by 1985 to 15 million tons per year and to reach 28 million tons by 1990. Gas pipelines have been laid to domestic steel and fertilizer factories and domestic consumption is expected to increase by 15% every year.

23. Indonesia's coal reserves are believed as high as 20 billion tons, mostly located in West and South Sumatra and Kalimantan. While production is currently about 300,000 tons per year, major increases are expected by GOI. Coal will become the major source of fuel for the power sector as major thermal plants come on line in the 1980s. Work started early in 1982 on a 3.2 million tons per year mine at Bukit Asam in South Sumatra, and on a 0.6 million ton per year mine at nearby Muara Tiga coal field. Muara Tiga has reserves to increase production to 2.8 million tons per year by 1990. These two mines will supply coal to the Suralaya thermal power station which is currently under construction in West Java; two 400 MW generating sets will be in commercial operation there during 1985. A program to raise the production at Ombilin in West Sumatra to 1.3 million tons per year by the end of the decade is now under active consideration by GOI. In addition, in 1981, GOI entered into a number of production sharing agreements with private foreign and Indonesian joint-venture companies for exploration and exploitation of Kalimantan coal reserves. Exploration is now in progress.

24. Indonesia's total hydroelectric resources are large but its development is limited by its geographic distribution relative to demand. The greatest potential (over 35%) lies in Irian Jaya where the demand is less than one percent of total domestic demand, while Java, which accounts for 80% of the current demand, has less than 10% of the total potential. Existing hydroelectric (both PLN and non-PLN) installations aggregate to 1,312 MW; they are located mainly in Java (489 MW), Sumatra (612 MW), and Sulawesi (181 MW). Schemes with an aggregate capacity of about 980 MW are currently under construction. Other constraints which have limited development of hydroelectric resources are (i) lack of a survey of potential sites and (ii) availability of technical and administrative skills. To overcome them Perusahaan Umum Listrik Negara (PLN, the National Electricity Authority) is now carrying out a basic systematic countrywide resource survey which, by mid-1983, would prepare a reliable inventory of - 10 - hydroelectric sites and a detailed program for their investigation. Further, in 1982, GOI/PLN entered into an innovative design-and-construct turn key contract for the 180 MW Mrica hydroelectric project in Central Java, financed mainly by commercial credits. If this venture results in completion by the target date and at reasonable costs, this approach could enable more rapid development of hydro resources in future.

25. Surface manifestations of geothermal energy are found on all islands except Kalimantan, but only a few have been investigated and only one, Kamojang in West Java, has been delineated. It is believed that potential reserves may approach 10,000 MW distributed as follows: Java - 5,500 MW: Sulawesi - 1,400 MW; Sumatra - 1,100 MW; other islands - 2,000 MW. GOI, in collaboration with the Government of New Zealand, initiated develop- ment of Kamojang field in 1976. The first 30 MW generating set will be in commercial operation in December 1982. The proposed project will assist in expanding the station by 110 MW. Last year, in an attempt to utilize the skills of the private sector to hasten development of this renewable source, PERTAMINA (the National Oil and Gas Company) entered into a joint-operation contract with Union Geothermal, a subsidiary of Union OiL of California, for development of the Salak field in West Java; up to 495 MW of capacity is ultimately believed possible here. Exploration is in progress. GOI has announced its intention to develop 900 MW of geothermal capacity by the end of the decade and plans to lease other sites to successful bidders.

26. Besides promoting the exploitation of alternative commercial energy sources, GOI is also exploring the possibility of substituting charcoal for kerosene, which is widely used for cooking and lighting. Indonesia's forestry resources are abundant, and since they represent renewable sources of energy, the country could derive considerable savings if appropriate technologies were developed to facilitate the use of firewood for energy.

Institutions

27. The principal agency responsible for the implementation of GOI policies in the energy sector is the Ministry of Mines and Energy (MME). MME was established in 1978 to coordinate all activities in the energy sector and control the three state enterprises responsible for the execution of GOI policies in the energy subsectors - PERTAMINA for oil and gas, BATUBARA for coal and PLN for electricity. Other ministries and agencies are also involved in the sector: for example, Public Works deals with hydropower resource surveys, Agriculture oversees forestry products, and the National Atomic Energy Commission is responsible for nuclear development. In order to ensure appropriate coordination of energy policy the President recently established an inter-ministerial National Energy Board (BAKOREN) to oversee sectoral development.

GOI Policies and Major Sector Issues

28. The basic sector objectives as broadly outlined in Repelita III are: (a) diversification of primary energy sources, with particular emphasis on renewable sources; (b) improving the efficiency of energy - 11 -

conversion and utilization; and (c) expanding research programs. The Bank supports this strategy. During 1981, at the invitation of GOI, the Bank carried out a detailed assessment of the Indonesian energy sector, identify- ing policy options and analyzing investment priorities to provide a framework for technical assistance and advice to GOI on institutional aspects. The results have been incorporated in a report (No. 3543-IND dated November 1981) entitled "Indonesia - Issues and Options in the Energy Sector." This report confirms earlier finding that alternatives for oil must be developed quickly for electricity generation, and recommends that this should be extended to industry, transportation and households. It further points out that subsidized oil prices, along with weak institutions, manpower shortages and a lack of detailed energy sector planning remain major obstacles.

29. Subsidized petroleum product prices have caused serious ldistortions in the economy by failing to reflect the opportunity cost of these products. The effects of this have been to favor the use of oil over other competing fuels, the promotion of domestic consumption over exports and, because the degree of subsidy between oil products is uneven, to distort demand between individual petroleum products. The Bank has had a continuous dialogue with GOI on the question and has highlighted the consequences of this policy in its economic and sector work, particularly in the above Energy Sector Report. During these discussions, GOI has expressed its intention eventually to eliminate subsidies on domestic oil consumption, subject to maintaining the ability of poorer consumers to satisfy their energy needs. This was most recently reflected in the domestic oil prices increase of more than 60% in January 1982, which followed a 40% increase in May 1980. While this was a decisive step, domestic oil prices are still only about 55% of the average opportunity cost and price relativities between products diverge widely from those prevailing on the international market. For example, prices for avia- tion fuel and regular gasoline are 123% and 127% of international levels, whereas prices for kerosene and industrial diesel oil are 30% and 41% of international levels. The Bank is currently carrying out further studies on the welfare implications of eliminating energy subsidies, the demand for energy by the household sector and other relevant subjects. On completion of these studies the Bank will hold further discussions on the energy pricing issue with GOI. It is expected that additional and significant further increases in domestic oil prices will occur in the not too distant future.

30. While GOI has developed an overall energy sector policy, no detailed and cohesive energy sector development plan has yet been prepared reflecting weaknesses of policy-making institutions and manpower shortages. There is at present an energy planning unit within MME, but this unit is not adequately staffed and does not enjoy sufficient authority to coordinate the work among the major subsectors and evaluate proposals for assistance for investments. To address this, the Bank is providing technical assistance under the Fifth Technical Assistance Project (Credit 898-IND) to enable this energy planning unit to assume appropriate sector planning functions including data collection and analysis, long-term demand forecasts, alternative develop- ment options, analysis of energy pricing policies and their implications, study - 12 -

feasible demand management and conservation measures and monitor energy- related programs. The needs of institutional strengthening and manpower development are significantly high also in the other areas. In the power subsector, the management information system development study financed under the Seventh Power Project (Loan 1513-IND) is currently under way to design a system which will assist the Directorate General of Electric Power (DGEP) in ensuring that future power development programs are consistent with national energy policy objectives. An assessment of long-term manpower development and training needs for PLN has recently beerL completed except for the senior staff and various recommendations are incorporated under the proposed project (paras. 37 and 54). In the coal subsector, the needs to strengthen BATUBARA, PT BUKIT ASAM (the company developing the Bukit Asam field) and the Geological Survey Institute, in addition to the coal expertise in Directorate General of Mines within MME, are particularly high, since it is expected that coal will be a critical fuel to enable diversification of energy sources in Indonesia in the next 10 to 15 years. A number of steps designed to strengthen these institutions and develop manpower required have been incorporated in the recent Bank-assisted coal subsector projects, Bukit Asam Coal Mining Development and Transportation Project (Loan 2079-IND) and the Coal Exploration Engineering Project (Loan 2153-IND), and their progress will be closely monitored.

31. The magnitude of investments necessary to impLement GOI's policy of energy diversification is large. The Bank estimates that the annual investments in the sector will increase from about $1.27 billion in 1980 to about $10 billion (at 1980 levels) in the year 2000. About half of these will be directly in the electricity subsector. The Bank's lesnding strategy for the energy sector that has emerged is to continue its support for the investment programs in the electricity and coal subsectors with a focus on steps to overcome the constraints of institutional weaknesses and manpower shortages.

The Electricity Subsector

32. The electricity subsector is regulated by the M!1E through the DGEP. The subsector comprises (a) PLN (discussed below in detail); (b) captive plants installed by private parties for their own use; (c) some small muni- cipal franchises; and (d) a small number of cooperatives which were set up to provide electricity in remote rural areas. Until the mid seventies captive plants were a significant factor with an aggregate capacity equal to that of PLN. Their growth has dramatically declined since and is insignificant now. PLN is clearly the dominant executive authority in the sector. It currently has about 3,000 MW of installed generating capacity - 1,150 MW of steam (oil fired), 800 MW of gas turbines, 500 MW oL diesels, and the balance in hydro- electric installations. PLN also operates over 6,400 km of transmission lines at 70 and 150 kV and about 50,000 km of distribution lines, the bulk of which are in Java. About 2,000 km of 150 kV transmission lines under construction are scheduled for completion this year. Java will havet a fully interconnected grid at 150 kV by 1983. By 1984, a 500 kV system covering West and Central Java will be commissioned; it will be extended to East Java by 1986. - 13 -

33. PLN. PLN is a public corporation (Perum) constituted under Presidential Decree No. 18 of 1972, with responsibility for the generation, transmission and distribution of electricity and the planning, construction and operation of electricity supply facilities.

34. 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 includes five other directors with functional responsibility for planning, construction, operations, finance and administration. Operational responsibility devolves to 16 regions, and responsibility for major construction to twelve project managers. Also reporting to the board are three staff units responsible for (a) power research; (b) education and training; and (c) management services, and an audit unit, called the Corporation Inspectorate. The management services and audit units are new units decreed by the Minister in 1981 which have not yet become operational.

35. PLN's Market. A study to assess potential demand in Java which presently accounts for about 80% of the electricity consumption was under- taken in 1974-76 by consultants financed under an early power project (Credit 399-IND). It has shown that the underlying demand is so large that PLN's sales growth will be limited only by its ability to supply until about 1990; only thereafter would it be limited by growth of the market itself. PLN's overall performance during the past 4 years, 1977/78 to 1981/82, has been impressive. Its sales increased annually by an average of 22% and performance indicators like the number of consumers per employee and the energy sold per employee rose 50% in this period. Its ambitious customer connection programs were fulfilled year after year and access to service increased by about 50%. Standards of reliability of supply were improved. Long waiting lists for new service connections assure a market for PLN which in the next few years will be limited only by its capacity to expand its systems. The present projections are that PLN's sales will grow at an average rate of about 20% per year until the end of the decade.

36. PLN's Long-term Development Plan. PLN follows the practice of preparing annually a long-term development plan to cover the projected requirements of generation, transmission, distribution and other facilities. The latest plan, covering the development period 1981/82 to 1993/94, shows generating capacity increasing to about 19,000 MW. Coal-fired steam, hydroelectric, and geothermal plants will register the greatest growth. These sources, which presently account for only 18% of the total generating capacity, will increase their share to over 70% by 1993/94. Oil accounted for 80% of PLN's generation in 1981/82 but its share is expected to decline to about 20% in 1993/94. In view of projected demand this plan is fully justified. The annual investment (at 1982 prices) would be about $2.0 billion in 1983/84 increasing gradually to about $2.5 billion by the end of the decade.

37. The main problems which PLN faces in implementing its development plan are to: (a) reorganize and train its senior technical staff to - 14 -

undertake engineering tasks to a greater extent; and (b) ensure adherence to construction schedules of major generation and bulk transmission projects where delays of even a few months could have serious repercussions. While the requirements of training at skilled lower levels have been assessed and can be tackled by expanding training centers and improving training techniques (this will be supported under this project), the training needs of senior technical staff, who lack certain skills in planning, design, project management and operation of larger projects in recent years, must be urgently identified. During negotiations, an agreement was reached that PLN would prepare by December 31, 1983 an adequate training program for its senior technical staff (including, as may be appropriate, training assistance provided by or in overseas electricity companies) and promptly thereafter initiate said training program in consultation with the Bank (Section 3.07 of the draft Project Agreement). On the second issue, a major constraint has been procurement policies. To address this, an agreement was reached that PLN would dis- continue its system of preparing joint bid evaluation reports by PLN and its consultants (Section 3.06 of the draft Project Agreement). This approach made it impossible to assign responsibility for imperfections and is seen as a significant cause of delays in approval of contract awards. It is expected that PLN would also prepare an action plan no later than January 1984 to improve the efficiency of procurement administration and implement such a plan in consultation with the Bank.

38. PLN's Financial Results. Coincident with PLN, incorporation in 1972, measures were set in hand with the support of the Bank Group to establish a sound financial basis for the organization and eliminate the operating losses which were then being incurred. This was achieved by 1976. Since then, PLN's growth has been impressive: energy sales increased from 2,800 GWh in 1975/76, to 7,800 GWh in 1981/82, and capital expenditure grew from under Rp 200 billion to over Rp 700 billion in the same period. However, tariffs remained unchanged from 1976/77 through 1979/80 and earnings and rates of return were negligible until 1980/81. In the period 1975/76 through 1981/82 PLN financed 16% of its capital program, mainly from depreciation retentions and customer connection contributions; borrowing accounted for 24% of the program, but the major source of funding was the GOI, which provided 60% of the program by way of equity contributions. GOI also subsidized PLN's fuel costs, which are currently about 50% of international levels. As a result of this mix of funding, PLN's debt:equity ratio is still quite low at 21:79. Its latest balance sheet shows a healthy current ratio of 4.5 and substantial liquidity. The main financial issues currently facing the corporation are the level of power prices and PLN's capitalization policy.

39. Prices. In 1979, GOI and PLN agreed that tariffs for electricity should reflect long-run marginal costs (LRMC) as closely as possible. Although some progress has been made in structuring electric rates according to economic pricing principles, the average level is still about 30% below the LRMC of the latest development program. This is of particular significance - 15 -

to PLN because of the risk of eventual over-investment in new facilities if electricity demand continues to be distorted by artificially low prices. In view of this, and considering the importance of rational energy pricing generally to Indonesia's economic planning and the agreement already reached with GOI as to the undesirability of perpetuating energy subsidies, electric rates should be raised to the level of LRMC as soon as possible. Experience of rate increases effected in the recent past suggests that this could be accomplished by April 1985, the beginning of PLN's financial year 1985/86, and such is implicit on the agreements reached with GOI/PLN on the financial performance to be achieved by PLN in the medium term (para. 41).

40. Capitalization. The attainment and maintenance of tariff levels at LRMC would set a parameter to PLN's internal cash generation capability. Furthermore, the size of PLN's planned capital expenditures, and budgetary constraints facing GOI in the near term, suggest that it would be imprudent for PLN to count on continuing to receive such a large proportion of its funding in the form of GOI equity as it has done in the past. But PLN is currently well placed to increase its level of borrowing. Its balance sheet is sound and given the low risk inherent in its near-term investments, undertaken at such an early stage of the country's power development, PLN should be attractive to lenders both inside and outside Indonesia.. Therefore, its near-term objective should be to secure a significantly higher degree of leverage in its financing plan by increasing its long-term borrowing. A debt:equity ratio of 40:60 appears easily supportable even on quite rigorous assumptions as to terms of borrowing, and the Bank has therefore recommended to GOI and PLN that they should consider increasing PLN's leverage to this level. GOI is examining this recommendation in more depth, in order to define a capitalization policy for PLN and help the corporation prepare a financing plan.

41. Future Financial Performance. After financial recovery in 1976, PLN agreed with the Bank to adopt cash generation targets /1 as a measure of financial performance. The covenanted target was 30%, to be achieved by 1985/86 and thereafter. Interim indicative targets for 1979/80, 1980/81 and 1981/82 (12% each year) have been comfortably achieved. However, the higher levels of capital expenditure envisioned in the latest development program requires an average tariff substantially in excess of LRMC to meet the covenanted level of cash generation in 1985/86. Therefore, it was agreed with PLN that the targets to be achieved in 1985/86 and thereafter be revised to the level of not less than 20% (Section 4.05 of the draft Project Agreement). Interim indicative targets for 1982/83 through 1984/85 were also revised to 10%. In addition, to preserve the stability of cash flow and facilitate

/1 The percentage of capital expenditures for the target year plus the two preceding years covered by its net revenue plus depreciation retentions less debt service for the same three years. - 16 -

steady progress towards the pricing objectives, it was also agreed that in the event of slippage of capital expenditures from the development program level, the cash generation percentage target for the years affected would be corres- pondingly adjusted upwards, and vice versa. These targets are consistent with the adoption of LRMC electricity pricing by 1985/86. The cash generation covenants under the earlier power projects will also be amended with respect to the target levels in order to be consistent with the levels agreed under this project.

42. The Bank has suggested that a rate of return approach would now be a more appropriate measure of PLN's financial performance, but COI does not wish to reformulate the corporation's financial objectives until it has completed its study on PLN's capitalization (para. 40). The Bank will accordingly pursue the suggestion over the near future. The objectives now sought for PLN and expressed in terms of the cash generation targets described above represent a positive rate of return on operating assets for all years of the forecast (through 1989), rising from 3% in the current year to 15% by the end of the decade.

43. If PLN adopts the capitalization policy recommended at para. 40, its debt:equity ratio would approach 50:50 by the end of the decade. Existing covenants binding PLN to a maximum debt:equity of 60:40 and a minimum debt service coverage of 1.3 before incurring additional debt would be repeated under the proposed loan. The recommended financing policy will substantially reduce the funding expected from GOI and initiate a declining trend; annual requirements could be expected to fall from around Rp 700 billion in 1982/83 to Rp 300 billion by the end of the decade.

44. PLN's Performance Under Previous Bank Group Lending. The Bank Group has provided $1,290 million through 11 different loans and credits for power generation/distribution facilitie.s in and around Jakarta and in West and Central Java. Specifically, four distribution projects (Credits 165-IND and 334-IND, and Loans 1259-IND and 2056-IND) have been approved for the rehabilitation and expansion of the distribution facilities in the Greater Jakarta area and seven power generation projects (Credit 399-IND, and Loans 1127-IND, 1365-IND, 1513-IND, 1708-IND, 1872-IND and 1950-IND) in West and Central Java have been undertaken. Past loans and credits also provided funds for various consulting services for training, managemenit studies, demand studies and feasibility studies.

45. Out of the eleven projects five have been completed, one is nearing completion, and five are in the early stages of construction. While PLN's performance in implementing these projects was uneven at first, there was significant improvement later. The earlier distribution projects (Credits 165-IND and 334-IND) were completed more than three years behind schedule. A Project Performance Audit Report on these two projects, wlhich was issued in November 1979, concluded that despite the delay in project completion (which in large measure was attributed to the unfamiliarity of the Bank and the borrower/beneficiary with each other's procedures), the projects made possible a greater reliability of supply and many institutional and - 17 -

operational improvements. The lessons learnt were: (i) the importance of timely appointment of consultants; (ii) problems in acquisition of land and rights of way; and (iii) the difficulties of changing from old to newer power systems standards, e.g., higher voltages. In generation projects, the earliest project (Credit 399-IND) covering the first and second units at Muara Karang was completed about two years late; the next (Loan 1127-IND) for the third unit, less than one year late. A completion report on these two projects has been prepared.

46. Implementation however has improved over the last year. Physical progress of construction of Saguling hydro-electric project (Loan 1950-IND) which was slow at start has improved considerably and completion is expected close to the original target date. Good progress has been made on procurement under Loan 2056-IND - the most recent - with contracts for about 87% of the loan amount having been approved within 6 months of loan effectiveness. However, the Muara Karang extensions (1365-IND) have just been completed over a year late. The Semarang project (Loan 1513-IND) is well over a year behind appraisal schedule, and both projects at Suralaya (Loans 1708-IND and 1872-IND) are also a year behind the original program. The major constraint which PLN currently faces is lack of experience of senior technical staff in planning, designing and implementing larger projects in recent years, and procurement administration. As discussed in para. 37, these issues will be addressed under the proposed project.

PART IV - THE PROJECT

47. The project comprises several distinct, but integral, components of PLN's latest investment program. The project was appraised in February 1982 and negotiations were held in Washington in October 1982. The Indonesian delegation was led by Mr. Samaun Samadikun, Director General of Electric Power. Supplementary data are given in Annex III. The Staff Appraisal Report (No. 4046-IND) is being circulated separately to the Executive Directors.

Project Objectives

48. In line with GOI energy policy, outlined in para. 28, the specific objectives of the proposed project are to: (a) diversify the sources of electricity production mainly through use of geothermal energy and coal and to a limited extent by use of mini-hydro resources; (b) improve efficiency of PLN's distribution networks; (c) reduce PLN's system losses; and (d) provide a training and consultancy services program for the continued institutional development of PLN.

Project Description

49. The project comprises the following five components: - 18 -

(a) construction of 110 (2 x 55) MW extension of the Kamojang geothermal station in West Java and substation equipment to interconnect with the existing transmission system;

(b) construction of the third 400 MW, coal-fired, generation unit at the Suralaya thermal station in West Java, and step-up substation extensions to connect it with the 500 kV system under construction, including engineering services for the third and fourth generating units;

(c) distribution system improvements in Java, North Sumatra and South Sulawesi;

(d) a mini-hydro development program in North Sumatra; and

(e) training facilities and services to assist PLN's manpower development program.

Evolution and Scope of the Project

50. The Geothermal Component. A bilateral grant from New Zealand in 1973 enabled the scientific studies and exploratory drilLing which delineated the Kamojang geothermal field. New Zealand further assisted in the first stage development of a 30 MW generating set which will be in operation by December 1982. It has provided some technical training to the staff of PERTAMINA in steam field technology and to PLN staff on the conventional power station side. In December 1981, Geothermal Energy of New Zealand (GENZL), the firm of consulting engineers who initiated the Kamojang development, prepared the feasibility report on 110 MW extensions to be completed by the end of 1986. The report, which established the technical and economic soundness of the project, also detailed the steam development and costs. Bank appraisal was based on this report.

51. The Suralaya Coal-fired Station. The Suralaya site was chosen through a study financed under the Bank's third power project (Credit 399-IND) as the best location for the first major (2,800 MW) coal-fired thermal station in Java. The first two 400 MW generating sets are currently under construc- tion with financial assistance from the Bank's Eighth (Loan 1708-IND) and Ninth (Loan 1872-IND) power projects. They will be in operation during 1985 along with the first phase of an all-Java 500 kV grid. Simultaneously, the Bank through Loan 2079-IND is also assisting in the financing of an integrated coal mining and transportation project which will bring coal from the Bukit Asam and Muara Tiga mines in South Sumatra overland and across the Sunda Strait to Suralaya. Studies carried out in 1981 by PLN's Planning Direc- torate, which the Bank accepts, have clearly indicated the need and economic advantage of constructing the third 400 MW generating set at Suralaya by mid-1986 and the fourth 400 MW generating unit by 1988. Adequate coal is expected to be available by that time from the Bukit Asam and Muara Tiga mines together. BAKOREN approved the construction of the third and fourth 400 MW coal-fired generating units at Suralaya in January 1982. The Montreal Engineering Company of Canada (MONENCO) has been a technical advisor to PLN on the Suralaya project from its inception. - 19 -

52. The Distribution Component. The distribution sub-project has evolved from a study by Beca Worley International (BWI) of New Zealand, using funds out of the Sixth Power Loan (1365-IND). IWI has reviewed: (a) the adequacy of PLN's transmission and distribution programs until 1987 to match ongoing programs of construction of new generating facilities; and (b) measures to augment these systems with due emphasis on economy and efficiency. The study was carried out in Java, North Sumatra and South Sulawesi which presently account for 90% of PLN's market. BWI's final report was submitted in April 1982. It constitutes a sound basis for planning PLN's distribution development program. During 1981/82 GOI authorized the PLN's Accelerated Investment Program (AIP) of about $1.4 billion to cover a three-year period from 1982/83 to 1984/85. The distribution component of the AIP in this period accounts for about $829 million but it primarily covered expansion of PLN's distribution networks to attract industry to rural areas and to permit development of viable rural electrification projects. This left uncovered schemes outlined by BWI costing about $380 million, with a foreign component of about $260 million, some of which are required with a high priority to significantly reduce high system losses and to improve operational efficiency of PLN's distribution systems; these matters are as equally important as the rapid extension of service. The Bank's approach in this situation has been to include $100 million of the proposed loan for the project as a distribution development fund (rather than a geographically described project component) to purchase urgently needed equipment for these purposes out of an agreed list. It will aim at reducing distribution losses by a further five percent by 1986.

53. Mini-Hydro Component. The mini-hydro component provides for design and construction by 1985 of 8 mini-hydro stations with an aggregate installed capacity of about 7 MW and emerged from a survey of mini-hydro potential of the western half of North Sumatra carried out in 1981 by BWI of New Zealand with Indonesian counterparts. The sites are all located within 4 km of exist- ing roads and not more than 20 km from population centers requiring electri- city. They have similar hydrological and topographical characteristics and could be developed using standardized generating sets of 250 and 750 kW, oper- ating under heads of 15 m, and can be connected to the 20 kV distribution network being constructed as part of the AIP. Standardization would reduce design and construction costs and interconnection into the 20 kV system fed by diesel installations would improve the overall economy of these projects. It is also expected to speed up further development programs in this important field. PLN has decided to follow this approach for its future mini-hydro programs. Six (750 kW) schemes employing nine 750 kW generating units (6.8 MW) have been finalized. Reports on their locations, hydrology, geolo- gical assessment, conceptual designs, costs and economic justification have been forwarded to the Bank. The remaining two schemes for installation of 200 kW generating sets will be finalized shortly.

54. The Training Component. PLN has carried out a manpower study with the help of Electricite de France to establish needs during the rest of the decade. To meet these needs at the middle and lower skilled level-s five new training centers have to be established in addition to the six currently in - 20 -

operation. The project will provide: (a) equipment and materials to create about 875 new training places; (b) technical assistance of about 30 man-years in strengthening personnel management and launching courses at the new centers; and (c) overseas fellowships for selected middle and upper level managers to develop the personnel function in PLN.

Implementation of the Project

55. PLN will implement the project with the assistance of qualified consultants. GENZL has been selected to assist in the Kamojang geothermal extension project, MONENCO has been selected to assist in the Suralaya sub-project, and BWI has been selected to assist with the distribution and mini-hydro components. The Bank has agreed to these selections. The GENZL contract involves about 765 man-months at an estimated average man-month cost, inclusive of basic salary, overheads and fees, international travel and overseas allowances, of $8,600. The MONENCO contract is for 2,150 man-months at a corresponding man-month cost of $10,000. The two BWI contracts mentioned above involve a total of about 300 man-months, at an average cost of $8,100. It was agreed that PLN would ccntinue to employ adequate qualified consultants on terms and conditions satisfactory to the Bank during the entire implementation period of the respective project components and that additionally, for the distribution component, the consultant's contract would provide for monitoring and reporting on the loss reduction and operational efficiency improvement schemes in accordance with terms of reference acceptable to the Bank (Section 2.02 of the draft Project Agreement). PLN also requires consultants to implement the training project component. A short list of experts has been drawn up in consultation with the Bank and proposals have been invited on agreed terms of reference. The work is therefore expected to commence expeditiously.

56. PERTAMINA (National Oil and Gas Company) and PLN will be separately responsible for the steam developments and power station components of the Kamojang geothermal project. PERTAMINA is obligated to develop geothermal steam and sell it to PLN under the Presidential Decree of June 1, 1981. While the Bank feels that over time this institutional pattern could be improved through a unified agency responsible solely for geothermal work, it has agreed that the present arrangement is satisfactory for this project. However, GOI has agreed that by April 1, 1987, it would complete a study for the Bank's review on possible institutional and organizational improvements to establish the most efficient long-term development of geothermal energy based on experiences at Kamojang and other geothermal sites. PERTAMINA has employed consultants, on terms and conditions satisfactory to the Bank, for the specialized geophysical and geological work required for steam development at Kamojang and long-term training, and it will continue to employ them or others during the construction of the project. GOI has also agreed that it would ensure that PERTAMINA: (a) prepares and adheres to a program of steam field drilling and development adequate to provide steam at Kamojang for not less than 105 MW by August 1983 and not less than 140 MW by April 1984; and (b) will allocate all funds, as and when needed, for - 21 -

financing and timely completion of the work program referred to above (Section 3.03(a) and (b) respectively of the draft Loan Agreement). It was also agreed that GOI will take all necessary action to make available in time all such land and rights to such land as shall be required at Kamojang and to inform the Bank in a timely manner that this has been done (Section 3.04 of the draft Loan Agreement). Furthermore, in order to be assured of adequate steam supply for the Kamojang geothermal power plant, achievement of sufficient steam production for not less than 105 MW (equivalent to 75% of total steam production required for 140 MW), would be a condition of disbursement against equipment and material for Kamojang generating units (Schedule 1, para. 4(2) of the draft Loan Agreement). Once this level is achieved, obtaining the remaining 25% of steam required is almost certain. Finally, a sales contract for steam based on the principle of cost plus reasonable return would be signed between PERTAMINA and PLN not later than six months before commissioning of the Kamojang generating Unit II, expected in April 1986.

Costs and Financing

570 Total project costs are estimated at $1,189.6 million excluding interest during construction, and the front-end fee on the proposed Bank loan. Of this $828.6 million (70%) is in foreign exchange. The total financing requirements, including the interest during construction and the capitalized front-end fee, is estimated at $1,470.9. The proposed Bank loan of $300.0 million, including the capitalized front-end fee, would cover about 20% of total financing requirements. Basic costs have been determined from construction costs for ongoing projects and are at end-1982 levels. Physical contingencies of 5-10% have been allowed for. Price contingencies were estimated as follows: on foreign costs at 8.0% for 1983, 7.5% for 1984, 7.0% for 1985 and 6% for 1986 and thereafter; and on local cost at 12% for 1983 and 10% for 1984 and thereafter. In addition to the Bank loan the foreign exchange financing requirements of $1,109.9 million is expected to be met by $95.5 million from the Asian Development Bank, $435.2 million from export credits and other possible bilateral sources, $2.3 million from the Sixth Power Loan (1365-IND) (this will cover consultant work) and $276.9 million from government resources (for interest during construction). $69.5 million out of $95.5 million of ADB loans has already been negotiated and arrangements to obtain $182 million of export credits for the boiler and generator for Suralaya Unit III are well advanced. Any shortfall in foreign exchange financing will be met by GOI/PLN. Furthermore, the entire local cost will be financed by GOI/PLN. The proposed Bank loan would be to GOI which will onlend the proceeds to PLN at an interest rate at least equivalent to that of the Bank loan plus an appropriate administrative cost, for 20 years including a grace period of 5 years. The foreign exchange risk will be borne by GOI. Signing of the Subsidiary Loan Agreement will be a condition of loan effectiveness (Section 6.01 of the draft Loan Agreement). About $6.0 million of engineering costs on Suralaya sub-project (expected to be incurred since July 1982) is proposed to be retroactively financed under this loan. - 22 -

Procurement and Disbursement

58. All equipment and materials to be financed through the proposed loan will be procured through international competitive bidding (ICB) in accordance with Bank guidelines. As some participation by Indonesian manufacturers is likely a preference of 15% of the c.i.f. price, or prevailing import duties, whichever is lower, will be applicable. The contracts for electro--mechanical equipment and associated civil works for Suralaya Unit III, which will be financed from export credit and GOI/PLN own sources respectively, will need to be negotiated with the original suppliers and contractors for the first two Suralaya units on the basis of their successful bids through ICB under the Eighth Power Loan (1708-IND) to meet a mid-1986 commissioning target. This procedure is considered optimal, since the contracts involved are repetitive and need to be finalized urgently in order to achieve the commissioning target date of mid-1986. However, to provide for the contingency that negotiations with the suppliers/contractors would be unduly prolonged or do not result in reasonable prices, preparation has been made to invite tenders for these contracts. In this event commissioning of Unit III would be delayed to April 1987. The project implementation program and cost estimate provide for this. Other equipment and material possibly financed by export credits will be procured through efficient procedures ensuring competitive prices. The civil works local contracts to be financed by GOI/PLN will be procured through local procedures. Consultant services have been, or will be, procured in accordance with Bank Guidelines on the use of consultants.

59. The Bank loan will be disbursed against the following items: (a) equipment - 100% of foreign expenditures for directly imported goods, 100% of the ex-factory cost (excluding any identifiable tax) for locally manufactured goods and 65% of the local expenditures for goods imported and locally procured; and (b) consultants services - 100% of expenditures.

Benefits and Risks

60. The project would substantially increase PLN's resources of firm energy from nonoil sources by about 2,850 GWh annually by end 1986. The distribution component would enable losses to be reduced from 21% at present to about 16% by end 1985, apart from its other benefits of imprcved opera- tional efficiency. While the impact of the mini-hydro component on PLN's total sales would be small, this pilot project promises a greater accelera- tion in future development of a renewable resource, especially important for rural areas. The training and consultancy programs will considerably strengthen PLN's manpower development and its institutional growth.

61. In view of the composite nature of the project a separate calcula- tion of the benefits of each component was not made. It was considered more appropriate in the case of this project to calculate the economic rate of return of the entire investment program of PLN, as its components are deter- mined on the basis of least-cost analysis techniques. The rate of return of the 10 year time slice of the program is 12%. - 23 -

62. There are no unusual technical risks for the proposed project since two of the major project components, viz. Kamojang and Suralaya, are extensions at already developed sites, and the other, viz. the distribution and the mini-hydro component, involve conventional/standard equipment. The only risks of any significance to the project are those of developing and sustaining adequate quantities of steam at Kamojang geothermal field. These are minimal, however, because of the extensive investigations carried out over a long period and the fact that the 18 wells drilled so far have yielded outputs well above normal for a geothermal field and adequate steam capacity would have been developed by the time contracts are placed for the generating sets. There is, of course, some risk of implementation delays. To counter them action has been taken by appointing consultants in advance and they started work in June 1982 to schedules which will be closely monitored by PLN and the Bank. Further, measures for reorganization of procurement and training proposed under the project, should also reduce these risks.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

63. The draft Loan Agreement between the Republic of Indonesia and the Bank, the draft Project Agreement between the Bank and PERUSAHAAN UMUMLISTRIK NEGARA, and the report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement are being distributed to the Executive Directors separately.

64. The special features of the Loan and Project Agreements are referred to in Section III of Annex III. A condition of effectiveness of the Loan (para. 57) is that the Subsidiary Loan Agreement has been signed on behalf of the Borrower and PLN. Special conditions of disbursements against equipment and materials for the Kamojang geothermal power units will be the achievement of sufficient steam production by PERTAMINA (para. 56).

65. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.

PART VI - RECOMMENDATION

66. I recommend that the Executive Directors approve the proposed loan.

A. W. Clausen President

Attachments November 22, 1982 Washington, D.C. -24- ANNEX I Page 1 of 5 pages

INDONESIA - SOCIAL INDICATORS DATA SHEET

INDONESIA REFERENCEGROUFS (WEIGHTED AVERAGES AREA (THOUSANDSQ. KM.) - MOSTRECENT ESTIMATE)/a TOTAL 1919.3 MOST RECENT LOW INCOME MIDDLE INCOKE AGRICULTURAL 316.5 1960 lb 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC

GMP PER CAPITA (US$) 80.0 140.0 430.0 261.4 890.1

ENERGYCONSUMPTION PER CAPITA (KILOGRAMSOF COALEQUIVALENT) 124.7 121.9 225.4 448.7 701.7

POPULATIONAND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) 94680.0 116143.0 146557.0 URBANPOPULATION (PERCENT OF TOTAL) 14.6 17.1 20.2 17.3 32.4

POPULATIONPROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 216.0 STATIONARYPOPULATION (MILLIONS) 376.3 YEARSTATIONARY POPULATION IS REACHED 2110

POPULATIONDENSITY PER SQ. KM. 49.3 60.5 74.6 158.1 255.9 PER SQ. KM. AGRICULTURALLAND 355.9 378.8 452.4 355.9 1748.0

POPULATIONAGE STRUCTURE(PERCENT) 0-14 YRS. 40.7 44.0 40.1 36.8 39.9 15-64 YRS. 56.2 53.4 56.9 59,7 56.8 65 YRS. AND ABOVE 3.1 2.5 3.1 3.5 3.3

POPULATIONGROWTH RATE (PERCENT) TOTAL 2.1 2.0 2.3 2.0 2.3 URBAN 3.7 3.6 4.0 3.3 3.9

CRUDE BIRTH RATE (PER THOUSAND) 46.8 40.7 35.3 29.3 31.8 CRUDE DEATHRATE (PER THOUSAND) 24.5 17.2 13.3 11.0 9.8 GROSS REPRODUCTIONRATE 2.8 2.7 2.2 2.0 2.0 FAMILY PLANNING ACCEPTORS, ANNUAL(THOUSANDS) .. 181.1 2216.0 USERS (PERCENT OF MARRIEDWOMEN) .. 0.2 27.1 19.3 36.3

FOODAND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 93.0 102.0 113.0 108.1 115.6

PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 86.3 93.9 101.7/c 97.3 106.4 PROTEINS (GRAMS PER DAY) 38.2 42.4 44.8/c 56.9 54.4 OF WNICH ANIMALAND PULSE 5.6 6.2 6.67T 20.0 13.9

CHILD (AGES 1-4) MORTALITYRATE 22.9 16.8 11.3 10.9 6.7

NEALTH LIFE EXPECTANCYAT BIRTH (YEARS) 41.2 47.3 53.1 57.8 59.8 INFANT MORTALITYRATE (PER THOUSAND) 149.9 120.9 92.7 889.1 63.7

ACCESS TO SAFE WATER(PERCENT OF POPULATION) TOTAL *- 3.0 12.0/d 32.9 32.0 URBAN 10.0 35.07Ž 70.7 51.9 RURAL *- 1.0 6.07o 22.2 20.5

ACCESS TO EXCRETADISPOSAL (PERCENT OF POPULATION) TOTAL .. 12.0 15.0/e 18.1 37.7 URBAN .. 50.0 60.O7Ž 72.7 65.7 RURAL .. 4.0 5.07Ž 4.7 24.0

POPULATION PER PHYSICIAN 46778.7 26498.5 13674.6 3297.8 8540.4 POPULATIONPER NURSING PERSON 4517.0 7672.8 8871.6 4929.3 4829.4 POPULATION PER HOSPITAL BED TOTAL 1360.3 1644.6 1609.9/d 1100.4 1047.5 URBAN 251.8 .. 699.o07 301.3 651.6 RURAL .. .. 3166.8/d 5815.7 2597.6

ADMISSIONS PER HOSPITAL BED .. .. 22.4/ .. 27.0

HOUSING AVERAGESIZE OF HOUSEHOLD TOTAL 4.4 4.8 URBAN 4.9 5.3 RURAL 4.3 4.7

AVERAGENUtMBER OF PERSONS PER ROOM TOTAL .. 1.5 URBAN .. 1.6 RURAL .. 1.5

ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. .. URBAN *- . RURAL .. . ANNEX I - 25- Page 2 of 5 pages

INDONESIA - SOCIAL INDICATORS DATA SHEET

INDONESIA REFERENCE GROUPS (WEIGHTED AVERAGES - MOST RECENT ESTIMATE)- MOST RECENT LOW INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC

EDUCATION ADJUSTED ENROLLMENTRATIOS PRIMARY: TOTAL 71.0 78.0 94.0 97.4 96.2 MALE 86.0 83.0 100.0 101.0 99.8 FEMALE 58.0 73.0 89.0 87.8 92.1

SECONDARY: TOTAL 6.0 16.0 22.0 53.0 37.6 MALE 10.0 21.0 27.0 63.8 41.1 FEMALE 3.0 11.0 18.0 41.3 34.1

VOCATIONALENROL. (2 OF SECONDARY) 20.4 22.1 19.8 1.7 20.8

PUPIL-TEACHER RATIO PRIMARY 38.8 28.9 37.2 37.7 35.5 SECONDARY 14.0 13.1 17.0 20.2 25.0

ADULT LITERACY RATE (PERCENT) 39.0 56.6 62.0 52.1 73.1

CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 1.1 2.1 3.5/c 1.5 9.8 RADIO RECEIVERS PER THOUSAND POPULATION 7.2 22.0 41.9 35.4 116.5 TV RECEIVERS PER THOUSAND POPULATION 0.1 0.8 8.6 3.2 37.6 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 11.0 .. 17.7/d 16.4 53.7 CINEMA ANNUALATTENDANCE PER CAPITA 2.8 .. 0.877 3.6 2.8

LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 34791.4 41069.9 52582.0 FEMALE (PERCENT) 27.8 30.9 29.3 29.5 33.6 AGRICULTURE (PERCENT) 75.0 66.0 58.0 70.0 52.2 INDUSTRY (PERCENT) 8.0 10.0 12.0 15.0 17.9

PARTICIPATION RATE (PERCENT) TOTAL 36.7 35.4 35.9 40.0 38.5 MALE 54.2 49.5 51.0 51.8 50.5 FEMALE 20.0 21.6 20.9 23.8 26.6

ECONOMIC DEPENDENCYRATIO 1.2 1.3 1.2 1.0 1.1

INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS .. .. 23.5/d .. .- HIGHEST 20 PERCENT OP HOUSEHOLDS .. .. 49.47. LOWEST 20 PERCENT OF HOUSEHOLDS .. .. 6.6/d LOWEST 40 PERCENT OF HOUSEHOLDS .. .. 14.47*

POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 136.0 133.8 194.7 RURAL .. .. 112.0 111.5 155.1

ESTIMATED RLELATIVEPOVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 119.0 .. 178.2 RURAL .. .. 98.0 .. 164.9

ESTIMATED POPULATION BELOWABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 28.0 43.8 24.4 RURAL .. .. 51.0 51.7 41.1

Not available Not applicable. NOTES

/a The group averages for each indicator are population-weighted arithlaetic means. Coverage of countries among the indicators depends on availability of data and is not uniform.

/aa China included in total only.

/b Unleaa otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1978 and 1980.

/c 1977; /d 1976; /e 1975.

May, 1982 ANEX I - 26- Page 3of 5pages

DEF:N:ITONSiF SOChoo INDICATORS

etefeas.racafol succor toe oder otIf otid tod-tasor-de, sod rhr-trorire Iaters r off!rerrraeratite

Therefarcoogroopacre t)ats...o ... a 'Of throb! roo-orya-d (2) aoo--ey tortrhoaeh atNhtgtar- ea-- atttoo , --.rrrRaIp

aortporh.rottstaro a eofo httdror ot h ..... a5 ofria reort h odvrr daood -ItI a.t .. oio. itty1 ot o

ot!- Ttal -if-r Ion ti1irlso Isod -raadIrlorso- a;1979II- dot.-tho..sdtoa dfoded bf their -rprrouhtb oftotaleo Ug tiltorsi1 - tEtirt- o egriroltrosi --eo-d -rep-roilo or peo-tl iei oyhlrsdptaestrlcd tp-r1tubd tofa o e

GNf ff5 CAPIpo 70S$) - Gt? Portrt -d-IIi at aeo .tetsrktpto,rt rare ar to ioiird itt_a 'ryrI, .Iooo.hraoho o"I'rd by ss oor too hsto -t -ino ato Aetat (11978-S h-etal 196.aissos ertr o "aIsertstsfyo hro tra (te ya

ENERGY CONfUKfTfIhN PEP C IPTa - t--s r--tptito of-rserl Iegy rId 015 apor rs -tdfngigtt,petr-Ieo-.--it hoapirais fotirde ffeptors/aea1heiae goaatd hodor- . Irsrtgrot,h_roIelr-dr- tirshoap ai tori I .r..Ito-patlo.o-arooaia-d at-rrlo. oritt iy it k1l--tra of tool eqi_oie_ e raita; 9t 1970,..sd 1979 rtta. paiLr tospltalaar t -1idai rotd ot-

Tosat forpta -it fMid-Tea (tti...o-oo) -0of J001y 1; 1960, 1970,.o tO 1980 HOpUSING deta. h--er t iar Iatfoarhoid)rer-.-e rehio-hoid)-oo.raoadia

sstrroooia; 960, 1970, -od i980Or-a.la.. th horstodtoeslf- arorts

forolattiafo orar 2000 - Cirrelp..p ....l prjoroo.. ar btd ott 1980 ta.fproeprrooI l .ho o totalpooaforh tri.r.. r eoot oa age atd -e an th-i setlryat ,frli sptots ia-ltrtaa. r-p-ri-oYip. Pelt...... O oo-rrst stIrtorr sod

PrLit Iprstor fo eroity aei-osr eaoftretioessso- toiipfd art toe life asraricotyat Ifrob rrrrroe~~Iorrh orr e aIs irrttipatrjr-Irif Ird ot flatoo ttl ra,sdrts 'Iroill,ao lr .asp..or...... hl ... 0 ... 7!' reas.-~ - r-I- CrrttstOetttaf lrro r000 r teea farI_ftrp asrordiogI to-rcoo iro aId poeti-sIt blatriog .reroterr.iyEDCT

-This to aIhir-rt orI, after attilioY aIta- dar1-t to pisary, athol-a ~grprtsitro 'oIrlly irrr thldctad 6-11it

eieastd i thsi ha-e of she projttr rtrreter feapolto irtet it r ao rsorteofra s..o.. aI. ret.t y,20..' teoaII-adoIftt1-oreoorloaalasstf-oor an aars 111 eaeotoo-dproeptse

etee eill herIsohad. rasit of 12 to it py-r ftIga; -orr-r-dr- I...se ar eeali-- Porolsttoo at-lfy esided. Per so o.k -Mtd-pyrpo- ro per sq-rr kilotseee (100 h-otr-) of VI-alooirlla"Ieo1 Irproetreof .e..tdary) - Voit- ra ry. trt.ot I-iaaa1 59068 10090asd 1979 dsi-ioitrafit hottia , idrtt I,oroherP protrao hi hoprt todePeed- Per_ k.gtiiraledloIle' d -oaho- fotsriil Irst-d rlytrofas departssttIfaa--dsry tfsIie.rt o Poroeoti Ag .. rrsre(.r..t..Chlidrt- e (0-11 er) aoiogaa i- prtsrf sod sa dsrp 1-oet dastded by ti-r of oeahar to the Sipeaes),asdeeriradf6f prsroatdooar)as ptrreosagrs oiefd-yeaopoor- oorreepordioglaoe-lIs.," -p.,di.g1_1., 'lit-a 1960.1910. so 90dao .. dl tar-i fat (terteIf - liteae- dot (ohio to red sod ceise)

perpooaro for 1950-60. 1960-70 ,sd1 970-90. Poroist-o Gr-th tRe_ (rroa-t) -i-rhot- _toot -oth rate of -rsh- i CONSUMfPTOrN tato for 19Ot-60. i960-t0o..ad 1970-8P. foeorCr ertoor ooatr aooi aetwta oo Cr_d BIrth Rae- pe ehoad -A isa births Par- thorocd of aId-yea-socto esta it ess;ar ie asiolrtte -a--eoed Pop,at". 196. 197O,sa 180dat.IolftrysS OrIeI Desth ae(e etousani) - i--ol d-art Pot ...... td if aid-pea tadto Raie -eo(e hoad ooato l oryas of rrtaefor rsdto rFp.,. ot;1960. 1979. er 08 Id Oas oodse..r..t rlo arto r rdoototse ar o GIosiRr2-d-i-oit 0 Aergooht iftdoaght-raa .tillhIsr!o ItetdaaottidottratioataoeogtosIiaf di.

nfitfy rsre_; oao ip fite-yrarI soerges roI", io 19tII, 1970, atI 198. -is ro-teiae ahoIiohd lireoIt.

ofblitthtinolet -I I .-rde- -aistesfra-i-1atfssilyrateptoro.gorarbitoI raehotaaodPooaateroiiiroeffeeo

I Ih =,IgY~ fI. ~ ~ ~ ~~ ~~~~~~ptiisio..oredprsaitttroodtg oorod-ia .Ittaoetdte

todeoof Food Prodirttitpypoaitf i196t-7rL.100) - tr f par lartatot Ota oooL Att-d-re e C.pt pe a- Po-d it he oihc o prodorti-roof al fidosotr frdooioroi-Po. r1d-tsaeaod feds-d rtrerdd,ioigeohryerit- olgastaorrdri-e.tte is or osisodarpear trots- ~~Cdtsdftie-roos rrlaar goods e.g. oraraed astlitls

tagi.os1 asa. g pridira rir- as ighto; 1961-65, 1970. a-d 1980 data- htel. Labor Forr ltth--ads) - EoiIcrs-Ily rtrpeso irooldtog roarIgy eiolo f re food sorti_sar _itoieit, tottp Ot..tl Itiorlg p a Ifri l agaa Orlisir bo rtooittlt- -- r prday otlhesppteispirderetr -drooirpo_t las so- oPoal 1968. 19fh aod 198P dale. e_port.d Iteogatirssoik Naot_ppli-or-ot.deao-Ia t-rd.se-to, IeaarrtelPatlbrorrsiztotfoathrii oo-eiefao tod to food pecesofg. atd los-aio di-tihsio RerItr- Arolr eid- P so frs-tfoar. ralo,hee 7- a I ad.. _lstdor00 icd 0 thattri artfr oAi rl-fs j s pos-aao t-otsi lato Oortr 906, 9190 aod 19ff acts. _ird has stota.iderfo~g -elrot-e_te Irpror. ho-p -sihos- g tdsr (p--oof - abor Iorr_ loalta i,eof--aorf_iori aad ea dtit-brofott ofproait ao l 0toyaro forsart sod eee to.oc0 -- 000 ga c-frrr f 1ttaih- forte; ho-ehold_troe. 19.61-65 197,9.o 191 dali 1968, 1970 atd 19tC daa.

Oolra-oos orI al -rotta lalarhoSd ho17SD roir for -. i-ii s fOe.a _errt 8 -asd frli poola li't if a>i"' ayrrrp-zi-ely all .co.. .fS6O grsofoalrttoyai... I I- -,,-aayoa0 rsioo- laf9t0, 1970.arndlt980daa. Th-s-eor -oroih tItt-ripati-ra-- pos a roo hr 1grSto sh-Iod hr _IoIea IPr looIto-rfIoogg-eorttIhr. o ehr popo,tror i-d toot, ti errd. A

Wol oty od1961-tO, 1800 sod 1977 dat,t se5ta oo foir Peri_I... pt it_ioop t Otis oial so.d p.t Pa-fetro -pply if f-id do- elord Irt. tiaslo -rd pl-e Or got- per dot. 19t 1-65. 19fI aod 1977 Ost-- LIsOif hIiORt..iTfON lhtid)sael-4)0.lse Istr)rershoioatd - tisl deaths arh-is tdi Pe-t-ofag ifePisatIa-- torarih i,,sh -itt;-)- rasdyIihrsI

Lifeitrrstfe .. t-o thiyhllai- idstirsgeoaropar flrisiigtaflof--iastarrrap.lsroort tro ioptoels

fofso forai totet (rrtoso)-Ata etso tsaidriaps aiaa fhoge Io rf Itlla 0101 )Uh-y- II yl... -ito -otia ofoa a tosrdhe frto11960, 1970 -td 1980 data_ Ohiltapoety yr- roa is ohi loz r Ir-a haIII hith a -otls1 s.IrestIf fstrirrofo ai.).toltoo.ooelts itiatlpdoiodepaatttsoottoritroto heAt. ttita) ai.. (of..oht,a ofh aas-she sras so osdOe aftotashla.- aaaeraopPlp)ooriodaatrrsE,dtioiaoeoororsoiteiroaet dtsl50tlsto ocetrs Loilttrilaltrs orrl

ofhirse taoa poplaioo rs tp rophl es I foRtie p if-1 h-tyisoerp. Othi-I li irt a foteiasoOot o ostdto sr ta tOorer roaooara h letodara eolobhadroroer ihe rs o loo i obat'ds so eto alttttt,- esrtesPs fta - hae _fir oro ra s i....ad....I..I. Belie.....tolote0 foaty - 6,yypitof (r,o -raro M -I1- I. - b ~~ aed total- Perrate~~~~-of piphlith-tr-to ar. tt)hordsla Os10 ciaperod hate a dfspriyro~ioata parr o h., da tot Oredttog- the poor,

f-dl .oa...rotor_tdeioi Ptasofteahyooss-ht raoo f oraioltel o roral-i. -O- - ft.coirPl)ootIrao sorrIfirordhP-rt-a-lsp- a -- it Ohairrasproootroosls ioro ioreoo 0-I t li 9otolst ita ieoal,aoyotciostrratesiietittai i hseeort - 27 - ANNEX I Page 4 of 5 pages

Population 147.4 million (mid-1980) GNF per Capita: US$430 (1980)

INDONESIA - ECONOMIC INDICATORS

Amount Annual growth rate (%) (million US$ at (at constant 1973 prices) current prices) Actual Projected Indicator 1980 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985

NATIONAL ACCOUNTS Gross domestic product /a 70,024 5.0 6.9 8.8 6.9 5.3 9.7 7.8 7.3 7.3 7.4 7.4 Agriculture 18,003 0.0 4.7 1.3 5.2 4.0 5.5 3.4 3.5 3.5 3.5 3.5 Industry 29,227 5.6 11.1 14.2 5.9 5.5 9.0 9.0 9.0 9.0 9.0 9.0 Services 22,794 10.1 5.9 12.0 8.9 6.9 8.5 8.5 8.5 8.5 8.5 8.5

Consumption 48,976 6.9 6.4 7.9 8.5 9.9 11.6 8.7 7.8 7.2 8.2 6.0 Gross investment 15,176 14.6 6.0 16.0 15.0 4.4 17.8 13.1 12.5 12.5 12.5 12.5 Exports of GNFS 21,365 -9.7 12.5 22.4 1.9 -1.0 -4.2 -5.3 8.2 13.6 1.0 2.5 Imports of GNFS 15,494 7.9 8.1 22.2 15.6 13.9 13.6 18.5 7.2 13.4 3.2 0.5

Gross national savings 17,576 -19.7 12.0 33.3 -2.1 37.1 -2.1 -5.0 9.6 9.0 7.4 12.3

PRICES GDP deflator (1973 = 100) 166 190 214 237 311 400 440 493 542 591 638 Exchange rate 415 415 415 442 623 625 625 625 625 625 625

Share of GDP at market prices (%) Average annual increase (I) (at current prices) (at constant 1973 prices) 1960 1970 1975 1980 1985 1990 1960-70 1970-75 1975-80 1980-85 1985-90

G:-oss domestic product 100 100 100 100 100 100 3.9 8.4 7.5 7.3 7.5 Agriculture 54 47 32 26 22 17 2.7 4.1 4.1 3.5 3.5 Industry 14 18 34 42 44 46 5.2 12.0 9.7 9.0 9.0 Services 32 35 35 33 36 36 4.8 9.7 9.0 8.5 7.5

Consumption 91 89 79 70 74 74 4.1 8.4 8.9 8.6 7.6 Gross investment 8 14 20 22 26 27 4.8 18.3 11.7 12.5 7.8 Exports of GNFS 13 13 23 31 23 18 3.6 9.2 8.7 3.7 3.2 Imports of GNFS -13 -16 -22 -22 -23 -19 3.2 22.1 14.0 8.7 4.9

Gross national savings 8 9 17 25 25 22 6.1 23.1 14.4 4.8 7.3

As S of GDP 1960 1970 1975 1980 FUBLIC FINANCE /b Current revenues 11.7 10.1 10.5 23.4 Current expenditures 14.0 8.4 9.3 13 3 Surplus (+) or deficit (-) -2.3 +1.6 +7.1 +10.1 Capital expenditure n.a. 5.0 10.7 13.5 Foreign financing 0.2 3.5 3.7 3.4

1960-70 1970-75 1975-80 1980-85 1985-90 OTHER INDICATORS Annual GNP growth rate (%) 4.5 7.6 6.9 7.3 7.3 Annual GNP per capita growth rate (%) 2.4 5.1 4.5 4.9 5.0 Annual energy consumption growth rate (%) 2.9 16.0 15.0 11.0 10.0

ICOR 2.2 2.2 3.1 3.4 3.8 MSarginal savings rate 0.30 0.48 0.30 0.18 0.26 Import elasticity 1.2 2.8 1.9 1.2 0.7

/a At market prices. 7b Central Government only, on an April-to-March fiscal year basis.

East Asia and Pacific Programs May 20, 1982 - 28 - ANNEX I Population 147.4 million (mid-1980) Page 5 of 5 pages GNP per Capita: US$430 (1980)

INDONESIA - BALANCE OF PAYMENTS, EXTERNAL CAPITAL AND DEBT (Millions US$ at current prices)

Actual Estimate Projected Indicator 1977 1978 1979 1980 1981 1982 1983 1984 1985 1990

BALANCE OF PAYMENTS /a 1. Exports 10,861 11,353 17,494 22,245 21,878 21,882 30,108 33,243 36,790 60,953 (a) Oil & LNG (gross) 7,354 7,374 11,323 16,661 17,593 161,420 22,869 24,279 25,975 37,119 (b) Nonoil 3,507 3,979 6,171 5,584 4,285 5,462 7,239 8,964 10,815 23,834 2. Imports (including net NFS) -10,686 -11,493 -14,035 -18,649 -23,202 25,807 -31,886 -35,253 -38,187 -65,903 (a) Oil sector -2,909 -3,364 -4,348 -5,884 -7,658 -8,318 -10,585 -9,972 -10,006 -16,051 (b) Nonoil imports -7,241 -7,543 -9,028 -11,790 -14,509 -16,389 -19,999 -23,755 -26,399 -46,657 (c) NFS (net) -536 -586 -659 -975 -1,035 -1,100 -1,300 -1,526 -1,782 -3,195 3. Resource balance 175 -140 3,459 3,596 -1,324 -3,895 -1,778 -2,010 -1,397 -4,950 4. Factor services -865 -1,015 -1,261 -1,205 -1,203 -602 -1,034 -1,253 -1,650 -3,899 (a) Interest public debt -441 -514 -772 -819 -973 -1,096 -1,307 -1,534 -1,801 -3,359 (b) Other (net) -424 -501 -489 -386 -230 494 273 281 151 -548 5. Capital grants 66 46 52 76 67 100 100 100 100 100 6. Balance on current account -624 -1,109 2,198 2,467 -2,460 -4,397 -2,712 -3,163 -2,947 -8,749 7. Direct foreign investment 285 271 217 140 178 200 350 450 600 1,000 8. Public M & LT loans (a) Disbursement 1,956 2,205 1,865 2,536 2,356 3,969 4,536 5,182 5,772 11,113 (b) Amortization -825 -1,548 -1,329 -953 -1,000 -1,361 -1,567 -1,872 -2,225 -4,924 (c) Net disbursements 1,131 657 536 1,583 1,356 2,600 2,969 3,310 3,547 6,189 9. Other capital (net) -140 891 -1,261 -1,454 86 500 800 800 700 2,000 10. Change in reserves (- increase) -651 -708 -1,690 -2,736 840 1,097 -1,407 -1,397 -1,900 -440 11. Net official reserves 2,208 2,916 4,606 7,342 6,502 5,405 6,812 8,209 10,109 13,189

Reserves in months of nonoil imports t NFS 3.4 4.3 5.6 6.9 5.0 3.7 3.8 3.9 4.3 3.2

Memorandum Item Net foreign assets of the banking system /d - - 6,906 10,787 10,798 9,101 9,908 11,305 13,205 17,285 Total reserves in months of nonoil imports + NFS 3.4 4.3 8.6 10.1 8.3 6.2 5.6 5.3 5.6 4.4

EXTERNAL CAPITAL AND DEBT /b Gross Disbursements 1,956 2,205 1,865 2,536 2,356 Concessional Loans 442 484 433 679 802 Bilateral 381 448 399 631 729 IDA 49 29 30 42 68 Other 12 6 5 6 5

Nonconcessional Loans 1,514 1,721 1,432 1,858 1,552 Official export credits 218 271 61 25 154 IBRD 191 168 199 331 106 Other multilateral 16 12 46 52 86 Private - source 1,089 1,270 1,126 1,450 1,206

External Debt (fixed-term) Debt outstanding & disbursed /d 11,658 13,107 13,233 14,882 15,529 Official - source 7,077 8,390 8,434 9,400 9,746 Private - source 4,583 4,717 4,799 5,482 5,783 Undisbursed debt 4,475 5,839 7,932 9,454 11,288

Debt Service Total service payments 1,262 2,062 2,101 1,772 1,974 Interest 441 514 771 819 973 Payments as % exports /e 11.6 18.2 12.0 8.0 9.0

Average Interest Rate on New Loans (%) 6.3 7.6 6.6 8.4 9.1 Official - source 5.4 4.6 5.0 5.0 7.8 Private - source 8.6 10.2 8.6 12.8 10.4

Average Maturity of New Loans (Years) 20.5 18.7 19.1 19.0 15.6 Official - source 23.9 30.1 25.8 24.8 20.8 Private - source 10.4 8.6 11.1 10.0 10.7

As % of debt outstanding at end of 1981 Maturity structure of debt outstanding Maturities due within 5 years 30.9 Maturities due within 10 years 60.2 Interest structure of debt outstanding Interest due within first year 4.1

/a On an April-to-March fiscal year basis. /b Excludes private nonguaranteed loans. /c Includes foreign assets of deposit money banks in addition to official reserves. Id At end of period. East Asia and Pacific Programs /e Oil exports treated on gross basis. August 24, 1982 - 29 -

ANNEX II Page 1 of 29 pages

THE STATUS OF BANK GROUP OPERATIONS IN INDONESIA

A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of September 30, 1982)

US$ million Loan/ Amount Credit Fiscal (less cancellations) Number Year Purpose Bank IDA Undisbursed

Twelve Loans and thirty-four Credits fully disbursed 559.3 491.5 -

400 1973 Smallholder and Private Estate Tea - 7.8 1.4 428 1974 Pulo Gadung Industrial Estate - 16.5 7.5 479 1974 Bali Tourism - 16.0 1.9 514 1975 Jatiluhur Irrigation Extension - 30.0 1.6 1100 1975 Sixth Irrigation 65.0 - 7.6 1179 1976 Agricultural Research & Extension 21.5 - 1.3 1197 1976 National Resource Survey & Mapping 13.0 - 4.0 1236 1976 Fourth Highway 130.0 - 19.8 1237 1976 Fourth Education 37.0 - 6.2 1250 1976 Second Shipping 54.0 - 4.7 1267 1976 National Food Crops Extension 22.0 - 2.2 1268 1976 Seventh Irrigation 33.0 - 8.0 1318 1977 Transmigration and Rural Development 30.0 - 3.5 1336 1977 Second Urban Development 52.5 - 7.0 1337 1977 Tanjung Priok Port 32.0 - 9.3 1365 1977 Sixth Power 116.0 - 31.5 1373 1977 Nutrition Development 13.0 - 4.5 1433 1977 Teacher Training-Fifth Education 19.0 - 7.7 1434 1977 Eighth Irrigation 63.0 - 36.3 1435 1977 Ninth Irrigation 35.0 - 6.7 1472 1977 Second Population 24.5 - 12.8 1486 1978 Non-Formal Education 15.0 - 4.9 1499 1978 Nucleus Estates and Smallholders I 65.0 - 25.4 1513 1978 Seventh Power 94.0 - 33.9 785 1978 Small Enterprise Development - 40.0 9.2 1578 1978 Tenth Irrigation 140.0 - 115.2 1579 1978 Eleventh Irrigation 31.0 - 17.5 827 1978 Rural Credit - 30.0 3.7 1604 1978 Nucleus Estates & Smallholders II 65.0 - 51.8 869 1979 Polytechnic - 49.0 36.9 ANNEX II - 30 - Page 2 of 29 pages

US$ million Loan/ Amount Credit Fiscal (less cancellations) Number Year Purpose Bank IDA Undisbursed

1645 1979 Twelfth Irrigation 77.0 - 52.0 1653 1979 Third Urban Development 54.0 - 28.5 898 1979 Fifth Technical Assistance - 10.0 9.2 1691 1979 Lower Cimanuk Basin Flood Control 50.0 - 35.8 1692 1979 Second Agricultural Training 42.0 - 22.7 1696 1979 Fifth Highway 123.2 - 83.5 1703 1979 Fourth BAPINDO 50.0 - 10.9 919 1979 Transmigration II - 67.0 30.0 1707 1979 Transmigration II 90.0 - 89.5 1708 1979 Eighth Power 175.0 - 104.1 1709 1979 Second Water Supply 36.0 - 28.9 946 1980 Yogyakarta Rural Development - 12.0 10.3 1751 1980 Nucleus Estates & Smallholders III 99.0 - 69.9 984 1980 Smallholder Rubber Development - 45.0 36.3 995 1980 Fifteenth Irrigation - 45.0 33.2 996 1980 National Agriculture Extension II - 42.0 40.9 1811 1980 Fourteenth Irrigation 116.0 - 95.0 1835 1980 Nucleus Estates & Smallholders IV 42.0 - 35.8 1840 1980 National Agricultural Research 35.0 - 35.0 1014 1980 National Agricultural Research - 30.0 28.1 1869 1980 Third Population 35.0 - 34.5 1872 1980 Ninth Power 253.0 - 224.9 1898 1981 Smallholder Coconut Development 46.0 - 43.9 1904 1981 University Development 45.0 - 44.1 1950 1981 Tenth Power 250.0 - 205.5 1958 1981 Swamp Reclamation 22.0 - 19.6 1972 1981 Fourth Urban Development 43.0 - 41.3 2007 1981 Nucleus Estate and Smallholder V 161.0 - 155.7 2011 1981 Second Small Enterprise Development 106.0 - 53.3 2049 1982 Jakarta-Cikampek Highway 85.0 - 85.0 2056 1982 Eleventh Power 170.0 - 170.0 2066 1982 Second Seeds 15.0 - 15.0 2079 1982 Bukit Asam Coal Mining Development & Transport 185.0 - 167.7 2083 1982 Rural Roads Development 100.0 - 100.0 2101 1982 Second Teacher Training 80.0 - 80.0 2102 1982 Second Textbook 25.0 - 25.0 2118 1982 Sixteenth Irrigation 37.0 - 37.0 2119 1982 Seventeenth Irrigation 70.0 - 70.0 2120 1982 National Fertilizer Distribution |1 66.0 - 66.0 2126 1982 Nucleus Est. & Smallholders VI 68.1 - 67.1 2153 1982 Coal Exploration Engineering /l 25.0 - 25.0 2199 1982 Central Java Paper and Pul. /1 5.5 - 5.5

/1 Not yet effective. - 31 - ANNEX II Page 3 of 29 pages

US$ million Loan/ Amount Credit Fiscal (less cancellations) Number Year Purpose Bank IDA Undisbursed

Total Bank loans and IDA credits 4,611.60 931.80

Of which has been repaid -162.60 -5.93

Total now outstanding 4,449.00 925.87

Amount sold to third party 28.24 Amount repaid by third party -27.21 -1.03

Total now held by Bank and IDA /a 4,447.97 925.87

Total undisbursed 2,813.9 250.20 3,064.10

/a Prior to exchange adjustment. - 32 - ANNEX II Page 4 of 29 pages

B. STATEMENT OF IFC INVESTMENTS (as of September 30, 1982)

Fiscal Type of Loan Equity Total year Obligor business ---- (US$ million) ----

1971 P.T. Semen Cibinong Cement 10.6 2.5 13.1 1971 P.T. Unitex Textiles 2.5 0.8 3.3 1971 P.T. Primatexco Indonesia Textiles 2.0 0.5 2.5 1971 P.T. Kabel Indonesia Cable 2.8 0.4 3.2 1972 P.T. Daralon Textile Manuf. Corp. Textiles 4.5 1.5 6.0 1973 P.T. Jakarta Int. Hotel Tourism 11.0 - 11.0 1973 P.T. Semen Cibinong Cement 5.4 0.7 6.1 1974 P.T. Primatexco Indonesia Textiles 2.0 0.3 2.3 1974 P.T. Monsanto Pan Electronics 0.9 - 0.9 1974 P.T. PDFCI Devel. Fin. Co. - 0.5 0.5 1974 P.T. Kamaltex Textiles 2.4 0.6 3.0 1976 P.T. Semen Cibinong Cement 5.0 1.5 6.5 1976 P.T. Semen Cibinong Cement - 1.1 1.1 1977 P.T. Daralon Textile Manuf. Corp. Textiles 0.4 - 0.4 1977 P.T. Kamaltex Textiles 1.3 0.2 1.5 1979 P.T. Daralon Textiles 0.9 - 0.9 1980 P.T. Papan Sejahtera Capital Market 4.0 1.2 5.2 1980 P.T. Indo American Industries Glass Dinnerware 11.1 0.9 12.0 1980 P.T. Semen Andalas Cement and Indonesia Construction Material 48.0 5.0 53.0 1982 P.T. Saseka Gelora Leasing Capital Market 4.0 0.3 4.3

Total gross commitments 118.8 18.0 136.8

Less; sold or repaid and cancelled 78.6 5.7 84.3

Total held by IFC 40.2 12.3 52.5

Undisbursed (including participant's portion) 30.82 0.3 31.12 - 33 -

ANNEX II Page 5 of 29 pages

C. STATUS OF PROJECTS IN EXECUTION /1 As of September 30, 1982

These notes are arranged by sectors in the following order:

Page No. Agriculture Irrigation (514, 1100, 1268, 1434, 1435, 1578, 6-10 1579, 1645, 1691, 1811, 995, 1958, 2118 and 2119) Other Agricultural Projects (400, 1318, 1707/919, 1499, 10-14 1604, 1751, 1835, 984, 1898 and 2007) Agriculture Support Services (1179, 1267, 996, 1840/1014 and 2066) 14-16 Rural Development (946) 16

Agro-Business and Credit (785, 827 and 2011) 16-17

Education (869, 1237, 1433, 1486, 1692, 1904, 2101 and 2102) 17-20

Energy (1365, 1513, 1708, 1872, 1950, 2056, 2079 and 2153) 20-22

Industrial Development and Finance Industrial Estates (428) 22 Development Finance Companies (1703) 22-23

Population and Nutrition Population (1472 and 1869) 23-24 Nutrition (1373) 24

Technical Assistance (898 and 1197) 24-25

Transportation Fertilizer Distribution (2120) 25 Highways (1236, 1696, 2049 and 2083) 25-26 Marine Transport (1250) 26-27 Ports (1337) 27

Tourism (479) 27

Urban Development (1336, 1653 and 1972) 28-29

Water Supply (1709) 29

/1 These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. 34 ~ ANNEX II Page 6 of 2- oages

C. PROJECTS IN EXECUTION

AGRICULTURE

Irrigation

Credit No. 514 Jatiluhur Irrigation Extension: $30 Million Credit of October 3, 1974; Effective Date: January 10, 1975; Closing Date: December 31, 1982

Initial organizational difficulties, extensivie changes in the design of project works and delays in awarding civil works contracts are expected to substantially delay project completion by four years. All major contracts for civil works have been awarded, and the last of these is expected to be completed by mid-1984. The total project cost is currently estimated to be about 90% over the appraisal estimate, mostly because of delays. Dis- bursements at the end of June 1982 were about 94% of appraisal estimate.

Loan No. 1100 Sixth Irrigation: $65 Million Loan of April 10, 1975; Effective Date: June 20, 1975; Closing Date: June 30, 1984

The project is currently expected to be completed by March 1985, about four years behind the original completion date. This is mainly due to a delay of more than one year in the completion of bidding documents, followed by a delay of about two years due to delayed land acquisition, delayed payments to contractors and the effects of the 1978 Rupiah devaluation. Another year's delay has been added lately by the postponement of drainage works in both Rentang and Cirebon subprojects due to budget constraints. Disbursements at the end of June 1982 were about 88% of the appraisal estimate. Because of the continuing delays the Closing Date has been postponed by two years.

Loan No. 1268 Seventh Irrigation: $33 Million Loan of June 4, 1976; Effective Date: September 21, 1976; Closing Date: December 31, 1983

The main components of the project are tertiary development on an area of 100,000 ha served by irrigation systems rehabilitated under previous projects and the construction of 6,000 ha of a new irrigation system in the Sadang area of South Sulawesi. The construction of tertiaries has progressed well and gained such a momentum that the scope of work was increased to 115,000 ha. About 111,000 ha have been completed and the balance was expected to be completed by March 1982. The construction of North Sadang has suffered a delay of about four years due to design revisions and late award of contracts. Completion of the project is expected by March 1984. Disbursements at the end of June 1982 were about 75% of appraisal estimate. -35 - ANNEX II Page 7 of 29 pages

Loan No. 1434 Eighith Irrigation: $63 Million Loan of June 6, 1977; Effective Date: July 7, 1977; Closing Date: March 31, 1983

The main components of the project are rehabilitation of the Madiun Irrigation System (Stage I) serving an area of about 75,000 ha, including 30,000 ha of tertiary development, a pilot ground water scheme for 2,800 ha in the Madiun-Solo area and the improvement of flood control, drainage and road networks on 5,700 ha of coastal land in Ciujung. Only the drainage works and road improvement in both the Ciujung and Madiun subprojects are expected to be delayed due to budget constraints and lack of experienced staffing. GOI has mobilized additional engineers and foreign consultants for construction supervision at Ciujung and has tapped additional sources of funds to keep the Madiun works on schedule. Disbursements at the end of June 1982 were 40% of the appraisal estimate.

Loan No. 1435 Ninth Irrigation: $35 Million Loan of June 6, 1977; Effective Date: July 7, 1977; Closing Date: December 31, 1984.

The project includes (a) rehabilitation of 8,000 ha of irrigation system, drainage rehabilitation on 19,000 ha of the Sedeku area in Central Java; (b) new irrigation pumping system on 3,280 ha at Sungai Dareh-Sitiung (Stage I) in West Sumatra for transmigrants; and (c) feasibility studies of ten small to medium irrigation projects and of the Sungai Dareh-Sitiung (Stage II), with detailed designs. Delay in completion of the Sedeku irrigation drainage rehabilitation by about three years continues, compared to appraisal estimate. The Sungai Dareh-Sitiung (Stage I) construction has progressed well, with pumps commissioned and trial runs made. The main and secondary canals are completed, the tertiary network is 80% completed, but land development is lagging. Feasibility studies of the ten small to medium irrigation systems have been completed. The Situing Stage II system studies and designs are completed, and construction was financed under Ln. 2118-IND (Irrigation XVI). Disbursements at the end of June 1982 were about 78% of appraisal estimate.

Loan No. 1578 Tenth Irrigation: $140 Million Loan of June 6, 1978; Effective Date: August 16, 1978; Closing Date: December 31, 1984.

The project includes: (a) rehabilitation and improvements of about 34,700 ha of Kali Progo irrigation system; (b) improvements of about 19,900 ha of Way Seputih; (c) improvements and expansion of about 63,100 ha of Way Sekampung irrigation projects; (d) studies and detailed designs of two dams associated with (b) and (c) above; (e) studies of Dumoga and Gumbasa irriga- tion projects; and (f) consulting services for the above and also studies of two dams in the Kali Progo project area and extension of irrigation to Bekri, West Rumbia, Way Kandis and Way Ketibung in Lampung Province. Due to initial delays in survey and mapping of the irrigation service areas, delay in decid- ing canal capacities till completion of the dam studies and staff shortage during the years 1979 and 1980, the implementation of Way Seputih and Way Sekampung components are behind schedule by about two years. However, the field surveys and the dam studies have now been completed and the staffing situation has improved. The construction tempo and standard of construction in the Kali Progo area has also improved. The GOI has decided to delay - 36 - ANNEX II Page 8 of 29 pages construction of the Batutegi Dam to serve the Way Sekamping system since other dams on Java appear of higher priority. Downstream works will therefore be restricted until dam construction starts to ensure an adequate rate of return. The Dumoga irrigation project studies were completed and construction financed in Irrigation XV (Credit 995-IND). Disbursements at the end of June 1982 were 35% appraisal estimate.

Loan No. 1579 Eleventh Irrigation: $31 Million Loan of June 6, 1978; Effective Date: August 16, 1978; Closing Date: December 31, 1983.

The Cipamingkis irrigation subproject, to serve an area of about 7,600 ha is progressing well, the headworks with intake structure were com- pleted by end 1981. The main and secondary canals to serve 3,820 ha are pro- gressing on schedule, but there is a setback of nine months in the rest. A delay of 9-12 months is expected in assigning consultants for tertiary design, with a consequent delay in tertiary construction. The project is currently estimated to be completed by mid 1984, a delay of 18 months compared to appraisal estimate. The hydrological measurement program is expected to be completed by March 1984, with a delay of about 2 1/2 years. It is expected that there will be $4 million savings which will be used to finance the tertiaries for the Jatiluhur Irrigation Extension Project (Credit 514-IND) which did not cater for the higher intensity of canals now adopted in all systems. Disbursements at the end of June 1982 were about 53% of appraisal estimate.

Loan No. 1645 Twelfth Irrigation: $77 Million Loan of December 29, 1978. Effective Date: May 10, 1979; Closing Date: March 31, 1984.

The project includes: tertiary development on about 186,000 ha of the Jatiluhur Irrigation System,-W. Java; drainage improvement in the Cisedane irrigation area including upgrading of roads in W. Java; and studies of drainage and flood control in Pemali-Comal and Sadang irrigation areas; tidal and swamp lands development for about 350,000 ha in the Lalang and Mesuji areas of S. Sumatra, and the Sebangau area in Kalimantan; and detailed designs for reclamation of about 110,000 ha of swamp land in Karang Agung of S. Sumatra. The area of tertiary development has been increased to 205,800 ha. All the civil works contracts of Cisedane drainage and roads improvement are awarded, currently estimated to be completed by March 1985; a delay of over two years over appraisal estimate. Studies are mostly completed; the remaining are expected to be finalized by 1982. Disbursements at the end of June 1982 were about 40% of the appraisal estimate.

Loan No. 1691 Lower Cimanuk Basin Flood Control: $50 Million Loan of May 7, 1979; Effective Date: October 16, 1979; Closing Date: March 31, 1984.

The main components of the project are flood protection levees, bank stabilization and river training works on the lower Cimanuk river, widening of the Rambatan Channel and construction of a hydraulic control - 37 - ANNEX II Page 9 of 29 pages

structure at Bangkir, the Cimanuk river estuary study and the flood control operating and flood forecasting study. Good progress has been made on the civil works and various studies. Civil works are expected to be completed by mid-1984. The latest supervision mission recommended that the implementing agency should consider using the savings for procurement of additional operation and maintenance equipment such as dredgers, dozers, draglines, dump trucks and loaders. The equipment will be useful for emergency repairs of other rivers such as Cisanggarung which causes damage during the wet season. The latest project cost estimates indicate that $6-8 million loan funds will remain unused by the completion of the project. The list of equipment to be procured using the savings under the Loan is being reviewed. Disbursements at the end of June 1982 were about 59% of appraisal estimate.

Loans No. 1811 Fourteenth Irrigation: $116 Million Loan of April 3, 1980; Effective Date: July 3, 1980; Closing Date: January 31, 1986

The main components of the project are construction and rehabilita- tion of drainage and flood protection works on the Serang River to reduce flooding of some 61,000 ha of farm land, rehabilitation of the Maciun Irrigation System (Stage II) serving about a 65,000 ha area and tertiary development serving a 120,000 ha area in the Pemali-Comal and Pekalen Sampean subprojects. The project contracts for flood mitigation works for the Serang River have been awarded after one year's delay. Works in the Madiun area and the tertiary development are progressing well ahead of schedule. Dis- bursements at the end of June 1982 were about 72% of appraisal estimate.

Credit No. 995 Fifteenth Irrigation: $45 Million Credit of April 3, 1980 Effective Date: July 3, 1980; Closing Date: January 31, 1985

The project includes (a) completion of Kosinggolan Irrigation System on about 5,000 ha and construction of the new Toraut Irrigation system for 6,600 ha; catchment protection and nature reserve on an area of about 100,000 ha; institutional support through consultancy services and training; and studies and investigations of four irrigation systems. Construction of the Toraut headworks and the first 2 Km of the main canal which commenced in January 1981 were greatly delayed but the contractor has now agreed to work to a revised program to be completed by May/June 1983. Award of Lwo ICB contracts is behind appraisal schedule by 15-18 months. This subproject is currently estimated to be completed by June 1985 compared to March 1984 in the appraisal estimate. GOI has commenced implementing the "Dumoga-Bone National Park" master plan covering an area of about 270,000 ha. The Bank will review progress in late 1982 before finally agreeing with the GOI proposal to finance US$1.1 million from the credit for the expanded National Park as against US$0.7 million provided for the Nature Reserve. Four studies included in the project should be completed by early 1983, present progress is about 50%. Institutional support program will continue up to June 1984. Disbursements at the end of June 1982 were about 60% of appraisal estimate. - 38 - ANNEX II Page 10 of 2? pages

Loan No. 1958 Swamp Reclamation: $22 Million Loan of March 31, 1981; Effective Date: July 9, 1981; Closing Date: December 31, 1986

The project assists GOI's effort to reclaim an,d settle swamps by implementing a 9,000 ha swamp reclamation and settlement project at Karang Agung, South Sumatra. In addition to physical works, the project comprises the preparation of future swamp investments, an ecological impact study, an investigation of groundwater for drinking, and project monitoring. The major works contract for construction of canals was awarded end-1981 and consultants for construction supervision were assigned in March 1982. Consultants for studies are being recruited. The project completion is likely to be delayed due to the eight months' delay in the start of construction. Disbursements at the end of June 1982 were about 75% of appraisal estimate.

Loan No. 2118 Sixteenth Irrigation: $37 Million Loan of April 5, 1982; Effective Date: August 9, 1982; Closing Date: December 31, 1987.

The project will complete construction of the Sitiung Irrigation System (Stage II) in Sumatra to serve about 7,600 ha of transmigrant and local farmer lands; improvement of management systems of the Directorate General of Water Resources Development (DGWRD); training and support for water users and their associations; expansion of DGVRD's basic hydrological data network; and studies for development of the Cisanggarung River Basin and detailed design of the Jatigede Dam.

Loan No. 2119 Seventeenth Irrigation (East Java Province): $70 Million Loan of April 5, 1982; Effective Date: Not yet effective; Closing Date: December 31, 1988.

This is the first irrigation project to be concentrated in a single province and implemented through a provincial irrigation service. It will rehabilitate existing surface irrigation systems serving about 50,000 ha; develop groundwater irrigation systems to serve about 13,000 ha; upgrade operation and maintenance for about 140,000 ha of irrigation systems already rehabilitated; and strengthen the East Java Provincial Irrigation Service.

Other Agricultural Projects

Credit No. 400 Smallholder and Private Estate Tea: $7.8 Million Credit of June 22, 1973; Effective Date: November 30, 1973; Closing Date: December 31, 1982

The project provides for credit through Bank Rakyat Indonesia (BRI) to improve productivity on 10,000 ha smallholder tea and 3,200 ha private estates (PTPs) tea, rehabilitation of five private estate tea factories, construction of two new factories for smallholder leaf; training of extension staff and tea growers, studies for marketing, diversification and BRI - 39 - ANNEX II Page 11 of 29 pages

management. The project is making a substantial contribution to smallholder tea industry with 8,500 participants against the appraisal estimate of 7,000. Of the five private tea estates participating, two are excellent, two are fair and one is poor. Progress on construction of the PTP XII factory, to process smallholder and estate tea, is satisfactory. Extension and training has helped about 16,000 smallholders. The project still suffers from weak management, loan collection is deteriorating and many scattered borrowers make loan servicing difficult. Disbursement at the end of June 1982 were about 70% of appraisal estimate.

Loan No. 1318 Transmigration and Rural Development: $30 Million Loan of July 21, 1976; Effective Date: March 30, 1977; Closing Date: December 31, 1982

After a slow start which resulted in extension of the Closing Date to December 31, 1982, the project has shown continuous progress since mid-1980 and is expected to be completely disbursed by end-1982. In Baturaja, 4,400 families (98% of target) have been settled and 1,300 shallow wells (91% of revised target) have been established. The pasture develop- ment program is well established in Baturaja and Way Abung and 8,800 cattle (93% of target) have been distributed in both sites. Rubber development is almost completed with only 400 ha (6% of target) to be planted in 1982. Disbursements at the end of June 1982 were about 88% of appraisal estimate.

Loan No. 1707 Transmigration II: $90 Million Loan and $67 Million Credit of (Cr. No. 919) June 1, 1979; Effective Date: October 4, 1979; Closing Date: December 31, 1985

About 800 families have been settled to date and an estimted 3,000 of the proposed 30,000 families will be settled by the end of the next fiscal year. Sufficient land has been mapped in Jambi province for 20,000 families but half of these sites have been excluded from the project because they lie in production forests. No other areas in Jambi province are likely to be suitable for large scale settlement and land has been identified in South Sumatra for 10,000 families. Because of the importance of land identifica- tion, about $50 million has been allocated from the Transmigration II project for site selection and evaluation for the GOI program. Delays in settlement and rehabilitation components have led to slow disbursement and cost overruns and much remains to be done to ensure sustainable food crop production. Disbursements at the end of June 1982 were about 1.7% of appraisal estimate. Agencies are better informed about the project than they were previously and are working conscientiously. To circumvent problems of land shortage and increasing implementation delays: (a) settlement targets should be reduced to 20,000 families, (b) about one-fourth of project funds should be allocated to mapping and consultancy services; and (c) current disbursement rates should be maintained. To speed implementation, the size of land clearing contracts should be reduced and contracts should be tendered for each site as it is prepared. Recommendations have also been made which - 40 - ANNEX II Page 12 of 29 pages

would permit action on Singkut rehabilitation and simplify procurement. To improve incomes, actions should be taken to reinforce agricultural services and introduce tree crops into existing and new communities. To accomplish these objectives changes in the loan documents would be necessary.

Loan No. 1499 Nucleus Estate and Smallholders I: $65 Million Loan of November 18, 1977; Effective Date: January 12, 1978; Closing Date: June 30, 1984

The nucleus estates have planted about 60% of the 11,500 ha of rubber to be established for smallholders and will complete about 72% by the end of the current planting season; have constructed about 3,400 settler houses and settled about 1,035 families. In their own estates, the nucleus estates have rehabilitated 18,400 ha of rubber, planted 7,200 ha of rubber, 3,700 ha of coconuts, and 5,600 ha of oil palm, exceeding project targets for rubber planting and rehabilitation. Three rubber factories and one palm oil mill have been constructed. However, as there were start-up delays in some smallholder planting, and some civil works construction will not be completed on schedule, the Closing Date has been extended to June 30, 1984. Disbursements at the end of June 1982 were about 58% of appraisal estimate.

Loan No. 1604 Nucleus Estate and Smallholders II: $65 Million Loan of July 12, 1978; Effective Date: September 13, 1978; Closing Date: December 31, 1983

Progress with rubber and infrastructure development has slowed but construction of settler houses, preparation of food crop areas and the enrollment of settlers are on target. Action has been taken to speed up the lagging operations and the project is expected to be mostly completed by June 1985, except for the rubber replanting component in Jambi Province where farmer response has been poor. Particular efforts are being made to encourage farmer participation but the 4,500 ha replanting target is unlikely to be achieved by that date. The project Closing Date will probably have to be extended to June 30, 1985. Disbursements at the end of June 1982 were about 30% of appraisal estimate.

Loan No. 1751 Nucleus Estate and Smallholders III: $99 Million Loan of August 13, 1979; Effective Date: November 12, 1979; Closing Date: December 31, 1986

All implementing agencies have made good progress. Although some components are slightly behind schedule, the overall project is on or slightly ahead of schedule. About 7,500 ha of rubber have been planted, half of which is for smallholders. About 420 settler houses are occupied and garden lots established. In 1982, one of the estates, PTP I, was upgraded to take over responsibility for completing the Alue Iemerah smallholder component under NES I (1499-IND). Disbursements at the end of June 19382were about 55% of appraisal estimate. ANNEX II - 41 - Page 13 of 29 pages

Loan No. 1835 Nucleus Estate and Smallholders IV: $42 Million Loan of May 16, 1980: Effective Date: August 11, 1980; Closing Date: December 31, 1986

Smallholder oil palm planting is on schedule and of excellent quality. Village layout, settler house construction, and road development are a little behind schedule due to problems of land availability. However, these problems are being actively addressed by the implementing estate (PTP X) and the Project Coordinating Committee, and project completion is likely by target date. Disbursements at the end of June 1982 were about 66% of appraisal estimate.

Credit No. 984 Smallholder Rubber Development: $45 Million Credit of April 3, 1980; Effective Date: May 23, 1980; Closing Date: March 31, 1986

The project continues to progress satisfactorily, by early 1982 over 9,700 ha rubber or 85% of plan was planted. Delays in road construction are affecting project implementation and supervision, and measures to speed up progress are under review. Training of field staff and smallholders will be kept strictly practical; visual aids are being prepared. Creation of a trainer/coordinator position at provincial level but working at the Project Management Unit level is being considered. The creation of an internal audit unit and timely recruitment of staff to deal with financial matters is urgently required. Four studies, including a feasibility study, for an eventual second project are nearing completion and after review by GOI will be submitted to the Bank for review and comment. There are no major problems with this project, apart from the requirement to strengthen management and the seriously delayed procurement of vehicles. Disbursements at the end of June 1982 were about 101% of appraisal estimate.

Loan No. 1898 Smallholder Coconut Development: $46 Million Loan of August 25, 1980; Effective Date: November 25, 1980; Closing Date: June 30, 1986

Although the planting programs of tall and hybrid coconuts under the project seem reasonably on target, the results being achieved are gener- ally not satisfactory. Problems relate to lack of control of project manage- ment in Head Office, Provincial Offices (PO) and Coconut Working Centers (CWC) regarding the selection of suitable planting areas and participating smallholders, technical control and supervision of planting and maintenance standards, timely supply of seednuts and of essential inputs, and slow release of project funds, and thus a slow rate of withdrawal application and disbursements. To improve control of field operations some restructur- ing of the project in its scope and management structure is needed, by reducing the project area and reorganizing the PO/CWC management system. GOI agrees in principle with this recommendation and proposes to take necessary action. Disbursements at the end of June 1982 were about 19% of appraisal estimate. - 42 - ANNEX II Page 14 of 29 pages

Loan No. 2007 Nucleus Estate and Smallholder V: $161 Million Loan of June 26, 1981; Effective Date: October 21, 1981; Closing date: June 30, 1988

The project would develop about 53,000 ha of tree crops (rubber, oil palm, coconuts), food crops and house gardens in West Java, West Kalimantan and Bengkulu provinces with public sector estates as implementing agents. The project has made a good start including the nurseries establishment, initial planting for the smallholders in West Java, construction of some roads, estates offices and smallholders' houses. Disbursements at the end of June 1982 were about 115% of appraisal estimate.

Loan No. 2126 Nucleus Estate and Smallholder VI: $68.1 Million Loan of April 23, 1982; Effective Date: July 23, 1982; Closing Date: June 30, 1988

This loan was declared effective on July 23, 1982. The project will assist the GOI's nucleus estates and smallholders development program by establishing 28,200 ha of tree crops (rubber and coconuts), food crops and house gardens in West Java, Bengkulu and Maluku provinces with public sector estates as implementing agents.

Agriculture Support Services

Loan No. 1179 Agricultural Research and Extension I: $21.5 Million Loan of December 19, 1975; Effective Date: February 23, 1976; Closing Date: December 31, 1982

The project will close on December 31, 1982. Civil works in Sungai Putih and Sembawa (rubber) and Sukamandi (rice and palawija) were behind schedule and are now almost complete. Most of of the field and workshop equipment, furniture and vehicles have been received and contracts for laboratory equipment and chemicals for Margahayu (highland vegetables) and for Sungai Putih and Sembawa have been awarded. Ten agricultural information centers (AICs) under the Agency for Agricultural Education, Training and Extension have been constructed, furnished and equipped. Two additional centers at Aceh and Ambon are under construction and will have to be financed from another project after closing of this project. Extension materials are being produced and distributed from the completed AICs. Loan proceeds are expected to be almost fully disbursed at the closing of the project.

Loan No. 1267 National Food Crops Extension; $22 Million Loan of June 4, 1976; Effective Date: September 21, 1976; Closing Date: December 31, 1982

The targetted programs for construction, equipment procurement and training have been achieved. Some additional activities in these fields which are included in the follow-up project, the Second National Agricultural Extension Project (Cr. 996-IND) are currently being undertaken. These are expected to be completed within the revised closing date for the Loan of December 31, 1982. Overall the project continues to make satisfactory progress. 43 - ANNEX II Page 15 of 29 pages

Credit No. 996 Second National Agricultural Extension: $42 Million Credit of April 3, 1980; Effective Date: July 3, 1980; Closing Date: March 31, 1986

Substantial progess has been made with the construction and reha- bilitation program for the Rural Extension Centers and the Training and Visits System is progressively gaining more strength. Contact farmers and their associated farmers groups are responding to the two-weekly meetings with the field extension workers. Staff shortages in the field extension workers and extension subject matter specialists cadres and shortages of motor cycles for field staff are continuing problems; also, the strengthen- ing of training in extension packages in nonrice crops needs early actions. The project unit is aware of these deficiencies and steps are expected to be taken to address the problems; although the staff shortfall may continue into the next fiscal year. A unified extension system embracing other subsectors has not yet begun to function although keen interest in this approach is evident in some Provinces and could form the basis for developing a workable system. Overall, the project is making satisfactory progress.

Loan No. 1840 National Agricultural Research: $35 Million Loan and $30 (Cr. No. 1014) Million Credit of May 16, 1980; Effective Date: July 16, 1980; Closing Date: June 30, 1990

The project is the second phase in the strengthening of the overall institutional framework of the Agency for Agricultural Research and Develop- ment (AARD) for agricultural research in fruits, lowland vegetables, livestock, fisheries, forestry and estate crops other than rubber and industrial crops. Directors for the Central Research Institutes and for Research Institutes and Centers already approved by the Minister of Agriculture have been appointed. Civil works for the six locations planned for 1980/81 are going ahead and contracts for most of the civil works planned for 1981/82 have been awarded. More than fifty candidates for long-term local fellowships have been selected. A contract for consultancy services has been executed between AARD and the International Agricultural Development service.

Loan No. 2066 Second Seeds : $15 Million Loan of January 15, 1982; Effective Date: March 11, 1982; Closing Date: June 30, 1989

This project provides for: establishment of 18 medium Seed Processing Centers (SPCs) for the National Seed Corporation, P. T. Pertani and Cooperatives; six small SPCs for Cooperatives; additional equipment and facilities for five Food Crops Research Institutes (FCRIs), Provincial Seed Farms and Seed Control and Certification Services; establishment of a diploma course on seed technology at the Bogor Agricultural Institute; and in-service training, technical assistance and studies for strengthening the institutions operating in the seed subsector. Locations for the five medium SPCs to be constructed in the first year have been decided on and land ANNEX II 44 - Page 16 of 29 pages

acquisition is in progress. Tender documents for the SPCs are being finalized for issue of tender shortly. Long-term consultants are also expected to be appointed shortly. The first supervision mission has been recently fielded.

Rural Development

Credit No. 946 Yogyakarta Rural Development: $12 Million Credit of August 13, 1979; Effective Date: December 5, 1979; Closing Date: March 31, 1987

The improving trend in overall project performance discerned during the October 1981 supervision has continued. Activity targets are now being substantially met with the exception of the Small Scale Industries (SSI) and Village Health Components. Firm recommendations have been given to improve performance of these two components which should yield early, positive results. If, however, results are not forthcoming, firm steps should be taken either to terminate them or simplify their objectives and scope. Project performance rating has been upgraded to 2.2.

AGRO-BUSINESS AND CREDIT

Credit No. 785 Small Enterprise Development: $40 Million Credit of April 7, 1978; Effective Date: August 17, 1978; Closing Date: December 31, 1984

This project provides technical assistance to strengthen GOI's small credit programs, KIK/KMKP, and credit assistance to small-scale enterprises (SSEs) in West Sumatra and East and Central Java which acczount for about a third of countrywide KIK/KMKP loan approvals. Satisfactory experience with this first Bank-assisted pilot project has led to a nationwide SSE develop- ment project which is supported by the Second Small Enterprise Development Project (Loan 2011-IND). The credit component is fully disbursed.

Credit No. 827 Rural Credit: $30 Million Credit of June 23, 1978; Effective Date: November 3, 1978; Closing Date: March 31, 1985

This project provides long-term credit to about 40,000 smallholders, primarily for fisheries, perennial crops and livestock, and technical assis- tance to Bank Rakyat Indonesia for program development, training in term lending, credit procedures and accounting and management information systems. Due primarily to delays in obtaining consultancy services, the project is about nine months behind schedule. Following extension of the project to cover additional provinces and commodities, it is rapidly catching up. 45 ANNEX II Page 17 of 29 pages

Loan No. 2011 Second Small Enterprise Development: $106 Million Loan of June 26, 1981; Effective Date: October 16, 1981; Closing Date: December 31,1984

From the three regions covered under SEDP I the project has expanded to cover all 27 regions in Indonesia where the Small Investment (KIK)/Small Permanent Working Capital Credit (KMKP) program is being implemented. Small credit lending financed under the project continues to expand rapidly. Annual loan approvals of over $1 billion in 1981 reached about 12-14% of known small-scale enterprises throughout the country. In addition to technical assistance designed to strengthen banks' small credit operations, the project also provides for industrial extension services under the Directorate General of Small-Scale Industries (Ministry of Industry). The loan became effective on October 16, 1981 and disbursements are on schedule.

EDUCATION

Credit No. 869 Polytechnic: $49 Million Credit of December 29, 1978; Effective Date: May 11, 1979; Closing Date: June 30, 1985

The project objectives are to establish a new system for training engineering technicians, improve the quality of accountancy training and practices, and assist in strengthening education planning and management. The project would establish a Technician Education Development Center (TEDC), six polytechnics and four accountancy development centers and include technical assistance and associated studies. The project is making good progress and implementation is on schedule without a cost overrun. The TEDC building has been completed and construction of the six polytechnics is near completion. Equipment contracts for the TEDC and the six polytechnics have been awarded. The first batch of students was enrolled in the six polytechnics in 1982. The expert services and fellowship program are progressing satisfactorily. The accountancy component after initial delays, is now making good progress. Three study contracts have been awarded and two are being awarded. Disbursements are on schedule.

Loan No. 1237 Fourth Education: $37 Million Loan of April 15, 1976; Effective Date: June 17, 1976; Closing Date: December 31, 1983

The loan is helping to finance physical facilities and related technical assistance for: (a) two faculties of technology at existing teacher training colleges and four new centralized workshops for technical training for the Ministry of Education and Culture (MEC); (b) 17 new vocational training centers, an existing instructor training center and 25 mobile training units for the Ministry of Manpower (MOM); and (c) new premises for the National Institute of Administration (LAN), the country's principal civil service training institution. The completed MEC subproject is problem-free and facilities are operating satisfactorily. The MOM subproject has made some progress but is about two and a half years behind ANNEX II - 46 - Page 18 of 29 pages

schedule with a 16% cost overrun. Problems faced include poor equipment procurement management, shortage of funds, low utilization of completed facilities, poor quality of training (less than 50% of trainees placed in employment), and partial compliance on covenants. The LAN component has made no progress for three years and is now about three and a half years behind schedule, mainly due to the default of the civil works contractor for price escalation disputes with GOI. After retendering, a new contract has been approved recently and construction of the remaining unfinished portion of the building is expected to be completed in late 1983. Furniture and equipment procurement has not commenced. It is unlikely that this component will be completed by the present Closing Date. The GOI has been informed of the overall status and urged to take remedial actions. A second extension of the Closing Date to December 31, 1983, has been approved. Disbursements at the end of June 1982 were about 81% of appraisal estimate.

Loan No. 1433 Teacher Training: $19 Million Loan of June 6, 1977; Effective Date: July 7, 1977; Closing Date: June 30, 1983

The project is now progressing satisfactorily. Approximately 88% of the civil works program has been completed. Phase I is complete and 90% of the construction in Phase II is finished. Overall, 50% of furniture and equipment has been procured and delivered. The first cycle of teacher training has been completed and the second cycle is in process with all training expected to be concluded by October 1982. Disbursements at the end of June 1982 were about 52% of appraisal estimate due principally to lags in disbursement for civil works and delays in procurement of books, equipment, and furniture. It is expected that disbursements will accelerate during the coming months. Despite delays and the current low disbursement level, it is expected that the project will be completed on time.

Loan No. 1486 Non-Formal Education: $15 Million Loan of September 14, 1977; Effective Date: November 4, 1977; Closing Date: June 30, 1983

The project aims at strengthening the Department of Education's nonformal education programs in seven provinces. Financing would cover: civil works to renovate two existing and establish four new provincial centers, instructional equipment and vehicles, in-service training, materials development, a basic learning fund, and related technical assistance. Construction of the six Balai PENMAS (directorates for out-of-school education) centers, has been completed. All furniture aLnd equipment are already on site. About 90% of the staff training prograLm is meeting appraisal targets and production and distribution of pretested learning materials is accelerating. The technical assistance program is on schedule; local staff have replaced foreign consultants. Disbursements at the end of June 1982 were about 57% of appraisal estimate and are expected to continue to accelerate in the next few months. 47 ANNEX II Page 19 of 29 pages

Loan No. 1692 Second Agricultural Training: $42 Million Loan of May 7, 1979; Effective Date: July 31, 1979; Closing Date: June 30, 1985

The project constitutes the second phase of GOI's long-term strategy to improve the quality and supply of middle level agricultural manpower. Good progress continues to be made. Disbursements at the end of June 1982 were 540% of the appraisal estimate. The FAO technical assistance team is now in place and fellowship utilization remains up to schedule. Implementation of a tracer study of agricultural secondary school graduates was planned to begin in June/July 1982.

Loan No. 1904 University Development: $45 Million Loan of Niovember 13, 1980; Effective Date: January 22, 1981; Closing Date: December 31, 1986

The project is the first phase of a long-term university development program. Its main objectives are to increase the output of high level man- power and improve the quality of university education in the fields of engineering, science, agriculture, and economics (including business admin- istration and accountancy), as well as strengthen the management of the overall university system. The additional land required for the University of Gadjah Mada and the new site for the University of Andalas have been acquired. The campus master plan for the University of Indonesia has been completed, and the Universities of Gadjah Mada and Andalas are expected to be completed by early 1983. The initiation of technical assistance provisions are about eighteen months behind schedule. A contract is being negotiated with an external agency to administer the program of fellowships and visiting professors. Two contracts were signed with the British Council for the training of university administrators and textbook editors. Work is in progress to establish a Management Information System and a Monitoring Evaluation System in the Directorate General of Higher Education and in each project university. There have been no indications to suggest that project costs will be other than estimated at appraisal. Disbursements at the end of June 1982 were about 27% of appraisal estimate.

Loan No. 2101 Second Teacher Training: $80 Million Loan of April 5, 1982; Effective Date: May 24, 1982; Closing Date: June 30, 1988

The project seeks to improve the skills, competence and effectiveness of the education staff involved in primary and secondary education and educational administration.

Loan No. 2102 Second Textbook: $25 Million Loan of April 5, 1982; Effective Date: June 14, 1982; Closing Date: June 30, 1987

The project will support the establishment of the Integrated Text- book Project, a permanent organization to plan and manage textbook development - 48 - ANNEX II Page 20 of 29 pages

activities; a Center for Curriculum Development, which would develop improved curricula for primary and secondary schools, and an improved national distribution system for all textbooks for primary and secondary schools.

ENERGY

Loan No. 1365 Sixth Power: $116 Million Loan of February 4, 1977; Effective Date: June 6, 1977; Closing Date: June 30, 1983

Construction work on the project has reached its final stage. The 200 MW Unit No. 4 was synchronized on November 26, 1981 and has been in com- mercial operation since March 1982. Unit No. 5 went into commercial operation in August 1982. The associated studies have been completed.

Loan No. 1513 Seventh Power: $109 Million Loan of February 3, 1978 ($15 million cancelled November 30, 1980); Effective Date: June 30, 1978; Closing Date: December 31, 1983

All contracts were awarded at highly competitive costs with a sub- stantial reduction in foreign costs and, therefore, $15 million of the origi- nal loan of $109 million has been cancelled. The Bank also agreed to the inclusion of the following additional studies in the scope of the project: (a) Sunda Strait submarine cable feasibility; (b) optimization of location of future thermal plants: (c) power sector management information system design. Construction work at the site has been delayed by about 21 months. Commercial operation of the 200 MW generating unit is expected early in 1984. Construc- tion of the associated transmission lines is progressing satisfactorily. The feasibility study of the East Java coal-fired thermal power station site has progressed to the point of selection of a suitable site. Contracts for the studies (a), (b) and (c) mentioned above have been signed, and work is progressing satisfactorily. Disbursements at the end of June, 1982 were about 60% of appraisal estimate.

Loan No. 1708 Eighth Power: $175 Million Loan of June 1, 1979; Effective Date: November 5, 1979; Closing Date: December 31, 1984

The project encountered a number of problems and slipped nearly eleven months behind schedule by September 1981. However, progress since then has improved and the estimated delay has not increased. The main causes of the delay of one year were: (a) late finalization of contracts, and (b) tardy performance of the local contractor for piling work. Most contract awards have now been made and the commissioning date for Unit No. 1 at Suralaya is expected to be October 1984. Disbursements, though much lower than the appraisal estimates, are in line with the revised projections prepared in July 1981. The project cost is expected to remain within the appraisal estimate. ANNEX II - 49 - Page 21 of 29 pages

Loan No. 1872 Ninth Power: $253 Million Loan of June 13, 1980; Effective Date: October 24, 1980; Closing Date: September 30, 1985

This project is experiencing delays. However, the commissioning date of the second unit of Suralaya is now expected to be June 1985, i.e. six months behind schedule. The EHV project is delayed by almost one year due to delay in finalizing contract awards. All major contracts are expected to be finalized. Progress of land acquisition for the substation and the transmission lines is satisfactory. Disbursement at the end of June were about 24% of appraisal estimates.

Loan No. 1950 Tenth Power: $250 Million Loan of March 6, 1981; Effective Date: April 23, 1981; Closing Date: June 30, 1987

All major contracts for construction and installation of generating equipment required for the Saguling hydroelectric project have been placed with an estimated saving in total project costs of about $99 million. Con- struction work started at the main dam site in August 1981, and encountered problems in regard to timely completion of diversion tunnels. River diver- sion planned for end-May 1982 was not achieved. However, steps have been taken to divert the river in December 1982 and so modify the later construction program as to ensure that original dam construction targets are met. Other project subcomponents are progressing with 3-6 months delays, some of which are expected to be recovered. No cost overruns are expected. Disbursements at the end of June 1982 were about 42% of appraisal estimate.

Loan No. 2056 Eleventh Power: $170 Million Loan of November 16, 1981; Effective Date: April 15, 1982; Closing Date: June 30, 1986

Implementation of the project is proceeding on schedule. Contracts worth about $50 million have already been evaluated and approved by the Bank. Contracts valued at $100 million have been evaluated by PLN and are presently under review by GOI. PLN is planning to issue, in December 1982, another invitation to bid for the balance of the distribution equipment estimated at $20 million.

Loan No. 2079 Bukit Asam Coal Mining Development and Transportation: $185 Million Loan of January 22, 1982; Effective Date: May 25, 1982; Closing Date: September 30, 1987

Project implementation has commenced. Thus far no delays have occurred which would affect the project completion date. The consultants are now fully mobilized. Soil investigation and geological work is ongoing at the mine site. The bids for the main mining equipment have been received. The turnkey contract for the Tarahan terminal were signed and procurement of the ship is in progress. During the initial startup moderate problems have been noted in respect to project management and concerns have arisen with ANNEX IL

- 50 - Page 22 of 29 pages

respect to the procedure for procurement of packages not financed by the Bank. These matters received close attention from the first supervision mission and they will remain a focus of subsequent supervision missions.

Loan No. 2153 Coal Exploration Engineering: $25 Million Loan of June 14, 1982; Effective Date: Not Yet Effective; Closing Date: June 30, 1987

The project will evaluate coal reserves and assess the viability of specific coal deposits in South Sumatra and other promising areas in Indonesia. The project will be aimed at providing GOI and its agencies with a coal reserve inventory of its major coal bearing areas and feasibility/ prefeasibility studies of attractive deposits, thus enab:Ling it to establish investment priorities and define policies for its short, medium and long-term strategy for coal production and coal use.

INDUSTRIAL DEVELOPMENTAND FINANCE

Industrial Estates

Credit No. 428 Pulo Gadung Industrial Estate: $16.5 Million Credit of September 14, 1973; Effective Date: November 13, 1973; Closing Date: December 31, 1982

The Credit was for the development of an industrial estate at the eastern border of Jakarta. Land acquisition difficulties have persisted since project inception and have eventually resulted in a substantial project delay. Consequently, disbursement of the Credit has been slow, and the Closing Date of the Credit has been extended to December 31, 1982 to enable the remaining funds to be used for the development of an export processing zone and related studies. As of September 15, 1982, a total of $8.9 million has been disbursed. Full disbursement of the Credit is expected by the new closing date.

Development Finance Companies

Loan No. 1703 Fourth BAPINDO: $50 Million Loan of June 1, 1979; Effective Date: September 25, 1979; Closing Date: September 30, 1983

BAPINDO continues to make significant progress in both operations and institutional developments: its operations in terms of new loan and equity investment approvals more than doubled compared to 1979; its financial position and performance recorded a marked improvement; and the portfolio quality showed signs of reduced loan arrears in relation to the portfolio. Moreover, BAPINDO continued to make progress in implementing the agreed Action Program of 1977 and other programs for further strengthening its - 51 ANNEX II Page 23 of 29 pages

organization and increasing its project promotion activities as agreed during the last loan negotiations in April 1979. BAPINDO put into effect on April 1, 1981 a General Improvement Program involving a number of organizational reforms and staff training and deployment. This was done in order to enable BAPINDO to play a larger role in promoting the country's industrial develop- ment as well as increasing its operational capabilities. Commitments and disbursements under the loan, which were slow at the beginning have accelerated during the past year and the loan may be disbursed on schedule.

POPULATION AND NUTRITION

Population

Loan No. 1472 Second Population: $24.5 Million Loan of July 6, 1977; Effective Date: August 4, 1977; Closing Date: April 30, 1983

All civil works are completed and the buildings are occupied and operational. The mobile service units provided under the project are making a significant contribution to the recruitment of contraceptive acceptors. Training and population education are scheduled to be completed by the end of 1982. The research components - the contraceptive raw materials study and the community incentive scheme -- will not be completed before the loan closing date and an extension is likely to be requested by the Government. A loan saving of $7.0 million has been reallocated for the purchase of equipment in support of project activities and procurement is expected to be completed by December 1982. A further savings of $3.3 million is antici- pated and the Government intends to request Bank approval for reallocation. Only about $11.2 million, or 48%, has been disbursed out of the loan. A sizeable proportion of the balance will be disbursed by the Closing Date, but not the full loan amount.

Loan No. 1869 Third Population: $35 Million Loan of June 13, 1980; Effective Date: September 10, 1980; Closing Date: March 31, 1985

Progress on the health components of this project, particularly training, has been very good. Training is ahead of the appraisal schedule and the construction of health center annexes is underway. Population components have, however, made less than satisfactory progress. While the procurement of vehicles and audio-visual equipment for mobile information units is in process, the implementation of civil works has been delayed considerably. As a result of recent GOI's efforts, this component is beginning to make some progress. A sizeable number of contracts are expected to be awarded by December 1982 and construction should start in early 1983. Population education has also been delayed pending decisions on the recommendations of an evaluation which was completed in July; a report on this was submitted to the Government in August. A detailed program for - 52 - ANNEX II Page 24 of 29 pages

training teachers was also required before funds could be released. A recent Bank mission has reveiwed these issues with the concerned agencies and it is expected that implementation will start soon. Because of delays in physical implementation, disbursement is lagging behind appraisal estimates.

Nutrition

Loan No. 1373 Nutrition Development: $13 Million Loan of March 14, 1977; Effective Date: March 31, 1977; Closing Date: March 31, 1983

The pace of project implementation has increased considerably, with the construction of the laboratory at the Nutrition Academy now completed and the construction of the Nutrition Training Center currently underway and is expected to be completed by end of 1982. Contracts for unprocured equipment have been awarded and delivery is expected to be completed in early 1983. More than 80% of project fellowships and over 60% of consultancy months have either been utilized or committed. The project was evaluated by an independent team in July/August, the findings of which are quite positive. Bank staff have reviewed the findings with Government and made pertinent observations. Physical progress during the past twelve months has been faster than ever before. This rapid progress is reflected in a sharp increase in the level of cumulative disbursement from $4.3 million as of August 31, 1981 to $8.3 million by August 31, 1982. A further saving of $800,000 has been reallocated from the category vehicles and equipment to consultants services, fellowships and salaries of local experts for the staff of the Project Director. The project is expected to be completed by December 1982 and no further extension in closing date date will be required.

TECHNICAL ASSISTANCE

Credit No. 898 Fifth Technical Assistance: $10 Million Credit of May 7, 1979; Effective Date: September 5, 1979; Closing Date: March 31, 1984

Progress under this project is satisfactory.

Loan No. 1197 National Resource Survey and Mapping: $13 Million Loan of February 5, 1976; Effective Date: April 2, 1976; Closing Date: December 31, 1983

The National Coordinating Agency for Surveys and Mapping (BAKOSURTANAL) complex at Cibinong is completed, and most of the cartographic photographic processing, including color photo processing equipment and printing equipment required to produce maps, are installed. Computer equipment for resource analysis including a topographic data bank and flatbed - 53 - ANNEX II Page 25 of 29 pages

plotter has been installed. Various resource evaluation activities have been undertaken using these facilities. Recruitment and training of new staff, particularly at junior and middle level has recently been accelerated. The new photography operation financed under the parallel Canadian Project was delayed as a result of which the Bank agreed to extend the Closing Date until December 31, 1983. The photography operation started in July 1981 and is expected to be completed by the new Closing Date.

TRANSPORTATION

Fertilizer Distribution

Loan No. 2120 National Fertilizer Distribution: $66 Million Loan of April 5, 1982; Effective Date: September 27, 1982; Closing Date: June 30, 1986

This project will increase agricultural production in Indonesia by substantially expanding the capacity to distribute fertilizer to farmers. Funds are also provided for preparation of future maritime transport projects, including master plans and detailed engineering for several ports.

Highways

Loan No. 1236 Fourth Highway: $130 Million Loan of April 15, 1976; Effective Date: August 13, 1976; Closing Date: December 31, 1982

The project although now substantially completed has been under implementation for nearly six years. Because of slow execution, the Closing Date was postponed by two years to December 31, 1982. The only component still ongoing is the road betterment program and the related consultancies for works supervision. Other consultancies have been completed satisfactorily, sometimes with substantial delays. Four road sections have been transferred from the Fifth to the Fourth Highway Project. Bank participation in expenditures to be incurred in 1982 on these contracts would fully utilize the surplus.

Loan No. 1696 Fifth Highway: $130 Million Loan of June 1, 1979 ($6.8 Mil- lion cancelled June 30, 1981); Effective Date: August 28, 1979; Closing Date: December 31, 1984

Project implementation, which started nearly three years ago, is substantially behind schedule. The project is about 25% completed compared to 70% scheduled. The causes for delay are: (a) the ambitious project objectives, which translate into program-type components and numerous consultancies; (b) overcentralization of the Directorate General of Highways (DGH); (c) a shift of senior staff within DGH; and (d) new development guidelines of the GOI under Repelita III emphasizing the spread of investments ANNEX II - 54 - Page 26 of 29 pages

over a larger number of projects with reduced standards. However, work is now underway on nearly all project components, and there is still a reasonable chance of completing the project with a total delay of only one year. The Provincial Departments of Public Works programs of support works were just started in January 1982 with mobilization of consultants and after road maintenance equipment had been ordered. $6.8 million of the loan has been cancelled due to misprocurement of road maintenance equipment.

Loan No. 2049 Jakarta-Cikampek Highway: $85 million Loan of October 9, 1981; Effective Date: February 9, 1982; Closing Date: December 31, 1987

The project will increase road capacity between Jakarta and Cikampek (about 70 km to the east) by construction of a new toll road and by improvements to the existing highway. Consultants have been selected for construction supervision, and contract negotiations have been concluded. Bid opening for the four sections of road works took place in late May 1982, somewhat behind schedule. The bid evaluation report is being reviewed by the Government. Land acquisition has been completed up to and including negotiations with property owners, and payment of compensation is underway. Negotiations are about to begin with consultants to provide technical assist- ance to the Indonesia toll road corporation, P. T. Jasa Marga.

Loan No. 2083 Rural Roads Development: $100 Million Loan of January 22, 1982; Effective Date: August 11, 1982. Closing Date: December 31, 1986

The project will improve rural road infrastructure in selected provinces by strengthening the capacity of the district public works agencies and implementing an expanded program of rural roads works; and supporting a rural road development program for a three-year period in five Indonesian provinces. The project also contains components for training and technical assistance. Implementation of the various project components is still at an early stage. Bids were received in March 1982 for road construction and maintenance equipment and bid evaluation has been completed for about half of the items. Consultants are now being mobilized to provide technical assistance to the district public works agencies and to assist the Directorate General of Highways in preparing further rural roads programs.

Marine Transport

Loan No. 1250 Second Shipping: $54 Million Loan of May 20, 1976; Effective Date: October 8, 1976; Closing Date: December 31, 1982

The project is part of the first phase of the Government's Inter- Island Fleet Development Program and is designed to modernize, expand and improve the efficiency of the inter-island fleet. All ftnds for ship procurement ($48.0 million) have been disbursed and the balance of ANNEX II - 55 - Page 27 of 29 pages

funds for technicalassistance ($6.0 million) have been disbursed or allo- cated. It is expected that all funds will be disbursed by loan closing date. All of the operations under the loan appear to have been carried out satis- factorily.

Ports

Loan No. 1337 Tanjung Priok Port: $32 Million Loan of November 4, 1976; EffectiveDate: March 3, 1977; Closing Date: December 31, 1983

The Government-financedworks in Basin III, delayed due to the impact of the 1978 Rupiah devaluation,the Basin III civil works financed by the Bank loan, also delayed due to the devaluation,and civil works financed by the Bank loan in the Regional Harbor, are completed. Several Bank-financed studies which are proposed or have been completed,will enable the GOI to identify components of a further ports project suitable for Bank financing probably in FY84. Overall estimated project costs remain approximatelyat appraisal levels despite an increase in civil works costs.

TOURISM

Credit No. 479 Bali Tourism: $16 Million Credit of June 14, 1974; Effective Date: December 4, 1974; Closing Date: December 31, 1983

All works on the infrastructuresand the amenity core at Nusa Dua were completed in June 1982. The access road to Nusa Dua from the airport and the Denpasar bypass road were completed and opened for traffic in December 1980. The hotel training school was completed in July 1979 and has been in operation since then. The preparationof possible participationby the Bali Tourism Development Corporationin hotel investment utilizing the uncommittedportion of the credit is expected to be finalized by the end of September 1982. The market for tourism to Bali has been good and in- ternationalstandard hotels in Bali have been achieving high occupancies. The constructionof a first hotel (450 rooms) by Garuda at Nusa Dua is progressing well for completion in March 1983. The constructionof a second hotel (250 rooms) by Anchol Group at Nusa Dua has just started. Disbursementsat the end of June 1982 were about 81% of appraisal estimate. - 56 - ANNEX II Page 28 of 29 pages

URBAN DEVELOPMENT

Loan No. 1336 Second Urban Development: $52.5 Million Loan of November 4, 1976; Effective Date: March 28, 1977; Closing Date: June 30, 1983

The project aims at providing basic infrastructural facilities including footpaths, drainage, water supply and human waste disposal to about 3,000 ha of densely populated slum areas (kampungs) in Jakarta and 374 ha in Surabaya. The physical program is now complete with a coverage of about 3,434 ha kampungs in Jakarta and 441 ha in Surabaya. Supplementary technical assistance studies related to future projects preparation and utilizing the accrued loan residual have been recently agreed upon. To facilitate the financing of these studies, the Bank, in December 1981, extended the loan Closing Date from December 31, 1981 to June 30, 1983. Disbursements at the end of June 1982 were about 85% of appraisal estimate.

Loan No. 1653. Third Urban Development: $54 Million loan of January 31, 1979; Effective Date: September 26, 1979; Closing Date: December 31, 1984

The project extends the slum (kampung) improvement programs (KIP) under the Second Urban Development Project (Loan 1336-IND) in the cities of Jakarta (750 ha) and Surabaya (580 ha), and also provides for similar basic infrastructural facilities in three additional cities -- Ujung Pandang (375 ha), Semarang (310 ha) and Surakarta (170 ha) -- with the KIP coverage in each city ranging between 15 to 37% of total kampung areas to be upgraded. Also included in the project is a comprehensive solid waste management program (SWIP) in Jakarta, and Surabaya and macro-drainage improvements in Surabaya. The KIP component is nearing completion in all cities with its actual coverage exceeding the target levels in Jakarta and Surabaya. SWIP implementation is progressing well in Surabaya but has just started in Jakarta due to earlier start-up delays in pilot testing. The Surabaya drainage component is in the construction stage which is somewhat beset with land acquisition problems (for canal dredging schemes) warranting local government's more intensive participation and an increased allocation of funds for the program. The overall project is expected to be implemented within the appraisal projected dated of December 31, 1984. Disbursements at the end of June 1982 were about 59% of appraisal estimate.

Loan No. 1972 Fourth Urban Development: $43 Million Loan of May 8, 1981; Effective Date: September 9, 1981; Closing Date: September 30, 1986.

The project further expands Bank's assistance to GOI's slum impro- vement programs (KIP) under the earlier urban projects to six nationwide pro- vincial capital cities with a total target KIP area of 2,000 ha and with a coverage in each city representing about 15 to 33% of total KIP area to be up- graded. Sites and sevices schemes, aimed at providing affordable core housing ANNEX II - 57 - Page 29 of 29 pages

units to the low-income population, will be developed for a total of about 11,000 plots in some six to seven cities. Sectoral programs comprising of solid waste improvement, and improved water supply are also included in one of the project cities. A national urban mapping program covering 125 cities will be undertaken providing base data for future city planning, land regis- tration and valuation programs. The developoment of the housing and mortgage financing institutions is a prominent feature of the project. Technical assistance for project management, training and feasibility studies to various urban authorities and agencies will be provided. The sites and services pro- gram is proceeding satifactorily. The start-up delays in the implementation of the KIP programs have been overcome and the progress of these programs should significantly improve with the consultants currently being appointed. The first phase of the urban mapping contracts covering some 45 cities will commence in October 1982. Technical assistance programs are proceeding satisfactorily. Disbursements at the end of June 1982 were about 35% of appraisal estimate.

WATER SUPPLY

Loan No. 1709 Second Water Supply: $36 Million Loan of June 1, 1979; Effective Date: February 29, 1980; Closing Date: December 31, 1984

The project expands and improves existing water supply and distri- bution systems in the cities of Tangerang and Surabaya (both in Java), Jember (Sumatra), Pare-Pare (Sulawesi) and Ambon (Moluku), and provides for the construction of new systems in Klaten and Purwakarta (both in Java). The total increase in raw water yield in the cities as a result of the project is projected at 1,770 lit/sec and the total installation of trans- mission and distribution mains will amount to about 375 kms with house connections targetted at a total of 40,000 in the project cities. The project is also aimed at establishing water enterprises (WEs) in the project cities and strengthening the skills of WE's staff, as well as the Cipta Karya (Housing and Urban Development) staff, in the areas of administration, financial and operational performance of the enterprises. After consider- able delays (up to 18 months) the award of most of the International Competitive Bidding procurement contracts for the supply of pipes and materials is now complete and procurement is in progress. The construction of the civil works in the project cities is currently underway. The organizational and management training for the WEs has been underway since September 1981 and is proceeding satisfactorily. Disbursements at the end of June 1982 were about 28% of appraisal estimate. - 58 - ANNEX III Page 1

INDONESIA

TWELFTH POWER PROJECT

Supplementary Project Data Sheet

Section I: Timetable of Key Events

(a) Time taken to prepare the project : One year

(b) Project prepared by : PLN with Bank and consultant assistance

(c) First presented to the Bank : November 1981

(d) Departure of the Appraisal Mission : February 1982

(e) Completion of Negotiations October 1982

(f) Planned Effectiveness : March 1983

Section II: Special Bank Implementation Actions

None.

Section III: Special Conditions

GOI will:

(a) ensure that PERTAMINA prepares and adheres to a timebound program of steam field drilling and development, backed by adequate assurances of financing, to provide steam at the Kamojang geothermal power station (para. 56); and

(b) takes all necessary actions to make available in time land and rights to such land as shall be required at Kamojang (para. 56).

PLN will:

(a) prepare by December 1, 1983 an adequate training/development program for PLN's senior technical staff and initiate such a program promptly thereafter (para. 37); ANNEX III Page 2 - 59 -

(b) discontinue the system of preparation of joint bid evaluation reports by PLN and its consultants (para. 37); and

(c) attain in 1985/86 and thereafter a level of contribution to its investment program from internally generated funds of not less than 20% and, during interim years 1982/83 through 1984/85 the level of such contribution of not less than 10% (para. 41).

Special conditions of disbursements against equipment and materials for Kamojang geothermal power units will be achievement of sufficient steam production by PERTAMINA (para. 56).

IBRD 12453 R3

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ThiWstephen been properd by th| World Bek aataff enaloi-jly fr/ PROPOSED POWER STATION SITE the tnoehnienceo (hade PRODUCTION WELLS the report to o,hch it in tteuhed. , * RDCIO EL Theden-ninat-on sewdnd-d the botndaries shown on ths mep EXPLORATION WELLS do -a rpWly,nn the pen of at` World Bank end its efhw-te. any O jdg-mentan the legal tetuo of WELL LOCATIONS any t-nitory eny-r -edor-oetant or euneptenuof ouh boundaies ESTIMATED FIELD BOUNDARY: -- 250 M. DEPTH -- 500 M. DEPTH JAKARTA NATURAL HOT SPRINGS

WEST JAVA KAMOJANG VILLAGE PLAN & PERTAMINA HOUSING

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KAMOJANG