Documcnt of The World Bank FOR OMCAL USE ONLY Public Disclosure Authorized Report No. 8820 PROJECTCOMPLETION REPORT REPUBLICOF INDONESIA Public Disclosure Authorized COALMINING ANDTRANSPORTATION ENGINEERING PROJECT (LOANS-9-IND) AND BUKIT ASAMCOAL MINING DEVELOPMENTAND TRANSPORTATION PROJECT (LOAN2079-IND) JUNE 25, 1990 Public Disclosure Authorized Energy Division TechnicalDepartment Public Disclosure Authorized Asia RegionalOffice This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed without World Bank authorizton. LIST OF AioBREVIATIONS BACOMDAT Bukit Asam Coal Mining Development and Transportation GOI Government of Indonesia IBRD International Bank for Reconstruction and Development IDC Interest During Construction MAP Maximum Austerity Program PCR Project Completion Report FOR OMCIALUSE ONLY THEWORLD SANK Washington.DC 20433 U.SA Ohke di OwtwmGowat awm vluit June 25, 1990 MEMORANDUM TO THE EXECUTIVEDIRECTO0t AND THE PRESIDENT SUBJECT: Project Completion Report on Indonesia Coal Mining and TransportationEngineering Project and Bukit Asam Coal Mining Development and TransportationProject (Loans S-9 and 2079-IND) Attached, for information,is a copy of a report entitled "Project Completion Report on Indonesia - Coal dining and Transportation Engineering Project (Loan S-9-IND) and Bukit Asam Coal Mining Developmentand Transportation Project (Loan 2079-IND)" prepared by the Asia Regional Office with Part II of the report contributedby the Borrower. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment This document hu a resuicted distribution and may be used by reciintu only in the petformance of their officialduties. Its contenu may not otherwise be disclosedwithout World Bank authoriruion. FOR OFFIMCALUSE ONLY REPUBLICOF INDONESIA PROJECT COMPLETIONREPORT COAL W.NING AND TRANSPORTATIONENGINEERING PROJECT (LOANS-9) BUKIT ASAM COAL MINING DEVELOPMENTAND TRANSPORTATIONPROJECT (LOAN 2079-IND) TABLE OF COhTENTS Page Preface.................................................. iv EvaluationSummary ..............................................v PART I. PROJECT REVIEW FROM BANK'S PERSPECTIVE........................... 1 1. Project Identity............................................. 1 2. Background.................................................. 1 3. ProjectObjectives and Description........................... 2 4. ProjectDesign and Organization.............................. 3 5. Project Implementation................................... 4 6. ProjectResults ................................... 6 7. Project Sustainability................................... 7 8. Bank Performance................................... 7 9. Borrower Performance................................... 8 10. ProjectRelationship ................................... 9 11. ConsultingServices ................................... 10 12. ProjectDocumentation and Data............................... 10 PART II. PROJECT REVIEW FROM BORROWER'SPERSPECTIVE ....................... 11 Preface...................................................... 12 Highlights...................................................... 12 1. Introduction........... ..................................... 14 2. ProjectBackground ..................... 15 2.1 Objective.15 2.2 Scope.15 2.3 Schedule. .........................16 2.4 System Design. 17 2.5 Location.17 2.6 Organization.17 This document has a restricteddistribution and may be used by recipientsonly in the performance of their officialduties. Its contents may not otherwise be disclosed without World Bank authorization. TABLE OF CONTENTS (Cont.) Page No. 3. Project Implementation. .....................................19 3.1 Project Master Schedule .................... 19 3.2 Technical Deviations.......................... 20 3.3 Capital Costs ......................... 20 3.4 Notable Successes ....................... 22 3.4.1 Decision on Development of Non-Air Laya Mines ..... 22 3.4.2 Decision on Interim Coal Movement and Facility .... 22 3.4.3 Operational Constraints and Equipment Deficiencies 22 3.4.4 Decision to Restructure the Coordinating Body ..... 23 3.4.5 Management of Entities............................ 23 3.4.6 Blanket Insurance................................. 23 3.4.7 Decision on Second Tarahan Turnkey Contract....... 24 3.5 Problem Issues........................................... 24 3.5.1 Inadequate Survey and Investigation............... 24 3.5.2 Inaccurate Technical Design ....................... 25 3.5.3 Land Acquisition .................................. 25 3.5.4 Procurement....................................... 25 3.5.5 Insufficient Rupiah Financing..................... 26 3.5.6 Delay of Offshore Financing....................... 26 3.5.7 Poor Contractor Performance....................... 26 3.5.8 Ineffective Use of Consultants.................... 27 3.5.9 Inadequate Project Coordination................... 27 3.5.10 Problems in Training Design and Application ....... 27 3.5.11 Problems in Staffing and Recruiting............... 28 3.5.12 Train Traffic Management Problems................. 28 3.5.13 Lack of Attention to Environmental Issues......... 28 3.5.14 Deviation in Coal Price Forecast.................. 29 3.5.15 Delay on Coal Sale and Transportation Agreements.. 29 3.5.16 FinlancialPerformance ............................. 29 4. Bank Peforman^ee.............................................. 30 5. Conclusion and Lessons to be Learned ......................... 31 5.1 Conclusion............................................... 31 5.2 Lessons to be Learned .. 31 5.2.1 Technical Design .................................. 31 5.2.2 Maximum Austerity/Valua Engineering............... 32 5.2.3 Project Preparation Team .......................... 32 5.2.4 Project Organization Structure.................... 32 5.2.5 Responses to Change in Project Master Schedule .... 32 5.2.6 Recruitment, Staffing and Training Program........ 32 5.2.7 Procurement Procedures............................ 33 5.2.8 Time Value of Money ............................... 33 TABLE OF CONTENTS (Cont.) Page No. PART III. STATISTICAL INFORNATION.......................................... 34 1. Related Bank Loans and/or Credits . .34 2. Project Timetable .. 34 3. Loan Disbursements (Cumulative) US$million . 34 4. Project Completion .. 35 5. Project Costs and Financing .. 35 A. Project Costs .35 B. Project Financing.36 6. Project Results .. 36 A. Direct Benefits.36 B. Economic Impact.37 C. Financial Impact.37 7. Status of Covenants .. 38 8. Use of Bank Resources .. 41 A. Staff Inputs.41 B. Missions .42 4 REPUBLIC OF INDONESIA COAL MINING AND TRANSPORTATIONENGINEERING LOAN AND BUKIT ASAM COAL MINING DEVELOPMENTAND TRANSPORTATIONPROJECT (LOAN 2079-IND) PROJECT COMPLETIONREPORT PREFACE This is the Project CompletionReport (PCR) for the Coal Mining and TransportationEngineering Loan and for the Bukit Asam Coal Mining Developmentand TransportationProject in Indonesia,for which Loans S-9 and 2079-IND in the amounts of US$10 millOn and US$185 million respectively,were approvedon May 9, 1978 and January 7, 1982, respectively. The engineeringloan was refinancedunder the project loan. The project loan was closed on September30, 1989, two years behind schedule.The last disbursementwas on April 4, 1990, and US$5.11 million was cancelled (excludingUS$1.14 million cancelledin August 1986) during April 1990. The PCR was prepared by the Energy Division of the Technical Departmentof the Asia Region (Preface,Evaluation Summary, Parts I and III), and the Borrower (Part II). Preparationof this PCR was started during the Bank's final supervisionmission in May/June 1989 and is based, inter alia, on the Staff Appraisalreport; the Loan and ProjectAgreements, supervision reports; correspondencebetween the Bank and the Borrower;and internalBank memoranda. - ii - REPUBLICOF INDONESIA COALMINING AND TRANSPORTATIONENGINEERING PROJECT M S -9) MUKITAZAM COAL MINING DEVELOPMENTAND TRANSPORTATIONPROJECT 1LQ"V`179-IND) PROJECTCOMPLETION RRPYD EVAL'UATIONSUNY Objective The key objectiveof the Bukit Asam Coal Mining Developmentand TransportationProject was to assist the Governmentof Indonesia (GOI) to move away from a mono-energypolicy and to invest in an alternative(coal) energy developmentto free scarce petroleumresources and increaserelated foreign exchange earnings (para.3.1). Enginepringand ImplementationExperience Engineeringstudy work undertakenunder Loan S-9 was effectivein providing the technicaland financialbasis for Bank appraisalof the complex integrated (mine-rail-terminal-ship)project (para. 4.1). The engineeringstudy phase took longer to complete than anticipateddue to the complexnature of rhe project scope. Project implementationwas dogged by delays, compoundedby organizationaldeficiencies, with the result that the original target date for coal movement to Suralaya slippedover four (4) years. Arrangements for project controlwere ineffective(paras. 4.2 and 4.3). Project constructionfaced many delays occasionedby inadequatequalifications of staff in the implementingagencies, cumbersome and biased GOI procurement procedures,poor performanceof local contractors,protracted GOI negotiationswith cofinancingagencies, land acquisition,mobilization of local currency,and inadequateground investigatior.s(paras. 5.1 and 5.2). Initial operationswere disappointing.Mine developmentwas slower than anticipateddue primarilyto poor performanceof main