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World Bank Document
Public Disclosure Authorized FILE COP The Document World of Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. P-1819-IND REPORT AND RECOMMENDATION OF THE PRESIDENT Public Disclosure Authorized OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF INDONESIA FOR A Public Disclosure Authorized SECOND SHIPPING PROJECT April 16, 1976 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Currency Unit = Indonesia Rupiah (Rp.) US$1.00 = Rp 415 1 Rupiah = $0.002 1 million rupiah = $2,410 Government of Indonesia Fiscal Year April 1 - March 31 FOR OFFICIAL USE ONLY TNTERNA1IONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REP'ORT AND RECOMME.NDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF INDONESIA FOR THE SECOND SHIPPING PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Indonesia for the equivalent of US$54.0 million to help finance the Seconc Shipping Project. The loan would have a term of 15 years, including three years of grace, with interest at 8-1/2 percent per annum. About US$50 million of the proposed loan would be made available to P.T. PANN (Pembangunan Armacda Niaga Nasional - National Fleet Development Company) half as equity, half as debt. The debt portion would carry interest at 12 percent per annum and be repaid in up to 10 years including one year grace for the procurement of used ships and up to 5 years including one year of grace for ship rehabilitation. The Government would assume the foreign exchange risk. The remaining US$L million of the proposed loan would be used by the Government to cover about half of the cost of the technical assistance requirements of the project. Japan would provide US$25 million at 2-3/4 percent interest per annum for 30 yearE, including 10 years of grace. Norway would make available an export credit cf US$87.8 m[llion at 8-1/2 percent interest per annum, plus a single fee of 1.9 percent for 15 years including a grace of 3 years and a grant of about US$12.5 million. A consortium of banks organized by Den Norske Credit bank of Norway would also provide up to US$12 million for 5 years at an interest of 1-7/8 percent over the Eurodollar rate, plus management and commitment fees of 3/4 of 1 percent each. PART I - THE ECONOMY 2. The latest economic report on Indonesia "Indonesia: Development Prospects and Needs" of April 15, 1975 (708-IND) described and analyzed the structure of production and incomes, the recent changes in the availability of resources, and the medium and longer-term outLook for the Indonesian economy. Country data are shown in Annex 1. 3. In 1969, at the start of Indonesia's First Five-Year Plan, the per capita income of the Indonesian population was probably no higher than half a centurv ago. A majority of the population lived below a minimum welfare standard, especially on Java. Most were dependent exclusively or primarily on agriculture, where farms were generally very small. 1!nderernployment was widespread. While the inflation of the mid-1960s had been overcome, infrastructure was still in very poor condition. 4. The Government's efforts during the First Five-Year Plan period (April 1, 1969 - March 31, 1974) were successful in putting the economy on the development road. Most physical objectives were achieved or nearly so, and there was very substantial rehabilitaticn -rt ri,,-i-down infrastructure and Government enterprises in agriculture and manufacturing. Foodgrain production increased by 4 million tons during the Plan period Ar an average rate of 5 percent per annum. Investments increased at A verv fast rate, rising from 9 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. - 2 - to 19 percent of GNP. While 57 percent of Government development expenditures were financed from abroad, the reliance on foreign financing was much less than the level of nearly 80 percent foreseen in the Plan. Real GDP increased at an annual rate of over 7 percent. GNP per capita in current prices reached about US$130 1/ in 1973. The Government programs for the labor intensive rehabilitation of infrastructure and other measures created substantial incomes and employment. However, given the annual increase in the labor force of about one million, one cannot be confident that the employment situation improved during the First Plan period, and from available information it is difficult to judge the extent to which the poorest sections of the population shared in the gains of development. 5. The Second Five-Year Plan (April 1, 1974 to March 31, 1979) builds on the achievements of the First Plan. While the First Plan dealt mainly with the urgent needs for stabilization and rehabilitation under conditions of great scarcity of resources, progress has been such that the Second Plan can give much more weight to such problems as employment, increasing the productivity and incomes of the poorest sections of the population and the poorest regions, population control, education and health. The Plan identifies a number of specific low-income target groups and, in general, adopts an employment oriented development strategy. It aims at a continued growth in investment, needed both because capital intensity will tend to increase as the rehabilitation phase draws to an end, and because more socially-oriented investments will be made. Overall, the Plan expects GDP to grow at 7.5 percent per annum. 6. Over the decade 1961-71, Indonesia's population grew by 2.1 percent a year. However, as a result of changes in the age, distribution and declining mortality, the current growth rate is estimated at 2.5 percent. Even under the most optimistic assumptions with regard to a decline in fertility, the growth rate would come down only gradually, and the population would nearly double by the end of the century. While Indonesia still has substantial unutilized land reserves in the Outer Islands, these are limited in relation to the expected population increase. Since 1969, the Government has been operating and gradually extending a successful family planning program. The number of acceptors has been increasing rapidly. The Second Plan foresees a progressively more vigorous and comprehensive attack on the population problem. 7. During the years 1976-79, average annual additions to the labor force are estimated at 1.2 million, increasing to more than 1.4 million in the years 1980-85. In addition, substantial underemployment exists, and there is the risk that even relatively simple technological improvements may adversely affect existing employment. The Second Plan's projections show that employment growth would approximately keep pace with the growth in the labor force, but even this may be too optimistic. Thus, the magnitude and the employment content of the investment program needs to be further enlarged and strengthened if an appreciable increase in employment and the real earnings of labor - and thus a wider spread of the benefits of development - is to be attained. I/ World Bank Atlas basis. -3- 8. Towards the end of 1973, when the Second Plan was being finalized, prospects for resource availability improved dramatically. In line with other OPEC countries, the Government raised the export price of oil in successive stages from $3.70 per barrel in April 1973 to $12.60 per barrel in July 1974. Early in 1974 (and again in 1975) the Governnent also successfully renegotiated the contracts with foreign oil companies, enabling it to retain a greater share of the oil income. As a result, the net contribution of the oil sector to the balance of payments and Government revenues was expected to increase very considerably; a large increase in foreign exchange reserves and a budget surplus were also anticipated for 1974/75.1/ By Octoer 1974, foreign exchange reserves had risen by $650 mil9. lion from nearly $1.0 billion at the beginning of 1974/75 and Government revenues were excEeding the levels originally estimated. The Government authorized much higher levels of expenditures, mainly for development, which reflected the improved revenue prospects. However, the recessionary conditions in the industrial countries began to affect the volume of oil exports and production by the middle of the year. Indonesia's low sulphur oil tended to become overpriced 2/ as world oil demand slackened and ouitput declined from an average of 1.45 million barrels per day (bpd) in the first half of 1974 to 1.31 million bpd in the second half. Proceeds from non-oil exports also started to decline as prices, and in some cases export quantities, feLl. In October 1974 also, the first signs appeared of what turned out 10. to be a substantial financial overextension by PERTAMINA, the national oil company. PERTAMINA had undertaken a large and diversified investment program In the third financed to a substantial extent by short-term borrowing. quarter of 1974/75, it started withholding part of the corporate oil tax it had collected on behalf of Government from the foreign oil companies; by the end of the fiscal year a total of Rp 346 billion ($830 million) had been so Early in 1975, withheld and used to meet PERTAMINA's financial obligations. PERTAMINA failed to meet payments due to some foreign banks and the Government stepped in and took decisive action. It banned all indepenclent foreign borrowing by PERTAMINA and other Government enterprises and gave Bank Indonesia the sole authority to contract foreign obligations, instruct:ed Bank Indonesia to provide the funds needed to meet PERTAIINA's external obligations, undertook a comprehensive review of the oil company's investment projects and began the process of reducing and re-plannning the company's investment program and of cancelling and renegotiating many of the related procurement contracts. The combination, in the last half of 1974/75, of slickening 11. receipts from exports of oil and other products and of the need to meet PERTAIINA's short-term obligations resulted in a loss of the foreign exFy March 31, change reserves gained in the first half of the fiscal year. 1/ Indonesian fiscal year April 1, 1974 - March 31, 2/ The premium decision to as compared light crude 1975. on1Indonesian oil has recently been reduced by the Government's raise the price of its main crude by 1.5 percent (to $12.80) with the 10 percent incrense in the price of Saudi Arabian agreed at the meeting of OPEC in September 1975. - 4 - 1975, these reserves were at the same level as at the beginning of April 1974. 12. In the first half of 1975/76, Indonesia's foreign exchange reserves declined by a further $480 million, despite substantial capital inflows, which included two syndicated public cash borrowings (totalling $575 million) from the international capital market. With continuing recessionary conditions in Indonesia's principal markets, exports failed to increase while imports rose again (about 30 percent on an annual basis). Debt service payments on behalf of PERTAMTNA were also very large (about $1.0 billion-)> In the second half of 1975/76, there was no appreciable change in export earnings, but imports and debt service payments were lower and there was only a small reduction in capital inflows (two more cash loans, amounting to $475 million, were raised). The country's foreign exchange reserve position was therefore relatively stable in this period and the decline in the reserves for the year as a whole amounted to nearly $500 million. 13. Balance of payments prospects for 1976/77 are on the whole good. Recovery from the recession appears to be underway in most industrialized countries, commodity prices seem to have bottomed out and oil exports from Indonesia have been rising in recent months. The Government is in the process of negotiating an increase in its share of the oil income. Rice imports are expected to remain at the average level of recent years (Government estimate is 1.4 million tons) but prices are likely to be considerably lower. The country has sizeable stocks of fertilizer and only small amounts are expected to be imported. However, there remains some uncertainty as to the exact magnitude of payments due on account of PERTAMINA's financial obligations, and the outcome for foreign exchange reserves during 1976/77 at this point is difficult to predict. 14. Budgetary revenues in 1974/75 were much lower than had been anticipated at the middle of the year, partly due to the withholding of oil tax revenues by PERTAMINA and partly to the shortfall in oil exports in the second half of the year. The budget was, however, still in balance by year's end as the Government reduced or deferred expenditures. The Government revenue in 1975/76 also fell substantially short of the budget estimates, mainly as a result of lower oil tax revenue. To keep the budget balanced, both current and development expenditures were reduced. Revenues, as well as current and domestically financed development expenditures, are now estimated to have been roughly 15 percent lower than originally budgeted. 15. In spite of the shortfall in budgetary revenues, and the administrative difficulties involved in the implementation of some projects, total development expenditures in 1974/75 were Rp 770 billion ($1.9 billion), about 60 percent higher than the level in the previous year. In 1975/76 they are estimated at Rp 1.27 trillion ($3.1 billion), including foreign project financing totalling about $925 million and fertilizer subsidies amounting to $320 million. This is more than two and one-half times the actual expenditure in 1973/74; when adjusted for price changes, it represents an Lncrease of about 60 percent. -5- 16. Preliminary figures indicate that the high growth rate achieved durlng 1969-73 was maintained in 1974. At constant 1973 prices, gross domestic product rose by 7.5 percent in 1974. Partial indicators seem to point to slower growth of output in 1975. The inflation rate wEas very high in the flrst part of 1974 as, among other factors, world inflation was transmitted through both export and import channels, but abated somewhat later in the year, partly as a result of the Government's stabilization measures in April 1974. Nevertheless, for the year as a whole it reached 40 percent. While still considerable, the average inflation rate for 1975 was reduced to 20 percent. 17. In the aftennath of the PERTAMINA development, the Government is faced with problems which, although serious, are surmountable. The reviewof PERTAMINA's projects has resulted in cancellation or renegotiation of many contracts and reductions in project scope and size. 1/ The Government has more recently-undertaken a broader review of projects initiated by various Government departments and other State entities in an effort to bring future expenditu;res in line with available resources and the priorities set out in the Second Plan. It is screening very carefully any major new programs or projecl:s, since considerable resources will be needed in the next year or two for the completion of projects already initiated. 18. A longer-term effect of the recent financial difficulties will be on the country's external public debt service obligations during the rest of the decade. Debt service payments over the next several years will be much larger than previously envisaged, as a result of the large borrowings by the Government in 1975/76. Debt service in 1976/77 is now estimated at $700 million, which would be about 12 percent of the officially projected net oil and other exports. Debt service payments on all loans contracted to December 31, 1975 is projected to reach about one billion dollars by 1978 before declining as shorter-term maturities are paid off. This is about $500 million more per year than the payments projected on the basis of debt outstanding at the end of 1974. With debt service obligations on these borrowings substantially higher than expected earlier (about 13 percent of exports in 1978), the margin for further borrowing on other than semi-concessional terms has now become much more limited. The amounts, terms and purposes of future borrowing therefore need to be kept under continuous careful review. 19. While the recent balance ot payments and budgetary difficulties have upset some of the Government's plans, the long-term prospects for Indonesia's development remain good. The country has a substantial potential for further productive investment, employment and income growth. In agriculture, a vigorous pursuit of on-going programs in irrigation, development of new plant varieties and technical services, provision of credit and current inputs, etc., promises to yield high returns. In addition, there are opportunities for the development of new areas, of food and tree crops - partly in conjunction with a rapidly growing transmigration program. 1/ The planned capacity of the Krakatau Steel plant, for example, was reduced from 2,000,000 to 500,000 tons per year and the existing supply contracts were reduced by $750 million. - 6 - The industrial potential is good, both for modern capital-intensive natural resource-based activities and for more labor-intensive, partly export-oriented industries. PART II - BANK GROUP OPERATIONS IN INDONESIA 20. As indicated in Part I, Indonesia's plans emphasize a need to undertake a large investment and development program designed to provide productive work opportunities (with resultant increased incomes) for its presently underemployed and growing labor force. Substantial external financing, on concessional and semi-concessional terms, as well as a considerable volume of technical assistance, is also required. The Bank is planning to increase its lending to Indonesia and, in particular, to support projects designed to: improve agricultural credit, research and extension; rehabilitate and expand irrigation systems; increase the production and distribution of fertilizer; assist transmigration and nucleus estates; increase non-agricultural employment in small towns and rural areas by the establishment of small-scale industries; and rehabilitate and expand urgently needed transportation and other infrastructure. 21. As of April 15, 1976, Indonesia had received 37 IDA credits totalling $561.8 million and 12 Bank loans amounting to $628.0 million. At that date, IFC investments totalled $58.4 million. At the end of 1974 the Bank Group accounted for about 4 percent of Indonesia's total outstanding public debt; by 1978 it is expected to acccount for 12 percent of total outstanding public debt and 5 percent of public debt service obligations. A summary statement of IDA credits, Bank loans and IFC investments as of February 29, 1976 and notes on the execution of ongoing projects, are contained in Annex II. This is the fifth loan proposed for Indonesia this year and, if approved, would bring total IBRD commitments since June 30, 1975 to $302 million. 22. To date, agriculture accounts for just over one-third of all Bank lending to Indonesia, including four IDA credits for estate rehabilitation, six for the rehabilitation and expansion of the irrigation systems, two for fisheries, and one each for seeds, beef cattle, sugar and smallholder tea and rubber. In the industrial sector, the Bank Group has assisted in three projects to expand PUSRI's fertilizer production capacity, three for development finance companies (Government-owned and private) which play a major role in fostering the growth of industrial enterprises, and one for the Pulo Gadung industrial estate. Loans and credits have also been extended to the transportation, education, telecommunications, tourism, power, population, urbanization and water supply sectors, and four credits have been made for technical assistance to aid the Government in preparing and formulating its development programs and projects. 23. The Bank's previous assistance in the transport sector consisted of three credits and one loan totalling $206 million for highway projects, one credit of $8.5 million for inter-island fleet rehabilitation, one loan of $48 million for the Indonesian railways project and one loan of $68 million for fertilizer distribution project. Technical expertise has also been financed -7 - under the technical assistance credits to Indonesia. Progress in most of these projects has been slow, but no major difficulties have arisen. A proposed project to expand the countries principle general cargo port (in Jakarta) has been appraised and may be ready for financing early in the next fiscal year. 24. Bank lending to Indonesia started with an IDA Credit in 1968 for irrigation rehabilitation; almost half of all loans and credits have been made since mid-1972, with lending on Bank terms commencing in June 1974. Disbursements on loans and credits are now at satisfactory levels. The Indonesian authorities have become increasingly aware of the delays in project execution caused by cumbersome procedures and the need to establish an effective conLrol system in BAPPENAS (The National Development Planning Agency). At the Government's request, the Bank has arranged for assistance under the Fourth Techical Assistance Credit (Cr. 451-IND) to help set up a monitoring and control system which it is hoped will lead to better project administration. 25. Future Bank lending gives high priority to the agricultural sector through support of projects to increase rice and other crop production in the Inner and Outer Islands, and the expansion of resettlement efforts on the latter. In addition, the program provides for further socially-oriented projects in the fields of urban development and population. Projects for agricultural extension, ports, power, fertilizer production, irrigation and nutrition are expected to be ready for presentation in the next few months. PART III - THE TRANSPORT SECTOR 26. For Indonesia the balanced growth of its island economy rests heavily on improvements in the transport sector. Much of the nation's road and rail systems are concentrated, like its population, on Java which has 33 percent and 70 percent of the respective total networks. Roads provide the basic links on the individual islands outside Java though the density of these networks is much lower than in Java. There are a few railway lines in Sumatera. Where rivers are navigable (South Sumatera, Kalimantan, West Irian), they carry significant volumes of traffic. There are also about 450 km of petroleum pipelines in operat-Lon or under construction in south-central Java. Freight movements among the islands are made by marine transport which also carries some traffic between points on the same islands. Air transport is developing rapidly but is almost exclusively for passenger use, both inter- and intraisland. The largest single item in freight transport, measured in ton-km, is the movement of petroleum products by domestic shipping; without this traffic, road and sea traffic are roughly equal and each about three times rail traffic. Road transport accounts for more than half of total passenger-km, with rail contributing the second largest share. 27. The contribution of transport to GDP virtually stagnated for most of the 1960's, but grew at nearly 11 percent a year (in constant prices) over the First Plan period. The Government's policy in the First Plan emphasized rehabilitation of transport facilities. Highway traffic has since - 8 - increased substantially, one indicator being that 70 percent more registered vehicles are on the roads today than in 1970. In addition, some fleet expansion took place, particularly in road transport and aviation. The primary aim of the Government's Second Plan in the transport sector is to create substantial capacity increases both by additional investment and by improved productivity, through completion of unfinished rehabilitation work and further strengthening of sectoral institutions and organizations. 28. As a result of its enlarged oil income, the Government has expanded expenditure under the 1974/75 and 1975/76 development budgets over the levels projected in the Second Plan. The increase for transport is almost the same as for the budget as a whole and, other than differential acceleration of expenditures in some transport activities, the Government has not indicated a shift in its sectoral strategy. Over the Second Plan period, investments for transport in the public sector (assuming continuation of development expenditures at increased levels) and by the private sector are estimated at about Rp 1,800 billion ($4.3 billion), in 1973 prices, roughly 17 percent of total investments; about 56 percent of this will flow through the public sector under various central and local government development budgets with the remainder being financed privately, particularly for the purchase of road and other transport vehicles. Transport Planning, Policy and Coordination 29. Responsibility for planning and policy formulation in the transport sector is divided at the national level between the Department of Public Works and Power (DPW) for Highways and the Department of Transport, Communications and Tourismi (DOC) for other modes. Investment proposals are formulated at the modal level in these departments and then submitted to BAPPENAS for review and approval. 30. Planning of highways in the DPW's Directorate-General of Highways (DGH) has been significantly strengthened in recent years with the assistance of the UNDP-financed Highways Planning Advisory Team (HPAT). Railway planning will be improved under the recent Bank loan for the railways, and national ports planning, which is urgently needed, will be given special attention in a proptosed project for the port of Jakarta. Effective transport planning is now hindered by limited and irregular-flow of data; the Government is pursuing several means to improve the availability of information, among them the provision of an expert financed under the Technical Assistance Credit 275-IND to work with DOC on data problems. 31. The Government largely controls the operation of the transport system, not only through the provision of infrastructure and the ownership of important transport enterprises in all modes, but also through rate setting and other regulatory activities. While it has not formulated an explicit transport policy, the Government has identified areas requiring special attention, particularly financial objectives and the control of public sector transport firms and pricing policv. At present, accounting systems vary widely among sectoral enterprises and means are not available to compare financial performance or to set standards. Frequently, Government decisions on rates has to be made without anaLysis of costs, demand - 9 - factors or the effect on competing modes. Experts, financed under the Technical Assistance Credit, are now advising DOC in these areas in order to make the Government"s activities more consistent and effective, improve the return on its investments in the sector and ensure that all relevant economic factors are considered in transport pricing. The Maritime Sector 32. The Indonesian shipping fleet, excluding some sailing craft, consists of about 1,055 registered vessels having a total deadweight tonnage (dwt) of 1,159,000. In addition, the operating fleet includes ships acquired on hire purchase and charter, particularly oil tankers and oiL industry supply vessels. The records for mid-1974 show that Indonesia had 57 oceangoing vessels owned by 7 major and a number of minor companies; 423 local vessels with an average of 200 dwt and 336 inter-island registered ships of 500 dwt and over, totalling some 426,000 dwt and owned by 56 companies. Of the inter-island ships, 200 totalling 220,000 dwt owned by 47 companies, were licensed in the Regular Liner Service (inter-island) (RLS) fleet. 33. Studies of short-term port requirements have been carried out by consultants and the main ports are being improved with assistance from the Asian Development Bank (ADB), the Netherlands and Japan. Mast:er plans have been prepared by consultants (Sir William Halcrow, U.K.) for t:he ports of Surabaya, Belawan and Panjang with financing from UNDP with ADB as executing agency. A master plan study of Tanjung Priok (Jakarta), the largest general cargo port (handling about 30 percent of the country's total traffic) was completed in September 1975 by consultants (Swan Wooster Engineering Co., Canada) financed under Credits 216-IND and 275-IND. The Government recognizes the importance of imoroving port operations and a project designed to improve ADB and bilateral agencies are Tanjung Priok has been appraised by the Bank. considering a project for other ports. Measures to improve cargo handling and reduce port time are included in the project. 34. In 1975, the RLS system consisted of 28 trunk or main routes, 20 feeder routes and 18 routes which serve Singapore. About 140 ports are served with varying frequency and regularity. The RLS section of the interisland fleet is dominated by the Government-owned company, P.T. Pelayaran Nasional Indonesia (PELNI), which owns 40 percent of the total tonnage. Many RLS companies own only a few ships. A large part of the RLS fleet is overage; in 1974, 35 percent of the ships was over 20 years old, a further 53 percent between 11 and 20 years old and only 12 percent under 10 years old. Due to poor maintenance, frequent breakdowns and long repair times, it is estimated that about half of the total fleet is operated less than 200 days per year. The poor productivity of these ships is further reduced by inordinately high port time and delays. 35. Indonesia has about 300 ports scattered over the archipelago but about 70 percent of traffic volume is concentrated in ten of them. The major ports are in Java, Sumatera, Sulawesi and Kalimantan. Port operations and customs procedures present a serious impediment to transport flow and improvements could result in significant increases in port capacity and a reduction in shipping costs. However, due to institutional rigidities, major improvements cannot be expected to be achieved quickly. - 10 - 36. During the period from 1960 to 1970 the maritime sector had become disorganized, ill-maintained and obsolete. A three-year fleet rationalization program starting in 1972 was planned by the Government in connection with the Inter-Island Fleet Rehabilitation Project financed under Credit 318-IND. 37. This program, in addition to emphasizing the enforcement of marine regulations, and providing technical assistance to ship repair facilities, was expected to improve the RLS route service by rehabilitating ships and by scrapping obsolete ships. It was also expected to improve shipyards and shore facilities and, through conditions attached to rehabilitation sub-loans, the operational performance of RLS shipping companies. Although the tonnage of licensed ships in the RLS fleet has been reduced by 20 percent since early 1972, lax enforcement of safety standards delayed the ship scrapping program. The upsurge of traffic in 1973 and 1974, and the Government's need to secure shipping for the emergency transport of rice during the 1972/73 drought caused additional delays. Progress has been made in consolidating and improving the operations of shipping companies through formation of groups designed to improve operations. Port operations, particularly in the main ports, were also improved. Three main shipyards which received technical assistance under Credit 318-IND have improved their operations and have participated in the rehabilitation work on RLS ships. Considering the difficulties of implementing planned changes and the short time involved, progress made in executing the fleet rationalization program is encouraging and the Inter-Island Fleet Rehabilitation Project is in general being satisfactorily implemented even though the total tonnage to be rehabilitated has been greatly reduced because of severe costs increases. Much remains to be done, including further physical rehabilitation and more effective enforcement of shipping safety regulations. 38. Rapid increases in investment and production activity in Indonesia in recent years have resulted in growing volumes of ocean and inter-island trade; the RLS traffic rose from 1.9 million tons in 1971 to 2.5 million tons in 1973. By early 1974, shippers were offering premiums on freight rates in order to obtain service. With the current slow-down of economic activity, a temporary over supply of shipping capacity may reappear. But even if port operations and customs procedures are improved, thereby increasing average ship productivity, there would still be a growing shortage of shipping during the next five years and beyond. To overcome this shortage, the Government has drawn up an inter-island fleet development program based on the reportLong Term Fleet Development (LTFD) of November 1974, prepared by consultants (Mlaritime Research Centre, the Hague) retained as required under Credit 318-IND. To act as the financial intermediary in carrying out this investment program the Government has established a National Fleet Development Company (P.T. Pembangunan Armada Niaga Nasional - PANN), which will procure and then make available ships to operationally competent but financially weak RLS shipping companies. In order to encourage the development of reliable interisland shipping which is of vital economic and political importance, the Government has decided to keep freight rates as low as possible. This in turn will require PANN to charge interest on its ships sales and leases at - 11 - no more than 10 percent per annum, which is five percentage point below the prevailing long ternm interest rate of State Banks (currenctly 15 percent). At this level of interest charges, competent shipping companies should be able to earn an adequate rate of return on new capital to be invested in the shipping industry. PART IV - THE PROJECT General 39. The consultants retained by the Government to determine the scope of the inter-island shipping requirements during Repelita II, (1974/79) prepared a Long-Term Fleet Development (LTFD) Report in November 1974 which recommended an investment program consisting primarily of new ships at a cost of about $587 million. A Bank Mission discussed the LTFI) Report with the Government in December 1974 and proposed that the program should be restructured to include used ships and divided into two phases to take account of the government's difficult financial situation, the need for further studies to determine the optimum size of the fleet ancl uncertainties surrounding the rate of traffic growth that was assumed in the Report. The proposed project was therefore designed to meet primarily the existing acute shortage during Repelita II, through the continuation of the rehabilitation program and procurement of used cargo ships and new cargo and cargo-passenger ships. Over-age and technically deficient ships which are too costly to repair would be scrapped. iraining and technical assistance programs related to the acquisition of ships and improvement of ship operations would also be included in the proposed project. 40. The project was appraised in December 1974 but the Government delayed its decision on the specific composition of the project and its financing and another mission visited Indonesia in June 1975 for further discussions. A general understanding with the Government on these issues was reached in October 1975 and negotiations were held in Washington between March 8 and March 17, 1976; the (Government delegation was led by Dr. Julianto Moeliodiardjo, Director General of Monetary Affairs, Department of Finance. Project Description 41. The projecl: is part of the first phase of the Government's InterIsland Fleet Development Program for the period 1974-1979 and is designed to modernize, expand and improve the efficiency of the inter-island fleet. The project consists of the following elements: (a) rehabilitat:ion of 54,500 dwt of existing inter-island ships, where such rehabilitation is economically justified; - 12 - (b) procurement of about 47 used cargo ships totalling about 52,000 dwt in the 1,000, 1,500, and 2,500 dwt classes (about 41, 4 and 2 in each class, respectively); (c) procurement of about 47 new standard cargo and cargopassenger ships totalling about 50,250 dwt in the 750, 1,000 and 1,500 dwt classes (about 13, 21 and 13 in each class); (d) scrapping of about 70,000 dwt of existing inter-island ships of over 500 dwt which cannot be economically rehabilitated; (e) a technical assistance and training program, designed to support and improve inter-island fleet operations and planning, and the training of marine officers and engineers; and (f) a study to determine the shipping requirements during the remainder of Government's Second Five Year Plan (REPELITA II) and the period up to 1990. A loan and project summary is attached as Annex III. Organizations Involved in the Project The major organizations involved in the maritime sector are the 42. following: (i) P.T. PANN (P.T. Pembangunan Armada Niaga Nasional) The National Fleet Development Corporation (FANN) was organized in May 1974 on the advice of the LTFD report to procure and sell or lease ships Its authorized capital is Rp. 40 billion to financially weak RLS shipowners. of which only Rp. 2.0 billion ($4.8 miLlion) has been paid in, 60 percent by the Government and the remaining 40 percent by BAPINDO. Under PANN's charter a board of supervisors (Dewan Komisaris) sets overall policy and oversees its operations, while day-to-day operations are managed by a board of management, or Direksi. PANN's management will be assisted in the execution of the project by internationally recruited naval architect-surveyors, legal counsel as well as shipbrokers, resident financial and technical advisors, all appointed with the agreement of the Bank (Section 3.02(b) of the draft Loan Agreement). The major policies and procedures to be applied by PANN in its operations have been agreed with the Bank and are set out in a "Policy Statement for PANN" which has been adopted by the Dewan Komisaris. (ii) BAPINDO BAPINDO, the state-owned development finance company, would play Applications for the an important role in the execution of the project. would be analyzed rehabilitation purchase of new and used ships or for ship - 13 - and appraised by EAPINDO, in consultation with PANN, before PANN would decide on the eligibility of the applicants for lease or sale of ship(s) under the project. BAPINDO would carry out this task through its Maritime Credit Department (MCD) which was established to implement the first Inter-island Fleet Rehabilitation Project financed under Credit 318-IND. The MCD is staffed with competent personnel and is assisted by advisors in ship finance and repair. MCD's operations in the last three years have been satisfactory and the contracts of the advisors financed until February 1976 by UNDP have been extended and would now be covered by the proposed loan. As of December 31, 1975 about Rp. 1,043 million or 10 percent of BAPINDO's maritime loan portfolio is in arrears, of which about Rp 554 million on loans to PELNI. The Government has agreed to make the necessary arrangements to enable PELNI to settle its arrears to BAPINDO by March 31, 1977. (iii) SEACOM The Directorate General of Sea Communications (SEACOM) within the Department of Communications is responsible for all maritime operations. In this capacity SEACOM will have the overall supervisory responsibility for the project. (iv) P.T. PELNI (P.T. Pelayaran Nasional Indonesia) The largest inter-island shipping company in Indonesia is the Government-owned P1.LNI, which would also be the major beneficiary of the proposed project. This company carries about two-thirds of RLS passengers and 40 percent of cargo traffic. For the past three years the Netherlands has provided a team of six advisors to help improve PELNI's management and operations. Although there have been some improvements, the company still suffers from managerial and operational weakness and is not expected to make a profit until 1979. The on-going technical assistance from the Netherlands would therefore continue and would be supplemented by an internationally recognized management consultant financed under the proposed loan to review further the company's procedures and operations and to recommend a plan of action. Technical Assistance 43. During the past three years a substantial technical assistance and training program has been underway in the maritime sector. The Association (under Credit 318), UNDP, ADB and bilateral lenders, have contributed towards financing this program which included advisory services to Biro Klasifikasi Indonesia (BKI-Indonesian Ship Classification Society), SEACOM, BAPINDO and PELNI as well as improvement of navigational communications and the provision of navigational aid equipment and ship repairing facilities. It is expected that most of these programs except those financed by the UNDE' would continue under the same or aLternative arrangements satisfactory to the Bank during the implementation of the proposed project; funds are included in the proposed loan for advisory services to SEACOM, PELNI and BAPINDO for their respective technical assistance requirements. - 14 - 44. In addition, the project provides for some new technical assistance and training activities: training of marine officers and engineers; strengthening of financial, administrative and operational capabilities of the shipping enterprises; review of PELNI's management; specialist services for shipboard maintenance and repairs for PELNI; a study of future RLS shipping requirements; revision of Indonesian shipping safety regulations and provision of naval architects-surveyors, legal counsel, as well as resident financial and technical advisors for PANN. In order to maintain contact with the international market for used ships, PANN would also retain shipbrokers. All these specialists, advisors and technical personnel would be appointed on terms and conditions satisfactory to and with the agreement of the Bank. The Inter-Governmental Maritime Consultative Organization (IMCO) is expected to help the Government carry out the training program for marine officers and engineers and funds from bilateral sources are likely to be available for some of the technical assistance requirements. 45. Out of the Norwegian financing totalling about $110.3 million (see para 49), about $2.2 million would be used to meet the requirements of the following technical assistance programs: financial and technical advisors to PANN, advisory services for the revision of shipping regulations, overseas training for the staff of SEACOM, PANN and PELNI, and instructors and equipment for a shipyard training centre. The proposed Bank loan includes $3.8 million to meet the foreign exchange cost of the technical assistance and training not financed from other sources. A total of 570 man/months consultant services, at a cost of $64,000 per man/year, would be financed under the proposed loan. Cost Estimates 46. The total project cost is estimated at $195.2 million of which $189.8 million or 97 percent would be in foreign exchange. The following table summarizes the estimated cost of the project: Local Rehabilitation Used Ships New Ships Delivery Costs Technical Assistance to: (a) PANN (b) Government Total 5.7 41.2 124.2 8.5 9.5 41.2 124.2 8.5 0.4 0.3 5.7 0.3 6.1 4.2 185.6 189.8 Expected Price Increases Physical Contingency 1.2 - 1.7 2.5 2.9 2.5 Total Project Cost Interest During Construction 5.4 0.2 189.8 6.1 195.2 6.3 Total Finance Required 5.6 195.9 201.5 Base Cost 3.8 US$ Million Foreign - 15 - The prices of new ships are based on fixed price contracts already signed with Norwegian, Japanese and Indonesian shipyards. Used ship prices are expected to remain stable during the procurement period to mid-1977, and no provision for price increases has therefore been made for new and used ships. Costs of rehabilitation, mainly to be undertaken in Indonesia, are assumed to increase by 15 percent in 1976, 10 percent in 1977 and 1978 and by 7.5 percent in 1979. Delivery costs are estimated at a fixed amount of $120,000 per ship. Physical contingencies are estimated at $2.5 million. Financing Plan The proposed financing plan for the project is summarized below: 47. Total Japan Project Cost (OECF) Rehabilitation Used Ships New Ships Delivery Cost 12.4 a/ 41.2 124.2 8.5 - - 25,0 Norway Ln/Grant BAPINDO 4.0 b/ - 93.8 3.7 5.6 c/ 5.4 c/ - Proposed PANN (Govt. Loan 7.3 1.1 b/- - Total 12.4 35.6 41.2 124.2 4.8 8.5 Technical Assistance to PANN 0.3 - 0.3 - - - 6.1 - 1.9 - - 0.4 - 0.3 3.8 6.1 Technical Assistance to Govt. Physical Contingency (used ships) Total Project Cost - _ 2.5 195.2 25.0 99.7 -_ - 15.0 1.1 0.4 - 6.3 - 7.4 0.4 2.5 54.0 195.2 Interest during Construction d/ _ 6.3 Total Financing Required a/ b/ c/ d/ e/ 201.5 - 25.0 - 99.7e/ 15.0 - 6.3 54.0 201.5 This total includes $2.9 million for expected price increases. Local currency. For ships already ordered and to be built in Indonesia; these may be financed from Loan 1054-IND. From PANN's cash generation. Includes funds from a consortium of Banks organized by Norway (Para. 49). - 16 - 48. The Japanese Overseas Cooperation Fund (OECF) has made a loan of $25 millon to the government at an interest rate of 2-3/4 percent per annum repayable over 30 years including 10 years of grace. This loan would finance seven new ships, 750 dwt each, presently under construction in Japan and five new ships of about 1,000 dwt each likely to be constructed by Indonesian shipyards. The Government considers the prices of these ships, about $2,000 per dwt, reasonable, when the financing terms are taken into account. 49. Norway is making available to Indonesia a total of $110.3 million equivalent of which about $99.7 million would be used to help finance the project; the balance $10.6 million would be used to finance the purchase of one used ships, six tug-boats and some technical assistance which are not not included in the project. The Norwegian financing is composed of three elements: (i) a grant of about $12.5 million to cover the cost of delivering new ships built in Norway to Indonesia, to train in Norway the Indonesian crews who would bring these new ships to Indonesia and to provide instructors and equipment for a shipyard training centre in Indonesia. The grant would also include funds amounting to about $2.2 million to finance certain technical assistance components of the proposed project (see para. 45); (ii) a loan of about $87.8 million from the Norwegian export credit bank, A/S EXPORTFINANS, to the government of Indonesia repayable over 15 years including a grace period of 3 years at an interest rate of 8-1/2 percent per annum, plus a single fee of 1.9 percent. The Indonesian Government would use the proceeds of the loan to finance 90 percent of the cost of 20 new ships to be constructed in Norway (10 ships in the 1,000 dwt class and 10 ships in the 1,500 dwt class) and the total cost of 6 new ships to be built by the Indonesian shipyards (3 ships in the 1,000 dwt class and 3 ships in the 1,500 dwt class); (iii) a loan of up to $12 million from a consortium of banks organized by den Norske Credit Bank to the Indonesian Government repayable over 5 years ending on June 15, 1981. This loan carries an interest rate of 1-7/8 percent over the rate quoted on Eurodollar deposits, plus management and commitment fees, of 3/4 of 1 percent each. The Government would use the proceeds of this loan to meet the required down payment of 10 percent for the 20 new ships to be purchased in Norway. Given the terms of the Norwegian financing package, the prices of the new ships which would be built in Norway under contracts based on fixed prices is reasonable. 50. The proposed Bank loan of $54 million would finance 28 percent of total cost and 29 percent of the foreign exchange cost and would be used to finance the cost of most of the used ships ($35.6 million) and of the ship rehabilitation program ($7.3 million), the delivery cost ($4.8 million) of the used ships financed under the proposed loan, about half of the technical assistance requirements of the project ($3.8 million) and the physical contingencies ($2.5 million) provided for modifying the used ships financed under the proposed loan to adapt them for Indonesian shipping services. The proposed loan would be made to the Government at 8-1/2 percent interest per annum for 15 years including 3 years of grace. - 17 - 51. BAPINDO would make a loan of about $15 million equivalent to PANN at 15 percent interest for up to 15 years for the purchase of new ships, up to 10 years for used ships and up to 5 years for ship rehabilitation, all including one year of grace; BAPINDO would use the proceeds of Loan 1054IND and Credit 3113-IND as well as BAPINDO's own funds when making available this loan of $15 nillion to PANN for the purposes of the project. Contributions from the Government to the project would be small ($0.4 million) because the local cost component of the project is very low (about 3 percent). to provide for PANN would be able to generate cash from its own operations interest during construction and part of the rehabilitation costs, amounting to $7.4 million, over the period 1975-1979. 52. Additional funds for the purchase of inter-island ships may become available in the future from bilateral lenders and foreign credits and could However, due to unbe applied to a subsequent project if it is identified. certainty about traffic growth and cargo handling capabilities, procurement of inter-island ships in excess of 12,000 dwt over those included in the project would only take place with the prior agreement of the Bank (Section 3.07 of the draft Loan Agreement). On-Lending and Relending Terms 53. It is envisaged that PANN would have an initial debt/equity ratio of about 50:50 which may change to 65:35 in future. To achieve this, about half of the funds borrowed abroad by the Government from Japan, Norway and the Bank would be made available to PANN as equity. The other half would be relent to PANN at an interest rate of 12 percent per annum apart from Funds borrowed by PANN for the purchase of new ships would BAPINDO funds. be for up to 15 years including one year of grace, for the purchase of used ships up to 10 years including one year of grace and for rehabilitation of existing ships up to five years, including one year of grace. The terms of the relending would be set out in a financing agreement between the Government and PANN and 3APINDO, respectively, which would be signed before the proposed Bank loan becomes effective (Section 6.01 of the draft Loan Agreement). The Govermnent would make its equity contributions directly to PANN but it would use Bank Indonesia and BAPINDO, for a service fee, to administer the Goverrunent's loan contributions to PANN. 54. PANN's present paid-in capital is Rp 2.0 billion of which 60 percent is owned by the Government and 40 percent by BAPINDO. As the Policy Statement of BAPINI)0 includes certain limits for BAPINDO's equity or loan contributions to a single enterprise, in determining the size of its equity participation and loan contribution to PANN, BAPINDO would at all times be bound by the- ceilings included in its Policy Statement. 55. PANN will sell or lease the ships it will acquire under the project to qualified Indonesian operators deemed to be operationally capable after an appraisal by BAPINDO's MCD and PANN. The terms of the new ship sale contracts would be as follows: a minimum of 10 percent cash deposit and a one - 18 - percent commitment fee, for a maximum repayment period of 15 years, including six months of grace after the delivery of ship and at an interest rate of 10 percent per annum. Used ships of up to 10 years of age would be sold to shipping companies with 10 percent downpayment and 20 percent on delivery of the ship for a maximum repayment period of 10 years, including six months of grace after the delivery of the ships at an interest rate of 10 percent and one percent commitment fee. Leases of new ships would be for varying periods of time, with a maximum of 15 years, calculated at an interest rate of 10 percent with a commitment fee of one percent. Leases of used ships would be on similar terms to those for new ships except that the term would be a The length of PANN's lease contracts would be flexible maximum of 10 years. so that PANN will be able to revalue its assets when the leases are renewed. The costs of rehabilitating ships will be recovered from ship operators over up to five years, including three months of grace after the completion of rehabilitation of the ship, with an interest rate of 10 percent per annum and a commitment fee of one percent (Schedule to the Project Agreement). Forecast of Financial Position of PANN PANN commenced operations early in 1975 and has made commitments 56. for the purchase of nine new and seven used ships by using its equity funds and the proceeds of the Japanese loan. It is expected to acquire a total of On the basis of its projected 47 new and 47 used ships under the project. of about 4 percent on its equity revenues PANN is estimated to earn a return over the life of the project. Depreciation has been calculated on a straigthline basis and therefore PANN's financial statements do not show any net income until 1979 although it will be generating cash from 1976 onward. By 1980 PANN's debt service coverage is forecast to be 1.5, its current ratio 1.9 and its debt will be about 38 percent of combined debt and equity. These ratios are satisfactory. Tariff Implications of the Project The RLS freight tariff is a cost-based commodity tariff using 57. It applies to ship operations a constant factor plus a mileage allowance. only and has been calculated to produce about an 8 percent return on total capital invested in a modern efficiently operated ship of a representative As costly new assets are being size operating over a representative route. introduced into the fleet and leased to RLS companies, the cash requirements of these companies have increased sharply. Tariffs on freight were therefore raised by 20 percent in 1973, 20 percent in 1974 and 25 percent in July 1975. The Government has agreed to continue to review tariffs annually and to make adjustments, if necessary, to enable shipping companies to earn adequate returns on their investment (Section 3.04(a) of the draft Loan Agreement). Scrapping of Existing Ships In order not to create excess shipping capacity in Indonesia, the 58. Government would synchronize the acquisition of new and used ships with a Ships which are technically program of ship rehabilitation and scrapping. - 19 - deficient or more than 20 years old or cannot be rehabilitated at a reasonable cost, would 'be recommended for scrapping. Given the age structure of the existing fleet and the scheduled delivery dates of new and used ships included in the project, the Government would scrap, by December 31, 1979 about 70,000 dwt of existing inter-island ships of over 500 dwt. The Government has already established a committee within SEACOM to prepare criteria for scrapping and annual scrapping programs; it would by August 31, 1976 inform the Bank of the actual tonnage of ships scrapped between January 1, 1975 and July 31, 1976 and the future scrapping schedules (Section 3.03 of the draft Loan Agreement). 59. The Government would also promulgate legislation providing for registration of mortgages on ships acquired overseas by PANN and sold prior to delivery. Before this legislation has been promulgated, PANN would not sell its ships until they arrive in Indonesia, where mortgages can be registered. It will however be able to lease ships overseas since in this case PANN would retain the title to the ship. Procurement 60. New ships will be procured under separate bilateral arrangements between Indonesia and Norway and Japan, respectively. The specifications for these ships which were developed by naval architects, Bureau Voor Scheppsbouw (BVS) (The Netherlands) and financed by the Netherlands, are acceptable to the Bank. 61. Used ship procurement is more complex because the ships are likely to be located far from Indonesia and be available for inspection only on short notice. Each such purchase is unique and has to be individually negotiated following detailed inspection. Some ships will also need repairs or modifications before they can be used for Indonesian service. Instead of using international competitive bidding, which would be inappropriate, PANN's consultants, includinly naval architect/surveyors, shipbrokers (exclusively representing PANN), resident financial and technical advisors, and legal counsel will assisi: PANN in canvassing the international market to identify appropriate used ships and in negotiating appropriate purchase contracts and, any necessary repai'rs. PANN's used ship procurement contracts would be based on documents satisiactory to the Bank and PANN will buy a used ship only after the Bank has approved PANN's detailed appraisal report of the ship operator and the purchase price of the ship and after the ship has been properly inspected. 62. International competitive bidding is also impractical in the case of ship rehabilitation, because the cost of each repair is relatively small and is likely to involve the purchase of a wide variety of proprietary parts. After a survey by PANN and BAPINDO of the repair needs of the ships to be rehabilitated, rehabilitation will be carried out under a negotiated contract between PANN and the shipyard concerned, this procedure is identical to that followed under Credit 318-IND. Rehabilitation work will be undertaken mainly - 20 - in Indonesian shipyards. Funds for shipyard improvement are available from a variety of sources, including Loan 1054-IND. The Norwegian grant also provides for instructors and equipment for a shipyard training centre in Indonesia and for overseas training in shipyard operations. 63. The proposed loan also includes provision ($1.0 million) for specialized equipment suitable for a maritime training school. It is expected that procurement of this equipment will be undertaken by IMCO as procurement agent of the Government using procedures agreed with the Bank including, where appropriate, international competitive bidding or international shopping. Disbursement 64. The proposed loan would be disbursed on the following bases: (a) 100 percent of the foreign expenditures for used ships; delivery of used ships, training equipment and foreign consultants; (b) 100 percent of the foreign expenditures or 60 percent of local expenditures for ship rehabilitation or modification; and (c) 80 percent of local expenditures for Indonesian consultants. 65. Conditions for disbursement from the proposed loan would be as follows: When requesting the Bank's authorization to make withdrawals from the Loan Account for the purchase or rehabilitation of a ship, the Government would furnish to the Bank: (i) an appraisal by BAPINDO and PANN of the technical, operational and financial conditions of the shipping enterprise concerned and its ships; (ii) a statement from SEACOM indicating which ships, if any, of the shipping enterprise concerned are to be rehabilitated or scrapped; (iii) a certified copy of the contract (development agreement) between PANN and the shipping enterprise concerned executed pursuant to the provisions of the Schedule to the Project Agreement; and (iv) (a) in respect of the purchase of a used ship, a description of the ship, certified copies of the purchase contract and the bill of sale, a certificate issued by SEACOM that the ship meets the Government's licensing requirements and will be registered, a deletion certificate transferring ownership of the ship from the seller to the buyer, confirmation by PANN that the ship is acceptable, and a certificate issued by an internationally recognized ship classification society acceptable to the Bank that the ship meet the recognized classification standards; or (b) in respect of the rehabilitation of a ship, a description of the rehabilitation works to be carried out, a certified copy of the contract between PANN and the shipyard that would carry out the works, and certificates issued by SEACOM and BKI showing that the rehabilitation works are designed to meet at least the Government's shipping regulations and BKI's classification standard (paras. 4(b) and 5 of Schedule 1 to the draft Loan Agreement). 66. In order to expedite project implementation some of the consultants would be employed before the signing of the Loan Agreement. It is therefore proposed that expenditures estimated at about US$200,000 equivalent made after January 31, 1976 for such consultants be reimbursed from the proposed loan. - 21 - Economic Benefits and Justifications 67. Implementation of many programs in REPELITA II depends to a large The transmigration of people from Java extent on improved shipping services. to other islands, improved agriculture and development of agriculture-based industries in the outer islands, and exchange of processed goods and raw In materials between Java and the other islands, all depend on shipping. this regard, providing adequate and reliable inter-island shipping services in Indonesia is similar in importance to the maintaining of adequate land transport facilities-in many other countries. 68. Inter-island cargo traffic is expected to increase at a rate of between 10 percent and 15.5 percent per annum in the period 1974-79 reaching 4.4-5.8 million tons in 1979 compared to about 2.5 million tons in 1973. In the same period passenger traffic could grow from about 365,000 to 976,000 or by about 18 percent per year provided ships are available and can render reliable services. The project would help meet the growing demand for shipping by adding new and used ships to the existing fleet and by increasing the productivLty of existing ships through rehabilitation of useable old ships and scrapping of others. This is expected to result in an increase in the number of days a 69. ship is in service, i.e. an average ship productivity increase from only 9 to 10 cargo tons per dwt Ln 1972 to at least about 15 tons per dwt in 1979. 70. In addition, the proposed project would help improve management capabilities of public or private organizations involved in the maritime sector through technical assistance and training programs and provide a firm basis for future investment decisions in the further expansion o[ the interisland fleet through monitoring of traffic developments with the assistance of SEACOM's advisors and other studies included in the project. The economic rate of return on the overall project wouLd be about 71. 18 percent; 19 percent on used ships costing $41.2 million and 15 percent on new ships totalling $124.2 million. The return on the rehabilitation component costing $12.4 million would be well over 100 percent. Although the rate of return on used ships would be higher than that on new ships, the Government included new ships in the project in order to utilize external funds which would be available mostly for the purchase of such ships. A program mixture of new and used ships and rehabilitation would also allow the Government to begin ship standardization, improve the age distribution of the existing fleet and to provide work for Indonesian shipyards. Project Risks 72. In the past, i:he enforcement of safety regulations and classification standards has been lax. Should this situation continue under the project, the result would be a reduced ship scrapping and rehabilitation program and continued operation of many obsolete and unsafe vessels. Owners operating such ships having little or no book value would be able to undercut - 22 - the official freight rates which would need to be set at levels providing adequate revenues to enable ship operators to pay for new ships. This would reduce the incentives for ship operators to participate in the project. In order to help deal with these problems the following measures, in addition to proposed enforcement of safety standards, would be taken: (a) the provision of substantial financial incentives to ship operators, through lower interest rates and increased freight rates determined on the basis of the costs of efficient operation; (b) implementation of the scrapping and rehabilitation programs under a specific schedule related to new ship acquisition; (c) new administrative orders issued by SEACOM calling for timely and proper ship inspection and reducing the dispensation period permitted until next inspection; (d) ensuring proper physical maintenance of ships under PANN's supervision and the improvement of shipping companies' operations through training as a lease or loan contract requirement; (e) a technical assistance program for training ship crews, reviewing safety regulations, maintaining navigational aid equipment, and for the provision of advisory services to SEACOM, PELNI, PANN, BAPINDO and BKI. PART V - LEGAL INSTRUMENTS AND AUTHORITY 73. The draft Loan Agreement between the Republic of Indonesia and the Bank, draft Project Agreement between PANN, BAPINDO and the Bank, the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank, and the text of a draft resolution approving the proposed loan are being distributed to the Executive Directors separately. 74. Features of the draft Agreements of special interest are referred to in paragraphs 42, 52, 53, 55, 57, 58 and 65 of this report. A special condition of effectiveness would be that a financing agreement specifying on-lending terms has been signed between the government, PANN and BAPINDO. 75. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. - 23 - PART VI - RECOMMENDATION 76. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Washington, D.C. April 16, 1976 ANNEX 1 Page I of' pages TABLE SOIA 1 960 3A NDCOSDAASHEET ..... REFERENCE COUNTRIES (1970, MOST RECENT 1 9170 ESTIMATE BANGLADESH I NDIA PHILIPPI1NES 600 100. 0 MILLION) 95.4 115.6 POPULATION DENSITY PER SQUARE KM. PER SQUARE KM. ARABLE LANr) 50 .0 INDONESIA LANDO AREA TOTAL AR4BLE (THOU CM2)..... --------------5904.3 279.8 ~~~~~~INDONESIA ;0P POR CAP ITk CUSS) COPUL4TION AND VITAL POPULATION (MID-YR. POPULATION GRONTH RATE TOTAL UR1AUN (I 11I.0 124 .4 70.8 5 3 8.1 61 .0 65.C 4... I26.o 96. 0 84 .0. 1 698.0 35 0.0 42.0 4 2 .0 21.0 4 .0 21.0 140. '48.0 3.1 308. 0 16.0 1 0C NO.0 :0 2 .9 2 20. 0 STATISTICS VITAL STATISTICS CRUDE BIRTH RATE PER THOUSAND CRUDE DEATH RATE PER THOUSAND INFANT MORTALITY RATE (/THOU) LIFE EXPECTANCY AT BIRTH (YRS) GROSS REPRODUCTION RATE URBAiN POPULATICN 80.0 a3. 43.00 ak 10O2. 1 25 .0 a b '.8.0 2.0a .. 3 6 .9 1 23. 0 .5.0 12.0 8o.0 56.:0 3. 3 4 7.0 3 .2 51.0 3.1 '.0 3.6 2.0 3.2 2.7 .. .. 2.3 4.0 1.0 4.0 1 5 .0 11.0 18.0 .. 0 .1 32. 0 42 .1 5 5.4 2.5 4 4.1 1. 4 2.51 4 4.1 5 3. 2.5 4 2 .0 5 5 .0 3.0 43. 1 5 3.4 3.9 0.8 1 .3 0. 9 0.9 1 .5 .. 34.2 (1) OF TOTAL) AGE STRUCTURE (PERCENT) 0 TO 14 YEARS Ii TO 64 YEARIS 65 YEARS AND OVCR AGE DEPENDENCY RATIO ECONOMIC OEPENOENCY RATIO FAMILY PLANNINGACCEPTORS (CUMULATIVE, THOU) USEPS CX 01 MARRIED WiOMEN) 2.1 . .4 . .2 .1 4008.2 0. 0 . /a 276.' .) ... ... A. 1.5 .. EMPLOY4ENT TOTAL LA3RO FORCE (THOUSAND) LABOR FORCE IN AGRICULTURE CZ) UNEMPLOYED (S OF LAROR FORCr) !4600.0.. 68.0 5.4 . 2. 0 40tCC.0 62.0 5.4 22 30 0.0 11.0 2 2 1C(I .0 /b ?11.0 3 0 . /c 12100.0 51.0 2.* INCOME DISTRIBUTION 1 OF PR IVATE INCOME RECO0 BYHIGHEST 51 CF POPULATION HIGHEST 201 CF POPULATION LOW EST 2 O1 OF POPULATION LOW~EST 4 01 EF POPULATION. . I.... 6.? 4 2.:3 .. .... a .19 19.6 . 25. d 53.1~ 4.7 / 13.1I DIS TR ISU TITDN Of LAND OWNERSHIP X OWNED BY TOP IOZ OF OWNERS480/ 1 YSMALLEST WE 101 OANEPS 34.0 .. 3.I. .10 HEALTH AND NUTRITION POPULATION PER PHYSICIAN POPULATION PER NURSING PERSON POPULATION PER HOSPITAL RED PER CAPITA SUPPLY OF CALORIES CZ OF REQUIREMENTS.' PROTEIN (DRAMS PEN DAY) 'OF WHICH ANIMAL AND PULSl: CEATH RATE (/THOU) AGES 1-4 61000.0 1050.0 21650.0 8010. 0 1720.0 23880.0 696 0.0 1450.0 1600.0 72 03.0 90210.0 48C.0. 511 0.0 1620.3 89.0 43.0 15.0 09.0 43.0 14.0 03 .0 38.0 .. 93 .0 3.0 16.0 . . .. .. 050.0 8 5.04 45.0 22.0 7.0 .. EDUCATION ADJUSTED ENROILLMENT RATIOPRIMARY SCHOOL SECONDARY SCHOOL YEARS OF SCHOOLING PROVIDED (PIRST AND SECONO LEVEL) VOCATIONAL ENROLLMENT (X OF SECONDARY) ADULT LItERACY RATE CI) / r710 1. 80.0 601. s0.0 d 19. 290 12.0 12.0 12.0 10.0/, 12.0 20.0 47.0 28. 0 28.0 60.0 40. 6.0 . 1kb. 0.0 6.0 /e 11 9.0 4. 10.0 10.0 /a.b HOUSING PER-;ONS PER ROOM (AVERAGE) OCCUPIED DWELLINGS WITHOUT PIPED WATER C?) ACCESS TO ELECTRICITY (I OF ALL DWELLINGS) MURAL DWELLINGS CONNECTED TO ELECTRICITY (I) I. .6 .. 44.01 .. 64.0C.. .. . 66. 0b 2 3.0 /b 3..9.0 6. 6. 0. CONSUMPT ION RADIO RECEIVERS (PER THOU PD)P) PASSENGER CNRS (PER THOU POP) ELECTRICITY (RAN/YR PER CAP) NEWSPRINT (KQG/YR PER CAP) -I-------------------------------------SEE NOTES AND DEFINITIONS ON REVERSE 7.0 1 .0 19.0 0.2 114.0 2.0 20.0 0. 2 . 3.0 2 3.0 0.2 6. 1.0 11.0 .0 :............. 21.0 1.0 111I.0 .3 45.0 8.0 235. 0 1.2 / pgofL pageB NOTES Unless otherwiae noted, date for 1960 refer to any year between 1959 and11961, for 1970 between 1968 end 1970, and for Most Recent Eatimas.e between 1971 & 1973. -0 The Philippine. baa been selected as an objective country for its geographical similarity end bsoaUae Of ite apparent advaced stage of ecoooaic developmet. INDONESIA 1% / Excludes West Iran; 197(0 /a Registered applicants for work. CDST flCENT FSTIM&TEz /a 1963; /c i961-6.3. Unesployed workers seeking their first job; /b 10 years and over, ability to ream and write in eitber Latin or nom-tatin characters; & Inside only. NANOA&DESH 1970 /a 1966-61, househotds; /b Registered, not all pmacttcing to ttn country; jc G-ovrnment hospital eatablioh.snts Only; /d Akpproximate esrolleet as percentage of population in, i-1n, end 11-is age groups reopecti-esty; /e Up to end of socco d level. INDIA 1971; /a RMtto of population under 19 and 60 and Over to labor force age 15-59 yeara; Lb kIi eetleate of labor force t age group 15-59. lBRD report gives a figure of 180.9 sillion baeod on 1971 poplation cenas.. The difference is doe to changes in the defInition of a worker. In the 1971 census, persons were classified only on the basis of their nato activities. lhis led to the exclusion of several categories sock as, houseaivee; c Regiaterod applicanto for work; /d 1967-66, households; /o 19,65. FRIIPPINES 1970 A Public education only; /b 1967; /c Imports only. El0, April 21, 1976 IENFTNTIIONS OF SOCIALINEEICAI'RS boAdArea (to o' TOta -TotalsOurface .,ares oprisinc . Land area end inlaod aters, ha-ric. - msgctrecent ontias te of anioco -aeused t-opor-rfly on perna-etty for crps, p-scure, corkc &hitohos gardens or to Ho. fallow. GNP is 0$ - GNP per capita estimates at market prices, colo-. saTEl7conSversion method an World Bonk Atlas (1972-7h bavis). 9ptppl n 8nd vital statistics P~jlionni-m rA ortcn-year cc tee.. of July first; if not Available, overage Ponbator dest prsu reo Mid-year population per oqaekilometer of total 100erra. hectaree) opulatioc dnIy eruuoa- in oagric. land - Compvuted oo above for agictr;Lnd only Octal statistics r"de hire]; rate pert, thuad - Anusa Lice births per thousand of midyear populainusly fime-yenr averages ending to 19,60, 1977 and 1975 for davloping countries. trde death rate per thous,-d - inmos maths per thousand of odd-year nP. le"" n usual fleyear avereagesending in 1960, 1970 and 1975 for developing countries, Enfest =ootall5y.te,Jf59u -1 Annual doaths of tofants under one year of age petflvirho th Lifeq- Ocyat birth ,rs) - verage number of years of life remainicg t bfrthr; usually rves-year --srge ending in 1960, 1970 and 1975 for developing co e.ntrition. Grssrerduction rte - Average number of line daughters a woman. will boor in her norsoal reproduc tive periodi If she excperienneo present ages,pecific fertility rules; usually five-year averages ending In 1960, 1970 and 1979 for developing countries, P.P opltion growth rat, 8 oa Compoundannual growth.rates of midyear populato fr1564-O, 96-70, and 1960 to mast receni year. Populeation crowth rate (%) - urban - Competedlike growth rate of total ppltton; different defrinlons of urban areasomay affect copr-Adluoteenolmnt hirity pof data amongcountriescred Ura 'ppltion( of total - Ratio of urban to total population; different defiovitin or urban areasmay affect comparability of Ants amn countries. 11-:1s ctu, iercnt)- Childre (0)-lb years), woking age (25-64 years), and retired (65 yearn andl over) amspercentages of mld-yea population, Age dependecy ratio-Raiofppltnude15nd6 and over to those Mfaes 19trugh 69. Economic d.epedec~yratiog- gRatio of population under 19 aod 69 and over to the labo foc nae groupof 15-64 years. Pan,i1vnlam ajo- acceDtors (m-osati-re tho.u) - Cumulative nssaber of acceptorn of birth conto device unAr auspices of national. family planning program since inception. familyplanning - users (% of married women) - Percetages of maried womonof child-bearing age (15-Li ye=rs who use birth-control devices to all married womanIn same,ago group. TE!fSrfor,e,(jthousand) - Economically active persons, including armed forcs ad nemloed but excluding housewives, students, etc.; definitionsin vorioun countries are sot comparable. lbrforce in agEiculture ) - Agricultural labor force (in farsuing, foretry7 rintingiEandishing) as percentage cf total labor force, of. bordforce)p -oUnemployed are usually defined as persons whoare a )iHillIgceto takesaAob,noutofs.job ona gIvenday. remained out of a o,sdsekn okfr a specified miniennnn period not exceedng 000 week; may not be comparable between countries due to different definitions of unemployed and source of data, e.g., employment Office etatistics, sample survoys, compulsory neriploymnset insurance, jn94A,dgtriho t4gp - Paeretage of private income (both An cash sodasince k(ind)Yecaiiveby richest 9%,ricbest 20%, poorest 20%. andf poorest 40% of households. Distribottion ofdlen owo hers - Percentages of lend ownedby wealthtest 10%and poorst 10%f land owners. Health and Nutritipn tion -r oplaio dviedbynube o pacicn "tyIdihI quail? ted from a medical school at university level. ouelnnrnrievra ouaicdivided by number Of practiclgsleFifao raduae nores-, "trained" or "c.ertified" nurses, and auxiliary personnel witht training or empenience. Populetlo por hospital led - Popolotirn divided by number of bospital beds available in public and pri-te geosro cod speciali-ed hospital sod rehabilitation centers; emolodes nurstog hor neosd sotablisheents for custodial end preventive core Per capita supl of frocenno VoAis( optdfo .nerr equivalen'T.ofne roodsupplie snaeilble in country per capita per day: available supplies comprtoe dosestic prod.ntion, imports less s,pOrto, a.l chances in stock; net sopplisose-uodo an mal feed, .. sda, q-atities o-d it foo.d proceostog and loose to distribution; requiremnets worn estlivoted by FAObased on ph9'slneeds for normL activity ond health conidering socorunmental temperature, body weighto, age end smc distributiono of pop.lation,and allowing10% for waoie ot boweohcldlevel. Per capita spZ of rot:F (,rams per da)- Protoin contentiof per caiantspl ffo e a;ot supply of food io dfind a above; requiremnets for all countries esoabliahed by U1SIAEconomic Research Services provide fun a mionion alloanc of 60 groomsof total proteto per day, and 20 grams cf animal And puloe proteio, of which 10 gram.oshould ho ani-1 protein; tiss stadards or eIlowe than those of 75 grass of tonal1 protein -,d 23 gram Of animal protein asa -vrage for th. world, proposed by FAOton the Third World Fond Survey. Per capita prEoteinsplyfo animal. Ian pulse -Protein supply of fond deie rmaiasadpl ngasper dy rate t lthou aeso 1-9 .- Annual doath. per thoosand in age group 1-4c 7bears cl&ninT il ge group; suggested as ntdioatr of sal- ~~ologloa1 Education Adjuste enol ent ratio rImr shool, -Enrollnent of all ages as pecnaeo roaysho-g ouaion; Includes ohildrsn aged 6-il years but adlustod for different lengths of primary educatios, for countries with universal edarati-o, enrollment may -exed 100% since some pupils are below or above the Official school oge. rti secndrOsYchool - Cooputed as above; secondto rquest.latfr years of approved primary instruction; pmroides geerni., vocational or teacher training instruction for pupi-ls of 12 in 17 yeoarsof age; correspondence cour.- are generally exlded. Years f schooling provided (first and second ees) - Total years of schooling; at secondary level, Vocational intution nay he porctioly or completely excluded. Vocational enrollment (8 of secoodaf) - Vocational isotitutiosm Include techomica.l, industrial or other programo which operate todependently or aso departmenta of sec ondry Institutione. Adult9Alitegyrae 1 -literate adult. (able to red and wrnte) On 3uThji.Tli adlt population aged 15 years and oner. Housing Persona oer room av-era - A-arge number of persons per roos to Occupied convEentional dwelings In urban areas; dwellingo exlude non-parelnent structures and unoccupied pats. Occupied healinas wlotu Piped water (% O-ccupiad convetional dwellIng; i urb n an rua reas withiout Inside or outside piped water facilities as pewceontageof all ocoupied dwellings. Access to electricity (% of all dwellings) - Umaventional dw,lltcgn with electricity in living quarters as percent of total dwellings in urban sod rural areas. Rural dwsllingpsm otdtelcriy )-Cmuedashvfrrrl dwellns nY. 9gp ti74n WC[4jjj7_iverzjpp tio2a_2) - All types of receivers for radio broadcasts to generai po blc per thousand of population; exccludes onlicensed receivers in countries aend in years when regintretion of radio sets was in, effect; data fur recent years May not be comparable suet countries shlinhed licensing. Passe.er care sr thouho) - Passenger oars cosprise entor care seating less tesight persona; excudes ambulances, imar~ses and Elmrcitvc(kwh/iM'Dr t - Annual consumption of indestrial, cornerE3I7ilhIpublic d privsts eleCtricity in kllowq.tt boors per capita; generallyhosed on productiondata,withoutallowancefor lossesto grids but allowing for impor ts and exPorts of electrIcity. IRpi9g..Eg_: ap) - Per capita Annual concsumption in kilogramls itsiefidhestic production plus net imports of newsprint. ANNX I Page 3 of 4 pages ECONOMIC INDICATORS GROSS NATIONAL PRODUCT IN 1974 GNP at Market Prices Gross Domestic Investment Gross National Saving Current Account Balance Exports of Goods, NFS Imports of Goods, NFS ANNUAL RATE OF GROWrH (%, constant prices) US$ *Lr 22479 43:30 4336 6 6755 5527 100.0 19.3 19.3 0.0 30.0 24.6 196° -65 % 1965 -70 1974 1.9 3.3 5.8 4.9 11.5 5.1 5.6 19.2 64.8 1.5 0.2 7.8 10.9 0.5 33.2 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1971 Value AddedU-S' Mln. ,Hln. Labor Force-/ % V. A. Per Worker US--$ J_ Agriculture 14221 44.8 30.5 69.0 138 Industry Services Unallocated Total/Average 65 1915 3.79 20.3 34.9 3.0 8,3 2.4 6.8 18.8 5.4 638 395 300 185 - . -0 I 797 1000 4. 100.0 0: 21-1 100.0 GOVERNMENT FINANCE Central Government ( RD) BLn. (1q974E75 1974 ofoGDP TM7 Current Receipts 1759 17.9 Current Expenditure 1001 10.2 10.8 7.7 -14.2 Current Surplus 15.0 Capital Expenditures 966 9.8 7.3 External Assistance (net) 234 2.4 3,2 MONEY. CREDIT and PRICES 1970 Money and Quasi Money Bank credit to Public Sector Bank Credit to Private Sector 330 57 306 1971 (Billimn 469 129 451 1972 1973 1974 Rp. outstanding end periodT 695 58 987 555 936 37 - 1452 2 1126 1975 une - 1776 29 1837 (Percentages or Index Numbers) Money and Quasi Money as % of GDiP General Price Index(Sept. 1966"1O0) Annual percentage changes ins General Price Index Bank credit to Public Sector Bank credit to Private Sector - 9.9 612 12.8 638 15.2 680 14.6 891 114.8 1253 12.3 5.0 4.2 126.3 6.6 - 55.0 23.0 31.0 - 36.2 68.6 40o6 0 20.3 77.9 47.4 All conversions to dollars in this table are at the average exchange rate prevailing during the period covered. 1/ Conversion at an exchange rate of Rp. 390 = US$1. 2/ Total labor force; unemployed are allocated to sector of their normal occupation. "Unallocatedit consists mainly of unemployed workers seeking their first job. NOTE: not available not applicable TRADE PAYMENTS AND CAPITAL FLOWS BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1972-7 4) 1972 1973 1974 (Millions US $) Est. Exports of Goods, NFS Imports of Goods, NFS Resource Gap (deficit = -j Interest Payments (net) Workers' Remittances Other Factor Payments (n t s Net Transfers Balance on Current Account Direct Foreign Investmenit Net MLT Borrowing Disbursements Amortization Subtotal Capital Grants Other Capital (net) Other items n.c.i Increase in Reserves (+) Gross Reserves Net Reserves (end year) (end year) 1757 2957 3170 1875 -M -77 - - 46 - 318 - 361 - 482 258 1447 - 7C 377 C) US $ Mili Oil 6755 5527 rimber Palm Oil TibI T78 - 6Offee - 543) -593 -7 T lll.5 i222 . 290 471 62-1 1072 231 841 .. 628 - 138 All other commoditie-s Total ° .. 181 98 1432 486 .. 208,1l ) 325 574 8RN6 1) '73I 458 783 1473 14 Petroleum 2 Petroleum 877 877 9LXTERNAL DEBT, DECEMBER 31. 1/ 9.4 l3.4 2.4 2.7 814 2.2 IlC1 3823 100.0 l008 1974 US $ MLn Public Debt, Lncl. guaranteed Non-Guaranteed Private Debt Total outstanding & Disbursed 5895 ., 690 oDEBT SERVICE RATIO for 1974Public Debt. Lncl. guaranteed Non-Guaranteed Private Debt Total outstanding & Disbursed 7.7 4 2 1348 1348 1 i455 4',56 IBRD/IDA LENDING, (,Kar. 31 1976) (Million US $) IBRD RATE: OF EXCHANGE -hro 1971 h Jul. Throuplh Jul) 1971 ilS9 1.00 = -P. 375 1.00 = US $0.0027 59.1 - l'ue1 and Related Materials 1mports of which: Exports of which: 2260 359 513 93 104 Rubber _ D since Aurrnat ~ Since Augrtl 1971 US $ l.OO =FP. 415 1.00 = US $0.0024 Outstanding & Disbursed Undisbursed Outstanding incl. Undisbursed Ratio of Debt Service to Exports of Goods and Non-Factor Servicesp witF oil exports net of factor payments and imports of the oil sector . not available . not applicable April , I , 1976 93.8 367.2 461. IDA 332.0 229.8 ANN3X II Page 1 of 14 A. THE STATUS OF BANK GROUP OPERATIONS IN INDCNESIA STATEKENT OF BANK LOANS AND IDA CREDITS ( as of February 29, Loan/ Credit Number Fiscal Year US $ Million Amount (less cancellation) IDA Undisbursed Bank Purpose 11.0 28.0 Three credits fully disbursed 'Highway 1969 154 155 165 1969 1970 193 1970 194 195 1970 1970 210 211 219 1971 1971 Second Agricultural Estates Second Irrigation Rehabilitation releconmunications Expansion Fisheries 1971 Education 220 1971 Third Irri.gation Rehabilitation 246 1971 Seeds 259 260 1971 1971 Tea 275 1972 'Third Technical Assistance 288 289 1972 1972 300 310 1972 1972 318 1972 319 334 355 358 1972 1973 1973 1973 387 1973 388 1973 399 1973 400 405 1973 428 1973 1974 436 1974 451 1974 1974 1974 479 480 514 1975 1976) 16.0 15.0 35.0 Agricultural Estates Electricity Distribution 'JSRI Fertilizer 0.1 17.0 2.4 18.5 12.8 1.0 0.2 G.2 3.5 4.6 14.5 7.5 15.0 34.0 Second Highway 0.2 0.2 0.2 0.6 1.8 2 5 4.2 5.1 4.0 1.0 Second Education Fourth Irrigation Rehabilitation 6.3 12.5 4.7 Population ]Development Finance Co. (BAUINDO I) Enter-Island Fleet Rehabilitation 13.2 10.0 8.2 1.5 8.5 4.3 Fourth Agricultural Estates Second Electricity Distribution 11.0 hO.0 6.8 16.5 3.6 5.0 2.4 3.1 13.5 10.9 1.4.0 7.2 32.9 Beef Cattle Development lNorth Swuatera Smallholder Development 'third Education Third Highway jiest Java Thermal Power .1ballholder and Private Estate Tea 3ugar Industry Rehabilitation lulo Gadung Industrial Estate Private Development Finance Co. EIburth Techdical Assistance Bali Tourism Fisheries Credit J'atiluhur Irrigation Extension (PDFCI) 46.o 7.8 50.0 16.5 1.0.0 5.0 16.0 6.5 30.0 2.0 7.3 32.1 14.7 8.2 4.2 15.3 6.3 29.5 ANNEX II Page 2 oi: 1 (Continued) Loan/ Credit Number Fiscal Year 1005 1040 1049 1974 1054 1975 1089 1975 1100 1127 1139 1179 1975 1975 1976 1976 1197 1976 1975 1975 US $ Million Amount (less cancellation) Bank IDA Undisbursed Purpose Railway Jakarta Urban Development Five Cities Water Supply Development Finance Co. (BAFPINDO II) Second Fertilizer Expansion Sixth Irrigation Fourth Power Fertilizer Distribution Agricultural Research and Extension National Resource Survey and Mapping TOTAL of which has been repaid Amount Sold of which has been repaid 0.1 0.0 48.0 46.6 25.0 18.5 14.5 13.6 50.0 46.4 115.0 57.3 65.0 64.7 41.0 41.0 68.0 64.4 21.5 13.0 13.0 21.5 461.0 561.8 624.8 - - - 461.0 561.8 0.1 Total now held by Bank and IDA (prior to exchange adjustment) 460.9 561.8 Total undisbursed 387.0 237.8 624.8 ===== ==p== =3=== a/ Approved in FY 1975 but signed in FY 1976. ANNEX II Page 3 of 14 S-ATEMAT (OF IFC INVESTMENTS (as of February 29. 1976) Fiscal Year Lpan US $ MEllion Equity Total 1971 P.T. Semen C:Lbinong Cement 10.6 2.5 1971 P.T. Urdtex Textiles 2.5 0.8 3.3 1971 1971 1972 P.T. Primate.co Indonesia P.T. Kabel Iidonesia P.T. Daralon Textile Manuf. C,orp. P.T. Jakarta Int. Hotel P.T. Semen CiLbinong P.T. Primatexco Indonesia P.T. Monsanto Pan Electrorics P.T. PDFCI P.T. Kamaltexc P.T, Semen Cibinong Textiles Cable- 2.0 2.8 0.5 0.4 2.5 3.2 Textiles Tourism Cement Textiles h.5 11.0 5.4 2.0 1.5 0.7 0.3 6.0 11.0 6.1 2.3 0.9 0.5 3.0 6.5 1973 1973 1974 1974 1974 1974 1974 13.1 Electronics Devlp. Fin. Co. Textiles Cement 2.4 .5. 0.5 o.6 1.5 TOTAL 49.1 9.3 58.4 20.2 1.5 21.7 28.9 7.8 Less: sold or repaid and cancelled TOTAL now held Undisbursed ncluding participant's portion) 0.9 - ~= 5.4 =__ 1.5 36.7 ,=_ _ 6.9 ANNEX II Page 4 of 14 PROJECTS IN EXECUTION 1/ Cr. No. 127: Irrigation Rehabilitation: US$5 Million Credit of September 6, 1968; Effective Date: March 25, 1969; Closing Date: December 31, 1976. All civil works were completed on March 31, 1976. Additional drainage work will be carried out under Loan 1100-IND. The proposed Irrigation VII Project would provide funds for tertiary development under this project and other on-going irrigation projects. The closing date has been postponed by one year to allow for payment of late accounts. The adequacy and timeliness of operation and maintenance of completed irrigation rehabilitation projects has been recently discussed with the Government. As a result the Government has allocated for operation and maintenance for the present fiscal year an amount double that of last year's budget. Cr. No. 154: Highways: US$28 Million Credit of June 20, 1969; Effective Date: October 2, 1969; Closing Date: December 31, 1975. Rehabilitation work, of acceptable quality, has been completed,. The work accomplished exceeded the project's original target. The program for improved highway maintenance included in the project has been completed. A project completion report is being prepared for issuance before June 30, 1976. Cr. No. 155: Agricultural Estates: US$16 Million Credit of June 20, 1969; Effective Date: December 10, 1969; Closing Date: December 31, 1976. With improvements in management and much higher international prices, particularly for palm oil, prevailing in 1974, the financial position of the estate groups has improved. The field and factory standards have now been raised to a good technical level and the managements have been advised to concentrate on cost control in order to prepare for the time when produce prices may become less attractive. The combined efforts of the management, consultants and IDA missions to review project implementation are yielding good results. The closing date has been postponed to December 31, 1976 to enable payment to consultants for services for other rubber estates. 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 purpcrt to present a balanced evaluation of strengths and weaknesses in project execution. ANNEX II Page 5 of 14 Cr. No. 165: Electricity Distribution: US$15 million Credit of October 29, 1969; Effective Date: June 1, 1970i Closing Date: December 31, 1975. The closing date was postponed to December 31, 1975, to allow for payment of small amounts outstanding. The project completion report will be prepared in conjunction with that for Credit No. 334. Cr. No. 193: PUSRI Fertilizer: US$35 Million Credit of June 15, 1970 (as amended May 21, 1973); Effective Date: January 15, 1971; Closing Date: December 31, 1976. The urea plant has successfully passed its performance test and is operating at close to rated capacity. The gas gathering and transmission system is also completed and sufficient gas is being delivered to the plant. The closing date has been postponed to December 31, 1976 to allow for delivery and installation of remaining equipment. Cr. No. 194: Second Agricultural Estates: US$17 Million Credit of June 15, 1970; Effective Date: February 9, 1971; Closing Date: June 30, 1976. After initial delays, there have been considerable improvements in management and these, combined with high prices, particularly for palm oil, have resulted in the two estate groups being put in a much stronger financial position. On the rubber group (PNP IV) more effort is necessary to improve agricultural standards and tapping methods. With the rapid expansion of -investment of the palm oil group (PNP VI), there is a need to employ expertise in financial planning, control and management, which are now the main constraints to efficient development. This estate group is undertaking act:ion in this respect. The closing date has been postponed by one year to allow payment for remaining equipment, civil works and consultants' contracts. Cr. No. 195: Second Irrigation Rehabilitation: of JurLe 15, 1970; Effective Date: Closirng Date: November 30, 1976. US$18.5 Million Credit December 31, 1970; Problems of quality and progress of construction still exist, but the project etntity assisted by the consultants are tackling these vigorously, and the situation is improving, although not sufficiently to make up for earlier delays. Costs are likely to be double the overall appraisal estimate, due to inflation, but the Government will provide any additional funds required. Completion of disbursements will be about two years behind the original schedule. Cr. No. 210: Telecommunications Expansion: US$12.8 Million Credit of July 13, 1970; Effective Date: February 18, 1971; Closing Date: June 30, 1976. The project has been completed except for the installation of the telex exchange at Medan, which is now expected to be in service by ANNEX II Page 6 of 14 June 1976. The delay in completion of the Medan telex exchange was due to late completion of a building to house the exchange. The closing date of the Credit has been extended up to June 30, 1976, which should be sufficient to allow for payments of outstanding contracts. The audit of financial statements for FY1973 is expected to be completed in May 1976 and efforts are being made to ensure timely audit in future. Cr. No. 211: Fisheries: US$3.5 Million Credit of July 13, 1970; Effective Date: January 15, 1971; Closing Date: June 30, 1976. The project is about two years behind the original schedule due to delays in engaging consultants and in executing contracts for the shore facilities. There has been a substantial project cost increase but the project is still expected to be financially viable due to the greatly increased skipjack prices. Government has recently appointed new project management. The first stage of operation of project facilities is expected to start shortly. Cr. No. 219: Education: US$4.6 Million Credit of November 6, 1970; Effective Date: January 29, 1971; Closing Date: December 31, 1976. Project implementation in the Department of Education is satisfactory. Civil works for the five Technical Training Centers (TTCs) have been completed. About 90 percent of the equipment has been purchased and about 60 percent delivered and installed. All TTCs will operate at full capacity by January 1976 when the new academic year begins. Over 500 technical teachers have completed or are about to complete their training. Technical assistance financed by the U.K. for the project is also satisfactory. Disbursement has improved considerably. Revised total project cost is now about 40 percent above appraisal estimate. The Government will finance the cost overrun. The project is expected to be completed about three months ahead of schedule. Cr. No. 220: Third Irrigation Rehabilitation: US$14.5 Million Credit of November 6,1970; Effective Date: May 28, 1971; Closing Date: June 30, 1977. Construction remains about two to three years behind schedule. The problems which caused this delay - difficulties in preparation of contract document, late financial allocations, heavy rains in the 1973 construction season and, more recently, slow response by GOI to high inflation rates and consequent civil works costs overruns - have been mainly overcome, but time lost cannot be regained. Estimated project cost is 50 percent above the appraisal estimate, but with higher rice prices on the world market, the project's economic rate of return remains over 20 percent. The closing date has been postponed by 18 months as a result of project delay. ANNEX II Page 7 of 14 Cr. No. 246: Seeds: US$7.5 Million Credit of May 19. 1971; Effective Date: December 7, 1971; Closing Date: September 30, 1977. Significant progress has been made in the construction of the irrigation infrastructure and in land development at the National Seeds Corporation (NSC). Construction is proceeding satisfactorily and is now 70 percent completed. The inadequacy of NSC management at the operational level is reflected in technical production problems, low yields of seed and high costs of production. Increasing nation-wide production problems caused by prevalent disease, pests and insect losses has resulted in government authorities now giving certified seed production high priority. Cr. No. 259: Tea: US$15 Million Credit of June 24, 1971; Effective Date: September 17, 1971; Closing Date: June 30, 1978. Agricultural achievements to date have far exceeded appraisal expectations necessitating construction and rehabilitation of three additional factories. Project completion, estimated for December 1977, can probably be advanced by up to one year. Rising costs are creating pressure on available funds and the main challenge for the two PTPs will be to reduce working capital requirements, as well as overhead and indirect costs, and improve labor productivity. Cr. No. 260: Second Highway: US$34 Million Credit of June 24, 1971; Effective Date: August 10, 1971; Closing Date: December 31, 1976. Construction work is about 80 percent finished and should be completed by August 1976, about one and a half years behind schedule. The delay was caused largely by slow progress in mobilizing contractors, difficulties in equipment delivery, heavy rains and landslides. The closing date has therefore been postponed by 15 months to December 31, 1976. Design standards for the road sections have been slightly lowered and some savings have been achieved, which, together with other savings have partly offset construction cost increases of 12 percent. Cr. No. 275: Third Technical Assistance: US$4.0 Million Credit of December 29, 1971; Effective Date: February 25, 1972; Closing Date: December 31, 1976. Progress 6n this project is satisfactory. The closing date has been postponed by another year to complete disbursements for ongoing studies. Cr. No. 288: Second Education: US$6.3 Million Credit of March 9, 1972; Effective Date: June 7, 1972; Closing Date: December 31, 1976. This agricultural training project, being implemented by the Department of Agriculture, is about 16 months delayed because of ANNEX II Page 8 of 14 late appointment of consultant architects, lack of counterpart funds, delays in bid analysis and in awarding contracts. As a result, civil works, which were to be completed already, have not commenced. Furniture and equipment procurement have therefore been deferred. Unlike the physical aspects of the project, the educational aspects are generally on schedule. Total project costs are now estimated to be 90 percent higher than the original estimate. Government has budgeted for the cost overrun. Disbursement, which has been slow, should improve since civil works contracts have now been awarded. Cr. No. 289: Fourth Irrigation Rehabilitation: of March 9, 1972; Effective Date: Date: June 30, 1977. US$12.5 Million Credit May 5, 1972; Closing Civil Works and equipment purchases for the main project, Pekalen-Sampean, are proceeding but completion of civil works will be about two years behind schedule. Due to inflation, project costs are likely to be substantially higher than appraisal estimates. Consultants for the various studies are at work with their counterparts. Disbursements are also on schedule. Cr. No. 300: Population: US$13.2 Million Credit of April 20, 1972; Effective Date: November 2, 1972; Closing Date: June 30, 1978. Progress of this project is generally satisfactory. Steps are being taken to improve preparation and implementation of project components concerned with commtnications, research and evaluation. All vehicles have been procured and good progress is being made with equipment procurement. The civil works section of the Project Implementation Unit functions well but is underutilized because of delays in making policy decisions. Construction costs will exceed appraisal estimates by 135 percent. Population Education is now being introduced into school curricula after a successful trial. Despite its limitations, the national family planning program, of which the project is an integral part, is expanding annually and showing good results. Cr. No. 310: Development Finance Co. (BAPINDO I): US$10 Million Credit of June 7, 1972; Effective Date: August 10, 1972; Closing Date: December 31, 1976. This credit is fully committed. Cr. No. 318: Inter-Island Fleet Rehabilitation: US$8.5 Million Credit of June 28, 1972; Effective Date: October 19, 1972; Closing Date: September 30, 1977. Progress on this project is slow but funds are expected to be fully committed by September 30, 1977. Due to substantial cost increases, only about half of the anticipated tonnage will be rehabilitated. ANNEK II Page 9 of 14 Cr. No. 319: Fourt:h Agricultural Estates: US$11 Million Credit of June 28, 1972; Effective date: January 30, 1973; ClosiLng Date: June 30, 1981. The physical progress of the project is ahead of the appraisal schedule. The financial position of the estate group is difficult due to an unsatisfactory debt/equity ratio. Measures to improve the situation are under review. Cr. No. 334: Second Electricity Distribution: US$40 Million Credit of September 29, 1972; Effective Date: March 12, 1973; Closing Date: December 31, 1976. The Jakarta distribution program financed from Credits 165-IND and 334-IND (together $55 million) encountered implementation delays due to procurement protlems and cumbersome management procedures. As a result the project is two years behind the original schedule. These diEficulties have been resolved and recent progress is encouraging. No further delays are therefore expected. Cr. No 355: Beef Cattle Development: US$3.6 Million Credit of January 31, 1973; Effective Date: May 30, 1973; Closing Date: March 31, 1980. Several problems have seriously delayed project implementation. Government's budget allocation has been insufficient; and financial management and coordination have been weak. The last supervision mission undertook a thcrough project review and its recommendations, which include major changes in project scope and objectives, are presently under discussion with Government. Cr. No. 358: North Sumatra Smallholder Development: US$5 MLllion Credit of February 14, 1973; Effective Date: August 13, 1973; Closing Date: December 31, 1981. Project performance, which had suffered from severe finnancial and organizational difficulties, has improved greatly. Physical progress is encouraging; rubber planting and rice intercropping are now on schedule. There is some room for improvement in financial management, in which consultants are assisting. Total project costs are now estimated at about three times the original estimate of US$10 million. Disbursements are expected to be completed ahead of schedule. Cr. No. 387: Third Education: US$13.5 Million Credit of June 1, 1973; Effective Date: August 29, 1973; Closing Date: December 31, 1981. The project is about 10 months behind schedule, mainly due to insufficient top management staff and paper shortages last year. The paper ANNEX II Page 10 of 14 shortage has been overcome and about 32 million text books will be printed by January 1976, about four months behind schedule. Steps are being taken to strengthen project management and to improve arrangements for expert services. Measures to improve project implementation have been discussed and agreed with the Government. The book testing and teacher training programs are on schedule, but their results have not yet been evaluated. Procurement of instructional equipment will be completed by early 1976. Cr. No. 388: Third Highways: Effective Date: June 30, 1977. US$14 Million Credit of June 1, 1973; June 25, 1973; Closing Date: Construction work on the two North Sulawesi road sections in the project was started early in 1974 under two contracts and is now 60 percent completed. Construction has been delayed mainly because of long mobilization periods and heavy rains. Project costs will likely exceed original estimates (including contingencies) by 57 percent mainly due to sharply escalated prices. The training program has been completed successfully. Cr. No. 399: West Java Thermal Power: US$46 Million Credit of June 22, 1973; Effective Date: August 28, 1973; Closing Date: June 30, 1978. Bids received for the first two 100 mw units at Muara Karang were about 65 percent higher than estimated at the time of appraisal. This, together with construction cost increases, has resulted in an increase in the total project cost of more than 100 percent. Government will provide the additional funds required. PLN has satisfactorily met the initial targets in its financial recovery plan provided for under the terms of the Credit Agreement. Cr. No. 400: Smallholder and Private Estate Tea:- US$7.8 Million Credit of June 22, 1973; Effective Date: November 30, 1973; Closing Date: March 31, 1982. Planting is presently slightly behind schedule but it is expected that targets will be achieved or even exceeded by the end of the 1975/76 planting season. Project nurseries are well organized and field work is proceeding well. Also non-participating farmers have benefitted from the project. Total project costs are estimated to be double the amount originally envisaged and project management is attempting to achieve cost reductions. Due to the high prices for tea (about twice the level expected at the time of appraisal), the economic rate of return is still satisfactory. ANNEX II Page 11 of 14 Cr. No. 405: Sugar Industry Rehabilitation: June 26, 1973; Effective Date: Clos3ing Date: June 30, 1979. US$50 Million Credit of April 22, 1974; In riew of the rapid and continuing increase in the cost of sugar factory machinery and the more recent shortage of budgetary funds, the scope of the above-mentioned project has been reduced by the deletion of six minor rehabilitations from the project description. The revised project consists of the major rehabilitation of two factories and the construction of a new factory. Credit funds have been reallocated from the minor to the major rehabilitatlon and to the new construction. Cr. No. 428: Pulo Gadung Industrial Estate: US$16.5 Million Credit of September 14, 1973; Effective Date: November 13, 1973; Closing Date: December 31, 1978. Despite an increase in construction costs, the project remains financially viable because revenues from the sale of plots has risen proportionately.. Construction has fallen behind schedule due to land acquisition prob]ems, but developed land is being occupied as fast as it is made availabl.e. While there is still a backlog of applications for industrial plots, the rate of new applications has fallen off during recent months and the estate is intensifying its promotional efforts. Cr. No. 436: Private Development Finance Company of Indonesia (PD_CI): US$10 Million Credit of November 2, 1973; Effective Date: March 6, 1974; Closing Date: December 31, 1978. After a long start-up period and difficulties in finding and recruiting qualified local staff, PDFCI has now reached the operating stage. Commitments have started and are expected to increase rapidly as PDFCI's own operational capability improves. Cr. No. 451: Fourth Technical Assistance: US$5 Million Credit of January 2, 1974; Effective Date: February 15, 1974; Closing Date: December 31, 1976. Progress under the project is satisfactory. Cr. No. 479: Bali Tourism: US$16.0 Million Credit of June 14, 1974; Effective Date: December 4, 1974; Closing Date: August 31, 1979. Project implementation has improved after initial difficulties. Tender documents for all major infrastructure works were issued in January 1976. The earliest possible completion date has shifted from February 1979 to October 1979. Budgetary allocations as requested by the Bali Tourism Development Corporation for FY76/77 are satisfactory. Negotiations with one group of investors are in progress but otherwise investor interest appears to be low. Promotional efforts to attract additional investors have been intensified in 1976. ANNEX II Page 12 of 14 Cr. No. 480: Fisheries Credit: US$6.5 Million Credit of June 14, 1974; Effective Date: January 8, 1975; Closing Date: June 30, 1979. Lending for fishponds is now on schedule and the contract for construction of shore facilities at Ambon has been awarded. There may however be some delays in skipjack vessel construction due to procurement problems. Although significant cost increases are envisaged, the project is still expected to be financially viable because of increases in fish prices. Cr. No. 514: Jatiluhur Irrigation Extension: US$30 Million Credit of October 3, 1974; Effective Date: January 10, 1975; Closing Date: December 31, 1980. The consultants are designing works and preparing contract documents. The first civil works contract is expectd to be let in August 1976, about one year behind the original schedule. Loan No. 1005: Railway: US$48.0 Million Loan of June 14, 1974; Effective Date: August 16, 1974; Closing Date: December 31, 1978. Procurement of material and equipment, which had been slow due to poor organization and inadequate budget allocation, has now improved. Bids have been received for most items and the bulk of the contracts should be signed soon. Passenger traffic in 1975 is slightly lower than in 1974, but still higher than forecast; freight traffic has continued to decline due mainly to poor maintenance and inadequate motive power, which should improve towards the end of 1976. Although tariffs were raised in May 1975, increasing passenger revenues by about 25 percent and freight revenues by about 10 percent, the operating ratio is likely to deteriorate further, as operating costs have continued to rise at a faster rate. Loan No. 1040: Jakarta Urban Development: US$25 Million Loan of September 27, 1974; Effective Date: January 15, 1975; Closing Date: December 31, 1977. Progress on the Kampung Improvement Program has been very good; costs were less than estimated, allowing additional work to be undertaken. Execution of the Klender Sites and Services Scheme is one year behind schedule due to disagreements about site boundaries. Most consultant contracts commenced early in 1976. Loan No. 1049: Five Cities Water Supply: US$14.5 Million Loan of October 31, 1974; Effective Date: May 21, 1975; Closing Date: June 30, 1980. Due to administrative and managerial problems the project is running 8-10 months behind schedule. This delay together ANNEX II Page 13 of 14 with higher rates cf inflation than anticipated is expected to increase project costs 20-25 percent above the appraisal estimate. Water Enterprises have now been established in each of the five cities and good progress has been made in their staffing. The anticipated interdepartmental decree which would govern the relationship of the Water Enterprises to the Central Government's Directorate of Sanitary Engineering has not been issued; it is now proposed to clarify this relationship in a Presidential Decree which is being drafted. Loan No. 1054: Development Finance Co. (BAPINDO II): US$50 Million Loan of November 20, 1974; Effective Date: January 14, 1975; Closing Date: December 31, 1978. Commitments and disbursements initially were slower than expected, but they should increase in the second half of FY76. The progress of this project is satisfactory. Loan No. 1089: Second Fertilizer Expansion: US$115 Million Loan of February 28, 1975; Effective Date: April 29, 1975; Closing Date: August 31, 1978. WDrk on the PUSRI III project is proceeding according to schedule. Work on the related gas pipeline is experiencing delay, but steps are being taken to expedite impiementation. Loan No. 1100: Sixth Irrigation: US$65 Million Loan of April 10, 1975; Effective Date: June 20, 1975; Closing Date: June 30, 1982. Consultants for the project and technical assistance advisors have been selected. Construction work is about five months behind schedule due to the delay in selection of consultants. Loan No. 1127: Fourth Power: US$41 Million Loan of June 17, 1975; Effective Date: October 23, 1975; Closing Date: Jume 30, 1980. The options for a third 100 MW unit at Muara Karang, which were included in the tenders for the first two units financed under Credit 399, have been excercised. The project is on schedule and expected to be completed during 1978. Loan No. 1139: Fertilizer Distribution: US$68 Million Loan of July 10, 1975; Effective Date: August 28, 1975; Closing Date: December 31, 1978. Progress design is satisfactory. About 60 percent of the equipment and materials required for the project have been ordered. ANNEX II Page 14 of 14 Loan No. 1179: Agricultural Research and Extension: US$21.5 Million Loan of December 19, 1975; Effective Date: February 23, 1976; Closing Date: December 31, 1981. This loan became effective on February 23, 1976. Loan No. 1197: National Resource Survey and Mapping Project: US$13.0 Million Loan of February 5, 1976; Effective Date: April 2, 1976; Closing Date: December 31, 1981. This loan became effective on April 2, 1976. Loan No. 1236: Fourth Highway Project: US$130 million Loan of April 15, 1976; Closing Date: December 31, 1980 This loan is expected to become effective on August 13, 1976. Loan No. 1237: Fourth Education Project: US$37 million Loan of April 15, 1976; Closing Date: December 31, 1980. This loan is expected to become effective on July 14, 1976. ANNEX III Page 1 of 3 pages INDONESIA - SECOND SHIPPING PROJECT LOAN AND PROJECT SUMMARY Borrower: Republic of Indonesia Beneficiary: P.T. PANN (Pembangunan Armada Niaga Nasional-National Fleet Development Company) Amount: US$54.0 million. Terms: 15 years including three years of grace, at an interest rate of 8-1/2 percent per annum. Relending Terms: About US$50.0 million of the loan would be made available to P.T. PANN half as equity, half as debt. The debt portion would be on-lent at 12 percent interest per annum for up to 10 years, including one year of grace for used ships and for up to 5 years, including one year of grace, for ship rehabilitation. The remainder US$4.0 million would be used for technical assistance. Co-lenders: OECF of Japan, Norway and a consortium of banks organized by Norway. OECF is provided $25 million for 30 years including a grace period of 10 years at a 2-3/4 percent interest per annum. Norway is providing a total of $100.3 million of which $12.5 million would be grant and $87.8 million in the form of an export credit. The export credit would be for 15 years including 3 years of grace at 8-1/2 percent interest per annum, plus a single fee of 1.9 percent. The consortium of banks would provide up to $12 million for 5 years at an interest of 1-7/8 percent over the Eurodollar rate, plus management and commitment fees of 3/4 of 1 percent each. Out of the Norwegian grant, export credit and consortium banks loan, only $99.7 million would be used to finance the project, the balance would finance items not included in the project. Project Description: The project would provide for: (a) rehabilitation of about 54,500 dwt of existing inter-island ships; (b) procurement of about 52,000 dwt tons of used cargo ships; (c) procurement of about 50,250 dwt of new standard cargo and cargo-passenger ships; (d) scrapping of about 70,000 dwt of existing inter-island ships; (e) a technical assistance and training program to support and improve interisland fleet operations and planning and to train marine ANNEX III Page 2 of 3 pages officers and engineers; (f) a study to determine further needs for RLS shipping during Repelita II and beyond. The proposed loan would finance the procurement of most of the used ships and ship rehabilitation and about half of the foreign exchange cost of the technical assistance. Project Costs: The estimated cost of the project is about $195 million of which about $190 million or 97 percent is in foreign exchange. This total includes delivery cost of $8.5 million and provisions for price increases ($2.9 million) and physical contingencies ($2.5 million). Financial Plan: The proposed loan of $54.0 million would finance 28 percent of total foreign exchange cost, excluding interest during construction. The remainder of the financing required for the project will be provided by Japan ($25 million), Norway, including a consortium of banks organized by Norway ($99.7 million), Government ($0.4 million) and BAPINDO ($15.0 million). Interest during construction and part of the rehabilitation cost will be covered from PANN's cash generation. Estimated Disbursements: Procurement: Bank FY 1977 1978 1979 1980 Total Annual 35.4 Cummulative 35.4 15.1 50.5 2.8 53.3 0.7 54.0 54.0 For the procurement of used ships financed by the Bank, international competitive bidding is inappropriate. Instead, PANN's consultant naval architect-surveyor, shipbrokers and resident advisors will assist in convassing the international market, identifying and procuring appropriate used ships and in negotiating purchase and as necessary, repair contracts for them. The appraisal report of PANN and the prices of used ships will be approved by the Bank and the ships must be inspected before PANN purchases used ships. International competitive bidding is also impractical in the case of ship rehabilitation, and instead the procedures established under Credit 318-IND will be used. Special equipment for training included in the technical assistance component financed by the Bank will be procured following international competitive bidding, in accordance with the Bank's Guidelines for Procurement or through international shopping. ANNEX III Page 3 of 3 pages Technical Assistance: Economic Rate of Return: Appraisal Report: The technical assistance component of the project, of which the Bank will finance $3.8 million, provides for the continuation of the following existing programst (i) advisory services to BAPINDO, PELNI and SEACOM; (ii) training of crews. It also provides for the following new programs: (i) training of marine engineers and deck officers and procurement of special training equipment; (ii) provision of specialist services to the shipping industry, including those of domestic consultants; (iii) management consultant services for a review of PELNI operations; and (iv) an economic study of future requirements of fleet development in Indonesia. The overall economic rate of return for the project is 18 percent; 19 percent for used ships, 15 percent for new ships and over 100 percent for rehabilitated ships. No. 982a-IND dated April 15, 1976-East Asia and Pacific Projects Department IBRD 11493 _ TTnA A N D2 z05 INDONES i7 Bo- / ul 15a- ( g 150- zt 3r-*u7J5< s-3t_2 t 7;zS _Appraisal :3a PHILIPPINES South i\Ko t AaA L l A AY China I e.N a T Sea iRRu!Ei(, - (K AMAORPOT r 24-r___N_S Do mestic from/to I'tt oUfoid.Jo0o ~~~~~~~~EoPor/itopor tofrom Shi~p-r end aBin 1'o'100' D omestic from/to JO. ports - Toto, .h er L-pu,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~' 1. 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