Completion Report - Asian Development Bank · Director General S. Akhtar, Southeast Asia Department Director P. Giraud, Infrastructure Division, ... Project Completion Report Number

Project Number: 26036 Loan Number: 1220 December 2005

Indonesia: East Indonesia Airports Project

Completion Report

CURRENCY EQUIVALENTS

Currency Unit – rupiah (Rp)

At Appraisal At Project Completion 1 March 1993 27 October 2003

Rp1.00 = $0.000483 $0.000118 $1.00 = Rp2,067 Rp8,455

ABBREVIATIONS ADB – Asian Development Bank AP – PT (Persero) Angkasa Pura ATC – air traffic control DGAC – Directorate General of Air Communications DME – distance measuring equipment DVOR – DME-VOR EIA – environmental impact assessment EIRR – economic internal rate of return FAA – The Federal Aviation Administration (United States of America) FIRR – financial internal rate of return ICAO – International Civil Aviation Organization IDC – interest during construction ILS – instrument landing system MOC – Ministry of Communications O&M – operation and maintenance PCR – project completion report PIU – project implementation unit VOR – VHF omnidirectional radio range

WEIGHTS AND MEASURES °C – degrees centigrade m – meter m2 – square meter

GLOSSARY

DME – Radio transmitter that allows an onboard unit to compute the distance from the transmitter.

DVOR – Combination of DME and VOR, which enables non-precision approaches; i.e., approaches without vertical guidance.

VOR – Radio navigational aid for the horizontal guidance of an aircraft while enroute. It also can be used for non-precision approaches if combined with a DME.

NOTES

(i) Before 2000, the fiscal year (FY) of the Government and its agencies ended on

31 March. Since 2000, the fiscal year has ended on 31 December. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2003 ends in December 2003.

(ii) In this report, "$" refers to US dollars.

Vice President J. Eichenberger, Operations 2 Director General S. Akhtar, Southeast Asia Department Director P. Giraud, Infrastructure Division, Southeast Asia Department Team leader S. Date, Transport Specialist, Southeast Asia Department Team members X. Jia, Project Economist (Poverty Reduction)

O. Norojono, Project Economist (Infrastructure), Southeast Asia Department A. Hirano, Financial Specialist, Southeast Asia Department A. Armamento, Associate Operations Analyst, Southeast Asia Department

CONTENTS

Page

BASIC DATA ii

MAPS

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Project Outputs 2 C. Project Costs 3 D. Disbursements 4 E. Project Schedule 4 F. Implementation Arrangements 4 G. Conditions and Covenants 5 H. Consultant Recruitment and Procurement 5 I. Performance of Consultants, Contractors, and Suppliers 7 J. Performance of the Borrower and the Executing Agency 7 K. Performance of the Asian Development Bank 7

III. EVALUATION OF PERFORMANCE 8 A. Relevance 8 B. Efficacy in Achievement of Purpose 8 C. Efficiency in Achievement of Outputs and Purpose 9 D. Preliminary Assessment of Sustainability 10 E. Environmental, Sociocultural, and Other Impacts 10

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 11 A. Overall Assessment 11 B. Lessons Learned 12 C. Recommendations 12

APPENDIXES 1. Project Logical Framework 14 2. Chronology of Major Events 17 3. Project Costs: As Appraised and Actual 19 4. Disbursements (1994–2003) 20 5. Project Implementation Schedule (Appraised and Actual) 22 6. Status of Compliance with Loan Covenants 23 7. Financial and Economic Reevaluation 29

BASIC DATA A. Loan Identification 1. Country 2. Loan Number

3. Project Title 4. Borrower 5. Executing Agency 6. Amount of Loan

7. Project Completion Report Number

Indonesia 1220 East Indonesia Airports Project Republic of Indonesia, through the Ministry of Finance Directorate General of Air Communications, Ministry of Communications $110,000,000 as approved; $100,742,271.86 as disbursed PCR: INO–931

B. Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity (years) – Grace Period (years) 8. Terms of Relending (if any) – Interest Rate – Maturity (years) – Grace Period (years) – Second-Step Borrower

16 November 1992 2 December 1992 23 February 1993 24 February 1993 25 March 1993 24 May 1993 23 August 1993 29 July 1993 0 31 December 1997 27 October 2003 3 variable 25 5 none none none none

9. Disbursements a. Dates Initial Disbursement

1 February 1994

Final Disbursement

27 October 2003

Time Interval

116 months

Effective Date

29 July 1993

Original Closing Date

31 December 1997

Time Interval

53 months

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b. Amount ($ million) Category or Subloan

Original

Allocation

Last Revised

Allocation

Amount

Canceled

Net Amount

Available

Amount

Disbursed

Civil Works Manado 36.600 37.500 2.194 35.306 35.306Civil Works Ambon 24.800 27.200 (0.731) 27.931 27.931Equipment Manado 6.800 8.600 0.509 8.091 8.091Equipment Ambon 5.700 6.300 0.363 5.937 5.937Consulting Services 12.200 13.600 0.530 13.070 13.070Human Resources Development

1.500 1.500 0.093 1.407 1.407

IDC 9.000 9.000 0.000 9.000 9.000Unallocated 13.400 6.300 6.300 0.000 0.000 Total 110.000 110.000 9.258 100.742 100.742IDC = interest during construction. 10. Local Costs (Financed) – Amount ($) 0 – Percent of Local Costs 0 – Percent of Total Cost 0 C. Project Data

1. Project Cost ($ million) Item Appraisal Estimate Actual

Foreign Exchange Cost 114.0 126.3 Local Currency Cost 70.0 35.2 Total 184.0 161.5

2. Financing Plan ($ million) Item Appraisal Estimate Actual Implementation Costs Borrower-Financed 74.0 35.2 ADB-Financed 101.0 91.7 IDC Costs Borrower-Financed 0.0 25.6 ADB-Financed 9.0 9.0 Total 184.0 161.5 ADB = Asian Development Bank, IDC = interest during construction.

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3. Cost Breakdown by Project Component ($ million)

Component Appraisal Estimate Actual I. Base Costs Part A: Manado Civil Works 60.9 51.0 Part B: Ambon Civil Works 55.7 45.1 Part C: Equipment Manado 10.0 8.8 Equipment Ambon 9.2 6.3 Part D: Consulting Services 1. Detailed Design and Construction Supervision 9.4 10.3 2. Air Traffic Control and Maintenance Training 3.9 3.3 3. Cost Recovery Systems for MOC 0.7 0.7 4. ICAO Project Review and Monitoring 0.1 0.0 Part E: Human Resource Development 1.5 1.4 II. Contingencies 1. Physical Contingencies 12.9 0.0 2. Price Contingencies 10.7 0.0 III. IDC and Other Charges 9.0 34.6 Total 184.0 161.5 ICAO = International Civil Aviation Organization, IDC = interest during construction, MOC = Ministry of Communications. 4. Project Schedule

Item Appraisal Estimate Actual Date of Contract with Consultants Detailed Design and Construction Supervision Jun 1993–Jun 1997 Jun 1994–Jun 2003 Staff Training Jul 1994–Mar 1997 Feb 1996–Dec 1999 Development and Implementation of Systems for Monitoring Cost Recovery

Dec 1993–Jun 1996 Dec 1994–Oct 1995

Human Resources Development Jul 1994–Mar 1997 Mar 1995–Jun 2002Completion of Engineering Designs Dec 1993–Dec 1995 Dec 1994–Dec 1995Civil Works Contract Manado Date of Award Sep 1994 Feb 1997 Completion of Work Jun 1997 Aug 2002 Ambon Date of Award Sep 1994 Feb 1997 Completion of Work Jun 1997 Jun 2003 Equipment and Supplies Dates First Procurement Mar 1994 Jul 1999 Last Procurement Oct 1996 Aug 1999 Completion of Equipment Installation Dec 1996 Dec 2002 Start of Operations Manado Completion of Tests and Commissioning Jun 1997 Dec 2001 Start of operations Jul 1997 Jan 2002 Ambon Completion of Tests and Commissioning Jun 1997 Jun 2003 Start of Operations

Jul 1997 Jul 2003

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5. Project Performance Report Ratings

Ratings Implementation Period

Development Objectives

Implementation Progress

From 1 Dec 1998 to 31 Dec 2000 PS PS From 1 Jan 2001 to 31 Jan 2001 S PS From 1 Feb 2001 to 30 Apr 2001 PS U From 1 May 2001 to 31 Dec 2003 PS PS P = Satisfactory; PS = Partially Satisfactory; U = Unsatisfactory. D. Data on Asian Development Bank Missions

Name of Mission

Date*

No. of Persons

No. of Person-

Days

Specialization of Members**

Inception 14–23 Sep 1993 1 9 a Review 7–14 Dec 1994 1 8 a Review 3–15 Mar 1996 2 20 a, b Mid-term Review 6–13 Dec 1996 2 15 a, c Review 22 Oct–7 Nov 1997 4 30 b, d, e, f Review 8–18 Feb 1998 1 10 b Transport and Communication Sectors Phase II Mission (INO Portfolio Review)

14–23 Apr 1998 2+ 2+ g, h

Special Loan Administration 12–16 Oct 1998 1 2 I Review 8–19 Feb 1999 2 22 c, h Review 8–19 Aug 1999 1 10 j Review 13–23 Mar 2001 2 14 g, k Review 4–12 Mar 2002 1 9 j PAU Head Mission 20–24 May 2002 1 3 j Special Project Administration 18–26 Jul 2002 1 6 j Review 13–18 Nov 2002 1 3 j Review 26 May–2 Jun 2003 1 5 k Special Project Administration 15 Sep 2003 1+ 1+ k Project Completion Report*** 2–6 May 2005 3 15 j, l, m INO = Indonesia; PAU = Project Administration Unit. Notes: * Some mission dates also cover other loan missions.

** a – sr. financial analyst, b – project engineer, c – project specialist, d – sr. project engineer, e – sr. social development specialist, f – young professional, g – sr. project specialist, h – assistant project analyst, j – transport specialist, k – sr. transport specialist, l – staff consultant, m – associate operations analyst. *** The Project Completion Review Mission comprised S. Date, transport specialist; a staff consultant; and A.

Armamento, associate operations analyst, who visited the project sites. + These two missions had one day per person attending the mission.

I. PROJECT DESCRIPTION

1. The objective of the East Indonesia Airports Project (the Project) was to upgrade Manado (Sam Ratulangi) Airport in North Sulawesi Province and Ambon (Pattimura) Airport in Maluku Province. The Project aimed to provide reliable and safe all-weather operations to meet International Civil Aviation Organization (ICAO) standards, and to remove infrastructure constraints on the growth of international, domestic trunk, and pioneer air services. Further, the Project sought to promote sector developments, such as human resource development and institutional strengthening, as well as enhance civil aviation safety. Manado Airport is considered an important regional center to attract international commercial and touristic investment. Ambon Airport is a major hub in the domestic civil aviation network, where improved infrastructure would support local business environment and enhance interisland connections. Therefore, the overarching goal of upgrading these two airports was to assist in the development of commercial, agricultural, manufacturing, and tourism activities in the respective project areas, thus accelerating the economic development of the regions served by these airports. More balanced development of the air transport network in eastern Indonesia, and improved utilization of the country's airline fleet, were associated goals. 2. The Project included civil works and equipment for Manado and Ambon airports, as well as support for sector reforms, human resource development, and institutional strengthening. The project scope covered (i) upgrading both airports to ICAO safety standards, (ii) extending the runways to allow bigger aircraft to use the airports, (iii) constructing new passenger and cargo buildings, (iv) constructing ancillary buildings, (v) implementing flood-control measures, and (vi) training personnel. The Project’s logical framework1 is in Appendix 1. A project chronology is in Appendix 2.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

3. In the islands of eastern Indonesia, air transport plays a vital role beyond surface travel. Air transport is the fastest mean of transport to cover the long distances between islands. However, the usability rate2 of the project airports had been low at 40% due to a lack of investment in the infrastructure, which also limited operational safety. The runway length restricted operations to relatively small aircraft. As a result, the airports of Manado and Ambon did not serve their purpose well, which limited the accessibility of the regions served by these airports. The growth of passenger volumes was unable to keep up with the growth of demand, and lagged behind that of airports in other regions of the country. As a result, regional economic development had equally fallen behind. The Government of Indonesia wanted to promote regional growth by improving accessibility by air. Upgrading airport safety and passenger handling capacity would remove two major bottlenecks that had been serious impediments to economic growth. The assistance with human resources development and necessary reforms complemented the infrastructure measures, making important contributions to the enhancement of air safety and sustainability of the air sector. 4. In funding the civil aviation subsector, the Asian Development Bank’s (ADB) Medium-Term Strategic Framework of 1993–1996 focused on projects that could catalyze economic and 1 The Project RRP did not have any Project Logical Framework. It was therefore developed by the PCR mission. 2 Usability rate is the number of annual operating hours during which the airport is able to handle takeoffs and

landings, divided by the annual operating hours.

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social development, and which otherwise could not be supported cost-effectively by road (or other surface) transport. ADB intended to play a key role in strengthening sector planning and analysis, policy assessment, and operation of airport facilities. Specifically, ADB assistance focused on (i) promoting equitable and balanced interregional and intraregional development, and broader nationwide access to economic opportunities; (ii) improving cost recovery and self-financing from the users of civil aviation infrastructure; (iii) encouraging reforms aimed at improving civil aviation policies, institutions, and management, including stimulating the pace of private sector participation and competition in providing air transport services; and (iv) improving safety and security, with the assistance of ICAO. The project scope addressed (i) providing well functioning air transport infrastructure as a basis for market access; (ii) supporting initiatives to foster planned, equitable, and balanced regional development in the eastern islands of Indonesia; (iii) removing identified structural weaknesses and addressing a severe aviation safety problem; (iv) overcoming limited access to development finance; (v) supporting needed policy and institutional reforms; and (vi) enhancing cost recovery and self-financing.

5. Thus, the objectives of ADB’s Strategic Framework of 1993–1996 were reflected fully in the project objectives. They were fulfilled through financing new infrastructure and equipment, institutional reform coupled with training of personnel, and improved sustainability through adjustment of the airport tariff structure. The main objective of the Government (i.e., regional development) was also supported by the Project. B. Project Outputs

6. As envisaged at appraisal the Project was to have four components. Part A, civil works for Manado, included (i) extending the runway by 300 meters (m) to 2,800 m and resurfacing it, constructing new taxiways, and widening of the runway strip to 150 m on either side of the runway center line; (ii) extending the apron; (iii) building a new passenger terminal; (iv) constructing other buildings and ancillary facilities; and (v) hazard removal/obstacle marking and lighting. Part B, civil works for Ambon, included (i) extending the runway by about 650 m to 2,500 m and resurfacing it, building new taxiways, and widening of the runway strip to 150 m on either side of the runway center line; (ii) extending the apron; (iii) building a new passenger terminal; (iv) constructing other buildings and ancillary facilities; and (v) implementing flood control measures. Part C was to provide and install equipment at Manado and Ambon airports for (i) navigation; (ii) aviation telecommunication, including satellite terminals; (iii) meteorology; (iv) operations center; (v) maintenance and repair; (vi) utilities and terminal operations; (vii) crash/fire/rescue; (viii) security; and (ix) airport lighting. It also included the procurement of a radar system for Manado Airport. Part D covered human resource development, i.e., providing fellowships for post-graduate study and non-degree courses at accredited educational institutions to foster institutional strengthening in sector planning, regulation, and administration. 7. Consulting services were provided for detailed design and construction supervision, training for air traffic control (ATC) and equipment maintenance personnel, development and installation of systems for monitoring of cost recovery and tariff adjustment, and project monitoring and review by ICAO. 8. The Government financed land acquisition and resettlement in Manado and Ambon, which was completed before the loan became effective. This part of the Project was a prerequisite intended for timely project completion.

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9. Overall, all planned outputs were achieved with only minor deviations from the planned scope. However, implementation was significantly delayed due to the renegotiation of contracts as a result of the 1997 Asian financial crisis and civil unrest in Ambon. Both problems increased the project cost, though shifts in the rupiah exchange rate to the US dollar counterbalanced this effect. C. Project Costs

10. The Project was completed for $161.5 million, $22.5 million below the appraisal estimate. The civil works components generated $20.5 million of the savings, with an additional $4.1 million saved through the equipment component. The devaluation of the Indonesian rupiah against the US dollar, a direct effect of the Asian financial crisis in 1997, produced these significant savings. Labor costs, which were priced in rupiah and represented a large proportion of the civil works, also decreased significantly in US dollar terms due to the devaluation. Some of these savings were offset by costs that were higher than appraisal estimates. 11. Due to the interruption of construction at both airports, the workforce and consultants had to be demobilized and then remobilized. This increased the relevant costs. The actual costs for consulting services for detailed design and construction supervision, priced in foreign currency, exceeded the appraisal estimates by 10.5%. The costs estimated at appraisal and the actual costs of the project components are in Table 1. A more detailed breakdown of project costs is in Appendix 3.

Table 1: Estimated and Actual Project Cost ($ million)

Appraisal Estimate Actual Item Foreign

Exchange Local Cost

Total Cost

Foreign Exchange

Local Cost

Total Cost

I. Base Costs Part A: Manado Civil Works Part B: Ambon Civil Works Part C: Equipment (Manado and Ambon) Part D: Consulting Services 1. Detailed design and construction supervision

2. Air traffic control and maintenance training

3. Cost recovery systems for MOC 4. ICAO project review and consultation Subtotal Component D

Part E: Human Resources Development Subtotal (A+B+C+D+E) II. Contingencies 1. Physical contingencies 2. Price contingencies III. IDC and Other Charges Total (I+II+III)

36.6 24.8 16.5 8.5 3.0 0.6 0.1 12.2 1.5 91.6 7.4 6.0 9.0 114.0

24.3 30.9 2.7 0.9 0.9

0.1 0.0 1.9 0.0 59.8 5.5 4.7 0.0 70.0

60.9 55.7 19.2 9.4 3.9 0.7 0.1 14.1 1.5 151.4 12.9 10.7 9.0 184.0

35.3 27.9 14.0 9.4 3.0 0.6 0.0 13.0 1.4 91.6 0.0 0.0 34.6 126.2

15.7 17.2 1.1 0.9 0.3 0.1 0.0 1.3 0.0 35.3 0.0 0.0 0.0 35.3

51.0 45.1 15.1 10.3 3.3 0.7 0.0 14.3 1.4 126.9 0.0 0.0 34.6 161.5

ICAO = International Civil Aviation Organization, IDC = interest during construction, MOC = Ministry of Communications. Note: Differences between foreign and local cost from the basic data and Appendix 3 are due to rounding off. Source: Asian Development Bank estimates.

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D. Disbursements

12. Disbursements totaled about $100.7 million. Appendix 4 shows the actual quarterly disbursements. Loan disbursements were slow until the first quarter of 1997 due to the 12-month delay in the recruitment of consultants; and the 15-month delay in the detailed design, bidding, and award of the civil works contracts. It was also slow in 1998 due to the Asian financial crisis (paras. 14 and 18), and the delays in equipment procurement and installation. Despite a work stoppage at Ambon, disbursements in 1999 doubled those of 1998 due to the first payments to the equipment manufacturers made in that year. E. Project Schedule

13. Appendix 5 compares the actual project implementation schedule with the schedule at appraisal. The contracts for civil works, originally scheduled to be awarded in September 1994, were delayed by 25 months. In addition, the installation of equipment, which had been planned for October 1994, did not begin until October 2000, a delay of 63 months. The operations started in Manado in January 2002 and in Ambon in July 2003. The anticipated start of operations at both airports was July 1997 at appraisal, and therefore slipped by 54 and 72 months respectively. Overall, the project completion has suffered a delay of 72 months. Four extensions of the loan closing date were necessary: (i) for 24 months from 31 December 1997 to 31 December 1999, (ii) for 18 months to 30 June 2001, (iii) for 12 months to 31 June 2002, and (iv) for 12 months to 30 June 2003. 14. Several types of delays prompted these extensions: (i) the Government’s slowness in providing the necessary clearances in the selection of project consultants; and in processing the design, bidding, and award of the civil works contracts; (ii) the Asian financial crisis, which necessitated a renegotiation of contracts to avoid a work stoppage; and (iii) civil unrest in Ambon, which forced three stoppages of construction work. F. Implementation Arrangements

15. Indonesia’s Ministry of Finance was the Borrower of the loan. The Directorate General of Air Communications (DGAC), under the Ministry of Communications (MOC), was the Executing Agency. For efficient project implementation, a project implementation unit (PIU), headed by a project manager, was set up in Jakarta. Since the two project sites were decentralized, sub-PIUs were set up in Manado and in Ambon, each staffed with three employees. The sub-PIUs managed and executed with considerable autonomy, expediting the physical implementation of the Project. However, the PIU in Jakarta had difficulty maintaining and exerting control under this arrangement. During the Project, a shortage of staff in the sub-PIUs created project management deficiencies. Therefore, the size of the staff at the sub-PIU in Manado was expanded, which improved the performance. 16. Some aspects of the original project design were changed during implementation:

(i) Independent procurement of equipment was used for each airport, instead of joint procurement as planned at appraisal. This change was required to ensure that the work in Manado was not affected by delays caused by civil unrest in Ambon.

(ii) Loan proceeds financed $2.6 million worth of approach lighting equipment, which the Government originally was to finance.

(iii) Funds for consulting services were increased by $1.4 million to cover the increased costs incurred through delays and work stoppages, and for the additional design

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work to convert the old passenger terminal at Manado Airport into a cargo terminal. This work was not covered by the consultant’s initial scope of work.

17. During the civil unrest in Ambon, DGAC employed guards for the security of the site. This prevented looting of the materials and installed equipment, as well as damage to the finalized works. The Government financed this security arrangement. 18. The central services of MOC were responsible for many aspects that led to the six year delay, which were beyond the control of DGAC. This was MOC’s first ADB-financed project. As such, MOC had to familiarize itself with all applicable ADB procedures, which delayed the recruitment of project consultants. MOC’s interference (para. 31), as well as the project consultant’s rather passive attitude towards the selection of the contractors, delayed the signing of the contracts with the contractors. External factors caused further delays in civil works contracts. For example, when the contractors threatened to stop work due to the currency depreciation linked to the Asian financial crisis, the contracts were renegotiated. G. Conditions and Covenants

19. The status of compliance with loan covenants is in Appendix 6. Of the 28 loan covenants, 24 were complied with and four were partially complied with. DGAC partially complied with the following covenants:

(i) The transfer of the physical assets of Ambon Airport to the operator, Angkasa Pura I (AP I), had not been completed yet. At the time of finalizing this project completion report (PCR), the documents for the transfer of the assets had been completed, though DGAC and AP I had not signed them yet. This is to be completed within 2005.

(ii) A proper system for managing and disposing of solid waste has not been installed yet. The current system uses a site about 1 kilometer from the airport, where the solid waste is dumped and incinerated. This incineration in an open-walled enclosure is uncontrolled, posing a danger to the environment (toxic gases through incineration of plastics and possibility of the explosion of spray cans). From an environmental and safety perspective, this system is unacceptable. AP I proposed the financing and implementation of an appropriate facility for 2006. However, the Ministry of State-Owned Enterprises, which controls AP I, has not approved it yet. This too is to be completed within 2005.

(iii) DGAC and AP I did not submit a review of tariffs and charges annually. Charges are not adequate yet. The latest available rate schedule for tariffs and charges was submitted on 2 May 2005. AP I requested a tariff increase, which DGAC approved. However, implementation was put on hold.

(iv) After setting up the sub-PIUs, DGAC did not have full control of project management, and up to mid-1998 quarterly progress reports were not submitted regularly.

H. Consultant Recruitment and Procurement

20. Five consulting firms/consortiums and 12 contractors (who were also suppliers) carried out the project works. Procurement was conducted in accordance with ADB's Guidelines on Procurement. With one exception, international competitive bidding was used. No major problems were encountered in contract packaging. At the beginning of the Project, MOC and ADB attempted to resolve differences between MOC's procurement regulations and ADB's guidelines. However, these problems do not appear to have been resolved fully. In the

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procurement for the civil works and equipment contracts, MOC alleged irregularities (para 31), probably due to a lack of understanding of ADB's Guidelines for Procurement. 21. While five consulting services contracts were in the project scope at appraisal, only four were awarded: (i) detailed design and construction supervision, (ii) ATC and maintenance training, (iii) cost recovery systems for MOC, and (iv) human resources development. The fifth one, consulting services for ICAO project review and monitoring, was canceled. Recruitment process for each contract is summarized below. 22. On 2 November 1992, ADB approved advance recruitment of consultants for detailed design and construction supervision to expedite project implementation. The successful bidder was a consortium of an international consulting firm and a local partner. However, due to DGAC’s slow clearances during the selection of consultants, the contract was awarded 12 months after the target date. Delivery of services started immediately after the signing of the contract on 17 June 1994. The contract covered the (i) master plan review, detailed engineering design, and bid document preparation; (ii) assistance to DGAC for civil works and preparation of airport equipment procurement packages; and (iii) construction supervision of Manado and Ambon airport development. This contract was concluded in June 2003. 23. The consulting services contract for ATC and maintenance training was signed in February 1996. Implementation started in the second quarter of the same year, and was concluded in December 1999 after the contract was amended to cover some additional training. 24. The contract for the development of a system for monitoring cost recovery and tariff adjustments for MOC was signed in December 1994 and completed in October 1995. 25. The human resources development contract, awarded through direct selection, was signed in March 1995. Services were delivered from mid-1995 until May 2002. 26. The planned consulting services contract for project review and monitoring by ICAO was canceled, because the contractual requirements of the Government and ICAO were incompatible. Specifically, the Government requested a safety deposit, which ICAO’s contractual terms did not allow. Further, the Government considered the rates of the consultant excessively high. Despite extensive discussions, a resolution to this issue was impossible. In addition, since the Government considered sufficient the informal outputs on airport safety from the detailed engineering design consultants during the design phase, the subcomponent was canceled. Although this cancellation was only a minor deviation from appraisal in terms of contract value ($100,000). It resulted in safety and security issues and the compliance of operations with ICAO standards at both airports at lower levels than originally expected. 27. The awarding of civil works contracts was delayed by 25 months. The main reasons were (i) the delay in awarding the contract for detailed design and construction supervision, (ii) the longer-than-expected period for detailed design, and (iii) interference of MOC in the bidding for the contractors (para. 31). Five contracts were awarded for the airside and landside at Manado and Ambon airports, and for flood control measures at Ambon Airport. 28. Nine equipment procurement contracts were awarded. The late signing of these contracts was due to the delay in civil works. However, this process had its own additional delays. During the selection phase, MOC alleged irregularities, which required clarifications (para. 31). Later, the devaluation of the rupiah due to the Asian financial crisis required adjustments to the contracts, which took additional negotiation time.

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I. Performance of Consultants, Contractors, and Suppliers

29. No major problems with the consultants and contractors/suppliers were reported. The consultants established a good working relationship with DGAC, and helped solve the problems that arose from the slow work progress and work stoppages due to civil unrest in Ambon. 30. All consultants and contractors were cooperative in resolving the cash flow problems they encountered as a result of the Asian financial crisis of 1997. Overall, the performance of the consultants and contractors/suppliers is rated satisfactory. J. Performance of the Borrower and the Executing Agency

31. MOC’s performance had several shortfalls. From the beginning of the Project, MOC was slow in the necessary clearances in the selection of the consultants. Subsequently, in the procurement process of contracts, as mentioned in para 20, it interfered with the duties of ADB and DGAC, raising allegations of irregularities specifically with the selection criteria. This was due to the lack of understanding and awareness of ADB’s Guidelines for Procurement as opposed to the GOI’s own procurement guidelines. In another respect, however, MOC was well responsive to the need of amending the existing contracts, which became necessary to address the financial impact from the Asian financial crisis. Therefore, unnecessary disruption of work and further delays were avoided. 32. Given the severe social and economic environment in which the Project was carried out, DGAC performed satisfactorily. Despite the economic problems and civil unrest in Ambon, which resulted in work stoppages and put the Project at risk, DGAC facilitated the successful completion. DGAC’s compliance with ADB’s procedures, its thoroughness, and completeness of documentation is rated satisfactory. DGAC staff was technically competent. Some weaknesses were noted in project management, specifically in monitoring; in compliance with nontechnical loan covenants; and in cooperation with MOC and AP I. However, strengthening the staffing at the sub-PIU in Manado improved project management. K. Performance of the Asian Development Bank

33. Between 14 September 1993 and 6 May 2005, ADB fielded 18 missions: 11 for project review (including the PCR mission); 2 for special project administration; and 1 each for inception, mid-term review, special loan administration, and a Project Administration Unit head mission. ADB also fielded the Transport & Communications Sector Phase II Mission (as a part of the Indonesia Portfolio Review Mission), which included a project review. ADB appeared to attend to matters promptly, particularly regarding approvals, disbursements, and monitoring. However, MOC's misunderstanding of the ADB’s Guidelines for Procurement was not resolved fully at the beginning of the Project. 34. DGAC faced pressure from many directions to terminate the Ambon works during the civil unrest. However, ADB was confident that these works could be implemented, and strengthened its support to DGAC and the PIU. This is the main reason that the Project was completed eventually as designed at appraisal, despite an extraordinarily long delay. In light of these factors, the performance of ADB is rated satisfactory.

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III. EVALUATION OF PERFORMANCE

A. Relevance

35. The Project was in line with the Government’s main objectives to improve the safety and usability of Manado and Ambon airports. With the runway extensions—to 2,650 m for Manado and to 2,500 m for Ambon—and the installation of instrument landing system (ILS) approaches, the airports can accommodate larger aircraft serving longer routes (increasing air access to the eastern Indonesian islands) and operate under all weather conditions. Therefore, these infrastructure improvements have substantially increased the overall safety and usability of the airports. Further, they enhance the growth in commercial, agricultural, manufacturing, and tourism activities in the region, thereby accelerating economic development and reducing poverty of the region. 36. The traffic at Ambon Airport is still recovering from the downturn in recent years, while the upturn in traffic at Manado Airport only began in 2004. As such, a reliable and definitive assessment of the quantitative effects of the Project on demand and regional economic growth is difficult. However, the Project certainly helped remove some major obstacles to economic growth. 37. The Project was also relevant to the enhancement of cost recovery and self-financing, as well as policy and institutional reforms. The Project monitored the Government’s efforts to raise tariffs and fees to improve the economic performance of the Indonesian airports. It also monitored the partial deregulation of the Indonesian airline industry, and the granting of unlimited traffic rights to some Indonesian airports. These measures established a higher level of competition in air services, thus contributing to lower air fares and higher flight frequencies. The region's accessibility was enhanced as a result. 38. The changes in the project scope during implementation did not diminish the Project’s relevance. As shown by the project consultants’ analysis, the extension of the runway at Manado Airport to 2,650 m (instead of to 2,800 m, as designed) did not compromise the aircraft types, typical takeoff payloads, and trip distances. Although the increase of the glide slope for the ILS at Manado from 3.00° to 3.25° does not comply with ICAO standards, this did not undermine the safety of aircraft landing.3 The gains from having ILS guidance during the landing approach, even with the current glide slope, far outweigh not having one at all—as demonstrated by the positive responses from ICAO and airlines. The increase of the passenger terminal building at Manado Airport from 9,000 square meters (m2) to 12,000 m2 was wise since the building would otherwise be already operating beyond capacity. Therefore, the Project is rated highly relevant. B. Efficacy in Achievement of Purpose

39. The Project improved the safety of operations at both airports, achieving one of its main objectives. However, the safety improvements have not been maximized due to (i) lack of airside security caused by neighboring residents and animals trespassing through the airside fence, (ii) recurrent delays in the calibration of the ILS system, and (iii) deficiencies in the 3 ILS approaches typically apply a 3° glide slope. However, the terrain underneath the approach path to Manado

Airport did not allow such a standard glide slope without violating ICAO obstacle clearance requirements. To comply with these safety requirements, the glide slope was raised to 3.25°. For comparison, approaches to London City Airport follow along a 5.5° glide slope.

9

maintenance of the airfield and approach lighting. Therefore, because of these safety-related deficiencies, the safety improvements are rated partly efficacious. 40. Similar to the safety improvements, both airports removed the capacity bottlenecks in the passenger terminals. The human resources development program strengthened the capacity of DGAC’s planning personnel, AP I’s technical personnel, and ATC personnel. This also can be regarded as an indirect, though important, contribution towards country-wide air safety. The project components on terminal capacity and human resources development, therefore, are rated efficacious. 41. The Project’s contribution to improved regional development can be assessed only preliminarily. A comparison of demand before and after the Project indicates that the number of passengers (arrivals, departures, and transits/transfers) at Manado Airport increased from 242,000 in 1993 to 1.04 million in 2004—exceeding the appraisal forecast of 469,000. The demand at Ambon Airport rose from 187,000 in 1993 to 323,000 in 2004, nearly matching the appraisal forecast of 324,000. Thus, passenger throughput at Manado Airport increased fourfold in this period, compared with a 70% increase at Ambon Airport.4 Further, the demand at Ambon Airport is expected to continue to grow in the near future, as three airlines are planning to open new routes in 2005 (including one international route to Darwin, Australia). Therefore, Ambon Airport soon should surpass the appraisal target, though with a delay. In light of this, the achievement of project purpose for Manado Airport has been efficacious. For Ambon Airport, it is rated partly efficacious. The overall rating for the Project is efficacious. C. Efficiency in Achievement of Outputs and Purpose

42. The reassessed financial internal rate of return (FIRR) for Manado Airport is 2.2% whereas for Ambon Airport it is negative, at -2.3%. The FIRR for the entire Project is 0.5%. These should be compared with FIRRs of 12.9% and 6.7% for Manado and Ambon airports, and an FIRR of 10.3% for the Project as a whole, respectively, as computed at appraisal. Therefore, the Project is not financially viable. The economic internal rates of return (EIRR) are 20.5% and 12.3% for Manado and Ambon airports, respectively, and 17.6% for the Project as a whole. These are comparable with EIRRs at appraisal of 19.1% and 18.0% for Manado and Ambon airports, respectively, and 18.8% for the Project as a whole. This economic analysis does not take into account the high developmental impact of the Project in Ambon and Manado areas, as well as other areas of Indonesia such as Papua, which uses Ambon as an intermediate stop to access the rest of Indonesia. These indirect, but positive, impacts are not captured quantitatively in the traditional economic analysis. Overall, the Project and its components are economically viable. 43. The low financial rate of return is mainly due to the extraordinarily long delay the Project suffered, and the slow progress of the Government in increasing tariffs and fees. The financial viability was less affected by the decline in demand due to the Asian financial crisis in 1997, as passenger demand had rebounded when the Project was completed. However, the financial crisis delayed the Project, indirectly affecting viability. In addition, the civil unrest in Ambon had a negative impact on demand and the completion schedule. 4 These figures require interpretation: Manado Airport, completed in 2002, was in operation a year earlier than

Ambon Airport. This allowed the traffic growth for 2 years at Manado, a year longer than Ambon. Further, the decline in demand between 1997 and 1999 at Manado Airport was 33%, compared with 85% at Ambon Airport. Therefore, the demand at Ambon is recovering from a significantly lower base than Manado, but at a satisfactory growth rate.

10

44. From today’s perspective, although the Project is not financially viable, it was completed on budget, is economically viable and had a high developmental impact on the project area. Thus, the Project is rated efficient. The details of the financial and economic reevaluation are in Appendix 7. D. Preliminary Assessment of Sustainability

45. During site visits, the PCR Mission observed several deficiencies in the maintenance of facilities. Major problems included insufficient implementation of maintenance plans due to budgetary constraints, and a lack of awareness of the importance of keeping the facilities in good working condition. Specifically, the PCR Mission noted: (i) DGAC and AP I do not provide adequate infrastructure and procedures to meet security and safety requirements, as the airport fence has gaps and holes and generally does not comply with ICAO recommendations; (ii) a leak in the roof of the tower at Ambon Airport, which has not been repaired for a over a year; (iii) tall grass growing outside the runway strip at Ambon, and a fence covered with vegetation at both airports5; (iv) recalibration intervals of the ILS have exceeded the maximum allowed, due to unavailability of the calibration aircraft6, and as a result, there have been periods during which the ILS has not been usable and no precision guidance available for approach and landing; and (v) a faulty airfield lighting system at Ambon, and a defect in the ILS monitoring systems of both airports (one of which triggers false alarms frequently at Manado). Further, of the six maintenance personnel at Ambon Airport who received training under the Project, five were reassigned to Makassar airport (another major hub within the jurisdiction of AP I), where maintenance services for Ambon are provided remotely. This slows the reaction to technical problems, as demonstrated by the ILS monitoring problem at Ambon Airport. During the PCR Mission, a request to solve this problem was neglected for several days. Thus, the transfer of the maintenance personnel has been counterproductive, diminishing project benefits by lengthening response times to technical problems. Consequently, this undermines aviation safety. 46. Generally, the maintenance budgets at project airports are insufficient. In 2004, Rp3.962 billion was spent on maintenance at Manado Airport, while Rp1.684 billion was spent on maintenance at Ambon Airport. These figures represent 9.0% of total expenditures at Manado and 6.7% at Ambon. Meanwhile, the respective figure for AP I as a whole is 7.7%. Clearly, the share of maintenance expenditures at the two airports, as well as the average figure across all airports managed by AP I, is quite low. As such, the maintenance budget for AP I will have to be increased, in particular to allocate more funds to Manado and Ambon airports. In light of this situation, the sustainability of the Project is rated less likely. E. Environmental, Sociocultural, and Other Impacts

47. The environmental impact assessment (EIA) at appraisal concluded that the Project would not produce any major environmental impacts due to (i) the location of the project sites in sparsely populated areas; (ii) the mainly agricultural land use in the surrounding area; (iii) the low level of aircraft movements, and the limited night operations; and (iv) the absence of environmentally sensitive areas within, and immediately adjacent to, the airports. Noise pollution is a possible concern for the future due to aircraft movements at night, particularly if demand increases.

5 At the time of PCR mission some vegetation removal works were being conducted, however, at a slow pace. 6 Due to a shortage of calibration aircraft at DGAC, a timely recalibration of the ILS has not been possible on a

regular basis.

11

48. The provision of brick incinerators for combustible solid wastes was one of the environmental mitigation measures required in loan covenants. This facility for Ambon Airport, which consists of an open brick enclosure where incineration is not controlled or monitored, is not sufficient. Another site where similar waste is burned is closer to the airport and in the floodway of a river. Overall, the waste handling does not meet acceptable environmental and safety standards. Thus, an environmentally sustainable solution must be found as soon as possible. AP I has assured to comply with this covenant within 2005. 49. Acquisition of 161 hectares of land was necessary for the extension of Manado Airport. Since the land had been vacant, no residents had to be resettled. In Ambon, 74 hectares of land had to be acquired for the runway extension and flood-control measures, requiring the relocation of 300 families. The Government implemented and funded the land acquisition and resettlement. This process, which started before the Project began, has been completed successfully. Further, zoning regulations were implemented to protect the approach and departure paths to and from the runways. 50. Institutional development measures carried out under the Project covered (i) training for maintenance technicians of AP I at both airports; (ii) short courses and long-term degree programs for DGAC personnel in airport planning, engineering, and management, as well as business administration; and (iii) training for ATC personnel. Of the six AP I personnel at Ambon Airport who received factory training under the Project, five were transferred to Makassar airport (para. 45). Although the transfer occurred after project completion, it constitutes de facto noncompliance with a loan covenant. Since the trained personnel are no longer available at Ambon Airport, the purpose of the capacity building has not been met fully. 51. The fellowships for degree and non-degree programs provided to DGAC and AP I personnel have been satisfactory. The PCR Mission observed that those who took short-term, non-degree courses appear to have been able to apply the knowledge gained better in their everyday work than those who completed degree programs. This might be attributable to the operational nature of the short-term courses, which effectively assist on-the-job training. Further, since four degree candidates could not start their programs, the respective funds were reallocated for two-week short courses for an additional 29 candidates. 52. The training for ATC personnel was satisfactory. However, only a fraction of their deficiencies could be remedied during training: (i) low operational standards, (ii) lack of ICAO-based manuals, and (iii) lack of English language capabilities. Therefore, the training contract was amended to provide additional training, though continuous training is still needed. Based on these results, the institutional development element is rated as significant.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

53. Overall, the Project is rated successful based on a review of its high relevance, efficacy, efficiency, less likely sustainability, and significant environmental, sociocultural, and other impacts.

12

B. Lessons Learned

54. Probably the most positive general lesson learned is that a project can be completed successfully and within budget, despite extremely adverse external conditions, as long as all participants do their best to overcome such problems. 55. However, other specific lessons were learned that might be relevant to improving the output and success of future projects:

(i) When setting up a central PIU for a project with two physically separate sites, care must be taken to ensure that the PIU maintains firm control of overall management.

(ii) By signing the Loan Agreement, the Borrower accepts ADB's Guidelines on Procurement. Nevertheless, if the Borrower does not understand these guidelines completely, ADB should provide proper training to avoid delays in procurement.

(iii) Safety and security are important elements of airport design/layout and operations. To ensure that security installations will be effective and efficient, a consultant must be employed to review and monitor the design and implementation of these installations. ADB should adopt a mechanism to prevent cancellation of these essential services, which are related directly to achieving the project objectives.

(iv) Security measures are less effective or even ineffective if public awareness is minimal and AP I does not enforce security strictly. Monitoring of the adherence to relevant procedures should become a standard element of ADB’s follow-up.

(v) Since loan covenants sometimes relate to long-term issues, such as financial sustainability or maintenance of facilities, future interventions and dialogue should follow-up on these issues to provide incentives for the Borrower to comply with the covenants after project completion.

(vi) To ensure sustainability, AP I will have to allocate larger budgets for maintenance personnel and equipment at each of the airports. Additional funds will have to be used to hire more maintenance personnel, and to provide proper training for new and ongoing training for existing personnel. These expenses must be allocated irrespective of the financial performance of the airports since maintenance has a direct impact on safety and security, which must not be compromised.

C. Recommendations

56. Future Monitoring. At Manado Airport, passenger demand grew fourfold between 1993 and 2004. If it continues to grow at this pace, the passenger terminal capacity will be exceeded soon. This will result in congestion unless the daily demand peaks, which occur in the morning and afternoon, can be spread out evenly. DGAC and AP I should (i) monitor growth; (ii) introduce measures, such as peak pricing, to provide incentives for airlines to schedule off-peak flights; and (iii) plan for rearranging passenger terminal layouts to maximize its usage. Such demand management measures will improve financial/economic performance of the airport. 57. Recalibration of the ILS has not been done periodically and as a result, it has not been usable and no precision guidance available for approach and landing. The absence of ILS represents a significant degradation of flight safety, which is one main objective of the Project. DGAC should closely monitor the availability of the ILS systems at both airports and ensure a timely recalibration schedule in future by allocating the calibration aircraft efficiently. Further, the problem of malfunctioning ILS monitoring system at both airports represents a serious safety issue that must be urgently rectified.

13

58. Sustainability is an important aspect that should be monitored closely after project completion. Since this issue is linked closely with the availability of funds to maintain the facilities adequately, further adjustment of tariffs and fees should be pursued to ensure financial stability. 59. DGAC and AP I should adopt life cycle, cost-based maintenance approaches for each airport. Adequate budgets must be in place to avoid a shortage of maintenance funds and prevent slippage of maintenance standards. 60. Covenants. Covenants that are still being complied with should be closely monitored to achieve full compliance as early as possible. 61. Further Action or Follow-Up. Lessons learned (paras. 54–55) should be considered by the Borrower and ADB to formulate future actions. Training, safety and security, maintenance, awareness, and sustainability should be integrated into future dialogue with the Government during country portfolio reviews, and for consideration of possible additional assistance and future interventions in the civil aviation sector. 62. Additional Assistance. The deficiencies in the ATC system of Indonesia are more serious than anticipated. Additional assistance through small-scale technical assistance might help address the training needs of ATC personnel. This would address the serious safety issue as experienced for the Project, as well as benefit the Indonesian air sector. This assistance could be provided after the ongoing reform of the civil aviation sector, if ADB stays involved in this sector during the next Country Strategy and Program period. Although there were substantial needs for airport infrastructure development in Indonesia, ADB and the Government still have to agree on ADB expected role in this development.

14 Appendix 1

PROJECT LOGICAL FRAMEWORK

Design Summary

Performance Indicators/Targets

Monitoring Mechanisms

Assumptions and Risks

Goals Upgrading of infrastructure at Manado and Ambon airports. Capacity building.

Safer air transport and increased capacity. Increased level of competence.

DGAC will transfer airport operations and assets to AP I. MOC will increase rates and fees. Training will be effective.

Purpose To increase flight safety and usability, and to increase capacities at the project airports, thereby enhancing the economic development of the east Indonesian islands region. To improve airport planning and operations capacity inside DGAC, to improve maintenance capabilities inside AP I, and to increase the quality of ATC services.

Instrument approach capability, payload/range extension for design aircraft and accommodation of larger aircraft (Ambon), runway capacity increase, increase of the passenger and cargo handling capacity. Higher level of planning, management, and operational standards.

PCR PCR, final report on ATC training

Due to delayed recalibration, the system is not available during some periods. Training is efficient and effective.

Outputs Upgrade and refurbishment of the facilities, personnel training and development, and implementation of tariff adjustment and monitoring systems for MOC.

Manado: Installation of ILS CAT I approach on both runways, extension of runway to 2,650 m, construction of a new apron of 54,378 m2, construction of a new passenger terminal with 18,930 m2 floor space (annual capacity of about 1.5 million passengers), conversion of the old passenger terminal into a cargo facility of 3,546 m2 floor space, and construction of a new parking lot of 13,411 m2.

Monthly progress reports.

Currency fluctuations and delays.

Appendix 1 15

Design Summary




- by June 1997 Ambon: Installation of ILS CAT I approach on runway 04 and a DVOR approach on runway 22, extension of runway to 2,500 m, construction of a new apron of 37,370 m2, construction of a new passenger terminal (est. annual capacity of about 0.6 million passengers), construction of a new cargo facility of 870 m2 floor space, and construction of a new parking lot of 10,574 m2. - by June 1997 Long-term post-graduate students: 11 fellowships for degree programs in airport planning and management (2) and MBA (9). - by June 1997 Short-course students: 44 fellowships for courses in procurement management (5), airport engineering (5), airport electrical maintenance (1), airport operations maintenance (1), advanced communications maintenance (1), aviation management (2), airport systems (6), legal agreements and contracts (4), airport management (1), airport master planning (2), airport environmental protection (2), airport operations & transportation (2), airport planning and transport

Monthly progress reports Consultant’s report Consultant’s report

Currency fluctuations, delays, civil unrest (looting, and destruction/damage to works completed and equipment installed). Delays, health issues, and lack of qualification of the candidates.

16 Appendix 1

Design Summary




management (2), airport transport management (2), airport commercial management (1), airport systems and plans (1), airport design and construction (1), airport electrical maintenance (1), and airport commercial management (4). - by June 1997 Training of ATC staff and assistants. - by March 1997 Development and installation of tariff adjustment and monitoring systems. - by June 1996

Consultant’s report Consultant’s report.

Delayed recruitment of the consultants. Underestimation of the scale of the training needed. Additional training needed. Application of the system by MOC.

Inputs Financial resources: ADB loan MOC counterpart financing

$110.00 million $74.00 million

Actual costs: $100.74 million $60.76 million

Completion within budget, despite effects of Asian financial crisis and civil unrest in Ambon. Total delay: 6 years. Change of counterpart financing share due to reallocation of funds as a result of the Asian financial crisis.

ADB = Asian Development Bank, AP = PT (Persero) Angkasa Pura, ATC = Air Traffic Control, CAT = category, DGAC = Directorate General of Air Communications, DVOR = combination of DME and VOR which allows to conduct non-precision approaches; i.e. approaches without vertical guidance, ILS = instrument landing system, MBA = Master of Business Administration, MOC = Ministry of Communications, PCR = project completion report. Source: Project Completion Report Mission.

Appendix 2 17

CHRONOLOGY OF MAJOR EVENTS

Date Event

2 November 1992 Management Review Meeting.

23–24 February 1993

Loan negotiations at ADB headquarters.

25 March 1993 Loan approval.

24 May 1993 Loan signing in Manila.

29 July 1993 Loan effectiveness.

1 February 1994 First disbursement of $64,281 (IDC).

17 June 1994 Award of first consulting services contract for detailed design and construction supervision.

9 November 1994 First disbursement for consulting services category of $609,492.

30 June 1997 Original targeted completion date of the project.

31 December 1997 Original closing date.

3 June 1998 The potential loan surplus of $12 million, identified during Second Phase Portfolio Review for transport and telecommunication, is deleted because of expected higher cost of major civil works and equipment.

January–September 1999

Project implementation activities in Ambon interrupted for 8 months due to social disturbance.

31 December 1999 First extension of loan closing date. Delay in project implementation is attributed to (i) 12-month delay in recruiting consultants for detailed design and construction supervision; and (ii) 15-months delay in the design, bidding, and award of civil works contracts.

March–September 2000

Project implementation activities in Ambon interrupted for 6 months due to social disturbance.

30 June 2001 Second extension of loan closing date. Extension by 18 months needed to complete all project works.

June–August 2001 Project implementation activities in Ambon interrupted for 3 months due to social disturbance.

18 Appendix 2

Date Event 1 August 2001 Approval of minor change in implementation arrangements and

reallocation of loan proceeds. Partial cancellation of $6,300,000 reduces loan amount to $103,700,000. MOF requests ADB approval for (i) change in the financing arrangement so that the loan, instead of the Government, will finance the $2.6 million foreign exchange cost of the airports’ approach lighting equipment; (ii) reallocation of loan funds to cover increased costs of civil works, equipment, and consulting services; and (iii) cancellation of $6.3 million from the unallocated category of the loan.

30 June 2002 Third extension of loan closing date. Extension by 12 months necessary due to (i) 12-month delay in recruiting consultants for detailed design and construction supervision; (ii) 15-month delay in the design, bidding, and award of the civil works contracts; and (iii) interruption of the construction activities at Ambon for 14 months due to civil unrest. Further, the 1997 financial crisis slows the progress of the civil works, as the currency depreciation creates cash flow problems that force contractors to reduce their activities significantly pending contract amendments. Amending civil works contracts to compensate for the currency depreciation through adjustments of the contract prices takes 16 months. Overall implementation delay is about 5 years.

15 July 2002 Additional 1-year extension approved from 30 June 2002 to 30 June 2003, and reallocation of loan proceeds to cover actual commitments by loan category.

August 2002 Manado Airport completed.

30 June 2003 Revised closing date. Overall implementation schedule is 6 years behind appraisal schedule, which envisaged completion by 30 June 1997.

15 July 2003 New facilities at Ambon Airport are handed over to AP I and are operational.

27 October 2003 Actual loan closing date and cancellation of $2,957,728.14. ADB = Asian Development Bank, AP = PT (Persero) Angkasa Pura, IDC = interest during construction, MOF = Ministry of Finance. Source: Project Completion Report Mission.

Appendix 3 19

ICAO = International Civil Aviation Organization, IDC = interest during construction, MOC = Ministry of Communications. Source: Asian Development Bank.

20 Appendix 4

DISBURSEMENTS

Table A4: Actual Disbursements, 1994–2003a

($)

Year Quarter Amount Disbursed Annual Total Cumulative Total

1994 I 64,281 64,281 II 64,281 III 68,590 132,871 IV 1,106,434 1,239,305 1,239,305

1995 I 203,937 1,443,242 II 1,604,171 3,047,413 III 333,004 3,380,417 IV 1,170,808 3,311,920 4,551,225

1996 I 886,824 5,438,049 II 1,470,112 6,908,161 III 536,142 7,444,303 IV 356,464 3,249,542 7,800,767

1997 I 698,049 8,498,816 II 10,707,416 19,206,232 III 2,641,853 21,848,085 IV 5,001,019 19,048,337 26,849,104

1998 I 3,113,097 29,962,201 II 483,976 30,446,177 III 2,755,837 33,202,014 IV 593,628 6,946,538 33,795,642

1999 I 1,484,660 35,280,302 II 1,770,416 37,050,718 III 8,387,679 45,438,397 IV 2,111,384 13,754,139 47,549,781

2000 I 3,908,170 51,457,951 II 7,114,834 58,572,785 III 4,342,278 62,915,063 IV 5,699,616 21,064,898 68,614,679

2001 I 2,154,776 70,769,455 II 2,471,809 73,241,264 III 4,816,708 78,057,972 IV 4,045,428 13,488,721 82,103,400

2002 I 1,587,133 83,690,533 II 4,835,221 88,525,754 III 2,141,937 90,667,691 IV 2,721,786 11,286,077 93,389,477

2003 I 490,034 93,879,511 II 1,531,701 95,411,212 III 4,519,588 99,930,800 IV 811,472 7,352,795 100,742,272

a There was no forecast of disbursement at appraisal. Source: Asian Development Bank.

Appendix 4 21

Figure 4: Disbursement Chart

0

20,000

40,000

60,000

80,000

100,000

120,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

Cum

ulat

ive

Tota

l in

$'00

0

Figure A4: Disbursement Chart

ATC = Air Traffic Control, ICAO = International Civil Aviation Organization. Source: Asian Development Bank.

22 A

ppendix 5

Appendix 6 23

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant

Reference in Loan

Agreement

Status of Compliance Sector 1. DGAC in consultation with ADB transfer project responsibility of the Manado Airport from DGAC to AP I and within one year enter an agreement with AP I terms and conditions satisfactory to ADB.

Schedule 6, para. 15(a).

Complied with (delayed). Manado Airport operation transferred to AP I. Transfer of assets agreement submitted to ADB on 18 December 2003.

2. Not later than 31 May 1993, to calibrate to the standards of ICAO or the FAA, all navigational, telecommunication and related equipment located at Ambon and Manado Airports.

Schedule 6, para. 17.

Complied with (delayed). ICAO reviewed the design of Ambon and Manado airports. Manado equipment was calibrated in 2002, and Ambon equipment calibrated in June 2003.

3. Not later than 1 April 1994, to permanently locate at the Project airports adequate numbers of suitably qualified equipment maintenance technicians, test equipment, service manuals and spare parts, or enter into a suitable maintenance contract with a suitable qualified equipment maintenance contractor.


Complied with (delayed). AP I assigned 15 additional maintenance technicians to cover the minimum maintenance requirements. However, after project completion, some maintenance technicians were transferred to Balikpapan Pandang, where maintenance is now provided remotely.

4. Submit to the ADB a study on terms and conditions for transferring facilities at Ambon Airport from DGAC to AP I or AP II not later than 30 June 1995 prior to mid-term review of the Project.


Partly complied with. Ambon Airport operation was transferred to AP I. Assets will be transferred to AP I, at final stage. Once finalized, the transfer should be submitted to ADB.

5. Prior to 31 December 1993, DGAC shall finalize its ongoing study on transfer of air traffic control and service facilities to a state-owned enterprise.


Complied with (delayed). Study was submitted in 2002.

24 Appendix 6

Covenant

Reference in Loan

Agreement

Status of Compliance 6. Borrower shall, with the assistance of consultants assist to develop its capability plan and execute airport development projects.


Complied with.

Environmental 1. DGAC to establish before completion of the Project, an appropriate waste management system. Oil separators and incinerators shall be provided.


Partly complied with. Waste treatment facilities have been provided at Manado Airport under AP I financing. Sewage system and oil separators have been provided at Ambon Airport, where a solid waste management system has not been established. DGAC and AP I assured to complete this within 2005.

Social 1. Acquisition of land shall be finalized prior to disbursement of the loan proceeds.

Schedule 6, para. 14(b).

Complied with. Acquisition of the necessary land for approach lighting outside the airport system at Ambon Airport has been completed.

Financial 1. The Borrower shall ensure that tariffs and charges applied by AP I for airport resources are adequate, and submit to the ADB results of annual review of tariffs and charges commencing 1 January 1994.


Partly complied with. AP I and DGAC tariffs and charges from 1995 to 2001 were submitted to ADB in April 2002. The 2002 update was submitted to ADB on 2 May 2005. Recovery of operational costs has not been achieved for both airports with the present level of tariffs. DGAC reported that it approved the tariff increase request from AP I, but put on hold its implementation.

Appendix 6 25

Covenant

Reference in Loan

Agreement

Status of Compliance 2. Borrower shall cause AP I to generate funds from internal sources sufficient to finance not less than 20 percent of its three-year average capital expenditures commencing 1995.


Complied with on the basis of AP I’s audited financial statements for 2003/2004.

3. Borrower shall cause AP I to maintain its revenues at a level which, for each fiscal year, will produce internally generated funds equal to at least 1.2 times the debt service requirements for this fiscal year.


Complied with on the basis of AP I’s audited financial statements for 2003/2004.

4. Furnish for ADB's review/comments its Corporate Plan for five fiscal years before 30 June of each year, commencing in June 1993.


Complied with. The 2001–2005 plan in Bahasa was submitted in August 2005.

5. DGAC shall continuously monitor, assess and report on physical and financial aspects of the Project.


Partly complied with. DGAC Jakarta no longer had full power to ensure overall project management, including physical and financial aspects. Sub-PIUs are performing these management activities. DGAC has submitted quarterly progress reports for the work at Ambon Airport since August 1997. No reports were received for October/November 1997 and February–July 1998. Reports have been submitted regularly since then.

6. Borrower shall furnish to ADB not later than nine (9) months after the end of each fiscal year a copy of the audited project accounts (APA), including separate accounts for Manado Airport and Ambon Airport.

Section 4.06.

Complied with (2001, 2002, and 2003).

7. Borrower shall furnish to ADB not later than six (6) months after the end of each fiscal year a copy of AP I unaudited corporate financial statements.

Section 4.06.

Complied with for 2001. Audited financial statements were submitted directly for FY2002 and FY2003. Since audited statements have

26 Appendix 6

Covenant

Reference in Loan

Agreement

Status of Compliance

8. Borrower shall furnish to ADB not later than nine (9) months after the end of each fiscal year a copy of AP I audited corporate financial statements.

Section 4.06.

been submitted, this is irrelevant. Complied with (delayed). Complied with, though late for 2001, 2002, and 2003.

Others 1. Established, Staffed, and Operating PMU/PIU. DGAC shall establish a Project Implementation Unit (PIU) in Jakarta within one month of the effective date of the loan


Complied with. However, due to decentralization, the sub-PIUs at Manado and Ambon airports essentially have managed the Project. While such arrangements are adequate to expedite physical implementation, they undermine the overall project management by the Jakarta-based PIU. Because sub-PIUs send withdrawal applications directly to the Ministry of Finance, the PIU has difficulties maintaining project accounts. Also, delegation of management to sub-PIUs prevents PIU from fulfilling its obligation as the Executing Agency, and undermines ownership and commitment by DGAC Jakarta.

2. Fielding of Consultants. In the carrying out of the Project, the Borrower shall cause competent and qualified consultants and contractors, acceptable to the Borrower and the ADB, to be employed to an extent and upon terms and conditions satisfactory to the Borrower and the ADB.

Section 4.03(a).

Complied with (delayed).

3. DGAC shall establish a Project Steering Committee within one month of the effective date of the loan.

Schedule 6, para. 2 & 3.

Complied with.

Appendix 6 27

Covenant

Reference in Loan

Agreement

Status of Compliance 4. Prior to finalizing the contract with the consultants for detailed design and construction supervision, a sub-PIU's to be established at both Manado and Ambon airports.


Complied with.

5. Review of the design parameters formulated by the consultants within one month of the fielding of the consultants for detailed design and construction supervision.


Complied with.

6. Review of the detailed infrastructure design within 2 months of the completion of consultant’s surveys.


Complied with.

7. DGAC shall coordinate training activities at Curug and Balikpapan Pandang with other donors to the sector.


Complied with.

8. DGAC within four months of the effective date establish an overseas fellowship program (OFP) for selected MOC and DGAC professional staff, and submit to the ADB for approval an overall framework of OFP.


Complied with.

9. PIU to obtain ADB's approval of proposed candidates for overseas training.


Complied with.

10. ADB and the Borrower shall carry out by the end of 1995 a mid-term review of project implementation and its benefits.


Complied with.

11. Promptly after physical completion of the Project, but in any event not later than three months thereafter or such later date as may be agreed between the Borrower and ADB, the Borrower shall prepare and furnish to the ADB a report, in such form and in such detail as the ADB shall reasonably request, on the execution and initial operation of the Project, including its costs, the performance by the Borrower of its obligations under the Loan Agreement and the accomplishment of the purposes of the Loan.

Section 4.07(c).

Complied with (delayed). PCR submitted on 7 March 2005, incorporating results of BME study.

28 Appendix 6

Covenant

Reference in Loan

Agreement

Status of Compliance 12. DGAC shall evaluate the benefits of the Project after it has been completed according to terms of reference acceptable to ADB.


Complied with. The first phase of the BME study was carried out from July to October 2003, and final report submitted to ADB in May 2005 during a review mission.

ADB = Asian Development Bank, AP = PT (Persero) Angkasa Pura, APA = audited project account, BME = Benefit Monitoring and Evaluation, DGAC = Directorate General of Air Communications, FAA = Federal Aviation Administration, ICAO = International Civil Aviation Organization, MOC = Ministry of Communications, OFP = overseas fellowship program, PCR = project completion report, PIU = project implementation unit, PMU = project management unit. Source: Asian Development Bank.

Appendix 7 29

FINANCIAL AND ECONOMIC REEVALUATION A. Traffic Forecasts and Capacity Analysis

1. Assumptions. Air traffic at Manado Airport is still in the process of recovering from the effects of the Asian financial crisis and other terrorist attack events and internationally spread epidemics, which have had a negative impact on air transport in the more recent past. Actual historic demand does therefore not display a continuous trend that lends itself to building a forecast on regression analysis. In the light of this and under consideration of the fact that the growth rate of recent years relates to the phase of recovery, and that growth will again slow down once the demand level of the pre-crisis years will have been reached, a judgmental forecast approach has been adopted. 2. The forecast for the do-nothing case reflects that the old passenger terminal has reached saturation at completion of the project. This means that in the without project case growth comes to a halt. So does cargo demand since before the project there were no separate cargo facilities available. In the with-project case no restrictions apply to growth. International traffic will grow at a faster pace than domestic traffic since it is growing from a low base and is benefiting the most from the airport upgrading measures, the ILS and the longer runway in particular. 3. Summary of Traffic Forecast: Manado Airport. Table A7.1 shows the RRP-forecast and the revised forecast including actual traffic until 2004 (post-implementation Stage). In 2004 actual domestic demand had far overtaken the previous forecast, whereas the international demand had remained behind. However, international demand has been increasing since 2000, growing at a high rate. Overall, over the past few years all traffic segments have been growing at a high rate. The growth curve is expected to flatten out over the coming years and turn into a linear trend. Between 2004 and 2022, domestic passenger demand is expected to increase annually by an average of 6.3%, international demand by 20% and cargo by 10% (these high increases are due to the current trend and future envisaged demand from planned international routes).

Table A7.1: Traffic Forecast Comparison for Manado Airport

RRP’s Forecast PCR’s Forecast Year Domestic

Passengers International Passengers

Cargo (t) Domestic Passengers

International Passengers

Cargo (t)

1996 245,996 37,381 1,269 370,837 3,746 8,3902000 264,728 100,272 5,139 308,782 3,119 6,7682004 276,373 193,272 10,853 1,018,049 20,777 8,6872005 280,725 219,275 12,463 1,170,757 24,932 9,5562010 307,235 377,765 20,655 1,727,833 62,038 15,3902015 392,119 482,134 26,361 2,277,833 154,371 24,7852020 n.a. n.a. n.a. 2,827,833 384,125 39,9172022 n.a. n.a. n.a. 3,047,833 553,140 48,299

Source: Project Completion Report Mission. 4. Summary of Traffic Forecast: Ambon Airport. Table A7.2 shows the RRP-forecast and the forecast for this PCR including actual traffic until 2004 (post-implementation Stage). In 2004, actual domestic air traffic was lagging far behind the previous forecast. Due to lack of

30 Appendix 7

data on international passengers, no comparison can be made for this traffic segment. Despite the lagging behind the previous forecast, actual demand has been growing strongly during the past few years. It may be expected that the growth curve will flatten out in the coming years and will turn into a linear trend. Between 2004 and 2022, domestic passenger demand is expected to increase by an average of 7.3% and cargo by 7.2%. Due to the very low base in 2004, international passenger traffic will increase by about 17.8% annually (this high increase is due to the current trend and future envisaged demand from planned international routes) between 2005 and 2022.

Table A7.2: Traffic Forecast Comparison for Ambon Airport

RRP’s Forecast PCR’s Forecast

Year Domestic Passengers


Cargo (t) Domestic Passengers


Cargo (t)

1996 198,903 20,589 1,922 272,904 N/A 2,2142000 212,900 64,100 4,288 40,474 N/A 1432004 248,190 75,766 5,384 323,424 N/A 1,7852005 263,000 79,000 5,734 413,424 6,000 2,3212010 338,395 106,605 7,856 673,424 43,000 3,8032015 431,887 136,058 10,026 873,424 73,000 4,8032020 n.a. n.a. n.a. 1,073,424 103,000 5,8032022 n.a. n.a. n.a. 1,153,424 115,000 6,203Source: Project Completion Report Mission.

5. Airport Capacity Analysis: Manado Airport. Assuming that the airside facilities can accommodate the aircraft movements till 2022, only the airport terminal capacity is analyzed. With a 12,000 square-meter terminal, the airport will be able to handle about 800 passengers7 during the typical peak hour. Since over the analysis period the demand will exceed the existing capacity, an additional two-stage terminal development is envisaged. Construction for these expansions is assumed to take place in 2007 and 2015 and add a total of 11,610 square-meters to the terminal building (Table A7.3).

Table A7.3: Capacity Analysis for Manado Airport

Year Annual passengers

(arrival and departure)

Peak hour passengersa

Building Floor Space (square meters)

2003 859,600 549 8,238b 2007 1,433,700 800 12,000 2015 2,432,200 1,120 16,800 2022 3,600,100 1,574 23,610

a Using Federal Aviation Administration method (Based on 15 square meters for peak-hour passengers; standard ranges from 14 for domestic passengers to 20 for international passengers) b Before opening the new terminal (original floor space given here).

Source: Project Completion Report Mission.

7 The value for the typical peak hour (30th busiest hour) is determined using Federal Aviation Administration method.

Appendix 7 31

6. Airport Capacity Analysis: Ambon Airport. Assuming that the airside facilities can accommodate the aircraft movements till 2022, only the airport terminal capacity is analyzed. The existing terminal is capable of handling some 460 passengers during peak-hours. As in Manado, before 2022 the demand will exceed the existing capacity, thus an additional two-stage terminal development in 2007 and 2013 is envisaged. It is expected to be carried out in two stages and add total of 3,850 square-meters to the terminal building (Table A7.4).

Table A7.4: Capacity Analysis for Ambon Airport

Year Annual passengers

(arrival and departure)

Peak hour passengersa

Building Floor Space (square meters)

2003 216,000 354 5,314b 2007 624,400 459 6,878 2013 900,400 570 8,550 2022 1,268,400 715 10,728

a Using Federal Aviation Administration method (Based on 15 square meters for peak-hour passengers; standard ranges from 14 for domestic passengers to 20 for international passengers) b Before opening the new terminal (original floor space given here).

Source: Project Completion Report Mission. B. Financial Analysis 7. The financial reevaluation of the Project has been carried out on the “with” and “without” project basis. The with-project case refers to the expansion and refurbishment of the airport facilities, whereas the without project case builds on the assumption that the airport infrastructure existing before the project implementation remains unchanged. The major assumptions are: (i) all costs and revenues are in 2004 price levels; (ii) capital costs include physical contingencies but are exclusive of price contingencies and interest during construction; (iii) aeronautical charges and fees will be increased by 100% in 2007 and grow at a real rate of 2% thereafter (this tariff hike is in anticipation of the passing through the political process of DGAC’s request); and (iv) non-aeronautical revenues increase at a real rate of 3% over the period of analysis. The analysis compares the expenditures incurred in upgrading the facilities with the benefits received, i.e., increased revenues through higher passenger demand and aircraft movements, and additional benefits that contribute to economic development of the region.

8. The financial internal rate of return (FIRR) computation follows the methodology used in the RRP. Incremental operating and maintenance costs correspond with those used in the analysis for computing economic internal rate of return (EIRR); incremental income taxes are computed as incremental revenues less incremental operating costs and an estimate of the depreciation for the facilities, based on the assumption of a useful life of 50 years. The main inputs into the computation are: (i) the traffic forecast, (ii) the effective tariff and fee structure, and (iii) information from the airport’s revenue statements. 9. The results of the financial reevaluation are given in Tables A7.5, A7.6 and A7.7. The FIRR for Manado airport is 2.2% whereas for Ambon airport it is negative. The FIRR for the entire Project is 0.5%. These should be compared with FIRRs of 12.9% and 6.7% for Manado and Ambon airport, and an FIRR of 10.3% for the Project as a whole respectively, which had been computed at appraisal.

32 Appendix 7

10. The loss of the financial viability is to be attributed to a number of reasons: (i) the long delay at which the project has been completed; (ii) the lack of progress with respect to the increase of tariffs and fees made so far; (iii) the very substantial devaluation of the Indonesian rupiah by a factor of four which has experienced versus the dollar, between the time of appraisal and the project completion; and (iv) the fact that the capacities of the new passenger terminals will soon be exhausted and new investment will be necessary for capacity expansion. 11. There were no details available for this analysis about the evaluation conducted at the time of appraisal. Assumptions made in these calculations are not clear. It appears, however, that some of the assumptions made were very optimistic. From today's point of view it is not a surprise that the $2.9 million of total revenue of Manado airport and $586,000 revenue of Ambon airport as anticipated to generate in 2004 fall short by far from what could be considered a valid basis to finance an investment of more than $120 million.

Appendix 7 33

Table A7.5: Incremental Costs, Benefits and FIRR for Manado Airport ('000 Rp)

Costs Revenues

Year

Capital

Cost

Operation and

Maintenance

Incremental Income Tax

Total

Aeronautical

Non-aeronautical

Revenues

Other

Total

Net Benefits 1994 4,432,879 0 0 4,432,879 0 0 0 0 (4,432,879)1995 24,848,890 0 0 24,848,890 0 0 0 0 (24,848,890)1996 22,410,086 0 0 22,410,086 0 0 0 0 (22,410,086)1997 164,719,748 0 0 164,719,748 0 0 0 0 (164,719,748)1998 54,801,766 0 0 54,801,766 0 0 0 0 (54,801,766)1999 97,566,654 0 0 97,566,654 0 0 0 0 (97,566,654)2000 145,989,686 0 0 145,989,686 0 0 0 0 (145,989,686)2001 89,140,771 0 0 89,140,771 0 0 0 0 (89,140,771)2002 69,801,809 3,368,561 (1,178,997) 71,991,374 0 0 0 0 (71,991,374)2003 41,318,378 3,682,408 (68,108,459) (23,107,673) 0 0 0 0 23,107,6732004 0 3,792,880 (45,170,822) (41,377,942) 5,993,769 2,469,345 338,525 8,801,639 50,179,5812005 0 3,906,667 (29,904,491) (25,997,825) 7,571,663 3,945,517 460,687 11,977,867 37,975,6922006 0 4,023,867 (19,597,777) (15,573,911) 8,178,784 5,241,027 536,792 13,956,603 29,530,5142007 91,000,000 4,144,583 (10,713,737) 84,430,845 30,972,946 6,578,437 1,502,055 39,053,438 (45,377,407)2008 0 4,268,920 (2,027,536) 2,241,384 35,180,880 8,004,629 1,727,420 44,912,930 42,671,5462009 0 4,396,988 4,802,784 9,199,772 39,541,493 9,527,190 1,962,747 51,031,430 41,831,6582010 0 4,528,897 10,348,519 14,877,417 44,059,276 11,154,780 2,208,562 57,422,619 42,545,2022011 0 4,664,764 15,016,480 19,681,244 48,738,874 12,897,343 2,465,449 64,101,666 44,420,4222012 0 4,804,707 19,097,144 23,901,851 53,585,095 14,766,354 2,734,058 71,085,507 47,183,6562013 0 4,948,848 22,798,834 27,747,683 58,602,927 16,775,127 3,015,122 78,393,176 50,645,4942014 0 5,097,314 26,272,005 31,369,319 63,797,552 18,939,192 3,309,470 86,046,214 54,676,8952015 129,000,000 5,250,233 23,695,973 157,946,206 69,174,373 21,276,741 3,618,045 94,069,158 (63,877,048)2016 0 5,407,740 28,740,721 34,148,461 74,739,029 23,809,195 3,941,929 102,490,153 68,341,6922017 0 5,569,972 33,307,579 38,877,551 80,497,434 26,561,877 4,282,372 111,341,683 72,464,1322018 0 5,737,072 37,592,310 43,329,381 86,455,852 29,564,844 4,640,828 120,661,524 77,332,1432019 0 5,909,184 41,739,670 47,648,853 92,620,762 32,853,913 5,018,987 130,493,662 82,844,8082020 0 6,086,459 45,859,466 51,945,925 98,999,179 36,471,901 5,418,843 140,889,923 88,943,9982021 0 6,269,053 50,038,052 56,307,105 105,598,539 40,470,164 5,842,748 151,911,452 95,604,3472022 (16,094,136) 6,457,125 54,346,835 44,709,824 112,426,822 44,910,478 6,293,492 163,630,792 118,920,968

FIRR =

2.2%


34 Appendix 7

Table A7.6: Incremental Costs, Benefits and FIRR for Ambon Airport ('000 Rp)

Costs Revenues

Year Capital

Cost

Operation and

Maintenance Incremental Income Tax Total Aeronautical

Non-aeronautical

Revenues Other Total

Net Benefits 1994 3,810,200 0 0 3,810,200 0 0 0 0 (3,810,200)1995 21,358,410 0 0 21,358,410 0 0 0 0 (21,358,410)1996 19,262,181 0 0 19,262,181 0 0 0 0 (19,262,181)1997 141,581,857 0 0 141,581,857 0 0 0 0 (141,581,857)1998 47,103,859 0 0 47,103,859 0 0 0 0 (47,103,859)1999 83,861,639 0 0 83,861,639 0 0 0 0 (83,861,639)2000 125,482,774 0 0 125,482,774 0 0 0 0 (125,482,774)2001 76,619,325 0 0 76,619,325 0 0 0 0 (76,619,325)2002 59,996,873 0 0 59,996,873 0 0 0 0 (59,996,873)2003 35,514,458 0 (57,433,583) (21,919,124) 0 0 0 0 21,919,1242004 0 3,072,958 (41,189,882) (38,116,924) 468,031 131,490 23,981 623,502 38,740,4262005 0 3,165,147 (28,565,288) (25,400,141) 1,344,104 508,870 74,119 1,927,093 27,327,2342006 0 3,260,101 (19,966,204) (16,706,103) 1,931,316 837,556 110,755 2,879,627 19,585,7302007 32,000,000 3,357,904 (13,358,282) 21,999,622 10,348,279 1,153,873 460,086 11,962,238 (10,037,384)2008 0 3,458,641 (7,711,289) (4,252,648) 12,571,317 1,443,328 560,586 14,575,231 18,827,8782009 0 3,562,400 (3,512,777) 49,624 14,657,007 1,708,511 654,621 17,020,139 16,970,5152010 0 3,669,272 (265,499) 3,403,774 16,822,480 1,987,375 752,394 19,562,249 16,158,4752011 0 3,779,351 2,318,180 6,097,531 19,069,983 2,280,502 854,019 22,204,505 16,106,9742012 0 3,892,731 4,442,442 8,335,174 21,401,826 2,588,498 959,613 24,949,937 16,614,7632013 42,000,000 4,009,513 4,090,158 50,099,671 23,820,385 2,911,990 1,069,295 27,801,671 (22,298,001)2014 0 4,129,798 6,319,083 10,448,882 26,328,105 3,253,091 1,183,248 30,764,444 20,315,5622015 0 4,253,692 8,226,831 12,480,523 28,927,495 3,611,047 1,301,542 33,840,084 21,359,5612016 0 4,381,303 9,919,239 14,300,542 31,621,137 3,986,564 1,424,308 37,032,009 22,731,4672017 0 4,512,742 11,471,693 15,984,435 34,411,683 4,380,371 1,551,682 40,343,736 24,359,3012018 0 4,648,125 12,938,004 17,586,129 37,301,856 4,793,230 1,683,803 43,778,889 26,192,7612019 0 4,787,568 14,356,706 19,144,274 40,294,455 5,225,928 1,820,815 47,341,198 28,196,9252020 0 4,931,195 15,755,513 20,686,709 43,392,354 5,679,285 1,962,866 51,034,504 30,347,7952021 0 5,079,131 17,154,488 22,233,619 46,598,504 6,154,150 2,110,106 54,862,759 32,629,1402022 (4,634,891) 5,231,505 18,568,277 19,164,891 49,915,935 6,651,405 2,262,694 58,830,034 39,665,142

FIRR =

(2.3%)


Appendix 7 35

Table A7.7: Incremental Costs, Benefits and FIRR for the Entire Project ('000 Rp)

Costs Revenues

Year Capital Cost

Operation and

Maintenance

Incremental Income Tax

Total Aeronautical

Non-aeronautical

Revenues Other Total Net Benefits1994 8,243,079 0 0 8,243,079 0 0 0 0 (8,243,079)1995 46,207,300 0 0 46,207,300 0 0 0 0 (46,207,300)1996 41,672,268 0 0 41,672,268 0 0 0 0 (41,672,268)1997 306,301,605 0 0 306,301,605 0 0 0 0 (306,301,605)1998 101,905,624 0 0 101,905,624 0 0 0 0 (101,905,624)1999 181,428,294 0 0 181,428,294 0 0 0 0 (181,428,294)2000 271,472,460 0 0 271,472,460 0 0 0 0 (271,472,460)2001 165,760,096 0 0 165,760,096 0 0 0 0 (165,760,096)2002 129,798,682 3,368,561 (1,178,997) 131,988,247 0 0 0 0 (131,988,247)2003 76,832,836 3,682,408 (125,542,041) (45,026,797) 0 0 0 0 45,026,7972004 0 6,865,838 (86,360,704) (79,494,866) 6,461,800 2,600,836 362,505 9,425,141 88,920,0072005 0 7,071,813 (58,469,779) (51,397,966) 8,915,767 4,454,387 534,806 13,904,960 65,302,9262006 0 7,283,968 (39,563,981) (32,280,014) 10,110,100 6,078,583 647,547 16,836,230 49,116,2442007 123,000,000 7,502,487 (24,072,019) 106,430,467 41,321,225 7,732,310 1,962,141 51,015,676 (55,414,791)2008 0 7,727,561 (9,738,825) (2,011,263) 47,752,197 9,447,958 2,288,006 59,488,161 61,499,4242009 0 7,959,388 1,290,008 9,249,396 54,198,500 11,235,701 2,617,368 68,051,569 58,802,1732010 0 8,198,170 10,083,021 18,281,191 60,881,756 13,142,155 2,960,956 76,984,868 58,703,6782011 0 8,444,115 17,334,660 25,778,775 67,808,857 15,177,845 3,319,468 86,306,171 60,527,3962012 0 8,697,438 23,539,586 32,237,024 74,986,921 17,354,852 3,693,671 96,035,444 63,798,4192013 42,000,000 8,958,361 26,888,993 77,847,354 82,423,312 19,687,117 4,084,417 106,194,847 28,347,4932014 0 9,227,112 32,591,089 41,818,201 90,125,657 22,192,282 4,492,718 116,810,657 74,992,4562015 129,000,000 9,503,926 31,922,804 170,426,729 98,101,868 24,887,788 4,919,586 127,909,243 (42,517,487)2016 0 9,789,043 38,659,960 48,449,003 106,360,166 27,795,759 5,366,237 139,522,162 91,073,1592017 0 10,082,715 44,779,271 54,861,986 114,909,117 30,942,248 5,834,055 151,685,420 96,823,4342018 0 10,385,196 50,530,314 60,915,510 123,757,708 34,358,074 6,324,631 164,440,414 103,524,9042019 0 10,696,752 56,096,375 66,793,127 132,915,217 38,079,841 6,839,802 177,834,860 111,041,7332020 0 11,017,655 61,614,979 72,632,634 142,391,533 42,151,185 7,381,709 191,924,427 119,291,7932021 0 11,348,184 67,192,540 78,540,724 152,197,043 46,624,314 7,952,854 206,774,211 128,233,4872022 (20,729,027) 11,688,630 72,915,112 63,874,715 162,342,757 51,561,883 8,556,186 222,460,825 158,586,110

FIRR =

0.5%

Source: Project Completion Report Mission. C. Economic Analysis 12. An economic analysis was carried out comparing with- and without-project scenarios. The ‘without project’ case is defined as the existing airport facilities being kept basically as they are. In this case, the existing airport facilities will be used to their maximum capacity. Under the ‘with project’ case, new airport facilities will be constructed and this enables aircraft and passengers to be handled with less congestion at the airport. 13. Based on the traffic forecasts, the costs of capital investment, and annual costs of maintenance and operations were calculated over the duration of the project. The evaluation period is 29 years from the commencement of construction works (1994) up to 2022. The construction period was 10 years, while the airport started operations in 2003. Also, the

36 Appendix 7

economic analysis used domestic prices. A standard exchange rate factor (SERF) of 1.018 was applied to calculate the economic price of tradable goods. The shadow wage rates for skilled and unskilled labor were estimated at 0.95 and 0.60, respectively. 14. Economic Costs. Project costs include the civil works and equipment for airside, landside, air navigation, and other support facilities. Other non-airport related infrastructure investments (roads, hotels, and other infrastructure) envisaged during the project design were not taken into account since there has been no evidence that these occurred during the project implementation period. 15. The economic costs were estimated based on financial costs including physical contingencies. Financial costs were converted into economic costs using specific conversion factors of 0.97 and 0.80 for civil works and operation and maintenance, respectively 9. 16. Economic Benefits. The main economic benefits for Manado Airport subproject are through (i) the value added to the national economy from international traffic, equivalent to $448 per passenger (2004) and which is escalated at 1% in real terms; (ii) the economic benefit per domestic passenger, estimated at $230; and (iii) the benefit from each additional kilogram of cargo equivalent of $0.40 (2004) that increases by 2% annually in real terms to reflect the higher value of direct international cargo services, as well as the higher unit cost of goods (perishables, such as seafood) that now can be air freighted. The economic benefits are not shadow priced since they are primarily non-tradable goods with minor labor component. 17. In the RRP-analysis the economic benefit per domestic passenger had been taken as one third of the benefits per foreign passenger. However, since the time that the RRP-analysis has been conducted a number of changes have occurred: the average expenditure per foreign passenger and the average length of stay have decreased and deregulation of air transport has brought about competition with low-cost carriers. For all these reasons it was decided to perform a separate estimate of the economic benefits per domestic passenger. 18. As for Manado airport, the main economic benefits for Ambon Airport are through (i) the value added to the national economy from international traffic; (ii) the economic benefit per domestic passenger; and (iii) the benefit from each additional kilogram of cargo. All assumptions made for Manado have been adopted for the case of Ambon. However, for Ambon the freight benefits have been split into domestic and international using a ratio 60/40. 19. Results of the Economic Evaluation. The economic evaluation for Manado produced an EIRR of 20.5%, which is above the previously estimated during project design (19.1%). The higher rate is explained through the higher passenger levels, the benefits of which more than offset the additional costs which are incurred through the terminal expansions which are assumed necessary. The computation results are summarized in Table A7.8. 20. The economic evaluation for Ambon produced an overall project EIRR of 12.3%, which is lower than the rate estimated at appraisal (18.0%). The lower rate is explained through the smaller proportion of 9% international passengers as compared with the 25% of the previous forecast. The benefit added through an international passenger is significantly higher than that 8 A simple trade-weight formula was used to estimate the standard exchange rate factor (SERF) using the 2004 net

international trade taxes and total trade data for Indonesia. 9 The civil works were broken down into the following categories: 35% tradable goods, 40% non-tradable goods, 20%

skilled labor, and 5% unskilled labor; while the operation and maintenance involve 20% tradable goods, 20% non-tradable goods, 10% skilled labor, and 50% unskilled labor.

Appendix 7 37

of a domestic visitor, which boosts benefits in the RRP-analysis. A further, yet minor contribution to the higher EIRR was the higher cargo volumes in the RRP-forecast. The computation results are summarized in Table A7.9. Computation of the EIRR for the entire Project yields an EIRR of 17.6%, which is only marginally smaller than the 18.8% estimated at appraisal, and the Project is still economically viable.

Table A7.8: Incremental Costs, Benefits and EIRR Computation for Manado Airport ('000 Rp)

Costs Benefits

Year Capital

Cost

Operation and

Maintenance Total Costs International Passengers

International Freight

Domestic Passengers Net Benefits

1993 0 0 0 0 0 0 1994 4,317,339 0 4,317,339 0 0 0 (4,317,339) 1995 24,201,217 0 24,201,217 0 0 0 (24,201,217) 1996 21,825,980 0 21,825,980 0 0 0 (21,825,980) 1997 160,426,422 0 160,426,422 0 0 0 (160,426,422) 1998 53,373,389 0 53,373,389 0 0 0 (53,373,389) 1999 95,023,635 0 95,023,635 0 0 0 (95,023,635) 2000 142,184,548 0 142,184,548 0 0 0 (142,184,548) 2001 86,817,368 0 86,817,368 0 0 0 (86,817,368) 2002 67,982,465 2,614,661 70,597,126 0 0 0 (70,597,126) 2003 40,241,438 2,757,813 42,999,251 6,674,267 0 33,553,589 (2,771,395) 2004 0 2,840,548 2,840,548 14,310,870 0 71,945,142 83,415,465 2005 0 2,925,764 2,925,764 23,317,035 2,459,050 106,082,573 128,932,894 2006 0 3,013,537 3,013,537 34,292,229 4,998,402 133,020,055 169,297,149 2007 88,628,137 3,103,943 91,732,080 47,654,485 8,255,302 158,906,134 123,083,840 2008 0 3,197,061 3,197,061 63,910,461 11,601,864 185,296,632 257,611,896 2009 0 3,292,973 3,292,973 83,674,237 15,047,348 212,199,050 307,627,662 2010 0 3,391,762 3,391,762 107,690,080 18,601,429 239,620,987 362,520,734 2011 0 3,493,515 3,493,515 136,860,052 22,274,233 267,570,143 423,210,912 2012 0 3,598,321 3,598,321 172,277,454 26,076,367 296,054,319 490,809,821 2013 0 3,706,270 3,706,270 215,267,377 30,018,955 325,081,423 566,661,484 2014 0 3,817,458 3,817,458 267,435,834 34,113,668 354,659,462 652,391,506 2015 125,637,689 3,931,982 129,569,671 330,729,321 38,372,767 384,796,555 624,328,973 2016 0 4,049,942 4,049,942 407,506,999 42,809,142 415,500,923 861,767,122 2017 0 4,171,440 4,171,440 500,628,175 47,436,349 446,780,899 990,673,984 2018 0 4,296,583 4,296,583 613,558,338 52,268,662 478,644,925 1,140,175,341 2019 0 4,425,481 4,425,481 750,497,665 57,321,111 511,101,552 1,314,494,848 2020 0 4,558,245 4,558,245 916,536,778 62,609,541 544,159,448 1,518,747,523 2021 0 4,694,992 4,694,992 1,117,845,520 68,150,656 577,827,392 1,759,128,575 2022 (15,674,652) 4,835,842 (10,838,809) 1,361,901,745 73,962,077 612,114,279 2,058,816,910 EIRR = 20.5%


38 Appendix 7

Table A7.9: Incremental Costs, Benefits and EIRR Computation for Ambon Airport ('000 Rp)

Costs Benefits

Year Capital

Cost

Operation and

Maintenance Total Costs International Passengers

International Freight

Domestic Passengers Freight Net Benefits

1993 0 0 0 0 0 0 0 0 1994 3,710,890 0 3,710,890 0 0 0 0 (3,710,890) 1995 20,801,715 0 20,801,715 0 0 0 0 (20,801,715) 1996 18,760,124 0 18,760,124 0 0 0 0 (18,760,124) 1997 137,891,607 0 137,891,607 0 0 0 0 (137,891,607) 1998 45,876,123 0 45,876,123 0 0 0 0 (45,876,123) 1999 81,675,834 0 81,675,834 0 0 0 0 (81,675,834) 2000 122,212,137 0 122,212,137 0 0 0 0 (122,212,137) 2001 74,622,286 0 74,622,286 0 0 0 0 (74,622,286) 2002 58,433,088 0 58,433,088 0 0 0 0 (58,433,088) 2003 34,588,794 2,385,215 36,974,010 0 0 0 0 (36,974,010) 2004 0 2,456,772 2,456,772 0 0 8,325,326 0 5,868,554 2005 0 2,530,475 2,530,475 4,223,664 1,061,207 27,825,621 707,472 31,287,488 2006 0 2,606,389 2,606,389 10,559,159 1,888,163 42,992,517 1,258,775 54,092,224 2007 31,165,938 2,684,581 33,850,519 21,118,318 2,566,746 55,992,714 1,711,164 47,538,422 2008 0 2,765,118 2,765,118 33,789,308 2,780,679 66,826,211 1,853,786 102,484,866 2009 0 2,848,072 2,848,072 46,460,299 2,974,440 75,493,009 1,982,960 124,062,635 2010 0 2,933,514 2,933,514 59,131,290 3,149,229 84,159,806 2,099,486 145,606,296 2011 0 3,021,519 3,021,519 71,802,280 3,306,186 92,826,604 2,204,124 167,117,675 2012 0 3,112,165 3,112,165 84,473,271 3,446,395 101,493,402 2,297,596 188,598,499 2013 40,905,294 3,205,530 44,110,824 97,144,262 3,570,881 110,160,200 2,380,587 169,145,105 2014 0 3,301,696 3,301,696 109,815,252 3,745,341 118,826,997 2,496,894 231,582,788 2015 0 3,400,747 3,400,747 122,486,243 3,902,552 127,493,795 2,601,701 253,083,544 2016 0 3,502,769 3,502,769 135,157,233 4,043,531 136,160,593 2,695,687 274,554,275 2017 0 3,607,852 3,607,852 147,828,224 4,169,245 144,827,391 2,779,497 295,996,504 2018 0 3,716,088 3,716,088 160,499,215 4,280,614 153,494,188 2,853,742 317,411,671 2019 0 3,827,570 3,827,570 173,170,205 4,378,508 162,160,986 2,919,005 338,801,134 2020 0 3,942,398 3,942,398 185,841,196 4,463,756 170,827,784 2,975,837 360,166,175 2021 0 4,060,670 4,060,670 198,512,187 4,537,142 179,494,582 3,024,762 381,508,003 2022 (4,514,085) 4,182,490 (331,595) 211,183,177 4,599,413 188,161,379 3,066,276 407,341,841

EIRR = 12.3%


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