Report No. 694-IND ,

Indonesia L Appraisal of aFertilizer Distribution ProjectMay 20, 1975

Transportation DivisionEast Asia and Pacific Region

Not for Public Use

Document of the International Bank for Reconstruction and DevelopmentInternational Development Association

This report was prepared for official use only by the Bank Group. It may notbe published, quoted or cited without Bank Group authonzation. The Bank Group doesnot accept responsibility for the accuracy or completeness ot the report.

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CURRENCY EQUIVALENTS

Except where otherwise indicated, all figures are quotedin Indonesian Rupiah (Rp).

Rp 1.0 = US$0.00241Rp 415 = US$1.00Rp 1,000,000 = US$2,410

WEIGHTS AND MEASURES

1 Metric Ton (t) = 1,000 Kilograms (kg)1 Metric Ton (t) = 2,204 Pounds (lb)1 Nutrient Ton = 1 t nitrogen content of fertilizers1 Product Ton = 1 t of fertilizer as distributed1 Kilometer (km) 0.62 Mile1 Kilogram (kg) 2.204 Pounds (lb)1 Hectare (ha) 2.47 Acres1 Cubic Meter (m3) 35.3 Cubic Feet (CF)

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

ADB Asian Development BankAIID Agency for International DevelopmentBAPPENAS Government Planning AgencyBAPINDO Bank Pembangunan IndonesiaBIMAS Government Agricultural Development ProgramBEICIP Bureau d'Etudes Industrielles et de Cooperation de

l'Institut Francais du PetroleBRI Bank Rakyat Indonesia (Agricultural Bank)BUUD Village Level Cooperative Fertilizer SellersDAP Diammonium Phosphatedwt deadweight tonIER Internal Rate of ReturniMO Intergovernmental Maritime Consultative OrganizationINMAS Government Agricultural Development ProgramISD Inland Storage DepotK20, K, Potash Potassium Oxide Content in FertilizerN Nitrogen Content in FertilizerNPK A fertilizer made of nitrogen, phosphate and potashPERTAMINA Perusahaan Pertambangan Minyak Dan Gas Bumi Negara,

the State Oil CompanyPETROKIMIA a state-owned fertilizer producer

PGIP P. T. Pertamina GulfPJKA Indonesian State RailwaysP205, P Phosphate Phosphorus Pentoxide Content in FertilizerP.N. Wholly-owned State EnterpriseP.T. Limited Liability Company Established Under the Com-

mercial CodePUSRI, Company P.T. Pupuk SriwidjajaPUSRI III Second Fertilizer Expansion Project - PUSRI IIIRLS Regular Liner ServiceTPD Metric Tons per DayTPY Metric Tons per YearTSP Triple SuperphosphateTVA Tennessee Valley AuthorityUNDP United Nations Development Programme

FISCAL YEAR

January 1 - December 31

INDONEESIA

APPRAISAL OF FERTILIZER DISTRIBUTION PROJECT

Table of Contents

Page No.

SUMMARY AND CONCLUSIONS ... ................. .... .i -ii

I. INTRODUCTION ................ oe§........... . ........ 1

II. BACKGROUND . *..*. 1

A. The Transport Sector...... 1B. The Fertilizer Market .............. 4C. The Distribution of Fertilizer ....... 6

III. THE COMPANY AND ITS MARKETING ORGANIZATION ........... 7

A. Organization, Management and Personnel 7B. PUSRI Marketing and Distribution 8

IV. THE PROJECT ........ 12

A. Project Description ....... 2..........12B. Cost Estimate and Financing Plan ....... 14C. Project Execution . .16D. Consulting Services ..... 17E. Procurement and Disbursement 17F. Environmental Considerations 18

V. ECONOMIC ANALYSIS .. 18

A. Background ......... . ..... .... .. 18B. Economic Rate of Return 19C. Project Risks . 19

VI. FINANCIAL ANALYSIS . 20

A. Current Financial Position ........... 20B. Financial Projections for the Project ...... 21C. Consolidated Financial Projections

for PUSRI ........... **...O ......... 25D. Accounts and Audit ...... *......*...... ... 26

VII. RECOMIIENDATIONS ........................ e.. 26

This report was prepared by Messrs. G. Bain (shipping specialist), F.Chapman (financial analyst), D. Havlicek (economist), and F. Higginbottom(engineer).

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ANNEXES

1. The Indonesian Fertilizer Market and Pricing Policy

2. Project Description; Attachment I - Flow Chart of Ra.w Materialand Products

Attachment II - Location of ISDs

3. Ship Design Considerations and Costs

4. Economic Evaluation - Principal Assumptions and Results

5. Assumptions Used for Financial Projections

Attachment I - Projected Shipping CostAttachment II - Port Terminal Operating CostsAttachment III - Inland Transportation CostsAttachment IV - Inland Storage Depot Operating CostsAttachment V - Working Capital RequirementsAttachment VI - Depreciation CostsAttachment VII - Debt Service

TABLES

1. Estimated Project Costs2. Estimated Project Expenditure Schedule3. Disbursement Schedule4. Projected Income Statement 1977-19825. Cash Flow Statement 1975-19826. Balance Sheets 1975-19827. Consolidated Summary Income Accounts 1977-19828. Consolidated Cash Flow 1975-19829. Consolidated Balance Sheets 1975-1982

CHARTS

1. No. 9345 Organization of PUSRI Marketing Department2. No. 9344 Responsibilities of PUSRI Supply and Distribution Division3. No. 9564 Outline of Proposed Ship

MAPS

IBRD 11220(R) - IndonesiaIBRD 11422 - Java

INDONESIA

FERTILIZER DISTRIBUTION PROJECT

SUMMARY AND CONCLUSIONS

i. Indonesia with a population of about 130 million growing at 2.4%per year, has one of the lowest fertilizer application rates in SoutheastAsia, and its food gap in 1974 was estimated at about 2 million tons of rice.Thus there is an urgent need for increased use of fertilizer. The discoveryof abundant natural gas reserves has put Indonesia in a position to producenitrogen fetilizer economically from its own feedstocks while imports ofphosphate and potash fertilizers will still be required. In this connect-ion a second fertilizer expansion project comprising the addition of a570,000 ton per year urea production unit to the existing capacity of 480,000tons was recently approved by the Bank for P.T. Pupuk Sriwidjaja (PUSRI), astate owned fertilizer company (Loan No. 1089-IND). Demand for nitrogenphosphate and potash is projected to increase more than twofold from about800,000 product tons in 1972 to some 1.9 million product tons in 1978. Asit proved difficult and costs to move the fertilizer in recent years, due tothe underdeveloped and deteriorated transport system, it would be impossibleto distribute and store the anticipated larger volumes of fertilizers withouta significant upgrading of the present system.

ii. A fertilizer distribution system has therefore been planned witha total capacity of about 1.4 million tons of fertilizer annually of whichsome 830,000 tons will be bulk and 130,000 tons bagged urea from PUSRI'sPalembang plants; 370,000 tons of imported TSP and NPK; and 100,000 tons ofimported urea. The system includes intermodal transport comprising (a) threeself-unloading ships; (b) expansion of existing, and construction of additional,water-side bulk fertilizer terminals and bagging plants; (c) constructionof 59 inland bagged fertilizer storage depots on Java, Sumatera, and onother islands, to be served by rail and road, or road only; (d) procurementof 175 railway wagons, four mainline and three shunting locomotives andconstruction of railway spurs at 27 inland storage depots (ISDs) in Java;(e) construction and procurement of office space and procurement of vehicles;(f) provision of consultant services and technical assistance related toconstruction and operation of the distribution system; and (g) a study de-signed to develop a National Fertilizer Distribution System using the projectas a basis.

iii. The above system would cost US$130 million. The proposed Bankloan of US$68 million would provide about 48.6% of the total estimatedfinancing requirements ($140 million including interest during construction)or 75% of the estimated foreign exchange requirements of US$90.4 million.The balance of the total financing, would be provided by the Government asequity, except for US$2 million, as a loan. The project would be executedby PUSRI with the assistance of consultants. PUSRI is the largest and mostefficient distributor of locally produced and imported fertilizer in Indonesia;its shares are wholly owned by the Government.

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iv. Initially, bulk shipments of urea will be made by the threespecial self-unloading ships from Palembang to Tanjung Priok, Surabaya andCilacap in Java, and to Belawan and subsequently Padang in Sumatera. Theproduct will be bagged at the port bulk terminals for shipment in railwaycars by block trains, or by highway trucks to the ISDs. Onward distribu-tion from these depots to the villages will be undertaken by PUJSRI'e dis-tributors. Shipment of bagged TSP, NPK and urea fertilizer to smallermarkets will continue with the present system of using small cargo shipsand the inland distribution will be done via the new ISDs.

v. The project is closely related to the Second Fertilizer ExpansionProject-PUSRI III, (Loan 1089-IND) which will be completed in 1977 when thenew fertilizer distribution system is also planned to commence operations.The project will distribute PUSRI's output of urea and the other fertilizershandled by the company. The project has also been designed so that it couldserve as a basis for a national fertilizer distribution system which is tobe studied. Assurances have been given by the Government that pending thefindings of the study any major distribution facilities proposed during theinterim period will not contribute to underutilization of the proposed landfacilities, so that regardless of the source of supply and possible changesin marketing areas, the system will not become redundant. It will beutilized to full capacity by PUSRI or other distributors. Thisi is importantin view of Government's plans to build a urea fertilizer plant in West Javain addition to a urea plant presently under construction in East Kalimantan.However since construction of both these plants is delayed and under reviewthe Government plans a further extension of Palembang similar to PUSRI III.Further capacity may be added during 1980's by building another plant inEast Kalimantan and one in Northern Sumatera.

vi. Procurement of all equipment originating outside Indonesia willbe made in accordance with the Bank's "Guidelines for Procurement". Allcontracts involving such procurement of over US$100,000 equivalent will besubmitted to the Bank for its approval prior to award. A 15% local preferenceor the import duty whichever is less, will be allowed for qualified Indo-nesian manufacturers who provide at least 20% value added. All civil workswill be undertaken by PUSRI's engineering department which will employqualified local contractors under procedures satisfactory to the Bank. Civilengineering and marine consultants have been appointed.

vii. The project is economically justified. The new transport anddistribution system would enable PUSRI to handle Indonesia's rapidly in-creasing fertilizer demand and it would generate benefits from a reductionin transport operating costs and fertilizer losses. The economic rate ofreturn for the project is about 20%. It reflects the inefficiencies of thepresent distribution system and the urgent need to improve it in view ofthe much higher tonnage to be moved. Moreover, farmers would aLso benefitfrom the increased reliability and quality of fertilizer supplites. Sensi-tivity analysis shows that under various conceivable pessimistic assumptionssuch as project capital cost increases, benefit decreases and underutiliza-tion of capacity the project would still yield a satisfactory economicreturn of at least 13%.

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viii. The Government is arranging for PUSRI to stockpile imported fer-tilizer in view of the current world supply situation. It has agreed thatit will meet all costs connected with such operations. PUSRI's accounts andbalance sheets will record separately the transactions involved in stock-piling, which are therefore excluded from the financial projections andwhich are based on PUSRI's normal operations.

ix. Currently the existing marketing price margin is insufficient tocover distribution costs, including interest on short-term borrowings re-quired to finance the large working capital required for PUSRI's normalmarketing operations even with the cost of short-term borrowing to financeand handle the stockpile assumed by the Government. However, despite aprojected increase in price levels due to inflation, with the reduced unitcosts arising from the project, and a rapid run down of short-term borrowingsfor PUSRI's normal operations, with the help of surplus cash generated byPUSRI's production unit, the present margin will be sufficient to enablePUSRI to earn an adequate return on its assets and to achieve acceptablecurrent, liquid and debt/equity ratios.

x. The project provides a suitable basis for a Bank loan of US$68million to the Government of Indonesia for a term of 15-1/2 years, including3-1/2 years of grace. The proposed loan would be relent to PUSRI by theGovernment for the same term but at 12% interest per annum.

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I

I. INTRODUCTION

1.01 The Government of Indonesia has requested the Bank to assist infinancing the foreign exchange cost of a new fertilizer distribution systemfor the Government-owned fertilizer company, P.T. Pupuk Sriwidjaja (PUSRI).The project is designed to distribute the total output of PUSRI's plants atPalembang, Sumatera, throughout Indonesia, including that of the PUSRI IIIplant presently under construction and financed by a Bank loan (1089-INDsigned February 28, 1975). The project will also handle imported and locallyproduced TSP and NPK fertilizers which are or will be distributed in Indonesiaby PUSRI.

1.02 The estimated total cost of the project would be US$130 millionand the foreign exchange content US$84 million; the proposed loan would pro-vide US$68 million or 81% of the estimated foreign exchange cost, the bal-ance and all local currency would be provided by the Government of Indonesia.The Bank loan will be to the Government of Indonesia for 15-1/2 years with3-1/2 years grace. All but US$2.5 million equivalent of the loan will berelent to PUSRI for the same term at 12% p.a. interest, with the balancemade available to the Indonesian State Railways (PJKA) as equity for thepurchase of locomotives.

1.03 In the transport field, there have been one previous credit toIndonesia for an Inter-Island Fleet Rehabilitation Project, 318-IND, threefor highways, 154-IND, 260-IND, and 388-IND, as well as a loan for railways,1005-IND. Further projects for highways and shipping have been appraised.While cost increases have reduced the number of ships it has been possibleto rehabilitate under the shipping project and progress on all projects hasbeen slow, no major difficulties have arisen in project execution.

1.04 This report is based on a number of marketing studies commissionedby PUSRI and in particular that of consultants, Agrar-und Hydrotechnik(Federal Republic of Germany) and the findings of an appraisal missionin November/December 1974 composed of Messrs. G. Bain (shipping specialist),F. Chapman (financial analyst), D. Havlicek (economist) and F. Higginbottom(engineer) with assistance from Research Planning Consultants (UK).

II. BACKGROUND

A. The Transport Sector

General

2.01 The Indonesian transport system depends chiefly upon inter-islandmarine services as well as upon highways and railways. The marine servicescomprise Regular Liner Services (RLS) between specified ports as well as un-scheduled (tramping) services and ocean going shipping. Land transport iswell developed in Java with an extensive railway and highway network, where-as in Sumatera railways have only been developed in some parts, and the roadnetwork only provides the basic links between principal cities. On

the other islands, except for a small railway on Madura, facilities arelimited to a few roads in areas around ports and towns. Air transportvolume is still small but has increased rapidly in the last few years.

2.02 The Government's strategy as set forth in the Second Five YearPlan (Repelita II) is to continue the rehabilitation program for infra-structure including the gradual upgrading of the country's existing transportfacilities. This will be supplemented by the provision of nelw infrastructurefor (i) exploitation of newly discovered resources, (ii) support of theGovernment's regional policies and (iii) improvement of rural transportinfrastructure.

2.03 It is estimated that about Rp 1,806 billion (US$4.4 billion), in1973 constant prices, will be spent by the public and private sector forinvestments in transport infrastructure and equipment during the period1974-1979. Of this total about 44% (Rp 801 billion) would be spent by theprivate sector, primarily for transport equipment. The Government transportdevelopmental budget and project aid comprise about 43% (Rp 781 billion)of the total estimated transport investment expenditure, of which the largestsingle expenditure would be for highways. The balance of 13% (Rp 224 bil-lion) would be spent by provincial or local governments and public sectorenterprises for transport infrastructure and equipment. It seems unlikelythat all of these plans can be achieved in the period, though substantialprogress will be made. A re-assessment of Repelita II targets is currentlyunderway by the Government, and a transport sector brief is under prepara-tion within the Bank.

Transport Planning

2.04 Although only two ministries, Works and Power in the case of high-ways and the Ministry of Communications for other modes, are responsiblefor transport investment proposals, which are then reviewed by the NationalPlanning Council (BAPPENAS), selection of projects in recent years has beenmade in a rather haphazard manner. This is partly because of a lack ofqualified technical staff, particularly at the operating level, to prepare.evaluate and rank investment priorities. The Government retained a groupof consultants between 1969 and 1973 to assist BAPPENAS and the Ministryof Communications in transport planning. These consultants have contributedin collecting and analyzing transport data and setting up procedures forinvestment project review. However, it will be some years before theGovernment has sufficient local staff and therefore some outside expertassistance continues to be necessary. The Government has retained fiveadvisors for the Ministry of Communications, initially with two year con-tracts covering transport coordination, investment programming, pricingand accounting, financed by the Bank's Fourth Technical Assistiance credit(451-IND).

Road Transport

2.05 The highway network consists of about 82,000 km of all standards;only about 15,000 are paved. Village access roads and agricultural feeder

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roads are generally inadequate. In 1974 the road transport fleet totaledsome 500,000 vehicles of which about 150,000 were trucks. The truck fleetis expected to double during the period 1974-78.

2.06 Road transport is most intensively developed in Java, where anumber of roads carry in excess of 2,000 vehicles per day. Sumatera hasabout the same total length of roads, but fewer vehicles. The two islandstogether account for about 60% of the highway network and 80% of thevehicles in the country. After years of neglect, the present Governmenthas emphasized rehabilitation of the road network; this work was supportedunder the first IDA credit for highways (154-IND). The Government is nowplanning improvement and betterment of almost 12,000 km of roads withprimary emphasis on pavement strengthening; the proposed fourth highwayproject recently appraised is based on this program.

Railways

2Q07 Railways are confined (with one minor exception in Madura) totwo islands, about 4,700 km on Java and 2,000 km on Sumatera. The systemwas developed to its present size during the 70 years prior to World War II,at which time there were six separate systems and 40% of the network wasowned privately; nationalization took place in the 1940's and 1950's. Therailways which were built to move primary products to foreign markets,suffered with declining exports in the 1950's and 1960's and, as with mostpublic infrastructure in Indonesia, they were allowed to deteriorate. TheBank has helped finance a comprehensive program of rehabilitation and tech-nical assistance for the Indonesian State Railways (Loan 1005-IND) which isat present being initiated.

Ports and Shipping

2.08 The country has about 300 ports spread over the archipelago, butthe large traffic volumes are concentrated in 10 ports in Java, Sumatera,Sulawesi and Kalimantan. Port procedures present probably the most seriousimpediment to transport flows in Indonesia and improvements thereto couldresult in significant increases in port throughput and reduction in shippingcosts. However, major changes will take a long time. Studies of short-term port requirements have been completed with assistance from consultants,NEDECO (Netherlands), and main ports are being improved with assistancefrom the Asian Development Bank (ADB), UIDP, the Netherlands and Japan.Master plans for three ports in Java and Sumatera are being financed byUNDP with the ADB as executing agency. A master plan study of Tanjung Priok(Jakarta), the largest general cargo port (about 30% of total traffic),is being carried out by consultants, Swan Wooster & Co. (Canada), financedunder IDA Technical Assistance Credits (216-IND and 275-IND); this is expectedto result in the pre-appraisal of a port project later this year.

2.09 The inter-island shipping fleet, both RLS and tramping, sufferedfrom the same neglect as other modes of transport and an IDA Credit (318-IND)in 1972 of US$8.5 million equivalent was designed to assist in the rehabili-tation of the RLS fleet; this credit is expected to be fully committed

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by the end of 1975, at which time 59 ships (79,000 dwt), representing aboutone half of the project tonnage, will have been upgraded. Large costincreases, further neglect and poor enforcement of safety rules are respon-sible for the short fall. A major study of inter-island shipping has alsobeen undertaken by consultaLts, Maritime Research Centre (Netherlands), finan-ced under bilateral aid. Based in part upon this, a proposed second projectwas appraised by the Bank in November 1974 to continue the rehabilitationand to assist in the replacement of the existing fleet.

River Transrt

2.10 Commercial river transport extends to 10,000 km of navigablewaterway in Kalimantan, Sumatera and West Irian and the Citandui River inJava. Fourteen rivers totalling 4,000 km in Kalimantan and Sumatera wererecently studied by consultants, Research and Development (Belgium), andthe Government is considering possible navigational improvements. Themost important river transport traffic is logs.

Pipelines

2.11 Pipelines are under the control of the state-owned oLl company,PERTAMINA. There is presently only one oil pipeline in operation, a 27 km12" products line. Another 420 km in Java are under construction or plannedand are expected to divert some traffic from road and rail (some 380,000tons of oil from rail by 1976). A gas gathering pipeline system was finan-ced by the Association in 1972 in Sumatera to supply gas for the PUSRI IIfertilizer plant and will be extended to supply PUSRI III. Another gasline is under construction in Java to supply gas for the proposed West Javafertilizer plant at Jatibarang and a steel plant near Merak (Map 11422).

Aviation

2.12 There are 47 airports (seven for international traffic) andfacilities vary widely. Major deficiencies, as identified in a recentstudy by consultants, Aviation Planning Services (Canada), are weak runways,insufficient runway length and inadequacy of navigational equipment. Thegreatest needs are for equipment, and bilateral finance is likely tobe available to support these purchases. A study to prepare a master planfor Jakarta International Airport is underway.

B. The Fertilizer Market

Present

2.13 The present fertilizer market in Indonesia is characterized by(a) a deficit of local fertilizer production and consequent heavy relianceon imports, (b) rationing and distribution control of fertilizer by Govern-ment, (c) a Government controlled pricing and subsidy system to stabilizeprices and promote usage, (d) heavy reliance on nitrogen fertilizers,(e) predominance of the rice crop in fertilizer consumption (70% of all

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nitrogen and 60% of all phosphate consumption), and (g) low overall use offertilizer. Only 30% of total harvested land in Indonesia (44% of totalharvested land in Java) is fertilized.

2.14 Those aspects of the fertilizer market which are pertinent tothe appraisal of the proposed distribution project are summarized below.A more detailed market analysis is given in the Bank's appraisal of theSecond Fertilizer Expansion Project-PUSRI III (Report No. 624-IND) andAnnex 1 of this Report, which is the source for the subsequent data.

Future Trends

2.15 Indonesia is engaged in an intensive import substitution programfor fertilizer and is accelerating this program on account of the scarcityof fertilizer on world markets and consequent high prices. The Governmenthas also created a national fertilizer stock pile held by PUSRI. Thediscovery in recent years of abundant natural gas reserves, which are aneconomic feedstock for nitrogen fertilizers provides the basis for theexpansion of fertilizer production. Thus the annual production of nitrogenfertilizer is projected to increase about fourfold to some 2.0 million tonsby 1983 when three additional plants will be in commercial production:(a) PIJSRI III, now being financed by the Bank, (b) East Kalimantan I, and(c) West Java. However, the latter two projects are presently being reviewedand are not expected to be in operation before 1980. The Government there-fore plans to proceed immediately with a further expansion of PUSRI byduplicating PUSRI III, as the fastest and most economic way to close thegap in nitrogen fertilizer supply in 1979. At that time it should be pos-sible for the Government to relax or abolish the rationing system now inforce for fertilizer. The Government plans to build a 300,000 TPY, TSP plantat Gresik and is considering another TSP plant at Cilacap, both on Java.The balance of phosphate requirements and potash fertilizers will continueto be imported.

2.16 Consumption of nitrogen fertilizers in Indonesia increased by15.5% p.a. from 108,200 nutrient tons 1/ in 1964 to 443,000 in 1974 andis forecast by the Bank to grow at 11.6% p.a. up to 1978 and by 7% p.a.thereafter to a level of about 826,000 nutrient tons (1.8 million producttons) in 1983. Phosphate and potash fertilizer consumption grew at 15.8%and 11.9% p.a. during the period 1964 to 1974 to a level of 114,600 nutrienttons and 17,200 nutrient tons, respectively; consumption of these fertilizersis expected to grow more rapidly than nitrogen fertilizers (expected ratesof increase being 18.3% and 26.0% p.a. in 1974-78, and 18.6% and 18.4% p.a.in 1978-83) because the consumption per ha is projected to increase abouttenfold from the present level (which is the lowest of all Southeast Asiancountries), whereas nitrogen consumption will increase only twofold. Thusthe ratio of nitrogen, phosphate and potash consumption will improve fromthe 1974 level of 3.9:1:0.15 to a more balanced nutrient level of 2.4:1:0.84in 1983.

1/ Nutrient tons: Calculated on the basis of nutrient content in fert-tilizer materials.

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2.17 Consumption projections presented in this report are most likelyon the conservative side. The present rationing system understates actualdemand, which could develop much faster, if the Government, as a result ofincreased local production and of considerably lower import prices, expectedto prevail by the end of the decade, should abandon rationing. Whether andto what extent nitrogen fertilizer would become available for export,depends on the timing and performance of the new plants referred to above.However, production costs are relatively low and Indonesia enjoys a compara-tive transport cost advantage; it could be in a favorable position to meetthe expected nitrogen fertilizer deficits of such countries as Mlalaysia,Thailand, Philippines, Vietnam and India.

C. The Distribution of Fertilizer

2.18 Fertilizer distribution is carried out by Government approvedimporters/distributors including local fertilizer producers like PUSRI andPETROKIMIA; until 1970, the Government owned company P.N. Pertani was theleading distributor of both local and imported fertilizers (para. 3.05).However, in recent years, the Government has been encouraging domestic pro-ducers to market their own products as well as imported fertilizers whileallowing P.N. Pertani, and until recently, PERTANINA, and other establishedimporters/distributors to continue their operations. As the local produc-tion of fertilizers has so far been low (about 240,000 product tons in1974), the marketing network in Indonesia has depended heavily on imports.The following table shows the distribution of fertilizer by types and mainmarketing organizations in 1972:

Distribution of Fertilizer. 1972('000 product tons)

Nitrogen/ % Phosphate %(N) (P 205 )

PUSRI 330 42.7 39 19.2PERTAMINA 85 11.0 81 39.9P.N. Pertani 63 8.2 22 10.8PETROKIMIA 50 6.4 - -Others 245 31.7 61 30.1

773 100.0 203 100.0

/1 Urea and nitrogen content of fertilizers.

2.19 PUSRI's market share in nitrogen, phosphate and potash fertilizerswas 48% (592,000 product tons) of the total fertilizer consumption of 1.2million product tons in 1974 and it expects to distribute about 1.4 millionproduct tons (about 600,000 nutrient tons) of fertilizer annually from 1978to 1982 (para 3.08), partly from its own production, partly purchased from

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other domestic producers or imported (para. 4.01). This compares with atotal prospective demand for fertilizers in 1978 of some 1.9 million producttons (about 858,000 nutrient tons), increasing to 2.8 million product tons(1e3 million nutrient tons) in 1982 and it suggests a gradual decrease ofPUSRI's share in the fertilizer market from the 1978 peak of some 70%to about 50% in 1982 as domestic production of nitrogen fertilizer byother producers increases and consumption of fertilizer expands from thepresent low levels. However this will depend upon the times at which in-creased production becomes available. It is expected that Government willgradually cease to intervene in fertilizer distribution and once the presentshortages are overcome market shares will eventually be determined by marketforces. The implications of shifting markets for PUSRI and the proposedproject, and safeguards against possible adverse effects are discussed(paras. 3.08, 3.09 and 4.06).

Pricing Policy

2.20 The Government controls not only fertilizer distribution but alsofertilizer prices both for production and distribution. The main purposeof price control is to subsidize fertilizer sales to farmers and keep foodgrain prices low, in an effort to check inflation which has been a seriousproblem in Indonesia. However, since the production price is fixed on thebasis of delivery, c.i.f. in Java and the distribution margin is insufficientto cover costs and financing of working capital involved, these arrangementscause difficulties because under the rationing system previously mentionedindependent wholesalers to whom PUSRI used to sell its urea against cashhave now become agents whom PUSRI has to pay for their services. PUSRI hasto pre-finance the distribution of fertilizer from the port to the sub-distributor, and is only credited for its sales after the farmer's payment(in cash or through credit vouchers) is received by Bank Rakayat Indonesia(BRI). This system applies not only to PUSRI's own fertilizer but also tofertilizer imported by it on behalf of the Government (in 1974 about threetimes PUSRI's sold output) and has led to excessive receivables and invent-ories, part of which represent the Government's stockpiling program. Thisis discussed further in Chapter 6 and Annex 1. However the availability ofcash generated by PUSRI as a whole, after PUSRI III comes on stream, willenable the short-term debts currently resulting from distribution costs tobe eliminated about 1978, excluding those due to stockpiling.

III. THE COMPANY AND ITS MARKETING ORGANIZATION

A. Organization, Management, and Personnel

3.01 PUSRI is one of Indonesia's best-managed large industrial enter-prises. Its management structure, in keeping with Indonesia's Company Law,is patterned after the European two-tier model, and has a supervising board

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called the Board of Commissioners 1/ (Dewan Komisaris) and a ManagementBoard (Direksi). Managerial responsibility for PUSRI's day-to--day opera-tions rests in the four-man management board, consisting of a President-Director and three Directors, technical and production, finances, and com-mercial. They and the Board of Commissioners are appointed by the Government.

3.02 Management and operation of the distribution network are the re-sponsibility of the PUSRI marketing department, under the marketing manager,which is operated as a separate cost center and reports to the commercialdirector; planning, coordination and supervision will be handled by a supply/distribution manager reporting to the marketing manager and responsible forbulk terminals, inland depots, shipping and scheduling and the overall oper-ation of the system to be established by the project. Charts 9344 and 9345show the organization and responsibilities of PUSRI's marketing departmentand its supply and distribution division.

3.03 PUSRI formed a marine operations section in the marketing departmentin 1974 with the assistance of a consultant, Mollers Ltd. (Hong Kong), underthe PUSRI II project. PUSRI has five time-chartered, crane-eqtipped shipswhich will be scheduled and administered during the next two years to moveabout 350,000 tons per year of bulk urea from Palembang to Jakarta, Surabayaand Cilacap. This should provide adequate experience to enable! PUSRI tooperate the three proposed new ships (para. 4.02), replacing the five pres-ent ships.

3.04 PUSRI's marketing and distribution personnel are competent andthe company is known as one of the most efficient distributors of fertilizerin the country. In 1974 about 290 people worked in the marketing and dis-tribution department. The increase in marketing of fertilizers by 1978will require an increase of marketing and distribution personnel to about450 people.

B. PUSRI Marketing and Distribution

3.05 From inception of production in 1964 up to 1967, PUSRI marketedits product through P.N. Pertani whose service proved unsatisfactory. In1968 PUSRI established its own distribution network and since 1971 hasbecome the most important distributor of fertilizer. However, due toinadequate shipping, port handling and inland storage facilities, fre-quent interruptions in the movement of fertilizer were experienced. In1971 PUSRI appointed marketing consultants, Agrar-und Hydrotechnik (FederalRepublic of Germany), to help develop a marketing and distribution plan inpreparation for the marketing of its output 480,000 tons of urea from PUSRI Iand II plants and for the sales of other fertilizers imported by the company.

3.06 Based on the consultants' recommendation, the company began toexpand its marketing network and established 26 distributors, including

1/ The members of the Board of Commissioners are the Directors-General of:(i) Monetary Affairs (Ministry of Finance), Chairman; Chemical Indus-tries (Ministry of Industries); and (iii) Agricultural (Ministry ofAgriculture and Forestry).

P.N. Pertani, serving some 2,000 retail outlets throughout Indonesia.Urea from the PUSRI I plant is bagged in Palembang and shipped in RegularLiner Service (RLS) vessels operating between islands, and that from PUSRIII is shipped in bulk, to achieve economy in transportation costs, in con-verted coal carriers equipped for unloading fertilizer at the tWo existingbulk reception stations where the urea is bagged, stored and dispatchedfor inland distribution. However, these ships equipped with low performn-ance grab-cranes, no longer represent an economic solution for fertilizerbulk shipments; also product losses, estimated at 3%, 2ue both to unloadingmethods and inclement weather are comparatively high. Charter contracts forthese vessels were thus only made for 27 months, or the estimated time re-quired to implement the proposed project (para. 4.10).

3.07 The network was further expanded in 1973 by using village co-operatives as retail outlets for the farmers. With the decision to adda third fertilizer plant with an additional 570,000 ton capacity to theexisting facilities in Palembang, modification and expansion of existingmarketing and distribution facilities became necessary. The project isdesigned to help finance the required transport and storage facilities forthe new system, which is described in Chapter IV and Annex 2.

3.08 Currently, with PUSRI II in production PUSRI's marketing ofimported fertilizers is about equal to its own production; but was fourtimes greater than its own production in 1974. About 86% of PUSRI's fertil-izer sales are made in Java; this percentage is expected to decline as PUSRIincreases its sales in other islands of Indonesia, especially Sumatera andSulawesi. The following tables show PUSRI's present (1974) and prospectivedistribution patterns of urea, TSP and NPK.

PUSRI Distribution of Urea /1('000 product tons)

1974 % 1978 % 1982 %(Est.)

Java 381 85.5 746 70.4 557 52.5Sumatera 40 9.0 200 18.9 303 28.6Sulawesi 10 2.2 47 4.4 91 8.6Bali 9 2.0 29 2.7 41 3.9Kalimantan 5 1.1 35 3.3 59 5.6Other 1 0.2 3 0.3 9 0.8Total 446 100.0 1,060 100.0 1,060 100.0

Produced atPalembang 186 22.4 960 90.6 960 90.6

Purchased 260 /2 77.6 100 9.4 100 9.4446 100.0 1,060 100.0 1,060 100.0

/1 Based on distribution percentages projected by the PUSRI marketingdepartment. The likely delay in production from the W. Java and E.Kalimantan plants and possible further production by PUSRI (para 2.15)will affect these figures. However PUSRI's distribution will notbe less than these amounts.

/2 Excluding imports for stockpile.

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PUSRI Distribution of TSP and NPK('000 product tons)

1974 1978 1982TSP % NPK % TSP % NPK _% TSP % NPK %

Java 95 85.6 27 77.1 184 70.0 75 69.5 137 52.1 98 69.5Sumatera 10 9.0 7 20.0 50 19.0 21 19.4 76 28.9 27 19.2Sulawesi 3 2.7 1 2.9 12 4.5 5 4.6 23 8.7 6 4.3Bali 2 1.8 - - 7 2.7 3 2.8 10 3.8 4 2.8Kalimantan 1 0.9 - - 9 3.4 4 3.7 15 5.7 5 3.5Other - - - - 1 0.4 - - 2 0.8 1 0.7

Total 111 100.0 35 100.0 263 100.0 108 100.0 263 100.0 141 100.0

/1 Based on distribution percentages projected by the PUSRI marketingdepartment.

The regional distribution of PUSRI's prospective domestic market is based onits assumption that it will distribute its production entirely domesticallyand that any surplus production would be exported by other plants. However,it is not possible to determine at this stage the prospective market sharesof competing fertilizer producers both with regard to domestic and exportmarkets, particularly since future marketing and pricing policies for pro-duction by other plants have not been established. Therefore, it is con-ceivable that PUSRI may have to export a part of its urea production anddevelop new domestic markets. At the request of the Government a study toconsider the establishment of a National Fertilizer Distribution System,based upon this project, has been included as part of the project; thLs isexpected to resolve these issues. Pending the outcome of the study, theterms of reference for which will be agreed with the Bank, assurances havebeen received from the Government regarding the facilities being providedunder the project (para. 4.06).

3.09 Consideration was also given to the concept of a distributioncompany separated legally and organizationally from the PUSRI fertilizercompany. Such a company could have operated on a national scale dis-tributing fertilizer for PUSRI and other producers. As another option thepossible organization of a Government fertilizer marketing board undergovernment management was investigated. These options, while theoreticallyfeasible, are not practical at this stage because PUSRI is the only fertil-izer distributor in Indonesia with a competent and experienced fertil:izermarketing organization; further, this organization is so closely integratedwith and supported by PUSRI's commercial and other departments that itsestablishment as a separate unit would have severely hampered the implement-ation of the distribution project. However the proposed study may resultin the adoption of one of these alternatives.

3.10 The basic marketing concept is to improve the service to existingmarkets and develop potential markets as efficiently and economically aspossible. To this end PUSRI's consultants designed a marketing strategywhich will complement the agricultural extension services of the Governmentsuch as BIMAS and INMAS programs and which offers the farmer throughout theyear a diversified product line at the local level. Apart from PUSRI's ownurea production it plans to market TSP and NPK fertilizers, pesticides,fungicides, insecticides, certified seeds and related application equipment.This strategy will give PUSRI a unique role in the Indonesian agriculturalsector and implementation of the strategy will involve provision of warehouses,transport (water-rail-road), retail outlets, credit facilities, sales promo-tion and advertising, agricultural and fertilizer demonstrations and othermarketing activities. Since PUSRI's urea plants at Palembang work on acontinuous basis it is important that the marketing network guarantee anuninterrupted flow of fertlizer from the production point to the farmer, butconsiderable inventory build up in the system is inevitable due to the sea-sonal nature of demand. Therefore, the PUSRI marketing and distribution de-partment will organize and supervise the movement by sea from Palembang andappropriate inland distribution and storage, the physical requirements forwhich will be provided under the project (Chapter IV). The storage capa-city of the distribution system has been designed to provide buffer storagespace for seasonal variations in consumption and as a safeguard againstpossible interruption in the transport chain. PUSRI appointed sub-distri-butors will be responsible for the final movement of the fertilizer to thevillage retail level.

3.11 The proposed marketing and distribution system constitutes a sig-nificant improvement over that existing. However, storage facilities atthe village level need to be improved. Movement of fertilizer during thewet season is difficult because the rural road network is very poor. Thus,local retailers and cooperatives must store significant amounts of fertilizerto ensure adequate availability during the wet season. The Governmentrealizes the need for more and improved storage capacity in the villagesand is presently sponsoring a pilot project to determine the most suitablelocally produced building materials for storage units under various climaticand local conditions. This development underlines the Government's concernto see that a complete distribution and farmers' advisory service is devel-oped and centered at the village cooperative or BUUD. It is presentlyestimated that the provision of local storage units would cost about US$30million equivalent in local currency. In order to ensure that fertilizeris available to the farmer in good condition and in sufficient quantities,the Government confirmed during negotiations that it will continue itsprogram to extend and improve storage facilities at the village level andthese requirements will be reviewed as part of the National DistributionSystem study.

3.12 PUSRI will establish for each of its distributors annual andmonthly sales targets and it will develop an active promotional programto help achieve these sales objectives. It will assist its distributors,sub-distributors and retailers in conducting fertilizer demonstrations, field

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days on farms and farmer meetings and it will organize advertising campaigns.These promotional activities will be coordinated with agencies and orga-nizations dealing with the promotion and development of agricultural pro-duction. PUSRI and its consultants will organize and conduct periodictraining programs for its own marketing personnel to keep them up-to-dateon marketing and distributior, techniques. It will also provide trainingprograms for its distributors, sub-distributors and retailers, to help themdevelop their markets and achieve their sales objectives.

3.13 Expertise in managing and coordinating the new distribution systemis not yet, however, available within the company and therefore provisionhas been made in the proposed loan for the employment of consultants spe-cializing in management of transportation systems (para. 4.14) untilIndonesian staff can take over.

IV. THE PROJECT

A. Project Description

4.01 The fertilizer distribution system is designed to handle about1.4 million product tons annually of which 830,000 tons will be bulk and130,000 bagged urea ex Palembang, 100,000 tons imported or locally purchasedurea and 370,000 tons of TSP and NPK. It is estimated that by 1978, 70%of the fertilizer (one million tons) will be distributed in Java, 19%(270,000 tons) in Sumatera and the balance in other islands (para. 3.08).After consideration of various transport/distribution cost alternatives,a combination of ship transport serving five bulk terminals in Java andSumatera, and land transport serving the ISDs was determined as the leastcost technically feasible solution. About 90% of the annual volume of ureafrom Palembang will be hauled to the bulk terminals in PUSRI's bulk ships;TSP and NPK will be imported through the Tanjung Priok bulk termLinal; thebagged fertilizer would continue to be transported by RLS or other inter-islandships to main ports and thence move to the inland consumption centers viathe new distribution system.

4.02 Based on these considerations PUSRI has planned and the Bankconcurs with a new distribution system which comprises the following itemsand forms the project:

(a) acquisition of three shallow-draft self-unloadingships, each of about 7,000 deadweight tons (dwt);

(b) expansion of existing, and construction of additional,water-side bulk fertilizer terminals and baggingplants at four major ports in Java and Sumatera bymid-1977 and at a fifth, also in Sumatera, by mid-1979,with road and rail access.

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(c) construction of 59 inland bagged fertilizer storageand distribution depots of from 3,000 tons to 10,000 tonscapacity to be served by rail and road or by road only;

(d) PUSRI will lease an additional 22 existing inland baggedfertilizer storage depots, each under 2,000 tons capacity,located in Sumatera, Kalimantan, Sulawesi and other islands;

(e) procurement of 175 railway wagons and four main lineand three shunting locomotives and construction ofrailway spurs at 27 inland storage depots in Java;

(f) construction and procurement of office space andvehicles;

(g) consultant services and technical assistance related toconstruction and operation of the distribution system; and

(h) a study for the development of a National Fertilizer Distri-bution System based upon this project.

Further details of the project are given in Annex 2 and shown on MapsIBRD 11220(R) and 11422.

4.03 The distribution system has the capability of moving about onemillion tons of urea fertilizer by sea from the PUSRI plants at Palembang,in South Sumatera, to Java, North and West Sumatera, and to other islands.Initially, bulk shipments of some 830,000 tons will be made by the self-unloading ships to Tanjung Priok, Surabaya, and Cilacap in Java (740,000tons) and Belawan and subsequently Padang in Sumatera (90,000 tons). Theproduct, which can be unloaded in wet weather with practically no loss,will be bagged at the port bulk terminals for shipment in railway cars byblock trains, or by highway trucks, to inland storage depots (ISDs).Onward distribution from these depots will be undertaken by PUSRIdistributors who will move the urea to forward storage kiosks ownedby cooperatives and retailers at the villages.

4.04 The bulk ships will also have a capacity for back hauling bulk,TSP and NPK urea produced at other Indonesian plants. It is anticipatedthat such movements are likely to commence about 1980 following completionof the proposed study and other plants coming into production. Exportfrom Indonesia using these ships will also be possible if and when marketsdevelop and the scheduling of voyages permits. Shipments in bags fromPalembang to small markets and ports where larger ships cannot enter, willcontinue using small cargo ships.

4.05 In order to ensure a well coordinated and smoothly working dis-tribution system all the assets except locomotives will be owned by PUSRI.The Indonesian State Railways (PJKA) will own the locomotives and use themin their pool but will operate PUSRI owned wagons solely in the fertilizertraffic, under an operating and maintenance contract with PUSRI. During

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negotiations, the Government agreed to pass on the cost of the locomotivesto PJKA as equity because financial problems do not permit it to assulme thisas debt; PUSRI also agreed to conclude an operating and maintenance contractwith PJKA for PUSRI's rolling stock. Road transport will be handled byprivate operators who are now satisfactorily handling the bulk of PUSRI'sinland transport requirements. The existing private truck fleet is suffi-cient to haul the volume of fertilizer projected for road transport. PUSRIwill consider leasing or selling the ISDs to its distributors as soon asthey are in a financial position to do this.

4.06 Additional fertilizer plants are expected to be on stream about1980 (para. 2.15) and the National Fertilizer Distribution System studywill be completed by 1976 so that, depending upon the dates production isavailable from the new plants, PUSRI's Java market may be reduced. Hlowever,no matter what may be the source, urea will still have to be distribulteddown to the village level, and the distribution system being provided bythe proposed project will serve this purpose and the proposed study willbe based thereon. Assurances have been given by Government, and were con-firmed during negotiations that pending the results of the study any majordistribution facilities proposed during the interim period will not con-tribute to underutilization of the proposed land facilities.

4.07 The existing bulk fertilizer handling facility in Tanjung Priokharbor will be improved and used by PUSRI as its bulk port depot. Arrange-ments have been made with P.T. Pertamina Gulf (PGIP), the owner of exiistingbulk unloading facilities within the harbor, for PUSRI to erect speciialreception conveyors in the existing buildings of PGIP and for PGIP tooperate and maintain them and bag and ship-out fertilizers on PUSRI's be-half. This facility would be used to receive and bag phosphate fertilizer tobe imported. Assurances have been obtained during negotiations that con-tracts covering the matters described above will be signed and that 1theGovernment will cause PGIP to permit PUSRI to erect facilities designed byPUSRI and to conclude a cost-based operating and maintenance contract: withPUSRI covering the facilities at Jakarta. The Port Authority has agreedthat PUSRI's ships will have priority for berthing.

B. Cost Estimate and Financing Plan

4.08 Total estimated project cost is US$130 million equivalent(Rp 54,000 million) including US$84 million foreign exchange (64%). Theproposed loan of US$68 million equivalent (Rp 28,000 million) would bemade to the Government, which would bear the foreign exchange risk. TheGovernment will provide the balance of the project cost and will alsofinance interest during construction of about US$10 million equivalentincluding US$6.4 million payable in foreign exchange. Total financingrequirements would thus be US$140 million of which the proposed loan wouldcontribute 48.5%. About US$2.5 million of the proposed loan would be madeavailable to Indonesia State Railway (PJKA) as equity for purchase of loco-motives and the balance relent to PUSRI on 15-1/2 years repayment termsincluding 3-1/2 years of grace with an annual interest rate of 12%. Govern-ment's contribution would be passed on as equity so that the financing of

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PUSRI's project would be about half debt and half equity. No working capitalis provided as PUSRI is expected either to use its own cash generation orto obtain short-term credits. These arrangements have been confirmed duringnegotiations and will be incorporated into a subsidiary financing agreementbetween the Government and PUSRI. The cost estimates have been revised toinclude the contract price for ship acquisition. Details of capital costsare given in Table 1, and are summarized below:

Billions of Rupiah Millions of DollarsLocal Foreign Total Local Foreign Total Total

i. Ships - 13.7 13.7 - 33.0 33.0 25

ii. Fertilizer DepotsPort Depots 2.2 3.8 6.0 5.3 9.1 14.4Inland Depots incl

land provision andrailway sidings 10.9 6.5 17.4 26.3 15.7 42.0

Related Offices,Equipment and spares 1.0 0.9 1.9 2.5 2.2 4.7

Sub-total 14.1 11.2 25.3 34.1 27.0 61.1 47

iii. Railway Rolling StockLocomotives - 1.0 1.0 - 2.5 2.5Railway Wagons - 1.5 1.5 - 3.5 3.5

Sub-total - 2.5 2.5 - 6.0 6.0 5

iv. Engineering and Training 0.4 1.2 1.6 1.0 3.0 4.0 3

v. Base Cost Estimate (BCE) 14.5 28.6 43.1 35.1 69.0 104.1 -

vi. Physical Contingencies(6% BCE) 0.9 1.7 2.6 2.1 4.1 6.2 5

Expected Price Increases(18% BCE plus item vi) 3.8 4.4 8.2 9.2 10.5 19.7 15

TOTAL PROJECT COST 19.2 34.7 53.9 46.4 83.6 130.0 100.0

4.09 Ship costs are from contracts awarded by PUSRI (para. 4.10) atfixed prices in Yen (US$1.00 = 287.36 Y). Price contingencies were takenat 18% p.a. for rail equipment, with deliveries stretching out for 1-1/2years. For the foreign component of land based equipment a price allowancewas made at 14, 12, 10 and 8% p.a. while locally secured equipment and civilworks were increased at 20% p.a. The price contingency is 18% of the basecost estimate plus physical contingencies of 6%, or 25% if the base costestimate excludes the cost of the ships; physical contingencies comprise 15%on the bulk receiving terminal construction and 10% on the ISDs, rollingstock and offices and equipment. The estimated schedule of expenditures

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for the project is shown in Table 2 and a detailed description cf calcula-tions is given in Annex 2. The Bank loan will cover foreign exchange cost(excluding those paid prior to signing) of equipment, for the fetrtilizerdepots, railway rolling stock, ships and consulting services.

C. Project Execution

4.10 PUSRI will carry out the project with the assistance of its en-gineering and marine consultants (para. 4.13). Detailed ship specifica-tions were sent to 14 prequalified shipbuilders and bids were received fromfour for delivery of ships between November 1976 and April 1977, when thePUSRI III plant comes on stream and the time charters on the existing shipsexpire. The prequalification, assessment, bidding, evaluation and awardswere made under procedures established in the Bank's "Guidelines" for Pro-curement and are acceptable to the Bank. In order to meet the tight sche-dule for construction and delivery PUSRI awarded the contract for shipconstruction to Mitsubishi Heavy Industries, the lowest bidder, on May 15,1975. Prequalification of bidders for certain other long lead items e.g.,conveyors, steel sections, is underway (para. 4.15).

4.11 The ships will be owned by PUSRI and built as ocean-going shipsto the classification rules of Germanischer Lloyd. The ships will incor-porate the latest requirements of the draft Safety of Life at Sea Convention(SOLAS 1974) and, because Indonesian regulations are not up-to-date, willconform to the regulations in force at the time of contracting of the Minis-try of Transport of the United Kingdom, supplemented by the latest appli-cable International Labour Organization standards. As the Indonesiannational ship classification society, Biro Klassifikasi Indonesia (BKI), isnot yet sufficiently experienced in new ship construction and supervisionor in quadriennal surveys, the three ships will be classed with both BKIand Germanischer Lloyd (GL), until such time as BKI's standards improve.Dual classification is required by the Association under Credit 318-IND andwill be continued in this case. The Government agreed to this procedureduring negotiations. Internationally acceptable classification of thevessels may materially assist in enabling lower insurance premiums to beobtained.

4.12 Crewing of the PUSRI ships will be done under contract with anIndonesian ocean-going shipping company. Senior operating personnel, whomay be expatriate and who will be employed directly by PUSRI if sufficientlyqualified staff are unavailable on contract from Indonesian shipping com-panies, will be trained at the shipyard during construction. The suppliersof the special self-unloading equipment will train operating staff on theJob. As the procedures involve the same basic methods of operation ascargo-handling winches, with which most trained seamen are familiar, thisis considered to be adequate. Maintenance of the ships' mechanical equip-ment9 which is similar to that operated by PUSRI at various locations,will be undertaken by a special maintenance crew of PUSRI employees who willtravel with the ships. These ships will operate for up to 320 days peryear, with a rapid turn-around, and scheduled sailings between Palembang

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and the various terminals. A total of 135 days of emergency capacity isavailable among the ships and this is sufficient for most repairs. Indire emergency chartered ships for moving both bulk and bags could beutilized, though at substantially higher costs.

D. Consulting Services

4.13 Marine Consultants and Designers, Inc. (USA) has been appointedby PUSRI for design, preparation of contract documents and supervision ofconstruction of the special bulk ships, as have Swan Wooster & Co. (Canada)for the bulk port terminals and the ISDs. They were recruited under pro-cedures acceptable to the Bank and their contracts are acceptable to theBank.

4.14 The contract of PUSRI's marketing consultants, Agrar und Hydro-technik, GMBH, including the services of specialist shipping consultants,Mollers Ltd. (Hong Kong) has been extended for two years at PUSRI's ex-pense. The consultants are competent and acceptable to the Bank. PUSRIwill have operated its bulk depots at Surabaya and Cilacap for two yearswhen the project commences and will not require consultants assistance forthese operations. However, specialists are needed for about 48 man-monthsto assist PUSRI in the overall scheduling and movement control, requiredin operating the proposed distribution system, and in training PUSRI stafftherein. This has been included in the project and was agreed during nego-tiations.

E. Procurement and Disbursement

4.15 Loan funds will be used to procure all or part of ships, ureahandling equipment, port and inland storage structures, rails, railwaywagons and locomotives and consultant service. Procurement of all equipmentoriginating outside Indonesia will be undertaken in accordance with theBank's "Guidelines for Procurement!". All contracts likely to be financedby the Bank of over US$100,000 equivalent will be submitted to the Bank forits approval prior to award; contracts between US$50,000-100,000 will beawarded by PUSRI and the details provided to the Bank. Consultant servicesfor technical assistance would be retained after agreement with the Bank.Contracts for services and equipment and civil works procured domesticallywill be-financed by PUSRI and awarded on the basis of competitive biddingadvertised locally and in accordance with normal commercial procedures.Civil works contractors must be experienced and qualified and shall berequired to carry out the civil works in accordance with appropriatepractice. Locomotives will be procured by PJKA in conjunction with biddingbeing carried out for a railway loan (Loan 1005-IND). Except for landcosts of US$14.0 million equivalent no more than about US$20.0 millionequivalent will be procured by local bidding. It is anticipated that allworks will be completed by mid-1977 and land is already available at portdepot sites.

4.16 The contracts for ships and for certain other long-lead items, andfor consultants were awarded prior to presentation of the project to the

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Board and commitments on such contracts could reach US$35 million equivalent,all made in accordance with the Bank's Guidelines. Down paymentsand progress payments on such contracts are unlikely to exceed about US$5.0million equivalent prior to the proposed loan being signed. All such pay-ments will be made by PUSRI under a letter of credit already opened andfinanced by the Government. No retroactive financing by the Bank is con-templated. Purchase of land for ISDs involving only local currency iLsproceeding. It is unlikely that Indonesian industry will be able to supplyany of the mechanical equipment required, though some steel fabricateditems could be made in Indonesia. However, provision will be made for a15% preference, or the customs duty, whichever is the lower, to qualifiedmanufacturers of, for example, pre-fabricated steel structures, provLdingthe value added exceeds 20% of the sales price of the goods.

4.17 Disbursement will be made by the Bank under normal Bank proceduresto PUSRI and PJKA for ships, locomotives, equipment and services. PJKA's andPUSRI's procurement department and its consultants will provide the Govern-ment and the Bank with appropriate documentation. For the equipment builtinto civil works it is anticipated that most disbursement will be for foreignsupplied equipment and steel; actual construction and civil works will becarried out under supervision of PUSRI consultants and PUSRI's engineeringdepartment which is experienced in this type of construction. A disbursementschedule is shown in Table 3.

F. Environmental Considerations

4.18 No environmental hazards are foreseen at the production plant orat the bulk storage sheds, where existing pollution control systems, installedunder previous Bank loans and satisfactory to the Bank, are in use or willbe extended or duplicated. Bagged storage of urea presents no environmentalhazards. Pollution controls to international standards, acceptable to theBank and based on those proposed by the Intergovernmental Maritime Consult-ative Organization (IMCO), are included in the ship specifications. Thesewill control oily water, garbage and sewage discharge.

V. ECONOMIC ANALYSIS

A. Background

5.01 Indonesia with a population of about 130 million growing at 2.4%per year has one of the lowest fertilizer application rates in SoutheastAsia, and a food gap in 1974 estimated at about 2 million tons of rice.Thus, there is an urgent need for increased use of fertilizer. The dis-covery of abundant natural gas reserves has put Indonesia in a positionof producing nitrogen fertilizer from its own feedstocks economically. 1/However, due to an underdeveloped and deteriorated transport and distributionsystem it would be increasingly difficult to move, store and distribute the

1/ PUSRI III Appraisal Report (Report No. 624-IND of February 4, 1975).

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increased volumes of fertilizers, without a significant upgrading of thepresent transport and distribution system.

B. Economic Rate of Return

5.02 Detailed assumptions and results of the economic evaluation arepresented in Annex 4. The distribution system is the least cost solution ofall alternatives considered; it would generate benefits from a reduction intransport costs and fertilizer losses, due to inadequate existing transportand storage facilities. It is estimated that about 75% of the total quan-tifiable benefits would be generated by reductions in transport and distri-bution cost and 25% through reduced fertilizer losses compared to transportin bags. Further benefits would accrue through the avoidance of congestionin ports and land transport; but since these benefits are not quantifiablethey are not included in the economic rate of return (IER). The IER forthe project is about 20%. The economic return reflects the inefficienciesof the present distribution system and the urgent need to improve it inview of the much higher tonnage to be moved. The IER is sensitive toincreases in capital cost, decreases in benefits and underutilization ofcapacity. However, even under various conceivable pessimistic assumptionssuch as project capital cost increases of up to 20% and benefit decreasesor underutilization of capacity of up to 20%, the project would still yieldan IER of about 16%. A simultaneous 20% (10%) increase in capital costand a 20% (10%) decrease in benefits only reduces the IER to 13% (17%);if the cost increased by 20% while the benefit decreased by 10%, the IERwould be 15%. Thus the project would yield satisfactory economic returnseven under these adverse assumptions.

5.03 As Government presently heavily subsidizes consumer prices forfertilizer, the benefits of reduced transport and distribution costs andreduced fertilizer losses could be used to offset part of these subsidies,or if the Government chooses to lower the end product price of fertilizer,the farmer would be the beneficiary. Farmers would also benefit from theincreased reliability and quality of fertilizer supplies which would enablethem to increase their annual yields from the same area significantly.

C. Project Risks

5.04 The planned operation of two additional 570,000 ton urea plants inWest Java and East Kalimantan by about 1980, may reduce PUSRI's market inJava and other Indonesian islands. While the ISDs would continue to befully utilized because the project has been planned with a National FertilizerDistribution System in mind as well as for a single company, PUSRI's bulkterminals in Java might be underutilized in such a situation. In order tominimize such risk the bulk terminals' capacity in Java has been designed toaccommodate the likely long-term throughput which is estimated in 1982 atsome 75% of the 1978 peak volume of 740,000 tons and slowly declining there-after. Slight increases in ship waiting time may therefore occur in the1978-1982 period. However, the possible benefits from reducing the shipwaiting time do not justify the additional cost of increasing bulk terminal

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sizes. As regards ship utilization, analysis shows that the 7,000 dwt self-unloaders from Palembang would be competitive with 25,000 dwt bulk carriersfrom other major exporters in Balikpapan (East Kalimantan), Kuwait or Alaskawhich might distribute to the principal Southeast-Asian and Indian portsand thus could be utilized to export urea (Annex 4). Under the pessimisticassumption that only 50% of the urea handled by the inland distributionsystem would be transported in the special ships from Palembang and 50% fromWest Java and East Kalimantan, and that no project benefits would accruefrom the export of urea ex Palembang, the project's economic rate of returnwould be 16%, which is satisfactory.

VI. FINANCIAL ANALYSIS

A. Current Financial Position

6.01 While the selling margin for the present distribution system basedon Palembang is sufficient to earn an operating profit for that system, itis insufficient to cover interest on short-term borrowings necessary tofinance its large working capital requirements for importation and inventoryrequirements as discussed in Chapter II, Section C, of the PUSRI III AppraisalReport.

6.02 Summary income accounts for 1974 (tentative) and 1975 (estimated)are given below:

1974 1975(Rp Billion)

Sales 24.3 44.0Cost of Sales 19.1 38.8Gross profit 5.2 5.2

Marketing cost (including proportion ofadministrative and overhead costs) 4.0 6.8

Net profit (loss) before interest 1.2 (1.6)Financial costs 2.2 4.9Net marketing loss (1.0) (6.5

The increases in marketing, and particularly in financial, costs expectedin 1975 are due to the Government's policy of requiring PUSRI to hold, inaddition to its normal inventories, a national fertilizer stockpile, asdiscussed in para. 2.15. The resulting rise in current assets and currentliabilities is shown in the table given in paragraph 6.03. Governmentassistance in making up the annual losses was agreed under Loan No. 1089-IND.The Rp. 1.0 billion loss for 1974 has already been made up.

6.03 Summary balance sheets for PUSRI, as a whole, as of December 31,1973 and 1974, together with estimated figures for 1975, are given inbillions of Rupiah below:

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1973 1974 1975 1973 1974 1975(Actual) (Actual (Estimated) (Actual) (Actual (Esti-

Un- Un- mated)audited) audited)

Current CurrentAssets 16.4 90.8 110.6 Liabilities 13.1 72.2 85.0Net Fixed Long-termAssets 24.7 29.2 31.8 Debt 20.3 25.7 62.1Constructionin Progress - 4.7 70.9 Equity 8.0 32.0 66.6OtherAssets 0.3 0.4 0.4DeferredCharge - 4.8 -

41.4 129.9 213.7 41.4 129.9 213.7

Current assets for 1974 include letters of credit for purchase of importedfertilizers (Rp 33.2 billion) receivables of Rp 21.5 billion and inventoriesof Rp 31.7 billion; a total of Rp 86.4 billion (US$208 million equivalent);the remainder is cash. Current liabilities include Rp 46.3 billion inshort-term debt and about Rp 20 billion owing to Government for the increasein delivery price of fertilizer stock on hand when the price was raised,in late 1974, from Rp 22,850 to Rp 40,500 per ton. The estimated increasesin current assets and current liabilities, and the reimbursing of the costsof financing such increases by the Government, are discussed above (para.6.02). In view of uncertainty regarding stockpile figures, and the cost offinancing thereof, after 1975, no estimated figures are quoted for 1976.

B. Financial Projections for the Project

6.04 Projected income accounts, cash flows and balance sheets for theyears 1977 (May-December) 1/, 1978-1982, for the project are given in Tables4, 5 and 6. Assumptions used, detailed in Annex 5 together with basiccalculations of the various cost elements, are summarized below:

(a) cost and price levels will rise at an annual rate of 18%between 1974 and the commencement of full operations inMay 1977 (45% total increase);

(b) PUSRI will produce at least 90% of its rated output fromPUSRI II and III plants (with PUSRI I plant being closeddown before 1977);

1/ It is assumed that the project will commence operations on May 1,1977 the same date the PUSRI III plant is scheduled to commence.

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(c) output from PUSRI plus urea purchased from other producerstotalling about 960,000 tons annually will be distributedthrough the system;

(d) in addition TSP and NPK will be imported and distributeduntil 1979; commencing about 1980 TSP and NPK will eitherbe received in bulk as back-haul by PUSRI ships, or receivedbagged using RLS or tramp shipping and in any event usingPUSRI port and inland storage depots; and

(e) the average interest payable on short term borrowing tofinance working capital requirements would be no more than1.2% per month.

6.05 Critical factors are: (a) the margin PUSRI will receive from theGovernment per ton of fertilizer ex the inland storage depots, and hencethe margin over production costs for the distribution unit; (b) the inven-tories of fertilizer as a whole both those regarded as normal for the scopeof business done by PUSRI and those carried over and above such normallevel as required for the Government's stockpiling program; (c) the amountand cost of short term financing of working capital; and (d) the proportionof long term debt to equity, and therefore the cost of long term borrowing.

6.06 The total price currently being paid by the Government to PUSRIfor bagged urea comprises (i) Rp 63,900 (US$153.97 equivalent) per ton c.i.f.ports in Java, plus (ii) a distribution margin of Rp 13,150 (US$31.60) perton from the ports to retail outlets; the c.i.f. port price includes; costof shipping Rp 7,956 (US$19.07); bags Rp 4,150 (US$10.00), and stevetdoring,Rp 1,850 (US$4.45) per ton. Currently the inland distribution costs excludingshipping, bagging, stevedoring and financing costs, amount to about Rp 9,000(US$21.70) per ton; this leaves about Rp 4,150 (US$10.00) per ton which ispresently insufficient to cover the financing costs, (item 6.05 above),consequently a supplemental letter to the Loan Agreement of the PUSEI IIIProject requires the Government to compensate PUSRI in respect of any shortfallin earnings by the distribution unit. The greater efficiency of the projectwill result in much reduced unit operating costs, therefore despite theprojected increases in costs due to inflation trends, the financial projectionsassume no increase in the present production and distribution margins. Butthe cost of distribution by the project is ex Palembang, so that al]L shipping,bagging (including cost of bags) and stevedoring costs are incorporated inthe distribution costs, and the combined margin available to the distributionunit becomes about Rp 27,000 (about US$65.0) per ton.

6.07 PUSRI, in accordance with the Government's fertilizer stockpilingprogram, expects to continue building up a considerable inventory oic fer-tilizers, over the current year. The cost o2 purchasing, handling andstoring such inventories will be financed by short-term borrowing, as atpresent. To the extent that such costs contribute to any shortfall inearnings incurred on its distribution operations, PUSRI will be reimbursedby the Government under the present arrangement, as explained in para. 6.06.

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This arrangement, which will remain in force while the present temporarysystem of controls remains in effect, is satisfactory while no PUSRI assetsare employed in fertilizer distribution. However, when the project comesinto operation in 1977 PUSRI is required to earn a reasonable return on theassets employed for distribution, and the Government has agreed to reimbursePUSRI for all costs involved, including financing costs, in holding andmoving fertilizer stocks in excess of PUSRI's "normal" inventories. Themethod of accounting for these costs and determining what are "stockpile"as opposed to "normal" fertilizer inventories will be studied by the Govern-ment and PUSRI, and the Bank will be informed of the procedures to be adoptedno later than October 1, 1976.

6.08 Given this commitment, by the time the distribution system to befinanced by the project becomes operational in 1977, with more efficientprocessing of receivables by the Bank Rakyat Indonesia, and a reduction inletters of credit due to smaller imports of fertilizer, PUSRI's normalworking capital requirements would be less than at present, and consequentlyshort-term borrowing will be reduced.

6.09 The projected revenues of the distribution unit will be sufficientto cover not only cash operating costs plus long-term debt service, butalso interest on the short-term borrowing, and leave a margin for reducingsuch borrowing. In addition, the production side of PUSRI will be accumu-lating cash, surplus to its operating requirements, ranging from Rp 4.2 bil-lion in 1975 to Rp 10.7 billion in 1982, with a total accumulation of Rp 84.7billion by 1982. Assuming that at least 15% of these surpluses is retainedfor emergencies, then by 1977 Rp 15.7 billion could be made available fromthis source to finance distribution unit working capital, with a furtherRp 10.9 billion becoming available in 1978, of which only about Rp 1.7 bil-lion would be needed. Availability of these sums plus the surplus fundsgenerated by the distribution unit, would enable PUSRI to eliminate the needfor short-term financing by 1978.

6.10 PUSRI's marketing department should earn a reasonable return onits assets in operation, with a cash generation sufficient to cover, notonly the operating costs of the system plus amortization of long-term debtand interest on short-term borrowing, but also elimination of the short-termborrowings, thus leading to an adequate current ratio. It is assumed thatoperating cost increases after 1977 due to inflation will be covered byincreases in fertilizer selling prices.

6.11 The projections (Tables 4, 5 and 6) are summarized below for theyears 1977, 1980 and 1982. Such projections and the following paragraphsshould be read in the light of the discussions in paragraph 6.07. Noaccount is taken of the increased current assets and liabilities arisingfrom the stockpiling program, nor of the additional costs involved in hand-ling the stockpile, which will be reimbursed to PUSRI by the Government.

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SUMIJARY FLNANCIAL DATA FOR PROJECT(Rp. billion)

1977 1978 1980 1982_(8 months)

INCONE ACCOUNTIncome 21.3 33.2 35.1 3.5.6Operating Costs (cash) /1 14.8 20.7 20.7 21.1Depreciation .2.0 3.1 3.0 3.1Net Operating Profit 4.5 9.4 11.4 11.4Long-Term Interest 0.8 3.3 2.8 2.2Net Profit before Tax 3.7 6.1 8.6 9.2Net Profit after Tax 3.7 6.1 8.6 5.1

CASH FLOWCash Generation by PUSRI 6.5 12.4 14.4 1,4.5Less: Debt Service

(Long-Term) 0.8 5.6 5.1 4.6Net Cash Generated (Net) 5.7 6.8 9.3 9.9Funds from Production Unit 9.0 1.9 - -Less: Increase in Working

Capital - 0.6 0.6 0.3Short-term DebtRepaid 14.7 8.1 - -

Income Tax - - 4.2

Surplus Cash - - 8.7 5.4

BALA4CE SHEETSCurrent Assets 32.9 33.6 35.1 35.8Current Liabilities (includ-ing short-term borrowings) 12.1 4.1 4.3 4.4

Working Capital 20.8 29.5 30.8 31.4Surplus Cash - - 15.7 30.4Net Fixed Assets 51.4 51.4 45.7 39.6

Total Assets 72.2 80.9 92.1 101.4

Long-Term Debt 24.7 25.1 20.7 16.0Funds from Production Unit 15.7 17.6 17.6 17.6Equity 31.8 38.2 53.8 67.8

Total Liabilities 72.2 80.9 92.1 101.4

Long-Term Debt/Equity Ratio 44/56 40/60 28/72 19/81Long-Term Debt ServiceCoverage (times) 8.1 2.2 2.8 3.2

/1 Includes interest on short-term debt.

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6.12 Assuming continuance of the present margin of about Rp 27,000 perton, the project should earn rates of return on its assets in use of about11% in 1977, rising to about 13%1 over the years 1978-1981; the return willdecline to about 8% after 1981, at the end of the five year tax holidayapplicable to new investments. The internal financial rate of return wouldbe about 14%. These returns are satisfactory.

6.13 By 1977, due to the increased scale of operations, the workingcapital requirements are expected to increase from the Rp 25.6 billion(US$61.7 million), forecast for 1975 (para. 6.03) to about Rp 29.5 billion(US$71 million) as detailed in Annex 5. It is also assumed that part ofthese requirements would continue to be financed by short-term borrowinguntil 1978.

6.14 The project cash flows and balance sheets show that while workingcapital requirements would continue to rise, in line with the increasingtonnages handled by the distribution system, the short term borrowing shouldbe eliminated by the end of 1978. If the surplus funds received from theproduction unit (para 6.09) are ignored the current ratio would rise from14/10 in 1977 to 81/10 in 1982 with a liquid ratio of 6/10 in 1979 risingto 31/10. In addition surplus cash would rise to about Rp 30.4 billion.The debt/equity ratio would improve from 50/50 at commencement of fulloperations to 18/82 at the end of 1982.

6.15 During negotiations, covenants similar to those in the PUSRI IIIagreements were obtained for PUSRI as a whole in respect of: (i) creationof subsidiaries, (ii) investment policy, (iii) depreciation policy, (iv)incurring of additional long term debt, (v) the earning of a reasonablereturn on assets in service, (vi) debt service coverage, (vii) maintenanceof a current ratio of at least 1.4, (viii) dividend policy and (ix) annualaudit. In addition agreement was reached that (a) the Government willsubscribe Rupiah 25.7 billion (US$62.0 million equivalent) in foreign ex-change and local currency as required to meet the project's requirementsplus about Rp 4.2 billion (US$10.0 million equivalent) to finance interestduring construction; and (b) as long as the temporary system of fertilizerpricing and distribution controls remain in effect the requirement to earna reasonable return on assets in service will be applicable separately andjointly to the production and distribution units of PUSRI, on the basis ofseparate.income and expense accounts and separate proforma balance sheetsidentifying the assets and liabilities applicable to each such unit.

C. Consolidated Financial Projections for PUSRI

6.16 Consolidated summarized projections, (combining production and dis-tribution accounts) for the years 1977-82 are given in Tables 7, 8 and 9. 1/

1/ As noted in para. 6.11 current assets and liabilities and expensesassociated with Lhe fertilizer stockpiling program are excluded fromall projections.

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They show total revenues of Rp 47.8 billion in 1977, rising to Rp 71.8 billionin 1982; total annual costs, including financial charges, of Rp 36.1 billion,rising to Rp 48.8 billion by 1982. Net profit after tax, rising from Rp 11.7billion in 1977 to Rp 20.4 billion in 1980, will decline somewhat after thetax holiday, to Rp 12.7 billion in 1982. The overall rate of return on assetsin use is forecast to be about 11% in 1977, rising to 18% by 1980, anddeclining to about 14% in 1982.

6.17 The consolidated balance sheets show achievement of a currentratio of 24 to 10 by 1977, improving to about 35 to 10 in 1978 and thLereafter;in addition, surplus cash rises to about Rp 97 billion by 1982. Such surpluscould be used to pay di-vidends to the Government, to finance further develop-ment in fertilizer production or for other purposes. The debt equity ratiocould reach a satisfactory 46/54 in 1978, improving to about 33/67 by 1980.

D. Accounts and Audit

6.18 PUSRI has been installing a modern, cost center accounting systemwith the aid of a consultant. Training of personnel and refining of account-ing information needs to be continued and the consultant is being retainedfor this purpose. PUSRI's accounts are audited by a professional firm ofauditors approved by the Bank. At negotiations, it was agreed that PUSRIwould produce periodic accounts in sufficient detail to enable the monitoringof the financial situation of its marketing department; it was also re-affirmed that audited statements of account will be submitted to the Bankwithin 4 months of the end of PUSRI's fiscal year.

VII. RECOMMENDATIONS

7.01 During negotiations, the following major matters were agreedwith the Government and PUSRI:

(a) employment of specialist consultants to assist in schedulingthe distribution system and training of staff therein (parats.3.13 and 4.14);

(b) cost of locomotives included in the proposed loan to bepassed on to PJKA as equity (para 4.05);

(c) that pending the outcome of the National FertilizerDistribution System study any major distributionfacilities proposed will not contribute to the under-utilization of the facilities included in the project(para. 4.06);

(d) terms on which the proposed loan is to be made availableto PUSRI by the Government (para. 4.08);

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(e) the reimbursement by government of all costs incurredby PUSRI in the holding of a national stockpile offertilizer in excess of normal stockholdings (para. 6.07);

(f) the overall sales margin of PUSRI's marketing departmentshould be sufficient to cover all costs for delivery ofurea from Palembang to retailers, including adequate depre-ciation and to earn a reasonable return on the assets inuse (para. 6.15);

(g) periodic accounts will be produced by PUSRI in sufficientdetail to permit monitoring of the finances of its marketingdepartment and the annual audited version will be submittedto the Bank within 4 months at the end of PUSRI's fiscalyear (para. 6.18).

7.02 'Vhe project forms a suitable basis for a Bank loan of US$68 millionto the Government of Indonesia to be repaid over a period of 15-1/2 yearsincluding 3-1/2 years grace period.

May, 1975

I

ANNEX 1Page 1

INDONESIA

FERTILIZER DISTRIBUTION PROJECT

The Indonesian Fertilizer Market 1/

Background

1. Indonesia is the world's largest archipelago with more than 13,000islands of which about 3,000 are inhabited. It has an area bigger than thewhole of Europe and has a population of about 127 million, making it thefifth most populous nation in the world. The population is growing at afast rate of 2.4% a year. Tne population growth rate is expected to declineslightly to 2.34% during 1976-81 and to-2.29% during 1981-86, with thepopulation reaching about 147 million in 1980 and 161 million in 1983.

2. According to the 1971 Census, of the total population of about119 million people, nearly 64% lived in Java and Madura; 17.5% in Sumatera;7.2% in Sulawesi; 4.3% in Kalimantan; and 7.0% in the other islands. Further,the 1971 Census showed that of the total number of people employed (39.2million), about 63% were engaged in agriculture, forestry and fishingcompared to 7.5% in manufacturing. Agriculture accounts for about 50% ofGross National Product and almost all non-petroleum exports.

3. During the First Five-Year Plan (Repelita I) which ended March 31,1974, Indonesia's real annual economic growth averaged about 7%. DuringRepelita II (1974-79), the rate is expected to be 7.5%. This growth rate isprojected to be maintained beyond 1979 as well.

4. Indonesia is rich in oil and natural gas resources. Its growthprospects have improved significantly with the rise in oil prices fromUS$2.93 a barrel in April 1973 to US$12.60 a barrel since July 1974. Thecountry currently produces about 1.45 million barrels of oil a day, rankingthe 10th largest crude oil producer in the world. By 1980, its crude oilproduction is expected to rise to 2 million barrels a day.

Agricultural Situation

5. Agricultural production has grown at the rate of 4% a year duringRepelita I. Rice is the most important foodcrop which accounts for about one-third of the food production by value and over 10% of GNP. Other major

1/ This analysis of the Indonesian fertilizer market was adapted froma Bank report "Appraisal of a Second Fertilizer Expansion ProjectPUSRI III"; Report No. 624-IND of February 4, 1975.

ANNEX 1Page 2

foodcrops are: corn, cassava, sweet potatoes, soybeans and peanuts. Amongthe estate crops grown are rubber, oilpalm, sugarcane, tea, cofEee, tobacco,cloves, coconuts and pepper. Production of foodcrops other than rice in-creased marginally or even decreased over the period 1969-73. However,during the same period, rice production rose significantly from 10.8 milliontons to 13.4 million tons. Despite this increase in rice production, Indo-nesia has been importing 0.5 million to 1.5 million tons of rice in recentyears.

Harvested Area

6. In 1972, the harvested area under all crops was about 16.5 millionha of which 11.5 million ha (nearly 70%) was under foodcrops and the restunder estate crops. Rice alone, with approximately 8 million ha of harvestedarea, accounted for about 48% of the total harvested area in the country.

7. Java accounts for the largest harvested area among al:L islandsin Indonesia, with Sumatera coming next. For example, in 1972, Javaaccounted for 8.14 million ha of harvested area or about 49.3% of thetotal, while Sumatera accounted for 28% with 4.6 million ha. Thus, Javaand Sumatera accounted for slightly more than 77% of the total harvestedarea that year.

8. The total fertilized area in Indonesia was about 4.8 million ha in1972, of which 3.85 million ha (80%) were under foodcrops and the rest underestate crops. Rice alone accounted for about 63.4% of the total fertilizedarea, with about 3 million ha. This shows that use of fertilizers isconcentrated on foodcrops, especially rice. This situation is expected tocontinue in the future as well.

9. Of the total fertilizer area in 1972, Java accounted for 3;6million ha (75%) and Sumatera for 0.92 million ha (19%). Thus, Java andSumatera accounted for about 94% of the total fertilizer area in 1972, withthe rest of the islands having a very limited fertilizer area.

Per Hectare Fertilizer Consumption

10. The following table shows the trend of per hectare fertilizerconsumption:

Fertilizer Consumption per Hectare of Arable Land(kg)

N P205 K2

1959/60 2.57 0.49 0.35

1971/72 10.9 1.3 0.30

ANNEX 1Page 3

11. The per hectare consumption of N and P205 has increased signifi-cantly since 1959/60. However, K 0 consumption per hectare has remainedmore or less stationary at a low Level. However, in the future, the needfor K 20 is also likely to increase to provide balanced fertilization.Field trials have shown that the need for K 20 is greater for estate cropsthan for foodcrops. Despite this increased consumption, application offertilizer per ha is still only about 50% of the average consumption perha in Asia at 26.9 kg.

Fertilizer Consumption

12. During 1964-68, N consumption in Indonesia declined from 108,200tons to 101,200 tons mainly because of the constraint of foreign exchangeto import fertilizers. However, starting from a low base, P 05 and K 0consumption increased during that period. The following tabie shows {hetrend of fertilizer consumption during 1964-74:

Trend of Fertilizer Consumption('000 nutrient tons)

N P 0 K20 N:P20 K 0 Ratio

1964 108.2 26.1 5.6 4.1:1:0.21968 101.2 32.5 11.5 3.1:1:0.351972 305.1 52.9 30.4 5.8:1:0.571973 369.0/1 106.8 15.3 3.5:1:0.141974 442.6- 114.6 17.2 3.9:1:0.15

Ave. Growth Rate (%)

1964-1968 -1.7 5.7 19.71968-1972 31.0 13.0 27.01964-1972 13.8 8.1 24.01972-1974 20.4 47.8

/1 The measure of nitrogen actually used for the BIMAS-INMASprogram and nitrogen available from local sources and imports.

13. Of the total N consumption in 1972, the consumption by the food-crop sector was nearly 83%, with the estate sector using the rest. In thecase of P 205 and K 20 consumption, about 67% and 2% respectively were inthe foodcrop sector.

Fertilizer Consumption by Crops

14. Of the total N consumption of 0.31 million in 1972, nearly 0.21million tons or 67% was used on rice. Further, rice accounted for about58.4% of the total P 20 consumption, but there was no use of K by that crop.Excluding rice, the major N consumers by order of importance were vegetables,

ANNEX 1Page 4

corn, rubber and sugarcane, and the major P 205 consumers by order of im-portance were rubber, vegetables, sugarcane and oilpalm. In the case ofK 0, apart from rice, the non-users were corn, peanuts, soybean and cloves.Tie major K 0 users by order of importance were oilpalm, rubber, sugarcane,tea and cofiee.

Fertilizer Consumption by Region

15. In 1972, about 242,120 tons or 79.3% of the total N consumptionwere used in Java. That year, Java used 38,257 tons of P205 (72% oftotal consumption) and 3,958 tons of K20 (31.5% of total consumption).Apart from Java, the major fertilizer consuming regions are Sumatera andSulawesi as shown in the following table:

Fertilizer Use by Regions, 1972(In percentages unless otherwise noted)

N P205 K20

West Java 23.9 27.8 12.6Central Java 26.1 22.9 5.5East Java 29.3 21.7 13.4Total Java 79.3 72.4 31.5

North Sumatera 10.0 18.2 64.5West Sumatera 3.2 2.7 0.4South Sumatera 0.9 1.1 0.8Lampung 1.1 1.3 1.8Total Sumatera 15.2 23.3 67.5

Sulawesi 2.6 1.9 0.3Bali 1.8 1.4 0.2Kalimantan 1.0 0.9 0.5Others 0.1 0.1 -

Grand Total 100.0 100.0 100.0Grand Total 305.1 52.9 30.4

('000 tons)

16. The above table shows that while Java is by far the leading userof N and P20 fertilizers, Sumatera is the most prominent user of K 0 ferti-lizer. Sumatera being the leading producer of rubber and oilpalm, it needslarger quantities of K 20 for use on them, especially in the northern partof that island.

Imports of Fertilizer

17. In terms of nutrients, N imports increased eightfold to 289,300tons during 1964-72. During the same period, P20 imports rose nearlyfourfold to 93,300 tons and K 20 imports increase §-1/2 times to 35,800 tons.The following table shows the trend of imports during 1964-78:

ANNEX 1Page 5

Fertilizer Imports, 1964-1972('000 nutrient tons)

N 25 P0 K2

1964 35.7 23.5 7.91968 142.5 54.3 12.51972 289.3 93.3 35.8

18. Among fertilizer materials imported, urea is the most importantfollowed by triple superphosphate (TSP), ammonium sulfate and diammoniumphosphate (DAP) as shown in the following table:

Composition of Fertilizer Imports, 1972

Imports % of Total('000 Product Tons)

Urea 550,110 57.6TSP 166,000 17.4Ammonium Sulfate 132,298 13.8DAP 22,003 2.3Compound Fertilizers 15,934 1.6Sulfate of Potassium 2,588 0.3Ammonium Chloride 1,500 0.2Calcium Nitrate 500 0.1Other 64,432 6.7

955,365 100.0

Production

19. Indonesia had no local facility for fertilizer production until1964, when PUSRI I went into commercial production with an annual productioncapacity of 100,000 tons of urea. In the first year of operation itself,PUSRI I achieved more than 100% capacity utilization. From 1964-71,PUSRI I was the only domestic fertilizer production facility in the country.In August, 1972, Indonesia's second fertilizer facility - P. N. PETROKIMIAFertilizer Plant at Gresik, East Java-- went on stream. PETROKIMIA has a58,000 TPY-capacity ammonia unit feeding two downstream units- a 45,000 TPYurea unit and a 150,000 TPY ammonium sulfate unit. The PETROKIMIA plant hasthe flexibility to change the quantity of its main products--urea and ammoniumsulfate--according to the fertilizer market situation. However, it hasbeen facing problems in achieving high capacity utilization. Indonesia'sthird fertilizer plant, PUSRI II, went into production in September 1974with an annual capacity to produce 380,000 TPY of urea. The country hasnegligible production capacity for P 0 fertilizers. As for K 0 fertilizer,the country has no local production tac ity as there are no known localreserves of potash.

ANNEX 1Page 6

Production Plans

20. Indonesia has firm plans to establish three N fertilizer p:Lants:PUSRI III, the East Kalimantan Plant I, near Balikpapan, and the West JavaPlant at Jatibarang. Further, under preliminary stages of consideration arethree more plants: the North Sumatera Plant at Aceh, the East KalimantanPlant II and a third expansion of PUSRI. The following table shows themain units, capacities and the likely dates for full commercial productionof the plants to be built before 1983:

New N Plants by 1983

Ammonia Urea Unit CommercialUnit Capacity Capacity Production

(TPD) (TPD)

PUSRI III 1,000 1,725 May 1, 1977East Kalimantan I 1,500 1,725 January 1, 1978West Java 1,000 1,725 January 1, 1979

21. All the above plants are expected to produce urea and have identicalurea capacity. However, the ammonia unit of the East Kalimantan I would belarger than the comparable units of the other two plants. The surplus ammoniacapacity in the East Kalimantan I would be used to provide industrial ammoniafor a proposed petrochemical plant in Surabaya. However both the EastKalimantan and West Java plants are delayed and not expected to be illcommercial operation before 1980. Productive capacity shown in the iFollowingtables may thus be overstated but, in the absence of more precise data, hasbeen retained.

22. As for the local production of P 0 fertilizers, Indonesia hasplans to build a TSP plant as part of the hE@ROKIMIA complex. This plantis expected to go into production on January 1, 1977 with an annual capacityof about 300,000 tons of TSP. With respect to K 0 and compound fertilizers,the country has no plans for their local productdon.

23. Assuming that all the new plants would be commissioned accordingto schedule, the local production of fertilizers would increase as follows:

Fertilizer Production 1972-1983('000 tons)

Products NutrientsAmmonium Ammonium

Urea Sulfate TSP Urea Sulfate Total TSP

1972 (Actual) 111 29 - 53.7 6.2 59.9 -

1974 (Est.) 248 70 - 114.0 14.7 128.7 -1975 416 120 - 191.4 25.2 216.6 -1976 430 120 - 197.8 25.2 223.0 -1977 668 120 250 307.3 25.2 332.5 115.01978 1,230 120 260 565.8 25.2 591.0 119.61979 1,711 120 260 787.1 25.2 812.3 119.61980 1,784 120 260 820.6 25.2 845.8 119.61981-1983 1,812 120 260 833.5 25.2 858.7 119.6

ANNEX 1Page 7

Forecast of Demand

24. Forecasts of fertilizer demand for Indonesia have been made inseveral studies: (1) the National Fertilizer Study (NSF) by Agrar-undl-ydrotechnik GmbH, of the Federal Republic of Germany, published in 1972;(2) the Feasibility Study for the West Java Fertilizer Plant by the Bureaud'Etudes Industrielles et de Cooperation de l'Institut Francais du Petrole(BEICIP), published in 1973/74; the draft reports, "The Likely Impact ofMiddle East Oil Policies on the Development of the Nitrogen Industry ofEast and Southeast Asia," January 1974, and "The Proposal for the Develop-ment of the Nitrogen Production Capacity in Indonesia," July 1974--bothprepared by the Tennessee Valley Authority (TVA) for the U.S. Agency forInternational Development (AID); and the Bank Group Report (No. 446),"The Fertilizer Requirements of Developing Countries," May 1974 and theBank draft report "The Irrigation Survey Program for Indonesia," August1974. Further, the Second Five-Year Plan (Repelita II, 1974-79) has forecastthe demand for N fertilizers. However, since these projections are onlystraight line trend extrapolations and not based on agricultural surveysthey only can provide a generalized picture of prospective fertilizer con-sumption.

25. Based on the above consultants' and Bank studies, the totalfertilizer requirements in nutrient tons during 1972-1983 are projectedas follows:

Fertilizer Requirements(In '000 nutrient tons)

N P205 K20 Total Total /i

(product tons)1972) 305.1 52.9 30.4 388.4 844.31973)(Actual) 328.9 62.6 38.4 429.9 934.61974) 442.6 74.0 48.0 565.0 1,228.31975 424.0 87.5 61.0 572.5 1,244.61976 473.3 103.6 76.8 653.7 1,421.11977 528.2 122.5 97.8 748.5 1,627.21978 590.1 144.9 123.2 858.2 1,865.71979 631.4 171.9 146.0 949.3 2,063.71980 675.6 203.8 172.7 1,051.9 2,286.71981 722.8 241.7 204.5 1,169.0 2,541.31982 773.5 286.7 242.0 1,302.2 2,830.91983 825.5 340.0 286.5 1,452.0 3,156.5

/1 Assuming a nutrient content of 46% per product ton.

ANNEX 1Page 8

Trade in Fertilizers

26. As already noted, Indonesia has no known reserves of K20. There-fore, it is assumed that the country would meet all its requiremients of K20from imports. In the case of phosphates, Indonesia has plans as mentionedearlier to establish only one plant with a production capacity of 300,000 TPYof TSP (138,000 TPY of P205). Therefore, the country would largely dependon imports to meet its phosphate needs. In the case of N fertilizers,however, Indonesia is projected to emerge as an exporter from 1978 onwardsas shown below:

Comparison of Production and Requirements of N(in '000 nutrient tons)

Production Demand Surplus (Deficit)

1972 (Actual) 57.0 305.1 - 248.111973 (Actual) 85.2 328.9 - 243.;71974 (Est.) 128.7 414.0 - 285.31975 216.6 424.0 - 207.41976 223.0 473.3 - 250.31977 332.5 528.2 - 195.71978 591.0 590.1 + 0.91979 812.3 631.4 + 180.91980 845.8 675.6 + 170.21981 858.7 722.8 + 135.91982 858.7 773.5 + 85.21983 858.7 825.5 + 33.2 /1

/1 The surplus would reach about 557,600 tons of N by 1983 if.Indonesia builds by the end of this decade two more ureaplants each of 570,000 TPY of urea capacity (262,200 T'PY ofN) in addition to the three new urea plants assumed iTI theprojections.

27. In studying the export possibilities for N fertilizers, it isassumed,that Indonesia has a relative advantage compared to Japan and theRepublic of Korea - its major Asian competitors for N fertilizer exports - inmeeting the import needs of neighboring countries such as Malaysia, thePhilippines, Thailand and the Republic of Vietnam because of Indonesia'slarge resources of low-cost feedstocks for N production combined with modernproduction facilities and freight advantage. As for potential competitionespecially from the Persian Gulf countries, it is assumed that those countrieswould be better off by concentrating on meeting the import needs of countriesother than Indonesia's neighbors mentioned above.

ANN1 EX 1Page 9

28. Based on TVA projections of production and demand of N fertilizersin Malaysia, the Philippines, Thailand, the Republic of Vietnam, Japan andthe Republic of Korea, it is forecast that the surplus/deficit of N in thosecountries would be as follows:

N Fertilizer Deficit (-) and Surplus (+)in Selected Countries(In '000 nutrient tons)

1974 1977 1978 1980 1983

Malaysia -54 -96 -109 -187 +31Thailand -58 -97 -109 -149 -232Philippines -140 -195 -234 -312 -217Vietnam -103 -134 -148 -178 -116

Total Deficit -355 -522 -600 -776 -534

Indonesia -285 -196 - +170 +33Korea +3 +226 +200 +270/1Japan +990 +569 +394 +100 -

Total Surplus +708 +599 +594 +540 +33

/1 Two fertilizer plants are expected to be closed at theend of 1980.

29. The above forecasts of surplus/deficit in the selected countriesare based on the assumption that before 1983: (1) Korea and Japan - whichfor N production have to depend heavily on imported feedstocks the pricefor which has risen steeply - would not build new plants except those alreadyunder construction; (2) Malaysia and the Philippines would build one ammonia/urea plant each with a capacity of 570,000 TPY of urea (262,200 TPY of N);and (3) Vietnam would build an ammonia/urea plant with a capacity of 330,000TPY of urea (151,800 TPY of N). The above table shows the surplus availablefrom Japan, Korea and Indonesia would fall short of the import requirementsof Malaysia, Thailand, the Philippines and Vietnam from 1980 onwards. How-ever, an approximate balance would be achieved by 1983 in case Indonesiabuilds two more plants in addition to the three new plants assumed.

Fertilizer Marketing

30. Fertilizer marketing in Indonesia is carried out by Governmentapproved importers/distributors including local fertilizer producers likePIJSRI and PETROKIMIA. Until 1970, P.N. Pertani was the leading distributorof both local and imported fertilizers. However, in recent years, theGovernment has been encouraging local producers to market their own productsas well as imported fertilizers while allowing P.N. Pertani and otherestablished importer/distributors to continue their operation. As thelocal production of fertilizers is low (about 318,000 product tons in 1974),the marketing network in Indonesia depends heavily on imports.

ANNEX 1Page 10

Pricoing Policy

31. The Government controls not only fertilizer distribution but alsofertilizer prices. The main purpose of price control is to subsidizefertilizer sales to farmers and keep foodgrain prices low in a bid to checkinflation which has been a serious problem in Indonesia. The retail priceof urea - both local and imported - is fixed at Rp 60,000 (US$144.6) perproduct ton while the current import price of urea - the most popularfertilizer used in the country - is about Rp 176,000 per ton. Of the retailfertilizer price of Rp 60,000 per product ton, Rp 5,000 (8%) is the marginfor sub-distributors and retailers and Rp 13,100 (22%) is the margin forimporters/distributors. The Government purchases all the local productionof urea at a fixed price before allocating it for distribution. This pricewas very low in the past, making it difficult for local producers to earn areasonable return on investment. However, the Government has increased itspurchased price by stages from Rp 28,220 (US$68.0) per product ton in 1972to Rp 63,900 (US$154) in 1974. The purchase price is fixed on the basis ofc.i.f. Java. Therefore, the producers have to bear the cost of transportingtheir product to port godowns in Java, the leading fertilizer consuming area.

Credit

32. Over 60% of the fertilizer is consumed in Indonesia in aretascovered by two programs for promoting intensive cultivation, especiallyof rice: the BIMAS (Mass Guidance) program and the INMAS (Mass Intensifica-tion) program. Under the BIMAS program, farmers having less than 5 ha ofland are provided with short-term credits at 1% interest per month in theform of a package of subsidized inputs supplemented with extension servicesto promote the proper use of these inputs. The INMAS program in practicerepresents the ordinary agricultural extension program for the distributionof subsidized inputs to farmers who are either ineligible for the BIMASprogram (either because they have progressed sufficiently as BIMAS farmersor because they have more than 5 ha of land) or who do not want to umake useof the BIMAS credit because of the associated red-tape and control. TheINMAS participants, unlike the BIMAS farmers, have freedom of choice regard-ing the types and quantities of inputs. However, the INMAS farmers arecharged a higher rate of interest--currently 1.5% per month--than theBIMAS farmers.

33. The Bank Rakyat Indonesia (BRI) is now the sole credit agency forthese programs and is attempting to set up offices to process loan applica-tions in each village unit (unit desa). Village units without a BR] officeare covered by mobile units. Farmers participating in BIMAS and INMASprograms have to receive vouchers for inputs from BRI offices or mobileunits and draw supplies against them in village "kiosks" operated by approvedprivate retailers or from village unit cooperatives (BUUD's). It is theGovernment policy to promote the BUUD's as the main sources of supply ofinputs for BIMAS and INMAS farmers. But there is a lack of trained person-nel to organize and operate them. Therefore, BUIWD's require considerablestrengthening before they could become efficient suppliers.

May, 1975

A:EX 2Page 1

INDONESIA

FERTILIZER DISTRIBUTION PROJECT

Project Description

The Palenbang Facilities

1. PUSRI currently distributes something less than half of the totalfertilizer tonnage consumed in Indonesia, and is expected to continue to bethe leading fertilizer marketer. Present distribution facilities are in-adequate and cause substantial losses of product. With the expansion offertilizer output by PUSRI, an improved distribution system was designedand the land based elements were related to the market demand and, morespecifically, to the road and railway network in Java and to the road systemin other islands.

2. The distribution project is geared to handle both the TSP and NPKfertilizers distributed by PUSRI and the total output of the PUSRI fertilizercomplex at Palembang. This complex is in the process of being expanded bythe addition of a third unit (PUSRI III) which will more than double currenturea output of 1,450 tons per day by 1977 to be financed partly by the Bank'sloan. At that date, the three units will be capable of an output of about3,175 tons per day or about 1.1 million tons per year. This will be reducedto 2,875 tons per day, when the original plant built in 1964 goes out ofservice.

3. Ammonia from PUSRI I may be sold or utilized in other processesto make phosphatic fertilizers. PUSRI III facilities include, in additionto ammonia and urea units, an expansion and modification of bulk andbagged storage, and the replacement of an existing ship-loader. Thesefacilities are schematically depicted on the flow sheet (Attachment I).

4. Taking an overall berth occupancy at Palembang of 50% and about60% of rated capacities for loading fertilizers, the proposed bulk shippingsystem could adequately load the entire output of PUSRI in 1977. The ex-isting bag loading berth and the facilities being provided under the PUSRIIII loan can handle smaller outer island consumption, spot export and emer-gency loading, about 300,000 tons per year, in addition to the miscellaneousproducts likely to be produced when PUSRI I urea production, but not theamonia production, ceases, and necessary imports. This provides against amajor breakdown of one of the special bulk ships.

5. Shed storage capacity at Palembang in 1977 will consist of 26,000tons of bagged urea and 55,000 tons of bulk urea. The maximum shed storageof 81,000 tons amounts to 28 days production. With outside storage of

ANiEX 2Page 2

bagged urea under tarpaulins in an emergency, storage capacity can begreatly expanded.

6. The existing bulk loading pier is adequately designed for berthingthe proposed bulk ships. It has 8 m depth alongside at low water and thisis more than sufficient. Dredging is unlikely to be needed due to the ex-posed location and the swift current. The existing fixed shiploader of600 tons per hour capacity is to be replaced by a quadrant type loader, inorder that loading of both bulk and bagged products can proceed at ad-joining piers without substantial delays as the bulk ship will not have tobe moved.

The Ships

7. Annex 3 fully describes the considerations underlying the designof the ships and provides information on their costs. The three shipswould have the capability of moving the total output of the PUSRI complexto the main bulk depots in 320 days operation each. As about 130,000 tonsof urea are expected to be shipped in bags, substantial spare capacity isavailable to backhaul fertilizers produced elsewhere in Indonesia or toserve other bulk depots in Indonesia or in nearby countries, such backhaulingor other movements are not expected to develop before 1980 when the proposedNational Fertilizer Distribution System study's proposals will likely be ineffect.

Bulk Terminals

8. PUSRI has completed two bulk terminals at Cilacap and Surabayafor reception of urea. These were constructed as part of the firstexpansion at Palembang and could handle only a small part of the outputnow proposed. Expansion of these facilities and improvement of shipunloading facilities is included in the project. In addition, new terminalswill be built at Belawan, in Northern Sumatera, and at Padang on the westerncoast of Sumatera, and the existing PGIP terminal in Tanjung Priok will beimproved; all of these will have some capacity for storing bagged urea andother fertilizers. The terminal at Padang may be completed somewhat laterthan the other due to the need for site preparation. The existing and pro-posed bulk and bagged storage at the port terminals are shown below:

Tons of Storage Capacity

Existing ProposedLocation Bulk Bagged Bulk Bagged

Belawan 0 0 12,000 4,000Cilacap 5,000 1,000 12,000 5,000Padang 0 0 10,000 4,000Surabaya 9,000 1,000 15,000 5,000Tanjung Priok 30.000 8,000 30,000 8,000

ANNEX 2Page 3

9. Calculations show that when over about 50,000 tons per year ofurea are received in bags at any port, the building of a bulk terminal iseconomically attractive. On this basis, PUSRI may construct additionalterminals at Telukbitung, in South Sumatera; and at Ujung Pandang, inSouth Sulawesi, as its market develops, or as may be indicated by the NationalFertilizer Distribution System study.

10. The terminals proposed are similar to those currently in use.A breasting dolphin and two mooring dolphins will be constructed, or anexisting berth improved; bulk urea will be received on a covered conveyorbelt mounted on the breasting dolphin, elevated into a concrete and woodconstruction storage shed, and stored in a free-standing pile formed byan overhead conveyor. Separation of various types of fertilizer will bepossible within the sheds. Bagging machines of a capacity and numbersufficient to serve the estimated throughput will be served by front-endloaders. The bagging plant will operate on up to three shifts. Theships can be unloaded night and day, regardless of weather. Only oneman is required to operate the system.

11. Land for the terminals where necessary will be leased in eachport. As the ports are normally maintained at a minimum of 8 m water depth,no difficulties are foreseen in using the proposed ships, and maintenancedredging will be undertaken by the port as necessary.

12. While the depots would normally be served only by the special ships,it would be possible to accommodate and unload normal crane-equipped bulkcarriers.

13. Consultant studies for new depots were carried out in the fieldand preliminary drawings and cost estimates made. PUSRI's engineeringdepartment was responsible for the successful construction of the twoexisting bulk depots.

Inland Storage Depots

14. Fifty-nine inland storage depots (ISDs) of from 3,000 to 10,000 tonscapacity are included in the project for reception, storage, and onwarddistribution of fertilizer as proposed by PUSRI's marketing and engineeringconsultants and agreed to by the Bank. These ISDs are served by the bulkterminals as follows:

ANNEX 2Page 4

Bulk Terminals No. ISDs of 3,000 to 10,000 m Tons

SumateraBelawan 6Padang 2

8

Java

Cilacap 15Surabaya 19Tanjung Priok (Jakarta) 10

44

Other Islands 7TOTAL 59

All the ISDs will be owned by PUSRI. Details of the location of the ISDs,their sizes, throughput planned, and distance from the port depots are inAttachment II. In addition, 22 smaller ISDs of from 2,000 tons or lesscapacity will be leased, mainly in the outer islands.

15. Of the 44 depots in Java, 27 will be served by both road andrail; 17 will be served only by road and those will be within about 100 kmof the main bulk terminals.

Transport to ISDs

16. Rail movement of bagged fertilizer from the bulk terminals inJava will be by block trains. These will carry at least 480 tons of ureaand/or other bagged fertilizers. It is estimated that the fertilizer re-quirements can be transported by 175 railway cars of 30 tons capacity each.These wagons will be owned by PUSRI. In order to provide an adequate in-crement to the pool of motive power of the Indonesian State Railways (PJKA),four main-line and three shunting locomotives, of 1700/2000 HP and 350 HPrespectively will be procured by the railway company from the loan proceeds.

17. Construction of railway spurs will be required at the 27 ISDs tobe served by rail and an allowance has been made to cover the cost of theseworks.

Offices and Equipment

18. Each ISD and bulk terminal and each of PUSRI's six regional officesrequire office equipment and automobiles and, in some cases, expansion andrelocation. Provision has been made for such expenditures in the costestimate.

ANNEX 2Page 5

Capital Costs

19. Detailed capital cost estimates for the project, including bulkterminals, ISDs, and all necessary equipment are given in Table 2.

Contingencies

20. (a) Physical

No physical contingencies are included in the case of shipsas a firm bid has been accepted. Physical contingencies onport bulk terminals are taken at 15%, and 10% on ISDs,railway construction, and equipment, and offices andequipment.

(b) Price

(i) Ship

A fixed price contract for delivery of the ships hasbeen signed and no price contingencies are necessary.

(ii) Railway Equipment

Price contingency was based on the equipment value plusphysical contingencies, the order date was assumed to belate in 1975 with a 10% down payment. Deliveries wereassumed to take place in late 1976 to early 1977 in a70:30 ratio. Against this estimated disbursementschedule of 1-1/2 years, escalation was taken at 18% p.a.

(iii) Land Based Facilities

Costs of bulk and ISD facilities were divided into foreignand domestic components, excluding land. The base costestimate was made in late 1974 and construction wasassumed to be completed by mid-1977.

Local costs were assumed to be 80% labor and 20%equipment. Labor, and equipment were both escalatedat 20% p.a. Foreign costs, 100% equipment, wereescalated according to a declining rate of inflationproposed by Bank staff, i.e., 14% p.a. in 1974; 12% p.a.in 1975; 10% p.a. in 1976; and 8% in 1977.

Total price contingency thus computed amounted to 18%of the base cost estimate plus physical contingencies.

May 1975

INDONESIAAPPRAISAL OF A FERTILIZER DISTRIBUTION PROJECT

RAW MATERIAL AND PRODUCT FLOW

EXISTINGPUSRI I 12MINATURAL GAS |2MlLLIONSCF/O AMMONIA 180 TPD | UREA S300 TPD G BAGPUSRI 350NAURALDGBAGG;ING

(STANVAC) 1 PLANT PLANT AGOGING sToRAGE72 T HIN 2S.000 TONS

BAG LOADING45 T/HR TO

STOAECONTINUE AS225 TONS AT PRESENT

I ALTERNATE PLAN . EMERGENCY~~~~~~~~1 12 ~~~~BAG LOADING

PUSRI 11 NATURAL GAS 42MILLION SCF/D AMMONIA B660TPD UREA 1150 TPD

tPERTAMINA) PLANT PLANT I

STORAGE S

5_ 000 TONS EXISTING

STORG OR

BULK_CON _YULK LOADING197STIH 400 TDER INCREASED

CAPACITY OF UREA } 2,S75 TPD OR 960,000 TPY ' TOTAL BULKLOADING=TO 600 T/HR

PUSRI [it NATURAL,GAS E0SMILLION SCF/D AMMONIA 1005oTPD UREA 1725 TPD PRPBEBUK GOSTONAG

*Notinruse alter 1070

FeEr>glv. 1075

World 6ankN-8973t2RI

I-1

ANNEX 2Attachment IIPage 1

INTLAND SUPPLY DEPOTS(3,000 to 10,000 tons capacity)

Approx. Rail KmAnnual Warehouse From

Location Throughput Size Railway Depot('000 tons)

Belawan Area

1. Medan 27.0 102. Sibolga 35.0 103. Pematang Siantar 22.0 54. Kaban Jahe 13.7- 55. Banda Aceh 12.5 36. Lhok Seumawe 12.0 3

Padang Area

1. Padang + Riau 24.9 102. Bukittinggi 12.7 3

Cilacap Area

1. Tasikmalaya 18.9 5 1452. Banjar 13.0 5 1033. Cibatu 43.0 10 2024. Cirebon 28.6 5 1945. Cilacap 20.2 5 -6. Banjarnegara 18.7 5 1407. Kebumen 18.2 5 818. Sjecane 33.5 10 2289. Yogyakarta 16.5 5 17610. Margasari 33.9 10 12011. Pekalongan 25.6 5 21812. Purwosari 40.4 10 21613. Wonogiri 16.0 5 25014. Sragen 13.7 5 265

Surabaya Area

1. Semarang 21.8 2882. Kedung Jata 13.6 5 2703. Pati 24.5 5 2404. Blora 15.4 5 1845. Bojonegoro 23.5 5 1136. Lamongan 16.7 5 60

ANNEK 2ATTAiCHMENT IIPage 2

Surabaya Area (Cont'd)

7. Madium 42.2 10 1578. Kediri 47.6 10 1159. Surabaya 16.3 10 -10. Mojokerto 16.0 5 4711. Malang 22.6 5 9612. Pasuruan 17.1 5 6313. Probolinggo 18.3 5 10214. Lumajang 13.5 5 15215. Jember 19.9 5 19716. Rogojamp 23.3 5 28617. Panarukan 17.1 5 28618. Sumenep 12.5 3 -19. Sampang 9.4 3 -

Jakarta Area (Tanjung Priok)

1. Serang 19.3 5 1172. Pandeglang 21.7 5 1003. Jakarta 28.9 10 -4. Kerawang 37.2 10 635. Purwakarta 17.9 5 1036. Pagaden 31.5 10 1757. Bogor 21.3 5 538. Sukabumi 19.7 5 1129. Cianjur 18.5 5 15010. Bandung 26.4 10 173

Other Islands

1. Tanjung Karang 24.7 5 -

2. Pontianak 21.6 5 -

3. Banjarmasin 12.6 3 -

4. Ujung Pandang 22.2 5 -

5. Pare-Pare 20.0 5 -

6. Benoa 17.2 5 -

7. .Mataram 20.5 5 -

April 1975

ANNEX 3Page 1

INDONESIA

FERTILIZER DISTRIBUTION PROJECT

Ship Design Considerations and Costs

A. Factors Considered in Design Selection

The following ten factors underlay the ship design and had theimplications shown:

Factors Affecting Design Design Implications

Chemical and Physical Factors

1. Hygroscopic-

Urea readily picks up moisture - double skin shipfrom the air and becomes mushy or construction to reduceliquid. It cannot be reconstituted condensationinto crystals outside the factory.

- use of scraper unloaderto break up crust on urea

- vibrators and rods pro-vided for clearing chute

- adequate drainage andwash-down facilitiesprovided

2. Delicate

Urea prills may be crushed to - scraper system for re-dust and become unacceptable to claim and covered beltsfarmer and airborne losses may increase - for transfer are to be

used following recom-mendations of TennesseeValley Authority (TVA)after full scale tests.

- use of standard chemicalindustry equipmentspecified

ANNEX 3Page 2

3. Corrosion

Except when dry, urea is - special grades of steelcorrosive to steel, copper and aluminum and aluminum at wear

points (slope plates) andfor materials handlingequipment

- oversized steel platesused to allow for cor-rosion

- painting interior ofcargo hold withL specialpaints reduces corrosionof interior

- stainless steel used inscraper fittings

- special precautions aretaken with electricalwiring and switches

- air filters are used forengine room air intaketo protect electricalequipment

4. Bulky

Weighs about 50 lb/cu. ft. so - special high cubic ca-that a metric ton occupies about 44 pacity hold required into 48 cu. ft. order to load maximum

cargo on available draft

- proper sizing of standarddesign scraper system andconveyor equipment is usedto achieve 500 tons/hr.discharge.

Economic and Operating Factors

5. High Value

Urea replacement cost per ton, - care taken to avoidcurrently about US$250, is expected product losses at trans-to decline to about US$176 by 1977. fer to shore by using

enclosed, weather-proofsystem

ANNEX 3Page 3

- anticipated losses reducedto 1-1/2% from 3% forcurrent crane/clamshellbucket transfer

- small hatches on shipreduce dust pollution onloading and can beweather protected duringrain storms

6. Plant Output 2,875 tons/day

PUSRI complex will produce at - system sized as to shipthis daily rate in 1977 speed, number, unloading

rate so that 1.1 milliontons can be transportedby three ships. Ini-tially, the system willoperate at about 80% ofrated capacity due tocontinued shipment ofbagged production inearly years of the project.

7. River Draft Limited

Consultantst studies indicate - maximum tropical freshthat 6.5 m below low water spring water draft of the shiptides may be the maximum water depth was chosen at 6 m so thatat which the river can be stabilized. there is a 90% probability90% of all highwaters exceed 6.15 m. that it will suffer no

delays on outbound loadedtrips

- ship will reach its designdraft with about 7,000tons of cargo

8. Round-The-Clock, All Weather Operation

PUSRI will have its own reception - only one man ashore re-installations in the ports, operating quired for receiving-shedon a three-shift basis if required. conveyor start-upDelivery of product must be evenly spreadout over the year including the rainy - ships operate at all hoursseason, in order to minimize transport in harborscosts and investment in bulk storage

ANNEX 3Page 4

- ships do not need tugsfor docking or harboroperations because a bowthruster is fitted

- small hatches designed forthe ship can readily betented during loading andall are closed duringunloading

- covered conveyor dischargeprotects cargo fromweather

- use of PUSRI berths atports means ships willnot be delayed.

9. Easy Maintenance

Ship and unloading design should - specifications conform sobe simple and rugged in order that far as is lpossible, tomaintenance in Indonesia can be properly those to be used for theundertaken and so that operations in Indonesian inter-islandtropical waters with a corrosive cargo fleetcan proceed regularly.

- much equipment aboardship is similar to thatused by PUSRI

- scraper system is a simplewire and slheave blocksystem akin to standardcargo winch

- PUSRI mainitenance crewwill ride iships to assuremaintenance

- maintenance procedureswill be carefully de-lineated and controlledby PUSRI

- corrosion control em-phasized throughoutdesign

ANNEX 3Page 5

- use of dual classificationwill ensure high standardof ship repair

- ample spare parts to beprovided in the initialshipbuilding contracts

10. Least Cost Solution

Choice of lowest cost shipping system - largest possible ship hascrucial due to the need for flexibility in been designed given con-delivery pattern; also possible use of trolling draft in Musiship for exports is to be considered. River

- fast turn around to bepossible

- lowest system capital andoperating costs have beenachieved

- any friable material canbe carried either on back-haul or if ship has sparetime

- discharge direct intoshore hoppers for loadinginto trucks is possibleat any port not equippedfor conveyor beltreception

B. Description of Ship Selected

1. PUSRI appointed Marine Consultants and Designers (USA) to preparedesign studies and to design and supervise construction. This firm is ex-perienced in the design of self-unloading ships for bulk materials and isacceptable to the Bank. The consultant's terms of reference and the contractwas also acceptable to the Bank. A number of system studies were made inorder to select a design. The various systems studied were:

(a) new self-unloading, self propelled vessel, 7,000 m cargotons capacity;

(b) new self-unloading, integrated tug-barge units 8,500 mcargo tons capacity;

ANNEX 3Page 6

(c) new self-unloading, self propelled vessels, 5,000 m cargotons capacity;

(d) new, self-propelled vessels using gantry-type unloadingcranes, 5,000 m cargo tons capacity;

Ce) conversion of existing 7,000 m cargo tons capacity vesselsto self-unloaders;

(f) conversion of existing vessels using unloading cranes,7,000 m cargo tons capacity;

(g) self propelled ships of the type currently on charter withcranes and 3,000 m tons capacity;

(h) self-unloading tug and barge systems as proposed by Mitsui &Co., 6,000 m tons cargo capacity of barges to be used withtwo alternate tugs (3,200 H.P. and 5,200 H.P.);

(i) alternate tug proposals of item (h) having one tug and onebarge as a unit and with speeds of 9 knots and 10 knotsrespectively; and

(j) a fleet of 1,000 m tons capacity barges with tugs.

2. A final selection was made based on capital and operating costsof the various systems. Three close contenders, alternatives (a), (b),and (e) were studied in greater detail. The selection of a ship inpreference to an integrated tug and barge system was made mainly on thebasis of relative ease of maintenance. The possibility that the trans-portation system might be used in ocean-going service also favored a ship,as sufficient experience with integrated units in the typhoon and monsoonareas of the South China Sea and the Bay of Bengal does not exist. Con-versions would lead to higher costs per ton due to the loss of cargo holdvolume, and therefore cargo tonnage, when unloading equipment was installed.Older ships would have higher maintenance costs and may suffer delays due tolack of spare parts. They would have higher financial costs per toin. As newships could be constructed in the time available and would give lowestcost per ton, conversions were eliminated.

3. The ship finally selected and designed took into account thevarious factors noted in Section A. It is a single deck, transversely andlongitudinally framed, bulk carrier having no cargo-hold bulkheads andwith side ballast tanks as well as a double bottom. The ship will bepropelled by two, unidirectorial, medium-speed diesel engines each drivinga propeller via a reverse reduction gear. Twin rudders and a bowthruster will provide precise maneuvering capability both ahead and astern.

ANNEX 3Page 7

4. The self-unloading machinery will consist of two wire-rope operateddrag-scrapers in the hold which discharge into hoppers. Two bucket elevators,fed by conveyors from the hoppers, elevate the cargo above the deck anddischarge it onto a transverse, weather-tight, shuttle-boom conveyor whichdischarges onto the shore reception facilities. All of this machinery aswell as the accommodation, propulsion and auxiliary equipment space islocated aft.

5. Scale model tests for propulsion and propellers have been carriedout at a testing facility in order to determine the best machinery specifi-cations. Detailed design has been completed for the mid-ship section andapproval has been received from the Germanischer Lloyd (GL). The ship willbe built to the rules of GL and will eventually be transferred to a jointclassification with the Indonesian classification society, Biro KlasifikasiIndonesia (BKI). It will be maintained in dual class during the period ofthe proposed loan.

5. Principal particulars of the ships are:

Length, overall 114.5 metersLength, load waterline 112.5 metersBeam, moulded 20.0 metersDepth, moulded 10.0 metersDraft, design, summer, tropicalfresh water 6.0 meters

Horsepower, continuous servicerating 4,000 B.H.P.

Accommodation 30

C. Capital Costs

After following procedures described in the Bank's "Guidelinesfor Procurement" a contract has been awarded by PUSRI for construction ofthree self-unloading ships for a fixed price in yen of ? 9,470,000,000equivalent to about US$33.0 million. The price includes complete outfitand about US$600,000 equivalent of extra spares.

D. Operating and Other Costs

1. Based on current Indonesian costs outlined by PUSRI's marineconsultants (Mollers, Hong Kong) and checked by Bank staff, the followingannual operating costs have been estimated. These costs include an al-lowance during the first four operating years for expatriate seniorofficers if it is necessary to train Indonesian officers.

ANNEX 3Pa:ge 8

Projected Shipping Costs - $000

Total Costs Fixed Annual Costs Variable Costs

Crew Costs 387 387Management 72 72Communication 14 14Water 9 9Maintenance, Survey and Stores 378 378Port Charges & Pilotage 286 286Insurance 525 525Fuel and Lub. 709 709

Sept. 1974 Costs 2,380 984 1,396

Escalation to April 1977-based on 18% p.a. 3,451 1,427 2,024

2. Financial costs per year will average about US$4.8 million basedon a capital recovery factor of 12% over 16 years. Total operating andfinancial costs would then be about US$8.2 million equivalent :Ln 1977. Ifoperating costs were to increase to US$4.0 million by 1985 total cost atthat date would be US$8.8 million for urea shipped and unloaded. Even ifthe ships were operated at 75% of capacity, the cost per ton would then beno greater than PUSRI currently pays per ton for shipping and stevedoringin crane equipped ships (Annex 4, page 4) after including the increase inoperating costs due to estimated inflation.

May 1975

ANNEX 4Page 1

INDONESIA

FERTILIZER DISTRIBUTION PROJECT

Economic EvaluationPrincipal Assumptions and Results

A. Optimization of the Distribution System

1. The distribution system is designed to handle about 1.4 milliontons of fertilizer annually (960,000 tons urea ex Palembang, 100,000 tonsurea to be bo'ight by PUSRI and about 370,000 tons imported TSP and NPKof which about 70% (one million tons) are estimated to be distributed in Javain 1978; the bulk of the land based investments in marine terminals andinternal storage depots will consequently be in Java.

2. The system represents the least cost combination of a number ofoptions which were considered, as follows:

(a) Sea Transport

Various vessel sizes and types ranging from 1,000 dwtbarges to 8,500 dwt ships were tested and the 7,000 dwtself-unloading ship was established as the technicaland economic optimum, given the draft restrictions inthe channel of the Musi River near Palembang;

(b) Combination Sea/Land Transport

(i) All rail transport from Palembang via ferryboatto Java and from Palembang to Sumatera, shiptransport (RLS) 1/ to the outer islands.

(ii) Ship transport to three bulk terminals in Java,and two in Sumatera with RLS shipping to theouter islands, land transport from the marineterminals or ports 70-75% by road, the balanceby rail;

(iii) Ship transport as in option (ii), but landtransport about 55% rail, 45% road dependingon availability of rail service and thecompetitive situation.

1/ Regular Liner Service

ANNEX 4Page 2

Option (iii) was determined as the least costtechnically feasible solution and was thereforeused to form the project.

(c) Size of Bulk Terminals and Inland Storage Depots (ISDs)

(i) Bulk Terminals

The size of each bulk terminal was established asa function of the long-term fertilizer demand ofthe region it serves, the number of ship unloadingsand the rate of distribution of fertilizer to theISDs. A reserve factor was then added to accountfor the possibility of some failures in the system.The bulk terminals were located on the basis ofavailability of an existing port and the economiccomparison of the sea/land distribution costs. Itwas found that three bulk terminals in Java andtwo bulk terminals in Sumatera were the economicoptimum.

(ii) ISDs

The size and spacing of the ISDs was established asa function of transport cost, cost of the ISD anddensity of consumption of the areas served. Thusit was found that 59 ISDs ranging in size from 3,000to 10,000 tons were needed to distribute the fertilizerefficiently throughout Indonesia.

(iii) Seasonal fluctuations in consumption and the constantlrate of output of the Palembang plants were factorsin determining the capacity of both the bulk termina:Lsand the ISDs. Thus storage capacity for about 500,000tons or 35% of annual sales will be available to meetdemand during the wet season (December-March).

B. Projection of System Throughput

3. The projected system throughput is based on (i) demand projectionsfor urea, TSP and NPK fertilizers in Indonesia for the period 1977-1985,as shown in Annex 1, and (ii) PUSRIts prospective share of the fertilizermarket. PUSRI's marketing consultants (Agrar-und Hydrotechnik, GMBH)estimated the following annual throughput 1/ which the Bank considersrealistic:

1/ Throughput of bulk TSP and NPK is Bank estimate.

ANNEX 4Page 3

PUSRI Fertilizer Distribution1977 - 1985 ('000 Tons)

…-Fertilizer…Bulk Urea

ProcuredProduced at Locally Bagged

Year Palembang or Imported TSP and NPK llrea Total

1977 718 100 320 137 1,2731978 833 370 127 1,4301979 375 1,4371980 t It 385 i 1,4451981 " " 390 " 1,4531982 400 " 1,4631983 410 " 1,4731984 420 " 1,4831985 " " 435 1,495

C. Cost Estimates

4. Investment Cost Estimates

Investment cost estimates are those described in Chapter IV ofthis Report, excluding price contingencies, and based on May 1975 costs.

5. Operating Cost Estimates and Savings

Operating cost estimates for the existing system are based onPUSRI consultants' estimates 1/ as agreed by the Bank and were adjusted asindicated below to reflect economic operating cost. Present systemoperating costs are thus estimated 2/ as follows:

1/ Source: PUSRI Project Proposal, dated November 5, 1974. Swan Wooster:Economic Analysis of PUSRI Fertilizer Distribution and Pre-liminary Design of Port Receiving Stations and StorageFacilities.

2/ Excluding capital cost and depreciation, operating cost based on the1974 level.

ANNEX 4Page 4

.Rp/ton US$/ton

Freight 3,400 8.19

Unloading ship at warehouse,storage loading on truck, railcar 3,754 9.05

Inland transport /a 1,703 4.10

Storage at distributors' warehouses,loading truck 558 1.34

9,415 22.68

/a Excluding taxes, estimated at 50% of vehicle operatingcost, and including road user charges estimated at20% of vehicle operating cost.

6. Operating costs of the new system are based on PUSRI and Bankestimates and were adjusted in the same manner as the operating cost of theold transport and distribution system. 1/ They are as shown below:

2/Urea Transport Back-haul?

Rp/ton US$/ton Rp/ton US$/ton

Freight (7,000 dwt self-unloader) 696 1.68 1,017 2.45

Bulk terminals: storage, handlingb agging 374 0.90 374 0.90

Inland transport 1,340 3.23 1,340 3.23

ISD, storage, handling 290 0.70 _290 0.70

2,700 6.51 3,021 7.28

7. Operating Cost Savings for Bulk Urea Produced in Palembang

Operating cost of old system--Rp. 9,415

Less operating cost of new system--Rp. 2,700 = Rp. 6,715 (US$16.18)

1/ See Annex 5 for details of financial operating costs.

2/ Based on an average haul, see Annex 5, Attachment I p. 2.

ANNEX 4Page 5

8. Operating Cost Savings for Bulk Urea Procured Locally or Imported

In order to meet the expected demand for urea fertilizer distributedby PUSRI the company would have to import about 100,000 tons of urea annuallyor buy it from other domestic producers. The urea is expected to be shippedin bulk to PUSRI's bulk terminals either in PUSRI's bulk ships if the ureacan be procured locally or in other ships if it is imported. The urea willbe bagged in PIJSRI's bulk terminals and shipped to its ISDs via the PUSRIdistribution system. Since it is not yet known whether the urea will beprocured locally or imported, it has been assumed that benefits will onlyaccrue from the land based facilities of the distribution system. Hence netsavings are: land based operating cost of old system (Rp 6,015) less landbased operating cost of new system (Rp 2,004) = Rp 4,011 (US$9.67).

9. Operating Cost Savings for Bagged Urea and Bagged TSP/NPK

Bagged fertilizer will be delivered by RLS ships throughoutIndonesia and then transported inland to the ISDs. Savings which could beattributed to the new distribution system would accrue from more efficientstorage and handling at the ISD level. Hence net savings are: storage andhandling at distributors' warehouses (present system) Rp 558, less storageand handling at ISDs (new system) Rp 290 = Rp 268 (US$0.65).

10. Operating Cost of Back-haul of TSP and NPK Fertilizers

The ships have the capacity to enable back-haul of fertilizers tobe undertaken. Additional TSP or NPK in bulk could be imported to PUSRI'sbulk terminals. Estimates of the ship operating cost for back-haul presentedin Annex 5 show an overall cost for back-haul of Rp 1,017 (US$2.45). Onthis basis total transport operating cost savings for bulk TSP moving throughthe new transport/distribution system amount to Rp 6,394 (US$15.41) per ton.(Rp 9,415 less Rp 3,021) This category of benefits is assumed to ma-terialize starting 1980 following provision of the facilities recommendedby the National Fertilizer Distribution System study.

11. Benefits from Reduction in Fertilizer Losses

It is estimated that product losses during transportation, storageand dis'tribution can be reduced by about one half to 1.5%, by using selfunloading ships and to 3.5% (from the present estimated 5%) by the improve-ments in the inland fertilizer movements up to the distributor/retailerlevel. Thus, about 3% of total fertilizer tonnage moved (42,000 tons)could be saved. Assuming a long-term average fertilizer price of US$150per ton total benefits would amount to US$6.3 million per year.

12. Benefits from Additional Rice Production

Plant nutrients (in terms of nitrogen) would amount to 46% (19,000tons) of the weight of urea saved. It is estimated that 1 ton of plant

ANNEX 4Page 6

nutrients helps produce about 8 - 10 tons of rice (see PUSRI III AppraisalReport, No. 624-IND, 1975). On this basis the marginal increase in riceproduction attributable to reduced fertilizer losses would amount to about170,000 tons.

D. Proiect Risks

(a) Shifting of Markets

13. There are plans to build two additional urea production plants of570,000 tons annual capacity each. One plant near Jatibarang in West Javathe other plant will be in East Kalimantan, with production expected byabout 1980. The most likely and most economical market for the two plantswould be Java. Part of the East Kalimantan production can be exported andpart marketed on other Indonesian islands. Using the projection for ferti-lizer production and demand of this report as basis (Annex 1), it seemslikely that PUSRI fertilizer ex Palembang may lose a part of its market tothe West Java plant and possibly East Kalimantan. PUSRI's marketing con-sultants estimated that its share in the Java market would decline fromabout 77% in 1975 to 54% in 1985; this means that by early 1980 about 400,000tons per year of PUSRI's urea would have to be chanelled into new maLrkets,although the location and production of new factories is not yet certain.Unless the domestic market expands sharply, the most likely markets are inneighboring southeast-Asian countries. Analysis shows that the 7,000 dwtself-unloaders originating from Palembang would be competitive with 25,000dwt urea bulk carriers equipped with grab crane unloading which originatefrom Balikpapan (East Kalimantan), Kuwait or Alaska for the following princi-pal ports:

Cost in US$ per ton assuming no return cargo would be available

From Palembang Balikpapan Kuwait Alaska(7,000 dwt

To Self Unloaders) (24,000 dwt Bulk Carriers)

Madras 18.26 22.83 20.12 23.69Haldia (Calcutta) 19.07 23.79 n.a. 23.72Bangkok 12.99 17.00 25.24 n.a.Port Klang (Malaysia) 9.41 13.60 n.a. n.a.Singapore 7.93 12.11 22.89 21.29Saigon 11.74 15.09 n.a. 20.62

Furthermore, the self-unloaders are more flexible to operate since theyhave a shallow draft (6m with a full load) and thus can serve more portsthan the larger bulk carriers.

ANNEX 4Page 7

Utilization of Land Facilities

14. As regards the land distribution system, no change would berequired because the system is planned as a national distribution systemand will always be fully utilized irrespective of the source of fertilizer.The marine terminals have been dimensioned to accommodate the likelylong-term throughput rather than the peak throughput likely to occur about1980, and thus slight increases in ship waiting time may occur at that timeHowever, the possible benefits from reducing the waiting time are insuf-ficient to justify the additional cost of increasing the size of the marinetermainals.

Rate of Return

15. Assuming that only 50% of the-urea handled by the inland distribu-tion system would come from Palembang and 50% from West Java and EastKalimantan, and that no project benefits would accrue from the export ofurea ex Palembang the economic rate of return would be about 16%. Evenunder this unfavorable assumption implementation of the project would stillbe justified.

May 1975

ANINEX 5Page 1

INDONESIA

FERTILIZER DISTRIBUTION PROJECT

Assumptions Used for Financial Projections

1. Tonnage Distributed

For purposes of making conservative financial projections, ton-nages, rising to 90% of total estimated fertilizer distribution have beenused from 1980 onward. Data on total estimated distribution, given inAnnex 4, para. 3, represent physical volumes to be transported, while thefollowing data gives tonnages used for financial purposes.

1977 1978 1979 1980 1981 1982(May-Dec)

…----------------(000 tons)…----.___

Bulk urea ex PUSRI 442 680 733 750 750 750Bagged urea ex PUSRI 76 114 114 114 114 114

Total urea ex PUSRI 518 794 847 864 864 864

Bulk urea purchased /1 118 160 107 90 90 90Bulk TSP and NPK purchased- 135 202 202 202 202 202Bagged TSP and NPK purchased 56 131 137 145 152 161

Total distributed 827 1,287 1,293 1,301 1,308 1,317

i.e. Total Bulk 695 1,042 1,042 1,042 1,042 1,042Total Bagged 132 245 251 259 266 275

Total Distributed 827 1,287 1,293 1,301 1,308 1,317

/1 Assumed ex Indonesia plants after 1980.

2. Sales Revenue

The annual figures are obtained applying the. assumed distributionmargin of Rp 27,000 per ton to the total forecast annual tonnages of fertil-izer distributed, (except for bulk TSP and NPK in years 1977-1979, whichwill be purchased at CIF prices, and therefore the marketing margin will belower). The annual figures will be:

ANNEX 5Page 2

Bulk TSP and NPK(000 tons) 135 202 202

Revenues at Rp 19,150/ton(Rp million) 2,585 3,868 3,868 - - -

Other (000 tons) 692 1,085 1,091 1,301 1,308 1,317Revenues at Rp 27,000/ton(Rp million) 18,684 29,295 29,457 35,127 35,316 35,559

Total Revenues(Rp million) 21,269 33,163 33,325 35,127 35,316 35,559

3. Distribution Costs

A. Bulk Shipping

The projected annual costs given by the shipping consultants havebeen (a) split into fixed and variable costs, (b) escalated by 45% torepresent 1977 costs and then (c) used to calculate the annual costs ofmoving bulk fertilizers from Palembang and elsewhere in Indonesia, asdetailed in Attachment I to this Annex. The annual figures are as follows:

(Rp million)

1977 1978 1979 1980 1981 1982

From Palembang 840 1,278 1,332 1,349 1,349 1,349Other Origins 120 163 109 297 297 297

Annual Totals 960 1,441 1,441 1,646 1,646 1,646

B. Port Terminal Costs

The projected annual costs given by the distribution consultants,have been (a) split into fixed and variable costs, (b) escalated by 45% torepresent 1977 costs and then (c) used to calculate the annual costs ofhandling bulk and bagged fertilizers, as detailed in the Attachment II tothis Annex. The annual figures are as follows:

(Rp million)

1977 1978 1979 1980 1981 1982

Bulk products 861 1,290 1,290 1,290 1,290 1,290Bagged products 168 312 320 330 339 351

Annual Totals 1,029 1,602 1,610 1,620 1,629 1,641

C. Bags for Bulk Terminals

A cost of Rp 4,150 (US$10.0) per ton in 1977 prices as projectedin Report No. 624-IND for the bags produced by PUSRI's bag manufacturing

ANMITEX 5Page 3

plant, has been applied to the total bulk tonnages to be bagged at the portbulk terminals. The annual totals are as follows:

('000 tons)

1977 1978 1979 1980 1981 1982

Bulk shipped urea(ex Palembang and purchased) 560 840 840 840 840 840it it TSP and NPK 135 202 202 202 202 202

Total 695 1,042 1,042 1,042 1,042 1,042

Costs at Rp 4,150 per ton(Rp million) 2,884 4,324 4,324 4,324 4,324 4,324

D. Bagged Shipping

The current RLS official tariff averages Rp 4,000 per ton.This has also been escalated at 45% to represent 1977 costs - Rp 5,800per ton, and applied to the tonnages shipped in bags. The annual totalsare as follows:

('000 tons)

1977 1978 1979 1980 1981 1982

PUSRI Urea shipped in bags 76 114 114 114 114 114TSP and NPK Urea shipped

in bags 56 131 137 145 152 161

Totals 132 245 251 259 266 275

Costs at Rp 5,800 per ton(Rp million) 766 1,421 1,456 1,502 1,543 1,595

E. Contract Bagging

Urea and TSP handled through PUSRI's bulk terminals will bebagged there; urea handled in bags ex Palembang will be bagged at PUSRI'splants. TSP and NPK will either be bagged at the bulk terminals or atsource according to method of shipping.

AN1TEX 5Page 4

Current and escalated costs are:

Current Escalated

At Palembang: Bagging Rp 1,200 (US$2.89) ton Rp 1,740 (US$4.19)Bags 4,150 (US$10.00) ton " 4,150 (US$10.00) 1/

Other - Bagging and Bags " 8,300 (US$20.00) ton "12,035 (US$29.00)

Annual Costs would be:

1977 1978 1979 1980 1981 1982

Palembang - tons ('000) 77 114 114 114 114 114

Cost (Rp million) 448 671 671 671 671 671

Other - tons ('000) 56 131 137 145 152 161Cost (Rp million) 674 1,577 1,649 1,745 1,829 1,938

Total Cost (Rp million) 1,122 2,248 2,320 2,416 2,500 2,609

There will be additional charges for stevedoring, either at Palembang orother sources. The estimated cost is Rp 1,900 (US$4.58) per ton (current),or escalated Rp 2,755 (US$6.64) per ton. Annual costs are:

1977 1978 1979 1980 1981 1982

Annual Cost (Rp million) 364 675 692 714 733 758

F. Inland Freight Costs (Port Terminals to ISDs)

Calculations indicate that for hauls up to 100 km highwaytransport is the most economic mode. Therefore, in Java it is assumedthat all transport to ISDs within a radius of about 100 km from theport terminals would be by highway trucks; outside this radius it isassumed that 75% would be by rail (in block trains) and 25% by road.For all other islands it is assumed that highway trucks would carry thetraffic. The transport unit costs are:

Present Escalated

Highway trucks Rp 25 (USd6.02) Rp 36.25 (USd8.74) per ton/kmRail - fixed Rp 250 (USW60.24) Rp 362.5 (USi87.35) per ton

- variable Rp 6 (USd1.45) Rp 8.7 (USd2.10) per ton/km

1/ No cost increase expected.

ANNEX 5Page 5

An analysis on an estimated tonnage and ton/km basis is given in AttachmentIII to this Annex, together with annual cost forecasts.

The estimated annual costs are given below:

1977 1978 1979 1980 1981 1982

By Road (Rp million) 1,936 3,045 3,027 3,038 3,041 3,038By Rail (Rp million) 660 982 1,032 1,055 1,057 1,066

Totals (Rp million) 2,596 4,027 4,059 4_,093 4,098 4,104

G. ISDs Costs

The projected annual costs given by the consultants have been(a) split into fixed and variable costs, (b) escalated by 45% to re-present 1977 costs, and (c) then used to calculate the annual costsof handling the bagged fertilizers, as detailed in the Attachment IVto this Annex. The estimated annual costs are:

1977 1978 1979 1980 1981 1982

Annual Costs (Rp million) 1,173 1,779 1,780 1,785 1,788 1,791

H. Cost of Transportation to Retailers and Unloading

An average of 50 km has been assumed for the distance betweenISDs and retailers' storage. The present trucking cost is Rp 25 perton/im; this has been escalated, by 45%, to Rp 36.25 (USU8.74) per ton/km,to represent estimated 1977 costs. This gives an average cost per tonof Rp 1,812.5 (US$4.36). For unloading at retailers storage the presentcost of Rp 125 per ton has been similarly escalated to Rp 181.2 (US443.6)- making an overall cost per ton of Rp 1,993.7 (US$4.80). Estimatedannual costs are:

1977 1978 1979 1980 1981 1982

Annual tonnages (7000) 827 1,287 1,293 1,300 1,308 1,317

Annual costs (Rp million) 1,649 2,566 2,578 2,592 2,608 2,626

J. Working Capital and Short-Term Debt

Assumptions are:

(i) Cash - require one month's cash operating costs

ANNEX 5Page 6

(ii) Receivables - Assumed two months sales outstanding; the con-sultants estimated a maximum of 410,000 tons and a minimum of100,000 tons for any two consecutive months. An average of255,000 tons has been taken.

(iii) Inventories

(a) Stored at Palembap; - one month's bulk output hasbeen included in PUSRI III production accounts andis therefore disregarded. For imported purchasedbagged product one month's sales taken - say25,000 tons.

(b) In Ships - three ships working - assume half arereturning empty at any moment, therefore take50% (3 x 7,000 tons) = 10,500 tons plus allowancefor some being backhauled - say 12,000 tons.

(c) In Port Terminals - assumed at any one time therewould be 50% of capacity of 60,000 tons, i.e.,30,000 tons.

(d) In Transit to ISDs - one day's output - say 4,000 tons.

(e) In ISDs - assumed 50% of capacity - say 173,000 tons.

(f) In Retailers stores and Village stores - assumed 105,000tons.

(iv) Current Liabilities

(a) Payables for purchased fertilizer - one month's purchases- say 25,000 tons.

(b) Cash operating costs - one month.

Details of prices at each stage, and totals of current assetsand liabilities are given in Attachment V to this Annex.

The estimated net working capital required in 1977 is Rp 29.5 billion.

(v) Financing of Working Capital

The forecasts for PUSRI III indicate a build up of cash surplusto operating requirements (see Annex 6-8, Page 2 of Report No. 624-IND).The cumulative figures are: 1975, Rp 4.2 billion; 1976, Rp 7.9 billion;1977, Rp 18.5 billion; 1978, Rp 31.3 billion; and increasing up toRp 84.6 billion by 1982. It is assumed that these funds, excluding areserve for emergencies, can be used, as required to finance the working

ANNEX 5Page 7

capital required for distribution, together with such cash surpluses aswould arise from the distribution unit operations. Summarized annualfigures are:

1977 1978 1979 1980 1981 1982(Rp billion)

Working Capital Required 29.52 29.52 30.14 30.76 31.36 31.66Additional Required - .62 .62 .60 .30 .35

29.52 30.14 30.76 31.36 31.66 32.01

/1Funds ex Production Unit 15.70- 1.90Funds ex Distribution Unit 8.73 13.08

24.43 14.98Less:Additional Working Capital - .60Interest on L.T. - Debt 0.78 3.27Repayment L.T. - Debt/2 - 2.37Interest on S.T. - DebtZ- 2.23 0.50

Funds Available to Repay /3S.T. - Debt- 21.42 8.24

S.T. Debt at End of Year 8.10 NIL

/1 Represents surplus funds accumulated over years 1975-1977.

/2 Assumes generated funds available only for half-year.

/3 Net for interest calculation assumed available for part of year.

K. Depreciation Costs

Lives assumed for the major classes of assets are:

Ships - 16 years, with a residual value of 10%

Railway rolling Stock - 20 years, with a residual value ofE 20%

Others - 12 years, with a residual value of 20%

Details are given in Attachment VI to this Annex. Annual costis Rp 3,050 million (US$7,400); for 1977 it is Rp 2,050 million (US$?4,900).

L. Interest During Construction

Interest during construction has been calculated on the estimatedannual construction costs to mid-May 1977, the expected date of commencementof full operation of the project. It assumes on-lending of debt incurredfor the project, (50% of total cost) at an annual interest rate of 12%.

ANNEX 5Page 8

M. Long-term Debt

Attachment VII to this Annex gives details of amortizationand interest on long-term debt. It assumes repayment over 15-1/2 years,including 3-1/2 years grace. It also assumes that PUSRI will not haveto serve that portion of debt applicable to the diesel locomotives beingprovided for the Railway. Thus the table refers to a debt of US$68 million(Rp 28,428 million).

May 1975

ANNEX 5Attachment I

Pro-ected Shi ing Costs000)

fixedTotal Annual VariableCosts Costs Costs

Crew Costs 387 387

Management 72 72

Communication 14 1 L4

Water 9 9

Maintenance, survey and stores 378 378

Port charges & pilotage 1 286 286

Insurance 525 525

Fuel and lubricating oil Z/ 709 709Unescalated 2,380 -9W- 1,39

(Escalated) (3D451) (1,427) (2 ,021a)

Rp Million 1,432 592 8hobased on 833,000 tons p.a.variable cost per ton = $1.676

add escalation (45%) $2.43 per ton in 1977

or, excluding Port charges $1.93

variable cost per hour $126.3 (excluding port charges) 3/

(a) For Bulk urea ex Palembang

Annual Costs(Us"' 000)

Rp MillLon

Thnnmaes Fixed Variable Total

1977(8 mths) 4h2 951 1,07T 2,025 840

78 680 1,427 1,652 3,079 1,278

79 733 1,427 1,781 3,208 1,332

80 750 1 27 1,823 3,20 1,3X9

81 750 1,427 1,823 3,250 1,3149

82 750 1,427 1,823 3,250 1,314

1/ $2,400 per voyage ($3,480 escalated to 1977) - 119 trips required for 833,000 tons2/ $1,335 per day - 531 days required for 833,000 tons1/ 531 days = 12,7J hours, variable cost, excluding port charges 81,609,500 p.a.

ANNEX 5Attachment IPage 2

(b) For Back-Haul Traffic of TSP and NPK ex Indonesian Plants (at 1977(at 1977 escalated prices)

TOTAL COST 224,000 tons $548,793 _

or, if 90, assumed 202,000 tons $494.§24 -

(c) For Back-Haul Traffic of Purchased Urea

Origin and destination ports in Indonesia not yet known, thereforecosts taken as average of back-haul costs given in (b) above, i.e., $2.15per ton. Annual costs are:

Year Tons Cost Cost(000) (US$'t0o) (Rp million)

1977 11B 289 120

1976 160 392 163

1979 107 262 109

1980 90 221 92

1981 90 221 92

1982 90 221 92

1/ Based on average voyage time of 117 hours at US$126.3 per hour plusport charges of US$3,480 per voyage and 30 voyages per annum.

Attachment IPage 3

(d) Total Annual Costs

(a) (b) (c) Total TotalUrea ex Palembang TSP &NPK Parchhased (us$'ooo) (Rp million)

Urea1977 2,025 - 289 2,314 960

1978 3,079 - 392 3,471 1,.441

1979 3,208 262 3,470 1,441

1980 3,250 495 221 3,966 1,646

1981 3,25o0 95 221 3,966 1,646

1982 3,250 495 221 3,966 1,646

Source: Bank Staff and Consultants' Estimates, May 1975

May 1975

A. Bulk Fertilizers Fort Terminal Operating Costs (Rp Million)

Cash Operating Costs (1974 level) Surabaya Cilacap Jakarta Belawan Padang Totals Variable Fixed

Salaries - Regular 94.5 86.2 64.7 37.7 11.6 294.7 60.0 234.7

Overtime 14.2 12.9 9.7 5.7 1.7 44.2 44.2 _

Fringe Benefits - meals 16.9 15.3 11.5 6.6 1.7 52.0 52.0 -Medical 21.1 19.1 14.4 8.3 2.7 65.6 13.0 52.6

Overheads - - Land rental 5.8 10.0 10.0 10.0 5.0 40.8 4o.8Municipal taxes 10.0 10.0 10.0 10.0 5.0 45.0 45-°

Insurance 9.1 10.6 7.9 7.7 .9 36.2 36.2M.V. Expenses 5.2 5.2 2.6 2.6' 2.6 18.2 18.2

Other overheads L/ 23.6 21.6 16.2 9.4 2.9 73.7 24.0 49.7

Fuel and Power 8.8 7.8 5.6 3.3 1.0 26.5 26.5Maint; Supplies: Structural 11.2 11.6 8.5 8.3 2.0 41.6 41.6

Mech. and electric 16.5 14.8 14.5 14.5 .4 60.7 60.7Mobile equipment 10.0 8.7 6.0 3.2 1.2 29.1 29.1

Total Costs 2.9 233.8 181.6 127.3 38.7 283 327.7 500.6

Total Costs (escalated at 45% to 1977 level) 1,201.0 475.2 725.8Tons(urea) Annual Throughput

(Capacity) 297,000 261 000 179,000 96,000 44,000 877,000 R $Variable Cost Per Ton (no escalation) 373.7 0.900

Variable Cost Per Ton (inc. escalation to 1977 - 45%) 54T 1.305

Annual Operating Costs(Bulk Only)

Fstimated Throughpit (000 tons) Rp million Us$ 000Urea TSP Total Fixed Variable 'Total Fixed Variable Total

1977 560 135 695 483.9 3-76.6 860.5 1,166 907 2,073

1978 840 202 1, OL 725.8 564.6 .1,290.4 1,749 1,30 3,1C?

1979 840 202 1,042 725.8 564.6 1,290.4 1,749 1,360 3,10-1980 840 202 1,042 725.8 564.6 1,290.4 1,749 1,360 3,109

1981 840 202 1,042 725.8 564.6 1,290.4 1,749 1,360 3,10?1982 840 202 1,042 725.8 564.6 1,290.4 1,749 1,360 3,1C9

1/ Includes office supplies, travel expenses, communications, legal, audit etc. Cost is takenas 25% of regular salaries, .

2/ Excludes depreciation and finance costs. All at 1974 prices, escalated by 45% to 1977 level,

B. Bagged Products

Assumed similar unit costs to those of ISDs which, for bagged products, is about Rp 1,275 (USM3.07) per ton.I i

Annual Operating Costs (Bagged Only)Tonnages Cost Per Ton . Annual Costs-000) USR Rp Million US$ OOO

1977 132 -i7-7 3.07 168.3 4051978 2 45 1,275 3.07 312.4 7521979 251 1,275 3.07 320.0 7711980 259 1,275 3.07 330.2 7951981 266 1,275 3.07 339.2 8171982 275 1,275 3.07 350.6 84

C. Total Annual Operating Costs

Tonnages Bulk 'Bagged Totals(000) RP Million US' O0OO RP Million US'$ 000 RP Million US$ 000

1977 827 861 2,073 168 405 1,029 2n471978 1,287 1,290 3,109 312 752 1,602 3,8611979 1,293 1,290 3,109 320 771 1,610 3,8801980 1,301 1,290 3,109 330 795 1,620 3,9041981 1,308 1,290 3,109 339 817 1,629 3,9261982 1,317 1,290 3,109 351 844 1,641 3,953

Source: Bank Staff and Consultants' Estimates, May 1975

.M,y 1975

H

Inland Transportation Costs

Assuming that for all average hauls of up to 100 km (actually 103 km taken for calculations), all transportwill be by truck. Of the remainder, and where suitable rail transport exists, assume 75% by rail and 25% bytruck.

Analysis shows the following distribution on a full capacity basis;

Tons (000) Tons/km(000) Average haul (km)

All highway trucks 600 47,000 78Highwiay proportion of road & rail 175 35,000 200

775 82,000 1o6Rail proportion of road & rail 525 105 000 200

1,300 187,000

Present base costs: Highway Trucks - Rp 25 per ton/kmRail - Rp 250 per ton fixed plus Rp 6 per ton/km(escalated @ 45% - Trucks Rp 36.25, Rail Rp 362.5 fixed plus Rp 8.7 per ton/lan)

Forecast of Annual Costs

HIGHWAY RAILTons Ton/km Cost Tons Fixed T/km Variable Total Rail Cost Total

Year (000) (000) Rp.mill $000 (000) Cost 000) Cost Cout(Rp.mill) (Rp.mill) Rp.millions $ooo Rp ]MR1

1977 827 53,400 1,936 4,665 314 114 62,800 546 660 1,590 2,5961978 1,287 84,000 3,045 7,337 467 169 93,400 813 982 2,366 4,0271979 1,293 83,500 3,027 7,294 491 178 98,200 854 1,052 2,487 4,0591980 1,301 83,800 3,038 7,320 502 182 100,400 873 1,055 2,542 4s,931981 1,308 83,900 3,041 ?,328 503 182 100,600 875 1,057 2,547 -4yO98-1982 1,317 83,800 3,038 7,320 507 184 101,400 882 1,066 2,569 4,104

C'-

HH -

Inland Transportation Costs (conttd)

Summary of Annual Costs

Rp Milliorn ___ $000Cost Per Cost Per

Tons(000) Road Rail Total Ton(Ap) Road Rail Total Ton($)

1977 827 1,936 660 2,596 3,139 4,665 1,590 6,255 7.561978 1,287 3,,045 982 4,027 39129 7,337 2,366 9,703 7.541979 1,293 3,027 1,032 4,059 3,139 7,294 2,487 9,781 7.561980 1,301 3,038 1,055 4,093 3,146 7,320 2,5h2 9,862 7.581981 1,308 3,Oh1 1,057 4,098 3,133 7,328 2,547 9,875 7.551982 1,317 3,038 1,066 4,00h 3,116 7,320 2,569 9,889 7.51

Average cost per ton: Rp 3 133 (US$7.55)

Source: Bank Staff and Consultants' Estimates, May 1975

May 1975

C-

H

Inland Storage Depot Operating Costs(F=Fixed, V=Variable)

Annual Costs(p million) .Cc onunl. Total Costs (Ip million)Capacity tons uo39)nc 1iLi no n9on

10000 3000 5000 ~~~100 20t' 5000 tons 1C0CUD0 torm IAnnual Cost 3000 5000 -- F V F V F_ V _ F V _ _ V _ _

Permanert staf 4.6 6.5 9.7 4.6 6.5 9.7 27.6 253.5 135. 8 416.5Temporary .9 1.5 3.0 .9 1.5 3.0 5.1 58.5 42.C C,5.Overtime .8 1.2 2.0 .8 1.2 2.0 1.8 16.3 28.0 7,.6Fringe benefits 1.6 2.7 3.5 1.2 .4 2.1 .6 2.6 .9 7.2 2 .4 81.9 23.14 36.4 12.6 125.5 38.4Overheads 2.4 3.9 5.9 2.1 .3 3.4 .5 5.2 .7 12.6 1.8 132.6 19.5 72.8 9.8 218.0 31.1Power and final .4 .7 1.4 .4 .7 1.4 2.4 27.3 19.6 49.3Maintenance supplies:Structural .9 1.5 3.0 .9 1.5 3.0 5.4 58.5 42.0 1 C5.9Mechanical .8 1.3 2.6 .8 _ 1.3 2.6 4.- 50.1 36.14 91.9

Totals 12. 4 19.3 31.1 8.8 3.6 13.5 5.8 20.5 10.6 52.8 21.6 526.6 226.2 287,0 148.4 866.3 396.2

Sumnary of Annual Costs (assuming maximum of about 1,412,000 tons throughout)

At present prices: Fixed costs = Rp 866.3 million $2,087,000Variaole " = 396.2 million $. 955,000

At escalated prices: Fixed costs = Rp 1256.1 million $3,027,000(plus 45%) Variable " = 574.5 million $1,384,000

Variable Cost per ton Present = Rp 280.6 $0.676Escalated = 406.9 $0.980

Allocation of Fixed Costs (using 1982 tonnages - Bulk 1,042,000, Bagged 275,000)Bulk handling (79%) Present Rp 684 million $1,649,000

Escalated Rp 992 million $2,391,000Bagged handling(21%) Present Rp 182 million $ 438,000

Escalated Rp 264 million $ 636,000

Annual Costs - Bulk and Bagged ProductsA. Bulk Only Fixed Cost Variable Cost Total Cost (Present) Total Cost (Escalated)Period Tons(OOO) (Rp millin Rp million $)02 Rp milliLon r0001977 g9 456 195 651 1,569 9144 2,2751978 1,042 684 292 976 2,352 1,415 3,14101979 1,042 684 292 976 2,352 1,415 3,4101980 1,042 684 292 976 2,352 1,415 3,410 C .

1(81 1,0042 684 292 976 2,352 1,415 3,410 C+1982 1,042 684 292 976 2,352 1,415 3,410 u

0

ISD Operating Costs

Annual Costs

B. Bagged OnlyFixed Cost Variable Cost Total Cost(present) Total Cost (Escalated)

Period Tons(OOO) }R million) Rp million $000 Rp million $000

1977(8 months) 132 121 37 158 381 229 5521978 245 182 69 251 605 364 8771979 251 182 70 252 607 365 8801980 259 182 73 255 614 370 8921981 266 182 75 257 619 373 8991982 275 182 77 259 624 376 906

C. Combined Bulk and Bagged

Period Rp million $000

Bulk Bagged Total Bulk Bagged Total

1977(8 months)Present 651 158 809 1,569 381 1,950Escalated 944 229 1,173 2,275 552 2,827

1978 Present 976 251 1,227 2,352 605 2,957Escalated 1,415 364 1,779 3,410 877 4,287

1979 Present 976 252 1,228 2,352 607 2,959Escalated 1,415 365 1,780 3,410 880 4,290

1980 Present 976 255 1,231 2,352 614 2,966Escalated 1,415 370 1,785 3,410 892 4,302

1981 Present 976 257 1,233 2,352 619 2,971Escalated 1,415 373 1,788 3,410 899 4,309

1982 Present 976 259 1,235 2,352 624 2,976Escalated 1,415 376 1,791 3,410 906 4,316

Source: Bank Staff and Consultants' Estimates, May 1975

May 1975

ANNE 5Attachment V

Assessment of Working Capital Requirement jJp

Billion

1. Current Assets

(i) Cash

One month's cash operating costs (1/h2 of 1p 24.0 billion) 2.0

(ii) Receivables

Maximum 4io,000 tonsMinimum 100,000 tonsAverage is 255,000 tons @ Rp h1,870 10.7

(iii) Inventories

(al) Bagged (imported/purchased)-25,000 tons @C Rp 56,000 1.4

(a) In Ships-50% of (3 x 7000 tons)=10,500 tons, plusallowance for backhaul-say 12,000 tons 0 Rp 28,980 0.4

(b) In Port Terminals-50% of capacity (60,000 tons)=30,000 tons @ Rp 35,370 1.1

(c) In Transit to ISDs - one day's output 4,000tons @ Rp 38,500 0.2

(d) In ISDs - 173,000 tons @ Rp 39,870 6.9

(e) Retailers Warehouses - 105,000 tons @ Rp 41,870

27.1Add additional cost of holding purchased urea,

TSP and NPK 5.8

Total Current Assets 3;.9

2. Current Liabilities

Payables for purchased fertilizer-25,000 tons 1.

Cash operating costs - one month 2.0

Total Current Liabilities .

3. Net WJorking Capital Required 29.5

Source: Bank Staff and Consultants' Estimates, April 1975I/ "Normal" working capital, excluding cost of stock-piling

May 1975

Depreciation Costs ($ million)

LessBase Cost.(inc. Interest during Total Less Land tesidual Net for

Item Contingencies Joastruction Cost and Diesels S/Total Jalue 1/ Depreciating

Ships 33,0 2.5 35.5 35.5 3.6 31.9Marine terminals 25,' ;-2..0 . 27.6 - 27.6 5.5 22.1

1) ISDs 55.2 59.6 20.9 38.7 7.7 31.02) nill.way rolling stockc 7.0 0.4 7.b 3.0 4.4 0.9 3.5

Marketing 5.2 O.4 5.6 - 5.6 1.1 4.5Sngineering and 4.0 0.3 4.3 - 4.3 0.9 3.hTraining ___

130.0 10.0 140.0 23.9 116.1 19.7 96.4

deduct:Land (inc. in 1) 1 9.1h 1.5 20.9Llesel locos.(inc. in 2) 3.0 _ 3.0

107.6 8.5 116.1add:DK_otir:r dJecots 0.9 0.9 0.9 0.2 0.7

18. -5 11 7.0 117.0 ?°.° 97,1

Life Annual DepreciationSizrr,ni.ry for D)epreci-tion $ ilmlion (years) ($000) (1Rp million)

Ships 31.9 + proportion of ;ng. + trg. 1.2 = 33.1 16 2,069 860Rolling Stoclk 3.5 " " 0.1 = 3,6 20 180 75Other 58.3 " II It ti It 2.1 = 60.1 12 5.033 2,090

93.7 3.l 97.1 7,282 3,025

Say R 3,050 million

Note 1/ IesiduA va:lues 2hips 10', Oithiers 20,'

Sou-ce: Pank Stc-.:'' eri osuKf rlts' sstimAtes, i,pril 1975

CaMay 1975

11NNEX 5httachment -VII

Debt Services(Rp million)

Total Debt - Rp 29,050 million

1/To PUSRI - Rp 28,428 million -

Balance 0/SYear Month Principal Interest Paid After Payment

1977 6 - 23,5511- - 781 781 25,315

1978 6 1,184 1,649 2,833 25,48012 1,184 1,623 2,807 25,645

1979 6 1,184 1,561 2, 745 24,U7612 1,184 1,493 2,677 23,692

1980 6 1,184 1,422 2,606 22,50812 1,184 1,350 2 53l4- 21,324,

1981 6 1,184 1,279 2,463 20,14012 1,184 1,208 2,392 18,950

1982 6 1,184 1,137 2,321 17,77212 1,184 1,066 2,250 16,588

1983 6 1,184 995 2,179 15,40412 1,184 924 2,108 14,220

1984 6 1,185 853 2,038 13,03512 1,185 782 1,967 11,850

1985 6 1,185 711 1,896 10,66512 1,185 640 1,825 9,480

1986 6 1,185 569 1,754 8,29512 1,185 498 1,683 7,11C

1987 6 1,185 427 1,612 5,92512 1.185 356 1,541 4,740

1988 6 1,185 284 1,469 3,55512 1,185 213 1,398 2,373

1989 6 1,185 142 1,327 1,18512 1,185 71 1,250

28,428 22,034 50,462

1/ tiemainder for railway locomotives, not regarded as PUSRI asset or liab lity,but being provided to PJK.A

Source: Bank Staff and Consultants' Estimates, May 1975

May 1975

TABLE 1

INDONESIA

FERTILIZER DISTRIBUTION PROJECT

Estimated Proiect Costs

Rupiah Million US$ 000

ITEM Local Foreign Total Local E'oreign Total

3-7000 DWT Ships - 13.695 13,695 - 93,000 33,000

Bulk Reception Depots

Belawan 700 1,179 1,879 1,658 2,840 4,525Cilacap 371 703 1,074 895 1,695 2,590Padang 836 1,071 1,907 2,015 2,580 4,595Surabaya 263 587 850 635 1,415 2,050Tanjung Priok 42 207 249 100 500 600

2,212 3,747 5,959 5,330 9,030 14,360

Inland Storage Depots

6 No - 3,000 tons 237 323 560 570 780 1,35040 No - 5,000 tons 2,656 3,071 5,727 6,400 7,400 13,80013 No -10,000 tons 1,597 1,801 3,398 3,850 4,340 8,190Rail Spurs 622 1,328 1,950 1,500 3,200 4,700

Offices and equipment forport depots and ISDs 1,038 623 1,661 2,500 1,500 4,000

Land acquisition for all depots 5,810 - 5,810 14,000 - 14,000

Spares for all depots - 290 290 - 700 700

Sub-Total all Depots 14,172 11,183 25,355 34,150 26,950 61,100

Railway Rolling Stock

Locomotives, 4 main line) - 1,038 1,038 - 2,500 2,5003 sh-unting )

175 Railway wagons 1,452 1,452 - 3,500 3,500

- 2,490 2,490 - 6,000 6,000

Engineering & Training

Marine consultants - 270 270 - 650 650Civil consultants 394 871 1,265 950 2,100 3,050Training 101 1 2 5 50 250 300

418 1,242 1,660 1,000 3,000 4,000

Base Cost Estimate 14,59 28,61 43,200 35,150 68,950 104,100

Physical Contingencies 870 1,700 2,570 2,100 4,100 6,200(about 6% of Base Cost)

Expected Price Increases(about 18% of)3,d50 4,350 o,200 9,280 1,500 19,780

Base Cost plus PhysicalContingencies)

Total Project Cost 19,359 34,589 53,948 41,530 _L9 130!±080

Source: Bank Staff and Consultants' Estimates, May 1975

May 1975

TABIE 2

INDONESIA

FERTILIZER DISTRIBUTION PROJECT

Estimated Project Expenditure Schedule(US$ Million)

Date Local Foreign Exchange Total CuslativeCalendar 2. 2/ _ Project ProjectYear Ouarter Land Facilities Consultants Total Land Facilities Ships Consultants Railway Equipment Total Dollars Dollars75 II 2.0 0.1 2.1 1.1 2.2 0.5 - 3.8 5.9 5.9

III 4/ 4.7 0.1 4.8 2.2 4.4 0.3 0.9 7.8 12.6 18.5

IV 2.8 0.1 2.9 5.4 - 0.2 - 5.6 8.5 27.076 I 2.3 0.1 2.4 8.4 - 0.2 - 8.6 11.0 38.0

II 2.3 0.1 2.4 7.6 4.0 0.3 - 11.9 14.3 52.3III 5.4 0.1 5.5 4.2 6.9 0.3 2.0 13.4 18.9 71.2

IV 8.7 0.1 8.8 4.3 4.2 0.3 2.5 11.3 20.1 91.377 I 7.5 0.1 7.6 4.0 - 0.2 1.8 6.0 13.6 104.9

II 4.7 0.1 4.8 0.7 - 0.3 - 1.0 5.8 110.7III 2.3 0.1 2.4 0.6 3.0 0.2 - 3.8 6.2 116.9IV 1.8 0.1 1.9 0.4 4.0 0.2 - 4.6 6.5 123.4

78 I - - - 1.8 - - 1.8 1.8 125.2

II----- -

III 0.3 0.1 0.4 0.8 2.0 0.2 - 3.0 3.4 128.6IV 0.4 0.1 0.5 0.3 0.5 0.1 - 0.9 1.4 130.0

45.2 1.3 46.5 40.0 33.0 3.3 7.2 83.5 130.0

1/ Includes physical contingencies and price escalation as described in Annex 2.2/ The bulk reception and terminal at Padang costing US$4.5 million equivalent

may be constructed toward the end of the period, but the timing is unclear andany change would not significantly affect these estimates.

3/ Fixed Price Contract in Yen (Y287.3 = US$1.00).4/ IBRD Loan assumed effective dur'.ng this quarter.

N. B. The proposed Bank Loan for $68 million will finance foreign exchange costs afterJune 1975.

Source: Bank Staff, May 1975

May 1975

TABLE 3

INDONESIA

FERTILIZER DISTRIBUTION PROJECT

Estimated Schedule of Disbursement(US$ Million)

IBRD Fiscal AtnnualYear & Quarter Ending Disbursement Cumuulative D-.sbtursemnt

1976

December 31, 1975 6.6

March 31, 1976 16.0

June 30, 1976. 25.0 25.0

1977

September 30, 1976 37.5

December 31, 1976 48.5

March 31, 1977 52.0

June 30, 1977 30.0 55.0

1978

September 30, 1977 57.0

December 31, 1977 59.0

March 31, 1978 62.0

June 30, 1978 9.0 64.0

1979

September 30, 1978 66.0

December 31, 1978 4.0 68.0

Source: Bank Staff, May 1975

May 1975

INDONESIA

FERTILIZER DISTRIBUTION PROJECT

Projected Income Statement (Project Only) 1977 - 1982

1977 1978 1979 1980 1981 1982(8 months) _

TONNAGES DISTRIBUTED (000 tons)

(i) Tons Shipped in Bulk - Urea 442 680 733 750 750 750(ii) Tons Shipped in Bags - Urea 76 114 114 114 114 114

Sub-total Palembang Production of Urea 518 794 847 864 864 864(iii) Tons Shipped in Bulk - Urea, TSP and NPK (imported or purchased) 253 362 309 292 292 292

(iv) Tons Shipped in Bags - TSP and NPK 56 131 137 145 152 161

(v) Grand Total - Tons (000) 827 1,287 1,293 1,301 1,308 1,317

(vi) Revenues (at Rp 27,000 per ton) - Rupiah million 21,269 33,163 33,325 35,127 .35,316 35,559

Distribution Costs (Rupiah million)

(vii) Bulk Shipping (of (i) and (iii) ) 960 1,441 1,441 1,646 1,646 1,646(-tiii) Port Terminals (of (i) and (iii) ) 1,029 1,602 1,610 1,620 1,629 1,641(ix) Bags for Port Terminals ( (i) and (iii) ) 2,884 4,324 4,324 4,324 4,324 4,324(x) Bagged Shipping (of (ii) and (iv) ) 766 1,421 1,456 1,502 1,543 1,595

(xi) Contract Bagging and Handling ( (ii) and (iv) ) 1,486 2,923 3,012 3,130 3,223 3,367(Xii) Inland Freight Costs (v) 2,596 4,027 4,059 4,093 4,098 4,104

(xiii) Inland Supply Depot Costs (v) 1,173 1,779 1,780 1,785 1,788 1,791(xiv) Transport to Retailers (v) 1,649 2,566 2,578 2,592 2,608 2,626

Distribution Cash Costs 12,543 20,083 20,260 20,692 20,859 21,094

(xv) Depreciation 02,0q33 3,050 3,050 3,050 3,050 3,050(xvi) Interest - Short-Term Debt L,225 626 - - - -

Total Distribution Costs 16,801 23,759 23,310 23,742 23,909 24,144(xvii) Interest - Long Term Debt 781 3,272 3,054 2,772 2,487 2,203

Total Costs 17,582 27,031 26,364 26,514 26.396 26,347

(xviii) Profit before Tax 3,687 6,132 6,961 8,613 8,920 9,212

1/~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~4

(xix) Income Tax - - - - - 4,145

Note 1/ Tax holiday for first five years

Source: Bank Staff and Consultants' Estimates, April 1975

May 1975

INDONESIA

FERTILIZER DISTRIBUTION PROJECT

Cash Flow Statement (Project Only) 1975 - 1982(Rp Million)

1975 1976 1977 1978 1979 1980 1981 1982

Sources of Funds

Government Equity 8,735 8,811 10,591 290 - - -

Long-term Borrowing: 2773 1635 3,528 2,69 415Proposed Bank Loan 2,698 1 3 2 4

Other2,9------

Sub-total - Long-term Borrowing 5,37T 16,35 r 9W -I3 - - -

Surplus cash from Production unit 3,600 3,100 9,000 1,900 - - - -

Cash Generation by PUSRI:

Income before Interest and Taxes 2 - 6,933 3,050 3,050 11,385 3,050 3,050

Depreciation _TT__T__

Sub-total - Operating Cash Flow - - - 1 1370Wy T4,433 T,7-3V

Total Sources of Funds 17,772 28,261 31,9814,5 17,968 7 T fT77M -T4l=

Application of Funds

Investment in Project:Local Currency 6,150 6,386 5,877 - - _ _

Foreign Exchange 7,697 17,110 6,082 2,988 415 - _

Sub-total Cost of Investment 13 ,847 _6 IT35g 2z,988 - - -

Interest during Construction 325 1,665 2,160 - - - - -

Debt Service:Interest - Long-term Debt - - 781 3,272 3,054 2,772 2,487 2,203

Repayment - Long-term Debt - - - 2,368 2,368 2,368 2,368 2,368

Sub-total Debt Service - - 781 5,640 5,422 5,140 4,855 4,571

Taxes 1/ - - - - - - - 4,145

Increase in Working Capital - - - 600 610 620 310 320

Interest on Short-term Debt - _ 2,_225 626 - - - -

Decrease in Short-term Debt 3.600 3.100 14.700 8.1 -

Total Application of Funds 17,772 28,261 31,825 17,954 6,447 5,760 5,165 9,036

Net Cash Surplus for year - _ 20 14 33 (25) (8) 29

Cash at beginning of year - 2,000 2,020 2,034 2,067 2,042 2,034

Cash at end of year - - 2,020 2,034 2,067 2,042 2,034 2,063

Surplus Cash Balance 7accu-7ulat,d5- - ~ ~ ~ ~ ~~~~- - 7,0'0 155,700 25,000 30,4:OO

Note 1/ Increases in inventories and receivables due to increased throughput

Source: Bank Staff and Consultants' Estimates, April 1975

May 1975

INDON9ES_A-

FERTILIZER DISTRIBUTION PROJECT

Balance Sheets (Profect Only) 1975 - 1982(Rp million)

1975 1976 1977 1978 1979 1980 1981 1982

ASSETS

Current

Cash 2,000 2,000 2,020 2,034 2,067 2,042 2,034 2,063Accounts Receivable 10,700 10,700 10,700 10,900 11,100 11,30 11 4Inventory 20.200 20.200 7n,7nn ,00 ln 21,210 Z1,730 Zl'990_ 22 2gO

Total Current Assets 32,900 32,900 32,920 33,634 34,377 35,072 35,424 35,823Surplus Cash Balance - - - - 7,000 15,700 25,000 30,400Fixed Assets

Gross Fixed Assets - 53,452 56,440 56,855 56,855 56,855 56,855Less Accumulated sepreciation - 2,033 5,083 8,133 11,183 14,233 17,283

Net Fixed Assets - - 51,419 51,357 48,722 45,672 42,622 39,572Work in Progress 14,172 39,333 - - - - - -Total Assets 47,072 72,233 84,339 84,991 90,099 96,444 103,046 105,795

LIABILITIES

Accounts Payable 3,400 3,400 3,400 3,500 3,600 3,700 3,750 3,800Current Long-Term Debt - -600 600 600 600 600 600Total Current Liabilities 3,400 3,400 4,000 4,100 4,200 4,300 4,350 4,400Short-Term Debt 25,900 22,800 8,100 - - - -

Long-Term Debt 5,437 21,787 24,715 25,045 23,092 20,724 18,356 15,988

Funds ex Production Unit 3,600 6,700 15,700 17,600 17,600 17,600 17,600 17,600

Share Capital 8,735 17,546 28,137 28,427 28,427 28,427 28,427 28,427Retained Earnings - - 3,687 9,819 16,780 25,393 34,313 39,380

Total Equity 8,735 17,546 31,824 38,246 45,207 53,820 62,740 67,807

Total Liabilities 47,072 72,233 84,339 84,991 90,099 96,444 103,046 105,795

Source: Bank Staff and Consultants' Estimates, April 1975

May 1975

I1'DONESIA

FERTILIZER DISTRIBUTION PROJECT

Consolidated Summary Income Accounts 1977 - 1982

(Rp million)

1977 1978 1979 1980 1981 1982

Revenues

Production 26,509 33,304 35,526 36,241 36,241 36,241

Distribution 21,269 33,163 33,325 35,127 35,316 35,559

Total Revenues 47,778 6 68,851 71,368 71,557 71,800

Operating Costs:

Production 12,668 16,220 16,485 16,588 16,648 16,704Distribution 16,801 23,759 23,310 23,742 23,909 24,144

Sub-total 29,469 39,979 39,795 40,330 40,557 40,848

Financial Costs:

Production 5,811 8,435 7,823 7,135 6,415 5,707Distribution 781 3,272 3,054 2,772 2,487 2,203

Sub-total 6,592 11,707 10,877 9,907 8,902 7,910

Total Costs 36,061 51,686 50,672 50,237 49,459 48,758

Profit Before Tax 11,717 14,781 18,179 21,131 22,098 23,042

Less Income Tax - - 730 2,890 10,369

Profit After Tax 11,717 14,781 18,179 20,401 19,208 12,673

Source: Bank Staff

May 1975

INDONESIA

HERTiLIZER DISTRIBLTVI0N PROJEC'

Consolidated Cash Flow 1975 - 1982

1975 1976 1977 1978 1979 1980 1981 1982

Sources of Funds

Income P- -oduction 1/ 3,590 4,741 13,841 17,084 19,041 18,923 16,703 13,313- Distribution - - 4,468 9,404 10,015 11,385 11,407 7,270

Depreciation - Production 3,576 3,061 7,104 9,230 9,230 9,230 9,230 9,230

- Distribution - - 2,033 3,050 3,050 3,050 3,0:.0 3,050

Share Capital - Production 5,404 8,213 2,013 - - - _- Distribution 8,735 8,811 10,591 290 - - -

Debt -- ProducLion 21,995 19,505 6,225 - - - _- Distribution 5,43_ 16,350_ 3528 2,698 415 - ___

Total Sources 48,737 60,681 49,803 41,756 41,751 42,588 40,390 32,863

Application of Funds

Fixed Assets - Production 29,202 2' 8,238 - - - - -- Distribution 14,172 25,161 14,119 2,988 415 - _

Working Capital - Production (1,962) 260 3,040 1,571 520 162 (2) (3)

- Distribution - - 20 614 643 595 302 349

Interest onLong-term Debt - Production 3,088 3,064 5,811 8,435 7,823 7,135 6,415 5,707

- Distribution - - 781 3,272 3,054 2,772 2,487 2,203

Debt Repayment - Production 821 1,471 3,557 5,692 5,907 5,997 6,179

- Distribution - - - 2,368 2,368 2,368 2,368 2,368

Sub-total - Debt Service 3,088 3,885 8,063 17,632 18,937 18,182 17,267 16,457

Decrease in Short-term Debt 3,600 3,100 14,700 8,100 - - -

Total Application of Funds 48,100 60,121 48,180 30,905 20,515 18,939 17,567 16,803

Increase in Yearly Cash Balance 637 560 1,623 10,851 21,236 23,649 22,823 16,060

Accumulated Surplus Cash Balances 637 1,197 2,820 13,671 34,907 58,556 81,379 97,439

Note 1/ Until distribution assets come into use, there is no distribution net income or depreciationfor the years 1975 and 1976

Source: Bank Staff

May 1975

INDONESIA

FERTILIZER DISTRIBUTION PROJECT

Consolidated Balance Sheets 1975 - 1982(Rp million)

1975 1976 1977 1978 1979 1980 1981 1982

ASSETS

Current Assets

Cash ),690 2,711 2,739 2,938 3,021 3,013 3,008 3,040Accounts Receivable 13,774 13,951 16,588 18,297 18,991 19,349 19,449 19,549Inventories 23,049 23,182 23,604 24,595 25,249 25,811 26,077 26,352TotalnCurrentoAssets 39,513 39,844 42,931 45,830 47,261 48,173 48,534 48,941Total Current Assets

Surplus Cash Balances 637 1,197 2,820 13,670 34,906 58,555 81,377 97,437Fixed Assets

Gross Fixed Assets 83,535 111,250 172,940 175,928 176,344 176,344 176,344 176,344Less Accumulated Depreciation 8,045 11,106 20,243 32,523 44,803 57,083 69,363 81,643

Net Fixed Assets 75,490 100,144 152,697 143,405 131,541 119,261 106,981 94,701Work in proeress ~~~~~~~ ~~~~~~~14,172 39,333 - - - -Work in Progress >400 400 400 400 400 400 400 400Other Assets _ _

Total Assets 130,212 180,918 198,848 203,305 214,108 226,389 237,292 241,479

LIABILITIES

Current Liabilities

Accounts Payable 5,700 5,771 5,79Y 6,512 6,780 6,936 6,996 7,056Current Long-term Debt 820 1,472 4,157 6,292 6,436 6,597 6,779 6,960

Total Current Liabilities 6,520 7,243 9,955 12,804 13,216 13,533 13,775 14,016Short-term Debt 25,900 22,800 8,100 - - - -Long-term Debt 52,347 86,729 92,326 86,964 79,175 70,739 62,192 53,464

Euit Share Capital 44,005 61,029 73,633 73,923 73,923 73,923 73,923 73,923Shetarned Capital.> s 1,440 3,117 14,834 29,614 47,794 68,194 87,402 100,076

Total Equity 45,445 64,146 88,467 103,537 121,717 142,117 161,325 173,999

Total Liabilities 130,212 180,918 198,848 203,305 214,108 226,389 237,292 241,479

Source: Bank Staff

May 1975

INDONESIAAPPRAISAL OF A FERTILIZER DISTRIBUTION PROJECTORGANIZATION OF PUSRI MARKETING DEPARTMENT

MARKETING MANAGER

DPTY MARKETINGMANAGER

[IR DISTRICT EXTENSION PLANNING/ STMANAGER MANAER RESEARCH PRIOMOTION DSRBTO

REGIONAL OFFICES REGIONAL OFFICES

MEDAN (BRANCH) BANDUNGPAOANG SEMARANGPALEMBANG SURABAYALAMPUNG MAKASSAR (BRANCH)

(KALIMANTAN) - (BRANCH)

SURABAYA LOCAL R

STAFFING 1974 1978 DIFF.

ADMIN 2 2 CILACAP IMPORT RAILSECRETARIATE 4 4 -DISTRICT MANAGER 0 3 +3SUPPLYIDISTRIBUTION l AK|IEXCL BULK TERMINALS) 13 19 +6SALES 12 14 +2PLANNINGIPROMOTION 6 7 1EXTENSION/RESEARCH 5 4 -1BULK TERMINAL 150 284 +134REGIONAL OFFICES 97 103 +6BBRANCH REPRESEN-

TATIVES 0 8 +8

T O T A L 289 448 +159

EXCLUDING BULK PADANGTERMINAL 139 164 +25

____________________________________ ~ ~ ~ ~ ~ PETR KMA F

I

iREG.OFF. RED. OFF. l REG. OFF. RED. OFF. RE OFF. REG OFF. RED. OFF RED OFF| N. SUM | | W. SUMATRA | | S. SUMATRA LAMPUNG W JAVA C JAVA B. JAVA SULAWESI

| BRANCH l l | BRANCH l l BRANCHR REPRES. l l | REPRES REPRES

Wo,Id Bank-9345

INDONESIAAPPRAISAL OF A FERTILIZER DISTRIBUTION PROJECT

Responsibilities of Pusri Supply and Distribution Division

SUPPLY/DISTRIBUTION

Responsiblefor all bulk

{Opeati

which are Rfrsponsible foroperated by

all necessaryPUSRI and co-

tckg- eordinate with { X 3 IMPOT l mentsother bulkCICAterminals usedby PUSRI.

Renpoesible for securing(OPERATIONALi supplhes from loyal Cntacts

JAKARTA sources rt Palembang, and Schedulesbulk te-minls.

PETROKIMIA iJI. Responsible foe securing

Responsible for-ncessary products from

rai nee nts_ LAWAR 3import sources.

Works closely with Market-mng,Planning and Sales ContractsSections. Schedules

Operation

-Contracts

-Opeeation - AEOS-Invcentory Control-Locations Repall sible far

anragemenes.

Depass, assists

-isselbaas. ai

wall-ehousn.byn

Inland SupPly Depots

Wald Bank-9344

INDONESIAAPPRAISAL OF A FERTILIZER DISTRIBUTION PROJECT

OUTLINE OF PROPOSED SHIP

A

DRAG SCRAPER P&S

PLAN DECK & CARGO HOLD

A

.I PRINCIPAL DIMENSIONS

LENGTH OVERALL 114.50 M.

LENGTH L.W.L. 1 12.50 M.LENGTH BO 109.40 M.BREADTH MOULDED 20.00 M.

DEPTH MOULDED 10.00 M.DRAET (SUMMER) 6.00 M.

SERVICE SPEED 12 Kt.CARGO TONNAGE (MPT.) 7000

SECTION A-A MIDSHIP SECTION World Bank-9564

5- THAILAND TOT' 111o0 {IIEo- V' ~ TT' \, I3O AE AURYSR'-'ROTOR ATSh INDONESIA 7~~~~~~~~~~19

I

PHILIPP NE S A FERTILIZER DISTRIBUTION PROJECTSouth China Sea BRUNEI4rt'/AFETLZRPNS

MALAY IA "'- L U COMPLETED~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~C.IEE

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1 I-'55~~~~~~~~~~,UUg lqPROGINC2IAL

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FERTILIZER DISTRIBUTION PROJECT Mo SO FesurserJAVA

1,067mm Gouge Doubje Truck El-ctrifid ILi W F7 ,Oh067- Gauge Double Track -

06,0 7m m Googe Single TrackMain Roads P.

4i Main Pruts ouen 7X/KdXabn rbht Airports

Ma\ -_

blg pro M ALAG ol oroosos

* Nitrogen Fertilizer Plant T ti /-,qpg,,w

E] Proposed Ntrgen P-ont N -,esKALSATO Phosphate Fersl-er Plant (Proposed) Ait a. \ A Regional MarketHg Offices Of Por, 1 * BbkANJUg

* Porn's inland Dupots B. -g i R i -

ul0k Termnal 20 't 62 ' -D

KILOMETERS F A NA

oe- 107- S08- 109S So- 1S. 112 113S ),A-