CONFORMED COPY

LOAN NUMBER 1254 IND

PROJECT AGREEMENT

(Third Fertilizer ExpansionProject - Pusri IV)

between

INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

and

P.T. PUPUK SRIWIDJAJA

Dated May 20, 1976

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PROJECT AGREEMENT

AGREEMENT, dated May 20, 1976, between INTERNATIONAL BANK

FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank)

and P.T. PUPUK SRIWIDJAJA (hereinafter called PUSRI).

WHEREAS by the Loan Agreement of even date herewith between

Republic of Indonesia (hereinafter called the Borrower) and the

Bank, the Bank has agreed to make available to the Borrower an

amount in various currencies equivalent to seventy million dollars

($70,000,000), on the terms and conditions set forth in the Loan

Agreement, but only on condition that PUSRI agree to undertake

such obligations toward the Bank as hereinafter set forth; and

WHEREAS by a financing agreement to be entered into between

the Borrower and PUSRI, the proceeds of the Loan provided for under

the Loan Agreement will be made available to PUSRI on the terms

and conditions therein set forth; and

WHEREAS PUSRI, in consideration of the Bank's entering into

the Loan Agreement with the Borrower, has agreed to undertake the

obligations hereinafter set forth;

NOW THEREFORE the parties hereto hereby agree as follows:

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ARTICLE I

Definitions

Section 1.01. Wherever used in this Agreement, unless the

context shall otherwise require, the several terms defined in the

Loan Agreement and the General Conditions (as so defined) have the

respective meanings therein set forth.

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ARTICLE II

Execution of the Project

Section 2.01. PUSRI shall carry out Part A, Part C and Part D

of the Project described in Schedule 2 to the Loan Agreement with

due diligence and efficiency and in conformity with appropriate

administrative, financial, industrial and engineering practices.

Section 2.02. In order to assist PUSRI in (i) carrying out

for PUSRI the design, detailed engineering, procurement, erection,

construction supervision, start-up and initial operation of the

facilities included in Part A of the Project, (ii) management of

Part A of the Project, and (iii) the training of PUSRI's staff

in the operation and maintenance of said facilities, financial

management, accounting, administration, and distribution and market-

ing of PUSRI's products, PUSRI shall employ consultants acceptable

to the Bank whose qualifications, experience and terms and condi-

tions of employment shall be satisfactory to the Bank.

Section 2.03. Except as the Bank shall otherwise agree, the

goods and works for the Project to be financed out of the proceeds

of the Loan, shall be or shall have been procured in accordance

with the provisions of Schedule 1 to this Agreement. -

Section 2.04. (a) PUSRI undertakes to insure, or make adequate

provision for the insurance of, the imported goods to be financed

out of the proceeds of the Loan made available to it by the Borrower

against hazards incident to the acquisition, transportation and

delivery thereof to the place of use or installation, and for such

insurance any indemnity shall be payable in a currency freeiy

usable by PUSRI to replace or repair such goods.

(b) Except as the Bank may otherwise agree, PUSRI shall cause

all goods and services financed out of the proceeds of the Loan

made available to it by the Borrower to be used exclusively for

the Project.

Section 2.05. (a) PUSRI shall furnish to the Bank, promptly

upon their preparation, the plans, specifications, reports, con-

tract documents and construction and procurement schedules for

Part A, Part C and Part D of the Project, and any material modifi-

cations thereof or additions thereto, in such detail as the Bank

shall reasonably request.

(b) PUSRI: (i) shall maintain records adequate to record the

progress of Part A, Part C and Part D of the Project (including

the cost thereof) and to identify the goods, works and services

financed out of the proceeds of the Loan made available to it by

the Borrower, and to disclose the use thereof in the Project; (ii)

shall, without limitation upon the provisions of paragraph (c) of

this Section, enable the Bank's representatives to visit the

facilities and construction sites included in Part A, Part C or

Part D of the Project and to examine the goods financed out of

such proceeds and any relevant records and documents; and (iii)

shall furnish to the Bank all such information as the Bank shall

reasonably request concerning the Project, the expenditure of the

proceeds of the Loan so made available to it and the goods, works

and services financed out of such proceeds.

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(c) PUSRI shall enable the Bank's representatives to examine

all plants, installations, sites, works, buildings, property and

equipment of PUSRI and any relevant records and documents.

Section 2.06. PUSRI shall duly perform all its obligations

under the Financing Agreement. Except as the Bank shall otherwise

agree, PUSRI shall not take or concur in any action which would

have the effect of amending, abrogating, assigning or waiving the

Financing Agreement or any provision thereof.

Section 2.07. (a) PUSRI shall, at the request of the Bank,

exchange views with the Bank with regard to the progress of the

Project, the performance of its obligations under this Agreement

and under the Financing Agreement, and other matters relating to

the purposes of the Loan.

(b) PUSRI shall promptly inform the Bank of any condition

which interferes or threatens to interfere with, the progress of

the Project, the accomplishment of the purposes of the Loan, or

the performance by PUSRI of its obligations under this Agreement

and under the Financing Agreement.

Section 2.08. Three months after presentation to PUSRI of

the study on a national fertilizer and pesticides distribution

system being carried out by the Borrower under the Fertilizer

Distribution Project (Bank Loan No. 1139-IND), or such later date

as the Bank and PUSRI shall agree, PUSRI shall furnish to the Bank

a detailed financing plan and implementation schedule for Part C

of the Project.

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ARTICLE III

Nanagement and Operations of PUSRI

Section 3.01. (a) PUSRI shall carry on its operations and con-

duct its affairs in accordance with sound business, industrial,

financial and marketing practices under the supervision of experi-

enced and competent management assisted by qualified staff in

adequate numbers. To that end, PUSRI shall gradually increase the

number of its trained staff as required for the prompt and effective

discharge of its obligations under this Agreement.

(b) PUSRI shall at all times operate and maintain its plants,

machinery, equipment and other property, and from time to time,

promptly as needed, make all necessary repairs and renewals thereof,

all in accordance with sound engineering and financial practices.

(c) Except as the Bank shall otherwise agree, PUSRI shall not

sell, lease, transfer or otherwise dispose of any of its property

or assets, except in the normal course of its business.

(d) PUSRI may create, acquire or have any subsidiary only

with the prior approval of the Bank. For the purposes of this

paragraph, the term "subsidiary" means any entity of which a ma-

jority of the outstanding voting stock shall be owned, or which

shall otherwise be effectively controlled, by PUSRI or by one or

more subsidiaries of PUSRI or by PUSRI and one or more of its

subsidiaries.

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(e) PUSRI shall, promptly as required, take all action within

its powers to maintain its corporate existence and right to carry

on its operations and to retain such land, interests in land and

properties, and to acquire, maintain and renew such licenses, powers,

franchises and other rights, as may be necessary or useful in the

carrying out of the Project or in the conduct of its business.

Section 3.02. PUSRI shall take out and maintain with responsible

insurers, insurance against such risks and in such amounts as shall

be consistent with appropriate practice.

Section 3.03. PUSRI shall at all times make all reasonable

efforts to continue to build up and maintain an effective, finan-

cially viable and economic transportation, marketing and distribu-

tion organization and facility for its products.

Section 3.04. PUSRI shall operate its production facilities

with due regard to ecological and environmental factors and, to

that end, PUSRI shall monitor and treat effectively the ecologically

harmful discharges of said facilities.

Section 3.05. Not later than December 31, 1976, or such later

date as the Bank and PUSRI may agree, PUSRI shall propose a plan

to the Borrower concerning the operation or modification of its

oldest urea and ammonia units, and inform the Bank thereof.

Section 3.06. Not later than June 30, 1977, or such later

date as the Bank and PUSRI may agree, PUSRI shall complete a review

of professional staff remuneration, and shall furnish to the Bank

a copy of such review.

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ARTICLE IV

Financial Covenants

Section 4.01. PUSRI shall maintain records adequate to reflect

in accordance with consistently maintained appropriate accounting

practices its operations and financial condition.

Section 4.02. PUSRI shall: (i) have its accounts and financial

statements (balance sheets, statements of income and expenses and

related statements) for each fiscal year audited, in accordance

with appropriate auditing principles consistently applied, by in-

dependent auditors acceptable to the Bank; (ii) furnish to the

Bank as soon as available, but in any case not later than four

months after the end of each such year, (A) certified copies of

its financial statements for such year as so audited and (B) the

report of such audit by said auditors, of such scope and in such

detail as the Bank shall have reasonably requested; (iii) furnish

to the Bank within two months after the end of each calendar quar-

ter copies of said financial statements for such quarter; and

(iv) furnish to the Bank such other information concerning the

accounts and financial statements of PUSRI and the audit thereof

as the Bank shall from time to time reasonably request.

Section 4.03. Except as the Bank shall otherwise agree, PUSRI

shall not make expenditures, or commitments for expenditures, for

fixed or capital assets (including investments in or loans to other

business entities) until PUSRI's plant included in the Project

shall have produced an aggregate of at least 456,000 metric tons

of urea during a period of twelve consecutive months, except:

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(a) expenditures, or commitments for expenditures, required

for repair, maintenance or replacement of assets;

(b) investments in short-term marketable securities solely

for the purpose of temporarily employing its idle funds;

(c) expenditures, or commitments for expenditures, required

for: (i) the carrying out of the Project or any other project to-

wards whose execution the Bank or the Association provides financ-

ing; (ii) the establishment of facilities for the production,

storage and distribution of liquid carbon dioxide and dry ice;

(iii) the establishment of facilities for the production, storage

and distribution of hydrocarbon feedstocks from condensate re-

covered from the natural gas supply; (iv) the relocation of PUSRI's

headquarters from Palembang to Jakarta; and (v) the establishment

of a urea formaldehyde plant; and

(d) other expenditures, or commitments for expenditures, not

exceeding in the aggregate the equivalent of $5,000,000 in any

fiscal year.

Section 4.04. Except as the Bank shall otherwise agree,

PUSRI undertakes: (i) that its depreciable fixed assets relating

to manufacturing operations shall be fully depreciated on a

straight-line basis within a period of twelve years starting at

the close of the fiscal year during which such assets will have

been placed into service; and (ii) that all its other depreciable

fixed assets shall be fully depreciated in conformity with appro-

priate financial principles and accounting practices.

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Section 4.05. For the purposes of this Section and Sections

4.06, 4.07 and 4.08 of this Agreement:

(a) the term "debt" means all indebtedness incurred by PUSRI,

including indebtedness assumed or guaranteed by PUSRI;

(b) the term "long-term debt" means any debt maturing by its

terms more than twelve months after the date on which it is origi-

nally incurred, and the term "short-term debt" means any debt other

than long-term debt;

(c) debt shall be deemed to be incurred (A) under a loan

contract or agreement, on the date and to the extent that it is

drawn down pursuant to such loan contract or agreement, and (B)

under a guarantee agreement, on the date the agreement providing

for such guarantee is entered into but only to the extent that

the guaranteed debt is outstanding;

(d) the term "net revenues" means gross revenues from all

sources less operating and administrative expenses, including

taxes, surcharges and other levies, and interest and other charges

on short-term debt, if any, but before provision for depreciation

and interest and other charges on long-term debt;

(e) the term "net earnings" means net revenues less adequate

provision for depreciation and interest and other chargeti on long-

term debt;

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(f) the term "long-term debt service requirements" means

the aggregate amount of amortization, interest and other chargespayable in respect of long-term debt during any fiscal year;

(g) whenever it shall be necessary to value in terms of

Rupiah debt payable in another currency, such valuation shall bemade on the basis of the prevailing lawful rate of exchange at

which such other currency is obtainable by PUSRI, at the time of

such valuation, for the purposes of servicing such debt or, if

such other currency is not so obtainable, at such reasonable rate

of exchange as shall be acceptable to the Bank;

(h) the term "current assets" means cash, assets readily

convertible into cash, and all other assets which could in the

ordinary course of business be converted within twelve months into

cash or assets readily convertible into cash;

(i) the term "current liabilities" means liabilities due and

payable and all other liabilities which would be due and payable,

or could be called for payment, within twelve months, including

the portion, if any, of long-term debt maturing by its terms within

twelve months; and

(j) the term "equity" shall mean PUSRI's unimpaired paid-in

share capital, retained earnings, surplus and reserves (including

any revaluation reserve but excluding any reserve allocated to

cover specific liabilities).

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Section 4.06. Except as the Bank shall otherwise agree, PUSRI

shall not incur any long-term debt, other than under the Financing

Agreement, if, at any time after the incurrence of such new debt,

the aggregate principal amount of long-term debt of PUSRI then in-

curred and outstanding would exceed the amount of PUSRI's equity

at such time by more than twenty-two per cent (22%).

Compliance with the provisions of this Section shall be deemed

to be compliance with PUSRI's obligations set forth in Section 4.06

of the Project Agreement (Second Fertilizer Expansion Project -

PISRI III) between the Bank and PUSRI, dated February 28, 1975,

and in Section 4.07 of the Project Agreement (Fertilizer Distri-'

bution Project) between the Bank and PUSRI, dated July 10, 1975.

Section 4.07. (a) Except as the Bank shall otherwise agree,

PUSRI shall:

(i) at all times maintain a ratio of current assets to

current liabilities of at least fourteen to ten;

(ii) at all times maintain a ratio of net revenues earned

during any fiscal year to long-term debt service re-

quirements of the next following fiscal year of at

least fifteen to ten;

(iii) meet out of its revenues accountable to each fiscal

year its full operating, administrative and distri-

bution expenses (including adequate provisions for

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maintenance, straight-line depreciation, taxes, sur-

charges and other levies, and interest and other

charges on debt) accountable to the same fiscal

year; and

(iv) earn in respect of each fiscal year a reasonable

return, after taxes, on its assets (except fixed

assets not-yet in service).

(b) For the purposes of making the calculation under subsec-

tion (a) (iv) of this Section, the assets of PUSRI shall be deemed

to be revalued from time to time in accordance with appropriate

valuation principles and procedures acceptable to the Bank.

Section 4.08. Except as the Bank shall otherwise agree:

(a) PUSRI shall not declare any dividend or make any other

distribution with respect to its capital shares except out of its

accumulated net earnings;

(b) Without limiting the generality of Section 4.07 (a) (i)

of this Agreement, PUSRI shall not pay any dividend or make any

other distribution with respect to its capital shares (other than

dividends or distributions payable solely in such capital shares)

or purchase, redeem or otherwise acquire, directly or indirectly

for any consideration, any of such capital shares if, after giving

effect to such action, the current assets of PUSRI would be less

than 1.4 times the current liabilities of PUSRI; and

(c) PUSRI shall not pay any dividend or make any other dis-

tribution with respect to its capital shares until PUSRI's plant

included in the Project will have produced an aggregate of at

least 456,000 metric tons of urea during a period of twelve consec-

utive months.

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ARTICLE V

Effective Date; Termination;Cancellation and Suspension

Section 5.01. This Agreement shall come into force and effect

on the date upon which the Loan Agreement becomes effective.

Section 5.02. (a) This Agreement and all obligations of the

Bank and of PUSRI thereunder shall terminate on the earlier of the

following two dates:

(i) the date on which the Loan Agreement shall

terminate in accordance with its terms; or

(ii) a date 15 years after the date of this

Agreement.

(b) If the Loan Agreement terminates in accordance with its

terms before the date specified in paragraph (a) (ii) of this Sec-

tion, the Bank shall promptly notify PUSRI of this event.

Section 5.03. All the provisions of this Agreement shall con-

tinue in full force and effect notwithstanding any cancellation or

suspension under the Loan Agreement.

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ARTICLE VI

Miscellaneous Provisions

Section 6.01. Any notice or request required or permitted to

be given or made unader this Agreement and any agreement between

the parties contemplated by this Agreement shall be in writing.

Such notice or request shall be deemed to have been duly given or

made when it shall be delivered by hand or by mail, telegram,

cable, telex or radiogram to the party to which it is required or

permitted to be given or made at such party's address hereinafter

specified or at such other address as such party shall have desig-

nated by notice to the party giving such notice or making such re-

quest. The addresses so specified are:

For the Bank:

International Bank forReconstruction and Development

1818 H Street, N.W.Washington, D.C. 20433United States of America

Cable address: Telex:

ITMAFRAD 440098 ITT,Washington, D.C. 248423 RCA or

64145 WUIFor PUSRI:

P.T. Pupuk SrividjajaJln. Let. Jen. S. Parman No. 104Post Office Box 2371Jakarta, Indonesia

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Cable address: Telex Number:

PUSRI 44249Jakarta 4446o

Section 6.02. Any action required or permitted to be taken,

and any docunents required or permitted to be executed, under this

Agreement on behalf of PUSRI may be taken or executed by the Pres-

ident of PUSRI or such other person or persons as the President of

PUSRI shall designate in writing.

Section 6.03. PUSRI shall furnish to the Bank sufficient evi-

dence of the authority and the authenticated specimen signature of

the person or persons who will, on behalf of PUSRI, take any ac-

tion or execute any documents required or permitted to be taken

or executed by PUSRI pursuant to any of the provisions of this

Agreement.

Section 6.04. This Agreement may be executed in several coun-

terparts, each of which shall be an original, and all collectively

but one instrument.

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IN WITNESS WHEREOF, the parties hereto, acting through their

representatives thereunto duly authorized, have caused this Agree-

ment to be signed in their respective names in the District of

Columbia, United States of America, as of the day and year first

above written.

INTERNATIONAL BANK FORRECONSTRUCTION AND DEVELOPMENT

By /s/ Gregory B. VotawActing Regional Vice President

East Asia and Pacific

P.T. PUPUK SRIWIDJAJA

By Is/ Zahar ArifinAuthorized Representative

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SCHEDULE 1

Procurement

A. International Competitive Bidding

1. Except as provided in Part B hereof, the goods and works shall

be procured under contracts to be awarded in accordance with pro-

cedures consistent with those set forth in Part A of the "Guide-

lines for Procurement under World Bank Loans and IDA Credits" pub-

lished by the Bank in August 1975 (hereinafter called the Guide-

lines), on the basis of international competitive bidding.

2. (a) Suppliers shall be prequalified as described in paragraph

1.3 of Part A of the Guidelines, taking into account the advice

furnished by the process licensors on potential suppliers.

(b) Identical or similar items to be procured for Part A and

Part D of the Project shall be .grouped together, wherever practicable,

for the purpose of bidding and procurement, and such grouping of

items shall be subject to the concurrence of the Bank.

B. Other Procurement Procedures

1. Items that are proprietary to the process design of the plant

included in the Project and items of limited availability whose

timely supply is critical to the efficient execution of the Project,

including spare parts related to such items, shall be procured on

the basis of prices negotiated after solicitation of quotations from

a list of prequalified suppliers acceptable to the Bank.

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2. Items estimated to cost less than $50,000 equivalent each

shall be purchased from qualified suppliers on the basis of suit-

ability, availability and price of such items in accordance with

appropriate business practices.

3. Before purchasing any items under the procedures set forth in

B.1 and B.2 hereof, PUSRI shall obtain the concurrence of the Bank

with the items so to be procured and the suppliers to be approached

for such items.

C. Evaluation and Comparison of Bids for Goods; Preference for

Domestic Manufacturers

1. For the purpose of evaluation and comparison of bids for the

supply of goods: (i) bidders shall be required to state in their

bid the c.i.f. (port of entry), f.o.b. or f.a.s. price for im-

ported goods, or the ex-factory price for domestically manufac-

tured goods; (ii) to an f.o.b. or f.a.s. price then shall be

added the reasonably estimated cost to PUSRI of freight and in-

surance for carriage of the goods to Palembang, such estimate to

be based on current conference liner tariffs whenever available;

(iii) customs duties and other import taxes on imported goods,

and sales and similar taxes on domestically supplied goods, shall

be excluded; and (iv) the cost to PUSRI of inland freight and

other expenditures incidental to the delivery of goods to the

place of their use or installation shall be included.

2. Goods manufactured in Indonesia may be granted a margin of

preference in accordance with, and subject to, the following pro-

visions:

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(a) All bidding documents for the procurement of goods shall

clearly indicate any preference which will be granted, the informa-

tion required to establish the eligibility of a bid for such pref-

erence and the following methods and stages that will be followed

in the evaluation and comparison of bids.

(b) After evaluation, responsive bids will be classified in

one of the following three groups:

(1) Group A: bids offering goods manufactured in

Indonesia if the bidder shall have established to

the satisfaction of PUSRI and the Bank that the

manufacturing cost of such goods includes a value

added in Indonesia equal to at least 20% of the ex-

factory bid price of such goods.

(2) Grou B: all other bids offering goods manufactured

in Indonesia.

(3) Group C: bids offering any other goods.

(c) All evaluated bids in each group shall be first compared

among themselves, excluding any customs duties and other import

taxes on goods to be imported and any sales or similar taxes on

goods to be supplied domestically, to determine the lowest eval-

uated bid of each group. Such lowest evaluated bids shall then be

compared with each other, and if, as a result of this comparison,

a bid from group A or group B is the lowest, it shall be selected

for the award.

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(d) If, as a result of the comparison under paragraph (c)

above, the lowest bid is a bid from group C, all group C bids

shall be further compared with the lowest evaluated bid from group

A after adding to the c.i.f. bid price of the imported goods offered

in each group C bid, for the purpose of this further comparison

only, an amount equal to (i) the amount of customs duties and other

import taxes which a non-exempt importer would have to pay for the

importation of the goods offered in such group C bid, or (ii) 15% of

the c.i.f. bid price of such goods if said customs duties and taxes

exceed 15% of such price. If the group A bid in such further com-

parison is the lowest, it shall be selected for the award; if not,

the bid from group C which as a result of the comparison under

paragraph (c) is the lowest evaluated bid shall be selected.

D. Review of Procurement Decisions by Bank

1. Review of prequalification. PUSRI shall, before qualification

is invited, inform the Bank in detail of the procedure tu be fol-

lowed and shall introduce such modifications in said procedure as

the Bank shall reasonably request. The-list of prequalified bidders,

together with a statement of their qualifications and of the reasons

for the exclusion of any applicant for prequalification shall be

furnished by PUSRI to the Bank for its comments before the appli-

cants are notified, and PUSRI shall make such additions to, dele-

tions from, or modifications in, the said list as the Bank shall

reasonably request.

2. Review of invitation to bid and of proposed awards and final

contracts:

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With respect to all contracts estimated to cost the equivalent

of $300,000 or more:

(a) Before bids are invited, PUSRI shall furnish to the Bank,

for its comments, the text of the invitations to bid and the speci-

fications and other bidding documents, together with a description

of the advertising procedures to be followed for the bidding, and

shall make such modifications in the said documents or procedures

as the Bank shall reasonably request. Any further modification to

the bidding documents shall require the Bank's concurrence before

it is issued to the prospective bidders.

(b) After bids have been received and evaluated, PUSRI shall,

before a final decision on the award is made, inform the Bank of

the name of the bidder to which it intends to award the contract

and shall furnish to the Bank, in sufficient time for its review,

a detailed report, by the consultants referred to in Section 2.02

of this Agreement, on the evaluation and comparison of the bids

received, together with the recommendations for award of the said

consultants and such other information as the Bank shall reasonably

request. The Bank shall, if it determines that the intended award

would be inconsistent with the Guidelines or this Schedule, promptly

inform PUSRI and state the reasons for such determination.

(c) The terms and conditions of the contract shall not, with-

out the Bank's concurrence, materially differ from those on which

bids were asked or prequalification invited.

(d) Two conformed copies of the contract shall be furnished

to the Bank promptly after its execution and prior to the submission

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to the Bank of the first application for withdrawal of funds from

the Loan Account in respect of such contract.

3. With respect to each contrae!t to be financed out of the pro-

ceeds of the Loan and not governed by the preceding paragraph,

PUSRI shall furnish to the Bank, promptly after its execution and

prior to the submission to the Bank of the first application for

withdrawal of funds from the Loan Account in respect of such con-

tract, two conformed copies of such contract, together, in the

case of any such contract costing the equivalent of $50,000 or more,

with the analysis of bids, recommendations for award and such other

information as the Bank shall reasonably request. The Bank shall,

if it determines that the award of the contract was not consistent

with the Guidelines or this Schedule, promptly inform PUSRI and

state the reasons for such determination.