Report No. 983a-IND

Indonesia: Appraisal ofA Fourth Highway Project

FILE COPYMarch 12, 1976

Transportation DivisionEast Asia and Pacific Region

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may nototherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit - Rupiah (Rp)US$1 - Rp 415Rp 1 - USJO.24Rp 1 million = US$2,410

WEIGHTS AND MEASURESMetric System

Metric British/US

1 millimeter (mm) 0.04 inch (in)1 centimeter (cm) 0.39 inch (in)1 meter (m) 3 3.28 feet (ft)1 cubic meter (m3) 35.29 cubic feet (ft3)1 kilometer (km) - 0.62 miles (mi)1 square kilometer (km2) - 0.39 square miles (sq mi)1 hectare (ha) - 2.47 acres (ac)1 liter (1) - 0.22 British gallons (imp gal)

- 0.26 US gallons (gal)i kilogram (kg) 2.20 pounds (lb)1 metric ton (m ton) = 2,204 pounds (lb)

ABBREVIATIONS AND ACRONYMS

ADB - Asian Development BankADT - Average Daily TrafficBAPPENAS - National Planning CouncilDGH - Directorate General of HighwaysDPUP - Provincial Public Works DepartmentEBRR - Economic Rate of ReturnGDP - Gross Domestic ProductHPAT - UNDP Highways Planning Advisory Team to DGHHOC - Ministry of Transport, Communications

and TourismMNPW - Ministry of Public Works and PowerPUSRI - P.T. Pupuk SriwidjajaRLS - Regular Liner Service of Inter-Island ShippingUNDP - United Nations Development Programme

FISCAL YEAR

April 1 - March 31

FOR OFFICIAL USE ONLY

INDONESIA

APPRAISAL O0A FOURTH HIGHWAY PROJECT

TABLE OF CONTENTS

Page No.

SUMKARY AND CONCLUSIONS *......................... .. i - iv

I. INTRODUCTION . ............................. 1...........

II. THE TRANSPORT SECTOR ....................... 3

A. Economic Setting ................................. 3B. Transport Modes .................................. 4C. Transport Planning, Policy and Coordination ...... 5

UII. HIGHWAYS .. ... . ..... ... ..... ....... * ..a ............... 6

A. The Network ...................................... 6B. Traffic Characteristics and Growth ............ 7C. Administration ................................... 7D. Financing . . . .... ............... ... . 8

E . Planning anDd Engineering . .................... 9F. Construction .... ...... 0.... .. , , ..... 0......... 10G. Maintenance .............. 10

IV. THE PROJECT ............... *..*..11

A. Second Plan DGH Development Program .... .......... 11B . Description ............................ 13

C. Cost Estimates and Foreign Exchange Component .... 19D . Financing . ....................................... 21

E. Implementation and Procurement ................... 22F. Disbursements ........................ ............ 23

V. ECONOMIC EVALUATION ....... ............................ 24

VI. RECOMMENDATIONS ............................... ... .. 28

This report has been prepared by Messrs. R. Alexander (Engineer) andT. Neuner (Economist).

This document has a restricted distribution and may be used by recipients only in the performance

of their official duties. its contents may not otherwise be disclosed without World Bank authorization.

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ANNEXES

1. Details of Transport Modes Other than Highways2. Details of DGH Highway Development Program in Second Five-Year Plan3. Description and Evaluation of First 550 Km of Road

Improvements4. Consultant Services Required for the Project5. List of Equipment to be Procured6. Economic Costs and Beneficiaries of the Project

TABLES

1. The Public Highway Network (December 31, 1971)2. The Public Highway Network - Type of Surface (December 31, 1971)3. The Public Highway Network - Axle Load-Carrying Capacity

(December 31, 1971)4. Geometric Design Standards5. Vehicles Registered, 1961-19746. Motor Vehicle Registrations - Geographic Distribution, 19737. Budget Summary of Directorate General of Highways8. Project Implementation Schedule9. Schedule of Estimated Disbursements

CHART

IBRD - 15003(R) - Organization of the Central and ProvincialWorks Organizations in Relation to HighwayAdministration

MAPS

1. IBRD - 11746 - Sumatera2. IBRD - 11747 - Java and Bali3. IBRD - 10399R - North Sulawesi

INDONESIA

APPRAISAL OFA FOURTH HIGHWAY PROJECT

SUMEARY AND CONCLUSIONS

i. The economy of Indonesia grew at an annual rate of over 7% duringthe First Five-Year Plan period (April 1969 - March 1974) and, with thefavorable effects of the rise in oil prices, is expected to continue on anupward trend through the Second Five-Year Plan (April 1974 - March 1979) andbeyond. However, bottlenecks in transport and other infrastructure willobstruct continued economic growth unless the pace of investment in thesefacilities is stepped up rapidly. Accordingly, the Government determinedthat some of the large additional revenues accruing to it from the oil sectorand the increased debt servicing capacity which they imply should go initiallyto improvement of transport and other infrastructure. This policy also reflectsthe economy's relatively larger absorptive capacity over the near term forinfrastructure investments.

ii. The Government's development plan for roads in the First Five-Year Plan stressed the rehabilitation (heavy deferred maintenance) of roughly8,000 km of roads, the improvement of highway maintenance, the constructionof some new roads and the strengthening of the capacity of various highwayauthorities (national, provincial, and local) to plan and supervise roadinvestments. The United Nations Development Programme (UNDP), the BankGroup and other lenders have assisted the Government in providing orarranging for technical and financial assistance to help meet these targetsand also to help prepare future investment programs, including the identi-fication of measures needed to execute them.

iii. The rehabilitation works were successfully accomplished and positivesteps were taken to improve road maintenance which allowed traffic -to moveagain on important road links that had become largely impassable due toneglect in the previous decade. Sustained high economic growth with parallelincreases in traffic demand have created a new generation of road problemsin that the rehabilitation works, which were an efficient use of scarce re-sources when traffic levels were modest, are now too costly a method to sa-tisfy the higher traffic levels. The extent of the road network is generallyadequate; however, a large number of important roads now require major im-provements, involving widening, strengthening of pavements and shoulders, andbridge work. Construction of new multi-lane roads are also needed to copewith traffic in and around main cities, particularly Jakarta. The road in-vestments in the Second Five-Year Plan focus major attention on these changedneeds and on providing expatriate experts to augment the scarce staff re-sources now available in Indonesia to plan, manage and execute the Plan's roadtargets.

iv. From 1968 onwards, the Bank Group has been financing investmentsin the transport sector through credits and loans totalling US$201.5 million;including three road projects totalling US$77 million; an inter-island ship-ping project of US$8.5 million; a railway project of US$48 million; and a

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fertilizer distribution project of US$68 million. In addition, four techni-cal assistance credits, totalling US$15 million provided experts for, amongother things, planning in the transport sector.

V. While the Government will accelerate investments in all modesof transport, the largest sums are intended for the ports and shipping andfor highways which together account for most of Indonesia's transport ser-vices. The Bank Group proposes to assist initially through (a) projects forports and shipping (one for the expansion of Indonesia's principal generalcargo port at Jakarta and the other for inter-island shipping, both of whichare currently under appraisal) and (b) the proposed Fourth Highway Project.The Bank's highway project primarily supports the Government's BettermentProgram which constitutes the largest part of the Directorate General ofHighways (DGH) Highway Development Program and which because of its complexpreparation and execution problem, is most suitable for assistance on a largescale by the Bank. The Betterment Program covers about 13,000 km of highpriority links, or somewhat over one-third of the national and provincialroad network. It is estimated that substantial improvement works will berequired on links aggregating roughly 10,000 km and up to 5,000 km ofimprovements are targeted for completion by the end of the Second Planperiod.

vi. The Government's proposal for development of national and provin-cial roads represents a large-scale, long-term commitment to improving thecountry's infrastructure system. It not only will upgrade a substantial partof Indonesia's roads and bridges but also includes the initial steps to de-centralize road maintenance and administration, and thereby provide the essen-tial prerequisite for improving the feeder road system, a priority item insubsequent highway development programs. By its emphasis on the developmentof local consultants and contractors, the Goverment's proposal will alsostrengthen Indonesia's overall capacity for civil engineering works. As theHighway Development Program is very ambitious and represents a quantum in-crease in the volume of Indonesia's highway construction, the Government willmake extensive use, in the initial stages of the Program, of external tech-nical capacities but it is embarked concurrently on a broad-scale effort todevelop indigenous resources through training, technical assistance and othermeans. The proposed loan not only provides funds for a substantial part ofthe physical works included in the Government's Plan, but also supports abroad range of institutional improvements designed to make Indonesia self-sufficient in highway operations as soon as possible.

vii. The Fourth Highway Project will include construction on 1,100 kmof national and provincial highways in two packages of 550 km each and con-sulting services to help supervise this construction; services for screeningand feasibility studies of an additional 7,000 km of betterment works,including detailed design for 4,100 km selected therefrom and for detailedengineering of a 70 km multi-lane highway near Jakarta for possible con-struction financing by Saudi Arabia under Bank administration; services insupport of selected activities of the highway authorities for the managementof the Government's highway development program, including a study of vehicleweights and dimensions and road user charges. The first package of civil

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works is for schemes for which feasibility studies and detailed engineeringare in hand. The civil works in the second package are to be approved by theBank on or before December 31, 1976 on the basis of technical-economicdocumentation which is being prepared similar to that used for the firstpackage.

viii. Civil works will all be carried out by contracts awarded on thebasis of international competitive bidding in accordance with the Bank'sGuidelines for Procurement. Domestic construction contractors and eligiblejoint venturers will participate in the tendering on the basis of a 7-1/2%preference; they are expected to win some contracts and participate assubcontractors in other cases; they will also benefit from special measureswhich will be formulated under the project to strengthen their technicaland managerial capacities. However, the domestic contracting industry isstill small and the Government expects that foreign firms will provide muchof the capacity required for the initial phases of the Highway DevelopmentPlan. The consulting services to be financed under the project will becarried out by experienced foreign firms mainly in joint venture withdomestic firms. The estimated total cost of the project is US$234 millionwith a foreign exchange cost of US$150 million or 64%. The loan of US$130million will finance 60% of all costs proposed for financing by the Bank(such costs estimated at about US$217 million) and also represents 88% ofthe foreign exchange component of such costs. Highway construction worksunder the project with an estimated aggregate value of US$59 million havebeen issued to tender and bids for about US$28 million of these were openedin January and February 1976 and are under evaluation; proposals for allconsultancies with an estimated total value of about US$25 million havebeen requested and of these, proposals valued at about US$18 million werereceived and are under review. The cost estimates for the project arebased on the costs resulting from the aforementioned bids and proposals.No contracts for construction or services will be signed before April 1976.

ix. The construction works in the project are aimed at loweringvehicle operating and road rehabilitation costs by strengthening and, inappropriate cases, widening roads (including bridges) which are now in-adequate to cope with current and near-term traffic. Directly measureabledevelopment benefits will be small for the first package but may be of someimportance for several roads in the second package. The economic rate ofreturn for individual road sections in the first package ranges from 12 to29% and the average return is 19%; similar rates of return are expected forthe second package. The two packages together account for about 90% of totalproject cost.

x. The provision for feasibility and detailed engineering studies willhelp the Government to prepare its highway development schemes (for ithe currentSecond Plan and the subsequent one) and provide a basis for future f'inancingof road investments by the Bank and similar institutions, and also bilaterallenders. The remaining consulting services will assist the highway authori-ties to better prepare, manage and execute their current and future highwaydevelopment and maintenance programs.

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Xi. The project constitutes a suitable basis for a Bank loan of US$130million to the Republic of Indonesia for a term of 25 years, including afive-year period of grace.

INDONESIA

APPRAISAL OFA FOURTH HIGHWAY PROJECT

I. INTRODUCTION

1.01 The Government of Indonesia has asked the Bank for a loan tohelp finance a Fourth Highway Project comprising: (a) construction andsupervision of about 1,100 km of road improvements in various parts of thethe country; and (b) consulting services: to assist in screening and feasi-bility studies of about 7,000 km of road improvements throughout Indonesiaand detailed design of about 4,100 km of such improvements in Sumatera, Javaand Bali; to prepare detailed designs for a 70 km multi-lane highway; toassist in studying and solving management and organizational problems ofIndonesia's highway authorities; to study and make recommendations concerningvehicle dimension and weight regulations and road user charges. The projectwill be executed by the Directorate General of Highways (DGH), the nationalhighway authority, which is a part of the Ministry of Public Works and Power(1MPW) .

1.02 The proposed loan constitutes a major contribution to the greatlyexpanded highway improvement program which the Government has made one ofits principal policy objectives. This program encompasses not only theconstruction of better roads and bridges but strengthening and expansion ofpublic and private institutions concerned with planning, building and main-taining Indonesia's roads. The project will help to remove transportationbottlenecks to the rapid expansion of Indonesia's economy and to furtherthe technical capacities of the country's civil engineering industries.

1.03 The project has been developed from the DGH Development Programwhich is part of Indonesia's Second Five-Year Plan and whose most importantcomponent is a Betterment Program covering a large number of high priorityroad links throughout the country. As the DGH Development Program requiresa major expansion of road design and construction capacity, the Bank hasworked closely with the Government to identify the key constraints to itsexecution, and the Government has formulated specific actions to be under-taken in the critical inception period, including the use of expatriate anddomestic consultants on a substantial scale to assist in engineering andmanagerial tasks.

1.04 The Bank Group's previous assistance in financing the transportsector has involved three highway projects: Credits 154-IND for US$28million in 1969; 260-IND for US$35 million in 1971; and 388-IND for US$14million in 1973. In addition, the Bank Group has provided assistance to thetransport sector through an inter-island shipping project, Credit 318-IND,

v for US$8.5 million in 1972; a railway project, Loan 1005-IND, for US$48 mil-lion in 1974; and a fertilizer distribution project, Loan 1139-IND, forUS$68 million in 1975; as well as technical expertise financed under the

technical assistance credits to Indonesia. Performance on the ongoing proj-ects has generally been satisfactory. A second inter-island shipping proj-ect is under negotiation and a port project to expand the country's principalgeneral cargo port (Jakarta) is currently under appraisal.

1.05 The First Highway Project provided for the procurement of equip-ment, materials and consulting services for a four-year program to rehabili-tate 3,000 km of high priority roads in 5 of the 26 provinces, to improveroutine and periodic maintenance and workshop facilities in 20 provinces,and to undertake experimental programs in 3 provinces for all aspectsof highway work. This project was largely based on the findings of a largetechnical assistance consultancy financed by the United Nations DevelopmentProgramme (UNDP), with the Bank acting as executing agency. The road workswere successfully completed within the cost estimates and approximately onschedule, and permitted traffic to move again on roads which had beenvirtually impassable due to neglect during the economic stagnation in thelate fifties and the sixties; a good start was also made in putting highwaymaintenance on a sounder footing. The Closing Date was extended to the endof 1975 to permit placement of orders for remaining equipment and materials.

1.06 The Second and Third Highway Projects financed reconstruction ofroad links located on the islands of Sumatera and Sulawesi respectively (Maps)and were largely based on the findings of the UNDP consultancy. Execution ofconstruction in the Second and Third Projects is proceeding satisfactorilyafter taking into account initial delays in contractor mobilization due toremoteness of construction areas, unusually long rainy seasons and severeland slides. Project costs have exceeded original estimates due mainly tosharp worldwide price increases in the 1973-75 period; the higher costs arebeing met by the Government.

1.07 The Second and Third Projects included feasibility and detailedengineering studies of key roads in Simatera, Java, Sulawesi and Bali. Thesestudies form the basis for the construction element of the proposed FourthProject. The Second and Third Projects also contributed to significantinstitutional improvements related to highways which were accomplished inthe First Five-Year Plan.

1.08 The proposed Fourth Project extends and expands the study andinstitutional strengthening efforts of previous projects. A future FifthProject will be based on feasibility and engineering studies to be completedunder the Second and Fourth Projects. The need for improving highway plan-ning was identified with the help of the original UNDP consultancy; furtherimprovements in planning processes are being made with the assistance of thepresent UNDP Highway Planning Advisory Team (HPAT) (paras 3.12 and 4.20), andvarious consultancies to be financed under the Fourth Highway Project(paras 4.11-4.19, Annex 4). Staff training activities which were begununder the Third Project will be further assisted by experts financed underthe proposed loan to assist in managing DGH's training programs (paras 4.17,4.18).

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1.09 This report is based on information provided by the Governmentand its consultants, and on the findings of the April/May 1975 appraisalmission, composed of Messrs. R. Alexander (Engineer) and T. Neuner (Economist)who worked closely with Messrs. A. van Dijck and M. Sapir of the Bank'sResident Staff in Indonesia. Processing of the project following appraisalwas delayed by the need for additional information which was provided by DGHofficials during their visits to Washington in June and in August 1975 andby correspondence, and by the postponement of loan negotiations from Januaryto February 1976 at the request of the Government to permit the review ofproject construction costs in the light of tenders for some project roadsections received in January and February 1976.

II. THE TRANSPORT SECTOR

A. Economic Setting

2.01 The Indonesian archipelago comprises thousands of islands spreadout along 5,000 km of the equator in a band about 2,000 km wide. However,five large land masses (the islands of Kalimantan, Sumatera, Irian Jaya,Sulawesi and Java) account for more than 92% of the country's total landarea of 1.9 million km2. About two-thirds of Indonesia's population of 130million (1975 estimate) is concentrated on the island of Java which coversonly 7% of the total land area and is one of the most densely populatedregions in the world (625 persons per km2). The average population densityin the rest of Indonesia is much lower than Java but settlements are notspread evenly and tend to occur in pockets with favorable agriculturalconditions.

2.02 Agriculture is the most important economic activity, predominantlystill in subsistence farming but partly in growing of food crops for domesticsale and of export crops such as rubber, palm oil and copra. The largestextractive activity is the production of oil (505 million barrels in 1974)which contributed about 65% of the value of total exports in 1974. Indonesiaalso produces significant amounts of tin, bauxite, nickel and copper. In-dustry remains relatively undeveloped with employment concentrated inconsumer goods plants such as food processing and textiles. Fertilizerand cement are the largest primary industries.

2.03 GDP was the equivalent of about US$16.3 billion in 1973 or aboutUS$130 per capita. The economy grew during the First Five-Year Plan and in1975 at over 7% p.a. The Second Five-Year Plan projects continuation of thegrowth pattern from the previous plan period but with greater emphasis onindustrial expansion, particularly in primary industry; transport is projectedto grow at the rate of 10% p.a. With the increase in oil prices, substantialnew resources have become available to the Government and have already beencommitted to expanding investment. Indonesia's export earnings are expectedto rise further from US$4.4 billion in 1974 to US$11.4 billion in 1980 andto provide the necessary foreign exchange and savings for additional increases

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in the rate of investment. The Government is also stressing the balanceddevelopment of all regions in Indonesia and the opening up of remote areas.All the foregoing trends will place large new demands on the transport systemand may well require transport to be expanded in excess of the projected10% p.a. if the demands are to be met.

B. Transport Modes

General

2.04 Indonesia makes significant use of all modes of transport. Javahas extensive road and rail systems which account for 33 and 70% of the totalnetworks in the country. Roads provide the basic links within the individualislands outside Java though the density of these networks is much lower thanin Java. There are a few railway lines in Sumatera. Where rivers are navi-gable (South Sumatera, Kalimantan, Irian Jaya), they carry significant volumesof traffic. There are also about 450 km of petroleum pipelines in operationor under construction in South-Central Java and a few gas pipelines in Javaand Sumatera. Freight movements among the islands are made by marine transportwhich also carries some traffic between points on the same islands. Air trans-port is developing rapidly but is almost exclusively for passenger use, bothinter- and intra-island. The largest single item in freight transport,measured in m ton-km, is the movement of petroleum and its products bydomestic shipping; without this traffic, toad and sea traffic are roughlyequal and each about three times rail traffic. Road transport accounts formore than half of total passenger-km, with the railway contributing the secondlargest share.

2.05 The contribution of transport to GDP virtually stagnated for mostof the 1960's but grew at nearly 11% p.a. in constant prices over the FirstPlan period as the economy recovered. The Government's policy in the FirstFive-Year Plan emphasized rehabilitation of transport facilities and thecondition of infrastructure and the transport fleet has improved markedlyas a result. In addition, some fleet expansion took place, particularly inroad transport and aviation. The primary aim of the Government's SecondFive-Year Plan in the transport sector is to create substantial capacityincreases both by additional investment and by improved productivity, throughcompletion of unfinished rehabilitation work and further strengthening ofsectoral institutions and organizations.

2.06 As a result of its enlarged oil income, the Government has expandedexpenditures under the 1974-75 and 1975-76 development budgets over the levelsprojected in the Second Plan document. The allocation for transport in the1975-76 budget is more than 50% over the original 1974-75 budget and absorbedmore than one-third of the increase in total development expenditures. Al-though some transport development expenditures were increased more rapidlythan others, the Government has not indicated a shift in its sectoral strategy.Future budgets are expected to give more emphasis to social sectors suchas education; transport investments are also expected to rise but at a moremodest rate. Over the Second Plan period, investments for transport in the

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public sector (assuming continuation of development expenditures at increasedlevels) and by the private sector are estimated at about Rp 1,800 billion(US$4.3 billion, in 1973 prices) roughly 17% of total investments; about 56%of this will flow through the public sector under various central and localgovernments' development budgets with the remainder being financed privately,particularly for the purchase of road and other transport vehicles. Whileinvestment projections were based on very limited data, particularly regardinglocal government expenditures, the proportion devoted to transport falls withinthe range most frequently observed in similar economies.

Particular Modes

2.07 Details on the highway mode are given in Chapter III and on theother modes in Annex 1.

C. Transport Planning, Policy and Coordination

2.08 Responsibility for planning and policy formulation in the transportsector is divided at the national level between two ministries, HPW for roads,and the Ministry of Transport, Comunications and Tourism (MOC) for othermodes. Investment proposals are formulated at the modal level in theseministries and then submitted by them to the National Planning Council(BAPPENAS) for review and approval. PrQject proposals normally include cost-benefit analyses but these analyses are frequently made by consultants andthus have not represented an overwhelming burden on the limited number ofIndonesian transport specialists. Nevettheless, as the number and complexityof analyses are increasing, the Government intends to employ one or two ex-patriate experts financed under an IDA Technical Assistance Credit (275-IND)to help the MOC in reviewing investment proposals from its constituent agencies.

2.09 Modal planning is hindered by the lack of trained staff and by thelimited and irregular flow of data. Nevertheless, planning of highways inDGH has been greatly strengthened in recent years with the assistance ofthe HPAT and will receive significant assistance under the proposed loan.Railway planning will be improved under the current Bank loan for the rail-ways, and national ports planning, which is urgently needed to coordinatethe ports with each other and with shipping and land transport, will be givenspecial attention in the proposed Bank loan for the port of Jakarta (para1.04 and Annex 1). The Government has initiated training programs for trans-port planning staff and is pursuing several means to improve the availabilityof information, among them the provision of another expert financed underTechnical Assistance Credit 275-IND to work with MOC on data problems. Thetraining of Indonesian staff as well as improvements in modal planning anddata operation will take time and it will be some years before these essen-tial prerequisites to a national transport plan and to improved transportcoordination will become available.

2.10 The Government wields considerable influence over the operationof the transport system, not only through provision of infrastructure andownership of important transport enterprises in all modes but also throughrate setting and other regulatory activities. While it has not formulatedan explicit transport policy, the Government has identified areas requiring

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special attention, particularly financial objectives and control of publicsector transport firms and pricing policy. At present, accounting systemsvary widely among sectoral enterprises and means are not available tocompare financial performance or to set standards. The Government's deci-sion on rates must frequently be made without analysis of costs, demandfactors or the effect on competing modes. Two experts, financed fromTechnical Assistance Credit 275-IND, are now advising MOC in these areaswith the aim of making the Government's activities more consistent andeffective, improving the return on its investments in the sector and ensuringthat it considers all relevant economic factors in transport pricing. Im-proved information is also considered vital to better sector managementand will be aided by the measures described in para 2.09.

2.11 The law concerning vehicle weights and dimensions and the levelof user charges are important current issues. While both matters have beenreviewed in connection with previous highway projects for Indonesia, theyshould now be reexamined in the light of the Government's large-scale roadBetterment Program, which will permit the use of larger trucks, and of thesharp rise in world oil prices. The Government has only partly reviseddomestic fuel charges to reflect the new world price of oil and a major newsubsidy to the transport sector has thereby resulted; the implicit subsidydue to underpricing of petroleum in all its uses in the economy has beenestimated to amount to 2.6% of gross national income (Basic Economic Report -Indonesia, Development Prospects and Needs (Report No. 708-IND) datedApril 15, 1975). The proposed project provides for a study of these issues,and the Government agreed that it would take such actions as appropriateto revise its vehicle weight and dimension policy and its user charges afterthe study has been completed.

III. HIGHWAYS

A. The Network

3.01 The extra-urban public highway network totals 86,264 km. The roadsare classified as "national" (10,628 km), "provincial" (24,466 km) and "dis-trict" (kabupaten) (51,170 km), indicating their relative importance andthe basis for defining administrative, financial and executive proceduresassociated with construction and maintenance. In addition to the publichighway network, agricultural estates and oil companies construct and main-tain their own roads. Tables 1 and 2 show the public network by classifica-tion and by surface type.

3.02 For vehicle weight control purposes, the system is presentlydivided into six classes, based on maximum permissible axle load, rangingfrom 1.5 to 7 m tons (Table 3). However, geometrical and structural designstandards recognize five classes of roads in accordance with traffic volumesand specify an 8 m ton single axle load for pavement design and a standard

similar to that used in Britain for structures (Table 4). The designstandards are generally satisfactory and are being applied in the design ofnew roads or major improvements. The study of vehicle weights and dimensions(para 2.11) should provide a basis for reconciling the classifications forweight control purposes and for design standards.

B. Traffic Characteristics and Growth

3.03 In 1974, registered four-wheel vehicles (excluding militaryand diplomatic) totalled about 535,000 of which 338,000 were cars,166,000 trucks and 31,000 buses (Tables 5 and 6). The number of vehiclesactually in use is considerably less; on the basis of 1972 inspection records,only about two-thirds of trucks and buses registered were then on the road.Vehicle registrations have expanded rapidly by nearly 70% over the last fiveyears. There has also been a significant reduction of the average vehicleage which dropped from 12.1 years in 1969 to 10.6 years in 1972. Most trucksstill have only two axles but recent additions to the fleet typically havesomewhat higher carrying capacities than the older vehicles (previously about3.5 m tons, now 4 to 5 m tons).

3.04 Systematic traffic counting was resumed in 1970 after a lapseof about 10 years; in addition, periodic origin and destination surveysare made on the principal routes. Results from the first three years'counts indicate significant traffic growth on many road sections. Whilethe basic procedures for obtaining traffic information are satisfactory,refinements are desirable to increase the accuracy of the data and thetimeliness of their compilation. The HPAT (para 2.09) has assisted theGovernment in formulating an improvement program which includes the useof automatic counting machines on high density routes in Java and Baliand additional studies on truck loadings and vehicle speeds on selectedroads. The project includes the purchase of counting machines and relatedequipment (para 4.21) which will be financed entirely by the Government.During negotiations, the Government confirmed its program for improvingthe collection and use of traffic information.

C. Administration

3.05 Administration of the public highway network follows the threeclassification tiers. The Central Government, through DGH, is responsiblefor national highways; provincial administrations are responsible for pro-vincial highways, and district administrations for district roads. DGH ispart of MPW which includes the Directorates General of Water Resources, andof Housing and Building among others (Chart). This aggregation of functionswithin MPW is repeated at the provincial level where provincial public worksdepartments (DPUPs) are responsible for highways, irrigation and buildings.

3.06 In practice, the administrative system is not as clearly definedand there are many interlocking relationships among the levels of adminis-tration. DGH is a relatively small organization of less than 2,000 permanentemployees of all types. However, it is the largest pool of skilled highway

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technicians in the country and has been responsible for the design andconstruction of virtually all major roads in the country. The number ofemployees of the provinces and districts working on highways is not knownexactly but certainly runs into several tens of thousands. The technicalcapacity of DPUPs varies widely; however, even the best DPUPs have limitedhighway design capacity (though some design their own bridges) and the majoractivity of the provinces on highways still is maintenance and rehabilita-tion, which is heavy deferred maintenance. Funds are provided by DGE andby other agencies of the Central Government (paras 3.09 and 3.15) to theDPUPs and by the latter to the districts. Technical assistance is providedto the DPUPs by various DGH directorates (Chart).

3.07 DGH has been the major focus of technical assistance on highwaysby the Bank Group and other external agencies over the past decade. Amongother things the Third Highway Project included a major training componentwhich was directed largely at maintenance operations and resulted in theestablishment of a comprehensive training system for Indonesia's highwayauthorities and which is to be further implemented under the proposed FourthHighway Project. DGH has been substantially strengthened as a result ofthese efforts (paras 3.11-3.17) and has become the Government's main policysetting organization in the highway subsector. Further improvements inmanagement and control of DGH corresponding to its enlarged policy role anddesigned in relation to its greatly increased volume of highway works inIndonesia, are required in such areas as budget formulation and control andconstruction program management.

3.08 With the enlarged size and complexity of Indonesia's highwayprogram, the Government proposes to decentralize such DGH functions as executionof construction and design of projects to lower levels of administration andto upgrade their technical capacities to this end. A major step in this di-rection is DGH's recent establishment of new DGH regional betterment offices,initially to deal with the day-to-day design and supervision of bettermentworks located in the provinces covered by each office and eventually to formthe nuclei of provincial engineering offices. The arrangements for thesenew offices, four in Java and Sumatera, assisted by consultants to be financedunder the proposed project (para 4.10 and Chart) are discussed in para 4.09.Additionally, a new career system is being put into effect to provide for theinterchange of skilled personnel between DGH and DPUPs. The first major taskof DGE will be to make a survey of all DPUPs activities on highways to eva-luate their individual strengths and weaknesses and to formulate an improvementprogram for each province. The survey will be assisted by management con-sultants which are to be financed under the proposed loan (para 4.18). Aftercompletion and analysis of the survey, the Government plans to make a similarreview of highway operations in the districts.

D. Financing

3.09 Complete figures are not available on total expenditures forIndonesia's public highway network outside of DGH's own budget. The DGHbudget is only a portion of the Central Government's own expenditures on high-ways. The Government also transfers large sums to the lower tiers of adminis-tration either specifically earmarked for highways (e.g., payments to provinces

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for highway maintenance) or for programs which include a large number ofhighway works (e.g., kabupaten public works schemes such as under the so-called INPRES program). In addition, the provinces and districts financefrom their own resources not only many routine maintenance costs, but alsosome new road construction or improvements under their development budgets.The survey of DPUPs mentioned in para 3.08 will also include a compilation ofbudgetary data for highway activities by the provinces. The proposed studyof highway user charges (para 2.11) will obtain preliminary information onhighway expenditures at the district level but comprehensive data will haveto await the proposed survey of district highway organizations.

3.10 DGH has two budgets: routine, which covers the salaries of itspermanent employees and also includes a small sum for road maintenance,and development, which not only funds major construction projects but largeexpenditures for rehabilitation and maintenance also. Table 7 shows DGHbudgets over the First Five-Year Plan and for 1974-75. The rise from Rp 10.7to 26.9 billion (US$260 to 650 million at the current exchange rate) in theFirst Plan period represents an increase of about 50% in real resources whenallowance is made for the intervening inflation. Actual expenditures ranat roughly 80% of the budgeted amounts in that period. The very large increasein 1974-75 resulted from more than doubling the DGH development budget afterthe oil price increase but also reflects Indonesia's very rapid inflation in1974 (40Z in the consumer price index).

E. Planning and kngineering

3.11 Indonesia suffers a shortage of graduate civil engineers (onlyabout 120 are produced per year for both public and private sectors) whichis felt at all levels of its highway administration. DGH has sought toovercome this problem in its planning and design work by extensive employ-ment of para-professional personnel (e.g., advanced university students)to supplement its own permanent staff, by use of electronic computers, byretaining foreign design consultants and more recently by initial measuresto build up the capacity of the domestic consulting industry which at pre-sent is limited to only about four firms capable of undertaking a completedesign assignment but only for small projects, and a number of small firmsspecialized in surveying and soil testing. As a result, DGH has been ablegradually to expand and improve its highway planning effort and t-o increasethe volume of designs available for construction.

3.12 The main organization for highway planning is DGH's Directorateof Planning which collects data on traffic and existing road facilities,prepares general highway plans and selects and evaluates individual con-struction projects. The Directorate has just completed a nationwide surveyof regional development potentials, traffic flows and consequent transpor-tation needs, particularly on the national and provincial road networks whichwas the basis for formulating the Betterment Program of high priority roadlinks (para 1.03); this was organized and carried out with the assistance ofthe HPAT. It is presently compiling a detailed road and bridge inventory ofnational and provincial roads; and it will shortly commence preparation of

10 -

rolling five-year highway programs. In addition, DGH will begin to preparea 20-year plan for the highway network (including important feeder roads, apriority item in future plans) in selected pilot areas of the country; sub-sequently, all areas of the country will be covered. Mention has alreadybeen made of the program to improve traffic information (para 3.04). WhileDGH's planning effort is ambitious, it is well conceived and should producesatisfactory results with the continued help of the HPAT (paras 1.08, 2.09and 3.04) which has been working with the Directorate over the past threeyears. The HPAT services involve about 150 man-months of expatriate servicesof varying duration over a three-year period (engineers, economists, trafficspecialists).

3.13 DGH's design work is also the responsibility of the Directorateof Planning. Design offices are located in Bandung which provides accessto the resources of the highly regarded Institute of Technology there. Withabout 300 employees of whom less than half are permanent, the design officehas demonstrated its capacity to produce acceptable designs for a broadrange of highway and bridge construction and to supervise a large volumeof design work by consultants as well. The Directorate also has responsibil-ity for developing the engineering capabilities of the DPUP and the highwayconsulting industry; DGH will carry out a study of the consulting industry,assisted by consultants to be financed under the proposed project (para 4.17),and establish measures for mobilizing the industry. The Directorate willneed to make large-scale use of expatriate consultants over the next severalyears but will be able to rely increasingly on domestic consultants, as theywill be working with expatriate firms in the preparation and execution of theBetterment Program.

F. Construction

3.14 Responsibility for highway construction lies with the Directorateof Construction and is executed under a variety of arrangements. Mosttypical for minor construction is the use of small contractors who supplylabor and local materials such as stone, but use equipment and manufacturedmaterials supplied by the Government. Indonesia has only a few contractingfirms which can execute major road works and therefore mainly uses foreigncontractors on such jobs, as was the case in the Second and Third HighwayProjects. Some provinces also have force account construction units forroad building. DGH will carry out a study, assisted by consultants to befinanced under the proposed loan, of the measures needed to expand the useof local contractors in the Second Plan DGH Development Program (para 4.17).Expansion will be designed, however, to meet the estimated long-term roadconstruction needs of the country to avoid developing capacity which wouldbe unused after the surge of the Betterment Program has taken place.

G. Maintenance

3.15 Maintenance of the national and provincial roads is carried out bythe DPUPs, partly with provincial funds and partly with funds supplied bythe national Government, through the budgets of DGH (para 3.06), and theDirectorates General of Administration and Regional Autonomy in the Ministry

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of Interior. Complete data are not available on total expenditures formaintenance outside of DGH's own budget. The lack of data is pronouncedfor the individual provinces and one of the main purposes of the survey ofDPUPs (para 3.08) will be to obtain information on the extent and qualityof the maintenance effort and to develop action programs as appropriate foreach province to strengthen the organization, admininstration and executionof maintenance consistent with highway development under the Second andfuture Five-Year Plans (para 4.17).

3.16 It is clear, nonetheless, that maintenance operations are exten-sive and that substantial improvements were achieved in the condition ofthe primary network over the First Plan period, initiated by the FirstHighway Project (para 1.05) and continued by DGH. In 1973, 95% of the pri-mary network was open to traffic as against 70% five years earlier, and 60%of the passable roads were judged in good or fair condition in 1973 comparedwith about 15% in 1968. In view of the budgetary uncertainties referredto above, no precise allocation of maintenance funds per km of road isavailable. However, DGH estimates that about US$1,000 equivalent p.a. isspent under various budgets on maintenance of the national roads and US$600equivalent p.a. on provincial roads. Rehabilitation, which is heavy deferredmaintenance, is estimated to represent an expenditure of about US$10,000 perkm on some 2-3,000 km of national and provincial roads rehabilitated eachyear. Additional sums, believed to be significant, are also spent at thelocal level but their magnitude is not known exactly. Maintenance activitieshave also benefitted from the establishment of a training system under theThird Highway Project (para 3.07). While the institutional framework fortraining now has been provided, further efforts are planned by DGH to spreadtraining at lower levels of administration. These efforts will be assistedby advice from management consultants under the proposed loan and by equipmentto be purchased under the project from the Government's own funds.

3.17 The present level of budget allocations for maintenance and re-habilitation appears adequate at the moment but the required allocation foreach is likely to change significantly as execution of the Highway BettermentProgram becomes well advanced. Amounts for rehabilitation will decrease butrequirements for routine and periodic maintenance will increase to reflect thehigher standard of road and growing traffic levels to be served. DGH plansto continue improvements in maintenance through the measures mentioned inparas 3.15 and 4.17, and intends to increase allocations for this purpose asrequired. Additionally, the Government will prepare and implement actionprograms to strengthen maintenance operations of the DPUPs, including specialprograms for each of the roads to be improved in the proposed project (paras4.17 and 4.28).

IV. THE PROJECT

A. Second Plan DGH Development Program

4.01 The Program represents a major shift of attention from deferred main-tenance and rehabilitation, which was emphasized during the First Five-Year

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Plan, to more permanent repair and upgrading of roads and bridges. TheBetterment Program includes 13,000 km of highway links selected on the basisof a nationwide survey of traffic, condition of road and regional developmentpotential (para 3.12). However, it is estimated that substantial improvementworks will be required on links aggregating about 10,000 km. About 5,000 kmof improvements are targeted for completion by the end of the Second Plan;another 2,900 km are expected to be underway at that time and the remaining2,100 km will be in the design phase. The proposed project is essentiallythe initial phase of the Betterment Program, which in turn represents thelargest single element in the Second Plan DGH Development Program.

4.02 In addition to the Betterment Program, the DGH Development Programincludes substantial amounts for replacing bridges which are on routes notcovered by the Betterment Program and which have collapsed or are in dangerouscondition, and for some major new roads. It also includes allocations forrehabilitation and maintenance. Details of the DGH Development Program, in-cluding the Betterment Program, are given in Annex 2. The Government andthe Bank have agreed that the Betterment Program, which accounts for about40% of total DGH development expenditures in the Second Plan (Table to Annex 2)and requires complex technical-economic analysis, is particularly appropriatefor Bank financing. The proposed loan (US$130 million equivalent) repre-sents almost 10% of the total cost of the DGH Second Plan Development Program.Bridges and major new road construction are intended for bilateral assistanceprimarily, while rehabilitation and maintenance will be financed mostly fromlocal funds.

4.03 The new directions which the Government has adopted for its high-way operations respond to the rapid increase of traffic in recent yearson the country's main roads and the accelerating growth of the economy.The approacb adopted by the Government is intended to address the main prob-lems of the highway subsector: modernizing the main roads and bridges tocater to the larger vehicles which now are in common use and to increase theircapacity to handle growing traffic; strengthening the principal functions ofthe country's highway authorities, particularly highway planning, constructionand maintenance; expanding the capacity of indigenous consultants and con-tractors to assume increased responsibility for highway works in Indonesia;and decentralizing highway operations as they increase in scope and complexityand grow beyond the managerial capacity of a small organization located in thecapital. The Government's approach represents an integrated effort to solveone of the main problems on the path to its economic development.

4.04 The DGH Second Plan Development Program is ambitious and willplace great demands on DGH and other highway authorities and on the engi-neering design and construction capacity of the economy. Consultants wereretained by DGH to review the constraints to the accomplishment of its targets;they determined that these targets could be met provided suitable measures weretaken to mobilize the necessary resources, particularly in manpower. Inaddition to large-scale reliance on expatriate contractors and consultants,DGH is now giving or organizing short-term training courses for Indonesian

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project officers and resident engineers, inspectors and technicians andequipment operators; because of the urgency of this need, training was arrangedimmediately by DGH and without Bank financing. DGH also plans to review theprogress of the Program continuously to identify and remove bottlenecks asthey occur and to readjust the Program as required. The project includes amanagement consultancy and a monitoring consultancy to DGH (para 4.18) whichwill assist in Program implementation and review. Assurances were obtainedfrom the Government that DGH will undertake a semi-annual review of theProgram's execution and furnish the Bank with the results of the review forcomment. Achievement of the Program's targets will require substantialfurther increases in allocations for highways in the Development Budget andthe Government indicated that it was likely such allocations would be available.In this connection the Government confirmed that if difficulties arose inproviding funds for the Program (other than the Project, for which the Govern-ment is obligated to provide all necessary funds), it would review the effectof the shortfall of funds on the Program (Annex 2) and inform the Bank. TheGovernment thus has made reasonable provision for the orderly execution ofthe DGH Program and for adjustments in that Program as required. The fore-going reviews will also ensure that implementation of the proposed Bankproject will be coordinated with execution of the overall DGH Program.

4.05 While the project is not, strictly speaking, a highway sector loan,it does stress many of the features of sector lending (see PRC/C/75-3 datedJune 2, 1975, circulated to the Executive Directors on June 27, 1975), suchas comprehensive institutional development and establishment of general criteriafor deciding on the techno-economic merits of subprojects. The projectconcentrates on the most critical issues and constraints and will providean initial analysis of these problems, to be followed up by further, moreintensive work in subsequent stages. It provides for preparation of follow-on Bank projects along similar lines in the future. Nevertheless, it will besome time before the efforts to strengthen the institutions in the highwaysector bear fruit; when this has been accomplished it would be appropriateto consider lending on a sector or subsector basis.

B. Description

4.06 The project comprises the following elements:

(a) About 1,100 km of road construction, including bridge repairand replacement, and supervision by consultants, of twopackages about 550 km each; the first package has beenidentified; feasibility and engineering studies are wellunderway from which the second package will be selectedand the roads so selected will be approved by the Bankafter the Executive Directors have approved the loan,but not later than December 31, 1976 upon submission ofsuitable feasibility studies, detailed engineering andthe results of bidding for each section;

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(b) screening-feasibility studies 1/ of about 7,000 km of

roads for betterment;

(c) detailed engineering of about 4,1D0 km of roads forbetterment located in Sumatera, Java and Bali selected

from (b) above;

(d) detailed engineering for a 70 km multi-lane highwayfrom Jakarta to Cikampek on the island of Java;

(e) studies and similar measures to strengthen Indonesia'shighway authorities in selected activities at DGH head-quarters and at four regional DGH betterment officeslocated in Sumatera and Java, and at the provincial levelin Sumatera and Java (including Bali);

(f) studies of vehicle weights and dimensions and road usercharges and highway legislation; and

(g) procurement of equipment to strengthen Indonesia's high-way authorities in selected activities, in particularthe ongoing DGH training program and the program toimprove traffic data collection and analysis.

The location of the roads to be constructed and identified thus far andof the Jakarta-Cikampek road is shown on the maps. All the foregoingitems will be assisted by Bank financing except for certain parts ofitems (b), (e) and for (g) as noted below.

(a) Construction of about 1,100 Km of Rad Improveents

4.07 Improvements in the first package are located in Sumatera, Java,

Bali and Sulawesi; and those in the second package will be located on the

islands of Sumatera and Java. Two of the roads of the first package adjoin

construction projects currently under way with financing by the Bank Group

(Map). The improvements which are concentrated on main highways consist pri-

marily of pavement reconstruction or strengthening work with some widening of

carriageways, widening and strengthening of shoulders, and minor adjustmentsto vertical and horizontal alignments. In addition, drainage is being

1/ The screening process will provide: (a) on the basis of a field reviewand engineering sufficiency analyses of existing roads, recommendationson whether or not a road needs improvement and on whether or not more

intensive investigations, that is, full feasibility studies, are war-

ranted in particular cases; (b) criteria for proceeding with detailedengineering of improvements which are found to be warranted on thebasis of (a); and (c) full feasibility studies for improvements which

will require more intensive investigations (estimated at about 20%

of the roads to be screened).

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improved, weak bridges are being replaced or strengthened and narrow bridgesare being widened in some instances. Improvements are being designed gene-rally to Class II C or III design standards (Table 4 and para 3.02). Furtherdetails describing the individual roads included in the first package arein Annex 3. As a result of the improvements, the pavement surfaces will nolonger be subject to rapid deterioriation and the traffic carrying capacityof the roads will be increased significantly.

4.08 Road improvements for about 2,100 km of roads are being studiedand designed by the consultant, Lyon Associates, Inc. (USA) in associationwith the local firm of BIEC (Lyon-BIEC) under financing from Credit 388-IND. These roads were selected for detailed study on the basis of theirhigh priority for improvement, determined by traffic volume, condition ofroad and general potential for regional development (para 4.01). Feasibilitystudies and detailed road and bridge designs have been completed for 550 km(the first package) out of the 2,100 km and are satisfactory. An additional1,550 km are being studied and designed by Lyon-BIEC from which a second 550km package of highest priority roads will be selected for inclusion in theproject.

(b) Consulting Services (see Annex 4 for further details and man-monthestimates):

Supervision of Construction

4.09 DGH proposes that supervision of construction of the road in Sula-wesi be provided by Pacific Consultants International (Japan), who are alreadysupervising construction of the adjoining road works being financed underCredit 388-IND; this would be an acceptable arrangement as the firm is per-forming satisfactorily. DGH has established four regional offices (para 3.08),Medan and Palembang in Sumatera for works on that island, and Bandung andSurabaya in Java, which will be responsible for supervision of works on theislands of Java and Bali. Each of these offices, which will be assisted byconsultants has as its initial task the supervision of road betterment worksincluded in this project 1/. The offices are intended to handle road better-ment works which are beyond the capability or capacity of the DPUPs. As thecapabilities and capacities of the DPUPs to execute such works (construction,design and feasibility studies) increase, DGH intends to transfer responsi-bility for these works to the DPUPs; the regional betterment offices there-fore represent transitional institutions in the devolution of road bettermentsto the DPUPs. The initial staffing arrangements for these offices are in-dicated in Annex 4.

4.10 Consultants for each of the four new regional betterment officeswill be a combination of foreign and local firms which are to provide notonly the supervision services referred to in para 4.09 above but also pre-liminary engineering and detailed design services described below (paras

1/ The firms will also assist in carrying out preliminary and detailedengineering work as described in paras 4.12-4.14.

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4.12-4.14). This combination of consultancy services is expected to yieldsignificant economies in the cost of these services. While the capacityof Indonesia's consulting industry is limited, particularly in highway engi-neering (para 3.11), resources are available to make substantial contributionsto each of the four new DGH regional betterment offices. DGH has expectations,which appear reasonable, that an increasing share of the work will be carriedout by Indonesian personnel during later phases of the implementation of theBetterment Program. The domestic capacity for designing highways should thusbe substantially augmented.

Screening-Feasibility Studies of 7,000 Km of Roadsfor Future Road Improvements

4.11 An initial review by DGH assisted by the HPAT identified about13,000 km of road links as potential candidates for betterment. About2,100 km of this amount are being studied by DGH assisted by Lyon-BIEC(para 4.08). Another 3,900 km have been or will be reviewed by DGH itselfor with the assistance of various expatriate consultants not financed underthe proposed loan.

4.12 The remaining 7,000 km are to be subject to screening-feasibilitystudies by DGH personnel with the assistance of an expatriate consultingfirm working out of DGH headquarters. Roughly 4,500 km of these 7,000 kmof roads are located in Sumatera, Java and Bali and 2,500 km are elsewhere inIndonesia. Screening-feasibility studies for the 4,500 km of road improve-ments in Sumatera, Java and Bali will be based on preliminary engineeringto be carried out by the four new DGH regional betterment offices assistedby the same consultants as for construction supervision (paras 4.09 and 4.10).For the 2,500 km of roads elsewhere in Indonesia, preliminary engineeringwill be carried out by DGH, possibly assisted by DPUPs and consultants, andfinanced entirely outside the proposed loan. This work will ensure thatthe screening-feasibility consultant can complete his full tasks.

Detailed Engineering of 4,100 Km of Roadsin Sumatera, Java and Bali

4.13 It is expected that as a result of the activities described inparas 4.11 and 4.12 detailed engineering will be required for about 10,000km of roads as follows, of which 4,100 km is to be covered under the proposedproject:

(i) 1,400 km in various parts of Indonesia by DGHassisted by Lyon-BIEC, based on Lyon-BIECfeasibility studies;

(ii) 3,000 km in various parts of Indonesia by DGH's centraldesign office, based on prior studies by DGH itself;

(iii) 1,500 km in islands other than Java, Sumatera and Bali,by DGH's central design office, based on work of thescreening-feasibility consultant;

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(iv) 4,100 km in Java, Sumatera and Bali by the four DGHregional betterment offices, with the assistance ofthe screening-feasibility consultant.

The work under (i) will be completed by the middle of 1976 and the work

under (ii) can and will be handled as part of the normal workload of the

DGH central design offices. The work under (iii) represents the follow-up

for Bank-financed screening-feasibility activities in islands outside Java,

Sumatera and Bali, and the Government will assume responsibility for arranging

this work and will report on progress in connection with the semi-annual re-

view of the overall DGH Development Program (para 4.04).

4.14 The detailed engineering work of the four regional betterment offices

((iv) above) based on screening-feasibility studies of 4,500 km (para 4.12),

will use the design criteria formulated by DGH with the assistance of the

screening-feasibility consultant and also take into account those developed

by Lyon-BIEC. The completed work will be reviewed by DGH and the screening-

feasibility consultant to ensure consistency among the four regional better-ment offices.

Detailed Engineering of Jakarta-Cikampek Road (70 km)

4.15 Studies have been completed in January 1976 (submitted to the Bank

during negotiations) by Arge Intertrafflc-Lenz-Consult (Federal Republic ofGermany) of the road facilities on the heavily trafficked corridor immediately

east of Jakarta toward Surabaya which suggest the need for multi-lane highway

improvement. The Jakarta-Cikampek segment of about 70 km, a high prioritylink, had originally been proposed by the Indonesian Government for financing

by the Bank. Since then, the Government of Saudi Arabia has expressed in-

terest in financing construction of this road, provided the Bank would ap-

praise and administer the project. No final decision has been reached con-

cerning financing by Saudi Arabia. The Government has requested the Bank to

provide financing under the proposed Fourth Highway Project for the detailed

engineering of a multi-lane road as shall be mutually agreed to be technically

and economically feasible. After detailed review of the studies by the Bank,

DGH and the Bank will endeavor to formulate an agreed basis for detailed

engineering and to prepare appropriate terms of reference. Bank financing

for detailed engineering has been requested with the understanding that Saudi

Arabia would be asked to finance the construction of the highway with the

Bank acting on behalf of that Government to carry out project appraisal and

supervision or, if financing cannot be arranged with Saudi Arabia, the Bank

would be asked to include it in a future project.

Support of other Selected Activities ofIndonesian Highway Authorities

4.16 DGH has identified certain critical areas in its own organization

and that of other highway authorities in Indonesia which require strength-

ening if the objectives of Indonesia's greatly expanded effort in the high-

way sector are to be achieved (see Annex 4). Planning will be improvedwith the assistance of the HPAT and financed entirely by the UNDP and DGH

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(paras 2.09, 3.04 and 3.12); the UNDP advisors are also to assist DGH inthe management and maintenance of its equipsent which is being augmentedby large-scale purchases of road building equipment financed partly by theGovernment and from bilateral aid.

4.17 DGH has identified other areas of particular importance in themanagement of Indonesia's highway activities such as improvement of theoperations of the DPUPs, particularly highway maintenance, and mobilizationof the consulting and construction industries (paras 3.07, 3.08, 3.13-3.15).Accordingly, DGH will undertake, with the assistance of management consultants,studies on these subjects, and the Government agreed that on the basis ofthese studies, DGH will prepare and carry out action programs to improvemaintenance operations in each province and that DGH intends to formulatemeasures for the development of the consulting and construction industries.In addition, the Government agreed on an initial DGH action program to im-prove, with the assistance of management consultants, other aspects of DGH'sorganization and management activities such as budget formulation and control,training program management and construction program management (paras 3.07and 3.16). These programs will be revised periodically in conjunction withthe semi-annual reviews of the DGH Program (para 4.04).

4.18 DGH will engage an expatriate consulting firm, with a strongmanagement orientation, to assist in the foregoing tasks. The consultantswill participate: by providing individual experts for particular DGH functionsor officers (e.g., expert for the Director-General on budgetary control andmanagement, expert for the Director of Construction on construction manage-ment, experts for the Secretary of DGH on the staff training program), byparticipating as part of DGH study teams (most importantly the studies ofDPUPs), and by undertaking studies (e.g., vehicle weights and dimensions androad user charges - paras 2.11, 4.19). Another expatriate firm will be en-gaged by DGH to assist a special DGH Monitoring Team (in the Office of theSecretary) to monitor important DGH activities, particularly the work of allconsultants related to the project. The consultants employed for the DGHregional betterment offices (para 4.09), in addition to their other duties,will advise on a limited scale the DPUPs in their regions in assuming addition-al responsibility for highway construction activities.

Studies of Vehicle Weights and Dimensions,Road User Charges, and Highway Legislation

4.19 Due to the expansion of the motor vehicle fleet, the likely rapidimprovement of roads and bridges and changes in oil prices, a combined studyof vehicle weights and dimensions and road user charges will be made (paras2.11 and 4.18). The study will make recommendations of the contributions thatshould be made by various classes of vehicles to the construction and main-tenance of the highway system. An additional study will be undertaken toreview the administration and enforcement of the Indonesian legislation relatedto highways, and determine the requirements of and draft a program for thedevelopment of the legal section within DGH. The management consultant at DGHheadquarters will carry out these studies.

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(c) Equipment to Strengthen Selected Functions ofIndonesia's Highway Authorities

4.20 Several DGH programs are being expanded to strengthen the opera-tions of the highway authorities, including its staff training and trafficdata collection programs (paras 3.04 and 3.16). The expanded trainingprogram will require slide projectors and vehicles for use by ProvincialTraining Officers when visiting training sites. The improvement of trafficdata collection will be assisted by training provided by the HPAT. Inaddition to manual traffic counts, traffic counting machines are neededfor densely travelled road sections, particularly on the island of Java.The establishment of 10 counting patrols is proposed by DGH and the HPAT,which will require, in addition to traffic counters and computation equipment,a number of vehicles to service the counters in the field. The projectincludes the purchase of the equipment which DGH intends to import; thepurchases will be financed entirely by the Government. A list of the equip-ment above is given in Annex 5.

C. Cost Estimates and Foreign Exchange Component

4.21 The total cost of the project, including contingency allowancesand land costs, is estimated at about US$234 million, with a foreignexchange component of US$150 million, or 64%. The base for all projectcosts is February 1976. Details are shown below separated into thoseelements proposed for Bank financing and those not proposed for Bank financing.All costs were reviewed and confirmed during negotiations.

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7. ForeignExchange

Local Foreign Total Local Foreign Total Component(Rp Billion) T (US$ Million)

A. Elements Proposed for Bank Financing

I. Road Construction, Including Bridges

(a) First Package of about 550 km

(i) Padang-Sawahtambang (80 km, Sumatera) 2.4 5.7(ii) Tebingtlnggi-Rantauprapat (210 Ica, Sumatera) 12.9 31.0(iii) Denpasar-Gilimanuk (122 km, Bali) 5.3 12.8(iv) Kotamobagu-Inobonto (37 km, Sulawesi) 1.4 3.4(v) Cileyuni-Nagreg (22 km, Java) 1.6 3.8

(vi) Probolinggo-Lumajang (43 km, Java) 1.4 3.5(vii) Jember-Bondowoso (33 km, Java) 1.2 2.9

Subtotal 7.9 18.3 26.2 18.9 44.1 63.0 70*

(b) Second Package of about 550 km 7.9 18.3 26.2 18.9 44.1 63.0 70**

Total I 15.8 36.6 52.4 37.8 88.2 126.0 70

II. Services in Support of Selected Activitiesof Indonesian Highway Authorities

(a) Supervision of I 2.1 2.6 4.7 5.0 6.2 11.2 55(b) Screening-Feasibility Studies 7,000 km of Roads for

Betterment and Review Final Designs in II(c) 0.3 0.4 0.7 0.4 1.1 1.5 73(c) Preliminary Engineering of 4,500 km of Roads from

11(b), followed by Detailed Engineering of 4,100 kmof Roads Selected from the 4,500 km 1.7 1.9 3.6 4.2 4.5 8.7 52

(d) Detailed Engineering for Jakarta-Cikampek Road (70 km) 0.3 0.6 0.9 0.6 1.5 2.1 70(e) Management Improvement at DGH HQ and of DPUPs, In-

cluding Monitoring of Consulting Services 0.3 1.0 1.3 0.8 2.3 3.1 75(f) Studies of Vehicle Weights and Dimensions, Road

User Charges and Highway Legislation 0.1 0.1 0.2 0.1 0.3 0.4 70

Total II 4.8 6.6 11.4 11.1 15.9 27.0 59Total I-II 20.6 43.2 63.8 48.9 104.1 153.0 68

Contingencies

Physical (10%) 2/ 2.0 4.3 6.3 4.9 10.4 15.3Price (29%) 3/ 6.3 13.9 20.2 15.0 33.5 48.7

Total Contingencies 8.3 18.2 26.5 20.1 43.9 64.0 68Total A (including contingencies) 28.9 61.4 90.3 69.0 148.0 217.0 68

B. Elements Not Proposed For Bank Financing(including contingency allowances)

I. Preliminary Engineering of 2,500 kmof Roads from A(II)(b) 4/ 0.3 0.3 0.6 0.8 0.6 1.4 42

11. Assistance of the UNDP HPAT for Highway Planning 5/ 0.1 0.3 0.4 0.2 0.7 0.9 75III. Equipment in Support of Programs for Staff

Training and Traffic Data Collection and Analysis 4/ - 0.3 0.3 - 0.7 0.7 100IV. Land Acquisition for A(I) 4/ 5.8 - 5.8 14.0 - 14.0 0

Total B 6.2 0.9 7.1 15.0 2.0 17.0 12Total Cost of Project 35.1 62.3 97.4 84.0 150.0 234.0 64

1/ Rp costs which relate to US$ costs may not correspond exactly due to rounding of numbers.2/ 10% on all items.3/ For construction (including physical contingencies): 12% p.a.

For services: 15% on total (including physical contingencies).4/ Financed entirely by the Government.5/ This relates solely to UNDP HPAT and financing is being prdvided entirely by the UNDP and the Government.

* Foreign exchange components for individual road sections vary from about 68% to 72% and average 70%.** It is assumed that the average foreign exchange component for the second package will

be similar to that for the first package.

March 1976

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4.22 Cost estimates for construction of the seven road sectionscomprising the first 550 km package of roads are based on quantities derivedfrom completed engineering and on international tenders received for fiveof them in January and February 1976. These tenders are in the processof evaluation and the cost estimates take into account the likely value ofthe eventual contract awards. Cost estimates for the second package arebased on the assumption that the average costs per km will correspond roughlyto the first package of 550 km. Cost estimates for various consultingservices are based on a detailed review of man-months and related equipmentrequirements, unit costs for similar work or studies in Indonesia and onproposals received from consultants for a number of the required services;approximately 2,200 man-months of expatriate services and 7,100 man-monthsof Indonesian services are to be provided (Annex 4). The average man-yearcost for a consultant expert, including the costs of related equipment,materials and travel, is about US$25,000 equivalent for an Indonesian andUS$70,000 for an expatriate. Land acquisition costs were assessed by DGH.All these estimates are reasonable.

4.23 A contingency allowance of 10% has been added to cover quan-tity increases on all items and an average of 29% has been included forprice escalation of construction and consulting service costs during imple-mentation of the project. These allowances are considered adequate.

4.24 The average foreign exchange component of individual road construc-tion works has been assessed by the design consultants and ranges between 68and 72%; the average is 70%. The foreign exchange component for constructionis higher than the 65% estimated for the Second and Third Highway Projectsbecause the proportion of paving works is greater and the cost for importedasphalt for paving 1/ has increased more significantly in the last two yearsthan other foreign exchange costs in highway construction. This componentalso takes into account, as with previous highway projects that only a fewdomestic firms are presently capable of carrying out the project workswithout joint venturing arrangements with expatriate firms and consequentlymost contracts will be won by expatriate firms or local firms in joint venturewith expatriate firms. The foreign exchange component of the various con-sulting services ranges from 42 to 75Z and the estimate has been based on ananalysis by DGE of the local and foreign inputs for each type of service, onBank experience in Indonesia and elsewhere and on consultants' proposalsreceived by DGH for many of the services. These foreign exchange estimatesare reasonable.

D. Financing

4.25 The proposed loan of US$130 million equivalent will cover 60%of the total cost of the project elements proposed for Bank financing (para4.21) and represents about 88% of the foreign exchange component of such cost.

1/ Although Indonesia is an exporter of crude oil, it has limited refiningcapacity and remains a net importer of oil products such as pavingasphalts.

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The Government will finance the remaining total project costs of US$104 mil-lion equivalent (which includes US$700,000 of financing expected from theUNDP, para 4.16) as part of DGH's annual development budget.

E. Implementation and Procurement

4.26 DGH assisted by qualified consultants will be responsible forproject execution. Except for the study of the Jakarta-Cikampek Road, termsof reference for consulting services, valued at about US$25 million equiv-alent in total cost, have been reviewed and agreed, and firms have been invitedto submit proposals. Contracts estimated at about US$18 million are underconsideration. No contracts for these services are expected to be signed beforeApril 1976. The Bank Group guidelines are being followed for the procurementof the required services and agreements for these various consultancies will beentered into under terms and conditions satisfactory to the Bank. In viewof the importance of the various consultancies to the prompt and effectiveexecution of the project, it was indicated to the Government during negotia-tions that a condition of effectiveness to the proposed loan would be thatall consultants, except for the detailed engineering of the Jakarta-Cikampekroad, have been employed and have taken up their posts in Indonesia. Mostconsulting services will begin in the first half of 1976 and will be completedaround mid-1978; however, construction supervision as required will continueinto the first half of 1980 to completion of construction and to permit pre-paration of final documentation and reports on completed road works.

4.27 Civil works will be carried out under unit-price contracts awardedafter international competitive bidding following Bank Group Guidelines forProcurement. Twenty-four suitably prequalified firms and joint ventures(domestic as well as expatriate) had been invited in mid-September and October1975 and submitted bids on five project road sections in January and February1976; these bids are being evaluated. Indonesian firms and eligible jointventurers will be given a 7-1/2% preference in accordance with Bank Groupguidelines. A further prequalification of contractors will be completed inJune-July 1976 for the second 550 km of roads. The bidding documents used todate have been agreed and contain appropriate provision for price adjustments,performance guarantees, etc. It is expected that by the end of March 1976,bids will have been invited for civil works valued at about US$59 millionequivalent of which tenders valued at about US$28 million will have beensubmitted and will be under consideration; however, no contract will besigned before April 1976. The last construction contract under the projectshould be signed by the end of 1976; allowing for contractor mobilization(averaging four months) and for contract periods of two and three years forthe various road sections, construction should be completed by the firstquarter of 1980. Placement of equipment orders to be financed by the Govern-ment should be completed in 1977. All civil works contracts will be enteredinto under terms and conditions acceptable to the Bank.

4.28 The maintenance of the improved roads will require new and bettermaintenance operations to protect the investments. Under the agreed biddingdocuments, the contractor on each road, who will become thoroughly familiar

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with local conditions, will be required to prepare an initial maintenanceprogram for the road for review and approval by the appropriate DGH regionalbetterment office and maintenance sub-directorate. Assurances were obtainedfrom the Government that it will cause the roads to be maintained in ac-cordance with the approved maintenance programs.

4.29 Major road works are carried out with a blend of labor and capitalintensive methods which give full recognition to the availability of low costunskilled labor in Indonesia, without undue sacrifice in the quality andcost of the works. The same methods will apply to the works to be financedunder the project. Many construction operations are labor-oriented, such asditch and shoulder excavation, minor to medium shoulder strengthening (crushingand placement of stone), minor earth cuts, and bridge and culvert construction.The scale of the project will make a significant contribution to employmentcreation; US$1 million of construction work is estimated to provide 100man-years of skilled jobs and about 100-500 man-years of unskilled jobs,depending on the nature and location of the work.

4.30 The project is not expected to have any significant adverse ecolo-gical effects. The works are being designed to provide adequately for drainageand for paving of shoulders when appropriate, to avoid flooding and erosion.Location of the improvements is largely on existing alignments and thus minimizingthe requirements for additional land and disturbance to property. Land ac-quisition will be sufficiently completed for each highway section in theproject before a contract for construction is awarded to permit timely com-mencement of construction.

4.31 An initial implementation schedule for the project's majoractivities was agreed with the Government and is given in Table 8. Due tothe size and complexity of the project, the DGH Monitoring Team assisted bythe monitoring consultancy (para 4.18) will play a key role in the overallsupervision of the project, including the preparation of detailed monthlyreports for DGH on all project related activities. In addition, the Bankplans to engage short-term specialists to assist it in the review of thelarge number of studies which will be prepared by the management and screeningconsultancies.

F. Disbursements

4.32 An appropriate contribution by the Bank towards the total costof the project elements proposed for Bank financing would be 60% of thiscost. Most of the items in the project, representing the bulk of its cost,have foreign exchange components in excess of 60% while no individualitem has a component of less than 42%. In view of this fact and the largenumber of contracts which will need to be administered under the project, itis proposed that a uniform 60% disbursement rate be applied to each itemproposed for financing under the project. Based on this disbursement per-centage and on the forecast for completing the various project elements(paras 4.27 and 4.28), a Schedule of Estimated Disbursements (Table 9) has

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been prepared. It is expected that the costs to complete the project (con-struction, services and contingencies) will be well established by the endof 1976, the time when the second 550 km package of roads is to be agreedfor inclusion in the project (para 4.03 (a)). Should the Bank's share ofproject costs at that time be less than the amount in the loan account, thissurplus would be used to help finance additional high priority roads selectedand approved at that time under the same arrangements as for roads in thesecond 550 km package.

V. ECONOMIC EVALUATION

General

5.01 The basic thrust of the DGH Betterment Program is to improveroads which were originally designed to carry a small number of lightpre-World War II vehicles and now must accommodate a much larger volume ofheavier traffic. The aim is to avoid repeated repaving works by providingroads with pavements designed for heavier loads and to further reduce vehicleoperating costs by selective improvements such as widening of carriagewaysand shoulders. Directly measurable development benefits for the firstpackage will be small and the improvements can be justified on the basis ofcost savings alone; this will probably also be true for most of the secondpackage although development benefits may be significant in some of thelatter group.

5.02 The Betterment Program responds to the rapid increase in motorvehicles over the past several years and the consequent expansion oftraffic especially on trunk roads. It will cover high priority road linksselected on the basis of traffic volume, condition of road and generalpotential for regional development (para 3.12). The Program takes fulladvantage of the recently increasing capacity of DGH to design and administerlarge-scale highway construction, a capacity which is not yet developed atlower levels of administration. The Program thus represents the best useof the present resources in Indonesia's highway sector. However, theGovernment is laying the groundwork for a shift of emphasis to secondaryand tertiary roads. It has instituted the INPRES Program which is beingused primarily to improve Kabupaten roads (para 3.09). It is reclassifyingits roads on the basis of traffic rather than administrative responsibility;it is planning to complete a 20-year highway plan down to the level of majorfeeder roads for all roads in the country (para 3.12); it is making effortsby various means to strengthen the administrative capacity of the DPUPs; andfinally, it is developing with the assistance of the ADB a pilot program toimprove all parts of the road network for one area in East Java.

5.03 With the gradual improvement of the main roads under the Better-ment Program, labor intensive forces, which presently are engaged in pro-viding these roads with frequent repavings of limited life, will be releasedfor other works, particularly rehabilitation of secondary roads with lower

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traffic volumes where simple pavement construction is more economical. TheProgram will thus contribute in a substantial way to betterment of otherparts of Indonesia's road network.

Method of Analysis

5.04 Road sections included in the project were selected on the basisof their high priority as established in the nationwide survey of highwaylinks (para 4.01). Although every road section included in the project hasbeen or will be subject to a separate feasibility study by consultants, theintensity of study necessarily is adjusted to the large volume of work to beaccomplished. The consultants' work has been reviewed in detail for the firstpackage of roads and, as a result, a simplified analysis procedure is beingevolved which stresses the selection of engineering solutions with highnear-term returns. Criteria are also being developed for application torecurring design problems such as widening of bridges and paving of shoulders.Reductions in vehicle operating costs from the improvements are estimated torange from about 15 to 30% and under the conditions encountered so far willhave only a limited effect in diverting or generating traffic. The roadsare not likely to compete with established transport facilities; where a rail-way line is close to a project road, a division of traffic between the modesaccording to distance and commodity already exists and is unlikely to change.Immediate development effects resulting from road improvements are judged tobe limited because reductions in transport costs will not be large enough tocreate entirely new economic activities. Accordingly, no separate projectionsare made for this type of traffic and no distinct quantification of benefitsis made for such traffic in the analysis. However, the selection of roadson the basis of regional development plans (paras 3.12 and 4.01) clearlyintegrates the project roads with the general development effort and ensuresthat road improvements will be made where they have the greatest potentialfor contributing to growth.

5.05 Annex 3 contains a brief description of each of the roads inthe first package and of proposed improvements. It also includes a benefit-cost calculation for each road (subdivided when appropriate into subsections)which is partly based on the consultants' work but which concentrates ononly the most significant factors in the analysis; a sunmmary table of costsand benefits is attached to Annex 3. The benefits and costs are comparedon the basis of continuing the present system of heavy deferred maintenanceas against the proposed improvements. The two principal alternatives arethe most viable ones selected from a larger number of possible courses ofaction.

5.06 Even though investments under the Betterment Program will in sub-stantial part last for 20 or more years, the Program concentrates on obviousdeficiencies which can be remedied by stage construction without unduly longcommitments to a particular facility. For this reason and to simplify theanalysis, the ERR calculations have been limited to 10 years after completionof the improvements. To give recognition to the residual value of the assets,the analysis includes a salvage value in the tenth year after completion ofconstruction equal to one half the initial investment, which typically is

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between one and two times the total vehicle operating costs savings in theninth year and thus represents a conservative estimate of the continuedeconomic value of the improvements. The extended residual life of the as-sets also forms the basis for the recommended term of 25 years for the pro-posed loan which wQuld allow for repayment of principal in roughly 20 yearsafter construction is completed.

5.07 Pavement improvements, the largest single element of cost, will beconstructed in stages, which will provide for an initial design life of10 years but will allow for extending the life of the subbase and base

with additional investments, such as overlays. In many cases, furtherimprovements (including sometimes construction of new alignments) are likelyto become economically justified by the end of the 10 years. The Programthus allows for flexibility in the choice of future investments as morecomprehensive long-range road plans become available. The 10-year periodalso corresponds roughly to the time when the operating costs on the existingunimproved facilities would have reached very high levels and would havemajor effects on operating cost savings and on traffic growth. In one case(Cileyuni-Nagreg), this point is reached before the end of the 10 yearsand the analysis makes appropriate adjustment for the capacity constraint.Finally, the 10-year period recognizes that the comparison between reconstruct-ing the road and continuing the present system of frequent pavement rehabili-tation cannot be continued indefinitely; in due course the road will becomestabilized structurally and the costs associated with frequent repavings willdecrease.

Traffic Forecasts and Benefits

5.08 Each of the roads in the first package is projected to experi-ence high growth of passenger car and truck traffic over the near andmedium term, at an estimated rate of 12% p.a. until 1978 and 10% p.a.thereafter. (In one case, capacity constraints may intervene to reducethe rate of growth after the initial period.) Passenger cars includenot only automobiles for private use but substantial numbers of cars carry-ing persons for hire and minibuses and pick-ups converted for passengerservice. Historical traffic data for the road sections, though onlyavailable for a few years and probably containing some inaccuracies,point to a strong increase in car and truck traffic in the very recentpast, frequently considerably more than 15% p.a. While the projected rateof increase of 12% p.a. slightly exceeds the combined national growth incar and truck registrations (Table 5), the road sections are major trunkroutes in their areas which would attract a larger share of additional traf-fic. The consultants also have supported these traffic projections byforecasts of additional commodity flows and of increases in population andincome in the influence areas of the roads. Two roads, Padang-Sawahtambangand Kotamobagu-Inobonto, are linked to two major development roads nowbeing built under IDA finance (Credits 260-IND and 388-IND) and areexpected to benefit from exceptional traffic increases once these schemesare completed. The 12% growth rate for cars and trucks is expected todecline somewhat to 10% p.a. as the surge in income from the increase inoil revenues works itself through the economy.

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5.09 Bus traffic is generally projected to grow slolwy, about 3% p.a.which reflects the historical trends and the limited market for this typeof service. Two road sections have much higher growth in bus traffic wherelocal settlements are sparse and long distance service offers profitableemployment for large buses. A growth rate of 5% p.a. is used where roadshave high traffic volumes and buses can take advantage of economies of scaleand partly replace minibuses.

5.10 The main benefits included in the analysis are savings in avoidedrepaving expenses and related vehicle operating costs as the pavement deter-iorates and is repaired. Savings in vehicle operating expenses are also attri-buted to widening of carriageways and improvement in shoulders. Other bene-fits are expected to result from the proposed improvements but have not beenincluded in the analysis because they either are small or uncertain in amount:realignments and grade improvements (these are mostly minor in the proposeddesigns), bridge improvements, travellers' time savings, reduced accidentcosts, and reduced operating costs for motorcycles and non-motorized traffic.Savings in road maintenance costs beyond the repeated costs of repaving areexpected to be of little significance. Bridge works, ranging from about 5 to20% of the costs in the various sections which primarily replace bridges indanger of collapse but also include some other bridge improvements, can havesignificant benefits in permitting the safe passage of heavier loads, inavoiding slow-downs where the bridge is widened and in avoiding the cost ofinterrupted traffic if a bridge collapses. DGH is developing economic criteriato analyze the return on various bridge works; meanwhile, bridge improvementshave been designed for these road sections primarily on the basis of engineeringjudgement and no special economic benefits have been considered for themin the analysis although the costs of bridges were included as part of theroad costs.

Results of Analysis

5.11 The best estimate of the economic rates of return (ERR's) calculatedon the foregoing bases ranges from 12 to 29% and reflects the bulk of thebenefits; however, these would increase by a few percentage points if allbenefits were taken into account. The sensitivity of the ERR's to changesin construction cost of + 15% and changes in benefits of ± 25% indicate thatin most cases the lowest value is 10% or above and that the ERR may be as highas 36%. On 3 sections or subsections analyzed out of 13, the low valueranges from 7 to 9% and the high value from 16 to 20%. These sections or sub-sections serve as links to roads being financed under existing IDA credits(para 5.08) and may help to generate additional traffic on those roads. In viewof the foregoing the ERR's for all roads are considered satisfactory andthe proposed improvements economically justified. Individual ERR's aregiven in Annex 3 and the average ERR on the first 550 km package is 19%.

5.12 The consultants' analyses for each road section consideredseveral levels of carriageway widening and shoulder improvements and thedesign selected was the optimal alternative for the particular case.Further empirical validations of the consultants' assumptions, particularly

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with regard to the behavior of traffic under Indonesian conditions, arebeing made to refine the analyses for use in other schemes under theBetterment Program. However, the major conclusions which emerge fromthe consultants' work are unlikely to be affected: the BettermentProgram should concentrate on sections which have a record of frequentpavement repair; among these, the most attractive schemes will have rela-tively low costs of construction and high traffic volumes; improvementsto be built concurrently with pavement strengthening should be consideredin each case but are likely to be limited in most cases to bridge worksand wider carriageways and better shoulders.

5.13 Although the initial 550 km did not include upgrading of very lowstandard tracks or roads with low existing traffic volumes, the second 550 kmmay include such works. These improvements would be based primarily ondevelopment benefits and may in some cases require analysis periods of morethan 10 years. In other respects, the review of the second package of roadswill be made along the same lines as for the first package. The range of ERR'sand the average ERR for the second package (which together with the firstaccount of 90% of the total project cost) is expected to be similar to thefirst package.

5.14 Discussion of the economic costs and the beneficiaries of theproject is contained in Annex 6.

Project Elements without Quantified Economic Analysis

5.15 These elements which account for about 10% of total cost and forwhich no meaningful ERR be estimated, are excluded from the average ERR givenabove (19%). Nevertheless, they have an important bearing on the executionof the Program and also lay the basis for improved future functioning ofhighway organizations at all levels of the Government, for upgrading the highwaynetwork and for fully exploiting its potential.

VI. RECOMMENDATIONS

6.01 During loan negotiations:

(a) satisfactory assurances were received on the followingprincipal points:

(i) The semi-annual reviews of the Second Plan DGHDevelopment Program which will provide the basisfor examining the progress of the Program on acontinuous basis and to identify and removebottlenecks as they occur (para 4.04);

(ii) the consultancy arrangements for the projectto ensure adequate supervision of construction,study and detailed engineering of future highwaybetterments, and to provide management advice toDGH (paras 4.04-4.19, Annex 4); and

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(iii) the major studies to be carried out under theproject, such as the study of DPUPs, the study ofvehicle weights and dimensions and road usercharges, and the study of the civil workscontracting and consulting industries (paras4.17-4.19);

(b) confirmation was obtained:

(i) on an initial DGH action program to improveselected aspects of DGH's management activities(para 4.17); and

(ii) on an initial implementation schedule for theproject (para 4.31, Table 8).

6.02 In view of the importance of the various consultancies for theprompt and effective execution of the project, a condition to the effec-tiveness of the proposed loan is that all consultants, except for the detailedengineering of the Jakarta-Cikampek Road, have been employed and have takenup their posts in Indonesia (para 4.26).

6.03 The project is suitable for a Bank loan of US$130 million tothe Republic of Indonesia for a period of 25 years, including a five-yearperiod of grace.

ANNEX 1Page 1 of 3

INDONESIA

FOURTH hIGHWAY PROJECT

Details of Transport Modes other than Highways

Railways

1. Railways are confined (with one minor exception in Madura) to twoislands: about 4,700 km on Java and 2,000 km on Sumatera. The railways,which were built during the 70 years prior to World War II to move primarycommodities to foreign markets, suffered with declining exports in the 1950'sand 1960's and, as with most public infrastructure in Indonesia, they wereallowed to deteriorate. Limited rehabilitation took place during the FirstFive-Year Plan and freight traffic recovered significantly, at about 7% p.a.in m ton-km, while passenger traffic after many years of decline is startingto shown an upward trend. Due to long neglect in replacing of over-ageassets and poor maintenance facilities, railway operations have remaineddeficient.

2. With better performance, the railway could continue to make an im-portant contribution to the economy, especially along high density freightcorridors in Java and on certain sections of the Sumatera railway networkand in moving the growing volumes of industrial bulk commodities. Accordingly,the railway has formulated a comprehensive program of modernization andrehabilitation coupled with technical assistance which formed the basis ofa Bank Railway Project (Loan 1005-IRD), in June 1974, and is presently beingimplemented. The proposed action program, which has recently started, includesacquisition of locomotives and rolling stock, improvement and modernizationof maintenance of assets, reorganization of management, further phased staffreduction and modernization of accounting. Important performance targetshave also been agreed: by 1979-80, the railway is to cover all operatingcosts including depreciation and earn a small return on investment (1-1/4%);average net train loads are expected to be increased in Java from 110 m tonsin 1973 to 162 in 1979 and car turn-around time reduced from 8.3 to 7.3 days.

Ports and Shipping

3. The country has about 300 registered ports scattered over thearchipelago, but 70% of traffic volume is concentrated in 10 of them. Portand customs procedures present the most serious impediment to transportflows in Indonesia and improvement thereto could result in significant in-creases in port capacity and a reduction in shipping costs. However, dueto institutional rigidities, major change will take a long time. Studiesof short-term port requirements have been completed by consultants, NEDECO(Netherlands), and main ports are being improved with assistance from theAsian Development Bank (ADB), the Netherlands and Japan. Preparation ofmaster plans for the ports of Surabaya, Belawan, Palembang and Panjang are

ANNEX 1Page 2 of 3

under way, financed by the the UNDP or bilaterally. A master plan study ofTanjung Priok (Jakarta), the largest general cargo port (handling about 30%of the country's total traffic in that category) has been completed by con-sultants, Swan Wooster (Canada), financed under IDA Technical AssistanceCredits (216-IND and 275-IND). Appraisal for a Bank loan to expand the capacityof this port is under way.

4. In 1974 vessels owned in Indonesia (excluding sailing craft) aggre-gated 1,055 units with a combined deadweight tonnage of 1,159,000. Abouthalf of this tonnage, but only a small fraction of the number of vessels,is in foreign trade with the remainder operating in domestic services andto Singapore. In addition, substantial tonnages of hire purchased and char-tered vessels operate under the Indonesian flag. After petroleum movements,the largest domestic maritime operations are provided by the companies of theRegular Liner Service (RLS) which accounts for half of domestic seaborne drycargo tonnage and is the Government's chosen instrument for providing serviceto the remoter regions of Indonesia. RLS services have been high cost andunreliable due to an overaged fleet, weak management and inordinately longport times.

5. A project was formulated in 1972 with IDA assistance (Credit 318-IND) to address the foregoing problems by providing funds for rehabilitationof run-down ships, encouraging the scrapping of obsolete units and providingfor improvements in ship and port operations. Further improvements alongthese lines are required as well as expansion of RLS tonnage; a second ship-ping project is currently being appraised for these purposes. Demand forshipping services which has been rising rapidly in recent years and is fore-cast to continue to go up in the future will thus be met both by increasingthe productivity of existing assets and by increasing the size of the fleet.The Government also plans to increase its subsidized "pioneer" 1/ servicesto reach the remotest parts of the country not covered by RLS.

River Transport

6. Commercial river transport extends to 10,000 km of navigablewaterways. The most important river traffic is logs. Fourteen rivers inKalimantan and Sumatera totalling 4,000 km were recently studied by con-sultants, Research and Development (Belgium), and the Government is in-stalling better navigational aids but no major improvement works are con-templated. The Government is also planning to expand "pioneer" servicesby river craft in some of the remote regions.

Pipelines

7. Pipelines are under the control of the state-owned oil company,Pertamina. A product pipeline from Cilacap to Jogjakarta is already inuse; another line from Cilacap to Bandung is presently under construction;when open it will divert significant amounts of petroleum products from the

1/ "Pioneer" services are those operated by the Government into remoteareas for purposes of national integration at subsidized rates.

ANNEX 1Page 3 of 3

railway. A gas gathering pipeline system was financed by IDA in 1972 inSumatera to supply gas for the PUSRI II fertilizer plant (Credit 193-IND)and will be extended to supply PUSRI III under Bank Loan 1089-IND. Anothergas line is under construction in Java to supply gas for the proposed WestJava fertilizer plant at Jatibarang and a steel plant near Merak.

Aviation

8. In 1972 about 95% of domestic civil air traffic movement in Indo-nesia passed through 27 airports (about one-third of these movements throughJakarta) and recent improvements were concentrated in these facilities topermit use by modern aircraft which could handle the rapid rise in trafficmost efficiently. As a result, 19 airports can now accept jets as againstonly 3 at the start of the First Plan. While landing fields have been im-proved, substantial deficiencies persist in aeronautic communications, navi-gational aids and air traffic control. In line with the rapid rise in traf-fic (nearly three times between 1968-1972), the capacity of the civil aviationfleet has been expanded and the types of aircraft diversified. The number ofplanes has, however, been reduced with the replacement of low capacity olderaircraft by more efficient equipment. Most of the needs in the aviation sub-sector are for equipment for which bilateral financing is likely to be avail-able. The Government is studying the construction of a new internationalairport for Jakarta and is presently reviewing a report on this subject byconsultants, Aviation Planning Services (Canada). During the Second Plan,the Government also intends to promote the construction of landing fieldsin the remote districts which will be provided with a subsidized serviceby low capacity aircraft.

March 1976

ANNEX 2Page 1 of 3

INDONESIA

FOURTH HIGHWAY PROJECT

Details of DGH Highway Development Program in Second Five-Year Plan

1. The DGH Highway Development Program for the Second Five-Year Plancomprises four main elements:

(a) New construction - covering about 1,100 km 1/;

(b) Betterment Program - covering about 13,000 kmof road links;

(c) a substantial contribution to maintenance andrehabilitation of the national and provincialnetwork; and

(d) Bridge Program - covering about 1,500 bridges.

The definitions of the Program elements are as follows:

(a) New Construction - a road where none existedbefore or where traffic on the existing roadin the corridor is up to the road's capacityand can best be accommodated by building aroad on a new alignment;

(b) Betterment - improvement to the existing road 2/where present traffic is either:

(i) beyond the geometric capacity of theroad; or

(ii) beyond the structural capacity of theroad;

geometric capacity is inadequate if there arehigh vehicle operating costs, congestion, hightransit times and low service levels; structuralcapacity is measured by excessive and frequentexpenditures to maintain rideability of the roadsurface; geometric and structural improvements willbe designed to cater for projected traffic;

1/ This is not the same 1,100 km covered by the proposed loan which arepart of the 13,000 km under (b) below.

2/ Includes all necessary bridge works.

ANNEX 2Page 2 of 3

(c) Rehabilitation - reinstatement works on existingroad lengths where betterments are not required(i.e., traffic is within the road's present geometricand structural capacity) 1/; and

(d) Bridge__roSraa 2/- replacement of selected bridgeswhich have collapsed or are in dangerous conditionor need greater traffic capacity.

The new construction and betterment programs will be mainly the responsi-

bility of DGH while the maintenance and rehabilitation programs and someof the bridge program will be the responsibility of the DPUPs. A summary

of physical and financial targets (the latter expressed in 1974 Rupiahs)for the DGH Development Program is contained in the table attached to this

Annex.

2. New construction represents a considerable number of roadsalready under way (about 500 km), including some major roads in the vic-

inity of Jakarta. In addition, construction of a further 600 km of new

roads is to begin over the next three years. Estimated cost per km ranges

from Rp 100 million to Rp 1,200 million (US$240,000 to US$2,900,000), with

an average of about Rp 400 million (US$960,000). Aggregate expenditures

for the plan are estimated at Rp 180 billion (US$435 million), to be fi-

nanced roughly one-half from the Rupiah development budget and one-halffrom foreign aid.

3. The Betterment Program is concentrated on roughly 140 linksaggregating 13,000 km which have emerged from a nationwide analysis,with the assistance of the HPAT, as the most important traffic corridors

in the next 10 years. A more detailed review of the road conditions in

each corridor is expected to reduce the length of roads which requireactual betterment works to about 10,000 km. Actual road bettermentscompleted by the end of the Plan are targeted to aggregate about 5,000 kmand another 2,900 km will likely be underway by that time and finishedin tne first two years of the following plan period. A further 2,100 kmwill not be started until after the end of the Plan. About 2,000 km were

underway by December 31, 1975. On the basis of an average cost per km

of Rp 40 million (US$96,000), the estimated cost of the Betterment Programin the Second Plan is Rp 260 billion (US$627 million) which represents an-

ticipated expenditures of Rp 200 billion (US$482 million) for about 5,000 kmof completed works and of Rp 60 billion (US$145 million) for 2,900 km under

1/ Also includes so called "support works", that is, essential road andbridge works to maintain traffic flow on road lengths where bettermentsare required but due to various constraints must be deferred.

2/ Excludes all bridge works on road links included in ttAe BettermentProgram, except for bridges in danger of collapse.

ANNEX 2Page 3 of 3

way. Of the total cost, it is expected that Rp 180 billion (US$435 million)will be financed from the development budget and Rp 80 billion (US$193 mil-lion) from foreign aid.

4. The DGH contribution to maintenance and rehabilitation work whichwill be executed by the provinces is estimated to aggregate about Rp 80 bil-lion (US$193 million) over the Second Plan, with Rp 60 billion (US$145 mil-lion) coming from the development budget and Rp 20 billion (US$48 million)coming from foreign aid.

5. The bridge program is based on an estimated average bridge lengthof 15 m or a total of 20,000 lineal m of bridges, partly one-lane and partlytwo-lane wide; in terms of one-lane bridges, the bridge works aggregate about30,000 lineal m; of this amount, 16,000 m will be completed by the end of theSecond Plan and 14,000 m will be under way. The estimated cost per lineal mof single-lane bridge is Rp 5.8 million (US$14,000). Total expenditures forcompleted bridges are estimated at about Rp 93 billion (US$224 million) andfor bridges under way about Rp 27 billion (US$65 million). Collapsed or dan-gerous bridges on betterment links will be included in most cases in the bet-terment schemes and the bridge program will therefore be in addition to bridgeworks included with road betterments. About two-thirds of the bridge programis to be financed by foreign aid.

March 1976

INDONESIA

FOURTH HIGHWAY PROJECT

Second Five-Year Plan Development Program of Directorate General of Highways(April 1974-larch 1979)

(Physical Targets (1974-79) Expenditure Targets (1974-79)Foreign Aid Agency Pesponsible

Total Dev. Already To be for ExecutionName of Program Total Completed Underway Expenditures Budget Total Arranged Arranged DGH DP-JP

-------- km------------)----------------Rp Billion------------------- ) {

New Construction 1,100 600 500 180 90 90 60 30 100 0

Betterment 10,000 5,000 2,900 260 180 80 50 30 80 20

Rehabilitation 14,000 14,000 0 )) 80 60 20 20 0 0 100

Maintenance 10,000 10,000 10,000 )p.a. p.a. p.a.

(------------m------------)

Bridge 30,000 16,000 14,000 120 45 75 10 65 80 20

TOTAL 640 375 265 140 125

Source: Directorate General of Highways

Note: Total expenditures include land acquisition, design and supervision costs CD

March 1976

ANNEX 3Page 1 of 13

INDONESIA

FOURTH HIGHWAY PROJECT

Description and Evaluation of First 550 Km of Road Improvements

Roads were divided into analysis sections based on terrain, traf-fic and economic characteristics. A brief description is given for eachroad and of the improvements proposed in each section. The consequent flowof costs and benefits are set out in the table to this Annex.

1. Padang-Sawahtambang

This road of about 80 km connects the capital of West Sumateralying on the coast with the Trans-Sumatera Highway presently under con-struction with IDA finance (Credit 260-IND). The road passes throughdiverse terrain (see details below) and has been divided into four sectionsfor purposes of analysis. The area of influence for the road is projectedto have rapid economic growth, particularly after completion of the Trans-Sumatera project. Substantial increases in rice production are anticipatedin the area and a cement mill and coal mine lying along the road plan majorinvestments during the Second Plan to expand output. By 1984, the outputat these facilities is estimated to reach over 1 million m tons, more thanthree times current levels and even though rail and ropeway will be themain means for moving the coal and cement, road traffic will increase fromsecondary effects of these changes. Exploration for coal with promisingpreliminary results is taking place in an adjacent area south-east of theroad and would create substantial additional traffic once the deposits aredeveloped. A railway which connects the termini of the road by a morecircuitous route is primarily a coal carrier; even if it were rehabilitatedfrom its present run-down condition, it is unlikely to divert much trafficfrom the road.

Section I (Padang-Indarung)

Length: 9.2 km

Cost per km: Rp 56.4 million

Traffic information:

ANNEX 3Page 2 of 13

Cars Buses Trucks

1974 ADT 959 119 328

Growth rate p.a., 1974-78, in % 12 12 12

Growth rate p.a., 1979-88, in % 10 5 10

Vehicle operating costs, Rp per vehicle-km:

Without improvement 48 114 96

With improvement 36 86 72

Savings 12 28 24

Rate of return, best estimate 26%

Rates of return, with sensitivity tests 20-32%

The section begins at the outskirts of the city of Padang (population about200,000) and continues to the entrance of the cement factory at Indarung.The terrain through which it traverses is generally flat to rolling. Thecarriageway will be widened from 5.5 to 7 m and earth shoulders of 1.5 mon each side will be strengthened with crushed rock. It is assumed that onaverage the existing pavement will require repaving bi-annually with existingmethods. 1/ With a 7 m wide pavement, the road should be able to carryprojected traffic until beyond the mid 1980's. At that time, furtherimprovements such as paving of shoulders may be required to cater to therequirements of this semi-urban area.

Section II (Indarung-Lubukselasih)

Length: 22.0 km

Cost per km: Rp 38.9 million

Traffic information:

1/ Existing paving methods (applied on all the project roads) involve theplacement of a layer of stone and grouting it with bitumen. While themethods used are labor intensive, quality control is difficult to achieve,materials are wasted and in any event this type of pavement is suitableonly for very light traffic. Under present traffic conditions on theproject roads, this method of repaving is uneconomic even if the costof unskilled labor were taken at less than market rates.

ANNEX 3Page 3 of 13

Cars Buses Trucks

1974 ADT 35 53 107

Growth rate p.a., 1974-78, in % 12 12 12

Growth rate p.a., 1979-88, in % 10 5 10

Vehicle operating costs, Rp per vehicle-km:

Without improvement 62 152 126

With improvement 50 124 102

Savings 12 28 24

Rate of return, best estimate 15%

Rates of return, with sensitivity tests 9-20%

This section serves as a link between the coastal plain and the inlandplateau and surmounts the sharp escarpement separating the two areas. Ithas steep grades and numerous curves and passes primarily through forest.The carriageway which is partly 4 m wide will be widened to 4.5 m through-out, and 0.75 m crushed rock shoulders will be provided on each side insteadof the existing earth shoulders. These improvements will allow somewhateasier passage of vehicles on the section and accommodate traffic to about700 ADT when major improvements should become economically feasible. Becauseof heavy rains and poor alignments, this section is estimated to require re-paving once every 18 months.

Section III (Lubukselasih-Solok)

Length: 24.6 km

Cost per ki: Rp 30.4 million

Traffic information:

ANNEX 3Page 4 of 13

Cars Buses Trucks

1974 ADT 100 65 80

Growth rate p.a., 1974-78, in % 12 12 12

Growth rate p.a., 1979-88, in % 10 5 10

Vehicle operating costs, Rp per vehicle-km:

Without improvement 54 127 110

With improvement 43 102 89

Savings 11 25 21

Rate of return, best estimate 16%

Rates of return, with sensitivity tests 10-21%

The third section passes over rolling agricultural terrain to the edge ofthe town of Solok (population about 25,000). The carriageway which ispresently 4 m wide will be broadened to 4.5 m and existing 1 m earthshoulders will be upgraded and surfaced with crushed rock. The unim-proved road surface is estimated to require repaving on average everyother year. Roughly ten years after opening, ADT is projected at thelevel of 800 when widening to 6 m should become feasible.

Section IV (Solok-Sawahtamban

Length: 24.0 km

Cost per km: Rp 37.9 million

Traffic information:

Cars Buses Trucks

1974 ADT 100 65 80

Growth rate p.a., 1974-78, in % 12 12 12

Growth rate p.a., 1979-88, in % 10 5 10

Vehicle operating costs, Rp per vehicle-km:

Without improvement 48 114 96

With improvement 36 86 72

Savings 12 28 24

Rate of return, best estimate 13%

Rates of return, with sensitivity tests 8-18%

ANNEX 3Page 5 of 13

The last section which excludes the municipal area of Solok is in relativelyflat terrain. Although traffic conditions and projections are the same asfor Section III, construction costs per m width of roadway are substantiallyless and it is thus feasible to widen the carriageway from the present 3.8 or4 m to 6 m. Existing earth shoulders (somewhat over 1 m on each side) willbe upgraded with crushed rock. The traffic generated by the coal mine whichlies along this section also justifies the somewhat earlier progression tothe higher design standard which is proposed. Without the proposed strengthening,repaving is estimated to be'required every two years on this section.

2. Tebingtinggi-Rantauprapat

This road starts some 70 km from the provincial capital of Medanand covers about 208 km to Rantauprapat. It passes through low lying wetareas along the coast and in the south through savannah; the soils are notwell suited to road building; stone for aggregate is available only at somedistance and numerous waterways require an unusually high expenditure onbridges; these factors account for higher than average construction costs.The economy of the area is oriented to production of cash crops for export,especially rubber and palm oil, and rehabilitation of estates in the zoneof influence (some under IDA finance) is expected to produce major increasesin output and regional income. The consultant has projected that marketablesurplus of rice in the zone of influence will go up by 70% to about 700,000tons in the next 1.0 years and that population will increase at a rate of 3.2%p.a.,more than the average for Indonesia as a whole. The Government isplanning a hydroelectric aluminum refining complex, located in the road'szone of influence on the Asahan River; road traffic will benefit during bothconstruction and production phases of the project. The railway which parallelsthe road specializes in carrying bulk export crops to the port of Belawannear Medan; even with the reduction in road operating costs the railway willretain its competitive advantage on this traffic but is not expected to beable to compete with road transport for significiant parts of the remainingfreight offerings.

Section I (Tebingtinggi-Limapuluh)

Length: 43.1 km

Cost per km: Rp 85.2 million

Traffic information:

ANNEX 3Page 6 of 13

Cars Buses Trucks

1974 ADT 224 121 315

Growth rate p.a., 1974-78, in Z 12 3 12

Growth rate p.a., 1979-88, in X 10 3 10

Vehicle operating costs, Rp per vehicle-km:

Without improvement 49 118 99

With improvement 35 86 72

Savings 14 32 27

Rate of return, best estimate 16%

Rates of return, with sensitivity tests 13-20%

The section begins at the southern edge of Tebingtinggi (population about40,000). About one third of the section has a carriageway width of 4 m;along the remainder it is 5 m wide. Shoulders on each side are mostlyof earth (1.5 m) and will be substituted by crushed stone (2 m). Someparts are subject to flooding and will have to be raised. The poor soilconditions require repaving at estimated 18 months intervals.

Secti1(Limapuluh-Simpangkawat)

Length: 52.0 km

Cost per km: Rp 85.2 million

Traffic information:

Cars Buses Trucks

1974 ADT 464 182 397

Growth rate p.a., 1974-78, in Z 12 3 12

Growth rate p.a., 1979-88, in % 10 3 10

Vehicle operating costs, Rp per vehicle-km:

Without improvement 49 118 99

With improvement 35 86 72

Savings 14 32 27

Rate of return, best estimate 21%

Rates of return, with sensitivity tests 15-26%

ANNEX 3Page 7 of 13

The second section is very similar to the first; the predominant carriagewaywidth is 4.5 m and the existing earth shoulders vary from 1.5 to 2.5 m. Theproposed widening of the carriageway to 6 m and the shoulders to 2 m eachwill serve projected traffic adequately in both cases for at least ten yearsafter opening; if trucks continue to be as heavy a proportion of total traf-fic as now, further improvements might be warranted at that time, particularlywider shoulders near towns. As in the first section, repavings are estimatedto be required under present conditions every 18 months.

Section III (Simpangkawat to Rantauprapat)

Lenth: 113.0 km

Cost per km: Rp 70.4 million

Traffic information:

Cars Buses Trucks

1974 ADT 140 96 207

Growth rate p.a., 1974-78, in % 12 12 12

Growth rate p.a., 1979-88, in % 10 5 10

Vehicle operating costs, Rp per vehicle-km:

Without improvement 59 143 115

With improvement 42 104 82

Savings 17 39 33

Rate of return, best estimate 18%

Rates of return, with sensitivity tests 12-23%

Except for short stretches, near communities, the present carriageway is4.5 m wide but in the last 18 km to Rantauprapat it widens to 6 m. Theshoulders are made of earth and for most of the road are 1 m wide on eachside but in some stretches range up to 2 m. The existing road surface isin very poor condition and is estimated to require repavings at least every18 months. Under the proposed improvement, the carriageway will be widenedto 6 m and shoulders will be made to crushed rock standard 1 m wide on eachside.

3. Denpasar-Gilimanuk

This highway (about 122 km lone excluding sections in some munici-palities) traverses the southern portion of Bali and connects Denpasar its

ANNEX 3Page 8 of 13

capital (population about 33,000) with Gilimanuk the terminal of the ferryto Java. The terrain is broken west of Denpasar but becomes flat to rollingon the remaining two thirds of the project. Rice growing is the mostimportant economic activity in the zone of influence and is projected by theconsultants to nearly double in the next ten years. Tourism, centered inDenpasar, is expected to increase necessitating supplies from Java to betransported over this road. The road also is used to bring the productionof Bali's handicraft industry to market.

Section I (Denpasar-Antosari)

Length: 37.0 km

Cost per km: Rp 63.2 million

Traffic information:

Cars Buses Trucks

1974 ADT 623 228 342

Growth rate p.a., 1974-78, in % 12 3 12

Growth rate p.a., 1979-88, in % 10 3 10

Vehicle operating costs, Rp per vehicle km:

Without improvement 48 114 96

With improvement 36 86 72

Savings 12 28 24

Rate of return, best estimate 23%

Rates of return, with sensitivity tests 16-29%

This section begins at the outskirts of Denpasar and for most of its firsthalf passes through a series of communities. The ADT on this half of thesection is much higher than in the section as a whole and there is muchside friction. The existing carriageway is therefore proposed to bewidened on this stretch from 5 to 7 m while over the remainder of thesection the 5 m carriageway will be increased by only 1 m. In the urban-ized area existing earth shoulders (1.5 to 2.5 m wide on each side) willbe converted to 2 m shoulders with double surface treatment. The remainderof this section will have 2 m wide crushed rock shoulders instead of theexisting 1 m earth shoulders. The lower construction cost per m of roadwaywidth on this section allow the application of somewhat higher design standards.The road is estimated to require repaving bi-annually under present conditions.

ANNEX 3Page 9 of 13

Section II (Antosari-Gilimanuk)

Length: 85.3 km

Cost per km: Rps 51.8 million

Traffic information:

Cars Buses Trucks

1974 ADT 214 112 192

Growth rate p.a., 1974-78, in % 12 3 10

Growth rate p.a., 1979-88, in % 10 3 10

Vehicle operating cost, Rp per vehicle-km:

Without improvement 48 111 93

With improvement 37 86 72

Savings 11 25 21

Rate of return, best estimate 18%

Rates of return, with sensitivity tests 12-24%

Most of this road was built during World War II for emergency military use;its structure is weak and requires frequent repaving at estimated intervalsof 18 months. The carriageway will be widened from 5 to 6 m and earthshoulders which now range from 3 to 5 m per side will be substituted bycrushed rock shoulders of 2 m.

4. Kotamobagu-Inobonto

This highway in North Sulawesi connects two separate sections ofroad presently under construction with IDA financial assistance (Credit 388-IND).The major present and potential generation of traffic is the agriculturaldevelopment scheme in the Dumoga Valley which was the basis for the eco-nomic justification of IDA assistance in the Third Highway Project (Credit388-IND). At full development, the scheme should yield 40,000 additionaltons of rice which would be destined for market in Menado, the provincialcapital. This through-traffic would travel from the Duloduo area to Rota-mobagu, then to Inobonto and along the coast to Menado. There is an alter-native route from Kotamobagu to Menado which is shorter than the coastalroad (about 93 km as against 119 km) but is mountainous and hence normallyless attractive to through-traffic. Due to construction of the coastalroad most through-traffic is now using the more difficult mountain alter-native. Traffic has therefore dropped on the Kotamobagu-Inobonto section

ANNEX 3Page 10 of 13

to roughly 100 four-wheel vehicles per day, serving the villages along theway and the towns at either end (population 9,000 and 4,000 respectively).However, once the two roads presently under construction are finished,through-traffic will use the coastal road and therefore the Kotamobagu-Inobonto section to reach it. Accordingly, traffic has been projectedfrom counts before the start of construction at 12% p.a. to an openingyear volume of somewhat under 400 ADT.

At the time of appraisal of the Third Highway Project, this sec-tion was thought to be in adequate condition until about 1980 and the pro-posed betterment therefore roughly accords with this forecast. The roadhas deteriorated more rapidly and costs to maintain the pavement withoutfurther deterioration are estimated at Rp 1.6 million p.a. per km. Theexisting road follows a rather tortuous alignment along a stream andcrosses many tributaries, some on dilapidated bridges, some by fords.Traffic is interrupted for short periods after heavy rains because ofthe fords. The pavement is partly penetration macadam but for most ofthe road has deteriorated to something like gravel. The improvements pro-posed include repair of bridges and construction of wooden bridges over thefords, provision of 4.5 m carriageway with double surface treatment (whichwill widen the existing road in some stretches) and 1 m crushed rock in-stead of the 1 m earth shoulder on each side as at present. The solutionwould be adequate for about 10 years at which time a wider and more sub-stantial carriageway should become feasible.

Length: 37.1 km

Cost per km: Rp 46.0 million

Traffic information:

Cars Buses Trucks

1974 ADT actual 61 27 23

1974 ADT adjusted 105 81 56

Growth rate p.a., 1974-78, in % 12 12 12

Growth rate p.a., 1979-88, in % 10 5 10

Vehicle operating cost, Rp per vehicle-km:

Without improvement 59 143 115

With improvement 42 104 82

Savings 17 39 33

Rate of return, best estimate 12%

Rates of return, with sensitivity tests 7-16%

5. Cileyuni-Nagreg

This highway begins about 20 km from the metropolis of Bandung(population about 1,270,000) and falls within its zone of influence. Thecontinued growth of this as an industrial and trade center is the basis

ANNEX 3Page t1 of 13

for projecting forward the high traffic growth rates observed during recentyears. The road passes through a succession of communities and the lastthird is a mountainous stretch with steep grades and sharp curves. Theproposed improvements (basically widening the carriageway from 6 to 7 mand the shoulders from partly earth and partly paved shoulders to 2.5 mshoulders paved on both sides throughout) will only produce a limited re-duction in operating costs because side friction will remain significantin the urbanized areas and no significant realignments are being made inthe mountain stretch. The resulting congestion costs are expected to dam-pen traffic growth after the initial period. Moreover, the traffic volumeprojected for opening year is so high that the unimproved road would havehad difficulty in accommodating further increases. For that reason, fullvehicle operating cost savings are taken only for the first 6,100 vehiclesroughly; additional traffic is considered "generated" in the sense that itwould not have moved except for the improvement and according to a commonconvention is valued at half the savings in vehicle operating costs. Theprojected ADT in the tenth year after opening will be nearly 11,000 andfurther improvements should then become economically attractive. Pavementcondition on this section is considered relatively good and estimated torequire repaving only tri-annually.

Length: 21.6 km

Cost per km: Rp 92.1 million

Traffic information:

Cars Buses Trucks

1974 ADT 3,021 336 558

Growth rate p.a., 1974-78, in % 12 5 12

Growth rate p.a., 1979-83, in % 8 5 8

Growth rate p.a., 1984-88, in % 6 5 6

Vehicle operating cost, Rp per vehicle-kim:

Without improvement 48 115 96

With improvement 42 101 84

Savings 6 14 12

Rate of return, best estimate 26%

Rates of return, with sensitivity tests 18-32%

6. Probolinggo-Lumajang

The economic conditions applicable to this road and the Jember-Bondowoso road are very similar. They lie in adjoining fertile valleys on

ANNEX 3Page 12 of 13

either side of a north-south mountain range and are joined by another roadrunning south of the mountains which is also slated for improvement. The

vertical and horizontal alignments are therefore quite easy. The combinedpopulation is estimated at over 4 million and agricultural crops at over2 million m tons which the consultant expects to rise by more than 50% by

1984. Agriculture is diversified with rice accounting for somewhat morethan half the tonnages produced and the remainder divided between cassava,fruit and vegetables, corn, coconuts, sugarcane and tobacco. The latterthree crops have potential for the creation of expanded processing indus-tries. Several large cities along the routes will also contribute to

accelerated traffic growth: Lumajang has 53,000 inhabitants, Probolinggo92,000, Jember 141,000 and Bondowoso 45,000. The traffic and road condi-

tions are quite analogous on both roads. Probolinggo-Lumajang had some1,900 four-wheeled vehicles in 1974, while the other road had about 1,600;

however, the first road has a much higher proportion of trucks and buses.Both roads (except a stretch near Bondowoso) are also part of a principal

route to Bali. The carriageway is 6 m wide except near some towns whereit has been widened. It is in rather good condition and estimated to

require repaving only once every three years. No change in carriagewaywidth is contemplated but the existing earth shoulders (varying from 1.5

to 2.5 m each side) will be widened to 2 m crushed stone. This change is

made expensive by the need to remove large shade trees from one side ofthe road. With the projected traffic growth both roads will be at the levelof about 6,000 ADT by the tenth year after opening and further improvements(wider carriageway and/or paved shoulders) may become feasible at that time.

ANNEX 3Page 13 of 13

Length: 43.6 km

Cost per km: Rp 43.6 million

Traffic information:

Cars Buses Trucks

1974 ADT 1,054 212 615

Growth rate p.a., 1974-78, in % 12 3 12

Growth rate p.a., 1979-88, in % 10 3 10

Vehicle operating cost, Rp per vehicle-km:

Without improvement 44 105 89

With improvement 37 87 74

Savings 7 18 15

Rate of return, best estimate 29%

Rates of return, with sensitivity tests 21-36Z

7. Jember-Bondowoso

Background information on this road is provided under Probolinggo-Lumajang.

Length: 32.9 km

Cost per km: Rp 47.7 million

Traffic information:

Cars Buses Trucks

1974 ADT 1,322 68 222

Growth rate p.a., 1974-78, in % 12 3 12

Growth rate p.a., 1979-88, in % 10 3 10

Vehile operating costs, Rp per vehicle-km:

Without improvement 44 105 89

With improvement 37 87 74

Savings 7 18 15

Rate of return, best estimate 22%

Rates of return, with sensitivity tests 16-28%

March 1976

Table

0001511 5103AY PROJECT

Osti-tsd Costs sod Iseefits - First 5501. of Roads

(Isp Millioss)

1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988

1. Podeoo - OS-ehtebsog. Seotioc I

Costs - Co..strottoo Costs (See Rots) 207.6 155.7 155.7ReesfitS A-Avidod Ospeoias Costs 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0

- Ohiols Opsrsttse Cost Soy-tgs 125.5 137.2 100.0 167.0 179.3 196.2 214.7 237.0 263.2 281.6

S'OcIvgs 259.5

Soctis,, SI

Costs - Ceostrotios Costs 342.3 256.7 256.5Sc.-fit. A-Avided Ropaviog Costs 59.2 59.2 39.3 59.2 59.2 59.2 59.2 59.2 59.2 38.2 59.2 59.2 59.2

V.ohfole Iporotiog Cost S-viogs 58.1 62.0 68.3 74.1 80.4 87.4 94.9 103.2 112.2 122.5

-Salvsgt 427.9

Costs - Corstoettlo Coats 298.9 224.2 224.2s-fit.s A-1Aodsd Rop-eto Costs 46.0 46.0 4.0 4.0 46.0 46.0 46.0 46.0 4.0 46.0 46.0 46.0 44.0

-Veh.lol Operatirs Cost So-togs 65.5 70.0 76.7 83.0 89.9 97.4 105.6 114.6 124.4 135.0

- Siolge 373.7Rots of Rstoo: 16%

Settio,, IV

Costs - Cocstrottos Costs 362.5 272.6 272.6Bse.fit. A-Avided Rspovios Costs 44.9 64.9 U.S 44.9 44.9 4.9 44.9 4.9 4.9 44.9 44.9 44.9 4.9

- Ohiol. Ope..stioR Cost lo-iogs 70.6 76.4 82.7 09.6 93.1 105.3 114.2 123.9 134.6 146.1

- ovoes 454.0Oats of Oatter,, 13%

2. Tbhisottoogi - RoststPrsPot. ISotiso I

Costs - Coostoetioe Costs 1469.6 1102.2 1102.2toosfits Avoided 1ooavisg Costst St 169.8 169.0 169.8 169.0 169.8 169.0 169.0 169.0 169.8 169.9 169.8 169.0 169.6

-Vahiols Op..stiog Cos 3otg 68.8 401.0 436.2 474.9 517.2 563.7 614.6 670.5 231.7 798.9

Rate of Rotor,- 16%

Costs - Co-trotlo- Casts 1772.7 1329.5 1329.51Se..fit. Avoided RoaigCosts 204.9 204.9 204.9 204.9 284.9 204.9 264.9 204.9 204.9 204.9 204.9 204.9 204.9

-Vehiol Oparotios Cost Osotogo 662.4 720.1 783.4 652.7 928.6 1011.9 1403.2 1203.4 1313,2 1425.7

8.olvgg 2215.9Rots of Rctor: 21%

Ssotioo III

Costs - Coostottico Costs 5181.9 2204.0 2386.2Osoofits. Avoidod Ropsvio Costs 445.2 445.2 445.2 445.2 443.2 445.2 445.2 440.2 445.2 445.2 440.2 4425.2 445.2

V Ohiols Opotitto Cost So-tses 875.7 948.9 1021.0 1120.6 1218.0 1325.7 1442.7 1570.6 1710.5 1863.6- Walage 3977.4

Rote of Rotors 10%

3. Dsps.oso - Gilisook. Isotiot I

Cocts - Coostrttito Costs 1182.1 1182.5B-.sfite. Avoided Rsp.viog Costs 72.2 72.2 72.2 72.2 72.2 572.2 72.2 72.2 72.2 72.2 72.2 72.2

V Vhiols Optrti.o Cost SavioRs 412.5 447.2 405.2 524.7 572.3 622.1 676.7 736.6 802.2 074.1-SolvBs 1182.5

Otto of Rstoro: 23%

Osctioo IT

Costs - Cons.trotiot Costs 1768.4 1326.2 1326.5B ..sfits. Avoided Repoviog Costs 307.9 307.9 307.9 307.9 307.0 307.9 502.9 307.9 305.9 307.9 307.9 302.9 307.9

-Vehiolo Opsrstiog Cost Isologs 424.5 440.2 499.4 542.3 589.2 640.6 696.9 758.6 826.2 900.4- 55-g0 2210.6

Rots of Rstoro: 18%

4. KItotsobse - I.obeot

Costs - Coostrotito Costs 853.7 853.6B.ofts A-Avided fspoviog Costs 58.6 58.6 58 .6 58.6 58.6 08.8 58.6 58.6 58.6 58.6 38.6 58.6

-Vehjit Operstiog Cost oviogs 138.2 148.8 160.3, 172.R 186.4 201.1 212.1 234.5 253.4 274.0

-lovgR 853.7

5. Cilevoi - N.soro

Co Sts - Coostrotto, Costs 991.7 991.7B-.efits. Avoided Repaviog Costs 39.5 59.5 59.5 39.5 39.3 39.5 39.5 39.5 39.5 59.5 39.5 39.5

-Vehicle Ope-stio Cost Seviogs 505.6 518.4 532.3 547.2 563.3 5106 594.9 610.1 626.2 643.2-Sclvege 991.7

Rots of Rot-rt: 26%

4. Preboliegg - laailso

Co Sts - Coostrotios Costs 951.0 951.0Bc.-fits A-Avided Repseiog Costs 72.4 72.4 72.4 72.4 72.4 72.4 72.4 72.4 72.4 72.4 72.4 72.4

-Vehicle Operstiog Cost S-vioRs 417.9 455.1 495.9 040.6 5R9.o 642.4 702.5 763.2 838.5 916.3-Solvses 951.0

Rots of Rotors: 29%

7. 3lsr - Boodosso

Costs Cosstrutlo Costs 784.8 784.8BRe.fits A-Avidsd Rpa*viog Costs 54.6 56.6 54.6 54.6 54.6 54.6 54.6 54.6 54.6 04.6 54.6 54.6

- Oslols Oprstieg Cost Seviogs 243.4 266.6 292.2 320.2 551.0 584.9 422.1 463.0 307.9 557.3-' RIeaS. 784.8

Rote of Rotors: 22%

80TE: Cosstrootios costs exlods o.Ssts of feasibIlity studies ad detailed seBisserteg Sot ioclod sopsoisioo, r4bt-of-.y sod physiesi coeti.sgaees . The osk costs of

fesibiltty ad detailed -sgioseriog .64h ser sot iol,dsd -deda oooetrootis costs, Sce rsl.tivly small eRd thsrsfore hav little sffsot so the rates of retam csols-utcd

M.srh 1976

ANNEX 4iPage 1 of 5

INDONESIA

FOURTH HIGHWAY PROJECT

Consultant Services Required for the Project

1. Assistance to Regional Road Betterment Offices

In addition to the consulting staff to be engaged for theBetterment Offices as indicated below, the DGH will initially assign thefollowing staff from its own organization.

Numbers of DGH StaffMedan Palembang Bandung Surabaya

Chief of Office 1 1 1 1

Administration

Secretary 1 1 1 1Treasurer 1 1 1 1Assistants 6 f4 6 6

Design Section

Chief of Section 1 1 1 1Engineers 2 2 2 2

Supervision Section

Chief of Section 1 - 1 1Engineers 2 - 2 2

Supervision on Site

Project Officer 6 - 3 4Technical Staff 12 - 6 8

Description:

(a) Construction supervision of about 1,050 km of roads includedin Part A and Part B of the Project, located on the islandsof Java, Bali and Sumatera. These supervision works will becarried out by four DGH Regionai Road Betterment Offices, i.e.,in Medan, Palembang, Bandung andA Surabaya.

ANNEX 4Page 2 of 5

Total estimated man-months of required professional staffare:

Medan Palembang Bandung Surabaya

Foreign staff 335 - 193 280Indonesianstaff 1,530 - 1,230 1,282

(b) Sufficiency engineering and preliminary engineering worksto support the screening consultants in their screening-feasibility analyses. A total of 4,500 km of road improve-ments in Sumatera, Bali and Java included in the screening-feasibility studies will be supported by sufficiency andpreliminary engineering carried out in the Regional RoadBetterment Offices.

Total estimated man-months of required professional staffare:

Medan Palembang Bandung Surabaya

Foreign staff 68 46 30 46Indonesianstaff 184 125 80 125

(c) Detailed engineering of 4,100km of road improvements onJava, Bali and Sumatera, selected out of the total 4,500 kmof roads identified by the screening consultants. Theseengineering works will be based upon design criteria for-mulated during feasibility analyses by the DGH assisted bythe screening-feasibility consultants. The completeddetailed engineering work will be reviewed by DGH and thescreening-feasibility consultant to ensure consistencyamong the four regional offices.

The estimated total man-months of required professionalstaff are:

Medan Palembang Bandung Surabaya

Foreign staff 180 137 90 137Indonesianstaff 560 373 247 373

(d) Technical assistance to the DPUPs for betterment workscarried out by the DPUPs, estimated to total 32 foreignprofessional staff man-months and 48 Indonesian professionalstaff man-months for each region.

ANNEX 4Page 3 of 5

2. Screening and Design Review Works

Description:

(a) Screening-feasibility studies of 7,000 km of roads to becarried out by DGH assisted by consultants. Roughly 4,500km of these 7,000 km of roads are located on the islands ofJava, Bali and Sumatra, and another 2,500 km elsewhere inIndonesia. Screening-feasibility studies for the 4,500 kmof roads will be based on sufficiency and preliminaryengineering carried out by the regional offices and for theremaining 2,500 km of roads located elsewhere in Indonesiaon sufficiency and preliminary engineering carried out byDGH. The screening-feasiblity consultants attached to DGHwill assist in defining the design criteria used in thedetailed engineering carried out in the regional offices.

(b) Review of detailed engineering of about 4,100 km of roadscarried out by the regional offices to ensure consistencyof the design criteria used, and updating of feasibilitystudies on the basis of cost estimates derived from detailedengineering.

The estimated total man-months of required professional staff are 120man-months of foreign staff and 130 man-months of Indonesian staff.

3. Highway Legislation and Related Matters

Review the administration and enforcement of the Indonesian legis-lation related to highways, and determine the requirements of and drafta program for the development of the legal section within the secretariatof DGH.

Total estimated man-months of required professional staff are 18 man-monthsof foreign staff and 36 man-months of Indonesian staff.

4. Highway Vehicle Weights and Dimensions and Road User Charges

(a) Development of appropriate limits of vehicles weights anddimensions.

(b) A study of road user charges to determine the financialcontributions to be made by the various classes of vehiclestowards the costs of road construction and maintenance,and the development of recommendations on the levels andstructure of such charges.

ANNEX 4Page 4 of 5

Total estimated man-months required for professional staffare 24 man-months of foreign staff and 72 man-months ofIndonesian staff.

5. Monitoring

(a) The monitoring function shall include expediting and evaluatingof reports on selected activities of DGH, including reports pre-pared by consultants employed under the Fourth Highway Project,compiling summaries and abstracts of these reports, includinghighlights of major problems which have been encountered andsuggestions for possible remedial actions.

(b) The monitoring function shall be carried out so as to providea separate report on the activities of the consultants employedunder the Fourth Highway Project; the monitoring consultantis to countersign all reports produced by the monitoring groupon these consultants.

Total estimated man-months required for professional staff are45-90 man-months of foreign staff and 336 man-months ofIndonesian staff.

6. Construction Supervision of Road in North Sulawesi, Inobonto -

Ko'tamobagu

Supervisory Services - Description of Services:

Assistance to DGH in:

(a) Arranging and conducting a pre-bid conference.

(b) Evaluating the tenders received from contractors andthe award of a construction contract.

(c) Providing consulting supervisory services to ensure thatall required road construction contracts are properlyexecuted and completed.

The total estimated man-months required for professional stafffor the supervisory services for the Inobonto-Kotamobagu roadare 85 man-months of foreign staff and 195 man-months of Indonesianstaff.

7. Detailed Engineering of Jakarta-Cikampek Road

Detailed engineering of such multi-lane highway of about 70 km connect-ing Cikampek with Jakarta as the Government and the Bank shall agree to betechnically and economically feasible.

ANNEX 4Page 5 of 5

The total estimated man-months of professional staff are 150 man-months offoreign staff and 200 man-months of Indonesian staff.

8. Management Consultant Services

Management consultant services to DGH:

to assist DGH's management in dealing with specific operationalissues and tasks in areas identified by DGH as being ofparticular importance to the management of Indonesia's highwayactivities, such as program control management, manpower man-agement, training program management, construction management,maintenance management, analyses of the DPUPs, the collectionof highway statistics, and the development of the highwayconstruction and consulting industries.

It is estimated that 126 man-months of foreign professional staffwill be required.

ANNEX 5

INDONIESIA

FOURTH HIGHWAY PROJECT

List of Equipment to be Procured 1/

In US$Items No. Total Cost

A. DGH Training Program:

(i) Vehicles (four-wheel drive; minibus;station wagon) 40 1422,000

(ii) Slide projectors and ancillary equipment 200 133,000(iii) Office equipment 25,000

300,000

B. DGH Traffic Data Improvement Program 2/

(i) Traffic counters and ancillary equipment 220 168,000(ii) Vehicles (four-wheel drive; mini-bus;

station wagon) 12 52,000(iii) Data processing equipment 32,000

252,000

C. Contingencies for A and B 48,ooo

Total 700,000

1/ To be procured and financed by DGH.

2/ Intended to equip 10 traffic counting patrols.

March 1976

ANNEX 6Page 1 of 2

INDONESIA

FOURTH HIGHWAY PROJECT

Economic Costs and Beneficiaries of Project

Economic Costs

1. The analyses were based on costs and benefits calculated by theconsultants without inclusion of indirect taxes. The consultants made noother adjustments for economic prices of resources. The consultants com-puted vehicle operating costs only for Java and used them for projectsthroughout Indonesia. Although there are considerable differences inwage rates in various parts of Indonesia, these have only a marginaleffect on total costs and the consultants' assumption of uniform vehicleoperating costs therefore does not cause a significant distortion. Never-theless, further studies are under way to determine regional variationsmore precisely.

2. While fuel prices have recently been raised at pumps in Indonesiato about the equivalent of USi5 per I for diesel oil and USJ15 for gasoline,they remain low in relation to world prices (see para 2.11 in Chapter IIof main report). If vehicle operating costs were computed with a morerealistic fuel price, they might rise from 5 to 10%. While this wouldincrease vehicle operating cost savings, a corresponding increase would beapplicable on the construction cost side which also includes a fuel element.The effect on the ERR of adjusting fuel prices would be negligible.

3. The price of labor is significant for the analysis, primarily incomputation of construction costs of the project. The labor situation var-ies considerably among the islands, with labor shortages and markedly higherwages characterizing the outer islands. Java is reported to have sizeablenumbers of unemployed, though some only seasonally, and the massive scaleof the Betterment Program will no doubt generate additional jobs and pro-vide new work for unemployed persons. The unskilled labor cost componentof road works in Java under the project is estimated at about 10% and Rp 400million worth of road construction on that island are estimated to provideup to 500 man-years of unskilled work at a rate of Rp 320 per day. If itis assumed that unskilled labor employed on road works had an opportunitycost of one half this wage, construction costs would be reduced by about5% and the ERR increased slightly. The employment effect of the BettermentProgram thus is positive and increases its economic attractiveness.

Beneficiaries of the Project

4. The largest single beneficiary of the project is the Governmentitself which stands to gain large savings by avoiding the costs of frequent

ANNEX 6Page 2 of 2

repavings and thereby freeing funds for other high priority investments inthe economy. Reduced vehicle operating costs for commercial vehicles willbe shared by the operators and users of these vehicles. Although the Gov-ernment regulates the operation of all commercial vehicles, regulations arerelatively more stringent for buses than for trucks, minibuses and similarsmall vehicles. Vehicle operating cost savings are thus more likely to bepassed on to users in the competitive sectors (trucks and small passengerfor hire vehicles) than for buses. However, buses represent in most casesa rather small part of total traffic. As already noted, purely privatecar traffic is much less than the number of "cars" listed in the trafficstatistics. While private cars inevitably will share in the lower oper-ating costs produced by the project, the Government's taxing policy isattempting to dampen undue expansion of the number of these vehicles.Primarily because of high taxes, small to medium-sized cars are sellingfor the equivalent of US$10,000, or more than twice their world marketprices. Brisk sales at these prices indicate a continuing large pent-updemand for cars in Indonesia. There may be scope for further general meas-ures to discourage the spread of private cars and to ensure a more desirableuse of highway facilities and more equitable distribution of the benefitsof improving roads. However, on the whole, the proposed project does notunduly favor private automobile owners: commercial vehicles in all casesrepresent a substantial part of traffic flow and on sections where carspredominate, vehicle operating cost reductions resulting from the improve-ments, while substantial in aggregate, represent only a small benefit toindividual cars.

March 1976

Table 1

INDONESIA

FOURTH HIGHWAY PROJECT

The Public Highway Network 1/(December 31, 1971)

km

By Reiion % of National National Provincial DistrictRegion (km ) Area Province Highways Highways Roads Total

Java 132,000 7 Jakarta 145 213

West Java 624 1,828 4,309Central Java 409 1,801 6,682Jogjakarta 32 113 846East Java 549 2,714 6,863

1,759 6,669 18,700 27,128

Sumatera 474,000 25 Aceh 489 1,331 3,544North Sumatera 794 2,389 3,535West Sumatera 631 1,015 1,889Riau 95 964 836Jambi 433 574 614

South Sumatera 662 2,617 2,547Bengkulu 84 634 1,309Lampung 245 637 1,089

3,433 10,161 15,363 28,957

Kalimantan 539,000 28 West Kalimantan 452 932 572Central Kalimantan 115 76 55South Kalimantan 285 543 1,797East Kalimantan 335 322 72

1,187 1,873 2,496 5,556

Sulawesi 189,000 10 North Sulawesi 723 415 2,174Central Sulawesi 592 563 1,570South Sulawesi 582 1,651 4,200South-East Sulawesi 173 239 1.619

2,070 2,868 9,563 14,501The Principal

Smaller Islands 94,000 5 Bali 389 337 1,018West Nusa Tenggara 486 395 971East Nusa Tenggara 1,227 1,530 2,000Maluku 77 518 376

2,179 2,780 4,365 9,324

West Irian 422,000 22 West Irian - 115 683 798(Indonesia NewGuinea) Total 10,628 24,466 51,170 86,264

1/ The Directorate General of Highways is currently making a detailed inventory of roadswhich w'll provide up-to-date information on length of national and provincial roads.

Source: Central Bureau of Statistics

March 1976

INDCtNESIA

FOURTH HIGHWAY PROJECT

The Public Highway Network - Trpe of Surface(December 31, 1971)

National Provincial DistrictHighways Highways Roads Total

Type of Surface km km km km

Paved 5,628 53.0 9,861 40.3 n.a. _ n.a. _

Unpaved - - - - n.a. - n.a. _

Gravel 2,980 28.0 7,807 31.9 n.a. _ n.a. _

Earth 2,020 19.0 6,798 27.8 n.a. _ n.a. _

TOTAL 10. 628 100.0 24.466 100.0 86,264

Note: The Directorate General of Highways is currently making a detailed inventory of all roads which will

provide up-to-date information on surface types for all national and provincial roads.

Source: Directorate General of Highways

March 1976

1!

Table 3

INDONESIA

FOURTH HIGHWAY PROJECT

The Public Highway Network - Axle Load-Carrying Capacity

Design National ProvincialAxle-Load Highways Highways

Class (m tons) (km) % about (km) % about

I 7.00 70 1 50

II 5.00 1,230 12 1,250 5

III & below 3.50 90328 88 23,166 95

Total 10628 66 100

Source: Directorate General of Highways

Note: The Directorate General of Highways is currently making a detailed inventory ofroads which will provide more information on condition of pavement structure andof bridges on national and provincial networks.

March 1976

INDONESIA

FOURTH HIGHWAY PROJECT

DGH Geometric Design Standards 1/

Primary Highways Secondary Highways Feeder Roads

II A II B 11 c IIIMoun- Moun- Moun- Moun- Moun-

Terrain Flat Rolling tainous Flat Rolling tainous Flat Rolling tainous Flat Rolling tainous Flat RollinR tainous

Average Daily Traffic(A!DT) in Passanget Car Units - . 20,090- 6,000-20,000 1,500-8,000 <2,000 (1,000

Design Speed (km/h) 120 100 80 100 80 60 80 60 40 60 40 30 60 40 30

Minimum Right of Way (m) 60 60 60 40 40 40 30 30 30 30 30 30 20 20 20

Pavement Width (m) Minimum 4x3.75 2x3.50 or 4x3.50 2x3.50 2x3.00 3.50-6.00 /3

Minimum Median Width (m) 10 1.5 /2 --- ---

Shoulder Width (m) 3.50 3.00 3.00 3.00 2.50 2.50 3.00 2.50 2.50 2.50 1.50 1.00 1.50-2.50 /3

Pavement Cross Slope 2% 2% 2% 3% 4Z

Shoulder Cross slope 47 4% 6% 67 6%

Surfacing Asphaltic Concrete (AC) AC 4/ 4/ 4/(hot mix)

Maximum Superelevation 10% 107. 10% 10% 10%

Minimum Horizontal Radius (m) 560 350 210 350 210 115 210 115 50 115 50 30 115 50 30

Maximum Grade 3% 57 6% 4% 6% 7% 5Z 77 8% 6% 8% 10% 6% 8% 127

1/ Pavement structure is designed in accordance with DGH's "A Guide for Pavement Design", 1974, 04/PD/EM, and for a design life of about ten years,unless another design life would be warranted. Bridges are designed in accordance with DGH's "Standard Loading Specification for Highway Bridges", 01/1969.

2/ Only for 4-lane highways.3/ According to condition.4/ Surfacing selected can vary from single bituminous surface treatment to asphaltic concrete on the basis of economic considerations.

Generally roads with the above design standards can be varied flexibly to suit special conditions of traffic, land use or terrain.

Source: Directorate General of Highways

March 1976

Table 5

INDONESIA

FOURTH HIGHWAY PROJECT

Vehicle. Registered, L.961-1974 /1

Total2/ Motorized

Year Cars Trucks Buses 4-Wheel Motorcycles Vehicles

1961 103,254 75,488 17,855 196,627 n.a. n.a.

1962 128,336 69,738 18,646 216,720 172,417 389,137

1963 136,618 77,761 17,336 231,715 196,586 428,301

1964 157,473 83,271 19,541 260,290 220,953 481,243

1965 166,845 84,647 18,414 269,906 235,413 505,319

1966 179,494 92,891 19,584 291,969 281,779 573,748

1967 184,954 94,892 18,840 298,686 287,522 586,208

1968 201,743 93,417 19,612 314,772 308,404 623,176

1969 212,124 95,660 20,497 318,281U 336,597 664,878

1970 238,924 102,975 23,541 365,440 440,005 805,445

1971 256,988 112,877 22,562 392,427 510,764 903,191

1972 277,210 131,175 26,488 434,873 615,220 1,050,093

1973 307,739 144,060 30,368 482,167 720,056 1,202,233

1974 337,789 166,457 31,439 535,685 944,734 1,480,419

1/ Includes all registered vehicles, including non-operational ones, exceptmilitary or diplomatic vehicles.

2/ Includes motorcycles, motor scootersiaizd motorized bicycles.

Source: Directorate of Traffic, Indonesian Police

March 1976

Table 6

INDONESIA

F(XJRTH HIGHWAY PROJECT

Motor Vehicle Registrations -Geographic Distribution, 1973 A

TotalMotorized

Area Cars Buses Trucks Motorcycles /2 Vehicles

Java and Madura 228,138 12,418 86,938 492,081 822,575

West 39,780 2,544 18,931 74,973 136,228

East 45,923 2,452 23,132 123,354 194,861

Other Areas 142,435 10,422 44,875 293,754 491,4&86

Sumatera 55,397 11,137 36,288 141,403 244,225

North 30,137 3,945 11,974 78,173 124,229

West 3,360 1,264 3,421 9,089 17,134

Other Areas 21,900 5,928 20,893 54,141 102,862

Bali 2,774 966 2,718 5,925 15,383

North and CentralSulawesi 2,873 532 2,162 7,993 13,560

.Other Areas 17,531 1,983 15,146 63,931 98.591

Total 306,713 30,036 143,252 71_733 1,194,324

/1 Includes all registered vehicles, including non-operational ones,except military or diplomatic vehicles.

/2 Includes motorcycles, motor scooters and motorised bicycles.

Source: Central Bureau of Statistics

Miarch 1976

Table 7

INDONESIA

FOURTE HIGHWAY PROJECT

Budget Su;ry of Directorate General of Highways(Rp '000)

1969-70 1970-71 1971-72 1972-73 1973-74 1974-75

1. ROUTINE

Administration (Head Office) 166,248 229,000 245,837 316,086 302,701 661,534

Engineering - - - - -

Upgrading/New Construction - - - - -

Rehabilitation - - - - -

Maintenance 1/ 206,152 452,000 450,000 450,000 609,269 520,681

Handling Cost Equipment and

Materials Ex. Project Aid,Workshop, and Other Facilities - - - - -

Technical Support Services, IDA - - - - -

Asphalt Purchases - - - - -

TOTAL 372.400 681.000 695.837 766,086 911 970 1.182.215

2. DEVELOPMENT 2/

Administration (Head Office) - - - - -

Engineering 607,000 1,177,882 675,000 790,000 979,776 3,368,272

Upgrading/New Construction 6,592,814 6,189,100 7,667,500 12,383,500 13,317,145 32,995,455

Rehabilitation 2,636,776 2,672,000 2,728,500 3,926,500 2,293,928 8,784,866

Maintenance V - 1,534,060 4,370,000 3,400,000 2,574,151 1,858,060

Handling Cost Equipment andMaterials Ex. Project Aid,Workshop and Other Facilities 541,000 2,049,958 1,415,000 500,000 2,120,742 7,490,145

Technical Support Services, IDA - 152,000 190,000 160,000 69,000 143,417

Asphalt Purchases - - -. 2, .000 4.652,258 4.209,785

TOTAL 10.377.390 13,775.000 17,046.000 23.160.000: 25,998,000 58,850.000

3. TOTAL (1 + 2)

Administration (Head Office) 166,248 229,000 245,837 316,086 302,701 661,534

Engineering 607,000 1,177,882 675,000 790,000 979,776 3,368,272

Upgrading/New Construction 6,592,614 6,189,100 7,667,503 12,383,500 13,317,145 32,995,455

Rehabilitation 2,636,776 2,672,000 2,728,500 3,926,500 2,293,928 8,784,866

Maintenance 2 206,152 1,986,060 4,820,000 3,850,000 3,183,420 2,378,741

Handling Cost Equipment andMaterials Ex. Project Aid,Workshop, and-Other Facilites 541,000 2,049,958 1,415,000 500,000 2,120,742 7,490,145

Technical Support Services, IDA - 152,000 190,000 160,000 60,000 143,417

Asphalt Purchases - - - 2.000.000 4.65258 4,209.785

TOTAL 10,749.790 14.456.000 17.741.837 23.926.086 26.909.970 6

1/ Because of its importance, maintenance of roads is charged mostly to Development Budget2/ Includes Administration Costs of Projects

Source: Directorate General of Highways

March 1976

Table 8

INDONESIA

FOURTT HIONWAY PROJECT

Initial Imelemsntation Schedul 1/

Project Ele-ents Key Actions Date for Completing Key Actions

Proposed for Bank Financing

A. Construction

I. First 550 Km Road Package

1. adang-Sasahtmbang Notice to Proceed April 15, 19762. Tebitgtinggi-RAntaupr.pat Opening Bid. April 15, 1976

3. Denp.a.r-Cili-mnuk A.ard Contract April 15, 19764. Kotamobag.-lonbonto Notice to Proceed April 15, 19765. Cileycni-Nsgrmg Invite Bids April 15, 19766. Probolirggo-Lomajang Award Contrect April 15, 19767. Jember-Bondeoeo. Award Contract April 15, 1976

II. Seond 550 KR Road Package,

1. Updating of Contractor Prqusalifio.tioo March 15, 19762. Conplete Feasibility Studios December 1975-April 19763. Bank Review cod Cocm,ents on 2 December 1975-May 19764. Complete Detailed Engineering Dccember 1975-June 19765. Bank Cosnents on 4 December 1975-July 19766. Invite Bids December 1975-August 19767. Goernmsent and Baek Review of Bidding

ResuIts and Bank Decision on, IncludingParticul-r Road Sections in Project April 1976-December 1976

B. Services of Consultants:

1. For DGB Regional Betterment Offices 2/,(comprising preliminary engineering of 4,500 kIo inJnve, Sumitera and Bali in support of B(IV), detailedengineering of 4,100 km selected from the foregoing4,500 k, and cocntruction supervision of A)

1. In Medan (Sunatera) Sign Contract April 1, 19762. Sc P1embang (S-metera) Invite Proposals March 1, 19763. In Bandung (J."s) Invite Proposals Narch 1, 1976

4. In Sucaboy (Jav.) Sign Contract April 1, 1976

I. For Suprvision of Road in A(1)(4) Sign Contract April 1, 1976

I. For Sc-eening-F asibility Studies of 7,000 Rn Sign Contrct April 1, 1976at SD Seadquarters DGH Counterperto in Place May 15, 1976

IV. For Mana.ement Activities at DGO Readda-rters

1. Activities in General Sign Contract April 1, 1976DGH Counterparts in Place May 15, 1976

2. DSN Studins

(a) Survcy of Provincial Public Initiate 3/ May 31, 1976Works Departments (DPUP's) Complet Jcn 30, 1977

(b) Epansion and Strengthening of Domestic Initiate 3/ May 31, 1976Consulting and Construction Industries Complete November 30. 1976

(c) Vchicl Weights and Dimensions Initite 4/ May 31, 1976and Road User Charges 5/ Copeplte Octobnr 31, 1977

(d) Revi-t of Highway l.ws 5/ Initiate 4/ May 31, 1976Complete Play 31, 1977

3. Other Activitie., -eg.

(a) Budget Control and Management Recoenendation for Improved Reporting Systom Decehbe- 31, 1976(b) Construction Management Prepare Initial Draft of Standard Contract Docunents Snpte=ber 30, 1976(c) Training Programs Formulate Long-Range Training Progra=r D cem.ber 31, 1976

V. For Monitoring Project Implementation Sign Contract April 1, 1976

Not Proposed for Bank Financing

A. Preliminary Engineerirg for 2.500 Rn Assign=ent of DGO Staff April 1, 1976(in suppcrt of studies in III, arranged by DGH)

B. Detailed Engineering of 1.500 KC(resulting from scceeming-fessibility studies underIII outside of Su=mtera, Java and Bali, arranged by DON) DGH Staff Cone-encs Work July 15, 1976

C. Nighway Planning Improvement Signatur of UNDP Agreeesnt April 1, 1976Acquisition of Traffic Counting Equip.emt Deceaber 31, 1976

S. DGH Training Progras Completion of Initial Target Training Courses D heber 31, 1976Acquisition of Training Equipeet Motch 31, 1977

11 Attached to this table ar two typical timehedules h-nig estimted time to complete key steps for procuring (A) Consultant services; and (B) Construction contractorn.

2/ DGO personnel for each Regional Office era to be selected and assigned by time notice to proceed hbc been iasued to each Regional Consultnt.

3/ Including assigm-ent of DGH study personnel previously selected.4/ Including as.igsoent of DGd counterparts previously selected.5/ Largely carried out by the Management Consult-nt in H(IV).

Source: Bank staff and DGH

March 1976

Table 8Attachment

INDONESIA

FOURTH HIGHWAY PROJECT

A. Typical Time Schedule for Procuring Consultant Services

From invitation issued to an agreed short list of selected consultants.

Days

1. Receive proposals. 422. Evaluate proposals and report 213. Approval of DGH procurement committee and IBRD concurrence 304. Invite consultant for negotiations 105. Complete contract negotiations and prepare initialled draft contract 146. Approval of Government agencies and IBRD concurrence 287. Arrangements for and signing contract 78. Issuance of notice to proceed 49. Consultants mobilization 42

Total 198

B. Typical Time Schedule for Procuring Construction Contractor

From invitations to bid issued to prequalified contractors.

Days

1. Receive bids from contractor 108 (maximum)2. Open bids, evaluate and report 213. Approval of DGH procurement committee and IBRD concurrence 304. Issue notice of award 75. Preparation of contract and signing 156. Issuance of notice to proceed 30

Total 211

March 1976

Table 9

INDONESIA

FOURTH HIGhWAY PROJECT

Schedule of Estimated Disbursements

IBRD Fiscal Year Cumulative Disbursementsand Quarter at End of Quarter

(US$000)

1975/76

June 30, 1976 1,000

1 976/77

September 30, 1976 2,900December 31 , 1976 7,200March 31, 1977 13,400June 30, 1977 20,000

1 977/78

September 30, 1977 30,200December 31, 1977 41,800March 31, 1978 53,500June 30, 1978 65,200

1978/79

September 30, 1978 76,000December 30, 1978 86,300March 31, 1979 96,800June 30, 1979 107,200

1 979/1980

September 30, 1979 115,000December 30, 1979 121,000March 31, 1980 125,000June 30, 1960 128,000

1980/81

September 30, 1980 130,000

Source: Government/Bank Estimate

March 1976

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