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CIiCULAFING -.u-Y
TO BE RETURNED TO REPORTS DESK
DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION
Not For Public Use
Rep,rt No. P-1464-IND
REPORT AND RECOMMENDATION
OF THE
PRESIDENT
TO THE
EXECUTIVE DIRECTORS
ON A
PROPOSED CREDIT
TO THE
REPUBLIC OF INDONESIA
FOR A
JATILUHUR IRRIGATION EXTENSION PROJECT
June 6, 1974
This report was prepared for official use only by the Bank Group. It may not be published,quoted or cited without Bank Group authorization. The Bank Group does not acceptre.;ponsibility for the accuracy or completeness of the report.
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Currency Unit = Indonesia Rupiah (0p)
US$L..00 a Rp 415
1 Rupiah = $0.002
1 million Rupiah = $2,415
Government of Indonesia
Fiscal Year April 1 - March 31
INTERNATIONAL DEVELOPMNT ASSOCIATION
REPORT AND RECOMMENDATION OF THE PRESIDENT TOTHE EXECUTIVE DIRECTORS ON A PROPOSED CREDITTO THE REPUBLIC OF INDONESIA FOR A JATILUHUR
IRRIGATION EXTENSION PROJECT
1. I submit the following report and recommendation on aproposed development credit to the Republic of Indonesia for theequivalent of US$30 million on standard IDA terms to help finance aJatiluhur Irrigation Extension Project.
PART I - THE ECONOMY
2. The latest economic report on Indonesia (The IndonesianEconomy: RecentDevelopments and Prospects for 1974/75, November 26, 1973,R73-273) described and analysed the substantial changes which have takenplace in the Indonesian economy in 1973. Since then there have beenimportant further developments, especially in oil prices. A BasicEconomic Mission is planned for September/October 1974 to reassessIndonesia's longer term development prospects and policies. Countrydata are shown in Annex I.
3. The Indonesian economy, which was dualistic and export-oriented in the colonial period, was severely affected by the greatdepression in the 'thirties, and the war, followed by the struggle forindependence, in the 'forties. After a relatively brief period ofrecovery in the early 'fifties, the economy stagnated again in the decade1957-1967 largely as a result of adverse economic policies. Thus, aftera long period of economic difficulties, in which the population nearlydoubledj Indonesia has become one of the poorest large countries in theworld (1970 population about 115 million, per capita income about $80).
4. After the Suharto Government introduced an effective stabiliza-tion program to combat the economic disruption and spiralling inflationof the mid-1960s, there has been a period of recovery and rehabilitationunder the First Five-Year P]ai. Real annual economic growth wasclose to 7% in the period 1968-1972. Domestic savings and investmentsincreased considerably, thus providing the basis for continued economicexpansion after the rehabilitation phase. By 1972, investments, exclud-ing those in the oil sector, had grown to an estimated 17% of the GNP,of which more than two-thirds were financed from domestic sources.In agriculture, sustained efforts were made to increase food production,with emphasis on rice. Although a drought in the second half of 1972led to a setback in food production and a steep increase in prices,production has recovered since then. Efforts to expand food productioncontinue to receive high priority and in this connection the Governmentplans a large increase in fertilizer imports in 1974, internationalsupplies permitting. Expansion of domestic fertilizer capacity is beingactively pursued.
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5. Even before the world energy shortage came to a head in thelatter part of 1973, the money economy was booming, and real growthwas probably accelerating under the influence of steep increases inIndonesia's export prices, a significant physical expansion of produc-tion in the oil and forestry sectors, a rapid growth in direct foreigninvestment (initially in mining, but increasingly in manufacturing),and a large inflow of short-term credit. The same factors, however,also caused significant inflation, reaching a rate of 40% per annum inthe beginning of 1974. The Government has taken a number of measuresto combat the inflation, most recently in April 1974.
6. The contribution of the oil sector to the economy, which wasalready increasing rapidly, has taken a quantum jump since September1973. The Indonesian oil price, which was still $3.73 per barrel inthat month, reached $11.70 per barrel on April 1, 1974. In addition,Indonesia has renegotiated the contracts with the foreign oil companiesto receive a larger share of the total oil proceeds. Thus, while thenet oil contributions to the balance of payments and tbe Government'soil revenues were below $0.5 billion in 1972/731/ (less than 5% of theGNP), they are expected to reach well over $3 billion in 1974/75, anincrease of $20 per capita. Given also the external and domestic in-flation, total exports as well as budgetary receipts will probablyexceed $5 billion in 1974/75; a rough quadrupling in two years.
7. The inflation is, however, also affecting the expenditure sideof the balance of payments and the budget. Average Indonesian import pricesare expected to increase by 80 percent between 1972 and 1974, with thelargest increases occurring in foodstuffs and agricultural inputs (rice,wheat, sugar, fertilizer). To shield the domestic consumer against theeffect of high external prices, the Government is subsidizing these importsat an annual cost of nearly $L billion. In addition, the Government has topay more for domestic goods and services (including Government salaries).Thus, about one-half of the additional budgetary receipts will be erodedby the different effects of inflation. Of the other half, a significantpart will be spent on real increases in Government outlays, includingmuch-needed gradual salary increases. development expenditures, routinematerial expenditures, and subsidies to regions. Nevertheless, there willprobably remain a budgetary surplus of $0.5 - $1.0 billion in 1974-75.The expected overall surplus on the balance of payments is somewhat larger,and foreign exchange reserves may increase from $0.9 billion on March 31,1974 to about $2 billion (about five months of imports at the then expectedrate) a year later.
8. These surpluses are not large in relation to Indonesia's needsfor additional current and capital expenditures in nearly every field,as specified in the Second Five Year Plan (1974/75-1978/79). Moreover,
/ Fiscal year starting April 1l
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earlier problems of absorptive capacity are gradually being overcome.Thus, even though some of the expenditures budgeted for 1974/75(consumers' subsidies) should only be temporary, it will probably notbe long before the new resources are fully absorbed.
9. The Second Five Year Plan also provides significant newdirections in emphasizing the social, regional and equity aspects ofdevelopment. It is recognized that, while the Government's initialeconomic stabilization and rehabilitation programs, as well as anumber of specific activities, have benefitted large segments of thepopulation, the benefits of investments in the modern sector - muchof it in or around Jakarta - have not been widely spread. Also, thecontinued high level of agricultural prices after the 1972 crop failurehas ultimately benefitted the rural areas, but is severely reducingthe real income of the urban poor. The Government's policy to keep theprices of basic ccomodities in check through subsidization of importsis providing relief, but it is the intention to gradually work out andimplement a number of more basic socially oriented policies in thefields of employment, education, housing, etc.
10. In the short and medium run, Indonesia therefore faces theproblems of efficient utilization of additional resources, and of theimplementation of more socially-oriented policies. In this context,there will be a need for continued international technical assistancefor project implementation and institution building. After the newresources have been absorbed, Indonesia will also still need financialassistance to finance further programs to alleviate its poverty. Thereis therefore a strong case for continued international assistance toIndonesia, even though the country may generate relatively modestbudgetary and balance of payments surpluses for a limited period. Inall probability, these surpluses will have been absorbed by the timedisbursements from new projects become significant.
11. The soft average terms of foreign assistance provided in thecontext of the Inter-Governmental Group for Indonesia (IGGI), and therescheduling of pre-1966 external debt obligations (under the 1970 ParisClub Agreement with the Western countries and Japan, and parallelarrangements with several Eastern European countries) have kept Indonesia'spublic debt service ratio relatively low. Service payments on re-scheduled and subsequently incurred public debt are estimated at $320million in 1974, will reach a peak of $380 million in 1975, and are pro-jected to decrease gradually thereafter. Comparing these amounts withthe projected export level of over $5 billion in 1974/75, and given thefact that Indonesia's external terms of trade will probably remainfavorable, it appears that Indonesia now has the capacity to servicesignificant additional debt.
12. The changes in Indonesian economic circumstances discussedabove had become apparent by the time of the IGGI pledging meeting inMay 1974. As a result, it was generally agreed that program aid wasno longer necessary on economic grounds, although some donors will
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continue such aid, at least for some time, for reasons of convenience.At the same time, the meeting endorsed the view that a considerableexpansion in project aid was warranted to assist Indonesia in carryingout a more ambitious development strategy. Although some members werenot in a position to make pledges, it seems likely that total aidcommitments (including IBRD loans) in 1974/75 will exceed the aid requestof $850 million.
PART II - BANK GROUP OPERATIONS IN INDONESIA
13. For the reasons indicated in Part I, Indonesia will continueto need substantial external financial and technical assistance to re-habilitate and improve infrastructure and expand production capabilitiesin agriculture, minerals, forestry and manufacturing. With the continuedgrowth of the economy, the Government will also be able to devote increas-ing attention to development of effective programs designed to ensure thatthe benefits of development are distributed widely. Agricultural programsto increase the productivity of smallholder farmers, regional developmentin the outer islands, family planning and other social programs will there-fore have an important place in the development strategy during the periodof the Second Plan.
14. The work of both the headquarters and Resident Staff has beanoriented toward these development objectives. The basic economic mission,scheduled for early this fall, will concentrate on questions of employmentand income distribution.
15. All Bank Group lending so far has been on IDA terms. As a resultof Indonesia's rapidly improving balance of payments and'resource position,described in Part I of this report, Indonesia is now able to borrow onless concessional terms. The Bank has therefore informed the Government thatall lending after FY74 will be provided on Bank terms. Following the twocredits presented to the Executive Directors on June 4, 1974, the proposedcredit will constitute the last IDA credit to Indonesia.
16. The Bank Group has in the past financed local currency costs underits projects in Indonesia. Such financing will continue to be necessaryif the Bank Group is to increase assistance to the agriculture and socialsectors, where projects frequently have a low foreign exchange component.In such cases, the Bank Group will therefore continue to provide limitedamounts of local cost financing.
17. As of April 30, 1974, Indonesia has received 34 IDA credits amountingto US$509.3 million. On June 4 the Executive Directors approved two IDAcredits amounting to US$22.5 million and one Bank loan of US$48 million. TheBank Group accounts for less than 4% of Indonesia's total outstanding publicdebt. By 1978 itis expected to account for less than 11% of total outstandingdebt and less than 5% of Indonesia's annual debt service obligations. Annex IIcontains a summary statement of IDA credits and IFC investments as ofApril 30, 1974, and notes on the execution of on-going IDA projects.
18. In accordance with the priorities of Indonesia's Five-Year Plans,over 35% of IDA lending to date has been for agriculture. The Associationhas extended four credits to help rehabilitate and develop plantations inthe Goverrment estates sector. Other credits for agriculture include fourto assist rehabilitation of irrigation systems and one each for a fisheriesproject, a seeds multiplication program, beef cattle development, small-holder rubber development, sugar industry rehabilitation and smallholdertea development. Industry is of growing importance to the Indonesianeconomnv and the Association has assisted in four projects in this sector.It organized a consortium of lenders to finance a major expansion of thePUSRI Fertilizer plant, assisted in the reorganization and financing of themajor state development bank (BAPINDO), provided financial assistance forIndonesia's first industrial estate project, and assisted in the establish-ment and financing of the Private Development Finance Company of Indonesia(PDFCI) 0 Other priority sectors to which credits have been extended arepower, transportation, telecommunications, education and population. Inaddition, four technical assistance credits have been made to assist theGovernment in preparing projects and formulating appropriate developmentpolicies. Projects in rural works, telecommunications, water supply, urbandevelopment, agriculture research and a second loan to BAPINDO are beingprepared and may be presented to the Executive Directors in the next severalmonths.
19. The first IDA credit to Indonesia was made in 1968, and abouthalf of all credits have been made since June 1971. The program hasincreased rapidly from a relatively small base, and consequently theundisbursed portion of IDA credits is relatively large. Virtually everycredit has been associated with extensive institutional reforns involving,inter alia, the creation of new project authorities, drafting of newcharters and the enactment of new legislation, all of which has takenmuch time. A number of projects have experienced delays, particularlyin the initial stages of implementation. However, project execution hasimproved sharply during the last year as organizatianal improvementshave begun to take effect and Indonesian staff have become more fam-liarwith Bank Group procedures. Given the status of projects at the beginningof calendar 1973, disbursements under Indonesian projects during 1973were about the same as would have been expected on an IDA-wide basis fora progran of the same size and composition. There are, nevertheless, stillseveral projects, including the first agricultural estate project and thesmallholder rubber project, which continue to suffer from management weak-ness and to require continued close attention from the Bank's Resident Staff.
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PART III - THE SECTOR
The Agriculture Sector
20. The Indonesian economy is predominantly rural; agricultureaccounts for over half of GNP, almost all of non-oil exports and two-thirds of total employment. The Goverament's First Five-YearDevelopment Plan (1969-73) placed priority on increasing agriculturalproduction, particularly rice, the staple food, through rehabilita-tion of irrigation systems, price support and supply of modern inputs.As a result of these efforts and favorable weather conditions, bothtotal agricultural and foodgrain production increased at an annual
rate of about 4% between 1968 and 1972. However, the 1972 rice cropwas seriously affected by drought, production fell 4-5% below thetrend level and the Government had to import about 1.1 million tonsof rice. Although the 1973 rice crop was satisfactory, more then amillion tons of rice were imported.
21. The Bank Group estimiates that Indonesia will not achieveself-sufficiency in rice within this or next decade. In order toattain self-sufficiency, the Government will need to improve andexpand irrigation facilities, produce and distribute greater quanti-ties of fertilizer and improved seeds and upgrade agricultural researchand extension servicese. In Java production increases would be achievedmainly by providing improved irrigation and modern inputs, particularlyto smallholders; on the outer islands by developing effective trans-migration and nucleus estate projects; and on the national level bystrengthening institutions for nationwide programs in the fields ofagricultural research, credits and training.
22. Productioncf other food crops such as maize, vegetables,groundnuts, cassava, sugar and soybeans has not increased significantlyin recent years. Production of traditional export crops has howeverresponded well to Government programs and to favorable trends in inter-national prices. Traditional exports such as rubber, tea, pepper,coffee, copra and tobacco, together with timber, represented about 70%of non-oil export earnings in 1973. For many of these crops, there isscope for further increases in production both from estates and small-holders.
The Existing Irrigation System
23. Lrigation by canal systems began in Indonesia in the mid-eighteenth century and by 1937 the irrigated rice area had reachedabout 2.9 million ha primarily in Java. However, as a result ofneglected maintenance of the last 30 years or so, systems coveringabout 1.9 million ha ir. Java required rehabilitation by the mid-1960s.The Government gave high priority to this task in the First Five-YearPlan and about 60% of the agricultural development budget was allocatedto irrigation. During this period, the Association made four irriga-tion credits to Indonesia amounting to US$50.5 million to assist in
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rehabilitating 820,000 ha mainly in Java, but including about 80,000ha in South Sumatra and Sulawesi. The Asian Development Bank, FAO,UNDP and bilateral sources have also provided funds to help theGovernment implement irrigation rehabilitation projects. At present,there are four million ha under irrigation, which represents about
50% of the country's rice land. However, only about 1.5 million hahave permanent control structures. The remaining 2.5 million ha have
only temporary structures which makes water distribution unreliable.
24. Except for the Jatiluhur area, most of the irrigationsystems in Java can irrigate only 15-25% of the project area duringthe dry season because of the small flows in the rivers and the lackof storage reservoirs. Rehabilitation of the main and secondarycanals is thus only the first essential step in developing Indonesia'sirrigation systems. Increasing water storage capacity and providingmore effective irrigation and drainage networks at farm level are alsoimportant requirements to which Government will need to give more
attention in the future. Accordingly, the Association has assistedin financing feasibility studies of storage reservoirs in the Pemali-Comal Irrigation Project through Credit 275-IND and the CimanukProject through Credit 289-IND while pilot on-farm development schemes
are a prominent feature of the prcposed project.
PART IV - THE PROJECT
25. The Jatiluhur rice producing area in the province of WestJava, covers an area of 300,000 ha of which 237,000 ha are potentiallyirrigable. The irrigation system is a combination of old river diver-
sion schemes which have been linked together and more recently ex-
tended by storage works, including the Jatiluhur Dam, with an effectivestorage capacity of 2,600 Mn3 . The reservoir is designed to storesufficient water to allow double cropping of rice throughout thecommand area. With the assistance of Credit 195-IND (Second Irrigation
Rehabilitation Project), the Government is rehabilitating main canalsand major structures serving about 186,000 ha in the Jatiluhur area.
Progress thus far has been generally satisfactory and the project isexpected to be completed in 1976.
Project Area
26. The area to be irrigated under the proposed project coversthe rema-iing 51,000 ha of irrigable land under the command of theJatiluhur reservoir. About 36,000 farm families with an average6.8 members per family live in the project area. The project willthus benefit directly 245,000 people. The average farm size is small,only 1.4 ha of cultivable land. Median farm sizes are even smallerranging between 1.3 ha in the north and 0.8 ha in the south. About50% of the project area is cultivated by 20% of the farmers on landparcels between 2 ha and 5 ha; 43% of the land by 50% of the farmers
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on parcels between 0.5 ha and 2 ha; and the remaining 5% by 30% ofthe farmers on parcels under 0.5 he. Land fragmentation in the areais not a serious problem. However, only about 25% of the farmers,farming about 43% of the land, are owner-operators; another 10% aretenants renting their land from the Forestry Department or from thevillage administrations; and the balance are sharecroppers cultivatingabout half of the area, mainly in the less productive regions. Undersharecropping arrangements, crops are shared on a 50-50 basis andexpenses on a variable basis.
27. Rice, the main crop, is grown throughout the project areain the wet season and wherever there is sufficient water during thedry season. The overall annual cropping intensity is about 130%,with a small area (6% of the total) under field crops in the dryseason. These include maize, cassava, legumes and vegetables andare grown on high ground with light soil, generally along the riverbanks, with a combined production of less than 7,000 tons per year..
Background of the Project
28. The feasibility study for the proposed project was preparedby consultants financed under Credit 195-IND. The project wasappraised by a Bank Group teem composed of Messrs. Pranich, Kim,Mbnning, Morton and Okabe in April-May 1973. Negotiations were de-layed pending the designation of a new President Director of theJatiluhur Authority and.held in Washington on May 10-17, 1974. TheGovernment's negotiating team was led by Yr. Saleh Afiff, DeputyChairman of BAPPENAS, the National Planning Agency. The AppraisalReport dated May 31, 1974 is being circulated to the ExecutiveDirectors separately and the principal features of the proposed pro-ject and credit are summarized in Annex III.
Project Description
29. The project provides funds for rehabilitating 115 km ofexisting flood embankments on the Citarum River; constructing a majorflood diversion channel (26km), secondary irrigation canals (270 km)and drains (300 kmi), tertiary irrigation canals (500 km) and drains(500 km), neu feeder roads (170 kIn), and office buildings, stores andhouses for project staff; and reclamation of about h,000 ha of un-inhabited swamp land. Funds are 31so included to procure vehiclesand equipment,for supervision of construction and agricultural ex-tension services, to engage a consulting firm to carry out planning,design and detailed engineering and also to employ an agriculturalextension specialist and an irrigation operation and maintenanceengineer. The project would upgrade and expand agricultural extensionservices in the project area and in the area under Credit 195-IND; anddevelop a training program for project staff, agriculturists, agri-cultural extension officers and selected farmers. In addition, fundsare provided to assist the Government in designing and constructinga number of pilot on-farm development areas covering about 4,000 hain the four on-going irrigation rehabilitation project areas assistedby IDA under Credits 127, 195, 220 and 28 9-IND, and about 1,000 ha inthe present project area.
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Project Cost and Financing
30. Total project costs are estimated at US$68 million equivalentof which US$22 million (32% of the total costs) would be in foreign ex-change, excluding duties and taxes. The proposed credit of US$30 millionequivalent would finance about 44% of the total project costs and wouldcover the foreign exchange costs and some of the local costs. The re-maining 56% of total project costs would be provided by the Governmentthrough annual budget appropriations to the Jatiluhur Authority. Costestimates have been based on acceptable preliminary designs and similarworks in West Java adjusted to end 1973 price levels. They include pro-visions for expected cost increases due to inflation and physical contin-gencies. The project costs are summarized below:
Local Eoreign TotalT- US$ million 7
Land Acquisition 3.9 - 3.9Civil Works 16.7 10.3 27.0Equipment & Vehicles 0.1 0.4 -0.5Consultants' Services 0.9 2.0 2.9Specialists & Training 0.2 0.4 o.6Pilot On-Farm Development 1.0 - 1.0Agricultural Extension Service 1.4 - 1.4Operation & Maintenance During
Construction 0.8 - 0.8Administration & Overheads 2.2 - 2.2
Sub-Total Project Cost 27.2 13.1 40.3
PhysioaI Contingencies 2.7 1.3 4.0Expected Cost Increase Due to
Inflation 16.1 7.6 23.7
Total Project Cost 46.0 22.0 68.0
Tertiary Networks and On-Farm Development
31. Tertiary irrigation canals and structures in Indonesia havetraditionally been constructed and maintained by farmers while drainagehas usually followed natural channels, rivers and streams, Since thishas been a slow prooess in the past and drainage canals in this projectare beyond the farmers' capability to oonstruot, tertiary irrigationand drainage networks would be constructed by the Authority. Inaddition, the proposed project would provide for design and construc-tion of a number of pilot schemes for on-farm development on fullyrehabilitated tertiary units in the project areas rehabilitated underthe first four IDA irrigation credits as well as in this project area.The main objeotives of the pilot schemes would be to develop a
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suitable long-term approach to on-farm development in Indonesia,
consisting of works for tertiary and quaternary irrigation and drain-age canals with related control structures, land levelling wherenecessary, farm roads and to the extent possible, land consolidation.After studying the results of the schemes, the Government woulddiscuss its findings with the Association before the end of 1977 and
would implement the agreed on-farm development programs throughoutthe area of the proposed project.
Agricultural Supporting Services
32. Agricultural support activities also need to be strengthened
substantially if potential production increases are to be achieved.The project would therefore provide assistance for strengthening and
expanding agricultural extension services for the entire Jatiluhurarea. The proposed IDA credit would help finance supporting vehicles
and equipment, training centers and overseas training of agriculturalextension officers. In addition, the credit would finance the servicesof an internationally recruited extension specialist. To the extent
possible the Government will expand existing credit programs in theproject area and ensure that adequate supplies of fertilizer and
pesticides are made available to farkers. A program is being preparedby the Authority for the long-term agricultural development of the
Jatilahur area which would provide for an integrated program of de-velopment and coordination of the efforts of the various agenciesconcerned. The Government will submit this program to the Assooiationnot later than September 30, 1975 and iiplement the agreed programthereafter. Furthermorej, the propo.ed project would provide for a
detailed survey and evaluation of the present and projected financialsituation of the sharecroppers, mall farmers and landlords in the
project area which would recomend suitable incentives to ensure full
participation of small farmers and sharecroppers in the project.
Organization
33. The project would be carried out by the Jatiluhur Authoritywhich was established in 1970 as a seni-autonomous public agency tomanage the Jatiluhur Dam and the development of the Jatiluhur regionand to implement the Second Irrigation Rehabilitation Project financedunder Credit 195-ID. abile the performance of the Authority has beengenerally satisfactory, experience since 1970 has pointed to a numberof desirable ahanges in the Authority'as organization and operatingprocedures. The Government has prepared a plan to make suitable
changes and after consultation with the Association agreed to imple-ment it by Jne 30, 1975. Under this plan coordination among theDepartments of the Authority - Irrig4tion, Administration and
ELectric Pbwer - would be izproved. The activities and funactionsof each Department of the Authority and the relationsbip between
them would be specified in a new Administrative Order which wouldalso outline duties, responsibilities and authorities of all keystaff of the Authority. Uhder the now organization, the Authority
would assume a larger role than it has at present in planning and
assisting in the implementation of agricultural development in the
Jatiluhur area.
Operation and Maintenance and Recovery of Capital Cost
34. Under a law promulgated in 1959, Indonesian farmers pay toprovincial governments a tax called IPEDA. The tax amounts to 5% ofthe net value of production (NVP) of the farmers' land. Revenuesaccruing from this tax are used by provinces to finance operationand maintenance for the irrigation systems and various investmentprograms, including irrigation projects. At present the IPEDA re-venues are not sufficient to cover the total requirements for opera-tion and maintenance. Part of the needed funds are therefore pro-vided from the central government budget. However, the increase infarmers' income resulting from the project would generate sufficientincrease in the IPEDA tax collection to provide enough revenues tomeet the full operation and maintenance expenditures of the Authorityand recover the projebt cost, without interest, approximately over 40 years.
Procurement and Disbursement
35. Vehicles and equipment for the project (about US$400,000)would be procured through international competitive bidding inaccordance with Bank Group Guide'lines. For purposes of bid comparison,a margin of preference of 15% or the level of customs duties, which-ever is less, would be granted to qualified local manufacturers.Small off-the-shelf items of less than US$5,o0o each, up to anaggregate limit of US$50,000 would be purchased through competitiveprocedures, including but not limited to obtaining not less than threeprice quotations. Civil works would be grouped into about four con-tracts, ranging from us$5 million to US$15 million each, and tenderedin accordance with the Bank Group's normal procedures for internationalcompetitive bidding. All civil works contractors invited to bid wouldbe required to pre-qualify. In order to promote and upgrade the capa-bilitiesof local firms, foreign contracting firms interested in sub-mitting tenders would be encouraged to associate themselves withIndonesian firms and local contractors would also receive a preferenceof 7-1/2% of the bid amount in bid comparisons.
36. The proceeds of the proposed credit would be disbursed against100% cf foreign expenditures of consultants; 100% of the c.i.f. costof directly imported vehicles and equipment, 95% of the ex-factoryprice of equipment manufactured locally; and 65% of the off-the-shelfprice of the goods imported but procured locally. Disbursements forcivil works would be made for 55% of such expenditures.
Benefits and Justification
37. At full development in 1988 paddy production from the projectarea is expected to increase to about 363,000 tons annually from93,000 tons at present. This means that project production would re-present a net annual foreign exchange saving of about US$33 millionfrom 1988 onwards.
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38. Farm models indicate that depending on the size and type ofholding, present net farm incomes of between Rp 46,o0o and Rp 151,000(US$110-390) would increase to between Rp 150,000 and Rp 680,000(US$360-1,640). The project would also generate considerable employ-
ment opportunities for farmers who are now chronically under-employed.Emigration to urban areas would be reduced as a large number of smallfarmers and sharecroppers would be provided with an additional sourceof farm income.
39. In evaluating project benefits, an estimated future farm-gate price of US$225 for paddy was used. This was derived from theBank Group's forecast for the world market price of milled rice in1985 in terms of 1974 constant prices. Farm labor was costed on thebasis of future supply and demand of farm labor and alternative employ-ment opportunities. The economic rate of return over the 50-yearlife of the project would be 42% when the projected world price ofrice was used.
PART V - LEGAL INSTRUMENTS AND AUTHORITY
40. The draft Development Credit Agreement between the Republicof Indonesia and the Association, the Recommendation of the Committeeprovided for in Article V, Section l(d) of the Articles of Agreementof the Association, and the text of a resolution approving the proposedcredit are being distributed to the Executive Directors separately.
41. The special features referred to in paragraphs 31, 33 and34 of this Report are reflected in Sections 3.05(a), 4.07, 3.11 and4004 respectively.
42. I am satisfied that the proposed development credit wouldcomply with the Articles of Agreement of the Association
PART VI - RECOMMENDATION
43. I recommend that the Executive Directors approve the proposedDevelopment Credit.
Robert S. McNamaraPresident
June 6, 1974
Attachments
ANNEX I1, of 3 pages
umsr w^ra - Ut121E2 A
ARU P0P LfruS6~7h19 Mel j!{??ii sto id-1971)
awePer Itsmf sea, lend
SOCIAL MNZIICAMS
D.doresla
OAt? PR CArI0 A ISI (ATLaS As) e 80 10 210 120
DE:MD[.RA PSrClUd. biri th (Per thusnd) .L 38 /b 52 30crrud deat ,rte (pe theieoad) 21 19 16 7W 11 ?5Infnt ectallt, rat. (pee thousand li births) 125 125 /a 120-14r/b 59 150-175Lfe e actnc at birth (years) 48 48 49 56 /o 37
orosa reprodructni rate /2 3 34 2.9 2.9 1.3Pelpteor growth rate 'T 2 0 2.0 2.3 3.0 2 5populatles groWth rite - arbe. 5 4 5 /d 5
AVo tr-otns (prrent)o-Li 44 44 42 43 L5
15-6h 54 54 55 53 '365 end O.er 2 2 3 4 2
ihe,uindeoo ratio 4 0.9 0.9 2.2 /a, 1.3 /dag 0.9
r,ban popilatitn 3s penrnnt of total 16 17 20 35 /d 23pas ntlilypi irgi No of arCCptors cum=lative (ttns i .. 175 .. 509
No. of users (% of arsled en) e ..
Total la-ir fro- (thousands) 3W,6W ! 50),100 221,000f S1 13,220 /f 24j,t5D?er-er-t'g* eployed in agricultare ?2 6, n 7 5s 7? 7DPercent ge nmployed 5 2 7 77
2P0YS DISThTrstmoP;ieren of national income received by highest 5% . 22 4 3D /J.peroest a' na t ineona.l iocoe rSceived by hbighest 201 48 - 55
Pruert o national iconr. reneired by lOisut 20% EJ Yp4I'nvoent o national. bone,, ssnresred by louesi 50% .. . 73 12
MflT2m8711 OF LID DWd8ERS:Piced to or nosere .a noed by smallest 1lO of owners . ..
HEAlLTH AND ksETO35,000 lh 26,000 4,o0c /D 2,620 24,030
Polatt-r per eifflLng Person .. 5,liO0 .4i5o 7W 2,050 2,530Popd.etiur psr hospital bed 1,410 /b 1,200 1,830 7 910 2,871.
Pnr Caprte calorie supply an 9 II requlrss s 4 76 /s E4 /I e /n 90,Per capita protein aupply, total (grams per deyq .6 38 TM 88 7! 53 7W ,9
Of ticeh, anial and puise 137 15 7r 22 7. 14Death rate 1-4 Years P .. . .. 77i
EDCATION-Adjustd I3 p,.tosny nchool *nrollmat natin iD 71 79 /o 1129 /t dAd½ns. d Z nenday coancer1 orofl'not ra.tio 6 11 28 7! j 3
ea.. of snoo.Lisg protded, first and second teo-1 12 12 12 10 14Vocational enioliPeot as S of sec. achool enrollmat . 21 6 10 S O jrAdult literocy rate 3 39 56 36 70 s ?
e e No. of perseon per toon {urban) 3 ItPercent of onoupled -oits withaot piped eater . ., 77 4 . -Aosen to lsatrlrity fse S of total pojclation) 2C 8Perocnt of Burgl pFulaticos annectad to elctrisity M u 10 I .
DONSUIU1021Ktdlo r*oS;vere per lOOD populeatln 13 114 21 5 Iu 23Pessnger erare per IOD populaeton 1.1 2.0 1.1 1.2Electrto poser conIiSption (kwh p.r.) 16 In lB 100 In 229 12Ksesprsnt cons.nptisn p.c. kg per year 0o2 0.2 0.3 1 o a' 01
Notei. Figurne refer either to ths itiest periode or to an-oont of environoental teiperatWre, body eett, a1dthe latent 75mr. Litent periods infer d,i prridipls to distrbiti-o b ag end sea of nationsl populations.the yearn 1956-60 or 1966-70; the lateest reare n prio- /6 Protdn tsndarde (rsquiesente) for all enomtroies s stab-cple, tc 1960 awi 1i70 libhed by U01 loBeaie i eareah Service prvide for A elai umo
The Per lapite F ePr.icate Iw at snOrkt prie- f-r aLlsan-e of 60 gra u-f total protein per day, ad 20 Fsm ofram nthe thba 1950,g rcaulated by the ot coora-reoo wnemalnd poLes protein, of ebioh 10 grae aooLd be animal
schoiqoe -a the 1972 hordBk tles. protei. Vse standrs Are seesytat lower thaoo thcs of 75/L Average oug er of deughtars per sen of reproduetive greas ci toual protu5n wo 23 prams of animal protein to sa
age. average for the world, proposed by ?10 in the Third Iorld Foed4 Population growth retes are for the decades endng in Surre.
1960 d 1 5d70 o e t S tudies htns .Sggeeted that o4de death rates of chil-irnRt.o of nuxder 15 eed 65 rd er age brcketo to q es 1 throu*h I, may be ued fa first approxiethon mda. otthose in lihbor force breoket of ages 15 throbg 6J. mlautritio.
Li FMt refoream standorl represent p17iologicral r- B_ Persamtaga enrlled of norreponin population of ahonul agquirsoents for ncrml. rctloity and htnitt, tkidLg 0s defined for sach opuntry.
/I 1 i72 ; T I-X, e,tirain; /c 1095/701 /d lor tji d.fiodtdna if -b-an one 09J Danoprphio loarbook, 1971, p. 156;Ra Ytio ofpcfotinn uonder 19 Wan 65 osd o-er to labor forte tn apn Ero-uP 15-5Pj If 1971; 4 Ratio of population t undr15 and 65 scd over tn totl labor force; (i 156}s Ii AID estim,ate of laoor force in age groop 15-69 BRD reportgheda fi- re of ISl sortlion bo, r,e an the 1971 oopuae.ttion 0en00. The diffverece :t dLe to charges in tne deftoitiotof e .nrk-. 1l the 1101 renecs, pura.nn acre clssilted only on the hardi of thou r it n tilty; thin led to the
-nr-isoni ", oen-ral noongcrlee socb am hoceowineet LA Htoehnlids Lk 19 6 6
1 lSbS-h9; n 19h/16; J2 tPb9:I Dlcu--s orede niLin-ctl /P 1565; 4 1367i 4 Date covern 9 o-t of 12 staten; /a Pp,l;tt-n of 10 yearn sudnner cmed on _3 Banpne data oi 13lIt it.gos orilyl Lu 1945; 4 1963; 4 op-r-o only.
R3 Kay 1., 197L
Agq'!X I2of 3 pages
ECONOMIC INDICATORS
GROSS NATIOlIAL PRODUICTr IN 1972 ANNUAL RATE OF G(RO'TH (5%, constant prices)
US$ Mln. % 1960 -65 1965 -70 1972
GNIP at Market Pric s 107;'5 100.0 1.9 4.9 7.0
Gross Domestic Investment 1843 17.2 3.3 11.5 19.8
Gross National SavLnf' 1361 12.7 5.8 5.i 7.7
Current Account Balance 482 4s.5Exports of Goods, NFS 1757 16.L 3.7 7.5 11.5
Imports of Goods, NFS 1875 17.5 0.2 10.9 15.0
OUTPUT, LABOR FORCE ANDPRODUCTIVITY IN 1971
Value Added Labor Force-/ V. A. Per Worker
US$ Mln. __ Mln. % US $ %
Agriculture 4188 43.6 24.9 62.3 -!68 70.0
Industry 2267 23.6 3.8 9.5 597 248.8
Services 3151 32.8 10.9 27.2 289 120.4
Unallocated . . 04 10Total/Average 9606 1o0.O i lo T .
GOVERNMENT FINANCEGeneral Government Central. Government
( Mln.) of GDP B-
197 197 196 -7 1972/3 1972 1971
Current Receipts .. 585 12.9 10.8
Current Expenditure _ 444 9.8 9.3Current Surplus 141 31
Capital Expenditures .. 291 6.1 4.9
External Assistance (net) .. 150 3.3 3.5
MONEY, CREDIT and PRICES 1968 1969 1970 191 19 1973(Billion rps. outstanding end periodf
Money and Quasi Money 126 230 315 432 69C 987
Bank credit to Public Sector 45 6o 57 78 15 33
Bank Credit to Private Sector 90 172 306 442 601 941
(Percentages or Index Numbers)
Money and Quasi Money as % of GDP 6.c 8.5 9.4 11.4 15.2
General Price Index (sept. 1966 = 100) 463 54, 612 638 680 891Annual percentage changes ins
General Price Index 124.8 17.7 12.3 4.2 6.6 31.0
Bank credit to Public Sector 80.0 33.3 - 5.0 36.8 -75.5 73.7Bank credit to Private Sector 190.3 91.1 77.9 44.4 36.o 56.6
NOTE: All conversions to "o'.lars in this table are at the average exchange rate prevailing dulring the periodcovered.
I/ Total labor forc; unemployed are allocated to sector of their normal occupation. "Unallocatedil consistsmainly of unemployed workers seeking their first job.
not availablenot applicable
ANNEX I3 of 3 pages
TRADE PAYMENTS AND CAPITAL FLOWS
BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1971-73)
1971 1972 1973 US $ Mln %(Millions US $)
Exports of Goods, NF S 1307 1757 2957 Oil 913 45.5Imports of Goods, NFS 1519 1875 3114 Rubber 271 13.5Resource Gap (deficit = -) -2 - lilH -.J57 Timber 328 16.3
Tin 72 3.6Interest Pavments (net) - 29 - 46 - 42 Coffee 68 3.4Workers' Remittances - - -Other Factor Payments (net) - 172 - 318 - 543Net Transfers - - - All other comnmodities 355 17.7Balance on Current Account -413 - l482 - 742 Total 2007 100,0
Direct Foreign Investment 139 258 290 EXTERNAL DEBT, DECEMBER 31, 1972Net MLT Borrowing+Capital Grants
Disbursements 405 447 626 US $ MlnAmortization - 83 - 58 - 82Subtotal 322 389 544 Public Debt, incl. guaranteelJ 4013
Capital Grants .. .. .. Non-Guaranteed Private DebtOther Capital (net) 22 169 209 Total outstanding & DisbursedOther items n.e.i _ 98 2sL 1/Increase in Reserves (+) 70 432 325 DEBT SERVICE RATIO for 1973-
Gross Reserves (end year) 187 574 806Net Reserves (end year) 26 458 783 Public Debt, incl. guaranteed 4.2
Non-Guaranteed Private DebtFuel and Related Materials Total outstanding & Disbursedi
Inports 4 5of which: Petroleum 2 2 2
Eacports 515 877 1348of which: Petroleum 515 877 1348 IBRD/IDA LENDING, (April 30,1974)(MiLlion US $):
RATE OF EXCHANGE IBRD IDA
Outstanding & Disbursed 148.5Throuoh JulYI971 Since August 1971 Undisbursed _ 36.8US R 1.00 = RS$. 375 US $ 1.00 = =p. 415 Outstanding incl. Undisbursed 36.Pp. 1.00 = US $04.003 mp. l.oo 0 us $0.002
1/ Rntio of Dtebt Service to Exports of Goods and Non-Factor Services.
. not available
, not applicable
June 6, 1974I
ANNEX II 1 of 10 pages
THE STATUS OF BANK GROUP OPERATIONS IN INDONESIA
A. STATEMENT OF IDA CREDITS (as of April 30, 1974)
Credit Fiscal US$ MillionNumber Year Purpose Amount Undisbursed
127 1969 Irrigation Rehabilitation 5.0 .2135 1969 Technical Assistance 2.0 .0154 1969 Highways 28.0 1.0155 1969 Agricultural Estates 16.0 2.1165 1970 Electricity Distribution 15.0 4.2193 1970 PUSRI Fertilizer Expansion 35.0 7.3194 1970 Agricultural Estates II 17.0 8.8195 1970 Irrigation Rehabilitation II 18.5 8.9210 1971 Telecommunications Expansion 12.8 6.4211 1971 Fisheries 3.5 3o2216 1971 Technical Assistance II 4.0 .7219 1971 Education 4.6 4.5220 1971 Irrigation Rehabilitation III 14.5 7.4246 1971 Seeds 7.5 6.1259 1971 Tea 15.0 10.1260 1971 Highways II 34.0 26.4275 1972 Technical Assistance III 400 2.9288 1972 Education II 6.3 6.o289 1972 Irrigation Rehabilitation IV 12.5 7.9300 1972 Population 13.2 12.3310 1972 Development Finance - BAPINDO 10.0 8.6318 1972 Inter-Island Fleet Rehabilitation 8,5 6.5319 1972 Agricultural Estates IV 11.0 10.3334 1972 Electricity Distribution II 40.0 38,1355 1973 Beef Cattle Development 3.6 305358 1973 Smallholder Development 5.0 4.9387 1973 Third Education 13.5 13.5388 1973 Third Highway 14.0 13.6399 1973 'West Java Thermal Power 46.o 46.o400 1973 Smallholder & Private Estate Tea 7.8 7.8405 1973 Sugar Industry Rehabilitation 50.0 50.0428 1974 Puo Gadung Industrial Estate 16.5 16.5436 1974 Development Finance - PDFCI 10.0 10.0451 1974 Technical Assistance IV 5.0 5.0
Total now held by IDAE/ 509.3 360.7
/ Prior to exchange rate adjustments
B. STATEMENT OF IFC INVESTMENTS (as of April 30, 1974)
Fiscal Type of US$ MillionYear Obligor Business Loan 2qUitY Total1971 P.T. Semen Cibinong 12. 1 3.11971 P,T. Unitex Textiles 2.5 0.8 3.31971 P.T. Primatexco Indonesia Textiles 2.0 0.5 2.51971 P.T. Kabel Indonesia Cables 2.8 0.4 3.21972 P.T. Dralon Textiles 4.5 1.5 6.0
ANNEX II2 of 10 pages
Fiscal Type of US$ NilionYear Obligor Business Loan Equity Total
1973 P,T, Jakarta Int. Hotel Tourism 11.0 - 11.01973 P.T. Semen Cibinong Cement 5.4 0.7 6.11973 P.T. Primatexco Indonesia Textiles 2.0 0.3 2031973 P.T. Monsanto Pan Electronic pdts. 0.9 - 0.91974 P.T, PDFCI Devp. Fin. Co. - 0.5 0051974 P.T. kiwaltex Textiles 2.4 0.6 3.8
Total 44.1 7.8 51.9Less sold or repaid 19.3 1.4 20.7
Total now held 24.8 6.4 31.2
Undisbursed (includingparticipants' portion) 8.0 1.8 9.8
FR ;~ages
IDA PROJECTS IN EXECUTION VCr. No. 127 Irrigation Rehabilitation; US$5 Million Credit of
SeDtember 6, 1965; Closing Date: December 31,, 1975
This project includes the supply of earth-moving equipment andmachinery to augment hand labor in rehabilitation work on three irrigationsystems (in Java) and the construction of a fourth (in South Sumatra).All the equipment supplied under the credit is being well utilized anddisbursements are 98% of appraisal timetable, Final completion of theproject is expected to be delayed by about two years in order to completemuch additional needed drainage work, the financing of which was not pro-vided for under the dredit. These additional costs will be met by theGovernment. The revised economic rate of return on the project, whichwas calculated at 50% at appraisal, is now expected to be about 25%. Theclosing date has been postponed to December 31, 1975.
Cr. No. 154 Highways; US$28 Million Credit of June 20, 1969;Closing Date: December 31, 19714
The project is now progressing satisfactorily. The closingdate has been postponed by one year to December 31, 1974.
Cr, No. 155 Agricultural Estates; US$16 Million Credit ofJune 20, 1969; Closing Date: December 31, 1975
This credit is for the rehabilitation of two Government ownedestate groups in North Sumatra. The credit became effective six monthsafter signature, the delay resulting from unforeseen difficulties in theappointment of management, advisors and visiting inspectors. Delays indevelopment occurred as oil palm planting material in Indonesia was foundto be genetically unsuited and, an unforeseen sharp fall in rubber pricesseriously restricted the availability of self-generated funds. With recentimprovements in management and niuch higher international prices for rubberthe financial situation of the 2NP V is expected to improve.
Now that field and factory standards have been raised to a goodtechnical level the management has been advised to concentrate on costcontrol in order to prepare for the time when produce prices are lessattractive than they are today. The combined efforts of the management,consultants and IDA supervision missions are beginning to yield goodresults.
Cr. No. 165 Electricity, Distribution; US$15 Million Credit ofOctober 29, 1969; Closing Date: June 30, 1975
This project is progressing satisfactorily. The closing datehas been postponed by 18 months to June 30, 1975.
V These notes are designed to inform the Executive Directors regardingthe progress of projects in execution, and in particular to report anyproblems which are being encountered, and the action being taken toremedy them. They should be read in this sense, and with the under-standing that they do not purport to present a balanced evaluation ofstrengths and weaknesses in project execution.
ANNEX II4 of 10 pages
Cr. No. 193 PUSRI Fertilizer Expansion; US$35 Million Credit ofJune 15, 1970 (as amended May 1 Closing Date:December 31, 1975
The project has progressed satisfactorily after a new time
schedule was agreed to allow for time required to meet all conditions of
effectiveness and the procurement requirements of all co-lenders. The
general contractor now is expected to complete the plant by early July 1974
about one-and-one-half months ahead of the revised schedule. The construc-
tion and installation of a natural gas gathering system and a 65 mile trans-
mission line has also been delayed but the plant is now receiving gas for
testing and the gathering system is expected to be completed two months
ahead of startup.
Cost for the fertilizer plant has increased by about 17% due
to currency revaluations and changes made as detailed design progressed
and the true composition of the gas became known. The gas system has
been enlarged to meet the increased need of the fertilizer canplex and
to supply a greatly increased usage by Pertamina's refineries and by
power plants.
Latest cost estimates show an increase of about 130% against a
system capacity increase of 104%. Current estimates indicate a foreign
exchange cost over-run of nearly $30 million compared to the appraisal
report estimates. AID, OEOF and IDA are contributing $4 million, $3.7million and $5 million respectively to help finance the foreign exchange
cost over-run. The Government will cover the balance required to com-
plete the project.
Despite the capital cost increases the project has become moreremunerative. Given the substantially lower capital cost compared to
estimates for similar projects presently under consideration, and the
presently expected long-range international prices for UTrea, the eccnomic
rate of return, calculated at 1h% at the time of appraisal, should now
be in excess of 30%.
Cr. No. 194 Agicultural Estates; US$17 Million Credit ofJune 15, 1970; Closing Date: June 30, 1975
This project was for the rehabilitation of two Government-owned
estate groups in North Sumatra. The credit became effective eight months
after signature, the delay resulting from unforeseen difficulties in the
appointment of management advisors and visiting inspectors. Delays in
development occurred as oil palm planting material in Indonesia was
found to be genetically unsuitable, and an unforeseen sharp fall in
rubber prices seriously restricted the availability of self-generated
funds. However, during 1973 a record 3,200 ha of oil palm were
planted on PNP VI and the program will be virtually on target. The 1973
rubber program was reduced following the advice of the last Supervision
Mission as PiNP IV was over-extended; if the high standards of replantIng
now being achieved can be maintained, it should be possible to increase
the size of future programs again.
ANNEX II5 of 10 pages
M1nagement has improved in the field and factory and reasonablestandards are being maintained. More emphasis is required on cost controland management has agreed to take the necessary action. Solid progress isbeing achieved and PNP VI's financial situation has been greatly helped bythe present higher producer prices. PNP IV has also made marked progressduring 1973 and is in a satisfactory financial position.
Cr. No. 195 Irrigation Rehabilitation II; US$18.5 Million Credit ofJune 15, 1970; Closing Date: November 30, 1974
The project includes rehabilitation and drainage works over186,000 ha. After a slow start, due to problems with preparation oftender documents and difficulties in obtaining acceptable bids, work isnow proceeding somewhat better. Problems of quality and progress stillexist, but, the consultants are tackling these vigorously, and thissituation is improving. Estimated costs remain within the overallappraisal estimate, but the project will be one year behind appraisalschedule.
Cr. No. 210 Telecommunications; US$12.8 Million Credit ofJuly 13, 1970; Closing Date: June 30, 1974
After a slow start, due to procurement difficulties, orders forall equipment except the tropospheric scatter system have now been placed.The management consultants have completed their work but have been retainedto implement the recommendations being discussed between the Governmentand the Association to work out appropriate measures. The Government isrequesting reallocation of the proceeds of the credit and postponementof the closing date to complete disbursements.
Cr. No. 211 Fisheries; US$3.5 Million Credit of July 13, 197Q;Closing Date: June 30, 1976
After a slow start this project is now progressing satisfactorily.Project management satisfactory to the Association has now been appointed;contracts with engineering and management consultants have been concludedand the consultants have begun work and the contract for the shore facilitieshas been awarded.
Cr. No. 216 Technical Assistance II; US$4.0 Million Credit ofSeptember 15, 1970; Closing Date: December 31, 1974
This project is progressing satisfactorily, but it has beennecessary to postpone the closing date by one year to complete disburse-ments for on-going studies.
ANNEX II6 of 10 pages
Cr. No. 219 Education; US$4.6 Million Credit of November 6, 1970;Closing Date: December 31, 1976
The project is about 12 months behind schedule due to delay inthe appointment of the architect but is now progressing satisfactorily.Four out of five contracts for civil works have been approved by theGovernment and the Association, as also have equipment lists. The leaderof the team of overseas specialists has arrived and is assisting the train-ing of the first group of technical teachers for the centers. While dis-bursements were initially slower than expected, it is likely that construc-tion of the five centers will be completed in less time than originallyestimated and the final implementation would thus be on schedule.
Cr. No. 220 Irrigation Rehabilitation II; US$14.5 Million Credit ofNovember 6, 1970; Closing Date: December 31, 1975
This project covers 202,000 ha and includes rehabilitation andre-introduction of an 0 & M organization in three irrigation systems, twoin Java and one in South Sulawesi. Construction remains about two yearsbehind schedule. The problems with preparation of contract documents,which have caused this delay, have been overcome and, while no furtherdelays are expected, it is unlikely that the time lost could be regained.There has been some increase in overall project costs, and a review isbeing carried out to determine the effect of the dollar devaluation oncivil works and equipment contracts yet to be awarded. Disbursements areimproving to about 52% of the level estimated at appraisal. Sensitivitytests run at the time of appraisal showed that a two year delay and 15%cost overrun would reduce the economic rate of return from 25% to 21%.
Cr. No. 246 Seeds; US$7.5 Million Credit of My 14, 1971;Closing Date: September 30, 1977
Project implementation is behind schedule due to initial delaysin organization, management and effective procurement. These problems arebeing overcome but, because of procurement delays, inflation, currency re-valuation and design changes in the seed processing plant, a 20% cost in-crease for the original project proposal became likely. However, recentstudies indicate that the market size for rice seed may be only about halfthe original production target. Therefore,the latest Supervision Missionhas recommended reduction of the seed production target from 22,000 tonsto 12,000 tons per annU in 1977, by which time the need for furtherdevelopment of the seed industry would have been reviewed. The possibilityof such a reduction in project output was foreseen at the time of appraisaland provided for in the Credit- Agreement. Therefore, two subsidiary seedprocessing centers will not be constructed and the funds now remaining inthe credit will be adequate to complete the project. The expected economicbenefits of the project remain substantial with a rate of return of 59%,not including the research and seed certification components whose benefitsare not easily quantifiable.
ANNEX II7 of 10 pages
Cr. No. 259 Tea; US$15 Million Credit of Jume 24, 197;Closing Date: June 30, 1975
This credit is for the rehabilitation for two groups ofGovernment-owned tea estates in West Java. Despite management weaknessesin cost control and efficiency, progress to date is satisfactory and re-
lationships betveen management and consultants are good. Recently revisedcost estimates for factory rehabilitation and expansion are substantiallyabove appraisal estimates and project consultants have been asked to review
them.
Cr. No. 260 iI II; US$3 M5llion Credit of June 24, 1971;Cos-ing De:__September 30 1975
This project is In Sumatra and consists of construction witbsuervision of about 200 kn. of highway, detailed engineering of further
highway sections and a regional development study. The project is about
six month8 behind schedule, but the construction contracts have all been
awarded and no further delays are expected.
Cr. No. 275 Technical Assistance II; II;S$4 illion Credit ofDecember 29, 1971., Closing Date: December 3=, 1975
Progress on this project is satisfactory, but it has been
necessary to postpone the closing date to conplete disburseents for on-going studies.
Cr..No. 288 Second Education; US$12.5 Million Credit ofMarch 9, 1972; Closing Date: December 31, 1976
Project implementation has been slow due to delays in concluding
a contract with conaultant architects and in recruiting technical assistance.
However, the architectural contract has now been signed and the project unit
has decided to recruit technical assistance through a FAO Fund-in-Trust
arrangement. Project implementation is now progressing satisfactorily.
Cr. No. 289 Irrigation Rehabilitation IV; US$12.S Million Credit of
March 9, 1972; Closing Date: June 30, 1977
The project is located in East Java and consists of rehabilita-
tion of the irrigation system and the re-establishment of 0 & M in five
non-contiguous areas totalling 229,000 ha, known as Pekalen-Sampean. It
also provides for the enployment of consuLtants to assist in the execution
of Pekalen-Sampean and for feasibility st'idies of further irrigation re-
habilitation projects. Civil works and equipment purchase for the main
project, PNkalen-Sampean, are just beginning and are on schedule.
Consmltants for the various studies are at work with their counterparts.
Groundwater inrvestigations will be delayed due to procurement difficulties.
The rehabilitation and storage feasibility studies are on schedule.
Disbursements are on schedule.
ANNEX II~t-of pages
Cr. No. 300 Population; US$13.2 Million Credit of April 20, 1972;_osin Date: June 30,97
Progress under the project is currently being hampered byorganizational weakness and delays in obtaining necessary local currencyfunds. The procurement of vehicles has also been delayed due toGovernment ban on importing fully built-up cars. These matters arecurrently being discussed with the Government.
Cr. No. 310 Development Finance; US$10 Million Credit ofJune 7,, 19721, Closing Date: Decemiber 31,, 1976
This credit is expected to be fully committed by mid-197 4 .Disbursements are rising quickly.
Cr. No, 318 Dnter-Island Fleet Rehabilitation; UsS.5 MillionCredit of June 28, 1972;- Closing Date: September 30, 1976
Progress on this project is satisfactory but the weak financialposition of PELNI, the Government-owned shipping company and main sub-borrower, has caused concern. An audit of PELNI has been conpleted andin consultation with the Association and BAPINDO, the Government istaking appropriate action to strengtWn PELNI's financial position.
Cr. No. 319 Agricultural Estates IV; US$11 Million Credit ofJune 2d, 1972; Closing Date: June 30, 1981
This credit is for the rehabilitation and development of 8,600ha rubber and 9,1400 ha oil palms, including factories, on a group ofGovernment-owned estates in South Sumatra. After a delay of severalmonths to allow additional time to appoint inspection services andexecutive assistants, this credit became affective on February 1, 1973.The project has recovered from these initial delays and in now progressingvery satisfactorily. Agricultural standards are improving rapidly andprocurement planming is well advanced.
Cr. No. 331 Electricity Distribution II; US$40 Million Credit ofSeptember 29, 92 lsn ae December 31, 1976
This credit became effective March 12, 1973 and initial progressis satisfactory.
Cr, No. 355 Beef Cattle Development; US$3.6 Million Credit ofJa9Xli Date: March 31, 1980
Increased costs, due to inflation and exchange adjustments,will be offset by higher sale prices for cattle but bave caused cashflow problems, which are being resolved.
ANNEX II9 of 10 pages
Cr. No. 358 North Sumatra Smallholder Development; US$5 MillionCredit of February 14, 1973; Closing Date: December 31, 1981
This credit became effective on August 13, 1973 and has sufferedfrom severe financial and organizational difficulties. The Resident Staffhas been monitoring the project closely and Government is consideringactions to overcome present problems and accelerate project implementation.
Cr. No. 387 Education III; US$13.5 Million Credit ofJune 1,1973; Closing Date: December 31, 1981
This credit was declared effective on August 30, 1973. Manu-script preparation, testing and book production is well advanced. Thedevelopment of programs for book distribution and teacher training dependlargely on the timely recruitment of technical assistance. The Governmentapproached UNESCO for this technical assistance under a contract reimburs-able under the terms of the credit and an agreement will be signed to thiseffect between the Government and UNESCO.
Cr. No. 388 Highways III; US$14 Million Credit of June 1, 1973;Closing Date: June 30, 1977
This credit for the construction of 124 km. of highway and twobridges in North Sulawesi and the study and detailed engineering offurther highways in Java was declared effective on June 25, 1973.Construction bidding and consultant selection are proceeding on schedule.
Cr. No. 399 West Java Thermal Power; US$16 Million Credit ofJune 22, 1973; Closing Date: June 30, 1978
This credit became effective on August 28, 1973. The contract fordesign of the power station has been signed and initial progress is satis-factory.
Cr. No. 400 Smallholder and Private Estate Tea; US$7.8 Million Creditof June 22, 1973; Closing Date: March 31, 1952
This credit is for the rehabilitation and replanting of small-holder and private estate tea areas and for the rehabilitation of fiveprivately owned black tea factories and the construction of two new blacktea factories in West and Central Java. lThis credit became effective onNovember 29, 1973.
Cr. No. 405 Sugar Project; US$50 Million Credit ofJune 26, 1973; Closing Date: Jnee 30, 1979
The effectiveness of this credit was delayed because it tooklonger than expected for the Government to implement legal and institu-tion changes to amalgamate existing PNPs into larger PT estate groupsand to establish a joint sugar projects unit to provide overall coordina-tion. These changes have now been implemented and the credit was de-clared effective in April 1974. However, the Government engaged thenecessary consultants' services prior to credit effectiveness and workis proceeding on schedule.
ANNEX II10 of 10 pages
Cr. No. _28 Pulo Gadung Industrial Estate; US$16.5 Million Credit of
September 14, 1973; Closing Date: December 31, 1975
Despite recent increase in construction costs, the project
remains financially viable because revenues from the sale of plots has
risen proportionately. Construction is proceeding at an acceptable rate
and developed land is being occupied as fast as it is made available.While there is still a backlog of applications for industrial plots, the
rate of new applications has fallen off during recent months and the
estate is intensifying its promotional efforts.
Cr. No. 436 Private Development Finance Company of Indonesia (PDFCI);US$10 Million CredIt of November 2 3; Closin Date:
December 31, 197
Initial progress under the project is satisfactory.
Cr. No. 451 Technical Assistance IV US$5 Million Credit ofJanuary 2, 19V ; Closing Date: December 31, 1976
Initial progress under the project is satisfactory.
ANNEX IIIPage 1 of 3 Pages
JATILUHUR IRRIGATION EXTENTION PROJECTCREDIT AND PROJECT SUMMARY
Borrower: Republic of Indonesia
Beneficiary: About 36,000 farm families (250,000 people), mostof whom are very small farmers, would benefitdirectly and about 50,000 peopleindirectly, for a total of 300,000 people.
Amount: US$30 million equivalent in various currencies.
Tems: Standard
Project Description: Major project components are the following:
(a) rehabilitation of 115 km of existing floodembankments on the Citarum river;
(b) construction of a major flood diversionchannel (26 km), secondary irrigation canals(270 km) and drains (300 km), tertiary drains(500 km) and irrigation canals (500 km), andnew feeder roads (170 km) and office buildings,stores and staff houses;
(c) reclamation of about j,000 ha of uninhabitedswamp land;
(d) procurement of equipment and vehicles forthe project;
(e) improvement and expansion of agriculturalextension services;
(f) training for project staff, agriculturists,agricultural extension officers and selectedfarmers;
(g) designing and constructing pilot areas foron-farm development;
(h) engagement of a consulting firm for planning,design, detailed engineering, supervision ofproject works, training Government counterpartstaff and for assistance in pilot on-farmdevelopment; and
(i) employment of twfo specialists, one foragricultural extension and the other foroperation and maintenance.
ANNEX IIIPage 2 of 3 pages
Project Costs: Total project costs are estimated at US$68 millionof which US$22 million would be in foreign exchange
(32% of the project cost). Due to steep inflation, pricecontingencies amounting to US$23.7 million have been
allowed.
Financing Plan: The proposed IDA Credit of US$30 million would financethe full foreign exchange costs and some of the
estimated local costs of the project. Government would
provide 56% of the total costs from its own budgetary
resources to Jatiluhur Authority, and to PROSIDA for
pilot on-farm development works on the first, third
and fourth irrigation rehabilitation projects (Credits 127,
220 and 289-IND).
Estimated Disbursements:(us$ ooo)
IDA Fiscal Year 1975 1976 1977 1978 1979 1980 1981 Total
Annual 0.7 1.8 5.0 6.5 7.0 6.0 .0 30.0
Cumulative 0.7 2.5 7.5 14.0 21.0 27.0 30.0 -
Procurement: (a) Vehicles and equipment (US$400,000) would beprocured after international competitive bidding in
accordance with IDA guidelines. Qualified domestic
manufacturers of these goods would be accorded a
15% domestic preference or the actual taIiff duty,whichever is less, in the comparison of bids. Small
off-the-shelf items, costing less than US$5,000 each,would be purchased through competitive procedures.
Such purchases would be limited to a total of
US$50,000.
(b) All civil works except for office buildings, stores,
houses and rural extension centers, would be subject
to international competitive bidding. They wouldbe grouped into about four contracts to attract
interest from international contractors, but to ensure
that works would be carried out by capable contractors,
all bidders would be required to pre-qualify. Foreign
firms that would be interested in making bids would be
encouraged to associate themselves with Indonesianfirms in order to uplift and promote capabilities of
local contractors. In bid comparisons for civil works,
local contractors would be given a domestic preference
of 7-1/2% of the contract value.
ANNEX IIIPage 3 of 3 pages
Consultants: Jatiluhur Authority would engage internationallyrecruited consultants to carry out the planning,design and detailed engineering, constructionsupervision, to train counterpart staff of theAuthority and to provide assistance in designi:ngand implementing the pilot on-farm developmentworks. Two individual specialists would also beemployed by the Authority, one for agricultural.extensicn and the other for operation andmaintenance.
Economic Rate of The economic rate of return onthe project wouldReturn: be about 42% based on the world market price of
rice as projected by the Bank Group for 1985(US$225 per ton c.i.f. Jakarta in terms of 197Lconstant prices).
Appraisal Report: Report No.307-IND dated May 31, 1974, Asia ProjectsDepartment.
SOUTH CHINAA
JATILUHUR IRRIGATION EXTENSION PROJECT BANGKA KALsGeneral Map Y ' L N
J A V A 5 A xnai n canals SUMATRA DELITUNGCanols
E::== Project areaExisting technical irrigation area WAr J A V A S 2~~=-~Swomp and fish ponds JAT/ Z UHU/R IRRIGATION~Under rehabilitation (CREDIT i95-IND) CSDNBarrages C6WUNG R/E TENS GAPAECT
goThrrd Project Area ATANJQNGf~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ =~~~~~~Fourth Project Area I NDIA N OCEAA
_ : A,S<TOnO.- , PROECIr / MILESDt ' - 5L~ | | FsL -' :/1,OOOHA f(NET Re7gosdeogklok ckongkng a J I
KILOMETEi
JAKARTA\ '
'K~~~~~~~~~~~~~~~Ti<e |ojoron< WEST 8EKASI -- corong ))loja lPame ) S. ' -
8 00 HA FT) ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 200HA(NT
ra , ran g T |&/ 0Eunror
\ ) 107° 107-15' 8 g t 107-30' 107 e 5' 1 , | TelIgbE
WAIAHA R Binong~~~~~~~~~~~~~~~~~~~~~\edn00s
WBAR C RUG8 ;~~~~~~~~~~~~~~~~~~~~~~~SALAMDARMA O5S~
-6'30'
57' 10715' 107'30' 107 5
