World Bank Document...PUSRI - PT Pupuk Sriwidjaja, Palembang, South Sumatra Pusri Nomenclature Line I - Point of production or import Line II - In or near port areas Line III - District

Documtert of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 7851

PROJECT COMPLETION REPORT

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT(LOAN 2120-IND)

JUNE 19, 1989

Industry and Energy Operations DivisionAsia Regional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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COUNTRY EXCHANGE RATES

Name of Currency (abbreviation) Rupiah (Rp)

Appraisal Year Average 1982 US$1 - Rp 625Intervaning Years' Average 1983-85 US$1 - Rp 862Completion Year 1986 US$1 - Rp 1,650Average 1982-86 US$1 - Rp 1,138

ABBREVIATIONS AND ACRONYMS

Fertilizer Companies

AAF - PT ASEAN Aceh Fertilizers, Lhokseumawe, AcehGRESIK - PT Petrokimia Gresik, Gresik, East JavaKALTIM - PT Pupuk Kalimantan Timur, Bontang, East KalimantanPIM - PT Pupuk Iskanda Muda, Lhokseumawe, AcehPUSRI - PT Pupuk Sriwidjaja, Palembang, South Sumatra

Pusri Nomenclature

Line I - Point of production or importLine II - In or near port areasLine III - District level (usually storage)Line IV - Retail or village level

Fertilizer

TSP - Triple superphosphateDAP - Di-ammonium phosphateAS - Ammonium sulphateMOP - Muriate ^f Potash, Potassium Chloride; PotashSOP - Sulphate of Potash, Potassium Sulphate; Potash

Others

DGSC - Directorate General of Sea Communicationsdwt - Deadweight of ship, in long tonsFMDSS - Fertilizer Marketing and Distribution Strategy StudyGOI - Government of IndonesiaISD - Inland Storage Depot (Line III)KUD - Koperasi Unit Desa. (Village Cooperative)mt - million tonsMSDP - Maritime Sector Development PlanPJKA - Perusahaan Jawatan Kereta Api. (State Railway

Organization)PUSKUD - Head Office for a group of KUDsRLS - Regular Lin;r Services; the Inter-island general cargo

shipping system.UPP - Unit Pengantongan Pupuk. (Port Bagging Station)

FOR OMCIAIL USE ONLYTHE WORLD BANK

Washington. DC 20433USA

Offce of DC,redto.G.neralOpe°atfons (vdIIhti4J

June 19, 1989

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on Indonesia National FertilizerDistribution Project (Loan 2120-IND)

Attached, for information, is a copy of a report entitled "ProjectCompletion Report on Indonesia National Fertilizer Distribution Project(Loan 2120-IND" prepared by the Asia Regional Office. No audit of thisproject has been made by the Operations Evaluation Department at this time.

Yves Rovani

by -am K. Chopra

l

Attachment

This document has a rcstric.ed distribution and may be used by recipients only in the perforrnancei ~~~~~~~of their official duties. Its contents may not otherwise be disclosed without World Batikc authorizalion.

FOR OFmFCAL USE ONLY


INDONESIANATIONAL FERTILIZER DISTRIBUTION PROJECT

(LOAN 2120-IND)

TABLE OF CONTENTS

Page No.

Preface . .....* * * * * * * * * * * * * *...................... iBasic Data Sheet ... ......................... ........................ iiSummary and Highlights ..................................... .* iii

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

II. PROJECT FORMULATION ............. . ............ 3

III. PROJECT IMPLEMENTATION AND COST ......... 7

IV. OPERATIONS ................... .. ................. 10

V. FINANCIAL ANALYSIS .................. ............. . 14

VI. INSTITUTIONAL DEVELOPMENT . ...................... 15

VII. ECONOMIC REEVALUATION ................................. .. 16

VIII. THE ROLE OF THE BANK ................................ 17

IX. CONCLUSIONS ................... ....................................... is

TABLES

1. Development of Production Units ............. ............ 192. Summary of Expected and Actual Completion of

Project Components .... ................................ 203. Summary of Consultant Services ...................... * . .. 214. Appraisal and Actual Costs .......... . 225. Forecast and Actual Disbursements. 236. Projected and Actual Consumption of Urea, TSP, AS, and

NH3 for the Period 1981 to 1986 247. Urea Bulk Carrier Performance........ 258. Summarized Income Statement for 1982-86. 269. Statement of Changes in Financial Position 2710. Summarized Balance Sheet .. .... .** ......... 2811. Compliance with Loan Conditions. .... 2912. Summary c'- Project Benefit and Cost Streams 30

MAPS IBRD 15763R(PPA)RIBRD 15764R

This document has a restricted distribution and may be used by recipients only in the performanceof th,:ir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

i



(LOAN 2120-IND)

PREFACE

This is a Completion Report on the National Fertilizer DistributionProject for which Loan 2120-IND was approved in March 1982 for the sum ofUS$66.0 million.

The PCR was prepared by the Asia Infrastructure 5 Division and isbased primarily on the draft completion report which was submitted by P. T.Pupuk Sriwidjaja, Jakarta Indonesia. The loan was closed on June 30, 1986.

This PCR was read by the Operations Evaluation Department (OED).The draft PCR was sent to the Borrower on December 27, 1988, for commentsby February 14, 1989, but none were received.

ii

PROJECT COMPLETION REPOPT BASIC DATA SHEET

INDOtNESIANATIONAL FERTILIZER DISTRIBUTION PROJECT

(LOAN 212_-IND)

KEY PROJECT DATA

Appraisal Actual orIteam expectation current estimate

Total Project Cost (USS million) 185.3 135.1Underrun (2) - - 27.1

Loan/Credit Amount (USS million) 66.0 37 .6Disbursed - 37 .6Cancelled ) 28.4Repaid to ) Aprl 15, 1988 4_4 2.6Outstanding to ) APril 15, 198 61.6 35.0

Date Physical Components Completed 12/85 10/86Proportion Completed by Above Date (2) _ 90Pr)portion of Tiee Overrun (2) - 24Economic Rate of Return: 215Return on Assets (t) 20 12Institutional Performance Cood Good

OTHER PROJECT DATA

Original Actual oritem Plan Revisions Est. Actual

First Mes.tton in Files 11/29/75 / / / /Xegotiations 02/01/2 02/01/82Board Approval 03!730i82 / / 03/30/82Loan Agreement Date 04/05/82 04/05/82Effectiveness Date 77/07/82 09/27/82Closing Date 06/30/86 06/30/86

Borrover Government of IndoneslaExecuting Agency FT. Pupuk Srividlala (PUSRI)Fiscal Year of Borrower April 1 - March 31Follov-on Project Name -_-__ _-

Loan Number _

Amount (USS million) ___

Loan Agreement Date _ -

MISSION DATA

No. of No. of Date ofItem Month, Year Weeks Persons Man-veeks Report

Identification 01/80 .0 1 1.0 02/19/80Preparation 03/80 2. 1 -.0 04/07/80Preappraissl 01/81 2.0 1 2.0 02/18/81Appraisal 04/81 3. 0_ 4 12.0 03/10/82

Total 8.6 17.0

Supervision I 06/82 1.0 1 1.0 08/0l/82Supervision 1I 11/82 1.0 n.5 0.5 01!26/83Supervision III 077/8 _____ 1--T 04/05/83Supervision IV 09/83 1.0 1 1.0 10/15/83Supervision V /a 02/84 n.a. na n.a. 025/854Supervision VI 07/84 1.0 1 1.0 09/06/84Supervision VII 04/85 1.0 3 _ 3.0 05/05/85-'mpletion 07/87 1.0 1 1.0 06,15/PR

Total ° 754

STAFF INPUT

1981 1982 1983 1984 1985 1986 1987 1988 Total

Preappraisal 13.5 13.5Appraisal 37.3 30.3 67 .6Negotiation 0.7 15.1 15.8Supervisior 1.9 5.0 3.3 5.4 3.9 1.7 12.1 33.4Other 7.1 3.5 10 .6

Total 58.5 50.8 5.0 3.3 5.4 3.9 1.7 12.1 140.9

/a Desk reviev.

iii



(LOAN 2120-IND)

SUMMARY AND HIGHLIGHTS

PT. Pupuk Sriwidjaja (Pusri) is Indonesia's largest fertilizerproducing company. In addition to distributing and marketing its ownproducts, GOI, in 1979, assigned Pusri responsibility for distributing andmarketing of all fertilizers in Indonesia. This responsibility includes bothdomestically produced and imported fertilizers (para. 1.2).

ii. The objective of the project was to provide the additionalfacilities needed for distributing the products from the planned expansion ofthe domestic fertilizer industry during the period 1982-1986. Fertilizerproduction in Indonesia more than doubled during 1982-1986, with an increaseof almost 3.0 million tons, and domestic consumption increased by a factor ofabout 1.5 over the same period. The project included (i) procurement of threeurea bulk carriers and one refrigerated carrier for liquid ammonia; (ii)procurement of 200 rail box wagons and construction of a 21 km railway line toMteneng; (iii) new fertilizer bagging facilities and piers at Meneng andCilacap; (iv) expansion of the existing bagging facility at Belawan, Northsumatera; (v) improvements to existing urea ships and the purchase of ships'spares; and, (vi) consultancy services (para. 2.2).

iii. The Bank loan (US$66.0 m) financed the new bagging facilities,specialized piers, railway wagons, the Fertilizer Marketing and Distribut-nStudy, and the ports and maritime studies. Export credits were used tofinance the four ships and Government funds were used for the railway lineextension (para. 2.8).

iv. No major problems were encountered during the project implementa-tion, which was carried out well by Pusri. However, the planned backhaul ofbulk TSP from Cresik did not occur. Thus, the expansion at Belawan forhandling bulk TSP and improvements to the urea carriers were deleted from theproject. Also, construction of the bulk terminal and bagging facilities, andprocurement of the rail box wagons were delayed by the slow tender evaluationprocess (paras. 3.2-3.8)

v. Due to the deletion of components and overestimates at appraisal,the total project cost was US$135.1 million, a reduction of some US$50.2million from the appraisal estimates. The loan was closed as originallyscheduled (06/30/88) and approximately US$28.4 m was cancelled (para. 3.9).

vi. Completion of the project has left Pusri with a distribution systemconsisting of seven 7,500 dwt bulk fertilizee ships, one 4,500 dwt ammoniacarrier, six bagging stations, 595 railway wagons, 81 inland storage depots

iv

and a computerized linear program model to optimize shipments on the entiredistribution system (para. 4.1).

vii. Utilization of the bulk carriers has not been as high as wasprojected during appraisal as growth in the domestic consumption of urea hasbeen less than expected. Utilization of the Meneng facility has been low, dueto lower than expected demand and also to increased production at a competi-tive bagging plant in Surabaya. On the other hand, fertilizer consumption hasbeen higher than expected in Cilacap's hinterland and hence the facilitieshave been operating well in excess of appraisal expectations. It is expectedthat utilization of both the Meneng facilities and the bulk ships willincrease with the commissioning of the Kaltim III project in 1988 (paras. 4.5-4.11).

viii. In October 1986, Pusri and PJKA began to develop fully the blocktrain concept for fertilizer movements in Java using the 595 Pusri owned railbox wagons of which 200 were furnished under the project. Performance to datehas been good and it is expected that rail shipments will exceed 95% of the1988 target (para. 4.12).

ix. Pusri's financial performance over the project period was good andkey loan covenant targets were met or exceeded. Pursi has adequate funds tofinance any future distribution system expansion. Also, the economic rate ofreturn of the project was acceptable at 15% (paras. 5.1-5.7).

X. Near the end of the project, part of the Bank loan was used to funda Fertilizer Marketing and Distribution Strategy Study (FMDSS) for the period1986-1995. Pusri is using the results of the study to improve the existingdistribution and marketing system and to prepare proposals to GOI foradditional facilities needed in the future. The study identified key invest-ment needs totalling about US$29.0 m which Pusri intends to implement(paras. 6.3-6.6).

xi. The port master planning and detailed engineering financed under theproject led to the ongoing National Ports Project (L-2577). Also the variousproject financed studies have promoted significant changes in portoperations. The Directorate General of Sea Communications and the Perumpelshave benefited substantially (para. 8.2).

xii. Bank involvement was helpful to Pusri especially by discouraging thepurchase of another bulk carrier in 1985 and also in carrying out thedistribution strategy study. Due to the recommendations of this study, Pusrihas recently made changes which focus primarily on the shipping, marketing anddistribution functions and are intended to improve overall operatingefficiency (paras. 8.1-8.3).

xiii. In summary, the project helped to finance needed equipment andfacilities although in retrospect some of the latter, like the pier at Meneng,were overdesigned. The project by design did not contribute much to the Bank/Borrower macro and sector dialogue on major issues such as fertilizersubsidies. This was acceptable at the time because food self sufficiency wasa key Government goal and making fertilizer available at low cost to farmers

v

was part of the overall strategy. However, more attention could have beenpaid to project specific issues such as potential changes in the Governmentmandated safety stock requirements for fertilizers at the ISD's and therealizable nutrient application levels. As it turned out, reductions insafety stocks (from 3 months to 1 month) and usage of nutrients belowGovernment target levels led to reduced fertilizer distribution volumes andalso the resultant underutilization of some facilities.



(LOAN 2120-IND)

I. INTRODUCTION

1.1 P.T. Pupuk Sriwidjaja (PUSRI) was established in Palembang, SouthSumatera, in 1959 as a government owned enterprise to m&aufacture ammonia andurea fertilizers. PUSRI I, the first small plant with installed capacity of100,000 tons per year (tpy) of urea went on stream by the end of 1963. Thisplant was built with assistance from the United States Agency for Inter-national Development. Subsequently, starting in 1974, regular expansion ofproduction capacity took place and Indonesia now has (a) nine urea plants,with a total installed capacity of 4,242,000 tpy in five locations - P.T.PUSRI with four plants, P.T. Kujang, Iskander Muda and Asean Aceh with oneplant each and P.T. Kaltim with two plants; (b) two triple super phosphateplants with a total caparity of 1,000,000 tpy; and (c) three ammonium sulphateplants of total capacity 645,000 tpy at Petrokimia, Gresik. Construction isin progress on a tenth Ammonia/urea plant- Kaltim III with a capacity of570,000 tpy. Two more ammonia/urea plants of similar capacities are plannedto be commissioned in 1989 and 1992 respectively, one to replace the obsoletePUSRI I and the other as the second plant of P.T. Iskander Muda. Details ofproduction units are given in Table 1.

1.2 Regular expansion of fertilizer production and associated distribu-tion capacity resulted from the rapid growth in domestic consumption of ferti-lizers which in turn was due to Government effoyts to enhance production ofrice and other food crops through special intensification programs. Theincreased demand for fertilizers was often centered in locations which werequite far away from the plants and therefore warranted the development of anefficient distribution system to ensure that farmers get fertilizer in timeand at reasonable prices. PUSRI is responsible for the distribution of allfertilizer in Indonesia. Two-thirds of it is transported by ships, includingspecial self unloading ships, to bagging stations at several ports. Fromthere it is forwarded by road and railway to inland storage depots (ISD).From the ISDs the fertilizer is sold through private retailers andcooperatives (KUD) to the farmers.

1.3 The Bank has actively supported the Government's expansion offertilizer production and distribution as the following list of projectsshows:

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Credit/Approval loan Amount

Project date no. (US$ m)

ProductionFertilizer plant expansion andgas conservation 6/15/70 C-193-1 30.0

Fertilizer supplementary 5/21/73 C-193-2 5.0Third Fertilizer expansion 2/20/74 L-1089 115.0Fourth Fertilizer expansion 5/20/76 L-1254 70.0

DistributionFertilizer distribution 7/28/75 L-1139 68.0National Fertilizer distribution 4/05/82 L-2120 66.0

Total 354.0

In addition, PUSRI had two other fertilizer distribution projects (equipmentmostly) which were partly financed by other aid agencies.

1.4 The Bank's first Fertilizer Distribution project provided thespecialized equipment needed by the then existing small-scale fertilizerdistribution system to absorb factory output which increased from about366,000 tons in 1976 to about 1,780,000 tons in 1980. Much of chis increasedfactory output was financed by the previous Bank credits and loans forfertilizer production. The First Project included (a) expansion and provisionof new bulk reception and bagging stations at five ports; (b) provision of 175railway wagons and locomotives; (c) purchase of four self-unloading bulkfertilizer ships; and (d) construction of 57 inland storage depots (ISDs).The project was successful in providing an effective distribution system.

1.5 When the Second project was formulated, domestic fertilizer consump-tion was growing at about 12% p.a. nationwide but with wide regional varia-tions from about 7.55% p.a. on Java to over 20Z p.a. on the outer Islands.Expansion of the distribution system was needed, especially to serve the outerislands and other areas, where facilities were not provided in the firstproject. The second project funded improvements both in sea and landtransport of fertilizer. It included components for modern ships as well asfor block trains for the railway authority (PJKA) and new bagging stations.

1.6 This completion report is based on a draft report submitted by PUSRIand on the findings of a supervision mission to Indonesia and was prepared bythe Asia 5 Infrastructure Division.

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II. PROJECT FORMULATION

Preparation Stage

2.1 The proposed project was identified in discussions between theGovernment and the Bank in 1980 and prepared by PUSRI and the Government withthe assistance of two consulting firms. One firm (Canadian) helped PUSRI tomake estimates of the facilities required to distribute the additional amountsof fertilizer to be produced, and to assist it in the design (and later on theconstruction supervision) of the project. The distribution system preparedunder the project was based on the output of plants then (1980) under con-struction or existing, and on the forecasts of the Department of Agricultureabout fertilizer usage throughout Indonesia. The second firm (Australian)helped to complete the financial and economic analyses of the proposedproject.

Project Objectives

2.2 The project was part of the program developed by the Government forincreased food production by the proper application of fertilizers. Theobjectives of the project were to (a) assist in providing distributioncapacity for the substantial projected increase in fertilizer production fromnew plants then under construction; and (b) prepare master plans and detailedengineering for the development of about eleven ports.

Appraisal Stage

2.3 The appraisal mission, composed of an engineex, an economist and afinancial analyst, visited Indonebia in April/May 1981 and reviewed theproject documents. Several issues were identified; the key ones (financing,subsidies, and advance contracting) are summarized in the followingparagraphs.

2.4 Project Financing. The mission had indicated that parts of theproposed maritime (ships) and railway (locomotives) components of the projectcould largely be financed by export credits. If this happened, then theremaining foreign exchange needs of the project would be less than the thenproposed Bank loan of US$50.0 million. The mission recommended that theGovernment submit a complete financing plan for the project and, if necessary,that an appropriate portion of the loan be reallocated to assist in financingthe civil works for the railway line construction.

2.5 Fertilizer Subsidies. The Government subsidized PUSRI directly bypurchasing factory production at prices which provided an adequate financialreturn on plant assets and then immediately resold the fertilizer at a lowerprice to PUSRI so as to provide adequate returns to distribution activities.This was part of Government's strategy for increasing food production byproviding cheap fertilizer at the farmgate, without penalizing PUSRI. At thattime also, the Government and the Bank were entering a dialogue focused on theoverall question of budgetary subsidies, including those for food, fertilizer,and energy, and progress was being made on nominal retail price increases fLrsome commodities. The rate at which fertilizer subsidies could be phased nut

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depended, among other things, on policy developments in the food crop sector(including returns to farmers) and on consumer prices. The mission thereforerecommended that fertilizer consumption be reviewed periodically in relationto changes in the rice/fertilizer price ratio during project implementation.No conditions or loan covenants would be sought on fertilizer pricing, as itwould instead remain a part of the broad Bank economic dialogue with theGovernment.

2.6 Advance Contracting. Consultants' contracts for supervision of shipconstruction, bulk reception facilities, and railway line designs were to besigned prior to loan negotiations. These contracts involved about US$5.6million in foreign exchange liability. In addition, it was possible thatPUSRI could have committed and paid about US$7.5 million on contracts forservices and goods prior to the date of loan signing. The mission recommendedthat the loan agreement permit loan funds to be disbursed for any balance ofcontracts entered into by PUSRI prior to loan signature, provided suchcontracts have been awarded according to Bank procurement guidelines and havebeen approved by the Bank. No retroactive financing was proposed.

2.7 In addition to the issues, there were several conditions of negotia-tions which the appraisal mission asked the Government to fulfill. The majorones were (a) completion of the right-of-way survey for the railway line toMeneng and start of the required land acquisition; (b) selection of consul-tants both for designs and construction of the new bulk reception and baggingplant and for construction supervision for all ships; and (c) confirmationthat the Petrokimia shiploader can load PUSRI ships.

Negotiations

2.8 Negotiations took place in Washington during February 1-5, 1982.The focus of discussions was on an implementation schedule for the railwaypart of the project and the submission of a satisfactory schedule was made acondition of Board presentation. The project financing issues were resolvedby having PUSRI use suppliers' credits for obtaining all four ships. TheGovernment would finance the railway component and the Bank funds (increasedto US$66.0 million) would cover the remaining PUSRI investments as well as themaritime studies which were added during negotiations. The Bank participationin the project was set at 35% of total cost. As for fertilizer subsidies, theGovernment emphasized the fact that increasing rice production was ofparamount importance and hence decisions on fertilizer pricing would be madein the context of this concern. Finally, on advance contracting, the Govern-ment accepted the Bank's position.

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Project Description

2.9 The project as approved (total cost US$185.31 million) consisted oftwo parts, A and B, as detailed below:

Part A: Fertilizer Distribution

1. Ships

(a) Acquisition of three shallow-draft self-unloadingships, of about 7,500 deadweight tons (dwt) each,similar in design to PUSRI's existing four bulkfertilizer ships;

(b) Acquisition of one ship of about 4,500 dwt for thecarriage of refrigerated ammonia; and

(c) Improvement of the loading and unloading facilitiesaboard PUSRI's existing bulk ships.

2. Bulk Reception and Bagging Facilities and Pier

(a) Construction of a bulk urea reception and baggingstation at Meneng, East Java, with storage for about25,000 tons of bulk urea and 35,000 tons of baggedurea, and capable initially of bagging 750,000 tonsof fertilizer per year (tpy);

(b) Expansion and improvement of the existing ureabagging and handling facilities at Belawan, Sumatera;and

(c) Design and construction of a special urea unloadingpier at each of the ports of Meneng and Cilacap,Java.

3. Inland Transportation

(a) Acquisition by PUSRI of about 200 railway freightcars, of about 30 ton capacity each, speciallydesigned to carry bagged fertilizer; and

(b) Design and construction of about 21 km of railwayline extension from the bulk urea reception andbagging station at Meneng to Kabat, linking the rail-head at Banjuwangi to Meneng, East Java.

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4. Spare Parts

Acquisition of spare parts, as agreed between the Borrowerand the Bank, for the ships, railway freight cars andother facilities, including the facilities to be providedunder the Project, used in PUSRI's fertilizer distributionsystem.

5. Technical Assistance

(a) Design, procurement and construction supervision ofthe ships, and of the bulk reception and baggingfacilities and piers, through technical assistance;and;

(b) Technical assistance for the carrying out of thefollowing studies: (i) to update forecasts offertilizer use and consumption and to study neededfertilizer distribution facilities and methods toincrease peak storage capacity; and (ii) to assessthe needs for additional investment and operationalimprovements required for expanded use of blocktrains for transport of bulk products.

Part B: Port Master Plans and Detailed Engineering

1. Preparation of port master plans for about 10 ports anddetailed engineering of works; and

2. Preparation of detailed engineering of works proposed forthe port of Tanjung Priok under the master plan previouslyprepared for that port.

2.10 Responsibility for project implementation was divided between PUSRI,PJKA and DGSC (the Directorate General of Sea Communications). PUSRI wasresponsible for Parts A.1, A.2, A.3(a), A.4, A.5(a) and A.5(b)(i); PJKA wasresponsible for parts A.3(b) and A.5(b)(ii); DGSC was responsible for theentire part B of the project. The Bank loan covered the PUSRI and DGSC partsof the project.

2.11 The appraisal report, No. 3609-IND was dated March 10, 1982. Theproject was approved by the Executive Directors on March 30, 1982 and LoanAgreement No. 2120-IND (US$66.0 million, for 20 years, including 5 yearsgrace, with interest at 11.6% per annum) was signed on April 5, 1982 andbecame effective on September 27, 1982. Part of the proceeds of the loan wasto be onlent to PUSRI (Project Agreement No. 2120-IND of April 5, 1982) at aninterest rate of 13.5% for 10 years, including 3 years of grace. TheGovernment bore all foreign exchange risks.

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III. PROJECT IMPLEMENTATION AND COST

Overview

3.1 The civil works components were completed some two years behindschedule due to delays in commencing and finalizing detailed engineering aswell as in the construction itself. The ships and rail box cars were alsodelivered late (about one year) for similar reasons. The total project costwas considerably less (by 27%) due to over-estimation at appraisal anddeletion of a few components such as the ship improvements and spares and theBelawan facilities. The ship improvements and spares were deleted because theplanned backhaul of TSP from Gresik was not yet feasible for productionreasons. This also meant that an additional bagging facility at Belawan, thedestination, was not needed and it was also deleted. Operating results weredecidedly mixed--the Meneng pier and bagging facilities are under utilized butCilacap is fully utilized. This was due to lower than expected growth indemand for fertilizers at Meneng, because fertilizer use is already extensivein its hinterland and also it was less costly to service some of the latter'sneeds from Surabaya. PUSRI, however, is financially sound with profitsranging from US$15.6 million to US$53.5 million (after taxes) during theproject period. Its cash and bank balances (including foreign currencies)were quite adequate and it could have financed the project on its own.Table 2 has details of estimated and actual implementation periods.

Implementation

3.2 Meneng facilities. The project's major civil works consisted of thebulk receiving and bagging facilities which were .o be built at Meneng, EastJava. These included (i) a special pier for receiving bulk fertilizer; (ii) areceiving conveyor of 1,000 tons per hour; (iii) reclaiming system and sixbagging modules, for 50 kg bags, both with a total capacity of 1 milLion tpy;and (iv) five payloaders together with office buildings, maintenance shop, a35,000 capacity bagged storage space, empty bags and spare parts store. Theywere to be completed by July 1983, at an appraisal estimated cost of US$22.48million. However major delays occurred because all stages of the engineeringdesign (selection and award of contract, site investigation, actual designs,etc.) took longer than anticipated. Contracts for the facilities andequipment were awarded on various dates (Table 3) to a group of Canadian andlocal consultants, ranging from detailed engineering in October 1982 to theconstruction of the facilities in October 1984. All construction was carriedout by local contractors. The quality of the work done was very good. Theactual total cost of the completed work was US$11.3 million, some 50% lessthan appraisal estimates. This was largely due to the imprecision ofappraisal cost estimates which had been made long before designs wereavailable.

3.3 Cilacap pier. A special pier solely for unloading urea with con-veyors connecting the pier to the bagging station was included in the Projectat an estimated cost of US$2.62 million. It experienced similar delays as atMeneng. The soils investigation, pier and conveyor designs were all awardedto local consultants, while the same Canadian consultant as at Meneng won theconstruction supervision contract. The construction contract was also awarded

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to a local firm but only in July 1984, i.e., more than one year after theoriginal expected completion date. Construction was completed in mid-1986 ata total cost of US$2.1 million. The facility was commissioned in August 1986and has been well utilized since then.

3.4 Rolling stock and Railway Line. The project included the purchaseof 200 railway wagons of 30 tons capacity, designed to carry bagged fertilizerfrom the bagging stations (UPP) to inland storage depots (ISD). The contractfor the wagons was awarded through ICB procedures and the winning bidder (aKorean firm) was to supply the wagons to an Indonesian firm in kit-form forlocal assembly. The wagons were to be put in service by December 1983.However the contract for their supply was not awarded until July 1984. Themain reason for delays arose from the tender evaluation and approval processand also the slow shipping and kit assembly works. The wagons were finallyput into service in October 1986--an aggregate delay of 32 months for thisproject component. The actual cost of the wagons and spares wasUS$6.4 million, which was just over one third of the appraisal estimatedUS$16.0 million. As for the 21 km railway line, from the Meneng pier to themainline junction at Kabat, PJKA completed construction about 1 year behindschedule. This was due to delays in acquiring the right of way and periodicbudgetary shortages. It was funded entirely by the Government and built bylocal contractors who were supervised by PJKA and local consultants.

3.5 Ships. Three 7,500 DWT self unloading ships were to be procuredunder the project to supplement the existing four ship fleet. The new shipswere to be similar to the existing ones and hence the same designs prepared byan American consulting firm under the First Distribution Project (L-1139) wereused. A South Korean firm won the bid and the contract dates for the ships'delivery were June 1983, October 1983 and February 1984. Deliveries were madeon schedule and all ships met the specifications. The ships were capable ofunloading at rates in excess ci 500 tons per hour. In addition, the three newships are outfitted for TSP backhaul, whenever it begins. For the ammoniacarrier, PUSRI used the same consultants for designs and they recommended a4,500 dwt ship as the optimum. A West German shipyard won the bid anddelivered the ship on schedule and under budget.

3.6 Studie, and Detailed Engineering. The project included funds forport master plans and detailed engineering studies and later a fertilizermarketing and distribution study was added (partly to use saved funds) whichalso incorporated the original block train study. The 11 ports to be studiedhad been identified earlier under the Integrated Sea Transport Study (L-1250IND) and belonged mostly to the Perumpel II system. The Director General ofSea Communications (DGSC) was responsible for this project component which waslargely traated as a part of the Maritime Sector Development Program. Themaster plans and detailed engineering for these Inter Island Liner Service(ILS) ports was to be carried out in two phases. Phase I included detailedengineering for the expansion of Tanjung Priok port, and master plans and(where necessary) detailed engineeriAg for the other Perumpel II ports. DGSCused several foreign and Local consulzants for specific tasks such as the portplanning, navigational and communications systems improvement, dredgingimprovement, container operations management, maritime safety studies, etc.DGSC managed this component well and the study findings led to the ongoing

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National Ports Project (L-2577 IND). In addition to port operations and careGhandling facilities improvements at Tanjung Priok, the National Ports projectalso includes investments identified by the study at the ports of Teluk Bayur,Panjang, Palembang and Pontianak.

3.7 In early 1985, PUSRI discussed with the Bank the requirements forfurther development of the fertilizer distribution system serving Indonesia.It was agreed that a study would be undertaken to establish an overall distri-bution strategy covering the period 1986-1995 for movement and handling offertilizer by land and from the various production units or points of importto the consumption areas throughout Indonesia. Marketing and organizationalaspects were also to be addressed. This Fertilizer Marketing and DistributionStrategy Study (FMDSS) was directed by PUSRI, under the guidance of an Inter-Departmental Steering Committee, chaired by the Director of Agro-Cbh-icalIndustries in the Department of Basic Chemical Industries. The study wascarried out by a team of foreign and local consultants working with a PUSRIcounterpart team. The final report, dated August 1986, recommended strategicimprovements in both sea and land distribution of fertilizers. Also, a linearprogramming least cost transshipment model was developed as an integral partof this study. The model can be used by PUSRI to inter alia: (a) determineleast cost distribution patterns for all fertilizers throughout Indonesia;(b) assist in the identification of constraints in the proposed alternativedistribution patterns; (c) assist in establishing strategies for the distribu-tion system; and (d) determine quantities and costs of fertilizer movements onall links in the system. The study also reinforced the fact that the mostefficient distribution systems is PUSRI's current "pipeline system," which isreally a continuous flow process, at least down to the line III (Kabupaten andISD) level. This system is focused on the desirable locat' n of fertilizerstocks which is at line III and IV in the marketing areas.- There is there-fore emphasis on seasonality and matching of movements to immediate marketrequirements. The report also suggested that since Indonesia is a low costurea producer, PUSRI should focus on developing regular, long term exportmarkets. This would imply that some qualitative improvements to thefertilizer (lowered percentage of fines, use of anti-caking agents, etc.)might be required.

3.8 PUSRI is pursuing this and other study recommendations which alsocall for the investment of abc:ut US$29 m for additional facilities to coverdistribution system expansion needs during the 1986-95 period. The faciLitiesinclude a bagging station at Cirebon, upgrading Palembang bulk loadingfacilities to 700 totns per hour, rail sidings, warahousing, high speed baggingmachines, and also pier, dredging, road improvements and a new bagging stationat Semarang. PUSRI can readily finance these improvements. Also, it wasrecommended that additional ships should be of the 10,000 dwt size and beobtained through long term charters when required (around 1990).

1/ In PUSRI "pipeline" nomenclature Line I is the point of fertilizer pro-duction or import, Line II is in or near port areas, Line III is thedistrict level (actually storage) and Line IV is the retail or villagelevel.

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3.9 Project Costs. The total cost estimate for the project at appraisalwas US$185.3 million. In the absence of engineering designs at appraisaltime, cost estimates were based on prevailing prices and quotations fromsuppliers of similar equipment. These estimates turned out t_ be between 1.5and 2 times higher than actual costs. Also some project provisions weredeleted, like the Belawan facilities and the ships' improvements and spares,leading to further cost savings. The actual total cost was US$135.1 m, some27% below the appraisal estimate. The Bank ended up financing about 30% ofthe total cost of the project. Table 4 has further details.

3.10 Allocation of Bank Loan. The following table shows the original,revised and final allocation of the loan funds.

Category Original Revised(darch 1982) (May 1984) Final--------------- US$ million ----------------

Civil works 19.0 19.0 10.4Equipment 15.0 22.3 7.2Consultants services 20.0 20.0 20.0Unallocated 12.0 4.7 -

Total 66.0 66.0 37.6

The loan was closed on June 30, 1986 and approximately US$28.4 m wascancelled. Table 5 has detailed disbursements which were much slower thanexpected due to implementation delays and the cost overestimate.

IV. OPERATIONS

General

4.1 Completion of the project left PUSRI with a distribution system con-sisting of seven 7,500 dwt bulk fertilizer ships, one 4,500 dwt ammoniacarrier, six bagging stations, 595 railway wagons and 81 ISDs. PUSRI, andPJKA to a certain extent, have so far operated the system reasonably well.This was confirmed by the Fertilizer Marketing and Distribution StrategyStudy. However, operating results for the individual project elements weredecidedly mixed, largely because fertilizer consumption grew neither asrapidly nor in the locations predicted by the appraisal report. By 1986, ureaconsumption was 2.7 mt or some 9% below the appraisal expected 3.1 mt. On theother hand, consumption of TSP and AS were both over 20% greater thanappraisal expectations (Table 6). These widely varying trends have madeoptimization of the distribution system difficult. Also with the commission-ing of new plants in 1984, urea production began to exceed domestic demand.Hence in 1985, PURSI began to export urea and 501,287 tons were exported. In

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1986, exports of urea from PUSRI and other domestic producers totalled1,218,197 tons. This also changed the operational environment as PUSRI had toconsider both the domestic and export markets in its planning scenario.

4.2 Since 1982, PUSRI has devoted efforts to reducing the level ofdomestic stocks measured as a percent of sales. At the end of 1982, thedomestic stock of fertilizers as a percentaga of sales was about 47%; by theend of 1984 the percentage had been reduced to 21%. The levelling-off of ureadomestic consumption in 1985 coupled with a very long dry season (andconsequent delayed wet-season planting) caused an increase in domestic stocksto 25% of sales. A large part of the domestic consumption in 1986 wassupplied from the high stocks remaining from 1985. By the end of 1986, thedomestic stock level was down to 22% of sales.

4.3 Two Government decisions were made in 1986 which will affect distri-bution system planning in the foreseeable future. The first of these was toallow a reduction in the required stock levels. Prior to 1986, PUSRI wasrequired to maintain stock levels in the consumption areas equivalent to twomonths of the projected usage. Early in 1986, PUSRI was allowed to reduce thestock levels to 1 month in Java for urea and TSP, and to 1 month in Bali,North Sumatera and South Sulawesi for urea. This decision was based on thefact that the marketing and distribution system had become reliable enough tojustify the reduction in stock levels. The second decision was to pay PUSRI apre-determined lump sum amount (subsidy) on a per ton basis beginning in 1987for marketing and distribution. Therefore, PUSRI will have to plan distribu-tion and marketing in such a way that Lhe system is operated within thebudget. The past practice of PUSRI's receiving marketing compen.'ation tooffset losses was essentially discontinued. The new procedure should serve asan incentive for imp-ovements in effectiveness and efficiency throughout thetotal system.

4.4 Retail prices of fertilizer have been gradually increased over theyears in an effort to reduce subsidies and compensate for increases in produc-tion costs. In 1982, the first year of this project, the retail price was 90Rp/kg but by 1986, the price was 125 Rp/kg. Although, it is too early to makean accurate assessment, it seems that the price increase has not had a signi-ficant effect on fertilizer usage. Paddy prices were increa3ed at the sametime such that an acceptable benefit/cost ratio was maintained for thefarmers. Also, in an effort to reduce the use of credit and thus reducemarketing costs, PUSRI has concentrated efforts toward increasing cashsales. Cash sales in 1982 amount--. to only 51% of total sales but by 1986they had risen to 80% of total aLes.

Operation of the Fertilizer Ships

4.5 Bulk Urea Ships. During 1984 the ships averaged 38.5 voyageseach. Two of the ships operated 353 days and the last ship began operation inMarch and operated 275 days for the remainder of the year. Table 7 givesstatistical information for PUSRI's total fleet of seven urea bulk carriersand the same information separately for the three bulk urea ships purchasedduring the project for the years 1984, 1985 and 1986. The total number ofvoyages decreased from 265 in 1985 to 239 in 1986 as a result of less domestic

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urea stock in 1985 and increased exports of urea in 1986. This situation hasresulted in under utilization of the urea bulk ships. Utilization is expectedto imp-ove in 1988 when the Kaltim III urea plant is commissioned.

4.6 During appraisal, an assumption was made that backhaul of bulk TSPwould be available from Petrokimia Gresik. However, due to postponing of theTSP III project, bulk loading facilities have not been installed at Gresik andthe projected backhaul of TSP has therefore not taken place. Hence the threenew ships, which are equipped for backhaul, are somewhat underutilized.

4.7 The second full operating year for the new ships was 1986 duringwhich the ships made 103 voyages. Cargoes averaged 8,244 tons and totaldelivery to the bagging stations was 840,911 tons. The average total freighthaulage cost by the 3 ships purchased under the project was relatively low asshown below:

Year Rp/ton

1984 21,067.75

1985 17,496.78

1986 21,169.33 /a

/a This increase in freight rate was due to:(i) devaluation of the rupiah, and (ii) increasein the price of fuel oil.

Operation of the Ammonia Ship

4.8 The ammonia ship began operating in August 1984. Utilization of theship has been Less than expected during appraisal because of developments atthe Kaltim I ammonia/urea plant. The Kaltim I plant is designed to produce1,500 tpd ammonia of which 1,000 tpd is for upgrading to urea and 500 tpd isfor direct sales as liquid anhydrous ammonia. The 500 tpd excess ammonia wasto be transported by the bulk ammonia carrier provided under this project toboth domestic (Gresik) and international destintations. However, utilizationof the Kaltim I urea plant has been very low due to technical problems, andthis has led to the availability of much larger quantities of excess anhydrousammonia than planned. These larger quantities were sold to exporters whochartered larger ships than the Pusri carrier for most of their needs. ThePusri carrier was therefore used r.ainly for inter-plant shipments. However,the problems at Kaltim are being resolved and the Pusri carrier should soon befully utilized.

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Bulk Terminal

4.9 Operation of the Meneng Bagging Station. Operation of the Menengbagging station began in May I j85. The Meneng UPP is the second largestbagging station in East Java.2 Utilization of the UPP and the pier have beenvery low, averaging 20X below the design rate. Several constraints existwhich temporarily limit the utilization rate of Meneng. For example, analysisof least cost distribution patterns has so far suggested satisf)ing some ofthe increased demand by using Surabaya; however this is a limited option andmost of the future demand increases will be met from Meneng. The Cilicap andSurabaya UPP's have both performed well above the outputs projected duringappraisal. For example output from the Surabaya UPP was projected as 450,000mtpy while actual output has reached almost 700,000 mtpy and is now at maximumcapacity.

4.10 However, Meneng UPP is very important to PUSRI in meeting itsmarketing/distribution requirements in East Java, particularly during the wetseason. Utilization has really been below expectations mainly during the dryseason. To date, bagging production for Meneng UPP has been in accordancewith the marketing plan of East Java and Bali. The peak production with 4bagging lines operating has been 2,000 tons/day. Actual bagging and shippingat Meneng was 164,739 tons in 1985 and 244,244 tons in 1986. It is expectedthat utilization of Meneng's bagging capacity will increase in direct propor-tion to the increased demand in the East Java and Bali market areas.

Bulk Receiving Pier and Conveyors at Cilacap

4.11 The bulk receiving pier and conveyors at Cilacap began operation inAugust 1986. Unloading rates from the bulk carriers, and ship turnaround timehave both been acceptable. During appraisal, the capacity of Cilacap wasestimated at 317,000 mtpy. However due to higher than expected demand forfertilizer, actual output has reached a maximum of more than 500,000 mtpy.Cilacap is therefore overutilized and may soon require further expansion.

Operation of Rail Wagons

4.12 In October 1986 PUSRI and PJKA began operation of the block trainsystem. By December 31, 1986, total rail shipments for the year were 1.03 mtor 73.6% of the target tonnage. In 1987, inland freight with the block trainconcept from all supply points using PUSRI's 595 rail wagons and PJKA'slocomotives was about 1.4 mt or 95% of target. The fertilizer block trainoperation has now become one of PJKA's best run services.

2/ Surabaya is the largest and its highest annual production to date hasbeen 746,968 tons.

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V. FINANCIAL ANALYSIS

5.1 Audited consolidated income statements of PUSRI for the years 1982to 1986 are given in Table 8. They show that PUSRI's earnings and financialperformance were quite good over the period

5.2 One of the main contributors to this good performance has been theoccasional increases in the price of urea supplied to farmers since it wasfixed at Rp 70 per kg in late seventies. The increases were to Rp 90 per kgfrom November 1982, Rp 100 per kg from November 1984 and Rp 125 per kg fromApril 1986. The effect of these increases is reflected in the sales proceedsespecially i.n 1985 and 1986 when revenue increased by 12.5% and 26% whiletotal quantities sold recorded increases of only 5% and 6% respectively.

5.3 The following financial indicators show that for the period 1982--1986 PUSRI achieved reasonable overall results although there has been aslight decline since 1986. The statement of changes in financial position(Table 9) has further details.

FINANCIAL INDICATORS

1982 1983 1984 1985 1986

Net income(Rp billion) 17.6 53.5 40.5 16.3 15.5

Working capital 44.3 69.1 119.7 63.4 85.7

Return on averagenet fixed assetsin use 11.4 29.9 25.5 10.3 9.8

5.4 Section 4.05 of the Project Agreement inter alia stipulated thatPUSRI should at all times maintain a ratio of net revenues earned to long-termdebt service requirements of the next fiscal year of at least 1.5:1. Theratios achieved ranged between 2.07:1 to 3.22:1 during the years 1982 to1985. The Agreement also specified that PUSRI shall earn each year areasonable return, after taxes on its fixed assets in service. Returns on netfixed assets during the years 1982 to 1986 amounted to 9.7, 10.3, 25.4, 29.6and 11.45% respectively.

5.5 Balance Sheets as at the end of the years 1982 to 1986 are given inTable 10. PUSRI's debt equity ratio consistently improved frortm 35/65 in 1982to 21/79 in 1986 as against the 42/58 to 25/75 estimated at Appraisal. Thecurrent ratio also improved in 1986 to 2.2 while in the earlier years it wasmarginally lower than the estimates. Nevertheless, the lowest was 1.3 in 1983which was still good. Debt service coverage ranged between 3.4 to 6.0,

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confirming the financial stability of PUSRI. Cash and Bank balancesprogressively increased from Rp 74 billion in 1982 to Rp 238 billion in 1986(including foreign exchange). With such large balances in its possession,PUSRI could finance the construction of a substitute new plant (PUSRI-1B) inplace of the obsolete PUSRI 1 plant or other distribution system expansions.

5.6 A steep decline in credit transactions from Rp 107 billion in 1982to Rp 70 billion in 1986 while sales have increased from Rp 195 billion toRp 468 billion demonstrated the results of appropriate action in recoveringdebts as well as the restriction on credit sales. Reduction in inventoriesfrom Rp 103 billion in 1982 to Rp 94 billion in 1986 is also indicative ofstrict stock control. Decline in prepaid expenses from Rp 36 billion in 1982to Rp 5 billion in 1986 showed that advances for supplies and services areadequately controlled. On the whole, the Balance Sheet reflects effectivemanagement of the finances of the companv.

5.7 PUSRI's accounting system provides inter alia appropriate Profit andLoss accounts and Balance Sheets. The Profit and Loss accounts reflect thecost of production and marketing and the earnings thereof. The formats,however, do not provide information on expenses by type such as salaries andwages, stores, and other expenses including interest and depreciation. Thesehave to be worked out by comparing figures of previous years. It is necessarythat suitable formats to provide information on expenditure by type areintroduced in order to better identify costs.

VI. INSTITUTIONAL DEVELOPMENT

6.1 PUSRI has during the last decade developed the capability of notonly operating, maintaining and managing the four fertilizer plants set up atPalembang, but also of developing an extensive marketing network. PUSRI hasalso been able to implement three distribution projects, the first and thlast financed substantially by the Bank and the second financed by CIDA.3The first bank-financed project under Loan 1139-IND (July 1578) helped toexpand system capacity and also supported operational improvements whichenabled PURSI to handle a 20% increase in fertilizer distribution. PUSRI'smanagerial and technical capabilities have been further enhanced with thecompletion of the second Bank-financed project. Compliance with loancovenants was also quite satisfactory; Table 11 has details.

6.2 Despite delays in implementation, the overall performance of themajor components indicate that PUSRI's capability to pla.. and implementprojects has grown considerably. Based on the National Fertilizer Study IIwhich was undertaken by the Department of Agriculture, PUSRI preparedproposals for studies to be added to the Project to (a) revise the forecast offertilizer use and consumption; (b) optimize the utilization of the fertilizer

3/ A $20.0 million loan which essentially financed 220 fertilizer boxwagons, of 30 ton capacity, and 127 weighing scales and spare parts.

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distribution facilities; and (c) effect operational improvements to expand theuse of block trains.

6.3 Based on PUSRI's proposal, the Bank authorized the use of loan fundsand actively assisted PUSRI to initiate a comprehensive study into fertilizerdistribution and marketing strategy for the ten year period 1986-1995. Theconsultants' team of expatriate and local experts, drawn from differentsources, were actively assisted by a counterpart team from PUSRI. This helpedto improve PURSI's overall knowledge and capability and provided additionalexpertise to undertake major projects independently in the future.

6.4 PUSRI was compensated by the Government for marketing anddistribution losses until 198E. With the recent withdrawal of subsidies byGovernment for marketing and distribution activities and substitution in itsplace of a lump sum per ton payment, PUSRI will need its experienced personnelin marketing and distribution, to ensure that the whole system operatesefficiertly and at the lowest cost. To a certain extent, participation in theFMDSS has helped to prepare PUSRI for this role. This is because PUSRI'scapability as an institution for managing the marketing and distributionsystem and for strategic planning have been strengthened significantly.

6.5 PUSRI has already taken some steps to reduce costs includingrelocating its main office from Jakarta to Palembang, and thus also providingthe benefit of closer coordination between production, marketing and distribu-tion functions. Currently the export division is retained in Jakarta. SinceJakarta is the capital of Indonesia and the hub of commercial activity,especially for international trade, retention of the export division inJakarta helps in improving export trade as it facilitates coordination withthe relevant Government departments such as Trade, Industry, and Agricultureand provides ready access to the international community.

6.6 PUSRI will also manage several improvement projects currentlyplanned, including the Bank-financed optimization project for PUSRI II, IIIand IV ammonia units to enhance production by 20% over the originalcapacity. Optimization of PUSRI's urea units to increase urea production,production of melamine (using area) for supply to the plastic industry, andreplacement of PUSRI I are other major projects currently planned for earlyimplementation.

VII. ECONOMIC REEVALUATION

7.1 The benefits included in the appraisal evaluation were determined onthe same basis as for the First Distribution project. Benefits were expectedto arise from the expected reductions in distribution costs between the PUSRIplant at Palembang and its network of ISDs. Costs savings were measured netof (a) the capacity of the distribution system existing in early 1981; and(b) the overall changes in fertilizer costs to farmers that were to follow theconstruction of new urea plants at Bandung and Aceh. Benefits were quantifiedby comparing costs with the project's new distribution equipment versus"without" the project when small bulk and regular line service (RLS) vesselswould be used for interisland shipments and trucks for inland movements.

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7.2 The overall project economic rate of return was thus estimated to be21% at appraisal. The ex-post rate of return was similarly estimated to be15Z (Table 12). This rate of return is quite acceptable as it is based on acontinued modest average nationwide growth (4% p.a.) in fertilizer usage. Thelower volumes of fertilizer distributed, as well as delays in the implementa-tion and use of project facilities and under-utilization of the pier at Menengalso contributed to the reduced rate of return. The reasons can be summarizedas follows.

(a) Urea ships and pier:

(i) the appraisal assumed no ship waiting at Belawan and Cilicap,instead there were some delays;

(ii) 14% less urea was distributed than expected;

(iii) there were no TSP backhaul benefits; and

(iv) the Meneng bagging facility was underutilized.

(b) NH3 ship:

(i) more ammonia was available than had been expected and it wassold fob to exporters who chartered larger ships than thePu.ri one. This is a temporary arrangement and it is expectedthat the ship will be fully utilized eventually.

(c) Railway:

(i) the delayed start of block train operations meant that themore costly land transport had to be used; and

(ii) the transporting of less than expected ronnages.

VIII. THE ROLE OF THE BANK

8.1 PUSRI could most likely have financed and implemented this projecton its own. However the Bank did play a meaningful roLe by supportingplanning and operational improvements. The Bank in 1985, for exampleconvinced PUSRI to not purchase an additional bulk fertilizer ship. Thiswould have proven to be an uneconomic investment, given the eventual slowgrowth in fertilizer usage. PUSRI has al_o reported that participation in theFertilizer Marketing and Distribution Strategy study has helped inter-agencycoordination and it is now working on block train improvements with PJKA.Also the study's findings on PUSRI's operations has led to the adoption ofmajor changes in its marketing, shipping and distribution functions. PUSRI isnow, for example, using the Linear Program model developed under the study tooptimize both its domestic and export transhipment and distributionactivities.

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8.2 The DGSC has also benefitted from the findings of the studiesfinanced through Loan 2120. The studies have promoted changes which aftectthe way the Perumpels will operate, the customs procedures, the revision andapplication of maritime law, as well as the role of the DGSC itself. Thebenefits to the country from the improved maritime and shipping practices arequite substantial.

8.3 During supervision missions the Bank staff assisted in solvingvarious implementation related problems, usually those dealing withprocurement and PUSRI/PJKA coordination. The project received much lesssupervisions than normal, probably because more emphasis was placed on theMSDP studies which were also supported by other Bank loans (Loan 1250 and Loan1337). However, by design, little or no attention was paid to the fertilizersubsidy issue during project implementation.

IX. CONCLUSIONS

9.1 The project was successful and was essential to maintaining the flowof fertilizers from the factory to the farm, in support of GOI's agriculturalintensification efforts. Fertilizer production more than doubled during 1981-86 and consumption increased by a factor of 1.5.

9.2 Implementation of the expansion facilities proceeded smoothly onceapproval was received for awarding tenders. Construction of the bulk terminalat Meneng and procurement of the rail box wagons experienced delays because ofthe time required to receive final approval of the tender evaluations.Procurement of the bulk carriers and construction *f the Cilacap pier werecompleted without major problems. The expansion ; Belawan was deleted fromthe project. The project was completed below appraisal cost estimates.

9.3 PUSRI and PJKA are working on programs for efficient operation ofthe equipment and facilities acquired under the project. Efforts are underway to improve the block train system and the results are positive. It isexpected that rail shipments will attain planned targets.

9.4 PUSRI has made organizationaL changes using input from the strategystudy which was carried our under the project. Major changes, which all havethe objective of improving efficiency, have been made in the shipping,marketing and distribution functions.

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Table I

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT (LOAN 2120-IND)


Developmiat of Production Units

CapacityUnit Commissioned Design Cumulative

------ 1,000 tons/yr -----

UreaPT Pusri I 1963 100 100PT Pusri II 1974 380 480PT Pusri III 1976 570 1,050PT Pusri IV 1977 570 1,620PT Kujang 1978 570 2,190Asean Aceh 1983 570 2,760PT Kaltim I 1984 570 3,102PT Iskandar Muda I 1984 570 3,672PT Kaltim II 1984 570 4,242

PlannedPT Kaltim III 1988 570 4,812PT Pusri IB 1989 570 5,282PT Iskandar Muda II 1992 570 5,852

TSPP.T. Petrokimia GresikTSP I 1980 500 500TSP II 1983 500 1,000

ASP.T. Petrokimia GresikAS I 1972 195 195AS II 1984 250 445AS III 1986 200 645

ProjectedCaprolactam 1989 200 800

INDONESIA



Summary of Expected and Actual Completion of Project Components

Appraisal estimate Actual completionTender No. of Service Tender No. of Service

Description Location date months date date months date Delays

Pier Cilacap Dec 1981 18 Jun 1983 Jul 1984 9 Aug 1986 38 monthsApr 1986 2

Pier Meneng Dec 1981 8 Jun 1983 Sep 1983 12 0

Bagging plants Meneng Jul 1981 24 Jul 1983 Oct 1982 6Oct 1984 5.5 May 1985 22 monthsOct 1985 4

Unloading facilities Belawan Mar 1982 12 Mar 1984 Deleted

Ships Ship 5 Mar 1982 18 May 1983 - - Jun 1983 1 monthShip 6 " 21 Sep 1983 Mar 1982 - Oct 1983 1 monthShip 7 " 24 Jan 1984 - - Feb 1984 1 monthNH3 ship " 24 Dec 1982 Feb 1982 Delivered Operated 18 months

Jun 1984 Aug 1984

Bagging facilities Belawan Dec 1981 12 Dec 1982 Deleted -

Railway wagons Java Jun 1982 18 Dec 1983 Jul 1984 15 Jul 1986 31 months

Rail extension Meneng/ - 45 Jun 1985 - - Aug 1986 14 months X

Banyuwangi I

INDONESIA

NATItJNAL FERTII 1%HR DISTRISUTION PROJECT (LOAN 2120-IND)


Summary of Consultant Services

Description Scope of work Contract dated Total cost (USS) Completion date

Pt. kellogg sriwidjaja - Design consultants for baggingterminal Meneng and CIlacap, andconveyor. November 10, 1981 3H6,669.08 September 24, 1984

Mdrine consultant and designer - Consultants for design and ron- - LN.018/DIR/9) lan. 10, 81 2,466,945.16 October 1984struction supervision of three - LN.021/DIR/9l April 7, 81bulk self-dischadrging vessels - LN.078/DIR/81 Nov. 8, 81and one ammunia cairrier. - LN.08l/DIR/81 Nov. 2, 8l

- LN.033/l)IK/83 March 24, 83- LN.034/DIR/83 March 24, 83

PT. PWA. S1IIIK. - Review Pusri's findncial Infor- Octuber 1982 99,953.81 October 5, 1984mition system

SWANCo - Preliminary design, assistance - LN.006/DIR/81 Feb. 1(1, 81in procurement and construction - LN.070/Dir/82 March 1, 82 511 ,087.58 April 1984supervision of bagging stationat Meneng.

LAPI ITH - Design of wbarf at Cilacap - 2016/SP/i)IR/IV/J-83 17,699.93 November 29, 198412 April 1983

INCDNEB - I)esign for Pier Meneng - 52O/SP/DIl/XII/81 17,631.57 October 29, 19842 November 1981

PT. Soilens - Soil investigation at Meneng October 27, 1981 14,229.13 January 13, 1982

Fertilizer Marketing andDistribution Study

PT PWA SIDIK - Development of managementreporting sybtem for FMI)SS August., 1, 1985 45,040.83 August 31, 1986

Halcrow, Fox and associates - Consultant fo,r FMDSS November 15, 1985 39,344.99 December 13, 1985

1FI)C USA - Consultant for FMDSS July 25, 1985 87,822.59 August 31, 1986

Institut II.MU-ILMU Mana - Services for computerization April 28, 1986 12,153.29 August 31, 1986Jemen Indonesia basic data FMDSS

I.A. WARD - Consultauit for FMNISS August 10, 1985 2(,590.52 December 1'), 1985 D. . . _ . _ . . _ . . . _ _~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.

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Table 4

INDONESIA

NATIONAL PERTILIZER DISTRIBUTION PROJECT (LOAN 2120-IND)a


Appraisal and Actual Costs

Appraisal cost Final cost Actual costestimate estimate as a proportion of

Item LC FC TC LC PC TC forecast amount 1

Bank Financed Section of P:oject

f4eneng:Pier and conveyor 0.9 1.4 2.3 0.7 1.4 2.1Fertilizer handling/bagging

facilities 8.5 11.7 20.2 2.4 6.8 9.2

Subtotal 9.4 13.1 22.5 3.1 8.2 11.3 50.2

Belavan:Fertilizer handling facilities 0.3 0.6 0.9 -(Deleted)-

Cilacap:Pier and conveyor 1.1 1.5 2.6 0.7 1.4 2.1

Rolling stock:200 boxcars - 14.9 14.9 0.6 5.3 5.9Spares - 1.1 1.1 0.1 0.4 0.5

Subtotal - 16.0 16.0 0.7 5.7 6.4 40.0

Ship improvements -.z spares - 4.4 4.4 --(Deleted)--

Consultant services:PUSRI (a) Project supervision and(b) Fertilizer marketing study 2.5 3.0 5.5 1.5 3.1 4.6PJKA: Railway block train study 0.3 0.3 0.6 0.1 0.4 0.5DGSC: Maritime sector development 5.5 12.0 17.5 4.6 10.7 15.3

Subtotal 8.3 15.3 23.6 6.2 14.2 20.4 86.4

Total Bank Financed 19.1 50.9 70.0 10.7 29.5 40.2 57.4

Export Credit Financed Part of Project

3 Urea bulk ships - 43.7 43.7 2.2 41.8 44.0 100.61 Refrigerated ammonia carier - 25.0 25.0 1.1 20.5 21.6 86.4

Total Export Credit Financed - 68.7 68.7 3.3 62.3 65.6 95.5

PJKA Financed Part of Project

Railway extension:Design and supervision 1.8 2.4 4.2 1.0 0.3 1.3Right of way 12.1 - 12.1 5.4 - 5.4Construction 14.2 16.1 30.3 9.1 13.5 22.6

Total PJKA (Gov't) Financed 28.1 18.5 46.6 15.5 13.8 29.3 62.9

GRAND TOTAL 47.2 138.1 185.3 29.5 105.6 135.1 72.9

- 23 -

Table 5

INDONESIA



Forecast and Actual Disbursements

IBRD Fiscal Appraisal Actual disbursements asYear/Quarter estimate Actual % of appraisal estimate

82 - IV 1.0 0.0 0

83 - I 2.8 0.0 0II 5.7 0.0 0III 10.3 1.9 18

IV 15.4 2.5 16

84 - I 21.5 3.0 14II 28.1 5.2 18III 34.7 10.0 24IV 41.4 13.v) 31

85 - I 49.4 14.8 30II 55.0 16.3 30III 59.2 20.1 34IV 62.0 28.0 45

86 - I 63.5 28.2 44II 65.0 28.2 43III 66.0 35.0 53IV 35.6 54

87 - I 37.6 57II 37.6 57III

- 24 -

Table 6

IN-DONESIA



Projected and Actual Consumption of Urea, TSP, AS and NH3for the Period 1981 to 1986

('000 tons)

Appraisal estimate Actual consumptionYear Urea TSP AS NH3/a Total Urea TSP AS NH3 Total

1981 1,902 573 238 - 2,713 2,139 724 282 47 3,192

1982 2,111 660 257 - 3,028 2,039 713 331 88 3,171

1983 2,401 758 273 - 3,432 2,381 834 354 179 3,748

1984 2,692 822 292 38 3,844 2,609 959 408 251 4,227

1985 3,015 923 312 47 4,297 2,607 1,048 475 290 4,420

1986 - - - - - 2,751 1,181 476 301 4,709

/a Excess of in-plant consumption.

Source: Appraisal Report and FMDSS.

INDONESIA



Urea Bulk Carrier Performance

1984 1985 1986Three Three Three

lescription new ships Total ships new ships Total ships new ships Total ships Remarks

-tal tonnage 817,281 1,808,799 1,035,787 2,097,418 840,911 1,875,545

otal ships 2.7* 6.7 3 7 3 7 * Last ship, MV.Abusamah operat-

otal voyages 104 237 123 264 103 239 ing from early '

1984

verage cargocarried pership 302,696 269,970 344,929 299,631 280,303 267,935

qerage cargocarried pervoyage 7,858 7,632 8,353 7,994 8,244 7,847

verage totaloperating daysper year pership 327 - 365 - 340 -

- 26 -

Table 8

INDONESIA



Summarized Income Statement for 1982-86(in million Rupiah)

Year ended December 31st 1982 1983 1984 1985 1986

Marketing Unit OperationNet sales 194,626 287,432 326,841 368,797 467,703Cost of sales 145,324 216,243 237,445 206,413 281,608

Gross Income 49,302 71,189 89,396 162,384 186,095

Operating CostSales expenses 47,971 62,734 104,703 178,572 153,389Administration & overhead expenses 14,069 22,590 5,884 6,449 18,703

Total Operating Cost 62,040 85,324 110,587 185,021 172,092

Operating Income (12,738) (14,135) (21,191) (22,637) 14,003

Other income 622 1,095 1,712 2,232 1,209Other expenses 5,440 11,329 10,188 6,979 17,545

Total Other Income & Expenses (4,818) (10,234) (8,476) (4,747) (16,336)

Marketing loss (17,556) (24,369) (29,667) (27,384) (2,333)Government compensation 17,556 24,369 29,667 27,384 2,333

Production Unit OperationNet sales 151,502 185,629 192,646 138,939 134,312Cost of sales 121,324 136,043 150,341 141,267 134,677Gross income (loss) 30,178 49,586 42,305 (2,328) (365)Other income 5,573 35,113 26,199 30,155 30,704Other expenses 3,872 20,509 6,224 4,596 12,996

Total Other Income & Expenses 1,701 14,604 19,975 25,559 17,708

Production Unit Net Income 31,879 64,190 62,280 23,291 17,343

Income Before Taxes 31,879 64,190 62,280 23,231 17,343

Estimated taxes 14,283 10,653 21,717 6,905 1,769

Total Net Income of Company 17,596 53,537 40,563 16,326 15,574

- 27 -

Table 9

INDONESIA



Statement of Changes in Financial Position(in million Rupiah)


Source of FundsFrom the Company's OperationsTotal net income of company 17,596 53,537 40,563 16,327 15,573Depreciation of fixed assets 26,823 22,206 37,221 36,757 40,990

Total 44,419 75,/43 77,784 53,084 56,563

From Other SourcesAdditional capital 1,588 6,223 17,895 5,513 35,051Increase (decrease) in long-termliabilities 829 5,943 34,199 (7,987) (29,639)

Decrease in long-term advances - - (1,824) - -Sales of fixed assets - - - 1,657 192Adjustment of previous year (2,455) (3,262) (15,247) 2,479 73Decrease in deferred taxes - (15,553) 6,903 8,649 -Change in foreign exchange rate - - - - 23,471

Total (38) (6,648) 41,927 10,311 29,150

Total Working Capital Provided 44,381 69,095 119,711 63,395 85,713

Use of FundsAcquisition of fixed assets 10,143 47,670 17,198 37,725 42,619Increase (decrease) contribution 18,913 (10,677) 14,900 (14,270) (16,258)Increase (decrease) in project funds (6,554) 2,886 7,176 (16,708) 4,699Increase in investment 3,342 7,293 7,510 1,607 (145)Increase of deferred charges 209 (1,240) 798 3,612 (1,480)Payment of dividends 17,347 6,891 10,894 12,715 6,530

Total Working Capital Used 43,400 52,823 584478 24,682 35,995

Change in Working Capital 981 16,272 61,232 38,713 49,718

- 27 -

Table 9

INDONESIA



Statement of Changes in Financial Position(in million Rupiah)


Source of FundsFrom the Company's OperationsTotal net income of company 17,596 53,537 40,563 16,327 15,573Depreciation of fixed assets 26,823 22,206 37,221 36,757 40,990

Total 44,419 75,/43 77,784 53,084 56,563

From Other SourcesAdditional capital 1,588 6,223 17,895 5,513 35,051Increase (decrease) in long-termliabilities 829 5,943 34,199 (7,987) (29,639)

Decrease in long-term advances - - (1,824) - -Sales of fixed assets - - - 1,657 192Adjustment of previous year (2,455) (3,262) (15,247) 2,479 73Decrease in deferred taxes - (15,553) 6,903 8,649 -Change in foreign exchange rate - - - - 23,471

Total (38) (6,648) 41,927 10,311 29,150

Total Working Capital Provided 44,381 69,095 119,711 63,395 85,713

Use of FundsAcquisition of fixed assets 10,143 47,670 17,198 37,725 42,619Increase (decrease) contribution 18,913 (10,677) 14,900 (14,270) (16,258)Increase (decrease) in project funds (6,554) 2,886 7,176 (16,708) 4,699Increase in investment 3,342 7,293 7,510 1,607 (145)Increase of deferred charges 209 (1,240) 798 3,612 (1,480)Payment of dividends 17,347 6,891 10,894 12,715 6,530

Total Working Capital Used 43,400 52,823 584478 24,682 35,995

Change in Working Capital 981 16,272 61,232 38,713 49,718

- 29 -

Table 11

INDONESIA



Compliance with Loan Conditions

Action required Action Taken

Section 3.01. The Borrower shall make available to PUSRI the Complied withfunds required by PUSRI for carrying out Parts A.1, A.2, A.3 (a),A.4, A.5 (a) and A.5 (b) (i) of the Project, under a financingagreement to be entered into between the Borrower and PUSRI, underterms and conditions which are satisfactory to the Bank.

Sef!tion 3.04. The Borrower shall cause PUSRI and PJKA to Complied withestaTflsh and thereafter maintain arrangements satisfactory to theBank for the proper operation and maintenance of PUSRI's railwaystock by PJKA.

Section 4.03. The Borrower shall take or cause to be taken Delays in land acqui-all such action as shall be necessary to acquire as and when sition affected proj-needed all such land and rights in respect of land as shall be ect implementationrequired for carrying out the Project. Without limitation to theforegoing, the Borrower shall cause cause DGSC to make availableto PUSRI in a timely fashion land suitable for: (i) the site ofthe proposed bulk urea reception and bagging station at Menengincluded in Part A.2 of the Project; and (ii) the sites and accessfor the piers to be used for the unloading of urea which piersshall be for the sole use of PUSRI at Meneng and Cilacap.

Section 4.04. The Borrower through PJKA and in close Block trains beingcooperation with PUSRI shall improve the operation of fertilizer operated at about 95%block trains in accordance with performance indicators agreed with of target levelsthe Bank. Such performance indicators shall, inter alia, providefor a specific monthly average turnaround timeots- u-F~Elocktrains from each major loading point. If the improvementsprovided for in the performance indicators are not effected by thetime Part A.5 (b) (ii) of the Project is completed, the Borrowerthrough PJKA and PUSRI and the Bank shall promptly review theblock train operations and, taking into account the findings andrecommendations of the consultants under Part A.5 (b) (ii) of theProject, shall agree upon the action to be taken to improve blocktrain operations.

Section 4.05. The Borrower shall cause PJKA, not later than Complied withJune 3U, IY84, to make available at all times sufficient mainlineand shunting locomotives to ensure efficient fertilizerdistribution operations on the part of PUSRI.

Section 4.06. During any period in which the sale and Complied withdistribution of fertilizer in Indonesia is controlled by theBorrower, or any of its agencies or instrumentalities, theBorrower shall not take any action with respect to fertilizer soldin Indonesia which would prevent PUSRI, operating efficiently,from earning a reasonable return, after taxes, on its assets(except fixed assets not yet in service).

- 30 -

Table 12

INDONESIA



Summary of Project Benefit and Cost Streams(Rp million)

Investments BenefitsSuper-

Bulk vision, Bulkships NH3 Rail- training, ships NH3 Rail-

Year & ports ships way etc. & ports ships way Net

1981 102 (102)

1982 21,919 1,848 765 (24,532)

1983 28,183 9,240 1,276 (38,699)

1984 6,263 7,392 848 1,021 (15,524)

1985 4,242 1,021 15,306 (866) 2,854 12,031

1986 3,394 918 8,552 (1,284) 4,390 7,347

1987 10,000 900 4,918 15,818

1988 10,000 1,230 5,510 16,740

1989 10,000 1,680 6,174 17,854

1990-99 10,000 1,800 6,918 18,718

Economic Rate of Return is 14.8%

IBRD 15763R(PPAIR

E.^O 3sX WAILAND IDf lP liP -, PHILIPPIMS ~~~~~~~~~FERTILIZER DISTRIBUYION PROJECT '\ - B~~~~~~~ ~ ~ ~~ ~ ~ ~ ~~RUNf ' "WS^ iURA,lS

\_ \, ~~MALAYSIA- u NtCEYA

r>g) . <-- %s. ~~~MAL AYS I A ,

S :\ .~~~--SINGAPCRE J . ' / _, T-

4 4 t \\ t ! BU'D=-i' AD; t S '' '''-:2-

\ __ X + _ ~~ ~ ~~~~~~~~ ~ ~~~~~~~~~~~~19 'AAIM,A,2 o /IA 0Ax

RENCKb~~~~~~~~~~~~~~~~~~~~~~~~~~UJ L, i A Wti e I S0bUNANTANnMUR _11 )-_ , \ ._ ̂~18

RIAN JAYTE SfANTEUTN ''IC -z M,>\F^R

IIlIULIU"ANTENILUI V " -F' > ', . I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~jioI eU lWE UT R

_ ,E4/ o a- -- lt |

NUCs. S-GCRTUtRDf o S v / e 2 D D

__U. _T. _._

_ ~ T tl Opa z,v <1, 1p 3

11100° 1Od° _ 11 I2R IBRD 15764I NDONESIASUMATERA FERTILIZER DISRIBUTION PROJECTJAWA

°PnngI1i 10667mm GAUGE DOUBLE TRACK ELECTRIFIEDlo.jo 000-B1o~,06 GAUGE DOUB3LE TRACK

-I--s--- l SB067n GAUGE SINGLE TRACK 80.M-G°- k Mnceng 4 AAIN ROADS60 -. ~~~~~~~~~~~~~~~..- K~~~~~~~~~~~~~~~ence~~~~~~~~~~~~0 ~~~~MAJOR PORTS

AnIerkIdAl JAKAR Thojung Priok AIRPORTS

-- .----- FERRIESL ab uhan_ } KrawaEg q rii P l a u0 EXISTING NITROGEN PLANT

I.d,-iu El ~~~~~~~~~~~~~~~~~~~~~~~~~~PROPOSED PHOSPHATE FERTILIZER PLANT

BULK TERMINALS

-k.". ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~PROPOSED BULK TERT.INALREGIONAL MARKETING OFFICES O FGJSRI

P.Cianl<ad.l.r;.ng > @ PUSRI S INLAND DEPOTS

CiAidl P al., PLuNE/ +l' Jrwgdod i 8\ BALI

THOAN RUNEI I I- ' nbiReji+ osi p

MALAYSIA In, r R0gI0Sp

'\ GPOe KLMNrN iKILMTE RS ° 40 815 1205 16D G rojo|KAIAN'N , ULAOIESI MALUKUI K MLLES I 20 40 do 8 0 raa

415 ~ ~ ~ ~ ~~4

It~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Ik

.- .W4 I SIIBAWBAREAG" REMA LI OR400 Igo? ISO

14

' JAh,^ SUMBAWA O

OCTOBER 1°87

Documents

World Bank Document...PUSRI - PT Pupuk Sriwidjaja, Palembang, South Sumatra Pusri Nomenclature Line I - Point of production or import Line II - In or near port areas Line III - District