pdam tirta gemilang kab magelang pre fin feasblt anlss of inves prpsl

PDAM TIRTA GEMILANG KABUPATEN MAGELANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

JULY 2006

This publication was produced by Development Alternatives, Inc. for the United States Agency for International Development under Contract No. 497-M-00-05-00005-00

Photo credit: Beny Djumhana. Puluhan Water Resources in Magelang District, East Java.

PDAM TIRTA GEMILANG KABUPATEN MAGELANG PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL Title: PDAM Tirta Gemilang

Kabupaten Magelang Preliminary Financial Feasibility Analysis of Investment Proposal

Program, activity, or project number: Environmental Services

Program, DAI Project Number: 5300201.

Strategic objective number: SO No. 2, Higher Quality Basic

Human Services Utilized (BHS). Sponsoring USAID office and contract number: USAID/Indonesia,

497-M-00-05-00005-00. Contractor name: DAI. Date of publication: July 2006

TABLE OF CONTENTS

LIST OF TABLES.......................................................................................................... III

EXECUTIVE SUMMARY .............................................................................................. IV

1. INTRODUCTION ...................................................................................................1

2. ANALYSIS OF HISTORICAL PERFORMANCE (2001-2005) ...................................2

2.1. PRODUCTION AND DEMAND .........................................................................................................2 2.2. FINANCIAL PERFORMANCE..............................................................................................................4

2.2.1. Revenues ..............................................................................................................................................4 2.2.2. Recurrent Costs ...................................................................................................................................5 2.2.3. Tariff .....................................................................................................................................................5 2.2.4. Accounts Receivable............................................................................................................................8 2.2.5. Inventory Management ......................................................................................................................8 2.2.6. Current Ratio and Cash Flow ............................................................................................................8

2.3. OUTSTANDING LOANS AND DEBT-SERVICE CAPACITY ..................................................................9

3. BUDGET FOR 2006...............................................................................................10

3.1. WATER PRODUCTION AND DEMAND ......................................................................................... 10 3.2. REVENUE AND EXPENSES.............................................................................................................. 10 3.3. OTHER PERFORMANCE INDICATORS............................................................................................ 11

4. OPTIONS FOR THE EXPANSION PROGRAM ....................................................12

4.1. ORIGINAL INVESTMENT COST AND FINANCING PLAN................................................................. 12 4.2. PRELIMINARY FEASIBILITY ASSESSMENT ......................................................................................... 14

5. THE SELECTED OPTION: INVESTMENT PROGRAM FOR 2007-2010 ................15

5.1. COSTS .......................................................................................................................................... 15 5.2. TARGETS ...................................................................................................................................... 16 5.3. FINANCING PLAN......................................................................................................................... 16

6. HIGHLIGHTS OF THE FINANCIAL PROJECTION..............................................18

6.1. ASSUMPTIONS .............................................................................................................................. 18 6.1.1. Cost of Capital..................................................................................................................................18 6.1.2. Projected Production and Demand ................................................................................................18 6.1.3. Recurrent Costs ................................................................................................................................20 6.1.4. Tariff Analysis ...................................................................................................................................20

6.2. FEASIBILITY INDICATORS............................................................................................................... 21 6.3. FINANCIAL RESULTS ..................................................................................................................... 22

6.3.1. Income Statement............................................................................................................................22 6.3.2. Sources and Applications of Funds ................................................................................................23 6.3.3. Balance Sheet...................................................................................................................................25

7. CONCLUSIONS AND RECOMMENDATIONS ....................................................26

7.1. CONCLUSIONS............................................................................................................................. 26 7.2. RECOMMENDATIONS ................................................................................................................... 26

8. ANNEXES.............................................................................................................28

ANNEX A – NOTES ON THE MEETING WITH PDAM KABUPATEN MAGELANG - JUNE 10, 2006 .......................................................................................................................................................... 29 ANNEX B – NOTES ON THE MEETING WITH PDAM KABUPATEN MAGELANG JUNE 14, 2006.................................................................................................................................................................. 33 ANNEX C – CALCULATION OF WATER DEMAND AND CAPITAL EXPENDITURES FOR THE

BLAMBANGAN SUB-SYSTEM............................................................................................................... 37 ANNEX D – SUMMARY OF INCOME STATEMENT .......................................................................... 43 ANNEX E – SUMMARY OF SOURCES AND USES OF FUNDS ......................................................... 46 ANNEX F – SUMMARY OF BALANCE SHEET..................................................................................... 49

II

LIST OF TABLES TABLE 1 BREAKDOWN OF INVESTMENT COST (IN RP MILLION, EXCEPT %)...................................................VII TABLE 2 FINANCING PLAN AND INDICATIVE LOAN-DISBURSEMENT SCHEDULE (IN RP MILLION, EXCEPT %) VII TABLE 3 FEASIBILITY INDICATORS ..................................................................................................................VIII TABLE 4 EXTRACT INCOME STATEMENT (IN RP MILLION, EXCEPT RATIOS) ..................................................VIII TABLE 5 EXTRACT SOURCES AND APPLICATIONS OF FUNDS (IN RP MILLION, EXCEPT RATIOS).................... IX TABLE 6 EXTRACT BALANCE SHEET (IN RP MILLION, EXCEPT RATIOS) .......................................................... IX TABLE 7 BREAKDOWN OF PRODUCTION CAPACITY........................................................................................2 TABLE 8 PRODUCTION CAPACITY, CAPACITY CONSTRAINTS AND WATER LOSSES ........................................3 TABLE 9 CONNECTION AND WATER DEMAND ...............................................................................................4 TABLE 10 PROFITABILITY (IN RP MILLION, EXCEPT %)......................................................................................4 TABLE 11 PDAM UNIT COSTS (RP PER M3 OF WATER SOLD AT CONSTANT 2005 PRICES) ...........................5 TABLE 12 COMPARISON OF EXISTING AND FUTURE TARIFFS............................................................................7 TABLE 13 HISTORICAL RELATIONSHIP OF TARIFF TO COST (PER M3 OF WATER SOLD AT CONSTANT 2005

PRICES) .....................................................................................................................................................8 TABLE 14 COLLECTION EFFICIENCIES ...............................................................................................................8 TABLE 15 CURRENT RATIO AND CASH FLOW .................................................................................................9 TABLE 16 INDICATORS OF DEBT-SERVICE CAPACITY .......................................................................................9 TABLE 17 COMPARISON OF WATER PRODUCTION AND DISTRIBUTION IN 2005 AND 2006 ....................... 10 TABLE 18 COMPARISON OF UNIT COST PER M3 OF WATER SOLD FOR 2005 AND 2006 (AT CONSTANT

2005 PRICES)......................................................................................................................................... 11 TABLE 19 PERFORMANCE INDICATORS FOR 2006 ......................................................................................... 11 TABLE 20 BREAKDOWN OF THE ORIGINAL INVESTMENT COST (IN RP MILLION) ......................................... 13 TABLE 21 PROPOSED FINANCING PLAN FOR THE ORIGINAL INVESTMENT PROGRAM (IN RP MILLION) ........ 13 TABLE 22 BREAKDOWN OF INVESTMENT COST OF THE SELECTED OPTION - BLAMBANGAN SUB-SYSTEM (IN

RP MILLION).......................................................................................................................................... 15 TABLE 23 SCHEDULE FOR INSTALLING NEW CONNECTIONS ........................................................................ 16 TABLE 24 COMPARISON OF INVESTMENT COST AND INDICATIVE BENEFITS.................................................. 16 TABLE 25 FINANCING PLAN AND INDICATIVE LOAN DISBURSEMENT SCHEDULE FOR THE SELECTED OPTION -

BLAMBANGAN SUB-SYSTEM (IN RP MILLION) ........................................................................................ 17 TABLE 26 LOAN AMORTIZATION SCHEDULE (IN RP MILLION)...................................................................... 17 TABLE 27 COST OF CAPITAL ......................................................................................................................... 18 TABLE 28 PROJECTED PRODUCTION CAPACITY, CAPACITY CONSTRAINTS AND WATER LOSSES ................ 19 TABLE 29 PROJECTED CONNECTIONS AND WATER DEMAND...................................................................... 19 TABLE 30 ANALYSIS OF PROJECTED TARIFF (RP PER M3 OF WATER SOLD AT CURRENT PRICES) .................. 21 TABLE 31 FEASIBILITY INDICATORS ................................................................................................................ 21 TABLE 32 SUMMARY INCOME STATEMENT (IN RP MILLION) .......................................................................... 22 TABLE 33 SUMMARY SOURCES AND APPLICATIONS OF FUNDS (IN RP MILLION, EXCEPT RATIOS) ................ 24 TABLE 34 SUMMARY BALANCE SHEET (IN RP MILLION, EXCEPT RATIOS) ...................................................... 24

EXECUTIVE SUMMARY

INTRODUCTION This report presents an assessment of the expansion program of PDAM Kabupaten Magelang. Prepared under the auspices of the Environmental Services Program (ESP) funded by the United States Agency for International Development (USAID), it aims to ultimately serve as basis for mobilizing resources from the domestic financial market for implementing the said expansion program. For the foregoing purpose, a 20-year financial projection was prepared based on assumptions agreed upon with PDAM management and using the following references:

1. Audited Financial Statements of PDAM Kabupaten Magelang for the years 2001 to 2004

2. Un-audited results of operation in 2005 3. Work Plan and Budget for 2006 4. Corporate Plan (Rencana Pengembangan Usaha) 2005-2009 5. System expansion plan (Proposal: Rencana Pengembangan Jaringan Air Bersih di Daerah

Pelayanana PDAM Kabupaten Magelang) prepared by the PDAM in 2004 and updated in 2006.

ANALYSIS OF HISTORICAL PERFORMANCE (2001-2005) PDAM Kabupaten Magelang has the enviable advantage of having access to cheap spring-water sources, 57 of them as of last count, with combined potential yield of over 9,400 liters per second (l/sec). Out of this total, 14 are presently being tapped with combined potential yield of 1,555 l/sec, out of which only 403.5 l/sec are used by the PDAM. Household consumption was on an uptrend, from 106 liters per capita per day (lcd) in 2001 to 114 lcd in 2005. Volume of water sales increased, although at a tamed average annual rate of only 2%, from 8.1 m3 in 2001 to 8.9 m3 in 2005. Service was 24 hours in most of the coverage area. Non-revenue water (NRW) ranged between a low of 26.9% in 2004 to a high of 38.9% in 2001. Plant utilization factor reached 116% in 2001 before going down to between 103% and 104% thereafter. Connections increased by only 806 per year. Thus, out of the estimated total kabupaten population of 1.179 million in 2005, only 16.7% was served by household connections. Tariff revenues expanded at a rate of 32% per year, reaching Rp 10,726 million by the end of 2005. Total connection fees averaged Rp 615 million per year or Rp 764 thousand per new customer. Net income posted a yearly average growth of over 22%%. Based on un-audited figures, net income in 2005 amounted to Rp 1,056 million. Return on assets averaged 4.5%, while return on equity was at a more robust rate of over 9.1%. Of the Rp 925 million in total operating expenses in 2005, over 48% or Rp 446 million was allocated to personnel. Administrative expenses averaged about 65% of personnel cost and ate up 31% of the total, or almost Rp 291 million, in 2005. Power and chemicals accounted for insignificant portions of respectively 1.8% and 0.1% of total operating expenses. The amount paid for raw water showed the fastest rate of growth at an average of over 79% a year followed by personnel and administrative expenses at respectively 21% and 20%.

PDAM TIRTA GEMILANG KABUPATEN MAGELANG : PRELIMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

Weighted average tariff rose by an annual average of 28% in nominal terms. It stood at Rp 1,204 in 2005, which represented 90% of the PDAM’s full cost as defined under the decree of the Minister of Home Affairs (Permendagri) No. 2/1998 (the sum of O&M, depreciation, and 10% net book value of assets). Accounts receivable went down from 113 days in 2001 to 62 days in 2005. Bad debts written off averaged only 0.49% of water sales. Consumables inventory averaged 23 days cover, while installation inventory was at an inordinately high level of 348 days. Current ratio deteriorated from 2.3 in 2001 to only 1.2 in 2005. Cash averaged a mere 1.7 months of operating expenses. The PDAM’s outstanding loans totaled Rp 4,333 million, representing Rp 1,300 million advance extended by the local government of Kabupaten Magelang in 2004, which is none interest-bearing, and Rp 3,033 million remaining balance of the Regional Development Account (RDA) loan with an interest of 9% per annum, which the PDAM contracted in May 2003. The PDAM has been able to make timely payments on both principals and interests of the aforementioned loans as they fall due. The PDAM’s debt service coverage ratio (DSCR) remained at a quite safe level at 2.1 in 2001 and 3.1 in 2005. Debt to total capitalization continued to decline from 41% in 2001 to only 29% in 2005.

BUDGET FOR 2006 The PDAM’s production capacity will remain at 431 l/sec. Actual production is projected at 14.76 million m3, distribution at 13.99 million m3, and water sales at 10.20 million m3. NRW for the year is estimated to increase to 30.9% from 27.6% in 2005. Plant utilization factor is expected to reach 125%. The total number of connections will increase to 36,846 from 35,939 in 2005 and so will the domestic coverage ratio, but only by a negligible rate of 0.2% to 16.9%. An 18% nominal increase in average tariff has been anticipated. The weighted average tariff will only be 82% of that which is required for full-cost recovery. Water revenues are thus budgeted to expand by over 35% to Rp 14,515 million. In contrast, net income is forecast to decline by 3% to Rp 1,022 million. Operating expenses have been budgeted to increase by 32% to Rp 13,401 million. Overhead will reach Rp 529 million or more than 82% above its level in 2005 and will exceed personnel cost by 13%. Significant increases are likewise budgeted for power at 51%, maintenance at almost 33%, and raw water at 10%. Personnel cost, on the other hand, is limited to less than 5% growth. Receivables will be cut from 62 days to only 40 days of sales. Bad debts are likewise assumed to be reined in to a mere 0.19% of water sales. The current ratio will further decline to 1.2, while cash will likewise remain at a precarious level of only one month of operating expenses.

OPTIONS FOR THE EXPANSION PROGRAM The PDAM’s expansion plan consisted of three discrete packages, each one encompassing a complete piped water supply system, or properly a sub-system, to wit: Kali Bening, Puluhan, and Blambangan/Tirtosari. The last was so labeled as the PDAM had yet to decide as to which of the two springs will finally be tapped. A total of 18,856 new connections were hoped to be installed: 11,186 in Kali Bening, 3,659 in Puluhan, and 4,012 in Blambangan/ Tirtosari.

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The base cost of the program was estimated at Rp 135,549 million. At current prices, including all contingencies, the total cost amounted to Rp 163,109 million. By sub-system, the cost was Rp 107,051 million for Kali Bening, Rp 30,389 million for Puluhan, and Rp 25,669 million for Blambangan/Tirtosari. A loan from a domestic commercial bank was proposed to finance almost 68% or Rp 110,284 million of the total investment cost. Almost 18% or Rp 28,639 million was to be covered by a combination of grant (for land acquisition) and fresh equity infusion or an advance from the local government of Kabupaten Magelang. The rest was to be derived from connection fees and the PDAM’s internal cash generation. A preliminary financial feasibility assessment of the expansion program was prepared. The results showed that the tariff increases required to make the program feasible were unaffordable to PDAM customers and the amount of the needed equity infusion was just beyond the financial capacity of the local government. Based on the foregoing conclusions, the PDAM requested that an assessment of two additional options be made, these being the exclusion of the Kali Bening package, as Option 2, and the exclusion as well of the Puluhan package, as Option 3. The results of the assessment of the three options were presented on June 14. The following additional observations were made:

1. Option 2. The required yearly tariff increases are however still almost twice the historical yearly average. Increasing the target number of connections is likewise deemed unrealistic because of the very low population density, especially in the coverage area of the Puluhan sub-system.

2. Option 3. The required tariff increases are the same as the historical yearly average and will therefore be affordable to PDAM customers. The balance of the investment cost that cannot be covered by external financing can be covered by the PDAM’s internal cash generation and connection fees from new customers.

On the basis of the foregoing, the PDAM management decided to select Option 3 and designate Blambangan spring, rather than Tirtosari, as the water source for the sub-system.

THE SELECTED OPTION: INVESTMENT PROGRAM FOR 2007-2010 The base cost of the Blambangan package is estimated at Rp 21,219 million. At current prices, including contingencies, the investment cost amounts to Rp 25,669 million. Procurement accounts for of 41.7% or Rp 10,700 million, civil works for 18.0% or Rp 4,609 million, and new connections for 7.8% or Rp 2,005 million. Physical and price contingencies have a combined share of 17.3% or Rp 4,450 million. The program is planned to be implemented within a period of four years, from 2007 to 2010. A total of 4,012 new connections are targeted to be installed within a three-year period. No additional connections are foreseen beyond 2010 in view of the existing production constraints. External financing is assumed to bear an interest rate of 14% per annum with a repayment period of 12 years, including a two-year grace. It will defray 66.6% or Rp 17,108 million of the total investment. The rest will be covered by the PDAM’s internal cash generation (18.8% or Rp 4,834 million), connection fees from new customers (13.1% or Rp 3,357 million), and local government grant for land acquisition (1.4% or Rp 370 million). The yearly debt amortization will amount to Rp 2,086 million starting in 2009 and ending in 2018.

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Table 1 Breakdown of Investment Cost (In Rp Million, Except %)

2007 2008 2009 2010 Total % of Total

Procurement 10,700 10,700 41.7% Civil Works 2,221 2,388 4,609 18.0% New Connections 1,488 362 154 2,005 7.8% Land Acquisition 370 370 1.4% Other Costs 2,648 783 73 31 3,535 13.8% Total Base Cost 15,939 4,659 436 185 21,219 82.7% Contingencies 2,926 1,285 158 81 4,450 17.3% Total Current Cost, inc. Contingencies 18,866 5,944 593 266 25,669 100.0%

Table 2 Financing Plan and Indicative Loan-Disbursement Schedule (In Rp Million, Except %)

2007 2008 2009 2010 Total % of Total

Project Loan Assumed 12,947 4,161 17,108 66.6% Customer Connections 1,143 1,529 685 3,357 13.1% Land/RAP LG Equity 370 370 1.4% PDAM/Other 5,549 641 (936) (420) 4,834 18.8% Total 18,866 5,944 593 266 25,669 100.0%

HIGHLIGHTS OF THE FINANCIAL PROJECTION The weighted average cost of capital (WACC) is computed at 12.67% based on the 14% interest on debt and 10% return on equity for government funds, including customer contributions. Production, distribution, and sales volumes will reach their optimum levels in 2010 at respectively 14.3 million m3, 13.6 million m3, and 11.4 million m3. Water losses are set at 28%. Plant capacity utilization factor will somewhat ease up in 2009 but will rise again and settle at 110% throughout the rest of the projection period. The total number of connections will reach its maximum in 2010 at 41,758, about 90% of which will be domestic. Per capita consumption of household connections is projected to increase to 124 liters. Unit consumption per connection, including non-domestic, is thus estimated to gradually climb to 22.9 m3 per month. With the total kabupaten population projected at 1.244 million, domestic coverage ratio will peak at 18.6% in 2010 and will continuously decline thereafter. The desired personnel-to-connection ratio of 5 per 1,000 is planned to be achieved already starting in 2007. Cost per employee is assumed to increase annually in real terms by 5.0% or about 10.5% in nominal terms. Annual increases in costs of power and chemicals in real terms are set at 15% or 20.5% in nominal terms until 2010. Beginning 2011, costs of these inputs are expected to move based on annual inflation rate. Maintenance materials are assumed at 1.2% of net fixed assets. Overhead will be reduced from 113% to 72.5% of personnel cost starting 2010. The proportion of the cost of raw water to tariff revenues of 9.3% in 2006 is used throughout the projection period.

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The assumed nominal tariff increases applied in the financial projection are as follows: 26.5% per year from 2007 to 2018 and at the rate of annual inflation from 2019 until 2025. At the foregoing yearly tariff adjustment, PDAM’s weighted average tariff will consistently be well above that which is required for full-cost recovery. Based on the foregoing assumptions, the investment program is found to be feasible with a positive net present value (NPV) of Rp 4,712 million and a financial internal rate of return (FIRR) of 15.37%, which is well above the hurdle rate o 12.67%. The program remains feasible even assuming a 10% increase in investment and incremental O&M costs, a 10% decrease in incremental revenues or a one-year delay in the realization of incremental revenues. Table 3 Feasibility Indicators

WACC = 12.70% NPV FIRR

Base Case 4,712 15.37%

10% Increase in Investment and O&M Costs 2,418 13.96%

10% Decrease in Incremental Revenues 1,733 13.69%

+10% In Costs and -10% in Revenues (560) 12.36%

One Year Delay in Incremental Revenues 472 12.92%

The PDAM is projected to continue to generate net income after tax. Similarly, retained earnings will be positive throughout the projection period. Annual return on assets will range between 11% and 17% and on equity, between 18% and 29%. Table 4 Extract Income Statement (In Rp Million, Except Ratios)

2007 2008 2009 2010 2011 2012 2013 2014 2015

Total Operating Revenues

21,700

29,126

37,309 44,485 53,653 67,699 85,466 107,94

2 136,375

Operating Expenses

13,265

15,214

17,579 19,046 20,976 23,088 25,426 28,018 30,895

Income Tax 1,852 3,363 4,133 6,083 8,781 13,056 18,660 25,963 35,436

Net Income Loss 4,350 7,877 9,673 14,222 20,518 30,492 43,570 60,610 82,714

Retained Earnings 1,131 2,048 2,515 3,698 5,335 7,928 11,328 15,759 21,506

Return on Assets 11% 13% 13% 15% 16% 17% 17% 17% 17%

Return on Equity 28% 29% 24% 23% 22% 22% 22% 21% 20%

Positive annual cash flows will be realized every year throughout the projection period. DSCR will remain at a safe level, with the lowest at 3.5 in 2009 when the PDAM starts amortizing the proposed external financing for the investment program. With the accumulation of yearly depreciation and without revaluation, net fixed assets will be negative starting 2018. The current ratio is projected to be always at a safe level, starting at 1.4 in 2007. The ratio of debt to total capitalization will reach its highest level of 52% in 2007 and will progressively decline thereafter. A sharp increase in cash is foreseen starting in 2008, when it will be equivalent to 13 months of operating expenses.

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Table 5 Extract Sources and Applications of Funds (In Rp Million, Except Ratios)

2007 2008 2009 2010 2011 2012 2013 2014 2015

Total Sources of Funds

23,538 23,363 25,060 32,667 43,768 61,116 84,930 116,112 156,706

Total App. of Funds 21,246 9,750 8,501 7,929 8,283 8,416 10,295 13,079 16,987

Cash Increase (Decrease)

2,291 13,613 16,559 24,738 35,485 52,700 74,635 103,032 139,720

DSCR (Net Revenues) 7.0 11.7 3.5 4.7 7.0 11.2 16.6 24.6 36.4

Table 6 Extract Balance Sheet (In Rp Million, Except Ratios)

2007 2008 2009 2010 2011 2012 2013 2014 2015

Current Assets 6,765 21,215 38,829 64,770 102,136 157,137 234,683 341,396 485,772

Net Fixed Assets 11,982 29,251 34,252 30,966 27,324 23,409 19,494 15,579 11,664

Total Assets 40,568 60,845 75,404 97,684 131,142 182,228 255,859 358,658 499,118

Current Liabilities 4,674 9,386 12,482 16,433 22,090 30,872 43,113 59,650 81,582

Long-Term Debt - Net 15,517 19,652 16,979 14,599 12,514 10,428 8,343 6,257 4,171

Total Liabilities 25,085 33,972 34,466 36,124 39,824 46,705 57,134 71,977 92,370

Total Equity and Liabilities

40,567 60,844 75,404 97,683 131,142 182,228 255,859 358,657 499,118

Current Ratio 1.4 2.3 3.1 3.9 4.6 5.1 5.4 5.7 6.0

Debt to Total Capitalization 51.6% 45.4% 32.4% 21.6% 13.8% 8.5% 5.0% 2.8% 1.5%

CONCLUSIONS AND RECOMMENDATIONS From the foregoing discussions, the following conclusions may be drawn:

1. The PDAM has been able to maintain profitable operations and is projected to be able to do so in the future.

2. Its production capacity appears to be strained in spite of the availability of cheap sources of raw water and the relatively cheaper cost of operating the PDAM’s production and distribution facilities.

3. The investment program is found financially feasible. The following recommendations are offered:

1. Exercise more effective cost control. 2. Remedy the prevailing production constraint. 3. Launch a campaign to build constituency around the investment program. 4. Revisit the investment packages that have been excluded.

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1. INTRODUCTION PDAM Tirta Gemilang of Kabupaten Magelang in Central Java is one of a number of local water supply enterprises across Indonesia participating in the Environmental Services Program (ESP) funded by the United States Agency for International Development (USAID). Included in the scope of ESP technical assistance is to open up access of the PDAM to the domestic financial market for implementing its future expansion program. The technical assistance thus covers the analysis of the PDAM’s historical performance and an assessment of the feasibility of the proposed expansion program and its effects on the future operations of the water supply enterprise, especially its capacity to repay any debt that may be incurred, as presented in this report. For the foregoing purpose, a 20-year financial projection was prepared based on assumptions agreed upon with PDAM management and using the following references:

1. Audited Financial Statements of PDAM Kabupaten Magelang for the years 2001 to 2004

2. Un-audited results of operation in 2005 3. Work Plan and Budget for 2006 4. Corporate Plan (Rencana Pengembangan Usaha) 2005-2009 5. System expansion plan (Proposal: Rencana Pengembangan Jaringan Air Bersih di Daerah

Pelayanana PDAM Kabupaten Magelang) prepared by the PDAM in 2004 and updated in 2006.

In addition, ESP mobilized the services of a short-term Water Supply Engineer to verify water demand and target connections and, on this basis, calculate and determine the yearly breakdown of capital expenditure. The Water Supply Engineer visited the PDAM in mid-May 2006 and submitted his calculations about a week after. These calculations essentially constituted the subject of the financial projection and feasibility assessment. On June 10, 2006, the preliminary results of the financial projection were presented to the PDAM counterpart team composed of all the concerned division heads. During the discussion, constraints were raised as to the ability of the PDAM to implement the expansion plan in its entirety. The forum then identified three options that the PDAM could consider, for each of which ESP was requested to prepare a financial feasibility assessment for presentation to, and final selection by, the PDAM’s Managing Director. The notes on the aforementioned presentation are in Annex A. The results of the financial assessment of the three identified options were presented on June 14, 2006. In the discussion that followed, the PDAM management decided on the option to be implemented and the water source to be tapped. The notes on the presentation are in Annex B. The report is divided into the following parts:

1. Historical performance of the PDAM from 2001 to 2005 2. Work plan and budget for 2006 3. Options for the expansion program 4. The selected investment program for 2007-2010 5. Highlights of the financial projection 6. Conclusions and recommendations.


2. ANALYSIS OF HISTORICAL PERFORMANCE (2001-2005)

2.1. PRODUCTION AND DEMAND What may be considered as the PDAM’s biggest asset is the availability of abundant sources of water within the territorial jurisdiction of Kabupaten Magelang. As of the last count, the kabupaten has 57 springs with a combined potential yield of over 9,400 liters per second (l/sec), which can be exploited and distributed at relatively lower cost mostly through gravitation. Out of this total, 14 are presently being tapped with combined potential yield of 1,555 l/sec, out of which only 403.5 l/sec are used by the PDAM, as shown in Table 7. Table 7 Breakdown of Production Capacity

No. Name of Source Discharge (l/sec)

Used (l/sec)

Unused (l/sec)

1 Sijajurang 150.00 90.00 60.00

2 Gadad/Citrosono 250.00 100.00 150.00

3 Semaren 200.00 68.50 131.50

4 Sitincat 50.00 25.00 25.00

5 Blambangan 200.00 22.50 177.50

6 Tlogorejo 65.00 23.00 42.00

7 Karangampel 200.00 21.00 179.00

8 Sidosari 50.00 14.00 36.00

9 Banyu Temumpang 100.00 7.00 93.00

10 Siprajak 30.00 6.00 24.00

11 Combrang 80.00 6.00 74.00

12 Lebak 100.00 6.50 93.50

13 Sidandang 30.00 3.00 27.00

14 Sigandulan 50.00 11.00 39.00

Total 1,555.00 403.50 1,151.50

% of Discharge 25.9% 74.1%

It needs to be noted, however, that not all the above potential yields are available for exploitation by the PDAM as the same water sources are also used for irrigation and, in some cases, communal water supply systems.] In spite of ample raw water sources, PDAM seemed beset by production constraints. Production capacity barely increased from 419 l/sec in 2001 to 431 l/sec in 2005. (The difference between the actual production capacity of 431 l/sec and the production capacity indicated in Table 7 could not be explained by the PDAM.) Between 2002 and 2005, production and distribution volumes, and as a consequence volume of water sold to

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customers, were almost stagnant. Water losses were on a declining trend, from 38.9% in 2001 to 27.6% in 2005, and the figures suggest that slight increases in water sales volume were made possible by water-loss reduction, which is a positive indicator. Still, plant capacity utilization factor was consistently above 100%. An overview of the PDAM’s production capacity, capacity constraints, and water losses is presented in Table 8. Table 8 Production Capacity, Capacity Constraints and Water Losses

2001 2002 2003 2004

2005 (Un-audited)

Production Capacity (l/sec) 419 419 419 419 431

Production Volume (m3/year) 13,266 11,845 11,878 11,916 12,298

Distribution Volume (m3/year) 11,028 10,937 10,962 11,033 11,656

Volume Sold to Consumers (m3/year) 8,105 8,546 8,417 8,705 8,905

Water Losses (%) 38.9% 27.9% 29.1% 26.9% 27.6%

Ratio of Production to Consumption 1.64 1.39 1.41 1.37 1.38

Plant Utilization Factor 115.6% 103.2% 103.5% 103.8% 104.2%

The number of connections increased at a yearly average of 1,181. This included, however, the 1,500 households in the military-academy complex previously connected to one water meter for which individual house meters were installed in 2005 and were then subsequently recorded as individual customers. Discounting this, the average increase in connections would have been only 806 per year. In 2005, household connections comprise 91% or 32,594 of the total number of connections of 35,939. Domestic service coverage ratio was at a relatively low level of 16.7% out of the kabupaten’s total population of 1,144,257. One constraint is geography, with some settlements especially in the rural areas quite scattered for an extension of the piped water supply system to be financially worthwhile. In some areas, residents have easy access to ground- and spring-water sources. Household consumption was generally on an uptrend, from 106 liters per capita per day (lcd) in 2001 to 114 lcd in 2005. At his level, unit consumption per household was at a low 17.1 m3 per month or well below the 21-30 m3 consumption bracket that is usually the most profitable for a PDAM. In contrast, non-domestic consumption declined every year, settling at a mere 1.3 m3 per day in 2005, further depriving the PDAM of relatively more profitable sales. This decline in non-domestic consumption could be regarded as additional manifestation of the PDAM’s production constraint. The PDAM’s connection and water demand situation is summarized in Table 9.



Table 9 Connection and Water Demand

2001 2002 2003 2004

2005 (Un-audited)

Household Connections (No.) 30,286 30,433 31,179 32,071 32,594

Unit Consumption (lcd) 106 112 107 110 114

Non-Domestic Connections (No.) 595 1,230 1,291 1,332 2,961

Unit Consumption (m3/day) 6.31 3.39 3.22 3.09 1.28

Total Connections (No.) 31,215 31,998 32,809 33,785 35,939

Annual Change (No.) 783 811 976 2,154

Domestic Service Ratio (%) 15.8% 15.8% 16.0% 16.6% 16.7%

2.2. FINANCIAL PERFORMANCE

2.2.1. REVENUES Tariff revenues increased by a yearly average of 32%, reaching Rp 10,726 million by the end of 2005. Total connection fees averaged Rp 615 million per year, translating to about Rp 764 thousand paid by each new customer. Net income posted a respectable yearly average growth of over 22%%. Based on un-audited figures, net income in 2005 amounted to Rp 1,056 million. Return on assets averaged 4.5% over the five-year period under review, while return on equity was at a more robust rate of over 9.1%. Return on sales averaged 10% per year, as shown in Table 10. Table 10 Profitability (In Rp Million, Except %)

2001 2002 2003 2004 2005 (Un-audited)

Tariff Revenues 3,651 5,498 6,558 9,200 10,726

Total Operating Revenues 5,275 5,903 7,259 10,246 11,899

Operating Expenses 2,598 3,141 4,465 6,953 8,220

Non-Operating Income/(Loss) 21 64 30 7 93

Net Profit Before Tax 683 885 957 1,219 1,466

Income Tax 187 311 388 432 410

Net Income Loss 496 574 569 787 1,056

Return on Assets 4% 4% 4% 4% 6%

Return on Equity 7% 8% 8% 10% 13%

Return on Sales 14% 10% 9% 9% 10%



2.2.2. RECURRENT COSTS Of the Rp 925 million in total operating expenses in 2005, over 48% or Rp 446 million was allocated to personnel. Administrative expenses averaged about 65% of personnel cost and ate up 31% or almost Rp 291 million in 2005. With transmission and distribution mostly by gravity and with a high quality of raw water, power and chemicals accounted for insignificant portions of respectively 1.8% and 0.1% of total operating expenses. Expenses for chemicals in fact exhibited an average decline of almost 4% during the five-year period under review. For raw water, the PDAM compensates the local government of Kabupaten Magelang at 15% of the volume of water sold multiplied by the basic tariff; an additional 5% computed on the same basis is paid to the village where the water originated. Compensation for raw water totaled Rp 112 million or 12% of total operating expenses in 2005. It also posted the fastest rate of expansion at an average of over 79% a year followed by personnel and administrative expenses at respectively 21% and 20%. The PDAM’s historical recurrent costs are shown in Table 11. Table 11 PDAM Unit Costs (Rp per m3 of Water Sold at Constant 2005 Prices)

2001 2002 2003 2004

2005 (Un-audited)

% of Total in 2005

Ave. Inc./ (Dec.)

Personnel 212.8 224.2 294.2 386.3 446.4 48.3% 20.9%

Power (Operational) 11.1 14.6 18.2 16.3 1.8% 11.5%

Chemicals 1.4 1.0 1.0 0.8 0.9 0.1% (3.7%)

Maintenance Materials 56.5 56.4 51.7 82.4 58.6 6.3% 5.5%

Overhead 151.1 132.7 172.4 264.4 290.7 31.4% 20.3%

Raw Water 15.8 18.3 58.8 94.9 111.7 12.1% 79.2%

Total 437.6 443.7 592.7 847.0 924.7 100.0%

% Year-on-Year Change 1.40% 33.59% 42.91% 9.17% 21.77%

2.2.3. TARIFF A decree of the Minister of Home Affairs (Permendagri 2/1998) stipulates annual tariff adjustments to compensate for annual inflation, without the need for an approval from the local legislative council, plus a cyclical adjustment when significant additional investment is required. The methodology produces three types of tariff categories:

1. Biaya rendah (low cost), which recovers only O&M (including salaries) and overhead costs

2. Biaya dasar (basic cost), which recovers biaya rendah plus debt service (principal and interest)

3. Biaya penuh (full cost), which recovers biaya rendah plus depreciation on the economic (useful) life factor applied against revalued fixed assets plus a 10% return on the book value of revalued assets.


PDAM TIRTA PREL

ENVI

GEMILANG KABUPATEN MAGELANG : IMINARY FINANCIAL FEASIBILITY ANALYSIS OF INVESTMENT PROPOSAL

RONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID 6

No PDAM has however revalued its assets as under existing regulations any realized surplus is immediately taxable as capital gains. An alternative definition of full-cost is thus included here to mean the sum of O&M, debt service, and 10% return on equity. Through Regulation No. 55/DPRD/2003, from January 2003 to December 2006 the PDAM is allowed to increase tariff by 10% every six months, with each adjustment effective on January 1 or July 1. On this basis, the tariff structure presently in effect and that which will be implemented during the second half of 2006 are presented in Table 12. Weighted average tariff increased by an annual average of 28% in nominal terms. The PDAM had thus been able to gradually improve cost recovery. From a mere 70% of full cost in 2001, the average tariff of Rp 1,204 in 2005 represented 90% of the PDAM’s full cost of Rp 1,333 per m3 of water sold. Reckoned based on the alternative definition included in this report, average tariff had been above full cost from 2002 onward. The historical relationship of average tariff to recurrent and other costs is shown in Table 13.


ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

7

Table 12 Comparison of Existing and Future Tariffs

1 JANUARY 2006-30 JUNE 2006 1 JULY 2006-31 DECEMBER 2006

(In Rp) (In Rp) % INCREASE TYPE OF

CONNECTION/CUSTOMER 0-10

m311-20 m3

21-30 m3 >30 m3 0-10

m311-20 m3

21-30 m3 >30 m3 0-10

m311-20 m3

21-30 m3 >30 m3

Social A (General) 760 840 11%

GROUP I Social B

(Special) 570 760 950 1,140 630 840 1,050 1,260 11% 11% 11% 11%

Household A (Low Income) 570 950 1,330 1,710 630 1,050 1,470 1,880 11% 11% 11% 10%

Household B (Middle to High Income)

760 1,140 1,520 2,090 840 1,260 1,670 2,300 11% 11% 10% 10% GROUP II

Government Offices 950 950 1,330 1,710 1,050 1,050 1,470 1,880 11% 11% 11% 10%

Commercial A (Small) 1,330 2,090 2,860 1,470 2,300 3,140 11% 10% 10%

GROUP III Commercial

A (Large) 2,090 2,860 4,000 2,300 3,140 4,400 10% 10% 10%

Industry A (Small) 1,330 2,090 2,860 1,470 2,300 3,140 11% 10% 10%

GROUP IV Industry B

(Large) 2,570 4,000 4,760 2,830 4,400 5,230 10% 10% 10%


Table 13 Historical Relationship of Tariff to Cost (Per m3 of Water Sold at Constant 2005 Prices)

2001 2002 2003 2004

2005 (Un-audited)

Nominal Increase in Average Tariff (%) 43% 21% 36% 14%

Weighted Average Tariff 623 784 882 1,125 1,204

Low Cost Recovery Tariff 443 448 600 850 923

Basic Cost Recovery Tariff 662 621 754 981 1,059

Full Cost Recovery Tariff: Permendagri 2/1998 (Rp) 896 828 968 1,259 1,333

Extent of Full-Cost Recovery (%) 70% 95% 91% 89% 90%

Full Cost Recovery: O&M + Debt Service + 10% Equity (Rp) 782 721 849 1,080 1,153

Extent of Full-Cost Recovery (%) 80% 109% 104% 104% 105%

2.2.4. ACCOUNTS RECEIVABLE Accounts receivable had been improving, going down from almost four months (113 days) in 2001 to just a little over two months (62 days) in 2005. Similarly, bad debts written off averaged only 0.49% of water sales; a negative entry was realized as a previous write-off was paid in 2005, as shown in Table 14. Table 14 Collection Efficiencies

2001 2002 2003 2004

2005 (Un-audited)

Days Accounts Receivable 113 86 99 76 62

Bad Debts as % of Water Sales 0.94% 0.53% 0.86% 0.25% -0.13%

2.2.5. INVENTORY MANAGEMENT PDAM keeps consumables on the current assets side of the balance sheet and classifies investment materials as long-term assets. The consumables inventory accounting is based on the FIFO system. This averaged 23 days cover during the five-year period under review, or considerably better than the benchmark of 30 days. Installation inventory, on the other hand, was in an inordinately excessive level of 348 days, or five times the normal level of 70 days cover.

2.2.6. CURRENT RATIO AND CASH FLOW Current assets had consistently exceeded current liabilities, with the lowest ratio at 1.2. Cash expressed in terms of number of months of operating expenses was however always below the generally regarded safe level of three months, becoming especially precarious in 2005 at only one month.



The PDAM’s historical current ratios and cash flows are presented in Table 15.

Table 15 Current Ratio and Cash Flow

2001 2002 2003 2004

2005 (Un-audited)

Current Ratio 2.3 2.1 1.5 1.4 1.2

Cash = No. of Mo. of Op. Exp. 1.0 2.0 1.5 2.8 1.0

2.3. OUTSTANDING LOANS AND DEBT-SERVICE CAPACITY

In 2005, the PDAM’s outstanding loans totaled Rp 4,333 million, representing Rp 1,300 advance from the local government of Kabupaten Magelang, which is none interest-bearing, and Rp 3,033 million remaining balance of the RDA loan with an interest of 9% per annum, which the PDAM contracted in May 2003. The local-government advance is to be fully repaid in 2008, with annual amortizations of Rp 200 million in 2005, Rp 350 million each in 2006 and 2007, and Rp 400 million in 2008. The RDA loan is scheduled to be fully retired in May 2011 with half-yearly amortization of Rp 293.9 million. The PDAM has been able to make timely payments on both principals and interests of the aforementioned loans as they fall due. The PDAM’s debt service coverage ratio (DSCR) remained at a quite safe level, which, based on net revenues, stood at 2.1 in 2001 and 3.1 in 2005 compared to the statutory minimum of 1.5. Debt to total capitalization continued to decline from 41% in 2001 to only 29% in 2005. The indicators of the PDAM’s debt-service capacity are shown in Table 16. Table 16 Indicators of Debt-Service Capacity

2001 2002 2003 2004

2005 (Un-audited)

DSCR Based on Net Revenue 2.1 2.3 2.5 3.1 3.1

Debt to Total Capitalization 44% 42% 38% 39% 34%



3. BUDGET FOR 2006

3.1. WATER PRODUCTION AND DEMAND With no planned expansion, the PDAM’s production capacity will remain at 431 l/sec. Actual production is projected at 14.76 million m3, distribution at 13.99 million m3, and water sales at 10.20 million m3. Non-revenue water (NRW) for the year is estimated to increase to 30.9% from 27.6% in 2005. Plant utilization factor is expected to reach 125% from 104% in 2005, indicating an increasingly serious inadequacy in the PDAM’s production and distribution capacities in spite of the availability of ample water resources. A total of 907 new connections will be installed during the year, almost all domestic. The total number of connections will thus increase to 36,846 from 35,939 in 2005. The domestic coverage ratio will increase, but only by a negligible rate of 0.2% to 16.9%. The PDAM’s water production and distribution targets for 2006 are presented in Table 17. Table 17 Comparison of Water Production and Distribution in 2005 and 2006

2005 (Un-audited)

2006 (Budget)

Change

Production Capacity (l/sec) 431 431

Production (000 m3) 12,298 14,757 2,460

Distribution (000 m3) 11,656 13,987 2,331

Water Sold to Customers (000 m3) 8,905 10,201 1,295

Water Losses (%) 27.6% 30.9% 3.3%

Plant Utilization Factor (%) 104.2% 125.0% 20.8%

3.2. REVENUE AND EXPENSES An 18% nominal increase in average tariff has been anticipated based on the pre-approved rates of adjustment. Even at this level, however, the weighted average tariff will only be 82% of that which is required for full-cost recovery under Permendagri 2/1998. Water revenues are thus budgeted to expand by over 35% above the 2005 level to Rp 14,515 million. In contrast, net income is forecast to decline by 3% to Rp 1,022 million. The decline in net income can mainly be explained by the over 32% increase in operating expenses, which is budgeted at Rp 13,401 million in 2006. The biggest increase of 86% is foreseen for the cost of chemicals, which would however remain an insignificant component of the total. The main contributor to the said increase, rather, will be overhead, which will



reach Rp 529 million or more than 82% above its level in 2005, thereby exceeding personnel cost by 13%. Significant increases are likewise budgeted for power at 51%, maintenance at almost 33%, and raw water at 10%. Personnel cost, on the other hand, is limited to less than 5% growth, even when the ratio of employees to connections deteriorates to 5.4 per 1,000 from 5.2 in 2005. A comparison of the PDAM’s recurrent expenses in 2005 and 2006 is in Table 18. Table 18 Comparison of Unit Cost Per m3 of Water Sold for 2005 and 2006 (At Constant 2005 Prices)

2005 (Un-audited) 2006 (Budget) Increase

Personnel 446 467 4.7%

Power (Operational) 16 25 51.0%

Chemicals 1 2 86.1%

Maintenance Materials 59 78 32.5%

Overhead 291 529 82.1%

Raw Water 112 123 10.4%

Total 925 1,224 32.4%

3.3. OTHER PERFORMANCE INDICATORS Receivables will be cut from 62 days to only 40 days. Bad debts are likewise assumed to be reined in to a mere 0.19% of water sales. The current ratio will further decline to 1.2, while cash will likewise remain at a precarious level of only one month of operating expenses. DSCR will remain at a safe level at double the statutory minimum. The ratio of debt to total capitalization will further decline to just 28%. A snapshot of the PDAM’s targeted financial results in 2006 is in Table 19.

Table 19 Performance Indicators for 2006

2005 (Un-audited)

2006 (Budget)

Change

Water Sales (Rp Million at Current Prices) 10,726 14,515 3,788

Net Income (Rp Million at Current Prices) 1,056 1,022 -35

Days Accounts Receivable 62 40 -22

Bad Debts as % of Water Sales -0.13% 0.19% 0.32%

Current Ratio 1.2 1.1 -0.1

Cash = Mo. Of Operating Expenses 1.0 0.6 -0.4

Debt Service Coverage Ratio 3.1 3.0 -0.1

Debt To Total Capitalization 34.1% 27.5% -6.6%



4. OPTIONS FOR THE EXPANSION PROGRAM

4.1. ORIGINAL INVESTMENT COST AND FINANCING PLAN

As mentioned, the PDAM’s expansion plan was first documented in the Proposal: Rencana Pengembangan Jaringan Air Bersih di Daerah Pelayanana PDAM Kabupaten Magelang prepared by the PDAM in 2004 and updated in 2006. The plan consisted of three discrete packages, each one encompassing a complete piped water supply system, or properly a sub-system, with its own source, transmission and distribution networks, and target service-coverage area. Each one was identified by the spring-water source to be used, to wit: Kali Bening, Puluhan, and Blambangan/Tirtosari. The last is so labeled as the PDAM had yet to decide as to which of the two springs will finally be tapped. The Water Supply Engineer mobilized by ESP firmed up the targets of the plan and translated it into a yearly capital expenditure program. The expansion plan and its various components can be summarized as follows:

1. Kali Bening Sub-System • Production capacity (140 l/sec) • Transmission pipeline (15,000 meters) • Distribution network (202,900 meters) • Reservoir • New connections (11,187 domestic and non-domestic)

2. Puluhan Sub-System • Production capacity (45 l/sec) • Transmission pipeline (4,380 meters) • Distribution network (70,852 meters) • Reservoir • New connections (3,659 domestic and non-domestic)

3. Blambangan/Tirtosari Sub-System • Production capacity (45 l/sec) • Transmission pipeline (8,754 meters) • Distribution network (68,254 meters) • Reservoir • New connections (4,011 domestic and non-domestic)

The base cost of the program was estimated at Rp 135,549 million. At current prices, including all contingencies, the total cost amounted to Rp 163,109 million. Of the total, almost 48% was to be devoted to procurement, almost 15% to civil works, and a little less than 6% to the generation of new connections. Portions allocated to physical and price contingencies accounted for respectively 4.3% and 12.6%.



The cost breakdown of the original expansion program is presented in Table 20. Table 20 Breakdown of the Original Investment Cost (In Rp Million)

2007 2008 2009 2010 Total % of Total

Procurement 77,481 77,481 47.5% Procurement – Connections 5,654 5,654 3.5% Civil Works 11,258 13,068 24,326 14.9% Civil Works – Connections 1,341 1,674 755 3,769 2.3% Land Acquisition 1,511 1,511 0.9% Design 5,487 1,179 99 44 6,809 4.2% Supervision 2,345 526 44 20 2,935 1.8% Administration 742 201 16 8 967 0.6% Taxes and Duties 9,657 2,177 182 82 12,097 7.4% Total, Base Prices 108,481 24,146 2,015 908 135,549 83.1% Physical Contingencies 5,000 1,724 167 75 6,966 4.3% Financial Contingencies 14,742 4,968 562 321 20,593 12.6% Total, Current Prices Incl. All Contingencies 128,222 30,838 2,744 1,305 163,109 100.0%

By sub-system, the investment cost was estimated at a total of Rp 107,051 million for Kali Bening, Rp 30,389 million for Puluhan, and Rp 25,669 million for Blambangan/Tirtosari. On average, each new connection required an investment of almost Rp 8.5 million or a little over Rp 1.4 million per additional beneficiary at the assumed average household size of 5. For comparison, in PDAM Kabupaten Bogor and PDAM Kota Malang, both of which had been covered by similar studies by ESP, the costs were respectively Rp 6.4 million and Rp 3.4 million per connection or Rp 1.2 million and Rp 0.6 million per new beneficiary. A loan from a domestic commercial bank was proposed to finance almost 68% % or Rp 110,284 million of the total investment cost, with an interest of 14% per annum and repayment period of 12 years, including a two-year grace. Almost 18% or Rp 28,639 million was to be covered by a combination of grant (for land acquisition) and fresh equity infusion or an advance from the local government of Kabupaten Magelang as the sole owner of the water supply enterprise. The rest was to be derived from connection fees and the PDAM’s internal cash generation. The proposed financing plan for the original expansion program is as shown in Table 21. Table 21 Proposed Financing Plan for the Original Investment Program (In Rp Million)

2007 2008 2009 2010 Total % of Total

Project Loan Assumed 88,698 21,587 110,284 67.6% Customer Connections 5,364 7,063 3,360 15,787 9.7% GOI Construction Grant GOI TA Grant (APBN) GOI PPN Grant Land/RAP LG Equity 1,511 1,511 0.9% Other LG Equity/Advance 27,128 27,128 16.6% PDAM/Other 10,886 3,887 (4,319) (2,055) 8,399 5.1% Total 128,222 30,838 2,744 1,305 163,109 100.0%



4.2. PRELIMINARY FEASIBILITY ASSESSMENT As mentioned, a preliminary financial feasibility assessment of the expansion program was prepared based on the calculated capital expenditures, financing plan, and other assumptions on revenue and cost. The main conclusions derived from the said assessment are as follows:

1. The program can be rendered feasible only at very high tariff increases, at rates that are almost three times the historical yearly average.

2. An alternative to steep tariff adjustments is an increase in the target number of new connections by around 10,000, an assumption that the PDAM counterpart team was not confident of adopting as the planned coverage areas, especially for the Kali Bening and Puluhan sub-systems, are still predominantly rural.

3. The PDAM’s internal cash generation will be sorely inadequate to finance the balance of the investment cost that will be covered by external financing. The alternative of huge additional equity infusion is anticipated to be beyond the financial capacity of, and will most likely be unacceptable to, the local government.

4. Among the three packages, the one for Blambangan/Tirtosari proves the most robust in terms of net present value (NPV) and financial internal rate of return (FIRR).

Based on the foregoing conclusions, the PDAM requested that an assessment of two additional options be made, these being the exclusion of the Kali Bening package, as Option 2, and the exclusion as well of the Puluhan package, as Option 3. As mentioned, the results of the assessment of the three options were presented on June 14. The following additional observations were made on the second (Puluhan and Blambangan/Tirtosari) and the third (only Blambangan/Tirtosari) options:

1. Option 2. The required local-government equity infusion is at a much lower amount of under Rp 5 billion. The required yearly tariff increases, although not as high as in Option 1, are however still almost twice the historical yearly average. The alternative course of increasing the target number of connections is likewise deemed unrealistic because of the very low population density, especially in the coverage area of the Puluhan sub-system.

2. Option 3. The required tariff increases are the same as the historical yearly average and will therefore be affordable to PDAM customers. The package remains feasible even assuming increases in investment and O&M costs or reductions in expected incremental revenues. The balance of the investment cost that cannot be covered by external financing can also be easily covered by the PDAM’s internal cash generation and connection fees from new customers.

On the basis of the foregoing, the PDAM management decided to select Option 3 and designate Blambangan spring, rather than Tirtosari, as the water source for the sub-system.



5. THE SELECTED OPTION: INVESTMENT PROGRAM FOR 2007-2010

5.1. COSTS The details of the calculation of connections, water demand, and capital expenditures for the Blambangan package made by ESP’s Water Supply Engineer are presented in Annex C. The base cost of the Blambangan package is estimated at Rp 21,219 million. At current prices, including contingencies, the investment cost amounts to Rp 25,669 million. Procurement is the biggest component, with a share of 41.7% or Rp 10,700 million. Civil works comes in second, accounting for 18.0% or Rp 4,609 million. The cost of generating the targeted new connections is estimated at Rp 2,005 million or 7.8% of the total. Physical and price contingencies have a combined share of 17.3% or Rp 4,450 million. The program is planned to be implemented within a period of four years, from 2007 to 2010. The first year will be devoted to detailed engineering design, tendering, procurement, preparatory activities, and start-up of construction; the second year for the completion of civil works and start-up of the installation of new connections; and the remaining two years primarily to the installation of additional new connections. The breakdown of the cost of implementing the Blambangan package is presented in Table 22. Table 22 Breakdown of Investment Cost of the Selected Option - Blambangan Sub-System (In Rp Million)

2007 2008 2009 2010 Total % of Total

Procurement 10,700 10,700 41.7% Procurement – Connections 1,203 1,203 4.7% Civil Works 2,221 2,388 4,609 18.0% Civil Works – Connections 286 362 154 802 3.1% Land Acquisition 370 370 1.4% Design 558 163 15 6 743 2.9% Supervision 372 109 10 4 495 1.9% Administration 332 97 9 4 442 1.7% Taxes and Duties 1,385 415 39 16 1,855 7.2% Total, Base Prices 15,939 4,659 436 185 21,219 82.7% Physical Contingencies 757 327 36 15 1,136 4.4% Financial Contingencies 2,169 958 122 65 3,314 12.9% Total, Current Prices Incl. All Contingencies 18,866 5,944 593 266 25,669 100.0%



5.2. TARGETS A total of 4,012 new connections are targeted to be installed within a three-year period: 1,429 in 2008, 1,813 in 2009, and 770 in 2010. No additional connections are foreseen beyond 2010 in view of the existing production constraints and the modest additional production capacity that is included in the investment package. The schedule for installing new connections, including those planned by the PDAM in 2006 and 2007 which are not covered by the investment program, is presented in Table 23. Table 23 Schedule for Installing New Connections

2006 2007 2008 2009 2010

Other Households 907 830 1,317 1,671 710

Very Poor Households 25 39 50 21

Public Tap 10 16 20 9

Commerce 20 32 40 17

Industry 15 24 30 13

Water Tankers 1 1 1 0

Yearly Increase 907 900 1,429 1,813 770

Cumulative 907 1,807 3,236 5,049 5,819

Total Connections Due to Investment Program 1,429 3,242 4,012

The investment required for generating each new connection comes up to almost Rp 6.4 million, which is almost identical with the figures obtained in Kabupaten Bogor. Per capita, the investment for extending piped water supply service amounts to a little over Rp 1 million, as shown in Table 24.

Table 24 Comparison of Investment Cost and Indicative Benefits

Total Cost (Rp Million) 25,669

Number of New Connections 4,012

Number of People to be Served 24,579

Cost per Connection (Rp) 6,398,056

Cost per Capita (Rp) 1,044,349

5.3. FINANCING PLAN External financing, via an outright commercial loan or other debt instruments (such as a corporate-bond issue), is set at 70% of the yearly outlay. This external financing is assumed to bear an interest rate of 14% per annum with a repayment period of 12 years, including a two-year grace. On the basis of these terms, only the capital expenditures for the first two years will be eligible for external financing.



The proposed financing plan for implementing the investment program is presented in Table 25. Table 25 Financing Plan and Indicative Loan Disbursement Schedule for the Selected Option - Blambangan Sub-System (In Rp Million)

2007 2008 2009 2010 Total % of Total

Project Loan Assumed 12,947 4,161 17,108 66.6% Customer Connections 1,143 1,529 685 3,357 13.1% GOI Construction Grant GOI TA Grant (APBN) GOI PPN Grant Land/RAP LG Equity 370 370 1.4% Other LG Equity/Advance PDAM/Other 5,549 641 (936) (420) 4,834 18.8% Total 18,866 5,944 593 266 25,669 100.0%

As shown in the foregoing table, external financing will defray 66.6% or Rp 17,108 million of the total investment. The rest will be covered by the PDAM’s internal cash generation (18.8% or Rp 4,834 million), connection fees from new customers (13.1% or Rp 3,357 million), and local government grant for land acquisition (1.4% or Rp 370 million) Yearly amortization will amount to Rp 2,086 million starting in 2009 and ending in 2018, as shown in Table 26. Table 26 Loan Amortization Schedule (In Rp Million)

2007 2008 2009 2010 2011 2012 2013 2014 2015 Yearly Disbursement 12,947 4,161

Cumulative Disbursement 12,947 17,108 17,108 17,108 17,108 17,108 17,108 17,108 17,108

Amortization of Principal 1,711 1,711 1,711 1,711 1,711 1,711 1,711

Loan Balance 12,947 18,208 19,146 17,060 14,974 12,889 10,803 8,717 6,632 Commit. Gen. Interest 1,100 2,648 3,175 3,077 2,723 2,368 2,014 1,659 1,305

Up-Front Charge

Total interest, adjusted 1,100 2,648 3,175 3,077 2,723 2,368 2,014 1,659 1,305

Accumulated Interest 1,100 2,648

Balance of Acc. Interest 1,100 3,749 3,374 2,999 2,624 2,249 1,874 1,499 1,125

Repayment of Acc. Interest 375 375 375 375 375 375 375

Total Amortization 2,086 2,086 2,086 2,086 2,086 2,086 2,086



6. HIGHLIGHTS OF THE FINANCIAL PROJECTION

The discussion focuses on the years 2007 to 2018, the time slice that is considered critical as it corresponds to the period for implementing the investment program as well as for amortizing the PDAM’s existing loans and the proposed external financing for the implementation of the investment program.

6.1. ASSUMPTIONS

6.1.1. COST OF CAPITAL The cost of capital is computed based on the fund-sourcing mix. As mentioned, external financing will bear an interest of 14.0%. Customer contributions are assumed to be received by the PDAM as revenue and can therefore be considered as PDAM funds. Customer contributions, the local government’s proposed grant, and the PDAM’s own funds are expected to yield a return of 10%. The weighted average cost of capital (WACC) is thus computed at 12.67%, as shown in Table 27. Table 27 Cost of Capital

Comm'l Loan Gov't Funds

Weight 66.65% 33.35%

Nominal Cost 14.00% 10.00%

Weighted Component of WACC 9.33% 3.34%

WACC 12.67%

6.1.2. PROJECTED PRODUCTION AND DEMAND Production, distribution, and sales volumes will reach their optimum levels in 2010 at respectively 14.3 million m3, 13.6 million m3, and 11.4 million m3. Water losses are set at 28% throughout the projection period. Plant capacity utilization factor will somewhat ease up in 2009 at 106%. Thereafter, it will rise again and settle at 110% throughout the rest of the projection period, an indication that production constraints will likely persist in the future. The PDAM’s projected production, capacity constraints, and water losses are presented in Table 28.



Table 28 Projected Production Capacity, Capacity Constraints and Water Losses

2007 2008 2009 2010 2011 2012 2013 2014 2015

Prod. Cap. (l/sec) 430 475 475 475 475 475 475 475 475

Prod. Volume (m3/year) 14,757 15,022 13,869 14,271 14,271 14,271 14,271 14,271 14,271

Dist. Volume (m3/year) 13,987 14,252 13,189 13,590 13,590 13,590 13,590 13,590 13,590

Volume Sold (m3/year) 10,320 10,627 11,056 11,397 11,499 11,499 11,499 11,499 11,499

Water Losses (%) 28.0% 27.9% 27.8% 27.9% 27.9% 27.9% 27.9% 27.9% 27.9%

Ratio of Production to Consumption

1.43 1.41 1.25 1.25 1.24 1.24 1.24 1.24 1.24

Utilization Factor 125.0% 115.2% 106.4% 109.5% 109.5% 109.5% 109.5% 109.5% 109.5%

The total number of connections will reach its maximum in 2010 at 41,758, about 90% of which will be domestic. Per capita consumption of household connections is projected to increase by 10 liters from the 2005 level to reach 124 liters. Unit consumption per connection, including non-domestic, is thus estimated to gradually climb to 22.9 m3 per month in 2011 and thus enter the third and most profitable consumption bracket. With the total kabupaten population projected at 1.244 million, domestic coverage ratio will peak at 18.6% in 2010. Thereafter, it will be on a gradual decline in the absence of new connections and in the face of continuing population growth estimated at 0.9% per year. The projected connections and water demand are shown in Table 29. Table 29 Projected Connections and Water Demand

2007 2008 2009 2010 2011 2012 2013 2014 2015

Household Conn. (No.) 34,355 35,712 37,433 38,164 38,164 38,164 38,164 38,164 38,164

Unit Cons. (lcd) 124 124 124 124 124 124 124 124 124

Non-Domestic Conn. (No.) 2,996 3,053 3,124 3,155 3,155 3,155 3,155 3,155 3,155

Unit Cons. (m3/day) 1.50 1.50 1.49 1.50 1.51 1.51 1.51 1.51 1.51

Total Conn. (No.) 37,746 39,175 40,988 41,758 41,758 41,758 41,758 41,758 41,758

Annual Change (No.) 900 1,429 1,813 770

Domestic Service Ratio (%)

17.2% 17.7% 18.4% 18.6% 18.4% 18.3% 18.1% 17.9% 17.8%



6.1.3. RECURRENT COSTS The assumptions on recurrent costs are as follows:

1. Personnel and personnel cost: The desired personnel-to-connection ratio of 5 per 1,000 is planned to be achieved already starting in 2007 inasmuch as this had been the historical average. Cost per employee is assumed to increase annually in real terms by 5.0% or about 10.5% in nominal terms, which is the same as the increase budgeted for 2006.

2. Power and chemicals: Distortions in the prices of power and chemicals are expected to be gradually corrected during the next five years, or up to 2010, concurrent with the progressive elimination of government subsidies for petroleum-based fuel and electricity. Annual increases in costs of power and chemicals in real terms are set at 15%, or 20.5% in nominal terms. Beginning 2011, costs of these inputs are expected to already reflect market prices and will therefore move based on annual inflation rate.

3. Maintenance materials: These are assumed at 1.2% of net fixed assets, which is lower than the average during the period 2001-2005 of almost 2%. The PDAM is of the opinion that the target is achievable through more stringent control measures.

4. Administration: These are defined as general and administrative expenses minus wages, interest payments, bad debts allowances, and maintenance and depreciation costs related to general and administrative fixed assets. The PDAM management has committed to reduce this cost item from 113% to 72.5% of personnel cost starting 2010.

5. Raw water. As mentioned, the total compensation for raw water that the PDAM uses is 20% of basic tariff multiplied by the volume of water sold. Since future basic tariffs will still have to be set, the proportion of this cost item to water revenues in 2006 of 9.3% is used throughout the projection period.

6.1.4. TARIFF ANALYSIS The assumed nominal tariff increases applied in the financial projection are as follows:

1. 2007-2018: 26.5% per year 2. 2019-2025: yearly adjustment equal to the rate of inflation.

The assumed yearly nominal tariff increase from 2007 to 2018, the time slice in the financial projection that is considered critical, is equal to the historical average yearly increase of the PDAM’s weighted average tariff from 2002 to 2006. The increase is therefore viewed by PDAM management as affordable to existing and prospective customers and can be strongly justified to local government authorities at the executive and legislative branches who will have to agree to, or at least scrutinize, such increase. With no debt burden starting in 2019, the PDAM will just need to factor in its tariff increases the effects of inflation on operating costs. At the foregoing yearly tariff adjustment, PDAM’s weighted average tariff will consistently be adequate for full-cost recovery. In fact, in later years, weighted average tariff is projected to rise to more than twice that which is required for full-cost recovery both as provided for under existing regulations and as alternatively defined in this report. The underlying reason, however, is not so much that tariff is increased beyond what is necessary, but rather the inability of the PDAM under the prevailing taxation regime to generate accruals that constitute full cost.



The analysis of projected tariff as it relates to cost, which may be used by the PDAM as a guide in future tariff-setting exercises, is presented in Table 30. Table 30 Analysis of Projected Tariff (Rp per m3 of Water Sold at Current Prices)

2007 2008 2009 2010 2011 2012 2013 2014 2015

Weighted Average Tariff 1,800 2,277 2,880 3,644 4,609 5,831 7,376 9,331 11,803

Nominal Inc. (%) 26.5% 26.5% 26.5% 26.5% 26.5% 26.5% 26.5% 26.5% 26.5%

Low Cost 1,314 1,285 1,432 1,590 1,671 1,824 2,008 2,211 2,437

Basic Cost 1,467 1,404 1,546 2,133 2,183 2,269 2,395 2,568 2,762

Full Cost (Permendagri 2/1998)

1,742 1,879 2,258 2,597 2,869 3,304 3,933 4,777 5,896

Full Cost (O&M + Debt Serv. + 10% Equity)

1,555 1,555 1,798 2,503 2,723 3,063 3,574 4,296 5,255

Extent of Cost Recovery

Permendagri 2/1998 (%) 103% 121% 128% 140% 161% 176% 188% 195% 200%

O&M + Debt Service + 10% Equity

116% 146% 160% 146% 169% 190% 206% 217% 225%

6.2. FEASIBILITY INDICATORS Based on the foregoing assumptions, the investment program is found to be feasible with a positive net present value (NPV) of Rp 4,712 million and a financial internal rate of return (FIRR) of 15.37%, which is well above the hurdle rate o 12.67%. The program remains feasible even assuming a 10% increase in investment and incremental O&M costs, a 10% decrease in incremental revenues or a one-year delay in the realization of incremental revenues. It does not surmount, however, the other sensitivity test of a combined 10% increase in costs and 10% reduction in incremental revenues. The indicators of feasibility of the investment program under the base case and under certain adverse scenarios are shown in Table 31. Table 31 Feasibility Indicators

WACC = 12.67% NPV FIRR Base Case 4,712 15.37% 10% Increase in Investment and O&M Costs 2,418 13.96%

10% Decrease in Incremental Revenues 1,733 13.69%



WACC = 12.67% NPV FIRR +10% In Costs and -10% in Revenues (560) 12.36%

One Year Delay in Incremental Revenues 472 12.92%

6.3. FINANCIAL RESULTS

6.3.1. INCOME STATEMENT The tariff and connection revenues are carried from the revenue calculation into the income statement by converting 2005 constant-price revenues into current prices through the application of the annual GDP inflator. A bad debts allowance of 0.5% is assumed for tariff revenues. Profits are taxed at the corporate rates currently prevailing in Indonesia. The PDAM is projected to continue to generate net income after tax. Similarly, retained earnings will be positive throughout the projection period. Annual return on assets will range between 11% and 17% and on equity, between 18% and 29%. A summary of the PDAM’s income statement for the period 2007-2018 is presented in Table 32. Detailed income statements are presented in Annex D. Table 32 Summary Income Statement (In Rp Million)

2007 2008 2009 2010 2011 2012 2013 2014 2015

Tariff Rev. 18,575 24,199 31,845 41,528 53,002 67,048 84,815 107,291 135,724

Total Op. Revenues 21,700 29,126 37,309 44,485 53,653 67,699 85,466 107,942 136,375

Operating Expenses 13,265 15,214 17,579 19,046 20,976 23,088 25,426 28,018 30,895

Non-Op. Income/(Loss) 123 249 997 1,908 3,269 5,221 8,119 12,224 17,891

Net Profit Before Tax 6,202 11,241 13,806 20,304 29,300 43,548 62,230 86,574 118,151

Income Tax 1,852 3,363 4,133 6,083 8,781 13,056 18,660 25,963 35,436

Net Income Loss 4,350 7,877 9,673 14,222 20,518 30,492 43,570 60,610 82,714

Other Payments 3,219 5,829 7,158 10,524 15,184 22,564 32,242 44,852 61,209

Retained Earnings 1,131 2,048 2,515 3,698 5,335 7,928 11,328 15,759 21,506

Return on Assets 11% 13% 13% 15% 16% 17% 17% 17% 17%

Return on Equity 28% 29% 24% 23% 22% 22% 22% 21% 20%


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6.3.2. SOURCES AND APPLICATIONS OF FUNDS The PDAM will continue to enjoy positive annual cash flows throughout the projection period. DSCR will remain at a safe level, with the lowest at 3.5 in 2009 when the PDAM starts amortizing the proposed external financing for the investment program. A summary of the sources and applications of funds is presented in Table 33, while the details are in Annex E.



24

Table 33 Summary Sources and Applications of Funds (In Rp Million, Except Ratios)

2007 2008 2009 2010 2011 2012 2013 2014 2015

Gross Int. Cash Gen. 8,558 14,161 20,727 27,347 35,946 49,831 68,159 92,148 123,370

Equity 932 2,393 4,333 5,320 7,822 11,285 16,771 23,964 33,336

Borrowing 14,047 6,809

Total Sources of Funds 23,538 23,363 25,060 32,667 43,768 61,116 84,930 116,112 156,706

Capital Expenditures 19,966 8,593 593 266

Debt Service 1,229 1,211 6,003 5,836 5,119 4,454 4,099 3,745 3,390

Operations 51 -53 1,905 1,827 3,164 3,962 6,196 9,334 13,596

Total Applications of Funds 21,246 9,750 8,501 7,929 8,283 8,416 10,295 13,079 16,987

Cash Increase (Decrease) 2,291 13,613 16,559 24,738 35,485 52,700 74,635 103,032 139,720

DSCR (Net Revenues) 7.0 11.7 3.5 4.7 7.0 11.2 16.6 24.6 36.4

Table 34 Summary Balance Sheet (In Rp Million, Except Ratios)

2007 2008 2009 2010 2011 2012 2013 2014 2015

Cash and Deposit 2,999 16,611 33,170 57,908 93,394 146,093 220,728 323,761 463,480 Current Assets, net of Cash 3,767 4,603 5,659 6,862 8,742 11,044 13,954 17,636 22,292 Current Assets 6,765 21,215 38,829 64,770 102,136 157,137 234,683 341,396 485,772 Net Fixed Assets 11,982 29,251 34,252 30,966 27,324 23,409 19,494 15,579 11,664 Total Assets 40,568 60,845 75,404 97,684 131,142 182,228 255,859 358,658 499,118 Current Liabilities 4,674 9,386 12,482 16,433 22,090 30,872 43,113 59,650 81,582 Long-Term Debt, Net 15,517 19,652 16,979 14,599 12,514 10,428 8,343 6,257 4,171 Total Liabilities 25,085 33,972 34,466 36,124 39,824 46,705 57,134 71,977 92,370 Equity 15,482 26,872 40,938 61,559 91,318 135,523 198,724 286,680 406,748 Total Equity and Liabilities 40,567 60,844 75,404 97,683 131,142 182,228 255,859 358,657 499,118 Current Ratio 1.4 2.3 3.1 3.9 4.6 5.1 5.4 5.7 6.0 Debt to Total Capitalization 52% 45% 32% 22% 14% 8% 5% 3% 2% Days Accounts Receivable 74 69 65 60 60 60 60 60 60 Cash = Months of Op. Exp. 2.7 13.1 22.6 36.5 53.4 75.9 104.2 138.7 180.0


6.3.3. BALANCE SHEET Capital expenditures are forecast to be completed in 2010. All new investments are carried as work-in-progress in the year of expenditure and capitalized in the following year. Depreciation is calculated on the useful life basis for tariff purposes and at the fiscal rate for accounting purposes. Fixed assets are carried throughout the forecast at historical cost, as is the current PDAM practice. The provisions of the Decree of the Minister of Finance (KepMenKeu) No. 507/KMK/.04/1996 and other relevant pieces of legislation treat revaluation surpluses as capital gains, with the tax payable immediately. The PDAM is therefore not expected to consider revaluation of its fixed assets while this decree is still in effect. Capitalized interest and construction preliminaries and demobilization expenses are treated as deferred expenses and amortized at 10% per annum on the outstanding balance. The projections assume 60-day accounts receivable, and 30-day accounts payable. The inventory point for chemicals and maintenance materials is 30 days and for installation inventories, 70 days. With the accumulation of yearly depreciation and without revaluation, net fixed assets will be negative starting 2018. The current ratio is projected to be always at a safe level, starting at 1.4 in 2007 and increasing every year thereafter. The ratio of debt to total capitalization will reach its highest level of 52% in 2007 and will progressively decline thereafter. A sharp increase in cash is foreseen starting in 2008, when it will be able to cover 13 months of operating expenses or over four times the safe level. The highlights of the balance sheet are presented in Table 34. The detailed balance sheet projections are in Annex F



7. CONCLUSIONS AND RECOMMENDATIONS

7.1. CONCLUSIONS From the foregoing discussions, the following conclusions may be drawn:

1. The PDAM has been able to maintain profitable operations and is projected to be able to do so in the future. The net income being generated each year, however, may be considered as below the desired levels in terms of returns on assets and equity due to the inability of the PDAM in the past to apply full-cost-recovery tariff.

2. Its production capacity appears to be strained in spite of the availability of cheap sources of raw water and the relatively cheaper cost of operating the PDAM’s production and distribution facilities. The plant utilization factor has in the past always exceeded 100%, and the constraint is expected to persist in the future in the absence of any clear remedial or improvement measures. This may give rise to widespread customer dissatisfaction as probably already indicated by cases related by PDAM officials of a switch of a number of industrial and commercial establishments from PDAM connections to other sources of water, such as shallow and deep wells.

3. The investment program is found financially feasible. It is likewise projected that the PDAM will be able to fulfill the financial obligations occasioned by the program. It has to be noted, however, that the program will have to be implemented at a much shorter period of time than what the PDAM had been used to. For instance, the number of connections to be generated annually is twice the historical average.

7.2. RECOMMENDATIONS The following recommendations are offered:

1. Exercise more effective cost control. As pointed out in the preceding discussions, cost-control measures are especially required to tame the surging overhead cost, which is budgeted at 113% of personnel expenses in 2006, and installation inventory, which is found to be at an inordinately high level, unnecessarily tying up financial resources that could otherwise be used for more productive purposes.

2. Remedy the prevailing production constraint. This gains urgency in view of what the PDAM detects as the tendency of sales per customer to decline, which could be a symptom of growing dissatisfaction with PDAM’s service, particularly its inability to ensure adequate water supply. For this reason, the planned addition to production and distribution capacity needs to be reviewed and revised, if found inadequate



3. Launch a campaign to build constituency around the investment program. The campaign should target existing and prospective customers as well as local government authorities. Also an important constituency to build is the community surrounding the water source that will be tapped, including competing users such as farmers.

4. Revisit the investment packages that have been excluded. As mentioned, the PDAM’s entire expansion program consisted of three packages, which, aside from the Blambangan sub-system, also includes the Kali Bening and Puluihan sub-systems. A household census, a joint endeavor of the PDFAM and ESP, will shortly be undertaken. If the results of the census indicate brighter prospects for the aforementioned sub-systems, then the PDAM should consider reviving them and undertake steps toward their eventual implementation.

5. Formulate plans for using excess cash. The projection shows that execess cash will be generated starting in 2008. The PDAM will thus have to be ready to handle this. A possibility is to have it earmarked for implementing the investment packages that have been temporarily shelved.



8. ANNEXES ANNEX A NOTES ON THE MEETING WITH PDAM KABUPATEN MAGELANG - JUNE 10, 2006 ANNEX B NOTES ON THE MEETING WITH PDAM KABUPATEN MAGELANG JUNE 14, 2006 ANNEX C CALCULATION OF WATER DEMAND AND CAPITAL EXPENDITURES FOR THE BLAMBANGAN SUB-SYSTEM ANNEX D SUMMARY OF INCOME STATEMENT ANNEX E SUMMARY OF SOURCES AND USES OF FUNDS ANNEX F SUMMARY OF BALANCE SHEET



ANNEX A – NOTES ON THE MEETING WITH PDAM KABUPATEN MAGELANG - JUNE 10, 2006



Date : June 10, 2006 Time : 8:30 AM – 3:00 PM Place : PDAM Kabupaten Magelang

BACKGROUND PDAM Tirta Gemilang of Kabupaten Magelang in Central Java is one of a number of water supply enterprises across Indonesia participating in the Environmental Services Program (ESP) funded by the United States Agency for International Development (USAID). Included in the scope of ESP technical assistance is to provide access to the domestic commercial banking system for financing the PDAM’s future expansion program. Part of the assistance was the verification of the costs the program’s various components, analysis of its feasibility, and assessment of how it will affect the future operations of the PDAM as a whole. The PDAM’s available investment program was prepared way back in 2004. On May 17-18, 2006 ESP mobilized a short-term Water Supply Engineer to verify the components and costs of, as well as the water demand and target new connections associated with, the program. The results of this verification can be summarized as follows:

1. The PDAM’s proposed expansion program consists of three discrete packages, each one encompassing a complete piped water supply system, or properly a sub-system, with its own source, transmission and distribution networks, and target service-coverage area.

2. Each one is identified by the spring-water source to be tapped, to wit: Kali Bening, Puluhan, and Blambangan/Tirtosari.

3. The combined base cost of the program has been estimated at Rp 135,549 million. At current prices, including all contingencies, the total cost amounts to Rp 163,109 million.

4. By sub-system, the investment cost is estimated at a total of Rp 107,051 million for Kali Bening, Rp 30,389 million for Puluhan, and Rp 25,669 million for Blambangan/Tirtosari.

5. Through the expansion program, a total of 18,856 new connections are hoped to be installed by 2010, based mainly on the estimates of PDAM officials: 11,186 in Kali Bening, 3,659 in Puluhan, and 4,012 in Blambangan/Tirtosari.

A preliminary 20-year financial projection was prepared and summarized in a slide presentation, which were then discussed on Saturday, June 10, with members of the counterpart team previously designated by the PDAM’s Managing Director.

PURPOSE The purpose of the meeting was to present and discuss the results of the preliminary financial projection and to validate the assumptions used.



PARTICIPANTS The meeting was opened by the Head of the Personnel Division. Others in attendance were heads of the Divisions of Finance, Planning, Distribution, and Internal Audit. ESP was represented by Ramon H. Hagad.

PROCEEDINGS ESP made a brief PowerPoint presentation of the highlights of the assessment of historical performance and the financial projection. This was followed by a discussion focusing on the issues raised during the presentation. 1. Historical Performance and Budget for 2006

• exploited at relatively lower investment and O&M costs. As an example, no more than 30% of the combined potential yield of the 15 springs now being used is distributed and sold to PDAM customers.

• The PDAM’s tariff has not yet reached full-cost recovery. Thus, while profitable, the PDAM’s operations generate relatively low returns on assets and equity. There is thus a room for higher tariff adjustment than what has historically been achieved.

• Among the financial indicators, administrative expenses or overhead and installation inventory needs to be firmly controlled in the future. In 2006, overhead is budgeted to top personnel cost by 13%, while existing benchmarks usually sets it as a proportion of and is thus lower than the latter. Installation inventory is found to be at almost one-year requirement, while the generally acceptable level is at 70-days.

2. Investment Program • The cost of the investment program as captured in the financial projection is

deemed realistic, except for the Kali Bening package which should include a booster pump.

• The estimated number of connections is likewise realistic, although the PDAM officials expressed reservations on the targets for the Kali Bening and Puluhan packages. While Kali Bening is planned to cover Mertoyudan district, which borders the city of Magelang and is along the Magelang-Semarag highway, this district is still predominantly rural except for pockets of settlements along the said highway. It seems that it is not yet the right time to implement the package, given the high investment cost occasioned by the long transmission line and the very low number of new connections that will be generated.

• The Puluhan sub-system also has a rural target coverage area, and the Puluhan spring itself is located on the slope of Mt. Merapi whose activity will always disrupt the continuity of water supply for the sub-system.

• The PDAM officials are of the opinion that the Blambangan/Tirtosari sub-system is the most commercially promising. Its target coverage area of the districts of Muntilan and Ngluwar is the most urbanized in the kabupaten and the location of commercial and small industrial establishments. Both Blambangan and Tirtosari springs have adequate water discharges of up to 200 l/sec each. They are in safer locations far from the slopes of Mt. Merapi and the continuity of water supply for the sub-system could therefore be more easily assured.

• Under the assumptions applied in the financial projection, indeed the Blambangan/Tirtosari package is found to be the most feasible, with the highest NPV and FIRR and giving indications of strong resilience against any adverse developments affecting costs and revenues.



3. Assumptions for the Financial Projection • The 70% assumed tariff increase in 2007 and the 25% increase every year thereafter

might not be acceptable to concerned local government authorities. It is likewise highly doubtful if the PDAM’s present and prospective customers will be able to afford them.

• The safest is to adopt the historical rate of 15.5% per year. • Assumption on connections as previously stated is already realistic and should be

retained. The PDAM expressed doubts as to whether a comprehensive customer survey would positively change the numbers.

• Assumptions on increases in operating costs are acceptable. • It will be safer to assume that there will be no equity infusion from the local

government of Kabupaten Magelang.

CONCLUSIONS The following conclusions were arrived at during the meeting:

1. In view of the high tariff increases and the large local-government equity infusion required to render the Kali Bening and Puluhan packages financially feasible, the PDAM counterpart team is inclined to limit the expansion program to the implementation of the Blambangan/Tirtosari package.

2. Be that as it may, the final decision rests on the PDAM’s board of directors and ultimately on the local government as the sole owner of the enterprise.

3. The counterpart team deems it necessary that the decision makers be apprised of the three options that are available and the implications of each of them primarily on tariff and the equity contribution of the local government, the three options being: three packages (Kali Baning, Puluhan, and Blambangan/Tirtosari), two packages (Puluhan and Blambangan/Tirtosari) or one package (only Blambangan/Tirtosari).

4. ESP is thus requested to prepare a summary of the results of the financial projection for each of the last two options (as the one for the first option has already been submitted) in the form of a PowerPoint presentation.

5. ESP will have to verify with the head office in Jakarta if such additional work will be allowed.

FOLLOW-UP ACTIONS AND TENTATIVE SCHEDULE The following actions, with indicative dates of performance/completion were, agreed upon: No. Task Date

1. Verification with ESP head office June 12, 2006

2. Assuming positive response, preparation of financial projections and presentation materials June 12-15, 2006

3. Presentation to PDAM management June 16, 2006

4. Finalization of the financial projection and preparation of analytical report June 19-21, 2006



ANNEX B – NOTES ON THE MEETING WITH PDAM KABUPATEN MAGELANG JUNE 14, 2006



Date : June 14, 2006 Time : 9:30 AM – 2:30 PM Place : PDAM Kabupaten Magelang

BACKGROUND The results of the preliminary financial feasibility assessment of the PDAM’s investment program were presented to the counterpart team on Saturday, July 10. The conclusions arrived at during the presentation are summarized as follows:

1. In view of the high tariff increases and the large local-government equity infusion required to render the Kali Bening and Puluhan packages financially feasible, the PDAM counterpart team is inclined to limit the expansion program to the implementation of the Blambangan/Tirtosari package.

2. Be that as it may, the final decision rests on the PDAM’s board of directors and ultimately on the local government as the sole owner of the enterprise.

3. The counterpart team deems it necessary that the decision makers, especially the Managing Director, be apprised of the three options that are available and the implications of each of them primarily on tariff and the equity contribution of the local government, the three options being: (1) three packages (Kali Baning, Puluhan, and Blambangan/Tirtosari), (2) two packages (Puluhan and Blambangan/Tirtosari) or (3) one package (only Blambangan/Tirtosari). ESP is thus requested to prepare a summary of the results of the financial projection for each of the last two options (as the one for the first option has already been prepared and presented) in the form of a PowerPoint presentation.

OBJECTIVES The objectives of the meeting are as follows:

1. Present and discuss the results of the financial feasibility assessment of the three options for the service expansion program of the PDAM.

2. Arrive at a final decision as to which of the options will be implemented. 3. Present an overview of the scope of and requirements for conducting a household

survey/census.

PARTICIPANTS The participants from the PDAM were as follows:

1. Ir. Djoni - Managing Director 2. Hari Purnomo - Head of Transmission and Distribution Division 3. Samsul Maarif - Head of Gen. Affairs and Customer Relations Division 4. Suryanto - Head of Planning and Production Division 5. Wiwik WS - Head of Internal Audit Division 6. Sri Wahyuningsi - Head of Finance Dvision.

ESP was represented by: 1. Afghoni - PDAM Adviser 2. Oni Hartono - PDAM Adviser 3. Ramon H. Hagad - Short-Term Technical Adviser (Finance)

PROCEEDINGS ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID 34


FEASIBILITY ASSESSMENT OF THE OPTIONS FOR SERVICE EXPANSION ESP presented the results of the financial feasibility assessment of each of the three options for the service expansion of the PDAM. The highlights of the presentation and discussion are as follows:

1. Option 1. This refers to the implementation of the expansion program as originally conceived, consisting of three packages (Kali Beining, Puluhan, and Blambangan/Tistosari). This option is feasible only at tariff increases that are almost three times the historical yearly average increase from 2002 to 2006. Moreover, this option requires an equity infusion from the local government of almost Rp 28 billion, which, according to the PDAM counterpart team, the local government may not be willing to extend. The target coverage area comprising of four districts are, as of now, still predominantly rural, except for the district of Mertuyudan. The required number of connections for making the entire investment program feasible at lower rates of tariff increases could not be generated from this district alone, however.

2. Option 2. Under this option, the Kali Bening package is excluded in view of its large investment cost (Rp 107 billion), and only the Puluhan and Blambangan/Tirtosari are considered. The required local-government equity infusion is at a much lower amount of under Rp 5 billion. The required yearly tariff increases, although not as a high as in Option 1, are however still almost twice the historical yearly average.

3. Option 3. Under this option, only the Blambangan/Tirtosari package will be implemented inasmuch as it has consistently shown robust financial feasibility measured in terms of net present value (NPV) and financial internal rate of return (FIRR). The balance of the investment cost that cannot be covered by external financing can also be easily covered by the PDAM’s internal cash generation and connection fees from new customers.

4. Recommendation. ESP recommended that Option 3 be selected with the additional note that the other two options be reconsidered based on the results of the household census that will be conducted by the PDAM in cooperation with ESP. The two other packages could be revived if there are indications that more new connections can be generated than what is assumed in the financial projections just presented.

HOUSEHOLD CENSUS An overview of the objectives, requirements, and activities involved was presented. It was emphasized that a principal purpose of the census is to confirm the willingness and affordability of households to avail of piped water supply service. Its results could thus serve as a more solid basis for assessing the feasibility of the PDAM’s proposed expansion program and its various components. It was explained that the census is undertaken as a cooperative endeavor between ESP and a PDAM, both in terms of implementation and funding.

CONCLUSIONS The following conclusions were arrived at during the meeting: 1. On the Feasibility Assessment

• The PDAM selected Option 3 and ESP will prepare the final assessment report on this basis.



• On the choice between Blambangan and Tirtosari springs, Blambangan will be tapped as the water source for the sub-system.

• The PDAM will however review the other options or the possibility of implementing the other two packages that have been excluded based on the results of the household census, and may request further ESP assistance in assessing their financial feasibility.

2. On the Household Census • The PDAM agreed to co-finance and co-implement the activity. • The areas to be covered will be basically the same as the areas targeted by the

PDAM’s proposed expansion program. • Details on the target respondents and the administrative procedures for co-financing

will be discussed during the next meeting.

FOLLOW-UP ACTIONS ESP will prepare the final assessment report and submit it to the ESP office in Jakarta by Friday, June 16. The ESP Jakarta office will take care of translating the report to Bahasa Indonesia and officially submitting it to the PDAM. ESP and PDAM will meet sometime next week to thresh out the details of the household census.


PDAM TIRTA PREL

ENVI



ANNEX C – CALCULATION OF WATER DEMAND AND CAPITAL EXPENDITURES FOR THE BLAMBANGAN SUB-SYSTEM


CONNECTIONS AND WATER DEMAND

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 General Description

Year -3 Year -2 Year -1 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Area (Ha) 5,105 5,105 5,105 5,105 5,105 5,105 5,105 5,105 5,105 5,105 5,105 5,105 Number of Population (Inhabitant) 99,965 100,865 101,773 102,689 103,614 104,546 105,487 106,437 107,395 108,362 109,338 110,322

Population Increase (%) 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% 0.9% Population Density (Inhabitant/Ha) 20 20 20 20 20 20 21 21 21 21 21 22

Number of Person per Household Connection (person) 5 5 5 5 5 5 5 5 5 5 5 5

Number of Connection Domestic Connection 1648 1669 1676 Household (unit) 3,476 3,362 3,248 3,248 3,248 3,248 3,248 4,548 5,598 6,198 6,548 6,898 Connection increase (unit) 3,650 (114) (114) 1,300 1,050 600 350 350 Supplied Population (Inhabitants) 17,380 16,810 16,240 16,240 16,240 16,240 16,240 22,740 27,990 30,990 32,740 34,490

Services Coverage (%) 17% 17% 16% 16% 16% 16% 15% 21% 26% 29% 30% 31% Non Domestic Connection Non Household (unit) 9.0% 344 333 321 321 321 321 321 450 554 613 648 682 Connection increase (unit) 361 0 -11 -11 0 0 0 0 129 104 59 35 35 Total of Connections (unit) 3,820 3,695 3,569 3,569 3,569 3,569 3,569 4,998 6,152 6,811 7,196 7,580 Total Increase (unit) 4,011 0 -125 -125 0 0 0 0 1429 1154 659 385 385 Water Consumption per Connection

Household (m3/connection/month) 15 15 15 15 15 15 15 15 15 15 15 15

(l/cap/day) 100 100 100 100 100 100 100 100 100 100 100 100 Non Household (m3/conn/month) 87 87 87 87 87 87 87 87 87 87 87 87



General Description 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Year -3 Year -2 Year -1 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Water Consumption (Water Sales)

Household (m3/year) 625,680 605,160 584,640 584,640 584,640 584,640 584,640 818,640 1,007,640 1,115,640 1,178,640 1,241,640

Non Household (m3/year)

358,907 347,136 335,365 335,365 335,365 335,365 335,365 469,593 578,009 639,961 676,099 712,237

Total Water Consumption/ Water Sales (m3/year)

984,587 952,296 920,005 920,005 920,005 920,005 920,005 1,288,233 1,585,649 1,755,601 1,854,739 1,953,877

(l/second) 31 30 29 29 29 29 29 41 50 56 59 62 NRW on Distribution (%) 23.4% 21.2% 23.6% 23.0% 23.0% 23.0% 23.0% 23.0% 23.0% 23.0% 23.0% 23.0%

NRW on Production (%) 7.7% 7.4% 5.2% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

Total NRW (m3/year) 443,684 382,324 373,387 357,780 357,780 357,780 357,780 500,980 616,641 682,734 721,287 759,841

(l/second) 14 12 12 11 11 11 11 16 20 22 23 24 Water Demand Average Dem and (m3/year) 1,428,270 1,334,620 1,293,392 1,277,785 1,277,785 1,277,785 1,277,785 1,789,213 2,202,290 2,438,334 2,576,026 2,713,719 (l/second) 45 42 41 41 41 41 41 57 70 77 82 86 Peak Factor 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 Max Day (l/second) 54 51 49 49 49 49 49 68 84 93 98 103 Additional Average Demand (l/second)



CAPITAL EXPENDITURES 2006 2007 2008 2009 2010 2011 2012 2013 2014 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 N

O

DESCRIPTION

TOTAL INVEST-MENT (000 Rp) Eqpt Civil

Works Eqpt Civil Works Eqpt Civil

Works Eqpt Civil Works

Civil Works

Civil Works

Civil Works

Civil Works

Civil Works

A Land Acquisition 370,226 370,226

Broncaptering 300 m2 15,000 15,000 Reservoir 500 m2 75,000 75,000 Pipe line 1 ls 260,226 260,226

Pressure Release Chamber 200 m2 20,000 20,000

B Broncaptering 541,604 200,000 341,604

Broncaptering Construction 1 ls 296,604 296,604

Guard House 40 m3 45,000 45,000

Plumbing Installation 1 ls 200,000 200,000

C Pressure Release Chamber (PRC)

398,750 200,000 198,750

PRC Construction 80 m3 120,000 120,000 Guard House 15 m3 18,750 18,750 Fence 200 m2 60,000 60,000

Plumbing Installation

1 ls 200,000 200,000

D Transmission Line 5,487,648 4,790,855 696,793

PVC Pipe ND 250 mm + Acc.

8,754 m 5,343,818 4,690,174 653,644

Pipe Bridge 250 mm

1 ls

Bulk Water Meter 1 unit 143,830 100,681 43,149



2006 2007 2008 2009 2010 2011 2012 2013 2014 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 N

O

DESCRIPTION




Civil Works

Civil Works

Civil Works

Civil Works

Civil Works

E Reservoir 1,121,361 137,611 983,750

Reservoir Construction 420 m3 840,000 840,000

Guard House 15 m3 18,750 18,750

Warehouse, Workshop & Office

100 m3 125,000 125,000

Plumbing Installation 1 ls 137,611 137,611

F Pipe Distribution Networks

7,759,897 5,371,995 2,387,903

PVC Pipe ND 300 mm + Acc. 0 m



PVC Pipe ND 150 mm + Acc. 4,254 m 1,198,752 971,188 227,563

PVC Pipe ND 100 mm + Acc. 19,200 m 2,864,333 2,082,240 782,093

PVC Pipe ND 75 mm + Acc. 19,200 m 2,053,267 1,388,160 665,107

PVC Pipe ND 50 mm + Acc. 25,600 m

1,643,546 930,406 713,139




42

2006 2007 2008 2009 2010 2011 2012 2013 2014 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 NO

DESCRIPTION




Civil Works

Civil Works

Civil Works

Civil Works

Civil Works

G New Connections 2,004,500 1,202,700 285,573 230,655 131,803 76,885 76,885 Household 3,650 unit 1,733,750 1,040,250 247,000 199,500 114,000 66,500 66,500 Non Household 361 unit 270,750 162,450 38,573 31,155 17,803 10,385 10,385

SUB TOTAL OF LAND AND PHYSICAL WORKS

17,683,987 370,226 10,700,461 2,220,897 1,202,700 2,387,903 285,573 230,655 131,803 76,885 76,885

Physical Contingency 10% 1,768,399 37,023 1,070,046 222,090 120,270 238,790 28,557 23,065 13,180 7,688 7,688 SUB TOTAL 1 19,452,386 407,249 11,770,508 2,442,986 1,322,970 2,626,693 314,130 253,720 144,983 84,573 84,573 Non Physical Works Environmental Study 0.50% 97,262 97,262

Public Campaign and Socialization 0.10% 19,452 19,452

Capacity Building and Institutionalization 0.10% 19,452 19,452

Engineering 6.00% 1,167,143 350,143 233,429 175,071 116,714 175,071 116,714

Pre Contract, Tendering, Project Administration

1.00% 194,524 194,524

SUB TOTAL 2 1,497,834 233,429 - 447,405 233,429 175,071 116,714 175,071 116,714 - - - - -

GRAND TOTAL 1 + 2 (FIXED COST) 20,950,219 233,429 - 447,405 640,677 11,945,579 2,559,701 1,498,041 2,743,407 314,130 253,720 144,983 84,573 84,573


ANNEX D – SUMMARY OF INCOME STATEMENT



ANNEX D No Asset Revaluation TARIFF INCREASE 36% 14% 18% 27% 27% 27% 27% 27%

TABLE B4 - PROFIT AND LOSS ACCOUNT 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011(CURRENT RP MILLION) Audited Audited Audited Actual

Number of Service Connections - '000 31.2 32.0 32.8 33.8 35.9 36.8 37.7 39.2 41.0 41.8 41.8Average Consumption - m3/conn/month 21.6 22.3 21.4 21.5 20.6 23.1 22.8 22.6 22.5 22.7 22.9Volume Sold - 000m3 8,105 8,546 8,417 8,705 8,905 10,201 10,320 10,627 11,056 11,397 11,499% Unaccounted-for Water 39% 28% 29% 27% 28% 31% 28% 28% 28% 28% 28%Water Produced - 000m3 13,266 11,845 11,878 11,916 12,298 14,757 14,757 15,022 13,869 14,271 14,271Average Tariff - Current Rp/M3 : 451 643 779 1,057 1,204 1,423 1,800 2,277 2,880 3,644 4,609

Tariff Revenues 3,651 5,498 6,558 9,200 10,726 14,515 18,575 24,199 31,845 41,528 53,002Net Connection Fees 508 337 503 938 791 2,723 2,629 4,371 4,842 2,306Sales of water to other PDAMsOther Operating Revenues 1,115 68 198 107 382 709 496 557 622 651 651

Total Operating Revenues 5,275 5,903 7,259 10,246 11,899 17,947 21,700 29,126 37,309 44,485 53,653

Personnel 1,247 1,573 2,188 3,161 3,976 5,107 6,218 7,162 8,316 9,402 10,415Power 78 109 149 145 269 324 373 376 427 451Chemical 8 7 7 6 8 18 20 23 23 26 28Maintenance Material 331 395 384 674 522 849 661 699 740 783 826Administration - General 885 931 1,283 2,164 2,589 5,785 4,411 5,140 6,037 6,057 6,709Bad Debts & Write Off 34 29 56 23 (14) 27 88 112 146 193 251Raw Water PurchasesRaw Water Retribution 92 128 438 776 994 1,346 1,543 1,705 1,941 2,159 2,296

Total Operating Expenses 2,598 3,141 4,465 6,953 8,220 13,401 13,265 15,214 17,579 19,046 20,976

Income (Loss) before Depreciation 2,676 2,762 2,794 3,293 3,679 4,546 8,435 13,912 19,730 25,439 32,677Depreciation 6.3% unrevalued assets 1,321 1,315 1,311 1,592 1,887 2,517 2,065 2,697 3,592 3,880 3,907Operating Income (Loss) 1,356 1,446 1,483 1,701 1,792 2,029 6,371 11,215 16,138 21,559 28,771Operational Interest 693 625 556 489 419 631 291 223 3,329 3,163 2,740Net Operating Income (Loss) 662 822 927 1,212 1,373 1,398 6,079 10,992 12,808 18,396 26,031RoyaltiesNon-Operating Income (Loss) - Other 21 64 30 7 93 122 123 249 997 1,908 3,269Before Tax Income 683 885 957 1,219 1,466 1,520 6,202 11,241 13,806 20,304 29,300Taxable Income After Losses Carried Forward (5 Years) 683 885 957 1,219 1,466 1,520 6,202 11,241 13,806 20,304 29,300Income Tax 187 311 388 432 410 498 1,852 3,363 4,133 6,083 8,781

Net Income (Loss) 496 574 569 787 1,056 1,022 4,350 7,877 9,673 14,222 20,518 Staff Funds Share of Net Income 10.0% of net income 79 106 102 435 788 967 1,422 Kotamadya Share of Net Income 55.0% ditto 433 581 562 2,393 4,333 5,320 7,822 Payment to Staff Funds 90.0% of share 71 95 92 392 709 871 1,280 Payment to Kotamadya of share

RATIOS AND COMPARATORS:Ave.Expenses per M3 Sold (Rp) 321 368 530 799 923 1,314 1,285 1,432 1,590 1,671 1,824Operating Ratio 74% 75% 80% 83% 85% 89% 71% 61% 57% 52% 46%Before Tax Income/Sales 19% 16% 15% 13% 14% 10% 33% 46% 43% 49% 55%Increases in Weighted Average Tariffs 43% 21% 36% 14% 18% 27% 27% 27% 27% 27%Average Asset's Rate Base (Nom. Rp M.) 10,296 10,023 9,787 10,447 12,033 13,411 12,905 20,617 31,752 32,609 29,145Assets/Water Sales 2.82 1.82 1.49 1.14 1.12 0.92 0.69 0.85 1.00 0.79 0.55Operating Income/Assets 6.4% 8.2% 9.5% 11.6% 11.4% 10.4% 47.1% 53.3% 40.3% 56.4% 89.3%Before Tax Income/Assets 6.6% 8.8% 9.8% 11.7% 12.2% 11.3% 48.1% 54.5% 43.5% 62.3% 100.5%

R:\4. MUNICIPAL FINANCE\WATER UTILITIES\Central Java\PDAM Kb. Mag4/7/06 02:36 PM 51% 19% 40% 17% 35% 28% 30% 32% 30% 28%21% 42% 56% 18% 63% -1% 15% 16% 8% 10%



ANNEX DTABLE B4 - PROFIT AND LOSS ACCOUN(CURRENT RP MILLION)Number of Service Connections - '000Average Consumption - m3/conn/monthVolume Sold - 000m3% Unaccounted-for WaterWater Produced - 000m3Average Tariff - Current Rp/M3 :

Tariff RevenuesNet Connection FeesSales of water to other PDAMsOther Operating Revenues

Total Operating RevenuesPersonnelPowerChemicalMaintenance MaterialAdministration - GeneralBad Debts & Write OffRaw Water PurchasesRaw Water Retribution

Total Operating ExpensesIncome (Loss) before DepreciationDepreciationOperating Income (Loss)Operational InterestNet Operating Income (Loss)RoyaltiesNon-Operating Income (Loss) - OtherBefore Tax IncomeTaxable Income After Losses Carried Forward (5 YIncome Tax

Net Income (Loss) Staff Funds Share of Net Income Kotamadya Share of Net Income Payment to Staff Funds Payment to Kotamadya

RATIOS AND COMPARATORS:Ave.Expenses per M3 Sold (Rp)Operating RatioBefore Tax Income/SalesIncreases in Weighted Average TariffsAverage Asset's Rate Base (Nom. Rp M.)Assets/Water SalesOperating Income/AssetsBefore Tax Income/Assets

R:\4. MUNICIPAL FINANCE\WATER UTILITIES\C

27% 27% 27% 27% 27% 27% 27% 5% 5% 5% 5% 5% 5% 5%

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

41.8 41.8 41.8 41.8 41.8 41.8 41.8 41.8 41.8 41.8 41.8 41.8 41.8 41.822.9 22.9 22.9 22.9 22.9 22.9 22.9 22.9 22.9 22.9 22.9 22.9 22.9 22.911,499 11,499 11,499 11,499 11,499 11,499 11,499 11,499 11,499 11,499 11,499 11,499 11,499 11,49928% 28% 28% 28% 28% 28% 28% 28% 28% 28% 28% 28% 28% 28%14,271 14,271 14,271 14,271 14,271 14,271 14,271 14,271 14,271 14,271 14,271 14,271 14,271 14,2715,831 7,376 9,331 11,803 14,931 18,888 23,893 25,207 26,593 28,056 29,599 31,227 32,945 34,756

67,048 84,815 107,291 135,724 171,690 217,188 274,743 289,854 305,796 322,615 340,359 359,078 378,828 399,663

651 651 651 651 651 651 651 651 651 651 651 651 651 651

67,699 85,466 107,942 136,375 172,341 217,839 275,394 290,505 306,447 323,266 341,010 359,730 379,479 400,314

11,537 12,780 14,157 15,683 17,372 19,244 21,318 23,615 26,159 28,978 32,100 35,559 39,391 43,635476 502 529 559 589 622 656 692 730 770 813 857 904 95429 31 33 34 36 38 40 43 45 47 50 53 56 59871 919 969 1,023 1,079 1,138 1,201 1,267 1,337 1,410 1,488 1,570 1,656 1,7477,432 8,233 9,120 10,103 11,191 12,397 13,733 15,213 16,852 18,668 20,679 22,907 25,376 28,110321 406 513 649 821 1,039 1,314 1,663 1,754 1,851 1,952 2,060 2,173 2,292

2,423 2,556 2,696 2,845 3,001 3,166 3,340 3,524 3,718 3,922 4,138 4,366 4,606 4,859

23,088 25,426 28,018 30,895 34,091 37,645 41,603 46,016 50,595 55,646 61,220 67,371 74,161 81,656

44,610 60,040 79,924 105,480 138,251 180,194 233,792 244,489 255,852 267,620 279,790 292,358 305,318 318,6583,915 3,915 3,915 3,915 3,915 3,915 3,915 3,915 3,915 3,915 3,915 3,915 3,915 3,91540,695 56,125 76,009 101,565 134,336 176,279 229,877 240,574 251,937 263,705 275,875 288,443 301,403 314,7432,368 2,014 1,659 1,305 950 596 241 3238,327 54,111 74,350 100,260 133,386 175,684 229,636 240,543 251,937 263,705 275,875 288,443 301,403 314,743

5,221 8,119 12,224 17,891 25,575 35,861 49,492 67,419 87,350 108,942 132,370 157,807 185,427 215,40643,548 62,230 86,574 118,151 158,961 211,545 279,128 307,962 339,288 372,646 408,244 446,250 486,830 530,14943,548 62,230 86,574 118,151 158,961 211,545 279,128 307,962 339,288 372,646 408,244 446,250 486,830 530,14913,056 18,660 25,963 35,436 47,680 63,455 83,730 92,380 101,778 111,785 122,465 133,866 146,040 159,036

30,492 43,570 60,610 82,714 111,281 148,090 195,398 215,582 237,510 260,861 285,780 312,384 340,790 371,1132,052 3,049 4,357 6,061 8,271 11,128 14,809 19,540 21,558 23,751 26,086 28,578 31,238 34,07911,285 16,771 23,964 33,336 45,493 61,205 81,450 107,469 118,570 130,631 143,474 157,179 171,811 187,4341,847 2,744 3,921 5,455 7,444 10,015 13,328 17,586 19,402 21,376 23,478 25,720 28,115 30,671

2,008 2,211 2,437 2,687 2,965 3,274 3,618 4,002 4,400 4,839 5,324 5,859 6,449 7,10140% 34% 30% 26% 22% 19% 17% 17% 18% 18% 19% 20% 21% 21%65% 73% 81% 87% 93% 97% 102% 106% 111% 116% 120% 124% 129% 133%27% 27% 27% 27% 27% 27% 27% 5% 5% 5% 5% 5% 5% 5%25,367 21,452 17,537 13,622 9,707 5,792 1,877 (2,038) (5,953) (9,868) (13,783) (17,698) (21,613) (25,528)0.38 0.25 0.16 0.10 0.06 0.03 0.01 (0.01) (0.02) (0.03) (0.04) (0.05) (0.06) (0.06)151.1% 252.2% 424.0% 736.0% 1374.1% 3033.3% 12235.3% -11801.8% -4232.0% -2672.3% -2001.5% -1629.8% -1394.5% -1232.9%171.7% 290.1% 493.7% 867.4% 1637.6% 3652.5% 14872.3% -15109.5% -5699.2% -3776.2% -2961.9% -2521.4% -2252.5% -2076.7%

27% 27% 27% 27% 27% 27% 27% 5% 5% 6% 5% 5% 6% 5%10% 10% 10% 10% 10% 10% 11% 11% 10% 10% 10% 10% 10% 10%



ANNEX E – SUMMARY OF SOURCES AND USES OF FUNDS



ANNEX E TARIFF INCREASE 36% 14% 18% 27% 27% 27% 27% 27%

TABLE B5 - SOURCES AND APPLICATION OF FUNDS 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011(CURRENT RP MILLION) Audited Audited Audited Actual

SOURCES OF FUNDS:Income before Depreciation and Interest 2,676 2,762 2,794 3,293 3,679 4,546 8,435 13,912 19,730 25,439 32,677RoyaltiesNon-Operating Income (Loss) - Net 21 64 30 7 93 122 123 249 997 1,908 3,269

Gross Internal Cash Generation 2,697 2,826 2,824 3,300 3,772 4,669 8,558 14,161 20,727 27,347 35,946

GOI Construction GrantGOI Feasibility Study GrantGOI Technical Assistance Grant (APBN)PPN GrantRG Equity (Land) 370Other RG Equity/AdvanceReinvestment by Kotamadya 433 581 562 2,393 4,333 5,320 7,822

Total Equity 433 581 932 2,393 4,333 5,320 7,822

Borrowing :Proposed Loan 12,947 4,161Committed LoanOngoing Loans 5,584 (588) 712Interest Accumulated 1,100 2,648

Total Borrowing 5,584 (588) 712 14,047 6,809

TOTAL SOURCES OF FUNDS 8,281 2,826 2,236 4,013 4,205 5,250 23,538 23,363 25,060 32,667 43,768

APPLICATIONS OF FUNDS:Proposed WSSP Projects 21,219 18,866 5,944 593 266Committed/Other ProjectsPast Projects 1,220 1,613 2,879PDAM Replacement/Connection ProgrammeMaster PlanInterest Accumulated 1,100 2,648

Total Capital Expenditures 21,219 1,220 1,613 2,879 19,966 8,593 593 266Amortization of L/T Debt 588 588 588 588 788 938 938 988 2,673 2,673 2,380Operational Interest of L/T Debt 693 625 556 489 419 631 291 223 3,329 3,163 2,740

Total Debt Service of L/T Debt 1,281 1,213 1,144 1,077 1,207 1,569 1,229 1,211 6,003 5,836 5,119Working Capital Needs (259) (126) (760) 716 (195) (449) (2,190) (2,040) (3,042) (4,071)Other Assets/Liabil. Changes 157 (746) (149) (1,509) 399 (90) (107) (128) (135) (128)Kotamadya Share of Net IncomeOther Profit Sharing 71 95 92 392 709 871 1,280Income Tax 187 311 388 432 410 498 1,852 3,363 4,133 6,083

TOTAL APPLICATIONS OF FUNDS 22,501 2,518 2,196 3,435 917 2,278 21,246 9,750 8,501 7,929 8,283

CASH INCREASE (DECREASE) 295 307 40 1,058 (1,030) 6 2,291 13,613 16,559 24,738 35,485Cash Balance, Begining (70) 225 532 572 1,731 701 707 2,999 16,611 33,170 57,908Cash Balance, Ending 225 532 572 1,631 701 707 2,999 16,611 33,170 57,908 93,394Minimum Cash Requirement 323 363 467 669 786 1,247 1,208 1,369 1,965 2,074 2,175

DSCR (SLAP, Cash balance less minimum cash) 0.92 1.14 1.09 1.89 0.93 0.66 2.46 13.59 6.20 10.57 18.82DSCR (ADB and Perpamsi, Net revenues) 2.10 2.33 2.47 3.06 3.13 2.98 6.96 11.69 3.45 4.69 7.02DSCR (Cashflow ) 2.10 2.33 2.47 3.06 3.13 2.98 6.96 11.69 3.45 4.69 7.02DSCR (BPKP, Net Income) 0.39 0.47 0.50 0.73 0.88 0.65 3.54 6.50 1.61 2.44 4.01Contribution to Investment 7% 125% 139% 95% na na 39% 179% 2890% 9413% naContr. to Investment, 3 Yr Average 142% 135% #N/A #N/A 44% 157% 3232% 9743% #N/A

R:\4. MUNICIPAL FINANCE\WATER UTILITIES\Central Java\PDAM Kb. Mag4/7/06 02:36 PM



ANNEX ETABLE B5 - SOURCES AND APPLICATION(CURRENT RP MILLION)SOURCES OF FUNDS:Income before Depreciation and InterestRoyaltiesNon-Operating Income (Loss) - Net

Gross Internal Cash Generation

GOI Construction GrantGOI Feasibility Study GrantGOI Technical Assistance Grant (APBN)PPN GrantRG Equity (Land)Other RG Equity/AdvanceReinvestment by Kotamadya

Total Equity

Borrowing :Proposed LoanCommitted LoanOngoing LoansInterest Accumulated

Total Borrowing

TOTAL SOURCES OF FUNDS

APPLICATIONS OF FUNDS:Proposed WSSP ProjectsCommitted/Other ProjectsPast ProjectsPDAM Replacement/Connection ProgrammeMaster PlanInterest Accumulated

Total Capital ExpendituresAmortization of L/T DebtOperational Interest of L/T Debt

Total Debt Service of L/T DebtWorking Capital NeedsOther Assets/Liabil. ChangesKotamadya Share of Net IncomeOther Profit SharingIncome Tax

TOTAL APPLICATIONS OF FUNDS

CASH INCREASE (DECREASE)Cash Balance, BeginingCash Balance, EndingMinimum Cash Requirement

DSCR (SLAP, Cash balance less minimum cash)DSCR (ADB and Perpamsi, Net revenues)DSCR (Cashflow )DSCR (BPKP, Net Income)Contribution to InvestmentContr. to Investment, 3 Yr Average


27% 27% 27% 27% 27% 27% 27% 5% 5% 5% 5% 5% 5% 5%

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

44,610 60,040 79,924 105,480 138,251 180,194 233,792 244,489 255,852 267,620 279,790 292,358 305,318 318,658

5,221 8,119 12,224 17,891 25,575 35,861 49,492 67,419 87,350 108,942 132,370 157,807 185,427 215,406

49,831 68,159 92,148 123,370 163,826 216,055 283,284 311,908 343,203 376,561 412,159 450,165 490,745 534,065

11,285 16,771 23,964 33,336 45,493 61,205 81,450 107,469 118,570 130,631 143,474 157,179 171,811 187,434

11,285 16,771 23,964 33,336 45,493 61,205 81,450 107,469 118,570 130,631 143,474 157,179 171,811 187,434

61,116 84,930 116,112 156,706 209,319 277,260 364,734 419,378 461,773 507,192 555,633 607,344 662,556 721,499

2,086 2,086 2,086 2,086 2,086 2,086 2,0862,368 2,014 1,659 1,305 950 596 241 32

4,454 4,099 3,745 3,390 3,036 2,681 2,327 32(6,481) (9,330) (12,855) (17,277) (22,865) (29,959) (38,981) (42,597) (40,642) (39,784) (39,775) (40,453) (41,695) (43,406)(185) (274) (392) (545) (744) (1,002) (1,333) (1,759) (1,940) (2,138) (2,348) (2,572) (2,811) (3,067)

1,847 2,744 3,921 5,455 7,444 10,015 13,328 17,586 19,402 21,376 23,478 25,720 28,115 30,6718,781 13,056 18,660 25,963 35,436 47,680 63,455 83,730 92,380 101,778 111,785 122,465 133,866 146,040

8,416 10,295 13,079 16,987 22,307 29,416 38,796 56,992 69,199 81,232 93,139 105,159 117,475 130,238

52,700 74,635 103,032 139,720 187,012 247,845 325,938 362,386 392,573 425,960 462,493 502,185 545,081 591,26093,394 146,093 220,728 323,761 463,480 650,492 898,337 1,224,275 1,586,661 1,979,234 2,405,194 2,867,687 3,369,872 3,914,953146,093 220,728 323,761 463,480 650,492 898,337 1,224,275 1,586,661 1,979,234 2,405,194 2,867,687 3,369,872 3,914,953 4,506,2132,295 2,460 2,647 2,857 3,094 3,361 3,661 3,837 4,216 4,637 5,102 5,614 6,180 6,805

33.29 54.24 86.75 136.86 214.26 334.80 525.62 49676.19 na na na na na na11.19 16.63 24.61 36.39 53.97 80.58 121.76 9788.91 na na na na na na11.19 16.63 24.61 36.39 53.97 80.58 121.76 9788.91 na na na na na na6.85 10.63 16.18 24.40 36.66 55.23 83.98 6765.80 na na na na na nana na na na na na na na na na na na na na#N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A



ANNEX F – SUMMARY OF BALANCE SHEET



ANNEX F TARIFF INCREASE 36% 14% 18% 27% 27% 27% 27% 27%

TABLE B6 - BALANCE SHEET No Asset Revaluation 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011(CURRENT RP MILLION) Audited Audited Audited Actual

Assets in Operation reval after2004 20,749 21,496 22,853 25,678 29,491 32,840 33,060 53,026 61,619 62,212 62,478Accumulated Depreciation 10,454 11,746 13,030 14,609 16,496 19,013 21,078 23,775 27,367 31,246 35,153

Net Fixed Assets 10,296 9,750 9,824 11,070 12,996 13,827 11,982 29,251 34,252 30,966 27,324Work In Progress 75 548 804 858 235 220 19,966 8,593 593 266Cash + Deposits 375 682 572 1,731 701 707 2,999 16,611 33,170 57,908 93,394Accounts Receivable - Water 82 60 days=target 1,123 1,285 1,760 1,901 1,818 1,581 3,732 4,567 5,623 6,827 8,713Reserve of Bad Debts Provision, Water (59) (88) (144) (167) (14) (18) (24) (32) (41)Past Connection Fees Put To Balance SheetReceivable - Credited New Connections 209 3 10 2 2 2Inventories 23 30 days=target 29 21 28 38 266 231 49 54 60 67 71Other Receivable Piutang (Usaha) non-Air; Piutang Lain Lain, 5 3 0

Total Current Assets 1,678 1,908 2,229 3,506 2,787 2,521 6,765 21,215 38,829 64,770 102,136Installation Inventory 348 70 days=target 429 418 404 1,146 600 504 424 356 299 251 251Other Assets 826 886 963 954 1,035 1,431 1,431 1,431 1,431 1,431 1,431

TOTAL ASSETS 13,303 13,510 14,224 17,533 17,653 18,503 40,568 60,845 75,404 97,684 131,142Accounts Payable 3 30 days=target 1 5 79 1 57 572 653 749 777 847Other Payable 137 181 614 1,131 1,090 1,045 1,102 1,163 1,227 1,294 1,366Other Current Liabilities (Cust. Deposit) 9 60 153 454 82 84 86 89 94 95 95Tax Payable 0 4 Turn Ov =Target 2 84 121 101 189 99 1,926 4,808 7,739 11,887 17,696Current Matur.Long-Term Debt 588 588 588 788 938 938 988 2,673 2,673 2,380 2,086

Total Current Liabilities 736 919 1,476 2,554 2,299 2,222 4,674 9,386 12,482 16,433 22,090Deferred IncomeMeter Reserve Fund 241 826 1,502 2,045 2,882 4,276 4,276 4,276 4,276 4,276 4,276Other Liabilities 281 356 363 502 709 609 618 658 728 816 944Long Term-Debt - Net 4,996 4,408 3,820 4,333 3,395 2,457 15,517 19,652 16,979 14,599 12,514

Total Liabilities 6,254 6,508 7,161 9,434 9,286 9,565 25,085 33,972 34,466 36,124 39,824

Assets Revaluation Surplus 10 average age initial revaluationReserves + "Net" Retained Earnings 1,018 972 1,033 1,329 1,597 2,168 7,779 16,777 26,510 41,811 63,748Local Gov't Equity 4,126 4,126 4,126 4,126 4,126 4,126 5,059 7,451 11,784 17,104 24,926Central Gov't Equity (Inc'l Not Yet Handed Over) 1,904 1,904 1,904 2,644 2,644 2,644 2,644 2,644 2,644 2,644 2,644

Total Equity 7,048 7,002 7,064 8,099 8,367 8,938 15,482 26,872 40,938 61,559 91,318

TOTAL EQUITY AND LIABILITIES 13,303 13,510 14,224 17,533 17,653 18,503 40,567 60,844 75,404 97,683 131,142Current Ratio 2.3 2.1 1.5 1.4 1.2 1.1 1.4 2.3 3.1 3.9 4.6Working Capital, exclud. cash 1,154 895 769 9 724 530 80 (2,110) (4,150) (7,191) (11,262)Debt Equity Ratio (70/30 = 233%) 79% 71% 62% 63% 52% 38% 107% 83% 48% 28% 16%Total Assets/Total Debt 2.3 2.5 3.0 3.1 3.5 4.6 2.4 2.6 3.7 5.5 8.4# Days Accounts Receivable 113 86 99 76 62 40 74 69 65 60 60% Debt/(Net Fixed Assets +WIP) 1 49% 41% 43% 33% 24% 52% 59% 56% 54% 53%Cash = # Month Operating Expenses 1.0 2.0 1.5 2.8 1.0 0.6 2.7 13.1 22.6 36.5 53.4

R:\4. MUNICIPAL FINANCE\WATER UTILITIES\Central Java\PDAM Kb. Mag4/7/06 0 (0) 0 (0) (0) (1) (1) (1) (1) (1)



ANNEX FTABLE B6 - BALANCE SHEET(CURRENT RP MILLION)Assets in OperationAccumulated Depreciation

Net Fixed AssetsWork In ProgressCash + DepositsAccounts Receivable - Water Reserve of Bad Debts Provision, WaterPast Connection Fees Put To Balance SheetReceivable - Credited New ConnectionsInventoriesOther Receivable

Total Current AssetsInstallation InventoryOther Assets

TOTAL ASSETSAccounts PayableOther PayableOther Current Liabilities (Cust. Deposit)Tax PayableCurrent Matur.Long-Term Debt

Total Current LiabilitiesDeferred IncomeMeter Reserve FundOther LiabilitiesLong Term-Debt - Net

Total Liabilities

Assets Revaluation SurplusReserves + "Net" Retained EarningsLocal Gov't EquityCentral Gov't Equity (Inc'l Not Yet Handed Over)

Total Equity

TOTAL EQUITY AND LIABILITIESCurrent RatioWorking Capital, exclud. cashDebt Equity Ratio (70/30 = 233%)Total Assets/Total Debt# Days Accounts Receivable% Debt/(Net Fixed Assets +WIP)Cash = # Month Operating Expenses


27% 27% 27% 27% 27% 27% 27% 5% 5% 5% 5% 5% 5% 5%

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

62,478 62,478 62,478 62,478 62,478 62,478 62,478 62,478 62,478 62,478 62,478 62,478 62,478 62,47839,068 42,983 46,898 50,813 54,728 58,643 62,558 66,473 70,388 74,303 78,218 82,133 86,048 89,963

23,409 19,494 15,579 11,664 7,749 3,834 (81) (3,996) (7,911) (11,826) (15,741) (19,656) (23,571) (27,486)

146,093 220,728 323,761 463,480 650,492 898,337 1,224,275 1,586,661 1,979,234 2,405,194 2,867,687 3,369,872 3,914,953 4,506,21311,022 13,942 17,637 22,311 28,223 35,702 45,163 47,647 50,268 53,033 55,949 59,027 62,273 65,698(53) (67) (84) (107) (135) (171) (216) (273) (288) (304) (321) (339) (357) (377)

75 79 83 88 93 98 103 109 115 121 128 135 142 150

157,137 234,683 341,396 485,772 678,673 933,966 1,269,325 1,634,143 2,029,328 2,458,043 2,923,443 3,428,695 3,977,011 4,571,684251 251 251 251 251 251 251 251 251 251 251 251 251 2511,431 1,431 1,431 1,431 1,431 1,431 1,431 1,431 1,431 1,431 1,431 1,431 1,431 1,431

182,228 255,859 358,658 499,118 688,104 939,482 1,270,926 1,631,830 2,023,099 2,447,900 2,909,385 3,410,721 3,955,122 4,545,880923 1,006 1,097 1,197 1,307 1,427 1,559 1,705 1,864 2,040 2,233 2,445 2,679 2,9371,441 1,520 1,604 1,692 1,785 1,883 1,987 2,096 2,211 2,333 2,461 2,596 2,739 2,89095 95 95 95 95 95 95 95 95 95 95 95 95 9526,328 38,406 54,768 76,512 105,064 142,253 190,419 235,194 278,173 320,415 362,776 405,948 450,501 496,9122,086 2,086 2,086 2,086 2,086 2,086

30,872 43,113 59,650 81,582 110,336 147,744 194,060 239,090 282,344 324,883 367,565 411,085 456,015 502,834

4,276 4,276 4,276 4,276 4,276 4,276 4,276 4,276 4,276 4,276 4,276 4,276 4,276 4,2761,128 1,403 1,795 2,340 3,085 4,086 5,419 7,178 9,118 11,255 13,603 16,175 18,987 22,05410,428 8,343 6,257 4,171 2,086

46,705 57,134 71,977 92,370 119,783 156,106 203,755 250,543 295,738 340,414 385,444 431,536 479,278 529,164

96,668 143,098 207,091 293,823 409,903 563,753 766,098 972,744 1,200,250 1,449,743 1,722,724 2,020,789 2,345,639 2,699,07736,211 52,982 76,945 110,281 155,774 216,979 298,428 405,897 524,467 655,098 798,571 955,750 1,127,561 1,314,9962,644 2,644 2,644 2,644 2,644 2,644 2,644 2,644 2,644 2,644 2,644 2,644 2,644 2,644

135,523 198,724 286,680 406,748 568,321 783,376 1,067,170 1,381,286 1,727,361 2,107,485 2,523,940 2,979,184 3,475,844 4,016,716

182,228 255,859 358,657 499,118 688,104 939,481 1,270,926 1,631,829 2,023,099 2,447,899 2,909,384 3,410,720 3,955,121 4,545,8805.1 5.4 5.7 6.0 6.2 6.3 6.5 6.8 7.2 7.6 8.0 8.3 8.7 9.1(17,743) (27,073) (39,928) (57,205) (80,070) (110,029) (149,010) (191,607) (232,249) (272,033) (311,809) (352,262) (393,957) (437,362)9% 5% 3% 2% 1% 0%13.4 21.6 35.4 58.1 94.8 152.2 234.5 227.4 221.9 217.5 213.9 210.9 208.3 206.160 60 60 60 60 60 60 60 60 60 60 60 60 6053% 53% 54% 54% 54% 54%75.9 104.2 138.7 180.0 229.0 286.4 353.1 413.8 469.4 518.7 562.1 600.2 633.5 662.2

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