Document of

The World Bank

FOR OFFICIAL USE ONLY '

Report No. 3609-IND

STAFF APPRAISAL REPORT

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

March 10, 1982

Projects DepartmentEast Asia and Pacific Regional Office

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

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CURRENCY EQUIVALENTS

US$1.00 = Rp 625Rp 100 = US$0.16

Rp I million = US$1,600

UNITS AND ABBREVIATIONS

I metric ton (mt) = 1,000 kilograms or 2,204 pounds1 hectare (ha) = 2.471 acres

PRINCIPAL ABBREVIATIONS AND ACRONYMS

AS - Ammonium Sulphate

BIMAS - Bimbingan Massal Swa Sembada Bahan Makanan - "Mass Guidance forSelf-Sufficiency in Foodstuffs," a farm input credit program

BULOG - Badan Urusan Logistik, "National Logistics Body" or riceprocurement agency

CIDA - Canadian International Development Agencycdwt - cargo deadweight tonsDAP - Di-ammonium phosphate

dwt - deadweight tonsINMAS - Intensifikasi Massal or "Mass Intensification,"

a noncredit farm input programKALTIM - P.T. Pupuk Kalimantan Timurkg - Kilogram

KUD - Koperasi Unit Desa, village cooperativeMCD - Marine Consultants and Designers Inc., naval architectsPJKA - Perusahan Jawatan Kereta Api, the state railway corporationPPK - Pusat Pelayanan Koperasi or Cooperative Service CenterPUSKUD - Pusat Koperasi Unit Desa - Central Office of Village Unit

CooperativePUSRI - P.T. Pupuk Sriwidjaja IndonesiaREPELITA - National Five-Year Development Plan (Repelita I, 1969-74,

Repelita II, 1974-79, Repelita III, 1979-84)RLS - regular liner service

SWANCO - Swan, Wooster Engineering Company Ltd.tpd - tons per day (metric)

tpy - tons per year (metric)TSP - Triple superphosphate

UPP - Fertilizer bulk reception and bagging station

INDONESIAN FISCAL YEAR

April 1 - March 31

FOR OFFICIAL USE ONLY

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Table of Contents

Page No.

I. INTRODUCTION . . .. .. 1

II. AGRICULTURE, FERTILIZERS AND TRANSPORTATION IN INDONESIA . . 3

A. Agriculture ..... . . . . . . . . . . . . . . . ... 3(a) General . .. . . . . . . . . . . . . . . . . . . . . 3(b) Crops and Land Areas: Regions . .. . . . . . . . . . 3(c) Rice Production and Imports . .. . . . . . . . . . . 4(d) Bank Involvement in Agriculture . .. . . . . . . . . 5

B. Fertilizers ... I. . . . . . . . .. . 5-(a) Application Rates, Consumption Trends and Pricing 5(b) Pricing Strategies . . . . . . . . . . . . . . . . . 9(c) Forecasts of Fertilizer Use . . . . . . . . . . . . . 10(d) Projected Demand and Supply Balance and Export

Prospects . . . . . . . . . , . . . . . . . . . . . 12(e) Bank Involvement in Fertilizer Production . . . . . . 14

C. Transportation . . . . . . . . . . . . . . . . . . . . . . 14(a) General . . . . . . . . . . , , . . . .. . . . 14(b) Problems in the Development of the Transport System 15(c) Previous Bank Assistance in Transport Sector

Development . . . . . . . . . . . . , . . . . . . . 16

III. NATIONAL FERTILIZER DISTRIBUTION SYSTEM . . . . . . . . . . . 17

A. General . . . . . . . . . . . . . . . . . . . . . 17

B. Marketing . . . . . . . . . . . , . . . . . . . 18(a) PUSRI - The Company and Its Marketing Organization 18(b) The Credit System and Sales Programs . . . . . . . . 20

This report was prepared by Mr. G. Bain, East Asia and Pacific ProjectsDepartment, Mrs. J. Wishart, Transportation, Water, and TelecommunicationsDepartment, and Mr. F. Chapman (Consultant). Assiatance was also providedby Messrs. E. Ohlund, J. van Holst Pellekaan, East Asia and Pacific ProjectsDepartment and J. Ward and B. Berman, consultants.

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

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Page No.

C. Distribution . . . . . . . . . . . . . . .. . . . . . . . 21(a) PUSRI - Its Distribution Organization. . 21(b) The Fertilizer Transport System . .22(c) Bagging Capacity and Fertilizer Storage . . .. . . . 23(d) Roads and Railways. 25(e) Private and Public Distribution Facilities . .26(f) Cooperatives and Cooperative Service Centers . . . 26

D. Recent Experience with the System .27

IV. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . 28

A. The Program and the Project - Purpose and Scope .28B. Detailed Project Description .29C. Cost Estimate and Financing Plan .37D. Project Implementation .38E. Procurement and Disbursement . . . . . . . . . . . . . . 42F. Environmental Aspects . . . . . . . . . . . . . . . . . . 43

V. ECONOMIC EVALUATION . . . . . . . . . . . . . . . . . . . . . 45

A. Economic Rate of Return .45B. Project Risks . 48

VI. FINANCIAL ANALYSIS .. 50

A. PUSRI, Current Financial Position . . . . . . . . . . . . 50B. Financial Projections for the Project . . . . . . . . . . 56C. Consolidated Financial Forecasts for PUSRI .64D. Conclusions . . . . . . . . . . . . . . . . . . . . . . . 64

VII. AGREEMENTS TO BE REACHED AND RECOMMENDATION .66

TABLES IN TEXT

1.1 Projected Production, Supply and Demand of Main Fertilizers . . 2

2.1 Trend in Relative Price and Consumption, Urea. 72.2 Fertilizer Forecasts . . . . . . . . . . . . . . . . . . . . . 12

4.1 Price Contingencies . . . . . . . . . . . . . . . . . . . . . . 384.2 Capital Costs Estirmate (1981 Base Cost Estimate). 394.3 Financing Plan. .384.4 Equipment and Work Schedule . . . . . . . . . . . . . . . . . . 404.5 Disbursement Schedule . . . . . . . . . . . . . . . . . . . . . 44

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Page No.

5.1 Reduction in Urea Transport Cost for Areas Suppliedfrom New Plants . . . . . . . . . . . . . . . . . . . . . . . 45

6.1 Summary Consolidated Income Accounts 1978-80 . . . . . . . . . 516.2 Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . 536.3 Fixed Assets - 1980 . . . . . . . . . . . . . . . . . . . . . . 54

6.4 Urea Distribution Margins ...... .. .. .. .. . .. . . 586.5 PUSRI Distribution Revenues (Margins) . . . . . . . . . . . . . 596.6 Project Revenue and Expenses. . . . . . . . . . 606.7 Income from Exports and Domestic Distribution (Project) . . . . 61

6.8 Effects of Changes on Operating and DistributionCosts, Summary Sensitivity Analysis . . . . . . . . . . . . . 63

6.9 Effect of Inflationary Annual Increase of 6310% in Working Costs ....................

6.10 Consolidated Income Accounts, Cash Flows and Balance Sheets . 65

ANNEXES

1. Previous Bank Assistance in Transport Development2. Selected Documents and Data Available in the Project File3. Regional Forecasts of Fertilizer Consumption4. Basis of Economic Evaluation5. Detail of Fertilizer Use, Subsidies, Pricing and Consumption6. Fertilizer Storage 1980-19857. Detail of Project Cost Estimates8. Performance Indicators9. Financial Tables

LIST OF FIGURES

1. PUSRI Distribution Department Organogram2. PUSRI Marketing Department Organogram3. Schedule Distribution Project4. Urea Flow Chart 19805. Urea Flow Chart 19856. TSP/DAP Flow Chart 19807. TSP/DAP Flow Chart 19858. Flow of Fertilizer

LIST OF MAPS

IBRD 15763 - Indonesian Fertilizer Production and DistributionIBRD 15764 - Fertilizer Distribution on Java

I. INTRODUCTION

1.01 The Indonesian Government has long,favored increased use offertilizers as one of the key means of achieving increased food production.During the 1970s, consumption of the two main foodcrops fertilizers, ureaand triple superphosphate (TSP), increased at average annual rates of 15%; in1980, their use increased by 50% over the previous year. This sudden surgein fertilizer use can be largely attributed to two factors: first, the fastspread of brown planthopper-resistant rice varieties, which requireincreased fertilizer application (and water) for optimum yields and permithigher cropping intensities; and second, the much more favorable ratiobetween paddy (unhusked rice) and fertilizer prices.

1.02 Indonesia is a low-cost producer of urea,/l and the Government hasauthorized expansion of domestic production. New urea plants now underconstruction have a combined annual capacity of over 1 million tons, andwill begin supplying domestic and export markets in 1982. Two furtherplants have been approved, and should be onstream in 1984 and 1985. TSPproduction is to be expanded with a new plant commencing operations in 1983.

1.03 The three producers currently operating fertilizer plants have a1981 production capacity of 2,624,000 metric tons (mt) consisting of1,979,000 tons of urea, 495,000 mt of TSP or di-ammonium phosphate (DAP), and150,000 tons of ammonium sulphate (AS). These plants produced 2,462,000 tonsin 1981 and distributed their output through the existing distribution network(paras. 3.14 and 3.16) which is now, in some parts, operating at aboutcapacity. Additional production facilities under construction with Governmentand bilateral finance, which the proposed project will service, are: (a) oneurea unit in Aceh,/2 northern Sumatera which will come on stream in mid-1983,owned by ASEAN, called ASEAN I, with an output capacity of about 513,000metric tons per year (tpy) of which Indonesia is obliged to take 300,000 tpyand may purchase the balance if the other partners do not buy it; (b) one ureaunit at Bontang, East Kalimantan owned by P.T. Pupuk Kaltimantan Timur(KALTIM) called KALTIM I, which will come onstream in late-1982 with an outputcapacity of about 513,000 tpy of urea and about 165,000 tpy of ammonia;(c) one unit with an output capacity of 125,000 tpy of AS and about465,000 tpy of TSP at Gresik in East Java owned by P.T. Petrokimia Gresik(Petrokimia) which will come onstream in mid-1983 and early 1984; and

/1 "Investment and Production Costs for Fertilizer," World Bank; FertilizerUnit, Industrial Projects Department, June 1980, and Annex 2, B6.

/2 This unit is financed by the Association of South East Asian Nations(ASEAN) excluding in this case Singapore, through take-or-payundertakings under which Indonesia has an obligation to take delivery of60% of the plant's output.

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(d) partial output, starting in 1983, of up to 400,000 tpy of urea from the513,000 tpy PUSRI V unit known as Iskandra Muda Project, which will eventu-ally be set-up as a separate company to be 40% owned by the largest ureaproducer, P.T. Pupuk Sriwidjaja Indonesia (PUSRI). This unit will beconstructed in Aceh, adjacent to the ASEAN I plant. The proposed projectwill provide distribution facilities for the additional output from thiscapacity of 2,081,000 tons which, at the end of 1984, will bring Indonesiantotal capacity to 4,705,000 tons producing about 4,568,000 tons of product.These data for fertilizer tonnage are summarized in Table 1.1 below anddetailed in Annex 5 and include 149,000 tpy of liquid ammonia which will bedistributed to Petrokimia and to customers in the Philippines. Map IBRD15763 shows the structure of the present fertilizer system and the locationof new plants and Figures 4 to 7 show the current and projected flows offertilizers.

Table 1.1: PROJECTED PRODUCTION, SUPPLY AND DEMANDOF MAIN FERTILIZERS /a

1981 1984 1985('000 tons) - …

Opening inventory 817 819 817

Production CapacityExisting plants 2,624 2,624 2,624New plants - 2,868 2,769

Actual production 2,624 4,568 5,393Imports 190 -

Total supply 3,532 5,429 6,210

Domestic consumption 2,713 3,844 4,297

Exports ByASEAN plant - 182 205Other plants - 586 891

Total demand 2,713 4,612 5,393

Closing inventory 817 817 817

/a Excludes some 300,000 to 350,000 tons of mixed fertilizers.

1.04 Additional fertilizer plants with a total output of 513,000 mtpyof urea and TSP and 149,000 mtpy of ammonia are planned to commence productionin 1985. By 1987, the rated capacity of fertilizer plants will have reached5,850,000 tons and production is forecast to reach at least 5,500,000 tons,

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about 1,000,000 tons above the level which this project is designed toserve. PUSRI is preparing a request to the Government for furtherassistance to secure the assets needed to distribute this additional amount.In the meantime PUSRI has the responsibility for handling the additionaltotal demand of about 1.9 million tons of fertilizer to be distributed inthe period to 1985. The proposed project would expand distribution capacityto match production capacity of domestic plants through 1984.

II. AGRICULTURE, FERTILIZERS AND TRANSPORT IN INDONESIA

A. Agriculture

(a) General

2.01 The major objectives of the Government's agricultural policiesare: (a) to create productive employment and to raise the incomes of therural poor; (b) to increase domestic food supply in pace with rising demand;(c) to expand agricultural exports, particularly of smallholder tree crops;and (d) to ensure productive, sustainable use of Indonesia's land, water andother natural resources.

2.02 Despite rising revenues from oil exports and declines in itsrelative share of national income and employment, agriculture remains ofoverwhelming importance. It provides 80% of all nonoil export revenues andemploys 60% of the work force. It is the major source of income for twothirds of rural and one tenth of urban area households.

(b) Crops and Land Areas: Regions

2.03 For food crops, the regional distributions of land use, productionand employment reflect the traditional dominance of Java in the Indonesianeconomy. Java has approximately 57% of paddy land and 69% of secondary foodcrop areas. It produces 60% of the rice crop, employs 62% of the ruralagricultural labor force, and uses 77% of domestic fertilizer.

2.04 Java will continue to dominate total food crop production for manyyears, although its share of the total will decline as agricultural develop-ment in the Other Islands expands. The rehabilitation and development ofirrigation systems has concentrated heavily on Java, but now that most worksare complete, under construction or in the planning stage increased attentionwill be placed on irrigation development outside Java. For example, projectsare underway to rehabilitate and extend existing irrigation systems off Javaand a number of projects are directed at the development of new projectsincluding some in tidal swamp areas. The Government is also launchingsubstantial transmigration and other land development projects for theproduction of food crops. In addition, the Nucleus Estate and Smallholdersprojects are stimulating agricultural development in the Other Islands.Cropping intensity, input applications (including fertilizers) and the use of

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modern crop varieties and farming techniques are already at a high level inmany parts of Java, but have not reached comparable levels in most of theother islands with the important exceptions of areas such as South Sulawesiand Bali. Overall, the proportion of sawah rice planted to modern varietieswas reported to be 57% in 1979 for the whole of Indonesia, whereas it wasestimated to be about 80% on Java. Rice yields on Java are about 45% highLerthan on the Other Islands and fertilizer use is nearly three times the rateper hectare (ha). Although agricultural development on Java will continue tobe strong, there is a substantial potential for rapid growth in the OtherIslands which will bring with it rapid increases in the demand for fertilizer.

(c) Rice Production and Imports

2.05 The Government has placed a high priority on increasing theproduction of rice, the preferred staple crop for most Indonesians, and hasactively pursued the goal of self-sufficiency in food production since 1968.Rice production increased by-4.5% p.a. between 1968 and 1974, almost entirely(3.5% p.a.) /1 due to the extension of irrigated areas and higher yieldsfollowing rehabilitation of irrigation systems; the remaining productiongrowth is mainly attributable to improved fertilizer application. Between1974 and 1977, however, growth in rice production slowed to 1.7% p.a.,reflecting the combined effects of reduced fertilizer use in 1975 and 19765,during a period of restrictions on private fertilizer trade, successiveseasons of untimely rainfall, and unprecedented attacks by pests and diseases,principally the brown planthopper and associated viruses.

2.06 In 1978 a record rice harvest was achieved, but the poor performanceduring Repelita II led to a downward revision of targets for Repelita III to a3.5% average annual increase in rice production; 1980 was again a record year,and preliminary crop estimates, at around 20 million tons, are close to thetarget set for 1983/84. Estimates for the 1981 crop are for a record harvestof around 22.0 million tons.

2.07 Details permitting a comprehensive analysis of the reasons for therecent changes in production are not yet available but roughly one quarter ofthe growth in rice production has been due to increases in area harvested andthree-quarters due to increases in yield. Factors which have made thispossible include a major extension in the practice of double cropping,improved and more assured irrigation water supplies, greater use of short termmodern rice varieties, fertilizer and intensive extension service efforts.One review of the changes/2 suggests that some farmers achieved three crops in

/1 International Rice Research Institute estimate.

/2 Peter G. Warr, The Indonesian Economy: Survey of Recent Developments,Bulletin of Indonesian Economic Studies, Vol. XVI, No. 3, November1980. Mr. Warr estimates that about one-third of the rice productionincrease since 1978 can be attributed to these changes in farm practicesand that about 10% of the area being double-cropped in 1978 (about181,000 ha) on Java were triple-cropped in 1980.

1980. These changes in farm practice, and the potential for their extension,have been used in developing forecasts of fertilizer use (Annex 3).

(d) Bank Involvement in Agriculture

2.08 Since the first irrigation project was approved in 1967, the BankGroup's agricultural lending has rapidly expanded to include estate andsmallholder treecrops, sugar, livestock, fisheries, research, extension,training, seeds, transmigration, and resource survey and mapping. TheOperation Evaluation Department's Sector Operations Review of Agriculturallending in Indonesia (Report No. 2166, dated August 9, 1978) concluded thatdespite deficiencies in some projects, the Bank's portfolio in Indonesianagriculture was of "overall good quality and likely to contribute substan-tially to increased production." Within the context of the Government'sagricultural strategy, future Bank lending is expected to focus on (i) adiversified irrigation, flood protection, drainage and swamp reclamationprogram to intensify rice cropping on Java and to extend water management tothe other islands; (ii) production of secondary crops, including secondphase projects for agricultural research, extension and seeds; (iii)smallholder tree crop planting programs; and (iv) area development projectsaimed at watershed management to conserve soil and ensure long-termproductivity in the densely populated areas of Java, and transmigration. Asof February 1982 there were 31 Bank Group-financed agricultural projectsunder supervision in Indonesia.

B. Fertilizers

(a) Application Rates, Consumption Trends and Pricing

2.09 From a slow beginning in the 1960s and early 1970s, fertilizerconsumption has increased rapidly since about 1976. For the two majorfoodcrop fertilizers, urea and TSP, the average combined nutrient (nitrogenand phosphorous-N.P.) application in 1970 was 20 kg/ha; by 1979 this hadreached 65 kg/ha, for an average 15% p.a. consumption growth. In 1980,associated with the record rice crop fertilizer use increased by 50%.

2.10 For food crops, the average nutrient application is now around94 kg per hectare, still below the 115 kg /1 per hectare recommended in thefarm credit program for inputs, called BIMAS "A" package, but higher thanrates in most other southeast Asian countries. The average, however, coversa wide range of application rates with significant differences betweenmodern and traditional farmers, and between different types of crops. Onlythose farmers using the recommended inputs, i.e., the BIMAS-INMAS modern

/1 200 kg urea and 50 kg TSP per hectare; nutrient content 46%.

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sector rice farmers /1 on Java, Sumatera and Bali/Nusatenggara, applynutrients at or above the national average rate per hectare. BIMAS-INMASfarmers cultivating wetland rice, as a group, use approximately ten timesmore fertilizer per hectare than traditional farmers, and secondary foodcropfarmers on Java 5-10 times more than farmers on the Other islands.

2.11 These variations can be mainly explained by differences in wateravailability, but are also related to price incentives to use fertilizers.Apart from Sulawesi and Bali, where rice-growing areas are close to majorfertilizer delivery ports, fertilizer prices paid by farmers are uniformlyhigher off Java, whether for rice or secondary crops (Annex 5, Table 1). OnKalimantan, the region with the lowest fertilizer use, fertilizer pricesaverage some 17% above the Indonesian average, and, for the traditional ricefarming sector, are some 53% above the Java average.

2.12 Nationally also, the broad trends in fertilizer use have tended tofollow price changes. Nutrient consumption for food crops increased byabout one third in 1977 following the extension of government-subsidizedprices to all farmers, leading to an effective real price decline for thenon-BIMAS farmers. More recently, in 1979 and 1980, increases in the use offertilizer have paralleled changes in the relative prices of fertilizers andpaddy rice which have led to a substantial increase in the farmer's returnfrom its use, as is shown in Table 2.1.

/1 INMAS farmers are a rather loosely defined group of farmers includinlgthose farmers not participating in the BIMAS credit program who usemodern practices. BIMAS farmers are eligible to obtain the recommendedinputs, a living allowance and credit. INMAS farmers are given accessto the inputs but without credit for their costs and no livingallowance. The Rural Bank has recently introduced a credit package forINMAS farmers.

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Table 2.1: TREND IN RELATIVE PRICE AND CONSUMPTION, UREA

Price Ratio Annual increase inPaddy Rice/Urea in urea consumption (%)

1973 1:1 391974 1:1 -101975 0.97:1 111976 0.86:1 -11977 1:1 401978 1.07:1 61979 1.21:1 181980 1.50:1 481981 1.71:1 n.a.

Source: Annex 2, C3.

2.13 Prices to farmers for domestically produced fertilizers (urea,TSP, DAP, AS and some NPK compounds) are substantially below both worldmarket prices and domestic production costs. Urea has a variable marginbelow world prices and domestic production costs depending on whether thenatural gas feedstock is drawn from a relatively small field capable ofsupplying only alternative domestic users or from a larger field, which couldjustify either a number of export-oriented urea fertilizer plants orcapital-intensive liquification plants for processing LNG exports, where theopportunity cost of the natural gas may be higher./l For other fertilizers,domestic production costs, and economic delivered prices to farmers areabove those for imported fertilizers, principally because all raw materialsmust be imported, and the domestic demand is too small to achieve economies,either in freight or the production process itself. The pricing structureand subsidies for fertilizer are shown in Annex 5. The current officialretail prices represent a discount from world market prices averaging US$200per ton and for urea a discount under economic production costs of US$90 perton.

2.14 The Government also intervenes in retail and farm-gate markets forrice and other food crops, to support farm incomes and control food prices.The introduction of fertilizer subsidies can be traced to reluctance, since

/1 But Bank calculations indicate that Indonesia could earn larger netrevenues by exporting urea made from natural gas rather than exportingliquefied gas, with gas input priced at the current well-head price forgas now used in liquefaction plants.

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the mid-1970s, to raise fertilizer prices in the face of slower thananticipated rice production growth during Repelita II. Prior to the mid-1970s, both rice and fertilizer prices hovered around the internationallevels, and immediately before the 1978 devaluation were substantially abovethem (Annex 5, Table 3). The subsidies were, of course, also high duringthe mid-1970s, when markets were disrupted by panic buying following the1973/74 OPEC price increases and when Indonesia imported some 2.0 milliontons of urea. The mid-1970s also saw a significant increase in the size ofthe fertilizer subsidy. At this time the low (government-supported) priceswere extended to the non-BIMAS farm sectors at the beginning of the 1976/77wet season, as a means of eliminating the black market and cross trading insubsidized fertilizer between the subsidized farm sectors and theunsubsidized sectors, and to ensure higher fertilizer applications.

2.15 In 1976 an official attempt was made to estimate the appropriateincremental benefit/cost ratio between inputs and outputs for rice farmersneeded to encourage increased rice production (and hence increasedfertilizer use). This ratio (2.2:1 for BIMAS farmers) was used to setprices for rice, fertilizer and insecticide, and to determine a buyingprogram to support rice prices through the Government's agency, BULOG. Iheattempt was not a noticeable success. Rice production continued to increaseat about 3.6% p.a. during the 1970s, and fertilizer consumption changes canbe explained by changes in its price to non-BIMAS farmers. But there isinsufficient data to analyze the reasons for the poor response in riceproduction and/or to re-estimate a more appropriate ratio. Bank analysis /1casts some doubt on the assumptions used on the incremental yieldsobtainable from the BIMAS input packages. Restrictions on private trade infertilizer during 1976/77 when the growth of usage slowed, furthercomplicate any analysis of the effective prices paid by farmers or thetimeliness of its delivery.

2.16 In the last two years, farm-gate and retail rice prices have beenallowed to move upwards, with the latest farm-gate price increase in early1982 calculated to maintain 1976 purchasing power to farmers (measuredagainst price indices for nine major commodities). Fertilizer prices ofRp 70 kg for urea and TSP have not changed, and the present rice pricesprovide considerable incentive to use fertilizer, particularly for the fast-spreading brown planthopper-resistant varieties.

2.17 A minor part of the fertilizer subsidy (around US$2.50 per ton)can be traced to the transport fuel subsidy which affects all goods andpassenger transport in Indonesia. Despite retail gasoline and diesel fuelprice increases in 1979 and in 1980 and a further 66% increase in the diesel

/1 For example, Indonesia, A Review of the Support Services for Food CropProduction, Annex 2, Report No. 2060a-IND, December 11, 1978.

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retail price in January 1982, the current diesel fuel price of Rp 85 litreis still below the world price (fob Singapore) of Rp 175 litre. During thelatest full year for which data is available government payments ofRp 136 billion were needed to cover the difference between production costsand sales revenues for transport sector fuel consumption; of this fertilizertransport accounts for Rp 4 billion. About 1% or around Rp 150 million peryear of the railway deficit is attributable to fertilizer transport.

2.18 The Government's direct subsidy payments for fertilizer arearranged so that incentives for efficient production and distribution aregenerally maintained. The payments are made through government purchases offactory output at prices providing an adequate financial return on plant.Fertilizer is then resold to PUSRI for distribution at prices low enough toprovide adequate returns to distribution activities. However, there are twoindirect effects of the pricing strategy which affect supply. First, gasproducers are not compensated for the low prices at which they must sell gasto urea plants and they have, in the last few years, not supplied PUSRI withcontracted volumes, resulting in variable production at Palembang. Second,while distribution between PUSRI's inland storage depots (ISDs) and villageson Java is competitive, and retail prices are often below the officialprices, smaller volumes and less developed transport systems in more remoteregions mean that transport costs in some of these areas are above themargin allowed in the pricing structure. Provision is made for compensationof these extra costs so that prices to farmers need not be increased, butthe procedures are reportedly cumbersome and time-consuming. As a result,either farmers in remote areas pay more than the official Rp 70/kg (reportedin spot checks at up to Rp 100 per kg) for urea and TSP, or distributors areunwilling to deliver fertilizer at all.

2.19 Although the proportion of total fertilizer consumption affected issmall, the impact is felt in important growth sectors of smallholder estatedevelopment, irrigated and dryland food crop production in the Outer Islands.Detailed assessment of the effects of low prices is made difficult becausedata are not collected separately on fertilizer use for different food crops;all recent projections of such consumption rely on the National FertilizerStudy of 1972, financed under Credit 193.

(b) Pricing Strategies

2.20 The Bank has begun a dialogue with the Government on pricingstrategies, subsidies and marketing interventions in the Indonesian economy.Discussions of fertilizer pricing cut across various sectoral, social andeconomic interests. For example, natural gas prices have an importanteffect on various industrial activities other than the fertilizer industry.In addition, fertilizer prices can not be set independently of rice prices.Analysis currently available does not provide an adequate basis for firmrecommendations on changes in the current fertilizer and rice pricing

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policies. Nevertheless, it is important that these issues be addressed atearliest opportunity. The widening gap between rice and fertilizer pricesobviously stimulated an increase in fertilizer use for the rice productionalthough there is some evidence that at the margin, application rates by somefarmers may be uneconomic. Therefore questions have been raised as towhether the rice/fertilizer 'price rates should be increased further, orwhether it needs to be as high as it is now. Answers to these questionsinvolve considerable analysis and, as noted above, a consideration ofIndonesia energy policy as a whole. Analysis of fertilizer and rice pricepolicy is underway as part of the Food Crops Sector Study to be completedl inFY82, and a joint UNDP/Bank mission visited Indonesia in early 1981 andprepared a comprehensive energy sector review which focussed on energypricing among other issues./l In addition the marketing study to be financedunder the project will include an assessment of fertilizer supply and dermandas part of its Terms of Reference, and thus will inevitably include cons:Lder-ation of subsidies.

2.21 The other issues on fertilizer pricing, availability andapplication rates, require more detailed study. To get a betterunderstanding of retail level distribution activities, demand levels, andconstraints, PUSRI plans to appoint market intelligence officers, trained attechnician level in extension work or agronomy, to each of their regionaLmarketing offices. About 44 such staff are planned, of which 20 havealready been employed. These appointments would lead to a gradualimprovement in the allocation system underlying the distribution offertilizer to different regions, and will assist by identifying actual andpotential bottlenecks at the retail level. It has also been agreed that theproject will include a revision of the 1972 Fertilizer Study, particularlycovering PUSRI's wider distribution responsibilities. Terms of Referencefor the study, estimated to cost about US$200,000 and to be undertaken bythe International Fertilizer Development Center (IFDC) will be agreed withthe Bank shortly, with the objective of completing it by June 1983 (paras.3.10 and 4.20).

(c) Forecasts of Fertilizer Use

2.22 The project was designed by PUSRI to meet the Department of Agri-culture's broad forecast that overall fertilizer consumption in Indonesiawould grow by around 12% p.a. until at least 1985. However, with markeddifferences in their relative agricultural development potential, it islikely that growth patterns will be different for Java and the otherislands, and for rice crop and other crops use. Forecasts developed for theappraisal have principally focused on the extent of these growth differen-tials, so that a reasonable estimate can be made of the likely regionalpatterns of fertilizer use in the mid-1980s.

/1 Report No. 3543-IND, "Indonesia Issues and Options in the Energy Sector,"November 1981.

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2.23 Forecasts for fertilizer use on rice were made in two ways. Thefirst, using the Bank analysis and projections on land and cropping poten-tial made in early 1979,/l forecasts of fertilizer consumption for ricegrowing by for rice growing applying standard application rates. Thesecond, based on Warr's/2 estimates of the extent and potential of changesin rice farming methods in 1980, estimates growth in fertilizer use on ricecrops from the potential new rice production. Both methods indicate muchfaster growth 27-30% p.a. - off Java, although the Java forecast differssince the 1979 analysis does not take account of potential triple cropping.The forecast adopted for the analysis shows an average growth in food cropfertilizer use arising from increased rice applications of 12% p.a., with agrowth of 7% p.a. on Java and 27% p.a. on the other islands. For urea themain area of consumption is East Java which used 640,000 tons, or 43% ofJava consumption, in 1980. Urea consumption in East Java is forecast toincrease to 880,000 tons by 1984 and to 1,100,000 tons by 1987 (Annex 3,Table 1).

2.24 Forecasts for upland rice and secondary foodcrops are based on the1979 projections of potential cropping area and recommended fertilizerapplication rates. Forecasts for estate crops are based on projections ofpast trends in application rates per hectare and planned area expansions,modified by known requirements for estate rehabilitation or extensionprojects. Details of the forecasts are given in Annex 3, and the resultsare summarized in Table 2.2.

/1 Indonesia, Supply Prospects for Major Food Crops, Report No. 2374-IND,March 3, 1979.

/2 Peter G. Warr, op. cit.

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Table 2.2: FERTILIZER FORECASTS(product tons '000)

1980 1985Other Other

Java Islands Total Java Islands Total.

FoodcropsUrea 1,456 257 1,713 2,015 886 2,900TSP/DAP 345 146 494 534 382 916AS 25 7 35 48 12 60

Total 1,832 410 2,242 2,597 1,280 3,876

Estate CropsAS 124 26 150 208 44 252Urea 8 65 73 11 103 114TSP/DAP .. .. .. 1 6 7Rock phosphate 6 52 58 8 92 100MOP/KCL 13 100 113 19 168 187Kieserite 4 36 40 7 58 65

Total 155 279 435 254 471 725

Indonesia 1,987 688 2,677 2,851 1,751 4,601

(d) Projected Demand and Supply Balance and Export Prospects

2.25 The projected balance between planned production, domestic demand,inventories and foreign trade for domestically produced fertilizers andexcess ammonia to be available from the urea plant at Bontang is shown inAnnex 5, Table 4.

2.26 Since Indonesian urea plants produce at less than projected worldprices, and could continue to do so even if natural gas feedstock priceswere raised to the levels paid by liquid natural gas exporters, it isexpected that all production in excess of domestic consumption and stocksrequirement will be exported. The demand for fertilizer imports in all FarEast /1 countries currently is large being more than 3 million tons ofnitrogen, equivalent to the production of about 10 nitrogen plants. Between1986-91

/1 Includes all developing and centrally planned economies from Pakistaneastward (Annex 2, B6).

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demand in the Far East will rise by about 4 million tons, equivalent to anadditional 12 nitrogen plants. So far, plans have been announced for fournew plants to come on stream in the Near East; one in Malaysia, one inThailand and four in Indonesia. Taking into account the potential for bothacquiring existing markets as the present suppliers become less competitiveand also to gain new markets as demand in the region increases, theprospects for Indonesia as a major fertilizer exporter in the Far East areexcellent. Oceania also offers a further market and possibly in the futureso does the West Coast of the USA.

2.27 The Indonesia Fertilizer Industry has demonstrated that it canoperate its plants at a high utilization and efficiency and with relativelylow cost feedstock; it is one of the cheapest producers in the world.Indonesia already has a major investment program for expanding fertilizercapacity and supporting infrastructure to meet domestic needs. An extensionof this program to develop the ability to satisfy an export market is underconsideration but would require careful planning of investments for bothcapacity and distribution facilities. It would also be necessary to ensurethat such plans were compatible with meeting optimum domestic needs.

2.28 The Bank's mixed integer programming model for fertilizer is beingupdated and applied to the Southeast Asia Region. It will be used todetermine the optimal location, timing and technology of new nitrogencapacity and the optimum distribution patterns to satisfy domestic andexport markets. The Government of Indonesia will be advised of the resultsof this study and arrangements will be made to instruct representatives fromthe Indonesian Fertilizer Industry in the operation and use of the Model.Thereafter it is intended that the model be transferred to Indonesiawhere it can be used as an analytical tool for both operational andinvestment planning. The projected exports may begin in 1982, when the newplant at Bontang begins producing. Exports from the ASEAN plant, whereIndonesia's partners have first option on 40% of production, will begin in1983.

2.29 The other major export will be excess ammonia produced by theunbalanced urea plant being constructed at Bontang. Some of the excess willbe used in the plant at Gresik to produce DAP and AS; the remainder willmostly go to the Philippines. PUSRI is now investigating this market andhas provided assurances about the disposal of excess ammonia (para. 4.14).Exports would begin in 1984 with an exportable surplus of 111,000 tons,increasing to around 250,000 tons in following years if the planned 1985expansion of the KALTDM II plant near Bontang is also unbalanced.

2.30 For TSP, DAP and NPK compounds, Indonesian production costs arehigher than world prices. It is intended that production will serve onlythe domestic users, and that surpluses will not be produced for export.

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imports of these fertilizers would continue through 1982, after whichdomestic production capacity will be sufficient. Imports will continue tobe needed to supplement domestic production of AS until 1985.

(e) Bank Involvement in Fertilizer Production

2.31 The Bank Group has made three credits and loans to the Government,totalling US$220 million equivalent, for the expansion of urea production atthe PUSRI complex at Palembang, South Sumatera./L Two of these operatiornshave been cofinanced; one with the Asian Development Bank, the UnitedStates Agency for International Development, and the Japanese OverseasEconomic Cooperation Fund, and one with the Saudi Fund for EconomicDevelopment. Total project financing related to Bank Group operationstotals US$406.6 million equivalent and has created one of the world'slargest urea production complexes.

2.32 Experience with these loans has been remarkably successful becausePUSRI management adopted modern project management techniques and emphas:Lzedtraining of its personnel and delegation of authority. This has resulted inrapid completion of Bank-financed projects and in PUSRI's supplyingmanagement and operator training for all new and currently proposed ureaproducers in Indonesia. Further details related to PUSRI's operations areto be found in Chapters III and VI and in Annex 2, CIO.

C. Transportation

(a) General

2.33 Given the size of the Indonesian archipelago, the development ofan extensive and efficient transportation system is especially important tothe growth of a modern economy based on regional specialization and a largenational market. The rapid growth of the national economy over the pastdecade has placed a heavy burden on the transport sector. Total transportdemand is estimated to have grown about 12% p.a. during the 1970s. It isestimated that for each 1% increase in national GDP, transport demandincreases by about 1.7%. Thus, there is a pressing need to improve theproductivity of the existing transport system and to invest efficiently inits expansion. This project will deal with the specific problems of thefertilizer distribution system and is intended to ensure efficient utili-zation of ships, port installations and railways within that system.

/1 Cr-0193-1-IND, Fertilizer Plant and Gas Conservation and TransmissionProject US$30 million, June 15, 1970; Cr-0193-2-IND, FertilizerSupplementary Project US$5.0 million, May 21, 1973; Loan 1089-IND,Second Fertilizer Expansion Project, US$115 million, February 20, 1974;Loan 1254-IND, Third Fertilizer Expansion Project US$70.0 million,May 20, 1976.

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2.34 During Repelita I (1969-74) and Repelita II (1974-79), 15% to 16%of the government budget was allocated to the transport sector. Throughoutthe first two planning periods, emphasis was placed on rehabilitation of theexisting transportation infrastructure rather than new construction and morethan half of government expenditure was allocated to highway and roaddevelopment. The development budget for the transport sector duringRepelita III (1979-84) amounts to about Rp 2,998 billion (US$34.79 billion)or 14% of the total plan budget and is divided as follows: 57% for roadinfrastructure and the road transport industry; 8% for railways; 18% for seatransport infrastructure and the domestic shipping industry; 15% for airtransport; and 2% for inland water transport.

(b) Problems in the Development of the Transport System

2.35 Despite increased budget allocations and private investments thetransport system's ability to meet growing demand for its services remainsinadequate. The country's enormous dimensions and the uneven distributionof population and income make it extremely difficult and expensive for theGovernment to pursue a transport sector strategy which both responds to therapidly increasing transport demands in the more advanced segments of theeconomy and seeks to improve transport services to those more isolated seg-ments which have not yet benefitted much from national development. In itsefforts to improve transport sector performance, the Government has con-tended with a regulatory system which causes distortions in the demand fortransport and creates a considerable drain on public financial resources,inefficient utilization of existing transport resources due to poor mainte-nance and low-productivity operations, and uncoordinated and fragmentedarrangements for transport development planning and transport system manage-ment.

2.36 The Government guides the development of the transport sectorthrough its investments in infrastructure; its policies on pricing,subsidies, and taxation; its regulation of private firms; and its ownershipof the railway and a large part of the domestic ship, airline, and buscompanies. The three GOI agencies most responsible for the development ofthe sector are the Ministry of Communications (MOC), which plans, regulates,and controls all aspects of the sector except roads and highways; theMinistry of Public Works (MPW), which is responsible for the planning,construction, and maintenance of the highway and road subsector; and theNational Planning Agency (BAPPENAS), which reviews sector development plansand prepares jointly with the Ministry of Finance the development budget.

2.37 Railways. The railway system was constructed before independenceand comprises about 6,800 route-km, of which about 70% is on Java. Therailway infrastructure deteriorated over the postwar years and carrieddiminishing amounts of traffic. A rehabilitation program was started in the

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1975-79 period with Bank assistance but was slow to be completed. Pooraccounting and management records, weak administration, poor infrastructureand serious management problems were responsible for the decline inpassenger and freight traffic during the 1970s, and still are problems buttraffic is increasing due to growth in long-haul traffic. A largeinvestment program and continued emphasis on proper management and planningwill continue to be needed if the railway is to cope successfully with theexpected increased traffic.

2.38 Domestic Shipping and Ports. Shipping is the major mode ofinterisland transport for both passengers and freight. Domestic marine drycargo traffic has increased annually by over 12% since the early 1970s asIndonesia carried out significant programs for fleet rehabilitation. Domesticmarine traffic in petroleum products and other specialized cargoes such asfertilizer, timber, and cement has increased even more rapidly. The maininterisland shipping system is the regular liner service (RLS). It isinefficient and contains many obsolete and poorly maintained ships which spendtoo much time in ports which themselves are inefficient. However, petroleumand bulk shipping, particularly fertilizer shipping, is much more efficient.Major improvements have been made, with Bank assistance, in the main port ofTanjung Priok at Jakarta, as well as at some secondary ports. A subsidizedsystem of pioneer shipping services to remote areas was initiated in 1974 andhas been progressively expanded. The Bank has assisted in the improvement ofthe RLS system and is preparing an integrated maritime project to deal withsome of the problems noted above.

2.39 Other. Road transport is the principal mode. In the mid-1970sabout 93% of all goods and 99% of all passengers in Indonesia used roadtransportation. Domestic air transport of passengers is gaining at about22% p.a. and air cargo at close to 100% but still accounts for a small part oftotal interisland transport where 95% of freight and 75% of person trips aremade by sea.

(c) Previous Bank Assistance in Transport Sector Development

2.40 The Bank Group initiated its lending program in the Indonesiatransport sector in 1969 with its first highway credit. Since then therehave been seven credits/loans for highway development. All of these projectsincluded technical assistance and other support to strengthen theDirectorate General of Highways (DGH) and to study transport policy issues.There have been two lending operations for the shipping sector designed torehabilitate and expand the interisland shipping fleet, and one project forthe development of the country's largest port, Tanjung Priok. A railwayproject initiated in 1975 sought to rehabilitate track, rehabilitate andacquire locomotives and rolling stock, and to strengthen the performance ofthe state railway, PJKA. Finally, there has been one loan for developingthe capacity to distribute fertilizer output from newly constructed domesticplants. Total Bank assistance in the sector has mounted so far to

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US$546 million, which represents about 17% of the Bank's lending program inIndonesia through the end of FY80. Major conclusions of the ProjectPerformance Audit Reports are given in Annex 1.

III. NATIONAL FERTILIZER DISTRIBUTION SYSTEM

A. General

3.01 In the Indonesian context fertilizer marketing refers mainly tothe functions of market identification; planning and administration of themovement of fertilizer to meet demands; reporting on crop production andother developments; proposing and administering the extent and type ofagricultural credit programs; undertaking promotion of proper fertilizeruse; and research related to fertilizer. Distribution includes the securingand operational management of assets needed to fulfil the marketing functionand to provide the farmer with appropriate amounts of fertilizer at theright time. Both of these functions, and responsibility for exports, havebeen assigned to PUSRI, the organization with the most experience andsuccess in fertilizer marketing and distribution./l

3.02 The scope of domestic fertilizer marketing and distributionextends from the producing plant, called Line I, to the bulk storage shed orbagging station (Line II), through inland storage depots (ISDs) (or Line III)to the village kiosk operated by retailers or cooperatives, (Line IV).Between these points there is a complex movement of product, in bags or inbulk, by sea or railway or truck to either bulk reception and baggingstations (UPP) or to ISDs. Figure 8 depicts the flow of fertilizer at thevarious stages of distribution. Most of the fertilizer is sent in bulk, bysea or railway or truck to either bulk reception and bagging stations calledUPP, Line II, or to ISDs (Line III, Figure 8). Most of the facilitiesinvolved in the movement of domestically produced fertilizer are owned byPUSRI or are, like the railway, utilized by PUSRI. Imported fertilizer ismoved initially through regular port facilities, acquired by PUSRI, and theninserted into the normal fertilizer marketing and distribution channels.l2In the face of seasonal variations in usage and the need for adequatestorage, PUSRI can rent private or government-owned warehouse space in

/1 Minister of Trade and Cooperatives, Decree No. 56/KP/11/1979 datedFebruary 15, 1979, as amended by Decree No. ll1/KP/KKK/81 dated March 6,1981.

/2 Exports are mainly sent in bags from production points although somehave been exported from UPP located on deep water.

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addition to using its own. As some fertilizer is sent direct by sea fromLine I to Line III, and as some may move in bulk to a UPP and, afterbagging, be forwarded to other UPPs or ports by ship, the total movement iscomplex and requires constant administration and adjustment of plans.

B. Marketing

(a) PUSRI - The Company and Its Marketing Organization

(i) Background

3.03 PUSRI, Indonesia's first fertilizer company, was established as agovernment-owned company in Palembang in 1959 to manufacture urea from gaswhich had previously been flared. The initial small plant, PUSRI I, wentonstream in 1964 and quickly achieved capacity operations - 100,000 mtpy ofurea. Subsequent expansion of output to PUSRI-s current rated capacity of1.6 million tons of urea at Palembang has been assisted by the Associationand the Bank (para. 2.31).

3.04 PUSRI's excellent record of high capacity operations, its effectivestaff development program, and its growing expertise in marketing its owmand imported fertilizers have made it the key Indonesian organization in themarketing and production of fertilizers. Executives trained at PUSRI arecurrently operating most of the country's other fertilizer production units.This unique position in the industry and PUSRI:s marketing abilities made ita logical choice for undertaking the marketing of all fertilizers inIndonesia when the Government faced the problem of how to market a growingoutput of fertilizers produced at different prices by different companies.The National Fertilizer and Pesticides Distribution Study, carried out withBank finance under the First Fertilizer Distribution Project (Loan 1139-IND;US$68.0 million), recommended that a single fertilizer marketing organiza-tion be established. The Government agreed with this recommendation andappointed PUSRI to be the sole marketing agent for fertilizers in Indonesia.

3.05 Prior to this appointment there were only three companies producingmainly urea and TSP. There were also a number of government fertilizerimporters and government and private fertilizer distributors. PUSRI soldimported fertilizers allocated to it as well as its own output. Becausedomestic and import prices differed, sometimes greatly, the Government firstbought all imported fertilizer and the output of PUSRI, Kujang and Petrokimiaat the factory gate, then resold it to both government and private distri-butors, including PUSRI. This arrangement led to many problems which theGovernment tried to overcome by controlling margins at every part of thedistribution process. This led to delays in payments by farmers forfertilizer purchases, causing financial problems for distributors and

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producers, and a proliferation of pricing and credit regulations. All ofthese problems have been resolved by the series of actions taken by theGovernment in 1980 to restructure fertilizer distribution in Indonesia.

(ii) Organization and Management

3.06 PUSRI is generally considered to be one of Indonesia's bestmanaged large industrial enterprises. Whenever necessary, it has relied onexpert technical assistance from foreign advisers and consultants. At thesame time it has developed its own staff to take key responsibilities.Today, the Government seeks its advice on all aspects of fertilizer industrydevelopment in Indonesia including the project management and initialoperational responsibility for the urea producer under construction in Aceh,financed by the Association of South East Asia Nations (ASEAN). A PUSRIjoint venture with the Japanese company, UNICO, is carrying out fertilizermarketing studies for Malaysia in connection with the construction of a newurea production unit in that country. The company, through a joint venturewith M.W. Kellogg Inc. (P.T. Kelsri), also trains foreign fertilizer plantoperators in its facilities, undertakes procurement for all Kelloggdesigned plants in Asia, and is assisting in the construction of two ureaplants in North Sumatera, PUSRI V and ASEAN I (para. 1.03) and in theproposed project (para. 4.18). The company's subsidiary in Houston, Texas,procures all parts and chemicals for its plants.

3.07 The management structure of PUSRI, in keeping with Indonesia'scompany law, is patterned after the European two-tier model, with a super-vising Board of Commissioners (Dewan Komisaris) and a Management Board(Direksi). Members of the Board of Commissioners include: (a) the DirectorGeneral of Monetary Affairs (Ministry of Finance); (b) Secretary General(Department of Industries); (c) a representative of the Minister ofAgriculture; and (d) the Director General of Chemical Industries. Managerialauthority for PUSRI's day-to-day operations rests with a six-man ManagementBoard, consisting of the President-Director and Directors of Production,Technology, Finance, Development, and Marketing. Members of the ManagementBoard, as in the case of the Board of Commissioners, are appointed by theGovernment. In January 1981 a new President-Director was appointed for afive-year term. At the same time, the technical, financial, and marketingdirectors who had been with the company in those positions for the past fiveyears, were reappointed for further five-year terms. New director positionsfor production and development were created and experienced PUSRI executiveswere appointed. The company, thus, moves into a period of further expansionof its output and greater marketing responsibilities with an experiencedmanagement team. An organizational chart of the company's marketing anddistribution departments is given in Figures 1 and 2.

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3.08 PURSI's Marketing Director and the Technical Director, who controlthe marketing and physical distribution functions from Jakarta have beenwith PUSRI for about 10 years as senior managers. The marketing departmentstaff administer 836 marketing and distribution personnel throughout thecountry linked to head office by telex and radio. The marketing activitiesextend to 12 regional, 10 representative, and 9 subregional marketingoffices in all but four provinces of the country. Each regional andrepresentative marketing office: (a) plans and controls the supply offertilizer to the government-assisted fertilizer users (BIMAS) and to thefree market or non-BIMAS sectors of agriculture; (b) plans and manages thefertilizer stocks in the region, including railway and truck transportationand storage and supervises the physical movement of fertilizers by truck andrailway and in the company's 175 special 30-ton capacity wagons; and(c) sells to distributors and promotes fertilizer at the village level,using its own local and Head office agronomists, ten in number. Employmentof up to 44 marketing officers, to be added to marketing offices to providecloser contact with the farmers (para. 2.21) is underway. The marketingdepartment also cooperates in and carries out research related to fertiLizerusage, demonstration plots, and new types of fertilizer. The MarketingDepartment operates 52 inland storage depots (ISDs), of which 27 are onrailway sidings,/1 and rented private storage located throughout Indonesia(see Maps IBRD 15763 and 15764).

3.09 The PUSRI marketing group is involved in active cooperation withresearch institutes, both those under the Department of Agriculture andlhose outside Indonesia. In addition, PUSRI has experimented with sulphurcoating of urea pills in order to reduce agglomeration of crystals.Production of this type of urea may be instituted in the near future. PUSRIofficials attend numerous conferences where the latest fertilizer practicesare discussed.

(b) The Credit System and Sales Programs

3.10 The marketing function also includes the credit system, which isnow limited to those sales related to the BIMAS program. PUSRI sales aremade only to distributors, including a few village cooperatives or KoperasiUnit Desa (KUD) and cooperative service centers or Pusat Pelayanan Koperasi(PPK). The credit system is based on a distributor's sales contract andrequest submitted to PUSRI's Regional Marketing Office. After approval, thedistributor pays PUSRI 25% cash and provides a post-dated check for thebalance of 75%, as well as a bank guarantee or promissory note. In exchangePUSRI gives the distributor a delivery order entitling him to draw fertilizerfrom PIJSRI stocks. The distributor then delivers the fertilizer to KUDswhere farmers, who have drawn a loan from the rural bank, Bank Rakyat

/1 A further 23 ISDs with 5 on railway sidings, are currently under con-struction and financed by PUSRI. See also Annex 6. Additional railwaywagons are being acquired (para. 3.23).

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Indonesia (BRI), in the form of a coupon called SPPB, receive fertilizer inexchange for the SPPB. The distributor uses the SPPB to pay PUSRI the 75%outstanding balance. PUSRI then cashes the SPPB at the BRI. Currently onlyabout 50% of fertilizer sales are made through the credit system describedabove. Because of the inherent difficulties associated with a rural creditsystem based on distribution of credit coupons by village officials, fewfarmers who have cash seek credit. As the cash system is so simple, andbecause returns to farmers are adequate, PUSRI expects cash sales to growsubstantially within several years. For distributors and consumers, such asestates, which have storage capacity and could take earlier delivery offertilizers, there is a good case to be made for PUSRI to offer cash dis-counts (related to the carrying cost of inventory) in order to smooth itssales pattern and reduce its need for storage. Assurances have been receivedfrom PUSRI that it will study methods to increase peak storage capacity,discuss them with the Bank, and make appropriate recommendations to theGovernment for any alterations of policies deemed advantageous. This study(paras. 2.21 and 4.20) is intended to be completed by June 1983.

3.11 There is close cooperation and interaction between PUSRI and theDirectorates General concerned with production (Basic Chemical Industries),import (Domestic Trade), and agriculture (Planning Bureau), cooperatives(Cooperatives), finance (Directorate of Food Affairs and Nontax Revenue),and the national rice procurement and distribution agency, BULOG. Regularmeetings are held by senior PUSRI marketing and distribution executives withrepresentatives of these organizations to coordinate activities, to resolvedifficulties, and to improve policies related to sales, particularlyregarding the stockpiling and pricing of rice and fertilizer, which isfinally determined by the Cabinet and the President.

C. Distribution

(a) PUSRI - Its Distribution Organization

3.12 The distribution activities consist of a bagging and shippingdivision which operates four special self-unloading bulk ships, arranges forother shipping as required, and administers six bulk reception and baggingstations (UPP) at ports in Sumatera, Java, and Sulawesi.

3.13 During the expansion of output from 1960 to 1980 steps were taken tobuild a distribution system. Shipping facilities at Palembang were enlarged,warehouses were built in two ports and PUSRI enlarged its shore facilities.It became apparent, with the approval of a fourth expansion a few months afterBank approval of a loan for the third expansion, that special steps would haveto be taken to provide for a much larger movement of fertilizer from Palembangthan had been anticipated. Consultant studies, financed by the Bank, showedthat movements of the anticipated production of over 1.0 million tons per year

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in bags from Palembang to Java was uneconomic, and a system of bulk shipmentsby sea and on land was proposed. To meet these needs the Bank financed partof the foreign exchange cost of the First Fertilizer Distribution Project(Loan 1139-IND, US$68.0 million) in July 1978.

3.14 This project provided expanded and new bulk reception and baggingstations at five ports, 175 special railway wagons and locomotives, fourself-unloading bulk carrier ships, and 57 inland storage depots (ISDs) /1 tobroaden the scope of PUSRI's distribution network and to form a system whichcouild be expanded should the need arise. These assets were in operation byearly 1979 and materially assisted the smooth flow of fertilizers fromproducers to consumers as consumption grew from 931,000 tons in 1977 to1,785,000 tons in 1980. Late in 1980 additional efficiencies wereintroduced by the successful use of block trains on a pilot basis in East,Central, and West Java. Currently there are unfavourable trends in railwaywagon turn-around times reflecting continuing difficulties in railwayoperations. Steps are included in the project (para 4.21) seeking toimprove the situation. Use of block trains on a regular basis during thecoming years is planned by PUSRI. The Project Completion Report for thefirst distribution project (dated June 15, 1981) estimates the ex post rateof return from the first Fertilizer Distribution project at 24%.

(b) The Fertilizer Transport System

3.15 The largest of the three fertilizer producers, PUSRI, located onthe Musi River at Palembang, South Sumatera, produced 1,480,000 tons of ureain 1980. Another urea plant, P.T. Pupuk Kujang, located at Cikampek, WestJava, produced 554,000 tons and the third plant, P.T. Petrokimia Gresilk, atGresik in East Java, produced a mixture of triple-superphosphate (TSP),diammonium-phosphate (DAP), ammonium sulphate (AS) and small amounts ofurea, totalling in all 655,000 tons. Of the total quantity of domesticallyproduced fertilizer in 1980 (2,689,000 tons), 693,000 tons moved directly tomarkets by rail and road from the producing plants; the balance moved byship to secondary distribution centers from which it was moved by road andrail to storage or to the farmer or to export markets (110,000 tons). Abouttwo-thirds of the ship movement (1,134,350 tons) was by four specialself-unloading bulk carriers while the balance was shipped in bags bycoastal vessels.

3.16 The flow of fertilizer from the producer to the farmer is betstdescribed by PUSRI's distribution system. The majority of fertilizer issent to Java in bulk by special ships to the bulk reception and baggingstation (UPP) where it is unloaded, stored, and bagged. Some small amountof PUSRI fertilizer is bagged at Palembang and shipped direct to the outerislands and, on occasion, to export points which serve ships too large toreach the production point. The bagged fertilizer is sent to inland storage

/1 Of which 52 were built with about the same total capacity as was pro-vided for at appraisal.

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depots (ISDs) from the UPP or is sold directly to distributors and groups ofcooperatives centers (PUSKUD). Bagged fertilizer is shipped from the UPPeither by road or by rail to the 27 ISDs located on rail sidings. As thecost of deliverv to ISDs is cheaper than truck delivery for distances ofover 100 km, PUSRI intends to ship more fertilizer by rail in the futurethrough the use of block trains, in cooperation with the state railway,PJKA. Final delivery to the farmer from the ISD is by truck to retailers,from there it is moved to the farmer by bicycle, car, motorcycle, and byhand. In the case of producers located in Java (Kujang and Petrokimia)initial shipment is by rail and truck to ISDs.

3.17 The equipment and facilities used to move the fertilizer from theproduction point to the farmer are owned by a variety of organizations andcompanies. PUSRI owns many of these assets such as ships, bulk receptionand bagging stations, inland storage depots, and some railway wagons. Anumber of shipping companies move bagged fertilizer, the railway providesfacilities, wagons and locomotives to move PUSRI-owned wagons, and privateand state trucking companies transport bagged fertilizers. The distributiondepartment of PUSRI administers the PUSRI-owned assets and, at the requestof the marketing department, arranges ship charters for interislanddistribution of bagged fertilizer.

(c) Bagging Capacity and Fertilizer Storage

3.18 Those fertilizer bagging facilities attached to producing plantsare normally considered to be part of the production process. In 1980 thisplant-related bagging capacity amounted to about 2.7 million tpy (Palembang550,000, Kujang 513,000 and Petrokimia 1,650,000). In that year baggingcapacity also existed at the five PUSRI-owned bulk reception and baggingstations, totalling 1.4 million tpy and at a private facility at TanjungPriok, Jakarta's harbor (0.4 million tons per year). Total capacity forbagging fertilizer in Indonesia was therefore 4.1 million tpy as a maximumtheoretical three shift capacity. In 1980 these facilities bagged 2.6million tons of all types of fertilizers with one UPP operating three shiftsper day. By 1985 an additional 2.0 million tpy of bagging capacity will beconstructed at new plants and at Meneng, where about half the increase willbe located. Total bagging capacity in 1985 will therefore exceed 6.0 milliontpy at which time consumption will be 5.1 million tons. As baggingcapacity can be readily expanded at all locations except Surabaya andJakarta, few constraints will arise from a lack of bagging capacity.

3.19 Fertilizer storage capacity above the village level and outsidethe production plant amounts to 135,500 tons of bulk and bagged storage atUPPs, 286,000 tons of PUSRI space in existing ISDs; 107,000 tons of

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additional ISD storage capacity under construction by PUSRI and expected tobe available in 1983; 293,100 tons of storage owned by P.T. Bandaragaraneksa(BGR), a government warehouse company, which is to be expanded to 405,700 tonsby 1985 under a government-financed program, and 170,000 tons of privatestorage. Thus, there is 749,100 tons of fertilizer storage capacity at LineIII in 1980 for a throughput of 2.4 million tons. By 1985 there will be atleast 969,000 tons of warehouse storage available at this level for anestimated throughput of 4.3 million tons. With the growth of cement outputand rice production, other warehouse capacity will be constructed so thatthe 1985 supply of warehousing may exceed that noted here. Much of anyprivate warehouse space can be utilized by fertilizer, which has a differentpeak seasonal pattern of need than rice storage and cement use. Storagecapacity at Line III (above the village kiosk) is about adequate if theappropriate ratio of storage to throughput is set at 1:4 as recommended bythe National Fertilizer and Pesticides Distribution Study (para. 2.19).

3.20 At the village level (Line IV) in 1980 there were 20,000 existingkiosks, able to store a total of 600,000 tons of fertilizer. The coopera-tive facilities construction program currently underway, financed and super-vised by the Department of Finance, will increase this total to 1.3 milliontons in 1988 (para. 3.22). This part of the construction program will besupplemented by another program to build 130-ton storage units at PUSKUDswhich will increase storage at Line IV by an additional 149,000 tons by1985. P.T. Pertani, one of PUSRI's distributors, owns storage amounting toabout 450,000 tons throughout Indonesia which is not included in the abovefigures. Thus the total storage at Line IV, which was 1.1 million tons in1980 to handle a throughput of 2.5 million tons, will increase to 1.9 millicntons in 1985 with a throughput of 4.2 million tons. There will be virtuallyno change in the present ratio of throughput to storage of 2.2 if theconstruction program is completed in time; if not the ratio will risetoward 1:4.

3.21 The distribution system between PUSRI-s line III storage (ISDs)and village retailers at line IV on Java, which accounts for 85% of ferti-lizer consumption, is competitive and working well. There are, however,possible distribution problems on the other islands because: (a) fertilizerconsumption in some areas outside Java will remain low which will limit thenumber of deliveries PUSRI can make in full shiploads and at reasonablecosts; (b) demand in other areas is forecast to grow rapidly, in some casesby 30% p.a., but there is little privately-owned storage that can be drawninto the system to cope with the surge of demand; and (c) there is someevidence that distributors are unwilling to deliver fertilizers to remoteareas because of inadequate distribution margins and cumbersome costreimbursement procedures.

3.22 These issues have been recognized by PUSRI, and steps are beingtaken to deal with them. Of the current PUSRI ISD expansion, half is beingconstructed off Java, so that by the end of 1981, 30% of PUSRI ISD capacity

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will be on the other islands; PUSRI has plans to expand capacity further asrequired. The government warehouse company, BGR, is also expanding off-Javastorage and by 1983 will have provided a capacity of 130,000 tons. Both ofthese expansions provide long-term fertilizer storage. At the retail level,the first phase of the new program to support the development of farmer-cooperatives is providing storage capacity on Lombok and Nusa Tenggara.(Tenders have been let for 179 130-ton stores and 77 30-ton kiosks.) In thisoverall program to expand village storage by 710,000 tons, almost half isplanned for the outer islands. Further detail is given in Annex 2, Cll and inAnnex 6. Steps are also being taken to improve marketing and management. Thecooperative expansion program is supported by technical assistance at theregional level in management and organization of commercial activities.Village and regional officials determine the pace of the expansion program byawarding construction tenders (subject to Ministry of Finance approval) basedon simplified procurement and contractor payment procedures and on thesimplified construction manual that has been prepared. PUSRI has agreed toexpand its regional marketing staff to give better market intelligenceservices, which would identify potential bottlenecks early (para. 2.21). Theadequacy of distribution margins can be addressed by realigning transportallowances between the different areas where necessary (para. 2.17). Of thesedevelopments, only the expansion of line III storage and the improvement inPUSRI market intelligence is necessary to ensure timely deliveries offertilizer. The need to expand cooperative line IV storage depends entirelyon farmers' preferences for purchasing fertilizers (and other commodities)collectively rather than individually. Individual distributors rarely need tohave storage capacity, since they deliver directly to retailers from PUSRIdepots. Assurances have been received during negotiations that PUSRI willreview the content and recommendations of a marketing study discussed below(para. 4.20) and recommend to the Government corrective action concerningmarketing margins by June 1983.

(d) Roads and Railways

3.23 PUSRI owns 175 railway wagons of 30-ton capacity (compared to the12-ton wagons of PJKA) and is supplementing these by 220 additional, similardesign wagons being acquired with Canadian bilateral aid. About 200 addi-tional similar wagons will be provided under the proposed project (para.4.09). Current use of block trains, some with mixed wagons of PUSRI andPJKA, to move fertilizer from UPP to 27 ISDs with rail connections has beensuccessful in a pilot project and has somewhat reduced wagon turnaroundtime. Assuming a target of moving 1.7 million tons per year by rail in Javain 1985 and a reasonably achievable goal of 5.8 days turnaround for PUSRIblock trains, about 535 operational railway cars would be required to move60% of this fertilizer in block trains (see para. 5.11).

3.24 In 1980 only 18% of fertilizer transported on land moved by rail,at a very low level of productivity. Productivity will increase with theuse of block trains. Some 606,000 tons of fertilizer (about twice as much

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as in 1980) was scheduled to move by rail in 1981, 65% or 394,000 tonsin block trains utilizing both PUSRI and PJKA wagons. Actual performancewas 395,000 tons being shipped by block trains. As PUSRI-s wagon inventoryincreases, the block train system is expected to become more efficient but,until many more railwagons are procured and management improvements aremade, heavy reliance will continue to be placed on road movement from UPP' toISD. In 1980, 1.2 million tons was moved by road in Java and about 400,000tons in Sumatera. All of the increase of 0.9 million tons in Sumatera aridin Java fertilizer movement, will also be accommodated by road untiladditional wagons arrive in 1983 (see also para. 5.10).

(e) Private and Public Distribution Facilities

3.25 PUSRI is responsible for physical distribution to the farm leveland sells fertilizers at ISDs direct to 43 private, 5 government and12 cooperative federations (PUSKUDs). In 1979, 52% of sales was made toprivate companies, 38% to government companies, and 4% to PUSKUDs. Thebalance of sales went into inventory change and exports. These maindistributors sold, in turn, to 714 subdistributors, of which 83.2% werelocated in Java and the rest in North and South Sumatera, Bali and theLesser Sunda islands [Nusa Tenggara (NT)]. The subdistributors (kabupatenlevel) sold direct to farmers and retailers through 3,253 KUDs and 3,288private retailers. In 1980, just under 77% of final sales were made in Java,15% in Sumatera, and 8% in Bali and NT, with small amounts being sold to allother areas.

(f) Cooperatives and Cooperative Service Centers

3.26 Village cooperatives have existed for many years and are animportant part of government policy./l Aside from acting as suppliers ofagricultural imports (fertilizer and pesticides) they now also act as buyingagents for raw sugar and rice for BULOG, the government price supportagency, and they sell processed sugar, cooking oil and salt. These KoperasiUnit Desa or KUDs provide services through some 20,000 kiosks and their4,407 units are located throughout the country with just over 50% in Java,33% in Sumatera, 12% in Sulawesi, and about 5% in Nusa Tenggara. They areserved by 14,000 agricultural extension workers and 625 specialist extensionworkers trained in agronomy.

3.27 The Government has recently embarked on a well-conceived and well-executed program to construct improved facilities for fertilzer and ricestorage and rice processing at the KUDs. The first 256 of 999 new kiosks ofvarious sizes are under construction and much of the first phase of thisprogram will be completed by April 1982 (para. 3.22). In order to assistfurther in the development of KUDs the Government is forming cooperative

/1 Defined under Presidential Instruction No. 2, 1978.

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service centers, or PPKs, which will each provide management and otherassistance to groups of four or five village KUDs. A training program tostaff PPKs is underway and will eventually involve 7,300 people. Additionaldetails of the KUD improvement program is to be found in Annex 2, A2, A5,and Cll.

D. Recent Experience with the System

3.28 In 1980 Indonesia used about 2.5 million tons of all types of fer-tilizers. Of this quantity urea accounted for 1.8 million tons and TSP for0.5 million tons. The majority of fertilizer was produced and baggeddomestically with only 0.2 million tons being imported. PUSRI s special bulkcarriers, provided under the First Distribution Project, moved 1.1 milliontons of urea from Palembang to six bulk bagging stations (UPP) at Belawan,Padang, Cilacap, Ujung Pandang, Surabaya and Tanjung Priok. This operationinvolved 275,000 tons per ship of 7,400 tons urea capacity, and 152 voyages.About 0.1 million tons moved from Palembang in small coasting ships direct tosmall ports. Some 0.3 million tons of TSP in bags was sent from Gresik, inJava, to other ports in small ships while the balance of 0.8 million tons wasshipped from fertilizer plants to ISDs by truck. PUSRI's shipping operationshave been hampered by a lack of proper central management supervision, delaysin port clearances, and delays at loading and unloading ports. Total timetaken in excessive delays (i.e., beyond those specifially allowed for)amounted to 243 ship days in 1980 for the four bulk ships. PUSRI and the Bankhave discussed the reasons for these delays in the system and management andoperational changes have been instituted. These changes should allow theshipping system to operate nearer to its designed capacity. This matter isdealt with more fully in the Project Completion Report on the FertilizerDistribution Project (Loan 1139-IND) dated June 15, 1981.

3.29 Except for a small amount shipped direct to certain large users andsome imports, all of the fertilizer moved through the storage system consist-ing of the UPP and the ISDs. Shipments from UPP in Java in 1980 was 75% truckand 25% rail. Constraints on the railway, PJKA, arising from low locomotiveavailability due to poor maintenance, lack of understanding of the importanceof the movement of fertilizer in block trains, and organizational problemsconnected with block train operation have held rail deliveries below expecta-tions and possible achievement levels. Only toward the end of 1980 did PUSRIand PJKA make a serious attempt to introduce block trains. This was success-ful, if erratic in performance (para. 3.14), and indicated that larger amountsof fertilizer could move by rail if additional equipment is made available andif the proper coordination of PJKA and PUSRI activities can be achieved. Withthe prospect of much larger volumes of fertilizer traffic it is expected thatthe railway will succeed in operating block trains and that they will be usedto transport up to 60% of fertilizer traffic in Java on about a six-day turnaround by 1985. Much effort will be required to accomplish this and it maynot be achieved for at least five years. The project includes a study of block

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train operations for four major bulk products (para. 4.21). It is expectedthat the results of the first part of this study will be available within sixmonths of its commencement. These recommendations will deal with theequipment and administrative and organizational aspects of the current blocktrain operation and will assist PUSRI and PJKA in maintaining and improvingthe movement of fertilizer. Should problems occur, the study results willform a basis for the Bank and the Government to decide on appropriateaction. The second part of the study, to be completed by about June 1983,will deal with the use of block trains when new equipment arrives. Becausethe smooth movement of fertilizer, cement, rice and oil products by railwayis crucial to the success of the Government's development plans in Java, PUSRIand PJKA have agreed to cooperate in solving problems which might arise inblock train operations.

3.30 Given the existing institutional constraints which cause shipsand railways to operate below expectations, the present system up to the ISDlevel is operating at about its capacity. A lack of storage forward of theISD, which will be overcome during the construction period of the project,has resulted in ISDs being used as storage rather than as transit points sothat there is excess transit capacity in the ISD system. With the increasein ISDs under PUSRI's own program, ISD capacity outside Java will increase,which should ease the distribution situation in more remote areas. IfPUSRI's efforts to reduce seasonal sales variations are successful,distributors will build additional storage. In general, therefore, thesystem constraints are to be found in the shipping, railways and UPPelements. These matters are also discussed in the Project Completion Report(June 15, 1981) which concludes that PUSRI has agreed to take allappropriate action to improve ship operations and to ensure that, to theextent possible, block trains will be operated efficiently. Additional ISDsare under construction and additional shipping capacity is included in theproposed project.

IV. THE PROJECT

A. The Program and the Project - Purpose and Scope

4.01 The Government has developed a program for increased foodproduction by the proper application of fertilizers. This program involves:(a) actions to support the proper management and operation of a nationwidesystem of farmer cooperatives; (b) continued support of the farm-gate priceof rice and holding steady the price of fertilizer so as to induce farmersto utilize it and, thus, transfer some of the benefits of increased oilrevenues to the farmer; (c) finance and construction supervision of a largenumber of village kiosks of simple standard design to be used by cooperativesfor storage of fertilizer, for the storage and processing of rice and otheragricultural products, and for various social activities related to health,training and education; and (d) continued support and finance of fertilizeroutput and distribution facilities in the country.

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4.02 The program is currently underway. Farmers receive Rp 4/kg bonusfor selling their rice to a cooperative; the farm-gate price is driftingupward toward Rp 120/kg; and the price of fertilizer has been held atRp 70/kg for the past four growing seasons. The Government has created acooperative training group to operate service centers and some cooperativegroups are financially sound enough to buy fertilizer direct from ISDs. Theconstruction program of kiosks is proceeding well under the supervision ofthe Department of Finance, and will continue to be financed in the annualbudget. The final facet of the program is continued government support forincreasing the output of fertilizer, evidenced by the program of plantconstruction, and provision of finance for the associated distributionfacilities needed to reach optimum levels of fertilizer output and usageand/or to develop an export program.

4.03 The proposed national fertilizer distribution project to befinanced by the Bank - Part A of the Project - was prepared by PUSRI withthe assistance of consultants and includes assets and services directlyrelated to the physical movement of fertilizer from existing and from newplants now under construction and forms part of the larger program now underway and financed by the Government. Part B of the Project consists offinance for preparing port master plans and detailed engineering for threeports, detailed engineering for a second expansion of the port of Jakarta,Tanjung Priok and project preparation activities for a proposed MaritimeTransport Project.

B. Detailed Project Description

4.04 Part A of the project consists of: Urea Handling Facilities whichinclude (a) construction of a bulk reception and bagging station at Meneng,East Java, with 25,000 tons of bulk and 35,000 tons of bagged urea storagecapable of bagging 1,000,000 tpy of fertilizer; (b) improvement of ureabagging and handling equipment at an existing bagging station; (c) design andconstruction of two special urea unloading piers at the ports of Meneng and atCilacap, where a bulk reception and bagging station exists; Railway Equipmentand Works which include (d) procurement by PUSRI of 200 special railway wagonsof 30-ton capacity for use in fertilizer block trains; (e) land acquisition,design and construction of a 21 km railway line extension in East Java fromKabat, near Banjuwangi, to Meneng; Shipping Facilities which include (f)procurement by PUSRI of three self-unloading bulk urea ships of 7,500 dead-weight tons (dwt) similar to the four now owned and operated by PUSRI, and ofone refrigerated ammonia carrier of about 4,500 dwt; (g) minor improvements tounloading and loading capacity aboard the four ships now owned by PUSRI; (h)spare parts for the ships and the bagging station; Consultant Services for (i)the design and construction supervision of the additional bulk reception and

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bagging station and the ships; and for (j) studies to: (k) revise forecastsof fertilizer use and consumption; (ii) review the needs of the railwaysystem to expand the use of block trains for bulk products such asfertilizer, cement, oil products, rice, sugar, etc. Part B of the Projectconsists of preparation of master plans and detailed engineering for abouteleven ports. A detailed description of these items is given below.

(a) Urea Handling Facilities

4.05 Bagging and throughput capacity at UPP at Surabaya, serving EastJava, cannot be expanded beyond its present capacity of 450,000 tons p.a.due to site constraints. In view of the forecast increase of 880,000 tonsof urea use in East Java (para. 2.23), PUSRI has decided, and the Bank hasagreed, that further UPP expansion should take place at Meneng, about 17 kmnorth of the town of Banjuwangi, on the strait separating Java and Bali. Itis the only alternative port serving East Java which can be expanded in thetime available. The port is organized under a Port Administrator reportingto the area port authorities at Surabaya. Pilotage is compulsory and theport handles about 100,000 to 150,000 tons of rice exports per year over onepier. A second pier is being planned. Adequate data on current andhydrographic conditions are available and PUSRI ship masters and the localpilot agree with the consultants (Swan, Wooster Engineering Co. Ltd. Canada[SWANCO]) that a ship up to 20,000 dwt could be berthed at the pier proposedto be built for the project and that the project ships will have no diffi-culty in berthing.

4.06 It is proposed to construct a bulk urea reception and baggingstation (UPP) at Meneng with an initial capacity of 750,000 tons per year(tpy) of fertilizer but expanded immediately to 1.0 million tpy in order toprovide buffer storage in case of later than anticipated completion of therailway line extension (para. 4.11). This facility is similar to fiveothers provided under the previous project. The UPP would be linked to themain-line railway by a short rail spur. Recent studies by SWANCO indicatethat sufficient area is available for the new UPP and for a special berthfor discharge of fertilizer from the self-unloading ships. The site is onfirm ground and soils tests have been carried out to determine the civilworks design. The Directorate General of Sea Communications, which controlsthe port, has agreed that PUSRI may construct a berth solely for ureaunloading. Land acquisition for the site of the IJPP has been completed.

4.07 Another special berth solely for urea unloading is required at theport of Cilacap, where a UPP is located to serve Central Java. Unloading ofthe urea ships at Cilacap now takes place at a general cargo berth ontowhich the urea reception conveyor is moved. This berth is often occupied bysmall general cargo ships which usually take several days to unload. ThePUJSRI ship can discharge 7,400 tons of urea in 24 hours. Construction of aspecial caisson-type berth in an unused area of the port near the UPP ispracticable and has been agreed to by the Directorate General of Sea Conmmu-nications and the port. Its use will markedly improve turnaround time of

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PUSRI ships at the port where 103.7 days were lost in waiting to unload in1980. Parts of the existing conveyor system will be used to link the newpier to the UPP.

4.08 Due to the growth of fertilizer consumption forecast to take placein North Sumatera, additional bagging facilities are required there by 1982.It is proposed to install an additional bagging unit at the existing BelawanUPP to handle growing volumes of TSP, AS and other fertilizer which cannot usethe existing urea facilities unless the bagging operation is shut down toallow for careful cleaning of the equipment, because of chemical reactionsbetween urea and other fertilizers. The additional bagging unit will greatlyincrease the capacity of existing facilities and will cater to the growth offertilizer consumption in the area. Because the general cargo berth area isused to unload the PUSRI ships and only one conveyor site is currentlyavailable, much time (41.3 days in 1980) is lost waiting to unload PUSRI shipsat Belawan. With increased throughput delays are expected to increasesharply. To overcome such delays and their repercussions on the shippingsystem an additional mobile conveyor and associated equipment will beconstructed at a second berth in the port and linked to the present conveyorsystem so that the PUSRI ships will have two places to unload. Design andconstruction supervision of these facilities, which have been agreed with theBank, are being undertaken by PUSRI's Engineering Department and are similarto facilities provided at another port under the previous project. Inaddition urea and TSP loading facilities are being designed at Gresik and forthe ASEAN plant at Aceh. These facilities will be able to load the projectships PUSRI has been appointed to carry bulk fertilizer from these facilities.

(b) Railway Equipment and Works

(i) Equipment

4.09 The project includes procurement by PUSRI of 200 railway wagons, of30-ton capacity, specially designed to carry bagged fertilizer to ISDs. Thesewagons have already been designed. PUSRI now owns 175 such wagons, procuredunder the First Fertilizer Distribution Project, and has ordered an additional220 financed by Canadian bilateral aid. This total of 595 wagons, includingabout 10% spares, is expected to be able to move 950,000-1,100,000 tons offertilizer within Java by block trains by 1985. The existing arrangementsfor maintenance of these additional wagons will be continued. As the normalPJKA wagons, which are in short supply, carry only about 12 tons of baggedfertilizer, it is doubtful if the lower costs of railway bulk movementcompared to trucks, could be realized without acquiring these additional,larger wagons./l Due to the shortage of modern equipment in the PJKA system

/1 With fertilizer movement on Java forecast to rise to 2.1 million tonsby 1985, additional wagons will have to be dedicated to PUSRI use inorder for long haul economies to be achieved. Recommendations relatingto future wagon requirements will be included in studies to be carriedout in the project (para. 4.21). Adequate trucking capacity is availablein Java.

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and growing demand for bulk product movement, there is a tendency for anyavailable PJKA wagons to be retained within each operating region. Withadditional time, acquisition of new equipment now underway, and means ofcentralizing wagon dispatch, PJKA may be able to allocate wagons strictlyaccording to its customers' needs. In the meantime, PUSRI's control of thedispatch origin and the destination points of fertilizer wagons, which canonly be achieved through ownership, is crucial to the timely and properdistribution of fertilizers.

4.10 Studies made in connection with the First Fertilizer DistributionProject (National Fertilizer and Pesticides Distribution Study) called for afleet of 17 locomotives to be used in the block train movement of fertilizersin Java based on a two-day wagon turnaround time which is not likely to beachieved prior to 1990. Four mainline and three shunting locomotives wereacquired by PJKA under the first project and additional equipment has beenacquired by PJKA from other sources. With the introduction of block trainoperations moving larger volumes at slower rates than had been planned irL thestudies referred to, there is a clear need for additional locomotives. PJKAhas received funds for procurement of 62 additional locomotives for Java andshould be in a good position to assign locomotives to PUSRI use. Agreementhas been reached during negotiations that PJKA will acquire and assign anadequate number of shunting and main-line locomotives to ensure efficient:fertilizer distribution operations on the part of PUSRI. This would include,in the view of the Bank, allocation or procurement by PJKA of three mainlineand five shunting locomotives for fertilizer transport bringing the total oflocomotives to be assigned to fertilizer movement to at least 7 mainline and 8shunting locomotives. Given a reasonably efficient operating regime, theseshould be sufficient for 12 block trains per day each of 510 tons or an annualmovement of about 1.7 million tons per year at an 80% efficiency factor on 350days operations (para. 5.11). During negotiations PJKA and PUSRI have agreedthat efforts will be made to improve the operation of block trains by reachingspecific performance targets (turnaround time) by June 1983. If such effortsare unsuccessful, the Government, PJKA, PUSRI and the Bank will review thesteps to be taken in the light of the findings and recommendations of thesstudy of block train operations (para. 4.21). One objective of the effortswill be to try to reach a monthly average turnaround time of not more than 5.8days by December 1985.

(ii) Works

4.11 The proposed new bulk reception and bagging depot at Meneng needsto be joined to the existing railway line at Kabat, 21 km distant from Meneng.Due to the anticipated large volume of fertilizer to be received at the MenengUPP (674,000 tpy in 1984 and 750,000 in 1987 for use in East Java alone)adequate facilities are required so that trains will not interfere unduly withthe road movement of up to 300,000 tpy of bagged rice to be shipped out of theport of Meneng and the large quantity, perhaps as much as 200,000 tpy, offertilizer which will be sent to East Java by road from Meneng. PJKA hasretained local consultants (P.T. Indement Consultants, Indonesia) has surveyedthe railway alignment and has organized a Project Management Group within its

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staff to supervise construction of the proposed extension which will have21 km of main line and 9 km of sidings. A realistic construction schedule hasbeen included in the project and will be agreed in detail with PJKA (para.4.28). A special budget has been approved by the Government in the amount ofRp 17.345 billion (US$27.7 million) to cover part of the cost of the extensionand the related engineering and design and construction supervision. Theconsultant's report on the engineering for the extension will be ready at theend of October 1982. Bank staff have reviewed the preliminary plans forconstruction and agreement has been reached for the Bank to inspect progress,obtain all relevant data, and to consult on a regular basis to determine whatsteps, if any, should be taken to improve progress. The Government has agreedto take the steps necessary to achieve timely completion of the railway lineextension.

(c) Ships

(i) Urea Carriers

4.12 Each of PUSRI's four bulk urea ships transports and unloads about280,000 tons of fertilizer per year. With the increased output and domesticdistribution of fertilizers, additional ships are required. Flow diagrams(Figures 4 to 7) of fertilizer movement have been constructed and analyzedand, based on these and actual ship operations, it has been determined thata further three similar ships will be needed in order to transport fertilizeravailable at the end of 1984. Additional ships will be required after 1985(para. 5.04). The ships have been designed by consultants [MarineConsultants and Designers, USA (MCD)] who were retained by PUSRI for designof the first four ships and who have been retained for design and construc-tion supervision for the project ships.

4.13 . In order to: (a) maintain the ability of all fleet units to loadat any producing unit and unload at any port where PUSRI has a UPP;(b) maintain the commonality of ships in order to be able to rotate crews,simplify spare parts inventories and reduce maintenance costs; and (c) meetthe transport needs imposed by the construction schedule of new plants andreceive the ships during 1983, it has been decided to construct the threeships from the basic designs of the existing ships. One of PUSRI's fourexisting ships, all of which carry 7,400 tons of urea at 6 m draft, isstronger structurally than the others and can carry 9,200 tons of TSP at adraft of 7.2 m. Because the project also includes provision for loadingTSP, each of the three additional ships will have this stronger structureand will be capable of carrying TSP as a backhaul cargo from Gresik to otherports in Java and Sumatera after arriving at Surabaya or Meneng with a fullload. To accomplish this dual cargo carriage, special cleaning facilitiesand procedures will be included in the ship (see also para. 4.16).

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(ii) Ammonia Carriers

4.14 P.T. Pupuk Kalimantan Timur (KALTIM) is under construction nearBontang, East Kalimantan, and some 800 km from East Java. The plant willproduce 513,000 tpy of urea and about 150,000 tpy of ammonia (NH3). Theplant is designed with a bulk and bagged urea shiploading pier and a sepa-rate pier to load NH3 as a refrigerated liquid (-50°C). The design of thesefacilities is acceptable to the Bank. The output of NH3 of about 500 tonsper day (tpd) from the first KALTIM unit will be absorbed, to the extent ofabout 200 tpd, by Petrokimia to maintain output of AS at the 150,000 tpylevel. The balance will be available for export to the Philippines and toother markets. Arrangements to secure sales contracts are under way andKALTIM has appointed sales agents.

4.15 Studies by MCD under a first phase contract which includes allactivities from design to bid evaluation, have determined that one NH3 shipof about 4,500 dwt (5,600 cu m) will be the optimum size of vessel to serveboth the domestic and the export market. The ship will also be able totransport refrigerated liquid petroleum gas. A second NH3 ship will berequired for moving the output of KALTIM II, planned to commence productionin 1985. Charter of an ammonia carrier will be undertaken on an interimbasis if the plant is ready to ship product before ship construction iscompleted. Appropriate charters will be made to provide for productmovement until the project ship is operational.

(iii) Improvements to Existing Ships

4.16 PUSRI's bulk urea ships have operated for about four years. Duringhis time the need for and possibility of certain improvements has becomeevident. These improvements are of two sorts. First, ones which will eli-minate or reduce substantially the need for manual cleaning-up of the cargohold now required because urea, being hygroscopic, tends to compact andadhere to vertical surfaces. Procurement of small "Bob-cat" type front--endloaders to be used in each ship to loosen urea adhering to the bottom andupper areas of the hold,/1 realignment of the paths of the scrapers whichdrag urea to the discharge hopper, and provision for fresh water washing ofthe hold and urea reclaim system is planned. Second, improvements tofacilitate loading aboard the main deck of bales of polyethylene bags forfertilizer which are manufactured by PUSRI in Palembang and shipped aboardPUSRI's ships for use at the various UPPs. Extensions to existing cranesand the strengthening of the crane structure will be required. MCD wilLdesign the shipboard alterations which will be accomplished during theannual dry docking of the ship under PUSRI supervision.

/1 Procurement of four additional "Bob-cats" for use aboard the fourexisting ships is included as part of the project.

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(d) Spare Parts

4.17 With a fleet of seven ships and with six UPP, 595 railway cars,and 81 ISDs, PUSRI will require a large variety of spare parts to be held ininventory in order to maintain operations in the face of long procurementlead times and complicated import procedures. Spares for the ships aredivided into two types; those which are retained aboard the ships (operatingspares) and those which are retained at a central depot at Palembang (insur-ance spares) where they are available to all fleet units. Spares for UPPsare necessarily kept at each depot as are the operating spares for UPPequipment. Spare parts for the project railway wagons are kept under PUSRIcontrol in Java and drawn by PJKA as required. The project includesappropriate additions to PUSRI spare parts stocks, based on usage recordsand the advice of consultants. The list of spare parts, drawn up byconsultants and PUSRI, has been agreed (Annex 2, C 12).

(e) Consulting Services

(i) Ships and Urea Handling Facilities

4.18 PUSRI has retained consultants for preliminary design and assist-ance in procurement and in construction supervision of the UPP at Meneng(SWANCO) and for design and construction supervision of the four ships(MCD). These consultants were previously retained for the same functionsduring the first project and are acceptable to the Bank. Their contractsare effective and their work is underway. A lump-sum contract for detaileddesign between PUSRI and P.T. Kelsri covering the Meneng UPP is effective.

(ii) Design and Owner's Engineer

4.19 PUSRI has retained a local consultant, P.T. Inconeb, which hasdesigned piers in Indonesian ports to design and draw up tenders for thepiers at Meneng and Cilacap. These will be constructed according to designcriteria to be supplied by SWANCO, which will act as Owner's Engineer andsupervise their construction. Design of the piers is underway and is 90%complete. Cost estimates, based on the cost of a similar adjacent pier atMeneng, are complete and have been reviewed by Bank staff.

(iii) Forecast of Fertilizer Consumption, Marketing and DistributionRequirements

4.20 The rapid expansion of production of fertilizers in Indonesia,growing demand, and shifts in regional growth patterns create a need toreview the various estimates which have been made about fertilizer and itsdistribution, including methods to increase peak storage capacity. PUSRI,with the main responsibility for fertilizer distribution, will retain IFDC(para. 2.21) to undertake such a review with the objective of completing it

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by June 1983. Terms of reference for this study, estimated to costUS$200,000 and to require about 10 man-months of expatriate and about 40man-months of local consultant time, will be prepared by PUSRI and IDFC andagreed to by the Bank within the next few months. The study will include,inter alia, a review of distribution problems outside Java (paras. 3.21 and3.22) and will be financed by the Fifth Technical Assistance Credit(Cr. 898-IND).

(iv) Use of Block Trains in Java

4.21 It has been difficult for PUSRI and PJKA to introduce the use ofblock trains for fertilizer movement (para. 3.29). The success of thismethod, new to Indonesia, is necessary if PJKA is to handle the large volumesof bulk products such as fertilizer, cement, petroleum products, rice, sugar,etc. which will be moved by railway during the next 10 years. Successinvolves not only equipment but also administrative control systems andcommunications equipment. In order to estimate the need for additionaloperational improvements and investment, PJKA will study the requirements forintroducing the wider use of block trains and the implications of this foradministration and control of railway operations. The findings of this study,expected to be completed by June 1983 may require 12 man-months of foreign and30 man-months of local consultant time, will be done in two parts as describedin para. 3.29 and will serve as a focus for any necessary review of theoperation of fertilizer block trains (para. 4.10). Terms of reference forthis study, which will be financed from the Fifth Technical Assistance Credit,have been reviewed. PJKA and PUSRI have reached agreement on a method ofmonitoring and controlling block train operations designed to improveefficiency during the period prior to the completion of this study.

(v) Port Master Plans and Detailed Engineering

4.22 The Government has requested the Bank to assist in financing thecost of preparing port master plans and, based on agreed plans, the detailedengineering required for ports identified by the Integrated Sea TransportStudy. This study was financed under the Second Shipping Loan (Ln. 1250-IND).Thirty-two ports were nominated for inclusion in an interisland liner system(ILS). Master plans have ben completed for eight ports to be constructed withDutch and Japanese aid and by proposed Asian Development Bank projects. Afurther 10 are to have master plans and detailed engineering undertaken by theDirectorate General of Sea Communications (para. 4.23) and construction at twoports is complete. Master plans and detailed engineering for the balance of12 ILS ports is expected to be carried out in two phases. Phase I, for whichUS$17.5 million is included in Part B of the proposed project, includesdetailed engineering (US$6.3 million) for the second expansion of Indonesia'smain port, Tanjung Priok, which is receiving assistance under the First PortLoan (Ln. 1337-IND), the expansion of which is likely to cost about US$ 150million. The proposed project also includes financing for master plans anddetailed engineering (US$11.2 million) for high priority ILS ports, details ofwhich are included in Annex 2, B.7.

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C. Cost Estimate and Financing Plan

4.23 The total cost estimate for the project is US$185.3 millionequivalent of which US$138.2 million equivalent would be foreign exchange.The proposed loan of US$66.0 million would finance about 48% of foreignexchange costs and 35.6% of total costs. The National Fertilizer DistributionProject - Part A of the Project - would require US$167.8 million equivalentof which US$126.1 million equivalent or 75% would be foreign exchange. Theproposed allocation of US$48.5 million for this part of the project wouldfinance 38% of its foreign exchange requirements. The balance of the pro-posed loan, US$17.5 million equivalent, would provide 100% of the financerequired for the port master plans and detailed engineering and for consul-tant contracts. The costs for the urea bulk carrier ships, are based on acontract concluded in February 1982. Based on quotations made on the basisof outline specifications, the consultants have provided estimates of theprice of the ammonia carrier. Cost estimates for equipment are based onconsultant estimates and quotations from suppliers of similar equipment.Cost estimates for the piers are based on advanced engineering design (para.4.19). The cost estimate for the railway extension is based on estimatesfor materials (rails, sleepers, fastenings, etc.) as determined by PJKA onthe basis of the 21 km route plus 9 km of sidings. The construction costs(cut, fill, bridges and other construction) were also prepared by PJYSA. Whilethese estimates are not based on detailed engineering, they were reviewed byBank staff at negotiations, and subsequently in Indonesia. The phasing ofwork and of expenditure was considered reasonable. The land acquisition costsare based on purchases at an average price of Rp 5,000 per sq m. PUSRI hasrented the land for the Meneng depot and has prepaid the rent. Costs for therailway consultants are based on information supplied by PJKA.

4.24 The average man-month cost of an expert, including the cost oftravel, subsistence, and allowances is estimated at about US$3,000 equivalentfor a local expert and ranges between US$8,500 and US$10,700 for expatriateconsultants. All these estimates are reasonable, and are in line with theactual cost of consultant services in Indonesia over the four-year period ofproject construction. Cost for design and construction supervision for theships is estimated at US$2.7 million if only two shipyards are selected tobuild two types of ships, US$3.0 million if three shipyards are selected.Costs for Indonesian consultants (P.T. Kelsri) have been based on a contractfor US$387,000. All of the above cost estimates have been based on contractsfor the various consultants.

4.25 An overall physical contingency of 13.2% of total of Part A projectbase costs (excluding the cost of the ships which are fixed price bids) hasbeen arrived at by calculating reasonable physical allowances of from 5% to35% for each item where appliccable. Details are given in Annex 7. Pricecontingencies for the total Part A project excluding the cost of the ships of17.7% have been calculated on the sum of base costs plus physical contingencyover the construction period as shown in Table 4.1. Price and physical con-tingencies of 9% have been estimated for Part B of the project. The results,which are in line with recent Bank assumptions on Indonesian inflation, aregiven in detail in Annex 7. The above project costs are given in Table 4.2.

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Table 4.1: PRICE CONTINGENCIES

Local Foreign

1982 14 8.51983 10 7.51984 10 6.01985 10 6.0

D. Project Implementation

(a) Financing Plan

4.26 The financing plan includes use of export credits for procuringships. Based on an understanding among OECD countries most ship financing isfor a maximum of 80% of the ships value repayable over not more than 8 yearsat a minimum interest rate of 8 1/2% p.a. A total of US$54.8 million cfexport credits will be utilized. This amount plus the proposed loan ofUS$66 million will represent about 87% of total project foreign exchangecosts. These loans will be made to the Government which will bear the foreignexchange risk. All funds onlent to PUSRI by the Government will be 25% equityand 75% debt at a rate of 13.5%, the current long-term lending rate byIndonesia's state development bank. The Government will finance PJKA throughits budget. Funds for Part B of the project will be supplied through thebudget. The financing plan is given in Table 4.3.

Table 4.3: FINANCING PLAN

SourceExport

Use credits Government Bank Total----------- (US$ million) ----------

PJKA - 46.55 - 46.55PUSRI 54.80 17.96 48.50 121.26Department of Communications - - 17.50 17.50

Total 54.80 64.51 66.00 185.31

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Table 4.3: CAPITAL COST ESTIMATE (1981 Base Cost Estimate)

Million Rupiah Million US$ Per-Local Foreign Total Local Foreign Total cent

Part A of the ProjectPUSRI ActivitiesUrea Handling Facilities1. Bulk reception and

bagging plant, Meneng 3,563 5,375 8,938 5.70 8.60 14.302. Pier, Meneng 450 675 1,125 0.72 1.08 1.803. Belawan bagging facilities 63 125 188 0.10 0.20 0.304. Belawan additional conveyor 63 125 188 0.10 0.20 0.305. Pier, Cilacap 525 788 1,313 0.84 1.26 2.106. Railway wagons

(200 of 30 tons) - 8,813 8,813 - 14.10 14.107. Wagon spares - 625 625 - 1.00 1.008. Bulk ships for Urea (3) - 27,438 27,438 - 43.90 43.909. Refrigerated ammonia

Carrier (1) - 14,375 14,375 - 23.00 23.0010. Improvement on urea ships

and ship spares - 2,500 2,500 - 4.00 4.0011. Consultant services

Ship and urea handling 1,313 1,625 2,938 2.10 2.60 4.70Fertilizer study up date 125 125 250 0.20 0.20 0.40

Subtotal 6,102 62,589 68,691 9.76 100.14 109.90 57.3

PJKA Activities12. Railway line extension (30 km) 5,187 7,250 12,437 8.30 11.60 19.9013. Railway line right-of-way 5,563 - 5,563 8.90 - 8.9014. Railway line design and

supervision 938 1,250 2,188 1.50 2.00 3.5015. Block train study, Java 125 125 250 0.20 0.20 0.40

Subtotal 11,813 8,625 20,438 18.90 13.80 32.70 17.6

ContingenciesPhysical:16. PUSRI 1,119 1,913 3,032 1.79 3.06 4.8517. PJKA 2,137 1,088 3,225 3.42 1.74 5.16

Subtotal 3,256 3,000 6,256 5.21 4.80 10.01 5.4

Price Escalation:18. PUSRI 1,125 2,694 3,819 1.80 4.31 6.1119. PJKA 3,756 1,925 5,681 6.01 3.08 9.09

Subtotal 4,881 4,619 9500 7.81 7.39 15.20 10.8

Total Project Cost Part A 26,050 78,831 104,881 41.68 126.13 167.81 90.6

Part b of the Project20. Detailed Engineering,

Tanjung Priok Port 512 2,738 3,250 0.82 4.38 5.2021. Detailed Engineering and

Master Plans, Ports 2,319 3,469 5,788 3.71 5.55 9.26

Subtotal 2,831 6,207 9,038 4.53 9.93 14.46 7.8

Contingencies22. Physical 281 619 900 0.45 0.99 1.4423. Price 312 688 1,000 0.50 1.10 1.60

Subtotal 593 1,307 1,900 0.95 2.09 3.04 1.60

Total Project Cost Part B 3,426 7,512 10,938 5.48 12.02 17.50 9.4

Total Project Amount 29,475 86,344 115,819 47.16 138.15 185.31 100.00

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(b) Implementation

4.27 The project would be implemented over a period of four years withthe majority of work being completed in two years and three months (June1984). Only the railway line construction will extend to June 1985. Theplanned order dates for equipment and the description of work to be under-taken is given in Table 4.4 below and an implementation schedule is given inFigure 3. A list of potential bidders covering all categories of equipmentto be procured by PUSRI includes 140 firms. The contract for three ureaships was awarded after Government procedures to a Korean shipyard, whichwill provide a supplier credit. Part B of the Project is expected to becompleted no later than December 1984, the time scheduled for the appraLsalof the maritime project. The production of ammonia will start at KALTIM inmid-1983 and will be transported by chartered ships until the specialammonia carrier is delivered.

Table 4.4: EQUIPMENT AND WORK SCHEDTJLE

No. of ServiceOrder date Description Location months date

Dec 1981 Pier Cilacap 18 June 1983Dec 1981 Pier Meneng 18 June 1983July 1981 Bagging plant Meneng 24 July 1983Oct 1981 Ship 5 18 May 1983

Ship 6 21 Sept 1983Ship 7 24 Jan 1984

March 1982 Unloading facilities Belawan 12 March 1983March 1982 NH3 ship 24 June 1984Dec 1981 Bagging facilities Belawan 12 Dec 1982June 1982 Railway wagons Java 18 Dec 1983Sept 1981 Rail extension Meneng/Banjuwangi 45 June 1985

4.28 A time-critical item is the railway extension. 30 km railway linecould be built under normal circumstances in about two and one half years,including land acquisition, but experience in Indonesia indicates thatsubstantial delays are likely. This is due to problems of land acquisitionand contracting and because of growing difficulties and delays in contractadministration. A conservative schedule has therefore been projected. Thesurvey of the railway line alignment for the extension is complete. TheGovernment has decided to have the work managed by PJKA, assisted by localconsultants, and constructed by local contractors. Completion in mid-1985will require bagged urea to be transported by truck to a temporary railwaywagon loading installation at Banjuwangi or Kabat. At volumes of over

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100,000 tpy this transfer is more expensive than movement direct from Menengto final destination by the proposed railway. About 575,000 tpy will have tobe moved by road to a railway loading point until mid-1985 at up to aboutUS$5.18 per ton additional cost. Delay of railway line completion beyond thisdate would expose PUSRI to added costs. Therefore the Government has agreedto take all steps as may be necessary or desirable to achieve timely comple-tion of the railway extension, based on a detailed construction schedule.Until the railway extension is completed, the bagging plants at Jakarta,Cilacap, Surabaya and Meneng and at all the production plants will receiveand/or bag and ship fertilizer in order to maintain factory production andfertilizer supplies to Java. Some of the fertilizer to be unloaded at Jakartaor Cilacap will have to be reshipped by rail to markets in East Java at highcost and with major organizational difficulties until the facilities atMeneng, and the railway line, are able to operate. Because timely completionof the railway extension to Meneng is critical to the proper and economicmovement of fertilizer PJKA and the Government have agreed during negotiationson the need for frequent consultation on and review of progress inconstructing the extension with a view to determining the steps to be taken,if any, to improve progress.

(c) Executing Agencies

4.29 PUSRI would be the executing agency for procuring and putting intoservice the urea handling equipment, the UPP, and the ships and for procure-munt of the railway wagons. A project implementation group has been set upwithin PUSRI's Development Department to carry out the work. It is headed bya capable and experienced manager. The marine structures would be designedand constructed by competent local consultants and contractors selected byPUSRI on the basis of local competitive bidding procedures approved by theBank. The contractors are also to be judged technically capable and, based onprevious work, approved by the local port administrators and DirectorateGeneral of Sea Communications. Construction would be carried out under thesupervision of SWANCO. PUSRI and P.T. Kelsri are now designing the MenengUPP and SWANCO and P.T. Kelsri will act as Owner's Engineer for PUSRI in itsconstruction and will assist in procurement and evaluation of bids. As thedesign is similar to the five other depots operated by PUSRI, no design orconstruction problems are envisaged. MCD would undertake constructionsupervision for the ships with a PUSRI engineer acting as Owner's Engineer fordocument approval. The railway locomotives and equipment for the railway lineextension, and the extension itself, would be procured and executed by PJKA.The Directorate General of Sea Communications would be the executing agencyfor Part B of the Project.

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E. Procurement and Disbursement

(a) Procurement

4.30 The Bank loan will finance part of the foreign exchange cost ofequipment and consultant services to be procured by PUSRI and consultantservices for Part B of the Project. Procurement by PUSRI of all equipment(urea handling facilities, railway wagons, etc.) will be subject tointernational competitive bidding (ICB) from prequalified bidders and will becarried out in accordance with the Bank's Guidelines for Procurement and besubject to Bank approval. Items not financed by the Bank will be procured onthe basis of competitive bidding locally advertised in accordance with govern-ment procedures satisfactory to the Bank. All equipment contracts or packagesof contracts of over US$100,000 awarded by PUSRI will be subject to priorreview by the Bank and this will cover about 85% of the value of Bank-financedcontracts. The balance will be subject to a random post review by the Bankafter award. All contracts for civil works costing US$1.5 million or morewill be subject to prequalification and review by the Bank prior to award.Consultants employed under Bank finance, except for contracts negotiated priorto August 5, 1981, will be employed according to the Bank's Guidelines for useof Consultants and will be acceptable to the Bank and employed under contractsacceptable to the Bank. Procurement by PUSRI has already commenced.

4.31 Of the US$126.1 million of foreign cost for Part A of the Project,one contract for three urea ships and spares (US$43.9 million) has beenawarded and awaits final Government approval. This contract requires 5%of the price to be paid on contract effectiveness (likely by the end of March1982) and the balance by the delivery of each ship. No interest is chargedduring construction. This payment (US$2.2 million equivalent) plus minorpayments to consultants and for equipment or services at Meneng and Cilacapcould involve PUSRI in total payments of up to about US$3.5 million prior toloan signing on commitments of about US$50.0 million.

4.32 PJKA will undertake civil works utilizing competent contractorsand will procure contractors on the basis of competitive bidding, locallyadvertised in accordance with government procedures satisfactory to theBank. PJKA will construct the railway track using force account and localcontractors. It is expected that civil works will be undertaken in a numberof small contracts not of interest to foreign firms and therefore ICB isnot appropriate. Consultants employed to assist with Part B of the Projectwill be retained by the Directorate General of Sea Communications under theprocedures set out in the Guidelines for Uses of Consultants and will beemployed under contracts acceptable to the Bank.

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(b) Disbursement

4.33 Disbursement of the loan proceeds will be made over four calendaryears on the following basis for Part A of the Project: (i) 100% of theforeign cost of equipment or of local expenditure for equipment manufacturedlocally, (ii) 75% of the local cost of imported equipment procured locally,(iii) 100% of the cost of consultants, and (iv) 100% of the cost of civil works(pier and bagging station at Meneng). Part B of the Project will finance100% of the cost of consultant services. The expected loan disbursementschedule, based on the region-wide profile and expenditures under Part B ofthe project, would be as shown in Table 4.5.

F. Environmental Aspects

4.34 No environmental hazards are foreseen at the bulk storage shedwhere existing pollution control systems are in use or will be utilized forthe new terminal and sheds. Bagged storage presents no environmentalhazards. Pollution controls, acceptable to the Bank and based on thoseproposed by the Intergovernmental Maritime Consultative Organization (IMCO),are included in the ship specifications to control oily water, garbage andsewage discharge.

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Table 4.5: DISBURSEMENT SCHEDULE

IBRDfiscal Quarter Disbursement Cumulative Percent Cumulative

year ending ---- (US$ million) ---- ------ (%)----

1982 06/30/82 1.0 1.0 1 1

1983 09/30/82 1.8 2.8 3 412/31/82 2.9 5.7 5 903/31/83 4.6 10.3 7 1606/30/83 5.1 15.4 8 24

1984 09/30/83 6.1 21.5 9 3312/31/83 6.6 28.1 10 43

03/31/84 6.6 34.7 10 5306/30/84 6.7 41.4 10 63

1985 09/30/84 8.0 49.4 13 7612/31/84 5.6 55.0 9 85

03/31/85 4.2 59.2 6 9106/30/85 2.8 62.0 4 95

1986 09/30/85 1.5 63.5 2 9712/31/85 1.5 65.0 2 9903/31/85 1.0 66.0 1 100

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V. ECONOMIC EVALUATION

A. Economic Rate of Return

5.01 The economic assessment of the project investments is made on thesame rationale as that for the first Bank-financed distribution project:changes in the costs of transporting fertilizer throughout Indonesia under"with-" and "without-project" scenarios. The approach accepts as common toboth, the expected overall growth, and regional distribution of agriculturalproduction which underlies forecasts of fertilizer demand. Economic ratesof return are estimated separately for each project component, as well asfor the project as a whole.

5.02 Cost savings and other benefits are measured net of: (a) thecapacity of the distribution system existing in early 1981; and (b) theoverall changes in fertilizer transport costs to farmers that will followfrom the location of new urea plants at Bontang and Aceh. This lattereffect will be a significant saving for areas now remote from factory sitesand major use areas, as the following table shows:

Table 5.1: REDUCTION IN UREA TRANSPORTCOST FOR AREAS SUPPLIED FROM NEW PLANTS

Reduction in cost per tonRp -000 %

Bontang - East Kalimantan 14 67South Sulawesi 10 49North and Central Sulawesi 7 34South-East Sulawesi 3 15Maluku & NTT 3 15

Aceh - D.I. Aceh 5 43North Sumatera 2 20West Sumatera 1 5

5.03 The focus of the economic analysis is therefore the efficiency ofthe expanded distribution system. Costs include assets to be provided underthe project itself, and those investments under the wider program of factoryexpansion that are necessary for the operation of bulk ships at Gresik.Overall, storage and bagging requirements are the same for any distributionsystem, depending on the level of production and demand rather than the

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transport mode. In analyzing the returns on storage and bagging investmentsonly those costs necessary for the efficient operation of the chosen distri-bution system, i.e., the bulk reception and bagging plant to be provided atMeneng and the improvements at Belawan and Cilacap, are included.

5.04 Analysis of the operation of the transport system assumes that afurther expansion of distribution assets will follow, and possibly overlap,this project. The existing inter-island fertilizer bulkshipping fleet hascapacity to carry 1.4 million tons of urea annually, and this will be fullyutilized in 1982. The three ships to come into service in 1983 will havecapacity for an additional 1.1 million tons of urea or a total of 1.2 mil-lion tons of fertilizer if TSP is carried on back-hauls. Capacity for ureawith TSP back-haul will be fully utilized in 1985 and for bulk urea trans-port in 1986, when some 30,000 tons would need to be carried by additionalnew ships and/or under charter arrangements. This points to the need forrapid preparation of a follow-on expansion of fertilizer distributionfacilities (para. 1.04).

(a) Inter-Island Bulk Fertilizer Movements

5.05 Use of the three new ships in 1983-1986 will provide economic costsavings over the least-cost alternative shipping system /1 (using 1,500 dwtbulk carriers) averaging Rp 5,540 per ton./2 Fertilizer handling improve-ments at Belawan and Cilacap ports will eliminate current delays tofertilizer ships waiting for berth space, and reduce costs for bulkshipments through these ports by Rp 516 and Rp 147 per ton. Reductions iLnfertilizer handling losses for the PUSRI bulk fleet are taken at 3% comparedto handling all fertilizer in small bulkships and bags. All of thesebenefits, extended to the end of the 15-year life of the vessels at the 1986capacity level, give an economic return on investments for interisland bulkfertilizer movements of 25%. This is comparable to the return achieved onthe First Fertilizer Distribution Project. Details of the calculations aregiven in Annex 2, C2 and C4.

/1 See Project Completion Report, Indonesia Loan 1139, Fertilizer Distr:Lbu-tion Project, June 15, 1981. This report updates the comparative coststudies for different shipping systems made during preparation of theFertilizer Distribution Project and reconfirms that 1,500 dwt bulkships are the least cost alternative to PUSRI designed bulk carriers.

/2 Financial savings from using PUSRI bulk carriers are given in Annex '3,CIO, paras. 9 to 11. Ship operating costs and other transport costsused in this chapter have been adjusted to economic levels to reflecitworld fuel prices of early 1981 and to exclude the 10% import tax onships. Shadow pricing was not applied to foreign exchange or laborcomponents of costs or benefits.

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(b) Refrigerated Ammonia Shipments

5.06 Purchase of a specialized ship to transport refrigerated ammoniabetween Bontang and Gresik will result in significant savings over charteredship costs, and export sales to the Philippines will result in additionalnet shipping revenues. If a ship were not purchased, export ammonia couldbe sold f.o.b. at Bontang, and the small domestic volume carried bychartering small pressurized carriers. It is unlikely that this wouldaffect Indonesia's sales prospects, although storage at Bontang may beadjusted to allow for greater uncertainty on the frequency of ship calls.The small domestic transport need by itself would not justify purchase of aspecialized ship.

5.07 The economic case for purchasing the ship therefore rests on theprospective earnings from shipping services to foreign purchasers ofammonia, and some savings in payments to foreigners for domestic shipments.

5.08 Charter rates for small, pressurized shipments of ammonia exportsfrom Palembang in early 1981 were, per ton, US$85-120 for shipments toMalaysia, US$93 to the Philippines and US$96 to South Korea. On this basisthe charter rate needed to attract foreign ship owners to the Bontang-Gresik route is estimated at US$90.

5.09 It is reasonable to expect that regular refrigerated exportshipments would earn a lower freight rate than the pressurized tonnages.Taking into account competitive vessel time charter rates and operatingcosts, Philippine importers could pay some US$45 per ton for ammoniaexported f.o.b. from Bontang. This rate also provides a reasonable marginover costs of ownerships and operation of the project ship to allow competi-tive pricing responses to competition, and it has been assumed thereforethat charter rates of US$45 per ton could be negotiated. Net earnings fromexport shipments would begin in 1984, but the capacity of the ship (186,500tons per year) limits export shipments from 1985 on to 140,000 tons,assuming domestic ammonia requirements will be filled. The rate of returnis estimated at 28%, and details are shown in Annex 4, Table 2.

(c) Intra-Java Fertilizer Movements

5.10 For the intra-island movements on Java, benefits are measured asthe savings for the incremental tonnages to be carried by rail compared withcosts by road transport. Unit costs for fertilizer transport in blocktrains are well below those for road transport for long distance movementsbut there is insufficient rolling stock to expand rail traffic. For Meneng,the project would also provide the track, and comparison with the alternativeof trucking fertilizer to the nearest railhead at Banyuwangi shows that railtransport connections to the UPP would have lower costs for all volumesabove 200,000 tons per year.

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5.11 Limited locomotive availability has been a constraint on improvingblock train performance, and PJKA is now in the process of acquiring 64additional locomotives for fertilizer and other goods movements in Java.With these, and based on the findings of the study on block trains operationto be completed in 1983, it is expected that block train wagon turnaroundscan be improved to 5.8 days in 1985 and to the originally targetted 3.7 daysby about 1987. This would improve the capacity of the fleet to around 1.8million tons in 1985 (see paras. 3.23 and 4.10).

5.12 Such capacity will be insufficient for the demand. Projected ureamovements for which rail is cheaper than road transport (i.e., all tonnagesmoving more than 100 kilometers inland, or about 75% on Java) is already1.1 million tons. In 1982, with the completion of the rail link to the TSPplant at Gresik, unit shipments of TSP, DAP and AS will begin, and theprojected potential rail tonnage will rise from 1.6 million to 2.1 milliontons by 1985. This matter was discussed during negotiations and assurancesobtained that PJKA will include in the block train study the development of aplan for discussion with the Bank to procure, or make available, additionalrailway wagons for fertilizer by 1985.

5.13 The rolling stock to be provided under this project will fill onlypart of the capacity gap - about 297,000 tons at current turnarounds, risingto 562,000 tons with operational improvements. For fertilizer transport,benefits, measured as the difference in transport costs by road and rail,average Rp 5,350 per ton. The rail line extension to Meneng provides similarbenefits to other traffic, principally rice, being shipped out of East Javathrough the port. BULOG estimates rice shipments through Meneng could reach300,000 tons by 1985, and cost savings on inland transport to the port havebeen included from 1986 but there is likely to be substantial excess trackcapacity until other traffic (e.g., lumber, plywood, rice) develops. Theproposed port master plan for Meneng will deal with this matter. Annex 4,Table 3 shows details of the calculations. The rate of return on the railwayinvestments, based on the project, is 13%.

(d) Overall Return

5.14 Spread over the distribution system investments the benefitsprovide a rate of return of 21%. Benefit and cost streams are summarized inAnnex 4, Table 4.

B. Project Risks

5.15 The project runs few risks from the possibilities of higher costsor lower than expected demand. By the time of negotiations, bids will havebeen received, and orders placed, for major project investments. Thetransport capacity to be provided includes only those urgent and interim

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items needed to cope with the sudden surge in production and demand over thenext few years. The expanded shipping and railway capacity will beinsufficient after 1985. Unless productivity substantially improves as aresult of the steps to be taken in the course of the next few years, railwaycapacity will be less than optimal in all years and PUSRI costs will rise asmore fertilizer is shipped by truck. Should domestic demand develop moreslowly, ship capacity can be diverted to export trades and the land transportsystems will face less strain in handling fertilizer distribution. Shouldthe timing of the opening of new plants be delayed, bulk ships and inlandtransport facilities will be needed to distribute the interim imports offertilizer. Should demand grow more slowly than anticipated, there is asmall risk of temporary over capacity for fertilizer transport, but theexisting system capacity is now close to demand.

5.16 Delay in completing the railway line extension to Meneng willcause continued heavy costs to fall on PUSRI because of the need to utilizemore expensive road transport. Continued less than optimum operation ofPUSRI ships could cause severe difficulties for the delivery of urea priorto delivery of the project ships because alternative, more costly and lessproductive ships would have to be used. Late delivery of the project shipswill also cause similar problems. The railway line construction will bemonitored by the Bank and steps have been proposed to minimize the risk ofdelay (para. 4.28). PUSRI has undertaken to make appropriate changes in itsshipping department in order to improve productivity and has sought bids forearly delivery of the project ships.

5.17 The major risks are, therefore, those of inefficient operation ofthe system, including existing facilities, and of the consequent developmentof bottlenecks in the expanded distribution system. At negotiations,agreements will be sought on operating performance efficiency targets forships, rail cars and inland storage depots. A list of performance targetsand reporting requirements is included in Annex 8.

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VI. FINANCIAL ANALYSIS

A. PUSRI, Current Financial Position

(a) General

6.01 Consolidated income accounts and balance sheets for PUSRI /1 forthe past five years, 1976-80, are given in Annex 9, Tables 9.1 and 9.2, andare summarized below. These show that PUSRI is in a good financial positionand has consistently earned a reasonable annual return on average net fixedassets in use, varying between 7.3% (1976) and 12.8% (1977). Thedebt/equity ratio has improved, from a high of 55/45 in 1977, to 38/62 in1980, and the current ratio has also improved, from 1.2 in 1976, to 1.6 in1980.

6.02 The "other income" under "marketing" includes the compensationreceived from the Government against losses incurred by the marketingunit./2 Such compensation was the subject of assurances received by theBank on the occasion of loans for both the First Fertilizer DistributionProject and the Third Fertilizer Expansion Project (PUSRI IV). The rationalefor including these payments in operating revenues is that, due to theGovernment continuing to fix low selling prices for fertilizer, and lowmargins for distribution, PUSRI's marketing unit is prevented from earningrevenues sufficient to produce a reasonable return on assets.

6.03 While the production unit has earned profits, the marketing unithas consistently operated at a loss. The basic cause of the differentfinancial results for the two units lies in the margins resulting from theprices fixed by the Government at the production and marketing levels. Inaddition, as noted in para. 6.05, the production unit accounts include therevenues and expenses related to shipping, bags, warehousing and handling atthe production sites. Thus, to this extent production unit net income isoverstated, and marketing unit net loss is overstated. Proposals to improvethe accounting are discussed in para. 6.14 and 6.15.

6.04 In an attempt to ensure that PUSRI would operate profitably, whilekeeping the price to the farmers at a reasonably low level to encourage theincreased use of fertilizer, the Government adopted a two-tier pricingformula. In effect, the Government buys urea for domestic consumption from

/1 Sources: Audited statements for 1976-1980.

/2 Compensation received has been: 1976 - Rp 17.6 billion; 1977 -Rp 18.5 billion; 1978 - Rp 11.2 billion; 1979 - Rp 20.3 billion; and1980 - Rp 8.6 billion.

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Table 6.1: SUMMARY CONSOLIDATED INCOME ACCOUNTS 1978-80(in Rp billion)

1978 1979 1980

ProductionSales and other income 82.1 98.4 122.8Production costs (60.0) (75.4) (96.5)

Net income 22.1 23.0 26.3

MarketingSales and other income /a 72.9 96.5 135.2Government compensation 11.1 20.3 8.6Distribution costs (84.1) (116.8) (143.8)

Total Profit Before Taxes 22.1 23.0 26.3

Total Profit After Taxes 16.8 17.4 16.8

Return on net fixed assets (x) 12.0 9.7 9.1Debt service coverage 2.1 2.3 1.8

/a The marketing unit sells other producers fertilizer as well asPUSRI:s own product.

PUSRI and other producers at a price which gives the company an adequateprofit on production and a reasonable rate of return on investment. It thensells the fertilizer back to PUSRI, at a much lower price, for distributionthrough a chain of selling agents. In theory, the price levels at whichPUSRI buys and sells fertilizer should provide an adequate margin to coverits distribution costs. In practice, this has not been so due to risingcosts, owing to inflation, not being met by increases in sales margins, withthe result that in each year, the marketing unit's revenues have beeninsufficient to cover its operating costs and overheads. The Government, inaccordance with assurances made to the Bank, compensated PUSRI for theseannual losses.

6.05 In April 1980, the Government revised the selling pricesapplicable to the distribution system, and in August 1980, it revised theprices to be paid for fertilizer production. The result of these revisionswas to provide PUSRI-s marketing and distribution unit with a margin of

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about Rp 10,300 a ton for urea,/l to cover costs of ISDs, inland transport,warehousing and handling (Table 6.4). In addition the price paid toproduction units includes a margin of Rp 21,800 /2 to cover suchdistribution costs as shipping, bags, warehousing and handling at theproduction site (Table 6.5). The combined total of these margins, Rp 32,100a ton, is, at current cost levels, adequate and PUSRI should be able toabsorb some increase in cost levels over time, and still earn a reasonablereturn on its distribution assets. These revisions of margins compensatefor some added costs arising from PUSRI's wider responsibilities fordistributing all domestic and imported fertilizers.

6.06 The new price structure has helped improve PUSRI's marketing anddistribution unit's financial performance in 1980, as shown in the aboveconsolidated income account (Table 6.1), with a consequent reduction incompensation needed from the Government, from Rp 20.3 billion in 1979, toRp 5.7 billion in 1980.

6.07 The return on average net fixed assets in use, 12% in 1978,declined to 9.75% in 1979, and to 9.1% in 1980. The debt service coveragein each of the three years has exceeded the minimum of 1.5 specified in theloan agreement. These financial results have been satisfactory.

6.08 As discussed in detail in Chapter II-B, the current fertilizerpricing policy in Indonesia implies substantial subsidies to the ricefarmers. These subsidies arise from: (a) the dual fertilizer pricingsystem, under which fertilizer is sold at prices lower than production costsplus distribution costs; (b) urea production cost itself is subsidized bythe low cost of gas; and (c) transport costs are subsidized by lower fueloil costs than world market levels. This arrangement, which has resulted infarmers applying more fertilizer, thus increasing domestic production, issimple, and much less administratively complicated than charging farmersfull prices and then trying to subsidize them directly.

6.09 With selling prices, both at the production and distributionlevels being controlled by the Government, there is no subsidy to PUSRI or

/1 The margins for other products are: TSP/DAP/NPK - Rp 18,000,AS - Rp 16,000.

/2 This margin applies to urea, TSP/DAP/NPK and AS.

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to other producers. However, in the past and present situation of inflation,where costs inevitably rise, and government action in adjusting controlledprices is tardy, occasions do arise when compensation must be paid to ensurefinancial viability of the producers/distributors. The Government has agreedso long as the price and distribution of fertilizer in Indonesia iscontrolled, that PUSRI will be allowed to earn a reasonable rate of returnon its assets (para. 6.40).

6.10 Annual balance sheets, given in detail for the years endedDecember 31, 1976-80 in Annex 9, Table 9.2, are summarized for the years1978-80 in Table 6.2.

Table 6.2: BALANCE SHEETS(in Rp billion)

1978 1979 1980

Current Assets 169.4 224.1 261.9Less: Current liabilities 10U.9 134.3 163.8Net Working Capital 68.5 89.8 98.1Noncurrent Assets 10.2 0.4 0.4Net Fixed Assets 186.6 202.9 190.9Other Assets 1.2 1.3 1.7

Total Assets 266.5 294.4 291.1

Long-term Debt 120.8 109.2 97.0Other Liabilities 5.5 5.5 5.5Fixed Asset Revaluation Surplus - 28.9 28.9Equity 140.2 150.8 159.7

Total Liabilities and Equity 266.5 294.4 291.1

6.11 The debt/equity ratio, which rose to 55/45 in 1977, improved to38/62 in 1980. The current ratio, 1.2 in 1976, has since remained within asatisfactory range of 1.5-1.6. The outstanding long-term debt ofRp 97.0 billion includes Rp 20.1 billion for the marketing/distributionunit.

6.12 The composition of the 1980 net fixed assets figure of Rp 190.9 bil-lion is given in Table 6.3. Current assets of Rp 261.9 billion include:

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cash and letters of credit, Rp 73 billion; receivables, Rp 103 billion;/1inventories, Rp 59 billion;/2 and others, Rp 27 billion.

Table 6.3: FIXED ASSETS - 1980

Total Production Marketingnet value unit unit---------- (Rp billion)-

Land 5.1 3.9 1.2Buildings and other structures 24.9 12.1 12.8Plant, machinery and equipment 194.4 185.0 9.4Ships 21.9 - 21.9Motor vehicles, office equipment 13.2 7.9 5.3Railway wagons 2.3 - 2.3

Gross value 261.8 208.9 52.9Less accumulated depreciation 82.5 70.9 11.6Net fixed assets in use 179.4 138.0 41.4

Construction in progress 11.5 4.3 7.2

Total as per Balance Sheet 190.9 142.3 48.6

(b) Accounts and Audit

6.13 PUSRI has, with the assistance of consultants,/3 installed amodern, cost-center, accounting system. Periodic income and expenditureaccounts, cash flows and balance sheets are regularly prepared formanagement use and are sent to the Bank. The income accounts showseparately the results of the production unit and of themarketing/distribution unit.

/1 Includes trade receivables of Rp 61.3 billion for the production uniit(almost entirely due from BRI) and Rp 31.5 billion for marketing unit.

/2 Includes Rp 22.2 billion for production unit and Rp 11.4 billion formarketing unit's fertilizer stocks. Remainder is plant spares and othermaterials.

/3 Price Waterhouse Associates (International).

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6.14 However, certain deficiencies still remain. For instance,although section 4.03 of the Project Agreement for the first FertilizerDistribution Project required PUSRI to prepare, on a proforma basis, yearlystatements of income and expenses and balance sheets, adequate to reflectits fertilizer shipping, distribution and marketing operations, the reportsgiven to the Bank do not contain such detailed analytical data. Because theprice paid by the Government to PUSRI's production unit includes an elementfor bags, some bagging, shipping and handling at Palembang, the periodicincome accounts show this revenue, and the relevant cost, accruing to theproduction unit and not to the marketing/distribution unit. Balance sheetassets and liabilities are not segregated under the two units. Therefore itis not possible to easily arrive at the true financial performance of themarketing/distribution function.

6.15 In addition, the management reports, while reporting financialperformance, do not contain the relevant physical performance figures. Thusthe unit costs of particular functions, such as shipping (bulk and RLS)bagging, ISDs, road and rail costs, etc. are not readily available. Whilethe inclusion in the reported accounts of such costs as depreciation andloan interest under the specific functional cost headings (shipping,bagging, ISDs etc.) is needed in order to arrive at each function's cost,the expenditure side of the income statements should also be arranged toshow total expenditure under type of cost, such as labor, fuel, othermaterials, services, depreciation, interest, etc. During negotiationsagreement was reached that PUSRI will review this matter with its financial/accounting advisors, and prepare a specific plan to improve the managementreporting, and the accounting changes needed to present more truly thefinancial performance of the separate production and marketing units, fordiscussion with the Bank by June 1982 and for implementation immediatelythereafter.

6.16 Auditing is currently carried out by an independent professionalaccounting firm, D.L. Pamintori S. Indonesia, in association with Coopers andLybrand, International. Audited accounts have, in general, been received intime, as agreed. Auditing procedures have been satisfactory. PUSRI hasinstalled an internal audit function.

1...

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B. Financial Projections for the Project

(a) General

6.17 The financial projections prepared by PUSRI, assisted by itsfinancial consultants Price Waterhouse Associates, (and revised as needed byBank staff) relate the incremental revenues and expenses arising from theadditional fertilizer expected to be distributed over the five years1982-86, to the incremental investment needed to handle this fertilizer.

6.18 Forecast revenue and expenditure accounts and cash flows for theproject, covering the years 1983-86, are given in Annex 9, Tables 9.16 and9.17. In addition, consolidated financial forecasts for PUSRI as a whole,covering both the distribution and production aspects, are given in Tables9.19, 9.20 and 9.21, for the same period. No forecast balance sheets aregiven for the project, but forecast fixed asset values are shown in Table9.19 and forecast long-term debt applicable to the project is given in Table9.15. Similarly, in the forecast consolidated balance sheets, separatefigures for production and marketing unit assets and liabilities cannot begiven as PUSRI's accounting system does not, except for fixed assets,readily permit segregation of such figures (para. 6.14).

6.19 The assumptions and detailed calculations supporting the projectfinancial forecasts are given in Annex 9. Basically, it is assumed that,with inventories of urea, TSP/DAP/NPK and AS stabilizing at about 800,000tons, PUSRI's marketing and distribution unit, aided by the additionalproject facilities, will be able to handle annual fertilizer throughputsrising from 2.6 million tons in 1980 to 5.4 million tons in 1986 (Annex 5,Table 4)./l Finances for the project will be provided by the government inthe form of 75% debt and 25% equity. The debt is repayable over ten years,after a three year grace period, at an interest rate of 13.5% per annum.Interest during construction, amounting to about Rp 12,000 million, willbe borne by the government.

(b) Distribution Selling Margins

(i) General

6.20 The Government buys bulk and bagged fertilizers from producers atprices sufficient to cover the cost of production, plus other costsoriginating at production points, such as bags, bagging, handling andshipping. It then sells the products back to PUSRI, at much lower prices,for distribution. The final price to the farmer is Rp 70,000 per ton. Thedifference between this and the price paid by PUSRI is intended to coverPUSRI's marketing unit costs (transportation, storage, handling, overheads)plus those relating to subdistributors and retailers.

/1 Including 600,000 tons in urea exports in 1986.

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6.21 The profitability or otherwise of PUSRIVs marketing/distributionsystem is very sensitive to the shipping element, given the existing totaldistribution margin of Rp 32,000/ton. Bulk urea carried in PUSRI's ownspecialized ships costs about Rp 7,130/ton, but bagged urea, carried in bulkchartered vessels costs about Rp 20,500/ton (including handling costs) andabout Rp 24,300/ton by RLS vessels./l

6.22 The effect of these costs is illustrated by the following summarycost table:

Using UsingPUSRI chartered Usingbulk bulk RLSships ships vessels------- (Rp/ton) --------

Shipping cost (including handling) 7,130 20,500 24,300Bags/bagging cost 9,000 9,000 9,000Rail/road costs (average est. 1985) 8,400 8,400 8,400ISD costs 500 500 500Depreciation and interest 300 100 100Overheads 1,400 1,400 1,400

Total cost per ton 26,730 39,900 43,700

Distribution margin oer ton 32,000 32,000 32,000

6.23 This table shows that unless PUSRI has sufficient specializedshipping, efficiently used, and if excessive dependence is placed onchartered or RLS vessels, the profitability of the distribution system willbe substantially impaired. The forecasts assume that PUSRI's fleet will, infact, carry almost as much fertilizer in bulk as possible; however, in 1986it appears evident that an additional bulk urea ship will be required.Table 9.16 of Annex 9 shows the consequent increased domestic shipping costsforecast for 1986./2

/1 According to PUSRI cost data; includes stevedoring into and out of thevessels, and movement from and to bag storage.

/2 See also para. 6.37. PUSRI has prepared a project request for a follow-on project to involve additional ships.

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(ii) Urea

a. Domestic

6.24 The breakdown of the current (April 1980)/1 urea distributionmargins is shown in Table 6.4. Certain costs (shipping and bagging inparticular) are not covered (see Table 6.5).

Table 6.4: UREA DISTRIBUTION MARGIN /a

Rp/ton

Price to farmers 70,000Retailers' gross margin (4,000)

Price at Line IV 66,000

Subdistributor's margin:Transportation, loading & unloading (Line III-IV) 3,750Handling, rent, overheads 2,830 (6,580)

Price at Line III 59,420

PUSRI's marketing margin (10,326)

GOI delivery price to PUSRI marketing unit 49,094

/a Java/Bali only. Different margins apply for other areas.

6.25 In addition, PUSRI receives the benefit of further distributionrevenues included in the price the Government pays at the production point.The current (July 1980) margin as shown in Table 6.5 is Rp 21,765.

6.26 The overall margin available for distribution and marketing isthus Rp 32,091 (Rp 10,326 + Rp 21,765) and applies to urea sold in Java andBali. Margins for the other islands are higher, due to higher transportcosts. Where bagging is done at production points, such as Kujang, Kaltim,Aceh/ASEAN (all for urea), and Gresik (for TSP/NPK/DAP and AS), PUSRIreceives a correspondingly lower margin (Annex 9, page 4).

/1 These margins are currently under review by the Government and areexpected to be increased to compensate for higher road and railwaytariffs announced in January 1982. The effect of these increasedcosts has been taken into account in the financial projections(Annex 2, C.13).

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Table 6.5: PUSRI DISTRIBUTION REVENUES (MARGINS)

Rp/ton

Price paid at UPP 78,584

Production cost 48,054Fuel cost increase 1,621Profit margin 7,144

56,819

Balance for marketing 21,765

This provides for the following costs:Shipping 8,427Bags/bagging 11,828Losses in bagging/storage 423Loading 393Fuel cost increase 695

21,765

(iii) Export

6.27 PUSRI has been selling urea on the export market at prices rangingfrom US$159/ton (Rp 99,375) to US$262/ton (Rp 163,790). For the financialforecasts a figure of US$250/ton (Rp 156,250) has been adopted, whichcompares with the Bank-s estimates of about US$270/ton by 1985. It is alsoassumed that PUSRI's marketing unit will receive the margin between thisfigure of US$250/ton and the price at which the Government purchasesfertilizer from the various producers,i.e., about Rp 77,000/ton.

(iv) Other Fertilizers

6.28 For TSP/DAP/NPK and AS, the price paid at the UPP is the same(Rp 78,584/ton) as for urea, with the same margin for shipping, bagging,etc. (Rp 21,765/ton).

(c) Income Projections

6.29 With no provision being made for inflation in the operating costforecasts, the projected operating revenues are based on the current (1980)

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production and distribution margins discussed in para. 6.05. The extent towhich these margins may prove adequate over the period 1982-1986 isdiscussed in paras. 6.35 and 6.37.

6.30 The forecast revenues and expenses for the project are given inAnnex 9, Table 9.16, and are summarized in Table 6.6 below:

Table 6.6: PROJECT REVENUE AND EXPENSES

1982 1983 1984 1985 1986-- (Rp billion) ----------

Total distribution revenues /a 19.0 30.1 76.1 105.6 98.1

Working costs 15.1 25.8 52.3 71.5 76.8

Depreciation - 1.2 3.4 4.5 4.5

Total operating costs 15.1 27.0 55.7 76.0 81.3

Interest - - - 7.2 6.4

Total distribution costs 15.1 27.0 55.7 83.2 87.7

Net income before tax 3.9 3.0 20.4 22.4 10.4

Income tax 1.8 1.4 9.2 10.1 4.7

Net income after tax 2.2 1.7 11.2 12.3 5.7

Return on net fixed assets - 9% 25% 33% 20%

Debt service coverage /b - - - 1.9 1.4

/a Domestic plus export. (Note: 1986 exports lower than 1985 - seeTable 6.7.)

/b No debt service until 1985.

6.31 The annual returns on average net fixed assets shown in the abovetable are high. This is largely due to the fact that the tonnagesdistributed over the period 1982-86, and attributed to the project, areutilizing some spare capacity existing at the end of 1980, in ISDs andbagging plants, and in ships, arising from expected more efficientutilization of PUSRI's existing fleet. In addition, considerable tonnagesof urea are expected to be exported, at a profitable selling price./l Theinternal financial rate of return, 22.5% over 12 operating years, alsoreflects this situation.

/1 Even excluding export sales, the return on net fixed assets would rangefrom 9% in 1983 to 20% in 1985 and 13% in 1986.

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6.32 Table 9.16 of Annex 9 splits the forecast revenues and workingexpenses (i.e., excluding depreciation and interest on debt) over export anddomestic operations, and Table 9.10 splits annual depreciation and interestsimilarly. The following table (Table 6.7) summarizes the forecast incomeaccount under exports and domestic distribution:

Table 6.7: INCOME FROM EXPORTS AND DOMESTIC DISTRIBUTION (PROJECT)(Rp billion)

1982 1983 1984 1985 1986

ExportsRevenues - - 30.7 46.5 27.4

Working expenses - - 18.5 27.6 16.0

Plus depreciation - - 0.6 0.8 0.7

Plus interest - - - 1.3 1.0

Total distribution costs - - 19.1 29.7 17.7

Net income before tax - - 11.6 16.8 9.7

Less income tax - - 5.2 7.6 4.4

Net income after tax - - 6.4 9.2 5.3

Domestic DistributionRevenues 19.0 30.1 45.3 59.2 70.7

Working expenses 15.1 25.8 33.8 43.9 60.8

Plus depreciation - 1.2 2.8 3.7 3.8

Plus interest - - - 5.8 5.4

Total distribution costs 15.1 27.0 36.6 53.4 70.0

Net income before tax 3.9 3.1 8.7 5.8 0.7

Less income tax 1.8 1.4 3.9 2.6 0.3

Net income after tax 2.1 1.7 4.8 3.2 0.4

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(d) Cash Flows

6.33 Forecast project cash flows for the years 1982-86 are given inAnnex 9, Table 9.17. With needed investment being financed by the Govern-ment as explained in para. 6.19, the cash generated by the project has onlyto pay income tax on earnings, plus debt service commencing in 1985. Thus,there will be substantial annual cash surpluses, (Rp 20.5 billion in 1984and Rp 11.1 billion in 1985), totalling Rp 37.5 billion over the period1982-86.

(e) Balance Sheets

6.34 Projected balance sheets can only be given for PUSRI as a whole(Annex 9, Table 9.21), because except for fixed assets, PUSRI has not pro-vided balance sheet data analyzed over production and marketing functions.Table 9.18 gives the annual changes in project fixed assets values (grossand net) over the period 1982-86. The gross value is expected to rise fromRp 1.6 billion in 1982 to Rp 70.7 billion in 1986, with net fixed assetsrising to Rp 61.6 billion in 1985, falling to Rp 57.1 billion by 1986.

Sensitivity Analyses

6.35 The financial forecasts have been reviewed in the light of thefollowing variations:

(a) increase of 10% in project investment cost;

(b) increase of 10% in project working costs;

(c) decrease in total demand of 10%; and

(d) the effect of an inflationary increase of 10% p.a. in workingcosts.

Table 9.22 of Annex 9 gives the detailed results of items (a), (b) and (c)which are summarized in Table 6.8 below.

6.36 These calculations show that even taking all three factors intoaccount, the return on net fixed assets would still be satisfactory, exceptin 1983, and the cash surplus would still be substantial. The internalfinancial rate of return /1 would also be satisfactory.

6.37 An inflationary increase of 10% p. a. in working costs would raisetotal annual distribution costs by the following amounts (Table 6.9).

/1 12 % after tax, 16% before tax.

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Table 6.8 EFFECT OF CHANGES ON OPERATING AND DISTRIBUTION COSTS -

SUMMARY SENSITIVITY ANALYSIS

1982 1983 1984 1985 1986----------- (Rp million) ----------

Effect of:10% increase in project cost - 120 340 1,723 1,647

10% increase in operating cost level 1,520 2,584 5,227 7,152 7,676

10% decrease in demand /a 489 616 2,668 3,907 2,641

Decrease in income after tax 1,027 1,695 3,708 6,357 5,879

Revised income after tax 1,070 (55) 7,498 13,845 6,797

Revised return on net fixed assets (%) - - 16 23 11

Project return on net fixed assets (%)(as in Table 6.6) - 9 25 33 20

/a Net reduction in income, after tax.

Table 6.9: EFFECT OF INFLATIONARY ANNUAL INCREASE OF 10% IN WORKING COSTS

Year Rp million

1982 1,520

1983 5,426

1984 17,301

1985 33,184

1986 46,821

Comparing these figures with the annual net income before tax as given inAnnex 9, Table 9.17, indicates that by 1985 the project would incur lossesbefore tax in the absence of an increase in the distribution margins. Inorder just to break even, in these years, increases in domestic sales marginof the order of 18% would be needed in 1985, followed by a further 44% in1986. However if, as is likely, PUSRI were to put in operation an additionalbulk urea ship by 1986,/l the financial results would be much better in thatyear, thus requiring a lower increase in margin.

/1 Table 9.5 of Annex 9 shows that in 1986, availability of an additionalbulk urea ship would reduce considerably the need to use expensivechartered bulk shipping in that year.

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C. Consolidated Financial Forecasts for PUSRI /1

6.38 PUSRI has prepared financial forecasts in the following form:

(a) PUSRI I - IV (Production and Marketing);

(b) PUSRI V (Production and Marketing);

(c) Proposed National Fertilizer Distribution Project; and

(d) Consolidation of (a), (b) and (c) above.

The consolidated forecasts, revised as needed, are given in Tables 9.19, 9.20and 9.21 in Annex 9. The consolidated income accounts, cash flows andbalance sheets for years 1982-86 are summarized in Table 6.10 below.The consolidated return on net fixed assets would range between 12-20%;working capital ratios between 1.7-2.2, and debt/equity ratios 42/58falling to 25/75, all of which are satisfactory.

D. Conclusions

6.39 The proposed project is profitable and will benefit PUSRI'sfinances. The combined production and distribution margins are currentlyadequate to enable PUSRI to earn a satisfactory financial return; evenshould working costs increase by 10% annually, these margins would beadequate until the end of 1984 when they would have to be increased.

6.40 During negotiations, covenants similar to those in the firstFertilizer Distribution Project (1139-IND) agreements were obtained forPUSRI as a whole in respect of: (i) depreciation policy, (ii) incurring ofadditional long-term debt, (iii) the earning of a reasonable rate of returnon assets in service, (iv) debt service coverage, (v) maintenance of acurrent ratio of at least 1.4; (vi) dividend policy, and (vii) annual audit.In addition, the undertaking by the Government under Loan 1139-IND, thaLtduring any period in which the sale and distribution of fertilizer inIndonesia is controlled by the Government, no action would be taken by theGovernment with respect to fertilizer sold in Indonesia which would preventPUSRI from earning a reasonable return on its assets, was reconfirmed.

/1 Income accounts, cash flows and balance sheets.

/2 Return on assets used in production is guaranteed under the variousloans made for urea production.

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Table 6.10: CONSOLIDATED INCOME ACCOUNTS, CASH FLOWS AND BALANCE SHEETS

1982 1983 1984 1985 1986…(Rp billion) --------

(a) Consolidated Income AccountsRevenues 185.1 196.2 264.8 297.6 293.3

Working expenses 119.0 129.3 164.7 184.8 190.9

Depreciation 14.5 15.7 33.1 34.2 34.2

Interest 10.0 8.8 21.3 25.8 22.4

Total Operating Costs 143.5 153.8 219.1 244.8 247.5

Net income before tax 41.6 42.4 45.7 52.R 45.8

Tax 18.7 19.1 20.6 23.8 20.6

Income after tax 22.9 23.3 25.1 29.0 25.2

(b) Consolidated Cash FlowsCash available:Income after tax 22.9 23.3 25.1 29.0 25.2

Depreciation 14.5 15.7 33.1 34.2 34.2

Equity from Government 38.6 35.7 2.6 1.7 -

Long-term debt 79.2 58.2 7.7 5.3 -

Total Cash Available 155.2 132.9 68.5 70.2 59.4

Cash needed:Debt repayment 12.3 12.2 24.1 29.6 29.8

Investment 117.9 86.8 10.3 7.0 -

Increase (decrease) in workingcapital (1.3) 1.8 (5.7) 0.4 5.6

Total Cash Needed 128.9 100.8 28.7 37.0 35.4

Annual cash surplus 26.3 32.1 39.8 33.2 24.0

(c) Consolidated Balance SheetsAssets:

Current assets 299.6 334.8 379.0 415.2 439.9

Current liabilities 175.6 188.8 204.4 207.2 202.2

Net working capital 124.0 146.0 174.6 208.0 237.7

Total Fixed Assets 315.1 385.0 362.1 334.9 300.7

Other assets 4.1 5.3 5.4 5.4 5.4

Total Assets 443.2 536.3 542.1 548.3 543.8

Liabilities:Long-term debt 171.9 206.0 184.1 159.6 129.9

Revaluation of fixed assets 28.9 28.9 28.9 28.9 28.9

Equity and retained earnings 242.4 301.4 329.1 359.8 385.0

Total Liabilities 443.2 536.3 542.1 548.3 543.R

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VII. AGREEMENTS REACHED AND RECOMMENDATION

7.01 During negotiations agreement was reached:

With the Government:

(a) that so long as the sale and distribution of fertilizers inIndonesia is controlled by the Government, no action will betaken which will prevent PUSRI for earning a reasonable rateof return on its assets (paras. 4.28 and 6.40);

(b) that should progress on the construction of the railway linefrom Kabat to Meneng fall behind an agreed schedule, theGovernment and the Bank will consult on steps to improve pro-gress and the Government will take steps to ensure timelycompletion of the work (paras. 4.11 and 4.28);

(c) on the basis of selection of ports for which master plansand detailed engineering are required and on the cost ofstudies to be carried out by consultants acceptable to theBank (para. 4.22);

With PUSRI:

(d) sufficient staff trained in extension and agronomy work willbe added to regional marketing staff to provide marketinLeiigence (para. 3.22);

(e) on a detailed demand study, including a review of marketingand distribution patterns and margins outside Java, and onmeans of increasing peak storage capacity, will be undertakenand reviewed and discussed with the Bank with the objectiveof making recommendations to the Government about any necessarycorrective action by June 1983 (paras. 3.22 and 4.20);

(f) that proposals for the revision of the management accountingsystem will be drawn up for discussion with the Bank by June1982 and the proposal implemented immediately thereafter(para. 6.15);

(g) on appropriate financial ratios to be maintained (para. 6.40);

With PUSRI and PJKA:

(h) on performance and efficiency targets and on maintenance ofPUSRI's railway wagons (paras. 4.09 and 5.17);

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(i) the efforts will be made to improve the operation of blocktrains by June 1983 with the objective of reaching an appro-priate turn-around time of block train wagons by December 1985,and that, if unsuccessful, the entities and the Government willreview the steps needed to be taken (para. 4.10);

With PJKA:

(j) on a construction schedule and progress to be reviewed regu-larly with the Bank, for the construction of the railway lineextension (paras. 4.11 and 4.28);

(k) on the general terms of reference for a study of block trainoperations to be completed by June 1983 and to be reviewedby the Government, PUSRI, and the Bank to determine anynecessary steps to be taken including provision of additionalrailway wagons, to meet the performance targets (paras. 4.10and 5.12); and

(1) that an adequate number of locomotives will be assigned tofertilizer block trains to ensure efficient fertilizerdistribution operations by PUSRI (para 4.10);

On Conditions Effectiveness:

(m) that the signing of a Subsidiary Loan Agreement, acceptable to theBank, between the Government and PUSRI would be a condition of theeffectiveness of the proposed loan (para 6.19).

7.02 Subject to the foregoing commitments and agreements, the Projectprovides a sound basis for a Bank loan to the Government of Indonesia ofUS$66 million for 20 years, including 5 years of grace. No retroactivefinancing is included.

- 68 -

ANNEX 1Page 1

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECTSTAFF APPRAISAL REPORT

A. Summary Description of Previous Bank Assistancein Transport Development

HIGHWAYS

1. Bank Group lending for highways in Indonesia has evolved in linewith the needs of the highway system. The First Highway Project for US$28million equivalent (Credit 154-IND, June 1969) helped restore communicationsin Indonesia after a long period of neglect by providing equipment and mate-rials for rehabilitation of about 3,000 km of roads. In addition, the projectincluded finance for workshop equipment and for consulting services to improvemaintenance. The project was coupled with a large technical assistance effortfrom UNDP (with the Bank as executing agency) which covered all aspects ofhighway operations. While the First Project made a significant contributionto rehabilitation of individual roads, its most important results lay in thehelp it provided in the management of the overall rehabilitation program andin establishing the basis for sound highway institutions at the national level(see the Project Performance Audit Report (PPAR), SecM78-524, June 20, 1978).

2. The Second and Third Highway Projects supported the next phase ofIndonesia's road program: construction of selected major links in the moreremote areas of the country. The Second Project for US$34 million (Credit260-IND, June 1971) primarily helped rebuild a section of the Trans-SunateraHighway in an area which has since become a major site for transmigration, andis being developed under the Bank's Second Transmigration Project (Loan1707-IND - Credit 919-IND). The Third Project for US$14 million (Credit388-IND, May 1973) helped finance reconstruction of a road to a new irrigationarea in Sulawesi. Both these projects also made significant contributionstoward planning future road works as they provided for studies on the trunkroad between Medan and Padang in Sumatera and on the regional road system inCentral and South Sumatera, and studies for road improvements on over 2,300 kmof roads in various parts of Indonesia. The Third Highway Project alsoincluded an important training component which initiated courses and set up anationwide training system for highway personnel. A combined PPAR (SecM81-4)for the Second and Third Project was issued on January 6, 1981.

3. The Fourth Highway Project for US$130 million (Loan 1236-IND, March1976) represented a new departure in several ways. It included a detailedreview of the overall program and (i) sponsored the establishment ofregional offices to evaluate, design and supervise the construction of better-ment works according to uniform national criteria; (ii) supported a large-

69 - ANNEX 1Page 2

scale and complex program of major construction projects; (iii) includedassistance to strengthen virtually all functions of the Directorate General ofHighways (DGH); (iv) helped initiate studies of other institutions concernedwith highways; and (v) provided for studies of highway laws, road usercharges, and vehicle weights and dimensions criteria. The Fourth Projectresponded to the sudden increase in the road betterment program which wasmade possible by the new funds available to Indonesia after the oil pricerise in 1973.

4. The results of the Fourth Project have been significant. Notonly have over 1,200 km of road improvements been put under contract, withmore than 600 km of these already completed, but positive changes have beeneffected in planning, design, budgeting, and control procedures of DGH.Studies have also been completed on major policy issues such as usercharges,vehicle weights and dimensions, and on rural roads. The feasibility studyand detailed engineering for the Jakarta-Cikampek Corridor Project, whichwill be considered by the Board in Sept. 1981, was financed under the FourthHighway Project. The project is about 80% completed, but because of theearly delays and because one road section had to be retendered, the ClosingDate of the loan has been postponed by two years to December 31, 1982.

5. The scope of the Fourth Project was further broadened in the FifthHighway Project (Loan 1696-IND, May 1979) to cover all important programs ofDGH and of Indonesia. The Fifth Project provides finance for: (a) componentsof DGH's bridge replacement program; (b) some works executed by provincialpublic work departments; (c) measures to study and improve the highway insti-tutions in some provincial governments; (d) upgrading road maintenance; and(e) strengthening Indonesian highway consultants and contractors. The FifthHighways Project expands the approach adopted under the preceeding project,i.e. elaboration of design and construction metholodogies and procedures espe-cially adapted to Indonesian conditions to enable DGH easy and quick defini-tion of project elements to be financed under the loan (betterment works,bridge replacement and DPUP programs); promotion and development of the localconsulting sector; continued technical assistance to the central and regionalhighway authorities, and arranging for further decentralization of highwayadministration functions.

SHIPPING AND PORTS

6. The Inter-Island Fleet Rehabilitation Project (Credit 318-IND; June1972) provided $8.5 million during 1973-77 for financing rehabilitation ofships and technical assistance to shipyards, the Indonesian ship classifica-tion organization (under German bilateral aid) and the state bank, BAPINDO,refinancing rehabilitation. Because of sharply increased costs, the totaltonnage rehabilitated was only about half of the original target. A ProjectCompletion Report (PCR) on this project was issued on April 13, 1981 which

- 70 - ANNEX 1Page 3

concluded that, even though the project failed to meet its objectives in thenumber and tonnage of ships repaired (due partly to stringent banking require-ments) and in stimulating increased awareness of maritime safety within theGovernment, the project assisted in establishing a specialized maritimelending capability in Indonesia and achieved substantial economic returns onthe ships which were repaired.

7. The Second Shipping Project (Loan 1250-IND; May 1976), initiatedin 1976, provided $54 million for the further rehabilitation and expansionof the inter-island fleet through a National Fleet Development Corporationwhich procured and leased or sold ships to shipping companies. The projectenvisaged rehabilitation of about 54,000 DWT of existing ships, procurementsof about 52,000 DWT of used ships and about 50,000 DWT of new ships (to beconstructed with Norwegian aid), and scrapping of about 70,000 DWT of exist-ing ships which could not be rehabilitated. In addition, technical assist-ance was provided for improving interisland fleet operations and planning,

for training of marine officers and engineers, and for a study of futureshipping requirements. Although the rate of procurement was initially muchslower than had been anticipated due to ineffective implementation of thescrapping program and higher costs following devaluation, all funds for shipprocurement will be committed by the end of 1981, one year later than theoriginal closing date. Rehabilitation of ships has not proceeded accordingto plan and scrapping has been slowed. The program of technical assistancehas been implemented successfully, although there has been slow progress onthe training program. The technical assistance element of the project willbe extended to the end of 1982 under an extension of the closing date inorder to complete the training program and certain other contracts for tech-nical assistance, particularly in the field of ship design and safetytraining.

8. The Tanjung Priok Port Project (Loan 1337-IND; November 1976) pro-vided $32 million starting in 1977 for expanding the capacity of the country'smajor port in Jakarta. It included completion of 900 m of berth and associa-ted facilities, including those for containerized cargo, construction of 545 mof berth in a new regional harbor, improvement of land access to the port,and technical assistance and consultant studies. Construction of the berthsis essentially completed and construction in the Regional Harbor is progress-ing well. However, works required to improve land access cannot be completedon schedule and the loan closing date may be extended by one year. A revisedmaster plan will be completed in 1981 and engineering for the works proposedto be included in a Maritime Loan (FY83) will be undertaken with financefrom the proposed National Fertilizer Distribution Loan.

- 71 ~ ANNEX 1Page 4

RAILWAYS

9. During 1975-79, the First Railways Project (Loan 1005-IND; June1974) provided $48 million for rehabilitation and improvement of the nationalrailways operated by the state railway organization, PJKA. The projectincluded rehabilitation of track, rehabilitation and procurement of locomo-tives and rolling stock, rehabilitation and procurement of other facilitiesand equipment, and technical assistance for management, training and procure-ment, and overseas training. Implementation of the project required twomore years than scheduled, and in retrospect it appears that the total invest-ment program was too large for PJKA to handle even with substantial assistancefrom foreign consultants (see the Project Performance Audit Report (PPAR)draft, March 5, 1981).

FERTILIZER DISTRIBUTION

10. The Fertilizer Distribution Project (Loan 1139-IND; July 1978)initiated in 1975 and providing $68 million, helped to expand the capacityto distribute the increasing volumes of urea produced by the national ferti-lizer corporation PUSRI. The project, which was expanded from cost savings,included procurement of bulk carrier ships, locomotives and rolling stockfor the railways, construction of three new bulk reception and baggingstations and expansion of two others and of inland storage facilities.Implementation proceeded on schedule and at anticipated costs. A ProjectCompletion Report (PCR) , dated June 15, 1981, stated that the project wassuccessful in spite of the fact that PJKA was unable to operate block trainsfor fertilizer until late 1980 and that PUSRI's shipping operations were notas efficient as the company expected. In spite of these operational problems,which were being dealt with successfully in early 1981, about 20% more ferti-lizer moved through the distribution system than had been planned for atappraisal.

B. Summary Description of Previous Bank Assistancein the Fertilizer Sector

FERTILIZER PRODTJCTION

11. Fertilizer is crucial to the success of the Indonesian Government'se ffbrts to increase the production of food and cash crops. On the InnerIslands of Java and Bali, where limited additional arable land is available,increased production depends on raising yields which can be achieved throughapplication of optimum dosages of fertilizers in combination with improved and

- 72 -

ANNEX 1Page 5

increased irrigation water supplies, use of high yielding and disease resis-tant seeds, and proper application of pesticides. The Government began toproduce small quantities of fertilizer in 1964 and 1965 based on fuel oil atP.T. Petrokimia Gresik, in East Java (4,5000 tons urea and 150,000 tons of ASper year) and on natural gas at P.T. Pupuk Sriwidjaja (PUSRI) at Palembang,South Sumatera, where the first plant produced 100,000 tons of urea per year.

12. The Bank Group assisted in organizing a consortium of internationalaid agencies to finance a modern 380,000 ton per year urea plant at Palembamg(PUSRI II) through a US$35 million equivalent credit, Fertilizer ExpansionCredit (Credit 193-IND; June 15, 1970). A National Fertilizer Study was alsofinanced. This study developed a program to expand fertilizer production,marketing and consumption. A Project Performance Audit Report (PPAR), issuedon March 3, 1978, concluded that the project was highly successful eventhough there were substantial cost and time overruns. In 1974, as PUSRI IIwas nearing completion, the Government decided to construct PUSRI III, alarge (513,000 tons per year) plant also as Palembang utilizing additionalgas supplies available in South Sumatera. The Bank-s Second FertilizerExpansion Project (Loan 1089-IND; February 28, 1975) provided US$115 milLionequivalent to cover part of the cost of this expansion.

13. With growing demand for urea fertilizers -- during 1968-75 fertili-zer consumption i-ncreased at an average rate of 21% annually -- the Governmentdecided to exnand tOe successful PUSRI complex further prior to completionof PUSRI III. The Bank and the Saudi Fund for Development each providedUS$70 million equivalent to finance part of the cost of PUSRI IV, a duplicateof the PUSRI III plant. A Third Fertilizer Expansion Project (Loan 1254--IND;May 20, 1976) was made prior to completion of the second expansion project.These plant expansions were successfully completed and operated efficiently.A Project Completion Report (PCR) dealing with PUSRI III and IV was issuedon January 29, 1981. The PCR reviewed the Bank's experience with threefertilizer projects in Indonesia and concluded that they had been remarkablysuccessful for five reasons. These were: (i) PUSRI used expatriate helpfrom established firms for project execution and worked harmoniously withthem; (ii) they used competent legal assistance to negotiate contracts, toget competent help from foreign engineering firms, and to overcome promptlyany contractual problems; (iii) PUSRI had capable management with continuity,who delegated authority and this helped project implementation; (iv) PUSRIhad full support from the Government; and (v) while using expatriates, PIJSRIensured that special emphasis was given to training its own people abroadand in special training facilities constructed in connnection with PUSRI IV.

_ 73 -

ANNEX 2Page 1

INDONESIA

STAFF APPRAISAL REPORT

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Selected Documents and Data Available in the Project File

A. General Reports and Studies on the Agricultural and Fertilizer Sectors

A.1 Transport Sector Survey, October 1980

A.2 Indonesia, Fertilizer Marketing, Brian Berman, May 1981, Economicsand Planning Services Overseas Ltd.

A.3 Urban Sector Memorandum - East Java, June 1981 (AEPUW)

A.4 Investment and Production Costs for Fertilizers, World Bank,June 1980 (Fertilizer Unit paper)

A.5 Marketing of Fertilizers in Indonesia, J. Ward, June 30, 1981

A.6 Marketing, Distribution and Use of Fertilizer in Indonesia,Fertilizer Advisory, Development and Information Network forAsia and the Pacific (FADINAP), Economic and Social Commissionfor Asia and the Pacific, Bangkok, January 1980.

A.7 The Indonesian Economy, Survey of Recent Developments, Bulletinof Indonesian Economic Studies, November 1980.

A.8 The Coordination of Investments in the ASEAN Fertilizer Sector,World Bank, November 1977.

B. General Reports and Studies Related to the Project

B.1 Proposed National Fertilizer Distribution Project, P.T. PUSRI,August 1980.

B.2 Supplementary Information on the National Fertilizer DistributionStudy, January 1981

B.3 Indonesia, National Fertilizer Distribution Project, Project Brief,March 26, 1981

B-4 Decision Memorandum, National Fertilizer Distribution Project,June 19, 1981

- 74 -ANNEX 2Page 2

B.5 Project Completion Report, Loan 1139-IND, FertilizerDistribution

B.6 Prospects for Nitrogen Fertilizer Exports from Indonesia, World Bank

B.7 Proposed Program of Port Studies

C. Selected Working Papers

C.1 Structural Changes in Rice Production and Fertilizer Use

C.2 Ship Voyage Times, Fertilizer Distribution (by Mode and Producer)to Provinces, 1980, 1982-86

C.3 Data Obtained from Department of Agriculture, Jakarta, duringappraisal.

C.4 Fertilizer Data, 1970-79, PUSRI

C.5 PUSRI Sales, 1970-80

C.6 Shipping Operations, 1980

C.7 Block Train Operations, January-March 1981

C.8 Fertilizer Sales Plans and Realization by Cooperatives (KUD) 1976-81.

C.9 Status of Cooperative Construction Program, April 1981

C.10 Calculations Related to the Railway (PJKA)

C.11 Fertilizer Distribution Between Inland Storage Depots and Farmers

C.13 Financial Data (PUSRI)

C.14 Note on Part B of the Project

ANNEX 375 Page I of 9

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION FORECAST

Regional Forecasts of Fertilizer Consumption

Past Trends

1. Fertilizer consumption in Indonesia grew at an average rate of14.5% between 1970 and 1979, with growth in use by the foodcrops sector alittle faster (15% p.a.) than in the estates sector (13% p.a.).

FERTILIZER CONSUMPTION IN INDONESIA(Product Tons, 000)

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979

Foodcrops 439 507 558 832 875 921 914 1,211 1,340 1,541Estates 150 88 291 123 185 206 230 283 397 454

Total 589 596 894 955 1,060 1,127 1,144 1,494 1,738 1,996

2. Much of the growth can be attributed to increased consumption since1976, since when the average annual increase has been over 20%. For food-crops, the principal fertilizers are those domestically produced-urea, TSP,DAP, AS and NPK compounds. For estates, there is greater reliance onimported fertilizers including potassic fertilizers and rock phosphate. By1979, the consumption of fertilizers for the two sectors were as follows:

- 76 - ANNEX 3

Page 2 of 9

FERTILIZER CONSUMPTION BY TYPE, 1979(Product Tons, 000)

Food Crops Estate Crops Total

Urea 1,170 70 1,240AS 44 152 196Other Ammoniaand Nitrates - 2 2

1,214 224 1,438

TSP 268 - 268Rock Phosphate 10 54 64

DAP -Other NP Compounds 7 - 7NPK Compounds 15 28 43

22 28 50

MOP 21 101 122Other Potassium 5 3 8

26 104 130

Kieserite - 36 36Othe magnesium 1 - 1

1 36 37

Others, incl. organicOrganic 1 8 9

Total 1,541 454 1,966

-77 - ANNEX 3Page 3 of 9

3. On foodcrops, the NPK ration was 4:1:0.1, and on estates, 3:1:3.Use of potassic fertilizer's on foodcrops is minimal, but BIMAS has begun toencourage higher applications by recommending its application in the ratioof 3:1:1 in a package introduced at the beginning of the 1979/80 wet season.

4. Consumption growth patterns have been significantly different onJava, where fertilizer use has shown a fairly steady 13-15% annual increasethroughout the decade, from other islands, where growth leapt from 13% p.a.in the early part of the 1970s to 36% p.a. since 1976. This acceleration ofgrowth affected all regions except Bali/Nusa Tenggara and Kalimantan, wheregrowth was particularly high early in the decade:

FERTILIZER OONSUMPTION BY REGIONS(Foodcrops)

1970 Average % 1976 Average % 1979 Average %tons per annum tons per annum tons per annum(t000) 1970-76 ('000) 1970-76 ( 000) 1970-76

Java 370 13 773 15 1,188 14Sumatera 54 9 89 43 261 19Bali & NT 5 32 26 19 44 27Kalimantan .. 51 4 - 4 33Sulawesi 10 15 23 25 45 18Subtotal, OtherIslands 69 13 141 36 354 20

439 13 914 19 1,541 15

Negligible.

-78 - ANNEX 3Page 4 of9

Changes in 1980

5. In 1980, fertilizer consumption increased by 50%, an event thathas been associated with a much improved ratio between paddy and fertiizerprices, and a particularly good wet season, relatively free of pest infes-tation, which encouraged multiple crop planting and a record rice crop.The increase was shared amongst all regions, although growth on Java pre-dominated. Growth was faster for TSP/DAP than for Urea:

CHANGES IN FERTILIZER CONSUMPTION IN 1980FOODCROPS

(Product Tons, 000)

Urea TSP1979 198Op +% 1979 1980p +%

Java 948 1,456 54 177 348 97Other Islands 22 257 16 90 146 62

1,159 1,713 48 268 494 84

6. Early estimates of the 1981 crop indicate another record year,with 20.2 million tons being harvested. PUSRI's preliminary estimatesof fertilizer sales show a 19% growth. These sustained high rates since1979 imply a continuing change in the way fertilizer is being used, andforecasts are made by considering potential growth in agricultural acti-'vities rather than past consumption alone.

Forecasts of Fertilizer Use

7. Forecasts are made separately for wetland rice, upland rice andother foodcrops, and estate crops. For all three groups, estimates arebased on estimates of crop-lands and fertilizer application rates, andtake account of major projects to improve agricultural infrastructure.

Wetland Rice

8. Traditionally, wetland rice farmers are the largest users offertilizer; although data is not available on fertilizer used in differentcrop sectors, fertilizer sales and average application rates are highestin irrigated rice growing areas.

-79 - ANNEX 3Page 5 of 9

9. Forecasts were made on two bases. The first uses Bank projectionsmade in 1979/1 of areas cropped under four different farming categories,with estimates of fertiizer use based on average application rates for eachcategory. In these projections, wetland rice area cropped is forecast toincrease by 1.2 million ha, or 16%, by 1985. Nearly 90% of this areaincrease will be off-Java. As well, there will be significant changes inin cropping intensities. On Java, the projections show 64% of wetlands areasbeing cultivated with methods equivalent to the BIMAS Special (high dosage)recommended packages, compared with 385 in 1980. On other islands thebalance will shift from three-quarters of wetlands cultivated with normalor low fertilizer applications, to three-quarters under special or intensivecultivation. With these changes, urea use on wetland rice would increase to1.9 million tons by 1985 and TSP to 420,000, with most of the increase onother islands:

FIRST ESTIMATE: FERTILIZER CONSUMPTION ON WETLAND RICE

1980 1985Application Rate per ha Area Fertilizer Rate per ha Area Fertilizer

(kg) Cropped Consumption (kg) Cropped Consumptionha '000 Tons '000

Urea TSP Urea TSP Urea TSP Urea TSP

JavaSpecial 250 50 1,700 425 85 250 50 3,000 750 150Intensive 200 50 2,825 565 141 200 50 1,672 334 84Normal ) 5 0.5 0.1 100 35 - - -Low 27 15 - - - 50 - - -

Total 219 50 4,530 991 226 232 50 4,672 1,084 234

Other IslandsSpecial 250 50 - - - 250 50 1,000 250 50Intensive 200 50 875 175 43 200 50 2,300 460 115

100 35 550 55 19Normal 27 15 2,305 65 21 50 - 501 501 -Low)

Total 72 20 3,270 234 64 182 42 4,351 4,351 184

Indonesia 157 37 7,800 1,225 291 208 46 9,023 9,023 418

/1 Indonesia, Supply Prospects for Major Food Crops, Report No.2374-IND,March 3, 1979.

-80 ANNEX 3Page 6 of 9

10. Taken together with similarly based estimates for upland rice andsecondary food crops, the 1980 base estimates of food crops fertilizer useare consistent with sales data:

Estimated 1980 Sales to food-foodcrops con- crops sectorsumption based 1980on 1979 analysis (tons '000)(tons '000)

Urea TSP Urea TSP

Java 1,439 338 1,456 348Other Islands 284 141 257 146

Total 1,723 479 1,713 494

11. The second estimate made for wetland rice fertilizer consumptiontherefore concentrates on two aspects (a) the potential effect of changesin rice cropping intensities that occurred in 1980, and not foreseen inthe 1979 analysis; and (b) a finer breakdown of future consumption patternsin other islands, necessary for the analysis of the fertilizer distributionsystem.

12. This estimate is based largely on a review of recent changes inrice production in Indonesia/i which estimates that:

(a) in 1980, about 10% of irrigated rice land on Java that wasbeing double-cropped in 1978, was tripple cropped;

(b) ultimately, triple cropping could spread to 375,000 ha inCentra Java and 250,000 ha in East Java.

13. These changes are closely related to the use of IR36 rice varietieswhich have a short (90-day) growing season. In 1980 with excellent wateravailability and little pest infestation, many farmers shortened the gapnormaly allowed to minimize the risk of pest carryover to a new crop, andachieved two wet season crops. This meant a third crop in some areas, anda second crop in areas where a dry season crop was not planted.

/1 Peter G. Warr, The Indonesian Economy: Survey of Recent Developments,Bulletin of Indonesian Economic Studies, Vo. XVI, No. 3, November 1980.

- 81-- ANNEX 3Page 7 of 9

14. The second estimates for wetland rice fertilizer use, based on thesechanges, are made by:

(a) estimating the potential changes in land area cropped, taking tri-ple cropping as above and assuming that all irrigated wetlands caneventually be double cropped;

(b) estimating changes in rice production from the changes in croppingintensity, and the spread of IR36; and

(c) estimating resulting changes in fertilizer consumption using anincremental yield ratio of 3.8 tons paddy per product ton offertilizer. Details are given in working paper C 1.

15., The timing of these changes is uncertain--depending both onuncontrollable weather and pest cycles, and on the effectiveness of extensionservices and irrigation improvements, particularly off-Java. On Java, withfavorable seasons, the changes could be expected to occur fairly quickly.If all changes are completed by 1985, and assuming the urea/TSP ratioremaains at 4:1, fertilizer consumption for wetland rice would be:

SECOND ESTIMATE: FERTILIZER CONSUMPTION ON WETLAND RICE1985

Average % p.a.growth from 1980

Product tons '000 foodcrops consumptionUrea TSP Urea TSP

Java 2,023 505 6.8 7.7Sumatera 485 122 29.2 1.6Bali & NT 161 40 13.6 29.4Kalimantan 44 11 61.5 29.4Sulawesi

Subtotal 177 45 39.9 18.8

Other Islands 868 218 27.4 8.3Indonesia 2,891 723 11.0 7.9

16. This estimate confirms that growth on Java is likely to continueto be significantly lower than on other islands, even allowing for someskepticism at the rate at which the expansion in some of these regions(e.g. Kalimantan) may be achieved. The forecasts used for the appraisaluses the broad regional patterns of the second estimate, with growthmodified somewhat, in the context of overall foodcrops sector consumption.

- 82 - ANNEX 3

Page 8 of 9

Upland Rice Secondary Food Crops Projections

17. With fairly stable production patterns in these crops, projectionsof fertilizer consumption are based on the 1979 cropping areas projections,and split by regions according to areas forecast to be harvested for thedifferent crops.

18. As with wetland rice, the cropping area projections foresee changesin both areas and cultivation intensities. Overall area increases are mostimportant for secondary food crops, with an expansion of 702,000 ha (12%)foreseen. On Java, areas used for upland rice are expected to contract. Anet expansion of about 7-1/2% is foreseen. Average fertilizer applicationrates for upland rice are similar to those for wetland cultivation, andthose for secondary food crops, somewhat lower.

Overall Forecasts for Foodcrops

19. The second estimate for wetland rice leads to a somewhat highaerforecast of foodcrops fertilizer use than the first, and about one-thirdabove the Ministry of Agriculture's forecast of a 12% annual fertilizerconsumption growth:

COMPARISON OF ESTIMATES OF FERTILIZER CONSUMPTIONFOODCROPS (Tons '000)

1980 19851st 2nd Ministry of

estimate estimate AgricultureUrea TSP Urea TSP Urea TSP Urea TSP

Java 1,456 348 1,603 506 2,542 777Sumatera 135 113 594 169Bali & NT 85 11 220 76Kalimantan 4 3 90 29Sulawesi 33 19 240 85

Subtotal

other Islands 257 146 1,067 326 1,145 360Indonesia 1,713 494 2,670 832 3,687 1,137 2,767 830

ANNEX 3

- 83 - Page 9 of 9

20. Because of the substantial agreement between the first estimateand the Ministry of Agriculture forecast, the Ministry's projection ofoverall foodcrops fertilizer consumption is used. The regional patternsof growth are based on second estimate for wetland rice, but imply a slowerrate of change in farming practices, particularly on outer islands.

Estates Crops

21. Forecasts of fertilizer consumption for estates crops are made byapplying 1980 average application rates to planned areas of estates cropsexpansion and rehabilitation under Repelita III. A check, and appropriateadLjustments, were made for the projected fertilizer requirements forBank-financed projects in the estates sector, particularly those in regionswhere overall fertilizer consumption levels are low (Kalimantan and easternIndonesia).

Estates Crops, Fertilizer ConsumptionTons '000

1980 1985

Urea 73 114TSP - 7 (for cover crops)AS 150 252Kieserite 40 65Rock Phosphate 58 100MOP 113 187

Total 435 725

Overall Consumption

22. The overall projections for fertilizer use by reigon are givenbelow. These are the basis for assessing the distribution systemrequirements for domestically produced fertilizers, and imported fertilizersused in the foodcrops sector. Fertilizer used only in the estates sectorare generally imported directly by the users.

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Fertilizer Consumption Forecasts for

Upland Rice and Secondary Food Crops

Upland rice Secondary food crops

1980 1985 1980 1985

Fertilizer Fertilizer Fertilizer Fertilizer

Rate per Area consumption Rate per Area consumption Rate per Area consumption Rate per Area consumption

Application ha (by) cropped (0Onn tons) ha (by) cropped ('000 tons) ha (by) cropped (-000 tons) ha (by) cropped ('000 tons)

category Urea TSP (-000 ha) Urea TSP Urea TSP (000 ha) Urea TSP Urea TSP ('000 ha) Urea TSP Urea TSP ('000 ha) Urea TSP

Java

Special 250 100 250 63 25 250 100 200 40 10 150 75 - - - 150 75 2,000 300 150

Intensive 200 50 - - - 200 50 17 3 1 100 50 1,000 100 50 100 50 1,300 130 65

Normal 1 27 } 10 1 - } - } - 100 35 - - - 50 50 } 2,960 } 285 } 37 50 50 700 35 35

Low } 1 } } } 50 35 - - - 25 251 } } 25 25 445 11 11

Total 250 100 250 63 25 198 51 217 43 11 97 22 3,960 385 87 107 59 4,445 476 261

Other IslandsSpecial 250 100 - - - 250 100 300 75 30 150 75 - - - 150 75 100 15 7

Intensive 200 50 100 20 5 200 50 300 60 15 100 50 - - - 100 50 400 40 20

Normal } 27 } 10 } 860 } 23 } 11 100 35 200 20 7 50 50 } 1,760 } - } 62 50 50 500 25 25

Low } } } } } 50 35 232 12 8 25 25 1 } 25 25 971 30 30

Total 45 17 960 43 16 162 58 1,032 167 60 - 35 1,760 - 62 56 52 1,971 110 82

Indonesia 88 34 1,210 106 41 168 57 1,249 210 71 67 26 5,720 385 149 91 57 6,416 586 343

Ir0*x

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Fertilizer Consumption Forecasts(-000 product tons)

1980 (P) 1981 1982 1983 1984 1985TSP TSP TSP TSP TSP TSPDAP DAP DAP DAP flAP DAP

Region UJrea NPK AB Other Urea NPK As Other Urea NPK As Other UJrea NPK( AB Other Urea NPK As Other Urea NPK As Other

West Java 3608 153 41 14 368 194 46 16 369 154 49 17 398 166 52 17 434 179 56 18 478 197 60 20Central Java 456 92 57 2 460 94 61 2 507 104 66 2 550 113 70 4 602 121 75 5 666 134 80 5East Java 640 106 82 7 640 106 88 7 664 123 95 8 722 134 101 8 797 143 108 8 882 158 116 9

Java 1,464 351 182 23 1,46R 354 199 '29 1,540 381 210 27 1,670 413 223 29 1,833 443 239 31 2,026 489 256 34

D.I. Aceh 19 9 - 2 9 23 6 - 27 33 8 - 31 44 11 - 35 57 12 - 37 63 13 - 39Northn Sumatera 89 47 32 32 92 49 34 35 112 60 38 40 144 76 40 44 159 R1 43 46 180 91 45 49West Sumatera 31 2 2 1 6 35 25 1 6 45 32 1 7 98 39 1 7 63 40 1 8 70 44 1 8Riiu 2 2 - 17 6 3 - 17 9 5 - 19 10 5 - 21 12 6 - 22 15 8 - 24Jambi 3 3 - 10 7 3 - 13 13 6 - 15 17 8 - 18 22 10 - 19 28 13 - 20South Sumsatera 18 12 3 23 29 18 4 23 39 24 4 27 51 31 4 29 64 37 4 32 74 43 5 35Bengkulu 2 2 - I 5 2 - 1 8 3 - 2 11 4 - 2 14 5 - 3 16 6 - 3Lampung 27 20 - 8 35 24 - 8 44 30 - 11 56 37 - 11 66 42 - 12 76 48 - 14

Sumatera 187 113 36 122 232 130 39 130 3 03 168 43 152 391 211 45 167 457 233 48 179 522 266 51 192

Bali 43 5 - 4 43 12 - 4 36 12 - 9 45 15.- 5 50 16 - '5 57 17 - 6NTB 42 4 - 1 43 13 - 1 43 15 - 1 60 20 - 1 67 22 - 1 76 24 - 1Nrr 2 1 - 5 7 10 - 5 15 12 - 5 23 15 - 6 30 16 - 6 36 21 - 7Maluku.& Trian Jaya 1 1 - - 3 3 - - 4 3 - - 5 4 - 1 6 4 - 1 9 6 - 2

Bali &NT 88 11 - 10. q6 38 - 10 98 42 - 1l 133 54 - 13 153 58 - '13 178 68 - 16

West Kalimantan 1 .. - 4 - 5 10 4 - 7 14 6 - 10 17 7 - 14 22 8 - 16Central Kalimantan I Is 1 7 1 - 15 7 2 - 17 9 3 - 19 11 3 - 20 13 3 - 21South Kalimantan 3 2 - 8 q 4 - 9 16 9 - 10 24 7 - 12 34 9 - 14 38 9 - 14East Kalimantan 1 I - 9 9 1 - 10 7 1 - 11 8 2 - 12 12 3 - 13 13 3 - 14

Kalimantan 6 3 - 32 29 10 - 39 40 13 - 49 59 18 - 52 74 22 - 61 86 23 - 65

North Sulawesi 8 4 10 11 7 11 15 8 14 21 10 16 25 11 19 30 13 21Central Sulawesi 2 1 3 5 3 3 9 3 4 13 4 5 1f; 6 6 19 7 6South Sulawesi 29 12 9 56 27 5 97 41 7 108 43 8 122 44 10 139 50 10Southeast Sulawesi 2 2 6 5 4 6 9 4 7 10 5 7 12 5 8 is 7 8

Sulawesi 41 19 4 24 77 41 4 25 130 56 4 32 152 62 S 36 175 66 5 43 203 77 5 45

Subtotal, OtherIslands 322 143 40 188 434 219 43 204 571 179 47 240 73 1 345 50 268 859 379 53 296 989 434 56 318

Indonesia 1,785 494 222 211 1,902 573 238 229 2,111 660 257 267 2,401 758 273 297 2,692 822 292 327 3,015 923 312 352

Note: (P) -preliminary; . negligible; - - nil.

- 86 -ANNEX 4

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Basis of Economic Evaluation

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Fertilizer Consumption Forecasts('000 product tons)

1980 (P) 1981 1982 1983 1984 1985TSP TSP TSP TSP TSP TSPDAP DAP DAP DAP DAP DAP

Region Ulrea NPK As Other Urea NPK As Other Ulrea NPK As Other Urea NPK As Other Urea NPK As Other Urea NPK As Other

West Java 368 151 41 14 368 154 46 16 369 154 49 17 398 166 52 17 434 179 56 18 478 197 60 20Central Java 456 92 57 2 46n 94 61 2 507 104 66 2 550 113 70 4 602 121 75 5 666 134 80 5East Java 640 106 82 7 640 106 88 7 664 123 95 8 722 134 101 8 797 143 108 8 882 158 116 9

Java 1,464 351 182 23 1,46R 354 195 25 1,540 381 210 27 1,670 413 223 29 1,R33 443 239 31 2,026 489 256 34

D.I. Aceh 15 5 - 25 23 6 - 27 33 8 - 31 44 11 - 35 57 12 - 37 63 13 - 39North Sumatera 89 47 32 32 92 49 34 35 112 60 38 40 144 76 40 44 159 81 43 46 180 91 45 49West Sumatera 31 22 1 6 35 25 1 6 45 32 1 7 58 39 1 7 63 40 1 8 70 44 1 8Ritu 2 2 - 17 6 3 - 17 9 5 - 19 10 5 - 21 12 6 - 22 15 8 - 24Jambi 3 3 - 10 7 3 - 13 13 6 - 15 17 8 - 18 22 10 - 19 28 13 - 20South Sumatera 18 12 3 23 29 18 4 23 39 24 4 27 51 31 4 29 64 37 4 32 74 43 5 35Bengkulu 2 2 - I 5 2 - 1 8 3 - 2 11 4 - 2 14 5 - 3 16 6 - 3Lampung 27 20 - 8 35 24 - 8 44 30 - 11 56 37 - 11 66 42 - 12 76 48 - 14

Sumatera 187 113 36 122 232 130 39 130 303 168 43 152 391 211 45 167 457 233 48 179 522 266 51 192

Bali 43 5 - 4 43 12 - 4 36 12 - 5 45 15 - 5 50 16 - 5 57 17 - 6NTB 42 4 - 1 43 13 - 1 43 15 - 1 60 20 - 1 67 22 - 1 76 24 - 1NTT 2 1 - 5 7 10 - 5 15 12 - 5 23 15 - 6 30 16 - 6 36 21 - 7Maluku.& Irian Jaya I I - - 3 3 - - 4 3 - - 5 4 - 1 6 4 - 1 9 6 - 2

Bali & NT 88 11 - 10 96 38 - 10 98 42 - 11 113 54 - 13 153 58 - 13 178 68 - 16

West Kalimantan 1 .. - - 8 4 - 5 10 4 - 7 14 6 - 10 17 7 - 14 22 8 - 16Central Kalimantan 1 .. - 15 7 1 - 15 7 2 - 17 9 3 - 18 11 3 - 20 13 3 - 21South Kalimantan 3 2 - 8 9 4 - 9 16 5 - 10 24 7 _ 12 34 9 - 14 38 9 - 14Eaat Kalimantan 1 1 - 9 5 1 - i0 7 1 - 11 8 2 - 12 12 3 - 13 13 3 - 14

Kalimantan 6 1 - 32 29 10 - 39 40 13 - 45 55 18 _ 52 74 22 - 61 86 23 - 65

North Sulawesi 8 4 10 11 7 11 15 8 14 21 10 16 25 11 19 30 13 21Central Sulawesi 2 1 3 5 3 3 9 1 4 13 4 5 16 6 6 19 7 6South Sulawesi 29 12 5 56 27 5 97 41 7 108 43 8 122 44 10 139 50 10Southeast Sulawesi 2 2 6 5 4 6 9 4 7 10 5 7 12 5 8 15 7 8

Sulawesi 41 19 4 24 77 41 4 25 130 56 4 32 152 62 5 36 175 66 5 43 203 77 5 45

Subtotal, OtherIslands 322 143 40 188 434 219 43 204 571 179 47 240 731 345 50 268 859 379 53 296 989 434 56 318

Indonesia 1,785 494 222 211 1,902 573 238 229 2,111 660 257 267 2,401 758 273 297 2,692 822 292 327 3,015 923 312 352

Note: (P) - preliminary; .. - negligible; - - nil.

- 86 -ANNEX 4

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Basis of Economic Evaluation

-87- ANNEX 4Tabl=e

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Benefits and Costs for the Expanded Distribution SystemInterisland Bulk Ship Movements

1983 1984 1985 1986-98

(i) Annual BenefitsTons, 000Urea 282 508 782 1,068TSP 74 591 287 -

(capacity limited)

With Without Annual With Without Anpual With Without Annual With Without Annualproject project benefit project project benefit project project benefit project project benefit

No. voyages 37 268 65 481 100 745 137 971No. port calls 92 634 192 1,350 262 1,872 274 1,Q42

Ship daysAt sea 177 1,240 277 1,933 504 3,686 610 4,291In port 147 496 314 1,095 422 1,463 382 1,490

Total 324 1,736 591 3,028 926 5.149 992 5,700

Shipping Cost perDay, Rp DODAt sea 2,076 1,011 2,076 1,011 2,076 1,011 1,011In port /a 510 431 543 431 542 431 547 431Capital charges /b 605 /b 605 /b 605 /b 605Port charges percall 898 48 898 48 898 48 898 48

Annual ShippingCost, Rp aln 530 2,548 2,018 918 4,322 3,404 1,510 7,561 6,051 1,721 8,486 6,765

Port Delays toFertilizer VesselsBelawanDays - 73 - 94 - 119 - 98Cost, Rp mln - 56 56 - 118 118 - 143 143 - 121 121

CilacapDays - 16 - 34 - 41 - 47Cost, Rp mln - 26 26 - 48 48 - 54 54 - 58 58

Fertilizer Handl-ing, Rp mln - 1,844 1,844 - 5,896 5,896 - 5,563 5,563 - 5,407 5,407

Total, Rp mln 530 4,474 3,944 918 10,384 9,466 1,510 13,321 11,811 I,721 14,072 12,351

(ii) Investment Costs, Rp million

1982 1983 1984

Bulk ships 12,688 14,063 1,500Ship spares - 1,313 656Meneng port bagging plant 8,481 4,019 -Belawan port facilities - 500Cilacap port facilities 750 750 -

Total 20,645 2,156

/a Average of costs for the year covering unloading time and other port time.

/b Included in investment.

Source: FUSRI and Bank Staff.

February 1982

-88- ANNEX 4Table 2

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Benefits and Costs for the Expanded Distribution SystemAmmonia Carrier

1984 1985-99Bontang-Gresik Bontang-Philippines Bontang-Gresik Bontang-Philippines

(i) Benefits(capacity limited)

Tons, '000 38 111 47 140Round trip, days 8 8 8 8No. trips 9 25 11 31Shipping days required 69 200 84 246

Without ProjectEstimated charter rate US$90 per ton -- exports US$90 per ton -- exports

sold soldAnnual charter cost, Rp mln 2,138 -- f.o.b. 2,644 -- f.o.b.

With ProjectShipping revenue - US$45 per ton - US$45 per tonAnnual revenue, Rp mln - 3,122 - :3,938Shipping cost, Rp mln

Fuel, port charges,maintenance(Rp 2,100/ton) 80 239 99 294

Share of fixed costincluding crew(Rp 1,306 mln p.a.) 335 971 332 974

Total 415 1,210 431 1,268

Net revenue/cost, Rp min 415 1,912 431 2,670Annual benefit, Rp mln 1,723 1,912 2,213 2,670

(ii) Investment Costs, Rp million

1982 3,188

1983 9,500

1984 2,375

1985 750

Source: PUSRI and Bank staff.

January 1982

-89 - ANNEX 4Table 3

IN_NESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Benefits and Costs of the Expanded Distribution SystemRailway Investments

(1) Annual BenefitsWagon Performance Targets

Availability 952Turnaround, days 1981-83 - 5.7

1985 - 5.81987 - 3.7

Incremental Wagon Days Available 1983 1984 1985 1987Canadian-financed wagons

(220, delivered in March 1983) 57,210 76,285 76,285 76,285Project-financed wagons 395 619

(200, delivered in 1984 and 1985) - 8,670 43,340 69,350

Incremental Wagon Capacity, Tons per Year (000) 1983 1984 1985 1987Existing fleet (175 wagons) - 20 5T 232Canadian-financed wagons 245 352 395 619Project-financed wagons 40 224 562

Total 245 412 673 1,413

Economic Costs for Transporting IncrementalTonnage Over 176 km (Rp mln)

By truck Rp 37.3 per ton-km 1,608 2.705 4,418 9,276By block train @ Rp 6.9 per ton-km

(excluding capital charges for rollingstock) 298 500 817 1,716

Annual savings from additional capacity 1,198 2,205 3,601 7,560Annual savings in rice transport to Meneng

(300,000 tons) - - - 2,736

Total Benefits 1,310 2,205 3,601 10,296

(ii) Investment Costs, Rp million

1981 1982 1983 1984 1985

Rail wagonsCanadian-financed - 9,694 - -Project-financed - - 5,500 2,206 6,606

Rail locomotives - 1,063 3,000 - -Spares - - - 163 494Rail track extensionDesign and supervision 60 385 770 1,026 385Land - 5,106 2,456 - -

Main track to Meneng - 2,400 5,744 8,043 3,500Block train study - 63 188 - -

Total Costs 60 37,218 53,760 16,732 12,148

February 1982

90 - ANNEX 4Table 4

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Summary of Project Benefit and Cost Streams(Rp million)

Investments BenefitsBulk NH3 Rail- Super- Total Bulk NH3 Rail- TotalShips Ships way vision, Ships Ships way& training, &

Year Ports etc. Ports

1981 - - 60 601982 21,919 3,188 11,777 3,094 30,0781983 20,645 9,500 19,558 1,763 51,466 3,944 3,635 1,310 5,2541984 2,156 2,375 11,270 763 16,564 9,466 4,883 2,205 24,7921985 - 750 10,438 413 11,001 11,811 4,883 3,601 20,2951986 12,351 4,883 7,968 25,2021987 12,351 4,883 10,296 27,5301988 12,351 4,883 10,296 27,5301989 12,351 4,883 10,296 27,5301990 12,351 4,883 10,296 27,5301991 12,351 4,883 10,296 27,5301992 12,351 4,883 10,296 27,5301993 12,351 4,883 10,296 27,5301994 12,351 4,883 9,201 27,5301995 12,351 4,883 9,201 26,4351996 12,351 4,883 9,201 26,4351997 12,351 4,883 9,201 26,4351998 8,234 4,883 5,743 18,8601999 4,117 4,883 - 9,000

February 1982

-91 -

ANNEX 5

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Detail Of Fertilizer Use, Subsidies, Pricing and Consumption

The four tables below are central to the distribution systemused to transport fertilizer to the farmer and set out important usage andprice relationship. The consumption forecast shows the extent of thedistribution problem to be faced.

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Fertilizer Application Ratios, 1978/79

Wetland paddyBIMAS/INMAS Traditional Total Dryland paddy Maize Cassava Sweet potatoes Peanuts Soyabeans

Chemi- Chemi- Chemi- Chemi- Chemi- Chemi- Chemi- Chemi- Chemi-Region cals Manure cals Manure cals Manure cals Manure cals Manure cals Manure cals Manure cals Manure cals Manure

Product kg per HectareJava 272 134 29 375 228 178 82 352 71 374 22 382 49 133 47 465 18 229Sumatera 216 71 6 13 92 54Bali & Nusa Tenggara 206 45 16 55 120 49Kalimantan 33 2 3 1 9 1Sulawesi 169 -- 13 8 66 5Subtotal other islands 190 46 8 27 77 34 14 13 14 48 2 31 3 87 -- 9 .. --

Indonesia 251 111 14 125 163 116 30 95 55 283 17 291 27 111 36 353 15 187

Estimated Nutrient kgper Hectare /aJava 130 27 111 50 46 24 27 38 17 1Sumatera 102 3 44Bali & Nusa Tenggara 96 9 57.Kalimantan 15 2 4Sulawesi 78 6 31Subtotal other islands 89 5 37 7 8 2 5

Indonesia 119 11 79 17 35 18 16 29 14

Average Price per kgNutrient /bJava 152 130 151 140 130 109 147 127 106Sumatera 160 206 160Bali & Nusa Tenggara 148 172 150Kalimantan 164 212 178Sulawesi 145 146 145Subtotal other islands 155 158 156 159 169 238 216 60 153

Indonesia 153 138 152 145 133 113 155 127 107

negligible; -- nil.

/a Nutrient content taken at 46% of chemical fertilizers, 4% manure.Tb At 1978/79 applications.

Source: BPS.

March 1981

ANNEX 5

93 - Table 2

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Fertilizer Prices and Subsidies

Urea TSP lDAP AS(a) (b) (a) (

Prices and Costs (US$/ton)Domestic Production1. Ex-factory f.o.t. 128 357 1722. Economic cost 169 211 357 172

World Exports. r f.ob. Erope/Gulf 270 210 300 234 120

4. Est., c.i.f. Indonesia 300 240 330 264 150

Official Prices5. At factory gate, f.o.t. 79 796. Retail price to farmers 112 112 144 102

7. Consumption, 1980 ('000 tons) 1,785 487 7 185

Subsidies to Farmers (US$ million)Financial Subsidies8. From gas producers 73 148 - - -

From Government9. Direct 87 87 135 N/A N/A10. Through transport fuel subsidy 4 4 1 .. 0.5

Economic Subsidies11. Total 164 239 1,136 .. 0.512. Retail vs c.i.f. import cost

plus distribution 398 80 123 1 15

Notes and Sources:

1. Prices paid by the Government to the producers which covers production costand allows a return on plant assets for urea, based on PUSRI costs.

2. Economic cost of domestic production, being estimated by (a) adjusting theprice of natural gas feedstock from US$0.65 per million BTU to US$1.75 permillion BTU for those plants using gas from small fields which cannot juis-tify capital-intensive liquification plants for LNG exports; these arePUSRIIs plant at Palembang, and the PT Pupuk Kujang plant at Cikampek, WestJava; and (b) adjusting the natural gas price to US$2.89 per million BTUfor plants drawing on fields with export potential; these are the plantsunder construction for ASEAN at Aceh, and for PT Pupuk Kaltim at Bontang,East Kalimantan.

3. Current f.o.b. prices for fertilizer from IPD; prices (a) for TSP is thecurrent price, price (b) is the EPD estimated long-term price.

4. Estimated ocean freight per ton of fertilizer taken at US$30.5. Prices at which PUSRI repurchases domestically produced fertilizer for dis-

tribution.6. Official retail price at line IV; actual prices paid vary between regions

according to variations in line IV distributor-s costs and profit margins.7. Consumption figures for 1980, from PUSRI, include both foodcrops and estate

sectors.8. Estimates the reduction in gas company revenues because of the low price

urea producers are permitted to pay; calculation is based on total 1980consumption times the differences between Line (1) and the (a) and (b) eco-nomic cost in Line (2>.

9. Total consumption times the difference between the two governnent prices inLines (1) and (5).

10. Estimated on the basis of the 1980 distribution pattern and the subsidieson transport fuels applying after the May 1980 retail price increases.

11. Total of Lines (8)-(10); measures the national cost as the differencebetween the official retail price and the economic costs for domestic pro-duction and distribution.

12. Estimated national cost of the fertilizer subsidy, calculated as the dif-ference between the official retail prices and the distributed cost forimported fertilizer.

- 94.-.

ANNEX 5Table 3

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Trends in Fertilizer and Rice Prices(US$/ton)

Urea TSP RiceIndonesia, Indonesia, Indonesiaretail Delivered retail Delivered (Jakarta) Imports

Year BIMAS Other imports BIMAS Other imports retail c.i.f.

1965 96 96 108 96 96 64 70 143

1970 96 96 62 96 96 57 115 149

1974 145 145 339 145 145 327 182 512

1975 193 289 223 193 289 227 247 348

1976 193 289 138 193 289 117 290 248

1977 169 169 156 169 169 125 290 240

1978 169 169 174 169 169 128 300 351

1979/a 112 112 206 112 112 179 222 321

1980 112 112 250 112 112 238 304 388

1981 112 112 305 112 112 245 312 464

/a Indonesian devaluation; prices of fertilizer in Rupiah unchanged.

Sources: World Bank, Commodity Trade and Price Trends, August 1980, and variousappraisal reports. Indonesia, Ministry of Agriculture, and BPS IRRI,World Rice Statistics, 1980.

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Fertilizer Production, Consumption and Inventories(OOO product tons)

1980 1981 1982 1983 1984 1985TSP TSP TSP TSP TSP TSPDAP /a DAP /a DAP /a DAY /a DAP /a DAP /a

Urea NPK AS NH3 Urea NPK AS NH3 Urea NPK AS NH3 Urea NPK AS NH3 Urea NPK AS NH3 Urea NPK AS NH3

Inventory at begin-ning of year 45? 123 - - 650 138 31 - 650 138 31 - 650 138 31 - 650 138 31 - 648 138 31 -

Production capacityExisting plants 1,979 495 150 - 1,979 495 150 _ 1,979 495 150 - 1,979 495 150 - 1,979 495 150 - 1,979 495 150 -

New plants - - - - - - - - 513 - - 149 1,026 930 - 149 1,539 930 250 149 2,052 930 250 298

Total 1,979 495 150 - 1,979 495 150 - 2,492 495 150 - 3,005 1,425 150 - 3,518 1,425 400 149 4,021 1,425 400 298

Actual production 2,039 469 181 6 1,878 495 150 _ 2,284 495 150 - 2,653 758 150 - 3,347 822 250 149 3,860 923 312- 298 1(X of capacity) (103) (94) (121) (- (95) (100) (100) (-) (92) (100) (100) (-) (88) (53) (100) (-) (95) (58) (63) (100) (96) (65) (78) (100) ,D

Imports - 40 72 - 24 78 88 - - 165 107 - - 123 - - - 42 - - - - -

Total Supply 2,491 632 253 6 2,552 711 269 - 2,934 798 288 - 3,303 896 304 - 3,997 960 323 149 4,508 1,061 343 298

Domestic consumption 1,785 494 222 - 1,902 573 238 - 2,111 660 257 - 2,401 758 273 _ 2,692 822 292 38 3,015 923 312 47

ExportsASEAN - - - - - - - - - 87 - _ 182 - - - 205 - - -

Other 56 - - 6 - - _ 173 - - 165 - - - 475 - - 111 640 - - 251

Total Xxports 56 - - 6 - - - - 173 - - _ 252 - - _ 657 - - 111 845 - - 251

Total Demand 1,841 494 222 6 1,902 573 238 - 2,284 660 257 - 2,653 758 273 - 3,349 822 292 149 3,860 923 312 298

Inventory at end ofyear 650 138 31 - 650 138 31 - 650 138 31 - 650 138 31 - 648 138 31 - 648 138 31

/a Excess of on-site consumption at uarea plants.

Source: PUSRI and mission estimates.

Fr

- 96 -

ANNEX 6

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Fertilizer Storage 1980-85

- 97 -

ANNEX 6Table I

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Fertilizer Stora:e

1980 1981 1982 1983 1984 1985Location Bulk Bags Bulk Bags Bulk Bags Bulk Bags Bulk Bags Bulk Bags

1. Storage Capacity(a) Plants

Palembang 93.0 10.0 93.0 10.0 93.0 10.0 93.0 10.0 93.0 10.0 93.0 10.0Xujang - 10.0 - 10.0 - 10.0 - 10.0 - 10.0 - 10.0

Gresik 10.0 15.0 10.0 15.0 10.0 15.0 10.0 15.0 10.0 15.0 10.0 15.0Kaltis - - - - 20.0 5.0 20.0 5.0 20.0 5.0 70.0 15.0

ASEAN Aceh - - - - - - 50.0 5.0 50.0 5.0 50.0 5.0

PUSRI V - -- - 50.0 5.0 50.0 5.0

Subtctal 103.0 35.0 103.0 35.0 123.0 40.0 173.0 45.0 223.0 50.0 273.0 60.0

Ex-factory shipments 1,137.5 1,412.0 1,159.0 1,400.0 1,471.0 1,458.0 1,711.0 1,850.0 2,154.0 2,267.0 2,424.0 2,671.0Ratico 11.0 40.3 11.3 40.0 12.0 36.5 9.9 41.1 9.7 45.3 8.9 44.5

(b) UPPsTanjung Priok 30.0 13.0 30.0 13.0 30.0 13.0 30.0 13.0 30.0 13.0 30.0 30.0Surabaya 15.0 5.0 15.0 5.0 15.0 5.0 15.0 5.0 15.0 5.0 15.0 5.0Clacap 12.0 10.0 12.0 10.0 12.0 10.0 12.0 10.0 12.0 10.0 12.0 10.0Belawan 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0Padang 8.0 2.5 8.0 2.5 8.0 2.5 8.0 2.5 8.0 2.5 8.0 2.5Ujung Panidang 11.0 5.0 11.0 5.0 11.0 5.0 11.0 5.0 11.0 5.0 11.0 5.0Meneng - - - - 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0

Subtotal 88.0 47.5 88.0 47.5 108.0 67.5 108.0 67.5 108.0 67.5 108.0 67.5

UPP throuighput 1,174.4 1,390.0 1,261.0 1,313.0 1,636.0 1,570.0 1,711.0 1,582.0 2,154.0 1,539.0 2,424.0 1,579.0Ratico 13.3 29.3 14.3 27.6 15.1 23.3 15.8 23.4 19.9 22.8 22.4 23.4

Line III(c) ISDs

Java - 218.5 - 218.5 - 228.5 - 268.5 - 268.5 - 268.5

Sumatera - 49.5 - 49.5 - 49.5 - 81.5 - 81.5 - 81.5

Sulawesi - 10.0 - 10.0 - 10.0 - 23.0 - 23.0 - 23.0

Kalimantan - 3.0 - 9.0 - 9.0 - 12.0 - 12.0 - 12.0

Other - 5.0 - 5.0 - 5.0 - 8.0 - 8.0 - 8.0

Subtotal - 286.0 - 292.0 - 302.0 - 393.0 - 393.0 - 393.0

(d) BGR (see PUSRI table)Java - 279.1 - 279.1 - 279.1 - 279.1 - 279.1 - 279.1

Sumatera - - - - - - - 10.0 - 10.0 - 10.0Sulavesi - - - - - - - 9.5 - 9.5 - 9.5

Kalimantan - 7.0 - 7.0 - 7.0 - 8.0 - 8.0 - 8.0

Other - 7.0 - 7.0 - 76.6 - 99.1 - 99.1 - 99.1

Subtotal - 293.1 - 293.1 - 362.7 - 405.7 - 405.7 - 405.7

(e) Other (private) - 170.0 - 170.0 - 170.0 - 170.0 - 170.0 - 170.0

Line III subtotal - 749.1 - 755.1 - 834.0 - 968.7 - 968.7 - 968.7

Line III throughput - 2,449.0 - 2,713.0 - 3,028.0 - 3,432.0 - 3,806.0 - 4,250.0

Ratio - 3.3 - 3.6 - 3.6 - 3.5 - 3.9 - 4.4

ine IV (Tentative Program)Existing kiosks - 600.0 - 600.0 - 600.0 - 600.0 - 600.0 - 600.0

KUD Kiosks ProgramJava - 31.6 - 166.2 - 233.0 - 299.9 - 342.1 - 342.1

Sumatera - 6.2 - 60.7 - 103.6 - 146.7 - 173.8 - 173.8

Sulawesi - 8.7 - 27.5 - 53.6 - 79.8 - 96.3 - 96.3

KalimantAin - 1.5 - 7.7 - 25.6 - 43.6 - 54.9 - 54.9

Other - 2.7 - 15.9 - 26.3 - 36.9 - 43.5 - 43.5

Subtotal - 50.9 - 278.4 - 442.1 - 600.9 - 710.6 - 710.6

PUSKUD GLKs - 1.8 - 1.8 - 23.0 - 127.1 - 148.8 - 148.8

P.T. Pertanii - 450.0 - 450.0 - 450.0 - 450.0 - 450.0 - 450.0

Retailers (! 5 tons - 20.0 - 20.0 - 20.0 - 20.0 - 20.0 - 20.0

Line IV subtotal - 1,122.7 - 1,350.2 - 1,535.0 - 1,804.0 - 1,929.0 - 1,929.4

Line IV throughput - 2,501.0 - 2,713.0 - 3,028.0 - 3,432.0 - 3,806.0 - 4,250.0

Itatio - 2.2 - 2.0 - 2.0 - 1.9 - 2.0 - 2.2

.urce: PUSRI and DG Cooperatives.

- 98 -

ANNEX 7Page 1

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Detail of Project Cost Estimates

RAILWAY ELEMENTS 82 83 84 85 82-85(a) Rail Line Extension

Local CostsPercent completion 10 30 40 20Base cost, mid-1981 0.83 2.49 3.32 1.66 8.30Physical contingency (25%) 0.21 0.62 0.83 0.42 2.08Cost escalation (%) 14 10 10 10Base cost escalated 0.94 3.19 4.68 2.57 11.38Physical contingenciesescalated 0.24 0.79 1.17 0.65 2.85

Total 14.23

Foreign CostsPercent completion 20 30 40 10Base cost,mid-1981 2.32 3.48 4.64 1.16 11.60Physical contingency (15%) 0.35 0.52 0.70 0.17 1.74Cost escalation (%) 85 75 60 60Base cost escalated 2.52 4.08 5.81 1.57 13.95Physical contingenciesescalated 0.38 0.61 0.88 0.23 2.10

Total 16.05

(b) Land CostsLocalPercent completion 70 30Base cost 6.23 2.67 8.90Physical contingency (15%) 0.94 0.40 1.34Cost escalation (%) 14 10 10 10Base cost escalated 7.10 3.42 10.52Physical contingenciesescalated 1.07 0.51 1.58

Total 12.10

(c) Engioneering ConsultantsLocalBase cost 0.49 0.49 0.49 0.03 1.50Price contingency 0.04 0.10 0.16 0.01 0.31Escalated total 0.53 0.59 0.65 0.04 1.81

ForeignBase cost 0.66 0.66 0.66 0.02 2.00Price contingency 0.06 0.12 0.18 0.01 0.37Escalate total 0.72 0.78 0.84 0.03 2.37

D. ESTIMATE PROJECT COST(PSDV)

Contingencies TotalBase costs Physical Price costs

Equipment Local Foreign Total Local Foreign Local Foreign Total (US mln)

Urea handling facilitiesMeneng - bulk plant 5.70 8.60 14.30 1.45 2.15 1.35 0.91 5.86 20.16

- pier 0.72 1.08 1.80 0.12 0.18 0.10 0.12 0.52 2.32Belawan - bagging plant 0.10 0.20 0.30 0.05 0.05 0.02 0.02 0.14 0.44

- additional conveyor 0.10 0.20 0.30 0.05 0.05 0.02 0.02 0.14 0.44Cilacap - pier 0.84 1.26 2.10 0.12 0.18 0.10 0.12 0.52 2.62

Railway equipmentWagons - 14.10 14.10 - - - 0.84 0.84 14.94

Spares for urea handling & wagons - 1.00 1.00 - 0.05 - 0.07 0.12 1.12

Ships and equipmentBulk carriers - 43.90 43.90 - - -- - 43.90

Ammonia ship - 23.00 23.00 - - - 2.0 2.0 25.00

Improvements on 4 shipsand ship spares - 4.00 4.00 - 0.40 - - 0.40 4.40

Consultant servicesShip and urea handling 2.10 2.60 4.70 - - 0.21 0.21 0.42 5.12Fertilizer study update 0.20 0.20 0.40 - - - - - 0.40

Total 9.76 100.14 109.90 1.79 3.06 1.80 4.31 10.96 120.86

-~~~~~~Q

-100- ANNEX 7Page 3

DETAIL OF PROJECT COST ESTIMATE

FERTILIZER COMPONENTS - PHYSICAL CONTINGENCY(US$ million)

Total ContingencyEquipment cost % Amount Local F'oreign

Urea handling facilitiesMeneng - bulk plant 14.3 25 3.60 1.45 2.15

- pier 1.8 15 0.30 0.12 0.18Belawan - bagging plant 0.3 35 0.10 0.05 0.05

- additional conveyor 0.3 35 0.10 0.05 0.05Cilacap - pier 2.1 15 0.30 0.12 0.18

Railway equipmentWagons (200) 14.1 - - - -

Spares 1.0 5 0.05 - 0.05

Ships and equipmentBulk carriers 43.9 - - --

Ammonia ship 23.0 - - --

Improvements on 4 ships 4.0 10 040 0.40Ship spares } 4

Consultant servicesShip and urea handling 4.7 - - -Fertilizer study update 0.4 - - -

Total 109.9 - 4.85 1.79 3.06

DETAIL OF PROJECT COST ESTIMATE

FERTILIZER COMPONENTS - PRICE ESCALATION

(US$ million)

Base/a Local costs Foreign costs Total

Equipment costs 1982 1983 1984 1985 1982-85 1982 1983 1984 1985 1982-85 costs

Meneng - bulk plant 14.3Percentage completion 40 60 - - 100 90 10 - - 100

Base costs 2.30 3.40 - - 5.70 7.70 0.90 - - 8.60Physical contingency 0.58 0.87 - - 1.45 1.94 0.21 - - 2.1r

Cost escalation p.a. (Z) 14.0 10.0 10.0 10.0 - 8.5 7.5 6.0 6.0 -

Base cost escalated 2.60 4.30 - - 6.90 8.36 0.94 - - 9.33 16.20

Physical contingencyescalated 0.64 0.96 - - 1.60 2.10 0.23 - - 2.33 3.93

Total 20.10

Meneng - pier 1.8 °

Percentage completion 50 50 - - 100 50 50 - - -

Base costs 0.36 0.36 - - 0.72 0.54 0.54 - - 1.n8Physical contingency 0.06 '0.06 - - 0.12 0.09 0.09 - 0.18

Cost escalation p.a. (x) 14.0 10.0 10.0 10.0 - 8.5 7.5 6.0 6.n -Base cost escalated 0.40 0.40 - - 0.80 0.59 0.59 - - 1.18 1.98

Physical contingencyescalated 0.07 0.07 - - 0.14 0.10 0.10 - - 0.20 0.34

Total 2.32

Belawan - bagging plant/

additional conveyor 0.3Percentage completion - 100 - - 100 - 100 - - 1nnBase costs - 0.10 - - 0.10 - 0.20 - - 0.20

Physical contingency - 0.05 - - 0.05 - 0.05 - - 0.05

Cost escalation p.a. (x) 14.0 10.0 10.0 10.0 - 8.5 7.5 6.0 6.0 -

Base cost escalated - 0.11 - - 0.11 - 0.21 - - 0.21 0.32

Physical contingencyescalated - 0.06 - - 0.06 - 0.06 - - 0.06 0.12 >

Total 0.44 X

/a 1981 prices.

- 102

ANNFX 7Page 5

DETAIL OF PROJECT COST ESTIMATE

FERTILIZER COMPONENTS - PRICE ESCALATION (cont'd)(US$ million)

Base/a Local costs Foreign costs TotalEquipment costs 1982 1983 1984 1985 lq82-85 1982 1983 1984 1985 19827§5 costs

Cilacap - pier 2.1Percentage completion 50 50 - - 100 50 50 - - 1nOBase costs 0.42 0.42 - - 0.84 0.63 0.63 - - 1.26Physical contingency 0.06 0.06 - - 0.12 0.09 0.09 - - 0.18Cost escalation p.a. (X) 14.0 10.0 10.0 10.0 - 8.5 7.5 6.n 6.0 -

Base cost escalated 0.46 0.46 - - 0.92 0.68 0.68 - - 1.36 2.28Physical contingency

escalated 0.07 0.07 - - 0.14 0.10 0.10 - - 0.02 0.34

Total 2.62

Wagons 14.1Percentage completion - - - - - - - 2.5 75 10OBase costs - - - - - - - 3.53 10.51 14.10Physical contingency - - - - - - - - - -

Cost escalation p.a. (Z) - - - - - 8.5 7.5 6.0 6.0 -Base cost escalated - - - - - - - 3.74 11.20 14.94 14.94

Total 14.04

Wagon Spares 1.0Percentage completion - - - - - - - 25 75 1on -Base costs - - - - - - - 0.25 0.75 1.no -Physical contingency - - - - - - - 0.01 0.04 0.05 -

Cost escalation p.a. (X) - - - - - 8.5 7.5 6.0 6.0 - -

Base cost escalated - - - - - - 0.27 O.R0 1.07 1.07Physical contingency

escalated 0.01 0.04 0.05 0.05

Total 1.12

Consultant services (ships& urea handling) 4.7

Percentage completion 66 34 - - 1on 67 26 7.0 - 1onBase costs 1.39 0.71 - - 2.10 1.74 0.68 0.18 - 2.60Physical contingency - - - - - - - - - -Cost escalation p.a. (X) 14.0 10.0 10.0 10.0 - 8.5 7.5 6.0 6.n -

Base cost escalated 1.53 0.87 - - 2.4 1.9 n.7 0.2 - 2.8 5.2Physical contingency

escalated - - - - - - _ _ _ _

Total 5.?

/a 1981 prices.

- 103 -

ANNEX 7Page 6

DETAIL OF PROJECT COST ESTIMATE

FERTILIZER COMPONENTS - PRICE ESCALATION (cont'd)(US$ million)

Base -- ---- Year -- … - US millionEquipment cost 1982 1983 1984 1985 Total

Ammonia Ship 23.0Percent, completion (%) - 60 40 - 23.00Base cost ($ million) - 13.80 9.20 - -

Physical contingency - - - -Cost escalation p.a. 8.50 7.50 6.00 6.00 -Base cost escalated - 14.80 10.20 - 25.00Phys. conting. escalated - - -

Total 25.00

- 104 -ANNEX 8Page 1 of 3

INDONESIA

APPRAISAL OF A NATIONAL FERTILIZER DISTRIBUTION PROJECT

Performance Indicators

The following performance indicators will be discussed with PUSRIand agreed during negotiations. The data will be forwarded to the Bank.

A. Shipping Operations

Quarterly

- deviation of actual from standard round trip times for each voyagecompleted in the quarter together with a note about reasons for thedeviation and action taken;

- analysis of delays, by hour and cause will be shown using the currentreporting format;

- overall average actual loading and unloading rates per hour for eachvoyage completed in the quarter, by port and by ship.

Annual

- berth occupancy percentage at each loading and unloading port;

- accumulated quarterly data

B. Bulk Bagging Stations (UPP)

Quarterly

- tons bagged per bagging machine;

- total tons received and shipped in bulk by ship type (PUSRI bulkers,chartered, export)

- total tons bagged;

- total tons shipped in bags by rail, truck and reshipped in bagsby water;

- average tons per shift loaded into rail wagons;

- 105 -

ANNEX 8Page 2 of 3

- average tonnage per day loaded into railwagons and number of trainsper day;

- total tons of bagged fertilizer moved through each UPP compared tothe UPP's bagged storage capacity; and

- exports by export point, bulk and bagged.

C. Railway Operations

Quarterly

- average monthly tons per day at each UPP loaded into block trainscompared to the target;

- percent of monthly tonnage loaded into PUSRI wagons and PJKA wagonsat each UPP;

- calculated turn-around time for PUSRI wagons at each UPP and graphof a four week moving average of PUSRI wagon turn-around time forall UPP (target is an average in each Region of 4 days by 1985).

D. Inland Storage Depots

Yearly

- total tons of bagged fertilizers moved through each ISD compared tothe calculated capacity of each ISD, displayed by province and forall ISDs in Java, Sumatra, and other areas;

- monthly tons loaded by rail and by road with % rail/road.

E. Product, Prices and Costs

Quarterly

- shipments ex-UPP to ISD and direct to distributors by UPP;

- bagged inventory on hand at UPP, ISD, rented storage, and in handsof distributors at end of each period;

- bagged inventory by province (periods to be selected to relate togrowing season and times of fertilizer peak storage andapplication);

average cost of truck contracts made for shipment to distributorsby province;

1 306 -

ANNEX 8page 3 of 3

- average cost of delivery from ISD to retailer by province;

- sales (tons) ex-ISD to private distributors, state owned distributors,direct to cooperatives (PUSKUDs), and direct to retailers;

- calculation of margins accruing to PUSRI for ships and landoperations;

- financial reports (income, expense, balance sheets);

- transport costs (and per ton costs) for PUSRI bulk ships for urea andNH3 and for chartered ships and exports (c.i.f.).

Yearly

- preliminary and audited annual accounts for PUSRI;

- preliminary and audited annual accounts for shipping and for themarketing and distributing activities to conform to the requirementsof the Loan Agreement;

- projection of financial condition of PUSRI marketing and distributionactivities for ensuing two years to show revenues, costs and calcula-ted returns on assets utilized supported by data and assumptions.

_ a 07 - ANNEX 8Attachment IPage 1

I NDONESIA

APPRAISAL OF A NATIONAL FERTILIZER DISTRIBUTION PROJECT

Performance Indicators

A. Shipping Operations

Shiping Round Trip Times, Current Total Time

Urea - ex Palembang to hoursSurabaya 175.33Cilacap 180.78Belawan 174.49Tanjung Priok 124.08Padang 210.83Ujung Pandang 240.63

- ex Kaltim toUjung Pandang 130.96Meneng 169.66

- ex Aceh toBelawan 96.77C ilacap 288.02Padang 188.81Tanjung Priok 233.36

Backhaul - TSP

ex Gresik toTanjung Priok 105.53Belawan 214.34Padang 204.18Ujung Pandang 173.18

All these trips are based on loading at an overall 400 tons per hour

and unloading at an overall 307 tons per hour except for ex-Gresik where

loading is estimated to be 108 tons per hour.

It is anticipated that loading time can be improved by 25% by 1983

and that unloading can average 400 tons per hour by that date. Port

clearance times should be reduced by half by 1985.

-108- ANNEX 8Attachment IPage 2

The source for the basic times is PUSRI letter Ln-063/Dir/81 of

September 6, 1981.

B. Railway Operations

1. The table below shows the monthly average fertilizer block train

wagon turn-around time ex-Cilacap and ex-Surabaya during January to October

1981. This performance is to be improved so as to reach, for both locations,

an average, over a six-month period ending December 31, 1985, of 5.8 days

and, ending December 31, 1987, of 3.7 days.

1981 Ex-Cilacap Ex-Surabaya

January 12.3 6.6February 11.1 7.3March 13.5 8.1April 15.9 9.1May 18.7 6.4June 10.4 8.2July 12.8 9.7August 13.3 10.0September 12.7 11.3October 13.0 9.8

2. Reports will be developed to show wagon turn-around from Kujang

and Meneng with the objective of reaching the turn-around times noted above

for shipments from those loading points.

-109 - ANNEX 9Page 1 of 8

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

FINANCIAL TABLES

A. PUSRI Current Financial Position

Detailed consolidated income statements and balance sheets forPUSRI covering the years 1976-80 are given in Tables 9.1 and 9.2.

B. Forecast Distribution Revenues

General

1. The financial projections have been prepared on an incrementalsales, cost and revenue basis, with 1980 as the base year for production,distribution and costs.

2. Annual revenues are forecast separately for sales of urea,TSP/DAP/NPK, Ammonium Sulphate (AS) and liquid ammonia (NH3).

3. Sales are based on: "Fertilizer Production, Consumption andInventories" (Annex 5, Table 1.4 of the Staff Appraisal Report)./l

4. After 1980, all production plus imports is assumed to be consumeddomestically, except for urea of which:

(a) 40% of P.T. Asean Aceh production is reserved for export toAsean nations; and

(b) part will be surplus production from other plants, largely from

P.T. Pusri V/Aceh which is assumed to be exported. No exports areexpected for TSP/DAP/NPK or AS, even although supply indicates asurplus, due to the need for a heavy government subsidy in orderto be price competitive. It has accordingly been assumed thatactual production will be restricted to equal consumption.

/1 This table also includes forecast import tonnages.

- 110 - ANNEX 9

Page 2 of 8

5. Although the distribution margins, as fixed by the Government,vary with the region, the margins relevant to Region A (Java plus Bali),which consumes approximately 85% of total urea in the country, have beenused for the entire throughput./l

6. The consequent revenue per ton earned by the distribution systemhas been calculated as follows:

(i) Domestic Production and Consumption

Domestic production Urea TSP/DAP/NPK AS

(a) Price at U.P.P. (Gov't Decree) /a 78,584 78,584 78,584Less cost of production (inc.profit margin and oil priceincrease) (56,819) (56,819) (56,819)

Contribution to distribution system 21,765 21,765 21,765

(b) Price ex I.S.D (Gov't Decree) 59,420 59,420 54,520Less purchase price fordistribution (49,094) (41,402) (38,493)

Contribution to distribution system 10,326 18,018 16,027

(c) Total revenue for distributionsystem ((a) + (b)) 32,091 39,783 37,792

Rounded off at 32,000 40,000 38,000

/a Includes provision for cost of warehousing, shipping, bags and handling.Adjustments must be made where bagging and warehousing are carried outat non-PUSRI UPPs (See item B.4.).

NH3 revenue has been considered as freight only, by ship purchased for thispurpose, as other costs and contribution are expected to be passed to theproduction unit. Production is assumed to commence in the first quarter of1984, and be maintained at the same level of 149,000 tons per year there-

/1 Margins for regions further from production points are larger, to allowfor higher transportation costs.

ANNEX 9- 111 - Page 3 of 8

after. Distribution is assumed to be: 47,000 tons to Gresik and 102,000tons to the Philippines. The revenue (freight only) is estimated at US$35(Rp 21,675)/ton.

(ii) Imports

(a) Urea - imports are minimal (1981 only) and therefore the contribu-tion is considered equivalent to domestic, as (i) above; and

(b) TSP/DAP/NPK and AS are imported and shipped directly to UPPs.Therefore the revenue for shipping cannot be considered. Also, ASis imported in bags, thus no revenue for bags/bagging can beconsidered. The adjusted revenues for these products are asfollows (in Rupiahs/ton):

ImportedTSP/DAP/NPK AS

Contribution to distributionsystem as in (i)(a) above 21,765 21,765

Less shipping/BBM cost (9,121) (9,121)Bags and bagging cost - (11,828)

Adjusted contribution 12,644 816

Contribution at ISDs, as in (i)(b) 18,018 16,027

Total contribution on imports 30,662 16,843

Rounded off at 17,000

(iii) Export Revenue (urea only)

7. PUSRI has conservatively estimated a C&F export price of US$250(Rp 156,250) per ton./l Deducting from this the UPP cost of Rp 78,584 /2per ton, leaves a net contribution to distribution system of Rp 77,666,rounded off to Rp 77,000/ton.

/ The Bank's latest estimate is for about US$270/ton by 1985.

/2 Includes production unit profit margin.

ANNEX 9-112 - Page 4 of 8

8. The detailed calculations of forecast annual revenues are given intables 2.3 and 2.4 dealing with Urea and NH3 Sales and TSP/DAP/NPK andammonium sulphate (AS) sales.

C. Forecast Distribution Costs

1. Bulk Shipping Costs

(a) PUSRI Owned Ships

9. PUSRI gives the following cost data (for 1980):

Rp million

(i) Variable Costs (Total) 6,889

Tonnage carried 1,135,000 tons.. Variable cost per ton Rp 6,070/ton

say Rp 6,100/ton

(ii) Fixed Costs Rp million

General administration 555Allocation of H.O. expenses 201Insurance 81Taxes 1

Subtotal (x) 838

Depreciation/amortization 1,380Interest 1,813

Subtotal (y) 4,031

Total number of ships 4

Average fixed cost of: (x) per ship Rp 210(y) per ship Rp 1,008

As depreciation and interest costs are entered separately, and in total, inthe projected income accounts, only (x) is taken into account.

ANNEX 9-113 - Page 5 of 8

(b) Charter ships

10. PUSRI has been paying an average of about Rp 16,000/ton chartershipping charge for bulk fertilizers. Unloading cost is estimated at Rp4,500/ton, making a total cost of Rp 20,500/ton.

11. R.L.S. Shipping Costs (bagged fertilizer). On the basis of actualcosts for chartering Takari ships, the average shipping cost per ton hasbeen about Rp 18,300. PUSRI's shipping department has estimated theadditional loading and unloading cost to be about Rp 6,000/ton making atotal cost of Rp 24,300/ton for domestic traffic. For exports, in viewof the longer distances, 50% has been added giving an estimated cost ofRp 36,450/ton.

12. Rail/Road Transportation Costs. Since Java consumes almost 80% ofthe fertilizers distributed by PUSRI, the rail/road transport costs are pro-jected on the basis of costs in Java. To date, rail transport of fertilizerhas all been in Java. The average distance has been 200 km, for which thecurrent PJKA tariff is now Rp 32 per ton/km, i.e., Rp 6,400/ton. For roadtransport the average rate is now Rp 10,500/ton. In 1980, PJKA carried 28%of the urea moved in Java (plus only 600 tons of TSP). Due to the muchcheaper cost of rail transport PUSRI wishes to increase the overallproportion of rail transport to 60%, leaving 40% for road transport. Inview of the difficulty expected in improving PJKA-s ability to carry such anincreased traffic, in bulk trains, it has been assumed that the rail/roadratio would improve gradually from 30/70 in 1981 to 60/40 by 1987.

13. Bagging Costs. PUSRI's 1980 financial data gives the followingcosts:

Total UPP costs Rp 347 million

Less: Interest Rp 416 millionDepreciation 705 millionInsurance, etc. 68 millionH. Q. allocation 610 million 1,799 million

Net variable costs Rp 4,548 million

With 1,092,736 tons being handled at PUSRI's UPPs in 1980, the averagevarlable cost was Rp 4,200/ton, to which must be added the cost of bags,Rp 4,800/ton making Rp 9,000/ton in all. This financial and tonnage datarefers only to PUSRI's bagging operations, i.e. it excludes operations atKUJANG, Gresik and at PGIP, Jakarta./l

/1 Accordingly, the revenue projections for distribution of this fertilizermust be calculated on margins excluding the allowance for bagging atthese UPPs.

- 114 -ANNEX 9Page 6 of 8

14. Regarding fixed charges, as depreciation and interest charges willbe shown separately in total, in the financial projections, they can bedisregarded, thus leaving Rp 678 million as the 1980 level.

Marketing Overhead Costs

15. Total Regional and Corporate marketing costs for 1980 appear inPUSR's accounts as follows:

Regional Corporate Total

1. Labor costs 680 136 8162. General office costs 182 270 4523. Sales promotion 23 63 864. Sundry expenses and share

of Head Office costs 569 187 7565. Transport and travel expenses 1,156 628 1,784

Subtotal 2,610 1,284 3,894

6. Cartage and handling 19,914 - 19,9147. Occupancy, storage, etc. 1,157 105 1,2628. Financial cost (interest) 160 .2,552 2,7129. Depreciation 554 - 554

10. Annual total 24,395 3,941 28,336

16. Item 6 includes road/rail costs of transporting fertilizer. Inthe forecasts these road/rail costs are entered separately and must beexcluded from overheads.

17. Item 7 includes depreciation of ISD-s, offices etc. and Item 8includes loan interest, both of which are forecast separately on Table 9.10and must also be excluded.

18. The remaining items include costs relating to ISDs, also forecastseparately in Table 9.9, and which must be excluded.

- 115 - ANNEX 9Page 7 of 8

19. The resulting net marketing overhead costs for 1980 are:

Regional Corporate Total

Annual totals as above (Rp million) 24,395 3,941 28,336Less ISD costs (1,157) - (1,157)

Road/rail costs (19,914) - (19,914)Depreciation (554) - (554)Loan interest (160) (2,552) (2,712)

Net 2,610 1,389 3,999

Say 4,000

20. Overhead costs do not normally increase as fast as output orsales. However, to be conservative, the project forecasts assume that thesecosts will ncrease in line with total annual tons distributed.

1980 1981 1982 1983 1984 1985 1986

A. Total tons distributed('000) (Annex 5,

Table 1.4) 2,572 2,713 3,201 3,684 4,612 5,244 5,497

B. Annual increase % - 5.5 18.0 15.1 25.2 13.7 4.8

C. Annual increase(cumulative) % - 5.5 24.5 43.2 79.3 103.9 113.7

D. Forecast project over-head costs (Rp mln):(i) 1980 cost 4,000 - - - - - -(ii) Annual increased

cost due to proj-ect (D(1) x C) - 220 980 1,728 3,172 4,156 4,548

Rounded - - 980 1,730 3,170 4,160 4,550

-116 - ANNEX 9Page 8 of 8

21. These costs are apportioned over project export and domestic salesin proportion to the tonnages distributed by the project.

1982 1983 1984 1985 1986

Tonnages /a ('000)Export - - 498 677 429Domestic 736 1,140 1,552 2,005 2,501

Total 736 1,349 2,050 2,682 2,930

PercentageExport - - 24 25 15Domestic 100 100 76 75 85

Overhead Costs (Rp million)Export - - 760 1,040 680Domestic 980 1,730 2,410 3,120 3,870

Annual Totals 980 1,730 3,170 4,160 4,550

/a See Table 9.11.

Debt Service

22. PUSRI:s share of the project cost, US$117.5 million, is assumedto be be financed 75% debt and 25% equity, all from the Government.Interest on the debt is assumed to be 13.5% annually, with the Governmentbearing the debt burden durng construction period. Repayment would beover 13 years, including 3 years grace.

D. Financial Projections, 1982-86

23. National Fertilizer Distribution Project: Forecast IncreaseStatements, Cash Flows and Net Fixed Assets are given in Tables 9.16, 9.17and 9.18.

24. Consolidated Projections: Consolidated Income Accounts, CashFlows and Balance Sheets, for PUSRI as a whole, are given in Tables 9.19,9.20 and 9.21.

25. Sensitivity Analysis: The financial sensitivity calculations forthe project are given in Table 9.22.

- 117 -ANNEX 9Table 9.1

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

P.T. PUPUK SRIWIDJAJA (PUSRI)

Consolidated Income Statements of PUSRI, 1976-1980(in Rp million)

1976 1977 1978 1979 1980

Year ended December 31 ----------------- (audited) -----------------

Marketing UnitSales 35,637 46,988 72,605 96,488 136,442Cost of sales 31,911 42,900 63,809 89,769 115,437

Gross income 3,726 4,088 8,796 6,719 21,005

Regional marketing cost 8,895 7,634 12,003 15,509 24,395

Corporate marketing cost 629 690 633 3,871 3,941

Administration cost 119 146 49 - -/b

Financial cost 15,299 14,987 7,557 - -7A

Subtotal - balance (21,216) (19,369) (11,446) (12,661) (7,331)

O)ther income (loss) 273 740 283 (7,605) (1,247)Marketing unit loss (20,943) (18,629) (11,163) (20,266) (8,578)Government compensation 17,641 18,479 11,163 20,266 8,578Marketing income (loss) (3,302)/a (150)/a 0 0 0

Production UnitSales 21,705 41,969 78,341 94,683 118,133Cost of production 12,760 27,002 47,710 75,397 96,549

Gross income 8,945 14,967 30,631 19,286 21,584

Administration 2,565 3,714 4,902 - -/b

Shipping 1,958 6,398 7,320 -- /bFinancial cost 1,374 392 108 - -/b

Subtotal-balance 3,048 4,463 18,301 19,286 21,584

Other income 2,471 5,008 3,873 3,731 4,716P?roduction income 5,519 9,471 22,174 23,017 26,300

Consolidated AccountsTotal income before tax 2,217 9,321 22,174 23,017 26,300Tax - 123 5,330 5,587 9,462

Net income 2,217 9,198 16,844 17,430 16,838

?rior year adjustment (1,535) (558) (98) (6,344) (7,696)Retained earnings

(cumulative) 9,604 18,244 34,990 46,076 55,218]leturn on net fixed assets 7.3% 12.8% 12.0% 9.7% 9.1Debt service coverage n/a n/a 2.1 2.3 1.8

/a Loss on PUSRI marketing of certain products (e.g., NPK) on its own accounts.Government makes up only losses on products marketed on behalf ofGovernment.

/b Administration, financial and shipping costs incorporated in productionand marketing costs, as of January 1979.

Source: PUSRI and Bank staff.

-118- ~~~~~ANNEX 9Table 9.2

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

P.T. PUPUK SRIWIDJAJA (PUSRI)

Consolidated Balance Sheets, 1976-1980(in Rp million)

1976 1977 1978 1979 1980Year ended December 31 --…----------- (audited) -----------------

ASSETS

Current assetsCash 53,737 54,969 50,575 36,112 52,711Letters of credit 13,748 12,163 2,394 6,049 20,261Accounts receivable 41,623 47,827 63,370 107,511 102,963Inventories/a 57,497 40,112 39,550 47,645 59,051Government compensation 11,262 11,065 11,954 23,366 16,062Prepaid expenses 2,381 1,064 1,518 3,402 10,818

Subtotal 180,248 167,200 169,361 224,086 261,866

Noncurrent assets(Project funds) - - 10,249 400 400

Net fixed assetsAssets in service 30,353 112,943 168,243 192,581 179,417Incomplete construction 115,377 69,987 18,323 10,280 11,524

Subtotal 145,730 182,930 186,566 202,861 190,941

Other assets 405 984 1,172 1,327 1,663

Total Assets 326,383 351,114 367,348 428,674 454,870

LIABILITIES

Current liabilitiesAccounts payable 44,883 38,636 61,397 113,772 121,664Current portion oflong-term debt and 794 1,186} 39,499 20,549 42,122short-term bank loans 99,571 68,7681

Subtotal 145,248 108,590 100,896 134,321 163,786

Long-term debt 93,413 134,242 120,821 109,144 96,959

Other liabilitiesExchange loss - - 5,487 5,487 5,487

Fixed asset revaluationsurplus - - - 28,945 28,945

EquityShare capital 78,118 90,038 105,154 104,700 104,475Retained earnings 9,604 18,244 34,990 46,077 55,218

Subtotal 87,722 108,282 1.40,144 150,777 159,693

Total Liabilities 326,383 351,114 367,348 428,674 454,870

Debt/equity ratio 51/49 55/45 46,154 42,158 38/62Current ratio 1.2 1.5 1.6 1.6 1.6

/a Including noncurrent spares and materials./b Including Rp 48 billion of bank loans secured over stocks of fertilizer

and other products, repaid in 1977.

Source: PUSRI and Bank staff.

_ 119 -ANNEX 9

INDONESIA Table 9.3

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Forecast Revenues - Urea and NH3

1980 1981 1982 1983 1984 1985 1986

UREA

A. Tons (000) Distributed1. Total urea distributed 1784 1,8 2,284 2,653 3,347 3,860 3,974

+ imports (i) - 24 - - - - -- exports (ii) 270 - (173) (252) (657) (845) (597)

2. Total domestic consumption - 1,902 2,111 2,401 2,697 3,015 3,377Less existing consumption - (1,784) (1.784) (1,784) (1,784) (1,784) (1,784)Net for project

domestic (iii) - - 327 617 908 1,231 1,593

Less: bagged (Kujang) (iv)/a - - (50) (78) (78) (78) (78)

bagged (Kaltim plusAceh/Asean) (v) - - (31) (86) (110) (125) (141)

Net bagged by project (vi) - - 246 453 720 1,028 1,374

3. Net exports (project) - - - - 387 575 327

B. Revenues (Rp million)Domestic distribution:

Rp 32,000 x A(vi) - /b 7,872 14,496 23,040 32,896 43,968Rlp 10,300 x A(iv) + A(v) - /b 834 1,689 1,936 2,091 2,256

Subtotal, Domestic /b 8,706 16,185 24,976 34,987 46,224

Exports distribution:Rp 77,000 x A.3 - - - - 29,799 44,275 25,179

Total Contribution to Project - /b 8,706 16,185 54,775 79,262 81,403

NH3

A. Projected Throughput (000 tons)Export - - - - 37 102 102

Domestic - - - 38 47 47

Total - 75 149 149

B. Revenues (Rp million):Freight only - Rp 21,875/ton:Export - - - - 936 2,231 2,231

Domestic - - - - 831 1,028 1,028

Total - -1769

/a Additional production at Kujang.7b Distributed by existing system.

-120 -

ANNEX 9Table 9.4

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Forecast Revenues'- TSP/DAP/NPK and Ammonium Sulphate (A/S)

1980 1981 1982 1983 1984 1985 1986

1. Forecast Revenues - TSP/DAP/NPK

A. Production Plus Imports ('000 tons)(1) Total production 468 495 495 758 822 923 1,035(2) Imports (bagged) 40 78 165 - - - -

Subtotal 508 573 660 758 822 923 1,035

Less existing production - 508 508 508 508 508

Subtotal for project - 152 250 314 415 527

(3) Bagged by PUSRI - - 74 291 287 -(4) Domestic production - 41 176 23 128 527(5) Imports - 111 - - - -

Total - 152 250 314 415 527

B. Revenues (Rp million)Rp 40,000 x A(3) - - 2,960 11,640 11,480 -Rp 31,000 x A(5) - 3,441 - - - -

Rp 28,000 X A(4) 1,148 4,928 644 3,584 14,756

Total Contribution for Project - 4,589 7,888 12,284 15,064 14,756

2. Forecast Revenues - Ammonium Sulphate (A/S)

A. Production Plus Imports (O000 tons)(1) Total production (Table 1.4) /a 150 150 150 150 250 312 334(2) Imports (bagged) /a 72 88 107 123 42 - _

Total 222 238 257 273 292 312 334

B. Revenues (Rp millionRp 26,000 x A(1) 3,900 3,900 6,500 8,112 8,684Rp 17,000 x A(2) 1,819 2,091 714 - -

Total Contribution for Project 5,719 5,991 7,214 8,112 8,684

/a See Annex 5, Staff Appraisal Report.

_ 121 - ANNEX 9

Table 9.5

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Forecast Bulk Shipping Costs /a

1980 1981 1982 1983 1984 1985 1986

Total Throughput(000 tons) (Table 9.12) 1,106 1,254 1,471 1,948 2,212 2,424 2,902Pusri's ship capacity:

- existing 1,355 1,355 1,355 1,355 1,355 1,355- new (incl. backhaul) - - 356 799 1,069 1,068

Balance by charter /b - - 116 237 58 - 479

Total 1,254 1,471 1,948 2,212 2,424 2,902

Additional Tons (000)Transported for Project

(1) Existing Pusri ships - 249 249 249 249 249(2) New FPusri ships - - 356 799 1,069 1,068(3) Chartered ships - 116 237 58 - 479

Total for Project /c - 365 842 1,106 1,318 1,796

Bulk shipping Costs(Rp million)

- Charter cost:Rp 20,500 x B(3) - 2,378 4,859 1,189 - 9,820

- Existing Pusri ships /dRp 6,100 x B(1) 1,519 1,519 1,519 1,519 1,519

- New Pusri shipsVariable

Rp 6,100 x B(2) - - 2,172 4,874 6,521 6,515Fixecd: Rp 210 mlnper ship /e - - 210 630 630 630

Total Costs forProject 3,897 8,760 8,212 8,670 18,484

Average Cost per Ton (Rp) 10,686 10,400 7,420 6,580 10,290

Excludes NH3.Actually bagged fertilizer carried in bulk ships.Annual total minus carried in 1980 (1,106,000 tons).Variable cost only.Excludes depreciation and interest (consolidated in Table 9.10).

-122 -

ANNEX 9Table 9.6

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Forecast RLS & NH3 Shipping Costs

1981 1982 1983 1984 1985 1986

RLS Shipping Costs

1. Total Throughput (000 tons) - as per Table 9.11A. Exports 173 252 657 845 597

Less existing -1980 (270) (270) (270) (270) (270)

(i) Subtotal - Exports - - 387 575 327

B. Domestic 437 276 347 492 565Less existing - 1980 (391) (391) (391) (391) (391)

(ii) Subtotal - Domestic 46 - - 101 174

Total-Throughput For Project 46 - 387 676 501(Domestic plus Export)

2. RLS Shipping Costs (Rp m1n)(a) Liner cost: Sea freight Rp 18,300 plus hiandling Rp 6,000 = Rp 24,300/ton(b) Annual Costs (Rp million):

iExports (Rp 36,450 x I.A(i) - - - 14,106 20,960 11,919Domestic (Rp 24,300 x ].B(ii) 1,118 - - 2,454 4,228

Total Annual Costs 1,118 - 14,106 23,414 16,147

NH3 Carrier Costs

1. Total Throughput (000 tons) - as per Table 9.11A. Exports - - - 37 102 102B. Domestic - - - 38 47 47

C. Totals - - - 175 149 149

2. NH3 Carrier Costs(a) Variable Costs (Rp million)

Rp 2,750 x ](C) /a 205 410 410

(b) Fixed Costs (Rp 210 million per ship) 105 210 210

310 620 620

i.e. Exports 150 424 424DoTmestic 160 196 196

/a Assumes simiLar variahle cost to that of PUSRI bulk urea ships, but increased by10%, due to mnore sophisticated design of NH3 carrier.

-123 - ANNEX 9Table 9.7

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Forecast Bagging Costs

1982 1983 1984 1985 1986

A. Throughput for Project ('000 tons) /aUrea (Table 9.11)Export - - 387 575 327Domestic 327 617 908 1,231 1,593

TSP/DAP/NPK (Table 9.11) 166 264 318 429 541

AS (Table 9.11) /b - - - - -

Total (Domestic) 493 881 1,226 1,660 2,134

B. Tons ('000) Bagged by:1. Export urea - all by PUSRI - - 387 575 3272. Domestic:

Urea - by Kujang, etc. 81 164 188 203 219TSP, etc. - by Gresik 41 190 271 142 541

- imported 125 - - - -

Subtotal: Other 247 354 459 345 760

Urea - by PUSRI 246 453 720 1,028 1,374TSP, etc. by PUSRI (backhaul) - 74 291 287 -

Subtotal - PUSRI 246 527 1,011 1,315 1,374

C. Bagging Costs (Rp mln)'Variable - Rp 9,000:

Export (x B.1) - - 3,483 5,175 2,943Domestic (x B.2) 2,214 4,743 9,099 11,835 12,366

Fixed - Nil /c - - - - -

Total Costs 2,214 4,743 12,582 17,010 15,309

/a Excludes imports-bagged.Tb All bagged at Gresik._c Fixed costs are depreciation and interest, included in Tables 9.10.

- 124 -ANNEX 9Table 9.8

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Forecast Road/Rail Transport Costs

1980 1981 1982 1983 1984 1985 1986

A. Throughput for Project ( 000 tons)(1) Total tons by road/rail:

Urea (Table 9.12) 1,699 1,903 2,112 2,401 2,692 3,015 3,377TSP/DAP/NPK (Table 9.12) 484 573 660 758 822 923 1,035AS (Table 9.12) 222 238 257 273 292 312 334

Subtotal 2,405 2,714 3,029 3,432 3,806 4,250 4,746

Less existing throughput 2,405 2,405 2,405 2,405 2,405 2,405

Net Tonnage for Project 309 624 1,027 1,401 1,845 2,341

B. Assumed Proportions of Rail andRoad Traffic (%)Rail 22 30 35 40 45 50 55Road 78 70 65 60 55 50 45

B. Forecast Road/Rail Costs (Rp mln)(1) Tons ('000) by road 216 406 616 771 923 1,053(2) Tons ('000) by rail 93 218 411 630 922 1,288

Annual costs:(3) Road: Rp 10,500 x B(1) 4,263 6,468 8,096 9,692 11,057(4) Rail: Rp 6,400 x B(2) 1,395 2,630 4,032 5,901 8,243

Total Road/Rail Cost 5,658 9,098 12,128 15,593 19,300

- 125 - ANNEX 9Table 9.9

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Forecast I.S.D. Costs

1980 1981 1982 1983 1984 1985 1986

A. Throughput Calculations ('000 tons)(i) Tons distributed (Domestic):/a

Urea 1,785 1,903 2,112 2,401 2,692 3,015 3,377TSP/DAP/NPK 459 573 660 758 822 923 1,035AS 222 238 257 273 292 312 334

Subtotal 2,466 2,714 3,029 3,432 3,806 4,250 4,746

25% - 678 757 858 952 1,063 (1,187)

Less existing capacity - 300 300 300 300 300 300

(ii) Total Throughput for Project - 378 457 558 652 763 887

B. ISD Costs (Rp million)Variable cost only /bRp :2,700 x A(ii) - 1,021 1,234 1,507 1,760 2,060 2,395

/a See Annex 5, Table 4.

/b Fixed costs consist of depreciation and interest, included in totalfore,casts of depreciation and interest (Table 9.10).

- 126 - ANNEX 9Table 9.10

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Annual Depreciation and Interest (Project only)

1982 1983 1984 1985 1986

1. Annual Depreciation /a(Rp million)Export Traffic

NH3 ship - - 213 425 425

Bagging plants (share) lb - - 388 416 264

Totals - - 601 841 689

Rounded - - 600 800 700

Domestic TrafficBulk ships - urea - - 1,544 1,544 1,544

- NH3 - - 218 437 437

Bagging plants (share) /b - 1,212 999 972 1,124

Railway - boxcars - - - 700 700

Totalo - 1,212 2,761 3,653 3,805

Rounded - 1,200 2,800 3,700 3,800

GRAND TOTAL - 1,200 3,400 4,500 4,500

2. Annual Interest (Rp million) /cExport traffic - - - 1,330 1,020

Domestic traffic - - - 5,820 5,370

Totals _ - - 7,150 6,390

3. Bagging Plants Throughput (urea) /d( 000 tons)Exports - - 387 575 327

Domestic 246 527 1,011 1,315 1,374

Totals 246 527 1,398 1,890 1,701

% export - - 28 30 19

% domestic 100 100 72 70 31

/a See Table 9.16./b Shared according to throughput - see item 3./c Same proportions as for depreciation./d As per Table 9.7.

- 127 - ANNEX 9Table 9.11

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Forecast Tonnages Distributed (Project Only)( 000)

1980 1981 1982 1983 1984 1985 1986

Total Tonnages /a

DomesticUrea 1,784 - 327 617 908 1,231 1,593NH3 - - - - 38 47 47TSP/DAP/NPK 508 - 152 250 314 415 529AS - - 257 273 292 312 334

Total Domestic 2,292 - 736 1,140 1,552 2,005 2,501

ExportsUrea 270 - 117 196 601 789 541NH3 - - - - 111 102 102

Total Exports 270 - - - 498 677 429

GRAND TOTAL 2,562 - 736 1,140 2,050 2,682 2,930

% domestic 100 100 76 75 85% exports - - 24 25 15

lonnages by RLS Shipping

Annual TotalsDomesticUrea 107 147 130 179 216 257 290TSP/DAP/NPK 251 342 397 512 82 181 215AS 33 41 46 46 49 54 60

Subtotal 391 530 573 276 347 492 565

Exports - urea 270 - 173 252 657 845 597

Excess over 1980Domestic 182 - - 101 174Exports 117 196 601 789 541

Annual Totals 299 196 601 890 715

'a Annual demand less production in 1980.

ANNEX 9- 128 - Table 9.12

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Fertilizer Distribution by Mode (Total)('000 tons)

1982 1983 1984 1985 1986

UreaDirect - Bulk 1,471 1,637 1,863 2,137 2,453

- RLS /a 230 333 758 967 735- Road7rail 583 683 726 755 786

Subtotal 2,284 2,653 3,347 3,860 3,974

Indirect - RLS /a 73 98 115 135 152- Road77 ail 1,529 1,718 1,966 2,259 2,591

Subtotal 1,602 1,816 2,081 2,394 2,743

Totals - Bulk 1,471 1,637 1,863 2,137 2,453- RLS /a 303 431 873 1,102 887- Road7Fail 2,112 2,401 2,692 3,014 3,377

TSP/DAP/NPKDirect - Bulk - 311 349 287 449

- RLS 231 51 42 155 204

- Road/rail 264 396 431 481 382

Subtotal 495 758 822 923 1,035

Indirect - RLS 30 - 40 26 11

- Road/rail 398 362 391 416 653

Subtotal 428 362 431 442 664

Totals - Bulk - 311 349 287 449

- RLS 261 51 82 181 215- Road/rail 662 758 822 923 1,035

ASDirect - RLS 46 46 49 54 60

- Road/rail 211 227 243 258 274

Subtotal 257 273 292 312 334

Indirect - Road/rail 46 46 49 54 60

Totals - RLS 46 46 49 54 60

- Road/rail 257 273 292 312 334

SummaryBulk shipping 1,471 1,948 2,212 2,424 2,902RLS shipping /a 610 528 1,004 1,337 1,162Road/rail 3,031 3,432 3,806 4,249 4,746

Total 5P112 5,908 7,022 8,010 8,810

/a Includes export urea ('000 tons) 173 252 657 845 597

- 129 -

ANNEX 9Table 9.13

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Project Investment Costs /a - Annual Expenditures(US$ million)

Description 1982 1983 1984 1985 Total

1. Meneng - bagging plant 13.6 5.9 - - 19.5

2. Belawan - bagging plant - 0.4 - - 0.4

3. Belawan - bag loadout - 0.4 - - 0.4

4. Meneng - docking facility 1.2 1.1 - - 2.3

5. Cilicap - docking facility 1.3 1.3 - - 2.6

6. Railway box cars - - 3.8 11.2 15.0

7. Ship No. 5 9.6 5.0 - - 14.6

8. Ship No. 6 7.3 7.3 - - 14.6

9. Ship No. 7 4.0 9.2 1.5 - 14.7

10. N.H. 3 carrier - 14.8 9.8 - 24.6

11. Ship improvement - reclaim 1.1 - - - 1.1

12. Ship spares 1.0 1.1 1.2 - 3.3

13. Consulting services:

Subtotal 39.1 46.5 16.3 11.2 113.1

Urea handling and ships 3.4 1.5 0.2 - 5.1

Fertilizer study - update 0.2 0.2 - - 0.4

B'Lock trains study 0.1 0.3 - - 0.4

Totals - US$ million 42.8 48.5 16.5 11.2 119.0 /b- Rp million 26,750 30,313 10,312 7,000 74,375

La PUSR]; only.

/b Shown as US$120.8 million on Annex 7 page 2. Differences due to roundingoff and to slight changes in timing of expenditure affecting pricecontingencies.

- 130 -

ANNEX 9Table 9.14

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Debt Service Schedule(In US$ and Rp million)

Repayment Balance o/s Interest /a Total paymentYear Mos. US$ Rp US$ Rp US$ Rp US$ Rp

(yearly) (yearly) (yearly)

1981-84 - - - 89.25 55,781 - - - -/b

1985 6 4.46 - 84.79 - 5.87 - 10.33

12 4.46 5,575 80.33 50,206 5.57 7,150 10.03 12,725

1986 6 4.46 - 75.87 - 5.27 - 9.73

12 4.46 5,575 71.41 44,631 4.96 6,390 9.42 11,965

1987 6 4.46 - 66.95 - 4.66 - 9.12

12 4.46 5,575 62.49 39,056 4.36 5,640 8.82 11,215

1988 6 4.46 - 58.03 - 4.07 - 8.53

12 4.46 5,575 53.57 33,481 3.77 4,900 8.23 10,475

1989 6 4.46 - 49.11 - 3.47 - 7.93

12 4.46 5,575 44.65 27,906 3.16 4,140 7.62 9,715

1990 6 4.46 - 40.19 - 2.86 - 7.32

12 4.46 5,575 35.73 22,331 2.56 3,390 7.02 8,965

1991 6 4.46 - 31.27 - 2.26 - 6.72

12 4.46 5,575 26.81 16,756 1.96 2,640 6.42 8,215

1992 6 4.46 - 22.35 , - 1.66 - 6.12

12 4.47 5,581 17.88 11,175 1.36 1,890 5.83 7,471

1993 6 4.47 - 13.41 - 1.06 - 5.53

12 4.47 5,587 8.94 5,588 0.75 1,130 5.22 6,717

1994 6 4.47 - 4.47 - 0.45 - 4.92

12 4.47 5,588 - - 0.14 370 4.61 5,958

89.25

/a Interest - 13.5% p.a. on reducing balance.

/b Construction period interest assumed by Government. Also three years graceperiod (1982-84) - no loan repayments.

- 131 -

ANNEX 9Table T.15

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Project Asset Costs and Depreciation(In US$ mzillion)

Assessed Net Totallife Service Base Contingencies Total Residual cost for Yearly yearly depr'n

Asset (years) year cost Physical Price cost value/b depr'n depr'n US$ Rp

1. Cilacap-docking facility 12 1983 2.1 0.3 0.2 2.6 0.26 2.34 0.202nd qtr.

2. Meneng, docking facility 12 1.8 0.3 0.2 2.3 0.23 2.07 0.17

3. Mening, bagging plant 12 14.3 3.6 1.6 19.5 1.95 17.55 1.46

4. Belawan, unloading facility 12 1982 0.3 0.1 - 0.4 0.04 0.36 0.034th qtr.

5. Existing !ships - improvements 12 1.0 0.1 - 1.1 0.11 0.99 0.08

Total depreciation, 1983 1.94 1,200

6. Ships 1983Bulk urea - Ship No. 5 16 3rd qtr. 14.6 - - 14.6 1.46 13.14 0.82

1983Ship No. 6 16 4th qtr. 14.6 - - 14.6 1.46 13.14 0.82

Ship No. 7 16 1984 14.7 - - 14.7 1.47 13.23 0.83

Subtotal bulk urea ships 43.9 - - 43.9 4.39 39.51 2.47

N.H.3 ship 16 1984 23.0 - 1.6 24.6 2.46 22.14 1.38 /c

7. Ship spares 12 1983 3.0 0.3 - 3.3 0.33 2.97 0.253rd qtr.

8. Belawan, bagging machine 12 4th qtr. 0.3 0.1 - 0.4 0.04 0.36 0.03

Total depreciation, 1984 6.07 3,800

9. Railway, 150 box cars 12 1985 14.1 - 0.9 15.0 1.50 13.50 1.122nd qtr.

Total depreciation, 1985 7.19 4.500

Total asset costs /a 103.8 4.8 4.5 113.1 11.31 101.79

E'JKA 41.7 5.7 10.3 57.7

Consultants 5.5 - 0.4 5.9

Total project costs 151.0 10.5 15.2 176.7

/a Excludes re,ilway equipment belonging to PJKA (locomotives and line extension) and consultant costs.

/b 10%.

/c NH3 ship in service half year only; depreciation in 1984 only US$ 0.69 million (Rp 431 million) and total depreciation for 1984Rp 3,400 million.

-132 - ANNEX 9

Table 9.16

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Projected Income Statement (Project Only) 1982-86

1982 1983 1984 1985 1986

…- Rp milLion ---------------Revenues

(i) Exports: Urea -- - 29,799 44,275 25,179

NH3 - - 938 2,231 2,231

Subtotal Exports - - 30,737 46,506 27,410

(ii) Dornestic: Urea 8,706 16,185 24,976 34,987 46,224

TSP/DAP/NPK 4,589 7,888 12,284 15,064 14,756

AS 5,719 5,991 7,214 8,112 8,684

NH3 - - 831 1,028 1,028

Subtotal Domestic 19,014 30,064 45,305 59,191 70,692

Total Revenues 19,014 30,064 76,042 105,597 98,102

DistributLon Costs(i) Working Costs:

(a) Exports:RLS shipping cost - - 14,106 20,960 11,919

NH3 carrler cost - - 150 424 424

Bagging cost - - 3,483 5,175 2,943

Share of overheads - - 760 1,040 680

Subtotal Exports - - 18,499 27,599 15,966

(b) Domestic:Bulk shipping cost 3,897 8,760 8,212 8,670 18,484

NH3 shipping cost - - 160 196 196

RLS shipping cost 1,118 - - 2,454 4,228

Bagging cost 2,214 4,743 9,099 11,835 12,366

Rail/road cost 5,658 9,098 12,128 15,593 19,300

ISD cost 1,234 1,507 1,760 2,060 2,395

Share of overheads 980 i,730 2,410 3,1L0 3,820

Subtotal Dornestic 15,101 25,838 33,769 43,913 60,789

Total Working Costs 15,101 25,838 52,268 71,517 76,755

(ii) Other Costs:Depreciation - 1,200 3,400 4,500 4,500

Interest - - - 7,150 6,390

Subtotal Other - 1,200 3,400 11,650 10,890

Total Distribution Costs 15,101 27,038 55,668 83,167 87,645

Working Margin 3,913 4,226 23,774 34,080 21,347

Net Income Before Tax 3,913 3,026 20,374 22,430 10,457

Tax at 45% 1,761 1,362 9,168 10,094 4,706

Net Income After Tax 2,152 1,664 11,206 12,336 5,751

Return on Net Fixed Assets (%) -- 9 25 33 20

- 133 -

ANNEX 9Table 9.17

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Projected Cash Flow Statement (Project Only) 1981-86(Rp million)

1982 1983 1984 1985 1986 Totals

Source of FundsLong--term borrowing 20,063 22,737 7,731 5,250 - 55,781

Equity from Government 6,687 7,576 2,581 1,750 - 18,594

Cash generated by project(working margin) 3,913 4,226 23,774 34,080 21,347 87,340

Increase in currentliabilities 2,983 532 10,009 2,530 (4,952) 11,102

Total funds available 33,646 35,071 44,095 43,610 16,395 172,817

Application of FundsDebt ServiceInterest on L.T. debt - - - 7,150 6,390 13,540

Repayment - - 5,575 5,575 11,150

Suibtotal- Debt Service - - - 12,725 11,965 24,690

Tax on earnings 1,761 1,362 9,168 10,094 4,706 27,091

Receivables - increase 1,585 920 3,832 2,463 (625) 8,175(decrease)

Inventories - increase 136 219 305 236 85 981

Investment in project 26,750 30,313 10,312 7,000 - 74,375

Total funds needed 30,232 32,814 23,617 32,518 16,131 135,312

Surplus funds 3,414 2,257 20,478 11,092 264 37,505

Debt service coverage /a - - - 1.9 1.4 -

/a No debt service until 1985.

- 134 -

ANNEX 9Table 9.18

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Net Fixed Assets, 1981-86(Rp million)

1982 1983 1984 1985 1986

Annual Investments:

in US$ million/a 39.1 46.5 16.3 11.2 -

in Rp million 24,438 29,062 10,188 7,000 -

Cumulative cost 24,438 53,500 63,688 70,688 70,688

Less construction inprogress 22,875 17,500 2,376 - -

Assets in service 1,563 36,000 61,312 70,688 70,688

Accumulated depreciation /b - 1,200 4,600 9,100 13,600

Net fixed assets 1,563 34,800 56,712 61,588 57,088

Average NFA 1,563 18,182 45,756 59,150 59,338

/a As per Table 9.13, but net of consulting services.

/b As per Table 9.15.

- 135

ANNEX 9Table 9.19

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Consolidated Income Accounts, 1982-86(Rp million)

1982 1983 1984 1985 1986

RevenuesProduction RevenuesPUSRI I-IV 83,300 83,300 83,300 83,300 83,300

PUSRI V - - 22,700 25,900 29,100

Marketing RevenuesPUSRI I-IV 82,800 82,800 82,800 82,800 82,800

Nat'l fert. distrib. project 19,000 30,100 76,000 105,600 98,100

Total Revenues 185,100 196,200 264,800 297,600 293,300

Operating CostsWorking Costs

Production CostsPUSRI I-IV 39,900 39,900 39,900 39,900 39,900

PUSRI V - - 9,400 10,800 12,100

Marketing CostsPUSRI I-IV 64,000 63,600 63,100 62,600 62,100

Nat'l fert. distrib. project 15,100 25,800 52,300 71,500 76,800

Subtotal working costs 119,000 129,300 164.700 184.800 190,900

DepreciationPUSRI I-IV 12,000 12,000 12,000 12,000 12,000

PUSRI V - - 15,200 15,200 15,200

PUSRI I-IV marketing 2,500 2,500 2,500 2,500 2,500

Nat'l fert. distrib. project - 1,200 3,400 4,500 4,500

Subtotal depreciation 14,500 15,700 33,100 34,200 34,200

InterestPUSRI I-IV 7,600 6,600 5,600 4,600 3,600

PUSRI V - - 13,800 12,400 11,000

PUSRI I-IV marketing 2,400 2,200 1,900 1,700 1,400

Nat'l fert. distrib. project - - - 7,100 6,400

Subtotal interest 10,000 8,800 21,300 25,800 22,400

Total Operating Cost 143,500 153,800 219,100 244,800 247,500

Income before tax 41,600 42,400 45,700 52,800 45,800

Tax at 45% 18,700 19,100 20,600 23,800 20,600

Income after tax 22,900 23,300 25,100 29.000 25,200

Relturn on net fixed assets (X) 20 12 13 16 15

- 136 -

ANNEX 9Table 9.20

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Consolidated Cash Flows, 1982-86(Rp million)

1982 1983 1984 1985 1986

Sources of FundsIncome before tax 41,600 42,400 45,700 52,800 45,800

Depreciation 14,500 15,700 33,100 34,200 34,200

Equity from GovernmentPUSRI V 31,900 28,100 - - -

Nat'l fertilizer distribution proj. 6,700 7,600 2,600 1,700 -

Subtotal equity 38,600 35,700 2,600 1,700

Long-term LoansPUSRI V 59,100 35,500 - - -

Nat'l fertilizer distribution proj. 20,100 22,700 7,700 5,300 -

Subtotal loans 79,200 58,200 7,700 5,300

Increase in accounts payable 3,000 1,300 10,100 2,600 (4,900)

Total Funds Available 176,900 153,300 9200 96,600 75L100

Uses of FundsInvestment in Plant and EquipmentPUSRI V 91,100 56,500 - - -

Nat'l fertilizer distribution proj. 26,800 30,300 10,300 7,000 -

Subtotal investment 117,900 86,800 10,300 70 _O

Repayment of DebtPUSRI I-IV 12,300 12,200 12,300 12,200 12,300

PUSRI V - - 11,800 11,800 11,900

Nat'l fertilizer distribution proj. - - - 5,600 5,600

Subtotal repayment of debt 12,300 12,200 24,100 29,600 29800

Payment of tax 18,700 19,100 20,600 23,800 20,600

Increase in receivables 1,600 2,800 4,100 2,800 600

Increase in inventory 100 300 300 200 :L00

Total Funds Required 150,600 121,200 59,400 63,400 51,100

Annual Cash Surplus 26,300 32,100 39,800 33,200 24,000

- 137 -

ANNEX 9Table 9.21

INDONESIA

NATIONAL FERTILIZER DISTRIBUTION PROJECT

Consolidated Balance Sheets, 1982-86(Rp million)

1982 1983 1984 1985 1986

AssetsCurrent AssetsCash 88,400 120,500 160,300 193,500 217,500

Receivables 140,900 143,700 147,800 150,600 151,200

Prepaid expenses 10,800 10,800 10,800 10,800 10,800

Inventories 59,500 59,800 60,100 60,300 60,400

Total Current Assets 299,600 334,800 37q,000 415,200 439,900

Fixed AssetsLand 5,100 5,100 5,100 5,10n 5,100

Plant and equipment 271,800 489,000 514,300 523,700 523,700

Subtotal 276,900 494,100 519,400 528,800 528,800

Less accumulated depreciation 110,900 126,600 159,700 193,900 228,100

Net fixed assets 166,000 367,500 359,700 334,900 300,700

Construction in progress 149,100 17,500 2,400 - -

Total Fixed Assets 315,100 385,000 362,100 334,900 300,700

Other assets 4,100 5,300 5,400 5,400 5,400

Total Assets 618,800 725,100 746,500 755,500 746,000

LiabilitiesCurrent LtiabilitiesAccounts payable 133,500 134,800 144,900 147,500 142,600

Marketing loan ex B.R.I. 29,900 29,900 29,900 29,900 29,900

Current portion of LT debt 12,200 24,100 29,600 29,800 29,700

Total Current Liabilities 175,600 188,800 204,400 207,200 202,200

Long-term debt 171,900 206,000 184,100 159,600 129,900

Revaluation of fixed assets 28,900 28,900 28,900 28,900 28,900

Equity 154,600 190,300 192,900 194,600 194,600

Retained earnings 87,800 111,100 136,200 165,200 190,400

Total Liabilities 618,800 725,100 746,500 755,500 746,000

Current ratio 1.7 1.8 1.9 2.0 2.2

Debt/equity ratio 42/58 41/59 36/64 31/69 25/75

_ 138 -

ANNEX 9Table 9.22

INDONESIA

National Fertilizer Distribution Project

Effects of Inflation on Operating and Distribution Costs

1982 1983 1984 1985 1986------------ (Rp million) ------------

1. 10% increase in Project costs

(i) Depreciation - 120 340 450 450

(ii) Interest - - - 715 639

(iii) Repayment of debt - - - 558 558

2. 10% increase in level ofworking costs 1,510 2,584 5,227 7,152 7,676

3. 10% decrease in total demand(i.e., decrease in working margin) 489 616 2,668 3,907 2,641

4. Totals:(a) Decrease in net income

before tax /a 1,868 3,081 6,741 11,558 10,689

Less tax (45%) (841) (1,386) (3,033) (5,201) (4,810)

(b) Decrease in net incomeafter tax 1,027 1,695 3,708 6,357 5,879

(c) Decrease in cash avail-able /b 1,027 1,695 3,708 6,915 6,437

5. Return on net fixed assets:Existing net income after tax 2,097 1,664 11,206 19,486 12,141

Revised net income after tax 1,070 (55) 7,498 13,845 6,797

Revised return on net fixedassets after tax (%) - - 16 23 11

/a Combined effect of items 1, 2 and 3b Totals of 4(b) + 1(iii).

Effect of Inflationary Annual Increaseof 10% in Working Costs

Rp million

1982 1,520

1983 5,426

1984 17,301

1985 33,184

1986 46,821

Figure 1PT PUPUK SRIWIDJAJA

DISTRIBUTION DEPARTMENT ORGANIZATION CHARTJAKARTA

TECHNICAL DIRECTORIR KOTAN PASAMAN

MANAGER DISTRIBUTION DEPARTMENTIR ZULKARNAIN MAKKI

TECHNICAL DEPARTMENT PLANNING & CONTROL DEPARTMENT GENERAL ADMINISTRATION DEPARTMENT IIR SATOCHID IR HISYAM THALIB I I POERBOWO HALIMUN

SHIPPING DIVISION BAGGING DIVISIONCAPT SOETJIPTO D IR ARGO SUTRISNO

OPERATION AGENCY SHIPS OPERATION BAGGING UNITS PGIPDEPARTMENT DEPARTMENT DEPARTMENT LIASON OFFICER

CAPT SUTANDI DRS JOHANSYAH OTONG KOSASIH RIDJALUDDIN T SURABAYA - ISMAL DAUD SUTRISNO

IBRAHIM ZAHIER C AA UASN

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World Bank-22973

PT PUPUK SRIWIDJAJAMARKETING DEPARTMENT ORGANIZATION CHART Figure 2

JAKARTA

COMMERCIAL DIRECTORDALIL HASAN SE I_

MANAGER MARKETING DEPTDRS ROCHADI P

REGIONAL MARKETING OFFICES MARKETING ADMINISTRATORGENERAL INSPECTOR

1. Di ACEH -- DRS RUSLI NAZiR MULYONO DH MSC-_ ~~2. SUMATERA UTARA -SJAIFUDDIN ADJIB SE

3. SUMATERA BARAT & RIAU - TABRANI RAZAK4. SUMSEL, BENGKULU & JAMBI - BASARUDDIN M5. LGtMPUNG - M ZACHRIE JUNUS ZAHIER6. JAWA BARAT & DKI JAKARTA- IR AZWAR ANWAR S

_ REGIONAL INSPECTOR I 7. JAWA TENGAH & DI YOGYAKARTA - DRS ALFIAN SUPPLY DEPARTMENTDRS MUSTAFA UMAR 8. JAWA TIMUR - IR MAMAN J iRHIM HARDJADIKARTA

9. BALI, NIT & TIMOR TIMUR - IR MOMON DJ

REGIONAL INSPECTOR II 10. NUSA TENGGARA BARAT - IR EDDY SUMARNO WAREHOUSE DEPARTMENTJUSUF THALIB 11. KALIMANTAN - IR MAHAKASTRI IR KADARKO S

12. SULAWESI, MALUKU & IRIAN JAYA - HATTA AB I I

_ REGIONAL INSPECTOR III SALE DEPARTMENT

IR ERAWAN A

l REGIONAL INSPECTOR IV | LAND TRANSPORT7 ~~IR ERAWAN A |DEPARTMENT _

R{EGIONAL INSPECTOR V GENERAL ADMINISTRATIONDEPARTMENT

World Bank-22974

- 141 -

EFigure 3SCHEDULE

DISTRIBUTION PROJECT

1981 1982 193 1984

ITEM 1 2 3 4 5 |10 11 1 34 19 | 17 1 9 21 22 23 24[25 22 29 29 20 21 32.3334 35 3 i 338 40 41 42 4

M A |M J A S O|N | F A |M | AS F MA |M A S S MA MS JASON | D

SHIPS

1 BULK CARRIER

ENGINEERINI;. EVALUATION

CONSTRUCTIION

2 NH3 CARRIER

ENGINEERING D

CONSTRUCTIION D - - - - -H-

3 SAGGING PLANT MENENG

a. LAND ACQUISITION

b. SOIL STUDY FlEPORT

c. ENGINEERIN(;ISTUDY - - - - -_ - - -

d. PROCURMENT. BULK SUILDING

TOWERS

CONVEYOR SUPPORTS

BAGGE0 STO3RAGE

CLADOING

MECHANICAL EOUIPMENT

ELECTRICAl, EQUIPMENT

* CONSTRUCTION

DOCUMENT PREPARATION/TENDER

FOUNDATION ERECTION

- BULK RUILDING AND TOWER . . ..

- SAG STORAGE . . ..

- CONVEYODR SUPPORT

- MECHANICAL = _

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a. LOCATION APPROVED

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e. DESIGN PRECUALIFICATION

d. DESIGN CRITSRIA

*. TENDER FOR DESIGN

I DESIGN

g. TENDER

N CONSTRUCTION - - -

S RAILTRACK ExTENSION

a. ROUTE LOCATION

b. PROPERTY ACQUISITION

ENGINEERING DESIGN

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TENDERS - -

I CONSTRUCTION - - - - - EIS/

World BanE - 22939

- 142 -Figure 4

UR EA - 1980

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\Wo.rd Ek - 22940

Figure 5

Eoport PUSRI V

Export ASEAN 205 92 U R E A - 1985

000 Tons

v-&61 79 Total Bulk - 2,137

CEH Total Road/Rail - 75

\ 63 g BELAWAN 3,859

\ \ / 5 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Export 212

\\W_113\ SUM~ATE :) R <

r - \ \ Export 336 < MALAYSIA SUAW/

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World Bank -22942

tmport-20 ~~~~~~~~~~~~~TSP/DAP -1980 Figure 6\ B E LAG<;

/ \ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~000 Tons\ [ +~~~~~~~~~~~~~~~~~~~~~~~

/ \ ~~~~~~~~~~~~~~~~~~T.tar Bulk - 0\ | 20 + X \ / <> ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Total R LS - 253

\ NORT \

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World Bank - 22941

Figure 7

NPK/TSP/DAP - 1985000 Tn

Total ImPort - 0Total Bulk - 287

ALA W A N / A > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Total R LS Ra4 15Total Road/RadI 481

NO ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~NRHSLWS

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- 146 - Figure 8

FLOW OF FERTILIZERS

LINE I Urea Producers Urea Producres TSP Producers mportLNE I | (KUJANG) (PUSRI I (PETROKIMIA) import

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