Document of The World Bank FOR OFFICIAL USE ONLY OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$30.6 MILLION TO THE REPUBLIC OF INDONESIA FOR THE EAST JAVA WATER SUPPLY PROJECT April 11, 1983 Report No. FiLE COY P-3517-IND This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (As of December 31, 1982) Currency unit = Rupiah (Rp) US$1.00 = Rp 700 Rp 1,000 = US$1.43 Rp 1 million = US$1, FISCAL YEAR Central Government: April 1 - March 31 Water Enterprises: January 1 - December 31 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (f) I kilometer (km) = 0.62 miles (mi) I liter (1) = :0.26 US gallons (gal) 1 cubic meter (cu m) = cubic feet (cu ft) lps = liters per second lpcd = liters per capita per day ABBREVIATIONS, ACRONYMS AND INDONESIAN TERMINOLOGY BAPPENAS - National Development Planning Board BNA - Basic Needs Approach (GOI water supply program for cities with populations of 20,000 and above) CK - Directorate General of Housing, Building, Planning and Urban Development, Cipta Karya DSE - Directorate of Sanitary Engineering GOI - Government of Indonesia, the Central Government IKK - Ibu Kota Kecamaten, the principal city or town of a kecamaten Kabupaten - A second-level administrative unit; a subdivision of a province Kecamaten - A subdivision of a kabupaten Kotamadya - A second-level administrative unit; a self-governing city PCK - Provincial Cipta Karya Province - The first-level administrative unit of local government PDAM - Perusahaan Daerah Air Minum - A semi-autonomous water enterprise owned by a kabupaten or kotamadya Repelita - National Five-Year Development Plan (Repelita I, ; Repelita II, ; Repelita III, )

3 FOR OFFICIAL USE ONLY INDONESIA EAST JAVA WATER SUPPLY PROJECT Loan and Project Summary /1 Borrower: Amount: Terms: Republic of Indonesia $30.6 million equivalent, including the capitalized front-end fee Repayable in 20 years, including 5 years of grace, at the standard variable rate Project Description: The proposed project is part of the Government of Indonesia-s (GOI) program to provide basic needs water supply systems to urban communities in the Province of East Java and to help meet Indonesia's Drinking Water Decade target of providing piped water supply to 75% of the urban population by Its principal objectives are to (a) provide low cost safe water supply to about 720,000 persons by 1988, half,of which are in the poverty group; (b) maintain tariffs at levels which are affordable to all, including the poor; (c) develop financially autonomous water enterprises (PDAMs) to operate completed systems; and (d) train management, administrative and operations staff of the water sector. /1 The Board documents for this project are based on an exchange rate of Rp 700 to the US dollar. However, after project appraisal and loan negotiations the Government announced on March 30, 1983 the devaluation of the Rupiah from 700 to 970 per US dollar. While it is difficult at this early stage to completely assess the effect of this decision we have concluded that it will not materially change the basic scope and objectives of the project. The base cost of the project as expressed in dollars equivalent, would decline somewhat and consequently the rate of Bank participation in the project would increase slightly. The project cost, as expressed in Rupiah will increase both because of the 38% upward adjustment of the Rupiah equivalent of the foreign costs and an increase in local inflation which can be expected to follow the devaluation decision. Consequently, tariffs about 7% higher in 1983 prices than those indicated in these Board documents will be needed to comply with the revenue covenants from 1985 on. This would not however affect the affordability of the project to the beneficiaries since the resulting higher water bills would still be well within the capacity of even the poorest consumers to pay. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

4 - ii - The project includes the provision of (a) piped water supply systems including water sources, transmission, distribution, storage and customer connections; (b) the development of management and financial systems for eight beneficiary water enterprises; (c) training for water supply staff; and (d) consulting services for project management, training, technical, institutional and financial studies and the preparation of a future project. The primary risk is that the new locally-based water enterprises may not effectively operate, maintain and expand the facilities. These institutions now lack adequate staff and managerial experience but the project includes institutional support and training which should be adequate to establish competent PDAMs and therefore minimize this risk. Local Foreign Total Project Costs: --- ($ million) ---- Financing Plan: Water supply systems Technical assistance Engineering and supervision Base cost Physical contingencies Price contingencies Total project cost /a Front-end fee Total IBRD Government Total financing required /a Including duties and taxes estimated at $0.5 million equivalent.

5 - iii - Estimated Disbursements: Bank FY ($ million) Annual Cumulative Rate of Return: Averages 4% for the eight enterprises. Staff Appraisal Report: No IND dated April 5, 1983.

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7 REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF INDONESIA FOR THE EAST JAVA WATER SUPPLY PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Indonesia for the equivalent of $30.6 million (including the capitalized front-end fee) to help finance the East Java Water Supply Project. The loan would have a term of 20 years, including five years of grace, at the standard variable interest rate. PART I - THE ECONOMY 2. A basic economic report, "Indonesia: Growth Patterns, Social Progress and Development Prospects" (No IND dated February 20, 1979), was distributed to the Executive Directors on February 26, 1979, and a country economic memorandum has been prepared in each subsequent year. The latest of these, titled "Indonesia: Financial Resources and Human Development in the Eighties" (No IND dated May 3, 1982) was distributed to the Executive Directors on May 6, Annex I gives selected social and economic indicators for the country. Background 3. The Republic of Indonesia is a highly diverse country spread across an archipelago of more than 13,000 islands with a land area of about two million sq km. It now has a population of over 150 million, growing at about 2.3% p.a., and is the world's fifth most populous nation. The country has a highly diversified resource base, with plentiful primary energy resources, significant mineral deposits, large timber potential and a developed system of agricultural commodity production and export. A high proportion of these primary resources are located on the sparsely populated islands of Sumatra and Kalimantan, while two-thirds of the population live on Java which has areas with some of the highest rural population densities in the world. About 20% of the population live in urban areas in both Java and the Outer Islands, and the current rate of urban population growth is over 4% p.a. The 1981 estimate of GNP per capita is $520, which places Indonesia for the first time amongst middle income countries./l /1 On the basis of the World Bank-s system of country classification and Atlas methodology for calculation of GNP.

8 - 2 - Macroeconomic Developments and Resource Management 4. Until 1981, the economy had been growing at almost 8% p.a. for over a decade. This was associated with rapid increases in public expenditures, total investment and savings. The initial impetus for this occurred in the period of recovery from the turbulence of the mid-60s. The Government took effective action to restore macroeconomic stability, liberalize the economy, rehabilitate infrastructure, and provide incentives for domestic and foreign private investment. However for the last decade the dominant external influence has been the huge expansion, and significant variability, In foreign exchange earnings from oil. Net exports from the oil and gas sector rose from $0.6 billion in 1973/74 to $10.8 billion in 1980/81, when the current account enjoyed a surplus of $2.5 billion. Oil receipts also provide about 70% of Central Government receipts and have helped finance the sustained increase in demand via the budget. The pattern of expenditures has also helped foster diversified growth: of particular note has been the support for agriculture, through investment in infrastructure, support services and effective use of subsidies to maintain producer incentives. This bore fruit in two successive record rice harvests in 1980 and During 1971 to 1980 manufacturing has also enjoyed a high growth rate (of about 14% p.a.) from a very low base, but here sectoral growth has been in spite of a more restrictive policy environment and distorted incentives. 5. Since 1981 the macroeconomic resource position has changed dramatically. Depressed international markets and a weak oil price have led to a turnaround in the current account of about $9 billion in two years, with a deficit of the order of $7 billion likely for 1982/83. Following the reduction in the OPEC market price from $34 to $29 in early 1983, resource prospects worsened further. Faced with mounting pressure on the currency, on March 30, 1983, the GOI devalued the rupiah by 28% from Rp 703 to Rp 970 to the US dollar. This was an important step in the short run adjustment process, but barring a major recovery in oil prices, other adjustments will be necessary, in particuilar in the rephasing of import-intensive public expenditures. These measures will lead to a reduction in the growth rate. At a more fundamental level the change in external prospects have emphasized the need for substantial structural change in the eighties. The development of a strong and diversified nonoil production and export base is essential to the restoration of reasonable growth. Incomes, Employment and Human Development 6. Despite the high concentration of the resource windfalls, the available evidence, from household expenditures surveys, indicates a fairly wide distribution of the benefits of growth and a reduction in poverty incidence over the past ten years. This is also borne out in the basic health indicators, with a 25% reduction in the infant mortality rate and an

9 -3- increase in life expectancy from 47 to 53./1 These improvements should not, however, mask the continued existence of widespread poverty. Almost 50% of the population are estimated to have been in this condition in The core of the poverty problem continues to be in rural Java, where landless laborers form a large, and possibly rising, fraction of the population, and where, for most of the 1970s, there is little evidence of any rise in real agricultural wages. However, in the last two years of good rice harvests it is likely that significant improvements occurred on Java, while agricultural incomes on parts of the Other Islands dependent on export crops have declined in the face of the international recession. Following the devaluation this situation will likely reverse. Export incomes should rise, backed by the international recovery, but real incomes in Java could be adversely affected. 7. In the future the availability of productive employment will be a key determinant of the distribution of income. The labor force will grow at about 3% p.a., equivalent to around 2 million people p.a., in the next decade. In 1980 agriculture still accounted for 55% of employment, and industry only 13%; the growth of services employment, from 24% of the total in 1971 to 32% in 1980, was the main mechanism for providing incremental employment in the 1970s. The growth in service incomes was partly sustained by rising oil incomes in the 1970s; if services are to continue to be a major source of labor income there is again a strong case for diversifying the pattern of productive growth. The key issue is one of widespread underemployment in the traditional sectors. To tackle this a sustained rise in labor demand is crucial - through the maintenance of overall growth and the encouragement of labor-intensive processes in both the traditional and the industrial sectors. 8. In the 1970s there was substantial progress in extending the provision of social services throughout the population. Universal enrollment in primary education has been virtually achieved and the enrollment rate in junior secondary schools is now 35%. However, the weak educational base of the population continues to be a major obstacle to rapid economic development and a substantial further expansion of secondary and tertiary education will be necessary as well as a major effort to raise the quality of the whole system. The situation is similar in the health sector. There has been a large expansion in facilities, notably at the sub-district level, but continued expansion and an improvement in quality will be necessary to increase effectiveness. This will have to be complemented by a major expansion in water supply and sanitation if the improvement in indices of mortality and morbidity in the 1970s is to be maintained. Currently only 18% of the rural and 40% of the urban population have access to safe water /2 compared with Government targets of 60% and 75%, respectively, for /1 On the basis of the 1971 and 1980 population censuses. /2 Government estimates for 1981.

10 -4- Policy for Structural Change 9. Indonesia-s past growth performance has been good, but the country is now faced with the need both to put the nonoil economy on to a viable long-run growth path and to effectively improve the basic needs situation of the poor. The re-emergence of a significant foreign exchange constraint has reduced the capacity of the economy to carry a high level of investment. Policies that promote appropriate investment choices in the public and private sector will be critical if the structural adjustment process is to be sustained. 10. In industry, the Government of Indonesia (GOI) is planning a program of large-scale natural resource-based investments, in refineries, LNG, petrochemicals, fertilizer, cement, pulp and paper, basic metals and mining. This would broaden the industrial base, but will have very limited employment implications and is very foreign-exchange intensive in the construction phase. Of greater importance for both employment and exports is the encouragement of agriculture and the small- and mediumrscale private manufacturing through an improvement in the economic environment. The 28% devaluation of March 30, 1983, substantially improved incentives for production of tradeable goods. Furthermore, the GOI has initiated a general review of the trade regime, with a view to removing the distortions caused by the wide variations in rates of effective protection. It has also embarked on a program designed to promote the expansion of nonoil exports, including export financing arrangements, export insurance, improved ports procedures, export processing zones and a system of export certificates (duty rebates). However, the private sector suffers from significant domestic constraints to its expansion, including a heavy regulatory burden, especially in the area of investment licensing, and a distorted and poorly developed financial system. Further policy reforms to alleviate these constraints are needed to create an environment conducive to private investment. 11. The energy sector is at the core of the structural adjustment problem. Oil and gas now account for 98% of domestic consumption of commercial energy and demand has been growing rapidly. If Indonesia is to avoid a serious reduction in foreign exchange earnings from the oil sector in the 1990s, it is essential to diversify energy usage and improve the efficiency of energy consumption. This will require both price and investment measures. In January 1983 domestic oil prices were increased by about 60%, and this followed a similar increase in January This was a decisive step that substantially reduced the differential between domestic prices and the average opportunity cost; however, price relativities between products diverge widely from those prevailing on the international market. In addition a major program of investment is planned, with public and private participation, in coal exploration and development, exploitation of hydro and geothermal resources, and a sixfold increase in electric power generation in the coming decade.

11 12. Agriculture will continue to be of great importance for export revenue (accounting for almost 75% of 1980 nonoil exports), food production and employment. Rice production has been steadily rising to an estimated total in 1982 of 23.2 million tons, compared with 13 million a decade earlier. This achievement is largely a result of the provision of new, and the rehabilitation of existing, irrigation systems, and the dissemination of new agricultural technology particularly with respect to the timely delivery of seeds and fertilizers. Future investment in physical infrastructure, especially in irrigation and rural roads, combined with a favorable market environment and good support services will be the main determinants of further expansion in food production. In the past tree crops have suffered from relative neglect, and the age structure of the trees is now very old, but GOI has a highly ambitious program of rehabilitation and replanting, necessitating substantial investment in manpower and improved organization of distribution and marketing. Transmigration remains a high priority program for promoting development in underpopulated regions, providing opportunities for landless families on Java, Bali, and Lombok, and relieving economic and environmental pressures on those densely populated islands. Financing Development - Domestic Resources and External Capital Flows 13. With a relative decline in oil incomes, alternative sources of domestic savings will have to be found. This will require a major increase in resource mobilization through the public sector over the medium term, through a combination of reduced subsidies on petroleum products and increased nonoil taxes. In 1981 it is estimated that taxes on the domestic economy-were only 6% of GDP, if the domestic oil subsidy is netted out, compared with well over 10% for comparable countries. The 1982/83 and 1983/84 budgets represented a significant effort to improve the situation, with major reductions in the oil subsidy and increases in nonoil taxes, but this will have to be sustained in following years. In addition to public resource mobilization it is becoming increasingly important to encourage the growth and improve the efficiency of distribution of financialized savings, through an improved financial regime and the development of a domestic capital market. 14. Even with effective measures to mobilize domestic resources there will be a substantial need for foreign savings in the 1980s, especially in the short-run adjustment to loss in oil income. The most important component of this will be in the form of medium- and long-term debt flows. Total disbursed and outstanding external public debt was almost $20 billion at the end of 1982 and undisbursed debt amounted to an additional $12 billion. The Inter-Governmental Group on Indonesia remains a principal source of external capital, including Official Development Assistance, to the country. During the s, however, Indonesia experienced an unusually rapid transformation in its public debt structure from a situation of heavy reliance on official concessional loans to increasing use of private, nonconcessional and variable interest loans in the second half of the decade. In 1982 private

12 -6- source debt accounted for 52% of new commitments of public debt. The fact that Indonesia remains highly creditworthy at the beginning of the 1980s, and the efficiency with which GOI has managed debt, are clear indicators of how far the country has progressed. However, the debt servicing capacity depends on commodity production rather than a broad industrial base, and this makes Indonesia somewhat more vulnerable to developments in international markets. The implication is that debt utilization should remain very prudent, and that there will be a continued justification for official debt of long maturities in the 1980s. With the sharp decline in oil export receipts the debt service ratio will rise in the short term, but present projections indicate that the overall debt position will remain manageable. PART II - BANK GROUP OPERATIONS IN INDONESIA 15. As of March 31, 1983, Indonesia had received 48 IDA credits totalling $931.8 million, and 76 Bank loans amounting to $5,295.6 million. IFC investments totalled $136.8 million. The share of the Bank Group in Indonesia's total (disbursed) external debt outstanding at the end of 1980 was 10.7%, and the share of debt service, 7.1%. By the end of 1981, these ratios increased to 11.2% and 7.4%, respectively. Annex II contains a summary of IDA credits, Bank loans and IFC investments as of February 28, 1983, as well as notes on the execution of ongoing projects. Given the critical importance of agriculture (including transmigration) for employment, food security and exports, over one-third of Bank Group supported projects have been in this sector. In addition, loans and credits have been extended to virtually all other sectors of the economy, including transportation, education, urban development, water supply, rural development, nutrition, industrial development financing (including small-scale industry), power, telecommunications, population and technical assistance. 16. During Repelitas I and II, and in line with the objectives of these first two Five-Year Plans, a high proportion of Bank Group lending was directed initially toward the rehabilitation and then the expansion of infrastructure and production facilities. Special attention was also given to meet the shortage of skilled manpower and technical assistance needed for preinvestment studies and project execution. Repelita III, published in early 1979, stressed the need for continued high growth and stability, but departed from previous plans by placing special emphasis on more equitable income distribution and poverty alleviation. This focus, which was fully in line with the conclusions of the basic economic report, required greater attention to employment generation (particularly in the industrial sector) and to improvements in basic public services. While Bank lending was already consistent with these objectives, increased emphasis has been given to these priorities. 17. Because the country has moved from a position of resource surplus to deficit, as discussed in Part I, the development momentum will in all likelihood decelerate in the short run. To minimize this adverse impact

13 will require effective policy reform to improve the environment for private investment and to mobilize additional domestic resources so that investments in industry, infrastructure, tree crop development and human resources development can continue. The Bank's program of lending and economic work is being geared to support the required measures. The primary emphasis of Bank involvement will be on policy and institutional development and technical assistance in the key sectors. This will involve a close integration between sector work and lending and the gradual broadening of lending to the subsector and sector level in order to assist with policy issues at this level. The only significant shift in the composition of lending involves a rapid expansion planned in the education sector, a direct response to the severe shortage of skilled manpower. In the industrial sector, in-depth sector work is focused on a policy to promote industrialization which will build on Indonesia's comparative advantage in labor and resource intensive industries. This analysis may lead to a series of industrial projects which would facilitate subsectoral reform. In energy, sector work and continued lending is concentrating on policies to diversify Indonesia's energy base, rationalize pricing and improve sectoral planning. Irrigation and tree crops will continue to absorb a substantial portion of lending in view of the importance of these sectors, and continued support for transport is anticipated. Continued lending in the areas of provision of social services, in population, health and nutrition, urban development and water supply will increasingly emphasize institutional support and the development of innovative low-cost solutions. 18. The last two years have seen major improvements in the disbursement ratio /1 from a low of 13% in FY80, compared to a Bank-wide average of 21.31%, in Thailand of 21.2% and in Nigeria of 17.31% in that year, to 18% in FY82. The poor FY80 ratio was in large part merely a result of the rapid increase in commitments during the FY77-79 period when total Bank/IDA commitments to Indonesia increased by 122% compared to a Bank wide increase of 83%. However, it also reflected implementation difficulties arising out of GOI-s budgetary, procurement and payment procedures, including issuance of tender documents and' opening of letters of credit. The severe shortage of managerial and technical manpower of course compounds the problem. A number of steps have been taken by GOI and the Bank to address these issues. Several special Bank missions have visited Indonesia to analyze the problems and make recommendations for simplifying budgetary and financial procedures. The GOI and the Bank have also instituted formal and regular joint review procedures to identify general and project specific problems and work out corrective measures. In addition, procurement seminars were held in Jakarta in September 1979 and November As a consequence of these joint initiatives, GOI has taken measures to streamline some of the complex budgetary and financial procedures affecting project implementation. In addition, the Bank is helping the GOI in a special effort to identify /1 The ratio of actual disbursements during the fiscal year to the cumulative undisbursed amount at the beginning of the fiscal year.

14 problems in the construction industry with a view to developing appropriate remedial actions and policies. Weaknesses in the domestic contracting industry have been identified as one of the major causes of implementation problems in Indonesia. Finally, to reduce initial project implementation difficulties, many operations are now being presented for Board consideration at a later stage in the project cycle. As a result of these efforts, improvements are taking place. This was reflected in an increase in disbursements from $204.0 million in FY79 to $501.3 million in FY82, and $301.2 million for the first six months of FY83. It is nevertheless important that the Bank and GOI maintain their efforts. 19. From 1968 until 1974, all lending to Indonesia was made through IDA. Due to the country s improved creditworthiness following the commodity and oil price boom in 1973/74, the bulk of the Bank Group-s subsequent lending has been through IBRD loans, with a modest amount of IDA lending being justified primarily on poverty grounds, as the per capita GNP was well below the IDA cutoff of $625. Given Indonesia's much improved creditworthiness, IDA lending was discontinued in FY The proposed project constitutes the eighth lending operation presented to the Executive Directors this fiscal year. Projects under advanced stage of preparation and appraisal include the Third Agricultural Training, the Second Nonformal Education, the Second Polytechnic, and a fifth DFC operation. PART III - THE WATER SUPPLY AND SANITATION SECTOR Background 21. Health. As measured by standard indices, health conditions in Indonesia lag behind those in other countries at a similar stage of economic development. Life expectancy in Indonesia is shorter and the infant mortality rate higher than in comparator countries. Endemic diseases, caused in part by poor water supply and sanitation, contribute to this situation. 22. Water Resources. Indonesia is well endowed with rainfall and ground and surface water resources, but problems of distance, reliability, contamination, excessive demand and conflicting uses preclude simple and rapid development on a wide scale. Because of population density, intensive agriculture and above average industrialization and urbanization, the water supply situation in Java /1 is more critical than in other parts of /1 The subject project finances systems in the Province of East Java, and data given here for Java is representative for East Java as well as the other two provinces of Java.

15 - 9 - Indonesia. Java has 62% of the nation's population hut only 6% of the available water; its forecasted 1990 demand for water represents 98% of the available supply. 23. Service Levels. About 40% of the urban population nationally has access to piped water supply. But many systems suffer from contamination and low pressure, and the urban population without access to such systems depend on water from vendors or from shallow wells, streams or rivers at considerable health risks. Only 20% of the urban population has satisfactory sanitation facilities. Of the rural population, 18% has access to potable water from either piped systems, wells with handpumps, central rainwater collectors or protected springs, and 24% has satisfactory sanitation facilities. 24. IWhile the present situation is unsatisfactory, there has been considerable improvement in water supply over the period during which the percentage of population served rose from 2.5% to 23%. However, the absolute number of people without access to safe water remained almost the same at 118 million in 1970 as against 117 million in The proportion of the population served by sanitary facilities in the country has increased from about 15% in 1970 to 23% in 1981, but the population not served also increased (from 103 million to 117 million), with the urban areas particularly falling behind. Sector Organization Three ministries of the GOI are principally responsible for the water supply and sewerage sector. The Ministry of Public Works is responsible for development in urban areas, the Ministry of Health for rural areas, and the Ministry of Home Affairs, indirectly, for overseeing operations. 26. Within the Ministry of Public Works, the Directorate of Sanitary Engineering (DSE) of the Directorate General of Cipta Karya (CK) is responsible for overall planning, design and implementation of water supply, sewerage and sanitation projects funded by GOI. While projects are under construction, DSE and CK provide technical and managerial assistance to the operating agencies (para. 34) and on occasion temporarily own and operate systems until they become autonomous. CK also provides technical advice to the Ministry of Health on rural sector matters. Water and sanitation systems are owned and operated by local governments, either by a department (a Dinas), or by a semiautonomous public enterprise (a PDAM). Occasionally these entities also engage in the construction of projects. The Ministry of Home Affairs, by virtue of its responsibility for local government and local government enterprises, oversees such operations.

16 Sector Development and Investment 27. During the period covered by GOI's First Five-Year Development Plan (Repelita I) total capital investment in the sector was close to Rp 16 billion ($24.2 million equivalent). About 80% of this amount was contributed by GOI, and included the funds provided by external assistance agencies; the balance was obtained from various local sources including provincial budgets. The initial emphasis was on water supply; production capacity increased by 166% during the period. Investment during Repelita II amounted to Rp 166 billion ($251.5 million equivalent), of which Rp 140 billion ($212.1 million equivalent) was invested in urban projects and Rp 26 billion ($39.4 million equivalent) in rural projects. Productive capacity increased by 140% during this period. 28. In 1979, as Repelita II was drawing to a close, it was recognized that the pace of development needed to be accelerated, and that the poor living in the smaller cities and towns must be given urgent priority. Therefore, the GOI embarked upon a "basic needs" approach to projects which seeks rapidly to provide essential service at low-cost to cities and towns. In 1981, through the impetus of the United Nations International Drinking Water and Sanitation Decade, overall service level targets were set by GOI for 1990 as follows: urban and rural water supply to serve 75% and 60% of the total population, respectively; and urban and rural sanitation to serve 60% and 40% of the total population, respectively. Two major programs for meeting the targets for urban water supply in the 1980s are the Basic Needs Approach (BNA) program for cities and larger towns (with populations of 20,000 and above), and the Ibu Kota Kecamaten (IKK) program for kecamaten headquarter towns with populations in the 3,000-20,000 range, which is also part of the Government's basic needs approach. This project finances subprojects under both programs. 29. Basic needs projects are distinguished from earlier programs in that special attention is given to speedy implementation, low cost construction and tariffs which are affordable to the poor. Accordingly, facilities are of low-cost design; half of the population served receives house or yard connections, the other half standpipe service; projects are executed in the provinces and kabuputens by local staff to the extent capabilities permit; goods are purchased in bulk and distributed from regional and central stores; projects are financed as grants and the assets are given free to the water supply entities; and tariffs are expected to cover operation and maintenance costs and depreciation to the extent that it is affordable (although these may be subsidized in the early years of operations when there are few connections). Urban Water Supply - Policies, Issues and Constraints 30. Investment Funds and Cost Recovery. The investment required to meet the 1990 urban water supply target (para. 28) is estimated to be about $1.7 billion, or $240 million per year for the remaining years of the

17 decade. This represents a three-fold increase over the 1981 sector investment budget and an allocation to urban water supply of more than one percent of the total development budget. Given the GOI's constrained resource position, the GOI and Bank have been discussing options to recover from water users an increased portion of the capital costs which could be earmarked to offset the capital cost of subsequent projects. Analysis by Bank staff of subprojects in East Java Province indicate that such cost recovery could finance a portion - perhaps up to 30% - of the capital cost with tariffs at affordable levels. During negotiations agreement was reached that under the proposed project, consultants will study the merits, effects and institutional arrangements for capital recovery, and the findings of the study would help shape future policy in this area (Section 3.10 of the draft Loan Agreement). 31. Project Implementation. By law the provision of water supply is the responsibility of local government, but in reality the central government plays the leading role in design, construction and funding of projects. At the first National Workshop for Water Supply and Sanitation (Bali, 1981) the participating ministries agreed to promote regional autonomy in developing projects. This is desirable given the size and geographical dispersion of Indonesia: efficient implementation of a large urban water program from the center is impractable. It will also help ensure that projects are responsive to local needs. Consistent with the Workshop's recommendations, more design, planning and construction supervision work is being delegated to the regions. The arrangements under the proposed project are consistent with these trends and are intended to serve as a pilot for future projects in East Java and other provinces. 32. Operation and Maintenance. Water systems, although usually built by the DSE, are operated by the local government either as a unit of its public works department (a Dinas) or as a local government enterprise (a PDAM). As a Dinas, staff and accounts are not separated from other government functions and water revenues flow into the local government's general fund. As a PDAM, the enterprise is directed by a board; it employs management and staff who work exclusively for the enterprise, and accounts are independent of other agencies. The concept of PDAMs is sound and the GOI intends that eventually all urban water systems will be operated by them. PDAM's are operating in five of the eight areas covered by the project, and during negotiations agreement was reached that PDAMs would be established in the remaining three areas by December 31, 1984 (Section 3.09 of the draft Loan Agreement). 33. The functioning of PDAMs is not without problems. Newly employed staff require extensive training and lack experience; accounting, management and operational systems have also to be developed. Overstaffing is common and some local governments have used the water systems as a source of general kabupaten income, thus denying the enterprises the necessary financial certainty. The notion of assertively providing a public service through a

18 financially viable and well managed organization, has to be instilled. Support and guidance by a higher authority will thus be necessary for a significant period of time. 34. As part of its institution building function, on centrally funded projects DSE is responsible for the provision of technical guidance, the establishment of PDAM management and accounting systems, and the training of staff in their use. During negotiations agreement was reached to ensure that such arrangements will be made for the PDAMs benefitting from the project (Sections 3.11 and 4.02 of the draft Loan Agreement). Because the DSE has few legal powers and insufficient staff to monitor and control a greatly expanded PDAM system, a PDAM monitoring unit within the structure of Provincial Government was deemed appropriate. The East Java government has designated its Bureau for Promotion of Economic Infrastructure as the responsible office. During project implementation the Bureau's function with regards to PDAMs would be developed in detail and its staff trained. The functions would include: (i) provision of technical and financial guidance to the PDAMs; (ii) reviewing and assisting PDAMs in the preparation of tariff and other charges; (iii) studying investment proposals and reviewing their priority and justification; and (iv) providing channels to exchange information on the improvement of systems and procedures. 35. Human Resources for the Urban Water Program. The DSE is implementing a manpower development program which was started in 1979 under Dutch assistance. The program's objective is to train management, administrative and operating personnel for assignment to DSE and water utilities. The program-has experienced difficulties, some due to design, some to implementation, and at present is not operating at a satisfactory level. CK, with the participation of consultants and a Bank training specialist, is re-evaluating and reforming it, and attempting to move more of the training activities to the provinces. Under the proposed project, funds are allocated to support, in parallel with Dutch funds, a revitalization of both regional and national ttaining activities. This will be coordinated with broader improvements in the Ministry of Public Works training system to be instituted under the proposed Bank-assisted Public Works Manpower Development Project. The topics of training, approximate numbers of trainees, and the preparation and delivery systems to be supported by the proposed water supply project were received and agreed at negotiations (Section 3.11 of the draft Loan Agreement). Bank Lending in the Sector 36. The Bank has assisted GOI with two urban water supply loans covering a total of 12 cities. The first, (Loan 1049-IND, approved in 1974), sought to apply the principal recommendations of a 1971 sector report, expressly that: (a) financing for projects to be by loan rather than grant; (b) semiautonomous water enterprises (PDAMs) be established and developed; *(c) the DSE be reorganized and its management capabilities improved; (d) the functions of the key ministries active in the sector be defined; and (e) staff be trained to implement projects and operate systems. This

19 project is now virtually complete but experienced a 2-1/2 year delay caused in part by design problems, slow and cumbersome procurement procedures, and late deliveries by several suppliers. More specifically, the installation of about 30% of the service connections was subject to significant delays and, consequently, the full benefits of the project will not be fully realized until 1984, about three years later than planned. PDAMs for the beneficiary cities have been developed and are generally performing satisfactorily. The DSE, which underwent reorganization and staff strengthening, improved its capabilities but is still overburdened because its workload expanded so greatly. 37. Important departures from covenants under the first project's loan agreement concern: (i) the GOI's failure to submit adequate audited financial statements for the beneficiary PDAMs (Section 4.02(b) of Loan Agreement for Loan 1049-IND) and (ii) the failure of government agencies to pay their water bills (Section 4.05(b) of Loan Agreement for Loan 1049-IND). The Project Completion Report currently under preparation will review these and other issues. The second Bank project (Loan 1709-IND, approved in 1979) followed along the same lines as the first project. It continued the strengthening of the DSE, the establishment and development of seven PDAMs, and the training of staff. Delays in preparation and procurement of about one year were experienced, but now all supply contracts have been placed and while past delays will not be made up, progress is satisfactory. The possibility of delays in auditing financial statements and non-payment of bills by government agencies are also a concern under the proposed project, but during negotiations GOI presented satisfactory action plans to help rectify these problems (Section 3.10(c) of the draft Loan Agreement). PART IV - THE PROJECT 38. The project is a part of the GOI's Basic Needs water supply and sanitation program (para. 28). The subprojects were prepared by local and foreign consultants financed under Loan 1709-IND. Several preparation missions took place over and an appraisal mission visited Indonesian in June Negotiations were held in Washington in March 1983, and the Indonesian delegation was led by Mr. Radinal Moochtar, Director General, CKe A Staff Appraisal Report (No IND) is being distributed separately. Supplementary project data are provided in Annex III. Objectives and Principal Features 39. The objectives of the project are to: (a) provide safe and reliable water to more than 700,000 persons; (b) establish PDAMs, develop or improve their organizational capabilities and strengthen their technical and financial performance;

20 (c) strengthen DSE and CK managerial capabilities; (d) establish a permanent training unit for East Java Province, strengthen DSE's capabiity to manage nationwide training, and assist in the more rapid decentralization of training to the provinces; and (e) study efficient and appropriate policies for the water supply sector. 40. The water works component consists of equipment and facilities for 50 piped water supply systems. Each system will be complete with source development, pumps and motors where necessary, transmission and distribution pipe, service reservoirs and treatment where appropriate, service connections and public standpipes, and office and workshop space. Water sources have been determined on the basis of least cost and have capacity to produce water of sufficient quantity and quality. Gravity pressure systems will be used where feasible to avoid the need for pumping equipment and recurrent energy costs. Water from all systems would be chlorinated and meet WHO Drinking Water Standards; most systems would meet these standards without treatment. Sanitation is not included in the project but is being addressed under other government programs, including those of INPRES and the Kampung Improvement Program (KIP)./1 41. Thirteen of the subprojects are in cities which fall under the GOI-s BNA program, and 37 in towns under the IKK program (para. 28). The beneficiary cities and towns were selected by CK in consultation with the Ministry of Home Affairs and provincial officials in accordance with appropriate criteria. Facilities are designed in accordance with standards and procedures which have been developed by DSE with the assistance of consultants. Improvements in design criteria have evolved over the past year and this process would be continued under the project; to this end the project includes a review of criteria and the monitoring of existing systems. Accepted recommendations of the review would be implemented as soon as feasible but not later than June 30, 1985 (Section 3.10 (b) of the draft Loan Agreement). 42. The institutional development component of the project is designed to (a) build the eight beneficiary PDAMs into effective, financially viable water enterprises and train their staff (paras. 34 and 35); (b) study, recommend and install systems for assisting and monitoring PDAMs over the /1 INPRES is presidential funding provided directly to provincial and kabupaten governments for projects of their choice. KIP is a program to improve the quality of crowded urban areas; typically it covers walks, roads, drains, water supply and sanitation. The KIP program has been supported extensively by the Bank through four loans for urban development.

21 long-term (para. 34); (c) study PDAM tariffs and the merits and arrangements for cost recovery (para. 30); (d) review and improve upon planning and design criteria (para. 41); and (e) assist DSE and CK to more effectively carry out their responsibilities under the GOIs expanding urban development and water supply programs. Consultants would assist DSE and CK in carrying out this work. Implementation Arrangements 43. The Directorate General of Cipta Karya (CK), through DSE, will have a overall responsibility for the project and for international procurement. A Project Management Unit (PMU), to be a part of the East Java office of the Ministry of Public Works and assisted by the East Java Office of DSE, will manage and coordinate project activities. Day-to-day implementation and construction supervision will be handled by a Project Implementation Unit (PIU) working under the supervision of the PMU. The PMU and PIU will draw staff from Provincial Cipta Karya, the beneficiary PDAMs and kabupaten public works offices. The PMU and PIU have been established and their staff designated. The Units will be assisted by consultants for design, construction supervision and management. The Ministry of Home Affairs, through its Directorate of Urban Development and Regional Autonomy, will assist on policy matters and in dealings with the provincial and local governments. 44. The beneficiary PDAMs are autonomous water enterprises under their respective kabupaten or kotamadya governments. To ensure full participation by the local governments and water enterprises the Governor of East Java has issued instructions to the beneficiary local governments and PDAMs which contain: (a) a description of the physical, institutional building and training aspects of the project; (b) tariff, revenue and financial performance criteria; (c) the obligation to participate in the institutional and training activities included in the project; and (d) the obligation to establish and maintain accounting systems (Section 3.08 of the draft Loan Agreement). Further, in order to define their respective obligations with regard to the project, the Provincial and Central Government have entered into a satisfactory agreement which covers arrangements for implementing the physical, institutional and training aspects of the project (Section 3.07 of the draft Loan Agreement). Project Cost and Financing 45. The total cost of the project, including physical and price contingencies, is estimated at $50.9 million, including a foreign exchange cost of $27.5 million, or about 54% of the total cost. Taxes and duties are estimated at $0.5 million equivalent. Physical contingencies have been estimated at 15%. The base costs are expressed in January 1983 prices. Price contingencies for local costs were estimated at 13% for 1983, 10% for 1984 and 7% per annum thereafter, and for foreign costs at 8% for 1983, 7.5% for 1984, 7% for 1985 and 6% per annum thereafter. The Board documents for this project are based on an exchange rate of Rp 700 to the US dollar.

22 However, after project appraisal and loan negotiations the GOI announced on March 30, 1983, the devaluation of the Rupiah from 700 to 970 per US dollar. While it is difficult at this early stage to completely assess the effect of this decision we have concluded that it will not materially change the basic scope and objectives of the project. The base cost of the project as expressed in dollars equivalent, would decline somewhat and consequently the rate of Bank participation in the project would increase slightly. The project cost, as expressed in Rupiah will increase both because of the 38% upward adjustment of the Rupiah equivalent of the foreign costs and an increase in local inflation which can be expected to follow the devaluation decision. 46. The cost of consultants for project supervision, technical assistance and training is estimated at $5.6 million equivalent. This is comprised of $2.0 million for engineering and supervision (about 7% of the cost of physical works) and $3.6 million for technical assistance and the preparation of future projects. The estimates are based on 1,072 and 312 man-months of local and foreign personnel, using an average total cost (including travel, subsistence and overhead) per man-month of $2,500 for local and $10,000 for foreign personnel. 47. A Bank loan to GOI of $30.6 million equivalent would finance the foreign exchange cost of the project, the capitalized front-end fee of about $0.08 million and $3.06 million in local costs. The Bank loan will finance 60% of the total cost, excluding reserve procurement for vehicles and motorcycles. GOI would provide the balance of Rp 14.2 billion ($20.4 million) from its own resources as DIP funds (i.e., development budget funds) to CK by way of annual budgetary appropriations. Consistent with present national policy for BNA and IKK programs, these funds would be grants to the local government and beneficiary PDAMs (para. 29). Financial Considerations 48. The GOI-s present policy is that operating revenues should cover operation, maintenance, and to the extent it is affordable, depreciation. Agreement was reached during negotiations that starting in 1985 operational revenues of the beneficiary PDAMs will at least cover operation, maintenance and depreciation expenses on revalued assets (Section 4.04 of the draft Loan Agreement). Prior to the devaluation, it was calculated that the average tariff required in 1988 (in 1983 prices) to comply with the covenant would be about Rp 94 per cu m ($0.13/cu m). Preliminary indications are that tariff levels required in 1988 to meet the tariff covenant would now be about Rp 101 per cu m ($0.10/cu m at the new exchange rate), or about 7% higher than shown in this report. The tariff structure would be in accordance with CK Guidelines which are to be reviewed and modified if appropriate under the project. Under the revenue covenant the PDAMs will be financially viable and generate more cash than needed for operations. During negotiations, agreement was reached that the depreciation allowance would be used exclusively for improvement and expansion of water systems (Section 4.04(d) of the draft Loan Agreement).

23 The GOI has agreed to reconsider financial policies for the sector in preparation for Repelita IV (para. 30). During negotiations agreement was reached that a study would be carried out under terms of reference agreed with the Bank, based on the eight beneficiary PDAMs, of alternatives to grant financing and tariffs that would produce satisfactory levels of financial performance as well as capital cost recovery while remaining affordable to consumers (Section 3.10(a) of the draft Loan Agreement). The accepted recommendations of this study as they relate sectorwide to tariffs and cost recovery policy would be implemented by December 31, The specific recommendations for the beneficiary PDAMs would be implemented by Jufte 30, Procurement and Disbursement 50. Civil works to be implemented under the project estimated at $16 million, excluding contingencies, would be widely dispersed, of small scale, labor-intensive and therefore not suitable for ICB. IKK civil works contracts would average less than $100,000 each, BNA contracts, less than $500,000, although about two contracts may be slightly more than $1 million. Therefore, civil works would be bid in accordance with GOI procurement regulations which are satisfactory to the Bank. They would be packaged to enable small contractors to participate individually, and to attract large contractors or joint ventures of smaller firms. Bidding would be done on the basis of standard contract documents agreed with the Bank. Equipment and materials with an estimated value of $14.8 million (excluding contingencies) including pipes, fittings, well screens, casings, pumps, meters and chlorination and well drilling equipment would be procured under ICB. Vehicles including motorcycles will be subject to reserve procurement. Equipment and materials required in small lots or on an urgent basis, valued individually at less than $100,000 and totalling less than $2.0 million, would be procured through GOI procedures acceptable to the Bank. Local manufacturers would be granted a preference of 15% of the CIF price of imported goods, or the customs duty, which ever is lower. No prior review of civil works procurement documentation by the Bank is proposed because: (a) all civil works contracts are individually small and will be let on the basis of local procedures; and (b) Bank emphasis has been to review and agree on the local procedures to be followed and the standard contract documents to be used. Bank supervision missions will, however, conduct random post review. All bidding packages for equipment and materials over $200,000 equivalent would be subject to the Bank-s prior review of procurement documentation. 51. The proceeds of the loan would be disbursed against the following categories of expenditures: (a) 45% of the costs of civil works contracts; (b) 100% of foreign expenditures for materials and equipment; (c) 95% of local expenditures (ex-factory) for materials and equipment procured internationally; (d) 65% of local expenditures for materials and equipment for items imported and locally procured; and (e) 100% of total expenditures for consultants' and specialists' services (including training specialists) and for overseas training. Disbursements for civil works

24 contracts will be against periodic statements of expenditures. Funds for the remaining project components will be provided by the GOI. The loan would be disbursed over the period This project is expected to have a shorter disbursement period than the average historical disbursement profile for Indonesia because final designs are in progress, procurement actions have begun, and the systems are relatively simple. Accounts and Audit 52. The implementation units will maintain separate accounts for all project expenditures. During negotiations agreement was reached that the GOI will have the project accounts, including statements of expenditures, for each fiscal year audited by independent auditors acceptable to the Bank, and furnish the Bank with copies of the audited accounts not later than seven months after the end of each GOI fiscal year (Section 4.02 of the draft Loan Agreement). Benefits and Risk 53. The population density of Java is higher, the poverty is greater, and water scarcer than elsewhere in Indonesia. In this setting the proposed project will meet the basic water supply needs of the population in priority cities and towns of East Java Province. The project's systems are designed for low cost and rapid implementation, and will reach the poor at affordable prices. The project will benefit about 720,000 people by 1988, and about 50% of the beneficiaries are estimated to be below the relative poverty level for Indonesia. Under the proposed revenue covenant water charges will be well below 2% of the monthly incomes for low-income families and below the 3-7% range considered affordable for the others. While as a result of the devaluation tariffs in 1983 prices will be 7% higher, this will not however affect the affordability of the project to the beneficiaries since the resulting higher water bills would still be well within the capacity of even the poorest consumers to pay. Raising the health and living standards of the population is the main purpose of the project, but emphasis is also placed in the achievement of sound institutional and financial policies for the sector, the strengthening of DSE and other sector institutions and the establishment of financially viable and effectively managed PDAMs. The overall project and the individual subprojects represent the least-cost method for providing basic water service. 54. The justification for the project is that it provides at least cost essential and safe water supply service to a heretofore unserved population (half of whom are poor) and that it provides the means for strengthening sector institutions and policies. The economic rates of return (ERR) were calculated using water charges as a surrogate of economic benefits: charges paid at present by consumers for purchases from meter vendors were used for up to 15 lpcd, and average water charges under the proposed tariff level and structure were used for higher consumption. ERR-s so calculated average 4% and range from 3-6%. A 20% increase in capital

25 costs would reduce the average ERR to 3%. These rates of return, however, are not a fair measure of the full benefits of the project as they do not adequately capture externalities (such as health benefits) which accrue to the community at large or the benefits which result from the new system to the present users in the form of improved service. 55. Project risks are that the provincial CK and kabupaten staff have never carried out water supply projects of this scope, and their capabilities have not yet been proven under this expanded program. This risk is mitigated by the establishment of a PIMU which will draw upon more experienced staff and consulting advisors, and the support to be given the PMU by CK and DSE. Also, as some design features are innovative and have not been extensively tested in Indonesia, there could be functional problems or reluctance by consumers to accept this technology. The systems have been used in the Philippines, and are now being installed in West Java where they will be tested. During project execution the design features would be evaluated and if necessary and feasible, the designs will be modified. The low cost of using these designs and the reasonable certainty that they will work justifies this risk. Most of the prospective consumers presently obtain their water from rivers and shallow wells. As it is sometimes difficult to wean people away from these traditional sources, there is some risk that the project will be underutilized. This risk is reduced because during project preparation, the community leaders were consulted by the project preparation teams to determine if they wanted a new system and were willing to pay the water charges; also the systems are nominally designed to serve only 60% of the population. Finally there is the substantial risk that the systems will not be effectively and efficiently operated and maintained because the PDAMs are new and inexperienced in operations; staff must be hired and trained, and sound public utility practices have to be introduced and accepted. The training and institutional development of the PDAMs, and the mechanisms to be established to provide assistance and control of the PDAMs, mitigate this risk. Environmental Aspects 56. Because it provides safe, potable water, the project will have a positive environmental impact and improve the quality of life of persons in the beneficiary cities and towns. During construction there will be some disruption of vehicular and pedestrian traffic, and earth excavation will increase sediment loads of storm water runoff, but these will be temporary situations without major detrimental effects. After project completion the volume of wastewater will increase, but this will be limited by virtue of the low capacity of the water supply system, and the expected volumes will be readily handled by existing storm water canals and drains. Moreover, some wastewater will probably be used for watering gardens and controlling dust. The quality of the wastewater would at worst be that of wash and laundry water and free of fecal matter.

26 PART V - LEGAL INSTRUMENTS AND AUTHORITY 57. The draft Loan Agreement between the Republic of Indonesia and the Bank and the report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement are being distributed to the Executive Directors separately. Special conditions of the project are listed in Section III of Annex III. 58. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 59. I recommend that the Executive Directors approve the proposed loan. Attachments April 11, 1983 Washington, D.C. A. W. Clausen President

27 ANNEX I Page 1 of 5 pages INDONESIA - SOCIAL INDICATORS DATA SHEET INDONESIA REFERENCE GROUPS (WEIGHTED AVERAGES AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE)Ia TOTAL MOST RECENT LOW INCOME MIDDLE INCOME AGRICULTURAL /b 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC GNP PER CAPITA (US$) BO ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) URBAN POPULATION (PERCENT OF TOTAL) ,4 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) STATIONARY POPULATION (MILLIONS) YEAR STATIONARY POPULATION IS REACHED 2110 POPULATION DENSITY PER SQ. KM PER SQ. KM. AGRICULTURA LAND POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS YRS , YRS. AND ABOVE POPULATION GROWTH RATE (PERCENT) TOTAL URBAN CRUDE BIRTH RATE (PER THOUSAND) CRUDE DEATH RATE (PER THOUSAND) GROSS REPRODUCTION RATE FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) USERS (PERCENT OF MARRIED WOMEN) FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA ( ) PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) /c PROTEINS (GRAMS PER DAY) /C OF WHICH.ANIMAL AND PULSE /C CHILD (AGES 1-4) MORTALITY RATE HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) INFANT MORTALITY RATE (PER THOUSAND) ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL /d URBAN h RURAL o ACCESS TO EXCRETA DISPOSAL (PERCENT CF POPULATION) TOTAL /e URBAN oe RURAL ; POPULATION PER PHYSICIAN POPULATION PER NURSING PERSON POPULATION PER HOSPITAL BED TOTAL /d URBAN /d RURAL /d ADMISSIONS PER HOSPITAL BED /e HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL URBAN RURAL AVERAGE NUMBER OF PERSONS PER ROOM TOTAL URBAN RURAL ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL.... URBAN.... RURAL....

28 ANNEX I Page 2 of 5 pages INDONESIA - SOCIAL INDICATORS DATA SHEET INDONESIA REFERENCE GROUPS (WEIGHTED AVEIRAGES - MOST RECENT ESTIMATE)L- MOST RECENT LOW INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b ASIA 6 PACIFIC ASIA 6 PACIFIC EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL MALE FEMALE SECONDARY: TOTAL MALE FEMALE VOCATIONAL ENROL. (% OF SECONDARY) PUPIL-TEACHER RATIO PRIMARY SECONDARY ADULT LITERACY RATE (PERCENT) CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION /c RADIO RECEIVERS PER THOUSAND POPULATION TV RECEIVERS PER THOUSAND POPULATION NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 11.0,, 17.7/d CINEMA ANNUAL ATTENDANCE PER CAPITA 2.8 *- 0.87C LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) FEMALE (PERCENT) AGRICULTURE (PERCENT) INDUSTRY (PERCENT) PARTICIPATION RATE (PERCENT) TOTAL MALE FEMALE ECONOMIC DEPENDENCY RATIO INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS d HIGHEST 20 PERCENT OF HOUSEHOLDS ; LOWEST 20 PERCENT OF HOUSEHOLDS d LOWEST 40 PERCENT OF HOUSEHOLDS POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN RURAL ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN RURAL ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN RURAL Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /aa China included in total only. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1978 and /c 1977; /d 1976; /e May, 1982

29 ANNEX I Page 3of 5pages RbbINItTbbtb O 01155AM. INDICATlORS NI,-a Mehnob b dbsas d rawn- lo- sobesg In,ea jodge the cost -bootat d telitic- ilb ebot- ls be soled obb ha b o be J,baset ntsito bo ooasseobo Otto ofbbs loo 00 bbasscdbcao Ib: abo- and os- -ob... d by dllfco-no ooylaisocot lb at - 7ho dat-ae batas bso 0 rdobteo -rtsotos.1ao-ltts a--tcoree ereosly t-p iletcoot eeace-osobslc bi blo otobboylsoccb solosor lot 'tbgtlicosat to>btsssr g-o char 'Hidbdl,, looses berh Aflsot asftdddls tib- b ob-osb osb -- coo booal toco 551-obbao In cb reatt-o- db t a dar- t nogboeyplbaabtc eisslb-abbo abas b- coot t-1, at,o stoa -sy altos -flc b o t -os -e booi g-oo Ica dot o- ibso sd,,dabor. botcos-ssrg t slrbs fosbot_dobr doosdl at-la-sa) hibo 0 ddb ob 0005 lb,aooaod s.o c e.bpod l.n aso0lopolsd--s,oroi. oh pfla -ba(tal ON? so cqylta (bo)-ci r lytsstaas t0tyssara rones.-ool sthl oars 005, bii Illsood R basa tatooabs ta t, -ooot beailb -obatd by rosoaresoetots ol ls ba Ol0l,thasol 101, so tabol o 'tts Ireoasl -balot hr a lhylon ir- (boor by ae.aaoe llbaiob-a1saot lit,od doy. aeba nbso t....- btdsse fcoco soleao d... so d..l. teebna data- isolsllaioob oat~~ bohloo bed - Tota b-bot at OSISOts OotObotaat lo oslaa -ndod by tlbs oohs Tab-tsolboo, I-as ehnoda b Iliyl lint, 10111, sad IlOb OLLobIboI dissatopo-ssli-os orsoosil elyyls - j ff,e - 61 Sr snoo ohl occ,cl.. otlt, AO a a aoodotol oh - tlc laao iioarbrica 0 0 ooocro-l; -- Ilo, loll, -bt IdO tso-bs ooaoo o rosalooortnolohlono onsbgasobersolossos 0t ran - ssol, -son, ot osal -sara a or l'blabo00ya 10Oblo-.oOttb~0t "I 00 ocooco In "o 1110taco lo pe--i arsa In I otbot. sod 'oif 0:oy3 o500lco l-ori yosobetoob>- ss ato sod toso tosolbo s.ad lorollsat.llloo biiotoor- Ol--lO. 0 WOtAlloOt aor5odo --o-nroaytt od -Oot 5m aro..bo Ibt5lrbla byostnnooesyofsoasissl Ooo- rt00o boalon asrabo.-csohbrtooo,cooosdoabtoonoruoaasooloscoasa IcOtobo ta.ocoaipso tarliosol-oats, orta. osyo-od ant no-ol-oooo' sy "Joloolr-ltra10 raloso,llcoyooo onts- asl, IloO fool-tbos -00,sl al 5 atsooson t 00 avooontmb,so ooor ae daciij ti 55 ttooho- yaaooo r s-oily i, Inoldoo oloald-e Ott I-l 1 obsanboototolai o oc00ooscy-roo 00 yst cba Iarl. saaostyoololsistdts21isstlanoo 5losyooost1h rrnto sohs,oo 1-- boo riaryo, os-obiebo lrtycl r05soaooonol r bolos or ohon ttt nolo 0m stot_5 PIns olot aol.tst.i I mb 11 o nd 1111 doss. yot-ososrsi-oso,s d s,notsn-ooo I-td-bbi- IatI Ososl.l)~ypi~y Ooo-o<osr_lteoo)-lbcono-l eo oioosoi--orlsar eod -tot,-ey I..o.s dooat-o 01 -sotr,1 of -ashess Inht less -- oisboe I los-k to`o to -d0 WC ord1)-?oaolsssai no's oosth oroso- atrool ornaslo so-os o "Iho soya- 000l--o o 119tb 10 00nd -0 A t-10 las-55 bnoadypi!lo 0 Io 5- _rdrarhs,l±ynoo-0 arol 0o-loo lo - tsldaacotvootssevn rotltnossldyooolae-tt 500 toy 1o Oar too no-'s.- inoy 'l,aolidl yaynlsloa 1010 oat Is ~ 0 0 o oso. toosoos-no ~srrs or pbsaboosso I yotlorso;ivso- tatot lasobardoo orooaslhr nh-s o oyoasoonn t.ltsr-nilosalenelos t lrcoys 0 ari0tos ohooats Tot -t r.di Os aral osntroosyesn s lo aptsoto taso alo-e- atorlc ta-_ d 55f~ ste OInoas 0 5a-o..st.t too ot, o-booo J, sloa F laotaool tryar0505 slt rit, 11 c 00 ooo-oyssooloe aso Oso'o cotc soslo tiota., ol-osoloooattttceoor loa-oonoa lesoos -sdyyolsoo.- tooot 00I ti-ood-kae sosooc o tirrotrsraond.ros-ooatoaonnionlo-lsrnonyro.. 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Ito. bolc-a&o.occ Io ato lao lootrog,00000 to1o n s a o a l -,as s o d n o o s a t o y y s s o o s l o a s a r o o s o t l l s b s o ao s oo a 0 c I ' i b r l t b.i ' s k lo_s a nlystotroooy-dosa nnro.osnh,d h, 0 So-a 0 P-hod oalgoo-. aggndesksto If sy rss sbgooaoobo aoaoyo sidonts-rsoelsotoyos tt.oolsioaatbltr.sofoooaoaooodlsorlolssaeoodsoon asoooaoolooaaisosions too,botrno t&.t 112 s) 'IlOb,E1i1. rt 510 s-s sn-10 brr-jsasool oconos IpasylIn arsscttblotolr ' IeIto soot )rrt-oooo....i sh,aoo oo yot yo so sor-ototsyo. soooo lotsst0doa~i o-aosbsssy crotoaoaoolsbsoat-o.loot-ss acaloonnancbolaa ba rn aoo os--as o Osl yylso losett b looaorosoo o lal...rscotsy so sl aso yteeo sorss Is co s-ld ro-- t - h 400oh!,-I _a51-rs oncorb 1 bool oc 115 tas 010so Stror OlnI-n. 101 sot too edto baty Ioko Os nabla osflin rabaot ooaoosloo ~Ol U 0 c, - stots soypy ot O.,t by InptIborOn h d bbyo onh- osalir dlol al 0 st o oosys at 141, 10 ntio~sb. 4110bl6blOlO aotorsltolonob0olynoi9bl5o~ 0 atd boysdto-nosrla-sdn-s-loo-dooooo--sodeoato PyrI,l(11 oeosooatrov-.aolotsoo Otns..Oosoc os- lssh.sabr ba.botooso- t.iaa-oio o oa ofan arls,lbo ertnss.tlo, 00 nd130ots tsota ossy' rs olior lo-o Isslo -shoohs-solso 5 bo Iesb I'llatr).oas o 0 pysa tot. bbi...oa.oea ls-nsrtb l as oe t lt soots co-oo o;ossr.s s o bsroftoollsisoeai so coottildi-, t' oshor -bbasosls.sssosl olttsaahi--1- l~i. `-sroo-o loooo - tsntsttab 's >o-toslssoea bbiosstblooon ahosso os -0 ott ros oas lors-o It-ItI opot-a-, oo I,- -asssoo- hso- as--,, os- sdryh Ifssylst, FsneaIy.Oslooorosno esaiost-i2bss 1 h-50s ,-ossolbrrldioas baobt oroo otlbo osssblotooloo-s. olt aa.soonolotas lonooosaodotiaas ycestoy70 esn realoosnoyt lo:ot-sleaa.fo hroni I soootb -- os ossbrtasoleart tsnocsoesoto aoslos alastb eootlos-_ootlol 000 sts a eost-ro aolo rotoatsaretat, -ddioeht,se boaertso Ia.. 5 od...a~sottotsooooloaooo-tilarosa tletitdohaoss_d--oosl or oor-o -OOasb (_- sr

30 ANNEX I Page 4 of 5 pages Population : million (mid-1980) GNP per Capita: US$520 (1981 estimate) INDONESIA - ECONOMIC INDICATORS Annual growth rate (%) Amount (at constant 1973 prices) (million US$ at current prices) Actual Estimate Projected Indicator NATIONAL ACCOUNTS Gross domestic product /a 70, Agricultdre 18, Industry 29, Services 22, Consumption 48, Gross investment 15, Exports of GNFS 21, Imports of GNFS 15, Gross national savings 17, PRICES CDP deflator (1973 = 100) Exchange rate Share of GDP at market prices (%) Average annual increase (%) (at current prices) (at constant 1973 prices) Gross domestic product Agriculture Industry Services Consumption Gross investment Exports of GNFS Imports of GNFS Gross national savings , As % of GDP PUBLIC FINANCE /b Current revenues Current expenditures Surplus (+) or deficit (-) Capital expenditure n.a Foreign financing OTHER INDICATORS Annual GNP growth rate (2) Annual GNP per capita growth rate (%) Annual energy consumption growth rate (%) ICOR Marginal savings rate Import elasticity /a At market prices. /b Central Government only, on an April-to-March fiscal year basis. East Asia and Pacific Programs March 31, 1983

31 Population million (mid-1980) ANNEX I GNP per Capita: US$ 520 (1981 estimate) Page 5 of 5 pages INDONESIA - BALANCE OF PAYMENTS, EXTERNAL CAPITAL AND DEBT (Millions US$ at current prices) Actual Estimate Projected Indicator BALANCE OF PAYMENTS /a 1. Exports 10,861 11,353 17,494 22,245 22,994 19,385 18,193 22,270 25,344 48,180 (a) Oil & LNG (gross) 7,354 7,374 11,323 16,661 18,824 15,631 13,893 16,979 19,004 31,759 (b) Nonoil 3,507 3,979 6,171 5,584 4,170 3,754 4,300 5,291 6,340 16, Imports (including net NFS) -10,686-11,493-14,035-18,649-22,096-22,900-21,472-22,558-23,740-39,850 (a) Oil sector -2,909-3,364-4,348-5,884-5,407-5,468-4,617-4,451-4,467-7,001 (b) Nonoil imports -7,241-7,543-9,028-11,790-14,022-14,803-14,388-15,584-17,029-30,155 (c) NFS (net) ,667-2,629-2,467-2,523-2,244-2, Resource balance ,459 3, ,516-3, ,604 8, Factor sefvices ,015-1,261-1,205-3,267-3,772-4,151-5,004-5,910-10,245 (a) Interest public debt ,118-1,319-1,617-1,953-3,036 (b) Other (net) ,427-2,654-2,832-3, , Capital grants Balance on current account ,109 2,250 2,467-2,302-7,388-7,530 5,395-4,405-1, Direct foreign investment , Public M & LT loans (a) Disbursement 1,956 2,205 1,865 2,536 3,203 5,180 5,920 6,684 6,673 7,091 (b) Amortization ,548-1, ,001-1,376-1,770-2,042-2,440-5,120 (c) Net disbursements 1, ,583 2,202 3,803 4,200 4,642 4,233 1, Other capital (net) ,261-1,454-1, , Change in reserves (- increase) ,690-2, , , Net official reserves 2,208 2,916 4,606 7,342 6,354 4,120 3,390 3,445 3,871 8,775 Reserves in months of nonoil imports + NFS Memorandum Item Net foreign assets of the banking system /b - - 6,906 10,787 11,154 7,420 5,390 5,445 5,871 10,775 Total reserves in months of nonoil imports + NFS EXTERNAL CAPITAL AND DEBT /c Gross Disbursements 1,956 2,205 1,865 2,536 2,356 Concessional Loans Bilateral IDA Other Nonconcessional Loans 1,514 1,721 1,432 1,858 1,552 Official export credits IBRD Other multilateral Private - source 1,089 1,270 1,126 1,450 1,206 External Debt (fixed-term) Debt outstanding & disbursed /d 11,658 13,107 13,233 14,882 15,529 Official - source 7,077 8,390 8,434 9,400 9,746 Private - source 4,583 4,717 4,799 5,482 5,783 Undisbursed debt 4,475 5,839 7,932 9,454 11,288 Debt Service Total service payments 1,262 2,062 2,101 1,772 1,974 Interest Payments as % exports /e Average Interest Rate on New Loans - (%) Official - source Private - source Average Maturity of New Loans (Years) Official - source Private - source As % of debt outstanding at end of 1981 Maturity structure of debt Dutstanding Maturities due within 5 years 30.9 Maturities due within 10 years 60.2 Interest structure of debt outstanding Interest due within first year 4.1 /a On an April-to-March fiscal year basis. /b Includes foreign assets of deposits money banks in addition to official reserves. /c Excludes private nonguaranteed loans. /d At end of period. East Asia and Pacific Programs /e Oil exports treated on gross basis. March 31, 1983

32 ANNEX II Page 1 of 29 pages THE STATUS OF BANK GROUP OPERATIONS IN INDONESIA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of February 28, 1983) US$ million Loan/ Amount Credit Fiscal (less cancellations) Number Year Purpose Bank IDA Undisbursed Twelve Loans and thirty-five Credits fully disbursed Smallholder and Private Estate Tea Pulo Gadung Industrial Estate Bali Tourism Sixth Irrigation Agricultural Research & Extension National Resource Survey & Mapping Fourth Highway Fourth Education Second Shipping National Food Crops Extension Seventh Irrigation Transmigration and Rural Development Second Urban Development Tanjung Priok Port Sixth Power Nutrition Development Teacher Training-Fifth Education Eighth Irrigation Ninth Irrigation Second Population Non-Formal Education Nucleus Estates and Smallholders I Seventh Power Small Enterprise Development Tenth Irrigation Eleventh Irrigation Rural Credit Nucleus Estates & Smallholders II Polytechnic Twelfth Irrigation Third Urban Development Fifth Technical Assistance Lower Cimanuk Basin Flood Control Second Agricultural Training Fifth Highway Fourth BAPINDO

33 ANNEX II Page 2 of 29 pages US$ million Loan/ Amount Credit Fiscal (less cancellations) Number Year Purpose Bank IDA Undisbursed Transmigration II Transmigration II Eighth Power Second Water Supply Yogyakarta Rural Development Nucleus Estates & Smallholders III Smallholder Rubber Development Fifteenth Irrigation National Agriculture Extension II Fourteenth Irrigation Nucleus Estates & Smallholders IV National Agricultural Research National Agricultural Research Third Population Ninth Power Smallholder Coconut Development University Development Tenth Power Swamp Reclamation Fourth Urban Development Nucleus Estate and Smallholder V Second Small Enterprise Development Jakarta-Cikampek Highway Eleventh Power Second Seeds Bukit Asam Coal Mining Development & Transport Rural Roads Development Second Teacher Training Second Textbook Sixteenth Irrigation Seventeenth Irrigation National Fertilizer Distribution Nucleus Est. & Smallholders VI Coal Exploration Engineering Central Java Pulp & Paper Twelfth Power / Nucleus Estates & Smallholders VII / Provincial Health / Jakarka Sewerage & Sanitation / /1 Not yet effective.

34 ANNEX II Page 3 of 29 pages US$ million Loan/ Amount Credit Fiscal (less cancellations) Number Year Purpose Bank IDA Undisbursed Total Bank loans and IDA credits 5, Of which has been repaid Total now outstanding 4, Amount sold to third party Amount repaid by third party Total now held by Bank and IDA /a 4, Total undisbursed 3, , /a Prior to exchange adjustment.

35 ANNEX II Page 4 of 29 pages B. STATEMENT OF IFC INVESTMENTS (as of February 28, 1983) Fiscal Type of Loan Equity Total year Obligor business ---- (US$ million) P.T. Semen Cibinong Cement P.T. Unitex Textiles P.T. Primatexco Indonesia Textiles P.T. Kabel Indonesia Cable P.T. Daralon Textile Manuf. Corp. Textiles P.T. Jakarta Int. Hotel Tourism P.T. Semen Cibinong Cement P.T. Primatexco Indonesia Textiles P.T. Monsanto Pan Electronics P.T. PDFCI Devel. Fin. Co P.T. Kamaltex Textiles P.T. Semen Cibinong Cement P.T. Semen Cibinong Cement P.T. Daralon Textile Manuf. Corp. Textiles P.T. Kamaltex Textiles P.T. Daralon Textiles P.T. Papan Sejahtera Capital Market P.T. Indo American Industries Glass Dinnerware P.T. Semen Andalas Cement and Indonesia Construction Material P.T. Saseka Gelora Leasing Capital Market Total gross commitments Less: sold or repaid and cancelled Total held by IFC Undisbursed (including participant's portion)

36 ANNEX II Page 5 of 29 pages C. STATUS OF PROJECTS IN EXECUTION /1 As of March 31, 1983 These notes are arranged by sectors in the following order: Page No. Agriculture Irrigation (1100, 1268, 1434, 1435, 1578, , 1645, 1691, 1811, 995, 1958, 2118 and 2119) Other Agricultural Projects (1707/919, 1499, 1604, 1751, 1835, , 2126, 2232, 984, and 1898) Agriculture Support Services (996, 1840/1014 and 2066) 14 Rural Development (946) 15 Agro-Business and Credit (785, 827 and 2011) Education (869, 1237, 1433, 1486, 1692, 1904, 2101 and 2102) Energy (1365, 1513, 1708, 1872, 1950, 2056, 2079, 2153, and 2214) Industrial Development and Finance Industry (2199) 22 Development Finance Companies (1703) 22 Population and Health Population (1472 and 1869) 23 Health (2235) 23 Technical Assistance (898 and 1197) 24 Transportation Fertilizer Distribution (2120) 24 Highways (1696, 2049 and 2083) Marine Transport (1250) 26 Ports (1337) 26 Tourism (479) 27 Urban Development (1336, 1653 and 1972) Water Supply and Sanitation (1709 and 2236) /1 These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.

37 ANNEX II Page 6 of 29 pages C. PROJECTS IN EXECUTION AGRICULTURE Irrigation Loan No Sixth Irrigation: $65 Million Loan of April 10, 1975; Effective Date: June 20, 1975; Closing Date: June 30, 1984 The project is currently expected to be completed by March 1984, about two years behind the original completion date. This is mainly due to delays in the completion of bidding documents and land acquisition, delayed payments to contractors and the effects of the 1978 Rupiah devaluation. Another year-s delay has been added lately by the postponement of drainage works in both Rentang and Cirebon subprojects due to budget constraints. Disbursements at the end of February 1983 were about 89% of the appraisal estimate. Because of the continuing delays the Closing Date has been postponed by two years. Loan No Seventh Irrigation: $33 Million Loan of June 4, 1976; Effective Date: September 21, 1976; Closing Date: December 31, 1983 The main components of the project are tertiary development on an area of 100,000 ha served by irrigation systems rehabilitated under previous projects and the construction of 6,000 ha of a new irrigation system in the Sadang area of South Sulawesi. The construction of tertiaries has progressed well and gained such a momentum that the scope of work was increased to 115,000 ha. About 111,000 ha have been completed and the balance was expected to be completed by early The construction of North Sadang has suffered a delay of about four years due to design revisions and late award of contracts. Completion of the project is expected by March Disbursements at the end of February 1983 were about 80% of appraisal estimate. Loan No Eighth Irrigation: $63 Million Loan of June 6, 1977; Effective Date: July 7, 1977; Closing Date: March 31, 1984 The main components of the project are rehabilitation of the Madiun Irrigation System (Stage I) serving an area of about 75,000 ha, including 30,000 ha of tertiary development, a pilot ground water scheme for 2,800 ha in the Madiun-Solo area and the improvement of flood control, drainage and road networks on 5,700 ha of coastal land in Ciujung. All of the stage I area (75,000 ha) has been completed. Only the drainage works and road improvement in both the Ciujung and Madiun subprojects are expected to be delayed due to budget constraints and lack of experienced staffing. GOI has mobilized additional engineers and foreign consultants for construction supervision

38 ANNEX II Page 7 of 29 pages at Ciujung and has tapped additional sources of funds to keep the Madiun works on schedule. Disbursements at the end of February 1983 were 51% of the appraisal estimate. Loan No Ninth Irrigation: $35 Million Loan of June 6, 1977; Effective Date: July 7, 1977; Closing Date: December 31, The project includes (a) rehabilitation of 8,000 ha of irrigation system, drainage rehabilitation on 19,000 ha of the Sedeku area in Central Java; (b) new irrigation pumping system on 3,280 ha at Sungai Dareh-Sitiung (Stage I) in West Sumatra for transmigrants; and (c) feasibility studies of ten small to medium irrigation projects and of the Sungai Dareh-Sitiung (Stage II), with detailed designs. Delay in completion of the Sedeku irrigation drainage rehabilitation by about three years continues, compared to appraisal estimate. The Sungai Dareh-Sitiung (Stage I) construction has progressed well. Pumps were commissioned and trial runs made. The main and secondary canals are completed, the tertiary network is 95% completed. Land clearing and levelling is progressing satisfactorily and is about 60% accomplished. Feasibility studies of ten small to medium irrigation systems have been completed. One of these schemes is now under execution with cofinancing from the Federal Republic of Germany (KfW) assistance while detailed design of another (about 29,000 ha) is being financed under Irrigation XVII (Loan 2119-IND). Detailed design of Sungai Dareh Sitiung Stage II (about 8,800 ha) has been completed and its construction is being financed under Irrigation XVI (Loan 2118-IND). Disbursements at the end of February 1983 were about 87% of appraisal estimate. Loan No Tenth Irrigation: $140 Million Loan of June 6, 1978; Effective Date: August 16, 1978; Closing Date: December 31, The project includes: (a) rehabilitation and improvement of about 34,700 ha of Kali Progo irrigation system; (b) improvement of about 19,900 ha of Way Seputih; (c) improvement and expansion of about 63,100 ha of Way Sekampung irrigation projects; (d) studies and detailed designs of two dams associated with (b) and (c) above; (e) studies of Dumoga and Gumbasa irrigation projects; and (f) consulting services for the above and also studies of two dams in the Kali Progo project area and extension of irrigation to Bekri, West Rumbia, Way Kandis and Way Ketibung in Lampung Province. Due to initial delays in survey and mapping of the Way Seputih/ Way Sekampung irrigation service areas, delay in deciding canal capacities till completion of the dam studies and staff shortage during the years 1979 and 1980, implementation is behind schedule by about two years. However, the field surveys and the dam studies have now been completed and the staffing situation has improved. Consultants have made substantial progress on the preparation of designs and tender documents for the project. Due to the GOI decision to defer construction of the Batutegi dam for 3 to 4 years, the scope of the project has been revised. Disbursements are currently

39 ANNEX II Page 8 of 29 pages about 35% of appraisal estimate. Studies of Dumoga irrigation project were completed and implementation of its works included in Irrigation XV (Cr. 995-IND). Loan No Eleventh Irrigation: $31 Million Loan of June 6, 1978; Effective Date: August 16, 1978; Closing Date: December 31, The main part of this project, the Cipamingkis irrigation subproject is progressing well. This will serve an area of about 7,600 ha. Its headworks with intake structure are completed while contracts for main and secondary canals will be completed only a little behind schedule. Tertiary design and construction are behind schedule but the project is currently estimated to be completed by June 1984, a delay of 18 months as compared to appraisal estimate. Feasibility studies including detailed designs of a new Glapan barrage and mid-lusi river diversion irrigation system are underway. These replace the preconstruction work previously planned for the Jragung dam, which is now being deferred. The Hydrological measurement program is expected to be completed with a delay of about 18 months and will be completed in early Disbursements were about 58% of the appraisal estimate at the end of February Loan No Twelfth Irrigation: $77 Million Loan of December 29, Effective Date: May 10, 1979; Closing Date: March 31, The project includes: tertiary development on about 186,000 ha of the Jatiluhur Irrigation System, W. Java; drainage improvement in the Cisedane irrigation area including upgrading of roads in W. Java; and studies of drainage and flood control in Pemali-Comal and Sadang irrigation areas; tidal and swamp lands development for about 350,000 ha in the Lalang and Mesuji areas of S. Sumatra, and the Sebangau area in Kalimantan; and detailed designs for reclamation of about 110,000 ha of swamp land in Karang Agung of S. Sumatra. The area of tertiary development has been increased to 205,800 ha. All the civil works contracts of Cisedane drainage and roads improvement are awarded, currently estimated to be completed by March 1985, a delay of a year over appraisal estimate. All studies are completed. Disbursements at the end of February 1983 were about 42% of the appraisal estimate. Loan No Lower Cimanuk Basin Flood Control: $50 Million Loan of May 7, 1979; Effective Date: October 16, 1979; Closing Date: March 31, The main components of the project are flood protection levees, bank stabilization and river training works on the lower Cimanuk river, widening of the Rambatan Channel and construction of a hydraulic control structure at Bangkir, the Cimanuk river estuary study and the flood control operating and flood forecasting study. Good progress has been made on the

40 ANNEX II Page 9 of 29 pages civil works and various studies. Civil works are expected to be completed by mid Disbursements at the end of February 1983 were about 43% of the appraisal estimate. Loan No Fourteenth Irrigation: $116 Million Loan of April 3, 1980; Effective Date: July 3, 1980; Closing Date: January 31, 1986 The main components of the project are construction and rehabilitation of drainage and flood protection works on the Serang River to reduce flooding of some 61,000 ha of farm land, rehabilitation of the Madiun Irrigation System (Stage II) serving about a 65,000 ha area; and tertiary development serving a 120,000 ha area in the Pemali-Comal and Pekalen Sampean subprojects. Contracts for flood mitigation works for the Serang River have been awarded after one and a half year's delay because of weak management and slow land acquisition. Works in the Madiun area and the tertiary development are progressing well ahead of schedule. Disbursements at the end of February 1983 were about 52% of appraisal estimate. Credit No. 995 Fifteenth Irrigation: $45 Million Credit of April 3, 1980 Effective Date: July 3, 1980; Closing Date: January 31, 1985 The project includes: completion of the Kosinggolan Irrigation System on about 5,000 ha and construction of the new Toraut Irrigation system for 6,600 ha; catchment protection and establishing a nature reserve on an area of about 100,000 ha; institutional support through consultancy services and training; and studies and investigations of four irrigation systems. Construction of the Toraut headworks and the first 2 km of the main canal which commenced in January 1981 is progressing satisfactorily. Offices, staff houses, and a rest house at Menado have been completed. The award of two ICB contracts is behind schedule and project completion may be delayed to June 1985 (compared to mid-1984 in the appraisal estimate). With Bank agreement, GOI has expanded the nature reserve into a "Dumoga-Bone National Park" master plan covering an area of about 270,000 ha. Construction of the park headquarters building has commenced and is expected to be completed by June Four studies included in the project have been substantially concluded and some additional work was recently added. Institutional support programs will continue up to June Disbursements at the end of February 1983 were about 55% of appraisal estimate. Loan No Swamp Reclamation: $22 Million Loan of March 31, 1981; Effective Date: July 9, 1981; Closing Date: December 31, 1986 The project includes reclamation of 9,000 ha of Karang Agung swamp area in South Sumatra province, construction of canals, land clearance, construction of 3,200 settlers houses with community facilities for transmigrants from Java and Bali and studies for future swamp development, upgrading of existing swamp development area and ecological studies of swamp development. A civil works contract (ICB) for construction of canals, for

41 ANNEX II Page 10 of 29 pages about $4.5 million, was awarded on January 22, Consultants for construction supervision were assigned in April Efforts are being made to improve both the progress for the work as well as coordination between the implementing agencies. Loan No Sixteenth Irrigation: $37 Million Loan of April 5, 1982; Effective Date: August 9, 1982; Closing Date: December 31, The project will complete construction of the Sitiung Irrigation System (Stage II) in Sumatra to serve about 7,600 ha of transmigrant and local farmer lands; improvement of management information systems of the Directorate General of Water Resources Development (DGWRD); training and support for water users and their associations; expansion of DGWRD's basic hydrological data network; and studies for development of the Cisanggarung River Basin and detailed design of the Jatigede Dam. Loan No Seventeenth Irrigation (East Java Province): $70 Million Loan of April 5, 1982; Effective Date: December 14, 1982; Closing Date: December 31, This is the first irrigation project supported by the Bank to be concentrated in a single province and implemented through a provincial irrigation service. It will rehabilitate existing surface irrigation systems serving about 50,000 ha; develop groundwater irrigation systems to serve about 13,000 ha; upgrade operation and maintenance for about 140,000 ha of irrigation systems already rehabilitated; and strengthen the East Java Provincial Irrigation Service. Other Agricultural Projects Loan No Transmigration II: $90 Million Loan and $67 Million Credit (Cr. No. 919) June 1, 1979; Effective Date: October 4, 1979; Closing Date: December 31, 1985 Given shortages in available land, in June 1982, the settlement component was reduced from 30,000 families to 20,000 families and funds were reallocated for site selection and evaluation for the GOI transmigration program as a whole. Land has now been identified for about 16,000 families under this project. About 1,100 families have been settled and 2,400 additional families should be settled by mid Improved extension and support are required to ensure adequate food crop yields and a plan for the introduction of tree crops has been requested from the GOI. Disbursements as of February 1983 were 57% of appraisal estimates. Loan No Nucleus Estate and Smallholders I: $65 Million Loan of November 18, 1977; Effective Date: January 12, 1978; Closing Date: June 30, 1984 This is the first of a series now consisting of seven projects developing treecrops for smallholders, supported by Government Nucleus Estate

42 ANNEX II Page 11 of 29 pages Companies. Planting programs for 7,600 ha of rubber at Tebenan and for rehabilitation of 18,000 ha of estate rubber have been completed but development for smallholders at Alue Le Merah (only 4,700 ha out of a 7,000 ha program completed) is well behind schedule. Three rubber factories and one palm oil mill have been constructed. Difficulties have occured in quality of rubber plantings, and currently with some trees now at maturity, attention needs to be given to improving tapping practice and rubber processing. Disbursements at December 31, 1982 were 62% of appraisal estimates and 92% of the latest revised estimate. Loan No Nucleus Estate and Smallholders II: $65 Million Loan of July 12, 1978; Effective Date: September 13, 1978; Closing Date: December 31, 1983 After a slow start, this project has substantially speeded up its pace of implementation. New rubber planting for smallholders is now expected to be completed in March 1983 in Jambi (3,800 ha), one year ahead of schedule, and in 1983/84 in Riau (11,400 ha) on schedule. Following earlier problems, quality of plantings has improved. Rubber replanting at Riau (3,000 ha) should also be completed during 1983/84 but the replanting component at Jambi (4,500 ha) has not been successful. The 3,500 ha Nucleus Rubber Estate at Riau although currently behind schedule is expected to be completed in time. More attention needs to be given to development of smallholders food crops. An extension of closing date to December 31, 1985, will probably be needed to accommodate an alternative program to the replanting at Jambi. Disbursements at end of December 1982 were 33% of the appraisal estimate but are expected to improve in coming months. Loan No Nucleus Estate and Smallholders III: $99 Million Loan of August 13, 1979; Effective Date: November 12, 1979; Closing Date: December 31, 1986 All implementing agencies have made good progress. Although some components are slightly behind schedule, the overall project is on or slightly ahead of schedule. About 7,500 ha of rubber have been planted, half of which is for smallholders. About 420 settler houses are occupied and garden lots established. In 1982, one of the estates, PTP I, was upgraded to take over responsibility For completing the Alue Iemerah smallholder component under NES I (1499-IND). Disbursements at the end of December 1982 were about 53% of appraisal estimate, and 90% of the latest revised estimates. Loan No Nucleus Estate and Smallholders IV: $42 Million Loan of May 16, 1980: Effective Date: August 11, 1980; Closing Date: December 31, 1986 Smallholder oil palm planting is on schedule and of excellent quality. Village layout, settler house construction, and road development are a l-ittle behind schedule due to problems of land availability. However, these problems are being actively addressed by the implementing estate (PTP X) and the Project Coordinating Committee, and project completion is likely by target date. Disbursements at the end of December 1982 were about 53% of appraisal estimate, and 64% of latest revised estimates.

43 37 ANNEX II Page 12 of 29 pages Loan No Nucleus Estate and Smallholder V: $161 Million Loan of June 26, 1981; Effective Date: October 21, 1981; Closing date: June 30, 1988 The project would develop about 53,000 ha of tree crops (rubber, oil palm, coconuts), food crops and house gardens in West Java, West Kalimantan and Bengkulu provinces with public sector estates as implementing agents. The project has made a good start except that smallholder coconut development at Cimerak, West Java (3,000 ha) is behind schedule due to land use agreements needing to be finalized. The component to expand the Estates Training Institute at Yogyakarta and to add another campus at Medan is proceeding satisfactorily. Disbursements are ahead of appraisal estimates. Loan No Nucleus Estate and Smallholder VI: $68.1 Million Loan of April 23, 1982; Effective Date: July 23, 1982; Closing Date: June 30, 1988 The project will assist the GOI's nucleus estates and smallholders development program by establishing 28,200 ha of tree crops (rubber and coconuts), food crops and house gardens in West Java, Bengkulu and Maluku provinces with public sector estates as implementing agents. The project implementing agencies PNP XXVIII and PTP XII face problems regarding local cost financing of smallholder development, management problems and severe labor shortage problems in Seram. PTP XII has however completed a difficult 26 km main access road over a short period. PNP XXVIII-s project implementation is seriously delayed by lack of experienced senior and middle management, technical and administrative staff, labor cooperation and coordination with local government. GOI has been requested to urgently review this situation with a view to strengthening management, relieve the labor constraint and improve local government's commitment to the project. PTP XXIII has made an excellent effort to overcome the land acquisition problems. Cooperation with local government and the local population is good. Rubber planting commenced in 1982 and standards attained are satisfactory. Planning and training programs for technical and administrative staff are well in hand and no serious problems are foreseen. Loan No Nucleus Estate and Smallholders VII: $154.6 Million Loan of February 18, 1983, Effective Date: February 18, 1983; Closing Date: June 30, 1989 The project would assist the GOI's nucleus estates and smallholders (NES) development program by establishing about 59,000 ha of tree crops (rubber and oil palm), food crops and house gardens in East and West Kalimantan and South Sulawesi provinces. It would also support the institutional strengthening of the Directorate General of Estates and other agencies associated with tree crop development, marketing programs for smallholders, and provide funds for start-up activities of future NES projects.

44 _ 38 - ANNEX II Page 13 of 29 pages Credit No. 984 Smallholder Rubber Development: $45 Million Credit of April 3, 1980; Effective Date: May 23, 1980; Closing Date: March 31, 1986 Project implementation continues in a generally satisfactory manner with 17,300 ha of rubber planting (9% of appraisal target to that date) undertaken by the end of December At that time, disbursements had reached $9.8 million (85%) against an estimated $11.5 million. Although the project currently faces no major problems, continuing tardy GOI budget releases could soon become a critical factor. In order to ensure effective continuing operations, project management is to strengthen Project Management Units in some areas, undertake timely recruitment and training of staff at all levels and produce appropriate training and extension manuals. Bank Rakyat Indonesia and Agraria have been requested to play a more active role in the land titling and loan conversion process. Revised versions of four studies under the project are now available and preparation of the proposed Second Smallholder Rubber Development Project is nearing completion. Loan No Smallholder Coconut Development: $46 Million Loan of August 25, 1980; Effective Date: November 25, 1980; Closing Date: June 30, 1986 Although the planting programs of tall and hybrid coconuts under the project seem reasonably on target, the results being achieved are generally not satisfactory. Problems relate to shortcoming in project management at Head Office, Provincial Offices (POs) and Coconut Working Centers (CWCs) regarding the selection of suitable planting areas and participating smallholders, technical control and supervision of planting and maintenance standards, timely supply of seednuts and of essential inputs, and slow release of project funds, and thus a slow rate of withdrawal application and disbursements. At end-december 1982, 8,102 ha of hybrid coconuts (89% of appraisal target to that date) and 7,770 ha of tall coconuts (155% of appraisal target) had been planted while rehabilitation of 5,050 ha of tall coconuts (74% of appraisal target) had been undertaken. An in-depth review is being undertaken by the Resident Mission to ascertain progress already made by GOI in overcoming management and technical shortcomings at Head Office, Provincial Offices and Coconut Working Centers, and to pinpoint any necessary additional measures. To improve control of field operations, some restructuring of management is required as well as reduction and rationalization of the project area. GOI agrees in principle with these recommendations. Disbursements had reached $4.2 million (47%) against an estimated $9.0 million.

45 - 39 Ali~~~SNEX II Page 14 of 29 pages Agriculture Support Services Credit No. 996 Second National Agricultural Extension: $42 Million Credit of April 3, 1980; Effective Date: July 3, 1980; Closing Date: March 31, 1986 Good progress continues to be made with the construction program and the bulk of the Rural Extension Centers programmed under the project are expected to be completed in Staff recruitment has improved overall but there are still shortages in some Provinces and the problem of shortage of motor cycles for field staff continues. Active steps are being taken to improve extension in non-rice crops. Interest in working towards a unified extension service continues to be promoted. The project is making satisfactory progress. Loan No National Agricultural Research: $35 Million Loan and $30 (Cr. No. 1014) Million Credit of May 16, 1980; Effective Date: July 16, 1980; Closing Date: June 30, 1990 The project is the second phase in the strengthening of the overall institutional framework of the Agency for Agricultural Research and Development (AARD) for agricultural research in fruits, lowland vegetables, livestock, fisheries, forestry and estate crops other than rubber and industrial crops. The Project Implementation Unit (PIU) is functioning efficiently. Steady progress being made in civil works program although there are indications that this may slow down due to budgetary constraints. The fellowship program has fallen behind schedule but is likely to gain momentum following the production of a Manpower Development Plan which is nearing finalization. The project is progressing satisfactorily. Loan No Second Seeds : $15 Million Loan of January 15, 1982; Effective Date: March 11, 1982; Closing Date: June 30, 1989 This project provides for: establishment of 18 medium Seed Processing Centers (SPCs) for the National Seed Corporation, P. T. Pertani and Cooperatives; six small SPCs for Cooperatives; additional equipment and facilities for five Food Crops Research Institutes (FCRIs), Provincial Seed Farms and Seed Control and Certification Services; establishment of a diploma course on seed technology at the Bogor Agricultural Institute; and inr-service training, technical assistance and studies for strengthening the institutions operating in the seed subsector. Project implementation has started slowly because the project implementing agencies are still reviewing administrative and working procedures. Preparation of tender documents for the procurement of equipment for seed is in hand. Participating agencies show willingness to cooperate and project implementation is expected to pick-up shortly.

46 - 40 ANNEX II Page 15 of 29 pages Rural Development Credit No. 946 Yogyakarta Rural Development: $12 Million Credit of August 13, 1979; Effective Date: December 5, 1979; Closing Date: March 31, 1987 The improving trend in overall project performance has continued. Activity targets are now being substantially met with the exception of the Small Scale Industries (SSI) and Village Health Components. The SSI is being vigorously monitored by the new Provincial Inspector for Industries especially with respect to technical assistance which is designed to complement the SSI credit program. The School Health Program is progressing well and is now being complemented by the Village Kader Health program. Severe drought has delayed the Water Supplies construction due to shortage of water. The rigidity of GOI procurement regulations which do not permit forward purchase of cement also contribute to the delay in construction of tanks. The Roads Program is close to target achievement although high costs are still a cause for concern. AGRO-BUSINESS AND CREDIT Credit No. 785 Small Enterprise Development: $40 Million Credit of April 7, 1978; Effective Date: August 17, 1978; Closing Date: December 31, 1984 This project provides technical assistance to strengthen GOI's small credit programs, KIK/KMKP, and credit assistance to small-scale enterprises (SSEs) in West Sumatra and East and Central Java which account for about a third of countrywide KIK/KMKP loan approvals. Satisfactory experience with this first Bank-assisted pilot project has led to a nationwide SSE development project which is supported by the Second Small Enterprise Development Project (Loan 2011-IND). The credit component is fully disbursed, and the remaining balance of the technical assistance component amounting to $9.0 million is financing ongoing technical assistance under Loan 2011-IND (SEDP II). Credit No. 827 Rural Credit: $30 Million Credit of June 23, 1978; Effective Date: November 3, 1978; Closing Date: March 31, 1985 This project provides long-term credit to about 40,000 smallholders, primarily for fisheries, perennial crops and livestock, and technical assistance to Bank Rakyat Indonesia for program development, training in term lending, credit procedures and accounting and management information systems. Due primarily to delays in obtaining consultancy services, the project is about nine months behind schedule. Following extension of the project to cover additional provinces and commodities, it is rapidly catching up. The project has been very successful in achieving objectives.

47 - 4L1 - AINEX II Page 16 of 29 pages Loan No Second Small Enterprise Development: $106 Million Loan of June 26, 1981; Effective Date: October 16, 1981; Closing Date: December 31,1984 From the three regions covered under SEDP I the project has expanded to cover all 27 regions in Indonesia where the Small Investment (KIK)/Small Permanent Working Capital Credit (KMKP) program is being implemented. The Bank-financed portion of the credit component of SEDP II was fully committed as of December 31, 1982, rapid expansion of lending under the project, however, seems to have been accompanied by a slight increase in arrears from 21% to 22% of outstanding loans. Bank Indonesia (BI) and handling banks are aware of this problem and have recently introduced a new reporting system to facilitate better collection and more up-to-date information. BI's progress in implementing the technical assistance components is also generally good, with the exception of the Regional Development Bank upgrading. This latter component is still beset with problems (lack of Regional Development Bank (RDB) counterpart staff, delays in obtaining operational data, weak consultant teams from BAPINDO). BI is evaluating consultant performance in the upgrading of RDBs. The Ministry of Industry has finally started implementing the Technical Services component with the recruitment of two consultants. As the entry of consultants was delayed, disbursement of loan proceeds is also delayed. EDUCATION Credit No. 869 Polytechnic: $49 Million Credit of December 29, 1978; Effective Date: May 11, 1979; Closing Date: June 30, 1985 The project objectives are to establish a new system for training engineering technicians, improve the quality of accountancy training and practices, and assist in strengthening education planning and management. The project would establish a Technician Education Development Center (TEDC), six polytechnics and four accountancy development centers and include technical assistance and associated studies. The project is making good progress and implementation is on schedule without a cost overrun. The TEDC building and four of the six polytechnics have been completed and construction of the remaining two is near completion. Equipment contracts for the TEDC and the six polytechnics have been awarded and over 70% of equipment ordered has been delivered. The expert services and fellowship programs are progressing satisfactorily. The accountancy component is also making good progress. Two of the five study contracts are still to be awarded. Operation has commenced in all six polytechnics since September 1982 but at 60% of full capacity. Disbursements at the end of February 1933 were over 100% of appraisal estimates. Loan No Fourth Education: $37 Million Loan of April 15, 1976; Effective Date: June 17, 1976; Closing Date: June 30, 1984 The loan is helping to finance physical facilities and related technical assistance for: (a) two faculties of technology at existing

48 -42 - ANNEX II Page 17 of 29 pages teacher training colleges and four new centralized workshops for technical training for the Ministry of Education and Culture (MEG); (b) 17 new vocational training centers, an existing instructor training center and 25 mobile training units for the Ministry of Manpower (MOM); and (c) new premises for the National Institute of Administration (LAN), the country's principal civil service training institution. The completed MEC subproject is problem-free and facilities are operating satisfactorily. The MOM subproject has made some progress but is about two and a half years behind schedule with a 16% cost overrun. Problems faced include poor equipment procurement management, shortage of funds, low utilization of completed facilities, poor quality of training (less than 50% of trainees placed in employment), and partial compliance on covenants. The LAN component has made no progress for three years and is now about three and a half years behind schedule, mainly due to the default of the civil works contractor for price escalation disputes with GOI. After retendering, a new contract has been approved recently and construction of the remaining unfinished portion of the building is expected to be completed by mid A second extension of the Closing Date to June 30, 1984 has been approved. Disbursements at the end of February 1983 were about 88% of appraisal estimate. Loan No Teacher Training: $19 Million Loan of June 6, 1977; Effective Date: July 7, 1977; Closing Date: June 30, 1983 The project is progressing satisfactorily. Approximately 88% of the civil works program has been completed. Phase I is complete and 90% of the construction in Phase II is finished. All furniture has been procured and installed; all equipment has either been procured and delivered, or contracts awarded and deliveries would be completed before closing date. Training courses for teachers and staff of SPGs and IKIPs have been completed. A total of 6,100 persons have been trained. Project costs at completion are expected to result in $2 million savings. Book procurement has been delayed due to ministerial procurement review procedures. This delay is expected to result in a need to extend the closing date by one year. Loan No Non-Formal Education: $15 Million Loan of September 14, 1977; Effective Date: November 4, 1977; Closing Date: June 30, 1983 The project aims at strengthening the Department of Education-s nonformal education programs in seven provinces. Financing would cover: civil works to renovate two existing and establish four new provincial centers, instructional equipment and vehicles, in-service training, materials development, a basic learning fund, and related technical assistance. Construction of the six Balai PENMAS (directorates for out-of-school education) centers, has been-completed. All furniture and equipment are already on site. About 90% of the staff training program is meeting appraisal targets and production and distribution of pretested learning materials is

49 -43 - ANNEX II Page 18 of 29 pages accelerating. The technical assistance program is on schedule; local staff have replaced foreign consultants. As of October 1982 estimated cumulative disbursements had reached a total of $10.1 million or 67% of appraisal estimates. Of the remaining loan funds it is estimated that US$5.45 million will be disbursed by June 30, 1983, the project closing date. Approximately $254,000 from unallocated category remains uncommitted. Loan No Second Agricultural Training: $42 Million Loan of May 7, 1979; Effective Date: July 31, 1979; Closing Date: June 30, 1985 The project constitutes the second phase of GOI's long-term strategy to impr:)ve the quality and supply of middle-level agricultural manpower. Good progress continues to be made. Disbursements at the end of February 1983 were 68% of the loan amount. The overall progress of the fellowships program has been good. The regular program and the short course program would be completed in December 1983 and the Ph.D. program at the University of Sam Houston, Texas, is expected to be completed in June Progress in achieving educational objectives is generally satisfactory. In December 1982 the Bank agreed to the GOI-s request to reallocate $4.2 million for preparatory stujdies and design work for the proposed Third Agricultural Training Project, and $2.8 million for improvement of Ketindam In-service Teacher Training Center (ISTC), additional boarding facilities at 17 existing ISTCs and upgrading the Ciawi ISTC. Loan No University Development: $45 Million Loan of November 13, 1980; Effective Date: January 22, 1981; Closing Date: December 31, 1986 The project is the first phase of a long-term university development program. Its main objectives are to increase the output of high level manpower and improve the quality of university education in the fields of engineering, science, agriculture, and economics (including business administration and accountancy), as well as strengthen the management of the overall university system. The additional land required for the University of Gadjah Mada and the new site for the University of Andalas have been acquired. The campus master plan for the University of Indonesia (UI) has been completed and the Universities of Gadjah Mada and Andalas are expected to complete theirs by early The implementation of technical assistance provisions is about 22 months behind appraisal schedule. Pending the appointment of MUCIA to handle the fellowship program, the Directorate General of Higher Education has administered overseas fellowships, which as of December 31, 1982, totalled about 90 staff in the UK, USA, Australia, Belgium, Thailand and the Philippines. Training of master trainers in University Management and textbook editors is in progress in the UK; domestic training in University Management is scheduled to start in April 1983 after the return of master trainers. Work is in progress for establishing a Management Information System in the DGHE and in each project university. Plans are being finalized for the policy study on student admissions. Disbursements as of December 1982 were 40% of the appraisal estimates.

50 ANNEX II 44 - Page 19 of 31 pages Loan No Second Teacher Training: $80 Million Loan of April 5, 1982; Effective Date: May 24, 1982; Closing Date: June 30, 1988 The project would (a) construct and equip 60 preservice primary primary teacher training schools (SPG) and 10 primary sports teacher training schools (SCO); (b) construct and equip 11 secondary teacher training colleges (IKIP); (c) improve and expand teacher training colleges for special education (SGPLB); (d) improve and expand inservice teacher training facilities (PPPG and BPG); and (e) establish a Center for Educational Administration (CEA). Loan No Second Textbook: $25 Million Loan of April 5, 1982; Effective Date: June 14, 1982; Closing Date: June 30, 1987 The project will support the establishment of the Integrated Textbook Project (ITP), a permanent organization to plan and manage textbook development activities; a Center for Curriculum Development (CCD), which would develop improved curricula for primary and secondary schools, and an improved national distribution system for all textbooks for primary and secondary schools. The implementation of the project is progressing satisfactorily. The site of ITP/CCD office building has been acquired. Selection and acquisition of sites for regional warehouses and depots is in progress. Consulting architects and engineers have been appointed. Staff appointments at ITP are slightly behind schedule. Efforts are underway to implement a program of overseas training of staff contract managerial services for providing consultants and arranging foreign and local training programs.- ENERGY Loan No Sixth Power: $116 Million Loan of February 4, 1977; Effective Date: June 6, 1977; Closing Date: June 30, 1983 Construction work on the project has reached its final stage. The 200 MW Unit No. 4 was synchronized on November 26, 1981 and has been in commercial operation since March Unit No. 5 went into commercial operation in August The associated studies have been completed. Loan No Seventh Power: $109 Million Loan of February 3, 1978 ($15 million cancelled November 30, 1980); Effective Date: June 30, 1978; Closing Date: December 31, 1983 All contracts were awarded at highly competitive costs with a substantial reduction in foreign costs and, therefore, $15 million of the original loan of $109 million has been cancelled. The Bank also agreed to the inclusion of the following additional studies in the scope of the

51 ANNEX II Page 20 of 29 pages project: (a) Sunda Strait submarine cable feasibility; (b) optimization of location of future thermal plants: (c) power sector management information system design. Construction work at the site has been delayed by about 21 months. Commerclal operation of the 200 MW generating unit is expected early in Construction of the associated transmission lines is progressing satisfactorily. The feasibility study of the East Java coal-fired thermal power station site has been completed and a site has been selected. Contracts for the studies (a), (b) and (c) mentioned above have been signed, and work is progressing satisfactorily. Loan No Eighth Power: $175 Million Ioan of June 1, 1979; Effective Date: November 5, 1979; Closing Date: December 31, 1984 The project encountered a number of problems and slipped nearly eleven months behind schedule by September However, progress since then has been satisfactory and the commissioning date for Unit No. 1 continues to be October Disbursements, though much lower than the appraisal estimates, are in line with the revised projections prepared in July The project cost is expected to remain within the appraisal estimate. Loan No Ninth Power: $253 Million Toan of June 13, 1980; Effective Date: October 24, 1980; Closing Date: September 30, 1985 This project is experiencing delays. However, the commissioning date of the second unit of Suralaya is now expected to be June 1985, i.e. six months behind schedule. The EHV project is delayed by almost one year due to delay in finalizing contract awards. All major contracts about months behind SAR schedule, have been awarded and construction work has commenced. The commissioning of the lines is currently scheduled in December Loan No Tenth POwer: $250 Million Loan of March 6, 1981; Effective Date: April 23, 1981; Closing Date: June 30, 1987 All major contracts for construction and installation of generating equipment required for the Saguling hydroelectric project have been placed with an estimated saving in total project costs of about $99 million. Construction work started at the main dam site in August 1981, and encountered problems in regard to timely completion of diversion tunnels. However, the river diversion was accomplished in January The contruction program has been modified to ensure that original dam construction targets are met. Other project subcomponents are progressing with about 6 months delays.

52 ANNEX II Page 21 of 29 pages Loan No Eleventh Power: $170 Million Loan of November 16, 1981; Effective Date: April 15, 1982; Closing Date: June 30, 1986 Implementation of the project is proceeding on schedule. Contracts worth about $119 million have already been evaluated and approved by the Bank. PLN has already issued another invitation to bid for the balance of the distribution equipment estimated at $44 million. Loan No Bukit Asam Coal Mining Development and Transportation: $185 Million Loan of January 22, 1982; Effective Date: May 25, 1982; Closing Date: September 30, 1987 Project implementation has commenced. There are some delays in signing of main nine contracts. Out of a total of eight such contracts, five have already been signed and the remaining three are in final stages. The consultants performance is satisfactory. Soil investigation and geological work is ongoing at the mine site. Although the turnkey contract for the Tarahan terminal was signed it is still not effective. The Tarahan Terminal remains on the project critical path and the best estimate is that the first coal can be shipped to Suralaya by April 1985 which implies an 8-month delay. During the initial start-up there were moderate problems in respect to project management and concerns arose with respect to the procedure for procurement of packages not financed by the Bank. These matters received close attention from the Bank missions and the issue has now been resolved. Indonesia's constrained budget situation is likely to result in a substantial shortfall of funds for this project in FY83/84 and discussions with GOI are underway to determine how project construction can be rephased without a substantial loss of anticipated benefits. Loan No Coal Exploration Engineering: $25 Million Loan of June 14, 1982; Effective Date: March 1, 1983; Closing Date: June 30, 1987 The project will evaluate coal reserves and assess the viability of specific coal deposits in South and West Sumatra and other promising areas in Indonesia. The project will be aimed at providing GOI and its agencies with a coal reserve inventory of its major coal bearing areas and feasibility/prefeasibility studies of attractive deposits, thus enabling it to establish investment priorities and define policies for its short, medium- and long-term strategy for coal production and coal use. Loan No Twelfth Power Project: $300 Million Loan of December 27, 1982; Effective Date: March 29, 1983; Closing Date: December 31, Implementation of the project is proceeding on schedule. Contracts valued at $36 million have already been approved by the Bank. PLN has already issued bid invitation for Kamojang 2 x 55 MW units and bids

53 ANNEX II Page 22 of 29 pages are due to open on May 2, PLN is planning to issue another bid invitation in May 1983 for the mini-hydro equipments. PLN has also issued bid invitations for Suralaya Unit 3 boiler and turbine generator and bids are due to open in June INDUSTRIAL DEVELOPMENT AND FINANCE Industry Loan No Central Java Pulp and Paper Engineering: $5.5 Million Loan of November 18, 1982; Effective Date: Not yet effective; Closing Date: September 30, 1984 The project would help finance the cost of: (i) basic engineering, procurement assistance including the preparation of tender documents, prequalification, and bid evaluation for the Central Java pulp and paper project; (ii) technical assistance in finalizing the wood supply arrangements for the Central Java project; (iii) training of the project staff; and (iv) a pulp and paper subsector study which would provide the basis for the restructuring of the industry. Development Finance Companies Loan No Fourth BAPINDO: $50 Million Loan of June 1, 1979; Effective Date: September 25, 1979; Closing Date: September 30, 1983 BAPINDO has made good progress in committing proceeds of the Bank loan and in implementing its General Improvement Program launched in Judged on the basis of annual growth in lending operations (147% in 1981 compared with 89% in 1980) it appears the effect of major changes in organizational structure has been positive, but there is still some scope for improvements in term lending procedures and staff capbility to appraise and supervise larger, more complex projects. Term lending in local and foreign currency reached Rp 559 billion ($800 million) in 1982 or 43% over Strong investment demand from the industrial sector in 1982 underlies this sharp expansion. Full disbursement by the closing date of September 1983 is expected.

54 ANNEX II Page 23 of 29 pages POPULATION AND HEALTH Population Loan No Second Population: $24.5 Million Loan of July 6, 1977; ($3.8 Million cancelled February 25, 1983); Effective Date: August 4, 1977; Closing Date: April 30, 1984 Progress on this project is generally satisfactory. About 90% of original project activities have been completed. The mobile service units provided under the project are making a significant contribution to the recruitment of contraceptive acceptors. Training and population education are substantially completed. The research components -the contraceptive raw materials study is about 90% complete, and the community incentive scheme is about 50% complete and both components should be satisfactorily completed before the revised closing date of April 30, As of February 1983, disbursements totalled $13.3 million, or 54%. Loan No Third Population: $35 Million Loan of June 13, 1980; Effective Date: September 10, 1980; Closing Date: Tarch 31, 1985 Progress on this project improved significantly during the second half of 1982, largely due to increased attention to project implementation, particularly civil works components, by project management and the additional staff assigned especially to help expedite this work. Population education has made some encouraging progress, as funds have been released to the provinces for expenditure on teacher training activities and detailed guidelines for implementation of population education activities have been issued by NFPCB. Contracts for procurement of audio-visual equipment have been awarded. The training of nurses, midwives, traditional birth attendants and health center staff has proceeded on the agreed-upon schedule. Disbursements, however, do not yet reflect the noted upswing in project activities. Health Loan No Provincial Health; $27 Million Loan of February 18, 1983; Effective Date: Not yet effective; Closing Date: June 30, 1988 Substantial progress has been made in the initial implementation of the project. The FY83/84 project budget of US$10.5 million and work plan have been completed and approved by BAPPENAS. The sites for the first-year construction program are available and the architectural consultants have completed the preliminary drawings for two hospitals. Consultants (financed

55 49 AiNNEX II Page 24 of 29 pages by USAID) are now assisting in curriculum development and the training of trainers in support of the project. Arrangements for the procurement of DDT have been initiated and malaria consultants have already been identified and their availability ascertained. TECHNICAL ASSISTANCE Credit No. 898 Fifth Technical Assistance: $10 Million Credit of May 7, 1979; Effective Date: September 5, 1979; Closing Date: March 31, 1984 There still remains an uncommitted balance of about $5.0 million under this credit. Potential studies to utilize the remaining balance have been identified and it is likely that the closing date for the credit will be postponed. Loan No National Resource Survey and Mapping: $13 Million Loan of February 5, 1976; Effective Date: April 2, 1976; Closing Date: December 31, 1983 The National Coordinating Agency for Surveys and Mapping (BAKOSURTANAL) complex at Cibinong is completed, and most of the cartographic photographic processing, including color photo processing equipment and printing equipment required to produce maps, are installed. Computer equipment for resource analysis including a topographic data bank and flatbed plotter has been installed. Various resource evaluation activities have been undertaken using these facilities. Recruitment and training of new staff, particularly at junior and middle level has recently been accelerated. The new photography operation financed under the parallel Caniadian Project was delayed as a result of which the Bank agreed to extend the Closing Date until December 31, The photography operation started in July 1981 is expected to be completed by the new Closing Date. Fertilizer Distribution TRANSPORTATION Loan No National Fertilizer Distribution: $66 Million Loan of April 5, 1982; Effective Date: September 27, 1982; Closing Date: June 30, 1986 This project will increase agricultural production in Indonesia by substantially expanding the capacity to distribute fertilizer to farmers. Funds are also provided for preparation of future maritime transport projects, including master plans and detailed engineering for several ports. The project experienced delays in its start up phase. In particular, one of

56 ANNEX II Page 25 of 29 pages the conditions for loan effectiveness was fulfilled with considerable delay, thus delaying project implementation by six months. However, PUSRI has taken steps to expedite project implementation although an extension of project completion by six months is likely. Total project costs are estimated to increase by about 10%-15%. Highways Loan No Fifth Highway: $130 Million Loan of June 1, 1979 ($6.8 Million cancelled June 30, 1981); Effective Date: August 28, 1979; Closing Date: December 31, 1984 Project implementation, which started nearly three years ago, is still behind schedule. The project is about 40% completed compared to 75% scheduled. The causes for delay are: (a) the ambitious project objectives, which translate into program-type components and numerous consultancies; (b) organization and management problems in the provincial highway agencies; and (c) new development guidelines of the GOI under Repelita III emphasizing the spread of investments over a larger number of projects with reduced stand- ( ards. However, work is now underway on nearly all project components, and there is still a reasonable chance of completing the project with a total delay of about one year. The Provincial Departments of Public Works programs of support works were started in January 1982 with mobilization of consultants, and after road maintenance equipment had been ordered. $6.8 million of the loan has been cancelled due to misprocurement of road maintenance equipment. Loan No Jakarta-Cikampek Highway: $85 million Loan of October 9, 1981; Effective Date: February 9, 1982; Closing Date: December 31, 1987 The project will increase road capacity between Jakarta and Cikampek (about 70 km to. the east) by construction of a new toll road and by improvements to the existing highway. Consultants have been selected for construction supervision, and contract negotiations have been concluded. Bid opening for the four sections of road works took place in late May 1982, somewhat behind schedule. The project is about 3 months behind schedule. Consequently, disbursements are likely to fall behind estimated disbursement schedule, at least during the first one or two years.

57 ANNEX II Page 26 of 29 pages Loan No Rural Roads Development: $100 Million Loan of January 22, 1982; Effective Date: August 11, Closing Date: December 31, 1986 The project will improve rural road infrastructure in selected provinces by strengthening the capacity of the district public works agencies, implementing an expanded program of rural roads works, and supporting a rural road development program for a three-year period in five Indonesian provinces. The project also contains components for training and technical assistance. Construction of some workshops has begun. Contracts for all works equipment have been awarded. Progress under the project is hampered by inadequate organizational arrangements and shortages of qualified staff. Consequently disbursements have fallen behind appraisal estimates. The next supervision mission will review with GOI actions required to improve the rate of progress. Marine Transport Loan No Second Shipping: $54 Million Loan of May 20, 1976; Effective Date: October 8, 1976; Closing Date: June 30, 1983 The project is part of the first phase of the Cbvernment s Inter- Island Fleet Development Program and is designed to modernize, expand and improve the efficiency of the inter-island fleet. All funds for ship procurement ($48.0 million) have been disbursed and the balance of funds for technical assistance ($6.0 million) have been disbursed or allocated. It is expected that all funds will be disbursed by loan closing date. The project is essentially completed. Ports Loan ND Tanjung Priok Port: $32 Million Loan of November 4, 1976; Effective Date: March 3, 1977; Closing Date: June 30, 1983 All civil works under the project have been successfully completed. All of the equipment has been procured and installed and is fully operational. As a result of the investments under the project, Tanjung Priok Pbrt-s performance has improved dramatically. Technical assistance, amounting to $4.7 million is being used to finance consultant services for preparation of the proposed Maritime Sector Development Program. The loan is expected to close by June 30, 1983.

58 ANNEX II Page 27 of 29 pages TOURISM Credit No. 479 Bali Tourism: $16 Million Credit of June 14, 1974; ($1.4 million cancelled October 31, 1982); Effective Date: December 4, 1974; Closing Date: December 31, 1983 Infrastructure work at Nusa Dua has been substantially completed. The access road to Nusa Dua from the airport and the Denpassar bypass road were completed and opened for traffic in December The hotel training school was completed in July 1979 and has been in operation since then. The construction of a first hotel (450 rooms) by Garuda at Nusa Dua is progressing well with first phase completed in December Negotiations have been concluded with Club Med for a hotel investment with the Bali Tourism Development Corporation (BTDC) equity participation of $0.4 million. Out of the total credit of $16.0 million, $1.4 million has been cancelled but disbursements will continue up to December 31, 1983 against BTDC commitment of $0.4 million for Club Med. URBAN DEVELOPMENT Loan No Second Urban Development: $52.5 Million Loan of November 4, 1976; Effective Date: March 28, 1977; Closing Date: June 30, 1983 The project aims at providing basic infrastructural facilities including footpaths, drainage, water supply and human waste disposal to about 3,000 ha of densely populated slum areas (kampungs) in Jakarta and 374 ha in Surahaya. The physical program has been completed with a coverage of about 3,434 ha kampungs in Jakarta and 441 ha in Surabaya. Supplementary technical assistance studies related to future project preparation are currently in progress. Loan No Third Urban Development: $54 Million loan of January 31, 1979; Effective Date: September 26, 1979; Closing Date: December 31, 1984 The project extends the slum (kampung) improvement programs (KIP) under the Second Urban Development Project (Loan 1336-IND) in the cities of Jakarta (750 ha) and Surabaya (580 ha), and also provides for similar basic infrastructural facilities in three additional cities -- Ujung Pandang (375 ha), Semarang (310 ha) and Surakarta (170 ha) -- with the KIP coverage in each city ranging between 15 to 37% of total kampung areas to be upgraded. Also included in the project is a comprehensive solid waste management program (SWIP) in Jakarta, and Surabaya and macro-drainage improvements in Surabaya. The KIP component is nearing completion in all cities with its actual coverage exceeding the target levels in Jakarta and Surabaya. SWIP

59 53 ANNEX II Page 28 of 29 pages implementation is progressing well in Surabaya but has just started in Jakarta due to earlier start-up delays in pilot testing. The Surabaya drainage component which was beset with land acquisition problems (for canal dredging schemes) is now progressing satisfactorily. The overall project is expected to be implemented within the appraisal projected date of December 31, Disbursements at the end of March 1983 were about 65% of appraisal estimate. Loan No Fourth Urban Development: $43 Million Loan of May 8, 1981; Effective Date: September 9, 1981; Closing Date: September 30, The project further expands Bank.s assistance to GOI's slum improvement programs (KIP) under the earlier urban projects to six nationwide provincial capital cities with a total target KIP area of 2,000 ha and with a coverage in each city representing about 15% to 33% of total KIP area to be upgraded. Sites and sevices schemes, aimed at providing affordable core housing units to the low-income population, will be developed for a total of about 11,000 plots in some six to seven cities. Sectoral programs comprising solid waste improvement and improved water supply, are also included in one of the project cities. A national urban mapping program covering 125 cities will be undertaken providing base data for future city planning, land registration and valuation programs. The development of the housing and mortgage financing institutions is a prominent feature of the project. Technical assistance for project management, training and feasibility studies to various urban authorities and agencies will be provided. The sites and services program is proceeding satifactorily. The start-up delays in the implementation of the KIP programs have been overcome and the progress of these programs has significantly improved with the consultants appointments. All technical assistance programs are proceeding satisfactorily. Disbursements at the end of March 1983 were about 33% of appraisal estimate. WATER SUPPLY AND SANITATION Loan No Second Water Supply: $36 Million Loan of June 1, 1979; Effective Date: February 29, 1980; Closing Date: December 31, 1984 The project expands and improves existing water supply and distribution systems in the cities of Tangerang and Surabaya (both in Java), Jember (Sumatra), Pare-Pare (Sulawesi) and Ambon (Moluku), and provides for the construction of new systems in Klaten and Purwakarta (both in Java). The total increase in raw water yield in the cities as a result of the project is projected at 1,770 lit/sec and the total installation of transmission and distribution mains will amount to about 375 kms with house

60 ANNEX II Page 29 of 29 pages connections targetted at a total of 40,000 in the project cities. The project is also aimed at establishing water enterprises (WEs) in the project cities and strengthening the skills of WE's staff, as well as the Cipta Karya (Housing and Urban Development) staff, in the areas of administration, financial and operational performance of the enterprises. After considerable delays (up to 18 months) the award of most of the International Competitive Bidding procurement contracts for the supply of pipes and materials is now complete and deliveries are in progress. The construction of the civil works in the project cities is also underway. The organizational and management training for the WEs has been underway since September 1981 and is proceeding satisfactorily. Disbursements at the end of March 1983 were about 28% of appraisal estimate. Loan No Jakarta Sewerage and Sanitation; $22.4 Million Loan of February 18, 1983; Effective Date: Not yet effective: Closing Date: March 31, The project is the first step in developing a sewerage system in Jakarta and complements the public health measures carried out under previous Bank-assisted urban development projects. Its principal objectives are to (a) improve environmental conditions and public health, (b) establish an institution and sound financial policies for the operation and management of the Jakarta sewerage system and (c) demonstrate the feasibility of appropriate low-cost technologies. The project covers sewerage and sanitation improvements including (a) a basic water-borne sewerage system; (b) drainage improvements; (c) sanitation improvements; (d) staff training and fellowships; and (e) consulting services for project implementation and for technical institutional and financial studies and the preparation of future projects. Steps have been taken to establish the appropriate institutional arrangements for project implementation, terms of reference for the engagement of consultants have been agreed, and steps have been taken for procurement by ICB of pipes.

61 ANNEX III INDONESIA EAST JAVA WATER SUPPLY PROJECT Supplementary Data Sheet Section I: Timetable of Key Events (a) Time taken by the country to prepare the project: (b) Project preparation agency: 18 months Cipta Karya of Ministry of Public Works (c) Date of first presentation to Bank, and Bank consideration thereof: July 1980 (d) Date of departure of appraisal mission: June 1982 (e) Date of completion of negotiations: March 1983 (f) Planned date of effectiveness: July 1983 Section II: Special Bank Implementation Actions: A "Project Launch" workshop is under consideration. Section III: Special Conditions GOI to ensure that: (a) Water systems built under the project would be operated by PDAMs who would be given assistance and training in accounting and management (paras. 32 and 34); (b) Operational revenues of the beneficiary PDAMs would cover operation, maintenance and depreciation expenses (para. 48); and (c) It would study alternatives to grant financing and consider tariffs that would produce satisfactory levels of financial,performance as well as capital cost recovery while remaining affordable (para. 49).

62 :

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