Report No. 998-IND

Appraisal of Third Fertilizer ExpansionProject-PUSRI IV IndonesiaApril 21, 1976

Industrial Projects Department

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties, Its contents may nototherwise be disclosed without World Bank authorization.

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INDONESIA

APPRAISAL OF PUSRI IV FERTILIZER PROJECT

CURRENCY EQUIVALENTS WEIGHTS AND MEASURES

Except where otherwise indicated, 1 Metric Ton (t) = 1,000 Kilograms (kg)all figures are quoted in Indonesian 1 Metric Ton (t) = 2,204 Pounds (lb)Rupiah (Rp) 1 Kilometer (km) = 0.62 Mile

1 Kilogram (kg) = 2.204 Pounds (lb)Rp 1.0 = US$0.00241 1 Hectare (ha) = 2.47 AcresRp 415 US$1.00 1 Normal Cubic = 37.3 Standard Cubic

Rp 1,000,000 = US$2,410 Meter (Nm3) Feet (SCF)

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

BAPPENAS - Government Planning AgencyBIMAS - Government Agricultural Development ProgramBEICIP - Bureau d'Etudes Industrielles et de Cooperation de

l'Institut Francais du PetroleBRI - Bank Rakyat IndonesiaDAP - Diammonium Phosphate (18-46-0)HYV - High-Yielding VarietiesINMAS - Government Agricultural Development ProgramKOC - Kellogg Overseas CorporationK2 0, K, Potash - Potassium Oxide Content in Fertilizer

KWH - Kilowatt HourMSCF - Thousand Standard Cubic FeetMMSCFD - Million Standard Cubic Feet per DayBSCF - Billion Standard Cubic FeetN - Nitrogen Content in FertilizerPERTAMINA - Perusahaan Pertambangan Minyak Dan Gas Bumi Negara,

Government-Owned Oil CompanyPPM - Parts per MillionP205, P.Phosphate - Phosphorous Pentoxide Content in FertilizerP.N. - Wholly-Owned State EnterpriseP.T. - Limited Liability CompanyPUSRI, Company - P.T. Pupuk SriwidjajaPUSRI IV

Project - Third PUSRI Fertilizer Expansion ProjectRLS - Regular Liner ServiceSTANVAC - -N.V. Standard Vacuum Petroleum Maatschappij, IndonesiaTEC - Toyo Engineering CorporationTPD - Metric Tons per DayTPY - Metric Tons per YearTSP - Triple Superphosphate (0-46-0)TVA - Tennessee Valley Authority

FISCAL YEAR

January 1 - December 31

Industrial Projects Department

FOR OFFICIAL USE ONLYINDONESIA

APPRAISAL OF PUSRI IV FERTILIZER PROJECT

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS .. ............................. i - ii

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

II. THE COMPANY .......... o........... 1

A. Background ....... .......... 1B. Organization and Management 2C. Past Growth and Financial Results ....... ..... ... 3

III. THE MARKET ................ .................. 7

A. Consumption Trends . ..... .. . ..... .. . . ........... . 8 \B. Past Supplies and Supply Prospects ... ........ 10C. Past Imports and Export Potential ............. . . 11D. PUSRI Marketing and Distribution ................ 12E. Credit ... o... o...o.... .......... ... o.......................... 13

IV. THE PROJECT ......... ... .............. 14

A. Project Scope ... ..... .......................... . 14B. Gas Supply and Price ... .................... O.. 14C. Management and Project Execution ............... 16D. Employment and Training ............... ... 17Eo Ecology .. ....................... ........ 0006......... *..o.. 17

V. CAPITAL COST AND FINANCING PLAN ... o.............. .. 18

A. Project Costs . ..... .... .... 18B. Financing Plan .... .... . .............. ....... ....... 19C. Procurement ... .... .................. ...... ..... . 21D. Allocation and Disbursement of Bank Loan ........ 21

VI. FINANCIAL ANALYSIS ....... ooo ......... ..o..o ... .... . 22

A. Project Revenue and Profit .............. . ....... 22B. Production Costs o .......... .................. 23

C. Financial Projections for the Project ........... 23D. Incremental Financial Rate of Return ...... . .... 24E. Break-even Point ......... . . . . . . ...... . . ....... ... ..... 24F. Analysis of PUSRI with the Project .............. 25G. Major Risks ..... 0.... ... 0...... ...... .. * .. ....0.. .-. 26

This report was prepared by Eustachio Tortorelli, Philippe Lietard, YermalT. Shetty and Richard W. Van Wagenen.

This document has a restricted distribution and may be wed by recipients only in the performanceof their official duties. Its contents may not othevwsie be disclosed without World Bank authorization.

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Page No.

VII. ECONOMIC ANALYSIS ........... ................ ............... . 27

A. World Fertilizer Prices ......................... 27Bo Economic Advantages .o.o..... .... o.*....... . . 28C. Price Assumptions for Economic Analysis ......... 28D. Economic Rate of Return .... o..o.. ................ 29E. Foreign Exchange Effect . .................... 29F. Training ............ **0.0.*****.**....**.0.... *... 29G. Employment Generation ............................ 30

VIII. AGREEMENTS .. ... ... ...* *.. .. .. .. .... ..... .... .... .. 30

ANNEXES

1 Glossary of Technical Terms

2-1 Description of Existing Facilities and Plants under Construction2-2 Organization Chart2-3 Historical Income Statements (1970-1976)2-4 Historical Balance Sheets (1970-1976)

3 Fertilizer Market and Marketing

4-1 Plant Layout4-2 Production Process and Project Description4-3 Implementation Schedule4-4 Raw Material and Product Flow4-5 Integrated Gas Supply System4-6 Training

5-1 Capital Cost Estimate5-2 Working Capital Requirements5-3 Disbursement Schedule for Bank Loan

6-1 Assumptions Used for Projections6-2 Projected Income Statement - PUSRI IV6-3 Inputs for Financial Rate of Return and Sensitivity Analysis6-4 Break-even Point6-5 Projected Income Statement - PUSRI I6-6 Projected Income Statement - PUSRI II6-7 Projected Income Statement - PUSRI III6-8 Consolidated Income Statements6-9 PUSRI Consolidated Projections

7-1 Assumptions for Economic and Financial Rates of Return7-2 Inputs for Economic Rate of Return and Sensitivity Analysis7-3 Foreign Exchange Effect

MAP Location of Fertilizer Plants -- Existing and Proposed (IBRD 12069)

INDONESIA

APPRAISAL OF PUSRI IV FERTILIZER PROJECT

SUMMARY AND CONCLUSIONS

i. The Government of Indonesia has embarked on a major investmentprogram to expand fertilizer production and has entrusted P. T. PupukSriwidjaja (PUSRI), a fully-owned Government company, with the responsibilityof implementing the major portion of that program. The proposed project,representing the Company's fourth stage development (PUSRI IV), will increasePUSRI's urea capacity from 1.0 million to 1.6 million tons per year (TPY).The plant will be located adjacent to the Company's existing facilities onthe bank of the Musi River at Palembang, in South Sumatera. Total financingrequired for the project is estimated at US$186 million of which 78% is inforeign exchange. A Bank loan of US$70 million is proposed, to be made to theGovernment which will onlend it to PUSRI. The balance of the financing isexpected to be contributed by the Saudi Fund for Development (US$70 millionequivalent), and by the Government, US$46 million -- most of it in localcurrency (US$34 million).

ii. The Bank's role in assisting Indonesia's fertilizer industry is gearedto make the country self-sufficient in N-fertilizer by 1980 and ultimately toenable it to become a marginal low-cost exporter. The proposed loan representsthe fourth Bank Group operation in Indonesia since 1970 in fertilizer facilities,including three for production units with a total capacity of 1.5 million TPYof urea and one for distribution facilities designed to handle 1.4 million TPYof fertilizer. At present, there are only two fertilizer companies in operationin Indonesia, with a total yearly capacity of 0.26 million tons of nitrogen(N). Of these by far the more important is PUSRI which at present accountsfor 85% of the nitrogen fertilizer produced. PUSRI has consistently operatedits plants at high levels of capacity and has completed very satisfactorilyits first expansion and is implementing well and according to schedule thesecond expansion, both financed by the Bank Group. It is expected that theCompany's capable management team will carry out the proposed project withequal competence.

iii. Indonesia has abundant reserves of natural gas and is in a positionto produce economically N fertilizer from its own feedstock; it is also likelyto remain the leading producer of N fertilizer in South East Asia and to be-come a supplier of urea to neighboring countries. At present, however,domestic production of fertilizer is lagging behind consumption. In 1975domestic production accounted for only 54% of N fertilizer consumed, withimports covering the remaining 46% as well as 100% of phosphate and potashfertilizer reqirements. Fertilizer consumption on the other hand has beengrowing fast. Between 1970 and 1975, application of N fertilizer increasedfrom 183,900 to 380,000 nutrient tons or 15.6% per year and is expectedto register a 10% annual increase through the mid-1980's.

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iv. Under these circumstances and given the high escalation in equip-ment prices, there are significant benefits in speedy project implementation.The Government, therefore, requested, and the Bank agreed, that the Company bepermitted to continue to use the same engineering firms as for PUSRI II andIII, which were approved by IDA/Bank and which have performed satisfactorily.Procurement of critical long-delivery items was begun in June 1975. Bidders'lists and proposed award for major equipment supply contracts have beenreviewed by the Bank and all equipment items are being procured following Bankguidelines, irrespective of the source of finance. The Bank has agreed to theadvanced contracting of engineering services and long-lead equipment and PUSRIhas been advised that, subject to approval of the loan by the Executive Direc-tors, up to US$7.0 million would be financed retroactively for down-paymentson these contracts. The proposed Bank loan would be made for 15-1/2 yearsincluding 3-1/2 years of grace. PUSRI would pay 12% annual interest, includinga fee accruing to the Government which will bear the foreign exchange risk.

v. Since the new plant will benefit from the existing infrastructureand utilities in Palembang, capital and operating costs will be lower than fora similar plant at a new site, and flexibility of operation will be increased.Thle project's estimated production cost and assumed sales price (US$142/ton,ex-factory) are expected to be internationally competitive with prices forecastto prevail towards the end of the decade. The Company's financial structurewould remain satisfactory with the debt/equity ratio projected at 50/50at completion of the project, and the debt service coverage above 1.9 timesduring the life of the loan. The project's incremental financial returnbeafore tax is estimated at 21%.

vi. The economic rate of return of the project is about 29% and there-fore well above most recent industrial projects the Bank Group has beenfinancing. It would remain satisfactory (at about 22%) under the conceivableadverse assumptions regarding capital and operating costs, project implemen-tation time and world fertilizer prices. An important part of the project isthe provision for the training of personnel of not only PUSRI but also otherfertilizer plants, existing and/or proposed, in Indonesia. A total of about3,,800 persons are expected to be trained in various fields such as finance andaccounting, plant operation and maintenance as well as marketing and distribu-tiLon. Direct employment from the project is estimated at 850 and the projectis expected to have a significant impact on indirect job creation in transpor-tation, storage and distribution of fertilizers and in the exploitation anddiistribution of natural gas. Further, the project shows a net annual foreignexchange saving of US$72 million equivalent at full production.

vii. The project faces minimal technical and commercial risks and willresult in substantial benefits to the Indonesian economy. Although Indonesiais likely to have some exportable surplus of nitrogen fertilizer, it ispresently expected that all of PUSRI's production would be sold domestically.Based on agreements summarized at the end of this report, the project issuLitable for a Bank loan of US$70 million equivalent.

I. INTRODUCTION

1.01 The Government of Indonesia has requested a Bank loan of US$70million equivalent to finance part of the estimated foreign exchangecost of an ammonia/urea plant for the Government-owned fertilizer company,

P.T. Pupuk Sriwidjaja (PUSRI), to be built adjacent to its existing

facilities on the bank of the Musi River at Palembang, in South Sumatera(Map, IBRD 12069). The project, representing the Company's fourth stage

development (PUSRI IV), will increase PUSRI's urea capacity from 1.0 to

1.6 million tons per year (TPY), equivalent to an increase from 483,000to 741,000 TPY in terms of nitrogen (N). 1/ The project would represent the

Bank Group's third industrial loan to the Company and the fourth financing

considering the loan for distribution facilities. 2/ The proposed project

follows the successful completion in September 1974 of the first expansion

(PUSRI II). The second expansion (PUSRI III) is under construction and is

expected to start production in April 1977 about in line with original ex-pectations. PUSRI III is being financed by a Bank loan of US$115 million, 3/

with the Government providing the balance of US$77 million.

1.02 Total financing required for the project (PUSRI IV) is estimated

at US$186 million, of which nearly US$145 million or 78% is in foreign ex-

change. The proposed Bank loan to the Government, which would be the Borrower,

would cover about 48% of the foreign exchange or 38% of the estimated total

financing required. The Saudi Fund for Development (38%) and the Government

(24%) would meet the rest of the financing.

1.03 Indonesia has abundant low-cost natural gas to become a leading

competitive producer and exporter of nitrogenous fertilizer. However, do-

mestic production of fertilizers at present is substantially lower than

consumption. Considering existing production and projects to be executed

in the next few years, Indonesia could become self-sufficient in nitrogenous

fertilizers in 1979 and a marginal exporter by 1980.

1.04 The proposed project was appraised in September-October 1975 byE. Tortorelli (Chief), P. Lietard and Y. T. Shetty of the Industrial Projects

Department and R. W. Van Wagenen of the Education Department.

II. THE COMPANY

A. Background

2.01 Fertilizer production in Indonesia is carried out exclusively in

the public sector. PUSRI, the country's first fertilizer company, was es-

tablished in 1959 to manufacture urea. The initial small plant, PUSRI I,went on stream in 1964, quickly achieving capacity operation (i.e., 100,000

1/ A glossary of technical terms used in this report is given in Annex 1.

2/ Report No. 694-IND dated May 20, 1975.3/ Report No. 624-IND dated February 4, 1975.

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TPY of urea). In subsequent years, capacity utilization has been fluc-tating between 84% and 104%.

2.02 PUSRI I is expected to need major revamping by 1978, after 13years of operation. The urea section will have to be modified or abandonedaltogether but the ammonia section could probably continue operation. Thiswould allow ammonia supply to a new phosphate fertilizer plant or sale ofindustrial ammonia. The Company is firming up its plans for PUSRI I andhas agreed to present them to the Bank, together with their costs, by Dec-ember 31, 1976. For the purpose of financial projections, no production fromPUSRI I is taken into account beyond 1977.

2.03 PUSRI carried out its first expansion (PUSRI II which was assistedby IDA) during 1971-74 at a total cost of Rp 35.6 billion (US$85.9 million).In addition, a gas gathering and transmission system was built as a part ofthe project by the Government-owned oil company, PERTAMINA, at a cost of aboutRp 16.2 billion (US$39 million) to supply natural gas as feedstock.

2.04 The PUSRI II fertilizer plant was mechanically completed in Septem-ber 1974, one month ahead of the revised scheduled date, and passed its 15-dayperformance test November 7, 1974. During 1975, it produced a totaloF 290,130 tons of urea, representing an average capacity utilization of 76%in spite of some technical problems such as liquid in the gas supply, equip-mrent failures and corrosion, and tube ruptures in the ammonia condenser andwaste-heat boiler. Those problems have been mostly solved, and the plant isoperating satisfactorily since the annual maintenance in July/August, 1975.Details of the existing facilities of PUSRI are given in Annex 2-1. As PUSRII[ was nearing completion, the Government decided in early 1974 to commencePIJSRI III to meet the growing demand for fertilizers. Work on PUSRI III isproceeding according to schedule but the work on the related gas pipeline isexperiencing delay (para 4.03). In April 1975, the Government decided tosltart work on PUSRI IV when PERTAMINA's East Kalimantan Fertilizer Project(designed as a floating plant) financed largely by a consortium of foreignbanks organized by the American Express Development Corporation, began tofall behind schedule because of serious technical and financial problems.

B.. Organization and Management

2.05 PUSRI is generally considered one of Indonesia's best managedlarge industrial enterprises. Wherever necessary, it has relied on experttechnical assistance from foreign advisors and consultants. At the same time,it has developed its own staff to take key responsibilities. Today, theGovernment seeks its advice on all aspects of fertilizer industry developmentin Indonesia. The management structure of PUSRI, in keeping with Indonesia'sCompany Law, is patterned after the European two-tier model, with a supervisingBoard of Commissioners (Dewan Komisaris) and a Management Board (Direksi).Members of the Board of Commissioners are the Director-Generals of: (i)Monetary Affairs (Ministry of Finance), Chairman; (ii) Chemical Industries(Ministry of Industries); and (iii) Agriculture (Ministry of Agriculture andForestry).

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2.06 Managerial responsibility for PUSRI's day-to-day operations restswith the four-man Management Board, consisting of a President-Director aadthree Directors. Members of the Management Board as in the case of the Boardof Commissioners are appointed by the Government. An organizational chart ofthe Company is given in Annex 2-2.

2.07 General (retired) H. Hasan Kasim has been President-Director ofPUSRI since 1966. The other three Directors and their respective responsibi-lities are: Mr. Kotan Pasaman, Technical and Production Director; Mr. DalilHasan, Commercial Director; and Mr. Faisal Abdaoe, Financial Director. Mr.Abdaoe was appointed by the Government in mid-1975, when the other threedirectors were re-appointed for another five years. As agreed under previousIDA/Bank arrangements, top management appointments including those of con-sultants are to be made in consultation with the Bank.

C. Past Growth and Financial Results

2.08 PUSRI markets its own as well as imported fertilizers and otheragro-chemicals. Sales of its own output averaged about 103,000 TPY of ureaduring 1970-1973, reflecting more than full rated capacity utilization inPUSRI I, and increased to 115,000 and 207,000 tons of urea in 1974 and 1975respectively with the completion of PUSRI II. Its sales of imported urea,triple superphosphate (TSP), diammonium phosphate (DAP) and complex fertili-zers increased about 11 times during 1970-75, reaching about 427,000 TPY ofproducts in 1975. The following table shows the trend of sales volume,sales revenue and net profit of PUSRI during 1970-1975 (Annex 2-3):

PUSRI - Sales and Earnings, 1970-1975

Year Ended Dec. 31 1970 1971 1972 1973 1974 1975-------------audited…-- -------- unaudited

Sales Volume ('000 tons)Sales Volume 137 183 290 454 537 634of which:PUSRI Urea 99 106 102 103 115 207Imported Urea 38 75 186 265 281 275Other importedagro-chemicals /a - 2 2 86 141 152

Sales Revenue (Rp million)Total Sales 3,252 4,740 7,488 13,420 24,668 46,160of which:PUSRI Urea 2,424 2,890 3,050 3,447 4,703 11,564

Net Profit (Rp million) (3) 71 (430) 69 2,262 7,552Net Profit as % of

Sales - 1.5 - 0.5 9.2 16.4

/a Including 1,000-1,500 tons per year of pesticides.

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2.09 Under the current fertilizer marketing system, the Government buysall locally-produced fertilizers at a fixed price, and sells them, again at aset price, with imported fertilizers to approved distributors including PUSRI.In November 1974, the urea retail price to the farmer was increased by 50% toRp 60,000 per ton (US$144.6). Subsequently, effective October 1975, theprice was raised by an additional 33% to Rp 80,000 (US$192.8) per ton.

2.10 Although PUSRI has been operating efficiently, it made only smallprofits or incurred losses during 1970-73 because of rising costs of inputsother than gas, and low fertilizer prices fixed by the Goverment. To rectifythis situation, the Government increased its purchase price of PUSRI-producedurea by stages from Rp 28,200 (US$68) per ton in 1972 to about Rp 63,910(US$154) per ton in the last quarter of 1974; no further increase has takenplace since. This price, comparable to the current world export prices(f.o.b.) for urea (about US$110-150 per ton after peaking to more than US$300per ton during 1973-1974) would, under normal circumstances, be adequate toprovide sufficient revenue for PUSRI to be financially viable. However, undera system of fertilizer rationing introduced in Indonesia in October 1973 tocontrol illegal marketing in fertilizers, all wholesalers became PUSRI'sagents. Therefore, PUSRI has to finance the distribution of not only its ownfertilizer but also of imported fertilizers -- which in 1975 accounted for 2.1times the volume of PUSRI's own fertilizer sales -- and wait up to 10 monthsto be paid for sales to farmers on the basis of vouchers issued by the BankRakyat Indonesia (BRI), the State Agriculture Bank.

2.11 Further, the Government has initiated a fertilizer stockpiling pro-g]ram in which PUSRI is entrusted with a leading role among distributors.As a result, current assets increased to US$380 million equivalent by theend of 1975 (in the form of letters of credit, inventories, including stock-piling, and receivables) and were financed under Government direction ex-clusively by short-term borrowing mainly from BRI at an average interestrate of 1.3% per month. This situation, i.e., the consequence of a pre-dominantly public service function entrusted to the Company by the Govern-ment, has led to losses from PUSRI's marketing operations, thus creatinga heavy financial burden on the Company's finances. It was agreed during thenegotiations for PUSRI III that the Goverment would relieve PUSRI from theadverse effects of that unprofitable activity through payments to cover themarketing losses. The Government had also agreed to make up the forecastlosses for 1975 by payments in four equal instalments to PUSRI on April 1,July 1 and October 1 of 1975 and January 1 of 1976, respectively. Adjustments,upwards or downwards, were to be done on the basis of PUSRI's annual auditedaccounts. This arrangement was to continue until the assets in service in themarketing department had increased substantially with the execution of theUS$130 million Fertilizer Distribution Project which is expected to be opera-tional in early 1977. Subsequently, a reasonable rate of return on the assetsin operation was to be ensured by the Government.

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2.12 The Government has not fully met its obligation as described above

in covering the marketing losses for 1975 1/ as it had underestimated those mar-keting losses and had made inadequate provision in its 1975/76 budget to meet

them. The 1975 losses amounted to Rp 17.1 billion (US$41 million equivalent)of which as of the end of March 1976 the Government had paid only Rp 7.6 bil-lion (US$18.2 million equivalent) to cover all losses through the third quar-

ter. As for the losses on marketing fertilizer from the national stockpile

during the fourth quarter of 1975 and subsequent quarters, the Government hasproposed to pay: 50% within 45 days after the submission by PUSRI of quarterlyfinancial statements and the rest within 4 months of presentation of accountsfor each quarter. Usually, PUSRI submits its financial statements to the

Government 6-8 weeks after the closing of each quarter. The above proposalhas been accepted by the Bank with the commitment by the Government that it

will not ask PUSRI to pay: (a) its interest liabilities to Bank RakyatIndonesia (BRI) -- a government bank -- before the Company receives payments

from the Government to cover stockpile marketing losses; and (b) its principalrepayment liabilities on BRI loans to import fertilizers before PUSRI recoversits receivables from the sale of imported fertilizers. Further, the Governmenthas made adequate provision in its 1976/77 budget to cover PUSRI's marketing

losses and also the necessary financing for the company's capital investments.Funds required in the budget year to cover marketing losses (about Rp 22.8

billion) will be available from the Government allocation of Rp 114 billion to

subsidize fertilizer sales to farmers. Besides, Rp 22.6 billion is earmarkedin the budget for PUSRI capital expenditure.

2.13 One of the reasons for the heavy marketing losses is the inadequatemarketing margin allowed by the Government. The margin has not been increasedsignificantly during the last two years when transportation and other operat-ing costs of PUSRI's marketing department have risen sharply. The Governmenthas informed the Bank that the issue of marketing margin is being examined byan inter-ministerial committee, and that a decision will be taken followingthe recommendations of the committee in June 1976.

2.14 Under the Loan (No. 1139-IND) for the Fertilizer DistributionProject, PUSRI is obligated to suggest for Government approval by October 1976a methodology for showing the fertilizer stockpile accounts separately fromPUSRI's normal marketing accounts. Subsequently, PUSRI and the Governmenthave agreed that by mid-1977, PUSRI will start reporting the fertilizerstockpile accounts separately in its financial statements.

2.15 Further, under the Loan (No. 1089-IND) for PUSRI III FertilizerExpansion Project, the Government had agreed to discontinue the fertilizerdistribution control system as fertilizer shortages are overcome and fertilizer

prices decline to more normal levels. The Government is now awaiting theresults of the National Fertilizer and Pesticides Distribution Study underway,and will, upon the completion of that study in June 1976, review the fertilizerdistribution control system and subsequently initiate measures to reducefertilizer stocks.

1/ The unaudited financial statement for 1975 has been expressed onthe basis that the marketing losses will be offset by paymentsfrom the Government against what are shown under accounts receivableas of December 31, 1975.

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2.16 As noted (para 2.11), from 1977 onwards, the Government under thePIJSRI III Loan had agreed not to preclude a reasonable rate of return on theCompany's marketing department assets in operation. 1/ Part of this returnis to be provided by the lower costs and greater efficiency of the new fertil-izer distribution project and the balance by: (a) reduction in current assetsto a normal level by the time the marketing assets are put into service; (b)abolition of the distribution control system; and (c) if that system shouldstill be in force at that time, through an adjustment in the distributionmargin to PUSRI to reflect the cost of short-term borrowing, or through theprovision of working capital, or a combination of both. The Government hadalso agreed to ensure a reasonable rate of return on the assets in operationof the production department at efficient operation. The above agreementsof the Government were reaffirmed during negotiations for the proposed loan.

2.17 In 1975, the production department made a net profit of Rp 7.6 bil-lion (US$18.2 million equivalent), representing a return of about 18% onnet assets in operation estimated at Rp 59 billion (US$142 million). This wasa reasonable return in line with the Government's obligation.

2.18 Historical balance sheets for PUSRI given in Annex 2-4 are sum-marized below:

PUSRI - Summary of Historical Balance Sheets, 1970-1975(Rp Billion unless otherwise noted)

Year Ended Dec. 31 1970 1971 1972 1973 1974 1975--------------audited--------------- unaudited

AssetsCurrent Assets 2.53 2.46 5.24 16.39 71.67 157.68Net Fixed Assets 5.32 6.05 11.34 24.70 36.60 65.78Other Assets 0.04 0.14 0.07 0.35 19.40 /a 1.07

Total 7.89 8.65 16.65 41.44 127.67 224.53

LiabilitiesCurrent Liabilities 0.82 0.92 3.63 13.08 54.56 133.30Long-term debt - 0.65 6.58 20.37 43.49 /b 45.14Equity 7.07 7.08 6.44 7.99 29.62 46.09

Total 7.89 8.65 16.65 41.44 127.67 224.53

RatiosiCurrent Ratio 3.1 2.7 1.4 1.3 1.3 1.2Debt/Equity Ratio 0/100 8/92 51/49 72/28 59/41 49/51

/a Including Rp 18.7 billion worth of letters of credit relating tofertilizer imports ordered but not received at the end of 1974.

/b Including Rp 24.81 billion for PUSRI II and Rp 18.68 billion of non-current liabilities, i.e., secured loans from Bank Rakyat Indonesia.

1/ Assets in operation are defined as average net fixed assets (excludingconstruction under progress) after revaluation plus average net workingcapital.

2.19 As PUSRI I was financed entirely with Government equity, the Companyhad initially no debt to service. However, the construction of PUSRI IIincreased the Company's debt steeply with the debt/equity ratio reaching 72/28in 1973 partly because of negative or low earnings resulting from insufficientex-plant urea prices during 1970-1973, and partly because the Governmentdelayed the conversion to equity of some of its loans to bring the debt limitto the level stipulated in the PUSRI II agreements until the full project costwas known. As a result, through 1973 the entire Government contribution wasshown as debt. This situation has been rectified by the conversion ofpart of debt into equity for PUSRI II and the provision of new equity forPUSRI III; the debt/equity ratio reached the satisfactory level of 49/51 atthe end of 1975.

2.20 PUSRI's accounting and internal reporting system has improved con-siderably with technical assistance provided by Price Waterhouse and Company,but is not yet fully satisfactory. PUSRI has reaffirmed its obligation tosubmit promptly detailed annual and quarterly production, income and cashflow statements, and balance sheets as well as annual audited statements andforecasts in a form satisfactory to the Bank, and to retain consultants tofurther train PUSRI staff in establishing appropriate departmental andconsolidated cost systems.

III. THE MARKET

3.01 Three aspects characterize fertilizer consumption in Indonesia:(a) predominance of the paddy (rice) crop in agriculture and in totalfertilizer usage; (b) heavy reliance on N fertilizers, mostly urea for rice;and (c) concentration of consumption in Java, Madura and Bali, the major rice-growing regions. A detailed analysis of the fertilizer market and marketingsystem in Indonesia is presented in Annex 3. The following table summarizesthe trend of past fertilizer consumption and the Bank forecast of demandcompared to local production and resulting import requirements and exportsurplus.

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Indonesia - Fertilizer Supply/Demand Balance, 1968-1985('000 nutrient tons)

Nitrogen (N) Phosphate (P205) Potash (K20)Surplus Surplus Surplus

Prod. Cons. (Deficit) Prod. Cons. (Deficit) Prod. Cons. (Deficit)Actual1968 43.0 101.2 ( 57.2) - 32.5 ( 32.5) - 11.5 ( 11.5)1972 57.0 305.0 (248.0) - 52.7 ( 52.7) - 30.4 ( 30.4)1973 85.2 328.9 (243.7) - 71.5 ( 71.5) - 17.0 ( 17.0)1974 121.0 310.3 (189.3) - 110.0 (110.0) - 26.7 ( 26.7)1975(est.)206.5 380.0 (173.5) - 130.0 (130.0) - 40.0 ( 40.0)

Projected1976 239.6 511.3 (271.7) - 153.4 (153.4) - 70.7 ( 70.7)1977 387.2 580.2 (193.0) - 168.8 (168.8) - 93.4 ( 93.4)1978 572.1 644.8 ( 72.7) - 184.1 (184.1) - 129.6 (129.6)1980 921.2 775.3 145.9 138.7 214.8 ( 76.1) 5.3 187.5 (182.2)1985 1,155.2 981.5 173.7 155.5 418.4 (262.9) 6.0 343.3 (337.3)

Average Annual Growth Rate of Consumption (%)1968-1975 20.8 21.9 19.51975-1985 10.0 12.4 23.9

A. Consumption Trends

3.02 From a 1968 low base, fertilizer consumption increased during 1968-75at an annual average rate of about 21% with little growth variation among thethree nutrients. N consumption in 1974 was lower than the year before, mainlyas a result of (a) the shortage of nitrogen fertilizers in the world and theirrelated high prices and (b) the strict control imposed by the Government inOctober 1973 upon the distribution of fertilizers. The 1975 consumption,though significantly higher than in 1974, was still about 15% lower than theexpectation because of floods that year.

3.03 Urea continues to be the main N fertilizer used in Indonesia andrepresented about 96% of N fertilizer applied in 1975: most of the urea wasused for rice which accounted for 76% of N consumption. The predominance ofrice cropping justifies the urea as the major N fertilizer in Indonesia;and as rice continues to have prime importance, urea is expected to continueto be the most popular N fertilizer.

3.04 In spite of these rapid increases, the fertilizer consumption perhectare is still comparatively low in Indonesia as shown in the table below:

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Fertilizer Consumption per Hectare of Arable Land, 1972/73(kg of nutrient)

Nitrogen Phosphate Potash

Indonesia 19.2 3.7 1.7

Asia (average) 17.9 4.4 1.2India 10.7 3.5 2.0

Philippines 10.3 3.6 3.5Korea (Rep. of) 161.2 74.0 45.1Japan 138.4 135.4 113.2

Source: FAO Annual Fertilizer Review, 1973.

3.05 Projections of total N fertilizer consumption in Indonesia made by

several authorities show only minor divergence (Chart 1 of Annex 3). ThePelita II (Second Five-Year Plan, 1974-79) target of 1.2 million tons of N in

1980 is not supported by any of these studies. The Pelita forecast was toohigh by 80% in 1974 and 50% in 1975. The demand projections presented earlier

in this chapter are an update from the last Bank appraisal report of PUSRI III,and represent an increase in the expected annual demand by about 10%. The

reasons for such increase are that (a) the fertilizer already stockpiled (para

3.09) and the production of the new units will lift the availability con-straint that has existed in the past and (b) the Goverment has, therefore,introduced the following incentives to boost the use of fertilizer: (i)

strengthening and expanding the credit program (para 3.17), (ii) maintainingan attractive ratio to the farmer between the prices of fertilizer and ofagricultural products, and (c) increasing the recommended dosages of ureatoward an economic optimum. The Government is also planning to further expandthis incentive program to accelerate the application of fertilizers. Theexpected increase in domestic consumption of N fertilizers to 775,300 tons in1980 and 981,500 tons in 1985 is based on the assumption that the above

actions are in fact taken. 1/ This increase is, however, expected to occur ata declining rate, and as fertilizer application in irrigated areas reaches itsmaximum extent, application of fertilizers in non-irrigated areas will occurat a slower pace.

3.06 The foodcrop sector (mostly rice) will continue to dominate theconsumption of fertilizer in Indonesia; it accounted for 90% of totalfertilizer consumed in 1974 and 1975, but its share is forecast to declineslightly to 82% in 1980 and then remain stable up to 1985. The followingtable shows the Bank's regional fertilizer consumption projections whichindicate that Java would continue, though in a lesser proportion, to be by

far the major fertilizer user in Indonesia:

1/ The projections for P205 and K20 are based on desirable N:P:K ratios.

To achieve these relatively high consumption levels considerable effortswill have to be put into promotion of phosphatic and potash fertilizers.

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Indonesia - Consumption of Fertilizer by Regions('000 nutrient tons)

---- 1972 (actual)--- -------N Consumption-----N P205 K20 1975 (est.) 1980 1985

Java 242.1 38.3 9.6 271.7 518.7 634.1Sumatera 46.5 12.3 20.6 69.2 157.4 210.0Other Islands 16.5 2.2 0.3 39.1 99.2 137.4Indonesia 305.1 52.8 30.5 380.0 775.3 981.5Java as %of Indonesia 79.3 72.5 31.5 71.5 66.9 64.6

B. Past Supplies and Supply Prospects

3.07 At present, the total annual capacity for N fertilizer in Indonesiais 504,000 product tons of urea and 150,000 product tons of ammonium sulfate,or a total of 263,000 N nutrient tons. The annual production capacity forN fertilizer is projected to increase fivefold in ten years to about 1.2 mil-lion tons of N in 1985 when four additional plants are scheduled to be incommercial production: (a) PUSRI III in April 1977; (b) PUSRI IV in February1978; (c) the West Java plant in July 1979; and (d) the East Kalimantanplant in July 1980. Domestic production of N fertilizer is still laggingbehind consumption and represented 54% of N fertilizer consumption in 1975.PUSRI III will increase the domestic production share to 89% of consumptionin 1978 and by 1980 PUSRI IV, the West Java and East Kalimantan plants areexpected to make up for the deficit and produce an exportable surplus of up to234,000 nutrient tons in the early 1980's. The export surplus could be doublethtis volume if Indonesia builds another ammonia/urea project at Aceh by 1982.This project is in an initial stage of planning and is proposed as a regionalexport-oriented project with investment from Indonesia as well as neighboringcountries. This project has not been taken into account in this reportbecause of its preliminary status.

3.08 There is no indigenous phosphate production but Petrokimia is plan-ning a project, reportedly to be completed by 1979, to annually produce330,000 tons of TSP, 80,000 tons of DAP and 50,000 tons of NPK fertilizers,representing respectively 21,900, 196,000 and 7,500 tons in N, P205 and K20nutrients. 1/ Phosphatic and potash raw materials will continue to beimported and so will additional phosphate and potash fertilizers to make upthe projected P and K deficits. The Goverment will from time to time exchangeviews with the Bank regarding Indonesia's plans to meet the country's nutrientrequirements.

1/ In addition PUSRI is considering shutting down the PUSRI I urea unitand installing a DAP producing unit. It is not clear yet, however,whether this project will mature.

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C. Past Imports and Export Potential

3.09 From 1964 to 1973, Indonesia's total imports of fertilizers increasedat an average annual rate of 20%. In 1974, imports jumped by 87% over theprevious year and in 1975 by an estimated 56%, as a result of an activestockpiling program:

Indonesia - Imports of Fertilizers, 1964-1975('000 nutrient tons)

Nitrogen /a Phosphate Potash Total

1964 35.7 23.5 7.9 66.11973 225.7 97.7 15.6 339.01974 422.3 179.3 31.8 633.41975 (est) 672.1 281.9 31.1 985.1

/a Urea has gained increasing importance accounting for94% of total N imports in 1974 compared to 39% in 1964.

Bagged urea import prices (c.i.f. Jakarta) rose steeply from US$62/tonin January 1972 to US$424/ton 1/ at the end of 1974, and even at this highprice, fertilizers in general, and urea in particular were not readily avail-able in adequate quantity on the world market. This shortage situationencouraged the Government of Indonesia to engage in 1974 upon the abovementioned program of stockpiling fertilizers to secure adequate supply to thefarmers: in the last quarter of 1975, the country had in stock about 1.6million tons of urea and 0.7 million of TSP/DAP, i.e., about two-year needs at1975 levels of consumption. With a sizeable amount of urea already at hand,Indonesia is not expected to have to import additional urea in the foreseeablefuture; by 1978, the stock of N fertilizers is forecast to decline down toabout 250,000 product tons, i.e., three to four month consumption. Asmentioned, phosphate and potash fertilizers will still be imported.

3.10 As the new production units go on stream, Indonesia should emerge asan exporter of N fertilizer toward the end of the decade. The exportablesurplus is projected to increase to about 234,000 tons of N in 1982 and thendecline to about 174,000 tons in 1985 as domestic demand rises (para 3.07).The Government has undertaken to study potential export markets and developan export strategy and submit a report to the Bank by December 1, 1977.Indonesia should not find it too difficult to market this surplus even in theneighboring countries alone, for which import needs are projected to developas follows:

1/ International urea prices (f.o.b. exporting countries) have since thencome down to US$110-150/ton.

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N Fertilizer Deficit (-) in Selected Countries /a(in '000 nutrient tons)

1975 (est.) 1980 1985

Malaysia -69.4 -114.8 -162.2Thailand -57.0 - 82.5 -105.5Philippines -77.2 - 70.4 -107.2

Total Deficit -205.6 -267.7 -374.9

/a Forecasts for Malaysia and Thailand are from TVA (1975)and for the Philippines are Bank projections. Importrequirements for the southern part of Vietnam could addanother 260,000 and 360,000 tons in 1980 and 1985respectively.

3.11 Indonesia, because of its favorable location, is in an advanta-geous position to cover these deficits compared to more distant countrieswhich are expected to have some export surplus by the end of this decade.However, competition from Japan may be substantial, depending on the degreeto which their present exports to China,that account for about 65% of totalJapanese fertilizer exports, may have to be diverted to other markets onaccount of a rapid build-up of China's own fertilizer production capacity.

D. PUSRI Marketing and Distribution

3.12 PUSRI has established an efficient distribution network to marketits own and imported fertilizers and related agro-chemicals. The Company'smarketing organization which operates separately from its manufacturingactivities, is extensive and currently accounts for the distribution of about60% of all fertilizer consumed in Indonesia; PUSRI is expected to remain theleading distributor in the future as well.

3.13 PUSRI owns two bulk terminals with bagging facilities at Surabayaand Cilacap; and storage depots in selected locations (Map, IBRD 12069).A third bulk terminal/bagging station built by PERTAMINA at Tanjung Prioknear Jakarta, especially to handle imported fertilizers, is also availablefor use by PUSRI. Finally, two new bulk terminals at Belawan and Padang(Sulawesi) with adequate facilities will be established under the FertilizerDistribution Project (US$68 million, Loan No. 1139-IND of July 10, 1975).

3.14 Urea is presently shipped from Palembang both in bags, through Regu-lar Liner Service (RLS) vessels which operate among the islands, and in bulk,through chartered carriers equipped for unloading at the bulk terminals whereurea is bagged, stored and dispatched for inland distribution. These presentbulk carriers do not represent an optimal solution for fertilizer shipmentsand are to be replaced by more efficient bulk carriers. In addition, shipping,unloading, bagging and related storage facilities will be installed under theFertilizer Distribution Project which is expected to be in place by mid-1977.

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3.15 PUSRI has made a preliminary estimate of the additional facilitiesrequired to accommodate the increment of production of PUSRI IV: theyinclude transport facilities (bulk carriers, locomotives and freight wagons),additional Inland Storage Depots (ISDs) and a new bulk terminal and baggingstation to be built at Ujung Pandang (Sulawesi). Final design of the systemwill have to await the outcome of the National Fertilizer and PesticidesDistribution Study, which was included in the Fertilizer Distribution Projectfor completion by June 1976. Agreement was reached with the Government andPUSRI that they will develop the additional distribution facilities in timefor the commercial operation of PUSRI IV and that they will submit to the Banka financing plan and an implementation schedule for such facilities withinthree months after the completion of the National Fertilizer and PesticidesDistribution Study.

3.16 Initially about 80% of PUSRI production will be shipped in bulkto the main markets in Java and Sumatera through the new system, and therest bagged and shipped in RLS vessels. PUSRI's imported fertilizers will bereceived in bulk and bags at Java ports and also be distributed through thissystem. Considerable economies will be achieved by using the ships providedby the Fertilizer Distribution Project to distribute imported fertilizers asbackhaul between Indonesian ports.

E. Credit

3.17 Over 60% of the fertilizer consumed in Indonesia is applied inareas covered by two successful programs for promoting intensive cultivation offoodcrops, especially of rice: the BIMAS 1/ (Mass Guidance) Program and theINMAS 2/ (Mass Intensification) Program. The rest of the fertilizer is con-sumed mostly by the cash crop or estate sector. The Bank Rakyat Indonesia(BRI) is the sole credit agency for the BIMAS and INMAS programs, while theestate sector depends on the normal banking facilities to meet its creditneeds. Adequate credits are currently provided by BRI and the normal bankingfacilities at 1 to 2% monthly interest rates and no serious problem is fore-seen with respect to credit in the future. BRI is attempting to set upoffices to process loan applications in each village. Village units withouta BRI office are covered by mobile units. To obtain fertilizer, the farmerhas to apply to the village head for an allocation and, to BRI for a creditvoucher covering the cost of the fertilizer allocated to him. Fertilizeris either sold in village "kiosks" operated by retailers or by village unit

1/ BIMAS is a credit program designed to provide farmers with cheaperfinance than that of local money lenders, and supported by an agricul-tural extension service.

2/ INMAS, the other major agricultural improvement program, is designedfor farmers who are financially more secure than the beneficiariesof BIMAS, and provides for the distribution of essential agriculturalequipment.

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cooperatives (BUUD's and KUD's). 1/ It is the Government's policy to pro-mote the BIJWD's and KUD's as a main source of input supplies for farmerscovered by the BIMAS and INMAS programs. Presently, the cooperatives lacktrained personnel to operate efficiently and the Government is making effortsto expand and strengthen them.

IV. THE PROJECT

A. Project Scope

4.01 The plant will consist of two single-train units of modern design,an ammonia plant with a capacity of 1,000 TPD and a urea plant of 1,725 TPD.The capacities and the design characteristics of the two units will be similarto PUSRI III. The project is part of a larger program which will also includethe development of (i) a gas gathering and distribution system; (ii) a fertil-izer distribution facility; and (iii) a training program for the nationalfertilizer industry. The project is the third expansion of the Company'sexisting facilities at Palembang (see Annex 4-1 for the plant layout) and isto make maximum use of the present plant site. Soil conditions will necessitatepiling and provisions for this have been made in the capital cost estimates.Additional auxiliary facilities are included in the project, such as anammnonia storage, urea storage and loading facilities, and a gas turbinepower generator to ensure continuous supply of power without fluctuation andvoltage dips. A training center for operating and maintenance staff will beconstructed at Palembang 2/ and its cost is included in the investment estimates.A description of the proposed PUSRI IV production process and plant facilitiesand a project implementation schedule are given in Annexes 4-2 and 4-3.

B. Gas Supply and Price

4.02 Natural gas will be used for both feedstock and fuel, and willbe obtained from the nearby oil and gas fields in South Sumatera operatedby PERTAMINA and STANVAC 3/. The project's daily gas requirements at designcapacity are about 60 million standard cubic feet per day (MMSCFD) compared to12, 42 and 60 MMSCFD for PUSRI I, II and III, respectively. Total gas require-merits of the Company's plants and other users through 1997, the end of theuseful life of PUSRI IV, are the following:

1/ The functions of the BUUD's/KUD's are to provide farmers with agricul-tural extension services in an effort to increase food production,supply farm input and manage farmers' output for their better benefit.

2/ A second training center for accounting and marketing staff will be setup at the existing headquarters in Jakarta.

3/ Annex 4-4.

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Gas Requirements of PUSRI and Other Users

MMSCFD BSCF /a Years /b

PUSRI I 12.2 40.00 1975-1983PUSRI II 42.0 291.48 1975-1993PUSRI III 60.0 438.30 1977-1996PUSRI IV 60.0 438.30 1978-1997Other Users Ic 44.4 372.56 1975-1997

1,580.64

/a Billion standard cubic feet (BSCF).lb Through expected useful life of PUSRI plants./c Including gas lift and compressor fuel.

Total gas reserves in the area (proven, probable and possible) are 1,862BSCF of which 1,384 BSCF are proven, and are therefore expected to be adequate

to meet PUSRI's need over the entire life of the projects. Furthermore, theGoverment has assured PUSRI that its requirements will be met on a prioritybasis, since the other users (essentially two refineries in Plaju and Sungei

Gerong) could switch to fuel oil if necessary. Details of gas requirements andreserves are given in Annex 4-5.

4.03 PUSRI I is served by a gas pipeline operated by STANVAC, whilePUSRI II needs are met by the gas gathering and transmission systems devel-oped by PERTAMINA as part of the PUSRI II project, financed by IDA. ForPUSRI III, PERTAMINA, under instruction from the Government, had initiatedin 1974 some engineering and drilling activities to develop new gas fields

in the Musi Block, about 250 Km southwest of PUSRI, and to upgrade the presentsystem (by looping from Simpang to the plant). Early in 1975, however, theGovernment requested PERTAMINA to (a) review the basis of the gas project,since some doubts had been expressed on the economic validity of exploitingthe distant gas field (the Musi Block) so early and (b) develop a supplyscheme to cover the additional gas requirements for PUSRI IV. As a resultPERTAMINA designed an integrated gas system which will supply all of theCompany's requirements (except PUSRI I) as well as those of the other users in

the area. A description of the gas system and cost estimates are given inAnnex 4-5. Gas fields which are closer to the consumption site will be thefirst to be connected to the gathering system. As the reserves of the closestfields are exploited, new gas fields further away will be connected. Invest-ment costs will therefore be spread over a longer period of time, thus reducingtheir present value. STANVAC gas fields, which were not included in the

original project, are now planned to supply gas to the system from the earlyyears of operations. However, PERTAMINA and STANVAC have not been able thusfar to agree on a gas pricing formula. The Government has informed the Bank

that it will make every effort to get the contract signed at an early date.

4.04 PERTAMINA will act as the executing agency of the integrated gasproject and, through contractors and its own Gas Division, implement the

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project. Decisions concerning equipment and services procurement, however,will be subject to approval by a steering committee, formed by representativesof the Finance, Planning and Economic Affairs, Industry and Mines Ministries.This committee will review from time to time the status of the project andwill exercise close control over project cost. The PUSRI III project isexpected to require gas for initial testing by mid-1976 and the existinggas system developed for PUSRI II is capable of delivering the 10 MMSCFDneeded for this purpose. It is also expected that PUSRI III will be ready forfinal performance tests in early 1977 when its full gas requirements (60MM'SCFD) will have to be available and, therefore, the looping work fromSimpang to Palembang and extension of the existing gas gathering system tonearby STANVAC and PERTAMINA fields will have to be completed. In April1976, PERTAMINA and Quadra Engineering Company, of Canada, signed a contractto complete the most urgent phase (1-C) of the gas project by February 1977.Financing for this phase of work is being negotiated with the Export Develop-ment Corporation (EDC) of Canada. Should EDC financing not be available, theGovernment has undertaken to finance the project from its own resources.Further, the Government has undertaken that PERTAMINA will complete otherphases (1-A and 1-B) of the gas project which are being carried out by localcontractors and with Government financing, in time to insure adequate gassupply to PUSRI III and PUSRI IV. The various phases of the gas project are:(1-A) looping from Simpang to Palembang by December 1976; (1-B) looping fromCambai to Simpang by mid-1978; and (1-C) tying-in of the gas fields betweenRambutan and Cambai between December 1976 and first quarter of 1977.

4.05 In August 1975 PUSRI and PERTAMINA entered into a gas purchaseagreement, whereby PERTAMINA will supply PUSRI II, III and IV with thetotal gas requirements over their respective lives (estimated at 20 years),thereby amending the earlier agreement covering the gas supply to PUSRI II.The pricing formula has not changed except for the fee PUSRI has to pay toPERTAMINA, which has been increased from US2.0 cents to US3.5 cents perMSCF to cover overhead charges . According to this formula the price of gasis set at a level to cover interest as well as full operating costs (includingdepreciation) 1/ of the gas system. The price of gas should thus decline asinterest payments on debt decline. Because it is not possible to determineaccurately in advance the amount of further investment in drilling to maintaingas delivery, this pricing system allows such investment to be ammortized byan increase in the then ruling price of gas, and quite probably, withoutexceeding the initial gas price. For the purpose of financial projections,an average gas price of Rp 250 (US$0.60) per MSCF has been assumed. TheGovernment has agreed to cause PERTAMINA to supply to the project adequate gasof required quality at reasonable prices.

C. Management and Project Execution

4.06 The project management for PUSRI III will also implement PUSRI IV.A project team headed by Mr. Kotan Pasaman, PUSRI's Technical and Production

1/ Depreciation equals the debt repayment at present as the PUSRI II gasproject was financed exclusively by debt. The gas project expansion willalso be financed exclusively by debt.

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Director, has been formed to supervise and coordinate the work of the two

engineering firms, Kellogg (U.S.) and Toyo Engineering (Japan). Kellogg

will have overall responsibility for construction, erection and start-upof the complete fertilizer plant which will be supplied as follows: (i) the

ammonia plant and all offsites and auxiliaries are being designed and procured

by Kellogg; and (ii) the urea plant is being designed by Toyo which is also

procuring the equipment for shipment to the plant site ready for erection by

Kellogg. As the Company staff is limited, it is being supplemented by the

same consultants engaged in PUSRI III implementation.

4.07 Kellogg and Toyo Engineering have been the contractors for PUSRI II

and III, and the Company has retained them, with Bank concurrence, to also

implement the project (PUSRI IV). The ammonia and urea units will be essen-

tially a duplication of the design used for PUSRI III. This together with

some standardization in equipment, with reduced spare parts requirements, will

significantly lower the capital cost of the project. Letters of intent were

issued to Kellogg and Toyo in June 1975 and the final contracts signed in

August 1975. The project is at an advanced stage: design and engineering is

well underway and ordering of critical equipment has been completed in

accordance with Bank approved procedures. The project is expected to be

mechanically completed by November 1977 with commercial production after the

final acceptance test scheduled for February 1978 (Annex 4-3). This is a

tight but realistic schedule given the good performance record for PUSRI IIand III and the duplication nature of the project.

D. Employment and Training

4.08 PUSRI's present staff of about 2,600 is expected to increase by 60%in the next three years. At the same time the Government is relying upon

PUSRI to provide the staff and training facilities required to implement theinvestment program in the entire fertilizer industry. The Company recognizes

the importance of early recruitment and is planning to begin recruitment for

PUSRI IV in January 1977. Only the hiring of graduate accountants is expectedto be a potential problem. As one approach to relieving the problem, the

Government and PUSRI have agreed to review the present salary scales, includingfringe benefits, of professional staff of PUSRI and submit a report to the

Bank by June 30, 1977.

4.09 PUSRI's record of staff training is good. The additional demandswhich will be placed on the training system within the next three years,

however, make it necessary for programs to be made more efficient and for

a National Fertilizer Production Training Center to be established at Palembang

with minor ancillary facilities in Jakarta. The estimated total cost of this

component of the project is US$1.7 million of which the foreign exchange

share accounts for US$880,000. Details of the overall training require-

ments which will arise by 1978, together with the proposal for meeting them,

are outlined in Annex 4-6. The training program will be carried out according

to a schedule to be mutually agreed between PUSRI and the Bank.

E. Ecology

4.10 There are currently no statutory regulations in Indonesia forcontrolling the discharge of industrial effluents, and the plants will be

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designed in accordance with standards established by Kellogg and Toyo on thebiasis of regulations in the U.S. and Japan. As natural gas from the SouthSumatera fields is virtually sulphur free, atmospheric pollution problems areexpected to be minimal. Liquid effluents from the plant will be treated inwaste water treatment units prior to discharge into the Musi River. Pollutioncontrol and monitoring facilities, as envisaged under the project, account for2% of the project cost and are satisfactory. Their inclusion in the projectwas confirmed during negotiations.

V. CAPITAL COST AND FINANCING PLAN

A. Project Costs

5.01 Total financing required for the project is estimated at US$186 mil-lion equivalent, including US$145 million in foreign exchange. Details ofcapital cost estimates given in Annex 5-1 are summarized below:

Summary of Capital Costs

In Rp billion In US$ millionLocal Foreign /a Total Local Foreign /a Total %

Equipment and Spares /b 2.1 34.6 36.7 5.0 83.2 88.2 62.8Dluty and Taxes /c - - - - - - -Erection 2.0 - 2.0 4.8 0.1 4.9 3.5Civil Construction 1.8 2.4 4.2 4.3 5.8 10.1 7.2Engineering Services &Project Management /d 0.5 10.9 11.4 1.2 26.3 27.5 19.6

Preoperating andStart-up Expenses /e 1.6 1.3 2.9 3.9 3.0 6.9 4.9

Jetty 0.1 0.4 0.5 0.2 1.1 1.3 0.9Housing 0.5 0.1 0.6 1.4 0.1 1.5 1.1Base Cost Estimate (BCE) 8.6 49.7 58.3 20.8 119.6 140.4 100.0

Contingencies: Physical 0.7 3.3 4.0 1.8 8.0 9.8 7.0Price 0.7 2.1 2.8 1.6 5.1 6.7 4.8

Installed Cost 10.0 55.1 65.1 24.2 132.7 156.9 111.8Incremental Working Capital 2.7 0.5 3.2 6.5 1.3 7.8Project Cost 12.7 55.6 68.3 30.7 134.0 164.7Interest During Con-struction 4.3 4.6 8.9 10.3 11.0 21.3

Total Financing Required 17.0 60.2 77.2 41.0 145.0 186.0

/a Including indirect foreign exchange requirements of about US$1.0 millionequivalent.

/b c.i.f. cost at plant site./c Exempt from duty and taxes./d Including US$1.4 million for bonus for contractors for project completion

ahead of schedule./e Including US$0.9 million for training services.

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5.02 The above cost estimates are based on PUSRI III and other compara-ble Bank Group projects as well as data prepared by the Company with the helpof their Technical Advisor, Scientific Design of the U.K., using December 1975prices. These prices were derived from quotations submitted to Kellogg andToyo by prospective suppliers and from actual bids received on a firm basis forabout 60% of the equipment. In addition to the normal level of expendituresfor site preparation, US$5.2 million have been included for piling and soilinvestigations. Provisions for training and training-related consultants'expenses were included under different headings: US$2.8 million under ProjectManagement for the costs of the Technical Advisor as well as consultants onmanagement, accounting, shipping and marketing; US$0.9 million under preoperat-ing and start-up expenses to cover the expenditures of a comprehensive trainingprogram developed with the help of the Bank (Annex 4-6); and US$0.8 millionunder equipment for the cost of two training centers; one in Palembang and theother in Jakarta. The costs under these headings are relatively high due to:(i) lack of trained manpower in Indonesia, thus necessitating heavy relianceon expatriates; and (ii) need for extensive training of local personnel inview of PUSRI's rapid expansion.

5.03 Physical contingency equivalent to 7% of the base cost estimate hasbeen added: this is relatively low, due to the advanced state of the project.Price escalation for equipment (excluding proprietary and critical items worthUS$25 million for which orders have already been placed on fixed price con-tracts) is calculated on the basis of projected price increases of 9% in 1976and 8% per year thereafter in major equipment supplying countries because ofworldwide inflation. On civil works, escalation rates of 13% in 1976 and 12%per year thereafter have been assumed based on the projected rates of inflationin Indonesia. The above cost estimates, including physical and price contin-gencies, are considered adequate.

5.04 The incremental working capital requirements due to the project areestimated at Rp 3,179 million (US$7.8 million) and are detailed in Annex 5-2.At present, the Company's consolidated accounts show excessive working capital,primarily because of the large inventory of imported fertilizers held by PUSRIon behalf of the Government. However, the national fertilizer stockpileaccounts will be shown separately by PUSRI starting in 1977 (para. 2.14) andthe Government will continue to make up all the losses resulting from thestockpile operation. For the purpose of projections, therefore, the stock-pile accounts have not been taken into consideration. As a result, the currentexcessive working capital of PUSRI is forecast to show a sharp reduction from1977 onwards.

B. Financing Plan

5.05 The financing plan for the project will be as follows:

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Financing Plan

Government Financing By Sources In Rp Billion In US$ Million %

Bank Loan 29.05 70 37.6Saudi Loan 29.05 70 37.6Equity Contribution by Government 19.09 46 24.8

77.19 186 100.0

Application of Funds by Government

Loan 58.10 140 75.2Equity 19.09 46 24.8

77.19 186 100.0

5.06 The Government will subscribe Rp 19.1 billion (US$46 million) innew equity in foreign exchange and local currency as required, while the restof the financing is to be met with loans from the Bank and the Saudi Fund forDevelopment (SFD). The project will be financed 75% by debt. This high debtlievel is acceptable as the debt/equity ratio for the Company as a whole is notexpected to surpass 55/45 (para 6.13). Agreement has been reached with theGovernment that this ratio for the Company will not exceed 55/45 at anytime.

5.07 The total foreign exchange cost of PUSRI IV is estimated at Rp 60.2billion (US$145 million). Proceeds of the loans from Bank and Saudi Arabiawould cover 92% of such costs, with the Government meeting the remaining 8%.The Government will also contribute all local currency financing, includingworking capital. The timely availability of local as well as foreign exchangefinancing from the Government was confirmed during negotiations. In case ofany cost overrun, it will be the responsibility of the Government to providepromptly the additional funds to complete the project on terms satisfactory tothe Bank.

5.08 The Bank loan will be made to the Government which will on-lendthe proceeds to PUSRI for 15 1/2 years including 3 1/2 years of grace -- thesame terms as proposed for the Bank loan to the Government -- at an annualinterest of 12%, including a fee accruing to the Government which will bearthe foreign exchange risk. The principal of the loan will be repayable in 24equal semi-annual installments beginning from the second half of 1978, i.e.,about 1 3/4 years after the expected start of commercial production. Thoughthe financial projections show that the Company would be able to pay offthe loan in a shorter period of time, a repayment period of 12 years isrecolnmended on country grounds. The proposed Saudi loan 1/ is expected to be

1/ Final negotiations for the Saudi loan are scheduled to be held in Riyadhduring April 1976.

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made to the Government at an annual interest of approximately 4% and would beon-lent to PUSRI by the Government on the same terms as the Bank loan. TheBank loan will become effective after all conditions for the effectiveness ofother financing are met by the Government and PUSRI.

C. Procurement

5.09 International competitive bidding (ICB) procedures in accordancewith Bank guidelines are being used -- independent of the source of financing-- for equipment and materials estimated to cost about US$80 million including

escalation. Proprietary equipment essential to the process and items in limitedsupply, which are estimated to cost together about US$11 million and cri-

tical to the timely completion of the project, are being procured following

bidding from lists of qualified non-Indonesian suppliers; these lists havebeen approved by the Bank. In addition, standardized items worth US$14million will be procured from the same suppliers as for PUSRI III. Itemscosting less than US$50,000 equivalent each, and totalling about US$1 millionare being purchased from suppliers on the basis of suitability, availabilityand price. The list of items falling into this category has also been approvedby the Bank. A preference of 15% or the customs duty, whichever is lower,will be allowed to Indonesian manufacturers for the purpose of evaluatingbids following ICB. Bid evaluation will be PUSRI's responsibility with the

assistance as required.

D. Allocation and Disbursement of Bank Loan

5.10 The allocation of the Bank loan was agreed on during negotiations.The proceeds of the loan will cover the foreign exchange cost of a selectedlist of imported equipment and services, including engineering and licensingfees, as shown below. A separate list of goods and services has been preparedfor Saudi financing under a parallel financing arrangement. About US$7.3million (10%) of the Saudi loan would finance a part of local costs associatedwith those items. Both lists are summarized in Annex 5-3. By the time ofBoard presentation, out of the estimated US$145 million foreign exchange cost,US$60 million will have been committed, with expenditures amounting to US$20million. In view of the advanced stage of the project, it is recommended thatthe Bank retroactively reimburse up to US$7 million equivalent for goods andservices (including US$3 million for goods and US$4 million for services).

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Tentative Allocation of Bank Loan(US$ million)

Equipment and materials (c.i.f.) 35.8

Engineering services, project manage-ment and pre-operating expenses /a 24.8

Unallocated 9.4

Total 70.0

/a Pre-operating expenses for training, travel and studies, andalso for plant testing.

'5.11 It is estimated that the loan will be disbursed according to theschedule presented in Annex 5-3. Any surplus funds remaining in the loanaccount after completion of the project will be cancelled.

VI. FINANCIAL ANALYSIS

A. Project Revenue and Profit

6.01 The financial analysis of the project is done on an incrementalbasis and in real 1975 prices. The major assumptions, detailed in Annex 6-1,are summarized below.

6.02 It is assumed that the project will start commercial production onFebruary 15, 1978 with capacity utilization increasing gradually from 75% inthe first full year of operation (February 15, 1978 to February 15, 1979) to80% in the second and 90% in the third and beyond. Because of PUSRI's pastrecord and provision for technical assistance for the project, the attainmentof 90% capacity utilization is considered conservative. The economic life ofthe project is assumed to be 12 operating years with assets depreciated on astraight line basis. At 90% capacity utilization, the project would produce513,000 TPY of urea.

6.03 The current price to producers fixed by the Government includes anallowance for transportation costs to Java. Taking this into account, thecurrent ex-factory price is Rp 55,900 (US$135) per ton. The ex-factory priceiLs expected to rise to Rs 58,930 (US$142) per ton from 1977 onwards as aresult of the anticipated reduction in transportation cost due to the commis-sioning of the Bank-financed PUSRI Fertilizer Distribution Project now under-way, and this price is used for projecting sales revenue. Operating costs arecalculated at 1975 constant prices and include real increases in labor andoverhead costs.

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B. Production Costs

6.04 The following table shows the per ton production cost of theproject at 90% capacity utilization:

PUSRI IV - Production Costs per Ton (1981)

US$/Ton of Urea Percentage (%)

Natural Gas 20.9 18.8Chemicals and Catalysts 1.5 1.3Bagging Materials 10.0 9.0Maintenance Materials 8.0 7.2Labor 5.6 5.0Overhead 8.4 7.5Depreciation 28.9 26.0Financial Charges 28.0 25.2

Total 111.3 100.0

6.05 Production costs for PUSRI IV are comparable to those for PUSRI III.The principal raw material, natural gas, accounts for 18.8% of the productioncosts (including depreciation and financial charges). Depreciation and finan-cial charges together represent the largest share (51.2%) of total productioncosts.

C. Financial Projections for the Project

6.06 Financial projections for the project given in Annex 6-2 are sum-marized below:

PUSRI IV - Summary of Projected Financial Data for the Project(In Rp billion unless otherwise noted)

Year Ending Dec. 31 1978 1979 1980 1981 1982 1983(10 1/2 mos.)

Capacity Utilization (%) 75 79 89 90 90 90Sales Volume ('000 tons) 374 452 506 513 513 513Sales Revenue 22.0 26.6 29.8 30.2 30.2 30.2Net Profit before Tax 1.9 3.1 5.8 6.6 7.1 7.5Net Profit after Tax /a 1.9 3.1 5.8 6.6 7.1 4.2Depreciation 6.1 6.1 6.1 6.1 6.1 6.1Cash Generation 8.0 9.2 11.9 12.7 13.2 10.3Net Profit/Sales (%) 8.5 11.7 19.3 21.7 23.3 13.7Debt Service Coverage

(times) 2.6 2.3 2.1 1.7 1.8 1.6

/a Assuming 5-year tax holiday

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6.07 Total sales of the project are expected to increase from aboutRp. 22.0 billion in 1978 (for 10 1/2 months of operation) to Rp 30.2 bil-Lion in 1981 (the first year of sales equal to full production). Net profit

after tax of the project increases from about Rp 1.9 billion in 1978 to7.1 billion in 1982 but declines the following year to Rp 4.2 billion becausethe 5-year tax holiday for the project ends in 1982. However, the percentageof net profit/sales in 1983, the first year of tax payment, would still be ata satisfactory level of 14%.

6.08 The project is expected to generate from the beginning enough cashto more than meet its debt service. Beyond 1982, the debt service coveragewill come down because of the assumed tax payments (45% of pre-tax profit) butit will still be at an acceptable level.

]). Incremental Financial Rate of Return

6.09 The incremental financial rate of return before tax is 21.4% (19%after tax) and is satisfactory. Sensitivity tests have been conducted todetermine the effects of various events on the financial rate of return; theresults are shown in Annex 6-3 and are summarized below:

PUSRI IV - Sensitivity Tests on Financial Rate of Return

Case Percentage

1. Base Case 21.42. Sales revenue decrease by 10% 17.63. Sales revenue decrease by 20% 14.0

4. Capital cost increase by 10% 19.45. Operating cost increase by 10% 20.06. 6-month project delay and 10% capital cost increase 17.07. 80% capacity utilization 18.58. Combination of (6) and (7) 14.1

6.10 The rate of return is more sensitive to changes in sales revenuethan in operating .and capital costs. A six-month delay in project implemen-lation, combined with a 10% capital cost overrun and the eventual attainmentof only 80% capacity utilization, would reduce the return to 14.1%. However,the likelihood of this happening is low, particularly because of the involve-raent of experienced engineering firms. If one-third of the project's outputiLs assumed to be exported, the financial rate would increase to 22.5% as the1-.o.b. export prices are expected to be higher by US$18 per ton than the

assumed ex-factory domestic price.

E. Break-even Point

6.11 The profit break-even for the project in 1981 would be 64% capacityoperation, and the cash break-even, 59%. A break-even chart is provided in

Annex 6-4.

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F. Analysis of PUSRI with the Project

6.12 Details of consolidated financial projections for PUSRI with theproject given in Annexes 6-5 to 6-9 are summarized below:

Summary Financial Data for PUSRI with the Project(In Rp billion unless otherwise stated)

Year Ending Dec. 31 1976 1977 1978 1979 1983(est.)

Income and Cash FlowSales /a 91.0 118.3 155.6 168.1 197.5Interest 3.1 6.6 16.7 19.7 12.9Depreciation 3.1 9.9 21.1 21.1 21.1Net Profit before Tax 9.3 15.6 23.0 18.1 28.9Net Profit 9.3 13.5 18.9 17.8 19.3Cash Generation before Interest 15.5 30.0 56.7 58.6 53.3Debt Service 4.8 8.3 19.0 25.1 27.7

Balance Sheet ItemsCurrent Assets 127.4 9.2 /b 12.8 13.9 14.6Surplus Cash 0 49.3 78.6 109.8 221.5Current Liabilities 86.5 5.7 /b 9.8 17.2 19.9Net Fixed Assets 193.2 250.0 248.4 228.9 144.6Long-Term Debt 114.6 162.7 167.5 155.2 95.9Equity 121.8 141.7 164.2 181.9 266.4

RatiosCurrent Ratio (IncludingSurplus Cash) 1.5 10.2 9.3 7.2 11.8

Long-term Debt/Equity Ratio 49/51 53/47 50/50 46/54 26/74Debt Service Coverage (times) 3.2 3.6 3.0 2.3 1.9Return on Assets in Service /c 18 17 17 15 19

/a Including income from production department./b The sharp decline is based on the assumption that the accounts of stock-

piling of imported fertilizers will be separated from PUSRI's normalaccounts in 1977.

/c After tax but before interest.

6.13 Assumptions used are detailed in Annex 6-1. The consolidatedprojections show that during 1976-1983 total sales volume would increase byabout 117%, while net profit would increase by 2.2 times starting from a lowbase. Projected increases in sales during 1977-1983 are mainly due to PUSRIIII and PUSRI IV. The net profit declines slightly in 1983 compared with 1979in spite of the decrease in interest burden because, as mentioned in para6.07, from 1982 the Company will no longer enjoy the tax holiday on PUSRI IIIand PUSRI IV. The debt/equity ratio of PUSRI is estimated at 49/51 in 1976.It is forecast to improve significantly and reach 26/74 in 1983 assuming allearnings are retained and no further expansion is undertaken.

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6.14 The Government had agreed under the PUSRI III loan to maintain PUSRI

in a sound liquidity position by ensuring a current ratio of at least 1.2

during the continuation of the fertilizer distribution control system and 1.4

thereafter. However, the projections show that the current ratio would fallbelow 1 during 1979-1983 if surplus cash, which builds up impressively during

that period, is excluded from the ratio calculation. Therefore, the Governmentand PUSRI are expected to allocate sufficient funds from surplus cash tocurrent assets to maintain the current ratio at the previously agreed levels.

Should the anticipated surplus cash fail to materialize, the Government willhelp PUSRI maintain the current ratio at such levels.

6.15 Even after allocation of surplus cash to current assets there would

be substantial excess funds which are expected to be used to: (i) diversify

and modernize PUSRI I operation; (ii) establish a urea formaldehyde plant at

Palembang; (iii) relocate PUSRI headquarters from Palembang to Jakarta; (iv)

invest in a possible regional joint venture among member countries of theAssociation of South East Asian Nations (ASEAN) to produce urea at Aceh, North

Sumatera, for which PUSRI is preparing a feasibility study following a requestby the Indonesian Government; and (v) carry out various studies, e.g., about

export markets.

6.16 The following covenants similar to those in the PUSRI II and PUSRIIII loans were agreed to: (i) PUSRI will have subsidiaries only with the

prior approval of the Bank; (ii) without Bank consent, PUSRI will not incur

additional long-term indebtedness other than Rp 150 billion (US$361 millionequivalent) for PUSRI III, PUSRI IV and the related fertilizer distributionprojects if as a consequence the debt/equity ratio would exceed 55/45 for the

Company; (iii) PUSRI will depreciate fixed assets of the project over 12 yearsof its operating life and other assets in conformity with sound accountingprinciples; (iv) without Bank consent, PUSRI will not declare dividends except

out of accumulated net earnings nor pay dividends, until PUSRI IV shall have

produced at 80% capacity for 12 consecutive months, i.e., 456,000 tons, or if

its current assets would be less than 1.4 times its current liabilities; (v)

the Government will help PUSRI maintain a debt service coverage annually of at

least 1.5 times; and (vi) except for PUSRI III, PUSRI IV and the related

distribution projects, and normal replacements, PUSRI will not invest more

than US$5 million per year without Bank consent until PUSRI IV produces at 80%

capacity for 12 consecutive months. However, two exceptions to the US$5

million annual investment limit were agreed to: (i) cost involved in the

relocation of PUSRI headquarters from Palembang to Jakarta, and (ii) investmentin a urea formaldehyde plant at Palembang which is expected to cost aboutUS$11 million.

G. Major Risks

6.17 The project design is based on modern commercially proven techno-

logy for economically efficient large-scale production, thus minimizingtechnical and obsolescence risks in the project. Further, urea has beenproduced and marketed by PUSRI during the last 10 years and it is the most

common fertilizer used in Indonesia. However, the project could face problems

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for lack of realistic Government policies regarding fertilizer prices. Also,it has to be noted that in the past, the Government responded to PUSRI finan-cial needs rather slowly and the Company could face certain risks because ofsimilar slow response. The Government has, however, agreed to meet itsobligation without any delay in the future. In addition, the gas gatheringand distribution system for PUSRI III is one year behind schedule. Anyfurther delay in the implementation of the gas project will affect both PUSRIIII and PUSRI IV as the system designed for PUSRI III has to be expanded toserve PUSRI IV as well. The Bank is closely watching the progress on the gasproject and the Government has agreed to provide promptly adequate funds for

the project. Moreover, commercial risks in the sale of urea, includingpossible need for temporary exports, are also present, but these are consi-dered comparatively minor, since Indonesia will have to use most of theproject's output if it is to meet the food requirements of a rapidly expand-ing population.

VII. ECONOMIC ANALYSIS

A. World Fertilizer Prices

7.01 During the late 1960's, world fertilizer prices were depressed dueto excess supply and, consequently, investments in new fertilizer projectsdeclined sharply. When the world demand for fertilizers surged during 1972-73with the spreading of the "green revolution" based on high-yielding seedvarieties, the demand was not matched by increased supply of fertilizers.Partly as a result of worldwide fertilizer shortages and partly due to sharpincreases in the prices of fertilizer feedstocks, international fertilizerprices skyrocketed. For example, bagged urea import prices reached aboutUS$300 (f.o.b. exporting countries) per ton in 1974 compared to about US$70/ton at the end of the 1960's. The prices remained high until May 1975 butsince then urea prices declined to US$110-150 per ton (April 1976) with theeasing of the world supply situation. This sharp decline in prices has comeabout mainly because some of the principal importing countries have stoppedbuying fertilizers and have even cancelled some contracts for fertilizerimports after the panic buying during 1973-74 in the face of steep increasesin world fertilizer prices. Those countries built up large-scale stockpilesassuming the rise in fertilizer prices would continue for 2-3 more years. Theworld fertilizer prices are likely to remain at the present levels until thestockpiles are used up and imports are resumed on a fuller scale. Considdringthe fact that investment costs of US$385-440 per ton of new urea capacity arerequired for projects currently commencing, the large-scale expansion neededto meet future urea demand in the world would necessitate a urea selling priceof US$160-190 (f.o.b.) per ton, in 1975 dollars. If prices remain below thislevel for long, the anticipated increase in investment on new urea projectsmay be deferred, resulting in shortages, leading to sharp increases in priceas experienced during 1973-74. Therefore, the short-term gains for fertilizer-deficit countries from dependence on imports rather than indigenous productionmay be more than wiped out by periodic surges in world fertilizer prices ingeneral.

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B. Economic Advantages

7.02 An investigation employing a mathematical programming model has beencarried out by the Bank to determine the least cost solution with respect toiinvestment, production, importation and transportation in the ASEAN (Associa-tion of South East Asian Nations) region to meet its long-term fertilizer re-quirements. 1/ The model dealt with alternate plant sites, plant sizes,feedstocks, fertilizer intermediates and end products. In all cases assessed,assuming varying degrees of regional economic cooperation, the model supportsthe proposal for PUSRI IV. With its ample and underutilized resources ofnatural gas, the most efficient feedstock for the production of nitrogenousfertilizers, Indonesia has the potential not only to achieve self-suffciciencyin such fertilizers but also to emerge as a significant exporter. The neigh-boring countries, such as Thailand, Malaysia, the Philippines and Vietnam,are likely to depend on imports of nitrogenous fertilizers for many years. Tothose countries, Indonesia promises to be a competitive supplier of fertili-zers. Freight rates, which constitute a major part of imported fertilizercosts, have increased sharply. In this respect, Indonesia enjoys a definiteadvantage in supplying its neighbors compared to competitors further away.Most of the production from PUSRI IV would, however, be necessary to meet thedomestic demand. Further, PUSRI has well-developed infrastructure facilitiesbuilt for PUSRI II and III. As a result, there will be considerable costsaving with respect to PUSRI IV which is expected to cost about US$40 millionless than a green-field plant of comparable size. Besides, PUSRI has estab-lished itself as an efficient producer of urea and as an expeditious executorof expansion projects with the help of experienced firms.

C. Price Assumptions for Economic Analysis

7.03 The economic analysis is based on 1975 prices in real terms as shownin Annex 7-1. The production of PUSRI IV for domestic consumption is valuedat US$178 per ton of bagged urea ex-factory. This economic accounting priceis derived by assuming an average price during the life of the project ofUS$160 per ton of bagged urea (f.o.b., exporting contries 2/), and adding afreight charge if US$25 per ton. To this price of US$185/ton no adjustmentsare made for port handling and inland freight since such distribution costsfrom the port of entry (Jakarta) would be the same for imported as well asPUSRI-produced urea. However, as PUSRI ships most of its fertilizers fromPalembang to Jakarta to serve the predominant fertilizer market in Java, an

1/ The Potential For Regional Collaboration in Fertilizer: The Case of theASEAN Group, Bank/IFDC Draft Report, November 1975.

2/ By the time the project commences production in 1978, the bagged ureaprice (f.o.b.) is projected at US$160 per ton in constant 1975 prices.This is derived from the latest (November 26, 1975) Bank forecast ofUS$200 per ton of bagged urea (f.o.b.) at current prices in 1978.

- 29 -

economic shipping cost of US$7/ton is assumed and it is deducted from the

US$185/ton, thus arriving at the US$178/ton price mentioned above. As forPUSRI exports, they are valued at US$160/ton (f.o.b. Palembang).

7.04 With respect to operating costs, no shadow rates are used for laboras most of the labor employed in the project would be skilled personnel. Also

no shadow rates are used for foreign exchange as the Indonesian rupiah is afreely convertible currency. The feedstock, natural gas from South Sumatera,

is priced on the basis that it is a non-tradeable commodity because: (i) the

present proven reserves there are not large enough to justify a liquifiednatural gas (LNG) facility; and (ii) pooling of gas reserves in South Sumatera

with the large-scale gas reserves in North Sumatera (where a LNG plant isbeing established) through a pipeline system is too expensive. A gas priceUS60 cents per thousand standard cubic feet (MSCF) is used on the basis that

it is the price required to cover investment costs and to ensure a reasonablerate of return on such investment.

D. Economic Rate of Return

7.05 The economic rate of return for the project is 28.6% based onthe assumed gas price of 60 US cents per MSCF. Sensitivity tests performedon the economic rate of return (Annex 7-2) show that a 10% drop in urea pricewould reduce the return to 25%, while a 10% increase in operating costs wouldbring the return to 27.6%. A six-month delay in project implementation,

combined with a 10% capital cost overrun and the ultimate attainment ofonly 80% capacity utilization (as against 90% assumed) would drop the eco-nomic return to a still satisfactory level of 21.7%. Further, even if one-third of the production of PUSRI IV were to be exported throughout the life

of the project, the return would drop marginally to 27%. Even when thegas price is doubled, the economic rate would still be at a sound level of23.5%. Therefore, under conceivable adverse conditions, the project yieldsa very satisfactory rate of return.

E. Foreign Exchange Effect

7.06 The net foreign exchange outflow (Annex 7-3) due to PUSRI IV duringthe project construction period (1975-1977) would be only Rp 6,739 million(US$16 million). However, the net outflow turns into a significant netforeign exchange saving of Rs 26.8 billion (US$65 million) in 1978, thefirst year of operation of PUSRI IV. The annual net saving would rise toRp 29.7 billion (US$72 million) with the attainment of full production in1981.

F. Training

7.07 An important part of the project is the provision for trainingpersonnel of not only PUSRI but also other fertilizer plants, existing and/orproposed, in Indonesia. Under the training program during the next three

years, a total of 3,800 persons would be trained, including about 2,850 PUSRI

personnel, in various fields such as finance and accounting, plant operation

and maintenance, marketing and distribution, administration, etc.

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G. Employment Generation

7.08 Direct employment from the project is low at 850 but the project

is expected to have a significant impact on indirect job creation especially

in transportation, storage and distribution of fertilizers and in theexploitation and distribution of natural gas.

VIII. AGREEMENTS

8.01 During negotiations, the Government provided a new formula to cover

PUSRI's marketing losses (para. 2.12), and a contract between PERTAMINA and

Quadra Engineering Company, of Canada, to complete the most urgent phase

of the gas project by February 1977. Further, it undertook to carry out

other phases of the gas project in time, and also to assist PERTAMINA and

STANVAC (Indonesia) in reaching an agreement on a gas pricing formula at an

early date (paras 4.03 and 4.04).

8.02 In addition, the following major agreements were reached:

(a) From the Government that it will:

(i) consult with Bank before making top management changesin PUSRI (para. 2.07);

(ii) ensure a reasonable rate of return on assets in service

at efficient operation (para 2.16);

(iii) have gas provided to the project at reasonable prices (para.

4.05);

(iv) provide funds promptly for PUSRI IV and the gas project

(paras. 4.04 and 5.07);

(v) provide necessary funds to complete the project (para. 5.07);

(vi) help PUSRI maintain a debt service coverage of at least1.5 times (para. 6.16).

(b) From PUSRI that it will:

(i) submit a plan for PUSRI I modernization by December 1976

(para. 2.02);

(ii) submit progress and financial reports to the Bank in timeand form satisfactory to the Bank (para. 2.20);

(iii) retain consultants to further train PUSRI staff (para. 2.20);

and

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(iv) observe certain financial covenants (para. 6.16);

(c) From the Government and PUSRI that they will:

(i) study potential export markets, develop an exportstrategy and submit a report to Bank by December 1,1977 (para. 3.10);

(ii) submit a financing plan and an implementation schedulefor the distribution project within three months afterthe completion of the National Fertilizer and PesticidesDistribution Study now underway, and develop the addi-tional distribution facilities required in time (para.3.15);

(iii) review compensation scales for professional staff byJune 30, 1977 (para. 4.08);

(iv) ensure that debt/equity ratio will not exceed 55/45(paras. 5.06 and 6.16); and

(v) take necessary steps to ensure PUSRI's sound liquidityposition (para. 6.14).

8.04 The Bank loan will become effective after the additional financingagreements (i.e. Saudi loan) are signed and their conditions for effectivenessare met.

8.05 Based on the above agreements, the project provides a suitable basisfor a loan of US$70 million.

Industrial Projects DepartmentApril 21, 1976

ANNEX 1

INDONESIA: PUSRI JV FERTILIZER EXPANSION PROJECT

GLOSSARY OF TECHNICAL TERMS

1. Following is a description of the technical terms used in thisreport:

2. Plant Nutrients: Essential to plant growth are some 16 elements,6 in large and the remainder in small or micro quantities. Carbon, hydrogen,oxygen, nitrogen, phosphorus and potassium comprise the first six, and othersof lesser significance include calcium, magnesium, sulfur, silicon, zinc,iron, aluminium, manganese, boron, sodium, and copper. Carbon, hydrogen andoxygen are readily available from the atmosphere and water. Nitrogen, phos-phorus and potassium -- three main nutrients -- and the other elements aredrawn from the soil. Unless supplemented by regular additions of materialscontaining the three main nutrients, soil is soon depleted of fertility bycropping. Use of organic materials such as animal and vegetable wastes canbe utilized but the scale and intensity of modern agriculture have farexceeded the availability of natural "fertilizers". Consequently, the majorityof the world's primary pl,ant nutrient needs are now supplied in the form ofmanufactured or "chemical fertilizers. To an increasing degree, secondarynutrients such as calcium, manganese are also added to soils along with theprimary nutrients in ratios prescribed by agronomists according to specificcrop and soil needs.

3. Chemical Fertilizers: Chemical compounds suitable as fertilizersshould be high enough in nutrient content; stable to avoid hazards and handlingproblems; and readily water soluble and available to plant root systems.Commercially available materials meeting these requirements to a large degreeare:

Primary Fertilizer Materials

% of N % of P205 % of K20Nutrient Nutrient Nutrient

Urea 46% DAP 46% PotassiumAmmonium Nitrate 3a% Triple Super- Chloride 61%Ammonium Sulfate 21% phosphate 46% PotassiumDiammonium Single Super- Sulfate 54%Phosphate (DAP) 18% phosphate 18%

Because of the high nutrient content of urea, diammonium phosphate and potas-sium chloride (KC1), they are some of the most popular fertilizer materials inthe world today. It is the common practice to report the nutrient content ofmaterials in terms of percentages of N (nitrogen), P205 (phosphorus pentoxide)and K20 (potassium oxide).

ANNEX 1Page 2

Complex or NPK Fertilizers: All three primary nutrients (N, P2 05,K20) are frequently applied to the soil at the same time in ratios varyingwith the nutrient requirements of different crops. To facilitate handling,the several required chemicals are usually agglomerated into uniform granulesfor distribution. The analysis of each nutrient is given as a ratio todescribe the NPK product. Thus 15-15-15 complex fertilizer contains 15% eachof N, P 0 and K20; and 12-24-12 complex fertilizer contains 12% N, 24%P205 and 12'% K20.

5. Phosphate Water Solubility: The agronomic availability (or effi-ciency) of phosphate materials vary substantially. A common practice is to usewater solubility as a criterion although in acidic soils it is a less signifi-cant factor.. Higher P205 water solubility permits the fertilizer to beabsorbed more rapidly. The minimum recommended in most cases is about 60%solubility but in some cases up to 80-85% solubility is preferred.

6. Ammonium Nitrate (AN) is produced by reacting ammonia with nitricacid. Nitric acid (HNO3), in turn, is made from ammonia (NH ). AN contains34.5% nitrogen, half in the ammonium form and half in the nitrate form, and isvery hygroscopic. It is a commercial explosive. In many countries, a diluent --e.g., limestone -- is added to lower the analysis and negate the explosiveproperties as well as to minimize the hydroscopic properties.

7. Feedstocks are the hydrocarbons used to produce hydrogen for theammonia synthesi's; in the proposed PUSRI III plant, the feedstock would benatural gas which is usually the most economic choice when available. Otherpotential feedstocks are naphtha, fuel oil, crude oil, coal or lignite.

8. Urea is known chemically as carbamide or NH2CONH2 - the normal amideof carbonic acid; this compound contains about 46% N, all in the ammoniumform. It is considerably less hydroscopic than ammonium nitrate and it is themost widely used straight nitrogen fertilizer today.

9. Urea Synthesis: Urea is made by reacting ammonia with carbondioxide. Since both of the materials are produced during the ammonia synthesisurea production is usually undertaken alongside an ammonia plant. Unfortunately,the corresponding acid of carbon dioxide (carbonic acid) does not form stableammonium salts as do nitric, sulfuric or phosphoric acids. Therefore, simpleneutralization as used in making ammonium nitrate and sulfate fertilizers isnot possible. Instead, ammonia and carbon dioxide are combined under heat andpressure to make ammonium carbamate which although unstable, can be dehydratedunder pressure to form urea, a stable compound. Again, unfortunately, the over-all reaction is completely reversible and even at 300 atmospheres pressure and2000C, the conversion to urea in a single pass through the reactor is under70%. This introduces several complications; high pressure must be used tomaximize conversion; unconverted reactants must be separated and recycled;increased corrosion under the high temperatures and pressures used must be

ANNEX 1Page 3

overcome, and urea decomposition into undesirable products must be minimized.In recent years, several engineering and producing companies have developedways of surmounting these problems, and large plants capable of producing1,725 tons per day, or more, of urea to rigid chemical and physical specifi-tions are now operating successfully for long periods throughout the world.

Petroleum Units and Measures

10. The petroleum industry historically has used units of measure basedon the English measuring system. Conversion rates for some units are givenbelow:

1 barrel = 2 US gallons;1 US gallon = 3.785 liters = 0.003785 j431 Normal Cu4icMeter (NM ) = 37.3 Standard Cubic Feet (SCF)

The conversion rates between volumetric units, such as gallons, and weightsare approximate since the specific gravity of the oil varies slightly withits composition.

11. Materials that exist in the form of gases, such as methane(natural gas), are measured in volumetric units. Since gases are com-pressible, standard conditions of temperature and pressure (60°F and 1.0atmosphere) are used to define the quantity (in volume) of gas, and desig-nated as "normal cubic meters."

Industrial Projects DepartmentNovember 1975

ANNEX 2-1

INDONESIA: PUSRI IV FERTILIZER EXRZSION PROJECT

DESCRIPTION OF EXISTING FACIIITIES AND PLANTS UNDER CONSTRUCTION

PUSRI I

1. PUSRI I, the original plant, by present standards is a small one.It was engineered by H.K. Ferguson Company, a subsidiary of Morrison-Knudsen (U.S.), with the Girdler Corporation (U.S.) providing the ammoniaprocess and the Toyo Engineering Corporation (TEC), of Japan, the ureaprocess. Its ammonia and urea units have capacities of 180 TPD and 300 TPDrespectively, while modern fertilizer plants have capacities more thanfivefold higher, and use efficient single-train ammonia facilities based oncentrifagal compressors. PUSRI I uses reciprocating compressors in itsdual-train ammonia and urea units. Because of its relatively small sizeand obsolete technology, PUSRI I is a high-cost producer compared to largerscale fertilizer plants. However, through good plant maintenance andreplacement investments, PUSRI 1 has been operating near or above ratedcapacity since 1969. The plant is self-sufficient in utilities, but thepower-generating facilities are nearing the end of ti-ir useful life.

2. Feedstock to PUSRI I is natural gas from STANVAC fed through a 75-kilometer pipeline having about 12 million standard cubic feet (SCF) per daycapacity. The gas supply agreement betveen PUSRI and STANVAC expires in1983 at which time ownership of the gas and gas system would be transferredto PERTAMINA.

3. PU5RI I will need majcr :'ePairs by 1978, including the prill towerand the urea reactor. However, the ;nmonia plant, which does not have thecorrosion problem is capable of continuing its operation beyond 1978. PUSRIis currently exploring possible choices for PUSRI I modernization includingurea granulation or using potential excess prilling capacity in PUSRI II andIII. The anhydrous ammonia from the unit could also be used as a rawmaterial for complex fertilizer production, or could be sold as such.

PUSRI II

h. Work or± T`USE T as originally scheduled to start in April 1970and was expected to be in ooxnmercial operation by September 1973. However,the implementatnon began nearly a year later than anticipated because ofthe time required to develop bid specifications and to negotiate supply andservice contracts satisfactory tD all parties.

5. FUSRI IT includes: (1) modern single-train ammonia and urea plantsof 660 TD and I 50 TPD capacity; and (2) a gas supply system with 172 kmpipeline for gas gathering and transmission from PERTAMINA and STANVAC gas-fields in South Sumatera. The original estimate of financing required forPUSRI II was eqivalent to nearlr US$91 million, including about US$15 millionequivalent for the gas system. The foreign exchange cost excluding interestduring cons- '-tion was estimated at US$68.0 million, of which IDA committed

ANNEX 2-1Page 2

US$30 million; USAID, US$20 million; ADB, US$10 million; and OECF, US$8million. However, PUSRI II experienced cost increases because of:(1) international currency realignments; (2) expansion of the gas gatheringand transmission system capacity by 90% to 116 million SCF/day over theoriginal plan (60 million SCF/day) to cover the requirements of PERTAMINA'stwo refineries and of two power plants operated by the Universal PowerCompany; and (3) a general escalation in equipment costs higher thananticipated partly due to the one-year delay in the start of the project.According to latest calculations, PUSRI II total cost amounts to overUS$122 million, including US$39 million for the gas system. The increasein the foreign exchange cost was almost fully covered by additionalcommitments by the four lenders, including US$5 million from IDA througha supplementary credit approved May 15, 1973. The Government has bornethe rest of the cost increase.

6. PUSRI II went into production in September 197h. It has in-plant facilities for the supply of utilities. It also supplies power toPUSRI I as the latter's old power generating unit is now used as a standby.Further, while PUSRI I ships bagged urea, PUSRI II product is shipped inbulk; however, cross-connection allows part of the PUSRI II production tobe bagged using PUSRI I bagging facilities. PERTAMINA supplies gas toPUSRI II under a 20 year gas purchase agreement, which has been amended toincorporate PUSRI III and PUSRI IV gas requirements. The price formulacovers all operating costs including depreciation and financial charges.Based on this formula, the gas price is expected to gradually decline from45 US cents to 28 US cents per MSCF during 1975-1980.

7. The ammonia plant of PUSRI II was designed by M.W. Kellogg Company(U.S.), using its own process, and the urea plant by the Toyo EngineeringCorporation (Japan), based on the Mitsui Toatsu process. Kellogg hadoverall responsibility for the entire fertilizer plant, with Toyo as sub-contractor. Scientific Design Company (UK), as Technical Adviser, assistedPUSRI. Agrar-und Hydrotechnic GmbH of the Federal Republic of Germany hasbeen serving as Marketing Consultants and Price Waterhouse and Associatesof the U.K./Australia, as Accounting and Management Consultants.

PUSRI III

8. PUSRI III was conceived and its implementation started vrhilePUSRI II was still under construction. PUSRI retained the same contractorswhich were implementing PUSRI II in order to reduce the project executionduration. In April 1974 basic engineering and procurement activities forPUSRI III were initiated. It is expected that the plant will be mechanicallycompleted by December 1976 and in commercial operation by April 1977.

9. PRUSRI III consists of two modern large-scale, single train units -an ammonia plant and a urea plant of 1,000 TPD and 1,725 TPD capacityrespectively. It has in-plant facilities for the supply of utilities and0olypropilene bags. The capacity of the bag-making plant is sufficient to

ANNEX 2-1Page 3

cover PUSRI I, II and III bag requirements. The capital cost for theproject is estimated at US$192 million, including US$157.6 millionequivalent in foreign exchange. The Bank committed US$115.0 million tocover part of the foreign exchange cost with the Government providingthe balance US$42.6 million foreign exchange and all local currencyfinancing, including woridng capital.

10. The design and process for PUSRI III are similar to those ofPUSRI II, with the same foreign firms that helped develop PUSRI II beinginvolved in PUSRI III as well (see para. 7).

Industrial Projects DepartmentNovenber 1975

AINEX 2-2

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

ORGANIZATION CHART

PT'. PUPtJK SRIWIDJAJAORGANIZAIIONAL STRUCTURE

OF THE MAIN OFFICEBoard of Dircctor JAKARTA

f Presiden"t |Direcior

LchnicaI l l | ~~~~~~~~Finance Director | rDiXvmrecto[2Phr:c,:,,ion Direcctor Trad ,C* , . rc…___-_ _ F _ _ _ _ _ _ ._ __ _ _ _ _ _ _ _ t _ _ e t Advisors

__ 11 1 z i t~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Cons-lltanis ,B tircau ot Ij|Bureau otl rechnic7 Bureau of Marketinig l Bure u of

Research/ i Dmevel_ t Rescarch/ Develop. e ntIt Loit icst

Bureau of |Breau o Bureau of Bureau o Be o BrufOIrgniztionn |lhe Treasurv Accounting j nternal D.P.C. the Board

__~~~~~ a I _A .. g

At_ L_di.ttin | of Direct-rs MarketingExesinF''" Distribu tion

: Prxtl:ct I Production Marketing I D;stribution It F.xtenswon I Center Cc:nter | ProjectsL _rl Jcts I, L __ ___

PT PUPUK SRIWIDJAJAManagement ORGANIZATIONAL STRUCTURE OF TIE

-- t PRODUCTION CENTERManaigement PALEMBANG

| Representtative

I | ~~~~~~~~General Manager|

HealthCenteManager IMnager Manager IManager Manager. IIiPersonnel Affairs Geneal Affairs Loistic Affairs I[Financial ffairs D .P.C.n n t

Marter : Manager Manager iTech1ical Maintenance Services of ProtectionServices Services Techniques & Fire Safety

i i ~~~~~~~~~~~Technicalr , r , r ------- n ~~~~~~~~~~~~~~Division_ PUSRI I Plant |Pusri 11 plant I Pusri III 1 PT Repaitshop

|Amn!oia |onia ni etol i projectli Sectiotmoi etion I- - -_________-8rick faCtorYi

|Utility Section | |Utility Section| tPurIV _ t ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~ Pu1 IV L- I Siolo Farm Ire t o Urea Sec-tion Project _

ANNEX 2-2Page 2

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

ORGANIZATIONAL CHART

P.T. PUPUK SRIWIDJAJA BOARD OF MANAGEMENTMARIKETING UNIT

MarketingManager

AssLMarkctingManager

Logistics/Dis. xt. Services Scin Shipping o F-- 1tibuon Sales Prom. Financ General ISipping

F V~~~~~~~~~

~~~~Regional Regional Regional Regional RegionalRconl tgoa

RcgSectio IRSectionl Market Maktig M

Makt akt aktn einlMarket- Market- Marketing Market-Market- in n fieMarket- ing igOffice ingAd~~~~~n in Ofic ing

ing Office Office S . Sum. Ing Office Office E. Java. OfficcOffice North West Sum. Jambi & Officc W.Java Cent. West&East c & NAccb Lampuag NusaSumatea & Riau Bengkulu Java Tenggara Sulawesi

Industrial Projects DepartaentMarch 1976

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

PUSRI HISTORICAL INCOME STATEMENTS(1970-1976)(In Rp million unless otherwise specified)

Year Ended Dec. 31 1970 1971 1972 1973 1974 1975 1976 (Est.)

Sales Volume (tons)

Local Urea 98,993 105,797 101,779 103,064 115,350 207,000 480,000

Imported Urea 37,795 74,1722 185,795 265,235 280,560 275,000 299,305

TSP/Dg - - - 82,941 109,358 128,000 284,300

Other-' - 2,195 2.600 2,440 21,249 24,000 30,000

Total Sales Volume 136,788 182,714 290,174 453,680 536,517 634,000 1,093,605

Sales Revenue 3,252 4,740 7,488 13,420 24,668 46,160 90,965

Cost of Sales 2,887 3,890 6,663 11,620 19,334 51,365 90,398

Gross Profit 365 850 759 1,800 5,324 ( 5,205) 567

Shipping Costs* * 109 352 352 411 1,024 2,043 2,225

Administration Costs= 259 371 499 868 1,0o1 1,961 2,940

Financial Expenses* - _ 404 452 776 397 550Government Compensation.2/ - - - - 17,158Ž 14,485

Net Profit before Tax (3) 127 (430) 69 2,483 7,552 9,337

Tax - 56 - - 222 - -

Net Profit (Loss) (3) 71 (430) 69 2,261 7,552 9,337

1/ Including sales of NPK, ammonia, pesticides, etc.2/ Including costs of research and development.2/ The payment is to cover the marketing losses as agreed during negotiation for PUSRI II and Fertilizer

Distribution Projects. Of this, Rp. 11,400 million has been paid by the Government to PUSRI as of

April 15, 1976 and the rest would be paid by June 30, 1976.*t For the production department only.

Industrial Projects Department

April 1976

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

PUSRI HISTORICAL BALANCE SHEETS (1970-1976)(in Rp million)

Year Ended Dec0 31 1970 1971 1972 1974 1975 1976(est.)

ASSETSCurrent Assets- Cash & Lett s of Credit 403 349 734 845 18,464 31,071 24,063- Receivablesg 1,151 1,016 1,926 11,868 25,812 58 , 4 45 73,869/3- Inventory 976 1.093 2.584 3.64 27,391 68.163 29.500

Sub-total 2,530 2,458 5,244 1623d7 71,667 157,679

Net Fixed Assets,' 5,323 6,49 11,336 24,698 36,596 65,781 193,146

Other Assets 36 146 65 350 19,412/4 1.067 1.706

TOTAL ASSETS 7,889 8,653 16,645 41,435 127,675 224,527 322,284

LIABILITIES- Account Payable & BRI Credits 819 923 3,633 13,083 54,560 132,935 84,783- Current Portion of L/T Debt - - - - - 363 1.686

Sub-total 819 923 3,633 13,083 54,560 133,298 56,469- Long Term Debt - 652 6,575 20,364 43,489 45,137 124,002

EQUITY- Issued Capital 7,000 7,000 7,000 8,482 27,859 36,773 103,157- Retained Earnings 70 78 (563) (494) 1,767 9,319 18,656

Sub-total 7,070 7,078 6,437 7,988 29s626 46,092 115, 7

TOTAL LIABILITIES 7,889 8,653 16,645 41,435 127,675 224,527 322,284

/1 Including pre-paid expenses2 Including fixed assets under construction

Including receivables from Government by way of compensation for marketing losses.74 Including deferred charges (e0go, start-up costs for PUSRI II).

Industrial Projects DepartmentMarch 1976

ANNEX 3

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

FERTILIZER MARKET AND MARKETING

Overview

1. Indonesia is the world's largest archipelago of more than 13,000islands of which about 3,000 are inhabited. With a total area of approxi-

mately 2 million km2, it ranks thirteenth in the world; with a populationof about 131 million, fifth. The population is growing rapidly at 2.4% ayear. The growth rate is expected to decline to slightly less than 2.3%over the next ten years, with the population reaching 147 million in 1980and 165 million in 1985.

2. Traditionally favorable natural conditions for agriculture havecaused a high density in cultivation and in population in Java, Maduraand Bali (the Inner Islands). These islands now contain nearly two-thirdsof Indonesia's population on about 7% of the land area (Table 1). Popula-tion density in the Inner Islands has reached there a high 565 person per

km2, which is more than in Bangladesh, in the Mekong Delta or the CentralPlain of Thailand. However, Indonesia still has substantial additionalareas suitable for sustained agricultural production in the Outer Islands.While about 20 million ha are currently cultivated an area of comparablesize has good potential for agricultural development although with muchlower average fertility.

3. During the first Five-Year Plan (Pelita I), which ended March 31,1974, Indonesia's real annual economic growth was close to 7%. A rate of7.5% is expected during Pelita II (1974-79), and should be maintainedbeyond 1979 as well.

4. Apart from its agricultural resources, Indonesia has forestresources which are the largest in Asia, and also rich mineral resources,especially oil and gas. Oil production has expanded rapidly since 1968 to1.4 million barrels per day in 1974 making Indonesia the eighth largestoil exporting nation in the world. In addition, a number of large naturalgas finds has been made. Both gas and oil production provide a base, notonly for sizeable exports of crude and refined oil products and of liquifiednatural gas, but also for the development of a substantial chemical industry.

5. Agriculture, which grew at nearly 4% per annum during Pelita I,accounts for some 50% of GNP, about 60% of employment and for almost allnon-petroleum exports. The six major foodcrops are: rice, corn, soyabeans,groundnuts, cassava and sweet potatoes. They provide 85% of the totalcalorie and 80% of the total protein intake of the population. Among theestate crops grown are rubber, oilpalm, sugarcane, tea, coffee, tobacco andcoconuts. Rice, the staple food, accounts for more than 40% of harvested

ANNEX 3Page 2

area, one-third of total agricultural production by value, and 12% of GNP.Over the First Plan period, the Government had concentrated its effortson expanding the production of rice, the severe impact of the end-1972shortage reinforcing its sense of urgency. These efforts, which includedrehabilitating and extending irrigation systems, introducing improved ricevarieties and promoting the use of fertilizers and pesticides have had aconsiderable success: rice production rose significantly from 10.8 milliontons in 1968 (100 kg per capita) to 13.4 million tons in 1973 (107 kg percapita. Despite this increase in rice production, Indonesia has been import-ing annually 0.5 to 1.5 million tons of rice in recent years. Also, theclear success in rice has been partly offset by a related decline or stag-nation in the production of some secondary crops.

Harvested and Fertilized Areas

6. Total harvested area for all crops increased from 16.2 million hain 1958 to 20.0 million in 1973, at an average of 250,000 ha a year. It isestimated to increase to 20.2 million ha in 1975, or 10% of Indonesia'stotal area. In 1973, 14.6 million ha were under foodcrops (73%) and therest under estate crops. Rice alone with approximately 8.3 million ha ofharvested area accounted for about 42% of the total harvested area in thecountry. Corn came next with 3.3 million ha (17%) and rubber third with2.2 million ha (11%).

7. Java accounts for the largest harvested area among all islands inIndonesia with Sumatera next, as shown in the following table:

Harvested Area by Island, 1972 (%)

Java 49.3Sumatera 27.9Sulawesi 7.8Kalimantan 7.5Other Islands 7.5

Total Indonesia 100.0

Thus, Java and Sumatera accounted for slightly more than 77% for the totalharvested area. 59.9% of the area under foodcrops was in Java (Sumatera18.1%), while Sumatera was the largest estate crops grower with 50.4% ofthe area under such crops (Java, 25.0%).

8. The total fertilized area in Indonesia increased at an average of14.4% a year from about 4.8 million ha in 1972, or 27% of the harvested area,to an estimated 7.2 million ha in 1975, or 36% of the harvested area. Accord-ing to 1975 estimates, rice alone represented about 72.5% of the total fer-tilized area, with about 5.2 million ha, the other foodcrops representing12.9% (corn 7.9%). Thus, the use of fertilizers is concentrated on food-crops, especially rice; this situation is expected to continue in the futureas well. With a fertilized area of 1.1 million ha, the estate crops accountedfor 14.6% of the tntal, with rubber coming first (7.5%).

ANNEX 3Page 3

9. Java and Sumatera contained 93.9% of total fertilized area; the

rest of the islands had limited fertilized area:

Fertilized Area by Islands, 1972 (%)

Java 74.7Sumatera 19.2Sulawesi 2.7Kalimantan 1.3Other Islands 2.1

Total Indonesia 100.0

10. In Java more than 40% of the harvested area is being fertilized,

in Sumatera about 20% while in the other islands it is less than 2%. The

average for Indonesia is about 36%.

Fertilizer Consumption Per Hectare

11. The following table shows the trend of per hectare fertilizer

consumption:

Fertilizer Consumption Per Hectare of Arable Land (kg)

N P205 K20

1959/60 2.6 0.5 0.41971/72 10.9 1.3 0.31972/73 19.2 3.7 1.7

12. The per hectare consumption of N and P205 has increased signific-

antly since 1959/60. Indonesia's volcanic ground has in the past reduced

the need for K20 consumption which has remained at a low level. Few trials,

however, have shown the benefits of an improved balance fertilization via anincreased use of K20, especially for estate crops. Comparison of fertilizer

consumption per hectare of arable land in 1972/73 among selected countriesis provided in Table 2: it shows that the consumption per hectare of arable

land is still low in Indonesia in spite of significant increases in recentyears.

Fertilizer Consumption

13. During 1964-68, N consumption in Indonesia declined (Table 3) from

108,200 tons to 101,200 tons mainly because of the scarcity of foreign ex-change to import fertilizers. During that same period, however, P205 and

and K20 consumption increased, but starting from a low base. The table below

shows the trend of fertilizer consumption during 1964-1975:

ANNEX 3Page 4

Trend of Fertilizer Consumption('000 nutrient tons)

N P2 5 K20 N: P20 5:K 20 Ratio

1964 108.2 26.1 5.6 4.1:1:0.21968 101.2 32.5 11.5 3.1:1:0.41973 328.9 71.5 17.0 4.6:1:0.21974 310.3 110.0 26.7 2.8:1:0.21975 (est.) 380.0 130.0 40.0 2.9:1:0.3

Average growth rate (%)

1964-1968 -1.7 5.7 19.71968-1974 20.5 22.5 15.11964-1974 11.1 15.5 16.9

14. As shown above, increase in fertilizer consumption has been parti-cularly significant since 1968, with the increased emphasis on high-yieldvarieties for rice and agricultural development. During 1968-1974, N con-sumption grew at an average annual rate of 20.5%, P 0 consumption expandingat a rate of 22.5% a year and K20 consumption at a Mate of 15.1%. TheN: P 0 : K 0 ratio remained fairly stable during the 1968-1974 period (Table4), although reflecting at times relatively heavier concentration on N con-sumption.

15. Consumption of Nitrogen fertilizers decreased in 1974: becauseof the strict control imposed upon the entire fertilizer distribution system(para 55) and its not yet well-shaped administrative requirements, manyINMAS farmers had to reduce their purchase of fertilizers that year ordecide to do without it; also that year, a sizeable proportion of BIMASfarmers who were in arrears over 2 years excluded from the BIMAS programthat had assisted them financially in the purchase of fertilizers.

16. In 1974, the share of the foodcrop sector in fertilizer consumptionwas 96.8% for N consumption and 89.6% for P 20 consumption, with the estatesector using the rest (Table 5). In the case of K20, the estates were themain consumer with 82.8% total consumption in 1974. The following tableshows the respective share of the foodcrop sectors in the total consumptionof the different nutrients during 1968-1974:

ANNEX 3Page 5

Fertilizer Consumption by Main Sector

1968 1972 1974Quantity Quantity Quantity

N Consumption ('000 ha) % ('000 ha) % ('000 ha) %

Foodcrop Sector 95.0 93.9 252.4 82.8 300.5 96.8Estate Sector 6.2 6.1 52.7 17.2 9.8 3.2

Total 101.2 100.1 305.1 100.0 310.3 100.0

P205 Consumption

Foodcrop Sector 24.4 75.1 35.1 67.0 98.6 89.6Estate Sector 8.1 24.9 17.5 33.0 11.4 10.4

Total 32.5 100.0 52.9 100.0 110.0 100.0

K20 Consumption

Foodcrop Sector 0.4 3.5 0.6 2.0 4.6 17.2Estate Sector 11.1 96.5 29.8 98.0 22.1 82.8

Total 11.5 100.0 30.4 100.0 26.7 100.0

17. In 1968, limited imports of fertilizers severely curtailed thesupply to the estate sector. A more balance distribution between the food-crop and estate crop sectors followed, until 1974 when the Govelrnment controlon the fertilizer allocation put clear emphasis on the foodcrop'sector: theshare of the estate sector in N and P 205 fertilizers consumption decreaseddramatically to their lowest levels.

Fertilizer Consumption by Crops

18. Of the total N consumption of 0.31 million tons in 1972, nearly

0.21 million tons, or 67%, were used on rice. Further, rice accounted forabout 58% of the total P 0 consumption, but there was no use of K 0 forthat crop. It is estimaUeJ that in 1975 rice accounted for 79.8 %2 of N con-sumption and for 48.2% of P 0 consumption. Excluding rice, major N con-sumers in 1975 were vegetabies (estimated 5.8%), corn (4.6%), rubber (3.5%),sugarcane (2.7%), these and rice accounting for 96.4% for the total N con-sumption. The major P 0 consumers in order of importance were rubber (18.9%),corn (7.6%), oilpalm (M%), and vegetables (4.5%), these four representing91.4% of total P 205 consumption. In the case of K20, apart from rice, the

non-users were corn, groundnuts, soyabeans, and cloves. Some major K 0 userswere rubber (46.3%), oilpalm (30.5%), tea (8.2%), and sugarcane (6.5%), thesefour accounting for 91.5% of total K2 0 consumption.

ANNEX 3Page 6

Fertilizer Consumption by Regions

19. In 1972, for which actual data are available about 242,120 Nnutrient tons, or 79.3% of the total N consumption, were used in Java.That year, Java used 38,257 tons of P 205 (72% of total consumption) and3,958 tons of K20 (31.5% of total consumption). It is estimated that in1975 the N consumption in Java was 271,700 N nutrient tons or 71.5% of totalconsumption, thus showing a relative decline in the importance of Java infertilizer consumption (Table 11). Apart from Java, a major fertilizer con-suming regions are Sumatera and Sulawesi as shown below:

Fertilizer Use by Region, 1972 (actual) and 1975 (estimates) - (%)

----------(1972)--------- (1975)N P205 K2O N /a

West Java 23.9 27.8 12.6 24.6Central Java 26.1 22.9 5.5 21.9East Java 29.3 21.7 13.4 25.0

Total Java 79.3 72.4 31.5 71.5

North Sumatera 10.0 18.2 64.5 8.7West Sumatera 3.2 2.7 0.4 4.0South Sumatera 0.9 1.1 0.8 3.5Lampung 1.1 1.3 1.8 2.0

Total Sumatera 15.2 23.3 67.5 18.2

Sulawesi 2.6 1.9 0.3 4.3Bali 1.8 1.4 0.2 1.3Kalimantan 1.0 0.9 0.5 3.2Others 0.1 0.1 - 1.5

Total 100.0 100.0 100.0 100.0

Total ('000 tons) 305.1 52.9 30.4 380.0

/a P205 and K20 use not available.

20. The above table shows that while Java is by far the leading userof N and P 0 fertilizers, Sumatera is the prominent user of K 0 fertilizer:As the lea&ing producer of rubber and oilpalm, it uses the larger quantity ofK20 for them, essentially on the northern part of the island.

ANNEX 3Page 7

Fertilizer Production

21. Indonesia had no local facility for fertilizer production until

1964 when PUSRI I went into commercial production with an annual production

capacity of 100,000 tons. The first year of operation, PUSRI I achieved

more than 100% capacity utilization. During 1964-1971, PUSRI I was the only

domestic fertilizer production unit in the country. In August 1972, Indo-

nesia's second fertilizer plant, P.N. Petrokimia Plan at Gresik, East Java,

went on stream. Petrokimia had a 58,000 TPY capacity ammonia unit feeding

two downstream units -- a 45,000 TPY urea unit and a 150,000 TPY ammonium

sulphate unit. The Petrokimia plant has the flexibility to change the

quantity of its main products -- urea and ammonium sulphate -- according to

the fertilizer market situation. However, it has been facing problems in

achieving high capacity utilization. Indonesia's third fertilizer plant,

PUSRI II, went into production in September 1974 with an annual capacity

to produce 380,000 TPY of urea. The country has so far no production

capacity for P 205 fertilizers. As for K 0 fertilizer, the country has no

known local reserves of potash. The following table shows the trend of

local fertilizer production during 1964-1975:

Fertilizer Production (1964-1975)('000 tons)

-------Product tons-------Urea Ammonium Sulfate N-nutrient tons

1964 103.5 - 47.6

1965 94.1 - 43.3

1966 93.0 - 42.8

1967 93.3 - 42.9

1968 93.5 - 43.0

1969 84.2 - 38.7

1970 99.0 - 45.5

1971 106.0 - 48.8

1972 110.5 29.2 57.01973 153.3 70.0 85.21974 207.4 121.8 121.01975 (est.) 397.0 113.8 206.5

Imports of Fertilizer

22. In terms of nutrients, N imports increased during 1964-1974, at

an average rate of 32.3% a year to 422,300 tons in 1974 and an estimated of

672,100 tons in 1975 (Table 6). During the same period, P 05 imports rose

at 22.5% a year to 179,300 tons in 1974 and an estimated 291,900 tons in

1975, and K 20 imports increased at an average of 14.9% a year to 31,800 tons

in 1974 and an estimated 31,100 tons in 1975. The following table shows the

trend of imports during 1964-1975:

ANNEX 3Page 8

Fertilizer Imports, 1964-1975('000 nutrient tons)

N P205 K20

1964 35.7 23.5 7.91968 142.7 54.3 12.51974 422.3 179.3 31.81975 (est.) 672.1 281.9 31.1

23. Among fertilizer materials imported, urea is the most importantfollowed by Triple Superphosphate (TSP), and Diammonium Phosphate (DAP)as shown below:

Composition of Fertilizer Imports, 1974

Imports('000 product tons) %

Urea 863,286 63.7TSP 276,780 20.4DAP 107,637 7.9Potassium Chloride 34,270 2.5Phosphate Rocks 33,713 2.5Compound Fertilizers 16,875 1.2Ammonium Chloride 9,300 0.7Magnesium Sulfate 8,630 0.6Others 6,682 0.5

1,357,173 100.0

24. During the critical time of world short supply of fertilizers,Indonesia had sharply increased its imports of fertilizers and intensifiedits stockpiling program. This program aimed at securing adequate supplyof fertilizers to the farmers against possible further shortages. Thesituation has developed as follows:

(thousand product tons)Stock as of: Urea TSP/DAP Total

December 31, 1974 500.9 163.9 664.8March 31, 1975 731.9 311.9 1,043.8June 30, 1975 1,372.3 451.6 1,823.9November 15, 1975 1,627.6 702.9 2,330.5December 31, 1975 1,604.3 693.1 2,297.4

25. As of April 1975, the Government had stopped issuing new importlicenses. The stockpile reached its peak in mid-November 1975 and declinedslightly in the following month. At the end of 1975, the country's stockswere equivalent to twice the 1975 level of consumption.

ANNEX 3Page 9

Forecast of Production

26. Indonesia has firm plans to establish three N fertilizer plants:PUSRI IV, The East Kalimantan Plant I, near Balikpapan and the West Java

Plant at Cikampek. Further, under preliminary stages of consideration are

two more plants: The North Sumatera Plant at Aceh; and the East Kalimantan

Plant II. The following table shows the main units, capacities and Bank

estimates of the expected commissioning dates for the plants most likely

to be built before 1983:

New Plants by 1983

Ammonia UreaUnit Capacity Unit Capacity Commissioning

(TPD) (TPD) Dates

PUSRI IV 1,000 1,725 Feb. 15, 1978West Java 1,000 1,725 July 1, 1979

East Kalimantan I 1,500 1,725 July 1, 1980

27. All of the above plants are expected to produce urea and have

identical urea capacity. The ammonia unit of East Kalimantan I, however,

would be larger than the comparable units for the other two plants. The

surplus ammonia capacity of East Kalimantan I would be either used to

provide industrial ammonia for the proposed petrochemical plant in Surabaya

or exported to the Philippines. One of the unique features of East Kali-

mantan I is that it would be preassembled in Europe on three ships to be

installed ashore near Balikpapan by dredging the area near the shore.

28. As for the local production of P205 fertilizers, Indonesia has

plans to build new units as part of the Petrokimia complex at Gresik, East

Java. The new plants are expected to go into production on January 1, 1979

and include a TSP unit with an annual capacity of 330,000 product tons, a

DAP unit with an annual capacity of 80,000 product tons, an NPK unit with

an annual capacity of 50,000 product tons. In addition, another project

currently under consideration by PUSRI is to transform the PUSRI I unitaround 1978 when the urea unit will be shut down. The ammonia unit would

be kept in service and a DAP producing unit installed next to it with a

capacity of 370,000 tons per year. However, it is not clear yet whetherthis project will mature.

29. Assuming that all new plants will be commissioned according to

Bank's expectation, the local production of fertilizers would increase

(Table 7) as follows:

ANNEX 3Page 10

Fertilizer Production, 1974-1985('000 tons)

Products NutrientsAmmonium

Urea Sulfate TSP DAP NPK N P K

1974 207 122 - - - 121.0 - -1975 (est.) 397 114 - - - 206.5 - -

1976 466 120 - - - 239.6 - -1977 687 120 - - - 316.0 - -1978 1,189 120 - - - 572.1 - -1979 1,488 120 200 50 30 723.2 119.5 4.51980 1,913 120 230 60 35 921.2 138.7 5.31981 2,177 120 260 65 40 1,044.3 155.5 6.01982 2,276 120 260 65 40 1,089.9 155.5 6.01983 2,333 120 260 65 40 1,116.1 155.5 6.01984 2,390 120 260 65 40 1,142.3 155.5 6.01985 2,418 120 260 65 40 1,155.2 155.5 6.0

Forecast of Demand

30. Forecasts of fertilizer demand for Indonesia have been made inseveral studies: (1) the National Fertilizer Study (NFS), by Agrar undHydrotechnik GmbH, of the Federal Republic of Germany, published in 1972;(2) the Feasibility Study for the West Java Fertilizer Plant by the Bureaud'Etudes Industrielles et de Cooperation de l'Institut Francais du Petrole(BEICIP), published in 1973/74; (3) two draft reports prepared by theTennessee Valley Authority (TVA) for the US Agency for International Devel-opment (AID): "The Likely Impact of Middle East Oil Policies on the Devel-of the Nitrogen Industry of East and Southeast Asia", January 1974, and"The Proposal for the Development of the Nitrogen Production Capacity inIndonesia," July 1974. Further, the Second Five-Year Plan (Pelita II,1974-1979) also contains a demand forecast for N fertilizers.

:31. In its appraisal report of the PUSRI III project, dated February1975, the Bank made projection for fertilizers consumption of up 1983,based on the BEICIP study and on a Bank draft report, "The IrrigationProgram Survey for Indonesia." The following table compares the Bankforecast for PUSRI III and the Pelita II projections:

ANNEX 3Page 11

Fertilizer Demand Forecasts, 1974-1983(in '000 nutrient tons)

1974Bank Projections for PUSRI III Project (actual) 1978 1983

N consumption 310.3 590.1 825.5P205 consumption 110.0 144.9 340.0

K20 consumption 26.7 123.2 286.5

Pelita II Projections

N consumption 310.3 908.5 1,277.0 /a

/a extrapolated.

32. No new study of the fertilizer market in Indonesia has been under-taken since the Bank report on PUSRI III. The official reference to futuredemand is still the Pelita II forecast. But in 1974, the Pelita targetswere 80% too optimistic, and are estimated to be 50% too high in 1975. How-ever, the new situation that has developed in recent months, namely thelarge amount of fertilizer that has been stockpiled, should help a boost inthe use of fertilizers in the future: there is now about two-year consump-tion stock of fertilizers at hand in Indonesia. In addition, the comingon stream of the new units will by 1980 lift most constraints on the use ofurea that has existed in the past. This should form a sound base for en-couraging increased use of fertilizers, mainly by expanding the fertilizedareas, strengthening the farmers' credit program (paras 53-54), maintainingan attractive ratio between the prices of fertilizer and of agriculturalproducts 1/ and increasing the recommended dosages towards an economicoptimum.

1/ In October 1975, the Government of Indonesia increased the prices offertilizer, paddy and rice as follows:

(in Rupiah per kg)Old Price New Price Increase

Fertilizer (effective Oct. 29, 1975)- Urea, TSP, NPK

BIMAS farmers 60.00 80.00 +33%Other farmers 60.00 120.00 +100%

- DAP

BIMAS farmers 86.50 110.00 +27%Other farmers 86.50 165.00 +91%

Dry paddy (effective Feb. 1, 1976) 57.50 67.50 +17%Rice (effective Feb. 1, 1976) 97.00 108.00 +11%

ANNEX 3Page 12

33. The projections for this report are an update of the PUSRI IIIreport. Rice, which accounts for the bulk of the fertilizer consumptionhas been studied separately, and the assumptions are basicaly the sameas in the PUSRI III report except for dosages that have been slightlyincreased. For all other crops, a realistic set of BEICIP assumptionshas been used for both fertilized areas and dosages. 1/ Details of fertil-izer demand forecast by crop are presented in Tables 8 to 10. The majorassumptions used to build those tables are outlined in the following para-graphs.

A. Rice

34. Indonesia receives annual rainfall in the range of 1,500 to2,000 mm in the main rice growing zones. While this is normally enough togrow a wet season crop, rain distribution is uneven and rainfed crops areoften subject to drought or floods. Dry season cropping is not possiblewithout irrigation. Rice production is concentrated on the fertile volcanicand alluvial soils of Java and Bali, which account for about 60% of thecropped area. The other major rice growing regions are Sumatera, Kaliman-tan, and Sulawesi. Rice is currently grown on an estimated net area of8.4 million ha divided as follows:

Area under Rice

1968 1973Million ha % Million ha %

Irrigated and rainfed

- No intensification 4.7 59 3.0 36- Fertilized - non-high yield varieties 1.6 20 1.8 21- Fertilized - high yield varieties - - 2.3 28

Sub-total 6.3 79 7.1 85

Upland rice 1.7 21 1.3 15

Total 8.0 100 8.4 100

35. About 60% of the net cultivated area is irrigated. About two-thirds of this area is in Java and Madura. Irrigated rice accounted forabout 80% of total rice production of 13.4 million tons in 1973. Net culti-vated area increased at an average of 1% a year during 1968-1973.

1/ The BEICIP study projected fertilized areas and dosages for the years1978 and 1983. For the purpose of this forecast, assumptions for 1980and 1985 were inter- and extrapolated from the BEICIP data.

ANNEX 3Page 13

36. According to Bank projections, the net rice cultivated area wouldincrease from 8.4 million ha in 1973 to 9.2 million ha in 1980, and 10.0million ha in 1985. This represents an annual average rate of 1.6%. Duringthe same period, rice production is expected to increase at an average annualrate of 3.2%, reaching 17.6 million tons in 1980 and 19.5 million tons in1985 (120 kg per capita). The incremental area under rice will come mainlyfrom the completion of the irrigation developments now on the way; thereremain about 800,000 ha of the existing irrigation systems to be rehabilita-ted; some 240,000 ha of new conventional irrigation projects have beenprepared and include the expansion of technical irrigation into upland cropand virgin land. In addition, a program for "simple irrigation projects",involving the upgrading and extension of village systems by simple means,is ready to be carried out. Other possibilities, including groundwater andtidal irrigation, are under study. Also, the increased usage of fertilizerand of high yield varieties will imply higher intensity of cultivation, andincrease in the net cropped area.

37. The fertilized area under rice would increase from 4.1 millionha in 1973 to 7.8 million ha in 1985, at an average annual rate of 5.5%. Thefertilization intensity will then increase from 49% in 1973 to 78% in 1985.The high yielding varieties will spread to 6.8 million ha of irrigated rain-fed rice by 1985 compared to 2.3 million ha in 1973, mainly because (a) onalready existing irrigated and rainfed area, there will be a shift fromnon-intensification or non-high yield variety use to high yield variety use,and (b) most of irrigated areas will be under high yield varieties. Thetable below summarizes that trend during the period 1973-1985:

Fertilizer Areas under Rice, 1973-1985

1973 1975 (est.) 1980 1985mln. ha % mln. ha % mln. ha % mln ha %

HYVs 2.3 56 3.0 65 5.4 79 6.8 87non-HYVs 1.8 44 1.6 35 1.1 16 0.6 8Upland Rice - - - - 0.3 5 0.4 5

4.1 100 4.6 100 6.8 100 7.8 100

38. It is assumed that the per hectare N consumption in the high yieldvariety areas will gradually increase to 100 kg per ha in 1980 and 105 kg per

ANNEX 3Page 14

ha in 1985, compared to about 80 kg per ha in the past few years.l/ For theareas under local varieties, the per hectare N consumption would rise fromabout 40 kg per ha to 50 kg per ha in 1980 and 52 kg per ha in 1985. On thesmall portion of the upland area which will be fertilized, the average Nconsumption per ha would be about 50 kg per ha by 1980 and 52 kg per ha by1985. It is further assumed that the N: P205 :K20 ratio will change from1:0.15:0 in 1972 to 1:0.20:0.17 in 1980 and to 1:0.35:0.26 in 1985. Thefollowing table shows the projected fertilizer consumption by rice based onthe above assumption.

Fertilizer Consumption by Rice, 1972-1985('000 nutrient tons)

-----------N Consumption--------Local Upland P2 05 K2 0

HYVs Varieties Rice Total Consumption Consumption

1972 (actual) 112.4 71.7 - 184.1 27.6 104.71980 543.5 55.0 17.5 616.0 123.2 104.71985 719.2 31.2 20.0 770.4 269.6 200.3

Average Growth (%) N P205

1972-80 16.3 20.61980-85 4.6 17.01972-85 11.6 19.2

B. Other Crops

39. The production of Palawija (secondary) crops apparently declined,overall, in the period 1968-73, partly because of the Government-encouragedshift of land use to rice. Yet, these crops deserve an important place inIndonesia's agricultural economy. There are many areas where irrigation is

1/ In its study "Progress and Implementation of Marketing Plan for PUSRI",Agrar und Hydrotechnik GmbH has tried to determine a urea response curvefor HYV rice in Indonesia. The results are that for an average season,the highest yield (agronomic optimum) would propose 300-325 kg of ureafor hectare (138-150 kg of N per hectare). The economic optimum wouldsuggest 250-275 kg of urea per hectare (115-127 kg of N per hectare).The recommended dosage is lower (200-230 kg of urea per hectare, or92-106 kg of N per hectare) because, near the economic optimum, themarginal bag of urea gives the farmer in return a small marginal netyield increase that only covers the cost of that last bag under averageconditions. A lower dosage is also a protection against bad season.

ANNEX 3Page 15

not feasible, or is insufficient in amount to support perennial ricecropping, and less water demanding crops could advantageously fill thegap. In addition some of them have significant nutritional value. TheGovernment is progressingly extending its efforts to these crops (para54) and is instituting a program of research designed to provide bettertechnical inputs. The following table summarizes the results of thecalculations detailed in Tables 9 and 10:

Fertilizer Consumption by Foodcrops, 1972-1985('000 nutrient tons)

Nitrogen 1972 (actual) 1980 1985

Corn 23.1 40.2 47.8Soyabeans 0.2 1.7 2.3Groundnuts - 1.7 2.9Vegetables 24.3 32.7 39.8

Total 47.6 76.3 92.8

Phosphate: 4.5 38.0 68.1Potash: .0.6 9.3 34.0

Average Growth (%) N P025 K20

1972-80 6.1 30.6 40.91980-85 4.0 12.4 29.61972-85 5.3 23.2 36.4

40. Palm oil, rubber, and tea are being rapidly expanded on the basisof improved technology. Further growth will stem from upgrading of small-holder production through programs for transmigration, extension and market-ing program, and from nucleus estate smallholders corporation. In addition,the Government'.s easing of the supply of fertilizers to the estates shouldmake it possible for them to apply near optimum dosages. A summary ofTables 9 and 10 is given below:

ANNEX 3Page 16

Fertilizer Consumption by Estate Crops('000 nutrient tons)

Nitrogen 1972 (actual) 1980 1985

Rubber 18.7 25.5 32.0Oilpalm 5.5 11.6 17.1Sugarcane 11.9 16.9 28.3Tea 5.3 8.8 10.0Coffee 4.0 5.8 7.3Tobacco 5.8 6.4 7.1Cloves 1.4 3.0 4.9Coconuts - 2.8 6.7Pepper - 2.2 4.9

Total 52.6 83.0 118.3

Phosphate 17.4 53.6 80.7Potash 29.8 73.6 109.0

Average Growth (%) N P205 K20

1972-80 5.9 15.1 12.01980-85 7.3 8.5 8.21972-80 6.4 12.5 10.5

C. Total Fertilizer Requirement (1972-1985)

41. Based on the above forecast, the total fertilizer requirements inmetric tons by nutrient during 1972-1985 will be as follows:

Total Fertilizer Requirements (1972-1985)('000 nutrient tons)

Average AnnualGrowth Rate %

1974 (act.) 1975 (est.) 1980 1985 1975-85

N 310.3 380.0 775.3 981.5 10.0P205 110.0 130.0 214.7 418.2 12.4K2O 26.7 40.0 187.5 343.3 23.9

42. Consumption of Nitrogen fertilizer will increase over the next tenyears at a decreasing rate: this reflects the fact that, overall, the"easiest" areas, e.g. irrigated or rainfed, will first be fertilized. Once

ANNEX 3Page 17

saturation is reached there, fertilizer application in the less favoredareas, e.g. swamps or uplands, will occur at a slower pace. Yearly fer-tilizer requirements for the period 1974-1985 are shown below:

Fertilizer Requirements(in '000 nutrient tons)

N p2025 2

1974 (actual) 310.3 110.0 26.71975 (estimate) 380.0 130.0 40.01976 511.3 153.4 70.71977 580.2 168.8 93.41978 644.8 184.1 129.61979 705.6 199.5 152.31980 775.3 214.8 187.51981 814.2 258.1 222.91982 855.5 311.8 264.81983 911.8 384.4 313.51984 952.8 403.7 332.01985 981.5 418.4 343.3

43. The N: P 0 : K 0 ratio will shift toward a better fertilizationfrom an estimated 3.4:1:0?3 in 1975 to 3.6:1:0.9 in 1980 and 2.3:1:0.8 in1985. The share of the foodcrop sector for all nutrients will decline froman estimated 90.5% in 1975 to 82.1% in 1980 and 82.3% in 1985, with theestate having the rest.

Trade in Fertilizers

44. As already noted, Indonesia has no known reserves of K20. There-fore, it is assumed that the country would meet all its requirements of K20from imports. In the case of phosphates, Indonesia has planned as mentionedearlier to implement a total P 205 capacity of about 200,000 tons a year bythe end of the decade. Therefore, the country would still be dependent onimports to meet its phosphate needs. In the case of N fertilizers, however,Indonesia is projected to emerge as an exporter from 1979 onwards as shownbelow, and displayed on Graph 1:

ANNEX 3Page 18

Comparison of Production and Requirements of Nitrogen('000 nutrient tons)

Production Demand Surplus (Deficit)

1974 (actual) 121.3 310.3 -189.01975 (estimate) 206.5 380.0 -173.51976 239.6 511.3 -271.71977 387.2 580.2 -193.01978 572.1 644.8 - 72.7

1979 723.2 705.6 17.61980 921.2 775.3 145.91981 1,044.3 814.2 230.11982 1,089.9 855.5 234.41983 1,116.1 911.8 204.31984 1,142.3 952.8 189.51985 1,155.2 981.5 173.7

45. In studying the export possibilities for N fertilizers, it isassumed that Indonesia has a relative advantage compared to Japan and theRepublic of Korea -- its major Asian competitors for N fertilizers exports-- in meeting the import needs of neighboring countries such as Malaysia,the Philippines, Thailand and Viet Nam, because of Indonesia's largeresources of low-cost feedstocks for N production combined with modern pro-duction facilities and freight advantage. As for potential competitionfrom the Middle Eastern countries, it is assumed that those countries wouldbe better off by concentrating on meeting the import needs of countriesother than Indonesia's neighbors. For example, the present transport costper ton of fertilizer to Manila from Jakarta is about US$10 less than fromthe Persian Gulf countries.

46. Tables 12 and 13 show the. TVA projections of production and demandof N fertilizers in Malaysia, the Philippines, Thailand, the former Republicof Vietnam, Japan, the Republic of Korea and Taiwan. The production anddemand projections for Indonesia are already given. Based on the data fromthese tables, it is forecast for the surplus deficit of N fertilizers inthose countries will be as follows:

Nitrogen N Fertilizer Deficit (-) and Surplus (+)in Indonesia and Neighboring Countries

(in '000 nutrient tons)

1975 (est.) 1980 1985

Indonesia -173.5 +145.9 +173.7Malaysia - 69.4 -114.8 -162.2Thailand - 57.0 - 82.5 -105.5

Philippines - 77.2 - 70.4 -107.2Viet Nam -174.0 -276.0 -358.7

Total Deficit -551.1 -397.8 -559.9

ANNEX 3Page 19

47. The above table shows that Indonesia and its four immediate

neighbors will be in deficit of N fertilizers over the next ten years by

400-650,000 tons annually. Indonesia's surplus will represent about 25%

the total deficit of its four neighbors. Its comparative advantage mentioned

before plus an active market policy should enable Indonesia to capture that

market. As for the East Asian region as a whole, Japan, Korea and Taiwan

will largely fill out the remaining deficit. However, what Japan's pro-

duction will be is not clear: because it is not expected to build new

plants and its existing plants are reaching old age, its production may

well decline. At the same time, China, which now accounts for as much as 65%

of Japan's fertilizer exports, has plans to build several fertilizer producing

units: It is expected that the Japanese N fertilizer production will adapt

to the market situation in China and in South East Asia.

Fertilizer Distribution

48. Fertilizer marketing in Indonesia is carried out by Government

approved importers/distributors including local producers like PUSRI and

Petrokimia. Until 1970, P.N. Pertani was leading distributor of both local

and imported fertilizers. However, in recent years, the Government has been

encouraging local producers to market their products as well as imported

fertilizers, while allowing P.N.. Pertani and other established importers/distributors to continue their operation. The share of N and P 205 fertil-

izers sales by PUSRI's Marketing Division has increased significantly over

the past few years, while PUSRI's marketing of K 20 fertilizers remained

marginal, as shown in the table below:

PUSRI's Share in Fertilizer Distribution, 1964-1975('000 nutrient tons)

PUSRI Sales Total Sales PUSRI's Share (%)N P205 K20 N P205 K20 N P20 5 K2

1964 44.5 - - 108.2 26.1 5.6 41.1 - -

1968 45.1 - - 101.2 32.5 11.5 44.6 - -

1972 126.0 6.3 - 305.0 52.7 30.4 41.3 12.0 -

1973 172.7 39.6 - 328.9 71.5 17.0 52.5 55.4 -

1974 189.3 58.6 1.8 310.3 110.0 26.7 61.0 53.3 6.7

1975 (est.) 251.8 73.6 3.7 380.0 130.0 40.0 66.3 56.6 9.3

49. The Government controls not only fertilizer distribution but alsofertilizer prices. The main purpose of the price control is to subsidize

fertilizer sales to farmers and keep foodgrain prices low in a bid to check

inflation which has been a serious problem in Indonesia. The retail price of

urea - both local and imported -- is fixed at Rp 80,000 (US$193) per product

ANNEX 3Page 20

ton for the BIMAS users and Rp 120,000 (US$289) per product ton for theothers while the current import price of urea -- the most popular fertil-izer used in the country is about US$120-170 per product ton. For theretail fertilizer price, 8% is the margin of sub-distributors and retailersand 22% is the margin for imported distributors. The Government purchasesall the local production of urea at a fixed price before allocating itfor distribution. This price was very low in the past, making it difficultfor local producers to earn a reasonable return on investment. However, theGovernment has increased its purchase price by stages from Rp 28,200 (US$68)per product ton in 1972 to Rp 63,900 (US$154) in 1975. The purchase priceis fixed on the basis of c.i.f. Java. Therefore, the producers have to bearthe cost in transporting their product to port go-downs in Java the leadingfertilizer consuming area.

Credit

50. Over 60% of the fertilizer is consumed in Indonesia in areascovered by two programs for promoting intensive cultivation, especially forrice: the BIMAS (Mass Guidance) program and the INMAS (Mass Intensification)program. Under the BIMAS program, farmers having less than 5 ha of landare provided with short-term credits at 1% interest a month in the form ofa package subsidized inputs supplemented with extension services to promotethe proper use of these inputs. The INMAS program in practice representsthe ordinary agricultural extension program for the distribution of subsi-dized inputs to farmers who are either ineligible for the BDMAS program(either because they have progressed efficiently as BIMAS farmers, or be-cause they have more than 5 ha of land) or who do not want to make it as aBIMAS credit because of the associated red-tape and control. In 1974, INMASparticipants were obliged to go through the same procedures as the BIMASfarmers, as part of the Government's further control for N fertilizer dis-tribution, but were charged a higher rate interest -- currently 1.5% a month-- than the BIMAS farmers.

51. The Bank Rakyat Indonesia (BRI) is now the sole credit agency withfull responsibility for financing the BIMAS program. Since the programstarted on a trial basis, with fully irrigated rice, in 1969-70, certaincrops and rainfed rice have been added as eligible activities for BIMASfinancing. The growth of the BIMAS program is documented in Tables 14 and15. BRI processes loan applications in offices set up in each village unit.Village unit without the BRI offices are covered by mobile units. Farmersparticipating in BIMAS and INMAS programs have to receive vouchers forinputs from BRI officers and draw supplies against them in village "kiosks"operated by private retailers and the village unit cooperatives (BUUDs andKUDs). It is the Government's policy to promote the BUUDs and the KUDsas the main source of supply inputs for BDMAS and INMAS farmers. Therehas been a lack of trained personnel to organize the operation and theBUUDs and KUDs require considerable strength before they could become

efficient suppliers.

ANNEX 3Page 21

52. The table below shows the BIMAS program realization for rice over

the past five years and the targets for the next four years:

BIMAS Program for Rice, 1971-1979

Area No. of Loans Loan Amount('000 ha) (million) (million Rp)

(actual) 1971 1,300 1.7 11,0001972 1,200 1.5 9,9001973 1,900 2.3 17,7001974 3,000 3.6 26,0001975 3,000 3.6 56,100

(targeted) 1976 4,200 5.3 77,1001977 6,100 7.6 106,5001978 7,000 8.8 122,9001979 8,100 10.2 143,200

53. The ambitious credit target set by the Government of Indonesia for1979 is is US$345 million for rice alone, and covers a total area of 8.1 mil-lion ha. This gives a measure of the emphasis the Government currentlyplaces on the program and of the considerable resources which it is preparedto make available for its implementation. In recent years, new crops havebeen added; their importance, though still marginal compared with the riceprogram, is increasing rapidly:

BIMAS Program for Secondary Crops, 1973-75

Area ('000 ha) Disbursement (million Rp)1973 1974 1975 1973 1974 1975

Corn 12.5 182.3 173.4 89.9 2,151.0 2,764.6Soyabeans 1.9 34.7 50.3 9.3 346.8 723.8Groundnuts 4.8 40.8 108.9 44.5 814.3 3,457.2Green beans - 0.4 1.5 - 3.5 18.5

Sorghum - 1.1 3.3 - 12.7 53.1

Cassava - - 4.7 - - 54.3

Total 19.2 259.3 342.1 143.7 3,328.3 7,071.5

The rate of growth of the BIMAS program in the future will depend on the

availability of fertilizers, pesticides and insecticides, and the avail-ability of extension personnel and the speed with which BRI succeeds in form-ing the village units. The number of village units was 538 in 1970, and2,585 in 1975; it is expected to reach 5,000 by 1980. Also the total BRIstaff of village units which was 7,722 in 1975 is anticipated to reach20,000 by 1980.

ANNEX 3Page 22

54. In addition to the BIMAS program, the BRI is responsible for INMASprogram for foodcrops, which is a scheme for the distribution of subsidizedinputs to farmers who either cannot, or do not wish, to borrow under theBIMAS program. As the BLMAS farmers, the INMAS farmers must go to the BRIvillage or mobile units to obtain the vouchers with which to acquire subsi-dized inputs from distributors; most farmers pay cash for these voucherswhile some others borrow from the BRI at 1.5% a month for this purpose.However, the total volume of loan made to BIMAS participants remains low,because strict controls have been imposed on this program since October1973 to stop the black marketing which had been going on.

55. The BRI's involvement in financing fertilizers goes beyond thefinancing of farmers purchases of fertilizers. First, all imports of ferti-lizers for the BDMAS and INMAS programs must be financed by BRI. The import-ers must take a 10% down payment and then can obtain BRI financing for 90%of the amount of the letter of credit. Second, when the fertilizers arereceived, most of the BRI import loans are transformed into a fertilizerinventory support loan. However, the fertilizer distributor must then in-crease its equity to 30% as the maximum credit available from BRI is 70%of the value of the fertilizer stocks.

PUSRI Marketing

56. Initially, PUSRI was marketing most of its products through P.N.Pertani. For example, in 1964, the first year of operation, PUSRI marketedabout 90% of its production through Pertani and sold the rest through itsmarketing organization. The percentage of production sold through Pertanideclined gradually during 1964-1970, with PUSRI assuming the entire responsi-bility for marketing its own products in 1970, and at the same time, becomingthe most important distributor and importer of fertilizers. It is not ex-pected that upon completion of PUSRI IV, PUSRI's marketing efforts shouldbe substantially modified.

57. In 1974, PUSRI's marketing of imported fertilizers was nearlythree times greater than its production. In 1975, however, as PUSRI ureaproduction was gaining momentum, imported fertilizers market that year byPUSRI was down to 70% of its own production. But at the same time, PUSRIimported large amount of fertilizers, as part of the stockpiling programof the Government. As already noted, the Government allows a margin of 22%to PUSRI for serving as an importer/distributor. This margin is inadequateunder the current system of credit sales because it takes about 10 months forPUSRI to realize its receivables. Meanwhile, PUSRI has borrowed short-termfunds from banks at an interest of 1 to 2% a month. As a result, PUSRI'smarketing operation used to be carried at a financial loss to the company.However, the Government has undertaken since 1974 to make up PUSRI's marketinglosses through cash advances as long as the existing distribution controlsystem continues.

ANNEX 3Page 23

58. About 80% of PUSRI's own production was sold to Java in 1975.This percentage is expected to decline as the volume of production by PUSRIincreases and as it increases it sales to other islands of Indonesia, espe-cially Sumatera and Sulawesi. In 1980, it is estimated that only 38% ofPUSRI's production will be distributed in Java.

Industrial Projects DepartmentNovember 1975

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

POPULATION DATA - 1971 CENSUS

Average Growth Census 1971 Percentage of Percentage of Density61/71 (in thousand) Total Population Rural Population (person/sq km)

West Java 2.5 26,209 22.0 72.2 527Central Java 1.7% 24,367 20.4 88.7 647East Jdva and Madura 1.6% 2527 21.4 85.5 539

Total Java and Madura 1.9% 76,103 63.8 82.0 565

Sumatera 2.8% 20,813 17.5 82.9 38Kalimantan 2.3% 5,152 4.3 79.6 9Sulawesi 1.9% 8,535 7.2 92.2 37Other Islands 2.0% 8,629 7.2 91.4 14

Total 2.1% 119,232 100.0 82.7 63

/ Including Jakarta District

Industrial Projects DepartmentOctober 1975

Table 2

INDONESIA: PUSRI IV FiRTILIZER EXIPANSION PBOJi=T

CONSUMPTION OF NUTRIENTS PER HECTARE OF ARABLI IAID AZID

PER CAPITA - N: P: K RAT IOS, 1972/73

----------------- kg/ha -------------

N P2 05 K 20 Total Total/Capita N:P:K

Indonesia 19.2 3.7 1.7 24.6 3.4 5.2:1:0.5

Asia (average) 17.9 7.0 3.7 28.6 6.4 2.6:1:O.5

- Bangladesh 16.0 4.4 1.2 21.6 2.4 3.6:1:0.3- India 10.7 3.5 2.0 16.2 4.8 3.1:1:0.6- Japan 138.4 135.4 113.2 387.0 19.1 1.0:1:0.8- Korea (Rep. of) 161.2 74.0 45.1 280.3 19.2 2.2:1:0.6- Malaysia:

Sabah 8.9 5.9 19.1 33.9 11.4 1.5:1:3.2West Malaysia 26.3 3.4 28.5 58.2 17.2 ?,;7:1t8.4

- Pakiatan 20.1 2.5 0.1 22.7 6.6 8.0:l:0.0- Pbilippines 10.3 3.6 3.5 17.4 4.7 2.9:ltl.0- Sri Lanka 28.7 4.9 17.7 51.3 7.7 5.9:1:3.6- Thailand 4.4 4.0 3.0 11.4 4.1 1.1:10.8- Viet Nam (Rep. of) 47.6 9.5 5.1 62.2 10.5 5.0:10.5

USSR 24.2 11.1 13.9 49.2 46.3 2.2sl:1.3

North America (average) 34.1 21.5 17.8 73.4 74.7 1.6:1:0.8

- United States 39.6 24.1 20.9 84.6 77.4 1.6t1:0.9

Western Europe (average) 77.0 61.8 53.6 192.4 52.3 1.2s1:0.9

- France 87.0 107.8 85.6 280.4 103.5 0.8ls:0.8- CLermany (Fed. Rep. of) 146.9 111.5 141.8 400.2 52.8 1.3:lsl.3- Greece 57.8 34.4 5.5 97.7 39.4 1.7:1:0.2- Italy 56.2 47.4 21.6 125.2 28.3 1.2t1:0.5- Netherlands 446.4 120.1 150.4 716.9 45.2 3.7:1:1.3- Spain 31.5 22.1 12.2 65.8 41.0 1.4:1:O.6- United Kingdom 131.1 65.0 60.2 256.3 33.0 2.0:1:0.9- Yugoslavia 41.8 25.0 21.3 88.1 34.5 1.7:1:0.9

Africa (average) 5.1 3.4 1.5 10.0 5.7 1.5:1:0.4

South America (average) 9.4 11 .2 6.8 27.4 11.9 0.8:1:0.6

- Argentina 1.9 1.2 0.3 3.4 3.5 1.6:1:0.3- Brazil 11.6 20.8 13.4 45.8 15.8 0.6:1:0.6- Chile 11.4 16.5 3.5 31.4 14.2 0.7:1:0.2- Venezuela 6.9 4.1 3.5 11.5 6.6 1.7:1:0.9

11orld Total 24.4 15.3 12.7 52.4 20.6 1.6:110.8

Source: FAO Annual Fertilizer Review, 1973

Industrial Projects DepartmentOctober, 1975

.INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

TREND OF FERTILIZER CONSUMPTION(In '000 nutrient tons)

Fooderop Sector Estate Sector TotalN P K N P K N P K

1964 87.6 17.0 0.8 20.6 9.1 4.8 108.2 26.1 5.61965 58.9 27.9 3.5 31.1 17.5 10.4 90.0 45.4 13.91966 61.0 18.8 0.7 34.9 6.8 6.4 95.9 25.6 7.11967 43.0 5.4 0.4 24.2 23.0 7.0 67.2 28.4 7.41968 95.0 24.4 0.4 6.2 8.1 11.1 101.2 32.5 11.51969 155.2 36.3 1.0 16.1 6.5 12.7 171.3 42.8 13.71970 162.1 31.6 3.6 21.8 13.8 14.6 183.9 45.4 18.21971 213.1 21.9 0.4 44.5 10.9 19.0 257.6 32.8 19.41972 252.4 35.3 0.6 52.6 17.4 29.8 305.0 52.7 30.k1973 312.0 65.3 1.9 16.9 6.2 15.1 328.9 71.5 17.01974 300.5 98.6 4.6 9.8 11.4 22.1 310.3 110.0 26.71975 (est.) 375.1 120.9 2.0 4.9 9.1 38.0 380.0 130.0 40.0

Note: N = Nitrogen; P = Phosphorous; K = Potash

Sources: NFS for 1964-69 data; BEICIP for 1970-72 data; Department of Agriculture for1973-74 data and PUSRI for 1975 estimates.

Industrial Projects DepartmentOctober 1975

ANNEX 3Table 4

INDONESIA: PUSRI IV FERTIL ZIR EXPONSION PRC.TVQT

N : P : K RATIO IN FERMILIZER CONSUMPTION

N *P: K

1964 4.1 : 1 s 0.2

1965 2.0 : 1 : 0.3

1966 3.8 : 1 : 0.3

1967 2.4 : 1 : 0.3

1968 3.1 : 1 : 0.4

1969 4.0 : 1 : 0.3

1970 4.1 : 1 : 0.4

1971 7.9 : 1 : 0.6

1972 5.8 : 1 : 0.6

1973 4.6 : 1 : 0.2

1974 2.8 : 1 : 0.2

1975 (Est.) 2.9 : 1 : 0.3

Note: N = Nitrogen; P = Phosphorous; K Potash

Source : Calculated from Table 3

Industrial Projects Department

October, 1975

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

PERCENTAGE SHARES OF NUTRIENT CONSUMPTION

IN FOODCROP AND ESTATE SECTORS(in percentages)

N P205 K2 0FS ES Total FS ES Total FS ES Total

1964 80.9 19.1 100 65.1 34.9 100 14.3 85.7 1001965 65.4 34.6 100 61.5 38.5 100 25.2 74.8 1001966 63.6 36.4 100 73.4 26.6 100 9.9 90.1 1001967 64.0 36.0 100 19.0 81.0 100 5.4 94.6 1001968 93.9 6.1 100 75.1 24.9 100 3.5 96.5 1001969 90.6 9.4 100 84.8 15.2 100 7.3 92.7 1001970 88.1 11.9 100 69.6 30.4 100 19.8 80.2 1001971 82.7 17.3 100 66.8 33.2 100 2.1 97.9 1001972 82.8 17.2 100 67.0 33.0 100 2.0 98.0 1001973 94.9 5.1 100 91.3 8.7 100 11.2 88.8 1001974 96.8 3.2 100 89.6 10.4 100 17.2 82.8 1001975 (est.) 98.7 1.3 100 93.0 7.0 100 5.1 94.9 100

Notes: N = Nitrogen; P = Phophorous; K = PotashFS = Fooderop Sector; ES = Estate Sector

Source: Calculated from Table 3

Industrial Projects DepartmentOctober 1975

ANNEX 3Table 6

INDONESIA: PUSRI IV FERTILIZER EXPANSION PFQJ=CT

FERTILIZER IMPORT('000 nutrient tons)

N K20 Total

1964 35.7 23.5 7.9 67.11965 49.5 22.6 11.4 83.51966 55.7 10.7 7.0 73.41967 62.0 14.2 7.2 83.41968 142.5 54.3 12.5 209.31969 107.6 61.7 12.8 182.11970 109.9 14.3 27.5 151.71971 211.8 11.5 7.2 230.51972 289.3 93.3 35.8 418.41973 225.7 97.7 15.6 339.01974 422.3 179.3 31.8 633.51975 (est.) 672.1 281.9 31.1 985.1

Industrial Projects DepartmentOctober 1975

INDONESIA: PlUSRI IV FERTILIZER EXPANSION PROJECT

PROJECTED UREA PRODUCTION IN INDONESIA('000 tons)

DesignPlant Location Capacity 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985

Pusri I Palembang, Sumatera 100 100 100 100 - - - - - - - _Pusri II Palembang, Sumatera 380 342 342 342 342 342 342 342 342 342 342 342Pusri III Palembang, Sumatera 570 - - 321 449 499 513 513 513 513 513 513Pusri IV Palembang, Sumatera 570 - - -- 324 452 506 513 513 513 513 513

Total Pusri 1,620 442 442 763 i,165 1,293 1,361 1,368 1,368 1,36.; 1 '68 1,368

Petrokimia Gresik, East Java 24 24 24 24 24 24 24 24 24 24 24 24West Java Cikampek, West Java 570 - - - - 171 385 471 513 513 513 513East Kalimantan Balikpapan, Kalimantan 570 - - - - - 143 314 371 42 _ 485 513

Total 2,784 466 466 787 1,189 1,488 1,913 2,177 2,276 2,333 2,390 2,418

Notes: Commissioning dates: Pusri III: April 1, 1977Pusri IV: February 15 1978West Java: July 1, 1974

East Kalimantan: July 1, 1980

Assumptions for capacity utilization are: for Pusri II, 90%; for Pusri III and IV, first year, 75%, second year 80% andthird year onwards, 90%; for West Java, first year, 60%, second year, 75% and third year onwards, 90%; for EastKalimantan, first year 50%, second year, 60%, third year, 70%, fourth year, 80% and fifth year onwards, 90%.

Industrial Projects DepartmentOctober 1975

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

NITROGEN CONSUMPTION IN RICE CULTIVATION

------------- Irrigated and Rainfed Rice------ ------------ ---------- Upland Rice----------High Yield Varieties non-High Yield Varieties Total Total P205 Total K20

Fertilizer N-Consump- Fertilizer N-Consump- Fertilizer N-Consump- N-Consump- Consumption ConsumptionArea N-Dosage tion Area N-Dosage tion Area N-Dosage tion tion by Rice by Rice by Rice

('000 ha) (kg/ha) ('000 tons) ('000 ha) (kg/ha) ('000 tons) ('000 ha) (kg/ha) ('000 tons) ('OO tonb) ('000 tqap) ('000 tons)

1968 18 98.4 1.77 1,579 49.2 77.69 - - - 79.451969 486 92.4 44.91 1,646 46.2 76.05 - - - 120.961970 772 100.6 77.66 1,313 50.3 66.04 - - - 143.701971 1,072 79.2 84.90 1,813 39.6 71.79 - - - 156.691972 1,433 78.4 112.35 1,830 39.2 71.74 - - - 184.091973 2,300 81.2 186.76 1,764 40.6 71.62 - - - 258.381974 2,500 80.0 200.00 1,650 40.0 66.00 5 30.0 0.15 266.15(est.)

1975 3,C00 80.0 240.00 1,550 40.0 62.00 40 35.0 1.40 303.40(est.)

1976 4,075 80.0 326.00 1,500 40.0 60.00 210 40.0 8.40 394.40 63.10 19.721977 4,498 85.0 382.33 1,400 42.0 58.80 260 42.0 10.92 452.05 76.85 36.161978 4,810 90.0 432.33 1,300 45.0 58.50 300 45.0 13.50 504.90 85.83 65.641979 5,122 95.0 486.59 1,200 47.0 56.40 330 47.0 15.51 558.50 111.70 83.781980 5,435 100.0 543.50 1,100 50.0 55.00 350 50.0 17.50 616.00 123.20 104.721981 5,782 100.0 578.20 1,000 50.0 50.00 360 50.0 18.00 646.20 161.55 129.241982 6,130 100.0 613.00 900 50.0 45.00 370 50.0 18.50 676.50 202.86 155.601983 6,367 105.0 668.53 800 52.0 41.60 375 52.0 19.50 729.63 255.37 189.701984 6,611 105.0 694.16 700 52.0 36.40 380 52.0 19.76 750.32 262.61 195.081985 6,849 105.0 719.15 600 52.0 31.20 385 52.0 20.02 770.37 269.63 200.30

Note: N:P:K: ratio changes to 1: 0.20: 0.17 in 1980 and to 1: 0.35: 0.26 in 1985.

Industrial Projects DepartmentOctober 1975

0o !

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

PROJECTED FERTILIZED AREA. FERTILIZER DOSAGE AND FERTILIZER CONSUMPTION - 1980

SECONDARY CROPS, VEGETABLES AND ESTATE CROPS

Area Dosages (kg/ha) Consumption ('000 tons)

Secondary Crops and Vegetables Cha) N P2 05 K2 0 N P2 05 K20

Corn:- High yield variety 205,440 90.0 300 5 18.49 3.2o- Low variety 433,860 50.0 21.69

Soyabeans 146,470 11.5 30.0 - 1.68 4.39 -

Groundnuts 73,260 23.0 30.0 - 1.68 2.20 -

Vegetables 304.640 107.5 40.0 20.0 32.75 12.19 6.09

Sub-total 1,163,670 76.29 37.96 9.29

Estate Crops

Rubber:- Estate 519,300 45.0 45.0 45.0 23.37 23.37 23.37

- Small Holder 70,880 30.0 30.0 30.0 2.13 2.13 2.13

Oil Palm- Estate 214,560 50.0 50.0 100.0 10.73 10.73 21.46

- Small Holder 21,000 45.0 45.0 90.0 0.95 0.95 1.89

Sugarcane- Estate 98,800 120.0 50.0 120.0 11.86 4.94 11.86

- ball Holder 50,200 100.0 - - 5.02 - -

Tea- 87,590 1.0 0.3 0.5 8.76 2.92 4.38

Coffee- Estate 45,500 115.0 50.0 50.0 5.23 2.28 2.28

- Small Holder 5,990 100.0 - - 0.60 - -

Tobacco- Estate 13,800 55.0 55.0 55.0 0.76 0.76 0.76

- Small Holder 70,500 80.0 - - 5.64 - -

Cloves 59,020 50.0 25.0 25.0 2.95 1.48 1.48

Coconuts 112,000 20.0 20.0 20.0 2.80 2.80 2.80

Pepper 22.o80 110.0 55.0 55.0 2.21 1.2l 1.21

Sub-total 1,321,630 83.01 53.57 73.62

TOTATL 2,485,300 159.30 91.53 82.91

1/ Tea production is expected to be 87,590 tons in 1980. Fertilizer requlir,u,iets ire for 10 Ilns of made-tea: 1 ton of

N, 1/3 ton of P205 and i ton of K20.

Industrial Projects DepartmentOctober 1975

m AONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

PROJECTED FERTILIZED AREA, FERTILIZER DOSAGE AND FERTILIZER CONSUMPTION - 1985

SECONDARY CROPS. VEGETABLES AN) ESTATE CROPS

Area Dosages (kg/ha) Consumption ('000 tons)

Secondary Crops and Vegetables (ha) N P205 M N !202

Corn:

- High yield variety 252,040 90 0 40.o 20,0 22.68 30.15 15.08- Low variety 501,760 50.0 25.09 01 1.O

Soyabeans 198,740 11.5 40.0 20.0 2.29 7.95 3.97

Groundnuts 128,160 23.0 60.0 30.0 2.90 7.57 3.78

Vegetables 370.740 107.5 60.0 30.0 39.85 22.24 11.12

Sub-total 1,451,440 92.81 67.91 33.95

Estate Crops

Rubber- Estate 519,300 50.0 50.0 50.0 25.97 25.97 25.97

- Small Holder 121,580 50.0 50.0 50.0 6.08 6.08 6.08

Oil Palm- Estate 251,460 60.0 60.0 120.0 15.09 15.09 30.18

- Small Holder 36,000 55.0 55.0 110.0 1.98 1.98 3.96

Sugarcane- Estate 158,800 140.0 80.0 140.0 22.23 12.70 22.23

- Small Holder 50,200 120.0 - - 6.02 - -

Teal/ 99,940 1.0 0.3 0.5 9.99 3.33 5.00

Coffee- Estate 45,500 120.0 70.0 70.0 5.46 3.19 3.19

- Small Holder 16,460 110.0 - - 1.81 - -

Tobacco- Estate 13,800 55.0 55.0 55.0 0.76 0.76 0.76

- Small Holder 79,000 80.0 - - 6.32 - -

Cloves 70,320 70.0 35.0 35.0 4.92 2.46 2.46

Coconuts 192,000 35.0 35.0 35.0 6.72 6.72 6.72

Pepper 37.780 130.0 65.o 65.0 4.91 2.46 2.46

Sub-total 1,592,200 118.26 80.74 109.01

I9TAL 3,o43,640 211.07 148.65 142.96

/ Tea production is expect5d to be 99,940 tons in 1985. Fertilizer requirements are for 10 tons of made-tea: 1 ton of

N, 1/3 ton of P 2 05 and } ton of K20.

Industrial Projects DepartmentOctober 1975

IYDONNSIA: PY9RI IV FGRTILIZER EXPANSION PROJMCT

PROVINCEWISE N-FETIZZR CONS0MPTION (Nutrient tons)

1972 (aotu41) 1275 (estimates) 1980 1985J-CoomUs JL N-Gon-u^ton _ N-Conzuuption % NAmumption %

West Java 72,9940 23.9 93,480 24.6 180,645 23.3 221,819 22.6Central Java 79,640 26.1 83,220 21.9 159,712 20.6 195,319 19.9East Java 89,538 J9:3 95.ooo 178,319 216.912 22.1

Total Java 242,118 79.3 271,700 71.5 518,676 66.9 634,050 64.6

Suuatera 46*454 15.2 69,160 18.2 157,386 20.3 210,040 21.4Sulawesi 7,870 2.6 16,340 4.3 44,192 5.7 62,815 6.4Kalimantan 3,138 1.0 12,160 3.2 30,237 3.9 40,242 4.1Other Islands 56-3 1 10,640 2.8 .24289 3-2 34.353 3.5

Total Indonesia 305,143 100.0 380,000 100.0 775,300 100.0 981,500 100.0

Industrial Projects DepartmentOctober 1975

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

CONSUMPTION, PRODUCTION AND SURPLUS (DEFICIT) FOR NITROGEN

IN MAIAYSIA. THAILAND, PRILIPPINES AND

VIET NAM, 1967 - 1980

(thousand metric nutrient tons)

Malaysia Thailand Philippines 3 Viet Nam 4

Surplus Surplus Surplus Surplus Total

Year'/ Cons. Prod. (Deficit) Cons. Prod. (Deficit) Cons. Prod. (Deficit) Cons. Prod. (Deficit) Deficit

1967 44.0 - (44.0) 34.8 0.9 (33.9) 66.0 21.0 (45.0) 45.2 - (45.2) 168.1

1968 42.0 16.0 (26.0) 52.2 8.9 (43.3) 64.3 43.6 (20.7) 53.8 - (53.8) 143.8

1969 43.0 18.0 (25.0) 51.0 9.0 (42.0) 63.4 45.6 (17.8) 61.4 - (61.4) 146.2

1970 55.6 31.0 (24.6) 49.0 8.0 (41.0) 101.4 53.5 (47.9) 122.4 - (122.4) 235.9

1971 62.8 26.0 (36.8) 42.5 11.5 (31.0) 119.2 47.7 (71.5) 135.3 - (135.3) 274.6

1972 75.6 42.5 (33.1) 62.0 10.3 (51.7) 122.0 58.6 (63.4) 97.7 - (97.7) 245.9

1973 80.6 40.0 (40.6) 62.0 7.7 (54.3) 114.5 55.4 (59.1) 150.0 - (150.0) 304.0

1974 84.8 23.2-/ (61.6) 68.9 17.02?/ (51.9) 114.0 61.8-./ (62.2) 155.0 - (156.0) 331.7

1975 92.-6 23.2 (69.4) 74.0 17.0 (57.0) 132.0 61.8 (77.2) 174.0 - (174.0) 377.6

1976 101.0 23.2 (77.8) 79.0 17.0 (62.0) 151.0 61.8 (110.2) 193.0 - (193.0) 443.0

1977 110.0 23.2 (86.8) 84.0 17.0 (67.0) 169.0 61.8 (127.2) 212.0 - (212.0) 493.0

1978 119.0 23.2 (95.8) 89.0 17.0 (72.0) 187.0 61.8 (145.2) 233.0 - (233.0) 546.0

1979 128.0 23.2 (104.8) 94.0 17.0 (77.0) 206.0 61.8 (163.2) 254.0 - (254.0) 599.0

1980 138.0 23.2 (114.8) 99.5 17.0 (82.5) 224.0 153.6 ( 70.4) 276.0 - (276.0) 656.5

1985 (162.2) (105.5) (107.2) (358.7) 868.7

1/ 1967-1973 figures actual production and consumption; 1974-1980 figures supply-demand forest as reported by TVA;

1985 figures are extrapolated from the 10-year trend 1971-1980.2/ Production estimated at 70% capacity. r

3/ Forecast for the Philippines are Bank projections.

4/ Former Republic of Viet Nam

Source: TVA/USAID Study, June 1975

Industrial Projects DepartmentOctober 1975

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

CONSUMPTION. PRODUCTION AND SURPLUS (DEFICIT) FOR NITROGENIN KOREA. JAPAN AND TAIWAN. 1967-1980(thousand metric nutrient tons)

Korea Japan Taiwan1/ Surplus Surplus Surplus Total

Year- Cons. Prod. (Deficit) Cons. Prod. (Deficit) Cons. Prod. (Deficit) Surplus

1967 239.7 80.9 (158.8) 852.7 1,789.3 936.6 159.8 157.6 (2.2) 775.61968 277.6 150.1 (127.5) 899.9 2,034.7 1,134.8 161.2 162.6 1.4 1,008.71969 285.9 315.3 29.4 918.6 2,098.5 1,179.9 170.9 191.8 20.9 1,230.21970 320.1 355.8 35.7 891.6 2,130.9 1,239.3 165.0 194.6 29.6 1,304.61971 355.5 385.9 30.4 872.5 2,105.1 1,232.6 154.0 157.4 3.4 1,266.41972 347.2 450.2 103.0 674.1 2,125.4 1,451.3 170.0 186.0 16.0 1,570.31973 372.6 418.5 45.9 732.9 2,454.1 1,721.2 180.0 214.0 34.0 1,801.1

1974 406.0 3 5 9 . 1/2 (46.9) 842.0 2 ,5 0 0 .0 /3 1,658.0 187.0 22 6 .0/2 39.0 1,650.11975 434.0 451.3 17.3 850.0 2,500.0 1,650.0 193.0 226.0 33.0 1,700.31976 465.0 454.1 (10.9) 857.0 2,500.0 1,643.0 198.0 226.0 28.0 1,660.11977 496.0 463.0 (33.0) 865.0 2,500.0 1,635.0 204.0 265.8 61.8 1,663.81978 529.0 577.6 48.6 872.0 2,500.0 1,628.0 210.0 305.7 95.7 1,772.31979 564.0 692.4 128.4 880.0 2,500.0 1,620.0 215.0 405.3 190.3 1,938.71980 600.0 1,072.5 472.5 887.0 2,500.0 1,613.0 221.0 405.3 184.3 2,269.8

1985 316.4 1,575.0 254.0 2,145.4

1/ 1967-1973 figures actual production and consumption; 1974-1980 figures supply-demand forecast as reportedby TVA; 1985 figures are extrapolated from the 10-year trend 1971-1980.

2/ Production estimated at 90% capacity.3/ For Japan, the present level of production is assumed to continue. The surplus shown may not materialize

as the older plants may be phased out to adapt to the market situation in South East Asia.

Source: TVA/USAID Study, June 1975.

Industrial Projects DepartmentOctober 1975

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

BIMAS PROGRAM FOR RICE: CREDIT DISBURSED AND OUTSTANDING

Season'/ Target_ Realization Amount Outstandind/Average 2

Area Area % of Disbursement Size of Loan2 As of Aug. 31, 1975 As a % of

('000 ha) ('000 ha) Target No of Loans (million Rp) (Rp) (million RP) Loan Amount

Wet 1970/71 Java 894.2 896.5 100.3 1,202,489 7,655.9 6,370 260.8 3.4

outside Java 230.4 112.1 48.7 124,225 805.7 6,490 129.2 16.0

Indonesia 1,124.6 1,008.6 89.7 1,326,714 8,461.6 6,380 390.0 4.6

Dry 1971 Java 319.0 228.8 71.7 272,519 1,925.3 7,070 95.5 5.0

outside Java 143.0 67.5 47.2 84.088 582.7 6,930 94.7 16.3

Indonesia 462.0 296.3 64.1 356,607 2,508.0 7,030 191.2 7.6

Wet 1971/72 Java 1,003.2 795.7 79.3 990,100 6,579.4 6,650 216.4 3.3

outside Java 307.9 95.0 30,7 111.678 725.0 6,490 87.2 12.0

Indonesia 1,311.1 890.7 67.9 1,101,770 7,304.4 6,630 303*6 4.2

Dry 1972 Java 338.0 245.3 72.6 283,445 2,096.6 7,400 128.9 6.1

outside Java 184.5 62.5 33.9 72,838 462.4 6,350 67.0 14.5

Indonesia 522.5 307.8 58.9 356,283 2,559.0 7,180 195.9 7.7

Wet 1972/73 Java 1,116.4 1,153.5 103.3 1,429,415 10,785.2 7,550 539.0 5.0

outside Java 308.1 224.7 72.6 284,194 1.986.6 6,990 448.8 22.6

Indonesia 1,424.5 1,378.2 96.8 1,713,609 12,771.8 7,450 987.8 7.7

Dry 1973 Java 406.6 379.0 93.2 410,783 3,937.5 9,580 287.5 7.3

outside Java 148.7 108.0 72.6 137.901 999.5 7,250 241.5 24.2

Indonesia 555.3 487.0 87.2 548,684 4,937.0 9,000 529.0 10.7

Wet 1973/74 Java 1,773.0 1,725.8 97.3 2,094,858 26,261.2 12,540 2,255.0 8.6

outside Java 484.0 396.7 81.8 463,384 5.258.6 11,350 2.202.5 41.9

Indonesia 2,257.0 2,122.5 94.0 2,558,242 31,519.8 12,320 4,457.6 14.1

Dry 1974 Java 669.8 596.4 89.0 731,178 9,734.3 13,310 1,689.4 17.4

outside Java 279.6 216.9 77.6 256.526 2,794.4 10,890 1.308.3 46.8

Indonesia 949.4 813.3 85.7 987,704 12,528.7 12,680 2,997.7 23.9

Wet 1974/75 Java 1,926.0 1,817.6 94.2 2,220,837 35,017.5 15,770 19,385.4 55.4

outside Java 535.0 352.1 65.8 404.953 5.625.7 13,890 4.369.1 77.7

Indonesia 2,461.0 2,169.7 88.1 2,625,790 40,643.2 15,480 23,754.5 58.4

Dry 1975 Java 670.3 579.3 86.4 696,273 12,257.7 17,600 11,638.0 94.9

outside Java 365.2 201.1 55.0 213.139 3.155.1 14,800 3,125.2 99.1

Indonesia 1,035.5 780.4 75.3 909,412 15,412.7 16,950 14,763.2 95.8

1/ Wet season =October-March; dry season April-September.2/ There was a 50% increase in fertilizer prices to farmers from wet season 1972/73 to wet season 1973/74.

3/ Amount outstanding are regarded as arrears if repayment does not take place within 24 months.

Source: Bank Rakyat Indonesia (September 1975)

Industrial Projects DepartmentOctober 1975

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

BIMAS PROGRAM FOR SECONDARY CROPS: CREDIT DISBURSED AND OUTSTANDING

Seasor_i Target Realization AmDunt Outstanding3

'Average

Area Area % of Disbursement Size of Loana2 As of Aug. 31, 1975 As a % of(000ha ('000 ha) Target No. of Loans (million Rp) (R) (million RP) Loan Aiount

Wet 1972/73 Corn 5.6 2.9 51.8 3,796 22.0 5,790Soyabeans 1.7 0.2 13.1 246 1.1 4,470Groundnuts 3.2 3.2 100.0 3.163 25.7 8.130

Total 10.5 6.3 60.0 7,205 48.8 6,770 2.4 4.9

Dry 1973 Corn 5.6 9.6 171.4 15,726 67.9 4,320Soyabeans 1.7 1.7 100.0 2,575 8.2 3,180Groundnuts 3.2 1.6 50.0 1,144 18.8 16.430

Total 10.5 12.9 122.9 19,445 94.9 4,880 6.0 6.3

Wet 1973/74 Corn 112.0 82.5 73.3 102,609 933.5 9,100Soyabeans 11.3 10.1 89.2 11,735 84.6 7,210Groundnuts 8.8 11.3 128.1 10.009 164.3 16.420

Total 132.1 103.9 78.3 124,353 1,182.4 9,510 175.6 14.9

Dry 1974 Corn 89.6 99.8 111.3 139,092 1,217.5 12,200Soyabeans 39.6 24.6 62.2 21,137 262.2 10,660Groundnuts 26.7 29.5 110.5 29,494 650.0 22,030Green beans 3.3 0.4 12.5 314 3.5 8,750Sorghnm 1.4 1.1 79.4 1.551 12.7 11.550

Total 160.6 155.4 96.8 191,588 2,145.9 13,810 491.0 22.9

Wet 1974/75 Corn 168.8 91.4 54.2 99,711 1,304.9 14,280Soyabeans 28.0 19.2 66.8 18,707 274.0 14,270Groundnuts 45.7 51.1 111.9 43,407 1,574.7 30,820Green beans 3.0 0.6 20.1 362 7.2 12,000Sorghum 5.9 0.4 8.6 591 5.6 14,000Cassava 6.3 4.7 73.9 5.815 54.3 11.550

Total 256.8 167.4 *65.2 168.593 3,220.7 19,240 2,226.0 69.1

Dry 1975 Corn 128.7 82.0 63.6 107,777 1,459.7 13,540Soyabeans 63.8 31.1 48.6 25,023 449.8 17,980Groundnuts 41.2 57.8 140.4 55,218 1,882.5 34,090Green beans 7.7 .9 11.1 644 11.3 17,550Sorghum 12.4 2.9 23.4 3,560 47.5 13,340Cassava 3.0 - 0.0

Total 256.8 174.7 68.0 192,222 3,850.8 20,033 3,782.4 98.2

/ Wet season - October-March; dry season - April-Septeauber2/ There was a 50% increase in fertilizer prices to farmers from wet season 1972/73 to wet season 1973/74.3/ Amount outstanding are regarded as arrears if repayment does not take place within 24 months.

Source: Bank Rakyat Indonesia (September 1975)

Industrial Projects DepartmentOctober 1975

tITNE;X 3l raph 1

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECTCONSUMPTION AND PRODUCTION OF N FERTILIZER

THOUSAND OF TONS OF N PER YEAR

1,400

1,300

1,200 PRODUCTION:CAPACITY BUILD-UP

1,100 EAST KALIMANTAN

1,000 _=

900 Xo

800

700

600 IV_PII__ _U O PUSR! Iv

Actual _ Forecast _~o

500 Bank-1 j460

400CONSUMPTION --- l,.4 UR I

300

200 ______L

100 ~~~~~~~~PRODUCTION PUSRI 1I

PUSRI I PETROKIMIAI & ~ ~ ~ ~ ~

68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 YEAR

-4- Actual Forecast _b

WVorld Bank-1 5460

INDONESIA:PUA1I IV FERTILIZER EXPANSION PROJECT

PLANT LAYOUT

PUSRI I

AREA TITLE

A SYNTHESIS GASIA COMPRESSOR BUILDINGB AMMONIA SYNTHESISCUREA SYNTHESIS

DUREA FINISHINGz p 1~~~~~~~~~D UREA DRIlLLING TOWER

1iB ZI g L I - ¢ 2D UREA BAGGINGE AMMONIA STORAGEF UREA STORtAGEiF BAG MANUFACTURING

/ g tJ a i , *_ _ _ _ _ ) C GRIVER PUMP HOUSE

"A' ~~~~~~~~~~~~~~~1 WATER TREATMENTiSTEAM GENERATOR

K POWER GENERATORL AIR PLANTM PIER AND DOCK

N WATER STORAGE TANKIN LUBE OIL RECLAIMING

z rF: F 1 l o EMERGENCY GENERATION10 GAS METERING STATIONFPACETYLENE PLANT

Z AVAILABLE FOR CONSTRUCTION

BUILDING TITLE

is. ADMINISTRATION BUILDING25B SECURITY BUILDING

11 111 1 LXl 2 alltirrllt 1i 166 MACHINE AND PIPE SHOP1 11 l 1^ L11 Z9 E 1 175B AUTO MAINTENANCE

L1 - - - * U,||lillpil{[Il =36 MAINTENANCE WAREHOUSE1 9GB MATERIALS WAREHOUSE

CONVEYOR 115B WAREHOUSE

1296 ELECTRICAL SHOP9 2 0 w 2 0 < S v -2 5 ~~~~~~~~~~~~13SR TIRE SHOP

"' ~~~'SA' ~2 UREA PLANT3 AMOMOIA STORAGE

': U;W/ t A 7A 4 ELECTRICAL GENERATOR7A 5~~~SUREA BULK STORAGE

6 WATER TREATMENT7 PIER AND DOCK

S ROAD9 SEA WALL10COOLING TOWER

PUSRI IV

//A PREBENT EXTENSION Er PROPOSED EXTENSION

|MMOMA PLANT 1 AMMONIA PLANT<~~~~~ // { 2 UM 2 UREA PLANT

3 A_MOA STONAR TANK 3 AMMONIA STORAGE TANK4 ELECTRCAL 1;_RA?OR 4 ELECTRICAL GENERATOR5 UN"A 8ULK CTOAGE BULDING 5 UREA BULK STORAGE BUILDING6 WATE YtEATIN 6 WATER TREATING7 pr AND DOCK 7 PIER AND DOCK

a PXbAO 8 ROAD9 SEA WALL 9 SEA WALL10 COOLING TOWER 10 COOLING TOWER

Indusirial Projects DepartrritNovenmber 1975

World Bank 15332

ANNEX 4-2

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

PRODUCTION PROCESS AND PROJECT DESCRIPTION

Production Process

1. The rated capacity of the plant will be 1,725 TPD of urea, i.e.,570,000 TPY assuming 330 days of operation in a year. Actual output, if

a 90% capacity utilization is maintained, will be about 510,000 TPY. The

intermediate ammonia production facilities are sized on the basis that all

ammonia produced will be converted to urea. The ammonia unit will have a

1,000 TPD rated capacity (330,000 TPY).

2. Gas from PERTAMINA and STANVAC fields will be used for both process

and fuel and will be supplied to the plant at a minimum pressure of 400 psig

as required for direct steam reforming without further pressure boosting.

It will be the responsibility of PERTAMINA to supply and install thenecessary gas pipeline up to the works from the existing high pressuretransmission line.

Average composition of the gas is expected to be as below:

Methane 72.6% vol.Ethane 6.0% vol.Propane 5.5 vol.Butane and Higher 4.4% vol.Carbon Dioxide 10.8% vol.Nitrogen 0.7% vol.

Gross Calorific Value 1150 BTU/SCF

The gas is almost sulphur free. The total sulphur content of the gas is

expected to be lower than 8 parts per million (ppm). Liquified hydrocarbonswill be removed in the fields so that the inlet gas will be practically freeof entrained liquids. Provisions have been made to install a liquid separator

at the plant inlet battery limits. Details of the gas requirements and reserves

in South Sumatera are given in Annex 4-5.

3. Synthesis gas for ammonia production is produced from the feed gas

in a series of steps beginning with a primary reforming with steam. Here,desulfurized gas is combined with superheated steam in an amount approximately

equal to a 3 to 1 steam/carbon ratio. The combined steam at a pressure ofapproximately 500-550 psig is then preheated to about 950 degrees F and passed

through catalyst-filled 25/20 chrome-nickel alloy tubes suspended in the

radiant section of the reformer. In passing through the tubes, the hydrocarbon

components, mostly methane, are partly converted to carbon oxides and hydrogen

and exit at a temperature normally in excess of 1,500 degrees F. The partially

reformed gas then flows to a secondary reformer where it is mixed with pre-

heated air in a quantity necessary to reform the uncoverted hydrocarbons and

at the same time provide the required amount of nitrogen for ammonia synthesis.

Air required for the secondary reforming step is supplied from a centrifugal

steam-turbine-driven compressor.

ANNEX 4-2Page 2

4. Reformed gas from the secondary reformer now containing less thanabout 0.)% methane is cooled in waste heat boilers down to about 700 degreesF prior to introduction to the high temperature shift converter where partof the carbon monoxide content of the gas is converted to carbon dioxideby reaction with steam with an equivalent production of hydrogen. Tocomplete this conversion of carbon monoxide, the gas after cooling flowsthrough a bed of zinc oxide for removal of trace amounts of sulfur and theninto a second stage low temperature shift converter where the carbon monoxidecontent of the gas is reduced to less than 0.5 percent.

5.- The raw synthesis gas now contains essentially hydrogen, nitrogen,carbon dioxide and small amounts of hydrocarbons and carbon monoxide and goesthrough a series of purification steps to provide an ammonia synthesis gaswith a hydrogen to nitrogen ratio of 3 to 1. In the first step, carbondioxide is removed from the gas by scrubbing with activated potassiumcarbonate solution. Then, the remaining carbon oxides are removed by con-version to methane by reaction with hydrogen in the presence of a nickelba-se catalyst. The final synthesis gas then contains in addition to nitrogenand hydrogen, less than about 10 ppm of carbon oxides, the maximum which canbe tolerated by the ammonia synthesis catalyst, and small amouLts of methanewhILich are harmless and are continually purged from the ammonia synthesissystem.

6. The carbon dioxide absorbed by the potassium carbonate solution isremoved from the solution by heating the rich absorbent in a stripping tower.The recovered carbon dioxide is subsequently reacted with ammonia to formurea. The composition of the natural gas is such that the quantity of carbondioxide produced in the gas reforming process described is sufficient forurea production.

7. In the synthesis of ammonia the nitrogen-hydrogen mixture iscompressed to a pressure of about 2100 psig by a steam turbine drivencentrifugal compressor, with recycle gas containing approximately 11 percentammonia being admitted to an interstage wheel. The compressed discharge gasafter water cooling is then refrigerated and the condensed ammonia is removedin a liquid separator. Then the gas which now contains only about 2 percentammonia is reheated by heat exchange and passed to the ammonia converter.This vessel is of special design and contains an activated iron base catalystto promote the synthesis reaction and special provision for removal of thereaction heat developed so as to maintain optimum reaction temperature. Theconverter effluent gas is cooled from the reaction temperature of about 900degree F by heat exchange with incoming converter feed gas and preheatingboiler feed water before recycling to the synthesis gas compressor asdescribed above.

8. Iiquid ammonia produced in the process is transferred directly tothe urea unit for production of urea or transferred to storage.

9. In the production of urea, ammonia and carbon dioxide are reactedat pressure of about 3,000 psig and at a temperature of about 360 degrees Fto produce ammonium carbamate, an intermediate product which is subsequently

ANNEX 4-2Page 3

dehydrated to form urea. An excess of ammonia is used for the reaction andthe dehydration reaction does not proceed to completion. Therefore, thereaction products are urea, ammonium carbamate, free ammonia and waterformed during the dehydration reaction. The reaction products flow from theurea reactor to first and second stage decomposers where the pressure isreduced and heat is applied to convert the ammonium carbamate back toammonia and carbon dioxide. The ammonia and carbon dioxide are thenredissolved by countercurrent absorption and recycled back to the reactoras carbamate solution. The excess awmonia is condensed and returned to thereactor with fresh ammonia feed. The final urea solution is concentratedby evaporation of the water under vacuum conditions where crystalization ofthe urea occurs. The wet crystals are centrifuged to remove most of thewater, dried by contact with hot air and transported pneumatically to thetop of the prill tower. There, the dry crystals are heated to the moltenstate and sprayed downward through the tower where the prills are formed.The prills collect on a fluidizer cooler at the bottom of the tower wherethey overflow to a vibrating screen to remove oversize material. The ureaproduct leaving the screen is transported to the bulk storage building orto the bagging station. The urea product will contain less than 0.5 percentbiuret.

Plant Facilities

10. PUSRI IV will be built adjacent to PUSRI II and PUSRI III, partlyon land already prepared for PUSRI III and partly on land recently purchasedfor PUSRI IV. This additional land requires sand filling and piling. Themain parts of the project are: (1) a natural gas pretreatment section forthe removal of heavy hydrocarbons, carbon dioxide and sulfur compounds fromthe feed gas; (2) a 1,000 TPD ammonia plant; (3) a 1,725 TPD urea plant;(4) an ammonia storage tank; (5) cooling towers for recirculating plantcooling water; (6) water treating facilities designed to produce high-puritydemineralized water; (7) a gas turbine generator designed to produce 15 MWof poIwer, with facilities for heat recovery for steam generation; (8) a bag-making plant with a capacity to produce 15 million bags a year; and (9)expansion of the existing jetty to facilitate loading of PUSRI IV products.

Pollution Control

11. Special attention will be given during design and specificationsfor the facilities to minimize the emission and/or discharge of noxious wastematerials. 14herever possible, these materials would be recycled within theprocess units. Further, the design of the process units will be in accordancewith Japanese and U.S. standards with respect to the composition of liquid andgaseous effluents. Under these conditions and with the added advantage ofhaving a clean, almost sulfur-free gas feedstock, it is expected that theproposed project will have little or no harmful effects on the environment.

Industrial Projects DeoartmentOctober 1975

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECTIMPLEMENTATION SCHEDULE

0 __ _1 2 124 _ 30 33

Prehminary Negotiation - Contractors--

Contract Negotiations - .- _-_-l-l-l-l

Basic Engineering --------------

Detailed Engineering ----- ----------------

Procurement and Equipment Deliveries- . _ _ _ _ _ _ _ _ _

Site Acquisition (part) -- - - ----

Site Preparation------ -------- m-- --

Civil Works and Erection------------------ ------------

Start-up and Commissioning -, --------------- - l- -- ---- - - --- -

April 1,1975 1975 1976 1977 Jan.1,lP78

Inrdustrial Projects Department World Bank-8972 (R)November 1975

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECTRAW MATERIAL AND PRODUCT FLOW

PUSRI I NATURAL GAS L12MILLIONSCF/D AMMONIA 18OTPD UREA 300TPD EXISTING EXISTING

25BWI/AGONC i -- n 3AG LOADING

BUL LOADING

PUSRI III NATURAL GAS 6OMILLIONSCFID AMMONIA 1000TPO UREA 1726 TPO RAG LOADIN

PUSRI 11 1 NAUA GAS 60> MILO ;C/ AMOI URA N 7G

STORAGE | | STORAGE

22500 TONS |t }TN

40,000

In Of which approximate2.y one-third is f or power and steamI generation. -

TONS BULK ~~~~~~~RoIdBULK LOADING

lnduatrbl ProZects Dttottotmene a The proposed extension oi the PUSRI 111T Worlda 6anakansiur,of th8973(3R)INovdbttrla P197tGDvame bulk storage building is under consideration

and alternate plans are being uoneidered.

Ti&DDI3fSL: PIJSRT DV FERTILIZER EXPANSION PROJECT

mr &i&u PPj GAS SUPPLY SYSTEM

Gas Re-(uirements and Reserves

Natural gas wi-11 be used for both feedstock and fuel, ard willbe obtained from nearby oil and gas fields in South Sumatera operated byPERTAMINA and STANVAC. PUSRI III and IV will require each 60MMSCFD or 67 billion BTU/day of gas continuously for 20 years, equivalentto 438.30 BSCF. PUSRI II and PUSRI I, already in operation, require 42MNISCFD and 12 NMSCFD respectively. Other consumers in the area have acombined gas requirement of 4h. MMSCFD.

Gas Requirements 1975-1997

CONSUMER MMSCFD BSCF YEARS

1. PUSRI I 12.2 40.00 1975-19832. PUSRI II 42.0 29118 1975-19933. PUSRI III 60.0 438.30 1977-19964. PUSRI IV 60.0 h38.30 1978-19975. Plaju Refinery 10.0 8h.01 1975-19976. Sungei Gerong Refinery 6.o 50.kl 1975-19977. Polypropelene Plant 4.8 LO.32 1975-19978. Gas Lift 11.7 97.85 1975-19979. Field Uses 6.8 57-13 1975-199710. Compressor Fuel 5.1 42.81t 1975-1997

TOTAL 1,580.6h

Total gas reserves in the area (as proven, probable and possible)are estimated at 1,862 BSCF, adequate to meet PUSRI's as well as other user'sneed over the entire life of the projects.

2. The gas availability from all fields as of January 19751/ isas follows:

1/ PERTAMINA, January 1975 estimates. It must be noted that above reservesare different from previously reported reserves, as additional data havebecome available since then. Future periodical reservoir evaluation,currently under way, may further change the present figures.

ANNEX t-5Page 2

Gas Reserves(03SCF)

DiscountedI. High Pressure Gas Proven Possible/Probable Total

1. PERTAMINA old Fields 283.8 255.0 538.82. PERTAMINA new fields 215.9 106.1 352.03. STANVAC fields h47.h 117.5 56h.9

Sub-Total (A) 977.1 78 1,737.7

II. Low Pressure Gas (B) h06.6 - ltO6.6

III. Grand Total (A+B) 1,383.7 _78._ 1,862.3

Of the total expected consumption, therefore, 90% is covered byproven reserves. Details of the total gas requirements and total gas reserves

and deliverability in South Sumatera are given in Tables 1 and 2.

INDONESIA~HNAI N FERTILIZER EXPANSION PROJECT

TABLE 1 - GAS DEMANND AND SOURCES IN SOUTH %t=1A AS AT JANUAY 1. 1975 IN MM4CFD-

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 BSCF

GAS DEMAND1. PUSRI 1 12.2 12.2 12.2 12.2 12.2 12.2 12.2 12.2 12.2 - -- - - - - - - - - - - - 40.00

2. FUSRI II 42.0 42.0 42.0 42.0 42.0 42.0 42.0 42.0 42.0 42.0 42.0 42.0 42.0 42 .0 42.0 42.0 42.0 42.0 42.0 - - - 291.48

3. P0sR1 III - - 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 438.30

4. Polypropilene 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8l 40.32

TOTAL 59.0 59.0 119.0 119.0 119.0 119.0 119.0 119.0 119.0 106.8 106.8 106.8 106.8 106.8 106.8 106.8 106.8 106.8 106.8 64.8 64.8 64. 4,.8 81 .10

Z5. Field Use 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.8 57.13

6. Gaslift 34.7 34.1 33.6 25.0 18.0 16.5 14.0 14.1 11.8 11.5 12.1 9.3 10.1 8.4 8.6 6.1 - - - - - - - 97.85

3b. Compressor Fuel 3.0 3.0 5.3 5.3 5.3 5.3 5.3 5.3 53 .3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 53 5.3 42.84

TOTAL 103.5 102.9164.7 161191 476 451 4.2142. 130. 131.0 128.2 129.0 127.3 127.5 125.0 189 1.9118.9 76.9 76.9 769 1. 07.92S. PUSRI IV - - - 60.0 60.0 60.0 60.0 60.0 60.0 6. 60. 60.0 60.0 60.0 60.0 60.0 60.0 60 60.0 60.0 I0.0 6. 00483

TOTAL 103.5 102.9 164.7 216.1 209.1 207.6 205.1 205.2 2.9104 9.0 188.2 189.0 187.3 187.5 185.0 189 7.9 178.9 136.9 136.9 136.9 76.9 14 6.22

9. Plsju Refinery 10.0 10.0 10.0 10.0 10.0 10.0 '10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 84.01

LO Sei Gerong Refinery 6.0 6.0 6.0 6.0 6.0 6. . . 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 50.41

GRA2~D TOTAL 19.5 118.9 10.7 232.1 22.1 223.6 2211 212218.9? 206.4 207 .0 204.2 205.0 203.3 203.5 201.0 194.9 194.9 194.9 152.9 152.9 152.9 92.9 1580.64

STAIIVAC (PIJSRI I Contract) 12.2 12.2 12.2 12.2 12.2 12.2 12.2 12.2 12.2 - - - - - - - - - -- - 40.00

STA.'VAC (FUSRI II Contract) 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 2f4.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 26.8 225.15

Existing Compressors 30.9 32.3 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 406.60

STA2IVAC (Sei Gerong Ref. Contract) 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 50.41

Gunung Kmale 13.5 13.1 13.2 15.6 12.1 11.0 10.0 12.0 16.4 15.6 13.7 12.5 10.5 8.5 6.0 4.0 3.5 1.9 - - - - 70.64

Limau East P. Section 2.8 2.0 6.0 5.0 4.5 4.6 5.0 3.0 2.0 3.5 2.5 2.0 1.5 1.0 1.0 1.0 3.0 2.5 3.5 3.0 3.0 3.0 - 23.89

Limau East Q 51 Section 10.1 10.0 10.0 10.0 9.5 8.5 8.5 7.0 6.5 7.0 6.0 5.8 4.5 4.0 3.5 2.5 2.5 4.0 3.5 2.0 1.0 0.9 - 46.50

Limau Middle and West 10.5 10.0 10.0 10.0 9.0 8.0 7.5 6.5 5.5 5.0 4.0 3.5 3.0 2.5 1.5 1.0 3.0 2.0 1.5 1.0 - - - 38.35

Limau Niru 0.8 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 - - - - - - - - . - 3.58

Belimsbing 3.5 3.5 7.5 7.5 7.0 6.0 5.1 4.5 4.0 5.5 7.0 6.0 5.5 5.0 6.7 9.2 6.1 7.2 12.5 6.9 4.1 4.7 - 49.31

Prabumuli West 2.1 2.0 2.0 2.0 1.5 1.5 1.0 1.0 1.0 1.0 1.0 - - - . - - . - - - - - 5.88

Benuang - - 6.0 13.0 12.5 11.5 10.0 8.0 6.0 14.0 10.0 10.0 10.0 12.0 15.0 15.0 15.0 15.0 15.0 - - - - 72.32

Betung- - - 20.0 21.0 20.5 23.0 22.5 21.5 22.0 24.5 24.0 23.0 22.0 20.0 15.5 10.5 12.5 12.7 6.5 6.5 6.5 4.8 124.00

East Benakat - - 5.0 10.0 9.5 11.0 10.0 11.0 10.0 9.0 12.5 9.5 2.0 1.3 - - . - - - - - 36.81

STANV/AC New Field - - 25.0 43.0 42.5 45.0 45.0 45.0 45.0 - - - - - - - - - - - - - 106.08

ituang . - . - - - - 4.7 5.0 5.0 6.5 4.5 4.0 5.0 6.0 7.0 7.0 6.0 5.0 4.2 5.0 5.0 5.3 31.11

Pagerdewa - - - - - - - - - - 1.5 4.5 4.0 5.0 6.0 6.0 5.5 5.0 2.9 2.0 1.0 1.0 - 16.22

Frabumxenang . . - - - - -- - - 4.1 4.5 4.2 5.0 6.0 5.0 5.0 3.5 4.5 4.5 4.0 - 19.10

0gan 3 Block - - 4.7 5.0 5.0 6.0 6.0 6.0 5.0 5.0 5.0 5.0 - 19.25

Musi Block- - -- - - - 35.0 35.0 35.0 _45.0 45.0 45.0 45.0 45.0 45.0 45.0 35.0 40.0 40.0 - 195.44

TOTAL ff7119.5 18.9180-.7 232.1 22&%.l 22.6 221.1 221.2 21,%.9 206.4 207.0 2042250233235210 19.9 194.9 194.9 152.9 152.9 152.9 92,9 158 0.64

I! PERTABINA estimates.

ANNEX -Page4

INDONESIA: PUSRI IVFERTILIZER EXPANSION PROJECT

TABLE 2 - GAS RESERVES IN SOUTH SUMATERA

CUM9ULTIVEI/ RESERVESZ&~CF EXCESSGASR F"NTIOVEN PROB FOSS. TOA BSCF

STANVAC (PUSRI I Contract) 40.00 40.00 - - 40.00 -STANVAC (PUSRI II Contract) 225.15 225.15 - - 225.15 -Existing Compressors 406.60 c 406.60 - - 406.60 -STANVAC (Sei Gerong Ref.Contract) 50.41 50o1. - - 50.-1 -

Gunung Kemala 70.64 38.54 34.10 1.88 74.52 3.88Limau East P. Section 23.89 4.23 21.48 - 25.71 1.82Limau East Q 51 Section 46.50 36.81 9.69 - -46.50 -Limau Middle and West 38.35 31.82 8.13 0.03 39.98 1.63Limau Niru 3.58 3.36 2.45 0.95 6.76 3e18Belimbing 49.31 35.97 7.59 6.56 50.12 0.81Prabumulih West 5.88 7.57 - - 7.57 1.69

Benuang 72.32 68.42 23.78 5.78 97.98 25.66Betung 124.00 22.7h 9.53 97.79 130.06 6.06East Benakat 36.81 17.46 15.19 4.87 37.52 0.71

STANVAC New Field 106.08 141.22 117.47 - 258.69 152.61

Kuang 31.11 7.50 24114 1.10 32.74 1.63Pagerdewa 16.22 17.52 - - 17.52 1.30Prabumenang 19.10 10.20 9.18 - 19.38 0.28

Ogan 3 Block 19.25 3.11 20.05 2.44 25).60 6.35

Musi Block 195.44 215.14 11.97 42.36 269.47 74.03

TOTAL 1580.64 1383,77 314.75 163.76 1862.28 281.64

1,/ From Table 1.

2, PERTAMINA estimates. It must be noted that above reserves aredifferent from previously reported reserves, as additional datahave become available since then. Future periodical reservoirevaluation may further change the present figures.

ANNEX 4-5Page 5

Gas Supply

3. PUSRI I receives its gas requirements from STANVAC gas fieldsunder a 20-year contract which expires in 1983. A new gas gathering andtransmission system to meet the gas requirements of PUSRI II has beendeveloped by PERTANINA at a total cost of about Rp 16 billion (US $39million), partly (US $13.1 million), financed by part of an IDA credit(193-IND-US $35 million). According to the original plan, the pipelinewas to supply 42 NMCFD to PUSRI II and 34 MSCFD to two refineries andtwo power plants at Palembang. However, because of the PUSRI III plant,PERTANINA was instructed by the Government to upgrade the existing systemby looping the pipeline from Simpang to PUSRI III plant. Moreover thetwo power plants were not connected, in order to increase the gas availa-bility for PUSRI.

4. PUSRI IV gas requirements will be met through an integrated gassystem, which has been developed by PERTAMINA. This integrated gas systemwill supply PUSRI II, III and IV as well as the other users in the area,with the exception of PUSRI I whose gas needs will continue to be suppliedby STANVAC. The system will be implemented in three phases: gas fieldsclosest to the consumption area (including the ones already in operation)will be the first to be connected and used. As the reserves of thesefields are exploited, new fields further away will be connected. Theinvestment cost will therefore be spread over a long period of time. Thethree phases will include:

1st phase (197h-1976) - looping of the existing pipeline andaddition of one 1350 HP compressor at Cambai. Develop-ment of PERTAMINA's Benuang and East Benakat fields andof STANVAC's Rambutam field, and addition of compressingcapacity.

2nd phase (1977) - looping of existing pipeline and developmentto PERTAMiINA's Betung field and STANVAC's Nau and Terasfields.

3rd phase (1978-1993) - development of remaining gas fields:Musi Block, Kuang, Pagar Dewa and Prabumenang. Additionof compressing capacity.

PERTAMINA will act as the executing agency of the integrated gas project andthrough contractors and its own Gas Division will carry out the projectimplementation. Decisions concerning equipment and services procurement,however, will be subject to approval by a steering committee, formed byrepresentatives of the Finance, Planning and Economic Affairs, Industryand Mines Ministries.

5. The estimated investment cost of the integrated gas project (notbeing financed by the Bank) is very preliminary at this stage, because itis not possible to determine accurately in advance the further investment

ANNEX 4-5Page 6

in drilling required to maintain gas deliverability. The drilling programwill be fixed after a comprehensive reservoir engineering survey is carriedout. This drilling program refers to the 3rd phase (1978-1993) of the projectand its investment will be spread over 15 years. The Government will finance*the cost of the integrated gas project partly with its own funds, with mostof the foreign exchange financed by supplier credit.

Integrated Gas ProjectEstimated CostVm(S $ million)

1. Infrastructure 12.92. Supply 2h.53. Distribution 127.4

Total 164.8

The foreign exchange cost is estimated to be US $100 million. The breakdownper phase is as follows:

Integrated Gas ProjectEstimated Cost per PhaseV/

(US $ million)

Phase I (1974-1976) 70.8Phase II (1977) 28.2Phase III (1978-93) 65.8

Total 16h.8

1/ The cost estimates are in 1975 US dollars.

Industrial Projects DepartmentNovember 1975

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

INTEGRATED GAS PROCT FOR PUSRI 11, III i IV

PUSRI

I ~~~~PLAJU|| I S.GEONG

MUI WOCK "' iANG;Y

EA!ST SENAKAT SA

*W~~~~~~~~~~~hS NP(S. ja8t

LEGEhD l xt W

EXISTIN R P AMU LINEOAN* ADDITIONAl. COMPRUSO COMPAO ST.

a EXIStTltNG COtNPRUSO SlTATIONACODtOnAL tOttU COMPESSORittC^

_ ASt FISLD t'OR tllMR * 1 I

/' GAt FIELD t'OR PUR 11 III IV w.MtNA ;S.*.Igatt"4

_ P.T.S.I. GAit FIELDO Ut_ GAS FLO cs|D

In,U. Pjts D _sE,n pN_v~S 105

ANNEX 4-6

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

TRAINING

Manpower Considerations

1. The large expansion program undertaken by PUSRI will place heavydemands on the organization at a time when management and staff are alreadyfully engaged with ongoing operations. PUSRI's training record is good.However, the advent of PUSRI III and IV, plus the fact that the Governmenthas asked PUSRI to provide the staff and training facilities required toestablish a national fertilizer industry, make it necessary for the trainingfacilities to be expanded and the programs made more efficient.

2. PUSRI's present staff is about 2,600 and is expected to grow60% in the next three years. Recruitment needs are fully recognizedand on the Production side (where lead time is long because of training)recruitment for PUSRI III is well advanced and for PUSRI IV is scheduledto begin in January 1977. The manpower estimates up to 1978 are givenin Table 1.

TABLE 1 - Present and Projected Staffing

Net Recruitment ProjectedPresent through 1978 Total

Production (all Palembangoperations) 2,070 1,050 3,120

M'rketing & Distribution 430 380 810Finance & Other Administration 100 110 210

Total 2,600 1,5h0 4,140

3. Recruitment is not a serious problem except for qualified (graduate)accountants. Accountants come from two sources in Indonesia -- the commercialacademies (two-year post-secondary business schools) and a few of theuniversities, where a four-year course in Business Administration (but nospecialized Accounting degree) is available. In 1973 there were only 750qualified accountants in the country, of whom 600 worked for the Government.PUSRI now has ten graduate accountants on its staff and needs 20 more bythe end of 1977. Realistically, PUSRI can expect to recruit four or fivegraduate accountants during that period, and most of the needed sub-graduates.However, ten of the present sub-graduates on the staff have the ability tofill graduate positions after about two years of additional training, aidthe following action was recommended to management:

ANNEX 4-6Page 2

(a) Train ten selected sub-graduates already on the PIJSRIstaff and ten selected new sub-graduate recruits tobecome the working equivalent of graduate accountantsover a two-year period.

(b) Improve retention of present and future accountants byadding to the present compensation package of thiscategory. This prsposal requires proof of need, whichTriould be provided by a limited compensation studyconducted by an Indonesian consultant. This would notbe a manpower survey or a full salary survey, but astudy to identify any categories of staff where com-paratively low compensation is holding back recruitmentseriously or causing major retention problems. Such astudy might provide the basis for updating the compensationof staff accountants (and perhaps others) in additionto adjusting the "scarcity allowance" and the usualheavy fringe benefits.

Detailed Training Requirements and Programs

4. Training carried out so far to meet the operational needs ofPUSRI I and II has never been formally evaluated, but the fact that theplants operate efficiently indicates that no major changes in trainingpolicy are needed. Rather, the facilities and programs will need to beimproved so as to meet the new demands outlined in pars. 1. The sameis true for staff concerned with marketing, distribution, finance andadministration. Training requirements are described below for the threecategories of staff which make up PUSRI's total operation.

(a) Production

5. Operation and maintenance of the plants in Palembang occupy aboutthree-fourths of total PUSRI staff at present, a proportion which isexpected to remain approximately constant as new plants come on stream.Altogether, over 1,000 additional production staff will be required bythe end of 1978 and recruitment is under way which will provide the leadtime necessary for training before the opening of PUSRI III in March 1977and of PUSRI IV in January 1979. Taking existing staff and future recruitstogether, the number and categories to be trained over the next threeyears is estimated in Table 2.

ANNEX 4-6Page 3

TABLE 2 - Number of PUSRI Production PersonnelRequiring Training, 1976-78

1976 1977 1978 Total

Graduates:Engineers 27 17 8 52Others 5 2 2 9

Sub-Graduates:Technicians (chemical, mechanical,

electrical, etc.) 63 59 21 143

Skilled and Semi-Skilled:Operators, plant 380 194 250 824Others (mechanics, electricians,

firemen, baggers, etc.) 172 130 75 377

Administrators 1/ 22 15 6 43

Clerical 38 33 32 103

Unskilled (security) 25 25 25 75

Total 732 475 419 1,626

1/ This group of administrators is classified with Production instead ofFinance/Administration because their work is directly devoted to theplant in Palembang. Other administrators requiring training appearin Table 4.

6. The training envisaged for the PUSRI III and IV production staffis essentially the same as that for PUSRI II except that more of it will beconducted in plant because of the existence of PUSRI II. Training of PUSRIII operating and maintenance superintendents was carried out by the M.W.Kellogg Company in collaboration with the Toyo Engineering Corporation inthe headquarters of these companies and in other plants (in the USA andJapan) and in Australis. The training of maintenance personnel was alsoconducted abroad by equipment suppliers. In the future, however, PUSRI IIwill be used as the training ground for the superintendents, whilemaintenance personnel need only go to supplier's shops abroad whenever anew type of machinery is introduced. As with the training for PUSRI IIbefore it came on stream, new staff will be hired for PUSRI III and trainedto take the places of experienced PUSRI II staff who will then be moved toPUSRI III. Selected graduates and sub-graduates in management andadministrative fields connected with production, will be sent abroad forshort periods of observation and will attend short courses conducted by

ANNEX 4-6P,-ge 4

the Institute for Management Education and Development (LPPM), which willcontinue to provide the instruction in Palembang. Medical personnelworking in the plants will spend 18 months abroad, part of it in formaleducation and training.

(b) Marketing and Distribution

7. Training for marketing and distribution personnel has so farfollowed a logical approach which has apparently been effective. First,headquarters personnel are trained in marketing principles nnd proceduresby PUSRI's marketing consultants (Agrar-und-Hydrotechnik), as well as bysenior PUSRI staff and outside training agencies. This training is thendisseminated to staff in regional offices, who in turn train distributors(private businessmen), who in turn train retailers. To handle themarketing and distribution of the new PUSRI III and IV output, the samemethod of training will be used, but four groups will require specialattention: retail outlets, warehousemen, bulk terminal staff, and newship management and operating personnel.

8. For the first three of these groups a series of short courseshas been planned in such a way that the consultants and experienced PUSRIstaff can handle the instruction. This is not possible, however, in thecase of the shipping personnel. The training of this category of staffrequires a large and varied program in a field that is partly new toPUSRI. When PUSRI III comes on stream, the corporation will own andoperate its own fleet of three special fertilizer bulk carriers. The half-dozen current staff members in the Bulk Shipping Section of PUSRI'sJakarta office will have to be doubled by late 1976 and about 25 newofficers will need to be trained to join the fleet. PUSRI's shippingconsultant (Mollers' of Hong Kong) has worked out an acceptable trainingplan involving themselves, Price Waterhouse Associates (PWA) and fourother consultants and institutions in Indonesia and abroad, includingthe shipyards of construction. Short courses and on-the-job trainingare planned in the following fields: operations, crewing, accounts andrecords, stores and spares, documentation, and general subjects such asinsurance. Officers and crewmen would, of course, be already qualifiedwhen recruited, but the senior officers would require special trainingin operating bulk urea vessels. They in turn would train junior officersand crewmen. It should be added that PUSRI does have experience in short-based operation of chartered vessels in the field of scheduling,communications, and accounting, for example, but this is far short of thecapability required as owners, managers, and operators of their ownvessels.

9. Taking existing staff and future recruits together, the numbersrequiring some training over the next three years are estimated in Table 3.

ANiEX L4-6Page 5

TABLE 31 - Number of PUSRI Marketing/DistributionPersonnel Requiring Training, 1976-78

1976 1978 Total

Jakarta Office 37 24 26 87Regional Offices 120 84 92 296Bulk Terminals 65 85 293 h43Distributors 29 29 29 87Bulk Shipping (in Jakarta, at portsand on vessels except crewmen) 58 10 12 80

Total 309 232 452 993

_/ Numbers not available by categories of personnel.

(c) Financial and Administrative Staff

10. Training of financial staff has been conducted by the PriceWaterhouse resident consultant with the assistance of PUSRI staff. Themethod is based upon comprehensive operations accounting manuals andconstruction cost manuals for PUSRI that were prepared by PWA in 1971and 1972. This approach, with adaptations to allow for organizationalchanges made in 1975, will be continued. A conversion course will begiven to update existing staff. In addition, new accountants will begiven a familiarization course and new sub-graduates will be trained onthe job in their special parts of the system. A course in Finance fornon-accounting managers has been proposed for about 120 managers andassistant managers of cost centers.

11. The problem of recruiting accounting personnel was described inpara. 3, and a possible solution outlined. With a requirement to recruitfour graduate accountants in the last quarter of 1975 and eleven morein 1976, the consultants estimate that actually PUSRI will be able torecruit only four or five because of competition. The only way to meetthe shortfall is to upgrade, by intensive training, a number of existingsub-graduate accounting staff to the point where they cnn perform theduties of a graduate accountant. The present consultants (PWA) arewilling to undertake such a training program in-house and are equippedto do so. Financial provision for such training is included in thebreakdown of training costs in Table 7.

12. Taking existing staff and future recruits together, the numbersin this category requiring some training over the next three years areestimated in Table 4.

ANNEX 4-6Page6

TABLE 4 - Number of PUSRI Finance/AdministrativePersonnel Requiring Training, 1976-78

1976 1977 1978 Total

Graduates (accountant, businessadministr?tor, etc.) 25 30 25 80

Sub-graduates (computer operator,"semi-graduate in accounting",administrator, etc.) 35 25 25 85

Clerical (book-keeper, accounts clerk,typist, etc.) 20 15 15 50

Total 80 70 65 215

13. For the administrative staff who are not specialized in Finance,no systematic training programs exist. However, numbers are small, andshort courses are available in local institutions (such as PersonnelAdministration at LPPM) plus English language training can fill the needsatisfactorily.

(d) Training for Non-PUSRI Staff

14. Largely as a means of retaining its own experienced staff, PUSRIplans to offer training programs for staff of other nitrogenous fertilizerplants expected to come on stream in the next few years. A few operationsand maintenance personnel at the sub-professional level have alreadyreceived some training in the PUSRI plant. Other nitrogenous fertilizerplants a. planned by the Government are :

(a) P.T. Kujang (West Java), 570,000 tons, opening mid-1979;

(b) East Kalimantan, 570,000 tons, opening mid-1980;

(c) North Sumatera $70 ,000 tons, opening not before early 1981

The bulk of the training requirement for staff to man these plants will beon the production side, and will be carried out in the Palembang plants andTraining Center, preceded by the same type of contractors' training abroadas was given to operators and maintenance staff in PUSRI II, III, and IV.Following this training, personnel will be able to return to their ownplants for a few months of on-site pre-commissioning training. Similarly,marketing and distribution personnel will be trained in small numbers atthe Jakarta and regional offices of PUSRI and will be encouraged, in turn,to train staff in their own branches and also the distributors. Keyfinancial personnel will also be trained in small numbers at PUSRI'sJakarta headquarters. Table 5 shows the total estimated numbers expectedto be trained by PUSRI for other fertilizer plants.

ANNEX 4-6Page 7

TABLE 5 - Estimated Number of Personnel from OtherNitrogenous Fertilizer Plants to beTrained by PUSRI

1976 1977 1978 Total

ProductionKujang 20 188 164 372E. Kalimantan 20 128 104 252N. Sumatera - - 164 164

Merketing/DistributionKujang _ - 25 25E. Kalimantan - - 25 25N. Sumatera - - 10 10

Financial/AdministrationKujang - 25 25 50E. Kalimantan - 25 25 50N. Sumatera _ - 10 10

Total 40 366 552 958

15. Estimates of the training needs of the phosphate fertilizer industryhave not been included because the new plant (scheduled to open in 1979) islocated at Gresik on the site of the present Petrokimia urea plant. Whatevertraining is available at Palembang is available at Gresik on a smaller scaleand this should largely meet the requirement.

Existing Training Facilities at PUSRI

16. In Palembang, the PUSRI I and PUSRI II operating plants are of coursethemselves the chief training facilities. They include two ammonia plants,two urea plants, water and electric utilities, a chemical laboratory, andbagging and loading facilities. PUSRI III will provide, in early 1977,another set of similar facilities of essentially the same design but withlarger machinery. Workshops at these plants are adaptable for training,and control rooms are spacious enough for participants and observers. However,in Palembang there is no Training Center; classroom space is widely dispersedaround the plants and is barely sufficient to meet present training require-ments. Training aids are primitive and scarce. Overhead projectors areused, but the transparencies are not designed for quick and retentivelearning, but are simply reproductions of complex system diagrams extractedfrom the operational manuals. The plant workshops which are used foron-the-job training, do not have special training equipment such ascutaway machines. In Jakarta the number of staff under training is small,and present facilities are adequate for t1e training of the financial and

ANNEX 4-6Page 8

administrative staff. The basis for the training of the financial staff,especially the accounting staff, is the detailed "Manual of Accountants",prepared for PUSRI by PWA. A two-volume "Manual of Expansion Accounting"is also used for training in accounting for new construction projects.The system is sptisfactory, but additional special trnining aids Prerequired.

17. At present there are no regular full-time Indonesian instructorsin PUSRI. Instruction has been performed by (a) plant production personnel,with the Plant Superintendents responsible for training in the process oftheir own plants, (b) suppliers' and contractors' expatriate personnel, and(c) local educational and training institutions.

hat-onal Fertilizer Production Training Cente

18. In order to estimate the additional physical facilities requiredto meet the increased training needs of PUSRI, a calculation was made forall categories of staff, of the man-months of classroom/workshop timeinvolved. By far the greater portion of training will continue to be doneon the job, but this cannot be quantified separately from an employee'sregular work and no separate facilities are required to conduct it.Table 6 summarizes the estimated classroom and workshop training require-ment, including training to be conducted outside the organization bothlocally and abroad.

TABLE 6 - Estimated Classroom and Outside PUSRI TrainingRequirements. Nitrogenous Fertilizer Ind-ustry1976-78 - All Categories, in Man-MonthsFull-Time Equivalent I/

___________ For PISRI Staff_------------ --For Staff of Other Organizations---

Marketing MarketingProduc- Distribu- Finance Sub- Produc- Distribu- Finance Sub-

Year tion tion /Admin. Total tion tion /Admin. Total Total

1976 1,600 175 125 1,900 100 0 0 100 2,0001977 1,050 125 125 1,300 475 25 25 525 1,8251978 800 200 75 1,075 675 50 50 775 1,850

Total 4,275 1,400 5,675

1/ Informal on-the-job training is not included.

ANNEX 4-6Page 9

19. To meet this demand in the short term (through 1978) and toensure adequate facilities for both the retraining of existing personneland the orientation training of newly-recruited staff in the long term, aNational Fertilizer Production Training Center is proposed. At firstthis will be confined to nitrogenous fertilizer, with phosphate probablyadded later. Its facilities would be located in two Training Centers, oneat Palembang to be used chiefly for the training of Production (operationand maintenance) personnel, and one in Jakarta for the training of allother personnel.

(a) Palembang: The classroom portion of in-house trainingwould be brought together 2in a Training Center locatedon a plot of about 3000 M adjacent to PUSRI III andconvenient to PUSRI II and IV. It would provide 280places and permit 8 simultaneous classes in basicprocess theory, with demonstrations and simulatedpractice. The facilities proposed are as follows

6 classrooms of 40 places each2 simulator rooms of 20 places each4 offices for Training Superintendent, 2 Assistants,

Part-time Instructors, and 1 Clerical Assistant1 room for training aids1 room for reproduction and storage of training

materials and office for reproduction assistant1 small library1 wash room1 common room

2The gross overall construction area of the building would be about 1,200 MNormal furnishings and air-conditioning would be provided. Sporadic courses(such as management training by outside instructors) could be held outsidethe Training Center, in space currently borrowed for training purposes. Noproposal is made at this time-,as to a lwnguage laboratory or a residentialbuilding for visiting trainees.

(b) Jakarta: No construction work will be needed to createa simple Training Center in one of the headquartersbuildings. Additional training aids will be required,however, although most of the training materials arealready available and in use.

Instructors

20. The short-term shortage of Indonesian instructors for the PalembangTraining Center will be solved by entering into a contract with the prestigiousInstitute of Technology, Bandung (ITB), to provide faculty members to teachbasic process control. This solution was discussed in Bpndung with the two

ANNEX 4-6Page 10

professors who would be in charge of the training operation and also withPUSRI representatives. The mission approved in principle the proposaland negotiations will start before June 1976. This would fill the mostimportant single gap in present training methods in PUTSRI: the absenceof training manuals and other materials needed for efficient instruction.A team of eight instructors would prepare appropriate training manualsand later spend two days each per month in Palembang teaching thosesubjects and exposing plant training staff to professional methods. Theapproach ITB proposes is sound and ITB will train at least one PUSRItrainer. As far as the training of accounting staff is concerned, thepresent capability of the four main consultants (Kellogg, PWA, Agrar-und-Hydrotechnik, and Mollers') will be increased by the addition of a PWAtrainer for two years to provide the upgrading training for sub-graduatesin the accounting field mentioned in para 11, whilst, at the same time,training a PUSRI staff member to eventually assume this responsibility.

Present Training Organization

21. The Training Section consists of eight persons, half professionaland half clerical. It is located within a 44-staff Personnel Bureau whichis part of the Organization and Personnel Department. This is the onlyDepartment which reports directly to the President without going througheither of the three Directors (see organization chart). In spite of thisadvantageous location within the administrative structure, the TrainingSection does not take leadership in training matters, as training decisionsare in the hands of line officers and the Training Section handles mainlyLogistical and record-keeping work. At the time of the mission's visit the

Section was in the process of moving to Jakarta.

Proposed Organization for Training

22. In order for the expanded training activities in PUSRI to succeed,it is necessary for the Training Section to be re-organized. A frainingS;uperintendent should be appointed from among the engineering staff,responsible through the General Manager of the plant in Palembang to theT'echnical/Production Director in Jakarta, who will continue to reportdirectly to the President; this would give the Training Superintendentadded status, and enable him to coordinate all training matters withinthe organization.

23. The number, levels, and functions of a strengthened training stafff'or the Training Superintendent should be worked out in detail after thedecision to appoint a Training Superintendent is made. The present staffof the old Training Section could be incorporated into the TrainingSuperintendent's unit, with most members continuing their logistical nndrecord-keeping work, which will necessarily increase es the trainingrequirement grows.

ANNEX 4-6Page 11

Cost Estimates for Training (Table 7)

24. Training on the job cannot be costed unless attributable personnelhave to be added for training purposes. Therefore, while training constitutesa considerable part of the duties of the expatriate consultants (especiallythose involved in the M.W. Kellogg and the PWA contracts), it cannot becosted. Also excluded here is the estimated cost of other training that isincluded in contracts for construction and commissioning of PUSRI III and IVand which will be included in similar contracts for the Kujang and EastKalimantan plants. Within this category is included training at suppliers'facilities, at contractors' head offices, at plants similar to the onesunder construction, and in-plant pre-commissioning training. The estimatesin Table 7 cover direct costs that should be budgeted for by PUSRI. Therewould be an offset from fees which will be charged to other organizationsfor training provided by PUSRI. The direct costs of this added trainingprogram, both non-recurrent and recurrent, are estimated to be US$1.7million equivalent, of which the foreign exchange element of US$880,000should be financed by the Bank. These costs include physical and pricecontingencies and would be spread over three years, with about 42% of theBank-financed portion payable during 1976, 29% during 1977, and 29% during1978.

Summary of Recommendations

25. The general recommendation is that ongoing training should becontinued along present lines but increased in quantity (to prepare foroperation of PUSRI III and IV and for operation of non-PUSRI nitrogenousplants) and in quality (to maximize retention of information and skillsard. minimize time devoted to training). The program envisages the samefacilities being used at PUSRI for both non-PUSRI and PUSRI staff. Tothese ends, specific recommendations are made.

(a) Manpower

26. To help alleviate the shortage of graduate accountants and toidentify other possible recruiting bottlenecks, an outside (Indonesian)consultant should be engaged to survey a few specified categories ofpersonnel in PUSRI, to be determined by the management, with the objectof learning whether PUSRI's compensation package is sufficient forcompetitive recruitment and, if not, to recommend what changes should bemade.

(b) Training Requirements and Programs

27. Numbers to be trained should be about 3,800 over three years; the"other staff" are from other nitrogenous fertilizer companies planned forthe near future.

ANNEX 4-6Page 12

1976 1977 1978

Production 732 475 19Marketing/Distribution 309 232 452Finance/Administration 80 70 65

PUSRI staff 1,121 777 936Other staff 40 366 552

Total: 1,161 1,143 1,488

These would receive on-the-job training for the bulk of their time, but forpurposes of scheduling and of estimating needed facilities and costs, theman-months of classrrom and outside PUSRI training were estimated (Table 6above).

28. Methods to be used are essentially the same as those used now, withthe following important changes :

(a) Production Staff. The classroom portion of the trainingwould be improved substantially by establishment of aNational Fertilizer PAroduction Training Center. Thelarger of two training centers would be constructed atthe plant site in Palembang; the training staff would beaugmented by instructors from the ITB and possiblyelsewhere; training nanuals would be produced; andadvanced training aids would be introduced.

(b) Marketing and Distribution Staff. One new group ofemployees - those in ship management and operation -will require somewhat different methods of training,locally and abroad, which are to be applied by aseparate consultant wtho will bring other consultantsinto a training program that has already been outlinedfor PUSRI.

(c) Finance and other Administrative Staff. One group ofemployees - graduate sccountants - will be in such shortsupply that they will have to be augmented by 15 or 20sub-graduates specially trained to do the work ofgraduates. This calls for the only additional expatriateassistance recommended in this report: one consultantfor two years, using advanced training aids in additionto methods already practised in PUSRI.

29. Facilities should be augmented in three ways:

(a) For the proposed National Fertilizer Production TrainingCenter, constructing and equipping an eight-classroomTraining Center at Palembang and a two-classroom TrainingCenter at Jakarta.

ANNEX 4-6Page 13

(b) For training in general management and specializedmanagement, and for supervisory training, increased useof the LPPM.

tc) For possible use in specified fields, investigation ofthree other local institutions: The National ProductivityCenter in Jakarta, the University of Indonesia's Manage-ment Institute, and the management training facility ofthe Ministry of Manpower.

(c) Organization for Training

30. The present Training Section would be incorporated into a new TrainingBureau headed by a Training Superintendent appointed from among engineerson the Production staff. He would have at least three full-time professionalassistants in addition to the present training staff and would report,through the General Manager of the plant in Palembang, to the Technical/Production Director in Jakarta.

(d) Cost

31. The direct costs of this added training program, both non-recurrentanJ recurrent, are estimated to be about US$1,700,000 equivalent, of whichthe foreign exchange element of about US$880,000 should be financed by theBank. These costs include physical and price contingencies and would bespread over three years, with about 40% of the Bank-financed portion payableduring 1976, 30% during 1977, and 30% during 1978.

Education DepartmentDecember 1975

ATNEX 4-6

Table 7 - Estimated T5aining Cost Page 1iNon-recurrent

In Rp million In US$ thousandItems Local Foreign Total Local Foreign Total

Construction of Training Center, Palembang 71.00 - 71.00 171.10 - 171.10Furni'shings for " " " 7.00 - 7.00 16.90 - 16.90

"1 "1 " " ,Jakarta 1.00 - 1.00 2.40 - 2.40Process simulators (2) - 83.00 83.00 - 200.00 200.00Simulator tapes (5) - 51.90 51.90 - 125.00 125.00Other training aids 8.00 - 8.00 19.30 - 19.30Reproduction equipment 1.00 - 1.00 2.40 - 2.40Compensation study 3.00 - 3.00 7.20 - 7.20

Base cost estimate (BCE) 91.00 134.90 225.90 219.30 325.00 544.30Contingencies: Physical (10% of BCE) 9.10 13.50 22.60 21.90 32.50 54.40

Price (127%) 12.00 17.80 29.80 28.90 42.90 71.80

Total Non-recurrent Cost: 112.10 166.20 278.30 270.10 400.40 670.50

Recurrent; Covering 3 Years 2-

In Rp million In US$ thousandLocal Foreign Total Local Foreign Total

Staff Salaries*Training Superintendent 0.60 - 0.60 1.50 - 1.50Training Officers (2) 0.70 - 0.70 1.70 - 1.70Training Assistant 0.30 - 0.30 0.70 - 0.70Clerk-Typists and Reproducer (3) 0.50 - 0.50 1.20 - 1.20

Fees to InstitutionsITB 105.00 - 105.00 253.00 - 253.00LPPM 18.00 - 18.00 43.40 - 43.40Others 6.00 - 6.00 14.50 - 14.50

Travel and SubsistenceITB 24.00 - 24.00 57.80 - 57.80LPPM 0.60 - 0.60 1.50 - 1.50Others 0.60 - 0.60 1.50 - 1.50

Consultant Fee (PWA) - 41.50 41.50 - 100.0 6 00Training Abroad** - 124.50 124.50 - 300.0c00.O0

Base cost estimate (BCE) 156.30 166.00 322.30 376.80 400.00 776.80Contingencies: Price (40% local, 62.50 33.20 95.70 150.70 80.00 230.70

20% foreign)

Total Recurrent Cost: 218.80 199.20 418.00 527.50 480.00 1007.50

1/ Exrlusive of possible residential building and language laboratory.2/ Di-vided evenly between 1976, 1977, and 1978 calendar years.* Additional to existing traini-.g staff, which would continue in present or other functions.** Additional to amounts for training included in contractors'obligations.

@ Mainly in first 2 years

Education DepartmentDecember 1975

ANNEX 5-1

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

CAPITAL COST ESTIMATE

In US$ million In Rp billionLocal Foreign Total Local Foreign Total

Land o.6 - 0.6 0.3 - 0.3Site Preparation I/ 2.7 4.4 7.1 1.1 1.8 2.9Civil Work 1.0 1.14 2.4 0.4 0.6 1.0

Sub-total 4.3 5.8 10.1 1.8 2.4 4.2

Equipment and SparesAmmonia Plant 0.2 27.0 27.2 0.1 11.2 11.3Urea Plant - 18.9 18.9 - 7.9 7.9Bag-making Plant Expansion 0.2 3.4 3.6 0.1 1.4 1.5Construction Equipment 0.5 2.2 2.7 0.2 0.9 1.1Utilities & Auxiliary Equipment 2/ 1.1 17.7 18.8 0.5 7.4 7.9Miscellaneous Equipment 3 3.0 3.4 6.4 1.2 1.4 2.6Spares - 3e3 3.3 - 1.4 1.4Freight and Insurance - 7.3 7.3 - 30 _ 3*0

Sub-total 5.0 83.2 88.2 2.1 34.6 36.7

Erection 4.8 0.1 4.9 2.0 - 2.0Engineering Services andProject Management _W 1.2 26.3 27.5 0.5 10.9 11.4

Preoperating & Start-up Expenses i 3.9 3.0 6.9 1.6 1.3 2.9Jetty 0.2 1.1 1.3 0.1 0.4 0.5Housing 1.4 0.1 1.5 0.5 0.1 0.6Base Cost Estimate 20.8 I19.6 140.4 8.6 49 -7 58.3Physical Contingengies I6/ 18 8.0 9.8 0.7 3.3 4.0Price Escalation V1 1.6. 5 1 6.7 0.7 2.1 2.8Installed Cost 24.2 132.7 156.9 10.0 55.1 65.1Working Capital 6.5 1.3 7.8. 2*7 0.5 3*2Total Project Cost 30.7 134.0 16h.7, 12.7 55.6 68.3Interest during Construction 10*3 l.l.0 21.3 ±.3 h),& 8.9

TOTAL FINANCING REQUIRED 41.0 145.0 186.0 17.0 60.2 77.2

/ Including US$5.2 million for piling and soils investments.2/ Offsites, including power plant, ammonia storage tank, water supply

and steam generating equipment, etc.

3/ Including US$0. 7 million for training centers (2) , see Annex 4-6.

4/ License, engineering, procurement, vendor servicemen, projectmanagement and consultants, as well as US$1.4 million for bonuspayment to contractors for early completion of the project.

5/ Including US$0.9 million for training expenses.

6/ 7% of the Base Cost Estimate.

7/ See page 2 of this Annex for the basis of calculation.

INDOIESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

PRICE ESCALATION SCHEDULE

E`SCALAfI'ON AMOUNTSI.-'S:;C'AL. AT':l N TFI ON. .FYP: NU.lMBI:R O')F' MONTH;. ML.I TI P.. I R (IN US$ MILL-ION

LOCAL FOREIGN TOI'AL

LAND 1 0 0 0.00 0.00 0,00 0.00 0.00SI'TE PREPARATION 2 1 2 2 1.0 1.01 0.06 0,07 0.13CIVIL WORKS 2 6. 6 6 1.06 :L.,04 0.07 0,07 0,14AMMONIA PLANT 19 9 J 1.10 1 . 0 0.02 1.94 1.96UREA FLANI 2 3 3 1.03 1j02, 0.00 0,44 0.44BAG.ING LANl EXTENS 2 . 0 0 0.00 0.00 0,00 0.00 0,00CONS1RUCTJ:ON EQUIP. 1 2 9 9 1 1 1.0 1.07 0,05 0.16 0.21UTILITIES &AUXIL. 2 1. 9 9 1.10 1.07 0,12 1,30 1.42MISC. EQUIPMENT 2 1. 9 9 1.10 1.07 0.32 0.25 0.57SFARES 2 1 9 9 1L10 1*07 0,00 0,24 0.24I-FREIGHT AND INSURANCE 2 I 9 9 1.10 1.07 0.00 0.53 0.53EREC'rION I :1.4 1.4 1.1.5 1.10 0.79 0.01 0.80ENGCI:NEERI:INGi SERVICES 1 0 0 0.00 0.00 0,00 0.00 0.00P-R-;EO'PERAT'ING EXPLNSEI.1.0S 0 0.00 0.00 0.00 0.00 0.00JE'TTY 2 1. 4 4 1,04 1.03 0,01 0,03 0.04HOUSING 12 I 9 9 1.10 1.07 0715 0,01 0.16

'f'OTAL P:SRICE E.SCALATION O 0 0 0.00 0.00 1.58 S,os 6.62

NUMBER OF: F:'E:RUIl0lS... .... .... .... .... .... .... .... ... .... ...... .... .................

1 2MONTHS; P::ER PER1UD o :12.0(0( 12.0000.. -. . I............. ......... .... .. .... .... I . .... .... ...

YEAR L.. E:SCALATION F'ACTOR BY 'T'YPE:1

1 9.0000 8.000(13.0000 1.2.0000

DI NUiLJS'rR I 'AL. PROJECIS DLEP:A RTME: N'T'0)3 /f 3:1. / 7 6

ANNEX 5-2

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

WORKING CAPITAL RBQUIREMENTS(In Rp million)

Cash (4% of cash production costs) 488

Raw Materials /:- Chemicals (l-year supply) 320- Bags (2-month supply) 355

Spares 330

Work-in-ProcessAmmonia (4,500 tons,5-day output,

Rp 28,900/ton cash production cost) 130

Finished Goods Inventory1-month output of urea(h2,750 tons, Rp 22,573/ton cash production cost) 965

Accounts Receivable1-month sales of urea (Rp 58,930/ton) 2,51-

Sub-total 5,107

Less Accounts Payable (2-month cash production cost) 1,928

Net Working Capital Required 3,179

Industrial Projects DepartmentDecember 1975

ANE 5-2Page 2

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECTWORKING CAPITAL REQUIREMENTS

1 2 3 4 5 6 71977 1978 1979 1980 1981 1982 1983

WITHOUT PUSRI IV

CASH 887 731 771 786 792 797 803RECEIVABLES 3747 3884 4130 4199 4199 4199 4199INVE'NTORY

CHEM./CATAL. 589 551 582 591 591 591 591BAGGING MAT. 528 547 582 591 591 591 591WORK IN PROCESS 230 230 230 230 230 230 230F'INISHED GOODS 1752 1443 1523 1553 1563 1574 1585SPARE PARTS 1428 1428 1428 1428 1428 1428 1428

TOTAL INVE:NTORY 4527 4199 4345 4393 4404 4415 4426

l'CURRENT ASSETS 9161 8814 9246 9378 9394 9410 9427

ACCOUNTS FPAYABLE 3505 2886 3046 3106 3127 3148 3171

WORKING CAFPITAL 5657 5928 6200 6273 6267 6262 6257WORK.CAP.CHANGE - 36992 272 272 73 -5 -5 -6

WITH PUSRI IV

CASH 887 1111 1 210 1266 1280 1289 1299RECEIVABL ES 3747 5721 6350 6684 6718 6718 6718INVENTORY

CHEiM./CATAL. 589 807 891 911 911 911 911BAGGING MAT. 528 806 894 941 946 946 946WORK IN PROCESS 230 360 360 360 360 360 360F'INISHED GOODS 1752 2194 2390 2500 2528 2546 2565SF'ARES 1428 1758 1758 1758 1758 1758 1758

TOTAI. INVENTORY 4527 5924 6293 6471 6503 6521 6540

CURRE"NT ASSETS 9161 12756 13853 14421 14501 14528 14557

ACCOUNTS PAYABL E 3505 4387 4780 5001 5055 5092 5129

WORKING CAFPITAL. 5657 8369 9073 9420 9445 9436 9427WORK . AP.CHANGE -36992 2712 704 346 26 -9 -9

I NCRE.MEN r . WORK I NCAFP I TAl.. REQUl I RE EDDlUE TO PLJSRI IV 0 2441 433 274 31 -4 -4

Industrial Projects DepartmentMarch 1976

ANNEX 5-3

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

A. DISBURSEMENT SCHEDULE FOR BANK LOAN(In '000 US$)

Calendar Year Amount Undisbursedand Quarter Disbursement Outstanding Amount

1976 III 20.2 20.2 49.8IV 18.8 39.0 31.0

1977 I 13.5 52.5 17.5II 7.5 60.0 10.0III 3.9 63.9 6.1IV 1.6 65.5 I. 5

1978 I 0.8 66.3 3.7II 2.2 68.5 1.5III 0.6 69.1 0.9IV 0.5 69.6 0.4

1979 I 0.4 70.0 -0-

ANNEX 5-3Page 2

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

B. TENTATIVE ALLOCATION OF FUNDS(US$ million)

SaudiBank Development GovernmentLoan Fund Loan Equity Total

lo Equipment, Materials & Spares 35.8 50o6 8604

2. Engineering Services, ProjectManagement & OperatingExpenses 2408 --5 - 29o3

3. Incremental Working Capital - - 7.8 7.8

4) Interest during Construction - - 21.3 21a3

5. Financing of Local Cost ofProject _ 7.3 16.9 24.2

6. Unallocated 9.4 7.6 - 17 0

Total 70.0 7O°0 46.o 186,o

Industrial Projects DepartmentApril 1976

ANNEX 6-1

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

ASSUMPTIONS USED FOR PROJECTIONS

1. Commissioning Date

PUSRI IV February 15, 1978

2. Capacity UtilizationPUSRI I!/ PUSRI TI PUSRI III PUSRI IV

1975 Mg 7 Z1976 100 90 -1977 100 90 75(9 months) -

1978 - 90 79 75(10½ months)1979 - 90 87 791980 - 90 90 891981 onwards - 90 90 90

1/ PUSRI I is assumed to be closed after 1977 because of its age.t/ Actual.3. Urea Price

The Government purchases all the production of local urea at afixed price, on a c.i.f. Java basis. The current price (since November1974) is Rp 63,910 (US$154) per ton, of which about Rp 8,000 (US$19.3) perton is the cost of transporting fertilizer to Java. Thus, the ex-factoryprice works out to Rp 55,900 (US$134.7) per ton. The transportation costis projected to decline to Rp 4,970 (US$12) per ton 1977 with the commis-sioning of the Fertilizer Distribution Project. Therefore, the ex-factoryprice would increase to Rp 58,930 (US$142). This price has been used toproject the Company's production revenue from 1977 onwards.

The Government has raised the retail price of urea in September1975 by 33% from Rp 60,000 (US$144.6) to Rp 80,000 (US$193) per ton. Thisapplies to both locally produced and imported fertilizers sold to BIMASfarmers. For non-BIMAS farmers, the urea retail price is higher at Rp 120,000(US$289) per ton.

4. Input Costs

The costs of all inputs except gas are expressed at constant pricesprevailing at the end of 1975 and include real increases in labor and overheadcosts. The gas supply to PUJSRI I is carried out under a fixed price contractand for PUSRI II as well as PUSRI III and PUSRI IV would be supnlied under aformula which links the gas price to the operating costs (including financialcharges) plus 3.5 US cents per MSCF gas to cover PERTAMINA's overhead, thusallowing for a gradual decrease in the gas price as the burden of financialcharges declines with debt repayments. The total cost of the gas gatheringand distribution project to serve PUSRI II as well as PUSRI III and PUSRI IVis estimated at Rp 69.31 billion (US$167 million) and the investment is as-sumed to be spread between 1971 and 1987.

ANNEX 6-1Page 2

Gas Price: Natural gas is supplied to PUSRI I by STANVACat the fixed price of Rp 79 (about 19 US cents)/MSCF. In the caseof PUSRI II, PUSRI III and PUSRI IV, an average gas price of Rp 250(US 60 cents)/MSCF has been assumed.

Gas ger Ton of Urea: It is assumed the old plant, PUSRI I,would require 50 MSCF per ton of urea ccupared to 34.8 MSCF per tonby PUSRI II, PUSRI III, and PUSRI IV.

Catalysts and Chemicals: The proposed PUSRI III and PUSRI IVprojects with their large units of ammonia and urea would require lesscatalysts and chemicals per ton of product than PUSRI II and PUSRI I.It is assumed that PUSRI III and PUSRI IV would require such items worthabout Rp 623 (US$1.5) per ton of urea compared to Rp 1,050 (US$2.5) perton by PUSRI III and Rp 1,370 (US$3.3) per ton by PUSRI I.

Bags: With respect to polypropylene bags, the import pricenearly doubled to US 50 cents per bag during 1974-75 FPUSRI is expectedto start manufacturing such bags from 1977 onwards. The price for eachof these bags is also assumed to be US 50 cents for PUSRI.

Maintenance Materials: The following table shows the maintenancematerials per ton of urea in the PUSRI I, II, III and IV:

PUSRI IL/ PUSRI II PUSRI III PUSRI IVRp US$ Rp US P US$ Rp US$

1976 8,330 20 3,320 8 - - _ _1977 9,288 22 3,320 8 3,320 8 - -

1978 - - 3,320 8 3,320 8 3,320 8onwards

/1 A real increase of 11.5% in maintenance material costs is assumed forPUSRI I.

Labor: The average base salary of PUSRI workers in 1975 wasRp 60,000 (US$144.5) per month. The average gross salary per worker thatyear was Rp 90,000 (US$217). An 11% real increase in gross salary isassumed for 1976 based on PUSRI estimate. For subsequent years, a 3%real increase is assumed. The labor force of PUSRI I is 1,500 comparedto 700 for FUSRI II and the projected figure of 550 for PUSRI III, and850 for PUSRI IV.

ANNEX 6-1Fage 3

Overhead: Overhead costs including insurance of property isassumed to be twice the labor costs.

5. Depreciation

The operating life of the project is assumed to be 12 years anda straightline depreciation over that period is assumed. No depreciationis charged on land and the initial working capital.

6. Taxes

PUSRI is allowed to carry forward losses for five years for taxpurposes. Further, there is a 5-year tax holiday on the profit of newprojects.

7. Marketing Department

Sales Price: Marketing department sells urea as well as triplesuperphosphate (TSP), diammonium phosphate (DAP) and complex (NPK) ferti-lizers. The average price per ton was Rp 61,300 (US$148) until the endof 1975, when the fertilizer prices were increased by the Government. Asa result of the increases, the average selling price of PUSRI has gone upto Rp 83,000 (US$200) per ton. This price has been used for projectionsfrom 1976 onwards.

Cost of Sales: Includes cost of acquiring the products marketedand moving the products to warehouses outside the customs area of main ports("second line warehouses"). In 1975, the average cost of sales per ton wasRp 53,100 (US$128). This is projected to increase to Rp 63,910 (US$154) witheffect from the end of 1975 as a result of the changes in Government sellingprices to distributors like PUSRI.

Regional Marketing Cost: Includes costs of moving products fromthe "second line warehouse" to the point of sale and costs of storing theproduct plus administrative costs of operating PUSRI's regional marketingoffices. It averaged US$11.25/ton in 1975 and the allowance for this hasbeen raised to US$29.4 /ton at the end of 1975.

Corporate Marketing Costs: Cost of operating the Jakarta marketingoffice.

Administrative Costs; About 50% of the administrative costs of theCompany are allocated to the marketing department.

Financial Charges: Interest on long-term debt for fertilizerdistribution projects.

ANNEX 6-1Page h

Ratio Definitions

1. Return on Asset = iŽiet Profit+ InterestAverage Net Fixed Assets (excluding Construction

in Progress) -

Average Net Working Capital Excluding Surplus Cash

2. Return on Equity = NeAverage tiProy fnc iutng tetaanea Tarn1ngsj -

Average Surplus Cash

Industrial Projects DepartmentDecember 1975

A xEX 6-2

INDONESIA:PUSRI I\' FEPTILI7FP EPfTCe N PPOtJFrTPPOLJFCTFn lt!coMF S;TATFtPEI'T-P11SPI IV

1 2 ' l C 7I 9~ 7 29~97IP

CAPACITY UTIL.,C.)

PUSRI IV C ('6, 7 0 9.

PRC'D.(0CC. TONS)

PUSRPI IV 0 3711 452 506 513 513 51?

TOTAL PRODUCTION 0 374 452 506 513 513 523

UREA PRICE(RP/TON) 58930 58930 58930 58930 58930 58930 58930__________________

SALES CRP MILLION).______0__0_0___0_PUSRI I 0 0 0 0 0 0 0PUSRI II 0 0 0 0 0 0 0PUSRI III O 0 0 0 0 0 0PUSRI IV 0 22040 26636 29819 30231 30231 30231

…_____ ------- ------- ------- ------- ------- -------TOTAL SALES 0 22040 26636 29819 30231 30231 3C231

OPERATINC COSTS_ _____________

VARIABLE COSTSGAS 0 3254 3932 41102 l'63 14463 4lh CHEMICALS/CATAL. 0 256 309 320 320 32C ??rBAGGING tMATERIALS 0 1552 1876 210^ 2129 2129 ?P2a

TOTAL VAR. COSTS 0 5062 6117 fQ22 6012 6, l

FIXED COSTSMAHITEMAPICE tPAT. 0 12142 15C) 2'2q 170: 77r3 77rnLABOR C 1Or2 11211 1149 11?? 1229 12 COVERHEAD 0 162 1672 1722 1771L 1r27 18DEPRECIATION 0 (114?, r(!J!P r i2. it1 (llr J!

TOTAL FIXED Cn;TS C 10CC95 ach25 1C9('(q 1 C2r l97 1C^e

TOTAL PROD. COSTS 0 15157 16552 17521 17720 17e0 q 179rC

FINANCIAL CHARCES 0 5C27 6972 6536 5955 5?74 4793…______ ------- ------- -- ----- ------- -- ----- -------

TOTAL COSTS 0 20184 23524 24057 23675 23183 22693…______ ------- ------- ------- ------- ------- -------

PROFIT BEFORE TAX 0 1856 3112 5762 6556 7048 7538_== = = _= == == = == == == = == == = = _== _= == = == = = == == - ------- =

Industrial Projects DepartmentMarch 1976

ANNEX 6-3

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

INPUTS FOR FINANCIAL RATE OF RETURN ANDSENSITIVITY ANALYSIS

(In Rp billion)

Investment Costs Operating Costsl/ BenefitsCi C2 B1

1975 3.30 0 01956 44.33 0 01957 12.23 0 01978 1.L7 9.09 22.041979 0 10.h0 26.641980 0 11.37 29.821981 0 11.57 30.231982 0 11.66 30.231983 0 11.75 30.231984 0 11.84 30.231985 0 11.93 30.231976 0 12.02 30.231987 0 12.11 30.231988 0 12.20 30.231989 (3.18),Z/ 12.29 30.23

1/ Excluding depreciation, financial charges and taxes on profit.

2/ Recovery of working capital.

Case Capital Costs ODerating Costs Benefits Return

Base Case 100 100 100 21.41 110 100 100 19.42 100 110 100 20.03 100 100 110 25.24 120 100 100 17.65 110 110 100 18.06 100 100 90 17.67 100 110 90 16.28 100 120 100 18.59 100 100 80 14.010 80% capacity utilization l8.511 10% increase in capital costs plus

6-month delay in project execution 17.012 Same as (11), operating costs increase 10%

and benefit drops 10%o 12.0

ANNEX 6-3Page 2

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROjECT

SENSITIVITY OF FINANCIAL RATE OF RETURN

40

c owCapital Cost -ef

,> >>>> vs <,<2~~~~enefitwt c ~~~ > 4Return / / Retvs

4, #~~-----e----------Cost21.4-

e~ 0l_ C20~~~~~~~~~~~~~~~~40

a)~~~~~~~~~~~~~~~~~~~~~c4, C

B1

10

-25 ---20 -10 0 +10 +20 +25

Percentage Deviation from Base CaseWorld Bank-1 14

Industrial Projects DepartmentDecember 1975

ANNEX 6-4

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

BREAK-EVEN POINT

1. The profit break-even point of the PUSRI Fertilizer Expansion

Project in 1981 is estimated at 64% of its capacity. The year 1981 is

selected because it is the first year of full (90%) production. The

following table gives details of the break-even analysis:

In Rp millionFixed Variable TotalCost Cost Cost

at 90% capacity.........

Natural Gas @Rp 250/ MSCF 4,463 4,463Chemicals and Catalysts 320 320Bags, @Rp 208 each 2,129 2,129

Maintenance Materials 1,703 - 1,703Labor 888 295 1,183Overhead 1,330 4" 1,77Financial Charges 5,955 - 5,955Depreciation 6JIj8 - 6,1,

16,ioh 7,651 23,675

Revenue (at 90%) 30,231

Revenue (at 100%) 33, 590

Total Cost (at 90%) 231675

Total Cost (at lOC%) 24,525

Total Variable Cost (90%) 7,651

Total Variable Cost (at 100%) 8,501

Profit Break-Even (Capacity %) 6b%

Debt Repayment 4,842

Cash Break-Even (Capacity %) 59%

ANNEX 6-4Page 2

INDONESIAPUSRI IV FERTILIZER EXPANSION PROJECTPROFIT BREAK-EVEN POINT FOR PUSRI IV

YEAR 1981

Rp BILLION; 33.6

30 30.2

... 2

BREAK-EVEN 23.7. ~~~~~~~POINT

21.5 ............................................ '' ;,,-:;. .'

~~ c'1i1j ~~~~~~FIXED COST

s 4i~~~~~~~~~~~~~

-~~~~~~~~~~~~~~~. ': .

20~~s 40 64 80 90 10

CAPACITYBRAK-VE UTIIZAIO ' W~'

2

INDSTIA PRJET DEPAZ|*sF RTMEPNT00B -~

S ~~~~~~~~~~~~~~~~~~~~~ SB

/ ~~~~~~~~~~~~~~~~~~* S

January 1 976

World Bank-15439(2R)

ANNEX 6-5

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECTPROJECTED MNCOME STATEMENT-PU5RI I

1 2 3 4 5 6 71977 1978 1979 1980 1981 1982 1983

1010 CAPACITY UTIL.(%)1020 -----------------1030 PUSRI I 100 0 0 0 0 0 0

1070 PROD.(000 TONS)1o8o --------1090 PUSRI I 100 0 0 0 0 0 0

1130 TOTAL PRODUCTION 100 0 0 0 0 0 0

1152 UREA PRICE(RP/TON) 58930 58930 5P930 58930 58930 58930 5R9301160 ------------------

1180 SALES (RP MILLION)1190 --- …--------------1200 PUSRI I 5893 0 0 0 0 0 01210 PUSRI II 0 0 0 0 0 0 01220 PUSRI III 0 0 0 0 0 0 01222 PUSRI IV 0 0 0 0 0 0 0

1240 TOTAL SALES 5893 0 0 0 0 0 0

1260 OPERATING COSTS1270 ---------------1280 VARIABLE COSTS1290 GAS 311 0 0 0 0 0 01300 CHEMICALS/CATAL. 119 0 0 0 0 0 01310 BAGGING MATERIALS 415 0 0 0 0 0 0

1330 TOTAL VAR. COSTS 845 0 0 0 0 0 0

1350 FIXED COSTS1360 MAINTENANCE MAT. 929 0 0 0 0 0 01370 LABOR 1852 0 0 0 0 0 01390 OVERHEAD 2778 0 0 0 0 0 01400 DEPRECIATION 220 0 0 0 0 0 0

1411 TOTAL FIXED COSTS 5779 0 C 0 0 0 0

1420 TOTAL PROD. COSTS 6624 0 0 0 n 0 n

1450 TOTAL COSTS 6621 0?

1 4 71 PROFIT LBFFOPF TAX -731 c

Industrial Projects DepartmentMarch 1976

ANIEX 6-6

IND0NESlsF:USF'I IV F:EN1!..I Z. EXPfANXffSI30' ,iit:DJEtCrPROJECTEt INCOME Si T T

1 24. 3 4 5 6

1977 1978 1979 1980 1981 1982 ivs3

,.: 1P1:tjYf. 1f UvT. i L. +(

Sj RL I :[ 90 90 90 90 9( 90 90

IFRODI (000 TONS)..... ... ... ... .... .. ._ .. .... . ... .

I:L'SF I II :[342 342 34 2 342 342 342 342

T OIT'AL F. F'IPROLUCT ION 342 342 342 342 34 34 2 :342

UREA F'RICE(RF'/rON) 58930 58930 58930 58930 58930 58930 58930.... .... .... ... ... .... ... ... ..... . .. ... I .... ....

SALES (Rf- MILL-ION)~~~~~~~~~~~~.. ... ..... ...... ....... ....... ..... .................

I'i,USr I 0 0 0 0 0 0 0

,U l!'S~i:x:lI I 20154 20154 20154 20154 20154 2''0154 20154

l:: l ':7 F Ii I 0 0 0 0 0 0 0Fp t.J E; FR 0l 0 0 0 0 0 0

rT7i'.I A IES 20154 20154 20154 .2:0O154 2'054 20154 20154

.)l:: E.:. 'IN(i('OST S~~~~~~~~~.. .... ..... ..... .... .... ...... ..........

A. F:,1 A B L E:' f.:'O S 'S('Gtl', S?2975 2975 2 975 2975 29'?75 2975 2975

li F:M (AL S/CAT'AL 271 271 2,7 27 2..7.1 271 271 -.71.IJ,3:i(.i[N(:i MAfEFRI,ALS.' 1419 1419 1419 1419 1419 1419 1.419

'f'l(I yf, . .l4l66 S ' 4O665 46.65 4665 4665 46 65 4665 4665

i::E Xt:I) CO'.,1 SMAINT'NE NANCE. iPr Tc 1.35 1135 1135 1135 1135 1135 1135

! Eol ) 864 890 917 944 9.2 1002 1032Oi) Ely l H E AI 1296 1335 1375 1416 1459 1.502 1547DIEPR C I AC'IATIC)N 2869 2869 2869 2.869 28369 2869 2869

'T JA L FIXED COS-TS 6164 62'29 6296 6364 6435 6508 6583

TC' i I. I::p:ljLi GC)STS 1.0829 10854 10961 11029 11100 11173 11248

I:-::NviNC'I(L.. CHlAfi'.,1::5 2947 2767 2573 2363 2120 1888 1680

i OT7AL.. COS-,TS, 13776J 13661 135 34 1;392 13 20 13061 12928

Lp:():lFNL DFIl.lFORE. -YPAX 6378 6493 6621 6762 6934 7093 7226

.1..-hst~-°.al Projects DepartnantAarch -, I276

AM= 6-7INDCUIzS PUSIl IV FERTILIZER EXPANSION PR iFCV-

PROdFtTD tINCOME STATEMENT-PUSRI I

1 2 3 4 5 6 71977 1978 1979 1980 1981 1982 983

CAPACITY UTIL,(%)_________________

PUSRI III 56 79 87 90 90 90 90

PROD.(000 TONS)_______________

PUSRI III 321 449 499 513 513 513 513

TOTAL PRODUCTION 321 449 499 513 513 513 511

UREA PRICE(RP/TON) 58930 58930 58930 58930 58930 58930 5P930

SALES (RP MILLION)

PUSRI I 0 0 0 0 0 0 0PUSRI II 0 0 0 0 0 0 0PUSRI III 18917 26460 29406 30231 30231 30231 30231PUSRI IV 0 0 0 0 0 0 0

TOTAL SALES 18917 26460 29406 30231 30231 30231 30231

OPERATING COSTS

VARIABLE COSTSGAS 2793 3906 4341 4463 4463 4463 4463CHEMICALS/CATAL. 199 280 311 320 320 320 320BAGGING MATERIALS 1332 1863 2071 2129 2129 2129 2129

…------ ------- ------- ------- ------- ------- -------TOTAL VAR, COSTS 4324 6049 6723 6912 6912 6912 6912

FIXED COSTSMAINTENANCE MAT. 1066 1491 1657 1703 1703 1703 1703LABOR 510 700 721 743 765 788 812OVERHEAD 765 1050 1082 1115 1148 1183 1218DEPRECIATION 4702 6270 6270 6270 6270 6270 6270

…______ ------- ------- ------- ------- ------- -------TOTAL FIXED COSTS 7043 9511 9730 9 F1 98P7 99414 1000Q

TOTAL PROD. COSTS 11367 15560 16453 16743 16799 16856 16915

FINANCIAL CHARGES 2864 5668 5250 4772 4295 3819 3389…______ ------- ------- ------- ------- ------- -------

TOTAL COSTS 14231 21228 21703 21515 21094 20675 20304…______ ------- ------- ----- -- _ _____ -- -----

PROFIT BEFORE TAX 4686 5232 7703 8716 9137 9556 9927

IndustriaL Projecta DepartmentMarch 1976

INDONESIA: PUSRI IV F RTILZt leSQ RJCCONSOLIDATED INCOM STTEtsga

1 2 3 4 5 6 71977 1978 1979 1980 1981 1982 1983

CAPACITY UTIL.(%)

PUSRI I 100 0 0 0 0 0 0PUSRI II 90 90 90 90 90 90 90PUSRI III 56 79 87 90 90 90 90PUSRI IV 0 66 79 89 90 90 90

PROD.(000 TONS)_______________

PUSRI I 100 0 0 0 0 0 0PUSRI II 342 342 342 342 342 342 342PUSRI III 321 449 499 513 513 513 513PUSRI IV 0 374 452 506 513 513 513

TOTAL PRODUCTION 763 1165 1293 1361 1368 1368 1368

UREA PRICE(RP/TON) 58930 58930 58930 58930 58930 58930 58930

SALES (RP MILLION)

PUSRI I 5893 0 0 0 0 0 0PUSRI II 20154 20154 20154 20154 20154 20154 20154PUSRI III 18917 26460 29406 30231 30231 30231 30231PUSRI IV 0 22040 26636 29819 30231 30231 30231

TOTAL SALES 44964 68653 76196 80204 80616 80616 80616

OPERATING COSTS

VARIABLE COSTSGAS 6079 10135 11248 11840 11901 11901 11901CHEMICALS/CATAL. 589 807 891 911 911 911 911BAGGING MATERIALS 3166 4834 5366 5648 5677 5677 5677

TOTAL VAR. COSTS 9834 15776 17505 18399 18489 18489 18489

FIXED COSTSMAINTENANCE MAT. 3130 3868 4293 4518 4541 4541 4541LABOR 3226 2672 2752 2836 2921 3009 3099OVERHEAD 4839 4008 4129 4253 4381 4512 4648DEPRECIATION 7791 15287 15287 15287 15287 15287 15287

TOTAL FIXED COSTS 18986 25835 26461 26894 27130 27349 27575

TOTAL PROD. COSTS 28820 41611 43966 45293 45619 45838 46064

FINANCIAL CHARGES 5811 13462 14795 13671 12370 11081 9862

TOTAL COSTS 34631 55073 58761 58964 57989 56919 55926

PROFIT BEFORE TAX 10333 13581 17436 21239 22627 23697 24691=====5=5=====5==S========== =======s

Industrial Projects DepartmentMarch 1976

ANNEX 6-9

INDONESIA: PUSRT FFRTILIZER EXPANSION FROJECTPUSRI CONSOL.IDATED PROJECTIONS

1 2 3 4 5 6 71977 1978 1979 1980 1981 :1982 1983

INCOME STATEMENTS

MARKETING DlEF'T.

V01LUME ('000 TONS)

LOCAL UJREA 663 1220 949 1012 1.198 1262 1378IMPORTED UREA 267 0 0 0 0 0 0UREA F`xPORT 0 0 351 356 284 234 120TSP/DAP 272 365 382 410 414 414 414NF'K 79 107 11.4 122 131 140 150

TOTAL. VOL.UME 1281 1692 1796 1900 2027 2050 2062

SAL-ES (RF' MILL.ION)

LOCAL. UREA 55029 10i260 78767 83996 99434 104746 1 .4374IMF:ORTED UREA 22161. 0 0 0 0 0 0TSP/IlAP 22576 30295 31706 34362 34362 34362 34362NPK 6557 8881 9462 1073 10873 L1620 1.2450OTHER 1620 1620 1620 1620 1620 1620 1620

TO'TAL DOM,SAL.ES 107943 142056 121555 130851. 146289 152348 162806

EXPORI 0 0 29133 29548 23572 19422 9960_ _ _, _ _ ,_ _ _ _ _ _, _ _ ._ ._ ,, _ _ ._ ,_ _ _ ._ _, ., .._ _ _ ... ........... .. ..... .

TOTAL. SAL-ES 107943 142056 150688 160399 169861 171770 1.72766

COST OF SAL.ES 83170 102854 116083 122730 130847 1.3231? 133083

OiTHER COSTSREG. MARKETING 15629 19387 21913 23182 24731 250:1.2 25158JCORP. MARKETING 797 :L019 1113 1177 1190 1195 1202ADMINISTRATION 269 277 285 294 303 312 521FINANCIAL CHARGES 781 3272 4880 4433 3981 353.1 3016DEPR.DISTR.I 2073 3050 3050 3050 3050 3050 300ODtEPR.DISTR.II 0 2749 2749 2749 2749 2749 2749

IOTAL. OTHER COSTS 19549 29754 33990 34885 36004 35849 35496

1OTAL COSTS 1302719 132608 150073 157615 166851 1681.66 168579

MARKETING PROFI'T 5224 9448 615 2784 3010 3604 41.87

PRODUUCTION DEFTS.

REVENUEF'USRI I 5893 0 0 0 0 0 0FUSRI II 20154 20154 20154 20154 20154 20154 20154PUSRI III 18917 26460 29406 30231 30231. 30:331 30231FPUSRI IV 0 22040 26636 29819 3023t 30231 30231

TOTAL REVENUE 44964 68653 76196 80204 80616 fJ06:1.6 80616

PRODUCTION COSTPUSRI I 6624 0 0 0 0 0 0F'USRI II 13776 13661 13534 13392 13220 1.3061 .1.2928PUSRI III 14231 21228 21703 21515 2.1.094 20675 20304PUSRI IV 0 20184 23524 24057 23675 23183 22693

TOTAL. PROD,. COSTS 34631 55073 5876L 58964 57989 56919 .55j926

PRODUJCTION PROFITPUSRI I -731 0 0 0 0 0F'USR:t II 6378 6493 6621 6762 6934 7093 7226PUSRI III 4686 5232 7703 8716 91.37 9556 9927PUSRI IV 0 1856 3112 5762 6..6'556 7048 /538

10TAL.. PROD. PROFIT 10333 13581 17436 21239 22627 23697 24691

FROD. I MARKETIING

PROF'IT BEFORE TAX 15557 23029 18051 24023 25637 2730:1. 28878

TAX 2022 4252 277 1253 1354 9114 9603

NET' PROFIT 13535 18777 17724 22771 24283 18187 19275

W24

1 2 4 15 6 1977 1978 1979 1980 1981 1.982? 1983

8ALANCE SHEETS

CAS H 887 1111 1210 .1266 1280 1289 12994Vr.,'r)UNTcrf3 I. 374' 71 6:351) 66A8 4 6 71,8 67:18 6718INVENTORY 4527 5924 629,3 6471 65,'j03 65 21 6540

TOTAL 9:161 12756 1.3853 14421 14~501 14528 14557

UPLS CASH DAL. 49284 73582 109829 140944 171420O 195935; 221,488

FIXEDi ASSETS

GROSS FIXED AssETsPUSRI I ~~~~~ ~~~8205 8205 8205 8205 805 8205 8205

PUS5RI11I 35753 3 5 753 35F,7 53 35753 35'-7'53 35753 57 53P1)531R I II. 75240 79680 79680 79680 79680 79680 79680PUSRI IV 73688 7,6860 76860) 76860 76860 ;76860 76860DI5Th, 1 5 345 2 5,j7 0 63 57063 57063 57J063 57063 5 7 0 63D I18ThR. II 23240 31540 33200 33200 335200 33200 33200

T OTAL 269578 289101 -290761 290761 2907'61, 2907?61 290761

ALL> DEP'RECIATIONPUSRI I '5042 5042 5042 504 2 5J0 42 5 0 42 5;0 4 2PUSRI II 7834 1 07035 13572 16441, 19,310 221/9 25;0 4 8PUSRI III 4702 10972 17242 23512. 2978:: 3 605 2 4 2 3 22P'USRI IV 0 6148 12.296 18444 2 45~-;92'.30740 3 6 8 88DISTR. 1 2073 -5123 8173 11223 1 4 2.73 1 732""3 2.0373D IS IR . II 0 2749 5498 8247 1.0996 1.3 745.. 1.6494

TOTAL 19651 410737 61823 82.909 103995 125081. 14616-/

NET FIXED ASSETS 249927 248364 228938 207852 186766 165680 :144594

OTHER ASSETS 1706 1,706 1706 1706 1706 1706 [/06

TOTAL. ASSETS 310078 341408 354326 364923 37444:1 32785,0 38:2345

CURL> LIABILITIES

ACCOUNTS PAYABLE 3 5 05 4387 4/80 5001 50~5 5 5092 512 9CURR.DEBT II 2.237 2237 2-237 2.237 223?2 2237 2237CURR.DEDr iii 0 p-989 3977 3977 3977 3977 3977CU.RR,DEDT IV 0 0 2420 4842 4842 4842 484201STFh, I 0 1189 2378 2378 2378 2 3 78 27D15T-R, 11 0 0 1383 1383 1383 1383 1383

TO TAL 5742 9802 17175 19818 19072 19909 19946

L-ONG 'TERM DEBTT

PUISRI II 22071 19834 17597 15360 1.3123 10886 8649PLISRI III 47725 45736 41759 37782 33805 2?9828 25851FPUSRI TV 51062 57934 55680 50830 45J9 96e 411.54 3631.2DISTR, I :28531 27342 24964 22,586 2.0 2.08 17830 15452DiISTR, II 13280 16600 152 17 13834 1 245 1 1.1068 9685

TOTAL 162669 167446 155217 140400 1 2 5583 110,766 95"'i9 49

EOUITY

SHARE CAPITAL 1.09477 113192. 113192 113192 113192? 113192 113192?RETAINEDi EARNINGS 3.2191 50968 6874:: 9151 3 115 7 95 3 13,39 83 153257

T'OTAL t 141668 164160 181934 2.04705 22.89087 214 71 75 2.66449

TO'TAL. LIABILI TIE'S 310079 341408 3543.2.6 36492.3374443 372850 3 82 345.-

ANNEX .s

1 2. 3 4 5 6 71977 1978 1979 :1.980 :1.981 :1.982 1983

F'UND FLOW

SOURCES OF FUNDS

INCOME BIAT 20127 35511 37449 40875 40634 32799 32153DEPRECIATION 9864 21086 21086 21086 21086 21086 21086

OPER. CASH FLOW 29991 56597 58535 61961 61720 53885 '53239

SHARE ' CAFPITAL 6320 3715 0 0 0 0 0DEBT FUSRI II 0 0 0 0 0 0 0DEBT PUISRI III 10375 0 0 0 0 0 0DEBI' PUSRI IV 20377 6872 166 0 0 0 0r'EDT DISTR. I 6872 0 0 00 0 0DEBT DISTR. II 13280 3320 0 0 0 0 0

1T1'AL SOURCES 87215 70504 58701 61961. 61. 720 53885 53239

AF1:L..I CAT ION

F-A FU JSR I I 0 0 0 0 0 0 FA PLISRI II 0 0 0 0 0 0F:A FLJSRI III 6763 4440 00 0 0 0F'A FUSRI TV 34886 3172 0 0 0 0 0F-A DISTR. I 5471 3611 0 0 0 0 0FA DTSTR. II 19525 8300 1.660 0 0 0 0

.,,.,,_____.__ ..._._........... .... ,..... .... _ ..... .... ,_. ,_..... . .. .... .._.

T'OTAL. F'IXED ASSE'S'S 66645 19523 1.660 0 0 0 0

WORKING CAFPITAL -36992 2712 704 346 26 -9 9OTHE:R ASSETS 0 0 0 0 O 0 0

:NTE'REST PUSRI II 2947 2767 2573 2363 2120 :1.888 :1.680INTEREST PU'SRI III 2864 5668 5250 4772 4295 38:19 3389INTEREST FPUSRI IV 0 5027 6972 6536 5955 5374 4793INI'ERESI' MARKETING 781 3272 4880 4433 398:L 3531 3016

_. _ -- - - - - -- - ........... ....... ...... _... ..... .. .... ...._ ...... .. ...... ........

TOTAt.. INTEREST 6592 :16734 1.9675 18104 1.6351 14612 12878

DEBDT REPAYMT. II 1686 2237 2237 2237 2237 2237 2237DEBI' REPAYMT. III 0 0 1.989 3977 3977 3977 3977DEBT REPAYMT. PUSR 0 0 0 2420 4842 4842 4842REFAYMT. DISTR.1 0 0 1189 2378 2378 2378 2378REFAYMT. DISTR.II 0 0 0 1383 1383 :1.383 1383

TOTAL. REPAYMENTS 1686 2237 5415 12395 314817 .14817 1481J7

TOTAL DEBT SERVICE 827E8 18971 25090 30499 31168 29429 27695

TOTAL AFPPLICAI'ION 37931. 41206 27454 30845 31194 29420 27686

YRLY CASH BALANCE 49284 29298 31247 31115 30526 24465 25553

SURPL-US CASH BAL. 49284 78582 109828 140944 171470 :1.95935 221488

R A T I: 0 5

DE'B'T SERICE COYV 3.62 2.98 2.33 2.03 :1.98 1.83 1.92CURRE:NT' RATIO 1.3. 60 1.30 0.81. 0.73 0.73 0.73 0.73DEBT/EQLUITY RATIO 0.53 0.50 0.46 0.41. 0.35 0.31 0.26RETURN ON ASSETS 17 17 1.5 :1.8 19 17 1.9RE'TU1RN ON EQU:ITY 13 18 17 22 23 1.6 17

Industrial Projects DepartmentMarch 1976

ANNEX 7-1

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

ASSUMPTIONS FOR ECCNOMIC AND FRNUNCIAL

RATES OF RETURN

Production Build-Up

1. The ammonia/urea units as well as the bag-making plant ofPUSRI I V are expected to go into production on February 15, 1978.About 80% of PUSRI IV production would be transported in bulk andthe rest in bags. The capacity of the PUSRI III bag-making plantwould be expanded by 15 million bags to 35 million bags to meetPUSRI IV needs as well.

2. With technical assistance from experienced foreign firms,PUSRI IV fertilizer facilities are expected to achieve high capacityutilization as follows: first year, 75%; second year, 80%; and fromthird year onwards, 90%. The following table shows the productionbuild-up in the PUSRI TV facilities:

Production Build-Up

1978 1979 1980 1981 onwards(1~t)- - __ __10~ months)

Urea ('000 tons) 374 452 506 513

Uther Assumptions

3. The following table shows the other assumptions for the rateof return calculations in real terms at 1975 prices :

Financial Rate Economic Ratel-/Rp US$ Rp 2 US$

Urea Price 58,930 1L2 73.°7° C 178Bag Price 208 0.5 208 0.5Natural Gas (per MSCF) 250 0.6 250 0.6Chemicals & Catalysts (pwer ton of urea) 62L 1.5 581 1.LMaintenance iMaterials (per ton or urea) 3,320 8.0 3,114 7.5Labor (0000/man-year) 1,392 3235 1,392 31 3.35Project Cost NIillion) v 77,190 186 77,190 186Construction Period (years) 3 3Production Period (years) 12 12Scrap Value ~4ilion) 3,179 7.8 3,179 7.8

1/ Comparable international prices.2/ Ex-factory, Palembang

No shadow prices used as labor costs are a small percentage (10%)of production costs excluding financial charges and depreciation.

4/ See Page 2 of this Annex for the basis of calculation.5/ The capital costs are assumed to be the same for financial and economic

rate of return calculation because there are no duties and taxes onequipment, and the Rupiah is a freely convertible currency.

ANNEX 7-1Page 2

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

CALCUIATION OF CAPITAL COSTS AT CONSTANT

1975 PRICES FOR INTERNAL RATE OF RETURN

1975 1976 1977 1978 TOTAL

A. General Inflation Rate:

1. International 1l.0 9.0 8.o 8.02. Domestic 14.0 13.0 12.0 12.0

B. Deflation Factor to 1975Prices 1/

1. International 1.00 1.09 1.177 1.2712. Domestic 1.00 1.13 1.266 1.4J17

C. Disbursenaent at CurrentPrices l/ (Rp million)

1. Foreign Exchange 1,120 41,305 11,720 1,673 55,8182. Local Currency:

(a) Duties(b) Others 2,180 7,269 2,871 212 12,532

Sub-total 3,300 48,574 14,591 1,885 68?350

D. Disbursement in Constant1975 Rupiahs (Million)

1. Foreign Exchange 1,120 37,895 9,958 1,316 50,2892. Local Currency:

(a) Duties(b) Others 2,180 6,433 2,268 150 11,031

Sub-total 3,300 44,328 12,226 1,466 61,320

V DExcludes interest during construction.

Industrial ProJects DepartmentDecember 1975

ANNEX 7-2

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

INPUTS FOR ECONOMIC RATE OF RETURN ANDSENSITIVITY ANALYSIS

(In Rp billion)

Investment Cost Operating Costsl/ BenefitsC1 C2 B1

1975 3.30 0 01976 44.33 0 01977 12.23 0 01978 1.47 8.89 27.631979 0 10.25 31.501980 0 11.23 36.051981 0 11.43 36.611982 0 11.51 37.071983 0 11.61 37-901984 0 11.70 37.901985 0 11.80 37-901986 0 11.90 37.901987 0 12.00 37.901988 0 12.11 37.901989 (3.18)1/ 12.22 37.90

_/ Excluding depreciation, financial charges and taxes.2/ Recovery of working capital.

Case Capital Costs Operating Costs Benefits Return

Base Case 100 100 100 28.61 110 100 100 26.32 100 110 100 27.63 100 100 110 32.04 120 100 100 24.45 110 110 100 25.46 100 100 90 25.07 100 110 90 23.98 100 120 100 26.59 100 100 80 21.410 8C% capacity utilization 26.911 10% increase in capital cost plus

6-month delay in project execution 23.412 Same as (11), operating costs increase 10%

and benefits drop 10%. 18.7

ANNEX 7-2Page 2

INDONESIA: PUSRI IV FERTILIZER EXPANSION PROJECT

SENSITIVITY OF ECONOMIC RATE OF RETURN

40 4'0

apita1 Cost ]C2 ~~~eurn v Benefit

E28.6- -erating Cost

4, .

H~~~~~~~~~~~~~~~~~~~~~~~~~

10 I I-25 -20 -10 0 +10 +20 +25

Percentage Deviation from Base CaseWorld Bank-15465

Industrial Projects DepartmentDecember 1975

INDONESIA: PUJSRI IV FERTI1LIZER EXPANSION PROJECTFOREIGN EXCHANGE EFFECT

(In Rp million)

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 198934 1990 1991I. Foreign Exchange (FE) Effect withthe Project at Current Prices

A. Inflow1. Saudi Loan - 14,500 9,379 5,171 - - - - - - - - - - - - -2. Bank Loan - 16,185 10.998 1.701 166

Sub-total - 30,685 20,377 6,872 166 - - - - - - - - -B. Outflow1. Capital Expenditure

- Fixed Assets 1,120 41,305 11,720 926 -- Change in Working Capital - - - 540 -- Interest During Construction- - 757 2,985 844 - _ _ _ _ _ _ _ _ _ _ _ _Sub-total 1,120 42,062 124,9705 2,310 -

2. Operating Expenses 2/- Matprials, Supplies & Spares- - - - 2,888 3,278 3,890 4,200 4,536 4,899 5,291 5,714 6,171 6,665 7,198 7,774 8,396 9,067

3. Debt Service1

/- Debt Repayment - - - - 2,420 4,842 4,842 4,842 4,842 4,842 4,842 4,842 4,842 4,842 4,842 4,842 4,842- Interest - - - 28711 37554 322 2 7 94 2 7646 2,345 2.042 1,739 1.438 1.135 832 529 150 76Sub-total - - - 2,711 5,974 8,09 7,791I 7,488 7,187 6,884 6,581 6,280 5,977 5,674 5,371 4,992 4,918

C. FE Surplus (Deficit) at Current Prices (1,120)(11,377) 5,672 (1,037) (9,086)(11,984)(11,991)(12,024)(12,e86)(12,175)(12,295) (12,451)(12,642)(12,872)(13,145)(13,388)(13,985)

II. FE Surplus (Deficit) at 1975 Constant Prices (1,120)(10,438) .,819 (816) (6,622)((8,163) (7,633) (7,157) (6,722) (6,328) (5,971) (5,652) (5,364) (5,104) (4,870) (4,636) (4,526)

III. FE Cost without the Proiect:FE Cost of Fertilizer Imports (bagged)- - - - 27,627 33,389 37,378 37,378 37,895 37,895 37,895 37,895 37,895 37,895 37,895 37,895

IV. Incremental FE Surplus (Deficit)due to the Project (III + II) (1,120)(10,438) 4,819 26,811 26,767 29,215 29,745 30,738 31,173 31,567 31,924 32,243 32,531 32,791 33,025 (4,636) (4,526)

1/ On the total US$140 million which the Government would borrow for the project -- US$70 million from the Bank at 8.5% annual interest and the balance at 4% annual interest from theSaudi Fund for Development.2/ For both fertilizer and bag-making plants.3/ At constant 1975 prices expressed in real terms. Based on the same assumptions as used for the economic rate of return calculation.4/ Last year of the assumed operating life of the project.

Industrial Projects DepartmentJanuary 1976

~\TH, 6I ~ 00 1 _ ,BRD 12069

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