CONFORMED COPY

CREDIT NUMBER 919 IND

Development Credit Agreement(Transmigration II Project)

between

REPUBLIC OF INDONESIA

and

INTERNATIONAL DEVELOYMENT ASSOCIATION

Dated June 1, 1979

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CREDIT NUMBER 919 IND

DEVELOPMENT CREDIT AGREEMENT

AGREEMENT, dated June 1, 1979, between REPUBLIC OF INDONESIA(hereinafter called the Borrower) and INTERNATIONAL DEVELOPMENTASSOCIATION (hereinafter called the Association).

WHEREAS (A) th'e Borrower has requested the Associationto assist in the financing of the Project described in Schedule2 to this Agreement by extending the Credit as hereinafter pro-vided;

(B) the Borrower has also requested the Bank to provideadditional assistance towards the financing of the Project andby an agreement of even date herewith between the Borrower andthe Bank (hereinafter called the Loan Agreement) the Bank hasagreed to provide such assistance in an aggregate principalamount equivalent to ninety million dollars ($90,000,000) (herein-after called the Loan);

(C) the Borrower and the Association intend, to the extentpracticable, that the proceeds of the Credit provided for inthis Agreement be disbursed on account of expenditures on theProject before disbursements of the proceeds of the Loan providedfor in the Loan Agreement are made;

(D) the Borrower has also requested the Association asAdministrator of the Special Action Account established withfunds contributed by the Member States of the European EconomicCommunity (hereinafter called the Administrator) to provideadditional assistance towards the financing of certain parts ofthe Project and by agreement of even date herewith between theBorrower and the Administrator (hereinafter called the SpecialAction Credit Agreement) the Administrator has agreed to providesuch assistance (hereinafter called the Special Action Credit);and

WHEREAS the Association has agreed, on the basis inter aliaof the foregoing, to extend the Credit to the Borrower upon theterms and conditions hereinafter set forth;

NOW THEREFORE the parties hereto hereby agree as follows:

ARTICLE I

General Conditions; Definitions

Section 1.01. The parties to this Agreement accept all theprovisions of the General Conditions Applicable to DevelopmentCredit Agreements of the Association, dated March 15, 1974, withthe same force and effect as if they were fully set forth herein(said General Conditions Applicable to Development Credit Agree-ments of the Association being hereinafter called the GeneralConditions).

Section 1.02. Wherever used in this Agreement, unless thecontext otherwise requires, the several terms defined in theGeneral Conditions ad in the Preamble to this Agreement havethe respective meanings therein set forth and the followingadditional terms have the following meanings:

(a) "Alai Hilir Settlement Area" means an area of about112,000 ha bordering on the northeastern bank of the Batang HariRiver in the Borrower's Province of Jambi;

(b) "Basic Agrarian Law" means Law No. 5/1960 of theBorrower (Undang-Undang Pokok Agraria), as the same may be amendedfrom time to time;

(c) "DGA" means the Directorate General of Agrarian Affairswithin the Borrower's Ministry of Home Affairs;

(d) "DGC" means the Directorate General of Cooperativeswithin the Borrower's Ministry of Trade and Cooperatives;

(e) "DGFCA" means the Directorate General of Food CropsAgriculture of the Borrower's Ministry of Agriculture;

(f) "DGH" means the Directorate General of Highways withinthe Borrower's Ministry of Pubiic Works;

(g) "DGLS" means the Directorate General of LivestockServices of the Borrower's Ministry of Agriculture;

(h) "DGT" means the Directorate General of Transmigrationwithin the Borrower's Ministry of Manpower and Transmigration;

(i) "Existing Settlement Area" means the Singkut SettlementArea;

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(j) "Governing Regulation" means the Presidential Decree No.

26/1978;

(k) "Hak Milik" means the right of ownership in respect of

land, as provided under the Basic Agrarian Law;

(1) "Hak Pakai" means the right of use in respect of land

as provided under the Basic Agrarian Law;

(m) "Hitam Ulu Settlement Area" means an area of about

82,000 ha bordering on the northeastern side of the Trans-Sumatra

Highway near the towns of Bangko and Pamenang in the Borrower's

Province of Jambi;

(n) "Kuamang Kuning Settlement Area" means an area of

about 130,000 ha bordering on the Trans-Sumatra Highway and

the Batang Tcbo River and located south of Muara Tebo in the

Borrower's Province of Jambi;

(o) "Kubang Ujo Settlement Area" means an area of about

40,500 ha bordering on the Trans-Sumatra Highway and the Batang

Tembesi river north of Sarolangun in the Borrower's Province

of Jambi;

(p) "Loan Agreement" means the agreement of even date

herewith between the Borrower and the Bank for the purpose of the

Project, as such agreement may be amended from. time to time; and

such term includes the General Conditions Applicable to Loan and

Guarantee Agreements of the Bank, dated March 15, 1974, as made

applicable to such agreement, all agreements supplemental to the

Loan Agreement and all schedules to the Loan Agreement;

(q) "New Settlement Areas" means Alai Hilir Settlement Area,

Hitam Ulu Settlement Area, Kuamang Kuning Settlement Area and

Kubang Ujo Settlement Area collectively;

(r) "Participating Farmer" means a farmer and his family

resettled in the New Settlement Areas or previously settled in the

Existing Settlement Area under the Transmigration Piigram, as the

context may require;

(s) "REC" means a Rural Extension Center, Balai Penyuluhan

Pertanian, of the Borrower, established and operating in accor-

dance with Joint Decree of the Borrower's Minister of Agriculture

and Minister of Home Affairs, Nos. 233/Kpts/Hm/4/1976 and 76/1976,

respectively;

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(t) "Rupiah" and "Rp" mean the currency of the Borrower;

(u) "Settlement Areas" means the Existing Settlement Areaand the New Settlement Areas collectively;

(v) "Singkut Settlement Area" means an area of about48,000 ha located across the Trans-Sumatra Highway between thetown of Sarolangun and the Jambi-South Sumatra provincial borderin the Borrower's Province of Jambi; and

(w) "Transmigration Program" means the Borrower's ongoingprogram for resettling families from the islands of Java, Bali andLombok to, mainly, the islands of Sumatra, Kalimantan, Sulawesiand Irian Jaya.

ARTICLE II

The Credit

Section 2.01. The Association agrees to lend to the Borrower,on the terms and conditions in the Development Credit Agreementset forth or referred to, an amount in various currencies equiv-alent to sixty-seven million dollars ($67,000,000).

Section 2.02. The amount of the Credit may be withdrawn fromthe Credit Account in accordance with the provisions of Schedule1 to this Agreement, as such Schedule may be amended from time totime by agreement between the Borrower and the Association, forexpenditures made (or, if the Association shall so agree, to bemade) in respect of the reasonable cost of goods and servicesrequired for the Project and to be financed out of the proceedsof the Credit.

Section 2.03. Except as the Association shall otherwiseagree, procurement of the goods and civil works required for theProject and to be financed out of the proceeds of the Credit,shall be governed by the provisions of Schedule 3 to this Agree-ment.

Section 2.04. The Closing Date shall be December 31, 1985,or such later date as the Association shall establish. TheAssociation shall promptly notify the Borrower of such laterdate.

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Section 2.05. The Borrower shall pay to the Associationa service charge at the rate of three-fourths of one per cent(3/4 of 1%) per annum on the principal amount of the Creditwithdrawn and outstanding from time to time.

Section 2.06. Service charges shall be payable semiannuallyon June 1 and December 1 in each year.

Section 2.07. The Borrower shall repay the principal amountof the Credit in semiannual installments payable on each June 1and December 1 commencing December 1, 1989, and ending June 1,2029, each installment to and including the installment payable onJune 1, 1999, to be one-half of one per cent (1/2 of 1%) of suchprincipal amount, and each installment thereafter to be one andone-half per cent (1-1/2%) of such principal amount.

Section 2.08. The currency of the United States of Americais hereby specified for the purposes of Section 4.02 of theGeneral Conditions.

ARTICLE III

Execution of the Project

Section 3.01. The Borrower shall carry out, or cause to becarried out, the Project with due diligence and efficiency andin conformity with appropriate administrative, agricultural,economic, engineering, environmental and financial practices, andshall provide, promptly as needed, the funds, facilities, servicesand other resources required for the purpose.

Section 3.02. The Borrower shall employ, as set forth below,consultants/specialists whose qualifications, experience and termsand conditions of employment shall be satisfactory to the Associa-tion:

(a) by August 31, 1979, to assist DGH in, inter alia,reviewing construction plans, planning and supervising the imple-mentation of soil erosion works, implementing training programs,supervising land clearing and road construction, and preparingdesigns of future settlement sites;

(b) by October 31, 1979, to assist DGT in, inter alia,advising on systems of transportation and supervising the con-struction of community facilities, public buildings, cooperativeinfrastructure, settler housing and water supply systems;

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(c) by December 31, 1979, to assist JMT in, inter alia,setting up and operating the Ofi-ices of Project Coordinator andRegional Project Coordinator, establishing and implementingprocedures for monitoring and evaluating preparation and implemen-tation of the Transmigration Program including the Project.

(d) by December 31, 1979, to assist DGFCA, DGLS and DGC in,inter alia, implementing training programs for agronomists,managers of village cooperatives and agricultural and livestockextension workers, assessing future staffing requirements, plan-ning and implementing each agency's program, undertaking resourcesurveys for planning future settlements under the Transmigration -Program, and assisting in supervising the construction of facili-ties needed for the agricultural supporting services.

Section 3.03. (a) The Borrower undertakes to insure, or makeadequate provision for the insurance of, the imported goods tobe financed out of the proceeds of the Credit against hazardsincident to the acquisition, transportation and delivery thereofto the place of use or installation, and for such insurance anyindemnity shall be payable in a currency freely usable by theBorrower to replace or repair such goods.

(b) Except as the Association shall otherwise agree, theBorrower shall cause all goods and services financed out of theproceeds of the Credit to be used exclusively for the Project.

Section 3.04. (a) The Borrower shall furnish to the Associa-tion, promptly upon their preparation, the plans, specifications,reports, contract documents and construction and procurementschedules for the Project, and any material modifications thereofor additions thereto, in such detail as the Association shallreasonably request.

(b) The Borrower: (i) shall maintain records and proceduresadequate to record and monitor the progress of the Project(including its cost and the benefits to be derived from it), toidentify the goods and services financed out of the proceeds ofthe Credit, and to disclose their use in the Project; (ii) shallenable the Association's accredited representatives to visit thefacilities and construction sites included in the Project and toexamine the goods financed out of the proceeds of the Credit andany relevant records and documents; and (iii) shall furnish to theAssuciation at regular intervals all such information as theAssociation shall reasonably request concerning the Project, its

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cost and, where appropriate, the benefits to be derived from it,the expenditure of the proceeds of the Credit and the goods andservices financed out of such proceeds.

(c) Promptly after completion of the Project, but in anyevent not later than six months after the Closing Date or suchlater date as may be agreed for this purpose between the Borrowerand the Association, the Borrower shall prepare and furnish to theAssociation a report, of such scope and in such detail as theAssociation shall reasonably request, on the execution and initialoperation of the Project, its cost and the benefits derived and tobe derived from it, the performance by the Borrower and theAssociation of their respective obligations under this Agreementand the accomplishment of the purposes of the Credit.

Section 3.05. The Borrower shall take or cause to be takenall such action as shall be necessary to acquire as and whenneeded all such land and rights in respect of land as shall berequired for carrying out the Project and shall furnish to theAssociation, promptly after such acquisition, evidence satisfac-tory to the Association that such land and rights in respect ofland are available for purposes related to the Project.

Section 3.06. The Borrower shall ensure that the hospitalsand health centers referred to in Part A.4 (b) of the Project arebuilt and staffed and that the sub-health centers are adequatelyoperational before the Participating Farmers arrive in the NewSettlement Areas,

Section 3.07. (a) The Borrower shall ensure that Partici-pating Farmers in the New Settlement Areas are supplied withthe agricultural inputs referred to in Part A.11 of theProject.

(b) In the event of crop failure or other circumstancesbeyond the control of the Participating Farmers during the firstyear of settlement, the Borrower shall distribute rice and otheressential commodities, referred to in Part A.12 of the Project,for the second year of settlement.

Section 3.08. Except as the Association may otherwise agree,prior to the arrival of the Participating Farmers in the Settle-ment Area, the Borrower shall ensure that an REC for that Area hasbeen established, equipped and adequately staffed.

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Section 3.09. The Borrower shall before June 30, 1982,improve the following roads to a standard to permit the effectiveand timely implementation of the Project:

(a) the road running south from Muara Bungo through Bangkoto Sarolangun and the Singkut Settlement Area;

(b) the road running southeast from Muara Bungo to the portof Jambi; and

(c) the connecting road from Sarolangun to the MuaraBungo-Jambi road.

Section 3.10. The Borrower shall cause each agency partici-pating in the Project to submit to the Association by June 30,1980, for review and comment a detailed plan of operation indi-cating how it will handle its responsibilities and duties underthe Project.

Section 3.11. In order to ensure an orderly and timelydevelopment of food and tree crops, the Borrower shall:

(a) minimize the division of the 2 ha per family providedfor the house lot and food cropping areas;

(b) submit to the Association for review and comment byDecember 31, 1980, a plan for developing 2.25 ha per family,which plan shall discuss, inter alia, provisions for food crops,tree crops, agricultural and other development, the impact onthe environment, prospects for timber sales and utilizationof settlers' labor in land clearing; and

(c) thereafter carry out the plan in accordance with itsterms.

Section 3.12. (a) The Borrower shall, not later than June 30,1979, appoint the following qualified and experienced staffafter affording the Association an opportunity to comment on thequalifications and experience of the Project Coordinator:

(i) a Project Coordinator in Jakarta to coordinatethe activities of the Borrower's agencies involvedwith the Project, that is, inter alia, DGH, DGT,DGFCA, DGLS and DGC;

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(ii) a Regional Project Coordinator at the field projectheadquarters to coordinate the activities of theregional implementing agencies; and

(iii) for each of DGH, DGT, DGFCA, DGLS and DGC a SiteManager at each Settlement Area to be responsiblefor the day-to-day operations at such SettlementArea; and

(b) The Borrower shall, not later than June 30, 1979, desig-nate for each of DGH, DGT, DGFCA, DGLS and DGC a Liaison Officerin Jakarta and at field project headquarters.

Section 3.13. In order to ensure sound management of cooper-atives in the Settlement Areas, the Borrower shall appoint, orshall cause to be appointed, for each village a qualified personto assist the cooperatives in their development and operationsfor a period of up to four years.

Section 3.14. The Borrower undertakes that all agenciesinvolved with Project implementation including, inter alia, DGH,DGT, DGFCA, DGLS and DGC shall be adequately staffed to carry outtheir responsibilities under the Project.

Section 3.15. The Borrower shall ensure that each settler ina New Settlement Area receives a certificate evidencing: (a) HakPakai (i) to his house lot (0.25 ha) and 1.75 ha of other landwithin one year after such settler has.arrived, and (ii) tothe remaining 1.50 ha of land within two years after such settlerhas arrived; and (b) Hak Milik to all land within 5 years afterarrival on site.

Sect.on 3.16. (a) The Borrower shall cause the Monitoringand Evaluation Unit referred to in Part B.1 of the Project tocarry out, as required, studies relating to monitoring and evalu-ation, in consultation with the Association.

(b) The Borrower shall submit by September 30, 1979, to theAssociation for review and approval, the terms of reference forthe studies referred to in Part B.4 of the Project.

(c) The Borrower shall submit by December 31, 1979, to theAssociation for review and approval, the terms of reference forthe studies referred to in Part B.5 of the Project.

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(d) The Borrower shall submit to the Association for reviewand approval all work programs, to be financed out of the proceedsof the Credit or Loan, prepared to carry out the work referred toin Part B.3 of the Project.

Section 3.17. The Borrower shall permit Participating Farmersand land clearing contractors to market timber from the areasdesignated for clearing within the Settlement Areas regardlessof the diameter of the timber, but otherwise in accordance withapplicable regulations of the Borrower.

ARTICLE IV

Other Covenants

Section 4.01. (a) The Borrower shall maintain or cause tobe maintained records adequate to reflect in accordance withconsistently maintained appropriate accounting practices theoperations, resources and expenditures, in respect of the Project,of the departments or agencies of the Borrower responsible forcarrying out the Project or any part thereof, including, withoutlimitation to the foregoing, separate accounts reflecting allexpenditures described in Category (3) of the table in paragraph 1of Schedule 1 to this Agreement on account of which withdrawalsare requested from the Credit Account on the basis of certificatesof expenditure.

(b) Without limitation on subsection (a) above, the Borrowershall (i) cause each project implementing agency that is, DGH,DGT, DGFCA, DGLS and DGC, to maintain separate accounts in respectof the Project and to audit such accounts within such agency asappropriate; (ii) cause such accounts to be collected and sentannually to the Project Coordinator referred to in Section 3.12(a); (iii) cause such accounts to be audited for each fiscalyear, in accordance with appropriate auditing principles consis-tently applied, by independent auditors acceptable to the Associa-tion; and to be furnished to the Association as soon as available,but in any case not later than six months after the end of eachsuch year, (A) certified copies of the accounts for such year asso audited and (B) the report of such audit by said auditors, ofsuch scope and in such detail as the Association shall havereasonably requested including, without limitation to the fore-going, a separate opinion by said auditors in respect of theexpenditures and records referred to in Section 4.01 (c) of thisAgreement as to whether he proceeds of the Credit withdrawn from

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the Credit Account on the basis of certificates of expenditurehave been used for the purpose for which they were provided; and(iv) to cause to be furnished the Association such other infor-mation concerning the accounts and the audit thereof as theAssociation shall from time to time reasonably request.

(c) The Borrower shall retain, until one year after theClosing Date, all records (orders, invoices, bills, receipts andother documents) evidencing the expenditures on account of whichwithdrawals are requested from the Credit Account on the basis ofcertificates of expenditure and shall enable the Association'saccredited representatives to examine such records.

Section 4.02. The Borrower undertakes that the roadsconstructed or improved under the Project shall be adequatelymaintained and that all necessary repairs thereof shall be made,all in accordance with appropriate highway engineering practices,and that the funds, equipment, workshop facilities and otherresources required for the purpose shall be provided promptly asneeded.

ARTICLE V

Remedies of the Association

Section 5.01. For the purposes of Section 6.02 of the GeneralConditions, the following additional events are specified pursuantto paragraph (h) thereof:

(a) the Governing Regulation or any provision thereof shallhave been repealed, amended, suspended, varied or waived, soas to affect adversely the carrying out of the Project or theperformance by the Borrower of any other of its obligations underthis Agreement; and

(b) (i) subject to subparagraph (ii) of this paragraph:

(A) the right of the Borrower to withdraw theproceeds of any loan or credit made to theBorrower for the financing of the Projectshall have been suspended, cancelled orterminated in whole or in part, pursuant tothe terms of the agreement providing therefor;or

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(B) any such loan or credit shall have become dueand payable prior to the agreed maturitythereof.

(ii) subparagraph (i) of this paragraph shall notapply if: (A) such suspension, cancellation,termination or prematuring is not caused by thefailure of the Borrower to perform any of itsobligations under such agreement, and (B) adequatefunds for the Project are available to the Borrowerfrom other sources on terms and conditions consis-tent with the obligations of the Borrower underthis Agreement.

Section 5.02. For the purposes of Section 7.01 of theGeneral Conditions, the following additional events are specifiedpursuant to paragraph (d) thereof:

(a) any event specified in paragraph (a) of Section 5.01 ofthis Agreement shall occur and shall continue for a period of 30days after notice thereof shall have been given by the Associationto the Borrower; and

(b) the event specified in paragraph (b) (i) (B) of Section5.01 of this Agreement shall occur.

ARTICLE VI

Effective Date; Termination

Section 6.01. The following events are specified as addi-tional conditions to the effectiveness of the Development CreditAgreement within the meaning of Section 12.01 (b) of the GeneralConditions:

(a) all conditions precedent to the effectiveness of theLoan Agreement have been fulfilled, save only the effectiveness ofthis Agreement; and

(b) all conditions precedent to the effectiveness of theSpecial Action Credit Agreement have been fulfilled, save onlythe effectiveness of this Agreement.

Section 6.02. The following is specified as an additionalmatter, within the meaning of Section 12.02 (b) of the General

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Conditions, to be included in the opinion or opinions to befurnished to the Association, namely, that the agreements referredto in Section 6.01 (a) and (b) have each been duly authorized orratified by the Borrower, and each is legally binding upon theBorrower in accordance with its terms.

Section 6.03. The date September 4, 1979 is hereby speci-fied for the purposes of Section 12.04 of the General Conditions.

Section 6.04. The obligations of the Borrower under Section3.14 of this Agreement shall cease and determine on the date onwhich the Development Credit Agreement shall terminate or on adate twenty years after the date of this Agreement, whichevershall be the earlier.

ARTICLE VII

Representatives of the Borrower; Addresses

Section 7.01. The Minister of Finance of the Borrower isdesignated as representative of the Borrower for the purposesof Section 11.03 of the General Conditions.

Section 7.02. The following addresses are specified forthe purposes of Section 11.01 of the General Conditions:

For the Borrower:

Ministry of Financec/o Director General for International

Monetary AffairsJalan Lapangan Banteng Timur 4Jakarta, Indonesia

Cable address: Telex:

MINISTRY FINANCE DITJMON JKT 46415JAKARTA DEPKEU JKT 44319

For the Association:

International Development Association1818 H Street, N.W.Washington, D.C. 20433United States of America

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Cable address: Telex:

INDEVAS 440098 (ITT)Washiigton, D.C. 248423 (RCA)

64145 (WUI)

IN WITNESS WHEREOF, the parties hereto, acting through theirrepresentatives thereunto duly authorized, have caused thisAgreement to be signed in their respective names in the Districtof Columbia, United States of America, as of the day and yearfirst above written.

REPUBLIC OF INDONESIA

By Is/ D. AshariAuthorized Representative

INTERNATIONAL DEVELOPMENT ASSOCIATION

By Is! S. Shahid HusainRegional Vice President

East Asia and Pacific

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SCHEDULE 1

Withdrawal of the Proceedsof the Credit and of the Loan

1. The table below sets forth the Categories of items to befinanced out of the proceeds of the Credit and of the Loan, theallocation of amounts of such proceeds to each Category and thepercentage of expenditures for items so to be financed in eachCategory:

Amount of theCredit and of theLoan Allocated % of(Expressed in Expenditures

Category Dollar Equivalent) to be Financed

(1) Civil Works 81,000,000 80%

(2) Equipment, goods, 11,300,000cattle and vehicles:

(a) imported 100% of foreigndirectly expenditures

(b) imported equip- 65%ment and importedgoods procuredlocally

(c) equipment and 95% of localgoods locally expendituresmanufactured (ex-factory)

(d) locally 40% of localmanufactured expendituresvehicles

(e) cattle procured 40% of locallocally expenditures

(3) Relocation of, 16,000,000 60%and subsistenceallowances for,ParticipatingFarmers

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Amount of theCredit and of theLoan Allocated % of(Expressed in Expenditures

Category Dollar Equivalent) to be Financed

(4) Consultants' ser- 23,100,000 100%vices includingstart-up vehicles,mapping, researchand training

(5) Agrochemicals 7,400,000

(a) imported 100% of foreigndirectly expenditures

(b) locally 50% of localprocured expenditures

(6) Unallocated 18,200,000

TOTAL 157,000,000

2. For the purposes of this Schedule:

(a) the term "foreign expenditures" means expenditures inthe currency of any country other than the Borrower and for goodsor services supplied from the territory of any country other thanthe Borrower; and

(b) the term "local expenditures" means expenditures inthe currency of the Borrower and for goods or services suppliedfrom the territory of the Borrower.

3. The disbursement percentages have been calculated in com-pliance with the policy of the Bank and the Association that noproceeds of the Loan shall be disbursed on account of payments fortaxes levied by, or in the territory of, the Borrower on goods orservices, or on the importation, manufacture, procurement orsupply thereof; to that end, if the amount of any such taxeslevied on or in respect of any item to be financed out of theproceeds of the Loan or the Credit decreases or increases, theBank or the Association may, by notice to the Borrower, increase

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or decrease the disbursement percentage then applicable to suchtem as required to be consistent with the aforementioned policy

of the Bank and the Association.

4. Notwithstanding the provisions of paragraph 1 above, no with-drawals shall be made in respect of payments made for expendituresprior to the date of this Agreement.

In addition, except as the Borrower, the Bank and the Asso-ciation shall otherwise agree, and until all amounts of theCredit shall have been withdrawn or committed, no withdrawalsshall be made from the Loan Account except under commitmentsentered into by the Bank pursuant to Section 5.02 of the GeneralConditions referred to in Section 1.01 of the Loan Agreement.

5. Notwithstanding the allocation of an amount of the Loan or ofthe Credit or the disbursement percentages set forth in the tablein paragraph 1 above, if the Bank or the Association has reason-ably estimated that the amount of the Loan or of the Credit thenallocated to any Category will be insufficient to finance theagreed percentage of all expenditures in that Category, the Bankor the Association may, by notice to the Borrower: (i) reallocateto such Category, to the extent required to meet the estimatedshortfall, proceeds of the Loan or of the Credit, as the case maybe, which are then allocated to another Category and which in theopinion of the Bank or the Association are not needed to meetother expenditures, and (ii) if such reallocation cannot fullymeet the estimated shortfall, reduce the disbursement percentagethen applicable to such expenditures in order that further with-drawals under such Category may continue until all expendituresthereunder shall have been made.

6. If the Bank or the Association shall have reasonably deter-mined that the procurement of any item in any Category is incon-sistent with the procedures set forth or referred to in thisAgreement, no expenditures for such item shall be financed out ofthe proceeds of the Loan or of the Credit and the Bank or theAssociation may, without in any way restricting or limiting anyother right, power or remedy of the Bank or of the Associationunder the Loan Agreement or the Development Credit Agreement, bynotice to the Borrower, cancel such amount of the Loan or of theCredit as, in the Bank's or the Association's reasonable opinion,represents the amount of such expenditures which would otherwisehave been eligible for financing out of the proceeds of the Loanor of the Credit.

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SCHEDULE 2

Description of the Project

The Project is part of the Borrower's ongoing TransmigrationProgram and consists of the following Parts:

Part A:

Resettlement along the Trans-Sumatra Highway of about 30,000families in the Alai Hilir Settlement Area, Kuamang Kuning Settle-ment Area, the Kubang Ujo Settlement Area and the Hitam UluSettlement Area, and upgrading of conditions and services forabout 4,000 families in the Singkut Settlement Area. In order toaccomplish the resettlement and upgrading, the following will beprovided:

1. Clearing of about 37,500 ha of forested land for newfamilies and about 7,500 ha for roads and publicfacilities.

2. Construction of about 680 km of access and link roadsand about 1,500 km of village roads at the New Settle-ment Areas, and construction of about 100 km of villageroads and upgrading of about 30 km of access and about120 km of village roads at the Singkut Settlement Area.

3. Provision of adequate water supply by the constructionof about 6,800 shallow wells and about 200 deep wellsfor water supply at the New Settlement Areas, and about750 shallow wells and 100 deep wells at the SingkutSettlement Area.

4. Construction of (a) about 30,000 houses with sanitaryfacilities for the new families; and (b) communityfacilities for each village in the New Settlement Areasincluding, inter alia, schools, places of worship,village halls, offices, stores, markets, banks, postoffices and health care facilities, including referralhospitals at Muara Bungo and at Bangko and a healthcenter for every 8,000 to 10,000 families and a sub-health center for about every 1,000 families.

5. Construction and upgrading of offices and relatedfacilities for project personnel at field projectheadquarters and at each Settlement Area.

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6. Construction of a 30 m x 1,200 m airstrip at Sarolangun,upgrading the airstrip at Rimbo Bujang to 30 m x 1,200m, and provision of air communications facilities ateach site.

7. Construction of offices, warehouses, REC's and relatedfacilities for agricultural supporting services.

8. Construction of a centrally located cattle reception anddistribution center; provision of about 8,750 head ofcattle, including about 8,330 cows and 85 bulls to beimported, of which about 7,900 head would be distributedto Participating Farmers in the New Settlement Areas andabout 850 head to the Participating Farmers in theSingkut Settlement Area; and provision of livestockextension services.

9. Construction in about 75 villages in the New Settle-ment Areas of warehouses and related facilities forfarmers cooperatives, and construction and upgrading offarmer cooperative facilities in each village in theSingkut Settlement Area.

10. Distribution to each Participating Farmer in a NewSettlement Area upon arrival at the Area of an initialpackage of grain, vegetable seeds and perennialseedlings.

11. Distribution to each Participating Farmer for threeyears of agrochemicals to support food cropping on about37,500 ha of land in the New Settlement Areas and about5,000 ha in the Existing Settlement Area.

12. Distribution of rice, other essential commodities,implements and tools to Participating Farmers in NewSettlement Areas during the first year of settlement.

13. Mobilization and transportation of settlers to theSettlement Areas.

14. Support for agrarian activities, including, inter alia,surveying site boundaries, laying out farm parcels, andissuing certificates of Hak Pakai and Hak Milik.

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Part B:

1. Strengthening the Borrower's capacity to coordinate theimplementation of its Transmigration Program by, interalia, establishing a Monitoring and Evaluation Unitwithin the Office of the Junior Minister for Transmi-gration.

2. Strengthening the Borrower's Project implementationcapacities by providing training for the personnel ofDGA, DGFCA, DGLS, DGC and DGT including, inter alia,training in cost accounting and financial management,planning and design and construction supervision.

3. Identification, survey, mappiag, planning and detaileddesign for future settlement areas under the Borrower'sTransmigration Program, with the assistance of con-sultants.

4. Agricultural studies at the Settlement Areas and otherpossible transmigration settlement areas.

5. Studies by DGT related to the Transmigration Program.

The Project is expected to be completed by June 30, 1985.

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SCHEDULE 3

Procurement

A. International Competitive Bidding

1. Except as provided in Part B hereof, goods, including with-out limitation, agrochemicals; civil works and services forconstruction of roads and land clearing shall be procured undercontracts awarded in accordance with procedures consistent withthose set forth in the "Guidelines for Procurement under WorldBank Loans and IDA Credits" published by the Bank in March 1977(hereinafter called the Guidelines), on the basis of internationalcompetitive bidding as described in Part A of the Guidelines.

2. For goods and works to be procured on the basis of inter-national competitive bidding, in addition to the requirements ofparagraph 1.2 of the Guidelines, the Borrower shall prepare andforward to the Association as soon as possible, and in any eventnot later than 60 days prior to the date of availability to thepublic of the first tender or prequalification documents relatingthereto, as the case may be, a general procurement notice, in suchform and detail aid containing such information as the Associationshall reasonably request; the Association will arrange for thepublication of such notice in order to provide timely notificationto prospective bidders of the opportunity to bid for the goods andworks in question. The Borrower shall provide the necessaryinformation to update such notice annually so long as any goods orworks remain to be procured on the basis of international compe-titive bidding.

3. Bidders for land clearing and road construction shall beprequalified as described in paragraph 1.3 of Part A of theGuidelines.

4. For the purpose of evaluation and comparison of bids forthe supply of goods to be procured on the basis of internationalcompetitive bidding, (i) bidders shall be required to statein their bid the c.i.f. (port of entry) price for imported goods,or the ex-factory price for domestically manufactured goods;(ii) customs duties and other import taxes on imported goods,and sales and similar taxes on domestically supplied goods, shallbe excluded; and (iii) the cost to the Borrower of inland freightand other expenditures incidental to the delivery of goods tothe place of their use or installation shall be included.

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5. Bid invitations shall, wherever feasible, be grouped togetherin order to attract international competition.

6. Contracts for construction of roads and land clearing ofSettlement Areas shall be divided into five contracts, each fora period of about three and one-half years and each coveringabout 9,000 ha.

B. Other Procurement Procedures

1. Bidders for all contracts for civil works estimated tocost more than $100,000 equivalent shall be prequalified in accor-dance with the Borrower's normal procedures.

2. Contracts for construction of farmer housing, watersupply, agricultural infrastructure and community facilities maybe awarded on the basis of competitive bidding advertised locallyunder the Borrower's procurement procedures, and contracts forworks shall be grouped, wherever feasible, into packages of atleast $100,000 equivalent.

3. Items of equipment, spare parts and supplies estimatedto cost less than $10,000 equivalent each may be purchased onthe basis of the regular procedures of the Borrower, provided thatthe aggregate amount of such items shall not exceed $2,000,000equivalent.

4. Contracts for mapping may be awarded on the basisof competitive bidding advertised locally under the Borrower'sprocurement procedures.

5. Contracts for up to fifteen vehicles necessary forstart-up use by consultants may be procured under the respectiveconsultant's contracts on the basis of at least three pricequotations.

6. (a) Cattle for the Project to be procured locallyshall be procured in accordance with purchasing guidelines accept-able to the Bank.

(b) Cattle for the Project to be procured from outsideIndonesia shall be procured on the basis of at least three pricequotations from suppliers of livestock from member countries ofthe Bank (which for this purpose includes Switzerland) free fromfoot-and-mouth disease.

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C. Preference for Domestic Manufacturers

In the procurement of goods in accordance with the proceduresdescribed in Part A of this Schedule, goods manufactured inIndonesia may be granted a margin of preference in accordancewith, and subject to, the following provisions:

1. All bidding documents for the procurement of goodsshall clearly indicate any preference which will be granted,the information required to establish the eligibility of a bidfor such preference and the following methods and stages that willbe followed in the evaluation and comparison of bids.

2. After evaluation, responsive bids will be classifiedin one of the following three groups:

(a) Group A: bids offering goods manufactured inIndonesia if the bidder shall have established tothe satisfaction of the Borrower and the Associ-ation that the manufacturing cost of such goodsincludes a value added in Indonesia equal to atleast 20% of the ex-factory bid price of suchgoods.

(b) Group B: all other bids offering goods manufacturedin Indonesia.

(c) Group C: bids offering any other goods.

3. All evaluated bids in each group shall be first comparedamong themselves, excluding any customs duties and other importtaxes on goods to be imported and any sales or similar taxeson goods to be supplied domestically, to determine the lowestevaluated bid of each group. Such lowest evaluated bids shallthen be compared with each other, and if, as a result of thiscomparison, a bid from group A or group B is the lowest, it shallbe selected for the award.

4. If, as a result of the comparison under paragraph 3above, the lowest bid is a bid from group C, all group C bidsshall be further compared with the lowest evaluated bid fromgroup A after adding to the evaluated bid price of the importedgoods offered in each group C bid, for the purpose of this furthercomparison only, an amount equal to: (i) the amount of customsduties and other import taxes which a non-exempt importer would

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have to pay for the importation of the goods offered in suchgroup C bid; or (ii) 15% of the c.i.f. bid price of such goodsif said customs duties and taxes exceed 15% of such price. Ifthe group A bid in such further comparison is the lowest, itshall be selected for the award; if not, the bid from group Cwhich as a result of the comparison under paragraph 3 is thelowest evaluated bid shall be selected.

D. Preference for Domestic Contractors

With respect to the evaluation of bids for any contract forcivil works included under Category (1) of the table set forth inSchedule 1 to the Development Credit Agreement and to be pro-cured in accordance with the procedures described in Part A ofthis Schedule, the Borrower may grant a margin of preference of7-1/2% to domestic contractors, in accordance with, and subjectto, the following provisions:

1. With respect to all contracts estimated to cost morethan $100,000 equivalent, contractors shall be required to pre-qualify as provided in Part A of this Schedule and applicants forqualification applying for such preference shall be asked toprovide, as part of the data for qualification, such information,including details of ownership, as shall be required to determinewhether, according to the classification established by theBorrower and accepted by the Association, a particular firm orgroup of firms qualifies for a domestic preference. The biddingdocuments shall clearly indicate the preference and the methodthat will be followed in the evaluation and comparison of bids togive effect to such preference.

2. After bids have been received and reviewed by theBorrower, responsive bids will be classified into the followinggroups:

(i) bids offered by domestic contractors eligiblefor preference; and

(ii) bids offered by other contractors.

For the purpose of evaluation and comparison of bids an amountequal to 7-1/2% of the bid amount shall be added to bids receivedunder group (ii) above.

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E. Review of Procurement Decisions by the Association

1. Review of prequalification. The Borrower shall, beforequalification is invited, inform the Association in detail of theprocedure to be followed, and shall introduce such modificationsin said procedure as the Association shall reasonably request. Thelist of prequalified bidders, together with a statement of theirqualifications and, where applicable, of their eligibility fordomestic preference under Part D above and of the reasons for theexclusion of any applicant for prequalification and for sucheligibility shall be furnished by the Borrower to the Associa-tion for its comments before the applicants are notified of theBorrower's decision, and the Borrower shall make such additionsto, deletions from, or modifications in, the said list as theAssociation shall reasonably request.

2. Review of invitations to bid and of proposed awards andfinal contracts:

With respect to all contracts estimated to cost more than$100,000 equivalent:

(a) Before bids are invited, the Borrower shall furnish tothe Association, for its comments, the text of the invitations tobid and the specifications and other bidding documents, togetherwith a description of the advertising procedures to be followedfor the bidding, and shall make such modifications in the saiddocuments or procedures as the Association shall reasonablyrequest. Any further modification to the bidding documents shallrequire the Association's concurrence before it is issued to theprospective bidders,

(b) After bids have been received and evaluated, the Bor-rower shall, before a final decision on the award is made, informthe Association of the name of the bidder to which it intendsto award the contract and shall furnish to the Association, insufficient time for its review, a detailed report on the evalua-tion and comparison of the bids received, together with therecommendations for award and such other information as theAssociation shall reasonably request. The Association shall, if itdetermines that the intended award would be inconsistent with theGuidelines or this Schedule, promptly inform the Borrower andstate the reasons for such determination.

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(c) The terms and conditions of the contract shall not,without the Association's concurrence, materially differ fromthose on which bids were asked or prequalification invited.

(d) Two conformed copies of the contract shall be furnishedto the Association promptly after its execution and prior tothe submission to the Association of the first application forwithdrawal of funds from the Credit Account in respect of suchcontract.

3. With respect to each contract not governed by the precedingparagraph, the Borrower shall furnish to the Association, promptlyafter its execution and prior to the submission to the Associationof the first application for withdrawal of funds from the CreditAccount in respect of such contract, two conformed copies of suchcontract, together with the analysis of the respective bids,recommendations for award and such other information as theAssociation shall reasonably request. The Association shall, if itdetermines that the award of the contract was not consistent withthe Guidelines or this Schedule, promptly inform the Borrower andstate the reasons for such determination.

4. Before agreeing to any material modification or waiver ofthe terms and conditions of a contract, or granting an extensionof the stipulated time for performance of such contract, orissuing any change order under such contract (except in cases ofextreme urgency) which would increase the cost of the contract bymore than 15% of the original price, the Borrower shall informthe Association of the proposed modification, waiver, extension orchange order and the reasons therefor. The Association, if itdetermines that the proposal would be inconsistent with theprovisions of this Agreement, shall promptly inform the Borrowerand state the reasons for its determination.