Report No. 624-IND

Indonesia FILE COPYAppraisal of Second FertilizerExpansion Project-Pusri IIlFebruary 4, 1975

Industrial Projects Department

Not for Public Use

Document of the International Bank for Reconstruction and DevelopmentInternational Development Association

This report was prepared for (official use only by the Bank Group- it may not

be published, quoted or cited without Bank Croup authorization. The Bank Group doesnot accept responsibility tor the accuracy or completeness of the report.

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INDONESIA

APPRAISAL OF SECOND FERTILIZER EXPANSION PROJECT - PUSRI III

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) I Kilometer(km) - 0.62 Mile

1 Kilogram (kg) - 2.204 Pounds (lb)Rp 1.0 = US$0.00241 1 Hectare (ha) = 2.47 Acreskp 415 = US$1.00 1 Normal Cubic - 37.3 StandardRp 1,000,000 = US$2,410 Meter (Nm3) Cubic 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 CorporationK20, K, Potash Potassium Oxide Content in FertilizerKWH Kilowatt HourMSCF Thousand Standard Cubic FeetN Nitrogen Content in FertilizerPERTAMINA Perusahaan Pertambangan Minyak Dan Gas Bumi

Negara, Government-Owned Oil CompanyPPM Parts per MillionR 05, P, Phosphate Phosphorus Pentoxide Content in FertilizerR.N. Wholly-Owned State Enterprise

P.T. Limited Liability CompanyPUSRI, Company P. T. Pupuk SriwidjajaPUSRI III, Project Second 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 DepartmentFebruary 4, 1975

INDONESIA

APPRAISAL OF SECOND FERTILIZER EXPANSION PROJECT - PUSRI III

TABLE OF CONTENTS

Page No.

SUM(ARY AND ODNCLUSIONS ..........**.*.******.*1....... i - ii

I* INTRODUCTION .......* ........... *** *....... 1

II. THE COMPANY ., .. .... ..... **... 2

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

III. THE MARKET * ............... ... .o..s *....**** 7

A. Supply Prospects 7.......... .... *.... 7B. Consumption Trends and Forecasts of Supply/

Demand Balance ............................... 9C. Fertilizer Use by Crops and Regions . ............ 12D. Export Potential .... .............. ............ 12E. PUSRI Marketing and Distribution ............... 13F. Credit . .............. .. 14

IV. THE PROJECT .......... ............................... 15

A. Project Scope ..... ............................* 15B. Raw Materials and Utilities .................... 15C. Bag Supply ...... ............................. 16D. Project Execution ... .. .. ... ............. 16E. Employment and Training ........................ 17F. Ecology . 17

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

A. Project Costs .................... 0.0.. 18B. Financing Plan ... .......... ..... ......... . ... .... 19C* Procurement .... 20D. Allocation and Disbursement of Bank Loan ....... 20

This report was prepared by Donald E. Brown, Anthony R. Perram, WolfgangKaupisch and Y. T. Shetty.

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Page No.

VI. FINANCIAL ANALYSIS ................. o*oo oo........... 21

A. Project Revenue and Profit ..................... 21Bo Production Costs . ............ .................. 21C. Financial Projections for the Project .......... 22D. Incremental Financial Rate of Return ........... 23E. Break-Even Point .......... .......... ............. 24F. Analysis of PUSRI with the Project .... .......... 24G. Major Risks ............. 6..*0................ 26

VII. ECONOMIC ANALYSIS ..*.*******- * *,**........*.ooooo.. 26

A. World Fertilizer Prices ........................ 26B. Economic Rate of Return ........................ 27C. Supply of Fertilizers and Food ................. 27D. Direct Foreign Exchange Savings ................ 28E. Employment Generation ..... ..................... 28

VIII. AGREEMENTS ... ........ ......... .......... 28

ANNEXES

1 Glossary of Technical Terms

2-1 Description of Existing Facilities2-2 Organization Chart2-3 Historical Income Statements (1970-1974)2-4 Historical Balance Sheets (1970-1974)

3 Fertilizer Market and Marketing

4-1 Plant Layout4-2 Production Process and Project Description4-3 Implementation Schedule - PUSRI III4-4 Raw Material and Product Flow4-5 Gas Gathering and Transmission

5-1 Capital Cost Estimates5-2 Working Capital Requirements5-3 Disbursement Schedule for Bank Loan

6-1 Assumptions Used for Projections6-2 Projected Income Statements - PUSRI III6-3 Inputs for Financial Rate of Return and Sensitivity Analysis6-4 Break-Even Point

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6-5 Projected Income Statements - PUSRI I6-6 Projected Income Statements - PUSRI II6-7 Combined Income Statements6-8 PUSRI Consolidated Projections

7-1 Assumptions for Economic and Financial Rates of Return7-2 Inputs for Economic Rate of Return and Sensitivity Analysis7-3 Direct Gross Foreign Exchange Savings (1977-1982)

MAP

Location of Fertilizer Plants - Existing and Proposed (IBRD 11220)

INDONESIA

APPRAISAL OF SECOND FERTILIZER EXPANSION PROJECT - PUSRI III

SUM4ARY AND CONCLUSIONS

i. The Govetnment of Indonesia has asked the Bank to help finance afertilizer plant with capacities of 1,000 tons per day (TPD) of ammonia, allto be converted into 1,725 TPD of urea and to be executed by P. T. PupukSriwidjaja (PUSRI), a limited liability company whose shares are exclusivelyheld by the Government. This report recommends a Bank loan to the Govern-ment of US$115 million to meet 60% of the total estimated financing requiredfor the project of about US$192 million, or 73% of the estimated foreign ex-change cost of about US$157.6 million. The balance (40%) of the financing,amounting to US$42.6 million equivalent in foreign exchange and US$34.4 mil-lion in local currency would be contributed by the Government as equity. TheGovernment would on-lend the proceeds of the Bank loan for 15-1/2 years in-cluding 3-1/2 years of grace, at 12% annual interest including a 3-1/2% feeaccruing to the Government which will bear the foreign exchange risk.

ii. The project will constitute the second expansion of the Company'splant located at Palembang in South Sumatra on the Musi River and be adjacentto the IDA-assisted first expansion project (Credit 193-IND of June 15, 1970),UTSRI II, which was mechanically completed one month ahead of the contract sched-ule in September 1974 with only a minor cost overrun. The plant which will usegas as feedstock to be supplied through a system already installed as part ofthe earlier IDA project would more than double PUSRI's annual urea productioncapacity and is expected to be in commercial operation by May 1977.

iii. Given the rapid increase in Indonesia's urea consumption, thehigh escalation in equipment prices and the fact that Indonesia with itssubstantial resources of natural gas has a comparative advantage in pro-ducing nitrogenous fertilizer such as urea, there are important benefitsin speedy project implementation. The Government, therefore, requested,and the Bank agreed, that the Company be permitted to continue to use thesame engineering firms as for PUSRI II, which were approved by IDA and whichhave performed satisfactorily. Procurement of critical long-delivery itemswas begun in May 1974; they are being financed from foreign exchange madeavailable by the Government and no retroactive financing from the Bank loanis required. Biddlers' lists and proposed awards for major equipment supplycontracts have beebn reviewed by the Bank and all major equipment items arebeing procured following Bank guidelines, irrespective of the source offinance.

iv. Over the past 10 years (1964-1974), Indonesia's nitrogen fertilizerconsumption has increased at an average annual rate of about 15% reaching in1974 about 414,001) nutrient tons of which nearly 75% had to be imported.wZhile this reflects considerably higher use than had been expected in 1970,

the 1974 fertilizer consumption understates actual demand since extensiveshortages forced the Government to resort to rationing and distribution con-trols since the last quarter of 1973. Future consumption is conservativelyestimated to grow at about 11% per year (1972-80) and reach by 1980 about676,000 tons of N, equivalent to some 1.5 million tons of urea. Indonesiahas one fertilizer plant now under construction and another at an advancedstage of consideration. By 1980, it should have become self-sufficient inthe production of nitrogenous fertilizers and may have an exportable surplusof less than 200,000 tons of N per year which it should be able to sell inneighboring supply-deficit countries.

v. PUSRI has capable management which has been able continuously tooperate its existing small 100,000 TPY urea plant in excess of rated capacityand implement its first expansion project very satisfactorily. With the sameteam of engineering firms and consultants, it is expected to perform equallywell in the proposed project. Furthermore, since the new plant will benefitfrom the existing infrastructure and utilities, capital and operating costswill be relatively lower than for a similar plant at a new site, and flexi-bility of operations will be increased. The project's estimated production costand assumed sales price (US$135/ton, ex-factory) are expected to be interna-tionally competitive with prices forecast to prevail towards the end of thedecade when supply and demand worldwide are likely to be in a better balance.The Company's financial structure would remain satisfactory with the debt!equity ratio projected at about 54/46 at completion of the project; and debtservice coverage would be at more than 1.5 times during the life of the loan.The project's incremental financial return before tax is estimated at 13.8%and is acceptable.

vi. The economic rate of return of the project is 20% based on theexpected long-term international input-output prices in real terms. Itwould remain satisfactory at about 16% under the conceivable adverse assump-tions regarding capital and operating costs, project implementation timeand fertilizer prices. Non-quantifiable benefits, not taken into accountin the calculation of the economic return, such as substantial transfer ofindustrial and management skills and contribution towards removal of nitrogenfertilizer supply constraints, could also be attributed to the project. Theproject shows annual direct gross foreign exchange savings of about US$87million.

vii. The project faces minimal technical and commercial risks, would

confer substantial benefits on the Indonesian economy and, based on agree-ments summarized at the end of this report, is suitable for a Bank loan ofUS$115 million equivalent.

I. INTRODUCTION

1.01 The Government of Indonesia has requested a Bank loan of US$115million equivalent to finance a major portion of the estimated foreign ex-change cost of an ammonia/urea 1/ plant for the Government-owned fertilizercompany, P.T. Pupuk Sriwidjaja (PUSRI), to be built adjacent to its existingfacilities on the bank of the Musi River at Palembang, in South Sumatra(Map, IBRD 11220). The project, representing the Company's third stagedevelopment (PUSRI III), will more than double PUSRI's urea capacity from480,000 to slightly more than one million tons per year (TPY) of urea, equiv-alent to an increase from 220,800 to 483,000 TPY of nitrogen (N). The pro-posed project follows the successful completion in September 1974 of thefirst expansion (PUSRI II) assisted by credits from: the International Dev-elopment Association (IDA), US$35 million equivalent 2/; the U.S. Agency forInternational Development (USAID), US$24 million; the Overseas Economic Coop-eration Fund (OECF) of Japan, US$11.7 million equivalent; and the Asian Dev-elopment Bank (ADB), US$10 million equivalent.

1.02 The total financing required for the project (PUSRI III) is esti-mated at US$192 million of which the foreign exchange component is equivalentto US$157.6 million. The proposed Bank loan to the Government, which wouldbe the Borrower, would cover about 73% of the foreign exchange or 60% of thetotal financing required. The Government would meet the rest (40%) of theestimated financing needed for the project as equity in its capacity as thesole shareholder of PUSRI.

1.03 Although Indonesia has abundant low-cost natural gas to becomea leading competitive producer and exporter of nitrogenous fertilizers,domestic production of fertilizers at present is substantially lower thanconsumption. The Government has planned that PUSRI's entire productionwould be for the domestic market. PUSRI's first urea plant, PUSRI I, con-structed during the early 1960's is small by modern standards. It has acapacity of 100,000 TPY urea compared to 380,000 TPY for PUSRI II, one ofthe first generation of large-scale urea plants, and 570,000 TPY plannedfor PUSRI III. All three plants are based on natural gas from nearbyfields.

1.04 The proposed project was appraised by D. E. Brown, A. R. Perram,Y. T. Shetty and E. Tortorelli of the Industrial Projects Department andW. Kaupisch of the East Asia and Pacific Program Department based on mis-sions to Indones:La in June/July 1974 and November 1974.

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

2/ Reports PI-3a dated April 20, 1970, and P-1251 of May 1, 1973.

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II. THE COMPANY

A. Background

2.01 Fertilizer production in Indonesia is carried out exclusively inthe public sector. PUSRI, the country's first fertilizer company, was estab-lished in 1959 as a wholly-owned State enterprise (P.N.) to manufacture urea.The first plant, PUSRI I, went on stream in 1964, quickly achieving capacityoperations. In subsequent years, capacity utilization fluctuated between84% and 99% until a rehabilitation program, carried out in 1970/71, allowedcapacity use at an average rate of 103% ever since. In 1970, the Governmentchanged the status of PUSRI, making it a limited liability company (P.T.)under the Commercial Code.

2.02 PUSRI I is expected to need major revamping by 1976, after 12 yearsof operation. The urea section may have to be modified or abandoned altogetherbut the ammonia section could probably continue operation. This would allowaummonia supply to a new phosphate fertilizer plant; or sale of industrialammonia. The Company is firming up its future plans for PUSRI I and willpresent them, together with their costs, to the Bank when prepared. For thepurpose of projections, no production from PUSRI I is taken into accountbeyond 1976.

2.03 PUSRI carried out its first expansion project (PUSRI II which wasassisted by IDA) during 1971-74 at a total cost of Rp 34.5 billion (US$83million). In addition, a gas gathering and transmission system was builtas a part of the project by the Government-owned oil company, PERTAMINA, ata cost of Rp 16.2 billion (US$39 million) to supply natural gas as feedstock.Work on PUSRI II was originally expected to be completed by September 1973.However, the actual project implementation began nearly a year later thananticipated because of the time required to develop bid specifications andto negotiate service contracts satisfactory to the lenders.

2.04 PUSRI II cost 9.6% or US$7.3 million more than originally forecastin 1970, including US$5 million in foreign exchange, mainly on account ofcurrency realignments and the delay in start of project implementation men-tioned. The gas gathering and transmission system cost eventually 2.8 timesthe original cost estimate as detailed studies later showed larger gas re-serves than the data available at the time of appraisal, so that a 90% largersystem could be built to serve not only PUSRI II but also other industrialusers in the Palembang area. The studies also showed that a substantiallylarger drilling program was required to assure deliverability before PUSRI IIwent into operation. Part of the additional foreign exchange requirementswere covered by supplemental loans from IDA, AID, and OECF totalling US$12.7million equivalent. The balance of cost increases was borne by the Govern-ment.

2.05 Tne PUSRI II fertilizer plant was mechanically completed in September1974, one month ahead of the revised scheduled date, passed its 15-dayperformance test in October 1974, and has operated at high capacity since

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then, producing 88,000 tons of urea up to the end of 1974. Details of theexisting facilities of PUSRI are given in Annex 2-1. Based on rapid con-struction progress and correctly assuming the successful implementation ofPUSRI II, the Government decided in early 1974 to commence PUSRI III on thebasis that PUSRI and its engineering firms could complete an ammonia/ureaproject in less time and at lower cost than any other team in Indonesia.The Bank agreed with this conclusion and has been working with the Companysince April 1974 to expedite engineering services and procurement of criticalitems, particularly equipment in short supply.

B. Organization and Management

2.06 PUSRI is generally considered one of Indonesia's best managedlarge industrial enterprises. Its management structure, in keeping withIndonesia's Company Law, is patterned after the European two-tier model, andhas a supervising board called the Board of Commissioners (Dewan Komisaris)and a Management Board (Direksi). The members of the Board of Commissionersare the Director-Generals of: (i) Monetary Affairs (Ministry of Finance),Chairman; (ii) Chemical Industries (Ministry of Industries); and (iii) Agri-culture (Ministry of Agriculture and Forestry).

2.07 Managerial responsibility for PUSRI's day-to-day operations restswith the four-man Management Board, consisting of a President-Director andthree Directors. Members of the Management Board as in the case of theBoard of Commissioners are appointed by the Government. An organizationalchart of the Company is given in Annex 2-2.

2.08 Gen. H. Hasan Kasim (Retd.) has been President-Director of PUSRIsince 1966. The other three Directors and their respective responsibilitiesare: Mr. Kotan Pasaman, Technical and Production Director; Mr. Dalil Hasan,Commercial Director; and Mr. A. A. Nuri, Financial Director. Messrs. Kasimand Pasaman are largely responsible for PUSRI's successful production record.The financial management of the Company, however, needs strengthening withadditional qualified financial staff. Assurances to this effect have beenreceived from PUSRI and the Government. Further, as agreed under IDA CreditNo. 193-IND for PUSRI II, management appointments including those of con-sultants are to be made in consultation with the Bank.

C. Past Growth and Financial Results

2.09 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, whileits sales of imported urea, triple superphosphate (TSP) and diammonium phos-phate (DAP) increased more than ninefold during the same period, reachingabout 350,000 TPY of products in 1973. However, with PUSRI II now on stream,the share of imported urea sales in the total sales of PUSRI is expected todecline gradually. The following table shows the trend of sales volume, salesrevenue and net profit of PUSRI during 1970-1974 (Annex 2-3):

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PUSRI - Sales and Earnings,_ 1970-1974

Year Ended Dec. 31 1970 1971 1972 1973 1974(est.)

Sales Volume ('000 Tons)Sales Volume 137 183 290 454 467of which: PUSRI Urea 99 106 102 103 190

Imported Urea 38 75 186 265 160Other imported - 2 2 85 117

agro-chemicals

Sales Revenue (Rp Million)Total Sales 3,252 4,740 7,488 13,420 20,800

of which: PUSRI Urea 2,424 2,890 3,050 3,447 7,600

Net Profit (Rp Million) (3) 71 (430) 69 1,432Net Profit as % of Sales - 1.5 - 0.5 6.9

2.10 Under the current fertilizer marketing system, the Government buysall locally-produced fertilizers at a fixed price, and sells it as wellas imported fertilizers to approved distributors including PUSRI, allowingthem a margin of about 22% on the fixed retail prices, which are also set bythe Government. Sub-distributors and retailers are permitted an additional8% margin. In November 1974, the urea retail price was increased by 50% toRp 60,000 per ton (US$144.6) but is still subsidized to check food pricesin particular and the inflationary situation in general.

2.11 Though PUSRI during 1970-1973 operated its plant efficiently, itmade only a small profit or loss due to rising costs of inputs other than gasand to low prices fixed by the Government. To rectify this situation,the Government increased its purchase price of PUSRI-produced urea by stagesfrom Rp 28,220 (US$68) per ton in 1972 to about Rp 63,900 (US$154) perton in the last quarter of 1974. This price, though substantially lower thanthe current world prices for urea (about US$400 per ton), would be adequateto provide sufficient revenue for PUSRI to be financially viable. However,under a new system of fertilizer rationing introduced in Indonesia in October1973 to control illegal marketing in fertilizers, wholesalers became PUSRI'sagents and PUSRI had to finance the distribution of not only its ownfertilizer but also of imported fertilizers--which in 1973 accounted forabout 3-1/2 times in volume PUSRI's sales of its own fertilizer--and waitup to 10 months to be paid for sales to farmers on the basis of vouchersissued by the Bank Rakyat Indonesia (BRI), the State Agricultural Bank.

2.12 This situation created an extremely heavy financial burden onPUSRI's marketing operation. Further, the Government initiated a stock-piling program, in which PUSRI played a substantial role. As a result,current assets exceeding US$100 million equivalent by the end of 1974 (in the

form of letters of credit, inventories, including stockpiling and receivables)were financed exclusively by short-term borrowing mainly from BRI at anaverage interest rate of 1.3% per month. These interest payments led tolosses from its marketing operation which had to be covered by further short-term borrowing. During negotiations, the Government noted as imports areinsufficient to cover demand with the concomitant risk of black marketing,the present distribution control and fertilizer rationing system would haveto be continued until the country's demand could be met from domesticproduction. Given the predominant role PUSRI had assumed in the production,import, distribution and marketing of fertilizer, the Company could alsonot be relieved of an essentially public service function, i.e., carryingout the Government's import and stockpiling program. The Government,therefore, undertook to relieve PUSRI from the adverse effects of theseunprofitable activities through payments to cover the excess of interestdue to short-term debt over the operating profit of the Company's marketingdepartment. The shortfall for 1975 has been forecast to amount to Rp 1.4billion (US$3.4 million equivalent) and the Government will pay this amountin four equal installments to PUSRI on April 1, July 1, October 1 andDecember 31 of 1975, respectively. Forecasts of shortfalls for every sub-sequent year will be agreed between the Government and PUSRI by October 1of the preceeding year. Adjustments, upwards or downwards, will be doneon the basis of PUSRI's audited accounts and the arrangement will continueas long as the distribution control system is in effect.

2.13 This arrangement is acceptable to the Bank as long as PUSRI, asat present, has no significant fixed assets in its marketing operation.However, under the proposed fertilizer shipping and distribution project,PIJSRI would acquire substantial marketing assets on which a reasonablereturn would have to be earned. Part of this return would be provided bythe lower costs and greater efficiency of this system compared to the pre-sent cost on which PUSRI's shipping and marketing margins are based. Thebalance would either have to come from a reduction in current assets to anormal level if, by the time the marketing assets are put into service, thedistribution control system has been abolished; or, if that system shouldstill be in force, through an adjustment in margins to reflect the costof short-term borrowing, or through the provision of working capital, ora combination of both. Suitable arrangements will be made when the Bankloan for the proposed project is negotiated later this year.

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

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PUSRI - Summary of Historical Balance Sheets, 1970-1974(In Rp billion)

Year Ended Dec. 31 1970 1971 1972 1973 1974(est.)

Assets

Current Assets 2.53 2.46 5.24 16.39 57.58Net Fixed Assets 5.32 6.05 11.34 24.70 49.86Other Assets 0.04 0.14 0.07 0.35 0.40

Total 7.89 8.65 16.65 41.44 107.84

Liabilities

Current Liabilities 0.82 0.92 3.63 13.08 51.30Long-term Debt - 0.65 6.58 20.37 25.74Equity 7.07 7.08 6.44 7.99 30.80

Total 7.89 8.65 16.65 41.44 107.84

Ratios

Current Ratio 3.1 2.7 1.4 1.3 1.1Debt/Equity Ratio 0/100 8/92 51/49 72/28 45/55

2.15 As PUSRI I was financed entirely with Government equity, the Com-pany had no debt to service. However, the construction of PUSRI II increasedthe Company's debt steeply with a debt/equity ratio reaching 72/28 in 1973partly because of negative or low earnings resulting from insufficient ex-plant prices during 1970-1973 and partly because the Government delayed theconversion of its contribution exceeding the debt limit of approximatelyUS$62 million equivalent for PUSRI II (imposed by the PUSRI II financingagreement) until the full project cost was known. As a result, the entireGovernment contribution was initially shown as debt. This situation hasnow been rectified by the conversion of debt into equity for PUSRI II andthe provision of new equity for PUSRI III, and the debt/equity ratio reachedthe satisfactory level of 45/55 by the end of 1974.

2.16 PUSRI's accounting and internal reporting system has improvedconsiderably with technical assistance from Price Waterhouse and Company,but is not yet fully satisfactory. PUSRI has reaffirmed its intention 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 and con-solidated cost systems.

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III. THE MARKET

3.01 There are three special characteristics of fertilizer consumptionin Indonesia: (a) heavy reliance on N fertilizers; (b) predominance of thepaddy (rice) crop in agriculture and total fertilizer usage; and (c) con-centration of consumption in Java, Madura and Bali, the country's majorrice-growing region. A detailed analysis of the market for fertilizers andthe marketing system in Indonesia is provided in Arnex 3. The analysis isbased on: (i) data collected during appraisal of PUSRI III; (ii) the fore-cast of nitrogenous fertilizer for rice made in the Bank draft report, "Irri-gation Program Survey," (August 12, 1974); (iii) projections by the PUSRIMarketing Department; and the following major fertilizer demand studies madeduring the past four years: the National Fertilizer Study (NFS) 1/ Reportof 1972, the Feasibility Study (1973/74) for the proposed West Java Fertil-izer Plant, 2/ and fertilizer reports (1974) by the Tennessee Valley Author-ity (TVA). 37/

A. Supply Prospects

3.02 Because of its abundant natural gas reserves, Indonesia has thepotential to develop its N fertilizer production facilities not onlyfor domestic consumption but also for exports. Indonesia had no domesticfacilities for fertilizer production prior to 1964, when PUSRI I went intocommercial operation. It was the only producer of nitrogenous fertilizers(urea) until August 1972 when the P.N. Petrokimia Fertilizer Plant at Gresik,East Java, was commissioned. The Petrokimia plant has a urea capacity of45,000 TPY and an ammonium sulfate capacity of 150,000 TPY. At present,the total annual production capacity for N fertilizer in Indonesia is525,000 product tons (241,500 tons of N) of urea and 150,000 product tons(31,500 tons of N) of ammonium sulfate. There is no indigenous phosphateproduction, but Petrokimia is planning a project, to be completed by 1977,to produce 200,000 TPY of triple superphosphate (TSP) or 92,000 TPY ofP2 05 based on imported rock phosphate and sulfur. Indonesia has no knownreserves of potash. The following table shows the projected fertilizercapacity and output up to 1983:

1/ Prepared by Agrar-und Hydrotechnik GmbH, of the Federal Republic ofGermany.

2/ Prepared by Bureau d'Etudes Industrielles et de Cooperation de l'InstitutFrancais du Petrole (BEICIP).

3/ "The Likely Impact of Middle East Oil Policies on the Development ofthe Nitrogen Industry of East and Southeast Asia" (January, 1974) and"A Proposal for the Development of Nitrogen Production Capacity inIndonesia" (July 1974).

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Indonesia - Fertilizer Production Capacity and Output('000 tons)

CAPACITY PRODUCTIONProducts Nutrients Products NutrientsAmmonium Ammonium

Urea Sulfate TSP N P25 Urea Sulfate TSP N P205

1972 145 150 - 98 - 111 29 - 57 -(actual)1974 525 150 - 273 - 248 70 - 129 -(est.)1977 995 150 200 489 92 668 120 150 333 691978 1,565 150 200 751 92 1,230 120 160 591 741980 2,135 150 200 1,014 92 1,784 120 160 846 741983 2,135 150 200 1,014 92 1,812 120 160 859 74

3.03 The annual production capacity for N fertilizer is projected toincrease fourfold to about one million tons of N by the end of this decadewhen three additional plants - (a) PUSRI III, (b) East Kalimantan I, and(c) West Java - are scheduled to be in commercial production. The Govern-ment expects the East Kalimantan plant which is to be built on ships, tobegin production by January 1976 and the West Java plant by January 1978.However, these dates may well slip since the East Kalimantan plant is basedon not yet commercially proven technology and may require a longer than usualcommissioning period and since financing arrangements for the West Java plantwere completed only at the end of 1974. Therefore, as reflected in the abovetable, this report assumes that the two additional plants would be commissionedonly in January 1978 and 1979 respectively. The Government will from time totime exchange views with the Bank regarding Indonesia's plans to meet the coun-try's nutrient requirements.

3.04 Over the past, Indonesia's reliance on imported fertilizers increasedsharply as shown below:

Indonesia - Imports of Fertilizers, 1964-1972('000 nutrient tons)

N P 205 K2O Total

1964 35.7 23.5 7.9 66.11972 289.3 93.3 35.8 418.4

Urea has gained increasing importance accounting for nearly 88% of totalN imports in 1972 compared to 39% in 1964. In absolute terms, urea importsincreased from 30,559 product tons (14,057 tons of N) in 1964 to 550,100product tons (253,000 tons of N) in 1972. In recent times, bagged urea im-port prices (c.i.f. Jakarta) have risen steeply from US$62/ton in January1972 to US$424/ton in the last quarter of 1974 and, even at the current high

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prices, urea in particular and fertilizers in general are not readily avail-able in adequate quantity on the world market. This situation has providedstrong impetus to Indonesia's program to develop indigenous production facil-ities, especially for urea which currently accounts for 85% of the country'stotal annual supply of fertilizers compared to 9% in 1959. Urea is expectedto continue to be the most popular N fertilizer in Indonesia.

B. Consumption Trends and Forecasts of Supply/Demand Balance

3.05 The N consumption increased from about 108,200 tons in 1964 to305,100 tons in 1972, reflecting an average annual growth rate of 13.8%.In considering this growth, it should be kept in mind that i fertilizer usedeclined during 1965-1967 to 67,200 tons on account of foreign exchange con-straints, and reached again the approximate 1964 level only in 1968. Duringthe same.period, the P205 consumption rose at an average annual rate of 8.1%and 120, at 24%. The following table shows the trend of fertilizer consump-tion in the past and forecast of local production compared to expected demand:

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Indonesia - Fertilizer Supply/Consumption Balance, 1964-1983('000 nutrient tons)

Nitrogen (N) Phosphate (P205) Potash (K 20)

Surplus Surplus SurplusP/a C/b (Deficit) P/a C/b (Deficit) P/a C/b (Deficit)

Actual

1964 47.6 108.2 - 60.6 - 26.1 - 26.1 - 5.6 - 5.61970 45.3 183.9 -138.6 - 45.5 - 45.4 - 18.2 - 18.21971 48.2 257.6 -209.4 - 32.7 - 32.0 - 19.4 - 19.41972 57.0 305.1 -248.1 - 52.9 - 52.9 - 30.4 - 30.41973 85.2 328.9 -243.7 - 62.6 - 62.6 - 38.4 - 38.41974 128.7 414. 0 -285.3 - 74.0 - 74.0 - 48.4 - 48.4

(est.)

Pro-jected

1977 332.5 528.2 -195.7 69.0 122.5 - 53.5 - 97.8 - 97.81978 591.0 590.1 + 0.9 73.6 144.9 - 71.3 - 123.2 -123.21980 845.8 675.6 +170.0 73.6 203.8 -130.2 - 172.7 -172.71983 858.7 825.5 + 33.2 73.6 340.0 -266.4 - 286.5 -286.5

Annual Growth Rate (%)

1964-1972 13.8 8.1 24.01972-1978 11.6 18.3 26.01978-1983 7.0 18.6 18.4

/a P = Production.

/b C = Consumption.

/c In 1974, about 373,000 tons of N (90% of the total) were consumed inthe form of about 800,000 tons of urea. The actual urea consumptionin 1974 was significantly higher (95%) than the effective consumptionforecast of 410,000 tons of urea in the PUSRI II appraisal report. Thereport, however, projected that the demand for urea that year wouldreach about 600,000 tons. The report assumed that the effective con-sumption would fall short of demand because of foreign exchange, dis-tribution and other constraints in Indonesia. But the country has beenable to overcome those constraints to a great extent, and achieve in1974 a consumption level about 33% higher than the forecast demand.

3.06 Though the fertilizer consumption has increased, the consumptionper ha of arable land is comparatively low in Indonesia as shown in thefollowing table:

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Fertilizer Consumption per Hectare of Arable Land, 1971/72(kg of nutrients)

N P205 K20

Asia (Ave.) 17.2 6.7 3.0Indonesia /a 10.9 (38). 1.3 (11) 0.3 (10)India /a 10.7 (30) 3.4 (10) 1.8 (6)Egypt 122.7 16.7 0.7Korea,

Republic of 150.2 68.5 40.2Japan 160.8 122.0 107.0

Source: FAQ Annual Fertilizer Review, 1972.

/a Figures in brackets give expected per ha consumptionfor 1980.

3.07 Projections of total N fertilizer consumption in Indonesia madein different studies show minor divergencies. In 1980, N consumption isprojected by TVA to be 668,000 tons. BEICIP's high forecast assumed 654,800tons against a low forecast of 576,000 tons, which, in turn, is close to the562,900 tons forecast by the NFS report of 1971/72. The NFS forecast, how-ever, underestimated actual consumption in 1972 and 1973 by 34% and 24% re-spectively. If it were corrected accordingly, it would be slightly above theforecast of about 676,000 tons of N used in para 3.05 above. The Pelita II(Second Five-Year Plan) target of 1.2 million tons of N in 1980 is not sup-ported by any of the studies reviewed here.

3.08 There are divergences in forecasts for P 2 05 and K2 0 consumption in1980 ranging from 295,600 tons (NFS) to 146,600/205,000 tons (BEICIP low/high cases) for the former and 168,300 tons (NFS) to 79,900/181,000 tons(BEICIP low/high cases) for the latter. These forecasts reflect variousassumptions as to desirable NPK ratios and uncertainty, in the absence ofmeaningful time series, on the amount of P 2 05 and K20 which the Indonesianfarmer might be prepared to apply. The projections used in this report forP205 and other nutrients are derived by using the assumptions for increasesin fertilized acreage and fertilizer dosages for rice from the draft Bankreport, `Irrigation Program Survey", and for other crops from the BEICIPstudy, choosing in the light of recent trends, the most likely among thealternative assumptions of BEICIP.

3.09 The ratio of N, P205 and K 20 consumption is projected to changefrom the 1972 1/ level of 10:1.7:1 to approximately 4.8:1.2:1 in 1978,3.9:1.2:1 in 1980 and improve further to 2.9:1.2:1 by 1983, thus movingtowar d a balanced iuse of nutrients.

1/ Based on Bank and BEICIP forecasts: 1972 is used as the base year be-cause the fertilizer consumption grew at a slower rate in 1973 owingto the inability to procure in the world markets sufficient fertilizersto meet the demand, and full data for 1974 are not available.

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C. Fertilizer Use by Crops and Regions

3.10 In 1972, rice accounted for about 67% of total N consumption and587 of P205 consumption; and there was no use of K20 on that crop. By 1978,the share of N for rice is expected to rise to about 77% and stay at thatlevel up to 1983, while that of P205 would first decline slightly but reachabout 62,' in 1983.

3.11 Total foodcrops accounted for about 83%, 67% and 2% respectivelyof the total N, P205 and K20 consumed in 1972 and are projected by BEICIPto increase to 88%, 80% and 68% respectively in 1983. Thus foodcrops wouldcontinue to dominate the consumption of fertilizers in Indonesia.

3.12 The following table shows the regional fertilizer consumptionprojections which indicate that Java would continue to be by far the majorfertilizer user in Indonesia:

Consumption of Fertilizer by Regions('000 nutrient tons)

1972 (actual) 1978 1983

N P2 5 2 N P205 K20 N P2 5 2

Java, Madura and Bali 242 39 10 413 86 74 528 197 132Sumatra 47 12 20 118 44 37 124 92 106Other Islands 16 2 - 59 15 12 174 51 48

Whole Indonesia 305 53 30 590 145 123 826 340 286Java as % of W4hole

Indonesia 79 72 32 70 60 60 64 58 46

D. Export Potential

3.13 As mentioned in para 3.05, Indonesia could emerge as an exporter ofN fertilizer toward the end of this decade. The exportable surplus is pro-jected to increase to about 170,000 tons of N in 1980 and then gradually declineto about 33,000 tons in 1983 as domestic demand rises, assuming only the plantsalready noted are built. Indonesia should not find it difficult to market thissurplus in the neighboring countries, especially in the Philippines, Thailand,Malaysia and Vietnam. 1/ Of these four countries, the Philippines intends toestablish an ammonia/urea plant of 1,000/1,725 TPD capacity; Malaysia couldset up a similarly-sized plant; and the Republic of Vietnam is consideringa smaller ammonia/urea plant of 660/1,135 TPD capacity. Assuming that thieseplants would come on stream by 1983 and no other plant would be completedin these countries by that time, TVA projected the import needs of thesecountries to develop as follows:

1/ In October 1974 these countries met in Jakarta to start preliminarydiscussions to prepare a strategy for developing a supply and demandbalance in the region.

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N Fertilizer Deficit(-) in Selected Countries(in '000 tons of N)

1974 1977 1978 1980 1983(est.)

Malaysia - 54 - 96 -109 -137 + 31Thailand - 58 - 97 -109 -149 -232Philippines -140 -195 -234 -312 -217Republic of Vietnam -103 -134 -148 -178 -116

Total Deficit -355 -522 -600 -776 -534

3.14 Indonesia, because of its favorable location, is in an advantageousposition to cover these deficits compared to more distant countries which areexpected to have export surpluses by the end of this decade. For example,the present transport cost per ton of fertilizer to Manila from Jakarta isabout US$20 less than from Persian Gulf countries.

E. PUSRI Marketing and Distribution

3.15 PUSRI has established an efficient distribution network to marketits own and imported fertilizers and related agro-chemicals (para 2.09).The Company's marketing organization which operates separately from itsmanufacturing activities, is extensive and currently accounts for the dis-tribution of about half of the total fertilizers consumed in Indonesia; itis expected to remain the leading distributor in the future as well.

3.16 The marketing department of PUSRI has two bulk terminals at Surabayaand Cilacap with bagging facilities; and storage depots and sub-depots inselected locations (Map, IBRD-11220). A third bulk terminal/bagging stationbuilt by PERTAMINA at Tanjung Priok (near Jakarta) is also available foruse by PUSRI, especially to handle imported fertilizers.

3.17 Urea from PUSRI I and PUSRI II is shipped from Palembang both inbags, through Regular Liner Service (RLS) vessels which operate among theislands, and in bulk, through carriers equipped for unloading at the bulkterminals where urea is bagged, stored and dispatched for inland distribu-tion. These present bulk carriers, with their grab-cranes, do not repre-sent an optimal solution for fertilizer shipments. Therefore, they havebeen contracted for only 27 months from October 1974, the time required todevelop and install the more efficient bulk shipping facility being appraisedby the Bank, capable of coping with the enlarged PUSRI production with sub-stantial economies.

3.18 The Government is developing this facility as part of a fertilizerdistribution system in close cooperation with PUSRI and the Bank. PUSRI hasappointed consultants to design the system, and the Bank has appraised itfor a separate loan. The mission which returned early December, 1974 esti-mates that equipment and services for the system would cost about US$120

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million equivalent and is expected to recommend a Bank loan to fii.ance abouthalf of that amount. The proposed distribution system would use additionalbulk loading facilities at Palembang, and would consist of: self-unloadingships capable of operation in all weather conditions; expansion of the exist-ing bulk terminals in Java and establishment of new bulk terminals in Javaand Sumatra with adequate storage and bagging facilities; sufficient inlandstorage capacity to provide a buffer between continuous shipping from theplant and seasonal variation in fertilizer use; and inland transportationfacilities. The distribution system is expected to be in operation by mid-1977. While the time available for implementation is short, iL is believedto be realistic considering the extent of preparatory work done since July1974 and the Government's keen interest in its timely execution. Assuranceshave been obtained from the Government that the distribution system will befinanced and implemented according to schedule.

3.19 It is intended that initially about 80% of PUSRI production wouldbe shipped in bulk to the main markets in Java and Sumatra th-iough Lhe newsystem, and the rest bagged and shipped in RLS vessels from Palembang. Inaddition, PUSRI's imported fertilizers received in bulk and bags at Javaports would be distributed through this system. Considerable economies wouldbe achieved by dispatching some imported fertilizers in bulk to ocher Indonesianports at low backhaul rates using the ships proposed for the system.

F. Credit

3.20 Over 60% of the fertilizer is consumed in Indonesia in areas coveredby two successful programs for promoting intensive cultivation of foodcrops,especially of rice: the BIMAS (Mass Guidance Program) and thet INMAS (MassIntensification) Program. The rest of the fertilizer is consumed mostly bythe cash crop or estate sector. The Bank Rakyat Indonesia (BRI) 4, now thesole credit agency for the BIMAS and INMAS programs, while the estate sectordepends on the normal banking facilities to meet its credit needs. Adequatecredits are currently provided by BRI and the normal banking faci'lties at1 to 2% monthly interest rates and no serious problem is foreseen with respectto credit in the future. BRI is attempting to set up offices to process loanapplications in each village unit ("unit desa"). Village units without a BRIoffice are covered by mobile units. To obtain fertilizer, the farmer has toapply to the village head for an allocation and, for credit, to BR! for acredit voucher covering the cost of the fertilizer allocated to him,. Fer-tilizer is either sold in village "kiosks" operated by retailers or by vil-lage unit cooperatives (BUUD's). It is the Government's policy to promotethe BUUD's as a main source of input supplies for farmers coverect by theBIMAS and INMAS programs. Presently, they lack trained personnel tc oper-ate efficiently and the Government is making efforts to strengi_`heu these co-operatives.

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IV. THE PROJECT

A, Project Scope

4.01 The project will be located adjacent to the Company's existingfacilities (see Annex 4-1 for the plant layout) and will consist of twomodern large-scale, single-train units - an ammonia plant with 330,000 TPYcapacity and a urea plant with 570,000 TPY capacity. These units are morethan 50% larger in capacity than the ones installed for PUSRI II becauselarger plants have come into commercial use since PUSRI II was conceivedand they provide better economies of scale. The project will also includethe necessary auxiliary facilities such as an ammonia storage tank, anelectric power plant, and a steam generating unit for the urea plant aswell as necessary equipment for construction, material handling, warehouse,and laboratory. Housing will also be expanded; so will the existing jettyand bulk loadine facilities to help meet the shipping needs of more than atwofold increase of the Company's production. The project also includespreliminary preparation of the proposed fertilizer transportation and dis-tribution project. A description of the proposed PUSRI III productionprocesses and plant facilities and a project implementation schedule aregiven in Annexes 4-2 and 4-3.

B. Raw Materials and Utilities

4.02 A raw material and product flow chart is given in Annex 4-4. Theprincipal raw material for the project as well as for the existing facilitiesis natural gas from the nearby oil and gas fields in South Sumatra operatedby PERTAMINA and STANVAC. The project's daily gas requirements are about60 million standard cubic feet (SCF) compared to 42 million SCF for PUSRI IIand 12 million SCF for PUSRI I. PUSRI I is served by a gas pipeline operatedby STANVAC while the rest of the Company's needs are to be met by the gasgathering and transmission system with a capacity of 116 million SCF per daydeveloped by PERTAMINA as part of the PUSRI II project, financed by IDA.PERTAMINA, under instructions from the Government, has engaged an engineeringfirm to design and develop new gas fields in the Musi Block, about 140 kmsouthwest of PUSRI, and to upgrade the present system (by a 12 km loop fromSimpiang to the plant) to secure initial gas supplies by October 1976 whenthe gas will be needed for preliminary tests and to achieve full supply sixmonths later when the plant is expected to undergo performance tests. Theschedule for this project though tight could be met as orders for pipeswhich are in short supply in the world, have already been placed. However,the present gas supply system with some additional production drilling iscapable of meeting the gas needs of PUSRI II as well as PTJSRI III for sev-eral years after PUSRI III starts up, should the completion of the new sys-tem be delayed for any reason. The Government has confirmed that it hasalready instructed PUSRI and PERTAMINA to take prompt measures to meet fullyPUSRI's expanded needs and to negotiate and agree on, before September 1,1975, an amendment to the present gas purchase agreement between the partiesto reflect the increase in volume and any change in the basis for pricing.

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4.03 The proven gas reserves of those fields already connected to thepipeline system are estimated at 856 billion SCF (Annex 4-5), adequate tomeet PUSRI's entire needs for about 16 years, after allowing 30% for fielduses (e.g. for compressors) and field losses. This is based on the as-surance of the Government that the gas from the existing system will besupplied exclusively to PUSRI. For the purpose of financial projections,it has been assumed that the gas price will not exceed Rp 250 (US$0.60) per1,000 SCF. This is calculated on the basis that the new gas gathering andtransmission system would require this price to cover all costs, and earna reasonable return on invested capital.

4.04 The project includes the construction of a 15 MW power plant,while the needs of the existing facilities are met by a separate unit ofthe same size. In addition, there is a 5 MW unit on standby which origin-ally served PUSRI I. Thus, power supply is assured. PUSRI III will gener-ate its own steam, and water for industrial as well as drinking purposeswill be obtained from the Musi River.

C. Bag Supply

4.05 Originally, the Company used multi-walled paper bags but, becauseof breakage and fertilizer losses in transit, later shifted to polypropylenebags which, being sturdier, can withstand rough handling and transportationover water and rugged roads. While about 30% more expensive than poly-ethelene bags, a cost-benefit analysis prepared for PUSRI shows the use ofpolypropylene bags still to be cost saving to the economy since it preventsfertilizer losses in handling and transportation. The Company will, there-fore, establish a plant at an estimated cost of Rp 4.2 billion (US$10 mil-lion) to produce sufficient polyethelene-lined polypropylene bags from pur-chased chips to meet all of PUSRI's bagging needs.

D. Project Execution

4.06 Using the staff experienced on PUSRI II as a nucleus, the Companyhas formed a project team headed by Mr. Kotan Pasaman, Technical and Pro-duction Director, to work with Kellogg (U.S.) and Toyo Engineering (Japan),and coordinate the work on PUSRI III. As the Company engineering staff issomewhat limited in size, it is being supplemented with experts from Scien-tific Design, of the U.K., which will continue as PUSRI's Technical Advisor.A detailed project execution plan, similar to that for PUSRI II, has beenprepared by the Company with the help of the Technical Advisor. Kelloggwill have overall responsibility for providing the complete fertilizer plantwhich will be supplied as follows: (1) the ammonia plant and all offsitesand auxiliaries are being designed and procured by Kellogg which is alsoresponsible for the overall construction, erection and successful start-upof the entire project; and (2) the urea plant is being designed by Toyo whichis also procuring the equipment for shipment to the plant site ready for erec-tion by Kellogg.

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4.07 In May 1974, after consultation with the Bank, PUSRI signed newcontracts with Kellogg, Toyo and Scientific Design, i.e., the same firmswhich had been selected for PUSRI II. Their technical services are basedon. fixed fees. Detailed civil engineering is being carried out by Kelloggand civil construction will be done by local contractors under Kellogg'ssupervision. The Government has agreed to give prompt approvals as neededto execute the project in accordance with a critical path schedule preparedfor PUSRI and agreed to by the Government, Kellogg, Toyo and the Bank. Workon the project started mid-1974 and the project is expected to be mechani-cally complete by early 1977, with commercial production after start-uptests scheduled for May 1, 1977 (Annex 4-3). This is a tight but realisticschedule given the good performance record for PUSRI II and the arrangementsfor project implementation based on the Company's experience.

E. Employment and Training

4.08 At the end of 1974, PUSRI had about 2,200 employees. An additional550 persons would be employed by PUSRI III, bringing total employment to2,750 by 1977. The incremental direct employment generation by the projectis low because of the capital-intensive nature of the project and also be-cause of an orderly redeployment of labor from PUSRI I whose work force isat present in excess of requirements. Kellogg, Toyo and Scientific Designwill train PUSRI staff and arrangements will also be made for a few selectedPUSRI personnel for specialized training outside Indonesia. Agreement hasbeen obtained from the Company and the Government that they will take adequatemeasures to maintain and augment the skilled manpower of PUSRI as needed.

F. Ecology

4.09 The effect on the environment of a modern ammonia/urea plant ofthe type to be constructed is minimal, and no appreciable amount of harmfulwastes will be discharged. Non-gaseous effluents from the project are smalland will be treated in the water treatment unit already established underPUSRI II. Indonesian regulations for gaseous effluents are not well definedbut this will have no practical effect because of the use of modern ammoniaand urea technology and also because the local natural gas is almost sulfurfree. The plant will be designed to standards established by Kellogg andToyo based on normal operating specifications and regulations in the U.S.and Japan. Therefore, pollution control facilities envisaged under PUSRIIII are satisfactory, and are expected to account for about 2% of the baseproject cost. The Company has confirmed that the project will be implemented,operated and maintained with adequate measures for environmental protectionand monitoring.

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V. CAPITAL COST AND FINANCING PLAN

A. Project Costs

5.01 Total financing required for the project is estimated at US$192million equivalent, including US$157.6 million in foreign exchange. Detailsof capital cost estimates given in Annex 5-1 are summarized below:

Summary of Capital Costs

In Rp billion In US$ million

/d /Local Foreign/-Total Local Total %Equipment and Spares- 1.82 34.86 36.68 4.4 84.0 88.4 61.3Duty and Taxes/b - - - - - - -Erection 1.45 0.17 1.62 3.5 0.4 3.9 2.7Civil Construction 1.87 1.95 3.82 4.5 4.7 9.2 6.4Engineering Services &Project Management /c 0.50 12.41 12.91 1.2 29.9 31.1 21.6

Preoperating andStart-up Expenses 1.37 0.62 1.99 3.3 1.5 4.8 3.4

Distribution ProjectPreparation 0.08 0.04 0.12 0.2 0.1 0.3 0.2

Jetty 0.83 1.25 2.08 2.0 3.0 5.0 3.5Housing 0.50 0.04 0.54 1.2 0.1 1.3 0.9Base Cost Estimate (BCE) 8.42 51.34 59.76 20.3 123.7 144.0 100.0

Contingencies: Physical 0.21 3.44 3.65 0.5 8.3 8.8(6% of BCE)Price /e 1.12 4.27 5.39 2.7 10.3 13.0

Installed Cost 9.75 59.05 68.80 23.5 142.3 165.8Incremental Working Capital 2.20 0.42 2.62 5.3 1.0 6.3

Project Cost 11.95 59.47 71.42 28.8 143.3 172.1

Interest during Construction 2.32 5.94 8.26 5.6 14.3 19.9

Total Financing Required 14.27 65.41 79.68 34.4 157.6 192.0

/a C.I.F. cost at plant site.

/b Exempt from existing customs duty and taxes.

/c Including training expenses of US$1 mil'lion and US$1.4 million forbonus for engineering firms for early project completion.

/d Including indirect foreign exchange requirements of approximatelyUS$1 million.

/e 8.5% of the base cost estimate plus physical contingency.

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5.02 The above cost estimates are based on comparable Bank Group proj-ects and data prepared by PUSRI with the help of Scientific Design, usingSeptember, 1974 prices quoted to Kellogg and Toyo by prospective equipmentsuppliers and actual bids received for about 50% of estimated equipmentcost. In addition to expenses for detailed engineering, construction, erect-tion and commissioning, the costs of engineering services and project manage-ment include license fees, procurement and field supervision costs, train-ing expenses, payment to vendor servicemen, costs of technical advisor aswell as consultants on management, accounting, shipping and marketing, andprovision for bonus payment to the general contractor for early projectcompletion. The costs under this head are larger for PUSRI III than forsimilar projects in some other countries because of: (i) lack of trainedmanpower in Indonesia, thus necessitating heavy reliance on expatriates;and (ii) need for training local personnel for positions in production,maintenance, finance and management. Physical contingencies equivalentto 6% of the base cost estimates have been added; they are relatively low,due to the advanced stage of procurement. Price escalation for equipment(excluding short-delivery items worth about US$10 million for which ordershave been placed on fixed price contracts) is calculated on the basis ofprojected price increases of 3.5% for the last quarter of 1974, 12% in1975, 10% in 1976 and 8% a year thereafter in major equipment supplyingcountries because of worldwide inflation and supply shortages. On civilworks, excalation rates of 4.5% for the last quarter of 1974, 16% in 1975,14% in 1976 and 12% a year thereafter have been assumed based on the projectedrates of inflation in Indonesia. The above cost estimates, including physicaland price contingencies, are considered adequate.

5.03 Working capital requirements for the project are estimated atRp 2,627 million (US$6.3 million) excluding the cost of spares and theinitial supply of catalysts included under equipment and material costs.Details of working capital calculations are given in Annex 5-2. Should actualworking capital requirements be higher than anticipated, PUSRI is expectedeither to use its own cash generation or to obtain short-term credits.

B. Financing Plan

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

Financing Plan

In Rp billion In US$ million% of

Local Foreign Total Local Foreign Total TotalDebt

Bank - 47.73 47.73 - 115.0 115.0 60.0

Equity

Government 14.27 17.68 31.95 34.4 42.6 77.0 40.0

14.27 65.41 79.68 34.4 157.6 192.0 100.0- - - - -~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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5.05 The estimated total foreign exchange cost component of PUSRI IIIis Rp 65.41 billion (US$157.6 million) of which nearly 73% would be met fromthe Bank loan and the remaining 27% by the Government which will also con-tribute all local currency financing, including working capital. In caseof any cost overrun, it is the responsibility of the Government to providepromptly the additional funds to complete the project on terms satisfactoryto the Bank.

5.06 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 atan annual interest of 12%, including a 3-1/2% fee accruing to the Govern-ment which will bear the foreign exchange risk. The loan will be repay-able in 24 equal semi-annual installments beginning from the second halfof 1978, i.e., 1-1/4 years after the expected start of commercial produc-tion.

C. Procurement

5.07 International competitive bidding procedures in accordance withBank guidelines are being used for major items -- independent of thesource of financing - estimated to cost about US$85 million including escala-tion. In addition, proprietary equipment essential to the process and itemsin limited supply as well as related spare parts, which are estimated tocost together about US$10 million and are critical to the timely completionof the project, are being procured following bidding from lists of qualifiedsuppliers, after prior approval of the Bank. Items costing less thanUS$50,000 equivalent each, and totalling about US$1 million will be purchasedfrom suppliers on the basis of suitability, availability and price followingapproval by the Bank of the items falling into this category. A preferenceof 15% or the existing customs duty, whichever is lower, will be allowedto Indonesian products in which at least 20% of the bid price is ofnational origin, for the purpose of evaluating international competitivebids. Bid evaluation is PUSRI's responsibility with the assistance asrequired from the engineering firms contracted. To expedite deliveries ina tight equipment supply situation, PUSRI has assigned procurement officersto the main offices of the two engineering firms. Overall, as a result ofthe advanced contracting followed by PUSRI after approval by the Bank, thescheduled project completion date has been advanced by nearly one year.

D. Allocation and Disbursement of Bank Loan

5.08 The Bank loan will cover foreign exchange costs (excluding thosepaid before loan signing) of equipment and services, including engineeringand licensing fees, as shown below:

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Allocation of Bank Loan(US$ million)

Equipment and materials 73Engineering services, project management

and pre-operating expenses 22Unallocated 20

Total 115

5.09 It is estimated that the loan will be disbursed according tothe schedule presented in Annex 5-3. Any surplus funds remaining in theloan account 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 1977 terms. The assumptions, listed in detail in Annex6-1, are summarized below.

6.02 It is assumed that the project will start production on May 1,1977 with capacity utilization increasing gradually from 75% in the firstoperating year to 80% in the second and 90% in the third and beyond. Becauseof PUSRI's past record and provision for technical assistance for theproject, the attainment of 90% capacity utilization is considered con-servative. The economic life of the project is assumed to be 12 operatingyears with assets depreciated on a straight line basis. At 90% capacityutilization, the project would produce 522,000 TPY of urea.

6.03 As mentioned in para 2.11, the Government sets and controls theprice at which domestic producers sell their fertilizer to the Government,currently Rp 63,900 (US$154) per ton, c.i.f. Java. During negotiationsagreement was obtained that the Government will not preclude a reasonablereturn after taxes on the Company's assets in service and adequate debtservice coverage (at least 1.5 times) at all times. For the purpose ofprojections, the current ex-factory price of Rp 55,900 (US$135) per tonhas been used to calculate the production income assuming it is not likelyto be raised by 1977. Operating costs are calculated at 1977 constantprices except for real increases in labor and maintenance costs.

B. Production Costs

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

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PUSRI III - Production Costs per Ton (1980)

US$/Ton of Urea %

Natural Gas 20.9 19.8Chemicals and Catalysts 1.5 1.4Bags 10.0 9.5Maintenance Materials 9.5 9.0Labor 4.9 4.6Overhead 7.3 6.9Depreciation 29.4 27.9Financial Charges 22.0 20.9

Total 105.5 100.0

6.05 The principal raw material, natural gas - assumed to be suppliedat an economic cost of Rp 250 (60 US cents)/MSCF - accounts for about 20%of the production costs including depreciation and financial charges whichtogether represent the largest share (48.8%) of total production costs.Production profit (excluding income from inter-Company bag sales) in relationto the projected ex-factory price of US$135 per ton amounts to about 22%as shown below.

C. Financial Prolections for the Project

6.06 Financial projections for the project given in Annex 6-2 aresimnarized below:

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

Year Ending Dec. 31 1977 1978 1979 1980 1981 1982(8 months)-

Capacity Utilization (%) 75 80 90 90 90 90Sales Volume ('000 tons) 290 452 505 522 522 522Sales Revenue 16.2 25.3 28.2 29.2 29.2 29.2

Net Profit before TaxProduction Income 2.41 2.84 5.25 6.33 6.76 7.18From Bag Supply /a 0.90 1.50 1.87 1.87 1.87 1.87

Total 3.31 4.34 7.12 8.20 8.63 9.05

Net Profit after Tax 3.31 4.34 7.12 8.20 8.63 5.00Depreciation 4.25 6.38 6.38 6.38 6.38 6.38Cash Generation 7.56 10.72 13.50 14.58 15.01 11.38Net Profit/Sales (%) 20.4 17.1 25.2 28.1 29.6 17,1Debt Service Coverage (times) 3.6 2.1 2.0 2.2 2.3 2.0

/a To PUSRI II and other consumers.

- 23 -

6.07 Total sales of the project are expected to increase from aboutRp 17.1 billion in 1977 (from 8 months of operation) to Rp 31.1 billionin 1980 (the first year of sales equal to full production). Net profitafter tax of the project increases from about Rp 3.3 billion in 1977to Rp 8.2 billion in 1980 and Rp 8.6 billion in 1981 but declines thefollowing year to Rp 5.0 billion because the 5-year tax holiday for theproject ends in 1981. However, the percentage of net profit/sales in 1982,the first year of tax payment, will be at a satisfactory level of 16%.

6.08 The project is expected to generate from the beginning enoughcash to more than meet its debt service requirements. Beyond 1981, thedebt service coverage will weaken because of the assumed tax payments (45%of profit) but it will still be at an adequate level of over 1.5 times.

D. Incremental Financial Rate of Return

6.09 The incremental financial rate of return before tax is 13.8% inreal terms and is acceptable. Capital costs used for the return calculationsinclude items which in other fertilizer projects would not always be includedin project costs; they are Rp 540 million (US$1.3 million) for expandingthe Company's existing housing facilities; Rp 2.1 billion (US$5 million) forthe construction of a jetty; Rp 125 million (US$0.3 million) for the prep-aration of the transportation and distribution project; and Rp 4,150 million(US$10 million) for the bag-making plant.

6.10 Sensitivity tests have been conducted to determine the effectsof various events on the financial rate of return; the results are shownin Annex 6-3and are summarized below:

PUSRI III - Sensitivity Tests on Financial Rate of Return

Case _

1. Base Case 13.82. Sales revenue decrease by 10% 10.83. Capital cost increase by 10% 12.14. Operating cost increase by 10% 12.65. 6-month project delay and 10% capital cost overrun 10.86. 80% capacity utilization 12.3

6.11 The rate of return is more sensitive to changes in sales revenuethan in operating and capital costs. It would drop to 10.8% if salesrevenue were to fall by 10%; and decline to 12.6% if operating costs wereto increase by 10%. Further, a six-month delay in project implementation,combined with a 10% capital cost overrun and the eventual attainment of only80% capacity utilization, would reduce the return to 9.2%. However, with thepossible exception of the overly tight equipment supply situation worldwide

- 24 -

that is affecting all fertilizer plant construction underway at present, thelikelihood of this happening is low, particularly because of the involvementof experienced engineering firms and the fact that about 50% of the equipmenthas already been ordered.

E. Break-Even Point

6.12 The profit break-even for the project in 1980 would be 62%, andthe cash break-even, 51%. A break-even chart is provided in Annex 6-4. Ureaprices could fall or operating costs increase by about 30% for profit break-even at 90% capacity utilization. The project could break-even on a cashbasis even if urea prices were to fall or operating costs increase by 40%.

F. Analysis of PUSRI with the Project

6.13 Details of consolidated financial projections for PUSRI with theproject given in Annexes 6-5 and 6-6 are summarized below:

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

Year ending Dec. 31 1974 1975 1976 1977 1978 1982(est.)

Income and Cash FlowSales (own urea only) 7.6 21.0 22.0 35.3 44.4 48.3Interest 0.8 3.1 3.1 5.8 8.4 5.7Depreciation 1.6 3.6 3.1 7.1 9.2 9.2Net Profit before Tax 2.2 0.5 1.7 8.0 8.6 13.8Net Profit 1.4 0.5 1.7 8.0 8.6 7.6Cash Generation beforeInterest 3.8 7.2 7.9 20.9 26.2 22.5

Debt Service 0.8 3.1 3.9 7.3 12.0 11.9

Balance Sheet ItemsCurrent Assets 57.6 6.6 6.9 10.0 12.2 13,1Current Liabilities 51.3 3.1 3.8 6.0 8.7 9.6Net Fixed Assets 49.9 75.5 100.1 101.3 92.0 55.1Long-term Debt 25.7 46.9 64.9 67.6 61.9 37.5Equity 30.8 36.7 46.6 56.6 65.3 106.2

RatiosCurrent Ratio 1.1 2.1 1.8 1.7 1.4 1.4Long-term Debt/Equity Ratio 45/55 56/44 58/42 54/46 49/51 26/74

Debt Service Coverage(times) 4.8 2.3 2.0 2.9 2.2 1.9

* Excluding the Marketing Department.

- 25 -

6.14 Assumptions used are detailed in Annex 6-1 and most of them areidentical to those used for the project. As mentioned previously (para2.11), the Government purchases urea from local producers before allocatingthem as well as imported urea to selected distributors for sales to farmersthrough sub-distributors and retailers. The per ton margin allowed fordistributors is Rp 13,100 (US$31.6) and for sub-distributors and retailers,Rp 5,000 (US$12) as reflected in the following four common transactionprices fixed by the Government for both local and imported urea: Gov-ernment to distributors, Rp 41,900/ton; distributors to sub-distributors,Rp 55,000/ton; sub-distributors to retailers, Rp 59,000/ton; and retailersto farmers, Rp 60,000/ton. These prices are substantially lower than theGovernment purchase price (c.i.f. Java) of urea, that is, Rp 63,900/ton forlocally-produced urea and Rp 176,000/ton for imported urea.

6.15 The consolidated projections show that during 1975-1982 totalsales volume would increase by about 130%, while net profit would increase15 times starting from a low base. Projected increases in sales during1975-1976 are the result of production build-up in the newly-commissionedPUSRI II and during 1977-1982 mainly due to PUSRI III. The net profitdeclines slightly between 1979 and 1982, in spite of the decrease in interestburden because, as mentioned in para 6.07, from 1982 the Company will nolonger enjoy the tax holiday on PUSRI III. The debt/equity ratio of PUSRIis projected to exceed 50/50 during 1975-77. However, it is forecast toreach a more satisfactory level in 1978 and improve to 26/74 in 1982 as-suming all earnings are retained and no further expansion.

6.16 During negotiations, the following covenants similar to those inthe PUSRI II agreements were obtained: (i) PUSRI will have subsidiariesonly with the prior approval of the Bank; (ii) without Bank consent, PUSRIwill not incur additional long-term indebtedness other than Rp 47.7 billion(US$115 million equivalent) for PUSRI III if as a consequence the debt/equityratio would exceed 50/50; (iii) PUSRI will depreciate fixed assets of PUSRI IIIover 12 years of its operating life and other assets in conformity with soundaccounting principles; (iv) without Bank consent, PUSRI will not declaredividends except out of accumulated net earnings nor pay dividends if itsquick assets 1/ would be less than its current liabilities or until theproject shall have produced at 80% capacity for 12 consecutive months, i.e.456,000 tons; and (v) except for the project and normal replacements forPUSRI I and II, PUSRI will not invest more than US$2 million per yearwithout Bank consent until PUSRI III produces at 80% capacity for 12consecutive months.

6.17 With respect to the PUSRI II Credit, the Government agreed to takemeasures necessary to assist PUSRI to sell "at competitive prices in accordancewith sound camercial practice." This has been interpreted by the Government

1/ Cash, securities readily convertible into cash, and trade receivablesrealizable within one year.

- 26 -

and IDA to be prices which will allow PUSRI to meet its obligations (includingmaking its agreed contribution to financing PUSRI II) and to maintain a debtservice coverage of 1.5 times. In practice, some of the above covenants werenot specific enough and, therefore, with respect to PUSRI III, the followingadditional covenants were agreed on: (a) PUSRI will not be precluded fromearning a reasonable return (para 6.03) on its assets in service while main-taining efficient operation and a debt service coverage of 1.5 times; (b)PUSRI will maintain a current ratio of at least 1.2 during the continuationof the present controlled distribution system and 1.4 thereafter, in view ofthe seasonal nature of demand for fertilizers, the Company's rapidly increasingsales volume and its recent working capital problems; and (c) the Governmentwill subscribe Rp 31.96 billion (US$77 million equivalent) in new equityin foreign exchange and local currency as required to meet the project'srequirements.

G. Major Risks

6.18 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, little commercialrisk is foreseen because urea has been produced and marketed by PUSRI duringthe last 10 years and it is the most common fertilizer used in Indonesia.However, the project could face problems for lack of adequate transportationand marketing facilities, or realistic Government policies regarding fertil-izer prices. To minimize these problems, the Bank is appraising (para 3.18)the establishment of a more efficient distribution system. Further, it hasto be noted that in the past, the Government responded to PUSRI financialneeds rather slowly and the Company could face certain risks because ofsimilar slow response in the future.

VII. ECONOMIC ANALYSIS

A. World Fertilizer Prices

7.01 New technology developed in the 1960's called for 1,000 TPD ureaplants as the minimum economic size and led to substantially lower produc-tion cost on account of economies of scale and, more importantly, becauseof a more efficient use of fuel and feedstock. For example, to produceone ton of urea, PUSRI II needs only 60% of the gas for fuel and feedstockthat PUSRI I consumes. Such advantages stimulated investment in ureacapacity in the world and brought ex-factory prices in 1970 to a low levelof US$50-60 per ton, barely sufficient to cover operating costs. Investmentshad all but ceased when the green revolution with its high-yielding seedvarieties dramatically increased fertilizer demand. The ensuing worldwideshortage has boosted recent f.o.b. prices of urea to over US$400 per ton,far beyond the level accounted for by inflation in equipment and energycosts. Estimates of when demand and supply would be in better balance andof prices resulting therefrom are difficult to make partly because more

- 27 -

reliable worldwide supply forecasts are only now being developed anduncertainties about fertilizer consumption trends, particularly as they maybe influenced by the present high fertilizer prices. However, supply/demandforecasts recently made by the Bank, taking into account new nitrogenfertilizer plants under construction or planned, show a deficit for 1980 ofabout 1.9 million tons of N in Asia and world-wide a small deficit of about0.1 million tons. However, a small surplus is also possible if the recentsharply accelerated trend in building new capacity were to continue.For purposes of economic analysis, it has been assumed that supply anddemand will be more or less in balance by the time PUSRI III begins pro-duction and that, therefore, the world price for bagged urea would fallto US$151 per ton (f.o.b., exporting countries) or US$176/ton, c.i.f.Jakarta, taking an average freight rate from exporting countries to Indonesiaof US$25 per ton. Deducting from this the economic transportation cost ofUS$7/ton from PUSRI to Java, the resultant price of US$169/ton has been usedas an economic accounting price to value the output of PUSRI III.

Economic Rate of Return

7.02 Detailed assumptions for the economic rate of return calculationare given in Annex 7-1. The economic rate of return for the project is about20%. For the base case, gas has been priced at US$0.60/MSCF except forthe purchase of the gas which could alternatively be used by existing oil-burning consumers (2 refineries and 2 power plants) for which US$1.40/MSCF I/has been assumed as the opportunity cost until the new gas system is ex-pected to be on stream by 1978. Sensitivity tests performed on the economicrate of return (Annex 7-2) show that using US$1.40/MSCF for all of the gasfor the life of the project would result in a return of 15.3%. A 10% dropin urea price would reduce it to 16.7%, while a 10% increase in operatingcosts would bring it to 18.9%. The return is also sensitive to delays inproject implementation, cost overrun and under-utilization of capacity. Asix month delay in project completion, combined with a 10% capital costoverrun and 80% capacity utilization (as against 90% assumed) would dropthe economic return to a still satisfactory level of 14.8%. Further, itis conceivable that during 1979-1982, when Indonesia is forecast to havesome surplus of urea, PUSRI may be asked by the Government to exportpart of its production. During that period, even if PUSRI were to exportone-third of the output from the project, the rate of return would droponly marginally to 19.3%. Therefore, under conceivable adverse conditions,the project yields an acceptable rate of return.

C. Supply of Fertilizers and Food

7.03 Assuming 90% capacity utilization, the project would augment theannual fertilizer supply in Indonesia by 522,000 tons of urea or 236,000tons of nitrogen nutrients. Assuming further that a ton of plant nutrientshelps produce about 8-10 tons of foodgrains under local conditions,

1/ Equivalent to US$11 per barrel of crude oil in terms of heating value.

- 28 -

the annual supply of plant nutrients from the project would help increasefood production in Indonesia by 1.9 million to 2.4 million TPY, enough tofeed 9.5-12 million people annually.

D. Direct Foreign Exchange Savings

7.04 One of the most important benefits from the project is the annualgross direct foreign exchange savings after deducting the foreign exchangecomponents of operating costs. As shown in Annex 7-3, such foreign exchangesavings at the projected 1977 world prices would be about Rp 36 billion(US$87 million equivalent) annually after the project achieves full production.The estimated foreign exchange financing required for the project - nearlyUS$158 million - would, therefore, be more than covered in less than two yearsof operation at full production.

E. Employment Generation

7.05 Direct employment from the project is low at 550 but it is expectedto have a significant impact on indirect job creation especially in trans-portation, storage and distribution of fertilizers and in the exploitationand distribution of natural gas.

VIII. AGREEMENTS

8.01 Agreements have been reached on the following:

(a) From the Government that it will:

(i) consult with the Bank before making changes in PUSRImanagement (para 2.08);

(ii) enable PUSRI to maintain a sound debt/equity ratio(paras 2.15, 6.16 and 6.17);

(iii) exchange views with the Bank from time to time regardingIndonesia's plans to meet the country's nutrient require-ments (para 3.03);

(iv) enable PUSRI to implement the distribution projectaccording to schedule (para 3.18);

(v) require PERTAMINA to carry out steps necessary toincrease gas availability to meet fully PUSRI'sneeds (para 4.02);

(vi) provide funds promptly to implement PUSRI III, andmeet fully any cost overrun (paras 5.05 and 6.17);

- 29 -

(vii) enable PUSRI to maintain a sound current ratioat all times (para 6.17); and

(viii) enable PUSRI to obtain revenue necessary to coverall costs and get a reasonable return on assetsin service and an adequate debt service coverage(paras 6.03, 6.14 and 6.17).

(b) From PUSRI that it will:

(i) strengthen financial management and improvefinancial reporting and forecasts (paras 2.08and 2.16);

(ii) agree on amendment to the long-term contractwith PERTAMINA for the supply of gas for PUSRIby September 1, 1975 (paras 4.02 and 4.03);

(iii) implement PUSRI III according to an agreed criticalpath schedule (para 4.07);

(iv) take adequate environmental protection and monitoringmeasures (para 4.09);

(v) have subsidiaries only with Bank consent (para 6.16);

(vi) not contract additional long-term debt outside of thefinancing agreement if, as a result, total debt exceedstotal equity of the Company (para 6.16);

(vii) not undertake without the Bank's consent expendituresexceeding US$2 million a year until PUSRI III achieves80% of capacity utilization for 12 consecutive months(para 6.16); and

(viii) not pay dividends without Bank consent, if (a) thequick assets of PUSRI are less than its current lia-bilities, and (b) until PUSRI III achieves sustained80% capacity utilization (para 6.16).

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

(i) take all steps necessary to accelerate the implementa-tion of a transportation and distribution project tomeet PUSRI's needs (para 3.18); and

(ii) maintain and augment the trained manpower of PUSRI(para 4.08).

- 30 -

8.02 Based on the above agreements, the project provides a suitablebasis for a loan of US$115 million equivalent.

Industrial Projects DepartmentFebruary 4, 1975

ANNEX 1

INDONESIA: PUSRI FERTILIZER EXPANSION PPlOECT

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 and oxygenare readily available from the atmosphere and water. Nitrogen, phosphorus andpotassium -- three main nutrients -- and the other elements are drawn from thesoil. Unless supplemented by regular additions of materials containing thethree main nutrients, soil is soon depleted of fertility by cropping. Use oforganic materials such as animal and vegetable wastes can be utilized but thescale and intensity of moderm agriculture have far exceeded the availabilityof natural "fertilizers." Consequently, the majority of the world's primaryplant nutrient needs are now supplied in the form of manufactured or "chemical"fertilizers. To an increasing degree, secondary nutrients such as calcium,manganese are also added to soils along with the primary nutrients in ratiosprescribed by agronomists according to specific crop 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 P2O LV of K2i

Nutrient Nutrient Nutrient

Urea 46% DAP 46% PotassiumAnmmonium Nitrate 34% Triple Super- Chloride 61%Ammonium Sulfate 21% phosphate lt6% PotassiumDiammonium Single Super- Sulfate

Phosphate (DAP) 18% phosphate 18%

Because of the high nutrient content of urea, diammonium phosphate and potassiumchloride (KCL), they are some of the most popular fertilizer materials in theworld 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).

4. Complex or NPK Fertilizers: All three primary nutrients (N, P Cr, K20)are frequently applied to the soil at the same time in ratios varying wilh~ thenutrient requirements of different crops. To facilitate handling, the severalrequired chemicals are usually agglomerated into uniform granules for distribution.

ANNEX 1Page 2

The analysis of each nutrient is given as a ratio to describe the NPK product.Thus 15-15-15 complex fertilizer contains 15% each of N, P205, and K20; and12-2h-12 complex fertilizer contains 12% N, 24% P205 and 12% K20.

5. Phosphate Water Solubility: The agronomic availability (or efficiency)of phosphate materials vary substantially. A common practice is to use watersolubility as a criterion although in acidic soils it is a less significant factor.Higher P205 water solubility permits the fertilizer to be absorbed more rapidly.The minimum recommended in most cases is about 60% solubility but in some casesup to 80-85% solubility is preferred.

6. Ammonium Nitrate (AN) is produced by reacting ammonia with nitric acid.Nitric acid (HN03 ), in turn, is made from ammonia (NH~). AN contains 34.5%nitrogen, half in the ammonium form and half in the nitrate form, and is veryhygroscopic. It also is a commercial explosive. In mxa y countries, a diluent --e.g., limestone -- is added to lower the analysis and negate the explosive propertiesas well as to minimize the hydroscopic properties.

7. Feedstocks are the hydrocarbons used to produce hydrogen for the ammoniasynthesis; in the proposed Pusri III plant, the feedstock would be natural gaswhich is usually the most economical choice when available. Other potentialfeedstocks are naphtha, fuel oil, crude oil, coal or lignite.

8. Urea is known chemically as carbamide or NH2CONTH2 - the normal amideof carbonic acid; this compound contains about 46% N, all in the ammonium form.It is considerably less hydroscopic than ammonium nitrate and it is the most widelyused straight nitrogen fertilizer today.

9. Urea Synthesis: Urea is made by reacting ammonia with carbon dioxide.Since both of the materials are produced during the ammonia synthesis, urea pro-duction is usually undertaken alongside an ammonia plant. Unfortunately, thecorresponding acid of carbon dioxide (carbonic acid) does not form stable ammoniumsalts as do nitric, sulfuric or phosphoric acids. Therefore, simple neutralizationas used in making ammonium nitrate and sulfate fertilizers is not possible. Instead,ammonia and carbon dioxide are combined under heat and pressure to make ammoniumcarbamate which although unstable, can be dehydrated under pressure to form urea, astable compound. Again, unfortunately, the overall reaction is completely reversibleand even at 300 atmospheres pressure and 2000C, the conversion to urea in a singlepass through the reactor is under 70%. This introduces several complications:high pressure must be used to maximize conversion; unconverted reactants must beseparated and recycled; increased corrosion under the high temperatures andpressures used must be overcome, and urea decomposition into undesirable productsmust be minimized. In recent years, several engineering and producing companieshave developed ways of surmounting these problems, and large plants capable ofproducing 1,725 tons per day, or more, of urea to rigid chemical and physicalspecifications are now operating successfully for long periods throughout the world.

Petroleum Units and Measures

10. The petroleum industry historically has used units of measure based onthe English measuring system. Conversion rates for some units are given below:

ANNEX 1Page 3

1 barrel = 2 US gallons;1 US gallon 3.785 liters = 0.003785 131 Normal CubicMeter (NM3) = 37.3 Standard Cubic Feet (SCF)

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

11. Mlaterials that exist in the form of ga-es, such as methane(natural gas), are measured in volumetric unit.. `7ince gnFes are com-pressible, standard conditions of temperature and pressure (600F and1.0 atmosphere) are used. to define the quantity (in volume) of gas,and designated as "normal cubic meters."-

Industrial Projects DepartmentJanuary 1975

ANNEX 2-1

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

DESCRIPTION OF EXISTING FACILITIES

A. PUSRI I

2.01 PUSRI I, the original plant, by present standards is a smallone. It was engineered by H. K. Ferguson Company, a subsidiary ofMorrison-Knudsen (U.S.), with the Girdler Corporation (U.S.) providingthe ammonia process and the Toyo Engineering Corporation (TEC), ofJapan, the urea process. Its ammonia and urea units have capacitiesof 180 TPD and 300 TPD respectively, while modern fertilizer plantshave capacities more than fivefold higher, and use efficient single-train ammonia facilities based on centrifugal compressors. PUSRI Iuses reciprocating compressors in its dual-train ammonia and urea units.Because of its relatively small size and obsolete technology, PUSRI Iis a high-cost producer compared to larger scale fertilizer plants.This disadvantage has been aggravated by the pricing policy of theGovernment with the aim of providing fertilizers at a low cost tofarmers. However, through good plant maintenance and replacementinvestments, PUSRI I has been operating near or above rated capacitysince 1969. The plant is self-sufficient in utilities, but the power-generating facility is nearing the end of its useful life.

2.02 Feedstock to PUSRI I is natural gas from STANVAC fed througha 75-kilometer pipeline having about 12 million standard cubic feet(SCF) per day capacity. The gas supply agreement between PUSRI andSTANVAC expires in 1983 at which time ownership of the gas and gassystem would be transferred to PERTAMINA.

2.03 PUSRI I will need major repairs by 1976, including the prilltower and the urea reactor. However, the ammonia plant, which does nothave the corrosion problem, is capable of continuing its operationbeyond 1976. PUSRI is currently exploring possible choices for PUSRI Imodernization including urea granulation or using potential excessprilling capacity in PUSRI II and III. The anhydrous ammonia fromthe unit could also be used as a raw material for complex fertilizerproduction, or could be sold as such.

B. PUSRI II

2.04 Work on PUSRI II was originally scheduled to start in April 1970 andthe plantwas expected to be in commercial operation by September 1973.However, the implementation began nearly a year later than anticipatedbecause of the time required to develop bid specifications and tonegotiate supply and service contracts satisfactory to all parties.

2.05 FUSRI II includes: (1) modern single-train ammonia and ureaplants of 660 TPD and 1,150 TPD capacity; and (2) a gas supply systemwith 172-km pipeline- for gas gathering and transmission from PERTAMINAand STANVAC gasfields in South Sumatra. The original estimate of

ANNEX 2-1Page 2

financing required for PUSRI II was equivalent to nearly US$ 91 million,including about US$ 15 million equivalent for the gas system. The foreignexchange cost excluding interest during construction was estimated atUS$ 68.0 million, of which IDA committed US$ 30 million;USAID, US$ 20million; ADB, US$ 10 million; and OECF, US$ 8 million. However PUSRI IIexperienced cost increases because of: (1) international currency realign-ments; (2) expansion of the gas gathering and transmission system capacityby 90% to 116 million SCF/day over the original plan (60 million SCF/day)to cover the requirements of PERTAMINA's two refineries and of two powerplants operated by the Nartinal Power Company; and (3) a general escalationin equipment costs higher than anticipated partly due to the one-year delayin the start of the Project. According to latest calculations, PUSRI IItotal cost amounts to over US$ 122 million, including us$ 39 million forthe gas system. The increase in the foreign exchange cost was almost fullycovered by additional commitments by the four lenders, including US$ 5 millionfrom IDA through a supplementary credit approved May 15, 1973. The Governmenthas borne the rest of the cost increase.

2.06 PUSRI II went into production in September 1974. Ithas in-plant facilities for the supply of utilities. It also suppliespower to PUSRI I as the latter's old power generating unit is now usedas a standby. Further, while PUSRI I ships bagged urea, PUSRI II productis shipped in bulk; however, cross-connection allows part of the PUSRI IIproduction to be bagged using PUSRI I bagging facilities. PERTAMINAsupplies gas to PUSRI II under a 20-year gas purchase agreement using anagreed price formula which covers all operating costs including deprecia-tion and financial charges. Based on this formula, the gas price is expected togradually decline from 31US cents to 17 US cents per MSCF during 1974-1980.

2.07 The ammonia plant of PUSRI II was designed by M. W. KelloggCompany (U.S.), using its own process, and the urea plant by the ToyoEngineering Corporation (Japan), based on the Mitsui Toatsu process.Kellogg had overall responsibility for the entire fertilizer plant, with¶ovo Rs sub-contractor. Scientific D~esign Company (UK), as Technical

/dviser, assisted PUSXI. Agrar-und Hydrotechnic GmbH of the FederalRepublic of Germany has been serving as Marketing Consultants and PriceJaterhouse and Associates of the U.K./Australia, as Accounting and1ianagement Consultants,

Industrial Projects DepartmentJanuary 1975

ISONE61A-: FUIIERTILIZER EXIAN60N9.1C PliOl 2

OIGANIZTION C..RT

| i______------------------------------------------------- --------------- _-__----_-------------I---- -- -

-- -__ --- ---------------- - - - -- -s--_ -____ - - ---- - - - _ __ -_ __ -l - - -H - -----------

r. m_ [LE3 l;; _. .| r ; 1r^ r!

ANNEX 2-3

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECTHISTORICAL INCOME STATEMENT (1970-1974)

(In Rp million unless otherwise specified)

Year Ended Dec. 31 1970 1971 1972 1973 1974

Sales Volume (tons)

Local Urea 98,993 105,797 101,779 103,064 189,70nImported Urea 37,795 74,722 185,795 265,235 160,300TSP/DAP - 82,941 117,00C21Other . 2195 2,600 -2440 _ --

Total Sales Volume 136,788 182,714 290,174 453,680 467,000

Sales Revenue

Local Urea 2,424 2,890 3,050 3,447 7,600Imported Urea 828 1,706 4,294 7,195 n.a.TSP/DAP - - 2,635 n.a.Other _- 144 1W4 143 __5,

Total Sales Revenue 3,252 4,740 7,488 13s420 20, o(,

Cost of Sales

Local Urea 2,124 2,129 2,628 3,286 3,100Imported Urea 763 1,616 3,972 6,1427 n.a.TSP/DAP _ 1,866 n.a.Other 145 63 _ 41 57

Total Cost of Sales 2,887 3,890 6,663 11,620 17,000

Gross Profit 365 050 759 1,800 3,800

Shipping Costs 109 352 352 411 50Q

Administration Costs2/ 259 371 499 868 l,')00

Financial Expenses - - 404 452 0o0

Net Profit before Tax (3) 127 (430) 69 2,2)0

Tax 56 - - 768

Net Profit (Loss) (3) 71 (430) 69 1,h32

1/ Including sales of ammonia, pesticides, etc.u Including costs of research and development

Industrial Projects DepartmentJanuary 1975

ANNEX 2-4

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

HISTORICAL BALANCE SHEETS (1970-1974)(In Rp Million)

Year Ended Dec. 31 1970 1971 972 1973 197),

(est)

ASSETS

Current Assets

Cash and Letters of Credit 403 349 734 845 19,875Receivables 1,151 1,016 1,926 11,868 1 ,7Inventory 976 1,093 2,584 3,674 25 i

Sub-Total 2,530 2,458 5,244 16,387 5,',571!

Net Fixed Assets 5,323 6,049 11,336 24,698 b(o00i

Other Assets 36 146 65 350 "0O)

TOTAL ASSETS 7,889 8,653 16,645 41,435 107,839

LIABILITIES

Accounts Payable and BRI Credits 819 923 3,633 13,083 51,300Current Portion of L/T Debt - - - - _

Sub-Total 819 923 3,633 13,083 51,3(7

Long Term Debt - 652 6,575 20,364 2L,735

EQUITY

Issued Capital 7,000 7,000 7,000 8,482 29,8661JRetained Earnings 70 78 (563) (494)_ 938

Sub-Total 7,070 7,078 6,437 7,983 30.801,

TOTAL LIABILITIES 7,889 8,653 16,645 41,435 107,839

1/ Including (a) the undisbursed a-r(,nt of' Rp 5,63h million for PEUSRI II; anc!(b) Pp 33? millior 'or PUPPT IIT committed by G'r ernment in 1°074 bUt paiA in-Tanuary 1975.

Industrial Projects Department

January 1975

ANNEX 3

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

FERTILIZER MARKET AND MARKETING

Background

1. Indonesia is the world's largest archipelago of more than 13,000islands of which about 3,000 are inhabited. It has an area bigger than thewhole of Europe and has a population of about 127 million, making it thefifth most populous nation in the world. The population is growing at afast rate of 2.4% a year. The population growth rate is expected to de-cline slightly to 2.34% during 1976-1981 and to 2.29% during 1981-86, withthe population reaching about 147 million in 1980 and 161 million in 1983.

2. According to the 1971 Census, of the total population of about119 million people, nearly 64% lived in Java and Madura; 17.5% in Sumatra;7.2% in Sulawesi; 4.3% in Kalimantan; and 7.0% in the other islands (Table 1).Further, the 1971 Census showed that of the total number of people employed(39.2 million), about 63% were engaged in agriculture, forestry and fishingcompared to 7.5% in manufacturing. Agriculture accounts for about 50% ofGross National Product and almost all non-petroleum exports.

3. During the First Five-Year Plan (Pelita I) which ended March 31,1974, Indonesia's real annual economic growth averaged about 7%. DuringPelita II (1974-79), the rate is expected to be 7.5%. This growth rate isprojected to be maintained beyond 1979 as well.

4. Indonesia is rich in oil and natural gas resources. Its growthprospects have improved significantly with the rise in oil prices fromUS$2.93 a barrel in April 1973 to US$12.6 a barrel in July 1974. The countrycurrently produces 1.45 million barrels of oil a day, ranking the 10thlargest crude oil producer in the world. By 1980, its crude oil productionis expected to rise to 2 million barrels a day.

Agricultural Situation

5. Agricultural production has grown at the rate of 4% a year duringPelita I. Rice is the most important foodcrop which accounts for about one-third of the food production by value and over 10% of GNP. Other majorfoodcrops are: Corn, cassava, sweet potatoes, soybeans and peanuts. Amongthe estate crops grown are rubber, oilpalm, sugarcane, tea, coffee, tobacco,cloves, coconuts and pepper. Production of foodcrops other than rice in-creased marginally or even decreased over the period 1969-1973. However,during the same period, rice production rose significantly from 10.8 million

ANNEX 3Page 2

tons to 13.4 million tons. Despite this increase in rice production, Indo-nesia has been importing 0.5 million to 1.5 million tons of rice in recentyears.

Harvested Area

6. In 1972, the harvested area under all crops was about 16.5 millionha (Table 2) of which 11.5 million ha (nearly 70%) was under foodcrops andthe rest under estate crops. Rice alone, with approximately 8 million ha ofharvested area, accounted for about 48% of the total harvested area in thecountry.

7. Java accounts for the largest harvested area among all islands inIndonesia, with Sumatra coming next (Table 2). For example, in 1972, Javaaccounted for 8.14 million ha of harvested area or about 49.3% of the total,while Sumatra accounted for 28% with 4.6 million ha. Thus, Java and Sumatraaccounted for slightly more than 77% of the total harvested area that year.

8. The total fertilized area in Indonesia was about 4.8 million ha in1972, of which 3.85 million ha (80%) were under foodcrops and the rest underestate crops (Table 3). Rice alone accounted for about 63.4% of the totalfertilized area, with about 3 million ha. This shows that use of fertilizersis concentrated on foodcrops, especially rice. This situation is expectedto continue in the future as well.

9. Of the total fertilized area in 1972, Java accounted for 3.6 mil-lion ha (75%) and Sumatra for 0.92 million ha (19%). Thus, Java and Sumatraaccounted for about 94% of the total fertilizer area in 1972, with the restof the islands having very limited fertilizer area.

Per Hectare Fertilizer Consumption

10. The following table shows the trend of per hectare fertilizerconsumption:

Fertilizer Consumption per Hectare of Arable Land(kg)

N P20 K 0- ~2 5 2

1959/60 2.57 0.49 0.35

1971/72 10.9 1.3 0.30

11. The per hectare consumption of N and P 0 has increased significant-ly since 1959/60. However. K 0 consumption per hectare has remained more2or less stationary at a low level. However, in the future, the need forK20 is also likely to increase to provide balanced fertilization. Fieldtrials have shown that the need for K2 0 is greater for estate crops thanfor foodcrops.

ANNEX 3Page 3

12. Comparison of fertilizer consumption/ha of arable land in 1971/72among selected countries is provided in Table 4. It shows that the con-sumption/ha is still one of the lowest in Indonesia, in spite of significantincreases in the recent past.

Fertilizer Consumption

13. During 1964-1968, N consumption in Indonesia declined (Table 5)from 108,200 tons to 101,200 tons mainly because of the scarcity of foreignexchange to import fertilizers. However, starting from a low base, P205 andK20 consumption increased during that period. The following table shows thetrend of fertilizer consumption during 1964-1972:

Trend of Fertilizer Consumption('000 nutrient tons)

N P 05 K 20 N:P 205:K20 Ratio

1964 108.2 26.1 5.6 19.3:4.7:11968 101.2 32.5 11.5 8.8:2.8:11972 305.1 52.9 30.4 10.0:1.7:1

Ave. Growth Rate (%)

1964-1968 -1.7 5.7 19.71968-1972 31.0 13.0 27.01964-1972 13.8 8.1 24.0

14. As shown in the above table, the increase in fertilizer consumptionhas been particuarly significant since 1968, with the increased emphasison high-yielding seed varieties and agricultural development. During1968-1972, N consumption grew at an average annual rate of 31%, while P 05consumption expanded at the rate of 13% a year and K 0 consumption, at theannual rate of 27%, starting from a low base. The NP 20 :K 0 ratio haschanged from 8.8: 2.8:1 in 1968 to 10:1.7:1 in 1972 (Table 9) reflectingrelatively heavier concentration on N consumption.

15. Of the total N consumption in 1972, the consumption by the foodcropsector was nearly 83%, with the estate sector using the rest. In the caseof P205 and K 0 consumption, about 67% and 2% respectively were in the food-crop sector (iable 7). The following table shows the respective shares ofthe foodcrop and estate sectors in the total consumption of different nutrientsduring 1964-1972:

ANNEX 3Page 4

Fertilizer Consumption by Main Sectors

1964 1968 1972Quantity % Quantity % Quantity %('000 tons) ('000 tons) ('000 tons)

N Consumption

Foodcrop Sector 87.6 81.0 95.0 93.9 252.4 82.8Estate Sector 20.6 19.0 6.2 6.1 52.7 17.2

Total 108.2 100.0 101.2 100.0 305.1 100.0

P205 Consumption

Foodcrop Sector 17.0 65.0 24.4 75.1 35.4 67.0Estate Sector 9.1 35.0 8.1 24.9 17.5 33.0

Total 26.1 100.0 32.5 100.0 52.9 100.0

K20 Consumption

Foodcrop Sector 0.8 14.3 0.4 3.5 0.6 2.0Estate Sector 4.8 85.7 11.1 96.5 29.8 98.0

Total 5.6 100.0 11.5 100.0 30.4 100.0

16. Excluding 1968, when the supply of fertilizers in the estate sectorwas severely curtailed because of limited imports, the share of the foodsectorin total N and P 0 consumption has changed marginally. However, its sharein total K 0 conLuaption has declined sharply. In absolute terms, the K 0consumption by foodcrops during 1964-1972 declined from 800 tons to 600 ions,while it rose rapidly in the estate crop sector from 4,800 tons to 29,800 tonsduring the same period.

17. The following table shows the average annual growth rate of fertil-izer consumption of N and P 205 was significantly lower for the estate sectorthan for the foodcrop sector. This is partly because of the Governmentfertilizer allocation policy, with particular emphasis on the foodcrop sector,and the foreign exchange constraint on fertilizer imports in general.

Fertilizer Consumption by Crops

18. Of the total N consumption of 0.31 million in 1972 (Table 8), nearly0.21 million tons or 67% was used on rice. Further, rice accounted for about58.4% of the total P 20 consumption, but there was no use of K by that crop.Excluding rice, the ma 3or N consumers by order of importance were vegetables,corn, rubber and sugarcane, and the major P2 05 consumers by order of importance

ANNEX 3Page 5

were rubber, vegetables; sugarcane and oilpalm (Table 8). In the case of K 20,apart from rice, the non-users were corn, peanuts, soybean and cloves.The major K 0 users by order of importance were oilpalm, rubber, sugarcane,tea and cofiee.

Fertilizer Consumption by Region

19. In 1972, about 242,120 tons or 79.3% of the total N consumptionwere used in Java (Table 8). That year, Java used 38,257 tons of P 205(72% of total consumption) and 3,958 tons of K 0 (31.5% of total consumption).Apart from Java, the major fertilizer consuming regions are Sumatra andSulawesi as shown in the following table:

Fertilizer Use by Regions, 1972(In percentages unless otherwise noted)

N P205 K

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

Total Java 79.3 72.4 31.5North Sumatra 10.0 18.2 64.5West Sumatra 3.2 2.7 0.4South Sumatra 0.9 1.1 0.8Lampung 1.1 1.3 1.8

Total Sumatra 15.2 23.3 67.5Sulawesi 2.6 1.9 0.3Bali 1.8 1.4 0.2Kalimantan 1.0 0.9 0.5Others 0.1 0.1

Grand Total 100.0 100.0 100.0Grand Total 305.1 52.9 30.4

('000 tons)

20. The above table shows that while Java is by far the leading userof N and P 0 fertilizers, Sumatra is the most prominent user of K 20 ferti-lizer. Sumaira being the leading producer of rubber and oilpalm, 2t needslarger quantities of K 20 for use on them, especially in the northern partof that island.

Imports of Fertilizer

21. In terms of nutrients, N imports increased eightfold to 289,300 tonsduring 1964-1972 (Table 9). During the same period, P2 0 imports rose nearlyfourfold to 93,300 tons and K20 imports increase 4-1/2 times to 35,800 tons.The following table shows the trend of imports during 1964-1978:

ANNEX 3Page 6

Fertilizer Imports, 1964-1972('000 nutrient tons)

N P0 K __ ~~2 5

1964 35.7 23.5 7.91968 142.5 54.3 12.51972 289.3 93.3 35.8

22. Among fertilizer materials imported, urea is the most importantfollowed by triple superphosphate (TSP), ammonium sulfate and diammoniumphosphate (DAP) as shown in the following table:

Composition of Fertilizer Imports, 1972

Imports % of Total('000 Product Tons)

Urea 550,110 57.6TSP 166,000 17.4Ammonium Sulfate 132,298 13.8DAP 22,003 2.3Compound Fertilizers 15,934 1.6Sulfate of Potassium 2,588 0.3Ammonium Chloride 1,500 0.2Calcium Nitrate 500 0.1Other 64,432 6.7

955,365 100.0

Production

23. Indonesia had no local facility for fertilizer production until1964, when PUSRI I went into commercial production with an annual productioncapacity of 100,000 tons of urea. In the first year of operation itself,PUSRI I achieved more than 100% capacity utilization. From 1964-1971,PUSRI I was the only domestic fertilizer production facility in the country.In August, 1972, Indonesia's second fertilizer facility - P. N. PetrokimiaFertilizer Plant at Gresik, East Java-- went on stream. Petrokimia has a58,000 TPY-capacity ammonia unit feeding two downstream units-- a 45,000 TPYurea unit and a 150,000 TPY ammonium sulfate unit. The Petrokimia plant hasthe flexibility to change the quantity of its main products--urea and ammoniumsulfate--according to the fertilizer market situation. However, it hasbeen facing problems in achieving high capacity utilization. Indonesia's thirdfertilizer plant, PUSRI II, went into production in September 1974 with anannual capacity to produce 380,000 TPY of urea. The country has so far noproduction capacity for P 205 fertilizers. As for K 20 fertilizer, the country

ANNEX 3Page 7

has no known local reserves of potash. The following table shows thetrend of local fertilizer production during 1964-1974:

Fertilizer Production, 1964-1974(?000 product tons)

Urea Ammonium Sulfate

1964 103.5 -1965 94.1 -1966 93.0 _1967 93.3 -1968 95.5 _1969 84.2 -1970 99.0 -1971 106.0 -1972 110.5 29.21973 153.3 70.01974 (est.) 248.0 70.0

Future Production Plans

24. Indonesia has firm plans to establish three N fertilizer plants:PUSRI III, the East Kalimantan Plant I, near Balikpapan, and the West JavaPlant at Cikampek. Further, under preliminary stages of consideration aretwo more plants: the North Sumatra Plant at Aceh; and the East KalimantanPlant II. The following table shows the main units, capacities and thecommissioning dates of the plants most likely to be built before 1983:

New N Plants by 1983

Ammonia Urea Unit Commissioning DatesUnit Capacity Capacity

(TPD) (TPD)_

PUSRI III 1,000 1,725 May 1, 1977East Kalimantan I 1,500 1,725 January 1, 1978West Java 1,000 1,725 January 1, 1979

25. All the above plants are expected to produce urea and have identicalurea capacity. However, the ammonia unit of the East Kalimantan I would belarger than the comparable units of the other two plants. The surplus ammoniacapacity in the East Kalimantan I would be either used to provide industrialammonia for a proposed petrochemical plant in Surabaya or exported to thePhilippines. One of the unique features of East Kalimantan I is that it wouldbe preassembled in Europe on three ships to be installed ashore near Balik-papan by dredging the area near the shore.

ANNEX 3Page 8

26. As for the local production of P205 fertilizers, Indonesia has plansto build a TSP plant as part of the Petrokimia complex. This plant is ex-pected to go into production on January 1, 1977 with an annual capacity of200,000 tons of TSP. With respect to compound fertilizers, the countryhas no firm plans for their local production.

27. Assuming that all the new plants would be commissioned accordingto schedule, the local production of fertilizers would increase (Table 10)as follows:

Fertilizer Production 1972-1983('000 tons)

Products NutrientsAmmonium Ammonium

Urea Sulfate TSP Urea Sulfate Total TSP

1972 (Actual) 111 29 - 53.7 6.2 59.9 -1974 (est.) 248 70 - 114.0 14.7 128.7 -1975 416 120 - 191.4 25.2 216.6 -1976 430 120 - 197.8 25.2 223.0 -1977 668 120 150 307.3 25.2 332.5 69.01978 1,230 120 160 565.8 25.2 591.0 73.61979 1,711 120 160 787.1 25.2 812.3 73.61980 1,784 120 160 820.6 25.2 845.8 73.61981-1983 1,812 120 160 833.5 25.2 858.7 73.6

Forecast of Demand

28. Forecasts of fertilizer demand for Indonesia have been made inseveral studies: (1) the National Fertilizer Study (NSF) 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; the draft reports, "The Likely Impact ofMiddle East Oil Policies on the Development of the Nitrogen Industry of Eastand Southeast Asia", January 1974, and "The Proposal for the Development ofthe Nitrogen Production Capacity in Indonesia," July 1974-- both prepared bythe Tennessee Valley Authority (TVA) for the U.S. Agency for InternationalDevelopment (AID). Further, the Second Five-Year Plan (Pelita II, 1974-1979)has forecast the demand for N fertilizers, and the Bank draft report, "TheIrrigation Survey Program for Indonesia," has projected the consumption ofN fertilizers for the rice crop in that country.

ANNEX 3Page 9

29. Forecasts by the various organizations show some variations,with the most conservative projections in NSF and the most optimistic fore-casts in Pelita II. These forecasts show that the demand in 1980 for N wouldrange from 562,000 tons to 1.17 million tons; for P2 05 , from 146,000 tons to295,600 tons; and for K20, from 79,900 tons to 181,200 tons (Table 11). Thefollowing table shows the different projections for 1980:

Fertilizer Demand Forecasts, 1972-1980(in '000 nutrient tons)

1972 1980 Ave. Annual Growth Rate (%)Actual

I. NSF /N 305.1/a 562.9 8.0P 52.9 295.6 24.0K 30.4 168.3 23.0

II. BEICIP(a) Case I (High)N 305.1 654.8 10.0P 52.9 204.8 18.5K 30.4 181.2 25.0(b) Case I (Low)N 305.1 576.0 8.3P 52.9 181.6 16.7K 30.4 168.3 24.0(c) Case II (High)N (same as for Case I) 305.1 654.8 10.0P 52.9 159.3 14.8K 30.4 80.7 13.0(d) Case II (Low)N (same as for Case I) 305.1 576.0 8.3p 52.9 146.6 13.6K 30.4 79.9 12.9

III. TVA/AIDN 305.1 668.0 10.3

IV. PELITA II

N 305.1 1,170.0 18.3

/a NSF forecast was 4z/,/Uu tons, implying an annual growth rate of Iz.:7.between 19/2-8U.

JU. BEICIP has forecast the demand under Case I and Case II, with lowand high ranges for each case. This has been done using high and low rangesfor per hectare consumption as well as total fertilized area for differentcrops.

ANNEX 3Page 10

31. To prepare the projection for this appraisal report, a set of BEICIPassumptions regarding fertilized area and per hectare fertilizer consumptionwhich appear realistic considering the recent increases, have been used forall crops except rice. As for rice, Bank's projections in "The Survey ofIrrigation Program" in Indonesia for N consumption, is used. Details offertilizer demand forecasts by crops are explained below.

Rice

32. Indonesia receives annual rainfall in the range of 1,500-2,000 mmin the main rice growing zones. While it is normally enough to grow a wetseason crop, rain distribution is variable and rainfed crops are often sub-ject to drought or floods. Dry season rice production is not possible withoutirrigation. Rice production is concentrated on the fertile volcanic andalluvial soils of Java and Bali, which account for about 60% of the croppedarea. The other major rice-growing regions are Sumatra, Kalimantan andSulawesi. It is currently produced on an estimated area of 7.1 million hadividend as follows:

Area Under Rice, 1973

Area Intensity of Net Cultivated Area(million ha) Cultivation (million ha)

___________ (times)

Irrigated Rice 4.0 2.3 5.3Rainfed Rice 1.4 1.0 1.4Upland Rice 1.3 1.0 1.3Swamp Rice 0.4 1.0 0.4

7.1 8.4

33. About 50% of the net rice production area (or 60% of theannually cultivated area) is irrigated. About two-thirds of this area is inJava and Madura. Irrigated rice accounted for about 80% of total riceproduction of 13.4 million tons in 1973. Upland rice is grown on a shiftingor permanent cultivation basis on elevated land without bunds to retain water.Swamp rice is grown in poorly drained coastal swamp areas, which are subjectto regular flooding.

34. According to Bank projections, the net rice cultivated area wouldincrease (Table 12) from 8.4 million ha in 1973 to 9.4 million ha in 1981 (i.e.at an annual average rate of 1.5%). During the same period, rice productionis expected to increase at an average annual rate of 3.2%, reaching 17.2million tons in 1981. This forecast is based on the following assumptions(Table 13): (1) the high-yielding varieties would spread to 5.7 million haof irrigated and rainfed rice by 1981 compared to 2.3 million ha in 1973 andthe per capita N consumption in those areas would increase gradually to 90 kgper ha in 1981 compared to 81 kg per ha in 1973; (2) the area under local

ANNEX 3Page 11

varieties would decline from 1.8 million ha of the irrigated and rainfed area

in 1973 to 0.7 million ha in 1981, and the per ha N consumption in such area

would rise from 36 kg per ha to 40 per ha during the same period; (3) thoughcurrently no N is used on upland rice, in future N fertilizers would be usedon part of the upland rice area; by 1981, the fertilized area under upland

rice is expected to reach 360,000 ha and the average N consumption per ha

would be about 40 kg; and (4) no N consumption is expected on swamp rice.

The following table shows the projected N consumption by rice based on theabove assumptions.

Fertilized N Consumption Table N ConsumptionArea per ha (Kg) ('000 tons)

('000 ha)

I. Irrigated andRainfed Rice

(a) High-yieldingvarieties1972 (actual) 1,433 78.4 112.31973 (est.) 2,300 81.1 186.51978 4,715 84.0 396.01981 5,705 90.0 513.5

(b) Local Varieties1972 (Actual) 1,830 39.2 71.81973 (Est.) 1,764 40.6 71.61978 1,100 40.0 44.01981 700 40.0 28.0

II. Upland Rice1972 (Actual) -

1973 (Est.) -

1978 300 40.0 12.01981 360 40.0 14.5

III. Total1971 (Actual) 3,263 62.7 204.81973 (Est.) 4,064 63.5 258.11978 6,115 74.0 452.01981 6,765 82.0 556.0

Growth Rate (%)1971-1978 11.0 4.6 14.01978-1981 3.5 3.5 7.0

ANNEX 3Page 12

35. The projection for N fertilizer demand in "The Survey ofIrrigation Program" goes only up to 1981. Extrapolating the 1978-1981average annual growth of 7% for 1982 and 1983, the N fertilizer consumptionin those two years are projected at 595,500 tons and 637,600 tons respectively.

36. The above Bank projection of N fertilizer consumption by the ricecrop is slightly higher than the upper limit of the projections by BEICIP(Table 11). Assuming the same N:P205:K20 ratio as used by BEICIP in its"high" level forecasts, the consumption of P 205 and K20 by rice is forecastto grow as follows:

N : P : K Ratio Consumption by RiceN P20 5 KO2

1972 1:0.15:0 204.8 30.9 -1978 1:0.17:0.13 452.0 78.0 60.01983 1:0.33.0.26 637.6 212.0 164.0

Average Growth Rate 1972-1983 11.0 19.0 -

Other Food Crops

37. As already noted, for other food crops as well as estate crops(e.g., rubber, tea, coffee, etc.), projections of fertilizer requirementsin this report are based on the BEICIP study, choosing the most realisticamong the alternative assumptions regarding the fertilizer area and dosagesused by BEICIP. Based on this approach, projections have been made for dif-ferent crops in the following pages.

38. Corn: In 1972, about 556,000 ha were fertilized under corn. Theacreage under this crop is expected to increase to about 593,500 ha by 1978and 708,000 ha by 1983. The following table shows the break-up of the totalacreage into HYV and non-HYV using areas:

Corn: Fertilized Area('000 Ha)

1972 (Actual) 1978 1983

HYV - 186.8 233.4Non-HYV 556.0 406.7 474.6

556.0 593.5 708.0

39. In 1972, the use of fertilizers on corn was on the average about41.6 kg of N and 0.4 kg of P205. The projected N consumption per ha for1978 is 90 kg for HYV and 50 kg for non-HYV varieties. These dosages areexpected to hold good for 1983 as well. As for P 205 and K 20, the dosages on

ANNEX 3Page 13

an average (for HYV as well as non-HYV) are expected to be 20 kg and 0 kg

respectively in 1978, rising to 40 kg and 20 kg respectively in 1983.

40. On the above assumptions, the fertilizer requirements for corn

in 1978 and 1983 would be:

Corn Fertilizer Requirements('000 nutrient tons)

N P2 5 K2

1972 23.13 0.22 -

1978 37.15 11.87 -1983 44.74 28.32 14.16

41. Soybean: In 1972, the fertilized area under soybean was 11,600 ha

and the dosage used per ha on an average was 20.3 kg of N and 6.7 kg of P 05.

(There was no K 20 use). The fertilized area is expeced to increase sharply5

to 125,800 ha in 1978 and 177,900 ha in 1983. The dosages expected to be

used in 1978 and 1983 are given below:

Fertilizer Dosages for Soybean(Kg/Ha)

N P20 K20252

1972 20.3 6.7 -1978 11.5 20.0 -1983 11.5 40.0 20.0

42. Based on the above assumptions for fertilizer acreage and dosages,

the total fertilizer requirements for soybeans in 1978 and 1983 are projected

as follows:

Soybean: Fertilizer Requirements('000 nutrient tons)

N P2G0 K2

1972 (actual) 0.23 0.08 -

1978 1.45 2.52 -1983 2.05 7.12 3.56

43. Vegetables: In 1972, the fertilized area under vegetables was

225,900 ha and it is expected to increase to 278,200 ha in 1978 and 344,300 ha

in 1983. The fertilizer dosages assumed for 1978 and 1983 along with the

actual for 1972 are given below:

ANNEX 3Page 14

Vegetables: Fertilizer Dosage(kg/ha)

N2 P20 K2

1972 (Actual) 107.7 17.9 2.81978 107.7 25.0 12.01983 107.7 50.0 25.0

44. Based on the above assumptions of fertilizer acreage and dosagefor vegetables the total requirements of fertilizer would be:

Vegetables: Fertilizer Requirements('000 nutrient tons)

N P205 K20

1972 (actual) 24.33 4.04 0.631978 29.96 6.96 3.341983 37.10 17.22 8.61

45. Peanuts: In 1972, the fertilized area under peanuts was 8,300 ha.It is expected to increase to about 51,300 ha in 1978 and 106,200 ha in 1983.The expected fertilizer dosages for 1978 and 1983 compared with the actual for1972 are shown below:

Peanut: Fertilizer Dosage(kg/ha)

N p205 2

1972 (actual) - 19.9 -1978 23.0 30.0 _1983 23.0 60.0 30.0

46. Based on the above assumptions for fertilizer acreage and dosages,the total fertilizer requirements of the peanut crop would be:

Peanuts: Fertilizer Requirements('000 nutrient tons)

N P 0 K 02 5 2

1972 (actual) - 0.17 _1978 1.18 1.54 -1983 2.44 6.37 3.19

Estate Crops

47. Rubber: The fertilizer area under rubber in 1972 was 468,700 ha.It is expected to increase to 519,300 ha in 1978 and 570,000 ha in 1983exclusively because of the new planting/rehabilitation program for smallholders. The following table shows the break-up of the projected fertilizedarea under rubber and fertilizer dosages:

ANNEX 3Page 15

I. Rubber: Fertilized Area ('000 ha)

Estate SmallholderMature Immature

1972 (actual) -----------468.7--------1978 375.2 93.5 50.61983 375.2 93.5 101.3

II. Rubber: Fertilizer Dosages

Estate SmallholderMature Immature

1972 (actual)N 40-

205 --- 20.5K20 22.5

1978N 50 25 22P20 50 25 22205 50 25 22

1983N 60 36 46P2 05 60 36 46K20 60 36 46

48. Based on the above assumptions, the fertilizer requirements of therubber crop in 1978 and 1983 would be as follows:

Rubber: Fertilizer Requirements('000 tons)

Estate Smallholder Totalmature Immature

1972 (actual)N ---- 18.75 - 18.75P20- 9.61 ----- - 9.61K205 10.55 - 10.55

1978N 18.76 2.34 1.11 22.21P20 18.76 2.34 1.11 22.21K205 18.76 2.34 1.11 22.21

1983N 22.51 3.37 4.66 30.54p205 22.51 3.37 4.66 30.54K 0 22.51 3.37 4.66 30.542

ANYNEX 3Page 16

49. Oilpalm: In 1972, the fertilizer area under oilpalm estates was139,200 ha and there was no fertilizer use by smallholders. The acreage underoilpalm is expected to increase as follows:

Oilpalm: Fertilized Acreage('000 ha)

Estate Smallholders TotalMature Immature

1972 (actual) ------ 139.2 ----- - 139.21978 150.0 49.8 15.0 214.31983 196.5 40.2 30.0 266.7

50. In 1972, the average fertilizer dosages per hectare of oilpalmestates were: 39.8 kg of N, 17 kg of P 205 and 98.9 kg of K20. The followingdosages are assumed for the future:

Oilpalm: Fertilizer Dosages (kg/ha)

Estate SmallholdersMature Immature

1978N 50 30 40P205 50 30 40K20 120 60 80

1983N 60 30 50P20 60 30 50K2 5 120 60 100

51. Based on the above assumptions, the fertilizer consumption byoilpalm would increase as follows:

Oilpalm: Fertilizer Requirements

N ~ P 0 KO02 5 2

1972 (actuil) 5.54 2.36 13.761978 9.59 9.59 19.191983 14.50 14.50 28.99

52. Sugarcane: It is assumed that the harvested area in Java will notchange during 1972-1983. In the outer islands, the harvested area would notchange during 1972-1978 but would increase during 1978-1983 by 60,000 ha.Further, it is assumed that all the harvested area under sugarcane wouldcontinue to be fertilized as shown below:

ANNEX 3Page 17

Sugarcane: Fertilizer Area and Dosages

Fertilized Area ('000 ha) Fertilizer Dosages (kg/ha)

Estate Smallholder Estate Smallholder

N P K N P K

1972 (actual) 74.8 50.2 119 34 32 60 -1978 74.8 50.2 120 50 120 90 -1983 134.8 50.2 130 70 130 110 -

53. Based on the above assumptions, the fertilizer requirements ofsugarcane are expected to increase as follows:

Sugarcane: Fertilizer Requirements('000 nutrient tons)

N P20 K2

1972 (actual) 11.89 2.52 2.371978 13.50 3.74 8.981983 23.04 9.44 17.52

54. Tea: In 1972, about 5,290 tons of N, 910 tons of P 20 and 1,440tons of K20 were used by tea plantations (at the ratio of 6:1:1.5). Thatyear, the total production of tea was 70,000 tons of which 35,000 tons wereexported and the rest consumed locally. Exports are expected to grow at therate of 2.5% a year and production fcr domestic use at 3% a year. On thisbasis, the total production during 1972-1983 would increase as follows:

Tea Production

1972 (actual) 1978 1983

For export 35,000 40,850 46,500For local use 35,000 41,800 48,500

70,000 82,650 95,000

55. The incremental production is expected to be 12,650 tons during1972-78 and 12,350 tons during 1983-1983. Assuming that 1 ton of N helpsproduce 10 tons of tea, the incremental fertilizer requirements during1972-1978 would be 1,265 tons and during 1978-1983, about 1,235 tons. Basedon these assumptions, the total requirements of N for tea cultviation wouldbe 6,555 tons in 1978 and 7,790 tons in 1983. Further, assuming that theN, P905, K 0 consumption ratio for tea would be 6:2:3 in the future, thetotaI requirements of the nutrients would be:

ANNEX 3Page 18

Tea: Fertilizer Requirements('000 nutrients tons)

N P205 K2

1972 (actual) 5.29 0.91 1.441978 6.56 2.19 3.281983 7.79 2.60 3.89

56. Coffee: The area planted under coffee was 398,814 ha in 1972, ofwhich the estates accounted for 45,514 ha and the rest by smallholders. Allthe area under estates are fertilized, but no fertilizers are used by small-holders. It is assumed that the present area under estates would remainunchanged in the future, while the area planted by smallholders would increaseat the rate of 2% a year from 353,300 ha in 1972, reaching 397,870 ha in 1978and 439,300 ha in 1983. It is assumed that of the total planted area bysmallholders, 1% (4,000 ha) will be fertilized in 1978 and 2.5% (11,000 ha)in 1983. All the area under estates would continue to be fertilized. Thefertilizer dosages assumed for estates and smallholders are as follows:

N P205 K20

Estate Smallholder Estate Smallholder Estate Smallholder

1972 88.2 - 25.2 - 31.5 -

1978 100.0 80.0 50.0 - 50.0 -

1983 115.0 100.0 60.0 - 60.0 -

57. Based on the above assumptions for fertilized area and fertilizerdosages--separately for estates and smallholders--the total fertilizerrequirements by the coffee crop would be:

Coffee: Fertilizer Requirements('000 nurtient tons)

N P 20_ K2

1972 (actual) 4.02 1.15 1.431978 4.87 2.28 2.281983 6.33 2.73 2.73

58. Tobacco: The planted area under tobacco in 1972 was 129,800 ha ofwhich 77,100 ha was fertilized--13,800 ha under estates and 63,300 ha undersmall holdings. The planted area under tobacco is expected to remain un-changed. However, the fertilized area would change slightly as follows:

ANNEX 3Page 19

Tobacco: Fertilized Area('000 ha)

Estate Smallholders Total

1972 (actual) 13.8 63.3 77.11978 13.8 67.1 80.91983 13.8 75.6 89.4

59. The average fertilized dosage per ha for estates in 1972 was 54 kgof N, 4 kg of P 205 and 19.5 kg of K(20, and for smallholding was 80 kg of Nbut no P 20 and K 0. The dosage for smallholdings is expected to remain un-changed. Aowever, the dosage for estates would change to 54 kg each of thethree nutrients in 1978 and remain constant at that level.

60. Based on the above assumptions for tobacco fertilized acreage anddosages, the total fertilizer requirements would be:

Tobacco: Fertilizer Requirements('000 nutrient tons)

N P205 K20

1972 (actual) 5.81 0.06 0.271978 6.12 0.75 0.751983 6.80 0.75 0.75

61. Cloves: The planted area under cloves in 1972 was 86,100 ha ofwhich 43,000 ha was fertilized. The fertilized area is expected to increaseto 54,500 ha in 1978 and 65,800 ha in 1983. Only N and P 20 are used oncloves at present. The dosage in 1972 was 32 kg of N and 28 kg of P 05 oThe dosage is expected to increase to 40 kg of N, 20 kg of P 0 and 20kg ofK20 in 1978, and to 60 kg of N and 30 kg each of P 205 and K2 6 in 1983.

62. Based on the above assumptions of fertilized area and dosages,the total fertilized requirements by cloves is expected to increase asfollows:

Cloves: Fertilizer Requirements(1000 nutrient tons)

N P205 K20

1972 (actual) 1.38 0.86 -1978 2.18 1.10 1.101983 3.95 1.97 1.97

ANNEX 3.Page 20

63. Coconuts: The planted area under coconuts was 1.64 million ha in1972 but no fertilizer was used on it. The planted area is expected toincrease to 1.8 million ha by 1978. About 80,000 ha would be fertilizedin 1978 at the average dosage per ha of 20 kg each of N, P 0 and K 0. Thefertilized area would rise further to 160,000 ha by 1983 w9enA the averagedosage per ha would be 30 kg each of No P 0 and K 0. On the above assumptionsof fertilizer area and dosages, the fertiiizer requirements would be:

Coconuts: Fertilizer Requirements('000 nutrient tons)

N p2 25 [20

1972 (actual) -1978 1.6 1.6 1.61983 4.8 4.8 4.8

64. Pepper: The planted area under pepper was 47,100 ha in 1972 whenno fertilizer was used on it. However, about 15,800 ha are expected to befertilized in 1978 when the dosage per ha would be 100 kg of N and 50 kg eachof P 0 and K 20. The fertilized area would increase further to 31,500 ha in

1983kwRen the dosage would be 120 kg of N and 60 kg deach of P 0 and K 0.Based on the above assumptions, the fertilizer requirements are expected toincrease as follows:

Pepper: Fertilizer Requirements('000 nutrient tons)

N P205 K2O25 2

1972 (actual) - - -

1978 1.58 0.79 0.791983 3.78 1.89 1.89

65. Based on the above forecasts, the total fertilizer requirements innutrient tons by different crops during 1972-1983 (Table 14) would increaseas follows:

Total Fertilizer Requirements (1972-1983)

Ave. Annual Growth Rates (M)1972 1978 1983 1972-1978 1978-1983

(Actual)----'000 nutrient tons----

N 305.1 590.1 825.5 11.6 7.0P205 52.9 144.9 340.0 18.3 18.6K20 30.4 123.2 286.5 26.0 18.4

Using the above growth rates, the requirements in the intervening years areprojected as follows:

ANNEX 3Page 21

Fertilizer Requirements(In '000 nutrient tons)

N P205 K2

1972 (actual) 305.1 52.9 30.41973 (actual) 328.9 62.6 38.41974 (est.) 414.0 74.0 48.41975 424.0 87.5 61.01976 473.3 103.6 76.81977 528.2 122.5 97.81978 590.1 144.9 123.21979 631.4 171.9 146.01980 675.6 203.8 172.71981 722.8 241.7 204.51982 773.5 286.7 242.01983 825.5 340.0 286.5

Trade in Fertilizers

66. As already noted, Indonesia has no known reserves of K20. There-fore, it is assumed that the country would meet all its requirements of K 0from imports. In the case of phosphates, Indonesia has plans as mentionedearlier to establish only one plant with a production capacity of 200,000 TPYof TSP (92,000 TPY of P205). Therefore, the country would largely dependon imports to meet its phosphate needs. In the case of N fertilizers,however, Indonesia is projected to emerge as an exporter from 1979 onwardsas shown below:

Comparison of Production and Requirements of N('000 tons)

Production Demand Surplus (Deficit)

1972 (Actual) 57.0 305.1 -248.11973 (Actual) 85.2 328.9 -243.71974 (Est.) 128.7 414.0 -285.31975 216.6 424.0 -207.41976 223.0 473.3 -250.31977 332.5 528.2 -195.71978 591.0 590.1 + 0.91979 812.3 631.4 +180.91980 845.8 675.6 +170.21981 858.7 722.8 +135.91982 858.7 773.5 + 85.21983 858.7 825.5 + 33.2 /1

/1 The surplus would reach about 557,600 tons of N by 1983 ifIndonesia builds by the end of this decade two moreurea plants each of 570,000 TPY of urea capacity(262,200 TPY of N) in addition to the three new ureaplants assumed in the projections.

ANNEX 3Page 22

67. 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 fertilizer exports - inmeeting the import needs of neighboring countries such as Malaysia, thePhilippines, Thailand and the Republic of Vietnam because of Indonesia'slarge resources of low-cost feedstocks for N production combined with modernproduction facilities and freight advantage. As for potential competitionespecially from the Persian Gulf countries, it is assumed that those countrieswould be better off by concentrating on meeting the import needs of countriesother than Indonesia's neighbors mentioned above.

68. Tables 15-21 show the TVA projections of production and demandof N fertilizers in Malaysia, the Philippines, Thailand, the Republic ofVietnam, Japan and the Republic of Korea. The production and demandprojections for Indonesia are already given (para 66). Based on the datafrom these tables, it is forecast that the surplus deficit of N in thosecountries would be as follows:

N Fertilizer Deficit (-) and Surplusin Selected Countries

(In '000 tons)

1974 1977 1978 1980 1983(Est.)

Malaysia -54 -96 -109 -187 +31Thailand -58 -97 -109 -149 -232Philippines -140 -195 -234 -312 -217Vietnam -103 -134 -148 -178 -116

Total Deficit -355 -522 -600 -776 -534

Indonesia -285 -196 0 +170 +33Korea +3 +226 +200 +270/1Japan +990 +569 +394 +100 -

Total Surplus +708 +599 +594 +5h0 +33

/1 Two fertilizer plants are expected to be closed at theend of 1980 as they would be fully depreciated by then.

69. The above forecasts of surplus/deficit in the selected countriesare based on the assumption that before 1983: (1) Korea and Japan - whichfor N production have to depend heavily on imported feedstocks the pricefor which has risen steeply - would not build new plants except those alreadyunder construction; (2) Malaysia and the Philippines would build one ammonia/urea plant each with a capacity of 570,000 TPY of urea (262,200 TPY of N);and (3) Vietnam would build an ammonia/urea plant with a capacity of 330,000TPY of urea (151,800 TPY of N). The above table shows the surplus availablefrom Japan, Korea and Indonesia would fall short of the import requirementsof Malaysia, Thailand, the Philippines and Vietnam from 1980 onwards. How-ever, an approximate balance would be achieved by 1983 in case Indonesiabuilds two more plants in addition to the three new plants assumed.

ANNEX 3Page 23

Fertilizer Marketing

70. Fertilizer marketing in Indonesia is carried out by Governmentapproved importers/distributors including local fertilizer producers likePJSRI and Petrokimia. Until 1970, P.N. Pertani was the leading distri-butor of both local and imported fertilizers. However, in recent years, theGovernment has been encouraging local producers to market their own productsas well as imported fertilizers while allowing P.N. Pertani and otherestablished importer/distributors to continue their operation. As thelocal production of fertilizers is low (about 318,000 product tons in 1974),the marketing network in Indonesia depends heavily on imports.

71. The Government controls not only fertilizer distribution butalso fertilizer prices. The main purpose of price control is to subsidizefertilizer sales to farmers and keep foodgrain prices low in a bid to checkinflation which has been a serious problem in Indonesia. The retail priceof urea - both local and imported - is fixed at Rp 60,000 (US$144.6) perproduct ton while the current import price of urea - the most popularfertilizer used in the country - is about Rp 176,000 per ton. Of theretail fertilizer price of Rp 60,000 per product ton, Rp 5,000 (8%) is themargin for sub-distributors and retailers and Rp 13,100 (22%) is the marginfor importers/distributors. The Government purchases all the local productionof urea at a fixed price before allocating it for distribution. This pricewas very low in the past, making it difficult for local producers to earn areasonable return on investment. However, the Government has increased itLspurchase price by stages from Rp 28,220 (US$68.0) per Droduct ton in 1972 toRp 63,900 (US$154) in 19714. The purchase price is fixed on the basis ofc.i.f. Java. Therefore, the producers have to bear the cost of transportingtheir product to port godowns in Java, the leading fertilizer consuiming area.

Credit

72. Over 60% of the fertilizer is consumed in Indonesia in areascovered by two programs for promoting intensive cultivation, especia)lyof rice: the BIMAS (Mass Guidance) program and the INMAS (Mass Intensifica-tion) program. UJnder the BIMAS program, farmers having less than 5 ha ofland are provided with short-term credits at 1% interest per month in theform of a package of subsidized inputs supplemented with extension servicesto promote the proper use of these inputs. The INMAS program in prac(ticerepresents the ordinary agricultural extension program for the distributionof subsidized inputs to farmers who are either ineligible for the BIMASprogram (either because they have progressed sufficiently as BIMAS farmersor because they have more than 5 ha of land) or who do not want to make useof the BIMAS credit because of the associated red-tape and control. TheINMAS participants, unlike the BIMAS farmers, have freedom of choiceregarding the types and quantities of inputs. However, the INMAS farmersare charged a higher rate of interest--currently 1.5% per month--than theBIMAS farmers.

ANNEX 3Page 21

73. The Bank Rakyat Indonesia (BRI) is now the sole credit agencyfor these programs and is attempting to set up offices to process loan.aDplications in each village unit (unit desa). Village units without a BRIoffice are covered by mobile units. Farmers participating in BINAS and INMASprograms have to receive vouchers for inputs from BRI offices or mobile unitsand draw supplies against them in village "kiosks" operated by approvednrivate retai.lers or from village unit cooperatives (BWlD 's). It is -theGovernment policy to promote the BUUD's as the main sources of supply of;.nputs for BIMAS and INMAS farmers. But there is a lack of trained person-nel to organize and operate them. Ther-fore, BUUD's require considerables-trengthening before they could become efficient suppliers.

PITSRI Marketing

7)V. Initially, PUSRI was marketing most. of its products through P.N.Pertani. For example, in 196)i, the first year of operation, RPSRI w'ilarketedabout 90% of its production through Pertani and sold the rest through itsrmarketing organization. The percentage of production sold t.hrough Pertani*leclined gradually during 1961i-1970, with PUSRI assuming thte enti1re respon-sibility for marketing its own products in 1970 and, at the same time,becoming the most important distributor and importer of fertilizers.I-However, by 1978, Indonesia is expected to overcome the need for importsof U1 fertilizers.

Currently, PUSRI marketing of imported fertilizers is greater thatiit ;s own produiction. For example, in 1974, fertilizers imported and marketedby PUSRI were nearly three times its own production. As already noteO, theGovernment allows a margin of Rp 13,100 per ton to PTJSRI for serving as animporter/distributor. But this margin is inadequate under the current systemof credit sales because it takes about 10 months for PUSRI to realize itsreceivables. Meanwhile, PUSRI has to borrow short-term funds from banksat an interest of 1 to 2% per month. As a result, PUJSRI's marketing operationused to be carried out at a financial loss to the Company. However, theGxovernment has undertaken since 1974 to make up PUSRI's marketing lossesthrough cash advances as long as the existing distribution control systemcontinues. Further, the Government has agreed to insure a reasonablereturn on the assets in service of the marketing department once theproposed transportation and distribution project is implemented.

76. About 80% of PUSRI's own production is sold in Java. Thispercentage is expected to decline as the volume of production by PUSRIincreases and as it increases its sales in other islands of Indonesia,especially Sumatra and Sulawesi.

Indlustrial Projects DepartmentJanuary 1975

ANNEX 3Table 1

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

GROWTH OF POPULATION(In tOOO )

1961 X 1971 %

.iest Java 20,522 21.2 26,209 22.0

Central Java / 20,648 21.3 24,367 20.4

F.ast J'ava 4/21,823 22.5 25,527 _1.

Total Java andMadura 62,993 65.0 76,103 63.8

Dumatra 15,739 16.2 20,813 17.5

;alimantan 1,,10l h.2 5,152 4.3

,;u1waesi 7,079 7.3 8,535 7,2

Other Islands 7,107 7.3 8,629 7.2

Total 97,019 100.0 119,232 100l0

U/ Census figures.

2/ Including Jakarta district.

3/ Including Jogjakarta district.

_/ Including Madura

Industrial Projects DepartmentAugust, 1974

ANNEX 3Table 2

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECTHARVESTED AND FERTILIZED AREA BY CROP,1972

('000 Ha)

Harvested Fertilized % ofArea Area Fertilized Area

Paddy (rice) 7,979.0 3A048.0 38.2

Corn 2,215.8 556.0 25.1

Vegetable 275.8 225.9 819

Peanut 355°5 8.3 2.3

Soyabean 68h.9 11.6 1.7

Total Foodcrops 11,511.0 3,8h9.8 33.4

Rubber 2,321.6 468.7 20.2

Oil Palm 139.2 139.2 lOOoO

Sugarcane 125.0 125.0 lOOoO

Coffee 398.8 45.5 11.4

Tea 11h.7 62.1 54h.1

Coconut 1,64202 - -

Tobacco 129.8 77.1 59J4

Pepper 471 .1

Cloves 86.1 43.0 49,9

Total Estate Crops 5,004.5 960M6 19.2

Total for AllCrops 16,515.5 4,810O 29.1

Source: BEICIP Study

Industrial Projects DepartmentSeptember, 1974

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECTHARVESTED AND FERTILIZED AREA BY ISLAND,1972

('000 Ha Unless Otherwise Noted)

JAVA SUMATRA SULAWESI KALIMANTAN OTHER ISLANDSA B B/A A B B/A A B B/A A B B/A A B B/A

Paddy (rice) 4,335.0 2,367.0 54.6 1,926.0 418.0 21.7 556.0 120.0 21.8 691.0 57.0 8.2 476.0 86.0 18.1Corn 1,507.5 556.0 36.9 114.6 - - 336.9 - - 14.1 - - 242.7 - -Vegetable 206.7 175.7 85.0 43.5 33.7 77.5 6.2 5.3 86.5 3.4 - - 16.01 11.2 0.7Peanut 275.8 8.3 3.0 - - - - - - - - - 79.7-/ - -Soyabean 567.8 11.6 2.0 - - - - - - - - - 117.t / - -

Total Foodcrops 6,892.8 3,118.6 45.2 2,084.1 451.7 21.6 899.1 125.3 14.0 708.5 57.0 8.0 4,618.2 731.2 15.8

Rubber 244.1 177.5 72.7 1,630.0 281.3 17.3 3.1 2.7 87.1 444.2 7.0 1.6 0.2 0.2 100.0oil Palm 0.5 0.5 100.0 138.7 138.7 100.0 - - - - - - - - -Sugarcane 111.9 111.9 100.0 9.6 9.6 100.0 0.3 0.3 100.0 - - - 3.2 3.2 100.0Coffee 118.9 44.7 37.6 205.7 0.2 0.1 29.0 0.3 1.0 4.9 - - 40.3 0.3 0.7Tea 100.5 47.9 47.7 14.2 14.2 100.0 - - - - - - - -Coconut 545.1 - - 425.7 - - 336.8 - - 86.2 - 248.4 - -Tobacco 107.1 70.2 65.5 8.2 4.8 58.5 4.9 - - - - - 9.6 2.1 21.9Pepper 1.9 - - 43.7 - - 0.3 - - 1.0 - - 0.2 - -Cloves 20.4 20.4 100.0 45.4 22.6 49.8 12.9 - - 1.1 - - 6.3 - -

Total Estate Crops 1,250.4 473.1 37.8 2,521.2 471.4 18.7 387.3 3.3 0.9 537.4 7.0 1.3 308.2 5.8 1.9

1/ Including Sumatra, Sulawesi and Kalimantan.

NOTE: A= Harvested AreaB= Fertilized Area

H-3>

Source: BEICIP Study

Industrial Projects DepartmentSeptember 1974

ANNEX 3Table 4.

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

CONSUMPTION OF NUTRIENTS PER HECTARE OF ARABLE LAND 1971/72(kg/ha)

N P205 K20 Total

Asia (Average) 17.2 6.7 3.0 26.9

Indonesia 10.9 1.3 0.3 12.5

Bangladesh 4.6 2.4 0.8 7.8

Brazil 9.3 15.0 11.8 36.1

Chile 10.7 22.4 3.6 36.7

Egypt 122.7 16.7 0.7 140.1

France 79.8 101.1 78.7 259.6

Germany, Federal Republic of 139.9 115.7 152.6 408.2

Greece 56.7 34.1 5.0 95.8

India 10.7 3.4 1.8 15.9

Israel 78.2 38.0 29.0 145.2

Italy 50.4 46.3 20.2 116.9

Japan 160.8 122cO 107.0 389.8

Korea, Republic of 150.2 68.5 40.2 256.9

Malaysia:Sabah 8.9 5.9 20.3 35.1

West Malaysia 24.5 9.3 25.2 59.0

Netherlands 4ho.6 119.4 148.9 708.9

Pakistan 11.7 108 0.1 13.6

Philippines 10.9 .5 .3.3 18.7

r omania 41.0 17.1 2.1 60.2

Sri Lanka 22.3 4.9 15.4 42.6

ANNEX 3Table 4Page 2

Spain 32.3 22.6 12.7 67.6

Thailand 3.3 3.7 1.3 8.3

Turkey 10.2 6.8 0.3 17.3

United Kingdom 128.7 70.8 68.7 268.2

United States 38,3 22.6 20.4 81.3

USSR 22.3 10.5 12.1 44.9

Viet Nam, Republic of 31.9 12.1 5.3 49.3

Yugoslavia 4o.7 21.4 19.8 81.9

Source: FAO Annual Fertilizer Review, 1972

Tndustrial Projects DepartmentSeptember 1974

ANNEX 3Table 5

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

TREND OF FERTILIZER CONSUMPTION(In '000 nutrient tons)

Fooderop Sector Estate Sector Total

N P K N P K N P K

1964 87.6 17.0 o.8 20.6 9.1 4.8 108.2 26.1 5.6

1965 58.9 27.9 3.5 311 17.5 10.4 90.0 45.4 13.9

1966 61.0 18.8 0.7 34.9 6.8 6.4 95.9 25.6 7.1

1967 43.0 5.4 0.4 24.2 23.0 7.0 67.2 28.4 7.4

1968 95.0 21.4 0.4 6.2 8.1 11.1 101.2 32.5 11.5

1969 155.2 36.3 1.0 16.1 6.5 12.7 171.3 42.8 13.7

1970 162.1 31.6 3.6 21.8 13.8 14.6 18399 4504 18.2

1971 213.1 21.9 0.4 44.5 10.9 19.0 257.6 32.8 19.4

1972 252.4 35,3 0.6 52.6 17.4 29.8 305.0 52.7 30.4

NOTE: N = Nitrogen

P = Phosphorous

K = Potash

Sources: NSF for 1964-1969 data and BEICIP for 1970-1972 data.

Industrial Projects DepartmentSeptember, 1974

ANNEX 3

Table 6

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

N:P:K RATIO IN FERTILIZER CONSUMPTION

N P K

1964 19.3 : 4.7 : 1

1965 6.5 : 3.3 : 1

1966 13.5 : 3.6: 1

1967 9.1 : 1.1: 1

1968 8.8 : 2.8: 1

1969 12.5 : 3.1: 1

1970 10.1 : 2.5: 1

1971 13.3 : 1.7: 1

1972 10.0 : 1.7: 1

Source: Calculated from Table 5

Industrial Projects DepartmentSeptember, 197L

ANNEX 3Table 7

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

PERCENTAGE SHARES OF NUTRIENT CONSUMPTION

IN FOODCROP AND ESTATE SECTORS(in percentages)

N P205 K20

FS ES Total FS ES Total FS ES Total

1964 80.9 19.1 100 65.1 34.9 100 14.3 85.7 100

1965 6504 34.6 100 6105 38.5 100 25.2 74.8 100

1966 6306 360 4 100 73.4 2606 100 9.9 90.1 100

1967 64.0 36.0 100 19.0 81.0 100 5.4 94.6 100

1968 93.9 6.1 100 75.1 24.9 100 3.5 96.5 100

1969 90.6 9.4 100 84.8 15.2- 100 7.3 92.7 100

1970 88.1 11.9 100 69.6 30.4 100 19.8 80.2 100

1971 82.7 17.3 100 66.8 33.2 100 2.1 97.9 100

1972 8208 17.2 100 67.0 33.0 100 2.0 9800 100

NOTE: FS = Foodcrop SectorES = Estate Sector

Source: Calculated from Table 5

Industrial Projects DepartmentSeptember, 1974

1NDONESIA: PUSRI FERTILIZER EXPANSION PROJECTPROVINCEWISE CROPWISE FERTILIZER CONSUMPTION. 1972

(In Nutrient Tons)

Paddy Soya- Sugar-(Rice) Corn Vegetable Peanut Bean Rubber Oilpal Cane Coffee Tea Tobacco Cloves Total

West Java N 57,597 - 6,096 - - 4,284 20 1,106 2 3,638 72 125 72,940P 10,466 - 1,013 31 - 2,196 8 206 1 622 - 78 14,675

K - - 159 - - 2,410 50 244 1 984 - - 3,848

Central Java N 59,595 7,488 5,773 - - 1,196 - 2,527 370 222 1,963 506 79,640P 9,311 72 960 64 - 613 - 610 106 38 18 316 12,108

K - - 150 - - 673 - 574 132 60 82 - 1,671

East Java N 50,343 15,642 7,054 - 235 1,620 - 7,472 3,572 231 3,347 22 89,538P 6,429 150 1,172 70 78 830 - 1,651 1,021 39 20 14 11,474

K - - 183 - - 911 - 1,553 1,276 63 93 - 4,079

North Sumatra N 11,834 - 1,400 - - 10,308 5,420 72 9 914 259 221 30,437P 1,465 - 233 - - 5,281 2,315 - 2 156 20 138 9,610

K - - 37 - - 5,796 13,470 - 3 247 93 - 19,646

West Sumatra N 7,928 - 958 - - 168 - 396 5 8 - 266 9,729

P 993 - 159 - - 86 - - 1 2 - 166 1,407

K - - 25 - - 95 - - 2 2 - - 124

South Sumatra N 953 - 1,077 - - 268 - 66 - 290 - 134 2,788

P 121 - 179 - - 138 - - 50 - - 84 572

K - - 28 - - 151 - - - 79 - - 258

Lampung N 2,742 - - - - 508 100 42 6 - - 102 3,500

P 347 - - - - 261 43 - 2 - - 64 717

K - - - - - 286 247 - 2 - - - 535

Sulawesi N 7,151 - 571 - - 108 - 18 22 - - - 7,870

P 883 - 95 - - 55 - - 6 - - - 1,039

K - - 15 - - 61 - - 8 - - - 84

Kalimantan N 2,858 - - - - 280 - - - - - - 3,138

P 363 - _ - - 144 - - - - - - 507

K - - - - - 158 - - - - - - 158

Bali & NTB N 3,628 - 1,400 - - 8 - 126 27 - 168 - 5,357

P 476 - 233 - - 4 - - 8 - - - 721

K - - 36 - - 5 - - 9 - - - 50

Others N 140 - - - - - - 66 - - - - 206

P 16 - - - - - - - - - - - 16

K - - - - - - - _ _ _ _ _ _

TOTAL N 204,769 23,130 24,329 - 235 18,748 5,540 11,891 4,013 5,303 5,809 1,376 305,143

P 30,870 222 4,044 165 78 9,608 2,366 2,521 1,147 907 58 860 52,846

K - - 633 - - 10,546 13,767 2,371 1,433 1,435 268 - 30,453

NOTE: N= Nitrogen; P = Phosphorus; and K Potash.

Source: BEICIP Study s'z

Industrial Projects Department m u

September, 1974

ANNEX 3Tab le 9

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

FERTILIZER IMPORT('000 nutrient tons)

N P205 K20 Total

1964 35.7 23.5 7.9 67.1

1965 49.5 22.6 114 83.5

1966 55.7 107 7.0 73.4

1967 62.0 14.2 7.2 83.4

1968 142.5 54.3 12.5 209.3

1969 107.6 61.7 12.8 182.1

1970 10909 14.3 27.5 151.7

1971 211.8 11.5 7.2 230.5

1972 289.3 93.3 35.8 418Q4

1?73 270.6 n*a, niac. noa,

'19 7S 345.4 -,. .,a, n.a.

Industrial Projects DepartmentJanuary 1975

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECTPROJECTED UREA PRODUCTION IN INDONESIA

('000 Tons)

DESIGN 1981PLANTS LOCATION CAPACITY 1975 1976 1977 1978 1979 1980 ONWARD

PUSRI I Palembang, Sumatra 100 90 90 - - - - -

PUSRI II i/ Palembang, Sumatra 380 290 304 342 342 342 342 342

PUSRI III 21 Palembang, Sumatra 570 - - 290 452 505 522 522

Total PUSRI 1,050 380 394 632 794 8W7 864 864

Perum Petrokimia Gresik, East Java 45 36 36 36 36 36 36 36

East Kalimantan I 31 Balikpapan, Kalimantan 570 - - - 400 428 456 456

West Java4/ Cikampek, Java 570 - - _ - 400 428 456

Total 416 430 668 1,230 1,711 1,784 l.Ri2

1/ Commissioning date, October 1, 1974.

2/ Estimated commissioning date, May 1, 1977.

3/ Estimated commissioning date, January 1, 1978.

4/ Estimated commissioning date, January 1, 1979.

NOTE: Assumptions used for capacity utilization of PUSRI II and III plants are: First year, 75%; second year, 80%; andthird year onwards, 90%; and for other new plants: First year, 70%; second year, 75%; and third year onwards, 80%.

Industrial Projects DepartmentJam-ary 1797 I-

CD

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECTCOMPARISON OF FERTILIZER DEMAND PROJECTIONS

(In nutrient tons)

(actual)

1972 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983

Demand for N 305.1

National Fertilizer Study (NFS)-1971 311.0 345.2 383.1 425.3 472.1 524.0 562.9BEICIP (1973/74)

High 395.9 440.5 484.5 527.9 570.8 613.1 654.8 696.0 736.6 776.7Low 370.5 403.8 437.5 471.5 506.0 540.8 576.0 611.6 647.6 683.9Median 383.2 422.2 461.0 499.7 538.4 577.0 615.4 653.8 692.1 730.3

TVA/USAID 1, 350.0 420.0 440.0 462.0 508.0 608.0 668.0PELITA II- 555.5 686.6 781.8 887.1 979.7 1,075.0 1,170.0

Demand for P9OS 52.8

NFS 127.7 146.9 168.9 194.3 223.4 256.9 295.6BEICIP

Case I: High 74.9 88.2 105.6 125.7 148.7 174.1 204.8 241.6 286.3 339.6Low 72.2 84.4 98.8 115.6 134.1 156.4 181.6 211.7 248.1 293.1Median 73.6 86.3 102.2 120.7 141.4 165.3 193.2 226.7 267.2 316.4

Case II: High 66.3 76.1 87.1 100.0 115.3 135.2 159.3 188.5 226.2 269.6Low 56.1 73.5 81.6 91.7 104.9 123.7 146.6 174.2 205.8 244.3Median 66.2 74.8 84.4 95.9 110.1 129.5 153.0 181.4 216.0 257.0

Demand for K90 30.4

NFS 78.7 89.3 101.4 115.1 130.6 148.3 168.3BEICIP

Case I: High 54.6 70.1 88.0 108.2 132.0 155.7 181.2 210.1 242.7 280.8Low 51.6 65.9 82.7 101.3 122.9 145.2 168.3 195.5 224.7 254.4Median 53.1 68.0 85.7 104.8 127.5 150.5 175.8 202.8 233.7 267.6

Case II: High 40.3 45.8 50.9 56.3 61.0 70.3 80.7 93.9 110.4 130.5Low 40.3 45.8 50.9 56.3 61.0 70.0 79.9 92.4 108.0 127.1Median 40.3 45.8 50.9 56.3 61.0 70.2 80.3 93.2 109.2 128.8

1/ PELITA II figures for 1974-1978. For 1979 and 1980, the figures are extrapolated from the projected 1976-1978 trend line.

(-DA

Industrial Projects DepartmentSeptesibei 1974

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECTRICE AREA, YIELD AND PRODUCTION -- TRENDS AND PROJECTIONSI/

1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981

I. Irrigated and Rainfed RiceA. Fettilized - HYV:

Area 18 486 772 1,072 1,433 2,300 2,890 3,500 3,995 4,400 4,715 5,045 5,375 5,705

Yield 2,865 2,680 2,874 2,572 2,466 2,407 2,302 2,276 2,270 2,260 2,267 2,273 2,278 2,280

Production 50 1,302 2,219 2,757 3,534 5,536 6,653 7,966 9,069 9,944 10,689 11,467 12,244 13,007

B. Fertilized - Non-HYV:Area 1,579 1,646 1,313 1,813 1,830 1,764 1,400 1,300 1,200 1,100 1,100 900 800 700

Yield 1,965 1,888 1,989 1,870 1,797 1,741 1,675 1,658 1,647 1,621 1,607 1,592 1,578 1,562

Production 3,101 3,108 2,612 3,390 3,289 3,071 2,345 2,155 1,976 1,783 1,607 1,433 1,262 1,093

C. No Intensification:Area 4,767 4,412 4,594 4,008 3,410 3,006 2,910 2,550 2,295 2,135 2,085 2,045 2,000 1,955

Yield 1,350 1,322 1,357 1,368 1,318 1,265 1,256 1,226 1,202 1,183 1,173 1,162 1,152 1,140

Production 6,433 5,833 6,234 5,483 4,494 3,803 3,655 3,126 2,759 2,526 2,446 2,376 2,304 2,229

Total Irrigated and RainfedRice: Area 6,364 6,544 6,679 6,893 6,673 7,070 7,200 7,350 7,490 7,635 7,800 7,990 8,175 8,400

Yield 1,506 1,566 1,657 1,687 1,696 1,755 1,757 1,802 1,843 1,867 1,890 1,912 1,934 1,944

Production 9,582 10,245 11,066 11,627 11,319 12,410 12,653 13,247 13,804 14,253 14,742 15,276 15,810 16,329

II. Upland RiceArea 1,657 1,470 1,456 1,432 1,311 1,317 1,295 1,265 1,225 1,195 1,140 1,080 1,015 955

Yield 762 759 758 760 776 782 798 817 835 849 864 878 891 901

Production 1,262 1,115 1,103 1,084 1,018 1,030 1,033 1,033 1,023 1,015 985 948 904 860

Total Rice Area 8,021 8,014 8,135 8,325 7,984 8,387 8,495 8,615 8,715 8,830 8,940 9,070 9,190 9,355

Total Rice Production 10,844 11,360 12,169 12,711 12,337 13,440 13,686 14,280 14,827 15,268 15,727 16,224 16,714 17,189

Average Rice Yield 1,352 1,418 1,496 1,527 1,545 1,602 1,611 1,658 1,701 1,729 1,759 1,789 1,819 1,837

NOTE: Area in '000 haYield in kgProduction in '000 tonsHYN: High Yielding Variety

1/ 1968-1973 actual figures and Bank Projection for 1974-1981.

Industrial Projects Department NH

Septenber, 1974

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECTNITROGEN CONSUMPTION IN RICE CULTIVATION

Irrigated and Rainfed Rice Upland RiceHYV Varieties Non-HYV Varieties

Consump- Consump-tion Consump- tion Consump- Ferti- Consump- Total NFer Ha ti.on Per Ha tion lized tion Consumption

Area (kg/ha) ('000 tons) Area (kg/ha) (tOOO tons) Area Per Ha Consumption By RiceKoOOO Hta) N____ N ('000 a) N N ('000 ha) (kg/ha) ('000 tons N) ('_000 tons)

1968 18 98.1' 1.9 1,579 49.2 77.7 - - - 79.51969 L86 92.b .h4.9 1,646 46.2 76.0 - - - 120.91970 772 100.6 77.7 1,313 50.3 66.o - - - 143.71971 1,072 79.0 8bi.7 1,813 39.6 71.8 - - - 156.51972 1,433 78.L 112.3 1,830 39.2 71.8 - - - 204.81973 2,300 81.1 186.5 1,764 40.6 71.6 - - - 258.11974 2,890 75.0 216.8 1,400 36.0 50.4 80 36 2.9 270.11975 3,500 77.0 269.5 1,300 38.0 49.4 150 38 5.7 32L.61976 3,995 80.0 319.6 1,200 40.0 48.0 210 40 8.h 376.01977 II l0 82.0 360.8 1,100 40.0 44.0 260 40 10.4 415.21978 L,715 8L.0 396.0 1,100 40.0 IL. 0 300 40 12.0 452.01979 5,045 86.0 1433.9 900 40.0 36.0 330 40 13.2 483.11980 5,375 88.0 b73.0 800 40.0 32.0 350 40 14.0 519.01981 5,705 90.0 513.5 700 40.0 28.0 360 40 1I4.5 556.0

Source: Bank Projections > L

Industrial Projects DepartmentSeptember 1971k

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECTPROJECTED CONSUMPTION OF FERTILIZERS

('000 nutrient tons)

1972 (actual) 1978 1983N P K N P K N P K

1/ 2/ 2/ 1/ 3/ 3/

Paddy (Rice) 204.77 30.87 - 452.10 77.76 59.68- 637.60- 211.68- 163.86-

Corn 23.13 0.22 - 37.15 11.87 - 44.74 28.32 14.16

Soybean 0.23 0.08 - 1.45 2.52 2.05 7.12 3.56

Vegetables 24.33 4.04 0.63 29.96 6.96 3.34 37.10 17.22 8.61

Peanut - 0.17 - 1.18 1.54 - 2.44 6.37 3.19

Total Foodcrops 252,46 35.38 0.63 521.84 100.65 63.02 723.93 270.71 193.38

Rubber 18.75 9.61 10.55 22.21 22.21 22.21 30.54 30.54 30.54

Oilpalm 5.54 2.36 13.76 9.59 9.59 19.19 14.50 14.50 28.99

Sugarcane 11.89 2.52 2.37 13.50 3.74 8.98 23.04 9.44 17.52

Tea 5.29 0.91 1.44 6.56 2.19 3.28 7.79 2.60 3.89

Coffee 4.02 1.15 1.43 4.87 2.28 2.28 6.33 2.73 2.73

Tobacco 5.81 0.06 0.27 6.12 0.75 0.75 6.80 0.75 0.75

Cloves 1.38 0.86 - 2.18 1.10 1.10 3.95 1.97 1.97

Coconut - - - 1.60 1.60 1.60 4.80 4.80 4.80

Pepper - - - 1.58 0.79 0.79 3.78 1.89 1.89

Total Estate Crops 56.68 17.47 29.82 68.21 44.25 60.18 101.53 69.22 93.08

Total All Crops 305.14 52.85 30.45 590.05 144.90 123.20 825.46 339.93 286.46

1/ Projection made in the Bank Draft Report "Survey of Irrigation Projects," 1974

2/ Calculated on the basis of the projected N, P2 0 5 , K20, ratio of 1:0.172:0.132 for 1978 by BEICIP for its "high"forecast(Case I;

3/ Calculated on the basis of the projected N, P2 0 5 , K20 ratio of 1:0.332:0.257 for 1983 by BEICIP for its "high" forecast(Case I;

Industrial Projects DepartmentSeptember 1974

ANNEX 3Table 15

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

CONSUMIPTION, PRODUCTION, AND TRADE BALANCEFOR NITROGEN IN MALAYSIA (INCLUDING SABAII), 1962-1980

(Tons)

Year 1/ Consumption Producton 3/ Trade Balance 4

1962 25,658 0 -25,6581963 26,506 0 -26,5061964 23,778 0 -23,7781965 31,187 0 -31,1871966 39,500 0 -39,5001967 143,500 0 -43,5001968 141,500 16,000 -25,5001969 142,500 18,000 -214,5001970 514,600 31,000 -23,6001971 61,000 26,000 -35,0001972 65,000 26,000 -39,0001973 78,500 26,000 -52,0001974 800,000 26,000 -5h,0001975 85,000 26,000 -59,0001976 102,000 26,000 -76,0001977 122,000 26,000 -96,0001978 135,000 26,000 -109,0001979 1148,000 26,000 -122,0001980 163,000 26,000 -137,000

1/ 1962-1972 FAO/TVA figures of actual levels of production andconsuncotion.

/in2/ Assumes consumption 1Wta and 1975 limited by wor'.d snortage

of N.

3/ Assirmes i,000-TPD anrqoni-, plant will ro int; produciion in 1981and all others scraped.

14/ Minus figures represent dificit valuies.

Source: TVA/USAID

Industrial Projects DepartmentAugust, 1974

ANNEX 3Table 16

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

CONSUMPTION, PRODUCTION, AND TRADE BALANCEFOR NITROGEN IN THAILAND, 1962-1980

(Tons)

Year2/ Consumption2/ Production Trade BalanceW

1962 11,058 0 -11,0581963 12,3h6 0 -12,3h6196h 18,36h 0 -18,36h1965 16,202 0 -16,2021966 17,917 0 -17,9171967 34,793 906 -33,8871968 52,193 8,947 -43,1h61969 51,000 8,900 -42,1001970 49, 000 8,000 -41,0001971 42,500 10,000 -32,5001972 58,123 12,000 -46,1231973 63,139 12.,OOLO -51,1391974 70,000 12,OO3 -58,0001975 8h,000 12,0003/ -72,0001976 91,000 12,000 -79,0001977 109,000 12,000 -97,OOO1978 121,000 12,000 -109,0001979 135,000 12,000 -123,0001980 161,000 12,000 -149,000

1/ The 1962-1971 FAO/TVA figures of actual production and consumption0

2/ The downward trend in consumption for 1969-1971 was deemedtemporary - projections for 1973 onward reflect previous growthtrends. Assumes major (20%) increase in use from 1975 onward.

3/ Production estimated at only 60% of rated capacity.

4/ Values merely differences between production and consumptionand are not necessarily related to imports for a given year.

Source: TVA/USAID

Industrial Projects DepartmentAugust 1974

ANNEX 3Table 17

INDONE,'IA: PUSRI FERTILIZER EXPANSION PROJECT

CONSUMPTION, PRODUCTION, AND TRADE BALANCEFOR NITROGEN IN THE PHILIPPINES, 1962-1980

(Tons)

Year 1 Consumption-/ Production_./ Trade BalamreW/

1962 35,850 7,656 -28,1941963 h8,057 7,656 -40,h011964 52,000 8,000 -44, 0001965 52,600 9,000 -43,6001966 58,,000 10,100 -47,9001967 66,000 21,000 -45,OOO1968 6)4330 h3,565 -20,7651969 63,440 45,634 -17,8061970 101,437 53,549 -h7,8881971 132,196 h7,715 -8h,4811972 92,968 52,000 -4,0OOO1973 170-,000 52,000 -118,000197h 200,000 60,000 -140,0001975 211,000 60,000 -151,0001976 232,000 60,000 -172,0001977 255,000 60,000 -195,0001978 29h,000 60,000 -23L,0001979 338,000 60,000 -278,0001980 372,,000 60,000 -312,000

1/ 1962-1972 figures actual production consumption, and import levelsas reported by FAO and TVA.

2/ Rate of growth 1974-75 limited because of scarcity of fertilizersupplies. Growth rates 1976 onward assume "Massagana 99" typeprogram to be continued.

3/ Assumes de-bottlenecking program only partially successful in 1974.Domestic unit (1,000 TPD ammonia plant) to be on stream in 1981,with all other units scrapped.

Source: TVA/USAID

Industrial Projects DepartmentAugust 1974

ANNEX 3Table 18

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

CONSUMPTION, PRODUCTION, AND TRADE BALANCEFOR NITROGEN IN REPUBLIC OF VIETNAM, 1962-1980

(Tons)

Yearl/ Consumption Production Trade Balance

1962 15,578 0 -15,5781963 16,843 0 -16,8431964 67,907 0 -67,907

1965 27,000 0 -27,0001966 26,405 0 -26,4051967 45,227 0 -45,2271968 68,749 o -68,7491969 61,400 0 -61,4001970 99,000 0 -99,000

1971 70,200 0 -70,200

1972 89,105 0 -89,1051973 96,246 0 -96,2)461974 103,387 0 -103,387

1975 110,528 0 -110,5281976 117,668 0 -117,6681977 134,000 0 -134,000

1978 148,000 0 -148,0001979 162,000 0 -162,0001980 178,000 0 -178,000

1/ 1962-1972 FAO/TVA figures of actual levels of consurnption

Source: TVA/USAID

Industrial Projects DepartmentAugust 197)

ANNEX 3Table 19

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

CONSUMPTION, PRODUCTION, AND TRADE BALANCEFOR NITROGEN IN REPUBLIC OF KOREA, 1962-1980

(Tons)

Yearl! Consumption_/ Production3/ Trade Balance/

1962 216,860 36,413 -180,4471963 200,000 38,000 -162,0001964 199,297 38,023 -161,2741965 173,234 64,916 -104,3181966 201,163 74,997 -126,1661967 239,691 80,863 -148,7341968 277,536 150,100 -127,4561969 283,919 315,300 29,3811970 320,123 356,000 35,8771971 355,550 386,000 30,4501972 342,728 431,000 89,2721973 411,269 497,000 85,7311974 493,516 497,000 3,4841975 518,192 507,000 - 11,1921976 518,100 821,000 302,9001977 544,005 770,000 225,9951978 569,910 770,000 200,0901979 598,365 767,000 168,6351980 600,000 870,000 270,000

1/ 1962-1972 FAO/TVA figures of actual levels of production andconsumption.

2/ Assumes major increases in consum,ption (20%Io per year) for both1973 and 1974, with only slight increases thereafter. Consumptioncould stabilize at a level as low as 550,000 mt, depending uponKoreaTs rate of industrialization.

3/ Assumes increasing demand for industrial ammonia from 1975 onward.Also assumes existing capacity to run at 10TC, (now operating at120c+). Further assumes two 1,000 TPD NMi3 units on stream by1976, a third by 1980, and close out of Honam (49,000) by 1977,and Chenhae (86,000) and Vongnam (86,000) units in 1980.

4/ Values represent difference between production and consumptionand not necessarily imports or exports for a given year.

'iource: TVA/USAID

Industrial Projects DepartmentAugust 1974

ANNEX 3Table 20

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

CONSI14PTION, PRODUCTION AND TRADE BALANCEEOR NITROGEN IN JAPAN, 1962-1980

(Tons)

Year1/ Consumptio n Production3 Trade Balance&/

1962 667,000 1,120,900 453,3001963 698,500 1,165,700 467,2001964 736,900 1,298,500 561,6001965 721,400 1,393,300 671,9001966 769,399 1,635,100 865,8001967 8h2,100 1,789,300 9h7,2001968 889,400 2,034,700 1,145,3001969 906,800 2,098,900 1,192,1001970 878,900 2,130,900 1,252,001971 865,700 2,105,100 1,239,4001972 942,607 2,572,607 1,630,0001973 968,h35 2,h35,435 1,h66,6001974 1,065,000 2,055,000 990,0001975 1,181,000 2,160,000 979,0001976 1,181,000 1,944,000 763,0001977 1,181,000 1,750,000 569,o0o1978 1,181,000 1,575,000 394,0001979 1,200,000 1,418,000 218,0001980 1,200,000 1,300,000 100,000

1/ 1962-1972 FAO/TVA figures of actual consumption and production.

2/ Significant increases in consumption already occurred in 1973and forecast to rise again,in 1974 and 1975. Assumes foodstabilization 1976 onward.

3/ Japan has already announced a cutback in production and eventuallywill phase out of export market. The current oil shortage coupledwith planned cutbacks will reduct Japan's total nitrogen productionin 1974 by at least 16 percent. (Forecast December 19, 1973)

4/ Therefore a sharp drop in Japanese exports can be expected in 1974,caused by both an increase in consumption and a drop in production.Also note trade balance figures may not necessarily agree withofficial export figures because not all production is exportedin year produced and also some imports occur which are not recordedhere.

Source: TVA/USAID

Industrial Projects DepartmentAugust 1974

INDONESLA: PUSRI FERTILIZER EXPANSION PROJECTN FERTILIZER SURPLUS (DEFICIT) IN SELECTED COUNTRIES

('000 nutrient tons)

1974 1975 1976 1977 1978 1979 1980 1981 1982 1983

Malaysia 1 54 -59 -76 -96 -109 -122 -137 -17 +19 +31

Thailand -58 -72 -79 -97 -109 -123 -149 -173 -201 -232

Philippines 2/ -140 -151 -172 -195 -234 -278 -312 -239 -213 -217

e;rVI o, ,n -103 -110 -117 -134 -148 -162 -178 -90 -102 -116

Sub-total -355 -392 -444 -522 -600 -685 -776 -519 -497 -534

Indonesia -207 -250 -196 1 +181 +170 +136 + 85 +33

4/ South Korea +3 -11 +302 +226 +200 +169 +270- - - -

Japan +990 +979 +763 +569 +394 +218 +100 - - -

Persian Gulf Countries +930 +910 +990 +1,340 +1,300 +1,280 +1,260 n.a. n.a. n.a.

Sub-total 1,63d 1,671 1,805 1,939 1,895 1,8h8 1,800 n.a. n.a. n.a.

Source: Bank estimate for Indonesia and TVA/AID data for all other countries.

1/ One 1,000 TPD ammonia plant and one 1,725 TPD urea plant to be commissioned in January 1981.2/ One 1,000 TPD ammonia plant and one 1,725 TPD urea plant to be commissioned in January 1981.3/ Data for 1980-1983 derived by extrapolating the TVA/AID consumption forecast trend line for 1975-1980 and by assuming that

a 660 TPD ammonia plant and a 1,135 TPD urea plant would be commissioned in January 1981.4/ Fertilizer plants at Chenhae and Vongnam are expected to be closed at the end of 1980 because of obsolescence.

Industrial Projects Department

Y L s - .~1 r ! g N

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ANNEX 4-2

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

PRODUCTION PROCESS AND PROJECT DESCRIPTION

A. 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, ifapproximately 92% on-stream efficiency is maintained, will be about522,000 TPY. The intermediate ammonia production facilities are sizedon the basis that all ammonia produced will be converted to urea. Theammonia unit will have a 1,000 TPD rated capacity, i.e., 330,000 TPY.

2. Gas from PERTAMINA and STANVAC gasfields will be used for bothprocess and fuel and will be supplied to the plant at a pressure of around600 psig as required for direct steam reforming without further pressureboosting. It will be the responsibility of PERTAMINA to supply and installthe necessary gas pipeline up to the works from the existing high pressuretransmission line (see Annex 4-4).

hverage comoosition of the gas is exnected to be as below:

(% of volume)

Methane 75.1Ethane 6.0Propane h.9Isobutane 0.9.Butane 0.8Isopenthane 0.5Penthane O.L,Exane and Higher 1.0Carbon Dioxide 10.3Nitrogen 0.1

100. 0

The gas is almost sulfur-free. Producers of the gas remove liquifiedhydrocarbons in the gas-fields so that the pipeline gas contains lessthan 2 LUS gal0/l,000 cu.ft. of liquified hydrocarbons.

3. Synthesis gas for ammonia production is produced from the feedgas in a series of steps beginning with a primary refor:ing with steam.Here, desulfurized gas is combined with superheated steam in an amountapproximately equal to a 3 to 1 steam/carbon ratio. The combined streamat, a pressure of approximately 500-550 psig is then preheated to about950 degrees F and passed through catalyst-filled 25/20 chrome-nickelalloy tubes suspended in the radiant section of the reformer. In passingthrough the tubes, the hydrocarbon components, miostly methane, are partlyconverted to carbon oxides and hydrogen and exit at a temperature normallyin excess of 1,500 degrees F. The partially reformed gas then flows to a

ANMEX h-2Page 2

secondary reformer where it is mixed with preheated air in a quantitynecessary to reform the unconverted hydrocarbons and at the same timeprovide the required amount of nitrogen for ammonia synthesis. Airrequired for the secondary reforming step is supplied from a centrifugalsteam-turbine-driven compressor.

4. Reformed gas from the secondary reformer now containing lessthan about 0.4% methane is cooled in waste heat boilers down to about700 degrees F prior to introduction to the high temperature shift converterwhere part of the carbon monoxide content of the gas is converted to carbondioxide by reaction with steam with an equivalent production of hydrogen.To complete this conversion of carbon monoxide, the gas after cooling inadditional waste heat boilers and after a protective fine sulfur removalis introduced into a second stage low temperature converter where thecarbon monoxide content of the gas is reduced to about 0.5%.

5. The raw synthesis gas now contains essentially hydrogen, nitrogen,carbon dioxide and small amounts of hydrocarbons and carbon monoxide andgoes through a series of purification steps to provide an ammonia synthesisgas with a hydrogen/nitrogen rate of 3 to 1 In the first of these,carbondioxide is removed by any of a number of proprietary liquid scrubbing pro-cesses and then remaining carbon oxides are removed by conversion to methaneby reaction with hydrogen over a suitable catalyst. The final synthesis gasthen contains in addition to nigrogen and hydrogen, less than about 10 ppmoxides, the maximum which can be tolerated by the ammonia synthesis catalyst,and small amounts of methane which are continually purged from the followingammonia synthesis loopo

6c The carbon dioxide removed from the crude synthesis gas is re-generated from the rich liquid absorbent and is subsequently reacted withammonia to form urea0 The composition of the natural gas is such that thequantity of carbon dioxide produced in the gas reforming process describedwill be sufficient for urea production.

7. In the synthesis of ammonia the nitrogen hydrogen mixture iscomprressed to a pressure of 2,500-3,000 psiF by a steam turbine driven2 or 3 case centrifugal compressor with recycle gas containing about ll.ammonia being admitted to an interstage wheel. The compressed dischargegas after water coolinv is then refrigerated and condensed ammonia removedin a liquid separator before the gases now containing only about 25, ammoniaare reheated by heat exchange and passed to the ammonia converter. Thisvessel is of a special design containing e catalyst to promote the :.ynthesisreaction and special provision for removal of the reaction heat developed,so as to maintain optimum reaction temperature. The effluent gas is cooledfrom the reaction temperature of about °00 degrees F first in preheatingboiler feed water and then by heat exchange with incoming converter feedgas, before recycling in the synthesis gas compressor as described.

AJINEX 4l-2Page 3

8. Liquid ammonia produced in the process will be stored.in arefrigerated liquid ammonia storage tank having a capacity of about5-day production or some 5,000 tons.

9. In the production of urea, amTonia and carbon dioxide arecombined at a pressure of 2,000 - 3,500 psig and a temperature of approxi-mately 360 degrees F when anmoniuiri carbamate is formed as an intermediateproduct, which is subsequently dehydrated to form urea. Neither of thesereactions, however, proceeds to completion with the result that the re-action product consists of a urea/ammonium carbamate solution containinglarge quantities of dissolved. ammonia and carbon dioxide. The next stepin the production of urea, therefore, is to separate the non-convertedcarbamate and reaction gases and recycle them to the reactor, and themeans of doing this represents the major distinction between the variousprocesses commercially available. In one commonly used process, thepressure of the reaction products is reduced in steps with consequentdecomposition of carbamate back into carbon dioxide and ammonia whichare then redissolved by countercurrent absorption and recycled back tothe reactor. In another process, the decomposition is achieved withoutreduction in pressure by stripping the solution leaving the reactor withcarbon dioxide and in another process a similar stripping process is usedemploying gaseous ammonia. In all these processes, the final urea solutionis concentrated by evaporation and then in most cases prilled directly,if abiuret concentration of up to 1½% percent can be tolerated, or,.after vacuumcrystalization, if a low biuret Y grade is required..

B. Plant Facilities

10. PUSRI III will be built adjacent to PUSRI II, partly on landalready prepared for PUSRI II and. partly on land recently purchased(about 20 ha) for PUSRI III. This additional land requires sand fillingto the extent of about 540,000 cubic meters. The main parts of the projectare: (1) a natural gas pretreatment section for the removal of heavy hydro-carbons, carbon dioxide and sulfur compounds from the feed gas; (2) a1,000 TPD ammonia plant; (3) a 1,725 TPD urea plant; (4) an ammonia storagetank; (5) cooling towers for recirculating plant cooling water; (6) watertreating facilities designed to produce high-purity demineralized.water;(7) a gas turbine generator designed to produce 15.MW of power, withfacilities for heat recovery for steam generation; (8) a bag-making plantwith a capacity to produce 20 million bags a year; and (9) expansion ofthe existing jetty to facilitate loading of YUSRI III products onto shipsspecially designed. for bulk transportation. About 80/ of PUSRI III ureawould be transported in bulk to the reception and bagging stations of theCompany. The rest of the production woul.d be bagged at Palembang itselfand shipped in the Regular Liner Service (RLS) vessels to smaller marketsin the outer islands.

1/ Less than 0.5% of biuret.

ANNEX 4-2Page 4

C. Pollution Control

11 Special attention will be given during design and specificationsfor the facilities to minimize the emission and/or discharge of noxiouswaste materials. Wherever possible, these materials would be recycledwithin the process units. Further, the design of the process umits willbe in accordance with European and U.S. standards with respect to thecomposition of liquid and gaseous effluents. Under these conditions andwith the added advantage of having a clean, almost sulfur-free gas feed-stock, it is expected that the proposed project will have little or noharmful effects on the environment 0

Industrial Projects DepartmentJanuary 1975

ANNEX 4-3

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

IMPLEMENTATION SCHEDULE - PUSRI III

Preliminary Negotiation - Contrators._--

Contract Negotiations --- -- _ ----

Basic Engineering ---------------

Detailed Engineering -------- - - - -- --- ----- --------

Procurement and Equipment Deliveries- - - - _ _ _ _ _ _

Site Acquisition--------------

Site Preparation----------------- -40-

Civii Works and Erection ---- -- - - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Start-up and Commissioning- -- -- -- -- ----- -- -- -- --- -- - -- - -- - - - - --- -- - - - - -- -- - -- - - - - -

Jan. 1, 1974 Jan. 1, 1 Jan. 1, 1976 Jan. 1, 1977

Industrial Projects DepartmentAugust, 1974

World Bank-8972

Annex 4- 1INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

RAW MATERIAL AND PRODUCT FLOW

PUSRI A I2MIL.IO NSCF/D AMMONIA I 10TPD UREA 300TPD 1I 1 1ISIANVACI ~~~~~~~~PLANT PAT1AGN A

BAG LOADING

BAG CONVEYOR-45TH

I L ALTERNAT F P LAN

PUSRB 1 NATURAL GAS 42 MILLIONSCF AMMONIA 660 TPD U 1150TPDI PERTAMINAI PLANT

5 0D0 TONS EXISTING II IBULB LODN

. BULK > T~~~~~~~~~~~~~~~~~~~~~~E BLK CON VEYOR H400 T-IHR INCREASED

PUSRI 111 NATURALGAS 60 MILLION SC_ AMMONIA( 1000D UPEANT 7 TED P3TDROOED BULK STORAGE.

{ < TONS TATIN G I110THR FUTUREI

R ULK CONVEYOR

BULK ~BA T TO 600 T HR

TOTAL PRODUCTI0N } 132 T/HR OR DESIGN BAGGING RATE. 272 THR TOTAL BAG LOADING 245 TNHGCAPACITY OP UREA _3,175 TD TOTAL BULK LOADING = BOOT/HR

AIIerntIte p/aR for Eag cAlvVOrR ploposed uRndel Pu/Sri 111

Iridustrzal Projects Della, ImenlA00BOTONS

1 74 TIHBk-EB73

ANNEX 4-5

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

GAS GATIERING AND TRANSMISSION

1. PPUSRI urea production is based on natural gas. The old plant,PUSRI I, receives its gas requirements - 12 million SCF per day - fromSTANVAC gasfields under a 20-year contract which expires in 1983, A newgas gathering and transmission system with a capacity of 116 million SCF/day has been developed by PERTAMINA at a total cost of about Rp 16 billion(US$ 39 million), financed by the Government to meet the gas requirementsof PUSRI II, According to the original plan, 42 million SCF/day was tobe supplied to PUSRI II and the remaining 34 million SCF/day was proposedto be supplied to two refineries of PERTA1INA and two power-generatingplants at Palembang. However, because of the proposed PUSRI III plant,PERTANfINA has been instructed by the Government to supply all the gas frorithe existing s,.rsten (116 million/day), if necessary, to meet fully PUSLIIsexpanded needs. This would require a pipelir,e looping over 12 km (using30.5 cm pipes) from Simpiang to PUSRI III to supply its need estimatedat 60 million SCF/day of gas. PERTANINA reportedly has already placedorders with foreign suppliers for pipes for the looping work.

20 PERTAI4INA is also planning to develop a new gas gathering andtransmission system to meet the needs of the above mentioned refineriesand power plants and also have a reserve capacity to meet the futureneeds of PUSRI. This system is expected to cost about US$ 50 million,and would be financed by the Government. It would consist of a 20.5 cmdiameter, 47 km pipeline connecting the gasfields of Musi Block to thegasfields at Nau and Teras and a 30.5 cm diameter, 81 km pipeline fromthe latter to Cambai where the new system would be linked with the exist-ing system. The proposed network would be implemented by PERTAMINA usingits own staff supported by an experienced local engineermng firm.

Gas Reserves

3. The following table shows the gas reserves in South Sumatraavailable for the existing and the proposed gas gathering and transmissionsystems:

Gas Reserves(In billion SCF)

I. For the Existing System Proven Probable Total1T Prabumulih Fields (PERTAEINA) 650.0 1550 805.02c Dewa, Abab, Raia and

Ibul Fields (STANVAC) 206.0 - 206.0Sub-total (A) 856.0 1 l0 ,llO0

II. For the Proposed System1. M4usi Block (PERTAMINA) 122,0 372.0 494.02. Rambutan, Nau and Teras Fields

(STANVAC) 212.0 2h9.0 461.0Sub-total (B) 334.0 621.0 955.0

III. Grand Total (A+B) 1,190.0 77600 1,966.0

ANNEX 4- 5Page 2

4. The proven reserves available for the existing system areestimated at 856 billion SCF of which about 30% would be accounted forby field uses (e.g., compressors, etc.) and field losses. Thus netproven reserves available for supply to PUSRI would be about 600 billionSFC wrhich would be adequate to meet the needs of PUSRI II and III(102 million SCF/day) for about 16 years. In addition, there are anestimated 155 billion SCF probable reserves at Prabumulih gasfieldsserved by the existing system.

Industrial Projects DepartmentJanuary 1975

ANNEX 5-1

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

CAPITAL COST ESTIMATES

in US$ million in Rp billionLocal Foreign Total Local Foreign Total

Land 1.3 - 1.3 0.54 - 0.54Site Preparation 1.0 - 1.0 0.42 - 0.42Civil Work 2.2 4.7 6.9 0.91 1.95 2.86

Sub-total 4.5 4.7 9.2 1.87 1.95 3.82

Equipment and SparesAmmonia Plant 0.2 24.1 24.3 0.08 10.00 10.05Urea Plant 0.1 14.0 14.1 0.04 5.81 5.85Bag-Making Plant - 10.0 10.0 1/ - 4.15 4.l2 1/Construction Equipment o.8 4.1 4.9 0.33 1.70 2.03Utilities and Auxiliary Equipment 3 0.9 16.5 17.4 0.37 6.85 7.22Miscellaneous Equipment / 2.4 4.5 6.9 1.00 1.87 2.87Spares - 4.0 4.0 1.66 1.66SFreight and Insurance - 6.8 6.8 - 2.82 2.82Sub-total 4.4 8 1 .82 34.86 36.63

Erection 3.5 0.4 3.9 1.45 0.17 1.6.2Engineering Services and ProjectManagement 1 1.2 29.9 31.1 0.50 12.41 12.91

Preoperating and Start-up Expenses 3.3 1.5 4.8 1.37 0.62 1.99?Transport Project Preparation 0.2 0.1 0.3 0.08 0.04 0.12Jetty 2.0 3.0 5.0 0.83 1.25 2.08Housing 1.2 0.1 1.3 0.50 0.04 0.514Base Cost Estimates 20.3 123.7 144.0 8.42 51.34 59.76'Physical Continge1cies i/ 0.5 803 8.8 0.21 3.44 3.65Price Escalation _/ 2.7 10.3 13.0 1.12 4.27 5.39Installed Cost 23.5 142.3 165.8 9.75 59.05 68.80Working Capital 5.3 1.0 6.3 2.20 0.42 2.62Total Project Cost 28.8 143-3 172.1 11.95 59.47 71.42Interest during Construction 5.6 14.3 19.9 2.32 5-94 8.26Total Financing Required 34.4 157.6 192.0 14.27 65.41 79.66

j Including US$0.5 million for working capitalj Offsites, including a power plant, an ammonia storage tank, water supply

and steam generating equipment, etc.3/ Including hospital equipment, laboratory equipment, warehouse equipment, etc./ License, engineering, procurement, field supervision, project management and

training expenses as well as US$1.4 million for bonus payment to generalcontractor for early proJect completion. and US$1.1 million forvendor servicemen.

S/ 9% of the cost of equipment, spares and jetty.See page 2 of this Annex for the basis of calculation.

ANNEX 5-1Page 2

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

EXPENDITURE COMMITMENT AND ESCALATION FACTORS

A. Annual Escalation Rate

Escalation Rate (%) per AnnumYear Indonesia Equipment Supplier Countries

1974 18 141975 16 121976 14 101977 12 8

B. Escalation Factors and Escalation Costs

Items Period Escalation Cost(months) Local Foreign Total

.... In JS$ Million

1. Civil Work and SitePreparation 12 0.5 o.6 1.1

2. NH3 Plant 1/ 10 - 1.8 1.83. Urea plant 8 - 1.3 1.34. Bag Makin5 Plant 18 - 1.8 1.85. Offsites Z/ 12 0.1 2.0 2.16. Construction Equipment 4 - 0.2 0.27. Miscellaneous Equipment 12 0.4 0.6 1.08. Spares 10 - 0.5 0.59. Freight 12 - 0.8 0.810. Vendor Servicemen 30 - 0.2 0.211. Erection 26 1.3 0.1 1.412. Jetty 14 0.4 0.4 0.8

Total 2.7 197l 17"5

1/ $ 7.4 million worth of equipment already ordered on a firm basis.

2/ $2.9 million worth of equipment already ordered on a firm basis.

Industrial Projects DepartmentJanuary 1975

ANNEX 5-2

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

WORKING CAPITAL REQUIREMENTS(In Rp Million)

Cash (5% of production costs excluding depreciation) 585

Raw Materials- :

- Chemicals (3½z-month supply) 94

- Bags (2-month supply) 361

Spares _ 2/

Work-in-ProcessAmmonia (4,500 tons, 5-day output, US$70/ton

cash cost of production) 130

Finished Goods Inventory1-month output of urea (43,500 tons, @Us$ 5h

cash cost of production) 975

Accounts Receivable(1-month sales of urea, Rp 55,900/ton) 2,432

Sub-total 4,577

Less AccountsPayable (2-month cash production cost) 1,95o

Net Working Capital Required 2,627

1/ One spare set of catalyst costing about Rp 330 million is included inthe capital cost.

2/ Included in the capital cost.

ANNEX 5-2Page 2

PUSRI FERTILIZER EXPANSION PROJECTWORKING CAPITAL REQUIREMENTS

1 2 3 4 5 6 7 81975 1976 1977 1973 1979 1980 1981 1982

WITHOUT PUSRI III

CASH Ggo 711 385 384 386 386 386 386RECEIVABLES 3074 3251 4537 5292 5539 5613 5618 5618INVENTORYCHEM./CATAL. 123 129 104 104 104 104 104 104BAGGING MAT. 260 273 237 237 237 237 237 237WORK IN PROCESS 73 90 110 110 110 110 110 110FINISHED GOODS 1150 1185 641 641 644 643 644 644SPARE PARTS 1244 1305 1428 1428 1428 1428 1428 1428

TOTAL INVENTORY 2849 2982 2520 2520 2523 2522 2523 2523

CURRENT ASSETS 6613 69414 7442 8196 34147 8525 8527 8527

ACCOUNTS PAYABLE 2300 2371 1282 1232 1288 1286 1288 1288

WORKING CAPITAL 4314 4573 6159 6914 7160 7239 7239 7239WIORK.CAP.CHANGE -1966 260 1536 755 246 79 -0 -0

IITH PUSRI III

CASH 690 711 719 9014 954 971 974 977RECEIVABLES 3074 3251 5888 7397 7891 8049 8049 8049INVENTORYCHEM/CATAL. 123 129 157 186 196 199 199 199BAGGING MAT. 260 273 437 549 586 593 598 598WORK IN PROCESS 73 90 183 226 240 240 240 240FINISHED GOODS 1150 1185 1199 1506 1590 1618 1623 1628SPARES 1244 1305 1428 1428 11428 1428 1428 1428

TOTAL INVENTORY 2849 2982 31404 -35 4039 4083 140P8 14092

CURRENT ASSETS 6613 6944 looll 12196 12884 13103 13111 13118

ACCOUNTS PAYABLE 2300 2371 2398 3012 3180 3236 3246 3256

WORKING CAPITAL 4313 4573 7613 91814 9704 9867 9865 9862WORK.CAP.CIIANGE -1967 260 3040 1571 520 162 -2 -3

INCREMENT.WORKINGCAPITAL REQUIREDDUE TO PUSRI III -0 0 1454 816 274 83 -2 -2

ni5ustrial 'rojcctc Dopartncntanuary 1975

ANNEX 5 _3

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

DISBURSEMENT SCHEDULE FOR BANK LOAN(In 1000 US$)

Calendar Year Disbursement Amount Undisbursedand Quarter Outstanding Amount

1975 II 10.0 10.0 105.0

III 15.0 25.0 90.0

IV 28.0 53.0 62.0

1976 I 12.0 65.0 50.0

II 12.0 77.0 38.0

III 12.0 89.0 26.0

IV 11.0 100.0 15.0

1977 I 10.0 110.0 5.0

II - 110.0 5.0

III 5.0 115.0

Industrial Projects DepartmentJanuary 1975

ANNEX 6-1

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

ASSUMPTIONS USED FOR PROJECTIONS

1. Commissioning Date

PUSRI III May 1, 1977

2. Capacity UtilizationPUSRI Il/ PUSRI II PUSRI III

1975 90 75 1976 90 80 -1977 - 90 75 (8 months)1978 _ 90 781979 - 90 871980 onwards - 90 90

1/ PUSRI I is assumed to be closed after 1976 because of its age.

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 63,900 (US$154) per ton, of which about Rp 8,000 (US$19.3) perton is the allowance for transporting fertilizer to Uava. Thus, the ex-factory price works out to Rp 55,900. This price has been used. to projectthe Companyts production revenue, assuming it would not be changed before 1977.

The Government subsidizes the sale of urea - local as well asimported. It has fixed the retail price of urea at Rp 60,000 (US$144.6)per ton, which includes a margin of 22% for distributors and 8% for sub-distributors and retailers. This price is assumed to remain constant.

4. TIput Costs

The costs of all inputs except gas for PUSRI I and PUSRI IIare expressed in 1977 prices except for real increases in labor andmaintenance costs. The gas supply to PUSRI I is carried out under a

fixed price contract and. for PUSRI II under a formula which links the gasprice to the operating costs (including financial charges) plus two US centsper MSCF gas to cover PERTANiINA's overhead, thus allowing for a gradualdecrease in the gas price as the burden of financial charges declines withdebt repayments,

As the operating costs of the gas distribution system are notexpected to increase significantly because of inflation up to 1977, thegas costs for them have not been escalated. With respect to polypropylenebags, the import price nearly doubled to US 50 cents per bag in 197h. Thisprice is not expected to further increase significantly up to 1977. PUSRIis expected to start manufacturing such bags from 1977 onwards. .The pricefor each of these bags is also assumed to be US 50 cents for PUSRI use andUS 60 cents for outside sales.

ANNEX 6-1Page 2

Gas Price: Natural gas is supplied. to PUSRI I by STANVAC at thefixed. price of Rp 79 (about 19 US cents)ASCF. In the case of PUSRI II,which gets its gas supply from PERTAMINA at cost, the gas price decreasesfrom year to year as the burden of debt servicing on PERTAMINA declines.The following gas prices have been used for PUSRI II:

GAS PRICEAISCF for PUSRI II(In Rp)

Rp US Cents1975 91T.o 22.71976 90.5 21.81977 80.0 19.21978 76.0 18.31979 74.0 17.91980 70.0 16.91981 67.0 16.11982 63.0 15.2

The price mechanism for gas supply to PUSRI III has not yet been finalized..It is assumed for the projections that the price would be about Rp 250.(US 60 cents)/MSCF; this is calculated on the basis that a new gas gatheringand transmission system in Indonesia would. require that price to cover allcosts and earn a reasonable return on investment.

Gas per Ton of Urea: It is assumed the old plant, PUSRI I, wouldrequire 50 MSCF per ton of urea compared. to 34.7 MSCF per ton by PUSRI IIand PUSRI ITI.

Catalysts and Chemicals: The proposed PUSRI III with its largerunits of ammonia and urea would require less catalysts and chemicals perton of product than PUSRI II and PUSRI I. It is assumed that PUSRI III in1977 would. require such items worth about Rp 623 (US$1.5) per ton of ureacompared to Rp 1,050 (US$2.5) per ton by PUSRI II and Rp 1,370 (US$3.3)per ton by PUSRI I.

Maintenance Materials: The following table shows the maintenancematerials per ton of urea in the PUSRI I, II and III:

PUSRI I PUSRI II PUSRI IITR-EP US$ Rp US$ Rp US$

1975 8,300 20 2,905 7 _ _1976 9,130 22 3,320 8 - -1977 - - 3,943 9.5 3,9h3 9.5

A real increase of 5% in maintenance material costs is assumed for PUSRI I.

Labor: The average base salary of PUSRI workers in 1974 wasRp 45,000 (UST108.5) per month. This is assumed. to increase at the rate

ANNEX 6-1Page 3

of 15% a year during 1974 - 1977, reaching Rp 100,000 (US$241) in 1977.Beyond 1977, a 2% increase in real wages is assumed for the projections.The labor force of PUSRI T is 1,500 compared to 700 for PUSRI II and theprojected figure of 550 for PUSRI III.

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 undertaken by PUSRI.

7. Marketing Department Profit

During 1970 - 1973, the marketing department showed losses becausethe margin on sales fixed by the Government was not adequate to cover allthe costs of the department. However, beginning fro, 1974, the Governmenthas undertaken to make up the annual marketing lossces. Therefore, for thepurpose of projections, it has been assumed that the marketing departmentwould operate on a no-profit, no-loss basis as full data for the departmentare not available prior to the completion of the appraisal of the proposedshipping and distribution project.

Industrial Projects DepartmentJanuary 1975

ANNEX 6-2

PUSRI FERTILIZER EXPANSION PROJECTPROJECTED INCOME STATEMENTS-PUSRI III

1 2 3 4 5 6 7 &'1975 1976 1977 1973 1979 1980 1981 198,2

CAPACITY UTIL.(%)_________________

PUSRI III 0 0 75 78 87 90 90 r

PROD.(000 TONS)_______________

PUSRI III 0 0 290 452 505 522 522 522TOTAL PRODUCTION 0 0 290 452 505 522 522 522

UREA PRICE(RP/TON) 55900 55900 55900 55900 55900 55900 55900 559Co

SALES (RP MILLION)P_____0_00_0__0___

PUSRI I 0 0 0 0 0 0 0 0PUSRI II 0 0 0 0 0 0 0 9PUSRI III 0 0 16211 25267 20229 29130 29180 291f0TOTAL SALES 0 0 16211 25267 23229 213i0 291°0 291E>0

OPERATING COSTS_______________

VARIABLE COSTSGAS 0 0 2513 3917 4376 4523 4523 4523CHEMICALS/CATAL. 0 0 131 231 314 325 325 325IBAGGING MATERIALS 0 0 12014 1TTO 2o96 2166 2166 2166

TOTAL VAR. COSTS 0 0 398 6074 786 7014 7014 7014

FIXED COSTSMAINTENANCE MAT. 0 0 1143 1732 1991 2058 2058 20,8LA6OR 0 0 660 1010 1030 1051 1072 1093OVERHlEAD 0 0 990 1515 1545 1576 1608 1640DEPRECIATION 0 0 4251 6377 6377 6377 6377 6377

TOTAL FIXED COSTS 0 0 7044 10634 10943 11062 11115 11168

TOTAL PROD. COSTS 0 0 10942 16758 17729 18076 18129 181 2

FINANCIAL CHARGES 0 0 2364 -663 5250 4772 _42 3319TOTAL COSTS 0 0 13806 2226 22979 22048 22124 22001PROFIT BEFORE TAX 0 0 27 05 -271 5250 6332 - 6756 7179

Industrial Projects DepartmentJanuary 1975

ANNEX 6-3

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

INPUTS FOR FINANCIAL RATE OF RETURN AND

SENSITIVITY ANALYSIS(In Rp Billion)

3/Investment Costs Operating Costsa/ Benefits3-Cl C2 B1

1974 20.25 0 0

1975 35.02 0 0

1976 301Q8 0 0

1977 8,24 6.69 17.10

1978 0 10.39 26.80

1979 0 11.36 30.07

1980 0 11.70 31.07

1981 0 11.76 31.07

1982 0 11.81 31.07

1983 0 11.86 31.07

198h 0 11.92 31.07

1985 0 11.98 31.07

1986 0 12.03 31.07

1987 0 12.09 31.07

1988 0 12.15 31.07

1989 (2.60)- 12.22 31.07

1/ Excluding depreciation, financial charges and taxes on profit.2/ Recovery of working capital.3/ Including revenue from the sales of bags to PUSRI II and other

consumeis from the bag-making plant of PUSRI III.

ANNEX 6-3Page 2

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

SENSITIVITY OF FINANCIAL RATE OF RETURN

25

20 -- Capital Cost IReturn vs

IReturnetul

P~~ 13.8

0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

4.'#1I Operati .410 Vs

4% I ~~Return

-20 -10 0 +10 +20 +25

Percentage Deviation from Base Case

Case Capital Costs Operating Costs Benefits Return

Base Case 100 100 100 13.81. 110 100 100 12.12. 100 110 100 12.63. 100 100 110 16.54. 120 100 100 10.75. 110 110 100 11.16. 100 100 90 10.87. 100 110 90 9.68. 80% capacity utilization 12.39. 10% increase in Capital Costs plus 6 Month delay in Project execution 10.8

Industrial Projects DepartmentJanruary 1975

ANNEX 6_4

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

BREAK-EVEN POINT

lo The profit break-even point of the PUSRI Fertilizer Expansion

project in 1980 is estimated at 62% of its capacity. The year 1980 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 oo.tNatural Gas @Rp 250/1 MSCF - 4,523 4,523Chemicals and Catalysts - 325 325Bags @Rp 208 each - 2,166 2,166Maintenance Materials - 2,058 2,058

Labor 1,051 - 1,051Overhead 1,576 - 1,576Financial Charges 4,772 4 ,772Depreciation 6,377 - 6,377

13,776 9,072 22,848

Revenue (at 90%) 2 9 , 1 8 0 J/

Revenue (at 100%) 32,422

Total Cost (at 90%) 22,8h8

Total Cost (at 100%) 23,860

Total Variable Cost (at 90%) 9,072

Total Variable Cost (at 100%) 10,080

Profit Break-Even (Capacity %) 62%

Debt Repayment 3,978

Cash Break-Even (Capacity %) 51%

1/ Excluding revenue from sales of bags to PUSRI II and other consumers.

ANNNEX 6-4Page 2

INDONESIAPUSRI FERTILIZER EXPANSION PROJECT

PROFIT BREAK-EVEN POINT FOR PUSRI IIIYEAR 1980

Rp BILLION

I I - T I - I T I I , ,#1 32.4 -

30

j23.922.8

BREAK-EVEN

20.0 ....................

. .

</ ~~~~~~~FXD COST g1. 13.8

S~~ ~ ~~~~~~~~~~~~ 0X ,

20 40 62 80 90 100

CAPACITY UTILIZATION (-/)

1 / Exluding revenue from sales of bags to PUSRI 11 and other consumers.

INDUSTRIAL PROJECTS DEPARTMENT

September 1974

World Bank-9170(R)

AMNEX 6-5

PUSRI FERTILIZER EXPANSION PROJECTPROJECTED INCOME STATEMENTS-PUSRI I

1 2 3 4 5 6 7 81975 1976 1977 1978 1979 1980 1981 1982

CAPACITY UTIL.(0)_________________

PUSRI I 90 90 0 0 0 0 3 0

PROD.(000 TONS)_______________

PUSRI I go 9° 0 0 0 0 0 0TOTAL PRODUCTION 90 90 0 0 0 0 0 0

UREA PRICE(RP/TON) 55900 55900 55900 55900 55900 55900 55900 55900

SALES (RI MILLION4)

PUSRI I 5031 5031 0 0 0 0 0 0PUSRI II 0 0 0 0 0 0 0 0PUSRI III 0 0 0 0 0 0 0 0TOTAL SALES 5031 5031 0 0 0 0 0 0

OPERATING COSTS_______________

VARIABLE COSTSGAS 280 280 0 0 0 0 0 0CHEMIICALS/CATAL. 1214 124 0 0 0 0 0 0BAGG]NG MATERIALS 374 4 0 0 0 0 0 0

TOTAL VAR. COSTS 770 778 0 0 0 0 0 0

FIXED COSTSMAINTENANCE 14AT. 309 851 0 0 0 0 0 0LABOR 2593 2646 0 0 0 0 0 0OVERIIEAD 2590 2650 0 0 0 0 0 0DEPRECIATIO1J 723 208 0 0 0 0 0 0

TOTAL FIXED COSTS 6715 6355 0 0 0 0 0 0

TOTAL PROD. COSTS 7493 7133 0 0 0 0 0 0

TOTAL COSTS 74 7133 0 0 0 0 0 0PROFIT DEFORL TAX -2462 -2102 0 0 0 0 0 0

Industrial Projects Departmentjanuary 1975

ANNEX 6-6

PUSRI FERTILIZER EXPANSION PROJECTPROJECTED INCOME STATEMENTS-PUSRI II

1 2 3 4 5 6 7 31975 1976 1977 1978 1979 1980 1901 1932

CAPACITY UTIL.(%)_________________

PUSRI II 75 80 90 90 90 90 90 90

PROD. (000 TONS)_______________

PUSRI II 285 304 S4 342 342 342 TOTAL PRODUCTION 28 30454 312 342 32 342 344)2

UREA PRICE(RP/TON) 55900 55900 55900 55900 55900 55900 55900 559001__________________

SALES (RP HILLION)__________________

PUSRI I 0 0 0 0 0 0 0 ciPUSRI II 15931 16994 19118 19113 19118 19118 19118 19113PUSRI III 0 0 0 0 0 0 0 0)TOTAL SALES 15931 16997 19118 19118 19118 19118 h11 1911

OPEF,ATING COSTS_______________

VARIAbLE COSTSGAS 1397 1431 1418 1352 1322 1248 11&9 1123CHEIIICALS/CATAL. 298 318 353 350 358 353 358 358BAGGING MlATERIALS 1183 1262 1419 1419 1419 1419 141 141,

TOTAL VAR. COSTS 2878 3011 3195 3129 3099 3025 296G 290C

FIXED COSTSMAINTENANCE MAT. 1123 1199 13418 1348 1348 1343 1348 1348LABOR 1210 1235 1260 1285 1311 1337 1364 1391OVERHEAD 1B15 1853 1390 1923 1966 2006 2046 2087DEPRECIATION _53 2 2853 28533 253 23 53

TOTAL FIXED) COSTS 7001 710 7351 7414 747 754 711 767

TOTAL PROD. COSTS 9879 10151 10546 10543 10577 10569 10577 10579

FIAiNCIAL CilARGES 30B8 3064 29147 2767 2573 2363 2120 1883TOTAL COSTS 12967 13215 13310 131510 12932 12G97 12467PROFIT BEFORE TAX 2964 3779 5625 580 568 618 642 651

Industrial Projects DepartmentJanuary 1975

ANNEX 6-7

PUSRI FERTILIZER EXPANSION PROJECTCOMBINED INCOME STATEMENTS

1 2 3 It 5 6 7 81975 1976 1977 1978 1979 1930 1931 1982

CAPACITY UTIL.('')_________________

PUSRI I 90 90 0 0 0 0 0 0PUSRI II 75 00 90 90 90 90 90 90PUSRI III 0 0 75 78 87 90 90 90

PROD.(000 TONS)_______________

PUSRI I 90 90 0 0 0 0 0 0PUSRI II 285 304 342 342 342 342 342 342PUSRI III 0 0 290 4 2 5rpj _ 5j22 522 rv22TOTAL PRODUCTION 375 63972 794 44 364 86 4

UREA PRICE(RP/TON) 55900 55900 55900 55900 55900 55900 55900 55900__________________

SALES (RP tILLION)__________________

PUSRI I 5031 5031 0 0 0 0 0 0PUSRI II 15931 16994 19110 19110 19113 19118 19118 19118PUSRI III 0 0 16211 -2567 23229 29130 29180 29180TOTAL SALES 20962 22025 35329 M4835 147347 148293 - 98 148293

OPERATING COSTS_______________

VARIABLE COSTSGAS 1677 1711 3931 5269 5()) 5771 5712 5646CHEMICALS/CATAL. 422 442 539 639 672 633 683 683BAGGIr1G MATERIALS 1557 1636 2623 3295 3 3585 3585TOTAL VAR. COSTS 3656 3709 7093 9203 9885 10039 9980 9914

FIXED COSTSMAINATENANCE MAT. 1932 2050 21491 3130 3339 3406 3406 3406LABOR 3003 3831 1920 2295 2341 2388 2436 2485OVERlHEAD 4405 4503 2880 3443 3511 3582 3653 3726DEPRECIATION 7104 9230 0 9230 __9230TOTAL FIXED COSTS 13716 13495 14395 13093 11421 18606 18725 188047

TOTAL PROD. COSTS 17372 17284 211133 27301 20306 23645 28705 28761

FINiANCIAL CHARGES 383 3064 5311 8435 723 7135 6415 70TOTAL COSTS _ 20460 20143 27299 3573 80 35123 34468PROFIT BEFORE TAX 502 1677 91301213 1251o 13177 13830

Industrial Projects DepartmentJanuary 1975

ANNEX 6-8

PUSRI FERTILIZER EXPANSION PROJECTPUSRI CONSOLIDATED PROJECTIONS

1 2 3 4 5 6 7 81975 1976 1977 1978 1979 1980 1931 1982

INCOME STATEMENTS

MARKETING DEPT.

MARKETING PROFIT 0 0 0 0 0 0 0 0

PRODUCTION DEPTS.

REVENUEPUSRI I 5031 5031 0 0 0 0 0 0PUSRI II 15931 16994 19118 19118 19118 19118 19118 19118PUSRI III 0 0 16211 25267 28229 29180 29180 29180

TOTAL REVENUE 20962 22025 35329 44385 47347 48298 48298 48298

PRODUCTION COSTPUSRI I 7493 7133 0 0 0 0 0 0PUSRI II 12967 13215 13493 13310 13150 12932 12697 12467PUSRI III 0 0 13806 22426 22979 22848 22424 22001

TOTAL PROD. COSTS 20460 20348 27299 35736 36129 35780 35120 34468

PRODUCTIONt PROFITPUSRI I -2462 -2102 0 0 0 0 0 0PUSRI II 2964 3779 5625 5808 5968 6186 6421 6651PUSRI III 0 0 2405 2841 5250 6332 6756 7179

TOTAL PROD. PROFIT 502 1677 8030 3649 11218 12518 13177 13830

PROD. & MIARKETING

PROFIT BEFORE TAX 502 1677 8030 8649 11218 12518 13177 13830

TAX 0 0 0 0 0 730 290 6223

NET PROFIT 502 1677 8030 8649 11218 11788 10288 7606

ANNEX 6-8Page 2

1 2 3 4 5 6 7 81975 1976 1977 1978 1979 1980 1981 1982

BALANCE SHEETS

CURRENT ASSETS

CASH 690 711 719 904 954 971 974 977ACCOUNTS RECEIV. 3074 3251 5888 7397 7891 8049 8049 8049INVENTORY 2349 2982 3404 3895 4039 4083 4088 4092TOTAL 6613 6944 10011 12196 12884. 13103 13111 13118

SURPLUS CASH BAL. 4237 7897 18520 31270 45506 60455 73977 84637

FIXED ASSETS

GROSS FIXED ASSETSPUSRI I 5380 5380 5380 5380 5380 5380 5380 5380PUSRI II 34428 34428 34428 34428 34428 34428 34428 34428PUSRI III 43727 711442 7 79680 79680 79680 79680TOTAL 33535 111250 1191488 119488 119488 1191488 119488 119488

ACC. DEPRECIATIONPUSRI 1 4476 4684 4684 4684 4684 4684 4684 4684PUSRI II 3569 6422 9275 12128 14981 17834 20687 23543PUSRI III 0 0 4251 10628 17005 23382 29759 36136TOTAL -5"7 11106 18210 2744 36670 45900 55130 64360NET FIXED ASSETS 75490 100144 101278 9048 2 82818 73588 64358 55128

OTHER ASSETS 400 400 400 4400 400 400 400 400

TOTAL ASSETS 86740 115385 130209 1359114 1141608 147545 151846 153284

CURR. LIABILITIES

ACCOUNTS PAYABLE 2300 2371 2398 3012 3180 3236 3246 3256CURRENT LT DEBT II 820 1472 1568 1714 1858 2019 2201 2382CURRENT LT DEBT III 0 0 1989 3978 3978 3978 3978 3978TOTAL 3120 3843 5955 8704 9016 9233 9425 9616

LONG TERM DEBT______________

PUSRI II 24915 23442 21875 20161 13303 16213 14012 11630PUSRI III ?195 41500 452736 141758 3780 33802 29824 25846TOTAL 46910 649f4L2 67r611 61919 56083 50015 143336 37476

EQUITY

SHARE CAPITAL 35270 43433 45496 45496 45496 45496 45496 45496RETAINED EARNINGS 1440 3117 11147 19795 31014 42801 53089 60696TOTAL 36710 146600 56643 65291 76510 897 T 98585 106192

TOTAL LIABILITIES 36740 115385 130209 135914 141609 147545 151846 153284

ANNEX 6-8PAGE 3

1 2 3 4 5 6 7 31975 1976 1977 1978 1979 1980 1981 1932

FUND FLOiI

SOURCES OF FUNDS________________

INCOMIE BIAT 3590 4741 13841 17084 19041 18923 16703 13313DEPRECIATION 3576 3061 7104 9230 9230 9230 9230 9230OPER. CASH FLOW 7166 7802 20945 26314 28271 28153 25933 225LT

SHARE CAPITAL 5404 8213 2013 0 0 0 0 0DEBT PUSRI II 0 0 0 0 0 0 0 0DEBT PUSRI III 21995 19505 6225 0 0 0 0 0TOTAL SOURCES 34565 35520 29183 26314 28271 28153 25933 22543

APPLICATIONP 0 0 0 0 0 0 0 0

FA PUSRI I 0 0 0 0 0 0 0 0FA PUSRI II 0 0 0 0 0 0 0 0FA PUSRI III 29202 27715 8238 0 0 0 0 3TOTAL FIXED ASSETS 29202 27715 8238 0 0 0 0 0

WORKING CAPITAL -1962 260 3040 1571 520 162 -2 -3OTHER ASSETS 0 0 0 0 0 0 0 0

INTEREST PUSRI II 3083 3064 2947 2767 2573 2363 2120 1883INTEREST PUSRI III 0 0 2864 5668 5250 4772 4295 381'3INTEREST MARKETING 0 0 0 0 0 0 0 0TOTAL INTEREST 3083 30614 5811 8435 7823 7135 6415 57'07

DEBT REPAYtIT.II 0 821 1471 1568 1714 1929 2019 2201DEBT REPAYflT.III 0 0 0 1989 378 3978 3978 TOTAL REPAYMENTS 0 821 1471 3557 5692 5907 5997 6179

TOTAL DEBT SERVICE 3088 3885 7282 11992 13515 13042 12412 1188ETOTAL APPLICATION 30328 313601856013563 14035 13204 121410 1188

YRLY CASH BALANCE 4237 3660 10623 12751 14236 14948 13523 10060

SURPLUS CASH BAL. 4525 8185 18308 31553 45794 60743 74265 84925

R A T I O S

DEBT SERICE COV. 2.32 2.01 2.88 2.19 2.09 2.16 2.09 1.90CURRENT RATIO 2.12 1.81 1.68 1.40 1.43 1.42 1.39 1.36DEBT/EQUITY RATIO 0.56 0.58 0.54 0.49 0.42 0.36 0.31 0.26

Industrial Projects DepartmentJanuary 1975

ANNEX 7-1

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECTASSUMPTIONS FOR ECONOMIC AND FINANCIAL

RATES OF RF,TURN

Production Build-Up

1. The ammonia/urea units as well as the bag-making plant ofPUSRI III are expected to go into production on May 1, 1977. About80% of PUSRI III production would be transported in bulk and the restin bags. The bag-making plant would be not only producing bags forPUSRI III but also for PUSRI II (which currently purchasesbags fromoutside) and other consumers.

2. With technical assistance from experienced foreign firms,PUSRI III fertilizer facilities are expected to achieve high capacityutilization as follows: first year, 75A; second year, 80%; and fromthird year onwards, 90%. The bag-making plant would have an annualcapacity of 20 million bags. This plant would start operating at 70%capacity in the first year, and subsequentlv produce enough bags tomeet the rwoeB of the PUSRI compLex and s=me outside consumers. Thefollowing table shows the production build-up in the PUSRI III facilities:

Production Build-Up

1977 1978 1979 1980 onwards(8 months)

1. Urea (1000 tons) 290 h52 505 5222. Bags (million) 9.7 16.0 18.8 19.2

of wrhich: Sales toPUSRI II and other 3.8 7.0 8,6 8.6corsumers

Other Assumptions

3. The following table shows the other assumptions for the rateof return calculations in real terms at 1977 prices:

Financial Rate Economic Rate'l/

Urea Price (Rp) 55,900 70,.135X/Bag Price (Rp) 208 253Natural Gas (Rp,MSCF) 250 25Q2/Chemicals & Catalysts (Rp/ton of urea) 623 530Maintenance Materials (Rp/ton of urea) 2,905 2,820Labor (Rp '000/man-year) 1,200 1,200J1 ./Project Cost (Rp Billion)&5 93.6 93.6kConstruction Period (years) 3 3Production Period (years) 12 12Scrap Value (Rp Billion) 2,6 2.6

1/ Comparable international prices.2/ Ex-factory, Palembang.3/ From 1978 onwards.TL/ No shadow prices used as labor costs are a small percentage (8%)

of production costs excluding financial charges and depreciation.

5; See page 2 of this Annex for the basis of calculation.6/ The capital costs are assumed to be the same for financial and

economic rate of return calculation because there are no dutiesand taxes on equipment, and the Rupiah is a freely convertiblccurrency.

ANNEX 7-1Page 2

INDONESIA - PUSRI FERTILIZER EXPANSION PROJECT

CALCULATION OF CAPITAL COSTS AT CONSTANT

MID-1977 PRICES FOR INTERNAL RATE OF RETURN

1974 1975 1976 1977 TOTAL

A. General Inflation Rate:

1. International lhoO 12.0 10.0 8.02. Domestic 18.0 16.o 1I.0 12.0

B. Compound Fact r to mid-1977 prices _

1l International 1.33 1.19 1.08 1.002. Domestic 1.48 1.28 1.12 1000

C. Disbursemlent at currentprices 2/(Rp million)

10 Foreign Exchange 8,300 26,145 24,070 6,889 65,4042. Local Currency:

(a) Duties - - -

(b) Others 6 225 3 454 3 648 149 14 27-6Sub-total 29,19 27,718 79,680

D. Disbursement at Constantmid-1977 Rupiahs(Million)

1. Foreign Exchange 11,039 31,113 25,996 6,889 75,0372. Local Currency:

(a) Duties - - - -(b) Others 9,213 3,909 1,086 1,349 18 557

Sub-total 20,252 35,022 30,082 8,238

1/ Compound factor from middle of year to the middle of 1977 assumingdisbursements take place in the middle of the year or alternatively,uniformly over the year.

2/ Excludes interest during construction.

Industrial Projects DepartmentJ anuar- 1Q7

ANNEX 7-2

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

INPUTS FOR ECONOMIC RATE OF RETURN AND

SENSITIVITY ANALYSIS(In Rp Billion)

Investment Cost Operating Costs-/ Benefits3/Cl C2 B1

1974 20.25 0 0

1975 35.02 0 0

1976 30..08 0 0

1977 8.24 9.31 21.28

1978 0 10.h3 33.42

1979 0 11.44 37.57

1980 0 11-78 38-76

1981 0 11.83 38.76

1982 0 11.88 38.76

1983 0 11c93 36376

1984 0 11i99 31376

1985 0 12,05 33.76

1986 0 12.10 38.76

1987 0 12.16 38.76

1988 0 12.22 36.;76

1989 (2.6)./ 12.28 38,76

1/ Excluding depreciation, financial charges and taxes.

2/ Recovery of working capital.

3/ Including revenue from sales of bags to PUSRI II and other consumers fromthe bag-making plant of PUbhI III.

ANNEX 7-2Page 2

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

SENSITIVITY OF ECONOMIC RATE OF RETURN

25 Capital Cost

2senefitwt~~~~~~~~~~~~p ' rn10 Returm

-@ 20 '-!" X/Operating CostCH _ ~~19.7 0- *

0 "l

C) 1

4,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

10 I

-2" -20 -10 0 +10 +20 +25Percentage Deviation from Base Case

Case Capital Cost Operating Cost Benefits Return(q,)

Base Case 100 100 100 19.71. 110 100 100 17.92. 100 110 100 18.93. 100 100 110 22.5h. 120 100 100 16.35. 110 110 100 17.06. 100 100 90 16.77. 100 110 90 15.78. 80% Capacity Utilization 18.19. lO% Increase in Capital Costs plus 6-month Delay in

Project Execution 16.4

Industrial Projects DepartmentJanuary 1975

ANNEX 7-3

INDONESIA: PUSRI FERTILIZER EXPANSION PROJECT

DIRECT GROSS FOREIGN EXCHANGE SAVINGSa/ (1977-1982)(In Rp Billion)

1977 1978 1979 1980 1981 1982

Total Earnings ./ 21.18 33.01 36.89 33.13 38.13 38.13

Less Foreign Exchange for:

- Raw Materials 3/ 0.16 0.24 0.27 0.28 0.28 0.28

- Maintenance Materials LV 0.97 1.51 1.69 1.75 1.75 1.75

Gross Direct Foreign Exchange

Savings 20.051 31.26 3)i.93 36.10 36.10 36.10

1/ Excluding financial charges and amortization on borrowed foreignexchange for the project.

2/ Sales revenue calculated on the basis of international price(c.i.f., Jakarta ) for bagged urea assumed at Rp 73,0h0 (US$ 176)/ton.

3/ Chemicals and catalysts for urea production are entirely imported.

4/ Entirely imported.

Industrial Projects DepartmentJanuary 1975

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