Document of The World Bank FOR-OFFICIAL USE ONLY teport No. 6949-IND STAFF APPRAISAL REPORT INDONESIA TREE CROP PROCESSING PROJECT October 27, 1988 Asia Regional Office This docmnt bas a resicted dibutIon _ad may be used by oney In tbe peduo_naa of their official duties Its content may not othewise be disdosedwb Wodd Bankc ou | CURRENCY EQUIVALENTS (As of June 1988) US$4.00 Rupiah (Rp) 1,660 Rp 1 million ~ US$602 WEIGHTS AND MEASURES Metric System FISCAL YAMRS Covernment Of Indonesia: April 1 - March 31 PTP: January 1 - December 31 ABBREVIATIONS Bappenas - sdan Perancanan Pembangunan Nasional; National Development Planning Agency BBD - Bank Bumi Daya; a state-owned commercial bank BEl -. Bank Ekspor-Impor Inidonesia; a state-owned commercial bank BI - Bank Indonesia; the Indonesian Central Bank CPO - Crude Palm Oil DCI - Directorate General of Estates DOA - Department of Agriculture DOF - Department of Finance FFB - Fresh fruit bunches (oil palm) QOI - Government of Indonesia ICB - International Competitive Bidding LNG - Liqiuified Natural Gas LPP - Lembaga Petadidikan Perkebunan; Estates Training Institute NES - Nucleus Estat.- and Smallholder Project; the English acronym is used here to refer to foreign-assisted projects PIR - Proyek Inti Rakyat; nucles~) estate and smallholder project; like NOS, but the Indonesian acronym is used here to refer to wholly locally-financed projects PMU - Project Managemrsnt Units (to carry out smallholder tree crop programs within DGE) PTP - Perseroan Terbatas Perkebunan; State-owned Limited L4ability Estate Company Repelita - Rencana Pembangunan Lima Tahun; National Five-Year Development Plan; Repelita III (1979-84); Repelita IV (1984-89) SCB - State Commercial Bank SOE - Statement of Expenditure Tim Khusus - Tim Khusus Proyek Perkebunan Inti Rakyat (TKPIR; Special Team in DGE for nucleus estate and smallholder projects) TOR - Terms of Reference FOR OFFICIAL USE ONLY IVDONESIA TREE CROP PROCESSING PROJECT Table of Contents Page No. LOAN AND PROJECT SUNMARY......................... ............ v I. BACKCROUND The Agricultufal SectorI............. ...... . * - ...*. 1 The Tree Crop Subsector betor...............................o. 3 Lank Role and Subsector Lending Strategy..........4.......... 9 iationale for Bank Invwlvem e n t 10 II. PROJECT FORMULATION Project Prepdration ... 11 Project Objeetivei.. 11 III. PROJECT DESCRIPTION ComponeiQnts .....444. ~44~0 044444.4 #44004040 4400.400444 @,4 040 11 Processing Faciiisi.s 12 Staffing and Training .....15 Tecbahical ..................... . ....... 16 Environmental Protection .. .................... 17 Studies ......................... 18 Monitoring and Evaluation Component.......................... 20 Start-up Funds............ . 20 IV. PROJECT COSTS AVD FINANCING Costs ~~~~~~~~~~~~~~20 Financing ...... , .............................................21 27 29 Special Ason ......v29 This report is based on the findings of an appraisal mission to Indonesia in July 1987. The mission consisted of Messrs. Mark Cackler, Philippe Boyer, Dennis Whittle, Roger Batatone, Ronald Ng (Bank); Thomas Beattie and Pierre Michel (Consultants). Thh document has a estricted distbution and may be used by recipients only in the performance of their official duties Its contents may not otherwise be dbclosed without World Bank autdontion. - ii -. Vale No. V. PROJECT IMPLEMU ITATION Status of Prepatation..................... ............*..... 30 Implementation Schedule ...................................... 30 Project Msnageuent............... 30 Accounts and Audits............................. ........... 32 VI. PROJECT BENEFITS AND JUSTIFICATION Production ...........................* 33 Marketing. eec..... eccee. cc e... eee cc.. c...... e.....e eec..... ^33 Pricing of Smallholder Produce .ec*.ec.eeecc.c...eece.ee..e. 33 PTP Financial Raturns....... ...................c 34 Economic Analysis3..........e... 34 Social and Environental Impact.............................. 37 Project Risks .... ..... c 37 Summary of Project Benefits.............. ccc......c.e......0 38 Cost Recovery.................. .. ...... eec...... 38 VII. AAEURMENTS REACHED AND RECOMNENDATION Assu ances . .. . .....cccccccc. 39 Conditions ......... ceeccecoce e cec..cccc.c.cc....c..ec.e.... e39 Lacoumen4ation .. .................... e*.cc..cc. c..c.e.c c.cc..c 39 TABLES IN MAXN REPORT 3.1 Summary of Factory Requirememtscc.c.ccc.e.eeents .c.e....c. 13 4.1 Project Cost Sulmary.... ............. ........e 21 4.2 Expected Price Increasese ...cec.c....e...c..o c...oo .. o*o ccc.c 21 4.3 Financing Arrangements ... ...... .......cc.c.... 24 4.4 Procurement .... ... . . . .. ..c..... 28 6.1 Sensitivity Analysis - Rubber Sitesecce.c..c.eeo cc.ece .cc.ooo 36 6.2 Sensitivity Analysis - Oil Palm Sie*ooe...c....c.ee.cce.o.... 36 - iii - AB8U 1. Project Costs, Financing and Disbursements Table 1 - Sumary Cost and Financing Table Table 2 - Project Costs by Year Table 3 - PTP Equity Cont4bution Table 4 - Financing Plan by Project Site Table 5 - Summary Financing Plan for Factory (Credit) Component Table 6 - Proposed Allocation of Loan Proceeds Table 7 - Estimated Schedule of IBRD Disbursements Table 8 - Calculation of 8CB Spreads Table 9 - PTP Technical Assistance Table 10 - Project Support (Von-Credit) Component (excluding studies) Tables 11/12 - Technical Studies Table 13 - Other Studies Appendix A - Statements of Expenditure 2. Implementation and Organization Tables 1/2 - Project Sites Chart 1.1 - Project Implementation Schedule Chart 1.2 - Rubber Factory Schedule Chart 1.3 - CPO Factory Schedule Chart 1.4 - Schedule for Survey of Effluent Control in Existing PTP Factories chart 1.5 - Schedule for Strengthening Provincial Pollution Monitoring Capabilities chart 2 - Project Organisation Chart Chart 3 - Project Flow of Funds Appendix A - Selection Criteria for Factories Appendix B - Procurement of Factories Appendix C - Training Appendix D - Project Management Appendix E - Project Monitoring and Evaluation 3. Crop Processin& and Factory Requirements Table 1 - Base Yield Profiles for Rubber and Palm Oil Table 2 - Rubber Yield Projections Used for NES VII Table 3 - Site Specific Rubber Yield Assumntions Table 4 - Site Specific FFB Yield Assumptions 4. Economic and Financial Rates of Return Table 1 - ERR/FRR by Project Site Tables 2/5 - ERR and FQR calculations for representative sites IN~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ - iv - 5. Terms of Reference for Project Studies and Coniultants TOR 1 - Standsadization of Palm Oil Factories TOR 2 - Standardization of Rubber Factories TOR 3 - Engineering Consultancy for Individual Factories TOR 4 - Processing Engineers Attached to PTP Headquarters TOR 5 - Site Training Engineer TOR 6 - Tim Rhusus Training Consultant TOR 7 - Tim Khusus Monitoring and Evaluation Consultant TOR 8 - Tim Khusus Rubber Processing Adviser TOR 9 - Tim Khusus Oil Palm Processing Adviser TO 10 - Survey of Effluent Control in Existing Factories TOR 11 - Strengthening of Provincial Pollution Monitoring TO 12 - Rubber Marketing TOR 13 - Long-Term Requirements for Rubber and Oil Palm Processing Facilities 6. Selected Documents and Data Availabie in Project Files MAP: IBRD 20265: Project Sites v INDONESIA TREE CROP PROCESSING PROJECT Loan And Project Summary Borrower: Republic of Indonesia Beneficiariess 12 Government-owned estate companies (PTPs) and 60,000 smallholder families Loan Amount: US$118.2 million equivalent Terms: Repayable in 20 years, including 5 years of grace, at the standard variable interest rate. Onlending Term:s US$70 million would be on-lent through Government to 2 state commercial banks (SCBs) for 12 years, with a grace period of 5 years, at an interest rate of 10% per annum, which provides a margin above the interest rate on the IBRD loan, to compensate for the foreign exchange risk which Government would bear. The SCBs would also pay a 0.751 commitment fee on the undisbursed balances. Subloans by the SCBs to 12 Government-owned estate companies (PTPs) would be for 10 years, with a grace period of 3 years, at an interest rate of 161 per annum. US$40 million would be provided to the PTPs as equity. The remaining US$8.2 million would be used directly by Government agencies for the project support component. Project Description: The project's factor component would construct or expand 11 rubber and 14 palm oil factories, including effluent control facilities, for existing nucleus estate and smallholder projects in the Outer Islands without access to existing factories. It would also train PTP personnel in factory management and o9eration and provide technical assistance to the PTPs. The project's support component would train DGE and related agency personnel concerned with tree crop processing, particularly for project monitoring and evaluation; support technical studies to develop and recommend more efficient processing methods, and studies on rubber marketing and long-term tree crop processing needs; provide start-up funds for preparing future tree crop projects and introducing advanced tree crop processing technology; and promote compliance with GOI environmental regulations by strengthening provincial pollution moni- toring units and developing action plans to improve the quality of effluent treatment in existing PTP factories. The Directorate General of Estates in the Department of Agriculture would have overall coordinating responsibility - vi - for the project and apecific responsibility for the support component. Implementation of the factory component would be the responsibility of PTPs. Debt financing for the factories, including on-lent IBRD funds, would be provided by SCBs. bThe proposed project would reduce current and potential losses due to insufficient and inefficient processing facilities and as a consequence increase 'armer and estate incomes and non-oil exports. The project would ensure that palm oil and rubber produced as a res-ilt of earlier investments (some in Bank-financed Nucleus Estate and Smallholder Projects and all involving smallholder pro- duction) are efficiently processed. Finally, the project would strengthen the institutional and policy framework for tree crop processing and improve planning for long-term needs. The economic rates of return on the factories range from 18X to 130Z with a weighted average of 61X. The primary project risk is a potential loss of benefits resulting from delays in project implementation and meeting the project's capacity and efficiency objectives due to institutional weaknesses. Project management arrangements and technical assistance are designed to minimize this risk. Estimated Costst/a Local Foreign Total (US$ million) Factory Component Factories 28.7 53.3 82.0 Housing 11.5 3.8 15.3 Vehicles 3.2 12.7 15.9 Technical Assistance and Training 11.2 7.1 18.3 Initial Working Capital 6.8 0.8 7.6 Support Component 3.0 7.9 10.9 Total Base Costs 64.4 85.6 150.0 Physical contingencies 3.8 6.4 10.2 Price contingencies 10.7 9.5 20.2 Total Project Costs 78 9 101.5 180.4 /a Interest during construction 40.0 18.6 58.6 Total Financing Required 118.9 120.1 239.0 - vii - Financiag Plant IBRD 18.5 99.7 118.2 Japan Crant Facility - 1.8 1.8 2 State Com_ercial Banks 80.1 18.6 98.7 12 Government-owned estate 19.6 - 19.6 companies (PTPS) Government of Indonesia 0.7 - 0.7 Total 118.9 120.1 239.0 /a Including taxes and duties estimated at US$13.9 million. Estimated Disbremnts: Bank FY 1989 1990 1991 1992 1993 1994 ---- UMS million) --- - Annual 12 30 24 27 20 5.2 Cumulative 12 42 66 93 113 118.2 Economic Rate of Returns 612 /b Map: IBBD Vo. 20265 lb ERR, have been calculated for ea,h of the 20 sites proposed for this project and range from 181 to 1302, with a weighted average of 612. INDONESIA TREE CROP PROCESSING PROJECT I. SECTORAL BACKGROUND The Agricultural Sector 1.1 Background and Performance. Agriculture remains a key sector of the Indonesian economy, contributing 'about one-fourth of GDP and providing employ- ment to 551 of the labor force. The sector has an important role in non- oil/liquified natural gas (LNG) merchandise trade, with major agricu.tural exports accounting for 411 of the value of non-oil/LEC exports, and food for 72 of imports. Of the country's cropped area of 24 million ha, about 8 million ha are under perennial crops, 9 million ha are in dry land farms, and 7 million ha in wetlands suitable for rice cultivation. Food crops account for 631 of agricultural GDP; with rice alone accounting for a 301 share in 1985. Farm holdings are predominantly small--35 of all household lots are less than 0.25 ha, and about 30X are between 0.£5 and 05. ha. 1.2 Since 1969, agricultural growth has averaged about 41 per annum and outpaced population growth by a significant Margin. Rice output, wiEhc has_ grown at 51 p.a. since 1969 (6.31 p.a. since 1975), has made a solid contribu- tion to the sector's impressive performance. Other food crops (particularly corn) and cash crops (such as oil palm and spices) have also shown marked growth and added to the significant gains registered in rural welfare in the past several jears. This impressive performance in agriculture can be attri- buted to three basic sets of policies: (a) sound macroeconomic management through a responsive and flexible exchange rate policy combined with prudent fiscal and monetary policies; (b) successful rice intensification programs sparticularly in Java) supported by subsidies for fertilizers, pesticides and credit, introduction of and continuing research on high yielding varieties, and investments in irrigation and rural infrastructure; and (c) an increased focus on tree crop development as a major economic activity in the Outer Islands. 1.3 Objectives. The Government's major objectives for the agriculture sector during Repelita IV (1984-89) are to: (a) increase production to meet domestic requirements for food while meeting the needs of industry and expand- ing agricultural exports; (b) increase farmers' incomes and generate employ- ment; (c) promote a more balanced distribution of economic opportunities, regional development and land settlement; and (d) improve the health and nutritional status of the population. 1.4 Sector issues and Challenges. The sector is in a period of transi- tion, partly as a result of the normal development process, but also due to a need to adjust to recent developments, including volatile prices for primary coumdoities, constraints on the resource availability for public sector sup- port, and the possibility that rice may no longer provide the same momentum of growth as in the past. Thus the strategies of development need to change. Th6se strategies include inter alia input subsidies on a scale which are unsustainabl* over a conti edperod of time, direct administration of production targets which may not lead to development of production systems based on the relative profitability of alternative crops, large-scale con- struction of now irrigation infrastructure with inadequate attention to operations and maintenance of existing facilities, and limited private sector participation in agricultural marketing and processing which has put excessive onus of development of the sector on Government. The question facing Indones'an policy makers is how to sustain growth in the sector through greater economic efficiency, intensification and diverse patterns of production. Fortunately, relatively low labor costs, and varying agro- climatic conditions are conducive to addressing this question in a technically sound and environmentally sustainable manner. 1.5 Employment generation and poverty alleviation are among the coun- try's most pressing development problems. These are viewed in the context of the agriculture sector's capacity to absorb labor both in Java and off-Java. During 1980-85, employment in agriculture in Java grew at 0.91 p.a., contribu- ting about 242 of total employment growth in Java. Employment in agriculture off-Java grew at 3.12 p.a., contributing nearly 611 of total employment growth in the Outer Islands. There have been fewer opportunities for nonagricultural employment in the Outer Islands, with 65 million people (402 of population) and only 202 of medium- and large-scale industries, which contributed only 61 of employment growth during the 1980-85 period. Even the trade/transport sector contributed only about 21X of employment growth in the Outer Islands during this period compared to 492 in Java. With the increase in rural labor force in the Outer Islands estimated to be about 3X p.a. during 1985-90 (compared to 0.7% p.a. in Java) and 2.2X p.a. during 1990-95 (compared to 0.62 p.a. in Java), the agriculture sector will continue to face the challenge of generating productive employment opportunities (a challenge which is exacerbated by a limited amount of land agronomically suitable for food crops). Labor absorption will also remain a major challenge in Java, where virtually all economically irrigable areas are already under irrigation and planted with high-yielding rice varieties. Therefore, throughout Indonesia, food crops can be expected to absorb only limited amounts of additional labor, so zhe expansion of agricultural lands through exploitation of high-value tree crops may be the only effective means of generating growth and employment on a large scale in the Outer. Islands. 1.6 Some 342 of the population (412 of rural population) live below the absolute poverty level. Although Java had, in 1984, the highest concentration of poverty, poverty in the Outer Islands was also high at 312. Moreover, the gap in poverty incidence between Java and the Outer Islands has been narrowing as poverty has worsened in rural areas of the Outer Islands. Whereas rural Java's poorest 40X experienced an increase in per capita consumption of 1.92 p.a. during 1980-84, the consumption of the poorest 402 in rural Outer Islands decreased at an annual rate of 1.62. In 1984, about 4.3 million people in rural areas (3.62 of the rural population in Indonesia) had per capita expend- iture levels that were insufficient to adequately meet the food demand. Of this group, about 852 live in the Outer Islands. - 3 - 1.7 In summary, the challenges faced by the agriculture sector are to: (a) achieve sustained growth through increased efficiency and competitiveness; (b) maintain the productivity of existing assets through improved operation and maintenance of rural infrastructure and improved management and conserva- tion of natural resources; (c) improve the policy environment for greater private sector participation in agricultural marketing and processing; and (d) generate employment opportunities particularly in the Outer Islands (where the growth of labor force is higher and nonagricultural opportunities more limited), thus allowing the rural poor to share the benefits of growth. The Tree Crop Subsector 1.8 Background. Rubber, oil palm and coconuts together occupy about 5.5 million hectares, or over 20% of the cropped area in Indonesia. They provide employment and cash income for some 151 of the agricultural labor force, account for 16% of agricultural CDP an4 20X of non-oil/LNC export earnings, and provide a base of growing importance for the development of related pro- cessing and manufacturing industries. Smallholders predominate in the culti- vation of rubber and coconuts, and oil palm is largely grown on public and private estates, although smallholder production is increasing. 1.9 Prospects. Significant land resources exist in the Outer Islands, which can be utilized in a technically sound and environmentally sustainable manner to generate growth and employment opportunities. The climate and soil conditions on these islands provide a strong natural advantage for the production of tree crops. It is estimated that the annual return to one hectare of land under optimal shifting cultivation is about $120, while under low-input food crops it is about $450, and systems with block-planted rubber have returns to land as high as $1,100/ha. While timber production by a good. stand of natural forest can generate high returns as well, tree crops are planted primarily in areas formerly occupied by secondary forests, brush and run-down plantations. Returns to household labor and capital are also much higher in the case of tree crops compared to food crop cultivation on similar soils. 1.10 Compared to other sectors of the economy, such as manufacturing, tree crop development is a more cost-effective means of generating employment and raising rural incomes in the Outer Islands: the ccst per job created in tree crops is US$3-4,000 compared to an estimated IJS$10-20,000 per job in industry. Tree crops are important in the economy of the Outer Islands where growth in the labor force is high (para 1.5) and significant poverty exists (para. 1.6), nonagricultural activities are limited, and there are virtually no cash crop alternatives that can be developed efficiently on an environ- mentally sustainable basis and on a large enough scale to have a major im- pact. During Repelita III (1979-84) some 540,000 ha of rubber, oil palm and coconuts were planted or replanted under Government programs, creating approximately 1 million jobs, equivalent to almost 201 of all new jobs in the Outer Islands during the period. A further 500,000-600,000 ha are being planted during Repelita IV (1984-89). These planting programs have so far directly benefited some 400,000 smallholder families (or about 2,000,000 people), up to 80% of whom were landless transmigrants from the target poverty group in Java and Bali. - 4 - 1.11 At current and projected commodity prices, production of rubber and palm oil is economically viable. Indonesia, as a major producer of crude palm oil (1.4 million tons p.a.) and rubber (1.1 million tons p.a.), enjoys a competitive cost advantage over other large producing countries due to its favorable agro-climatic conditions and low average wage rates. Even with fairly conservative assessments of yield potential, rubber production costs are significantly lower than projected world market prices. More important, the costs of producing palm oil in Southeast Asia, including Indonesia, are substantially lower than those of any other source of traded edible oil--less than one-third the production costs of rape and sunflower oils, for example. Since the costs of soybean production ere attributable to soymeal as well as soybean oil, the future price competition of soybean oil will depend to a large extent on the strength of world meal demand. However, analysis of world supply and demand prospects for all vegetable oils and oil meals for the years ahead indicates rising oil values with relatively tighter oil supplies. Due to substantially lower production costs, palm oil will clearly continue to be the most profitable edible oil commodity in the years ahead, with world market prices well above Indonesia's production costs. Price increases in real terms, projected by 2000 of 12X for rubber and 60% for crude palm oil over the estimated 1987 average price, provide more than adequate incentives for continued production increases in Indonesia. 1.12 Rubber and oil palm together cover 3.2 million ha and account for some 271 of agricultural export earnings (averaging US$1.1 billion annually during 1979-85). During 1984/85, while about 70% of Indonesia's export of rubber was to the USA and Singapore, only about 2% of the palm oil exports went to the USA, with Netherlands accounting for the largest share of Indonesia's palm oil exports, and the shares of India and Pakistan increasing. Between 1979 and 1986, rubber production in Indonesia grew only 2X annually. This relatively low growth rate in comparison with the rest of the agricultural sector was caused by declining yields from senile trees, and the long immature period of recently planted trees. However, the next few years should see a significant increase in the annual growth rate, to 4%, due to an increase in total area from 2.4 million to 2.7 million ha between 1979 and 1986, mostly on smallholdings using improved planting material. Over 90% of rubber (mostly crumb and ribbed sheet) is exported. While the domestic demand for rubber is expected to double from 60,000 tons in 1985 to 120,000 tons by 1995, exports of rubber should grow from 1.0 million to 1.4 million tons by 1995. This growth rate of 3.4% per year is higher than the estimated growth in world demand of 2.31 as Indonesia is expected to increase its world market share in the face of near static production by Malaysia, the market leader. This growtl, however, will be partially dependent on Indonesian rubber pro- ducers keeping pace with increasingly demanding end-user requirements. 1.13 Palm oil production grew at 121 annually between 1979 and 1986 as the total area under palm oil almost doubled from 260,000 to 500,000 ha, mostly on public estates. There has been a rapid increase in domestic demand in recent years (28X p.a.. between 1970 and 1984) due to growth in population and per capita income, aided by a high income elasticity of demand for edible oil products and stagnant supplies of coconut oil. The uses of palm oil are also widening further due to technological developments, particularly in the oleochemicals inidustry. Domestic demand for crude palm oil currently averages -5- about 50% of production and is expected to grow by 8X per year, but increased planting rates should result in production growth of IlZ per year, leaving an increasing surplus for export. Growing demand from developing countries, which accounted for 11X per yea: in Indonesia's main export markets during 1978-84, should absorb this surplus and offset market constraints in more developed countries. 1.14 The current restrained outlook for petroleum revenues has reinforced the importance of tree crops as the key to more balanced regional development and poverty alleviation, and as a principal source of growth in employment and non-oil/LNG export earnings. Given the technical and economic efficiency of tree crop development in the Outer Islands and the favorable domestic and export market prospects, Government strategy is to continue and maintain Indonesia's competitive cost advantage by improving efficiencies in produc- tion, processing and marketing, for which there is still considerable poten- tial, and thereby improving returns to low-income farmers participating in the subsector. Key elements of this strategy aimed at increasing output per unit of input include replanting old/senile trees to improve yields, improving transport and processing facilities to reduce losses, and improving the efficiency and financial performance of state enterprises engaged in the subsector. 1.15 Structure of the Subsector. Tree crops are cultivated by three groups: smallholders, Government-owned estate companies (PTPs), and private estates. Eighty-five percent of rubber is cultivated by smallholders, while oil palm is grown almost exclusively on estates. PTPs are Government-owned, but operate as autonomous entities reporting to th2 Departments of Agriculture and Finance. Together, the 26 PTPs have about 270,000 ha of rubber and 160 rubber factoriei with a capacity of 1,270 tons/day; and 390,000 ha of oil palm and 42 palm oil factories with a capacity of 1,500 tons FFB/hour. Private rubber and oil palm estates with their own processing facilities now account for about 50% and 30% of estate-produced rubber and palm oil, respectively. There are also private rubber processors concentrated in ports and large cities. 1.16 Government's primary technical support fer tree crops comes from the Directorate General of Estates (DGE) in the Department of Agriculture. Because of GOI's commitment to using tree crop development as a primary vehicle for allev.ating poverty, especially in rural areas of the Outer Islands, direct Government support for tree crops has concentrated on small- holder programs, using two basic approaches. The first involves the formation of geographically concentrated project management units (PMUs) within DGE which assist smallholders to plant, replant or rehabilitate their holdings by supplying extension advice, planting material and fertilizer, and payments for labor. The second approach involves the use of PTPs to establish block- planted tree crops for smallholders, often in remote sites with large numbers of transmigrants. The PTPs also operate the processing facilities and nucleus estates adjoining smallholder areas. Bank-assisted Nucleus Estate and Smallholder (NES) projects and GOI-financed Perkebunan Inti Rakyat (PIR) projects are examples of this approach. The Special Team for Nucleus Estate and Smallholder Projects (Tim Khusus) is the unit within DGE primarily responsible for oversight and monitoring of implementation of NES/PIR projects. -6- 1.17 Financing for Government-sponsored tree crop programs comes from the Government budget, Bank Indonesia (BI; the Central Bank), state commercial banks (particularly Bank Rakyat Indonesia, Bank Bkspor-Impor Indonesia, and Bank Bumi Daya), the PTPs, smallholder sweat equity and external financing. A major goal of'Government's strategy for tree crop development is to move the financing of the subsector off-budget and onto a more commercial basis involv- ing banking and private resources. 1.18 Several organizations are involved in the marketing of PTP output. A Marketing Association representing the PTPs was established in 1984 and assists them in strategic planning, market research, new product development and the establishment of marketing and sales offices in Indonesia and over- seas. It also advises the Minister of Agriculture on policy measures to improve the marketing of estate crop products. Three Joint Marketing Organi- zations act as sales agents for the PTPs, especially for exports. The Rubber Association of Indonesia (Capkindo) was established in 1971 to provide marketing assistance to enterprises dealing with rubber, and a similar organi- zation, the Palm Oil Association of Indonesia (Gapki), was established in 1981. 1.19 Subsector Issues and Challenges. The strategy of using tree crops to increase rural employment and non-oil7LNG exports has been fundamentally sound. However, efficient and sustainable growth of the tree crop subsector is currently constrained by a number of institutional weaknesses, distortions in the incentives framework, and processing inefficiencies. The high planting targets have exceeded the management and financial resources of the implement- ing agencies. Consequently, both quantity and quality targets have fallen short of expectations. Major constraints have been a shortage of trained man- power, erratic and declining Government financial support caused by cumbersome budget mechanisms and falling petroleum prices, and inadequate institutional coordination among Government agencies. Furthermore, many PTPs are now in financial difficulty, due to ambitious development programs, recent low commo- dity prices, and export taxes in earlier years when prices were high. 1.20 Government now has two major groups of challenges: (a) to protect Past investments by ensuring that existing trees are properly maintained and harvested, and the raw material from those trees is efficiently processed; and (b) to promote uture planting to take advantage of Indonesia's attrac- tive competitive position in the major tree crops. 1.21 Protecting Past Investments. Government-sponsored oil palm estate and smallholder plantings are generally of high quality. However, smallholder rubber plantings have suffered from major implementation problems and poten- tial annual losses in export earnings due to substandard tree establishment and maintenance are estimated to be US$37 million. 1.22 The substantial efforts of the past to expand tree crop planting have not been accompanied by a sufficient expansion of processing infrastruc- ture. Current annual losses caused by the lack of factories to process the - 7 - output of trees now coming into production are estimated at US$20 million. In addition, efficient processing of the incremental output has become a major issue for both rubber and palm oil in NES/PIR projects. Inefficiencies in the processing of rubber and palm oil are estimated to result in a loss of US$170 million each year due to low extraction rates and poor quality output. They may also result in 15-252 lower farm-gate prices to smallholders. Both effi- ciency and capacity losses will increase rapidly as recent plantings reach maturity, unless improvements are made to existing factories and mills, new efficient factories are constructed, and overall operating efficiency increased. 1.23 Actions already taken to address these problems include: (a) the curtailment of the wholly-locally financed PMU program, and a large reduction in the NES/PIR rubber program.(only 10,000 ha planted in 1986/V7 compared to 39,000 ha in the peak year of 1982/83) to permit the implementing PMUs and PTPs to allocate a greater share of scarce management and financial resources to the upgrading and maintenance of existing investments; (b) issuance of a Ministerial Decree delegating full authority for all aspects of the GOI tree crop program (including PTPs) to the Director General of Estates; (c) reorganizing the DGE units concerned with the implementation of PMU and liES/PIR projects, to take advantage of the experience of the more successful Rank-assisted programs; (d) the issuance of a Presidential decree allocating responsibilities between DGE and the Deportment of Transmigration on sites involving transmigrants, an issue which has adversely affected project implementation in the past; and (e) commencement of a series of finar.cial/ technical studies of the PTPs to determine ways to improve their financial performance and alleviate implementation problems caused by management and efficiency shortfalls and by poor cash flow management. 1.24 The above actions have already had a positive impact particularly in the PIR rubber program. However, the standard of rubber planting remains generally unsatisfactory. Two other major efforts now in the final stages of preparation are: (a) a program to construct new factories urgently required for NES/PIR projects; and (b) a program to train additional staff for implementing agencies, especially those dealing with maintenance, smallholder extension and processing. Further actions under discussion include: (a) strengthening of the role of DGE to provide coordination and oversight for smallholder areas developed by PTPs in the NES/PIR program; (b) the establish- ment of an inspection service for tree crop projects; (c) a program to provide large-scale rehabilitation of existing substandard areas; (d) improvement of budget procedures to ensure that PTPs and PMUs receive adequate funding for smallholder projects on time; and (e) establishment of farmer groups to assist maintenance and harvesting, initial processing and marketing, together with strengthening of extension services. 1.25 Promoting Future Planting. The measures described above to improve the quality and efficiency of field maintenance and processing will also bene- fit future plantings. However, by themselves these measures will not elimi- nate the fundamental financial and management constraints to the new planting required to optimize the use of tree crops to alleviate poverty and increase nonpetroleum exports. For this new planting to take place, the most important - 8 - issues are the need to: (a) increase cost recovery from smallholder benefici- aries; (b) improve the financial/technial performance of the PTPs; (c) mobi- lize private sector resources; (d) increase the supply of trained manpower; and (e) ov;ircome remaining institutional bottlenecks. 1.26 Existing smallholder programs are based on credit schemes whereby smallholders receive inputs to develop their holdings and undertake to repay the cost of those inputs, with interest, to a state comrcial bank. Because of a long grace period corresponding to the immature phase of the trees, prob- lems with smallholder repayment have only recently surfaced. They concern delays in surveying smallholder land for issuance of land titles and assessing the quality of the tree crop areas-steps which are required prior to the start of loan repayment--and delays by the participating state commercial banks to establish branches and set up individual smallholder accounts. In view of receit low commodity prices and the existence of substantial substandard areas, a review is underway of the debt repayment capability of the smallholders, particularly in the early years after maturity when yields are low. GOI has indicated that it will make some modifications in the credit package following this review. 1.27 Although their long-term prospects are good, the PTPs have suffered in recent years from severe cash flow problems due to low commodity prices, ambitious development targets, and, in many cases, poor operational and finan- cial management. The corporate management and finances of the PTPs are now under review in a series of studies being carried out under the Bank-assisted NES VII project. Broader actions possible for improving the performance of the PTPs include the introduction of an incentive program for PTPs to give more attention to their smallholder dervlopment role, and rationalization of the PTPs on a geographic and/or crop bisis. In the longer term, Government wishes to relieve much of the PTPs' burden for executing NES/PIR projects by mobilizing private sector resources, a.t described below, and may in addition consider administrative reforms of soue or all of the PTPs. 1.28 In contrast with the rapid increase of PTP and smallholder plantings in the 1980s, the area under private estates has remained stagnant, due to low commodity prices and uncertainty about Government policies on key matters such as land titles and export taxes. Government's strategy now is to create an environment that would encourage increased private sector participation in the production, processing and marketing of tree crops, particularly in NES/PIR projects. The major policy directions to improve the environment for increased private sector participation woul4 include the following: (a) rationalization of policies relating to export restrictions, obligatory domes- tic saleo, price controls and export taxes for crude palm oil; (b) review of the policy requirement that private nucleus estates also must develop large smallholder areas and provide initial financing for smallholders; (c) review of the policies affecting domestic manufacture of processing equipment and/or their importation; (d) streamlining procedures for land titling, obtaining usufruct as well as business and operating licenses for tree crop establish- ment and processing; and (e) establishment of effective and industry-wide pricing formulas for smallholder rubber and oil palm fresh fruit bunches (FFB), under which the private estate would operate in a NES/PIR project. 1.29 With respect to nonfinancial constraints to future planting, the most important tasks are to: (a) increase the number of trained staff for carrying out tree crop projects; and (b) improve institutional arrangements between different agencies dealing with tree crops. As described earlier, some measures have already been taken, including the preparation of a program for subsector manpower development. Regarding institutional arrangements, the emphasis in the future should be to further strengthen the role of D6E, including strengthening its capability to review major investment proposals and PTP performance against physical and financial standards, and addressing key problems of smallholder pricing, processing and marketing. 1.30 Environmental Protection. In addition 4o the issues described above, a growing problem associated with the tree crop subsector is increased pollution caused by tree crop processing facilities. In particular, liquid effluents from palm oil factories can cause serious water pollution if dis- charged directly into rivers and lakes without treatment. In many instances, effluent treatment has either not been installed or is so poorly designed or operated that the treatment has been ineffective. Provincial authorities are responsible for enforcement of pollution control regulations, but institu- tional arrangements are inadequate to monitor or control industrial waste discharges. 1.31 GOI has been working in the irrigation, water supply and urban sec- tors to develop arrangements for pollution monitoring and control which can be implemented adequately at the provincial level. Considerable progress has already been made under the Bank-assisted East Java II Water Supply Project and in June 1987 new Government regulations were issued to bring existing fac- tories into compliance with GOI effluent standards. Government's strategy for improving environmental protection in the tree crop processing subsector is to: (a) ensure that effluent treatment in new factories is adequately designed and constructed; (b) study and implement the actions required to bring existing factories into compliance with environmental regulations; and (c) continue to improve the ability of provincial authorities to adequately monitor and control industrial pollution. Rank Role and Subsector Strategy 1.32 The Bank has committed about US$800 million net of loan cancella- tions to four PMU and seven NES tree crop projects, averaging more than one project per year during the late 1970s and early 1980s. Two Project Comple- tion Reports have been completed: for the North Sumatra Smallholder Development Project (Credit 358-IND) in 1982, and for the Smallholder Rubber Development Project I (Credit 984-IND) in 1987. Two other Project Completion Reports for tree crop projects are now under preparation. In general, while Bank-assisted tree crop projects have had better results than other GOI- financed projects, they have also suffered from the significant manpower, financial and institutional constraints that arose from the ambitious expansion program and affected the whole subsector. Due in part to implementation problems in existing projects, planting targets were scaled down for Repelita IV and no new Bank-assisted NES projects have been approved since 1983. The last PHU project was approved in 1985. Through the recently approved Tree Crops Human Resouce Development Project, the Bank will assist - 10 - Government in strengthening the Department of Agriculture's Directorate General of Estates. The Indonesia Major Tree Crop Sector Report (No. 5318- I[D$ April 1985) and the Indonesia Mon-Oil Export Report (No. 6356-IND; December 1986) both reasserted the importance of tree crops to Indonesia's economic development, and endorsed Government's long-term strategy of using tree crops as an effective means of promoting rural employment, non-oil exports, and regional development. Bank support is considered important to further build upon recently initiated institutional and policy reforms (paras. 1.23-1.24), especially at a time when macroeconomic constraints dictate an external debt strategy which minimizes con_trcial borrowings. Continuing involvement of the Bank in the Indonesian tree crop subsector, through supervision of existing projects, economic and sector work, and sup- port for new operations, would be aimed at assisting Government in: (a) supporting smallholder tree crop programs to help alleviate poverty, promote regional development in the Outer Islands, and increase non- oil/LNG exports; (b) maintaining an appropriate balance between consolidating the sub- stantial existing investments in the subsector (with improved qual- ity and efficiency), and expanding the area under tree crops through new planting; Cc) improving the policy environment of the tree crop subsector, partic- ularly in areas related to cost recovery and finance, by improving the efficiency and financial performance of state enterprises, mobilizing greater private sector and commercial bank resources, and overcoming problems in delivering and recovering smallholder credit; and Cc) supporting institutional development for tree crops by: (i) strengthening and rationalizing responsibilities among Government agencies; (ii) promoting human development including the effective delivery of technical advice to smallholders, estates and proces- sors; (iii) developing effective pollution monitoring and control systems for processing facilities; and (iv) improving field, proces- sing and marketing research. Rationale for Bank Involvement 1.33 The project would complement the Bank's past and ongoing support for the tree crop subsector by ensuring that the raw material produced as a result of earlier investments (some in Bank-financed NES projects and all involving smllholders) is processed and marketed efficiently. Because of its world- wide experience in the subsector, Bank support for the project would also assist in addressing technical, environmental, institutional, and marketing constraints on the efficiency of the processing sector as a whole. - 11 - II. PROJECT FORMULATION Project Prepsration 2.1 The project has been prepared by the Special Team for Nucleus Estate and Smallholder"Projects (Tim ghusus/TKPIR) within the Directorate General of Estates (DGE). 'Draft preparation reports were submitted to Bank missions in November 1986 and March 1987 and the final preparation report was issued prior to the Bank appraisal mission in July 1987* Project Obiectives 2.2 During Repelita III (1979-84), rndonesia planted over 350,000 ha of rubber an. oil palm, and many of these plantings are now coming to maturity. Although the required processing facilities were identified at the time of planting, for many NES/PIR sites funding has not been provided in on-going projects because the factory requirements fell outside the project period. While in earlier years when the tree crop program was smaller and export prices higher, the PTPs were able to finance new processing facilities from retained earnings, most are not currently in a position to do so. Therefore, Government has prepared this project specifically to address the need for increasing processing capacity and efficiency in existing NES/PIR sites. 2.3 The project's primary objectives are to raise the productivity and efficiency of the tree crop subsector, safeguard smallholder and estate incomes, and increase non-oil exports by providing essential processing facilities and addressing technical, institutional and marketing constraints on factory efficiency, generate rural employment, and improve smallholder increases in the Outer Islands. The project would accomplish this by: (a) building new factory capacity to process the raw material from existing NS8/PIR projects; (b) providing technical assistance and other support to improve processing efficiency; and (c) strengthening the ability of DCE and related Government agencies (including those concerned with environmental protection) to provide technical, institutional, marketing and other support to the tree crop subsector, through technical assistance, training and studies. III. PROJECT DESCRIPTION 3.1 Components. Project components are as follows: (a) Processing Facilities (Credit component) (i) Construction and expansion of 11 rubber and 14 palm oil facto- ries, including effluent control and associated housing. (ii) Vehicles needed at each new or expanded factory site. (iii) Training of PTP staff to provide the manpower skills to operate new and expanded factories. - 12 - (iv) Technical assistance to the PTPs to review the operations of the existing factories, to train and coordinate the training of engineering staff, and to monitor the construction and commis- sioning of new and expanded factories. (v) Working capital. (b) Project Support (Non-credit component) (i) Environmental protection including the strengthening of pollu- tion monitoring units in two project provinces, and a survey to determine the current status of effluent control in existing PTP factories. (ii) Monitoring and evaluation (M&E) including technical assistance and other support to DGE (Tim Khusus). (iii) Training of DGE and related agency personnel with responsibili- ties in the tree crop processing subsector. (iv) Studies: (i) technical studies to develop and recommend more efficient processing methods taking account of local conditions and the structure of the Indonesian tree crop subsector; and (ii) non-technical studies of rubber marketing and long-term processing needs. (v) Start-up funds related to future tree crop projects, including possible introduction of advanced tree crop processing technology. Processing Facilities 3.2 The scope of the factory component is based on an evaluation of the needs of the PTPs for rubber and palm oil factories to process the output of existing NES/PIR nucleus estates and surrounding smallholdings. This program would cover the processing needs for factories which need to be commissioned by 1992/93 and would include,20 sites in 9 provinces and involve 12 PTPs which would own and operate the factories. Project sites and PTPs are shown in Map No. 20265. 3.3 The project would include the following factories: (a) Rubber factories. The additional rubber processing capacity provided by the project would be 210 tons/day, consisting of: (i) Construction of 7 new crumb rubber factories with a total capacity of 130 tons/day. (ii) Expansion of 4 existing crumb rubber factories with an additional capacity of 80 tons/day. (iii) Construction of coagulation centers at one site. - 13 - (b) Palm oil factories. The additional FFB processing capacity provided by the project would be 450 tons FFB/hour, consisting of: (i) Construction of 9 new crude palm oil factories with a total capacity of 300 tons FFr/hour. (ii) Expansion of 5 existing crude palm oil factories with an additional capacity of 150 tons FOB/hour. Table 3.1: SUMMARY OF FACTORY REQUIREMENTS Year /a 88/89 89/90 90/91 91/92 92/93 Total Rubber Factories New Construction CC /b 0 1 1 5 7 Expansion 0 1 1 1 1 4 Capacity (tons rubber/day) - 20 40 40 110 210 Palm Oil Factories New Construction 0 0 6 2 1 9 Expansion 0 0 0 1 4 5 Capacity (tons FFB/hr) - - 210 90 150 450 ia Refers to the year the factory would be commissioned. See Annex 2, Tables 1 and 2 for the detailed factory requirements per site and per year. lb Coagulation centers at PTP XIII - Sintang, West Kalimantan. 3.4 The above requirements for new or expanded rubber and pa'sw oil factories have been determined based on the followiag data: (a) the amount of expected production to be processed from NES!PIRtprojects or local non-project plantings, (b) the availability of existing spare local processing capacity, and (c) the minimum size of factories for efficient operation (see Annex 2, Appendix A). The data related to (a) and (b) were collected from the PTPs and reviewed during field visits to all project sites. 3.5 Standardizaltion of processing facilities. Because of the large program of new factory construction under the project as well as the expected needs in the future, standardized factory designs would be used to the extent possible to construct and operate the required facilities. The advantages of standardized designs are that they lead to (a) faster preparation of tenders; (b) reduced construction time and costs; and (c) simplified and more familiar operating procedures and staffing. DCE is hiring consultants to carry out design standardization studies for rubber and palm oil factories (to be - 14 - financed under the on-going YES VII project) for which terms of reference (TOR) have been prepared by Tim Khusus and reviewed by the Bank (see Annex 5, TORe 1 and 2). To maximize their impact on project factories, the design standardization studies should be started as early as possible for the results to be available in preparing tender documents for the second group of project factories. The evaluation of proposals from consultants is now in its final stages and work is expected to start before end-1988. Because of the need to construct six urgent palm oil factories immediately, it will not be possible to utilize the full results of the palm oil standardization study in the design of these factories. However, technical specifications have been prepared by DGE and the PTPs, and reviewed by the Bank, for "pre-standardized" designs to be used based on existing experience and standards that have been developed in Indonesia. 3.6 Engineering Consultancy for Individual Factories. It will be necessary for the PTPs to recruit consultant engineers for each factory to ensure proper execution of the construction contracts. TOR have been prepared by Tim Khusus and reviewed by the Bank (see Annex 5, TOR 3). The work to be undertaken by the engineering consultants would includes (a) Preliminary Design Stage (excluding urgent palm oil factories) Immediately before tendering, review of the justification of each factory based on actual NES/PIR and nearby non-NES/PIR plantings, crop projections and the existence of any local processing facili- ties. (b) Main Design and Construction Stage (i) Tender preparation incorporating standard specifications as determined by the design standardization study and incorporat- ing the civil engineering characteristics specific to indivi- dual sites. (ii) The technical appraisal of bids and advice on their relative merits. (iii) The supervision of the contracts during construction through to commissioning and hand-over to the PTP. (iv) The provision of monthly reports to the PTP, through the Project Implementation Unit, reviewing physical progress and costs to completion of the contract (para. 5.6). (v) Preparation of proposals for operation and training. 3.7 The work is expected to extend for two years for rubber factories and for three years for palm oil factories and is expected to require about 28 and 63 man-months respectively per factory. The engineering consultancy work for the main design stage of individual factories should only start after the review has confirmed the justification for the factories based on the avail- able data. Letters of invitation to an agreed short list for these - 15 - consultants have been sent for the six urgent palm oil factories. Recruitment and mobilization of these consultants would be a condition of disbursement for each factory site (para. 7.3a). 3.8 Vehicles. Vehicles are needed at each factory site, especially to bring the harvested raw material from the field to the factory. In most recent projects, vehicle purchases have been treated as reserved procurement and thus ineligible for IBRD financing. However, due to recent changes in 001 procurement procedures, vehicles will be procured through International Competitive Bidding (ICB) and therefore will be financed by the Bank under this project. 3.9 Working Capital. When a factory is commissioned the PTP will need working capital for cash on hand, raw material and final product inventories, spare parts, etci This working capital is estimated as the cost of spare parts (shown as 52 of factory investment costs) plus the equivalent of two months' cost of the factory's normal raw material purchase (rubber or FFB). Staffins and Training 3.10 General. The project would train project factories personnel and selected staff of DGE and related Government agencies. This approach was indicated during project preparation when it was determined that: (a) No program of systematic processing related training was available to the subsector. (b) The subsector training institution, Lembaga Pendidikan Perkebunan (LPP), hid neither experience nor capacity to provide such training. (c) 1o processing training coordinating mechanism was available to the PTPs. 3.11 This project has therefore focused its training component on: (a) Meeting the immediate management and operating needs of personnel responsible for the operation and maintenance of project factories. (b) Providing subsector capacity for processing expertise through training for staff of DCE and related Government agencies. (c) Laying the foundation for post-project processing training coordination by making provision for LPP staff development in the area of processing technology and management. 3.12 The project will construct suitably equipped modest training facilities (classroom and dormitory space for 25 trainees) for palm oil processing at one of the new palm oil factories (PTP V, Riau), and develop, field test and evaluate processing training courses, materials and methodology which would be used post project to extend training to n'n-project PTP personnel. - 16 - 3.13 Factory Staffins and Training. The efficient operation of process- ing facilities requires highly specialised and well-trained engineers and supporting technical staff. At the present time, there is a shortage of PTP personnel to meet the requirements of the existing factories and therefore additional staff would have to be recruited and trained for the new or expanded factories. Based on (a) the number of staff required to operate rubber and palm oil factories of standard capacity, and (b) the number of factories to be built or expanded under the project, about 850 staff would require training. Most of the training would be practical atd carried out at the training facilities built under the project (para. 3.12), in existing PTP factories, and in machinery supplier workshops. Theoretical training would be provided by short courses in the LPP institutes at Medan and Yogyakarta. In addition, training for selected senior factory managers (consisting 3f the factory manager, assistant factory manager and maintenance engineer) would be provided at overseas locations. Details of the project's training program are contained in Annex 2, Appendix C. Training of the PTP staff would be coordi- nated by the training consultant in Tim Khusus (para. 3.27 and Annex 5, TOR 6). 3.14 An assurance was obtained at negotiations that, because of the critical role for efficient processing, senior managers for a given factory would be appointed and trained six months before factory commissioning. Training for all other categories of staff would be completed prior to factory commissioning. 3.15 Government Agency Training. There is at present no structured training program for staff of the DGE in the area of processing and no existing or planned project has addressed processing manpower weaknesses in a systematic manner. Therefore, training would be provided under tha project support (non-credit) component of this project to staff members of DGE and related agencies to strengthen the capacity of these agencies in the tree crop processing subsector. Training would include Master's degree courses and short-term courses. Details are contained in Annex 2, Appendix C. Technical Assistance 3.16 To ensure the successful implementation of the project, and improve processing efficiency in existing PTP factories, each project PTP would recruit a rubber and/or palm oil processing consultant(s) with international experience to be attached to its headquarters. Directly reporting to the PTP First Directors, these consultants would: (a) review the operations of the PTP existing processing facilities with a view to improving their efficiency; (b) liaise with the engineering consultants supervising the construction and commissioning of new or expanded factories; (c) coordinate the training programs for factory staff with the Tim Khusus training consultant; and (d) set up monitoring and evaluation systems for all factory operations (see Annex 5, TOR 4). 3.17 The consultants would be employed from the start of construction until one year after commissioning for a new construction; and 1/2 year after commissioning for an expansion. This means that in the case of palm oil factories, the consultants would be needed for 3 years for new construction - 17 - and 1 1/2 years for factory expansion; in the case of rubber factories, 2 years for new construction and 1 1/2 years for factory expansion (see Annex 1, Table 9). 3.18 Letters of invitation to an agreed short list for these PTP consul- tants h zve been sent for the six urgent palm oil factories. Recruitment and mobilization of the PTP headquarters processing consultant(s) (rubber and/or palm oil processing engineer) wc4ld be a condition of disbursement for the new construction or expansion of factories for the relevant PTP (para. 7.3a). V!,wvironmental Protection 3.19 A serious environmental problem associated with tree crop processing facilities is water pollution caused by factory effluents. A recent GOI regu- lation, No. 29/1986, pertaining to the Analysis of Impacts upon the Environ- ment, became effective on June 5, 1987, and requires that all existing fac- tories be brought into compliance with GOt effluent standards. Simple, easy to operate technologies have been developed in Malaysia to treat rubber and palm oil factory effluents using an anaerobic/facilitative ponding system. These measures can be adopted in Indonesia and all project factories would be provided with suitably designed liquid effluent t-reatment facilities. 3.20 The proposed environmental protection program which is being incorporated into this project has three elementes (a) For factories to be financed under the project, either as a new facility, or as an expansion of an existing one, liquid effluent treatment capacity would be installed to meet 60I effluent standards. (b) For existing PTP factories which are not included within this project, consultants would be appointed to assess the current status of effluent treatment, and to estimate the investment requirements for upgrading existing effluent control facilities or installing new capacity to meet 001 effluent standards (see Annex 5, TOR 10). The survey would not be limited to rubber and palm oil factories but would include existing PTP processing facilities for all crops. Because the investment requirements are difficult to estimate in advance of the survey, and are likely to be quite large, funding for upgrading effluent control in existing non-project PTP factories has not heen provided in this project, but could be considered subsequently for external assistance. (c) For strengthening existing pollution monitoring capabilities in North Sumatra and West Kalimantan and studying options for future institutional arrangements in these two provinces, consultant services and other support would be provided as the initial stage of a longer-term CO objective to establish effective monitoring and control institutions in all provinces of Indonesia. The strengthening of pollution monitoring capabilities, covering all sources of pollution, has been limited to two project provinces in order to keep the component manageable at this initial stage, but - 18 - subsequently the results could readily be replicated in other provinces. 3.21 In relation to (c) above, the provincial office of the Public Works Department (PU Kanwil) has the legal authority to cover water pollution monitoring. However, most of the these offices are poorly equipped and do not have the resources to undertake any monitoring activities. Separate Public Works units (PU Dinas), reporting directly to the Governor, are responsible for issuing industrial waste discharge permits. However, the units issue permits as a routine activity without determining the water pollution imo)lications, nor do they verify from monitoring data whether the industries a.e conforming to the waste discharge permit. By strengthening pollution monitoring capabilities in North Sumatra and West Kalimantan, the project will enable provincial authorities to systematically and accurately carry out their legally mandated monitoring on a routine basis. This will include not only tree crop processing factories, but also the other industrial and domestic waste discharges. Consultants would be provided to make an assessment of the current status and availability of existing laboratory facilities, the extent of pollution monitoring (PU Kanwil), the procedures for issuing discharge permits (PU Dinas), the st&tus of Governors' decrees relating to pollution monitoring in the provinces, the availability and experiences of laboratory technicianst and the effectiveness of quality control over laboratory procedures, as well as the collection, preservation, transport and storage of samples for analysis. Recommendations would be made for strengthening insLitutional arrangements for pollution monitoring and control, the analytical capabilities of the laboratories, and making the most effective use of facilities and staff. The consultants would provide training to laboratory staff to improve quality control of the monitoring process from sampling through to processing of analytical results. Capital and operating budgets will be prepared and staffing levels estimated to meet the requirements of the expanded program and the quality control objectives. External quality checks by national institutes such as Institute of Hydraulic Engineering at Bandung would be instituted, since the ultimate objective is for these laboratories to be integrated into a pollution monitoring and control function for each province. The terms of reference for this work is given in Annex 5, TOR 11. 3.22 Draft letters of invitation for consultants for strengthening provincial pollution monitoring in North Sumatra and West Kalimantan and for the survey of existing PTP factories have been submitted to the Bank for review. An assurance was obtained at negotiations that Government would submit an action plan by December 31, 1990 satisfactory to the Bank to bring all existing PTP factories into compliance with GOI effluent control regulations. Studies 3.23 Technical Studies. To improve the processing efficiency of the PTPs, a number of technical studies are required to develop and recommend the most efficient processing methods for rubber and FFB, taking into account the specific characteristics of tree crop production in Indonesia and particularly the different types of raw material produced by estates and smallholders. The main topics covered by these studies would be (a) for oil palm: the use of - 19 - empty bunches as fertilizer, and certain characteristics of CPO and palm kernel oil; (b) for rubbert characteristics of raw material, dry rubber content determination, and processing methods adapted to different types of raw material; (c) for both oil palm and rubber: effluent monitoring techniques. These studies would be carried out under contract from DGE by Indonesian tree crop research institutes under the auspices of the Agency for Agricultural Research and Develo .2nt. A proposal covering 5 years has been prepared by Tim Khusus with the Research Institutes and has been reviewed by the Bank (see Annex 1, Tables 11 and 12). This propoasl covers the most urgent research requirements for tree crop proce.sing and is expected to be consistent with, and could later form part of, an anticipated master plan for Indonesia's overall agricultural research activities to be prepared by the Agency for Agricultural Research and Development. 3.24 These studies would be undertaken as early as possible in 1988/89 for their findings and recommendations to be made available to the factories proposed under the project. Draft contracts between DGE and Tree Crop Research Institutes would be finalized before end-1988. 3.25 Other studies proposed under the project are listed in Annex Table 13 and include: (a) Rubber Marketing. The Natural Rubber (NR) market is very complex due to the large number of types and grades of MR produced and traded such as latex, sheet, crumb, and crepe. Given the proposed program of construction of rubber factories under the project and the expected long-term requirements for large additional rubber processing capacity in Indonesia, a rubber marketing study would be useful to"indicate possible marketing strategies for GOI. The study would (i) evaluate the long-term trends for domestic and international demand, and potential profitability for the Cifferent types and grades of rubber produced in Indonesia; (ii) review current marketing channels and industry organizations dealing with marketing issues; and (iii) make recommendations on available marketing strategies (see Annex 5, TOR 12). (b) Long-Term Requirements for Rubber and Palm Oil Proce Facilities. In order to plan the systematic development of the processing subsector, it is necessary to determine the long-term requirements for rubber and palm oil factories in Indonesia. The proposed study would start following issuance of the draft reports for the Rubber Marketing Study to build upon their findings with the aim of formulating appropriate strategies and investment programs, particularly taking into account the evolving roles of the public and private sectors (see Annex 5, TOR 13). 3.26 Revised Terms of Reference for these studies have been submitted by DGE to the Bank. The studies are expected to be completed by e-i-1989. - 20 - Monitoring and Evaluation Component 3.27 Tim Khusus would be responsible for overall monitoring and evalua- tion of project implementation and for preparation of progress reports to the Bank, as in various Bank-supp,ited NES projects (para. 5.4). Because of the additional volume of data collection, analysis and reporting, the project would provide for the existing Monitoring and Analysis Division in Tim Khusus to be strengthened by at least five additional technical staff members, two consultants (an M&E specialist and a training specialist), each for three years, additional support staff and three microcomputers. Provision has also been made in this project for continuing for three additional years the services of the Tim Khusus consultant rubber and palm oil processing advisers now being financed by the Bank under the NES VII project. Draft letters of invitation for the M&E and training consultants have been submitted to the Bank for review. The additional technical staff for the Monitoring ard Analysis Division have been recruited and are in post. Start-Up Funds 3.28 As in previous Bank-assisted tree crop projects, funds have been provided for the preparation of future tree crop projects, especially those related to the rehabilitation and construction of processing facilities. The project alo includes funds (US$1.0 million) for the possible introduction of advanced tree crop processing technology at PTP V. However, since this technology is still under development, detailed technical, financial, and economic analyses would be required prior to the Bank's final agreement to disburse against this component. IV. PROJECT COSTS AND FINANCING Costs 4.1 Total project costs excluding interest during construction are estimated at US$180.4 million, including US$13.9 million (8X) in taxes and US$101.5 million (562) in foreign exchange. Base costs are expressed in mid- 1988 values. Detailed cost tables are included in the Project File. Summary project cost tables are shown .in Annex 1. 4.2 Quantities and costs are based on the DGE preparation report prepared in 1987 and reviewed during appraisal in July 1987. They are consis- tent with other rubber and oil palm projects financed by the Bank. Cost estimates include physical contingencies estimated at 82 on factory costs, 1OZ on houstng, and 15X on vehicles. Estimated price contingencies are equivalent to 132 of base costs plus physical contingencies and are based on the expected price increases shown in Table 4.2. 4.3 Interest during construction is shown in Table 4.1 for the interest chargeable to the PTPs by the two state commercial banks (SCBs) for the processing facilities (credit) component. During the grace period (covering most of the project period) this interest would not be paid, but would accrue and thus be financed by the SCBs. - 21 - Table 4.1: PROJECT COST SUMDARY /a Foreign X of total Local Foreign Total Local Foreign Total exchange base cost --- (Rp billion) --- -- (US$ million) --- X Factory Component Factories 47.6 88.6 136.2 28.7 53.4 82.1 65 55 Housing 19.1 6.3 25.4 11.5 3.8 15.3 25 10 Vehicles 5.3 21.1 26.4 3.2 12.7 15.9 80 11 Tech Assistance/ Training 18.6 11.8 30.4 11.2 7.1 18.3 39 12 Initial Working Capital 11.3 1.3 12.6 6.8 0.8 7.6 11 5 Subtotal 101.9 129.1 231.0 61.4 77.8 139.2 56 93 Support Component Environmental Protection 1.2 2.1 3.3 0.8 1.2 2.0 62 1 Tech. Assistance/ Training 1.5 4.1 5.6 0.9 2.5 3.4 74 2 Studies 1.4 2.6 4.0 0.8 1.6 2.4 66 2 Start-up Funds 0.8 4.2 5.0 0.5 2.5 1.0 83 2 Subtotal 4.9 13.0 17.9 3.0 7.8 10.8 72 7 Total Base Costs /b 106.8 142.1 248.9 64.4 85.6 150.0 57 100 Physical contingencies /c 6.3 10.6 16.9 3.8 6.4 10.2 63 7 Price contingenJes/d 17.8 15.8 33.6 10.7 9.5 20.2 47 13 Total zoject Costs 130.9 168.5 299.4 78.9 101.5 180.4 56 120 Interest d'*ring construction 66.4 30.9 97.3 40.0 18.6 58.6 32 39 Total Financing Required 197.3 199.4 396.7 118.9 120.1 239.0 50 159 /a US$1.00 - Rp 1,660. 7T Including taxes and duties estimated at US$13.9 million. Total project costs excluding taxes and duties are estimated at US$166.5 million. /c Total physical contingencies are 7% of base costs. 7i Local price contingencies are 16% and foreign price contingencies are 10% of the respective base costs plus physical contingencies. - 22 - Table 4.2: EXPECTED PRICE INCREASES (X) Calendar Year 1988 1989 1990+ Local 5.0 5.0 6.0 Foreign 3.0 3.0 4.0 Financing 4.4 General. The total financing required is estimated to be US$239.0 million equivalent, including taxes and duties of US$13.9 million, interest during construction of US$58.6 million, and direct and *'ndirect foreign exchange costs of US$101.5 million. The proposed Bunk loan of US$118.2 mil- lion equivalent (about 49Z of total financing required, and 52X of the total financing excluding taxes and duties) would cover part of the costs of factories, housing, vehicles, technical assistance, training, monitoring and evaluation, the environmental component, and start-up funds for the preparation of new projects and the possible introduction of advanced tree crop processing technology. Financing for the factory component would also be provided by 8 of the 12 PTPs who would own and operate the factories (81 of total project financing or US$19.6 million), and two state commercial banks (411 or US$98.7 million). 'JOI would provide US$700,000 (less than 1% of total project financing) to cover costs of identifiable taxes for the project's support component and the incremental staff costs for the monitoring and evaluation component. The Covernment of Japan would provide US$1.8 million for technical assistance to the Monitoring and Analysis Division of Tim Khusus, DCI. A breakdown of costs and the financing plan are shown in Annex 1, Table 1. 4.5 Factory Financing. The cost sharing percentage for IBRD financing of the credit component (factories and related subcomponents, but excluding interest during construction) would be 65%. As described below, this would be provided as both equity (through the Department of Finance) and debt (through the SC8s). Consistent with Government's goal of moving the financing of tree crop development to a more commercial basis, there is no Government budgetary support for the factory component of this project. In addition, subsidized BI liquidity credits, which have been used in previous programs, have been excluded from this project and the SCBs will act as financial intermediaries on a commercial basis, bearing 10OZ of the default risk. Furthermore, the interest rate to the PTPs will be increased to 16% from 12-13.5% in existing programs. 4.6 Equity. The debt:equity ratio for each factory would be 65:35 which is consistent with Government guidelines and coumercial practice. Each PTP would invest 0X-35% of its total project costs as equity from its own resources, depending on the strength of its financial position. Three of the 12 project PTPs are financially strong enough to fund all of their 35% equity - 23 - contributions from thair own resources. Some PTPs, however, are too finan- cially constrained to finance their full 351 equity portion due to cash shortages caused, e.g., by very low recent commodity prices, and the costs of implementing on-going development programs. Four of the project PTPs are so financially constrained that all the equity contribution for the factories in this project needs to come from fresh equity infusions from GOI. The remaining five PTPs are judged able to contribute half the required 351 equity from their own resources and would need the remainder in fresh DOF equity. For this project the fresh DOF equity needed for the financially weak PTP. would be financed by IBRD. In accordance with normal GOI practice, for admin- istrative reasons this would initially be in the form of an interest free loan, on-lent through DOF to the PTPs, which would be accounted for as equity on the PTP balance sheet, and formally converted to equity within 6 months of the last IBRD disbursement. 4.7 The determination of how much equity a PTP could provide (all, half or none) from its own resources has been determined by reviewing its most recent financial statements. The amount each PTP would invest is shown in Annex 1, Tables 4 and 5. Through the Bank-financed YES VII project, corporate studies are being carried out for all PTPs involved in the Tree Crop Processing Project, and are scheduled for completion by end-1988. Despite the current short term financial problems of many PTPs, their long-term outlook is good, especially as the large plantings of the recent past, now a major cash drain, reach maturity, and commodity prices continue to recover. Assurances were obtained that COI would prepare by June 30, 1989 for each project PTP, an action plan satisfactory to the Bank, based on the Bank-financed corporate studies, to address financial and other issues identified by the studies. Before June 30, 1989, each of the five PTPs with factories in the first group of six palm oil factories would submit and commence implementation of a preliminary action plan satisfactory to the Bank (para. 5.2). 4.8 Debt. Bank Ekspor-Impor Indonesia (BEII) and Bank Bumi Daya (BBD) would be the state comuercial banks (SCBs) in the project. As described below the SCBs would lend the PTPs funds provided from their own resources combined with on-lent IBRD funds. A list of the proposed project sites by SCB is shown in Annex 1, Table 4. 4.9 Because the cost sharing percentage for IBRD financing of the credit component (excluding interest during construction) would be a constant 651, the share of IBRD financing on-lent as debt financing to the SCBs for a given factory will depend upon the share of IBRD equity financing. For example, if IBRD would finance the full 351 equity portion of a factory, only 301 would be available for IBRD financing of the debt. The remaining debt financing would be provided from the SCB's own funds. Table 4.3 shows the three financing plans for the project. For the four project PTP. who would finance all their equity, Category A applies. Similarly, Categories B and C apply to the PTP. which will put up half and none of the equity, respectively. Overall, the credit component of the project (excluding interest during construction) will be financed 651 by IBRD, 231 by the SCBs and 121 by the PTPs (see Annex 1, Table 5). - 24 - Table 4.3: FINANCING ARRANCEMENTS Category A: Category B: Category C: PTPs Investing PTPs Investing PTPs Investing 1001 of Equity /a 501 of Equity /b 02 of Equity /c Equity: PTP self-financed equity 35Z 17.5X 0O IBRD financed equity 0 17.5X 351 Total equity 35X 351 35Z Debt: SCB self-financed debt 01 17.51 351 IBRD financed debt 651 47.51 30X Total debt 651 651 651 Total Capitalization 1001 1001 1001 /a PTPs VII, XIII, XXIII. Jb PTPs III, V, VI, XVIII, XXVI. 7-c PTPs I, IV, IX, X. .ote: Annex 1, Table 4 shows the financing plan by project site, and Annex 1, Table 5 showis the financing plan by PTP and SCB. 4.10 8CB Cost of Funds and Spreads. The SCB cost of funds, excluding write-offs, provision for bad debt and overheads is about 10-14X. The cost of funds is defined as the weighted average cost that an SCB pays for demand deposits (checking accounts), savings accounts, term deposits and any other sources of cash used for its lending, with the exception of subsidized 8I liquidity credits. IBRD money on-lent to the SCBs through DOF for this project would be at 101. As shown in Annex 1, Table 8, the SCB spreads for the project would range from 3.81 to 6.01, depending on the SCB's own cost of funds and the share of its own funds to be blended with on-lent IBRD funds. The overall average spread would be about 5.51. This range of spreads is considered adequate to cover overheads and risks, both of which should be lower than usual due to the large size of each sub-ioan (and the fact that the borrowers are Government corporations) and still give the SCBs an acceptable profit margin. 4.11 Summary Lending Terms. IBRD money on-lent through DOF to the SCBs under Subsidiary Loan Agreements (SLAs) for 12 years, with a grace period of 5 years, at an interest rate of 101 per annum which provides a margin above the interest rate on che IBRD loan, to compensate for the foreign exchange risk which Government would bear. The SCBs would pay a 0.751 commitment fee on the undisbursed balances. Loans from SCBs to the PTPs under Credit Agreements - 25 - (CAs) would be for 10 years, including 3 years grace. The SCB would bear 1001 of the d4Eault risk. Interest would be charged during the grace period and added to principal each month for both SLAs and CAs. 4,12 Fund flows for the prdcessing facilities (credit) component. Fund flows are shown in Annex 2, Chart 3 and summarised below: (a) Factories and Housing. IBRD would disburse 701 for factory and housing contracts, and the PTPs 301 (using 8CB funds and/or its own funds). As contractual payments come due a PTP would first pay its 301. The PTP would submit evidence of this payment as part of its withdrawal application (W/A). The Bank would then disburse its 701 share directly to the supplier, to keep IBRD and PTP payments on a pari passu basis. (b) PTP training under contract and PTP technical assistance (consult- ants). The Bank would disburse 100X directly to the supplier upon submission of W/A from the PTP (sent through Bank Indonesia and copied to Tim Khusus). (c) PTP non-contract training. In-house PTP training not covered by contract would be prelinanced by the PTP and disbursed directly to the PTP by the Bank upon submission of a W/A as described above. (d) Vehicles. Disbursement procedures for vehicles would be similar to those in para (a) above. (e) Working Capital. The PTP would finance its working capital require- ments using its own funds or commercial working capital lines of credit. 4.13 Fund flows for the project support (non-credit) component. The Bank would disburse 100X of the project support component, less identifiable taxes (estimated at US$100,000) as follows: (a) Consultants. The Bank would disburse directly to consultants upon receipt of a W/A prepared by the executing agency submitted through Tim Khusus and BI. (b) Other non-credit items. DGE training, and supplies and equipment for technical studies, the environmental component and Tim Khusus would be prefinanced by Government under authorization in the Tim Khusus budget. These costs total about US$2.4 million. The Bank would reimburse 1002 (less identifiable taxes) upon receipt of a W/A submitted by BI based on Government payment documentation initiated by the executing agency through Tim Khusus. Incremental staff costs for the Tim Khusus Monitoring and Analysis Division (US$600,000) would be financed by Government. 4.14 To insure smooth implementation, each year DGE should submit the draft budget for the project support component to Bappenas and the Department of Finance by December. Bappenas and Department of Finance approval of the - 26 - final budget should then be received before the start of the fiscal year on April 1. All project expenditures for the project's support component, including environmental protection, would be included in Tim Khusus budget. Financing Documents 4.15 Loan Agreement. IBRD would have a Loan Agreement with Government. 4.16 Financing Agreement for Equity. For each factory, if a portion of the IBRD loan would be provided through DOF to a PTP as new DOF equity, DOF would sign a Financing Agreement (FA) with the PTP which provides for the "IBRD equity" disbursements to be considered, for administrative reasons, tem- porarily on-lent to the PTP as an interest-free loan. The interest-free loan would be accounted for as equity on the PTP balance sheet and converted to equity within 6 months of the last IBRD disbursement. 4.17 Subsidiary Loan Asreement and Credit Agreement for Debt. For the portion of the IBRD loan going to a PTP as debt, there would be a Subsidiary Loan Agreement (SLA) between DOW and each SCB in the project. In other words, RBD and BEII would each have only one SLA covering all the IBRD funds to be on-lent to them by DOF under the project. In addition, the SCBs would sign Credit Agreements (CA) with the PTPs covering all the debt financing, whether the money originates with the SCB or IBRD. 4.18 Debiting the Accounts. For the IBRD money, as of the day IBRD makes a disbursement: (a) The portion of the IBRD payment which is equity will be debited under the FA between DOF and PTP. (b) The portion of the IBRD payment which is debt will be debited under the SLA between DOF and the SCB. (c) The same amount as in (b) will be debited under the CA between the SCB and the PTP. 4.19 Timing of Financing Documents. Draft Financing Agreements, SLAs and CAs for the project have been agreed between GOI and the Bank. A condition of disbursement for each project factory would be submission of signed versions of the above documents relevant to that factory (para. 7.3b). 4.20 Bridging Finance for the PTPs. Although it is expected that most IBRD disbursements would be by direct payment to the suppliers, some prefin- ancing of the IBRD loan would required, such as for PTP in-house training expenses. The SCBs would provide the prefinancing as bridging finance under the PTP's normal line of credit (working capital) at the SCB's normal working capital interest rate (now about 18-19%). An alternative would be for the PTPs to prefinance these amounts themselves. - 27 - 4.21 Retroactive Financing. Provisions would be made for retroactive financing of expenses incurred in 1987/88 between November 1, 1987 and Bank loan signing. These expenses would consist primarily of consultant services and site prepara..ion and are estimated at about US$3.0 million. Anv items financed retroactively would be procured in accordance with IBRD guidelines. Procurement 4.22 Procurement arrangements are summarized in Table 4.4 and described below: (a) All civil works and equipment for the factories (US$97.0 million) and vehicles (US$20.9 million) would be procured by International Competitive Bidding (ICB). according to IBRD procedures, except as. noted below in (b). The factory contracts would be let on a single responsibility basis with the main contractor responsible for supply and erection of equipment, associated works and services, and com- missioning based on standardized designs (prestandardized designs for the first six palm oil factories). The main contractor would be free to import goods for the factory without hindrance (See Annex 2, Appendix B). (b) Equipment and works for the rubber coagulation centers, at Sintang (US$700,000), rubber dryers for existing facilities at Air Molek and Bajubang (US$200,000), the training facilities at PTP V Riau (US$200,000), and all housing for factory staff (US$19.4 million) would be procured through local competitive bidding (LCB) due to the small size of each contract, the scattered nature of the contracts and the consequent lack of interest which could be expected from international firms. None of the contracts would exceed US$2.5 million. (c) Consultants for technical assistance services (US$15.9 million) would be selected in accordance with Bank guidelines based on an evaluation of proposals from agreed short lists of consultant firms with international experience. Based on past experience it is anticipated that approximately half the man-months financed by the project would be provided by local consultants. (d) Training (US$10.9 million) would consist of: (i) Overseas fellowships at selected institutions and agencies. (ii) Contracts between PTP. and Indonesian training institutes (LPP). (iii) Construction of training facilities for palm oil processing, on site training in existing PTP factories and precommissioning training in the new factories. - 28 - (e) Equipment and other supplies required for the Tim Khusus Monitoring and Analysis Division, project technical studies and the strengthen- ing of provincial pollution monitoring units are available locally at reasonable prices and would be procured through prudent shopping with at least 3 price quotes, subject to a limit of US$50,000 for each purchase and an overall limit of US$3.0 million for the project. (f) Due to the possible proprietary nature of sne advanced technology that may be adopted under the start-up funds component, special procurement arrangements may be necessary and would be discussed prior to implementation. Table 4.4s PROCUREMENT /a (iUS$ million) Project Element ICB LCB Other /b N.A. /c Total Factories 97.0 0.9 97.9 (67.9) (0.6) (68.5) Housing 19.4 19.4 (13.4) (13.4) Vehicles 20.9 20.9 (6.2) (6.2) Working capital 9.6 9.6 (0.0) (0.0) Environmental protection 2.2 2.2 (2.2) (2.2) Training 0.2 1u.7 10.9 (0.2) (10.7) (10.9) Technical assistance 15.9 0.6 16.5 (13.5) (0.5) (14.0) Start-up funds 1.0 2.0 3.0 (1.0) (2.0) (3.0) Total 117.9 20.5 19.1 22.9 180.4 T-(74) (14.2) (16.7) (13.2) (118.2) la Including physical and price contingencies. Figures in parentheses are the respective amounts financed by the Bank. /b Other means of procurement include prudent shopping and recruitment of consultants. /c Not applicable. Includes administration, overheads, training, working capital and preparation funds for future projects. - 29 - 4.23 Review of Procurement. The Bank would review, prior to tendering and award, all factory and consultant contracts, and housing contracts with an estimated value of over US$1.0 million. These contracts would account fcr over 80X of Bank financing. Other housing contracts and training contracts would be reviewed by the G0I Procurement Control Units, and, subsequent to their award, by the Bank on a sample basis. Disbursement 4.24 The proposed allocation of the Bank loan is shown in Annex 1, Table 3 and summarized as follows. The Bank would disburse: (a) 1001 of PTP training and technical assistance, and the project support component (except incremental Tim Khusus staff costs), less any identifiable taxes (for technical assistance to the Tim Khusus Monitoring and Analysis, the first US$1.8 million would be funded by the Government of Japan and administered by the Bank). (b) 701 of factory and housing contracts. (c) 1001 of foreign expenditures, 951 of local expenditures (ex-factory cost) and 651 of local expenditures for other items procured locally, of equipment and vehicle costs. 4.25 For most other components, disbursements would be made on the basis of standard documentation. Disbursements would be made on the basis of Statements of Expenditures (WOEs) for PTP in-house training and fot the pro- ject support component for expenditures of less than US$50,000 equivalent. Detailed documentation for the SOEs would be retained in Indonesia and made available to the Bank for inspection (Annex 1, Appendix A). The estimated schedule of 0RD disbursements is shown in Annex 1, Table 7. Disbursements would run six years from FY89 to FY94. The project Closing Date is September 30, 1993. Special Account 4.26 In order to avoid the necessity of prefinancing expenditures which are reimbursable by the Bank and to simplify and expedite disbursement administration, the Government would establish a Special Account in Bank Indonesia to be maintained by the Directorate General of Budget, DOF. The- Special Account would be used for local currency payments made for the non- credit component. The Bank would make an initial deposit (US$0.2 million) equivalent to an estimated four-months' disbursements for local expenditures to the Special Account upon loan effectiveness and upon confirmation of the establishment of the Special Account. The Account would be replenished every month or when payments reach one-half of the initial deposit. A monthly statement on the Special Account would submitted to the Bank by the Directorate General of Budget, DOF. - 30 - V. PROJECt IMPLEMENTATION Status of Preparation 5.1 All sites proposed for the project have beed visited during project preparation to confirm the size and timing of project factories. The esti- mates of raw material availability are considered sound as project factories would process the output of trees already in the ground and the quality of maintenance and the likely impact on yields can be estimated with a high degree of confidence. Preliminary design specifications have been prepared for all project factories. Financing arrangements and terms for the factories have been agreed and draft-financing documents have been submitted. Tim Khusus has prepared a draft budget for the project support (non-credit) compo- nent. The role of Tim Khusus as project coordinator for the factory component, and budget controller for the project support component, has been confirmed. 5.2 Tender documents foz the first group of six palm oil factories to be commissioned in 1990/91 have been prepared by Tim Khusus and the relevant five PTPs, reviewed by the Bank taking into account pre-standardized specifications (see para. 3.5 on standardization of processing facilities) and issued to the list of prequalified suppliers. Prior to the award of the contracts, each of the five PTPs would prepare and commence implementation of a preliminary action plan satisfactory to the Bank to improve financial, managerial and technical aspects of such PTP (para. 4.7). Submission and commencement of implementation of these action plans would be conditions of disbursement for these six palm oil factories (para. 7.3c). Implementation Schedule 5.3 The project would be implemented during 1988-1993 (see Project Implementation Charts in Annex 2). The standardization of factory designs would be a priority task beginning earLy in the implementation schedule. The strengthening of the Tim Khusus Monitoring and Analysis Division to monitor project implementation would begin immediately. Factory staff recruitment and training would be timed to the commissioning of the processing facilities. In addition, the effluent treatment plants at each of the PTP project sites would be constructed and commissioned at the same time as the processing facilities. The upgrading of the pollution monitoring capabilities and discharge permit procedures in North Sumatra and West Kalimantan would be brought into effect over the first three years of project implementation. Sector studies would be carried out in the first two years of project implementation. Project Management 5.4 Tim Khusus would have the central role in managing the implementation of the project, acting on behalf of DGE as the executing agency. The Chairman of Tim Khusus, supported by che Tim Khusus Monitoring and Analysis Division, would be the Project Manager. Under the project, the Monitoring and Analysis Division would be significantly strengthened with additional staff and technical assistance (see Annex 2, Appendix E). The key point is that overall responsibility for the project would be centralized to - 31 - ensure coordination and successful procurement and implementation. During implementation, the Project Manager would meet regularly with key Government agencies, including Bappenas, the Department of Finance, the SC8s, the Department of Agriculture, the Department of the Environment, and the Marketing Associations and the Joint Marketing Offices. The functional relations for this project closely follow established Government procedures. 5.5 Tim Khusus Monitorina and Analysis Division. Factory construction and operation are the direct responsibility of concerned PTPs, but, for the project as a whole, the day-to-day implementation supervision would be exercised by the Chairman of Tim Khusus in his capacity as Project Manager. He would also be directly responsible for the project support component. The Monitoring and Analysis Division would col?ect, aggregate and analyze all data on project progress and inform the Chairman, on a regular and timely basis, of implementation problems and delays. The functions and staffing of the Tim Khusus M6E team have already been defined (para. 3.28) and are similar to those for other Bank assisted projects in the tree crop sector. The Chairman would regularly hold meetings with senior staff of Tim Khusus, procurement and budgeting officials from the DGE Directorate of Programming, the Project 1dentification and Formulation Divisions of the DOA Secretariat General, and tree crop processing experts from the Agency for Agricultural Research and Development. The Chairman would request attendance of representatives of Covernzbent agencies concerned with particular aspects of the project to help resolve implementation problems when deemed necessary. 5.6 PTP Project Implementation Unit. During the construction period, at the PTP level there would be a Project Implementation Unit (PIU) on site consisting of a leader and three sub-units, viz: Engineering, Finance/ Administration and Monitoring/Evaluation. This PIU would report directly to the PTP First Director and closely liaise with the Site Manager concerned. The functional responsibilities of the PIU would include (a) representing the iaterests of the PTP; (b) facilitating smooth contract execution by coordinat- ing local logistics and other procedural matters; and (c) serving as the progress reporting channel through Tim Khusus. Terms of Reference for all posts in this PIU are being prepared by Tim Khusus. 541 While the overall responsibility for monitoring and evaluation of project implementation would rest with Tim Khusus, the M&E subunit of each PTP Project Implementation Unit (PIU), with three to six staff, would be respon- sible for the monitoring of factory construction as well as the financial and operational efficiency of the project factories. Such a PTP-level M&E system, targeted to improving management effectiveness in the tree crop processing subsector, should be maintained beyond the initial investment period and, when proven effective, would be adopted as standard procedure for factory manage- ment as an integral part of the management information system. 5.8 The Monitoring and Analysis Division in Tim Khusus, together with the PTP headquarters processing consultants, would assist the project PTPs to institute their M&E system by (a) adopting factory operations efficiency indicators, (b) establishing the reporting format, (c) training PTP MUE staff and (d) revising the system as necessary. The detailed design of such a monitoring system would be submitted to the Bank for review. The monitoring - 32 - results from the PTPs would be aggregated, analyzed and interpreted by Tim Rhusus which would provide DGE and the Bank with an annual report on the main findings. 5.9 Pollution Monitoring. The monitoring of factory effluents would be the responsibility of the provincial offices of the Public Works Department (Kanwil). During the life of the project, two such units in North Sumatra and West Kalimantan would be strengthened. Responsible managers within these units would be identified to supervise the initial studies and strengthen the. pollution monitoring capabilities of the department. Newly constructed or expanded factories would be fully equipped with effluent control structures, and factory managers would be responsible for maintaining records of effluent discharge. Such records would be submitted to Tim Khusus which would report the integrated results to DGE. Tim Khusus would appoint a qualified pollution control specialist to its Monitoring and Analysis Division to coordinate budgeting and reporting for the component, and to supervise the PTP effluent treatment study in consultation with the Department of Public Works and the Department of the Environment. 5.10 Project Completion Report. DGE (Tim Khusus) would be responsible for preparing a Project Completion Report and submit it to the Bank no later than six months after loan closing. Accounts and Audits 5.11 PTP Accounts. Under Indonesian law, PTPs are required to maintain proper accounts and records and to have these accounts audited by an indepen- dent auditor. In preparing its detailed annual corporate accounts, each PTP would include a separate schedule detailing the expenditures under the project, and the funds received for project purposes. This separate project schedule would also be audited by independent auditors acceptable to the Bank. An assurance was obtained at negotiations that audited PTP corporate accounts, including the separate schedule of project expenditures and funding, would be submitted to the Bank no later than nine months after the close of the PTP fiscal year. 5.12 Government Agency Accounts. Accounting control of individual government agencies is exercised by the Department of Finance (DOF) and the State Auditor. Detailed annual applications for budget allocations are prepared by agencies and submitted to DOF by end-February. These applications are reviewed and approved by DOF and form the basis for the quarterly distri- bution of funds. Following automatic fund distribution for the first quarter of each fiscal year, DOF requires submission and approval of expenditure docu- mentation before releasing funds for subsequent quarters. In addition, agencies are not permitted to exceed unit costs used in the approved budget applications. Consequently, there is a great deal of ongoing control exer- cised over agencies' financial affairs. In this project, estimated project support (non-PTP) expenditures are US$11.7 million. The Government agencies responsible would be required to maintain accounts and records in sufficient detail to support expenditures and have them audited annually. - 33 - 5.13 Separate audit reports would also be required for expenditures involving reimbursements on the basis of SOEs or through the project's Special Account. An assurance was obtained at negotiations that Government (DWE) would obtain and submit copies of each year's audited accounts, including audits of SOEs and Special Account, no later than nine months after the close of the Government fiscal year (see Annex 1, Appendix A). VI. PROJECT BENEFITS AND JUSTIFICATION 6.1 Production. By 1992/1993, the incremental production from project factories would be about 70,000 tons rubber annually. Incremental processing of FFB would be about 1.6 million tons with an expected output of 340,000 tons of crude palm oil and 70,000 tons of palm kernel. Improvement of processing efficiency obtained through standardization of factory design, training of factory staff, technical assistance and technical studies would result in the production of higher quality rubber and higher CPO extraction rates, and in the associated reduction of processing costs. 6.2 Marketing. Due to a deficit of vegetable oil production in Indonesia, the Department of Trade reserves the right to restrict exports of CPO through a domestic quota system. CPO producers are each assigned a tonnage which must be sold locally at a controlled price and on occasion up to 7OX of CPO production has been reserved for the domestic market. Production above the quota may be exported. Because the domestic price of CPO is con- trolled to protect consumers, from time to time the Department of Trade also imposes export taxes on CPO to keep the FOB price relatively close to the controlled domestic price. While the export tax on CPO is currently 0U, it reached 421 in 1984. The combined effect of domestic quotas at controlled prices and export taxes has averaged about 20X of FOB since they were intro- duced in 1978. 6.3 Based on recent years and expected trends about 901 of the rubber and about half of the CPO produced as a result of the project would be exported. Palm kernels would be sold to existing factories for processing into palm kernel oil (PKO). Nearly all PKO would be sold domestically due to a chronic deficit in lauric oils for cooking. Paras. 1.8-1.10 describe the long term price and market outlook for Indonesian rubber and CP0, which appear favorable. 6.4 Pricing of Smallholder Produce. The project factories would buy FFB and rubber from smallholders for processing. The price to be paid to the smallholders for FFB cannot be determined by market forces, because the technical need for immediate processing usually leads to a monopsony situation for the nearest palm oil factory. Therefore, Government considers oversight of the prices paid to smallholders desirable to ensure a fair return to the smallholders (which among other things is needed to enhance the prospects for a high level of credit repayment), and provide a sufficient return to the factory, whether public or private, to attract the required investment. In addition, pricing arrangements are also needed for rubber in accordance with the original plan for smallholders in NES/PIR projects to sell a portion of their raw rubber to the nucleus estate for reasons of both technical effi- - 34 - ciency and cost recovery. The Minister of Agriculture has issued a decree on the general principles to be followed by DOE to regulate smallholder FFB prices, and a follow-up decree waS issued by DCG in June 1987. In late 1987, the Minister issued a similar decree for rubber, and the DCG issued circulars detailing the procedures for pricing smallholder rubber and FFB in early 1988. These procedures are being reviewed by Bank staff. 6.5 During discussions with Government, the Bank's key recommendation has been that any detailed DCE decrees on smallholder pricing should refer to the precise formulas to be used to calculate the payment to the smallholder and the formulas' explanation. This need for clarity is especially important because of the desire for increased investment by the private sector in tree crops. The recent issuance of the decrees on FFB and rubber are major steps forward in creating a legal framework for further progress on this matter. In particular, for the first time DCE has the authority to set smallholder prices in NES/PIR projects. At negotiations, GOI submitted the detailed formulas to be used by the PTPs for determining the price paid for smallholder rubber and oil palm products 6.6 PTP Financial Returns. The financial rates of return were cal- culated on the assumption that smallholders would be paid 80Z of FOB for rubber and 601 of FOB for FFB. The percentage is lower in the case of FFB because export tanes and domestic price controls on CFO are estimated to reduce the PTP's gross revenue to approximately 801 of FOB. Using these assumptions, the financial rates of return (FRRs) for rubber factories range from 201 to over 100l in real terms. For palm oil factories the estimated FRRs range from 17Z to 37X. The large variation in rubber factory FRRs is due to two factors. First, some sites will require only relatively minor additions (such as dryers) to increase capacity, while at other sites entire factories must be built. Second, at some sites, the PTPs will derive their raw material primarily from their own estates, which is substantially cheaper than having to buy it from smallholders, on whom other PTPs must heavily rely. The variation in palm oil factory FIRs is due primarily to this second factor, as new construction is required at all palm oil sites. Returns from both rubber and palm oil exceed the cost of debt to the PTPs under this project (161 in nominal terms). (For a list of FRRs by site, see Annex 4, Table 1.) 6.7 Economic Analysis. Each proposed factory has been analyzed using site-specific data on costs and production levels. In computing the economic rate of return, the following assumptions were made: (a) 'onversion Factors. Industrial plant and machinery 0.85; transport 1.0; construction 0.8; non-traded services 0.75; other traded manu- facturers 0.8; general project costs 0.8. On an average weighted basis, these factors are equivalent to a conversion factor for all costs of 0.85. (b) Sunk Costs. Since the factories financed by the project would process only the output of existing planted tree crop hectarage, the costs of land clearing and crop establishment are treated as sunk. On-farm cost is therefore the variable cost of maintaining and har- vesting the existing hectarage. - 35 - t (c) Sector Support Costs. The costs of general sector support, which cannot be attributed to specific sites and whose (non-quantifiable) benefits are not limited to participating estates, have been exclu- ded. Similarly, the costs of the environmental component not asso- ciated with specific project factories and start-up funds have also been excluded. These non-credit costs amount to 6% of total project costs. (d) Benefits. The incremental net benefit was calculated for each site based on with and without project scenarios. For palm oil sites, there are no alternative processing facilities available, and thus all net benefits are incremental. For rubber sites, however, alter- native private processing facilities do exist., Incremental benefits from the project-financed PTP factories derive from: (i) lower field-factory transport costs; (ii) lower processing costs; and (iii) a higher quality final product, which will command a price premium. Benefits for both palm oil and rubber outputs were cal- culated on an export parity basis. 6.8 Based on the above assumptions, which exclude non-quantifiable social and economic benefits (see paras. 6-17 to 6.19), the economic rates of return for the rubber sites range from 18% to 1301. ERRs for palm oil sites range from 501 to 97% (see Annex 4, Table 1). The overall project ERR is 61%. If general sector support costs are included, the project ERR is 57%. These returns all exceed the estimated economic opportunity cost of capital of 102 for Indonesia (see Annex 4, Tables 2 to 5 for the calculation of ERRs for representative rubber and palm oil factories). Analysis of all sites are in the Working Papers. For palm oil factories, financial returns are lower than economic returns due to two factors. First, the estimated taxation on CPO output reduces the PTP profit margin, which in turn reduces the FRR without affecting the ERR. Second, the lack of alternative processing facilities means that all net benefits from the palm oil factories are incremental to the economy, resulting in a relatively high ERR. For rubber factories, the opposite situation holds. There are no output taxes on rubber which would reduce the FRRs vis-a-vis the ERRs, and the availability of alternative processing facilities means that not all net benefits from the factory are incremental to the economy, tending to depress ERRs relative to FURs. 6.9 Sensitivity Analysis. Sensitivity analyses were carried out for both rubber and palm oii factories, testing for the effects of various adverse assumptions both on "average" sites and on those sites with the lowest ERRs (see Tables 6.1 and 6.2). For both rubber and palm oil factories, even the lowest case sites can sustain a 252 increase in investment or factory operat- ing costs without the EnR falling below the 101 opportunity cost of capital in Indonesia. They can also easily sustain a 25Z drop in price or yield4 or a one-year increase in construction time. - 36 - Table 6.1: SENSITIVITY ANALYSIS - RUBBER SITES Assumptions Low Case ERR (X) Average case ERR (X) Labuhan Batu Ketahun Base case 18 28 25% increase in investment costs 13 22 25% increase in factory operating costs 15 25 25% decrease in price 15 25 25t decrease in yields 12 21 1 year increase in construction time 17 26 Switchins values at 101 OCC Low Case Average Case (Rp Bn Constant 1987) SAR Switching Percent- SAR Switching Percent- value value age Change value value age Change ---- Rp Bn ----- ---- Rp Bn --- Investment costs 3.2 4.7 48X 2.6 5.6 1172 Operating costs 2.3 3.8 67X 1.7 4.7 1731 Table 6.2: SENSITIVITY ANALYSIS - OIL PALM SITES Assumptions Low case ERR (Z) Average case ERR (Z) Kalianta Sei Bahar Base case 50 69 25X increase in investment costs 43 59 25% increase in factory operating costs 49 68 25% decrease in price or yields 39 50 1 year increase in construction time 46 60 Switching values at 101 OCC Low Case Average Case (Tp Bn Constant 1987) SAR Switching Percent- SAR Switching Percent- value value age Change value value age Change --- Rp Bn ----- ---- Rp Bn - Investment costs 15.9 91.8 477 38.7 254.2 /a Operating costs 1.9 77.8 /a 5.8 221.9 7a Total costs 31.7 107.6 240 88.5 304.0 24 Prices or yields/benefits 100.7 31.7 -69 304.0 88.5 -71 /a Over 500Z. - 37 - Social and Environmental Impact 6.10 Poverty Orientation of the Project. The direct beneficiaries of the project are 12 Government-owned estate companies (PTPs) and about 60,000 smallholder families participating in nucleus estate and smallholder projects. These smallholders are in the target poverty group and were promised processing facilities at the time the trees were planted. Failure to provide them now would result in personal hardship as well as wasting the resources already spent bringing the trees to maturity. 6.11 The Role of Women. This project has no component directed specifi- cally at women. However, the project provides factories for NES/PIR pro3ects, where the family is the primary economic unit in smallholder areas, and all family members are expected to benefit from the higher incomes attributable to the factories provided by the project. As in existing rubber and CPO facto- ries a substantial percentage of project factory employees would be women. 6*12 Environmental Impact. Processing of oil palm can have a substantial adverse impact if untreated liquid effluents are discharged into the environ- ment. Through this project, GOI seeks to demonstrate that effective effluent treatment technologies can be designed, operated, and maintained in the tree crop processing subsector. A fully integrated program of development has been initiated which will ensure the design and construction of effective pollution control facilities, the training of operators to monitor, maintain and control these facilities, and the strengthening of the pollution monitoring capabi- lities of provincial units in North Sumatra and West Kalimantan provinces. With these provisions and with an effective follow-up to the survey of pollu- tion control facilities in existing PTP factories, water quality in the tree crop processing areas of Indonesia can be significantly improved. Project Risks 6.13 Technical. Project factories would use well established technology and no design problems are expected. The primary technical risk is possible inefficiencies due to insufficiently trained management and staff, parti- cularly given the shortage of skilled management and staff in existing PTP factories. This has been taken into account in designing the project's training and technical assistance components. 6.14 Financial. Many Bank-financed tree crop projects have experienced implementation delays due to problems in releasing funds from Government and/or participating state commercial banks. Particular attention has been paid to minimizing this risk in this project by keeping fund flows as simple as possible and Government financing at a minimum. Financing documents have been agreed between OI and the Bank. Submission of the relevant final signed financing documents would be a condition of loan disbursement for each project factory. 6.15 Environmental. Given the poor record of effluent control in exist- ing PTP factories, there is a risk that the effluent control systems of project factories, however well designed, would be poorly maintained and operated. The project would seek to lower this risk by the provision of tech- - 38 - nical assistance and training at the PTP level, and the strengthening of the pollution monitoring capabilities in two provinces, Worth Sumatra and West Kalimantan, as the first phase of a longer term overall Bank strategy of assisting GOI to establish effective pollution monitoring and control institu- tions at the provincial level. Summary of Project Benefits 6.16 Quantified. At full production incremental production from project factories would be about 70,000 tons of rubber, 340,000 tons of crude palm oil and 70,000 tons of palm kernel per year with an FOB value of US$175 million. Improvements in factory operating efficiency built into the design of these factories and the project's technical assistance and training components are estimated to increase PTP and smallholder incomes up to 15X-25X over the average in existing factories. The FRRs for project factories range from 17% to over 100% and the project ERR is 61%. 6.17 Non-Quantified. All project factories would process the raw material of trees already in the ground, including, in all cases, smallholder areas. As such; the project would fulfill a commitment made to the small- holders at the start of the NES/PIR projects that the PTPs would construct adequate processing facilities. Failure to provide these factories on time could result in human and social problems as well as wasts the large invest- ments in planting already made. 6.18 Direct non-quantified benefits would accrue in the short term from effective pollution control in factories included in the project; and in the long term from the subsequent pollution control investments generated by the study of existing non-project PTP factories, and from the strengthening of institutional capacity for monitoring effluent discharge in the tree crop and other industrial sectors. Users of water resources in the provinces would benefit from the reduced pollution loads which would result from the project. 6.19 Through the project's technical assistance component, improvements would also be made in the monitoring and evaluation capability of Tim Khusus, and tree crop processing technology. 6.20 Cost Recovery. Ninety-three percent of the total project costs will be subject to cost recovery through the project credit mechanisms. The remaining costs are for Government's institutional strengthening and are not appropriate for cost recovery. VIIl AGREEMENTS REACHED AND RECOMMENDATION 7.1 At negotiations, the following items were reviewed and agreed: (a) draft financing documents, including Financing Agreements, Subsidiary Loan Agreements, and Credit Agreements (para. 4.19). (b) detailed formulas to be used by the PTPs for determining the price paid for smallholder rubber and oil palm products (para. 6.5). - 39 - Assurances 7.2 At negotiations, the following assurances were obtained: (a) Government would prepare by June 30, 1989 for each project PTP an action plan satisfactory to the Bank to improve financial and other aspects of such PTP (para. 4.7). (b) Government would submit by December 31, 1990 an action plan satisfactory to the Bank to bring all existing PTP factories into compliance with GOI effluent control regulations (para. 3.22). (c) Audited PTP corporate accounts, including a separate project expenditure schedule, and audited accounts for tie project support component, including SOE audits, would be submitted to the Bank no later than nine months after the close of the relevant fiscal year (paras. 5.11 and 5.13). (d) Government would select and train, for each project PTP, the relevant factory senior staff and would appoint such persons at least six months prior to the estimated commissioning date of the relevant factory (para. 3.14). Conditions of Loan Disbursement 7.3 The following are conditions of loan disbursement: (a) For each PTP: Consultant(s) for PTP headquarters technical assis- tance and supervision of factory construction in post (paras 3.7 and 3.18). (b) For each site: Submission of the following signed financing documents: the Subsidiary Loan Agreement between DOF and the relevant SCB; the Credit Agreement between the SCB and the relevant PTP; and the Financing Agreement for equity (if applicable) between DOF and the PTP (para. 4.19). (c) For each of the five PTPs constructing the six palm oil factories: Submission and commencement of implementation of a preliminary action plan satisfactory to the Bwak to improve financial, managerial and technical aspects of such PTP (para. 5.2). Recommendation 7.4 With the above assurances and conditions, the project would be suitable for a Bank loan of US$118.2 million for a term of 20 years, including a 5 year grace period, at the standard variable interest rate. The Borrower would be the Republic of Indonesia. 10-Oct-s8 'suwostji IIDGISIA 10-Oct-88 16:49 TREE CROP PROCRSSIIG PROJECT SUIKARY COST AID FIWAICING TAILK IBED PiP SCB GOI GOVOF JAPM Factory Component $USS I Rp B t I ap - Ip- IRpE B USS-H I--p-B Factories/Equipment/Civil Works 15.5 25.8 70 10.9 18.1 10 2.5 20 5.2 Housing 3.2 5.2 70 2.2 3.6 10 0.5 21 1.1 Vehicles 0.7 1.1 30 0.2 0.3 23 0.3 47 0.5 Design Consultancy 0.5 0 8 10 0 2 8 0 00 0.0 Training 1.4 2.3 100 01.4 2.83 00 00.0 0 0.0 Initial Working Capital 3.6 6.0 0 0.0 0.0 33 2.0 67 4.0 Technlical Assistance 3.2 5.3 100 3.2 5.3 0 0.0 0 0.0 .4 SUBTOTAL 28.0 46.6 65 18.3 30.4 11 5.3 23 10.5 Palm Oil Factories/Equipment/Civil Works 82.3 136 7 70 57.6 95.7 10 13.4 20 27.6 Rousing 16.2 26.9 70 11.3 18.8 10 2.7 21 5.5 Vehicles 20.3 33.6 30 6.0 9.9 23 7.8 47 15.9 Design Consultancy 2.8 4.7 100 2.8 4.7 0 0.0 0 0.0 Training 8.3 13.9 100 8.3 13.8 0 0.0 0 0.0 Initial Working Capital 6.0 9.9 0 0.0 0.0 33 3.2 67 6.7 Technical Assistance 4.7 7.8 100 4.7 7.1 0 0.0 0 0.0 SUBTOTAL 140.6 233.4 65 90.7 150.6 12 27.1 24 55.8 Subtotal Factory Component 168.7 280.0 65 109.0 181.0 12 32.4 24 66.7 Support Component Technical Studies 1.8 3.0 93 1.7 2.8 6.7 0.2 0.0 Policy Studies 0.9 1.5 100 0.9 1.5 Environmental Protection 2.2 3.6 100 2.2 3.6 DGE and Related Training 1.2 2.0 100 1.2 2.0 Monitoring & Evaluation 2.7 4.4 10 0.3 0.5 21.9 1.0 67.7 1.8 3.0 Start-up Funds 3.0 5.0 100 3.0 5.0 Subtotal Support Component 11.7 19.4 79 9.2 15.3 0 0.0 0.0 0.0 6.0 1.2 15.4 1.8 3.0 Total Ptoject Costs 180.4 299.4 66 118.2 196.3 11 32.4 22 66.7 0.4 1.2 1.0 1.8 3.0 =3:= =3===3 ==2:= 3= ==3= 3 =3= 333 VAT 13.9 23.1 0 0.0 0.0 32 7.5 67 15.4 1 0.2 0 0 0 Total Project Costs Less Taxes and Reserved Procurement 166.5 276.3 71 118.2 196.3 9 24.9 19 51.3 0 1.0 1 1.8 3.0 33333 33 33=3= U333= 3=:== 3=333 33333 Interest During Construction 58.6 97.3 0 0.0 0.0 0 0.0 100 97.3 0 0.0 0 0.0 0.0 Total Financing Required 239.0 396.7 49 118.2 196.3 8 32.4 41 163.9 0.3 1.2 1 1.8 3.0 Total Financing Required Less Taxes and Reserved Procurement 225.1 373.6 53 118.2 196.3 7 24.9 40 148.5 0 1.0 1 1.8 3.0 3==c33 3333 3= =::=: 33333 :::5: 333 33a tatE CM P IouSStaG 9104152 Swomm.y A..0mosts by Tone totals Iftcloodig CoIngo 011 00s total$ I ciudiee csnliugoo los INPAIMltotal loss I000m 88/89 89/90 90/91 91/9~~2 912/93 Total "tag0 89/90 90/91 93/9 92/93 totl* .............SSSS S... n.. SSSI**St=S1353S SSft nSSSt... .t.s .ls. aaa A CALDif CQIONMENt I. RUBBER FACTORIES $AC2O9Y (Q'IIPILRI AND CIVIL SIORKS 1. SO.8 4.641.0 4.942.1 14,5689.1 26.a03.0 934.2 2.195.8 2.977.2 &.836.0 - 15,544.0 IiIIUSIIO 313.9 9"S.0 997. 1 2.916.0 - 6.2*8.0 IS9.$ 572.9 600.7 1.792.? - . 3. I55. 4 VEC11CU,S 222.2 226.3 164.9 63.4 - I 318.8 1:5.8 135.7 99.3 323.? 674. 6 OE51GM CONSU IAIICT 19.4 172.9 352. 1 286.8 69. 5 760,7 53.9 M0. I St. 1t2.8a 36.8 468.2 T RAIN IN M 06.2 322. 1 t1,102. 1 - 2.330.4 1 84.S :94.0 1. 025.4 - 1,403.9 IIORIING CAPEIAL 466.8 982.0 1,6S56.8 2,976.2 S. 981. 8 281.2 59 1.8 937.a t. 792. 9 3.603. 5 IECIIEICAL ASSIS1AHCE 263.:1 673.6 837.4 2,033.8 1.14.0 S.319.8 157. 3 405.8 504.4 1.225.2 912.0 3.204.? Sub-tolal RUGSSA $ACIORI[S 0240.4 7. 436.8 8.397.8 23.762.@0 4,549.8 4.5653. 6 1.450. 2 4,480.0 5.068.9 14. 314. 4 2.740.? 28.044,23 2. paLM OIL MItLLs I ACtOR? LOUIPILENI AND CIVIL NORMS 42. 753.0 43. 123.5 22,222.1 21.606. Il -36.614. I 25.75,4.8 26. 020.2 13,387.3 17.112. 8 - 82. 335.0 hiOUSING 9,543.3 5,236.8 1.433.4 9,671,6 - 216. 64, * 5.749,0 3,1M4.1 2, 068.3 S. IS3.8 IS I. I5. 2 VEHICLES 2.925.4 4,016.0 8.S27, 9 12.814, 1 S.33& 8 33.622. I l. 162.32 2.4SS. 3 S. 137.3 7,7I19. 3 3,216.1 20,2S4.3 OLSIGN CONSULtAMCY 2.244.? 437.4 705.8 663.9 241.8 4,5923. 6 1.352.2 504. 425.2 400.0 146.1 2,827.5 TRAINING 7. t14.9 23.M$181. 1,US..4 t. 772. I 13.8. JIS 4.A34L,3 .1.916. ? 1.012.9 ..071,8 A. 347. ? kGRAIXG CAPItAL - *4. 46. I1. ,868.2 3,569.3 2.905. 6 - 2.691. 6 1. 125. 4 2. ISO. 2 S.97. 2 TECRNICAt ASSISIANGE 1.5$68, S ,81. 2 1,953.9 1,452.7 908.4 7,767.86 943.7 1,3386.2 1, 171.0 875.1 547.2 4,579.3 Sub-total SPAIN OIL HILLS 66,247.8S 55. 1681.9 44,493.5 SS.658, 5 11.837, 4 233. 4041.I 39,908.3 33,224.3 26,803.3 33,529.2 7. 131, 0 140.8061. S#*-Total CREDIT CONPOIENT S865, 260. 2,8991.'3 7'9'.4'20,6 :1.6387.0' 279,99.741,356. 3?."714,3' 3"1,8652.2 47,8'943.7 9.81.? 8865 0.S 8 SUPOPORt COIMPONENT1 4- I. IECGNICA1. S UDIES toulpRtNl I, 624,8 . 1, 624. 6 978.86- 978. 6 STUDIES - 89.0 395.2 370.2 10.0 10,5S 1,374,92 354.8 238.1 223.0 6.0 6.4 628.32 S.b-lolal ILcIIN1CAL SIUCIES 2.213, 6 39. 2 370. 2 10, 0 10.5 2,999.5 1,333. 5 2381.1 223.0 6,0 6.4 1,0.9IO 7 PO0iIC? SIUOILS 1 .462. 1 3, 462. 1 880.8 a - 88.8I 3. rNviROKMENIAt PROTECTION 1,686,6 1, 14S,5 794.7 3625.8 1.016,0 520. 1 478.7 - 2, .34.8 4. DGI AND REtAItO IIIAINIIIG St.3I 453.6 63.7 645,1 271.5 3, 967.1 34. 9 273.2 383.0 328.4 163.6 1, 179,0 S. MONtIIIAING AND EVAI,UAIIOK 724,2 229.0 1. 31L,8 793.0 430. 1 4,393. 1 436.2 439.2 793.2 4717. 600.1 2.646. 4 6. SIARI-UP FUNDS Pi1OJELCt PREPARAT ION FUNDSS 664. 0 884. 0 684.0 564.0 664.0 3, 320.0 400.0 400.0 400.0 400.0 400.0 2,000.0 UMRCOODGIIO Of AOVANIGED IEICIIOOGF 830.0 830.0 160. GV.0 SO50.0 500.0 l; 00.00 Sub-loWa START-UP FUNDS 864, 64,0 664.0 1, 4114,0 1, 494. 0 4,988. 0 400.0 400.0 400. 0 900.0 900,.0 3,000. 0 Sub-lotal SZJPPORt COMPOEll' 6.80:,?7 3.387, 2 3,781.4 2,8$42. 1 2, 606. 2 19. 4;8,5 4.097,4 2,049.5 2,278. 0 1. 712. 3 1,0.ST.0 1 1,697.92 totail INVESFMREN COSIS 754696,9. 6 7. 2221 18,932 937. 4'5,4'5'5.99, 5. 4 4. 4955. 1144.7? 180,3'"48. Total PHojICI COSTS 75,451.9 65,992.9 66.672, 7 62,262. 6 18,993.2 299,378.3 45,465,9 39.754,8 34.1:40.2 49,555.8 11,441. 7 t0. 348, 4 August S. I9S8 16:29 AM - 42- T2. 26Ai-88 * CE QP flESIG FRT PIP E= pMm u= a PIP % Eqit-y fra PIP I 0.0 m 17.5 IV 0.0 V 17.5 VI 17.5 *viI 35.0 1X 0.0 A 0Ar xIII 35.0- XVI 17.5 IOCIf 35.0 xXV 17.5 31-hu,-88 tll0WBIA ug CoP Pmowsz P105 (I 8p billion) _U ooum S8M PtL OIL SIT3 MrI_s _ 18D ISOl Llneaclog 65 * . .-. . . FTP ut. iCi~~~~~~~g cost/a % I BPi I litps R i I L tII Labu t an tu, 1. S :tta Bo 19.1 17.S 3.3 1. 5 .3 11.8 3.4 47.2 9.0 IV 8.t Bakur, Jambi g31I 45.2 0.0 0.0 35. 15.3 35.4 16.0 29.7 13.4 IV aps u , Rau 8R11 4 .0 0.0 0.0 34. 4 . 35.4 4.9 29 7 4.2 V Set Intan, aul 88l1 29.2 7. 5. 17.5 5.2 17.6 5.3 47.2 14.9 VI Kallanta, Riau 8RI1 18.0 17.5 3.2 17.5 3.2 17.8 3.2 47.2 8.5 VIt Paxhii, Y. saiuta n1t 27.5 35.0 9.6 0.0 0.0 0.3 0.1 64.7 11.8 Vil Igang, W. Kallutn sell 10.1 3s.0 3.S 0.0 0.0 0.3 0.0 64.7 6.5 It Cot Gitek, hceh 8D 20.1 0.0 0.0 35.0 7.0 35.4 7.1 29.7 6.0 X Nuar.q ga.l, S. Sumtra. 30.s 0.0 0.0 35.0 10.7 35.4 10.8 29.7 9.0 X Prabi_mith, 8. Sumatra B33 19.4 0.0 0.0 35.0 6.8 35.4 6.9 29.7 5.0 Subtotal-Palo 233.6 10.6 24.9 24.4 56.9 24.7 51.7 40.3 94.1 WUilt DEBT S3 81i38 ... ...... _. _._.... ..___ ---- -- - - ------ ------- PI MBD SC 13 PI site oft cost I lipS ?.3 5 I AiS IIPi% I 7 i.pSa IAl7 e le ran, AceS Fe0 6.5 0.0 0.0 5s 2.3 35.4 2.3 29.7 1.9 III Labohan latO, I. SUmtta noD S.S 17.5 1.0 17.5 1.0 17.8 1.0 47.2 2.6 IV kit Nolek, Rlau 8BD 2.9 0.0 0.0 35.0 1.0 3S.4 1.0 2.7 0.9 IV Da.obsag, Jaubel B8D 0.7 0.0 0.0 35.0 0.2 35.4 0.2 29.7 0.2 VI huab bonang .Jamkl BStI 6.4 17.5 1.1 17.5 1.1 17.8 1.1 417.2 3.0 v Duram Lunoue, Juzrhl nI1 5.1 17.5 0.9 17.5 0.9 17.8 0.9 47.2 2.4 111 Sinbang, V. Kalimatam BEII 1.2 35.0 0.4 0.0 0.0 0.3 0.0 64.7 0.6 MIl Dean Salak, S. Kallmantan EED 8.1 17.5 1.4 17.5 l.f 17.8 1.4 47.2 3.8 XXIII letahun, SenqknlO all 5.5 35.0 1.9 0.0 0,0 Q.J 0.0 64.? 3.6 XVI TanJunnsantart, S. Kal.mntan B811 4.5 17.5 0.8 17.5 0.8 17.8 0.8 47.2 2.1 Subtotal-Eubber 46.4 16.2 ?,5 18.8 8.7 19.1 8.9 45.9 21.3 TOTAL OIL PALM AND RUMDDI 280.0 11.6 32.4 23.4 65.6 23.: 66.6 41.2 115.4 Total 8quityu Ap. 98.0 billion or US8 59.0 eillion) Iotal Oebte Rp.182.0 billion or US0 109.6 million) /a Excludinq interest durinq construction; exebnqae tate used: Rp 1660/US$ AM 1 -44- Table = CROP ; - * OARY* FDG PLNM RR aErr c Sta /a (I Rp billion) pip oil palm rubber total I 0.0 0.0 0.0 III 3.3 1.0 4.3 1.5 IV 0.0 0.0 0.0 V 5.2 5.2 VI 3.2 2.0 5.2 .1.8. *VII 13 2 2.13.2 4.7 IX 0.0 '0.0 0.0 X 0.0 0.0 '0.0 XiII . 0.4 0.4 0.2 IIn 1.4 1.4 0.5 mOCi 1.9 1.9. 0.7 XKYII . 0.8 0.8 0.3 &ibtotal 24.9 7,5 32.4 12 .ELI 29.6 2.9 32.5 12 BUD 28.2 6.0 34.2 12 Subtotal 573 8.9 66.6 '24 IBEM 151.0 30.0 181.0 65 Ibtal Credit CO9cnet 233.6 46.4 280.0 100 /a Ewluding interest during construction. 10-Oct-0J W CWOP PBOCCEE PRJCS PROOSMED AJXLCAYION OF LOAN PROCEK DS Costs ( W8 $hllion) Tta bl Foreign 1EBD PSP SCt G0I GOV OF P0831 I8aD1 * IP m scD GOI * JAPAN t Credit Component JAPAm Rubber Factories/qulpment/Civil Yorks 14.4 9.3 10.0 1.4 2.9 65 70 10 20 Housing 2.9 0.7 2.0 0.3 0.6 25 70 10 21 Vehicles 0.7 0.5 0.2 0.2 4.3 80 30 23 47 Design Coasultancy 0.4 0.0 0.4 0.0 0.0 0 100 0 0 Training A~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~* 1.3 0.1 1.3 0.0 0.0 10 100 a Triniilng ki CaItal 3.3 0.3 0.0 1.1 2.2 10 0 33 61 Technical Assistance 2.9 2.6 2.9 0.0 0.0 90 100 0 0 Subtotal 25.8 13.7 16.8 2.9 6.0 53 65 11 23 Palm Oil FactoxieskEquipment/Civil Works 76.1 49.5 52.9 7.5 35.4 65 70 10 20 Housing 15.0 3.7 10.4 1.5 3.1 25 70 10 21 Vehicle's 1s.0 12.8 6.0 3.7 7.6 60 30 23 47 Design Consultancy 2.6 0.0 2.5 0.0 0.0 0a Lo 0 0 training 7.6 0.8 7.5 0.0 0.0 10 100 0 0 Inltial Working Capital 5.4 0.5 0.0 1.8 3.6 10 0 33 67 Technical Assistance 4.2 3.8 4.2 0.0 0.0 90 100 0 0 Subtotal 126.8 71.1 83.6 14.4 29.7 56 65 12 24 U' Subtotal Credit Component 152.6 84.8 100.4 17.4 35.7 56 65 12 24 Non-Credit Component Technical Studies 1.7 0.9 1.5 0.1 53 93 7 Policy Studies 0.8 0.7 0.8 0.0 90 100 0 Environwental Protection 2.1 1.3 1.8 0.0 62 100 0 DGE and Related Training 1.1 0.9 1.0 0.0 80 100 Monitorinq & Evaluation 2.4 1.7 0.2 0.5 1.6 71 10 22 68 Start-up Funds 2.8 2.3 2.7 0.0 80 100 0 Subtotal Non-Credit Component 10.9 t.8 8.0 0.0 0.0 0.6 1.6 71 73 0 0 6 1S Unallocated 16.8 9.0 9.8 2.2 4.4 0.1 0.2 53 66 11 22 0 1 Total Psoject Costs 180.4 101.5 118.2 19.5 40.2 0.7 1.8 56 66 11 22 0.4 1 laterest Duri*q Construction 58.6 18.6 58.6 Total Finahcing Required 239.0 120.1 118.2 19.5 98.8 0.7 1.8 50 49 8 41 0.3 1 I!!E -46 ANNEX 1 INDONESIA TREE CROP PROCESSING PROJECT Estimated Schedule of IBRD Disbursements /a Cumulative Disbursement profile (X) IBRD fiscal disbursements Indonesia industrial and year and semester US million development finance /b FY89 First 1.0 I Second 12.0 10 1 FY90 First 26.0 22 Second 42.0 35 24 FY91 First 54.0 46 Second 66.0 56 56 FY92 First 78.0 66 Second 93.0 79 83 FY93 First 103.0 87 Second 113.0 96 96 FY94 First 117.0 99 Second 118.2 100 100 /a Closing date is September 30, 1993. /b Whilst disbursements as a whole are expected to cover the six year norm for industrial and development finance projects in Indonesia, the advanced state of procurement of the first group of six palm oil factories (ref. para. 5.2) means that disbursements in the first two years will be higher than indicated by the standard profile. ANW 1 - 47- Table 8 26-Aug-88 ln,caSIA ¶IBE CROP P1R0CSSIIm PIR]Er CALCEATIa OF SCB SPREADS % of cap X of liicase /a rate % talizatn debt % S( cost of funds 10.0 0.0 0.0 0.0 MOD fuMs 10.0 65.0 100.0 10.0 CODst of blended finds 10.0 Subtract fran PIP interest rate 16.0 Equals S(Z spread 6.0 Less overhead 1.0 Less risk 0.5 Eqals profit murgin 4.5 g of cap- Of Average case /b rate % talizatn debt % SCB cost of funs 12.0 17.5 26.9 3.2 3B funds 10.0 47.5 73.1 7.3 ODst of blended funds 10.5 Stbtract from PIP interest rate 16.0 Equals SCB spread 5.5 Less oerhead 1.0 Less risk 0.5 Equals profit nargin 4.0 % of cep- Z of L case /c rate % talize.. debt 2 SCB cost of funds 14.0 35.0 53.8 7.5 IBD funds 10.0 30.0 46.2 4.6 ost of blended fmds 12.2 Subtract fram PIP interest rate 16.0 Equls SC spread 3.8 Less werbead 1.0 Less risk 0.5 Equals profit mrgizn 2.3 13bte: Total capitalian is 652 debt snd 35% eqty. Thus a "1652 share" of total capializatin is equivalent to lOlU of the debt capital. ffle E ar BRD shares for each factory site are shown in nnex 1, Table 4. /a High case: Assun IBRD provides al debt financing at 10l and/or SCB cost of fiuds is 1U%. lb Average Case: Assras S}:fBlRD ratio for debt financing is 17.5,47.5 and SCB cost of funds is 122. /c L1 Case: Assues SC.:IBRD ratio for debt finaning is 17.5:47.5 and SCB cost of funds is 142. - 48 - ANNEX 1 Table 9 INDONESIA TREE CROP PROCESSING PROJECT SUMMARY OF TECHNICAL ASSISTANCE TO PTPs (Commissioning Is Assumed to be on Januiy 1 st) PIP . LOCATION ~ oE O DA- OFCOMMI)NNG (y) MAN4 c., PTP LOCATION FACTORY CO-- (COST) _ _ 66:69 8699 9wo,et 91 92 9293 RP MIUONS I Alue le MaJh/Aceh 35 R 3 1 NC R - 55) NC R 5 0 _ LOW= sawk Unatra NC CPO (12150) Sinah S/JoMb NC CPO Sob"/Jmbi NC CPO 05 SagaBoo Swrmvpoh EXP CFO Air MoWI/R I EXP R | seiV ntomRaNC 45 _ § _ DtP~~~~~~~~E CPO 0 (093,5 N o Jo } E R I Rimbo8sjarIW i J NC R 70 Durion lunc*/Jarni NC R Katiarta410ot Kult /Rku NC CPO NgabanW. KoafflM EP CPO P . Kmantan CPO IX Cat Gtekl$ceIc~EX CF umuCotG umatrk NC CPO 3 . _290. 9 XtflA1S.S#ct } NC CPO I ... -_ (250) NC R XXIt KeOunlsgcl NC R 20 (4I?0) XMM Tdu SantE Kalmarn NC R | 20 (480) No. d CaitarfforRueRb1 1 4 1_3 1 S 8 (A9) NaotCoajaru"stfw IIl CO |6 | 7 5 3 20 WM) NoC d Corntaft Tot@| 7 11 10 11 8 4a 5(1129) CPO = CnldPmOn co *amn* R = Rui2w I Man Year - 243 Rphl NC = towC4nction NaftOr4oneekQ upwaWnpalmOrweu nePPIP aen , regXdIJtdSutdOw eoddfti - 40349 11Rtti-tROP PtSOttSSt#C PRtlJtCl SUPPQRt CONPON31 *OtNtiR Mlailod C#It Ia Tbo Breakdown of totals $#W. I * 6336W I000 8S . Costs totals Incltuding Contingecios Iocal S/;an aS9o gon0I 9 91/92 92,9 Total 88/89 3un90,093 91/2 922/93 bol for. Each. tape$) lsos. 1. INVEiSTENI cOSts 4. tINVIRONIIAlX tCONPONINT ....................... S. SIRENCGtIi8N3C Of POttUtlION 8I03t1OR13C IN 11(O PROVINCES ....................................................... OVERSEAS CONSiUIIANTS 498.0 498.0 498.0 - 1.494;0 522.2 53S.9 S58.3 *- - 1.bt9.3 873.6 0tO 9 IOCt COXSULtAtXS 99.6 99.6 9.6 298A. 107.2 112. 118.S6 - 33.4 - 203. tStORAIOi COSTS 298.6 99. 6 99 6 493.0 320.? 112.0 117. - 50.5 32.0 299 7 Sub-total SIRENCtI3ZN1NG Of POttUtION #DNltORIlG l# 1110 PROVINCES 898.4 697.2 CS7.2 2.290.8 950.0 763.5 794.2 - 2.SO&.2 900.5 605.4 2. RfVIEY Of tXISIING FACILITIES .............................. OVERSEAS CONSWlIAKiS 498.0 249.0 - - 7-47.0 02.2 269.0 - - - 1. 6 427.6 49 2 tt.li CONSULtANIS 19S.2 99.6 * 298.8 214.4 112.6 - 3269 S 197.0 Sub-total RNEVII Of 0 .AIStNlC FACILITIES 697.2 348. 6 1.045. 736.5 382. 0 t-. 118.6 427.j 246.2 !ub total INY3ROrIENTAI COlIPONENT 3,I93.8 1.04.'S 697.2 * 3.336.6 I.S86.6 1. 145.5 794.7 3.626 8 1.333.2 8S0.6 B. 0Out AND KCLLALD lRAttl#C IIASItRS DECPEC TItNIlNG 224.1 373.0 29S.8 149.4 1.045.S - 242.5 438.7 348.6 18t. 7 1.,191.0 41.0 765 s UVRESLAS StttN1-tERN IRAI4tl#CG 14S.3 145. 3 127. 8 34. 9 4S3.2 t57.2 16t.8 149.1 42.4 5* I1. 27S. 3 32.8 lOCAL SHORT-ti)fl lRAlttl#C 39.8 39.8 37.6 37.8 35.9 191.2 42.8 44.8 44.8 41.3 47.4 227.1 12.9 14. 0 IUCAL tNCGLIS COURSES lO0 OVERSEAS 3RAIXllC 8.0 a 0 8.0 - - 23.9 L86 9.0 9.4 - - 26. 9 1. 6 14. 7 Sub Total DCO AXD REtAltD TRAtNIXG 47.8 417.2 564.6 464.5 210.I 1.714. t St.3 453.S 635.? 54S:1 271.5 1. 9S.1 930.8 24'8.2 C. IONItIORINC AND EVAtUATION .......................... CODtPUltRS '9.9 - * 3.9 20.8 . 2.8 Is. 3 S RIAIERIAt.S 8. 3 8.3 8.2 8.3 8.3 41.i0 S 90.7S 10.0 10.0S II.0 I1.0 0 2. 7 I0.4 13.? LOCAt StAll 159.4 159.3 4 15.4 309.4 15.4 795.8 11. 15 80I ° 189.8 200.9 213.0 905.3 0575.0 tt S C CONSUtIANI 249.0 24S.0 249.0 - 747.0 261. t 269.S 279. I - 809.7 436. 8 51. 0 IRA1ttItG ADVISOR 249.0 249.0 249.0 - 747.0 263. 1 2G9.5 279. 1 * 09.7 436.8 t. 0 RUB88R PROCESSING AoVtSOR* - 249.0 249.0 249.0 747.0 - 279. 290.5 302.8 872.5 46*.8 8 S.8 Oft PALK PROCESSINC ADVISOR 249.0 249.0 249.0 747.0 - 279.1 290.0 302.8 872.5 4G6.8 56.8 Sub-total ONIIORING AND tvAtUAtION 85.S 660.17 1. 63.; 660.? 660.7 3,846.2 724.2 729.0 i. 336.8 793.0 830.3 4.393. ; 1;8;.;8 804.2 4 0. SAR11-UP fUNDS 9330,ICT PtEtPRAR10t * 664.0 664.0 664.0 664.0 664.0 3,320.0 664.0 684.0 . S64.0 664.0 664.0 3. 320.0 1.500.0 400.0 PILOT INtRODUClION Of NEWX tELINOLO StO 820.0 830. 0 t. 660S 0 830.0 830. 0 t .60. 6 900.0 300.0 Sub-tota I START-UP FUNDS 664.0 864.0 664.0 1.494.0 1.494.0 4.980. 0 664.0 664.0 684.0. 1,494.0 1. 494. 0 4.980. 0 2. 000. 0 W00.0 totl INVStIlIENt COSIS . 2.993.90 2.t92.6 3.089.4 2. 624. 2,379.8 13,9876.9 3.28. t 2.992.0 3.411.2.2 .32.t 2.595.6 14.9- 7.0 6.SO. --.- I4. t 4 SaSSaSS|t Saisats 8,85S *458355 tZSS$sa **S**aSS ******* StatiSi **5**55s' s5*s. aaa.ss sa. M..0 sssss.s s. .s...4. s...4 Tota: 2l991.0 29 92.8 3.089.4 2,624.1 2.3n98 12.876.9 3. 32.t 2.992.0 3.411.2 2.832.1 2.595.8 14.957.0 6.601.7 2,404.1 4 as*sast# a.... *5.Ssa ass 6...* v s.... G *t5 san Xa.."s s$4a.. .. .. 9 a *68.24 ... .... IS. a,.4- ........................................................................................................................................................................................................ Lug"l S. IS88 16: 28 Ico IIOM(USIA taEt CioP ftOCESSING PRoaCi SUPPORT COUPOUTU-StUOICS Ootait.d Cost tsble (RUPIAH MihItOin) 9...adawo of1 letts Meli. Caist EsP.WSdU:.O, by I,n..aeor, cuss 100) WUS$ 0001 Base Costs Totsls IncludItV Coot angoocilsoestoIa OTIIER 88/89 89/30 30/31 31/92 92/93 total $11/8 89/30 90/St 31/32 32/93 Totat for. Each. lease?t axes T.:.t W8 w g 3/3 90/31 21/392 92/33 to t. tMVtSIRETM costs £IECIUIC.At STUOtEs IUSE of EMPTY 8u:icitts * coo EQUIPIStSi so.1il. ' - 581 668616.8 36.2 4.0 40.2 40.2 - sluC: 8.0 8.0; 8.0 A.0; 8.0 32. 8 8.6 9. 0 3.4; 10.0 to. S 47.4 2. 7 2S.9 - 28. 6 8.2 5.4 S. 7 6. 0 6 4 Sab-loWa USE 0f EXPIT BIJMCU(S - CPO 66.I 8. 0 8. 0 8. 0 8.0 7.32 is. 4 3. 0 3.4 tO. 0 to.5 11 4.2 38.39 215.3 4.0 SS.8a 45.4 S. 4. S. 7 6.0 6. 4 2. tittUtNt MOItIORtING - CPO STItOT is.39 IS.3 9 - 33.8 21.4 22.4 43.8 2. S 3.8 26.4 12.3 13.5 Sublgolat EPTItMIu MOMITORIMO CPO t. 19.3 * * 33.8 21.4 22.4 - 43.8 2. 5 23.8 - 26.4 12.9 22.5 3. CtHN*ACIENtSItis 0f CPO StUD? 13.9I 19. 9 - 39.8 21. 4 22.4 *- 43.8a 2.5S 23.8 26.4 12.3 2.5 S Sub-total CTIARIC11RS1ICS Of CPO 13.9 12.3 . 33.8 2,.4 22.4 43.8 2.5 23.8, 25.4 I?.9 13.5 4. RtAM MALRuzAt STUDIES - UBSat SluT to. 10.1 - O10. I 6. - - . 116. 0 6.8a 63. 1 - 69.9 89.3 .U Su.b-total Rlam MAERIAL StUDIES - MSeta :08.; I :08. 1 116. 0 . 116.0 6.B 83. 63.9 63.9 S. 0RC DZ1tgIAIIttAtOJ - RUBBER E*UIPMLNT 26.8 26. 6 30. 5 AS 3. 16. 6 - 1.8 a 184 18.4 STUDY 66.7 - -66.7 I1. 6 -71. 6 4.2 38.9 S 43.1 43.1 Su*-totaI CRC OETFRNTMATlO'I - RTISER 93. 3 - 93.3 :02.2 . t 02.2 20.8a 8.39 l. a 61.5 61.5 S 6. PROCESSING KLMLO110 - 4118568 EOUIPMET :. 32a. 0 - - I328. 0 1. 527.? 2 . .527. 2 828.0 - 2.0 320.0 920.0 STUD? 236.0 298.0 304. 9 - 38.9 317. 6 332. 2760.8 1.OtI. 3 58.3 550.9 . 609.2 131. 3 200.5 2317.3 Sub,-tota PROCcSlltc MEIOIDS RUBBER 1. 624. 0 238.0 304.9 -2. 224.3 1.8944. 8 332.9 360. 8 . 2. 538. 5 886.3 550.3 92.0 D .523. 2 1. 111. 3 200.5 2:7.3 7. EIILUfiM KCIIOITRIMC RIIUtA STUDYT 30.3 7. 6 . 37.8 32.5 8. 5 41.0 2.4 22.3 24.?7 19. 6 S.1I Sujb-total EftutLUMI NONUO*G - RUBBEsR 30. 3 7. 6 .37.8 32. 5 8.5 - 41.0 2. 4 22.3 - 24. 1 :o.6 S. I 'SbTotat TiCIINICAL STUDIES 1. 96t.S 351. 4 3:2.9 8. 0 8.0 2. 641. ? 2.213.6 395.2 370.2 10. 0 10.5S 2. 999. S 960.3 748.8 37. 9 1.806.3 I.313.5 M3.: 223.0 6. 0 6~.4 1. B.1O1ic? SIUIltS RUBMR MAIIRtlUIC ShUBY 697.2 . 697.2 731. 0 . - 731.0 335.2 45.2 440.4 440.4 . . - tIMeC IlanRis Rtiss1NC REteS STUDY 697.2 .- 637.2 731. 0 . 1. 't0 395.2 45.2 440.4 440.4 'l.A-totat POLICY StUOICS I.3. . 394.4 1.462.: . 1.4621. 1 790.4 30. 4 880.8a B80.8 1014? tkWf.MtMTu costs 3. 3S5.9 3S1.4 312.3 8. 0 8.0 4.036. I 3. 6?5. 6 395.2 370. 2 10.0 10.5S 4.461.B6 t. 7S0.6 833.2 97.92 2. 687.?7 2. 214.?2 238.: 7 23.0 6. 0 6.4 ? ;Sfti 55* Slut; 52 .. tiu ittSI Lia: .5 u .2 14 isis: S 46.S"S""4 853,;;;4;ISe ..Oeaise Sang..,.. 11 3584*SsSsass snags., sns., Isass. I'll,a a.11 Tej41,0 ;';SS3 31.4 12.9 8. .040.I .5635237210 1.5.61.6 170.IS.6 832.2 37.32 2.681.? 2.2:4.2 238.1 22J.0 6. 0 6.4 2 *u..LS, sass. sass. svats g.s.a0 sass... nat:X.4 ian sas 3 a sS;: aim,... axsmnista $$a.*s n.s.a.2 S.9..It... is s at. $%. s ... .8: S... A...vsl 5. 1318lb. 35"'~. - 51 - INDONESIA 1 Table 12 TREE CROP PROCESSiNG PROJECT Sumary of Technical Studies Cost (Us$) Crop/Objectives Proposals Duration Proposed location Equipment Study Tota;l Palm Oil Use of empty bunches Use bunches as fertilizer 5 years BPP Medan 40,200 28,600 68,800 Effluent monltoring Checks V.A, alkalinity, pH I year, BPP Medan - 26,400 26,400 3 months Characteristics of Checks osidation, I.V, slip 2 years BPP Medan - 26,400 26,400 palm and kernel oil point Subtotal Palm Oil Processing 40,2G0 81,400 121.600 Rubber Raw material study Survey on collecting practices 3 months BPP Sungel Put1h BPP Bogor BPP Sembawa Batch processing of individual 1 year BPP 8embawa raw materials and mixed raw materials Subtotal Raw Material Study _ 69.900 69.900 DRC determination /a Statistical survey on various 3 months BPP Sungi Putih raw materials DRC BPP Bogor Comparison of various DBC 6 months BPP Bogor determination methods and statistical sampling method Subtotal DRC determination 18,400 43.100 61,500 Processing metbods Semi-industrial trials on all 3 years BP? Sembawa stages of processing, on a small-sLAe processing center Investigation of present indus- 3 months BPP Sungel Putih trial results aP" Medan BPP Sembawa Subtotal Processing Methods 920,000 609.200 1.S 00 Effluent monitoring Check: V.A, alkalinity, pH I year, BPP 4W - 24,700 24,700 3 months Subtotal Rubber Processing 938.400 746,900 1,685.300 Total Cost 978,600 828.300 1.806&900 la ')RC - Dry Rubber Content - 52 - AlllEX I Table 13 INDONESIA TREE CROP PROCESSING PROJsCT Proposed Studies Costs (US$ '000) (Including Name Eecuting agency Timing contingencies) Technical studies /a Tree Crop Research 1988/89 through 1,80t,000 Institutes 1992/93 Von-technical studies Financial studies of PSP DCG (Tim Ihusus) 1987/88 and lb 1988689 factory design standard- isation /c DCE (Tim Ihu su) 1988/89 /b Rubber marketing DCO (Tim Mhuus) 1988/89 440,000 Review of Indonesia's future DCU (Tim Kbusuw) 1989/90 440,000 tree crop processing need. /a Detailed costs are presented in Anne 1, Table 11. /b Financed fro MES VII loan. /c Iacluding standrdisation of tender docuents. - 53 - ANNEx I Appendix Page I INDONESIA TREE cRoP PROCESStSG PROJECT Statements of Expenditure 1. Statements of expenditures (SOS) would be used for Bank loan disbursement against: (a) Expenditures for in-house training incurred by a PTP. (b) Expenditures for purchases less than US$50,000 equivalent related to PTP training and technical assistance and the project support component. Loan Amount IBRD disbursement Item (W million) percentage /a In-house PTP training 6.4 1OOX Miscellaneous expenditures from other categories less than US$30,000 eligible for Bank disbursement 3.0 100l /a Disbursement percentage applied to total expenditures less identifiable taxese. 2. The SOEs submitted by the project for reimbursement from Bank loan would contain the following informationt (a) A description and location of the activity. (b) Total cost of the contract, if applicable. (c) Expenditure during the reporting period. (d) Dates of expenditure. (e) Certificate of performance by the Project Manager. The S0le would also indicate that the detailed supporting records, such as job cost records, labor, machinery and equipment time records, and the basis for allocation of costs would be maintained in a readily available form and cross-referenced to the application. These records would be audited by the - 54 - AN 1 Appendix A Pale 2 auditors acceptable to the Bank during the normal course of the project's annual audit and made available to Bank review missions when required. 3. The PTPs are commercial organizations with proper accounting systems. The PTPs are fully aware of the Bank auditing and bookkeeping requirements and as such can be relied upon for adequate accounting required for the,documentation of the SOEs. Similarly, DGE and other project agencies would be required to maintain accounts and records in sufficient detail to support expenditures. Both the PTPs and Coverment agencies would have their project accounts audited annually, including a separate statement with respect to SO8s, and have them submitted to the Bank within nine months after the close of the Government fiscal year. Supporting records would be made available to the World Sank on request. INDONESIA TEE CROP PROCESSNG PROECT Pf Im_kdkd Sche 196 Me "s6o 1996 1991 1992 199 Ad ion AA Jim ~ ii l Ad icn A -" - -- - -w - - - - - - codCo UV"~ Fod&"s- - Sd Deion s1udV PIP Rnances- - - *uanU Pokdi Mm k- - - -hep M&E Condn OIte CPO Factoes -s Cons RiTu bbar foctodes Wu LT ROOM Re%*Gnh WMI f* - l49W3 MaE -~~~~~~~~~~~~~~~~K Sh*AdMo _*~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I- HOWNESIA TREE CROP PFCSSN ROJECT Rubber FCt vew2 Yaw 3 IReCnit Enginssdn Ccvwsiatwt PRep Site TendWt Awxd Cor*ct Contsoctos IvoazIaton Setec PIP CorsiokwO MoobOItr~ion PF Consaitnt Cowa Woeas 2 klV'2 Ectumentm - m - - R&-nsst Staff - Ap;pobO Staff Inn stctt- - m - - On Sit m m - - *Old SW* -403494 I! 1REE CROP O S P CPO Factoey vem~~~~~ ~ ~ ~ s=2 VO 3wb4 J FIMA U J JAISJOID J1 FM#AMAIJ J A SONO D JFM#AMAOJ JIAISOIND JIF PMA MJ Rdcai - C* Puep StO lendw A*awdCo.Vw= -ah3 PIP CanUitaot Molz PIP C*mWarI Ced%%mft2 .h h .h .hE. Tram~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I1 C cx,nwion.hhhE.hEuEhu**F Ascaul ~~ . .......*..*.*.*.*.e *= - 413495 - 58 - AMt 2 Chart L.A . 5 __ _-__'_-_ _ _ . _ _ _ _ _ _ _ S _ _ _ _,___ } t I~~~- l _ _ _ _ _ _ _ _ _ IR CROP umC IROJC ,.n Vdg* lddPg 1 c on MabgC _Scl lu,mikmShdLu nuV _" * m FV FM4 J A SOI 4 AI A S A A NiJ AMJA+ DAf A A ] 0 0 J f A JJAS 0 D f Nvonsolecatit: ame rkl t 11 g ][0 0 00 &**mwzondi Co&anbW PAp*tFI,WwUs . I I I_j "am sft,g~u*au*Icw Vkaby%kp 11110MOOft 4010 I GoICAAHscolYsmsAprill ki h 31 - 60 - ANNE 2 i Cliart 2 r -Y----- --____a__- b} i. ,, i aEI! 1XT----'~~~~0~~ M 2 I }______ _ , X~~~~~~~~~~ L {. E3~~~~~~~~~ - 61 - ANNEX 2 Chart 3 'li'Si} R ttD~~~~~~~~~~II.0 ji«~~~ Il1-bmw*I iii ,Q,$ * ii 0>§' 3 - -~~o}. - - 2 TREE CMW PIUESSII PRMJET Physica! Planing for the Constructiou/Expansim of Rubber Factwins 2 2 2 2~~~~ Planted area (ha) I Production Estitate (tons drc) I Rubber Factwry rq4rmeets (capacity in turs dricday) T OTAL PTP 2 Project Location I actual I Iqig I 99" 1 IOIItI 92 I E III Almle51YU.4 4ruu *badoh1,8 173O UWIS I18U2O8 493 IV295 12TY157B £208#........TCa 20 .....4C - ..N 2 IM I 4 It IV B No 4 ia/dd ,3 ,4 B B 1,6 I 9 3, 2,7 I.Cm/a - h- E2 - 2h2 2Erpd IV I?t 11 IArW Mu 762 1,A2im9 ,26 742 92 2,OU / V II P1M Ita 2 Larihan Dw k/atoSu I 9,316 9,316 2 112 0 1,9386266 4,0 36,13 2 20......... CoCo-2 1*0 2 2 1PSSI Imoa/b ' 74D1 i m 2 23 2i ,3 i m I 2 V NES tU I Djuan /lak/hsl 6 3 ,4 1 ,2463 2,69103,79 42,715 t.Ce20- ..... Cm - - 2D ..... to 20 I - 2 l PRA1 1Ktbokot ,00 54 2 0 107 203- 201. .....Cm 1 2 2 4 It?~~~~~ I~ SVI P1115 I hrTanjLunu/Katis 2104,041 4,0412 - 385 V 1,864 3,644 1-10......*.. - I*202 2 19111 ES III 2T Oma TSAlk s L2115,79 151,7205 214,431 26,32645 ,393 10,323 12,1695 1s M 20 ..... 0 -.N US. U2 120k : UN0 4 2~~~~~~~~~~~~~~~~~~~~~~Id 2d 10ii CC a XIItI Centers, NCuta kwaComstulu E ,000 5taso ,49Cm - 235Co107 ,0322..i...oi-1 2 - la 11W P118di t 2n facjatan/aistieg of 1 idd t,0 4,00 2n -*mt1 38 876er 1,519e 1,944 1… 1E.....o -I1*02l It dr a I additiod 10 t dryw ~ ~ ~ ~ ~ ~ ~ ~ 21:r 2r *1 21*0 Notes Ttal mow of rabw fatries ad the Tn Crop romsin Projec i No onstrariom lxkm/d adU20tond w13* ons/da Etvamdom 620tossi a ats d4 ______________________ _____________________________________________0__to " lday_ PIhyuicaI Planioq for the CoustructiqofEfauis of Pas, Oil Factr'les 9 r~~~~~~~~~,~~lae ar ea n (IIW " I Prodtiontl EstiaWu fasw, ra. Pals, Bit .ACtY roW,r ILqecity in ton, FRIO~ I Jj I PIP I prejet I Locaties ktua 33 I I9iSiSY "t ' :19999 199 91 n23 :1992m * 3 ClitelfrHOPViCO1e I 'roga, too to 86973 199S199 3199190 I t999/1I199192I19219 - -NC' F I iti PIt LOWa I abia Statmi/ht I 14,971 14,271 156,326 193,997 241,642 VI7,?" 29,51so ............1.30.. c I TV P093 11 I hai BANlJambi 15,530 14M530 37,319 91,1WO 162,7M 212,929 255,90 I 60........... Cm. …3 160 1 3 3 3~~~ ~ ~~~~~~~~~~~~~ 30........... Con -31303 3 IV P1m190 II 3 Sga 9sehb, Rim. 7,979 7,979 23,515 57,317 92,72 £19,033 £39,20011301a.C.......... cm- 30 .......... cm 1,3 W 3 v PIt 1 hi MOM"l91 3 ,000 6,00031 29,400 0,300 92,60 120,40 141,1501 30..C......... - 3 ........ cm WD;30 1:30: I VI Pit I Kallwant/ln 1 6,955 4,329 - 8,222 35,494 59,243 90,t97 I30 .............…3- - :03 - 3 VII P3113 I 3 Pariodn/Kabar 3 9,300 6,143 3 27,251 4529 71,514 101,6172 132,2U 3 30 ............ Co - - 30 ........Co I 1:310 110: 3 VII EI 3pbiulK a1h 14,500 7,34231 43,560 61,23 *8,106 134,77 195,9553.......Coo/b - - 30 ...... to- 3 3303 I 11 PIR LaklI Cat Sirnk, ki 12,000 3,2003 - 3,535 57,015 99833 M 30.C........... cm -11301 I "h I I P1110 if Praheeuls'Smel 3 6,05 4,137 I 39,815 53,406 73,79 94,24 105,401 130 ...........cmu…7.. . 1:30: I PI.31 It INaJaEnBfIU/soI I 9,0 5,153 1 19,138 38,247 77,229 126,612 160,403 I 30...........CN . . ......1:Cm 1 :303IL TOT A L 104,471 73,094 375,324 6t4,114 957,734 1,304,274 1,600,794 3530 - 2130 - liSO130 1 -0 4230 - 353 510 3 3~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1.,60 I1:603 3 NC 'b. Cuastructiem. E:p a Expauimm, Coo Cse.isuoeol la Factwry finaned unde sepaate arraqemmt baets PI IV and SCU /b Fastery fi awtwed de motor Lou 10ota TOtal ncabor of pate oil factories nder the p"epoud Tree Crap Pro-uing Project * Sog Constructions: 3:60 tons FF8/b and 530 ton, FF8 '300 tons FF8/ee Exgansiunsz 5:30 tan FF1 '150 tons FF8/bee 40 tons FF3/bow 64 - ANNEX 2 Appendix A Page 1 INDONESIA TREE CROP PROCESSING PROJECT Selection of Factories 1. Selection criteria have been developed to ensure that the need and timitng for the proposed new or expanded rubber and palm oil factories are technically and economically fully justified. These criteria are related to: (a) the amount of NES/PIR production to be processed, (b) the amount of non-NES/PIR locaL production to be processed, (c) the availability of spare local processing capacity, and (d) the minimum size of processing facilities for efficient operation. The necessary data for the justification of all proposed factories were collected by DGE/Tim Rhusus from the PTP. and reviewed during field visits to all project sites. 2. The estimated amount of MIS/PIR production to be processed is based on the followings (a) Area planted/replanted (ha). (b) Year of plantinglreplanting. (c) Estimated yield profile, taking into account: 5i) TMe specific location characteristics (soils, rainfall distribution). (ii) The type of planting material (clone, selected seeds). (iii) The harvesting/collection parameters, (tapping systems, type and frequency of collection, field road conditions, etc.). (iv) The agricultural practices (clearing and planting methods, fertilizers, maintenamce, etc.). (v) The ownership (nucleus estate or smallholders). (vi) The quality of the plantings, as expressed in grades according to tree density, growth measurement, etc. 3. The estimated amount of non NES/PIR production is based on the same parameters as in para. 2 above, plus location, dista'e from the project site and road conditions. 4. The availability of spare local processins capaciti is assessed during visits of all existing factories (PTPs and private processors) in the project area, for the review of: - 65 - ANNEX 2 koven4ix A Page 2 (a) Location, distance from the project site (means of transport, river and road conditions, transport costs, etc.). (b) Ownership: implementing PTP, other PTP, Joint Venture Company, private estate companies, private processors. (c) Type of factory, lay-out, installed machinery, maximum capacity. (d) Raw material supply: type and quality. (e) Standard of operation: level of efficiency, maintenance, staffing, operating costs. (f) Type and grade of final product. (g) Plans for future construction/expansion if any. (h) villingness to process project crop. 5. The minimum capacity of processing facilities for efficient and cost-effective operation has been determined as follows: (a) For a crumb rubber factoryt About 10 tons dre/day corresponding to the operation during 20 hours of a 500 kg drc/hour dryer which is the smallest industrially pro- duced dryer. Given a monthly peak of 111 of the annual production with 25 working days per month, the mini=u crop required to fully justify a 10 tons drc/day factory is about 2,300 tons of dk rubberlyear, corresponding to about 1,900 ha planted (basWe on an average of 1,200 k4/ha). (b) For a palm oil factory: 20 tons FF/hr, due to the availability of fuel/fiber and shells from nuts) and power requirents. However, in this project 30 ton MF/ha factories have been selected as the difference in cost be- tween 20 tons ad 30 tons factories is neglible (only additional screwpresses and clarification equipmt are required for a 30 ton factory), and also because a 30 ton MF/day facto1y allow for more flexibility to process the annual peak productiou. Given a monthly peak of 12.51 of the annual production and 450 hours/month of opera- tion, the minimum FF1 production required to fully justify a 30 ton/day factory is about 108.000 tons MF/Year corresponding to about 5,400 ha planted (based on an average of 20 tons MF/ha). 6. Using the above mentioned criteria, a number of rubber factories originally proposed under this project were found as not fully justified and therefore were not included (see Attachmet 1). - 66 - ANNEX 2 Appendix A Attachment 1 INDONESIA TREE CROP PROCESSING PROJECT Rubber Factories Originally Proposed But Not Inciuded IA This Project Estimated production of Type of rubber in PTP project Location 1992/93 (tons) Reasons for exclusion from this project III PIRSUS It 50 Koto/Sunbar 1,679 Not enou8h crop + avaLlable processing facilitles. IV NIS tI Bajubang/Jambi 4,715 Factory financed under NIS VII loan. IV NS itI Alr Wolek/Riau 12,400 n V PIRSUS 1 Rokan IV Koto/Rl&u 1.424 Not enough crop + available ptocessing faci4itiea. V PIRUS I Cot Citek/Aceh 197 V 11SUS II Noulaboh/Aceh 98" VI m3u VIt - P4idr/RaltIM w0e 8ilsting lOT factory. VIll P1t8sW tt Solok/Suablr 444 Not enough crop + avallable processing faciliti .. x as ti/ Tebeeanw/Saol 9,840 *istitg 20/40? fctorny, expnsilon alrady on the way. XI P1R5 I Labat/Susel sit Not enug crop + available processag facilitis. III Nu In Cikaso/Jabs 718 A 2.5 T/day eAstin sheot factory is Soing to be expanded. III Nms VI Afrablnta/Jabar 539 St/day "eting factory + not eough cop tor expanson. III as vII Sanbs/alb 4,280 a 20/401 factory is uner desig an lOtA be operatin within two yna. XvIt PI3SS It V.ijuliSei. - No wefo 1994/95. mII t913 it Tabeoeg/Kee 351 W&t enough co + available processing XVIII 91355 UI Psrahn181S 76, U mIII Ply= 1 It . n /flS 93 XVtI as V/Vt seJ,tass au 5,022 A 20140? eatory to t de cont tion. ad4 shold be operating by October 196. mtI P13858 ti Poso/quiten$ 774 Not _n oh oP. EX P135 II Kt. Varlnin/alteng 246 Not enouh co + availabl processig facIlities. XVIIt 338 n S ejre/N14 436 not eno crop. MM PM= *t tlnSWIhl/lISS 255 ' - 67 - ANNEX 2 Appendix B Page 1 INDONESIA TREE CROP PROCESSING PROJECT Procurement of Factories Bactground 1. The Government of Indonesia (COX) and the International Bank for Reconstruction and Development (IBRD) intend to enter into a loan agreement to finance rubber ant palm oil factories for existing NES (IBRD assisted), PIR Khusus and PIR Lokal Projects required for GOI FY88/89 up to 1992/93. Six of the palm oil factories (five x 30 tons FF3/hr and one X 60 tons FFB/hr) are urgently required to process FFB from oil palms which are already, or will shortly be, bearing. Objectives 2. The objectives of procurement in this project are tot (a) Obtain the lowest costs consistent with quality. (b) Enhance the degree of standardization among palm oil factories (use of prestantardized specifications). (c) Enhance monitoring and operating efficiency. (d) Achieve economies in training and flexibility in transfer of factory personnel. (e) Ensure that important machinery/equipment and works are in accordance with quality standards by using an independent engineering inspection services. Method of Procuremnt 3. All civil works and equipmet will be procured br international comptitive bidding (ICB) according to IBRD procedures. Contracts for the factories will be procured on a single responsibility basis in accordance with agreed tender documets based on standardized designs. Tender documets for the first six palm oil factories have taken pre-standardization specifications into consideration, as prepared by TKPIR and reviewed by the Bank. 4. Prequalification of bidders will be done on a central basis, by a prequalification comittee established for this purpose under Tim Ehusus. Prequalified bidders will be eligible to bid for any of the project factories for one year following prequalification, after which prequalification will again be necessary. - 68 - ANNEX 2 Appendix $ Page 2 5. Contracts for the factories will be tendered and awarded by the individual PTPs. Implementation Schedule 6. The time schedule for the first six palm oil factories is: Processing Time Action Months 1. Issuance of prequalification documents up to end of prequalification process 2.5 2. Issuance of tender documents up to submission of bids 2.0 3. Opening of bide up to award to winning bidders 2.0 4. Signing of contracts 1.0 S. Opening of Letters of Credit 3.0 6. Construction/execution of main contract 18.0 Total 28.5 - 69 - ANNEX 2 Appendix C Page 1 INDONESIA TREE CROP PROCESSING PROJECT Training 1. The project recognizes the importance of a well trained and motivated workforce to the efficient operation of rubber and palm oil factories and includes a comprehensive training component. The objectives of the training component include both project related training for all levels of factory staff and the strengthening capacity of subsector agencies. 2. The training component would provide: (a) Construction of suitably equipped modest training facilities (comprising classroom and dormitory space for 25 trainees) for palm oil processing at one of the new palm oil factories (PTP Vs Riau); (b) Precomissioning for factory managers, engineers, skilled workers and other staff; (c) On-the-job training; (d) Longer term domestic and overseas training for selected staff of the DGE, LPP, TRPIR and DISBUN; (e) Capacity strengthening of DGE and related Government agencies in the tree crop processing subsector, through training of selected staff at the Tree Crop Management Institute (LPP); (f) Structure and guidelines for LPP for post-project coordination of tree crop processing training programs; (g) Technical assistance for training in (i) Tim Khusus (Monitoring and Analysis Division) to provide overall coordination to project-wide training and (ii) PTPs, where training needs would be continuously assessed, training programs organized and trained performance evaluated; and Management of the Training Program 3. Responsibility for overall management of the project training program would be assigned to TKPIR. A training consultant would be attached to the Monitoring and Analysis Division in TKPIR for a period of 3 years. The consultant would, in consultation with PTP management, PTP headquarters consultants and processing consultants at TKPIR, plan and implement the project related training program for factory staff. The consultant would also plan the training of staff of other institutions (para. 2. (e)), oversee implementation, prepare guidelines for post-pro-ect training coordination by - 70 - ANNEX 2 Appendix C Page 2 LPP and evaluate the results. The TKPIR training consultant's main duties would be to: (a) organize the training program for each specific factory and to ensure all resources, human and physical, are available when required and in the most cost effective manner; (b) recruit on-site training engineers for the various disciplines (oil palm processing, rubber processing, maintenance, effluent control, etc.); (c) organize and schedule practical on-site training programs with the different PTPs; (d) evaluate results of practical on-site training; (e) discuss, identify and plan future training requirements; (f) prepare budgets, recruit resource people and organize the reimbursement to the PTPs of training costs; and (g) schedule overseas training courses as required. Precommissioning Training 4. To ensure smooth commissioning and satisfactory early operation, precommissioning training is essential. For this purpose early and systematic appointment of managerial and operational staff is necessary, in accordance with the schedule reflected in Attachment 1. After commissioning, intensive on the job training would be provided by site training engineers. 5. The precommissioning training would consist of: (a) theoretical training at LPP overseen by the TKPIR consultant who would, assist the PTP HQ consultant in the preparation of course design and implementation; (b) practical training at the training facilities for palm oil processing built under the project at one of the new palm oil factories (PTP V, Riau), as well as at established and efficiently operated factories. The sites for this training would be selected by the TKPIR training consultant, in agreement with PTP management, and PTP headquarters processing consultants at TXPIR; (c) practical training by machinery suppliers as part of the machinery supply contract. Coordination of Training at Factory Sites 6. A key activity in the TCPP training program would be practical training of staff at the factory sites. This would be carried out by a team of mobile ttaining engineers, who would rotate around the factories providing specialized and practical training. The work of the mobile site training - 71'- ANNEX 2 Appendix C Page 3 engineers would be coordinated by the TKPIR training consultant. Terms of Reference for the site training engineers and the TKPIR training consultant are in Annex 5. 7. During project implementation each PTP would be expected to assign at least one counterpart to work with the PTP long term processing consultant on training related activities. The PTP counterpart would also work with the visiting site training engineers assisting with the organizatio" of the tra4ning program and observing training techniques. The PTP training counterpart would be expected' to play an important role in ensuring training activity continuity after project completion. In the final year of project implementation, all PTP training counterparts would participate in a training of trainers course involving TKPIR PTP management, the site training engineers, the remaining PTP long term consultants and LPP to establish the role of training after project completion. 8. Total requirements for on-site training by mobile engineers have been estimated and are presented in Attachment 2. Other Trainins 9. An important aspect of the project is the building of technical and training capacity to ensure the continuing efficiency of processing operations. Selected staff in the DGE's Directorate of Programs and Agro- business and processing and in Tim Khusus would be trained in a variety of processing related fields. Provincial and District Estate Crops Services staff, the marketing association and the joint marketing office would also be included in the program. Training, which would be coordinated by TKPIR, would be carried out in Indonesia and overseas. A summary of the planned program of training is in Attachment 3. 10. Two LPP staff members (one for rubber, one for oil palm) would undertake an eight-month tailor made course in the region to become familiar with the operation and maintenance of factories. The course which would be designed by TCPP training and technical consultants would give the LPP staff members detailed exposure to the key factory posts, processes and tasks. On their return to LPP the staff mcmber. would take responsibility from preparing case and other teaching materials to be used in LPP's continuing input into management training for the crop processing. Preparation of case study materials would involve visits to Indonesian rubber and palm oil factories. These LPP staff members would be expected to play a key role in the post- project coordination of LPP tree crop processing training. 11. Table 1 summarizes the factory training requirements for the project. - 72 - ANNEX 2 Appendix C Page 4 Table 1I TRAINING REQUIRIKENTS No. of staff Type of to be trained No. of Total staff factory' per factory factories to be trained 1. Rubber Factory 10/20 t 13 1 13 20/40t 13 6 78 Esxp to 40 t 7 4 28 2. Palm Oil Factory 30 t 43 8 344 60 t 28 1 28 Kxp to 60 t 71 S 355 Total 846 12. Attachment 4 indicates the main training requirements for each category of staff in rubber and palm oil factories. 13. Detailed descriptions of factory staffing requireaents and key staff job descriptions are contained in the Working Papers. - 73 - ANNEX2 Appendix C Attachment I INDONESIA TREE CROP PROCESSING PROJECT Training Recruitment Before Commissioning /a (Months) Title Months Remarks Ractory manager 6 Precommissioning recruitment Assistant manager 6 will allow time for some theore- Maintenance engineer 6 tical and practical training and Assistant engineers 3 familiarization with new plant,, Supervisors 3 --'in readiness for start-up. Workshop foreman 6 Engine drivers 3 Boiler attendants 2 Process workers 2 General workers 1 mechanics 3 /a Training-program content to be decided by TKPIR Training Consultant, in consultation with PTP management, PTP headquarters processing consultau`s, TKPIR processing consultants, LPP and machinery suppliers. Machinery Practical Training at SuppliersE Workshops Title Rubber Palm oil Remarks (Weeks) - Factory manager 1 2 To assist with assembly of Assistant manager 2 4 machinery components, examine Maintenance engineer 4 4 working drawings and materials, Assistant engineers 4 4 learn welding techniques and Workshop foreman 4 4 become familiar with general Senior mechanics 2 3 machinery construction. - 74 - ANNEX 2 Appendix C Attachment 2 INDONESIA TREE CROP PROCESSING PROJECT Training On-Site Training Consultancy Baeuirements (In weeks per factory) Trailing required Operation Water Effluent Labora- Admin. Process In process treatment treatment Workshop tory org. eng. Raw water treatment 1 Boiler water treatment 1 Effluent treatment 3 Process/quality coat. 1 5 Boiler operation 1 1 Engine room operation 1 1 Sterilisation operation 1 1 Threshing I I Pressing 1 1 Clarification 1 1 1 Cracklng nuts I 1 Kernel resove 1 Stock management I Safety 1 1 I Maintenance planniwg 1 1 Workshop practice 5 Office AD/stocks 1 Laboratory 4 Precommissioning 6 Start-up 3 1 1 Total 20 3 4 8 4 2 13 - - - - -~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ - 75 - ANNEX 2 Appendix C Attachment 3 INDONESIA TREE CROP PROCESSING PROJECT Trainins Pro*psed Training Courses for Government Agencies No, of Agencies persons Courses/majors Eduatlion (Masters Degrees) Directorate of Program, DCE 2 Internationally traded commodities and agricul- tural development economics Directorate of Agrobusiness 4 Process engineering; ecology and environmental and Processing, DOE sciences; marketing and sales, and economics of location, transport economics and farn manage- ment TKPIR, DWE 2 Rural extension and statistics, monitoring and evaluation Marketirg Association I Marketing dlstribution economics Provincial Estate Crops 12 Factory maagement and operations, environmental Services controls and agricultural planning depending on criteria to be agreed upon Traini (Ovrseas) Provincial and District 12 Smallholders tree crop produce pricing, farm Estate Crops Services maageamnt and processing Marketing Association S Market trends, market research/intelligence/sta- tistics and marketing Joint Marketing Office 9 Selling of rubber, palm oil and other estate crops products LPP 2 Tailor-made course for processing management training and preparation of case studies and other teaching materials. Traing (Local) DGE 30 Processing, smallholders priciug, extension and farmers organization, effluent control Provincial and District 12 Same as DOE local training Estate Crops Services Total 91 - 76 - ANNEX 2 Appendix C A&tachment 4 INDONESIA TREE CROP PROCESSING PROJECT Training Requirements Position Type of training requirements Factory manager (On-the-job) practical and theoretical in rubber/ palm oil factory Assistant factory manager As above Maintenance engineer As above Shift engineer As above factory supervisor As above Workshop foremen Practical and theoretical in engineering workshop at a large rubber/palm oil factory with a profes- sional maintenance and training engineer Workshop foremen (vehicle) Practical and theoretical in vehicle suppliers/ agents workshop on actual machinery being used in the factory Chief clerk Attachment to rubber/palm oil factory Laboratory analyst On-the-job in established rubber/palm oil factory Workshcp mechanics Training In basic skills, fitting, turning, weld- ing, measuring equipment. Tolerances, fits, bear- ings, welding, burning Workshops (electrical) Basic skills. Motors, bearings, starters, wiring, testing, electrical general maintenance Workshops (vehicle mechanies) Basic skills. Measuring equipment, tolerances Workshops (vehicle electrics) Basic skills, wiring testing, trouble shooting (on- the-job training) Boiler attendant (w/certificate)-S Attachment to large established palm oil factory (on-the-job with supervision) Engine driver (w/certificate)-3 Attachment to latge established palm oil factory (on-the-job wich supervision) - 77 - ANNEX 2 Appendx D Page 1 INDONEsIA TREE cRoP PROCESSING PROJECT Project Msnagement 1. Factory management. Project management faces a difficult task in providing guidance and support for PTPs in the management of their facto- ries. The difficulty stems from the present lack of uniformity of task responsibility given to Directors of Development, Comercial Directors and Directors of Production in the PTPs. The post of Development Director was created by a 1980 DCE decree to take responsibility for development activities, especially in the NES projects. So far, the primary responsi- bilities of the Development Director have focussed on new planting. This project proposes as .igning the role of construction supervision to the Dmelopmeat Director, but no provision has yet been made for the operational phase. The specific role of the site managers in management of the operational phae should be clarified. 2. Zey management recomaendations for this project are: (a) Factory staff appointmnets should be completed ahead of couissioning so that appropriate training can be arranged. Senior factory Managers should be appointed at least 6 months before couissioning and the other Staff grade personnel at least three months before c missioning. (b) To ensure appropriate appointments, profiles of each post have been prepared. It is expected that Factory Managers will be of Staff Grade V or VI. Others would be Staff Grades III or IV. Goenrally CPO factory staff will be more senior than those for the rubber factories. (e) After commissioning, operational responsibilities would be assigned to the Site Managers. This is the normal arrangement in ost PTPs, but an eplicit statemoet to this effect would be useful to focus on the management resporsibilities for proper maintenance and efficient operation. 3. The project's management plan also includes arrangements to ensure that the facilities are being operated efficiently according to normal industry technical standards and operating guidelines, and provides for a sound system for monitoring compliance with the standards and guidelinss. 4. PhS0anement of Environmental Protection Comonent. Overall project coordination and managemet for the establishment of the two Pollution Momitoring and Control Authorites in North Suastra and Vest Kalimantan provinces will be the responsibility of Tim Khususc. owever, at the provincial level, the coordinating unit in DWA responsible for facilitating the work of the consultants will be the provincial tree crops authority (Dinas - 78 - ANNEX 2 Agpendix D Page 2 Perkebunan). This unit will liaise closely with the Provincial BKLH which will form a Steering Comittee under the Secretariat of the Provincial Governor to provide overall guidance to the consultants and to facilitate agreements within the various provincial Government departmeonts and with industry. The Steering Committee will consist of representatives of BLH, Public Works, Industry, Health, Bappeda, Finance and Agriculture as well as public and private industry and University representatives. 5. For the survey of pollution control requirements of existing PTP processing facilities, Tim Khusus will again act as the project coordinator and manager. One of the Tim Khusus staff should be assigped to the environmental component of this project as a means of on-the-job training and to ensure that these aspects of the project receive adequate attention throughout the implementation period. The person selected should have good communication skills and be an effective coordinator and organizer. - 79 - ANNEX 2 Appendi. E Page 1 INDONESIA TREE CROP PROCESSING PROJECT Monitoring and Evaluation 1. The scope of the Monitoring and Evaluation (M&E) system for this project covers both the period of construction/expansion of factories as well as the initial phase of their operation. Although the Monitoring and Analysis Division in Tim Khusus and the field units located in the PTPs are involved in both periods, their relative roles would be somewhat different during each period as the management focus would be changed after the commissioning of the factories. During the construction (and expansion) period, the project manager would be the Chairman of Tim Khusus to whom all monitoring information would eventually be channelled so that implementation problems would be speedily detected and appropriate actions taken to ensure smooth and timely progress. After factory commissioning, management of the facilities would be the sole responsibilities of the PTPs and the operation efficiency monitoring information would be suboitted regularly by factory management to the Directorate of the PTPs for action and copied to Tim Ehusus for cross-sectoral comparison and guidance. 2. Tim Khusua has accumulated considerable experience in monitoring and evaluation by performing such a function for various Bank supported project and in monitoring implementation of internally financed factory construction. At the PTP level, a management information system concerLing factory operations is already in place since the esrly 1980s. lowever, both these aspects are in need of improvement to take advantage of modern monitoring techniques. The design of the monitoring and evaluation system of the project is premised on the existing system but to the extent possible incorporates modern information technologies and enriches the analytical content of informution already routinely collected. 3. For monitoring physical and financial progress during the period of factory construction and/or expansion, work performance would be measured on the basis of a detailed implementation plan and monthly expenditures expressed cumulatively as a budget curve (S-curve). Target completion dates and associated expenditures of each constituent activity in the construction of a palm oil or rubber factory would be calculated by a scheduling mad costing program. The monitoring and evaluation sub-unit of the Project Implementation Unit (PIU) would bx responsible for prompt reporting to the Monitoring and Analysis Division in Tim Ihusus as and whe each activity is completed. The Unit in Tim Khusus would perform the necessary computations to check for deviations from tbg 8-curve and report to the Project Manager (Chairman of Tim Khusus) as well as advising uhether management action is needed. The monitoring and Analysis Division would also integrate the information from the variout construction sites into an overall progress report to be submitted Lo the Bank on a quarterly basis. For this purpose, the Monitoring and Analysis Division in Tim Ihusus would also assist the PTPs in developing the detailed implementation scheduLe and budget; design the appropriate format for progress - 80 - ANNE% 2 Appendix E Page 2 reporting by the monitoring and evaluation sub-unit of the PIUs; and provide the necessary training to the sub-unit staff in performing their monitoring function. 4. After factories are commissioned, the function of the monitoring and evaluation sub-unit would be transformed, shifting its focus on implementation progress to the monitoring of operational efficiency on behalf of the PTP through the site manager. Currently, data on factory inputs and outputs of existing facilities are being routinely kept up to date by the Factory Manager (Factory Chief Assistant) and reported on a standard format to the PTP Directorate through the Site Manager (Administrator). The primary purpose of this recording system is to maintain a form of cost control in factory operations. However, only very limited analyses are performed and much of the information is expressed in terms of production cost per unit of output. As costs are price-sensitive, it is difficult to detect changes in production efficiency relative to technical standards. Under the monitoring and evaluation system to be introduced under the project, a range of technical efficiency indicators would be included. A proposed list of possible indicators has been discussed with management entities during appraisal and the project has provisions for a technical consultant to assist in developing an operational format for collection and computation of the indicators (see Working Papers. S. Included among the technical indicators are those relating to effluent monitoring to be maintainesi by the Factory Management. Although the overall environmental control monitoring would be done by an c7ternal agency (PMCA) in accordance with GOI procedures, there is a need for internal monitoring to make sure that the effluent control facilities built into the design of the new and expanded factories are being operated properly. The sample indicators required for this purpose are also discussed in the Working Papers. Daily measurements of pH values, solid content and alkalinity at the effluent outflow would be reported to the Monitoring and Analysis Division in Tim Khusus on a regular basis with copy forwarded to the Bank as part of the quarterly progress report of the project. 6. Difficulties were encountered in estimating working capital requirements of the project factories during appraisal, though the need for additional working capital was obvious. Project injection of initial working capital was deemed necessary for ensuring smooth operation of the new and improved facilities, but it is intended that each factory should be able to generate sufficient working capital of its own in succeeding years. While factory operation costs and value of products are regularly recorded and forwarded to the PTP Directorate for inclusion in the PTP accounting and financial reporting systems. There has so far been no attempt to assess the financial efficiency of the operating factories. Under the projeet, a simple financial reporting system, treating the factory as a financial entity would be introduced so as to ensure that sufficient working capital would be available at the factory level. Such a financial reporting system has been designed by the Monitoring and Analysis Division in Tim Khusus and discussed with the appraisal misuion. It seems that a cash flow statement, a profit and loss statement, a statement on the sources and applications of funds, and a balance sheet, can be constructed from records already being maintained at the - 81 - ANNEX 2 Appendis E Page 3 factory level. Under the project, Tim Khusus, with the assistance from its consultants, would introduce the system to the PTPs and when the system becomes operational would analyze these financial statements, consolidating them for reporting to the Bank. On a trial basis, these statements would be constructed for a small sample of existing factories and after suitable adjustmeAts where necessary, the system would be introduced to all factories supported by the project. 7. * The cost estimates for Monitoring and Evaluation quoted in the test of the Appraisal report refer to those additional costs to be incurred by the Monitoring and Analysis Division in Tim Khusus, covering such items as training, technical assistance, incremental equipment purchase and operational costs and do not include those relating to implementing the monitoring and evaluation system at the factory level which is a direct and ongoing responsibility of the PTPs for the sole benefit of operating their facilities efficiently. It is expected that once the system has operated smoothly, the technical and financial monitoring systems would be integrated fully into the managemeat information system of the PTPS. - 82 - ANNEX 3 Page X INDONESIA TREE CROP PROCESSING PROJECT Crop Projections and Factory Requirements Selection of Rubber Factories 1. The base yield profile used for the establishment of crop projec- tions for rubber in the Tree Crop Processing Project (see Table 1) has been derived from the various yield profiles assumed in th NES I and NES VII projects, and the actual yields recorded (see Table 2). 2. A peak yield of 1,800 kg/ha has been assumed, with an average of 1t230 kg/ha over the expected 25 year tapping cycle. The im_ature period for the Tree Crop Processing Project has been increased from the 5 years assumed in NX I to NES VII, to 6 years for the Vuc'-eus Istate and 7 years for the smallholder ateas. 3. Yield projections for each project site have been derived for the nucleus estate and smallholder areas using a percentage of the base figure of 1,800 kg/ba peak and 1,230 kg/ha average over the tapping cycle of the trees. This percentage is based on the data obtained from the PTPs, and confirmed or revised after field visits of the different sites. It is also baed on the assessed ability of the PTPs to implement the project successfully. The percentage goes as low as 65X ano as high as 1002. 4. For the smallholder areas, it has bee assumed, except in a few remote sites, that a percentage of their crop would be sold to private remillers. The percentage of 8 rubber supplied to the PTP factories varies from 802 to 1002. (See Table 3.) 5. The detailed crop projections for all project rubber factory sites are given in Working Paper C-10. Selection of Palm Oil Factories 6. The base yield profile used for the establishment of crop projection for m in the Tree Crop Processing Project is the Nerihat Research Institute (Puat Penelitian tarihat, PP9) yield curve for class II areas extended to 25 years of production (see Table 1). Peak yields are projected to reach 27 tons/ha. Extraction rates of 212 and 4.52 have been assumed respectively for oil an kernel, baed on available records. Production has been assumd to start in the fourth year after planting. 7. Yield projections for each project site have been derived for the nucleus estate and smallholders areas using a percentage of the base yield profile. This percentage, like for rubber, is based on the data obtained from the PTPs and on observations mede during field visits: it varies from 701 to 902. Smallholder yields are assumed to be 15Z below the nucleus estate yields. (Sae Table 4.) - 83 - ANNEX 3 Page 2 8. The detailed FF8 crop projections for all project palm oil factory sites are given in the Working Papers. - 84 - AkNEX 3 Table 1 INDONESIA TREE CROP PROCESSING PROJECT Base Yield Profiles for Rubber and Oil Palm Rubber Oil Palm Tapping year Yield (KSgha) Year of production Yield (tons FFB/ha) 1 500 1 1 2 700 2 14 3 1,000 3 18 4 1,000 4 21 5 1,200 5 24.5 6 1,200 6 26.5 7 1,400 7 27 8 1,400 8 27 9 1,SOO 9 27 10 1,500 10 27 11 1,600 11 27 12 1,?00 12 27 13 1,800 13 26.5 14 1,700 14 26.5 15 1,600 1S 24 16 1,500 16 24 17 1,300 17 22.5 18 1,200 18 22 19 1,10O 19 21.5 20 1,100 20 21 21 1,100 21 19.5 22 1,000 22 18.5 23 900 23 17.5 24 900 24 17 25 800 25 16.5 Total 30,700 550 Averae 1,230 22.0 - 65 - ANNEX 3 Table 2 INDONESIA TREE CROP PROCESSING PROJECT Rubber Yield Prolections Used for NES VII Project Sambas, West Kalimantan, PTP XII /a 1981/82, 1982/83 and 1983/84 area 1984/85 and onwards area kg/ha/year kg/ha/year Tapping Nucleus Small- Tapping Nucleus Small- Age year estates holders Age year estates holders 7 1 475 430 6 1 542 474 8 2 800 700 7 2 895 773 9 3 1,000 850 8 3 1,130 949 10 4 1,100 980 9 4 1,266 1,085 11 5 1,200 1,000 10 5 1,322 1,102 12 6 1,250 1,050 11 6 1,374 1,159 13 7 1,450 1,200 12 7 1,589 1,338 14 8 1,500 1,300 13 8 1,668 1,424 1S 9 1,550 1,350 14 9 1,701 1,463 16 10 1,600 1,370 15 10 1,767 1,498 17 11 1,700 1,400 16 11 1,864 1,566 18 12 1,750 1,500 17 12 1,953 1,663 19 13 1,700 1,500 18 13 1,892 1,611 20 14 1,700 i,500 19 14 1,831 1,559 21 15 1,600 1,500 20 15 1,770 1,507 22 16 1,600 1,350 21 16 1,739 1,481 23 17 1,500 1,200 22 17 1,582 1,329 24 18 1,500 1,200 23 18 1,553 1,305 25 19 1,350 1,150 24 19 1,464 1,251 26 20 1,350 1,100 25 20 1,437 1,228 27 21 1,250 1,050 26 21 1,251 1,146 28 22 1,150 1,000 27 22 1,268 1,066 29 23 1,150 1,000 28 23 1,234 1,017 30 24 950 850 29 24 1,107 941 31 25 850 750 30 25 976 840 Total 33.025 28,280 36.275 30,775 Average/year 1,321 1,130 1,43' 1,231 /a As of November 15, 1985. Note: Using Ethrel for both nucleus estate and smallholder areas, small- holder yields are projected at about 85Z of nucleus estate yields. - 86- ANM4EX 3 Table 3 INCONSIA ?RCt CROP pROCtSSKUG PROJZCt Rubber Ytld Ass.mptloa I of I of ;gcleuo Planted ath"5a) bass SR crop state Locatton aMtu1 up AM1 to m PTP Project (sttelprovtnea) Program to 1986/87 U- SH factory Co ens t Xas UUI Alue te tarab/Aceh 17,382 17,382 90 65 too Poor quality planttngs in SR areas. lIz vFa LoWal Labuban Bhtu/Su t 9,316 9,316 0 s0 IV NES It Ojubang/Jbt 7,134 7.042 90 bO 80 Plata*g rtegulat in early years. but upkeep and management m0ch isprovwd receGtly. 33 UI Air olok/fiaJ u 17,H92 17,692 100 90 80 Pla"ttags generally of a h1gb standerd. VI NB3 III Uklbo IujagJambl 18,198 18,198 90 00 80 Late supplying no *ealy years but re- cent improwvemt ia upkeep. PIOPUS I Ourlrn tacu/Jambt 10,041 9,041 100 *0 00 Plaonntg genarally of a high otsadard, preent M"gaemt - t ffective. Kill nUS t sit nglX lbat 8,080 7,426 - - - O4ly coaulatito ceoters. vItl NuS ttt e on" Salavk laol, 15,128 15,72U 90 70 00 tscellot rubber posing area, but lelag problem hae not beem properly delt witb in plasa areas. KRXtt PtISUS I Kstahuo0Dmagkulu 7,000 5,498 as 75 100 Vary hlly are, but plantings geanally good. no prtvate reillers. XVI PtRSUS K ?saju _manu:nIltla 4,000 4,000 90 75 100 4N * NUCleUJ estato; SR * *malboldet. - 87 - ANNEX 3 INDONESIA TREE CROP PROCESSING PROJECT FFB Yield Assuptions of Nucleus Planted area (ha) Base estate Location Actual up told PTP Project (site/province) Program to 1986/87 U SR Zt PIE Lokal Labuhan Batu/Sumut - 15,284 14,584 90 75 IV PIRSUS II Set Bahar/JaubL 15,530 14,530 90 75 IV PIRSUS SI Bagan Sinembah/Riau 7,979 7,979 90 75 V PIR Sel Intan/Paiu 8,000 6,000 90 75 VI PIR Kalianta/Riau 4,300 4,300 90 75 VII PIRSUS I Parindu/Kalbar 9,300 6,143 'S 70 VII N%S V Ngabang/Kalbar 14,500 7,342 85 70 sX PIR Lokal Cot Girek/Aceb 12,000 3,200 85 70 X PIRSUS It Prabumulih/Sussel 6,052 4,137 90 75 % PIRSUS II Muara Euln/Suael 9,384 5,153 90 7! NE a Nucleus estate; Si a sallholder. - 88 - ANNEX 4 Table 1 INDONESIA TREE CROP PROCESSING PROJECT Financial and Economic Rates of Return /a (Z) Financial Economic Site rate of return /b rate of return /c Palm Oil Factories Bagan Sinembab 19 81 Sei Bahar 23 69 Cot Girek i8 53 Sei Intan 19 60 Kalianta 33 50 Labuhan Batu 26 62 :-uara Enim/Prabumulih 20 65 Ngabang 33 97 ParinCu 17 70 Rubber Factories Air Molek 392 129 d Alue le Merah 78 19 Bajubang 60 85 /d Danau Salak 100 21 Durian Luncuk 33 20 Ketahun 44 28 Labuhan Batu 19 18 Rimbo Bujang 49 24 Tanjung Santan 38 20 /a In real terms. 7b To the PTP. 7W To the economy. 7Wt Returns are exceptionally high for these rubber factories because only relatively small investments In existing factories are needed to double output. Pote: See Working Paper C-1 for detailed economic and financial analyses. 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IW 2599 wq 0 awe 2M~~~~~~~~~~~~~~~~~~~~~~~~(I - 93 - ANNEX 5 TOR 1 Page 1 INDONESIA TREE CROP PROCESSING PROJECT Terms of Reference for the Standardization of Crude Palm Oil F&.tories A. Background 1. The Government of Indonesia (GO!) and International Bank for Reconstruction and Deselopment (IBRD) have and are jointly financing Nucleus Estate and Smallholders Development Projects (NES) aside from wholly funded PIR Projects by GO0. GOI and IBRD intend to jointly finance a Tree Crop Processing Project for the construction/expansion of crude palm oil processing facilities which the consulting firm shall take into account in undertaking the scope of work in these Terms of Reference. 2. At present each new construction or expansion of crude palm oil factories for the Tarious Nucleus Estate and Smallholder Development CUES and PIR) Projects is designed on a location/project basis, and even though moves towards standardization have recently been made, different specifications and configurations still result. Even a Government-owned estate enterprise (PTP) which has several factories of the same size has not standardized its designs. Each construction usually contains only general specifications of mchinery and equipment, with minimum drawings for factory layout and supporting facilities. Non-standardization results in a mixed inventory of similar parts and non-interchangeability of spare parts, resulting in inefficiency, and additional cost. Consultants for each construction and/or expansion have to be hired both for the preparation of new tender specifica- tions and for supervision. 3. Standardization has the advantage of simplifying preparation before construction. Studies such as site location considering relevant factors, including soil investigation, design and specification of civil works would still be done individually under separate terms of reference. All other preparation before construction and/or expansion would not be repeated so that time, money and effort would be saved. Likewise during construction, supervision would be simplified and would result in more efficient monitoring of costs both estimated and actual, also during the subsequent process operation. 4. During process, operation training of factory personnel would be simplified and interchangeability of staff from one factory to another whether in the same PTP or another will be facilitated. Variety of spare parts carried would be reduced, hence disruption of operations due to lack of spare parts should less frequent. Carrying cost of spares would be reduced. Inventory control would be simplified sad even central inventory of spare parts either by a PTP or a group of PTPs or the total PTP system could be achieved with eventual standard maintenance workshops for repairs and reconditioning. - 94 - ANNEX 5 TOR 1 Page 2 B.. -Objectives 5. The main objectives which the standardization of factories and related facilities is intended to achieve should include the following: (a) The selection of appropriate design capacity factories, easy to operate and manage and capable of producing good quality products at high efficiency, low operating costs and cost effective investment. (b) The selection of processing equipment and layout, building design on the grounds of simplicity of construction, operation and maintenance. (c) Care should be taken in the design and cLoice of equipment to ensure continuity of processing facilities by duplication of essential items of equipment without incurring excessive capital expenditure. (d) An approprlate economic balance between capital investment and operating costs. (e) The preparation and production of standard tender documents, specifications, engineering drawings and schedules. Special consideration should be given to the preparation of standard contract documents and conditions. 6. In order to ensure that standardized designs achieve their objective of maximizing benefits, it will be necessary to specify as closely as possible all factory machinery and equipment, buildings and ancilliary works. C. Scope of Work 7. In undertaking this study, the consulting firm shall bear in mind the palm oil factories which will- be cons.bzlcted/expanded under the Tree Crop Processing Project. The consulting firm will: 8. Review present outline designs, technical specifications, capacities and capital cost, operating procedures including staffing, performance and costs, raw materials inputs, marketable products and products qualities, storage and transport requirements for palm oil factories operating in Indonesia and other main producing countries in Asia. 9. Indicate main points of similarity ot difference between the Indonesian situation and other tropical regions and the technical, economic and sociological justifications for any differences highlighted. 10. Within the scope of standardization, select the most appropriate technology, bearing in mind the various Indonesian situations and the possible effects these will have on the forms and quantities in which the raw materials will become available, and on the factory design and capacity requirements. 11. Indicate where such improvements could be beneficially applied to existing processing factories within Indonesia. - 95 - ANNEX 5 TOR 1 Page 3 12. EstaL'ish the desirable minimum number of standardized factory sizes for processing in Indonesia. These features will include the following: (a) The required range in factory capacities, the capacity range in main process, service machinery and equipment available from suppliers; (b) The maximum and minimum factory capacit,ies considered desirable on grounds of economic, power generation, transport requirements and management control; (c) The desirability of avoiding where practical the use of single process lines and single items essential service machinery and equipment in the event of breakdown. 13. Consider the technical and economic advantages of alternative process operations and machinery currently in use within palm oil factories, select the appropriate operations and designs and indicate the expected technical and economic benefits. Such alternatives should include the following3 14. Loading Ramps - Design layout and capacity of loading ramps and the service area to ensure adequate storage, ease of movement and efficient unloading/loading. - Types of doors and driving arrangements for efficient transfer to fruit cages, this must minimize spillage and allow filling to capacity of fruit cages. - Sloping ramp surface shatted to otherwise - Methods of removal of dirt if shatted ramp is used. - Consideration must be given to ease of operation, maintenance and cost. 15. Sterilizer/Marshallins Yard Layout of marshalling yard and sterilizer station to ensure ease of operation, with minimum cage movement. The minimizing or removal of rail track crossovers, soitches, turnouts, etc. The minimizing or removal of vehicles from the sterilizer/marshalling yard area, locomotives, skid steer loaders, tractors, etc. in the interest of clean efficient operation. The design of fruit cages with regards to operation and maintenance requirements. - 96 - , t - ~~~~AIN=£ 5 TOR 1 Page 4 16. Sterilizers Types of sterilizer capacity and number required to ensure smooth operations for loading; maintaining factory throughput and utilizing steam effectively in conjunction with the overall steam consumption of the factory. The desigm of sterilizers with a view to maximizing life cycle with minimum maintenance, wearplates door liners, jointing facest etc. The ensuring of safe operation of doors by examination of fail safe equipment. The types of controllers/valves etc. for automatic multi-peak operation which are robust in design and offer ease of maintennce for remote sites and limited expertise. 17. Cranes/Lifting/Transferring of FFB to Thresher Examine and determine the most efficient method of unloading sterilized fruit into the threshing machine bearing in mind, throughput of factory, continuity of process, additional cost of standby equipment. Ease of operation and maintenance must be taken into consideration. 18. Threshing Machine Examine different types of machine, feeding arrangements and efficiency Select machinery which offers trouble free operations, ease of maintenance and clearing. 19. Pressing Station Presses Digesters Determine the most suitable arrangement for press station with regards to efficiency of operation, maintenance cleanliness and process continuity. ExAmine digesting and provide standard digester of adequate cipacity, long life, low maintenance and ease of operation. Make recomuendations with regards to presses, capacity, type etc. bearing in mind, ease of operation and maintenance, cost of maintenance meeting specifications with reguide to throughput extraction efficiency and broken nuts and kernels. 20. Oil Cutter Select the most appropriate design and materials. - 97 - AM=EX 5 TOI 1 Page 5 21. Vibrating MachInes Determine the most efficient vibrating screens and establish their necessity in all factories or otherwise, bearing in mind their role in removing sand and solid before clarification. 22. Crude Oil Pumps Determine the most appropriate type of pump, controller, etc. for the continuous discharge of crude oil to clarification station, bearing in mind, cost, maintenance, continuity of operation and maintenance cleanliness. 23. Cake Creaker Conveyor Examine wse, speed and efficiency with regards to preparation of fiber and nuts entering the depericarper. Determine the needs for heating or otherwise. Examine efficient entry to depericarper for max separation efficiency. 24. Nut Bins Determine retention time for adequate drying of nuts. Specify heating and air requirements along with the most efficient bin configuration. Examine methods of controlled outlet for dried nuts and specify. Ensure all drawings specifications are complete. 25. Cracking Station Examine all methods of cracking in use and select the most efficient system bearing in mind, cost, operational control, maintenance and site isolation. Design the cracking station most suitable for the needs and to give the maximum cracking efficiency consistent with low uncracked and half cracked nuts and low broken kernel content. 26. Kernel Recovery Examine mthods of kernel, separation. Recomend, design, enginezr the most appropriate kernel/shell separation methods or methods in conjonction with, ease of operation and maintenance consistent with high separation efficiency and low kernel losses, high quality product. - 98 - ANNE S TOR 1 Page 6 Power requirements should be barred in mind in the overall design of the kernel recovery station. 27. Kernel Drying Examine kernel drying needs in relation to retention time. Recomaend, design, engineer kernel dryers of suitable configuration specifying all air volumes, velocities, pressures, temperature heaters etc... Ensure adequate means of controlled discharge of dried kernel exists in relation to the needs of continuous production4 28. Kernel Storase Examine storage methods available and recommend the system to be used, bearing in mind cost, efficiency of storage and quality of the end product. Examine dispatch methods in relation to ease of dispatch, mainten- ance of quatity and cost. Design, engineer and specify all necessary equipment. 29* Motors/Cearboxes/Driving Arrangements Select adequate motor sizes for all equipment and specify speed type of motor to be used in accordance with ISO standards. Select adequate sizes/speed ratio's etc. for all equipment and give final speed output for all machinery. Special attention must be given to the hostile environment, isolated sites and lack of skills in operation and maintenance when making selection of equipment. 30. Elevators Examine the area of performance for each elevator with regards duty, capacity, etc. Design the most efficient, reliable elevator for each duty in conjunction with capacity etc. Specify all chain capacities/loads, pitch for buckets etc. to ensure efficient discharge. Ensure bucket design is correct for efficient operation. Standardize sixes of elevetor as far as possible within the factory to minimixe spare parts inventory. _99 _ AN= 5 ToR 1 Page 7 Ensure tensioning and all engineering is well provided and specified. 31. ConveLors Examine duties for all conveyors within the factory. Specify and design the types of conveyor for each duty. Standardize and as far as possible the sines and types of conveyor used in order to minimize spare parts. Ensure all conveyors are designed for a have long life with ease of maintenance and operation. 32. Depericarpers Particular attention must be given to this machine; air volumes velocities, fans, adjustment equipmeat should all be shown after selection of the most suitable type of machine. Efficient separation with low kernel loss and high reliability is necessary. Particular attention is necessary to the cyclone, wearing plates and type of air lock and accessibility. 33. Clarification Station Examine all methods of oil separation, recommend design engineer the most suitable arrangement equipment bearing in mind, cost, efficiency of recovery with losses within acceptable industry standards, maintenance, ease of operation, remote site locations and low skill availability, also the necessity to meet with environmental regulations. Design, engineer, layout , the recoamended equipment providing all operational and technical data used in the selection. State operational performance parameters and quantify expected losses. 34. Effluent Treatmet Examine suitable known, accepted ethods of effluent treatment. Select/recommend the most suitable system or systems, bearing in mind the meeting of Government regulations, cost effectiveness of disposal of treated effluent vis a vis discharge to waterways, cost of treatment plant/ area, ease of operation consistent with good control. Design, engineer specify all parts of the treatment plant and provide operating instructions, parameters etc. - 100 - ANV S TOR I Page 8 35. Empty Bunch Disgosal Look into the available means of cost effective disposal of empty bunches ensuring no bunches are discarded which have not had all fruit etc. and nuts remaved. Select the most suitable method or disposal and provide cost/benefits of the method choscn. Design engineer, plan the necessary areas, equipment methods to be followed, 36. Boilers Examine types, sizes and suitability of boiler generally used within the Palm Oil Industry. Select the most suitable type or types, bearing in mind, water sources and their likely sudden changes in quality, treatment and the expertise available at remote sites, the amount or raw feed make up (951) the consequences of poor feed water and control. Engineering of boilers should also be considered with regar4s to, ease of cleaning of tubes, access for cleaning, skill levels required for maintenanee and repair. Operating pressures, temperatures should be examined and the necessary boiler capacity specified for standard size factories. The number of boilers required and all necessary auxiliaries, (feed pumps, degenerators, softeners heaters, etc. should be specified). Standard boiler room layout, design, engineering, pipe runs, sizes and specifications should be formulated. 37. Engine Rooms Zquipment for the generation of electricity (steam and diesel) must b examined in relation to factory power requirements. Necessary sizing of generator for turbo-genset diesel gensets for start-up and for lighting (domestic and factory). General specifications for generator (steam and diesel) must be given. Layout, design of engine-room and operational procedure must be specified. - 101 - AMEX S TOR 1 Page 9 38. Pipelines All pipelines, sizes, materials will be specified and piperunh specified throughout the factory. 39. Electrical All electrical switchboards, controls, meters, lus bar sizes, cable sizes, cable runs, etc. will be examined and standards established. Sizes of ACB-ECB's starters, etc. must be specified. Plans, drawings specifications will be drawn accordingly, taking into consideration, ease of operation, safety, cost and maintenance. 40. Firefighting fEuimet In case of fire the necessary equipment must be available. Examination of present practice and bearing in mind government and insurance regulations recommendations must be made. Firefightiug equipment should be planned and strategically placed for maximum coverage at reasonable cost. 41. Water Supply A standard water treatment plant should be designed in conjunction with quantity of water used and good water treatment practice. The treatment plant should cover, river water intake, storage, chemical addition flocculation, sediaentation, filtration chlorination for domestic purposes. Base exchange softeners should be included. Demineralization plants are not necessary and will only be recomnended for specific sites. Design of the treatment plant must include pumps storage tanks, etc. with full operational instructions. 42. Oil Storage General practice should be examined and recommendations made for, storage capacity size and number of tanks, pipeline and pumping recommendations. Provision for stock taking should also be considered. 43. Oil Dispatch Adequate arrangements for oil dispatch are necessary and this should be examined. Recommendations, layout, pipe arrangement pumps, pumping rates should be made with the provision of a covered area off access roads. - 102 - ANNEX 5 TOR 1 Page 10 44, Buildings Main stesl framed buildings must be desipied to suit conditions in Indonesia and should take into consideration earthquake and wind factors. building designs must specify all column loadings due to machinery loading vibration, etc. Buildings and covered areas must be of adequate size to allow free, safe access and movement within the building, with ease of building and machinery maintenance in mind. 45. Ancillary Building Provision for adequately size and built offices, toilet cloths, I.o. stored pump house.l laboratory, weighbride and security &uard house must be Made. 46. Workshop, Factory and Vehicle These must be examined in detail to ensure they are adequately sized and functional. full equipment list must be provided to ensure workshops can provide the necessary services. 47. Fencing The type, height and area to be fenced should be examined and specified. 48. Weighbridte Type, capacity, platform sixe, etc. should be specified. 49. General Factory Layout The general factory layout is important and careful consideration should be give, to this. Site access roads for moveeot of vehicles, loading/unloading, removal of rubbish, etc. must be considered. Layout of buildings should take into consideration, noise administration, etc. The whole works should be well laid out and planned to ensure functionality and good working environment. 50. Prepare and produce all the detailed engineering drawings, specifications and schedules necessary for the construction and satisfactory operation and maintenance of each standard factory and all supporting - 103 - ANNEX 5 TOR 1 Page 11 ancillary works and buildings in accurdance with national regulations and the best accepted engineering practice. 51. The engineering drawings specification and schedules required for each standard factory and ancillary works and buildings should include the following: (a) General arrangement drawings including factory site layout plan, process and service machinery layout plans. (b) Building drawing with plan and elevation views and all design details such as holding down requirements, roof ventilation, overhead hoist runways, overhead maintenance crane, rod and side cladding including translucent sheeting, etc. The drawings should show all necessary static and dynamic column loads resulting from the operation of the process and power plant housed within the main factory building so that the effect of these can be incorporated into the foundation design. Earthquake a A wind load factors will have to be taken into account according to the location of each standard factory but the effect of these on design will be included in the specification of civil works for each factory location which will be the subject of separate terms of reference. Cc) All flow diagrams including process and fluids. ,d) Detailed electrical distribution drawings showing power and lighting requirements, main electrical switchboard, motor and process control panel drawings, wiring diagrams and schedule of electrical cabling, including cable runs and sizes. (e) Air duct drawings showing fans, blowers and locks, etc. (f) Detailed process and service subassembly drawings and detailed schedules of all ancilliary equipment. (MCtors, gearboxes, starters, sw:wtches, light fitting, control gear, etc.). For all these items trebles of selections must be provided in accordance with good engineering practice and standards. 52. The necessary spare parts and consumable materials schedules for each item of process and service machinery and equipment to ensure continuity of factory process for at least the first two years operation, after formal acceptance of the whole factory works in accordance with contract coaditions. An operational inventory system for spare parts should be laid down, to ensure efficient holding and quick replacement of spare parts. The necessary staff schedules showing numbers, and minimum qualifications and experience for the satisfactory operation of the whole factory works. - 104 - ANNEX 5 TOR 1 Page 12 D. Composition of the Team of Consultants 53. It is estimated that the preparation and production of all the necessary tender documentation, engineering drawings: schedules and staffing requirements for the first standard factory may take up to seven months. The composition of the team of Consultants and the professional inputs required to undertake the task may be expected to be approximauely as follows: man-months Processing Engineer/Coordinator 7 Mechanical Engineer 6 Structural Engineer 2 Electrical Engineer 2 Draughtsmen 14 Support Services 8 Total 39 54. The consulting firms invited to bid for the above work may propose altermatives to these Terms of Reference, to the suggested composition of the tea of consultantst and estimated time scale, together with justifications which will be considered by the Client. E. Reports 55. The following reports, to be written in English, shall be submitted in accordance with the schedule shown below: Submission of reports from start of work (a) Preliminary reports containing 2nd month findings, alteenative proposals and basic design: general layout capacities and machinery/equipment selection. (b) Draft report: Proposals plus 5th month drawings plus specifications (preliminary/sketches) (c) Final Report 7th month 56. The first two reports shall be submitted in 10 copies each and the final report in 25 copies. - 105 - ANNEX 5 TOR 2 Page 1 INDONESIA TREE CROP PROCESSING PROJECT Terms of R;ference for the Standardization of Rubber Factories A. Background 1. The Government of Indonesia (GOI) and intexrnational Bank tar Reconstruction and Development (IBRD), have and are jointly financing Nucleus Estate and Smallholder Development Projects (YES) aside from wholly funded PIR Projects by 001. GOI and IBRD intend to jointly finance a Tree Crop Processing Project for the construction/expansion of rubber processing facilities which the consulting firm shall take into account in undertaking the scope of works in the Terms of Reference. 2. At present each new construction or expansion of rubber factories fcr the various Nucleus Estate and Smaillholder Develo,ient (YES and PIR) Projects are designed on a location/project basis and even though recently moves towards standardization have been made, different specifications and configurations still result. Even a Government-owned estate enterprise (PTP) which has several factories of the same size has not standardized its designs. Each construction and/or expansion usually contains only general specifications of machinery and equipment, with minimum drawings for factory layout and supporting facilities. Non standardization results in a mixed inventory of similar parts and noninterchangeability of spare parts, resulting in inefficiency and additional cost. Consultants for each construction and/or expansion have to be hired both for the preparation of new tender specifications and for supervision. 3. Standardization has the advantage of simplifying preparation before construction. Studies such as site location considering relevant factors, including soil investigation, design and specification of civil works would still be done individually under separate terms of reference. All other preparation before construction and/or expansion will not be repeated so that it would save time, money and effort. Likewise during construction, supervision would be simplified and will result in more efficient monitoring of costs both estimated and actual, also during the subsequent process operation. 4. During process, operation training of factory personnel will be simplified and interchangeability of staff from one factory to another whether in the same PT or another would be facilitated. Variety of spare parts carried would be reduced, hence disruption of operations due to lack of spare parts should less frequent. Carrying cost of spares would be reduced. Inventory control would be simplified and even central inventory of spare parts either by a PTP or a group of PTPs or the total PTP system could be achieved with eventual standard maintenance workshops for repairs and reconditioning. - 106 - ANNE( S TOR 2 Page 2 B. Objectives 5. The main objectives which the standardization of factories and related facilities is intended to achieve should include the followings (a) The selection of appropriate design capacity factories, easy to operate and manage and capable of producing good quality products at high efficiency, low operating costs and cost effective investment. (b) The selection of prucessing equipment and layout, building design on the grounds of simplicity of construction, operation and maintenance. (c) Care should be taken in design and choice of equipment to ensure continuity of processing facilities by duplication of essential items of equipment without incurring excessive capital expenditure. (d) An appropriate economic balance between capital investment and operating costs. (e) The preparation and production of standard tender documents, specifications, engineering drawings and schedules. Special consideration should be given to the preparation of standard contract documents and conditions. 6, In order to ensure that standardized designs achieve their objective of maximizing benefits it will be necessary to specify as closely as possible all factory machinery and equipment, buildings and ancillary works. C. Scope of Work 7. In undertaking this study, the consulting firm shall bear in mind the rubber factories which will be constructed/expanded under the Tree Crop Processing Project. The consulting fira will: 8. Review present outline designs, technical specifications, capacities and capital cost, operating procedures including staffing, performance and costs, raw materials inputs, marketable products and product qualities, storage and transport requirements for rubber factories operating in Indonesia and other main producing coun;ries. 9. Indicate main points of similarity or difference between the Indonesian situation and other tropical regions and the technical, economic and sociological justifications for any differences highlighted. 10. Within the scope of standardization, select the most appropriate technology, bearing in mind the various Indonesian situations and the possible effects these will have on the forms and quantities in vhich the raw materials will become avaii.able, and on the factory design and capacity requirements. 11. Indicate where such improvements could be beneficiary applied to existing processing factories within Indtnesia. - 107 - ANNEX 5 TOR 2 Page 3 12. Establish the desirable minimum number of standardized factory sizes for rubber processing in Indonesia. These features will include the following: (a) The required range in factory capacities, the capacity range in main process, service machinery and equipment available from suppliers; (b) The maximum and minimum factory capacities considered desirable on grounds of economic, power generation, trans ort requirements and management control; (c) The desirability of avoiding where practical the use of single process lines and single i;ems essential service machinery and equipment in the event of breakdowns. 13. Consider the technical and economic advantages of alternatives process operations and machinery currently in use within rubber factories, select the appropriate operation and design and indicate the expected technical and economic benefits. 14. Alternatives for latex lines should include the following: (a) Reception coagulation - Design of bulking tank and coagulation through according to a step by step investment with 25 to 301 initial coagulation capacity allowing further extension. - Efficient filtration of latex. - Efficient blending of latex - Allowance for chemical addition - Design of efficient and simple acidification system. (b) Processing of latex coagulum - Choice of type and number of machineries bearing in mind; quality of finished product, easy drying energy consumption, maintenance costs, ability of processing any type of coagulum, and investent cost. - Choice of layout that will maximize floor space utilization, flexibility in processing latex and field coagulums, further - extensions. (c) Final Size Reduction - Choice of type of machinery for efficient size reductioc, ease of operation, good preparation for drying, low operating and maintenance costs. - 108 - ANE 5 TOR 2 Page 4 15. Alternatives for field coagulum lines should include the followings (a) Capacity - 1001 of factory capacity will be considered for field coagulums as it is difficult to assess what will be the proportion of latex. (b) Reception of field coagulum - Design of reception platform or tanks to allow good condition storage, easy and efficient blending, easy and economic handling, bearing in mind the wide range of raw materials the absolute necessity of adequate blending to ensure consistency of finished product. Ic) Preliminary size reduction and preclearin; - A preliminary size reduction operation is most likely to be needed. - Cleaning is the most important factor as grading of rubber depends on dirt content and small holders raw materials can be very contaminated. (d) Size reductions blending and cleanig - The most suitable methods for blending and cleaning will be investigated in order to maximize the quality of finished product. Quality, processing costs, maintenance, efficiency will be the leading parameters. (e) Final size reduction - Final size reduction will be common with latex line. 16. Alternatives for drying and baling should include the following: (a) Drying - Drying will be common for latex and field coagulum. This means that flexibility will be the major parameter. Fuel and electrical coqsumptions are important factors in processing costs and specification for dryer will include performances. (b) Baling - Pressure, time, maintenance cost will be considered. - 109 - ANNEX 5 TOR 2 Page 5 17. Alternatives for buildings will include the followings (a) Factorr buildint - Layout, size will be adequate to allow flexibility in further extensions (latex or field coagulums) bearing in mind investment costs (size, design) ease of operation, ease of maintenance and structural constraints (wind, maintenance overhead cranes, etc.). (b) General factory site layout - Ease of communications, power and water dispatch, investment and maintenance costs will be kept in mind in the general layout. Sc) Ancillary bailding - Layout, sizes will be adequate to allow efficient operation and costs savings. Safety regulations or constraints will be taken into account. 18. Ancillary Equipment (a) Power SuDply - Number, size of generators will be in accordance with needs and good engineering practices. (b) Water Supply - A standard water treatment plant will be designed in accordance with industrial and domestic needs. Qualities and quantities of water for each use will be specified. Water treatment will include river intake, treatment, storage and dispatch. Investment and running costs will be the leading parameters. (c) Electricity - A need for heavy standardization of all electrical components is imperative in order to ensure easy spare parts inventory and adequate maintenance. (d) Workshop and Laboratory Equipment - Full equipment list will be provided for efficient operation. (e) Weighbride - Tire, capacity will be specified, bearing in mind possible container loading. - 110 -. ANNEX S TOR 2 Page 6 19. Prepare and produce all the detailed, engineering drawings, specifications and schedules necessary for the constructions and satisfactory operation and maintenance of each standard processing factory and all supporting ancillary works and buildings in accordance with national regulations and the best accepted engineering practice. (a) Ancillary works and buildings should include the following: (i) raw materials storage; (ii) finished product storage; (iii) process control laboratory; (iv) factory workshop spare part sttore and carpenters workshop/store; (v) power generation room; (vi) toilet block; (vii) water supply, pumphouse, treatment and storage (viii) factory complex, electrical distribution and lighting system; (ii) vehicle maintenance workshop/store; Is) fire fighting equipment; (ix) road weighbridge/sheds (s) fire fighting equipment; (xi) road weighbridge/shed; (xii) effluent treatment and disposal facilities; and (xii) office. (b) The engineering drawings specifications and schedules required for each standard factory and ancillary works and buildings should include the following; (i) General arrangement drawings including factory site layout plan, process and service machinery layout plans; (ii) Building drawings with plan and elevation views and all design details such as holding down requirements, roof ventilation, overhead hoist runways, overhead hoist ruwways, overhead maintenance crane, rod and side cladding including translucent sheeting, etc. The drawings should show all necessary static ANNEX 5 TOR 2 Page I and dynamic column loads resulting from the operation of the process and power plant housed within the main factory building so that the effect o4 these can be incorporated into the foundation design. Earthquake and wind load factors will have to be taken into account according to the location of each standard factory but the effect of these on design will be included in the specification of civil works for each factory location which will be the subject of separate terms of reference. (iii) All flow diagrams including process and fluids. (iv) Detailed electrical distribution drawings showing power and lighting requirements, main electrical switchboard, motor and process control panel drawings, wiring diagrams and schedule of electrical cabling, including cable runs and sizes. (v) Detailed process and service subassembly drawings and detailed schedules of all ancillary equipment. (Motors, gearboxes, starters, switches, light fitting, control gear, etc.). For all these items tables of selection must be provided in accordance with good engineering practice and standards. 20. The necessary spare parts and consumable materials schedules for each item of process and service machinery and equipment to ensure continuity of factory ptocess for at least the first two years operation, after formal acceptance of the whole factory works in accordance with contract conditions. An operational inventory system for spare parts should be laid down, to ensure efficient holding and quick replacement of spare parts. 21. The necessary staff schedules showing numbers, and minimum qualifications and experience for the satisfactory operation of the whole factory works. D. Composition of the Teom of Consultants 22. It is estimated that the preparation and production of all the necessary tender documentation, engiaeering drawings, schedules and staffing requirements for the first standard factory may take up to five months. Is 23. The composition of the team of Consultants and the professional inputs required to undertake the task may be expected to be approximately as followss - 112 - ANNEX 5 TOR 2 Page 8 man-months Processing engineer/coordinator 4 Mechanical engineer 1 Structural engineer 1 Electrical engineer 1 Draughtsmen 4 Support services 4 Total 15 24. The consulting firms invited to bid for the above work may propose alternatives to these Terms of Reference, to the suggested composition of the team of consultants and the estimated time scale, together with justifications which will be considered by the Client. S. Reports 25. The following reports, to be written in English, shall be submitted in accordance with the schedule shown below: Submission of reports from start of work (a) Preliminary reports containing 2nd month findings, alternative proposals and basic design: general layout capacities and machinery/equipment selection (b) Draft report: Proposals plus 3.5 month drawings plus specifications preliminary/sketches) (c) Final Report 5th month 26. The first two reports shall be submitted in 10 copies and the final report in 25 copies. - 113 - ANNEX 5 TOR 3 Page 1 INDONESIA TREE CROP PROCESSING PROJECT Terms of Reference for EngineerinR Consultancy of Factory Facilities Includins Supervision of Construction and Commissioning Background 1. Following the implementation of a number of rubber and oil palm nucleus estate and smallholder projects within Indonesia, suitable processing facilities are required to process the rubber and oil palm fresh fruit bunches (FFB) output projected over the next six years and beyond. 2. In view of the size of the planting program and the large number of new or expanded factories expected to be required, there is a need to simplify tender procedures, reduce construction programs and costs, and standardize on factory designs and operations. 3. Standard tender documents and engineering drawings have been prepared under separate Terms of Reference, incorporating: (a) Standard factory capacities; (b) Standard building designs and specifications; (c) Standard machinery layout plan; (d) Standard electrical layout, switchboards, starter panels and wiring in accordance with relevant standards; (e) Standard pipeline layout, size and material for all services in accordance with relevant standard; (f) Standard effluent treatment plants and environmental control equipment. 4. The purpose of these Terms of Reference covering th engineering consultancy of individual factories is to determine the required processing capacity based on crop projections, to provide the necessary remaining site specific tender documentation on site selection, soil properties and civil works designs and specifications, and to supervise the execution of the construction contracts through commnissioning of the whole factory works. The work to be undertaken by the engineering consultants would includes Preliminary Desiga Stage 5. Establish lines of communication, investigate and review all data and reports on the project which will be made available to the Consultant by the Client. - 114 - ANNEX 5 TOR 3 Page 2 6. In particular the review must include the following: (a) The actual areas, dates and conditions of project plantings as checked in the field, the different forms and qualities of the raw materials being produced and the crop projections for each. (b) The actual areas, dates, conditions and crop projections of any non- project plantings as checked in the field situated within possible economic transport distance of the proposed project site. (c) The actual or projected availability of non-project processing capacity situated within possible economic transport distance of the proposed project site and its suitability for pro^essing part or all of the project crop. Id) The sociological background of the labor to be used on the project site and the effects this may have on raw material inputs, factory capacity, designs and standardization. (e) The resulting process facilities required, listing capacities, raw material inputs, product quasities and quantities, suitability as a standard factory design unit, the required phasing of construction and the estimated completion time. (f) Make any normal topographical survey and subsoil investigations which may be required to supplement any information made available to the Consultant and investigate the suitability of the various sites proposed for the various building works taking into account possible flooding, water availability (quantity and quality), soil properties, liquid/solid effluent disposal and the transportation of raw material to the proposed factory site and transportation of finished products to the markets including port of shipment. (g) Advise the Client on any additional geotechnical investigations which may be necesnary, arrange for such investigations when adthorized by the Client, certify and payments to be made by the Client and advise the Client or. the results. 7. Prepare a report in English (6 copies) advising the Client of the findings of the above review within three months from commencement of work. The report must include recommendations as to the size of the factory and wbich site should be used for the construction of the factory works and should be supported by such documents including a project location map showing relevant planted area*, proposed factory site, road, river, or sea transport facilities, main topographical features, etc., cost estimates and proposed construction program as may be reasonably necessary to enable the client to consider the Consultant's proposals for ezecuting the works and to take a decision to proceed. Work on the main design stage would not start until the Consultant has received a formal request to proceed. - 115*- ANNEX 5 MR' 3 Page 3 Main Design Stase 8. The detailed design, specifications, engineering drawings and supporting schedules for the rubber/palm oil factory, ancillary works and buildings but excluding soil investigations, civil works and engineering designs which have already been prepared as accepted standards for rubber and palm oil factories by the Client. The Consultant would, therefore, make full use of this standard design and documentation in his preparation of the tender documents necessary for the execution of the construction contracts, 9. The Consultant would concentrate on preparing and producing all necessary supporting civil engineering drawings, specifications and schedules peculiar to the specific site approved by the Client for the construction of the works. These drawings and specifications, etc., must include all necessary earthworks, main water supply and treatment facilities surface water and foul water drainage, roadworks, hard surfacings, main factory and ncillary works building foundations and floor des.gns as well as the fwamda- tion designs for all the factory process, service machinery and equipment. Due recognition of earthquake factors sad design requirements must be made in fully accordance with Indonesia regulations. 10. Prepare and produce all the necessary tender documents covering the civil, mechanical gad electrical works required for the construction contracts including the following: (a) general conditions of contracts; (b) particular conditions of contract, including supply of all records and drawings; (c) technical specifications; (d) form of tender; (e) tender bond; (f) performance bond; (g) schedule of contract values and schedule of rates; (h) engineering drawings and supporting schedules; (i) process and efficiency specifications (product quality, product losses and throughput). - ii1 - ANNEX S TOR 3 Page 4 11. The standard specifications produced by the study of standardization of design shall be incorporated into the tender documents. 12. Advise the Client of the suitability of contracting firms for under- taking the construction of the proposed works and advise on any appropriate conditions of contract necessary for incorporation into the contract. Consteuction Stage 13. Advise the Client regarding the preparation of any formal contract documents. 14. Advise the Client on the necessity or otherwise for the employment of specialist cnsultants. 15. Examine the contractor's proposals and programs for the execution of the works. 16* Inspect and test during manufacture and installation all items supplied for incorporation in the work, and arrange witness acceptance tests includi'g the overall commissioning of the machinery and equipment, in accordance with pars. 10. 17. Advise the Client on the appointment of any site staff necessary for technical supervision on site. 18. Make such visits to site to are necessary for the Consultant to satisfy himself that the works are properly executed according to contract and otherwise in accordance with good engineering practice, all critical areas of construction must be checked by the Consultant. 19. Give all necessary written instructions to contractors provided that the Consultant shall not, without prior approval of the Client, give any instructions which would substantially increase the cost of the works. 20. Issue certificates for payment to the contractor in accordance with the relevant conditions of contract. 21. Perform any services which the Consultant may be required to carry out under the contract for the construction of the works. 22. Deliver to the Client on completion of the works in accordance with particular conditions of contract: (a) Records of relevant site, machinery, buildings, electrical fluid air and other ancillary equipment. (b) A full set of transparent drawings for: (1) Topographical survey; (2) Site plan inclusive of roads, drainage, etc.; - 11; - AUNEX 5 TOR 3 Page 5 (3) Civil works foundations; (4) Building structures; '5) Detailed machinery drawings and in&:asive of all dimensions, tolerances fits and construction specifications; (6) Electrical layout, switchboard, starter panels, wiring runs and diagrams; (7) Fluids layout, pipe runs; (8) Spare parts manuals for all equipment with references; (9) Maintenance instruction manuals for all equipment; (10) Operating manuals for all equipment. 23. Advise on any dispute or difference arising between the Client and the contractor subject to any arbitration or litigation clauses included in te contracts. 24. Present to the Client monthly written reports in English (6 copies) covering the physical and financial progress of the works, not later than the 10th day of the month. 25. If, in the opinion of the Consultant, the nature of the work requires fulltime or part time supervision on site, with the agreement of the Client, provide such supervision. 26. Prepare proposals for the safe and efficient operation of the works and for the training of operation and maintenace staff in accordance with standard training policy for the project. General 27. The services supplied by the Consultant would include the provisions of all technical advice and skills which are normally required for the class of work which the Consultants services have been engaged. 28. The Consultant should exercise all reasonable skill, care and diligence in the discharge of the services agreed to be performed by the Consultant and if, during the performance of his services the Cons-ltant has to exercise a discretion between the Client and the contractor, the Consultant would exercise his discretion fairly. - 118 - ANNEX 5 TOR 3 Page 6 Composition of the Team of Consultants 29. The composition of the team of Consultants and the professional inputs required to undertake the preliminary, main design and the construction stage of a complete factory are expected to be approximately as follows: For palm oil factory For rubber factory (man-onths) man-months ProJect coordinator/ process engineer 20 6 Tres crop agriculturalist 1 1 Civil engineer 6 4 Clerk of works 10 10 Mechanical engineer 6 1 Electrical engineer 3 1 Draftsman 7 2 Support services 10 3 Total 63 28 30. The consulting firms invited to bid for the above work may propose alternatives to these Terms of Reference and to the suggested composition of the team of consultants and estimated time scale, together with justifications which will be considered by the Client. - 11. - ANNEX 5 TOR 3 Attachment INDONESIA Page i TREE CROP PROCESSING PROJECT Terms of Reference for Engineering Consultancy for Urgent Palm Oil Factories Background 1. Following the implementation of a number of oil palm nucleus estate and. sallholder projects within Indonesia, suitable processing facilities are now required to be constructed to process oil palm fresh fruit bunches (FFB). 2. In view of the size of the program and the large number of new factories urgently required, there is a: need to facilitate supply procedures, optimize construction programs and costs, and standardize factory designs and operations taking into account the pecularities of the relevant conditions. Pending completion of standardization, a pre-standard design has been agreed. 3. For the urgent pre-standardized factories, tender documents have been separately prepared incorporating: (a) Factory capacities. (b) Building specifications. (c) Machinery layout plan and specifications. (d) Electrical specification. (e) Effluent treatment plants and environmental control. (f) Legal and financial provisions. 4. The purpose of these Terms of References covering the engineering consultancy for individual factories is to supervise the execution of contracts, from site preparation through to succes'ful commissioning of the whole factory works. The work to be undertaken by the consultants is: Construction 51 Advise the Client regarding the preparation of any formal contract documents. 6. Advise the Client on the necessity for employment of specialist consultants, as and when the need arises, for any part or parts of the construction contracts. 7. Examine the contractors' proposals and programs for the execution of the construction contrazt, and, where appropriate give advice to the Client with recommendations. S. Make visits to the construction site, and provide sufficient full- time site supervision as and when required to examine, monitor and control works in progress to ensure: - 120 - ANNEX 5 TOR 3 Attachment Page 2 (a) Work is progressing in accordance with schedule; (b) Work is properly and expertly executed, and in accordance with contract documents, drawings specifications and good engineering/building practice. (cc All critical areas of construction are examined and certified, before continuation of construction work is permitted. 9. Give all necessary written instructions to contractors, provided the consultant shall not, without prior approval of the Client, give any instructions which would substantially increase the cost of the works. 10. Advise the Client on the issuance of certificates of payment to the contractor in accordance with the terms of contract and uork completed. 11. Provide full-time supervision by an experienced, qualified engineer throughout machinery installation and successful commissioning of the factory. 12. Provide full-time monitoring of contract works by an experienced site superintendent/clerk of works. 13. Provide full-time monitoring of electrical installation by a qualified tlectrical Engineerl fcr the period of electrical installation and commissioning. 14. Participate, together with the Client's representatives, in the acceptance tests, including the individual and overall commissioning of machinery and equipment, and advise progress to Client. 15. Perform any service or services which may be required under the term or fullfillment of the construction contract. 16. Deliver to the Client on completion of the works in accordance with particular conditions of contract, all relevant records pertaining to site, machinery, buildings, electrical and oher ancillary equipment. 17. Advise on any dispute or difference arising between the Client and the Contractor, subject to any arbitration or litigation clauses included in the contracts. 18. Present to the Client monthly written reports in English (6 copies), covering the physical and financial progress of the works, not later than the 10th day of each month. 19. If, in the opinion of the Consultant, the nature of the work requires other full-time or part-time supervision on site, with the agreement of the Client, provide such supervision. 20. Prepare proposals for the safe and efficient operation of the factory. -121 - ANNEX 5 TOR 3 Attachment general Page 3 21. The services supplied by the Consultant will include the provisions of all technical advice and skills which are normally required for the class of work which the Consultants services have been engaged. 22. The Consultant shall exercise all reasonable skill, care and 4iligenC.e in the discharge of the services agreed to be performed by the Consultant and will exercise his discretion fairly at all time. Combosition of the Team of Consultants 23. The composition of the team of Consultants and the professional inputs required to undertake the construction stage of a complete factory are expected to be approximately as follows: For ursent palm oil factory (ma-mouths) Nechanical/Process Engineer/Coordinator 9 Civil Engineer 1 Site Superintendent/clerk of works 18 Electrical Engineer 2 Support Services 3 Total 33 24. The consulting firms invited to bid for the above work may propose alternatives to these Terms of Reference and to the suggested composition of the team of consultants and estimated time scale, together with justifications which will be considered by the Client. - 122 - ANNE 5 TOR 4I rage 1 INDONESIA TREE CROP PROCESSING PROJECT Terms of Reference for Consultant Processins Engineers Attached to PT? Headquarters 1. In order to assist the PTPs on engineering matters relating to existing and proposed new processing facilities, it is proposed to attach internationally qualified processing engineers (one for palm oil and/or one for rubber) to each project PTP for the duration of project implementation. 2. Based at the PTP Headquarters and directly reporting to the PTP First birectors, their main duties would bes (a) Existing processing facilities: (i) To reviewt a. the type, layout, specifications an physical conditions of process and service machinery and equipment, main and ancillary buildings and of present factory works; b. the present performnes of process and service machinery and equipmet and ancillary factory works; c. the position with regard to the provision and inventory control of spare parts and consumables; d. the process performance of the factory maehinery and equipment particularly in relation to raw material and product qualities, yields and factory extraction efficiencies; e. the factory production costs, including operating and maintenance and factory overheads; f. the factory effluent control facilities and general conformity to existing or likely future statutory regulations. (ii) To report and make recommendations on the followings a. the review and assessment made under part. 2 above; b. the measures required to remedy any possible shortcomingsl c. the program required to implement such measures; d. the estimated costs and savings for such a program. - 123 - ANNEX 5 TOR 4 Page 2 (b) New construction and expansion of processing facilities: (i) To follow the construction, supervision and commissioning of new factories in liaison with the engineering consultants engaged for this purpose by the PTP; (ii) To monitor performance of process, service machinery, equipment, and ancillary factory works (iii) To implement necessary provision and efficient inventory control of spare parts and consumables; (iv) To introduce and implement cost control systems; (v) To maintain efficient operation of the factory. 3. In liaison vitn the Training Consultant in Tim 9husus, identify the training needs, organize training programs and coordinate the training of engioering staff for existing processing facilities and proposed now factories. To prepare monitoring systems to allow regular checks to be made on the achievements reali3ed above and report on these to the PTP. 4. In liaison with the Monitoring and Analysis Division in Tim Khusus, set up monitoring and evaluation systems for all factory operations; in particular prepare operating manuals establishing factory performance criteria and operating procedures to assist factory managemnt in improving the general levels of operating efficiencies, reducing costs, improving product qualities and yields and achieving savings and increased revenues. 5. The consultants would be employed from the start of construction until one year after comaissioning for a new construction and 1/2 year after comnissioning for an expansions in the case of palm oil factories, the consultants would be needetd for three years for a new construction and 1-1/2 years for an expansion; in the case of rubbor factories, two years for a new coastruetion and 1-1/2 years for an expansion. - 124 - ANNEX 5 TOR S Page 1 INDONESIA TREE CROP PROCESSING PROJECT Terms of Reference for Site Trainins Engineer 1. His main duties would bet (a) To provide adequate practical on site training to any category of personnel as identified by: (i) PTP management; Cii) long-term processing consultants attached to the PTPs headquarters; (iii) Tim Khusus training consultant. (b) To assist the PTP HQ consultant in determining, on site needs for related trainiag, additional staff and equipment or shortcomings of existing equipment, by regular dialogue/feedback. Sc) To provide advice, Information, documentation for possible improvement of operations according to experience and needs. (d) To prepare manuals/handbooks for use by trainees on their return to the work place. Se) To prepare, write, supply and explain necessary methods of operation for factory management and staff (f) To help set up monitoring systems for all parts of factory operations and explain necessity and usefulness of such systems. !elrience and Qualifications (a) 15 years of proven operational experience and ability in the specific discipline. (b) Ability to transfer practical knowledge and supply necessary reasoning for operation. (c) Be prepared to work continually at various sites of implementation. (d) Have an outgoing personality and be able to comlunicate with all levels of management and staff. - 125 - ANNEX 5 TOR 6 Page 1 INDONESIA TREE CROP PROCESSING PROJECT Terms of Reference for Tim Rhusus Training Consultant 1. His main duties would be: (a) To organize the training program for each specific factory and to ensure all resources, human and physical, are available when required and in the most cost effective manner. This will be done in conjunction withs (i) PTP management; (ii) long-term processing consultants attached to PTP's Headquarters and; (iii) Tim Rhusus processing consultants. (b) To recruit on site training engineers for the various disciplines (oil pals processing, rubber processing, maintenance, effluent control, etc.). (c) To organize and schedule practical on-site training programs with the different PTPs. (d) To appraise results of practical on-site training with: (i) (ii); and (iii). (e) To discuss, identify and plan future needs for training with: (i); (ii); m (iii). (f) To prepare budget, recruit necessary resource people and facilitate the reimbursemnt to the PTPs of their training costs. EuPerience and Qualifications (a) 10 years of experience in the field of palm oil/rubber processing training, organization and managemet in the plantation industry. (b) Ability to coordinate and control training needs and results with professionals training coasultant and on site personnel. - 126 - AMW El 5 TOR 7 Page I INDOUSIA TREE CROP PROCESSING PROJECT Terms of Reference for Tim Khusus Monitorin8 and Evaluation Consultant Background 1. The Monitoring and Analysis Division in Tim Khusus is a staff group which monitors physical and financial progress and evaluates the impact of projects supported by external financing. The geaod of the Division reports directly to the Chairman of Tim Khusus and coordinates with other divisions. It is the conduit through which data and information oan project performace is analysed and reported to the relevant parties. At present, the staff of the Division is organized into throe sectionst (i) progress reporting; (ii) data analysis; and (iii) impact analysis. The Division has ben responsible for analysis and reporting for a number of projects assiste4 by the ank, including the preparation of project cowpletion reports. 2. Over the years, the staff of the Division have gained considerable experience in progress reporting and have acquire4 significant skills in the application of microcompter techniques in general and in the use of word processing and spreadsheet packages in particular. Under the Tree Crop Processing Project, the Division will have its responsibilities extended to tracking progress in the construction of rubber and pals oil factories. For this purpose, the staff will be streagthend and, the processing equipmt incresed. A consultant adviser will be provided under the project o enhance existing skills and help train the staff in modern monitoring and evaluation techniques. Duties and Scope of Work 3. The consultant advisor is expected to assist the Read of the Monitoring and Analysis Division in Tim Xhusus, and to train his staff in the following main are"s (a) The application of microcomputer-based scheduling, costing and tracking techniques on the basis of the software package that the Division has alredy identified. In this area of work, the consultant will help to implewwt a system of tracking the progress of earned values against a planned budget schedule of each factory to be constructed or expanded under the project; (b) The introduction of a data-base manage_mt system to orgnise and update information on progress of the current project as well as that relating to projects which the Division is onitoring. The system should be based on the existing equipmet and on those microcomputers that the Division will purchase under the Tree Crop Processing Project. - 127 - ANNEX 5 TOR7 Page 2 (c) The training of the Monitoring and Analysis Division staff in project related economic analysis in general and in the re- estimation of internal rates of return for on-going projects prior to completion. The consultant is expected to provide a major contribution to the economic analysis of projent impact. (d) The provision of assistance to the PTPs in establishing an appropriate reporting format including the efficiency indicators (see para. 5.8). (e) The provision of an input to the preparation of quarterly and annual reports, as needed. Cf) The performance of such monitoring and evaluation tasks as determined by the Head of the Monitoring and Analysis Division in Tin Ehusus. 4. Experience and Qualifications (a) Ten yars of provne operation experience in the management aspects of developmnt projects; (b) Five years of experience in microco m_ter applications in project maInageent in general and in scheduling and tracking in particular; (c) Haviag the necessary skills in economic analysis of project benefits ad estimation of internal rates of return$ (d) Ability to comunicate with effectively project implemntation personnel at all lewj10s (e) Having the basic willingness to assess modern techniques in monitoring and evaluation in the light of possible applications to the work of the Monitoring and Analysis Division staff; and (f) Having proven operience in technical training of middle-level and senior staff. - 128 - TOR 8 Pa-ge-l INDONESIA TREE CROP PIOCESSIRG PROJECT Terms of Reference for Rubber Processing Adviser Background 1. The Covernment of Indonesia (GOI) and the International Dank for Reconstruction and Development (I8D) are jointly financing several Nucleus Estate and Smaliholder Projects (NES Projects) in addition to COI's direct undertaking of several development projects (PIt Projects). Under the Tree Crop Processing Project a number of rubber factories will be built to process the crop obtained from the above schemes. In order to assist the Director General of Estates (Tim Khusue) in project preparation, implementation and efficient operation/supervision, a provision has now been made for recruiting a Rubber Processing Adviser. Qualifications, exporiento and job responsibil- ities of the rubber processing adviser would be as follows. E3yerience and Qualifications 2. (a) Must possess a minium degree or Registered Professional qualification in Process/Chemical/Nechanical Sngineringo. (b) Should have at least ten (10) years experience in rubher processing of various tpes of rubber factory including designini oi factory layout, preparation of technical specification and tender documents, supervision of construction and operations. (c) Should have had experience in cost and quality control and be fully conversant with modern techniques for monitoring factory performance. Responsibilities 3. Among others, the Consultant should: (a) Assist in the review of feasibility studies and preparation of reports, studies atd review related to rubber processing. (b) Assist in the planing and phasing of new rubber factories and expasion in order to ensure processing capacity mets demand in the most cost effective manzer. (c) Assist and advise the consultants engaged for the rubber factory standardization study. (d) Assist in the design of rubber factory layout, including support facilities, technical specifications, drawings, cost estimates and tender documents. - 129 - ANNEX 5 TOR 8 (e) Assist and advise the engineering consultants attached to the PTP8 for construction and commissioning of new factories, and in the supervision and monitoring of performance in existing factories. (f) Assist and advise the training consultant attached to Tim IKhusus, the PTP headquarters processing consultants, and the mobile on-site training engineers in matters relating to training. (g) Assist in the monitoring and evaluation exercise and ensure all relevant factory production costs and efficiency factors are recorded and analyzed to secure improved efficiency. (h) Advise on rubber factory staffing and manning levels, and on monitoring performance of staff and maintenance personnel. (i) Coordinate with the rubber agronomists in the preparation of reco_mendations on the policies and procedures for collection, transport and processing of smallholders produce. g3) Assist in the design of effluent treatment plants and in the monitoring of efficiency to easure compliance with 001 standards for discharge to waterways. (I) Perform any other duties related to rubber processing or the consultant's discipline. Duration 4. The contract would be for an initial period of two years, subject to further renewal. - 130 - TOR 9 Page 1 INDONESIA TREE CROP PROCESSING PROJECT Terms of Reference For Palm Oil Processing Adviser Background 1. Same as rubber but substitute Palm Oil Processing Adviser for Rubber Processing Adviser. Qualifications 2. (a) Must possess a BSc in Mechanical/Marine Engineering from a recognised University, or equivalent. (b) Must posses a lst Class Machinery Department/Marine Departmet or equivalent certificate of competency for the operation of steam boilers and power plant. Experience 3. (a) Should have a good grounding in engineering workshop practice and preferably have spent at le"st two (2) years in an engineering workshop. (b) Should have at least 10 year experience in the palm oil processing industry, with at least seven of those as Factory Manager or Senior Engineer in charge. (c) Should have at least 3 years experience in a consulting/contracting engineers office, and be fully conversant with design, drawing, specification and documentation for construction of palm oil factories or other large engineering projects of a manufacturing nature. (d) Should have had experience in cost and quality control and be fully conversant with modern techniques for monitoring factory performance. Responsibilities 4. Among others, the consultant should: (a) Assist in the review of feasibility studies and in the preparation of reports, studies and reviews related to palm oil processing. - 131 - ANNEX 5 TOR 9 Yage 2 (b) Assist in the planning and phasing of new palm oil factories and expansions in order to ensure processing capacity meets demand in the most cost effective manner. (c) Assist and advise the consultants engaged for the palm oil factory standardization study. (d) Assist in the preparation of palm oil factory layout, including support facilities, technical specifications, drawings, cost estimates and tender documents. (e) Assist and advise the engineering consultants attached to the PTPs for construction and commissioning of new factories, and in the supervision and monitoring of performance in existing factories. (f) Assist and advise the training consultant attached to Tin Rhusus, the PTP headquarters processing consultants and the mobile on-site training engineers in matters relating to training. (g) Assist in the monitoring and evaluation exercise and ensure all relevant factory production costs and efficiency factors are recorded and analysed to secure improved efficiency. (h) Advise on palm oil factory staffing and manning levels and on monitoring performance of staff and maintenance personnel. Xi) Coordinate with the oil palm agronomists in the preparation of recommendations on the policies and procedures for collection, transport and processing of smallholder produce. (j) Assist in the design of effluent treatment plants and in the monitoring of efficiency to ensure OOI standards for discharge to waterways are met. (k) Perform any other duties related to palm oil processing or the conaultant's discipline. Duration 5. The contract would be for an initial period of two years, subject to further reneval. -132 - ANNE 5 TOR 10 Page 1 INDONESIA TREE CROP PROCESSING PROJECT Terms of Reference for a Survey of Effluent Control in Exirsti'ng -PTP Broaden to All Crop Factories Background 14 The recently enacted GOI Environmental Impact Assessment Regulation Vo. 29/1986, which became effective on June 5, 1987, has a retroactive provision which requires an Environmental Evaluation Report for existing projects which have a significant environmental impact. Both rubber and palm oil factories would fall into this category because of the large BOD and suspended solids pollution loads in factory effluents. Inspections have indicated that very few rubber and palm oil factories have adequately designed and effectively operating effluent treatment plants. It is now proposed that the Directorate General of Estates would engage consultants to determine and analyse options for effluent treatment in these facilities based on current practices in Malaysia and identify least-cost approaches suitable for Indonesia. 2. Selection of the most appropriate technology at each factory will depend on a number of factors, including processing factors, land avail- ability, suitability of factory effluents for irrigation, simplicity of operation and monitoring of the treatment process, as well as capital and operating costs. Objectives of the Study 3. To date no assessment has been made by the Department of Agriculture or any other Government or private organization of the economic and financial impact of the new GOI Regulation No. 29/1986 on the tree crop processing subsector. Since the current status of effluent treatment in existing PTP factories is unknown, a basic survey and data collection involving actual site visits will be required to collect the necessary information on which to make an accurate and realistic assessment of future effluent treatment requirements to meet Government standards for each factory. This survey should also identify in-plnt processing improvements which will reduce oil losses and effluent pollution loads and, thereby, minimixe the end-of-pipe treatment costs. Particular attention will also be paid to possible reuse of factory effluents for irrigation purposes and substitution of chemical fertilizers. 4. A number of standard effluent treatment design options will be evaluated and costed for various plant capacities prior to the field visits. These standard models will be evaluated and compared with actual plant site and estate conditions to determine the optimal method of effluent treatment including reduced chemical fertilizer usage. In the first instance, these estimates will be based on best available data, which can be refined as more accurate data becomes available from other studies. This level of detail will be necessary for the Department of Agriculture and PTPs to make informed decisions regarding future investments for pollution abatement. - 133 - ANX S TOR 10 scope S. All existing PTP processing facilities for rubber, oil palm and other crops (about 200 only for rubber and oil palm) in Indonesia will be surveyed by the consultants through field visits. Relevant data woul& be collected relating to processing capacity, plant design and operatingSfactors affgcting pollution loads, potential processing improvements, status of design and operation of existing pollution control facilities, requirements for upgrading or modifying these facilities, land availability and suitability for locating effluent treatment plants, suitability and capacity of estate plantations for effluent and sludge disposal, preliminary costing of optimal effluent treatment and process improvements. A computerized data base would be established to store this data in a standardized format for future processing, manipulation and updating, as well as for checking future design proposals by the PTPs for effluent treatment. Timing of Study 6. It is expected that the proposed study will take between 12-18 months and will involve visits to all PTP factories. Site visits are necessary, as questionnaires would not provide the level of detail required for an accurate assessment of future investments required to bring these factories into compliance with 001 pollution control regulations. Another advantage of site visits by consultants is that the data base can be generated in a suitable format for a number of possible future uses including the needs for institutional development in pollution monitoring and control at the provincial government level, for an assessment of the impact of government regulations in the tree crop processing subsector, and for possible future investments in the subsector. Estimated Manpower Requirements 7. Overseas Consultants 2 z 1.5 years Local Consultants 4 x 1.5 years - 134 - ANNE S TOR 11 Page I INDONESIA TREE CtO PROCESSING PROJECT institutional Developmet -Strenathening of Pollution Monitoring Capabilities in North Sumatra and West Kalimantan Introduction 1. The Government of Indonesia (G0O) has allocated responsibilities for enforcement of its pollution control regulations to the provincial Governors, lowever, at the present time institutional arrangements are inadequate to regularly monitor or control industrial or domestic waste discharges to air, water, or onto the land. 2. The COl recognizes the need for effective monitoring and eaforcement of pollution control regulations in all sectors of the economy, and particu- larly in the true crop processing subsoctor, where factory discharges can cause severe water pollution. Tbus, one iwportant institutional component of the Tree Crop Processing Project is to strengthen pollution monitoring in North Sumatra and West Katimantan and to study options for alternative arrangements for pollution control. iseaekround 3. Water pollution is the major concern in a number of provinces and water shortages are being eaperienced in a number of large urban areas, particularly in Java during the dry season. Water pollution control on a routine basis is generally weak throughout Indonesia. Despite laws and legal mechanisms, which are appropriate, attention is norvally focused on water pollution only under crisis situations where unicipal water supplies are seriously affected. 4. At present pollution control in rural areas is entrusted to the Supati. lwevser, the issue of waste discharge permits is legally in the hands of the provj,cial Governor who has de\qgated it to either the Dinas Public Works (PU) A or the Din"s Pengairan, whichever may ezist in the province. 5. Before an effective pollution control strategy can be impleeonted it will be necessary to routinely monitor the quatity ad quality of effluents from polluters as well as the river water being affected by the discharges. The institutions for water pollution mnoitoring in Indonesia are fragmeted and skilled personvel do not exist at all lovels. There are three main groups - 135 - ANNX 5 TOR 1I Page 2 at the provincial,level involved in monitoring of pollution: PU Kanwil,!/ Dinas Kesehatan - and PU Dinas). PU Kanwil covers the broadest range of monitoring activities for pollution and has the legal authority to perform the monitoring. However, most of the Kanwil offices are poorly equipped and do not have the resources to undertake any monitoring activities unless they are assisted by the Institute of Hydraulic Engineering-Environmental Division (rHE) from Bandung. IHE is one of the institutes in the Center for Research and Training (Puslitbang) under the Department of Public Works that has been assisting several of the Kanwil offices at the provinces to perform monitoring activities. IHE's most successful efforts have been on Java and in some of the provinces in Sumatra. 6. The Dinas Kesehatan has groups in only ten provinces for monitoring water pollution and is specifically directed towards monitoring for health purposes. PU Dinas is responsible for issuing industrial waste discharge permits on behalf of the Governor. However the Dines issues permits as a routine activity without determining the water pollution implications, nor does it verify from monitoring data whether the industries are conforming to the waste discharge permit. A. Outline of Proposal for Strensthenins Pollution Monitoring Units ?, Since tree crop processing is an increasing source of water pollution in the Outer Islands it is proposed under this project to strengthen pollution onitoring units in two provinces, North Sumatra and West Kalimentan, so that they are able to systematically and effectively carry out their legally mandated monitoring functions, not only for tree crops, but for the other industrial facilities and major domestic waste discharges as well. Under this project consultants would be required to assess the current status of monitoring by existing government bodies, the procedures for issuing discharge permits, the status of specific Governors' decrees relating to pollution monitoring in the provinces, the availability and experience of laboratory technicians, and the effectiveness of quality control over laboratory procedures, as well as the collection, preservation, transport and storage of samples for analysis. 8. In addition, they would identify the extent of pollution monitoring required in North Sumatra and West Kalimantan and establish a sampling frequency schedule which will balance the requireaments for a reasonably accurate pollution load assesmnt for each type discharge with the costs of carrying out the programs. Recomendations would be made for strengthening and increasing the analytical capabilities of the laboratories, making most effective use of existing facilities and trained staff. Training schemes will also be introduced to upgrade the capabilities of laboratory staff and to improve quality control of the monitoring process from sampling through to processing of analytical results. Capital and operating budgets will be prepared and staffing levels estimated to meet the requirements of the expanded program and the quality control objectives. 9. During the implementation phase of the work, consultants will work closely with the pollution monitoring units as advisors and on-the-job trainers until a smooth transition is achieved. As well as establishing internal quality control procedures, external quality checks by National - 136 - ANNEX 5 TOR 11 Page 3 Institutes such as I8E Bandung will also be instituted, since the ultimate objective is for these laboratories to be integrated into a pollution monitoring and control function for each province. Scope of Work 10. By means of a separate TOR, consultants will be engaged to survey pollution from existing PTP oil palm and rubber factories in all provinces, including North Sumatra and West Kalimantan. Under the scope of this TOR the consultant will be required to identify pollution sources from private and public factories in the tree crop subsector as well as from private and public factories in other industrial sectors. These data will be collected from existing government sources and the accuracy of the data verified by sample site visits on the basis of random selection. Thus a data base of pollution sources will be compiled on a PC computer along with information on areas in the province which have a record of past pollution incidents. The capabil- ities of existing analytical laboratories in the province should be assessed in the first instance to ensure that future proposals adequately take this existing capacity into account when making recommendations for future moni- toring and analysis of effluent and water quality All aspects of sampling and analytical quality control should also be considered by the consultants when reviewing these existing facilities. tle May government agencies and organisations are involved either directly or indirectly in water quality managmu_t at the national, pro- vincial, and local levels of government. The functib"ns of each of the principal agencies involved and the difficulties encoustered by Government in deeloping effective water pollution monitoring procedures should be addressed by the consultants when reviewing institutional arrangemets and regulations for pollution control in the provinces. The consultants will identify with the assistance of national and provincial Public Works Departments the most appropriate unit in the departament for performing the pollution monitoring function and will determine how this function can be performed more effi- ciently taking into account existing capabilities in the organization and in outside laboratory facilities. The consultants will also review the existing pollution discharge permit procedures within PU Dinas and evaluate its effectiveness where deficiences are noted. Recommendations will be made for improving the procedures and for more effective integration into the moni- toring progrm and reporting of excursions outside of the permit limits to the responsible authority. 12. Deficiencies in laboratory and sampling equipment would be identified by the consultants and equipment/chemicals lists drawn up for purchase under this program. Additional staffing requirements will also be detertined and a recruitont program initiated. The consultants will also assist Public Works to determine additional budget requirement to support the expanded monitoring program proposed under this project. 13. All aspects of internal and external quality control will be addressed by the consultants and procedures and operating manuals will incorporate this requirement. - 137 - ANNEX 5 TOR li Page 4 Documentation and Timing 14. General and Consultancy Services Progress Report. it is anticipated that the duration of the project will be approximately three years. The con- sultantshwill be responsible for preparation and submission of all documents listed in the following subsections, subject to the approval of project supervisors and incorporating their comments in the final versions. Reports sha4l be in English with summaries in both English and Bahasa Indonesia. Manuals shall be in Bahasa Indonesia. Twenty-five (25) copies ef all documents will be submitted by the consultants unless otherwist detailed. 15. Report formats 3hall, as far as practical, be standardized. Where investigations draw on work by others, documents prepared under the present TOR shall be sufficiently self-contained as to be understood without constant referral to other sources of information. 16. The final reports shall be printed on both sides of the paper to reduce thickness. All documents and drawings shall be marked prominently with the issue date and Kod. Wilayah (Area Code) and should be of a standard acceptable to the International Bank for Reconstruction and Development (World Bank). 17. Inception Report.. Within two months of commencement of the services, the consultants shall submit an Inception Report detailing the approach to the various project components and a detailed statement of the timing and deployment of their manpower resources. The report will also include a statement of data collection and any problems identified which may cause the project to be delayed. 18. Si: Mouthly and Final Reports. Initially to be provided in draft form, these reports will detail the results of the various studies, recom- mendations, budgets and actions taken to strengthen the Public Works' monitoring capabilities. One month after acceptance by COI, forty (40) copies of the final design report are to be submitted. 19. Final tvaluation Report. A final evAluation report and the final manuals are required at the end of the implementation stage in forty (40) copies. 20. Kanuals. Manals will be required for the pollution monitoring units to define sampling analytical, reporting, and quality control procedures, etc. 21. The manuals will be prepared during the consultancy assignreit and submitted in draft form for use by the monitoring units. These draft manuals will be modified as necessary from experience gained during implementation and submitted in forty (40) final copies w:th the Final Evaluation Report. - 130 - AMNE= 5 TOR 1 Page 5 Estimated Manpower Requirements 22. Overseas experts 3 x 1.0 man years per province Local consultant support service 2 x 3.0 man years per province 23. In addition, allow for additional costs during the first three years to strengthen the monitoring units to collect effluent and water quality samples and compile a data base of industrial discharges. - 139 _ ANNEX 5 TOR 12 Page I INDONESIA TREE cRoP PROCESSING PROJECT Terms of Reference for a Stud! of Rubber Marketing in Indonesia 1. The Government of Indonesia (COI) wishes to employ a consulting firm to: (i) evaluate the long term trends for domestic and international demand for the different types and grades of rubber now produced or which could be produced in Indonesia; (ii) review the current marketing channels; (iii) evaluate the potential profitability for each type and grade of rubber; and (iv) make recommendations on marketing policies. By these Terms of Reference, the Director General of Estates (DWE) invites consulting firms to submit a detailed work program and timetable for carrying out the work described below, together with the names and full CMs of the individual consultants involved, and cost proposals. Scope of Work 2. The consultants shall: (a) Identify and evaluate the long term trends for domestic and international demand for the different types and grades of rubber now produced or which it would be feasible to produce in Indonesia. The anlysis should detail each major market by location, end-users, and volume, in terms of weight and value, and should consider all requirements for the different types and grades of rubber such as latex, sheet, crumb, and crepe. For each major market, the analysis should review the evolution of market behavior for the past ten year. and project trends for demand for fifteen years into the future. The analysis should be based on statistical data from reliable sources such as the International Rubber Study Group (IRSC) and take into account opinions solicited from major end users and market. (b) Review and evaluate the existing policy and institutional framework in Indonesia for the marketing of rubber, including distribution to export markets, to identify constraints and make reco _endations for improving marketing efficiency. The study should assess marketing and pricing policies and processes and marketing channels in both the public and private sectors, for each stage of the marketing chain between the collection and the final sale of each type of rubber. (c) Assess the current and projected capacity of Indonesian producers in both the public and private sectors to compete effectively in the various markets, based on actual production, processing and marketing costs for estates and smallholders according to the type and grade of final product. - 140- ANNEX 5 TOR 12 Page 2 (4) On the basis of the foregoing, recommend different possible rubber marketing strategies for the next fifteen years for GOT consideration. The recommendation should: (i) assess the likely costs and benefits; (ii) identify the main areas of risk and possible measures to minimize risk; and (iii) undertake appropriate sensitivity analyses. ComDosition of the Team of Consultants 3. It is expected that the team of consultants would include technical professionals with a long experience in international rubber marketing, rubber production and processing, marketing organization, and economics/finance. Professional inputs required for this study have been estimated at a maximum of 10 man-months, as in the break-down given below. Professionals Man-months Economist with experience in commodity markets, preferably rubber (Team Leader) 4 International rubber marketing specialist with good knowledge of ths rubber manufacturing industry 2 Rubber trading specialist with experience in Indonesia 2 Rubber processing engineer with experience in Indonesia and sound knowledge of collection systems for smat olders' rubber in latex and solid ftwms 2 Total 10 4. The consulting firm may recommend, for consideration by DCI, changes to the proposed Terms of Reference, to the composition of professionals, and to the estimated man-months outlined above. The study should be completed within 6 months. Reports 5. The consultants shall submit to uGse, within four months from the start of work, an Interim Report in S copies for its review and comments. After the completion of DGE's review, the consultants shall take into consideration the comments received and submit within two months the Final Report in 25 copies. - 14 - ANNEX 5 TOR 13 Page 1 INDONESIA TREE CROP PROCESSING PROJECT Terms of Reference for Study of Long-Term Requirements for Rubber and Palm Oil Processing Facilities in Indonesia A. Background 1. The Government of Indonesia (GOI) wishes to employ a consulting firm to study the current and projected requirements for rubber and oil palm processing facilities in Indonesia through the year 2003, and to formulate a strategy to meet the requirements. This study is expected to build upon the findings of a proposed study to recommend rubber marketing and product development strategies for Indonesia. 2. By these Terms of Reference, the Director General of Zstates invites consulting firms to submit a detailed work program and timetable for carrying out the work described below, together with the names and ful'l CVs of the individual consultants involved, and cost proposals. This study will be financed under the Tree Crop Processing Project to be jointly fin.uced by GOI and the International Bank for Reconstruction and Development (IBRD). Hence the experience and qualifications of the consultants and their terms of employmeat will be agreed to by both partiss. 3. The Directorate General of Estates (DGE), within the Department of Agriculture, is responsible fot the overall development of estate crops including rubber and oil palm. Within the public sector, the GO! has used four basic strategies for promoting tree crop developments (a) an extension program and supply of planting materials only; (b) projects implemented by project management units (PMUs); (c) projects implemented by nucleus estates; and (d) rehabilitation and expansion of small and medium sized private estate enterprises. 4. Private sector participation in tree crop development has not been as extensive, although a number of large and small private estates and processing facilities are in operation. Government anticipates the establishment of new nucleus estate and smallholder development projects by the private sector, either by wholly domestically-owned companies or through joint ventures with foreign firms. 5. Rubber produced by private estates, unassisted smallholders, and smallholders in PKU programs is currently processed primarily by privately- owned rubber factories, while rubber and oil palm produced by nucleus estate and smallholder schemes are processed primarily by factories on Government- owned estates (PTPs). - 142 - ANNEX 5 Toa 13 Page 2 S. Scope of Work 6. The consulting firm shall: (a) Review the evolution of production and processing of rubber and oil palm in both the public and private sectors for the past ten years. The review should assess past production performance and any significant agronomic, technical, marketing, or policy factors that may have influenced that performance. (b) Estimate the current and projected production of unprocessed rubber and oil palm fresh fruit bunches (FFB) in both the public and private sectors annually for the period from 1987 to 2005. The estimates should be disaggregated in terms of planted hectarages, type of planting material, and assumed yield profiles by districts (Kabupaten) throughout the country. The methodology employed should be clearly stated, and should take into account available data and realistic assumptions related to: (i) current, planned and projected public and private investment in the planting and replanting of rubber and oil palm; (ii) GOI policies and regulations affecting production, processing and marketing in the sector; (iii) domestic and external demand for raw material and processed products; and (iv) production efficiency within the sector. In making its assumptilna, the consulting firm should take into account the findings of the rubber marketing study (see par&. 1). The estimates should be tested by field visits to a representative sample of current and planned production areas. 'c) Estimate current, actual rubber and oil palm processing capacity and actual production in both the public and private sectors. The estimates should be disaggregated in terms of final product, type of raw material, source of supply, district, and, to the extent possible, by factory. The estimates should be tested by field visits to a representative sample of public and private rubber and palm oil factories. (d) Taking into account the findings of (b) and (c) above, and (e) below, prepare estimates of potential private investment in rubber and oil palm processing annually for the period from 1987 to 2005. The estimates should be disaggregated, to the extent possible, by final product, production capacity, location, and source of raw material supply. The methodology and assumptions employed should be clearly stated, and the estimates should take into account opinions solicited from knowledgeable sources in the public and private sectors, including existing processors. (e) Taking into account the findings of (b), (c) and (d) above, and the product development strategies proposed by the marketing study, formulate a strategy and a proposed annual investment program for expanding or constructing new public rubber and oil palm processing facilities and related infrastructure that would take into account spare capacity in existing processing facilities and result in a - 143 - ANNEX 5 TOR 13 Page 3 least cost development sequence for investment in public processing for the period up to 2005. The methodology and assumptions employed should be clearly stated. The proposed public investment program should be detailed, to the extent possible, by final product, type of facility, and production capacity, location, source of supply, transport requirements, estimated investment cost, and estimated financial and economic rates of return. The analysis should also: (i) identify the main areas of risk and possible measures to minimize risk; (ii) include appropriate sensitivity analyses; and (iii) outline selected alternative strategies. C. Composition of the Team of Consultants 7. It is expected that the team of consultants would include technical professionals with several years of experience in economics, finance, transportation, marketing, tree crop agronomy, and rubber/oil palm processing. Professional inputs required for this study have been estimated at a maximum of 34 ma-months, as in the breakdown given below. Professionals man-months Economist/Commodity Specialist (Team Leader) 8 Pinancial Analyst/Economist 6 Transport Engineer/Economist 2 Market Analyst 2 Tree Crop Agronomist 6 Rubber Processing Engineer 6 Oil Palm Processing Engineer 4 34 S. The consulting firm may recomiend, for consideration by DGE, changes to the proposed Terms of Reference, to the composition of professionals, and to the estimated man-months outlined above. The study is expected to be completed within eight months. 0. Reports 9. The consultant shall submit to DOE, within four months from the start of work, an Interim Report in 25 copies for its review and comment. The Interim Report should include the basic data and justifications for the assumption's that would be employed in the analysis. After review by DGE, a determination shall be made as to whether the scope of work should be expanded or reduced. The draft Final Report shall be submitted to DGE in 25 copies within seven months from the start of work for review and comment. After the completion of DGE's review, the consultant shall take into consideration the 1 comments received and submit within one month the Final Report in 25 copies. - 144 - ANNEX 6 INDONESIA TREE CROP PROCESSING PROJECT Selected Documents and Data Available in the Project File A. Selected Material on Subsector (none) B. Background Material on Project B-1 Directorate General of Estates (Tim Khusus) Preparation Report for the Tree Crop Processing Project; June 1987; 3 volumes C. Workins Papers and Tables Prepared by Bank Staff C-1 Economic and Financial Analyses C-2 FOB Price Calculations C-3 COSTAB Tables C-4 Detailed cost information provided by consultants (a) rubber factories (b) palm oil factories (c) training C-5 Factory Staffing Requirements C-6 Monitoring and Evaluation C-7 Technical Studies C-8 Guidelines for the Standardization of Rubber and Palm Oil Factories C-9 Detailed Crop Projections D . 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