Document of

The World Bank PLE COFY

FOR OFFICIAL USE ONLY

Report No. 4091-IND

STAFF APPRAISAL REPORT

INDONESIA

NUCLEUS ESTATES AND SMALLHOLDERS VII PROJECT

January 3, 1983

Projects DepartmentEast Asia and Pacific Regional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

US$1.00 = Rupiahs (Rp) 660

Rp 100 = US$0.152Rp 1 million = US$1,520

WEIGHTS AND MEASURES - METRIC SYSTEM

1 millimeter (mm) = 0.039 inches1 meter (m) = 39.37 inches

1 kilometer (km) = 0.62 miles1 square kilometer (sq m) = 0.386 square milesI hectare (ha) = 2.47 acres1 cubic meter (cu m) = 35.31 cubic feet1 liter (1) = 0.264 gallons (USA)1 kilogram (kg) = 2.2 pounds1 metric ton (ton) = 2,205 pounds

GLOSSARY OF INDONESIAN TERMS

Adat = Body of traditional lawAlang-alang = (Imperata cylindrica), a coarse grass which

establishes after slash and burn operationsBupati = District Chief

Hak Pakai = Land title giving the right to use to exploitHak Milik = Land title giving full ownership to the landKabupaten = DistrictKecamatan = SubdistrictMarga = Community group under Adat law

GOVERNMENT OF INDONESIAFISCAL YEAR

April 1 - March 31

FOR OFFICIAL USE ONLY

ABBREVIATIONS

BAPPEDA = Provincial Development Planning AgencyBAPPENAS = Badan Perencanaan Pembangunan National -

National Development Planning AgencyBI = Bank Indonesia

BRI = Bank Rakyat Indonesia - People's Bank of IndonesiaDGA = Directorate General of Agrarian AffairsDGE = Directorate General of EstatesFFB = Fresh fruit bunchesGOI = Government of IndonesiaINPRES = A Rural Infrastructure Development ProgramIPEDA = Iuran Pembangunan Daerah - Land tax

JMO = Joint Marketing OfficeLPP = Estates Training InstituteMOA = Ministry of AgricultureMOF = Ministry of FinanceNES = Nucleus Estate and Smallholder ProjectPCC Provincial Coordinating CommitteePNP = Perusahaan Negara Perkebunan - State-owned estate

enterprisePTP = Perseroan Terbatas Perkebunan = State-owned

enterprise with limited liabilityREPEFITA I = First Five-Year Development Plan (1969/70-1973/74)REPE'LITA II = Second Five-Year Development Plan (1974175-1978/79)REPELITA III = Third Five-Year Development Plan (1979/80-1983/84)RSSI = Ribbed smoked sheet (rubber) Grade 1SBPN = Staff Bina Perusahaan Negara - Advisory Unit to

Minister of Agriculture on matters relating toPTP/PNPs

SIR = Standard Indonesia RubberSRDPU = Smallholder Rubber Development Project UnitTK = Team Khusus-Special Unit in DGE working on foreign

assisted project

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

I

INDONESIA

NUCLEUS ESTATES AND SMALLHOLDERS VII PROJECT

Table of Contents

Page No.

1. BACKGROUND AND PROJECT AREA .1.. . . . . . . . . . . . . . . I

General . . . . . . . . . . . . . . . 1 . . . . . . . . . . . ITree Crops Sector. 1Sectoral Constraints and Objectives . . . . . . . . . . . . . 3Project Area Characteristics. 8Implementing Estates .10Project Formulation and Preparation . . . . . . . . . . . . . 11

2. THE PROJECT .... . . . . . . . . . . . . . . . . . . . . 12

Detailed Features . . . . . . . . . . . . . . . . . . . . . . 13Tree Crops Development . . . . . . . . . . . . . . . . . . 13

Agricultural Aspects .14Infrastructural Aspects . . . . . . . . . . . . . . . . . 15

Technical Assistance and Program Support . . . . . . . . . 16Institutional Strengthening . . . . . . . . . . . . . . . 16Quality Improvement of Smallholder Production . . . . . . 18

Implementation Status, Financial and Procurement Matters. . 19Implementation Status .19Cost Estimates .19Project Financing .21Orr-Lending Terms and Conditions . . . . . . . . . . . . . 22Procurement . . . . . . . . . . . . . . . . . . . . . . . 24Disbursements . . . . . . . . . . . . . . . . . . . . . . 25Accounts and Audits . . . . . . . . . . . . . . . . . . . 26

Environmental Effects . . . . . . . . . . . . . . . . . . . 26

3. MANAGEMENT AND IMPLEMENTATION ARRANGEMENTS . . . . . . . . . 27

General . . . . . . . . . . . . . . . . . . . . . . . . . . 27Project Management and Implementation . . . . . . . . . . . . 27Settlement Arrangements . . . . . . . . . . . . . . . . . . . 29

4. AGRICULTURAL PRODUCTION, MARKET PROSPECTS AND PRICES. . . . . 30

Agricultural Production .30Market Prospects and Arrangements . . . . . . . . . . . . . . 30Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Page No.

5. BENEFITS, JUSTIFICATION AND RISKS . . . . . . . . . . . . . 32

Benefits ... .... .. 32Financial Analysis - Smallholders . . . . . 32Financial Analysis - Implementing PTPs . . . . . . . . . . . 33Economic Analysis . . . . . . . . . . . . . . . . . . . . . 34Project Risks .... . . . . . . . . . . . ....... . 36

6. AGREEMENTS REACHED AND RECOMMENDATIONS . . . . . . . . . . 37

LIST OF TABLES IN MAIN REPORT

2.1 Project Cost Summary . . . . . . . . . . . . . . . . . . . 215.1 East Kalimantan Smallholder Farm Income . . . . . . . . . . 335.2 Sensitivity Analysis - East Kalimantan Component . . . . . 36

ANNEXES

1. Table 1: NES Projects: Progress of Tree Crops PlantingsTable 2: Project Area Rainfall

2. Table 1: Project Planting ProgramTable 2: Project Processing Factories - Installed CapacityTable 3: East Kalimantan Processing Factories - Implementation ScheduleTable 4: Consulting Services - Requirements and Implementation ScheduleTable 5: Project Cost EstimatesTable 6: Project Financing PlanTable 7: Schedule of Disbursement

3. Table 1: Tree Crop Yields and ProductionTable 2: Commodity and Input PricesTable 3: Development Costs per Smallholder familyTable 4: Farm Budget - Without ProjectTable 5: Farm Budget - With ProjectTable 6: Cost Recoverytable 7: PTP VI - Income StatementTable 8: PTP VI - Cash FlowTable 9: Smallholders' Economic Analysis - Cost and Benefit StreamsTable 10: Estates' Economic Analysis - Cost and Benefit Streams

4. Related Documents in Project File

MAPS

1. IBRD 16637 - East Kalimantan2. IBRD 16638 - West Kalimantan3. IBRD 16639 - South Sulawesi

1. BACKGROUND AND PROJECT AREA

General /1

1.01 The Government of Indonesia (GOI) has requested Bank assistance todevelop about 50,200 ha of tree crops (rubber and oil palm), food crops andhouse gardens in East and West Kalimantan and South Sulawesi provinces withthe public sector estates PTP VI, PTP XII, and PNP XXVIII as developmentagents. The project would benefit some 18,850 families in the threeprovinces. It would also support in-service training programs and strengthening of participating PNP/PTPs, marketing assistance program for smallhold-ers, and strengthening of institutions responsible for tree crops develop-ment.

1.02 Being the seventh project in the Bank-assisted NES series, a numberof sectoral aspects have been described in Staff Appraisal Reports/2 of theprevious projects, and therefore are not detailed again in this report. Theseinclude: GOI's major objectives and development strategies in the agriculturalsector, Bank's lending strategy and projects financed, description of therubber and palm oil subsectors, and institutional framework of the tree cropssector.

Tree Crops Sector

1.03 Overview. Tree crops occupy about 45% (8.1 million ha) of totalcropped land (coconuts and rubber account for 65% of this), and generate about43% of total non-oil export revenue. Smallholders cultivate 80% of the rubberand virtually all coconuts, coffee, cloves and pepper, whereas tea and oilpalm are grown primarily on estates. Production increase of most smallholdercrops has ranged from 2-4% p.a. during the last decade. With the longimmaturity period of tree crops, slow production growth is a symptom of pastlow prices and neglect, inadequate research and extension, and failure toreplant with higher-yielding varieties, especially by smallholders. Only oilpalm and coffee have shown sustained large increase in area (and production),about 9% and 6% p.a. respectively, due to investment programs by Governmentand private estates.

/1 This report is based on the findings of an appraisal mission composed ofMessrs. A. Hasan, J. van Holst Pellekaan, Ms. R. Anand (Bank),T. Phillips, E. Panton, P. Durham (Commonwealth Development Corporation)and C. Relf (Consultant) which visited Indonesia in June 1982. The reportwas reviewed by Mr. J. Caparas.

/2 For example, SAR of NES V (3342-IND).

1.04 The main institutions in the sector are: DGE,/1 SBPN/2 and thestate-owned estates (PTPs)/3 with the various units of the Ministries ofAgriculture, Trade and Finance and the banking system playing supportingroles.

1.05 Accelerated Development Plan. Recognizing the importance of treecrops development in increasing smallholder incomes and nonr-oil exports, andin keeping pace with domestic demand for fats and edible oil, and utilizationof unused land resources, GOI embarked on an accelerated tree crop developmentplan with the initiation of Repelita III. The current targets for newplanting/replanting and rehabilitation during Repelita III and IV are 2.4million ha and 2.8 million ha respectively. The main emphasis is on coconuts(1.8 million ha), rubber (1.1 million ha) and oil palm (0.9 million ha).

1.06 To implement this plan, GOI established a number of programs. Onenew approach, which is being supported by the Bank-financed Nucleus Estatesand Smallholders (NES) projects, is for Government estates to rehabilitate, orplant and maintain tree crops on previously undeveloped land until the treesreach maturity, using farmers selected to be settlers (mainly local small-holders and some transmigrants) first as estate labor, and thereafter toprovide the settlers with inputs, extension services, and processing facili-ties. A similar program, although domestically funded and limited totransmigrants (PIR Khusus), has recently started. A smaller program (PIRLokal) is resettling squatters on estate land. Tree crops are also beingincluded in some transmigration projects. Apart from these programs, theGoverunment has also initiated national programs, backed with credit, to assistgeographically concentrated groups of existing rubber or coconut smallholdersto plant, replant or rehabilitate themselves, with fairly intensive supportfrom Project Management Units (PMUs). This is the approach of both theSmallholder Rubber Development Project (SRDP, Credit 984-IND) and theSmallholder Coconut Development Project (SCDP, Loan 1898-IND). As publicsector estates have had little involvement in coconut development, GOI'spresent strategy is to concentrate on increasing smallholder production, andto assist in processing and agroindustrial development. Using all suitableapproaches, a rapid expansion of smallholder tree crops is a high priority.

1.07 Plan implementation so far has been less than satisfactory.Although, projects already started cover about 70% of the planting/replant-ing and 95% of the rehabilitation targets for Repelita III, actual implemenr-tation is far less. Compared to the implementation target of 700,000 ha

/1 Responsible for development of smallholders and private estates.

/2 Acronym for advisory unit to the Minister of Agriculture, on mattersrelating to PNP/PTPs.

/3 There are 28 of these estates, of which 26 are PTPs and 2 PNPs. Allsubsequent references to PTPs in the report include the PNPs as well.

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planned to be completed by June 1981, only about 360,000 (or 51%) have beenrealized. In general, progress of externally assisted projects has beenmore satisfactory, averaging about 85-90% of targets. Organizational, adminr-istrative and manpower constraints, delays in land alienation are among themain reasons for the low achievement levels; in the case of beverage crops,reduced farmer interest (because of declining prices) has also adverselyaffected planting targets.

1.08 The NES Projects. Recognizing the scarce technical and managerialexpertise available within the Government to implement tree crop developmentprojects, GOI has since 1976 increasingly sought to use the untapped manpowerand technical resources of the public sector estates to promote and guidesmallholder development. The Bank, since November 1977, has helped financesix NES projects. When fully developed, these projects would settle/resettlesome 57,500 smallholder families, developing for them about 80,700 ha ofrubber, 27,000 ha of oil palm, 15,200 ha of coconuts and associated food cropand house garden areas. For the nucleus estates, it would develop about51,500 ha of rubber, 17,600 ha of oil palm and 9,500 ha of coconuts. Thetotal cost of these projects is about US$964 million of which the Bank isfinancing 52% or US$500 million.

1.09 The first three NES projects are sufficiently advanced to provideguidance on design of new projects. Initially, delays in budget preparationand receipt of funds by the nucleus estates slowed implementation. Toresolve this, GOI has simplified financial procedures with automatic releaseof funds for the first two quarters to the estates. Smallholder and estateplantings are now on schedule, with the planting or rehabilitation of about66,300 ha of rubber, 13,000 ha of oil palm and 6,100 ha of coconuts comr-pleted - representing about 42% of the total planting program (Annex 1, Table1). In earlier projects, coordination problems between the central andprovincial governments and nucleus estates resulted in delays in constructionof smallholder infrastructure and the movement of smallholders to the projectareas. At certain locations this caused labor shortages for further projectconstruction and maintenance of tree crop plantings. To overcome this, NES IVinitiated several changes in project design and organization, by givinggreater autonomy to the nucleus estates in designing and implementing thesmallholder components. The DGE established a special unit (Team Khusus) toassist the nucleus estates (para. 1.15). In addition, from NES IV onwards allNES projects contain funds to cover the costs of preparatory work forsucceeding projects. These cover key start-up activities such as nurseryestablishment, access roads and laborer housing.

Sectoral Constraints and Objectives

1.10 Increasing GOI attention towards the sector and lessons learnt fromimplementation of the various projects have highlighted a number of areaswhich need to be improved to accelerate the pace of development of the sector.

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These are: policy and planning framework, SBPN's and DGE's capacity forassisting estate and smallholder development respectively, manpowerconstraints, tree crops marketing, and estate sector investment planning andfinancing. GOI has initiated action to overcome constraints in some of theabove areas. A major focus of both Bank assistance and dialogue between theBank and GOI are measures to address sectoral constraints, institutionalstrengthening and improving implementation performance. Discussed in paras.1.11-1.20 are the sectoral objectives and constraints, GOI's actions on thesematters and related measures included in the proposed project.

1.11 Improved Policy and Planning Framework. The formulation of policiesand development planning activities in the tree crops sector are the jointresponsibility of three groups within the Ministry of Agriculture (MOA),namely the Directorate of Planning in the DGE, the Bureau of Planning (MOA)and the SBPN-estate sector planning/coordination unit (para. 1.12). Formaland informal links between these bodies are well established, for example theDirectorate of Planning reviews its plans with the Bureau of Planning; SBPNreviews plans for each estate and transmits these plans to the Bureau and theDirectorate of Planning. Although the current policy formulation and planningprocess has worked reasonably well in the past, two difficulties have arisenas a result of the rapid expansion of the program and the increasing economicimportance of the sector. First, there is weak coordination between the treecrops sector and the other related sectors in the economy e.g. this affectsmatters related to, among others, export policies, procedures and regulations,pricing of domestically traded tree crop products, export quality control andstandardization. The GOI is taking steps to improve the coordination betweensectors including the establishment of interministerial councils for sugar andtree crops, comprising Ministers of Agriculture, Finance, Trade andCooperatives and Industry. A Sugar Council has been established and the TreeCrops Council is expected to be established shortly. These councils, report-ing to the President and chaired by the Minister of Agriculture, will propose,formulate and monitor implementation of development policies and coordinateaction in matters of land, infrastructure, manpower, financing, pricing andmarketing. Each council will have its own secretariat which would providemainly administrative support. For technical and policy analysis work it willdraw upon the relevant Directorates in the concerned ministries and the estatesector planning/coordination unit. Second, the capacity to develop policiesand plans needs strengthening particularly in the face of more constrainedavailability of domestic resources and more clouded development options.Through strengthening of the estate sector planning/coordination unit, the DGEand Team Khusus, policy formulation and planning capacity would also beenhanced.

1.12 Improving Planning, Coordination and Monitoring of PTP Activities.Currently there is an advisory unit to the Minister of Agriculture, SBPN,which is responsible for policy formulation, coordination of estate sectorinvestment planning and crop activities, estate financial administration and

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control, and assisting PTPs through monitoring and inspection of estateoperation. Considering the importance of the estate sector to the economy andthe magnitude of GOI's investment in these estates, it is imperative that theplanning, coordination and monitoring of PTP's activities be of the highestquality. The previous NES projects included steps to strengthen SBPN.Through assistance provided under NES I, SBPN has made progress in coordin-ating and assisting estates develop long range plans. This aspect is beingaugmented further under NES VI with the provision of a financial expert andland use planner. However, much more needs to be done in other importantareas such as inspection services, investment strategy, internationalmarketing, manpower planning and technical innovations related to productionand processing. The project would provide support in these areas.

1.13 In addition to internal strengthening, complementary action isneeded to improve SBPN-s weak organizational arrangement - a looselystructured advisory body outside of the regular government structure and withno formal relationship with the PTPs or DGE. To correct this weakness andbring SBPN within the framework of the councils, a new regular governmentbureau is expected to be established in the Ministry of Agriculture byFall 1983 to take over SBPN's functions. Most of SBPN's current staff areexpected to be transferred to this bureau. This change is expected to takeplace in conjunction with the establishment of the Tree Crops Council.

1.14 Strengthening of DGE. The DGE is responsible for smallholder treecrop development, marketing assistance, regulating private estates and overallsectoral planning (in coordination with SBPN). Previous Bank projects (Small-holder Rubber and Coconut development projects) have selectively assisted DGEin institution building through strengthening of project management units atthe field level. The increasing attention being given to improving marketingof smallholder crops, forward planning and analysis of development options andconstraints, has highlighted the following areas of priority for which assis-tance would be provided under this project: (a) DGE's planning, and small-holder marketing functions; and (b) monitoring implementation of DGE's devel-opment projects and evaluation of their long-term impact.

1.15 Strengthening of Team Khusus (TK). This is a special team whichthe DGE established to coordinate and supervise preparation of foreign fundedtree crop development projects, monitor implementation of these projects andfor the NES projects assist the estates, particularly in coordinating withother agencies engaged in the projects. To enhance its capacity to undertakea larger role in the project cycle, TK is organized into three divisions:preparation/appraisal, legal/general affairs, and supervision/implementation.TK has a total of about 15 regular professional staff; additional staff isbeing recruited in the fields of processing, civil engineering and outlineplanning. NES V and VI provided consultant services to strengthen TK in thefollowing areas: financial analysis, procurement, agronomy, crop processing,land resource evaluation, outline planning, and civil engineering.Consultants in the first three areas have been recruited and steps areunderway to engage the remaining consultants by the end of 1983. Consultantsalready in place have had a significant impact in increasing TK's capacity to

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prepare, appraise, and supervise projects as reflected by (i) its increasingrole in preparation of NES VI and appraisal of this project's East Kalimantancomponent; and (ii) its proficiency in handling disbursements and procurementmatters and in supervising implementation.

1.16 Increasing Supply of Trained Manpower. The most immediate con-straint on the rapid expansion of the tree crops sector is the availability oftrained and experienced staff in all agencies - the PTPs, the provincialextension services and the central agencies. In NES I and V, funds have beenincluded to expand the training capacity of the institutions catering to theestates. Furthermore, manpower development and training needs of the agricul-tural sector, in general, have been and are being addressed in two Bank-supported agricultural training projects; these projects are aimed atimproving quality of agricultural schools and in-service training centers inMOA. A third project is now being appraised which is expected to giveparticular attention to specialized subsectoral training centers, in additionto continuing support for programs initiated in the earlier two projects.Apart from some modest inservice training for staff of the participating PTPs,the proposed project does not include any manpower development activities inview of the upcoming training project. The GOI has also started a "crash"program for the instruction and upgrading of agricultural technicians, and hasacted to improve the structure and programs of the Estates Training Institutein Yogyakarta. Using all possible approaches, GOI is forcefully addressingthis constraint.

1.17 Improving Tree Crops Marketing. The output from PTPs and associatedsmallholders (in NES projects) is at present marketed by the PTPs themselvesand through the Joint Marketing Office (JMO) which is financed and operated byseveral PTPs and supervised by SBPN. JMO is limited in its marketing role,for example selling through tenders rather than aggressive marketing; more-over, occasionally PTPs compete with each other. A proposal put forward bythe PTPs, to GOI, is to transform the JMO into a separate company, owned byall the PTPs. This company would assist, advise and coordinate the marketingof PTP production, provide market outlook services, establish overseasoffices, and review issues related to product quality, standardization andquality control; it would not be involved in actual marketing. The inter-national marketing specialist to be financed under the project (para. 1.13)would review the present marketing arrangements and recommend necessaryimprovements for consideration by the Tree Crops Council.

1.18 Smallholders, outside of NES projects, sell through middlemen;having little market power, they are usually price takers and receive limitedadditional returns for improved product quality. The prices received bysmallholders are also low because of: high transport and handling costs as

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smallholders are scattered over wide areas; poor quality and lack ofuniformity resulting from production under a variety of environments andtechniques. GOI has decreed to use cooperatives to assist smallholders withquality improvements and marketing. Cooperatives established under theBank-financed North Sumatra Smallholders Development project (Cr. 358-IND) areoperating successfully in assisting smallholders with marketing and providinginputs. A Bank-financed report (June 1982) under SRDP 1 examined the market-ing and processing of smallholder rubber and recommended the formation offarmer associations for rubber production, field processing and marketing. Inaddition it suggested establishment of a Smallholder Rubber Marketing andProcessing Unit (a sister unit to SRDPU) in DGE to oversee these arrangements.These recommendations are being examined by DGE. The DGE, in conjunction withDG Cooperatives, is preparing a pilot program for cooperative formation andstrengthening covering a number of provinces and crops, the primary emphasisbeing on rubber. This program would be supported by the project.

1.19 Estate Sector Investment Program and Financing Plan. The rapidlyexpanding role of the PTPs in tree crop development has focussed attentiontowards the need for preparation of sound long-range plans and analysis offinancing options. Until recently PTP planning had been mainly limited topreparation of annual budgets. Over the last two years SBPN, with theassistance of consultants financed under NES I, has been guiding and assistingthe PTPs to prepare long-range plans which include financial, managerial,technical and manpower aspects. All PTPs have recently completed theirpreliminary plans. SBPN has formed three groups, (one each for sugar, treecrops, annual crops) comprising technical/financial specialists, which wouldreview the PTP plans to: (i) ensure that all of them have similarassumptions; (ii) prepare a consolidated investment program, and (iii)identify and evaluate possible sources of financing. SBPN expects to completethis exercise by mid-1983 for submission to BAPPENAS, MOF and DGE for theircomments. It is important that the future plans are compatible with theestates' managerial and financial capacity and do not adversely affectimplementation of on-going programs (including NES projects). Agreement wasreached with GOI that the individual and consolidated plans (for the period1984-93) would be submitted to the Bank by September 30, 1983. Theassumptions of the plans, particularly those on the planting program, landavailability, manpower availability and implementation capacity, unit costsand contingencies, commodity prices and D/E ratio and other financialparameters, would be reviewed by tne Bank for their soundness.

1.20 Until now estate programs have been financed largely through equitycontributions from the Government, loans from the state banks and multilateraland bilateral financial institutions. Given the increasingly tight budgetarysituation and demands of other priority social and economic programs, it isimportant that the estate sector reduces its dependence on the budget andmakes efforts to mobilize resources from other means: equity issues, foreignparticipation/investment, bonds, etc. GO is now increasingly limiting direct

equity contributions from the budget. In order that this policy does notcurtail total investment, if D/E is maintained at 60/40,/1 and to furtherreduce its indirect contributions (conversion of foreign loans to equity) GOIhas directed SBPN to actively seek joint ventures particularly in theprocessing area. Raising equity from the general public appears unlikely,unless GOI changes its policy across the board for its state enterprises.Policymakers generally agree on the desirability of bond financing by thosePTP's which are financially sound and have a low D/E ratio. However, the thindomestic capital markets, and the depressed medium-term commodity prices bothmilitate against this option at present.

1.21 Bank Review. An in-depth review mission is planned for late 1983 toreview progress on the above sectoral constraints. The mission would alsoexamine GOI's policies regarding foreign investments in the tree crops sector,and actual experience of cost recovery procedures established under NESprojects (para. 5.04).

Project Area Characteristics

1.22 Location. The project is located in the three provinces of EastKalimantan, West Kalimantan and South Sulawesi. The East Kalimantan component(about 83,000 ha gross) lies each side of the Trans-Kalimantan national high-way in Pasir District, about 100 km south of Balikpapan. The South Sulawesicomponent (about 31,000 ha gross) is astride the provincial highway from thetown of Palopo in the south-west to Wotu in the east. The project area issplit into two main blocks known as the Masamba and Wotu areas, all within theDistrict of Luwu. The West Kalimantan component (about 60,000 ha gross) liesin Sambas District on the northern and southern sides of the provincialhighway connecting the towns of Samalantan and Sungai Betung.

1.23 Climate. The climate is lowland wet tropical at all three projectlocations. Rainfall is generally between 2,000 mm and 3,000 mm per annum andtherefore suitable for both rubber and oil palm (Annex 1, Table 2). Tempera-ture, relative humidity and duration of sunshine are also satisfactory. Clima-tic conditions are also suitable for a wide range of smallholder food crops.

1.24 Soils. Soil depths and textures are generally suitable in all threelocations. Heavy leaching and the relative infertility, however, require sub-stantial fertilizer application and early cover crop establishment. The soilsare particularly deficient in phosphate. In Luwu there are areas of highaluminum content associated with acid soils; unless adequate supplies of limeare available at reasonable cost these areas would be excluded from develop-ment. On the seaward side of the East Kalimantan area acid-sulphate soils maybe encountered and any such areas would also be avoided during implementation.

/1 Planning assumption given to PTPs by the Ministry of Finance.

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In other areas where there may be some calcium/magnesium imbalance, monitoringof possible induced deficiencies would be required by leaf analysis.

1.25 Topography and Land Suitability. (a) In East Kalimantan, projectarea topography is generally suitable for rubber, oil palm and traditionalfood crop development. Rubber would be planted to the west of the nationalhighway on gently rolling terrain with slopes ranging from 0 to 15%. Oilpalm would be planted to the east of the highway where the land is generallyflat, running into a series of broad estuarial swamps. Swamp limits havebeen mapped, though care would be required during implementation to avoidareas of salinity and/or flooding risk. (b) In the West Kalimantan projectarea the land is generally suitable for rubber and food crop development.Slopes of less than 15% predominate, though terracing would be required inlimited areas sloping at up to 30%. (c) In the Luwu area of South Sulawesitopography is the chief constraint to large-scale oil palm development. Theland designated for nucleus estate development is steeply broken in places,with slopes of 30% or more; excluding this about 4,000 ha of suitable landis available. In much of the smallholder area particularly that to the southof the road attention to drainage problems will be needed.

1.26 Land Use, Population, Farm Size and Tenure. (a) Present land usewithin the East Kalimantan project area is approximately 61,000 ha primary andsecondary forests, 15,000 ha swampy and river areas, 6,000 ha of tree crops(mainly wild rubber) and alang-alang, and 750 ha settlement and wet land area.An estimated 3,000 families live in the project area with almost all expectedto join the project. The farmers are basically shifting cultivators, havingcustomary rights on the land, and with average cultivated landholding of about2 ha of which about 1 ha is planted with tree crops. (b) The West Kalimantanproject site consists mainly of forest and secondary growth (about 45,000 ha)and tree crops (about 12,000 ha). The area is sparsely populated with about1,050 families from the project area expected to participate in the project.These families are basically shifting cultivators with traditional land userights. The average farm size is just over 2 ha. (c) Project area in SouthSulawesi consists of about 50% primary and secondary jungle, 35% scrubbyregrowth, bush and lalang and 15% cropped area under tree crops, sawah andother crops. The project area has low population density, with about 2,500families from the area expected to participate in the project. Although theaverage farm size is about 2 ha, the average cultivated area is about 1 ha;the sawah land is held in margas (community groups under Adat law). TheGovernors of East and West Kalimantan provinces have alienated the area pro-posed for development, and provincial and participating PTP officials haveundertaken a census of the project area farmers and as expected determinedthat all those with land rights would agree to join the project. Landalienation and census is underway for the South Sulawesi area.

1.27 Existing Infrastructure and Services in Smallholder Areas. (a) InEast Kalimantan, a section of provincial highway linking Penajam in the northto Kuaro in the south-west runs through the project area. This road is gen-erally in poor condition, however road improvements are underway. Variouslogging roads traverse the project area, particularly in the north. These

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earth and gravel roads are suitable for upgrading to form part of theproject's road network. While the transportation system (for evacuation ofcrude palm oil, kernels and rubber) has not been finalized, preliminaryinvestigations suggest the use of barges as the most cost-effective, with thewharf and bulking facility located on the north bank of the River Pasir Lamawithin the oil palm nucleus estate; the barges would off-load into tankersanchored near the river estuary. A design study to confirm this solution andto prepare detailed specifications for tendering purposes is underway. (b) InWest Kalimantan, the project area is connected by a good quality provincialroad to the main surrounding urban centers and Singkawang, the main port inthe vicinity. There are no access roads within the project area; severallarge rivers cross it providing potentially important access to the provin-cial road. These rivers are already being used for transporting agriculturalproducts. (c) The Luwu area in South Sulawesi is connected by a good qualityprovincial road to the port of Palopo; further improvements of this road areunderway. The replacement of some existing bridges with load limits as low as2.75 tons may be necessary.

1.28 All project sites are poorly served by public services. These wouldbe improved by and as a result of the project.

Implementing Estates

1.29 The area-based components of the project would involve four PTPs,all of which are involved in ongoing NES projects, as described below.

1.30 PTP VI (East Kalimantan). Financially and technically, PTP VI isone of the stronger among the public estates. At the end of 1981, its landholdings totalled 49,000 ha (mainly oil palm) and it had a managerial/techni-cal staff of 340 (excluding field workers). Between 1982-87 its plantingcommitment (including those under NES III and the proposed project) totalabout 30,000 ha of nucleus estates and 56,000 ha of smallholder development.This program is within PTP VI's capacity; it is augmenting and strengtheningits staff resources through new recruitment and aggressive staff training.Its performance under NES III has been less than satisfactory, because of lackof experience in rubber development; this problem is being addressed. Stepswould be taken under this project to augment capacity for rubber developmentthrough provision of technical assistance.

1.31 PTP XII (West Kalimantan). PTP XII's estates total about 27,000 ha,of which nearly half is planted with tea with the remainder comprising mainlyrubber. Its existing technical/managerial staff totals 276. Over the nextfive years, PTP XII would be developing about 16,000 ha of estate and18,000 ha of smallholder land - mainly rubber. Most of this comprises itscommitments under NES VI and the proposed project. With the recruitment ofthe additional 30 staff which is planned, these targets are within theimplementation capacity of PTP XII. The main constraint is its weak financialcapacity resulting from its heavy involvement in tea. With financialrestructuring (agreed to under NES VI) and crop diversification being pursued,PTP XII's financial position should improve.

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1.32 PNP XXVIII (South Sulawesi). This is one of the weakest publicestates; it has scattered land holdings of about 40,000 ha of which 6,500 areproducing. Its staff totals about 170. In line with GOI's policy of estatestrengthening, PNP XXVIII was made responsible under NES VI for developing7,000 ha of rubber and coconut nucleus estate, through a major injection ofnew staff and equity. To further develop PNP XXVIII and increase its parti-cipation in the NES program, it would own the nucleus estate in the SouthSulawesi component. However given its existing weaknesses and lack ofexperience in oil palm, it would contract out project implementation to PNPVII during the project period. PNP XXVIII would recruit additional staffdeploying them alongside PNP VII personnel to receive on-the-job training. Itis envisaged that through experience gained under NES VII, by the end of thisproject PNP XXVIII should be able to independently handle NES type projects.

1.33 PNP VII (South Sulawesi). PNP VII has been selected as the imple-menting contractor for this component, during the project period, in view ofits sound standing and extensive experience with oil palm development. Itsown oil palm holdings are scheduled to rise from about 74,000 ha in 1983 to82,000 ha in 1986. In addition it has already gained experience in NES-typeprojects (NES V) and by 1985 will be involved in developing about 19,000 ha ofsmallholder oil palm. To undertake its responsibilities under NES VII, PNPVII would deploy about 27 of its existing senior technical and managerialstaff to the project area together with commensurate numbers of administrativeand field workers.

Project Formulation and Preparation

1.34 One key difference between this and earlier NES Projects is itsbroader focus, enabling it to address and influence a greater range of issuesin the development of tree crops, especially that of smallholders. In thisrespect, the project content reflects a further evolution of Bank support tothe NES concept. In view also of the good progress achieved so far inimplementing the NES program and enhancement of TK's capabilities, the projectincludes one fully appraised component and two components for subsequentappraisal by Team Khusus, as summarized below.

1.35 Appraised Component. The component in East Kalimantan was preparedby local consultants, on the basis of whose work TK drew up a draft appraisalreport. This report was reviewed by the Bank/CDC mission. The draftappraisal, while deficient in some respects, represents a very satisfactorybeginning.

1.36 Unappraised Components. The components in South Sulawesi and WestKalimantan would be appraised by TK. Both project areas were visited andtheir respective preparation reports reviewed by the Bank/CDC mission. Themission pointed out the major issues still to be resolved and provided generalguidance to TK for subsequent appraisal work.

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1.37 For the South Sulawesi component basic preparation work is welladvanced but further work is required on the following issues: (a) LandLimitations. Consultants proposed developing 12,000 ha of oil palm but sitevisit and review of aerial photographs suggest that about 25 percent of thisarea is topographically marginal. In the absence of topographical maps forsome of the area, TK and preparation consultants would undertake a detailedreview in the field to resolve this issue and subsequently to draw up anoutline plan showing detailed proposed land use patterns and associatedinfrastructure; (b) Palm Oil Transportation. Preparation consultants haverecommended using Palopo harbor. However, preliminary investigations suggestthat in view of the haulage distance involved (about 70 km) and the need toreplace up to 14 mediumspan bridges, barge transport from a small wharf nearthe project area to ships anchored offshore appears to be a morecost-effective solution. Further investigations and discussions with DGHighways and DG Sea Communications would be carried out by TK prior toappraisal.

1.38 The West Kalimantan component was originally part of the domesticPIR-Khusus program. Land clearing is complete on 3,000 ha, of which, 1,100 hahas been planted satisfactorily. A feasibility study already drawn up bylocal consultants is an adequate basis for appraisal by TK. The main out-standing task is the preparation of an outline plan.

1.39 Taking into account the additional work required, TK would be ableto complete its appraisal work on West Kalimantan by March 1983 and on SouthSulawesi by June 1983. These subloan appraisal reports would be sent toBank/CDC for approval (para. 3.04).

2. THE PROJECT

2.01 This project would continue GOI's smallholder development programusing public sector estates to establish nucleus estate and smallholder treecrops and infrastructure. Over five years, (April-1983 to April-1988) theproject would establish some 29,200 ha of rubber and 21,000 ha of oil palm(12,500 for the estates and 37,700 ha for smallholders) and provide processingfacilities, in the three project sites (para. 1.22). It would resettle some18,850 families at these sites and provide them with houses, food gardens,water supply, village infrastructure and initial subsistence allowance andinputs. In addition, it would provide for roads, estate housing and build-ings, road and wharf construction, transport trucks and barges and agricul-tural machinery and equipment. The project would also support strengtheningof DGE, estate sector planning and coordination function, marketing programsfor smallholders, in-service training for public estates, and funds forstart-up activities.

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Detailed Features

1. Tree Crops Development (US$341 million /1)

2.02 The detailed agricultural and physical features included in theproject are described below. Since the West Kalimantan and South Sulawesicomponents are unappraised, the estimates are tentative. Planting programis detailed in Annex 2, Table 1.

East Kalimantan (PTP VI) (US$181 million)

2.03 (a) development of 14,200 ha of rubber, of which 2,500 ha would benucleus estate, and 11,700 ha for about 5,850 smallholders; (b) development of12,000 ha of oil palm, of which 3,000 ha would be nucleus estate and 9,000 hafor about 4,500 smallholders; (c) clearing of about 5,175 ha for smallholderhouse, garden and food crops; (d) construction of estate housing and building;(e) establishment of about 34 villages including construction of smallholderhousing (with sanitation and water supply) and village infrastructure toaccommodate 10,350 families; (f) construction of about 365 km of access,village and collection roads, 1,100 km of estate/farm tracks, and 455 m ofbridges; (g) construction of a 800 ton/month rubber factory and 35 ton/hr FFBpalm oil factory for the estate;/2 (h) construction of bulking facility andwharf; and (i) procurement of road construction and agricultural machinery,and barges for transportation of palm oil.

West Kalimantan (PTP XII) (US$81 million)

2.04 (a) Development of 15,000 ha of rubber, of which 3,000 ha would benucleus estate, and 12,000 ha for about 6,000 smallholders; (b) clearing ofabout 3,000 ha for smallholder house, garden and fooderops; (c) constructionof estate housing and building; (d) establishment of about 22 villages includ-ing construction of smallholder housing (with sanitation and water supply) andvillage infrastructure to accommodate 6,000 families; (e) construction ofabout 155 km of access, village and collection roads, 450 km of estate/farmtracks, and 110 m of bridges; (f) construction of a 1,000 ton/month rubberfactory for the estate;/3 and (g) procurement of road construction andagricultural machinery.

South Sulawesi (PNP VII/PNP XXVIII) (US$79 million)

2.05 (a) development of 9,000 ha of oil palm, of which 4,000 ha would benucleus estate and 5,000 ha for about 2,500 smallholders; (b) clearing of

/1 Figures in parenthesis indicate total costs including contingencies.These exclude preproject costs for planting 2,000 ha of oil palm and500 ha rubber in East Kalimantan, 4,100 ha rubber in West Kalimantan and500 ha oil palm in South Sulawesi.

/2 Building constructed for eventual capacity of 1,300 tons/month (rubber)and 70 tons/hr (FFB).

/3 Building constructed for eventual capacity of 1,500 tons/month.

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about 750 ha for smallholder house, garden and food crops; (c) construction ofestate housing and building; (d) establishment of about 12 villages includingconstruction of smallholder housing (with sanitation and water supply) andvillage infrastructure to accommodate 2,500 families; (e) construction ofabout 160 km of access, village and collection roads, 480 km of estate/farmtracks, and 750 m of bridges; (f) construction of a 30 ton/hour FFB palm oilfactory for the estate; (g) construction of a bulking facility and wharf; and(h) procurement of road construction and agricultural machinery, and bargesfor transportation of palm oil.

Agricultural Aspects /1

2.06 All project land would be free from title or compensation disputes,and available for redistribution. The estates would aggregate the landsuitable for tree crop planting into blocks of at least 50 ha, and up to 500ha. Suitability would depend on slope and present or potential land use.Because of harvesting difficulties on land too steep, the estate would plantoil palm up to about 15% slope with minor areas tolerated up to 30%, andrubber up to about 35% slope. Existing irrigated or rainfed sawahs and areasof suitable terrain required for villages, houses and gardens or foodcropswould not be planted to tree crops.

2.07 In East and West Kalimantan each smallholder would receive 3.0 ha,of which 2.0 ha would be suitable for oil palm or rubber, 0.5 ha for house,garden and food crops, and the remaining 0.5 ha for either food crops or treecrops. The estates would clear 2.5 ha for each family, block planting 2.0 hawith oil palm or rubber and leaving 0.5 ha for house, garden and food crops;of this 0.5 ha, 0.25 ha would be stumped and 0.25 ha chainsaw felled. InSouth Sulawesi, each smallholder would receive 2.0 ha of block planted oilpalm; since the majority of smallholders have a 0.75 ha sawah area, provisionof new areas for food crops under the project would be limited to 0.25 ha.The estates would clear this 2.25 ha. At all sites, smallholders would berecruited largely from project areas (para. 3.13).

2.08 The estate, for employment reasons, would as far as possiblemanually clear the tree crops land for themselves and the settlers, using thelatter as estate. labor and would provide the new settlers with cash (Rp125,000) for initial subsistence (Rp 60,000) and purchase of essential firstyear inputs such as seeds, fertilizers and pesticides (Rp 65,000); the estateswould make available the inputs which the smallholder could purchase annuallyfor their food gardens. Further, the estates would maintain the block plantedrubber or oil palm until the bearing stage, when they would be transferred tothe smallholders; after this stage, they would provide extension services,

/1 Physical planning, land clearing methods, civil works (roads, houses,village infrastructure design and construction features) have beenstandardized for NES projects and presented in detail in previous SAR's(e.g. NES V, 3342 -IND). These are therefore not repeated here.

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fertilizer/pesticides, and collection, processing and marketing services(para. 3.06). The smallholders would pay for these services and the mainte-nance costs through deductions from sales of palm fruit or rubber(para. 5.04).

2.09 Land clearing and preparation would take place from April toSeptember with cover crops being planted soon after clearing and lining.Field planting of oil palm and rubber would be done from November to March.

2.10 Nurseries. Using start-up funds from NES VI and the PIR-Khususbudget, nurseries at all sites have been established.

Infrastructural Aspects

2.11 Road Construction. The estates would establish a network of access,collection and village roads and estate/farm tracks throughout the proposedsites. Standardized road designs (as used in previous NES projects) would beused for construction of project roads. Except for bridgeworks the estateswould construct the roads and tracks by force account. The estates wouldlocally recruit consultants to assist in road alignment survey, cross-sectiondesign, and construction (para. 2.20). The estates would ensure that theirmachinery suppliers train the concerned estate staff in the use of thepurchased machinery.

2.12 Housing and Sanitary Facilities. Smallholder housing following thebasic design (36 sq m constructed of timber and galvanized roofing withadjacent pit latrines) would be constructed, mainly by contract, by therespective estates. Besides building new houses, the estates would replaceany substandard houses of existing settlers. The houses would be ready beforethe smallholders arrive. Using standard designs, the estates also wouldconstruct housing for their management, permanent field staff and labor.

2.13 Water Supply. Parts of the East Kalimantan site, and all of theWest Kalimantan and South Sulawesi sites are adjacent to small streams andrivers, water from which is good for drinking purposes. The estates would digwells (3-6 m deep), one for 2-5 households. In the hilly and coastal areas ofthe East Kalimantan site, where the surface or ground water is either unavail-able or of poor quality, PTP VI would provide each house with roof collectionsystem with water tanks (1.5 m3) or construct some other suitable watersource for year round supply (e.g. small earth dams with shallow wells nearthe dam).

2.14 Village Infrastructure. Standard design for settlement planning andvillage infrastructure (including type and size of community facilities) wouldbe used. Each village would comprise about 200 families (consisting of anumber of small groups of 25-30 households), and have community facilitiessuch as health posts, village offices, markets, place of worship, schools,sport grounds and community hall. The estates would locally recruitconsultants to assist in village design, food crop and garden layouts andconstruction (para. 2.20). The nucleus estate would construct all the

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village infrastructure, except the health and education facilities; thesewould be constructed by the provincial government, through the PCC's, usingINPRES funds.

2.15 Processing Facilities. At each site the participating estates wouldconstruct sufficient processing capacity to handle their own and the small-holder's production. The oil palm and rubber factories would be installed bystages. Annex 2, Table 2 gives details, by site, of estimated production,processing capacity installed under project and in subsequent stages. At allsites, if requested by GOI, the completion of required processing capacitycould be considered for Bank financing under subsequent loans. The rubberfactories under the project would be designed to produce crumb rubber; at alater date, if the estates so desired they may add lines for sheet rubber.The estates would be responsible for installing, operating and maintaining allprocessing facilities; the project would provide consultants to assist theestates in this task (para. 2.20). The estates would construct theirfactories using at least two main contracts: (a) civil works (design andconstruct); and (b) plant and equipment (supply, erect and commission). PTPswould ensure that the civil works contractor meets the specifications of themachinery suppliers. PTP VI would construct its oil palm and rubber factoriesaccording to the implementation schedule in Annex 2, Table 3; for the twounappraised components, the implementation schedule would be provided in thesubloan appraisal reports.

2.16 Bulking Facility, Wharf and Barges. PTP VI would establish abulking facility (3,000 tons) and a barging wharf (about 750 sq m) near theproject site. Engagement of consultants for site location and design work isalready underway (para. 1.27). Construction would be undertaken by contract.tn addition, PTP VI would procure 3 barges (about 500 dwt each) to transportpalm oil to tanker vessels; it would ensure that the barge supplier providesits staff the necessary training. Based on preliminary findings, PNP XXVIIIwould also require bulking facilities and a transportation system similar tothat for PTP VI.

2. Technical Assistance and Program Support (US$27 million)

2.17 As detailed below, the project would assist to strengthen theplanning and coordination of PTP activities, the DGE in its overall small-holder development programs, and individual estates to implement the project.In addition start-up funds for future NES projects, would be provided.

Institutional Strengthening

2.18 Ministry of Agriculture/DGE (US$3 million). To improve planning,coordination and monitoring of PTP activities a number of consultants would berecruited whose main role would be to develop, in collaboration with counter-

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parts from the unit responsible for this function,/l procedures, systems andtraining programs aimed at building up the unit's capacity to carry out itsfunctions. The consultants expected to be recruited would be: (a) a manpowerspecialist to advise on manpower planning methods, evolve manpower planningand development programs for the PTPs, and advise on the nature and extent oftraining required by PTP staff; (b) processing engineers (one each in rubberand palm oil) to advise PTPs on improvements in processing operations, invest-ment in new or expanded processing facilities, maintenance practices andprocurement of machinery, and assist in establishing inspection services; (c)a specialist to establish a system for inspection services for estate cropsproduction. This specialist along with a similar specialist engaged under NESI would formulate and develop an inspection system to be used by the unit forthe regular monitoring of PTP's agricultural activities; (d) a specialist inmaterials management to assist the PTPs to improve the product transportationand materials handling system, warehousing and inventory control methods andtechniques, and material procurement procedures; (e) an information managementspecialist to develop and establish uniform data processing, storage andretrieval systems to handle all production, processing, marketing and finan-cial data for each PTP; and (f) a specialist in international marketing andtrading to assist and advise PTPs on marketing improvement and commodityanalysis, establish within JMO capacity to undertake regular market supply anddemand analysis, recommend improvements in marketing policies and proceduresand export regulations and documentation, and train PTP staff in internationaltrading.

2.19 In addition, DGE would recruit the following specialist tostrengthen its planning and implementation capacity: (a) a specialist inmonitoring of project implementation and project evaluation whose role wouldbe to strengthen DGE's existing project supervision system and design andimplement a system which could be used as the basis for selectively evaluatingthe long-term benefits of tree crops projects. By upgrading this area,project implementation would improve and better inputs would be provided forthe planning of current and future development programs; (b) a planning systemadvisor to assist improve sector planning and the existing system forformulation and preparation of plans. The specialists would work withcounterparts in the Directorate of Planning. The project would also financein-service training for DGE staff, at overseas and domestic traininginstitutions. The consultants for the estate sector unit (para. 2.18) andDGE, are expected to be recruited substantially in accordance with Annex 2,Table 4. However, the requirements would be finalized once SBPN'sreorganization is completed (para. 1.13). GOI would submit to the Bank,by December 1983, a detailed proposal outlining the technical assistancerequirements for the estate sector unit and DGE.

/1 Currently SBPN.

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2.20 Implementing PTPs (US$4 million). To assist participating PTPsimplement the project and upgrade their staff, the project would finance thefollowing activities: (a) processing specialists to design, prepare biddocuments and specifications, assist in evaluating bids received, and super-vise construction of the processing factories. These consultants could berecruited internationally or locally. The specific requirements would beabout 36 man-months each for PTP VI and PTP XII for the rubber factory. GivenPTP VI and PNP VII's experience in oil palm processing they would only hireshort-term consultants for design work and preparation of bid documents andspecifications; (b) a rubber agronomist for PTP VI for three years to assistits staff with the establishment of rubber estate and smallholder areas; (c)short-term consultants to assist estate staff in survey, site, design, andconstruction of the smallholder villages, food crop area layout, project roadsand bridges. Each estate would require about 24 man-months; (d) otherconsultants as may be identified, later, for PTP XII and PNP XXVIII; and(e) in-service training programs for the staff of these estates. In generalthese programs would be directed at all levels of estate staff and containcourses of various lengths on managerial and technical matters. Courses wouldbe given at the estate headquarters, other estates or in overseas and domestictraining institutions.

2.21 Total Requirements for Consultants. Annex 2, Table 4 lists thetotal consulting service requirements for the estate sector unit, DGE, and thePTPs. A total of 432 manmonths of foreign and local consultants would beprovided at an estimated cost of US$5.8 million. In line with establishedpractice, GOI would engage consultants with qualifications and under terms andconditions acceptable to the Bank.

Quality Improvement of Smallholder Production (US$1 million)

2.22 The project will support DGE's pilot program for improving themarketing position of smallholders through quality improvements and betterorganized off-farm sales. Under this program existing cooperatives would bestrengthened or new cooperatives formed with the specific purpose of assistingtree crops producing smallholders, particularly rubber producers, in thefollowing areas: (a) produce a higher quality product through improved fieldprocessing and reduction in impurities; and (b) organize into seller groupswhich would increase tradeable volumes, reduce transportation and handlingcosts and in general improve the smallholders bargaining position withrespect to middlemen. The pilot program would comprise staff recruitment,training, technical assistance, vehicles and minor equipment for trainingsmallholders. The DGE would recruit a marketing specialist (Annex 2, Table 4)to formulate strategies and mechanisms for the marketing of smallholder treecrop output and assist DGE with implementation of this pilot program.Preparation of this program is being finalized and GOI would submit to theBank, by June 1983, a proposal containing the program's detail.

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Start-up Funds (US$19 million)

2.23 This would finance start-up activities for future Bank-assisted treecrops projects. Start-up activities include planning; nursery and fielddevelopment; initial construction of houses, buildings and roads includinginitial procurement of construction equipment. In line with establishedpractice, GOI would submit to the Bank a proposal outlining details ofactivities to be financed, before initiation of these activities.

3. Implementation Status, Financial and Procurement Matters

Implementation Status

2.24 (a) For the East Kalimantan component an outline plan at 1:50,000has been prepared showing project layout and preliminary road alignments.In view of the generally favorable topography this plan is an adequate basisto proceed with land clearing, the subsequent detailed alignment of new roadsand preparing village layouts. Only some village sites on steeper land inthe rubber block would require more detailed topographical maps at 1:10,000scale; these would be drawn up. (b) Adequate topographic, soils and vegeta-tion information is available for the West Kalimantan component to draw up anoutline plan of 1:50,000 scale. Given the favorable topography, this planwould be adequate to proceed with land and village development. (c) For theWotu block of the South Sulawesi component, enlarged aerial photographs withimputed 5 m contours are available at a scale of 1:10,000. This materialwould be used in preparing an outline plan of new land use patterns, roadalignments and village development. For the Masamba block neither aerialphotographs nor topographical maps are available. Oil palm developmentwould therefore begin only after ensuring against topographical constraints,and other things being equal, preference would be given to blocks close tothe provincial highway. Simultaneously, new aerial photographs at 1:20,000would be taken to ascertain suitable land and in preparing outline plans.Standard designs and specifications exist for all smallholder and estatehousing, buildings, village infrastructure and roads.

2.25 GOI would fully implement the project over 12 years, that is, fromestablishing the first nurseries till the last blocks of trees planted com-mence bearing. The proposed project would assist with implementation overfive years, from early-1983 till early-1988. During the first 12 months theactivities most crucial to project implementation would be wharf construc-tion (East Kalimantan); and estate housing and buildings, smallholder housingand procurement of initial road construction and agricultural equipment (allcomponents). Using start-up funds from NES VI, and the GOI budget the estateshave already commenced most of these crucial tasks.

Cost Estimates

2.26 Total estimated costs over full development (12 years) is US$469million. The project comprises the five years (early-1983 to early-1988)during which period US$368 million is the estimated project cost, of which

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US$194 million (53%) is the foreign exchange component./1 Base costs areexpressed in early-1983 prices and because of the tax exempt status of theimplementing agencies, do not include taxes.

2.27 Base cost estimates for the East Kalimantan component (US$130 mil-lion) were derived from the detailed cost analysis of recent similar worksundertaken by PTP VI, unit cost standards used by BAPPENAS and unit con-struction costs in nearby areas. Base cost estimates for the unappraisedWest Kalimantan (US$59 million) and South Sulawesi (US$55 million) compo-nents are tentative, as detailed cost analysis has not been undertaken.Consultant service costs are based on recent contracts for similar servicesin Indonesia. The cost estimates include an allowance for physical contin-gencies of 15% for housing and infrastructure and 10% for field development,roads, services, equipment and supplies. The cost estimates also includeallowances for price escalations during implementation based on the follow-ing annual contingencies: (a) 12% for 1983, and 10% for 1984-87 for domesticcosts; and (b) 8% for 1983, 7.5% for 1984, 7% for 1985, and 6% for 1986-87for foreign costs. Price contingencies total about 23% of base cost plusphysical contingencies. Annex 2, Table 5 summarizes project costs whileStaff Working Papers give their details. For the three land developmentcomponents, nucleus estates costs account for 42% and smallholder costs for58%.

/1 The cost of preproject start-up works are excluded from this total, butincluded in the full development costs.

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Table 2.1: PROJECT COST SUMMARY

ForeignLocal Foreign Total Local Foreign Total exchange

Components ---- (Rp billion)----- --- (US$ million)--- (%)

East Kalimantan 40.2 45.7 85.9 60.9 69.2 130.1 53West Kalimantan 18.9 20.2 39.1 28.7 30.7 59.4 52South Sulawesi 16.4 20.1 36.5 24.8 30.4 55.2 55Program support 3.8 12.0 15.8 5.8 18.2 24.0 76

Base Cost 79.3 98.0 177.3 120.2 148.5 268.7 55

Physical contingencies 9.1 10.3 19.4 13.8 15.6 29.4 53Price contingencies 26.3 19.6 45.9 39.8 29.6 69.4 43

Total Project Cost 114.7 127.9 242.6 173.8 193.7 367.5 53

Front-end fee onBank loan /a - 1.5 1.5 - 2.3 2.3 -

Total FinancingRequired 114.7 129.4 244.1 173.8 196.0 369.8

/a Bank loan assumed at US$152.3 million. Actual front-end fee isUS$2.28 million.

Project Financing (Including Front-end Fee)

2.28 The project would be financed 48% by GOI (US$178.6 million), 42% byIBRD (US$154.6 million), 8% by CDC (US$30 million) and 3% from supplierscredit (US$6.6 million). Because the implementing estates do not currentlyhave sufficient investment funds, they would not finance any project works.The project's detailed financing plan is provided in Annex 2, Table 6. Theproposed Bank loan and CDC loan would finance respectively 79% and 15% of theprojects foreign exchange costs. The Bank/CDC would jointly finance the Eastand West Kalimantan components, with the Bank solely financing the SouthSulawesi and Program Support components. Upon approval of subloan appraisalreports, the unappraised components (para. 3.04) would become eligible forBank/CDC financing.

2.29 GOI would provide its contribution to the project implementingagencies out of annual budget appropriations, and would secure the suppliers

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credit to assist finance the new processing plants for PTP VI and PTP XII./IGOI would provide the Rp 67 billion (US$101 million) required to carry out theproject in Years 6-12. These funds would maintain smallholder and nucleusestate plantings while they are immature and construct additional processingcapacity. The funds would come from the MOF and possibly machinery suppliers'credits.

2.30 Funds Flow. For smallholders development (except health facilitiesand schools) the PTP would prepare an annual and quarterly work program andbudget, in consultation with Team Khusus, which is submitted to BAPPENAS.BAPPENAS, as well as Team Khusus, would undertake a detailed review to ensurethat costs are in line with its own cost standards, actual costs on similarwork and those indicated in the SAR; moreover the physical targets are checkedin relation to PTP's prior performance and estimates in SAR. After approvalby BAPPENAS, MOF would channel the funds to the PTP's in quarterly disburse-ments in advance of expenditures. Funds for the first two quarters would bedisbursed upon budget approval; for the subsequent quarters, funds would bedisbursed after taking into account actual expenditures in prior quarters andthe program for upcoming quarter. Funds for school and health facilitieswould be provided to the provincial government through the INPRES program.Part of the development costs would be repaid by the smallholder (para. 2.33)For nucleus estate development the annual work program and budget would bereviewed in the same manner as that for smallholders. After the review, MOFand Bank Indonesia (BI) would provide to the PTPs funds in quarterly tranchesin accordance with the the agreed work program./2 They would make these fundsavailable to the estates in form of loans or equity (para. 2.34), eitherdirectly or through one of the state banks.

2.31 The Bank would reimburse the MOF and BI for the funds they makeavailable to the PTPs (para. 2.42). The MOF/BAPPENAS review procedures forthe annual work program and the quarterly progress, not only ensures thatbudgeted expenditures are in line with established cost standards but also theflow of funds from MOF/BI to PTPs are in line with actual expenditures byPTPs.

Onr-Lending Terms and Conditions

2.32 Under the NES program, the GOI has an established interest ratepolicy of lending or onr-lending public funds to smallholders at 10.5% p.a.,and to public sector estates at 13.5% p.a. With inflation rates projected at

/1 Given PNP XXVIII's weak financial position, it may be difficult toobtain supplier's credit. Therefore its oil palm mill would befinanced by the Bank loan.

/2 Domestic currency loans are channelled through BI, while foreign currencyloans are given direct by MOF.

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12% for 1983, and falling to about 10% thereafter, the interest rate for theestates would be positive in real terms while that for the smallholderswould be slightly negative. However, this interest rate is justified forthe smallholders since they belong to the target poverty level which GOIwishes to assist.

2.33 Smallholder Loans. Smallholders would repay part of their devel-opment costs, that is for the credit items of tree crop planting, subsistencepayments, settler housing, farm tracks and tree crop development overheads(calculated as 10% of the tree crop establishment costs). They would notrepay the noncredit items of water supply, village roads and infrastructure,education and health facilities, and project management (calculated as 5% ofthe tree crop establishment costs and paid to the implementing estate). Thetotal cost of smallholder credit items would be divided into standardizedcredit amounts for each smallholder. At the end of the third year when thehak malik titles for the land are ready, the smallholders would enter into acredit agreement with the BRI. This agreement would include all creditexpenditures during years one to three, and provisional estimates of thecredit expenditures during year four for oil palm establishment, and duringyears four and five for rubber establishment; the agreements for oil palm andrubber would be amended in year five and year six respectively to include theactual credit expenditures to bring the tree crops to maturity. The agree-ments would be for 17 years, with repayments over 15 or 14 years, that is,with two years of grace for oil palm and three for rubber producers. Thus,oil palm smallholders would commence repayments in the sixth year afterplanting, and rubber smallholders in the seventh. Interest would be accruedand capitalized during the grace period.

2.34 Nucleus Estate Loans. MOF would make these funds available to theestates under terms of a subsidiary loan agreement (SLA). For PTP VInucleus estate development, MOF would provide domestic currency funds as a16-year and Bank/CDC funds as a 20-year loan; each loan would have an eightyear grace period and be repayable in semi-annual repayments over the balanceof the loan period. Interest accruing during the grace period would becapitalized./l The repayment terms are based on the cash flow of thenucleus estate and are reasonable considering the long gestation period andthe modest commodity price projections in the medium term. Terms of theloans to PTP XII and PNP XXVIII are expected to be generally similar to thatfor PTP VI, and would be specified in the subloan appraisal reports; preli-minary analysis suggest that PNP XXVIII would require additional equity(about US$25.0 million) in view of its weak financial position (para. 5.07).Consequently, similar to practice under previous NES projects, the Bankportion of funds would be converted into equity. The requirements forequity would also be outlined in the subloan appraisal report of the SouthSulawesi component. The signing of SLA, satisfactory to the Bank, would be acondition of disbursement for the estate development.

/1 On domestic currency loans, simple interest would be charged during thegrace period.

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Procurement

2.35 Procurement procedures to be followed under the project aredetailed below.

2.36 International Competitive Bidding (ICB). Agricultural machinery(US$9 million), road construction equipment (US$11 million) and processingequipment /1 (US$ 5 million) would be procured through ICB in accordancewith Bank Guidelines. Agrochemicals (pesticides, herbicides, etc.) and rockphosphate valued at about US$9.0 million would also be procured through ICB.At present GOI maintains a list ('white list') of agrochemicals eligible foruse in Indonesia, thereby restricting procurement to those brand names onthe list. The 'white list' is based on field tests and recommendations of atechnical committee comprising officials of ministries of Agriculture,Health and Environment. Bank review of white listing procedures hasindicated that these are sound, allowing any supplier the opportunity tohave its product tested and placed on the list; furthermore this list isopen-ended and continuously reviewed. Qualified domestic manufacturers wouldreceive a preference in bid evaluation of 15% of the c.i.f. cost or theimport duty, whichever is lower. To the extent possible, DGE wouldcentrally procure road .construction equipment and agricultural machinery forthe estates, minimizing the number of contracts.

2.37 Suppliers Credit. GOI would procure processing equipment for theoil palm mill (PTP VI) and rubber factory (PTP VI and PTP XII) usingsuppliers' credit financing (US$7 million) through efficient proceduresensuring competitive prices.

2.38 Domestic Procedures. The estates would procure through prudentshopping road construction machinery, up to the aggregate amount of US$1.6million, in order to facilitate initial implementation. Equipment, spareparts and supplies costing less than US$50,000 each would also be procuredthrough prudent shopping based on at least three quotations. Urea (US$3.0million) and other fertilizers (US$8.0 million) would be procured from a GOI-owned distributing company (para. 2.39). In addition, agrochemicals androck phosphate up to the aggregate amount of US$600,000 annually would beprocured by the estates following prudent shopping procedures. Civil workscontracts for housing, infrastructure and processing facilities (US$122 mil-lion) which are small (mostly about $0.5 million and occasionally up to$2.0 million) and widely scattered in area and time span and thus unlikelyto attract international contractors, would be awarded by local competitivebidding procedures, or by force account. As in previous NES projects, theestates themselves would undertake the land development either by forceaccount or subcontract, plus other works that must be integrated with this

/1 Processing equipment for PNP XXVIII.

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work and phased over an extended time period, such as land clearing forvillage infrastructure, food crop, house and garden areas, and collectionand village road construction.

2.39 In line with ongoing NES projects, urea would be procured fromP.T. Pusri - the sole producer and distributor of urea in Indonesia. Sinceworld market prices are about 70% higher than PT Pusri's prices, foreignbidders would not be interested. Except for Urea, most fertilizers areimported. For most types of fertilizers/i required for GOI's tree crops andfood crops development programs, P.T. Pusri bulk procures them using proce-dures broadly similar to ICB. Bank review has indicated that quoted pricesunder GOI procurement are generally lower than those quoted under procurementby individual Bank projects - mainly because of the large quantities procuredin the first case. In view of this and the tremendous administrativeadvantages, the estates would be allowed to procure fertilizers from P.T.Pusri. Currently most fertilizers are subsidized through the budget. Aspart of the Bank's continuing dialogue with the GOI, the fertilizer subsidyissue is being discussed with a view to reduction in subsidies while ensuringthat this does not adversely affect production, particularly that of rice.

2.40 Consultants. Contracts for consultants' services (US$6 million)would be awarded in accordance with Bank Guidelines on the uses ofconsultants.

2.41 Bank Review. GOI would submit to the Bank for review, prior totendering and award, documents for contracts of US$0.5 million or more.

Disbursements

2.42 For the East and West Kalimantan components, Bank and CDC fundswould be disbursed jointly. Expenditures on South Sulawesi and ProgramSupport components would be disbursed solely by the Bank. The Bank wouldreimburse as follows:

(a) 34% of the funds released quarterly by MOF (for smallholderdevelopment) and onlent by MOF and BI (for nucleus estatedevelopment) to the PTPs implementing the East and West Kalimantancomponents. The reimbursement rate would be 46% for SouthSulawesi component;

(b) 100% of cost for consultant services, training and start-upexpenditures for future Bank financed NES projects.

/1 KCL, Ammonium Sulphate, TSP and some mixtures.

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Statement of expenditures (SOE) would be used for (a) above; this SOE wouldindicate the amount of funds relesed by MOF/BI during the quarter, whichwould be the basis for reimbursing GOI. In addition the SOE would includethe following information: (i) the physical quantities and costs of theactivities (e.g. land clearing, land preparation, planting, tree cropsmaintenance, construction of roads, building and other civil works) anditems (machinery, fertilizers, etc.) for which the PTP intends to use thesequarterly releases; and (ii) the actual physical achievements and expendi-tures incurred up to the end of the previous quarter. This additionalinformation would provide continuous feedback on the uses of Bank funds anda check that disbursements are in line with actual expenditures. SOE'swould also be used for disbursements for training costs and start-upexpenditures. Detailed documentation supporting the SOE's would be retainedin Indonesia and made available to Bank supervision missions for review. Anestimated schedule of disbursements is shown in Annex 2, Table 7. Comparedto actual disbursements under previous NES projects, the projected disburse-ment's rate is faster in the first three years considering that fielddevelopment has already commenced at all sites, and because management isnow stronger and more centralized. The disbursement pattern for both theNES projects and area development projects in the East Asia and PacificRegion are also provided in Annex 2, Table 7.

Accounts and Audits

2.43 All public estates have standardized accounting systems. PNP/PTPsparticipating under the project would keep separate accounts for all invest-ment costs relating to NES VII smallholders as well as nucleus estateproject implementation. NES VII project accounts and related disbursementsmade under statements of expenditures, would be audited by independentauditors acceptable to the Bank (this includes the State Auditor), and theaudit reports would be submitted to the GOI, the Bank and CDC no later thansix months after the end of each year. An assurance was obtained fromGOI that these accounting and auditing practices would be followed. Inongoing NES projects, audit covenants are generally being complied with.

4. Environmental Effects

2.44 The project would establish tree and food crops in areas ofsecondary jungle and alang-alang where a poor economic and ecologicalpattern of shifting cultivation is presently practiced. Standard soilconservation methods would be followed to prevent soil erosion. With theestablishment of a leguminous cover crop, soil erosion will be reduced andfertility would be improved by the application of fertilizers and croprotation of food crop land. The small quantities of chemicals used tocontrol alang alang, pests and diseases would have no significant adverseenvironmental effects. The new rubber and palm oil factories would adoptthe appropriate effluent disposal standards and provide safeguards for thehealth and safety of humans, fish and wildlife.

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3. MANAGEMENT AND IMPLEMENTATION ARRANGEMENTS

General

3.01 NES V SAR/1 (paras. 4.01-4.05 and Chart I) describes the organiza-tion and functions of the Directorate General of Estates (DGE), publicsector estates, and other main government institutions involved in the treecrop subsector. This is therefore not repeated here. Moreover, sinceimplementation arrangements and procedures are standardized and adequatelydescribed in the above report, these are only briefly spelled out here.

Project Management and Implementaion

3.02 The DGE would have overall responsibility for executing theproject. The Team Khusus, within DGE, would have primary responsibility forcoordinating project implementation, while the estates would be responsiblefor and mainly undertake the individual project works. These estates woulddevelop processing facilities and other estate civil works and plantingswith guidance and supervision from the estate sector planning/coordinationunit (para. 1.12).

3.03 Team Khusus (TK). Team Khusus would coordinate project implemen-tation for the DGE. Its specific functions would include assistance to theproject managers and nucleus estates to prepare annual work programs andbudgets, assistance with financial administration, guidance in technical,engineering and project procurement and disbursement matters, monitoring andevaluation of project implementation, and providing inspection services forsmallholder field development.

3.04 In line with the Bank's objective of delegating responsibility toGOI agencies and recognizing the increasing capabilities of TK, it would begiven an additional responsibility under this project, namely appraisal ofthe West Kalimantan and South Sulawesi components. The requirements forappraisal and report writing were agreed to between the Bank, CDC and TK.For these two components, subloan appraisal reports prepared by TK, andapproved by all concerned GOI agencies, would be submitted to the Bank/CDC(only Bank in case of South Sulawesi) for approval, before they becomeeligible for financing.

3.05 Team Khusus would supervise the land development components everysix months; in addition to reviewing the physical and financial progress, TKwould specifically review the detailed documentation supporting the SOE's.Based on its supervision visit, and progress of other components, TeamKhusus would submit a report on the project's progress, no later than sixweeks from end of the semester, to the Bank and CDC using the format alreadyagreed to by the Bank and Team Khusus under earlier NES projects.

/1 Report No. 3342-IND.

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3.06 Nucleus Estates. The nucleus estates would be responsible for thefollowing: (1) establishing the smallholdings, village infrastructure,roads and processing facilities; (2) provision of extension after small-holders receive control of their plots; (3) harvesting and collection,including training of smallholders in these activities; (4) marketing itsown and smallholder production; (5) selling pesticides and fertilizers tosmallholders; (6) operation and maintenance of all estate roads, cropcollection tracks, and equipment, and processing facilities; and (7)operating and maintaining, during project implementation only (para. 3.09),access and village roads. To assist them in these works and services, theestates would recruit consultants as stated in para. 2.20. For bothsmallholder and estate development, the First Director of the implementingestate would be the project manager, and for the individual sites the estateconcerned would appoint one of its estates manager as site manager. Theproject manager would be responsible for all matters relating to thepreparation of work programs and budgets. In addition they would have aconstruction team, comprising an experienced civil engineer, a surveyor andtwo surveyor's assistants, at each of the sites. The DGE would enter into aSmallholder Development Agreement with the nucleus estates for tree cropdevelopment, extension, processing and marketing services. The signing ofthese agreements which are satisfactory to the Bank would be a condition ofdisbursement for the smallholder development. These agreements have beenstandardized for the NES projects.

3.07 As indicated in para. 1.32, in case of the South Sulawesi compo-nent PNP XXVIII would contract out to PNP VII implementation of projectworks during the development period. The responsibility of these twoestates would be outlined in a management contract. The terms and condi-tions of this contract would be provided in the subloan appraisal report(para. 3.04).

3.08 Provincial Governments. The East and West Kalimantan and theSouth Sulawesi provincial governments would supply the smallholders withhealth, education, social and food crops extension services. The Chairmanof the Provincial Development Planning Agency (BAPPEDA), assisted by thenucleus estate project manager, would coordinate local government INPRESprograms to construct health and educational facilities.

3.09 After project completion, all access and village roads constructedby the nucleus estates in the smallholder areas would be turned over to theprovincial governments who would be responsible for their maintenance.Public buildings and community facilities constructed by the nucleus estatesfor smallholders would be turned over to the appropriate ministries, whichwould then assume responsibility for their operation and maintenance.

3.10 Provincial Coordinating Committee (PCC). Each provincial govern-ment would estabish a PCC to assist the project; PCC's for East and WestKalimantan have already been established. Its members would include the

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heads of the various project area kabupatens (Bupatis), the heads of theProvincial Estate Crops and Food Crops Services, the project manager (PTPsFirst Director), the site managers, the provincial head of the BRI, andrepresentatives of other relevant provincial government agencies. Under theproject the PCC would: (a) arrange the construction, (under INPRES pro-grams), of health and education facilities in the project areas; (b) arrangefor recruitment of prospective smallholders for the project to be acceptedby the project managers as suitable estate laborers; (c) expedite thegranting of hak milik to the smallholders; (d) ensure adequate food cropextension services for the smallholders; and (e) establish pricing committees(para. 4.05).

3.11 Bank Rakyat Indonesia (BRI). The BRI would be the handling bankfor recovery of smallholder debt obligations. On behalf of GOI, BRI wouldenter into smallholder credit agreements with each smallholder family whenthe smallholder receives hak milik to his holding, about three years aftersettlement. The nucleus estates would deduct and transfer to the BRI thesmallholders repayments from their production, which it would process andmarket for him (para. 5.04). GOI would pay the BRI a handling fee of 1% orless on the total outstanding loans for this service.

3.12 Bank Indonesia (BI). The BI would make available funds to theestates (see para. 2.34).

Settlement Arrangements

3.13 Settlement Recruitment. At East and West Kalimantan sites thesmallholders would be all those with cultivation rights within the projectarea, and small farmers (3.0 ha or less) selected from the project kecama-tans and kabupatens. Any shortfall would be met by small farmers from otherkabupatens within the province and transmigrants from Java. For the SouthSulawesi component, smallholders would be recruited entirely from the exist-ing farmers in the project kecamatans with preference given to the poorestfarmers; farmers owning more than 1 ha of sawah land would not be eligible.At all sites, the PCC-s would select the smallholders, and with the help ofthe estates transport them to the site. Each estate would hire one memberof each smallholder family as a regular estate laborer, and guarantee him orher a regular job until the estates hand over to the smallholder family theoperation of its individual holding. To obtain control of their holdingsthe smallholders must prove themselves satisfactory estate laborers/traineesand willing to work and live on their tree crop holdings.

3.14 Land Allocation. At all sites the PCC, in association with theDirectorate General of Agrarian Affairs (DGA), would provide all familieswith the right of use to 1.0 ha for house, garden and food crops within oneyear of project works commencement in the area (in case of existingfamilies) and within one year of their arrival (in case of new settlers).Furthermore, the PCCs and DGA would provide the smallholders judged satis-factory settlers with land ownership title (hak milik) to their entire

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holding within three years after settlement. The hak milik would beretained by BRI as security until full repayment of debt (para. 3.11). Theprovincial and kabupaten DGA would do the cadastral survey necessary todefine each smallholder's holding.

4. AGRICULTURAL PRODUCTION, MARKET PROSPECTS AND PRICES

Agricultural Production

4.01 Incremental project production at full development would be 94,000tons palm oil, 16,000 tons palm kernel, 48,000 tons rubber, and 39,000 tonsof food crops. Annex 3, Table 1 provides the tree crop yields andproduction.

Market Prospects and Arrangement

4.02 Palm Oil. Of Indonesia's total production (710,000 tons) in 1981,about 53% (380,000 tons) was exported with the remaining 47% consumed domes-tically; the latter's share having increased from about 15% in 1977 due tothe rapidly increasing domestic demand for fats and oil and shortfall incoconut oil production. Total production is expected to increase to about1.33 million tons in 1995; the project's output would represent about 15% ofthe incremental production. Market prospects would remain favorable. By1995 about 60% of the national production is expected to be consumeddomestically, with the remaining exported; exports in that year areprojected to be about 570,000 tons representing about 8% of the worldexports compared to about 12% at present. About 40% of the project'sproduction is expected to go to the local market with the remainingexported. Smallholders would sell all their production through the nucleusestate, with the latter selling through the JMO.

4.03 Rubber. Most Indonesian rubber is exported. In 1981, exportswere about 950,000 tons accounting for about 30% of world trade. Totalnational production (and exports) in 1995 is projected to be about 1.4 mil-lion tons; the project's production would represent about 12% of theincrease between 1981 and 1995. It is forecast that by 1995 Indonesia'smarket share may decline to about 26% because of sharp production increasesin Thailand. The long-term outlook for natural rubber remains quitefavorable and Indonesia should have no difficulty selling its increasedrubber output. Under the project, smallholders would be required to sellenough rubber (mainly latex, slab or lump) through the nucleus estate tomeet their debt repayment. By improving quality and marketing conditions,the nucleus estate would be able to pay the smallholder about 70% of FOBprice (compared to 45-55% usually paid by middlemen) and this shouldencourage them to sell most of their rubber through the estates. Thenucleus estates would sell through JMO.

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4.04 Food Crops. The smallholders would produce rice, corn, cassava,legumes (peanuts), fruit and vegetables mainly for family consumption.Surpluses and other production (e.g., cloves, coffee) would be sold inadjacent market towns. Team Khusus, in collaboration with the estates,would review the food crop market prospects in specific areas and wouldadvise the estates on the opportunities for food crop processing by theestates. The estates may in turn use the short-term consultancies providedin the project to review the economic justification of specific proposals.

Pricing

4.05 Pricing Mechanism and Arrangements. Following procedures estab-lished under the earlier NES projects, prices paid to the smallholders fortree crops output would be calculated, taking into account such factors asexpenses of the estate in collecting, transporting, processing and marketingof settler production, a return on the estates processing facilitiescapital, and the importance of encouraging smallholders production and goodquality of their produce. To assist in estimating deductions, the PCC wouldestablish committees, including smallholder representatives, which wouldmeet monthly to set the price for the smallholder's produce. The DGE withthe assistance of the estates is currently undertaking a detailed review toestablish pricing formula to guide these committees. During harvestingperiods, the nucleus estates would pay all smallholders on a weekly basis,whether they are producing rubber or oil palm. This would help ensure theysell enough production through the nucleus estates to meet their debtrepayments (para. 5.04). Weekly payments providing regular cash wouldreduce the likelihood of their selling through other channels for a moreregular cash supply. The efficacy of the pricing system would be assessedduring the in-depth review (para. 1.21) by which time the system would havebeen in operation for about a year for smallholders under NES 1.

4.06 Prices. For economic and financial analysis, inputs and outputshave been valued at present and projected (1985, 1990 and 1995) pricesexpressed in 1983 constant values. Future economic and financial prices forrubber, oil palm, rice, corn, peanuts and fertilizers were derived from theBank's Commodity Division's forecasts for world market prices and adjustedto the farmgate level for transportation, processing, and handling costs.(Annex 3, Table 2). Crops not traded on the international markets have beenexpressed in actual farmgate prices and adjusted for inflation. Agrochemi-cals' economic prices have been assumed to remain constant in real terms.The following financial prices (1983 constant terms) have been assumed forrubber and palm oil: (1) Rubber. FOB price of Rp 970/kg in 1990,Rp 1,010/kg in 1995 and thereafter. The nucleus estates would pay thesmallholder about 70% of FOB. (2) Palm Oil/Kernel. FOB price of Rp 362/kg(palm oil) and Rp 213/kg (palm kernel) in 1990 and thereafter; smallholderswould receive about Rp 53/kg for their fresh fruit bunches (FFB) equivalentto about 60% of FOB. Domestic palm oil prices are assumed to be same asexport prices; while in the past local prices were generally 10-20% lower,presently the prices are at about the same level.

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5. BENEFITS, JUSTIFICATION AND RISKS /1

Benefits

5.01 In addition to increased agricultural production (para. 4.01), theproject would directly benefit 18,850 smallholder families about 30% ofwhich have incomes below critical consumption level. It would provide fulltime employment for another 4,000 families working for the estates. Bycreating potential employment opportunities in other sectors to service theagricultural settlements the project would indirectly benefit at least another5,200 families. During the initial development period the project would pro-vide each smallholder family with one full time job for four or five years,and, as project beneficiaries are presently doing work of low productivity,when the tree crops are bearing would create at least one new permanent jobper project family directly assisted or hired. The project would upgrade thethree-estates (PTP VI and XII, and PNP XXVIII). In addition, it wouldincrease rubber and palm oil exports and local supplies of palm oil, createproductive employment for the rural poor, and ensure a productive and sustain-able use of underutilized land resources. The total value (in constant 1983prices) of project's exports would be about $87 million at full development inyear 2003.

Financial Analysis - Smallholders

5.02 Settlement Costs per Family. The base cost of settling a familyat the East Kalimantan site is about US$9,940 for an oil palm smallholderand US$10,820 for a rubber smallholder (constant 1983 prices); the credit,or repayable costs, are some 79% of the total settlement cost (Annex 3,Table 3). Preliminary estimates indicate base costs to be US$11,050 andUS$10,500 for West Kalimantan and South Sulawesi respectively. As theproject would create about 22,850 new permanent jobs in agriculture (para.5.01) for a total investment of US$275 million (base cost plus physicalcontingencies), each job would cost US$12,000. This compares favorably withjob creation in medium- to large-scale industry in Indonesia at aboutUS$24,200.

5.03 Farm Incomes. Table 5.1 below summarizes the changes in farmincomes for a typical East Kalimantan smallholder. Detailed farm budgetsare provided in Annex 3, Tables 4 and 5. With the project it is expectedthat total family incomes would reach at least US$2,800 by year 1992 (year10), $560 per capita. During the development period the smallholder is

/1 For the South Sulawesi component, the estimates of benefits, base costof settling families, farm incomes, economic rates of return are basedon preliminary figures given in the preparation report. For the WestKalimantan component these are expected to be similar to those for rubberdevelopment under East Kalimantan, given the similarity of size andagronomic/technical conditions.

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ensured a steady income, as he would work as an estate laborer. As theTable below indicates the smallholders would be able to meet their debtpayments without difficulty. Incomes from the project would result insignificant improvement in the relative income position of these families,from about 10-15% of per-capita GNP at present (US$520) to 75-90% of theestimated per capita GNP in 1992 (US$750). The impact of farm incomes forthe other two components is expected to be similar.

Table 5.1: EAST KALIMANTAN SMALLHOLDER FARM INCOME (US$)(constant 1983 prices)

Rubber Oil palmYears 3 10 15 3 10 15

Total income with project 800 2,830 3,560 1,410 3,310 3,150Debt repayment - 710 420 - 570 350Net income with project 800 2,120 3,140 1,410 2,740 2,800Income without project 510 520 530 510 520 530Incremental income 290 1,600 2,610 900 2,220 2,270

5.04 Cost Recovery. The estates, following procedures establishedunder the earlier NES projects, would recover the credit items ofsmallholder development costs (para. 2.33) partially retaining the salesrevenues of the crops they would process and market on their behalf. Toassist in this regard, the PCC would establish committees (para. 4.05). Theestates would deduct from the individual smallholder-s sales revenue anamount sufficient to repay the annual loan installment; such payments wouldnot however exceed 30% of tree crop income. The estates would transfer allcost recovery to BRI which would keep a record of all individual smallholderaccounts. Besides repaying all credit development items, smallholders wouldpay a land tax, which village heads would collect and turn over to local andprovincial administrations for providing public services. This tax isconsidered a direct project tax which contributes towards the operationalcosts of the governmental agencies involved in the villages. Discounting at10%, the estimated cost recovery and rent recovery indices for EastKalimantan settlers is about 40% each (Annex 3, Table 6). The level ofindices for the unappraised components is expected to be similar.

Financial Analysis - Implementing PTPs

5.05 PTP VI. It is financially sound-with total assets valued at overRp 89.7 billion (US$135.9 million), a healthy debt/equity ratio of 11/89,and a net income of Rp 3.5 billion (US$5.3 million) in 1981. Income andcash flow projections (Annex 3, Tables 7 and 8) indicate that new debt

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obligations of the company will be easily repaid and it will have net incomeof US$55.6 million (current) by 1995.

5.06 PTP XII. It had total assets of Rp 42.3 billion (US$64.1 million),D/E of 43/57, and net income of Rp 0.6 billion (US$0.9 million) in 1981.While PTP XII's cash flow position has been tight in recent years because oflow tea prices (tea contributes about 80% of the income) and onerous termsof existing debt, the future financing position is expected to besatisfactory as a result of additional equity provided under NES VI, andcrop diversification policies currently under implementation. Net income in1995 (current) is expected to increase to US$19.8 million and DIE would notincrease beyond 60/40 as agreed under NES VI (details in Project Files).

5.07 PNP XXVIII. It had total assets of Rp 2.2 billion (US$3.3 million),D/E of 70/30, and net loss of Rp 0.3 billion (US$0.4 million) in 1981.Because of the small and inadequate production base, PNP XXVIII is expectedto make losses over the next few years. However, the situation is expectedto improve as a result of increase in production base under NES VI and NESVII, additional equity provided and limit on development activities agreedunder NES VI and further injection of equity under this Project. Operationswould become profitable by 1990 and net income in 1995 would amount to aboutUS$4.5 million (details in Project Files). Preliminary estimates indicatethat to maintain a satisfactory D/E (70:30 until 1979 and 60:40 thereafteras agreed under NES VI), PNP XXVIII would need additional equity amountingto about US$25.0 million under NES VII. The additional equity requirementsfor PNP XXVIII would be finalized in the subloan appraisal report and agreedto with GOI at the time of Bank approval.

Economic Analysis

5.08 For the East Kalimantan component, the estimated economic rate ofreturn over a 30-year (rubber) and 28-year (oil palm) period would be: (1)smallholders: 17% (oil palm), 14% (rubber); and (2) nucleus estates: 12%(oil palm), and 13% (rubber). These rates of return are based on thefollowing assumptions: (a) Investment costs are net of taxes and transferpayments, and foreign exchange costs were converted to rupiah at Rp 660 =US$1.00, assuming a standard conversion factor of 1.0. Investment costshave been adjusted to reflect the economic value of fertilizers. Investmentcosts are Rp 39.4 billion for smallholder rubber, Rp 27.7 billion forsmallholder oil palm, Rp 16.1 billion for estate rubber and Rp 31.6 billionfor estate oil palm. These costs represent the total development costsexcept in the case of smallholders, the costs of health, education andvillage facilities /1 have been excluded because the Government would haveprovided these facilities even without the project; the costs of these

/1 Village offices, post offices, mosques, banks, sports grounds, marketsand other community facilities.

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total Rp 4.6 billion for smallholder rubber and Rp 2.8 billion for small-holder oil palm; (b) Shadow Wage Rate of Rp 1,100/manday which is theweighted average cost of wages assumed for existing settlers and projectarea smallholders (Rp 1,500/ manday /1) and transmigrants (Rp 600/manday/1);and (c) Development Period. Smallholders would move to the sites during theproject's first year and start growing food crops during that year. Theywould achieve the projected food crop yields over five years and projectedgarden yields in 10 years. The cost and benefit streams are presented inAnnex 3, Tables 9 and 10.

5.09 Preliminary rates of return for the South Sulawesi component are14% and 13% respectively for smallholders and nucleus estate; for WestKalimantan they are expected to be similar to East Kalimantan rubberdevelopment.

5.10 Sensitivity Analysis. Sensitivity analysis was used to determinethe East Kalimantan components' sensitivity to cost overruns, benefit reduc-tions, and lags in benefit flows. Table 5.2 indicates the switching values(percent change in parameter value which would reduce ERR to 10%) for a risein costs, fall in benefits or lag in benefits (in years). Switching valuesrange from 14-25% for benefits and 20-35% for costs. As the table indi-cates, the rates of return are most sensitive to decrease in benefits i.e.decline in commodity prices and/or yields. Projected yields are realisticand based on actual experience in Indonesia and elsewhere; a 14% drop inyields is unlikely. The prices (para. 4.06) used for estimating benefitsfrom rubber and oil palm development are close to the lowest level, for the1950-80 period. While it is possible that during a short period of time theprices may drop more than 14%, it is highly unlikely that average long termprices would fall below those assumed. Considering that unit investmentcosts for NES projects and operating costs for tree crops production arewell established, cost increases as large as those shown in Table 5.2 have alow probability. Moreover, PTP VI's management should be able to minimizesuch adverse movements in costs or implementation.

/1 Project and adjacent area farmers, 55%; and transmigrants, 45%.For the former, shadow wage rate is assumed to be same as thefinancial wage (Rp 1,500/manday) given the short supply of labor. Fortransmigrants it is assumed to be 50% (Rp 600) of financial wage inJava/Bali.

- 36 -

Table 5.2: SENSITIVITY ANALYSIS - EAST KALIMANTAN COMPONENT

Smallholder Nuclues estateRubber Orl Palm Rubber Oil Palm

ERR - Base Case (x) 14 17 13 12

Switching ValuesIncrease in costs (%) 25 35 30 20Decrease in benefits (%) 20 25 17 14Lag in benefits (years) 2 3 3 1

Project Risks

5.11 There are no unusual 'technical risks for the proposed project.The proposed agricultural practices, inputs and yields are based onexperience gained in estate development programs, and the earlier NES pro-jects. Management weaknesses have existed in previous NES projects,especially a diffusion of'management responsibility between the DOE, thenucleus estate, the project manager and provincial governments. Sincemid-1980 these have been substantially reduced by delegating increasedauthority to the nucleus estate, and by selecting the First Director of theestate as a project manager. Consequently project management andimplementation have improved considerably.

5.12 At present PNP XXVIII is weak technically, managerially and finan-cially. However, with the measures already taken to strengthen it under NESVI and training and assistance to be provided by PNP VII, it would be ableto manage the project after PNP VII departs. In earlier Bank assistedprojects the implementing estates were also weak. However, with projectassistance they all have developed into strong financial and managerialentities.

5.13 There is a risk that smallholders would not sell their rubberproduction to the nucleus estates, and the estates would thus be unable torecover smallholder loans. However, because the estates would operate theharvest collection services, they would be in a strong position to monitorthe flow of smallholder production and to take action if the smallholdersdid not repay loans. The smallholders, through their Credit Agreements withthe BRI, are legally bound to repay through the nucleus estates. Addition-ally, to keep their processing facilities operating at full capacity, theestates would act competitively to obtain the smallholders' production.Also, the project provides that the estates pay the smallholders weekly thusensuring they have a regular cash income, which should make cash sales atlower unit prices to middlemen less attractive.

- 37 -

5.14 Taking the above safeguards into account, and along with the resultsof the sensitivity analysis, the project's indicated risks are judgedacceptable.

6. AGREEMENTS REACHED AND RECOMMENDATIONS

6.01 During negotiations agreement was reached with the Governmenton the following points:

(a) submission to the Bank by September 30, 1983 an estate sectorinvestment and financing plan (para. 1.19);

(b) procurement would be undertaken in the manner specified in paras.2.36-2.41; and

(c) project accounts would be maintained and audited in the mannerspecified in para. 2.43.

6.02 Agreement was also reached with the Government on the followingconditions of disbursement against individual project components:

(a) Nucleus Estates: The signing of subsidiary loan agreementbetween the MOF/BI and the individual estates (para. 2.34);

(b) West Kalimantan and South Sulawesi component: Approval of GOI'sappraisal reports by the Bank/CDC and agreement by GOI ofBank/CDC conditions of approval (para. 3.04); and

(c) Smallholder Development: The signing of smallholder developmentagreements between the DGE and the nucleus estates (para. 3.06).

6.03 With the above assurances and conditions the project would besuitable for a Bank loan of US$154.6 million with a 20-year maturity includ-ing a grace period of five years, and a CDC loan of US$30 million on similarterms. The borrower would be the Republic of Indonesia.

- 38 - ANNEX 1Table 1

INDONESIA

NUCLEUS ESTATES AND SMALLHOLDERS VII PROJECT

NES PROJECTS - PROGRESS OF TREE CROP PLANTINGS (HA)(End-March 1982)

NES I NES II NES III NES IV NEX V NES VI TOTAL…------------------------- (ha) -----------------

INDIVIDUAL CROPS

RubberSmallholder - Planned /a 9,715 10,350 9,750 - 400 200 30,415

- Actual /b 8,690 8,297 9,012 - 400 200 26,599

Estate - Planned 21,300 1,500 7,845 - 500 1,770 32,915- Actual 26,832 2,037 8,981 - 79 1,770 39,699

Oil PalmSmallholder - Planned - - - 1,140 500 - 1,640

- Actual - - - 1,140 500 - 1,640

Estate - Planned 5,000 - 5,374 - 400 - 10,774- Actual 5,630 - 5,374 - 400 - 11,404

CoconutSmallholder - Planned - - - - 770 - 770

- Actual - - - - 900 - 900

Estate - Planned 4,200 - - - 250 730 5,180- Actual 4,255 - - - 192 730 5,177

SUBTOTALSmallholder - Planned 9,715 10,350 9,750 1,140 1,670 200 32,825

- Actual 8,690 8,297 9,012 1,140 1,800 200 29,139(Percentage completed) (89) (80) (92) (100) (108) (100) (89)

Estate - Planned 30,500 1,500 13,219 - 1,150 2,500 48,869- Actual 36,717 2,037 14,355 - 671 2,500 56,280

(Percentage completed) (120) (136) (109) - (58) (100) (115)

TOTAL- Planned 40,215 11,850 22,969 1,140 2,820 2,700 81,694- Actual 45,407 10,334 23,367 1,140 2,471 2,700 85,419

(Percentage completed) (89) (87) (102) (100) (88) (100) (105)

- total

program /c 48,690 26,200 46,519 8,000 45,600 26,490 201,499(Percentage completed) (93) (39) (50) (14) (5) (10) (42)

/a Planned for completion by March 1982./b Actual completed by March 1982./c Total program under project.

- 39 -ANNEX 1Table 2

INDONESIA

NUCLEUS ESTATE AND SMALLHOLDERS VII PROJECT

Mean Annual Rainfall at Sites(Minimum of ten-year recording)

Pasir Sambas LuwuRainfall Rain days Rainfall Rain days Rainfall Rain days

Month (mm) (no.) (mm) (no.) (mm) (no.)

January 295 14.5 263 11 305 11.5February 248 11.7 269 10 282 11.5March 321 14.7 174 8 295 12.2April 237 13.3 193 9 302 13.6May 203 12.0 221 11 315 14.5June 158 10.6 172 8 291 16.3July 135 8.7 136 8 219 14.0August 105 6.8 188 7 250 12.3September 101 7.0 282 11 272 12.5October 114 7.4 334 13 123 7.4November 183 10.8 380 16 223 11.8December 243 13.7 394 16 299 18.0

Total 2,343 131.2 2,998 128 3,177 155.6

- 40 - ANNEX 2

Table 1INDONESIA

NUCLEUS ESTATE AND SMALLHOLDERS VII PROJECT

Phasing of Tree Crop Planting Program(ha)

Pre-projectGOI FY 1982/83 1983/84 1984/85 1985/86 1986/87 1987/88 Total

RubberPTP VI (East Kalimantan)

- NE - 700 500 500 800 - 2,500- SH 500 1,000 2,500 2,500 2,200 3,000 11,700

Subtotal 500 1,700 3,000 3,000 3,000 3,000 14,200

FTP XII (West Kalimantan)NE 270 730 1,000 1,000 - - 3,000SH 3,830 2,170 2,000 2,000 2,000 - 12,000

Subtotal 4,100/b 2,900 3,000 3,000 2,000 - 15,000

Oil PalmPTP VI (East Kalimantan)

- NE - 200 800 1,000 1,000 - 3,000- SH 2,000 2,000 2,000 2,000 1,000 - 9,000

Subtotal 2,000 2,200 2,800 3,000 2,000 - 12,000

PNP XXVIII (South Sulawesi)- NE 100 1,000 1,000 1,500 400 - 4,000- SH 400 500 1,000 1,250 1,250 600 5,000

Subtotal 500 1,500 2,000 2,750 1,650 600 9,000

Total Project- NE 370 2,630 3,300 4,000 2,200 - 12,500- SH 6,730 5,670 7,500 7,750 6,450 3,600 37,700

Total 7,100 8,300 10,800 11,750 8,650 3,600 50,200

/a NE = nucleus estateSH = smallholder

/b About 1,100 ha of this planted in 1981/82.

- 41 - ANNEX 2Table 2

INDONESIA

NUCLEUS ESTATES AND SMALLHOLDERS VII PROJECT

Project Processing Factories - Installed Capacity

Installed pro-Estimated cessing capacity

Commodity production/a Under MaximumSite Crop processed 1988/b 1992 Peak project required

East Kalimantan Rubber L & S /c 20 800 2,800 800 2,800(ton/mo.)

Oil palm FFB 20 40 69 35 70(ton/hr.)

West Kalimantan/d Rubber L.& S 190 990 3,000 1,000 3,000(ton/mo.)

South Sulawesi/d Oil palm FFB 8 33 55 30 55(ton/hr.)

/a Where relevant estimated daily production includes nucleus estate and small-holders.

/b Final year of project implementation.

/c L & S refers to latex and slab.

/d Preliminary.

- 42 - ANNEX 2Table 3

INDONESIA

NUCLEUS ESTATES AND SMALLHOLDERS VII PROJECT

EAST KALIMANTAN COMPONENT

Processing Factories - Implementation Schedule

Rubber Oil palmActivities factory factory

1. Appointment of engineering consultants./a 11/85 12/82

2. Site survey and soil tests for locationof factory site. 01-02/86 01-02/83

3. Preparation of engineering drawings,specifications and tender documentsfor civil and building works. 03-05/86 03-05/83

4. Preparation of engineering drawings,specifications and tender documentsfor mechanical and electrical works. 03-07/86 04-10/83

5. Receipt of tenders, tender evaluation andaward of civil contract. 08/86 08/83

6. Site entry. 10/86 09/83

7. Receipt of tenders, tender evaluation andaward of mechanical and electricalcontracts. 10/86 12/83

8. Completion of civil contract. 12/87 02/85

9. Completion of mechanical and electricalcontracts. 03/88 01/86

10. Phase 1 start-up. 04/88 02/86

/a In case of oil palm factory, PTP VI would be hiring only short-termconsultants for activities 2,3 and 4. In case of rubber the consul-tants would be engaged upto start-up.

- 43 - ANNEX 2Table 4

INDONESIA

NUCLEITS ESTATES AND SMALLHOLDERS VII PROJECT

CONSULTING SERVICES

Requirements and Implementation Schedule

| 1983/84 1984/85 1985/86 1986/87 1987/88 j Total______ _____ _____ _____ _____ _____ ________ ___ _ __ |_ _ |manmonth

Il I I I IMinistry of Agriculture/DGE I I I

Manpower Specialist a …---------1---------1---------Processing Engineer (rubber) /a ---------1---------1---------Processing Engineer (palm oilfF/a I 1---------I------ I---------IProduction Inspector /a ---------1---------1---------Materials Management Specialist /a ---------1------------------Information Management Specialist /a 1---------1---------I---------IInternational Marketing and Trading ---------1---------1---------

Specialist /aProject Implementation and

Evaluation Specialist /a ---------------------------

Planning Advisor /a ------------------Smallholder Marketing Specialist /b ---------1------------------

Subtotal I I I 180

PTP VI I I I IProcessing Engineer (rubber) -------------------Rubber Agronomist -----------------------

Short-term consultants -- ----------------- I

Subtotal I I I I 108

PTP XII I …Processing Engineer (rubber) ----------------- Short-term consultants --------- ---------

Subtotal I I I I I I 72

PNP XXVIII I I i

Short-term consultants -------1------------------Unidentified consultant …---------------------------

Subtotal I I I I I I 72

Total I I I 432

/a Implementation schedule and length of contract is tentative and would be finalized upon

completion of institutional restructuring of SBPN (para. 1.12).

/b Details would be included in proposal detailing the pilot program (para. 2.22).

- 44 -ANNEX 2Table 5Page 1

INDONESIA

NUCLEUS ESTATES AND SMALLHOLDERS VII PROJECT

Project Cost Estimates /a

ForeignLocal Foreign Total Local Foreign Total exchange

(Rp million) ----- --- (US$ million) --- (x)

East Kalimantan (PTP VI)Rubber Nucleus EstateRubber establishment 1,772 1,530 3,302 2.69 2.32 5.01 46Roads 103 220 323 0.16 0.33 0.49 68Estate housing & buildings 2,014 1,740 3,754 3.05 2.64 5.69 46Rubber processing 299 391 690 0.45 0.59 1.04 57Power & water 46. 99 145 0.07 0.15 0.22 68Road construction equipment - 414 414 - 0.63 0.63 100Agric. machinery & equipment - 111 111 - 0.17 0.17 100Estate vehicles 26 157 183 0.04 0.24 0.28 86Office furniture & equipment 49 52 101 0.07 0.08 0.15 51Operating expense 193 136 329 0.29 0.21 0.50 41Staff resettlement 37 17 54 0.06 0.03 0.09 31Working capital 99 420 519 0.15 0.64 0.79 81

Base Costs 4,638 5,287 9,925 7.03 8.03 15.06 53

Physical contingencies 576 628 1,204 0.87 0.95 1.82 52Price contingencies 1,344. 984 2,328 2.04 1.49 3.53 42

Subtotal 6,558 6,899 13,457 9.94 10.47 20.41 51

Oil Palm Nucleus EstateOil palm establishment 2,168 1,527 3,695 3.29 2.31 5.60 41Roads 283 608 891 0.43 0.92 1.35 68Estate housing & buildings 2,664 2,302 4,966 4.03 3.49 7.52 46Oil palm processing 2,664 6,676 9,340 4.04 10.12 14.16 71Power & water 46 99 145 0.07 0.15 0.22 68Road construction equipment - 471 471 - 0.71 0.71 100Agric. machinery & equipment - 237 237 - 0.36 0.36 100Estate vehicles 74 442 516 0.11 0.67 0.78 86Office furniture & equipment 44 46 90 0.07 0.07 0.14 51Operating expense 217 152 369 0.33 0.23 0.56 41Staff resettlement 22 11 33 0.03 0.02 0.05 33Working capital 83 787 870 0.13 1.19 1.32 90

Base Costs 8,265 13,358 21,623 12.53 20.24 32.77 62

Physical contingencies 1,030 1,514 2,544 1.56 2.30 3.86 60Price contingencies 2,622 2,856 5,478 3.97 4.32 8.29 52

Subtotal 11,917 17,728 29,645 18.06 26.86 44.92 60

/a US$ totals may not exactly equal Rupiah amounts due to rounding.

-45- ANNEX 2Table 5Page 2

ForeignLocal Foreign Total Local Foreign Total exchange---- (Rp million) --- (US$ million) --- (%)

Rubber SmallholdersRubber establishment 7,303 6,310 13,613 11.07 9.56 20.63 46Roads 430 922 1,352 0.65 1.40 2.05 68Land clearing for food crops,

gardens & villages 482 417 899 0.73 0.63 1.36 46Settler housing, water & sanitation 2,829 2,445 5,274 4.29 3.70 7.99 46Village infrastructure 317 273 590 0.48 0.41 0.89 46Education & health buildings 1,417 1,225 2,642 2.15 1.86 4.01 46Road construction equipment - 1,497 1,497 - 2.27 2.27 100Agricultural machinery & equipment - 576 576 - 0.87 0.87 100Education & health equipment &

supplies 52 218 270 0.08 0.33 0.41 81Settler subsistence, seeds and ferti-

lizer packages 525 185 710 0.80 0.28 1.08 26Operating costs 1,195 842 2,037 1.81 1.28 3.09 41Related estate housing 671 580 1,251 1.02 0.89 1.91 46Related estate vehicles 12 72 84 0.02 0.11 0.13 86

Base Costs 15,233 15,562 30,795 23.10 23.59 46.69 51

Physical contingencies 1,785 1,783 3,568 2.70 2.70 5.40 50Price contingencies 5,956 3,813 9,769 9.02 5.77 14.79 39

Subtotal 22,974 21,158 44,132 34.82 32.06 66.88 48

Oil Palm SmallholdersOil palm establishment 6,266 4,411 10,677 9.49 6.68 16.17 41Roads 506 1,083 1,589 0.77 - 1.64 2.41 68Land clearing for food crops,

gardens & villages 301 261 562 0.46 0.40 0.86 46Settler housing, water & sanitation 2,219 1,917 4,136 3.36 2.90 6.26 46Village infrastructure 211 182 393 0.32 0.28 0.60 46Education & health buildings 774 668 1,442 1.17 1.01 2.18 46Road construction equipment - 1,218 1,218 - 1.85 1.85 100Agricultural machinery & equipment - 357 357 - 0.54 0.54 100Education & health equipment &

supplies 28 119 147 0.04 0.18 0.22 81Settler subsistence, seeds and ferti-

lizer packages 328 116 444 0.50 0.18 0.68 26Operating costs 940 661 1,601 1.42 1.00 2.42 41Related estate housing 472 409 881 0.72 0.62 1.34 46Related estate vehicles 9 56 65 0.01 0.08 0.09 86

Base Costs 12,054 11,458 23,512 18.26 17.36 35.62 49

Physical contingencies 1,389 1,304 2,693 2.10 1.98 4.08 48Price contingencies 3,682 2,233 5,915 5.58 3.38 8.96 38

Subtotal 17,125 14,995 32,120 25.94 22.72 48.66 47

- 46 - ANNEX 2Table 5Page 3

ForeignLocal Foreign Total Local Foreign Total exchange---- (Rp million) ----- --- (US$ million) --- (%)

West Kalimantan (PTP XII) /aRubber Nucleus Estate

Rubber establishment 1,783 1,541 3,324 2.70 2.33 5.03 46Roads 155 332 487 0.23 0.50 0.73 68Estate housing & buildings 2,418 2,089 4,507 3.66 3.17 6.83 46Rubber processing 619 654 1,273 0.94 0.99 1.93 51Power & water 55 119 174 0.08 0.18 0.26 68Road construction equipment - 492 492 - 0.75 0.75 100Agricultural machinery & equipment - 182 182 - 0.28 0.28 100Estate vehicles 26 157 183 0.04 0.24 0.28 86Office furniture & equipment 40 239 279 0.06 0.36 0.42 86Operating expense 194 137 331 0.29 0.21 0.50 41Staff resettlement 91 41 132 0.14 0.06 0.20 31Working capital 99 420 519 0.15 0.64 0.79 81

Base Costs 5,480 6,403 11,883 8.29 9.71 18.00 54

Physical contingencies 684 763 1,447 1.04 1.16 2.20 53Price contingencies 1,476 1,081 2,557 2.24 1.64 3.88 42

Subtotal 7,640 8,247 15,887 11.57 12.51 24.08 52

Rubber SmalholdersRubber establishment 6,361 5,495 11,856 9.64 8.33 17.97 46Roads 388 831 1,219 0.59 1.26 1.85 68Settler housing, water & sanitation 2,900 2,505 5,405 4.39 3.80 8.19 46Village infrastructure 323 280 603 0.49 0.42 0.91 46Land clearing for food crops,

gardens & villages 494 428 922 0.75 0.65 1.40 46Education & health buildings 1,452 1,255 2,707 2.20 1.90 4.10 46Road construction equipment - 1,324 1,324 - 2.01 2.01 100Agricultural machinery & equipment - 602 602 - 0.91 0.91 100Education & health equipment and

supplies 53 222 275 0.08 0.34 0.42 81Settler subsistence, seeds & ferti-

lizer packages 448 158 606 0.68 0.24 0.92 26Operating costs 1,040 732 1,772 1.58 1.11 2.69 41

Base Costs 13,459 13,832 27,291 20.40 20.97 41.37 51

Physical contingencies 1,580 1,585 3,165 2.39 2.40 4.79 50Price contingencies 4,357 2,846 7,203 6.60 4.31 10.91 40

Subtotal 19,396 18,263 37,659 29.39 27.68 57.07 49

/a Preliminary.

47 - ANNEX 2Table 5Page 4

ForeignLocal Foreign Total Local Foreign Total exchange--- (Rp million) ----- --- (US$ million) --- (71)

South Sulawesi (PNP XXVIII) /aOil Palm Nucleus Estate

Oil Palm establishment 3,336 2,349 5,685 5.05 3.56 8.61 41Roads 377 807 1,184 0.57 1.22 1.79 68Estate housing & buildings 3,543 3,061 6,604 5.37 4.64 10.01 46Oil palm processing 2,520 5,401 7,921 3.82 8.18 12.00 68Power & water 137 295 432 0.21 0.45 0.66 68Road construction equipment - 655 655 - 0.99 0.99 100Agric. machinery & equipment - 339 339 - 0.51 0.51 100Estate vehicles 54 320 374 0.08 0.48 0.56 86Office furniture & equipment 44 46 90 0.07 0.07 0.14 51Staff resettlement 92 41 133 0.14 0.06 0.20 31Operating costs 333 234 567 0.50 0.35 0.85 41Working capital 104 987 1,091 0.16 1.50 1.66 90

Base Costs 10,540 14,535 25,075 15.97 22.01 37.98 58

Physical contingencies 1,288 1,730 3,018 1.95 2.62 4.57 57Price contingencies 3,918 3,337 7,255 5.94 5.05 10.99 46

Subtotal 15,746 19,602 35,348 23.86 29.68 53.54 55

Oil Palm Smallholders

oil palm establishment 3,262 2,297 5,559 4.94 3.48 8.42 41Roads 306 656 962 0.46 0.99 1.45 68Land clearing for food crops,

gardens & villages 182 157 339 0.28 0.24 0.52 46Settler housing, water & sanitation 1,022 884 1,906 1.55 1.34 2.89 46Village infrastructure 179 154 333 0.27 0.23 0.50 46Education & health buildings 300 260 560 0.45 0.39 0.84 46Road construction equipment - 562 562 - 0.85 0.85 100Agric. machinery & equipment - 196 196 - 0.30 0.30 100Education & health equipment &

supplies 11 45 56 0.02 0.07 0.09 80Settler subsistence, seeds and ferti-

lizer packages 244 86 330 0.37 0.13 0.50 26Operating costs 326 229 555 0.49 0.35 0.84 41

Base Costs 5,832 5,526 11,358 8.83 8.37 17.20 49

Physical contingencies 658 618 1,276 1.00 0.94 1.94 48Price contingencies 2,630 1,486 4,116 3.98 2.25 6.23 36

Subtotal 9,120 7,630 16,750 13.81 11.56 25.37 46

Technical Assistance and Program Support

SBPN/DGE 468 1,637 2,105 0.71 2.48 3.19 78Marketing improvement 138 197 335 0.21 0.30 0.51 59Participating PTPs 812 1,452 2,264 1.23 2.20 3.43 64Start-up funds 2,387 8,726 11,113 3.61 13.22 16.83 79

Base Costs 3,805 12,012 15,817 5.76 18.20 23.96 76

Physical countingencies 126 396 522 0.19 0.60 0.79 76Price contingencies 312 924 1,236 0.47 1.40 1.87 75

Subtotal 4,243 13,332 17,575 6.42 20.20 26.62 76

TOTAL

Base Costs 79,306 97,973 177,279 120.17 148.48 268.65 55

Physical contingencies 9,116 10,321 19,437 13.80 15.65 29.45 53Price contingencies 26,297 19,560 45,857 39.84 29.61 69.45 43

Total Project Costs 114,719 127,854 242,573 173.81 193.74 367.55 53

/a Preliminary

- 48 - ANNEX 2Table 6

INDONESIA

NUCLE!TS ESTATES AND SMALLROLOERS VII PROJECT

Project Financing Plan(US$ million)

Total Financed by /aproject Supplierscosts 0OI IBRD /b CDC credit

East Kalimantan (PTP VI)Smallholders /c 115.5 62.6 39.7 13.2 -Nucleus estate /d 65.3 29.4 22.4 7.5 6.0

Subtotal 180.8 92.0 62.1 20.7 6.0

West Kalimantan (PTP XII)Smallholders /c 57.1 31.1 19.5 6.5 -Nucleus estate /d 24.1 12.4 8.3 2.8 0.6

Subtotal 81.2 43.5 27.8 9.3 0.6

South Sulawesi (PNP XXVIII) /eSmallholders 25.4 13.5 11.9 - -Nucleus estate 53.5 29.3 24.2 - -

Subtotal 78.9 42.8 36.1 - -

Program Support /fSBPNTDGE 3.2 _ 3.2 - _FTP VI 1.6 - 1.6 - -

PTP XII 1.1 - 1.1 -

PNP XXVIII 1.1 - 1.1 - -

Smallholder marketing LE 0.6 0.3 0.3 - -

Start-up funds 19.0 - 19.0 - -

Subtotal 26.6 0.3 26.3 - -

Front-End Fee 2.3 - 2.3 - -

Total Project 369.8 178.6 154.6 30.0 6.6

/a The Bank and CDC would disburse jointly against the East and West Kalimantancategories. CDC would not he disbursing for South Sulawesi and ProgramSupport and Technical Assistance categories.

/b About 6% from each category has been put in the unallocated category,in schedule 1 of the Loan Agreement.

/c Bank would reimburse 34% and CDC 12% of the funds given to PTP by MOF.

/d Bank would reimburse 34% and CDC 12% of the loans given to PTP by BIand MOF.

/e Bank would reimburse 46% of funds given to PTPs by MOF for smallholderdevelopment and by BI and MOF for nucleus estate development.

/f Bank would reimburse 100% of the cost of all consultant services, trainingand start-up expenditures for future Bank-assisted NES projects.

/g These funds are included under DGE in Schedule 1 of Loan Agreement.

- 49 - ANNEX 2Table 7

INDONESIA

NUCLEUS ESTATES AND SMALLHOLDERS VII PROJECT

Estimated Schedule of Disbursements(X)

Cumulative disbursementsNES VII NES Area

IBRD fiscal year (US$ million) % projects development /cand semester …---- …(%) … -------

FY83Second 3.2/b 2 - 0.7

FY84First 4.6 3 1 4Second 15.4 10 4 9

FY85First 23.1 15 11 15Second 38.7 25 21 22

FY86First 54.1 35 31 30Second 80.4 52 44 39

FY87First 105.1 68 60 48Second 123.6 80 78 57

FY88First 146.9 95 93 66Second /a 154.6 100 100 74

/a Closing Date: December 1988.

/b Includes capitalized front-end fee.

/c Disbursement pattern for area development projects in East Asia andPacific Region.

- 50 - ANNEX 3Table 1

INDONESIA

NUCLEUS ESTATE AND SMALLHOLDERS VII PROJECT

Tree Crop Yields and Production

A. RubberPTP VI PTP XII ja

Planting Tapping Yield Production Yield Productionyear year SH NE SH NE

-(ton/ha)- ('000 tons) -(ton/ha)- ('000 tons)

6 1 0.5 0.8 0.2 0.5 0.8 0.67 2 0.7 1.0 1.4 0.7 1.0 2.38 3 1.0 1.2 3.5 0.9 1.2 4.49 4 1.0 1.5 6.2 0.9 1.5 8.9

10 5 1.1 1.8 9.6 1.0 1.8 11.911 6 1.2 2.0 13.1 1.1 2.0 14.812 7 1.3 2.0 15.5 1.3 2.0 16.513 8 1.4 2.0 17.3 1.4 2.0 18.314 9 1.4 2.0 18.7 1.5 2.0 20.215 10 1.5 2.0 19.8 1.5 2.0 21.317 12 1.6 2.0 21.6 1.6 2.0 23.820 15 1.5 1.9 22.9 1.5 1.9 25.025 20 1.2 1.8 20.7 1.2 1.8 21.730 25 0.8 1.8 17.0 0.8 1.8 18.1

B. Oil PalmPTP VI PTP XXVIII /a

Yield Production /b Yield Production /cYear NE SH Oil Kernel NE SH Oil Kernel

(ton FFB/ha) ('000 tons) (ton FFB/ha) ('000 tons)

3 (6 mos.) 5 4 1.3 0.2 5 4 0.5 0.14 12 8 4.3 0.7 14 12 2.9 0.75 16 14 10.8 1.8 18 16 8.1 1.76 20 17 20.1 3.5 20 18 16.1 3.07 21 18 30.5 5.4 22 20 25.2 4.48 22 19 40.1 7.3 22 20 32.7 5.49 22 19 46.6 8.5 22 20 37.7 6.110 22 19 50.2 9.2 22 20 40.0 6.511 22 19 51.8 9.4 22 20 41.2 6.612 22 19 52.1 9.5 22 20 41.5 6.613 21 19 51.7 9.4 22 19 41.0 6.515 21 18 51.3 9.3 21 18 40.7 6.420 17 15 50.8 9.2 17 15 40.1 6.325 15 13 50.2 9.2 15 13 38.7 6.1

/a Preliminary.Lb Extraction rate (%): 16,18,20,21 and 22 thereafter (palm oil);

2.5,3.0,3.5 and thereafter (kernel)./ 3.2,3.3,3. re 12f16 26 arndcli thereafter (palm oil);

- 51 - ANNEX 3- 51 - ~~~~~~~~~~Table 2

INDONESIA

NUCLEUS ESTATES AND SNkLLHOLDERS VII PROJECT

Agricultural Commodities and Inputs Price Structure /a(Rp '000 and IJS$/ton in constant 1983 prices)

1983 1985 1990 1995Rp'000/ USs/ton Rp'000/ US$/ton Rp'000/ tlSS/ton Rp'OOO/ UJSS/ton

ton ton ton ton

RubberRSSI, CIF New York 891 1,350 975 1,477 1,131 1,714 1,172 1,776SIR20, CIF New York (93% of RSSI) 828 1,255 906 1,374 1,052 1,594 1,090 1,652

Shipping and insurance -83 -127 -83 -127 -83 -127 -83 -127SIR20, FOB Indonesian port 745 1,128 823 1,247 969 1,467 1,nO7 1,525

Palm oilNalaysian, CIF Europe 370 560 418 634 423 641 421 639Shipping and insurance -41 -62 -41 -62 -41 -62 -41 -62FOB Indonesian port 329 498 377 572 382 579 380 577Export taxes (5% of FOB) -17 -25 -19 -29 -19 -29 -19 -29Financial price, FOB Indonesian port 312 473 358 543 363 590 361 548

Palm kernelNigerian, CIF U.K. 211 320 262 396 268 407 261 395Shipping and insurance -41 -62 -41 -62 -41 -62 -41 -62FOB Indonesian port 170 258 221 334 227 345 220 333

Rice/paddy

Thai 5% broken, FOB Bangkok 246 373 308 468 308 468 304 461Quality adjustment, Indonesian

imports (90% of Thai 51 broken) 222 336 278 421 278 421 274 415Freight and insurance 17 25 17 25 17 25 17 29Port and Bulog handling 16 24 16 24 16 24 16 24

Transport to wholesalers 15 23 15 23 15 23 15 23Handling, transport mill to wholesaler -4 -6 -4 -6 -4 -6 -4 -6Rice, ex-mill project area 266 402 322 487 322 498 318 481

Paddy equivalent (63% recovery) 168 253 203 307 203 107 200 303Milling costs less value of by-products -2 -3 -2 -3 -2 -3 -2 -3Drying and cleaning -2 -3 -2 -3 -2 -3 -2 -3Handling, transport, farm to mill -2 -3 -2 -3 -2 -3 -2 -3Farmgate paddy price 162 244 197 298 197 298 194 294(Financial farmgate price) (145) (177) (177) (175)

MaizeExport price, FOB US Gulf port 85 129 99 151 103 156 103 156Freight and insurance 30 45 30 45 30 45 30 45Port handling 6 9 6 9 6 9 6 9Wholesaler to port 15 23 15 23 15 23 15 23Transport, farm to wholesalers -5 -8 -5 -8 -5 -8 -5 -8Farmgate price 131 198 145 220 149 225 149 225(Financial farmgate price) (110) (121) (125) (125)

PeanutPeanut shelled, FOB Nigeria /b 277 420 393 595 415 628 402 610Freight and insurance 24 37 24 37 24 37 24 37Port handling 6 9 6 9 6 9 6 9Transport, wharf to wholesaler 15 23 15 23 15 23 15 23

Transport, subdistrict to wholesaler -4 -6 -4 -6 -4 -6 -4 -6Transport, farm to subdistrict market -2 -3 -2 -3 -2 -3 -2 -3Farmgate price peanut shelled 316 480 432 655 454 688 441 670Farmgate price peanut unshelled (80%) 253 384 346 524 363 550 353 536(Financial farmgate price) (430) (588) (617) (600)

Urea

Urea, FOB Europe 138 210 155 235 193 292 200 303Ex-factory Palembang /c 149 225 165 250 203 307 210 318Handling, distribution to retail level 22 33 22 33 22 33 22 33Transport to farm 5 8 5 8 5 8 5 8Farmgate price 176 266 192 291 230 348 237 359(Financial farmgate price) (75) (82) (98) (101)

Triple superphosphate (TSP)TSP, FOB US Gulf port 118 180 126 191 142 215 142 215Freight and insurance 36 54 36 54 36 54 16 54Handling, distribution to retail level 18 27 18 27 18 27 18 27Transport to farm 5 8 5 8 5 8 5 8Farmgate price 177 269 185 280 201 304 201 304(Financial farmgate price) (75) (78) (85) (85)

/a Financial (farmgate) prices estimated by the mission to rise at the same rate as economic prices./b Equal to standard price projections, CIF Europe, minus $30/ton freight and insurance from Nigeria to Europe.

77 IBRD price projections for bagged urea FOB Europe have been adjusted to Asian markets by adding a transportpremium of US$15/ton.

ANNEX 3

- 52 - Table 3

INDONESIA

NUCLEUS ESTATES AND SMALLHOLDERS VII PROJECT

Development Cost Per Smallholder Family: East Kalimantan

---- Pasir ----- ----- Pasir -----Oil palm Rubber

Credit Noncredit Credit Noncredit------ (early-1983, US$/family) -----

Tree crop establishment 4,454 - 5,216 -Roads - 537 - 386

Land clearing for village, food crops 243 - 243 -Settler housing 1,204 189 1,204 189Village infrastructure - 132 - 132

Education and health - 534 - 534

Road construction equipment 406 - 382 -Agri. machinery & vehicles 116 - 145 -

Subsistence, fertilizer & seeds 186 - 186 -Overheads 392 195 511 246Others _ 340 - 340

Base Cost 7,001 1,927 7,887 1,827

Physical contingencies 760 252 851 257

Cost per Family 7,761 2,179 8,738 2,084

Total Cost (credit + noncredit) 9,940 10,822

- 53 - ANNEX 3

Table 4

INDONES IA

NUCLEUS ESTATES AND SNALLNOLDERS VII PROJECT

East Kalimantan. Existing Settlers /a

Farm Budgets - Present and Future Without Project

FutureWithout

Item Present Project

Land Use (ha)Paddy - rainfed sawah 0.36 0.36

- dryland 0.50 0.50Rubber 0.26 0.26Coffee 0.04 0.04Rattan 0.85 0 85Homeyard 0.25 0.25

Total 2.26 2.26

Harvested Area (ha) lbPaddy - rainfed sawah 0 36 0.36

- dryland 0.50 0.50Rubber 0.17 0.26Coffee 0.01 0.04Rattan 0.50 0.85Homeyard - Clove 0 002 0.02

- Coconut 0 040 0.04- Cassava 0 050 0.05

Total Harvested Area 1.632 2.12

Crop Production (kg/farm) /c 1,000.0 1,080.0Paddy 40.0 70.0Rubber 1.0 2.0Coffee 250.0 430.0Rattan 0.1 1.0Clove 16.0 20.0Coconut (nuts) 100.0 100.0Cassava

Gross Production Value (Rp '000)Paddy 145.00 188 30Rubber 13.60 20.80Coffee 0.32 1.26Rattan 78.75 133.88Clove 0.32 3.15Coconut 1 20 1.50Cassava 1.20 1.20

Total Gross Production Value 240.39 350 09

Production Costs (Rp 000)Paddy 11.72 14.50Cassava 1.47 1.47Tree crops /d 0 0Homeyard /d 0 0

Total Production Costs 13 19 15.97

Net Production ValueFamily Income (Rp 000)

Land Tax (IPEDA) 10.48 15.26Net Crop Income 227.20 334.11Off-farm Income 30.0 30.0

Total Family Income 246.72 348.85($374) ($529)

/a For transmigrants, mainly expected to be landless laborers fromJava/Bali, their present incomes are estimated to be aboutRp 180,000 ($273).

/b The present harvested area is the average productive area basedon the Consultants Survey The future harvested area withoutthe project is the average planted area which includes treecrops expected to mature.

/c The physical inputs and yields are given in the project workingfiles. Some productivity increase has been taken into accountin the future without the project e.g. the yield of paddy sawahis expected to rise from 1 4 tons/ha to 1.6 tons/ha over 10 years.

/d Cash costs of production for tree crops are assumed to be zero,although the imputed cost of labor has been taken into accountin estimating the economic costs.

-54 -

ANNEX 3Table 5

INDONESIA

NUClEUIS ESTATES ANDi oIALLH0LDERS VII, PROJECT

FARM DUDOCETS: FOTURE WIT70 PROJECTd

EAST PALIhANTAN: PA5IP

1 2 2 ~ ~ ~ ~ 4 $ 6 7 0 0 0 1 12 :4 1$ 22 2

4AVESCTED AREA (HA:

PADDY 0.20 0,20 0.20 '2,210 -2,2 13 '20 0,20 0.2I 0 0.20 0.20 0,20 0.2 IC .20 0.20 02 0 .22 0.20CORN 00' o r A 0. OS 0.0 0.0$5 4D.0$ 0.05 205 5 0.5 0.05 3 05 0.0 .0a.0 0 0.05

CASSAVA v~~~~~~.15 0,11' ' 1 .$ 01 .$ 01 .5 01 0,15 2.15 0.1 ,15 0. I5 015 0.~1$PEANUT 2 ' T 0.2$ ,2 1-5 C5 C 02$ 0.2$ 0.2$1 0.2$ 0.2-5 2.2 2.2$1 0.25 0.2$ 0.2$- 0.2$ 0.2$

TOTAL FOOD CROPS HARV 0Z '~' .- ,~ 02 25 0.2$ 02$ 0. 25'2,25 0.25 0.2$i 0.2$: 225~' 0.2$ 0.2$ 0.2$ '2.2$

CROFFPING INTENSITY 0.1200. 00 ORE 00 OQC.D3 0, 0 0..2 200.00 200.00 200.00 200.00 200,00 200.00 200.00 220.00 200.00 200.00 200.00 200.00

OIL PALN y.0 ,.O 1 tOt '2.0 0,00 2.~00 2.00' 2,00 2.00 2,00 2,00 2-00 2. 00 2.0-0 2 .02 2.00 2.00RUDDER 2 TA tOO 2,00 2.00 2.02 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00~~~~~~~~~~~~~~~~~~~~2, 0 , ,00AO .0 1.c 1 0

YIELD! (TNS/HA)

PADDY 080B 1 -~0 1.'0 1 40 .'.603 1.60 160 1.60 1.60 1 ,60 1.0 0 1,60 1.60 1.60 1 .60 1,6 160 1,60000N 0.42~ 0.50 0,-60 0.70 0.00 '2,00 0.80 0,0 0,80 0.80 0,80 0.0 0 0. 80 0.0 0 0.0 0 0.80,0 0.80CASSAVA - 2,00 4.00 0.,00 0.00 10,00 10.00 10.00 10.00 10.00 10.00 10,00 1-0,00 10,00 10.00 10,00 10.00''EANUT 0.0~ 0 0 .60 0-70 0.70 0 C 0.0 0 0.0 0 0.80 '2.0 0 0.0 0,00' 0.00 0.00 0.020 0.00 0,00 0.90 0.80EP lb - - 4. 00 0.00 14.00 17.00 10.00 19?,00 19.00 19.00 19.00 19.00 12,00 00.00 10,00 15.00 13.00RUDDER - - - .4 0. 73 0.95 1.04 1.10 1.16 1.34 0.38 1.42 1,46 1.47 1,19

PRODUCTION (TONS/FARM)

P'ADDY 0.16 0.2') 0. 24 0,20 2.32 0.32- 0.32 0.32 0.32 0.32 0.32 0,322,.22 0.32 '0.32 0.32 0. 32COO'N 0.02 0 .03 0.03 0. 04 2-.04 0.04 0. 04 0.04 0.04 0,04 0.04 0.04 0.04~ 0.04 0.04 0.04 0, 045455000 - 0.30 0.62 0,90 i1.20 1.550 1,50 1.50 1.50 1.50 1.50 1.50 1,50 1.50 1.50 1.50 1.50PEANUT 0.131 9.15 0.10 0.00 0.20 0,20 0.20 0.20 0.20 0.20 0.20 0.20 0,20 0.20 0.20 0.20 0.30PFR /b- 8.00 16.00) 20.00 04.00 36.00 38.00 38.00 38.00 30.00 30.00 36.00 36.00 36.00 30.00 2-6.00RUB BE R - - - - - 0,95 1.46 1.90 3.08 2.20 2.32 2.68 2,76 2.84 2.92 2,94 21.38

PRODIUCTION VALUE (RF`OOC

PADDY 23.20 29.00 42.48 49.56 56.64 56.64 56.64 56.64 56,04 56.64 56.64 56.64 56.00 56.00 56.00 56.00 56.00COOIN 2.20 2.75 3.63 4.24 4,84 4.04 4.84 5.00 5.00 5.,00 5.00 5.00 5,00 5.00 5.00 5.00 5.00C45S4VA - 3.60 7.20 00.00 14.40 10S.00 10.00 00.00 18,00 88.00 18.00 00.00 10.00 19.00 10.00 18.00 13.00PEANUT 53.75 64.50 101.15 101.15 115.60 115,00 115.60 116.20 116.20 116.20 116.20 116.2-0 112.00 1112.80 112.00 112.80 112.80

SUBTOTAL 79.15; 90.05 154.46 1615,75 190.48 105.08 195.00 195.84 195.84 195.04 195.04 195.84 101.00 001.80 101.00 100.80 191.80

FFED 420.00 040.00 1470.00 1785.00 1090.00 1990.00 1995,00 1995.00 1095.00 1995.00 1800000 1090.00 1890,00 1575.00 1365.00RUDDER - - - - - 646.00 1003.03 1210.60 1456.00 1555,40 1640.24 1094.76 1051.32 2007.08 2064.44 3-078.52 1682,66

PRODUC0ION CCST (00000?

FADI'YyCOON.C'ASSAOA 9.55 9.76 12.06 11.10 11.34 11.41 11.41 12.36 13.36 12.36 12.36 12.36 12.46 12.46 12.46 12.46 12,46PEANUT 21.19 21.42 29.63 29.63 20.93 29.93 29.93 30.30 30,30 30.30 30.3 30.30 29,52 295 95 95 295

P00D CROPS CC?T 30.74 20.18 40.49 40.73 41.271- 41,34 41.34 42.66 42.66 42.,66 42,66 42.66 41.00 41.90 41,90 41,00 41.90

FFDB 253.55; 253.55 2253S .253.55 250.09 359.69 259.69 2-50.69 250.00 2610.04 260.04 260.04 260.04 2-60,04000000 - - - ~ ~ ~~~- - 042.07 142.07 1-50.6'5 150.65 150.65 150.65 150.65 151.0 5.1 119 5.0 019

PAR0 INCOME WR'000

SMALLHOLDER - OIL PALM

NEI VALUE P9000 CROFPS 40.41 68.07 113.97 125.02. 150.21 153,74 153,74 15-3.10 153,18 153.18 153,18 153.18 149.82 149.02- 140.12 149.82- 140.82-NET VALUE 040000. 00.30 39.10 43.!10 45.30 48.00 63.,40 01.00 09.30 105.80 180.20 100.20 080.20 000,210 180.20. 188Z.2 138.20 180.20NET VALUE ADD. AREA'SC -- - - - - - - - -106.40 108,00 180.00 088.08 180.00 000.00 100.00 100.00 180.00NET VALUE PALM OK~ - - 420,00 586,45 1216.45 1531,45 1636.45 0735.31 0735.31 1735,31 1735.131 1735.31 1629.16 1629.16 1629.16 0314.10 1104.16ESTATE EMPLOYMENT 370,00 370.00 370.00 - - - - - - - - - - - - - -

LAND TAO 2.11 2.00 23.20 310,02 09.50 73.47 78.05 02.4 2.24 82.34 02.34 82,34 77256 77,56 77.56 63.03 '54.o7

NET INCOME 434.610 402,/0 920.29 72.513555.90 1674.11 1794,04 0905.45 1015.55 2103.35 2102,35 2102.35 27.12077.611 2077.61 17-76.34 0575.50

DiEDT R'EPAYMNET' -d - - - - 535.00 509.00 452.00 411,00 373.00 339.00 300.00 200.00 255.00 232.00 044.00 -

INCOME LESS DEBT 434.60 482.70 031.79 72,51355.900 013-9,00 1285.04 0453.45 1404.55 1809.35 1843,35 1874.35 1797.61 0822.61 0845.61 1632.34 15715.50

SMALLHOLDER - RUBBER.

NET VALUE POOD COOPS 48,41 60,67 113.97 125.02 150,21 153,74 053.74 153.10 153.18 153.10 153.10 053.10 149,02 140,02 149.02 149.02 149.82NET VALUE GARDiEN 1P,3Q 39.10 43.10 45.30 48.9 62,4'0 01,90 09.30 115.80 188.20 188.20 188.20 130,20 188.20 180.20 188.20 188.2-0NET YALUE ADD. AREA /c - - - - - - - - -106.40 188.00 108,00 188.00 188.00 188.00 188.80 188.00 188.00NET VALUE RUBBER - - - - - 503.93 060.95 1167.95 1305.35 1404.75 1489,59 1744.11 1799,41 1850.97 1912.53 1926.67 1530.75ESTATE EMPLOYMENT 370.00 378.00 378.00 370.00 378.00 - - - - - - - - - - - -LNDI TAX 2.11 2.199 4.07 5.45 6.55 28.07 44.24 57.60 63.50 67.93 71.62- 02.72- 04,99 07.45 89,02- 90.53 73,27

NET INCOME 4334,60 402.78 530.10 542.07 570.560 61,39 1052.35 1363.02 1404,33 0866.20 1947.34 2190.76 2240.44 2-294.53 2340.63 2362.15 1983,49/d

DEBT REPAYMENT- - - - - - 300.00 395.00 436.00 466.00 492.00 560.00 5055.00 592.00 2.77,00 172.00 -

INCOME EOSS DIEBT 434.00 482.70 530.10 542.87 570.56 691.39 752,35 967.02 068.3 1400.2D 14,55.34 1622.76 0055.44 1702.53 21071.63 2190.15 1983.49

/a Financial prices are in constant 1983 values./b All oil palm yields are expressed in fresh fruit bunches (FF3)./c It is assumed that by the 10th year of the project the smallholders would

clear and develop the additional area of 0.5 ha allocated to them.Id Not to exceed 30% of the production value of tree crops.

- 55 - ANNEX 3

Table 6

INDONESIA

NUCLEUS ESTATES AND SMALLHOLDERS VII PROJECT

EAST KALIMANTAN COMPONENT

Rent and Cost Recovery Per Farm Family /a(Constant 1983 values; RP '000)

Incremental Rubber Palm oil

1. Gross value of farm production 9,565 11,7922. Less cash production costs 1,497 2,3233. Equals net cash income 8,068 9,4694. Less depreciation 1,414 1,0785. Less imputed value family labor /b -516 -2396. Less value of management /c 478 5907. Less allowance for risk/uncertainty /d 956 1,1798. Less general taxes /e 478 5909. Equals project rent 5,258 6,27110. Rent as % of net cash income 65 6611. Debt recovery /f 1,642 1,67512. Benefit taxes /g 417 51413. Total direct charges/taxes 2,059 2,18914. Rent recovery index (13 t 9) 39 3515. Public sector outlays 5,854 5,56216. Cost recovery index (13 t 15) /h 35 39

/a All values are discounted over 30 years (for rubber) and 28 years (for palmoil) at 10%, the estimated opportunity cost of capital in Indonesia; valuesrepresent incremental benefits and costs.

/b Wage rate Rp. 1,500/manday. The incremental imputed value of labor isnegative because less labor is expended per smallholder family with theproject than without the project.

/c At 5% of incremental gross value of production./d At 10% of incremental gross value of production.Th At 5% of incremental gross value of production./f Present value of debt is Rp 4,785 million for oil palm and Rp 5,296 million

for rubber. The debt recovery index (i.e. the present value of debt repay-ments to the present value of debt) is 35% for palm oil smallholders and 31%for rubber smallholders. Because the actual real return (interest rate lessdomestic inflation) on debt is close to zero, discounting the debt repaymentstream (which has been deflated to bring it to constant prices) at 10%oyields a low debt recovery. If debt repayment stream is not deflated, thedebt recovery index would be around 90%.

/g At 4.36% of incremental gross value of production as IPEDA taxes./h The level of cost recovery is largely dependent on debt recovery since the

present value of debt as a percentage of total public sector outlay is 90%for rubber smallholders and 86% for palm oil smallholders.

- 56 -A NNE X3Table

INDONESIA

NUCLEUS ESA7AES AND SKA.LLbLDERS VII PROJECT

PIP VI - 7Te.. Statements (Current Prices)(Rp bilton.)

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

A. Project N-cle.s Estute

Production ( 000 tote)Robber - - 0.24 1.37 3.47 6.23 9.61 13.09 15.49 17.29 18.68 19.80 20.67 21.63 22.01 22.75 22.94 23.13Palm oil - - - 1.28 4.32 10.83 20.07 30.34 40.10 46.64 50.23 51.80 352.14 51.70 51.2 50.78 50.16 48.40 46.73 44.88 42.86P.1. kernel - - - 0.20 0.71 1.84 3.45 5.36 7.27 8.54 9.20 9.40 9.48 9.40 9.32 9.23 9.12 8.80 8.50 8.16 7.79

Prior (Rpe/kg)Robb_r -- - 1,300 1,382 1,485 1,590 1,706 1,808 1,909 2,020 2,151 2,282 2,413 2,555 2,706 2,878 3,050 3,232

Pcla nil - - - 458 482 312 543 577 611 645 683 727 771 816 864 915 973 1,031 1,093 1,157 1,226Pul. kernel - 282 297 315 334 356 376 398 421 448 475 503 532 564 600 635 673 713 755

SalesRnShb - - - - - 0.31 2.89 5.13 8.91 18.00 23.68 29.56 34.93 40.:19 492.20 49.89 55.226 59.557 65.47 679.98 74.82Pal, oil nod kernel - - - 0.4 2.2 6.13 .5 19.53 27.25 33 50 38 18 41 89 44 75 46 92 49.25 57.68 54.2 5 65 5 79 5677 58.43

Total Sales _ - - 0.64 2.29 6.44 13.94 24.68 37.16 49.90 61.84 71.45 79.68 87.11 94.45 101.51 109.55 115.07 122.26 127.76 133.25

Porch.eco of S mOreH - - - - - 0.22 0.81 2.49 4.99 8.17 12.26 15.31 18.12 20.90 23.65 26.47 29.74 32.22 35.76 38.31 41.07Pocuoaof0 OO- .53 1.67 3.86 6.77 6.87 12.76 14.97 10.53 17.92 19.13 19.98 20.91 21.98 22.99 23.3 23.76 24.16 24.52Pcodoctinncoet - robbn - - 0'53 1-- - 0.02 0.55 1.15 1.83 2 .92 3.57 4.17 4.71 3.23 5.71 0.13 6 60 7.00 7.54 7.90 8.44Pr-dorito -oot<- oIl pule - - - 0.09 0.39 1.21 2.30 3.61 4.44 5. 5. 89 6.26 6.55 0.86 7.18 7.53 7.74 7.96 8.15 8.29

utl-. ndsgenerl - .07 2.23 0.84 1.38 2.39 3. 57 4.82 5.97 6. 93 7.-76 8.52 9.20 9.96 10.75 11.31 12.03 12.60 13.1,7Depre. ltlo - - - ° 0.76 1.04 1.56 1.76 1.88 2.04 2.12 2.25 2.33 2.33 2.33 2.33 2.33 2.33 2.33 2.33 23 23

To-ol C.et< - _ - 1.45 3.33 7.51 13.55 21.37 29.63 38.03 46.09 52.55 58.31 63.52 68.72 73.95 79.94 83.93 89.38 93.53 97.82

Operating Intone - - - <0.01> <1.04) <1.27> 0.39 3.31 7.33 11.67 15.75 18.90 21.37 23.59 25.73 27.62 29.61 31.14 52.88 34.23 35.43Ontereut - - - - - - - - 10.51 9.82 9.40 8.94 0.42 7.90 6.41 4.66 3.58 2.53 2.10 2.10 -

Incone Reore T<cr< - - - <0.80> <1.04> <1.07> 0.39 3.31 <2.98> 2.05 6.35 9.96 12.95 15.69 19.32 22.96 26.03 20.81 30.78 32.13 35.43

B. Onlsrieg Oneroioou

Gent< oulee 58.21 100.76 117.36 133.29 158.32 194.40 233.20 270.54 314.19 347.94 387.45 425.34 467.91 527.65 503.19 613.01 640.36 605.17 732.95 784.26 839 16

Genes prdoducioo cort< 48.83 35.83 65.24 77.43 94.67 120.92 146.21 174.73 204.64 233.49 264.36 294.68 323.63 356.75 385.94 412.87 439.33 468.41 497.76 535.81 577.32Other operating conti 21.01 23.22 26.31 31.36 33.25 41.55 48.34 53.54 59.77 63.84 70.54 75.22 80.10 84.46 88.1 92.19 96.73 103.12 112.34 116.06 126.32

Ope-rting Inroar 15.37 21.71 25.81 24.50 30.60 31.93 37.65 40.27 49.78 48 61 52.55 55.46 64.16 86.44 109.15 107.95 104.30 113.64 122.85 132.39 135.52

Intereet nd other enb- enn 5.51 6.83 8.15 9.52 10.83 11.56 11.87 11.91 11.84 11.25 10.88 10.67 10.44 8.86 7.75 7.56 6.92 7.32 9.01 10.11 12.98

1-co- Bef-ore TaOu- 9.86 14.88 17.66 14.98 19.77 20.37 25.78 30.56 37.94 37.36 41.67 44.79 53.72 77.58 101.40 100.39 97.38 106.32 113.84 122.28 122.54

C. To-l Operotion.

Income befoc- inoro 9.86 14.88 17.66 14.17 18.73 19.30 26.17 33.87 34.96 39.41 48.02 54.75 66.67 93.27 120.72 123.35 123.41 135.13 144.62 154.41 157.97Corporate ton (45%) 4.44 6.70 7.95 6.37 8.42 8.68 11.77 15,24 15.73 17.73 21.60 24.63 30.03 41.97 54.32 55.50 55.53 60.80 65.08 69.48 71.08

Net incone 5.42 9.10 9.71 7.80 10.31 10.62 14.40 L8.63 19.23 21.68 26.42 30.12 36.67 51.30 66.40 67.85 67.88 74.33 79.54 84.93 86.89

INDONESIA

NUCLEUS ESTATES AND SMALLHOLDERS VII PROJECT

PTP VI - Cash Flow (Current Prices)

(Rp billion)

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

A. Project Nucleus Estate

Net income before taxes anddepreciation - - - - - 0.49 2.15 5.19 (-0.94) 4.17 8.60 12.29 15.28 18.02 21.65 25.29 28.36 31.14 33.11 34.46 37.36

Loans /1 7.09 9.70 10.53 9.59 5.58 9.20 3.32 - - - - - - - - - - - - -

Total Inflow 7.09 9.70 10.53 9.59 5.58 9.69 5.47 5.19 (-0.94) 4.17 8.60 12.29 15.28 18.02 21.65 25.29 28.36 31.14 33.11 34.46 37.36

Investment costs

Oil palm 3.74 6.18 8.85 7.33 3.08 7.11 2.29 1.32 0.54 0.90 1.36 0.73 0.85 0.65 1.10 1.43 0.98 1.15 2.66 3.01 3.68Rubber 3.35 3.53 1.68 2.26 2.50 2.09 1.03 0.68 0.94 1.31 2.08 0.83 0.85 0.47 0.57 1.16 0.47 0.37 0.57 0.74 1.71

Total 7.09 9.70 10.53 9.59 5.58 9.20 3.32 2.01 1.48 2.21 3.44 1.56 1.71 1.12 1.67 2.59 1.45 1.52 3.24 3.75 5.39

Principal repayment - - - - - - - - 2.50 3.30 3.70 4.30 4.84 5.40 7.10 8.96 10.13 11.50 11.72 9.41 -Cash surplus - - - - - 0.49 2.15 3.18 (1.96) <1.34> 1.46 9.55 8.73 11.50 12.88 13.74 16.78 18.12 18.15 21.30 32.37

B. Existing Operations

Net income before taxes and idepreciation 18.26 23.28 26.56 24.78 32.37 34.97 41.88 47.96 56.54 56.17 61.17 64.39 72.62 96.48 120.10 118.29 115.58 125.02 132.64 141.38 141.54

Loans 18.82 17.34 11.75 11.52 15.33 16.58 12.97 6.11 22.11 30.11 27.99 29.10 27.60 24.65 34.44 40.67 53.25 51.33 56.70 68.96 59.04

Total Inflow 37.08 48.62 38.31 36.30 47.70 51.55 54.85 54.07 78.65 86.28 89.16 93.49 100.22 121.13 154.54 158.96 168.83 176.35 189.34 210.34 200.58

Investments 24.55 21.95 18.83 23.41 35.27 27.73 24.52 38.11 39.67 44.56 48.27 53.41 61.27 67.63 74.88 89.71 95.92 101.10 105.79 121.66 119.56Repayments 1.04 1.61 1.74 1.95 1.24 1.99 3.29 4.44 5.46 6.45 7.72 7.69 7.51 6.68 6.76 7.86 8.68 9.75 10.98 12.88 14.95

Total Outflow 25.59 23.56 20.57 25.36 36.51 29.72 27.81 42.55 45.13 51.01 55.99 61.10 68.78 74.31 81.64 97.57 104.60 110.85 116.77 134.54 134.51

Cash surplus 11.49 25.06 17.74 10.94 11.19 21.83 27.04 11.52 33.52 35.27 33.17 32.39 31.44 46.82 72.90 61.39 64.23 65.50 72.57 75.80 66.07

C. Total Operations

Total cash surplus 11.49 25.06 17.74 10.94 11.19 22.32 29.19 14.70 31.56 33.93 34.63 41.94 40.17 58.32 85.78 75.13 81.01 83.62 90.72 97.1(0 98.44

Less:Taxes 4.00 6.47 7.83 6.52 8.22 8.65 11.47 14.88 15.68 17.53 21.22 24.32 29.47 40.77 53.08 55.39 55.52 60.28 64.65 69.04 70.92Dividends 1.61 2.45 2.91 2.35 3.11 3.22 4.34 5.63 5.82 6.49 7.84 8.89 10.83 11.79 12.93 13.10 13.15 16.63 18.82 20.12 21.32Incremental working capital 0.80 0.71 1.10 1.21 1.82 2.63 3.11 4.51 5.62 4.21 3.17 3.89 3.21 3.77 3.96 3.44 3.17 9.11 3.05 3.63 3.91

Net Cash Surplus 5.08 15.93 5.90 0.86 1.92 7.82 10.27 <10.32> 4.44 5.70 2.40 4.84 3.34 1.99 15.81 3.20 9.17 2.40 4.20 4.31 2.29

Beginning cash 2.27 7.35 22.78 28.68 29.54 31.46 39.28 49.55 39.23 43.67 49.37 51.77 56.61 59.95 61.94 77.75 80.95 90 12 92 52 96 72 10.L n53Ending cash 7.35 22.78 28.68 29.54 31.46 39.28 49.55 39.23 43.67 49.37 51.77 56.61 59.95 61.94 77.75 80.95 90.12 92.52 96.72 101.03 103.32 a

/1 GOI/IBRD/CDC/Suppliers Credit.

INDONESIA

NUCLEUS ESTATES AND SMALLHOLDERS VII PROJECT

East Kalimantan Component - Economic Analysis

Cost and Benefit Streams(Rp million, constant 1983 prices)

Smallholder - Rubber Smallholder - Oil Palm

Project Net Project Net

benefits Project costs benefits Incremen- benefits Project costs benefits Incremen-

Tree Food Capital Operating without tal net Tree Food Capital Operating without tal net

Periods crops crops/a costs costs project benefits crops crops/a costs costs project benefits

1 - 118 661 48 63- -654 - 472 2,439 191 42 -2,200

2 - 367 3,601 144 63 -3,441 - 995 5,252 386 42 -4,686

3 - 994 6,209 386 122 -5,724 - 1,565 5,738 587 81 -4,841

4 - 1,675 6,797 634 122 -5,877 441 1,773 6,689 1,179 81 -5,736

5 - 2,331 6,290 856 122 -4,937 1,323 1,770 4,497 1,676 81 -3,162

6 162 3,097 7,978 1,229 134 -6,083 2,866 1,525 1,978 2,077 90 245

7 577 3,102 3,513 1,389 134 -1,358 4,739 1,249 1,322 2,473 90 2,104 1

8 1,661 2,786 2,816 1,768 133 -269 6,503 1,149 663 2,688 88 4,212 v1

9 3,138 2,425 2,135 2,171 133 1,125 7,935 1,234 365 2,813 88 5,903 c

10 4,832 2,188 1,539 2,559 322 2,601 8,817 1,557 302 2,880 215 6,977

11 6,848 1,843 1,213 3,128 524 3,826 9,203 1,861 452 2,947 349 7,317

12 8,102 2,238 474 3,215 713 5,939 9,368 2,147 399 3,005 475 7,636

13 9,062 2,607 294 3,295 897 7,183 9,423 2,413 310 3,004 598 7,924

14 9,813 2,917 348 3,394 897 8,091 9,313 2,540 334 2,978 598 7,943

15 10,465 3,304 213 3,312 897 9,347 9,203 2,537 193 2,981 598 7,969

16 11,077 3,300 354, 3,316 897 9,811 9,093 2,534 357 2,983 598 7,688

17 11,755 3,297 466 3,319 897 10,369 8,982 2,533 361 2,985 598 7,571

18 12,023 3,293 359 3,323 897 10,737 8,597 2,533 425 2,985 598 7,122

19 12,546 3,293 425 3,323 897 11,193 8,266 2,533 422 2,985 598 6,794

20 12,685 3,293 219 3,323 897 11,538 7,935 2,533 221 2,985 598 6,664

21 12,833 3,293 364 3,323 897 11,542 7,605 2,533 351 2,985 598 6,204

22 12,648 3,293 508 3,323 897 11,212 7,219 2,533 378 2,985 598 5,791

23 12,235 3,293 279 3,323 897 11,028 6,999 2,533 315 2,985 598 5,633

24 11,767 3,293 301 3,323 897 10,538 6,778 2,533 328 2,985 * 598 5,401

25-30 11,287 3,293 201 3,323 897 10,159 6,668 2,533 187 2,985 598 5,431

/a Includes benefits from estate employment, food crop area, garden and 0.5 ha of allocated but uncleared land which

would be developed by the smallholders. X x

INDONESIA

NUCLEUS ESTATES AND SMALLROLDERS VII PROJECT

East Kalimantan Component - Economic Analysis

Cost and Benefit Streams(Rp million, constant 1983 prices)

Nucleus Estate - Rubber Nucleus Estate - Oil PalmCost Cost

Estate Payment Estate Paymentoperating to small- Capital Net operating to small- Capital Net

Periods Benefits costs holder costs/a benefits Benefits costs holder costs/a benefits

1 - - - 3,217 -3,217 - - - 3,583 -3,5832 - - - 3,103 -3,103 - - - 5,431 -5,4313 - - - 1,420 -1,420 - - - 7,501 -7,5014 - - - 1,688 -1,688 534 126 441 5,470 -5,5035 - - - 1,717 -1,717 1,808 478 1,323 2,113 -2,1066 231 38 162 1,355 -1,325 4,547 1,344 2,866 4,607 -4,269 17 1,338 543 577 632 -414 8,435 2,423 4,739 1,401 -128 k

8 3,433 1,130 1,661 395 248 12,861 3,590 6,503 765 2,0039 6,233 1,834 3,138 509 752 16,940 4,233 7,936 293 4,479

10 9,706 2,816 4,832 670 1,387 19,722 4,612 8,818 463 5,82911 13,217 3,472 6,848 990 1,907 21,239 4,785 9,203 648 6,60212 15,640 3,977 8,102 395 3,166 21,884 4,831 9,369 346 7,33813 17,466 4,353 9,062 368 3,682 22,032 4,861 9,424 367 7,38014 18,867 4,638 9,813 192 4,223 21,846 4,830 9,314 265 7,43815 20,000 4,856 10,465 217 4,461 21,660 4,798 9,203 422 7,23616 20,875 4,996 11,077 422 4,380 21,455 4,763 9,093 517 7,08217 21,842 5,150 11,755 159 4,778 21,195 4,719 8,983 336 7,15718 22,226 5,211 12,023 118 4,873 20,451 4,592 8,597 372 6,89019 22,972 5,330 12,546 174 4,923 19,745 4,471 8,267 806 6,20020 23,171 5,362 12,685 211 4,914 18,964 4,338 7,936 861 5,82921 23,384 5,395 12,833 463 4,692 18,109 4,192 7,605 994 5,31722 23,048 5,329 12,648 184 4,887 17,067 4,014 7,219 852 4,98223 22,407 5,217 12,235 182 4,773 16,416 3,909 6,999 838 4,67024 21,689 5,093 11,767 207 4,621 15,765 3,798 6,779 728 4,46125 20,922 4,956 11,287 293 4,386 15,579 3,766 6,668 728 4,417 > Z26 20,249 4,849 10,816 293 4,291 15,301 3,718 6,558 728 4,296 X X

27 19,374 4,696 10,253 293 4,132 15,208 3,702 6,503 728 4,274 w28-30 18,740 4,585 9,844 293 4,017 15,107 3,686 6,503 728 4,189

/a Including maintenance costs.

- 60 -ANNEX 4

INDONESIA

NUCLEUS ESTATES AND SMALLHOLDERS VII PROJECT

Related Documents in Project Files

1. Team Khusus - Appraisal Report of East Kalimantan Component

2. P.T. Agriconsult - Preparation report of East Kalimantan Component

3. P.T. Agriconsult - Preliminary report of West Kalimantan Component

4. P.T. Tanindo - Preparation report of South Sulawesi Component

5. SBPN - Consulting Requirements

6. Staff Working Paper

No. 1 - Agricultural Inputs/Unit Cost: East Kalimantan ComponentNo. 2 - Farm Budgets and Economic Analysis: East Kalimantan ComponentNo. 3 - Project costs: East Kalimantan ComponentNo. 4 - Processing Facilities: East Kalimantan Component

IBRD 166371 RoW ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ EOl5 ~~~~~~~~~~~~~OCTOBER 19B2

INDONESIA

NUCLEUS ESTATESAND

SMALLHOLDERS VIl PROJECTEAST KALIMANTAN COMPONENT

PROJECT BOUNDARY

-NUCLEUS ESTATE ARtEAS

SMALLHOLDER AREAS LoSg GdIOO

RUBBER FACTORY

OIL PALM FACTORY

PROPOSED WHARF SITE

ALTERNATIVE WHARF SITE

ROADS

RIVERS

* -PROVINCIAL BOUNDARIES

INTERNATIONAL BOUNDARIES FRF

KILOMETERIS

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V ,/ INDONESIA

Pemat NUCLEUS ESTATES AND SMALLHOLDERS Vii PROJECTWest Kalimantan Component

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--5. RIVERS 1°00-C? - .. >PROVINCIAL BOUNDARIESi. - -INTERNATIONAL BOUNDARIES

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5o .h h n a S ,U BruneiSe a U \a ~~~~~~~~~~~~~~CHINA BRUNEI

: \;@ \ CA~~~~~~ ~ ~~~~YSIA \ AJ ,~~~~~~~~ < f,> ~~~~~~East Kalimantan'

Th/smaphas beenprepareetbythe / - T I %S. | West Kalimantan rrWorld Bank'sstaff erclusivelyfor I/ _ ianak /^(the conv-nim,e of the leaders of 5A^MfMp-.Jthe reportto hich it igattached PNIAK

.- MapvTh deno-inati-ns sed -d th. N T \, eta almna Blkaa,moundies shown on MI/s map

Ceta Kaliman.t.a s do not imply, on the part of the Papan t .World Bank end its affiliates, any . J 0I judgnnenton the legalstat- of 0

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IBRD 16639Celebes Sea 120030' 120°45' AUGUST 1982

This rap has been prepard by the World Banks Stff e-ls,-rly for th. -w Vfie-soJ o.,.dw / f the rapdes f the report to which ,t is attached The denmation ud *nd theboundaries shows on this mp ds sot iply. -a the pert of the World Bahk and itsafflfiates, any jdgmst sn te legal stats of any terrtory Or -5Yon-rsmot orTsbal T/sin,r acceptasce of such bousharies.

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I~~~~~~~~~~~~103