Report No 365a-IND FILE COPy Appraisal of The Bali Tourism Project Indonesia May 15, 1974 Tourism Projects Department Not for Public Use Document of the Intenttanal Ban for Reconstruction and Development International Deeopflent Asoxtion This report was prepared for tkin use only by the Bank Group It may not be published quoted or cited withour Bak C4oup audrlation The Bank Group does not accept responsibiity for the accuracy or cafopletmes of the eport. CURRENCY EQUIVALENTS Currency Unit Rupiah (Rp) US$1.00 = Rp 415 1 Rp .0024 US$ 1 Billion Rp = 2.4 Million US$ 1 Million US$ * 415 Million Rp WEIGHTS AND MEASURES EQUIVALENTS 1 meter (m) = 3.28 feet 1 kilometer (km) = 0.62 miles I square meter (m2) = 10.76 square feet 1 hectare (ha) = 2.47 acres 1 kilogram (kg) = 2.205 pounds 1 metric ton (m ton) = 2,205 pounds 1 kilovolt (kv) = 1,000 volts 1 megawatt (mw) = 1,000 kilowatts 1 megavolt ampere (mva) = 1,000 kilovolt ampere 1 gigawatthour (gwh) = 1 million kilowatt hours (kwh) 1 liter per second (1/sec) = 22,400 U.S. gallons per day 1 cubic meter per day (m3d) = 264 gallons per day ACRONYMS AND ABBREVIATIONS BTDB - Bali Tourism Development Board BTDC - Bali Tourism Development Corporation DGT - Directorate General of Tourism ILO - International Labor Office MOC - Ministry of Communications MPW - Ministry of Public Works and Power Perumtel - National Telecommunications Corporation PLN - National Power Corporation ROI - Republic of Indonesia UNDP - United Nations Development Program FISCAL YEAR April 1 to March 31 INDONESIA APPRAISAL OF THE BALI TOURISM PROJECT TABLE OF CONTENTS Page No. SUMMARY . .................................................. i iv 1. INTRODUCTION ............................................ 2. THE ECONOMY AND THE TOURISM SECTOR ......................... 2 A. The Economy ............................................. 1 B. The Tourism Sector .................................... 2 3. PROJECT BACKGROUND ....................................... 4 A. Planning and Environmental Aspects ............... ... 4 B. Institutional Arrangements ............................ 6 4. PROJECT DESCRIPTION ....................................... 8 A. Project Components ................................... 8 B. Cost Estimates ....................................... 11 C. Execution and Operations .............................. 13 D. Financing Plan and Lending Arrangements ............... 14 E. Procurement and Disbursements ......................... 15 5. JUSTIFICATION ...................................*........* 16 A. Market Demand ........................................ 16 B. Hotel Development ..................................... 19 C. Economic Justification ................................ 21 D. Employment and Balance of Payments Effects ............ 23 E. Government Tax Revenues ............................... 24 F. Social Impact .......................................... 24 6. FINANCIAL ASPECTS ......................................... 27 A. Financial Objectives ................................. 27 B. Financial Forecasts - BTDC ............................ 28 C. Financial Covenants ................................ 30 7. AGREEMENTS REACHED AND RECOMMENDATIOS................o... 31 This report is based on the findings of an appraisal mission consisting of Messrs. Glaessner, Vera, Calkins, Hechtenberg, lizuka, Jacob, Krippl and Menezes. Messrs. Sapir, de Silva, Storrar and Migliorini of the Resident Staff assisted the mission on several aspects of the project. Messrs. Shipman and Rajagopalan pre-appraised the water supply and sewerage com- ponents, while legal aspects were reviewed in the field by Mr. Asser. Mr. R. Noronha (Consultant) evaluated the potential social impact of the project. TABLE OF CONTENTS (Cont'd) LIST OF ANNEXES, CHALTS AND MAPS ANNEXES I - Project Description and Cost Estimates TI - Bali Tourism Development Board ITT - Bali Tourism Development Corporation IV - Water Supply, Sewerage and Waste Disposal V - Roads, Bridges and Stonn Water Drainage VI - Electricity Supply VII - Hotel Training Center VIII - Agricultural Technical Assistance IX - Market Demand and Hotel Development X - Balinese Economy XI - Economic Justification XII - Social Impact of Tourism CHARTS 1 - Schedules of Implementation, Expenditures and Disbursements WB 8543 (R) 1/ MAPS I - South-East Asia/Project Location IBRD 10738 2 - Project Components IBRD 10739 3 - Nusa Dua Land Use Plan IBRD 10740 I/ I?ollowing instruction of Administrative Circular of March 31, 1972, all charts and maps are assigned the IBRD and WB reference number respectively. The numbering indicated here and in the text refers only to the order in which they appear in this report. INDONESIA APPRAISAL OF THE BALI TOURISM PROJECT SUMMARY i. This report appraises a project to provide infrastructure for a new tourism estate to be developed at Nusa Dua on the Bukit Peninsula of the island of Bali (Map No. 10738). Common facilities and services, including an access road from the airport, are to be provided for 310 hectares of land which has been acquired by the Government. Sites are to be leased to private hotel investors who would eventually construct about 2,500 rooms of internationally acceptable standard. In addition to the tourism estate, the project includes improvement of existing roads on the island to serve both tourism and other needs; a new road by-passing Denpasar, the provincial capital, and providing direct access from Nusa Dua and the airport to the major existing hotel zones and areas of major tourist appeal nbrth of the city; training facilities for hotel personnel; and a small demonstration farm for Vegetable production. Furthermore, technical assistance would be provided to newly created and existing Government agencies to help implement the project within a master plan for tourism development for the whole island. The scope and design of the project are consistent with the Government's effort to maximize the benefits from the expansion of the tourism industry while protecting as much as possible the unique cultural life and scenic attractions of the island which are its major tourism assets. ii. Indonesia attracted relatively little foreign tourism until 1967. During the subsequent period of stability and rapid economic growth, the num- ber of foreign visitor arrivals grew at an average annual rate of over 50% to reach an estimated 300,000 in 1973. An even more rapid increase might have occurred but for the severe lack of suitable hotel accommodations particularly in Bali. Foreign visitor arrivals in the island grew at an annual rate only half that for the country as a whole during 1969-73. Though ideally suited to complement rather than compete with other destinations for multiple-stop group tours, Bali, despite its unique appeal to international travellers, presently receives only 5% of the tour traffic to Southeast Asia. Similarly, its potential as a single destination for tourists from neighboring countries, and for weekend excursions by business travellers to Indonesia, has hardly begun to be tapped. iii. Bali is thus in a relatively good position to develop its tourism industry as a means of improving the economic base for its population of a little over 2 million people. Unemployment and underemployment are already evident, particularly among the better educated youth. They cannot find adequate scope for their talents within traditional activities such as agri- culture, and the growth potential of other non-traditional sectors is limited. iv. Prospects for a continuing rapid growth of tourist traffic to Southeast Asia are clouded by the potential impact of the energy crisis on air fares, exchange rates and economic growth in the major tourist generating countries. However, several special factors operate in favor of an expansion of tourist travel to Bali: the existence of hitherto repressed demand because of the scarcity of hotel accommodation; the strategic location of Bali as a complementary rather than competing destination in Southeast Asia; and the strong appeal of Bali to market segments not likely to be affected adversely by the energy crisis, such as business travelers to Indonesia and tourists from neighboring countries. Foreign tourists visiting Bali are projected to increase from an estimated 95,000 in 1973 to 287,000 by 1978, when the first hotels in Nusa Dua are expected to open, and 540,000 by 1983 when 2,500 hotel rooms should be available in Nusa Dua. This assumes an average growth rate of 26% in tourist traffic to Bali for the period 1973-77 and 14% for the subsequent six years when previously repressed demand will have been met. Less favorable assumptions concerning the impact of the energy crisis would still lead to projections of tourist traffic sufficient to support the expec- tation of a gradual, if somewhat differently phased, build up of hotels at Nusa Dua to a total of 2,500 rooms by 1985 at the latest, with acceptable economic returns. v. The proposed tourism project at Nusa Dua is consistent with the recommendations of the UNDP financed Bali tourism master plan prepared by French consultants in 1971 and accepted by the Government. This plan emphasizes the need to concentrate future hotel development in an area where the potentially negative effects of tourism on Bali's traditional life can be minimized. In the past, hotel development in Bali has taken place with little regard for the natural and human environment. The development of infrastruc- ture has been neglected, a fact most evident in the deteriorating condition of roads and bridges, which are inadequate to serve the growing traffic. Recognizing the dangers, the Government has imposed zoning regulations, height limitations and building standards. To help assure priority develop- ment in Nusa Dua, the Government in 1972, after consultation with the Bank Group, limited to 1,600 the number of internationally acceptable hotel rooms outside Nusa Dua. This level will be reached within the next few years. The Government will maintain this limit until 1985, subject to periodic re- view by the Association. vi. A newly created Bali Tourism Development Board (BTDB) would be responsible for implementing the tourism master plan which calls for coordi- nation of several Government agencies, private tourist and hotel enterprises, and Balinese community organizations. Technical assistance would be provided under the project to help the BTDB and other Government agencies formulate and implement appropriate policies designed to assure that potential negative effects of tourism on Bali's social and cultural life are minimized, that the best possible use is made of the existing human and natural assets, and that the benefits of tourism are distributed in a more equitable manner to the Balinesa population. vii. The implementation of the physical components of.the project would be largely the responsibility of a newly created, Government-owned tourism estate corporation, the Bali Tourism Development Corporation (BTDC). The infrastructure works and common facilities of the tourism estate would comprise water supply, sewerage and waste disposal systems; electrical in- stallations; telecommunication facilities; internal streets and stormwater drainage; landscaping and landscape irrigation; an amenity core; and a ser- vice center. The development of the tourism estate would also make it pos- sible to carry out some infrastructure improvements in two adjacent villages. These would consist of paving of roads, streetlighting, public water supply and sanitation and first aid facilities. - 111 - viii. To alleviate potential traffic problems, the project provides for construction of a two-lane road from the airport to the existing hotel zones and areas of major tourist appeal north of Denpasar, as well as an access road from -he airport to Nusa Dua. In addition, deficiencies in the existing road network in these areas would be eliminated through upgrading of road surfaces and drainage, and through replacement of inadequate and unsafe bridges. ix. The project includes the construction of a training center to be operated by BTDC which would annually provide instruction in basic and medium level vocational skills for about 300 to 400 trainees. A small demonstration farm, to be operated by the Ministry of Agriculture, would also be established to help local farmers grow vegetables suitable for internationally-oriented hotels and restaurants. Additional technical assistance to be provided under the project would be directed towards improvement in the production and marketing of other food items. x. The project is estimated to cost US$36.1 million equivalent, of which US$18.1 million equivalent is expected to be in foreign exchange. It is proposed that the Association provide a credit of US$16.0 million, cover- ing 88% of the foreign exchange component or slightly more than 447 of the project cost. This would include an amount of US$0.35 million for retro- active financing of water investigation, well-drilling and technical assist- ance to the BTDC. The balance of the funds required to finance the project and any cost overruns would be covered by budgetary contributions from the Government. xi. Major civil works and equipment contracts would be awarded under international competitive bidding in accordance with Bank/IDA guidelines. Contracts for the improvement of eleven multi-purpose roads would be tendered either individually or combined into bidding groups, at the bidder's option, in order to permit local contractors to tender for works of a size within their capabilities and to attract foreign bidders. Only local competitive bidding would be required for small civil works contracts, each of less than US$100,000, which could not appropriately be grouped. The total amount of such contracts would amount to about US$0.5 million. In evaluating interna- tional tenders for civil works, a 7.5% margin of preference would be allowed local contractors; for bids on equipment, local manufacturers would be allowed a 15% margin of preference, or the prevailing level of customs duties, whichever is lower. Telecommunications equipmenz involving items amounting to about US$150,000 equivalent would have to be compatible with existing installations. It is therefore proposed that Perumtel, the government agency responsible for this part of the project, negotiate their purchase with manufacturers of these items. xii. The new tourism estate is expected to attract private investors prepared to build hotels and other tourism facilities in Nusa Dua. Strong indications of interest have been received from Indonesian and foreign groups of investors, some of whom have already tentatively chosen specific sites within the tourism estate. When fully operational in 1983 the project would provide direct employment for about 5,800-6,000 workers in the hotels and other tourism establishments. An additional 3,700 jobs would be generated for artists and handicraft workers. The economic rate of return is estimated at 18.7%. Net foreign exchange earnings are estimated to amount to US$8.5 million in 1978 and US$36.2 million annually from 1985 onwards. This may be compared with the estimated foreign exchange component of the infrastructure - iv - project of US$18.1 million and the estimated foreign exchange component of the hotels to be built at Nusa Dua of about US$25.0 million. In addition to the net income generated by the Governnent-owned BTDC, the Indonesian central government is expected to receive abou US$1.5 million equivalent a year in corporate income tax payments from the hotels, and municipal governments in Bali are expected to collect about US$2.8 million equivalent a year in sales taxes by 1985. xiii. To help ensure its financial viability, BTDC would adhere to sound financial principles in the operation of its facilities, including the water supply, sewerage and waste disposal systems, the other non-utility facilities and the training center. BTDC would be able to achieve reasonable financial rates of return on its investments by charging the hotels and other benefi- ciaries adequate lease rents and user charges for the services provided. xiv. The project is suitable for an IDA credit of US$16.0 million equivalent. INDONESIA APPRAISAL OF THE BALI TOURISM PROJECT 1. INTRODUCTION 1.01 In 1968 the Indonesian Government requested Bank Group assistance for tourism development. A pcoject identification mission visited Indonesia in March 1969 and recommended the preparation of a tourism master plan for Bali and related feasibility studies for a first-phase development. Subse- quently a UNDP financed study, with the Bank as executing agency, was com- pleted by French consultants in June 1971. The Government endorsed the consultants' master plan, including the recommendation that further tourism development be concentrated at Nusa Dua, a site on the Bukit Peninsula. The project feasibility studies, however, were not adequate, and additional studies were carried out by Japanese consultants during 1972 and 1973, fi- nanced in part by the third IDA Technical Assistance Credit to Indonesia. Infrastructure components outside of Nusa Dua were prepared by individual ministries and independent agencies with the help of consultants. Except for water supply, these studies were completed in time for the appraisal mission in June 1973. 1.02 In accord with the master plan, the project would provide infrastruc- ture in support of tourism development at Nusa Dua including water, sewerage, drainage, roads, telecommunications and power installations. The project also includes facilities for hotel training, a small demonstration farm, road im- provements outside Nusa Dua to serve both tourism and other economic needs and technical assistance in impleb2enting both the project and the master plan. 1.03 This is the first project of its kind in Indonesia and, due to its complexity, a considerable amount of time and effort was required for prepara- tion and appraisal. The appraisal mission completed its field work in July 1973. The Resident Staff assisted the mission on aspects relating to air- policy,the demonstration farm and road engineering. The Public Utilities Division, Asia Region, advised on water supply, sewerage and waste disposal components. Mr. R. Noronha, consultant anthropologist, evaluated the poten- tial social impact of the project. In December 1973, following completion of first phase ground water studies, a second mission visited Indonesia to update the appraisal. 1.04 This would be the first IDA credit for tourism in Indonesia. 2. THE ECONOMY AND THE TOURISM SECTOR A. THE ECONOMY 2.01 There has been a remarkable recovery in the Indonesian economy since the mid 1960's. Gross domestic product increased on average by over 7% per annum over the last five years. Following a period of stability from 1969- 71, prices have increased significantly since late 1972, particularly for' food products such as rice. Agricultural output has increased about 47. per annum - 2 - although growth was considerably less in 1972 due to drought conditions. Industrial production, particula-zly of textiles, has grown substantially. Rehabilitation and expansion of domestic enterprises, backed by continued private investment and commitments of official aid for major industrial projects, points to further rapid growth of industry. Infrastructure re- habilitation and expansion is underway, financed in large measure by project aid, including IDA credits. Deficiencies in the transport, power and tele- communications sectors could, however, become a constraint on agriculture, industry and other sectors, such as tourism, unless ongoing and future projects are accelerated. 2.02 The balance of payments situation has changed dramatically since 1971, due to internal factors (rice shortages and increased investment activities) and to external factors (exchange rate fluctuations and sharp increases in the price of oil and other commodities). While imports have grown quite rapidly, exports have increased even faster and, combined with an inflow of private capital, have allowed a significant improvement in net foreign exchange reserves. The contribution of petroleum to the,Indonesian economy, particularly the balance of payments, is now taking a quantum jump from $0.8 billion in net foreign exchange receipts in 1973 to over $3 billion estimated for 1974. For this and odher reasons, the import constraint on growth will be largely removed du-ing the Second Plan period (1974-478). 2.03 The problensfacing Indonesia, however, are still considerable. Its population, fifth largest in the world, is growing at a rate of 2.4% per year. Per capita income is low, and unemployment is high. About half of GDP and 80% of employment is generated by agriculture. If, in the short-term, the growth in national expenditures can be carefully managed, and a good part of the additional oil revenues put to productive use, Indonesia could achieve accelerated economic growth in the Second Plan period. The Second Plan itself gives greater emphasis to increasing employment, development of the outer islands, including Bali, and to a reduction in regional imbalances in income. Tourism development would contribute to these goals. 2.04 The economy of Bali is based on traditional agriculture. In the absence of mineral deposits, other economic activity is limited, the most important being the handicraft industry which satisfies the needs of a tra- dition-bound society and, increasingly, the demand of foreign visitors. The population of about 2.2 million is unevenly distributed, reflecting the com- munity's dependence on agricultural land. With little further expansion of agricultural land possible, and with existing land increasingly parcelled, employment problems are likely to worsen, particularly among better educated youths seeking modern-sector jobs. In these circumstances, tourism has high developmental priority for the island. B. THE TOURISM SECTOR 2.05 Despite its remarkable cultural and scenic attractions, Indonesia received relatively little tourism traffic before 1967. Since then, although hampered by a scarcity of suitable accommodation, and limited to a few.des- tinations such as Jakarta, Jogjakarta, Bali and Medan, the number of foreign -3- arrivals has increased at an average rate of over 507 per year, from 26,400 in 1967 to nearly 300,000 estimated for 1973. This rapid growth, reflecting both increased business traffic and rapidly expanding vacation demand, was facilitated by the increase in the number of international airlines serving Indonesia and the greater frequency of flights. Visitors from the U.S. and from Plestern Europe account for the largest share of arrivals (20% and 22., respectively), while visitors from Japan and Australia have increased most rapidly in recent years, and together account for another 21% of arrivals. The remaining visitors are mainly from neighboring Malaysia and Singapore. The average length of stay is estimated at five nights for business visitors but only three nights for vacationers, many of whom come to Indonesia as part of tour programs covering various other countries in Southeast Asia. Average daily expenditure was estimated at US$ 38 in 1972. 2.06 Even with the recent rapid growth in demand, tourism development is still in its primary stage in Indonesia. Until recently, hotel accommo- dation of an international standard was limited to less than 1,300 rooms in Jakarta, about 450 in Bali and 100 in Jogjakarta, the three most important destinations for foreign visitors. Over-booking was frequent and "block reservations" over an extended period, which are essential for group travel and particularly for charter operations, were very difficult to obtain. Towards the end of 1973, this situation started to ease somewhat as a result of the major expansion of hotel capacity which has been underway since 1972 in preparation for the PATAl' Conference which Indonesia hosted in March/ April 1974. This expansion will more than double the supply of internation- ally acceptable rooms in Jakarta, Bali and Jogjakarta by mid 1974. The buoyancy of domestic and foreign private hotel investment has been based on: (i) the very high annual occupancy rates and favorable operating results of existing hotels; (ii) the expectation of continued rapid growth in demand; and (iii) the granting of attractive incentives for investors willing to commit themselves to having the additional rooms available by the date of the PATA Conference. 2.07 The tourism industry was recognized in the First Five-Year Plan (1969-74) as a sector which can contribute significantly to Indonesia's de- velopment through increased foreign exchange earnings, employment and income generation and regional development. Bali, Java and Sumatra were given first priority for tourism development. A national Advisory Board for Tourism was appointed to assist the President in formulating tourism policy. A Directorate General of Tourism under the Ministry of Communications and a number of Pro- vincial tourism offices were set up to implement these policies. Government action since 1969 has focused mainly on: (i) preparation for the 1974 PATA Conference, an important tourism event that will help the country's promo- tional efforts; (ii) carrying out a number of studies and technical assis- tance projects, such as the Bali Tourism Master Plan, Swiss and UNDP-ILO- supported tourism training programs, Dutch-financed studies of Java's tourism potential and a UNDP-financed long-term study of overall tourism development for Indonesia which was recently begun; (iii) supervision of the operations of two Government corporations which own and manage several first-class 1/ Pacific Area Travel Association. hotels, most of which were built with Japanese reparations funds; and (iv) the administration of incentives designed to attract private hotel investors, including import duty exemptions for hotels constructed in priority areas and a five-year corporate income tax holiday. 2.08 The Indonesian hotel industry gives direct employment to an estima- ted 8,000 people at the present time. The contribution of tourism to Indonesia's foreign exchange earnings was about $50 million in gross and $36.8 million in net foreign exchange earnings in 1973. While still rela- tively small--less than 5% and 3%, respectively, of non-oil exports--pros- pects are quite favorable for continued rapid growth in tourism receipts over the next decade. 3. PROJECT BACKGROUND A. PLANNING AND ENVIRONMENTAL ASPECTS 3.01 Located next to the main island of Java, Bali continues to evoke in the Lourist's mind the idea of a tropical paradise. Bali's chief tourist assets are the natural and scenic attractions of the island and, more impor- tant, its people and their culture. This culture, held in equilibrium by a communal society and the Hindu heritage, permeates all facets of Balinese existence and expresses itself in a profusion of art, dance, music and sculpture. Hundreds of temples adorn the island and mountains rise from among rice fields as beautiful as any in the world. There are still active volcanoes in the western part of the island, and lakes lying in the craters of inactive ones, calm and serene at the foot of great summits. Palm trees and white sand beaches, protected by coral reefs, combined with a tropical climate invite a relaxed approach to life. The island's major cultural and scenic attractions are located north of Denpasar, the island's main business center and seat of the provincial government. It is these areas that tourists mainly visit to watch the colorful dances, listen to the enchanting music, observe the festivals and religious ceremonies, shop for paintings and wooden sculptures, or simply admire the ornate temples and the dramatic scenery. 3.02 Prior to the construction of Tuban airport in 1967, upgraded in 1971 to take jet aircraft, tourism development in Bali was rather limited. Since tIhen, a number of internationally oriented hotels have been built along the beach areas of Sanur and Kuta, east and southwest of Denpasar. Unfortunately, however, this development was largely unplanned and haphazard, with decisions about location, building design, and the provision of basic infrastructure, roads in particular, has generally lagged behind hotel construction. At present, access to the villages and tourist attractions north of Denpasar is over a fragile network of roads and bridges built 40 to 50 years ago, which have become both inadequate and unsafe with the increase in tourist and com- mercial traffic. All traffic between the airport, where most tourists arrive, and the rapidly expanding hotel zone in Sanur, must at present go through crowded Denpasar, adding to the traffic congestion in the town. 3.03 To prevent further haphazard development, which threatens to destroy Bali's cultural and environmental assets, the Government has endorsed the Tour- ism Master Plan recommendation that future hotel development be concentrated at Nusa Dua (1ap 3). Unlike Sanur and Xuta, where hotel facilities infringe on existing villages and rice fields, Nusa Dua is located on a dry, sparsely settled peninsula (Bukit) on the southern end of the island, separated from the most densely settled and agriculturally richest parts of Bali. It is none- theless an extremely attractive area, with palm-ringed beaches of white sand and a Pleasant climate, within a reasonable distance from the airport. There are several important advantages to concentrating hotel development within a carefully planned tourism estate at Nusa Dua. The physical isolation of the resort facilities and the institutional arrangements envisaged should insure a controllable relationship between foreign visitors and the local population. At the same time, the estate would provide the hotels with utilities, services and certain common commercial, administrative and recreational facilities, thus avoiding unnecessary duplication. Similarly, the concentration of hotels would allow for the most economical provision of both off-site and on-site infrastruc- ture, thus reducing the costs to hotel investors for the utilities and other services, while allowing for a high level of control over the quality of the environment. 3.04 The tourism estate plan is designed to ensure the most economic uti- lization of available land without detracting from the natural environment, while being sufficiently flexible to accommodate the preferences of potential investors in hotels and other facilities. Hotel sites would be located along the three beaches of the Nusa Dua resort, with provision for a central core area which would resemble a typical Balinese village with its harmoniously spaced, simple structures and intensely landscaped open spaces. Private development activities would be guided by both physical and financial controls, to be established and enforced by the estate management corporation (see para. 3.11 below). Investors would be encouraged to use local styles and materials, and the height of structures would be limited to 15 m., the approximate height of surrounding palm trees. 3.05 In order to help assure priority development of Nusa Dua, the Govern- ment in 1972 after consultation with the Bank Group set a limit of 1,600 hotel rooms of internationally acceptable standard outside the Nusa Dua area, includ- ing those already existing or under construction. Moreover, it imposed height limitations, zoning regulations and building standards on new hotel projects in Sanur and Kuta. 3.06 In preparation for the Nusa Dua project, the Government has acquired 310 hectares of land over the last three years. Land purchases have dcisplaced very few people, while giving them the immediate benefits of cas- ayments. The traditional occupations of local villagers have not thus far been signi- ficantly disrupted since the Government has allowed them to continue harvesting the coconuts from the trees in the area it has purchased and to continue fishing from the Nusa Dua beaches. Moreover, the plans for the tourism estate provide continued access to the beach areas traditionally used by local fisher- men. The authorities are planning special efforts to assure the maximum of training and employment for the inhabitants of the tWo near-by villages (Benoa and Bualu) in the construction and operation of the tou, s estate. In addition, improvements in the basic infrastructure of T o villages would be provided as part of the project (see para. 4.0. Finally, the Indonesian authorities intend to secure a commitment from the hotels to be established in Nusa Dua that basic medical services would be provided not only for hotel employees but also for the population of the two adjacent villages. -6- 307 One major potentially disruptive effect of the project on the ad- jacent villages and other parts of Bukit would be the settlement of large numbers of hotel employees in special housing near the tourism estate. After studying the experience with staff housing in other parts of Bali, it was concluded that such housing should be held to a minimum and that the Talinese enployees should be encouraged to continue to live in their tradi- tional communities, which most of them seem to prefer, or to settle in Greater Denpasar. This solution would, of course, require the provision of adequate public transportation and the enforcement of appropriate zoning regulations in the area. A survey of transportation requirements would be carried out as part of the final design of project components. During negotiations, agree- ment was reached that appropriate zoning regulations covering the entire Bukit Peninsula would be instituted in line with the Tourism Master Plan guidelines. Despite its substantial size, the proposed development is expected to have a minimal negative impact on the physical environment. The level of pollution of the near-by bay caused by the ships anchoring in Benoa harbor is low and is not expected to increase, except temporarily during the construction phase. Sewerage at Nusa Dua is to be treated and the treated effluent discharged into an internal bay, distant from the beaches used for swimming. Nor is there any threat of air and noise pollution, except around the airport which is 8 kms away. 3.08 With the expansion of tourism, an increasing proportion of the popu- lation outside the two adjacent villages will directly or indirectly be engaged in serving the tourist industry. Through their patronage of Balinese art (painting, sculpture, music and dancing), foreign visitors have markedly stimulated the interest of local inhabitants in such cultural expression. Tourism has also increased the demand for a large variety of agricultural and livestock products. However, a large proportion of these products are currently imported because the local farmer has little knowledge or skill to supply regularly products of adequate quality and variety for the hotels. Furthermore, an increasing number of young persons keenly compete to obtain hotel skills, either by uorking in existing hotels or by enrolling in ill-equipped hotel training schools which use borrowed space and part-time teachers. The project consequently provides technical and financial assistance to help expand and upgrade agriculturai production and to improve hotel training facilities. B. INSTITUTIONAL ARRANGEMENTS 3.09 A finrst step toward implementing the Bali Tourism Master Plan was the establishment in March 1972 of the Bali Tourism Development Board (BTDB). The functions of the BTDB include: (i) advising various Provincial Government agencies on the practical application of the Master Plan; (ii) coordinating tourism sector activities so as to maximize net benefits and minimize social and environmental deterioration; and (iii) creating the necessary links between government,agencies, private tourist enterprises and Balinese community organizations. To facilitate these functions, the Board is composed of 12 representatives of various government agencies, with the Governor of Bali as Chairman and a representative of the national Directorate of Tourism as Vice-Chairm an The Director of the local tourism office would serve as Executive Secretary, heading a Secretariat which would consist of a physi- cal planner, a sociologist, an economist and an expert in culture and re- ligion, all of whom are expected to be Balinese. 3.10 In order to implement the Master Plan effectively, to improve the institutional links between agencies an. organizations involved in tourism development and to help in devising and implementing appropriate tourism policies, the Indonesian authorities have requested that technical assis- tance, be made available to the BTDB. Accordingly, the project includes: (i) employment of an outside advisor who would be assigned for a period of three years to the BTDB, and who would guide and train local counterpart staff in comprehensive, urban and regional planning; and (ii) employment of an anthropologist familiar with the social and cultural problems in Bali, and with the potential impact of tourism, to serve as a consultant to the BTDB for relatively short periods totaling about nine months over the next three years. During negotiations the provision of advisory services was agreed upon and assurances were received regarding the allocation of ade- quate funds to the BTDB. 3.11 A second step toward implementing the Tourism Master Plan was the establishment in November 1973 of the Bali Tourism Development Corporation (BTDC) a limited liability corporation with the Indonesian Government as its only shareholder, whose objective is to create a successful tourism estate on the Bukit Peninsula at Nusa Dua.l/ The activities of the BTDC will be guided by a Board of Supervisors to be composed of the Secretary General of Public Works, the Director of Monetary Affairs (Department of Finance), and the Gov- ernor of Bali, with the Director General of Tourism as Chairman. The compo- sition of this Board should facilitate cooperation between the BTDC and other public sector agencies involved in implementation of the tourism estate. 3.12 The corporation would be administered by a Board of Directors which is composed of the President Director and the heads of the Technical Opera- tions and Finance Divisions and would be assisted by a Secretariat. The three top positions have already been filled; staffing of the Finance and Technical Operations Divisions 'and the Secretariat will be completed in the near future. This management group would be headquartered in Jakarta during the execution phase, in order to provide coordination among the Government agencies involved in the project. A technical field unit, to be established in Bali, would be responsible for supervising final planning and execution of the project, under the direction of the Technical Operations Division. This unit would be headed by an experienced engineer, who has yet to be appointed, and staffed with the necessary technical personnel (see Annex III). This appointment would be a condition of effectiveness of the proposed credit. A hotel training section would start operations 4n Bali in 1975. 3.13 Shortly before the project becomes operational, the management group would relocate to Bali and assume responsibility for managing the tourism estate. The technical field unit will be reorganized into three sections which would be responsible, respectively, for operation and administration of the water and sewerage system; maintenance of the roads, landscaped areas and buildings; and environmental sanitation. A detailed organization plan for estate operations, including staff requirements, would be submitted to the Association by December 31, 1975. 3.14 Because of their lack of experience with tourism estate projects, the Indonesian authorities have recuested that the 3TDC receive technical assistance during the execution phase of the project. During negotiations 1/ See Annex III for a detailed description of BTDC's functions. .. 8 - agreement was reached on the following advisory positions: ( an expert on tourism-related land development and the >otel industry who would assist in the formulation of corporate objectives, lease policies and model lease forms; (ii) a financial expert who would advise on general financial policy and assist in the analysis of investment proposals from hotel and other com- mercial developers; and (iii) an engineering expert who would assist the Drector of Technical Operations in the review of project design and bid eva- luations and advise the head of the field unit on construction mangement. One of the major tasks of these advisors will be to provide the Indonesian team with on-the-job training. Terms of reference for the three advisors were agreed upon during negotiations. The appointment of the first advisor referred to above would be a condition of effectiveness of the proposed credit. 4. PROJECT DESCRIPTION A. PROJECT COMPONETS 4.01 The project would consist of the following elements as shown in Table I (para. 4.15) below and listed in more detail in Annex I: (a) infrastructure for the tourism estate, including the access road to the Nusa Dua area; water supply, sewerage and solid waste disposal systems; electrical installations; telephone and telex facilities; internal roads and streets and stormwater drainage; landscaping and landscape irriga- tion; common facilities and buildings; and infrastructure improvements for the adjacent villages of Bualu and Benoa, including water supply, sanitary units, street lighting and street improvement; (b) roads and bridges, including a road from Tuban airport to Tohpati by-passing Denpasar; and improvement of eleven multi-purpose roads in the central part of Bali; (c) a hotel training center accommodating 250 to 300 basic- level trainees and 100 medium-level trainees; (d) a 1O-hectare demonstration farm for vegetable production and grading, as well as seed production; and (e) technical assistance to the BTDB, the BTDC and the local office of the Ministry of Agriculture. These project elements are described briefly in the following paragraphs. 4.02 A two-lane road would be constructed connecting the Nusa Dua area with the Tuban Airport, a distance of 8 km. (See Annex V.) 4.03 Water would be supplied to the resort area and the two adjacent villages from a new well field to be davel oped on the Bukit Peninsula, based on the successful results of extensive groundwater exploration and test drill- ing. A treatment plant, storage tank and distribution system would be provided. 9 Sewage from the tourism area would be collected by a system of pipelines and would be discharged into oxidation ponds. The solid waste disposal system would include the collection and transportation of solid wastes for disposal in sanitary landfill. (See Annex TV.) 4.04 The electrical installations provided for under the project would consist of a 20 KV transformer station and a stand-by generator for BTDC and of street lighting for roads, streets and public areas within the resort area. The extension of the electricity supply system to serve the resort area would be undertaken separately by the national power company fPLN) under a scheme (described i Annex VI for which assistance has been request- ed from the UK Covernment.1 Under the terms of the Credit Agreement, the Government is obligated to complete this component in time to meet the power demands of the hotels at Nusa Dua. 4.05 A new telephone exchange with a capacity of 600 lines would be erected in the resort area and would be connected to Jakarta through the existing Denpasar exchange. Ten telex extensions would also be provided in the resort area. 4.06 Within the resort area, a secondary road and street network of some 11 km would be constructed in order to provide access to common facil- ities and hotel sites. Public parking areas would also be provided. Storm- water would generally be collected in open ditches and lead to swales where it would infiltrate into the ground. 4.07 Landscaping plans provide for improvement of the existing charac- teristics of the resort area, with plants to be supplied from a nursery set up within the project area. To combat the shortage of surface water at Nusa Dua, a separate irrigation scheme using raw water drawn from wells located in or near the plant nursery would be provided. 4.08 The amenity core and the service center of the tourism estate would provide facilities such as an information center, a post office, a bank, shops, an art performance center, offices, a fire and a police station. 4.09 Development of the resort area would make it possible to provide, at relatively small incremental costs, infrastructure improvements in the two adjacent villages, Bualu and Benoa, which would substantially improve the standard of living of the inhabitants. Roads would be improved and paved and some streetlighting erected. In addition, community service units would be constructed providing public water supply and washing and toilet facili- ties. A first aid station would be installed in each village. 4.10 A two-lane road from Tuban Airport to the town of Tohpati would be constructed to provide the existing and rapidly expanding hotel zone at Sanur with direct access from the airport, to greatly ease traffic conges- tion in Denpasar, and to permit visitors from the Nusa Dua, Kuta and Sanur resort areas to visit major cultural and scenic attractions located north of Denpasar without having to go through the city. 1/ The extension of the electricity supply system is not reflected in the cost estimates or financing plan (paras. 4.15 and 4.29), but is taken into account in the economic justification of the project. - 10 - 4.11 The improvement of eleven existing roads, totaling about 200 kms, would provide better access for tourists to the major cultural and scenic attractions north of Denpasar and ease general traffic serving the Island's most important and densely populated agricultural areas. No major changes are proposed in the existing alignment of these roads. Improvement consists primarily of upgrading road surfaces and drainage, minor realignment of curves, and replacement of inadequate and potentially hazardous bridges (see Annex V). 4.12 The project includes funds that would finance the construction of a training center with proper physical facilities and equipment. The new training center would be operated by a small staff of full-time teachers for whom housing would be provided and a number of part-time inst-uctors who would train an estimated 300 to 400 trainees annually to meet projected expansion of hotel capacity. The center would provide primarily basic- and medium-level training, including foreign languages, without excluding the possibility of special management and higher-level training once the new institution is firmly established (see Annex VII). 4.13 To help local farmers grow food products suitable for interna- tionally oriented hotels and restaurants, the project would provide for the acquisition of 10 ha of land, civil works and equipment required for a small demonstration farm, to be established by the Bali Office of the Ministry of Agriculture. The objectives of this farm would be to demonstrate the produc- tion of new vegetables and their grading, to produce vegetable seeds, and to assist farmers in contract negotiations with hotels and restaurants. In order to establish the farm and operate it successfully, an agricultural advisor would be employed full time for about three years. Besides advising on the implementation of this project component, the advisor would be chiefly responsible for training the counterpart staff who would be responsible for operating the farm. At the same time a program to increase and improve poultry and egg production is provided for which would include about two man- months of technical assistance and a small amount of special medium-term credit from the Bank Rakyat Indonesia. Finally, the Bali Agricultural Office together with BTDC would attempt to secure the cooperation of the hotels in establishing a jointly financed, small modern slaughterhouse in order to improve the quality of butchered meat for the hotels and restaurants. They would also attempt to secure equitable marketing arrangements for local livestock producers (see Annex VIII). 4.14 Technical assistance included in the project would cover the for- eign expertise required by the Bali Tourism Development Corporation (para. 3.14);the assistance needed by the Bali Tourism Development Board (para. 3.10); and the services of technical advisors on vegetable farming, and poultry and egg production, to the Bali Office of the Ministry of Agriculture (para. 4.13). - 11 - B. Cost Estimates 4.15 The detailed cost estimates and the foreign exchange components of the project elements are given in Annex I and are summarized below: Table I Indonesian Rupiahs U.S. Dollars % of (Millions) (Thousands) Base Line Local Foreign Total Local Foreign Total Cost Infrastructure ?t Facilities for Nusa Dua Tourism Estate and AdjacertVlle~ 3a2.3 3,085.1 6,329.h 7,817.5 7,4)-l1,216 0. Land Acquisition 493.0 493.0 1,188.0 1,188.0 4.7 Civil Works 1,976.7 1,725.8 3,702.5 4,763.1 4,158.6 8,921.7 35.2 Equipment 277.9 904.1 1,182.0 669.6 2,178.6 2,848.2 11.3 Professional Services 312.0 390.9 702.9 751.8 941.9 1,693.7 6.7 Project Administration 184.7 64.3 249.0 445.0 155.0 600.0 2.4 Roads and Bridges 1,897.9 1,466.7 3,364.6 4,573.3 3,534.2 8,107.5 32.0 Land Acquisition 271.3 271.3 653.7 653.7 2.6 Civil Works 1,251.4 1,466.7 2,718.1 3,015.4 3,534.2 6,549.6 25.9 Professional Services 375.2 375.2 904.2 904.2 3.5 Hotel Training Center 158.3 160.8 319.1 381.4 387.5 768.9 3.1 Land Acquisition 20.0 20.0 48.2 h8.2 0.2 Civil Works 82.4 106.3 188.7 198.5 256.2 454.7 1.8 Equipment 18.2 54.5 72.7 43.9 131.3 175.2 0.7 Professional Services 37.7 37.7 90.8 90.8 0.4 Demonstration Farm 27.8 8.1 35.9 67.0 19.5 86.5 0.3 Land Acquisitior 20.8 20.8 50.1 50.1 0.2 Civil Works 3.6 3.1 6.7 8.6 7.5 16.1 0.05 Equipment 1.7 5.0 6.7 4.1 12.0 16.1 0.05 Professional Services 1.7 1.7 4.2 4.2 Technical Assistsance 87.6 366.0 453.6 211.2 881.8 1,093.0 4.3 Base Line Costs: 5,415.9 5,086.7 10,502.6 13,050.4 12,257.1 25,307.5 100.0 Contingencies: Physical Increase (15.0%)b/ 541.9 639.7 1,181.6 1,305.8 1,541.4 2,847.2 11.2 Price Increase (41.9%)b/ 1,512.2 1,785.1 3,297.3 3,643.8 4,301.5 7,945.3 31.4 TOTAL PROJECT CCT 7,470.0, 7,511.5 14,981.5 18,000.0 18,100.0 36,100.0 a/ Includes access road, internal roads and streets, electrical installations, telecommu- nications, 1water, sewerage, solid waste disposal, landscaping and common buildings. b/ % of Civil Works and Equipment. - 12 - 4.16 The estimated cost by executing agencies and various categories of expenditures, including contingencies in each item, is given below: Table II Indonesian Ru iahs U.S. Dollars TMillions) (Thousands) Local Foreign Total Local Foreign Total Bali Tourism Development Corg. (BTDC) 14 2 4,2439.1 8,927.1 10,814.5 10 696.5 21,511.0 Water Supply System 582.3 1,854.0 2,436.3 1,403.1 4,467.5 5,870.6 Sewerage System 366.5 330.0 696.5 883.1 795.2 1,678.3 Solid Waste Disposal 45.2 99.5 144.7 108.9 239.8 348.7 Landscape Irrigation 94.9 137.0 231.9 228.7 330.1 558.8 Landscaping 1,32L4.2 * 163.5 1,487.7 3,190.8 391.0 3,584.8 Storm Water Drainage 273.2 38.8 312.0 658.3 93.5 751.8 Internal Roads and Streets 26L.7 231-5 496.2 637.9 557.8 1,195.7 Electrical Installations 151.0 501.9 652.9 363.9 1,209.4 1,573.3 Amenity Core 436.1 525.5 961.6 1,050.8 1,266.3 2,317.1 Bualu-Benoa Infrastruc. Improvement 81.7 33.3 115.0 196.9 80.2 277.1 Hotel Training Center 221.7 252.2 473.9 534.2 607.7 1,141.9 Technical Assistance 41.9 207.5 249.4 100.9 500.0 600.9 Project Administration 184.6 64.4 249.0 445.0 155.0 600.0 Land Acquisition, Nusa Dua 420.0 420.0 1,012.0 1,012.0 Bali Tourism Development Board (BTDB) 20.0 113.0 133.0 48.1 272.4 320.5 Technical Assistance 20.0 113.0 133.u 08.1 272.4 320.5 Department of Roids (Bina Marga ns of Pulic Works 2724 ..8 2,538.6 5,286.4 6 m 12,738.3 Nusa Dua Access Road 24L.2 238.0 482.2 588.4 573.5 1,161.9 Denpasar By-Pass Road 748.1 669.7 1,417.8 1,802.7 1,613.7 3,416.4 Multipurpose Roads 1,7555 1,630.9 3,386.4 4,230.1 3,929.9 8,160.0 Department of Telecommunications (PERUMTEL) inistry of Coaniications 159.7 362.7 522.4 384.8 874.0 1.258.8 Telephones and Telex Facilities 159.7 362.7 522.4 384.8 874.0 1,258.8 Ministry of Agriculture 54.5 58.1 112.6 131.h 140.0 271.4 Demonstration Farm 28.7 12.7 41.4 69.2 30.6 99.8 Technical Assistance 25.8 )45.2 71.2 62.2 109.24 171.6 TOTAL 7,T70.a ;21. lb4981.5 18000 o lo.o 361co.0 - 13 - 4.17 Base line cost estimates have been adjusted to account for price level changes since the appraisal mission in July 1973 and now reflect January 1974 prices. Provision has been made for continued price increases in site works, building and equipment costs based on projections of likely price level changes during the construction period. In addition, an allowance of 15% of the civil work and equipment costs has been made to cover physical contingencies. This is reasonable since most of the cost estimates are based on semi-detailed engineering studies and on cost data for similar works in Bali and Java. The details of the allowances made for price and physical contingencies are shown in Annex I, Table 1.8. The total provision for contingencies amounts to 42.6% of base line costs or 29.9% of total project cost. 4.18 For professional services required in the final design and con- struction supervision stages, an allowance of 10% of the civil work and equipment costs has been made. 4.19 Cost estimates for project buildings are based on space require- ments and unit building costs. Lists of furniture and equipment would be prepared during the detailed design stage and reviewed by the Association. Local currency cost estimates for equipment include local taxes, port, ware- housing and handling charges, and transportation to sites which together are equivalent to about 27% of the c.i.f. prices. 4.20 It is proposed that certain expenditures, including part of the cost of water investigation and well drilling, final engineering design and initial technical assistance to the BTDC(amounting to about US$350,000 or 1.0% of total project costs), be financed retroactively from the IDA credit. C. EXECUTION AND OPERATIONS 4.21 Four agencies would be responsible for the execution of the physical components of the project: (i) the Bali Tourism Development Corporation (BTDC); (ii) the Highway Department of the Ministry of Public Works (Bina Marga); (iii) the National Thlecommunications Corporation (Perumtel); and (iv) the Bali Office of the Ministry of Agriculture. 4.22 BTDC, which would own the land at Nusa Dua, would have overall res- ponsibility for coordinating the execution of the project. BTDC would also be responsible, with the assistance of consultants acceptable to the Associa- tion, for the design, construction and operation of the works at Nusa Dua, including the water supply and sewerage system, solid waste disposal, land- scaping, stormwater drainage, roads and streets in Nusa Dua, electrical instal- lations (for all BTDC items), amenity core and community facilities, infrastruc- tUre improvements at the villages of Bualu and Benoa and the hotel training center. 4.23 Bina Marga, the highway department of the Ministry of Public Works, would be responsible for the design, construction and maintenance of all road- works and bridges outside the resort area. 4.24 The telecommunications component, consisting of telephone and telex facilities, would be implemented by Perumtel which has the overall responsi- bility for telecommunications in Indonesia. It is well qualified to carry out the work, including final design. - 14- 4.25 The hotel training center to be established and oPerated by BTDC would be built on land already set aside for this purpose by the Government of Bali. From May to August, 1974, an ILO team, financed by UNDP under an ongoing vocational training project would help the Indonesian tourism autho- rities and BTDC prepare a schedule of accommodation and equipment require- ments for the construction and equipping for the center, as well as detailed proposals for its staffing, curricula and criteria for student selection. BTDC would employ consultants to prepare final design and supervise con- struccion. To advise the BTDC on local aspects of the operation of the hotel school, a committee would be established on which the hotels and the Bali tourism office would be represented. 4.26 The local office of the Ministry of Agriculture, with the assist- ance of the advisors referred to in para. 4.13, would establish and operate the demonstration farm and develop and implement a program for the improve- ment of poultry and egg production. 4.27 To help ensure proper coordination during the execution of the project, BTDC would be responsible for preparing, and submitting to the Association by December 31, 1974, a critical path network for carrying out all parts of the project. This network would be reviewed internally by all parties concerned every three months, and the results of such reviews would be communicated to the Association every six months. D. FINANCING PLAN AND LENDING ARRANGEMENTS 4.28 The total estimated cost of the project is Rps 14,982 million (US$36.1 million equivalent). It is proposed that the IDA credit would cover about 88% of the foreign exchange component of Rps 7,512 million (US$18.1 million equiv- alent), or roughly 44% of the total project cost. The balance would be provided through budgetary allocations of the Government, which would also meet any cost overruns. 4.29 The consolidated financing plan for the project, excluding inter- est during construction and working capital, can be summarized as follows: (US D liars million) Project Component Estimated Costa Sources of Funds IDA Credit Gov't Cont. Water, Sewerage, Waste Disposal 7.9 4.7 3.2 Hotel Training Center 1.1 0.5 0.6 Other Tourism Estate Facilities 12.5 4.6 7.9 Tourism Estate Subtotal (BTDC) 21.5 9.8 11.7 BTDB Technical Assistance 0.3 0.2 0.1 Roads 12.7 5.1 7.6 Telecommunications 1.3 0.8 0.5 Demonstration Farm 0.3 0.1 0.2 361 16.0 20.1 a/ Including contingencies (see Table II - Cost Estimates by executing agencies, para. 4.16). b/ Financing from internal funds. - 15 - 4.30 The Government has agreed that its contribution to BTDC would be made available as equity, while the proceeds of the IDA credit would be on- lent at 12% interest (the standard rate for government loans of this type) for a period of 30 years, including six years' grace. The Government would allow the BTDC to capitalize interest charges during the grace period and to repay them over a period of about 15 years-thereafter. The conclusion of a subsidiary loan agreement between the Government and BTDC, satisfac- tory to the Association, would be a condition of effectiveness. 4.31 The Government would make the relevant part of the proceeds of the IDA credit available to Perumtel at 12% interest for a period of 20 years including five years' grace. The conclusion of a subsidiary credit agreement between the Government and Perumtel, satisfactory to the Association, would be a condition of effectiveness. 4.32 The Government contribution and the proceeds of the IDA credit required for the project components to be carried out by BTDB, Bina Marga and the Bali Provincial Government would be made available as budgetary allocations without interest or repayment requirements. E. PROCUREMENT AND DISBURSEMENTS 4.33 Major civil works and equipment contracts would be awarded under international competitive bidding in accordance with Bank/IDA guidelines. Project items would be grouped to the extent possible in order to encourage such competitive bidding. With respect to the improvements on the eleven multipurpose roads, contracts would be tendered either individually or combined into bidding groups, at the bidders option, in order to permit local contractors to tender for works of a size within their capabilities and to attract foreign bidders. Only local competitive bidding would be used for small civil works contracts, such as the construction of some buildings at Nusa Dua, the preparation of the solid waste disposal site, and the improvement of infrastructure for the adjacent villages of Bualu and Benoa. The value of each such contract is estimated not to exceed about US$100,000. The total amount of these contracts would amount to about US$0.5 million. In evaluating international bids, domestic contrac- tors would be accorded a 7.5% nominal preference. The exploratory and initial well drilling for water, for which partial, retroactive financing from the IDA credit is proposed, was awarded after consultation with the Association to experienced engineers and contractors already engaged in similar work in the areas. (See para. 4.20) 4.34 It is expected that furniture contracts, amounting to about US$250,000, would require only local competitive bidding since they would not be of interest to overseas firms. Telecommunications equipment pro- cured under the project would have to be compatible with that presently being used in Bali, and it is therefore proposed that Perumtel negotiate the purchase with manufacturers of this equipment. The amount involved would be about US$150,000. In evaluating international bids for other equip- ment contracts, local manufacturers would be allowed a preferential margin of 15% of the c.i.f. costs of competing imports or the prevailing level of customs duties, whichever is lower. 4.35 Responsibility for advetsing requests for tenders, issuing tender documents, evaluating bids and awrdin contracts for each of the project components would be that of the respective agency responsible for execution (see section C, para. 4.21 on Project Execution). 4.36 The proposed credit of US$16.0 million, would be disbursed to meet: (a) 50% of total expenditures for civil works; (b) 100% of the c.i.f, cost of directly imported equipment and furniture, 95% of the ex-factory cost of locally manufactured equipment and furniture and 70% of the total cost of off--the-shelf items; and (c) 100% of the foreign exchange cost of professional services, project administration and technical as- sistance specialists. These percentages would be adjusted as necessary to ensure continued disburse- ments throughout the construction period. The estimated schedule of disburse- ments of the credit is shown in Annex I, Table 1.7. 5. JUSTIFICATION A. MARKET DEMAND 5.01 Bali's appeal to the international tourist market is based on its long standing image among foreigners as an exotic island of Southeast Asia with a unique culture, and on its strategic position close to the three most highly developed tourist centers in Southeast Asia. It is also on the direct route from Australia to the mainland of Asia. In spite of this, Bali has not been able to benefit much from the remarkable growth in tourist traf- fic to Southeast Asia during the past five years because of a severe scarcity of acceptable accommodations. An indication of this is the fact that Bali's average rate of growth in tourist traffic was just about half of that for Indonesia as a whole. The tourists likely to be attracted to Bali comprise three distinct market segments: (i) vacation tourists on multiple-stop tours throughout Southeast Asia from North America, Europe and Japan; (ii) vacation tourists from Australia, New Zealand, other neighboring countries in South- east Asia and in the longer run from Japan for whom Bali might increasingly become a single destination resort; and (iii) business travelers to Indonesia, for whom the trip to Bali would be an attractive excursion, as well as resident foreigners who might well be attracted for extended vacation periods. 5.02 The market for multiple-stop group tours throughout Southeast Asia has expanded very rapidly in recent years, but has thus far hardly been tapped by Bali. The potential of this market may be gauged by noting that the number of visitor arrivals to Singapore, Bangkok and Hongkong grew by 20% per annum on the average over the last five years reaching 783,000, 821,000 and 1,082,000 respectively in 1972. Of the total num=be- of visitors, over 60% were on vaca- tion, most of them on group tour_, At ;_esent Bali receives less than 5% of total tourists visiting the three major tourist centers of Southeast Asia. - 17 - In 1974, for the first time the island will be able to start to take advantage of the previously unsatisfied demand for individual and group tour bookings, because of the sizeable additions to accommodation capacity which have recently taken place or are now being commissioned. The group tour market appears a most promising one for Bali; the island complements rather than competes with the other destinations in the area and provides an additional attraction for visitors to the Southeast Asia region. Such visitors on multi-destination tours are likely to spend not more than 2-3 days on the island. Although there might well be a substantial slowing in the rate of growth of the multiple- stop group tours to Southeast Asia, due to the impact of the energy crisis, Bali's inclusion in an increasing number of the tours already operating would limit the impact of this slowdown. Group tours are expected to account for two-thirds of the future tourist traffic to Bali. 5.03 The number of Australians and other vacationists coming from neighboring countries to Bali as a single destinations has been growing significantly in recent years and is estimated to have reached about 10,000 in 1973. Tour operators expect that the increasing availability of Group Inclusive Tours (GIT) rates and charter flights will lead to a very marked expansion in the flow of such tourists once more accommodation is available in Bali. Australian vacationists are already coming to Bali for relatively longer periods than other tourists. They tend to spend up to three weeks in Bali. There is reason to believe that this market will be little affected by the energy crisis (see Annex IX). 5.04 Business travellers to Indonesia, mainly Jakarta, still account for the largest part of total arrivals to Indonesia as a whole. This seg- ment of Bali's market has not been developed to its full potential, again because of the lack of suitable accommodation in Bali and the considerable difficulty in obtaining airline reservations at short notice. The increas- ing attractiveness of Indonesia as a country with important oil and gas resources, and other investment opportunities, will tend to increase the flow of business visitors to Indonesia and probably also the number of foreign businessmen, technicians and officials resident in the country. These will constitute an expanding potential market for Bali, and a market strengthened rather than impaired by the energy crisis. 5.05 Tourist arrivals in Bali have been growing at a rate of about 27% per year since 1969, and numbered 95,000 in 1973. The past trends, and possible future market developments are analyzed in detail in Annex IX. This analysis takes into account the potential impact of the energy crisis which is expected to result in a marked slowdown of economic growth in the major tourist originating countries during the next few years. While this, combined with the likelihood of increased airfares and possible devaluations of major currencies, will most certainly have an effect on the future growth of tourist traffic to Southeast Asia, the particular characteristics of the Bali tourism market noted above provide at least a partial insurance against major adverse changes in future demand growth, since each of the market segments mentioned in para. 5.01 has some counter-balancing factors in case of a decline in growth of overall international tourist flows. 5.06 An additional factor which could be important in the development of future tourism demand is the air access policy that will be adopted by the Government of Indonesia regarding Bali. Most of the .foreign visitors arrive in Bali by air. At present a total of 73 flights arrive in Bali - 18 - weekly. Of this total, 42 are domestic flights, 25 flights combine dom- estic and international air service through Jakarta, and six are direct international flights. In bilateral negotiations on air traffic rights, the Government is seeking a substantial share of the air traffic to Bali for the national airline, Garuda. As part of this effort, the Government has informed foreign airlines serving Bali that they will not be permitted to use Bali as a terminating point in Indonesia; if a terminating point is desired, it would have to be Jakarta. Airlines serving Bali oy through flights, such as Singapore/Bali/Sydney, would not be affected.- The Govern- ment has not announced any intention to apply such restrictions to charter flights, but has indicated that it will encourage joint ventures and pooling arrangements between Garuda and foreign airlines. The Indonesian authori- ties are currently reviewing these questions in order to find:solutions which would permit Indonesia to tap its promising tourism market while safe- guarding the interests of the national airline. 5.07 Given the above demand characteristics and likely impact of the energy crisis, it is projected that Bali as a wiole would receive 287,000 foreign visitors in 1978, when the first hotels at Nusa Dua are scheduled to open, and 540,000 by 1983 when all 2,500 hotel rooms will be in operation. These estimates are based on the assumption that the number of foreign visi- tor arrivals to Bali would grow at an average annual rate of 26% from 1973- 77. Because of the higher absolute number of visitors and a gradual elimin- ation of unsatisfied demand, it is assumed that the growth rate would decline during the subsequent six-year period of 1978-83 to 14%. The average annual growth rate during 1973-83 is assumed to be 19%. 5.08 While these projections are considered quite reasonable, there is still a distinct element of uncertainty regarding the impact of the energy crisis. To test the sensitivity of the tourist traffic to Bali-to a more severe impact than is assumed likely, three alternative projections have been made for the period 1978-1983/85 when the hotels in the Nusa Dua resort would be expected to come into operation. All of these alternative projec- tions assume that in the next four years (1974-77) the tourist traffic to B3ali would only grow at an average rate of 17% annually rather than at a rate of 26% as stated in para. 5.08, or at the much higher rate (40-50%) which might have been expected in the absence of the energy crisis. This assumption allows for the less likely case that the full effect of a marked slowing down in growth of travel to Southeast Asia would make -itself felt in Bali without being offset by the compensating factors noted previously. The variations in the alternative projections for the period 1978-1983/85 reflect differing assumptions regarding the time required for the recovery of the market from this setback. 5.0) Based on the foregoing the projected numbers of foreign visitor arrivals in Bali are as follows: / As a result of this policy, two airlines have discontinued flights to IEali; three other major air carriers, however, continue to serve Bali on through flights. - 19 - Basic Alternative Projections Year Projection I II III 1973 95,000 95,000 95,000 95,000 1977 240,000 180,000 180,000 180,000 1978 290,000 200,000 220,000 200,000 1980 400,000 270,000 320,000 260,000 1983 540,000 540,000 540,000 430,000 1985 - - - 540,000 Average Rate of Growth 1973-77 26% 17% 17% 17% 1977-83 14% 20% 20% 17% 1977-85 - - - 15% 1973-83 19% 19% 19% 16% 1973-85 - - - 15% 5.10 Past experience indicates that the average daily expenditure of tourists to Bali on group or package tours is higher than the average tourist expenditure in Indonesia as a whole. The estimated average amount of US$46 per day (in 1973 prices) includesaccpmmodation, food and beverages, sight- seeing and entertainment. B. Hotel Development 5.11 As mentioned in paras. 3.02-3.03, an expansion of the hotel capacity in Bali is already underway and the Government has taken a number of steps to ensure that future hotel development, including that outside Nusa Dua, would be consistent with the objective of preserving the character of Bali while reaping the benefits from an increased flow of tourists to the island. The PATA workshop, which met in Bali in March 1974, has provided a major impetus for Governmental action and resulting investor interest. Existing hotels and those already under construction will provide a total of 1,050 interna- tionally acceptable rooms during 1974. During the subsequent three years another 500 to 600 rooms are scheduled for completion within the limit presently set by the Government for hotel development outside of Nusa Dua (see para. 3.04). 5.12 The following table shows four possible phasings of hotel develop- ment in Nusa Dua and the resultant occupancy rates, on the assumption that hotel investors key their investment decisions to the alternative market projections described in paras. 5.08-5.10 above: - 20 - Basic Assumption Alternative Assumptions I II III Rooms Occ. Rooms Occ. Rooms Occ. Rooms OcC. Year Annual Cumull () Annual Cumu-1 (%) Annual CumulV (%) Annual Cumula (%) 197S 800 2,350 65 200 1,750 60 400 1,950 60 200 1,750 60 500 2,850 65 300 2,050 65 400 2,350 65 200 1,950 65 +1400 3,250 70 300 2,350 65 400 2,750 65 300 2,250 65 300 3,550 75 400 2,750 70 400 3,150 70 300 2,550 70 102 300 3.850 75 500 3,250 70 400 3,550 70 300 2,850 70 200 4,050 75 800 4,050 75- 500 4,050 75 400 3,250 75 1984 - - - - - - - - - 400 3,650 75 1985 - - - - - - - - - 400 4,050 75 Includes 1,550 rooms of internationally acceptable standards outside Nusa Dua. 5.13 A projection of the gross operating profits for hotels in the Nusa Dua resort is given in Annex IX, Table 8, assuming occupancy rates ranging from 55% to 75%. According to these estimates, the gross operating profits would result in a return of about 15% on the capital invested in hotels, after allowing for the charges to be made for utilities and other s6rvices to be provided at the resort. After deducting land-lease payments, manage- ment fees, and depreciation charges, the return on total capital invested would amount to about 12%. The return on equity would, of course, depend both on the capital structure of the investor and on the terms and condi- tions of debt financing; on any reasonable assumption regarding terms and conditions of loans, however, the return on equity should prove attractive. 5.14 The Government has already had preliminary contacts with a number of interested local and foreign investors (see list in Annex IX), some of whom have tenatively chosen specific sites and are now awaiting clarifica- tion of the lease terms and other conditions for investment in Nusa Dua. The interest already indicated by investors supports the conclusion that prospects for hotel investment are favorable. Negotiations with potential investors would commence once the financial plans of the project are complete, final designs are initiated, BTDC has formulated a definite set of policies, and after proposals of hotel investors and operators have been carefully reviewed with respect to the reputation of the firms, their financial capability and their market connections. It is noteworthy that among those interested in an early investment at Nusa Dua is an Indonesian group closely linked to the country's oil industry which intends to engage a prominent international hotel firm as operator for an 800-room hotel to be built in two stages. In addition, at least one Japanese and one Australian group have indicated immediate interest in each building a 200-250-room hotel within the resort. To ensure that priority is indeed given to the development of Nusa Dua, agreement was reached during negotiations that until 1985 the Government would continue to limit the number of internationally acceptable hotel rooms outside Nusa Dua to 1,600,subject to periodic review of the limit by the Government and the Association. - 21 - C. ECONOMIC JUSTIFICATION 5.15 The gross benefits resulting from the tourism resort area investment program-1 would be the expenditures in Bali of tourists who stay in Nusa Dua hotels. Because of the rather severe shortage of acceptable accommodation in the major tourist destinations in Indonesia, the Nusa Dua hotel visitors would represent previously untapped demand, including both the expansion of group- tour visitors and the inducement to business travelers to extend their stay in Indonesia long enough to take in the attractions of Bali. These benefits are, therefore, incremental to Indonesia as a whole and do not represent a diversion of traffic from existing destinations in Indonesia. Although some portion of the (net) revenues accruing to the Indonesian airlines from interna- tional tourist traffic is properly attributable to the project, the actual share going to Garuda will depend very much on the Government's air access policy which is currently under review. Because of this uncertainty, benefits from international travel have not been taken into account in calculating proj- ect rates of return. The relevant costs are the capital and operating costs of the infrastructure provided under the proposed project, and of the hotel and related superstructure facilities of the resort, plus the estimated capital and operating costs relating to the expenditures of Nusa Dua hotel guests outside of the resort area. 5.16 Revenue assumptions have been based on an average daily expenditure per visitor of about US$46.00, including accommodation, food and beverages (US$27.30); shopping (US$8.00); tours and transportation (US$6.00); and enter- tainment and recreation (US$4.70). Hotel revenues assume an average length of stay of 3.5 days, a double-occupancy factor of 1.7 persons per room, and an annual room occupancy rate for each hotel of 55% in the first year, rising to 75% by the third year of operations. Gross operating profits of the hotels and other superstructure facilities have been estimated on the basis of the experience of similar facilities now in operation in Bali. Gross revenues and operating costs of the utilities have been based on projected consumption by the hotels and other resort facilities, while the operating costs of non- revenue earning infrastructure (such as roads and street-lighting) have been accounted for in the gross operating profits of the BTDC. 5.17 Total capital costs relating to these expenditures (excluding price contingencies and the roads component outside of the resort) amount to about US$86.0 million, including investments in infrastructure (US$22.0 million) , / hotels (US$62.5 million) and superstructure facilities outside of Nusa Dua (US$1.5 million). 5.18 With an estimated economic life of the project of 25 years, the economic rate of return on the resort area investment program would be 18.7%. It has not been found appropriate to use a shadow price for land or foreign exchange in calculating the economic return. Given the extent of unemploy- ment and underemployment in Bali, the opportunity cost of labor, in terms of 1/ The tourism resort area investment program includes site development and infrastructure works for the Nusa Dua hotel complex plus the costs of hotels and other superstructure facilities. These investments represent about 90% of the total proposed program of investments. The other 10% involves a roads component outside the resort area, described in para.5.23. 2/ Including the electricity facilities expected to be financed by the UK Government. - 22 - output foregone in other sectors, is likely to be lower than the wages paid to employees of the resort. Consequently, while actual wage levels have been used in calculating the rate of return given above, two additional rates of return have been calculated to test the project's sensitivity to shadow wages 15% and 30% below actual wages (see para. 5.21). 5.19 It has been assumed that foreign investors would be interested in developing hotels at Nusa Dua (para. 5.15). If we assume that about half of the equity capital, and nearly all of the debt capital for hotel invest- ments would come from abroad, the rate of return on the purely domestically financed investment (including the IDA credit, but excluding both the foreign private investment and the net repayments and other returns accruing to foreigners) would be 23.0%. This is because foreign hotel investors would not participate in those benefits of the project arising from tourist expen- ditures outside the hotels and would receive an after-tax return on invest- ment somewhat lower than the project's overall rate of return, thus raising the share and the rate of return accruing to domestic capital (including the IDA-financed portion). As the returns both on the overall project and on the Indonesian funds invested in it (including IDA funds) are quite satisfactory, the project is acceptable under any reasonable as-sumption about its impact on foreign capital inflow into the Indonesian economy (see Annex XI, para. 22). 5. 0 The rate of return would be sensitive to changes in several project variables, as shown below: Sensitivity Testing Resultant Rate of Return (%) Investment cost + 10% 17.4 + 20% 16.2 Gross operating profits of hotels and related.facilities + 10% 20.2 - 10% 17.3 One year delay in op:n:ng 17.4 Alternative market/bo-a. l development - ased on the energy crisisa, Alternative 1 17.4 Alternative 2 17.9 Alternative 3 16.7 Shadow wages for resort employees 15% below actual wages 19.5 307. below actual wages 20.4 a/ See paras. 5.08 and 5.12. - 23 - 5.21 The situation that would develop in Bali without the Nusa Dua project has been reviewed (Annex XI), with the following conclusions: (i) while it is possible that substantial expansion of accommodation capa- city would still take place elsewhere in Bali over the next ten years, the pattern of this development would be dispersed, and its planning generally uncoordinated and haphazard; (ii) as a result, this alternative would generate substantially higher social and economic costs because of the required diversion of rice-land, potentially higher infrastructure invest- ments due to the absence of economies of concentration, and greatly reduced government control over the impact of tourism development which would substantially increase the risk of both cultural and environmental damage; (iii) at the same time it is not clear whether, through unplanned and scattered development, anything like the 2,500 international quality hotel rooms envisaged for Nusa Dua would be built by 1983, and a reduction in the quantity or quality of projected hotel rooms would make doubtful the achieve- ment of either the projected gross benefits or the projected foreign exchange earnings and employment creation; and (iv) not only would the economic rate of return on the Nusa Dua project be clearly higher than for the alternative case, but also the continuation of haphazard tourism development which this alternative represents could seriously endanger the very assets which are the foundation of the tourism industry in Bali. 5.22 In addition to the tourism resort area investment program, the prcject would include a roads component outside of the Nusa Dua complex. This component consists of: (a) improvement of a number of multipurpose roads which would provide better access for the tourists to the temples and other tourist attractions north of Denpasar, and (b) construction of a by-pass road around the presently very congested city of Denpasar. Since the level of tourist-related traffic on these roads would be quite small (10-15%), as compared with commercial and other private traffic, their evaluation has been carried out on the basis of benefits accruing to road-users in terms of vehicle operating cost savings.J/ With an estimated life of 20 years, the rates of return on the multipurpose roads would be about 20% on average. The return on the Denpasar by-pass road would be about 15%, without taking into account non-quantifiable benefits resulting from an improvement in the urban environment (see Annex XI, paras. 25-33). When the roads component and the tourism resort area components are combined, the overall rate of return is 18.5%. D. Employment and Balance of Payments Effects 5.23 Assuming a ratio of 2.0 employees per room, the hotels on Nusa Dua would generate about 5,000 new jobs by 1983. Additional jobs created in restaurants, shops, tour agencies, entertainment and recreational facilities and the BTDC would amount to about 800-1,000 new positions, for a total increase in direct employment of 5,800-6,000 persons. Indirect employment 1/ While the tourism traffic on these roads and in the by-pass road, would be only a small portion of total traffic, the roads are essential for further tourism development. Hence, an additional rate of return calcu- lation was made for the tourism resort investment program--including the cost of the roads component, but leaving out road-user benefits. -The resulting rate of return was 16.0%. - 24 - is more difficult to estimate but, on the basis of tourist expenditures in the shops, an additional 3,70L new jobs may be created for artists and handi- craft workers. Indirect employment generated in agriculture is likely to be related primarily to the shift to higher value, more labor-intensive crops for tourist consumption but, given the current state of underemployment in agriculture, no estimate has been made of the number of new jobs this would involve. 5.24 The proposed project is expected to increase gross foreign ex- change earnings by about US$10.7 million in 1978 when the first hotels open and by US$48.1 million per year from 1985 when the project's "typical year" occupancy has been reached. This compares with an estimated US$50 million earned by tourism in Indonesia as a whole in 1973. Of the total expenditures by Nusa Dua resort guests, over 85% would represent foreign exchange revenues. Hotel income has been calculated on the basis of net tour operator prices for group tours, and foreign exchange revenues accruing to Indonesian air- lines from international air travel has been excluded from the estimated gross foreign exchange earnings. 5.25 The foreign exchange outflow relating to the tourism resort invest- ment would comprise the import component of operating costs (estimated at about 40% currently for hotels on Bali), debt service on foreign hotel loans, management fees and dividend payments to foreign management firms and hotel investors, and debt service on the IDA credit. The total outflow of foreign exchange is estimated to amount to US$2.2 million in 1978, rising to US$11.9 million per year from 1985 on. 5.26 On the basis of the foreign exchange revenues and costs described above, the net foreign exchange earnings generated by the project would amount to about US$8.5 million in 1978, and about US$36.2 million per year from 1985. This may be compared with the estimated foreign exchange component of the infrastructure project of US$18.1 million including price contingencies, and the estimated foreign exchange component of superstructure of about US$25.0 million. E. Government Tax Revenues 5.27 In addition to the net income generated by the wholly government- owned Bali Tourism Development Corporation, the Indonesian authorities are expected to collect corporate income taxes from hotels amounting to about US$1.5 million in 1985, and over US$2.0 million annually after 1990. Municipal governments are expected to receive sales tax receipts from hotels and restaurants amounting to about US$0.7 million in 1978, rising to US$2.8 million from 1985 onward. F. Social Impact Basic Issues 5.28 The rewards of a visit to Bali have been enjoyed for decades by only a small and hardy group of world travellers. As the number of foreign visitors increases, however, from 95,000 in 1973 to an estimated 540,000 per year by 1983, the possibility of significantly deleterious effects on the culture and environment of Bali may be expected to increase correspondingly. - 25 - Tourism development in any country will be accompanied by potentially negative effects in terms of both cultural change and environmental deterioration. In order to promote the development of tourism in Bali with minimal negative effects, the Indonesian authorities have attempted, with the assistance of IDA and several consulting groups, to anticipate potential problems and to develop and implement carefully planned solutions (paras. 5.37-5.39). 5.29 Assuming that the negative effects can be controlled, it is expected that the positive effects--in terms of increased employment, incomes and foreign exchange earnings--will result in an overall impact which, on balance, is desirable. This comparison of social costs and benefits involves a classic trade-off between economic development and cultural and environmental change. Even if the negative impact of tourism is minimized, there will still be changes in the way of life of the people and in their physical setting which are extremely difficult--if not impossible--to quantify. Certain value judgments are, therefore, inescapable. Where the current level of income and employment is sufficiently low, however, the "way of life" cannot be divorced from the "standard of living"--and the prospects for economic devel- opment must be weighed accordingly. 5.30 In assessing the social impact of tourism, it is also necessary to distinguish between tourism-related effects and the forces of change relating to urbanization--as in the increasingly "Westernized" appearance of Denpasar-- and modernization, per se--as reflected in the substitution of electric light bulbs and aluminum offering bowls in the temples. The simple fact is that the Balinese culture, as expressed in the way of life of the people, is not, and never has been, static. Theirs is a living, dynamic society which has for hunlreds of years adapted with remarkable flexibility to the forces of change. Tourism development represents only one such force. 5.31 Unlimited growth in tourist arrivals over the long term, of course, could eventually result in a tourism industry on Bali whose sheer magnitude might cause a significant backlash in the host culture. It is important, however, to place this possibility in a numerical perspective. In 1973, Bali received about 95,000 foreign tourists, as compared with the island's popula- tion of 2.3 million people. By 1985, when the Nusa Dua project is in full operation, foreign arrivals are projected to be in the neighborhood of 540,000 per year, as compared with a population of 2.5-2.7 million people, a ratio of about 1:5 (tourists to locals). By comparison in 1971 with a population of 34 million people, Spain received 25 million foreign tourists--a ratio of nearly 3:4. The social impact of arrival numbers, however, must take into consideration the average length of stay and, hence, the average number of tourists expected to be in Bali on any given day. With an average length of stay of 3.5 days, there would be about 5,300 visitors per day in Bali--a ratio of one tourist to every 500 local inhabitants by 1985. While this would appear to be a manageable number of tourists, given the concentration of future hotel developments away from the main population centers, the autho- rities will have to review the situation periodically and assess the desir- ability of imposing a limit on the number of tourists who can be permited to visit the island. Social Impact of Tourism in Bali 5.32 While the people of Bali have welcomed foreign tourists as guests for many decades, and have displayed a remarkable cultural resilience in doing so, there is good reason to be concerned about the social and cultural - 26 - impact of tourism development on Bali. At least four major aspects of this impact need to be considered: (a) the "demonstration effect" of a large num- ber of relatively wealthy foreign visitors; (b) the effects of "commercializa- tion" on Balinese art, handicrafts, music and dance performances; (c) the impact of tourist behavior and numbers on temple life and religious ceremonies; and (d) the concentration of benefits from the development of tourism. 5.33 If past experience may be relied upon, the demonstration effect of tourism is unlikely to pose much of a problem. The Balinese people have evidenced a rather striking capacity for not being unduly influenced by either the idiosyncracies or the excesses of their foreign guests. Their obvious reluctance to imitate the behavior of foreigners is most probably based on the view that it is inferior to their own--as reflected, for example, in the Balinese abhorrence of excess consumption.l/ Similarly, the obviously hectic schedule of a busload of tourists attempting to "do" Bali in 2-3 days has a distinct lack of appeal when compared with the relaxed way of life of the Balinese. If anything, we may hope for a kind of reverse demonstration effect which, in fact, is part of the appeal of Bali for the foreign visitor. 5.34 Many local observers have complained about a deteriorati in the quality of the "arts" as a result of increasing commercialization.T While it is difficult to be precise about the extent of the problem, one can detect a rather considerable range of quality in the handicraft goods now available in Bali. Similarly, the range of cultural performances, dances in particular, is somewhat limited and is normally confined to a selection of the most "popular" numbers. One must, of course, recognize the significance of the desires of the purchasing public, whose tastes may be quite different from knowledgeable local art patrons. Foreign visitors can hardly be expected to be discerning critics of a totally unfamiliar artistic expression. It is equally under- standable for Balinese artists and performers to orient their efforts toward supplying this less discerning--and hence less demanding--foreign-market. Unfortunately, however, while the artists and performers who live near the major resort areas devote their time and talents almost exclusively to the foreign market, to the neglect of classical art forms, those in the non- tourist areas have ample time to devote to classical art, but lack the necessary patronage to maintain and further their skills. 5.35 Concern has also been expressed regarding the sometimes disrespect- ful behavior of foreign tourists in and around the Balinese temples. While the Balinese people seem not to be particularly offended as yet, it could well become a significant problem as the number of foreign tourists increases. While a program of "cultural awareness" for arriving visitors would help to sensitize tourists to local customs, it may also be necessary at some point to regulate the tour group routes and schedules so as to minimize the impact on temple life of these increased visitor flows. 5.36 The problem of the concentration of benefits from tourism is primarily an economic issue. Its social implications, however, cannot be ignored since the attitude of the Balinese toward foreign visitors will be influenced by the extent of their participation in the benefits of tourism development. In addition to the geographic concentration of tourism benefits 1/ The most repulsive character in Balinese drama is the actor representing sloth and gluttony. 2/ This is not a new complaint, having been voiced as early as 1933 in a book about Bali by M. Covarrubias, a noted Mexican anthropologist. - 27 - around the major resort areas, there is also the problem of ensuring that the Balinese workers who supply the basic ingredients of tourism consumption (artists, performers, agricultural workers, etc.) receive a more equitable share of the tourists' dollar than is now the case.J/ Maximizing Net Social Benefits 5.37 Obviously, a number of steps will be required in order to maximize the positive aspects, and minimize the negative aspects of future tourism development on Bali. This fact was recognized very early in the preparation of the Nusa Dua tourism project and, as noted in Chapter 3, "Project Back- ground", a considerable amount of time and effort has been expended by the Government, IDA and a number of foreign and local consultants, toward the formulation of appropriate institutions, policies and control mechanisms for tourism development in Bali. The establishment of the BTDB and the BTDC, and the proposed project components of the Nusa Dua investment program, are designed to assist in maximizing the net social benefits from tourism develop- ment on Bali. The issues relating to tourist arrival numbers, their demons- tration effect, the commercialization of the arts, tourist behavior, and the distribution of benefits are essentially local issues--and they must be resolved locally. Such is the mandate of the Bali Tourism Development Board, and technical assistance is provided under the proposed project to aid in this effort.V 5.38 The BTDC, in implementing the Nusa Dua investment program, would be responsible for ensuring: (i) that local materials and Balinese labor are employed to the maximum extent possible during construction, (ii) that the artists who display their handicrafts, and the dancers and musicians who perform at the Nusa Dua complex, represent as many villages as possible, and that they receive an equitable share of the proceeds, and (iii) through the hotel training school, that the Balinese workers will be suitably prepared for the job opportunities generated by the resort investments. 5.39 In addition, the proposed technical and financial assistance to the agricultural sector is designed to improve the share of tourism benefits which remain in Indonesia, through reduced imports, and to improve the dis- tribution of tourism benefits within Bali. 6. FINANCIAL ASPECTS A. Financial Objectives 6.01 The basic financial objective which BTDC, the entity responsible for operation of the Nusa Dua tourism estate and the water supply, sewerage and waste disposal facilities, would be expected to achieve is the recovery of its investments, including a reasonable rate of return, from charges to the beneficiaries. The achievement of this objective is necessarily con- ditioned by the ability of BTDC to charge the hotels with the full capital 1/ See Annex XII, paras. 20-23 and Annex VIII, para. 1. 2/ Including, for example, employment of a consultant anthropologist who will make recommendations on the means by which the social impact of tourism can be minimized (see para. 3.10). - 28 - and operating costs of infrastructure without endangering their profitability. The expectation of a reasonable level of profitability is, of course, a condi- tion of initial investor interest and its achievement a prerequisite for continued operation of hotels. 6.02 The charges to be made to the hotels and other commercial devel- opers fall into three different categories: (a) direct user charges by public utilities who are merely extending their normal services to the resort area under consumer contracts regulated by already established tariffs; (b) direct user charges to be established by BTDC for services provided by its own utility division; and (c) charges by BTDC for provision of other services and common installations such as streetlighting, and leasing of hotel sites and other properties, all of which would be levied in the form of lease rents and annual service charges (or be included in the purchase price of properties which might be sold rather than Leased). 6.03 Charges in the first category would be those for electricity supply and telephone services both of which are established under national tariff regulations consistent with the objective of ensuring the continuing finan- cial viability of the public utility companies, PLN and Perumtel. Both companies are beneficiaries of IDA credits for power and telecommunications projects; their financial position has been analyzed in the context of these projects and suitable arrangements for control of their financial performance to achieve agreed financial objectives have been made (see IDA credits INS-165, INS-334 and INS-210). 6.04 The charges to be established by BTDC for water supply, sewerage and waste disposal services would be required to meet the objective of achiev- ing annually a reasonable rate of return on gross fixed assets in operation (see para. 6.14). 6.05 The charges to be levied by BTDC in the form of lease rents and annual service charges, on the other hand, would be determined with a view towards promoting the build-up oE the hotel area and the ultimate recovery of the investment, including a reasonable rate of return, which will require a more flexible approach regarding the annual level of charges than that applicable to BTDC's utility operations (see para. 6.07). B. Financial Forecasts - Bali Tourism Development Corporation 6.06 The financial forecasts for BTDC have been made separately for each of the two types of operations to reflect the different,nature of the non- utility tourism estate and hotel training center operations, on the one hand, and of BTDC's utility operations, on the other hand. Projections for non- utility tourism estate and hotel school operations are included in Annex III, Table 1. These projections indicate that despite some losses in the initial years, BTDC would be able to achieve a rate of return of 8% on its gross fixed investment in the non-utility tourism estate (including the hotel school) by 1983, when the hotel development is expected to have reached the full - 29 - operating stage. By that time BTDC is expected to be able to generate suf- ficient internal funds from its non-utility operations, including the hotel school, to meet its debt service obligations for this part of the project. 6.07 These projections are based on a number of assumptions which are listed in Annex III. Among these assumptions is an average annual land lease price of US$353 per hotel room which is equivalent to about 2.8% of the projected gross revenues of the hctels and is therefore considered to be reasonable. Rents for commercial facilities have been assumed at an average annual lease price of US$22 per square meter. Annual service charges are estimated at US$250 per hotel room to cover theepenses of operating and maintaining non-utility infrastructure facilities at the Nusa Dua resort. These annual service charges would amount to about 2% of the expected gross hotel revenuesin a typical year and are likely to be feasible from the operational aspects of both BTDC and potential hotels at Nusa Dua. The various charges levied by the BTDC would be suitably adjusted for future price level changes. Potential price level changes, however, are not re- flected in the financial forecasts of the BTDC (see para. 6.12). 6.08 BTDC's operating costs cover maintenance of non-utility infra- structure facilities in the resort complex, and promotional and administra- tive activities for the resort. The payroll costs are estimated on the basis of staff requirements for operating non-utility components of the estate, excluding the hotel school. The promotional expenses and adminis- trative costs are based on proposed work programs to carry out tasks adequately. The differences between the operating costs of the hotel school and the revenues from pupils' fees is included as net operating cost of the school. 6.09 The financial projections for BTDC's water supply, sewerage and waste disposal operations, which a're included in Annex IV, show that BTDC's utility division would be able to achieve a rate of return of 14% and a debt service coverage of 1.3 by 1983; these ratios would be satisfactory. They are based on an assumed overall rate of Rps 225 per m3 of water consumption for all services, which would be equivalent to about US$2.10 per day per occupied hotel room. 6.10 Because of the gradual build up of hotels during the period 1978- 82 BTDC's utility division would not achieve equally satisfactory financial results during the early years when the rate of return on gross fixed assets would range from about 2.3% to 4.9%. One way to avoid this would be to raise the starting rate for water supply, sewerage and waste disposal by about 30% bringing it to the equivalent of about US$2.80 per day per occupied hotel room. However, such a rate level is considered too high; it would increase the daily cost of all utilities (including electricity) to more than US$5.90 per occupied room during the promotional period. Since one of BTDC's functions is the promotion of hotel development, the rather limited initial losses to be incurred on its water and sewerage operations should be regarded as promotional expenses. 6.11 The calculation of separate rates of return for non-utility and utility operations is required for purposes of setting adequate user charges. The financial results of the BTDC, however, should be assessed in terms of a consolidated rate of return. Assuming a twenty-five-year operating period, - 30 - the consolidated DCF return would. be about 8%. Consolidated financial state- ments for BTDC as a whole are shown in Annex III; they reveal that the results from BTDC's overall operations would enable the company to maintain adequate cash balances, after servicing its total long-term debt from 1980 onwards; the debt service coverage would be 1.4 in 1983. At the same time the debt: equity ratio would be 58:42 after temporarily reaching 60:40 in 1980 and 1981. In view of the accumulated cash balancesforecast for 1983, on the order of Rps 1.2 billion, accelerated repayment of Government advances would seem possible, unless reinvestment of internal funds for expansion of facilities for a second stage project would be required. 6.12 The financial results of BTDC, which can be considered. as satis- factory under these circumstances, would necessarily be subject to the suc- cessful development of the hotel complex as now assumed. From a purely financial point of view the proportion of borrowed funds invested would give BTDC an advantage in that any rise in the price level would result in an increased cash flow while debt: service payments would remain-constant. With the exception of the summary financing plans, which are expressed in terms of estimated current price levels, the financial forecasts are expressed in terms of constant prices and therefore do not reflect this potential addi- tional margin of net cash flow available for debt service. Similarly, the use of constant prices in the financial projections results in a-more con- servative estimate of the debt:equity ratio. The possible effect on BTDC of any slowdown in hotel development because of a more severe impact of the energy crisis than assumed in the basic projections should be viewed in this context. 6.13 A possible slower build-up of the hotel complex which is discussed in detail in Annex IX and para. 5.12, would cause BTDC to incur in the worst case a maximum loss of about Rps 800 million in 1980 and in the best case a maximum loss of about Rps 500 million; in each case BTDC would, however, recover to a position of modest profits by the time of full development of the hotel complex. The financing requirements which would result from the shortfalls in internal cash generated would be relatively short-term and would even in the worst case not exceed about Rps 900 million and therefore would be manageable. BTDC would be somewhat flexible in adjusting itspolicies to varying market conditions in that it could exercise a lease-sale policy as explained in Annex III, para. 10, which would give it the benefit of pre- payment of lease rents under 30-year contracts. This would improve its financial position, which can therefore be considered as reasonably sound even under less favorable market conditions than those assumed to be most likely. C. Financial Covenants 6.14 To ensure that BTDC's utility income would cover operating expenses (including adequate depreciation) and produce a reasonable rate of return, BTDC would be required to establish and maintain its tariffs for water supply, sewerage and waste disposal at levels which would allow the Utilities Division to earn an overall rate of return on gross fixed assets in operation., suitably adjusted for price level changes, of at least 11% by the time the estate hotels are in full operation. The BTDC would review these tariffs annually, in terms of both their adequacy and their appropriateness at projected levels of water consumption, and would inform the Association about the results of such reviews. - 31 - It was agreed during negotiations that the rate of return should be express- ed in terms of gross fixed assets because, in the case of such a relatively self-contained project, the absence of continuing reinvestment in new facil- ities would erode the controlling effect of a formula based on net fixed as- sets: in effect, the constantly decreasing balance of net assets would re- quire less and less revenue to achieve the stipulated percentage rate of re- turn. 6.15 Because of the nature of BTDC's non-utility operations, their finan- cial projections (paras. 6.06-6.08) do not represent standards of performance which can be regulated by financial covenants such as a rate of return require- ment. During negotiations, therefore, agreement was reached that the BTDC, with the assistance of the advisors referred to in para. 3.14 would formulate a statement of its objectives and lease policies and proposed model lease forms, and submit these to the Association for its concurrence not later than December 31, 1974. 6.16 To safeguard its financial position, BTDC would also be required not to incur any debt, without the Association's approval, until 1985 other than that incurred to finance the project under its loan agreement with the Government. 6.17 BTDC would be required to establish, with the assistance of consult- ants acceptable to the Association, a system of commercial accounts to be maintained by an accounting section suitably staffed and to be audited annually by independent auditors acceptable to the Association. Audited financial statements would be submitted to the Association within four months after the end of each fiscal year under audit. 7. AGREEMENTS REACIIED AND RECOMMENDATIONS 7.01 During negotiations, agreement was reached and assurances were obtained with respect to the following: (a) the issuance by March 31, 1975 of a decree promulgating appropriate zoning regulations for the Bukit Peninsula (para. 3.07); (b) the establishment of a Secretariat to the BTDB, adequately staffed with qualified and experienced personnel, which would cooperate closely with the Bali tourism office (para. 3.09); (c) the appointment by the BTDB of an advisor on socio-cultural problems and an advisor on physical planning, satisfactory to the Association, and the allocation of adequate budgetary funds to the BTDB (para. 3.10); (d) the preparation by BTDC of a detailed organization plan, including staff requirements, for operation of the estate and the submission of the plan to the Association by December 31, 1975 (para. 3.13); (e) the commitment by Government to cause PLN to carry out the electricity supply scheme not included in the IDA-financed project in time to meet the power demands of the estate (para. 4.04); - 32 - (f) the engagement by BTDC of consultants, satisfactory to the Association, for final design and supervision of construction oi the works at Nusa Dua (para. 4.22); (g) the preparation by BTDC, by December 31, 1974, of a critical path network for carrying out all parts of the project; the network to be reviewed internally by all parties concerned every three months, and the results of such reviews to be communicated to the Association every six months (para. 4.27); (h) the establishment by BTDC of a committee to advise the BTDC Hotel School Division on the operations of the train- ing center, with representation on the committee of the hotels and the Bali tourism office (para. 4.25); (i) the submission to the Association, for its approval, by December 31, 1974 of the proposed training center-staffing plan, curricula, criteria for student selection and schedule of accommodation, and the submission for approval by the Association of the final detailed design of the center not later than June 30, 1975 (para. 4.25); (j) the appointment, with the approval of the Association, of two advisors to the Bali office of the Ministry of Agri- culture who would, respectively, advise on the implementa- tion of the demonstration farm and advise on the improvement of poultry and egg production (para. 4.13); (k) the provision to farmers of adequate medium-term.credit, on reasonable terms, by the Bank Rakyat Indonesia for a poultry and egg production program in Bali (para. 4.13); (1) the maintenance until 1985 of the limit on international standard hotel capacity outside Nusa Dua to 1,600.-rooms and periodic review of this question by the Indonesian authori- ties and the Association (para. 5.14); (m) the establishment and maintenance by BTDC of tariffs for water supply, sewerage and waste disposal which would pro- duce an overall rate of return on gross fixed assets in. operation, suitably adjusted for price level changes, of at least 11% by the time the estate hotels are in full opera- tion (para. 6.14); (n) submission by the BTDC to the Association for its approval, by December 31, 1974, of a statement of objectives and lease policies and proposed model lease forms (para. 6.15); (o) the limitation until 1985 of the BTDC's incurrence of debt, without the Association's approval, other than that incurred to finance the project under its loan agreement with the Government (para. 6.16); - 33 - (p) the establishment by the BTDC, with the assistance of consultants acceptable to the Association, of a system of commercial accounts, to be maintained by an accounting section suitably staffed (para. 6.17); (q) the auditing annually of BTDC's accounts and financial statements by independent auditors acceptable to the Asso- ciation, and the submission of audited financial statements to the Association within four months after the end of each year under audit (para. 6.17); 7.02 The following would be conditions of effectiveness of the proposed credit: (a) the appointment to the BTDC, in consultation with the Asso- ciation, of the Chief of the Technical Field Unit (para. 3.12); (b) the appointment to the BTDC of an advisor on tourism-related land development and the hotel industry, satisfactory to the Association (para. 3.14); (c) the conclusion of subsidiary loan agreements, satisfactory to the Association, between the Government and BTDC and between the Government and Perumtel (para. 4.30 and 4.31). 7.03 Having regard to the agreements reached during negotiations, the project is suitable for an IDA credit of US$16.0 million equivalent.  Annex I Page 1 INDONESIA APPRAISAL OF THE BALI TOURISM PROJECT Project Description and Cost Estimates The project consists of the following elements to be executed by the agencies indicated: A. Bali Tourism Development Corporation (i) Construction of an internal road and street network within the resort area itself. (ii) Construction and equipping of tourism infrastructures and facilities in Nusa Dua resort and in the villages Bualu and Benoa, including stormwater drainage net- works, landscaping of the Nusa Dua resort, a plant nur- sery with an irrigation system, and facilities for the villages of Bualu and Benoa (street improvements and some sanitary services). (iii) Construction and equipping of a water supply system for Nusa Dua comprising water wells, pumping stations, a treatment plant, a service storage, transmission pipe- line and a distribution network. (iv) Construction and equipping of a sewerage system for Nusa Dua resort with a sewage collection network, an intermediate pumping station, a main lift station and oxydation ponds located at the shoreline of the inland bay. (v) Construction of a sanitary landfill site for the disposal of solid waste, acquisition of a small bulldozer for operation of the dump, and acquisition of refuse trucks for collecting solid waste. (vi) Provision of electrical installations and lighting of the streets at Nusa Duaresort area. (vii) Construction, furnishing and equipping of a hotel train- ing center. (viii) Technical assistance which would cover advice on the development of corporate objectives, the establishment of lease policies, and technical as well as financial aspects. Annex I Page 2 B. Bina Marga, Ministry of Public Works (i) Construction of an access road of about 8 km from the airport to Nusa Dua. (ii) Construction of a by-pass road on the east of Denpasar of about 19 km in length. (iii) Improvement of multipurpose roads totalling about 200 km including construction of bridges, to provide access to major cultural and scenic attractions. C. Perumtel, Ministry of Communications (i) Construction and equipping of telecommunication facili- ties for the Nusa Dua resort comprising a telephone ex- change with 600 'Lines and telex facilities, overhead cable connection to the Denpasar exchange and a network of underground cables within the resort area. D. Bali Tourism Development Board (i) Technical assistance for the preparation of a regional development plan for the Island of Bali, an urban devel- opment plan for Denpasar, and zoning and building regu- lations for both the Island and Denpasar. (ii) Technical assistance for devising appropriate methods to improve the level and distribution to the Balinese communities of the benefits from tourism development. E. Ministry of Agriculture (i) Setting up and development of a demonstration farm for improvement of vegetable production on the island of Bali and for giving advice to local farmers. For the initial period of running the farm technical assistance would be provided through the employment of agricultural experts. (ii) Technical assistance for a program to increase and im- prove poultry and egg production with special medium- term credit from the Bank Rakyat Indonesia. Annex I Page 3 Statistical Appendix to Annex I Project Description and Cost Estimates 1. General Cost Estimates Table 1.1 - Breakdown of Total Project Costs Table 1.2 - Breakdown of :osts by Project Items Table 1.3 - Breakdown of Costs by Executing Agencies Table 1.4 - Schedule of Expenditures by Project Items Table 1.5 - Schedule of Expenditures by Executing Agencies I Table 1.6 - Schedule of Expenditures by Executing Agencies II Table 1.7 - Forecast of Disbursement Table 1.8 - Contingency Allowances 2. Detailed Cost Estimates Table 2.1 - Cost of Water Supply Table 2.2 - Cost of Sewerage System Table 2.3 - Cost of Solid Waste Disposal Table 2.4 - Cost of Landscape Irrigation System Table 2.5 - Cost of Landscaping Table 2.6 - Cost of Storm Water Drainage Table 2.7 - Cost of Roads and Streets in Nusa Dua Table 2.8 - Cost of Electrical Installations Table 2.9 - Cost of Amenity Core and Common Facilities Table 2.10 - Cost of Bualu/Benoa Infrastructure Improvements Table 2.11 - Cost of Hotel Training Center Table 2.12 - Cost of Nusa Dua Access Road and Denpasar East By-Pass Table 2.13 - Cost of Multipurpose Road Improvement Table 2.14 - Cost of Telephone and Telex Facilities Table 2.15 - Cost of Demonstration Farm Annex I Page Notes -6o Cost Estimate Tables I. General Cost Estimates The total project cost has been estimated at US$36.1 million. As contingency allowances, about 7.9% of the total project cost--or 15.0% of the cost of civil works and equipmerIt--has been added for physi- cal increase. This is reasonable because most of the cost estimates were based on semi-detailed engineering studies ani on cost data for similar work. About 22.0% of the total project cost--or 41.9% of the cost of civil works and equipment has been envisaged for price increases based on projections of likely price level changes during the construction period. Total contingency allowances constitute about 30% of the total project cost. 2. Detailed Cost Estimates Tables 2.1 to 2.15 'contain detailed information on base costs and cost of land acquisition of the project components. This informa- tion has been organized into amounts corresponding to civil works, equipment, foreign exchange component and annual allocations in accor- dance with the schedule of implementation. INDONESIA: BALI TOURISM PROJECT BREFAKDOWN OF TOTAL PROJECT COST Cost Figures in Millions of Indonesian Rupiahs (Rps. million) Exchange Rate: US$ 1.00 = Rps. 415 Land Acqui- Civil Prof. Technical Project TOTAL PROJECT COST COST OF: -------------------- sition Works meuipaent Services Physical Facilities Assistance Admin, Project Items Rps. mill Rps. mill Rps. mill Rps. mill Rps. mill US$ 000 Rps. mill Rps. mill Rps. million US$ 000 1/ I. Tourism Facilities (Nusa Dua & Villages) 425.8 3,449.3 1,182.0 668.6 5,725.7 13,796.9 382.4 249.0 6,357.1 15,318.3 2/ II. Roads & Bridges 338.5 2,971.3 409.5 3,719.3 8,962.2 3,719.3 8,962.2 III. Hotel Training Center 20.0 188.7 72.7 37.7 319.1 768.9 319.1 768.9 IV. Demonstration Farm 20.8 6.7 6.7 1.7 35.9 86.5 71.2 107.1 258.1 Base Costs 805.1 6,616.0 1,261.4 1,117.5 9;800.0 23,614.5 453.6 249.0 10,502.6 25,307.5 Physical Increase 992.4 189.2 1,181.6 2,847.2 1,181.6 2,847.2 Price Increase 2,769.3 578.0 3,297.3 7,945.3 3,297.3 7,945.3 Total Contingencies 3,761.7 717.2 4,478.9 10,792.5 4,478.9 10,792.5 GRAND TOTAL 805.1 10,77.7 11978.6 1 _11l 1,278.9 453.6 249.0 1 5 36,1000 Foreign Exchan&g Component: Percentage 49.9 76.4 35.0 49.6 49.6 80.7 25.8 50.1 50.1 Total 5,179.0 1,511.3 390.9 7,081.2 17,063.1 366.0 64.3 7,511.5 18,100.0 1/ Includes internal roads and streets, electrical installations, telecommunications, water, sewerage, solid waste disposal, landscaping and common buildings. 2/ Includes access road, by-pass road and multipurpose road improvement. April 1974 INDONESITA BALI_TOURISbl PR1JECT BREAKDOW 4F 5 BY PROJECT lTEMS Protf. Land Forpign CODE ITEM Civil Works Equipment Phys. Iver. Prun Incr. Servies Tech. Assist. Acquisition Pro . dmin, TOTAL COST Exehange Component Year I Year II Yer III Ytar IV Rps. (mill) Rps. (mill) Rps. (mill) Rps, (vill) Rps. (mill) Rps. (mill) Rps. (miii) Rps. (mili) s. mili) US) (500) Res. (mill) US$ (050) Rps. (mill) Rps. (mill) Rps, (mill) Rps. (mill) A. Water Supply System 1,076.0 396.5 220.9 536.4 200.7 5.8 2,436.3 5,870.6 1,854.0 4,467.5 610.6 1,448.0 377.7 B. Seerage System 343.6 71.2 62.2 161.8 57.7 696.5 1,678.3 330.0 795.2 151.6 350.8 194.1 C. Solid Waste Disposal 33.8 59.8 14.0 25.7 11.4 144.7 348.7 99.5 239.8 88.5 56.2 D. Landscaping Irrigation 131.9 10.7 21.4 48,8 19.1 231.9 558.8 137.0 330.1 70.9 141.3 19.7 E. Landscaping 758.1 116.2 471,9 125.0 L,487.7 3,584.8 163.5 394.0 41.2 232.0 519.3 695.2 F. Stormwater Drainage 172.4 25.9 87,7 26.0 312.0 751.8 38.8 93.5 101.5 210.5 G. Internal Roads and Streets 296.9 44.5 113,7 41.1 496.2 1,195.7 231.5 557.8 94.2 305.5 96.5 H. Electrical Installations 106.4 276.4 57.4 158.6 54.1 652.9 1,573.3 501.9 1,209.4 44.2 465.3 143.4 I. Amenity Core and Cmm. Facilitie, 390.8 137.7 09.2 274,2 80.2 961.6 2,317.1 525.5 1,266.3 355.8 495.6 110,2 J. Bualo/noa Imfrastrue. Toprev. 58.9 6.6 9.8 30.1 9.6 115.0 277.1 33.3 80.2 69.7 45,3 otel iUiCerev i8.7 72.7 39.2 115.6 37.7 20.0 473.9 1,141.9 252.2 607.7 46.5 257.5 169.9 L. Teiheii Assistan 382.4 382.4 921.4 328.6 772.4 85.9 97.2 96,3 108,0 M. NSa lua licets - Rod 253.2 38.0 89.5 34,.3 67.2 482.2 1,161.9 238.0 573.5 178,9 255,6 47,7 N. Denpasar By-pasi R.ad 711.7 106.8 251.8 96.3 251.2 1,417.8 3,416.4 669.7 1,613.7 565.1 719.0 133,7 0. Multipurpose Road leprovem 2,006.4 310.0 780.0 278.9 20.1 3,386.4 8,160.0 1,630.9 3,929.9 905.1 1,351.5 1,129,8 P. Telephone and Telex Facilities 80.5 207.1 43.1 148.0 43.7 522.4 1,258,8 362.7 874.0 204.9 259.5 58,0 Q. Demonstration Farm 6.7 6.7 2.0 3.5 1.7 71.2 20.8 112.6 271.4 58.1 140.0 34.0 30.2 23,2 25,2 Y. Projeet Administration 249.0 249.0 600.0 64.3 155.0 62.2 62.3 62.3 62,2 Z. Land A.quisition Nusa D.a 420.0 420.0 1,012.0 420.0 CRAD TOTAL 6.616.0 1,261.4 1,181.6 3,297.3 1,117.5 453.6 805.1 249.0_ 14,981.5 36,100.0 7,511.5 _18100.0 3,398.9 6,499.3 4,024.5 1.058.8 April 1974 _IDONESIA BALITRISM PO1JCT BREA"DOWN OF COSTS BY EXECUTING ACECIES (Exchanpe Rate US 1.00 Rps. 415) Land Forrige Civil Works Equipmeet Contingencies Prof. Services Acquisition TTAL COST Exchange Componeni Year I Year Ii Year III Year IV R.. (Mi(.) Re.. (Mil.) R( (l.) R, ) Ras. (Mil.) US$ (000) Rps. (Mil.) US$ (000) Rpe. (Mil.) Rps. (Mi.) Ree. (Bil.) Rps. (mil.) BALI TOURISM DEVELOFMENT CORPORATION (BTDC) A. 1aser Bepply Sysem 1,076,0 396,5 757.3 200,7 5.8 2,436.3 5,870.6 1,854.0 4,467.5 610.6 I,448.0 377.7 B3 System 343.6 71.2 224.0 57.7 696.5 1,678.3 330.0 795.2 151.6 350.8 194.1 . lid Waste Disposal 33.8 59.8 397 11.4 144.7 348.7 99.5 239,8 88.5 56.2 i. Lndscae Dispoal 131.9 10.7 70.2 19.1 231.9 558.8 137.0 330.1 70.9 141.3 19.7 E. Landsap g 758.1 16.5 588.1 125.0 1,487.7 3,584,8 163.5 394.0 41.2 232.0 519.3 695.2 F. Stoswater Dranage 172.4 113.6 26.0 312.0 751.8 38.8 93.5 101.5 210.5 G. Internal Roads and Sireere 296.9 158.2 41.1 4962 1,195.7 231.5 557.8 94.2 305.5 96.5 il. Eletrical Installations 106.4 276.4 216.0 54.) 652.9 1,573.3 501.9 1,209.4 44.2 465.3 143.4 0. Aenity Core & Gom. Facil. 390.8 137.2 353.4 80.2 961.6 2,317.1 525.5 1,266,3 355.8 495.6 110.2 J. Bualu/lenoa Rene.al 58,9 6.6 39.9 9.6 115.0 277.1 33.3 80.2 69.7 45.3 K Htel Trainieg Center 188,7 72.7 154.8 37.7 20.0 473.9 1,141.9 252.2 607.7 46.5 257.5 169.9 L. Teehniral Assistace 249.4 600.9 207.5 500.0 62.3 62.4 62.4 62.3 Y. Project Administration- 249.0 600.0 64.4 155.0 62.2 62.3 62.3 62.2 Z. Land Acquisition, Nusa Dua _ _ - 420.0 420.0 1012.0 _____ 420.0 Sub-Total 3,557.5 1,047.6 2,715.2 662.6 445.8 8,927.> 21,511.0 4,439.1 10,696.5 1,692.2 3,908.3 2,396.7 929.9 MINISTRY OF PUBLIC WORKS, BINA MARG M. Nusa Dua Access Rad 253.2 127.5 34.3 67.2 482.2 1,161.9 238.0 573.5 178.9 255.6 47.7 N, Depasar Rast By-pase Road 711.7 358.6 06.3 251.2 1,417.8 3,416.4 669.7 1,613.7 565.1 719.0 133.7 . Multipurpose Road Improvement 2 006.4 1,081.0 278.9 20.1 3,386.S 8,160.0 1,630.9 3,929.9 905.1 1·,351.5 1.129.8 Sub-Total 2,971.3 1,567.1 409.5 338.5 5,286.4 12,738.3 2,538.6 6,117.1 1,649.1 2,326.1 1,311.2 PEUAHA UMUM TELEKOMUNIKASI P. TelephNes and Telex Facil. 80.5 207.t 191.1 43.7 522.4 1,258.8 362.7 874.0 204.9 259.5 58.0 MINISTRY OF AGRICULTURE Q. DemosItration Fam 6.7 6.7 5.0 72.9 20.8 11.6 271.4 58.1 140.0 34.0 0.2 23.2 25.2 BAL1 TOURISM DEVELOPFENT BOARD (BTDB) R. Tchnical Assisetance __- _____ __ 133.0 320.5 113.0 272.4 33.2 33.3 33.3 33.2 GRAND TOTAL 6,616.0 1,261.4 4,478.9 1,188.7 805.1 14,981.5 36,100.0 7,511,5 18,100.0 3,408.5 6,502.8 4,023.9 1,046.3 1/ Includeo alar-e, offiec and labortory supplies, overseas training, and vehiclte (sodans and station wagons onld not be financed by the TDA oredit.) 2/ Iclu.dese terhnica assis.ance. April 1974 INDONESIA: BALI TOURISM PROJ.CT 1/ SCHEDULE OF EXPENDITURES BY PROJECT ITEMS (US$ 000) 1/ Code Item 1 Q Q 5 Q 6 Q7 Q 8 0 10 Q 11 Q 12 Q 13 Q 14 Q 15 Q 16 TOTAL A. Water Supply System 250 436 653 800 800 800 800 333 250 126 125 5,373 B. Sewerage System 167 168 194 194 194 193 172 129 128 1,539 C. Solid Waste Disposal 40 78 78 37 37 26 25 321 D. Landscape Irrigation 63 94 94 94 63 62 22 21 513 E. Landscaping 92 128 129 129 128 230 230 344 344 535 535 460 3,284 F. Stornwater Drainage 44 45 45 90 140 140 93 92 689 G. Internal Roads & Streets 83 125 169 169 169 168 106 54 53 1,096 H. Electrical Installations 98 206 308 308 206 127 95 48 47 1.443 I. Amenity Core & Comm. Facilities 157 157 236 236 274 328 274 219 120 62 61 2,124 J. Bualu/Benoa Infrastructure Improv. 38 39 39 38 34 33 33 254 K. Hotel Training Center 59 142 143 142 142 112 112 76 75 1,003 L.R. Technical Assistance 63 62 63 62 66 66 67 66 68 69 69 69 75 76 76 76 1,093 M. Nona Dua Access Road 74 74 99 141 142 141 141 105 917 N. Denpasar By-Pass Road 347 347 397 398 398 397 295 2,579 S. Multipurpose Road Improvement 300 500 500 659 746 747 747 746 748 748 500 499 7,440 P. Telephones & Telex Facilities 90 90 137 137 172 172 114 114 63 32 32 1,153 Q. Demonstration Farn 5 9 9 6 5 4 4 4 46 X. Professional Services 145 145 80 108 315 316 316 316 232 232 156 156 59 59 58 2,693 Y. Project Administration 37 38 37 38 37 38 37 38 37 38 37 38 37 38 37 38 600 Total by Quarter 800 868 1,937 2,686 3,806 3,916 3,998 3,933 2,807 2,651 2,051 2,178 889 802 724 114 34,160 Total Year 1 6,291 Total Year II 15,653 Total Year III 9,687 Total Year IV 2,529 Total (Accumulative) 6,294 31,631 1/ Excludes Land Acquisition April 1974 30jDONI SLA AL1 1OURISM PROJECT SCHEDULE OF EXPENDITURS BY EXECUTING AGENCIES¯ (UsS 000) CODE _ Q 2 Q 3 Q 4 Q 5 Q 6 Q 7 QQ 9 Q 10 911 912 Q 13 914 Q15 916 TOTAL¯ Balt Touirismi Dopelopoment Corporation (BTDC) A. Water Supply Syste 250 436 653 800 800 800 800 333 250 126 125 5,373 B. Se-erage System 167 168 194 194 194 193 172 129 128 1,539 C. Solid Waste Disposal 40 78 78 37 37 26 25 321 0. LandscaPe Irrigarion 63 94 94 94 63 62 22 21 513 E. Landscaping 92 128 129 129 128 230 230 344 344 535 535 460 3,284 F. Stormuater Drainage 44 05 45 90 140 140 93 92 689 G, Internal Roads and Streets 83 125 169 169 169 168 106 54 53 1,096 R. Electrical Installati-ot 98 206 308 308 206 127 95 48 47 1,443 I. Amenity Cope & Comm. Facilities 157 157 236 236 274 328 274 219 120 62 61 2,124 J. Bualu/Berna Ren-wal 38 39 39 38 34 33 33 254 K. lotel Trointng Center 59 142 143 142 142 112 112 76 75 1,003 L. Tecbcal Asstance 28 20 28 29 38 38 38 99 38 39 38 39 45 45 45 45 601 y. Project Administration 37 38 37 38 31 38 37 38 37 38 37 38 37 38 37 38 600 X. Professional Serviao 70 0 30 47 189 190 189 109 140 140 _0 89 55 55 54 1,597 Total by qarter 385 177 922 1,481 2,273 2,381 2,415 2,354 1,765 1,609 1,340 1,068 792 735 657 83 20,437 Total Year 1 2,965 9,423 Total Yar I1 5,782 Total Year EID 2,267 Total, BTDC (accuulation) 2,9651 18.170 20,43 Ministry of Public Works, Bina Marga M. NuIa Dua Access Road 74 74 99 141 142 141 141 105 917 N. Denpasar East By-Pass Road 347 347 397 398 398 392 295 2,579 0. MultipurposP Road Improvomeot 300 500 500 659 746 747 747 746 748 748 500 499 7,440 x. Professi.ol Serpvice 75 02 50 61 106 120 121 117 79 79 53 54 987 Total by Quarter 375 646 971 1,166 1,390 1,407 7,407 1,401 827 827 553 953 11.923 Total Year 1 3,158 Total year D, Total Yar EI 60 Total Yer IV Total, Dina Marga (Accumlative) 3,158 6 9_23 Perusahaan Umur Telekomunai (Perutrel) P. Telephone and Tele Fatilitie 90 90 137 137 172 172 114 114 63 32 32 1,153 X. Professional services .20 __ _6 _L_ 13 13 13 13 4 4 4 105 Total by Quarter 110 95 143 147 185 185 127 127 67 36 36 1,258 Total Year I Total Year II 495 Total Year 111 824 Total Year IV 39 Total, Perumtel (Accumulative) 495 l119 1,258 MINISTRY OF AGRICULTURF Q. De stration Far- 5 9 6 5 4 4 4 46 X. Profetsonal Servcies 12 12 11 _0 01 2 12 10 12 10 11 10 10 _l _11 126 Total by Quarter 17 21 20 16 16 16 16 14 12 10 11 10 10 11 11 11 222 Total Year 1 74 Total Year II 62 Total Year II 3 Total year iv Dotal, Min s,try of Agriutur (ac ualv) 7179 222 Bal Tnn-- Developet Board (BTDC) R. Technirol Assistanc 23 24 24 23 17 17 17 1_ 11 20 20 20 20 20 20 20 320 Total by Qarter 23 24 24 23 17 17 17 17 18 20 20 20 20 20 20 20 320 Total Year 3 94 Total Year DE 8 letal Year II Total Dear 1 _0 Ctol, BTB (4 Aular ) 62 240 320 1/ Excludet lord acquisitior. 2/ Include - Tchnitol Assistonce Personnel..- Aprtl 1974 INDONESIA: BALI TOURISM PROJECT SCHEDULE OF EXPENDITURES BY EXECUTING AGENCIES - II (in US$ 000) QL QL 2 Q ~ 6~ Q7 Q. 8L Q 0 10 Q LI Q 12 013 Q 14 0 15 Q 16 Bali Tourism Development Corporation (BTDC) 385 177 922 1,481 2,273 2,381 2,415 2,354 1,765 1,609 1,340 1,068 792 735 657 83 Bina Marga, Ministry of Works 375 646 971 1,166 1,390 1,407 1,407 1,401 827 827 553 953 Perusahaan Umum Telekomunikasi (Perumtel) 110 95 143 147 185 185 127 127 67 36 36 Ministry of Agriculture 17 21 20 16 16 16 16 14 12 10 11 10 10 11 11 11 Bali Tourism Development Board 23 24 24 23 17 17 17 17 18 20 20 20 20 20 20 20 Total by Quarter 800 868 1,937 2,686 3,806 3,916 3,998 3,933 2,807 2,651 2,051 2,178 889 802 724 114 Total Year I 6,291 Total Year II 15,653 Total Year III 9,687 Total Year IV 2,529 Total (Accumulative) 6.291 1.944 31,631 1/ Excludes Land Acquisition. January 1974 ANNEX I Table 1.7 INDONESIA: BALI TOURISM PROJECT FORECAST OF DISBURSEMENT DISBURSEMENT UNDISBURSED IMPLEMENTATION QUARTERLY CUMULATIVE BALANCES QUARTER us$(oo0 % us$(OOO) % uS$(000) % 1 - - - - 16,000 100.0 FIRST 2 375 2.3 375 2.3 15,625 97.7 YEAR 3 - 405 2.5 780 4.8 15,220 95.1 4 910 5.7 1,690 10.5 14,310 89.4 5 1,255 7.8 2,945 18.3 13,055 81.6 SECOND 6 1,780 11.1 4,725 29.h 11,275 70.5 YEAR 7 1,835 11.5 6,560 40.9 9,44o 59.0 8 1,870 11.7 8,430 52.6 7,570 47.3 9 1,845 11.5 10,275 64.1 5,725 35.8 THIRD 10 1,315 8.2 11,590 72.3 4,410 27.6 YEAR 11 1,240 7.8 12,830 80.1 3,170 19.8 12 960 6.0 13,790 86.1 2,210 13.8 13 1,025 6.4 14,815 92.5 1,185 7.4 FOURTH 14 415 2.6 15,230 95.1 770 4.8 YEAR 15 375 2.4 15,605 97.5 395 2.5 16 335 2.1 15,940 99.6 60 0.4 FIFTH 17 60 0.4 16,000 100.0 0 0.0 YEAR TOTAL 16,000 100.0 April 1974 INDONESIA: Bali Tourism Project MN Contingency Allowances Land Acquisition Civil Works Equipment Prof. Services Tech. Assistance Proi. Administration Local Foreign Local Foreign Local Foreign Local Foreign Local Foreign Local Foreign TOTAL Allowance for Physical Increase n.a. 15.0% 15.0% n.a. n.a. n.a. Allowance for Price Increase n.a. 41.8% 41.8% n.a. n.a. n.a. Total Project Cost Before Contingencies 1.94 7.99 7.96 0.72 2.32 1.75 0.94 0.21 0.88 0 4d 0.76 2531 (US$ million) Allowance for Physical Increase n.a. 1.20 1.19 0.11 0.35 n.a. n.a. n.a. 2.85 (US$ million) SUIB-TOTAL 1.94 9.19 9.15 0.83 2.67 1.75 0.94 0.21 0.88 0.44 0.16 28.16 (US$ million) Allowance for Price Increase n.a. 3.34 3.33 0.30 0.97 n.a. n.a. n.a. 7.94 (US$ million) TOTAL, including Contingencies 1.94 12.53 12.48 1.13 3.64 1.75 0.94 0.21 0.88 0.44 0.16 36.10 April 1974 INDONESIA: BALI TOURISKM PROJECT Cost Estimates: Water Supply Exchange Rats: US$1.00 = Rps.415 Civil Works Equipment TOTAL COST Foreign Exchange Component Year I Year II Year III Year IV Code Rps. mill. Rps. mill.Rps.mill. US$(OO) Eps. mill. US$ (000) Rps.mill. Rps.mill. Rps.mill. Rps.mill. A. 1/ A.1 Water Wells (8)- 112.0 112.0 270.0 95.2 229.4 112.0 A.2 Borehole Pumping Stations (8) 17.6 158.4 176.0 424.0 140.8 339.3 70.0 106.0 A.3 WelIfield Pumping Main 349.7 349.7 842.6 244.8 589.9 70.0 279.7 A.h Treatment Plant 291.4 194.2 485.6 1,170.0 364.2 877.6 97.0 291.6 97.0 A.5 Service Storage 56.4 14.1 70.5 170.0 28.2 67.9 14.0 42.5 14.0 A.6 Gravity & Distribution Mains 225.5 225.5 543.3 169.1 407.5 45.0 90.3 90.2 A.7 Water Meters 10.8 10.8 26.1 9.2 22.2 10.8 A.8 Office & Equipment 23.4 10.0 33.4 80.5 16.7 40.2 3.4 30.0 A.9 Motor Vehicles 9.0 9.0 21.7 8.1 19.5 9.0 Subtotal L,076.0 396.5 1,472.5 3,548.2 1,076.3 2,593.5 411.4 859.9 201.2 Land Acquisition-/ 5.6 14.0 Base Line Cost 1,478.3 3,562.2 1,076.3 2,593.5 417.2 859.9 201.2 1/ Not to be financed by the Credit. January 1974 * INDONESIA: BALI TOURISM PROJECT Cost Estimates: Sewerage System Exchange Rate: US$1.00 = Rps. 415 hN Code Civil Works Equipment TOTAL COST Foreign Exchange Component Year I Year II Year III Year IV Rps. mill. Rps. mill. Rps.mill US$(000) Rps. mill. US$ (000) Rps. mill.Rps. mill. Rps. mill.Rps.mi1L B. B.1 sewer Pipelines 134.r 136.5 32641 A3.8120.6 36 67.3 3. B.2 Mpnholes 21.5 21.5 51.8 6.h 15.4 5.4 10.7 5.4 B.3 Intermediate Pumping Station 21.0 28.3 h9.3 118.8 28.7 69.1 5.0 3.3 B.h Final Pumping Station 24.1 36.4 60.5 145.8 42.6 102.7 6.0 42.5 12.0 B 5 Stpbilization Ponds 105.7 105.7 254.7 31.7 76.4 42.3 31.7 31.7 Fub-Total 306.8 64.7 371.5 895.2 163.2 393.2 92.3 186.5 92.7 Cost Adjustment to January 1974 36.8 6.5 43.3 104.3 19.0 4 .8 10.8 21.8 10.7 Rase Line Cost 71.2 Ti .8 999.5 182.239.0 103.1 208.3 103.4 January 1974 INDONESIA: BALI TOURISM PROJECT Cost Estimates: Solid Waste Disposal Exchange Rate: US$1.00 = Rps. 415 Code Civil Works Euient TOTAL COST Foreign Exchange Component Year I Year II Year III Year IV Rps. mill. Rps. Miill.Rps.mill. US$(00) Rps. mill. US$ (000) Rps.mill.Rps.mill.Rps.mill.Rps.mill. C. C.1 Earth Embankment 14.0 14.0 33.7 2.8 6.7 7.0 7.0 C.? Access Road 6.2 6.2 15.0 1.2 2.9 6.2 C.3 Refuse Trucks (6 no.) 34.8 34.8 83.9 31.4 75.7 27.8 7.0 C.4 Bulldozer (1 no.) 4.6 4.6 11.1 4.1 9.9 3.7 0.9 C.5 Dump Trucks (3 no.) 10.0 10.0 24.1 9.0 21.7 8.0 2.0 C.6 Gprage Facilities 10.0 5.0 15.0 36.1 5.0 12.0 1.7 13.3 Sub-Total 30.2 54.4 84.6 203.9 53.5 128.9 54.4 30.2 Cost Adjustment to January 1974 3.6 5.4 9.0 21.6 5.7 13.7 5.8 3.2 Base Line Cost 33.8 59.8 93.6 225.5 59.2 1t2.6 60.2 33.4 January 1974 INDONESIA: BALI TOURISM PROJECT Cost Estimates: landscape Irrigation System Echange Rate; US$1.00 - Rps. 415 Code Civil Works Equipment TOTAL COST Foreign Exchange Component Year I Year II Year III Year IV Rps. mill. Rps. mill.Rps.mill. US$(000) Rps. mill. US$(OOO) Rps.mill.Rps.mill.Rps.mill.Rps.mill D D.IDeep Wells ( 2 no.) 8.0 8.0 19.3 1.6 3.9 8.0 D.2 Well Pumps (2 no.) 0.1 3.1 3.2 7.7 3.1 7.5 2.9 0.3 D.3 Reservoir 5.6 5.6 13.5 0.8 1.9 2.2 3.4 D.h Puip Roon,& Irrigation Pumpo (2 no.) 5.5 6.6 121 29.1 7.A 17.8 .8 7.3 D.5 Elevated Tank 3.8 3.8 9.1 0.7 1.7 1.5 2.3 D.6 Distribution Pipes 68.5 68.5 165.1 39.2 91.5 17.1 44.6 6.8 D.7 Fittings & Gate Valves 26.3 26.3 63.4 16.7 40.2 6.6 17.1 2.6 Sub-Total 117.8 9.7 127.5 307.2 69.5 167.5 43.1 75.0 9.4 Cost Adjustment to January 1974 14.1 1.0 15.1 36.4 8.2 19.7 5.1 8.9 1.1 Base Line Cost 131.9 10.7 142.6 343.6 77.7 187.2 48.2 83.9 10.5 January 1974 INDONESIA: BAI TOURISM PROJECT Cost Estimatess Landscaping Exchange Rate; US$1.00 - Rps. 415 Code Civil Works Equipment TOTAL COST Foreign Exchange Component Year I Year II Year III Year IV Rps. mill. Rps.mill. Rps.mill. US$(O00) Rps. mill. US$(OOO) Rps.mill.Rps.mill.Rps.mill.Rps.mill. E. E.1 Nusa Dua, Initial Landscaping 630.5 630.5 1,519.3 33.2 80.0 86.7 247.1 296.7 E.2 Nusa Dua, Nursery Installation 46.4 15.0 61.4 147.9 28.5 68.7 25.0 36.4 Sub-Total 676.9 15.0 691.9 1,667.2 61.7 148.7 25.0 123.1 247.1 296.7 Cost Adjustment to January 1974 81.2 1.5 82.7 199.3 7.4 17.8 3.0 14.7 29.5 35.5 Base Line Cost 758.1 16.5 774.6 1,866.5 69.1 166.5 28.0 137.8 276.6 332.2 January 1974 U1 t- (D INDONESIA: BALI TOURISM PROJECT Cost Estimates: Stormwater Drainage Exchange Rates US$1.00 = Rps. 415 Code Civil Works upment TOTAL COST Foreign Exchange Component Year I Year II Year III Year IV Rps. mill. Rps. mill. Bps. mill US$(000) Rps. mill. US$(OOO) Rps.millps.mill. Rps.mill. Rps.mill. F. F.1 Open Ditches 45.7 45.7 110.2 16.0 29.7 F.2 Concrete Pipelines 34.3 34.3 82.6 6.6 15.9 12.0 22.3 F.3 Mpnholes 7.6 7.6 18.3 3.8 9.2 2.7 L.9 F.h Stormwater Inlets 2.3 2.3 5.5 1.6 3.8 0.8 1.5 F.5 Culverts 30.0 30.0 72.3 5.8 1.0 10.5 19.5 F.6 Swples 34.1 34.1 82.2 11.9 22.2 Sub-Total 154.0 154.0 371.1 17.8 42.9 53.9 100.1 Cost Adjustment to January 1974 18.4 18.4 44.3 2.2 5.3 6.4 12.0 Base Line Cost 172.4 172.4 415.4 20.0 48.2 60.3 112.1 January 1974 INDONESIA: BALI TOURISM PROJIET Cost Estimates: Roads & Streets in Nusa Dua Exchange Ratet US$1 .00 = Aps. 415 Code Civil Works EAuipment TOTAL COST Foreign Exchange Component Year I Year II Year III Year IV Rps. mill. Rps. mill. Rps.mill. US$(000) Rps. mill. US$ (000) Rps.mill.Rps.mill.Rps.mill.Rps.mill. G. G.1 Internal Roads & Streets 229.1 229.1 552.1 103.1 248.4 57.3 126.0 45.8 G.2 Pprking Areas 36.0 36.0 86.7 14.4 34.7 36.0 Sub-Total 265.1 265.1 638.8 117.5 283.1 57.3 162.0 45.8 Cost Adjustment to January 1974 31.8 31.8 76.6 14.0 33.8 6.8 19.4 5.6 Ba6e Line Cost 296.9 296.9 715.4 131.5 316.9 64.1 181.4 51.4 January 1974 INDONESIA9 BALI TOURISM PROJECT Cost Estimates; Electrical Installations Exchange Ratet US$1.00 = Rps. 415 Code Civil Works Equipment TOTAL COST Foreign Exchange Component Year I Year II Year III Year IV Rps. mill. Rps. mill. Rps. mill. US$(000) Rps. mill. US$(000) Rps.mill.Rps.mill.Rps.mnill.Rps.mill. H. HL1 RTDC. Substation (20 KY) 9.0 66.0 7t.0 180.7 6.0 t.6. . . H.2 BTDC Standby Generator 3.0 27.3 30.3 73.0 28.2 68.0 2.8 27.5 H.3 Streetlighting (BTDC) 83.0 158.0 2(U1.0 80.8 178.5 130.1 18.0 167.5 5_.L Sub-Total 95.0 251.3 346.3 834.5 270.7 652.3 27.2 250.0 69-1 Cost Adjustment to January 1974 11.4 25.1 36.5 87.9 28.5 68.7 2.9 26.3 7.3 Base Line Cost 106.4 276.4 382.8 922.4 299.2 721.0 30.1 276.3 76.4 January 1974 INDONESIA; BALI TOURISM PROJECT Cost Estimatest Amenity Core & Common Facilities Exchange Rate: US$1.00 = Rps. 415 Code Civil Works gUuipment TOTAL COST Foreign Exchange Component Year I Year II Year III Year IV Rps. mill. Rps. mill. Rps.mill. US$(000) Rps. mill. US$ (000) Rps.mill.Rps.mill.Rps.mill.Rps.mill. I. I.1 CENTRAL CORE AREA (236.4) (68.0) (304.4) (733.5) (173.6) (418.3) (121.8) (152.2) (30.4) I.1.1 Exhibit.Hall I 5.2 1.3 6.5 15.7 3.2 7.7 1.1.2 Exhibit.Hall II 5.2 1.3 6.5 15.7 3.2 7.7 1.1.3 Covered Stage 15.6 4.7 20.3 48.9 11.2 27.0 1.1.4 Information Center 10.6 3.5 14.1 33.8 8.5 20.5 1.1.5 Coffee Shop I 8.4 2.9 11.3 27.3 6.8 16.4 1.1.6 Coffee Shop II 8.4 2.9 11.3 27.3 6.8 16.4 1.1.7 Central Buildings 32.1 8.0 40.1 96.6 24.0 57.8 1.1.8 Shops 40.0 6.0 46.0 110.8 23.0 55.4 1.1.9 Open Stage 12.3 3.1 15.4 37.2 7.7 18.6 1.1.10 Observation Tower 3.5 1.0 4.5 10.8 2.2 5.3 1.1.11 Art Performance 41.6 14.6 56.2 135-4 33.7 81.2 1.1.12 BTDC Offices 53.5 18.7 72.2 174.0 43.3 104.3 1.2 SERVICE CENTER (89.8) (49.9) (139.7) (336.6) 102.2 (246.3) (55.9) (69.8) (14.0) 1.2.1 Fire Station 42.0 32.5 74.5 179.5 59.6 143.6 1.2.2 Police Station 14.6 3.5 18.1 43.6 11 .7 28.2 1.2.3 Repair Shop 17.9 9.4 27.3 65.8 19.1 46.0 1.2.4 Service Station 15.3 4.5 19.8 47.7 11.8 28.5 1.3 TENNIS CIUB & TERMINAL (22.7) (6.8) (29.5) (71.1) (16.2) (39.0) (11.8) (14.8) (2.9) 1.3.1 Tennis Club House 9.9 3.0 12.9 31.1 7.1 17.1 1.3.2 Terminal Station 12.8 3.8 16.6 40.0 9.1 21.9 Sub-Total 348.9 124.7 473.6 1,141.2 292.0 703.6 189.$ 236.8 47.3 Cost Adjustment to January, 1974 41.9 12.5 54.4 131.1 33.5 80.7 21.8 27.2 5.4 Base Line Cost 390.8 137.2 528.0 1,272.3 325.5 784.3 211.3 264.o 52.7 January 1974 O10 INDONESIA: BALI TOURISM PROJECT COST ESTBUAT: BUAUU/BENOA INFRASTRUCTURE IMPROVEMTS Exchange Rate: US$1.00 = Rps. 415 Code Civil Works Equipment TOTAL COST Foreign Exchange Component Year I Year II Year III Year IV r' Rps. mill. Rps. mill. Rps. mill. US$(O0O) Rps. mill. US$ (000) Rps.mill.Rps.mill.Rps.mill.Rps.mill. J.1 BUAU (28.2) (3.0) (31.2) (75.2) (9.2) (22.2) (20.0) (11.2) J.1.1 Septic Tank 6.4 6.4 15.4 1.9 4.6 f J.1.2 Public Buildings 5.0 1 .5 6.5 15.7 1.3 3.1 J.1.3 First Aid Station i5 n f6.5 15 .7 1.3. J.1.4 Road Improvements (4.3 Km) 11.8 11.8 28.4 4.7 11 .4 J.2 BENOA (24.4) (3.0) (27.4) (66.0) (7.7) (18.5) (17.0) (10.4) J.2.1 Septic Tank 6.4 6.4 15.4 1.9 4.6 J.2.2 Public Buildings 5.0 1.5 6.5 15.7 1.3 3.1 J.2.3 First Aid Station 5.0 1.5 6.5 15.7 1.3 3.1 J.2.4 Road Improvement (2.9 Km) 8.0 8.0 19.2 3.2 7.7 Sub-Total 52.6 6.0 58.6 141.2 16.9 40.7 37.0 21.6 Cost Adjustment to January 1974 6.3 0.6 6.9 16.6 2.0 14.8 4.4 2.5 Base Line Cost 58.9 6.6 65.5 157.8 18.9 45.5 41.4 24.1 January 1974 INDONESIA BALI TOURISM PROECT COST ESTIMATESs HOTEL RAINING CENTER Exchange Rates US$i.00 - Rps. 415 Construction Furnit. & E ui . Total Cost Foreign E Co onent Year I Year II Year III Year IV Code Rps(rmillion) Rps million illion) US 000 Rps(million) RpsT]Ullion) Rps(million) Rps(million) K. HOTEL TRAINING CENTER K.1 Classrooms (8x60m2) 24.9 12.4 37.3 89.9 23.6 56.9 22.4 14.9 K.2 Auditorium (1x120m2) 6.2 6.0 12.2 29.4 7.9 19.0 5.6 6.6 K.3 Kitchen Workshop (1xl20m2) 9.0 6.7 15.7 37.8 10.4 25.1 8.1 7.6 K.h Restaurants & Bar Workshop (1x90m2) 4.7 2.8 7.5 18.0 4.4 10.6 4.1 3.4 K.5 Front Office Workshop (1x90m2) 4.7 3.0 7.7 18.6 4.5 10.8 4.1 3.6 K.6 Housekeeping Workshop (1xl20m2) 7.5 5.7 13.2 31.8 9.4 22.7 6.8 6.4 K.7 Library/Meeting Room (lxl8Om2) 9.3 10.6 19.9 48.0 14.0 33.7 8.4 11.5 K.8 Multipurpose Room (1x300mY) 12.4 6.2 18.6 44.8 9.9 23.9 11.2 7.4 K.9 Administration (120m2) 7.5 5.2 12.7 30.6 8.4 20.2 6.8 5.9 K.10 Toilets/Showers/ Lockers (2x180m2) 22.4 22.4 54.0 13.4 32.3 20.2 2.2 K.11 Circulation, Walls, etc. (2.25m) 11.7 11.7 28.2 6.4 15.4 10.5 1.2 K.12 Siteworks 18.0 18.0 43.4 9.0 21.7 16.2 1.8 K.13 Houses for Teachers (hx10m2) 30.2 7.5 37.7 90.8 23.0 55.4 27.2 10.5 Sub-Total 168.5 66.1 234.6 565.3 17.3 377.7 l7 177 7 Cost Adj. to Jan. 1974 20.2 6.6 26.8 64.6 16.5 39.8 1.8 15.7 9.3 Sub-Total 188.7 72.7 261.4 629.9 160.8 3b7.5 10.0 152.9 90.5 Land AcquisitionL/ 20.0 48.2 20.0 Base Line Cost 281.4 678.1 160.8 387.5 38.0 152.9 90.5 1/ Not to be financed by the Cre(lit. January 1974 INDONESIA% BAI T(RISM PROJECT COST ESTIMATES: ROAD m t:.) -i Exchange Rate: US$1.00 - Rps. 415 Code Earth- Surf. works Base Treat- Structures TOTAL COST Foreign Ekc. Comp. Year I Year II Year III Year IV ment Rps.mill.Rps. Bps. ]Rps. mill. ips. aill. -US000 !ipS. -1ff1-pmill.Rp.mill.Rs.il.s.mill. M. Nusa Dua Access Road (8 km) mill. mill. M.1 Taban-Bualu Roadworks 58.3 53.1 35.1 30.0 176.5 25.3 105.9 255.2 53.0 105.8 17.7 M.2 Bridge 76.7 76.7 184.8 46.0 110.8 23.0 46.0 7.7 Subtotal 58.3 53.1 35.1 106.7 253.2 610.1 151.9 366.0 76.0 151.8 25.4 Land Acquisition-/ 67.2 162.1 67.2 Base Line Cost 320.t 772.2 151.9 366.0 143.2 151.8 25.4 N. Denpasar East By-Pass Road (19.0 km) N.1 Tuban-Sanur-Tohpati Road 76.2 124.9 86.5 36.4 32h.0 780.7 194.4 468.4 97.2 194.4 32.4 N.L Bridges 387.7 387.7 934.2 232.6 560.5 116.3 232.6 38.8 Subtotal 76.2 124.9 86.5 424.1 711.7 1,714.9 427.0 1,028.9 213.5 427.0 71.2 Land Acquisition- 251.2 605.3 251.2 Base Line Cost 962.9 2,320.2 427.0 1,028.9 464.7 427.0 71.2 1/ Not to be financed by the Credit. January 1974 INIOMSIAs BALI T_RMR PROJET GOST WTIMs MULTIFLWæA RM DROMMT Fxchang RAte: US$1 .00 - ltpi. 415 Code Earth- Surf. works BAse at~ ,rctur3s TOTAL MST Foreign ike. Oomp. Year I Year 1I Year III Year IV Rpmil.ps R milL sm 3 US 00 p.millT.UqW0 RpE.milLRpsomiLps.mill. RpS.mill 0. Multipurpose Road (199 YM) milL mil- 0.1 T hp8ti-Klungkuw Ro (36 m) 38.7 38.2 68.6 7', 1 M1 .5 2,075.9 430.7 1,037.8 0.2 Klungkung-Besakih Xkm (22 m3) 2. 18.6 35.0 1j57 '180.6 435.2 90.3 217.6 0.3 Petelunn-Bangli Road (i .) 10.4 17.5 102 h0.6 97.8 20.3 48.9 0.4 SPkAh Teges-Bedub>elmpaksreg (20 mi) 6,9 18.0 31 58 80 17,1 258.1 53.5 128.9 0.5 Teges-Ubud Road (,5 km) 1.3 6.3 9.5 6 l .7 52.3 43.6 105.1 0.6 Bedulu-Semabaung Rod ( ) 0.3 2.5 2,6 5 4 20.8 50.1 10.4 25.1 0.7 Betubulan-Payangnu Pwad. (i Ya) 6 53.0 33.3 10.0 l7.9 284.1 59.0 142.2 0.8 Peguyengan-Sangeh Road (19 km) 2.4 2h.0 30.2 143.5 210.1 506.3 105.0 253.0 0.9 Kediri-Tanahlot Road (1 km) 2,6 14.4 10.5 2-7 30.2 72.8 15.1 36.4 0.10 Ubung-Kediri Road (16 jtm) 12.5 24.3 35.6 10.0 82.h 198.6 41.2 99.3 0.11 Mengwitani-Pancasari Rýoad (36 km) 8.8 22.7 68.6 18.4 8. 255 59.2 142.6 Sub-Total 128.9 226.4 3h3.2 1,092.9 1,791.4 4,316.6 928.3 2,236.9 537.4 716.6 537.4 Cost Adjustrnt to January 1974 15.4 27.2 412 131L2 215.0 516.1 111.4 268.4 64.6 86.0 64.4 Sub-Total 1 3 23.6 38T!4 1,~2-7l 2,0l6 h,83h.7 1,039.7 2,505.3 602.0 802.6 601.8 Land Acquisitionl/ 20.1 40.4 20.1 Base Line Co8t 2202 6.5 4,883.1 1,039.7 2,505.3 622.1 802.6 601.8 1/ Not to be financed by the Credit. January 197L 4~~ INDONESIA: BALI TOURISM PROJECT COST ESTIMATES: TELEPHONE AND TELEK FACILITIES Exchange Rate : US$1 .00 = Bps. 415 Code Civil Works R uipsint TOTAL COST Foreig bgehange Coonent Year I Year II Year III Year IV Rps.mill. ps.mill.Rps. mill. JW0 Rps. mill. UW50iRpsmill. P ? Exchange Facilities 19. 50.3 69.5 167.q q1 30.E .y 3).8 6.9 P 2 Overhead Cable Connection 25.0 83.0 108.0 260.2 83.0 200.0 43.2 54.0 10.8 P 3 Tel. Exchange Bldg. Nusa Dua 9.0 9.0 21.7 2.0 ).8 9.0 P 4 Underground Distribution Lines 15.0 45.0 60.0 144.6 48.o 115.7 24.0 30.0 6.0 P. 5 Telex Exchange Facilities (10 lines) 3.0 8.3 11.3 27.2 8.6 20.7 5.1 5.1 1.1 Subtotal 7T T967 25776 62. 197 416 TO9T 1737- 2I1j Cost Adjustment to January 1974 9.3 20.5 29.8 71.8 22.6 54.4 12.6 14.3 2.9 Base Line Cost 80.5 207.1 287.6 693.0 218.3 526.0 121.7 138.2 27.7 1/ Not to be financed from the Credit. April 1974 INDONESIA: BALI TOURISM PROJECT C0T ESTIMATESs DEMONSTRATION FARM Exchange Ratet US$1.00 - Rps. 415 Code Civil Works Bipment TOTAL COST Foreie-ExChae Component Year I Year II Year III Year IV Rps.mill.Roa.mill. Rs. mill. US 00O Ros. mill. US$000 Rs.mill. ps.mill0.Rps.mill.Rs. mill. Q. 1 Site Preparation I.2 1.2 ?.9 0.3 0.7 J.2 Q 2 Water Supply Lines 1.0 1.0 ;. 0.6 1.5 1.0 Q 3 Buildings 3.8 3.8 9.2 k 5 3.6 Z.3 1.5 0 4 Agricultural Jkuipment 6.i 6.1 146 4.9 1 .8 3.6 Subt,)tal 6.0 6.1 12.1 29.1 7.3 17.6 8.1 4.0 Cost Adjustment to January 1974 0.7 0.6 1.3 3.1 0.8 1.9 0.9 0.4 Sub-Total T.-7 77 131. 32.3 8.1 19.5 9.0 4.4 Technical Assistance 66.4 160.0 43.2 104.1 22.8 20.8 22.8 Initial Working Cqpital 4.8 11.6 2.2 5.3 2.4 2.4 Leand Acquisitionl 20.8 50.0 20.8 - Base Line Cost 105.4 253.9 53.5 128.9 29.8 27.2 23.2 25.2 1/ Not to be financed by the Credit. January 1974 (Dh (D. >  Annex II Page 1 INDONESIA APPRAISAL OF THE BALI TOURISM PROJECT THE BALI TOURISM DEVELOPMENT BOARD 1. Growing concern that the uncontrolled expansion of Bali's tour- irn industry might have damaging environmental, social and economic con- sequences led to the endorsement of a tourism development master plan by the Indonesian Government in 1971. The plan had been devised by the French consultancy firm Sceto under a UNDP financed project for which the Bank acted as executing agency. The plan includes specific recom- mendations for the physical development of tourist accommodation and the protection of cultural and scenic assets. It also contains some suggestions for possible arrangements needed for the implementation of the master plan. 2. Presidential Decree No. 26 of March 29, 1972 established the institutional framework for the development of tourism on Bali in accor- dance with the master plan by creating the Bali Tourism Development Board (BTDB). The functions of the BTDB include: (i) creating the necessary links between government agencies, private tourist enterprises and Balinese community organizations; (ii) coordinating tourism sector ac- tivities so as to maximize net benefits and minimize social and environ- mental deterioration; and (iii) advising various Provincial Government agencies on the practical application of the master plan. 3. To facilitate these functions, the Board is composed of 12 mem- bers representing the various federal and regional government agencies, with the Governor of Bali as Chairman and a representative of the National Directorate of Tourism as Vice-Chairmanl/. The Director of the local tourism office would serve as ExecutiNe Secretary heading a secretariat which would consist of a physical planner, a sociologist, an economist and an expert in culture and religion, all of whom are expected to be Balinese. 4. Prior to the formulation of an island-wide tourism development master plan and the establishment of the BTDB, there was a lack of gov- ernment policy and action in controlling and coordinating the development of tourism. Furthermore, a link was missing between government agencies, Balinese communities, tourists and private tourist enterprises. A num- ber of adverse social consequences ensued: private hotels, travel agen- cies, shopkeepers and taxi drivers began to play a major role in organizing 1/ The members of the Board besides the Chairman and Vice-Chairman are the heads of the Agricultural, Power & Works, Customs Tax, Immigration, Education and Industrial Services, representatives of the Armed Forces and the Bank of Indonesia as well as a Secretary, appointed by the Governor. Annex II Page ? performances by Balinese dancers and artists as well as in the production and sale of objects of art produced by local craftsmen. They made high profits by playing traditional village organizations out against each other, which left the actual performers, artists, and craftsmen with less than their fair share of '-he proceeds from the sale of their cul- tural products and services. 5. Recently there has been an increasing awareness on the part of the Government that the improvement of the links between government agencies, Balinese communities, tourists and private tourist enter- prises is vital to the successful participation of the Balinese popu- lation in the economic growth of the island, and of importance for the effective implementation and administration of the Bali tourism master plan. It is one of the BTDB's prime aims to improve these links. Since the present governmental struct-ure does not grow out of the traditional Balinese village organizations, however, this will be a difficult task. Recognizing this fact, the Government has requested that technical as- sistance be made available to BTDB. Steps are currently under way to secure the services of a sociologist/anthropologist familiar with social and cultural problems in Bali, and with the potential impact of tourism, to serve as consultant to the Board for relatively short periods total- ling about nine months over the next three years. 6. The implementation and administration of the tourism develop- ment master plan require that the BTDB, through its secretariat, ini- tiate and coordinate a multitude of actions in the field of urban and regional. planning, including the development of long range planning policies, the introduction and administration of appropriate planning legislation and the enforcement of development controls. These tasks, however, exceed the present capability of the provincial planning office, the agency primarily responsible for the implementation of the physical aspects of the tourism development master plan. The Indonesian authori- ties have therefore endorsed the proposal that a planning advisor be assigned for a period of three years to the BTDB secretariat. This ad- visor would guide and train the BTDB planner and the provincial planning office staff in comprehensive area planning, including land use and regional planning, as well as the formulation and administration of ap- propriate planning legislation. 7. During negotiations, assurances were obtained that adequate budgetary funds would be made available to the BTDB as required. It is expected that the members of the secretariat would be employed by May 31, 1974, and that the two advisors referred to above would be ap- pointed by September 30, 1974. ANNEX III Page 1 INDONESIA APPRAISAL OF THE BALI TOURISM PROJECT THE BALI TOURISM DEVELOPMENT CORPORATION (BTDC) A. Legal Status 1. The Bali Tourism Development Corporation (BTDC) was established by presidential decree on November 11, 1973, and its charter legalized before a Notary Public on November 12, 1973. The BTDC is a limited liability corpora- tion or P.T. (Perseroan Terbatas) with the Indonesian Government as its only shareholder. B. Development Objectives Operating as an estate management corporation, the BTDC's major objective will be to create a successful tourism estate on the Bukit Peninsula. To achieve this objective, it will: (i) supervise planning and execution of the project; (ii) devise and carry out a land policy designed to attract private investors qualified to provide tourist accommodation and other facilities compatible with projected tourist demand; (iii) maintain, operate and administer infrastiucture facilities as well as common buildings and areas within the Nusa Dua tourism estate; (iv) recover through adequate charges to the beneficiaries the capital and operating costs of services provided to them; (v) guide private development activities through the applica- tion of appropriate controls; (vi) administer hotel employee training programs and regulate the employment policies of individual hotel operators; (vii) contribute to the welfare of the local community through advice and assistance to the BTDB on matters of common concern. 3. During the early operational stages of the project which overlap with the construction phase, the BTDC would apply a land policy focused on the leasing of land and common facilities to hotel investors and commercial tenants. Depending upon market demand and the financial situation of the corporation, a land policy might be considered for the later stages of operation, which would include lease-sales of properties. 1/ The leam -sale of land on the estate would confer on the purchasing investor only the right to use the land, including erecting buildings, for a period of 30 years. In effect, the purchase would be a prepaid 30-year lease which could be extended for additional periods by mutual agreement. ANNEX III Page 2 4. BTDC would bear the overall responsibility for the provision of adequate and efficient infrastructure services to the Nusa Dua estate and for adequate maintenance of common areas and buildings. Direct responsi- bility for operation, maintenance and administration of the water and sewerage system, solid waste disposal, internal roads and streets, landscaped common areas and buildings would be with BTDC, whilst PLN would be responsi- ble for the electrical supply system, including primary distribution. Responsibility for operation, maintenance and administration of the tele- communication system would be with Perumtel, and with Bina Marga for the access road. 5. Besides the income from lease rents and eventual lease-sales, BTDC would obtain revenues mainly from annual service charges to hotels and from utility charges for water supply, sewerage and waste disposal services to consumers (hotels, shops, etc.) within the resort complex (Annex IV). It will be BTDC's responsibility to ensure that such charges are established and adjusted in line with operating costs and at a level which would ensure a reasonable rate of return on the investment. 6. BTDC would guide private development activities and operations through covenants in lease agreements and lease-sale contracts. Such lease agree- ments would be designed to ensure adherence to the proposed tourism estate master plan and to constrain, to the extent practicable, the freedom of es- tate occupants to transfer lease-sale properties. Covenants would include, but would not be limited to the following conditions: (i) minimum investment requirements and construction time limitations; (ii) conditions for subleasing properties and buildings; (iii) land use standards and regulations concerned with construction procedures and environmental protection during operation; (iv) architectural and landscaping standards to control the use of building materials, the bulk and external appearance of structures, and the quality level of green areas; (v) specific site restrictions, establishing densities, height limitations, setbacks, easements and access rights; and (vi) requirements and conditions regarding contributions to be made by hotel investors to the employee training program. 7. The Balinese are deeply rooted in their cultural and social environ- ment and past experience has shown that it would be highly undesirable to encourage them to leave their traditional village societies. Within the Nusa Dua estate, therefore, the provision for housing facilities for hotel employees will be kept to a minimum, and public transportation between Nusa Dua and the ANNEX III Page 3 villlages would be provided instead. BTDC would carry out a study of trans- portation requirements as part of final design and submit its recommendations to the Association not later than December 31, 1974. 8. Finally, the BTDC would assume an important role in the overall development of tourism in Bali through the operation of a hotel employee training center (Annex VII) and by assisting the Bali Tourism Development Board in the implementation of the Bali Tourism Master Plan (Annex II). The cooperative efforts of the BTDB and BTDC will be directed towards: (i) the development and strengthening of links between the local village communities, the government and the various tourist organizations; (ii) initiating and coordinating art exhibitions and cultural performances; (iii) setting up means for controlling the quality of dances and other artistic performances and devising practical methods to ensure a fairer sharing of the receipts between the promoters and the performers; and (iv) initiating and coordinating tourist activities, such as excursions, sightseeing tours and special events. C. Management Aspects 9. The activities of the corporation will be guided by a board of supervisors (Devan Komisaris). The supervisory board is to be composed of the Secretary General of Public Work, the Director General of Monetary Affairs (Dept. of Finance), and the Governor of Bali, with the Director General of Tourism as Chairman. The proposed composition of the Board of Supervisors should facilitate cooperation between BTDC and other public sector entities involved in implementation of the tourism estate. 10. The corporation will be administered by a Board of Directors which is composed of the President Director and the heads of the technical operations and finance divisions. Mr. Soetomo, who has had considerable experience in supervising the implementation of various projects and who has recently held the position of Inspector General of the Ministry of Communications, was appointed to the post of President Director in November 1973. In February 1974, the appointment of the Directors of Technical Operations and Finance was confirmed. D. Organization for Execution 11. With the exception of the Bali based hotel school division, the BTDC management group including the technical operations and finance divisions as 'well as a secretariat would be headquartered in Jakarta during the execution phase. Besides the members of the Board of Directors, the staff includes so far the Secretary to the President Director, a lawyer, an architectural-engineer- ing assistant to the Director of Technical Operations, and a public relations officer. To complete the staffing of the finance and administration division, accountants, a financial analyst, and a number of administrative assistants will be appointed in the near future. Annex III Page & 12. In order to supervise final planning and execution of the project, the BTDC would establish a technical field unit in Bali which would operate under the supervision of the Director, Technic6l Operations. The field unit would be headed by an experienced engineer and would be staffed by ;hree engineers, an architect, an accountant, a procurement officer, a real estate specialist, two surveyors and a laboratory technician. 13. Besides having overall responsibility for coordinating the activi- ties of the various agencies such as Bina Marga, Perumtel and PLN, involved in the implementation of the project, the BTDC will be directly responsible for the construction of the water supply and sewerage system, internal roads and streets, all common buildings and landscaped areas, and the hotel train- ing school near Denpasar. Consultants acceptable to the Association would carry out the final designs of all project components. i. Given the complex nature of the project, it was agreed during nego- tiations that, by December 31, 1974, a critical path network acceptable to the Association would be prepared for carrying out all parts of the project; it would be reviewed internally at least every three months by all parties concerned, and the results of such reviews would be communicated to the Association every six months. E. Organization for Operation 15. Shortly before the project becomes operational, the headquarters staff would be relocated from Jakarta to Bali. The finance division would continue to be concerned with finance, accounting and general administra- tion, but would be given additional responsibilities in the fields of property management and lease administration. For the operation of the hotel school, BTDC would employ the services of four full time senior teachers and would operate and administer the school in close cooperation with the hotel industry and the Provincial Tourism Office. The operating program would be based on curricula, staffing patterns and criteria for the selection of trainees, as proposed by the ILO (Annex VII). Organiza- tion and staffing of the technical operations division's field unit would be modified in accordance with its new responsibility to operate, adminis- ter and maintain BTDC owned infrastructure and properties. For this pur- pose, it would form three sections concerned with: operation and adminis- tration of the water and sewer system; the maintenance of roads, land- scaped areas and buildings; and environmental sanitation. F. Technical Assistance 16. Because of their lack of experience in implementing and adminis- tering integrated tourism estate projects, the Indonesian authorities have requested that the BTDC staff be assisted by consultants during the execution phase of the project. During negotiations, agreement was reached on the following advisory positions: (i) an expert on tourism- related land development and the hotel industry who would assist in the formulation of corporate objectives, lease policies and model lease forms; (ii) a financial expert who would advise on general financial policy and assist in the analysis of investment proposals from hotel and other commercial Annex III Page 5 developers; and (iii) an engineering expert who would assist the Director of Technical Operations in the review of project design and bid evaluations and advise the head of the field unit on construction management. One of the major tasks of these advisors will be to provide the Indonesian Team with on-the-job training. Terms of reference for the three advisors were agreed upon during negotiations. 17. The advisor on corporate objectives and lease policies uould be employed for short-term assignments totalling about nine months over a three year period. His appointment would be a condition of effectiveness of the proposed credit. The financial advisor would be employed full time for three years, and the engineering advisor full time for four years. In addition to these individual consultants, the project provides for short- term technical assistance from an accounting firm which would assist in the establishment of a commercial accounting system. 18. During negotiations it was agreed: (i) that the appointment of these consultants would be subject to approval by the Association;.(ii) that the BTDC would submit to the Association for its approval, by December 31, 1974, a statement of corporate objectives and lease pclicies and proposed model lease forms; and (iii) that, by December 31, 1975, the BTDC would prepare and submit to the Association a detailed organization plan, including staff requirements, for operation of the estate. G. Financial Aspects Financial Objectives 19. The basic financial objective which BTDC would be expected to achieve is the recovery of its investments, including a reasonable rate of return, from charges to the beneficiaries. The charges fall into three different categories: (i) direct user charges by public utilities who are merely ex- tending their normal services to the resort area under con- sumer contracts regulated by already established tariffs; (ii) direct user charges to be established by BTDC for services provided by its own utility division; and (iii) charges by BTDC for provision of other services, use of common space and facilities, leasing of hotel sites and other pro- perties, all of which would be levied in the form of lease rents and annual service charges. ANNEX III Page 6 Financial Forecasts 20. The financial forecasts for BTDC have been made separately for each of the two types of operations to reflect the different nature of the tourism estate non-utility services and hotel school component, on the one hand, and of the utility operations on the other hand. Forecasts for the utility operations are included in Annex IV, Tables 1 and 2. Financing Plan - Tourism Estate Non-Utilities Services Component and Hotel School 21. The financing plan for the tourism estate non-utilities services component, including the hotel school, can be summarized as follows: Millions of Rps. US$ Requirements Land Acquisition 420 1.01 Internal Roads & Street 496 1.20 Storm Water Drainage 312 0.75 Electric Installation 653 1.57 Landscaping 1,488 3.58 Amenity Core & Comm. Facilities 962 2.32 Bualu/Benoa Renewal 115 0.28 Hotel School 474 1.14 Project Administration 249 0.60 Technical Assistance 249 0.60 Total Capital Expenditures 5,418 13.05 Working Capital 25 0.06 Deferred Interest 1,262 3.04 1,287 3.10 Total Requirements 53705 16.15 Sources of Funds Internal Cash Generation 4 - Gov't Equity Contribution 3,487 8.37 Proceeds of IDA Credit 1,995 4.80 Gov't Advances 1,219 2.98 Total Sources of Funds 6,o0516.15 The construction cost estimates and the equity contribution contain an amount of Rps. 411 million each, which reflects the recent change of cost estimates to take into account latest estimates of price level changes through the end of the construction period. The summary financing plan is thus expressed in current prices rather than in constant prices which have been used for the detailed financial tables. ANNEX III Page 7 22. The Government contribution would be made available to BTDC as equity, while the proceeds of the IDA credit would be passed on to BTDC in the form of a long-term loan at 12% interest with 24 years repayment after six years grace. Interest on the proceeds of the IDA Credit accruing during the 6 year grace period and totalling Rps. 1,262 million has been treated as an advance to be repaid by BTDC to the Government from the seventh year over a period of I5 years in annual installments of Rps. 84 million. Financial Results - Tourism Estate Non-Utility Component and Hotel School 23. The financial projections for BTDC's non-utility operations, including the hotel school, are based on a number of assumptions which are listed in the notes to the financial tables (Tables 1 and 2). The projections indicate that despite some losses in the initial years, BTDC would be able to achieve a rate of return of about 8% on its gross fixed assets in the tourism estate (including the hotel school)- when the- hotel development is expected to have reached the full operating stage in 1983. By this time BTDC is expected to be able to generate sufficient internal funds from its non-utility operations, including the hotel school, to meet its debt service obligations for this part of the project and to retain adequate reserve funds. The debt service coverage shown in the cash flow projections is quite satisfactory at 1.5 in a typical year. H. Consolidated Finaicing Plan and Financial Position 24. The consolidated financing plan (1974-1979) for BtDC including non-utility operations, hotel school and utility operations can be sunmarized as follows: Millions of Sources of Funds RsUS Internal cash generation 232 0.6 Gov't. equity contribution 4,969 11.9 Gov't. advances 2,339 5.6 Proceeds of IDA Credit 4,054 9.8 Total sources of funds 11,594 27.9 Application of Funds Capital expenditures: Utility component 3,509 8.5 Tourism estate component 4,94 11.9 Hotel school component 474 1.1 8,927 21.5 Working capital & cash 285 0.7 Deferred interest 2,382 5.7 Total application of funds 11,594 27.9 Annex III Page 8 25. To provide the funas required for the project, the Government would make successive increases in BTDC's capital, now authorized to be Hps. 800 million, to reach a level of about Rps. 5,000 million. In addi- tion, working capital and accrued interest would be financed by Govern- ment advances amounting to Rps. 2,339 million. During negotiations, agreement was reached that these funds would be made available to BTDC as required. 26. Detailed consolidated financial statements for BTDC are attached (Table 3). These statements indicate that BTDC's overall financial posi- tion would be satisfactory. The proposed financing arrangements would allow BTDC to maintain a debt service coverage ranging from .8 in 1980 to 1.4 in 1983. The rate of return an average consolidated gross fixed assets in operation would gradually increase from 2.5% in 1978 to 9.1% in 1983. Assuming a 25-year operating period, the consolidated DCF rate of return would be 7.8%. 27. Because BTDC would not immediately require internal funds for expansion of facilities after the hotel development comes into full opera- tion by 1983, the free internal funds accumulated by that time would amount to about Rps. 1.2 billion. Available cash could be used to accel- erate repayment of Government advances which have been assumed otherwise to have a scheduled repayment period of about 15 years. Financial Covenants 28. Because of the nature of BTDC's non-utility operations, the financial projections for these operations (paras. 20 and 23) do not represent standards of performance which can be regulated by financial covenants such as a rate of return requirement. During negotiations, agreement was therefore reached that BTDC would formulate, in agreement with the Association, financial objectives and regulations governing lease rents, sales prices and service charges. The financial covenants covering BTDC's utility operations are included in Annex IV. 29. The accounting system, to be established with the assistance of consultants (referred to in para. 17 above), would be maintained by an accounting section suitably staffed, and audited annually by indepen- dent auditors acceptable to the Association. Audited financial state- ments would be submitted to the Association within four months after the end of each fiscal year under audit. 10. To further safeguard its financial position, BTDC would be re- quired not to incur any debt, without the Association's approval, until 1985 other than that incurred to finance the project under its loan agreement with the Government. Annex III Page 9 NOTE TO FINANCIAL TABLES BTDC - Tourism Estate Components and Hotel School Assumptions for Financial Projections 11. Revenue projections for the leasing of land assume an average annual land lease price of US$353 Per hotel room. This represents about 2.8% of the projected hotel gross revenues in a typical year and is con- sidered reasonable. 32. Rents for commercial and recreational facilities in the central core area have been assumed at an annual average of US$22 per square meter for a total of approximately 3,000 square meters of rentable space. 33. Annual service charges to cover the cost of maintenance and re- pair services as provided by BTDC for common areas and facilities are es- timated at US$250 per hotel room. In a typical year, such charges would amount to approximately 2% of the projected hotel gross revenues and are expected to be acceptable to potential hotel operations in Nusa Dua. 34. The annual average maintenance costs for common areas and facil- ities have been estimated at Rps. 39 million or 2% of the total cost of relevant project components. Total promotional expenses for the initial years have been established at Rps. 36 million. The estimated administra- tive costs have been based on an annual average of Rps. 33 million, repre- senting 5% of the projected gross revenues from land leases, rents and service charges during a typical year of operation. Average annual payroll costs per local employee have been estimated at $2,900. 35. It is expected that the annual enrollment at the hotel school would average 400 to 450 pupils (Annex VII). With an estimated annual tuition fee of US$50 per pupil, the annual revenues from pupil's fees would total approximately US$20,000. Total operating costs before capital expenditures have tentatively been estimated at US$70,000. Since it is expected that BTDC would be in a financial position to cover the resulting operational deficits from revenues generated by land leases, rents and service charges, the deficits have been treated as annual net operating costs in the operating projections. 36. It has been assumed that hotel school operations would begin in 1976 or one year prior to BTDC being in a revenue earning position. The required initial working capital of US$60,000 for the first year of opera- tion would be made available to BTDC as a government equity contribution. 37. Depreciation is estimated at a rate of 3.3% per annum for civil works facilities and 20% per annum for equipment of the relevant project components, with the exception of equipment for electric installations which is depreciated at a rate of 4% per annum. Annex III Page 10 78. Costs for project administration and technical assistance fees during construction are assumed to be depreciated as part, of the assets over a 25-year period from the first year of operation. In addition, accrued interest on the proceeds of the IDA Credit for the first six years 4s also assumed to be amortized over a 15-year period from the third year of operation. INDO~NESIA: Bali-Nusa Dua Tourism Proiect BTDC's NON-UTILITY OPERATING INCOME PROJECTIONS (In Million of Rupiah-) Fiscal Year 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 Operating Year - - 1 2 3 4 5 6 Gross Revenue Land Lease - - - 117 190 249 293 337 366 366 Annual Service Charge - - 83 135 176 239 259 259 Other Income - 9 18 27 27 27 27 Total -- - 117 282 402 496 603 652 652 Operating Cost & Expenses Maintenance - - - - 13 26 39 39 39 Payroll & Related Expenses - - - - 47 47 47 47 47 47 Administration - - - - 33 33 33 33 33 33 Promotion - - - - 8 8 6 6 4 4 Hotel School - 21 21 21 21 21 21 21 21 Total - - 21 21 109 122 133 146 144 144 Gross Income - - (21) 96 173 280 313 457 508 508 (Less) Depreciation - - - - 134 134 171 171 171 171 Amortization -- - 84 84 84 84 Sub-Total - - - - 134 134 255 255 255 255 Profit Before Interest - - (21) 96 39 146 108 202 253 253 (Less) Interest - - - - - - 239 237 235 233 Net Profit - (Annual) - - 211 96 39 146 (131) 35) 18 20 (Cummulative) - - (21) 75 114 260 129 94 112 132 Financial Rate of Return (%) _ 1.8 2.9 4.5 5.0 7.3 8.1 8.1 on Gross Fixed Assets February, 1974 INDONESIA: Bali - Nusa Dua Tourism Project BTDC's NON-UTILITY CASH FLOW PROJECTIONS (In Millions of Rupiahs) Fiscal Year 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 Operating Year - - - - 1 2 3 4 5 6 Source Cash at Beginning - - - 4 100 274 554 577 694 862 Initial Equity Investment 692 952 906 447 24 16 - - - - Government Advances 27 111 201 266 307 350 - - IDA Credit 227 677 630 341 72 48 - _ Sub-Total 946 1,740 1,737 1,058 503 688 554 577 694 862 Net Profit - - (21) 96 40 146 (131) (35) 18 20 Non-Cash Chargess - - - - 134 134 255 255 255 255 Sub-Total - - (21) 96 174 280 124 220 273 275 Total Funds 946 1,740 1,716 1 154 677 968 678 797 967 1,137 Applications Project jNpenses Land 420 - - - - - Building and F.F, & E. 338 1,485 1,367 644 - - Pre-Opening Expenses 161 144 144 144 96 64 Financial Charges 27 111 201 266 307 350 Sub-Total 946 1,740 1,712 1,054 403 414 L/T R epaX2Cjt Government Advances - - - - - - 84 84 84 84 IDA Credit - - 17 19 21 23 Sub-Total - - - - - 101 103 105 107 Total Applications 946 1,740 1,712 1,054 403 414 101 103 105 107 Cash at End - - 4 100 274 554 577 694 862 1,030 Debt Service Coverage - - - - - 1.1 1.3 1.5 1.5 February, 1974 INDONESIA BALI TOURISM PROJECT BTDC - CON30L ATM -KNANCIAL STATEMENTS Million Rupiahs Years ending December 31 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 I. CONSOLIDATED INCOME STATEMENTS Net operating income Utility operations 74 154 259 320 391 446 Resort operations _____ (21) 96 173 280 313 457 508 508 Total cash generated 21 96 2 2 777 899 9 Depreciation & amortization 184 235 428 428 428 428 Interest charged to operations 484 479 474 469 Net income/loss 21 96 3 199 (340) (130) (3) 57 II. CONSOLIDATED CASH FLOW Total cash generated from operations (21) 96 247 434 572 777 899 954 Proceeds of IDA Credit 845 1939 809 341 72 48 Government equity contribution 1033 1407 1264 447 24 16 Government advances 56 224 385 523 554 597 Total sources of funds - -------- 57W 777 - - 9 -5- Capital expenditures Water, sewerage & waste disposal ccmponent 943 1703 496 Resort area component 919 1629 1511 788 96 64 Total capital expenditures Debt service Interest 56 236 426 513 554 597 484 479 474 469 1 Amortization 191 19 20 Total debt service Total application of funds Net cash balance 16 2 4 106 247 434 (103) 102 224 279 Accumulated cash (inc9 working capital) 16 18 22 128 375 809 706 808 1032 1311 Years ending December 31 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 III. CONSOLIDATED BALANCE SHEETS Assets Utility plant in operation 3142 3142 311i2 3142 3142 3142 Accumulated depreciation 50 151 254 357 460 563 Net utility plant in operation 3092 ------ Mf- 27B5 2-- 2 279 Nusa dua estate assets in operation 406 406 4943 5007 5007 5007 5007 5007 Accumulated depreciation 134 268 439 610 781 952 Net resort assets in operation Work in progress 1862 5194 6795 7583 Capitalized interest 56 292 718 1231 1785 2382 2228 2074 1920 1766 Net working capital 15 15 20 25 45 55 65 75 85 95 Cash 1 3 2 103 330 754 641 733 947 1216 Total ansets 1934 5504 7941 9348 10,061 10,921 10,390 10,064 9860 9711 L iabili1t ieas Government equity 1033 2440 3704 4151 4175 4191 4191 4191 4191 4191 Earned m)rplus 4 (21) (75) 138 337 (3) (133) (136) (79) Total government capitkl T--3376821414M, ------ ---313 14520 Governn,,,jy$ advances 280 665 1188 1742 2339 2185 2031 1877 1723 Lcing-to-A.,) :loan (IDA procueds) 1q165 27814 3593 3934 4006 140514 4017 3975 3928 3876 Tot al ong-term deb t ~~60 05 59 Totw,a,l C1abilities 9 550 (- 7941 9348 10,061 10,921 10,390 10,064 9860 9711 MV C0NMLATP~ FfINAN7CIAL~ RATI)S Dobt Cquity 3'atio 1/ 47 53 56 411 514.46 55:145 57:143 58:1O2 60-140 60:140 59:141 58:142 Debt Srevic Coverage .8 1.2 1.3 1.14 Rate of ReLurn (in %) 0y), wm-ci~ege gross Fieol c-i,ta 11)l op(ration 2.5 4.1 5.4 7.4 8.5 9.1 C I/ Debt/equity ratio would change slightly as a result of inflated construction expenditures which would be financed by additional Gov't equity contribution. This ratio would not reflect full revaluation of the assets from 1973 to 1983 price level. ANNEX IV Wage I INDONEMIA APPRAISAL OF THET TOURISM PROJECT WATER SUPPLY, SEWERAGE AND WASTE DISPOSAL COMPONEN, A. Scope of the Project 1. The Project would provide facilities to meet mainly the water demand of the future hotels and other superstructures in the Nusa Dua resort area, and to ensure adequate severage and waste disposal service within the resort area. In addition, the water supply facilities would allow provision of piped water through community outlets to two villages (Benoa and Bualu) in the vicinity of the resort area, which presently do not have safe and depend- able water supply. 2. Extensive groundwater exploration was carried out by competent specialists to ascertain the availability of adequate and appropriate water resources and to establish a firm basis for detailed engineering of the water supply component. B. Description of the Project 3. The Bukit Peninsula, where the Nusa Dua resort area would be developed, has no surface water resources. The area is very much drier than the Bali mainland and consists essentially of an upfaulted block of tertiary limestone. At present villagers obtain water from shallow wells in the coastal areas or from surface reservoirs, which are filled during the vet season and thus only provide an intermittent source of supply. h. Exploratory drilling has been carried out in 1973 by a firm of Australian consulting engineers financed partly by the Government and partly from the third IDA Technical Assistance Credit (IDA-INS). Based on the results of this exploration work the water source would be developed to yield 135 1/s of raw water from e4ght boreholes 200 mm in diameter. For pumping deep well pumps, each with a suitable capacity would be installed. 5. The yield from the proven groundwater resources is considered to be adequate to meet the projected water consumption of the planned hotels and the adjacent villages, together estimated to be about average 123 1/s by 1983. 6. The water tests carried out in the Bukit Peninsula indicate that with softening the water quality would be quite satisfactory and meet WHO standards. A treatment plant would be required and provision has been made in the cost estimates with a basic amount of US$ 1.0 million equivalent. The final design would be subject to review by the Association. 7. For balancing the fluctuations in production and consumption and for providing certain storage, a service reservoir of approximately 6,500 m3 capacity would be constructed, representing about one half day's supply on a maximum day or 16 hours supply on average day. 8. Distribution and reticulation mains for the resort area and to the villages of Bualu and Benoa would range from 18 in. to 1 in. in size. It is proposed to use asbestos cement pipes for the large pipes and PVC in the smaller sizes. ANNEX IV Page 2 S.ewrage 9. The topography of the project area is fairly flat and the ground level is generally only slightly above sea level. Soil consists mainly of sand and limestone gravel. The groundwater table is at a depth of approxi- mately 2 to 3 meters. 10. The sewage from the tourism area would be discharged into oxidation ponds by a system of concrete and PVC pipelines of various diameters. In order to maintain an acceptable grade of the main sever and to avoid excessive depth of sewer lines one intermediate pumping station and one lift station at the end of the main sever would be required. Sewage from hotels may have to be pumped up to the main sever by individual pumping stations to be provided by the hotel developers depending on the hotel planning. The oxidation ponds are proposed to be located at the shoreline of the inland bay between the resort area and the village of Benoa. The surface area would be approximate- ly 5.5 ha., the detention time 20 days and the BOD5 of the effluent is expected to be 20 mg/1. The effluent would be discharged into the internal bay, where no adverse environmental effect is expected because of the degree of treatment prior to discharge. Landscape Irrigation 11, The plant nursery and the improvement of existing plantation in the resort area require the provision of an irrigation system as there is only little surface water during the dry season. The water demand has been estimated by the consultants at 1,200 m3 day. 12. Water for landscape irrigation would be obtained from two deep wells to be constructed within the nursery. Well pumps (capacity 7.5 1/sec), a reservoir of 375 m3 and an elevated tank of 30 m3 capacity would be installed. A distribution system consisting of asbestos cement pipes and of PVC pipes would be provided. Solid Waste Disposal 13. Based on experience of large international hotels the quantity of waste from up to 3000 hotel rooms is estimated to be approximately 30 tons per day. The disposal area required for about 10 years operation is estimated at 60,000 M2. 14. The sanitary landfill method has been found to be the least cost solution for the disposal of solid waste. An area located on the shore of the inland bay between Kuta and Tuban airport, just outside Bukit Peninsula, has been selected for this purpose. The site is presently subject to occasiona. flooding and therefore not being utilized at all. In order to prevent pollution of the bay an earth embankment woi4ld enclose the site and the construction of a short access road would facilitate easy accessibility from the main road. 15. A small bulldozer would be provided for the flattening and compacting of the waste and the spreading of earth layers to prevent the breeding of insects and other pests. For the collection of solid waste refuse trucks of 8 m3 capacity and dirp trucks would be used. ANNEX IV Page 3 C. Cost Estimates 16. The estimated costs of the water supply, sewerage, irrigation and solid waste disposal components are summarized in Annex I, Tables 2.1, 2.2, 2.3 and 2.4. Costs are based an Indonesian cost of goods and civil works of similar nature. A physical contingency of 15% has been allowed for; the price contingency is based on projected price level charges during the construction period. D. Procurement and Execution of the Project 17. All contracts for the supply of equipment and vehicles would be subject to international competitive bidding. Small civil works contracts, i.e. for the construction of the solid waste disposal site, are unlikely to attract international bidding. It is therefore proposed that for those contracts only national competitive bidding be required. 18. BTDC, with the assistance of qualified consultants, would be responsible for the implementation and, after completion, for the operation of the project. E. Organizational and Administrative Aspects 19. BTDC would establish a utility section which would be responsible for operation of the facilities to serve the resort area and the two small villages. This section would be staffed with competent specialists dealing with all technical, financial and administrative aspects of the operations. The manage- merit of the utility section would be guided by general policies designed to assure reliable water supply, sewerage and waste disposal services and continuing financial viability of the utility division. A commercial system of accounts would be established with the assistance of qualified consultants acceptable to the Association. These accounts would be maintained within the framework of the accounting system to be established for BTDC as a whole (see Annex III). 20. BTDC would be required to obtain such outside professional assistance as may be needed to establish the utility section and train local staff to assume full responsibility at the operational stage. F. Financial Aspects Financing Plan 21. The financing plan (1974-79) for the water supply, sewerage and waste disposal project can be summarized as follows: ANNEX IV Page b millions of Bps. US$ Requirements Water supply 2,436.3 5.9 Sewerage 696.5 1.7 Waste disposal 1-4.7 .4 Landscape irrigation 231.9 .6 3,509. 8.6 Working capital & cash 260.0 .6 Deferred interest 1,120.0 2.7 Total requirements 4889.4 11.9 Sources of Funds Internal cash generation 228.0 .5 Proceeds of IDA credit 2,059.0 5.0 Government contribution 2,602.4 6.4 Total sources of funds 4,889.4 11.9 22. The construction cost estimates and the equity contribution contain an amount of Rps. 367.4 million each which reflects the recent change of cost estimates to take into account latest estimates of price level changes through the end of the construction period. The summary financing plan is thus expressed in current prices rather than constant prices which have been used for the detailed financial tables. 23. The Government contribution would be made available to BTDC as equity, except that interest at the rate of 12% on the proceeds of the IDA Credit would be financed and accrued as an advance during the first six years to be paid back to the Government from the seventh year over a period of about fifteen years in annual installments of Rps. 70 million. The proceeds of the IDA credit would be relent to BTDC at 12% with 6 years' interest deferred as above and repayment of principal over 24 years after 6 years' grace. Future Financial Results 24. A projection of the financial results of BTDC's utility operations (see tables 1 and 2) indicates that services could be provided to the Nusa Dua resort area at acceptable utility rates which should at the time of full development of the resort area provide a satisfactory rate of return of up to 14% on gross fixed assets in operation and adequate debt service coverage. The financial projections are based on a number of assumptions (see Notes to Tables 1-2), among them nust importantly a water rate of Rps. 150 per m3 and a sewerage rate of Rps 75 per n" for the hotel area, being equivalent to a total charge of US$ 2.15 or tess per occupied hotel room from 1982 onwards. ANX IV 25. It is apparent, however, that BTDC's utility division would not achieve equally satisfactory financial results during the early years of gradual build-up of hotels in the Nusa Dua area. For the first two years rates of return would range from 2.3% to 4.9%. During 1980-82 losses would be incurred, since current interest on the proceeds of the IDA credit could not be covered by net operating revenue. 26. These losses could only be avoided if the starting rate for water supply, sewerage and waste disposal would be increased by 30% to Rps. 290 per M of water. This would be equivalent to US$ 2.80 per day per occupied hotei room which is considered relatively high, considering the fact that in addition about US$ 3.10 would be charged for electricity. A daily cost of utilities of US f5.90 per occupied room during the promotional period is not conducive to the desirable rapid build-up of the hotel complex. Since BTDC's function is the promotion of hotel development, the initial losses to be incurred on its water and sewerage OPerations, should therefore be regarded as promotional expenses. Financial Covenants 27. The financial performance of the BTDC Utility Section would be controlled by a financial covenant which would require BTDC to establish, maintain and collect for each fiscal year water supply, sewerage and waste disposal tariffs calculated to produce 11% rate of return on gross fixed assets, suitably adjusted for changes in price levels, at a time when water production has reached 2,600,000 cubic meters per annum. The covenant is expressed in terms of gross fixed asset,s to avoid a distortion of the percentage during periods when no new assets or replacements are required because of the relatively self-contained nature of this project component. 28. The continuing financial viability of BTDC, including the Utility Section, would be dependent upon the results of its overall operations, which are discussed in detail in Annex III. Under these circumstances it is not considered appropriate to control part of BTDC's operations by a separate debt service or debt limitations covenant, other than by the requirement that BDOC incu no debt without the Association's approval except -hat pertainig to the execution of the proposed tourism project. ANNEX IV Page 6 IOESIA 3- - UTILIT SWTICN ASSUPTIONS FOR FINANCIAL PROJECTIONS General The financial projections for BTDC s Utility Section are based on the general assurption that this section would be responsible for construction and operation of all water supply, severage and waste disposal facilities, including the provi-Sior of water for purposes of landscape irrigation. Forecasts are expressed in terms of constant prices (base year 1973), except for a modest adjust-- ment of construction costs to reflect normal price escalation between the base year and the year of actual expenditure. The latest estimate of inflationary increases expected is not reflected in these statements (see also para. 22). Cash Flow 2. It has been agreed that Government contributions to BTIDC would be made in the form of equity, except that interest at the rate of 12% on the proceeds of the IDA Credit, accrued during the first six years, would be added to the Govern- ment contribution in lieu of imediate payment by BTDC, and annual repayments of Rps. 70 million would be made by BTD from 1980 onwards for a period of about thirteen years. 3. It has been agreed that the proceeds of the IDA Credit would be passed on to BTDC at 12% interest, 30 years' repayment including 6 years& grace. Interest during the first six years would be financed by adding it to the Government contribution (see para* 2). 4. Wbrking capital requirements have been calculated as roughly one-fourth of annual billing. Income Statements 5. The water consumption of the hotels, which constitutes the main water use, has been estimated on the basis of the projected number of guest days (using an average 1.5 occupancy per room at estimated annual occupancy rates from 55% to 7:5') and an average consumption per guest-day of 2.6 m', which reflects the following consu=motion rattern: Average Daily Consumption per guest in m3 Guest use . Staff use .45 pestauranta .38 Cooli-ng water for refri geration .38 aunry.45 Si ng poole 1 C_maing and sprinkling .24 .30 .38 ANNEX IV Page 7 These estimates are consistent with average normal actual consumption in comparable hotels. (To avoid overestimation of revenues, water supply to the two villages which would be served by standpipes has not been included in the estimates). 6. In projecting water revenues, a constant rate of Rps 150 per m 3 has been used. This projection provides nothing more than a basic parameter. To the extent that future room rates would permit increases in water rates without impairing the viability of hotel operations, the basic rate could be increased to achieve higher levels of rate of return for BTDC's Utility Section ; the same applies to the sewerage rate, which has been tentatively estimated to be Rps 75 per m3 of water consumed. 7. Operating costs for water supply and sewerage used in the projections are rough overall estimates based on average cost per m3 of water processed as tentatively determined by the consultants. For a typical operating year (1983) the breakdown of total costs was assumed as follows: Water Supply Sewerage & Waste Disposal (in mill. Rps) Labor cost 16 14 Chemicals 5h 8 Power & fuel 43 24 Maintenance 7 4 Total operating expenses 120 50 8. Depreciation has been estimated at a rate of 3.5% for water supply and 3% for sewerage. In addition, accrued interest has been assumed to be amortized from the eighth year at a rate of Rps 70 million per annum to correspond with the repayment of that portion of the Government contribution (see item 3).  INDONESTh BTDC - UTILITY OPEJ ATIONS Proforma Income Stateme(ts 1974-1983 Year ending December 31 197h 197'1976 1977 1978 1979 1980 1981 1982 1983 3 642 1130 1630 1992 2324 2566 Water consumption (in m3 000) 800 1300 1700 2000 2300 2500 Number of hotel rooms 240 435 627 766 894 987 1 of annual guest days (000) 2.6 2.6 2. 766 896 2.6 Average consumption per guest day (in m3) 2.6 2.6 2.6 2.6 2.6 Revenue (in million Rps.) Water sales hotels (Rps 150 p/m3) 96 170 244 300 348 384 Sewerage charges hotels (Rps 75 p/a3) 48 85 122 150 174 192 8 15 21 26 35 40 Other water revenue 152 270 387 676 557 616 Total Revenue Operating Costs 45 80 90 110 115 1?0 Water supply - operating expenses 33 36 38 46 51 50 Sewerage and waste disposal operating expenses 78 116 128 156 166 170 Total operating expenses Net operating incomeA/7 1529303146 (before depreciation) 19 29 320 391 6 Depreciation 50 101 103 103 103 103 B/ Net operating income 24 53 156 217 288 343 (after depreciation) Amortization 70 70 70 70 Interest 29 113 184 247 297 297 245 242 239 236 Interest capitalized (29) (113) (189) (247) (297) (247) - - - -23 Net interest - - - - - - 245 242 239 236 Sub-total . - - - - 315 312 309 306 Net income/loss . - - - 29 53 (159) (95) (21) 37 Accumulated net income/loss 29 77 (82) (177) (198) (161) Average Net Fixed Assets in Operation 1717 3003 2903 2802 2702 2601 Rate of return (in %) (B divided by C) 1.4 1.8 5.4 7.7 10.7 13.2 Gross Fixed Assets in OperationD 3192 3192 3142 3142 3192 3192 Rate of return (in %) (A divided by D) 2.3 4.9 8.2 10.1 12.9 19.2 INDONESIA BTDC - UTILITY OPERATIONS Proforma Cash Flow - 1974-1983 Years ending December 31 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 Sources of Funds (in million Rps.) Cash generated from operations 74 15 259 320 391 46 Proceeds of IDA credit 618 1262 179 Government contribution (incl. accrued interest) 370 568 546 257 27 247 Total Sources of Funds 988 1830 725 257 321 401 259 320 391 446 Application of Funds Water supply & irrigation 71b 1368 339 Sewerage & Waste Disposal 225 335 157 Working capital increase 15 5 5 20 10 10 10 10 10 958 1703 5ol 5 20 10 10 10 10 10 Debt service Interest 29 125 225 247 247 247 245 242 239 236 Amortization - - - - - - 20 23 26 29 - Payment of accrued interest 70 70 70 70 Total debt service 29 125 225 247 247 247 335 335 335 335 Total Application of Funds 987 1828 726 252 267 257 345 345 345 345 Net Cash Balance 1 2 (1) 5 54 144 (86) (25) 46 101 Accumulated Cash 1 3 2 7 61 205 119 94 140 241 Debt service coverage .8 .9 1.1 1.3 ANNEX V Page 1 INDONESIA APPRAISAL OF THE BALI TOURISM PROJECT ROADS, BRIDGES AND STORMWATER DRAINAGE COMPONENT A. Scope of the Project 1. The Project consists of the construction of (i) an access road to the resort area at Nusa Dua; (ii) a secondary road and street network within the resort area itself; (iii) a by-pass road to the east of Denpasar; and (iv) of the improvement of multipurpose roads north of Denpasar. The location of these roads is shown on Map 2.1/ 2. The Project provides also for the construction of a stormwater drainage system for the resort area at Nusa Dua consisting of open ditches, some concrete pipelines, and swales. B. Description of the Project B.1 Access Road to Nusa Dua Resort Area 3. At present, there is no direct connection between Tuban air- port and Nusa Dua, except for a 17 km. long track through rough terrain after having reached a plateau by means of a slope of more than 15%. Modifying this track to meet good specifications for the longitudinal profile would imply considerable earthwork in rocky areas (limestone). During project preparation, four possible alternatives were studied for the access road to Nusa Dua, of which the alternative having the most direct alignment and the lowest cost was selected. The road under this alternative would have only 8 km. in total length and would pass along the east coast of the Tuban isthmus and following the shoreline of the inland bay and would by-pass the towns of Jimbaran and Bualu. The geo- metric design for this link road was determined by the volume of the an- ticipated traffic, estimated to be 3,000 vehicles a day by 1983. The design speed retained for this road in the engineering project is 80 km/h. This speed is justified in order to move traffic rapidly over a stretch not oriented towards sightseeing. Two 3.5 m wide lanes would be able to adequately handle four-wheel and motorcycle traffic for the next twenty years. The outside shoulders (1 m wide on both sides) would be narrower than what is required by Indonesian standards in order to reduce earthwork, 1/ The economic justification of the roads component is contained in Annex XI. ANNEX V Page 2 particularly in mangrove swamp areas. Since the road would cross level terrain, the maximum grade would be under 2%. 4. The hard limestone from a nearby quarry can be used for the base course of the road, but tests performed with this material gave disppointing results for using it in surface treatment because of the inadequate strength of the material. There are numerous quarries of stone of volcanic origin from which a good quality agalomerate can be obtained for surface treatment. Specifications would call for good compacting in surface treatment for a minimum usable life of 10 years. 5. A section of about 900 m of the road would go through man- grove swamps which are under water at high tide which reaches a maxi- mur 2.60 m. Manual boring tests have shown that a coral-limestone mass is approximately 2 m. below the apparent surface of mud. A 60 m. long bridge would be built over a natural drainage canal in the mangrove swamp. B.2 Secondary Roads and Streets in Nusa Dua Area 6. These roads and streets would form a network to serve the first-phase resort facilities in accordance with the layout plan and would be linked to the access road. Length of individual roads and streets would vary according to the layout. Total length would be about 11 km. The average design speed adopted for these roads and streets is 45 km/h. The width of almost all internal roads and streets would include a roadway for four-wheeled vehicles and motorcycles (two 3 m. lanes) and also a 2 m.-wide path for bicycles. In total, the roadway would be 10.80 m. wide. The shoulders separating the paved area and the cycle path would be 1.30 m. wide. Vehicle paths would have one 3 m. lane with wider shoulders for permitting cars coming in opposite direction to pass. Parking areas would be provided in the amenity core and in the service areas. 7. The project area is only slightly above sea level and fairly flat. The soil has high permeability. It is proposed, therefore, that stormwater would be collected in open ditches and would be infiltrated into the soil with the help of infiltration pits, about 1.5 m. deep. Thus the direct discharge of stormwater into the sea would be avoided. Within the area of the amenity core and community facilities concrete pipelines would be used. Rainfall intensity data for the project area are not available. But reasonable assumptions have been made in the determination of design factors for the scheme. B.3 Denpasar East By-Pass Road 8. The construction of this road is essential in order to (a) absorb part of the heavy traffic from the Bukit, Tuban and Kuta areas towards Denpasar; (b) create a direct access from the airport to the hotel complexes in Sanur; (c) permit tourists from Nusa Dua, Kuta and Sanur resort areas to visit major cultural and scenic attractions located in the northern part of the Island; and (d) ease the traffic congestion ANNEX V Page 3 within the central district of Denpasar. The proposed by-pass road would be approximately 19 km. in length, would pass through the tourism area of Kuta and would be the most direct route between the airport and the hotels at Sanur. 9. In the peak tourism periods, the average daily traffic expected on this road by 1983 is about 5,000 vehicles with four or more wheels. The design speed for this road would be 80 km/h as it was the case of the Nusa Dua access road. The specifications would then be the same as those described in Section B.1 above. The crossing of various streams and rivers would require the construction of six bridges with lengths varying from 12 m. to a maximum of 60 m. B.4 Multipurpose Road Improvements 10. Eleven existing roads totalling 199 km. would be improved to facilitate access to Bali's major cultural and scenic attractions and to ease the general traffic in the most important and dense ly populated areas of the Island. The needs of tourism make it necessary to restruc- ture a portion of the existing road network in order to permit the tour- ists to discover the real Bali, its way of life and its culture. At the same time, the improvement of these roads would contribute to the agri- cultural development and the commercial activity of the Island, as well as permit the villages further from the resort areas to benefit more directly from tourist expenditures. i. Improvements would consist of repairing the base and shoulders of the roadway, upgrading the road surface, improving the drainage ditches, minor realignment of vertical curves, and replacement of old and dangerous bridges. No major realignment of the existing roads and no acquisition of properties are proposed. The replacement of bridges, which comprises about 50% of the total cost, is essential for improving traffic conditions. Most of the existing bridges are single lane struc- tures built 40 to 50 years ago. Their maximum loading capacity is 3 tons. As they are suspended bridges, the existing process has affected impor- tant supporting elements. 12. Tohpati-Klungkung Road (36 km): Klungkung is the most impor- tant commercial center of the densely populated agricultural core of the Island. This road is essential for the transportation of agricultural and manufactured products to the market centers and hotels, and for tourist excursions to the art center of Ubud, the dances at Mas and Bone, and the temples of Kehen and Besakih. Travelling north from Tohpati, the existing asphalt road is 4.5 to 5.5 M. wide with 1 to 2 m.- wide shoulders. Its surface is of inferior quality. Traffic between Denpasar and Klungkung amounts today to approximately 1200 vehicles per day. The effect of the tourist traffic in this total represents no more than 25%, but the construction of new hotels in Kuta and Sanur and with the opening of Nusa Dua resort area, it is expected that the general , traffic will be doubled by 1983 and that the participation of the tour- ist traffic would increase to 50% or 60%. The improvements for this road would include: reinforcement of the base course, widening of the ANNEX V Page 4 oaved surface to 6 m., improving and widening shoulders for pedestrian and bicycle traffic, a better drainage system, replacing two old bridges. 13. Klungkung-Besakih Road (22 km.): This 4 m. wide mountain road is in fair stage of repair up to Rendang. From this point on, the traffic is relatively small, except during religious festivities in the Besakih temple. Improvements would include re-surfacing portions of the road, re-alignment of a 2 km. sector, and replacement of a 120 m. long tempor- ary one-lane bridge. Lh. Peteluan-Bangli Road (11 km.): Recent traffic counts show that an average of 80 vehicles per day use this road, serving an im- portant agricultural and tourist area. The roadway is 4 m. wide with 3 m. wide shoulders. The surface seems to be in fair condition, but the road is unsatisfactory both in cross and longitudinal sections. Improvements would include small reilignments and new base and sur- facing (5 m. wide). 1. Sakah-Teges-Bedulu-Tampaksiring Road (20 km.): This semi- circled road has a traffic flow of 350 vehicles per day which is ex- pected to increase to about 800 vehicles per day over the next ten years. Considering the present geometric design of the road and the traffic projections, it seems essential to improve the sub-base and base courses--which are very light--and to widen the roadway to 6 m. 16. Teges-Ubud Road (5 km.): From the road described in para. 15 above, this small road provides access to one of the most important tourist attractions of Bali, the town of Ubud, the center of the local streets of painters and sculpturers. Present traffic amounts to 180 vehicles per day. Tourist traffic is expected to increase in coming years and it will have a great effect on the general traffic, which is growing at a rate of approximately 10% per year. Improvements would involve widening the roadway to 6 m., and the shoulders to 3 m. 17. Bedulu-Semabaung Road (2 km.): The roadbed is from 7 to 8 m. wide, and the roadway from 4 to 5 m. wide. In several stretches, the road is in poor condition , where the base course should be reinforced. This road is of great economic and tourist interest and should be put Into a good state of repair. Widening its paved area to 6 m. is essen- tial. 18. Batubulan-Payangan Road (21 km.): This road is of economic (agricultural) and tourist interest. The roadway and shoulders are 7 to 8 m. wide, and the 5 m. wide asphalt roadway is in rather bad con- dit,ion. Traffic amounts to approximately 300 vehicles per day. The road would be resurfaced but the same width would be maintained. Im- provements should also include widening the shoulders for pedestrian and bicycle traffic and repairing the drainage system, including trans- ver;al structures. L9. Peguyangan-Sangeh Road (19 km.): This road which directly connects Denpasar and the Monkey Forest, has only one stretch of about ANNEX V Page 5 1 km. in good condition. The stretch is 4 m. wide and asphalted. The remaining 18 km. are in very poor condition, it is poorly asphalted and its crushed-rock base course is quite deteriorated, particularly in the last 8 km. This road is of great economic and tourist importance, be- cause of the agricultural development of the area and the tourist at- traction of the Monkey Forest. No traffic count exists for this road, but the tourist traffic is expected to increase substantially in the next few years. The road should be put into a good state of repair. This would mean grading, repairing the sub-base and base courses, widen- ing the roadway to 5 m. and new surface treatment. 20. Kediri-Tanahlot Road (11 km.): This road has a relative eco- nomic interest, but it is important because of the tourist and religious attraction of the Tanahlot temples. No traffic count exists for the road, but its volume seems relatively small. In the future, the traffic may increase and reach about 120 vehicles per day if the route is put into a good state of repair and continuously maintained. The roadbed should be repaired and widened to 10 m., and the 3 m. wide roadway would require a new asphaltic surface treatment. 21. Ubung-Mengwi Tani-Kediri Road (16 km.): The road and shoulders are 8 m. wide, and the asphalt surface is 4 m. wide. It is in fair state of repair. Traffic counts made in 1968 in the sector between Denpasar and Mengwi-Tani show an average daily flow of 850 vehicles. From Mengwi-Tani to Kediri there are no traffic counts. The road is of much greater economic than tourist interest and should be put in good state of repair. This includes base course repair on the deteriorated stretches, double wearing course over about 15 km. and 5 m. wide new surface treatment. 22. Mengwi-Tani-Pancassari Road (36 km.): This section of the national road connecting Denpasar with Singaradja is of great economic interest. The Batan Lake area is also a very important tourist attrac- tion. The 6 m. wide asphalt cover is in good condition, but the base course has suffered damage in some sect'ions. The average traffic flow has been estimated to be 180 vehicles per day. As a result, of the new hotel developments, an annual traffic increment of about 8% should be added. The improvements to this road should include base course repair and new surface treatment over about 12 km. C. Cost Estimates 23. The estimated costs of roadworks, bridges and stormwater drainage are summarized in Annex I, Tables 2.6, 2.7, 2.12 and 2.13. Cost estimates for the internal roads were prepared by consultants and cost estimates for all roads outside the resort area were prepared by Bina Marga, the highway department of the Ministry of Public Works. They were reviewed during the time of appraisal. Costs are based on Indonesian cost of goods and civil works and should be adequate. A physical contingency allowance of 15% has been assumed for these com- ponents. The price contingency has been estimated on the basis of projections of future, local and international price level changes ANNEX V Page6 during the construction period. Final engineering costs were estim- ated at 4% and cost of supervision at 6% of construction costs plus price increases. The total cost (including contingencies) is es- timated at US$12.7 million for roadworks and bridges, and US$0.8 million for stormwater drainage. D. Procurement and Project Execution 24. Contracts for the implementation of the road works would be subject to international competitive bidding. With respect to the improvement on the eleven multipurpose roads, contracts would be tendered either individually or combined into bidding groups, at the bidders option, in order to permit local contractors to tender for works of a size within their capabilities and to attract foreign bidders. 25. The Bali Tourism Development Corporation (BTDC) would employ consultants for the design and construction supervision of the internal roads and stormwater drainage and would also be responsible for their maintenance. 26. Bina Marga, the highway department of the Ministry of Works, would design all roads and bridges to be built outside the resort area and would also be responsible for construction super- vision and for their maintenance. Bina Marga has been the bene- ficiary of three credits from the Association for Highway Projects (INS - 154, 260 and 388). ANEX VI Page 1 INDONESIA APPRAISAL OF THE BALI TOURISM PROJECT ELECTRICITY SUPPLY A. Responsibility for Electricity Supply 1. The national power company, "Perusahaan Umum Listrik Negara" (PLN), would be responsible for supplying electricity to the Nusa Dua area. The facilities to provide this service would not form part of the IDA financed project. PLN would undertake the work required to link the Nusa Dua area to its local power system and assure that suf- ficient generating capacity to serve the future customers in their area would be available as and when needed. 2. An application for partial financing of the required invest- ments has been submitted to the U.K. Government. During negotiations agreement was reached that the scheme for extension of PLN's power facilities would be carried out in time to meet the demands of the Nusa Dua estate. B. Proposed Extension of PLN's Power Facilities 3. A new diesel power plant with a total generating capacity of 30 mw is presently being built near Denpasar under a scheme partly financed by the U.K. Government. In addition, the scheme already in- cludes a transmission line to the town of Djimbaran and provision for an extension to Nusa Dua. 4. Electricity would be brought to the Nusa Dua resort area by a double circuit transmission line from the new power plant. This line would be designed for 70 kv but would be operated initially at 20 kv. At the end of the transmission line a substation with switch- gears and eight feeders would be erected. From there distribution would be facilitated by a loop system of underground cables and further four switching stations with six feeders each. The voltage of the distribu- tion system would be 20 kv. The connection to individual hotels and BTDC facilities and the provision of transformers would be the respon- sibility of the consumers. Standby generators for emergency power supply are recommended to be installed also by major consumers; BTDC would in- stall such a standby unit as part of the IDA financed project (see Annex I). The villages Benoa and Bualu, located in the immediate vicin- ity of the resort area would receive electricity by overhead lines from the Nusa Dua substation. 5. The power demand for the Nusa Dua area (including the villages) was estimated to be 15 MW by the end of 1982. To meet this demand it is envisaged by PLN that the generating capacity of the Denpasar power plant be increased by an extra 5 MW by 1982 in order to maintain the reliability standards of the power station. 6. It is estimated that the total cost of the PLN project for electricity supply of Nusa Dua, including contingencies, would be about ANNEX VI Page 2 US$3.06 million of which about US$2.52 million would be foreign exchange. The estimates are based on PLN's unit costs for similar systems, in- cluding allowances of 15% for physical contingencies and a price con- tingency based on projected price level changes during the construction period. Details are given in Table 1. 7. The extensions of PLN's local power systems are based on pro- jection of electricity consumption as shown in Table 2, which also in- cludes a very tentative estimate of the financial results presently expected by PLN for the period 1974-82. The projections, however, do no,t represent a full assessment of PLN's future financial position which has been analyzed in more detail in connection with the IDA credits 165 and 334. INDONESIA BALI TOURISM PROJECT COST OF PLN - ELECTRICITY SUPPLY COMPONENT (Exchange Rate = US$ 1.00 = Rps 415) Civil Works Equipment TOTAL COST Foreign Exchange Component Rps (million) Rps (million) Rps (million) US$ (000) Rps (million) US$ (000) Nusa Dua 20 KV main switching sta. 10 66 76 183 65 156 Sub-switching stations (4 no.) 36 218 254 612 224 541 Underground distribution cable network 5 183 188 454 180 434 Pilot wire and radio communication 9 50 59 141 49 117 Overhead distribution system to Bualu & Benoa, incl. street lighting 80 88 168 405 106 256 Sub-total before contingencies 140 605 745 1,795 624 1,504 Contingencies (419) (1,008) (351) (845) Physical increase (15%) 112 269 94 226 Price increase (based on Bank projections) 307 739 257 619 Professional services: (105) (254) (72) (173) Final design (4%) 42 102 34 81 Supervision (6%) 63 152 38 92 TOTAL COST 1,269 3,057 1,047 2,522 April 1974 co LiDONESIA BALI TOURISM PROJECT PLN - ELECTRICITY SUPPLY COMPONENT SUMMARY FINANCIAL PROJECTION Years ending December 31 1974 1975 1976 1977 1978 1979 1980 1981 1982 Electricity consumption (in Gwh) Hotels (Nusa Dua) 1B.6 30.3 39.6 46.6 53.6 Other consumers (Nusa Dua) 3.0 4.2 11.9 15.4 20.2 21.4 General load 51,5 69.5 16.o 83.5 91.8 100.0 110.0 121.0 133.0 Total sales ---9 T 78 207.0 Average revenue (Rp./Gwh) 12.6 14.0 14.6 15.6 16.0 16.0 16.6 16.6 16.6 Revenue (million Rps-) Hoels (Nusa Dua) 204.6 333.3 435.6 512.6 589.6 Other consumers (Nusa Dua) 36. 63.0 17 231.0 303.0 321.0 General load 648.9 973.0 1109.6 1313.4 1566.0 1763.h 2072-4 2301.9 2625.6 Total revenue 10.8 2275.2 2739.0 3117.5 343 2 Operating costs System operating expenses 685.0 924.), 760.0 899.6 1260.6 1564.2 1567.5 1784.1 1966.5 Depreciation 119.3 283.7 319.0 336.0 382.0 436.o 449.0 560.0 700.0 Total operating costs 3 1 2000.2 206. 23 Net operating income/loss (155-4) (235.9) 30.6 113.8 191.6 275.0 722.5 773.4 769.7 Net fixed assets in operation 4562.2 4983.5 4919-5 5375.0 5840.0 5668.0 7197.0 8032.0 9889.0 Rate of return (in %) (3-4) (4-7) .6 2.1 3.2 4.9 10.0 8.8 7.8 (1000 U.S.$) Electricity cost for hotels Total annual cost 493.0 803.1 1049.6 1235.2 1420.7 Average cost per room/day 3.07 2.77 2.51 2.21 2.15 ANNEX VI Notes to Table 2 INDONESIA - BALI TOURISM PROJECT ELECTRICITY SUPPLY ASSUMPTIONS FOR FINANCIAL PROJECTIONS General 1. In projecting the financial results of PLN's Denpasar regional office no attempt has been made to analyze the general load forecast which is based on best estimates of PLN and its engineering consultants. The overall objective of the analysis made for purposes of the tourism project appraisal was to determine: (a) whether PLN's Denpasar regional office had made adequate provision for the expected demand from the Nusa Dua resort area; (b) whether the additional load can be expected to generate sufficient revenue at the proposed tariffs to contribute to a gradual improvement in PLN's rate of return; and (c) whether the cost of electricity per occupied hotel room would represent a reasonable charge both in view of actual costs and in view of expected hotel revenue. Demand 2. The projection of electricity supply to hotels is based on the assumption of an average demand of 4.6 KW per hotel room including allowance for the service area. Average annual consumption was assumed at 22165 kwh, using a load factor of 55%. This would result in average consumption per occupied room per day ranging from 115 kwh to 81 kwh for average occupancy levels from 55% to 71%. 3. The consumption of other consumers in the Nasa Dua area is based on best estimates of PLN's consultants and these are considered reasonable. 4. Overall demand as estimated by PLN's consultants would require operation of 44. MW of generating capacity by 1982 and additional investment of about Rps 10 billion during the period 1974-1982. Revenue 5. In the revenue projections it has been assumed that PLN's Denpasar branch would achieve an average revenue of 14.0 Rps/kwh in 1975, based on the rate regulation which went into effect on July 1, 1973, in accordance with the commitments of PLN to IDA under Credit 334 IND. A further rate increase of 10% was assumed in October 1976 which would eventually raise average revenue to 16.0 Rps/kwh, and ultimately by an additional adjustment of 5% in 1980 to 16.6 Rps/kwh. It was also assumed that the tariff for medium voltage supply to hotels would not be raised to more than 11.0 Rps/kwh and that the average rate for other commercial and low voltage consumers in Nusa Dua, including street lighting, would be not more than 15.0 Rps/kwh. This would necessitate ANNEX VI Notes to Table 2 Page 2 a gradual increase in average revenue for the general load in Denpasar from 14.0 Rps/kwh in 1975 to 19.7 Rps/kwh in 1982. The assumptions made are consistent with the recommendations in a stpdy of the Denpasar branch cost structure made by PLN's engineering consultants. 6. The average revenue per kwh projected for PLN's Denpasar branch is higher than that for PLN's overall operations, because it does not include operations outside Denpasar in the outlying areas which contribute towards PLN's weak financial position in general (see Appraisal Report 87a-IND, May 10, 1973). Operating Costs 7. . Operating expenses are based on detailed calculations of unit costs per kwh prepared by PLN's engineering consultants as adjusted by PI. These calculations are based on an assumed expansion program designed to meet estimated demand by 1983. The program includes installation of the facilities included in the Nusa Dua tourisa project, additional generating capacity totalling 70 MW of which 30 MW would be hydro, and related transmission and distribution system expansion. 8. The average cost per unit sold was assumed to decrease, as a result of greater efficiency of new plant and the use of hydro power towards the end of the forecast period, from 13.3 Rps/kwh in 1974 to 9.5 Rps/kwh in 1982. 9. Depreciation was based on a detailed calculation by PLN's consultants, assuming 15 years' useful life for generating plant and 20 years for distri- bution and transmission facilities. ANNEX VII Page 1 INDONESIA APPRAISAL OF THE BALI TOURISM PROJECT Hotel Training Center 1. The proposed tourism project includes funds to cover the costs of construction and equipment of a new hotel training center in Bali, which is to be operated by the BTDC. This annex presents the background information on which the training component is based. 2. The training needs of Indonesia's tourism sector were reviewed by a Swiss Investigation Mission in the fall of 1971 and by ILO consul- tants in early 1972. As a result of their reports,1/Swiss Technical Cooperation has helped the Indonesian authorities to establish a new National Hotel Institute in the premises of the (now defunct) National Hotel Academy at Bandung, Java and ILO (acting as Executing Agency for UNDP which is providing the funds) is carrying out a project which con- sists of a crash training program and preparatory work for the setting up of training establishments in Bali and Jakarta. Successive IDA missions, which helped prepare and appraise the Bali Tourism Project benefited especially from the work of some of the ILO technicians, who in response to a request from the Indonesian authorities and the IDA appraisal mission prepared A preliminary report on Bali tourism training needs in August 1973.2 3. The findings of the Swiss and ILO missions, as well as the IDA's appraisal team, with respect to the training needs of the hotel industry in Indonesia as a whole, are summarized below: (i) The Indonesian hotel industry is undergoing a period of very rapid growth with the number of rooms of all categories of hotels likely to have increased from less than 4,000 in 1971 to more than double that number in early 1974. (ii) The employee-room ratio varies between 3.3 for some of the large, luxury hotels to 1.5 for the small ones. It seems appro- priate to use an average employee-ratio of 2 in estimating future man- power requirements and resulting training needs. 1/ "Report on the investigation mission regarding the setting up of a hotel training center in Indonesia"; Swiss Technical Cooperation, Berne February 1972 and "Vocational Training Hotel and Tourism Personnel" UNDP (INS/72/020/BO1/11), September 1, 1972. 2/ "Report on Training for Hotel and Tourism Occupations in Bali," ILO, Geneva, October 1973. ANNEX VII Page 2 (iii) On the basis of very conservative estimates of the rate at which visitor arrivals and accommodation capacity will increase dur- ing the next 10 years, an annual minimum of 3,000 hotel personnel will require training. Moreover, of the presently employed hotel personnel of about 8,000, very few received any training before employment and at least 50% require further training. (iv) There are at present only three official training pro- grams in operation: in Bandung, Jakarra and Bali. The new Swiss- assisted National Hotel Institute at Bandung, which started operation in February 1973 is expected to graduate annually about 250 students and 15 instructors in the four main hotel specialities (restaurant, housekeeping, kitchen and reception), all at the basic and medium level. In Jakarta, the Regional Tourist Office is sponsoring a scheme, in operation since April 1972, under which 55 trainees are given three terms of 6-month duration followed by in-between six months on-the-job training in Jakarta hotels, spread over a period of three years. Finally, in Bali since 1969, basic level courses of 7/8-month duration are given by a small training school under the responsibility of the Regional Tourist office, followed by a 4-month period of work in the local hotels. The 1973 enrollment was 328 students. Of these three official training programs only the recently inaugurated Swiss-sup- ported program operates in suitable quarters with reasonably adequate equipment and some full-time staff. The Jakarta courses are given in premises designed for primary education and in Bali the local home economics school is used in the late afternoon. There is an almost total lack of equipment and instructional materials; it is difficult to provide for practical training of students since the large first- class hotels.--where training would be most beneficial--are often over- staffed; and, finally the teachers are almost all part-time or there is a rapid turnover of full-time teachers, with the quality of instruction often poor. The main reason for this last serious difficulty is the fact that in early 1973 teachers in State institutions received a monthly salary of about 8,000 rupiahs compared with 15,000 rupiahs which a basic level employee earns at the Hotel Indonesia and 50,000 to 60,000 rupiahs which would be competitive with salaries for well qualified higher level hotel staff. The only way in which this dif- ficulty has been (temporarily) overcome in the new Bandung National Hotel Institute is by Swiss financing of supplementary remuneration of the full-time teachers. (v) With official training programs at best able to accom- modate 15-20% of the staff which will be needed by the hotel industry every year and only the recently started Swiss supported institute in Bandung providing basic and medium level training of acceptable quality, it is hardly surprising that a great number of private hotel training schools have sprung up in both Jakarta and Bali in recent years. The 18 existing private schools in Jakarta have an estimated enrollment of almost 2,000 pupils with an average annual turnout of about 1,500. In Bali, four private schools have an enrollment of about 640 pupils with an average annual output of about 350 graduates, two-thirds of whom will have received basic and the remainder middle level training. ANNEX VII Page 3 Almost all these schools are part-ime with classes held in the evening, with instructors who are "moon-lighting" personnel from the hotels, i.e. whose teachers' salaries are additional to their regular earnings. The quality of instruction in the private schools varies widely. Some, like "Trisakti", a Dutch financed private institution in Jakarta, with an enrollment of 650 students, appears to command the respect of the hotel trade. Others are doubtless of the fly-by-night variety. In many cases, the judgment of the Swiss investigation mission is clearly warranted that the private schools "are even less well-equipped and have fewer teachers than those run by the State". (vi) It is evident that existing hotel training facilities-- both official and private--are insufficient in size and quality of in- struction, equipment and training aids to meet the minimum needs of the expanding hotel industry for reasonably well-trained basic and medium-level staff. The Swiss supported Bandung National Hotel Insti- tute constitutes a very promising beginning in upgrading the training facilities in Java. ILO and the Indonesian authorities are working on possible ways to improve the quality of instruction in the Jakarta training schools. The proposed new hotel training center in Bali, which is to form part of the IDA financed tourism project, is designed to upgrade the existing "official" training facility and to operate it in close cooperation with the existing and future hotel enterprises. The proposed solution is based on the more detailed analysis of future manpower requirements and existing training facilities in Bali presen- ted in subsequent paragraphs. 14. In mid-1973, there were about 900 hotel rooms of all cate- gories in Bali, of which about one-half were of an internationally acceptable standard, (i.e. fully air-conditioned, with modern kitchen facilities and enough room to accommodate relatively large tour groups). By April 1974, the date of the Pata Conference, it is expected that the number of internationally acceptable rooms will have reached about 1,050, with another 500-600 rooms due to be built by 1976. This will raise the total to about 1,600, the present limit fixed by the Indonesian Government for internationally acceptable rooms outside of Nusa Dua. By 1978, the first hotels at Ausa Dua with a capacity of 700-800 rooms are expected to start operation and in the subsequent five years another 1,700-1,800 internationally acceptable rooms are to be built on sites of the proposed tourism estate. 5. The accommodation facilities on Bali, which are not of fully international standard consist of small hotels of varying quality. Some are unusually attractive; they cater to a specialized international and national clientele; other appeal to the youth market (which is primarily Australian); a large number cater primarily to the domestic trade. Many of them are expanding and it seems likely that in 1978 the number of rooms of these smaller hotels will have more than doubled (from 450 to about 1,000 rooms). In addition, there are several hundred rooms available in guest houses and private rooms in some of the compounds. However, these facilities do not employ a significant number of staff on a full-time basis. ANNEX VII Page 4 0. In mid-1973, a total of about 2,000 people were employed by Bali's hotel industry, about 1,000 in the international standard hotels and another 1,000 in the lower category hotels. On the basis of the projection of new international category rooms likely to be built in the next 10 years, it can be estimated. that the number of hotel employees to be engaged by international standard hotels will be about 3,200 in 1976, around 5,000 by 1978 and close to 8,500 by 1983. When the likely expansion of lower category hotels is taken into account, about 800 new employees will be needed every year during the coming decade. 7. As noted previously, there are at present one official and four private institutions for the training of hotel employees in Bali. Three of them offer one-year basic training courses to 600 pupils, the other two schools provide three-year higher level training to another 200 pupils. In addition, there are two training institutions for hotel secretarial staff and tourist guides. 8. After assessing the physical facilities, the curriculum and the quality of the teaching staff of the existing official and private institutions, the ILO experts who had made a preliminary survey of the existing training facilities in Bali, the Indonesian authorities and the IDA appraisal mission reached the following basic conclusions con- cerning the proposed training center: (i) Most existing institutions are highly unsatisfactory. They operate 3 to 4 hour evening classes only; use rented or borrowed. quarters; have virtually no equipment, teaching aids or written instruc- tional material and use only "moon-lighting" part-time instructors. Despite these handicaps, the official training school has been doing a relatively creditable job in preparing basic-level employees for hotel employment and has enjoyed a closer association and better co- operation from the hotels than the other Indonesian official training programs. The offical school thus offers the best basis for creating a more adequate training system. (ii) With over 80 percent of new entrants into the hotel labor force needing basic and medium level training, it seems advisable that the proposed new training center serve primarily to upgrade such training, without excluding the possibility of providing special manage- ment and higher level technical training once the new institution is well established and has won the full support of the hotel owners and operators. The need for adequate training of basic-level personnel is particularly great in a relatively remote island like Bali. The young Balinese high school graduates of both sexes, who constitute the bulk of the trainees in the existing official school and will doubtless form the greater part of the student body of the new training center, h-v( had relatively little contact with the outside world. They need to gain basic knowledge concerning international hotel standards (in- c i ud 1ng hygienic standards, preparation of western style food, etc.), receive background information on all phases of hotel operations and tourism in addition to training in routine hotel tasks and intensive ANNEX VII Page $ training in English. It was tentatively agreed that basic-level trainees will need a 6-month period of institutional training before taking their first job. Medium-level training will have to cover not only basic skills but many aspects of hotel management. Medium-level staff should receive 6-month training on a part-time basis since it would be essen- tially designed to upgrade the skills of those already working in hotels. Initially, the new training center might serve 250-300 basic-level trainees per year and about 100 medium-level trainees; in subsequent years in excess of 400 basic-level and 150 medium-level trainees might be trained every year. (iii) The new training center should be constructed on land already set aside for this purpose by the Government of Bali--a site located between Denpasar and Sanur. The preliminary plans for the new training center, based on a class size of 25 pupils, call for eight classrooms (including language laboratories), a library, an auditorium, four well-equipped workshops (i.e. kitchen, restaurant, bar, Front Office/Accounting and Housekeeping) as well as housing facilities for four full-time teachers (one for each professional category). The total cost of the new training center is estimated to be about US$1.1 million including the cost of land, construction, equipment and profes- sional services. (iv) The UNDP financed vocational training project for hotel and tourism personnel, for which ILO is the executing agency, calls for a 3-man team, consisting of an adviser in hotel and tourism planning (team leader), an expert in hotel and tourism school design and a training equipment specialist to visit Indonesia, including Bali, for 2-3 months beginning in May 1974. It has been agreed that they will give first priority to helping the Indonesian authorities prepare de- tailed plans for the organization of the new hotel training center in Bali including detailed curricula, criteria for the selection of trainees, staff requirements, and a schedule of accommodations for the center. These would be submitted to the Association by December 31, 1974. Final design and supervision of construction would be carried out by consul- tants. The final design would be submitted to the Association for its approval by June 30, 1975. (V) As noted previously, it is of vital importance for the success of the proposed new training institution that it be organized, operated and financed with the active cooperation of the hotel indus- try and that it should be able to secure the services of a nucleus of well-qualified full-time instructors. Experience indicated that official Indonesian hotel training organizations have found it virtually impos- sible to pay their teachers adequate salaries and they have great dif- ficulty in securing technical, let alone financial support from the hotels. Having the Bali Tourism Development Corporation (BTDC) con- struct, equip and operate the new training center in close cooperation with the hotels to which it will lease sites in the tourism estate ap- pears to hold out the promise of overcoming these difficulties. Even though it will be wholly Government-owned, the BTDC as a P.T. is not ANNEX VII Page 6 subject to the same limitations in setting salaries as a state-training institution which depends for its financing entirely on the budget. It should thus be able to pay the full-time teachers' salaries competitive with those they would earn in well-paid hotel jobs. Moreover, the four senior full-time teaching positions will have the additional attraction that the new training center will provide the teachers with housing. As for the cooperation of the hotel sector, BTDC will be able to assure the financial support by the new hotels which will establish themselves in Nusa Dua through appropriate provisions in the lease contracts and/ or a small increase in the service charges paid by the hotels. As for the hotels outside the Nusa Dua area, BTDC should be able to get them to support the new training center by providing part-time teachers and on-the-job training facilities. In order to assure the closest coordina- tion with the hotels and the Central and Provincial tourism officials in planning and operating the training center, it has been agreed that BTDC would form a special board to give advice on the center's activi- ties, on which the hotels and the Provincial tourism officials would be represented. (vi) Preliminary estimates indicate that total annual operating costs of the school will be of the order of US$70,000. On the basis of past experience, it appears that an annual tuition fee of 20,000 rupiahs (or US$50) per pupil would not be unacceptable. The annual revenue from pupils' fees would thus total close to $20,000 once the school is in full operation. BTDC should have little difficulty in covering from its land lease fees and service charges the difference between the revenues from pupils' fees and the schools' operating costs. 9. Financing Plan The 1974-76 financing plan for the hotel training center can be sumarized as follows: Requirements Rp us $ (mllions) (thousands) Local costs 221.7 534.2 Foreign Exchange Costs 252.2 607.7 Total Costs 473.9 1,141.9 Source of Funds Government contribution 256.3 617.6 IDA 217.6 524.3 Total Source of Funds 473.9 1,141.9 ANNEX VII Page 7 10. The Indonesian authorities, ILO and UNDP, are actively dis- cussing a possible second UNDP financed project which would include funds for expatriate teachers who would be assigned to the Bali tourism training center for the first few years as well as the financing of training abroad for some of the Indonesian teaching staff.  ANNEX VIII Page 1 INDONESIA APPRAISAL OF THE BALI TOURISM PROJECT Agricultural Technical Assistance Introduction 1. At the present time, the hotels on Bali are relying signif- icantly on foodstuffs grown and processed on Java or imported from other countries. Although some effort has already been made to orient the agricultural sector on Bali toward supplying the hotels,-1the pro- duce available locally is typically characterized by (a) inadequate and uncertain quantity, (b) uneven quality, and (c) limited variety. In addition, local farmers sell their produce to the hotels through brokers, receiving only about a third of what the brokers receive from the hotels. The further development of tourism on Bali, and the resul- tant increases in demand for fruits, vegetables, poultry and livestock products, would provide a number of opportunities to change this situ- ation. 2. The technical and financial assistance described below is de- signed to maximize the effectiveness of the tourism sector in further- ing the economic development of Bali through (a) insuring adequate sup- plies of agricultural products to the hotels at a minimum cost (in part by reducing transport costs), (b) improving the share of tourism bene- fits which remain in Bali by reducing the imports from Java and from abroad, and (c) improving the distribution of benefits within Bali, particularly as between farmer and various middlemen. At the same time, of course, the increased supply of local agricultural products would reduce the hotel's reliance on imported food stuffs, and thereby increase the net foreign exchange earnings from tourism. 3. In order to help ensure that increased supplies will in fact, develop, the tourism project would include about US$ 300,000 of tech- nical and financial assistance for the agricultural sector. The spe- cific components of this assistance are.described below. Vegetable Production L. Technical assistance for gearing up the vegetable producing capacity would take the form of a small (about 10 hectares) agricultural 1/ See Table 3 for current levels of produce sales by a group of far- mers organized specifically for supplying vegetables to the hotel industry. ANNEX VIII Page 2 station to be established b the Govermment, with the assistance of a technical adviser for an initial period. The primary functions of the station would include (a) production demonstration, (b) vegetable grading, (c) seeds production and (d) contract negotiations with hotels and restaurants. Excluding the cost of land, which is assumed to be provided by the Government, the investment costs are estimated as follows: RuTiahs U$ Site preparation 1,200 2,900 Buildings and Water Supply 4,800 11,'600 Agricultural and other equipment 6,100 14,700 Price level adjustment to January 1974 1,300 3,100 Sub-total 13,400 32,300 Contingencies 5,500 13,300 Professional Services 1,700 4,100 Initial working capital 4,800 11,600 Land Acquisition 20,800 50,000 Total 46,200 111,300 The services of the adviser would be required in order to establish the station and to guide both the production and the mar- keting efforts during the first three years of operation. He would, at the same time, train a counterpart Balinese who would be respon- sible for operating the farm. The estimated cost, including travel and living expenses and fringe benefits would be about US$50,000 per year or about US$150,000 for three years. 6. The establishment of the agricultural station would be the responsibility of the Bali office of the Yinistry of Agriculture. Following the initial three-year development period, the farm could be sold as a cooperative venture to local farmers. Poultry and Egg Production 7. In order to improve the quantity and quality of poultry and egg production, technical and financial assistance would be required over about a three-year period. Technical assistance would take the formi of approximately two man-months of a technical adviser, includ- ing an initial visit of 4-5 weeks to advise on what needs to be done and, later, a 3-4 week follow-up visit to ensure that the recommen- dations are being implemented effectively. The estimated cost of thi. expert, including travel and living expenses would be about US$10,000. Responsibility for implementing the technical recom- mendations would be that of the Bali office of the Ministry of Agriculture. 8. In addition to technical assistance, local poultry farmers would require a small amount of financial assistance in the form of approximately US$35,000 of medium term credit. Assurances were ANNEX VIII Page 3 obtained during negotiations that the Government will cause such credit to be made available through the Bank Rakyat Indonesia (BRI). Beef and Pork Production 9. The general quantity and quality of beef cattle and hogs on Bali appear to be sufficient to meet current hotel requirements, and the expansion of supply for future requirements is not expected to pose major difficulties. What is deficient currently is the quality of butchered meat, since hotels and restaurants generally require care- fully cut meat sections in order to allow for portion control. In order to overcome this deficiency, and to allow for economies of scale, it has been proposed that the BTDC be responsible for securing the co- operation of Nusa Dua hotels in the establishment of a small common slaughter-house to be financed and operated by the hotels. In addition, the BTDC would review initial marketing contracts with local livestock producers in order to ensure that they receive an equitable price for their cattle and hogs. Financial Plan 10. The estimated total costs of the above technical and financial assistance and the proposed sources of funds, can be summarized as fol- lows: US$ Requirements Agricultural station 111,300 Agricultural expert 150,000 Poultry expert 10,000 Poultry Farmers' Credits 35,ooo Total 306,300 Sources of Fimds IDA Credit 134,700 Government contribution 171,600 Total 306,300 11. The IDA credit would cover 88% of the estimated foreign ex- change costs of the agricultural station and the expatriate technical experts, with the balance being provided by Government contributions, plus the medium term credit for poultry farmers through the BRI.  Projections of Food Regjirements1' ('000 kg) Total Fruits No. Total Average No. of and of Rooms No. of Length Guest Beef Pork Chicken Eggs Vegetables Potatoes Juices Milk Total Year Available Visitors of Stgq Nights (285 kg (9 e (190 j (400 kg) (380 kg) (30 kg) 17 kg) (2,040 kg) ('000) (days) 1973 400 95 2.3 219 62 20 42 34 88 83 81 37 447 1974 1,050 149 2.5 373 106 34 71 58 149 142 138 63 761 1975 1,300 185 2.7 500 142 51 95 76 200 190 185 85 1,024 1976 1,600 218 3.0 654 186 59 124 101 262 249 242 111 1,334 1977 1,600 248 3.0 744 212 67 141 115 298 283 275 126 1,517 1978 2,400 277 3.5 970 276 87 184 150 388 269 359 165 1,978 1979 2,900 334 3.5 1,169 333 105 222 181 468 444 433 199 2,385 1980 3,300 410 3.5 1,435 409 129 272 222 574 545 531 244 2,926 1981 3,600 479 3.5 1,677 478 151 319 260 671 637 620 285 3,421 1982 3,900 519 3.5 1,817 516 164 345 282 727 690 672 309 3,707 1983 4,100 545 3.5 1,908 544 172 363 296 763 725 706 324 3,893 1984 4,100 582 3.5 2,037 581 183 387 316 815 774 754 346 4,156 1/ Consumption will depend upon eating habits of visitors, type and menu composition, etc. The above calculations are based on a small sample survey made in Bali by the firm of ILACO of Arnhem, Netherlands, and assumes food requirements per units of 1000 guest-nights on a full board basis, i.e. includes breakfast, lunch and dinner. D ANNEX VIII Table 2 INDONESIA: Bali Tourism Project Demonstration Farm - Investment Costs/ Item Rupiahs US$ (000) Site Preparation 11200 2_900 Sub-total 1,200 2,900 Buildings 21/ - Collecting centre for vegetables (60 m2) 900 2,169 - Storage space (75 m2)2/ 1,125 2,711 - Workshop/Garage (h0 m2)2/ 600 1,6 - Laboratory (50 m2)3/ 1,175 2,831 - Piping and duct for water supply 1,000 2-241 Sub-total 1L800 11,567 Agricultural and Other Equipment wo-wheeled tractors (1) 800 1,928 - 3-ton truck 2,950 7,108 - Motor-cycles (2) 400 964 - Motor-sprayers (2) 125 301 - Knapsock sprayers (4) 125 301 - Weighing scale 100 241 - Office equipment 250 602 - Tools and parts 1,125 2,711 - Packaging material 200 482 Sub-total 65075 14,639 Price level adjustment to January 1974 1,300 3,100 Contingencies 5,500 13,300 Professional Services 1,700 L,200 Working Capital 4,800 11,600 Land Acquisition 20800 50,000 Total 46,175 111,306 1/ It is calculated that land needed would be about 10 hectares and it is assumed that this would be provided by the Government, At present land prices vary between US$ 0.60 to US$ 19.0 a sq. meter. Ten hectares at US$ 5.0 a sq. meter would cost about US$ 50,000. Part of the information was derived from a study by ILACO of Arnhem, Netherlands. 2/ At Rs. 15,000 per m2. 3/ At Rs. 22,500 per m2 INDONESIA: Bali Tourism Project Sales - Vegetables - 1972 (Kilograms) Item Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Total White Cabbage 129 534 674 387 281 121 698 281 - - - - 3,105 Chinese Cabbage 203 - - 319 220 155 506 608 - - - - 2,011 Carrots 447 222 385 437 160 59 460 830 291 - 221 253 3,764 Zuccinni 49 27 58 24 46 11 36 32 - - - 23 306 Lettuce 426 238 196 239 161 64 314 648 181 394 250 271 3,382 Leeks 285 244 328 292 270 209 330 422 192 277 293 236 3,438 Green Beans 144 76 - 96 87 101 18 187 - - - - 709 Celery - - - - - 2 - 6 - - - - 8 Parsley 35 17 18 27 11 9 15 12 33 5 18 5 175 Green Pepper - - - - - 33 31 13 7 20 32 18 154 Potatoes - - 40 - - - 426 390 3 - 132 80 1,071 Broccoli 13 10 - - 2 - - - 25 Sweet Pepper - 12 --- 12 Cauliflower - 8 -- 8 Turnips - - - - - - - 80 - - - - 80 Tomatoes - - - - - - 73 - - - -73 1,731 1,388 1,699 1,821 1,236 764 2,834 3,644 677 696 946 835 18,321 SOURCE: Provincial Government of Bali. 1/ Sales by a group of farmers organized to provide vegetables to the tourist industry.  Annex IX Page 1 INDONESIA APPRAISAL OF THE BALI TOURISM PROJECT Market Demand and Hotel Development A. Market Demand Market Characteristics 1. Bali is located between the Indian and Pacific Oceans, about 400 miles southeast of Jakarta and relatively close to the three most highly developed tourist centers of Southeast Asia: Singapore, Bangkok and Hongkong. It occupies a strategic location between Australia and the main- land of Asia. Bali has a long-standing image among foreigners as among the most exotic of the South Pacific islands, possessing great natural beauty and unique cultural attractions. The possibility of combining cultural, scenic and beach tourism has a strong appeal to wide segments of the tour- ism market. 2. The tourists likely to be attracted by Bali comprise three distinct market segments: (i) Vacation tourists on multiple stop group tours throughout Southeast Asia. This market has expanded very rapidly in recent years, partly on the basis of charter flights from Europe and Japan, but has thus far hardly been tapped by Bali. The main reason has been the lack of accommodation suitable for sizeable groups of foreign tourists. Group tours are a natural and most promising tourist market for Bali, because the island will complement rather than compete with destinations like Singapore, Bangkok and Hongkong, and thereby increase the attractiveness of the Southeast Asia region as a whole for the multi-destination package or group tours. Such groups are likely to spend not more than 2-3 days in the island. (ii) Vacation tourists from Australia, New Zealand, other neighboring countries in Southeast Asia and, in the longer run, Japan, for all of whom Bali would be a single destination resort. Australian vacationists are already coming to Bali for relatively longer periods than other tourists. They tend to spend up to three weeks in Bali. (iii) Business travellers to Indonesia, mainly Jakarta, still account for the largest part of total arrivals (300,000 in 1973) in Indonesia as a whole. This seg- ment of Bali's tourist market is not unimportant, but has not been developed to its full potential - again because of the lack of suitable accommodation in Bali Annex IX Page 2 and the considerable difficulty in obtaining plane reservations for the Jakarta-Bali flight at short notice. A related market segment consists of foreign businessmen and officials, and their families, resi- dent in Indonesia. Both these business market seg- ments are likely to be oriented primarily to weekend tourism. Foreign residents, however, might well have more extended stays than non-resident business visitors. 3. The analysis which follows is an attempt to assess the impact on the Bali tourism market of the growth of each of the above market segments under various assumptions regarding the potential impact of the energy crisis. It begins with an analysis of historic trends as an indication of possible future development. Because of its potential effects on demand, Indonesia's air access policy is also briefly discussed. Past Trends in Foreign Visitor Traffic to Bali 4. According to the official data collected by the local immigration authorities, the number of foreign arrivals in Bali was 60,650 in 1972. However, this represents only the number of foreign visitors who arrived in Bali directly from abroad, and excludes the substantial number of foreigners who came to Bali after first disembarking in Jakarta or other points in Indonesia. On the basis of hotel registration data in Bali, it has been estimated that the total number of foreign arrivals, including those who came from Jakarta and other cities in the country, was about 80,000 in 1972 and 95,000 in 1973. From a comparison of these figures with the 37,000 arrivals in 1969, estimated by the French consultants (SCETO) who also analyzed hotel registration data, it appears that during the last four years the number of foreign visitors to Bali has, on the average, increased by 27% per annum. 5. Data obtained from the 300-room Bali Beach Hotel for 1972 indicate that Western Europeans with 36 percent constituted the largest group among foreign visitors to Bali, followed by North Americans with 28 percent, Australians and Japanese with 12 percent and 11 percent, respectively while visitors from other countries of Southeast Asia accounted for about 9 percent. A study of similar data of some of the smaller tourist,type hotels and informa- tion obtained from tour operators indicates that the above breakdown of visitors by area of origin reflects reasonably well the situation for Bali as a whole. The data also indicate that the number of Japanese visitors has been growing particularly rapidly in the last three years. 6. Tourist traffic to Bali is fairly even throughout the year, except for a relatively slack period in June. The peak months are August and October, followed by the spring months of March to May. Most of the foreign visitors arrive in Bali by air. At present there are 73 flights to Bali a week. Of the total, 42 are domestic flights,. Twenty-five flights combine domestic and international air service through Jakarta, and six are direct interna- tional flights. Annex IX Page 3 7. The average length of stay of foreign visitors to Bali is rela- tively short: 2-3 nights. This reflects the large number of vacation touridts who come to Bali as a part of tour programs which include various other destinations in Southeast Asia. The average group on package tour consists of 30-40 tourists. Some visitors, of course, come to Bali on the basis of their own arrangements, including foreigners resident in the country. Most of the tourists take sightseeing trips to visit temples, volcanoes and other tourist attractions in Bali for at least half of their stay which averages three days. 8. Based on current expenditure patterns of tourists who come to Bali on group or package tours, the average daily expenditure in Bali has been estimated at about US$46, which is higher than the average tourist expenditure in Indonesia as a whole and is relatively high compared with daily expenditures in other tourist destinations in Southeast Asia (except for Hongkong and Singapore where shopping accounts for more than half the daily expenditures; see Table 5 of this Annex). Future Foreign Visitor Traffic to Bali 9. In assessing the likely flow of foreign tourists to Bali over the next few years, it is important to stress that until very recently demand has been severely repressed because of the scarcity of acceptable accommodation. There are several indications that a much more rapid growth in visitor arrivals would have occurred had it not been for this bottleneck. Firstly, at the time of appraisal in mid-1973, local tour operators stated that most of them could have more than doubled the number of groups and individual visitors to the island if they could have secured firm room commitments. Secondly, the existing hotels of acceptable international standard have experienced very high average yearly room occupancies (about 85-90%) in recent years. Indeed, the two first-class hotels on Bali which were in operation prior to November.1973 have been able to insist that tour organizers make up to three months advance reservations, including substantial guarantee payments. Thirdly, confirming the existence of frustrated demand, the new 400-room Bali Hyatt Hotel which was inaugurated in November 1973 had reportedly heavy booking for several months in advance. Fourthly, although the Indonesian authorities liberalized direct air access to Bali for charter flights in early 1973, tour operators were unable to organize such flights because of the lack of hotels where large groups could be booked. Finally, in the absence of this constraint, it might have been expected that the growth in visitor arrivals in Bali would have paralleled the rate of growth of pleasure travel to Indonesia as a whole, especially since Bali is the country's prime tourist attraction. Instead, arrivals in Bali grew by only 27% per year between 1969-73 while visitor arrivals to Indonesia as a whole were growing by over 50%. 10. Of the three market segments likely to be attracted to Bali, multiple-stop group tours to Southeast Asia are the most important. They may account for about two-thirds of Bali's tourism market. The potential of this market may be gauged by noting that the number of visitor arrivals to Singapore, Bangkok and Hongkong grew by 20% per annum on the average over the last five years reaching 783,000, 821,000 and 1,082,000 respec- tively in 1972, of which over 60% were on vacation, most of them on group Annex IX Page 4 tours. Until recently, U.S. visitors consituted the largest proportion among such tourists but in the last five years group tourism from Japan, Europe and Australia grew much faster and by 1972 U.S., Japanese and Western European tourists each accounted for close to 20% of total visiu tors to the three cities, with Japanese group tourism having experienced the most rapid growth. Before the recent advent of the world-wide energy crisis, there was little reason to doubt that the rapid increase in group tourism to Southeast Asia would continue and perhaps even accelerate and that Bali would be in a particularly good position to benefit from this trend. 11. The energy crisis may affect the flow of group tourism in two major ways: first, it may lead to an economic setback of the major tour- ist generating economies, especially Japan and Western Europe, in the next year or two and in a significant slowing in the rate of growth of these economies over the next 5-7 years; second, the spectacular rise in the price of petroleum products will tend to increase airfares (including charter rates) and thru its impact on the balance of payments of some important tourist generating countries lead to the devaluation of major currencies making foreign travel more costly and/or leading to the impo- sition of direct foreign currency restrictions for vacation travel. It is by no means clear, however, that the resulting slowing down in the growth of group tourism to Southeast Asia or even a temporary stagnation of this traffic will have a corresponding impact on the group tour market for Bali. At present the island receives less than 5% of total touristsvisiting the three major tourist centers of Southeast Asia. In 1974, for the first time Bali will have sufficient internationally acceptable accommodation facilities to begin to take advantage of the previously repressed level of demand for individual and tour group bookings. It is therefore reasonable to conclude that a higher share of the Southeast Asian tour market can be captured for Bali in the future which would assure an increasing flow of tourists even in the absence of a continuing increase in the tourist traffic to Southeast Asia a a whole. 12. The number of AustrAlians and other vacationists coming to Bali as a single destination has been growing significantly in recent years. In the opinion of the tour operators, the increasing availability of GIT rates and charter flights will lead to a very marked expansion in the flow of such tourists once more accommodation is available in Bali. Because of its rela- tive self-sufficiency in oil resources, and the strength of the world market for Australia's major exports, the impact of the energy crisis on the Aus- tralian economy is not likely to be very severe. Hence, there is good reason to believe that over the medium and long-run, the GIT fares and char- ter flights will largely offset the impact of the energy crisis on the Aus- tralian market, so that Australian. tourism to Bali will continue to grow at about the same rate as in the past. 13. As to the third market segment, business travelers, it is relevant to note that Indonesia is the most important oil producing country in South- east Asia and will, in the next few years, be a major beneficiary of the spectacular rise in the price of petroleum. Further, Indonesia will be an Annex IX Page 5 increasingly interesting and profitable export market and, because of its oil and natural gas resources, will attract much foreign investment. All these factors will tend to increase the flow of business visitors to Indonesia and probably also the number of foreign businessmen, tech- nicians and officials resident in the country. As noted above, these business visitors and residents will constitute an important market for Bali and a market strengthened rather than impaired by the energy crisis. 14. In summary, it seems clear that the tourism market for Bali is likely to be very diversified and consequently dependable. The fact that Bali draws a sizable share of visitors from five different markets, i.e. the U.S., Western Europe, Japan, Australia and the neighboring countries of Southeast Asia and relies on three very distinct market segments is at least a partial insurance against a major adverse change in likely demand growth because of the energy crisis. As noted, each market segment has some counterbalancing factors in case of a decline in overall international tourist flows. 15. An additional factor which could be important in the develop- ment of future tourism demand is the air access policy that will be adopted by the Government of Indonesia regarding Bali. In bilateral negotiations on air traffic rights, the Government is seeking a substan- tial share of the air traffic to Bali for the national airline, Garuda. As part of this effort, the Government has informed foreign airlines serving Bali that they will not be permitted to use Bali as a terminat- ing point in Indonesia; if a terminating point is desired, it wuld have to be Jakarta. Airlines serving Bali on through flights, such as Singapore/ Bali/Sydney, would not be affected.1/ The Government has not announced any intention to apply such restrictions to charter flights, but has indicated that it would encourage joint ventures and pooling arrangements between Garuda and foreign airlines. The Indonesian authorities are currently reviewing these questions in order to find solutions which would permit Indonesia to tap its promising tourism market while safeguarding the interests of the national airline. Demand Projections 16. Given the above demand characteristics and likely trends of future visitor traffic in view of the likely impact of the energy crisis, it is projected that Bali as a whole would receive 287,000 foreign visitors in 1978, when the first hotels at Nusa Dua are sched- uled to open, and 540,000 by 1983 when all 2,500 hotel rooms will be in operation. These estimates are based on the assumption that the number of Foreign visitor arrivals to Bali would grow at an average annual rate of 26% from 1973-1977. Because of the higher absolute number of visitors and a gradual elimination of repressed demand, it is assumed that the growth rate would decline during the subsequent six-year period of 1978- 1983 to 14%. The average annual growth rate during 1973-1983 is assumed to be 19%. 1/ As a result of this policy, two airlines have discontinued flights to Bali; three other major air carriers, however, continue to serve Bali on through flights. Annex IX Page 6 17. The projections are considered reasonable in the light of the following: (i) Foreign visitor arrivals in Indonesia as a whole increased by 52% annually in recent years. With the elimination of the acute shortage of hotel space in Bali, which resulted in a repression of demand during 1969-73, a much higher growth rate than 26% might have been expected in the absence of the energy crksis; (ii) There would be a reduction by about one-third in the real rates of growth of GNP and disposable income in Western Europe, the U.S. and Japan during 1973-80. The effect of this slowing down of disposal income growth and possible changes in fares and exchange rates on the number of foreign tourists visiting Southeast Asia (as members of multiple-stop group tours), might be more than proportional which is consistent with past experience that tourism expen- ditures abroad are highly income and price elastic. Bali's inclusion in an increasing number of these group tours would, however, limit the impact of this slowdown on the tourist demand for Bali; (iii) The Australian vacation market for whom Bali is often a single destination would be relatively less affected than the multiple-stop tour group market from Japan, Europe and the United States and would continue to grow at a relatively rapid rate; (iv) The number of business travellers to Indonesia who might also visit Bali would grow at least as rapidly as in the past in light of increased business travel to Indonesia resulting from the energy crisis (see para 2 (iii) above). 18. In the light of the possibility that the energy crisis might have a more significant impact on the tourism markets for Bali than the above, three alternative projections of market demand have been made for the period 1978-1983/85. All of them assume that demand in the next four years, 1974-77 will increase by only 17% annually rather than at a rate of 26% as stated above or a much higher rate (40-50%) which might well have been the case in the absence of the energy crisis. 19. The reduction of the likely growth rate in demand to 17% reflects the assumption that the full effect of a marked slowing down in the growth of travel to Southeast Asia from Japan, Western Europe and North America would make itself felt in Bali, without being offset by the compensating factors noted previously. Annex IX Page 7 20. The projected number of foreign visitor arrivals under alternative assumptions are as follows: Projected Foreign Visitor Arrivals Alternatives Year Basic I II 111 - 1973 95,000 95,000 95,000 95,000 1977 240,000 180,003 180,000 180,000 1978 290,000 200,000 220,000 200,000 1980 400,000 270,000 320,000 260,000 1983 540,000 540,000 540,000 430,000 1985 - - - 540,000 Average Growth Rate 1973-1977 26% 17% 17% 17% 1977-1983 14% 20% 20% 17% 1977-1985 - - - 15% 1973-1983 19% 19% 197. 16% 1973-1985 - - - 15% 21. Alternative Projections I and II assume that the number of foreign visitor arrivals to Bali will increase to 540,000 by 1983 as in the basic projection, reflecting a relatively rapid and vigorous recovery of the rate of growth of visitor traffic following the much slower growth during the 1973-1977 period. This would imply an annual average growth rate of 20% for 1978-1983 as compared to an average annual growth rate of only 14% for the basic projection. Alternative II represents a modification of Alter- native I in that it assumes a more rapid recovery of demand. 22. Alternative III, assumes that it will take demand longer to recover from the relative setback caused by the energy crisis so that a total visitor traffic of 540,000 will only be reached two years later, in 1985 and the average growth rate for the 1978-85 period will be only 15%. Hotel Development 23. Through the expansion of existing and the construction of new hotels the number of internationally acceptable rooms increased to about 1,050 Ly March 1974, when the PATA workshop was held in Bali, as compared Annex IX Page 8 to 450 prior to November 1973. During the subsequent three years, another 500 to 600 rooms are scheduled for completion, bringing the overall total to 1,600 rooms which is the limit on internationally acceptable accommoda- tion outside Nusa Dua set by the Indonesian authorities. This limit was established by a preliminary agreement between the Indonesian authorities and the World Bank Group in the interests of a planned and orderly devel- opment of Bali's tourism. The Nusa Dua project will provide approximately another 2,500 rooms during the period 1978-83. The following table shows the most likely annual buildup of hotel capacity at Nusa Dua reflecting the repressed demand for hotel accommodation and the consequent strong interest already shown by both foreign and Indonesian investors and hotel operators in the development of accommodation facilities at Nusa Dua (see para 27). Year Hotel rooms Outside Nusa Dua Nusa Dua Resort Annual Cumulative Annual Cumulative 1974 550 1,05G - - 1975 200 1,250 - - 1976 - 1,250 - - 1977 300 1,550 - - 1978 - - 800 800 1979 - - 500 1,300 1980 - - 400 1,700 1981 - - 300 2,000 1982 - - 300 2,300 1083 - - 300 2,500 24. The "basic" projection of a 26% annual growth in foreign visitor arrivals in Bali during the next four years 1974-77 would result in average annual occupancy rates in the hotels outside Nusa Dua of 65% in 1974, rising to 70% by 1976 and 75% by 1977. The alternative projection of an annual growth rate of only 17% during the same period, would lead to 50% occupancy during 1974 and 1975 and 55% in the subsequent two years. The lower occu- pancy of hotels outside Nusa Dua under the alternative projections might induce the potential hotel investors in Nusa Dua to modify the phasing of the build-up of hotel rooms. Moreover, it is assumed that they will adjust the phasing in accordance with the varying assumptions concerning growth of demand during 1978-83/85 presented in para 20 above. 25. The following table shows four possible phasings of hotel develop- ment in Nusa Dua corresponding to the "basic" and the three alternative demand projections. It also shows the assumptions regarding average annual room occupancies. Annex IX Page 9 Build-up of hotel rooms and occupancies in Nusa Dua (1978-83/85) iasic Assumption Alternative Assumptions I II III Rooms Occ. Rooms Occ. Rooms Occ. Rooms Occ. Year Annual Cumul %) Annual CumulaV/(%) Annual Cumull (%) Annual Cumula7 78 800 2,350 65 200 1,750 60 400 1,950 60 200 1,750 60 79 500 2,850 65 300 2,050 65 400 2,350 65 200 1,950 65 80 400 3,250 70 300 2,350 65 400 2,750 65 300 2,250 65 81 300 3,550 75 400 2,750 70 400 3,150 70 300 2,550 70 82 300 3,850 75 500 3,250 70 400 3,550 70 300 2,850 70 83 200 4,050 75 800 4,050 75 500 4,050 75 400 3,250 75 84 - - - - - - - - - 400 3,650 75 85 - - - - - - - - - 400 4,050 75 a/ Including hotel rooms outside Nusa Dua. Expected Profitability 26. The occupancy levels would, of course, determine the potential profitability of hotel operations. A projection of the gross operating Orofits for hotels in the Nusa Dua resort is given in Table 8 assuming occupancy rates ranging from 55% to 75%. According to these estimates, the gross operating profits on 2,500 hotel rooms when the resort is in full operation would result in a return of about 15% on the capital invested in hotels, after allowing for the charges to be made for utilities and other services to be provided at the resort. After deducting land-lease payments, management fees, and depreciation charges, the return on total capital invested would amount to about 12%. The return on equity would, of course, depend both on the capital structure of the investor and on the terms and conditions of debt financing; on any reasonable assumption regard- ing terms and conditions of loans, however, the return on equity should prove attractive. Annex IX Page 10 Investors' Interest 27. The interest already indicated by investors supports the con- clusion that prospects for hotel investment are favorable in view of the market demand even under adverse conditions and because of the expecta- tion of relatively high profitability of future hotel operations in Bali. Among investors and hotel operators from whom the Indonesian authorities have received strong indications of interest are the following: an Indonesian group of investors with links to the country's oil. industry in association with Hilton International as potential operators; the Southeast Asia franchise holders of Rnada Inns; Travelodge ,and another Australian group associated with Menzies hotels; four Japanese groups of investors and hotel operators including a subsidiary of Japan Airlines in partnership with Indonesian investors, the Club Mediterranee through C. Itoh, its Japanese associate anc. a Singapore group. Some.,of these investors have tentatively chosen specific sites within the estate area and are now awaiting an early clarification of lease terms and other conditions for investing in the area. Negotiations with potential in- vestors would commence once the financial plans of the project are com- plete, final designs are initiated, BTDC has formulated a definite set of policies, and after proposals of hotel investors and operators have been carefully reviewed with respect to the reputation of the firms, their financial capability and their market connections. During nego- tiations it was agreed that, until 1985, the Government would continue to limit the number of internationally acceptable hotel rooms outside Nusa Dua to 1,600, subject to periodic review of the limit by the Govern- ment and the Association. Annex IX Table 1 Number of Visitor Arrivals, Indonesia: 1960-1972 Year Number 1960 26,770 1961 32,285 1962 40,856 1963 36,844 1964 35,915 1965 29,567 1966 19,311 1967 26,391 1968 52,393 1969 86,067 1970 129,319 1971 178,781 1972 220,000 Annual Average Growth Rate 1967 - 1972 52% Source: Directorate General of Immigration Bali: Nusa Dua Tourism Project Number of Visitor/Tourist Arrivals to Indonesia by Selected Countries of Origin 1972 Percentage of Average Growth 1967 1968 1969 1970 1971 1972 Total Visitors '67-'72 '69-'72 North America 4.6 12.7 18.0 22.0 38.2 48.1 (21 60% 39% U.S.A. 4.5 11.9 16.9 20.3 35.1 43.9 (20) Canada 0.1 0.8 1.1 1.7 3.1 4.2 ( 2) Euro2e 6.4 11.2 15.7 20.6 35.8 49.3 (21 51% 46% U.K. 2.9 3.6 5.3 7.5 13.3 18.0 ( 8) Germany 2.4 2.4 2.9 3.5 6.8 11.0 ( 5) Netherlands 0.3 2.2 3.7 4.2 7.1 8.8 ( 4) France 0.6 1.5 1-7 2.6 4.6 n.a. k -) Italy 0.1 0.9 1.1 1.4 2.3 n.a. ( -) Switzerland 0.1 0.6 1.0 1.4 1.7 n.a. ( -) Oceania 3.9 3.3 5.5 8.7 18.3 23.1 43% 61% Australia 3.8 3.1 5.0 7.8 16.9 21.1 (10) New Zealand 0.1 0.2 0.5 0.9 1.4 2.0 ( 1) Japan 1.6 4.5 7.8 8.4 15.5 24.3 () 75% 46% Other Asian 4.1 7.7 17.2 24.3 40.6 45.8 (21 64% 39% Malaysia 1.7 1.7 9.2 12.9 24.3 19.4 ( 9) Singapore 2.3 4.8 6.0 8.3 10.8 12.3 ( 6) Philippines 0.1 0.8 1.5 2.7 4.7 n.a. ( -) Thailand - 0.4 0.5 0.4 0.8 n.a. ( -) Others 5.8 13.0 21.9 45.3 30.4 29.4 (13) 38. 10 Z Total 26.4 52.4 86.1 129.3 178.8 220.0 (100) 52% 7 Annex IX Table 3 Seasonality of Visitor Arrivals to Indonesia, 1969-1972 (in thousands) Annual Average 1969 1970 1971 1972 1969-1971 (a January 5.4 7.5 11.8 16.5 8.2 ( 6.3) February 5.6 9.6 13.7 18.1 9.6 ( 7.3) March 6.8 10.1 14.8 19.5 10.6 ( 8.1) April 6.9 9.9 14.8 17.2 10.5 ( 8.0) May 5.9 10.5 16.4 18.1 10.9 ( 8.3) June 6.7 11.8 12.8 15.9 10.4 ( 7.9) July 7.8 12.3 16.0 n.a. 12.0 ( 9.1) August 8.0 12.0 16.9 n.a. 12.3 ( 9.4) September 6.5 9.7 13.9 n.a. 10.0 ( 7.6) October 9.1 10.8 15.7 n.a. 11.9 ( 9.1) November 8.8 12.1 16.0 n.a. 12.3 ( 9.4) December 8.5 13.0 16.0 n.a. 12.5 ( 9.5) 86.0 129.3 178.8 105.2 131.2 (100.0) Source: Directorate General of Immigration Annex IX Table 4 Bali Beach Hotel Number of Foreign Guests by Nationality 1970-1972 (in thousand) Av. Annual Country 1970 Ia. 1972 Growth Rate (%) North America 10.4 (29) 14.2 (28) 16.9 U.S.A. 9.9 (28) 13.5 (27) 16.7 Canada 0.5 ( 1) 0.7 ( 1) 18.5 Europe 13.1 137) 18.1 (36) 17.5 Germany 3.1 ( 9) 4.4 9) 19.2 Netherlands 1.9 ( 5) 2.3 ( 5) 10.0 U.K. 2.1 ( 6) 3.0 ( 6) 19.5 Swiss 2.0 ( 6) 2.6 ( 5) 14.0 Other 4.0 (11) 5.8 (11) 20.0 Asia 6.6 _l9 10.1 (201 24.0 Japan 2.1 ( 6) 5.7 (11) 64.7 Malaysia - ( -) 0.1 ( -) Singapore 0.4 ( 1) 0.3 ( 1) Other 4.1 (12) 4.0 ( 8) - Oceania 4.4 12) 6.4 (13) 20.0 Australia 4.4 (12) 6.0 (12) 16.8 New Zealand - ( -) 0.4 ( )- Other 1.0 _ 1.4 3) 18.5 Total 35.5 (100) 50.2 (100) 18.8 Available Rooms 300 300 Av. Room Occupancy (%) 77 85 Av. Double Occupancy (%) 55 61 Bed-nights (.000) 122.6 146.0 Average Length of Stay 3.5 2.9 NUMBER or VISiT-J11RURST ARRIVAIL Ij! SINGCA0o7t.Z T4A11A'fD A:D WONG KNOC BT SE.ECTEI CUNTRIES OF 0 C1 b.. hou..d) Prcentag AraFcentP Avera. trcetag Avrage Torcenta Averag SINGAPORE of Annual cow-th THAILAND og Anual Crowth w-NG KONG f Anual Crowt~b T'L erf Asua 1973 - 1983 19.0% 19.0% 19.0% 16.3% 1973 - 1985 - 15.5% INDONESIA BALl- NASA DUA TOURISM PROJLCT Hotel Operatingo Projections Fiscal Year 1978 1979 1980 1981 1982 1983 1984 1985 Operating Year 2 - - - 9 1. Rooms/Orpancy - 554 800 500 1B0 300 300 200 - Rooms/Occupancy- 65% - 800 500 400 300 300 200 Rooms/Occupancy - 75Z - - 800 1,3BB 1700 2,BOB 2.300 2.5B0 Total 800 1_300 1700 2 BBS 2.300 2 SOB 2.500 2.500 2. Number of Occupied Rooms Per Day 440 795 1,145 1,400 1,635 1,805 1,855 1,875 Per Year 160,600 290,175 417,925 511,000 596,775 658,825 677,075 684,375 3. Average Room Occupancy (%) 55 61.2 67.4 700 71.1 72.2 74.2 75.0 Gross Revenues (In US Thousand Dollars) Room 3,723.0 (54.7) 6,726.9 (54.7) 9,688.5 (54.1) 11,846.2 (54.7) 13,834.7 (54.7) 15,273.3 (54.7) 15,696.4 (54.7) 15,865.6 (54.7) Food 2,030.8 (29.9) 3,669.3 (29.9) 5,284.6 (29.9) 6,461.6 (29.9) 7,546.2 (29.9) 8,330.7 (29.9) 8,561.5 (29.9) 8,653.8 (29.9) Beverages 677.0 ( 9.9) 1,223.1 ( 9.9) 1,761.4 ( 9.9) 2,153.8 ( 9.9) 2,515.3 ( 9.9) 2,776.8 ( 9.9) 2,853.6 ( 9.9) 2,884.4 ( %9) Other 372.2 ( 5.5) 672.6 ( 5.5) 968.9 ( 5.5) 1,184.8 ( 5.5) 1,383.7 ( 5.5) 1,527.5 ( 5.5) 1,569.9 ( 5.5) 1,586.9 ( 5.5) Total 6,803.0 (100.0) 12,291.9 (100.0) 17,703.4 (100.0) 21,646.4 (100.0) 25,279.9 (100.0) 27,908.3 (100.0) 28,681.4 (100.0) 28,890.7 (100.0) POratini Cost A Exsoes Direct Cost Food 731.0 1,320.9 1,902.5 2,326.2 2,716,7 2,999.3 3,082.4 3,115.6 Beoverages 169.2 305.8 440.4 538 6 629.0 694.3 713.6 721.3 Sub-Total 900.2 (13.2) 1,626.7 (13.2) 2,342.9 (13.2) 2,864.8 (13.2) 1,345 7 (13.2) 3,693.6 (13.2) 3,796.0 (13.2) 3,836.9 (13.2) Payroll & Related Expenses Variable 668.8 1,207.0 1,739.5 2,127.3 2,684.7 2,743.1 2,819.3 2,850.0 Fixed 1 2,090.4 2,733.6 3,21.0 3698.4 420.0 40.0 4,020.0 Sub-Total 1,955.2 (28.7) 3,297.4 (26.8) 4,473.1 (25.2) 5,343.3 (24,7) 6,183.1 (24.5) 6,763.1 (24.2) 6,839.3 (23.8) 6,870 0 (23.7) Other Operating Cost Variable 170.0 307.3 442.4 541.0 631.8 697.4 716.7 724.4 Fixed 643.2 1045.2 1 366.8 1,608.0 1284.20 2,100 Sub-Total 813.2 (12.0) 1,352.5 (11.0) 1,809.2 (10.2) 2,149.0 ( 9.9) 2,481.0 ( 9.8) 2,707.4 ( 9.7) 2,726.7 ( 9.5) 2,734.4 ( 9.4) Uudistr1buted Expenses Admin. & General Experses 643.2 1,045.2 1,366.8 1,608.0 1,849.2 2,010.0 2,010.0 2,010.0 Promotion 160.8 261.3 341.7 402.0 462.3 502.5 502.5 502.5 Heat, Light, Pooer 587.8 1,062.0 1,529.6 1,870.3 2,184.3 2,411.5 2,478.3 2,505.0 Repair A Maintenance 136.0 326.2 497.2 623.0 733.1 820.5 860.7 870.0 Sub-Total 1,527.8 (22.5) 2,694.7 (21.9) 3,735.3 (21.1) 4,504.1 (20.8) 5,228.9 (20.7) 5,744.5 (20.6) 5,851.5 (20.4) 5,887.5 (20.3) Total Cost 5,196.4 8,97L.3 12,360.5 14,861.2 17,258.7 18,908.6 19,213.5 19,328.8 Grass Operating Profit 1,606.6 3,320.6 5,342.9 6,785.2 8,041.2 8,999.7 9,467.9 9,661.9 (% of Cross Revenues) (23.6) (27.0) (30.2) (31.3) (31.8) (32.3) (33.0) (31.4) ANNEX X Page 1 INDONESIA APPRAISAL OF THE BALI TOURISM PROJECT The Balinese Economy Introduction 1. The economy of Bali may be summarized as a traditional economic system based on agriculture. About 90% of the people live in rural areas where village life is characterized by cooperative associations resulting from a strong orientation to non-economic activities--religion, dances and ritual. At present, the outside world has made only a slight impact on this traditional organization of the economy. 2. Per capita income in Bali has been estimated at between US$50-. 70 in 1971. Monetary indicators, however, are not likely to be an ade- quate measure of the Balinese standard of living, since much economic activity is not based on money transactions, but rather on cooperative effort and the sharing of income in kind. Population Characteristics 3. The population numbers approximately 2.2 million, with an an- nual growth rate of about 2.1%. As a result of rapid population growth since World War II, nearly 49% of the population is under the age of 20. The average density is about 360 persons per km2, but actual dis- tribution is uneven due to the dependence on good agricultural land. In irrigated areas, the density ranges from 700-1,000 persons per km with over half of the population on a quarter of the land. There are over 3,000 villages, and only a few urban areas such as Denpasar (popu- lation less than 100,000). About 10% of the population is classed as urban. Over 95% of the people are Hindus, the remainder Moslems, Buddhists, and Christians. Sectoral Output and Employment 4. Both output and employment are predominantly agricultural. Total agricultural land is about 390,000 ha., 100,000 ha. of which is irrigated with another 110,000 in plantations, 65,000 in coconuts, 25,000 in coffee and 90,000 in dry crops. About 70% of the plots are less than 1 ha., with actual owners working 73% of the plots. 5. With the exception of ploughing--where cattle are used--all work is done by hand without the help of mechanization. Work is done largely through cooperative organizations. In irrigated areas, the strongest association is the Subak which controls and coordinates the use of irrigation water. In addition to farming, there is some live- stock breeding--cattle and hogs--as well as poultry raising. Fishing ANNEX X Page 2 is relatively unimportant. 6. There is, at present, no extractive or heavy industry in Bali. Existing light industry involves import substitution and the processing of basic agricultural products. Of the less than 5,000 people employed in light industry, 2,300 are employed in the one packing house and the copra and cigarette factories and another 1,500 in the two cloth mills and one spinning mill. More important, in terms of employment, is the handicraft industry. Production is oriented to satisfying the needs of a tradition--bound economy: building materials (such as bricks), weaving, pottery, basket making, iron and silver works, wood and stone sculpture, roof thatching, etc. 7. A relative breakdown by sector of total output and employment for 1968-69 is shown below:i/ Sector % of Actual Population of GDP Agriculture 67.0 55 Light industry & handicraft 6.0 9 Commerce 8.5 14 Services & other 18.5 22 100.0 100 8. External trade is rather limited. Some necessary agricultural products and equipment are imported, while raw agricultural products are exported. Growth Prospects: Agriculture 9. If past trends continue,.Yagricultural output may be expected to increase roughly in proportion to the increase in population. Con- tinued expansion of agricultural output on Bali, however, will have to be based primarily on higher value crops and improved physical inputs (seeds, fertilizer, water, etc.), rather than on greater labor utiliza- tion which is already relatively high. This is particularly true given the very limited scope for increasing the amount of land under cultiva- tion. Under these circumstances, rural underemployment (disguised un- employment) is likely to increase over the long term, unless, of course, non-agricultural sectors develop in rural areas or significant numbers of people choose to migrate to urban centers or other less populated islands. 10. Obviously, rural-urban migration would only contribute to the existing level of urban unemployment which has already become somewhat 1/ This data was given in the Sceto (Consultants) Report (Vol.5, p. 10), without a source reference. Nonetheless, on a rough order of magni- tude basis, the numbers would appear reasonable. 2/ And assuming that the available data is historically accurate. ANNEX X Page 3 of a problem in towns such as Denpasar. What is needed is a rapid expansion of non-agricultural sectors capable of absorbing both the urban unemployed and rural underemployed. An important aspect of this problem is that increased educational opportunities have resulted in a growing number of young people whose interests have been diverted from traditional activities, but who have not yet found employment in non- traditional sectors of the economy. Growth Prospects: Non-agricultural 11. While large scale industrial development is unlikely to occur in the near future, there appear to be good prospects for the expansion of food processing and other light industrial production. Increases in construction will depend largely on the level of investment in in- frastructure works and hotels such as the Nusa Dua project, and in the general expansion of industrial and commercial activity. Expansion of the handicraft sector will depend. upon both increases in local popula- tion and, increasingly, the growth of tourism. 12. The tourism sector itself can have a significant impact in terms of both the development of non-traditional employment opportuni- ties and the development of a growing market for local goods and ser- vices. With, respect to expanding the tourist consumption of local ag- ricultural output, there is a definite need for technical assistance in order to encourage improvement in both the quantity and quality of local products. (Such assistance is provided for in the Nusa Dua project loan, See Annex XII). With limited growth prospects for most other non-agricultural sectors in the near future, and with a likely decline in the labor-absorption capacity of agricultural expansion, tourism development clearly merits significant attention in Government plans for regional development in the case of Bali.  ANNEX XI Page 1 INDONESIA APPRAISAL OF THE BALI TOURISM PROJECT Economic Justification Introduction 1. For purposes of economic evaluation, the total proposed program of investments has been divided into two parts: (a) the tourism resort area investment program, and (b) the roads component outside of the pro- ject area. 2. The tourism resort area investments (both public and private) include jite development and infrastructure works for the Nusa Dua resort complex,-! construction of about 2,500 hotel rooms and related superstruc- ture, a training school for hotel employees, improvements in the villages of Bualu and Benoa and technical assistance to the BTDC and the BTDB for improving the distribution of benefits from tourism and encouraging op- timal development of the tourism sector on Ba,i. The cost of these in- vestments amounts to about US$86.0 million,. and represents 90.4% of the total proposed development program. The tourism resort area investments are evaluated in paras. 5 to 24below. 3. The roads component outside of the resort area includes the improvement of about 199 kms. of existing roads which connect the tour- ist resort areas in southern Bali-3/to the major tourist attractions north of Denpasar, and construction of a by-pass road around the city of Denpasar. While these road connections are an essential ingredient in the development of tourism facilities in southern Bali, the actual volume of tourism related traffic on these roads--as compared with pri- vate and other commercial traffic--would be rather small (10-15% at most). Consequently, the largest part of road user benefits would ac- crue to the local population and, for this reason, the roads component outside of the project area is evaluated on the basis of standard rate of return calculations for a roads project. The cost of these road im- provements amounts to about US$9.1million,4/and represents 9.6% of the total proposed program of investments. The roads component is evaluated below in paras. 25-33. 1/ Including the access road from the airport to the project site and the electricity investments to be financed with British Aid. 2/ Excludinf price contingencies. Hotel investment costs are assumed to average about US$25,000 per room, exclusive of land. 3/ Including Sanur, Kuta and Nusa Dua. 4/ Excluding price contingencies. ANNEX XI Page 2 4. The balance of payments impact, employment effects and Govern- ment tax revenues resulting from the total proposed program of invest- ments are dealt with in paras. 34-40. Tourism Project Costs and Benefits 5. The gross benefits resulting from the tourism resort area com- ponents of the project would be the expenditures in Bali of tourists who stay at the Nusa Dua hotel complex. Because of the rather severe shor- tage of acceptable accommodation in the major tourist destinations in Indonesia, the Nusa Dua hotel visitors would represent previously un- tapped demand, including both the expansion of tour-group visitors and the inducement to business travelers to extend their stay in Indonesia long enough to take in the attractions of Bali. These benefits are, therefore, incremental to Indonesia as a whole and do not represent a diversion of traffic from existing destinations in Indonesia. Although some portion of the (net) revenues accruing to Indonesian airlines from international tourist traffic is properly attributable to the project, the actual share going to Garula will depend very much on the Government's air-access policy which is currently under review. Because of this un- certainty benefits from international travel .iave not been taken into account in calculating project rates of return. An important character- istic of the expenditures of Ntsa Dua hotel guests is that 85-90% of them will consist of foreign exchange. 6. The relevant costs are the capital and operating costs of the infrastructure provided under the proposed project, and of the hotel and related superstructure facilities of the resort, plus the estimated capital and operating costs relating to the expenditures of Nusa Dua hotel guests outside of the resort area (see para. 9). The revenue and cost assumptions are explained below. Revenue Assumptions 7. While the proposed IDA credit relates primarily to the infra- structure requirements of the Nusa Dua project, the complete develop- ment of the resort will also include construction of hotels and other superstructure financed by the private sector. Hence, the economic evaluation of the Nusa Dua project has been made in terms of this com- plete development. Some of the facilities to be provided would serve and be paid for directly by the tourists, while others would be com- pensated for only indirectly. Accordingly, the costs and revenues must be carefully analyzed so as to avoid double counting. 8. It is assumed that expenditures by Nusa Dua hotel guests would not differ substantially from the expenditures of current hotel guests of the Bali Beach and other comparable hotels of an international stan- dard on Bali. The current average daily expenditures have been estima- ted on the basis of known patterns of tourist expenditures--by category ANNEX XI Page 3 of expense--and the current prices for each of these categories of vis- itor spending. On this basis, the combined average daily expenditure of tourists in the Nusa Dua hotels would be about US$46.00, and would be distributed as follows: hotels ($27.30), including sales taxes ($2.40); shopping ($8.00); tours and transportation ($6.00); and enter- tainment and recreation ($4.70). 9. In projecting gross revenues from hotel guests at Nusa Dua it is assumed that the average length of stay would be about 3.5 days. As new hotels come on stream, they are expected to achieve first year room occupancies of about 55%, rising to 75% by the third year of operations.i/ The number of overnights has been calculated on the basis of 1.7 persons per room. Revenues within the Nusa Dua complex would include all of the expenditures by guests on food and accommodation and some portion of the guest spending on shopping, entertainment and recreation. The expendi- tures on tours and transportation, plus the balance of the shopping, en- tertainment and recreation expenditures would relate primarily to capital and operating expenses incurred outside of the resort area. Investment costs for non-hotel superstructure facilities have been estimated at approximately US$1.0 million. Cost Assumptions 10. Economic costs of operating the superstructure facilities are derived from the projected financial accounts of hotels, restaurants and other facilities, which in turn are based on actual experience of simi- lar facilities elsewhere on Bali. In the case of revenue earning infra-- structure (such as electricity, water and sewerage), the gross revenues have been projected on the basis of expected consumption by the hotels and other superstructure facilities, and the gross operating profits of these infrastructure units has been counted as a benefit in justify- ing the related investments. The projection of utility charges in the operating costs of the superstructure facilities has been carefully matched with the projected gross revenues of the utilities. 11. The projected operating and maintenance costs of the non- revenue earning infrastructure items (such as internal roads and streets, street lighting and landscape maintenance) have been included in the calculation of operating and maintenance costs,for the project operating unit--BTDC. Investment costs, operating costs and gross revenues are all calculated in 1973 prices. Gross Operating Profits 12. The gross operating profits resulting from the main categories of visitor expenditures are shown below for a typical operating year2_ 1/ The schedule of hotel openings are based on market projections dis- cussed in Annex IX. 2/ In this case, the "typical year" for the complex as a whole begins in 1985, since some hotels would not reach their projected occupancy levels until then (figures are in 1973 prices). ANNEX XI Page 4 Projected Gross Operating Profit Expenditure Items Visitor E:Penditures Gross Operating Profit Hotels 27.30 9.00 33 Shopping 8.00 3.20 40 Tours and transportation 6.00 1.50 25 &itertainment and recreation 4.70 2.10 45 Total 17 7o 15.80 T 13. Individual sub-components of the project have varying economic lives, but as a whole it is estimated that the project would have an economic life of about 25 years. For purposes of calculating the inter- nal rate of return, the need to make modest provision for some replace- ment expenditures during this period would be offset by the life of the main assets beyond 25 years. Shadow Price Considerations 14. The acquisition costs of land have been reviewed and are con- sidered to reflect reasonably accurately the economic value of land in terms of alternative uses. In light of recent developments concerning Indonesia's oil exports, and the degree of uncertainty regarding the (short-term) domestic impact of sizable increases in net oil revenues, it has not been possible to estimate the shadow exchange rate which might be appropriate over the life of the project. Accordingly, rate of return calculations are based on the existing official exchange rate. Given the extent of unemployment and under-employment in Bali, the opportunity cost of labor in terms of output foregcne in other sectors, is likely to be lower than wage rates for employees of the resort. Hence, while actual wage levels have been used in calculating the basic economic return, two additional rates of return have been calculated to test the project's sensitivity to shadow wages 15% and 30% below actual wages (see para.22). Cost-Benefit Streams 15. The capital costs and gross operating profits of the tourism project are summarized below: ANNEX XI Page Nusa Dua Tourism Resort (US$ '000) Infrastructure Superstructure Total In- Gross Operating Year Investment Costs Investment Costs vestment Costs Profits (Losses,_ 1974 4,750 -- 4,750 1975 9,480 -- 9,480 -- 1976 5,810 10,000 15,810 (So) 1977 1,970 16,600 18,570 (20) 1978 11,500 11,500 4,330 1979 9,100 9,100 8,600 1980 7,800 7,800 13,260 1981 6,oo 6,400 16,720 1982 2,600 2,600 19,610 1983 21,670 198L , 22,L30 1985L/ 22,730 a/ Includes the GOP's from hotels, restaurants, shops, travel, entertainment and recreation, plus the GOP of the BTDC operations. b/ 1985 represents the "typical year" of operation for the resort as a whole, since some hotels would not reach their normal projected occupancy levels until then. Figures are in 1973 prices. Internal Rate of Return 16. Based on the above assumptions, the internal economic rate of return on the tourism resort program of investments would be 18.7%. The sensitivity of the rate of return to alternative assumptions regarding costs and benefits is tested below. 17. It is expected that foreign investors will be interested in building hotels at Nusa Dua. Assuming that two-thirds of the hotel rooms would be financed from abroad, the rate of return on the purely domestically financed investment (including the IDA credit, but exclu- ding both the foreign private investment and the net repayments and other returns accruing to foreigners) would be 23.1%. This is part-ly because foreign hotel investors would not participate in those benefits of the project arising from tourist expenditures outside the hotels and would receive an after-tax return on their investment somewhat lower than the project's overall rate of return--thus raising the share and the rate of return accruing to domestic capital (including the IDA-financed por- tion). It is also partly a result of the ability of the tourism estate corporation and the Government authorities to recover from the hotels the full costs of the utilities and other infrastructure provided under the project. If the expected foreign private investment were available only for this tourism project, without any impact whatsoever on the amount and terms of foreign capital available for the rest of the economy, then the return on domestic investment (including the IDA credit) would be the relevant one to consider. If, on the other hand, the private foreign in- vestment in tourism were part of a foreign capital pool available to the ANNEX XI Page 6 whole Indonesian economy, fully determined in respect to its size and terms, then clearly the relevant consideration would be the return on the overall investment. The foreign share would then be part of the overall resource pool under Indonesia's command, over which it must maximize returns. Presumably, the true situation is intermediate be- tween these two extremes; some of the private foreign investment in tourism may not be available for other projects, but it does influence the amount of other capital inflows, and its terms. However, as the returns both on the overall project and on the Indonesian funds invested in it (including IDA funds) are quite satisfactory, the project is ac- ceptable under any reasonable assumption about its impact on capital inflows to the Indonesian economy. Li,ribuTion of Benefit3 L8. The following table illustrates the distribution of benefits which will be generated by the project in a typical operating year (1985): Share of Share of Investment (%) GOP (%) Governmentl/ BTDC Operations 22 10 Sa-es and Corporate Income Taxes - 19 Sub-Total 22 29 Hotels and Other Superstructure at Nus iua 73 49 Superstructure outside Nusa Dua 2 18 Uther Utilities 3 4 Total 100 100 19. The economic return on the overall investment in the project (18.7%) represents a consolidation of different rates of return for various agencies, enterprises and individuals. The return to government (17.7%) includes both the operating income of the BTDC and the rather substantial receipts from sales and corporate income taxes.!/ The economic return on hotel operations, which require sizable amounts of new capital investment, would be about 12%. Tourist expenditures outside the resort complex for handicrafts, art works and entertainment, which mainly benefit the Balinese craftsmen and village associations, are likely to be highly renumerative because of the minimal new capital investments required. 1/The Government of Indonesia would receive the net income of the BTDC plus corporate income taxes from the hotels and other superstructure. Local governments would receive sales taxes on tourist expenditures. ANNEX I Page 7 Net Benefits Without the Project 20. The Nusa Dua infrastructure project represents part of an overall effort to control the future development of tourism on Bali, in order to minimize potentially harmful effects on the cultural and physical environment and to maximize the net benefits to the economy of tourist expenditures. Both of these goals are furthered by the concentration of hotel development on the Bukit peninsula, away from the major population centers and agricultural areas, in an integrated resort complex. Management of this estate by a wholly government-owned corporation will ensure not oly that the costs of utility and other services are fully borne by the ultimate consumer, but also that the benefits from increased land values due to the government investments in infrastructure and the development of the area do not accrue to private investors. 21. It is possible that without the Nusa Dua estate project a substantial expansion of accommodation capacity wuld still take place elsewhere in Bali over the next ten years. The pattern of this ex- pansion, however, would undoubtedly be more dispersed, and its planning generally uncoordinated and haphazard. As a result, this alternative would generate substantially higher social and economic costs because of (i) the diversion of sizeable areas of first-class rice land to non- agricultural use, as compared with the rather low opportunity cost of land at Nusa Dua; (ii) infrastructure costs which might well be higher than at Nusa Dua because of the absence of economies of concentration in hotel development, and (iii) greatly reduced Government control over the impact of tourism development and a correspondingly higher risk of significant environmental damage, as well as a more pervasive and nega- tive impact on the cultural life of the Balinese communities. 22. With respect to the gross benefits from this alternative de- velopment of accommodation capacity, it is not clear whether, through unplanned and scattered hotel expansion, anything like the 2,500 inter- national quality hotel rooms envisaged for Nusa Dua would be built by 1983. If fewer rooms are available, or if the size of hotels and the standards of quality are unacceptable for the group-tour market, it is doubtful whether either the projected gross benefits or the projected foreign exchange earnings and employment creation would be achieved. 23. Given the higher social and economic costs of dispersed tourism development, and the potentially lower gross benefits if the quantity or quality of projected hotel rooms is reduced, the economic rate of return on the Nusa Dua hotel development would be clearly higher than for the alternative case. What is not clear, however, is whether this "without" case actually represents a viable alterna- tive in terms of the longer-term development of tourism in Bali. While the higher social costs relating to cultural and environmental damage are difficult to quantify, continued haphazard development of tourism might well lead to the eventual destruction of the very assets which are the foundation of the tourist industry in Bali. ANN XI Page 8 Sensitivity Analysis 24. The rate of return wou.,d be sensitive to changes in investment costs, gross operating profits,11 the timing of hotel development and the assumed shadow wage rate. The rates of return resulting from alternative assumptions for each of these variables are shown in the table below: Resulting Rate of Return (%) (i) Investment Costs (a) + 10% 17.4 (b) + 20% 16.2 (ii) Gross Operating Profits (a) + 10% 20.2 (b) - 10% 17.3 (iii) One Year Delay in Opening 17.4 a/ (iv) Alternative Market/Hotel Developmenta (a) Alternative I 17.4 (b) Alternative II 17.9 (c) Alternative ILL 16.7 (v) Shadow Wage Rate (a) 15% below actual wage 19.5 (b) 30% below actual wage 20.4 a/ As discussed in Annex IX, Market Demand and Hotel Development., The Roads Component Costs and Benefits 25. The roads component outside of the project area consists of two items: (a) improvements of eleven multipurpose roads connecting the resort areas in southern Bali with the major tourist attractions north of Denpasar, and (b) construction of a by-pass road around the city of Denpasar. Justi- fication of these investments on tourism grounds must be viewed in the context of the Tourism Master Plan for Bali. This plan calls for con- centration of future hotel developments at Nusa Dua, a site at the extreme southern tip of Bali on the Bukit peninsula, in order not to be disruptive of other economic activities and to prevent further deterioration of the cultural and environmental assets of the island. In view of this concen- tration of hotels in a relatively isolated area, an improvement in the geographic distribution of the benefits from tourist expenditures depends crucially on the improvement of road connections between the resort areas in southern Bali and the tourist attractions and villages north of Denpasar. Similarly, the viability of the Nusa Dua estate in the early years of development depends, at least in part, on the maintenance of a limit on hotel expansion outside of Nusa Dua. This limit, in turn, hinges on the locational competitiveness of the Nusa Dua site as compared with the Sanur 1/ Alternate GOP projections reflect potential variations in occupancy rates, average daily expenditures and operating costs. ANNIX II Page 9 and Kuta Beach sites. The by-pass route around Denpasar will contribute significantly toward making the Nusa Dua site competitive for hotel in- vestors in terms of the accessibility of the tourist attractions north of the city. 26. As indicated in the introduction, the relatively low volume of tourism traffic on the by-pass and on the multipurpose roads--as compared with commercial and other private vehicular traffic--argues for a separate justification of the roads component. Accordingly, rates of return cal- culated on the basis of vehicle operating cost savings are given below. In light of the importance of these roads for tourism development, however, an additional rate of return was calculated for the tourism-related in- vestment program, in which the tourism project was burdened with the full investment costs of roads outside the resort area. The overall rate of return on the project on this basis would be 17.0%. Multipurpose Roads Improvement 27. As part of a general survey of transport requirements for Bali, the Indonesian Highway Department has reviewed the need for improved road connections in light of the potential development of agricultural, commercial and tourism activity on the island. A total of 640 kms. covering 18 sections of various roads was proposed for inclusion in the tourism project. After careful review of the existing and potential transport requirements of the tourism sector, a total of 199 kms. covering 11 roads was selected by the Mission for inclusion in the tourism infra- structure project. 28. No major changes are proposed in the existing alignment of these roads. Improvements consist of upgrading the road surfaces, minor realignment of curves and the replacement of inadequate and potentially dangerous bridges. The replacement of bridges is a particularly important aspect of the improvement, and comprises over 50% of total improvement costs. Existing bridges are single lane structures of 3-ton capacity design which were built ho-50 years ago, and are today both inadequate and unsafe.1/ 29. The Indonesia Highway Department prepared estimates of the costs and benefits for each of the roads they had proposed, with rates of return well above 15% on average. These estimates have been reviewed in light of subsequent changes proposed during project appraisal, as follows: (i) the roads selected for inclusion in the project do not correspond precisely to the sections on which the Highway Department proposed rates of return, but rather comprise the most essential sections of these roads; (ii) investment cost estimates assumed by the Highway Department were based on 7 m. width (requiring a doubling of the existing road surface), while the current cost estimates--and 1/ Trucks now using these bridges are frequently much in excess of 3 tons; collapse of a single bridge carrying a bus-load of tourists would have a most unfortunate effect on tourism development in Bali. ANNEX XI Page 10 the actual project design--will be based on about half that width, (i.e. resurfacing existing widths.); and (iii) over SO% of the estima- ted total investment cost involves the replacement of bridges which are currently both inadequate and unsafe, and which therefore could be as- sumed to be justified separately. While the Highway Department estim- ate of road user benefits was significantly over-estimated, a more realistic estimate of benefits, combined with substantially reduced investment costs, would yield rates of return of about 20% on average. East Denpasar By-Pass Road 30. As both the provincial capital and the largest town in Bali, Denpasar is the center of governmental and commercial activities on the island. The total population was estimated in 1970 to be about 90,000 people, with a growth rate of over 4 per year between 1961-70. Much of this growth was the result of in-migration in response to in- creased economic activity. Population density reached approximately 3,200 persons per km2 in 1971. 31. As a result of increases in both population and economic ac- tivity, local traffic on the main thoroughfares of the city has in- creased rapidly. In additio s)o local traffic, however, Denpasar serves as the hub of a road network"(connecting (a) the airport at Tuban with the hotels in the Sanur area, (b) the hotels of Kuta beach and Sanur (and the proposed resort at Nusa Dua) with the major tourist attractions north of Denpasar, (c) northern agricultural areas with Sanur, Kuta, Tuban and the port of Benoa, and (d) villages all over the island with the city of Denpasar itself. 32. The channeling of the resultant traffic flows through the main streets of Denpasar has caused a rapid increase in traffic con- gestion which, in turn, has extended travel time, raised vehicle opera- ting costs and contributed significantly to the deterioration of the urban environment in Denpasar. In order to eliminate this bottleneck, the project would include a by-pass road amouxd the city. 33. Two alternative routes for the by-pass (east and west) were examined by the Indonesian Highway Department. In each case, the (discounted) costs of construction and maintenance were calculated and compared with the estimated (discounted) benefits to road users over a 20-year period. With a discount rate of 20%, the benefit/cost ratio for the east by-pass was estimated to b? 1.96, significantly higher than for the west by-pass. -While this calculation "nvolved significant over- estimation of road user benefits, the revised investment cost estimates are somewhat lower, and the by-pass would still yield a rate of return of about 15%. This rate of return does not include the benefits which would accrue to the inhabitants of Denpasar in terms of an im- proved urban environment resulting from the decrease in traffic conges- tion. 1/ See Map No. 2. ANNEX XI Page 11 Balance of Payments and Employment Impact 34. The proposed project is expected to increase gross foreign exchange earnings by about US$10.7 million in 1978 when the first hotels open and by US$48.1 million per year from 1985 when all of the hotels will have achieved their projected normal occupancy levels. This compares with an estimated US$50 million earned by tourism in Indonesia in 1973. 35. Of the total expenditures by Nusa Dua resort guests, over 85% would represent foreign exchange revenue. Hotel income has been calcu- lated on the basis of net tour operator prices for group tours, and for- eign exchange revenue from international air travel has been excluded from the estimate of gross foreign exchange earnings. 36. The import component of operating costs for hotels and re6- taurants has been reviewed and is estimated to be about 40% currently. By 1985, with improvements in the local supply of agricultural and other products, the import component is expected to decline to about 30%. 37. In addition to imported operating supplies, the tourism resort development will result in foreign exchange outflow due to hotel manage- ment contracts, debt service on foreign hotel loans and dividends to foreign hotel investors. These management and capital costs are estim- ated to be about US$0.1 million in 1978 when the first hotels open, rising to US$5.7 million from 1985 onward. Debt service on the IDA credit would be about US$0.4 million from 1985. 38. On the basis of the foreign exchange revenues and costs es- timated above, the net foreign exchange earnings of the Nusa Dua pro-- ject would amount to US$8.5 million in 1978; and would rise to US$36.2 million from 1985 onward.' This may be compared with an estimated for- eign exchange component of the infrastructure project of US$18.1 mil- lion including price contingencies, and the estimated foreign exchange component of superstructure of about US$ 25.0 million. 39. Assuming a ratio of 2.0 employees per room, the hotels on Nusa Dua would generate about 5000 new jobs by 1983. Additional jobs created in restaurants, shops, tour agencies, entertainment and recreational facilities and the BTDC would amount to about 800-1000 new positions, for a total increase in direct employment of 5,800-6,000 persons. Indirect employment is more difficult to estimate but, on the basis of tourist expenditures on art and handicraft items in the shops, it is possible that another 3,700 jobs would be created for artists and handicraft workers. At the same time, agriculturalists are likely to shift some of their current production into higher quality, higher value crops for tourist consumption which would generate both higher agricultural income and, because of the greater labor intensity of high quality vegetable cultivation, would also generate some additional employment for farm workers. Given the extent of underemployment in the agricul- tural sector, however, no estimate has been made of the number of new jobs which this would entail. ANNEX XI Page 12 Government Tax Revenues 40. In addition to the net income generated by the wholly govern- ment-owned Bali Tourism Development Corporation, the Indonesian authori- ties will collect corporate income taxes from the hotels amounting to about US$1.5 million in 1985 and over $2.0 million annually after 1990. Local governments will collect sales tax revenues, based on a 10% tax on hotel and restaurant sales, amounting to about JS$0.7 million in 197", rising to US$2.8 million from 1985 onward. ANNEX XII Page 1 INDONE3IA APPRAISAL OF THE BALI TOURISM PROJECT The Social Impact of Tourism Introduction The purpose of this Annex is threefold: (a) to define the basic issues involved in assessing the social impact of tourism in Bali; (b) to examine the most important social effects of tourism de- velopment in Bali up to the present time; and (c) to review the means by which the negative social effects of tourism can be minimized, and the positive effects maximized, in the context of the proposed Bank tourism project at Nusa Dua. Basic Issues 2. The primary attractions of Bali for the foreign visitor may be grouped into two broad classifications--man-made or cultural attrac- tions and natural or scenic attractions. Under the former category fall the diverse and unique art forms--music, dance, painting and sculptures--as well as a variety of religious influences which are deeply ingrained in the way of life of the people and are expressed in Hindu-Balinese temples, festivals and handicraft items. Included among the natural and scenic attractions are rugged volcanic peaks-- some of which still erupt periodically--dense tropical forest, lush, green terraced rice paddies and white sand beaches flanked by groves of palm trees and washed by blue green waters which conceal coral reefs and tropical sea life of great beauty. 3. Combined with a tropical climate which invites--if not demands-- a relaxed and casual approach of life, it is small wonder that the delights of Bali have been enjoyed for many decades by a very small but hardy group of world travellers. And yet, as the number of such visitors increases-- from 95,000 in 1973 to an estimated 540,000 by 1983--the possibility of serious deleterious effects on the cultural and environmental assets of Bali may be expected to increase correspondingly. 4. Tourism development in any country will invariably bring with it a number of potentially negative effects in terms of both cultural changes and environmental deterioration. In order to minimize these ANNEX XII Page 2 negative effects in the development of tourism on Bali, the Government of Indonesia, with the assistance of IDA and several consulting groups, has attempted to anticipate potential problems and to formulate and implement carefully planned Eolutions. (See below paras. 28-33). Assuming that the negative effect of tourism can be controlled, it may be expected that the positive effects--in terms of increased in- comes, employment and foreign exchange earnings--would result in an overall impact which, on balance, is desirable. 6. The comparison of these social costs and benefits involves a classic trade-off between increased incomes and cultural and environ- mental change. Even if the negative impact of tourism is minimized, there will still be changes in the way of life of the people and in their physical setting which are extremely difficult--if not impossi- ble->-to quantify. Certain value judgments are, therefore, inescapable. Where the current level of income and employment is sufficiently low, however, the "way of life" cannot be divorced from the "standard of living"--and the prospects for economic development must be weighed accordingly. 7. There is one further question which is relevant in defining the basic social issues involved in tourism development in Bali. That question is: What would happen to the culture and physical environment in Bali in the absence of a major tourism development program? Or, put another way, would the prohibition of further tourism growth in Bali serve to protect and preserve the cultural and environmental heri- tage of the island? The answer is--not necessarily. There are many other forces in Bali which have already had a significant impact on life in certain areas. The city of Denpasar is a prime example, with its blaring music, neon lights, the prestigious hondas and the throngs which gather outside theaters exhibiting Indian films. In short, the effects of tourism development should be distinguished from the effects of urbanization which can bring about profound social and environmental changes. In addition, however, there is the more pervasive influence of "modernization": Not uncommton in Bali is the substitution of tile or corregated tin for the traditional thatched roofs of elephant grass or leaves of the sugar palm tree; in some temples "casette art" prevails (instead of the traditional orchestra or the priest singing the sacred hymns, there is a tape-recorded substitute); instead of the traditional coconut shell with a burning cotton wick in coconut oil, temple lights in a majority of instances are now diesel fuelled lanterns or electric light bulbs; in a significant number oC religious ceremonies, the -ccoration; are no longer wood or coconut leaves, but plastic imita- L.ions-complete with aluminum offering bowls! 8Q. The simple fact is that the Haline3e culture, as expressed in the way of life of the people, is not, and never has been static; thuir's is a living dynamic society which ha3 for hundreds of years adapted with remarkable flexibility to the forces of change. Tourism development represents only one such force, and it should be viewed with that perspective in mind. ANEX XII Page 3 The Social Impact of Tourism in Bali . We should, perhaps, begin by noting that the people of Bali have for many decades welcomed foreign tourists as guests. According to a report by Mr. Raymond Naronha (a consultant anthropologist em- ployed by IDA to study the social impact of tourism in Bali), "...all of the Balinese interviewed--artists, hotel employees, students, villa- gers, government servants, faculty members of the university, taxi drivers and shopkeepers--did not regard tourists as a plague or a dis- guised nuisance. The Balinese love tourists and have displayed a re- markable cultural resilience". Nonetheless, concern has been expressed regarding the social impact of tourism in Bali. At least four aspects of this impact need to be considered: (a) the "demonstration effect" of a large number of relatively wealthy foreign visitors; (b) the effects of "commercialization" on Balinese art, handicrafts, music and dance performances; (c) the impact of tourist behavior and numbers on temple life and religious ceremonies; and (d) the concentration of benefits from the development of tourism. A. The Demonstration Effect 10 . If past experience may be relied upon, the demonstration ef- fect of tourism is unlikely to pose much of a problem. The Balinese people have evidenced a rather remarkable capacity for not being unduly influenced by either the idiosyncracies or the excesses of their for- eign guests. If anything, they are perhaps more likely to accept the foreigner's behavior as inherently incomprehensible; their demonstrated lack of enthusiasm for imitating that behavior is most probably based on the view that it is inferior to their own. A prime example of this is the Balinese abhorance of excess consumption. The most repulsive character in Balinese drama is the actor representing sloth and gluttony. 11. Similarly, the obviously hectic schedule of a bus-load of tourists attempting to "do" Bali in 2-3 days has a distinct lack of appeal when compared with the relaxed way of life of the Balinese people. If anything, we may hope for a kind of reverse demonstration effect, with the tourists going away somewhat less enamored with their previous approach to life, and perhaps more thoughtful about human values. That, in fact, is part of the appeal of Bali for the foreign visitor. F. Commercialization of the Arts Many local observers (purists especially) have complained about a deterioration in the quality of the "arts" as a result of in- creasing commercialization. It should perhaps be noted, however, that the complaint is hardly new, having been voiced as early as 1933 in a book about Bali written by a noted Mexican anthropologist.1/ While it 1/ The Island of Bali, by M. Covarrubius ANNEX XII Page h is difficult to be very precise about the extent of the problem, even the most casual observer can detect a rather considerable range of quality in the handicraft goods now available in Bali. With respect to the nature of goods offered, and the variety and quality of cultural performances, one must recognize the significance of the desires of the purchasing public, whose tastes may be quite different from those of knowledgeable local art critics. In point of fact, it is not uncommon in any society to find that the more classical art forms go unappreciated by the major- ity of the population, or that the "patrons of the arts" are confined to a rather small group of wealthier individuals. This phenomenon is compounded in the case of foreign tourists in Bali. As patrons of Balinese art--whether it be painting, sculpture, music or dancing--the typical foreign visitor can hardly be expected to be a discerning critic of a totally unfamiliar artistic expression. 13. It is an equally understandable phenomenon for many Balinese artists and performers to orient their efforts toward satisfying this less discerning--and hence less demanding--foreign market. A related conc.rn of many local observers is that the artists and performers who live near the major resort areas devote their time almost exclusively to satisfying the demands of the foreign visitors, to the neglect of classical art forms, while those artists and performers in the non- tourist areas have ample time to devote to classical art, but lack the necessary patronage to maintain and expand their skills. This problem is discussed further below in terms of the concentration of the benefits from tourist expenditures. C. Tourism Effects on Temple Life and Religious Ceremonies 14. There has been some concern expressed, primarily by outside observers, about the behavior of foreign tourists in and around the Balinese temples, particularly during significant religious ceremonies and festivals. The Balinese themselves seem not to be particularly of- fended by this behavior, demonstrating a rather more tolerant attitude than might prevail in many other countries. It is not uncommon, how- ever, for foreign visitors to be seen taking photographs, talking, or otherwise indicating a regrettable lack of respect while attending re- ligious ceremonies in the temples. It is, of course, unlikely that such behavior can be completely controlled. Undoubtedly, a program of "cultural awareness" for arriving vi 3tors would help to sensitize tourists to local customs, and might prevent some of the more blatant forms of disrespectful behavior. In the longer term, however, more stringent measures may become necessary. As Luis Turner points out in a discussion of international tourism,2/ 1/ Some of the most significant ceremonies, of course, are closed to outsiders. 2/ Luis Turner, Multinational Companies and the Third World, Hill and Wang; (N.T., 1973). ANNEX XII Page 7 "a case can be made that there will be a critical point beyond which a. tourist industry becomes so big that it starts producing a significant backlash in the host culture". Some countries, of course, Spain most notably, have demonstrated a remarkable capacity to absorb foreign tourists. And, in the short term, a certain amount of geographic con- centration and proper coordination of tour group routes and schedules can minimize the impact of increasing tourist flows. Eventually, how- ever, it may be necessary to consider limits on the number of tourist arrivals which can be permitted on the Island of Bali. 16. To place this consideration in a numerical perspective, the following factors should be kept in mind. In 1973, Bali received about 95,000 foreign tourists, as compared with the Island's population of 2.3 million people. By 1985, when the Nusa Dua project is fully opera- tional, foeign tourist arrivals are projected to be in the neighborhood of 550,000 per year, as compared with a population of 2.5-2.7 million people--a ratio of about 1:5 (tourists to locals). By comparison, in 1971 with a population of about 34 million people, Spain received 25 million foreign tourists--a ratio of nearly 3:4. While the ratio of foreign arrivals to local population is an important consideration, the actual impact of the arrival numbers must be viewed in terms of the average length of stay--which would determine the average number of foreign tourists expected to be on Bali on any given day. In point of fact, the average foreign tourist will stay only about 3A days in Bali. With 550,000 arrivals, this would mean only about 5,000 foreign tourists per day in Bali--or a ratio of 1:500 by 1984. While the average number of foreign tourists per day would thus appear to be a manageable number, there would still remain the problem of ensuring that all 5,000 visi- tors do not attempt to visit the main temple areas at the same time. 17. The issues relating to tourist arrivals, their tour routes and schedules within Bali and their overall impact on the Balinese cul- ture are clearly local issues, and they must be resolved locally. The Bali Tourism Development Board (BTDB), described in Annex II, has been. established by the Government specifically in order to coordinate the development of tourism on the Island and to help ensure both that the benefits of tourism are maximized and that the negative economic and cultural effects are minimized. The concern of the Indonesian Govern- ment regarding the proper resolution of such issues was stated by President Soeharto in November 1973 in an address at the opening cere- mony of the new Bali Hyatt Hotel: "...if the aims of the build-up of tourism are to fully support the national development, we should take precautionary measures so that the flow of tourists to this country will not weaken the values we regard as sacred. The regional culture should be fully protected. This has a special meaning for the people of Bali, in that their famous arts and crafts are clearly related to their spiritual life .... The decline in her originality and artistic values--if we are not careful enough--may turn away the tourists from this beautiful island". 18. In order to support the efforts of the BTDB in formulating and implementing appropriate regulatory and coordinating measures, the ANNEX XII Page 6 project would include technical assistance funds for obtaining qualified experts to assist the local authorities in this endeavor (See Annex II).1/ D. The Concentration of Tourism Benefits -9. To a large extent, the problem of the concentration of benefits from tourism might be considered more of an economic than a social prob- lem. The social implications, however, cannot be ignored, as the atti- tudes of the Balinese people toward foreign tourists in the long-run will undoubtedly be influenced by the extent to which they participate in the benefits from tourism development. By concentration of benefits we refer both to the regional distribution of income and employment and to the distribution of income between the workers, various middlemen, and the owners of tourist facilities such as hotels, shops and tour agencies. 20. With respect to the regional distribution of income and employ- ment, we have already noted the fact that artists and performers in the major resort areas near Denpasar enjoy a preferred position in supplying the tourist market for cultural goods and services. The same may be said for hotel workers and tour guides. To a large extent, the problem is related to a necessary trade-off between the concentration of the resort facilities away from the major population centers and irrigated rice growing areas--in order not to be disruptive of current social and economic activity--and the dispersion of resort facilities in order to expand the geographic distribution of benefits. Dispersion is, however, limited by the relatively few good beaches available in Bali. While there are strong economic and social arguments in favor of concentra- tion of resort facilities--particular in terms of the economies of scale in the provision of basic infrastructure--there is also a need to find ways of spreading tourism benefits more widely, perhaps by de- velopment of a rationing system which would insure the outer-lying villages of a fair share of the market for both handicraft goods and cultural performances. This is another area in which the BTDB is ex- pected to take the initiative in improving the organization of the tourism sector (see para. 32). 21. A parallel effort is needed with respect to the local produc- tion of agricultural supplies for the hotels since part of the current consumption of the hotels which could be supplied locally is being im- ported (see para. 33 and Annex VIII). 7?. The problem of inequities in the distribution of benefits among the factors of production is perhaps most noticeable in the supply of handicraft goods and cultural performance, with the artists and perfor- mer- receiving a disproportionately small share of the retail price of their output. In the case of individual artists--painters, sculpturers, L/ The BTDB, for example, has already proposed to employ the services of Mr. Raymond Naronha (anthropology consultant) whose report and recom- mendations provided the basis for this Annex. ANNEX XII Page 7 wood carvers, etc.--the problem is often one of financing their raw materials. By relying on shopkeepers and other retail outlets for raw materials financing, they commit themselves to supply finished goods to these outlets at a price largely determined by the shopkeepers. Even if the artist can afford to purchase his raw materials in advance of the sale of output, he often cannot afford to wait unduly long for that sale, and therefore must still rely on shopkeepers and other middle- men tc market his products. 23. In the case of orchestras and dance groups, the output results from a cooperative effort--based on village music and dance associations., Here again the middlemen, representing hotels and tour operators, are very much better organized than the performers, and tend to play one village's association off against other villagest associations in or- der to obtain the lowest "wholesale price". What is needed, obviously, is a change in the market structure which will allow a more equitable distribution of the proceeds from tourist expenditures on the "arts." Another of the functions of the BTDB, therefore, will be to encourage the cooperation of the local village associations so as to strengthen their hand in negotiating contracts for cultural performances, and to find ways of increasing the price of handicraft goods received by the producers, possibly through the establishment of additional government sponsored retail outlets (see para. 30). At the same time, the expan- sion of market demand should in itself help to improve the bargaining position of the artists and performers. The Environmental Impact of Tourism in Bali 24. Up to the present time, the extent of environmental harm re- sulting from tourism per se has not been very great. The primary areas of concern are related to the uncontrolled development of hotel accom- modation--in terms of both location and design--and the lagging behind of public investments in basic infrastructure--such as roads, water and sewerage systems and electricity. 25. With respect to hotel development, the Government has only re- cently put into effect a limitation on the number of hotels of an inter- national standard that can be constructed; regulations concerning loca- tion, zoning, height restrictions and other development controls for the island as a whole have been formulated in connection with the Bali Tourism Master Plan.l/ 26. Existing hotel accommodation is concentrated in three primary areas: Sanur, Kuta and Denpasar. Such concentration is a desirable characteristic of tourism development when the goal is to achieve econo- mies of scale in the provision of basic infrastructure, but the existing hotels must provide much of their own basic utilities. The current con- 1/ Lack of such controls in the past has resulted in at least one major hotel (The Bali Beach) of over ten stories. ANNEX XII Page 8 centration of hotels is primarily the result of historical factors re- lating to the av:ailability of good beach sites not too distant from the airport at Tuban. 27. While the existing hotels have been able to survive on the basis of their own electrical generators and water supply systems, the lack of investment in transport infrastructure--mainly roads--is far more noticeable. Of immediate concern is the level of vehicle traffic currently channeled through the main streets of Denpasar, contributing a considerable amount of congestion, noise and air pollution to the urban environment.1/ Maximizing the Net Benefits of Tourism Development 28. In light of all of the comments above, it is obvious that a number of steps will be required in order to maximize the positive as- pects, and minimize the negative aspects of future tourism development in Bali. This fact was recognized very early in the preparation of the Nusa Dua tourism project, and a considerable amount of time and effort has been expended by the Government, IDA and a number of for- eign and local consultants, toward the formulation of appropriate in- atitutions, policies and control mechanisms for tourism development in Bal] 29. The Nusa Dua project itself represents an important effort in this respect, as an attempt to concentrate and control the further development of hotel accommodation on Bali. This effort included the preparation of a detailed development plan for the provision of infra- structure and the optimal development of hotel accommodation. In ad- dition, provision is made for improvements in transport infrastructure outside of the Nusa Dua resort area, and for the improvement of infra- structure in the nearby villages of Bualu and Benoa. 30. A new institution has been created, the Bali Tourism Development Corporation, which will direct the implementation of the Nusa Dua project and manage its operations. In the design of the Nusa Dua complex, pro- vision has been made for a "common facilities" center which will include space for handicraft display and sales, and for cultural performances. The operation of these facilities will be directed toward an improvement of the geographic distribution of tourism benefits--through a concerted effort to bring in handicrafts and performing artists from more distant centers--and toward an improvement of the share of retail sales going to the artists and performers. 31. A similar effort will be made by the BTDC, through clauses in the lease agreements, regarding both the supply of construction materials and the labor employed during construction, with a major emphasis placed 1/ See Annex XI, paras. 25-31. ANNEX XII Page 9 on the use of local products and the employment of Balinese labor--par- ticularly from the poorer nearby villages of Bualu and Benoa. In ad- dition, a hotel school program for training basic and middle level workers is currently being formulated in order to ensure that Balinese workers are suitably prepared for the job opportunities which the devel- opment of tourism will generate (see Annex VII). The school is to be operated by the BTDC, with contributions paid by the hotels. 32. In terms of the overall development of tourism in Bali, a major effort has been directed toward the formulation of a Bali Tourism Master Plan and the establishment of the Bali Tourism Development Board. As noted in various sections above, the primary purposes of the BTDB will be: a. Regulation and control of hotel development on Bali, in line with the Master Plan, in order to ensure the pro- tection of the environment. b. Monitoring and regulating the social and cultural im- pact of tourism growth, with particular reference to the numbers of tourists and the tour routes and sched- ules, as well as the development of a "cultural aware- ness" program for incoming visitors. c. Improvement of the distribution of income and employment-- both geographically and between the workers, various mid- dlemen, and the owners of tourist facilities--with special attention to the problems of handicraft workers and the participants in cultural performances. 33. In addition to efforts within the tourism sector proper, tech- nical assistance would be included in the project for the gearing up of the agricultural sector in order that the tourism sector's role as a growth point in the economy can be fully realized (see Annex VIII). A Concluding Statement 34. In summarizing the concerns expressed in this annex, and the efforts made thus far--and those proposed--to overcome the problems of tourism growth on Bali, it may be appropriate to borrow another quota- tion from Luis Turner's discussion of international tourism:I/ Tourism, like many other industries, provides foreign exchange which can be used to provide sig- nificant numbers of local inhabitants with materi- ally richer and securer lives. In the process, in- evitably, tribal or national cultures will be modif- ied, and it is right to show concern. No one eats religious ceremonies, but one can buy medicine, food and agricultural equipment with the money brought by foreign spectators. In deploring their impact, we 1/ Op. Cit. ANNEX XII Page 10 can come close to arguing that cultures like Bali's should be preserved forever, unchanged, in a kind of social aspic....It is doubtful that the Balinese will appreciate being "preserved" to salve the consciences of the world's sentimentalists. The key argument is that Bali is now capable of entering the world economy through tourism. The rich and "civilized" have no moral right to deny them.. But we do have the duty to ensure that the maximum amount of the industry's ma- terial proceeds reach the Balinese themselves and that the industry be regulated to make as little cultural impact as possible, until the day when the Balinese formulate their own policies. INDONESIA: BALI TOURISM PROJECT SCHEDULES OF IMPLEMENTATION, EXPENDITURES, AND DISBURSEMENTS YEARS I II Ill IV V QUARTERS 01 Q2 03 04 Q5 06 07 08 09 010 011 Q12 013 014 015 016 017 Q18 019 020 I BALI TOURISM DEVELOPMENT CORPORATION (BTDC) Defects Liability Period Civil Works 6Bally E1hEEg Equipment Administration/Technical Assistance M 0 Z II BALI TOURISM DEVELOPMENT BOARD (BTDB) Technical Assistance Ill DEPARTMENT OF ROADS (BINA MARGA), MINISTRY OF PUBLIC WORKS Defects Liability Per od Civil Works IE K 'ma a ilggg g gg IV DEPARTMENT OF TELECOMMUNICATIONS (PERUMTEL), MINISTRY OF TELECOMMUNICATIONSDeIfcsLaityPro Civil Works Defw ect Lia11 bim llo i erI Equipment I V MINISTRY OF AGRICULTURE Defects Liability Period Civil Works EA la .Iggs IEEE uhF] Equipment_1 Technical Assistance 17 1 ..LOIN CREDIT AGREEMENT SIGNING DATE EXPENDITURES 1/ 8,190,000 15,660,000 9,700,000 2,550,000 (in US$ equiralent) RATE 22.7% 43.4% 26.9% 7.0% DISBURSEMENTS 1,690,000 1 6,740,000 5,360,000 2,150,000 60,00 (in US$ equivalent) I I RATE 10.6% 42.1% 33.5% 13.4% 0.4% 1/ Excluding Land Acquisition January, 1974 World Bank-8543(R)  기 기 . ■=&}-녹 긱」 : g & , : l ·,--;·!;=,·.·--[·;[&,「/.:`·숟11(-【-,■·■·-「「!,·「/―·-―·-- 그 : 〕떼· E - - & - - 흐 - l 난스l-l 「_··인윌[ [  1 BRD 10739 1&;&&rJ&&&&&) 一 … …!,…__… l 二l l 口 刁 :::三… :一;::{ } 二口  … 0ヤ乙0L0と日1