( ~ ~ ~ ~ I L~~~~~Ii~~~~ E,XCLUSIVE PLE;ASE; RE;TUu> - Jlz[ F THE |n(IMENTS rIZ0BUTIO& I R__t__ ___ _, _. m.. -,ns ROO r "111 tpU PY DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use j 10 i !, -t>i u W | Report No. 25-IND DEVELT.PMEvNT TRITTIF.- FOR TNDONESIA Vo..me IV AMATIVV C. 'FUL TT CLf"rAD NNEX 5: T OL --I ANNEX 6: EXFORT TPxENDS, 1971-197 I Z W x m 0 a 2>> December 1, 7 .- C > = :Om Asia Program Department I This report was prepared for official use only by the Bank Group. It may not be p| or cited without Bank Group authorization. The Bank Group does not accept resp accuracy or completeness of the report. This report was prepared in cooperation with the IBRT Resident Staff, Jakarta, by an economic mission which visited Indonesia in May-Juine and October-nFovember 1972. The participants were: Graeme Thompson Mission Chief Bahman K. Abadian Chief -bonomist Mark W. Leiserson Employment Specialist (ILO) Helen Hughes Industrial Advisor Nimrod Raphaeli Planning Advisor John Foster Petroleum Economist Bnmerich M. Schebeck Financial Economist Townsend S. Swayze Fiscal Economist ,Vinod Prakash Industrial Economist Rogelio G. David Economist Kevin Young Economist Miss Julia Nasaire and F{rs. Placida 3spina were mission secretaries. Annex 3 of the report, on agriculture, is based on The findings of an agriculture sector mission led by 14r. S. Takahashi which was in Indonesia in February-March, 1972. ANNEX 5 Table of Contents Page No. I. PHYSICAL DEVELOPMENT OF THE OIL SECTOR 1 Exploration 1 Offshore Boundaries 2 Oil Pollution 2 Produrtion 3 "Pro-rata" Crude II. OIL PRICES 6 Recent Development in Indonesian Oil Export Prices 6 FuI:ture Trend sn Tinni sndonsan Oil Exonnrt Pri-rQ 9 Retail Prices of Petroleum Products for Domestic Market 12 III. VALUE OF OIL EXPORTS 12 IV. SOURCES OF G-3VEDIVMT PTM,1r JYTP 1T3 Government Revenue from Foreign Contractors 13 r.fverr.,Lent ReveneC fo. o or A. by Contractors 15 GOvernm.ent Re-ven-LLue f-ol Pet) --4 n Overall ~~J V CLIIUICLL L VCLIUC £~~~L L SJU L. L L- U.~.LLIQ CL C. ..~ Operation 15 tGovernm.ment Revenue from. Dom,estic 0i Mretn 16 I3UV~IIUuIL i x L V LU LL L.JUI ~1JLI L. A. UJL£ 1<401 -Lr I u t~ fl.fltnfltT t A I- flA O,. A I XT~,,'l IPfftT flfflfflAll A7Mfl VT?M AMnlfTM 10 V. PERTMINA'sUU. CAPITL INVSsN RG' DFNCN 18 ILntrodluction 1 Exploration and Development 19 Oil Supply and Service Bases 20 Pipelines 21 Refining 2- Tanker Fleet 23 Inland Marketing 23 Petrochemicals and Fertilizers 23 Head Office 24 Joint Ventures 24 Source and Application of Funds, 1967-1971 26 Source and Application of Funds, 1974-1978 26 Finance from Government of Japan for Indonesian Oil Development 28 I. PHYSICAL DEVELOPMENT OF THE OIL SECTOR Exploration 1. Pertamina is actively exploring for oil in almost all promising areas throughout Indonesia either in its own right or through contracts of work or production-sharing contracts. The last economic report discussed exploration prospects and listed production-sharing contracts up to October 31, 1971. 1/ Since then, Pertamina has signed two production- sharing contracts. The first was on March 3, 1972, with Indonesian Offshort Operators, Inc. and covers an area offshore southern West Irian. The second was in August 1972 with CFP-Total and covers an onshore area in the Mantalik and Pamai districts of Central Sumatra. Provisions of both contracts are similar to those in other recent production-sharing contracts. 2/ 2. Drilling activity in 1971 reached a record level of more than 425 wells and about 1.9 million feet drilled, which is roughly twice the level in 1970. Development and extension drilling accounted for about 68 per cent of wells completed that year. Wildcat drilling accounted for about 32 per cent of wells completed and was about equally divided between on and offshore activity. 138 wildcat wells were completed in 1971, about double the number in 1970; and oil was found in 21 of the wells. Exploration in 1972 is expected to be as active as in 1971. 3. Some important oil discoveries have been made in 1971 and early 1972; they will require additional work to evaluate their coumercial significance. Successful wildcat wells in 1971 led to the discovery of new oil structures onshore Sumatra under contracts of work to PT Stanvac Indonesia (PTSI - a joint venture of Jersey Standard and Mobil) and Caltex Pacific Indonesia (CPI - a loint venture of California Standard and Texaco) and under production-sharing contracts to Calasiatic - Topco (owned separately by California Standard and Texaco respectively). A new field has been confirmed at Alor Djimon in north Sumatra (Asamera), and others offshore N. W. Java both in the "L" structure iust to the west of the Ardiuna field (ARCO) and at Kitty, Gita and Zelda (IIAPCO). Promising oil strikes have been made offshore E. Kalimantan at Bekapai (CFP/Japex) and Kerindingan and Melahin (Union Oil). An oil and gas field has been found onshore in S. E. Kalimantan at Badak (Huffington-Virginia International group), and its development is being accelerated. 4. Gas has been found onshore at Arun in N. Sumatra (Mobil); two successful wells were tested in 1972 at 14 million cfd and 50 million cfd plus condensate. The results are now being evaluated and seem to indicate the Dresence of a larae gasfield there. Gas has also been found nearby in the Lhu Sukon structure (Mobil) and offshore in Block A of the South China Sea 1/ PnrAgrApha 11-17 nnd Tahle 2 rpncpt-v.elyv nf Annow A "The Pptrnlim Sector in Indonesia" to "The Indonesian Economy: Recent Developments and Prospects for 1972!73" (EAP-27a) dated Novemher 30, 1971. / See paragraph 5 and Table 2 of Annex A to the last economic report. ANN4EX 5 age (AGIP/Phillips/Tenneco) and offshore E. Kalimantan at Panjilatan (Jasper Total) adjacent to thle Badak field. Additionua± work is being done to evaluate these and other structures. 5. Exploration and development expenditures by foreign oil contractors have accordingly grown rapidly: (US$ Million) 1968 45.5 1969 90.5 1970 113.0 1971 207.0 1972 estimated 237.0 6. Though one or two contractors have recently relinquished part of their offshore areas ahead of the date stipulated in their production-sharing contracts, the conclusion still holds good that optimism remains high about continued exploration offshore Indonesia. There has been no discovery yet of a Middle Eastern size since the Minas field. On the other hand, it could still happen as in the case of Libya, Alaska and the North Sea. Meanwhile the new fields thus far developed at Ardjuna, Cinta and imminently at Attaka are still economically attractive to contractors in view of the profit-sharing arrangements in their contracts, the high price commanded by low sulphur oil and the relative nearness of the Japanese market. Offshore Boundaries 7. With a view to rapid development of offshore oil resources, the Government has made effort to reach agreement with neighboring countries on offslhore boundaries. In December 1971 it signed a tripartite agreement witlh Malaysia and Thailand on offshore boundaries and signed a further agreement with Malaysia defining the continental shelf boundary in the northern part of the Malacca Straits and the Andaman Sea. Some ten other boundaries need definition, particularly those with S. Vietnam and Australia where there are prospective areas for exploration. Indonesia and Australia have demarcated their offshore boundaries between West Irian and Papua/New Guinea, between West Irian and Australia between Timor and northwest Australia. Oil Pollution 8. While oil pollution in Indoniesia has still not become the serious problem which it is in most industrial advanced countries, steps need to be taken as soon as possible to avoid contamination of air and water in view of the recent rapid growth of the Indonesian manufacturing industries. In view of the ever-growing risk of oil nollution from tanker traffic and offshore oil exploration and production, the Government Mineral Oil and f.as Tnstitute (LEIMTCAS) took the initiative in 1970 in Petting up ANNEX 5 Page 3 an informal study group with representatives from Lemigas, Pertamina, Bandung Institute of Technology, Bogor Agricultural Institute, Gadjah Mada University, the Navy Hydrographic Office, and the Directorate of Fisheries. In March 1972 the Minister of Mines established a permanent committee staffed from his Mlinistry, Pertamina and LEMIGAS to advise on policy and regulations to control oil pollution. Its functions are to draw up a joint policy and regulations on preventing and combating oil pollution of sea, air and shore; to coordinate with the other relevant ministries in applying the international convention regarding oil pollution at sea, to direct research and investigation of the effects of pollution on sea, air and shore; and to participate in international and national bodies concerned with pollution. The permanent team is now preparing regulations, and the Ministry has already adopted certain measures to control oil pollution. Production 9. Though commercial production of oil in Indonesia first started in 1893, crude output twenty-one years ago (1951) was still only 152,000 b/d. Production rose to 467,000 b/d in 1966 and then at a compound annual growth of 16.3% to 854,000 b/d in 1970. It averaged 892,000 b/d (325.6 million barrels) in 1971, an increase of only 4.5% over 1970. 1/ In 1972 total produc- tion is expected to increase by 24 per cent over 1971 to reach 1,101,000 b/d (403.1 million barrels). A strike of Japanese seamen working in Japanese- flag ships, which took place from mid-April to mid-July, caused a cutback of oil imports into Japan during those months from the Middle East and Indon- esia. Indonesian crude production was consequently cut back from levels previously planned for those months. Since then, Japanese buyers have been hard seeking crude imports to replenish critically depleted stocks. Indonesian crude production in 1972 hence is likely to be only slightly lower than that expected had there been no Japanese strike. 10. The sharp growth of output in 1972 compared with 1971 results from major increases in output onshore under contracts of work, essentially Caltex and offshore under production-sharing contracts. Caltex brought production in its contract area up from 720,000 b/d average in 1971 to an average 781.000 b/d in January-March 1972 and to a record 875,000 b/d in April. It planned to bring it to 900,000 b/d in April-June and to a level of 940,000 b/d in July-December. Its production during May-July was cut back by some 60,000- 100,000 b/d from that planned as a result of the Japanese strike, and is now estimated at 870,000 b/d in July-December. Its expansion was achieved by bringing four new central Sumatran fields into production at Bangko; South Balam, iIenggala and Kotabatak. It has now installed (i) a new gathering system and pipeline to bring crude from the first three fields to the main Sumatran oil loading port of Dumai, and (ii) a new pipeline from Kotabatak 1/ Further details of output are given in Table 1 and discussed in paragraph 9 of Annex A to the last economic report (EAP-27a) dated November 30, 1971. ANNEX 5 Page 4 field into the existing line connecting the Minas field to Dumni- T t hasz also built additional storage tanks and loading facilities and a third pier capable of handling 150,000 d.w.t. tankers at Dumai. CGltex's output in 1972 is expected now to average 840,000 b/d. Under production-sharing contracts output is expected to grow during 1972 from the Ardiuna and Cinta fields but not to start until early 1973 from the Attaka field offshore N. E. Kalimantan operated by Union Oil/Janex or from the rorridno block in Central Sumatra, assigned by Redco to Stanvac in February 1971. Pertamina's field under development at Diatibarang, W. Java is alsn not expected to start output until early 1973. 11. Total production for 1971 and estimated for 1972 is as follows: 1971 1972 Contracts of work: Caltex 262.8 307.4 Stanvac 23.0 27.3 285.8 334.7 Production-sharing contracts: ARCO - Ardjuna Field 1.5 13.2 IIAPCO - Cinta Fie-l 2;5 13.5 Gulf and Western - Ceram 0.5 0.5 Union/.janPx - Atta-;ka Fieldl - Stanvac - Corridor Block - 4.5 27.2 Pertamina (including Lemigas) 35.2 41.2 325.6 403.1 12. As for the future, the Government's latest prediction of crude oil production through 1978 is given in Table 2. The forecast looks at output from (i) existing fields already in commercial production and (ii) new fields already proven and expected to be brought in to production. It does not take into account output from unknown new fields which stand a gooa probability of being discovered during the next three or so years and brought into commercial production by 1978, i.e. within the period under review. This seems a reasonable position for the purpose of predicting sources of finance for the next 5-year plan (1973/74 - 1978/79), on the grounds that such reserves of oil (i) have not yet been found and (ii), if found, would in all likelihood take at least 3 years to develop A^NNEbX 5 Page 5 fnr inittial production and annther 1-2 years for full production. However, the forecast made for the first two sources above indicates the continued need for an active exploration nrnogrm tn find and hring new fields into production by 1977, if total Indonesian production is not to risk tdeclining from its predicted plateau in 1976. The official forecast predicts annual increments in the combined output from the first two s-ources above from t,1391 n -,/,I`A 4114-19721,00 (.1* .li bres i 19 o ab'out 1.8 million (669.0 million barrels) in 1976, a compound growth of 13.5 percent yearly. HoWeve e it- j4nAIc--scCMbie.4 decline to about 1.7 million b/d (617.1 million barrels) by 1978. 13. Production from existing fields under contract of work is seen to peakl at about 970,000 Ib/d rIn 19173 wlhen Caltex's felds in cer,traLL S-u1atra are fully developed, and thereafter to decline at an average rate of 21 per cent yearLy to Just undler 400,000 b/U d In 1970. The_ above L. L re derived from the contractors ' own estimates and appear to be on the conserva- tive side*. If true, however, it indicates the need for lmproved recovery of reserves from existing fields, for example by drilling extension wells aLd 'Lncreasing the use OL secondary recovery techniques. A decline rate of 10 per cent yearly, for example, would result in an additional 200,000 b/d of output from such fields in 1978. The additional outpuit would result in a combined output of 1.9 million b/d (688.1 million barrels) in 1978 from the above two sources, thereby avoiding the predicted decline in total output. Production from existing fields under production-sharing contracts - Ardjuna, Cinta, Ceram, Attaka, and corridor block - is foreseen to reach its plateau of just under 300,000 b/d in 1975 to 1976 and thereafter to decline by about 16 per cent yearly. Production from existing tields, operated solely by Pertamina and including the Djatibarang field, is fore- seen to reach a level of just under 150,000 b/d during 1973-1976 and there- after to decline by about 10 per cent yearly. Combined production from all existing fields is therefore seen to decline from a peak of 1.3 million b/d in 1973 to about 700,000 b/d by 1978. 14. Production from new fields - already proven and expected to be brought into production - is foreseen to emerge from such promising areas under contract of work as the Petapahan, Suram and Sintong fields (Caltex) in central Java, and under production-sharing contracts as those discussed in paragraph 3. Such production is assumed to start in 1973 and to increase through the period reaching 1.0 million b/d by 1978. "Pro-rata"l Crude 15. A feature of the Indonesian arrangements is that with the exception of the four earliest production-sharing contracts, each crude oil producer is required to supply to the Government at cost plus 20 cents per barrel a "pro-rata" share of its output. In the case of Pertamina itself and the producers operating under contracts-of-work, the pro-rata share which they are obliged so to deliver to the Government, is a percentage of their output equal to the percentage of total national output represented by domestic market requirements. In 1971 the sales volume of refined products ANNEX 5 Page 6 in the domestic market was about 44.0 million barrels. For the purpose of calculating nro-rata rrude obliaations. this is taken to equal 49.1 million barrels of crude oil input to domestic refineries, assuming the Indonesia convention of 10 ner cent for fuel use and losses in refining. In 1972 the domestic market requirement is officially estimated at 46.9 million barrels cim.ilrlv indirnting 92=4 million harrels of crude oil innut. The pro-rata percentage was therefore 15.1 per cent for 1971 and is currently aestimtted :at 13. n npr cent for 1q72. 16. In the case of production-sharing contrarts (other than the four earliest), this percentage is applied not to their total output but only to t';e contractor'- sha-e of tha-f output (after deductAing i-sts ann t-ha Government share of output). The remaining contribution due from these operati-ons to the national pro-rata supply m.ust be provided f the Government-Pertamina share in output under these contracts. The principle .for calc.u"ating prourata crudde is showr. ir. T*able 55 for 10971* ar.d 1972. 17 . IL,or the 'uture, pro=rata deliveries to th e do,estic. ma.rket are foreseen to increase at about 8 per cent yearly from 1971 to 1978 (Table 2). ThILs is basedu on thLie dorestic .arket proJections .mde in Table 7 and dis- cussed in paragraph 55. On these assumptions the pro-rata percentage wouldU reL..ain at a tolerable leve.l fro... +th..e vi; bpoint of export availab4lity, not exceeding 13.5 per cent by 1978. Thereafter it will rise steadily unless neUw reserves are fLoundU anA brought L - Ai-nto prdt . TheC __._ striking aspect of the forecast is the change in sources of pro-rate crude. The remaining contrlbut'on due from the Go-ve..umCt-Pertamina share of output under production-sharing contracts could rise from about 0.6 million barrels in 1971 to about 39 million barrels by 1978 an.d becomle the largest single source (46 per cent) of pro-rata crude. (See Table 2.) The implications for the basic cost of domestic marketing are discusseud in paragraph JO. II. OIL PRICES Recent Development in indonesian Uil Export Prices 18. The export price of Indonesian crude oil rose dramaticaily in 1971 and 1972. Pertamina raised its price for export sales of 35.0 API Minas crude oil to its 50 per cent affiliate in Japan, Far East Oil Trading Company, from $1.64 per barrel f.o.b. Dumai in early 1971 to $2.21 effective April 1, 1971, $2.60 October 1, 1971 and $2.96 April 1, 1972. It raised prices to other customers from $1.67/$1.70 per barrel in early 1971 to the above prices on those dates. All these prices are inclusive of 90 days' credit, worth about 3 to 4 cents. ANNEX 5 Page 7 19. Minas crude accounts for two-thirds of Pertamina's crude exports. Perta,i-Lna receivqes 4t as crude-4n-kind f1ro", Cal+--- ',/ A-othe quarter of Pertamina's crude exports are from its oxmn Rantau field in North Sumatra. : _j___O ADT _ ...T 4 A . 4 AA e A T_+. s o I 115 s's1b VeL y ligh1t * abou tJ X-i . L ..L acnu 'Lse xp oHr .t Sd *. . v . export price for this crude prior to April 1, 1971 ranged between $1.93 and'u $2.13 anu was iLncreased l iLn stages to 4U 9.5C on Apr LJ I 1 1'72.rThe other crudes which Pertamina produces and exports are from the Bunju field in Kalimantan (33° AIrI), anu tLIe K±dILamono LfLe'LUd i1n WeCst Iran 2a2 A . Th/ e f.o.b. export price for Bunju crude was raised from $1.63 to $2.60 on October 1, 1971 and to $2.89 on April 1, 1972. That for Klarono crude, which has good characteristics in making lubricating oils, was correspondingly increased from $2.00 to $2.50 and $2.85. 20. The private contractors followed suit and made corresponuding increases in their own f.o.b. export prices. Caltex's f.o.b. price for export sales of Minas crude had been $1.67 from July 1970 to March 31, 1971. This was raised to $2.21 on April 1, 1971, $2.60 on October 1, 1971 and $2.96 on April 1, 1972. 2/ 21. The f.o.b. export price of Indonesian crude oil is basically derived from three elements: (i) the realized f.o.b. price of an equivalent Middle Eastern crude; (ii) the freight advantage of Indonesia over the Middle East into the Japanese market, and (iii) a premium for the higher refined product worth of Indonesian crude, particularly for its very low sulphur content. This is analyzed below and in Table 3. 1/ Crude-in-kind is defined in Daragraph 19 of Annex A to the last economie report (EAP-27a). 2/ These prices are gross of 120 days' credit - worth about 3 to 4 cents - which is Rranted in sales to third parties and to affiliates in which it has a 50% interest or less. This applies to virtually all its Eastern Hemisphere sales but not to its sales to the U. S. West Coast which are to affiliates. Caltex raised its f.o.b. price on June 1,1971 for US West Coast Sales to S2.35 ner barrel but brought the nric-e for sales there into line with that for sales elsewhere as from the price increase of October 1. Stanvac also increased its exnort nrices for Minas crude from $1.68 to $2.18 per barrel on April 1, 1971, $2.60 on October 1. 1971 and S2.93 on April 1- 1972 with nn extendpd credit terms. Finally, when crude production started in September 1971 from the Arditma and rint- nffrlhnier f4alrti Pirt-Tna and rcont-ractor- priced their exports at $2.60 per barrel inclusive of credit terms, with an increase to $2.96 effert1Ye APril 1, 1972 and higher ian a spot sales. The crudes are again of very low sulphur content and of light nuality (37 -LO° APT)- ANNEX 5 Page 8 Date of price calculAtions Up to June July 1, April 1, Oct. 1, April 1, 30, 1970 1970 1971 1971 1972 --------------(US cents per barrel)------------ Iranian Light (340) realized f.o.b. price 138.0 146.0 173.6 179.0 185.0 Indonesian freight advantage 17.0 12.3 14.3 18.2 16.1 Premium for higher refined produAct worth of Minas crude 1_2,o 8.7 33.1 62.8 94.9 Minas f.o.b. export price 167.0 167.0 221.0 260.0 296.0 (i) Realized f.o.b. prices in .Middle East 22. Separate agreements effective from November 1970 and the Teheran Agreemnent of rebrurfy 1971 between Middle Eastern governments and foreign oil comfnpanies resulted in a major i'ncrease inposted prices and income tax rates for exports via the Persian/Arabian Gulf. The Geneva Agreement of January 20, 1972 i'creased the posot'ed prices for such exports in compensation for inter- national currency realignments to December 1971. Comparable agreements were made f6o oil exports from other major international loadi-ng ports. The tax- paid c-691t of Iranian Light - the Middle Eastern crude most widely imported into Japan - has consiequently rise to about US$1.55 per barrel from January 20, 1972, an increase of 54 cents since November 13, 1970. The producers' margin i's added to 'the 'tax-paid cost to arrive at the realized f.o.b. prices of Persian/Arabian Gulf exports. The producers' margin for spo't cargo sales of Iranian Light was about 37 cents per barrel in 1970. However, the slowdown in growth of the Japanese economy atnd hence of oil sales there appeured to have redcuced it to t6ughly the 30 ct-nts used in the projections. Margins for other crudes differ, in part refletcting their sulphur contents. The realized f.o.b. p'rice in arm'` 'length sales of Iranian Light crude 'to Japanese refiner' has thus '*dsen to about $1 .2'85 per barrel, an increase nd in 1973 i-s forecrat at ahout 9-7 milllnn b/d and in 1975 at about 3.2 million b/d. In mid-1972 Japan had capacity to desppinhiri7e anhbiut 5nn 0nn b/d of fuel nil to mPt .TqnnnPvn cphur regullations and is expected to have about 800,000 b/d of capacity by end-1973. Hence there isza dearth of low sulnhiur fuel oil available for the Tapanese market, and the price of Indonesian oil is benefitting. In late 1970, the premium for the higher refined product worth of Mlnas crude - essentially for its low sulplhur content - was still only about ten cents per barrel over Trnninn Liaht (Tahle 1 143. joweer the nrire inrrpqo::- for Mfinas_ rrudclp in April and October 1971 increased the premium to roughly 33 and 66 cents respectively, and the nrie increase in April 1972 brought the premiulm up to about 95 cents per barrel. Future Trends in Indonesian Oil Export Prices 27. As for the future, the f.o.b. export price of Indonesian crude oil is assumed to continue to be based upon the realized f.o.b price of Persian/Arabian crude, plus the freight advantage of Indonesian over ANNEX 5 Page 10 Middle East crude to Japan, plus the low sulphur premium. Future trends in these elements, particularly the low sulphur premium, are noteeasy to predict. In summary, they together indicate that the f.o.b. export price-could remain at about $3.00 per barr.el from 1973 to 1976 and rise thereafter by a few cents each year. The caiculation is given in Table 3. The projections of Government revenue and of oil exports are very sensitive to this price forecast,. (i)) Realized f.o.b. _prices in.Middle East 28. Based upon the leheran and iGeneva Agreements, the f.o.tb. tax-paid cost of ILranian Light crude will rise by about 7 cents per barrel on each January I of 1973, 1974 and 1975. These agreements expire on December 31, 1975. The mission's sprzojections assume that the same provisions would continue ithrough 1980.. This seems the minimum likely increase., given the evident s.trength of producing versus consuming countries in theZdetermination of prices. 29. The ongoing negotiations by Middle East members of OP.EC, except for Iran,, for participation of 25 per cent rising ultimately 'to 51 per cent in the ;companies producing oil in their countries could increase the tax- paid cost of such crude, to the extent that the producing companies buy back the government's share of oil production at a price higher tthan the arm 's length price for such oil. For example, if a producing company.has to buy back 20 per cent of total prodkuction from a government.at the quarter- way price (between posted price and tax-paid cost), its tax-paid cost on total production would typically be increased by about 7 cents per barrel. The producer can be expected to attempt to pass this increase on to its customers.. The Drincinle clearly does not apply to joint-venture agreements or service contracts nor to Iran which nationalized its industry in 1951 with comnensation. On June 24 the Shah of Iran announced that Iran had reached agreement with *the consortium of oil companies operating there regarding thie 1nng-term development of the nil industry: Tran is not directly involved in the participation issue now under discussion at OPEC; the Consortium Agreement will he extended beyond its init-i.l expiry date of 1979; the consortium will actively explore for and develop reserves to ennhl ot taitniif tt hell,i tn R Tillie-(n hpe1 -qn(l-hvnd H- norioA of th-e. Teheran Agreement, future prices will be in line with prices of a "basket" of coAMhTod-itiesan The -pr-drucr margin ia not easy to ore.izi but is here assumed to continue at about 25-30 cents through 1980 for Irar.ia~n Lg. ANNEX 5 Page 11 (ii) Freiglit Advantage 31. Freight from the Persian Gulf to Japan is projected to remain at about present levels (Worldscale 55) 1/ through 1975 but thereafter to increase gradually to about W65 by 1980. These rates take into account (i) recent and future expected increases in ship building costs, (ii) the consequent increase in freight rates in new charters compared with their preceding low rates, (iii) to a lesser extent higher bunker charges, and (iv) recent increases and expected future stability in insurance costs. 32. As for the voyage Indonesia-Japan, Caltex has iust completed the expansion of the terminal faciliaties at Dumai, Sumatra to ihandle 150,000 dwt shins. New offshore storage and loading facilities for the Ardiuna and Cinta fields are being installed this summer and fall respectively and are designed to enable the loading of up to 140;000 dwt shinp. So is the loading jetty for Pertamina's Djatibarang field, expected to start production in early 1973. The introduction of tankers of 100!15,s000 dwt is likely to reduce the average freight from Indonesia to Japan to perhaps W 63 i.e. 26 cents ner barrel during the vears 1973-1975. This wonild he a saving of about 3-4 cents per barrel compared with the voyage by medium- si7zd tankers in use .ntil now. From 1Q76 nnwardsc frpight is predicted to rise gradually to about W 75 by 1980 for similar reasons as for the voyage Persi2n Gu1f-JapnAn. Indonesia's freihit advantage over the 7!iddle East for oil supplies to Japan is therefore predicted to be about 18-21 cents ner hbrrel during the next few yars.- (iii) LTo. 5iilnhitur Pvamr rnii 33. Perta-ina hasf s:hor.m bold commeorcial ac,Wmen if. 1obtinn e4e a ; of about 95 cents per barrel this April in its export sales of Minas crude to Japan. Its demons t,-ar4o I, has 4nduced the e contractors to follow suit in pricing of their own exports, and the price has thus far held 34. The p 4, a n 14- f A-ve 1-f-te -A1 one Ao1 1 t_ ; _, @ =,,s, ML uz_,,, z * __ A. flU v A.L Z a -Ww i *LwO& s A.0 **UUV|wo s just over a year. It has raised the export price by half from its level prior t April 1071 zr.d accounts for one=third of the exotpie Th kI-. *. . J F &jA.LA .i . - Oft t...tlU LUA *JLa -LLL U WJ LAIC I. U L6 '. L± . premium's future level is fundamental in forecasting the oil sector's contribut ion to fut.ure economic prospects . Le-L i.ts Leve l 'Ls the ri-,ost variable and unpredictable component of the export price. The premium L/ worlU'scale Ls a reference tarliff, in terms or which current rreignt rates are expressed as a percentage. It was introduced on October 1, 1969, replacing the preceding reference tariff. It is published jointly by the International Tanker Nominal Scale Association, London, and the Association of Ship Brokers and Agents, New York. It is revised annually. ANNEX 5 Page 12 is clearly above its long-term ceiling which is equivalent to the cost of desulphurizing crude oil to meet Japanese specifications. This cost is hard to measure preci§ely, as little reliable information is published on such costs, desulphurization technology is advancing rapidly, and the cost per barrel is sensitive (i) to the sulphur content inherent in the raw material and specified in the finished product; and (ii) to the rate of depreciation charged on the plant. However, it is believed by the mission to be in the range of 20-40 cents per barrel of Iranian Light crude oil desulphurized in refineries to future standards thus far announced by the Japanese government. There is a good possibility that it may decide to make these standards stricter than those now announced. Such restriction would intcrease the above cost. 35. The current premium commanded by Indonesian oil therefore reflects insufficient capacity to desulphurize Middle Eastern oil for the Japanese market. The leadtime needed to bring in new facilities is roughly three years. However, the considerable size of funds needed to install sufficient capacity makes it unlikely that the bottleneck will be broken three years from now. As additional capacity become introduced, the premium will decline but at a rate difficult to predict. It is here assumed to decline gradually from 1973 to 1977 to a level of about 65 cents and to be supported at that level by a possible further stiffening of Japanese sulphur regulations over those already announced and over that foreseen above. Retail Prices of Petroleum Products for Domestic M4arket 36. Retail prices of petroleum products sold in the Government's domestic marketing operation had remained unchanged since January 6, 1970 until the Government on April 1, 1972 raised the prices of both Rrades of motor gasoline by Rp. 5, gas oil by Rp. 1.50, and diesel oil and heavy fuel oil by Rp. 0.50 per litre. It did not change prices of the other products distributed on its behalf by Pertamina, i.e., aviation gasoline, aviation turbine fuel or kerosine. III. VALUE OF OIL EXPORTS 37. The gross value of oil exports during 1971/72 was aboutt US$596.8 million, an increase of 34 per cent over 1970/71 when it was $444 million. The gross value of oil exnorts duiring 1972173 is nnw estimated at- ahout US$993 million, an increase of '66 per cent over 1971/72. This es'timate is hnbprd tinnn etjimatpd total nO,tnimt nf 403.1 millinn hnrrelcs i.n 1Q79 from which 1.4 million barrels of contractors' losses, own use Wnd change in stocks and 52.L million barrels of pro-ratta deliveries for the domestic mrprKet are deducted, leaving the equivalent of some 351 million barrels of erude oil for nxport. ANNEX 5 Page 13 38. For the future, gross oil exports are projected to rise in value to about US$1,770 million by 1976/77 but they decline thereafter to about US$1,650 million by 1978/79. (See Table 5.) Since f.o.b. export prices are assumed to remain steady through 1976/77 and to increase slightly thereafter, the reason for the forecast decline in the value of gross oil exports lies in the decline in crude oil production which could ensue if new discoveries are not made and brought into production by then. The physical decline in future output and exports is illustrated in Table 2. 39. Net oil exports are calculated in Table 4. 1/ They are estimated at $204 million in 1971/72, compared with $126 million in 1970/71, and are estimated to rise to $349.5 million in 1972/73. They are foreseen to rise to about $580 million by 1976/77. Thereafter they could decline, reflecting a drop of about $50 million in tax liability of foreign contractors, unless new reserves are discovered and brought into production by then or the decline rate in output from existing fields under contract of work is slowed down. IV. SOURCES OF GOVERNMENT REVENUE Government Revenue - General 40. Government revenues from petroleum are of three sorts: (a) the Government share of the profits from the crude petroleum production and marketinQ operations of the foreign oil comnanies under contracts-of-work and production-sharing contracts; (b) the Government tax on Pertamina's nrofits from its nroduction. refining and domestis and foreion mnrketing operations; and (c) the Government "tax" on sales of petroleum products in the domestic market- which is the rpRidiiul ciiffprpncr hbtfweer total sales receipts and Pertamina's cost plus fee in acting as agent for the Government in the domestir snpply and distrihiitinn operation. Government Revpniip from noreicn Contractors 41. Government revenue for 1971172 from foreian oil companies onperating under contracts of work and production-sharing contracts anounted to Rn 112-7 hillion (US$284.3 million) 2/, a third of all Governm ent r This is an increase of 65% over the Rp 68.5 billion received in 1970/71 and rocsults mninlu frnm tho increas in exn,rt price in 1971. Since output from areas under production-sharing contracts only began in 1971, the revenues in 1971/72 from such output amounted to only about Rp 1.7 billion. Table 5 shows the calculations for 1971/72 and 1972/73. 1/ The method of calculation is discussed in paragraph 38 of Annex A to the last economic report (EAP-27a) dated November 30, 1972. 9/ The basis for computij.fng Governm,.ent revenue LromLA contracts olf worlk and production-sharing contracts is explained in paragraphs 41-42 an' If,5C respecti-vely of tAii-nex AL to the 'Last economiLc report. ANNEX 5 Page 14 42. Government revenue for 1972/73 from foreign contractors is esti- mated at Rp 201.4 billion (US$485.4 million), an increase of 79% over 1971/72 mainly because of an estimated 32% increase in average estinated export prices for 1972 and an estimated 24%` increase in volume output. The growth of output from fields under production-sharing contracts would increase Government revenue by about Rp 13.0 billion, but most of the revenue growth (Rp 81.8 billion) would be brought in under contracts of work. 43. For the future, Government revenue from foreign contractors is forecast to jump again in 1973/74 to about Rp 249 billion. This increase of 24% over 1972/73 reflects essentially the growth of output expected from the fields in Sumatra operated under contracts of work and from the Ardjuna, Cinta and Attaka offshore fields and the corridor block in South Sumatra operated under production-sharing contracts. The average f.o.b. export price for crude oil and products is assumed at $2.93 per barrel net of credit. 44. Calculations of the forecast for 1973/74 - 1978/79 are given in 'table 6. Government revenue from foreign contractors is forecast to increase by an average 9% yearly to about Rp 320 billion in 1976/77. This lower growth rate results particularly from the assumptions that the export price will remain by and large unchanged and that output from new fields - now under development but not producing - will amount to about 300 million barrels but will be partly offset by a decline of about 21% yearly in existing fields under contracts of work (Table 2). In 1977/78 and 1978/79 such revenue is forecast to level out at about Rp 300 billion, assuming that the export price edges upward but thiat output from existing fields declines by a greater amount than that from new fields grows. This emphasizes the need for Indonesia to encourage (a) recovery of additional reserves from known fields, for example, by drilling extension wells and increasing the use of secondary recovery techniques, and (b) exploration. 45. Some of the assumptions made in forecasting Government revenue from forei,n contractors are particularly sensitive. A variation of ten cents per barrel in the export price would cause a correspondinp, yearly variation in such revenue of about Rp 10 billion during the period 1973/74 - 1978/79. 46. An increase of ten million barrels' output (27,400 b/d) will cor- respondingly raise Government yearly revenue by about Rp 7 billion under contracts of work and by about Rp 4.5 billion under production-sharing contracts. If output from existing fields under contracts of work were to decline at 10% instead of the current forecast of 21% per annum from a peak in 1973, Government annual revenue in 1978 would be higher by Rp 47 billion. Tf sales vol ume in the domestic market and the correponnding nrn-rata- rrt-tdp obligation were to increase one percent faster after 1971 than estimated in 'abl 7 the GovernmPnt 's net- nrofi-t fror. dionueticr m- -i- cnqrt4 no 1i,, 1 Q7./7Q might be higher by Rp 10 billion, but its revenue from foreign contractors would be low.rer by Rp 1.4 billion than forecast here. Other assumnptions including those on production costs for contracts of work are less sensitive. ANNEX 5 Page 15 Government Revenue from Bonus Payments by Contractors 47. To the above amounts of Government revenue from foreign contractors, bonus production payments from production-sharing contracts need to be added. The new Pertamina Law of 1971 requires Pertamina to transfer to the Government 60% of bonus revenues. Sucih revenues have now been defined to include only bonuses payable when production reached specified levels, not signature bonuses or payments for geological data which become part of Pertamina's general taxable income. The first revenues from this source are expected to accrue in 1973 (Rp 0.5 billion) and 1974 (Rp 1 billion) from the Attaka and Cinta fields respectively; no suclh contractual obligation applies to the Ardluna field (Table 6). Government Revenue from Pertamina's Overall Operation 48. Pertamina's income is derived partly from fees earned as agent for the Government in the domestic distribution of oil; the fees are for refining and marketing (10 cents each per barrel) and for the Dro-rata crude it delivers to the Government (20 cents per barrel). It distributes solvents and other special products, bitumen, wax, lubricants and Preases for its own account in the domestic market; exports on its own account (a) part of the crude oil produced from its own fields. (b) nart of the crude nil obtained under crude-in-kind arrangements, and (c) products surplus to dompstir market requirements refined from its own cruide and crriie-in-kind; and receives income from chartering freight to third parties. Operating revenue from the nbvre sniirres and nonoperating revenue from signature bonuses and geological data payments constitute Pertamina's gross revenue Qiih4etr to tax. Other Qoiirres of revenue include (a) the five percent of allocable income from production-sharing contracts which it retains, (b) the .0 An r -efnt of prodiut40n hnu,saec wLhiclh jt- T4 11 r-f-4- t - f-lw-he theyb payable, and (c) dividends from Far East Oil Trading and other foreign andl do..estic -affilli-ate-s. Pertami4na is understood not to) be liable t1o 'tax on the first item, though operating expenses financed from this source are not deductible ln computlng tax. Pertami.nla is not liable ta o tax on thLe second item and is believed not to be liable on the third, assuming that tax has already been naid hy Quirh affiliates. 49. Pertaminnc antc 4sit i n .cred on is own -account are thosc for exploration, production, refining, freight and head office, to the extent that these costs a,e not v -oae to 'Cl .het Ve rInIeCtIL do mUIIsr LiLL uL OLL LVI n operation and reimbursed by the Government. 50. Its net revenue before depreciation was officially forecast for 1971 at US$46.0 'illion. However, depreciation of US$26.5 millio .-was estimated to reduce the net profit before tax to US$9.5 million and to result in a tax lbilULiLy of about US$. r .±±iion (Rp 2.4 buillion) at the 60 per cent rate applicable as from 1971/72. Presumably because of rising operating costs and'U depreciation, PLertamina i.4n Lfact paid Ap 1.5 billion. Its net revenue before depreciation was officially estimated in mid-1972 at US$68.2 million. This reflects a sharp rise in Pertamina's exports from its own ANNEX 5 Page 16 production and in f.o.b. export prices, offset only in part by higher operat- ing costs. Reflecting the growth in its capital expenditure programs, Per- tamina's depreciation was officially estimated at US$43.2 million. This wou'ldI reduce LILhe net prof4it I-efore- tax to US$2JO rillo ar,41sut n WUUU £~UL I~ L L p. ~ L U~L LVL L-A LU UOY49g..)U fLI.-L..LIUon andU res~u±L L 11 a tax liability of US$15.0 million (Rp 6.2 billion). In fact Pertamina paid Rp 1.0 billion. It is expected to pay Rp 3.5 billion in 1973/74. / The mission's projection of Government revenue assumes that Rp 6 billion is the minimLum CUILLLUUL±iLLW'L L -wich Pertamina wouldU rlak LL theeaeL LLr Lhrough I9,7 8/7. 51. Until 1971/72 inclusive, Pertamina's contribution to Government revenue was collected by the Director General of Taxes and shown as part of revenues from domestic corporation tax. As from 1972/73, it is coilected by the Director General of Finance and included as part of revenues from foreign oil contractors. Government Revenue from Domestic Oil Marketing 52. Mlainline oil products are supplied and marketed in Indonesia by Pertamina, acting as the Government's agent. It collects the gross proceeds of marketing these products at Government-fixed retail prices and receives reimbursement of its basic costs plus a fee for conducting the domestic distribution operation. The Government retains tne net protit from tne operation 1/. The Government's net profit from the domestic marketing operation increased trom Rp 17.4 billion in 1969/70 to Rp 28.8 billion in 1970/71, reflecting the sharp increase in the retail prices of gasoline, kerosine and other products put into effect early in 19/0. 53. The Government's net profit trom domestic marketing in 1971/72 was only Rp 28.3 billion, slightly less than in 1970/71. On the one hand, it was assisted by (a) a rise of some 12% in sales volumes, (b) the shift of consumption from 79 octane to 87 octane gasoline whose price was Rp 5 per liter higher, and (c) the credit to the domestic operation resulting from the price increase in refined products exported as surplus to domestic market requirements. On the other hand, the operation's basic costs were increased by (a) the higher Rupiah cost of the foreign exchange component of operating costs resulting automatically from the Rupiah devaluation of August 1971, and (b) the higher price of crude-in-kind supplied as from April 1971 and October 1971. 54. The Government's net profit from domestic marketing in 1972/73 is now officially estimated at Rp 31.6 billion, because of (a) the rise expected in sales volumes, (b) the increase in April 1972 in the retail prices of motor gasoline, diesel oil and heavy fuel oil, and (c) the credit I [Lh ULaLLLI Lop r .s dcussed i par-agrap,, I -4t of AnnexA t o th e last economic report (EAP-27a). ANNEX 5 Page 17 to the domestic operation resulting from the furtlher price increase in April 1972 in heavy fuel oil. Furthermore, the inland transport cost allowed for premium grade gasoline was to be reduced in April 1972 from Rp 3 to Rp 1.20 per liter which was the 1971 cost for the lowest grade- previously used and now withdrawn from the market. On the other hand, the exnected basic costs were increased by (a) the higher price of crude-in-kind supplied as from April 1972, (b) a threefold increase in sea freight of cruide sunnlied for domestic refining. (c) the assumotion that nrodticts are delivered to the domestic market only from the older and presumably higher cost refinpri es and not from the new refineries of Siingei Pakning and Dumai, though in fact the latter supply at least gasoline and kerosine to the domestic market, and (d) increased wage a dpnrecintion.. 55. Projection-t of future reveue w.Jill have to be based -c ful forecasts of sales volumes of each of the eight main products. The growth is likely to be different ir each case. For example, now that the conversion. from piston to turbine-engined aircraft is virtually completed, sales of aviation gasolne w-ill pr-bably remin stagnant but those of aviation turbine fuel will probably continue to grow strongly. Sales of premium graduCe gasoliLne can bue expected to rise buoyantly but those of the best grade to rise more sharply, though from a far smaller base. Sales of gas oil are a'lso lik1ely to1 4_o --Al bohi uo..tv ehce n i osrc are ~ ~ L- ,LN ± y t o gr w A. A1LLL. SJ1 LiLt A. LLl aU L1.UILIU. L. V ~ V %;L.LL L. Lt.: kCILLU L Li LkUiJii LL U%C- tion and manufacturing industries. So to a lesser extent are those of d. esel o`l and luel oil, fPor examiple in maufcurn ---owrgeeato, ui -L L J-L L IIU LU L LJ±L £.L -~1 L LLt=, -JL I Lia LULJd L L;.U L-L Lii L , ILLLpU UW t-L 8CLttrLd L.LVL). On the other lhand, sales of kerosine - 43% of total sales in 1971 - are likely to re'lect the slower growth in per capita inUone. A study of long-term future growth of the domestic market is being prepared by Pertamina wiLt the assistaLce ofL coisuLtaits . ILts results are expecteu later this year and need to be taken into account in the forthcoming o_ _ A_--__ _ _ _ r 1 4n ) R r 4 v S preparation of tle Goverument s next 5-year plan k197u/7I - Table 7 illustrates the possible effect on sales volume through 1980 of different growth rates for individuai products. It comes out with a weiglited average growtlh rate of 8.1% related to actual sales volumes in 1971. This forecast is taken as thie basis of the future pro-rata crude obligation. 56. The aDove forecast results in a compouna annual growtn of 10.1% in gross revenue by 1978/79 from that officially estimated for the Govern- ment's marketing operation in 1972/i3, at Aprii 1972 prices unchanged (Table 8). The basic cost of the operation, inland transport costs, and pump margin are also roreseen to rise at 10.3 per cent p.a. tor reasons outlined below. The net profit from domestic marketing is hence tentatively predicted here as rising to about Rp 62 billion in 1978/79, a compound yearly growth of 11 per cent over the Rp 31.6 billion now estimated for 1972/ 73. 57. A summary forecast of the basic cost, inland transport cost, and pump margin of the Government's domestic oil marketing operation is attempted in Table 9. By far the largest cost is the basic cost to ANNEX 5 P age 1 Pertamina in running the operation, and 70% of the basic cost is that of the crude oil input to Local refLineries. An attempt ls iidUe lna 1 0 to forecast the crude input needed through 1978 to meet domestic sales requirements. WLLLI Le CuuUL1LULA_LLr Ln 1971 o LILe IUJ L CLLLU a ULLSr,L Pakning refineries, and in 1975 of the proposed Tjilatjap refinery, Indonesian refineries appear prima- facie to hlave capaclty to pLULoc5 crude enough to meet all domestic sales of kerosine, except in 1977 and 1978 when some kerosine imports seem needed. On this basis the next major expansion could be required on stream in about 1979, assuming there is economic justification in minimizing product imports. 58. The mission's projection assumes that the f.o.b. export price would apply to Government crude from production-sharing contracts delivered to the domestic operation (see paragraphs on pro-rata arrangements). If this is correct, the cost of transferring such Government crude to the domestic operation could grow from nothing in 17/z to aDout $120 million by 1978/79, or one-third of the basic cost. The effect would be to reflect to a larger extent in the cost of the domestic operation the international level qf oil prices. Such an effect would be augmented to the extent that crude is imported and its landed cost invoiced to the domestic operation. The price at which the Government invoices crude to the domestic operation in principle does not matter, insofar as it has ai- ready obtained the crude at production cost plus a 20-cent fee and receives the net proceeds on the sale of the refined products, whether the proceeds are attributed all to the domestic marketing operation or in part to Government account elsewhere. In practice, however, the Government might be more likely to retain this profit rather than to pass it on as a subsidy to consumers if the crude were to be invoiced to the domestic marketing operation at the full f.o.b. export price instead of cost plus fee. V. PERTAiINA'S CAPITAL INVESTMENT PROGRAM X.D FINANCING Introduction 59. Pertamina is well established as an integrated oil company and engages in all phases of the industry including exploration, production, refining, shipping and distribution. Until this year its capital invest- ment program was under the general purview of the Minister of Mines. However, the new Pertamina Law of September 15, 1971 provides for the establishment of a Board of Commissioners to guide Pertamina's development 1/. This Board was appointed by President Suharto on Marclh 1, 1972 and consists 1/ A summary of Pertamina's history and function and the Pertamina Law is given in paragraphs 1-7 of Annex A to the last economic report (EAP-27a). ANNEX 5 Page 19 of the Mlinisters of Mining (Chairman), Finance (Deputy Chairman) and Development Planning. They are responsible for directing Pertamina's policy, based on its budget, work program and investment proposals as recommended by Pertamina's five-member Board of Directors. 60. Pertamina's recent and possible future investment activities are described below. As already indicated, the magnitude of its invest- ment operations is very large, and Pertamina has been obtaining a major part of the financial resources required by borrowing abroad on quite hard terms. Pertamina has established its credit abroad and is clearly in a position to borrow additional substantial amounts, albeit on hard terms. It is able to generate sufficient funds to meet its debt service obligations principally because for tax purposes the Government has accepted Pertamina's practice of depreciating those assets acquired since 1968 with foreign financing at rates equal to the debt repayment periods involved. The depreciation periods are, as a result, generally five years or less whereas the life of the assets and the normal depreciation periods applicable are much longer. The consequence is that Pertamina's corporate profit tax obligations to the Government are very much reduced. This technique of depreciating assets for tax purposes at the rate of debt payment in effect preempts Government revenue for Pertamina's investment program in a virtually automatic or hardly noticeable manner. 61. The effect is to reserves to Pertamina itself, rather than to the Government, decisions with respect to the use of a substantial part of the investment resources available to the economy. This creates the risk that Pertamina may undertake investments which, even if wise from Pertamina's point of view. may command lower priority than other invest- ments which might be undertaken with the same resources. It means that the same criteria are not applied in the case of Pertamina's investment decisions as are applied elsewhere. It gives rise to the danger that relatively high risk and high cost investments may be undertaken which might better be undertaken by the foreign investors able and willing to do so or which might better not be undertaken at all. Tt seemis de-irnhle that Pertaminas's investments should be judged by the same criteria as apply in other sectors of the economy and that, to the maximum extent possible, they be financed by long-term concessional credits from abroad. It is for this reason that the $200 million credit offered by the (overnment of Japan for the development of the petroleum sector is to be welcomed provided that thiq crediit Q,hsti1tu,tes fnr rather tha. adds to hard commercial credits and provided also, of course, that the investments financed are annrnnriatelv selected. Enlnrnatinn andi r)evulonmpn- 62. Pertaminn onr its nw.M ea ad produces in certain areas.- In other areas it operates through contracts of work and production-sharing contracts, under w..hichl foreign contractors make all the investment required in return for a share of any oil which may eventually be produced. The Government's view has bee that Pertamina should. J-LA ueake explot a nd ANNEX 5 Page 20 development operations at least where the risk might be judged to be not unduly high, altnough higher risk and higher cost exploration would best be left to foreign contractors. Pertamina's exploration and development program is therefore essentially onshore in accessible places: N. Sumatra, the Palembang area of S. Sumatra, Djatibarang in W. Java, and the Tandjung area of L. IKalimantan. 63. The policy of restricting Pertamina's exploration and development programs to easily accessible and geologically attractive places looks righit. Considerable funds might otherwise be invested only too easily without resulting in commercially worthwhile production. 64. Pertamina plans to develop producing fields further and is considering tihe installation of secondary recovery teclhniques such as water flooding and gas injection. It bought $20 million of drilling equipment in 1971 for use in the N4. Sumatra and E. Kalimantan fields. This is being financed from Japanese commercial credits, repayable in crude over 5 years. Its main effort now is to develop the Djatibarang field. The present investment there is expected to result in production starting in early 1973 and building up initially to 60/70,000 b/d. It is being financed from three Japanese commercial credits, amounting to $139 million, repayable in Djatibarang crude over 5 years. This is a substantial addition to the volume of Indonesia's external public debt and, prima facie, a rather costly investment. It raises the question whether further such developments should be undertaken by Pertamina itself or through foreign contractors. 65. Pertamina is now looking for gas reserves near Djakarta for use in power generation or town gas distribution, and in East Java for use in the Petrokimia fertilizer plant in substitution for heavy fuel oil. It also plans to supply natural gas to the proposed new fertilizer plant from its field under development at Tjirebon, W. Java. The incentive for finding gas has grown greatly this last year, insofar as its economic worth in domestic sales is that of low-sulphur fuel oil released thereby for export. There have been recent reports that consideration is being given in Indon- esia to possible schemes to export liquified natural gas (LNG). Pertamina is understood to have signed a letter of intent with the Californian gas distribution utility Pacific Lighting to supply LNG over 25 years, start- ing in 1976, for use in southern California. It is also understood to be zot,nidering an LNG scheme with Japanese participation (Bridgestone and FEOT) for supplies of LNG to Japanese steel companies. Mobil is apparently sounding out Japanese interests with a view to a joint venture for the export of gas from the Arun reservoir in N. Sumatra. Oil SuDDlV and Service Bases 66 Offsqhnrp ci1 exnloration and nroduction activities have* led to the establishment of four oil service and supply bases which are increasingly able to offer services hitherto provided from Singapore. ANNqEX 5 Page 21 67. In May 1971, President Suharto inaugurated one of these bases on Batam Island, which is one of the Riau islands within Indonesia just southi of Singapore. In November 1971 he also established by decree a Government Board, chaired by the President-Director of Pertaniina, General Ibnu Sutowo, to plan the island's further development. In May 1972, Pertamina agreed with the U.S. firm Bechtel and the Japanese trading firm Nissho-Iwai to make a joint feasibility study of the possible establishment of an industrial estate on the island, including a free port. The develop- ment would include oil and general cargo marine terminals, airport, roads, utilities, recreation facilities and housing. The study contemplates that with this infrastructure private enterprise would undertake a variety of investments including processing industries and a refinery for external marketing of products (paragraph 74). 60. The three other service bases for offshore operations are at Balikpapan in E. Kalimantan operated by Pertamina, a second on lIasalembo Island, Java Sea, operated by a U.S. oil contractor (Ashland Oil) and a third at Xlerak on the N.W. coast of Java, operated for Pertamina by a U.S. contractor (Santa Fe-Pomeroy). The Merak base is operated as a duty-free port and is designed to provide storage of oil well supplies and a convenient site for construction for offshore construction and mechanical repair facilities. Facilities under construction include a helicopter pad and an international and shore-to-ship telecommunication center. Subsequent expansion plans there include an airport for direct service by charter airlines and a dock for ocean vessels drawing up to 45 feet. Pipelines 69. Pertamina completed a pipeline last year to take petroleum products from Tiilatiap to Maos in central Java and is arranging for its extension to Jogjakarta. It completed a submarine pipeline to enable the loading of large-sized crude oil tankers at Pangkalan Susu in l. Sumatra and is constructing otlhers at Belawan in N. Sumatra and Djatibarang in W. Java. Re f ining 70. Pertamina has owned and operated all refineries in Indonesia since January 1970 when it bought the Suneei Gerong refinerv from Stqnvac. It had bought Shell's three refineries - Pladju, Balikpapan and Wonokromo - in January 1966 and it already owned a small refinery at Pangkalan in N. Sumatra. Most of those refineries are old. Pertamina has therefore engaged in a major expansion nf rofining capacity, recently bringing on stream the Dumai and Sungei Pakning refineries in central Sumatra. ANNEX 5 Page 22 71. In late 1971, Pertamina commissioned an asphalt plant of about 60,000 tons per annum capacity at Pladju, South Sumatra and a grease plant at Tandjung Priok, Djakarta. It plans to build a small blending plant for lubricating oils at Tandjung Perak in East Java, importing base stocks until they become available from the proposed Tjilatjap refinery in Central Java. 72. This new 100,000 b/d refinery is expected to come on stream in 1975. Under heads of agreement in 1971, Shell undertook to provide finance up to $100 million 1/. However, there now appears to be uncertainty whether this arrangement will be pursued. Pertamina is now understood to be nego- tiating with the Japanese firms tlitsui, C. Itoh and Tomen with finance to be provided from the $200 million, long-term loan offered by Japan to Indonesia (paragraph 92). 73. The next major expansion of refining capacity could be required on stream in about 1979, assuming there is economic justification in minimizing product imports (paragraph 57). There could conceivably be justification for refining for export, but it is not clear in Indonesian's circumstances that this would produce positive economic returns. 74. For its part, Pertamina held discussions with Japanese refining companies this year on the possibility of creating a Japanese consortium to finance, construct and operate an export refinery on Batam Island primarily to supply Japan. Advantages to Japan could include the avoidance of air pollution from refining in Japan, value added to the Indonesian domestic product, and the ability to export products surplus to Japanese requirements to neighboring countries in South East Asia. The advantages to Indonesia would be a modest amount of labor and service earnings together with tax revenues accruing to the government. The economic justification, timing and finance of the infrastructure and refinery project for Batam Island would, of course, be put to Pertamina's new Board of Commissioners for consideration. 1/ The deal is described in paragraphs 20-23 of Annex A to the last economic report. ANNEX 5 Page 23 LankLer r"Leet 75Pertamina has been u'luding up 'ts Inter L'slI- and ocean-going fleet. At end-1971 its fleet is believed to consist of 90 vessels amounting to 900,000 dwt (excluding 140 small vessels). They are either owned, operated under hire-purchase arrangements or chartered by Pertamina. By end-1971 it had received 18 out of 25 tankers, mostly about 5,000 dwt each, ordered from Norwegian yards under hire-purchase arrangements. In expansion of its fleet of ocean-going tankers - currently of the 30,000 to 43,000 dwt range - Pertamina ordered five 115,000 dwt tankers in 1971 from Norwegian yards.. it is also understood to be arranging tor the delivery of three tankers each of 130,000 dwt for hire-purchase over 10 years from Swedish yards. The first and second ships would be delivered in 1975 and the third somewhat later. The price is believed to be upward of $20 million per ship. 76. One aspect for careful consideration is the extent to which the acquisition of large tankers under hire-purchase arrangements may prove more costly forms of freight than the regular long-term charter of such sized vessels. For example, freight for the voyage Dumai-Yokohama would be 27-31 cents per barrel at the five-year charter rate of Worldscale 65-75 which can be envisaged for 100/150,000 dwt ships during 1976-1980. But the freight under the hire-purchase arrangements for these ships is reported to be W 100 or more, which would be 42 cents per barrel or more for the above voyage. Thus the cost to Indonesia for preferring to acquire such ships under hire-purchase terms could be equivalent to an increase of 11-15 cents per barrel in freight. This would correspondingly reduce the f.o.b. price, as there is no reason to suppose that the cost increase could be passed on in the c.i.f. price to Japanese buyers. The Board of Commissioners should review Pertamina's ocean-going and inter-island freight operations particularly in relation to outright and hire purchase arrangements, time and spot charters and the appropriate balance between them. Inland Marketing 77. Pertamina has been actively expanding and modernizing its inland transport facilities as well as its inter-island tanker fleet to serve the domestic market. The rate of such investment in future would presumably depend primarily on the growth foreseen for domestic sales, currently under study (paragraph 55). Petrochemicals and Fertilizers 78. Pertamina expects to bring the polypropylene plant at Pladju on stream in early 1973. Plans are under consideration to modify the older Pladju and S. Gerong refineries - both at Palembang - to make petrochemical feedstocks as well as some of their present output of mainline products. ANNEX 5 Page 24 79. Urea fertilizer is now produced at Palembang from natural gas feedstock by the state fertilizer corporation PUSRI; its plant is being expanded for completion by 1974, and Pertamina is constructing and will operate the required gas facilities. Construction of a second main fertilizer plant is under active consideration. It is likely to be owned and operated by Pertamina and be sited at Tjirebon, West Java, near the gas field which it is developing there. Financing is being requested from IDA and the Government of Japan. 80. Further investments in petrochemicals should be carefully assessed. Elsewhere in the world, such investments have recently shown, on the whole, poor economic returns on capital. The resources produced by oil need to be allocated in the best interests of the whole economy, and the rates of return on investments in as well as outside the sector should take the scarcity value of caDital into account. In relation to oil-based petrochemical enterprise, also, Indonesia's circumstances differ from those of most nroducine countries, where sunnlv greatly exceeds demand and the cost of feedstock is thus around bare production cost. Indonesia can exnort at nremium nrices everv barrel Of oil it can produce, so that the real cost of using oil as feedstock is and will continue to be about $3.00 a barrel. Head Office 81. UJntil recentlvy the services needed to qsinonrt a large exploration and production program by foreign contractors have not been available in Indonesia. These servirces have therefore heen nrovided abroad- narticularly in Singapore and Australia. Pertamina has understandingly made great effnrts tn mnke sucrh services availahle in Tnrlneoia. In 1971 it nnonet4 the Oil Centre Building in Djakarta to provide office accommodation for foreign oil companies, and it has started construction of a 23-story Pertamina Tower in Djakarta to provide office accommodation for itself and foreig. oll companies. I.n January 192 it opened the Pertamina Cerntral Hospital in Djakarta to give medical care to its staff and family, foreign oil contractors and diplomats, close relations, and the general public including the poor, in that order. It provided substantial assistance for an inte.,.atl-onal 4oint- embassy sch-ool which s-ince cepteumber '91prov4des tuition for grades 1-12. For its part the Minister of Mines issued four decrees in MrchU 1972) whichU give th-e Govel.nment. some contrVol o-ver-- OperatiOnls o- foreign oil companies not hitherto registered in Indonesia, streamline proceuures fLor erploying fLoreiLgners, cLar'ily existing rules orL tiie use oUf locally made goods, and encourage companies thus far operating from Singa- pore aC dU ULler cUUonLLtr Le U Uto l Upe 1of cs11 X lUlULLO±d. Jo.Lit Ventures 02. Pertamina sells its crude oil exports to Japan through Far East Oil Trading Company, which it holds 50:50 with Japanese refining and public utility interests. For oil exports covered by tne agreement this summer between the Governments of Indonesia and Japan, Pertamina will ANNEX 5 Page 25 s uppl A y crd e t.h,o,r Ja u ghTvApan Indonesia Petroleum Company, a new inrit- venture (paragraph 95). 83. The above ventures presumably require little investment from PVertmi.inact.AIP~ Howve,i it ha sJ reer.l bee irvet4. nevl t e ethe joint ventures which provide services for its oil activities. It operates its O-WI LLeet of aircraft andU L'ieLLcoptLers hILLroughI . TL. LeL.L ta A.L SerLvice, formed in January 1970; the company possessed 25 aircraft and 22 helicopters in February 197I2 and 's corsiLuerLing extendir.g -t VLt tU foreigr. contractors and to Pertamina staff for tourism. It has an interest in the Hongkong firm Tugu Insurance. Since early 1971, it has form1ted t,he following joint ventures: (a) P. T. Nusantara Star Exploration, (a 50:50 venture with the U. S. firm Teledyene) to perform seismic exploration and data processing; (b) P. T. Pertamina Gulf, (with Gulf Oil) to handle storage and packaging of urea fertilizer imports in buik at Tandjung Priok harbour, Djakarta; (c) P. T. Dumai Dockyard Indonesia, (a 60:40 venture with the Hongkong based Dumai Dockyard Limited), formed to take over a 20,000 ton floating dock from the Surabaya dock authority in East Java and to operate it at Dumai, Central Sumatra for the repair of Pertamina tankers; (d) a joint venture with the Australian firm Vicker Ruwolt Pty Ltd., for the supply of installation and machine tools, factory buildings, generating plants and manufacturing equip- ment; and (e) a joint venture with the Hongkong firm of Inter Agencies Limited to supply ships' stores and to provide warehousing and forwarding services for oil contractors. 84. Pertamina has also moved into the steel industry. In August 1970, it joined with the Government in setting up P. T. Krakatau Steel. The Government turned over the assets of the retarded steel project at Tjilegon, West Java and Pertamina was to provide any additional funds. The new enter- prise is pursuing active plants for its completion and expansion. P. T. Krakatau Steel has completed the cold-wire drawing plant and hopes to erect the rolling mill as soon as funds become available. It has entered into a joint venture Krakatau Hoogovens International Pipe Industries Pty with the Dutch firm of Hoogovens and the Philippine firm of International Pipe In- dustries of Manila. This joint venture will manufacture spiral welded steel pipes at Tjilegon and planned to start production in the second half of 1972. Krakatau Steel has also placed a contract for a four high five stand cold rolling mill with Nippon Steel. The mill will convert imported controlled coil into GI and other sheet for tinning. ANNEX 5 rage 2o 85. The above joint ventures raise the question how far Pertamina should be putting funds into services which could alternatively be provided by private service companies under contract to Pertamina and its oil exploration/production contractors. A joint venture does not necessarily have the same incentive to provide a competitive, low-cost service as a service company keen to please lest its contract not be renewed. The question also arises how far Pertamina should be investing outside the oil sector. In some instances the answers to the above questions could be positive but this is by no means necessarily so, and future proposals for joint ventures need careful review. Source and Application of Funds, 1967-1971 86. All in all Pertamina's capital investment program - including working capital - has amounted to lust under US$500 million equivalent during the period 1967-1971. About two-thirds of this amount has been on exploration and production and one-fifth on refining. The program has accelerated year by year, so that investment in 1970 and 1971 account for 70 per cent of the total 5-year period. Pertamina has also paid about $160 million of debt service, including interest payments, during these five years. Details of Pertamina's application of funds during 1967-1971 are shown in Table 11. 87. Pertamina has therefore had to raise about $650 million to finance its capital investment program and debt service. It appears to have internally generated very roughly $180 million, of which some $10 million as net profit after tax on its own operations and $170 million as depreciation of its assets. 88. During 1967-1971 Pertamina also drew down about $220 million from rommerrin1l rrpditq whirh it had nhtained rpnayable over 2-12 vyars. Tt thus used about $400 million from this source and internal cash generation. It is assumed here thast t-hp bnlnnce nf 925O millionn nppdpd tn mnppt capital expenditure and debt service, must have been financed from short term commercial bank borrowing. Source and ^pplication of Fu.ds, 1974-1978 89] *4 P lna's capIta4-1 expendIture 14Ikely 4n 1972 and 107" ould be in the order of $280 million combined. It has plans on the drawing- ILoard3 for cap-ita" investment, thereafter capable of using all the funds UJL U _ . .a .La . . %LV.hL* . L*LO . .AJf.5 C.. .k.*1A which it may be allowed by its Board of Commissioners. What this might look. 1like -c- th-e context of the next 55-year plan is harA to predict. However, A. m . ±LNC LLU -LI L .JL L.Jt A. L_*I IZ~ COt JJ I IO ILa'. - .t I J --'.t I *t.JW it could be in the order of $750 million, if it were assumed that: (i) expLoratiLon andU developmer.t were restricte t aLL Uout $40 r,ilior. yearly, (ii) two new refineries were built, one at Tjilatjap and one elsewhere, (iii) future tarikler requiLrerients were ri.et ri-Lainly buy charter arrang.em,ients, (iv) there were no major petrochemical investment other than fertilizers, and (v) tnere were no significant additional in-vestmlent in KraNkatau Steel, anU (vi) no new large joint ventures after Krakatau Steel. ANNEX 5 Page 27 19 74-19 78 (US $ Million) Exploration and production 200 Pipelines 30 Refining 200 Shipping 90 Inland marketing 70 Fertilizer 110 Head office and joint ventures 50 750 90. In aAAditlon, Pertwitina is obli4gedu to serviLce abuout$20nilo .... ~ A uL J..LJ.~ MUf~ JL U)L -VA U I.L±.L.LUII of existing debt during 1974-1978. It is assumed to incur only a small debt service oub-ligat-ion during thtpridorun's buorrowedu afLter ruid 'a~J ~ L *C tIJLU6 L~Lt AtL-LflS L-UlO 19CL * U tiLt L ALU JLLU t l C LJU- 1972. This depends in part on the terms on which the Government onlends tio 4i the funds (%a)l borrowed from -.TL theU LI - VV.LL L1L=1 Uk. OdPaLl oUL geIiLeradL o.L development and (b) to be borrowed from multilateral/bilateral sources for the secondU fLertlizer proJect andU on thle termIs on -Whlich rertamina borrows from other sources during the period. On the assumption that new debt serviLce wouldU amounLt 'Lo onULy $U10 illion r PertauirLa might therefore have to raise about $1,000 million to finance total capital expenditure and debt ~~ J~J- 4f7LY 4fnl'70 serviLce UuriLg 1974-1710. 91. Pertaminas n etL profit after tax is assumeu Lo improve to a totai of roughly $50 million over 1974-78, reflecting (i) the rise in gross proceeds when the Djatibarang field comes into production and (ii) the lesser burden of yearly depreciaton as funds become borrowed on longer term than at present. Depreciation on existing assets is assumed at $300 million, i.e. a somewhat higher than the debt service incurred during 1974-1978. Depreciation on assets which may be acquired from 1972-1978 is assumed to be taken at an average 10 per cent yearly, i.e. about $200 million during 1974-78. It might be able theretore to generate internally about $500 million, leaving a balance of $500 million to be met from borrowing. Disbursement from existing borrowing would amount to $60 million from the Japanese Government credit $200 million. Pertamina might therefore need to find an additional $190 million for capital expenditures including the fertilizer, steel, and Batam Island projects. Part of this is likely to be provided by credits from IGGI members to help finance the fertilizer plant. AN1NEX 5 Page 28 1974-1 97? (US$ Million) Application of Funds: Capital expenditure 750 Debt service - existing 240 - possible new 10 1 ,000 Source of funds: Net profit after tax 50 Depreciation - existing assets 300 - net assets 200 500 Borrowing: - from existing commitments 60 - from Government of Japan 200 - from new sources (including aid) 190 450 1 ,000 Finance from Government of Japan for Indonesian Oil Development 92. DurinR President Soeharto's state visit to Tokyo in May two items of special aid outside the framework of the IGGI were agreed additional to Japan's regular assistance durine the IGGI for 1972/1973. The details are to be spelled out in a formal bilateral agreement to be concluded before end-1972. The framework is as follows: The Government of Japan has agreed to lend 62 billion yen, equivalent to US$200 million, for the develonment of the Indonesian oil sector. This Is a GonvernmPnt- to-Government deal. The Government of Japan will lend the funds to the Government of Tndnnesia at nper rent per annuim 1nterest; repavment will be over 25 years including a grace period of 7 years. The Government of Tndonensi will nnlent the fuindis tn Pertamina non cnmmercial t-er-nms which have yet to be defined. The Japanese funds will be untied and can alsn be uiieA t-ro finon.e r ome cnal1 expena4rtiture wthin ITrndoiesia 93. Exactly how the funds will be spent is not yet specified. The first tentative plan was that Pertamina would use these funds as follows: ANNEX S Pag 29 r 1~~~ 2 .. .a ~~~~~~ ¶ ... r . --..7 -? $ ruill ion rExploration and Uevelo-pment of production, excluding the Djatibarang field 150 Domestic distribution facilities 35 - 40 Office buildings and other facilities for foreign oil contractors 10 94. Pertamina in turn will supply to japan a total of 58 million kilolitres (50 million metric tons) of crude oil over a 10-year period starting in 1973 additional to the supply through existing commercial channels. Japan is thus assured of low-sulphur crude oil supplies by applying a part of its large foreign exchange reserves for the long-term development of Indonesian oil supplies. This averages 5.8 million kilolitres or 5 million tons yearly (100,000 b/d) and is planned at 3.5 million kilolitres or 3 million tons (60,000 b/d) in the Japanese FY 1973/1974. Deliveries are expected to rise to 150,000 b/d in 1976 and taper off thereafter. The price will be determined quarterly or half yearly before delivery and Japan will correspondingly prepay before delivery. Japan will advance a ceiling of $100 million equivalent as pre-payment for oil delivered in the succeeding six-month period. The amount will be advanced at the beginning of the six-month period, repayable in crude during that period; it is expected never to be fully run down during the period. 95. Pertamina will supply the crude oil for the above deal not through Far East Oil Trading but through the Japan-Indonesia Petroleum Company, a new venture established for the purpose by Toyota Motor Sales Company and the Industrial Bank of Japan. It is capitalized at 500 million yen and the equity will be held 50 per cent by Pertamina, 26 per cent by Japanese oil refiners. Financing will be raised mainly by banks but also probably by public issues. STATISTICAL APPENDIX LIST OF TABLES Table Number 1. Actual and Estimated Crude Oil Production, 1966-1972 2. Forecast of Crude Production, Pro-rata Deliveries and Exports, 1972-1980 3. Actual and Forecast Realized f.o.b. Prices of Iranian Light and Minas Crude Oils, 1970-1980 4. Forecast of Gross and Net Oil Exports, 1971/72 - 1980/81 5. Government Revenues from Foreign Oil Contractors, 1971/72 and 1972/73 6. Forecast of Government Oil Revenue, 1971/72 - 1980/81 7. Domestic Sales of Petroleum Products 8. Sumary Forecast of Net Profit from Government's Domestic Oil Marketing Operation, 1972 - 1980 9. Forecast of Costs of Government's Domestic Oil Marketing Operation, 1971-1980 10. Forecast of Availability and Disposal of Crude and Droducts for Domestic Market, 1971-1980 11. Pertamina: Source and Application of Funds, 1961-1971 INDONESIA: ACTUAL AND ESTI?WTRD CRUDE OIL PRODUCTION, 1966-1C72 V (Mil:Lions of Barrsls) PERITA1INA: Omwn ProdLuction 1966 1967 19IS8 1969 192CL 11 lst Qtr. 2nd Qtr. lrd SLr. 4th Qtr. 1972 a ct%-l twtul :ctual letu:l 'Lot-a i itimavted Unit I (P. Brandan) 9.1 12.2 13.8 13.7 16.7 15.7 3.85 3-84 3.75 4.23 aantau Field Unit II (PlaAJu) 17.1 14.7 14.1 12.9 10.4 11.3 2.66 2.77 2.93 2.95 S. Sumatra Field (11.2) (8.'l) (.7) (2.31 (2.39) (2.52) (2.5 Djambi Field ( 1.7) 1 . 1.6 (O40 0 37 o.415 44 zllit III (Wonkolmo) 0.1 0.1 ffslg. 0.1 0.1 0.1 0.02 0.03 0.02 0.02 Kruka & bonage Fields (0.02) (0.03) (0.02) (0.02) Djatibrazsg Field (- ) () - ) Unit IV (Balikpapan) 11.1 9.0 8.6 8.1 7. E 7.2 1.83 1.87 1.74 1.78 Tsndjung, 'PI!aka n, Bmju Unit V (Sorarng) 0.6 0.6 o.6 0.5 0.5 0.5 0.12 0.12 0.12 0.11 Laamno Field TCTAL PERTAKSL 36.67 37d- 3T-3 35' 3Vr -a O; 8.63 8 40.8 LemiRsg 0.5 0.5 0.4 0.4 0. 6 0.5 0.13 0.13 0.15 0.13 0.4 Kawengan Field Contracts of c 1. Caltex bJ Mlinae Field 94.1 111.7 1143.2 ]L83.4 220.6 249.2 60.84 59.85 64.69 63.87 'ematang Field - 2.2 4.8 19.2 22.5 - - - - IDri Field 17.0 16.0 15.7 15.4 14. 7 13.6 3.46 3.4Cl 3.41 3.13 Total Caltex 111.1 129.9 3 217.9 257.9 1 631 63.24 601C 67:C 107 4 2. Stanvac Centrl Sumatra (Lick) 12.6 12.2 12.4 11.7 9.7 10.2 2.52 2.61 2.49 2. 57 South Suatra Pield 8.3 6.9 6.1 5.7 8.0 12.8 2.13 2.74 3.79 4.10 Total Stanvao 20.5i 19.1 .5 17.4 1 T7-7 *3 -Ci4.5 -5 3' 6.2ci 27.3 TOUAL CCITRACTS OF WORK 132.0 149.0 182.3 235-3 275.6 285.8 68.96 68.6o 74.38 73.87 334.7 Production-shrng Contracts tlLf and Western Industries - Bula Field - - - - - 0.5 - 0.25; O.16 0.L3 ARCO Group - Ardjuna Field - - - - - L.5 _ - 0.39 1.12 IIAPCO Group -Cinta Field - - - - 2-5 0 - 0-50 1.97 Ulnion/Japex - At teka Field - - - - - -- Stax,vac - Corridor Block - - - - - -- TCTAL PRODUCTEO-HARMING COYMRAM'FS - - - - - Th.s - 0.2, 1.01 3.22 TOTLL PRODUCTIOR 170.5 186.1 219.9 270.9 311.5 32Wj.6 77.57 776 30 403 .1 (percent) AnnLal Increase +9.2 +18.2 +23.2 +15.0 + 14.5 +23.5 (000's barrels per calendar day) Average Daily Production 467.1 510.0 600.7 7242.3 853.6 S9:'.1 861.8 852.8 914.8 938.0 1101.4 IlO[NS: j/ ActuLal figures for the first two quaLrters and estimated for the seccnd half of 19I72 ib Includes Pemataxng o.jurce: Pertimaina Table 2 Page 1 of 2 ]i,T0 SIA: P'0 EYCAJST OF C,UDFlDP10DUCTI0T P20 -V.ATA bELIER A:TD Z_POTTS 1''72: - 1)380 1972 1973 1974 197r5 1976 1977 1978 1979 1980 (million barreieF-_ Production: Existing fields Contracts of Work 334.7 355,1 330.3 272.7 216.0 171.6 138.7' 109.5 55.2 Production sharing conitracts 27. 2 76.7 89.4 100,.4 lo6.1 87.6 73.0 65.7 514.9 Pertamina 41.2 52.8 54.8 53.6 52.3 47.5 43.El 36.5 312.9 Sub Thtail 401.1 484.6 474.5 426.7 374.4 306.16 255.5 211.7 1E83.0 New FLelds Contracts of' work - - 31.0 54.8 67,7 73.2 84.2 .94.9 106.1 Production sharirg contracts - 52.9 127.7 226..9 240.9 ayj, 288.4 322.1 Sub Total 403.1 493 7 558.4 609.2 669.0o 620.7 617.1 595.0 6L1.2 Less pro-rata deliveries to domestic market Contracts of work 43.5 40.8 39.4 35.7 30.4 30-5 30.-2 31.3 32.6 Production sharilig contracts -contractors' obligatiorL o.4 1.l 2.1 4.1 6.3 7-3 8.9 lO., 11.9 -govery=ent -u-plement 3.1 8. 8 13.L1 20.7 29.3 33,,6 38.5 43.8 49.2 Pertamina owm production 5.4 El.1 6.0 -.u _ 9 ._ ___'2.3 52.4 5-6TW 60.,) 06) L 71.6 77.2 83.5 91. 1 99.0 (Pro-rata percentage) 13.0 11.5 10.9% 10.9% 10.7% 12.4% 13.5% 15.3% 16.2 % Crude oil exports (including crude-in-kind) Contracts ol' work 291.2 314.3 321.9 291.8 253.3 214.3 192.7 17:3.1 168.7 Production sharinig contracts Contracor.-in rcl.o,'ery cc c 10.9 34.1 56.9 91.2 133.2 131,4 1402 ll~1.6 150.8 -eropsrts lroa 35 sn2rc 5.3 16.9 27.8 43.8 63.6 61,7 64.7 64.0 67.3 P>ertaaina-e.-cr~ i'rCc o c5. a-. c 7.5 24.7 42.0 68.3 10C.6 94.5 98.1 94.3 97.8 Pc>-w?ll.l-n - .i. fi n fJ;i, el-.½ 35.8 46.7 48.8 47.8 46.7 116 37-.9 30.9 27.6 Trotal zxpcirts 35n.7 436.9 4974h 542'.9 597.4 5L3.5 533.6 503.9 ';12.2 Table 2 - - _ _ _ _ _ _ _ _ _ __ i'~~~~~~~~~~~~~~~~~~Tage 2 o 2; IKDONI 3:IA: FO2C,A"S'2 0u C- IT K PHODUCTIONI, P-10--ITA DELIAIUIE. AKI,) I,{POITS 1097- 0 1972 1973 19574 1975 976 1977 1978 15979 1.980 (million barrels) Production-sharing cont ra cte Production 27.2 85.,8 142.3 228.1 333.v7 328.5 35 0.4 354.1 377.01 less 40,' allowed to contriactors to covier costs . 10.9 34.3 56.9 91.2 1:33.2 131.14 311o. 2 141.6 150.8 OilL to be shared 16. 3 51.5 85.4 136.9 199.8 197.1 210. 2 212.5 226.2 Perl'amira 's Mare @ 65% 10.6 3.5 55.5 89.0 1,29.9 128.1 131 6.6 138.1 ;147.C) less Government su-Dplement for dora-stic mrket 31.1 8.8 13.4 20.7 29.3 83.6 4318 49.2 Pertamina/Governmnent crude available for expo-tis ;.5 24.7 42.0 68.3 100.6 9,4.5 96.1 914.3 97.8 GoerrnmEnt receilres 60% of oil (9.8) (30.9) 1(51.2) (82.1)(119.9) (118.3) (12!6.)L cl27.5) (L35.7) Contractor's share 0 35% 5. 7 18.0 29.9 47.9 69.9 69.0 73.6 714.4 79.2! less pro-rata deLiveries to domestic market; 0).4 1.1 2.1 14.1 6.3 7.3 t.9 10.4 11.5 (except on ARCO ' s, 35% share) Contractors' exporlts 5.3 16.9 27.8 43.8 63.6 61.7 64.7 614.0 67.31 ARCO0's production is asswied at 13.2 39.4 51.i 51.1 51.1 143.4 36.9' 31.4 26,7 SoLZLOe:: 1i?iision esti±mte Table 3 11lDOiESIA: LGflAL AlL, FO U.C,5T .R7JLTIS0J IOS PRIC;S 0:' iLlI.: 'JG.7 'i . -I'A'i C83T' OIL;, L jC0- 17'7C 1 L'72 ;73 1.'7 :7- 1 1:77 1j -78 1,'T 1980 ..fec tiva .ate of price increase: Irani-x. 7,Jg; 13,3 1iov 1,1'370 Feb 1_,1971 June 1,1'71 Jan 20 1972 Jan 1,197, Jan 1, L971, J?n 1,1971 Jan 1, 1976 Jail 1,1977 Jv.M 1,1178 Jazn 1,1979 Jan 1,1980 ILina.s July 1,1970 A.pr 1,1971 Oct 1,1971 '-pr 1,1972 Apr 1,197' Aipr 1, 1974 Apr 1,IY? AXpr 1, 1976 Lpr 1,1977 I Apr 1,1975 Apr 1,1979 APr 1,1580 ,)ate D. price calculation Jan 1,1970 Jan 1,1971 Apr 1,1971 Oct 1,1971 kpr 1,1'072 Apr 1,1737 Apr 1, l7194 Anr 1,17,5 '.pr 1, 1,976 Apr 1,1. 77 hpr 1,1578 -pr 1,1J7` 'pr 1,19&0 (US ceats per! barrel) Iranian Lilah' (3j10)realised fob prize a/ 138.0 146.0 173.6 179.0 185.0 191.8 ' 158.7 205.8 213.0 220.5 228.1 206.0 299.0 Aid: Infonesipn frei-;st a:dvantage to Jas a/ ;aaro I,land-Yokoaar 1,7.0 144.0 46.0 48.0 44. 41., ; *.6.0 7.-6 .9.1 50.9 52.7 Lau~s Dum-ai-Yokohanna 30.0 3h1.7 31 29.8 28:. L . U~26j. 27L2 28.2 29J 22i.. .&L2 17.0 12.3 14.- 18.2 16 .1 18.? 18.? 18.2 18.5 1' _ ._ 19. 20.7 21. et brcs at luni 155.0 158.3 187-'. 1o,77 .1 210.0 216. 224.0 231.8 239.9 248.o 256.5 265.5 Aud: ,remius for hi her refinei oroJuct wort.l o. Minas crudea/J 12.0 8.7 j3. 62.8 94H 90.0 81.1 76.0 68.2 65.1 _ 65.0 64.5 6iS .. LiLna, U0) fob o.:-al t price 1 167.0 221.0 260.0 2_. 3 00.0 300.0 321.0 2 21 3 09.O Notes;: a/ Under the Tehran Agreement of February 15, 1971 the base postings for the Gulf exporters Of Abu Dhabi, Iran, Iraq, Kuwait,, Qatar and Saudi Arabia were increased on February 15, 1971, by 33c per barre, rising o1 June 1. 1911 and on each lanuary 1, 19'73-1975 by 2½7, for inflation plus3 S¢ fr general escalation. They also rise by 0. S for every degree below 40 down ra 30 A?1 and by LC for freight disparities. Under the Genieva Agreement of January 20, 1972 posted prices for the a'bove Gtilf exporters were increased that date by 8.497. to compensate for the international currency realignment of Decembet 1971, The inicrease is close to the revaluation of sterling to the US dollar; sterling is the currency used for oil revetue payments by roost Gulf exporters other than Saudi Arabia. lThe Agreement includes a parity index, designed to compensate for another major realignment in average exchange rates for currencies of' nine industirial countries with US dollar; the projections assumie no change iLn the index. The Teheran aind Gereva Agreements expire on December 31, 1975. Frojections thereafter assiume that the same provisions would continue through 1980. Realised fob prices in 1970 and 1971 are approximately those paid by Japanese refineries. They include about 4,5 cents representing 90 days' credit. The latest increase of 11.7 cents in tax-paid cost - which resulted from the Geneva Agreement of January 2CI, 1972 - is understood to have been passed on to Japanese refiners only in part (about 6 cents). The producers' margin of 30 cents is tissumed to conitinue through 1980. o / ?rmi,rt vwas equivalent to followine porcenzages of 'dorldscale reference tariffs published for 1970 and 1971 and is forecast to, be equivalent to followins; percentages of lorliscale tariff palblished for 19'7Z: M2arg Islalnd-'okohamsa W65 W;3 -'61 "6- 5 :459 5' :95 314 457 '5, W61 Ws3- w165 u,amai-YokohaonaŽ W78 181.5 :81.5 76S 428 KG' ;6' -6, i6 468 W70 E7t2 47z c/ Prem.ium is basically for low sulpnur content. journlee: ;-,I orl est'imte Taible 4 I1;xC:w:J:.~: J(odC.'A-i' OF G?:OL .i-W N2T OIL zX?OM, 1971 '72-- 19,jOZ/ 1 1971/72 A2ltK.U 49'L j j"fl475 }75L U47b/j'1 :1977/7b i97617Z 1979/6C 19oO/bl freliaic.ary ,.ctual Ostimate (US S IKillion) Tax liability of' contLactors 231,.3 4835.2 600.4 680.8 722.7 771.3 712.4 719.1 710.6 74-7.7 100%, of Production bonuse:S - 2.0 3.5 - 3.; - 2.0 - 2.0 Sub-total 2 3 485 2 24 3 722.7 7. 712.4 21.1 710.6 749.7 Lese: CPI's payment of tax obligation in surplus por,aon rupiah, limited to foreigi exchuLnge of pro-rata crude for whi,ch CPI was paid in rupiah 1.5 2.0 2.0 2.o 2.0 2.0 2.0 2.0 2.0 2.0 282.8- ;!i;l 7z&rrc- :E:'- 720T7 772.8 710.4 719.1 701.6 747. Less: Contractors' tax liability settled in kind a/ a) Deliveriee of crude-in-kind 'Lo domestic miarket - 96.6 101.4 1:l6 5 137.3 130.0 124.6 106.0 91.2 130.9 132.3 b) Sea freight of crude and products i 12.6 8.5 9.6 9.8 10.9 11.7 12.1 12.6 14.0 14.9 c 60', of pro-rata crude fee, pa.yable in rupiahs and withheld against contractors' tax obligation 5.1 5.4 5,0 5.o 4,7 4.4 4.7 4.6 S.o 5.3 64.; 115.3 151. 1 140.7 124.8 1o&.4 Y4152.5 'let foreign exchange earninge from contractors 218.5 367.9 449.3 530.2 575.1 632.1 585.6 610.7 558.7 595.2 less: Perkamina 'a foreign Yxchange needs for domzestic market a) Inter-island fleet c 4,4A 45.6 50.7 54.4 56.2 58.2 65.0 69.2 b) Refined product imports - - - 7.2 16.0 6.0 8.8 c Refining at S. Piakaing ./ 4.8 - - - - -, f7lTC- 1j45.6 50.7 54-4 63.4 - 74.2 71.0 75.0 344.5 404.9 464.6 524.4 577.7 522.2 536.5 487.7 517.2 Add: Niet foreign exchange earnaings from Pertanina's production, refining and marketing operationsl 7.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.o 5.0 Set foreign exchange earings of oil sector 349.5 409. 9 529. 582.7 527.2 541.5 492.7 522.2 (;Tet oil exports) Compare: Gross oil exports a 016.8 3.0 1277.t 14r2.3 16 7.0 1768.3 1630.5 1 543.5 1664.7 oL,esa SJ i jriV9Z fer?n blo 6 b/ caoe. utpon actwl data for 1971/72, and official estimate for 1972/73. c/ fBasee upon ac:tuLl d ta for 1971/7?, official estimate for 1972/73 an'd: p:o-rated thereafter to total cost (foreign & local) of thaLt item as forecast in Table I/ I'h., ir t1.c iproduct of fob export price (projected in iable 3 ) a.d trae equivilunt of crude oil exports includin6 crude-in-kind (projected in Table 2 ) e'ne c50 eonrtg are assumed to be crude output less tne Cru ae oil e4uilnaent c,f products concuumed in tloe iomestic market. ..ourcO: ]'icsiofl eCim.'stc: TaLble 5 Pa6e 1 o' 2 GOvt'Aujs1r 32LV?2ThS FdJOi FORIEIGY OIL COAZLO3TO3S l.7LflLlAC) Jan-' Arclh April-Jwe r Ar-Set Oct,Dec T.tal -rar A Estimate Total Product ion ~~~~~~~~~~~~~~~~~~~~~~(M'illiona of barrels) pem prflm siae ProdaptiLon 6 .'111t.3.: of barrels) PagWi actual (V.il:ions o.' barrel0 CPI 6l,.'1 6:3.2 65.1 67.2 262.8 71.1 76.3 160.0 3C7,4 PMSI 4.6 5.t 6.3 6.7 22.9 6.: 6.8 13.6 27.3 Production--sharing- contracts _ 0. 1.0 3.2 .f..c 6.1 5.1 16.0 27.2 Pertua-n _a/ _2538.6 8a 8.8 ° W a. 9.6 22.2 411.2 77-5 77.6 04.2 86.3 325.6 '3.5 97.8 211.8 403.1 Production - less losses, own use mae chaxmge in sltockls CPI 6!5.4 62-7 66.6 67.5 262.2 70.0 76.3 161.]L 317.4 PT'SI )5JJ 5.2 6.1 6.5 22.2 6.6 6.8 13.9 27.3 Production-sharirn6 contracts - 1D. 1.0 3.2 ,,., 6.1 5.1 16.0 27.2 (of which AiCO) (*-) (-) (0.4) (1.1) ( L-5) (2.2) (3.6) (7.4) (L3.2) Pertamina 8.6 _5j.7 8.8 9-2 3$5-3 9-' 9.6 22. 2 41.2 713.5 76.9 82.5 86.3 3X .2 92.1 37.8 23. 2F I,ess pro-rata deliveries to domestic market (O 15-],-) ( e 13.0%) cPr 1:.0 9-5 100 9.2 3'9.7 8.7 9.6 21.7 40.0 P21I 0.7 o.8 0.,9 1.0 3.-4 0. 0.8 1.8 3.5 Production-slhrin3 conitracts / - - 0. 0.5 0. o.8 0.6 2.1 3.5 - contractors' obliQation -) (_ (-3 (O-l) (o.i) (o.i) (0.1) (0.4) (0.4) government supplenment ) (- (o.<) (0.24) (0.6) (0.7) 10.2) (1.9) (3.1) Pertasilna . .4 1.2 1.2 _ 3.0 5.4 13.0 11.6 12.4 12.1 249.1 11.6 12.3 28.6 52.4 Crude oil exports (inclu'in, crude-in-kind) OPl c/ 54,4 53.2 56.5 58.3 222.5 61.3 66.7 139.4 267.4 PTST - 3.3 2 4 5.2 5';5 185., 5.7 6.0 12.1 23.8 Producit on-sha?ring contracts: - C'. 0.6 .7 3.- 5.3 4.5 13.9 23.7 Contrc.ctors- in recovery oi' costs d/ (-) (0.1) (0./() (1 (1.7) 2. (20) (6.5) (10.9) -expo-ts _ronl y sare- (-) (O.,-) ID;.6 (1.0) 1.23 (1.0) (3.1) (5.3) Pe:tanin<-erports f rom 6, share c/ (-) ( -) ( (o.sS (1.O) (1-7) (1.5) (4-3) (7.5) Pert -rrin, 7.3 ,, ,,8 0 S.?. 8.4 _ 19.2 35.8 63.) 65. 3 7(-0. 71 *s 27 5 .l 80. 55.5 184.6 350.7 65S 70.0 7 .3 275.1 SC.-'~~~~~~ ~~ per b?arrel) p.o.b. Oxport <7xce: ( per bar:rel) 2 per 2.83 -021 (i. Ieoii.:-ph1ere) 1.614 2.18 ^.16 258 ) 2.56 ) 2.91 2.91 2.83 -rI (ns West, Goast)s/ 1.7n 2.21 2-35 2.5C -025i 1.82 7.182 2.21;: 2.30 2.51 2.91 2.91 2.84 -Production s'r'Xin' _ 1.216 2.5l1 2<8 2.60 2.91 2.91 2.83 Table 5 Page, 2 of 2 c~o,:0r2u2 lV211J?2 ?lEOT F`0TIG1 OIL C01.72 4Ct 171. 72 (U 2 Per barre4) -ITS per bel) Gencfal ce,.. -; (.152 C.161 0.146 0.16C 0.1,5 0.148 0.15 0.15 0.15 0.86,; 1.150 1.062 1.224 1.0,O 0.73 1.00 1.00 0.912 1',) 7'1/7 2 '7 April-June July-3Et Oot-7ec Jan-l1larch Toltal *jri-Jwine JutUX-3em Oc j . Total (us m ollli n}-10__ _ _ __ _ Grocs ravenL-. fro= cr-Lale oil e::7o::ts cPI 8.8 117.2 125.2 148.6 480.8 156.9 194.1 405.7 756.7 P22i 6.4 9.6 11.3 14.3 41.6 14.9 17.5 3S.2 67.6 Frodu,_tion--7..7-irk . contracts o- .6 2.0 7.0- 9 6 1_3.5 13.1 40.4 67.0 Sub-total:Th:eip:n contractorc 96.2 1,.4 13.5 169.9 532.1 TEI J 27r#2-r 7M T9 'ertamina 1., 61 1.4; 20.0 64.7 21.3 24.4 55.9 101.6 2'o tl 1013.4 1i.j 154.9 189.5 596.8 2Cl6.6 249.1 537.2 992.9 Leas General Coz;a - 2J 13. 6 .7 8.3 9.3 34 6 9.1 10.0 20.9 40.0 - ITSI 3.3 5.1 5.5 6.7 2t.6 3.8 6.0 12.1 21.9 Allocable income CFI 8l.: 108.5 116.9 13'.3 446.2 147.8 4.1 384.8 716.7 FTSI 3.1 it.o 5. 8 7.6 21.1 11.1 11.5 23.1 45.7 2-sharin contracts (60'A of output) _ __ 4 1.2 14a ;5.3 9.5 8.9 27.9 46.3 8 .i 113.5 12 3.9 151.1 t'73.l 168.4 204.5 435.8 808.7 Government tevrerme from forei n contracto-s iD.3 'il.1 74U.5 90.7 283.9 101.0 122.7 261.5 485.2 (iAupia]h per 13S dollar) (Rupiah per US dollar) Exchange flate 378 3718 '41- 378/4:L5 i 415 415 415 415 (IupiaŽh billions) (Rupiah billions) Govrernment ee-r.e frorm _orei.,rn contractors 15.1 25 .2 29,9 37.ci 112.7 41.9 50.9 108.5 201.4 Sources: n:irdatry of Finance in< Zndonesia ertPzina. a/ Inclu, er L'.i<.a P/ Lo calcl-lte contractors' obli.ation, the pro-rata percernta4e (lz.1_ in 1571) i applie. to their 3'! share of allocable cru_e excluding ARCO and not; to total ouLtput. Hence the Governijent,/Pert?Dnina rl- B to clelivez the balance from its 65' share of allocable criude c/ About 3O million barreli of CPI'a exports were to the US West Coast and were price: at 1.70 fob Janixry-71arch, 2.21 .oral- y, .2.' Junr 2epptember, and '2.60 October-Decamber, no credit bein, 6ranted. The additional revenue in incluCed below. d/ 'let of pro-rata crude delireries e/ Of thi.; =mount .213.' million were tranrferred by Pertamin- in September 1571 an' co-rerte' rt ip 41' per U 1, t::e rate applizable as from AunLst 24 f/ urinj a quarter when the exchax4;e rate is adcuoted, Fetrtnin^'s rupiah remittan^es aze comvoiteC at the excx?n-.e rate prevaillne when tha services or crude-in-kind are- delivered to !ercoa:.ina. Prom July 1 to Au--ust 23 abort '25.2 million off io=eign contrac;orsl tax lirbi2lty are esti.-ateS to have been settled in this way at -lp 378 per UM A. Ii;G;-.. r 0:- GOO ClBAlNT _OIL dEVzcrE 1971/72 - 1980/81 1a7/72 nla ' 132mI4 1974 ia 12LLQ6 125Ž6/77 3211h 19/U 12j9/80 19c0/81 2/ 2!/ Government share Per barrel from Contracts of Work (US Dollars per barrel) Nxport price 2.165 2.827 2.925 2.96 2.96 2.96 3°00 3.08 3.17 3.25 Leeis generral ccst 0.229 0.212 0.22 0.22 0.22 0.22 0.22 0.22 0.22 0.22 Net operating income 1.936 2.615 2.705 2.747 2.74 2.74- 2. 2. 2 2.55 3.-03 Tax 4 6Ctp 1.162 1.569 1.623 1.644 1.644 1.644 1.668 1.716 1.770 J.818 (IS , Vdllion) Government Reivenue from Fcreign Contractors Contracts of Jorl / 280.4 457.4 510.1 529. 2 479-7 416.4 357.5 330.7 306.4 306.7 Production--sharing contracts / '. 27.8 9C.3 151.6 243.0 354.9 354-9 388.4 404.2 441.0 2h.9 485.2 - 600.4 68T- 722.7 77-3 12W7 719.1 710.6 w7. Government Revenue :in ruLah eqi4yvaLej t (Rupiah Billion) Covernsent Revenue from ForeiLgn Contractors 112.7 201.4 249.2 262.!5 299.5) 320.1 295.6 298.4 294.9 310.3 Government's 60% share of production bonuses - 0.5 1.0 - 1.0 - c.5 - 0.5 Pertamina'ls tax liability / -- e/ 1.0 3.5 6.0 6.0 6.0 6.0 6.0 6.o 6.o Corporate tax - oil L12.7 202.4 253.2 255.j .QZL 327.1 J91L. 304.4 _pO.9 8 Rotes: a/ For details see Table5 F Por details see Table 5 / This is the product of the above taxi per barrel and of export volum3es (projected in Table 2 4.1 This is the produot of the export price (projected in Table3 ) andl of the Government's 60Cu share of allocable oil (projected in Table 2 / Net taxable income includes revenue from signature bonusese geological daLta payments. The Government Budget included Pertamina'lk tax contribution (tp 1.5 billion in 1971/72) ultil 1971/72 witr. tax payments by other domestic corporations but as from 1972/7f with revenue from forein oil contractors. Sour-ce: Mission estitLmto PajJje 7 upoSIA DOKFTIC SALES OF P&2ROLSUM PRODUCTS ACTUAL 1968-L971 A; itDZCAZST 372i1SBo Compounl Annual Growth 1968 , 1969 1970 1971 1972 1973 19 977 94 2 ! 1980 l969/i 1970/al 197l 16 Actual Actual Actual Actual OfficLal Forecast Actual Actual Actual Forecast estimate Imillion litres) (percent change) Aviation gasoline 30.1 29.7 22.1 22.9 25.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 - 1.3 -25.6 +3.6 - Aviation turbine fu.el 55.0 71-5 112.6 1,52.8 135.0 202.1 232,.4 267.2 307.3 353.4 406.5 467-4 5.37.5 +30-0 +57-5 +35.7 +15t.0 Motor gasoline Super 98 - 0.8 7,2 15.9 17.3 22.9 27.5 33.0 39.6 47-5 57-0 68.4, 82.1 00 large +120.8 +20.0 Premium 10.8 30.0 52,,4 1276.4 1741.8 2002.3 2202.5 2422.8 2665.1 2931.6 3224.7 3547.2 3901.9 +177.8 ) + 5.0 + 7.L +10.0 Regular 1423.3 1429.8 1492,1 378.4 - - - - - - - - - + 0-5 Kerosine 2291.6 2705.5 2724.2 3OC09.1 3099.2 3254.6 3384.8 3520.2 3661.0 3807.5 3959.8 418.2 4282.9 + 18.1 + 0.7 + 10.; + 4.0 Gas oil 704.9 711.9 871. 3 109,6.3 1133.4 1375.2 1540.2 1725.0 1932.0 2163.9 2423.6 2714.4 304O0.1 + 1.0 +22.4 + 25.83 +1.0 Diesel oil 334.3 301.0 351,.5 375-9 453.8 438.4 473.5 511.4 552.3 596.5 644.2 695.8 751.4 - 10.0 +16.8 + 6.9 + 8.0 FPel oil 637.5 590.9 611,6 651.0 852.2 787.7 866.5 953.1 1048.4 1153.3 1268.6 1395.5 1535.0 - 7.3 + 3.5 + 6.14 +10.0 Total Sales 5875 871T.1 6245.o 9 46 1028.7 6107. 12007o.4 13029. 914L;3.9 + 7.0 T6.4 + 11.87 - + - (million barrels) Total Sales 34.5 36.9 39.3 143.9 46.9 51.0 55-0 59.5 64.3 69.7 75.5 81.9 139.0 Crude oil equivalent 38.3 41.0 43.6 148.8 52.3 56.7 60.9 66.4 71.6 77.2 83.6 91.1 99.0 Note: a/ This is the pro-rata crude oblilgation for the dometstic market, which assumEs a 103 refILnery fuel aend loss. Sourcet Pertamina, 1968 - 1972 Mission estimate, 1973 - 198( Table 8 INCDOESIA SUII2ARY FP(ECAST OF MWT PR03IT FROMi GOVE M3VT S DCISSTIC OIL 1ARKETlTG OPlRATIOI f 1972-1980 Price effective April 1, L972 1972 1973 1974 1975 1976 1977 1 978 1979 1900 Com ,ound Anmual Growth 1980,_1972 tLitre) ~OffiLcial 9 estiMnLte (Rp billion) i n mid-1972 ,ross Revenue Aviation gasoline :35.0 0.88 0.81 o.81 0.81 0.81 0.81 0.81 0.81 0.81 Aviation turbine fuel 30.0 4.05 6.o6 6.97 8.02 9.22 10.60 12.20 14.02 16.13 I;otor gasoline Super 98 140.0 0.67 0.92 1.10 1. 32 1.58 1.90 2.28 2. 74 3.28 Premium 35.0 58.8 70.08 77-09 84.8o 93.28 102.61 112.86 124.15 136.57 Kerosine .LO.0 31.0 32.55 33.85 35.20 36.61 38.08 39.60 4.18 42.83 Gas oil 14.0 15.4 19.25 21.56 24.15 27.05 30.29 33-93 38.00 4-.56 Diesol oil 8.5 3-8 3.73 4.02 4-35 4.69 5.07 5.48 5.31 6.39 Fuel oil 6.5 5.4 5j.12 6.20 6.81 _7 _ 8.2.98 120.1 138.52 151.03 ;T180.05 196.86 25.41 235.c8 258.55 + 10.1% Less Costs Basic cost a/ 79.39 88.98 96.45 111.319 126.45 133 37 141.52 160.136 172.93 + 10.2p Inland transport 3.48 4.08 4.48 4. 93 5.43 5.98 6.60 7.31 8.08 Pump margin 2.64 3.04 1.BS 4.07 48 4. c 4- . .99 85.51 96.10 104.28 120.C1 135.95 143.83 153.06 173.11 187.00 + 10.53P :'et P?rDfit from domestic market 30 45 42.42 66.75 44.84 4410 2.35 62.- 15 + 9. 559 r litre)- - Gross Revenue 16.10 17.09 17.26 17.43 17.60 17.77 17.94 18.10 18.27 + l .6; Less: Basic cost 10.65 10.98 11.02 11.78 12.36 12.04 li.75 12.31 12.22 Inland transport 0.47 0.50 0.51 0.52 0.53 0.54 0.55 0.56 ().57 Pump margin 0.35 0.38 -0.38 O. 9 o.4o o40 _ 0.4L _.42 0.42 Total cost 11.47 11.86 11.92 12.69 13.29 12.9D 2.75 13. 9 13.21 + 1.8%c Tiet profit 4.63 5.23 5.34 4.74 4.31 4.79 5.19 4.82 i;.06 + 1.2p 1;otes: a/ See footnote b/ tco Table 9 b/ Government's estimate of net profit from domestic market in 1972 was subsequently revised to Rp 31.6 billion. .ource: MIission estimate ~ C. 1 of 2Table 9 IIVDCiLSI<: It.2CAST OF COSTS OF GOV tXF.2;V'- DOI;TIC OIL ?U'LLTC1I':G O1aiA4TI01T, 1572-19GC BAjICt 0;2 Cost 17- 2 1973 7 ]76 1911 l4,7 1Z;L 15r30 - barrX li~~~;ffieial estimatr (US million) Pro-rata deliveries Contracts of Jork - cost 0.216 9.cl 8.8 3.5 7.7 6-6 t.6 6.5 6.8 7.1 fee 0.20 9.C; 8.2 7.9 7'.1 6.1 6.1 6.0 6.3 6.5 Pertamina/Lemigas output - cost 1.4B2 13.4 9.0 5.9 8.7 c;.3 5.7 8 '7 8.3 7-9 - fee 0.20 1.8 1.1 1.2 1.2 1.1 1.1 1.2 1.L 1.1 Production-shariAg contract: -- contzactors' obligation 0. 20 0.2' 0.2 0.4 r.8 1.2 ? 1.5 1., 2.1 2.4 - goveanment supplement export price a/ 9 26.0 j9.7 61Lj. 1 .7lDO.8 138.2 ____ Jub-total Pro-rata crude 34.2 53.3 66.6 86.8 110.1 124.8 143.1 163.14 184.9 CruLde-in-kind export price a/ 101.6 136.5 137.3 130.O 124.6 108.0 91.2 130.9 132.3 CraLde imports c&f price -5'.4 6.o 1;L -.'1 S52.0 $33 S5.L 57.8 135-1 195.2 20'9.9 250.5 2847 284.8- 288.1 350.0 375.0 Sea Transport of' Crude Oil 0.415 31.8 37.2 33.9 44.2 47.3 47.1 47.1 53.8 5t.4 Refining - cost, 0.53 48.7 56.4 59.0 66.4 71-7 71.4 71.4 d1.6 85.4 - fee 0.10 9.1 _l.6 11.1 11 jI4. 13.j L 16.4 16.1 57. 76 9067. 70.1 7-89 8 5.2 84.9 84.9 97.0 101.5 Sea Transport of' Products 0.503 25.8 27.7 27.7 2',.9 32'.3 35.1 38.D 41.;2 44.b Inland Marketing - coct 0.3'31 15.6 l.9 113.2 19.7 21.3 23.1 25.0 27.L 29.5 - fee 0.10( 4.7 S.l L6.0 6 4 7.0 7.6_ 8.;. 20.3 22.0 23.7 25 .7 27'.7 30.1 32.6 35.3 4 Product Imports Kerosine 3.8'; 18.1 - - - - 5.0 10.0 - Gas oil 2.00 5.L - 2.2 6.0 D 6.o0 6.8 23.1 - - - - 7.2 16.7 6.0 Surplus Gasoline 2.00 2.C 8.o 7.0 10.6 11.6 b.O 4.2 6.2 3.8 Diesel oil 2.0(0 2.0 1.G C .2 2.G 1.: - - - - EXuel oil 2.lT93 2. 3. 132 SsG 1 6 11 9 ' 20L. (103. 534.7)~~~~~~~~~~~~ (S).8 (1M767 (1677 (1G -5.'5(9.g(0 Total 3asic Cost 191.3 214.4 23:2.4 268.4 3C,.'j sJ2.2 341.0 386.4 416.7 (i.p billion) .2upiah equivalent of 3Basic Cost 79.39 88.98 96.L5 111.39 12b.L5 133.7 141.52 1'0U.36 172.93 9 ___________ > 2 . _i97 c 19W,Lv1°7> i97t2'H1 Jc;.;rlc CIL ;1 ~ c~'i~ QcG2o 2 77per b<.rre1 O£ficial eet ima1 e i~~~~ti~~~~~~ t0 ~ ~ ~ ~ ~ ~ esirt .. 'iTTtion gaso:ine 3.0{~ 0.0......... 3,rt3 0.c7 O.Q7 C.07 -.00 G.G7 0.77 0.07 0.07 xiation tuabine £ie1 3.-00 0.43 G,61 o.7c 0. u o.92 1.06 1.22 1 .40 1.61 .votor gasoline fu.Ael 98 3.0$0 C.05 0.07 O.08 o.lC 0.12 C.14 0.17 0.21 0.25 Premium 1.230 b/ 2.09 2.40 2.64 2.91 3.20 3.52 3.87 4.27 4.66 ; erosine 0.20 0.62 0.65 0.68 0.70 0.73 0.76 C.79 0.62 0.86 Oas oil 0.20 0.21 0.28 .1 6.60 7.31 3.45 ho8 1 4.93: 5.3 67. poi i D.l;i ;.otor gasoline: sucet' 9r 1.75 0.03 0.04 0.0; 0.06 0.07 0.06 0.10 0.12 0.14 Premlium 1.50 2.61 3.00_ 3 3-6',3 44 j9 9 3 1.50 3.04 3.35 3.69 4.07 4.Lib 4.yl 5.44 .99 * otes: -a -Ie' zb)e 3 b/ .sr,es 7~ oo t. eor e Xe gasoline, now withazemrn ane .e21aced in L-mater volumae by pretium gPame. OontinwA.nce of tilo 13(1 cOSt of jc, pef litre Zor preuium A0solione %iould reduce net profit in 1`72 by o) 3.14 billibri ayid more in subsequent year:,. .iource: ';i s£ion estiviate PAG_ 1 of' 2 I;-C:TsI_,: ?0RXCAJL ('P AVAILA,IL17Y AM) DIzPOAL 0OF CRMD' Ai ]PRODUCTOS Y00 DOFE0MIC MALRMT 1971 -198 1971 1974 _L1 1974S 2ZL 1976i _1L 1978 1979 -1980 .ictual (million barrels) PW0UCT DISPO&AL Domestic Sales Gaoline 10.7 11.2 12.9 14.2 15.6 17.1 18.9 20.8 22.9 25.2 Kervsine 19.9 20.3 21.7 22.7 23.8 25.0 26.2 27.5 28.8 30.3 Gas oil/ iesel oil 9.2 1O.G) 11.4 12.7 14.0 15.6 17.4 19.3 21.5 23.3 Fuel oil 4.1 5.4 5.0 5.4 6.0 6.6 7.3 8.0 8.8 9.7 Total sales 43.9 46.9 51.0 55.0 59.5 64.3 69.7 75.5 81.9 89.0 Product ixpDrts b/ Casoline - 1.0 4.0 3.5 5.3 5.8 4.0 2.1 3.1 1.9 Gas oil/diesel oil o.6 1.0 0.8 0.1 1.0 0.7 - - - - A el oil k misc. 34.9 3EI.4 45.0 47-0 53.3 57.4 56.4 55-7 64.0 66.5 Total exports 35.5 40-4 49.8 50.6 59.6 63.9 60.4 57.8 67.1 68.4 PIeDDUCT WAVILVBILITY Product Imports V :esrosine 4.3-1.6 - 6 GaU oil 2.5 _ _ _ _ 1.1 3.0 3.0 4.4 Total impo_ts 7.2 - _ _ _ 2.4 5.6 3.0 4.4 Crude Yield Indonesian Kuwait RefiADry Output S/ (PT) T Gasoline 15-9 22.8 12.2 12.4 16.9 17.7 20.9 23.0 22.9 22.9 26.0 27.1 Kerosine 20.1 L .6 15-7 15.9 21.7 22.7 23.8 25.0 24.9 24.51 28.8 30.3 Gas oil/diesel oil 11.5 15;.2 10.2 l0.4 12.2 12.8 15.0 16.4 16.3 16.3 18.5 19.4 Fuel oil L misc. 47.1 481.5 40.9 41.4 50.1 52.4 59.3 64.0 63.7 63.7 72.8 76.2 Total output 94.51 9'i.0 79.0 80.1 100.9 105.6 119.0 128.4 127.8 127.8 146.1 153.0 .'ddd fuel and loss 5.1 ';.0 10.7 10.8 5.4 5.7 6.4 6.9 6.9 ,.9 7.8 8.2 Cruee inyut 100.0 10).0 89.7 90.9 106.k 111.3 125.3 135.2 134.7 134.7 153.9 ]61.2 Comnpare Aifinery Capacity 9' 9L.0 127.0 111.3 111.3 135.3 135-3 135.3 13.3 1.68.3 ].68.3 (thousand barrels per stream day) Refinery Capacity / 2/5 33,- 335 33r 4 410 410 i0 410 510 I;C1 abs 10 _ ThDOi2.^S,IA: PO AST or '.BAVATLUIIITY AND D]IoPOAL OF CRUDTh MdB PRODUCTS )Oi ]DOI-JJTIC 14Aiag 1LIZ980 1971 1 _l'J77 _6 WZl 19 z. NO tU..L SOVE:X 0: CR]UJ (miillion barrels) Pro-rata del4veriecf / Contr"acts of wor'k i3.L 45.1 140. 39.4 35.7 30.4 3K.i 3U 31-3 32.6 Pel!tamina's output c p.o 6.1 6.o 5.9 516 599 5,9 5-6 5-3 Production-sharinig co.ntrac ts: 1 -Contractors' oblioation - 1.0 1. 2.1 4.1 6.3 7.3 (9 10.4 11.9 -6Y?vernment sttpplement 0.T;- 8,8 13.4 20.7 29.3 33.6 38.5 43.O 49.2 jaub-total Pro-zeta crude! 2 149.1 55-1 56.8 60.9 66.4 71.6 77.2 63.6 91.1 99.0 Crude-in--kind from contracts oa' 'rork 35.6 46.0 46.4 43.9 42.1 36.0 29.6 41.3 40-7 maporto of Burgan and Kuwait czude - 3-6 4.0 15.0 21.5 21.5 21.5 21.5 21.5 Total Re!finery input 9) 7 90.9 106.4 111.3 125.3 135.z 134.7 1314.7 153.9 161.2 ,i .ji,K '.1; Q76.6 j __. _ 23a i5 5.6 11.9 1Ur7 l .W6.9 Notes: a/ Domestic sales are derived from t'able 7 ,/ Producit exports and imports are assumed 1c0 be the difference between refinery output and domestic -ales. 2/ Inidonesian refitneriez are assuried to 1Jrocess crude enough to meet all domestic sales of kerosine, except in 1977 and 1578 when refinery capacity appears insufficient and som7e kerosine imports seem needed. They are assumed to ran on Indonesian crude, Supplemented through 1974 by Burgan crudLe from Uacsit neutral zone and thereafter by Kuwait crude at the proposed Tjilatjau refinery. High sulphur fuel oil from imported crudes would bs blended with low sulihur fuel oil from domestic crudes for- domsestic sales. 2/ Assumes 330 days on stream per year. 2/ 75,000 B3PS2 cf capacity are to be phased out on account of age; 50,000 SML of this l.a assused out in 1973 and 25.0,0GG BPSS out in 1975. The p.,o-osed T31ilatjaop refinery is planned to cone on strean in 1975,, an J'at fr tni_ 1rojecbion anothe,r a 100,000 13P.2 is as.uae` for 1')7> i. pproC.Uct .i-:;s' are to be ruinimnzed. 2L/ Pro-rata crude deliveries are estiaz:ted in Table 2 S/ Urner contracts of aork Pestasnna can anda does elect to buy up to 2059 of contractors' output at fob export price. iecta:aitu processes part in local refineries to the extent that pro-rr-ta deliveries and imports are insufficient, anl c-xports the balance. Source: ilission estimate (,., c. 1. j ;: ! 1 3 1 ; 1 tc 1 7u1 1 57 1-71 tno-i ro:: 9 1 ;' PC. 1 r'. .9 .'L Do.-L r' Total aYrLICOI:E2 .' O'.Cr} ' :,it L2 '.Ond± fur: :n, o w _ .: . ......... c . n .. 7-.7 .. . . 73 .1 91.0 1l . 42.7 102.? 13 .8 21.2 320 .2 Pipelin s 0.1 0.2 C.2 0.1 lo.,' 1().8 0.2 (.' 18.5 20.3 29.6 32.0 -efininC 0.2 0 / - 0.7 - 8.6 10.5 86.6 99.1 1.o 5 96.8 105.4 _0 5 I. ' 5-5 7 76. 1n1anrl :-r'.etin' .^t~ -y 4L,.L i_.- . ±'2¢ 2. . , r E- 76. - -. ~ ~ ~~~~~~~~1.1 56.7 26. t.hiDP2U, b - b/ 3.7 !;.o / .2 8.6 - - 11.2 2,.1 26.8 nr.it 71.' 1,.2 -!J7 . 7 4 . O 4C. r S - - - - - .-70 .C - 74. 7 17.7 21.0 35.9 42.'i 55.6 72-.9 13.6 163.1 1 7.-8., 37'-.6 486.4 9/ I)ebt iervice 27.5 27., 28.0 28.t: 25.4 254.4 35.9 35.9 43.8 43-5 160.6 160.6 45.2 ' 48.5 63 70.9 81.0 98.3 164.5 199.0 181.6 230.3 536.2 647.0 _UiS lO'OF &IDS)Z 4f/r 94/ 4/ _^ 5iet Profit sft: tax - _ 2.0 A- 2. _ 3.0 - 3.0 - 2.5 - 13.0 I)epreciation - 27.j 58.0 p3.G 29.t! 25 ,7.C 35.9 38.0 53.9 60.0 170.7 182.0 Disbursement of borrowings - - - 19.1 19.1 71.9 71.9 123.2 123.2 214.2 21i;.2 27.5 30.0 28.C 31.5 44. 9 49.1 107.5 1127.? 177.1 17 384.9 406.2 _eficit D_n_X71enditures . 56.7 86.1 4.5 I..6 L51.3 24C.8 ''oles a/ Fini, is believed to include wo:rkin., capit,Ll. . / 7.Aii re-llocation of assets ic under3tood to result from the merger in 1568 of Permina, much of whose assets were in U. Sumatra, now Unit I, and Perts.min into Pertamina. c ' lnclude; both interest p.yyments an' principal repayments ed' :aission estniate e/ ' ,'ission'- estimasi.e is ba-sed or, oertaz,in-ls method of depreciatingr Ii) assets acquired before 1568 at standard rates and (ii) assets, acquired thereafter with foreign fin-rcin--, st ratos equr]L to tiLe debo service on such finaincin.- f' :)eficit is presumably iin-mnced from short--ters commercip! credit. -irce: iinistry of ;'incs "r2'. of In.-onesia Xission estimFte EXPORT TRENDS, 1971-1978 Ta-ble of Contents Page No. I. INTRODuCTION 1 II. TRKADITIONAL AGRKCUULTURAL EXYUORTS 4 III. TIBER 9 IV. MINERALS (non-oil) 10 V. ALL OTHER GOODS 13 ANNEX 6 Page 1 EXPORT TRENDS, 1971 - 1978 A. LLIA L'.IAJU L VA. JL%A 1. This annex is an attempt to project by main commodities Indonesia's non-oil exports through 1978 to the end of the Secona Repelita. A sfumary of these projections is presented in Table 1. 2. It has already been noted that during the sixties a shift in the composition of indonesia-s exports away from traditional agricultural commoa- ities has been taking place. One of the main contributions an exercise such as this can make is to forecast relative magnitudes so that this changing export composition can be clarified and assessed. The implication of the projections presented here is tnat this shift, which has been significant, will continue unabated during the seventies (see Table 2). In 1965 nine traditional agricultural commodities 1/ comprised 83 per cent of total non- oil exports, by 1971 they had decreased to 56 per cent, and by 1978 they are projected to account for only 36 per cent. Moreover, beyond 1978 this trend is expected to continue. If oil is added to the picture this decline is even more severe, the appropriate percentages being about 54 per cent in 1965, 31 per cent in 1971 and 17 per cent in 1978. Table 2: COMPOSITION OF INDONESIA'S NON-OIL EXPORTS z Z % 1965 1971 1978 Nine traditional agri- cultural commodities 83.1 55.5 36.2 Minerals 9.2/ 10.1 13.6 Lumber .5 23.1 36.0 Other 7.2 11.3 14.2 TOTAL 100.0 100.0 100.0 /1 Includes tin exports only. Source: Bank of Indonesia - Financial Bulletin May 1972, Table 7B Mission estimates (see Table 1). 1/ Rubber, palm oil, palm kernel, tobacco, coffee, tea, copra, copra cake and pepper. T%bl. I AUINEX 6 INWINESEIA - P-Iilel-arp E.port fr-oi-i... 1970- 1978 PaLge 2 1570 197F1 1972 1931914 1975 1976 191 7 197 8 1971-7 r r.oditlo..l Agrli-Itur,1 Prod.uctS Robber ~~~~~~ ~~~~~~ ~~~~~~ ~~259.2 223.0 222.1 223.1 ,220.6 234.8 247,2 261.,3 274.1 3,,1 Toaooco 11.5 ~~~~ ~~~~ ~ ~~~~ ~ ~~~~ ~ ~~~~ ~ ~~9.6 20.5 27.2 75.8 25.3 25.9 2 6. 27.0 4,7 Coffee 65.5 54.~ ~ ~~~~ ~ ~~~~ ~ ~~~~ ~ ~~~~ ~ ~~~~9 64.4 70. 71. 72.5 75.2 7,1.9 01.55 1.,l ol. 36.5 46. 7.4.2 ,:.1 6444 47.2 41.6 48.406 pol enl. 5.5 5.6 5.1 5.8 6.4 6.9 7.4 7.979 21I Copro 29,1 14.3 9.5 4.1 1.4 - - - Popper 3.1 24. 0 24.5 25.0 25.5 26.0 26.5 271 0 27,6 2.0 Capra _Lok 5.0 11.7 11.0 12.5 13.1 13. 8 14.5 15. 2 15.9 4,5 Tea -17.1 70. 29.3 29.3 29.2M 30.r, 21. -34.9 3,12 Total Tradicioonl ~~~~~~ ~~~~~ ~~~433.7 427.4 433.7 446.3 446.8 453.9 475.6 497.6 518.9 2,8% T LA 62.1 60.0 62.7 65.6 68.3 "1.2 74.1 74. 3 70.6 4,0 0.soolO 39 3.8 3.8 3.8 5.8 5.8 3.6 5.6b 3.0 0,0 Ito,, .uod - 1.1 1.7 1.7 1.7 1.7 1.7 1,2 1.7 6.4 Copp-r - - - 50.0 15.0 60.0 60.0 611.0 60.0 ::lmhob 8.~~~~~~~~~~~~~~~~~~~~13 9.7 12.7 15.9 18.5 9.9 26.0 41.0 47.0 25.2 Other rio/role 1.~~ ~ ~~~~~ ~ ~~~~~~~~4V2 I 1 2/~ 1.5 1.616 1.6 11.7 .7 1.7 1,8 T.too1 Mi-.ncl. 77.7 78.1 84.4 140.6 1150. 9 150 .2 169.3 18645 195.0 14 ,0M LaOs (cob teak) ~~~~ ~ ~~~~~~ ~~~~~99.4 160.0 222.0 308.0 360. 0 314.0 4C0.0 39..2 382.6 12.5 S-.oaod(0 ek) 2.7 3.0 3.0 4.0 14.7 24 .0 27.0 37.7 528a 50,5 To-l I11&. 2.9 3.9 3.0 4.0 6.0 8,0 10.0 11.3 11.8 21.8 Plywoo d .od .....er. ----12.0 25.0 37.5 49. 1 64.3 ?alp, --I 0.1 0.2 0.5 0.4 0.8 1.0 1,0 1.0 1.0 26.0 1locelloneo,o eon nood for*sc pr.d..t. 3.0 4,1 4.0 4.0 4.0 4.0 - 4.0 ".,0 4.0 .0 4 T0401. lonohon 509.9 179.3 232.3 320.4 1,05. 5 444.,0 482.2 494..3 516.5 16.47. IV, Other FIsh 5.3 17.2 20.0 23.3 27.2 :11.6 36.6 42.9 55.0 16.5 VIatL. 2,8 11.2 14.0 17.3 21.5 24 . 6 33.0 401.9 50.0 25.8 Ca--Av 7.6 13.0 14.6 16.3 99,1 20 .0 21.2 22. 0 25.3 8.6 P.>ooutg- 2.4 4. 5.0 6. 7.4 9.1 10.4 11.9 13.6 18.7 loy.shoo.so ~~~~~~~~~~~~~~~~ ~~~0.1 0.1L 0.3 0.1' 0.1 1.3 1.9 :1. 7 2.9 Och.r -35.6 41.1 42.2 43.7 45.7 48. 15 56. 0 62.3 6.1 Tota1 othsr 59.0 86.7 96.1 107.4 1120.0 1:17.1 154.6 176.4 203.0 12.9T Cru~~~~~4 tutol. ~~~~~~~~~.I ~~739.0 292.0 846.5 1014.7 11.23.2 111(7.2 1279.8 1354.8 1/.33,4 8.7. (679.3) (710.3) T7~ 1970 woo 1921 fog... oetko c, o~Ooa .. ria S.Tio 10.20 hyOllte.M 19-72 Table 711 - Bank of L.doneajia .-pt for o. foxito. IrsnSond, ~~~ coper, nokol lj,I o rtr.o,o Soport-emO 01 lIninAg. c. MotoC, Oatsaca, Utah buoc.d oa Book of Sedwoslo fobalot~ao aS ES bro s~ o,,,April 2 9, 1977 2/ 'Other conceals Is e-t--to:. ty -to-trst -Og tI, - cp-t, tO0 LIOO -.50 --ntlIa n rep-rted by rho flep.orc-.t of 010104j fro. the total --oo eoted In too 12 fore,. of Ai/ri 29, 1972. This pr,,cd-or 'ao -d fooooip--o Ln Table 7C --or to -crslsotp.rtS LA toe --cod h.ll cIf 1971. Theref-r, 1971 noraoecllrgtin,) arc -ntImaLd at091 mIll-o. A neil, ptood-r Wba ho-d -c etif,,.. z1970 'otho1riaello.ola alth-oo,ll tho r-ported Anocseoesoestl...ppropri,to odju.lt..Lo -et -ode to total -ports for LIo. 2 poor.. 3/ S 1970 -1o 1971 tot.Is ar o- oa P.- s ro-ipto which wo-r 6044cr b~, 559.7 -od 121.5 elILO.n reopeCEtoely th.u -o b. *Oco--tod for by -occodlt, ettS(br-ckeind lgoO) h hcoohc~td tI-ate -lectdo the olso; dwoot to l . . 101 wI ts.po,-td In 3A.k Ind.oela- mo-tloly &tollctl rabl. 78: a. lb4., -lliun L. .0dod to9(70 -od .205.8 Lc added -o 11,1 for highc9r loonh- entieat.. b6., 51L.7 illios Ic addad to 1970 -nd 044,6 Lo .obt-ut~d li'rot 1971 - nt footosot. 2. ANNEX 6 Page 3 3. The continuing decline in the traditional agricultural commodities' share in exports is caused both by their slow growth and by the very rapid growth of lumber, minerals and a few agricultural commodities such as fish and maize. Lumber is projected to grow at an average annual rate of over 16 per cent, reaching $516 million by 1978 and accounting for 36 per cent of non-oil exports. Large exports are forecast for both copper and nickel; together they should exceed $100 million by 1978 making mining a dynamic export sector that will grow at an average annual rate of about 14 per cent and will represent 14 per cent of exports by 1978. Of the other commodities two in particular should register substantial growth over the period - fish and maize. Their combined export value by 1978 is set at about $100 million, and together with a few other smaller but rapid growth commodities such as cassava, peanuts, and soyabeans, will result in a 12.9 per cent p.a. growth for the "Other" commodity group. 4. One effect of these various trends is that Indonesia should experience a respectable growth of its non-oil exports. Total non-oil exports are projected to increase from $792.0 million in 1971 to $1433 million by 1978 - resulting in an average annuel growth rate slightly under 9 per cent. 5. A second and important implication of these forecasts, and one that is gaininR considerable attention by government officials, is the employment and income distribution effect. The traditional agricultural commodities particularly rubber and copra are an important source of income and employment to a large number of rural families. Yet it is these commodi- ties that have the bleakest prospects and as a groun are forecast to grow at only 2.8 per cent p.a. - well below the average export and g.d.p. per- formance exnei-ted. On the other hand; lumber, minerals and fisheries;. where significant growth is expected to occur, and which combined will account for almonst threa n,,Artprs of the total growth of non-nil pvnnrtq to 1978, perform poorly in the employment and income distribution areas. To some exten.t, agricultural commodities such asa maize, cas-sava, pear.uts and soyabeans, from which fairly rapid export growth is expected, will compensate rural inrnme8 fOr the pOOr norfnrmAne-e expeted of thp trnditionnl apnorts. The commodity exports that had a significant smallholder contribution 1/ in 1971 amniinted to about $362 m4llion, 47 per r.t of aenxrto; and byi 1978 these will amount to about $500 million, 35 percent of exports. They will have an average annrual growth 4.7 per ce.t - asubstartiall lemam tha for total exports. 6. Another important implication of this shift in export composition fthnr th a vAllwv A namnr cQotnfva Invrnloi fn4lv llv:ar Anmiint*a nf fnov4&n h _ dyai _Z**_ _0_____ -_-- investment and, like oil exports, will result in a substantially lower net export .value. This is particularly true for exports of merie.nl a 1-le, and fish. 1/ These include rubber, copra, copra cake, tobacco, pepper, maize, cassava, pean-uts, soyULea-us an,d other. ANNEX 6 rage 4 7. Also noteworthy is the continuing reorientation of Indonesia's exports to a major buyer: Japan. In 1960 exports to Japan accounted for only 4 per cent of total exports (including oil); by 1970 this had increased to 29 per cent. wnen one examines the specific commodities Japan is buying and will buy from Indonesia, it is evident that this trend will be more pro- nounced in 1970's. japan is the major buyer of oil, eimber and some minerais as well as fish and maize - the very commodities where substantial growth is expected to occur. If one includes only these commodities, non-oil exports to Japan should exceed $600 million 1/ by 1978, over 40 per cent of non-oil exports. Tnis proportion increases to almost 60 per cent 2/, if gross oii exports are included. L. TKADILTLONAL AGRLCULrTURAL EXE'ORTS Rubber 8. Indonesia's largest non-oil export in 1971 continued to be rubber. About 800 thousand tons were exported; smallholders accounted for about two- thirds of total exports, the rest being produced on large estates; earnings amounted to $223 million. 9. During the 1970's Indonesia&s rubber production is estimated to expand at only about half the rate of world supply. Although most of Indonesia's recent growth in production has come from the smallholder sector, future growth will be derived mainly from the estates. The smallholder sector is in a state of general neglect; little or no replanting has taken place; use of improved clones is nonexistent, and low prices received by the farmer have encouraged him to switch to other activities. The effects of the proposed IDA credit to smallholders will only begin to have an effect on pro- duction by the late 1970's. In these circumstances only marginal increases in output for the smallholder sector can be forecast. The situation of the government estates, due to rehabilitation efforts made in the last few years is more favorable, and including the additional output resulting from three IDA credits made to rubber estates, government-estate production is expected to double by 1978. With small increases in the output of private estates and assuming a 10 per cent increase in the domestic consumption of rubber, total exports of rubber are projected to increase at an average annual rate of 2.75 per cent. 10. As a result of extensive replanting and new planting of rubber areas with the new high yielding clonal material, the world rubber output has expanded rapidly in the last few years. This rate of expansion is ex- pected to be further stepped up in the coming years, when, according to the 1/ Assumes that 82% of lumber exports, 50% of copper exports, and 100% of fish, maize, bauxite, nickel and iron sands go to Japan in 1978. 2/ Assumes that 73.5 per cent of oil export go to Japan in 1978. ANNEX 6 Page 5 estimates prepared by the International Rubber Study Group (IRSG), world output. woulAd reach 3.9 0411ion tCon 4r 1075 andA A.Q millior. tonsu y 1!or an average annual growth of over 5 per cent. Based on expected technical Changes 'Lri LAIC pLroUUc;'o LLOf VA&y 16L LUbLbrs andU a v±Ltually unCuILCLgu rate of elastomer demand, the IBRD Trade Policies and Export Projections Division projects hne price of RSSI (c.i.f. N.Y.) to be 17 I/lb in mid-seventies, about a cent lower than the 1971 price, and that for the period 1975-80 a price of abDout 19 j/lb. The rate of price change implicit in these pro- jections has been applied to the unit of value of Indonesia's projected exports. 11. Tne Indonesian Government has embarked on a program to increase exports of technically specified rubber (SIR) in conformity with international market trends. At present technically specified rubber accounts for 15-20 per cent of exports and no premium is being paid for Indonesian SIR. However, as its quality becomes established in world markets it may command a modest premium. To allow for this, from 1975 an additional half of 1 per cent p.a. was added to the unit value of Indonesia's rubber exports. The net effect of these considerations is that rubber exports by 1978 are projected to increase by 24 per cent to $276 million. Tobacco 12. Indonesia exported about 19,600 tons of tobacco in 1971 valued at almost $20 million. Estimates of both production and export volumes vary widely. The estimated export of tobacco in 1978 is 27.1 thousand tons. This assumes that: - planted area will increase to 182 thousand hectares by 1978 as estimated in the National Fertilizer Study; - the yield rises from 4.1 quintals per hectare to 5.8 by 1978 - the low yield assumptions of the IBRD Agri- cultural Sector survey; - the domestic demand increases to about 79,000 tons by 1978 (assumes an income elasticity of demand of 1). Independent projections by FAO of world production and demand for 1980 show a close balance. Assuming constant prices and policies they project both demand and production to be 6.4 million tons indicating a con- tinuation of the present overall price level. Although the market for tobacco is quite heterogenous and prices of individual tobaccos vary widely, in the absence of more information, the price of Indonesian tobacco is also assumed to be constant over the period. The value of Indonesian tobacco exports therefore will follow the same trend as production, and is projected to reach $27 million by 1978 representing an average annual growth of about 4.7 per cent. ANNEX 6 Page 6 Coffee 13. Exports of coffee in 1971 were about 73 thousand metric tons; earnings were $54.9 million. Of this almost 90 per cent was Robusta coffee and the rest mainly Arabica. As with most coffee-producing countries, Indonesia's future supply capacity is suDstantially ilarger tnan expected demand. The IBRD Agriculture Sector Survey reports that Indonesia has the capacity to more than double present exports ot coftee by i9&0. However, world exports are growing at barely 2 per cent per annum with the demand for Robusta rising at a sharper rate for Arabica. The IBRD is currently assum- ing that the demand for Robusta will grow at 2.5 per cent p.a. Therefore, Indonesia's coffee quota (Robusta) which is set at 73,860 mt for 1971/72 is likely to increase only to about 87,500 MT by 1978. The two major non- quota coffee markets are Japan and the USSR: Japanese demand has been grow- ing at nearly 10 per cent per annum although a slowdown is forecast for the 1970's. With a concerted effort to raise sales in these markets, Indonesia might increase its exports of Arabica by 5 per cent per annum. 14. Coffee prices are projected on the assumption that the International Coffee Agreement due to expire in 1973 will be renewed. 1/ A recent crop failure (July 72) in Brazil has improved price expectations considerably. The initial expectations are that the prices would increase by about 15 per cent over previous forecasts. As a result, coffee earnings should increase considerably in 1972 and 1973 and thereafter increase gradually, reaching $81 million by 1978. Tea 15. There are numerous estimates of production and export volume; ah estimate of 1971 export volume of 37,500 MT is selected as the most consistent with reported price relationships and past production estimates. Export earnings in 1971 were $27.4 million. 16. An IDA credit to rehabilitate two tea estates and Dutch aid to antother are expected to increase their combined annual production by 9,000 tons by 1980. However, because all other production is expected to continue its decline, by 1980 there would be a net increase of only about 4.000 tons and that would probably go to domestic consumption, so that exports are not likely to change much from the current level. 17. The main effect on export earnings will caom from the c-hanoe in the general level of world prices, as well as from changes in Indonesian tea quality. Based on the first four months of 1972. world tea nriresn could increase by about 3.5 per cent in 1972. The IBRD Trade Policies and Export Proiections Divlsions nries nrn1ertiAnn indicaI't- thnt un to 1975 prices w4ll 1/ Recent action by some coffee-producing nations has seriously jeopardized renewal of the Agreement. Coffee price projections should therefore be accepted only with caution. ANNEX 6 Page 7 fall slightly from the 1972 estimated level, and that from 1975 to 1980 they will rise at about 2.3 per cent p.a. Tnis, together with the assumed quality improvement in the three estates under rehabilitation plus assumed quality deterioration of non-rehabilitation tea, result in negligible in- creases in the value of tea exports to 1975 but thereafter growth at about 5 per cent p.a. Estimated toreign exchange earnings of tea in 1978 would be about $35 million. Coconut Products 18. Production of copra equivalent in 1971 is generally agreed to be about 1.3 million tons. Most reports are quite pessimistic about future production possibilities. The crop is dominated by smallholders and characterized by neglect. What little replanting that has taken place has been with unselected seed. More than a third of the trees are over 50 years old. A growth rate of total output in excess of 3 per cent p.a. is generally considered to be optimistic. The National Fertilizer Study projects no increase in acreage and an expansion of fertilizer area from 1 per cent to 5 per cent for the period 1974-1980. 19. Of all Indonesian exports, coconut products have the largest relative domestic consumption, and future exports of copra will have to compete with a large and growing domestic demand. At present almost 90 per cent of the domestic consumption of vegetable oil consists of coconut oil; the rest is palm oil. The income elasticity of demand for vegetable oil in Indonesia is estimated to be 1.25, and there is a preference for coconut oil over palm oil. The elasticity of demand for fresh coconuts is estimated to be .56. These elasticities together with an income growth of say 6.5 per cent imply a growth in domestic demand of 7.5 per cent for coconut oil and 4.5 per cent for fresh coconuts. These high growth rates together with the high proportion of domestic consumption of coconut products result in a rapid decline of copra exports. However, this decline should be forestalled some- what because as the demand for coconut oil outpaces supply appropriate price signals should shift some of the domestically consumed fresh coconut supply into coconut oil. In addition, a tight market for coconut oil should result in an increasing domestic consumption of palm oil. Since domestic consumption of copra cake and other coconut residuals is proiected at only 3 per cent. export availabilities of copra cake should grow substantially (over 51 per cent) to 1978. 20. These assumptions imply the followin2 about coconut product exports. First, by 1975 copra should no longer be an export of any significant magni- tude. In addition, copra prices are nroiected to decline by an average 2.25 per cent p.a. Second, due to the large domestic demand of coconut oil and the relatively small domestic demand for conra cake and other residuals, the export availabilities of copra cake should increase substantially over the period. However. it ia questionable whether these increanes can be successfully marketed since copra cake is a rather low protein, inferior oil rake. Given a rather poor market it might be diffilrslt tn inrpreae copra cake exports by more than 5 per cent p.a. The copra cake price which since Mny 1972 has been abnormally lo, ahnoilA quickly regain its 1971 le.vel ho"n.dA which no further increase is forecast. Foreign exchange earnings of copra cake could rea- e1lost $q16 mAiA lior bv 1978. ANNEX 6 Page 8 Palm Products 21. Palm oil and palm kernels are produced almost wholly on estates. Four PNP's are being rehabilitated through IDA projects. Tneir combined out- put is forecast to more than double by 1978. Output of the other estates, together with smaimholder production, including the small addition that the recently signed IDA smallholder project will make to output beginning in 1971, is estimated to increase by only 2 per cent p.a. 22. As noted in para. 19 above, the domestic consumption of vegetable oil is expected to increase by 7.5 per cent p.a. At present palm oil ac- counts for only about 10% of vegetable oil consumption, however as the demand for coconut oil outstrips production, growing amounts of palm oil will be con- sumed domestically. The effect of these production and consumption forecasts would result in exports of about 367 thousand tons of palm oil and 87 thousand tons of palm kernels by 1978. 23. World production of palm oil during the decade is expected to in- crease by 9.3 per cent per annum. For the market to absorb this increased level of world palm oil exports, it is essential that palm oil's share in total usage of oils and fats increases substantially. This can only be achieved by palm oil being relatively cheaper than other oils and fats and by exporting countries providing a steady supply of quality oil. It has been estimated by the IBRD Trade Policies and Export Projections Division that the palm oil price will experience a much greater than average decline when compared with most other vegetable oils, and settle around L68 per long ton (c.i.f. Europe) in 1975 through 1980 compared with E110 in 1970. Palm kernel prices are assumed to be in line with other fats and oils over the long term. A price of E50-55 per long ton (c.i.f. Europe) by 1980 seems likely for palm kernels. The 1972 January average price was E50 because it has dropped sharply from the unprecedented high 1970 average level of E71 under the pressure of the steep decline in the copra price. Although Indonesia production will grow substantially over the period, as a result of falling palm oil prices, export earnings from palm products are projected to increase by less than 1 per cent p.a. to 1978. Pepper 24. Pepper exports increased substantially in 1971 as production re- covrered frnm the disease which virtually destroyed the 1970 pepper crop. Besides disease, which periodically hits the pepper crop, overall produc- tivity is low because of a general lack of maintenance, fertilizer, and credit. Demand is income inelastic and therefore is expected to grow only at about the rate of population growth. Improvements in fertilizer use, as proiected by the National Fertilizer Study, as well as efforts to improve marketing via the Indonesian Pepper Marketing Board, should result in pro- duction beina able to match this nroiectsd demand. Assuming a eonntinuation of the 1971 price, production and foreign exchange earnings are projected to grnw at 2 npr r.ent p.a. A 1,TkTD'V C ^LqvqrE^ 6 Page 9 III. TIMBER 25. In recent years, forest products have emerged as one of Indonesia's most important commodity groups. According to Government sources timber ex- ports amounted to US$6.2 million in 1967 (less than 1 per cent of total exports) annd subsequently in-creased very rapidly to some USS168 million in 1971. They accounted for 30 per cent of the growth of total exports over the period rep- resenting 13 per cent of exports in 1971 (excluding oil they accounted for 65% of growth over period). 26. Recorded exports from Indonesia are normally valued at "check prices" which are floor -rices determined b' the Department of Trade for the nurpose of assessing the export prices. In the past, check prices were determined at levels far below estimated act--l fob prices. Since 1969 Indonesia has been raising check prices very substantially every year and this combined with a sharp vol me increse ham cont4buted to the dramatic growth in the earni.gs of exports from timber. 27. The world demand for tropical hardwood is projected to grow at 5.1 per cen… p.a. f 4or 0e perioA 196275 andA .6 per cen.t 'fo the period 1975-80. jJL LUL jJ*8* LJL LflC j CU.t * J - fl J. t.c ...&-. I -I - _ The US and Japan, however, as a result of higher than average growth rates in Uemanu. bly 1980", are expected .-o account- fLor zabout three=quarters of all con= sumption outside the tropical region. This implies that demand prospects for tropical hardwood produced iln the tropical Asia-Pacific regior are specially favorable because of the latter's proximity to markets in Japan and the US. Tnere also seem to be good prospects for the developed importing countries to acquire an increasing proportion of their tropical hardwood imports in various processed forms. 28. Outlook for Indonesia's export earnings from forecast production is bright. Annual earnings could increase from US$178 million in 1971 to over $500 million by 1978. 29. Logs will continue to dominate the export value of forecast prod- ucts during the coming few years. This is not only because the volume of log exports is expected to rise at hign rates, but also because it is assumed check prices will be raised; 1971 timber check prices are estimated to aver- age about 72 per cent of actual fob price. Trne projections assume that by 1973 check prices will be only slightly below probable fob market prices. Earnings from sawn wood (other than teak) are projected to increase from the current level of US$3 million to US$24 million in 1975 and to US$100 million in 1980. Earnings from veneer exports are assumed to become sig- nificant in 1974 and earnings from plywood exports from 1975. The veneer and plywood exports are projected to earn some US$100 million a year by 1980. 30. The projected rapid progress in the earnings from exports of proc- essed wood assumes that the Government takes the necessary steps immediately to encourage timber companies operating large logging concessions to establish export-oriented processing facilities. Steps to be taken should include not only measures to slow down the expansion of log exports but also positive measures to encourage the establishment of processing facilities. ANNEX 6 Page 10 31. Export earnings by the teak sector are expected to increase from the current level of US$3 million to over $10 million by 1975, assuming the development program in Central and East Java will be implemented. 32. Earnings from pulpwood are minor and are not expected to build up to a scale greater than US$1 million a year. Besides wood and wood products, Indonesia has been exporting miscellaneous non-wood forestry products. These include rattan, "tenghawong" (an oil used in lipstick production), resin, gum and a few other minor items. The first two are more important and have generally good prospects. Earnings from the other items have tended to decline and are expected to do so in the future. IV. MINERALS (non-oil) 33. Non-oil mineral exports continue to be dominated by tin, which in 1971 accounted for over 75 per cent of the $78 million of exports. By 1978 tin's share is proiected to fall to about 40 per cent as a result of large increases in the exports of nickel and copper. These latter two commodities will account for over $100 million of foreign exchange earnings by 1978 and will make mining one of Indonesia's more dynamic export sectors during the decade. Tin 34. Exnort earnines from tin were $60.0 in 1971 about double those of 1967. At present all tin mining is done by the state enterprise, P.N. Timah, and in 1971 it nroduced 19.765 metric tons. This year's output will easily exceed the First Repelita target of 20,000 MT set for 1974. Three foreign firms, P.T. Knba Tin, N.V. Billiton and P.T. Broken Hill. have signed Contracts of Work over the past few years, and are still at the ex- ploratory stages. There are no indications to date as to their possible sizes or dates of operations. P.N. Timah is conducting substantial off- shore explorations as well as continuing its program to rehabilitate its dredgers. There are plans, if financing can be found, to buy additional dredgers as well as to build a new smelting nl ant. Present smelting capac- ity is about 13,000 MT. The proposed new one is designed to bring total c- -ci- t- aOut 25,000 MT. 35.* P .N. Tim&h has a longer term ol of 4ni.nrang produotion by 10 per cent p.a. While this is in the realm of possibility on the supply side, ac.,ievir.g such an output would be com-picated- by t-he 1l froath forecast for world tin demand. Indonesia as a member of the International Tin Council is subiect to export quotas, and given the demand forecasts, ilt seems likely that quotas would grow at 10 per cent. A target more in line with antic- ipated restrictions on the demand side ,s one mentioned by Bappenas of 25= 30,000 MT mined and smelted in Indonesia by 1980. An estimated output of 25,000 tons together with the rather low increase 'orecast for the price of tin, result in projected export earnings from tin reaching $79 million by 1978; an average growth of about 4 per cent p.a. ANNEX 6 Page 1 1 Bauxite 36. As a result of recently improved harbor facilities and better ef- ficiency in ore handling ! annual exports of bauxite rose from about 80Q thousand tons in 1969 to 1.2 million in 1970 and 1971. The bulk of the exports go to Japan under a 10 year (1968-78) sales contract averaging ahnut 1 million tons per year. While high grade ore reserves have been decreasing rapidly, a recent survey indicated the existence of abundant (78.5 million tons) low grade deposits. 37. The future of bauxite exports depends on how much Japanese smelters can continue to absorb in light of the comnptition they enrounter with other aluminum suppliers. The Indonesians are seriously considering the construc- tion of an alumina plant. No plans have been finalized yet but the Japanese are interested in participation since it would reduce their transport and aluminum smelting costs cons4iderably, and thereby 4-prove their cmpetitive position. There are also plans for a large joint power/aluminum-smelting pro4ect. It is now at the bidding stage and evern if finalized quickly.. -i unlikely to be operative by 1978. The only other company active in aluminum min.ing is Alcoa, e +.ich hac .d, discoveries i.. West K^aliman.tan, and is con- tinuing work to assess their extent and the most economical way to mine them. To date r.o productior. p1anS bawve bween anr.ounced nor mar'LDe-Ls secured 'Lor a'd- ditional production of bauxite. Exports are projected at the current level 0of 1.2 -413ion pour.ds per year. &J a *A MLLL.L.JL J1A I jF ) L Co2per 38. Freeport Inudonesia has estimated the "Ertsberg" copper reserve in West Irian to be about 32.6 million tons averaging 2.5 per cent copper. PrrodUction is scheduleU to begin in early 1913 at a rate of 225,000 tons annually destined for Japan and Germany. The value of copper concentrate exports could reach uS$60 million annually. TI.or. 'ads 39. Production of iLror ore containing 55-58 per cent iron and about 7-8 per cent titonium started in May 1971. P.N. Aneka Tambang has a con- tract with Japan for 300,000 tOns of1 iron ore a year for a next ten years at a price of $5.50 f.o.b. There is an estimated three million tons of ore. A larger deposilt near Jogjakarta is under consideration for development. Preliminary exploration shows a deposit possibly containing more than 140 miilion tons of exportable iron sands. Harbor conditions are, however, very poor. Nickel 40. Indonesia is the main producer of nickel ore in South-east Asia and sells all of its output to Japan. At present only the state enterprise, P.N. Aneka Tambang, is mining nickel and in 1970 exported 538 thousand tons of ore worth $8.3 million. The reported earnings for 1971 are $9.7 million and based on an estimated price of about 304/lb. and a nickel content of ANNEX 6 Page 12 2.4 per cent, export volume would have been about 600 thousand tons. Faced with the prospects of depleted reserves of exportalie grade nickei ore at the end of the contract, 'a low-grade-nickel processing plant is scheduled to begin production in 1974. Initial production is set at about 4,000 tons per annum of nickel in ferronickel for eqxport to Japan as part of a long- term sales contract. Low-grade ore reserves for this plant are estimated to be capable of supplying the plant for at least thirty years. 41. In addition to P.T. Aneka Tambang's operations, contracts of work have been signed with three foreign firms, two of which should start substan- tial production by the mid-seventies. P.T. International Nickel Indonesia (I-NCO) announced in June of 1971 that it had located significant lateritic nickel deposits and was making plans to develop them. The first stage of the project would involve the construction of facilities to produce about 50 million pounds ,of nickel per year in the form of matte with initial pro- duction plans for the mid-seventies. P.T. Pacific Nickel announced in Octo- ber 1971 that it had also located significant lateritic nickel deposits and that it would proceed to the next stage of development. Provided the feasi- bility study of plant design now underway indicates the deposits are eco- nomically exploitable and marketing and financing can be arranged, initial production could begin as early as the mid-seventies. The project would involve the production of 60-100 million pounds of nickel annually, prim- arily in metallic form. A third firm, Indonesian Nickel Development, is still at the exploratory stage. 42. The world nickel market went through a severe slump in 1971. How- ever, demand has already picked up, particularly in the US and is likely to improve further with economic recovery in the industrial countries. There are, nevertheless, a number of imponderables in the market situation which invite caution in viewing nickel's long term prospects. But even under pessimistic assumptions, world nickel consumption is forecast by the IBRD, to grow at a respectable rate: 4.0 per cent per annum between 1970 and 1975 (5.5. per cent annually by 1972-75) and 4.8 per cent between 1975-1980. On the other hand, producers' stocks are large as a result of the 1971 slump and might not be liquidated rapidly. Even conservative estimates of prob- able capacity indicate that nickel production potential may exceed require- ments for another two years, and possibly three or four. This short-run oversupply should not cause problems for Indonesia's nickel exports since the large production increases forecast for INCO and Pacific nickel will only begin in the mid-seventies. 43. In the absence of price and ore content information future exports of nickel ore are proiected at the current Indonesian f.o.b. nickel Drice of about 30 J a pound. Exports of nickel contained in ferronickel are tentativalv Ret at Si a nound. At these prices exnorts of nickel would reach $47 million by 1978, almost 500 per cent higher than the 1971 level. Hrw.upr- if trh nro cnntent of TNCO'a and ParifiS's rpesrvpe differs from the present ore or some partial smelting is undertaken in Indonesia, the valuei of t-hease pronections would hbe nwihafAntiall rchanged. ANNEX 6 Page 13 VI. ALL OTHER GOODS 44, All other goods (excluding tradit'onal agricultural exports des- cribed above, and timber and minerals) taken together have made significant gains over tne last few years. Iu 1970 exports of these goods were equal to $59.9 million, in 1971 they had increased by 47 per cent to $87.1 million. Over 90 per cent of this increase was due to 'ncreases inL exports of fish, maize and cassava. Exports of these three products were $16 million in 1970 and $41 million by 1971; they should contirnue to be substantial growth exports. Fish and Fish Products 45. The spectacular increase in fish exports (based on E3 1/ forms, edible fish increased from $5 million in 1970 to $17 million in 1971) is almost wholly attributable to increased shrimp exports to Japan. The pros- pects for a continuing strong demand from Japan are excellent. Shrimp re- source surveys conducted by the Directorate of Fisheries indicate that sub- stantial stocks of shrimp and fish exist off the east coast of Sumatra as well as in the areas of known high potential that are presently being ex- ploited. 46. Another fish that is expected to be exported in the near future in substantial quantities is the skipjack tuna. Exports will go to Japan where the market is good and prices have been rising. IDA in 1970 signed a development credit to develop the export of skipjack. Although this proj- ect is behind schedule, skipjack exports should reach about 1,000 tons by 1973 and increase to 9,600 tons by 1978. At full development, based on a Japanese price (c.i.f.) of $500 a ton, this would add about $2.8 million to export earnings. Nine joint ventures in fisheries are underway, mainly with the Japanese. Actual investment is estimated at $9.4 million. Another 5 companies are planning to establish joint ventures based on skipjack pole fishing. The Indonesian Government has recently signed agreements with ADB, UNDP/FAO and Japan for fisheries projects. These investments, both public and private, which for the most part are aimed at increasing fish production for domestic consumption, should result in a significant increase in export earnings as well. Projects suggested by the IBRD Agricultural Sector Survey would add $20 million in shrimp exports and about $15 million in skipjack. Given the large potential for production, the large and growing demand, and the substantial interest and investment in this sector, Indonesia should have no difficulty in exporting about $50 million worth of fish by 1978, three times present earnings. 1/ E3 forms are authorizations given by foreign exchange banks to exporters of co dodities other than oil and tin to receive payment in foreign currencies. ANNEX 6 Dn.>,. 11A Cassava 47. About 400 thousand tons of cassava ($13 million) were exported to Eurone In 1Q71 AA fPPel grAin. The huilk of q-rnntrr tn tiara hnR haon In the form of cassava chips but to meet market demand for a more uniform feed, efforts are being mAde to switch ovner nt4rely ton cncAa,e pellets. Eight pelletizing factories are now in operation, four are under construc- tion and six mnre have been -ranted opernating licensesa. TArn .na arie grar.te only if arrangements are made to guarantee an adequate supply of cassava to keep the factory in operation. Total pelletizing capacity when all these factories are in operation is about 540,000 tons. The growth in demand for feed grains is estimated at 4-6 per cent. Substan.tial am.into nof TAdnon sla's cassava go to the West German pig industry which could grow even faster. In 0addition, the Indones4ian Government is att tin" to r.egotiate a reductior. of the EEC import tariff on cassava. Since production for the pelletizing .a. WSo C hs been a:rnged~Y and zi.nc t factories should be in operat.o by 1975; exports are estimated to reach about 500,000 tons by 1975, increas- 4 1__C -- -- - - A 1,_ 9lets ing uy 5J peL I.;LL p.a. L-Ierea_Lter. *I; current prices of CSSav pellet, this could mean cassava exports of about US$23 million in 1978. Maize 48. Maize exports in 1971 are reported at 225 thousand tons ($11.2 J. 1 1 J.8 on . s ~ ~ ~ ~ - -U.L.L 4L.A C %Lorn .'L -.he secondu 'Largest -user of. 'Landu 'in Lnd'onesia Out its value in total production ranks below rubber and cassava. Corn area and prouuction nave uecinedu in the Lace of intensive programs for rice. Corn is concentrated in East Java and Lampung and experiences in North Sumatra have demonstrated that withn better seeds, fertilizer and improved credit and marketing opportunities farmers can raise production substantially. 49. Japan and smaller markets in Asia have shown an interest in im- porting corn from Indonesia, but internal market costs and port and ocean freight charges make Indonesia's corn more expensive than that of other suppliers. For instance, the cost of shipping a ton of corn from Indonesia to Japan is $10-11 which is almost double the cost from Thailand to Japan. Tne opportunities for corn as an export crop are considered good if yields can be raised and marketing costs reduced. There is some indication that the Government is making a serious effort through its Bimas Pulses program to raise output. The Agriculture Sector Survey estimates that 500,000 tons could be exported by 1975 and 1 to 2 million tons are possible by 1980 with an intensive corn program. This latter figure is rather high if competi- tion with Thailand for the Japanese market is considered. Exports are pro- jected to reach 1.0 million tons by 1978 equivalent to US$50 million. Other Agricultural Products 50. Export prospects for peanuts and soya beans, both of which are included under the Bimas Pulses Program, are good. A sizeable yield in- crease in both crops is possible and Indonesia could expand its exports significantly to take advantage of the large world demand. Exports of peanuts could reach 65 thousand tons by 1978 - a tripling of present exports. ANNEX 6 Page 15 Soya bean exports could increase dramatically to about 150,000 tons by 1978 from their nresent low level of 3-000 tons:. SuhRtantial nlanting nf rsAhws: has taken place recently under new official programs - exports could begin In a few years. MAnn,fAg-t-ireA r-dnAm 51. .Mnii,af*p,rnA exports, e diA4ng processedA raw m-ter--al suc-h as plywood and technically specified rubber, are at present negligible. Based n. E3 Ifnrmi- 1971 ivYn,ts nf mnAuIfActttnrgA a eA Av* at4mfAm,A at aOU" -1 .4 million and consist mainly of textiles, clothing, anJ matting. A reportedly ex-ortable grade of sil has hban Adaev1peA 4l. South Sulesi as a result of a Ministry of Trade project assisted by ILO. Future m^n"lf-ctured exports could be iUtVJCA.B ba = free t-ade port system (see Industry annexE *hat w^ulA provide incentives to mafl1 .nA --A4..- -o 4egir. -x--ng-4.4 4in addition to pu.g . for the local market. To account for this Dossibl- development manufactured eprts _r -uh pro-lec-edI to grow b-y 30 per cent per annum- to 197 andU subsequently by 50 per cent ner an-um; reaching $12 million by 1978. The potent.ial for icreasing manu.factured exports '8 mu^h larger ana would depend on the success of Government efforts to stimulate m-nufact,ving based on Irndonesian raw materials nd to promoute the development or export indus- tries using effectively the low-cost labor available.