L OAN NUMBER ?,,Ii INDDOCUMWTS

Loan Agreement

(Sixteenth Irrigation Project)

between

REPUBLIC OF INDONESIA

and

INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

Dated , 1982

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LOAN AGREEMENT

AGREEMENT, dated Atwl , 1982, betweenREPUBLIC OF INDONESIA (hereinafter called the Borrower) andINTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinaftercalled the Bank).

ARTICLE 1

General Conditions; Definitions

Section 1.01. The parties to this Agreement accept all theprovisions of the General Conditions Applicable to Loan andGuarantee Agreements of the Bank, dated October 27, 1980, withthe same force and effect as if they were fully set forth herein(said General Conditions Applicable to Loan and GuaranteeAgreements of the Bank being hereinafter called the GeneralConditions).

Section 1.02. Wherever used in this Agreement, unless thecontext otherwise requires, the several terms defined in theGeneral Conditions have the respective meanings therein setforth and the following additional terms have the followingmeanings:

(a) "DGWRD" means the Directorate .eneral of Water ResourcesDevelopment in the Borrower's Ministry 6f Public Works;

(b) "PROSIDA" means Proyek Irigasi IDA, an executive bodywithin DGWRD;

(c) "PIBD" means Badan Pelaksana Proyek Induk Irigasi DenganBantuan Bank Dunia, an executive body within DGWRD;

(d) "PROSIJAT" means Proyek Irigasi Jatiluhur;

(e) "DPP" means the Directorate of Planning and Programmingwithin DGWRD;

(f) "DPMA" means the Directorate of Hydraulic Engineeringwithin DGWRD;

(g) "EJIS" means East Java Provincial Irrigation Service, aservice within the East Java Province Public Works Department;

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(h) "P2AT" means Groundwater Development Agency, a projectunit within DGWRD;

(i) "Proyek Cimanuk" means Badan Pelaksana ProyekPengembangam Wilayah Sungai Cimanuk, an executive body withinDGWRD;

(j) "Proyek Hidrologi" means Badan Palaksana ProyekHidrologi Dengan Bantuan Bank Dunia, an executive body withinDGWRD;

(k) "P4S" means Proyek Pembukaan Persawahan Pasang Surut,the project unit for Tidal Swamp Reclamation within DGWRD;

(1) "DGH" means the Directorate General of Highways withinthe Borrower's Ministry of Public Works;

(m) "DGFCA" means Directorate General of Food Crops Agricul-ture within the Borrower's Ministry of Agriculture; and

(n) "fiscal year" means the Borrower's fiscal yearbeginning April 1 and ending March 31.

ARTICLE II

The Loan

Section 2.01. The Bank agrees to lend to the Borrower, onthe terms and conditions in the Loan Agreement set forth orreferred to, an amount in various currencies equivalent tothirty seven million dollars ($37,000,000).

Section 2.02. The amount of the Loan may be withdrawnfrom the Loan Account in accordance with the provisions ofSchedule 1 to this Agreement, as such Schedule may be amended fromtime to time by agreement between the Borrower and the Bank, forexpenditures made (or, if the Bank shall so agree, to be made) inrespect of the reasonable cost of goods and services required forthe Project and to be financed out of the proceeds of the Loan.

Section 2.03. Except as the Bank shall otherwise agree,procurement of the goods and civil works required for the Pro-ject and to be financed out of the proceeds of the Loan shall begoverned by the provisions of Schedule 4 to this Agreement.

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- Section 2.04. The Closing Date shall be December 31, 1987or such later date as the Bank shall establish. The Bank shallpromptly notify the Borrower of such later date.

Section 2.05. The Borrower shall pay to the Bank a commitmentcharge at the rate of three-fourths of one per cent (3/4 of1%) per annum on the principal amount of the Loan not withdrawnfrom time to time.

Section 2.06. The Borrower shall pay interest at the rateof eleven and three-fifths per cent (11-3/5%) per annum on theprincipal amount of the Loan withdrawn and outstanding fromtime to time.

Section 2.07. Interest and other charges shall be payablesemiannually on June 1 and December 1 in each year.

Section 2.08. The Borrower shall repay the principal amountof the Loan in accordance with the amortization schedule set forthin Schedule 3 to this Agreement.

ARTICLE III

Execution of the Project

Section 3.01. (a) The Borrower shall cause the Project to becarried out with due diligence and efficiency and in conformitywith appropriate agricultural, engineering and financial prac-tices, as follows:

(i) PIBD shall carry out Parts A.1, A.2, A.3 and A.4 ofthe Project;

(ii) DGH shall carry out Part A.5 of the Project;

(iii) DGFCA shall carry out Part A.6 of the Project;

(iv) Proyek Cimanuk shall carry out Part B of theProject;

(v) DGWRD shall carry out Parts C.1 and C.4 of theProject;

(vi) Proyek Hidrologi shall carry out Part C.2 of theProject; and

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(vii) PROSIDA shall carry out Part C.3 of the Project.

(b) The Borrower shall provide, promptly as needed, thefunds, facilities, services and other resources required for thepurpose of the Project.

(c) Without any limitation or restriction upon its obliga-tions under paragraph (b) of this Section, the Borrower shallensure that sufficient liquid funds to cover the budgeted expendi-tures to be required by PIBD, DGH, DGFCA, Proyek Cimanuk, DGWRD,Proyek Hidrologi and PROSIDA for each fiscal year of the Project,shall be made available to such agencies not later than May 1 ofeach year.

Section 3.02. In order to assist PIBD, Proyek Cimanuk,DGWRD, Proyek Hidrologi and PROSIDA in carrying out the Project,the Borrower shall cause to be employed consultants whose selec-tion, qualifications, experience and terms and conditions ofemployment shall be satisfactory to the Bank in accordance withthe principles and procedures described in the "Guidelines for theuse of Consultants by World Bank Borrowers and the World Bank asExecuting Agency", published by the Bank in August 1981, asfollows:

(a) by August 1, 1982, or such later date as the Bank shallotherwise agree, for Parts A.1, A.2, A.3 and A.4 (a) of theProject;

(b) by January 1, 1983, or such late date as the Bank shallotherwise agree, for Parts C.1 and C.4 of the Project; and

(c) by April 1, 1983, or such later date as the Bank shallotherwise agree, for Part C.3 of the Project.

Section 3.03. (a) The Borrower undertakes to insure, or makeadequate provision for the insurance of, the imported goods to befinanced out of the proceeds of the Loan against hazards incidentto the acquisition, transportation and delivery thereof to theplace of use or installation, and for such insurance any indemnityshall be payable in a currency freely usable by the Borrower toreplace or repair such goods.

(b) Except as the Bank shall otherwise agree, the Borrowershall cause all goods and services financed out of the proceedsof the Loan to be used exclusively for the Project.

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Section 3.04. (a) The Borrower shall furnish to the Bank,promptly upon their preparation, the plans, specifications,reports, contract documents and construction and procurementschedules for the Project, and any material modifications thereofor additions thereto, in such detail as the Bank shall reasonablyrequest.

(b) The Borrower: (i) shall cause PIBD, Proyek Cimanuk,DGWRD, Proyek Hidrologi and PROSIDA to maintain records andprocedures adequate to record and monitor the progress of theProject (including its cost and the benefits to be derived fromit), to identify the goods and services financed out of theproceeds of the Loan, and to disclose their use in the Project;(ii) shall enable the Bank's representatives to visit the facili-ties and construction sites included in the Project and toexamine the goods financed out of the proceeds of the Loan and anyrelevant records and documents; and (iii) shall furnish to theBank at regular intervals all such information as the Bank shallreasonably request concerning the Project, its cost and, whereappropriate, the benefits to be derived from it, the expenditureof the proceeds of the Loan and the goods and services financedout of such proceeds.

(c) Upon the award by the Borrower of any contract forgoods, works or services to be financed out of the proceeds of theLoan, the Bank may publish a description thereof, the name andnationality of the party to whom the contract was awarded and thecontract price.

(d) Promptly after completion of the Project, but in anyevent not later than six months after the Closing Date or suchlater date as may be agreed for this purpose between the Borrowerand the Bank, the Borrower shall prepare and furnish to the Bank areport, of *such scope and in such detail as the Bank shall reason-ably request, on the execution and initial operation of theProject, its cost and the benefits derived and to be derived fromit, the performance by the Borrower and the Bank of their respec-tive obligations under the Loan Agreement and the accomplishmentof the purposes of the Loan.

Section 3.05. The Borrower shall take or cause to be takenall such action as shall be necessary to acquire, in the yearpreceding the construction of the facilities included in allirrigation projects financed by the Bank, all such land and rightsin respect of land as shall be required for such construction

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and shall furnish to the Bank, promptly after such acquisition,evidence satisfactory to the Bank that such land and rights inrespect of land are available.

ARTICLE IV

Other Covenants

Section 4.01. (a) It is the policy of the Bank, in makingloans to, or with the guarantee of, its members not to seek, innormal circumstances, special security from the member concernedbut to ensure that no other external debt shall have priority overits loans in the allocation, realiztlion or distribution offoreign exchange held under the control ol for the benefit ofsuch member. To that end, if any lien shall be created on anypublic assets (as hereinafter defined), at security for anyexternal debt, which will or might result in a priority for thebenefit of the creditor of such external debt in the allocation,realization or distribution of foreign exchange, such lien shall,unless the Bank shall otherwise agree, ipso facto and at no costto the Bank, equally and ratably secure the principal of, andinterest and other charges on, the Loan, and the Borrower, increating or permitting the creation of such lien, shall makEexpress provision to that effect; provided, however, that, if forany constitutional or other legal reason such provision cannotbe made with respect to any lien created on assets of any ofits administrative subdivisions, the Borrower shall promptly andat no cost to the Bank secure the principal of, and interest andother charges on, the Loan by an equivalent lien on other publicassets satisfactory to the Bank.

(b) The foregoing undertaking shall not apply to: (i) anylien created on property, at the time of purchase thereof, solelyas security for payment of the purchase price of such property;and (ii) any lien arising in the ordinary course of bankingtransactions and securing a debt maturing not more than one yearafter its date.

(c) As used in this Section, the term "public assets"

means assets of the Borrower, of any administrative subdivisionthereof and of any entity owned or controlled by, or operating

for the account or benefit of, the Borrower or any such subdi-vision, including gold and foreign exchange assets held by anyinstitution performing the functions of a central bank or

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exchange stabilization fund, or similar functions, for theBorrower.

Section 4.02. (a) The Borrower shall cause PIBD, ProyekCimanuk, DGWRD, Proyek Hidrologi and PROSIDA to maintain recordsadequate to reflect in accordance with consistently maintainedappropriate accounting practices their operations and financialcondition, including, without limitation to the foregoing, separ-ate accounts reflecting all expenditures on account of whichwithdrawals are requested from the Loan Account on the basis ofstatements of expenditure;

(b) to retain, until one year after the Closing Date, allrecords (contracts, orders, invoices, bills, receipts and otherdocuments) evidencing the expenditures on account of which with-drawals are requested from the Loan Account on the basis ofstatements of expenditure and to enable the Bank's representativesto examine such records;

(c) to have their accounts and financial statements (balancesheets, statements of income and expenses and related statements)for each fiscal year audited, in accordance with appropriateauditing principles consistently applied, by independent auditorsacceptable to the Bank;

(d) to furnish to the Bank, as soon as available, butin any case not later than nine months after the end of eachsuch year, (i) certified copies of its financial statements forsuch year as so audited, and (ii) the report of such audit by saidauditors, of such scope and in such detail as the Bank shall havereasonably requested, including, without limitation to the fore-going, a separate opinion by said auditors: (A) on the separateaccounts referred to in paragraph (a) of this Section; and (B) inrespect of the expenditures and records referred to in paragraph(b) of this Section, as to whether the proceeds of the Loan madeavailable to it and withdrawn from the Loan Account on the basisof statements of expenditure have been used for the purpose forwhich they were provided; and

(e) to furnish to the Bank such other information concerningsaid accounts, financial statements, records and expenditures, aswell as the audit thereof, as the Bank shall from time to timereasonably request.

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Section 4.03. (a) The Borrower shall cause all canals,drains, structures, roads, equipment and other facilitiesrehabilitated or constructed with the financial assistance of theBank to be adequately operated and maintained, in accordance withappropriate agricultural, engineering, financial and publicutility policies and practices, and shall cause such action to betaken, as shall reasonably be required, to ensure the efficientuse of the water made available by such irrigation systems foragricultural development and operations.

(b) Without limitation or restriction upon the provisions ofparagraph (a) of this Section, the Borrower shall, at all times,ensure that adequate staff are employed and funds allocated andmade available, as and when required, for the proper operation andmaintenance of the irrigation, drainage and road systems referredto under said paragraph (a). To this end, the Borrower shall: (i)by August 15 in each fiscal year, or such later date as the Bankshall otherwise agree, make available to the organizations ordepartments charged with maintenance of any such system an amountof liquid funds equal to not less than one half of the amountbudgeted for the operation and maintenance of any such systems insuch fiscal year and shall make the balance available in equalquarterly installments until all budgeted amounts have been madeavailable; and (ii) take appropriate steps to progressively in-crease the number of qualified operation and maintenance staffemployed by the organizations and departments charged withoperation and maintenance of the said systems until adequate stafflevels established by the Borrower in consultation with the Bankhave been attained by such organizations and departments.

(c) Except as the Bank shall otherwise agree, the Borrowershall inform the Bank: (i) by May 1 of each year, of the approvedcost per hectare for operation and maintenance budgets for eachsuch irrigation system; and (ii) by October 1 of each year, of thestaff provisions for each such irrigation system.

Section 4.04. (a) Before the design phase for the construc-tion of any tertiary network, the Borrower shall ensure thatwater-user associations participate in the planning of suchtertiary networks; and (b) during the design phase of any tertiarynetworks, the Borrower shall exchange views with said water-userassociations in order to ensure that the members thereof agree tothe objectives and operational procedures of the tertiary networksand thereafter operate and maintain such works.

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Section 4.05. Without limitation to the provisions of Section4.04 of this Agreement, the Borrower shall: (a) comprehensivelyconsider the duties and responsibilities of the extension servicesof the Ministry of Agriculture, the Ministry of Home Affairs andits local administration, and DGWRD's Provincial IrrigationServices and any other agency or agencies concerned or involved,for establishing, training and assisting water-user associations,in order to improve the operation and maintenance of tertiarysystems for which water-user asociations are responsible; (b) notlater than July 1, 1983 or such other date as the Bank may other-wise agree, furnish to the Bank for comments, the findings andrecommendations thereby obtained; and (c) promptly thereafter,cause the agency or agencies selected on the basis of such reviewto undertake the training and support of the water-user associa-tions taking into account the comments made by the Bank.

Section 4.06. Without limitation to the provisions ofSection 3.01 of this Agreement and except as otherwise agreed bythe Bank, the Borrower shall, not later than April 1, 1983: (a)cause DGH to implement the land clearing for about 1,800 ha ofrice land of the 6,700 ha included in Part A of the Project; and(b) promptly after irrigation water is supplied to each part ofthe Sitiung irrigation scheme cause DGFCA to organize, super-vise and provide credit for rice field formation by levellingand bunding of about 3,600 ha and by clearing, bunding andlevelling of about 2,500 ha in the area included in Part A of theProject.

ARTICLE V

Effective Date; Termination

Section 5.01. The following event is specified as an addi-tional condition to the effectiveness of the Loan Agreementwithin the meaning of Section 12.01 (c) of the General Conditions,namely, that at least one of the contracts for the civil works tobe carried out under Part A.2 of the Project shall have beentendered, evaluated and the notice of award issued by the Projectmanager.

Section 5.02. The date , is herebyspecified for the purposes of Section 12.04 of the GeneralConditions.

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ARTICLE VI

Represe ntative of the Borrower; Addresses

Section 6.01. The Ministry of Finance of the Borroweris designated as representative of the Borrower for the purposesof Section 11.03 of the General Conditions.

Section 6.02. The following addresses are specified for thepurposes of Section 11.01 of the General Conditions:

For the Borrower:

Ministry of Financec/o Director General for International

Monetary AffairsJalan Lapangan Banteng Timur 4JakartaIndonesia

Cable address: Telex:

MINISTRY FINANCE DJMLN JKT 45799Jakarta DITJMON JKT 46415

DEPKEU JKT 44319

For the Bank:

International Bank forReconstruction and Development

1818 H Street, N.W.Washington, D.C. 20433United States of America

Cable address: Telex:

INTBAFRAD 440098 (ITT)Washington, D.C. 248423 (RCA) or

64145 (WUI)

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IN WITNESS WHEREOF, the parties hereto, acting through theirrepresentatives thereunto duly authorized, have caused thisAgreement to be signed in their respective names in the Districtof Columbia, United States of America, as of the day and yearfirst above written.

REPUBLIC OF INDONESIA

By

Authorized Representative

INTERNATIONAL BANK FORRECONSTRUCTION AND DEVELOPMENT

By

Regional Vice PresidentEast Asia and Pacific

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SCHEDULE 1

Withdrawal of the Proceeds of the Loan

1. The table below sets forth the Categories of items to befinanced out of the proceeds of the Loan and the allocationof amounts of the Loan to each Category:

Amount of theLoan Allocated % of(Expressed in Expenditures

Category Dollar Equivalent) to be Financed

(1) Civil works for:

(a) Part A.1, A.2,A.3 and A.4 ofthe Project 13,500,000 30%

(b) Part C.1 of theProject 100,000 50%

(c) Part C.2 of theProject 1,200,000 50%

(d) Part C.3 of theProject 900,000 100%

(2) Equipment for:

(a) Part B.1 of ) 100% of foreignthe Project 350,000 ) expenditures,

(b) Part C.1 of ) 100% of localthe Project 1,600,000 ) expenditures

(c) Part C.2 of ) ex-factory andthe Project 1,300,000 ) 65% of other

(d) Part C.3 of ) local expendi-the Project 750,000 ) tures for

) locally) procured) items (off-) the-shelf)

(3) Training for:

(a) Part C.1 of )the Project 400,000 ) 100%

(b) Part C.2 of )the Project 300,000 )

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Amount of theLoan Allocated % of(Expressed in Expenditures

Category Dollar Equivalent) to be Financed

(c) Part C.3 of ) 100%the Project 3,100,000 )

(4) Consultants' )services (including )not more than )5 start-up vehicles )for:

(a) Parts A.1, A.2, )A.3 and A.4 (a) )of the Project 370,000 )

(b) Parts B.1 and )B.2 of the )Project 6,000,000 )

(c) Part C.1 of )the Project 1,200,000 ) 100%

(d) Part C.2 of )the Project 1,600,000 )

(e) Part C.3 of )the Project 1,800,000 )

(f) Part C.4 of )the Project 130,000 )

(5) Unallocated 2,400,000

TOTAL 37,000,000

2. For the purposes of this Schedule:

(a) the term "foreign expenditures" means expenditures inthe currency of any country other than the Borrower and for goodsor services supplied from the territory of any country other thanthe Borrower; and

(b) the term "local expenditures" means expenditures inthe currency of the Borrower and for goods or services suppliedfrom the territory of the Borrower.

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3. The disbursement percentages have been calculated incompliance with the policy of the Bank that no proceeds of theLoan shall be disbursed on account of payments for taxes leviedby, or in the territory of, the Borrower on goods or services,or on the importation, manufacture, procurement or supplythereof; to that end, if the amount of any such taxes leviedon or in respect of any item to be financed out of the proceedsof the Loan decreases or increases, the Bank may, by notice tothe Borrower, increase or decrease the disbursement percentagethen applicable to such item as required to be consistent withthe aforementioned policy of the Bank

4. Notwithstanding the provisions of paragraph 1 above, nowithdrawals shall be made in respect of payments made for expendi-tures prior to the date of this Agreement.

5. Notwithstanding the allocation of an amount of the Loan orthe disbursement percentages set forth in the table in paragraph1 above, if the Bank has reasonably estimated that the amount ofthe Loan then allocated to any Category will be insufficient tofinance the agreed percentage of all expenditures in thatCategory, the Bank may, by notice to the Borrower: (i) reallocateto such Category, to the extent required to meet the estimatedshortfall, proceeds of the Loan which are then allocated toanother Category and which in the opinion of the Bank are notneeded to meet other expenditures, and (ii) if such reallocationcannot fully meet the estimated shortfall, reduce the disbursementpercentage then applicable to such expenditures in order thatfurther withdrawals under such Category may continue until allexpenditures thereunder shall have been made.

6. If the Bank shall have reasonably determined that theprocurement of any item In any Category is inconsistent with theprocedures set forth or referred to in this Agreement, noexpenditures for such item shall be financed out of the proceedsof the Loan and the Bank may, without in any way restricting orlimiting any other right, power or remedy of the Bank under theLoan Agreement, by notice to the Borrower, cancel such amount ofthe Loan as, in the Bank's reasonable opinion, represents theamount of such expenditures which would otherwise have beeneligible for financing out of the proceeds of the Loan.

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SCHEDULE 2

Description of the Project

The Project consists of the following parts:

Part A: Sitiung II

1. Construction of diversion works on the Batang Siat and theBatang Piruko.

2. Construction of a headrace canal of about 17 km from thediversion works on the Batang Piruko to the Sitiung irrigationscheme.

3. Construction of a headrace canal of about 25 km from thediversion works on the Batang Piruko to the Sitiung irrigationscheme.

4. Construction of: (a) the main system; and (b) the tertiarysystem to serve an area of about 6,700 ha within the Sitiungirrigation scheme.

5. Land clearing of about 420 ha served by the Batang Piruko andabout 1,400 ha served by the Batang Siat within the said scheme.

6. Rice field formation of about 3,600 ha and land clearing andrice field formation of about 2,500 ha within the said scheme.

Part B: Designs and Feasibility Studies

1. River basin study for irrigation, drainage and flood mitiga-tion in the Cisanggarung Basin.

2. Detailed designs of the Jatigede Dam and ancillary works onthe Cimanuk River.

Part C: Institutional Support to DGWRD and DPMA

1. Strengthening of DGWRD's management information systemand introduction of computer based systems.

2. Extension of the hydrologic data network and data processingcapabilities of DPMA.

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3. Expanding and broadening training programs for local govern-ment officials responsible for assisting water-uL;er associationsand for members of such water-user associations.

4. Upgrading financial control and auditing procedures ofPROSIDA, PIBD, PROSIJAT, DPP, P2AT, EJIS, Proyek Cimanuk, ProyekHidrologi and P4S.

The Project is expected to be completed by July 1, 1987.

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SCHEDULE 3

Amortization Schedule

Payment of PrincipalDate Payment Due (expressed in dollars)*

On each June 1 and December 1

beginning December 1, 1987through December 1, 2001 1,235,000

On June 1, 2002 1,185,000

* The figures in this column represent dollar equivalentsdetermined as of the respective dates of withdrawal; seeGeneral Conditions, Section 3.04.

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Premiums on Prepayment

The following percentages are specified as the premiumspayable on repayment in advance of maturity of any portion ofthe principal amount of the Loan pursuant to Section 3.04 (b)of the General Conditions:

Time of Prepayment Premium

Not more than three years 1.75%before maturity

More than three years but not 3.50%more than six yearsbefore maturity

More than six years but not 6.40%more than eleven yearsbefore maturity

More than eleven years but 9.30%not more than sixteenyears before maturity

More than sixteen years but 10.45%not more than eighteenyears before maturity

More than eighteen years 11.60%before maturity

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SCHEDULE 4

Procurement

A. International Competitive Bidding

1. Hydrologic, climatologic, communication equipment and mobiletraining units shall be procured under contracts awarded inaccordance with procedures consistent with those set forth in the"Guidelines for Procurement under World Bank Loans and IDACredits" published by the Bank in March 1977 (hereinafter calledthe Guidelines), on the basis of international competitive biddingas described in Part A of the Guidelines.

2. For goods to be procured on the basis of internationalcompetitive bidding, in addition to the requirements of paragraph1.2 of the Guidelines, the Borrower shall prepare and forward tothe Bank as soon as possible, and in any event not later than 60days prior to the date of availability to the public of the firsttender or prequalification documents relating thereto, as the casemay be, a general procurement notice, in such form and detail andcontaining such information as the Bank shall reasonably request;the Bank will arrange for the publication of such notice in orderto provide timely notification to prospective bidders of theopportunity to bid for the goods in question. The Borrower shallprovide the necessary information to update such notice annuallyso long as any goods remain to be procured on the basis ofinternational competitive bidding.

3. For the purpose of evaluation and comparison of bids forthe supply of goods to be procured on the basis of internationalcompetitive bidding: (i) bidders shall be required to statein their bid the c.i.f. (port of entry) price for the importedgoods, or the ex-factory price or off-the-shelf price of othergoods, offered in such bid; (ii) customs duties and other importtaxes levied in connection with the importation, or the sales andsimilar taxes levied in connection with the sale or delivery,pursuant to the bid, of the goods shall not be taken into accountin the evaluation of the bids; and (iii) the cost of inlandfreight and other expenditures incidental to the delivery of thegoods to the place of their use or installation shall be included.

B. Preference for Domestic Manufacturers

In the procurement of goods in accordance with the proceduresdescribed in Part A of this Schedule, excluding the goods referred

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to under Part C of this Schedule, goods manufactured in Indonesiamay be granted a margin of preference in accordance with, andsubject to, the following provisions:

1. All bidding documents for the procurement of goods shallclearly indicate any preference which will be granted, theinformation required to establish the eligibility of a bid forsuch preference and the following methods and stages that willbe followed in the evaluation and comparison of bids.

2. After evaluation, responsive bids will be classified inone of the following three groups:

(1) Group A: bids offering goods manufactured inIndonesia if the bidder shall have established tothe satisfaction of the Borrower and the Bank thatthe manufacturing cost of such goods includes avalue added in Indonesia equal to at least 20% ofthe ex-factory bid price of such goods.

(2) Group B: all other domestic bids.

(3) Group C: bids offering any other goods.

3. In order to determine the lowest evaluated bid of eachgroup, all evaluated bids in each group shall first be comparedamong themselves, without taking into account customs duties andother import taxes levied in connection with the importation, andsales and similar taxes levied in connection with the sale ordelivery, pursuant to the bids, of the goods. Such lowesc evalu-ated bids shall then be compared with each other, and if, as aresult of this comparison, a bid from group A or group B is thelowest, it shall be selected for the award.

4. If, as a result of the comparison under paragraph 3 above,the lowest bid is a bid from group C, all group C bids shall befurther compared with the lowest evaluated bid from group A afteradding to the evaluated bid price of the imported goods offered ineach group C bid, for the purpose of this further comparison only,an amount equal to: (i) the amount of customs duties and otherimport taxes which a non-exempt importer would have to pay for theimportation of the goods offered in such group C bid; or (ii) 15%of the c.i.f. bid price of such goods if said customs duties andtaxes exceed 15% of such price. If the group A bid in such furthercomparison is the lowest, it shall be selected for the award; if

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not, the bid from group C which as a result of the comparisonunder paragraph 3 is the lowest evaluated bid shall be selected.

C. Other Procurement Procedures

1. Contracts for equipment (other than hydrologic, climatologic,communications equipment and mobile training units) may be awardedin accordance with the Borrower's procurement procedures in effectas of the date of this Agreement.

2. Vehicles required for Project start-up activities may beprocured without resort to international competitive bidding,provided that: (a) such vehicles are procured in accordance withthe Borrower's procurement procedures as of the date of thisAgreement; and (b) the number of vehicles so procured does notexceed 5.

3. Contracts for civil works shall be awarded in accordance withthe Borrower's procurement procedures in effect as of the date ofthis Agreement. All such contracts which extend for a period ofmore than one year shall include appropriate price escalationclauses.

D. Review of Procurement Decisions by the Bank

1. Review of invitations to bid and of proposed awards andfinal contracts:

With respect to all contracts for goods to be procured inaccordance with the provisions of Part A (1) of this Schedule andwith respect to all contracts for civil works each representing$1,500,000 equivalent or more:

(a) Before bids are invited, the Borrower shall furnish tothe Bank, for its comments, the text of the invitations tobid and the specifications and other bidding documents, togetherwith a description of the advertising procedures to be followedfor the bidding, and shall make such modifications in the saiddocuments or procedures as the Bank shall reasonably request. Anyfurther modification to the bidding documents shall require theBank's concurrence before it is issued to the prospective bidders.

(b) After bids have been received and evaluated, the Bor-rower shall, before a final decision on the award is made, informthe Bank of the name of the bidder to which it intends to award

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the contract and shall furnish to the Bank, in sufficient time forits review, a detailed report on the evaluation and comparison ofthe bids received, and such other information as the Bank shallreasonably request. The Bank shall, if it determines that theintended award would be inconsistent with the Guidelines or thisSchedule, promptly inform the Borrower and state the reasonsfor such determination.

(c) The terms and conditions of the contract shall not,without the Bank's concurrence, materially differ from thoseon which bids were asked or prequalification invited.

(d) Two conformed copies of the contract shall be furnishedto the Bank promptly after its execution and prior to the submis-sion to the Bank of the first application for withdrawal of fundsfrom the Loan Account in respect of such contract.

2. With respect to each contract not governed by the precedingparagraph, the Borrower shall furnish to the Bank, promptly afterits execution and prior to the submission to the Bank of thefirst application for withdrawal of funds from the Loan Accountin respect of such contract, two conformed copies of such con-tract, together with the analysis of the respective bids, recom-mendations for award and such other information as the Bank shallreasonably request. The Bank shall, if it determines that theaward of the contract was not consistent with the Guidelinesor this Schedule, promptly inform the Borrower and state thereasons for such determination.

3. Before agreeing to any material modification or waiver ofthe terms and conditions of a contract, or granting an extensionof the stipulated time for performance of such contract, orissuing any change order under such contract (except in cases ofextreme urgency) which would increase the cost of the contract bymore than 15% of the original price, the Borrower shall informthe Bank of the proposed modification, waiver, extension orchange order and the reasons therefor. The Bank, if it determinesthat the proposal would be inconsistent with the provisions ofthis Agreement, shall promptly inform the Borrower and statethe reasons for its determination.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

CERTIFICATE

I hereby certify that the foregoing is a true

copy of the original in the archives of the Interna-

tional Bank for Reconstruction and Develop-

ment.

In witness whereof I have signed this Certifi-

cate and affixed the Seal of the Bank thereunto

this Ai.dLday of4 . , 198 2.

FOR SECRETARY